As filed with the Securities and Exchange Commission on March 15, 2005
Registration No. 333-103799
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 8
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(Exact name of registrant as specified in governing instruments)
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2901 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60523
(630) 218-8000
(Address, including zip code, and telephone number,
including, area code of principal executive offices)
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ROBERT H. BAUM, ESQ.
VICE CHAIRMAN, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
THE INLAND GROUP, INC.
2901 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60523
(630) 218-8000
(Name and address, including zip code, and telephone number,
including area code of agent for service)
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WITH A COPY TO:
DAVID J. KAUFMAN, ESQ.
DUANE MORRIS LLP
227 WEST MONROE STREET
SUITE 3400
CHICAGO, ILLINOIS 60606
(312) 499-6700
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================================================================================
This Post-Effective Amendment No. 8 consists of the following:
1. Supplement No. 57 dated March 15, 2005 to the Registrant's Prospectus dated
September 15, 2003, included herewith, which will be delivered as an unattached
document along with the Prospectus dated September 15, 2003.
2. The Registrant's final form of Prospectus dated September 15, 2003,
previously filed pursuant to Rule 424(b)(1) on September 15, 2003 and refiled
herewith.
3. Part II, included herewith.
4. Signatures, included herewith.
SUPPLEMENT NO. 57
DATED MARCH 15, 2005
TO THE PROSPECTUS DATED SEPTEMBER 15, 2003
OF INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
We are providing this Supplement No. 57 to you in order to supplement our
prospectus. This supplement updates information in the sections of our
prospectus noted in the table of contents below. This Supplement No. 57
supplements, modifies or supersedes certain information contained in our
prospectus, and prior Supplements No. 1 through 56 (dated October 23, 2003
through March 11, 2005) and must be read in conjunction with our prospectus.
TABLE OF CONTENTS
Supplement Prospectus
Page No. Page No.
----------------------------
Prospectus Summary 1 6
Risk Factors 6 12
How We Operate 10 34
Conflicts of Interest 10 36
Compensation Table 14 40
Prior Performance of Our Affiliates 17 47
Management 38 68
Principal Stockholders 46 85
Investment Objectives and Policies 47 88
Real Property Investments 50 98
Management's Discussion and Analysis of Our Financial
Condition and Results of Operations 63 105
Shares Eligible for Future Sale 78 121
Stockholders' Meeting 79 123
Summary of Our Organizational Documents 79 123
Plan of Distribution 79 148
How to Subscribe 81 157
Litigation 81 165
Relationships and Related Transactions 81 166
Experts 84 172
We filed a registration statement on Form S-11 to register an additional
250,000,000 shares of common stock and up to 20,000,000 shares of our common
stock for participants in our distribution reinvestment program. The
registration statement was declared effective by the Securities and Exchange
Commission on December 28, 2004.
PROSPECTUS SUMMARY
THE FOURTH PARAGRAPH UNDER THIS SECTION ON "THE TYPES OF REAL ESTATE THAT WE MAY
ACQUIRE AND MANAGE", WHICH STARTS ON PAGE 1 OF OUR PROSPECTUS IS SUPERCEDED IN
THE ENTIRETY TO READ AS FOLLOWS:
The geographic focus of our portfolio continues to be western U.S. markets; yet,
at the present time, we believe that properties available for sale east of the
Mississippi River are offering more favorable investment returns. Our objective
continues to be to acquire quality properties primarily for income as
1
distinguished from primarily for capital gain. As a result, many of our recently
acquired properties and properties that we currently have under contract for
purchase are located in eastern U.S. markets. However, over the long-term, we
expect the portfolio to consist of properties located primarily west of the
Mississippi River. Where feasible, we will endeavor to acquire multiple
properties within the same major metropolitan markets where the acquisitions
result in efficient property management operations with the potential to achieve
market dominance. As a result, we may have clusters of properties east of the
Mississippi.
THE LAST PARAGRAPH UNDER THIS SECTION ON THE "OUR SPONSOR, OUR ADVISOR AND THE
INLAND GROUP" WHICH STARTS ON PAGE 2 OF OUR PROSPECTUS IS SUPERCEDED IN THE
ENTIRETY TO READ AS FOLLOWS:
Our sponsor is Inland Real Estate Investment Corporation, which is owned by The
Inland Group, Inc. The Inland Group, together with its subsidiaries and
affiliates, is a fully-integrated group of legally and financially separate
companies that have been engaged in diverse facets of real estate for over 35
years providing property management, leasing, marketing, acquisition,
disposition, development, redevelopment, syndication, renovation, construction,
finance and other related services. Inland Western Retail Real Estate Advisory
Services, Inc., is a wholly owned subsidiary of our sponsor and is our advisor.
Inland Securities Corporation, another affiliate of The Inland Group, is the
managing dealer of this offering. Inland US Management LLC, Inland Southwest
Management LLC and Inland Pacific Property Services LLC, our property managers,
are entities owned principally by individuals who are affiliates of The Inland
Group. The principal executive offices of The Inland Group, our sponsor, and our
advisor are located at 2901 Butterfield Road, Oak Brook, Illinois 60523 and
their telephone number is (630) 218-8000. The principal executive offices of our
property managers are located at 2907 Butterfield Road, Oak Brook, Illinois
60523 and their telephone number is (630) 218-8000.
ORGANIZATIONAL CHART
THE ORGANIZATIONAL CHART UNDER THIS SECTION; WHICH IS LISTED ON PAGE 3 OF OUR
PROSPECTUS IS SUPERCEDED WITH THE FOLLOWING:
2
The following organizational chart depicts the services that affiliates or our
sponsor will render to us and our organizational structure.
ORGANIZATIONAL CHART
------------------ --------- --------- ---------
Daniel L. Goodwin* Robert H. G. Joseph Robert D.
Baum* Cosenza* Parks*
------------------ --------- --------- ---------
|| || || ||
====================================================================
|| || ||
---------------- ---------------- ----------------
Inland Inland Inland
Northwest Southwest Western
Management Management Management
Corp. Corp. Corp.
---------------- ---------------- ----------------
|| || ||
--------------------------------------------------------
Inland Holdco Management LLC
--------------------------------------------------------
||
=============================================
|| || ||
|| || ||
-------------------- -------------------- --------------------
Inland US Inland Southwest Inland Pacific
Management Property Management Property Services
LLC LLC LLC
(property manager) (property manager) (property manager)
-------------------- -------------------- --------------------
| | |
| | |
=============================================
|
|
|
|
--------------------------------------------------------
Property Management and Related Services
--------------------------------------------------------
|
|
|
|
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Inland Western Retail Real Estate Trust, Inc.
We are principally owned by public investors. Ownership is represented by shares of our common stock
--------------------------------------------------------------------------------------------------------------------------------
------------------ --------- --------- ---------
Daniel L. Goodwin* Robert H. G. Joseph Robert D.
Baum* Cosenza* Parks*
------------------ --------- --------- ---------
|| || || ||
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||
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THE INLAND GROUP, INC.*
-----------------------
||
||
=======================================================================================================================
|| || || || ||
|| || || || ||
--------------------- ---------------------------------------------------------------------- ------------------- ||
The Inland Inland Real The Inland Real ||
Services Estate Investment Corporation Estate Transactions ||
Group, Inc. (our sponsor) Group, Inc. ||
--------------------- ---------------------------------------------------------------------- ------------------- ||
|| || || ||
|| ==================================================== || ||
|| || || || || ||
|| || || || || ||
--------------- ----------------- ------------------------------- ------------------ || ----------------------
Inland Risk and Inland Securities Inland Western Retail Real Inland Partnership || Inland Mortgage
Insurance Corporation Estate Advisory Services, Inc. Property Sales || Investment Corporation
Management (our business manager/advisor) Corporation ||
Services, Inc. ||
--------------- ----------------- ------------------------------- ------------------ || ----------------------
| | | || ||
| | | ======================================== ============
| | | || || || || ||
| | | ----------- ----------- ------------------ ----------- ----------
------------ | | Inland Real Inland Real Inland Real Inland Inland
Insurance | | Estate Estate Estate Mortgage Mortgage
Services | | Sales, Inc. Development Acquisitions, Inc. Corporation Servicing
------------ | | Corporation Corporation
| | | ----------- ----------- ------------------ ----------- -----------
| | | | | | | |
| | | | | | | |
| | | -------------- | | | |
| | | Real Estate | | | |
| | | Sales Services | | | |
| | | -------------- | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| ---------------- ----------------- | ---------------- ----------- --------- ---------
| Securities Sales Organization, | Construction and Property Mortgage Mortgage
| Advisory and Real | Development Acquisition Brokerage Loan
| Estate Services | Services Services Services Servicing
| ---------------- ----------------- | ---------------- ----------- --------- ---------
| | | | | | | |
| | | | | | | |
| | | | | | | |
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Inland Western Retail Real Estate Trust, Inc.
We are principally owned by public investors. Ownership is represented by shares of our common stock
--------------------------------------------------------------------------------------------------------------------------------
* The four indicated individuals control The Inland Group, Inc. and own
substantially all of its stock.
Double lines indicate 100% ownership.
Single lines indicate service.
3
CONFLICTS OF INTEREST
THE FIRST PARAGRAPH UNDER THE SECTION REGARDING "CONFLICTS OF INTEREST" WHICH
STARTS ON PAGE 5 OF OUR PROSPECTUS HAS BEEN SUPERCEDED IN THE ENTIRETY TO READ
AS FOLLOWS:
CONFLICTS OF INTEREST EXIST BETWEEN US AND SOME OF OUR AFFILIATES, INCLUDING
OUR BUSINESS MANAGER/ADVISOR. THESE AFFILIATES INCLUDE INLAND REAL ESTATE
CORPORATION, INLAND RETAIL REAL ESTATE TRUST, INC., INLAND REAL ESTATE
EXCHANGE CORPORATION AND INLAND AMERICAN REAL ESTATE TRUST, INC. INLAND REAL
ESTATE CORPORATION IS A PUBLICLY TRADED REIT THAT IS SELF-ADMINISTERED AND
GENERALLY PURCHASES SHOPPING CENTERS LOCATED IN THE MIDWEST. INLAND RETAIL
REAL ESTATE TRUST, INC. IS SELF-ADMINISTERED AND GENERALLY PURCHASES SHOPPING
CENTERS LOCATED EAST OF THE MISSISSIPPI RIVER. INLAND REAL ESTATE EXCHANGE
CORPORATION IS A SUBSIDIARY OF INLAND REAL ESTATE INVESTMENT CORPORATION.
INLAND REAL ESTATE EXCHANGE CORPORATION PROVIDES REPLACEMENT PROPERTIES FOR
PEOPLE WISHING TO COMPLETE AN IRS SECTION 1031 REAL ESTATE EXCHANGE. ON
FEBRUARY 11, 2005, INLAND AMERICAN REAL ESTATE TRUST, INC. FILED A
REGISTRATION STATEMENT ON FORM S-11 TO REGISTER 500,000,000 SHARES OF COMMON
STOCK AND UP TO 40,000,000 SHARES OF THEIR COMMON STOCK FOR PARTICIPANTS IN
THEIR DISTRIBUTION REINVESTMENT PROGRAM. THE REGISTRATION STATEMENT HAS NOT
BEEN DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION, AND THERE
IS NO ASSURANCE WHEN AND IF IT WILL BE DECLARED EFFECTIVE. INLAND AMERICAN
REAL ESTATE TRUST, INC. IS AFFILIATED WITH THE INLAND GROUP. INLAND AMERICAN
REAL ESTATE TRUST, INC. HAS BEEN FORMED TO ACQUIRE COMMERCIAL REAL ESTATE,
PRIMARILY RETAIL PROPERTIES AND MULTI-FAMILY, OFFICE AND INDUSTRIAL
BUILDINGS, LOCATED IN THE UNITED STATES AND CANADA. INLAND AMERICAN REAL
ESTATE TRUST, INC. MAY INVEST IN THOSE ASSETS DIRECTLY BY PURCHASING THE
PROPERTY ALSO KNOWN AS A "FEE INTEREST" OR INDIRECTLY BY PURCHASING
INTERESTS, INCLUDING CONTROLLING INTERESTS, IN "REAL ESTATE OPERATING
COMPANIES." INLAND AMERICAN REAL ESTATE TRUST, INC. MAY ALSO INVEST IN OTHER
REAL ESTATE ASSETS AND ENTITIES OWNING THOSE ASSETS, SUCH AS MORTGAGE LOANS
SECURED BY COMMERCIAL REAL ESTATE. Midwest Real Estate Equities, Inc. is not
a subsidiary of The Inland Group, Inc or its affiliates but does have some of
the same shareholders as The Inland Group, Inc. Midwest Real Estate Equities
buys, manages and sells commercial and multi-family property.
THE SECOND BULLET POINT AFTER THE SECOND PARAGRAPH UNDER THE SECTION "CONFLICTS
OF INTEREST" WHICH STARTS ON PAGE 5 OF OUR PROSPECTUS HAS BEEN SUPERCEDED IN THE
ENTIRETY TO READ AS FOLLOWS:
- substantial compensation payable by us to Inland Securities
Corporation, Inland Western Retail Real Estate Advisory Services,
Inc., Inland US Management LLC, Inland Southwest Management LLC
and Inland Pacific Property Services LLC for their various
services which may not be on market terms and is payable, in most
cases, whether or not our stockholders receive distributions;
WE HAVE ADDED A FOURTH PARAGRAPH WITH RELATED BULLET POINTS UNDER THE SECTION
"CONFLICTS OF INTEREST" WHICH STARTS ON PAGE 5 OF OUR PROSPECTUS TO READ AS
FOLLOWS:
If and when Inland American Real Estate Trust, Inc.'s registration statement is
declared effective by the Securities and Exchange Commission, conflicts of
interest that may arise in connection with the sale of shares and use of the
offering's proceeds are as follows:
- competition for the time and attention of management and
affiliates that provide services to us, which may limit the amount
of time that these people may spend on our matters;
4
- potentially overlapping fiduciary duties owed by certain
affiliated directors sitting on more than one board of directors;
- potentially overlapping fiduciary duties owed by certain directors
particularly arising in the potential purchase of shopping or
retails centers, and office buildings, located in the United
States;
- Inland American Real Estate Trust, Inc. will compete for the same
properties we may be interested in;
- Inland American Real Estate Trust, Inc. may acquire real estate
operating companies that may have been a historical or future
source for us to acquire properties from; and
- potential time and effort spent by Inland Securities Corporation
on the selling of our securities and their sales effort related
to the sales of shares for Inland American Real Estate
Trust, Inc.
COMPENSATION TO BE PAID TO OUR ADVISOR AND AFFILIATES
THE DISCUSSION UNDER THIS SECTION REGARDING "ACQUISITION EXPENSES", WHICH STARTS
ON PAGE 6 OF OUR PROSPECTUS, SHOULD READ:
We will reimburse Inland Real Estate Acquisitions, Inc., for costs incurred, on
our behalf, in connection with the acquisition of properties. We will pay an
amount, estimated to be up to 0.5% of the total of (1) the gross offering
proceeds from the sale of 250,000,000 shares, (2) the gross proceeds from the
sale of up to 20,000,000 shares pursuant to the distribution reinvestment
programs. The acquisition expenses for any particular property will not exceed
6% of the gross purchase price of the property.
WE HAVE SUPERCEDED THE FOLLOWING DESCRIPTION LOCATED UNDER THE NONSUBORDINATED
PAYMENTS AT THE OPERATIONAL STAGE WITHIN THE TABULAR SUMMARY OF FEES AS
DISCUSSED UNDER THE SECTION "COMPENSATION TO BE PAID TO OUR BUSINESS
MANAGER/ADVISOR AND AFFILIATES" WHICH STARTS ON PAGE 6 OF OUR PROSPECTUS IN THE
ENTIRETY, TO READ AS FOLLOWS:
Property management fee 4.5% of the gross income from the properties.
This fee terminates upon (cannot exceed 90% of the fee which would be payable
a business combination to an unrelated third party). We will pay the fee
with our property for services in connection with the rental, leasing,
managers. operation and management of the properties. For the
year ended December 31, 2004, and the period from
March 5, 2003 (inception) to December 31, 2003
(inception) we have incurred and paid property
management fees of $5,381,721 and $16,627, of which
$5,381,721 and $16,627 were retained by Inland US
Management LLC, Inland Southwest Property
Management LLC and Inland Pacific Property
Services LLC. Actual amounts we will incur in the
future cannot be determined at the present time.
5
THE DISCUSSION UNDER THIS SECTION ON THE "INCENTIVE ADVISORY FEE", WHICH STARTS
ON PAGE 7 OF OUR PROSPECTUS, SHOULD READ:
After our stockholders have first received a 10% cumulative, non-compounded
return and a return of their net investment, an incentive advisory fee equal to
15% on net proceeds from the sale of a property will be paid to our advisor.
RISK FACTORS
THE SECOND SENTENCE UNDER THE DISCUSSION REGARDING "WE WILL COMPETE WITH REAL
ESTATE INVESTMENT PROGRAMS SPONSORED BY COMPANIES AFFILIATED WITH US FOR
ACQUISITION OF PROPERTIES AND FOR THE TIME AND SERVICES OF PERSONNEL " WHICH
STARTS ON PAGE 12 OF OUR PROSPECTUS HAS BEEN MODIFIED TO READ AS FOLLOWS:
These affiliated companies include Inland Real Estate Corporation, Inland Retail
Real Estate Trust, Inc., Inland Real Estate Exchange Corporation, Inland
American Real Estate Trust, Inc., and other entities to be formed by The Inland
Group.
THE LAST SENTENCE OF THIS DISCUSSION ON PAGE 12, UNDER THE ABOVE SUBHEADING, IS
MODIFIED TO READ AS FOLLOWS:
We will be acquiring properties that are located primarily west of the
Mississippi River and single user net lease properties located anywhere in the
United States and therefore our geographic diversity will be limited.
THE SECOND PARAGRAPH ON PAGE 13, UNDER THIS HEADING, IS DELETED.
THE DISCUSSION REGARDING "WE DEPEND ON OUR BOARD OF DIRECTOR, BUSINESS
MANAGER/ADVISOR AND PROPERTY MANAGERS AND LOSING THOSE RELATIONSHIPS COULD
NEGATIVELY AFFECT OUR OPERATIONS " WHICH STARTS ON PAGE 19 OF OUR PROSPECTUS HAS
BEEN SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS:
WE DEPEND ON OUR BOARD OF DIRECTORS, BUSINESS MANAGER/ADVISOR AND
PROPERTY MANAGERS AND LOSING THOSE RELATIONSHIPS COULD NEGATIVELY AFFECT OUR
OPERATIONS. Our board of directors has supervisory control over all aspects of
our operations. Our ability to achieve our investment objectives will depend to
a large extent on the board's ability to oversee, and the quality of, the
management provided by the business manager/advisor, the property managers,
their affiliates and employees for day-to-day operations. Therefore, we depend
heavily on the ability of the business manager/advisor and its affiliates to
retain the services of each of its executive officers and key employees.
However, none of these individuals has an employment agreement with the business
manager/advisor or its affiliates. The loss of any of these individuals could
have a material adverse effect on us. These individuals include Daniel L.
Goodwin, Robert H. Baum, G. Joseph Cosenza, Robert D. Parks, Thomas P.
McGuinness, Roberta S. Matlin and Brenda G. Gujral.
On February 11, 2005, Inland American Real Estate Trust, Inc. filed a
registration statement on Form S-11 to register 500,000,000 shares of common
stock and up to 40,000,000 shares of their common stock for participants in
their distribution reinvestment program. The registration statement has not been
declared effective by the Securities and Exchange Commission, and there is no
assurance when and if it will be declared effective. Specific conflicts of
interest between us and Inland American Real Estate Trust, Inc include:
- competition for the time and attention of management and
affiliates that provide services to us, which may limit the amount
of time that these people may spend on our matters;
6
- potentially overlapping fiduciary duties owed by certain
affiliated directors sitting on more than one board of directors;
and
- potentially overlapping fiduciary duties owed by certain directors
particularly arising in the potential purchase of shopping or
retail centers, and office buildings, located in the United
States.
Our business manager/advisor must reimburse us for certain operational stage
expenses exceeding 15% of the gross offering proceeds. If the business
manager/advisor's net worth or cash flow is not sufficient to cover these
expenses, we will not be reimbursed.
THE DISCUSSION REGARDING "THERE ARE CONFLICTS OF INTEREST BETWEEN US AND OUR
AFFILIATES" WHICH STARTS ON PAGE 19 OF OUR PROSPECTUS HAS BEEN SUPERCEDED IN THE
ENTIRETY TO READ AS FOLLOWS:
THERE ARE CONFLICTS OF INTEREST BETWEEN US AND OUR AFFILIATES. Our
operation and management may be influenced or affected by conflicts of
interest arising out of our relationship with our affiliates. Our business
manager/advisor and its affiliates are or will be engaged in other activities
that will result in potential conflicts of interest with the services that
the business manager/advisor and affiliates will provide to us. Those
affiliates could take actions that are more favorable to other entities than
to us. The resolution of conflicts in favor of other entities could have a
negative impact on our financial performance. These affiliates include Inland
Retail Real Estate Trust, Inc., Inland Western Retail Real Estate Advisory
Services, Inc., our business manager/advisor, Inland Real Estate Corporation,
Inland Real Estate Exchange Corporation, and Inland American Real Estate
Trust, Inc., and entities to be formed by The Inland Group, Inc. Inland Real
Estate Corporation is a publicly traded REIT that is self-administered and
generally purchases shopping centers located in the Midwest. Inland Retail
Real Estate Trust, Inc. is self-administered and generally purchases shopping
centers located east of the Mississippi River. Inland Real Estate Exchange
Corporation is a subsidiary of Inland Real Estate Investment Corporation.
Inland Real Estate Exchange Corporation provides replacement properties for
people wishing to complete an IRS Section 1031 real estate exchange. On
February 11, 2005, Inland American Real Estate Trust, Inc. filed a
registration statement on Form S-11 to register 500,000,000 shares of common
stock and up to 40,000,000 shares of their common stock for participants in
their distribution reinvestment program. The registration statement has not
been declared effective by the Securities and Exchange Commission, and there
is no assurance when and if it will be declared effective. Inland American
Real Estate Trust, Inc. is affiliated with The Inland Group. Inland American
Real Estate Trust, Inc. has been formed to acquire commercial real estate,
primarily retail properties and multi-family, office and industrial
buildings, located in the United States and Canada. Inland American Real
Estate Trust, Inc. may invest in those assets directly by purchasing the
property also known as a "fee interest" or indirectly by purchasing
interests, including controlling interests, in "real estate operating
companies." Inland American Real Estate Trust, Inc. may also invest in other
real estate assets and entities owning those assets, such as mortgage loans
secured by commercial real estate. Our business manager/advisor receives fees
based on the book value including acquired intangibles of the properties
under management. Specific conflicts of interest between us and our
affiliates include:
- We may acquire properties from affiliates of our sponsor in
transactions in which the price will not be the result of arm's
length negotiations. The prices we pay to affiliates of our
sponsor for our properties will be equal to the prices paid by
them, plus the costs incurred by them relating to the acquisition
and financing of the properties. These prices will not be the
subject of arm's length negotiations, which could mean that the
acquisitions may be on terms less favorable to us than those
negotiated in an arm's-length transaction. Inland American Real
Estate Trust, Inc. may acquire real estate operating companies
that may have been a
7
historical or future source for us to acquire properties from,
which could create a conflict of interest for us. In addition,
Inland American Real Estate Trust, Inc.'s offering, when it
becomes effective could potentially negatively impact arm's length
negotiations due to overlapping fiduciary duties owed by certain
directors particularly arising in the potential purchase of
shopping or retails centers, and office buildings, located in the
United States. The result of these transactions could cause us to
pay more for particular properties than we would have in an arm's
length transaction and therefore, adversely affect our cash flow
and our ability to pay your distributions.
- WE MAY PURCHASE REAL PROPERTIES FROM PERSONS WITH WHOM OUR
BUSINESS MANAGER/ADVISOR OR ITS' AFFILIATES HAVE PRIOR BUSINESS
RELATIONSHIPS AND OUR INTERESTS IN THESE BUSINESS RELATIONSHIPS
MAY BE DIFFERENT FROM THE INTERESTS OF OUR BUSINESS
MANAGER/ADVISOR OR ITS AFFILIATES IN THESE BUSINESS RELATIONSHIPS.
We may purchase properties from third parties who have sold
properties in the past, or who may sell properties in the future,
to our business manager/advisor or its affiliates. Inland American
Real Estate Trust, Inc. may acquire real estate operating
companies that may have been a historical or future source for
acquiring properties, which could create a conflict of interest
for our company. If we purchase properties from these third
parties, our business manager/advisor will experience a conflict
between our current interests and its interest in preserving any
ongoing business relationship with these sellers. This could
result in our business manager/advisor or its affiliates
recommending properties that may be in the best interest of the
third party seller, but not our best interest. This could
adversely impact our portfolio by causing us to invest in
properties that are not necessarily in our best interest.
- OUR BUSINESS MANAGER/ADVISOR AND ITS AFFILIATES RECEIVE
COMMISSIONS, FEES AND OTHER COMPENSATION BASED UPON OUR
INVESTMENTS AND THEREFORE OUR BUSINESS MANAGER/ADVISOR AND ITS
AFFILIATES MAY RECOMMEND THAT WE MAKE INVESTMENTS IN ORDER TO
INCREASE THEIR COMPENSATION. Our business manager/advisor and its
affiliates receive commissions, fees and other compensation based
upon our investments. They benefit by us retaining ownership of
our assets and leveraging our assets, while you may be better
served by sale or disposition or not leveraging the assets. In
addition, our business manager/advisor's ability to receive fees
and reimbursements depends on our continued investment in
properties and in other assets which generate fees. Our business
manager/advisor receives fees based on the book value including
acquired intangibles of the properties under management. Our
property managers receive fees based on the income from properties
under management. Therefore, our business manager/advisor and/or
property managers may recommend that we purchase properties that
generate fees for our business manager/advisor and property
managers, but are not necessarily the most suitable investment for
our portfolio. In addition, our affiliates, who receive fees,
including our business manager/advisor, may recommend that we
acquire properties, which may result in our incurring substantive
amounts of indebtedness. Therefore, the interest of our business
manager/advisor and its affiliates in receiving fees may conflict
with our ability to earn income and may result in our incurring
substantive amounts of indebtedness. The resolution of this
conflict of interest may adversely impact our cash flow and our
ability to pay your distributions.
- OUR BUSINESS MANAGER/ADVISOR MAY HAVE CONFLICTING FIDUCIARY
OBLIGATIONS IF WE ACQUIRE PROPERTIES WITH ITS AFFILIATES. Our
business manager/advisor may cause us to acquire an interest in a
property through a joint venture with its affiliates. In these
circumstances, our business manager/advisor will have a fiduciary
duty to both us and its affiliates participating in the joint
venture. Inland American Real Estate Trust, Inc. may acquire real
estate operating companies that may have been a historical or
future source for acquiring properties, which
8
could create a conflict of interest for us. In addition, Inland
American Real Estate Trust, Inc.'s offering, when it becomes
effective could potentially negatively impact arm's length
negotiations due to overlapping fiduciary duties owed by certain
directors particularly arising in the potential purchase of
shopping or retails centers, and office buildings, located in the
United States. The resolution of this conflict of interest may
cause the business manager/advisor to sacrifice our best interest
in favor of the seller of the property or in favor of Inland
American Real Estate Trust, Inc. and therefore, we may enter into
a transaction that is not in our best interest or not enter into a
transaction at all. The resolution of this conflict of interest
may negatively impact our financial performance.
- THERE IS COMPETITION FOR THE TIME AND SERVICES OF OUR BUSINESS
MANAGER/ADVISOR AND OUR BUSINESS MANAGER/ADVISOR MAY NOT DEDICATE
THE TIME NECESSARY TO MANAGER OUR BUSINESS. We rely on our
business manager/advisor and its affiliates for our daily
operation and the management of our assets. Our officers and other
personnel of our business manager/advisor and its affiliates have
conflicts in allocating their management time, services and
functions among the real estate investment programs they currently
service and any future real estate investment programs or other
business ventures which they may organize or serve. Those
personnel could take actions that are more favorable to other
entities than to us. Inland American Real Estate Trust, Inc. will
compete with us for the time and attention of management and
affiliates that provide services to us, which may limit the amount
of time that these people may spend on our matters. The resolution
of conflicts in favor of other entities could have a negative
impact on our financial performance.
- INLAND SECURITIES CORPORATION IS PARTICIPATING AS MANAGING DEALER
IN THE SALE OF THE SHARES. Inland Securities Corporation is our
managing dealer of this offering and is affiliated with The Inland
Group. Our managing dealer is entitled to selling commissions and
reimbursement for marketing and due diligence expenses. Our
managing dealer may be subject to a conflict of interest arising
out of its participation in this offering and its affiliation with
The Inland Group in performing its "due diligence" obligations
which arise under the Securities Act of 1933. When it becomes
effective, Inland American Real Estate Trust, Inc.'s offering
could negatively affect time and effort spent on our capital raise
and sales effort due to the sales effort related to the sales
of shares by Inland American Real Estate Trust, Inc. These
personnel could spend more time and attention in Inland American
Real Estate Trust, Inc.'s offering. The resolution of this
conflict of interest could have a negative impact on our financial
performance.
- WE MAY ACQUIRE THE BUSINESS OF OUR BUSINESS MANAGER/ADVISOR AND
OUR PROPERTY MANAGERS WITHOUT FURTHER ACTION BY OUR STOCKHOLDERS.
During the term of our agreements with our business
manager/advisor and our property managers, we have the option to
acquire or consolidate the business conducted by them without any
consent of our stockholders, our business manager/advisor or our
property managers. We may elect to exercise this right at any time
after September 15, 2008. This unfettered discretion could cause
us to take action that otherwise we would not be able to do, and
therefore could have a negative impact on our financial
performance.
- WE DO NOT HAVE ARM'S-LENGTH AGREEMENTS, WHICH COULD CONTAIN TERMS
WHICH ARE NOT IN OUR BEST INTEREST. As we have noted, our
agreements and arrangements with our business manager/advisor or
any of its affiliates, including those relating to compensation,
are not the result of arm's length negotiations. These agreements
may contain terms that our not in our best interest and would not
otherwise be applicable if we entered into arm's-length
agreements. See "Conflicts of Interest" for a discussion of
various conflicts of interest.
9
HOW WE OPERATE
THE THIRD AND FOURTH PARAGRAPH UNDER THIS HEADING WHICH STARTS ON PAGE 34 OF OUR
PROSPECTUS IS SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS:
In addition to the services of our business manager/advisor, we contract with
Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific
Property Services LLC for their services as our property managers. Inland US
Management LLC, Inland Southwest Management LLC and Inland Pacific Property
Services LLC provide the day-to-day property management services for all of our
properties.
Our sponsor, Inland Real Estate Investment Corporation, is owned by The Inland
Group, Inc. Our business manager/advisor Inland Western Retail Real Estate
Advisory Services, Inc., is owned by our sponsor, and thus is indirectly
controlled by The Inland Group. In addition, our property managers, Inland US
Management LLC, Inland Southwest Management LLC and Inland Pacific Property
Services LLC, are owned by individuals who are affiliates of the Inland Group.
CONFLICTS OF INTEREST
THE SECOND PARAGRAPH UNDER THIS HEADING WHICH STARTS ON PAGE 36 OF OUR
PROSPECTUS IS SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS:
THERE MAY BE CONFLICTING INVESTMENT OPPORTUNITIES AMONG AFFILIATES OF OUR
BUSINESS MANAGER/ADVISOR AND THE INLAND GROUP. Affiliates of our business
manager/advisor and The Inland Group have sponsored multiple previous
investment programs. Our sponsor may also sponsor other programs which may
have investment objectives similar to ours. On February 11, 2005, Inland
American Real Estate Trust, Inc. filed a registration statement on Form S-11
to register 500,000,000 shares of common stock and up to 40,000,000 shares of
their common stock for participants in their distribution reinvestment
program. The registration statement has not been declared effective by the
Securities and Exchange Commission, and there is no assurance when and if it
will be declared effective. Inland American Real Estate Trust, Inc. is
affiliated with The Inland Group. When it becomes effective, Inland American
Real Estate Trust, Inc.'s offering could negatively affect time and effort
spent on our capital raise and sales effort due to the sales effort related
to the sales of shares by Inland American Real Estate Trust, Inc. Therefore,
our sponsor, our business manager/advisor and their affiliates could face
conflicts of interest in determining which investment programs will have the
first opportunity to acquire real properties and other assets as they become
available.
THE THIRD AND FOURTH PARAGRAPHS UNDER THIS HEADING WHICH STARTS ON PAGE 36 OF
OUR PROSPECTUS IS SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS:
On February 11, 2005, a new property acquisition agreement was entered into
between Inland Real Estate Acquisitions, Inc. ("Acquisitions"), Inland Western
Retail Real Estate Advisory Services, Inc. ("the Advisor"), and us. The property
acquisition agreement grants us an exclusive right of first refusal to acquire
each and every Subject Property, as defined in the agreement. A Subject Property
is defined as any retail facility, mixed-use property, or a single-user property
identified by Acquisitions and located within our market area. Our market area
is defined in the agreement as the geographic area located west
10
of the Mississippi in the continental United States but excluding the portion of
the geographic area within a four hundred (400) mile radius of Oak Brook,
Illinois.
Acquisitions are owned by The Inland Group, and we are sponsored by Inland Real
Estate Investment Corporation. Inland Real Estate Investment Corporation and the
Advisor are owned by The Inland Group.
The property acquisition agreement previously entered into by the parties
dated September 18, 2003 has been terminated accordingly. The new property
acquisition agreement is filed as an exhibit to the registration statement of
which the prospectus is a part and is incorporated into this filing in its
entirety.
WE HAVE ADDED A SIXTH PARAGRAPH UNDER THIS HEADING WHICH STARTS ON PAGE 36 OF
OUR PROSPECTUS TO READ AS FOLLOWS:
Inland American Real Estate Trust, Inc. has been formed to acquire commercial
real estate, primarily retail properties and multi-family, office and industrial
buildings, located in the United States and Canada. Inland American Real Estate
Trust, Inc. may invest in those assets directly by purchasing the property also
known as a "fee interest" or indirectly by purchasing interests, including
controlling interests, in "real estate operating companies." Inland American
Real Estate Trust, Inc. may also invest in other real estate assets and entities
owning those assets, such as mortgage loans secured by commercial real estate.
If and when Inland American Real Estate Trust, Inc.'s registration statement is
declared effective by the Securities and Exchange Commission, conflicts of
interest that may arise in connection with the sale of shares and use of the
offering's proceeds are as follows:
- competition for the time and attention of management and
affiliates that provide services to us, which may limit the amount
of time that these people may spend on our matters;
- potentially overlapping fiduciary duties owed by certain
affiliated directors sitting on more than one board of directors;
- potentially overlapping fiduciary duties owed by certain directors
particularly arising in the potential purchase of shopping or
retails centers, and office buildings, located in the United
States;
- Inland American Real Estate Trust, Inc. will compete for the same
properties we are interested in;
- Inland American Real Estate Trust, Inc. may acquire real estate
operating companies that may have been a historical or future
source for us to acquire properties from; and
- potential time and effort spent by Inland Securities Corporation
on the selling of our securities and the effort related to the
sales of shares offered by Inland American Real Estate Trust, Inc.
THE SIXTH PARAGRAPH UNDER THIS HEADING WHICH STARTS ON PAGE 36 OF OUR PROSPECTUS
IS SUPERCEDED IN THE ENTIRETY AND BECOMES THE SEVENTH PARAGRAPH AND SHOULD READ
AS FOLLOWS:
We currently focus on purchase of properties in the states west of the
Mississippi River. We have acquired and will continue to acquire properties east
of the Mississippi River. If and when Inland American Real Estate Trust, Inc.'s
registration statement is declared effective by the Securities and Exchange
Commission,
11
conflicts of interest may arise in connection with the sale of shares and use of
the offering's proceeds. Those conflicts of interest are discussed above.
However, if any conflicts do arise, they will be resolved as provided in the
agreement with our business manager/advisor discussed above.
THE NINTH THROUGH FIFTEENTH PARAGRAPHS UNDER THIS HEADING WHICH STARTS ON PAGE
36 OF OUR PROSPECTUS IS SUPERCEDED IN THE ENTIRETY SHOULD READ AS FOLLOWS:
WE MAY ACQUIRE PROPERTIES FROM AFFILIATES OF OUR SPONSOR. The prices we pay to
affiliates of our sponsor for these properties will be equal to the prices paid
by them, plus the costs incurred by them relating to the acquisition and
financing of the properties. These prices will not be the subject of arm's
length negotiations, which could mean that the acquisitions may be on terms less
favorable to us than those negotiated in an arm's-length transaction. Inland
American Real Estate Trust, Inc. may acquire real estate operating companies
that may have been a historical or future source for acquiring properties, which
could create a conflict of interest for our company. In addition, Inland
American Real Estate Trust, Inc.'s offering, when it becomes effective could
potentially negatively impact arm's length negotiations due to overlapping
fiduciary duties owed by certain directors particularly arising in the potential
purchase of shopping or retails centers, and office buildings, located in the
United States. However, our articles of incorporation provide that the purchase
price of any property acquired from an affiliate may not exceed its fair market
value as determined by a competent independent appraiser. In addition, the price
must be approved by a majority of our directors who have no financial interest
in the transaction. If the price to us exceeds the cost paid by our affiliate,
there must be substantial justification for the excess cost.
WE MAY PURCHASE REAL PROPERTIES FROM PERSONS WITH WHOM AFFILIATES OF OUR
BUSINESS MANAGER/ADVISOR HAVE PRIOR BUSINESS RELATIONSHIPS. We may purchase
properties from third parties who have sold properties in the past, or who may
sell properties in the future, to our business manager/advisor or its
affiliates. Inland American Real Estate Trust, Inc. may acquire real estate
operating companies that may have been a historical or future source for
acquiring properties, which could create a conflict of interest for our company.
If we purchase properties from these third parties, our business manager/advisor
will experience a conflict between our current interests and its interest in
preserving any ongoing business relationship with these sellers. Nevertheless,
our business manager/advisor has a fiduciary obligation to us.
PROPERTY MANAGEMENT SERVICES ARE BEING PROVIDED BY COMPANIES OWNED PRINCIPALLY
BY AFFILIATES OF THE INLAND GROUP. Our property managers, which are owned
principally by individuals who are our affiliates, provide property management
services to us pursuant to management services agreements which we can terminate
only in the event of gross negligence or willful misconduct on the part of the
property managers. However, our property management services agreements provide
that we pay our property managers a monthly management fee of no greater than
90% of the fee which would be payable to an unrelated third party providing such
services. In addition, the business manager/advisor and the property managers
believe that the property managers have sufficient personnel and other required
resources to discharge all responsibilities to us. Inland American Real Estate
Trust, Inc. will compete with us for the time and attention of management and
affiliates that provide services to us, which may limit the amount of time that
these people may spend on our matters.
OUR BUSINESS MANAGER/ADVISOR AND ITS AFFILIATES RECEIVE COMMISSIONS, FEES AND
OTHER COMPENSATION BASED UPON OUR INVESTMENTS. We believe that the compensation
we will pay to our business manager/advisor and its affiliates is no more than
what we would pay for similar services performed by independent firms. Some
compensation is payable whether or not there is cash available to make
distributions to our stockholders. To the extent this occurs, our business
manager/advisor and its affiliates benefit from us retaining ownership of our
assets and leveraging our assets, while our stockholders may be better served by
sale or disposition or not leveraging the assets. In addition, the business
manager/advisor's ability to
12
receive fees and reimbursements depends on our continued investment in
properties and in other assets which generate fees. Our business manager/advisor
receives fees based on the book value including acquired intangibles of the
properties under management. Our property managers receive fees based on the
income from properties under management. Therefore, our business manager/advisor
and/or property managers may recommend that we purchase properties that generate
fees for our business manager/advisor and property managers, but are not
necessarily the most suitable investment for our portfolio. In addition, our
affiliates, who receive fees, including our business manager/advisor, may
recommend that we acquire properties, which may result in our incurring
substantive amounts of indebtedness. Therefore, the interest of the business
manager/advisor and its affiliates in receiving fees may conflict with the
interest of our stockholders in earning income on their investment in our common
stock. Our business manager/advisor and its affiliates recognize that they have
a fiduciary duty to us and our stockholders, and have represented to us that
their actions and decisions will be made in the manner most favorable to us and
our stockholders.
While we will not make loans to our business manager/advisor or its affiliates,
we may borrow money from them for various purposes, including funding working
capital requirements. If we do, the terms, such as the interest rate, security,
fees and other charges, will be at least as favorable to us as those which would
be charged by unaffiliated lending institutions in the same locality on
comparable loans. Any money borrowed from an affiliate of The Inland Group is
expected to be repaid within 180 days.
Our business manager/advisor and its affiliates may do business with others who
do business with us, although presently there are no instances of this. However,
our business manager/advisor or its affiliates may not receive rebates or
participate in any reciprocal business arrangements which would have the effect
of circumventing our agreement with our business manager/advisor.
OUR BUSINESS MANAGER/ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IF WE
ACQUIRE PROPERTIES WITH ITS AFFILIATES. Our business manager/advisor may cause
us to acquire an interest in a property through a joint venture with its
affiliates. Inland American Real Estate Trust, Inc. may acquire real estate
operating companies that may have been a historical or future source for
acquiring properties, which could create a conflict of interest for our company.
In addition, Inland American Real Estate Trust, Inc.'s offering, when it becomes
effective could potentially negatively impact arm's length negotiations due to
overlapping fiduciary duties owed by certain directors particularly arising in
the potential purchase of shopping or retails centers, and office buildings,
located in the United States. In these circumstances, our business
manager/advisor will have a fiduciary duty to both us and its affiliates
participating in the joint venture. In order to minimize the conflict between
these fiduciary duties, the advisory agreement provides guidelines for
investments in joint ventures with affiliates. In addition, our articles of
incorporation require a majority of our disinterested directors to determine
that the transaction is fair and reasonable to us and is on terms and conditions
no less favorable than from unaffiliated third parties entering into the
venture.
THERE IS COMPETITION FOR THE TIME AND SERVICES OF OUR BUSINESS MANAGER/ADVISOR.
We rely on our business manager/advisor and its affiliates for our daily
operation and the management of our assets. Personnel of our business
manager/advisor and its affiliates have conflicts in allocating their management
time, services and functions among the real estate investment programs they
currently service and any future real estate investment programs or other
business ventures which they may organize or serve. Our business manager/advisor
and its affiliates believe they have enough staff to perform their
responsibilities in connection with all of the real estate programs and other
business ventures in which they are involved. Inland American Real Estate Trust,
Inc. will compete with us for the time and attention of management and
affiliates that provide services to us, which may limit the amount of time that
these people may spend on our matters.
13
INLAND SECURITIES CORPORATION IS PARTICIPATING AS MANAGING DEALER IN THE SALE OF
THE SHARES. Inland Securities Corporation is the managing dealer of the offering
and is affiliated with The Inland Group. The managing dealer is entitled to
selling commissions and reimbursement for marketing and due diligence expenses.
The managing dealer may be subject to a conflict of interest arising out of its
participation in this offering and its affiliation with The Inland Group in
performing its "due diligence" obligations which arise under the Securities Act
of 1933. However, the managing dealer believes it has and will continue to
properly perform these "due diligence" activities. When it becomes effective,
Inland American Real Estate Trust, Inc.'s offering could negatively affect time
and effort spent on our capital raise and sales effort due to the effort related
to the sale of shares offered by Inland American Real Estate Trust, Inc.
THE DISCUSSION UNDER THE SECTION WHICH STARTS ON PAGE 36 OF OUR PROSPECTUS HAS
BEEN MODIFIED TO INCLUDE THE FOLLOWING NINETEENTH PARAGRAPH:
On February 11, 2005, a new property acquisition agreement was entered into
between Inland Real Estate Acquisitions, Inc. ("Acquisitions"), Inland Western
Retail Real Estate Advisory Services, Inc. (the "Advisor"), and us. The property
acquisition agreement grants us an exclusive right of first refusal to acquire
each and every Subject Property, as defined in the agreement. A Subject Property
is defined as any retail facility, mixed-use property, or a single-user property
identified by Acquisitions and located within our market area. Our market area
is defined in the agreement as the geographic area located west of the
Mississippi in the continental United States but excluding the portion of the
geographic area within a four hundred (400) mile radius of Oak Brook, Illinois.
Acquisitions are owned by The Inland Group, and we are sponsored by Inland Real
Estate Investment Corporation. Inland Real Estate Investment Corporation and the
Advisor are owned by The Inland Group.
The property acquisition agreement previously entered into by the parties
dated September 18, 2003 has been terminated accordingly. The new property
acquisition agreement is filed as an exhibit to the registration statement of
which the prospectus is a part and is incorporated into this filing in its
entirety.
THE DISCUSSION UNDER "TERM OF THE ADVISORY AGREEMENT" SECTION WHICH STARTS ON
PAGE 79 OF OUR PROSPECTUS HAS BEEN MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
COMPENSATION TABLE
THE DISCUSSION UNDER THIS SECTION "NONSUBORDINATED PAYMENTS - OFFERING STAGE" ON
THE MARKETING CONTRIBUTION AND DUE DILIGENCE EXPENSE ALLOWANCE PAID TO THE
MANAGING DEALER AND SOLICITING DEALERS, WHICH STARTS ON PAGE 40 OF OUR
PROSPECTUS, SHOULD READ AS FOLLOWS:
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
----------------------------------------- --------------------------------------- --------------------------------------
Marketing contribution and due diligence We will pay an amount equal to 2.5% of The actual amount depends on the
expense allowance paid to the managing the gross offering proceeds to the number of shares. If there are no
dealer and soliciting dealers. managing dealer, all or a portion of special sales, approximately the
which may be passed on to soliciting following amounts will be paid for the
dealers, in lieu of reimbursement of marketing contribution and the due
specific expenses associated with diligence expense allowance:
marketing. We may pay an additional
0.5% of the gross offering proceeds to - $60,000 if we sell the minimum
the managing dealer, which may be number of shares; or
passed on to the soliciting dealers,
for due diligence expenses. We will - $75,000,000 if we sell the
not pay the marketing contribution and maximum number of shares.
due diligence expense allowance in
connection with any special sales,
except those receiving volume
discounts and those described in "Plan
of Distribution - Volume Discounts."
14
WE HAVE SUPERCEDED THE FOLLOWING DESCRIPTION LOCATED UNDER THE NONSUBORDINATED
PAYMENTS AT THE OPERATIONAL STAGE WITHIN THE TABULAR SUMMARY OF FEES AS
DISCUSSED WHICH STARTS ON PAGE 41 OF OUR PROSPECTUS IN THE ENTIRETY, TO READ AS
FOLLOWS:
ESTIMATED MAXIMUM DOLLAR
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION AMOUNT
----------------------------------------- --------------------------------------- --------------------------------------
Property management fee paid to our We will pay a monthly fee of 4.5% of For the year ended December 31,
property managers, Inland US Management the gross income from the properties. 2004, and the period from March 5,
LLC, Inland Southwest Management LLC and We will also pay a monthly fee for any 2003 (inception) to December 31, 2003
Inland Pacific Property Services LLC. We extra services equal to no more than we have incurred and paid property
will pay the fee for services in 90% of that which would be payable to management fees of $5,381,721 and
connection with the rental, leasing, an unrelated party providing the $16,627, of which $ 5,381,721 and
operation and management of the services. The property managers may $16,627 were retained by Inland US
properties subcontract their duties for a fee Management LLC, Inland Southwest
that may be less than the fee provided Management LLC and Inland Pacific
for in the management services Property Services LLC. If we
agreements. acquire the businesses of our
business manager/advisor and/or
our property managers, the
property management fees will
cease. The actual amounts we will
incur in the future are dependent
upon results of operations and,
therefore, cannot be determined at
the present time.
THE DISCUSSION UNDER THIS SECTION ON THE "NONSUBORDINATED PAYMENTS - OPERATIONAL
STAGE", WHICH STARTS ON PAGE 41 OF OUR PROSPECTUS, IS MODIFIED AS FOLLOWS:
The last entry "Advisor asset management fee" at the bottom of the page is
deleted.
15
THE DISCUSSION UNDER THIS SECTION "SUBORDINATED PAYMENTS - OPERATIONS STAGE" ON
THE ADVISOR ASSET MANAGEMENT FEE PAID TO OUR ADVISOR, WHICH STARTS ON PAGE 43 OF
OUR PROSPECTUS, SHOULD READ AS FOLLOWS:
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM DOLLAR
RECIPIENT METHOD OF COMPENSATION AMOUNT
----------------------------------------- --------------------------------------- --------------------------------------
OPERATIONAL STAGE
Advisor asset management fee payable to We pay an annual advisor asset The actual amounts to be received
our advisor. management fee of not more than 1% of depend upon the sale price of our
our average assets. Our average assets properties and, therefore, cannot be
means the average of the total book determined at the present time. If we
value including acquired intangibles acquire the advisor, the advisor asset
of our real estate assets plus the management fee will cease.
total value of our loans receivables
secured by real estate, before
reserves for depreciation or bad debts
or other similar non-cash reserves. We
will compute our average assets by
taking the average of these values at
the end of each month during the
quarter for which we are calculating
the fee. The fee is payable quarterly
in an amount equal to 1/4of 1% of
average assets as of the last day of
the immediately preceding quarter. For
any year in which we qualify as a
REIT, our advisor must reimburse us
for the following amounts if any:
(1) the amounts by which our total
operating expenses, the sum of
the advisor asset management fee
plus other operating expenses,
paid during the previous fiscal
year exceed the greater of:
- 2% of our average assets for
that fiscal year, or
- 25% of our net income for that
fiscal year.
(2) plus an amount, which will not
exceed the advisor asset
management fee for that year,
equal to any difference between
the total amount of distributions
to stockholders for that year and
the 6% annual return on the net
investment of stockholders.
Items such as organization and
offering expenses, property expenses,
interest payments, taxes, non-cash
expenditures, the incentive advisory
fee and acquisition expenses are
excluded from the definition of total
operating expenses.
See "Management -- Our Advisory
Agreement" for an explanation of
circumstances where the excess amount
specified in clause (1) may not need
to be reimbursed.
16
THE DISCUSSION UNDER THIS SECTION "COMPENSATION TO OFFICERS AND DIRECTORS" ON
THE DIRECTOR FEES, WHICH STARTS ON PAGE 45 OF OUR PROSPECTUS, SHOULD READ AS
FOLLOWS:
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
----------------------------------------- --------------------------------------- --------------------------------------
Director fees Independent directors receive an We will pay the five independent
annual fee of $5,000 (increasing to directors $25,000 in the aggregate
$10,000 effective October 1, 2004) and (increasing to $50,000 effective
a fee of $500 for attending each October 1, 2004), plus fees for
meeting of the board or one of its attending meetings. The actual amounts
committees in person and $350 for to be received for future meetings
attending a meeting via the telephone. depends upon the number of meetings
Our officers who are also our and their attendance and, therefore,
directors do not receive director cannot be determined at the present
fees. time.
PRIOR PERFORMANCE OF OUR AFFILIATES
PRIOR INVESTMENT PROGRAMS
During the 10-year period ending December 31, 2004, The Inland Group and
its affiliates have sponsored two other REITs and 34 real estate exchange
private placements, which altogether have raised more than $3,157,236,000 from
over 68,000 investors. During that period, Inland Real Estate Corporation and
Inland Retail Real Estate Trust, Inc., the other REITs, have raised over
$3,005,648,000 from over 68,000 investors. Inland Real Estate Corporation and
Inland Retail Real Estate Trust, Inc. have investment objectives and policies
similar to ours and have invested principally in shopping centers that provide
sales of convenience goods and personal services to neighboring communities in
the Midwest and Southeast areas. However, both Inland Real Estate Corporation
and Inland Retail Real Estate Trust, Inc., are now self-administered REITs. Our
investment objectives and policies are similar to those of several of the other
prior investment programs sponsored by our affiliates which have owned and
operated retail properties. However, the vast majority of the other investment
programs sponsored by our affiliates were dissimilar from our operation in that
the prior programs owned apartment properties, pre-development land and whole or
partial interests in mortgage loans.
The information in this section and in the Prior Performance Tables
included in this Post-effective amendment as APPENDIX A shows relevant summary
information concerning real estate programs sponsored by our affiliates. The
purpose is to provide information on the prior performance of these programs so
that you may evaluate the experience of the affiliated companies in sponsoring
similar programs. The following discussion is intended to briefly summarize the
objectives and performance of the prior programs and to disclose any material
adverse business developments sustained by them. Past performance is not
necessarily indicative of future performance.
SUMMARY INFORMATION
The table below provides summarized information concerning prior programs
sponsored by our affiliates for the 10-year period ending December 31, 2004, and
is qualified in its entirety by reference to
17
the introductory discussion above and the detailed information appearing in the
Prior Performance Tables in APPENDIX A of this post-effective amendment. YOU
SHOULD NOT CONSTRUE INCLUSION OF THE SUCCEEDING TABLES AS IMPLYING IN ANY MANNER
THAT WE WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN THE TABLES BECAUSE
THE YIELD AND CASH AVAILABLE AND OTHER FACTORS COULD BE SUBSTANTIALLY DIFFERENT
FOR OUR PROPERTIES. YOU SHOULD NOTE THAT BY ACQUIRING OUR SHARES, YOU WILL NOT
BE ACQUIRING ANY INTERESTS IN ANY PRIOR PROGRAMS.
18
INLAND RETAIL REAL INLAND REAL ESTATE INLAND REAL ESTATE
ESTATE TRUST, INC. CORPORATION EXCHANGE PRIVATE
REIT REIT PLACEMENT
PROGRAM AS OF PROGRAM AS OF OFFERINGS AS OF
DECEMBER 31, 2004 DECEMBER 31, 2004 DECEMBER 31, 2004
--------------------------------------------------- ------------------ ------------------ -----------------
Number of programs sponsored 1 1 34
Aggregate amount raised from investors $ 2,301,884,000 703,764,000 151,588,000
Approximate aggregate number of investors 59,000 9,300 386
Number of properties purchased 276 151 30
Aggregate cost of properties $ 4,061,050,000 1,326,000,000 363,005,000
Number of mortgages/notes 0 0 0
Principal amount of mortgages/notes 0 0 0
Principal of properties (based on cost) that were:
Commercial--
Retail 90.00% 86.00% 48.72%
Single-user retail net-lease 10.00% 14.00% 11.68%
Nursing homes 0.00% 0.00% 0.00%
Offices 0.00% 0.00% 24.12%
Industrial 0.00% 0.00% 15.48%
Health clubs 0.00% 0.00% 0.00%
Mini-storage 0.00% 0.00% 0.00%
Total commercial 100.00% 100.00% 100.0%
Multi-family residential 0.00% 0.00% 0.00%
Land 0.00% 0.00% 0.00%
Percentage of properties (based on cost) that were:
Newly constructed (within a year of acquisition) 37.00% 40.00% 60.00%
Existing construction 63.00% 60.00% 40.00%
Number of properties sold in whole or in part 0 11 0
Number of properties exchanged 0 0 0
Of the programs included in the above table, Inland Real Estate Corporation
and Inland Retail Real Estate Trust, Inc. have investment objectives similar to
ours. Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc.
represent approximately 97% of the aggregate amount raised from investors,
approximately 99% of the aggregate number of investors, approximately 95% of the
properties purchased, and approximately 95% of the aggregate cost of the
properties.
During the three years prior to December 31, 2004, Inland Real Estate
Corporation purchased 27 commercial properties and Inland Retail Real Estate
Trust, Inc. purchased 237 commercial properties. Upon written request, you may
obtain, without charge, a copy of Table VI filed with the Securities and
Exchange Commission in Part II of our post-effective amendment. The table
provides more information about these acquisitions.
PUBLICLY REGISTERED REITS
INLAND REAL ESTATE CORPORATION. Through a total of four public offerings,
the last of which was completed in 1999, Inland Real Estate Corporation sold a
total of 51,642,397 shares of common stock. In addition, as of December 31,
2004, Inland Real Estate Corporation issued 14,467,082 shares of common stock
through its distribution reinvestment program. As of December 31, 2004, Inland
Real Estate Corporation repurchased 5,256,435 shares of common stock through its
share repurchase program for an aggregate amount of $49,159,202. As a result,
Inland Real Estate Corporation has realized total gross offering proceeds of
19
approximately $703,764,000 as of December 31, 2004. On June 9, 2004, Inland Real
Estate Corporation listed its shares on the New York Stock Exchange and began
trading under the ticker "IRC".
Inland Real Estate Corporation's objective is to purchase shopping centers
that provide convenience goods, personal services, wearing apparel and hardware
and appliances located within an approximate 400-mile radius of its headquarters
in Oak Brook, Illinois, and to provide, at a minimum, cash distributions on a
quarterly basis and a hedge against inflation through capital appreciation. It
may also acquire single-user retail properties throughout the United States. As
of December 31, 2004, the properties owned by Inland Real Estate Corporation
were generating sufficient cash flow to cover operating expenses plus pay an
annual cash distribution of $0.94 per share paid monthly.
As of December 31, 2004, Inland Real Estate Corporation owned interest in
140 properties for a total investment of approximately $1,325,000,000. These
properties were purchased with proceeds received from the above described
offerings of shares of its common stock and financings. As of December 31, 2004,
Inland Real Estate Corporation financed approximately $599,567,000 on its
properties and had $85,000,000 outstanding through an unsecured line of credit.
On July 1, 2000, Inland Real Estate Corporation became a self-administered
REIT by completing its acquisition of Inland Real Estate Advisory Service, Inc.,
its advisor, and Inland Commercial Property Management, Inc., its property
manager. The acquisition was accomplished by merging its advisor and its
property manager into two wholly owned subsidiaries of Inland Real Estate
Corporation. As a result of the merger, Inland Real Estate Corporation issued to
our sponsor, the sole shareholder of the advisor, and The Inland Property
Management Group, Inc., the sole shareholder of its property manager, an
aggregate of 6,181,818 shares of Inland Real Estate Corporation's common stock
at $11 per share, or approximately 9.008% of its common stock.
INLAND RETAIL REAL ESTATE TRUST, INC. Through a total of three public
offerings, the last of which was completed in 2003, Inland Retail Real Estate
Trust, Inc. sold a total of 213,699,534 shares of its common stock. In addition,
as of December 31, 2004, Inland Retail Real Estate Trust, Inc. issued 21,278,452
shares through its distribution reinvestment program, and has repurchased a
total of 3,367,019 shares through the share reinvestment program. As a result,
Inland Retail Real Estate Trust Inc. has realized total net offering proceeds of
approximately $2,301,884,000 as of December 31, 2004. On December 29, 2004
Inland Retail Real Estate Trust, Inc., issued 19,700,060 shares as a result of
merging with their advisor.
Inland Retail Real Estate Trust, Inc.'s objective is to purchase shopping
centers east of the Mississippi River in addition to single-user retail
properties in locations throughout the United States, and to provide regular
cash distributions and a hedge against inflation through capital appreciation.
As of December 31, 2004, the properties owned by Inland Retail Real Estate
Trust, Inc. were generating sufficient cash flow to cover operating expenses
plus pay an annual cash distribution of $.83 per share per annum paid monthly.
As of December 31, 2004, Inland Retail Real Estate Trust, Inc. owned 276
properties for a total investment of approximately $4,061,050,000. These
properties were purchased with proceeds received from the above described
offerings of shares of its common stock and financings. As of December 31, 2004,
Inland Retail Real Estate Trust, Inc. financed approximately $2,257,842,000 on
its properties.
On December 29, 2004, and pursuant to an agreement and plan of merger
entered into on September 10, 2004, Inland Retail Real Estate Trust, Inc.
(IRRETI) acquired, by merger, four entities affiliated with its former sponsor,
Inland Real Estate Investment Corporation, which entities provided business
management, advisory and property management services to it. The four entities
acquired were Inland Retail Real Estate Advisory Services, Inc., Inland Southern
Mangement Corp., Inland Mid-Atlantic Management Corp. and Inland Southeast
Property Management Corp. (the acquired companies). Shareholders of the acquired
companies received an aggregate of 19,700,060 shares of IRRETI common stock,
valued under the merger agreement at $10.00 per share.
20
The following table summarizes distributions for each of the publicly
registered REITS through December 31,2004:
REIT PERFORMANCE
Distributions through December 31, 2004
INLAND REAL ESTATE CORPORATION
OFFERING COMPLETED 1999
------------------------------------------------------------------------------------------------
Average Average
Annualized Annualized
Distribution Distribution
for Purchases for Purchases
Total Ordinary Non taxable Capital Gain at $10 per at $11 per
Distribution Income Distribution Distribution Share Share
($) ($) * ($) ** ($) *** ($) ($)
------------------------------------------------------------------------------------------------
1995 736,627 694,213 42,414 - 7.6 N/A
1996 3,704,943 3,093,525 611,418 - 8.1 N/A
1997 13,127,597 9,739,233 3,388,364 - 8.6 N/A
1998 35,443,213 27,015,143 8,428,070 - 8.8 7.9
1999 48,379,621 35,640,732 12,738,889 - 8.9 8.0
2000 52,964,010 40,445,730 12,518,280 - 9.0 8.1
2001 58,791,604 45,754,604 12,662,414 374,586 9.3 8.4
2002 60,090,685 41,579,944 18,315,640 195,101 9.4 8.5
2003 61,165,608 47,254,096 13,577,679 333,833 9.4 8.6
2004 62,586,577 53,458,760 7,883,026 1,244,791 9.4 8.6
--------------------------------------------------------------
396,990,485 304,675,980 90,166,194 2,148,311
==============================================================
INLAND RETAIL REAL ESTATE TRUST, INC.
OFFERING COMPLETED 2003
----------------------------------------------------------
Average
Total Ordinary Non Taxable Annualized
Distribution Income Distribution Distribution
($) ($) * ($) ** (%)
----------------------------------------------------------
1999 1,396,861 318,484 1,078,377 7.2
2000 6,615,454 3,612,577 3,002,877 7.7
2001 17,491,342 10,538,534 6,952,808 8.0
2002 58,061,491 36,387,136 21,674,355 8.2
2003 160,350,811 97,571,099 62,779,712 8.3
2004 190,630,575 110,922,403 79,708,172 8.3
------------------------------------------
434,546,534 259,350,233 175,196,301
==========================================
ON JUNE 9, 2004 INLAND REAL ESTATE CORPORATION LISTED ITS SHARES ON
THE NEW YORK STOCK EXCHANGE AND BEGAN TRADING UNDER THE SYMBOL "IRC."
* The breakout between ordinary income and return of capital
is finalized on an annual basis after the calendar year end.
** Represents a return of capital for federal income tax
purposes.
*** Represents a capital gain distribution for federal income
tax purposes.
21
PRIVATE PARTNERSHIPS
Since our inception and through December 31, 2004, our affiliates have
sponsored 514 private placement limited partnerships which have raised more than
$524,201,000 from approximately 17,000 investors and invested in properties for
an aggregate price of more than $1 billion in cash and notes. Of the 522
properties purchased, 93% have been in Illinois. Approximately 90% of the funds
were invested in apartment buildings, 6% in shopping centers, 2% in office
buildings and 2% in other properties. Including sales to affiliates, 475
partnerships have sold their original property investments. Officers and
employees of our sponsor and its affiliates invested more than $17,000,000 in
these private placement limited partnerships.
From October 1, 1995 through December 31, 2004, investors in The Inland
Group private partnerships have received total distributions in excess of
$269,026,000, consisting of cash flow from partnership operations, interest
earnings, sales and refinancing proceeds and cash received during the course of
property exchanges.
Following a proposal by the former corporate general partner, which was
an affiliate of The Inland Group, investors in 301 private partnerships voted in
1990 to make our sponsor the corporate general partner for those partnerships.
Beginning in December 1993 and continuing into the first quarter of
1994, investors in 101 private limited partnerships for which our sponsor is the
general partner received letters from it informing them of the possible
opportunity to sell the 66 apartment properties owned by those partnerships to a
to-be-formed REIT in which affiliates of our sponsor would receive stock and
cash and the limited partners would receive cash. The underwriters of this
apartment REIT subsequently advised our sponsor to sell to a third party its
management and general partner's interests in those remaining limited
partnerships not selling their apartment properties to the apartment REIT. Those
not selling their apartment properties constituted approximately 30% of the
Inland-sponsored limited partnerships owning apartment buildings. The
prospective third-party buyers of our sponsor's interests in the remaining
partnerships, however, would make no assurance to support those partnerships
financially. As a result, in a March 1994 letter, our sponsor informed investors
of its decision not to go forward with the formation of the apartment REIT.
Following this decision, two investors filed a complaint in April 1994
in the Circuit Court of Cook County, Illinois, Chancery Division, purportedly on
behalf of a class of other unnamed investors, alleging that our sponsor had
breached its fiduciary responsibility to those investors whose partnerships
would have sold apartment properties to the apartment REIT. The complaint sought
an accounting of information regarding the apartment REIT matter, an unspecified
amount of damages and the removal of our sponsor as general partner of the
partnerships that would have participated in the sale of properties. In August
1994, the court granted our sponsor's motion to dismiss, finding that the
plaintiffs lacked standing to bring the case individually. The plaintiffs were
granted leave to file an amended complaint. Thereafter, in August 1994, six
investors filed an amended complaint, purportedly on behalf of a class of other
investors, and derivatively on behalf of six limited partnerships of which our
sponsor is the general partner. The derivative counts sought damages from our
sponsor for alleged breach of fiduciary duty and breach of contract, and
asserted a right to an accounting. Our sponsor filed a motion to dismiss in
response to the amended complaint. The suit was dismissed in March 1995 with
prejudice. The plaintiffs filed an appeal in April 1996. After the parties
briefed the issue, arguments were heard by the Appellate Court in February 1997.
In September 1997, the Appellate Court affirmed the trial court decision in
favor of our sponsor.
22
Inland Real Estate Investment Corporation is the general partner of
twenty-seven private limited partnerships and one public limited partnership
that own corporate interests in fifteen buildings that are net leased to Kmart.
The fourteen Kmarts owned by the private limited partnerships are all cross
collateralized. Relating to the Kmart bankruptcy, the status of the fifteen is
as follows:
- CATEGORY 1 - The leases of nine of the Kmarts are current and have
been accepted by Kmart under their Chapter 11 reorganization plan.
- CATEGORY 2 - Kmart assigned its designation rights in one lease to
Kohl's. The lease was amended and extended for Kohl's by IREIC,
the general partner on behalf of the owners and lender; and Kohl's
began paying rent February 12, 2003.
- CATEGORY 3 - Under Kmart's Chapter 11 reorganization plan and upon
emergence from bankruptcy on April 22, 2003, Kmart has rejected
the remaining four property leases, one of which is subject to a
ground lease to Kimco. Kmart ceased paying rent as of May 1, 2003.
IREIC, the corporate general partner has agreed with the note holders
who own the loan to conduct a liquidation of the 14 properties which comprise
Categories 1, 2 and 3. The Category 2 property, which is leased by Kohl's, was
sold on February 19, 2004. As of December 31, 2004, seven of the Category 1
K-Mart properties have been sold and the remaining two are under contract. Two
of the Category 3 properties have been sold, one is under contract and one has
an offer pending as of December 31, 2004.
- CATEGORY 4 - Under Kmart's Chapter 11 reorganization, Kmart
rejected the lease for the property owned by the public limited
partnership and ceased paying rent as of June 29, 2002. The
corporate general partner plans to either re-tenant or sell this
facility.
1031 EXCHANGE PRIVATE PLACEMENT OFFERING PROGRAM
In March of 2001, Inland Real Estate Exchange Corporation (IREX) was
established as a subsidiary of Inland Real Estate Investment Corporation. The
main objective of IREX is to provide replacement properties for people wishing
to complete an IRS Section 1031 real estate exchange. Through December 31, 2004,
IREX offered the sale of 34 properties with a total property value of
$404,899,000.
LANDINGS OF SARASOTA DBT. Inland Southern Acquisitions, Inc., a
Delaware corporation and an affiliate of IREX acquired The Landings, a
multi-tenant shopping center located in Sarasota, Florida in December 1997 for
$9,800,000. In August 2001, Inland Southern Acquisitions, Inc. contributed 100%
of its interest in the property into Landings of Sarasota DBT, a Delaware
business trust, refinanced the property with a loan of $8,000,000 from Parkway
Bank & Trust Co., an Illinois banking corporation, and began offering all of its
beneficial interests in the trust to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. The total price
was $12,000,000, which consisted of $8,000,000 in debt assumption and $4,000,000
in equity investment. $200,000 of the offering proceeds were allocated to a
property reserve account. The offering was completed in May 2002 when the
maximum offering amount was raised.
SENTRY OFFICE BUILDING, DBT, a Delaware business trust, purchased a
newly constructed, single-tenant office building in Davenport, Iowa in December
2001 from Ryan Companies US Inc., a Minnesota corporation. The trust financed
its acquisition of the property with a $7,500,000 first mortgage loan from
Parkway Bank & Trust Co., an Illinois banking corporation. In January 2002,
Sentry Office Building Corporation, a Delaware corporation and the initial
beneficiary of the trust, began offering all of its
23
beneficial interests in the trust to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. The total price
was $11,000,000, which consisted of $7,500,000 in debt assumption and $3,500,000
in equity investment. $100,000 of the offering proceeds obtained from the new
owners was allocated to a property reserve account. The offering was completed
in April 2002 when the maximum offering amount was raised.
PETS BOWIE DELAWARE BUSINESS TRUST purchased a single-tenant retail
building leased to PETsMART in Bowie, Maryland in October 2001 from PETsMART,
Inc. and Wells Fargo Bank Northwest, N.A. The trust initially financed its
acquisition of the property with a temporary loan of $2,625,305 from Parkway
Bank & Trust Co., an Illinois banking corporation, and then replaced this loan
with a permanent loan of $1,300,000 with the same lender. In May 2002, Pets
Bowie Delaware Business Trust began offering all of its beneficial interests to
certain qualified persons in need of replacement properties to complete a 1031
tax-deferred exchange. The total price was $3,900,000, which consisted of
$1,300,000 in debt assumption and $2,600,000 in equity investment. $90,000 of
the offering proceeds obtained from the new owners was allocated to a property
reserve account. The offering was completed in July 2002 when the maximum
offering amount was raised.
1031 CHATTANOOGA DBT, a Delaware business trust, acquired a retail
property currently leased to Eckerd in Chattanooga, Tennessee in May 2002. The
trust financed the property with a loan of $1,500,000 from Parkway Bank & Trust
Co., an Illinois banking corporation. In July 2002, 1031 Chattanooga, L.L.C.,
the initial beneficiary of 1031 Chattanooga DBT, began offering all of the
beneficial interests of the trust to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. The total price
was $3,400,000, which consisted of $1,500,000 in debt assumption and $1,900,000
in equity investment. The offering was completed in May 2003 when the maximum
offering amount was raised.
LANSING SHOPPING CENTER, DBT a Delaware business trust, purchased a
newly constructed, multi-tenant retail shopping center in Lansing, Illinois in
June 2002 from LaSalle Bank National Association, as trustee under trust
agreement dated May 22, 2001 and known as Trust No. 127294. The trust financed
its acquisition of the property with a $5,900,000 first mortgage loan from
Parkway Bank & Trust Co., an Illinois banking corporation. In August 2002,
Lansing Shopping Center, L.L.C., a Delaware limited liability company and the
initial beneficiary of Lansing Shopping Center, DBT, began offering all of the
beneficial interests of the trust to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. The total price
was $10,900,000, which consisted of $5,900,000 in debt assumption and $5,000,000
in equity investment. $80,000 of the offering proceeds was allocated to a
property reserve account. The offering was completed in September 2001 when the
maximum offering amount was raised.
INLAND 220 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a
single-tenant office building currently leased to Walt Disney World Co., a
Florida corporation, in Celebration, Osceola County, Florida, in June 2002 from
Walt Disney World Co. in a sale/leaseback transaction. The trust financed its
acquisition of the property with an $18,000,000 first mortgage loan from Bank of
America, N.A., a national banking association. In September 2002, Inland 220
Celebration Place, L.L.C., a Delaware limited liability company and the initial
beneficiary of Inland 220 Celebration Place Delaware Business Trust, began
offering all of the beneficial interests of the trust to certain qualified
persons in need of replacement properties to complete a 1031 tax-deferred
exchange. The total price was $33,800,000, which consisted of $18,000,000 in
debt assumption and $15,800,000 in equity investment. $50,000 of the offering
proceeds was allocated to a property reserve account. The offering was completed
in September 2003 when the maximum offering amount was raised.
24
TAUNTON CIRCUIT DELAWARE BUSINESS TRUST acquired a retail property
currently leased to Circuit City in Taunton, Massachusetts in July 2002. The
Trust financed the property with a first mortgage of $2,800,000 from MB
Financial Bank. In September 2002, Inland Taunton Circuit, L.L.C., the initial
beneficiary of Taunton Circuit Delaware Business Trust, offered all of its
interest in the trust to a qualified person in need of a replacement property to
complete a 1031 tax-deferred exchange. The total price was $6,550,000, which
consisted of $2,800,000 in debt assumption and $3,750,000 in equity investment.
The offering was completed in September 2002.
BROADWAY COMMONS DELAWARE BUSINESS TRUST acquired a multi-tenant retail
center located in Rochester, Minnesota, in July 2002. The Trust financed the
property with a first mortgage of $8,850,000 from Parkway Bank & Trust Co., an
Illinois banking corporation. In October 2002, Broadway Commons, L.L.C., the
initial beneficiary of Broadway Commons Delaware Business Trust, began offering
all of its beneficial interests in the trust to certain qualified persons in
need of replacement properties to complete a 1031 tax-deferred exchange. The
total price was $17,250,000, which consisted of $8,850,000 in debt assumption
and $8,400,000 in equity investment. $100,000 of the offering proceeds was
allocated to a property reserve account. The offering was completed in December
2003 when the maximum offering amount was raised.
BELL PLAZA 1031, LLC. REHAB ASSOCIATES XIII, INC., an Illinois
corporation and an affiliate of IREX acquired Bell Plaza, a multi-tenant
shopping center in Oak Lawn, IL on August 28, 1998 for $1,675,000. In October
2002, Rehab Associates XIII contributed 100% of its interest in the property
into Bell Plaza 1031, LLC, a Delaware single member limited liability company,
and then offered all of its membership interests in Bell Plaza, LLC to North
Forsyth Associates, a North Carolina general partnership, which was in need of a
replacement property to complete a 1031 tax-deferred exchange. The total price
was $4,030,000, which consisted of $3,140,000 in debt assumption and $890,000 in
equity investment. $25,000 of the offering proceeds was allocated to a property
reserve account. The offering was completed in November 2002.
INLAND 210 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a
single-tenant office building, currently leased to Walt Disney World Co., a
Florida corporation, in Celebration, Osceola County, Florida, in June 2002 from
Walt Disney World Co. in a sale/leaseback transaction. The trust financed its
acquisition of the property with a $5,700,000 first mortgage loan from Bear
Stearns Commercial Mortgage, Inc. In January 2003, Inland 210 Celebration Place
Delaware Business Trust sold its fee simple interest in 210 Celebration Place to
Old Bridge Park Celebration, LLC, a Delaware limited liability company, which
was in need of a replacement property to complete a 1031 tax-deferred exchange.
The total price was $12,000,000, which consisted of $5,700,000 in debt
assumption and $6,300,000 in equity investment.
COMPUSA RETAIL BUILDING. Lombard C-USA, L.L.C., a Delaware limited
liability company, purchased a single-tenant retail building leased to CompUSA,
Inc. in Lombard, Illinois in January 2003 from an unrelated third party. The
L.L.C. financed its acquisition of the property with a $4,000,000 loan from Bear
Stearns Commercial Mortgage, Inc. In April 2003, Lombard C-USA, L.L.C. began
offering 99% of the undivided tenant-in-common interests in the real estate and
improvements thereon located at 2840 S. Highland Avenue, Lombard, DuPage County,
Illinois for $3,910,500 in cash plus the assumption of the existing indebtedness
to certain qualified persons in need of replacement properties to complete a
1031 tax-deferred exchange. The total price was $7,950,000, which consisted of
$4,000,000 in debt assumption and $3,950,000 in equity investment. As required
by the lender, Lombard C-USA, L.L.C. shall retain at least a 1% tenant-in-common
interest, which is included in the $3,950,000 equity investment. $75,000 of the
offering proceeds was allocated to a property reserve account. The offering was
completed in February 2004 when the maximum offering amount was raised.
25
DEERE DISTRIBUTION FACILITY IN JANESVILLE, WISCONSIN. Janesville 1031,
L.L.C., a Delaware limited liability company, purchased a single-tenant, light
industrial distribution center leased to Deere & Company, a Delaware
corporation, in Janesville, Wisconsin in February 2003 from Ryan Janesville,
L.L.C., a Minnesota corporation and an affiliate of Ryan Companies US, Inc. The
L.L.C. financed its acquisition of the property with a $10,450,000 loan from
Bear Stearns Commercial Mortgage, Inc. In May 2003, Janesville 1031, L.L.C.
began offering 99% of the undivided tenant-in-common interests in the real
estate and improvements thereon located at 2900 Beloit Avenue, Janesville, Rock
County, Wisconsin for $9,949,500 in cash plus the assumption of the existing
indebtedness to certain qualified persons in need of replacement properties to
complete a 1031 tax-deferred exchange. The total price, $20,500,000, consisted
of $10,450,000 in debt assumption and $10,050,000 in equity investment, 1% of
which was required by the lender to be retained by Janesville 1031, L.L.C.
$100,000 of the offering proceeds was allocated to a property reserve account.
The offering was completed in January 2004 when the maximum offering was raised.
FLEET OFFICE BUILDING. Westminster Office 1031, L.L.C., a Delaware
limited liability company, purchased a single-tenant office building leased
entirely to Fleet National Bank, a national banking association, in Providence,
Rhode Island in April 2003 from Fleet National Bank in a sale/leaseback
transaction. The L.L.C. financed its acquisition of the property with a
$12,900,000 loan from Bear Stearns Commercial Mortgage, Inc. In June 2003,
Westminster Office 1031, L.L.C. began offering 99% of the undivided
tenant-in-common interests in the real estate and improvements thereon located
at 111 Westminster Street, Providence, Providence County, Rhode Island for
$9,900,000 in cash plus the assumption of the existing indebtedness to certain
qualified persons in need of replacement properties to complete a 1031
tax-deferred exchange. The total price, $22,900,000, consisted of $12,900,000 in
debt assumption and $10,000,000 in equity investment, 1% of which was required
by the lender to be retained by Westminster Office 1031, L.L.C. $150,000 of the
offering proceeds was allocated to a property reserve account. The offering was
completed in January 2004 when the maximum offering was raised.
DEERE DISTRIBUTION FACILITY IN DAVENPORT, IOWA. Davenport 1031, L.L.C.,
a Delaware limited liability company, purchased a single-tenant, light
industrial distribution center leased to Quad Cities Consolidation and
Distribution, Inc., an Illinois corporation, in Davenport, Iowa in April 2003
from Ryan Companies US, Inc., a Minnesota corporation. The lease is fully
guaranteed by Deere & Company, a Delaware corporation. The L.L.C. financed its
acquisition of the property with a loan from Bear Stearns Commercial Mortgage,
Inc. In August 2003, Davenport 1031, L.L.C. began offering 99% of the undivided
tenant-in-common interests in the real estate and improvements thereon located
at 2900 Research Parkway, Davenport, Scott County, Iowa for $15,543,000 in cash
plus the assumption of the existing indebtedness to certain qualified persons in
need of replacement properties to complete a 1031 tax-deferred exchange. The
total price, $28,200,000, consisted of $12,500,000 in debt assumption and
$15,700,000 in equity investment, 1% of which was required by the lender to be
retained by Davenport 1031, L.L.C. $100,000 of the offering proceeds was
allocated to a property reserve account. The offering was completed in April
2004 when the maximum offering was raised.
GRAND CHUTE DST, a Delaware statutory trust, purchased a multi-tenant
retail shopping center in Grand Chute, Wisconsin in October 2002 from
Continental 56 Fund Limited Partnership. The trust funded the acquisition of the
property with cash from the sale of 100% of the beneficial interests in the
trust to Grand Chute, L.L.C., a Delaware limited liability company. Subsequent
to the acquisition of the property, the trust obtained a $5,678,350 loan from
Bank of America, N.A. and the proceeds of the loan were distributed to Grand
Chute, L.L.C. as a partial return of its capital contribution. In January 2003,
Grand Chute, L.L.C. began offering all of its beneficial interests in the trust
to certain qualified persons in need of replacement properties to complete a
1031 tax-deferred exchange. The total price was $12,048,350 which consisted of
$5,678,350 in debt assumption and $6,370,000 in equity investment. $478,350 of
the offering proceeds was allocated to four separate property reserve accounts,
three of which
26
were required by the lender. In September 2003, certain information in the
offering was amended and supplemented through the release of the First
Supplement to Private Placement Memorandum. The offering was completed in March
2004 when the maximum offering amount was raised.
MACON OFFICE DST, a Delaware statutory trust, purchased a single-tenant
office complex in Macon, Georgia in October 2002 from UTF Macon, L.L.C. The
trust funded the acquisition of the property with cash from the sale of 100% of
the beneficial interests in the trust to Macon Office, L.L.C., a Delaware
limited liability company. Subsequent to the acquisition of the property, the
trust obtained a $5,560,000 loan from Bank of America, N.A. and the proceeds of
the loan were distributed to Macon Office, L.L.C. as a partial return of its
capital contribution. In October 2003, Macon Office, L.L.C. began offering all
of its beneficial interests in the trust to certain qualified persons seeking a
cash investment, in addition to certain qualified persons in need of replacement
properties to complete a 1031 tax-deferred exchange. The total price was
$12,160,000 which consisted of $5,560,000 in debt assumption and $6,600,000 in
equity investment. $100,000 of the offering proceeds was allocated to a property
reserve account. The offering was completed in March 2004 when the maximum
offering amount was raised.
WHITE SETTLEMENT ROAD INVESTMENT, LLC, a Delaware limited liability
company, acquired a retail property currently leased to Eckerd Corporation in
Fort Worth, Texas in July 2003. The LLC funded the acquisition of the property
with cash from an affiliate and with a short-term loan from Parkway Bank and
Trust Co., an Illinois banking corporation, in the amount of $2,041,000. In
November 2003, Fort Worth Exchange, LLC, a Delaware limited liability company
and initial beneficiary of White Settlement Road Investment, LLC, offered its
entire membership interest in the LLC to a qualified person in need of a
replacement property to complete a 1031 tax-deferred exchange. The total price
was $2,840,000, which consisted of $1,420,000 in debt assumption and $1,420,000
in equity investment. The offering was completed in December 2003. Simultaneous
with the completion of the offering, the short-term loan with Parkway was
converted to a permanent loan and the terms of the loan documents were modified
in accordance with a loan commitment from Parkway.
PLAINFIELD MARKETPLACE. Plainfield 1031, L.L.C., a Delaware limited
liability company, purchased a multi-tenant shopping center located in
Plainfield, IL on December 16, 2003 from Ryan Companies US, Inc., a Minnesota
corporation. The L.L.C. financed its acquisition of the property with a loan
from Bear Stearns Commercial Mortgage, Inc, a New York corporation. In January
2004, Plainfield 1031, L.L.C. began offering 99% of the undivided
tenant-in-common interests in the real estate and improvements thereon located
at 11840 South Route 59, Plainfield, Will County, Illinois for $12,350,250 in
cash plus the assumption of the existing indebtedness to certain qualified
persons in need of replacement properties to complete a 1031 tax-deferred
exchange. The total price, $24,400,000, consisted of $11,925,000 in debt
assumption and $12,475,000 in equity investment, 1% of which was required by the
lender to be retained by Plainfield 1031, L.L.C. The difference between the real
estate acquisition price of $21,700,000 and the total price of $24,400,000
consists of $950,000 acquisition fee, $150,000 for a property reserve account,
and $1,600,000 of estimated costs and expenses. The offering was completed in
June 2004 when the maximum offering amount was raised.
PIER 1 RETAIL CENTER. Butterfield-Highland 1031, L.L.C., a Delaware
limited liability company, purchased a multi-tenant retail shopping center on
December 30, 2003 from the beneficiary of Trust No. 2314, an unrelated third
party, which trust was held by North Side Community Bank as Trustee under the
Trust Agreement dated December 12, 2003. The L.L.C. financed its acquisition of
the property with a loan from Bear Stearns Commercial Mortgage, Inc, a New York
corporation. In March 2004, Butterfield-Highland 1031, L.L.C. began offering 99%
of the undivided tenant-in-common interests in the real estate and improvements
thereon located at 2830 S. Highland Avenue, Lombard, Illinois for $4,257,000 in
cash plus the assumption of the existing indebtedness to certain qualified
persons in need of replacement properties to complete a 1031 tax-deferred
exchange. The total price, $8,150,000, consisted of $3,850,000
27
in debt assumption and $4,300,000 in equity investment, a minimum of 1% of which
is required by the lender to be retained by Butterfield-Highland 1031, L.L.C.
The difference between the real estate acquisition price of $7,025,000 and the
total price of $8,150,000 consists of $350,000 acquisition fee, $100,000 for a
property reserve account, and $675,000 of estimated costs and expenses. The
offering was completed in June 2004 when the maximum offering amount was raised.
LONG RUN 1031, L.L.C. LR 1031, L.L.C., a Delaware limited liability
company, purchased a multi-tenant retail shopping center on January 27, 2003
from Ryan Lemont, L.L.C., the third party seller and developer of the property.
The L.L.C. financed its acquisition of the property with cash and, on April 24,
2003, placed a loan on the Property in the amount of $4,700,000 from Principal
Commercial Funding, LLC. In June 2004, LR 1031, L.L.C. a Delaware limited
liability company and initial beneficiary of Long Run 1031, L.L.C offered its
entire membership interest in the LLC to a qualified person in need of a
replacement property to complete a 1031 tax-deferred exchange. The total price
was $4,960,000 in cash plus the assumption of the existing indebtedness to
certain qualified persons in need of replacement properties to complete a 1031
tax-deferred exchange. The total price, $9,660,000 consisted of $4,700,000 in
debt assumption and $4,960,000 in equity investment. The difference between the
real estate acquisition price of $8,500,000 and the total price of $9,660,000
consists of $451,347 acquisition fee, $50,000 for a property reserve account,
and $658,653 of estimated costs and expenses. The offering was completed in June
2004 when the maximum offering amount was raised.
FORESTVILLE 1031, L.L.C. Forestville Exchange, L.L.C., a Delaware
limited liability company, purchased a single-tenant retail shopping center on
November 13, 2003 from Silver Hill, L.L.C., a North Carolina limited liability
company, the property's developer. The L.L.C. financed its acquisition of the
property with cash. In May 2004, Forestville Exchange, L.L.C. a Delaware limited
liability company and initial beneficiary of Forestville 1031, L.L.C offered its
entire membership interest in the LLC to a qualified person in need of a
replacement property to complete a 1031 tax-deferred exchange. The total price,
$3,900,000 consisted of $1,793,630 in mortgage financing from Parkway Bank and
Trust Co., and $2,106,370 in equity investment. The difference between the real
estate acquisition price of $3,450,000 and the total price of $3,900,000
consists of $172,500 acquisition fee and $277,500 of estimated costs and
expenses. The offering was completed in May 2004 when the maximum offering
amount was raised.
BED, BATH & BEYOND RETAIL CENTER. BBY Schaumburg 1031, L.L.C., a
Delaware limited liability company, purchased a multi-tenant retail shopping
center on April 20, 2004 from the American Real Estate Holdings, L.P. a Delaware
limited partnership, an unrelated third party. The L.L.C. financed its
acquisition of the property with a loan from Bear Stearns Commercial Mortgage,
Inc, a New York corporation. In June 2004, BBY Schaumburg 1031, L.L.C. began
offering 99% of the undivided tenant-in-common interests in the real estate and
improvements thereon located at 905-915 East Golf Road, Schaumburg, Illinois for
$6,633,000 in cash plus the assumption of the existing indebtedness to certain
qualified persons in need of replacement properties to complete a 1031
tax-deferred exchange. The total price, $12,605,000, consisted of $6,905,000 in
debt assumption and $5,700,000 in equity investment, 1% of which was required by
the lender to be retained by BBY Schaumburg 1031, L.L.C. The difference between
the real estate acquisition price of $11,655,110 and the total price of
$13,605,000 consists of $600,000 acquisition fee, $400,000 for property reserve
accounts, and $949,890 of estimated costs and expenses. The offering was
completed in October 2004 when the maximum offering amount was raised.
CROSS CREEK COMMONS SHOPPING CENTER. Cross Creek 1031, L.L.C., a
Delaware limited liability company, purchased a multi-tenant retail shopping
center on February 17, 2004 from Buckley Shuler Real Estate, L.L.C., a Georgia
limited liability company, an unrelated third party. The L.L.C. financed its
acquisition of the property with cash and subsequently placed a loan from Bear
Stearns Commercial Mortgage on the property. In March 2004, Cross Creek 1031,
L.L.C. began offering 99% of the undivided tenant-in-common interests in the
real estate and improvements thereon located at 10920-
28
10948 Cross Creek Boulevard, Tampa, Florida for $6,930,000 in cash plus the
assumption of the existing indebtedness to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. As of June 30,
2004 the L.L.C. had raised $2,788,000. The total price, $12,078,762, consisted
of $5,078,762 in debt assumption and $7,000,000 in equity investment, 1% of
which was required by the lender to be retained by Cross Creek 1031, L.L.C. The
difference between the real estate acquisition price of $10,319,583 and the
total price of $12,078,762 consists of $520,000 acquisition fee, $150,000 for a
property reserve account, and $1,089,179 of estimated costs and expenses. The
offering was completed in August 2004 when the maximum offering amount was
raised.
BJ'S SHOPPING CENTER EAST SYRACUSE, NEW YORK. BJS Syracuse 1031,
L.L.C., a Delaware limited liability company, purchased a multi-tenant retail
shopping center on April 30, 2004 from the American Real Estate Holdings, L.P. a
Delaware limited partnership, an unrelated third party. The L.L.C. financed its
acquisition of the property with a loan and cash. In June 2004, BJS Syracuse
1031, L.L.C. began offering 99% of the undivided tenant-in-common interests in
the real estate and improvements thereon located at 2-4 Chevy Drive, East
Syracuse, New York for $8,365,500 in cash plus the assumption of the existing
indebtedness to certain qualified persons in need of replacement properties to
complete a 1031 tax-deferred exchange. The total price of the purchase was
$15,850,000. The total price, $15,850,000, consisted of $7,400,000 in debt
assumption and $8,450,000 in equity investment, 1% of which was required by the
lender to be retained by BJS Syracuse 1031, L.L.C. The difference between the
real estate acquisition price of $13,500,000 and the total price of $15,850,000
consists of $675,000 acquisition fee, $150,000 for a property reserve account,
and $1,525,000 of estimated costs and expenses. The offering was completed in
October 2004 when the maximum offering amount was raised.
BARNES & NOBLE RETAIL CENTER CLAY, NEW YORK. Clay 1031, L.L.C., a
Delaware limited liability company, purchased a multi-tenant retail shopping
center on April 15, 2004 from the Clay First Associates, L.L.C., an unrelated
third party. The L.L.C. financed its acquisition of the property with an assumed
mortgage and note for $3,175,000 and cash. In June 2004, Clay 1031, L.L.C. began
offering 99% of the undivided tenant-in-common interests in the real estate and
improvements thereon located at 3954-3956 Route 31, Clay, New York for
$3,930,300 in cash plus the assumption of the existing indebtedness to certain
qualified persons in need of replacement properties to complete a 1031
tax-deferred exchange. The total price, $7,145,000, consisted of $3,175,000 in
debt assumption and $3,970,000 in equity investment, 1% of which was required by
the lender to be retained by BJS Syracuse 1031, L.L.C. The difference between
the real estate acquisition price of $6,100,000 and the total price of
$7,145,000 consists of $305,000 acquisition fee, $100,000 for a property reserve
account, and $640,000 of estimated costs and expenses. The offering was
completed in February 2005 when the maximum offering amount was raised.
PORT RICHEY 1031, L.L.C. Port Rickey Exchange, L.L.C., a Delaware
limited liability company, purchased a multi-tenant retail shopping center on
January 30, 2004 from Land Capital Group, Inc., an unrelated third party. The
L.L.C. financed its acquisition of the property with cash and, on February 25,
2004, placed a loan on the Property in the amount of $2,900,000 from Bear
Stearns Commercial Mortgage, Inc. In July 2004, Port Richey Exchange, L.L.C., a
Delaware limited liability company and initial beneficiary of Port Richey 1031,
L.L.C. offered its entire membership interest in the LLC to a qualified person
in need of a replacement property to complete a 1031 tax-deferred exchange. The
total price, $5,975,000 consisted of $2,900,000 in debt assumption and
$3,075,000 in equity investment. The difference between the real estate
acquisition price of $5,250,000 and the total price of $5,975,000 consists of
$262,500 acquisition fee and $437,500 of estimated costs and expenses and
$25,000 for a property reserve account. The offering was completed in July 2004
when the maximum offering amount was raised.
29
WALGREENS STORE HOBART INDIANA. Hobart 1031, L.L.C., a Delaware limited
liability company, purchased a single-tenant retail shopping center on June 10,
2004 from C. Hobart, L.L.C., an unrelated third party. The L.L.C. financed its
acquisition of the property with cash. In July 2004, Hobart 1031, L.L.C. began
offering 99% of the undivided tenant-in-common interests in the real estate and
improvement thereon located at 732 West Old Ridge Road, Hobart, Indiana for
$6,534,000 in cash to certain qualified persons in need of replacement
properties to complete a 1031 tax-deferred exchange. The total price, $6,534,000
consists of an equity investment, 1% of which will be retained by Hobart 1031,
L.L.C. The difference between the real estate acquisition price of $5,575,000
and the total price of $6,534,000 consists of $235,000 acquisition fee, $50,000
for a property reserve account, and $740,000 of estimated costs and expenses.
The offering was completed in February 2005 when the maximum offering amount was
raised.
KRAFT COLD STORAGE FACILITY, MASON CITY, IOWA. Mason City 1031, L.L.C.,
a Delaware limited liability company, purchased a single-tenant light industrial
building on June 2, 2004 from MDG Iowa, L.P., an unrelated third party. The
L.L.C. financed its acquisition of the property with a mortgage and note for
$5,333,000 and cash. In July 2004, Mason City 1031, L.L.C. began offering 99% of
the undivided tenant-in-common interests in the real estate and improvements
thereon located at 904 - 12th Street, Mason City Iowa for $5,610,330 in cash
plus the assumption of the existing indebtedness to certain qualified persons in
need of replacement properties to complete a 1031 tax-deferred exchange. The
total price, $11,000,000 consisted of $5,333,000 in debt assumption and
$5,667,000 in equity investment, 1% of which was required by the lender to be
retained by Mason City 1031, L.L.C. The difference between the real estate
acquisition price of $9,550,000 and the total price of $11,000,000 consists of
$480,000 acquisition fee, $100,000 for a property reserve account, environmental
insurance credit of $50,000 and $820,000 of estimated costs and expenses. The
offering was completed in December 2004 when the maximum offering amount was
raised.
HUNTINGTON SQUARE PLAZA, NEW YORK. Huntington Square 1031, L.L.C., a
Delaware limited liability company, purchased a multi-tenant retail shopping
center on July 16, 2004 from Starwood Ceruzzi Commack, L.L.C., an unrelated
third party. The L.L.C. financed its acquisition of the property with an assumed
first mortgage and note for $19,150,000, a junior loan in the amount of
$6,180,000 and cash. On August 30, 2004, Huntington Square 1031, L.L.C. began
offering 99% of the undivided tenant-in-common interests in the real estate and
improvement thereon located at 3124 East Jericho Turnpike, New York for
$20,050,000 in cash plus the assumption of the existing first mortgage
indebtedness to certain qualified persons in need of replacement properties to
complete a 1031 tax-deferred exchange. The total price, $39,200,000 consisted of
$19,150,000 in debt assumption and $20,050,000 in equity investment, 1% of which
was required by the lender to be retained by Huntington Square 1031, L.L.C. The
difference between the real estate acquisition price of $24,821,392 and the
total price of $39,200,000 consists of $1,500,000 acquisition fee, $150,000 for
a property reserve account and $2,728,608 of estimated costs and expenses. The
offering is currently selling.
BEST BUY STORE, REYNOLDSBURG, OHIO. Reynoldsburg 1031, L.L.C., a
Delaware limited liability company, purchase a single-tenant retail shopping
center on August 5, 2004 from NOCA Retail Development Limited, an unrelated
third party. The L.L.C. financed its acquisition of the property with a loan
from Bear Stearns Commercial Mortgage, Inc., a New York corporation for
$4,950,000 and cash. In June 2004, Reynoldsburg 1031, L.L.C. began offering 99%
of the undivided tenant-in-common interests in the real estate and improvements
thereon located at 2872 Taylor Road, Reynoldsburg, Ohio for $5,395,000 in cash
plus the assumption of the existing indebtedness to certain qualified persons in
need of replacement properties to complete a 1031 tax-deferred exchange. The
total price, $10,345,000 consisted of $4,950,000 in debt assumption and
$5,395,000 in equity investment, 1% of which was required by the lender to be
retained by Reynoldsburg 1031, L.L.C. The difference between the real estate
acquisition price of $9,000,000 and the total price of $10,345,000 consists of
$450,000 acquisition fee, $100,000 for
30
a property reserve account, and $795,000 of estimated costs and expenses. The
offering was completed in February 2005 when the maximum offering amount was
raised.
DEERE & COMPANY DISTRIBUTION FACILITY IN JEFFERSON CITY, TENNESSEE.
Jefferson City 1031, L.L.C., a Delaware limited liability company, purchased a
free-standing industrial distribution facility from Flat Gap Road L.L.C. The
property is fully leased by Deere & Company, a Delaware corporation. The L.L.C.
financed its acquisition of the property with a loan from LaSalle Bank National
Association. In December 2004, Jefferson City 1031, L.L.C. began offering 99% of
the undivided tenant-in-common interests in the real estate and improvements
thereon located at 1400 Flat Gap Road, Jefferson City, Jefferson County,
Tennessee for $10,973,000 in cash plus the assumption of the existing
indebtedness to certain qualified persons in need of replacement properties to
complete a 1031 tax-deferred exchange. The total price, $20,735,000, consisted
of $9,762,000 in debt assumption and $10,973,000 in equity investment, 1% of
which was required by the lender to be retained by Jefferson City 1031, L.L.C.
The difference between the real estate acquisition price of $17,750,000 and the
total price of $20,735,000 consists of $1,300,000 acquisition fee and market
value adjustment, $100,000 for a property reserve account and $1,585,000 of
estimated costs and expenses. As of December 31, 2004 there were no investors.
INDIANAPOLIS ENTERTAINMENT 1031, L.L.C. Indianapolis Entertainment
Exchange, L.L.C., a Delaware limited liability company purchased a single tenant
restaurant on April 20, 2004 from American Real Estate Holdings Limited
Partnership, a Delaware limited partnership, an unrelated third party. The
L.L.C. financed its acquisition of the property with cash and, on June 30, 2004,
placed a loan on the property in the amount of $1,061,000 from Bear Stearns
Commercial Mortgage, Inc. In October 2004, Indianapolis Entertainment Exchange,
L.L.C., a Delaware limited liability company and initial beneficiary of
Indianapolis Entertainment 1031, L.L.C., offered its entire membership interest
in the LLC to certain qualified persons in need of a replacement property to
complete a 1031 tax-deferred exchange. The total price, $2,190,000, consisted of
$1,061,000 in debt assumption and $1,129,000 in equity investment. The
difference between the real estate acquisition price of $1,929,316 and the total
price of $2,190,000 consists of $95,000 acquisition fee and $165,684 of
estimated costs and expenses. The offering was completed in October 2004 when
the maximum offering amount was raised.
MOBILE ENTERTAINMENT 1031, L.L.C. Indianapolis Entertainment Exchange,
L.L.C., a Delaware limited liability company purchased a single tenant
restaurant on April 20, 2004 from American Real Estate Holdings Limited
Partnership, a Delaware limited partnership, an unrelated third party. The
L.L.C. financed its acquisition of the property with cash and, on June 30, 2004,
placed a loan on the property in the amount of $770,000 from Bear Stearns
Commercial Mortgage, Inc. In October 2004, Indianapolis Entertainment Exchange,
L.L.C., a Delaware limited liability company and initial beneficiary of
Indianapolis Entertainment 1031, L.L.C., offered its entire membership interest
in the LLC to certain qualified persons in need of a replacement property to
complete a 1031 tax-deferred exchange. The total price, $1,578,000, consisted of
$770,000 in debt assumption and $808,000 in equity investment. The difference
between the real estate acquisition price of $1,400,632 and the total price of
$1,578,000 consists of $42,000 acquisition fee and $135,365 of estimated costs
and expenses. The offering was completed in October 2004 when the maximum
offering amount was raised.
KOHL'S STORE IN STOUGHTON, MASSACHUSETTS. Stoughton 1031, L.L.C., a
Delaware limited liability company, purchased a free standing retail building on
August 13, 2004 from Koffler/GID Stoughton, LLC, an unrelated third party. The
L.L.C. financed its acquisition of the property with a loan from Bear Stearns
Commercial Mortgage, Inc. for $12,063,000 and cash. In October 2004, Stoughton
1031, L.L.C. began offering 99% of the undivided tenant-in-common interests in
the real estate and improvements thereon located at 501 Technology Center Drive,
Stoughton, Norfolk County, Massachusetts for $10,187,000 in cash plus the
assumption of the existing indebtedness to certain qualified persons in need
31
of replacement properties to complete a 1031 tax-deferred exchange. The total
price, $19,950,000, consisted of $9,763,000 in debt assumption and $10,187,000
in equity investment, 1% of which was required by the lender to be retained by
Stoughton 1031, L.L.C. The difference between the real estate acquisition price
of $17,650,000 and the total price of $19,950,000 consists of $775,000
acquisition fee, $100,000 for a property reserve account and $1,425,000 of
estimated costs and expenses. The offering is currently selling.
32
The following summary table describes the fees and expenses incurred by
each of our entities in our 1031 Exchange Private Placement Offering Project.
Sentry Lansing Inland 220
Landings of Office 1031 Shopping Celebration
Sarasota Building Pets Bowie Chattanooga Center Place
DBT DBT DBT DBT DBT DBT
-----------------------------------------------------------------------------------
Commissions & Fees(1) Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5%
Selling Commission To 3rd Party Reps 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
Due Diligence Fee 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Marketing Expenses 1.00% 1.50% 1.50% 1.50% 1.50% 1.00%
Offering & Organization 1.00% 0.50% 0.50% 0.50% 0.50% 1.00%
Mortgage Broker Fee (IMC)(2) 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Acquisition Fee & Carrying Costs(3)
Acquisition Fee N/A 0.71% 0.77% 0.90% 0.88% 1.18%
Bridge Financing Fees N/A N/A 1.49% 0.50% 0.20% 0.10%
Total Load(4) 11.25%-12.75% 14.23% 13.68% 14.39% 13.68% 13.23%
Asset Management Fees(5) N/A 0.75% 1.00% 0.56% 0.55% 0.52%
Paid by
Property Management Fees(6) 4.5% 5.0% Asset Mgr. 5.0% 5.0% 4.5%
Backend Sales Commission 3.5% 3.5% 3.5% 3.5% 3.5% N/A
Janesville
Inland 210 CompUSA Deere
Taunton Broadway Celebration Retail Distribution
Circuit Commons Bell Plaza Place Building Facility
DBT DBT 1031 LLC DBT LLC 1031 LLC
------------------------------------------------------------------------------------
Commissions & Fees(1) Up to 8.0% Up to 8.77% Up to 9.19% Up to 5.27% Up to 8.56% Up to 8.6%
Selling Commission To 3rd Party Reps 6.00% 6.00% 6.00% 3.81% 6.00% 6.00%
Due Diligence Fee 0.50% 0.50% 0.50% 0.00% 0.50% 0.50%
Marketing Expenses 1.00% 1.00% 1.00% 0.50% 1.00% 1.00%
Offering & Organization 0.50% 1.27% 1.69% 0.96% 1.06% 1.10%
Mortgage Broker Fee (IMC)(2) 0.61% 0.50% 0.50% 0.50% 0.50% 0.50%
Acquisition Fee & Carrying Costs(3)
Acquisition Fee 0.69% 0.75% N/A 0.89% 0.82% 0.87%
Bridge Financing Fees 0.07% 0.23% N/A 0.23% 0.23% 0.23%
Total Load(4) 11.89% 12.98% 23.02% 10.52% 14.93% 13.93%
Asset Management Fees(5) 0.57% N/A 0.53% 0.53% 0.63% 0.49%
Property Management Fees(6) 4.0% 5.0% 5.0% 4.5% 4.5% 4.5%
Backend Sales Commission N/A N/A 3.5% N/A N/A N/A
33
Davenport White
Deere Settlement
Fleet Office Distribution Road Plainfield
Building Facility Grand Chute Macon Office Investment Marketplace
1031 LLC 1031 LLC DST DST LLC 1031 LLC
-----------------------------------------------------------------------------------------
Commissions & Fees(1) Up to 8.52% Up to 8.42% Up to 8.82% Up to 8.52% Up to 8.52% Up to 8.76%
Selling Commission To 3rd Party Reps 6.00% 6.00% 6.00% 6.00% 7.04% 6.00%
Due Diligence Fee 0.50% 0.50% 0.50% 0.50% 0.60% 0.50%
Marketing Expenses 1.00% 1.00% 1.00% 1.00% 1.16% 1.00%
Offering & Organization 1.02% 0.92% 1.32% 1.02% 1.66% 1.26%
Mortgage Broker Fee (IMC)(2) 0.50% 0.71% 0.50% 0.50% 0.97% 0.57%
Acquisition Fee & Carrying Costs(3)
Acquisition Fee 0.85% 0.77% 0.84% 0.72% 8.99% 3.89%
Bridge Financing Fees 0.35% 0.72% 0.13% 0.81% 0.12% 0.92%
Total Load(4) 14.57% 13.18% 12.96% 14.24% 30.90% 20.44%
Asset Management Fees(5) 0.49% 0.50% 0.66% 0.66% 0.00% 0.04%
Property Management Fees(6) 4.5% 4.5% 5.0% 4.5% 5.0% 5.0%
Backend Sales Commission N/A NA NA NA NA NA
BJ's
Pier 1 Retail Bed, Bath & Cross Creek Shopping
Center Long Run Forestville Beyond Commons Center
1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC
-----------------------------------------------------------------------------------------
Commissions & Fees(1) Up to 8.73% Up to 8.37% Up to 8.40% Up to 8.70% Up to 8.64% Up to 8.59%
Selling Commission To 3rd Party Reps 6.00% 5.84% 5.54% 6.00% 6.00% 6.00%
Due Diligence Fee 0.50% 0.49% 0.46% 0.50% 0.50% 0.50%
Marketing Expenses 1.00% 0.97% 0.93% 1.00% 1.00% 1.00%
Offering & Organization 1.23% 1.07% 1.46% 1.20% 1.14% 1.09%
Mortgage Broker Fee (IMC)(2) 0.50% 0.47% 0.43% 0.55% 0.40% 0.50%
Acquisition Fee & Carrying Costs(3)
Acquisition Fee 4.29% 5.31% 5.00% 5.15% 5.04% 5.00%
Bridge Financing Fees 0.94%
Total Load(4) 23.84% 22.38% 21.34% 23.13% 22.99% 26.04%
Asset Management Fees(5) 0.06% 0.20% 0.00% 0.15% 0.11% 0.12%
Property Management Fees(6) 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Backend Sales Commission NA NA NA N/A NA NA
34
Barnes & Kraft Cold Best Buy
Noble Retail Walgreen Storage Huntington Store
Center Port Richey Store Hobart Facility Square Plaza Reynoldsburg
1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC
------------------------------------------------------------------------------------------
Commissions & Fees(1) Up to 8.69% Up to 8.4% Up to 8.52% Up to 8.75% Up to 8.02% Up to 8.64%
Selling Commission To 3rd Party Reps 6.00% 5.55% 6.00% 6.00% 6.00% 6.00%
Due Diligence Fee 0.50% 0.46% 0.50% 0.50% 0.50% 0.50%
Marketing Expenses 1.00% 0.93% 1.00% 1.00% 1.00% 1.00%
Offering & Organization 1.19% 1.46% 1.02% 1.25% .52% 1.14%
Mortgage Broker Fee (IMC)(2) 0.50% 0.43% N/A 0.50% 0.58% 0.50%
Acquisition Fee & Carrying Costs(3)
Acquisition Fee 5.00% 5.00% 4.22% 5.03% 4.31% 5.00%
Bridge Financing Fees 0.49% 0.56% 1.25% 0.56% 0.47% 0.69%
Total Load(4) 23.80% 22.80% 14.77% 22.94% 12.14% 23.08%
Asset Management Fees(5) 0.13% 0.08% 0.08% 0.05% 0.03% 0.06%
Property Management Fees(6) 5.0% 5.0% 4.5% 4.5% 4.5% 2.9%
Backend Sales Commission NA N/A N/A N/A N/A N/A
Mobile Indianapolis
Jefferson City Stoughton Entertainment Entertainment
1031 LLC 1031 LLC 1031 LLC 1031 LLC
--------------------------------------------------------------
Commissions & Fees(1) Up to 8.63% Up to 8.61% Up to 9.88% Up to 9.07%
Selling Commission To 3rd Party Reps 6.00% 6.00% 5.86% 5.82%
Due Diligence Fee 0.50% 0.50% 0.49% 0.48%
Marketing Expenses 1.00% 1.00% 0.98% 0.97%
Offering & Organization 1.13% 1.11% 2.56% 1.80%
Mortgage Broker Fee (IMC)(2) 0.61% 0.56% 0.50% 0.50%
Acquisition Fee & Carrying Costs(3)
Acquisition Fee 7.32% 4.39% 3.00% 4.92%
Bridge Financing Fees 0.30% 0.42% 0.73% 0.73%
Total Load(4) 16.25% 21.60% 12.66% 23.09%
Asset Management Fees(5) 0.09% 0.10% 0.37% 0.27%
Property Management Fees(6) 2.9% 2.9% 2.9% 2.9%
Backend Sales Commission N/A N/A N/A N/A
(1) Commissions and fees are calculated as a percentage of the equity
portion of each deal.
(2) The Mortgage Broker Fee is calculated as a percentage of the debt
portion of each deal.
(3) Acquisition & Carrying Costs are calculated as a percentage of the real
estate acquisition price.
35
(4) The Total Load is calculated as a percentage of the equity portion of
each deal. The Total Load includes the Commissions & Fees, Mortgage Broker Fee,
Acquisition Fee & Carrying Costs, as well as any other non-affiliated third
party expenses.
(5) Asset Management Fees are calculated as a percentage of the value of
the assets under management. However, for The Landings and Broadway Commons,
which are both Master Lease deals, the Master Tenant Income is the residual cash
flow from the Property after payment of the Master Lease Rent. As a result, it
is not possible to accurately represent the Master Tenant Income as a percentage
of the value of the assets under management.
(6) Property Management Fees are calculated as a percentage of Gross Income
from the property.
The following additional fees are the same for each deal:
Loan Servicing Fee - IMSC will be compensated with a monthly fee equal
to the outstanding principal balance of the loan at the beginning of every month
multiplied by 1/8% then divided by 12. This figure, however shall never exceed
$10,000, nor be less than $1,200 monthly.
Termination Fees - (i) MASTER LEASE: 8.333% of the last 12 Months of
NOI less Rent payments for the same 12 months multiplied by the number of months
remaining on the then-current term of the Master Lease and (ii) ASSET & PROPERTY
MANAGEMENT AGREEMENTS: The sum of the current monthly AM & PM fees times the
number of months remaining on the term.
36
The following table summarizes cash distributions to investors for each
of the 1031 Exchange Private Placement Offering Projects through December 31,
2004:
1031 EXCHANGE PERFORMANCE
DISTRIBUTIONS THROUGH DECEMBER 31, 2004
Number Offering Offering Distributions
of Equity Completed To Date
Name of Entity Investors ($) ($) ($)
---------------------------------------------------------------------------------------------------
Landings of Sarasota DBT 9 4,000,000 05/2002 967,036
Sentry Office Building DBT 7 3,500,000 04/2002 838,352
Pets Bowie DBT 7 2,600,000 07/2002 583,006
1031 Chattanooga DBT 9 1,900,000 05/2002 396,165
Lansing Shopping Center DBT 5 5,000,000 09/2001 966,308
Inland 220 Celebration Place DBT 35 15,800,000 09/2003 2,461,974
Taunton Circuit DBT 1 3,750,000 09/2002 678,650
Broadway Commons DBT 32 8,400,000 12/2003 981,185
Bell Plaza 1031, LLC 1 890,000 11/2003 254,491
Inland 210 Celebration Place DBT 1 6,300,000 01/2003 1,020,331
CompUSA Retail Building, LLC 11 3,950,000 02/2004 386,560
Janesville Deere Distribution Facility 1031, LLC 35 10,050,000 01/2004 858,827
Fleet Office Building 1031, LLC 30 10,000,000 01/2004 796,941
Davenport Deere Distribution Facility 1031, LLC 35 15,700,000 04/2004 1,063,928
Grand Chute DST 29 5,370,000 03/2004 400,400
Macon Office DST 29 6,600,000 03/2004 515,838
White Settlement Road Investment, LLC 1 1,420,000 12/2003 115,084
Plainfield Marketplace 1031, LLC 31 12,475,000 06/2004 406,197
Pier 1 Retail Center 1031, LLC 22 4,300,000 06/2004 134,212
Long Run 1031, LLC 1 4,935,000 05/2004 215,000
Forestville 1031, LLC 1 3,900,000 05/2004 148,563
Bed, Bath & Beyond 1031, LLC 19 6,633,000 * 49,536
Cross Creek Commons 1031, LLC 26 6,930,000 08/2004 122,412
BJ's Shopping Center 1031, LLC 7 8,365,000 * 8,606
Barnes & Noble Retail Center 1031, LLC 1 3,930,000 * 1,507
Port Richey 1031, LLC 1 3,075,000 07/2004 47,330
Walgreen Store Hobart 1031, LLC 11 6,534,000 * 19,907
Kraft Cold Storage Facility 1031, LLC 19 11,000,000 * 28,440
Huntington Square Plaza 1031, LLC 16 39,200,000 * -
Best Buy Store Reynoldsburg 1031, LLC 4 10,345,000 * -
Jefferson City 1031, LLC 0 10,973,000 -
Stoughton 1031, LLC 1 19,950,000 -
2001 2002 2003 2004
Number Annual Annual Annual Annual
of Distribution Distribution Distribution Distribution
Name of Entity Investors (%) (%) (%) (%)
-------------------------------------------------------------------------------------------------------------------
Landings of Sarasota DBT 9 8.00 8.00 8.07 8.39
Sentry Office Building DBT 7 8.20 8.73 9.25
Pets Bowie DBT 7 8.89 8.89 9.12
1031 Chattanooga DBT 9 8.19 8.26 8.26
Lansing Shopping Center DBT 5 8.47 8.29 8.96
Inland 220 Celebration Place DBT 35 8.08 8.10 8.10
Taunton Circuit DBT 1 8.22 8.31 8.31
Broadway Commons DBT 32 8.14 8.22 8.26
Bell Plaza 1031, LLC 1 13.53 14.67 16.05
Inland 210 Celebration Place DBT 1 8.23 8.23
CompUSA Retail Building, LLC 11 8.05 8.17
Janesville Deere Distribution Facility 1031, LLC 35 7.23 7.35
Fleet Office Building 1031, LLC 30 7.19 7.19
Davenport Deere Distribution Facility 1031, LLC 35 7.36 7.36
Grand Chute DST 29 8.48 8.49
Macon Office DST 29 8.20 8.20
White Settlement Road Investment, LLC 1 8.34
Plainfield Marketplace 1031, LLC 31 7.09
Pier 1 Retail Center 1031, LLC 22 7.20
Long Run 1031, LLC 1 9.42
Forestville 1031, LLC 1 7.55
Bed, Bath & Beyond 1031, LLC 19 7.58
Cross Creek Commons 1031, LLC 26 7.30
BJ's Shopping Center 1031, LLC 7 7.69
Barnes & Noble Retail Center 1031, LLC 1 6.65
Port Richey 1031, LLC 1 9.24
Walgreen Store Hobart 1031, LLC 11 5.78
Kraft Cold Storage Facility 1031, LLC 19 7.00
Huntington Square Plaza 1031, LLC 16 N/A
Best Buy Store Reynoldsburg 1031, LLC 4 N/A
Jefferson City 1031, LLC 0 N/A
Stoughton 1031, LLC 1 N/A
Number Offering Offering Distributions
of Equity Completed To Date
Name of Entity Investors ($) ($) ($)
Indianapolis Entertainment 1031, LLC 1 2,190,000 -
Mobile Entertainment 1031, LLC 1 1,578,000 * -
----------- -------------
261,543,000 14,466,786
=========== =============
2001 2002 2003 2004
Number Annual Annual Annual Annual
of Distribution Distribution Distribution Distribution
Name of Entity Investors (%) (%) (%) (%)
Indianapolis Entertainment 1031, LLC 1 N/A
Mobile Entertainment 1031, LLC 1 N/A
* Offering was not complete as of December 31, 2004
37
MANAGEMENT
INLAND AFFILIATED COMPANIES
THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 64 OF OUR PROSPECTUS IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific
Property Services LLC, our management companies, were formed to segregate
responsibility for management of our properties from Inland Property
Management companies' growing management portfolio of retail properties. Our
property management companies are responsible for collecting rent, leasing,
and maintaining the retail properties they manage. These properties are
primarily intended to be our properties in our primary geographical area of
investment. Our property management companies are owned primarily by
individuals who are affiliates of Inland.
WE HAVE ADDED A FOURTEENTH PARAGRAPH, UNDER THIS SECTION ON "INLAND AFFILIATED
COMPANIES" WHICH STARTS ON PAGE 64 OF OUR PROSPECTUS TO READ AS FOLLOWS:
On February 11, 2005, Inland American Real Estate Trust, Inc. filed a
registration statement on Form S-11 to register 500,000,000 shares of common
stock and up to 40,000,000 shares of their common stock for participants in
their distribution reinvestment and share repurchase program. The registration
statement has not been declared effective by the Securities and Exchange
Commission, and there is no assurance when and if it will be declared effective.
Inland American Real Estate Trust, Inc. is affiliated with The Inland Group.
THE BIOGRAPHY UNDER THIS SECTION, WHICH STARTS ON PAGE 67 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
ROBERT D. PARKS is a Director of The Inland Group, Inc. and one of its
four original principals; Chairman of Inland Real Estate Investment Corporation,
Director of Inland Securities Corporation, and a Director of Inland Investment
Advisors, Inc. Mr. Parks is Chairman, Chief Executive Officer, and Affiliated
Director of Inland American Real Estate Trust, Inc. and President, Chief
Executive Officer and a Director of Inland Real Estate Corporation. He is
Chairman, and Director of Inland Retail Real Estate Trust, Inc., and Mr. Parks
is Affiliated Director of Inland Real Estate Exchange Corporation.
Mr. Parks is responsible for the ongoing administration of existing
investment programs, corporate budgeting and administration for Inland Real
Estate Investment Corporation. He oversees and coordinates the marketing of all
investments and investor relations.
Prior to joining Inland, Mr. Parks taught in Chicago's public schools.
He received his B.A. Degree from Northeastern Illinois University and his M.A.
Degree from the University of Chicago. He is a registered Direct Participation
Program Limited Principal with the National Association of Securities Dealers.
He is a member of the Real Estate Investment Association, the Financial Planning
Association, the Foundation for Financial Planning as well as a member of the
National Association of Real Estate Investment Trusts (NAREIT).
OUR DIRECTORS AND EXECUTIVE OFFICERS
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 68 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
Effective April 1, 2004, Catherine L. Lynch resigned from her position as
Treasurer of our advisor. Effective April 30, 2004, Kelly E. Tucek resigned from
her position as our Treasurer, Principal Accounting Officer and Principal
Financial Officer. Steven P. Grimes has been appointed as our Treasurer and
Principal Financial Officer, and Lori Foust has been appointed as our Principal
Accounting Officer.
THE BIOGRAPHIES INCLUDED IN THIS SUBSECTION, WHICH STARTS ON PAGE 68 OF OUR
PROSPECTUS, IS SUPERCEDED IN THE ENTIRETY AND REPLACED BY THE FOLLOWING:
ROBERTA S. MATLIN joined Inland Real Estate Investment Corporation
(IREIC) in 1984 as director of investor administration and currently serves as
Senior Vice President of IREIC, directing the day-to-day internal operations.
Ms. Matlin is a director of IREIC, a director and president of Inland Investment
Advisors, Inc., and Intervest Southern Real Estate Corporation, and a director
and vice president of Inland Securities Corporation. She is the president of
Inland American Advisory Services, Inc. Since 2004, she has been vice president
of administration of Inland American Real Estate Trust, Inc. She was Vice
President of Administration of Inland Real Corporation from 1995 until 2000 and
of Inland Retail Real Estate Trust, Inc from 1998 until 2004.
38
From June 2001 until April 2004, she was a trustee and executive vice president
of Inland Mutual Fund Trust. Prior to joining Inland, she worked for the Chicago
Region of the Social Security Administration of the Untied States Department of
Health and Human Services. Ms. Matlin is a graduate of the University of
Illinois. She holds Series 7, 22, 24, 39, 63 and 65 licenses from the National
Association of Securities Dealers.
SCOTT W. WILTON has been our secretary since our formation. Mr. Wilton
joined The Inland Group in January 1995. He is assistant vice president of The
Inland Real Estate Group, Inc. and assistant counsel with The Inland Real Estate
Group law department. From 1998 through 2004, Mr. Wilton was secretary of Inland
Retail Real Estate Trust, Inc. and Inland Retail Real Estate Advisory Services,
Inc. In 2001, he became the Secretary of Inland Real Estate Exchange
Corporation. In 2004, he became secretary of Inland American Real Estate Trust,
Inc. Mr. Wilton is involved in all aspects of The Inland Group's business,
including real estate acquisitions and financing, securities law and corporate
governance matters, leasing and tenant matters, and litigation management. He
received B.S. degrees in economics and history from the University of Illinois
at Champaign 1982 and his law degree from Loyola University of Chicago, Illinois
1985. Prior to joining The Inland Group, Mr. Wilton worked for the Chicago law
firm of Williams, Rutstein, Goldfarb, Sibrava and Midura, Ltd., specializing in
real estate and corporate transactions and litigation.
BRENDA G. GUJRAL is President, Chief Operating Officer and a director
of Inland Real Estate Investment Corporation (IREIC) and President, Chief
Operating Officer and a director of Inland Securities Corporation (ISC) - a
member firm of the National Association of Securities Dealers (NASD). Mrs.
Gujral is also a director of Inland Investment Advisors, Inc.; Chairman of the
Board of Inland Real Estate Exchange Corporation; and Mrs. Gujral is Director
and President of Inland American Real Estate Trust, Inc.
Mrs. Gujral has overall responsibility for the operations of IREIC, including
the distribution of checks to over 50,000 investors, review of periodic
communications to those investors, the filing of quarterly and annual reports
for Inland's publicly registered investment programs with the Securities and
Exchange Commission, compliance with other SEC and NASD securities regulations
both for IREIC and ISC, review of asset management activities, and marketing and
communications with the independent broker/dealer firms selling Inland's current
and prior programs. Mrs. Gujral works with internal and outside legal counsel in
structuring IREIC's investment programs and in connection with the preparation
of its offering documents and registering the related securities with the
Securities and Exchange Commission and state securities commissions.
Mrs. Gujral has been with the Inland organization for 22 years, becoming an
officer in 1982. Prior to joining Inland, she worked for the Land Use Planning
Commission establishing an office in Portland, Oregon, to implement land use
legislation for that state.
She is a graduate of California State University. She holds Series 7, 22, 39 and
63 licenses from the NASD. Mrs. Gujral is a member of the National Association
of Real Estate Investment Trusts (NAREIT), the Financial Planning Association
(FPA), the Foundation for Financial Planning (FFP) and the National Association
for Female Executives.
KENNETH H. BEARD is president and chief executive officer of Midwest
Mechanical Group, a mechanical construction and service company. From 1999-2002
he was president and chief executive officer of Exelon Services, a subsidiary of
Exelon Corporation, where he had responsibility for financial performance
including being accountable for creating business strategy, growing the business
through acquisition, integrating acquired companies and developing
infrastructure for the combined acquired businesses. Prior to that position,
from 1974 to 1999, Mr. Beard was the founder, president and chief executive
officer of Midwest Mechanical, Inc., a heating, ventilation and air conditioning
company providing innovative and cost effective construction services and
solutions for commercial, industrial, and institutional facilities. From 1964 to
1974, Mr. Beard was employed by The Trane Company, a manufacturer of heating,
ventilating and air conditioning equipment having positions in sales, sales
management and general management.
Mr. Beard holds a MBA and BSCE from the University of Kentucky and is a licensed
mechanical engineer. He is on the board of directors of the Wellness House in
Hinsdale, Illinois, a cancer support organization and serves on the Dean's
Advisory Council of the University of Kentucky, School of Engineering. Mr. Beard
is a past member of the Oak Brook, Illinois Plan Commission (1981-1991) and a
past board member of Harris Bank, Hinsdale (1985-2004).
PAUL R. GAUVREAU is the retired chief financial officer, financial vice
president and treasurer of Pittway Corporation, New York Stock exchange listed
manufacturer and distributor of professional burglar and fire alarm systems and
equipment from 1966 until its sale to Honeywell, Inc. in 2001. He was president
of Pittway's non-operating real estate and leasing subsidiaries through 2001. He
was a financial consultant to Honeywell, Inc.; Genesis Cable, L.L.C.; ADUSA,
Inc. He was a director and audit committee member of Cylink Corporation, a
Nasdaq Stock Market listed manufacturer of voice and data security products from
1998 until its merger with Safenet, Inc. in February 2003.
39
Mr. Gauvreau holds a MBA from the University of Chicago and a BSC from Loyola
University of Chicago. He is on the Board of Trustees, Chairman of the
Advancement Committee, and Vice Chairman of the Finance Committee of Benedictine
University, Lisle, Illinois; a member of the Board of Trustees of the Chaddick
Institute of DePaul University, Chicago, Illinois; and a member of the board of
directors and vice president of the Children's Brittle Bone Foundation, Pleasant
Prairie, Wisconsin.
COMPENSATION OF DIRECTORS AND OFFICERS
THE DISCUSSION INCLUDED IN THIS SUBSECTION, WHICH STARTS ON PAGE 71 OF OUR
PROSPECTUS, IS SUPERCEDED IN THE ENTIRETY AND REPLACED BY THE FOLLOWING:
We pay our independent directors an annual fee of $5,000 (increased to $10,000
effective October 1, 2004) plus $500 for each in person meeting, and $350 for
each meeting of the board or a committee (excluding the audit committee) of the
board attended by telephone, and reimbursement of their out-of-pocket expenses
incurred. Effective December 1, 2004, we pay our audit committee members $750
for each in personal audit committee meeting and $500 for each audit committee
meeting attended by telephone. Our two other directors, Robert D. Parks and
Brenda G. Gujral, do not receive any fees or other remuneration for serving as
directors.
OUR ADVISOR
THE DISCUSSION UNDER THIS SECTION ON "OUR ADVISORY AGREEMENT" WHICH STARTS ON
PAGE 73 OF OUR PROSPECTUS HAS BEEN MODIFIED TO INCLUDE THE FOLLOWING SIXTEENTH
PARAGRAPH:
On February 11, 2005, a new property acquisition agreement was entered into
between Inland Real Estate Acquisitions, Inc. ("Acquisitions"), Inland Western
Retail Real Estate Advisory Services, Inc. ("the Advisor"), and us. The property
acquisition agreement grants us an exclusive right of first refusal to acquire
each and every Subject Property, as defined in the agreement. A Subject Property
is defined as any retail facility, mixed-use property, or a single-user property
identified by Acquisitions and located within our market area. Our market area
is defined in the agreement as the geographic area located west of the
Mississippi in the continental United States but excluding the portion of the
geographic area within a four hundred (400) mile radius of Oak Brook, Illinois.
Acquisitions are owned by The Inland Group, and we are sponsored by Inland Real
Estate Investment Corporation. Inland Real Estate Investment Corporation and the
Advisor are owned by The Inland Group.
The property acquisition agreement previously entered into by the parties dated
September 18, 2003 has been terminated accordingly. The new property acquisition
agreement is filed as an exhibit to the registration statement of which the
prospectus is a part and is incorporated into this filing in its entirety.
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 73 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION:
Our advisor, Inland Western Retail Real Estate Advisory Services, Inc., is an
Illinois corporation and a wholly owned subsidiary of our sponsor. Our
advisor/business manager reviews and updates our mission statement, determines
our businesses' direction, selects the criteria for acquisitions and financing,
adjusts the demographic and geographic parameters, analyzes strategic
alternatives, adjusts our rate of growth to maximize shareholder value, and
updates our business plan that is performed by Inland employees on our behalf
involving the combined efforts of highly skilled technical people with many
years of experience.
Mr. Steven Grimes (age 38) joined our advisor as its Chief Financial Officer on
February 18, 2004. He is responsible for our finances and borrowings. Prior to
joining the advisor, Mr. Grimes was a director with Cohen Financial and was a
senior manager with Deloitte and Touche. Mr. Grimes received his B.S. Degree in
Accounting from Indiana University.
Ms. Lori Foust (age 40) joined our advisor as Vice President on November 17,
2003. Ms. Foust is responsible for our financial and SEC reporting. Prior to
joining the advisor, Ms. Foust was a senior manager in the real estate division
with Ernst and Young, LLP. She received her B.S. Degree in Accounting and her
M.B.A. Degree from University of Central Florida.
Ms. Debra J. Randall (age 49) joined our advisor as assistant vice president on
January 30, 2004. Ms. Randall is responsible for our financial and SEC
reporting. Prior to joining the advisor, Ms. Randall was a corporate controller
for a privately held real estate company and has over 10 years of real estate
experience at several public accounting firms. She received her B.A. Degree in
Liberal Arts and is in the process of completing her M.A. Degree from DePaul
University. She is a certified public accountant, a member of the Illinois CPA
Society, and a licensed real estate salesperson.
40
THE DISCUSSION UNDER "TERM OF THE ADVISORY AGREEMENT" SECTION WHICH STARTS ON
PAGE 74 OF OUR PROSPECTUS HAS BEEN MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
On December 28, 2004, the advisory agreement between Inland Western Retail Real
Estate Trust, Inc. (the "Company") and Inland Western Retail Real Estate
Advisory Services, Inc. (the "Business Manager/Advisor") was amended and
restated. The Business Manager/Advisor is owned by the Company's sponsor, and
all of the Company's agreements and arrangements with the Business
Manager/Advisor and its affiliates, including those relating to compensation,
are not the result of arm's length negotiations but the Company believes that
the fee it pays is equal to or less than the fee that would be payable to an
unaffiliated third-party providing such service. The advisory agreement was
amended and restated to include an initial term of one year instead of three
years.
THE LAST PARAGRAPH, UNDER THE SECTION "OUR ADVISORY AGREEMENT", SUBSECTION
"LIABILITY AND INDEMNIFICATION OF BUSINESS MANAGER/ADVISOR WHICH STARTS ON PAGE
76 OF OUR PROSPECTUS HAS BEEN SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS:
When it becomes effective, Inland American Real Estate Trust, Inc. may acquire
real estate operating companies that may have been a historical or future source
for acquiring properties, which could create a conflict of interest for our
company. In addition, Inland American Real Estate Trust, Inc.'s offering, could
potentially negatively impact arm's length negotiations due to overlapping
fiduciary duties owed by certain directors particularly arising in the potential
purchase of shopping or retails centers, and office buildings, located in the
United States. However, if any conflicts do arise, they will be resolved as
provided in the property acquisition service agreement.
THE PROPERTY MANAGER AND THE MANAGEMENT AGREEMENT.
THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 77 OF OUR PROSPECTUS IS
DELETED IN ITS ENTIRETY AND SUPPLEMENTED BY THE FOLLOWING:
Our present property managers provide property management services to
us under the terms of the management agreements. The property managers provide
services in connection with the rental, leasing, operation and management of the
properties. Our property managers are each Delaware corporations, owned
principally by individuals who are affiliates of The Inland Group. We have
agreed to pay the property managers a monthly management fee in an amount no
greater than 90% of the fee which would be payable to an unrelated party
providing such services, which fee will initially be 4.5% of gross income, as
defined in the relevant management agreement, from the properties managed for
the month for which the payment is made. In addition, we have agreed to
compensate each property managers if it provides us with services other than
those specified in the management agreement. There is a separate management
agreement for each property for an initial term ending as of December 31 in the
year in which the property is acquired, and each management agreement is subject
to three successive three-year renewals, unless either party notifies the other
in writing of its intent to terminate between 60 and 90 days prior to the
expiration of the initial or renewal term. We may terminate with 30 days prior
written notice in the event of gross negligence or malfeasance by the property
manager. The property managers may subcontract the required property management
services for less than the management fee provided in the management agreement.
See "Compensation Table -- Nonsubordinated Payments -- Operational Stage." Our
property managers may form additional property management companies as necessary
to manage the properties we acquire, and may approve of the change of management
of a property from one manager to another.
THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 77 OF OUR PROSPECTUS IS
FURTHER MODIFIED BY THE FOLLOWING:
Inland Western Management Corp. and Inland Management Corp. have
merged and the surviving entity is Inland Southwest Management LLC. Inland
Northwest Management Corp. has been renamed as Inland US Property Management
LLC, which is the surviving entity. Inland Pacific Management Corp has merged
with Inland Pacific Management LLC, (subsequently renamed as Inland Pacific
Property Services LLC) which is the surviving entity. As a result of the
reorganizations, none of property management personnel or terms of management
agreements have changed. These companies continue to provide the property
management services to us under our property management agreements.
Our property manager, Inland US Management LLC, Inland Southwest
Management LLC and Inland Pacific Property Services LLC, conduct their
activities at their principal executive office at 2907 Butterfield Road in
Oak Brook, Illinois.
41
See "--The Advisory Agreement" above in this section and "Conflicts of
Interest" for a discussion of our option to acquire or consolidate with the
business conducted by the property managers.
The following sets forth information with respect to the executive
officers and managers of Inland Holdco Management LLC.
POSITION AND OFFICE WITH
NAME AGE* INLAND HOLDCO MANAGEMENT LLC
---- ---- ----------------------------
Thomas P. McGuinness 48 President and manager
Robert M. Barg 51 Senior vice president/treasurer, secretary and manager
James H. Neubauer 63 Senior vice president
Linda Centanni 50 Vice president
Elizabeth D. McNeely 50 Vice president
Frank Natanek 37 Vice president
Ulana B. Horalewskyj 58 Manager
Alan F. Kremin 58 Manager
Frances C. Panico 55 Manager
----------
*As of January 1, 2005
THOMAS P. MCGUINNESS joined Inland Property Management in 1982 and
became president of Mid-America Management Corporation in July 1990 and chairman
in 2001. He is also president of Inland Property Management, Inc. as well as a
director of Inland Commercial Property Management. He is chairman and a director
of Inland Mid-Atlantic Management Corp. Mr. McGuinness is a licensed real estate
broker; and is past president of the Chicagoland Apartment Association, and past
regional vice president of the National Apartment Association. He is currently
on the board of directors of the Apartment Building Owners and Managers
Association, and is a trustee with the Service Employees' Local No. 1 Health and
Welfare Fund, as well as the Pension Fund and holds CLS and CSM accreditations
from the International Council of Shopping Centers.
ROBERT M. BARG joined the Inland organization in 1986 and is currently
the treasurer of Inland Property Management Group, Inc. Since 2003 he has been a
senior vice president, secretary and treasurer of Inland Western Management
Corp. In July 2004 he became a director of Inland Western Management Corp. as
well as a senior vice president, secretary, treasurer, and a director of Inland
Northwest Management Corp., Inland Pacific Management Corp., and Inland
Southwest Management Corp. He is also a director, senior vice president, and
treasurer of Mid-America Management Corp., and secretary and treasurer of Inland
Southern Management Corp. He was secretary and treasurer of Inland Southeast
Property Management Corp. from 1998 to 2001. Prior to joining the Inland
organization, Mr. Barg was an accounting manager of the Charles H. Shaw Co. He
received his B.S. Degree in Business Administration from the University of
Illinois at Chicago and a Masters Degree from Western Illinois University. Mr.
Barg is a certified public accountant and is a member of the Illinois CRP
Society.
JAMES H. NEUBAUER joined Inland Property Management in 1978 as an
on-site manager. In 1981, he was promoted to the position of director of
purchasing. Subsequently, in 1983, he became an on-site property manager and, in
1984, he became the president of Inland Western Property Management. From 1985
to 1996, Mr. Neubauer was president and senior vice president of Mid-America
Management where he was responsible for all rental property operations outside
the Chicagoland metropolitan area, which included New Hampshire, Arizona,
Indiana, Wisconsin and Peoria, Moline and Danville, Illinois. He left Inland in
1996 to pursue other opportunities and rejoined Inland Southeast Property
Management Corp. in 1999 as senior vice president and in May 2002 was promoted
to president. In June 2004, he became a senior vice president of Inland
Northwest Management Corp., Inland Pacific Management Corp., Inland Southwest
Management Corp. and Inland Western Management Corp. He is a licensed real
estate broker in Florida and holds a B.A. degree from the University of
Maryland, a M.A. degree from Ball State University and a M.B.A. degree from
Benedictine College.
LINDA CENTANNI joined Mid-America Management Corp. in 1978 in the
business office and in 1979 she began working in the accounting department
specializing in the area of property management accounts receivable. In 1997 she
was promoted to assistant vice president. Her current responsibilities include
supervision of 12 people as department head of both accounts receivable and
records. In July 2004 she was promoted to a vice president of Inland Northwest
Management Corp., Inland Pacific Management Corp., Inland Southwest Management
Corp., and Inland Western Management Corp. Ms. Centanni holds an Illinois real
estate salesperson license.
ELIZABETH D. MCNEELEY joined Inland Southeast Property Management as a
property accountant in January of 2002. In January of 2003 she was promoted to
senior property accountant for Inland Western Management Corp., and in July of
2003 was promoted to a vice president of Inland Northwest Management Corp.,
Inland Pacific Management Corp., Inland Southwest Management Corp., and Inland
Western Management Corp. Prior to joining Inland, Ms. McNeeley was an accountant
for the
42
Burlington Northern Railroad, Pinnacle Relocation and Trase Miller Teleservices.
She also taught mathematics at both the Middle School and Jr. College level. Ms.
McNeeley holds a BA from North Central College and an MA from DePaul University.
She is a licensed Real Estate Sales Agent.
FRANK NATANEK joined The Inland Group in July 2004 as a vice president
of Inland Northwest Property Management Corp., Inland Pacific Management Corp.,
Inland Southwest Management Corp., and Inland Western Management Corp. Prior to
joining Inland, Mr. Natanek worked for the Hallmark Greeting Card Company from
October 2002 to March 2004. Mr. Natanek has a degree from St. Xavier College,
and a law degree from Loyola University. In addition Mr. Natanek holds an MBA
from the University of Chicago.
ULANA B. HORALEWSKYJ joined The Inland Group in 1990 and is currently
treasurer of Inland Real Estate Exchange Corporation, vice president of Inland
Real Estate Investment Corporation and president of Partnership Ownership
Corporation. In her capacity as vice president of Inland Real Estate Investment
Corporation, Ms. Horalewskyj oversees the cash management and accounting for
over 250 Inland private limited partnerships. Prior to joining Inland, she spent
four years working for an accounting firm and 10 years in the banking industry.
Ms. Horalewskyj received her B.A. from Roosevelt University in Chicago.
ALAN F. KREMIN joined The Inland Group in 1982. Mr. Kremin was promoted
to treasurer of The Inland Group, Inland Commercial Property Management, Inc.,
and various other Inland Group subsidiaries in March 1991. In his current
capacity as the chief financial officer of The Inland Group, a position he has
held since 1991, his responsibilities include financial management, cash
budgeting and corporate taxes for the consolidated group and serving as a
director for various Inland Group subsidiaries and outside affiliated entities,
for which he also serves as treasurer. He is a director of Inland Southeast
Property Management Corp., and in March 2002 he became a director, secretary and
treasurer of Inland Southern Management LLC. In November 2002, he became a
director of Mid-Atlantic Management, LLC. Prior to his current position, Mr.
Kremin was treasurer of Inland Real Estate Investment Corporation from 1986 to
1990, where he supervised the daily operations of its accounting department.
That department encompasses corporate accounting for the general partner of the
Inland Real Estate Investment Corporation-sponsored limited partnership
investment programs. Prior to joining The Inland Group, Mr. Kremin served for
one year as a controller of CMC Realty and three years as assistant controller
of JMB Realty Corporation. Prior to his real estate experience, Mr. Kremin
worked eight years in public accounting, including four years at Arthur Young &
Company. He received his B.S. degree in accounting from Loyola University. Mr.
Kremin is a certified public accountant, holds securities and insurance licenses
and is a licensed real estate broker.
FRANCES C. PANICO joined The Inland Group in 1972 and is president of
Inland Mortgage Servicing Corporation and senior vice president of Inland
Mortgage Corporation and Inland Mortgage Investment Corporation. Ms. Panico
oversees the operation of loan services, which has a loan portfolio in excess of
$4,200,000,000. She previously supervised the origination, processing and
underwriting of single-family mortgages, and she packaged and sold mortgages to
secondary markets. Ms. Panico's other primary duties for The Inland Group have
included coordinating collection procedures and overseeing the default analysis
and resolution process. Ms. Panico received her BA Degree in Business and
Communication from Northern Illinois University.
The following sets forth information with respect to the executive
officers and managers of Inland US Management LLC
POSITION AND OFFICE WITH INLAND US
NAME AGE* MANAGEMENT LLC
---- ---- --------------
Thomas P. McGuinness 48 President and manager
Robert M. Barg 51 Senior vice president/treasurer, secretary and manager
Linda Centanni 50 Vice President
Elizabeth D. McNeely 50 Vice President
Frank Natanek 31 Vice President
Lawrence R. Sajdak, Jr. 25 Assistant vice president
Steven Yee 38 Assistant vice president
Anthony A. Casaccio 49 Manager
Alan F. Kremin 58 Manager
Pamela C. Stewart 48 Manager
----------
*As of January 1, 2005
The biographies of Mr. McGuinness, Mr. Barg, Ms. Centanni, Ms. McNeely,
Mr. Natanek and Mr. Kremin are set forth above.
43
LAWRENCE R. SAJDAK. Mr. Sajdak joined The Inland Group in September
1998 as a college intern, working every summer and holiday season. He started in
the marketing department and soon became proficient in other departments in
management. He has degrees in chemistry and business from North Central College.
Prior to joining Inland he was employed Cintas Corporation. Mr. Sajdak returned
to Inland in December 2002 as a department head in the business management
department, and subsequently became a property manager. In July 2004 Mr. Sajdak
was promoted to an assistant vice president of Inland Western Property
Management Corp. and an assistant vice president of Inland Northwest Property
Management Corp. He is a member of the International Council of Shopping
Centers.
STEVEN YEE joined The Inland Group in February of 2004 as a senior
property manager, and in July 2004, Mr. Yee was promoted to assistant vice
president of Inland Northwest Property Management Corp. Prior to joining Inland
he worked for Manulife Financial. His was also the director of operations for MB
real estate and a retail property manager for Trammel Crow. His real estate
experience includes managing and leasing retail shopping centers in the greater
Chicagoland area. Mr. Yee attended DePaul University, receiving a degree in real
estate finance. He is a licensed real estate broker, and a member of the
International Council of Shopping Centers, and holds CPM and CCIM designations.
ANTHONY A. CASACCIO joined The Inland Group in 1984 working for Inland
Condo Association Management. From 1987 to 1991 he was president of Partnership
Asset Sales Corporation, and in 1991 when Inland Real Estate Development
Corporation was formed, Mr. Casaccio became the president and a director. Mr.
Casaccio holds a B.S. degree in accounting from DePaul University. He is a
member of the DuPage Association of Realtors, the National Association of
Realtors, Northern Illinois Commercial Association of Realtors, the National
Home Builders Association, the Realtor Association of the Western Suburbs, The
Urban Land Institute, and the Oswego Economic Development Corporation. Mr.
Casaccio is a licensed real estate broker in the state of Illinois.
PAMELA C. STEWART joined Midwest Real Estate Equities, Inc., an
affiliate of The Inland Group in 1995 as an acquisition specialist. Prior to
joining Midwest Equities, Ms. Stewart worked for another affiliate company, New
Directions Housing Corporation (NDHC), a not-for-profit organization that
develops affordable housing. In 2002, Ms. Stewart became an assistant vice
president and in 2004, she was promoted to vice president of Midwest Real Estate
Equities, Inc. Ms. Stewart is responsible for acquiring commercial real estate
properties for the company's portfolio and investing corporate funds into
redevelopment projects, including rental properties, shopping centers, office
buildings and industrial buildings. Ms. Stewart is also the corporate asset
management director for The Inland Real Estate Group of Companies. Ms. Stewart
has a B.A. degree in Marketing from Roosevelt University. She is a member of the
National Association of Realtors, the Northern Illinois Commercial Association
of Realtors and she is a Certified Commercial Investment Member (CCIM) and
Candidate. She holds a real estate broker's license in the state of Illinois.
The following sets forth information with respect to the executive
officers and managers of Inland Pacific Property Services LLC
POSITION AND OFFICE WITH
NAME AGE* INLAND PACIFIC PROPERTY SERVICES LLC
---- ---- ------------------------------------
Thomas P. McGuinness 48 President and manager
Robert M. Barg 51 Senior vice president/treasurer, secretary and manager
James H. Neubauer 63 Senior vice president and manager
Linda Centanni 50 Vice President
Elizabeth D. McNeely 50 Vice President
Frank Natanek 31 Vice President
David M. Benjamin 50 Manager
Alan F. Kremin 58 Manager
----------
*As of January 1, 2005
The biographies of Mr. McGuinness, Mr. Barg, Mr. Neubauer, Ms.
Centanni, Ms. McNeely, Mr. Natanek and Mr. Kremin are set forth above.
DAVID M. BENJAMIN joined The Inland Group in 1983 in the accounting
department and is controller of The Inland Real Estate Group. Mr. Benjamin has
spent his entire accounting career in the real estate industry, working for
American Invesco and Draper and Kramer before coming to Inland. Mr. Benjamin is
responsible for the accounting and corporate income tax preparation of various
Inland entities and he assists in the day to day oversight of The Inland Real
Estate Group accounting department. Mr. Benjamin is a CPA.
44
The following sets forth information with respect to the executive
officers and managers of Inland Southwest Management LLC
POSITION AND OFFICE
WITH INLAND SOUTHWEST
NAME AGE* MANAGEMENT LLC
---- ---- --------------
Thomas P. McGuinness 48 President and manager
Robert M. Barg 51 Senior vice president/treasurer, secretary and manager
James H. Neubauer 63 Senior vice president
Linda Centanni 50 Vice President
Elizabeth D. McNeely 50 Vice President
Frank Natanek 31 Vice President
Alan F. Kremin 58 Manager
Ulana B. Horalewskyj 58 Manager
Frances C. Panico 55 Manager
----------
*As of January 1, 2005
The biographies of Mr. McGuinness, Mr. Barg, Mr. Neubauer, Ms.
Centanni, Ms. McNeely, Mr. Natanek, Ms. Horalewskyj, Mr. Kremin and Ms. Panico
are set forth above.
INLAND SECURITIES CORPORATION
THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 80 OF OUR PROSPECTUS IS
SUPPLEMENTED BY THE FOLLOWING INFORMATION:
ROBERT J. BABCOCK (age 28) joined Inland Securities Corporation as a vice
president in March 2004. Prior to joining Inland, Mr. Babcock was an external
wholesaler with AEI Fund Management, Inc. and was responsible for wholesaling
public and private net lease real estate investments and 1031 property exchanges
to financial planners. Mr. Babcock began his career as a financial advisor with
American Express Financial Advisors in 1999. He received his bachelor's degree
from Gustavus Adolphus College. Mr. Babcock holds Series 7 and 63 licenses with
the National Association of Securities Dealers, Inc.
FRANK V. PINELLI (age 57) joined Inland Securities Corporation in 2004 as a
vice president. He was previously employed with The Inland Group from 1973-1983
where he worked in property management, real estate sales, and real estate
acquisitions. Prior to rejoining the Inland staff, from 1984-2003 Mr. Pinelli
was a principal in his own real estate firm and developed an international
marketing organization. Mr. Pinelli is a graduate of Southern Illinois
University. He holds Series 7 and 63 licenses with the National Association of
Securities Dealers, Inc and also is licensed as a real estate broker in Illinois
and Oregon.
MATTHEW PODOLSKY (age 32) joined Inland Securities Corporation as a vice
president in April 2003. Mr. Podolsky started his career in real estate in 1994
on the commercial sales and leasing side with Cushman and Wakefield of
California, Inc. Prior to joining Inland Securities Corporation he was a vice
president at CB Richard Ellis, Inc. Mr. Podolsky graduated from the University
of Arizona with a B.S. in Regional Development/Urban Planning. He holds Series 7
and 63 licenses with the National Association of Securities Dealers, Inc. and a
real estate license in the state of California.
DARRELL RAU (age 48) joined Inland Securities Corporation in 2004 as a vice
president of the Midwest region where he develops sales and new broker/dealer
relationships. Prior to joining Inland in 2004, Mr. Rau was vice president of
developing markets at CTE Pension Advisors. Mr. Rau graduated magna cum laude
from Northwood University in Midland, Michigan with a degree in Business
Administration. He holds Series 6,7,62 and 63 licenses with the National
Association of Securities Dealers, Inc.
ANDREW DORNBUSCH (age 27) joined Inland Securities Corporation as a vice
president in September 2004. Previously, Mr. Dornbusch was an attorney at Dorsey
& Whitney LLP in Minneapolis, Minnesota. Mr. Dornbusch graduated from the
University of Minnesota with a bachelor degree in International Relations. He
obtained his law degree from Cornell Law School. Mr. Dornbusch holds Series 7,
63 and 65 licenses with the National Association of Securities Dealers, Inc.
JEFFREY S. HERTZ (age 30) joined Inland Securities Corporation as a vice
president in September 2004. Mr. Hertz started his career in the securities
industry in 2000 with Nuveen Investments as a trader, working with unit
investment trusts and exchange traded funds. Prior to joining Inland Securities
Corporation, he was an advisor services representative for Nuveen. Mr. Hertz
graduated from the University of Oregon with a bachelor degree in psychology. He
holds Series 7, 63 and 65 licenses with the National Association of Securities
Dealers, Inc.
45
CARL PIKUS (age 37) joined Inland Securities Corporation as a vice
president in September 2004. His responsibilities include development of new
broker/dealer relationships for Inland in the midwest. Prior to joining Inland
Securities Corporation, Mr. Pikus was a midwest sales manager for Ultimus, a
software company, managing existing clients, and establishing new accounts. Mr.
Pikus is a graduate of the University of Wisconsin.
NATHAN RACHELS (age 29) joined Inland Securities Corporation as a vice
president in September 2004. Prior to joining Inland Securities Corporation, Mr.
Rachels was assistant vice president at Wells Real Estate Funds, where he was
responsible for marketing real estate investments in the southeast region of the
United States. Mr. Rachels began his career in financial services in 1997 on the
retail side of the business with a planning firm and then as an account manager
at Deutsche Bank. He graduated from the University of Alabama with degrees in
public relations and business. Mr. Rachels holds Series 7 and 63 licenses with
the National Association of Securities Dealers, Inc.
MICHELE SORCE (age 39) joined Inland Securities Corporation as assistant
vice president and controller in November 2003. However, Ms. Sorce started her
career with Inland almost nineteen years ago. She previously served as
controller for Inland commercial, residential and real estate auction companies.
She received a bachelor degree in accounting from Elmhurst College. She is
registered with the National Association of Securities Dealers, Inc., as a
financial operations principal and also holds an Illinois real estate broker's
license.
SANDRA L. PERION (age 47) joined Inland in 1994 as an Administrative
Assistant to the Senior Vice President of Inland Real Estate Investment
Corporation. Mrs. Perion's responsibilities included expense accounts, time and
attendance reports, supervising file room clerk, furniture and supply orders,
shareholder correspondence, arranging board of directors and annual shareholder
meetings, proxy tabulation and scheduling seminars and classes for employees. In
2002, Mrs. Perion was promoted to administrator of Inland Securities
Corporation, where she became responsible for securities industry registration,
compliance procedures and maintaining corporation and shareholder records, and
in 2003 she was promoted to Assistant Vice President of Inland Securities
Corporation. Mrs. Perion holds Series 7, 24 and 63 licenses from the National
Association of Securities Dealers.
THE SUBSECTION BELOW IS ADDED UNDER THE MANAGEMENT SECTION AND WILL START ON
PAGE 82 IN THE PROSPECTUS AND IS INCLUDED IN ITS ENTIRETY:
COMPLIANCE AND GOVERNANCE
On October 12, 2004, our board of directors unanimously adopted a Code of
Business Conduct and Ethics, Nonretaliation Policy, and Complaint Procedures for
Accounting and Auditing Matters.
PRINCIPAL STOCKHOLDERS
THE FOLLOWING REPLACES THE INFORMATION CONTAINED ON PAGE 85 OF OUR PROSPECTUS
UNDER THE HEADING "PRINCIPAL STOCKHOLDERS".
The following table provides information as of March 8, 2005 regarding the
number and percentage of shares beneficially owned by each director, each
executive officer, all directors and executive officers as a group, and any
person known to us to be the beneficial owner of more than 5% of our outstanding
shares. As of March 8, 2005, no stockholder beneficially owned more than 5% of
our outstanding shares. As of March 8, 2005, we had approximately 73,200
stockholders of record and approximately 264,280,614 shares of common stock
outstanding for our two offerings. Beneficial ownership includes outstanding
shares and shares which are not outstanding that any person has the right to
acquire within 60 days after the date of this table. However, any such shares
which are not outstanding are not deemed to be outstanding for the purpose of
computing the percentage of outstanding shares beneficially owned by any other
person. Except as indicated, the persons named in the table have sole voting and
investing power with respect to all shares beneficially owned by them.
46
Number of shares
Beneficial Owner beneficially owned Percent of class
--------------------------------- --------------------- ----------------
Robert D. Parks 120,228.8188(1) *
Roberta S. Matlin 179.7517 *
Scott W. Wilton 0 0
Steven P. Grimes 0 0
Lori A. Foust 0 0
Brenda G. Gujral 0 0
Frank A. Catalano, Jr. 3,000(2) *
Kenneth H. Beard 53,831.3063(2) *
Paul R. Gauvreau 114,731.8436(2) *
Gerald M. Gorski 5,035.3673(2) *
Barbara A. Murphy 3,000(2) *
All directors and executive
officers as a group (12 persons) 300,007.0877(1) *
----------
*Less than 1%
(1) Includes 20,000 shares owned by our business manager/advisor. Our business
manager/advisor is a wholly-owned subsidiary of our sponsor, which is an
affiliate of The Inland Group. Mr. Parks is a control person of The Inland Group
and disclaims beneficial ownership of these shares owned by our business
manager/advisor.
(2) Includes 3,000 shares issuable upon exercise of options granted to each
independent director under our independent director stock option plan, to the
extent that such options are currently exercisable or will become exercisable
within 60 days after the date of this table.
INVESTMENT OBJECTIVES AND POLICIES
DISTRIBUTIONS
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 88 OF OUR PROSPECTUS, IS
SUPPLEMENTED BY THE FOLLOWING:
At the March 19, 2004 regularly scheduled Board meeting, the Board of Directors
unanimously approved a resolution to delegate to our management committee the
authority to make monthly distributions to stockholders on our common stock in
an amount between 6.0% and 7.25% on an annualized basis, for the remainder of
the 2004 calendar year.
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 88 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION REGARDING DISTRIBUTIONS.
At the January 27, 2005 regularly scheduled Board meeting, the Board of
Directors unanimously approved a resolution to delegate to our management
committee the authority to continue to determine the amount of the monthly
distributions to stockholders on our common stock to be an amount between 6.0%
and 7.25% on an annualized basis, for the remainder of the 2005 calendar year.
Our Board of Directors approved the following distributions payable to holders
of our common stock:
- $.30 per share per annum for the stockholders of record on October 31, 2003, payable on November 10, 2003
- $.50 per share per annum for the stockholders of record on November 30, 2003, payable on December 10, 2003
- $.70 per share per annum for the stockholders of record on December 31, 2003, payable on January 10, 2004
- $.70 per share per annum for the stockholders of record on January 31, 2004, payable on February 10, 2004
- $.70 per share per annum for the stockholders of record on February 29, 2004, payable on March 10, 2004
- $.70 per share per annum for the stockholders of record on March 31, 2004, payable on April 10, 2004
- $.67 per share per annum for the stockholders of record on April 30, 2004, payable on May 10, 2004
- $.675 per share per annum for the stockholders of record on May 31, 2004, payable on June 10, 2004
- $.675 per share per annum for the stockholders of record on June 30, 2004, payable on July 10, 2004
- $.65 per share per annum for the stockholders of record on July 31, 2004, payable on August 10, 2004
- $.65 per share per annum for the stockholders of record on August 31, 2004, payable on September 10, 2004
- $.65 per share per annum for the stockholders of record on September 30, 2004, payable on October 10, 2004
- $.65 per share per annum for the stockholders of record on October 31, 2004, payable on November 10, 2004
- $.65 per share per annum for the stockholders of record on November 30, 2004, payable on December 10, 2004
- $.65 per share per annum for the stockholders of record on December 31, 2004, payable on January 10, 2005
47
- $.63 per share per annum for the stockholders of record on January 31, 2005, payable on February 10, 2005; and
- $.6325 per share per annum for the stockholders of record on February 28, 2005, payable on March 10, 2005.
THE DISCUSSION UNDER THIS SECTION ON "PROPERTY ACQUISITION STANDARDS", WHICH
STARTS ON PAGE 89 OF OUR PROSPECTUS HAS BEEN MODIFIED TO INCLUDE THE FOLLOWING
FOURTH PARAGRAPH:
On February 11, 2005, a new property acquisition agreement was entered into
between Inland Real Estate Acquisitions, Inc. ("Acquisitions"), Inland Western
Retail Real Estate Advisory Services, Inc. ("the Advisor"), and us. The property
acquisition agreement grants us an exclusive right of first refusal to acquire
each and every Subject Property, as defined in the agreement. A Subject Property
is defined as any retail facility, mixed-use property, or a single-user property
identified by Acquisitions and located within our market area. Our market area
is defined in the agreement as the geographic area located west of the
Mississippi in the continental United States but excluding the portion of the
geographic area within a four hundred (400) mile radius of Oak Brook, Illinois.
Acquisitions is owned by The Inland Group, and we are sponsored by Inland Real
Estate Investment Corporation. Inland Real Estate Investment Corporation and the
Advisor are owned by The Inland Group.
The property acquisition agreement previously entered into by the parties
dated September 18, 2003 has been terminated accordingly. The new property
acquisition agreement is filed as an exhibit to the registration statement of
which the prospectus is a part and is incorporated into this filing in its
entirety.
BORROWING
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 91 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION REGARDING OUR BORROWING
POLICIES.
Our board of directors adopted a policy to delegate to management the ability
to obtain an unsecured line of credit facility with Key Bank for up to
$100,000,000 with an optional unsecured borrowing capacity of $150,000,000
for a total unsecured borrowing capacity of $250,000,000. On December 16,
2004, an unsecured line of credit facility was executed with Key Bank for up
to $100,000,000 with an optional unsecured borrowing capacity of $150,000,000
for a total unsecured borrowing capacity of $250,000,000. The facility has an
initial term of one year with two one-year extension options, with an annual
variable interest rate.
Our board of directors unanimously approved that consistent with our borrowing
policies, we may commit up to the aggregate of $25 million in cash for letters
of credit in order to obtain financing for properties.
Our board of directors adopted a policy to delegate to management the ability to
obtain unsecured general financing facilities up to $150,000,000 requiring a
deposit not to exceed 3% of the facility amount without prior approval by the
board of directors. These facilities would then be matched with specific
properties, which would secure the amounts due under the specific financings.
OTHER INVESTMENTS
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 93 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
Our advisor has informed our board of directors that it is increasingly
concerned about the potential that mortgage interest rates we can borrow at will
increase during 2004. Management believes that mortgage interest rates we can
borrow at will increase during 2005. Our board of directors, including all of
the independent directors, unanimously approved a resolution for the following:
We may invest in interest rate futures, an interest rate hedging strategy
designed to offset the risks of potential interest rate increases on our
long-term borrowings. Should conditions warrant, this interest rate hedging
strategy will be implemented over a period of time. We intend to invest in up to
$100 million in interest rate futures, both five and seven year treasuries, with
maturities of 90 days. Our initial cash outlay in this interest rate hedging
strategy is expected to be between 1 to 2% of the value of our investment in the
interest rate futures. Risks associated with this interest rate hedging strategy
are primarily associated with declines in interest rates. As rates decline, we
risk having to increase our initial cash outlay, and may incur losses on our
investments in interest rate futures.
48
1) An affiliate of our advisor, Inland Investment Advisors, Inc., the
investment advisor, will be managing this interest rate hedging
strategy. Fees paid to the investment advisor are expected to be
similar to those incurred using a third party investment advisor.
2) We may also retain the investment advisor to invest up to $10 million
of our cash in publicly traded investment securities. Fees paid to the
investment advisor are expected to be similar to those incurred using
a third party investment advisor.
3) We may enter into an initial $50 million (which could increase to $100
million) twelve month credit facility with an affiliate of our
advisor, Inland Real Estate Exchange Corporation (IREX) for its 1031
exchange program. IREX will use the funds to purchase real estate
investments that meet the criterion consistent with our real estate
investment policies.
49
REAL PROPERTY INVESTMENTS
SUMMARY TABULAR PRESENTATION OF PROPERTIES OWNED
As of March 8, 2005, we, through separate limited partnerships or
limited liability companies, have acquired fee ownership of, or a leasehold
interest in, 128 properties consisting of an aggregate of approximately
22,893,000 gross leasable square feet located in Alabama, Arizona, Arkansas,
California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa,
Kansas, Louisiana, Maryland, Michigan, Minnesota, Missouri, Nevada, New Mexico,
New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South
Carolina, Tennessee, Texas, Utah, Washington and Ontario, Canada. The following
table summarizes these properties in alphabetical order.
GROSS % OF
MORTGAGE LEASABLE TOTAL
APPROXIMATE PAYABLE AT AREA GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, (SQ. LEASABLE OCCUPANCY NO. OF MAJOR
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
23rd Street Plaza NC 2003 Dec-04 7,258,000 - 53,376 0.2% 95% 2 Bed, Bath & Beyond
Panama City, Florida Ross Dress for
Less
Academy Sports SU 2004 Jul-04 5,250,000 2,920,000 60,001 0.3% 100% 1 Academy Sports
Houma, Louisiana
Academy Sports SU 2004 Oct-04 4,250,000 2,337,500 61,150 0.3% 100% 1 Academy Sports
Midland, Texas
Academy Sports SU 2004 Oct-04 5,000,000 2,775,000 61,001 0.3% 100% 1 Academy Sports
Port Arthur, Texas
Academy Sports SU 2004 Jan-05 7,150,000 3,933,000 70,910 0.3% 100% 1 Academy Sports
San Antonio, Texas
Alison's Corner NC 2003 Apr-04 7,042,000 3,850,000 55,066 0.2% 100% 4 Ross Dress for
San Antonio, Texas Less Shoe Carnival
Mattress Firm
American Express SU 2000 Dec-04 18,000,000 11,623,000 132,336 0.6% 100% 1 American Express
Depere, Wisconsin
American Express SU 1975 Dec-04 63,000,000 37,170,000 376,348 1.6% 100% 1 American Express
Fort Lauderdale, Florida
American Express SU 1986 Dec-04 56,000,000 33,040,000 389,377 1.7% 100% 1 American Express
Greensboro, North
Carolina
American Express SU 1983 & Feb-05 42,000,000 25,380,000 306,710 1.3% 100% 1 American Express
Markham, Ontario, Canada 1987
American Express SU 1989 Dec-04 95,000,000 56,050,000 541,542 2.4% 100% 1 American Express
Minneapolis, Minnesota
American Express-19th Ave. SU 1983 Dec-04 14,000,000 8,260,000 117,556 0.5% 100% 1 American Express
Phoenix, Arizona
American Express-31st Ave. SU 1985 Dec-04 54,000,000 31,860,000 337,439 1.5% 100% 1 American Express
Phoenix, Arizona
Arvada Connection and Old Country Buffet
RC 1987 -1990 Apr-04 51,550,000 28,510,000 61,079 0.3% 91% 13 Pier 1 Imports
Arvada Marketplace 313,559 1.4% 92% 26 Sam's Club
Arvada, Colorado Gart Sports
50
GROSS % OF
MORTGAGE LEASABLE TOTAL
APPROXIMATE PAYABLE AT AREA GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, (SQ. LEASABLE OCCUPANCY NO. OF MAJOR
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Azalea Square RC 2004 Oct-04 30,013,000 16,535,000 190,142 0.8% 99% 21 T.J. Maxx
Summerville, South Linens 'N Things
Carolina Ross Dress for
Less Cost Plus
World Market
PETsMART
Bed, Bath & Beyond Plaza NC 2004 Oct-04 20,350,000 11,192,500 97,456 0.4% 99% 15 Bed, Bath & Beyond
Miami, Florida Office Depot
Pier 1 Imports
Party City
Best on the Boulevard RC 1996 - 1999 Apr-04 35,500,000 19,525,000 204,427 0.9% 79% 9 Best Buy
Las Vegas, Nevada Barnes & Noble
Copeland
Enterprises
Bluebonnet Parc RC 2002 Apr-04 22,000,000 12,100,000 135,289 0.6% 95% 7 Best Buy
Baton Rouge, Louisiana Linens 'N Things
Cost Plus World
Market
Boulevard at the Capital JV 2004 Sept-04 127,499,000 71,500,000 479,072 2.1% 94% 64 Lowe's Theaters
Centre Magic Johnson
Largo, Maryland
CarMax SU 1998 Mar-05 14,600,000 - 60,772 0.3% 100% 1 CarMax
San Antonio, Texas
The Columns RC 2004 Aug-04 26,510,000 14,865,400 173,427 0.8% 96% 15 Best Buy
Jackson, Tennessee Ross Dress for
Less Marshalls
Bed, Bath & Beyond
Coram Plaza RC 2004 Dec-04 37,292,000 20,755,300 144,191 0.6% 92% 22 Stop & Shop
Coram, New York
CorWest Plaza RC 1999 - 2003 Jan-04 33,000,000 18,150,000 115,011 0.5% 99% 10 Super Stop & Shop
New Britain, Connecticut Liquor Depot
CVS Pharmacy
Cottage Plaza NC 2004-2005 Feb-05 23,440,000 13,025,000 85,363 0.4% 91% 5 Stop & Shop
Pawtucket, Rhode Island
Cranberry Square RC 1996 - 1997 Jul-04 20,220,000 10,900,000 195,566 0.9% 92% 5 Barnes & Noble
Cranberry Township, Dick's Sporting
Pennsylvania Goods Best Buy
OfficeMax
Toys "R" Us
CVS Pharmacy (Eckerd SU 2003 Dec-03 3,364,000 1,850,000 13,824 0.1% 100% 1 CVS Pharmacy
Drug Store)
Edmund, Oklahoma
CVS Pharmacy (Eckerd SU 2003 Dec-03 5,288,000 2,900,000 13,824 0.1% 100% 1 CVS Pharmacy
Drug Store)
Norman, Oklahoma
CVS Pharmacy SU Mar-05 5,895,000 - 13,824 0.1% 100% 1 CVS Pharmacy
Jacksonville, Florida
51
GROSS % OF
MORTGAGE LEASABLE TOTAL
APPROXIMATE PAYABLE AT AREA GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, (SQ. LEASABLE OCCUPANCY NO. OF MAJOR
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
CVS Pharmacy SU 2004 Oct-04 3,066,000 1,685,000 10,055 0.1% 100% 1 CVS Pharmacy
Sylacauga, Alabama
Darien Towne Center RC 1994 Dec-03 30,000,000 16,500,000 223,844 1.0% 93% 11 Home Depot
Darien, Illinois Circuit City
PETsMART
Davis Towne Crossing NC 2003 & 2004 Jun-04 8,141,000 5,365,200 34,091 0.1% 91% 12 Lady USA Fitness
North Richland Hills, Cotton Patch Cafe
Texas
Denton Towne Crossing RC 2003 & Oct-04 54,688,000 35,200,000 283,040 1.2% 99% 33 Oshman's Sporting
Denton, Texas 2004 Goods Best Buy
T.J. Maxx
Dorman Center - Phase RC 2003 - 2004 Mar-04 & 50,200,000 27,610,000 388,067 1.7% 98% 27 Wal-Mart
I & II Jul-04 Supercenter
Spartanburg, South
Carolina
Eastwood Towne Center RC 2002 May-04 85,000,000 46,750,000 332,131 1.5% 98% 62 Dick's Sporting
Lansing, Michigan Goods
Eckerd Drug Store SU 2003 - 2004 Jun-04 3,260,000 1,750,000 13,440 0.1% 100% 1 Eckerd Drug Store
Columbia, South Carolina
Eckerd Drug Store SU 2003 - 2004 Jun-04 2,625,000 1,425,000 13,824 0.1% 100% 1 Eckerd Drug Store
Crossville, Tennessee
Eckerd Drug Store SU 2003 - 2004 Jun-04 3,069,000 1,650,000 13,824 0.1% 100% 1 Eckerd Drug Store
Greer, South Carolina
Eckerd Drug Store SU 2003 - 2004 Jun-04 3,650,000 1,975,000 13,824 0.1% 100% 1 Eckerd Drug Store
Kill Devil Hills, North
Carolina
Edgemont Town Center NC 2003 Nov-04 15,639,000 8,600,000 77,655 0.3% 90% 14 Publix
Homewood, Alabama
Evans Town Center NC 1995 Dec-04 8,795,000 5,005,000 75,695 0.3% 97% 14 Publix
Evans, Georgia
Fairgrounds Plaza NC 2002 - 2004 Jan-05 21,994,000 15,965,749 58,970 0.3% 100% 1 Super Stop & Shop
Middletown, New York
Five Forks NC 1999 Dec-04 8,086,000 4,482,500 64,173 0.3% 95% 8 Bi-Lo
Simpsonville, South
Carolina
Forks Town Center NC 2002 Jul-04 18,199,000 10,395,000 92,660 0.4% 96% 16 Giant Food Stores
Easton, Pennsylvania
Fox Creek Village RC 2003 - 2004 Nov-04 20,883,000 11,485,000 114,033 0.5% 87% 16 King Soopers
Longmont, Colorado
Fullerton Metrocenter RC 1988 Jun-04 51,275,000 28,050,000 253,296 1.1% 96% 43 Sportmart
Fullerton, California Henry's
Marketplace
52
GROSS % OF
MORTGAGE LEASABLE TOTAL
APPROXIMATE PAYABLE AT AREA GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, (SQ. LEASABLE OCCUPANCY NO. OF MAJOR
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Gateway Pavilions RC 2003 - 2004 Dec-04 65,141,000 35,842,000 301,233 1.3% 93% 36 Circuit City
Avondale, Arizona The Sports
Authority Mor
Furniture
Gateway Plaza RC 2000 Jul-04 33,025,000 18,163,000 358,091 1.6% 93% 26 Kohl's
Southlake, Texas
Gateway Station NC 2003 - 2004 Dec-04 5,093,000 - 19,537 0.1% 100% 6 Kirland's
College Station, Texas Talbots
Joseph A. Banks
Chicos
Gateway Village JV 1996 Jul-04 53,150,000 31,458,000 273,307 1.2% 99% 15 Safeway
Annapolis, Maryland Burlington Coat
Factory Best Buy
GMAC Insurance Building SU 1980/1990 Sept-04 59,997,000 33,000,000 501,064 2.2% 100% 1 GMAC Insurance
Winston-Salem, North
Carolina
Governor's Marketplace RC 2001 Aug-04 32,654,000 20,625,000 231,915 1.0% 94% 20 Bed, Bath & Beyond
Tallahassee, Florida Sports Authority
Marshalls Michaels
Green's Corner NC 1997 Dec-04 12,768,000 7,022,366 85,271 0.4% 100% 12 Kroger
Cumming,Georgia
Gurnee Towne Center RC 2000 Oct-04 44,256,000 24,360,000 179,602 0.8% 96% 26 Linens 'N Things
Gurnee, Illinois Old Navy Borders
Books & Music
Cost Plus World
Market
Harris Teeter SU 1977/1995 Sept-04 7,200,000 3,960,000 57,230 0.2% 100% 1 Harris Teeter
Wilmington, North
Carolina
Harvest Towne Center NC 1996-1999 Sept-04 8,950,000 5,005,000 42,235 0.2% 92% 11 CVS Pharmacy
Knoxville, Tennessee Pet Supplies Plus
Ruby Tuesday
Henry Town Center RC 2002 Dec-04 61,397,000 35,814,616 444,296 1.9% 99% 43 BJ's Wholesale
McDonough, Georgia Club Belk's
Heritage Towne Crossing NC 2002 Mar-04 16,123,000 8,950,000 80,639 0.4% 91% 30 N/A
Euless, Texas
Hickory Ridge RC 1999 Jan-04 41,900,000 23,650,000 380,487 1.7% 100% 21 Best Buy Kohl's
Hickory, North Carolina Dick's Sporting
Goods
High Ridge Crossing NC 2004 Mar-05 13,200,000 - 76,857 0.3% 95% 7 Shop'N Save
High Ridge, Missouri Warehouse
Hobby Lobby SU 2004 Jan-05 5,500,000 3,025,000 60,000 0.3% 100% 1 Hobby Lobby
Concord, North Carolina
53
GROSS % OF
MORTGAGE LEASABLE TOTAL
APPROXIMATE PAYABLE AT AREA GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, (SQ. LEASABLE OCCUPANCY NO. OF MAJOR
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Holliday Towne Center RC 2003 Feb-05 14,828,000 8,050,000 83,122 0.4% 85% 8 Martin's Food
Duncansville, Pennsylvania
Huebner Oaks Center RC 1997 & 1998 Jun-04 79,721,000 48,000,000 286,684 1.3% 98% 56 Bed, Bath & Beyond
San Antonio, Texas
Irmo Station NC 1980 & Dec-04 12,800,000 7,085,000 99,619 0.4% 91% 17 Kroger
Irmo, South Carolina 1985
John's Creek Village RC 2003 & 2004 Jun-04 34,255,000 23,300,000 156,582 0.7% 100% 21 LA Fitness Ross
Duluth, Georgia Dress for Less
T.J. Maxx
Kohl's/Wilshire Plaza III SU 2004 Nov-04 10,099,000 5,417,500 88,248 0.4% 100% 1 Kohl's
Kansas City, Missouri
La Plaza Del Norte RC 1996/1999 Jan-04 59,143,000 32,528,000 320,345 1.4% 97% 18 Oshman's Sporting
San Antonio, Texas Goods Best Buy
Beall's
Lake Mary Pointe NC 1999 Oct-04 6,620,000 3,657,500 51,052 0.2% 94% 8 Publix
Lake Mary, Florida
Lakewood Towne Center RC 1988 Jun-04 81,100,000 51,260,000 578,913 2.5% 95% 27 Gottschalk's
Lakewood, Washington Rebuilt Burlington Coat
2002-2003 Factory
Larkspur Landing RC 1978/2001 Jan-04 61,145,000 33,630,000 172,433 0.8% 92% 39 Bed, Bath & Beyond
Larkspur, California 24 Hour Fitness
Lincoln Park RC 1998 Sept-04 47,515,000 26,153,000 148,806 0.6% 100% 14 Tom Thumb
Dallas, Texas Barnes & Noble The
Container Store
Low Country Village NC 2004 Jun-04 11,090,000 10,810,000 76,385 0.3% 100% 8 Ross Dress for
Bluffton, South Carolina Less Michaels
PETsMART
MacArthur Crossing RC 1995 - 1996 Feb-04 23,102,000 12,700,000 109,755 0.5% 98% 28 Stein Mart
Los Colinas, Texas
Magnolia Square RC 2004 Feb-05 19,114,000 10,265,000 116,049 0.5% 91% 10 Ross Dress for
Houma, Louisiana Less PETsMART
Circuit City
Manchester Meadows RC 1994 - 1995 Aug-04 56,200,000 31,064,550 454,172 2.0% 97% 21 Wal-Mart Home
Town and Country, Depot
Missouri
Mansfield Towne Crossing RC 2004 Nov-04 18,322,000 10,982,300 105,286 0.5% 93% 19 Ross Dress for
Mansfield, Texas Less Staples
Maytag Distribution Center SU 2004 Jan-05 23,159,000 12,740,000 750,000 3.3% 100% 1 Maytag
Iowa City, Iowa
McAllen Shopping Center NC 2004 Dec-04 4,150,000 2,455,000 17,625 0.1% 100% 7 Hollywood Video
McAllen, Texas
54
GROSS % OF
MORTGAGE LEASABLE TOTAL
APPROXIMATE PAYABLE AT AREA GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, (SQ. LEASABLE OCCUPANCY NO. OF MAJOR
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Mesa Fiesta RC 2004 Dec-04 36,855,000 23,500,000 194,892 0.9% 100% 8 Best Buy
Mesa, Arizona Marshalls
Borders Books &
Music
CompUSA Oak
Showcase
Midtown Center RC 1986-1987 Jan-05 53,000,000 28,227,617 319,072 1.4% 98% 24 Wal-Mart
Milwaukee, Wisconsin Pick 'N Save
Mitchell Ranch Plaza RC 2003 Aug-04 34,000,000 18,700,000 200,404 0.9% 97% 38 Publix Marshalls
New Port Richey, Florida Ross Dress for
Less
Newnan Crossing I & II RC 1999-2004 Dec-03 & 52,360,000 23,766,191 392,050 1.7% 100% 29 BJ's Wholesale
Newnan, Georgia Feb-04 Club
Newton Crossroads NC 1997 Dec-04 10,072,000 5,547,622 78,896 0.3% 100% 11 Kroger
Covington, Georgia
North Ranch Pavilions NC 1992 Jan-04 18,468,000 10,157,400 62,812 0.3% 91% 25 Savvy Salon
Thousand Oaks, California
North Rivers Town Center RC 2003 - 2004 Apr-04 20,100,000 11,050,000 141,204 0.6% 100% 16 Ross Dress for
Charleston, South Carolina Less Bed, Bath &
Beyond Office
Depot Babies "R"
Us
Northgate North RC 1999 - 2003 Jun-04 48,455,000 26,650,000 302,095 1.3% 98% 8 Target
Seattle, Washington Best Buy
Northpointe Plaza RC 1991 - 1993 May-04 54,524,000 30,850,000 377,949 1.7% 99% 31 Safeway
Spokane, Washington Gart Sports
Best Buy
Northwoods Center NC 2002 - 2004 Dec-04 13,964,000 11,192,500 74,647 0.3% 100% 16 Marshalls
Wesley Chapel, Florida PETCO
Oswego Commons RC 2002 - 2004 Nov-04 35,022,000 19,262,100 187,651 0.8% 100% 24 Dominick's
Oswego, Illinois T.J. Maxx
OfficeMax
Paradise Valley NC 2002 Apr-04 28,510,000 15,680,500 92,158 0.4% 76% 16 Whole Foods
Marketplace Eckerd Drug Store
Phoenix, Arizona
Pavilion at King's Grant NC 2002/2003 Dec-03 8,151,000 5,342,000 79,109 0.3% 100% 7 Toys "R" Us
Concord, North Carolina Olive Garden
Peoria Crossings RC 2002 - 2003 Mar-04 37,368,000 20,497,400 213,733 0.9% 98% 21 Kohl's
Glendale, Arizona Ross Dress for
Less Michaels
Phenix Crossing NC 2004 Dec-04 10,065,000 - 56,563 0.2% 95% 9 Publix
Phenix City, Alabama
Pine Ridge Plaza RC 1998 - 2004 Jun-04 26,982,000 14,700,000 230,510 1.0% 100% 14 T.J. Maxx
Lawrence, Kansas Bed, Bath & Beyond
Kohl's
55
GROSS % OF
MORTGAGE LEASABLE TOTAL
APPROXIMATE PAYABLE AT AREA GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, (SQ. LEASABLE OCCUPANCY NO. OF MAJOR
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Placentia Town Center RC 1973/2000 Dec-04 24,865,000 13,695,000 110,962 0.5% 97% 20 Ross Dress for
Placentia, California Less OfficeMax
Bank of America
Plaza at Marysville RC 1995 Jul-04 21,266,000 11,800,000 115,656 0.5% 97% 26 Safeway
Marysville, Washington
Plaza at Riverlakes RC 2001 Oct-04 17,000,000 - 102,836 0.4% 100% 22 Ralph's Grocery
Bakersfield, California Store
Plaza Santa Fe II RC 2000 - 2002 Jun-04 30,971,000 17,342,953 222,389 1.0% 98% 21 Linens 'N Things
Santa Fe, New Mexico Best Buy
T.J. Maxx
Pleasant Run Towne Center RC 2004 Dec-04 35,370,000 22,800,000 201,587 0.9% 100% 22 Oshman's Sporting
Cedar Hill, Texas Goods Circuit City
Promenade at Red Cliff NC 1997 Feb-04 19,537,000 10,590,000 94,445 0.4% 90% 17 Staples
St. George, Utah Old Navy Big 5
Sporting Goods
Reisterstown Road Plaza JV 1986/2004 Aug-04 94,762,000 49,650,000 789,926 3.5% 98% 86 Home Depot
Baltimore, Maryland Dept. of Public
Safety National
Wholesale
Liquidators
Saucon Valley Square NC 1999 Sept-04 16,043,000 8,850,900 80,695 0.4% 100% 14 Super Fresh Food
Bethlehem, Pennsylvania Market
Shaw's Supermarket SU 1995 Dec-03 13,656,000 6,450,000 65,658 0.3% 100% 1 Shaw's Supermarket
New Britain, Connecticut
Shoppes at Lake Andrew RC 2003 Dec-04 28,300,000 15,656,511 144,733 0.6% 100% 18 Ross Dress for
Viera, Florida Less Linens 'N
Things The Rag
Shop
The Shoppes at Park West NC 2004 Nov-04 12,047,000 6,655,000 64,832 0.3% 95% 11 Publix
(Publix Center)
Mount Pleasant, South
Carolina
Shoppes at Quarterfield NC 1999 Jan-04 11,031,000 6,067,183 61,817 0.3% 96% 2 Shoppers Food
(Metro Square Center) Warehouse
Severn, Maryland
Shoppes of New Hope NC 2004 Jul-04 13,052,000 7,178,700 70,610 0.3% 100% 17 Publix
(Shoppes of Dallas)
Dallas, Georgia
Shoppes of Prominence NC 2004 Jun-04 15,155,000 9,954,300 78,058 0.3% 98% 18 Publix
Point
Canton, Georgia
The Shops at Boardwalk RC 2003 & 2004 Jul-04 36,642,000 20,150,000 122,916 0.5% 87% 25 Borders Books
Kansas City, Missouri
Shops at Forest Commons NC 2002 Dec-04 7,505,000 5,220,981 34,756 0.2% 100% 16 Blockbuster Video
Round Rock, Texas
56
GROSS % OF
MORTGAGE LEASABLE TOTAL
APPROXIMATE PAYABLE AT AREA GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, (SQ. LEASABLE OCCUPANCY NO. OF MAJOR
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Shops at Park Place RC 2001 Oct-03 24,000,000 13,127,000 116,300 0.5% 99% 11 Bed, Bath & Beyond
Plano, Texas Michaels
OfficeMax
Walgreens
Southgate Plaza NC 1998-2002 Mar-05 12,253,000 - 86,010 0.4% 100% 7 Best Buy
Heath, Ohio Office Depot
Michaels
Southlake Town Square RC 1998-2004 1Dec-04 35,606,000 81,000,000 456,569 2.0% 99% 152 N/A
Southlake, Texas
Stanley Works/Mac Tools SU 2004 Jan-05 10,000,000 - 72,500 0.3% 100% 1 Mac Tools
Westerville, Ohio
Stateline Station RC 2003-2004 Mar-05 32,000,000 - 141,686 0.6% 93% 17 Linens 'N Things
High Ridge, Missouri Cost Plus World
Market Petco
Stilesboro Oaks NC 1997 Dec-04 12,640,000 6,951,971 80,772 0.4% 100% 13 Kroger
Acworth, Georgia
Stony Creek Marketplace RC 2003 Dec-03 25,750,000 14,162,000 153,796 0.7% 100% 20 T.J. Maxx
Noblesville, Indiana Linens 'N Things
Barnes & Noble
Tollgate Marketplace JV 1979/1994 Jul-04 72,300,000 39,765,000 392,587 1.7% 100% 34 Giant Food
Bel Air, Maryland Jo Ann Fabrics
Towson Circle JV 1998 Jul-04 28,450,000 19,197,500 116,012 0.5% 94% 13 Barnes & Noble
Towson, Maryland Trader Joe's East
Bally's Total
Fitness
Pier 1 Imports
Trenton Crossing RC 2003 Feb-05 29,212,000 19,307,037 215,220 0.9% 99% 19 Hobby Lobby
McAllen, Texas Ross Dress for
Less Marshalls
Beall's
University Town Center NC 2002 Nov-04 10,569,000 5,810,000 57,250 0.3% 100% 15 Publix
Tuscaloosa, Alabama
The Village at Quail RC 2003-2004 Feb-05 10,429,000 5,740,000 100,404 0.4% 100% 2 Gordman's
Springs Oklahoma City, Best Buy
Oklahoma
Village Shoppes at NC 2004 Aug-04 13,750,000 7,561,700 66,415 0.3% 87% 10 Publix
Simonton
Lawrenceville, Georgia
Wal-Mart Supercenter SU 1999 Jul-04 13,248,000 7,100,000 183,047 0.8% 100% 1 Wal-Mart
Blytheville, Arkansas Supercenter
Wal-Mart Supercenter SU 1997 Aug-04 11,071,000 6,088,500 149,704 0.7% 100% 1 Wal-Mart
Jonesboro, Arkansas Supercenter
Watauga Pavilion RC 2003/2004 May-04 35,668,000 19,617,000 205,195 0.9% 97% 17 Oshman's Sporting
Wautauga, Texas Goods Ross Dress
for Less Bed, Bath
& Beyond
57
GROSS % OF
MORTGAGE LEASABLE TOTAL
APPROXIMATE PAYABLE AT AREA GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, (SQ. LEASABLE OCCUPANCY NO. OF MAJOR
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Winchester Commons NC 1999 Nov-04 13,023,000 7,235,000 93,024 0.4% 98% 15 Kroger
Memphis, Tennessee
Wrangler SU 1993 Jul-04 18,477,000 11,300,000 316,800 1.4% 100% 1 Wrangler
El Paso, Texas
Zurich Towers SU 1988 - 1990 Nov-04 138,000,000 81,420,000 895,418 3.9% 100% 1 Zurich American
Schaumburg, Illinois Insurance
Company
------------------------------------------------ -------
PORTFOLIO TOTAL 3,777,302,000 2,088,440,547 22,893,430 100% 2,037
================================================ =======
* Major tenants include tenants leasing more than 10% of the gross leasable
area of the individual property.
NC Neighborhood and Community Retail Shopping Center
SU Single-User Property
RC Retail Shopping Center
JV Joint Venture
In addition to the properties listed above, we consolidate one 124-unit
apartment property, Cardiff Hall East, in which we made an investment through a
joint venture arrangement on October 15, 2004. This property which is located in
Towson, Maryland had a mortgage payable with a balance of $5,108,656 at
December 31, 2004.
We have a 95% ownership interest in the limited liability companies which own
Boulevard at the Capital Centre, Gateway Village, Reisterstown Road Plaza,
Tollgate Marketplace, and Towson Circle.
58
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 98 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION REGARDING PROPERTIES WE
HAVE ACQUIRED OR INTEND TO ACQUIRE.
DESCRIPTION OF PROPERTIES
AMERICAN EXPRESS - SALT LAKE CITY, UTAH
We anticipate purchasing the following office building constructed in 1982 and
leasing the entire building back to American Express Travel Related Services
Company, Inc.
APPROXIMATE APPROXIMATE
LOCATION SQUARE FEET LEASE TERM PURCHASE PRICE ($)
-------- ----------- ---------- ------------------
4315 South 2700 West 395,787 10 years 48,000,000
Salt Lake City, UT
For financial information of American Express, please see the financial
statements filed with the Securities and Exchange Commission
POTENTIAL PROPERTY ACQUISITIONS
We are currently considering acquiring the properties listed below. Our decision
to acquire these properties will generally depend upon:
- no material adverse change occurring relating to the properties, the
tenants or in the local economic conditions;
- our receipt of sufficient net proceeds from this offering and
financing proceeds to make these acquisition; and
- our receipt of satisfactory due diligence information including
appraisals, environmental reports and lease information.
Other properties may be identified in the future that we may acquire before or
instead of these properties. We cannot guarantee that we will complete these
acquisitions.
In evaluating these properties as potential acquisitions and determining the
appropriate amount of consideration to be paid for each property, we have
considered a variety of factors including, overall valuation of net rental
income, location, demographics, quality of tenant, length of lease, price per
square foot, occupancy and the fact that overall rental rate at the shopping
center is comparable to market rates. We believe that these properties are well
located, have acceptable roadway access, are well maintained and have been
professionally managed. These properties will be subject to competition from
similar shopping centers within their market area, and their economic
performance could be affected by changes in local economic conditions. We did
not consider any other factors materially relevant to our decision to acquire
these properties.
-59-
APPROXIMATE
ACQUISITION GROSS PHYSICAL
COSTS LEASABLE OCCUPANCY
YEAR INCLUDING AREA AS OF NO. OF MAJOR
PROPERTY TYPE BUILT EXPENSES ($) * (SQ. FT.) 03/01/05 TENANTS TENANTS
------------------------- ------- ------------ ----------------- ----------- ----------- ------------- ----------------------
Advance Auto
Advance Auto Parts SU 2004 1,483,675 7,000 100% 1 Parts
8603 Culebra
San Antonio, TX
Advance Auto
Advance Auto Parts SU 2004 1,547,609 7,000 100% 1 Parts
465 E. Central Texas
Expressway
Harker Heights, Texas
Advance Auto
Advance Auto Parts SU 2004 1,433,113 7,000 100% 1 Parts
3915 E. Stan Schlueter
Killeen, Texas
Ross Dress for
Four Peaks Plaza RC 2004 8,252,000 140,571 87% 21 Less
Shea Boulevard and
Saguaro Boulevard Dollar Tree
Fountain Hills, Arizona
Sportsman's
Lakepointe Towne Crossing RC 2004 39,482,000 192,679 70% 10 Warehouse
715 Hebron Parkway Circuit City
Lewisville, TX Ross Stores
Ross Dress for
Metro Town Center RC 1988-1990 31,266,000 147,056 78% 19 Less
2821 West Peoria Renovated PETsMART
Phoenix, Arizona 2003 &
2004
As of March 8, 2005, we have over of $131,464,000 in pending acquisitions and we
believe, based in part on projected sales of our common stock, that cash on hand
and future financings will provide us with sufficient cash to close these
properties at the time of their projected closings.
-60-
TERMINATED CONTRACTS
Our Board of Directors previously approved the acquisition of Albertson's
Grocery Store in Loveland, Colorado, Mall 205 and Plaza 205 in Portland, Oregon,
Eckerd Drug Store in Danforth and Santa Fe in Edmond, Oklahoma, Casa Paloma in
Chandler, Arizona (disclosed as probable) Woodbury Village Shopping Center in
Woodbury, Minnesota (disclosed as probable), Shaw's Supermarket in Bristol,
Connecticut (disclosed as probable), Peoria Station in (disclosed as probable),
Thunderbird Crossing in Peoria, Arizona (disclosed as probable), Shoppes at
Warner Robins in Warner Robins, Georgia (disclosed as probable), Poinciana Place
in Kissimmee, Florida (disclosed as probable), and Cross Creek Shopping Center
in Memphis, Tennessee (disclosed as probable). Based on information received
during our due diligence process, we have decided not to acquire the properties
and our affiliate has terminated the contracts on these acquisitions.
TENANT LEASE EXPIRATION
The following table sets forth, as of March 8, 2005, lease expirations for the
next ten years at our properties, assuming that no renewal options are
exercised. For purposes of the table, the "total annual base rental income"
column represents annualized base rent of each tenant as of January 1 of each
year. Therefore, as each lease expires, no amount is included in this column for
any subsequent year for that lease. In view of the assumption made with regard
to total annual base rent, the percent of annual base rent represented by
expiring leases may not be reflective of the expected actual percentages.
AVERAGE
BASE
APPROX. % TOTAL OF RENTAL
GROSS PORTFOLIO % OF TOTAL INCOME
LEASABLE GROSS TOTAL ANNUAL ANNUAL BASE PER SQUARE
AREA OF LEASABLE AREA BASE RENTAL RENTAL INCOME FOOT
NUMBER OF EXPIRING REPRESENTED INCOME OF REPRESENTED TOTAL ANNUAL UNDER
YEAR ENDING LEASES LEASES (SQ. BY EXPIRING EXPIRING BY EXPIRING BASE RENTAL EXPIRING
DECEMBER 31, EXPIRING FT.) LEASES LEASES ($) LEASES INCOME ($) LEASES ($)
----------------------------------------------------------------------------------------------------------------------------------
Consolidated
2005 102 279,122 1.2% 4,837,157 1.7% 277,562,063 17.33
2006 171 685,392 3.0% 10,684,785 3.9% 274,958,831 15.59
2007 245 691,373 3.0% 13,321,125 5.0% 266,276,629 19.14
2008 291 952,614 4.2% 17,450,917 6.8% 255,115,134 18.32
2009 392 1,510,884 6.6% 26,428,701 11.0% 240,096,729 17.49
2010 85 624,989 2.7% 9,497,915 4.4% 216,326,081 15.20
2011 76 1,065,789 4.7% 15,697,641 7.6% 207,517,353 14.73
2012 105 1,053,894 4.6% 15,476,718 8.2% 192,578,444 14.94
2013 175 1,787,522 7.8% 24,412,504 13.7% 177,614,088 13.66
2014 170 4,476,160 19.6% 55,637,512 36.1% 154,067,257 12.43
TENANT CONCENTRATION
The following table sets forth information regarding the ten individual tenants
at our properties comprising the greatest gross leasable area and greatest 2004
annualized base rent based on the properties owned as of March 8, 2005.
-61-
% OF TOTAL % OF
GROSS GROSS ANNUALIZED ANNUALIZED
TOTAL LEASABLE AREA LEASABLE BASE RENTAL BASE RENTAL
DESCRIPTION NUMBER (SQ. FT.) AREA INCOME INCOME
------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL TENANT CONCENTRATIONS (MGMT. CRITERIA TOP 10 OF GLA AND BASE RENT)
American Express 7 2,201,308 9.62% 22,202,988 7.9%
Zurich American Insurance Company 1 895,418 3.91% 8,883,864 3.2%
Wal-Mart 5 864,883 3.78% 5,856,476 2.1%
Maytag 1 750,000 3.28% 1,726,500 .0.6%
Ross Dress for Less 15 620,529 2.71% 6,408,672 2.3%
Best Buy 14 603,802 2.64% 8,311,980 3.0%
GMAC 1 501,064 2.19% 5,164,449 1.8%
Bed, Bath & Beyond 16 434,002 1.90% 5,055,608 1.8%
Kohl's 5 431,317 1.88% 2,969,342 1.1%
Publix 10 423,005 1.85% 4,510,234 1.6%
Linens 'N Things 13 403,908 1.80% 4,332,814 1.5%
Michaels 15 347,945 1.50% 3,715,597 1.3%
PROPERTY ALLOCATION
The following table provides a summary of the properties in our investment
portfolio by type of investment and by state as of March 8, 2005.
% OF TOTAL % OF
GROSS GROSS ANNUALIZED ANNUALIZED
TOTAL LEASABLE LEASABLE BASE RENTAL BASE RENTAL
DESCRIPTION NUMBER AREA (SQ. FT.) AREA INCOME INCOME
------------------------------------------------------------------------------------------------------------------------
PORTFOLIO ALLOCATION BY TYPE
Neighborhood and Community Retail 38 2,639,716 11.5% 36,817,904 13.1%
Shopping Center
Single-User Property 31 5,761,250 25.2% 49,907,762 17.8%
Retail Shopping Center 54 12,441,560 54.3% 165,271,229 58.9%
Joint Venture* 5 2,050,904 9.0 % 28,426,502 10.1%
--------------------------------------------------------------------------------
Total 128 22,898,430 100.0% 280,011,995 100.0%
================================================================================
* In addition to the properties listed above, we consolidate one 124-unit
apartment property, Cardiff Hall East, in which we made and investment through a
joint venture arrangement on October 15, 2004.
-62-
% OF TOTAL % OF
GROSS GROSS ANNUALIZED ANNUALIZED
TOTAL LEASABLE LEASABLE BASE RENTAL BASE RENTAL
DESCRIPTION NUMBER AREA (SQ. FT.) AREA INCOME INCOME
------------------------------------------------------------------------------------------------------------------------
PORTFOLIO ALLOCATION BY STATE
Alabama 4 201,523 0.9% 2,943,475 1.0%
Arizona 6 1,257,011 5.5% 15,570,448 5.6%
California 5 702,339 3.1% 13,775,483 4.9%
Florida 9 1,243,755 5.4% 16,159,536 5.8%
Georgia 10 1,528,645 6.7% 17,526,456 6.2%
Illinois 4 1,486,515 6.5% 16,803,336 6.0%
Maryland 6 2,112,721 9.2% 29,299,015 10.4%
Missouri 5 883,879 3.9% 10,152,916 3.6%
North Carolina 7 1,481,091 6.5% 14,421,942 5.1%
Pennsylvania 4 452,043 2.0% 5,464,949 1.9%
South Carolina 9 1,051,686 4.6% 11,418,989 4.1%
Tennessee 4 322,510 1.4% 3,888,775 1.4%
Texas 23 3,619,225 15.8% 51,744,610 18.5%
Washington 4 1,374,613 6.0% 14,705,162 5.2%
Other 28 5,175,874 22.6% 56,548,304 20.2%
--------------------------------------------------------------------------------
Total 128 22,893,430 100% 280,423,397 100%
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
We electronically file our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and all amendments to those reports with the
Securities and Exchange Commission (SEC). The public may read and copy any of
the reports that are filed with the SEC at the SEC's Public Reference Room at
405 Fifth Street, NW, Washington, DC 20549. The public may obtain information on
the operation of the Public Reference room by calling the SEC at (800)-SEC-0330.
The SEC maintains an Internet site at (www.sec.gov) that contains reports, proxy
and information statements and other information regarding issuers that file
electronically.
CERTAIN STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS FORM 10-K 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
OUR ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM
ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE
FORWARD-LOOKING STATEMENTS.
The following discussion and analysis relates to the year ended December 31,
2004 and for the period from March 5, 2003
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(inception) to December 31, 2003. You should read the following discussion and
analysis along with our consolidated financial statements and the related notes
included in this report.
Overview
We were formed to acquire and manage a diversified portfolio of real estate,
principally multi-tenant shopping centers and single-user buildings. We operate
as a real estate investment trust or REIT for Federal and state income tax
purposes. We have initially focused on acquiring properties in the Western
states. We have begun to acquire and plan to continue acquiring properties in
the Western states. We may also acquire retail and single-user net lease
properties in locations throughout the United States. We have also begun to
acquire properties improved with commercial facilities which provide goods and
services as well as double or triple net leased properties, which are either
commercial or retail including properties acquired in sale and leaseback
transactions. A triple-net leased property is one which is leased to a tenant
who is responsible for the base rent and all costs and expenses associated with
their occupancy including property taxes, insurance and repairs and maintenance.
Inland Western Retail Real Estate Advisory Services, Inc. or our business
manager/advisor has been retained to manage, for a fee, our day-to-day affairs,
subject to the supervision of our board of directors.
Our goal is to purchase properties principally west of the Mississippi River and
evaluate potential acquisition opportunities of properties east of the
Mississippi River on a property by property basis, taking into consideration
investment objectives and available funds. As of February 28, 2005 we have
purchased 12 additional properties located in the states of Florida, Iowa,
Louisiana, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island,
Texas, Wisconsin, and Ontario, Canada.
For the year ended December 31, 2004, we purchased 103 properties, of which 55
were not located in our primary geographical area of interest. We purchased
these 55 properties because we had the unique opportunity of taking advantage of
our business manager/advisor's acquisition pipeline of properties located east
of the Mississippi River which generally, continue to have rates of return above
those located in the Western United States. We expect this trend to continue
into the next year. Our strategy in purchasing these properties was to deploy
stockholder funds promptly and generate income for us as early as possible,
while investing in properties which met our acquisition criteria.
During the fourth quarter of 2004, the retail sector has remained relatively
stable as a result of sustained consumer spending, which has helped maintain
retail sales growth despite potential terrorist threats and the Iraqi war. A
modest pace of new retail construction, and the expansion strategy of some
retailers, who are renting more space to maintain market share and revenue
growth and offset declining same store sales have also contributed to the
stability.
Our goal is to maximize the possible return to our stockholders through the
acquisition, development, re-development and management of our properties
consisting of neighborhood and community shopping centers and single-tenant
buildings. We actively manage our assets by leasing and releasing space at
favorable rates, controlling costs, maintaining strong tenant relationships and
creating additional value through redeveloping and repositioning our centers. We
distribute funds generated from operations to our stockholders, and intend to
continue distributions in order to maintain our REIT status.
Overall, the retail segment of the real estate industry has undergone a
fundamental shift in consumer spending patterns while the grocery, drug and
discount retail sectors have remained relatively stable over the past few years.
The majority of consumer purchases for general merchandise occur at discount
stores or warehouse club/supercenters following the lead of industry giants
Wal-Mart and Home Depot. Strength in this segment has come at a detriment to
older, established retailers, whose operating costs are relatively higher, and
who do not offer bulk purchasing opportunities to consumers. In addition,
relatively low interest rates have resulted in the increased purchasing power of
the general public, further accelerating these retail trends.
Selecting properties with high quality tenants and mitigating risk through
diversifying our tenant base is at the forefront of our acquisition strategy. We
believe our strategy of purchasing properties, primarily in the fastest growing
areas of the country and focusing on acquisitions with tenants who provide basic
goods and services will produce stable earnings and growth opportunities in
future years.
We are in the process of completing our initial offering of common stock and
have raised $2,172,047,447 as of December 31, 2004. We raised on average
approximately $237 million per month during the fourth quarter of 2004.
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On December 28, 2004, our second offering was declared effective for up to
250,000,000 shares of common stock at $10 each and the issuance of up to
20,000,000 shares at $9.50 each, which may be distributed pursuant to our DRP.
We began selling shares of the second offering in January 2005.
As of December 31, 2004, we owned through separate limited partnership, limited
liability company, or joint venture agreements, a portfolio of 111 properties
located in Alabama, Arizona, Arkansas, California, Colorado, Connecticut,
Florida, Georgia, Illinois, Indiana, Kansas, Louisiana, Maryland, Michigan,
Minnesota, Missouri, Nevada, New Mexico, New York, North Carolina, Oklahoma,
Pennsylvania, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin
containing an aggregate of approximately 20,231,000 square feet of gross
leasable area. As of December 31, 2004, approximately 97% of gross leasable area
in the properties was physically leased and 99% was economically leased.
Critical Accounting Policies and Estimates
GENERAL
The following disclosure pertains to critical accounting policies and estimates
we believe are most "critical" to the portrayal of our financial condition and
results of operations which require our most difficult, subjective or complex
judgments. These judgments often result from the need to make estimates about
the effect of matters that are inherently uncertain. Critical accounting
policies discussed in this section are not to be confused with accounting
principles and methods disclosed in accordance with accounting principles
generally accepted in the United States of America or GAAP. GAAP requires
information in financial statements about accounting principles, methods used
and disclosures pertaining to significant estimates. This discussion addresses
our judgment pertaining to trends, events or uncertainties known which were
taken into consideration upon the application of those policies and the
likelihood that materially different amounts would be reported upon taking into
consideration different conditions and assumptions.
ACQUISITION OF INVESTMENT PROPERTY
We allocate the purchase price of each acquired investment property between
land, building and improvements, acquired above market and below market leases,
in-place lease value, and any assumed financing that is determined to be above
or below market terms. In addition, we allocate a portion of the purchase price
to the value of customer relationships. The allocation of the purchase price is
an area that requires judgment and significant estimates. We use the information
contained in the independent appraisal obtained at acquisition as the primary
basis for the allocation to land and building and improvements. We determine
whether any financing assumed is above or below market based upon comparison to
similar financing terms for similar investment properties. We also allocate a
portion of the purchase price to the estimated acquired in-place lease costs
based on estimated lease execution costs for similar leases as well as lost rent
payments during assumed lease up period when calculating as if vacant fair
values. We consider various factors including geographic location and size of
leased space. We also evaluate each acquired lease based upon current market
rates at the acquisition date and we consider various factors including
geographical location, size and location of leased space within the investment
property, tenant profile, and the credit risk of the tenant in determining
whether the acquired lease is above or below market lease costs. After an
acquired lease is determined to be above or below market lease costs, we
allocate a portion of the purchase price to such above or below acquired lease
costs based upon the present value of the difference between the contractual
lease rate and the estimated market rate. However, for below market leases with
fixed rate renewals, renewal periods are included in the calculation of below
market in-place lease values. The determination of the discount rate used in the
present value calculation is based upon the "risk free rate." This discount rate
is a significant factor in determining the market valuation which requires our
judgment of subjective factors such as market knowledge, economics,
demographics, location, visibility, age and physical condition of the property.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards or SFAS No. 144,
we conduct an analysis on a quarterly basis to determine if indicators of
impairment exist to ensure that the property's carrying value does not exceed
its fair value. If this were to occur, we are required to record an impairment
loss. The valuation and possible subsequent impairment of investment properties
is a significant estimate that can and does change based on our continuous
process of
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analyzing each property and reviewing assumptions about uncertain inherent
factors, as well as the economic condition of the property at a particular point
in time. No impairment losses have been taken in 2003 or 2004.
COST CAPITALIZATION AND DEPRECIATION POLICIES
Our policy is to review all expenses paid and capitalize any items exceeding
$5,000 which are deemed to be an upgrade or a tenant improvement. These costs
are capitalized and are included in the investment properties classification as
an addition to buildings and improvements.
Buildings and improvements are depreciated on a straight-line basis based upon
estimated useful lives of 30 years for buildings and improvements, and 15 years
for site improvements. The portion of the purchase price allocated to acquired
above market costs and acquired below market costs are amortized on a
straight-line basis over the life of the related lease as an adjustment to net
rental income. Acquired in-place lease costs, customer relationship value, other
leasing costs, and tenant improvements are amortized on a straight-line basis
over the life of the related lease as a component of amortization expense.
The application of SFAS No. 141 and SFAS No. 142 resulted in the recognition
upon acquisition of additional intangible assets and liabilities relating to our
real estate acquisitions during the year ended December 31, 2004. The portion of
the purchase price allocated to acquired above market lease costs and acquired
below market lease costs are amortized on a straight-line basis over the life of
the related lease as an adjustment to rental income. Amortization pertaining to
the above market lease costs of $3,118,699 was applied as a reduction to rental
income for the year ended December 31, 2004 and $5,227 for the period from March
5, 2003 (inception) to December 31, 2003. Amortization pertaining to the below
market lease costs of $4,703,357 was applied as an increase to rental income for
the year ended December 31, 2004 and $15,386 for the period from March 5, 2003
(inception) to December 31, 2003.
The portion of the purchase price allocated to acquired in-place lease costs are
amortized on a straight line basis over the life of the related lease. We
incurred amortization expense pertaining to acquired in-place lease costs of
$9,923,630 for the year ended December 31, 2004 and $51,773 for the period from
March 5, 2003 (inception) to December 31, 2003.
The portion of the purchase price allocated to customer relationship value is
amortized on a straight-line basis over the life of the related lease.
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The table below presents the amortization during the next five years related to
the acquired in-place lease intangibles, customer relationship value, acquired
above market lease costs and the below market lease costs for properties owned
at December 31, 2004:
2005 2006 2007 2008 2009 Thereafter
---- ---- ---- ---- ---- ----------
Amortization of:
Acquired above
market lease costs $ (5,576,668) (5,391,370) (4,558,366) (4,275,216) (3,783,749) (17,188,977)
Acquired below
market lease costs 9,930,801 9,166,611 8,238,008 7,337,557 6,580,442 44,732,278
------------------------------------------------------------------------------------------------------
Net rental income
increase $ 4,354,133 3,775,241 3,679,642 3,062,341 2,796,693 27,543,301
======================================================================================================
Acquired in-place lease
intangibles $ (25,857,397) (25,857,397) (25,857,397) (25,803,230) (24,532,397) (110,207,994)
Customer relationship
value $ (200,000) (200,000) (200,000) (200,000) (200,000) (1,000,000)
Cost capitalization and the estimate of useful lives requires our judgment and
includes significant estimates that can and do change based on our process which
periodically analyzes each property and on our assumptions about uncertain
inherent factors.
REVENUE RECOGNITION
We recognize rental income on a straight-line basis over the term of each lease.
The difference between rental income earned on a straight-line basis and the
cash rent due under the provisions of the lease agreements is recorded as
deferred rent receivable and is included as a component of accounts and rents
receivable in the accompanying consolidated balance sheets. We anticipate
collecting these amounts over the terms of the leases as scheduled rent payments
are made.
Reimbursements from tenants for recoverable real estate tax and operating
expenses are accrued as revenue in the period the applicable expenditures are
incurred. We make certain assumptions and judgments in estimating the
reimbursements at the end of each reporting period. Should the actual results
differ from our judgment, the estimated reimbursement could be negatively
affected and would be adjusted appropriately.
In conjunction with certain acquisitions, we receive payments under master lease
agreements pertaining to certain, non-revenue producing spaces either at the
time of, or subsequent to, the purchase of some of our properties. Upon receipt
of the payments, the receipts are recorded as a reduction in the purchase price
of the related properties rather than as rental income. These master leases were
established at the time of purchase in order to mitigate the potential negative
effects of loss of rent and expense reimbursements. Master lease payments are
received through a draw of funds escrowed at the time of purchase and may cover
a period from one to three years. These funds may be released to either us or
the seller when certain leasing conditions are met. Restricted cash includes
funds received by third party escrow agents, from sellers, pertaining to master
lease agreements. We record such escrows as both an asset and a corresponding
liability, until certain leasing conditions are met.
We record lease termination income if there is a signed termination letter
agreement, all of the conditions of the agreement have been met, and the tenant
is no longer occupying the property.
INTEREST RATE FUTURES CONTRACTS
We enter into interest rate futures contracts or treasury contracts as a means
of reducing our exposure to rising interest rates. At inception, contracts are
evaluated in order to determine if they will qualify for hedge accounting
treatment and will be accounted for either on a deferral, accrual or market
value basis depending on the nature of our hedge strategy and the
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method used to account for the hedged item. Hedge criteria include demonstrating
the manner in which the hedge will reduce risk, identifying the specific asset,
liability or firm commitment being hedged, and citing the time horizon being
hedged.
For the year ended December 31, 2004, the Company entered into treasury
contracts with a futures commission merchant with yields ranging from 3.27% to
3.85% for 5 year treasury contracts and 4.00% to 4.63% for 10 year treasury
contracts. On December 31, 2004, the treasury contracts had a liquidation value
of $46,005 resulting in a loss of $3,666,894 for the year ended December 31,
2004. As these treasury contracts are not offsetting future commitments and
therefore do not qualify as hedges, the net loss is recognized currently in
earnings.
Liquidity and Capital Resources
GENERAL
Our principal demands for funds have been for property acquisitions, for the
payment of operating expenses and distributions, and for the payment of interest
on outstanding indebtedness. Generally, cash needs for items other than property
acquisitions have been met from operations, and property acquisitions have been
funded by a public offering of our shares of common stock. However, there may be
a passage of time between the sale of the shares and our purchase of properties,
which may result in a delay in the benefits to stockholders of returns generated
from property operations. Our business manager/advisor evaluates potential
additional property acquisitions and Inland Real Estate Acquisitions, Inc., one
of the affiliates of our sponsor, engages in negotiations with sellers on our
behalf. After a purchase contract is executed which contains specific terms, the
property will not be purchased until due diligence, which includes review of the
title insurance commitment, an appraisal and an environmental analysis, is
successfully completed. In some instances, the proposed acquisition still
requires the negotiation of final binding agreements, which may include
financing documents. During this period, we may decide to temporarily invest any
unused proceeds from the offering in certain investments that could yield lower
returns than other investments, such as the acquisition of properties. These
lower returns may affect our ability to make distributions.
Potential future sources of capital include proceeds from the public or private
offering of our equity or debt securities, secured or unsecured financings from
banks or other lenders, proceeds from the sale of properties, as well as
undistributed funds from operations. We anticipate that during the current year
we will (i) acquire additional existing shopping centers and net leased
properties, (ii) begin to develop additional shopping center sites and (iii)
continue to pay distributions to stockholders, and each is expected to be funded
mainly from proceeds of our public offerings of shares, cash flows from
operating activities, financings and other external capital resources available
to us.
Our leases typically provide that the tenant bears responsibility for
substantially all property costs and expenses associated with ongoing
maintenance and operation, including utilities, property taxes and insurance. In
addition, in some instances our leases provide that the tenant is responsible
for roof and structural repairs. Certain of our properties are subject to leases
under which we retain responsibility for certain costs and expenses associated
with the property. We anticipate that capital demands to meet obligations
related to capital improvements with respect to properties will be minimal for
the foreseeable future and can be met with funds from operations and working
capital. We believe that our current capital resources (including cash on hand)
and anticipated financings are sufficient to meet our liquidity needs for the
foreseeable future.
LIQUIDITY
OFFERING. As of December 31, 2004, subscriptions for the initial public offering
for a total of 217,467,878 shares had been received from the public, which
include the 20,000 shares issued to the business manager/advisor and 3,079,003
shares sold pursuant to the DRP as of December 31, 2004. As a result of such
sales, we received a total of $2,172,047,447 of gross offering proceeds for the
initial public offering as of December 31, 2004.
On December 28, 2004, our second offering was declared effective for up to
250,000,000 shares of common stock at $10 each and the issuance of up to
20,000,000 shares at $9.50 each, which may be distributed pursuant to our DRP.
We began selling shares of the second offering in early January 2005.
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MORTGAGE DEBT. Mortgage loans outstanding as of December 31, 2004 were
$1,782,538,627 and had a weighted average interest rate of 4.58%. Of this
amount, $1,635,745,627 had fixed rates ranging from 3.96% to 8.02% and a
weighted average fixed rate of 4.67% at December 31, 2004. The rate of 8.02%
represented the interest rate on the mortgage for Cardiff Hall East (Cardiff), a
joint venture entity which we consolidate. Excluding the Cardiff mortgage, the
highest fixed rate on our mortgage debt was 6.34%. The remaining $146,793,000
represented variable rate loans with a weighted average interest rate of 3.55%
at December 31, 2004. As of December 31, 2004, scheduled maturities for our
outstanding mortgage indebtedness had various due dates through August 2023.
During the period from January 1, 2005 through February 28, 2005 we obtained
mortgage financing on properties that we purchased during 2004 and 2005 totaling
approximately $276 million that require monthly payments of interest only and
bear interest at a range of 4.30% to 5.69% per annum.
LINE OF CREDIT. On December 24, 2003, we entered into a $150,000,000 unsecured
line of credit arrangement with a bank for a period of one year. The funds from
this line of credit were used to provide liquidity from the time a property was
purchased until permanent debt was placed on the property. We were required to
pay interest only on the outstanding balance from time to time under the line at
the rate equal to LIBOR plus 175 basis points. We were also required to pay, on
a quarterly basis, an amount ranging from .15% to .30%, per annum, on the
average daily undrawn funds remaining under this line. The line of credit
required compliance with certain covenants, such as debt service ratios, minimum
net worth requirements, distribution limitations and investment restrictions. As
of December 31, 2003, we were in compliance with such covenants. In connection
with obtaining this line of credit, we paid fees in an amount totaling
approximately $1,044,000 (which included a .65% commitment fee). The outstanding
balance on the line of credit was $5,000,000 as of December 31, 2003 with an
effective interest rate of 2.9375% per annum.
On December 16, 2004, we terminated the existing line of credit agreement and
executed a new unsecured line of credit facility with a bank for up to
$100,000,000 with an optional unsecured borrowing capacity of $150,000,000 for a
total unsecured borrowing capacity of $250,000,000. The facility has an initial
term of one year with two one-year extension options, with an annual variable
interest rate. The funds from this line of credit may be used to provide
liquidity from the time a property is purchased until permanent debt is placed
on that property. The line of credit requires interest only payments monthly at
the rate equal to the London InterBank Offered Rate or LIBOR plus 175 basis
points which ranged from 2.34% to 2.42% during the quarter ended December 31,
2004. We are also required to pay, on a quarterly basis, an amount ranging from
.15% to .25%, per annum, on the average daily undrawn funds under this line. The
line of credit requires compliance with certain covenants, such as debt service
ratios, minimum net worth requirements, distribution limitations and investment
restrictions. As of December 31, 2004, we were in compliance with such
covenants. There was no outstanding balance on the line as of December 31, 2004.
STOCKHOLDER LIQUIDITY. We provide the following programs to facilitate
investment in the shares and to provide limited, interim liquidity for
stockholders until such time as a market for the shares develops:
The DRP allows stockholders who purchase shares pursuant to the offerings to
automatically reinvest distributions by purchasing additional shares from us.
Such purchases will not be subject to selling commissions or the marketing
contribution and due diligence expense allowance and will be sold at a price of
$9.50 per share. As of December 31, 2004, we issued 3,079,003 shares pursuant to
the DRP for an aggregate amount of $29,250,830.
Subject to certain restrictions, the SRP provides existing stockholders with
limited, interim liquidity by enabling them to sell shares back to us at the
following prices:
One year from the purchase date, at $9.25 per share;
Two years from the purchase date, at $9.50 per share;
Three years from the purchase date, at $9.75 per share; and
Four years from the purchase date, at the greater of $10.00 per share,
or a price equal to 10 times our "funds available for distribution"
per weighted average shares outstanding for the prior calendar year.
Shares purchased by us will not be available for resale. As of December 31,
2004, 10,350 shares have been repurchased for a total of $192,667.
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CAPITAL RESOURCES
We expect to meet our short-term operating liquidity requirements generally
through our net cash provided by property operations. We also expect that our
properties will generate sufficient cash flow to cover our operating expenses
plus pay a monthly distribution on our weighted average shares. Operating cash
flows are expected to increase as additional properties are added to our
portfolio.
We believe that we should put mortgage debt on or leverage our properties at
approximately 50% of their value. We also believe that we can borrow at the
lowest overall cost of funds or interest rate by placing individual financing on
each of our properties. Accordingly, mortgage loans will generally have been
placed on each property at the time that the property is purchased, or shortly
thereafter, with the property solely securing the financing.
During the year ended December 31, 2004, we closed on mortgage debt with a
principal amount of $1,753,086,923. Of this amount, $1,606,293,923 represented
fixed rate loans which bear interest rates between 3.96% and 8.02%. The rate of
8.02% represented the interest rate on the mortgage for Cardiff Hall East
(Cardiff), a joint venture entity which we consolidate. Excluding the Cardiff
mortgage, the highest fixed rate on our mortgage debt was 6.34%. The remaining
$146,793,000 represented variable rate loans with a weighted average interest
rate of 3.55% at December 31, 2004.
With the exception of the mortgage loans on Plaza Santa Fe II, Shops at Forest
Commons and Henry Town Center, all of the loans that closed during the year
ended December 31, 2004 may be prepaid with a penalty after specific lockout
periods. The mortgage loans on Plaza Santa Fe II, Shops at Forest Commons and
Henry Town Center, have no prepayment privileges.
We have entered into interest rate lock agreements with various lenders to
secure interest rates on mortgage debt on properties we currently own or will
purchase in the future. We have outstanding rate lock deposits in the amount of
$2,826,055 as of December 31, 2004 which are applied as credits to the mortgage
fundings as they occur. These agreements lock interest rates from 4.45% to 5.12%
for periods from 60 days to 90 days on approximately $240 million in principal.
During the period from January 1, 2005 to February 28, 2005, we entered into
rate lock agreements which lock interest rates from 4.47% to 4.69% for periods
from 30 days to 90 days on approximately $300 million in principal.
Although the loans we closed are generally non-recourse, occasionally, when it
is deemed to be advantageous, we may guarantee all or a portion of the debt on a
full-recourse basis. Individual decisions regarding interest rates,
loan-to-value, fixed versus variable-rate financing, maturity dates and related
matters are often based on the condition of the financial markets at the time
the debt is incurred, which conditions may vary from time to time.
Distributions are determined by our board of directors with the advice of our
business manager/advisor and are dependent on a number of factors, including the
amount of funds available for distribution, flow of funds, our financial
condition, any decision by our board of directors to reinvest funds rather than
to distribute the funds, our capital expenditures, the annual distribution
required to maintain REIT status under the Internal Revenue Code and other
factors the board of directors may deem relevant.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash generated from operating activities was approximately $63,520,000 for
the year ended December 31, 2004 and $724,000 for, the period from March 5, 2003
(inception) to December 31, 2003. The increase in net cash provided by operating
activities for the year ended December 31, 2004 compared to prior year is due
primarily to the additional rental revenues and income generated from the
operations of 103 additional properties purchased during the year ended December
31, 2004, compared to eight properties purchased for the period from March 5,
2003 (inception) to December 31, 2003.
CASH FLOWS FROM INVESTING ACTIVITIES
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Cash flows used in investing activities were approximately $3,243,055,000 for
the year ended December 31, 2004 and $133,425,000 for the period from March 5,
2003 (inception) to December 31, 2003. The cash flows used in investing
activities were primarily due to the acquisition of 103 and eight properties for
approximately $3,201,247,000 and $127,196,000 during the year ended December 31,
2004 and the period from March 5, 2003 (inception) to December 31, 2003,
respectively.
As of February 28, 2005, we had approximately $550 million available for
investment in additional properties. As of February 28, 2005, we are considering
the acquisition of approximately $226 million in properties. We are currently in
the process of obtaining financings on properties which have been purchased, as
well as certain of the properties which we anticipate purchasing. It is our
intention to finance each of our acquisitions either at closing or subsequent to
closing. As a result of the intended financings and based on our current
experience in raising funds in our offerings, we believe that we will have
sufficient resources to acquire these properties.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows provided by financing activities were approximately $3,356,378,000
for the year ended December 31, 2004 and $197,082,000 for the period from March
5, 2003 (inception) to December 31, 2003. We generated proceeds from the sale of
shares, net of offering costs paid and shares repurchased, of approximately
$1,774,231,000 and $166,552,000, respectively. We generated approximately
$1,653,523,000 and $29,627,000 from the issuance of new mortgages secured by 97
and two of our properties. We generated $165,000,000 and $5,000,000 from funding
on the line of credit. We paid approximately $16,613,000 and $4,023,000 for loan
fees and approximately $54,542,000 and $358,000 in distributions to our
stockholders. The sponsor has agreed to advance us amounts to pay a portion of
these distributions until funds available for distribution are sufficient to
cover distributions. In addition, $170,000,000 and $0 was paid off on the line
of credit for the year ended December 31, 2004 and the period from March 5, 2003
(inception) to December 31, 2003, respectively.
Given the current size of our offerings, as of February 28, 2005, we could raise
approximately $2.4 billion of additional capital. However, there can be no
assurance that we will raise this amount of money or that we will be able to
acquire additional attractive properties.
We are exposed to interest rate changes primarily as a result of our long-term
debt used to maintain liquidity and fund capital expenditures and expansion of
our real estate investment portfolio and operations. Our interest rate risk
management objectives are to limit the impact of interest rate changes on
earnings and cash flows and to lower our overall borrowing costs. To achieve our
objectives we borrow primarily at fixed rates or variable rates with the lowest
margins available and, in some cases, with the ability to convert variable rates
to current market fixed rates at the time of conversion.
Effects of Transactions with Related and Certain Other Parties
SERVICES PROVIDED BY AFFILIATES OF THE BUSINESS MANAGER/ADVISOR As of December
31, 2004 and December 31, 2003, we had incurred $234,014,231 and $22,144,814,
respectively of offering costs, of which $175,508,624 and $16,854,779,
respectively were paid or accrued to affiliates. In accordance with the terms of
our offerings, our business manager/advisor has guaranteed payment of all public
offering expenses (excluding sales commissions and the marketing contribution
and the due diligence expense allowance) in excess of 5.5% of the gross proceeds
of the offerings or gross offering proceeds or all organization and offering
expenses (including selling commissions) which together exceed 15% of gross
offering proceeds. As of December 31, 2004 and December 31, 2003, offering costs
did not exceed the 5.5% and 15% limitations. We anticipate that these costs will
not exceed these limitations upon completion of the offerings. Any excess
amounts at the completion of the offerings will be reimbursed by our business
manager/advisor.
Our business manager/advisor and its affiliates are entitled to reimbursement
for salaries and expenses of employees of our business manager/advisor and its
affiliates relating to the offerings. In addition, an affiliate of our business
manager/advisor is entitled to receive selling commissions, and the marketing
contribution and due diligence expense allowance from us in connection with the
offerings. Such costs are offset against the stockholders' equity accounts. Such
costs totaled $175,508,624 and $16,859,779, of which $2,879,894 and $1,061,791
were unpaid at December 31, 2004 and December 31, 2003, respectively.
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Our business manager/advisor and its affiliates are entitled to reimbursement
for general and administrative expenses relating to our administration. Such
costs are included in general and administrative expenses to affiliates, in
addition to costs that were capitalized pertaining to property acquisitions.
During the year ended December 31, 2004 and the period from March 5, 2003
(inception) to December 31, 2003, we incurred $1,542,986 and $194,017 of these
costs, respectively, of which $957,471 and $40,703 remained unpaid as of
December 31, 2004 and December 31, 2003, respectively, and are included in Due
to affiliates on the Consolidated Balance Sheets.
An affiliate of our business manager/advisor provides loan servicing to us for
an annual fee. Such costs are included in property operating expenses to
affiliates. The agreement allows for annual fees totaling .03% of the first $1
billion in mortgage balance outstanding and .01% of the remaining mortgage
balance, payable monthly. Such fees totaled $140,859 for the year ended December
31, 2004 and $328 for the period from March 5, 2003 (inception) to December 31,
2003.
We use the services of an affiliate of our business manager/advisor to
facilitate the mortgage financing that we obtained on some of the properties
purchased. We pay the affiliate .02% of the principal balance of mortgage loans
obtained. Such costs are capitalized as loan fees and amortized over the
respective loan term. During the year ended December 31, 2004 and for the period
from March 5, 2003 (inception) to December 31, 2003, we paid loan fees totaling
$3,475,472 and $59,523, respectively, to this affiliate.
We may pay an advisor asset management fee of not more than 1% of our average
assets. Our average asset value is defined as the average of the total book
value, including acquired intangibles, of our real estate assets invested in
equity interests plus our loans receivable secured by real estate, before
reserves for depreciation, reserves for bad debt or other similar non-cash
reserves. We compute our average assets by taking the average of these values at
the end of each month for which we are calculating the fee. The fee would be
payable quarterly in an amount equal to 1/4 of 1% of average assets as of the
last day of the immediately preceding quarter. For any year in which we qualify
as a REIT, our advisor must reimburse us for the following amounts if any: (1)
the amounts by which our total operating expenses, the sum of the advisor asset
management fee plus other operating expenses, paid during the previous fiscal
year exceed the greater of: (i) 2% of our average assets for that fiscal year,
or (ii) 25% of our net income for that fiscal year; plus (2) an amount, which
will not exceed the advisor asset management fee for that year, equal to any
difference between the total amount of distributions to stockholders for that
year and the 6% minimum annual return on the net investment of stockholders. For
the year ended December 31, 2004 and the period from March 5, 2003 (inception)
to December 31, 2003, we neither paid nor accrued such fees because our business
manager/advisor agreed to forego such fees for those periods.
The property managers, entities owned principally by individuals who are
affiliates of our business manager/advisor, are entitled to receive property
management fees totaling 4.5% of gross operating income, for management and
leasing services. We incurred property management fees of $5,381,721 and $16,627
for the year ended December 31, 2004 and the period from March 5, 2003
(inception) to December 31, 2003, respectively. None remained unpaid as of
December 31, 2004 or December 31, 2003.
We established a discount stock purchase policy for our affiliates and
affiliates of our business manager/advisor that enables the affiliates to
purchase shares of common stock at either $8.95 or $9.50 a share depending on
when the shares are purchased. We sold 605,060 and 59,497 shares of common stock
to affiliates and recognized an expense related to these discounts of $427,122
and $62,472 for the year ended December 31, 2004 and the period from March 5,
2003 (inception) to December 31, 2003, respectively.
As of December 31, 2004 and December 31, 2003, we were due funds from our
affiliates in the amount of $654,004 and $918,750, respectively, which is
comprised of $654,004 and $845,000, respectively, which is due from our sponsor
for reimbursement of a portion of distributions paid. The remaining $73,750 as
of December 31, 2003 is due from an affiliate for costs paid on their behalf by
us. Our sponsor has agreed to advance to us amounts to pay a portion of
distributions to our stockholders until funds available for distribution are
sufficient to cover the distributions. Our sponsor forgave $2,369,139 of these
amounts during the second quarter of 2004 and these funds are no longer due. As
of December 31, 2004 and December 31, 2003, we owe funds to our sponsor in the
amount of $3,522,670 and $1,202,519, respectively, for repayment of the funds
advanced for payment of distributions.
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Off-Balance Sheet Arrangements, Contractual Obligations, Liabilities and
Contracts and Commitments
The table below presents our obligations and commitments to make future payments
under debt obligations and lease agreements as of December 31, 2004.
Contractual Obligations Payments due by period
----------------------- ----------------------
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
----------------------------------------------------------------------------------------------
Long-Term Debt:
Fixed rate $ 2,065,626,447 77,170,997 210,970,182 1,136,399,595 641,085,673
Variable rate 168,873,039 20,552,746 10,900,759 119,705,631 17,713,903
Ground lease payments $ 358,535,876 3,186,464 6,426,415 6,642,246 342,280,751
The table includes interest payments to which we are contractually obligated
under long term debt agreements.
We lease land under non-cancelable leases at certain of the properties expiring
in various years from 2028 to 2096. The property attached to the land will
revert back to the lessor at the end of the lease.
CONTRACTS AND COMMITMENTS
We have closed on several properties which have earnout components, meaning that
we did not pay for portions of these properties that were not rent producing. We
are obligated, under certain agreements, to pay for those portions when the
tenant moves into its space and begins to pay rent. The earnout payments are
based on a predetermined formula. Each earnout agreement has a time limit
regarding the obligation to pay any additional monies. If at the end of the time
period allowed certain space has not been leased and occupied, we will own that
space without any further obligation. Based on pro forma leasing rates, we may
pay as much as $189,042,868 in the future, as retail space covered by earnout
agreements is occupied and becomes rent producing.
During 2004, we entered into two installment note agreements in which we are
obligated to fund up to a total of $33,398,314. The notes maintain stated
interest rates of 6.993% and 7.5572% per annum and mature in July 2005 and
August 2005, respectively. Each note requires monthly interest payments with the
entire principal balance due at maturity. The combined receivable balance at
December 31, 2004 was $31,771,731. Therefore, we may be required to fund up to
an additional $1,626,583 on these notes.
We have obtained three irrevocable letters of credit related to loan fundings
against earnout spaces at certain properties. Once we purchase the remaining
portion of these properties and meet certain occupancy requirements, the letters
of credit will be released. The balance of outstanding letters of credit at
December 31, 2004 is $11,573,100.
In connection with the purchase of one of our properties, we received a price
adjustment in the amount of $763,072 related to spaces that were vacant at the
time of closing. If at any time during the next two years the seller is able to
lease that space under conditions satisfactory to us, we are obligated to pay
the seller a pro-rata share of the purchase price reduction.
We have entered into interest rate lock agreements with various lenders to
secure interest rates on mortgage debt on properties we currently own or will
purchase in the future. We have outstanding rate lock deposits in the amount of
$2,826,055 as of December 31, 2004 which are applied as credits to the mortgage
fundings as they occur. These agreements lock interest rates from 4.45% to 5.12%
for periods from 60 days to 90 days on approximately $240 million in principal.
Subsequent to December 31, 2004, we purchased 12 properties for a purchase price
of approximately $260 million. In addition, we are currently considering
acquiring nine properties for an estimated purchase price of $226 million. Our
decision to acquire each property generally depends upon no material adverse
change occurring relating to the property, the
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tenants or in the local economic conditions, and our receipt of satisfactory due
diligence information including appraisals, environmental reports and lease
information prior to purchasing the property.
Results of Operations
GENERAL
The following discussion is based primarily on our consolidated financial
statements as of December 31, 2004 and for the period from March 5, 2003
(inception) to December 31, 2003.
Properties Square
Purchased Feet
Quarter Ended Per Quarter Acquired Purchase Price
------------- ----------- ------------ -----------------
March 31, 2003 None N/A N/A
June 30, 2003 None N/A N/A
September 30, 2003 None N/A N/A
December 31, 2003 8 797,551 $ 127,195,000
March 31, 2004 11 2,115,280 $ 384,053,000
June 30, 2004 23 4,177,286 $ 713,925,000
September 30, 2004 26 5,705,453 $ 869,128,000
December 31, 2004 43 7,435,554 $ 1,241,693,000
------------------------------------------------
Total 111 20,231,124 $ 3,335,994,000
================================================
RENTAL INCOME, TENANT RECOVERIES AND OTHER PROPERTY INCOME. Rental income
consists of basic monthly rent and percentage rental income due pursuant to
tenant leases. Tenant recovery and other property income consist of property
operating expenses recovered from the tenants including real estate taxes,
property management fees and insurance. Rental income was $106,424,663 and
$606,646 and all additional property income was $23,979,918 and $137,988 for the
year ended December 31, 2004 and for the period from March 5, 2003 (inception)
to December 31, 2003, respectively.
OTHER INCOME. Other income consists of interest income earned primarily on short
term investments that are held by us and other non-operating income earned by
us. Other income was $3,681,067 and $37,648, respectively, for the year ended
December 31, 2004 and the period from March 5, 2003 (inception) to December 31,
2003.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist
of salaries and computerized information services costs reimbursed to affiliates
for maintaining our accounting and investor records, affiliates common share
purchase discounts, insurance, postage, printer costs and fees paid to
accountants and lawyers. These expenses were $4,857,101 for the year ended
December 31, 2004 and $459,476 for the period from March 5, 2003 (inception) to
December 31, 2003 and resulted from increased services required as we acquire
properties and grow our portfolio of investment properties and our investor
base.
PROPERTY OPERATING EXPENSES. Property operating expenses consist of property
management fees and property operating expenses, including real estate taxes,
costs of owning and maintaining shopping centers, insurance, and maintenance to
the exterior of the buildings and the parking lots. These expenses were
$32,521,195 for the year ended December 31, 2004 and $143,244 for the period
from March 5, 2003 (inception) to December 31, 2003.
DEPRECIATION AND AMORTIZATION. Depreciation expense was $36,113,611 and $140,497
and is due to depreciation on the properties owned during the year ended
December 31, 2004 and the period from March 5, 2003 (inception) to December 31,
2003, respectively. Amortization expense was $11,859,597 and $76,608,
respectively, and is due to the application of SFAS 141 and SFAS 142 resulting
from the amortization of intangible assets of approximately $250 million and
loan and leasing fees of $12 million during the year ended December 31, 2004 and
intangible assets of approximately $9 million and loan and leasing fees of $1
million during the period from March 5, 2003 (inception) to December 31, 2003.
INTEREST. Interest was $33,174,623 for the year ended December 31, 2004 and is
due to the financing on 97 properties as of
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December 31, 2004 and funds drawn during the first quarter of 2004 on the line
of credit. Interest was $135,735 for the period from March 5, 2003 (inception)
to December 31, 2003 and is due to the financing on two properties as of
December 31, 2003.
Subsequent Events
We issued 42,629,352 shares of common stock and repurchased 28,459 shares of
common stock from January 1, 2005 through February 28, 2005, resulting in a
total of 260,058,421 shares of common stock outstanding. As of February 28,
2005, subscriptions for a total of 255,692,354 shares were received resulting in
total gross offering proceeds of $2,555,826,905. An additional 4,404,876 shares
were issued pursuant to the DRP for $41,846,623 of additional gross proceeds and
38,809 were repurchased in connection with the SRP for $455,916.
We paid distributions of $11,377,712 and $12,232,404 to its stockholders in
January and February 2005, respectively.
We have acquired the following properties during the period January 1 to
February 28, 2005. The respective acquisitions are detailed in the table below.
APPROXIMATE GROSS LEASABLE
DATE YEAR PURCHASE PRICE AREA
ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS
-------- ---------------------------- --------- -------------- -------------- -------------------
01/05/05 Fairgrounds Plaza 2002- 21,994,125 59,970 Super Stop N' Shop
Middletown, NY 2004
01/06/05 Maytag Distribution Center 2004 23,159,499 750,000 Maytag
Iowa City, IA
01/10/05 Midtown Center 1986- 53,000,000 319,108 Wal-Mart
Milwaukee, WI 1987 Pick 'N Save
01/10/05 Hobby Lobby 2004 5,500,000 60,000 Hobby Lobby
Concord, NC
01/19/05 Stanley Works/Mac Tools 2004 10,000,000 72,500 Mac Tools
Westerville, OH
01/25/05 American Express 1983 & 42,000,000 306,710 American Express
Markham, Ontario, Canada 1987
01/28/05 Academy Sports 2004 7,150,000 70,910 Academy Sports
San Antonio, TX
02/01/05 Magnolia Square 2004 19,113,739 116,079 Ross Dress for Less
Houma, LA PETsMART
Circuit City
02/02/05 Cottage Plaza 2004-2005 23,439,950 75,543 Stop 'N Shop
Pawtucket, RI
02/09/05 The Village at Quail Springs 2003-2004 10,428,978 101,128 Gordmans
Oklahoma City, OK Best Buy
02/11/05 Holliday Towne Center 2003 14,827,645 83,122 Martin's
Duncansville, PA
02/18/05 Trenton Crossing 2003 29,212,209 221,019 Hobby Lobby
McAllen, TX Ross Dress for Less
Marshalls
Bealls
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The mortgage debt and financings obtained during the period January 1 to
February 28, 2005, are detailed in the table below.
DATE MATURITY PRINCIPAL BORROWED
FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($)
------------------------------------------------------------------------------------------------------
01/05/05 Fairgrounds Plaza 5.690% 02/01/33 15,982,376
Middletown, NY
01/24/05 Hobby Lobby 5.115% 02/01/10 3,025,000
Concord, NC
01/25/05 American Express 4.2975% 02/01/15 25,380,000
Markham, Ontario, Canada
01/28/05 Coram Plaza 4.550% 02/01/10 20,755,300
Coram, NY
01/31/05 Low Country Village II 5.130% 05/01/09 5,440,000
Bluffton, SC
01/31/05 Irmo Station 5.1236% 02/01/10 7,085,000
Irmo, SC
02/01/05 Evans Towne Centre 4.670% 02/01/10 5,005,000
Evans, GA
02/03/05 Magnolia Square 5.115% 03/01/10 10,265,000
Houma, LA
02/04/05 Green's Corner 4.500% 02/11/10 7,022,366
Cumming, GA
02/04/05 Newton Crossroads 4.500% 02/11/10 5,547,622
Covington, GA
02/04/05 Stilesboro Oaks 4.500% 02/11/10 6,951,971
Acworth, GA
02/09/05 Five Forks 4.815% 02/11/10 4,482,500
Simpsonville, NC
02/14/05 University Town Center 4.430% 03/01/10 5,810,000
Tuscaloosa, AL
02/14/05 Edgemont Town Center 4.430% 03/01/10 8,600,000
Homewood, AL
02/15/05 Southlake Town Square 4.550% 03/11/10 70,570,880
Southlake, TX
02/17/05 Midtown Center 4.460% 03/11/10 28,227,617
Milwaukee, WI
02/17/05 McAllen Shopping Center 5.060% 03/01/10 2,455,000
McAllen, TX
02/18/05 Southlake Town Square II 4.550% 03/11/10 10,429,120
Southlake, TX
02/18/05 Mesa Fiesta 5.300% 02/01/10 23,500,000
Mesa, AZ
02/24/05 Academy Sports 5.060% 03/01/10 3,933,000
San Antonio, TX
02/25/05 The Village at Quail Springs 5.060% 03/01/10 5,740,000
Oklahoma City, OK
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We are obligated under earnout agreements to pay for certain tenant space in our
existing properties after the tenant moves into its space and begins paying
rent. During the period from January 1 to February 28, 2005, we funded earnouts
totaling $20,552,372 at seven of our existing properties.
We are currently considering acquiring nine properties for an estimated purchase
price of $226 million. Our decision to acquire each property will generally
depend upon no material adverse change occurring relating to the property, the
tenants or in the local economic conditions, and our receipt of satisfactory due
diligence information including appraisals, environmental reports and lease
information prior to purchasing the property.
During the period from January 1, 2005 to February 28, 2005, we entered into
rate lock agreements which lock interest rates from 4.47% to 4.69% for periods
from 30 days to 90 days on approximately $300 million in principal.
Inflation
For our multi-tenant shopping centers, inflation is likely to increase rental
income from leases to new tenants and lease renewals, subject to market
conditions. Our rental income and operating expenses for those properties owned,
or to be owned and operated under net leases, are not likely to be directly
affected by future inflation, since rents are or will be fixed under the leases
and property expenses are the responsibility of the tenants. The capital
appreciation of net leased properties is likely to be influenced by interest
rate fluctuations. To the extent that inflation determines interest rates,
future inflation may have an effect on the capital appreciation of net leased
properties. As of December 31, 2004, we owned 24 single-user net leased
properties.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We may be exposed to interest rate changes primarily as a result of long-term
debt used to maintain liquidity and fund capital expenditures and expansion of
our real estate investment portfolio and operations. Our interest rate risk
management objectives will be to limit the impact of interest rate changes on
earnings and cash flows and to lower its overall borrowing costs. To achieve our
objectives we will borrow primarily at fixed rates or variable rates with the
lowest margins available and in some cases, with the ability to convert variable
rates to fixed rates.
We may use derivative financial instruments to hedge exposures to changes in
interest rates on loans secured by our properties. To the extent we do, we are
exposed to credit risk and market risk. Credit risk is the failure of the
counterparty to perform under the terms of the derivative contract. When the
fair value of a derivative contract is positive, the counterparty owes us, which
creates credit risk for us. When the fair value of a derivative contract is
negative, we owe the counterparty and, therefore, it does not possess credit
risk. It is our policy to enter into these transactions with the same party
providing the financing, with the right of offset. In the alternative, we will
minimize the credit risk in derivative instruments by entering into transactions
with high-quality counterparties. Market risk is the adverse effect on the value
of a financial instrument that results from a change in interest rates. The
market risk associated with interest-rate contracts is managed by establishing
and monitoring parameters that limit the types and degree of market risk that
may be undertaken.
For the year ended December 31, 2004, we entered into treasury contracts with a
futures commission merchant with yields ranging from 3.27% to 3.85% for 5 year
treasury contracts and 4.00% to 4.63% for 10 year treasury contracts. On
December 31, 2004, the treasury contracts had a liquidation value of $46,005
resulting in a loss of $3,666,894 for the year ended December 31, 2004. As these
treasury contracts are not offsetting future commitments and therefore do not
qualify as hedges, the net loss is recognized currently in earnings. To offset
the net loss recognized on the treasury contracts, we took advantage of the
lower treasury yields which caused the loss on the treasury contracts and
secured permanent financing in the amount of approximately $835,000,000 for
pending acquisitions.
With regard to variable rate financing, we assess interest rate cash flow risk
by continually identifying and monitoring changes in interest rate exposures
that may adversely impact expected future cash flows and by evaluating hedging
opportunities. We maintain risk management control systems to monitor interest
rate cash flow risk attributable to both of our outstanding or forecasted debt
obligations as well as our potential offsetting hedge positions. The risk
management
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control systems involve the use of analytical techniques, including cash flow
sensitivity analysis, to estimate the expected impact of changes in interest
rates on our future cash flows.
While this hedging strategy is intended to reduce our exposure to interest rate
fluctuations, the result may be a reduction in overall returns on your
investment.
The fair value of our debt approximates its carrying amount as of December 31,
2004.
Our interest rate risk is monitored using a variety of techniques. The table
below presents the principal amounts and weighted average interest rates by year
and expected maturity to evaluate the expected cash flows and sensitivity to
interest rate changes.
2005 2006 2007 2008 2009 Thereafter
-------- -------- -------- -------- -------- -----------
Maturing debt
Fixed rate debt
(mortgage loans) 920,574 981,221 57,906,321 47,322,706 960,152,489 568,462,316
Variable rate debt
(including note
payable) 15,672,533 1,212,575 637,533 637,533 111,635,533 17,572,335
Average interest rate on debt:
Fixed rate debt 5.91% 5.92% 4.50% 4.67% 4.70% 4.63%
Variable rate debt 4.23% 3.56% 4.75% 4.75% 3.25% 4.75%
We have $147,368,042 of debt (including note payable) bearing variable rate
interest averaging 3.55% as of December 31, 2004. An increase in the variable
interest rate on this debt constitutes a market risk. If interest rates increase
by 1%, based on debt outstanding as of December 31, 2004, interest expense
increases by $1,473,680 on an annual basis.
The table incorporates only those exposures that exist as of December 31, 2004.
It does not consider those exposures or positions that could arise after that
date. The information presented herein is merely an estimate and has limited
predictive value. As a result, the ultimate realized gain or loss with respect
to interest rate fluctuations will depend on the exposures that arise during the
period, our hedging strategies at that time, and future changes in the level of
interest rates.
SHARES ELIGIBLE FOR FUTURE SALE
INDEPENDENT DIRECTOR STOCK OPTION PLAN
THE DISCUSSION INCLUDED IN THIS SUBSECTION, WHICH STARTS ON PAGE 121 OUR
PROSPECTUS, IS SUPERCEDED IN THE ENTIRETY AND REPLACED BY THE FOLLOWING:
We have established an independent director stock option plan for the purpose of
attracting and retaining independent directors. See "Management--Independent
Director Stock Option Plan." We have issued in the aggregate options to purchase
17,500 shares of our common stock to our independent directors, at the exercise
price of $8.95 per share. One-third of the shares will be exercisable upon their
grant. An additional 63,500 shares will be available for future option grants
under the independent director stock option plan. See "Management--Independent
Director Stock Option Plan" for additional information regarding the independent
director stock option plan. Rule 701 under the Securities Act provides that
common stock acquired on the exercise of outstanding options by affiliates may
be resold by them subject to all provisions of Rule 144 except its one-year
minimum holding period. We intend to register the common stock to be issued
under the independent director stock option plan in a registration statement or
statements on SEC Form S-8 or other appropriate form.
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STOCKHOLDERS' MEETINGS
Our board of directors has set the annual meeting of the stockholders to be held
on June 7, 2005, at 9:00 a.m., at our offices located at 2901 Butterfield Road,
Oak Brook, IL. The meeting will be for stockholders of record as of March 31,
2005.
SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS
THE DISCUSSION UNDER THIS HEADING, WHICH STARTS ON PAGE 123 OF OUR PROSPECTUS IS
MODIFIED TO ADD A THIRD PARAGRAPH AS FOLLOWS:
On February 10, 2005, our Board of Directors approved the second amended and
restated bylaws, which was effective as of that date. The bylaws were amended
and restated to include the right of the majority of outstanding shares having
the ability to vote to amend the articles, terminate our Company or remove any
member of our Board of Directors. The bylaws were additionally amended to not
allow any shares held by the business manager/advisor or the Board of Directors,
and any affiliates the right to vote or consent on matters submitted to the
shareholders regarding the removal of the business manager/advisor, Board of
Directors or any affiliate or any transaction between us and any of the above
referenced affiliated shareholders. The second amended and restated bylaws of
Inland Western Retail Real Estate Trust, Inc., is filed as an exhibit to the
registration statement of which this prospectus is a part and is incorporated
into this filing in its entirety.
PLAN OF DISTRIBUTION
THE THIRD PARAGRAPH, UNDER THE SECTION "GENERAL", WHICH STARTS ON PAGE 148 OF
OUR PROSPECTUS, HAS BEEN SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS:
Our dealer manager is a wholly owned subsidiary of our sponsor, Inland Real
Estate Investment Corporation. Our dealer manager was also the dealer manager
for the offerings for Inland Real Estate Corporation and Inland Retail Real
Estate Trust, Inc., and will be the dealer manager for Inland American Real
Estate Trust, Inc. once the offering becomes effective. Inland Real Estate
Corporation raised approximately $696,827,000 in its offerings. Inland Retail
Real Estate Trust, Inc. raised approximately $2,262,000,000 in its offerings.
Inland American Real Estate Trust, Inc. filed a registration statement on Form
S-11 to register 500,000,000 shares of common stock and up to 40,000,000 shares
of their common stock for participants in their distribution reinvestment
program. The registration statement has not been declared effective by the
Securities and Exchange Commission, and there is no assurance when and if it
will be declared effective.
THE FOLLOWING NEW SUBSECTION IS INSERTED AT THE END OF THIS SECTION ON PAGE 148
OUR PROSPECTUS.
UPDATE
The following table updates shares sold in our offering as of March 8, 2005:
COMMISSION
GROSS AND FEES NET
SHARES PROCEEDS ($) ($) (1) PROCEEDS ($)
-----------------------------------------------------------------------
From our advisor 20,000 200,000 - 200,000
Our offering dated September 15, 2003: 249,973,479 2,499,654,805 262,046,663 2,237,608,142
Our second offering dated December 21, 2004 9,349,213 93,492,135 12,109,791 81,382,344
Shares sold pursuant to our distribution
reinvestment program 5,090,125 48,356,188 - 48,356,188
Shares repurchased pursuant to our share
repurchase program (152,203) (1,407,877) - (1,407,877)
-----------------------------------------------------------------------
264,280,614 2,640,295,251 274,156,454 2,366,138,797
=======================================================================
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(1) Inland Securities Corporation serves as dealer manager of this offering and
is entitled to receive selling commissions and certain other fees, as discussed
further in our prospectus.
We filed a registration statement on Form S-11 to register an additional
250,000,000 shares of common stock and up to 20,000,000 shares of our common
stock for participants in our distribution reinvestment program. The
registration statement was declared effective by the Securities and Exchange
Commission on December 28, 2004.
SUBSCRIPTION PROCESS
THE FOLLOWING NEW PARAGRAPH IS INSERTED AT THE END OF THIS SECTION ON PAGE 150
OF OUR PROSPECTUS.
Currently we no longer issue paper stock certificates for all subscriptions for
common stock accepted by us. We also are responsible for all stock books and
records and serve as our own stock transfer agent, processing stock transfers.
We are currently moving to a "book entry" system for our stock records. Under a
book entry system, we would no longer issue paper stock certificates. Using this
system would eliminate the need for safekeeping by you to protect against loss,
theft or destruction of stock certificates. We are currently interviewing firms
to serve as our stock transfer agent. When we hire a third party stock transfer
agent, we may need to modify our distribution reinvestment program and some of
our other stock holding processes. For example, it's likely that we will no
longer issue fractional shares. Further it is likely we will ask all
stockholders to remit currently outstanding stock certificates so that they may
be held in book entry form. Therefore, in order to transition into the book
entry form, effective October 1, 2004 we no longer issued stock certificates for
new subscriptions or for shares earned through participation in the Distribution
Reinvestment Program. All shares will be held in book entry form.
VOLUME DISCOUNTS
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 152 OF OUR PROSPECTUS,
IS CHANGED IN FULL AND SUPPLEMENTED BY THE FOLLOWING:
Investors making an initial purchase of at least $250,010 of common stock
(25,001 shares) through the same soliciting dealer will receive a reduction of
the reallowable 7.0% selling commission payable in connection with the purchase
of those shares in accordance with the following schedule:
AMOUNT OF PURCHASER'S INVESTMENT MAXIMUM
AMOUNT OF SELLING -------------------------------- COMMISSION
VOLUME DISCOUNT FROM TO PER SHARE
---------------------------------------------------------------------------------------------------------
1% $ 250,010 $ 500,000 6%
2% $ 500,010 $ 1,000,000 5%
3% $ 1,000,010 $ 2,500,000 4%
4% $ 2,500,010 $ 5,000,000 3%
5% $ 5,000,010 $ 10,000,000 2%
6% $ 10,000,010 more than 1%
$ 10,000,000
Any reduction in the amount of the selling commissions in respect of volume
discounts received will be credited to the investor in the form of additional
whole shares or fractional shares. Selling commissions will not be paid on any
such whole shares or fractional shares issued for a volume discount.
Some purchases may be combined for the purpose of qualifying for a volume
discount, and for determining commissions payable to the managing dealer or the
soliciting dealers, so long as all the combined purchases are made through the
same soliciting dealer. Subscriptions made in this offer will be combined with
other subscriptions in this offering for the purposes of computing amounts
invested. Purchases by spouses will also be combined with other purchases by you
and
-80-
will be combined with other purchases of common stock to be held as a joint
tenant or as tenants-in-common by you with others for purposes of computing
amounts invested. Purchases by entities not required to pay federal income tax
may only be combined with purchases by other entities not required to pay
federal income tax for purposes of computing amounts invested if investment
decision are made by the same person. If the investment decisions are made by in
independent investment advisor, that investment adviser may not have any direct
or indirect beneficial interest in any of the entities not required to pay
federal income tax whose purchases are sought to be combined. You must mark the
"Additional Investment" space on the subscription agreement signature page in
order for purchases to be combined. We are not responsible for failing to
combine purchases if you fail to mark the "Additional Investment" space.
If the subscription agreements for the purchases to be combined are submitted at
the same time, then the additional common stock to be credited to you as a
result of such combined purchases will be credited on a pro rata basis. If the
subscription agreements for the purchases to be combined are not submitted at
the same time, then any additional common stock to be credited as a result of
the combined purchases will be credited to the last component purchase, unless
we are otherwise directed in writing at the time of the submission. However, the
additional common stock to be credited to any entities not required to pay
federal income tax whose purchases are combined for purposes of the volume
discount will be credited only on a pro rata basis based on the amount of the
investment of each entity not required to pay federal income tax and their
combined purchases.
Notwithstanding the preceding paragraphs, you may not receive a discount greater
than 5% on any purchase of shares if you already own, or may be deemed to
already own, any shares. This restriction may limit the amount of the volume
discount available to you after your initial purchase and the amount of
additional shares that you may be credited as a result of the combination of
purchases.
In the case of subsequent investments or combined investments, a volume discount
will be given only on the portion of the subsequent or combined investment that
caused the investment to exceed the breakpoint. For example, if you are
investing $50,000 with us today, but had previously invested $240,000, these
amounts can be combined to reach the $250,010 breakpoint, which will entitle you
to a lower sales commission on your current $50,000 investment.
HOW TO SUBSCRIBE
THE FIRST SENTENCE OF THE THIRD BULLET POINT ON PAGE 157, UNDER THIS HEADING, IS
MODIFIED TO READ AS FOLLOWS:
Deliver a check for the full purchase price of the shares being subscribed for,
payable to "LBNA/Escrow Agent for IWRRETI", along with the completed
subscription agreement to the soliciting dealer.
LITIGATION
THE FOLLOWING NEW PARAGRAPH IS INSERTED AT THE END OF THIS SECTION ON PAGE 165
OF OUR PROSPECTUS.
We have received a subpoena from the New York office of the Securities and
Exchange Commission regarding an investigation of Carey Financial Corporation.
The information and documentation sought involves broker/dealer compensation in
the sales of stock. We are cooperating with this request for information and
documentation.
RELATIONSHIPS AND RELATED TRANSACTIONS
WE HAVE SUPERCEDED THE FOLLOWING DESCRIPTION LOCATED UNDER THE NONSUBORDINATED
PAYMENTS AT THE OPERATIONAL STAGE WITHIN THE TABULAR SUMMARY OF FEES AS
DISCUSSED WHICH STARTS ON PAGE 168 OF OUR PROSPECTUS IN THE ENTIRETY, TO READ AS
FOLLOWS:
-81-
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION ESTIMATED MAXIMUM DOLLAR AMOUNT
------------------------------------------ ------------------------------------------ ------------------------------------------
Property management fee paid to our We will pay a monthly fee of 4.5% of the For the year ended December 31, 2004, and
property managers, Inland US Management gross income from the properties. We will the period from March 3, 2005 (inception)
LLC, Inland Southwest Management LLC and also pay a monthly fee for any extra to December 31, 2004 we have incurred and
Inland Pacific Property Services LLC. We services equal to no more than 90% of that paid property management fees of
will pay the fee for services in which would be payable to an unrelated $5,381,721 and $16,627, of which
connection with the rental, leasing, party providing the services. The property $5,381,721 and 16,627 were retained by
operation and management of the properties managers may subcontract their duties for Inland US Management LLC, Inland Southwest
a fee that may be less than the fee Management LLC and Inland Pacific Property
provided for in the management services Services LLC. If we acquire the businesses
agreements. of our business manager/advisor and/or our
property managers, the property management
fees will cease. The actual amounts we
will incur in the future are dependent
upon results of operations and, therefore,
cannot be determined at the present time.
SUBORDINATED PAYMENTS
THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 170 OF OUR PROSPECTUS IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
-82-
TYPE OF COMPENSATION METHOD OF COMPENSATION ESTIMATED MAXIMUM DOLLAR
AND RECIPIENT AMOUNT
----------------------------- ------------------------------------------------ --------------------------------------------
OPERATIONAL STAGE
Advisor asset management fee We pay an annual advisor asset management fee The actual amounts to be received
payable to our advisor. of not more than 1% of our average assets. depend upon the sale price of our
Our average assets means the average of the properties and, therefore, cannot
total book value including acquired be determined at the present time.
intangibles of our real estate assets plus the If we acquire the advisor, the
total value of our loans receivables secured advisor asset management fee will
by real estate, before reserves for cease.
depreciation or bad debts or other similar
non-cash reserves. We will compute our
average assets by taking the average of these
values at the end of each month during the
quarter for which we are calculating the fee.
The fee is payable quarterly in an amount equal
to 1/4 of 1% of average assets as of the last
day of the immediately preceding quarter. For
any year in which we qualify as a REIT, our
advisor must reimburse us for the following
amounts if any:
(1) the amounts by which our total operating
expenses, the sum of the advisor asset
management fee plus other operating
expenses, paid during the previous fiscal
year exceed the greater of:
- 2% of our average assets for that
fiscal year, or
- 25% of our net income for that
fiscal year.
(2) plus an amount, which will not exceed the
advisor asset management fee for that year,
equal to any difference between the total
amount of distributions to stockholders for
that year and the 6% annual return on the
net investment of stockholders.
Items such as organization and offering
expenses, property expenses, interest payments,
taxes, non-cash expenditures, the incentive
advisory fee and acquisition expenses are
excluded from the definition of total operating
expenses.
See "Management -- Our Advisory Agreement" for
an explanation of circumstances where the excess
amount specified in clause (1) may not need to
be reimbursed.
-83-
EXPERTS
The following financial statements have been incorporated by reference herein in
reliance upon the reports of KPMG LLP, independent registered public accounting
firm, incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing:
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Shops at Park Place of Darien Towne Center for the year
for the year ended December 31, ended December 31, 2002,
2002,
- the combined historical summary - the historical summary of gross
of gross income and direct income and direct operating expenses
operating expenses of Properties of Hickory Ridge for the year ended
Acquired from Thomas Enterprises December 31, 2003,
for the year ended December 31,
2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of CorWest Plaza for the of Metro Square Center (SuperValue)
period from May 29, 2003 through for the year ended December 31,
December 31, 2003, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Larkspur Landing for of North Ranch Pavilion for the year
the year ended December 31, 2003, ended December 31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of La Plaza Del Norte of MacArthur Crossing for the year
for the year ended December 31, ended December 31, 2003,
2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Promenade at Red of Peoria Crossing for the year
Cliff for the year ended December ended December 31, 2003,
31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Dorman Centre for the of Heritage Towne Crossing for the
year ended December 31, 2003, year ended December 31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Paradise Valley of Best on the Boulevard for the
Marketplace for the year ended year ended December 31, 2003,
December 31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Bluebonnet Parc for of North Rivers Town Center for the
the year ended December 31, 2003, period of October 1, 2003
(commencement of operations) to
December 31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Arvada Marketplace of Eastwood Town Center for the year
and Connection for the year ended ended December 31, 2003,
December 31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Watauga Pavilion for of Northpointe Plaza for the year
the period of August 15, 2003 ended December 31,
(commencement of operations) to 2003,
December 31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Plaza Santa Fe II for of Pine Ridge Plaza for the year
the year ended December 31, 2003, ended December 31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Huebner Oaks Center of John's Creek Village for the
for the year ended December 31, period from September 21, 2003
2003, (commencement of operations) to
December 31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Lakewood Town Center of Fullerton Metrocenter for the
for the year ended December 31, year ended December 31, 2003,
2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Davis Towne Crossing of Northgate North for the year
for the period from July 18, 2003 ended December 31, 2003,
(commencement of operations) to
December 31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Cranberry Square for of Gateway Plaza Shopping Center for
the year ended December 31, 2003, the year ended December 31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Safeway Plaza at of Forks Town Center for the year
Marysville for the year ended ended December 31, 2003,
December 31, 2003,
- the combined historical summary - the historical summary of gross
of gross income and direct income and direct operating expenses
operating expenses of the of The Shops at Boardwalk for the
Properties owned by Capital period from May 30, 2003
Centre, LLC, Gateway Village (commencement of operations) to
Limited Partnership, Bel Air December 31, 2003,
Square Joint Venture, Towson
Circle Joint Venture LLP, and
Reisterstown Plaza Holdings, LLC
for the year ended December 31,
2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Manchester Meadows of Governor's Marketplace for the
for the year ended December 31, year ended December 31, 2003,
2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Mitchell Ranch Plaza of The Columns for the period from
for the period from June 30, 2003 October 8, 2003 (commencement of
(commencement of operations) to operations) to December 31, 2003,
December 31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Saucon Valley Square of Lincoln Park for the year ended
for the year ended December 31, December 31, 2003,
2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Azalea Square of Peoria Station
for the period from July 4, 2003 for the year ended December 31,
(commencement of operations) to 2002,
December 31, 2003,
- the historical summary of gross - the combined historical summary of
income and direct operating gross income and direct operating
expenses of Denton Crossing for expenses of The Properties Acquired
the period from August 11, 2003 from Bayer Properties, Inc. for the
(commencement of operations) to year ended December 31, 2003,
December 31, 2003,
- the historical summary of gross - the combined historical summary of
income and direct operating gross income and direct operating
expenses of Gurnee Town Center expenses of The Properties Acquired
for the year ended December 31, from Donahue Schriber for the year
2003, ended December 31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Mansfield Town Center of Winchester Commons for the year
for the period from July 23, 2003 ended December 31, 2003,
(commencement of operations) to
December 31, 2003,
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Gateway Pavilions for of Fox Creek Village for the period
the period from February 15, 2003 from November 12, 2003 (commencement
(commencement of operations) to of operations) to December 31, 2003,
December 31, 2003,
- the consolidated balance sheet of - the historical summary of gross
Inland Western Retail Real Estate income and direct operating expenses
Trust, Inc. as of December 31, of Northwoods Center for the year
2003 and the related consolidated ended December 31, 2003,
statements of operations,
stockholders' equity and cash - the combined historical summary of
flows for the period from March gross income and direct operating
5, 2003 (inception) through expenses of The Properties Acquired
December 31, 2003 and related from Eastern Retail Holdings, LP for
financial statement schedule, the year ended December 31, 2003,
- the historical summary of gross - the balance of Inland Western Retail
income and direct operating Real Estate Trust, Inc. as of June
expenses of Southlake Town Square 30, 2003,
for the year ended December 31, - and the historical summary of gross
2003, income and direct operating expenses
- the balance of Inland Western of Oswego Commons for the year ended
Retail Real Estate Trust, Inc. as December 31, 2003.
of June 30, 2003,
The following financial statements have been included herein in reliance upon
the reports of KPMG LLP, independent registered public accounting firm,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing:
- the historical summary of gross - the historical summary of gross
income and direct operating income and direct operating expenses
expenses of Henry Town Center for of Shoppes at Lake Andrew for the
the year ended December 31, 2003, year ended December 31, 2004,
- the combined historical summary - the historical summary of gross
of gross income and direct income and direct operating expenses
operating expenses of the of Midtown Center for the year ended
Properties Acquired from FFI December 31, 2004,
American Market Fund, L.P. for
the year ended
December 31, 2004,
- the historical summary of gross - the combined historical summary of
income and direct operating gross income and direct operating
expenses of Mesa Fiesta for the expenses of the Properties Acquired
year ended December 31, 2004, from Weber & Company for the year
ended December 31, 2004,
- the historical summary of gross - the consolidated balance sheets of
income and direct operating Inland Western Retail Real Estate
expenses of Trenton Crossing for Trust, Inc. as of December 31, 2004
the year ended December 31, 2004, and 2003 and the related
consolidated statements of
- the combined historical summary operations, stockholders' equity and
of gross income and direct cash flows for the year ended
operating expenses of the December 31, 2004 and the period
Properties Acquired from Ceruzzi from March 5, 2003 (inception)
Holdings the year ended December through December 31, 2003 and
31, 2004, related financial statement
schedule, management's assessment of
the effectiveness of internal
control over financial reporting as
of December 31, 2004 and the
effectiveness of internal control
over financial reporting as of
December 31, 2004, which reports
appear in the December 31, 2004,
- and the historical summary of gross
income and direct operating expenses
of the Stateline Station for the
year ended December 31, 2004.
APPENDIX A
PRIOR PERFORMANCE TABLES
The following prior performance tables contain information concerning real
estate programs sponsored by affiliates of our advisor which have investment
objectives similar to ours. This information has been summarized in narrative
form under "Prior Performance of Our Affiliates" in the prospectus. The tables
provide information on the performance of a number of programs. You can use the
information to evaluate the experience of our advisor's affiliates as sponsors
of the programs. The inclusion of these tables does not imply that we will make
investments comparable to those reflected in the tables or that investors in our
shares will experience returns comparable to those experienced in the programs
referred to in these tables. If you purchase our shares, you will not acquire
any ownership in any of the programs to which these tables relate. The tables
consist of:
Table I Experience in Raising and Investing Funds
Table II Compensation to IREIC and Affiliates
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
Table VI Acquisition of Properties by Programs*
* Our prospective investors may obtain copies of Table VI by contacting Inland
Western Retail Real Estate Advisory Services, Inc., our advisor.
Table VI is included in Part II of the Post Effective Amendment No. 8 to Form
S-11 Registration Statement filed with the Securities and Exchange Commission on
March 15, 2005. Upon written request to us or our advisor, any prospective
investor may obtain, without charge, a copy of Table VI. See also "Where You Can
Find More Information" for information on examining at, or obtaining copies
from, offices of the SEC.
Upon written request, any potential investor may obtain, without charge, the
most recent annual report on Form 10-K filed with the SEC by any public program
sponsored by any of the Inland's affiliated companies which has reported to the
SEC within the last 24 months. For a reasonable fee, the affiliated companies
will provide copies of any exhibits to such annual reports upon request.
Our investment objectives are to: (i) provide regular distributions to
stockholders in amounts which may exceed our taxable income due to the non-cash
nature of depreciation expense and, to such extent, will constitute a tax-
deferred return of capital, but in no event less than 90% of our taxable income,
pursuant to the REIT requirements; (ii) provide a hedge against inflation by
entering into leases which contain clauses for scheduled rent escalations or
participation in the growth of tenant sales, permitting us to increase
distributions and provide capital appreciation; and (iii) preserve stockholders'
capital.
The following programs have investment objectives similar to ours and are
included in the tables. Inland Retail Real Estate Trust, Inc. or IRRETI and
Inland Real Estate Corporation or IREC are two REITs formed primarily to invest
in multi-tenant shopping centers, Inland's Monthly Income Fund, L.P. and Inland
Monthly Income Fund II, L.P. are public real estate limited partnerships formed
primarily to acquire, operate and sell existing residential and commercial real
properties. Inland Mortgage Investors Fund, L.P., Inland Mortgage Investors
Fund-II, L.P. and Inland Mortgage Investors Fund III, L.P. were public real
estate limited partnerships formed primarily to make or acquire loans secured by
mortgages on improved, income producing multifamily residential properties.
A-1
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(000's omitted)
Table I is intended to present information on a dollar and percentage basis
showing the experience of Inland Real Estate Investment Corporation ("IREIC"),
of which the Advisor is a wholly owned subsidiary, in raising and investing
funds in prior programs where the offering closed in the three years prior to
December 31, 2003. The table is intended to focus on the dollar amount available
for investment in properties expressed as a percentage of total dollars raised.
Inland Retail Real Estate Trust, Inc. is the only program that closed in the
three years ended December 31, 2003.
Inland Retail
Real Estate
Trust, Inc.
----------------
1 Program
----------------
Dollar amount offered (A) $ 2,500,000
Dollar amount raised (B) 2,223,010 100.00%
Less offering expenses:
Syndication fees (C) 194,194 8.74
Other fees (D) 20,861 .94
Organizational fees - -
Reserves (E) 22,230 1.00
----------------------------
Available for investment $ 1,985,725 89.32%
============================
Acquisition costs:
Cash down payments $ 1,340,382
Repayment of indebtedness 543,206
Investment in securities 8,052
----------------
Total acquisition costs $ 1,891,640
================
Percent leverage 53%
Date offerings commenced (F)
Length of offering (F)
Months to invest 90% of amount available for investment (measured from
beginning of offering) (F)
A-2
TABLE I-(Continued)
EXPERIENCE IN RAISING AND INVESTING FUNDS (A)
NOTES TO TABLE I
(A) This amount does not reflect shares offered for distribution to
stockholders participating in Inland Retail Real Estate Trust Inc.'s
distribution reinvestment program.
(B) These figures are cumulative and are as of December 31, 2003. The dollar
amount raised represents the cash proceeds collected by the program,
including shares sold pursuant to our distribution reinvestment program and
net of shares repurchased pursuant to our share repurchase program.
(C) Syndication fees are paid by the program to an affiliate, Inland Securities
Corporation, or unaffiliated third parties commissions for the sale of
shares. All of these syndication fees were used to pay commissions and
expenses of the offerings.
(D) Other fees are paid by the program to unaffiliated parties and consist
principally of printing, selling and registration costs related to the
offering.
(E) Generally, a working capital reserve is established to fund property
upgrades and future cash flow deficits, if any, among other things.
(F) On February 11, 1999, the program commenced an initial public offering, on
a best effort basis, of 50,000,000 shares of common stock at $10.00 per
share. On February 1, 2001, the program commenced an offering of an
additional 50,000,000 shares at $10.00 per share, on a best efforts basis.
On June 7, 2002, the program commenced an offering of an additional
150,000,000 shares at $10.00 per share, on a best efforts basis. As of
December 31, 2003, substantially all proceeds available for investment from
the offerings were invested in real properties.
A-3
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
(000'S OMITTED)
Table II summarizes the amount and type of compensation paid to Inland Real
Estate Investment Corporation and its affiliates during the three years ended
December 31, 2003 in connection with the prior programs.
Some partnerships acquired their properties from affiliates of our advisor which
had purchased such properties from unaffiliated third parties.
Inland's Inland
Inland Retail Inland Real Monthly Monthly
Real Estate Estate Income Income
Trust, Inc. Corporation Fund, L.P. Fund II, L. P.
---------------------------------------------------------------------
Date offering commenced 02/11/99 10/14/94 08/03/87 08/04/88
Dollar amount raised $ 2,223,010 686,602 30,000 25,324
=====================================================================
Total amounts paid to general partner or affiliates
from proceeds of offerings:
Selling commissions and underwriting fees 194,194(C) 49,869(C) 273(B) 423(B)
Other offering expenses (D) 2,762 2,350 116 230
Acquisition cost and expense 1,725 925 2,550(E) 1,706(E)
=====================================================================
Dollar amount of cash available from operations
before deducting payments to general partner or
affiliates (F) 264,442 217,142 4,522 3,505
=====================================================================
Amounts paid to general partner or affiliates
related to operations: (J)
Property management fees (G) 19,526 0 52 49
Advisor asset management fee 20,824 0 0 0
Accounting services 0 0 52 49
Data processing service 0 0 25 24
Legal services 0 0 15 10
Professional services 162 0 0 0
Mortgage servicing fees 495 0 0 0
Acquisition costs expensed 309 0 0 0
Other administrative services 3,303 0 69 51
Dollar amount of property sales and refinancings
before payments to general partner and affiliates (H):
Cash 0 22,978 34 0
Notes 0 0 0 0
Dollar amounts paid or payable to general partner or
affiliates from sales and refinancings (I):
Sales commissions 0 0 0 0
Participation in cash distributions 0 0 0 0
A-4
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
NOTES TO TABLE II
(A) The figures in this Table II relating to proceeds of the offerings are
cumulative and are as of December 31, 2003 and the figures relating to cash
available from operations are for the three years ending December 31, 2003.
The dollar amount raised represents the cash proceeds collected by the
partnerships or program. Amounts paid or payable to IREIC or affiliates
from proceeds of the offerings represent payments made or to be made to
IREIC and affiliates from investor capital contributions.
(B) The selling commissions paid to an affiliate is net of amounts which were
in turn paid to third party soliciting dealers.
(C) The selling commissions paid to an affiliate includes amounts which were in
turn paid to third party soliciting dealers.
(D) Consists of legal, accounting, printing and other offering expenses,
including amounts to be paid to Inland Securities Corporation to be used as
incentive compensation to its regional marketing representatives and
amounts for reimbursement of the general partner for marketing, salaries
and direct expenses of its employees while directly engaged in registering
and marketing the Units and other marketing and organization expenses.
(E) Represents acquisition fees paid to IREIC and its affiliates in connection
with the acquisition of properties.
(F) See Note (B) to Table III.
(G) An affiliate provides property management services for all properties
acquired by the partnerships or program. Management fees have not exceeded
4.5% of the gross receipts from the properties managed.
(H) See Table V and Notes thereto regarding sales and disposals of properties.
(I) Real estate sales commissions and participations in cash distributions are
paid or payable to IREIC and/or its affiliates in connection with the sales
of properties in the public partnership programs. Payments of all amounts
shown are subordinated to the receipt by the limited partners of their
original capital investment. See Table V and Notes thereto.
(J) On July 1, 2000, IREC completed the acquisition of Inland Real Estate
Advisory Services, Inc., the former advisor, and Inland Commercial Property
Management, Inc., the former property manager (the "Merger"). Each of these
entities was merged into subsidiaries that are wholly owned by IREC. As a
result of the merger, IREC is now "self-administered." IREC no longer pays
advisory or property management fees or other expenses to affiliates but
instead has hired an internal staff to perform these tasks.
A-5
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents operating results for programs, the offerings of which closed
during each of the five years ended December 31, 2003. The operating results
consist of:
- The components of taxable income (loss);
- Taxable income or loss from operations and property sales;
- Cash available and source, before and after cash distributions to
investors; and
- Tax and distribution data per $1,000 invested.
Based on the following termination dates of the offerings, only IRRETI is
included in Table III.
- Inland's Monthly Income Fund, L.P. - offering terminated in 1988
- Inland Monthly Income Fund II, L.P. - offering terminated in 1990
- Inland Mortgage Investors Fund, L.P. - offering terminated in 1987
- Inland Mortgage Investors Fund - II, L.P. - offering terminated in
1988
- Inland Mortgage Investors Fund III, L.P. - offering terminated in 1991
- Inland Real Estate Corporation - offering terminated in 1998
A-6
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
INLAND RETAIL REAL ESTATE TRUST INC.
2003 2002 2001 2000 1999
--------------------------------------------------------------------
Gross revenues $ 317,828 116,011 37,755 22,124 6,030
Profit on sale of properties 0 0 0 0 0
Less:
Operating expenses 78,568 27,614 10,178 6,279 1,872
Interest expense 62,349 23,508 9,712 8,127 2,368
Program expenses 22,069 7,998 1,219 905 369
Depreciation & amortization 85,006 29,395 8,653 4,752 1,253
--------------------------------------------------------------------
Net income (loss)-GAAP basis $ 69,836 27,496 7,993 2,061 168
====================================================================
Taxable income (loss) (A): 0 0 0 0 0
====================================================================
Cash available (deficiency) from
operations (B) 147,403 55,250 17,170 5,366 2,538
Cash available from sales (C) 828 0 0 0 0
--------------------------------------------------------------------
Total cash available before 148,231 55,250 17,170 5,366 2,538
distributions and special items
Less distributions to investors:
From operations 152,888 52,156 15,963 6,099 1,065
From sales and refinancings 0 0 0 0 0
--------------------------------------------------------------------
Cash available after distributions
before special items (4,657) 3,094 1,207 (733) 1,473
Special items: 0 0 0 0 0
--------------------------------------------------------------------
Cash available after distributions and
special items $ (4,657) 3,094 1,207 (733) 1,473
====================================================================
Tax data per $1,000 invested (A): 0 0 0 0 0
Distribution data per $1,000 invested:
Cash distributions to investors:
Source (on GAAP basis):
Investment income .83 .83 .81 .77 .72
Source (on cash basis):
Sales 0 0 0 0 0
Operations (D) .83 .83 .81 .77 .72
Percent of properties remaining unsold 100%
============
A-7
TABLE III--(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
NOTES TO TABLE III
(A) IRRETI qualified as real estate investment trusts ("REITs") under the
Internal Revenue Code for federal income tax purposes. Since it qualified
for taxation as a REIT, it generally will not be subject to federal income
tax to the extent it distributes its REIT taxable income to its
stockholders. If IRRETI fails to qualify as a REIT in any taxable year, it
will be subject to federal income tax on its taxable income at regular
corporate tax rates. However, even if the program qualifies for taxation as
a REIT, it may be subject to certain state and local taxes on its income
and property and federal income and excise taxes on its undistributed
income.
(B) "Cash Available (Deficiency) from Operations," represents all cash revenues
and funds received by the programs, including but not limited to operating
income less operating expenses, and interest income. These amounts do not
include payments made by the programs from offering proceeds nor do they
include proceeds from sales or refinancings. These amounts also exclude
advances from or repayments to IREIC and affiliates which are disclosed
elsewhere in the table and include principal payments on long-term debt.
For example:
Inland Retail Real Estate Trust Inc.
(000's omitted)
2003 2002 2001 2000 1999
----------------------------------------------------
Net cash provided by
operating activities per
the Form 10-K annual
report $ 149,081 55,594 17,427 5,604 2,648
Principal payments on
long-term debt (1,678) (344) (257) (238) (110)
----------------------------------------------------
$ 147,403 55,250 17,170 5,366 2,538
====================================================
(C) See Table V and Notes thereto regarding sales and disposals of properties.
A-8
TABLE III--(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
NOTES TO TABLE III
(D) Distributions by a REIT to the extent of its current and accumulated
earnings and profits for federal income tax purposes are taxable to
stockholders as ordinary income. Distributions in excess of these earnings
and profits generally are treated as a non-taxable reduction of the
stockholder's basis in the shares to the extent thereof, and thereafter as
taxable gain (a return of capital). These distributions in excess of
earnings and profits will have the effect of deferring taxation of the
amount of the distribution until the sale of the stockholder's shares.
Inland Retail Real Estate Trust, Inc.
2003 2002 2001 2000 1999
---------------------------------------------------
% of Distribution representing:
Ordinary income 60.85 62.65 60.49 54.55 22.23
Return of Capital 39.15 37.35 39.51 45.45 77.77
---------------------------------------------------
100.00 100.00 100.00 100.00 100.00
===================================================
A-9
TABLE IV
RESULTS OF COMPLETED PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
Table IV is a summary of operating and disposition results of prior programs
sponsored by affiliates of our advisor, which during the five years ended prior
to December 31, 2003 have sold their properties and either hold notes with
respect to such sales or have liquidated. One program with investment objectives
similar to ours disposed of all of its properties during the five years ended
prior to December 31, 2003.
Inland Mortgage
Program Name Investors Fund, L.P.
----------------------------------------------------------------------------
Dollar amount raised 10,065
Number of properties/loans purchased 15
Date of closing of offering 02/87
Date of first sale of property 12/88
Date of final sale of property 03/99
Tax and distribution data per $1,000 invested (A):
Federal income tax results:
Ordinary income (loss):
Operations 547
Recapture 0
Capital Gain 30
Deferred Gain:
Capital 0
Ordinary 0
Cash distributions to investors (cash basis):
Source (on GAAP basis)
Investment income 624
Return of capital 745
Source (on cash basis)
Sales 745
Operations 624
(A) Data per $1,000 invested is presented as of December 31, 2003. See Table V
and Notes thereto regarding sales and disposals of properties.
A-10
TABLE V
SALES OR DISPOSALS OF PROPERTIES
Table V presents information on the results of the sale or disposals of
properties in programs with investment objectives similar to ours during the
three years ended December 31, 2003. Since January 1, 2001, programs sponsored
by affiliates of our advisor had seven sales transactions. The table provides
certain information to evaluate property performance over the holding period
such as:
- Sales proceeds received by the partnerships in the form of cash down
payments at the time of sale after expenses of sale and secured notes
received at sale;
- Cash invested in properties;
- Cash flow (deficiency) generated by the property;
- Taxable gain (ordinary and total); and
- Terms of notes received at sale.
A-11
TABLE V (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
Cash Selling
Received, Commissions
net of Paid or Mortgage
Date Date of Closing Payable to at Time of
Acquired Sale Costs(B) Inland Sale
--------------------------------------------------------------------------------------------
IREC - Lincoln Park Place 01/24/97 04/17/01 1,314 0 1,050
IREC - Antioch Plaza 12/95 03/28/02 943 0 875
IREC - Shorecrest Plaza 07/97 06/12/02 3,107 0 2,978
IREC - Popeye's 06/97 04/08/03 343 0 0
IREC - Summit of Park Ridge 12/96 12/24/03 3,578 0 1,600
IREC - Eagle Country Market 11/97 12/24/03 5,182 0 1,450
IREC - Eagle Ridge Center 04/99 12/30/03 3,185 0 3,000
Adjust.
Secured Resulting
Notes from Net Original Partnership
Received Application Selling Mortgage Capital
at Sale of GAAP Price Financing Invested (C) Total
---------------------------------------------------------------------------------------------------------
IREC - Lincoln Park Place 0 0 2,364 0 1,897 1,897
IREC - Antioch Plaza 0 0 1,818 875 753 1,628
IREC - Shorecrest Plaza 0 0 6,085 2,978 2,947 5,925
IREC - Popeye's 0 0 343 0 346 346
IREC - Summit of Park Ridge 0 0 5,178 0 5,181 5,181
IREC - Eagle Country Market 0 0 6,632 0 6,635 6,635
IREC - Eagle Ridge Center 0 0 6,185 0 6,187 6,187
Excess (deficiency) of Amount of
property operating subsidies included Total Taxable
cash receipts over cash in operating cash Gain (loss) Ordinary Income Capital
expenditures (D) receipts from Sale from Sale Gain (loss)
--------------------------------------------------------------------------------------------------------------------------------
IREC - Lincoln Park Place 218 0 467 0 467
IREC - Antioch Plaza 130 0 0(E) 0 0
IREC - Shorecrest Plaza 1,556 0 0(E) 0 0
IREC - Popeye's 241 0 3 0 3
IREC - Summit of Park Ridge 1,399 0 0(E) 0 0
IREC - Eagle Country Market 1,290 0 0(E) 0 0
IREC - Eagle Ridge Center 1,441 0 0(E) 0 0
A-12
TABLE V - (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES
NOTES TO TABLE V
(A) The table includes all sales of properties by the programs with investment
objectives similar to ours during the three years ended December 31, 2003.
All sales have been made to parties unaffiliated with the partnerships.
(B) Consists of cash payments received from the buyers and the assumption of
certain liabilities by the buyers at the date of sale, less expenses of
sale.
(C) Amounts represent the dollar amount raised from the offerings, less sales
commissions and other offering expenses plus additional costs incurred on
the development of the land parcels.
(D) Represents "Cash Available (Deficiency) from Operations (including
subsidies)" as adjusted for applicable "Fixed Asset Additions" through the
year of sale.
(E) For tax purposes, this sale qualified as part of a tax-deferred exchange.
As a result, no taxable gain will be recognized until the replacement
property is disposed of in a subsequent taxable transaction.
A-13
INDEX TO FINANCIAL STATEMENTS
PAGE
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
Reports of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets at December 31, 2004 and 2003 F-3
Consolidated Statements of Operations for the year ended December 31, 2004 and F-5
the period from March 5, 2003 (inception) through December 31, 2003
Consolidated Statement of Stockholders' Equity for the year ended December 31, 2004 and for the F-6
period from March 5, 2003 (inception) to December 31, 2003
Consolidated Statements of Cash Flows for the year ended December 31, 2004 and F-7
the period from March 5, 2003 (inception) to December 31, 2003
Notes to Consolidated Financial Statements F-9
Real Estate and Accumulated Depreciation (Schedule III) F-28
Pro Forma Consolidated Balance Sheet (unaudited) at December 31, 2004 F-35
Notes to Pro Forma Consolidated Balance Sheet (unaudited) at December 31, 2004 F-37
Pro Forma Consolidated Statement of Operations (unaudited) for the year ended December 31, 2004 F-39
Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the year ended December 31, 2004 F-41
HENRY TOWN CENTER:
(a) Independent Auditors' Report F-46
(b) Historical Summary of Gross Income and Direct Operating Expenses for the F-47
year ended December 31, 2003 and the nine months ended September 30,
2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating F-48
Expenses for the year ended December 31, 2003 and the nine months
ended September 30, 2004 (unaudited)
THE PROPERTIES ACQUIRED FROM CERUZZI HOLDINGS:
(a) Independent Auditors' Report F-50
(b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-51
December 31, 2004
(c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the F-52
year ended December 31, 2004
PROPERTIES ACQUIRED FROM FFI AMERICAN MARKET FUND, L.P.:
(a) Independent Auditors' Report F-54
(b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-55
December 31, 2004
F-i
PAGE
(c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the F-56
year ended December 31, 2004
SHOPPES AT LAKE ANDREW:
(a) Independent Auditors' Report F-58
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-59
2004
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-60
December 31, 2004
MESA FIESTA:
(a) Independent Auditors' Report F-62
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-63
2004
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-64
December 31, 2004
MIDTOWN CENTER:
(a) Independent Auditors' Report F-66
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-67
2004
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-68
December 31, 2004
TRENTON CROSSING:
(a) Independent Auditors' Report F-70
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-71
2004
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-72
December 31, 2004
PROPERTIES ACQUIRED FROM WEBER & COMPANY:
(a) Independent Auditors' Report F-74
(b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-75
December 31, 2004
(c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the F-76
year ended December 31, 2004
F-ii
STATELINE STATION:
(a) Independent Auditors' Report F-78
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-79
2004
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-80
December 31, 2004
MCALLEN SHOPPING CENTER:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-82
December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-83
December 31, 2004 (unaudited)
23RD STREET PLAZA:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-84
December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-85
December 31, 2004 (unaudited)
PHENIX CROSSING:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from July 1, 2004 F-86
(commencement of operations) through December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses F-87
for the period from July 1, 2004 (commencement of operations) through
December 31, 2004 (unaudited)
MAGNOLIA SQUARE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from F-88
February 1, 2004 (commencement of operations) through December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses F-89
for the period from February 1, 2004 (commencement of operations) through
December 31, 2004 (unaudited)
COTTAGE PLAZA:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from F-90
November 1, 2004 (commencement of operations) through December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses F-91
for the period from November 1, 2004 (commencement of operations) through
December 31, 2004 (unaudited)
VILLAGE AT QUAIL SPRINGS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-92
December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-93
December 31, 2004 (unaudited)
F-iii
HOLLIDAY TOWN CENTER:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-94
December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-95
December 31, 2004 (unaudited)
HIGH RIDGE CROSSING:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 17, 2004 F-96
(commencement of operations) through December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses F-97
for the period from May 17, 2004 (commencement of operations) through
December 31, 2004 (unaudited)
F-iv
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Inland Western Retail Real Estate Trust, Inc.:
We have audited the accompanying consolidated balance sheets of Inland Western
Retail Real Estate Trust, Inc. as of December 31, 2004 and 2003, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year ended December 31, 2004 and the period from March 5, 2003 (inception)
to December 31, 2003. In connection with our audit of the consolidated financial
statements, we also have audited the financial statement schedule III. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Inland Western
Retail Real Estate Trust, Inc. as of December 31, 2004 and 2003, and the results
of their operations and their cash flows for the year ended December 31, 2004
and the period from March 5, 2003 (inception) to December 31, 2003, in
conformity with U.S. generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Inland Western
Retail Real Estate Trust, Inc.'s internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 3, 2005 expressed an unqualified
opinion on management's assessment of, and the effective operation of, internal
control over financial reporting.
KPMG LLP
Chicago, Illinois
March 3, 2005
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Inland Western Retail Real Estate Trust, Inc.:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Inland
Western Retail Real Estate Trust, Inc. maintained effective internal control
over financial reporting as of December 31, 2004, based on criteria established
in Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Inland Western Retail Real Estate
Trust, Inc. maintained effective internal control over financial reporting as of
December 31, 2004, is fairly stated, in all material respects, based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Also, in our
opinion, Inland Western Retail Real Estate Inc. maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2004, based on criteria established in Internal Control--Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Inland Western Retail Real Estate Trust, Inc. as of December 31, 2004 and 2003,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended December 31, 2004 and the period from March 3,
2003 (inception) to December 31, 2003, and our report dated March 3, 2005
expressed an unqualified opinion on those consolidated financial statements. In
connection with our audit of the consolidated financial statements, we also have
audited the financial statement schedule III.
KPMG LLP
Chicago, Illinois
March 3, 2005
F-2
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
ASSETS
December 31, December 31,
2004 2003
------------------ ------------------
Investment properties:
Land $ 575,032 $ 36,280
Building and other improvements 2,654,585 86,440
------------------ ------------------
3,229,617 122,720
Less accumulated depreciation (36,290) (141)
------------------ ------------------
Net investment properties 3,193,327 122,579
Cash and cash equivalents (including cash held by management
company of $8,574 and $239 as of December 31, 2004
and 2003, respectively) 241,224 64,381
Restricted cash (Note 2) 65,923 -
Restricted escrows (Note 2) 17,105 -
Investment in marketable securities and treasury contracts 1,287 -
Investment in unconsolidated joint ventures (Note 9) 75,261 -
Accounts and rents receivable (net of allowance of $346 and
$0 as of December 31, 2004 and 2003, respectively) 19,962 1,148
Due from affiliates (Note 3) 654 919
Note receivable (Note 6) 31,772 7,552
Acquired in-place lease intangibles and customer
relationship value (net of accumulated amortization of $9,976
and $52 as of December 31, 2004 and 2003, respectively) 240,116 8,754
Acquired above market lease intangibles (net of accumulated
amortization of $3,124 and $5 as of December 31, 2004 and
2003, respectively) 40,774 1,590
Loan fees, leasing fees and loan fee deposits (net of
accumulated amortization of $755 and $25 as of December
31, 2004 and 2003, respectively) 19,472 3,998
Other assets 8,939 1,181
------------------ ------------------
Total assets $ 3,955,816 $ 212,102
================== ==================
See accompanying notes to consolidated financial statements
F-3
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED BALANCE SHEETS
(continued)
(Amounts in thousands)
LIABILITIES AND STOCKHOLDER'S EQUITY
December 31, December 31,
2004 2003
------------------ -------------------
Liabilities:
Mortgages and notes payable (Note 7) $ 1,783,114 $ 29,627
Accounts payable 1,692 150
Accrued offering costs due to affiliates 2,880 1,369
Accrued interest payable 4,306 -
Tenants improvements payable 5,096 5
Accrued real estate taxes 4,254 1,392
Distributions payable 11,378 928
Security deposits 3,679 108
Line of credit (Note 8) - 5,000
Prepaid rental income and other liabilities 7,765 179
Advances from sponsor (Note 3) 3,523 1,203
Acquired below market lease intangibles (net of accumulated
amortization of $4,718 and $15 as of December 31, 2004 and 2003,
respectively) 85,986 5,910
Restricted cash liability (Note 2) 65,923 -
Due to affiliates 957 2,502
------------------ -------------------
Total liabilities 1,980,553 48,373
------------------ -------------------
Minority interests 89,537 -
Stockholders' equity:
Preferred stock, $.001 par value, 10,000 shares authorized, none
outstanding - -
Common stock, $.001 par value, 250,000 shares authorized, 217,458
and 18,737 shares issued and outstanding as of December 31, 2004 and
2003, respectively 217 19
Additional paid in capital (net of offering costs of $234,014 and
$22,145 as of December 31, 2004 and 2003, respectively, of which
$175,509 and $16,860 was paid or accrued to affiliates as of
December 31, 2004 and 2003, respectively) 1,940,018 165,169
Accumulated distributions in excess of net income (loss) (54,750) (1,459)
Accumulated other comprehensive income 241 -
------------------ -------------------
Total stockholders' equity 1,885,726 163,729
------------------ -------------------
Commitments and contingencies (Note 12)
Total liabilities and stockholders' equity $ 3,955,816 $ 212,102
================== ===================
See accompanying notes to consolidated financial statements
F-4
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Period from March 5,
2003 (inception)
Year Ended through
December 31, 2004 December 31, 2003
---------------------- ----------------------
Income:
Rental income $ 106,425 $ 607
Tenant recovery income 23,155 138
Other property income 825 -
---------------------- ----------------------
Total income 130,405 745
---------------------- ----------------------
Expenses:
General and administrative expenses to affiliates 1,852 177
General and administrative expenses to non-affiliates 3,005 283
Property operating expenses to affiliates 5,382 16
Property operating expenses to non-affiliates 14,064 31
Real estate taxes 13,076 96
Depreciation and amortization 47,973 217
---------------------- ----------------------
Total expenses 85,352 820
---------------------- ----------------------
Operating income (loss) $ 45,053 (75)
---------------------- ----------------------
Other income 3,681 38
Interest expense (33,175) (136)
Realized loss on sale of treasury contracts (3,667) -
Minority interests 398 -
Equity in earnings (losses) of unconsolidated entities (589) -
---------------------- ----------------------
Net income (loss) $ 11,701 (173)
Other comprehensive income:
Unrealized gain on investment securities 241 -
---------------------- ----------------------
Comprehensive income (loss) $ 11,942 $ (173)
====================== ======================
Net income(loss) per common share, basic and diluted $ .12 $ (.07)
====================== ======================
Weighted average number of common shares outstanding,
basic and diluted 98,563 2,521
====================== ======================
See accompanying notes to consolidated financial statements
F-5
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the year ended December 31, 2004 and for the period from March 5, 2003
(inception) to December 31, 2003
(Amounts in thousands)
ADDITIONAL
NUMBER OF COMMON PAID-IN
SHARES STOCK CAPITAL
------------------ ------------------ ------------------
Balance at March 5, 2003 (inception) - $ - $ -
Net loss - - -
Distributions declared (.15 per weighted
average number of common shares
outstanding) - - -
Proceeds from offering 18,718 19 187,066
Offering costs - - (22,145)
Proceeds from dividend reinvestment
program 19 - 181
Issuance of stock options and discounts on
shares issued to affiliates - - 67
------------------ ------------------ ------------------
Balance at December 31, 2003 18,737 $ 19 $ 165,169
Net income - - -
Unrealized gain on investment securities - - -
Distributions declared (.66 per weighted
number of common shares outstanding) - - -
Proceeds from offering 195,671 195 1,955,517
Offering costs - - (211,869)
Proceeds from dividend reinvestment
program 3,060 3 29,067
Shares repurchased (10) - (193)
Shares obligated to be repurchased as of
December 31, 2004 - - (472)
Contribution from sponsor advances - - 2,369
Issuance of stock options and discounts on
shares issued to affiliates - - 430
------------------ ------------------ ------------------
Balance at December 31, 2004 217,458 $ 217 $ 1,940,018
================== ================== ==================
ACCUMULATED
DISTRIBUTIONS IN ACCUMULATED
EXCESS OF NET OTHER
INCOME COMPREHENSIVE
(LOSS) INCOME TOTAL
------------------ ------------------ ------------------
Balance at March 5, 2003 (inception) $ - $ - $ -
Net loss (173) - (173)
Distributions declared (.15 per weighted
average number of common shares
outstanding) (1,286) - (1,286)
Proceeds from offering - - 187,085
Offering costs - - (22,145)
Proceeds from dividend reinvestment
program - - 181
Issuance of stock options and discounts on
shares issued to affiliates - - 67
------------------ ------------------ ------------------
Balance at December 31, 2003 $ (1,459) $ - $ 163,729
Net income 11,701 - 11,701
Unrealized gain on investment securities - 241 241
Distributions declared (.66 per weighted
number of common shares outstanding) (64,992) - (64,992)
Proceeds from offering - - 1,955,712
Offering costs - - (211,869)
Proceeds from dividend reinvestment
program - - 29,070
Shares repurchased - - (193)
Shares obligated to be repurchased as of
December 31, 2004 - - (472)
Contribution from sponsor advances - - 2,369
Issuance of stock options and discounts on
shares issued to affiliates - - 430
------------------ ------------------ ------------------
Balance at December 31, 2004 (54,750) $ 241 $ 1,885,726
================== ================== ==================
See accompanying notes to consolidated financial statements
F-6
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Period from March 5, 2003
Year Ended (inception) through
December 31, 2004 December 31, 2003
------------------ -------------------------
Cash flows from operations:
Net income (loss) $ 11,701 $ (173)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 36,149 140
Amortization 11,824 77
Amortization of acquired above market leases 3,119 5
Amortization of acquired below market leases (4,703) (15)
Rental income under master leases 3,025 -
Straight line rental income (3,886) -
Straight line lease expense 919 -
Minority interests (398) -
Loss from investments in unconsolidated entities 589 -
Issuance of stock options and discount on shares issued to
affiliates 430 5
Realized loss on sale of treasury contracts 3,667 -
Changes in assets and liabilities:
Accounts and rents receivable net of change in allowance of $346
and $0 for December 31, 2004 and 2003, respectively. (14,928) (1,148)
Other assets (3,276) -
Accounts payable 1,542 307
Accrued interest payable 4,306 -
Accrued real estate taxes 3,674 1,241
Security deposits 3,571 108
Prepaid rental income and other liabilities 6,195 177
------------------ -------------------------
Net cash flows provided by operating activities 63,520 724
------------------ -------------------------
Cash flows from investing activities:
Purchase of investment securities and treasury contracts (4,713) -
Restricted escrows (17,105) -
Purchase of investment properties (3,002,437) (122,720)
Acquired in-place lease intangibles and customer relationship
value (241,286) (8,806)
Acquired above market leases (42,303) (1,596)
Acquired below market leases 84,779 5,926
Contributions from minority interests - joint ventures 95,568 -
Distributions to minority interests - joint ventures (5,251) -
Purchase of unconsolidated joint ventures (76,232) -
Interest capitalized for real estate under development (85) -
Payment of leasing fees (761) -
Tenant improvements payable 4,570 -
Other assets (4,482) (831)
Funding of notes receivable (31,772) (7,552)
Due to affiliates (1,545) 2,154
------------------ -------------------------
Net cash flows used in investing activities (3,243,055) (133,425)
------------------ -------------------------
See accompanying notes to consolidated financial statements
F-7
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(Amounts in thousands)
Period from March 5, 2003
Year Ended (inception) through
December 31, 2004 December 31, 2003
----------------- -------------------------
Cash flows from financing activities:
Proceeds from offering 1,955,712 187,146
Proceeds from the dividend reinvestment program 29,070 181
Shares repurchased (193) -
Payment of offering costs (210,358) (20,775)
Proceeds from mortgage debt and notes payable 1,653,523 29,627
Principal payments on mortgage debt (175) -
Proceeds from unsecured line of credit 165,000 5,000
Payoff of unsecured line of credit (170,000) -
Payment of loan fees and deposits (16,613) (4,023)
Distributions paid (54,542) (358)
Due from affiliates 2,585 (919)
Advances from advisor - 1,203
Contribution from sponsor advances 2,369 -
----------------- -------------------------
Net cash flows provided by financing activities 3,356,378 197,082
----------------- -------------------------
Net increase in cash and cash equivalents 176,843 64,381
Cash and cash equivalents, at beginning of period 64,381 -
----------------- -------------------------
Cash and cash equivalents, at end of period $ 241,224 $ 64,381
================= =========================
Cash paid for interest, net of interest capitalized of $85 $ 28,869 136
================= =========================
Restricted cash $ (65,923) -
Restricted cash liability 65,923 -
================= =========================
Due from sponsor $ (654)
Due to sponsor 654
================= =========================
Share repurchase program $ (472)
Share repurchase program liability 472
================= =========================
Supplement schedule of non-cash investing and financing activities:
Purchase of investment properties $ (3,113,038) (121,868)
Assumption of mortgage debt 100,139 -
Write-off of acquisition reserve 521 -
Purchase price adjustments 2,389 (852)
Conversion of mortgage receivable to investment property 7,552 -
----------------- -------------------------
$ (3,002,437) (122,720)
----------------- -------------------------
Distributions payable $ 11,378 928
================= =========================
Accrued offering costs payable $ 2,880 1,369
================= =========================
Write-off of fully amortized loan fees $ 1,170 -
================= =========================
See accompanying notes to financial statements
F-8
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(1) Organization and Basis of Accounting
Inland Western Retail Real Estate Trust, Inc. (the "Company") was formed on
March 5, 2003 to acquire and manage a diversified portfolio of real estate,
primarily multi-tenant shopping centers. The Advisory Agreement provides for
Inland Western Retail Real Estate Advisory Services, Inc. (the "Business
Manager" or "Advisor"), an Affiliate of the Company, to be the Business Manager
or Advisor to the Company. On September 15, 2003, the Company commenced an
initial public offering (the initial public offering) of up to 250,000,000
shares of common stock at $10 each and the issuance of 20,000,000 shares at
$9.50 each which may be distributed pursuant to the Company's distribution
reinvestment program. The Company registered a second offering (the second
offering) that became effective on December 28, 2004 with the Securities and
Exchange Commission for up to 250,000,000 shares of common stock at $10 each and
up to 20,000,000 shares at $9.50 each pursuant to the distribution reinvestment
program. Sales of shares in the second offering began in early January 2005.
The Company is qualified and has elected to be taxed as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986, as amended, for federal
income tax purposes commencing with the tax year ending December 31, 2003. Since
the Company qualifies for taxation as a REIT, the Company generally will not be
subject to federal income tax to the extent it distributes at least 90% of its
REIT taxable income to its stockholders. If the Company fails to qualify as a
REIT in any taxable year, the Company will be subject to federal income tax on
its taxable income at regular corporate tax rates. Even if the Company qualifies
for taxation as a REIT, the Company may be subject to certain state and local
taxes on its income and property and federal income and excise taxes on its
undistributed income.
The Company provides the following programs to facilitate investment in the
Company's shares and to provide limited liquidity for stockholders.
The Company allows stockholders who purchase shares in the initial public
offering and second offering to purchase additional shares from the Company by
automatically reinvesting distributions through the distribution reinvestment
program ("DRP"), subject to certain share ownership restrictions. Such purchases
under the DRP are not subject to selling commissions or the marketing
contribution and due diligence expense allowance, and are made at a price of
$9.50 per share.
The Company will repurchase shares under the share repurchase program ("SRP"),
if requested, at least once quarterly on a first-come, first-served basis,
subject to certain restrictions. Subject to funds being available, the Company
will limit the number of shares repurchased during any calendar year to 5% of
the weighted average number of shares outstanding during the prior calendar
year. Funding for the SRP will come exclusively from proceeds that the Company
receives from the sale of shares under the DRP and such other operating funds,
if any, as the Company's board of directors, at its sole discretion, may reserve
for this purpose. The board, at its sole discretion, may choose to terminate the
share repurchase program after the end of the offering period, or reduce the
number of shares purchased under the program, if it determines that the funds
allocated to the SRP are needed for other purposes, such as the acquisition,
maintenance or repair of properties, or for use in making a declared
distribution. A determination by the board to eliminate or reduce the share
repurchase program will require the unanimous affirmative vote of the
independent directors. As of December 31, 2004, the Company had repurchased
10,350 shares for $192,667.
The accompanying Consolidated Financial Statements include the accounts of the
Company, as well as all wholly owned subsidiaries and consolidated joint venture
investments. Wholly owned subsidiaries generally consist of limited liability
companies (LLC's) and limited partnerships (LP's). The effects of all
significant intercompany transactions have been eliminated.
F-9
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
The Company would consolidate certain property holding entities and other
subsidiaries that it owns less than a 100% equity interest if the entity is a
variable interest entity ("VIE") and it is the primary beneficiary (as defined
in FASB Interpretation 46(R) CONSOLIDATION OF VARIABLE INTEREST ENTITIES, an
Interpretation of ARB No. 51, as revised ("FIN 46(R)")). For joint ventures that
are not VIE's of which the Company owns less than 100% of the equity interest,
the Company consolidates the property if it receives substantially all of the
economics or has the direct or indirect ability to make major decisions. Major
decisions are defined in the respective joint venture agreements and generally
include participating and protective rights such as decisions regarding major
leases, encumbering the entities with debt and whether to dispose of the
entities.
The Company has a 95% ownership interest in the LLC's which own Gateway Village,
Boulevard at the Capital Centre, Towson Circle, Reisterstown Road Plaza and
Tollgate Marketplace, however, the Company shares equally in major decisions.
These entities are considered VIE's as defined in FIN 46(R) and the Company is
considered the primary beneficiary. Therefore these entities are consolidated by
the Company and the 5% outside ownership interest is reflected as minority
interest in the accompanying Consolidated Financial Statements.
The Company has a 60.9% ownership interest in, and is the controlling member of
the LLC which owns Cardiff Hall East Apartments. The other members' interests in
the property are reflected as minority interest in the accompanying Consolidated
Financial Statements.
(2) Summary of Significant Accounting Policies
The accompanying Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP") and require 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.
Certain reclassifications have been made to the 2003 financial statements to
conform to the 2004 presentations.
Rental income is recognized on a straight-line basis over the term of each
lease. The difference between rental income earned on a straight-line basis and
the cash rent due under the provisions of the lease agreements is recorded as
deferred rent receivable and is included as a component of accounts and rents
receivable in the accompanying consolidated balance sheets.
The Company records lease termination income if there is a signed termination
agreement, all of the conditions of the agreement have been met, and the tenant
is no longer occupying the property.
Staff Accounting Bulletin ("SAB") 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS, determined that a lessor should defer recognition of contingent
rental income (i.e. percentage/excess rent) until the specified target (i.e.
breakpoint) that triggers the contingent rental income is achieved. The Company
records percentage rental revenue in accordance with the SAB 101.
The Company considers all demand deposits, money market accounts and investments
in certificates of deposit and repurchase agreements purchased with a maturity
of three months or less, at the date of purchase, to be cash equivalents. The
Company maintains its cash and cash equivalents at financial institutions. The
combined account balances at one or more institutions periodically exceed the
Federal Depository Insurance Corporation ("FDIC") insurance coverage and, as a
result, there is a concentration of credit risk related to amounts on deposit in
excess of FDIC insurance coverage. The Company believes that the risk is not
significant, as the Company does not anticipate the financial institutions'
non-performance.
F-10
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
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 December 31, 2004 consists of common stock
investments and is classified as available-for-sale securities and is 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 costs basis for the security is established. To determine
whether an impairment is other than temporary, the Company considers whether it
has the ability and intent to hold the investment until a market price recovery
and considers whether evidence indicating the cost of the investment is
recoverable outweighs evidence to the contrary. Evidence considered in this
assessment includes the reasons for the impairment, the severity and duration of
the impairment, changes in value subsequent to year end and forecasted
performance of the investee. Of the investment securities held on December 31,
2004, the Company has accumulated other comprehensive income of $241,015.
Costs associated with the offerings are deferred and charged against the gross
proceeds of the offerings upon closing. Formation and organizational costs are
expensed as incurred. For the period from March 5, 2003 (inception) through
December 31, 2003, $7,500 of organizational costs was expensed. No
organizational costs were expensed in the year ended December 31, 2004.
The Company applies the fair value method of accounting as prescribed by
Statement of Financial Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION for its stock options granted. Under this method, the
Company will report the value of granted options as a charge against earnings
ratably over the vesting period.
The Company enters into interest rate futures contracts or treasury contracts as
a means of reducing exposure to rising interest rates. At inception, contracts
are evaluated in order to determine if they will qualify for hedge accounting
treatment and will be accounted for either on a deferral, accrual or market
value basis depending on the nature of the hedge strategy and the method used to
account for the hedged item. Hedge criteria include demonstrating the manner in
which the hedge will reduce risk, identifying the specific asset, liability or
firm commitment being hedged, and citing the time horizon being hedged.
For the year ended December 31, 2004, the Company entered into treasury
contracts with a futures commission merchant with yields ranging from 3.27% to
3.85% for 5 year treasury contracts and 4.00% to 4.63% for 10 year treasury
contracts. On December 31, 2004, the treasury contracts had a liquidation value
of $46,005 resulting in a loss of $3,666,894 for the year ended December 31,
2004. As these treasury contracts are not offsetting future commitments and
therefore do not qualify as hedges, the net loss is recognized currently in
earnings.
Differences between the carrying amount of the investment in unconsolidated
joint ventures and the Company's equity in the underlying assets are depreciated
over 30 years.
Real estate acquisitions are recorded at costs less accumulated depreciation.
Ordinary repairs and maintenance are expensed as incurred.
Depreciation expense is computed using the straight line method. Building and
improvements are depreciated based upon estimated useful lives of 30 years for
building and improvements and 15 years for site improvements.
F-11
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
In accordance with SFAS No. 144, the Company performs an analysis to identify
impairment indicators to ensure that the investment property's carrying value
does not exceed its fair value. The valuation analysis performed by the Company
is based upon many factors which require difficult, complex or subjective
judgments to be made. Such assumptions include projecting vacancy rates, rental
rates, operating expenses, lease terms, tenant financial strength, economy,
demographics, property location, capital expenditures and sales value among
other assumptions to be made upon valuing each property. This valuation is
sensitive to the actual results of any of these uncertain factors, either
individually or taken as a whole. Based upon the Company's judgment, no
impairment was warranted as of December 31, 2004 or December 31, 2003.
Tenant improvements are amortized on a straight line basis over the life of the
related lease as a component of amortization expense.
Leasing fees are amortized on a straight-line basis over the life of the related
lease.
Loan fees are amortized on a straight-line basis over the life of the related
loans.
The Company allocates the purchase price of each acquired investment property
between land, building and improvements, acquired above market and below market
leases, in-place lease value, and any assumed financing that is determined to be
above or below market terms. In addition, we allocate a portion of the purchase
price to the value of the customer relationships. The allocation of the purchase
price is an area that requires judgment and significant estimates. The Company
uses the information contained in the independent appraisal obtained at
acquisition as the primary basis for the allocation to land and building and
improvements. The Company determines whether any financing assumed is above or
below market based upon comparison to similar financing terms for similar
investment properties. The Company also allocates a portion of the purchase
price to the estimated acquired in-place lease costs based on estimated lease
execution costs for similar leases as well as lost rent payments during assumed
lease-up period when calculating as if vacant fair values. The Company considers
various factors including geographic location and size of leased space. The
Company also evaluates each acquired lease based upon current market rates at
the acquisition date and considers various factors including geographical
location, size and location of leased space within the investment property,
tenant profile, and the credit risk of the tenant in determining whether the
acquired lease is above or below market lease costs. After an acquired lease is
determined to be above or below market lease costs, the Company allocates a
portion of the purchase price to such above or below acquired lease costs based
upon the present value of the difference between the contractual lease rate and
the estimated market rate. However, for below market leases with fixed rate
renewals, renewal periods are included in the calculation of below market
in-place lease values. The determination of the discount rate used in the
present value calculation is based upon the "risk free rate." This discount rate
is a significant factor in determining the market valuation which requires the
Company's judgment of subjective factors such as market knowledge, economics,
demographics, location, visibility, age and physical condition of the property.
The application of the SFAS Nos. 141 and 142 resulted in the recognition upon
acquisition of additional intangible assets and liabilities relating to real
estate acquisitions during the years ended December 31, 2004 and December 31,
2003. The portion of the purchase price allocated to acquired above market lease
costs and acquired below market lease costs are amortized on a straight line
basis over the life of the related lease as an adjustment to rental income and
over the respective renewal period for below market lease costs with fixed rate
renewals. Amortization pertaining to the above market lease costs of $3,118,699
was applied as a reduction to rental income for the year ended December 31, 2004
and $5,227 for the period from March 5, 2003 (inception) through December 31,
2003. Amortization pertaining to the below market lease costs of $4,703,357 was
applied as an increase to rental income for the year ended December 31, 2004 and
$15,386 for the period from March 5, 2003 (inception) through December 31, 2003.
F-12
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
The portion of the purchase price allocated to acquired in-place lease
intangibles is amortized on a straight line basis over the life of the related
lease. The Company incurred amortization expense pertaining to acquired in-place
lease intangibles of $9,923,630 for the year ended December 31, 2004 and $51,773
for the period from March 5, 2003 (inception) through December 31, 2003.
The portion of the purchase price allocated to customer relationship value is
amortized on a straight line basis over the life of the related lease.
The following table presents the amortization during the next five years related
to the acquired in-place lease intangibles, customer relationship value,
acquired above market lease costs and the below market lease costs for
properties owned at December 31, 2004.
Amortization of: 2005 2006 2007 2008 2009 Thereafter
---- ---- ---- ---- ---- ----------
Acquired above
market lease costs $ (5,576,668) (5,391,370) (4,558,366) (4,275,216) (3,783,749) (17,188,977)
Acquired below
market lease costs 9,930,801 9,166,611 8,238,008 7,337,557 6,580,442 44,732,278
-------------------------------------------------------------------------------------------------
Net rental income
increase $ 4,354,133 3,775,241 3,679,642 3,062,341 2,796,693 27,543,301
=================================================================================================
Acquired in-place lease
intangibles $ (25,857,397) (25,857,397) (25,857,397) (25,803,230) (24,532,397) (110,207,994)
Customer relationship
value $ (200,000) (200,000) (200,000) (200,000) (200,000) (1,000,000)
In conjunction with certain acquisitions, the Company receives payments under
master lease agreements pertaining to certain, non-revenue producing spaces
either at the time of, or subsequent to, the purchase of some of the Company's
properties. Upon receipt of the payments, the receipts are recorded as a
reduction in the purchase price of the related properties rather than as rental
income. These master leases were established at the time of purchase in order to
mitigate the potential negative effects of loss of rent and expense
reimbursements. Master lease payments are received through a draw of funds
escrowed at the time of purchase and may cover a period from three months to
three years. These funds may be released to either the Company or the seller
when certain leasing conditions are met. Restricted cash includes funds received
by third party escrow agents from sellers pertaining to master lease agreements.
The Company records the third party escrow funds as both an asset and a
corresponding liability, until certain leasing conditions are met.
Restricted escrows primarily consist of lenders' restricted escrows and earnout
escrows. Earnout escrows are established upon the acquisition of certain
investment properties for which the funds may be released to the seller when
certain leasing conditions have been met.
Notes receivable relate to real estate financing arrangements and bear interest
at a market rate based on the borrower's credit quality and are recorded at face
value. Interest is recognized over the life of the note. The Company requires
collateral for the notes.
F-13
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
A note is considered impaired pursuant to SFAS No. 114, ACCOUNTING BY CREDITORS
FOR IMPAIRMENT OF A LOAN. Pursuant to SFAS No. 114, a note is impaired if it is
probable that the Company will not collect all principal and interest
contractually due. The impairment is measured based on the present value of
expected future cash flows discounted at the note's effective interest rate. The
Company does not accrue interest when a note is considered impaired. When
ultimate collectibility of the principal balance of the impaired note is in
doubt, all cash receipts on impaired notes are applied to reduce the principal
amount of such notes until the principal has been recovered and are recognized
as interest income, thereafter.
The carrying amount of the Company's debt approximates fair value. The Company
estimates the fair value of its mortgages payable by discounting the future cash
flows of each instrument at rates currently offered to the Company for similar
debt instruments of comparable maturities by the Company's lenders. The carrying
amount of the Company's other financial instruments approximate fair value
because of the relatively short maturity of these instruments.
New Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 153, EXCHANGE OF NONMONETARY ASSETS,
AN AMENDMENT OF APB OPINION NO. 29, ("SFAS 153"). The amendments made by SFAS
153 are based on the principle that exchanges of nonmonetary assets should be
measured on the fair value of assets exchanged. It eliminates the exceptions for
nonmonetary exchanges of similar productive assets and replaces it with a
broader exception for exchanges of nonmonetary assets that do not have
commercial substance. The statement is effective for nonmonetary exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company does not
believe that the adoption of SFAS 153 will have a material impact on its
Consolidated Financial Statements.
(3) Transactions with Affiliates
The Business Manager or Advisor contributed $200,000 to the capital of the
Company for which it received 20,000 shares of common stock.
Certain compensation and fees payable to the Business Manager or Advisor for
services to be provided to the Company are limited to maximum amounts.
Nonsubordinated payments:
Offering stage:
Selling commissions 7.5% of the sale price for each share
Marketing contribution 3.0% of the gross offering proceeds
and due diligence allowance
Reimbursable expenses We will reimburse our sponsor for actual costs incurred, on our
and other expenses of issuance behalf, in connection with the offerings
Acquisition stage:
Acquisition expenses We will reimburse an affiliate of our business manager or
advisor for costs incurred, on our behalf, in connection with
the acquisition of properties
F-14
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
Operational stage:
Property management fee 4.5% of the gross income from the properties.
THIS FEE TERMINATES UPON A (cannot exceed 90% of the fee which would be payable to
BUSINESS COMBINATION WITH THE an unrelated third party)
PROPERTY MANAGEMENT COMPANY.
Loan servicing fee .03% per year on the first billion dollars of mortgages
serviced and .01% thereafter
Other property level services Compensation for these services will not exceed 90% of
that which would be paid to any third party for such
services
Reimbursable expenses The compensation and reimbursements to our business manager or
relating to administrative advisor and its affiliates will be approved by a majority of our
services directors
Liquidation stage:
Property disposition fee Lesser of 3% of sales price or 50% of the customary
THIS FEE TERMINATES UPON A commission which would be paid to a third party
BUSINESS COMBINATION WITH THE ADVISOR
Subordinated payments:
Operational stage:
Advisor asset management fee Not more than 1% per annum of our average assets;
THIS FEE TERMINATES UPON A Subordinated to a non-cumulative, non-compounded return,
BUSINESS COMBINATION WITH equal to 6% per annum
THE ADVISOR
Liquidation stage:
Incentive advisory fee After the stockholders have first received a 10% cumulative,
THIS FEE TERMINATES UPON A non-compounded return per year and a return of their net
BUSINESS COMBINATION WITH investment, an incentive advisory fee equal to 15% on net
THE ADVISOR proceeds from the sale of a property will be paid to the
business manager or advisor
F-15
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
On October 31, 2003, the Company acquired an existing shopping center known as
The Shops at Park Place through the purchase of all of the membership interests
of the general partner and the membership interests of the limited partner of
the limited partnership holding title to this property. The center contains
approximately 116,300 gross leasable square feet and is located in Plano, Texas.
An affiliate of our Advisor, Inland Park Place Limited Partnership, acquired
this property on September 30, 2003 from CDG Park Place LLC, an unaffiliated
third party for $23,868,000. Inland Park Place Limited Partnership agreed to
sell this property to the Company when sufficient funds from the sale of shares
to acquire this property were raised. Inland Park Place Limited Partnership
agreed to sell this property to the Company for the price the affiliate paid to
the unaffiliated third party, plus any actual costs incurred. The Company's
board of directors unanimously approved acquiring this property, including a
unanimous vote of the independent directors. The total acquisition cost to the
Company was $24,000,000, which included $132,000 of costs incurred by the
affiliate.
As of December 31, 2004 and December 31, 2003, the Company had incurred
$234,014,231 and $22,144,814 of offering costs, of which $175,508,624 and
$16,859,779, respectively, were paid or accrued to affiliates. Pursuant to the
terms of the offerings, the Business Manager or Advisor has guaranteed payment
of all public offering expenses (excluding sales commissions and the marketing
contribution and the due diligence expense allowance) in excess of 5.5% of the
gross proceeds of the offerings or all organization and offering expenses
(including selling commissions) which together exceed 15% of gross proceeds. As
of December 31, 2004 and December 31, 2003, offering costs did not exceed the
5.5% and 15% limitations. The Company anticipates that these costs will not
exceed these limitations upon completion of the offerings.
The Business Manager or Advisor and its affiliates are entitled to reimbursement
for salaries and expenses of employees of the Business Manager or Advisor and
its affiliates relating to the offerings. In addition, an affiliate of the
Business Manager or Advisor is entitled to receive selling commissions, and the
marketing contribution and due diligence expense allowance from the Company in
connection with the offerings. Such costs are offset against the stockholders'
equity accounts. Such costs totaled $175,508,624 and $16,859,779, of which
$2,879,894 and $1,061,791 were unpaid at December 31, 2004 and December 31,
2003, respectively.
The Business Manager or Advisor and its affiliates are entitled to reimbursement
for general and administrative costs relating to the Company's administration.
Such costs are included in general and administrative expenses to affiliates, in
addition to costs that were capitalized pertaining to property acquisitions. For
the year ended December 31, 2004 and the period from March 5, 2003 (inception)
through December 31, 2003, the Company incurred $1,542,986 and $194,017 of these
costs, respectively, of which $957,471 and $40,703 remained unpaid as of
December 31, 2004 and 2003, respectively, and are included in due to affiliates
on the Consolidated Balance Sheets.
An affiliate of the Business Manager or Advisor provides loan servicing to the
Company for an annual fee. The agreement allows for annual fees totaling .03% of
the first $1 billion in mortgage balance outstanding and .01% of the remaining
mortgage balances, payable monthly. Such fees totaled $140,859 for the year
ended December 31, 2004 and $328 for the period from March 5, 2003 (inception)
through December 31, 2003.
The Company used the services of an affiliate of the Business Manager or Advisor
to facilitate the mortgage financing that the Company obtained on some of the
properties purchased. The Company pays the affiliate .02% of the principal
amount of each loan obtained on the Company's behalf. Such costs are capitalized
as loan fees and amortized over the respective loan term. For the year ended
December 31, 2004 and for the period from March 5, 2003 (inception) through
December 31, 2003, the Company paid loan fees totaling $3,475,472 and $59,523 to
this affiliate, respectively.
F-16
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
The Company may pay an advisor asset management fee of not more than 1% of the
average assets. Average asset value is defined as the average of the total book
value, including acquired intangibles, of the Company's real estate assets plus
the Company's loans receivable secured by real estate, before reserves for
depreciation, reserves for bad debt or other similar non-cash reserves. The
Company computes the average assets by taking the average of these values at the
end of each month for which the fee is being calculated. The fee would be
payable quarterly in an amount equal to 1/4 of 1% of average assets as of the
last day of the immediately preceding quarter. For any year in which the Company
qualifies as a REIT, the advisor must reimburse the Company for the following
amounts if any: (1) the amounts by which total operating expenses, the sum of
the advisor asset management fee plus other operating expenses, paid during the
previous fiscal year exceed the greater of: (i) 2% of average assets for that
fiscal year, or (ii) 25% of net income for that fiscal year; plus (2) an amount,
which will not exceed the advisor asset management fee for that year, equal to
any difference between the total amount of distributions to stockholders for
that year and the 6% minimum annual return on the net investment of
stockholders. The Company neither paid nor accrued such fees because the
Business Manager or Advisor agreed to forego such fees for the year ended
December 31, 2004 and for the period from March 5, 2003 (inception) to December
31, 2003.
The property managers, entities owned principally by individuals who are
affiliates of the Business Manager or Advisor, are entitled to receive property
management fees totaling 4.5% of gross operating income, for management and
leasing services. The Company incurred property management fees of $5,381,721
and $16,627 for the year ended December 31, 2004 and the period from March 5,
2003 (inception) through December 31, 2003, respectively. None remained unpaid
as of December 31, 2004 or December 31, 2003.
The Company established a discount stock purchase policy for affiliates of the
Company and the Business Manager or Advisor that enables the affiliates to
purchase shares of common stock at a discount at either $8.95 or $9.50 per share
depending on when the shares are purchased. The Company sold 605,060 and 59,497
shares of common stock to affiliates and recognized an expense related to these
discounts of $427,122 and $62,472 for the year ended December 31, 2004 and the
period from March 5, 2003 (inception) to December 31, 2003, respectively.
As of December 31, 2004 and 2003, the Company was due funds from affiliates in
the amount of $654,004 and $918,750, respectively which is comprised of $654,004
and $845,000, respectively, which is due from the sponsor for reimbursement of a
portion of distributions paid. The remaining $73,750 as of December 31, 2003 is
due from an affiliate for costs paid on their behalf by the Company. The sponsor
has agreed to advance funds to the Company for a portion of distributions paid
to the Company's shareholders until funds available for distributions are
sufficient to cover the distributions. The sponsor forgave $2,369,139 of these
amounts during the second quarter of 2004 and these funds are no longer due and
are recorded as a contribution to capital in the accompanying Consolidated
Financial Statements. As of December 31, 2004 and December 31, 2003, the Company
owed funds to the sponsor in the amount of $3,522,670 and $1,202,519,
respectively, for repayment of the funds advanced for payment of distributions.
As of December 31, 2003 the Company owed funds to an affiliate in the amount of
$2,154,158 for the reimbursement of costs paid by the affiliate on behalf of the
Company. The amount due at December 31, 2003 was repaid during 2004.
F-17
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
(4) Stock Option Plan
The Company has adopted an Independent Director Stock Option Plan which, subject
to certain conditions, provides for the grant to each independent director of an
option to acquire 3,000 shares following their becoming a director and for the
grant of additional options to acquire 500 shares on the date of each annual
stockholders' meeting. The options for the initial 3,000 shares are exercisable
as follows: 1,000 shares on the date of grant and 1,000 shares on each of the
first and second anniversaries of the date of grant. The subsequent options will
be exercisable on the second anniversary of the date of grant. The initial
options will be exercisable at $8.95 per share. The subsequent options will be
exercisable at the fair market value of a share on the last business day
preceding the annual meeting of stockholders. As of December 31, 2004 and 2003,
we have issued 3,500 and 3,000 options, respectively, to acquire shares to each
of our independent directors, for a total of 17,500 and 15,000 options,
respectively, of which none have been exercised or expired.
The per share weighted average fair value of options granted was $0.60 on the
date of the grant using the Black Scholes option-pricing model with the
following assumptions: expected dividend yield of 8%, risk free interest rate of
2.0%, expected life of five years and expected volatility rate of 18.0%. The
Company had recorded $3,000 as expense for the 5,000 options (1,000 options per
director) vesting upon the date of grant as of December 31, 2003 and is
recording the remaining $6,000 in expense related to 2003 grants ratably over
the remaining two-year vesting period. During the year ended December 31, 2004,
the Company issued an additional 2,500 options with a weighted average fair
value at the date of grant of $1,500 and recorded $3,375 of expense related to
stock options.
(5) Leases
Master Lease Agreements
In conjunction with certain acquisitions, the Company received payments under
master lease agreements pertaining to certain non-revenue producing spaces at
the time of purchase, for periods ranging from three months to three years after
the date of purchase or until the spaces are leased. As these payments are
received, they are recorded as a reduction in the purchase price of the
respective property rather than as rental income. The cumulative amount of such
payments was $3,024,547 as of December 31, 2004. No such payments were received
in 2003.
Operating Leases
Minimum lease payments to be received under operating leases, excluding rental
income under master lease agreements and assuming no expiring leases are
renewed, are as follows:
Minimum Lease
Payments
--------------------
2005 $ 227,000,049
2006 221,072,711
2007 212,006,042
2008 201,306,939
2009 184,145,285
Thereafter 1,106,350,470
--------------------
Total $ 2,151,881,496
====================
The remaining lease terms range from one year to 55 years. Pursuant to the lease
agreements, tenants of the property are required to reimburse the Company for
some or their entire pro rata share of the real estate taxes, operating expenses
and management fees of the properties. Such amounts are included in tenant
recovery income.
F-18
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
Ground Leases
The Company leases land under noncancelable operating leases at certain of the
properties expiring in various years from 2028 to 2096. For the year ended
December 31, 2004, ground lease rent was $2,187,286. No ground lease payments
were made in 2003. Minimum future rental payments to be paid under the ground
leases are as follows:
Minimum Lease
Payments
--------------------
2005 $ 3,186,464
2006 3,187,605
2007 3,238,811
2008 3,240,086
209 3,402,159
Thereafter 342,280,751
--------------------
Total $ 358,535,876
====================
(6) Notes Receivable
The notes receivable balance of $31,771,731 as of December 31, 2004 consisted of
two installment notes, one from Newman Development Group of Gilroy, LLC (Gilroy)
and one from Newman Development Group of Richland, LLC (Richland) that mature on
July 15, 2005 and August 15, 2005, respectively. These notes are secured by
first mortgages on Pacheco Pass Shopping Center and Quakertown Shopping Center,
respectively and are guaranteed personally by the owners of Gilroy and Richland.
Interest only is due in advance on the first of each month at a rate of 6.993%
per annum for Gilroy and 7.5572% per annum for Richland. Upon closing, an
interest reserve escrow totaling three months of interest payments was
established for both notes.
The notes receivable balance of $7,552,155 as of December 31 2003 consisted of
an installment note from Fourth Quarter Properties XIV, LLC (Fourth) that
matured on January 15, 2004. This installment note was secured by a 49% interest
in Fourth, which owned the remaining portion of the Newnan Crossing shopping
center and was also guaranteed personally by the owner of Fourth. Interest only
at a rate of 7.6192% per annum was due on the note. The installment note was
advanced to Fourth in contemplation of the Company purchasing the remaining
portions of Newnan Crossing. The Company did not call the note on January 15,
2004 and subsequently purchased the property on February 13, 2004 at which time
the note was paid in full by Fourth as a credit to the purchase price of the
property.
(7) Mortgages and Note Payable
Mortgage loans outstanding as of December 31, 2004 were $1,782,538,627 and had a
weighted average interest rate of 4.58%. Of this amount, $1,635,745,627 had
fixed rates ranging from 3.96% to 8.02% and a weighted average fixed rate of
4.67% at December 31, 2004. The rate of 8.02% represented the interest rate on
the mortgage for Cardiff Hall East (Cardiff), a joint venture entity which the
Company consolidates. Excluding the Cardiff mortgage, the highest fixed rate on
our mortgage debt was 6.34%. The remaining $146,793,000 represented variable
rate loans with a weighted average interest rate of 3.55% at December 31, 2004.
Properties with a net carrying value of $2,906,338,366 at December 31, 2004 and
related tenant leases are pledged as collateral. As of December 31, 2004,
scheduled maturities for the Company's outstanding mortgage indebtedness had
various due dates through August 2023.
F-19
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
The following table shows the mortgage debt maturing during the next five years:
2005 2006 2007 2008 2009 Thereafter
-------- -------- -------- -------- -------- ------------
Maturing debt
Fixed rate debt 920,574 981,221 57,906,321 47,322,706 960,152,489 568,462,316
Variable rate debt 15,672,533 637,533 637,533 637,533 111,635,533 17,572,335
The debt is cross-collateralized among the properties in connection with the
financing of Heritage Towne Crossing and Eckerd Drug Stores in Norman and
Edmond, OK.
As part of the Plaza Santa Fe II loan assumption, a promissory note
approximating $414,000 was executed between the Company and the seller for the
total amount that the seller had paid into escrows under the loan agreement as
of the acquisition date. The note bears interest at the rate of prime less
3.00%, payable to the seller upon maturity of the note in 2006. The seller also
agreed to fund the Company's monthly required payments into this escrow for a
period of two years. Each monthly payment funded by the seller increases the
principal balance of the note payable. The outstanding note payable balance at
December 31, 2004 is approximately $575,000.
(8) Line of Credit
On December 24, 2003, the Company entered into a $150,000,000 unsecured line of
credit arrangement with a bank for a period of one year. The funds from this
line of credit were used to provide liquidity from the time a property was
purchased until permanent debt was placed on the property. The Company was
required to pay interest only on the outstanding balance from time to time under
the line at the rate equal to LIBOR plus 175 basis points. The Company was also
required to pay, on a quarterly basis, an amount ranging from .15% to .30%, per
annum, on the average daily undrawn funds remaining under this line. The line of
credit required compliance with certain covenants, such as debt service ratios,
minimum net worth requirements, distribution limitations and investment
restrictions. As of December 31, 2003, the Company was in compliance with such
covenants. In connection with obtaining this line of credit, the Company paid
fees in an amount totaling approximately $1,044,000 (which included a .65%
commitment fee). The outstanding balance on the line of credit was $5,000,000 as
of December 31, 2003 with an effective interest rate of 2.9375% per annum.
On December 16, 2004, the Company terminated the existing line of credit
agreement and executed a new unsecured line of credit facility with a bank for
up to $100,000,000 with an optional unsecured borrowing capacity of $150,000,000
for a total unsecured borrowing capacity of $250,000,000. The facility has an
initial term of one year with two one-year extension options, with an annual
variable interest rate. The funds from this line of credit may be used to
provide liquidity from the time a property is purchased until permanent debt is
placed on that property. The line of credit requires interest only payments
monthly at the rate equal to the London InterBank Offered Rate or LIBOR plus 175
basis points which ranged from 2.34% to 2.42% during the quarter ended December
31, 2004. The Company is also required to pay, on a quarterly basis, an amount
ranging from .15% to .25%, per annum, on the average daily undrawn funds under
this line. The line of credit requires compliance with certain covenants, such
as debt service ratios, minimum net worth requirements, distribution limitations
and investment restrictions. As of December 31, 2004, the Company was in
compliance with such covenants. There was no outstanding balance on the line as
of December 31, 2004.
(9) Investments in Unconsolidated Joint Ventures
On August 11, 2004, CR Investors, LLC, an entity wholly owned by Reisterstown
Plaza Holdings, LLC (a joint venture entity consolidated by the Company),
invested $5,781,600 to purchase a 36.5% tenancy in common interest in an
apartment complex known as Courthouse Square located in Towson, MD.
F-20
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
On November 5, 2004, CRP Power Plant Investors, LLC, an entity wholly owned by
Reisterstown Plaza Holdings, LLC (a joint venture entity consolidated by the
Company), invested $15,000,000 to purchase a 37.5% interest in a retail/office
complex known as The Power Plant located in Baltimore, MD. On the same day, CGW
Power Plant Investors, LLC, an entity wholly owned by Gateway Village Holding,
LLC (a joint venture entity consolidated by the Company), invested $5,000,000 to
purchase a 12.5% interest in The Power Plant.
On November 5, 2004, CTC Pier IV Investors, LLC, an entity wholly owned by
Towson Circle Holding, LLC (a joint venture entity consolidated by the Company),
invested $5,000,000 to purchase a 16.67% interest in a retail/office complex
known as Pier IV located in Baltimore, MD. On the same day, CTOLL Pier IV
Investors, LLC, an entity wholly owned by Tollgate Marketplace Holding Company,
LLC (a joint venture entity consolidated by the Company), invested $15,000,000
to purchase a 50.0% interest in Pier IV.
On December 23, 2004, NP Acquisitions, LLC, an entity wholly owned by CR
Investors, LLC an entity wholly owned by Reisterstown Plaza Holdings, LLC (a
joint venture entity consolidated by the Company), invested $2,250,000 to
purchase a 25% tenancy in common interest in a retail complex known as North
Plaza Shopping Center located in Parkville, MD.
On December 29, 2004, CGW Louisville Investors, LLC, an entity wholly owned by
Gateway Village Holding, LLC (a joint venture entity consolidated by the
Company), invested $1,900,000 to purchase a 3.3% interest in a retail/office
complex known as Louisville Galleria located in Louisville, KY. On the same day,
CTOLL Louisville Investors, LLC, an entity wholly owned by Tollgate Marketplace
Holding Company, LLC (a joint venture entity consolidated by the Company),
invested $7,200,000 to purchase a 12.0% interest in Louisville Galleria. Also,
on the same day, CCC Louisville Investors, LLC an entity wholly owned by Capital
Centre Holdings, LLC (a joint venture entity consolidated by the Company),
invested $19,100,000 to purchase a 31.8% member interest in Louisville Galleria.
These investments are accounted for utilizing the equity method of accounting.
Under the equity method of accounting, the net equity investment of the Company
is reflected on the Consolidated Balance Sheets and the Consolidated Statements
of Operations includes the Company's share of net income or loss from the
unconsolidated entity. For the year ended December 31, 2004, all equity in
earnings of unconsolidated entities was allocated to the Company's joint venture
partners in accordance with the entities' operating agreements.
(10) Segment Reporting
The Company owns and seeks to acquire single-user net lease properties and
multi-tenant shopping centers principally in the western United States. The
Company's shopping centers are typically anchored by discount retailers, home
improvement retailers, grocery and drugstores 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.
F-21
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
Net property operations are summarized in the following table for the year ended
December 31, 2004 and for the period from March 5, 2003 through December 31,
2003, along with a reconciliation to net income.
2004 2003
---- ----
Property rental income and additional property income $ 130,404,581 $ 744,633
Total property operating expenses (32,521,195) (143,244)
Interest expense (33,174,623) (135,735)
-------------------- --------------------
Net property operations 64,708,763 465,654
-------------------- --------------------
Other income 3,681,067 37,648
Less non-property expenses:
General and administrative expenses (4,857,101) (459,476)
Depreciation and amortization (47,973,208) (217,105)
Realized loss on sale of treasury contracts (3,666,894) -
Minority interests 397,357 -
Equity in earnings (losses) of unconsolidated entities (589,251) -
-------------------- --------------------
Net income (loss) $ 11,700,733 $ (173,279)
==================== ====================
The following table summarizes property asset information as of December 31,
2004 and December 31, 2003.
December 31, 2004 December 31, 2003
----------------- -----------------
Total assets:
Rental real estate $ 3,601,512,810 $ 142,804,128
Non-segment assets 354,302,750 69,298,035
----------------- -----------------
$ 3,955,815,560 $ 212,102,163
================= =================
The Company does not derive any of its consolidated revenue from foreign
countries and does not have any major customers that individually account for
10% or more of the Company's consolidated revenues.
(11) Earnings (loss) per Share
Basic earnings (loss) per share ("EPS") are computed by dividing income by the
weighted average number of common shares outstanding for the period (the "common
shares"). Diluted EPS is computed by dividing net income (loss) by the common
shares plus shares issuable upon exercising options or other contracts. As a
result of the net loss incurred in 2003, diluted weighted average shares
outstanding do not give effect to common stock equivalents as to do so would be
anti-dilutive. As of December 31, 2004, options to purchase 17,500 shares of
common stock at an exercise price of $8.95 per share were outstanding. These
options were not included in the computation of basic or diluted EPS as the
effect would be immaterial.
The basic and diluted weighted average number of common shares outstanding was
98,562,885 and 2,520,986 for the year ended December 31, 2004 and the period
from March 5, 2003 (inception) to December 31, 2003, respectively.
F-22
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
(12) Commitments and Contingencies
The Company has closed on several properties which have earnout components,
meaning the Company did not pay for portions of these properties that were not
rent producing. The Company is obligated, under certain agreements, to pay for
those portions when the tenant moves into its space and begins to pay rent. The
earnout payments are based on a predetermined formula. Each earnout agreement
has a time limit regarding the obligation to pay any additional monies. If at
the end of the time period allowed certain space has not been leased and
occupied, the Company will own that space without any further obligation. Based
on pro forma leasing rates, the Company may pay as much as $189,042,868 in the
future, as retail space covered by earnout agreements is occupied and becomes
rent producing.
During 2004, the Company entered into two installment note agreements in which
the Company is obligated to fund up to a total of $33,398,314. The notes
maintain stated interest rates of 6.993% and 7.5572% per annum and mature in
July 2005 and August 2005. Each note requires monthly interest payments with the
entire principal balance due at maturity. The combined receivable balance at
December 31, 2004 was $31,771,731. Therefore, the Company may be required to
fund up to an additional $1,626,583 on these notes.
The Company has obtained three irrevocable letters of credit related to loan
fundings against earnout spaces at certain properties. Once the Company
purchases the remaining portion of these properties and meet certain occupancy
requirements, the letters of credit will be released. The balance of outstanding
letters of credit at December 31, 2004 is $11,573,100.
In connection with the purchase of one of our properties, the Company received a
price adjustment in the amount of $763,072 related to spaces that were vacant at
the time of closing. If at any time during the next two years the seller is able
to lease that space under conditions satisfactory to the Company, the Company is
obligated to pay the seller a pro-rata share of the purchase price reduction.
The Company has entered into interest rate lock agreements with various lenders
to secure interest rates on mortgage debt on properties the Company currently
owns or will purchase in the future. The Company has outstanding rate lock
deposits in the amount of $2,826,055 as of December 31, 2004 which are applied
as credits to the mortgage fundings as they occur. These agreements lock
interest rates from 4.45% to 5.12% for periods from 60 days to 90 days on
approximately $240 million in principal.
The Company is currently considering acquiring nine properties for an estimated
purchase price of $226 million. The Company's decision to acquire each property
will generally depend upon no material adverse change occurring relating to the
property, the tenants or in the local economic conditions and the Company's
receipt of satisfactory due diligence information including appraisals,
environmental reports and lease information prior to purchasing the property.
(13) Subsequent Events
The Company issued 42,629,352 shares of common stock and repurchased 28,459
shares of common stock from January 1, 2005 through February 28, 2005 in
connection with the initial public offering and second offering, resulting in
gross proceeds of approximately $425 million.
The Company paid distributions of $11,377,712 and $12,232,404 to its
stockholders in January and February 2005, respectively.
F-23
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
The Company has acquired the following properties or joint venture interests in
properties during the period January 1 to February 28, 2005. The respective
acquisitions are detailed in the table below.
APPROXIMATE GROSS LEASABLE
DATE YEAR PURCHASE PRICE AREA
ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS
-------- -------- ----- --- --------- -------------
01/05/05 Fairgrounds Plaza 2002-2004 21,994,125 59,970 Super Stop N' Shop
Middletown, NY
01/06/05 Maytag Distribution Center 2004 23,159,499 750,000 Maytag
Iowa City, IA
01/10/05 Midtown Center 1986-1987 53,000,000 319,108 Wal-Mart
Milwaukee, WI Pick 'N Save
01/10/05 Hobby Lobby 2004 5,500,000 60,000 Hobby Lobby
Concord, NC
01/19/05 Stanley Works/Mac Tools 2004 10,000,000 72,500 Mac Tools
Westerville, OH
01/25/05 American Express 1983 & 1987 42,000,000 306,710 American Express
Markham, Ontario, Canada
01/28/05 Academy Sports 2004 7,150,000 70,910 Academy Sports
San Antonio, TX
02/01/05 Magnolia Square 2004 19,113,739 116,079 Ross Dress for Less
Houma, LA PETsMART
Circuit City
02/02/05 Cottage Plaza 2004-2005 23,439,950 75,543 Stop 'N Shop
Pawtucket, RI
02/09/05 The Village at Quail Springs 2003-2004 10,428,978 101,128 Gordmans
Oklahoma City, OK Best Buy
02/11/05 Holliday Towne Center 2003 14,827,645 83,122 Martin's
Duncansville, PA
02/18/05 Trenton Crossing 2003 29,212,209 221,019 Hobby Lobby
McAllen, TX Ross Dress for Less
Marshalls
Bealls
F-24
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
The mortgage debt and financings obtained during the period January 1 to
February 28, 2005, are detailed in the table below.
DATE MATURITY PRINCIPAL BORROWED
FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($)
-----------------------------------------------------------------------------------------------------------------
01/05/05 Fairgrounds Plaza 5.690% 02/01/33 15,982,376
Middletown, NY
01/24/05 Hobby Lobby 5.115% 02/01/10 3,025,000
Concord, NC
01/25/05 American Express 4.2975% 02/01/15 25,380,000
Markham, Ontario, Canada
01/28/05 Coram Plaza 4.550% 02/01/10 20,755,300
Coram, NY
01/31/05 Low Country Village II 5.130% 05/01/09 5,440,000
Bluffton, SC
01/31/05 Irmo Station 5.1236% 02/01/10 7,085,000
Irmo, SC
02/01/05 Evans Towne Centre 4.670% 02/01/10 5,005,000
Evans, GA
02/03/05 Magnolia Square 5.115% 03/01/10 10,265,000
Houma, LA
02/04/05 Green's Corner 4.500% 02/11/10 7,022,366
Cumming, GA
02/04/05 Newton Crossroads 4.500% 02/11/10 5,547,622
Covington, GA
02/04/05 Stilesboro Oaks 4.500% 02/11/10 6,951,971
Acworth, GA
02/09/05 Five Forks 4.815% 02/11/10 4,482,500
Simpsonville, NC
F-25
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
DATE MATURITY PRINCIPAL BORROWED
FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($)
-----------------------------------------------------------------------------------------------------------------
02/14/05 University Town Center 4.430% 03/01/10 5,810,000
Tuscaloosa, AL
02/14/05 Edgemont Town Center 4.430% 03/01/10 8,600,000
Homewood, AL
02/16/05 Southlake Town Square 4.550% 03/11/10 70,570,880
Southlake, TX
02/16/05 Midtown Center 4.460% 03/11/10 28,227,617
Milwaukee, WI
02/17/05 McAllen Shopping Center 5.060% 03/01/10 2,455,000
McAllen, TX
02/18/05 Southlake Town Square II 4.550% 03/11/10 10,429,120
Southlake, TX
02/18/05 Mesa Fiesta 5.300% 02/01/10 23,500,000
Mesa, AZ
02/24/05 Academy Sports 5.060% 03/01/10 3,933,000
San Antonio, TX
02/25/05 The Village at Quail Springs 5.060% 03/01/10 5,740,000
Oklahoma City, OK
The Company is obligated under earnout agreements to pay for certain tenant
space in our existing properties after the tenant moves into its space and
begins paying rent. During the period from January 1 to February 28, 2005, the
Company funded earnouts totaling $20,552,372 at 7 of its existing properties.
During the period from January 1, 2005 to February 28, 2005, the Company entered
into rate lock agreements which lock interest rates from 4.47% to 4.69% for
periods from 30 days to 90 days on approximately $300 million in principal.
F-26
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
(continued)
(14) Supplemental Financial Information (unaudited)
The following represents the results of operations, for the each quarterly
period, during 2004 and 2003.
2004
Dec. 31 Sept. 30 June 30 March 31
--------------------------------------------------------------------
Total income $ 62,433,343 42,199,376 19,935,978 9,516,950
Net income (loss) 7,286,936 2,266,656 2,111,373 35,768
Net income (loss), per common share, basic and diluted: .04 .02 .04 -
Weighted average number of common shares outstanding,
basic and diluted 182,739,194 112,887,491 59,688,094 32,314,792
2003
Dec. 31 Sept. 30 June 30 March 31
--------------------------------------------------------------------
Total income $ 782,281 - - -
Net income (loss) (132,535) (32,794) (450) (7,500)
Net income (loss), per common share, basic and diluted: (.02) (1.64) (.02) (.38)
Weighted average number of common shares outstanding,
basic and diluted 8,319,975 20,000 20,000 20,000
F-27
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A MARYLAND CORPORATION)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
Initial Cost (A)
------------------------
Buildings and Adjustments
MULTI-TENANT Encumbrances Land Improvements to Basis ( C )
------------ ------------ ---- ------------- --------------
23rd Street Plaza - 1,300,000 5,318,806
Panama City, FL
Alison's Corner 3,850,000 1,045,000 5,700,345
San Antonio, TX.
Arvada Connection and Arvada
Marketplace 28,510,000 8,125,000 39,383,116 17,682
Arvada, CO
Azalea Square 16,535,000 6,375,000 21,303,772 (14,793)
Summerville, SC
Bed, Bath & Beyond Plaza 11,192,500 - 18,367,361
Miami, FL
Best on the Boulevard 19,525,000 7,460,000 25,583,195 (84,486)
Las Vegas, NV
Bluebonnet Parc 12,100,000 4,450,000 16,407,032 (101,955)
Baton Rouge, LA
Boulevard at the Capital Centre 71,500,000 - 114,702,961 (418,558)
Largo, MD
The Columns 14,865,400 5,830,000 19,438,839 (22,200)
Jackson, TN
Coram Plaza 20,760,000 10,200,000 26,177,515
Coram, NY
CorWest Plaza 18,150,000 6,900,000 23,850,938 (13,950)
New Britain, CT
Cranberry Square 10,900,000 3,000,000 18,736,381
Cranberry Township, PA
Darien Towne Center 16,500,000 7,000,000 22,468,408 213,305
Darien, IL
Davis Towne Crossing 5,365,200 1,850,000 5,681,061
North Richland Hills, TX.
Denton Crossing 35,200,000 6,000,000 43,433,763
Denton, TX
Dorman Center - Phase 1 & II 27,610,000 17,025,000 29,478,484 (103,087)
Spartanburg, SC
Eastwood Towne Center 46,750,000 12,000,000 65,066,567
Lansing, MI
Edgemont Town Center - 3,500,000 10,956,495
Homewood, AL
Evans Towne Centre - 1,700,000 6,424,805
Evans, GA
Gross amount carried at end of period
-------------------------------------
Buildings and Accumulated Date Date
MULTI-TENANT Land Improvements Total (B) (D) Depreciation (E) Constructed Acquired
------------ ---- ------------ ------------- ---------------- ----------- --------
23rd Street Plaza 1,300,000 5,318,806 6,618,806 - 2003 12/04
Panama City, FL
Alison's Corner 1,045,000 5,700,345 6,745,345 139,668 2003 04/04
San Antonio, TX.
Arvada Connection and Arvada
Marketplace 8,125,000 39,400,798 47,525,798 974,072 1987-1990 04/04
Arvada, CO
Azalea Square 6,375,000 21,288,979 27,663,979 130,069 2004 10/04
Summerville, SC
Bed, Bath & Beyond Plaza - 18,367,361 18,367,361 168,316 2004 10/04
Miami, FL
Best on the Boulevard 7,460,000 25,498,709 32,958,709 702,197 1996-1999 04/04
Las Vegas, NV
Bluebonnet Parc 4,450,000 16,305,078 20,755,078 419,934 2002 04/04
Baton Rouge, LA
Boulevard at the Capital Centre - 114,284,403 114,284,403 1,383,741 2004 09/04
Largo, MD
The Columns 5,830,000 19,416,639 25,246,639 224,291 2004 8/04 &
Jackson, TN 10/04
Coram Plaza 10,200,000 26,177,515 36,377,515 - 2004 12/04
Coram, NY
CorWest Plaza 6,900,000 23,836,988 30,736,988 875,539 1999 - 2003 01/04
New Britain, CT
Cranberry Square 3,000,000 18,736,381 21,736,381 343,369 1996-1997 07/04
Cranberry Township, PA
Darien Towne Center 7,000,000 22,681,714 29,681,714 847,581 1994 12/03
Darien, IL
Davis Towne Crossing 1,850,000 5,681,061 7,531,061 103,773 2003-2004 06/04
North Richland Hills, TX.
Denton Crossing 6,000,000 43,433,763 49,433,763 258,849 2003-2004 10/04
Denton, TX
Dorman Center - Phase 1 & II 17,025,000 29,375,397 46,400,397 909,740 2003-2004 3/04 & 7/04
Spartanburg, SC
Eastwood Towne Center 12,000,000 65,066,567 77,066,567 1,590,128 2002 05/04
Lansing, MI
Edgemont Town Center 3,500,000 10,956,495 14,456,495 33,474 2003 11/04
Homewood, AL
Evans Towne Centre 1,700,000 6,424,805 8,124,805 - 1995 12/04
Evans, GA
F-28
Initial Cost (A)
------------------------
Buildings and Adjustments
MULTI-TENANT Encumbrances Land Improvements to Basis ( C )
------------ ------------ ---- ------------- --------------
Five Forks - 2,100,000 5,374,421
Simpsonville, SC
Forks Town Center 10,395,000 2,430,000 14,835,863
Easton, PA
Fox Creek Village 11,485,000 3,755,000 15,563,434 (33,181)
Longmont, CO
Fullerton Metrocenter 28,050,000 - 47,403,451 (199,396)
Fullerton, CA
Gateway Pavilions 35,842,000 9,880,000 55,194,702
Avondale, AZ
Gateway Plaza 18,163,000 - 26,370,511
Southlake, TX
Gateway Station - 1,050,000 3,910,500
College Station, TX
Gateway Village 31,458,000 8,550,000 39,298,239
Annapolis, MD
Governor's Marketplace 20,625,000 - 30,377,452 (56,281)
Tallahassee, FL
Green's Corner - 3,200,000 8,663,397
Cumming, GA
Gurnee Town Center 24,360,000 7,000,000 35,146,950 (22,965)
Gurnee, IL
Harvest Towne Center 5,005,000 3,155,000 5,085,037
Knoxville, TN
Henry Town Center 35,814,616 10,650,000 46,813,649
McDonough, GA
Heritage Towne Crossing 8,950,000 3,065,000 10,729,077
Euless, TX
Hickory Ridge 23,650,000 6,860,000 30,517,166
Hickory, NC
Huebner Oaks Center 48,000,000 14,080,000 59,825,626 88,560
San Antonio, TX
Irmo Station - 2,600,000 9,247,308
Irmo, SC
John's Creek Village 23,300,000 5,750,000 21,269,874
Duluth, GA
La Plaza Del Norte 32,528,000 16,005,000 37,744,002 (288,670)
San Antonio, TX
Lake Mary Pointe 3,657,500 2,075,000 4,009,147
Orlando, FL
Lakewood Towne Center 51,260,000 11,200,000 70,796,423 (360,223)
Lakewood, WA
Larkspur Landing 33,630,000 20,800,000 32,820,864 480,656
Larkspur, CA
Lincoln Park 26,153,000 9,360,000 34,717,980
Dallas, TX
Low Country Village 5,370,000 1,550,000 8,778,906 (4,871)
Bluffton, SC
Gross amount carried at end of period
-------------------------------------
Buildings and Accumulated Date Date
MULTI-TENANT Land Improvements Total (B) (D) Depreciation (E) Constructed Acquired
------------ ---- ------------ ------------- ---------------- ----------- --------
Five Forks 2,100,000 5,374,421 7,474,421 16,400 1999 12/04
Simpsonville, SC
Forks Town Center 2,430,000 14,835,863 17,265,863 226,641 2002 07/04
Easton, PA
Fox Creek Village 3,755,000 15,530,253 19,285,253 47,426 2003-2004 11/04
Longmont, CO
Fullerton Metrocenter - 47,204,055 47,204,055 864,861 1998 06/04
Fullerton, CA
Gateway Pavilions 9,880,000 55,194,702 65,074,702 168,492 2003-2004 12/04
Avondale, AZ
Gateway Plaza - 26,370,511 26,370,511 403,357 2000 07/04
Southlake, TX
Gateway Station 1,050,000 3,910,500 4,960,500 11,932 2003-2004 12/04
College Station, TX
Gateway Village 8,550,000 39,298,239 47,848,239 597,527 1996 07/04
Annapolis, MD
Governor's Marketplace - 30,321,171 30,321,171 370,888 2001 08/04
Tallahassee, FL
Green's Corner 3,200,000 8,663,397 11,863,397 - 1997 12/04
Cumming, GA
Gurnee Town Center 7,000,000 35,123,985 42,123,985 214,573 2000 10/04
Gurnee, IL
Harvest Towne Center 3,155,000 5,085,037 8,240,037 62,188 1996-1999 09/04
Knoxville, TN
Henry Town Center 10,650,000 46,813,649 57,463,649 - 2002 12/04
McDonough, GA
Heritage Towne Crossing 3,065,000 10,729,077 13,794,077 327,196 2002 03/04
Euless, TX
Hickory Ridge 6,860,000 30,517,166 37,377,166 1,088,098 1999 01/04
Hickory, NC
Huebner Oaks Center 14,080,000 59,914,186 73,994,186 1,283,898 1997-1998 06/04
San Antonio, TX
Irmo Station 2,600,000 9,247,308 11,847,308 - 1980 & 1985 12/04
Irmo, SC
John's Creek Village 5,750,000 21,269,874 27,019,874 392,876 2003-2004 06/04
Duluth, GA
La Plaza Del Norte 16,005,000 37,455,332 53,460,332 1,276,221 1996/1999 01/04
San Antonio, TX
Lake Mary Pointe 2,075,000 4,009,147 6,084,147 24,484 1999 10/04
Orlando, FL
Lakewood Towne Center 11,200,000 70,436,200 81,636,200 1,294,701 1988/2002-2003 06/04
Lakewood, WA
Larkspur Landing 20,800,000 33,301,520 54,101,520 1,211,593 1978/2001 01/04
Larkspur, CA
Lincoln Park 9,360,000 34,717,980 44,077,980 424,282 1998 09/04
Dallas, TX
Low Country Village 1,550,000 8,774,035 10,324,035 160,970 2004 06/04
Bluffton, SC
F-29
Initial Cost (A)
------------------------
Buildings and Adjustments
MULTI-TENANT Encumbrances Land Improvements to Basis ( C )
------------ ------------ ---- ------------- --------------
MacArthur Crossing 12,700,000 4,710,000 16,264,562
Los Colinas, TX
Manchester Meadows 31,064,550 14,700,000 39,737,846 (84,875)
Town and Country, MO
Mansfield Towne Crossing 10,982,300 3,300,000 12,194,571
Mansfield, TX
McAllen Shopping Center - 850,000 2,958,498
McAllen, TX
Mesa Fiesta - 7,372,000 26,730,387
Mesa, AZ
Mitchell Ranch Plaza 18,700,000 5,550,000 26,212,826 (65,767)
New Port Richey, FL
Newnan Crossing I 21,543,091 4,542,244 12,188,579 (832,534)
Newnan, GA
Newnan Crossing II 2,223,100 10,557,591 21,798,114
Newnan, GA
Newton Crossroads - 3,350,000 6,926,760
Covington, GA
North Ranch Pavilions 10,157,400 9,705,000 8,295,988 43,735
Thousand Oaks, CA
North Rivers Town Center 11,050,000 3,350,000 15,720,415
Charleston, SC
Northgate North 26,650,000 7,540,000 49,077,929
Seattle, WA
Northpointe Plaza 30,850,000 13,800,000 37,706,966 (48,029)
Spokane, WA
Northwoods Center 11,192,500 3,415,000 9,474,629
Wesley Chapel, FL
Oswego Commons 19,262,100 6,250,000 26,629,204
Oswego, IL
Paradise Valley Marketplace 15,680,500 6,590,000 20,425,319 (147,469)
Phoenix, AZ
Pavilion at King's Grant 5,342,000 4,300,000 2,741,212 15,748
Concord, NC
Peoria Crossings 20,497,400 6,240,000 29,190,441 (68,395)
Peoria, AZ
Phenix Crossing - 2,600,000 6,776,273
Phenix City, AL
Pine Ridge Plaza 14,700,000 5,000,000 19,802,170
Lawrence, KS
Placentia Town Center 13,695,000 11,200,000 11,750,963
Placentia, CA
Plaza at Marysville 11,800,000 6,600,000 13,727,658
Marysville, WA
Plaza at Riverlakes - 5,100,000 10,824,341
Bakersfield, CA
Gross amount carried at end of period
-------------------------------------
Buildings and Accumulated Date Date
MULTI-TENANT Land Improvements Total (B) (D) Depreciation (E) Constructed Acquired
------------ ---- ------------ ------------- ---------------- ----------- --------
MacArthur Crossing 4,710,000 16,264,562 20,974,562 546,335 1995-1996 02/04
Los Colinas, TX
Manchester Meadows 14,700,000 39,652,971 54,352,971 608,067 1994-1995 08/04
Town and Country, MO
Mansfield Towne Crossing 3,300,000 12,194,571 15,494,571 74,502 2003-2004 11/04
Mansfield, TX
McAllen Shopping Center 850,000 2,958,498 3,808,498 - 2004 12/04
McAllen, TX
Mesa Fiesta 7,372,000 26,730,387 34,102,387 - 2004 12/04
Mesa, AZ
Mitchell Ranch Plaza 5,550,000 26,147,060 31,697,060 319,699 2003 08/04
New Port Richey, FL
Newnan Crossing I 4,542,244 11,356,045 15,898,289 414,663 1999 12/03
Newnan, GA
Newnan Crossing II 10,557,591 21,798,114 32,355,705 449,285 2004 02/04
Newnan, GA
Newton Crossroads 3,350,000 6,926,760 10,276,760 - 1997 12/04
Covington, GA
North Ranch Pavilions 9,705,000 8,339,723 18,044,723 306,554 1992 01/04
Thousand Oaks, CA
North Rivers Town Center 3,350,000 15,720,415 19,070,415 384,070 2003-2004 04/04
Charleston, SC
Northgate North 7,540,000 49,077,929 56,617,929 899,882 1999-2003 06/04
Seattle, WA
Northpointe Plaza 13,800,000 37,658,937 51,458,937 807,530 1991-1993 05/04
Spokane, WA
Northwoods Center 3,415,000 9,474,629 12,889,629 28,945 2002-2004 12/04
Wesley Chapel, FL
Oswego Commons 6,250,000 26,629,204 32,879,204 81,370 2002-2004 11/04
Oswego, IL
Paradise Valley Marketplace 6,590,000 20,277,850 26,867,850 521,508 2002 04/04
Phoenix, AZ
Pavilion at King's Grant 4,300,000 2,756,960 7,056,960 107,010 2002-2003 12/03
Concord, NC
Peoria Crossings 6,240,000 29,122,046 35,362,046 964,437 2002-2003 03/04
Peoria, AZ
Phenix Crossing 2,600,000 6,776,273 9,376,273 - 2004 12/04
Phenix City, AL
Pine Ridge Plaza 5,000,000 19,802,170 24,802,170 421,316 1998-2004 06/04
Lawrence, KS
Placentia Town Center 11,200,000 11,750,963 22,950,963 35,898 1973/2000 12/04
Placentia, CA
Plaza at Marysville 6,600,000 13,727,658 20,327,658 207,702 1995 07/04
Marysville, WA
Plaza at Riverlakes 5,100,000 10,824,341 15,924,341 66,115 2001 10/04
Bakersfield, CA
F-30
Initial Cost (A)
------------------------
Buildings and Adjustments
MULTI-TENANT Encumbrances Land Improvements to Basis ( C )
------------ ------------ ---- ------------- --------------
Plaza Santa Fe II 17,393,732 - 28,587,813 (59,393)
Santa Fe, NM
Pleasant Run Towne Center 22,800,000 4,200,000 29,084,836
Cedar Hill, TX
Promenade at Red Cliff 10,590,000 5,340,000 12,664,907
St. George, UT
Reisterstown Road Plaza 49,650,000 15,800,000 70,371,762 (260,184)
Baltimore, MD
Saucon Valley Square 8,850,900 3,200,000 12,641,881
Bethlehem, PA
Shoppes at Lake Andrew 15,656,511 4,000,000 22,996,002
Viera, FL
The Shoppes at Park West
(Publix Center) 6,655,000 2,240,000 9,356,781 210
Mt. Pleasant, SC
Shoppes at Quarterfield
(Metro Square Center) 6,067,183 2,190,000 8,839,520
Severn, MD
Shoppes of Dallas 7,178,700 1,350,000 11,045,345 84,202
Dallas, GA
Shoppes of Prominence Point 9,954,300 2,850,000 11,148,965 (7,331)
Canton, GA
The Shops at Boardwalk 20,150,000 5,000,000 30,540,431 (203,838)
Kansas City, MO
Shops at Forest Commons 5,229,789 1,050,000 6,132,547
Round Rock, TX
Shops at Park Place 13,127,000 9,096,000 13,174,867 256,937
Plano, TX
Southlake Town Square - 16,350,000 110,778,125
Southlake, TX
Stilesboro Oaks - 2,200,000 9,426,287
Acworth, GA
Stony Creek Marketplace 14,162,000 6,735,000 17,564,434 20,945
Noblesville, IN
Tollgate Marketplace 39,765,000 8,700,000 61,247,363
Bel Air, MD
Towson Circle 19,197,500 9,050,000 17,840,034 (36,654)
Towson, MD
University Town Center - - 9,556,971
Tuscaloosa, AL
Village Shoppes at Simonton 7,561,700 2,200,000 10,873,898 (86,687)
Lawrenceville, GA
Watauga Pavilion 17,100,000 5,185,000 27,503,862
Watauga, TX
Winchester Commons 7,235,000 4,400,000 7,471,467 (2,918)
Memphis, TN --------------------------------------------------------------
SUBTOTAL MULTI-TENANT 1,423,423,471 506,632,835 2,138,977,574 (2,406,708)
Gross amount carried at end of period
-------------------------------------
Buildings and Accumulated Date Date
MULTI-TENANT Land Improvements Total (B) (D) Depreciation (E) Constructed Acquired
------------ ---- ------------ ------------- ---------------- ----------- --------
Plaza Santa Fe II - 28,528,421 28,528,421 610,545 2000-2002 06/04
Santa Fe, NM
Pleasant Run Towne Center 4,200,000 29,084,836 33,284,836 - 2004 12/04
Cedar Hill, TX
Promenade at Red Cliff 5,340,000 12,664,907 18,004,907 425,495 1997 02/04
St. George, UT
Reisterstown Road Plaza 15,800,000 70,111,578 85,911,578 1,034,081 1986/2004 08/04
Baltimore, MD
Saucon Valley Square 3,200,000 12,641,881 15,841,881 154,414 1999 09/04
Bethlehem, PA
Shoppes at Lake Andrew 4,000,000 22,996,002 26,996,002 - 2003 12/04
Viera, FL
The Shoppes at Park West
(Publix Center) 2,240,000 9,356,991 11,596,991 57,018 2004 11/04
Mt. Pleasant, SC
Shoppes at Quarterfield
(Metro Square Center) 2,190,000 8,839,520 11,029,520 296,973 1999 01/04
Severn, MD
Shoppes of Dallas 1,350,000 11,129,547 12,479,547 204,210 2004 07/04
Dallas, GA
Shoppes of Prominence Point 2,850,000 11,141,635 13,991,635 204,307 2004 06/04
Canton, GA
The Shops at Boardwalk 5,000,000 30,336,593 35,336,593 558,200 2003-2004 07/04
Kansas City, MO
Shops at Forest Commons 1,050,000 6,132,547 7,182,547 18,664 2002 12/04
Round Rock, TX
Shops at Park Place 9,096,000 13,431,805 22,527,805 593,842 2001 10/03
Plano, TX
Southlake Town Square 16,350,000 110,778,125 127,128,125 - 1998-2004 12/04
Southlake, TX
Stilesboro Oaks 2,200,000 9,426,287 11,626,287 - 1997 12/04
Acworth, GA
Stony Creek Marketplace 6,735,000 17,585,379 24,320,379 733,916 2003 12/03
Noblesville, IN
Tollgate Marketplace 8,700,000 61,247,363 69,947,363 932,050 1979/1994 07/04
Bel Air, MD
Towson Circle 9,050,000 17,803,379 26,853,379 272,109 1998 07/04
Towson, MD
University Town Center - 9,556,971 9,556,971 29,195 2002 11/04
Tuscaloosa, AL
Village Shoppes at Simonton 2,200,000 10,787,211 12,987,211 165,348 2004 08/04
Lawrenceville, GA
Watauga Pavilion 5,185,000 27,503,862 32,688,862 588,588 2003-2004 05/04
Watauga, TX
Winchester Commons 4,400,000 7,468,549 11,868,549 45,641 1999 11/04
Memphis, TN -------------------------------------------------------------
SUBTOTAL MULTI-TENANT 506,632,835 2,136,570,866 2,643,203,701 33,742,830
F-31
Initial Cost (A)
------------------------
Buildings and Adjustments
SINGLE-USER Encumbrances Land Improvements to Basis ( C )
----------- ------------ ---- ------------- --------------
Academy Sports 2,920,000 1,230,000 3,751,721
Houma, LA
Academy Sports 2,337,500 1,340,000 2,942,634
Midland, TX
Academy Sports 2,775,000 1,050,000 3,954,157
Port Arthur, TX
American Express 11,623,000 1,400,000 15,370,089
De Pere, WI
American Express 37,170,000 2,900,000 55,966,421
Fort Lauderdale, FL
American Express 33,040,000 2,800,000 49,470,089
Greensboro, NC
American Express 56,050,000 14,200,000 74,607,812
Minneapolis, MN
American Express - 19th Ave. 8,260,000 2,900,000 10,170,089
Phoenix, AZ
American Express - 31st Ave. 31,860,000 5,100,000 45,270,089
Phoenix, AZ
CVS Pharmacy (Eckerd Drug Store) 1,850,000 975,000 2,400,249 1,336
Edmund, OK
CVS Pharmacy (Eckerd Drug Store) 2,900,000 932,000 4,369,730
Norman, OK
CVS Pharmacy 1,685,000 600,000 2,469,216
Sylacauga, AL
Eckerd Drug Store 1,750,000 900,000 2,376,504
Columbia, SC
Eckerd Drug Store 1,425,000 600,000 2,033,000
Crossville, TN
Eckerd Drug Store 1,650,000 1,050,000 2,047,200
Greer, SC
Eckerd Drug Store 1,975,000 700,000 2,960,139
Kill Devil Hills, NC
GMAC 33,000,000 8,250,000 50,287,192
Winston-Salem, NC
Harris Teeter 3,960,000 1,810,000 5,152,401
Wilmington, NC
Kohl's/Wilshire Plaza III 5,417,500 2,600,000 6,848,649
Kansas City, MO
Shaw's Supermarket 6,450,000 2,700,000 11,532,191 (139,774)
New Britain, CT
Wal-Mart Supercenter 7,100,000 1,756,000 10,913,942
Blytheville, AR
Wal-Mart Supercenter 6,088,500 2,397,000 8,089,320
Jonesboro, AR
Wrangler 11,300,000 1,218,669 16,249,921
El Paso, TX
Gross amount carried at end of period
-------------------------------------
Buildings and Accumulated Date Date
SINGLE-USER Land Improvements Total (B) (D) Depreciation (E) Constructed Acquired
----------- ---- ------------ ------------- ---------------- ----------- --------
Academy Sports 1,230,000 3,751,721 4,981,721 57,225 2004 07/04
Houma, LA
Academy Sports 1,340,000 2,942,634 4,282,634 17,969 2004 10/04
Midland, TX
Academy Sports 1,050,000 3,954,157 5,004,157 24,164 2004 10/04
Port Arthur, TX
American Express 1,400,000 15,370,089 16,770,089 - 2000 12/04
De Pere, WI
American Express 2,900,000 55,966,421 58,866,421 - 1975 12/04
Fort Lauderdale, FL
American Express 2,800,000 49,470,089 52,270,089 - 1986 12/04
Greensboro, NC
American Express 14,200,000 74,607,812 88,807,812 - 1989 12/04
Minneapolis, MN
American Express - 19th Ave. 2,900,000 10,170,089 13,070,089 - 1983 12/04
Phoenix, AZ
American Express - 31st Ave. 5,100,000 45,270,089 50,370,089 - 1985 12/04
Phoenix, AZ
CVS Pharmacy (Eckerd Drug Store) 975,000 2,401,585 3,376,585 89,028 2003 12/03
Edmund, OK
CVS Pharmacy (Eckerd Drug Store) 932,000 4,369,730 5,301,730 163,287 2003 12/03
Norman, OK
CVS Pharmacy 600,000 2,469,216 3,069,216 15,090 2004 10/04
Sylacauga, AL
Eckerd Drug Store 900,000 2,376,504 3,276,504 52,171 2003-2004 06/04
Columbia, SC
Eckerd Drug Store 600,000 2,033,000 2,633,000 43,468 2003-2004 06/04
Crossville, TN
Eckerd Drug Store 1,050,000 2,047,200 3,097,200 43,688 2003-2004 06/04
Greer, SC
Eckerd Drug Store 700,000 2,960,139 3,660,139 63,299 2003-2004 06/04
Kill Devil Hills, NC
GMAC 8,250,000 50,287,192 58,537,192 460,933 1980/1990 09/04
Winston-Salem, NC
Harris Teeter 1,810,000 5,152,401 6,962,401 62,960 1977/1995 09/04
Wilmington, NC
Kohl's/Wilshire Plaza III 2,600,000 6,848,649 9,448,649 20,926 2004 07/04
Kansas City, MO
Shaw's Supermarket 2,700,000 11,392,417 14,092,417 431,997 1995 12/03
New Britain, CT
Wal-Mart Supercenter 1,756,000 10,913,942 12,669,942 166,680 1999 07/04
Blytheville, AR
Wal-Mart Supercenter 2,397,000 8,089,320 10,486,320 123,525 1997 08/04
Jonesboro, AR
Wrangler 1,218,669 16,249,921 17,468,590 248,226 1993 07/04
El Paso, TX
F-32
Initial Cost (A)
------------------------
Buildings and Adjustments
SINGLE-USER Encumbrances Land Improvements to Basis ( C )
----------- ------------ ---- ------------- --------------
Zurich Towers 81,420,000 7,900,000 121,312,096
Schaumburg, IL -------------------------------------------------------------
SUBTOTAL SINGLE-USER 354,006,500 67,308,669 510,544,848 (138,437)
-------------------------------------------------------------
CONSOLIDATED JOINT VENTURES
Cardiff Hall East 5,108,656 1,090,000 7,607,874 -
Towson, MD -------------------------------------------------------------
TOTAL INVESTMENT PROPERTIES 1,782,538,627 575,031,504 2,657,130,296 (2,545,145)
=============================================================
Gross amount carried at end of period
-------------------------------------
Buildings and Accumulated Date Date
SINGLE-USER Land Improvements Total (B) (D) Depreciation (E) Constructed Acquired
----------- ---- ------------ ------------- ---------------- ----------- --------
Zurich Towers 7,900,000 121,312,096 129,212,096 369,841 1988-1990 11/04
Schaumburg, IL -------------------------------------------------------------
SUBTOTAL SINGLE-USER 67,308,669 510,406,411 577,715,080 2,454,475
-------------------------------------------------------------
CONSOLIDATED JOINT VENTURES
Cardiff Hall East 1,090,000 7,607,874 8,697,873 92,725 1990 10/04
Towson, MD -------------------------------------------------------------
TOTAL INVESTMENT PROPERTIES 575,031,504 2,654,585,151 3,229,616,655 36,290,031
=============================================================
F-33
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
SCHEDULE III (CONTINUED)
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2004 and 2003
Notes:
(A) The initial cost to the Company represents the original purchase price
of the property, including amounts incurred subsequent to acquisition
which were contemplated at the time the property was acquired.
(B) The aggregate cost of real estate owned at December 31, 2004 for Federal
income tax purposes was approximately $3,029,000,000 (unaudited).
(C) Reconciliation of real estate owned:
2004 2003
---------------------------------------
Balance at beginning of period $ 122,719,914 -
Purchases of property 3,308,730,780 127,195,469
Payments received under master leases and
principal escrow (3,024,547) -
Acquired in-place lease intangibles and
customer relationship value (241,285,534) (8,805,681)
Acquired above market lease intangibles (42,302,599) (1,595,673)
Acquired below market lease intangibles 84,778,641 5,925,799
---------------------------------------
Balance at end of period $ 3,229,616,655 122,719,914
=======================================
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 140,497 -
Depreciation expense 36,149,534 140,497
-------------------- ------------------
Balance at end of period $ 36,290,031 140,497
=======================================
F-34
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Balance Sheet
December 31, 2004
(unaudited)
The following unaudited Pro Forma Consolidated Balance Sheet is presented as if
the acquisitions of the properties and the issuance of the notes receivable had
occurred on December 31, 2004.
This unaudited Pro Forma Consolidated Balance Sheet is not necessarily
indicative of what the actual financial position would have been at December 31,
2004, nor does it purport to represent our future financial position. No pro
forma adjustments have been made for any potential property acquisitions
identified as of March 14, 2005. The Company does not consider these properties
as probable under Rule 3-14 of Regulation S-X as the Company has not completed
the due diligence process on these properties. Additionally, the Company has not
received sufficient offering proceeds or obtained firm financing commitments to
acquire all of these properties as of March 14, 2005. The Company believes it
will have sufficient cash from offering proceeds raised and from additional
financing proceeds to acquire these properties if and when the Company is
prepared to acquire these properties.
F-35
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Balance Sheet
December 31, 2004
(unaudited)
(Amounts in thousands)
Historical Pro Forma
(A) Adjustments Pro Forma
------------------------------------------------------------
ASSETS
Net investment properties (B) $ 3,193,327 379,006 3,572,333
Cash and cash equivalents 241,224 419,285 660,509
Restricted cash 65,923 - 65,923
Restricted escrows 17,105 - 17,105
Investment in marketable securities and treasury contracts 1,287 - 1,287
Investment in unconsolidated joint ventures 75,261 - 75,261
Accounts and rents receivable 19,962 - 19,962
Due from affiliates 654 - 654
Note receivable 31,772 792 32,564
Acquired in-place lease intangibles and customer
relationship value(B) (D) 240,116 25,278 265,394
Acquired above market lease intangibles (B) (D) 40,774 2,877 43,651
Loan fees, leasing fees and loan fee deposits (G) 19,472 (5,691) 13,781
Other assets (G) 8,939 (103) 8,836
------------------------------------------------------------
Total assets $ 3,955,816 821,444 4,777,260
============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage and notes payable (B) (E) 1,783,114 357,650 2,140,764
Accounts payable 1,692 - 1,692
Accrued offering costs due to affiliates 2,880 - 2,880
Accrued interest payable 4,306 - 4,306
Tenant improvements payable 5,096 - 5,096
Accrued real estate taxes 4,254 - 4,254
Distributions payable 11,378 - 11,378
Security deposits 3,679 - 3,679
Prepaid rental income and other liabilities 7,765 - 7,765
Advances from sponsor 3,523 - 3,523
Acquired below market lease intangibles (B) (D) 85,986 730 86,716
Restricted cash liability 65,923 - 65,923
Due to affiliates 957 - 957
------------------------------------------------------------
Total liabilities 1,980,553 358,380 2,338,933
============================================================
Minority interests 89,537 - 89,537
Common stock (C) 217 53 270
Additional paid-in capital (net of offering costs) (C) 1,940,018 463,011 2,403,029
Accumulated distributions in excess of net income (F) (54,750) - (54,750)
Accumulated other comprehensive income 241 - 241
------------------------------------------------------------
Total stockholders' equity 1,885,726 463,064 2,348,790
------------------------------------------------------------
Total liabilities and stockholders' equity $ 3,955,816 821,444 4,777,260
============================================================
See accompanying notes to pro forma consolidated balance sheet.
F-36
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Balance Sheet
December 31, 2004
(unaudited)
(A) The historical column represents our Consolidated Balance Sheet as of
December 31, 2004 as filed with the Securities Exchange Commission on Form
10-K. As of December 31, 2004, the Company had sold 214,368,875 shares to
the public and 3,079,003 shares were issued pursuant to the Company's
distribution reinvestment program. In addition, the company had repurchased
10,350 shares pursuant to the Company's share repurchase program. As a
result, the Company received $2,171,654,780 of gross offering proceeds. In
addition, the Company received the Advisor's capital contribution of
$200,000 for which the Advisor was issued 20,000 shares.
(B) The pro forma adjustments reflect the acquisition of the following
properties or earnout components. The Company is obligated under earnout
agreements to pay for certain tenant space in its existing properties after
the tenant moves into its space and begins paying rent. The mortgages
payable represent mortgages obtained from a third party, either assumed as
part of the acquisition or subsequent to acquisition. No pro forma
adjustment has been made for prorations or other closing costs as the
amounts are not significant:
Acquisition Mortgage
Price Payable
-----------------------------------
PURCHASES
Fairgrounds Plaza $ 21,994,000 15,982,000
Maytag Distribution Center 23,160,000 12,740,000
Midtown Center 53,000,000 28,228,000
Hobby Lobby - Concord 5,500,000 3,025,000
Stanley Works 10,000,000 -
American Express - Markham, Ontario 42,000,000 25,380,000
Academy Sports - San Antonio 7,150,000 3,933,000
Magnolia Square 19,114,000 10,265,000
Cottage Plaza 23,440,000 13,025,000
Village of Quail Springs 10,429,000 5,740,000
Holliday Towne Center 14,828,000 8,050,000
Trenton Crossing 29,212,000 19,307,000
CVS Pharmacy - Jacksonville 6,000,000 -
CarMax - San Antonio 14,600,000 -
Southgate Plaza 12,253,000 -
Stateline Station 32,000,000 -
High Ridge Crossing 13,200,000 -
American Express - Salt Lake City 48,000,000 28,320,000
EARNOUTS
Reisterstown Road Plaza 3,670,000 -
John's Creek Village 5,096,000 -
Denton Crossing 1,286,000 -
Gateway Village 3,636,000 -
Mansfield Towne Crossing 2,275,000 -
Heritage Towne Crossing 1,276,000 -
Boulevard at the Capital Centre 3,312,000 -
-----------------------------------
Total $ 406,431,000 173,995,000
===================================
F-37
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Balance Sheet
December 31, 2004
(unaudited)
Allocation of net investments in properties:
Land $ 69,133,000
Building and improvements 309,873,000
Acquired in-place lease intangibles and customer
relationship value 25,278,000
Acquired above market lease intangibles 2,877,000
Acquired below market lease intangibles (730,000)
--------------------
Total $ 406,431,000
====================
(C) Additional offering proceeds of $526,210,000, net of additional offering
costs of $63,146,000 are reflected as received as of December 31, 2004,
prior to the purchase of the properties and are limited to offering
proceeds necessary to acquire the properties and offering proceeds actually
received as of March 14, 2005. Offering costs consist principally of
registration costs, printing and selling costs, including commissions.
(D) Acquired intangibles represent above and below market leases and the
difference between the property valued with the existing in-place leases
and the property valued as if vacant as well as the value associated with
customer relationships. The value of the acquired leases and customer
relationship values will be amortized over the lease term.
(E) Additional mortgages payable of $357,650,000, reflected as funded as of
December 31, 2004, includes $173,995,000 of mortgages payable obtained
subsequent to the acquisition of the properties described in (B) and
$183,655,000 of new financing placed on previously acquired properties.
(F) No pro forma assumptions have been made for the additional payment of
distributions resulting from the additional proceeds raised.
(G) Change in loan fees, leasing fees and loan fee deposits of $5,691,000
represents prepaid loan fees applied to mortgage payables obtained as
described in (E). Change in other assets of $103,000 represents advance
purchase deposits on properties purchased as described in (B).
F-38
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2004
(unaudited)
The following unaudited Pro Forma Consolidated Statement of Operations is
presented to give effect the acquisition of the properties indicated in Note B
of the Notes to the Pro Forma Consolidated Statement of Operations as though
they occurred on January 1, 2004 or the date significant operations commenced.
No pro forma adjustments have been made for any potential property acquisitions
identified as of March 14, 2005. The Company does not consider these properties
as probable under Rule 3-14 of Regulation S-X as the Company has not completed
the due diligence process on these properties. Additionally, the Company has not
received sufficient offering proceeds or obtained firm financing commitments to
acquire all of these properties as of March 14, 2005. The Company believes it
will have sufficient cash from offering proceeds raised and from additional
financing proceeds to acquire these properties if and when the Company is
prepared to acquire these properties. No pro forma adjustments were made for
Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd - Columbia, Eckerd -
Crossville, Kohl's - Wilshire Plaza III, Academy Sports - Houma, The Columns -
Phase II, Academy Sports - Port Arthur, Academy Sports - Midland, Hobby Lobby -
Concord, Stanley Works, Academy Sports - San Antonio or CVS Pharmacy -
Jacksonville as the properties were completed in 2004 and there were no
significant operations prior to the Company's acquisition. No pro forma
adjustments were made related to the Pacheco Pass and Quakertown notes
receivable as the properties were completed in 2004 and there were no
significant operations prior to the Company's funding of the notes receivable.
This unaudited Pro Forma Consolidated Statement of Operations is not necessarily
indicative of what the actual results of operations would have been for the year
ended December 31, 2004, nor does it purport to represent our future results of
operations.
F-39
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2004 (unaudited)
(Amounts in thousands)
Pro Forma Pro Forma
Historical Adjustments Adjustments
(A) (B) (C) Pro Forma
-------------------------------------------------------------------
Rental income $ 106,425 19,929 127,882 254,236
Tenant recovery income 23,155 4,031 23,090 50,276
Other property income 825 - - 825
-------------------------------------------------------------------
Total income 130,405 23,960 150,972 305,337
-------------------------------------------------------------------
General and administrative expenses 4,857 - - 4,857
Advisor asset management fee (D) - - - -
Property operating expenses (G) 32,522 6,149 38,481 77,152
Depreciation and amortization (E) 47,973 9,904 68,789 126,666
-------------------------------------------------------------------
Total expenses 85,352 16,053 107,270 208,675
-------------------------------------------------------------------
Operating income 45,053 7,907 43,702 96,662
Other income 3,681 - - 3,681
Interest expense (H) (33,175) (7,577) (49,203) (89,955)
Realized loss on sale of treasury contacts (3,667) - - (3,667)
Minority interests 398 - - 398
Equity in earnings (losses) of unconsolidated
entities (589) - - (589)
-------------------------------------------------------------------
Net income (loss) $ 11,701 330 (5,501) 6,530
===================================================================
Other comprehensive income:
Unrealized gain/loss on investment securities 241 - - 241
-------------------------------------------------------------------
Comprehensive income (loss) $ 11,942 330 (5,501) 6,771
===================================================================
Weighted average number of shares of common stock
outstanding, basic and diluted (F) 98,563 122,413
============== ===============
Net income (loss) per share, basic and diluted (F) .12 .05
============== ===============
See accompanying notes to pro forma consolidated statement of operations.
F-40
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2004
(unaudited)
(A) The historical information represents the historical statement of
operations of the Company for the period from January 1, 2004 to December
31, 2004 as filed with the Securities Exchange Commission on Form 10-K.
(B) Total pro forma adjustments for acquisitions consummated as of March 14,
2005 are as though the properties were acquired January 1, 2004.
Gross Income
& Direct Total
Operating Pro Forma Pro Forma
Expenses (1) Adjustments Adjustments
----------------------------------------------------------
Rental income $ 20,258 (329) 19,929
Tenant recovery income 4,031 - 4,031
----------------------------------------------------------
Total income 24,289 (329) 23,960
----------------------------------------------------------
Advisor asset management fee - - -
Property operating expenses 5,071 1,078 6,149
Depreciation and amortization - 9,904 9,904
Interest expense - 7,577 7,577
----------------------------------------------------------
Total expenses 5,071 18,559 23,630
----------------------------------------------------------
Net income (loss) $ 19,218 (18,888) 330
==========================================================
(1) Audited combined gross income and direct operating expenses as prepared in
accordance with Rule 3-14 of Regulation S-X for the following properties:
Coram Plaza, Mesa Fiesta, Green's Corner, Newton Crossroads, Stilesboro
Oaks, Pleasant Run Towne Crossing, Shoppes at Lake Andrew, Fairgrounds
Plaza, Midtown Center, Trenton Crossing, Lakepointe Towne Center and
Stateline Station.
As previously reported, an audit of Magnolia Square was going to be
performed, however, no audit was required in accordance with Rule 3.14 of
Regulation S-X.
F-41
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2004
(unaudited)
(C) Total pro forma adjustments for acquisitions consummated as of March 14,
2005 are as though the properties were acquired January 1, 2004. No pro
forma adjustments were made for Eckerd - Greer, Eckerd - Kill Devil Hills,
Eckerd - Columbia, Eckerd - Crossville, Kohl's - Wilshire Plaza III,
Academy Sports - Houma, The Columns - Phase II, Academy Sports - Port
Arthur, Academy Sports - Midland, Hobby Lobby - Concord, Stanley Works,
Academy Sports - San Antonio or CVS Pharmacy - Jacksonville as the
properties were completed in 2004 and there were no significant operations
prior to the Company's acquisition. No pro forma adjustments were made
related to the Pacheco Pass and Quakertown notes receivable as the
properties were completed in 2004 and there were no significant operations
prior to the Company's funding of the notes receivable.
Gross Income
& Direct Total
Operating Pro Forma Pro Forma
Expenses (1) Adjustments Adjustments
---------------------------------------------------------
Rental income $ 130,679 (2,797) 127,882
Tenant recovery income 23,090 - 23,090
---------------------------------------------------------
Total revenues 153,769 (2,797) 150,972
---------------------------------------------------------
Advisor asset management fee - - -
Property operating expenses 31,779 6,702 38,481
Depreciation and amortization - 68,789 68,789
Interest expense - 49,203 49,203
---------------------------------------------------------
Total expenses 31,779 124,694 156,473
---------------------------------------------------------
Net income (loss) $ 121,990 (127,491) (5,501)
=========================================================
(1) Unaudited combined gross income and direct operating expenses from January
1, 2004 through the date of acquisition based on information provided by
the Seller for the following properties:
CorWest Plaza, Hickory Ridge, Shoppes at Quarterfield, Larkspur Landing,
North Ranch Pavilion, La Plaza Del Norte, MacArthur Crossing, Promenade at
Red Cliff, Peoria Crossings, Dorman Center, Heritage Towne Crossing,
Paradise Valley Marketplace, Best on the Boulevard, Bluebonnet Parc, North
Rivers Town Center, Alison's Corner, Arvada Connection and Arvada
Marketplace, Eastwood Town Center, Watauga Pavilion, Northpointe Plaza,
Plaza Santa Fe II, Pine Ridge Plaza, Huebner Oaks Center, John's Creek
Village, Lakewood Towne Center, Shoppes of Prominence Point, Northgate
North, Davis Towne Crossing, Fullerton Metrocenter, Low Country Village,
The Shops at Boardwalk, Shoppes of Dallas, Cranberry Square, Tollgate
Marketplace, Gateway Village, Towson Circle, Gateway Plaza, Plaza at
Marysville, Forks Town Center, Reisterstown Road Plaza, Village Shoppes at
Simonton, Manchester Meadows, Governor's Marketplace, Mitchell Ranch Plaza,
The Columns, Saucon Valley Square, Lincoln Park, Harvest Towne Center,
Boulevard at the Capital Centre, Bed, Bath & Beyond Plaza, Denton Crossing,
Azalea Square, Lake Mary Pointe, Plaza at Riverlakes, Gurnee Town Centre,
Mansfield Towne Crossing, Winchester Commons, Publix Center (Shoppes at
Park West), Fox Creek Village, Oswego Commons, University Town Center,
Edgemont Town Center, Five Forks, Placentia Town Center, Gateway Station,
Northwoods Center, Shops at Forest Commons, Gateway Pavilions, Henry Town
Center, McAllen Shopping Center, 23rd Street Plaza, Southlake Town Square,
Irmo Station, Evans Towne Centre, Cottage Plaza, Village at Quail Springs,
Phenix Crossing, Magnolia Square, Holliday Towne Center, Southgate Plaza
and High Ridge Crossing.
F-42
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2004
(unaudited)
Gross rental income from January 1, 2004 through the date of acquisition
based on information provided by tenant net leases for the following
properties:
Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd - Columbia, Eckerd -
Crossville, Kohl's - Wilshire Plaza III, Wal-Mart Supercenter -
Blytheville, Wrangler Company Western Headquarters, Academy Sports - Houma,
Wal-Mart Supercenter - Jonesboro, Harris Teeter - Wilmington, GMAC
Insurance, Academy Sports - Port Arthur, CVS Pharmacy - Sylacauga, Academy
Sports - Midland, Zurich Towers, the American Express portfolio, Maytag
Distribution Center, Hobby Lobby - Concord, Stanley Works, Academy Sports -
San Antonio, CVS Pharmacy - Jacksonville, and CarMax - San Antonio.
(D) The advisor asset management fee is expected to be subordinated to the
shareholders' receipt of a stated return thus no amount is reflected.
(E) Buildings and improvements will be depreciated on a straight line basis
based upon estimated useful lives of 30 years for building and improvements
and 15 years for site improvements. That portion of the purchase price that
is allocated to above or below lease intangibles will be amortized on a
straight line basis over the life of the related leases as an adjustment to
rental income. Other leasing costs, tenant improvements, in-place lease
intangibles and customer relationship values will be amortized on a
straight line basis over the life of the related leases as a component of
amortization expense.
(F) The pro forma weighted average shares of common stock outstanding for the
year ended December 31, 2004 was calculated using the additional shares
sold to purchase each of the properties on a weighted average basis plus
the 20,000 shares purchased by the Advisor in connection with our
organization.
(G) Management fees are calculated as 4.5% of gross revenues pursuant to the
management agreement and are included in property operating expenses.
(H) The pro forma adjustments relating to interest expense were based on the
following debt terms:
Principal Interest Maturity
Balance Rate Date
-----------------------------------------------------
Academy Sports - Houma 2,920,000 5.120% 09/09
Academy Sports - Midland 2,338,000 5.120% 01/10
Academy Sports - Port Arthur 2,775,000 5.120% 11/09
Adademy Sports - San Antonio 3,933,000 5.060% 02/10
Alison's Corner 3,850,000 4.272% 06/10
American Express - Markham, Ontario 25,380,000 4.2675% 02/15
American Express - Depere, WI 11,623,000 4.2975% 01/15
American Express - 31st Avenue - Phoenix 31,860,000 4.2675% 01/15
American Express - 19th Avenue - Phoenix 8,260,000 4.2675% 01/15
American Express - Minneapolis 56,050,000 4.2675% 01/15
American Express - Greensboro, NC 33,040,000 4.2675% 01/15
American Express - Fort Lauderdale, FL 37,170,000 4.2675% 01/15
American Express - Salt Lake City 28,320,000 4.2975% 03/15
Arvada Marketplace and Arvada Connection 28,510,000 4.130% 07/09
Azalea Square 16,535,000 5.010% 12/09
Bed Bath & Beyond Plaza 11,193,000 5.170% 12/09
Best on the Boulevard 19,525,000 3.990% 05/09
Bluebonnet Parc 12,100,000 4.372% 05/09
Boulevard at the Capital Centre 71,500,000 5.120% 10/09
F-43
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2004
(unaudited)
Principal Interest Maturity
Balance Rate Date
-----------------------------------------------------
Cardiff Hall East 5,109,000 8.020% 08/10
Cottage Plaza 13,025,000 4.600% 04/10
Coram Plaza 20,755,000 4.550% 02/10
CorWest Plaza 18,150,000 4.560% 02/09
Cranberry Square 10,900,000 4.975% 08/09
CVS Pharmacy - Sylacauga 1,685,000 5.060% 01/10
Davis Towne Crossing 5,365,000 5.185% 09/09
Denton Crossing 35,200,000 4.300% 01/10
Dorman Center 27,610,000 4.180% 05/09
Eastwood Towne Center 46,750,000 4.640% 07/09
Eckerds Drug Stores (4) 6,800,000 5.275% 08/09
Edgemont Town Center 8,600,000 4.430% 03/10
Evans Towne Centre 5,005,000 4.670% 02/10
Fairgrounds Plaza 15,982,000 5.690% 01/33
Five Forks 4,483,000 4.815% 02/10
Forks Town Center 10,395,000 4.970% 09/09
Fox Creek Village 11,485,000 5.210% 12/09
Fullerton Metrocenter 28,050,000 5.090% 08/09
Gateway Pavilions 35,842,000 4.670% 01/10
Gateway Plaza 18,163,000 5.100% 09/09
Gateway Village (Note A) 27,233,000 LIBOR + 113 07/09
Gateway Village (Note B) 4,225,000 LIBOR + 200 08/05
GMAC Insurance 33,000,000 4.610% 10/09
Governor's Marketplace 20,625,000 5.185% 09/09
Green's Corner 7,022,000 4.500% 02/10
Gurnee Town Center 24,360,000 4.597% 01/10
Harris Teeter - Wilmington 3,960,000 4.915% 11/09
Harvest Towne Center 5,005,000 4.935% 01/10
Henry Town Center 35,815,000 5.420% 01/13
Heritage Towne Crossing 8,950,000 4.374% 06/09
Hickory Ridge 23,650,000 4.531% 02/09
Hobby Lobby - Concord 3,025,000 5.1150% 02/10
Holliday Towne Center 8,050,000 5.180% 04/10
Huebner Oaks Center (Note A) 31,723,000 4.200% 07/10
Huebner Oaks Center (Note B) 16,277,000 3.960% 07/10
Irmo Station 7,085,000 5.124% 02/10
John's Creek Village 23,300,000 5.100% 08/09
Kohl's - Wilshire Plaza III 5,418,000 5.120% 12/09
La Plaza Del Norte 32,528,000 4.610% 03/10
Lake Mary Pointe 3,658,000 5.170% 12/09
Lakewood Towne Center (Note A) 44,000,000 2.680% 06/09
Lakewood Towne Center (Note B) 7,260,000 3.830% 07/05
Larkspur Landing 33,630,000 4.450% 02/09
Lincoln Park 26,153,000 4.610% 11/09
Low Country Village - Phase I 5,370,000 4.960% 10/09
Low Country Village - Phase II 5,440,000 5.130% 05/09
MacArthur Crossing 12,700,000 4.290% 05/09
Magnolia Square 10,265,000 5.115% 03/10
Manchester Meadows 31,065,000 4.480% 09/07
F-44
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2004
(unaudited)
Principal Interest Maturity
Balance Rate Date
-----------------------------------------------------
Mansfield Towne Crossing 10,982,000 5.215% 12/09
Maytag Distribution Center 12,740,000 4.840% 04/10
McAllen Shopping Center 2,455,000 5.060% 03/10
Mesa Fiesta 23,500,000 5.300% 02/10
Midtown Center 28,228,000 4.460% 03/10
Mitchell Ranch Plaza 18,700,000 4.480% 10/09
Newnan Crossing II 2,223,000 4.380% 05/09
Newton Crossroads 5,548,000 4.500% 02/10
North Ranch Pavilion 10,157,000 4.120% 04/09
North Rivers Town Center 11,050,000 4.760% 05/09
Northgate North 26,650,000 4.600% 07/08
Northpointe Plaza 30,850,000 4.272% 05/09
Northwoods Center 11,192,500 4.815% 01/10
Oswego Commons 19,262,000 4.750% 12/09
Paradise Valley Marketplace 15,681,000 4.550% 05/09
Peoria Crossings 20,497,000 4.090% 04/09
Pine Ridge Plaza 14,700,000 5.085% 08/09
Plaza at Marysville 11,800,000 5.085% 08/09
Plaza Santa Fe II 17,394,000 6.200% 12/12
Pleasant Run Towne Crossing 22,800,000 5.215% 01/10
Promenade at Red Cliff 10,590,000 4.290% 05/09
Publix Center 6,655,000 4.597% 01/10
Reisterstown Road Plaza 49,650,000 5.300% 09/09
Saucon Valley Square 8,851,000 5.115% 10/09
Shoppes at Lake Andrew 15,657,000 5.000% 03/14
Shoppes at Quarterfield 6,067,000 4.280% 04/09
Shoppes of Dallas 7,179,000 4.960% 04/09
Shoppes of Prominence Point 9,954,000 5.235% 09/09
Shops at Forest Commons 5,230,000 6.340% 09/13
Southlake Town Square 70,571,000 4.550% 03/10
Southlake Town Square II 10,429,000 4.550% 03/10
Stilesboro Oaks 6,592,000 4.500% 02/10
The Columns - Phase I 11,423,000 4.910% 11/09
The Columns - Phase II 3,442,000 4.950% 05/09
The Shops at Boardwalk 20,150,000 4.130% 08/09
Tollgate Marketplace 39,765,000 LIBOR +120 07/09
Towson Circle (Note A) 15,647,500 5.100% 07/09
Towson Circle (Note B) 3,550,000 LIBOR + 200 08/05
Trenton Crossing 19,307,000 4.460% 05/10
University Town Center 5,810,000 4.430% 03/10
Village at Quail Springs 5,740,000 5.060% 03/01
Village Shoppes at Simonton 7,562,000 4.960% 10/09
Wal-Mart Supercenter - Blytheville 7,100,000 4.390% 09/09
Wal-Mart Supercenter - Jonesboro 6,088,500 5.085% 09/09
Watauga Pavilion 17,100,000 4.140% 06/10
Winchester Commons 7,235,000 5.120% 12/09
Wrangler Company Western Headquarters 11,300,000 5.090% 08/27
Zurich Towers 81,420,000 4.247% 12/34
F-45
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Henry Town Center ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of the management of Inland Western Retail Real Estate Trust,
Inc. Our responsibility is to express an opinion on the Historical Summary based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Historical
Summary is free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Property's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Historical Summary. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the Historical Summary. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in Form 8-K/A of Inland Western Retail Real Estate Trust, Inc., as
described in note 2. It is not intended to be a complete presentation of the
Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Henry Town Center for the year ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
February 3, 2005
F-46
HENRY TOWN CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the nine months ended
September 30, 2004 (unaudited)
FOR THE
NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 2004 DECEMBER 31, 2003
------------------ -----------------
(unaudited)
Gross income:
Base rental income $ 3,540,928 $ 4,683,921
Operating expense and real estate tax recoveries 915,538 1,147,948
------------------ ------------------
Total gross income 4,456,466 5,831,869
------------------ ------------------
Direct operating expenses:
Operating expenses 331,664 364,629
Insurance 78,557 114,931
Real estate taxes 514,565 666,104
Interest expense 1,486,640 1,978,300
------------------ ------------------
Total direct operating expenses 2,411,426 3,123,964
------------------ ------------------
Excess of gross income over direct operating expenses $ 2,045,040 $ 2,707,905
================== ==================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-47
HENRY TOWN CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the nine months ended
September 30, 2004 (unaudited)
(1) Business
Henry Town Center ("the Property") is located in McDonough, GA. The Property
consists of approximately 380,942 square feet of gross leasable area and was
approximately 100% occupied at December 31, 2003. The Property is leased to a
total of 42 tenants and has two ground leases. Of these, one tenant accounts for
approximately 22% of base rental revenue for the year ended December 31, 2003.
On December 23, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI")
acquired the Property from an unaffiliated third party.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in Form 8-K/A of IWRRETI and is not intended to be a complete presentation of
the Property's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of the Property to
make estimates and assumptions that affect the reported amounts of the revenues
and expenses during the reporting period. Actual results may differ from those
estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the nine months ended September 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate
tax, and insurance costs. Revenue related to these reimbursed costs is
recognized in the period the applicable costs are incurred and billed to tenants
pursuant to the lease agreements. Certain leases contain renewal options at
various periods at various rental rates. Certain of the leases contain provision
for contingent rentals. Recognition of contingent rental income is deferred
until the target that triggers the contingent rental income is achieved. No
contingent rent was earned during the year ended December 31, 2003.
The Property has two ground leases that are classified as operating leases with
terms extending through 2012 and 2022. Total ground lease income was $301,228
and is included in base rental income in the accompanying Historical Summary for
the year ended December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $79,576
for the year ended December 31, 2003.
F-48
HENRY TOWN CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the nine months ended
September 30, 2004 (unaudited)
Minimum rents to be received from tenants under operating leases, which terms
range from one to 19 years, as of December 31, 2003, are as follows:
YEAR
----
2004 $ 4,649,668
2005 4,633,825
2006 4,580,016
2007 4,405,775
2008 3,484,283
Thereafter 26,367,048
-------------
$ 48,120,615
=============
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, and professional fees are excluded from the Historical Summary.
(5) Interest Expense
IWRRETI assumed a $35,814,616 mortgage loan secured by the Property in
connection with the acquisition. This mortgage loan had an original balance of
$36,000,000, and was paid down by an additional $185,384 in 2004 prior to
IWRRETI assuming the loan. The mortgage loan bears a fixed interest rate of
5.42%, payable in monthly installments of principal and interest, and matures on
January 11, 2013.
Minimum annual principal payments under the terms of the mortgage debt are as
follows:
YEAR
----
2004 $ -
2005 475,022
2006 501,793
2007 530,073
2008 554,578
Thereafter 33,753,150
-------------
$ 35,814,616
=============
F-49
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Combined Historical Summary of Gross Income and
Direct Operating Expenses ("Combined Historical Summary") of the Properties
acquired from Ceruzzi Holdings for the year ended December 31, 2004. This
Combined Historical Summary is the responsibility of the management of Inland
Western Retail Real Estate Trust, Inc. Our responsibility is to express an
opinion on the Combined Historical Summary based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Combined
Historical Summary is free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Properties'
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the Combined Historical Summary. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the Combined
Historical Summary. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying Combined Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in Form 8-K/A of Inland Western Retail Real Estate
Trust, Inc., as described in note 2. It is not intended to be a complete
presentation of the Properties' revenues and expenses.
In our opinion, the Combined Historical Summary referred to above presents
fairly, in all material respects, the gross income and direct operating expenses
described in note 2 of the Properties acquired from Ceruzzi Holdings for the
year ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Chicago, Illinois
January 22, 2005
F-50
PROPERTIES ACQUIRED FROM CERUZZI HOLDINGS
Combined Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
FOR THE YEAR ENDED
DECEMBER 31, 2004
------------------
Gross income:
Base rental income $ 4,295,301
Operating expense and real estate tax recoveries 444,729
------------------
Total gross income 4,740,030
------------------
Direct operating expenses:
Operating expenses 393,558
Insurance 31,380
Real estate taxes 207,147
Interest expense 931,059
------------------
Total direct operating expenses 1,563,144
------------------
Excess of gross income over direct operating expenses $ 3,176,886
==================
See accompanying notes to combined historical summary of gross income and direct
operating expenses.
F-51
PROPERTIES ACQUIRED FROM CERUZZI HOLDINGS
Notes to Combined Historical Summary of Gross Income and Direct Operating
Expenses For the year ended December 31, 2004
(1) Business
The Properties Acquired from Ceruzzi Holdings consist of:
Gross Occupancy At
Name Leasable Area Location December 31, 2004
---- ------------- -------- -----------------
Coram Plaza 141,780 Coram, NY 92%
Fairgrounds Plaza Ground lease Middletown, NY
The Properties are leased to a total of 22 tenants and has one ground lease. Of
these, one tenant and the ground lease account for 79% of base rental revenue
for the year ended December 31, 2004. On December 23, 2004 and January 5, 2005,
respectively, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired
Coram Plaza and Fairgrounds Plaza from Ceruzzi Holdings, an unaffiliated third
party. The Combined Historical Summary for the year ended December 31, 2004
includes gross income and direct operating expenses for a full year, including
the period for which IWRRETI owned Coram Plaza.
(2) Basis of Presentation
The Combined Historical Summary of Gross Income and Direct Operating Expenses
("Combined Historical Summary") has been prepared for the purpose of complying
with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in Form 8-K/A of IWRRETI and is not intended to be a complete
presentation of the Properties' revenues and expenses. The Combined Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Properties to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates. The Combined Historical Summary
is presented on a combined basis since the Properties were acquired from the
same seller.
(3) Gross Income
The Properties lease retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Properties are reimbursed for common area, real
estate tax, and insurance costs. Revenue related to these reimbursed costs is
recognized in the period the applicable costs are incurred and billed to tenants
pursuant to the lease agreements. Certain leases contain renewal options at
various periods at various rental rates. Certain of the leases contain provision
for contingent rentals.
The Properties have one ground lease that is classified as an operating lease
with terms extending through January 31, 2028. Total ground lease income was
$1,769,970 and is included in base rental income in the accompanying Combined
Historical Summary for the year ended December 31, 2004.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by
$929,878 for the year ended December 31, 2004.
F-52
PROPERTIES ACQUIRED FROM CERUZZI HOLDINGS
Notes to Combined Historical Summary of Gross Income and Direct Operating
Expenses For the year ended December 31, 2004
Minimum rents to be received from tenants under operating leases, which terms
range from one to 35 years, as of December 31 2004, are as follows:
YEAR
----
2005 $ 4,233,364
2006 4,142,951
2007 4,048,334
2008 3,948,586
2009 3,971,733
Thereafter 65,540,843
------------------
$ 85,885,811
==================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Properties. Repairs and maintenance
expenses are charged to operations as incurred. Costs such as depreciation,
amortization, management fees, interest expense related to mortgage debt not
assumed, and professional fees are excluded from the Combined Historical
Summary.
(5) Interest Expense
IWRRETI assumed a $15,982,376 mortgage loan secured by Fairgrounds Plaza in
connection with the acquisition. This mortgage loan had an original balance of
$16,375,000, and was paid down by an additional $16,547 in 2005 prior to IWRRETI
assuming the loan. The mortgage loan bears a fixed interest rate of 5.69%,
payable in monthly installments of principal and interest, and matures on
February 1, 2033.
Minimum annual principal payments under the terms of the mortgage debt are as
follows:
YEAR
----
2005 $ 205,564
2006 235,268
2007 249,206
2008 261,451
2009 279,457
Thereafter 14,751,430
------------------
$ 15,982,376
==================
F-53
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Combined Historical Summary of Gross Income and
Direct Operating Expenses ("Combined Historical Summary") of the Properties
acquired from FFI American Market Fund, L.P. ("the Properties") for the year
ended December 31, 2004. This Combined Historical Summary is the responsibility
of the management of Inland Western Retail Real Estate Trust, Inc. Our
responsibility is to express an opinion on the Combined Historical Summary based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Combined
Historical Summary is free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Properties'
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the Combined Historical Summary. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the Combined
Historical Summary. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying Combined Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in Form 8-K/A of Inland Western Retail Real Estate
Trust, Inc., as described in note 2. It is not intended to be a complete
presentation of the Properties' revenues and expenses.
In our opinion, the Combined Historical Summary referred to above presents
fairly, in all material respects, the gross income and direct operating expenses
described in note 2 of the Properties acquired from FFI American Market Fund,
L.P. for the year ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Atlanta, Georgia
March 2, 2005
F-54
PROPERTIES ACQUIRED FROM FFI AMERICAN MARKET FUND, L.P.
Combined Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
FOR THE YEAR ENDED
DECEMBER 31, 2004
------------------
Gross income:
Base rental income $ 2,567,103
Operating expense and real estate tax recoveries 549,895
------------------
Total gross income 3,116,998
------------------
Direct operating expenses:
Operating expenses 336,187
Insurance 179,097
Real estate taxes 43,656
------------------
Total direct operating expenses 558,940
------------------
Excess of gross income over direct operating expenses $ 2,558,058
==================
See accompanying notes to combined historical summary of gross income and direct
operating expenses.
F-55
THE PROPERTIES ACQUIRED FROM FFI AMERICAN MARKET FUND, L.P.
Notes to Combined Historical Summary of Gross Income
and Direct Operating Expenses
For the year ended December 31, 2004
(1) Business
The Properties acquired from FFI American Market Fund, L.P. ("the Properties")
consist of the following:
Gross Occupancy at
Name Leasable Area Location December 31, 2004
---- ------------- -------- -----------------
Green's Corner 82,792 Cumming, GA 100%
Newton Crossroads 78,896 Covington, GA 100%
Stilesboro Oaks 80,772 Acworth, GA 100%
The Properties are leased to a total of 36 tenants and has one ground lease. Of
these, one tenant, that occupies space in each of the three properties, accounts
for approximately 56% of base rental revenue for the year ended December 31,
2004. On December 29, 2004, Inland Western Retail Real Estate Trust, Inc.
("IWRRETI") acquired the Properties from FFI American Market Fund, L.P., an
unaffiliated third party. The Combined Historical Summary for the year ended
December 31, 2004 includes gross income and direct operating expenses for a full
year, including the period for which IWRRETI owned the Properties.
(2) Basis of Presentation
The Combined Historical Summary of Gross Income and Direct Operating Expenses
("Combined Historical Summary") has been prepared for the purpose of complying
with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in Form 8-K/A of IWRRETI and is not intended to be a complete
presentation of the Properties' revenues and expenses. The Combined Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Properties to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates. The Combined Historical Summary
is presented on a combined basis since the Properties were acquired from the
same seller.
(3) Gross Income
The Properties lease retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Properties are reimbursed for common area, real
estate tax, and insurance costs. Revenue related to these reimbursed costs is
recognized in the period the applicable costs are incurred and billed to tenants
pursuant to the lease agreements. Certain leases contain renewal options at
various periods at various rental rates. Certain of the leases contain provision
for contingent rentals. Recognition of contingent rental income is deferred
until the target that triggers the contingent rental income is achieved. No
contingent rent was earned during the year ended December 31, 2004.
The Properties have one ground lease that is classified as an operating lease
with terms extending through July 15, 2017. Total ground lease income was
$51,106 and is included in base rental income in the accompanying Combined
Historical Summary for the year ended December 31, 2004.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $19,354
for the year ended December 31, 2004.
F-56
PROPERTIES ACQUIRED FROM FFI AMERICAN MARKET FUND, L.P.
Notes to Combined Historical Summary of Gross Income and
Direct Operating Expenses
For the year ended December 31, 2004
Minimum rents to be received from tenants under operating leases, which terms
range from one to 18 years, as of December 31 2004, are as follows:
YEAR
----
2005 $ 2,596,907
2006 2,434,256
2007 2,157,007
2008 1,758,671
2009 1,620,053
Thereafter 14,439,590
------------------
$ 25,006,484
==================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Properties. Repairs and maintenance
expenses are charged to operations as incurred. Costs such as depreciation,
amortization, management fees, interest expense related to mortgage debt not
assumed, and professional fees are excluded from the Combined Historical
Summary.
F-57
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Shoppes at Lake Andrew ("the
Property") for the year ended December 31, 2004. This Historical Summary is the
responsibility of the management of Inland Western Retail Real Estate Trust,
Inc. Our responsibility is to express an opinion on the Historical Summary based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Historical
Summary is free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Property's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Historical Summary. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the Historical Summary. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in Form 8-K/A of Inland Western Retail Real Estate Trust, Inc., as
described in note 2. It is not intended to be a complete presentation of the
Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Shoppes at Lake Andrew for the year ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Chicago, Illinois
February 26, 2005
F-58
SHOPPES AT LAKE ANDREW
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
FOR THE YEAR ENDED
DECEMBER 31, 2004
------------------
Gross income:
Base rental income $ 1,907,240
Operating expense and real estate tax recoveries 385,623
------------------
Total gross income 2,292,863
------------------
Direct operating expenses:
Operating expenses 138,198
Insurance 47,877
Real estate taxes 227,361
------------------
Total direct operating expenses 413,436
------------------
Excess of gross income over direct operating expenses $ 1,879,427
==================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-59
SHOPPES AT LAKE ANDREW
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
(1) Business
Shoppes at Lake Andrew ("the Property") is located in Melbourne, FL. The
Property consists of approximately 144,752 square feet of gross leasable area
and was approximately 100% occupied at December 31, 2004. The Property is leased
to a total of 18 tenants, of which five tenants account for approximately 65% of
base rental revenue for the year ended December 31, 2004. On December 28, 2004,
Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property
from an unaffiliated third party. The Historical Summary for the year ended
December 31, 2004 includes gross income and direct operating expenses for a full
year, including the period for which IWRRETI owned the Property.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in Form 8-K/A of IWRRETI and is not intended to be a complete presentation of
the Property's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of the Property to
make estimates and assumptions that affect the reported amounts of the revenues
and expenses during the reporting period. Actual results may differ from those
estimates.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate
tax, and insurance costs. Revenue related to these reimbursed costs is
recognized in the period the applicable costs are incurred and billed to tenants
pursuant to the lease agreements. Certain leases contain renewal options at
various periods at various rental rates. Certain of the leases contain provision
for contingent rentals. Recognition of contingent rental income is deferred
until the target that triggers the contingent rental income is achieved. No
contingent rent was earned during the year ended December 31, 2004.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $46,547
for the year ended December 31, 2004.
F-60
SHOPPES AT LAKE ANDREW
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
Minimum rents to be received from tenants under operating leases, which terms
range from one to 12 years, as of December 31 2004, are as follows:
YEAR
----
2005 $ 2,033,910
2006 2,036,159
2007 2,040,439
2008 2,010,768
2009 1,735,132
Thereafter 6,987,372
------------------
$ 16,843,780
==================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-61
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Mesa Fiesta ("the Property") for
the year ended December 31, 2004. This Historical Summary is the responsibility
of the management of Inland Western Retail Real Estate Trust, Inc. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Historical
Summary is free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Property's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Historical Summary. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the Historical Summary. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in Form 8-K/A of Inland Western Retail Real Estate Trust, Inc., as
described in note 2. It is not intended to be a complete presentation of the
Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Mesa Fiesta for the year ended December 31, 2004, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Atlanta, Georgia
March 2, 2005
F-62
MESA FIESTA
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
FOR THE YEAR ENDED
DECEMBER 31, 2004
------------------
Gross income:
Base rental income $ 2,491,382
Operating expense and real estate tax recoveries 525,213
------------------
Total gross income 3,016,595
------------------
Direct operating expenses:
Operating expenses 132,419
Insurance 74,524
Real estate taxes 320,061
------------------
Total direct operating expenses 527,004
------------------
Excess of gross income over direct operating expenses $ 2,489,591
==================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-63
MESA FIESTA
Notes to the Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
(1) Business
Mesa Fiesta ("the Property") is located in Mesa, Arizona. The Property consists
of approximately 194,892 square feet of gross leasable area and was
approximately 100% occupied at December 31, 2004. The Property is leased to a
total of 8 tenants, of which 3 tenants account for approximately 57% of base
rental revenue for the year ended December 31, 2004. On December 28, 2004,
Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property
from an unaffiliated third party. The Historical Summary for the year ended
December 31, 2004 includes gross income and direct operating expenses for a full
year, including the period for which IWRRETI owned the Property.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in Form 8-K/A of IWRRETI and is not intended to be a complete presentation of
the Property's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of the Property to
make estimates and assumptions that affect the reported amounts of the revenues
and expenses during the reporting period. Actual results may differ from those
estimates.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate
tax, and insurance costs. Revenue related to these reimbursed costs is
recognized in the period the applicable costs are incurred and billed to tenants
pursuant to the lease agreements. Certain leases contain renewal options at
various periods at various rental rates. Certain of the leases contain provision
for contingent rentals. Recognition of contingent rental income is deferred
until the target that triggers the contingent rental income is achieved. No
contingent rent was earned during the year ended December 31, 2004.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments decreased base rental income by $25,314
for the year ended December 31, 2004.
F-64
MESA FIESTA
Notes to the Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
Minimum rents to be received from tenants under operating leases, which terms
range from three to six years, as of December 31 2004, are as follows:
YEAR
----
2005 $ 2,700,054
2006 2,717,769
2007 2,658,117
2008 2,646,222
2009 1,289,448
Thereafter 48,038
------------------
$ 12,059,648
==================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-65
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Midtown Center ("the Property") for
the year ended December 31, 2004. This Historical Summary is the responsibility
of the management of Inland Western Retail Real Estate Trust, Inc. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Historical
Summary is free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Property's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Historical Summary. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the Historical Summary. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in Form 8-K/A of Inland Western Retail Real Estate Trust, Inc., as
described in note 2. It is not intended to be a complete presentation of the
Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Midtown Center for the year ended December 31, 2004, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
February 19, 2005
F-66
MIDTOWN CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
FOR THE YEAR ENDED
DECEMBER 31, 2004
------------------
Gross income:
Base rental income $ 2,984,727
Operating expense and real estate tax recoveries 673,088
Contingent rent 70,071
Other income 6,525
------------------
Total gross income 3,734,411
------------------
Direct operating expenses:
Operating expenses 436,819
Insurance 21,483
Real estate taxes 353,680
------------------
Total direct operating expenses 811,982
------------------
Excess of gross income over direct operating expenses $ 2,922,429
==================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-67
MIDTOWN CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
(1) Business
Midtown Center ("the Property") is located in Milwaukee, Wisconsin. The Property
consists of approximately 319,108 square feet of gross leasable area and was
approximately 98% occupied at December 31, 2004. The Property is leased to a
total of 24 tenants, of which two tenants account for approximately 62% of base
rental revenue for the year ended December 31, 2004. Inland Western Retail Real
Estate Trust, Inc. ("IWRRETI") purchased the Property on January 10, 2005, from
an unaffiliated third party.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in Form 8-K/A of IWRRETI and is not intended to be a complete presentation of
the Property's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of the Property to
make estimates and assumptions that affect the reported amounts of the revenues
and expenses during the reporting period. Actual results may differ from those
estimates.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate
tax, and insurance costs. Revenue related to these reimbursed costs is
recognized in the period the applicable costs are incurred and billed to tenants
pursuant to the lease agreements. Certain leases contain renewal options at
various periods at various rental rates. Certain of the leases contain provision
for contingent rentals. Recognition of contingent rental income is deferred
until the target that triggers the contingent rental income is achieved.
Contingent rent of $70,071 was earned during the year ended December 31, 2004.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by
$135,609 for the year ended December 31, 2004.
F-68
MIDTOWN CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
Minimum rents to be received from tenants under operating leases, which terms
range from five to 20 years, as of December 31 2004, are as follows:
YEAR
----
2005 $ 3,408,623
2006 3,417,970
2007 3,391,311
2008 3,256,084
2009 3,106,530
Thereafter 30,495,875
------------------
$ 47,076,393
==================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-69
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Trenton Crossing ("the Property")
for the year ended December 31, 2004. This Historical Summary is the
responsibility of the management of Inland Western Retail Real Estate Trust,
Inc. Our responsibility is to express an opinion on the Historical Summary based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Historical
Summary is free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Property's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Historical Summary. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the Historical Summary. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in Form 8-K/A of Inland Western Retail Real Estate Trust, Inc., as
described in note 2. It is not intended to be a complete presentation of the
Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Trenton Crossing for the year ended December 31, 2004, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
February 1, 2005
F-70
TRENTON CROSSING
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
FOR THE YEAR ENDED
DECEMBER 31, 2004
------------------
Gross income:
Base rental income $ 1,700,789
Operating expense and real estate tax recoveries 334,703
------------------
Total gross income 2,035,492
------------------
Direct operating expenses:
Operating expenses 140,992
Insurance 55,393
Real estate taxes 294,395
------------------
Total direct operating expenses 490,780
------------------
Excess of gross income over direct operating expenses $ 1,544,712
==================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-71
TRENTON CROSSING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
(1) Business
Trenton Crossing ("the Property") is located in McAllen, TX. The Property
consists of approximately 225,560 square feet of gross leasable area and was
approximately 86% occupied at December 31, 2004. The Property is leased to a
total of 18 tenants, of which four tenants account for approximately 67% of base
rental revenue for the year ended December 31, 2004. On February 10, 2005,
Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property
from an unaffiliated third party.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in Form 8-K/A of IWRRETI and is not intended to be a complete presentation of
the Property's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of the Property to
make estimates and assumptions that affect the reported amounts of the revenues
and expenses during the reporting period. Actual results may differ from those
estimates.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate
tax, and insurance costs. Revenue related to these reimbursed costs is
recognized in the period the applicable costs are incurred and billed to tenants
pursuant to the lease agreements. Certain leases contain renewal options at
various periods at various rental rates. Certain of the leases contain provision
for contingent rentals. Recognition of contingent rental income is deferred
until the target that triggers the contingent rental income is achieved. No
contingent rent was earned during the year ended December 31, 2004.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $68,184
for the year ended December 31, 2004.
F-72
TRENTON CROSSING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
Minimum rents to be received from tenants under operating leases, which terms
range from one to 10 years, as of December 31 2004, are as follows:
YEAR
----
2005 $ 2,180,569
2006 2,199,706
2007 2,191,491
2008 2,159,838
2009 1,704,403
Thereafter 8,910,041
------------------
$ 19,346,048
==================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-73
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Combined Historical Summary of Gross Income and
Direct Operating Expenses ("Combined Historical Summary") of the Properties
acquired from Weber & Company for the year ended December 31, 2004. This
Combined Historical Summary is the responsibility of the management of Inland
Western Retail Real Estate Trust, Inc. Our responsibility is to express an
opinion on the Combined Historical Summary based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Combined
Historical Summary is free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Properties'
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the Combined Historical Summary. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the Combined
Historical Summary. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying Combined Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in Form 8-K/A of Inland Western Retail Real Estate
Trust, Inc., as described in note 2. It is not intended to be a complete
presentation of the Properties' revenues and expenses.
In our opinion, the Combined Historical Summary referred to above presents
fairly, in all material respects, the gross income and direct operating expenses
described in note 2 of the Properties acquired from Weber & Company for the year
ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Chicago, Illinois
February 26, 2005
F-74
PROPERTIES ACQUIRED FROM WEBER & COMPANY
Combined Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
FOR THE YEAR ENDED
DECEMBER 31, 2004
------------------
Gross income:
Base rental income $ 3,213,870
Operating expense and real estate tax recoveries 747,932
Contingent rent 9,934
------------------
Total gross income 3,971,736
------------------
Direct operating expenses:
Operating expenses 350,520
Insurance 116,888
Real estate taxes 785,759
------------------
Total direct operating expenses 1,253,167
------------------
Excess of gross income over direct operating expenses $ 2,718,569
==================
See accompanying notes to combined historical summary of gross income and direct
operating expenses.
F-75
PROPERTIES ACQUIRED FROM WEBER & COMPANY
Notes to Combined Historical Summary of Gross Income and Direct Operating
Expenses For the year ended December 31, 2004
(1) Business
The Properties acquired from Weber & Company consist of:
Gross Occupancy at
Name Leasable Area Location December 31, 2004
---- ------------- -------- -----------------
Lakepointe Towne Crossing 193,503 Lewisville, TX 69%
Pleasant Run Towne Crossing 205,230 Cedar Hill, TX 88%
The Properties are leased to a total of 30 tenants and has three ground leases.
Of these, eight tenants account for 65% of base rental revenue for the year
ended December 31, 2004. On December 30, 2004, Inland Western Retail Real Estate
Trust, Inc. ("IWRRETI") acquired Pleasant Run Towne Crossing from Weber &
Company, an unaffiliated third party. IWRRETI is expected to close on the
acquisition of Lakepointe Towne Crossing in the second quarter of 2005. The
Combined Historical Summary for the year ended December 31, 2004 includes gross
income and direct operating expenses for a full year, including the period for
which IWRRETI owned Pleasant Run Towne Crossing.
(2) Basis of Presentation
The Combined Historical Summary of Gross Income and Direct Operating Expenses
("Combined Historical Summary") has been prepared for the purpose of complying
with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in Form 8-K/A of IWRRETI and is not intended to be a complete
presentation of the Properties' revenues and expenses. The Combined Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Properties to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates. The Combined Historical Summary
is presented on a combined basis since the Properties were acquired from the
same seller.
(3) Gross Income
The Properties lease retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Properties are reimbursed for common area, real
estate tax, and insurance costs. Revenue related to these reimbursed costs is
recognized in the period the applicable costs are incurred and billed to tenants
pursuant to the lease agreements. Certain leases contain renewal options at
various periods at various rental rates. Certain of the leases contain provision
for contingent rentals. Recognition of contingent rental income is deferred
until the target that triggers the contingent rental income is achieved.
Contingent rent of $9,934 was earned the year ended December 31, 2004.
The Properties have three ground leases that are classified as operating leases
with terms extending through May 31, 2024. Total ground lease income was
$147,177 and included in base rental income in the accompanying Combined
Historical Summary of the year ended December 31, 2004.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by
$310,065 for the year ended December 31, 2004.
F-76
PROPERTIES ACQUIRED FROM WEBER & COMPANY
Notes to Combined Historical Summary of Gross Income
and Direct Operating Expenses
For the year ended December 31, 2004
Minimum rents to be received from tenants under operating leases, which terms
range from two to 20 years, as of December 31, 2004, are as follows:
YEAR
----
2005 $ 4,979,148
2006 5,046,516
2007 5,046,516
2008 4,967,816
2009 4,456,005
Thereafter 27,846,203
------------------
$ 52,342,204
==================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Properties. Repairs and maintenance
expenses are charged to operations as incurred. Costs such as depreciation,
amortization, management fees, interest expense related to mortgage debt not
assumed, and professional fees are excluded from the Combined Historical
Summary.
F-77
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Stateline Station ("the Property")
for the year ended December 31, 2004. This Historical Summary is the
responsibility of the management of Inland Western Retail Real Estate Trust,
Inc. Our responsibility is to express an opinion on the Historical Summary based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Historical
Summary is free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Property's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Historical Summary. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the Historical Summary. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Post-Effective Amendment No. 8 to the Registration Statement on
Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note
2. It is not intended to be a complete presentation of the Property's revenues
and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Stateline Station for the year ended December 31, 2004, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
February 26, 2005
F-78
STATELINE STATION
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
FOR THE YEAR ENDED
DECEMBER 31, 2004
------------------
Gross income:
Base rental income $ 1,220,522
Operating expense and real estate tax recoveries 304,637
------------------
Total gross income 1,525,159
------------------
Direct operating expenses:
Operating expenses 172,550
Insurance 40,220
Real estate taxes 197,006
------------------
Total direct operating expenses 409,776
------------------
Excess of gross income over direct operating expenses $ 1,115,383
==================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-79
STATELINE STATION
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
(1) Business
Stateline Station ("the Property") is located in Kansas City, MO. The Property
consists of approximately 132,152 square feet of gross leasable area and was
approximately 76% occupied at December 31, 2004. The Property is leased to a
total of 16 tenants, of which four tenants account for approximately 76% of base
rental revenue for the year ended December 31, 2004. On March 8, 2005, Inland
Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an
unaffiliated third party.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Post-Effective Amendment No. 8 to the Registration Statement on Form S-11
of IWRRETI and is not intended to be a complete presentation of the Property's
revenues and expenses. The Historical Summary has been prepared on the accrual
basis of accounting and requires management of the Property to make estimates
and assumptions that affect the reported amounts of the revenues and expenses
during the reporting period. Actual results may differ from those estimates.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates. Certain of the leases contain provision for contingent
rentals. Recognition of contingent rental income is deferred until the target
that triggers the contingent rental income is achieved. No contingent rent was
earned during the year ended December 31, 2004.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $30,917
for the year ended December 31, 2004.
F-80
STATELINE STATION
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
Minimum rents to be received from tenants under operating leases, which terms
range from one to 11 years, as of December 31 2004, are as follows:
YEAR
----
2005 $ 2,003,064
2006 2,027,680
2007 2,029,623
2008 2,037,394
2009 1,877,860
Thereafter 7,725,391
------------------
$ 17,701,012
==================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-81
MCALLEN SHOPPING CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004 (unaudited)
For the year ended
December 31 2004
------------------
(unaudited)
Gross income:
Base rental income $ 332,768
Operating expense and real estate tax recoveries 38,226
------------------
Total gross income 370,994
------------------
Direct operating expenses:
Operating expenses 22,627
Real estate taxes 37,784
Insurance 21,110
------------------
Total direct operating expenses 64,009
------------------
Excess of gross income over direct operating expenses $ 286,421
==================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-82
MCALLEN SHOPPING CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
(unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2004 has been prepared from the operating statements
provided by the owners of the property during that period and requires
management of McAllen Shopping Center to make estimates and assumptions that
affect the amounts of the revenues and expense during that period. Actual
results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the year ended December 31, 2004.
F-83
23RD STREET PLAZA
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004 (unaudited)
For the year ended
December 31 2004
------------------
(unaudited)
Gross income:
Base rental income $ 510,380
Operating expense and real estate tax recoveries 49,298
------------------
Total gross income 370,994
==================
Direct operating expenses:
Operating expenses 8,968
Real estate taxes 59,455
Insurance 2,228
------------------
Total direct operating expenses 70,651
------------------
Excess of gross income over direct operating expenses $ 489,027
==================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-84
23RD STREET PLAZA
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
(unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2004 has been prepared from the operating statements
provided by the owners of the property during that period and requires
management of 23rd Street Plaza to make estimates and assumptions that affect
the amounts of the revenues and expense during that period. Actual results may
differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the year ended December 31, 2004.
F-85
PHENIX CROSSING
Historical Summary of Gross Income and Direct Operating Expenses
For the period from July 1, 2004 (commencement of operations)
through December 31, 2004 (unaudited)
For the period from
July 1, 2004
(commencement of
operations) through
December 31 2004
-------------------
(unaudited)
Gross income:
Base rental income $ 298,203
Operating expense and real estate tax recoveries 40,844
-------------------
Total gross income 339,047
-------------------
Direct operating expenses:
Operating expenses 45,019
Real estate taxes 26,419
Insurance 7,154
-------------------
Total direct operating expenses 78,592
-------------------
Excess of gross income over direct operating expenses $ 260,455
===================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-86
PHENIX CROSSING
Historical Summary of Gross Income and Direct Operating Expenses
For the period from July 1, 2004 (commencement of operations)
through December 31, 2004 (unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from July 1, 2004 (commencement of operations) to December 31, 2004 has
been prepared from the operating statements provided by the owners of the
property during that period and requires management of Phenix Crossing to make
estimates and assumptions that affect the amounts of the revenues and expense
during that period. Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from July 1, 2004 (commencement of
operations) to December 31, 2004.
F-87
MAGNOLIA SQUARE
Historical Summary of Gross Income and Direct Operating Expenses
For the period from February 1, 2004 (commencement of operations)
through December 31, 2004 (unaudited)
For the period from
February 1, 2004
(commencement of
operations) through
December 31 2004
-------------------
(unaudited)
Gross income:
Base rental income $ 703,210
Operating expense and real estate tax recoveries 106,846
-------------------
Total gross income 810,056
-------------------
Direct operating expenses:
Operating expenses 55,965
Real estate taxes 39,505
Insurance 9,876
-------------------
Total direct operating expenses 105,346
-------------------
Excess of gross income over direct operating expenses $ 704,710
===================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-88
MAGNOLIA SQUARE
Historical Summary of Gross Income and Direct Operating Expenses
For the period from February 1, 2004 (commencement of operations)
through December 31, 2004 (unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from February 1, 2004 (commencement of operations) to December 31, 2004
has been prepared from the operating statements provided by the owners of the
property during that period and requires management of Magnolia Square to make
estimates and assumptions that affect the amounts of the revenues and expense
during that period. Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from February 1, 2004
(commencement of operations) to December 31, 2004.
F-89
COTTAGE PLAZA
Historical Summary of Gross Income and Direct Operating Expenses
For the period from November 1, 2004 (commencement of operations)
through December 31, 2004 (unaudited)
For the period from
November 1, 2004
(commencement of
operations) through
December 31 2004
-------------------
(unaudited)
Gross income:
Base rental income $ 196,247
Operating expense and real estate tax recoveries 10,821
------------------
Total gross income 207,068
------------------
Direct operating expenses:
Operating expenses 13,398
Real estate taxes 27,217
Insurance 3,227
------------------
Total direct operating expenses 43,842
------------------
Excess of gross income over direct operating expenses $ 163,226
==================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-90
COTTAGE PLAZA
Historical Summary of Gross Income and Direct Operating Expenses
For the period from November 1, 2004 (commencement of operations)
through December 31, 2004 (unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from November 1, 2004 (commencement of operations) to December 31, 2004
has been prepared from the operating statements provided by the owners of the
property during that period and requires management of Cottage Plaza to make
estimates and assumptions that affect the amounts of the revenues and expense
during that period. Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from November 1, 2004
(commencement of operations) to December 31, 2004.
F-91
VILLAGE AT QUAIL SPRINGS
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004 (unaudited)
For the year ended
December 31 2004
------------------
(unaudited)
Gross income:
Base rental income $ 522,678
Operating expense and real estate tax recoveries 80,998
------------------
Total gross income 603,676
------------------
Direct operating expenses:
Operating expenses 84,533
Real estate taxes 22,611
Insurance 44,546
------------------
Total direct operating expenses 151,690
------------------
Excess of gross income over direct operating expenses $ 451,986
==================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-92
VILLAGE AT QUAIL SPRINGS
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
(unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2004 has been prepared from the operating statements
provided by the owners of the property during that period and requires
management of Village at Quail Springs to make estimates and assumptions that
affect the amounts of the revenues and expense during that period. Actual
results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the year ended December 31, 2004.
F-93
HOLLIDAY TOWNE CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004 (unaudited)
For the year ended
December 31 2004
------------------
(unaudited)
Gross income:
Base rental income $ 997,591
Operating expense and real estate tax recoveries 166,812
------------------
Total gross income 1,164,403
------------------
Direct operating expenses:
Operating expenses 153,699
Real estate taxes 81,949
Insurance 28,475
------------------
Total direct operating expenses 264,123
------------------
Excess of gross income over direct operating expenses $ 900,280
==================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-94
HOLLIDAY TOWNE CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2004
(unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2004 has been prepared from the operating statements
provided by the owners of the property during that period and requires
management of Holliday Towne Center to make estimates and assumptions that
affect the amounts of the revenues and expense during that period. Actual
results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the year ended December 31, 2004.
F-95
HIGH RIDGE CROSSING
Historical Summary of Gross Income and Direct Operating Expenses
For the period from May 17, 2004 (commencement of operations)
through December 31, 2004 (unaudited)
For the period from
May 17, 2004
(commencement of
operations) through
December 31 2004
-------------------
(unaudited)
Gross income:
Base rental income $ 347,416
Operating expense and real estate tax recoveries 126,501
-------------------
Total gross income 473,917
-------------------
Direct operating expenses:
Operating expenses 106,893
Real estate taxes 56,962
Insurance 4,813
-------------------
Total direct operating expenses 168,668
-------------------
Excess of gross income over direct operating expenses $ 305,249
===================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-96
HIGH RIDGE CROSSING
Historical Summary of Gross Income and Direct Operating Expenses
For the period from May 17, 2004 (commencement of operations)
to December 31, 2004 (unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from May 17, 2004 (commencement of operations) to December 31, 2004 has
been prepared from the operating statements provided by the owners of the
property during that period and requires management of High Ridge Crossing to
make estimates and assumptions that affect the amounts of the revenues and
expense during that period. Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from May 17, 2004 (commencement of
operations) to December 31, 2004.
F-97
PROSPECTUS
270,000,000 shares of common stock - maximum offering
200,000 shares of common stock - minimum offering
Inland Western Retail Real Estate Trust, Inc.
a Real Estate Investment Trust
$10.00 per share: Minimum Initial Purchase - 300 shares (100 shares for
Tax-Exempt Entities)
We intend to operate as a real estate investment trust or a REIT beginning with
the tax year ending December 31, 2003. We are not currently qualified as a REIT
for federal income tax purposes. We will not be requesting a ruling from the
Internal Revenue Service to qualify as a REIT. We were formed in 2003 to acquire
and manage properties which are located mainly in states west of the Mississippi
River. No public market currently exists for our shares of common stock and our
shares cannot be readily sold.
We are offering 250,000,000 shares to investors who meet our suitability
standards; and up to 20,000,000 shares to participants in our reinvestment plan
(at $9.50 per share).
A minimum of 200,000 shares of common stock must be sold within one year from
the date of this prospectus, unless extended, or we will terminate this offering
and we will return your subscription payments, with interest within five
business days after termination of this offering. Prior to the sale of the
minimum offering, your subscription payments will be placed in an escrow account
held by the escrow agent, LaSalle Bank National Association. The managing dealer
of the offering, Inland Securities Corporation, is our affiliate. The managing
dealer is not required to sell any specific number or dollar amount of shares
but will use its best efforts to sell the 250,000,000 of our shares. This
offering will end no later than September 15, 2004, unless we elect to extend it
to a date no later than September 15, 2005 in states that permit us to make this
extension.
INVESTING IN OUR COMPANY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 11 FOR A DISCUSSION OF THE MATERIAL RISK FACTORS WHICH SHOULD
BE CONSIDERED IN CONNECTION WITH YOUR INVESTMENT IN OUR COMMON STOCK. THESE
RISKS INCLUDE:
- our common stock is not currently listed or traded on an exchange and
cannot be readily sold (and sales by stockholders may be made at a loss);
- we have no operating history nor established financing sources;
- we have identified only one property to be purchased with the proceeds of
this offering;
- if we raise the minimum amount, we will not have sufficient resources to
acquire the identified property. We need to raise in excess of $26 million
to acquire this property;
- we have no ownership in our advisor and the advisor is owned by our sponsor
or their affiliates;
- our advisor and its affiliates will receive substantial fees, including
participation in proceeds from the sales, refinancing or liquidation of our
assets;
- our advisor, property manager and two of our directors are subject to
conflicts of interest as a result of their affiliation with The Inland
Group;
- there are limits on ownership, transferability and redemption of shares;
- risks that incentive structure of fees payable to our advisor and its
affiliates may encourage our advisor to make investments that have greater
risks to generate higher fees; and
- although we anticipate that aggregate borrowings will not exceed 55% of the
combined fair market value of our properties, our charter imposes a
limitation on our borrowings of less than 300% of net assets and there are
risks associated with a high amount of leverage.
We are unable to specifically quantify the above risk factors. The use of
forecasts in this offering is prohibited. Any representations to the contrary
and any predictions, written or oral, as to the amount or certainty of any
present or future cash benefit or tax consequence which may flow from an
investment in this program is not permitted. Any stockholder loss of capital
will be limited to the amount of their investment. You should purchase these
securities only if you can afford a complete loss of your investment.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Per Share Min. Offering Max. Offering
Public offering price, primary shares (1)....... $ 10.00 $ 2,000,000 $ 2,500,000,000
Public offering price, distribution
reinvestment program.................... $ 9.50 $ 0 $ 190,000,000
Selling commissions (1)................ $ 1.05 $ 210,000 $ 262,500,000
Proceeds, before expenses, to us.... $ 8.95 $ 1,790,000 $ 2,452,500,000
(1) The selling commission only applies to sales of primary shares and is
composed of a 7.5% selling commission (7.0% of which is reallowable), 2.5%
marketing allowance and .5% due diligence expense allowance.
The date of this Prospectus is September 15, 2003.
FOR RESIDENTS OF MICHIGAN ONLY:
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
DEPARTMENT OF CONSUMER & INDUSTRY SERVICES, MICHIGAN OFFICE OF FINANCIAL AND
INSURANCE SERVICES. THE DEPARTMENT HAS NOT UNDERTAKEN TO PASS UPON THE VALUE OF
THESE SECURITIES NOR TO MAKE ANY RECOMMENDATIONS AS TO THEIR PURCHASE.
THE USE OF THIS PROSPECTUS IS CONDITIONED UPON ITS CONTAINING ALL MATERIAL FACTS
AND THAT ALL STATEMENTS CONTAINED THEREIN ARE TRUE AND CAN BE SUBSTANTIATED. THE
DEPARTMENT HAS NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
NO BROKER-DEALER, SALESMAN, AGENT OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING HEREBY MADE OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR EFFECTIVE
LITERATURE.
THIS IS A BEST EFFORTS OFFERING, AND WE RESERVE THE RIGHT TO ACCEPT OR REJECT
ANY SUBSCRIPTION AND WILL PROMPTLY NOTIFY THE SUBSCRIBER OF ACCEPTANCE OR
REJECTION. THERE IS NO ASSURANCE THAT THIS OFFERING WILL ALL BE SOLD. THERE ARE
NO ASSURANCES AS TO WHAT SIZE WE MAY REACH.
THERE IS NO ASSURANCE THAT OUR OPERATIONS WILL BE PROFITABLE OR THAT LOSSES WILL
NOT OCCUR.
IT IS NOT OUR POLICY TO REDEEM OUR STOCK (EXCEPT AS PROVIDED IN THIS OFFERING).
ANY REPRESENTATIONS CONTRARY TO ANY OF THE FOREGOING SHOULD BE REPORTED
FORTHWITH TO THE OFFICE OF FINANCIAL AND INSURANCE SERVICE AT 611 West Ottawa
Street, 2nd Floor Ottawa Building, P.O. Box 30701, Lansing, MI 48909-8201, or
Telephone (877) 999-6442.
WHO MAY INVEST
In order to purchase shares, you must:
- Meet the financial suitability standards, and
- Purchase a minimum number of shares.
SUITABILITY STANDARDS
Because an investment in our common stock is risky and is a long-term
investment, it is suitable for you only if you have adequate financial means,
you have no immediate need for liquidity in your investment and you can bear the
complete loss of your investment.
We have established financial suitability standards for investors who
purchase shares of our common stock. In addition, residents of some states must
meet higher suitability standards under state law. These standards require you
to meet the applicable criteria below. In determining your net worth, do not
include your home, home furnishings or your automobile. INVESTORS WITH
INVESTMENT DISCRETION OVER ASSETS OF AN EMPLOYEE BENEFIT PLAN COVERED BY ERISA
SHOULD CAREFULLY REVIEW THE INFORMATION IN THE SECTION ENTITLED, "ERISA
CONSIDERATIONS."
GENERAL STANDARDS FOR ALL INVESTORS
- Minimum net worth of at least $150,000; or
- Minimum annual gross income of at least $45,000 and net worth of at
least $45,000. Standards for Maine Residents
- Minimum net worth of $200,000, or
- Minimum annual gross income of $50,000 and a minimum net worth of
$50,000.
Standards for Arizona, California, Iowa, Massachusetts, Michigan, Missouri,
Oregon or Tennessee Residents
- Minimum net worth of $225,000, or
- Minimum annual gross income of $60,000 and a minimum net worth of
$60,000.
Standards for Kansas, Missouri, Ohio and Pennsylvania Residents
- In addition to meeting the actual standard for all investors, your
investment may not exceed 10% of your liquid net worth.
In the case of sales to fiduciary accounts, these minimum standards must be
met by the beneficiary, the fiduciary account, or by the donor or grantor who
directly or indirectly supplies the funds to purchase the common stock if the
donor or the grantor is the fiduciary. INVESTORS WITH INVESTMENT DISCRETION OVER
ASSETS OF AN EMPLOYEE BENEFIT PLAN COVERED UNDER ERISA SHOULD CAREFULLY REVIEW
THE INFORMATION ENTITLED "ERISA CONSIDERATIONS."
In the case of gifts to minors, the suitability standards must be met by
the custodian account or by the donor.
MINIMUM PURCHASE
Subject to the restrictions imposed by state law, we will sell shares of
our common stock only to investors who initially purchase a minimum of 300
shares of common stock for a total purchase price of $3,000, or tax-exempt
entities which purchase a minimum of 100 shares of common stock for a total
purchase price of $1,000. For investors living in Iowa, the minimum investment
for IRAs will be 300 shares of common stock for a total purchase price of
$3,000, and for investors living in Minnesota, the minimum investment for IRAs
and qualified plan accounts will be 200 shares of common stock for a total
purchase price of $2,000. Tax-exempt entities are generally any investor that is
exempt from federal income taxation, including:
- a pension, profit-sharing, retirement, IRA or other employee benefit
plan which satisfies the requirements for qualification under Section
401(a), 414(d) or 414(e) of the Internal Revenue Code;
- a pension, profit-sharing, retirement, IRA or other employee benefit
plan which meets the requirements of Section 457 of the Internal
Revenue Code;
- trusts that are otherwise exempt under Section 501(a) of the Internal
Revenue Code;
- a voluntary employees' beneficiary association under Section 501(c)(9)
of the Internal Revenue Code; or
- an IRA which meets the requirements of Section 408 of the Internal
Revenue Code.
The term "plan" includes plans subject to Title I of ERISA, other employee
benefit plans and IRAs subject to the prohibited transaction provisions of
Section 4975 of the Internal Revenue Code, governmental or church plans that are
exempt from ERISA and Section 4975 of the Internal Revenue Code, but that may be
subject to state law requirements, or other employee benefit plans.
Subject to any restrictions imposed by state law, subsequent additional
investments by current investors require a minimum investment of $25. This
limitation does not apply to the purchase of shares through the dividend
reinvestment provision.
[THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY ............................................................................................. 1
Inland Western Retail Real Estate Trust, Inc. ........................................................ 1
The types of real estate that we may acquire and manage .............................................. 1
Our sponsor, our advisor and The Inland Group ........................................................ 2
Conflicts of interest ................................................................................ 5
Compensation to be paid to our advisor and affiliates ................................................ 6
Primary business objective and strategies ............................................................ 7
Shares sold before the offering ...................................................................... 8
Terms of the offering ................................................................................ 8
Is an investment in us appropriate for you? .......................................................... 8
Distributions ........................................................................................ 9
Real property investments ............................................................................ 9
Share repurchase program ............................................................................. 9
Estimated Use of Proceeds ............................................................................ 10
RISK FACTORS ................................................................................................... 11
The price of our common stock is subjective and may not bear any relationship to what a
stockholder could receive if it was sold ........................................................ 11
Our common stock is not currently listed on an exchange or trading market and cannot be
readily sold .................................................................................... 11
You do not know what real properties and other assets we may acquire in the future, and must
rely on our advisor, our board and officers to select them and stockholders will not
participate in these decisions .................................................................. 11
Competition with third parties in acquiring properties will reduce our profitability and the
return on your investment ....................................................................... 11
We will compete with real estate investment programs sponsored by companies affiliated with
us for the acquisition of properties and for the time and services of personnel ................. 12
We plan to incur mortgage indebtedness and other borrowings, which may reduce the funds
available for distribution, may increase the risk of loss since defaults may result in
foreclosure and mortgages may include cross-collateralization or cross-default provisions
that increase the risk that more than one property may be affected by a default ................. 12
If we have insufficient working capital reserves, we will have to obtain financing from
other sources ................................................................................... 12
The types of properties which we intend to acquire and the area in which we may acquire
retail centers is limited ....................................................................... 13
The aggregate amount we may borrow is limited under our articles of incorporation .................... 13
We have no operating history, and so we have no history of earnings upon which you could
evaluate our business ........................................................................... 13
Because of the way we are organized, we would be a difficult takeover target. This could
depress the price of our stock and inhibit a management change .................................. 13
Your investment return may be reduced if we are required to register as an investment
company under the Investment Company Act ........................................................ 15
There are many factors which can affect distributions to stockholders ................................ 16
Our derivative financial instruments used to hedge against interest rate fluctuations could
reduce the overall returns on your investment ................................................... 17
We could issue more shares in the future, which could reduce the market price of our
outstanding shares .............................................................................. 17
i
Our share repurchase program is limited to .50% of the weighted average number of shares of
our stock outstanding during the prior calendar year and may be changed or terminated by us,
thereby reducing the potential liquidity of your investment ..................................... 17
Stockholders have limited control over changes in our policies ....................................... 17
If we invest in joint ventures, the objectives of our partners may conflict with our
objectives ...................................................................................... 17
If we sell properties by providing financing to purchasers, we will bear the risk of default
by the purchaser ................................................................................ 18
If we do not raise sufficient funds, we may not fulfill our investment objectives, including
asset diversification ........................................................................... 18
Delays in acquisitions of properties may have an adverse effect ...................................... 18
We may not be able to immediately invest proceeds in real estate, which will harm your
returns ......................................................................................... 18
We depend on our board of directors, advisor and property manager and losing those
relationships could negatively affect our operations ............................................ 19
There are conflicts of interest between us and our affiliates ........................................ 19
We cannot predict the amounts of compensation to be paid to our advisor and our other
affiliates ...................................................................................... 21
The managing dealer has not made an independent review of us or the prospectus ....................... 21
Our rights and the rights of our stockholders to take action against our directors and
officers and the advisor are limited ............................................................ 21
The business of our advisor and our property manager may be acquired by us without further
action of our stockholders ...................................................................... 22
Your percentage of ownership may become diluted if we issue new shares of stock ...................... 22
There are inherent risks with real estate investments ................................................ 22
Adverse economic conditions in our primary geographic region and in the market for retail
space could reduce our income and distributions to you .......................................... 23
Rising expenses could reduce cash flow and funds available for future acquisitions ................... 23
If our tenants are unable to make rental payments, if their rental payments are reduced, or
if they terminate a lease, our financial condition and ability to pay distributions will be
adversely affected .............................................................................. 23
Our financial condition and ability to make distributions may be adversely affected by the
bankruptcy or insolvency, a downturn in the business, or a lease termination of a tenant
that occupies a large area of the retail center or an anchor tenant ............................. 24
If a tenant claims bankruptcy, we may be unable to collect balances due under relevant leases ........ 24
We may incur additional costs in acquiring or re-leasing retail properties ........................... 24
Our properties will be subject to competition for tenants and customers .............................. 24
Our properties will face competition which may affect tenants' ability to pay rent and the
amount of rent paid to us and in turn affect the cash available for distributions and the
amount of distributions ......................................................................... 25
We may be restricted from re-leasing space ........................................................... 25
We may be unable to sell a property if or when we decide to do so .................................... 25
If we suffer losses that are not covered by insurance or that are in excess of insurance
coverage, we could lose invested capital and anticipated profits ................................ 25
Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on
September 11, 2001, and other acts of violence or war may affect the markets in which we
operate, our operations and our profitability ................................................... 26
Real estate related taxes may increase and if these increases are not passed on to tenants,
our income will be reduced ...................................................................... 26
Revenue from our properties depends on the amount of our tenants' retail revenue, making us
vulnerable to general economic downturns and other conditions affecting the retail industry ..... 26
ii
The costs of compliance with environmental laws and other governmental laws and regulations
may adversely affect our income and the cash available for any distributions .................... 27
Our costs associated with complying with the Americans with Disabilities Act may affect cash
available for distributions ..................................................................... 27
If a sale or leaseback transaction is recharacterized, our financial condition could be
adversely affected............................................................................... 28
We may incur additional costs in acquiring newly constructed properties which may adversely
affect cash available for distributions to you .................................................. 28
Our investments in unimproved real property may result in additional cost to us to comply
with re-zoning restrictions or environmental regulations ........................................ 28
Construction and development activities will expose us to risks such as cost overruns,
carrying costs of projects under construction or development, availability and costs of
materials and labor, weather conditions and government regulation ............................... 28
We may acquire or finance properties with lock-out provisions which may prohibit us from
selling a property, or may require us to maintain specified debt levels for a period of
years on some properties ........................................................................ 29
Your investment has various federal income tax risks ................................................. 29
If we fail to qualify as a REIT or to maintain our REIT status, our dividends will not be
deductible to us, and our income will be subject to taxation .................................... 29
You may have tax liability on distributions you elect to reinvest in common stock .................... 29
The opinion of Duane Morris LLP regarding our status as a REIT does not guarantee our
ability to remain a REIT ........................................................................ 29
Even REITS are subject to federal and state income taxes ............................................. 30
An investment in our common stock may not be suitable for every employee benefit plan ................ 30
The annual statement of value that we will be sending to stockholders subject to ERISA and
to certain other plan stockholders is only an estimate and may not reflect the actual value
of our shares ................................................................................... 30
CAUTIONING NOTE REGARDING FORWARD-LOOKING STATEMENTS ........................................................... 32
HOW WE OPERATE ................................................................................................. 34
CONFLICTS OF INTEREST .......................................................................................... 36
COMPENSATION TABLE ............................................................................................. 39
ESTIMATED USE OF PROCEEDS ...................................................................................... 46
PRIOR PERFORMANCE OF OUR AFFILIATES ............................................................................ 47
Prior Investment Programs ............................................................................ 47
Summary Information .................................................................................. 47
Publicly Registered REITs ............................................................................ 49
Publicly Registered Limited Partnerships ............................................................. 51
Private Partnerships ................................................................................. 51
Private Placement Real Estate Equity Program ......................................................... 53
Private Placement Note and Mortgage Program .......................................................... 54
1031 Exchange Private Placement Offering Program ..................................................... 55
Summary Tables ....................................................................................... 62
MANAGEMENT ..................................................................................................... 64
Inland Affiliated Companies .......................................................................... 64
Our General Management ............................................................................... 67
Our Directors and Executive Officers ................................................................. 68
Committees of Our Board of Directors ................................................................. 70
Compensation of Directors and Officers ............................................................... 71
Executive Compensation ............................................................................... 71
iii
Independent Director Stock Option Plan ............................................................... 71
Our Advisor .......................................................................................... 73
Our Advisory Agreement ............................................................................... 73
The Property Manager and the Management Agreement .................................................... 77
Inland Securities Corporation ........................................................................ 80
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND OUR ADVISOR ............................. 83
PRINCIPAL STOCKHOLDERS ......................................................................................... 85
OUR STRUCTURE AND FORMATION .................................................................................... 86
Structure ............................................................................................ 86
SELECTED FINANCIAL DATA ........................................................................................ 87
INVESTMENT OBJECTIVES AND POLICIES ............................................................................. 88
General .............................................................................................. 88
Distributions ........................................................................................ 88
Types of Investments ................................................................................. 88
Property Acquisition Standards ....................................................................... 89
Description of Leases ................................................................................ 90
Property Acquisition ................................................................................. 91
Borrowing ............................................................................................ 91
Sale or Disposition of Properties .................................................................... 92
Change in Investment Objectives and Policies ......................................................... 93
Investment Limitations ............................................................................... 93
Other Investments .................................................................................... 93
Appraisals ........................................................................................... 93
Return of Uninvested Proceeds ........................................................................ 94
Additional Offerings and Exchange Listing ............................................................ 94
Joint Ventures ....................................................................................... 95
Construction and Development Activities .............................................................. 95
Other Policies ....................................................................................... 96
REAL PROPERTY INVESTMENTS ...................................................................................... 98
Investing in REITS ................................................................................... 98
General .............................................................................................. 98
Insurance Coverage on Properties .....................................................................100
Properties ...........................................................................................100
Potential Property Acquisitions ......................................................................101
Potential Property: Peoria Station, Peoria, Arizona ..................................................102
CAPITALIZATION .................................................................................................104
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION ................................................105
Liquidity and Capital Resources ......................................................................105
Capital Resources ....................................................................................106
Results of Operations ................................................................................108
Funds from Operations ................................................................................108
Initial Property .....................................................................................108
Critical Accounting Policies .........................................................................108
New Accounting Pronouncement ........................................................................ 111
Inflation ............................................................................................111
Quantitative and Qualitative Disclosures About Market Risk ...........................................111
DESCRIPTION OF SECURITIES ......................................................................................113
iv
Authorized Stock .....................................................................................113
Common Stock .........................................................................................113
Preferred Stock ......................................................................................114
Issuance of Additional Securities and Debt Instruments ...............................................115
Restrictions on Issuance of Securities ...............................................................115
Restrictions on Ownership and Transfer ...............................................................115
Provisions of Maryland Law and of Our Articles of Incorporation and Bylaws ...........................118
SHARES ELIGIBLE FOR FUTURE SALE ................................................................................120
Shares to be Outstanding or Issuable upon Exercise or Conversion of Other Outstanding
Securities ......................................................................................120
Securities Act Restrictions ..........................................................................120
Independent Director Stock Option Plan ...............................................................121
Effect of Availability of Shares on Market Price of Shares ...........................................121
Registration Rights ..................................................................................121
SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS ........................................................................123
Articles of Incorporation and Bylaw Provisions .......................................................123
Stockholders' Meetings ...............................................................................123
Board of Directors ...................................................................................124
Stockholder Voting Rights ............................................................................124
Rights of Objecting Stockholders .....................................................................125
Stockholder Lists; Inspection of Books and Records ...................................................125
Amendment of the Organizational Documents ............................................................126
Dissolution or Termination of the Company ............................................................126
Advance Notice of Director Nominations and New Business ..............................................126
Restrictions on Certain Conversion Transactions and Roll-Ups .........................................127
Limitation on Total Operating Expenses ...............................................................129
Transactions with Affiliates .........................................................................130
Restrictions on Borrowing ............................................................................130
Restrictions on Investments ..........................................................................131
FEDERAL INCOME TAX CONSIDERATIONS ..............................................................................134
Federal Income Taxation as a REIT ....................................................................134
Federal Income Taxation of Stockholders ..............................................................140
Other Tax Considerations .............................................................................143
ERISA CONSIDERATIONS ...........................................................................................145
PLAN OF DISTRIBUTION ...........................................................................................148
General ..............................................................................................148
Escrow Conditions ....................................................................................148
Subscription Process .................................................................................149
Representations and Warranties in the Subscription Agreement .........................................150
Determination of Your Suitability as an Investor .....................................................150
Compensation We Will Pay for the Sale of Our Shares ..................................................151
Volume Discounts .....................................................................................152
Deferred Commission Option ...........................................................................153
Indemnification ......................................................................................155
HOW TO SUBSCRIBE ...............................................................................................157
SALES LITERATURE ...............................................................................................159
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS ........................................................160
v
Distribution Reinvestment Program ....................................................................160
Share Repurchase Program .............................................................................161
REPORTS TO STOCKHOLDERS ........................................................................................164
PRIVACY POLICY NOTICE ..........................................................................................165
LITIGATION .....................................................................................................165
RELATIONSHIPS AND RELATED TRANSACTIONS .........................................................................166
LEGAL MATTERS ..................................................................................................172
EXPERTS ........................................................................................................172
WHERE YOU CAN FIND MORE INFORMATION ............................................................................172
Index to Financial Statements ..................................................................................F-i
Appendix A - Prior Performance Tables ..........................................................................A-1
Appendix B - Dividend Reinvestment Plan ........................................................................B-1
Appendix C - Subscription Agreement ............................................................................C-1
Appendix D - Transfer on Death Designation .....................................................................D-1
Appendix E1 - Letter of Direction .............................................................................E1-1
Appendix E2 - Notice of Revocation ............................................................................E2-1
Appendix F - Privacy Policy Notice .............................................................................F-1
vi
PROSPECTUS SUMMARY
This summary highlights all of the material information in this prospectus.
Because this is a summary, it does not contain all the information that may be
important to you. You should read this entire prospectus and its appendices
carefully before you decide to invest in our shares of common stock.
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
We are a Maryland corporation formed in March 2003. We intend to operate as
a real estate investment trust, or a REIT, for federal and state income tax
purposes beginning with the tax year ending December 31, 2003. We intend that
our company will own all of our assets, either directly or indirectly. We
currently have one stockholder, our advisor, Inland Western Retail Real Estate
Advisory Services, Inc. In March 2003, our advisor purchased from us 20,000
shares for $10 per share for an aggregate purchase price of $200,000 in
connection with our organization.
Our principal executive offices are located at 2901 Butterfield Road, Oak
Brook, Illinois 60523 and our telephone number is (630) 218-8000.
THE TYPES OF REAL ESTATE THAT WE MAY ACQUIRE AND MANAGE
Our advisor is experienced in acquiring and managing real estate,
particularly retail focused shopping centers. We intend to acquire and manage a
diversified (by geographical location and by type and size of retail centers)
portfolio of real estate primarily improved for use as retail establishments,
principally multi-tenant shopping centers. Our portfolio will consist
predominantly of grocery and discount store anchored retail, including net lease
retail. We may acquire certain mixed use properties that may include lodging,
office and/or multi-family residential if they are part of a retail center. And,
we may also acquire other types of retail shopping centers, such as enclosed
malls, outlet malls and power centers. We also anticipate acquiring real estate
improved with other commercial facilities which provide goods and services as
well as double or triple net leased properties, which are either commercial or
retail, including properties acquired in sale and leaseback transactions. A
triple-net leased property is one which is leased to a tenant who is responsible
for the base rent and all costs and expenses associated with their occupancy,
including property taxes, insurance, repairs and maintenance. We have, however,
only identified one property in Phoenix, Arizona, to purchase from the proceeds
of this offering.
The retail centers we intend to acquire would be located primarily in
states west of the Mississippi River in the United States. Where feasible, we
will endeavor to acquire multiple properties within the same major metropolitan
markets where the acquisitions result in efficient property management
operations with the potential to achieve market dominance.
We do not intend to invest in real estate properties that are primarily:
- farms;
- health care facilities;
- industrial properties;
- leisure home sites;
- manufacturing facilities;
- mining properties;
1
- ranches;
- single-family residential properties;
- timberlands; or
- unimproved properties not intended to be developed (vacant land).
Subject to compliance with the applicable requirement under the federal
income tax laws, we may also undertake construction and development activities
and render services in connection with such activities.
OUR SPONSOR, OUR ADVISOR AND THE INLAND GROUP
Our sponsor is Inland Real Estate Investment Corporation, which is owned by
The Inland Group, Inc. The Inland Group, together with its subsidiaries and
affiliates, is a fully-integrated group of legally and financially separate
companies that have been engaged in diverse facets of real estate for over 35
years providing property management, leasing, marketing, acquisition,
disposition, development, redevelopment, syndication, renovation, construction,
finance and other related services. Inland Western Retail Real Estate Advisory
Services, Inc., is a wholly owned subsidiary of our sponsor and is our advisor.
Inland Securities Corporation, another affiliate of The Inland Group, is the
managing dealer of this offering. Inland Western Management Corp., our property
manager, is an entity owned principally by individuals who are affiliates of The
Inland Group. The principal executive offices of The Inland Group, our sponsor,
our advisor and our property manager are located at 2901 Butterfield Road, Oak
Brook, Illinois 60523 and their telephone number is (630) 218-8000.
2
The following organizational chart depicts the services that affiliates or our
sponsor will render to us and our organizational structure.
ORGANIZATIONAL CHART
--------- --------- --------- ---------
Daniel L. Robert H. G. Joseph Robert D.
Goodwin* Baum* Cosenza* Parks*
--------- --------- --------- ---------
|| || || ||
===========================================================
||
-----------------------
THE INLAND GROUP, INC.*
-----------------------
||
=============================================================================================================
|| || || || |
--------------- ------------------- ----------------- ------------------ |
The Inland The Inland Property Inland Real Inland Real |
Services Group, Management Estate Investment Estate Transaction |
Inc. Group, Inc. Corporation Group, Inc. |
(our sponsor) |
--------------- ------------------- ----------------- ------------------- |
| | | | |
| | ========================================== | |
| | || || || | |
| | ----------- --------------------- ------------------ | ----------------------
| | Inland Inland Western Retail Inland Partnership | Inland Mortgage
--------------- ----------------- Securities Real Estate Advisory Property Sales | Investment Corporation
Inland Risk and Inland Western Corporation Services, Inc. Corporation |
Insurance Management Corp. (our advisor) |
Management (property manager) ----------- --------------------- ------------------ | ----------------------
Services, Inc. | | | |
--------------- ----------------- | | | |
| | | | ================================ =================
| | | | || || || || ||
| | | | ------------- ----------- ------------- ----------- ---------------
| | | | Inland Real Inland Real Inland Real Inland Inland Mortgage
--------- | | | Estate Sales, Estate Estate Mortgage Servicing
Insurance | | | Inc. Development Acquisitions, Corporation Corporation
Services | | | Corporation Inc.
--------- | | | ------------- ----------- ------------- ----------- ---------------
| | | | | | | | |
| | | | | | | | |
| | | | -------------- | | | |
| | | | Real Estate | | | |
| | | | Sales Services | | | |
| | | | -------------- | | | |
| | | | | | | | |
| | | | | | | | |
| -------------------- ---------- --------------- | ----------------- ----------- ---------- -------------
| Property Management Securities Organization, | Construction and Property Mortgage Mortgage Loan
| and Related Services Sales Advisory | Development Acquisition Brokerage Servicing
| and Real Estate | Services Services Services
| Services |
| -------------------- ---------- --------------- | ----------------- ----------- ---------- -------------
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
------------------------------------------------------------------------------------------------------------------------------------
Inland Western Retail Real Estate Trust, Inc.
We will be principally owned by public investors. Ownership is represented by shares of our common stock
------------------------------------------------------------------------------------------------------------------------------------
Solid lines indicate 100% ownership.
Broken lines indicate service.
* The four indicated individuals control The Inland Group, Inc. and own
substantially all of its stock.
3
Investment in shares of our common stock involves risks. If we are unable
to effectively manage the impact of these risks, we may not meet our investment
objectives and, therefore, you may lose some or all of your investment. The
following is a summary of the material risks which we believe are most relevant
to an investment in the shares. These risks are generally listed in the order of
priority.
- our common stock is not currently listed or traded on an exchange and
cannot be readily sold (and sales by stockholders may be made at a
loss);
- we have no operating history nor established financing sources;
- we have identified only one property to be purchased with the proceeds
of this offering;
- if we raise the minimum amount, we will not have sufficient resources
to acquire the identified property. We need to raise in excess of $26
million to acquire this property;
- although we anticipate that aggregate borrowings will not exceed 55%
of the combined fair market value of our properties, our charter
imposes a limitation on our borrowings of less than 300% of net assets
and there are risks associated with a high amount of leverage;
- we have no ownership in our advisor and the advisor is owned by our
sponsor or their affiliates;
- our advisor and its affiliates will receive substantial fees,
including participation in proceeds from the sales, refinancing or
liquidation of our assets;
- our advisor, property manager and two of our directors are subject to
conflicts of interest as a result of their affiliation with The Inland
Group, including conflicts of interest relating to:
- the negotiation of the terms of the advisors and property
management agreements;
- the allocation of their time between us and their other business
ventures;
- decisions whether to acquire and dispose of properties;
- the purchase and sale of properties to or from the advisor and
our affiliates; and
- the allocation of investment opportunities between us and their
other business ventures.
- the management fee structure could result in our advisor recommending
riskier or more speculative investments;
- we may make distributions that include a return of principal for
federal tax purposes;
- we may fail to qualify as a REIT;
- there are limits on ownership, transferability and redemption of
shares;
- our investment policies and strategies may be changed without
stockholder consent;
- our investments will lack geographic diversification;
4
- we will not be able to meet our business objectives if we only acquire
one single net leased property; and
- risks that incentive structure of fees payable to our advisor and its
affiliates may encourage our advisor to make investments that have
greater risks to generate higher fees.
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST EXIST BETWEEN US AND SOME OF OUR AFFILIATES, INCLUDING OUR
ADVISOR. THESE AFFILIATES INCLUDE, INLAND REAL ESTATE CORPORATION, INLAND RETAIL
REAL ESTATE TRUST, INC. AND INLAND REAL ESTATE EXCHANGE CORPORATION. INLAND REAL
ESTATE CORPORATION IS A PUBLICLY REGISTERED REIT. INLAND REAL ESTATE CORPORATION
IS A SELF-ADMINISTERED REIT AND IS NO LONGER AFFILIATED WITH THE INLAND GROUP.
INLAND REAL ESTATE CORPORATION PURCHASES SHOPPING CENTERS LOCATED IN THE
MIDWEST. INLAND RETAIL REAL ESTATE TRUST, INC. IS AFFILIATED WITH THE INLAND
GROUP. INLAND RETAIL REAL ESTATE TRUST, INC. PURCHASES SHOPPING CENTERS LOCATED
EAST OF THE MISSISSIPPI RIVER. INLAND REAL ESTATE EXCHANGE CORPORATION IS A
SUBSIDIARY OF INLAND REAL ESTATE INVESTMENT CORPORATION. INLAND REAL ESTATE
EXCHANGE CORPORATION PROVIDES REPLACEMENT PROPERTIES FOR PEOPLE WISHING TO
COMPLETE AN IRS SECTION 1031 REAL ESTATE EXCHANGE. Midwest Real Estate Equities,
Inc. is not a subsidiary of The Inland Group, Inc or its affiliates but does
have some of the same shareholders as The Inland Group, Inc. Midwest Real Estate
Equities buys, manages and sells commercial and multi-family property.
Some of these conflicts include:
- competition for the time and services of personnel that work for us
and our affiliates, including, such persons as Daniel L. Goodwin,
Robert H. Baum, G. Joseph Cosenza, Robert D. Parks, Roberta S. Matlin,
Scott W. Wilton, Kelly E. Tucek, and Brenda G. Gujral, which may limit
the amount of time these people may spend on our business matters;
- substantial compensation payable by us to Inland Securities
Corporation, Inland Western Retail Real Estate Advisory Services, Inc.
and Inland Western Management Corp. for their various services which
may not be on market terms and is payable, in most cases, whether or
not our stockholders receive distributions;
- competition for properties, although our affiliates are governed by
the Property Acquisition Service Agreement which, with certain
limitations, gives us a right of first refusal for all properties west
of the Mississippi River;
- acquisition of properties from an affiliate who has a contract to
acquire it from PDG America; and
- the possibility that we may do business with entities that have
pre-existing relationships with our affiliates which may result in a
conflict between our business and the ongoing business relationships
our affiliates have with each other.
Conflicts of interest may also arise in connection with the potential sale or
refinancing of our properties or the enforcement of agreements.
We have an option to acquire or consolidate into us the business conducted
by our advisor and/or our property manager for shares of common stock.
5
COMPENSATION TO BE PAID TO OUR ADVISOR AND AFFILIATES
We intend to pay our advisor and affiliates substantial fees for managing
our business.
We will also pay the advisor and other affiliates of our sponsor a number
of other fees for services or expense reimbursements during our offering,
operational and liquidation stage.
Set forth below is a tabular summary of fees and compensation payable to our
advisor and other affiliates.
Type of Compensation
Nonsubordinated payments:
Offering stage:
Selling commissions 7.5% of the sale price for each share
Estimated maximum: $187,500,000
Marketing contribution and due diligence 3.0% of the gross offering proceeds
allowance Estimated maximum: $75,000,000
Reimbursable expenses and other We will reimburse our sponsor for
expenses of issuance actual costs incurred on our behalf in
connection with this offering.
Estimated amount: $14,684,000
Acquisition stage:
Acquisition expenses We will reimburse Inland Real Estate
Acquisitions, Inc. for costs incurred,
on our behalf, in connection with the
acquisition of properties:
Estimated maximum: $13,450,000
Operational stage:
Property management fee 4.5% of the gross income from the
This fee terminates upon A BUSINESS COMBINATION properties. (cannot exceed 90% of the
WITH OUR PROPERTY MANAGER. fee which would be payable to an
unrelated third party). Actual amounts
cannot be determined at the present
time. We will pay the fee for services
in connection with the rental, leasing,
operation and management of the
properties.
Loan servicing fee .08% of the total principal amount of
the loans being serviced for each full
year, up to the first $100 million and
a lesser percentage on a sliding scale
thereafter. Actual amounts cannot be
determined at the present time.
Reimbursable expenses relating to administrative The compensation and reimbursements to
services our advisor and its affiliates will be
approved by a majority of our
directors. Actual amounts cannot be
determined at the present time. These
may include cost of goods and services
and non-supervisory services performed
directly for us by independent parties.
6
Liquidation stage:
Property disposition fee Lesser of 3% of sales price or 50% of
THIS FEE TERMINATES UPON A BUSINESS the customary commission which would be
COMBINATION WITH OUR ADVISOR. paid to a third party. Actual amounts
cannot be determined at the present time.
Subordinated payments:
Operational stage:
Advisor asset management fee Not more than 1% per annum of our
THIS FEE TERMINATES UPON A BUSINESS average assets; subordinated to a
COMBINATION WITH OUR ADVISOR. non-cumulative, non-compounded return,
equal to 6% per annum. Actual amounts
cannot be determined at the present
time. We will pay the fee for services
in connection with our day-to-day
operations, including administering our
bookkeeping and accounting functions,
services as our consultant in
connection with policy decisions made
by our board, managing our properties
or causing them to be managed by
another party and providing other
services as our board deems
appropriate.
Liquidation stage:
Incentive advisory fee After our stockholders have first
THIS FEE TERMINATES UPON A BUSINESS received a 10% cumulative,
COMBINATION WITH THE ADVISOR. non-compounded return and a return on
their net investment, an incentive
advisory fee equal to 15% on net
proceeds from the sale of a property
will be paid to our advisor. Actual
amounts cannot be determined at the
present time. We will pay the fee for
services in connection with the
disposition of our properties.
PRIMARY BUSINESS OBJECTIVE AND STRATEGIES
Our primary business objective is to enhance the performance and value of
our properties through active management. Key elements of our strategy are:
Acquisitions:
- To selectively acquire real properties that are diversified types and
well-located.
- To selectively acquire properties on an all-cash basis if necessary to
provide us with a competitive advantage over potential purchasers who
must secure financing. We may, however, acquire properties subject to
existing indebtedness if we believe this is in our best interest. We
may acquire properties free and clear of permanent mortgage debt by
paying the entire purchase price of each property in cash or for
shares, interests in entities that own one or more of our properties
or a combination of these. However, as of the date of this prospectus,
we had not paid the purchase price of any properties using shares or
interests in entities that will own our properties.
7
- To diversify geographically within the states west of the Mississippi
by acquiring properties primarily located in major metropolitan areas
to minimize the potential adverse impact of economic downturns in
local markets.
Operations:
- We intend to actively manage costs and minimize operating expenses by
centralizing all management, leasing, marketing, financing,
accounting, renovation and data processing activities.
- We intend to improve rental income and cash flow by aggressively
marketing rentable space.
- We intend to emphasize regular maintenance and periodic renovation to
meet the needs of tenants and to maximize long-term returns.
- We intend to maintain a diversified tenant base at our retail centers,
consisting primarily of retail tenants providing consumer goods and
services.
SHARES SOLD BEFORE THE OFFERING
This is our initial public offering. We issued 20,000 shares of our common
stock for $10 per share, or an aggregate purchase price of $200,000, to our
advisor in connection with our organization.
TERMS OF THE OFFERING
If we only sell the minimum offering, we will have sold a total of 220,000
shares. If we sell the maximum amount of shares under the offering, we will have
sold a total of 250,020,000. These numbers do not include shares issued upon
exercise of options granted and which may be granted under our independent
director stock option plan.
We are offering a minimum of 200,000 shares ($2,000,000) and a maximum of
250,000,000 shares ($2,500,000,000). We are offering 250,000,000 shares on a
best efforts basis through the managing dealer at $10.00 per share, subject to
discounts in some cases. An offering on a best efforts basis is one in which the
securities dealers participating in the offering are under no obligation to
purchase any of the securities being offered and, therefore, no specified number
of securities are guaranteed to be sold and no specified amount of money is
guaranteed to be raised from the offering.
We are also offering up to 20,000,000 shares at a purchase price of $9.50
per share to stockholders who elect to participate in our distribution
reinvestment program.
The offering price of our shares is subjective and was determined by our
board of directors. Our board of directors determined the offering price based
upon the offering price of earlier REITs organized by our sponsor, the range of
other REITs that do not have a public trading market and the recommendation of
the managing dealer based on its consultations with likely soliciting dealers.
IS AN INVESTMENT IN US APPROPRIATE FOR YOU?
An investment in us might be appropriate as part of your investment
portfolio if:
- You are looking for regular distributions. We intend to pay regular
monthly distributions to our domestic stockholders and regular
quarterly distributions to our foreign
8
stockholders. The maximum time that you should have to wait to receive
the first distribution is 45 days from the date in which we accept
your subscription.
- You are looking for a hedge against inflation. We intend to hedge
against inflation by entering into leases with tenants which provide
for scheduled rent escalations or participation in the growth of
tenant sales. This is designed to provide increased distributions and
capital appreciation.
- You are looking for capital preservation and appreciation. We intend
to acquire a portfolio of diverse properties, usually on an all cash
basis, that are well located. After acquiring these properties, we may
finance them, but we anticipate that aggregate borrowings secured by
our properties will not exceed 55% of their combined fair market
value.
WE CANNOT GUARANTEE THAT WE WILL ACHIEVE THESE OBJECTIVES.
DISTRIBUTIONS
We intend to pay regular monthly distributions to our domestic stockholders
and regular quarterly distributions to our foreign stockholders. The maximum
time that you should have to wait to receive the first distribution is 45 days
from the date in which we accept your subscription.
In order to maintain our REIT status under federal income tax laws, we
intend to distribute at least 90% of our taxable income to our stockholders. For
federal income tax purposes only, we may make distributions that include a
return of principal or an amount in excess of 95% of cash available to us.
REAL PROPERTY INVESTMENTS
We have identified one property for purchase in the state of Arizona.
We anticipate purchasing an existing shopping center known as Peoria
Station, which will contain 181,500 gross leasable square feet upon completion
of the current redevelopment. The center currently contains 140,019 gross
leasable square feet. The center is located at 10160 North 67th Avenue in
Peoria, Arizona.
An affiliate of our advisor has entered into a contract to acquire this
property. We anticipate that the affiliate will assign this purchase contract to
us for no cost to us. We would then anticipate purchasing Peoria Station from
PDG America, an unaffiliated third party. Our total acquisition cost, including
expenses, is expected to be approximately $25,867,000. This amount may be
adjusted based on actual rental rates achieved on the redeveloped square feet.
This amount may also increase by additional costs, which have not yet been
finally determined. We expect any additional costs to be insignificant. Our
acquisition cost is expected to be approximately $143 per square foot of
leasable space.
SHARE REPURCHASE PROGRAM
We intend to institute a share repurchase program. Our share repurchase
program may provide eligible stockholders with limited interim liquidity by
enabling them to sell shares back to us. The prices at which shares may be sold
back to us will be one year from the purchase date at $9.25 per share; two years
from the purchase date at $9.50 per share; three years from the purchase date at
$9.75 per share; and four years from the purchase date at the greater of $10.00
per share or a price equal to ten times our "funds available for distribution"
per weighted average share outstanding for the prior calendar year. We may
terminate, reduce or otherwise change the above share repurchase program.
9
ESTIMATED USE OF PROCEEDS
The amounts listed in the table below represent our current estimates
concerning the use of the offering proceeds. Since these are estimates, they may
not accurately reflect the actual receipt or application of the offering
proceeds. This first scenario assumes we sell the minimum number of 200,000
shares of common stock in this offering. The second scenario assumes:
- we sell the maximum of 250,000,000 shares in this offering at $10 per
share; and
- we sell the maximum of 20,000,000 shares in our distribution
reinvestment program at $9.50 per share.
Under both scenarios we have not given effect to any special sales or
volume discounts which could reduce selling commissions.
MAXIMUM OFFERING
(INCLUDING SHARES SOLD UNDER THE
MINIMUM OFFERING DISTRIBUTION REINVESTMENT
200,000 SHARES PROGRAM)
--------------------------------- ---------------------------------
AMOUNT PERCENT AMOUNT PERCENT
--------------- --------------- --------------- ---------------
Gross proceeds .............. $ 2,000,000 100.0% $ 2,690,000,000 100.00%
--------------- --------------- --------------- ---------------
Less expenses:
Selling commissions ..... 150,000 7.5% 187,500,000 6.97%
Marketing contribution .. 60,000 3.0% 75,000,000 2.79%
Organization and offering 90,000 4.5% 14,684,000 .55%
--------------- --------------- --------------- ---------------
Total expenses .......... 300,000 15.0% 277,184,000 10.30%
--------------- --------------- --------------- ---------------
Gross amount available ...... 1,700,000 85.0% 2,412,816,000 89.70%
Less
Acquisition expenses .... 10,000 0.5% 13,450,000 0.50%
Working capital reserve . 20,000 1.0% 26,900,000 1.00%
--------------- --------------- --------------- ---------------
Net cash available .......... $ 1,670,000 83.50% $ 2,372,466,000 88.20%
=============== =============== =============== ===============
10
RISK FACTORS
An investment in our shares involves significant risks and therefore is
suitable only for those persons who understand those risks and the consequences
of their investment and who are able to bear the risk of loss of their entire
investment. You should consider the following material risks in addition to
other information set forth elsewhere in this prospectus before making your
investment decisions.
THE PRICE OF OUR COMMON STOCK IS SUBJECTIVE AND MAY NOT BEAR ANY
RELATIONSHIP TO WHAT A STOCKHOLDER COULD RECEIVE IF IT WAS SOLD. Our board of
directors determined the offering price of our shares of common stock based on
the following factors:
- the offering price of the earlier REITs organized by our sponsor;
- the range of offering prices of other REITs that do not have a public
trading market; and
- the recommendation of the managing dealer based on its consultations
with likely soliciting dealers.
However, the offering price of our shares of common stock may not be the
same as the price at which the shares may trade if they were listed on an
exchange or actively traded by brokers, nor of the proceeds that a stockholder
may receive if we were liquidated or dissolved. As such, any sales may be made
at a loss.
OUR COMMON STOCK IS NOT CURRENTLY LISTED ON AN EXCHANGE OR TRADING MARKET
AND CANNOT BE READILY SOLD. There is currently no public trading market for the
shares and we cannot assure you that one will develop. We may never list the
shares for trading on a national stock exchange or include the shares for
quotation on a national market system. The absence of an active public market
for our shares could impair your ability to sell our stock at a profit or at
all. By September 15, 2008 our board of directors will determine whether it is
in our best interests to apply to have the shares listed on a national stock
exchange or included for quotation on a national market system if we meet the
applicable listing requirements at that time.
YOU DO NOT KNOW WHAT REAL PROPERTIES AND OTHER ASSETS WE MAY ACQUIRE IN THE
FUTURE, AND MUST RELY ON OUR ADVISOR, OUR BOARD AND OFFICERS TO SELECT THEM AND
STOCKHOLDERS WILL NOT PARTICIPATE IN THESE DECISIONS. We intend to acquire
commercial retail properties. We have only recently identified one property we
intend to acquire. However, no information is available as to the
identification, location, operating histories, lease terms or other relevant
economic and financial data of any real properties or other assets we may
purchase in the future. As a result, you must rely on us to locate and acquire
suitable investment properties. In addition, our board of directors may approve
future equity offerings or obtain financing, the proceeds of which may be
invested in additional properties; therefore, you will not have an opportunity
to evaluate all of the properties that will be in our portfolio. Stockholders
will not participate in evaluating these investment opportunities. Nonetheless,
you will be unable to evaluate the manner in which we invest the proceeds of
this offering or the economic merit of particular properties prior to their
acquisition. This prospectus only describes the parameters we will use to
acquire additional real properties and other assets.
COMPETITION WITH THIRD PARTIES IN ACQUIRING PROPERTIES WILL REDUCE OUR
PROFITABILITY AND THE RETURN ON YOUR INVESTMENT. We compete with many other
entities engaged in real estate investment activities, many of which have
greater resources than we do. Larger REITs may enjoy significant competitive
advantages that result from, among other things, a lower cost of capital and
enhanced operating efficiencies. In addition, the number of entities and the
amount of funds competing for suitable
11
investment properties may increase. This will result in increased demand for
these assets and therefore increased prices paid for them. If we pay higher
prices for properties, our profitability is reduced and you will experience a
lower return on your investment.
WE WILL COMPETE WITH REAL ESTATE INVESTMENT PROGRAMS SPONSORED BY COMPANIES
AFFILIATED WITH US FOR THE ACQUISITION OF PROPERTIES AND FOR THE TIME AND
SERVICES OF PERSONNEL. Affiliated companies have previously sponsored other
REITs, private real estate equity programs and private placement mortgage and
note programs, and affiliated companies in the future may sponsor other real
estate investment programs. These affiliated companies include Inland Real
Estate Corporation, Inland Retail Real Estate Trust, Inc., Inland Real Estate
Exchange Corporation and other entities to be formed by The Inland Group, Inc.
We will compete with these existing and future real estate investment programs
for the acquisition of properties of a type suitable for our investment, for the
time and services of personnel of our advisor and affiliates of our advisor in
connection with our operation and the management of our assets, and for
obtaining and retaining investors for our common stock. We will be limited to
acquiring properties that are located west of the Mississippi River and single
net lease properties located anywhere in the United States and therefore our
geographic diversity will be limited.
WE PLAN TO INCUR MORTGAGE INDEBTEDNESS AND OTHER BORROWINGS, WHICH MAY
REDUCE THE FUNDS AVAILABLE FOR DISTRIBUTION, MAY INCREASE THE RISK OF LOSS SINCE
DEFAULTS MAY RESULT IN FORECLOSURE AND MORTGAGES MAY INCLUDE
CROSS-COLLATERALIZATION OR CROSS-DEFAULT PROVISIONS THAT INCREASE THE RISK THAT
MORE THAN ONE PROPERTY MAY BE AFFECTED BY A DEFAULT. We may, in some instances,
use either existing financing or borrow new funds to acquire properties. We
intend to incur or increase our mortgage debt by obtaining loans secured by
selected or all of the real properties to obtain funds to acquire additional
real properties. We may also borrow funds if necessary to satisfy the
requirement that we distribute to stockholders as dividends at least 90% of our
annual REIT taxable income, or otherwise as is necessary or advisable to assure
that we maintain our qualification as a REIT for federal income tax purposes.
We may incur mortgage debt on a particular real property if we believe the
property's projected cash flow is sufficient to service the mortgage debt.
However, if there is a shortfall in cash flow, then the amount available for
distributions to stockholders may be affected. In addition, incurring mortgage
debt increases the risk of loss since defaults on indebtedness secured by
properties may result in foreclosure actions initiated by lenders and our loss
of the property securing the loan which is in default. For tax purposes, a
foreclosure of any of our properties would be treated as a sale of the property
for a purchase price equal to the outstanding balance of the debt secured by the
mortgage. If the outstanding balance of the debt secured by the mortgage exceeds
our basis in the property, we would recognize taxable income on foreclosure, but
would not receive any cash proceeds. We may give full or partial guarantees to
lenders of mortgage debt to the entity that owns our properties. In such cases,
we will be responsible to the lender for satisfaction of the debt if it is not
paid by such entity. If any mortgages contain cross-collateralization or
cross-default provisions, there is a risk that more than one real property may
be affected by a default.
If mortgage debt is unavailable at reasonable rates, we will not be able to
place financing on the properties, which could reduce distributions per share.
If we place mortgage debt on the properties, we run the risk of being unable to
refinance the properties when the loans come due, or of being unable to
refinance on favorable terms. If interest rates are higher when the properties
are refinanced, our net income could be reduced, which would reduce cash
available for distribution to stockholders and may prevent us from raising
capital by issuing more stock and may prevent us from borrowing more money.
IF WE HAVE INSUFFICIENT WORKING CAPITAL RESERVES, WE WILL HAVE TO OBTAIN
FINANCING FROM OTHER SOURCES. We intend to establish working capital reserves
which we believe are adequate to cover our cash needs. However, if these
reserves are insufficient to meet our cash needs, we may have to obtain
12
financing from either affiliated or unaffiliated sources to fund our cash
requirements. We cannot assure you that sufficient financing will be available
or, if available, will be available on economically feasible terms or on terms
acceptable to us. Additional borrowing for working capital purposes will
increase our interest expense and therefore, our financial condition and our
ability to pay distributions may be adversely affected.
THE TYPES OF PROPERTIES WHICH WE INTEND TO ACQUIRE AND THE AREA IN WHICH WE
MAY ACQUIRE RETAIL CENTERS IS LIMITED. We intend to primarily acquire and manage
retail centers. Our acquisition of retail centers is limited primarily to states
west of the Mississippi River. Adverse economic conditions affecting that area
could adversely affect our profitability to a greater degree than if we had
diversified our investments to include other types of real estate over a larger
geographic region.
WE CURRENTLY PLAN TO ACQUIRE ONLY ONE SINGLE NET LEASED PROPERTY. We
currently only have an agreement to acquire one single net leased property. We
will not be able to meet our business objectives if we only acquire one single
net leased property. This limitation could have an adverse effect on our
business.
THE AGGREGATE AMOUNT WE MAY BORROW IS LIMITED UNDER OUR ARTICLES OF
INCORPORATION. Our articles of incorporation limit the aggregate amount we may
borrow, secured and unsecured, to 300% of our net assets, absent a satisfactory
showing that a higher level is appropriate. That limitation could have adverse
consequences on our business, including:
- freezing our ability to purchase properties;
- causing us to lose our REIT status if borrowing was necessary to
distribute the required minimum amount of cash to our stockholders for
us to qualify as a REIT;
- causing operational problems if there are cash flow shortfalls for
working capital purposes; and
- resulting in the loss of a property if, for example, financing was
necessary to cure a default on a mortgage.
In order to change this limitation, we must obtain approval by a majority
of our independent directors and by a majority of our stockholders. There will
be a delay before approval can be obtained, if it can be obtained at all. It is
possible that even if the required approval is obtained, it may not be obtained
in sufficient time to avoid the adverse consequences of not having the
additional funding when it is needed.
WE HAVE NO OPERATING HISTORY, AND SO WE HAVE NO HISTORY OF EARNINGS UPON
WHICH YOU COULD EVALUATE OUR BUSINESS. We were incorporated on March 5, 2003. We
have only recently begun operations. We have not acquired any properties or
hired any employees. Therefore, we have no operating history upon which you can
evaluate our business and prospects. We have no income, cash flow, funds from
operations or funds available to make distributions to you. We may be unable to
conduct our business as we intend to do. You must carefully consider the risks
and uncertainties frequently encountered in new companies like ours. Because we
have no operating history, we have no historical basis for predicting if our
business will be successful.
BECAUSE OF THE WAY WE ARE ORGANIZED, WE WOULD BE A DIFFICULT TAKEOVER
TARGET. THIS COULD DEPRESS THE PRICE OF OUR STOCK AND INHIBIT A MANAGEMENT
CHANGE. Provisions which may have an anti takeover effect and inhibit a change
in our management include:
13
- THERE ARE OWNERSHIP LIMITS AND RESTRICTIONS ON TRANSFERABILITY AND
OWNERSHIP IN OUR ARTICLES OF INCORPORATION. In order for us to qualify
as a REIT, no more than 50% of the outstanding shares of our stock may
be beneficially owned, directly or indirectly, by five or fewer
individuals at any time during the last half of each taxable year. To
assure that we will not fail to qualify as a REIT under this test, our
articles of incorporation provide that, commencing March 1, 2003,
subject to some exceptions, no person may beneficially own more than
9.8% of our common stock.
This restriction may:
- have the effect of delaying, deferring or preventing a change in
control of us, including an extraordinary transaction (such as a
merger, tender offer or sale of all or substantially all of our
assets) that might involve a premium price for holders of our
common stock; or
- compel a stockholder who had acquired more than 9.8% of our stock
to dispose of the additional shares and, as a result, to forfeit
the benefits of owning the additional shares.
- OUR ARTICLES OF INCORPORATION PERMIT OUR BOARD OF DIRECTORS TO ISSUE
PREFERRED STOCK WITH TERMS THAT MAY DISCOURAGE A THIRD PARTY FROM
ACQUIRING US. Our articles of incorporation permit our board of
directors to issue, without stockholder approval, up to 10 million
shares of preferred stock. The board may classify or reclassify any
unissued preferred stock and establish preferences, conversion or
other rights, voting power, restrictions, limitations as to dividends
and other distributions, qualifications, or terms or conditions of
redemption, of any preferred stock. Thus, our board could authorize,
without the approval by our stockholders, the issuance of preferred
stock with terms and conditions which could have the effect of
delaying, deferring or preventing a change in control of us, including
an extraordinary transaction (such as merger, tender offer or sale of
all or substantially all of our assets) that might provide a premium
for holders of our common stock.
- MARYLAND LAW MAY DISCOURAGE A THIRD PARTY FROM ACQUIRING US. Maryland
law restricts mergers and other business combinations between us and
an interested stockholder. Under the Maryland Business Combination
Act, an anti-takeover statute, for a period of five years after the
most recent acquisition of stock by an interested stockholder, we may
not engage in any merger or other business combination with that
interested stockholder or any affiliate of that interested
stockholder. After the five-year period, any merger or other business
combination must be approved by our board of directors and by at least
80% of all the votes entitled to be cast by holders of outstanding
shares of our voting stock and two-thirds of all the votes entitled to
be cast by holders of outstanding shares of our voting stock other
than the interested stockholder with whom the business combination is
to be effected unless, among other things, the stockholders of the
company receive in the business combination a minimum consideration
for their common stock equal to the highest price paid by the
interested stockholder for its common stock. However, our articles of
incorporation provide that the business combination provisions of
Maryland law do not apply to any business combination involving us and
our affiliates. As a result, the five-year prohibition and the
super-majority stockholder vote requirements will not apply to any
business combinations between us and our affiliates. The Maryland
Business Combination Act could have the effect of discouraging offers
from third parties to acquire us and of increasing the
14
difficulty of successfully completing a business combination. See
"Description of Securities - Provisions of Maryland Law and our
Articles of Incorporation and Bylaws."
- MARYLAND LAW ALSO LIMITS THE ABILITY OF A THIRD PARTY TO BUY A LARGE
STAKE IN US AND EXERCISE VOTING POWER IN ELECTING DIRECTORS. Maryland
law provides a second anti-takeover statute, its Control Share
Acquisition Act, which provides that "control shares" of a Maryland
corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by the corporation's
disinterested stockholders by a vote of a two-thirds of the votes
entitled to be cast on the matter; shares of stock owned by interested
stockholders, that is, by the acquirer, by officers or by directors
who are employees of the corporation, are not entitled to be cast on
the matter. "Control shares" are voting shares of stock which would
entitle the acquirer to exercise voting power in electing directors
within specified ranges of voting power. Control shares do not include
shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share
acquisition" means the acquisition of control shares. The control
share acquisition statute does not apply (i) to shares acquired in a
merger, consolidation or share exchange if the corporation is a party
to the transaction or (ii) to acquisitions approved or exempted by the
articles of incorporation or bylaws of the corporation. Our bylaws
exempt our affiliates from the Maryland control share acquisition
statute. This statute could have the effect of discouraging offers
from third parties to acquire us and increasing the difficulty of
successfully completing this type of offer by anyone other than our
affiliates or any of their affiliates. See "Description of Securities
- Provisions of Maryland Law and our Articles of Incorporation and
Bylaws - Control Share Acquisition."
YOUR INVESTMENT RETURN MAY BE REDUCED IF WE ARE REQUIRED TO REGISTER AS AN
INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT. We are not registered as an
investment company under the Investment Company Act of 1940. If we were
obligated to register as an investment company, we would have to comply with a
variety of substantive requirements under the Investment Company Act. These
requirements include:
- limitations on capital structure;
- restrictions on specified investments;
- prohibitions on transactions with affiliates; and
- compliance with reporting, record keeping, voting, proxy disclosure
and other rules and regulations that would significantly change our
operations.
In order to maintain our exemption from regulation under the Investment
Company Act of 1940, we must engage primarily in the business of buying real
estate, and these investments must be made within a year after the offering
ends. If we are unable to invest a significant portion of the proceeds of this
offering in properties within one year of the termination of the offering, we
may avoid being required to register as an investment company by temporarily
investing any unused proceeds in government securities with low returns. This
would reduce the cash available for distribution to investors and possibly lower
your returns.
To maintain compliance with the Investment Company Act exemption, we may be
unable to sell assets we would otherwise want to sell and may need to sell
assets we would otherwise wish to retain. In addition, we may have to acquire
additional income or loss generating assets that we might not otherwise
15
have acquired or may have to forgo opportunities to acquire interests in
companies that we would otherwise want to acquire and would be important to our
strategy.
If we were required to register as an investment company but failed to do
so, we would be prohibited from engaging in our business, and criminal and civil
actions could be brought against us. In addition, our contracts would be
unenforceable unless a court were to require enforcement, and a court could
appoint a receiver to take control of us and liquidate our business.
THERE ARE MANY FACTORS WHICH CAN AFFECT DISTRIBUTIONS TO STOCKHOLDERS.
Distributions will be based principally on cash available from our properties,
real estate securities, and other investments. The amount of cash available for
distributions will be affected by many factors, such as our ability to buy
properties as offering proceeds become available, the yields on securities of
other REITs which we invest in, and our operating expense levels, as well as
many other variables. Actual cash available for distributions may vary
substantially from estimates. We can give no assurance that we will be able to
pay or maintain distributions or that distributions will increase over time. Nor
can we give any assurance that rents from the properties will increase, that the
securities we buy will increase in value or provide increased dividends over
time, or that future acquisitions of real properties or our investments in
securities will increase our cash available for distributions to stockholders.
Our actual results may differ from the assumptions used by our board of
directors in establishing the initial distribution rate to stockholders. Some of
these factors are beyond our control, and a change in any one factor could
adversely affect our ability to pay future distributions:
- If one or more tenants defaults or terminates their lease, there could
be a decrease or cessation of rental payments which would mean less
cash available for distributions.
- Cash available for distributions may be reduced if we are required to
spend money to correct defects or to make improvements to properties.
- Cash available to make distributions may decrease if the assets we
acquire have lower yields than expected.
- There may be a delay between the sale of the common stock and our
purchase of real properties. During that time, we may invest in lower
yielding short term instruments, which could result in a lower yield
on your investment.
- Federal income tax laws require REITs to distribute at least 90% of
their taxable income to stockholders. This limits the earnings which
we may retain for corporate growth, such as property acquisition,
development or expansion and makes us more dependent upon additional
debt or equity financing than corporations which are not REITs. If we
borrow more funds in the future, more of our operating cash will be
needed to make debt payments and cash available for distributions may
therefore decrease.
- In connection with future property acquisitions, we may issue
additional shares of common stock or interests in other entities that
own our properties. We cannot predict the number of shares of common
stock, units or interests which we may issue, or the effect that these
additional shares might have on cash available for distributions to
you. If we issue additional shares, they could reduce the cash
available for distributions to you.
- We make distributions to our stockholders to comply with the
distribution requirements of the Internal Revenue Code and to
eliminate, or at least minimize, exposure to federal income taxes and
the nondeductible REIT excise tax. Differences in timing between the
16
receipt of income and the payment of expenses and the effect of
required debt payments could require us to borrow funds on a short
term basis to meet the distribution requirements that are necessary to
achieve the tax benefits associated with qualifying as a REIT.
OUR DERIVATIVE FINANCIAL INSTRUMENTS USED TO HEDGE AGAINST INTEREST RATE
FLUCTUATIONS COULD REDUCE THE OVERALL RETURNS ON YOUR INVESTMENT. We may use
derivative financial instruments to hedge exposures to changes in interest rates
on loans secured by our properties. To the extent we do, we are exposed to
credit risk and market risk. Credit risk is the failure of the counterparty to
perform under the terms of the derivative contract. When the fair value of a
derivative contract is positive, the counterparty owes us, which creates credit
risk for us. When the fair value of a derivative contract is negative, we owe
the counterparty and, therefore, it does not possess credit risk.
Our hedging strategy and use of derivative financial instruments may reduce
the overall returns on your investments.
As we have yet to raise any money, our board has not yet established
policies and procedures regarding our use of derivative financial instruments
for hedging or other purposes.
WE COULD ISSUE MORE SHARES IN THE FUTURE, WHICH COULD REDUCE THE MARKET
PRICE OF OUR OUTSTANDING SHARES. We have the power to issue more shares of our
common stock in the future. We cannot predict the effect on the market price of
our outstanding common stock, if any, of future sales by us of shares of our
common stock, or the availability of shares for future sales through the
exercise of options granted to independent directors under our independent
director stock option plan. The issuance of these additional shares, or the
perception that these shares could be issued, could adversely affect the
prevailing market prices, if any, for our common stock.
OUR SHARE REPURCHASE PROGRAM IS LIMITED TO 5% OF THE WEIGHTED AVERAGE
NUMBER OF SHARES OF OUR STOCK OUTSTANDING DURING THE PRIOR CALENDAR YEAR AND MAY
BE CHANGED OR TERMINATED BY US, THEREBY REDUCING THE POTENTIAL LIQUIDITY OF YOUR
INVESTMENT. In accordance with our share repurchase program, a maximum of 5% of
the weighed average number of shares of our stock outstanding during the prior
calendar year may be repurchased by us. This standard limits the number of
shares we can purchase. Our board also has the ability to change or terminate,
at any time, our share repurchase program. If we terminate or modify our share
repurchase program or if we do not have sufficient funds available to repurchase
all shares that our stockholders request to repurchase, then our stockholders'
ability to liquidate their shares will be diminished.
STOCKHOLDERS HAVE LIMITED CONTROL OVER CHANGES IN OUR POLICIES. Our board
of directors determines our major policies, including our investment objectives,
financing, growth, debt capitalization, REIT qualification and distributions.
Our board of directors may amend or revise these and other policies without a
vote of the stockholders. This means that stockholders will have limited control
over changes in our policies.
IF WE INVEST IN JOINT VENTURES, THE OBJECTIVES OF OUR PARTNERS MAY CONFLICT
WITH OUR OBJECTIVES. We may make investments in joint ventures or other
partnership arrangements between us and affiliates of our sponsor or with
unaffiliated third parties. Investments in joint ventures which own real
properties may involve risks otherwise not present when we purchase real
properties directly. For example, our co venturer may file for bankruptcy
protection, may have economic or business interests or goals which are
inconsistent with our interests or goals, or may take actions contrary to our
instructions, requests, policies or objectives. Among other things, actions by a
co venturer might subject real properties owned by the
17
joint venture to liabilities greater than those contemplated by the terms of the
joint venture or other adverse consequences.
IF WE SELL PROPERTIES BY PROVIDING FINANCING TO PURCHASERS, WE WILL BEAR
THE RISK OF DEFAULT BY THE PURCHASER. If we decide to sell any of our
properties, we will use our best efforts to sell for cash. However, we may sell
our properties by providing financing to purchasers. When we provide financing
to purchasers, we will bear the risk of default by the purchaser and will be
subject to remedies provided by law. There are no limitations or restrictions on
our ability to take purchase money obligations. We may therefore take a purchase
money obligation secured by a mortgage as part payment for the purchase price.
The terms of payment to us will be affected by custom in the area where the
property being sold is located and the then-prevailing economic conditions. If
we receive promissory notes or other property in lieu of cash from property
sales, the distribution of the proceeds of sales to our stockholders, or their
reinvestment in other properties, will be delayed until the promissory notes or
other property are actually paid, sold, refinanced or otherwise disposed of. In
some cases, we may receive initial down payments in cash and other property in
the year of sale in an amount less than the selling price and subsequent
payments will be spread over a number of years.
IF WE DO NOT RAISE SUFFICIENT FUNDS, WE MAY NOT FULFILL OUR INVESTMENT
OBJECTIVES, INCLUDING ASSET DIVERSIFICATION. We are making this offering on a
best efforts basis and it is conditioned on the sale of at least 200,000 shares
of common stock for $2,000,000. Because this offering will be made on a best
efforts basis, our potential profitability and our ability to continue to
diversify our investments, both geographically and by type of properties
purchased, will be limited by the amount of funds we raise. We will be able to
purchase additional properties only as additional funds are raised. We cannot
guarantee that we will sell the minimum number of shares and, if we do not, all
proceeds from subscribers will be returned to them together with the interest
earned on the proceeds. We have committed to pay approximately $26 million for
the property to be purchased by us located in Phoenix, Arizona. In addition,
expenses that we will incur in connection with this offering will impact the
amount of funds that we have available to fulfill our investment objectives. If
we only sell the minimum amount, we will incur $300,000 in expenses, and
therefore will only have $1.7 million available for investment purposes. Funds
that we apply towards offering expenses will reduce the amount of funds
available for investment purposes. If we do not raise the minimum offering
amount, then we will not be able to fulfill our investment objectives. See "Plan
of Distribution -- Escrow Conditions" for explanations of when uninvested
proceeds and escrowed funds will be returned to you. If we sell the maximum
amount, we estimate our total expenses will be $277 million, leaving
approximately $2.4 billion available for investment purposes.
DELAYS IN ACQUISITIONS OF PROPERTIES MAY HAVE AN ADVERSE EFFECT. Delays we
encounter in the selection, acquisition and development of properties could
adversely affect your returns and distributions on your investment. Where we
acquire properties prior to the start of construction or during the early stages
of construction, it will typically take several months to complete construction
and rent available space. Therefore, you could suffer delays in your
distributions attributable to those particular properties. In addition, it takes
a certain amount of time to locate, negotiate an acceptable purchase contract,
conduct due diligence and ultimately acquire a property. If we are unable to
invest our offering proceeds in income producing real properties in a timely
manner, this may adversely affect the funds available for distribution.
WE MAY NOT BE ABLE TO IMMEDIATELY INVEST PROCEEDS IN REAL ESTATE, WHICH
WILL HARM YOUR RETURNS. Until we invest the proceeds of this offering in real
estate investments, we may invest in short-term, highly liquid or other
authorized investments. Such short-term investments are not likely to earn as
high a return as we expect to earn on our real estate investments, and we cannot
guarantee how long it will take us to fully invest the proceeds of this offering
in real estate investments. If we are unable to locate and
18
close on real estate investments promptly, or in a manner consistent with the
capital we raise, the funds available for your distributions could be reduced.
WE DEPEND ON OUR BOARD OF DIRECTORS, ADVISOR AND PROPERTY MANAGER AND
LOSING THOSE RELATIONSHIPS COULD NEGATIVELY AFFECT OUR OPERATIONS. Our board of
directors has supervisory control over all aspects of our operations. Our
ability to achieve our investment objectives will depend to a large extent on
the board's ability to oversee, and the quality of, the management provided by
the advisor, the property manager, their affiliates and employees for day-to-day
operations. Therefore, we depend heavily on the ability of the advisor and its
affiliates to retain the services of each of its executive officers and key
employees. However, none of these individuals has an employment agreement with
the advisor or its affiliates. The loss of any of these individuals could have a
material adverse effect on us. These individuals include Robert D. Parks, G.
Joseph Cosenza, Thomas P. McGuinness, Roberta S. Matlin and Brenda G. Gujral.
Our advisor must reimburse us for certain operational stage expenses
exceeding 15%. If the advisor's net worth or cash flow is not sufficient to
cover these expenses, we will not be reimbursed.
THERE ARE CONFLICTS OF INTEREST BETWEEN US AND OUR AFFILIATES. Our
operation and management may be influenced or affected by conflicts of interest
arising out of our relationship with our affiliates. Our advisor and its
affiliates are or will be engaged in other activities that will result in
potential conflicts of interest with the services that the advisor and
affiliates will provide to us. Those officers could take actions that are more
favorable to other entities than to us. The resolution of conflicts in favor of
other entities could have a negative impact on our financial performance. These
affiliates include, Inland Retail Real Estate Trust, Inc., Inland Western Retail
Real Estate Advisory Services, Inc., Inland Real Estate Corporation, Inland Real
Estate Exchange Corporation and entities to be formed by The Inland Group, Inc.,
Inland Western Retail Real Estate Advisory Services, Inc., our advisor. Inland
Real Estate Corporation is a publicly registered REIT. Inland Real Estate
Corporation is a self-administered REIT and is no longer affiliated with The
Inland Group. Inland Real Estate Corporation purchases shopping centers located
in the Midwest. Inland Retail Real Estate Trust, Inc. is affiliated with The
Inland Group, Inc. Inland Retail Real Estate Trust, Inc. purchases shopping
centers located east of the Mississippi River. Inland Real Estate Exchange
Corporation is a subsidiary of Inland Real Estate Investment Corporation. Inland
Real Estate Exchange Corporation provides replacement properties for people
wishing to complete an IRS Section 1031 real estate exchange. Our advisor
receives fees based on the book value of the properties under management.
Specific conflicts of interest between us and our affiliates include:
- WE MAY ACQUIRE PROPERTIES FROM AFFILIATES OF OUR SPONSOR IN
TRANSACTIONS IN WHICH THE PRICE WILL NOT BE THE RESULT OF ARM'S LENGTH
NEGOTIATIONS. The prices we pay to affiliates of our sponsor for our
properties will be equal to the prices paid by them, plus the costs
incurred by them relating to the acquisition and financing of the
properties. These prices will not be the subject of arm's length
negotiations, which could mean that the acquisitions may be on terms
less favorable to us than those negotiated in an arm's-length
transaction. The result of these transactions could cause us to pay
more for particular properties than we would have in an arm's length
transaction and therefore, adversely effect our cash flow and our
ability to pay your distributions.
- WE MAY PURCHASE REAL PROPERTIES FROM PERSONS WITH WHOM OUR ADVISOR OR
ITS AFFILIATES HAVE PRIOR BUSINESS RELATIONSHIPS AND OUR INTERESTS IN
THESE BUSINESS RELATIONSHIPS MAY BE DIFFERENT FROM THE INTERESTS OF
OUR ADVISOR OR ITS AFFILIATES IN THESE BUSINESS RELATIONSHIPS. We may
purchase properties from third parties who have sold properties in the
past, or who may sell properties in the future, to our advisor or its
19
affiliates. If we purchase properties from these third parties, our
advisor will experience a conflict between our current interests and
its interest in preserving any ongoing business relationship with
these sellers. This could result in our advisor or its affiliates
recommending properties that may be in the best interest of the third
party seller, but not our best interest. This could adversely impact
our portfolio by causing us to invest in properties that are not
necessarily in our best interest.
- OUR ADVISOR AND ITS AFFILIATES RECEIVE COMMISSIONS, FEES AND OTHER
COMPENSATION BASED UPON OUR INVESTMENTS AND THEREFORE OUR ADVISOR AND
ITS AFFILIATES MAY RECOMMEND THAT WE MAKE INVESTMENTS IN ORDER TO
INCREASE THEIR COMPENSATION. Our advisor and its affiliates receive
commissions, fees and other compensation based upon our investments.
They benefit by us retaining ownership of our assets and leveraging
our assets, while you may be better served by sale or disposition or
not leveraging the assets. In addition, our advisor's ability to
receive fees and reimbursements depends on our continued investment in
properties and in other assets which generate fees. Our advisor
received fees based on the book value of the properties under
management. Our property manager receives fees based on the income
from properties under management. Therefore, our advisor and/or
property manager may recommend that we purchase properties that
generate fees for our advisor and property manager, but are not
necessarily the most suitable investment for our portfolio. In
addition, our affiliates, who receive fees, including our advisor, may
recommend that we acquire properties, which may result in our
incurring substantive amounts of indebtedness. Therefore, the interest
of our advisor and its affiliates in receiving fees may conflict with
our ability to earn income and may result in our incurring substantive
amounts of indebtedness. The resolution of this conflict of interest
may adversely impact our cash flow and our ability to pay your
distributions.
- OUR ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IF WE ACQUIRE
PROPERTIES WITH ITS AFFILIATES. Our advisor may cause us to acquire an
interest in a property through a joint venture with its affiliates. In
these circumstances, our advisor will have a fiduciary duty to both us
and its affiliates participating in the joint venture. The resolution
of this conflict of interest may cause the advisor to sacrifice our
best interest in favor of the seller of the property and therefore, we
may enter into a transaction that is not in our best interest. The
resolution of this conflict of interest may negatively impact our
financial performance.
- THERE IS COMPETITION FOR THE TIME AND SERVICES OF OUR ADVISOR AND OUR
ADVISOR MAY NOT DEDICATE THE TIME NECESSARY TO MANAGER OUR BUSINESS.
We rely on our advisor and its affiliates for our daily operation and
the management of our assets. Our officers and other personnel of our
advisor and its affiliates have conflicts in allocating their
management time, services and functions among the real estate
investment programs they currently service and any future real estate
investment programs or other business ventures which they may organize
or serve. Those personnel could take actions that are more favorable
to other entities than to us. The resolution of conflicts in favor of
other entities could have a negative impact on our financial
performance.
- INLAND SECURITIES CORPORATION IS PARTICIPATING AS MANAGING DEALER IN
THE SALE OF THE SHARES. Inland Securities Corporation is our managing
dealer of this offering and is affiliated with The Inland Group. Our
managing dealer is entitled to selling commissions, reimbursement for
marketing and due diligence expenses, and the receipt of warrants. Our
managing dealer may be subject to a conflict of interest arising out
of
20
its participation in this offering and its affiliation with The Inland
Group in performing its "due diligence" obligations which arise under
the Securities Act of 1933. The resolution of this conflict of
interest could have a negative impact on our financial performance.
- WE MAY ACQUIRE THE BUSINESS OF OUR ADVISOR AND OUR PROPERTY MANAGER
WITHOUT FURTHER ACTION BY OUR STOCKHOLDERS. During the term of our
agreements with our advisor and our property manager, we have the
option to acquire or consolidate the business conducted by them
without any consent of our stockholders, our advisor or our property
manager. We may elect to exercise this right at any time after
September 15, 2008. This unfettered discretion could cause us to take
action that otherwise we would not be able to do and therefore, could
have a negative impact on our financial performance.
- WE DO NOT HAVE ARM'S-LENGTH AGREEMENTS, WHICH COULD CONTAIN TERMS
WHICH ARE NOT IN OUR BEST INTEREST. As we have noted, our agreements
and arrangements with our advisor or any of its affiliates, including
those relating to compensation, are not the result of arm's length
negotiations. These agreements may contain terms that our not in our
best interest and would not otherwise be applicable if we entered into
arm's-length agreements. See "Conflicts of Interest" for a discussion
of various conflicts of interest.
WE CANNOT PREDICT THE AMOUNTS OF COMPENSATION TO BE PAID TO OUR ADVISOR AND
OUR OTHER AFFILIATES. Because the fees that we will pay to our advisor and our
other affiliates are based on the level of our business activity, it is not
possible to predict the amounts of compensation that we will be required to pay
these entities. In addition, because key employees of our affiliates are given
broad discretion to determine when to consummate a transaction, we rely on these
key persons to dictate the level of our business activity. Fees paid to our
affiliates will reduce funds available for distribution. Because we cannot
predict the amount of fees due to these affiliates, we cannot predict how
precisely such fees will impact our distributions.
THE MANAGING DEALER HAS NOT MADE AN INDEPENDENT REVIEW OF US OR THE
PROSPECTUS. The managing dealer, Inland Securities Corporation, is one of our
affiliates and will not make an independent review of us or the offering.
Accordingly, you do not have the benefit of an independent review of the terms
of this offering. Further, the due diligence investigation of us by the managing
dealer, also an affiliate, cannot be considered to be an independent review and,
therefore, may not be as meaningful as a review conducted by an unaffiliated
broker-dealer or investment banker. In addition, a substantial portion of the
proceeds of the offering will be paid to the managing dealer for managing the
offering, including cash selling commissions, a marketing contribution and a due
diligence expense allowance.
OUR RIGHTS AND THE RIGHTS OF OUR STOCKHOLDERS TO TAKE ACTION AGAINST OUR
DIRECTORS AND OFFICERS AND THE ADVISOR ARE LIMITED. Maryland law provides that a
director has no liability in the capacity as a director if he performs his
duties in good faith, in a manner he reasonably believes to be in our best
interests, and with the care that an ordinary prudent person in a like position
would use under similar circumstances. Maryland law also provides that an act by
a director of a Maryland corporation is presumed to satisfy the standards of the
preceding sentence. Additionally, our articles of incorporation limit the
liability of our directors and officers to us and to our stockholders for
monetary damages to the maximum extent permitted under Maryland law. Our
articles of incorporation, in the case of our directors, officers, employees and
agents, and the advisory agreement, in the case of the advisor, require us to
indemnify our directors, officers, employees and agents and the advisor for
actions taken by them in good faith and without negligence or misconduct.
Moreover, we have entered into separate indemnification agreements with each of
our directors and some of our executive officers. As a result, we and our
stockholders may have more limited rights against our directors, officers,
employees and agents,
21
and the advisor than might otherwise exist under common law. In addition, we may
be obligated to fund the defense costs incurred by our directors, officers,
employees and agents or the advisor in some cases. See "Limitation of Liability
and Indemnification of Directors, Officers and Our Advisors."
THE BUSINESS OF OUR ADVISOR AND OUR PROPERTY MANAGER MAY BE ACQUIRED BY US
WITHOUT FURTHER ACTION OF OUR STOCKHOLDERS. During the term of our agreements
with our advisor and our property manager, we have the option to cause the
business conducted by our advisor and/or our property manager (including all of
their assets) to be acquired by or consolidated into us, without any consent of
our stockholders, our advisor or our property manager or their respective board
of directors or stockholders or shareholders in certain instances. We may elect
to exercise this right as soon as any time after five years from the date of
this prospectus. Our decision to exercise this right will be determined by a
vote of a majority of our directors not otherwise interested in the transaction
(including a majority of our independent directors). Our advisor and our
property manager and/or their respective stockholders and shareholders will
receive in connection with such an acquisition and in exchange for the transfer
of all of the stock or assets of our advisor and/or our property manager, as the
case may be, and for terminating their contractual relationships with us and the
release or waiver of all their fees payable under the provisions of those
contractual arrangements until their stated termination, but not paid, a
determinable number of our shares. We will be obligated to pay any fees accrued
under such contractual arrangements for services rendered through the closing of
such acquisitions. In the event such an acquisition transaction is structured as
a purchase of assets by us or a share exchange in which we are the acquiring
corporation, our articles of incorporation and Maryland law will permit us to
enter into and to consummate such a transaction without obtaining the approval
of our stockholders. We do not presently intend to seek such stockholder
approval if it is not then required by Maryland law or our articles of
incorporation. Any such transaction will occur, if at all, only if our board of
directors obtains a fairness opinion from a recognized financial advisor or
institution providing valuation services to the effect that the consideration to
be paid therefore is fair, from a financial point of view, to our stockholders.
As a result, our stockholders will not have a right to vote on a decision to
acquire the advisor or property manager and such transaction could dilute your
holdings.
YOUR PERCENTAGE OF OWNERSHIP MAY BECOME DILUTED IF WE ISSUE NEW SHARES OF
STOCK. Stockholders have no rights to buy additional shares of stock in the
event we issue new shares of stock, known as preemptive rights. We may issue
common stock, convertible debt or preferred stock in a subsequent public
offering or a private placement, upon exercise of options, or to sellers of
properties we directly or indirectly acquire instead of, or in addition to, cash
consideration. Investors purchasing common stock in this offering who do not
participate in any future stock issues will experience dilution in the
percentage of the issued and outstanding stock they own. Your investment will
not be diluted as a result of any future stock issues if we sell any
subsequently issued common stock for cash or property having a value of not less
than $10 per share. Options to purchase common stock to be issued to independent
directors under our independent director stock option plan, and/or convertible
securities, if any, likely will be exercised or converted at a time when we seek
to obtain needed capital through a new offering of our securities and on terms
more favorable than those provided by the offered securities. As long as options
on convertible securities remain unexercised or unconverted, the terms on which
we could raise additional capital may be adversely affected, increasing the
likelihood of your ownership percentage being diluted.
THERE ARE INHERENT RISKS WITH REAL ESTATE INVESTMENTS. All real property
investments are subject to some degree of risk. Equity real estate investments
cannot be quickly converted to cash. This limits our ability to promptly vary
our portfolio in response to changing economic, financial and investment
conditions. Real property investments are also subject to adverse changes in
general economic conditions or local conditions which reduce the demand for
rental space. Other factors also affect real estate values, including:
22
- possible federal, state or local regulations and controls affecting
rents, prices of goods, fuel and energy consumption and prices, water
and environmental restrictions;
- increasing labor and material costs; and
- the attractiveness of the property to tenants in the neighborhood.
The yields available from equity investments in real estate depend in large
part on the amount of rental income earned, as well as property operating
expenses and other costs we incur. If our properties do not generate revenues
sufficient to meet operating expenses, we may have to borrow amounts to cover
fixed costs, and our cash available for distributions may be adversely affected.
Prior investment programs of our sponsor experienced mortgage defaults and
restructuring of debt. The principal real estate related adverse effects
experienced by prior investment programs sponsored by The Inland Group and its
affiliates were mortgage defaults and restructuring of debt.
ADVERSE ECONOMIC CONDITIONS IN OUR PRIMARY GEOGRAPHIC REGION AND IN THE
MARKET FOR RETAIL SPACE COULD REDUCE OUR INCOME AND DISTRIBUTIONS TO YOU. Our
properties will be located mainly in states west of the Mississippi River in the
United States. Our properties will primarily be used as retail establishments,
principally multi-tenant shopping centers. The economic performance of our
properties could be affected by changes in local economic conditions. Our
performance is therefore linked to economic conditions in this region and in the
market for retail space generally. Therefore, to the extent that there are
adverse economic conditions in this region and in the market for retail space
generally that impact the market rents for retail space, such conditions could
result in a reduction of our income and cash available for distributions and
thus affect the amount of distributions we can make to you.
In addition, we intend to predominantly own and operate grocery and
discount anchored retail centers. To the extent that the investing public has a
negative perception of the retail sector, the value of our common stock may be
negatively impacted, thereby resulting in the shares trading at a discount below
the inherent value of our assets as a whole.
RISING EXPENSES COULD REDUCE CASH FLOW AND FUNDS AVAILABLE FOR FUTURE
ACQUISITIONS. Our properties and any properties we buy in the future, are and
will be subject to operating risks common to real estate in general, any or all
of which may negatively affect us. If any property is not fully occupied or if
rents are being paid in an amount that is insufficient to cover operating
expenses, we could be required to expend funds with respect to that property for
operating expenses. The properties will be subject to increases in tax rates,
utility costs, operating expenses, insurance costs, repairs and maintenance and
administrative expenses.
While some of our properties may be leased on a triple-net-lease basis or
require the tenants to pay a portion of such expenses, renewals of leases or
future leases may not be negotiated on that basis, in which event we will have
to pay those costs. If we are unable to lease properties on a triple-net-lease
basis or on a basis requiring the tenants to pay all or some of such expenses,
or if tenants fail to pay required tax, utility and other impositions, we could
be required to pay those costs which could adversely affect funds available for
future acquisitions or cash available for distributions.
IF OUR TENANTS ARE UNABLE TO MAKE RENTAL PAYMENTS, IF THEIR RENTAL PAYMENTS
ARE REDUCED, OR IF THEY TERMINATE A LEASE, OUR FINANCIAL CONDITION AND ABILITY
TO PAY DISTRIBUTIONS WILL BE ADVERSELY AFFECTED. We are subject to the risk that
tenants, as well as lease guarantors, if any, may be unable to make their lease
payments or may decline to extend a lease upon its expiration. A default by a
tenant, the failure of a guarantor to fulfill its obligations or other premature
termination of a lease, or a tenant's
23
election not to extend a lease upon its expiration, could have an adverse effect
on our financial condition and our ability to pay distributions.
OUR FINANCIAL CONDITION AND ABILITY TO MAKE DISTRIBUTIONS MAY BE ADVERSELY
AFFECTED BY THE BANKRUPTCY OR INSOLVENCY, A DOWNTURN IN THE BUSINESS, OR A LEASE
TERMINATION OF A TENANT THAT OCCUPIES A LARGE AREA OF THE RETAIL CENTER OR AN
ANCHOR TENANT. Generally, any tenant occupying a large portion of the gross
leasable area of a retail center, a tenant of any of the triple-net single-user
retail properties outside the primary geographical area of investment, commonly
referred to as an anchor tenant, or a tenant that is an anchor tenant at more
than one retail center, may become insolvent, may suffer a downturn in business,
or may decide not to renew its lease. Any of these events would result in a
reduction or cessation in rental payments to us and would adversely affect our
financial condition. A lease termination by an anchor tenant could result in
lease terminations or reductions in rent by other tenants whose leases permit
cancellation or rent reduction if an anchor tenant's lease is terminated. In
certain properties where there are large tenants, other tenants may require that
if certain large tenants or "shadow" tenants discontinue operations, a right of
termination or reduced rent may exist. In such event, we may be unable to
re-lease the vacated space. Similarly, the leases of some anchor tenants may
permit the anchor tenant to transfer its lease to another retailer. The transfer
to a new anchor tenant could cause customer traffic in the retail center to
decrease and thereby reduce the income generated by that retail center. A
transfer lease to a new anchor tenant could also allow other tenants to make
reduced rental payments or to terminate their leases at the retail center. If we
are unable to re-lease the vacated space to a new anchor tenant, we may incur
additional expenses in order to re-model the space to be able to re-lease the
space to more than one tenant.
IF A TENANT CLAIMS BANKRUPTCY, WE MAY BE UNABLE TO COLLECT BALANCES DUE
UNDER RELEVANT LEASES. Any or all of the tenants, or a guarantor of a tenant's
lease obligations, could be subject to a bankruptcy proceeding pursuant to Title
11 of the bankruptcy laws of the United States. Such a bankruptcy filing would
bar all efforts by us to collect pre-bankruptcy debts from these entities or
their properties, unless we receive an enabling order from the bankruptcy court.
Post-bankruptcy debts would be paid currently. If a lease is assumed, all
pre-bankruptcy balances owing under it must be paid in full. If a lease is
rejected by a tenant in bankruptcy, we would have a general unsecured claim for
damages. If a lease is rejected, it is unlikely we would receive any payments
from the tenant because our claim is capped at the rent reserved under the
lease, without acceleration, for the greater of one year or 15% of the remaining
term of the lease, but not greater than three years, plus rent already due but
unpaid. This claim could be paid only in the event funds were available, and
then only in the same percentage as that realized on other unsecured claims.
A tenant or lease guarantor bankruptcy could delay efforts to collect past
due balances under the relevant leases, and could ultimately preclude full
collection of these sums. Such an event could cause a decrease or cessation of
rental payments which would mean a reduction in our cash flow and the amount
available for distributions to you. In the event of a bankruptcy, we cannot
assure you that the tenant or its trustee will assume our lease. If a given
lease, or guaranty of a lease, is not assumed, our cash flow and the amounts
available for distributions to you may be adversely affected.
WE MAY INCUR ADDITIONAL COSTS IN ACQUIRING OR RE-LEASING RETAIL PROPERTIES.
Some of the properties we may acquire may be designed or built primarily for a
particular tenant or a specific type of use. If a tenant fails to renew its
lease or defaults on its lease obligations, we may not be able to readily market
the property to a new tenant without substantial capital improvements or
remodeling, which may adversely affect our results of operation and financial
condition.
OUR PROPERTIES WILL BE SUBJECT TO COMPETITION FOR TENANTS AND CUSTOMERS. We
intend to locate our properties in developed areas. Therefore, there are and
will undoubtedly be numerous other retail
24
properties within the market area of each of our properties which will compete
with our properties and which will compete with us for tenants. The number of
competitive properties could have a material effect on our ability to rent space
at our properties and the amount of rents charged. We could be adversely
affected if additional competitive properties are built in locations competitive
with our properties, causing increased competition for customer traffic and
creditworthy tenants. This could result in decreased cash flow from tenants and
may require us to make capital improvements to properties which we would not
have otherwise made, thus affecting cash available for distributions, and the
amount available for distributions to you.
OUR PROPERTIES WILL FACE COMPETITION WHICH MAY AFFECT TENANTS' ABILITY TO
PAY RENT AND THE AMOUNT OF RENT PAID TO US AND IN TURN AFFECT THE CASH AVAILABLE
FOR DISTRIBUTIONS AND THE AMOUNT OF DISTRIBUTIONS. Each of our properties will
be subject to competition from similar retail centers within their respective
market areas. Other retail centers within the market area of our properties will
compete with our properties for customers affecting their cash flows and thus
affecting their ability to pay rent. In addition, some of our tenant rent
payments may be based on the amount of sales revenue generated by them. If these
tenants experience competition, the amount of their rent may decrease and our
cash flow will decrease.
WE MAY BE RESTRICTED FROM RE-LEASING SPACE. In many cases, tenant leases
will contain provisions giving the tenant the exclusive right to sell particular
types of merchandise or provide specific types of services within the particular
retail center, or limit the ability of other tenants to sell such merchandise or
provide such services. When re-leasing space after a vacancy is required, these
provisions may limit the number and types of prospective tenants for the vacant
space. The failure to re-lease or to re-lease on satisfactory terms could result
in a reduction of net income, funds from operations and cash available for
distributions and, thus affect the amount of distributions to you.
WE MAY BE UNABLE TO SELL A PROPERTY IF OR WHEN WE DECIDE TO DO SO. The real
estate market is affected by many factors, such as general economic conditions,
availability of financing, interest rates and other factors, including supply
and demand, that are beyond our control. We cannot predict whether we will be
able to sell any property for the price or on the terms set by us, or whether
any price or other terms offered by a prospective purchaser would be acceptable
to us. We cannot predict the length of time needed to find a willing purchaser
and to close the sale of a property.
We may be required to expend funds to correct defects or to make
improvements before a property can be sold. We cannot assure you that we will
have funds available to correct such defects or to make such improvements.
In acquiring a property, we may agree to restrictions that prohibit the
sale of that property for a period of time or impose other restrictions, such as
a limitation on the amount of debt that can be placed or repaid on that
property. These provisions would restrict our ability to sell a property.
IF WE SUFFER LOSSES THAT ARE NOT COVERED BY INSURANCE OR THAT ARE IN EXCESS
OF INSURANCE COVERAGE, WE COULD LOSE INVESTED CAPITAL AND ANTICIPATED PROFITS.
Each tenant is responsible for insuring its goods and premises and, in some
circumstances, may be required to reimburse us for a share of the cost of
acquiring comprehensive insurance for the property, including casualty,
liability, fire and extended coverage customarily obtained for similar
properties in amounts which our advisor determines are sufficient to cover
reasonably foreseeable losses. Tenants of single-user properties leased on a
triple-net-lease basis typically are required to pay all insurance costs
associated with those properties. Material losses may occur in excess of
insurance proceeds with respect to any property as insurance may not have
sufficient resources to fund the losses. However, there are types of losses,
generally of a catastrophic nature, such as losses due to wars, acts of
terrorism, earthquakes, floods, hurricanes, pollution or
25
environmental matters, which are either uninsurable or not economically
insurable, or may be insured subject to limitations, such as large deductibles
or copayments. Insurance risks associated with potential terrorism acts could
sharply increase the premium we pay for coverage against property and casualty
claims. Additionally, mortgage lenders in some cases have begun to insist that
specific coverage against terrorism be purchased by commercial property owners
as a condition for providing mortgage loans. It is uncertain whether such
insurance policies will be available, or available at reasonable cost, which
could inhibit our ability to finance or refinance our potential properties. In
such instances, we may be required to provide other financial support, either
through financial assurances or self-insurance, to cover potential losses. We
cannot assure you that will have adequate coverage for such losses. The
Terrorism Risk Insurance Act of 2002 is designed for a sharing of terrorism
losses between insurance companies and the federal government. We cannot be
certain how this act will impact us or what additional cost to us, if any, could
result. If such an event occurred to, or caused the destruction of, one or more
of our properties, we could lose both our invested capital and anticipated
profits from such property.
TERRORIST ATTACKS, SUCH AS THE ATTACKS THAT OCCURRED IN NEW YORK AND
WASHINGTON, D.C. ON SEPTEMBER 11, 2001, AND OTHER ACTS OF VIOLENCE OR WAR MAY
AFFECT THE MARKETS IN WHICH WE OPERATE, OUR OPERATIONS AND OUR PROFITABILITY.
Terrorist attacks may negatively affect our operations and your investment in
our common shares. We cannot assure you that there will not be further terrorist
attacks against the United States or United States businesses. Properties we may
acquire may be located in areas that may be susceptible to attack, which may
make these properties more likely to be viewed as terrorist targets than
similar, less recognizable properties. These attacks or armed conflicts may
directly impact the value of our properties through damage, destruction, loss or
increased security costs. We may obtain terrorism insurance as required by our
lenders. The terrorism insurance that we obtain may not be sufficient to cover
loss for damages to our properties as a result of terrorist attacks. In
addition, certain losses resulting from these types of events are uninsurable
and others would not be covered by our current terrorism insurance. Additional
terrorism insurance may not be available at a reasonable price or at all.
The United States' armed conflict in Iraq could have a further impact on
our tenants. The consequences of any armed conflict are unpredictable, and we
may not be able to foresee events that could have an adverse effect on our
business or your investment.
More generally, any of these events could result in increased volatility in
or damage to the United States and worldwide financial markets and economy. They
also could result in a continuation of the current economic uncertainty in the
United States or abroad. Our revenues will be dependent upon payment of rent by
retailers, which may be particularly vulnerable to uncertainty in the local
economy. Adverse economic conditions could affect the ability of our tenants to
pay rent, which could have a material adverse effect on our operating results
and financial condition, as well as our ability to pay distributions to
stockholders.
REAL ESTATE RELATED TAXES MAY INCREASE AND IF THESE INCREASES ARE NOT
PASSED ON TO TENANTS, OUR INCOME WILL BE REDUCED. Some local real property tax
assessors may seek to reassess some of our properties as a result of our
acquisition of the property. Generally, from time to time our property taxes
increase as property values or assessment rates change or for other reasons
deemed relevant by the assessors. An increase in the assessed valuation of a
property for real estate tax purposes will result in an increase in the related
real estate taxes on that property. Although some tenant leases may permit us to
pass through such tax increases to the tenants for payment, there is no
assurance that renewal leases or future leases will be negotiated on the same
basis. Increases not passed through to tenants will adversely affect our income,
cash available for distributions, and the amount of distributions to you.
REVENUE FROM OUR PROPERTIES DEPENDS ON THE AMOUNT OF OUR TENANTS' RETAIL
REVENUE, MAKING US VULNERABLE TO GENERAL ECONOMIC DOWNTURNS AND OTHER CONDITIONS
AFFECTING THE RETAIL INDUSTRY. Some of
26
our leases may provide for base rent plus contractual base rent increases. Some
of our leases may also include a percentage rent clause for additional rent
above the base amount based upon a specified percentage of the sales our tenants
generate.
Under those leases which contain percentage rent clauses, our revenue from
tenants may increase as the sales of our tenants increase. Generally, retailers
face declining revenues during downturns in the economy. As a result, the
portion of our revenue which we derive from percentage rent leases could decline
upon a general economic downturn.
THE COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS AND OTHER GOVERNMENTAL LAWS
AND REGULATIONS MAY ADVERSELY AFFECT OUR INCOME AND THE CASH AVAILABLE FOR ANY
DISTRIBUTIONS. All real property and the operations conducted on real property
are subject to federal, state and local laws and regulations relating to
environmental protection and human health and safety. These laws and regulations
generally govern wastewater discharges, air emissions, the operation and removal
of underground and above-ground storage tanks, the use, storage, treatment,
transportation and disposal of solid and hazardous materials, and the
remediation of contamination associated with disposals. Some of these laws and
regulations may impose joint and several liability on tenants, owners or
operators for the costs of investigation or remediation of contaminated
properties, regardless of fault or the legality of the original disposal. Under
various federal, state and local laws, ordinances and regulations, a current or
previous owner, developer or operator of real estate may be liable for the costs
of removal or remediation of hazardous or toxic substances at, on, under, or in
its property. The costs of removal or remediation could be substantial. In
addition, the presence of such substances, or the failure to properly remediate
such substances, may adversely affect our ability to sell or rent such property
or to use such property as collateral for future borrowing.
Some of these laws and regulations have been amended so as to require
compliance with new or more stringent standards as of future dates. Compliance
with new or more stringent laws or regulations, stricter interpretation of
existing laws or the future discovery of environmental contamination may require
material expenditures by us. We cannot assure that future laws, ordinances or
regulations will not impose any material environmental liability, or that the
current environmental condition of our properties will not be affected by the
operations of the tenants, by the existing condition of the land, by operations
in the vicinity of the properties, such as the presence of underground storage
tanks, or by the activities of unrelated third parties.
These laws typically allow liens to be placed on the affected property. In
addition, there are various local, state and federal fire, health, life-safety
and similar regulations which we may be required to comply with, and be subject
to liability in the form of fines or damages for noncompliance.
State and federal laws in this area are constantly evolving, and we intend
to monitor these laws and take commercially reasonable steps to protect
ourselves from the impact of these laws, including obtaining environmental
assessments of each property acquired. We cannot assure that such assessments
will reveal all environmental liabilities or that a prior owner of a property
did not create a material environmental condition not known to us. We cannot
predict what other environmental legislation or regulations will be enacted in
the future, how existing or future laws or regulations will be administered or
interpreted, or what environmental conditions may be found to exist in the
future. We cannot assure that our business, assets, results of operations,
liquidity or financial condition will not be adversely affected by these laws,
which may adversely affect cash available for distributions, and the amount of
distributions to you.
OUR COSTS ASSOCIATED WITH COMPLYING WITH THE AMERICANS WITH DISABILITIES
ACT MAY AFFECT CASH AVAILABLE FOR DISTRIBUTIONS. Our properties will be subject
to the Americans with Disabilities Act of 1990.
27
Under the Disabilities Act, all places of public accommodation are required to
comply with federal requirements related to access and use by disabled persons.
The Disabilities Act has separate compliance requirements for "public
accommodations" and "commercial facilities" that generally requires that
buildings and services, including restaurants and retail stores, be made
accessible and available to people with disabilities. The Disabilities Act's
requirements could require removal of access barriers and could result in the
imposition of injunctive relief, monetary penalties, or, in some cases, an award
of damages. We will attempt to acquire properties which comply with the
Disabilities Act or place the burden on the seller or other third party, such as
a tenant, to ensure compliance with the Disabilities Act. However, we cannot
assure that we will be able to acquire properties or allocate responsibilities
in this manner. If we cannot, our funds used for Disabilities Act compliance may
affect cash available for distributions and the amount of distributions to you.
IF A SALE OR LEASEBACK TRANSACTION IS RECHARACTERIZED, OUR FINANCIAL
CONDITION COULD BE ADVERSELY AFFECTED. We may enter into sale and leaseback
transactions, where we would purchase a property and then lease the same
property back to the person from whom we purchased it. In the event of the
bankruptcy of a tenant, a transaction structured as a sale and leaseback may be
recharacterized as either a financing or a joint venture, either of which
outcomes could adversely affect our business.
If the sale and leaseback were recharacterized as a financing, we might not
be considered the owner of the property, and as a result would have the status
of a creditor in relation to the tenant. In that event, we would no longer have
the right to sell or encumber our ownership interest in the property. Instead,
we would have a claim against the tenant for the amounts owed under the lease,
with the claim arguably secured by the property. The tenant/debtor might have
the ability to propose a plan restructuring the term, interest rate and
amortization schedule of its outstanding balance. If confirmed by the bankruptcy
court, we could be bound by the new terms, and prevented from foreclosing our
lien on the property. These outcomes could adversely affect our cash flow and
the amount available for distributions to you.
If the sale and leaseback were recharacterized as a joint venture, we and
our lessee could be treated as co-venturers with regard to the property. As a
result, we could be held liable, under some circumstances, for debts incurred by
the lessee relating to the property. The imposition of liability on us could
adversely affect our cash flow and the amount available for distributions to our
stockholders.
WE MAY INCUR ADDITIONAL COSTS IN ACQUIRING NEWLY CONSTRUCTED PROPERTIES
WHICH MAY ADVERSELY AFFECT CASH AVAILABLE FOR DISTRIBUTIONS TO YOU. We intend to
primarily acquire existing or newly constructed properties. We may purchase
properties that are subject to completion of construction and development. The
builder's failure to perform may result in tenants terminating leases. These
actions may increase our costs or necessitate legal action by us to rescind our
purchase of a property, to compel performance, or to sue for damages. Any such
legal action may result in increased costs to us.
OUR INVESTMENTS IN UNIMPROVED REAL PROPERTY MAY RESULT IN ADDITIONAL COST
TO US TO COMPLY WITH RE-ZONING RESTRICTIONS OR ENVIRONMENTAL REGULATIONS. We may
invest up to 10% of our assets in unimproved real property. Investments in
unimproved properties are subject to the risks of real estate investments in
general. The are also subject to risks and uncertainties associated with
re-zoning the land for higher use or development and environmental concerns of
governmental entities and/or community groups. We do not intend to invest in any
unimproved property which is not intended to be developed.
CONSTRUCTION AND DEVELOPMENT ACTIVITIES WILL EXPOSE US TO RISKS SUCH AS
COST OVERRUNS, CARRYING COSTS OF PROJECTS UNDER CONSTRUCTION OR DEVELOPMENT,
AVAILABILITY AND COSTS OF MATERIALS AND LABOR, WEATHER CONDITIONS AND GOVERNMENT
REGULATION. Should we elect to engage in construction and development
activities, in accordance with current pronouncements of the Internal Revenue
Service, we
28
intend to have our employees only perform oversight and review functions. These
functions may include selecting sites, reviewing construction and tenant
improvement design proposals, negotiating and contracting for feasibility
studies, supervising compliance with local, state or federal laws and
regulations, negotiating contracts, oversight of construction, accounting and
obtaining financing. We will retain an independent general contractor to perform
the actual physical construction work on tenant improvements or the installation
of heating ventilation and air conditioning systems. These activities will
expose us to risks inherent in construction and development, including cost
overruns, carrying costs of projects under construction or development,
availability and costs of materials and labor, adverse weather conditions and
governmental regulation.
WE MAY ACQUIRE OR FINANCE PROPERTIES WITH LOCK-OUT PROVISIONS WHICH MAY
PROHIBIT US FROM SELLING A PROPERTY, OR MAY REQUIRE US TO MAINTAIN SPECIFIED
DEBT LEVELS FOR A PERIOD OF YEARS ON SOME PROPERTIES. Lock out provisions could
materially restrict us from selling or otherwise disposing of or refinancing
properties. These provisions would affect our ability to turn our investments
into cash and thus affect cash available for distributions to you. Lock out
provisions may prohibit us from reducing the outstanding indebtedness with
respect to any properties, refinancing such indebtedness on a nonrecourse basis
at maturity, or increasing the amount of indebtedness with respect to such
properties.
Lock out provisions could impair our ability to take actions during the
lock-out period that would otherwise be in the best interests of our
stockholders and, therefore, may have an adverse impact on the value of the
shares, relative to the value that would result if the lock-out provisions did
not exist. In particular, lock out provisions could preclude us from
participating in major transactions that could result in a disposition of our
assets or a change in control even though that disposition or change in control
might be in the best interests of our stockholders.
YOUR INVESTMENT HAS VARIOUS FEDERAL INCOME TAX RISKS. Although the
provisions of the Internal Revenue Code relevant to your investment are
generally described in the section of the prospectus titled "Federal Income Tax
Considerations," we strongly urge you to consult your own tax advisor concerning
the effects of federal, state and local income tax law on an investment and on
your individual tax situation.
IF WE FAIL TO QUALIFY AS A REIT OR TO MAINTAIN OUR REIT STATUS, OUR
DIVIDENDS WILL NOT BE DEDUCTIBLE TO US, AND OUR INCOME WILL BE SUBJECT TO
TAXATION. We intend to qualify as a REIT under the Internal Revenue Code of
1986, as amended, which will afford us significant tax advantages. The
requirements for this qualification, however, are complex. If we fail to meet
these requirements, our dividends will not be deductible to us and we will have
to pay a corporate level tax on our income. This would substantially reduce our
cash available to pay distributions and your yield on your investment. In
addition, tax liability might cause us to borrow funds, liquidate some of our
investments or take other steps which could negatively affect our operating
results. Moreover, if our REIT status is terminated because of our failure to
meet a technical REIT test, we would be disqualified from electing treatment as
a REIT for the four taxable years following the year in which REIT status is
lost.
YOU MAY HAVE TAX LIABILITY ON DISTRIBUTIONS YOU ELECT TO REINVEST IN COMMON
STOCK. If you participate in our distribution reinvestment program, you will be
deemed to have received, and for income tax purposes will be taxed on, the
amount reinvested in common stock. As a result, unless you are a tax-exempt
entity, you may have to use funds from other sources to pay your tax liability
on the value of the common stock received.
THE OPINION OF DUANE MORRIS LLP REGARDING OUR STATUS AS A REIT DOES NOT
GUARANTEE OUR ABILITY TO REMAIN A REIT. Our legal counsel, Duane Morris LLP,
will render its opinion upon commencement of this offering that we will qualify
as a REIT, based upon our representations as to the
29
manner in which we will be owned, invest in assets, and operate, among other
things. Our qualification as a REIT depends upon our ability to meet, through
investments, actual operating results, distributions, and satisfaction of
specific stockholder rules, the various tests imposed by the Internal Revenue
Code. Duane Morris LLP will not review these operating results or compliance
with the qualification standards. This means that we cannot assure you that we
will satisfy the REIT requirements in the future. Also, this opinion represents
Duane Morris LLP's legal judgment based on the law in effect as of the date of
this prospectus and is not binding on the Internal Revenue Service, and could be
subject to modification or withdrawal based on future legislative, judicial or
administrative changes to the federal income tax laws, any of which could be
applied retroactively
EVEN REITS ARE SUBJECT TO FEDERAL AND STATE INCOME TAXES. Even if we
qualify and maintain our status as a REIT, we may become subject to federal
income taxes and related state taxes. For example, if we have net income from a
"prohibited transaction," such income will be subject to a 100% tax. We may not
be able to make sufficient distributions to avoid excise taxes applicable to
REITS. We may also decide to retain income we earn from the sale or other
disposition of our property and pay income tax directly on such income. In that
event, our stockholders would be treated as if they earned that income and paid
the tax on it directly. However, stockholders that are tax-exempt, such as
charities or qualified pension plans, would have no benefit from their deemed
payment of such tax liability. In addition, we may also be subject to state and
local taxes on our income or property, either directly or at the level of the
operating partnership or at the level of the other companies through which we
indirectly own our assets. We cannot assure you that we will be able to continue
to satisfy the REIT requirements.
IN VIEW OF THE COMPLEXITY OF THE TAX ASPECTS OF THE OFFERING, PARTICULARLY
IN LIGHT OF THE FACT THAT SOME OF THE TAX ASPECTS OF THE OFFERING WILL NOT BE
THE SAME FOR ALL INVESTORS, PROSPECTIVE INVESTORS ARE STRONGLY ADVISED TO
CONSULT THEIR TAX ADVISORS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATION
PRIOR TO AN INVESTMENT IN SHARES OF OUR COMMON STOCK.
AN INVESTMENT IN OUR COMMON STOCK MAY NOT BE SUITABLE FOR EVERY EMPLOYEE
BENEFIT PLAN. When considering an investment in our common stock, an individual
with investment discretion over assets of any pension plan, profit-sharing plan,
retirement plan, IRA or other employee benefit plan covered by ERISA should
consider whether the investment satisfies the fiduciary requirements of ERISA
and other applicable laws. In particular, attention should be paid to the
diversification requirements of Section 404(a)(1)(C) of ERISA in light of all
the facts and circumstances, including the portion of the plan's portfolio of
which the investment will be a part. All plan investors should also consider
whether the investment is prudent and meets plan liquidity requirements as there
may be only a limited market in which to sell or otherwise dispose of our common
stock, and whether the investment is permissible under the plan's governing
instrument. We have not, and will not, evaluate whether an investment in our
common stock is suitable for any particular plan. Rather, we will accept
entities as stockholders if an entity otherwise meets the suitability standards.
THE ANNUAL STATEMENT OF VALUE THAT WE WILL BE SENDING TO STOCKHOLDERS
SUBJECT TO ERISA AND TO CERTAIN OTHER PLAN STOCKHOLDERS IS ONLY AN ESTIMATE AND
MAY NOT REFLECT THE ACTUAL VALUE OF OUR SHARES. The annual statement of value
will report the value of each common stock based as of the close of our fiscal
year. No independent appraisals will be obtained and the value will be based
upon an estimated amount we determine would be received if our properties and
other assets were sold as of the close of our fiscal year and if such proceeds,
together with our other funds, were distributed pursuant to a liquidation.
However, the net asset value of each share of common stock will be deemed to be
$10 during this offering and for the first three years following the termination
of this offering. Because this is only an estimate, we may subsequently revise
any annual valuation that is provided. We cannot assure that:
30
- a value included in the annual statement could actually be realized by
us or by our stockholders upon liquidation;
- stockholders could realize that value if they were to attempt to sell
their common stock; or
- an annual statement of value would comply with any reporting and
disclosure or annual valuation requirements under ERISA or other
applicable law. We will stop providing annual statements of value if
the common stock becomes listed for trading on a national stock
exchange or included for quotation on a national market system.
[THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
31
CAUTIONING NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements that reflect
management's expectations and projections about our future results, performance,
prospects and opportunities. We have attempted to identify these forward-looking
statements by using words such as "may," "will," "expects," "anticipates,"
"believes," "intends," "expects," "estimates," "could" or similar expressions.
These forward-looking statements are based on information currently available to
us and are subject to a number of known and unknown risks, uncertainties and
other factors which may cause our 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, and are detailed on the previous pages:
- our common stock is not currently listed or traded on an exchange and
cannot be readily sold;
- we have no operating history nor established financing sources;
- we have identified only one property to be purchased with the proceeds
of this offering;
- if we raise the minimum amount, we will not have sufficient resources
to acquire the identified property. We need to raise in excess of $26
million to acquire this property;
- although we anticipate that aggregate borrowings will not exceed 55%
of the combined fair market value of our properties, our charter
imposes a limitation on our borrowings of less than 300% of net assets
and there are risks associated with a high amount of leverage;
- we have no ownership in our advisor and the advisor is owned by our
sponsor or their affiliates;
- our advisor and its affiliates will receive substantial fees,
including participation in proceeds from the sales, refinancing or
liquidation of our assets;
- our advisor, property manager and two of our directors are subject to
conflicts of interest as a result of their affiliation with The Inland
Group, including conflicts of interest relating to:
- the negotiation of the terms of the advisors and property management
agreements;
- the allocation of their time between us and their other business
ventures;
- decisions whether to acquire and dispose of properties;
- the purchase and sale of properties to or from the advisor and our
affiliates; and
- the allocation of investment opportunities between us and their other
business ventures.
- the management fee structure could result in our advisor recommending
riskier or more speculative investments;
- we may make distributions that include a return of principal for
federal tax purposes;
32
- we may fail to qualify as a REIT;
- there are limits on ownership, transferability and redemption of
shares;
- our investment policies and strategies may be changed without
stockholder consent;
- our investments will lack geographic diversification;
- we will not be able to meet our business objectives if we only acquire
one single net leased property; and
- risks that incentive structure of fees payable to our advisor and its
affiliates may encourage our advisor to make investments that have
greater risks to generate higher fees.
You should not place undue reliance on any forward-looking statements.
Except as otherwise required by federal securities laws, we undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, changed circumstances or any
other reason after the date of this prospectus.
[THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
33
HOW WE OPERATE
We intend to operate as a REIT for federal and state income tax purposes.
Our sponsor is Inland Real Estate Investment Corporation. Our sponsor was
instrumental in our organization.
We contract with Inland Western Retail Real Estate Advisory Services, Inc.
for its services as our advisor. Our advisor has the responsibility for our
day-to-day operations and the management of our assets.
In addition to the services of our advisor, we contract with Inland Western
Management Corp. for their services as our property manager. Inland Western
Management Corp. provides the day-to-day property management services for all of
our properties.
Our sponsor, Inland Real Estate Investment Corporation, is owned by The
Inland Group, Inc. Our advisor Inland Western Retail Real Estate Advisory
Services, Inc., is owned by our sponsor, and thus is indirectly controlled by
The Inland Group. In addition, our property manager, Inland Western Management
Corp. is owned by individuals who are affiliates of the Inland Group.
The Inland Group, together with its subsidiaries and affiliates, is a
fully-integrated group of legally and financially separate companies that have
been engaged in diverse facets of real estate for over 35 years providing the
following and other related services:
Property management Leasing
Marketing Acquisition
Disposition Development
Redevelopment Syndication
Renovation Construction
Finance Other related services
34
The following organizational chart depicts the services that affiliates or our
sponsor will render to us and our organizational structure.
ORGANIZATIONAL CHART
--------- --------- --------- ---------
Daniel L. Robert H. G. Joseph Robert D.
Goodwin* Baum* Cosenza* Parks*
--------- --------- --------- ---------
|| || || ||
===========================================================
||
-----------------------
THE INLAND GROUP, INC.*
-----------------------
||
=============================================================================================================
|| || || || |
--------------- ------------------- ----------------- ------------------ |
The Inland The Inland Property Inland Real Inland Real |
Services Group, Management Estate Investment Estate Transaction |
Inc. Group, Inc. Corporation Group, Inc. |
(our sponsor) |
--------------- ------------------- ----------------- ------------------- |
| | || | |
| | ========================================== | |
| | || || || | |
| | ----------- --------------------- ------------------ | ----------------------
| | Inland Inland Western Retail Inland Partnership | Inland Mortgage
--------------- ----------------- Securities Real Estate Advisory Property Sales | Investment Corporation
Inland Risk and Inland Western Corporation Services, Inc. Corporation |
Insurance Management Corp. (our advisor) |
Management (property manager) ----------- --------------------- ------------------ | -----------------------
Services, Inc. | | | |
--------------- ----------------- | | | |
| | | | ============================ =================
| | | | || || || || ||
| | | | ------------- ----------- ------------- ----------- ---------------
| | | | Inland Real Inland Real Inland Real Inland Inland Mortgage
--------- | | | Estate Sales, Estate Estate Mortgage Servicing
Insurance | | | Inc. Development Acquisitions, Corporation Corporation
Services | | | Corporation Inc.
--------- | | | ------------- ----------- ------------- ----------- ---------------
| | | | | | | | |
| | | | | | | | |
| | | | ------------- | | | |
| | | | Real Estate | | | |
| | | | Sales Services | | | |
| | | | ------------- | | | |
| | | | | | | | |
| | | | | | | | |
| -------------------- ---------- --------------- | ----------------- ----------- --------- -------------
| Property Management Securities Organization, | Construction and Property Mortgage Mortgage Loan
| and Related Services Sales Advisory | Development Acquisition Brokerage Servicing
| and Real Estate | Services Services Services
| Services |
| -------------------- ----------- --------------- | ----------------- ------------ --------- -------------
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
------------------------------------------------------------------------------------------------------------------------------------
Inland Western Retail Real Estate Trust, Inc.
We will be principally owned by public investors. Ownership is represented by shares of our common stock
------------------------------------------------------------------------------------------------------------------------------------
Solid lines indicate 100% ownership.
Broken lines indicate service.
* The four indicated individuals control The Inland Group, Inc. and own
substantially all of its stock.
35
CONFLICTS OF INTEREST
We are subject to conflicts of interest arising out of our relationship
with our sponsor, our advisor and their affiliates. All of our agreements and
arrangements with our advisor and its affiliates, including those relating to
compensation, are not the result of arm's length negotiations. Some of the
conflicts inherent in our transactions with our advisor and its affiliates, and
the limitations on our advisor adopted to address these conflicts, are described
below. Our advisor and its affiliates will try to balance our interests with
their own. However, to the extent that our advisor or its affiliates take
actions that are more favorable to other entities than to us, these actions
could have a negative impact on our financial performance and, consequently, on
distributions to you and the value of our stock. In addition, our directors and
officers and security holders may engage for their own account in business
activities of the types conducted or to be conducted by us and our subsidiaries.
THERE MAY BE CONFLICTING INVESTMENT OPPORTUNITIES AMONG AFFILIATES OF OUR
ADVISOR AND THE INLAND GROUP. Affiliates of our advisor and The Inland Group
have sponsored multiple previous investment programs. Our sponsor may also
sponsor other programs which may have investment objectives similar to ours.
Therefore, our sponsor, our advisor and their affiliates could face conflicts of
interest in determining which investment programs will have the first
opportunity to acquire real properties and other assets as they become
available.
In order to address this situation, we have an agreement with our advisor,
some of its affiliates, and Inland Retail Real Estate Trust, Inc., another REIT
sponsored by our sponsor. This agreement gives us the right to purchase property
in our primary geographic area of investment, which includes the states west of
the Mississippi River, placed under contract by our advisor or any of its
affiliates, if we are able to close the purchase within 60 days. Similarly,
Inland Retail Real Estate Trust, Inc. has the first opportunity to purchase
properties in its primary geographical area of investment, which is located in
states east of the Mississippi.
IN THE SITUATION INVOLVING SINGLE USER NET LEASED RETAIL PROPERTY LOCATED
ANYWHERE WITHIN THE UNITED STATES, AND BOTH OF US HAVE FUNDS AVAILABLE TO MAKE
THE PURCHASE, THE PROSPECTIVE PROPERTY WILL FIRST BE OFFERED TO INLAND RETAIL
REAL ESTATE TRUST, INC. IF INLAND REAL ESTATE TRUST, INC. DOES NOT PURCHASE THE
PROSPECTIVE PROPERTY, IT WILL THEN BE OFFERED TO US.
Factors which may be considered in connection with evaluating the
suitability of the prospective property or other asset for investment by a
particular investment program include:
- the effect of the acquisition on the diversification of each program's
portfolio;
- the amount of funds available for investment;
- cash flow; and
- the estimated income tax effects of the purchase and subsequent
disposition.
We currently focus on purchase of properties in the states west of the
Mississippi River which is outside Inland Retail Real Estate Trust Inc.'s
primary geographic area of investment. However, if any conflicts do arise, they
will be resolved as provided in the agreement with our advisor discussed above.
We currently have identified one property for purchase located in Phoenix,
Arizona. Neither The Inland Group nor any of its affiliates owns or has any
interest in properties adjacent to this property.
36
All actions taken by our advisor or its affiliates which present potential
conflicts with us will be APPROVED BY A MAJORITY OF OUR INDEPENDENT DIRECTORS.
WE MAY ACQUIRE PROPERTIES FROM AFFILIATES OF OUR SPONSOR. The prices we pay
to affiliates of our sponsor for these properties will be equal to the prices
paid by them, plus the costs incurred by them relating to the acquisition and
financing of the properties. These prices will not be the subject of arm's
length negotiations, which could mean that the acquisitions may be on terms less
favorable to us than those negotiated in an arm's-length transaction. However,
our articles of incorporation provide that the purchase price of any property
acquired from an affiliate may not exceed its fair market value as determined by
a competent independent appraiser. In addition, the price must be approved by a
majority of our directors who have no financial interest in the transaction. If
the price to us exceeds the cost paid by our affiliate, there must be
substantial justification for the excess cost.
WE MAY PURCHASE REAL PROPERTIES FROM PERSONS WITH WHOM AFFILIATES OF OUR
ADVISOR HAVE PRIOR BUSINESS RELATIONSHIPS. We may purchase properties from third
parties who have sold properties in the past, or who may sell properties in the
future, to our advisor or its affiliates. If we purchase properties from these
third parties, our advisor will experience a conflict between our current
interests and its interest in preserving any ongoing business relationship with
these sellers. Nevertheless, our advisor has a fiduciary obligation to us.
PROPERTY MANAGEMENT SERVICES ARE BEING PROVIDED BY A COMPANY OWNED
PRINCIPALLY BY AFFILIATES OF THE INLAND GROUP. Our property manager, which is
owned principally by individuals who are our affiliates, provides property
management services to us pursuant to management services agreements which we
can terminate only in the event of gross negligence or willful misconduct on the
part of the property manager. However, our property management services
agreement provides that we pay our property manager a monthly management fee of
no greater than 90% of the fee which would be payable to an unrelated third
party providing such services. In addition, the advisor and the property manager
believe that the property manager has sufficient personnel and other required
resources to discharge all responsibilities to us.
OUR ADVISOR AND ITS AFFILIATES RECEIVE COMMISSIONS, FEES AND OTHER
COMPENSATION BASED UPON OUR INVESTMENTS. We believe that the compensation we
will pay to our advisor and its affiliates is no more than what we would pay for
similar services performed by independent firms. Some compensation is payable
whether or not there is cash available to make distributions to our
stockholders. To the extent this occurs, our advisor and its affiliates benefit
from us retaining ownership of our assets and leveraging our assets, while our
stockholders may be better served by sale or disposition or not leveraging the
assets. In addition, the advisor's ability to receive fees and reimbursements
depends on our continued investment in properties and in other assets which
generate fees. Our advisor received fees based on the book value of the
properties under management. Our property manager receives fees based on the
income from properties under management. Therefore, our advisor and/or property
manager may recommend that we purchase properties that generate fees for our
advisor and property manager, but are not necessarily the most suitable
investment for our portfolio. In addition, our affiliates, who receive fees,
including our advisor, may recommend that we acquire properties, which may
result in our incurring substantive amounts of indebtedness. Therefore, the
interest of the advisor and its affiliates in receiving fees may conflict with
the interest of our stockholders in earning income on their investment in our
common stock. Our advisor and its affiliates recognize that they have a
fiduciary duty to us and our stockholders, and have represented to us that their
actions and decisions will be made in the manner most favorable to us and our
stockholders.
While we will not make loans to our advisor or its affiliates, we may
borrow money from them for various purposes, including funding working capital
requirements. If we do, the terms, such as the
37
interest rate, security, fees and other charges, will be at least as favorable
to us as those which would be charged by unaffiliated lending institutions in
the same locality on comparable loans. Any money borrowed from an affiliate of
The Inland Group is expected to be repaid within 180 days.
Our advisor and its affiliates may do business with others who do business
with us, although presently there are no instances of this. However, our advisor
or its affiliates may not receive rebates or participate in any reciprocal
business arrangements which would have the effect of circumventing our agreement
with our advisor.
OUR ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IF WE ACQUIRE
PROPERTIES WITH ITS AFFILIATES. Our advisor may cause us to acquire an interest
in a property through a joint venture with its affiliates. In these
circumstances, our advisor will have a fiduciary duty to both us and its
affiliates participating in the joint venture. In order to minimize the conflict
between these fiduciary duties, the advisory agreement provides guidelines for
investments in joint ventures with affiliates. In addition, our articles of
incorporation require a majority of our disinterested directors to determine
that the transaction is fair and reasonable to us and is on terms and conditions
no less favorable than from unaffiliated third parties entering into the
venture.
THERE IS COMPETITION FOR THE TIME AND SERVICES OF OUR ADVISOR. We rely on
our advisor and its affiliates for our daily operation and the management of our
assets. Personnel of our advisor and its affiliates have conflicts in allocating
their management time, services and functions among the real estate investment
programs they currently service and any future real estate investment programs
or other business ventures which they may organize or serve. Our advisor and its
affiliates believe they have enough staff to perform their responsibilities in
connection with all of the real estate programs and other business ventures in
which they are involved.
INLAND SECURITIES CORPORATION IS PARTICIPATING AS MANAGING DEALER IN THE
SALE OF THE SHARES. Inland Securities Corporation is the managing dealer of the
offering and is affiliated with The Inland Group. The managing dealer is
entitled to selling commissions, reimbursement for marketing and due diligence
expenses, and the receipt of warrants. The managing dealer may be subject to a
conflict of interest arising out of its participation in this offering and its
affiliation with The Inland Group in performing its "due diligence" obligations
which arise under the Securities Act of 1933. However, the managing dealer
believes it has and will continue to properly perform these "due diligence"
activities.
WE MAY ACQUIRE THE BUSINESS OF OUR ADVISOR AND OUR PROPERTY MANAGER WITHOUT
FURTHER ACTION BY OUR STOCKHOLDERS. During the term of our agreements with our
advisor and our property manager, we have the option to acquire or consolidate
the business conducted by them without any consent of our stockholders, our
advisor or our property manager. We may elect to exercise this right at any time
after September 15, 2008. Before this date, we need the consent of the advisor
and the property manager to exercise this right. Our decision to exercise this
right will be determined by a vote of a majority of our disinterested directors.
Our advisor and our property manager and their shareholders will receive shares
of our common stock in the acquisition. The transaction will occur, if at all,
only if the board of directors obtains a fairness opinion from a recognized
financial valuation service provider to the effect that the consideration to be
paid is fair, from a financial point of view, to our stockholders. We will be
obligated to pay any fees accrued under any contractual arrangements we have
with the advisor and/or the property manager for services rendered through the
closing of such acquisitions.
WE DO NOT HAVE ARM'S-LENGTH AGREEMENTS. As we have noted, our agreements
and arrangements with our advisor or any of its affiliates, including those
relating to compensation, are not the result of arm's length negotiations, but
we believe these agreements and arrangements approximate the terms of arm's
length transactions.
38
COMPENSATION TABLE
The compensation arrangements between us and our advisor, The Inland Group
and its affiliates, were not determined by arm's-length negotiations. See
"Conflicts of Interest." The following table discloses the compensation which we
may pay our advisor and its affiliates. In those instances in which there are
maximum amounts or ceilings on the compensation which may be received, our
advisor and its affiliates may not recover any excess amounts for those services
by reclassifying them under a different compensation or fee category.
We define net income as total revenues less expenses other than additions
to reserves for depreciation or bad debts or other similar non-cash reserves.
When we use the term "net income" for purposes of calculating some expenses and
fees, it excludes the gain from the sale of our assets. This definition of net
income is prescribed by the Statement of Policy Regarding REITs adopted by the
North American Securities Administrators Association, Inc., or NASAA; but it is
not in accordance with generally accepted accounting principles in the United
States, because depreciation and other non-cash reserves are not deducted in
determining net income under the NASAA REIT Statement. Excluding depreciation
will result in not reimbursing our Advisor for a non-cash expenditure and not
excluding the gain from the sale of our assets could result in greater net
income on which the 25% reimbursement to our Advisor is allowed.
NONSUBORDINATED PAYMENTS
The following aggregate amounts of compensation, allowances and fees we may
pay to our advisor and its affiliates are not subordinated to the returns on net
investments that we are required to pay to our stockholders.
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
OFFERING STAGE
Selling commissions payable to We will pay a selling commission of 7.5% of the The actual amount depends upon the amount of
the managing dealer and sale price for each share (and reallow 7%), shares sold. We will not pay selling commissions
dealers designated by the subject to reduction for special sales under the if the minimum offering is not sold. If only the
managing dealers referred to circumstances as described in the "Plan of minimum offering is sold and there are no
as soliciting dealers. Neither Distribution - Compensation - We Will Pay For special sales, a total of $150,000 in selling
the managing dealer, the the Sale of Our Shares." commissions will be paid. A total of
soliciting dealers, nor our $187,500,000 in selling commissions will be paid
officers or directors will be We will permit the managing dealer and its if the maximum offering is sold and there are no
permitted to purchase shares respective officers and employees and certain of special sales.
of our stock in order to meet its affiliates to purchase shares net of sales
the minimum thresholds. commissions and the marketing contribution and
due diligence expense allowance or for $8.95 per
share.
Also, soliciting dealers and their respective
officers and employees and certain of their
respective affiliates who request and are
entitled to purchase shares net of selling
commissions may make an initial purchase of
shares net of sales commissions or for $9.30 per
share; however, any subsequent purchases of
shares by any such persons are limited to a
maximum discount of 5%.
39
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
Marketing contribution and due We will pay an amount equal to 2.5% of the gross The actual amount depends on the number of
diligence expense allowance offering proceeds to the managing dealer, all or shares. If there are no special sales,
paid to the managing dealer a portion of which may be passed on to approximately the following amounts will be paid
and soliciting dealers. soliciting dealers, in lieu of reimbursement of for the marketing contribution and the due
specific expenses associated with marketing. We diligence expense allowance:
may pay an additional 0.5% of the gross offering
proceeds to the managing dealer, which will be - $60,000 if we sell the minimum number of
passed on to the soliciting dealers, for due shares; or
diligence expenses. We will not pay the
marketing contribution and due diligence expense - $75,000,000 if we sell the maximum number of
allowance in connection with any special sales, shares.
except those receiving volume discounts and
those described in "Plan of Distribution -
Volume Discounts."
Other expenses of issuance We expect to incur the following expenses in All amounts other than the Securities and
and distribution connection with this offering: Exchange Commission registration fee and the
NASD filing fee are estimates. The actual
Securities and Exchange amounts of these expenses cannot be determined
Commission registration fee $ 217,621 at the present time. We estimate the total
NASD filing fee $ 30,500 amount of the issuance and distribution expenses
Printing and mailing expenses $ 3,500,000 to be approximately $14,684,121.
Blue Sky fees and expenses $ 136,000
Legal fees and expenses $ 650,000
Accounting fees and expenses $ 650,000
Advertising and sales literature $ 5,000,000
Due diligence $ 3,000,000
Transfer Agent fees $ 800,000
Data processing fees $ 500,000
Bank fees and other
administrative expenses $ 200,000
We will reimburse our sponsor for actual costs Expenses of approximately $691,911 have been
incurred in connection with the offering on our advanced by our sponsor through June 30, 2003 in
behalf. However, if the aggregate of all connection with this offering. We may reimburse
offering expenses, including selling for offering expenses advanced:
commissions, the marketing contribution and due - $90,000 if we sell the minimum offering
diligence expense allowance, exceeds 15% of the based on the 15% limitation; or
gross offering proceeds, or if the aggregate of
all offering expenses, excluding the selling - $14,684,000 if we sell the maximum
expenses, exceeds 5.5% of the gross offering offering.
proceeds, our advisor or its affiliates will
promptly pay the excess and we will have no If the offering is not successful, then our
liability for these expenses at any time sponsor will be solely responsible for the
afterward. organization and offering expenses to the extent
it has not been reimbursed.
40
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
ACQUISITION STAGE
Acquisition expenses paid to We will pay an amount, estimated to be up to We may pay the following amounts for the
our advisor's affiliates, 0.5% of the total of (1) the gross offering reimbursement of acquisition expenses:
Inland Real Estate proceeds from the sale of 250,000,000 shares,
Acquisitions, Inc., The Inland (2) the gross proceeds from the sale of up to - no more than $10,000 if the minimum number
Real Estate Group, Inc. and 20,000,000 shares pursuant to the distribution of shares are sold; or
Inland Western Management reinvestment programs. The acquisition expenses
Corp. for any particular property will not exceed 6% - no more than $13,450,000 if the maximum
of the gross purchase price of the property. number of shares are sold and all of the
20,000,000 shares are sold pursuant to the
However, if we request additional services, the distribution reinvestment program.
compensation will be provided on separate
agreed-upon terms and the rate will be approved However, the actual amounts cannot be determined
by a majority of disinterested directors, at the present time.
including a majority of the disinterested
independent directors, as fair and reasonable
for us.
Interest expenses paid to our We may borrow money from our advisor and its The actual amounts are dependent on actual
advisor and Inland Mortgage affiliates in order to acquire properties. In borrowings. Therefore, these amounts cannot be
Corporation in connection with such instances, we will pay our advisor and its determined at the present time.
loans. affiliates interest, at prevailing market rates.
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
OPERATIONAL STAGE
Property management fee paid We will pay a monthly fee of 4.5% of the gross The actual amounts are dependent upon results of
to our property manager, income from the properties. We will also pay a operations and, therefore, cannot be determined
Inland Western Management monthly fee for any extra services equal to no at the present time. If we acquire the
Corp. We will pay the fee for more than 90% of that which would be payable to businesses of our advisor and/or our property
services in connection with an unrelated party providing the services. The manager, the property management fees will
the rental, leasing, operation property manager may subcontract its duties for cease.
and management of the a fee that may be less than the fee provided for
properties. in the management services agreements.
Advisor asset management fee. We will pay our advisor an asset management fee The actual amounts are dependent upon results of
We will pay the fee for after our stockholders have first received a 6% operations and, therefore, cannot be determined
services in connection with annual return. at the present time.
our day-to-day operations,
including making strategic
decisions, performing
day-to-day operations that
include accounting, investment
advisory services, risk
management services and tax
reduction services and
providing other services as
our board deems appropriate.
41
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
OPERATIONAL STAGE
Reimbursable expenses to our We will reimburse some expenses of the advisor. The actual amounts are dependent upon results of
advisor. These may include The compensation and reimbursements to our operations and, therefore, cannot be determined
costs of goods and services, advisor will be approved by a majority of our at the present time.
administrative services and directors and a majority of our independent
non-supervisory services directors as fair and reasonable for us.
performed directly for us by
independent parties.
We will reimburse some Inland Risk and Insurance Management Services The actual amounts are dependent upon results of
expenses of the Inland Risk charges us $50 per hour for assistance in operations and, therefore, cannot be determined
and Insurance Management obtaining insurance coverage. Any commissions at the present time.
Services for insurance they receive are credited against this hourly
coverage. rate. We believe this hourly rate is
approximately 90% of the rate charged by
unaffiliated third parties. The compensation to
this company will be approved by a majority of
our directors and a majority of our independent
directors as fair and reasonable for us.
We will compensate the Inland Inland Mortgage Servicing Corporation charges us The actual amounts are dependent upon results of
Mortgage Servicing Corporation .03% per year on the first billion dollars of operations and, therefore, cannot be determined
and Inland Mortgage Investment mortgages serviced and .01% thereafter. Inland at the present time.
Corporation for purchase, sale Mortgage Investment Corporation charges us .02%
and servicing of mortgages. of the principal amount of each loan placed. The
compensation to these companies will be approved
by a majority of our directors and a majority of
our independent directors as fair and reasonable
for us.
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
LIQUIDATION STAGE
Property disposition fee We may pay a property disposition fee to our The actual amounts to be received depend upon
payable to our advisor's advisor and its affiliates if we sell any of our the sale price of our properties and, therefore,
affiliates, Inland Real Estate real property in an amount equal to the lesser cannot be determined at the present time. If we
Sales, Inc. and Inland of: acquire the advisor, the property disposition
Partnership Property Sales fee will cease.
Corp. 1. 3% of the contract sales price of the
property; or
2. 50% of the customary commission which would
be paid to a third party broker for the
sale of a comparable property.
The amount paid, when added to the
42
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
LIQUIDATION STAGE
sums paid to unaffiliated parties, will not
exceed either the customary commission or an
amount equal to 6% of the contracted for sales
price. Payment of such fees will be made only if
the advisor provides a substantial service in
connection with the sale of the property. See
"Management -- Our Advisory Agreement."
SUBORDINATED PAYMENTS
We may pay the following additional fees to our advisor after returns on
net investment have been paid to the stockholders:
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
OPERATIONAL STAGE
Advisor asset management fee We pay an annual advisor asset management fee of The actual amounts to be received depend upon
payable to our advisor. not more than 1% of our average assets. Our the sale price of our properties and, therefore,
average assets means the average of the total cannot be determined at the present time. If we
book value of our real estate assets plus the acquire the advisor, the property disposition
total value of our loans receivables secured by fee will cease.
real estate, before reserves for depreciation or
bad debts or other similar non-cash reserves. We
will compute our average assets by taking the
average of these values at the end of each month
during the quarter for which we are calculating
the fee. The fee is payable quarterly in an
amount equal to 1/4 of 1% of average assets as
of the last day of the immediately preceding
quarter. For any year in which we qualify as a
REIT, our advisor must reimburse us for the
following amounts if any:
(1) the amounts by which our total operating
expenses, the sum of the advisor asset
management fee plus other operating
expenses, paid during the previous fiscal
year exceed the greater of:
- 2% of our average assets for that fiscal
year, or
- 25% of our net income for that fiscal year.
(2) an amount, which will not exceed the
advisor asset management fee for that year,
equal to any difference between the total
amount of distributions to stockholders for
that year and the 6% annual return on the
net investment of stockholders.
Items such as organization and offering
expenses, property expenses, interest payments,
43
taxes, non-cash expenditures, the incentive
advisory fee and acquisition expenses are
excluded from the definition of total operating
expenses.
See "Management -- Our Advisory Agreement" for
an explanation of circumstances where the excess
amount specified in clause (1) may not need to
be reimbursed.
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
LIQUIDATION STAGE
Incentive advisory fee payable We will pay to the advisor an amount equal to The actual amounts to be received depend upon
to our advisor. 15% of the net proceeds from the sale of a the sale price of our properties and,
property after the stockholders have first therefore, cannot be determined at the present
received: time. If we acquire or consolidate with the
business conducted by our advisor, the
(1) a cumulative non-compounded return equal to incentive advisory fee will terminate.
10% a year on their net investment; and
(2) their net investment.
44
COMPENSATION TO OFFICERS AND DIRECTORS
We expect to pay the following to our directors (as our officers are not
paid directly by us):
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
Director fees Independent directors receive an annual fee of We will pay the five independent directors
$5,000 and a fee of $500 for attending each $25,000 in the aggregate, plus fees for
meeting of the board or one of its committees in attending meetings. The actual amounts to be
person and $350 for attending a meeting via the received for meetings depends upon the number
telephone. Our officers who are also our of meetings and their attendance and,
directors do not receive director fees. therefore, cannot be determined at the present
time.
Stock options to independent Each independent director receives This form of compensation is not paid in cash.
directors
- an initial option to purchase 3,000 shares
of common stock at a price of $8.95 per
share, when they become an independent
director, subject to some conditions; and
- each year on the date of the stockholders'
annual meeting, an additional option to
purchase 500 shares of common stock at an
exercise price equal to the then fair
market value per share. For additional
information on this option plan, see
"Management -- Independent Director Stock
Option Plan."
45
ESTIMATED USE OF PROCEEDS
The amounts listed in the table below represent our current estimates
concerning the use of the offering proceeds. Since these are estimates, they may
not accurately reflect the actual receipt or application of the offering
proceeds. This first scenario assumes we sell the minimum number of 200,000
shares of common stock in this offering. The second scenario assumes:
- we sell the maximum of 250,000,000 shares in this offering at $10 per
share; and
- we sell the maximum of 20,000,000 shares in our distribution
reinvestment program at $9.50 per share.
Under both scenarios we have not given effect to any special sales or
volume discounts which could reduce selling commissions.
MAXIMUM OFFERING
(INCLUDING SHARES SOLD UNDER THE
MINIMUM OFFERING DISTRIBUTION REINVESTMENT
200,000 SHARES PROGRAM)
---------------------------------- ----------------------------------
AMOUNT PERCENT AMOUNT PERCENT
--------------- --------------- --------------- ---------------
Gross offering proceeds ............................ $ 2,000,000 100.0% $ 2,690,000,000 100.00%
--------------- --------------- --------------- ---------------
Less expenses:
Selling commission ............................. 150,000 7.5% 187,500,000 6.97%
Marketing contribution and due diligence expense
allowance .................................... 60,000 3.0% 75,000,000 2.79%
Organization and offering expenses ............. 90,000 4.5% 14,684,000 0.55%
--------------- --------------- --------------- ---------------
Total public offering expenses ................. 300,000 15.0% 277,184,000 10.30%
--------------- --------------- --------------- ---------------
Gross amount available for investment .............. 1,700,000 85.0% 2,412,816,000 89.70%
Less: acquisition expenses .................... 10,000 0.5% 13,450,000 0.50%
Less: working capital reserve ................. 20,000 1.0% 26,900,000 1.00%
--------------- --------------- --------------- ---------------
Net cash portion of gross offering proceeds
available for the purchase of properties ...... $ 1,670,000 83.5% $ 2,372,466,000 88.20%
=============== =============== =============== ===============
46
PRIOR PERFORMANCE OF OUR AFFILIATES
PRIOR INVESTMENT PROGRAMS
During the 10-year period ending June 30, 2003, The Inland Group and its
affiliates have sponsored two other REITs, one other public real estate equity
program, one private real estate equity program, four private placement mortgage
and note programs and 13 real estate exchange private placements, which
altogether have raised more than $2,934,000,000 from over 64,000 investors.
During that period, the public real estate equity programs raised over
$32,000,000 from over 2,000 investors; the private real estate equity program
raised $2,275,000 from 80 investors; and the private placement mortgage and note
programs raised $15,831,000 from 373 investors. In addition, Inland Real Estate
Corporation and Inland Retail Real Estate Trust, Inc., the other REITs, have
raised over $2,835,000,000 from over 77,000 investors. Inland Real Estate
Corporation and Inland Retail Real Estate Trust, Inc. have investment objectives
and policies similar to ours and have invested principally in shopping centers
that provide sales of convenience goods and personal services to neighboring
communities in the Midwest and Southeast areas. However, Inland Real Estate
Corporation is now a self-administered REIT and is no longer affiliated with The
Inland Group. Our investment objectives and policies are similar to those of
several of the other prior investment programs sponsored by our affiliates which
have owned and operated retail properties. However, the vast majority of the
other investment programs sponsored by our affiliates were dissimilar from our
operation in that the prior programs owned apartment properties, pre-development
land and whole or partial interests in mortgage loans.
The information in this section and in the Prior Performance Tables
included in this supplement as APPENDIX A shows relevant summary information
concerning real estate programs sponsored by our affiliates. The purpose is to
provide information on the prior performance of these programs so that you may
evaluate the experience of the affiliated companies in sponsoring similar
programs. The following discussion is intended to briefly summarize the
objectives and performance of the prior programs and to disclose any material
adverse business developments sustained by them. Past performance is not
necessarily indicative of future performance.
SUMMARY INFORMATION
The table below provides summarized information concerning prior programs
sponsored by our affiliates for the 10-year period ending June 30, 2003, and is
qualified in its entirety by reference to the introductory discussion above and
the detailed information appearing in the Prior Performance Tables in Appendix A
of the prospectus. YOU SHOULD NOT CONSTRUE INCLUSION OF THE SUCCEEDING TABLES AS
IMPLYING IN ANY MANNER THAT WE WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED
IN THE TABLES BECAUSE THE YIELD AND CASH AVAILABLE AND OTHER FACTORS COULD BE
SUBSTANTIALLY DIFFERENT FOR OUR PROPERTIES. YOU SHOULD NOTE THAT BY ACQUIRING
OUR SHARES, YOU WILL NOT BE ACQUIRING ANY INTERESTS IN ANY PRIOR PROGRAMS.
47
INLAND RETAIL INLAND REAL
REAL ESTATE ESTATE PRIOR PUBLIC
TRUST, INC. CORPORATION REAL ESTATE
REIT REIT EQUITY
PROGRAM AS OF PROGRAM AS OF PROGRAMS AS OF
JUNE 30, JUNE 30, JUNE 30,
2003 2003(2) 2003
------------------ ------------------ ------------------
Number of programs sponsored 1 1 1
Aggregate amount raised from investors $ 2,156,104,000 679,780,000 32,399,000
Approximate aggregate number of
investors 58,000 19,000 2,600
Number of properties purchased 201 140 18
Aggregate cost of properties(1) $ 2,835,000,000 1,251,000,000 25,945,000
Number of mortgages/notes 0 0 0
Principal amount of mortgages/notes $ 0 0 0
Principal of properties (based on cost)
that were:
Commercial--
Retail 92.00% 85.00% 0.00%
Single-user retail net-lease 8.00% 15.00% 0.00%
Nursing homes 0.00% 0.00% 0.00%
Offices 0.00% 0.00% 0.00%
Industrial 0.00% 0.00% 0.00%
Health clubs 0.00% 0.00% 0.00%
Mini-storage 0.00% 0.00% 0.00%
Total commercial 100.00% 100.00% 0.00%
Multi-family residential 0.00% 0.00% 0.00%
Land 0.00% 0.00% 100.00%
Percentage of properties (based on cost)
that were:
Newly constructed (within a year of
acquisition) 58.00% 32.00% 0.00%
Existing construction 42.00% 68.00% 0.00%
Number of properties sold (3) 0 3 14
Number of properties exchanged 0 0 0
Number of mortgages/notes repaid 0 0 0
PRIOR PRIVATE INLAND REAL
REAL ESTATE ESTATE
EQUITY AND EXCHANGE
MORTGAGE PRIVATE
AND NOTE PLACEMENT
PROGRAMS AS OF OFFERINGS AS OF
JUNE 30, JUNE 30,
2003 2003
------------------ ------------------
Number of programs sponsored 5 13
Aggregate amount raised from investors 18,106,000 48,055,000
Approximate aggregate number of
investors 453 97
Number of properties purchased 7 13
Aggregate cost of properties(1) 1,951,930 151,317,000
Number of mortgages/notes 365 0
Principal amount of mortgages/notes 15,831,000 0
Principal of properties (based on cost)
that were:
Commercial--
Retail 0.00% 24.90%
Single-user retail net-lease 0.00% 13.20%
Nursing homes 0.00% 0.00%
Offices 0.00% 49.30%
Industrial 0.00% 12.60%
Health clubs 0.00% 0.00%
Mini-storage 0.00% 0.00%
Total commercial 0.00% 100.00%
Multi-family residential 0.00% 0.00%
Land 100.00% 0.00%
Percentage of properties (based on cost)
that were:
Newly constructed (within a year of
acquisition) 0.00% 47.70%
Existing construction 0.00% 52.30%
Number of properties sold (3) 6 0
Number of properties exchanged 0 0
Number of mortgages/notes repaid 0 0
48
(1) Includes purchase price and acquisition fees and expenses.
(2) On July 1, 2000, the prior REIT program, Inland Real Estate
Corporation, became a separate, self-managed entity.
(3) Number of properties sold in whole or in part.
Of the programs included in the above table, Inland Real Estate Corporation
and Inland Retail Real Estate Trust, Inc. have investment objectives similar to
ours. Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc.
represent approximately 97% of the aggregate amount raised from investors,
approximately 95% of the aggregate number of investors, approximately 91% of the
properties purchased, and approximately 97% of the aggregate cost of the
properties.
During the three years prior to June 30, 2003, Inland Real Estate
Corporation purchased 20 commercial properties and Inland Retail Real Estate
Trust, Inc. purchased 201 commercial properties. Upon written request, you may
obtain, without charge, a copy of Table VI filed with the Securities and
Exchange Commission in Part II of our registration statement. The table provides
more information about these acquisitions.
PUBLICLY REGISTERED REITs
INLAND REAL ESTATE CORPORATION. On October 14, 1994, Inland Real Estate
Corporation commenced an initial public offering of 5,000,000 shares of common
stock at $10 per share. As of July 24, 1996, it had received subscriptions for a
total of 5,000,000 shares, thereby completing the initial offering. On July 24,
1996, it commenced an offering of an additional 10,000,000 shares of common
stock at $10 per share. As of July 10, 1997, it had received subscriptions for a
total of 10,000,000 shares, thereby completing its second offering. On July 14,
1997, Inland Real Estate Corporation commenced a third offering of an additional
20,000,000 shares of common stock at $10 per share. As of March 19, 1998, Inland
Real Estate Corporation had received subscriptions for a total of 20,000,000
shares, thereby completing the third offering. On April 7, 1998, Inland Real
Estate Corporation commenced a fourth offering of an additional 25,000,000
shares at $11 per share. Inland Real Estate Corporation elected to terminate the
fourth offering as of December 31, 1998, after receiving subscriptions for a
total of 16,642,397 shares. In addition, as of June 30, 2003, Inland Real Estate
Corporation issued 11,720,169 shares of common stock through its distribution
reinvestment program. As of June 30, 2003, Inland Real Estate Corporation
repurchased 4,578,588 shares of common stock through its share repurchase
program for an aggregate amount of $42,552,838. As a result, Inland Real Estate
Corporation's gross offering proceeds totaled approximately $679,780,000 for all
of such offerings, as of June 30, 2003. Inland Real Estate Corporation's
objective is to purchase shopping centers that provide convenience goods,
personal services, wearing apparel and hardware and appliances located within an
approximate 400-mile radius of its headquarters in Oak Brook, Illinois, and to
provide, at a minimum, cash distributions on a quarterly basis and a hedge
against inflation through capital appreciation. It may also acquire single-user
retail properties throughout the United States. As of June 30, 2003, the
properties owned by Inland Real Estate Corporation were generating sufficient
cash flow to cover operating expenses plus pay an annual cash distribution of
$0.94 per share paid monthly.
As of June 30, 2003, Inland Real Estate Corporation financed approximately
$685,237,000 on 124 of its 140 properties. Inland Real Estate Corporation's 140
properties, a total investment of approximately $1,251,000,000 at June 30, 2003,
were purchased with proceeds received from the above described offerings of
shares of its common stock and financings. From December 31, 1995 through June
30, 2003, distributions have totaled $303,438,218, of which $234,358,143 was
ordinary income
49
distribution from operating cash flow, $68,705,489 was return of capital for
federal income tax purposes from operating cash flow and $374,586 from capital
gain distributions.
Through June 30, 2003, distributions were as follows:
Total Ordinary Return of Capital Gain
Distribution Income Capital * Distribution
-----------------------------------------------------------
1995 $ 736,627 694,213 42,414 -
1996 3,704,943 3,093,525 611,418 -
1997 13,127,597 9,739,233 3,388,364 -
1998 35,443,213 27,015,143 8,428,070 -
1999 48,379,621 35,640,732 12,738,889 -
2000 52,964,010 40,445,730 12,518,280 -
2001 58,791,604 45,754,604 12,662,414 374,586
2002 60,090,685 41,775,045 18,315,640 -
2003 30,199,918 30,199,918 - -
-----------------------------------------------------------
$ 303,438,218 234,358,143 68,705,489 374,586
===========================================================
* Represents a return of capital for federal income tax
purposes.
On July 1, 2000, Inland Real Estate Corporation became a
self-administered REIT by completing its acquisition of Inland Real Estate
Advisory Service, Inc., its advisor, and Inland Commercial Property Management,
Inc., its property manager. The acquisition was accomplished by merging its
advisor and its property manager into two wholly owned subsidiaries of Inland
Real Estate Corporation. As a result of the merger, Inland Real Estate
Corporation issued to our sponsor, the sole shareholder of the advisor, and The
Inland Property Management Group, Inc., the sole shareholder of its property
manager, an aggregate of 6,181,818 shares of Inland Real Estate Corporation's
common stock at $11 per share, or approximately 9.008% of its common stock.
INLAND RETAIL REAL ESTATE TRUST, INC. On February 11, 1999, Inland
Retail Real Estate Trust, Inc. commenced an initial public offering of
50,000,000 shares of common stock at $10 per share. As of January 31, 2001, it
had sold 13,687,349 shares in its first offering resulting in gross proceeds of
$136,454,948. In addition, it received $200,000 from its advisor for 20,000
shares. As of January 31, 2001, the first offering terminated. Inland Retail
Real Estate Trust, Inc. commenced a second offering on February 1, 2001. As of
August 29, 2002, it had sold 50,000,000 shares in its second offering resulting
in gross proceeds of $497,842,917, thereby completing the second offering.
Inland Retail Real Estate Trust, Inc. commenced a third offering on June 7,
2002. As of June 30, 2003, it had sold 147,516,470 shares in its third offering,
resulting in gross proceeds of $1,471,607,427. An additional 6,049,526 shares
had been sold pursuant to Inland Retail Real Estate Trust, Inc.'s distribution
reinvestment program as of June 30, 2003, for which it has received additional
net proceeds of $57,470,497. As of June 30, 2003, Inland Retail Real Estate
Trust, Inc. has repurchased 793,588 shares through its share repurchase program
resulting in disbursements totaling $7,471,853. As a result, Inland Retail Real
Estate Trust, Inc.'s net offering proceeds from all offerings total
approximately $2,156,104,000 as of June 30, 2003, including amounts raised
through its distribution reinvestment program, net of shares repurchased through
its share repurchase program.
50
Inland Retail Real Estate Trust, Inc.'s objective is to purchase
shopping centers east of the Mississippi River in addition to single-user retail
properties in locations throughout the United States, and to provide regular
cash distributions and a hedge against inflation through capital appreciation.
As of June 30, 2003, the properties owned by Inland Retail Real Estate Trust,
Inc. were generating sufficient cash flow to cover operating expenses plus pay
an annual cash distribution of $.83 per share per annum paid monthly. Through
June 30, 2003, distributions totaled $151,320,937. Through June 30, 2003,
distributions were as follows:
Total Ordinary Return of
Distribution Income Capital*
----------------------------------------------
1999 $ 1,396,861 $ 318,484 $ 1,078,377
2000 6,615,454 3,612,577 3,002,877
2001 17,491,342 10,538,534 6,952,808
2002 58,061,491 36,387,136 21,674,355
2003 67,755,789 67,755,789 -
----------------------------------------------
$ 151,320,937 $ 118,612,520 $ 32,708,417
==============================================
*Represents a return of capital for federal income tax purposes.
As of June 30, 2003, Inland Retail Real Estate Trust, Inc. had
acquired 201 properties and had seven parcels under development for a total
investment of approximately $2,835,000,000. These properties were purchased with
proceeds received from the above described offerings of shares of its common
stock and financings. As of June 30, 2003, Inland Retail Real Estate Trust, Inc.
financed approximately $1,215,200,000 on its properties.
PUBLICLY REGISTERED LIMITED PARTNERSHIPS
INLAND CAPITAL FUND, L.P. - The offering period for this fund began
December 13, 1991 and ended August 23, 1993. The objectives were to invest in
pre-development land on an all-cash basis and realize appreciation of such land
upon resale.
Inland Capital Fund raised $32,399,282 from 2,683 investors and
purchased, with the net proceeds available for investment, 18 land parcels, one
of which included a house and several outbuildings, for an aggregate purchase
price of $25,945,989. As of June 30, 2003, this fund has had multiple sales
transactions involving the house and portions of 14 parcels which generated
approximately $28,049,000 in net sales proceeds, including notes receivable of
approximately $1,311,000. Its cost basis in the land parcels sold was
approximately $13,990,000 resulting in a gain, net of selling expenses and
commissions, of approximately $14,059,000 for financial reporting purposes.
In the opinion of Inland Real Estate Investment Corporation, the
partnership is currently meeting its investment objectives and has, through
completed sales transactions, realized significant capital appreciation on the
assets sold. Cash distributions to limited partners through June 30, 2003
totaled $22,335,763, all from the sale of land parcels.
PRIVATE PARTNERSHIPS
Since our inception and through June 30, 2003, including the programs
described below under " - Private Placement Real Estate Equity Program," and "
-- Private Placement Note and Mortgage Program" in this section, our affiliates
have sponsored 514 private placement limited partnerships which have raised
51
more than $524,201,000 from approximately 17,000 investors and invested in
properties for an aggregate price of more than $1 billion in cash and notes. Of
the 522 properties purchased, 93% have been in Illinois. Approximately 90% of
the funds were invested in apartment buildings, 6% in shopping centers, 2% in
office buildings and 2% in other properties. Including sales to affiliates, 320
partnerships have sold their original property investments. Officers and
employees of our sponsor and its affiliates invested more than $17,000,000 in
these private placement limited partnerships.
From January 1, 1993 through June 30, 2003, investors in The Inland
Group private partnerships have received total distributions in excess of
$282,938,000, consisting of cash flow from partnership operations, interest
earnings, sales and refinancing proceeds and cash received during the course of
property exchanges.
Following a proposal by the former corporate general partner, which
was an affiliate of The Inland Group, investors in 301 private partnerships
voted in 1990 to make our sponsor the corporate general partner for those
partnerships.
Beginning in December 1993 and continuing into the first quarter of
1994, investors in 101 private limited partnerships for which our sponsor is the
general partner received letters from it informing them of the possible
opportunity to sell the 66 apartment properties owned by those partnerships to a
to-be-formed REIT in which affiliates of our sponsor would receive stock and
cash and the limited partners would receive cash. The underwriters of this
apartment REIT subsequently advised our sponsor to sell to a third party its
management and general partner's interests in those remaining limited
partnerships not selling their apartment properties to the apartment REIT. Those
not selling their apartment properties constituted approximately 30% of the
Inland-sponsored limited partnerships owning apartment buildings. The
prospective third-party buyers of our sponsor's interests in the remaining
partnerships, however, would make no assurance to support those partnerships
financially. As a result, in a March 1994 letter, our sponsor informed investors
of its decision not to go forward with the formation of the apartment REIT.
Following this decision, two investors filed a complaint in April 1994
in the Circuit Court of Cook County, Illinois, Chancery Division, purportedly on
behalf of a class of other unnamed investors, alleging that our sponsor had
breached its fiduciary responsibility to those investors whose partnerships
would have sold apartment properties to the apartment REIT. The complaint sought
an accounting of information regarding the apartment REIT matter, an unspecified
amount of damages and the removal of our sponsor as general partner of the
partnerships that would have participated in the sale of properties. In August
1994, the court granted our sponsor's motion to dismiss, finding that the
plaintiffs lacked standing to bring the case individually. The plaintiffs were
granted leave to file an amended complaint. Thereafter, in August 1994, six
investors filed an amended complaint, purportedly on behalf of a class of other
investors, and derivatively on behalf of six limited partnerships of which our
sponsor is the general partner. The derivative counts sought damages from our
sponsor for alleged breach of fiduciary duty and breach of contract, and assert
a right to an accounting. Our sponsor filed a motion to dismiss in response to
the amended complaint. The suit was dismissed in March 1995 with prejudice. The
plaintiffs filed an appeal in April 1996. After the parties briefed the issue,
arguments were heard by the Appellate Court in February 1997. In September 1997,
the Appellate Court affirmed the trial court decision in favor of our sponsor.
Inland Real Estate Investment Corporation is the general partner of 27
private limited partnerships and one public limited partnership that own
interests in 15 buildings that are net leased to Kmart. The 14 Kmarts owned by
the private limited partnerships are all cross collateralized. Relating to the
Kmart bankruptcy, the status of the 15 is as follows:
52
- CATEGORY 1 - The leases of nine (9) of the Kmarts are current and
have been accepted by Kmart under their Chapter 11 reorganization
plan.
- CATEGORY 2 - Kmart assigned its designation rights in one lease
to Kohl's; the lease was amended and extended for Kohl's by
IREIC, the general partner on behalf of the owners and lender;
and Kohl's began paying rent February 12, 2003.
- CATEGORY 3 - Under Kmart's Chapter 11 reorganization plan and
upon emergence from bankruptcy on April 22, 2003, Kmart has
rejected the remaining 4 property leases; one of which is subject
to a ground lease to Kimco. Kmart ceased paying rent as of May 1,
2003. The general partner's, IREIC's, plans for these properties
include, but are not limited to the following: 1) renegotiation
of the loan encumbering the property; 2) re-tenanting the
facility; 3) sale of the asset; or 4) deed in lieu of
foreclosure. While it is too early to predict an outcome, the
limited partners that own these Kmarts could lose their
properties in foreclosure.
- CATEGORY 4 - Under Kmart's Chapter 11 reorganization, Kmart
rejected the lease for the property owned by the public limited
partnership and ceased paying rent as of June 29, 2002. The
general partner plans to either re-tenant or sell this facility.
PRIVATE PLACEMENT REAL ESTATE EQUITY PROGRAM
WISCONSIN CAPITAL LAND FUND, L.P., an Illinois limited partnership,
was formed in October 1992. The objectives were to invest in pre-development
land in the Madison, Wisconsin area on an all-cash basis and realize
appreciation of the land upon resale. The offering period for units in this
privately offered partnership began in October 1992 and ended on June 14, 1993
with the maximum amount, $2,275,000, raised from 88 investors. This fund bought
seven parcels of land in the Madison, Wisconsin area with the proceeds of the
offering.
On October 1, 1997, Parcel 6 located in Windsor, Wisconsin, was sold
for $566,597 which is equal to 191% of the original parcel capital. Investors
received a $375,000 distribution from this sale.
On March 19, 1998, the fund sold parcels 3 and 7 for a total of
$2,150,000, of which $1,900,000 was distributed to investors.
On January 5, 1999, parcels 1 and 4 were sold for $1,325,000 and
investors received a $1,137,500 distribution.
The fund has sold all 63 of the improved lots in Parcel 5 in the
Village of Mt. Horeb for total gross sale proceeds of $2,361,750. Through June
30, 2003, $562,500 from lot sales has been distributed to investors.
Through June 30, 2003, investors have received $1,747 for every $1,000
invested or a total of $3,975,000 in distributions. As of June 30, 2003, there
were 88 investors in this partnership. The partnership has one remaining asset
consisting of 60.876 acres in the Madison, Wisconsin area.
Our dealer manager received sales commission equal to 9% of the
offering proceeds from which a selling commission of 8% was re-allowed to
soliciting dealers. In addition, 0.5% of the offering proceeds were re-allowed
to soliciting dealers as reimbursement for due diligence expenses. Additionally,
3.3% of the offering proceeds were used to reimburse the general partner, Inland
Real Estate Investment Corporation, and its affiliates for out-of-pocked
expenses associated with the offering and acquisition of the land parcels.
53
During the operating phase of the partnership, the general partner
will receive an asset management fee paid annually, equal to 1% of the original
cost of the partnership of the parcels. In addition, the general partner and its
affiliates will be reimbursed for direct expenses relating to the administration
of the partnership and its assets, subject to certain limitations.
An affiliate of the general partner will participate in real estate
brokerage commissions as each parcel is sold, but such commissions will be
subordinated to the return of that portion of the limited partners' original
investment attributable to that parcel plus a 6% per annum, non-compounded
cumulative return on parcel capital.
The general partner may share in the net proceeds from the sale of the
parcels, but such share of sales proceeds will be subordinated, to the return of
the limited partners' original capital and receipt of a 15% per annum,
non-compounded cumulative return. The sharing arrangement of net sale proceeds
after the 15% cumulative return will be 65% to the limited partners and 35% to
the general partner.
PRIVATE PLACEMENT NOTE AND MORTGAGE PROGRAM
9% MONTHLY CASH FUND, L.P., an Illinois limited partnership offering
investments in promissory notes to accredited investors, was sponsored by our
sponsor in February 1993. The offering period for this program began February 1,
1993 and ended on May 17, 1993, when the maximum amount of $4,000,000 was raised
from 78 investors. The partnership issued notes maturing August 1, 1999 and
providing a 9% annual return. This fund invested in loans made to an affiliate
of our sponsor secured by collateral assignments of third party mortgage loans
owned by the affiliate. Our sponsor guarantees the return of capital to
noteholders and the 9% annual return. Cash distributions through September 30,
1999 totaled $6,291,146, of which $2,291,146 was interest earnings and
$4,000,000 was a return of capital. This partnership was completed in August
1999.
9% MONTHLY CASH FUND II, L.P., was an Illinois limited partnership
offering investments in promissory notes to accredited investors, with
investment objectives identical to those of 9% Monthly Cash Fund, L.P. Our
sponsor sponsored it in April 1993. The offering period for this program began
April 5, 1993 and ended July 23, 1993, with the maximum amount of $4,000,000
raised from 82 investors. The partnership issued notes maturing February 1, 2000
that provided a 9% annual return. The partnership invested in a loan made to an
affiliate or our sponsor secured by collateral assignments of third-party
mortgage loans owned by the affiliate. Our sponsor guarantees the return of
capital to noteholders and the 9% annual return. Cash distributions through
March 31, 2000 totaled $6,417,653, of which $2,417,653 was interest earnings and
$4,000,000 was a return of capital. This partnership was completed in February
2000. All fees and expenses including sales commission and due diligence expense
to our dealer-manager equal to 9.5% (of which 8% was re-allowed to soliciting
dealers as sales commission and up to 0.5% as reimbursable due diligence
expenses) and the costs of the memorandum, tax consulting and advise (which were
anticipated to be approximately $30,000 were absorbed by the sponsor, Inland
Real Estate Investment Corporation, and were not paid from the proceeds of the
offering.
IMC NOTE ISSUE #2 1993, offering investments in promissory notes was
sponsored by Inland Mortgage Corporation, an Illinois corporation and an
affiliate of our sponsor, in July 1993. The offering period for this program
began August 25, 1993 and closed on June 13, 1994 after raising $6,800,000.
Inland Mortgage Corporation issued notes maturing December 31, 2003, providing
for interest at the rate of 8% per annum with 100% return of principal
guaranteed by our sponsor. Proceeds of the offering have been used to invest in
a mortgage loan secured by an apartment property in Manchester, New Hampshire,
owned by an affiliate of our sponsor. Investors may also receive additional
income dependent on the future sale of the property. Inland Mortgage Corporation
made an initial distribution to investors of escrow interest totaling $13,685 in
November 1993. Cash distributions through June 30, 2003 totaled
54
$5,147,928, of which $5,128,472 was interest earnings and $19,456 was subsidy
income from our sponsor pursuant to the guarantee for that program. As of June
30, 2003, there were 169 noteholders. All fees and expenses incurred in
connection with the offer and sale of the Notes - including sales commission and
due diligence expense to dealer-manager, Inland Securities Corporation, equal to
8.5% (of which 6.5% was re-allowed to soliciting dealers as sales commissions,
0.5% as a marketing fee, and up to 0.5% as reimbursable due diligence expenses)
and the costs of the memorandum, tax counseling and advise (which were
anticipated to be approximately $41,000), as well as other costs associated with
the refinancing of the property (such as title, surveys, appraisals, recording
charges, etc.) were advanced by the sponsor (IREIC) and were not paid from the
proceeds of the offering.
INLAND CONDOMINIUM FINANCING FUND, L.P., an Illinois limited
partnership offering investment in promissory notes, was sponsored by our
sponsor in December 1993. The offering period for this program began December
15, 1993 and closed on June 30, 1994. This partnership offered notes in the
principal amount of $1,031,000 maturing July 1, 2001, with interest at the rate
of 10% per annum and 100% return of principal guaranteed by our sponsor. The
proceeds of the offering were used to make unsecured loans to limited
partnerships which are affiliates of our sponsor, for the purposes of paying
expenses relating to the conversion of apartment properties owned by those
partnerships to condominiums, and conducting condominium unit sales and other
partnership expenses. Cash distributions began in March 1994. Distributions
through November 17, 1997 totaled $1,411,617, of which $380,617 was interest
earnings and $1,031,000 was a return of capital. There were 36 investors in this
partnership. This partnership was completed in 1997. All fees and expenses
incurred in connection with the offering - including sales commission and due
diligence expense to dealer-manager, Inland Securities Corporation, equal to
8.5% (of which 6.5% was re-allowed to soliciting dealers as sales commissions,
0.5% as a marketing fee and up to 0.5% as reimbursable due diligence expenses)
and the costs of the memorandum, tax counseling and advice (which were
anticipated to be approximately $45,000), as well as other costs associated with
the funding of the conversion loans were advanced by the sponsor (IREIC) and
were not paid from the proceeds of the offering.
1031 EXCHANGE PRIVATE PLACEMENT OFFERING PROGRAM
In March of 2001, Inland Real Estate Exchange Corporation (IREX) was
established as a subsidiary of Inland Real Estate Investment Corporation. The
objective of IREX is to provide replacement properties for people wishing to
complete an IRS Section 1031 real estate exchange. Through June 30, 2003, IREX
offered the sale of ten properties with a total property value of $105,810,559.
LANDINGS OF SARASOTA DBT. Inland Southern Acquisitions, Inc., a
Delaware corporation and an affiliate of IREX acquired the Landings, a
multi-tenant shopping center located in Sarasota, Florida in December 1997 for
$9,800,000. In August 2001, Inland Southern Acquisitions, Inc. contributed 100%
of its interest in the property into Landings of Sarasota DBT, a Delaware
business trust, refinanced the property with a loan of $8,000,000 from Parkway
Bank & Trust Co., an Illinois banking corporation, and began offering all of its
beneficial interests in the trust to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. The total price
was $12,000,000, which consisted of $8,000,000 in debt assumption and $4,000,000
in equity investment. $200,000 of the offering proceeds were allocated to a
property reserve account. The offering was completed in May 2002 when the
maximum offering amount was raised. The private placement memorandum projected a
first year annualized cash on cash return of 8.00%. Through June 30, 2003, cash
distributions to the owners totaled $482,236, based on the actual holding period
of each individual investor. As of June 30, 2003, there were nine investors in
this trust.
55
SENTRY OFFICE BUILDING, DBT, a Delaware business trust, purchased a
newly constructed, single-tenant office building in Davenport, Iowa in December
2001 from Ryan Companies US Inc., a Minnesota corporation. The trust financed
its acquisition of the property with a $7,500,000 first mortgage loan from
Parkway Bank & Trust Co., an Illinois banking corporation. In January 2002,
Sentry Office Building Corporation, a Delaware corporation and the initial
beneficiary of the trust, began offering all of its beneficial interests in the
trust to certain qualified persons in need of replacement properties to complete
a 1031 tax-deferred exchange. The total price was $11,000,000, which consisted
of $7,500,000 in debt assumption and $3,500,000 in equity investment. $100,000
of the proceeds obtained from the new owners was allocated to a property reserve
account. The offering was completed in April 2002 when the maximum offering
amount was raised. The private placement memorandum projected a first-year
annualized cash on cash return of 8.20%. Through June 30, 2003, cash
distributions to the owners totaled $363,223, based on the actual holding period
of each individual investor. As of June 30, 2003, there were six investors in
this trust.
PETS BOWIE DELAWARE BUSINESS TRUST purchased a single-tenant retail
building leased to PETsMART in Bowie, Maryland in October 2001 from PETsMART,
Inc. and Wells Fargo Bank Northwest, N.A. The trust initially financed its
acquisition of the property with a temporary loan of $2,625,305 from Parkway
Bank & Trust Co., an Illinois banking corporation, and then replaced this loan
with a permanent loan of $1,300,000 with the same lender. In May 2002, Pets
Bowie Delaware Business Trust began offering all of its beneficial interests to
certain qualified persons in need of replacement properties to complete a 1031
tax-deferred exchange. The total price was $3,900,000, which consisted of
$1,300,000 in debt assumption and $2,600,000 in equity investment. $90,000 of
the proceeds obtained from the new owners was allocated to a property reserve
account. The offering was completed in July 2002 when the maximum offering
amount was raised. The private placement memorandum projected a first year
annualized cash on cash return of 8.89%. Through June 30, 2003, cash
distributions to the owners totaled $231,314, based on the actual holding period
of each individual investor. As of June 30, 2003, there were seven investors in
this trust.
1031 CHATTANOOGA DBT, a Delaware business trust, acquired a retail
property currently leased to Eckerd in Chattanooga, Tennessee in May 2002. The
trust financed the property with a loan of $1,500,000 from Parkway Bank & Trust
Co., an Illinois banking corporation. In July 2002, 1031 Chattanooga, L.L.C.,
the initial beneficiary of 1031 Chattanooga DBT, began offering all of the
beneficial interests of the trust to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. The total price
was $3,400,000, which consisted of $1,500,000 in debt assumption and $1,900,000
in equity investment. As of June 30, 2003, the offering is still in process,
with 95.1295% ($1,807,460) of the capital raised. The private placement
memorandum projected a first-year annualized cash on cash return of 8.26%.
Through June 30, 2003, cash distributions to the owners totaled $160,855, based
on the actual holding period of each individual investor. As of June 30, 2003,
there were 11 investors in this trust.
LANSING SHOPPING CENTER, DBT purchased a newly constructed,
multi-tenant retail shopping center in Lansing, Illinois in June 2002 from
LaSalle Bank National Association, as trustee under trust agreement dated May
22, 2001 and known as Trust No. 127294. The Trust financed its acquisition of
the property with a $5,900,000 first mortgage loan from Parkway Bank & Trust
Co., an Illinois banking corporation. In August 2002, Lansing Shopping Center,
L.L.C., a Delaware limited liability company and the initial beneficiary of
Lansing Shopping Center, DBT, began offering all of the beneficial interests of
the trust to certain qualified persons in need of replacement properties to
complete a 1031 tax-deferred exchange. The total price was $10,900,000, which
consisted of $5,900,000 in debt assumption and $5,000,000 in equity investment.
$80,000 of the proceeds obtained from the new owners was allocated to a property
reserve account. The private placement memorandum projected a first year
annualized cash on cash return of 8.47%. Through June 30, 2003, cash
distributions to the owners totaled $314,014, based on
56
the actual holding period of each individual investor. As of June 30, 2003,
there were five investors in this trust.
INLAND 220 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a
single-tenant office building currently leased to Disney in Celebration, Osceola
County, Florida, in June 2002 from Walt Disney World Co., a Florida corporation.
The trust financed its acquisition of the property with an $18,000,000 first
mortgage loan from Bank of America, N.A., a national banking association. In
September 2002, Inland 220 Celebration Place, L.L.C., a Delaware limited
liability company and the initial beneficiary of Inland 220 Celebration Place
Delaware Business Trust, began offering all of the beneficial interests of the
trust to certain qualified persons in need of replacement properties to complete
a 1031 tax-deferred exchange. The total price was $33,800,000, which consisted
of $18,000,000 in debt assumption and $15,800,000 in equity investment. $50,000
of the proceeds obtained from the new owners was allocated to a property reserve
account. As of June 30, 2003, the offering is still in process, with 89.8075%
($14,189,578) of the capital raised. The private placement memorandum projected
a first year annualized cash on cash return of 8.08%. Through June 30, 2003,
cash distributions to the owners totaled $852,564, based on the actual holding
period of each individual investor. As of June 30, 2003, there were 32 investors
in this trust.
TAUNTON CIRCUIT DELAWARE BUSINESS TRUST acquired a retail property
currently leased to Circuit City in Taunton, Massachusetts in July 2002. The
Trust financed the property with a first mortgage of $2,800,000 from MB
Financial Bank. In September 2002, Inland Taunton Circuit, L.L.C., the initial
beneficiary of Taunton Circuit Delaware Business Trust, offered all of its
interest in the trust to a qualified person in need of a replacement property to
complete a 1031 tax-deferred exchange. The total price was $6,550,000, which
consisted of $2,800,000 in debt assumption and $3,750,000 in equity investment.
The offering was completed in September 2002. The private placement memorandum
projected a first-year annualized cash on cash return of 8.31%. Through June 30,
2003, cash distributions to the owner totaled $210,950. As of June 30, 2003,
there was one investor in this trust.
BROADWAY COMMONS DELAWARE BUSINESS TRUST acquired a multi-tenant
retail center located in Rochester, Minnesota, in July 2002. The Trust financed
the property with a first mortgage of $8,850,000 from Parkway Bank & Trust Co.,
an Illinois banking corporation. In October 2002, Broadway Commons, L.L.C., the
initial beneficiary of Broadway Commons Delaware Business Trust, began offering
all of its beneficial interests in the trust to certain qualified persons in
need of replacement properties to complete a 1031 tax-deferred exchange. The
total price was $17,250,000, which consisted of $8,850,000 in debt assumption
and $8,400,000 in equity investment. $100,000 of the offering proceeds obtained
from the new owners was allocated to a property reserve account. As of June 30,
2003, the offering is still in process, with approximately 70.5434% ($5,925,643)
of the capital raised. The private placement memorandum projected an initial
annualized cash on cash return of 8.14%. Through June 30, 2003, cash
distributions to the owners totaled $447,625, based on the actual holding period
of each individual owner. As of June 30, 2003, there were 21 investors in this
trust.
BELL PLAZA 1031, LLC. Rehab Associates XIII, Inc., an Illinois
corporation and an affiliate of IREX acquired Bell Plaza, a multi-tenant
shopping center in Oak Lawn, IL on August 28, 1998 for $1,675,000. In October
2002, Rehab Associates XIII contributed 100% of its interest in the property
into Bell Plaza 1031, LLC, a Delaware single member limited liability company,
and then offered all of its membership interests in Bell Plaza, LLC to North
Forsyth Associates, a North Carolina general partnership, which was in need of a
replacement property to complete a 1031 tax-deferred exchange. The total price
was $4,030,000, which consisted of $3,140,000 in debt assumption and $890,000 in
equity investment. $25,000 of the proceeds obtained by the new owner was
allocated to a property reserve account. The offering was completed in November
2002. The private placement memorandum projected a first-year annualized cash on
cash return of 14.30%, calculated based on the total original investment of
57
$890,000. Through June 30, 2003, cash distributions to the owner totaled
$46,849. As of June 30, 2003, there was one investor in this limited liability
company.
INLAND 210 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a
single-tenant office building, currently leased in Celebration, Osceola County,
Florida, in June 2002 from Walt Disney World Co., a Florida corporation. The
trust financed its acquisition of the property with a $5,700,000 first mortgage
loan from Bear Stearns Commercial Mortgage, Inc. In January 2003, Inland 210
Celebration Place Delaware Business Trust sold its fee simple interest in 210
Celebration Place to Old Bridge Park Celebration, LLC, a Delaware limited
liability company, which was in need of a replacement property to complete a
1031 tax-deferred exchange. The total price was $12,000,000, which consisted of
$5,700,000 in debt assumption and $6,300,000 in equity investment. Through June
30, 2003, cash flow to the new owner totaled $245,712. As of June 30, 2003, this
property was owned by one investor.
COMPUSA RETAIL BUILDING. Lombard C-USA, L.L.C., a Delaware limited
liability company, purchased a single-tenant retail building leased to CompUSA,
Inc. in Lombard, Illinois in January 2003 from an unrelated third party. The
L.L.C. financed its acquisition of the property with a $4,000,000 loan from Bear
Stearns Commercial Mortgage, Inc. In April 2003, Lombard C-USA, L.L.C. began
offering all of the undivided tenant in common interests in the real estate and
improvements thereon located at 2840 S. Highland Avenue, Lombard, DuPage County,
Illinois for $3,950,000 in cash plus the assumption of the existing indebtedness
to certain qualified persons in need of replacement properties to complete a
1031 tax-deferred exchange. The total price was $7,950,000, which consisted of
$4,000,000 in debt assumption and $3,950,000 in equity investment. As required
by the lender, Lombard C-USA, L.L.C. shall retain at least a 1% tenant in common
interest, which is included in the $3,950,000 equity investment. $75,000 of the
offering proceeds was allocated to a property reserve account. As of June 30,
2003, the offering is still in process. The private placement memorandum
projected a first-year annualized cash on cash return of 8.05%. Through June 30,
2003, Lombard C-USA, L.L.C. remains the sole investor in the property.
DEERE DISTRIBUTION FACILITY. Janesville 1031, L.L.C., a Delaware
limited liability company, purchased a single-tenant, light industrial
distribution center leased to Deere & Company, a Delaware corporation, in
Janesville, Wisconsin in February 2003 from Ryan Janesville, L.L.C., a Minnesota
corporation and an affiliate of Ryan Companies US, Inc. The L.L.C. financed its
acquisition of the property with a $10,450,000 loan from Bear Stearns Commercial
Mortgage, Inc. In May 2003, Janesville 1031, L.L.C. began offering 99% of the
undivided tenant in common interests in the real estate and improvements thereon
located at 2900 Beloit Avenue, Janesville, Rock County, Wisconsin for $9,949,500
in cash plus the assumption of the existing indebtedness to certain qualified
persons in need of replacement properties to complete a 1031 tax-deferred
exchange. The total price, $20,500,000, consisted of $10,450,000 in debt
assumption and $10,050,000 in equity investment, 1% of which was required by the
lender to be retained by Janesville 1031, L.L.C. $100,000 of the offering
proceeds was allocated to a property reserve account. As of June 30, 2003, the
offering is still in process. The private placement memorandum projected a
first-year annualized cash on cash return of 7.23%. Through June 30, 2003,
Janesville 1031, L.L.C. remains the sole investor in the property.
FLEET OFFICE BUILDING. Westminster Office 1031, L.L.C., a Delaware
limited liability company, purchased a single-tenant office building leased
entirely to Fleet National Bank, a national banking association, in Providence,
Rhode Island in April 2003 from Fleet National Bank in a sale/leaseback
transaction. The L.L.C. financed its acquisition of the property with a
$12,900,000 loan from Bear Stearns Commercial Mortgage, Inc. In June 2003,
Westminster Office 1031, L.L.C. began offering 99% of the undivided tenant in
common interests in the real estate and improvements thereon located at 111
Westminster Street, Providence, Providence County, Rhode Island for $9,000,000
in cash plus the assumption of the existing indebtedness to certain qualified
persons in need of replacement properties to
58
complete a 1031 tax-deferred exchange. The total price, $22,900,000, consisted
of $12,900,000 in debt assumption and $10,000,000 in equity investment, 1% of
which was required by the lender to be retained by Westminster Office 1031,
L.L.C. $150,000 of the offering proceeds was allocated to a property reserve
account. As of June 30, 2003, the offering is still in process. The private
placement memorandum projected a first-year annualized cash on cash return of
7.19%. Through June 30, 2003, Westminster Office 1031, L.L.C. remains the sole
investor in the property.
59
The following summary table describes the fees and expenses incurred
by each of our entities in our 1031 Exchange Private Placement Offering Project.
1031 Lansing Inland 220
Landings of Sentry Office Pets Bowie Chattanooga Shopping Celebration
Sarasota DBT Building DBT DBT DBT Center, DBT Place DBT
---------------------------------------------------------------------------------------------------------------------------------
Commissions & Fees(1) Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5%
---------------------------------------------------------------------------------------------------------------------------------
SELLING COMMISSION TO
3rd PARTY REPS 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
---------------------------------------------------------------------------------------------------------------------------------
DUE DILIGENCE FEE 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
---------------------------------------------------------------------------------------------------------------------------------
MARKETING EXPENSES 1.00% 1.50% 1.50% 1.50% 1.50% 1.00%
---------------------------------------------------------------------------------------------------------------------------------
OFFERING & ORGANIZATION 1.00% 0.50% 0.50% 0.50% 0.50% 1.00%
---------------------------------------------------------------------------------------------------------------------------------
Mortgage Broker Fee (IMC)(2) 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
---------------------------------------------------------------------------------------------------------------------------------
Acquisition Fee & Carrying
Costs(3)
---------------------------------------------------------------------------------------------------------------------------------
ACQUISITION FEE N/A 0.71% 0.77% 0.90% 0.88% 1.18%
---------------------------------------------------------------------------------------------------------------------------------
BRIDGE FINANCING FEES N/A NA 1.49% 0.50% 0.20% 0.10%
---------------------------------------------------------------------------------------------------------------------------------
Total Load(4) 11.25%-12.75% 14.23% 13.68% 14.39% 13.68% 13.23%
---------------------------------------------------------------------------------------------------------------------------------
Asset Management Fees(5) NA 0.75% 1.00% 0.56% 0.55% 0.52%
---------------------------------------------------------------------------------------------------------------------------------
Property Management Fees(6) 4.5% 5.0% Paid by 5.0% 5.0% 4.5%
Asset Mgr.
---------------------------------------------------------------------------------------------------------------------------------
Taunton Broadway Inland 210 CompUSA
Circuit Commons DBT Bell Plaza Celebration Retail
DBT DBT 1031, LLC Place DBT Building
----------------------------------------------------------------------------------------------------------------
Commissions & Fees(1) Up to 8.0% Up to 8.77% Up to 9.19% Up to 7.72% Up to 8.56%
----------------------------------------------------------------------------------------------------------------
SELLING COMMISSION TO
3rd PARTY REPS 6.00% 6.00% 6.00% 3.81% 6.00%
----------------------------------------------------------------------------------------------------------------
DUE DILIGENCE FEE 0.50% 0.50% 0.50% 0.00% 0.50%
----------------------------------------------------------------------------------------------------------------
MARKETING EXPENSES 1.00% 1.00% 1.00% 0.50% 1.00%
----------------------------------------------------------------------------------------------------------------
OFFERING & ORGANIZATION 0.50% 1.27% 1.69% 0.96% 1.06%
----------------------------------------------------------------------------------------------------------------
Mortgage Broker Fee (IMC)(2) 0.61% 0.50% 0.50% 0.50% 0.50%
----------------------------------------------------------------------------------------------------------------
Acquisition Fee & Carrying
Costs(3)
----------------------------------------------------------------------------------------------------------------
ACQUISITION FEE 0.69% 0.75% NA 0.89% 0.82%
----------------------------------------------------------------------------------------------------------------
BRIDGE FINANCING FEES 0.07% 0.23% NA 0.23% 0.23%
----------------------------------------------------------------------------------------------------------------
Total Load(4) 11.89% 12.98% 23.02% 10.52% 14.93%
----------------------------------------------------------------------------------------------------------------
Asset Management Fees(5) 0.57% NA 0.53% 0.53% 0.63%
----------------------------------------------------------------------------------------------------------------
Property Management Fees(6) 4.0% 5.0% 5.0% 4.5% 4.5%
----------------------------------------------------------------------------------------------------------------
Deere
Distribution Fleet Office
Facility Building
----------------------------------------------------------------------
Commissions & Fees(1) Up to 8.6% Up to 8.52%
----------------------------------------------------------------------
SELLING COMMISSION TO
3rd PARTY REPS 6.00% 6.00%
----------------------------------------------------------------------
DUE DILIGENCE FEE 0.50% 0.50%
----------------------------------------------------------------------
MARKETING EXPENSES 1.00% 1.00%
----------------------------------------------------------------------
OFFERING & ORGANIZATION 1.10% 1.02%
----------------------------------------------------------------------
Mortgage Broker Fee (IMC)(2) 0.50% 0.50%
----------------------------------------------------------------------
Acquisition Fee & Carrying
Costs(3)
----------------------------------------------------------------------
ACQUISITION FEE 0.87% 0.85%
----------------------------------------------------------------------
BRIDGE FINANCING FEES 0.23% 0.35%
----------------------------------------------------------------------
Total Load(4) 13.93% 14.57%
----------------------------------------------------------------------
Asset Management Fees(5) 0.49% 0.49%
----------------------------------------------------------------------
Property Management Fees(6) 4.5% 4.5%
----------------------------------------------------------------------
Backend Sales Commission 3.5% 3.5% 3.5% 3.5% 3.5% N/A
---------------------------------------------------------------------------------------------------------------------------------
Backend Sales Commission N/A NA 3.5% NA NA
----------------------------------------------------------------------------------------------------------------
Backend Sales Commission NA NA
----------------------------------------------------------------------
----------
(1) Commissions and fees are calculated as a percentage of the equity
portion of each deal.
(2) The Mortgage Broker Fee is calculated as a percentage of the debt
portion of each deal.
(3) Acquisition & Carrying Costs are calculated as a percentage of
the real estate acquisition price.
(4) The Total Load is calculated as a percentage of the equity
portion of each deal. The Total Load includes the Commissions & Fees, Mortgage
Broker Fee, Acquisition Fee & Carrying Costs, as well as any other
non-affiliated third party expenses.
(5) Asset Management Fees are calculated as a percentage of the value
of the assets under management. However, for The Landings and Broadway Commons,
which are both Master Lease deals, the Master Tenant Income is the residual cash
flow from the Property after payment of the Master Lease Rent.
(6) Property Management Fees are calculated as a percentage of Gross
Income from the property.
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61
SUMMARY TABLES
The following summary tables describe information concerning the prior
programs discussed above through June 30, 2003.
Affiliates of The Inland Group formed Inland Capital Fund, L.P. and
Wisconsin Capital Land Fund, L.P. as pure capital appreciation investments. No
current return from rents or interest was contemplated or available because
capital was invested in non-income producing vacant land parcels. Limited
partners receive distributions on an irregular basis, only as a result of a sale
of the vacant land parcels. These distributions consist of both the return of
the invested capital amount allocated to the purchase of the parcel or parcels
sold plus the profit on the involved parcels as measured by the sale price, net
of costs of the sale, minus the fully loaded purchase price, or allocated
capital. The method of measuring return on investment to date is on a sold
parcel by parcel basis as follows:
62
Return on Investment Return on Investment
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
FULLY LOADED RETURN ON
NET SALES PURCHASE PRICE ALLOCATED CAPITAL AVERAGE
PRICES OF (ALLOCATED GROSS RETURN % (GROSS RETURN NUMBER OF
PARCELS CAPITAL OF NET PROFITS ON (NET %/AVERAGE NUMBER YEARS OF
SOLD TO PARCELS SOLD PARCELS SOLD TO PROFIT/ALLOCATED OF YEARS OF CAPITAL
FUND DATE LESS TO DATE) = DATE CAPITAL) CAPITAL INVESTED) INVESTED
----------------------------------------------------------------------------------------------------------------------------------
Inland Capital
Fund, L.P. 28,049,000 13,990,000 14,059,000 100% 9.14% 11.00
Wisconsin Land
Fund, L.P. 4,137,818 2,120,803 2,017,015 95% 9.05% 10.50
CUMULATIVE DISTRIBUTIONS TO LIMITED PARTNERS
RETURN ON
CAPITAL RETURN OF RETURN ON INVESTMENT PER
RAISED TOTAL = INVESTMENT + INVESTMENT YEAR
------------------------------------------------------------------------------------------------------------------
Employee Appreciation Fund, L.P.* 400,000 502,198 400,000 102,198 10.00%
Inland Condominium Financing Fund, L.P. 1,031,000 1,411,617 1,031,000 380,617 10.00%
9% Monthly Cash Fund, L.P. 4,000,000 6,291,146 4,000,000 2,291,146 9.00%
9% Monthly Cash Fund II, L.P. 4,000,000 6,417,653 4,000,000 2,417,653 9.00%
IMC Note Issue #2 1993 6,800,000 5,147,928 0 5,147,928 8.00%
* Returns of Capital prior to Final Distribution.
63
MANAGEMENT
INLAND AFFILIATED COMPANIES
The Inland Group, Inc. was started by a group of Chicago
schoolteachers in 1967, and incorporated the following year. The founders of The
Inland Group and its affiliates are still centered in the Chicago metropolitan
area. Over the past 35 years, The Inland Group and its affiliates have
experienced significant growth and now make up a fully-integrated group of
legally and financially separate companies that have been engaged in diverse
facets of real estate providing property management, leasing, marketing,
acquisition, disposition, development, redevelopment, renovation, construction,
finance, investment products, and other related services. The Inland Real Estate
Group of Companies (sometimes referred to as "Inland") represents the marketing
name for these separate legal entities that are either subsidiaries of the same
entity, affiliates of each other, share some common ownership or were previously
sponsored by Inland Real Estate Investment Corporation. Inland in the aggregate
was ranked by Crain's Chicago Business in April 2003 as the 33rd largest
privately held company headquartered in the Chicago area. Among the affiliates
of Inland is one of the largest property management firm in Illinois and one of
the largest commercial real estate and mortgage banking firms in the Midwest.
As of June 30, 2003 Inland and its affiliates have more than 800
employees, own properties in 39 states, and have managed assets in excess of $5
billion. The senior management includes executives of The Inland Group and its
affiliates. Our management personnel have substantial experience in a full range
of real estate services. Our top seven senior executives have an average of over
25 years experience in the real estate industry.
Our advisor and managing dealer are affiliates of Inland. The relevant
skills and experience of each of the Inland affiliated companies, developed over
the course of more than 35 years in business, primarily in the Chicago
metropolitan area, are available to us in the conduct of our business.
As of June 30, 2003, our sponsor, Inland Real Estate Investment
Corporation, is the general partner of limited partnerships which own in excess
of 5,800 acres of pre-development land in the Chicago area, as well as
16,871,522 square feet of real property in Chicago and nationwide.
Inland developed expertise in real estate financing as it bought and
sold properties over the years. Inland Mortgage Corporation was incorporated in
1977. As of June 30, 2003 Inland Mortgage Corporation has originated more than
$6 billion in financing including loans to third parties and affiliated
entities.
Inland Mortgage Investment Corporation and Inland Mortgage Servicing
Corporation were incorporated in 1990, delineating the functions and duties
associated with financing. As of June 30, 2003, Inland Mortgage Investment
Corporation owned a $73,947,500 loan portfolio, and Inland Mortgage Servicing
Corporation serviced a loan portfolio of 503 loans exceeding $2,117,699,700.
The Inland Property Management companies are responsible for
collecting rent, and leasing and maintaining the rental properties they manage.
As of June 30, 2003 Inland Property Management companies manage
42,982,552 million square feet of commercial properties in 39 states. A
substantial portion of the portfolio, approximately 10.8 million square feet,
consists of properties leased on a triple-net lease basis to creditworthy
tenants. This means that the tenant operates and maintains the property and pays
rent that is net of taxes, insurance, and
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operating expenses. They also manage more than 11,000 multi-family units that
are principally located in the Chicago metropolitan area.
Inland Western Management Corporation, our management company, was
incorporated in January 2003 to segregate responsibility for management of our
properties from Inland Property Management companies' growing management
portfolio of retail properties. Our property management company will be
responsible for collecting rent, leasing, and maintaining the retail properties
it will manage. These properties are primarily intended to be our properties in
our primary geographical area of investment. Our property management company is
owned primarily by individuals who are affiliates of Inland.
Inland Real Estate Acquisitions, Inc., another company affiliated with
Inland, has extensive experience in acquiring real estate for investment. Over
the years, it and its affiliates have acquired more than 1,100 properties.
Inland Real Estate Development Corporation, an affiliate of Inland,
has expertise in rezoning and developing real estate for industrial,
residential, and commercial use. It has constructed more than 3,000 single
family and multi-family units and developed over one million square feet of
commercial space. As of June 30, 2003, Inland Real Estate Development
Corporation had more than 5,000 acres of prime land available for development.
Inland Real Estate Sales, Inc., another affiliate of Inland, is one of
the largest "mid-market" commercial brokerage specialists in the Midwest. In the
last three years it has completed more than $175 million in commercial real
estate sales. Inland Real Estate Sales, Inc. has been involved in the sale of
more than 40,000 multi-family units and over 10 million square feet of
commercial property.
See also "Prior Performance of our Affiliates" and APPENDIX A - "Prior
Performance Tables" for information concerning over $2.8 billion raised from
over 77,000 investors in connection with two other REITs, one other public real
estate equity program, one private real estate equity program and five private
placement mortgage and note programs and nine real estate exchange private
placement offerings sponsored by The Inland Group affiliated companies during
the 10-year period ending June 30, 2003, and the prior performance of those
programs. During the last 35 years, more than 10,000 investors were in the
Inland Group's 231 completed programs as of June 23, 2003, with no investor
losses of initial invested capital in any completed equity program.
The following sets forth information with respect to the directors and
principal executive officers of The Inland Group:
NAME AGE* POSITION AND OFFICE WITH THE INLAND GROUP
---- ---- -----------------------------------------
Daniel L. Goodwin 59 Chairman, president and director
Robert H. Baum 59 Vice chairman, executive vice president - general
counsel and director
G. Joseph Cosenza 59 Vice chairman and director
Robert D. Parks 59 Director
----------
*As of January 1, 2003
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Messrs. Goodwin, Baum, Cosenza and Parks were the founders of Inland.
DANIEL L. GOODWIN, is a founding and controlling stockholder of and
the Chairman of the Board and Chief Executive Officer of The Inland Group, Inc.
Mr. Goodwin also serves as a director or officer of entities wholly owned or
controlled by The Inland Group. In addition, Mr. Goodwin is the Chairman of the
Board and Chief Executive Officer of Inland Mortgage Investment Corporation and
Chairman and Chief Executive Officer of Inland Bancorp, a bank holding company.
He also oversees numerous stock market investment portfolios and is the advisor
for Inland Mutual Fund Trust, a publicly traded mutual fund.
HOUSING. Mr. Goodwin is a member of the National Association of
Realtors, the Illinois Association of Realtors and the Northern Illinois
Commercial Association of Realtors. He is also the author of a nationally
recognized real estate reference book for the management of residential
properties. Mr. Goodwin serves on the Board of the Illinois State Affordable
Housing Trust Fund. He served as an advisor for the Office of Housing
Coordination Services of the State of Illinois, and as a member of the Seniors
Housing Committee of the National Multi-Housing Council. He has served as
Chairman of the DuPage County Affordable Housing Task Force. Mr. Goodwin also
serves as Chairman of New Directions Affordable Housing Corporation.
EDUCATION. Mr. Goodwin obtained his Bachelor's and Master's Degrees
from Illinois State universities. Following graduation, he taught for five years
in the Chicago Public Schools. More recently, Mr. Goodwin has served as a member
of the Board of Governors of Illinois State Colleges and Universities. He is
Vice Chairman of the Board of Trustees of Benedictine University, Vice Chairman
of the Board of Trustees of Springfield College and Chairman of the Board of
Trustees of Northeastern Illinois University.
ROBERT H. BAUM has been with The Inland Group and has affiliates since
1968 and is one of the four original principals. Mr. Baum is vice chairman and
executive vice president-general counsel of The Inland Group. In his capacity as
general counsel, Mr. Baum is responsible for the supervision of the legal
activities of The Inland Group and its affiliates. This responsibility includes
the supervision of The Inland Group Law Department and serving as liaison with
outside counsel. Mr. Baum has served as a member of the North American
Securities Administrators Association Real Estate Advisory Committee and as a
member of the Securities Advisory Committee to the Secretary of State of
Illinois. He is a member of the American Corporation Counsel Association and has
also been a guest lecturer for the Illinois State Bar Association. Mr. Baum has
been admitted to practice before the Supreme Court of the United States, as well
as the bars of several federal courts of appeals and federal district courts and
the State of Illinois. He is also an Illinois licensed real estate broker. He
has served as a director of American National Bank of DuPage and currently
serves as a director of Inland Bancorp Holding Company and of Westbank. Mr. Baum
also is a member of the Governing Council of Wellness House, a charitable
organization that provides emotional support for cancer patients and their
families.
G. JOSEPH COSENZA has been with The Inland Group and its affiliates
since 1968 and is one of the four original principals. Mr. Cosenza is a director
and vice chairman of The Inland Group and oversees, coordinates and directs The
Inland Group organization's many enterprises. In addition, Mr. Cosenza
immediately supervises a staff of 16 persons who engage in property
acquisitions. Mr. Cosenza has been a consultant to other real estate entities
and lending institutions on property appraisal methods.
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Mr. Cosenza received his B.A. Degree from Northeastern Illinois
University and his Masters Degree from Northern Illinois University. From 1967
to 1968, he taught in the La Grange Illinois School District and, from 1968 to
1972, he served as assistant principal and taught in the Wheeling, Illinois
School District. Mr. Cosenza has been a licensed real estate broker since 1968
and an active member of various national and local real estate associations,
including the National Association of Realtors and the Urban Land Institute.
Mr. Cosenza has also been chairman of the board of American National
Bank of DuPage and has served on the board of directors of Continental Bank of
Oakbrook Terrace. He was the chairman and is presently a director of Westbank in
Westchester, Hillside and Lombard, Illinois.
ROBERT D. PARKS has been a director of The Inland Group since 1968 and
is one of the four original principals. He has been our chairman, chief
executive officer, and an affiliated director since our formation. He is
chairman of our sponsor and a director of our managing dealer. Mr. Parks is
president, chief executive officer and a director of Inland Real Estate
Corporation. He is a director of Inland Real Estate Advisory Services, Inc.,
Inland Investment Advisors, Inc., Partnership Ownership Corp., Inland Southern
Acquisitions, Inc. and Inland Southeast Investment Corp. He is chairman, chief
executive officer and director of Inland Retail Real Estate Trust, Inc. and a
trustee of Inland Mutual Fund Trust, Inc.
Mr. Parks is responsible for the ongoing administration of existing
investment programs, corporate budgeting and administration for our sponsor. He
oversees and coordinates the marketing of all investments and investor
relations.
Prior to joining Inland, Mr. Parks was a school teacher in Chicago's
public schools. He received his B.A. Degree from Northeastern Illinois
University and his M.A. Degree from the University of Chicago. He is a
registered Direct Participation Program Limited Principal with the National
Association of Securities Dealers, Inc. He is also a member of the Real Estate
Investment Association, the Financial Planning Association, the Foundation for
Financial Planning, as well as a member of the National Association of Real
Estate Investment Trusts, Inc.
OUR GENERAL MANAGEMENT
We operate under the direction of our board of directors. Our board is
responsible for our business and management. Our board sets our policies and
strategies. Our advisor is responsible for the day-to-day management of our
affairs and the implementation of the policies of our board. Inland Western
Management Corp. is responsible for managing, maintaining and leasing the
individual properties. Inland Real Estate Acquisitions, Inc. is responsible for
acquiring properties. Inland Risk and Insurance Management Services, Inc., an
affiliate of The Inland Group, Inc., is responsible for providing insurance
coverage on the properties. Inland Mortgage Corporation, Inland Mortgage
Servicing Corporation and Inland Mortgage Investment Corporation are responsible
for the purchase, sales and servicing of mortgages. See "Compensation Table" for
a description for the fees paid to our affiliates.
67
OUR DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to our
directors and executive officers:
NAME AGE POSITION AND OFFICE WITH US
---------- ------- ---------------------------------------
Robert D. Parks .............. 59 Chairman, chief executive officer and
affiliated director
Roberta S. Matlin ............. 58 Vice president -- administration
Scott W. Wilton ............... 42 Secretary
Kelly E. Tucek ................ 40 Treasurer
Brenda G. Gujral .............. 60 Affiliated director
Frank A. Catalano, Jr ......... 41 Independent director
Kenneth H. Beard .............. 63 Independent director
Paul R. Gauvreau .............. 63 Independent director
Gerald M. Gorski .............. 60 Independent director
Barbara A. Murphy ............. 65 Independent director
----------
*As of January 1, 2003
ROBERTA S. MATLIN has been our vice president of administration since
our formation. Ms. Matlin joined Inland in 1984 as director of investor
administration and currently serves as senior vice president of investments of
our sponsor, directing its day-to-day internal operations. Ms. Matlin is a
director of our sponsor and of our managing dealer. Since 1998, she has been
vice president of administration of Inland Retail Real Estate Trust and was vice
president of administration of Inland Real Estate Corporation from 1995 until
2000. She is president and a director of Inland Investment Advisors, Inc. and
Intervest Southern Real Estate Corporation, and a trustee and executive vice
president of Inland Mutual Fund Trust. Prior to joining Inland, she worked for
the Chicago Region of the Social Security Administration of the United States
Department of Health and Human Services. Ms. Matlin is a graduate of the
University of Illinois. She holds Series 7, 22, 24, 39, 63 and 65 licenses from
the National Association of Securities Dealers, Inc.
SCOTT W. WILTON has been our secretary since our formation. Mr. Wilton
joined The Inland Group in January 1995. He is assistant vice president of The
Inland Real Estate Group, Inc. and assistant counsel with The Inland Real Estate
Group law department. In 1998, Mr. Wilton became secretary of Inland Retail Real
Estate Trust, Inc. and Inland Retail Real Estate Advisory Services, Inc. In
2001, he became the Secretary of Inland Real Estate Exchange corporation. Mr.
Wilton is involved in all aspects of The Inland Group's business, including real
estate acquisitions and financing, securities law and corporate governance
matters, leasing and tenant matters, and litigation management. He received B.S.
degrees in economics and history from the University of Illinois at Champaign
1982 and his law degree from Loyola University of Chicago, Illinois 1985. Prior
to joining The Inland Group, Mr. Wilton worked for the Chicago law firm of
Williams, Rutstein, Goldfarb, Sibrava and Midura, Ltd., specializing in real
estate and corporate transactions and litigation.
KELLY E. TUCEK has been our treasurer since our formation. Ms. Tucek
joined The Inland Group in 1989 and is an Assistant Vice President of Inland
Real Estate Investment Corporation. As of August 1996, Ms. Tucek is responsible
for the Investment Accounting Department, which includes all public partnership
accounting functions along with quarterly and annual SEC filings. Prior to
joining Inland, Ms. Tucek was on the audit staff of Coopers and Lybrand since
1984. She received her B.A. Degree in Accounting and Computer Science from North
Central College.
68
BRENDA G. GUJRAL, an affiliated director, is president, chief
operating officer and a director of Inland Real Estate Investment Corporation,
the parent company of our advisor. She is also president, chief operating
officer and a director of our managing dealer. Mrs. Gujral is also a director of
Inland Investment Advisors, Inc., an investment advisor.
Mrs. Gujral has overall responsibility for the operations of Inland
Real Estate Investment Corporation, including the distribution of checks to over
50,000 investors, the review of periodic communications to those investors, the
filing of quarterly and annual reports for Inland Real Estate Investment
Corporation-sponsored publicly registered investment programs with the
Securities and Exchange Commission, compliance with other Securities and
Exchange Commission and National Association of Securities Dealers securities
regulations both for Inland Real Estate Investment Corporation and Inland
Securities Corporation, review of asset management activities and marketing and
communications with the independent broker-dealer firms selling current and
prior Inland Real Estate Investment Corporation sponsored investment programs.
She works with internal and outside legal counsel in structuring Inland Real
Estate Investment Corporation's investment programs and in connection with the
preparation of its offering documents and registering the related securities
with the Securities and Exchange Commission and state securities commissions.
Mrs. Gujral has been with the Inland organization for 22 years,
becoming an officer in 1982. Prior to joining the Inland organization, she
worked for the Land Use Planning Commission establishing an office in Portland,
Oregon to implement land use legislation for that state.
She is a graduate of California State University. She holds Series 7,
22, 39 and 63 licenses from the National Association of Securities Dealers and
is a member of The National Association of Real Estate Investment Trusts. Ms.
Gujral is also a member of the Financial Planning Association, the Foundation
for Financial Planning and the National Association for Female Executives.
FRANK A. CATALANO, JR. has served as president of Catalano &
Associates since 1999. Catalano & Associates is a real estate company that
includes brokerage, property management and rehabilitation and leasing of office
buildings. Mr. Catalano's experience also includes mortgage banking. Since 2002,
he has been a vice president of First Home Mortgage Company. Prior to that,
Mr. Catalano was a regional manager at Flagstar Bank. He also was president and
chief executive officer of CCS Mortgage, Inc. from 1995 through 2000, when
Flagstar Bank acquired it.
Mr. Catalano is a member of the Elmhurst, IL Chamber of Commerce and
as past chairman of the board, he is also a member of the Elmhurst Jaycees,
Elmhurst Hospital Board of Governors, Elmhurst Kiwanis and is currently the
President of Elmhurst Historical Museum Commission. Mr. Catalano holds a
mortgage broker's license.
KENNETH H. BEARD was president and chief executive officer of Exelon
Services, an energy services company from 1999-2002, where he had responsibility
for financial performance including being accountable for creating business
strategy, growing the business through acquisition, integrating acquired
companies and developing infrastructure for the combined acquired businesses.
Exelon Services is a subsidiary of Exelon Corporation, a New York Stock Exchange
listed company. Prior to that position, from 1974 to 1999, Mr. Beard was the
founder, president and chief executive officer of Midwest Mechanical, Inc., a
heating, ventilation and air conditioning company providing innovative and cost
effective construction services and solutions for commercial, industrial, and
institutional facilities. From 1964 to 1974 Mr. Beard was employed at The Trane
Company, a manufacturer of heating, ventilating and air conditioning equipment
having positions in sales, sales management and general management.
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Mr. Beard holds a MBA and BSCE from the University of Kentucky and is
a licensed mechanical engineer. He is on the board of directors of the Wellness
House in Hinsdale, Illinois, a cancer support organization, and Harris Bank -
Hinsdale, serves on the Dean's Advisory Council of the University of Kentucky,
School of Engineering, and is a past member of the Oak Brook, Illinois Plan
Commission (1981-1991).
PAUL R. GAUVREAU is the retired chief financial officer, financial
vice president and treasurer of Pittway Corporation, New York Stock exchange
listed manufacturer and distributor of professional burglar and fire alarm
systems and equipment from 1966 until its sale to Honeywell, Inc. in 2001. He
was president of Pittway's non-operating real estate and leasing subsidiaries
through 2001. He was a financial consultant to Honeywell, Inc.; Genesis Cable,
L.L.C.; ADUSA, Inc. He was a director and audit committee member of Cylink
Corporation, a Nasdaq Stock Market listed manufacturer of voice and data
security products from 1998 until its merger with Safenet, Inc. in February
2003. Prior to 1995, he was a director and acting chief financial officer
instrumental in 1996 Cylink initial public offering.
Mr. Gauvreau holds a MBA from the University of Chicago an a BSC from
Loyola University of Chicago. He is on the Board of Trustees and Vice Chairman
of the Finance Committee of Benedictine University, Lisle, Illinois; a member of
the Board of Trustees of the Chaddick Institute of DePaul University, Chicago,
Illinois; and a member of the board of directors and treasurer of the Children's
Brittle Bone Foundation, Pleasant Prairie, Wisconsin.
GERALD M. GORSKI is a partner in the law firm of Gorski and Good,
Wheaton Illinois. Mr. Gorski's practice is limited to governmental law. His firm
represents numerous units of local government in Illinois and Mr. Gorski has
served as a Special Assistant State's Attorney and Special Assistant Attorney
General in Illinois. He received a Bachelor of Arts degree from North Central
College with majors in Political Science and Economics and a Juris Doctor degree
from DePaul University Law School where he was placed on the Deans Honor List.
Mr. Gorski serves as the Vice-Chairman of the Board of Commissioners for the
DuPage Airport Authority. He has written numerous articles on various legal
issues facing Illinois municipalities; has been a speaker at a number of
municipal law conferences and is a member of the Illinois Bar Association, the
Institute for Local Government Law and the International Municipal Lawyers
Association.
BARBARA A. MURPHY is the Chairwoman of the DuPage Republican Party.
Ms. Murphy is also a member of Illinois Motor Vehicle Review Board and a member
of Matrimonial Fee Arbitration Board. Ms. Murphy is a Milton Township Trustee
and a committeeman for Milton Township Republican Central Committee. Ms. Murphy
previously served as State Central Committeewoman for the Sixth Congressional
District and has also served on the DuPage Civic Center Authority Board, the
DuPage County Domestic Violence Task Force, and the Illinois Toll Highway
Advisory Committee. Ms. Murphy is a founding member of the Family Shelter
Service Board. As an active volunteer for Central DuPage Hospital, she acted as
the "surgery hostess" (cared for families while a family member was undergoing
surgery). Ms. Murphy was a department manager and buyer for J.W. Robinson's and
Bloomingdale's and the co-owner of Daffy Down Dilly Gift Shop.
COMMITTEES OF OUR BOARD OF DIRECTORS
Our bylaws provide that our board may establish such committees as the
board believes appropriate. The board will appoint the members of the committee
in the board's discretion. Our bylaws require that a majority of the members of
each committee of our board is to be comprised of independent directors.
70
AUDIT COMMITTEE. Our bylaws provide for our board to designate an
audit committee consisting of at least three independent directors and for all
committee members to be independent directors. Our board will designate three of
the independent directors as the members of the audit committee. The audit
committee makes recommendations concerning the engagement of independent public
accountants, reviews the plans and results of the audit engagement with the
independent public accountants, approves professional services provided by, and
the independence of, the independent public accountants, considers the range of
audit and non-audit fees and consults with the independent public accountants
regarding the adequacy of our internal accounting controls.
EXECUTIVE COMMITTEE. Our board may establish an executive committee
consisting of three directors, including two independent directors. The
executive committee would likely exercise all powers of the board in the
management of the business and affairs of our company, except for those which
require actions by all of the directors or by the independent directors under
our articles of incorporation or bylaws or under applicable law.
MANAGEMENT AND DISCLOSURE COMMITTEE. Our board may establish a
management disclosure committee to assist in reviewing our disclosures, controls
and procedures. The committee may include our directors and directors and
officers of our advisor.
EXECUTIVE COMPENSATION COMMITTEE. Our board may establish an executive
compensation committee consisting of three directors, including two independent
directors, to establish compensation policies and programs for our executive
officers. The executive compensation committee will exercise all powers of our
board in connection with establishing and implementing compensation matters,
including incentive compensation and benefit plans.
COMPENSATION OF DIRECTORS AND OFFICERS
We pay our independent directors an annual fee of $5,000 plus $500 for
each in person meeting and $350 for each meeting of the board or a committee of
the board attended by telephone, and reimbursement of their out-of-pocket
expenses incurred. Our two other directors, Robert D. Parks and Brenda G.
Gujral, do not receive any fees or other remuneration for serving as directors.
EXECUTIVE COMPENSATION
We have no employees and our executive officers will not receive any
compensation from us for their services as such officers. Our executive officers
are officers of one or more of our affiliates, and are compensated by those
entities, in part, for their services rendered to us.
INDEPENDENT DIRECTOR STOCK OPTION PLAN
We have an independent director stock option plan under which
non-employee directors, as defined under Rule 16b-3 of the Securities Exchange
Act of 1934, are eligible to participate.
We have authorized and reserved a total of 75,000 shares of our common
stock for issuance under our independent director stock option plan. The number
and type of shares which could be issued under the plan may be adjusted if we
are the surviving entity after a reorganization or merger or if our stock
splits, is consolidated or we are recapitalized. If this occurs, the exercise
price of the options will be correspondingly adjusted.
The independent director stock option plan provides for the grant of
non-qualified stock options to purchase 3,000 shares to each independent
director upon his or her appointment if they meet the
71
conditions in the plan. The plan also provides for subsequent grants of options
to purchase 500 shares on the date of each annual stockholder's meeting to each
independent director then in office. However, options may not be granted at any
time when the grant, along with the grants to be made at the same time to other
independent directors, would exceed 10% of our issued and outstanding shares. We
have granted options to purchase 3,000 shares at $8.95 per share to each of our
five independent directors. The option price for subsequent options will be
equal to the fair market value of a share on the last business day preceding the
annual meeting of stockholders. The option price will be fixed at $8.95 per
share until the earlier of the termination of this offering or two years after
the commencement of this offering.
One-third of the options granted following an individual initially
becoming an independent director are exercisable beginning on the date of their
grant, one-third will first become exercisable on the first anniversary of the
date of their grant, and the remaining one-third will first become exercisable
on the second anniversary of the date of their grant. All other options granted
under the independent director stock option plan will become fully exercisable
on the second anniversary of their date of grant.
Options granted under the independent director stock option plan are
exercisable until the first to occur of
- the tenth anniversary of the date of grant,
- the removal for cause of the independent director as an
independent director, or
- three months following the date the independent director ceases
to be an independent director for any other reason except death
or disability.
The options may be exercised by payment of cash or through the delivery of
common stock. They are generally exercisable in the case of death or disability
for a period of one year after death or the disabling event, provided that the
death or disabling event occurs while the person is an independent director.
However, if the option is exercised within the first six months after it becomes
exercisable, any shares issued pursuant to such exercise may not be sold until
the six month anniversary of the date of the grant of the option.
Notwithstanding any other provisions of the independent director stock option
plan to the contrary, no option issued pursuant thereto may be exercised if such
exercise would jeopardize our status as a REIT under the Internal Revenue Code.
No option may be sold, pledged, assigned or transferred by an
independent director in any manner otherwise than by will or by the laws of
descent or distribution.
Upon our dissolution, liquidation, reorganization, merger or
consolidation as a result of which we are not the surviving corporation, or upon
sale of all or substantially all of our property, the independent director stock
option plan will terminate, and any outstanding unexercised options will
terminate and be forfeited. However, holders of options may exercise any options
that are otherwise exercisable immediately prior to the dissolution,
liquidation, consolidation or merger. Additionally, our board may provide for
any or all of the following alternatives:
- for the assumption by the successor corporation of the options
previously granted or the substitution by the corporation for the
options covering the stock of the successor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to
the number and kind of shares and exercise prices;
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- for the continuance of the independent director stock option plan
by such successor corporation in which event the independent
director stock option plan and the options will continue in the
manner and under the terms so provided; or
- for the payment in cash or common stock in lieu of and in
complete satisfaction of the options.
OUR ADVISOR
Our advisor, Inland Western Retail Real Estate Advisory Services,
Inc., is an Illinois corporation and a wholly owned subsidiary of our sponsor.
The following table sets forth information regarding the executive officers and
directors of our advisor, all of whom have held their positions and offices
since its formation in 1998. The biographies of Messrs. Parks, Cosenza, and
Goodwin are set forth above under "-- Inland Affiliated Companies" and the
biography of Mr. Wilton is set forth under "-- Our Directors and Executive
Officers."
NAME AGE POSITION AND OFFICE WITH OUR ADVISOR
---- --- ------------------------------------------
Daniel L. Goodwin ....... 59 Director
Robert D. Parks ......... 59 Director and president
G. Joseph Cosenza ....... 59 Director
Brenda G. Gujral ........ 60 Vice president
Catherine L. Lynch ...... 44 Treasurer
Scott W. Wilton ......... 42 Secretary
----------
*As of January 1, 2003
CATHERINE L. LYNCH joined the Inland organization in 1989 and is the
treasurer/secretary of our sponsor. Ms. Lynch is responsible for managing the
corporate accounting department of our sponsor. Ms. Lynch is also the
treasurer/secretary and a director of the dealer manager and treasurer of Inland
Retail Real Estate Advisory Services and Inland Investment Advisors, Inc. Prior
to joining the Inland organization, Ms. Lynch worked in the field of public
accounting for KPMG Peat Marwick LLP since 1980. She received her B.S. Degree in
Accounting from Illinois State University. Ms. Lynch is a certified public
accountant and a member of the American Institute of Certified Public
Accountants and the Illinois CPA Society. She is registered with the National
Association of Securities Dealers, Inc. as a financial operations principal.
OUR ADVISORY AGREEMENT
DUTIES OF OUR ADVISOR. Under the terms of our advisory agreement, our
advisor, generally has responsibility for our day-to-day operations. This
includes the following:
- administering our bookkeeping and accounting functions,
- serving as our consultant in connection with policy decisions to
be made by our board, managing our properties or causing them to
be managed by another party, and
- rendering other services as our board deems appropriate.
Our advisor is subject to the supervision of its board and has only such
functions as are delegated to it by its board.
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TERM OF THE ADVISORY AGREEMENT. The advisory agreement has an initial
term of three years and is renewable for successive one-year terms upon the
mutual consent of the parties. It may be terminated by either party, by mutual
consent of the parties or by a majority of the independent directors or the
advisor, as the case may be, upon 60 days' written notice. If the advisory
agreement is terminated, the advisor must cooperate with us and take all
reasonable steps requested by our board to assist it in making an orderly
transition of the advisory function. Our board shall determine that any
successor advisor possesses sufficient qualifications to perform the advisory
function for us and justify the compensation provided for in its contract with
us.
COMPENSATION TO ADVISOR. The advisory agreement provides for the
advisor to be paid:
- an advisor asset management fee after the stockholders have first
received a 6% annual return; and
- a property disposition fee; and
- an incentive advisory fee from the net proceeds of a sale of a
property after the stockholders have first received a 10%
cumulative return and a return of their net investment.
If the advisor or its affiliates perform services that are outside of
the scope of the advisory agreement, we will compensate them at rates and in
amounts agreed upon by the advisor and the independent directors.
The advisor bears the expenses it incurs in connection with performing
its duties under the advisory agreement. These include:
- employee expenses;
- travel and other expenses of its directors, officers and
employees;
- rent;
- telephone;
- equipment expenses to the extent they relate to the office
maintained by both us and the advisor; and
- miscellaneous administrative expenses incurred in supervising,
monitoring and inspecting real property or our other investments
or relating to its performance under the advisory agreement. The
advisor is reimbursed for the cost to it and its affiliates of
goods and services used for and by us and obtained from
unaffiliated parties. It is also reimbursed for related
administrative services. We bear our own expenses for functions
the advisor is not required to perform under the advisory
agreement. These generally include capital raising and financing
activities, corporate governance matters and other activities not
directly related to our properties.
REIMBURSEMENT BY ADVISOR. For any year in which we qualify as a REIT,
our advisor must reimburse us for the amounts, if any:
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- by which our total operating expenses paid during the previous
fiscal year exceed the greater of
- 2% of our average assets for that fiscal year or
- 25% of our net income, before any additions to or allowance
for reserves for depreciation, amortization or bad debts or
other similar low-cash reserves before any gain from the
sale of our assets, for that fiscal year;
- PLUS an amount, so long as it does not exceed the amount of the
advisor asset management fee for that year, equal to any deficit
between the total amount of distributions to stockholders for
such fiscal year and the current return. Current return refers to
a cumulative, non-compounded return, equal to 6% per annum on net
investment.
The advisor is also obligated to pay organization and offering expenses in
excess of specified levels. See "Compensation Table" for a description of the
fees and reimbursements to which the advisor is entitled. Provided however, only
so much of the excess specified in the first bullet point above will be required
to be reimbursed as the board, including a majority of the independent
directors, determines should justifiably be reimbursed in light of such
unanticipated, unusual or non-recurring factors which may have occurred within
60 days after the end of the quarter for which the excess occurred. In this
event, the stockholders will be sent a written disclosure and explanation of the
factors the independent directors considered in arriving at the conclusion that
the higher total operating expenses were justified.
BUSINESS COMBINATION BETWEEN US AND THE ADVISOR. Many REITs that are
listed on a national stock exchange or included for quotation on a national
market system are considered self-administered, because their employees perform
all significant management functions. In contrast, those that are not
self-administered, like us, typically engage a third-party, such as our advisor,
to perform management functions on its behalf. If for any reason the independent
directors determine that we should become self-administered, the advisory
agreement permits the business conducted by the advisor, including all of its
assets, to be acquired by or consolidated into us. A similar provision is
included in each management agreement permitting acquisition of the business
conducted by the respective property manager, including all of its assets. Until
September 15, 2008, such a business combination could only take place with our
consent and that of the advisor and property manager. After September 15, 2008,
we could acquire these companies in a business combination without their
consent.
If the businesses conducted by the advisor and/or a property manager
are acquired by or consolidated into us, the advisor and/or the property manager
and/or their respective stockholders or members will receive a number of shares
in exchange for terminating their respective management agreements and the
release and waiver of all fees payable under them. We will be obligated to pay
any fees accrued under such contractual arrangements for services rendered
through the closing of the acquisitions.
The number of shares we will issue to the advisor and/or the property
managers, as the case may be, will be determined as follows:
- We will first send an election notice to the advisor and/or the
property manager, as the case may be, of our election to proceed
with such a transaction.
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- Next, the net income of the advisor and/or the property manager,
as the case may be, for the calendar monthly period immediately
preceding the calendar month in which the business combination
agreement is signed, as determined by an independent audit
conducted in accordance with generally accepted auditing
standards, will be annualized. The advisor or the property
manager will bear the cost of the audit.
- The annualized net income will then be multiplied by 90% and
divided by our funds from operations per weighted average share.
Funds from operations per weighted average share will be equal to
our annualized funds from operations per weighted average share
for the fiscal quarter immediately preceding the fiscal quarter
in which the business combination agreement is signed, all based
upon our quarterly report delivered to stockholders.
Funds from operations means generally net income in accordance with
generally accepted accounting principles, excluding gains or losses, from debt
restructuring and sales of properties, plus depreciation of real property and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures.
The resulting quotient will constitute the number of shares to be
issued by us to the advisor or the property manager, or their respective
shareholders or members, as the case may be. Delivery of the shares and the
closing of the transaction to occur within 90 days of delivery after the
election notice.
Under some circumstances, this kind of transaction can be entered into
and consummated without seeking specific stockholder approval. See "Conflicts of
Interest." Any transaction like this will occur, if at all, only if our board
obtains a fairness opinion from a recognized financial advisor or institution
providing valuation services to the effect that the consideration to be paid is
fair to the stockholders from a financial point of view. If the advisory
agreement is terminated for any reason other than our acquisition of the
business conducted by the advisor, then all obligations of the advisor and its
affiliates to offer properties to us will also terminate.
LIABILITY AND INDEMNIFICATION OF ADVISOR. Under the advisory
agreement, we are required to indemnify the advisor and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding with respect
to the advisor's acts or omissions. However, this is only a requirement so long
as:
- the advisor determined in good faith that the course of conduct
which caused a loss or liability was in our best interest;
- the advisor was acting on behalf of or performing services for
us;
- the liability or loss was not the result of misconduct on the
part of the advisor; and
- the indemnification or agreement to hold harmless is recoverable
only out of our net assets and not from the assets of the
stockholders.
We will advance amounts to those entitled to indemnification for legal
and other expenses only if:
- the legal action relates to acts or omissions concerning the
performance of duties or services by the person seeking
indemnification for or on our behalf;
76
- the legal action is initiated by a third party and a court of
competent jurisdiction specifically approves its advancement; and
- the person seeking indemnification who is receiving the advances
undertakes to repay the advanced funds to us, together with the
applicable legal rate of interest thereon, if such party is found
not to be entitled to indemnification.
Inland Retail Real Estate Trust, Inc. is still offering its securities
and has not fully invested all of its anticipated funds available for
investment. Accordingly, material conflicting investment opportunities between
them and us could be expected. However, we have initially focused our purchase
of retail centers to those west of the Mississippi River, which is outside
Inland Retail Real Estate Trust, Inc.'s primary geographic area of investment.
However, if any conflicts do arise, they will be resolved as provided in the
property acquisition service agreement.
THE PROPERTY MANAGER AND THE MANAGEMENT AGREEMENT
Our present property manager provides property management services to
us under the terms of the management agreement. The property manager provides
services in connection with the rental, leasing, operation and management of the
properties. Our property manager is a Delaware corporation, owned principally by
individuals who are affiliates of The Inland Group. We have agreed to pay the
property manager a monthly management fee in an amount no greater than 90% of
the fee which would be payable to an unrelated party providing such services,
which fee will initially be 4.5% of gross income, as defined in the management
agreement from the properties managed for the month for which the payment is
made. In addition, we have agreed to compensate the property manager if it
provides us with services other than those specified in the management
agreement. There will be a separate management agreement for each property for
an initial term ending as of December 31 in the year in which the property is
acquired, and each management agreement will be subject to three successive
three-year renewals, unless either party notifies the other in writing of its
intent to terminate between 60 and 90 days prior to the expiration of the
initial or renewal term. We may terminate with 30 days prior written notice in
the event of gross negligence or malfeasance by the property manager. The
property manager may subcontract the required property management services for
less than the management fee provided in the management agreement. See
"Compensation Table -- Nonsubordinated Payments -- Operational Stage." Our
property manager may form additional property management companies as necessary
to manage the properties we acquire, and may approve of the change of management
of a property from one manager to another.
Our property manager, Inland Western Management Corp., conducts its
activities at its principal executive office at 2901 Butterfield Road in Oak
Brook, Illinois.
See "--The Advisory Agreement" above in this section and "Conflicts of
Interest" for a discussion of our option to acquire or consolidate with the
business conducted by the property managers.
The following sets forth information with respect to the executive
officers and directors of the Inland Western Management Corp.
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POSITION AND OFFICE
WITH INLAND WESTERN
NAME AGE* MANAGEMENT CORP.
---- ---- -------------------
Thomas P. McGuiness .............. 46 Chairman, director and chief
executive officer
JoAnn Armenta .................... 29 Senior vice president, director
and secretary
James H. Neubauer................. 61 Senior vice president and
director
Alan F. Kremin.................... 56 Director
Anthony Casaccio.................. 47 Director
----------
*As of January 1, 2003
THOMAS P. MCGUINNESS joined Inland Property Management in 1982 and
became president of Mid-America Management Corporation in July 1990 and chairman
in 2001. He is also president of Inland Property Management, Inc. as well as a
director of Inland Commercial Property Management. He is chairman and a director
of Inland Mid-Atlantic Management Corp. Mr. McGuinness is a licensed real estate
broker; and is past president of the Chicagoland Apartment Association, and past
regional vice president of the National Apartment Association. He is currently
on the board of directors of the Apartment Building Owners and Managers
Association, and is a trustee with the Service Employees' Local No. 1 Health and
Welfare Fund, as well as the Pension Fund and holds CLS and CSM accreditations
from the International Council of Shopping Centers.
JOANN ARMENTA joined Inland Property Management in 1992 working in
residential management. Ms. Armenta became involved with commercial properties
in 1995 overseeing the management of retail, office and industrial properties.
She has managed a portfolio of retail properties for Inland Commercial Property
Management and was promoted to senior property manager supervising one-half of
the property managers. In 2001, she left Inland Commercial Property Management
and accepted a position as Assistant Vice President for Inland Southern Corp.
Also, she was promoted to Vice President of Inland Mid-Atlantic Management Corp.
Her responsibilities in these positions include being in charge of due diligence
for all retail acquisitions in approximately 15 states. In 2002 alone she was
responsible for all due diligence on approximately 12 million square feet
including the pro formas, site inspections, tenant interviews; engineering
reports and upgrades. She has also been responsible for coordinating the
transition from a property in the due diligence process to the seamless folding
of the property into property operations.
Mrs. Armenta is also the sole training coordinator for Inland
Southeast Property Management Corp., Inland Southern Management Corp., and
Inland Mid-Atlantic Management Corp. for all new property managers and
employees. In addition, she oversees the management of a portfolio of over two
million square feet in the Chicago metropolitan area managing retail, office and
light industrial.
Ms. Armenta holds a CSM accreditation with the International Council
of Shopping Centers.
JAMES H. NEUBAUER joined Inland Property Management in 1978. In 1981,
he was promoted to the position of director of purchasing. Subsequently, in
1983, he became a regional property manager with responsibility for residential
and retail mixed use properties. In 1984, he became the president of Inland
Western Property Management, responsible for a portfolio of properties in
Arizona. From 1985 to
78
1996, Mr. Neubauer was senior vice president of Mid-America Management where he
was responsible for all rental property operations outside the Chicagoland
metropolitan area, which included New Hampshire, Arizona, Indiana and Wisconsin.
He left Inland Southeast Property Management Corp. as senior vice president and
in May 2002 was promoted to President. He has achieved the Certified property
Manager (CPM) designation. He is also a member of the International Council of
Shopping Centers and is a licensed real estate broker in Florida. He holds a
B.A. degree from the University of Maryland, a M.A. degree from Ball State
University and a M.B.A. degree from Benedictine College.
ALAN F. KREMIN joined The Inland Group in 1982. Mr. Kremin was
promoted to treasurer of The Inland Group, Inland Commercial Property
Management, Inc., and various other Inland Group subsidiaries in March 1991. In
his current capacity as the chief financial officer of The Inland Group, a
position he has held since 1991, his responsibilities include preparation of
consolidated federal and state corporate tax returns, cash budgeting for the
consolidated group and serving as a director for various Inland Group
subsidiaries, for which he also serves as treasurer. He is a director of Inland
Southeast Property Management Corp., and in March 2002 he became a director,
secretary and treasurer of Inland Southern Management LLC. Prior to his current
position, Mr. Kremin was treasurer of Inland Real Estate Investment Corporation
from 1986 to 1990, when he supervised the daily operations of its accounting
department. That department encompasses corporate accounting for the general
partner of the Inland Real Estate Investment Corporation-sponsored limited
partnership investment programs. Prior to joining The Inland Group, Mr. Kremin
served for one year as a controller of CMC Realty and three years as assistant
controller of JMB Realty Corporation. Prior to his real estate experience, Mr.
Kremin worked eight years in public accounting, including four years at Arthur
Young & Company. He received his B.S. degree in accounting from Loyola
University. Mr. Kremin is a certified public accountant, holds securities and
insurance licenses and is a licensed real estate broker.
ANTHONY A. CASACCIO joined Inland in 1984, working for Inland Condo
Association Management. From 1987 to 1991 he was president of Partnership Asset
Sales Corporation, where he was responsible for the disposition of over 20,000
apartment units located in northeast Illinois and nearby states, as well as
non-residential properties leased to nursing homes, health clubs, office,
industrial and shopping center tenants. In 1991 when Inland Real Estate
Development Corporation was formed, Mr. Casaccio became the president and a
director. Still serving in those capacities, Mr. Casaccio is responsible for the
disposition of raw land investment programs for which he is also a senior vice
president of the sponsor, which owns more than 10,000 acres of development land
in Chicago's suburban counties.
In connection with land development, Mr. Casaccio, in addition to the
sales of improved and raw land parcels, oversees land planning activities
associated with readying land for sale, including zoning and annexation,
negotiations with local municipal school, sanitary district and county
authorities, submission of concept plans, preliminary and site amenities, final
plats of subdivision; and completion of infrastructure improvements such as
roads, sewer and water lines stormwater management facilities and site
amenities. He is also a director and the secretary/treasurer of IRED Development
Management, Inc.
Mr. Casaccio holds a B.S. degree in accounting from DePaul University.
He is a member of the Realtor Association of the Western Suburbs (IL), the Fox
Valley (IL) Association of Realtors, the Tri-County Board of Realtors, the
National Association of Realtors, the Home Builders Association of Greater
Chicago, the Northern Illinois Home Builders Association and the Urban Land
Institute. He is a licensed real estate broker in the state of Illinois.
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INLAND SECURITIES CORPORATION
Inland Securities Corporation, our managing dealer, was formed in
1984. It is registered under the applicable federal and state securities laws
and is qualified to do business as a securities broker-dealer throughout the
United States. Since its formation, the managing dealer has provided the
marketing function for distribution of the investment products sponsored by our
sponsor. It does not render these services to anyone other than affiliates of
The Inland Group, and it does nor focus its efforts on the retail sale side of
the securities business. It is a member firm of the National Association of
Securities Dealers, Inc.
The following table sets forth information with respect to the
directors, officers and principal employees of Inland Securities Corporation
involved in national sales and marketing activities of Inland Securities
Corporation. The biography of Mr. Parks set forth above under "-Inland
Affiliated Companies" in this section and the biographies of Mrs. Gujral and Ms.
Matlin are set forth above under "-Our Directors and Executive Officers" in this
section. The biography of Ms. Lynch is also set forth above under "--Our
Advisor."
POSITION AND OFFICE
NAME AGE* WITH OUR MANAGING DEALER
---- ---- ------------------------
Brenda G. Gujral.............. 60 President, chief operating officer and director
Roberta S. Matlin............. 58 Vice president and director
Catherine L. Lynch............ 44 Treasurer, secretary and director
Robert D. Parks............... 59 Director
Brian Conlon.................. 44 Executive vice president
R. Martel Day................. 53 Executive vice president - national sales and
marketing
Fred C. Fisher................ 58 Senior vice president
David Bassitt................. 60 Senior vice president
John Cunningham............... 44 Senior vice president
Tomas Giardino................ 28 Vice president
Curtis Shoch.................. 30 Vice president
Shawn Vaughan................. 31 Vice president
Mark Lavery................... 27 Vice president
Ralph Rudolph................. 39 Vice president
----------
*As of January 1, 2003
BRIAN M. CONLON joined Inland Securities Corporation as executive vice
president in September 1999. Prior to joining Inland, Mr. Conlon was executive
vice president and chief operating officer of Wells Real Estate Funds, where he
was responsible for overseeing day to day operations of the firm's real estate
investment and capital raising initiatives. Mr. Conlon is a General Securities
Principal, is licensed as a real estate broker in Georgia, and has earned the
Certified Financial Planner and Certified Commercial Investment Member
designations. Mr. Conlon currently serves on the national board of directors for
the Financial Planning Association. Mr. Conlon holds Series 7, 24 and 63
licenses with the National Association of Securities Dealers, Inc.
R. MARTEL DAY is executive vice president-national sales and marketing
for Inland Securities Corporation. He joined Inland Securities Corporation in
1984 as a regional representative in the southeast. Since then, he has served as
regional vice president, senior vice president, and national marketing director.
Mr. Day is currently responsible for expanding Inland Securities Corporation's
selling group and working closely with broker-dealers in the selling group to
maximize sales.
80
Mr. Day has developed and presented numerous motivational and sales
training workshops over the past 20 years. He graduated with an engineering
degree from the Georgia Institute of Technology. Mr. Day holds General
Securities and Registered Investment Advisor licenses from the National
Association of Securities Dealers, and is an associate member of The National
Association of Real Estate Investment Trusts. He is a director of Inland
Investment Advisors, Inc., an Inland affiliated company.
FRED C. FISHER is a senior vice president of Inland Securities
Corporation, which he joined in 1984. Mr. Fisher began his career with Inland
Securities Corporation as regional vice president for the midwest region. In
1994, he was promoted to senior vice president. Mr. Fisher received his
bachelor's degree from John Carroll University. Before joining Inland Securities
Corporation, he spent nine years as a regional sales manager for the S.S. Pierce
Company. Mr. Fisher holds Series 7, 22 and 63 licenses with the National
Association of Securities Dealers, Inc.
DAVID BASSITT joined Inland Securities Corporation as a senior vice
president in March 2001. Prior to joining Inland, Mr. Bassitt was director of
financial services with AEI Fund Management, Inc. and was responsible for
wholesaling public and private net lease real estate investments and 1031
property exchanges to financial planners. Mr. Bassitt received his bachelor's
degree from Ferris State University, and a master's degree from St. Cloud
University. Mr. Bassitt holds Series 6, 7, 22 and 63 licenses with the National
Association of Securities Dealers, Inc.
JOHN CUNNINGHAM is a senior vice president of Inland Securities
Corporation. He joined an affiliate of The Inland Group in January 1995 as a
commercial real estate broker. In March 1997, Mr. Cunningham was hired by Inland
Securities Corporation as a regional representative for the western region, and
he was promoted to a vice president in 1999. In 2002, he became senior vice
president of the western region. Mr. Cunningham graduated from Governors State
University with a B.S. degree in business administration, concentrating in
marketing. Before joining the Inland organization, Mr. Cunningham owned and
operated his own business and developed real estate. He holds Series 7 and
Series 63 licenses with the National Association of Securities Dealers, Inc.
TOMAS GIARDINO joined Inland Securities Corporation as vice president
in September 2000. Prior to joining Inland, Mr. Giardino was the director of
mutual fund sales at SunAmerica Securities, where he was responsible for
increasing the market share of nine focus firms at the broker dealer.
Mr. Giardino entered the securities industry in January 1999. Prior to entering
the securities industry, Mr. Giardino was in the advertising field for four
years. Mr. Giardino received his B.A. in political science from Arizona State
University in May 1998. He holds Series 7, 63 and 65 licenses with the National
Association of Securities Dealers, Inc.
CURTIS SHOCH joined Inland Securities Corporation as vice president in
January 2000. Prior to joining Inland, Mr. Shoch was assistant vice president at
Wells Real Estate Funds, where he was responsible for launching new real estate
investment alternatives in the southeastern United States. Mr. Shoch began his
career in 1994 with Keogler Investment Advisory Services. Mr. Shoch graduated
from Lynchburg College in Lynchburg, Virginia in 1994 with a major in marketing
and an emphasis in finance. He is a Registered Representative as well as a
Registered Investment Advisor. Mr. Shoch holds Series 7, 63 and 65 licenses with
the National Association of Securities Dealers, Inc.
SHAWN VAUGHAN joined Inland Securities Corporation as vice president
in August 2000. Prior to joining Inland, Mr. Vaughan was assistant vice
president at Wells Real Estate Funds, where he was responsible for marketing
real estate investments in the mid-Atlantic region. Mr. Vaughan started his
career in financial services in 1994 on the retail side of the business with a
successful financial planning
81
firm. During this time, he was responsible for handling every aspect of the
financial planning process. Mr. Vaughan holds Series 7 and 63 licenses with the
National Association of Securities Dealers, Inc.
MARK LAVERY joined Inland Securities Corporation as a vice president
in April 2001. Prior to joining Inland, Mr. Lavery was with Charles Schwab,
where he was on an active trade team. Mr. Lavery began his career with
Investment Planners. Mr. Lavery graduated from Milliken University in 1997 with
a B.S. in finance. Mr. Lavery holds Series 7 and 66 licenses with the National
Association of Securities Dealers, Inc.
RALPH RUDOLPH joined Inland Securities Corporation in 1995 as a
regional representative for midwest team and was promoted to a vice president in
2000. Prior to joining Inland, Mr. Rudolph served in the United States Marine
Corp. and worked for another broker-dealer. He is a graduate of Elmhurst College
with a degree in business administration. Mr. Rudolph holds Series 7 and 63
licenses with the National Association of Securities Dealers, Inc.
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LIMITATION OF LIABILITY AND INDEMNIFICATION OF
DIRECTORS, OFFICERS AND OUR ADVISOR
The laws that we are subject to and our articles of incorporation
provide that our advisor and directors are deemed to be in a fiduciary
relationship to us and our stockholders and that our directors have a fiduciary
duty to the stockholders to supervise our relationship with the advisor.
Maryland law provides that a director has no liability in the capacity
as a director if he performs his duties in good faith, in a manner he reasonably
believes to be in our best interests, and with the care that an ordinary prudent
person in a like position would use under similar circumstances. Maryland law
also provides that an act by a director of a Maryland corporation is presumed to
satisfy the standards of the preceding sentence. Our articles of incorporation
and bylaws provide that the liability of our directors and officers is limited
to the fullest extent permitted by Maryland law and that none of our directors
and officers will be liable to us or to any of our stockholders for money
damages, including for breach of their fiduciary duty to us. As a result, our
directors and officers will not be liable for monetary damages unless:
- the person actually received an improper benefit or profit in
money, property or services; and
- the person is adjudged to be liable based on a finding that the
person's action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding.
Except as described below, our articles of incorporation authorize and
direct us to indemnify and pay or reimburse reasonable expenses to any director,
officer, employee or agent we employ, and the advisor and its affiliates, to the
fullest extent permitted by Maryland law. As long as we qualify as a REIT we
will not indemnify or reimburse the expenses of any director, officer, employee,
agent or the advisor or its affiliates unless:
- the directors have determined, in good faith, that the course of
conduct which caused the loss or liability was in our best
interests;
- the person seeking indemnification was acting on our behalf or
performing services for us;
- the liability or loss was not the result of negligence or
misconduct on the part of the person seeking indemnification,
except that if the person seeking indemnification is or was an
independent director, the liability or loss will not have been
the result of gross negligence or willful misconduct; and
- such indemnification or agreement to be held harmless is
recoverable only out of our net assets and not from the assets of
the stockholders.
As long as we qualify as a REIT, we will not indemnify any director,
officer, employee, agent or the advisor or its affiliates for losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws unless one or more of the following conditions are met:
- there has been a successful adjudication on the merits of each
count involving alleged securities law violations;
83
- the claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction; or
- a court of competent jurisdiction approves a settlement of the
claims and finds that indemnification of the settlement and
related costs should be made, and the court considering the
request has been advised of the position of the Securities and
Exchange Commission and the published position of any state
securities regulatory authority in which our securities were
offered and sold as to indemnification for securities law
violations.
We will advance amounts to a person entitled to indemnification for
legal and other expenses and costs incurred as a result of any legal action for
which indemnification is being sought only in accordance with Maryland law and,
as long as we qualify as a REIT, only if all of the following conditions are
satisfied:
- the legal action relates to acts or omissions relating to the
performance of duties or services by the person seeking
indemnification for us or on our behalf;
- the legal action is initiated by a third party who is not a
stockholder or the legal action is initiated by a stockholder
acting in his or her capacity as such and a court of competent
jurisdiction specifically approves advancement; and
- the person seeking indemnification undertakes in writing to repay
us the advanced funds, together with interest at the applicable
legal rate of interest, if the person seeking indemnification is
found not to be entitled to indemnification.
We may purchase and maintain insurance or provide similar protection
on behalf of any director, officer, employee, agent or the advisor or its
affiliates against any liability asserted which was incurred in any such
capacity with us or arising out of such status; provided, however, that we will
not incur the costs of any liability insurance which insures any person against
liability for which he, she or it could not be indemnified under our articles of
incorporation. We may enter into any contract for indemnity and advancement of
expenses with any director, officer, employee or agent as may be determined by
the board and as permitted by law. As of the date of this prospectus, we have
not purchased any insurance on behalf of any person but we intend to.
We have entered into separate indemnification agreements with each of
our directors and some of our executive officers. The indemnification agreements
will require that we indemnify our directors and officers to the fullest extent
permitted by law, and advance to the directors and officers all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The agreements provide that we also must
indemnify and advance all expenses incurred by directors and officers seeking to
enforce their rights under the indemnification agreements and cover directors
and officers under the our directors' and officers' liability insurance, if any.
Although the indemnification agreements offer substantially the same scope of
coverage afforded by provisions in our articles of incorporation and the bylaws,
they provide greater assurance to directors and officers that indemnification
will be available, because as a contract, it cannot be unilaterally modified by
the board or by the stockholders to eliminate the rights it provides.
We have been advised that, in the opinion of the Securities and
Exchange Commission, any indemnification that applies to liabilities arising
under the Securities Act is contrary to public policy and, therefore,
unenforceable.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information as of September 10, 2003
regarding the number and percentage of shares beneficially owned by each
director, each executive officer, all directors and executive officers as a
group, and any person known to us to be the beneficial owner of more than 5% of
our outstanding shares. As of September 10, 2003, we had one stockholder of
record. Beneficial ownership includes outstanding shares and shares which are
not outstanding that any person has the right to acquire within 60 days after
the date of this table. However any such shares which are not outstanding are
not deemed to be outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by any other person. Except as indicated,
the persons named in the table have sole voting and investing power with respect
to all shares beneficially owned by them.
NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
------------------------------------ ------------------ ----------------
Robert D. Parks 20,000 (1) 100%
Roberta S. Matlin 0 *
Scott W. Wilton 0 *
Kelly E. Tucek 0 *
Brenda G. Gujral 0 *
Frank A. Catalano, Jr. 1,000 (2) *
Kenneth H. Beard 1,000 (2) *
Paul R. Gauvreau 1,000 (2) *
Gerald M. Gorski 1,000 (2) *
Barbara A. Murphy 1,000 (2) *
All directors and executive officers 25,000 (1) 100%
as a group (10 persons)
----------
*Less than 1%
(1) Includes 20,000 shares owned by our advisor. Our advisor is a
wholly-owned subsidiary of our sponsor, which is an affiliate of The
Inland Group. Mr. Parks is a control person of The Inland Group and
disclaims beneficial ownership of these shares owned by our advisor.
(2) Includes 1,000 shares issuable upon exercise of options granted to
each independent director under our independent director stock option
plan, to the extent that such options are currently exercisable or
will become exercisable within 60 days after the date of this table.
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OUR STRUCTURE AND FORMATION
We were formed in March 2003 as a Maryland corporation. Our articles
of incorporation and bylaws became operative on March 5, 2003. Our existence is
perpetual.
STRUCTURE
We intend to own all of our assets, either directly or indirectly. Our
advisor contributed $200,000 to us for 20,000 shares of our common stock to form
us. Our advisor has agreed to not sell their initial investment while the
advisor remains our sponsor, but may transfer these shares to its own
affiliates. A REIT may conduct some of its business and hold some of its
interests in properties in "qualified REIT subsidiaries," which must be owned
100% by the REIT or through "taxable REIT subsidiaries" which may be wholly or
partially owned. Although we currently do not intend to have any qualified REIT
subsidiaries, we may in the future decide to conduct some business or hold some
of our interests in properties in qualified REIT subsidiaries.
See "How We Operate - Organizational Chart" for a diagram depicting
the services to be rendered by our affiliates to us, as well as our
organizational structure.
If only the minimum offering of 200,000 shares is sold, such shares
will represent 90.91% of the issued and outstanding shares, and the advisor's
20,000 shares will then represent 9.09% of the issued and outstanding shares. If
250,000,000 of the shares offered by this prospectus are sold, such shares will
represent 99.99% of the issued and outstanding shares, and the advisor's 20,000
shares will then represent only 0.01% of the issued and outstanding shares.
We will form entities to acquire each of the properties to be owned by
us. They will be owned or controlled directly or indirectly by us.
Robert D. Parks, Brenda G. Gujral, Roberta S. Matlin, Daniel L.
Goodwin, Catherine L. Lynch, and Kelly E. Tucek are considered our promoters.
Mr. Parks is our chairman and a director. Ms. Gujral is a director. Ms. Matlin
is our vice president. Ms. Tucek is our treasurer. None of our promoters are
employed by us. Other than Mr. Parks and Ms. Gujral, Ms. Matlin or Ms. Tucek,
none of our promoters are officers or directors of us.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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SELECTED FINANCIAL DATA
As of the date of this prospectus, we have not yet had any operations.
Therefore, we have not had any income, cash flow, funds from operations, or
funds available for distributions, nor have we declared any distributions or
issued any shares to public investors. We have sold 20,000 shares to the advisor
for an aggregate purchase price of $200,000. See "Management's Discussion and
Analysis of Our Financial Condition," and our financial statements and related
notes thereto appearing elsewhere in this Prospectus.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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INVESTMENT OBJECTIVES AND POLICIES
GENERAL
Our investment objectives are to:
- make regular distributions to the stockholders, which may be in
amounts which may exceed our taxable income due to the non-cash
nature of depreciation expense and, to such extent, will
constitute a tax-deferred return of capital, but in no event less
than 90% of our taxable income;
- provide a hedge against inflation by entering into leases which
contain clauses for scheduled rent escalations or participation
in the growth of tenant sales, permitting us to increase
distributions and realize capital appreciation; and
- preserve stockholders' capital.
It is our policy to acquire properties primarily for income as distinguished
from primarily for possible capital gain.
DISTRIBUTIONS
Federal income tax law requires that a REIT distribute annually at
least 90% of its REIT Taxable Income. See "Federal Income Tax Considerations --
Federal Income Taxation as a REIT." In order to qualify for REIT status we may
be required to make distributions in excess of cash available. For a discussion
of the tax treatment of distributions to you, see "Federal Income Tax
Considerations."
We anticipate that distributions will be paid to our domestic
stockholders on a monthly basis and to our foreign stockholders on a quarterly
basis. Distributions will be at the discretion of the board. Our ability to pay
distributions and the size of these distributions will depend upon a variety of
factors. We cannot assure that distributions will continue to be made or that
any particular level of distributions established in the future, if any, will be
maintained by us.
TYPES OF INVESTMENTS
We were formed to acquire and manage a portfolio of real estate which
is diversified by geographical location and by type and size of retail centers.
Our properties will consist of real estate primarily improved for use as retail
establishments, principally multi-tenant shopping centers. Our real estate will
be located mainly in the states west of the Mississippi River in the United
States. We will endeavor to acquire multiple properties within the same major
metropolitan markets where acquisitions result in efficient property operations
with the potential to achieve market leverage. See "Real Property Investments --
General."
Most of these properties will be subject to "net" leases. "Net" leases
typically require tenants to pay a share, either pro rata or fixed, of all or a
majority of the operating expenses. Operating expenses include real estate
taxes, special assessments, utilities, insurance, common area maintenance and
building repairs related to the property, as well as base rent payments.
We may also acquire real estate improved with other commercial
facilities which provide goods and services as well as those leased on a double
or triple-net-lease basis which are either commercial or
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retail. Triple-net-leases also require the tenant to pay a base minimum annual
rent with periodic increases. We may enter into sale and leaseback transactions
in which we will purchase a property and lease the property to the seller of the
property.
To provide us with a competitive advantage over potential purchasers
of properties who must secure financing, we intend to acquire properties free
and clear of permanent mortgage debt. We will do this by paying the entire
purchase price of property in cash, shares, interest in entities that own our
properties or a combination of any of these. We may incur debt of a property to
acquire properties where our board determines that incurring such debt is in our
best interest. In addition, from time to time, we intend to acquire some
properties without financing and later incur mortgage debt secured by selected
or all such properties if favorable financing terms are available. We will use
the proceeds from such loans to acquire additional properties. See "Borrowing"
under this section for a more detailed explanation of our borrowing intentions
and limitations.
We may purchase properties subject to completion of construction in
accordance with terms and conditions we specify. In these cases, we will be
obligated to purchase the property at the completion of construction, if
construction conforms to definitive plans, specifications and costs approved by
us and embodied in the construction contract, as well as, in most instances,
satisfaction that agreed upon percentages of the property are leased. We will
receive a certificate of an architect, engineer or other appropriate party,
stating that the property complies with all plans and specifications. We may
construct or develop properties, and render services in connection with the
development or construction, subject to compliance with applicable requirements
under federal income tax laws. Construction and development activities will
expose us to risks such as cost overruns, carrying costs of projects under
construction and development, availability and costs of materials and labor, our
inability to obtain tenants, weather conditions, and government regulation.
See "- Investment Limitations" under this section and "Summary of Our
Organizational Documents -- Restrictions on Investments" for investment
limitations.
PROPERTY ACQUISITION STANDARDS
We have signed a property acquisition service agreement with Inland
Real Estate Acquisitions, Inc. Under that agreement, Inland Real Estate
Acquisitions has agreed to seek properties for us and to perform due diligence
on the properties and negotiate the terms of the purchase. Through its
experience with the acquisition of over 1,000 real properties by our affiliates,
the advisor believes Inland Real Estate Acquisitions has the ability to identify
quality real properties capable of meeting our investment objectives. When
evaluating property, Inland Real Estate Acquisitions will consider a number of
factors, including a real property's:
- geographic location and type;
- construction quality and condition;
- current and projected cash flow;
- potential for capital appreciation;
- lease rent roll, including the potential for rent increases;
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- potential for economic growth in the tax and regulatory
environment of the community in which the property is
located;
- potential for expanding the physical layout of the property
and/or the number of sites;
- occupancy and demand by tenants for properties of a similar
type in the same geographic vicinity;
- prospects for liquidity through sale, financing or
refinancing of the property;
- competition from existing properties and the potential for
the construction of new properties in the area; and
- treatment under applicable federal, state and local tax and
other laws and regulations.
Inland Real Estate Acquisitions also requires the seller of a property
to provide a current Phase I environmental report and, if necessary, a Phase II
environmental report.
Before purchasing a property, Inland Real Estate Acquisitions examines
and evaluates the potential value of the site, the financial condition and
business history of the property, the demographics of the area in which the
property is located or to be located, the proposed purchase price, geographic
and market diversification and potential sales. In a sale-leaseback situation,
since the seller of the property generally is assuming the operating risk, the
price paid for the property by us may be greater than if it was not leased back
to the seller. All acquisitions from our affiliates must be approved by a
majority of our directors, including a majority of the independent directors.
DESCRIPTION OF LEASES
When spaces become vacant or existing leases expire, we anticipate
entering into "net" leases. Net leases require tenants to pay a share, either
pro rata or fixed, of all or a majority of the operating expenses, including
real estate taxes, special assessments, insurance, utilities, common area
maintenance and building repairs related to the properties, as well as base rent
payments. We intend to include provisions which increase the amount of base rent
payable at various points during the lease term and/or provide for the payment
of additional rent calculated as a percentage of a tenant's gross sales above
predetermined thresholds in most leases. The leases with most anchor tenants
generally have initial terms of 10 to 25 years, with one or more renewal options
available to the tenant. By contrast, smaller tenant leases typically have
three- to five-year terms.
Triple net leases generally have a term of 15 to 25 years and are
typically not less than 10 years. In addition, the tenant of a triple-net-lease
is responsible for the base rent in addition to the costs and expenses related
to property taxes, insurance, repairs and maintenance applicable to the leased
space.
Each net lease tenant is required to pay its share of the cost of the
liability insurance covering the property in which it is a tenant. The
third-party liability coverage insures, among others, us, our advisor and our
property manager. Typically, each tenant is required to obtain, at its own
expense, property insurance naming us as the insured party for fire and other
casualty losses in an amount equal to the full value of its premises and the
contents of the premises. All property insurance must be approved by the
property manager. In general, the net lease may be assigned or subleased with
our prior written consent,
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but the original tenant must remain liable under the lease unless the assignee
meets income and net worth tests.
In connection with sale and leaseback transactions, the tenant is
responsible for paying a predetermined minimum annual rent generally based upon
our cost of purchasing the land and building. In addition to the base rent,
these tenants are generally responsible for the costs and expenses related to
property taxes, insurance, repairs and maintenance applicable to the leased
space.
PROPERTY ACQUISITION
We anticipate acquiring fee interests in properties, although other
methods of acquiring a property may be used if we deem it to be advantageous.
For example, we may acquire properties through a joint venture or the
acquisition of substantially all of the interests of an entity which in turn
owns the real property. We may also use separate entities to acquire a property.
Such entities will be formed solely for the purpose of acquiring a property or
properties. See " -- Joint Ventures" in this section and "Federal Income Tax
Considerations -- Federal Income Taxation as a REIT."
Our advisor and its affiliates may purchase properties in their own
name, assume loans in connection with the purchase or loan and temporarily hold
title to the properties for the purpose of facilitating acquisition or financing
by us, the completion of construction of the property or any other purpose
related to our business.
Under our articles of incorporation, we are prohibited from purchasing
a property from an affiliate unless a majority of the directors not interested
in the transaction and a majority of our independent directors approve the
purchase as fair and reasonable to us and at a cost to us no greater than the
cost of the asset to our affiliate. However, the cost to us may be greater than
the cost to our affiliate if a substantial justification for the excess exists
and such excess is reasonable. Our policy currently provides that in no event
may our cost of the asset exceed its appraised value at the time we acquire the
property.
If remodeling is required prior to the purchase of a property, we will
pay a negotiated maximum amount either upon completion or in installments
commencing prior to completion. The price will be based on the estimated cost of
remodeling. In such instances, we will also have the right to review the
tenant's books during and following completion of the remodeling to verify
actual costs. If substantial disparity exists between estimated and actual
costs, an adjustment in the purchase price may be negotiated. If remodeling is
required after the purchase of a property, an affiliate of our advisor may serve
as construction manager for a fee no greater than 90% of the fee a third party
would charge for such services.
BORROWING
We intend to acquire properties free and clear of permanent mortgage
indebtedness by paying the entire purchase price in cash or for shares, limited
partnership units in the operating partnership, interest in our subsidiaries
that own our properties, or a combination of any of these. However, we may incur
indebtedness to acquire properties where our board determines that it is in our
best interest. On properties purchased without financing, we may later incur
mortgage debt by obtaining loans secured by selected properties, if favorable
financing terms are available. We will use the proceeds from such loans to
acquire additional properties. We may also incur debt to finance improvements to
our properties. Aggregate borrowings secured by all of our properties will not
exceed 55% of their combined fair market value. Our articles of incorporation
provide that the aggregate amount of borrowing in relation to the net
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assets, in the absence of a satisfactory showing that a higher level is
appropriate, not exceed 300% of net assets. Net assets means our total assets,
other than intangibles at cost before deducting depreciation or other non-cash
reserves less our total liabilities, calculated at least quarterly on a basis
consistently applied. Any excess in borrowing over such 300% of net assets level
must be approved by a majority of our independent directors, disclosed to our
stockholders in our next quarterly report to stockholders, along with
justification for such excess.
We may incur debt secured by our properties, but most likely on a
non-recourse basis, some of which may be subject to certain carve outs. This
means that a lender's rights on default will generally be limited to foreclosing
on the property. We may secure recourse financing or provide a guarantee to
lenders if we believe this may result in more favorable terms. When we give a
guaranty for a property, we will be responsible to the lender for the
satisfaction of the indebtedness if it is not paid by the property. We do not
borrow funds from a program sponsored by our advisor or its affiliates which
makes or invests in mortgage loans. We seek to obtain financing which will
result in the most favorable overall economic benefit while balancing various
risk factors associated with the debt. At certain times the majority of debt may
require level payments and at others the majority may be based on variable
rates. We have determined that it may be in our best interest to make use of
mortgages the majority of which provide for a balloon payment. There are no
prescribed limits on the number or amount of mortgages which may be placed on
any one property. Any mortgages secured by a property will comply with the
restrictions set forth by the Commissioner of Corporations of the State of
California.
SALE OR DISPOSITION OF PROPERTIES
Our board will determine whether a particular property should be sold
or otherwise disposed of after considering the relevant factors, including
performance or projected performance of the property and market conditions, with
a view toward achieving our principal investment objectives.
We intend to hold our properties for a minimum of four years prior to
selling them. See "Federal Income Tax Considerations -- Federal Income Taxation
as a REIT." We also intend to reinvest the proceeds from the sale, financing,
refinancing or other disposition of our properties into additional properties.
Alternatively, we may use these proceeds to fund maintenance or repair of
existing properties or to increase reserves for such purposes. The objective of
reinvesting the sale, financing and refinancing proceeds in new properties is to
increase our real estate assets, and our net income, which our board believes
will enhance our chances of having our shares traded in a public trading market.
Notwithstanding this policy, the board, in its discretion, may distribute all or
part of the proceeds from the sale, financing, refinancing or other disposition
of all or any of our properties to our stockholders. In determining whether to
distribute these proceeds to stockholders, the board will consider, among other
factors, the desirability of properties available for purchase, real estate
market conditions, the likelihood of the listing of our shares on a national
stock exchange or including the shares for quotation on a national market system
and compliance with the applicable requirements under federal income tax law
under federal income tax laws. Because we may reinvest the proceeds from the
sale, financing or refinancing of our properties, we could hold stockholders'
capital indefinitely. However, upon the affirmative vote of a majority of the
shares of common stock, we will be forced to liquidate our assets and dissolve.
When we sell a property, we intend to obtain an all-cash sale price.
However, we may take a purchase money obligation secured by a mortgage on the
property as partial payment, and there are no limitations or restrictions on our
ability to take such purchase money obligations. The terms of payment to us will
be affected by custom in the area in which the property being sold is located
and the then prevailing economic conditions. If we receive notes and other
property instead of cash from sales, these proceeds, other than any interest
payable on these proceeds, will not be available for distributions until
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and to the extent the notes or other property are actually paid, sold,
refinanced or otherwise disposed. Therefore, the distribution of the proceeds of
a sale to the stockholders may be delayed until that time. In these cases, we
will receive payments in cash and other property in the year of sale in an
amount less than the selling price and subsequent payments will be spread over a
number of years. See "Federal Income Tax Considerations."
CHANGE IN INVESTMENT OBJECTIVES AND POLICIES
Our stockholders have no voting rights to implement our investment
objectives and policies. Our board has the responsibility for our investment
objectives and policies. Our board may not, however, make any material changes
regarding the restrictions on investment policies set forth in our articles of
incorporation without amending the articles of incorporation. Any amendment to
our articles of incorporation requires the affirmative vote of a majority of our
then outstanding voting shares of common stock. See "Summary of Our
Organizational Documents -- Restrictions on Investments."
INVESTMENT LIMITATIONS
We will not:
- invest more than 10% of our total assets in unimproved real
property (and will only invest in unimproved real property
intended to be developed) or in mortgage loans on unimproved
real property;
- invest in commodities or commodity future contracts;
- issue redeemable shares of common stock;
- issue shares on a deferred payment basis or other similar
arrangement; and
- operate in such a manner as to be classified as an
"investment company" for purposes of the Investment Company
Act. See "Summary of Our Organizational Documents --
Restrictions on Investments" for additional investment
limitations.
We do not intend to engage in hedging or similar activities for
speculative purposes.
We have no current plans to invest any proceeds from this offering, or
other funds, in the securities of other issuers for the purpose of exercising
control over such other issuers.
OTHER INVESTMENTS
Consistent with our investment limitations, we may from time to time
invest amounts of money in the securities of other companies that may or may not
be REITs or companies related to real estate to seek superior returns on these
investments. In addition, we may make loans to third parties from time to time
in connection with retail centers we intend to purchase or on a short-term basis
to real estate ventures.
APPRAISALS
All real property acquisitions to be made by us will be supported by
an appraisal prepared by a competent, independent appraiser who is a
member-in-good standing of the Appraisal Institute prior to
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the purchase of the property. Our policy currently provides that the purchase
price of each property will not exceed its appraised value at the time of our
acquisition of the property. Appraisals are, however, estimates of value and
should not be relied on as measures of true worth or realizable value. We will
maintain the appraisal in our records for at least five years, and copies of
each appraisal will be available for review by stockholders upon their request.
RETURN OF UNINVESTED PROCEEDS
If at least 200,000 shares are not sold within six months from the
original effective date of this prospectus, all funds received from subscribers
will be promptly returned to them, together with any interest earned on the
funds. We would expect to return funds to subscribers within five business days
after the offering is terminated if at least 200,000 shares are not sold within
six months from the original effective date of this prospectus. Any of the
proceeds of this offering allocable to investments in real property which have
not been invested in real property or committed for investment within the later
of 24 months from the original effective date of this prospectus or 12 months
from the termination of the offering, will be distributed to the stockholders.
All funds we receive out of the escrow account will be available for our general
use from the time we receive them until expiration of the period discussed in
the prior sentence. We may use these funds to:
- fund expenses incurred to operate the properties which have
been acquired,
- reimburse the advisor for our expenses, to the extent
allowable under the advisory agreement,
- pay the advisor its compensation under the advisory
agreement; and
- pay the property manager its property management fee under
the management agreement
See "Estimated Use of Proceeds" and "Plan of Distribution -- Escrow
Conditions." We will not segregate funds separate from our other funds pending
investment, and interest will be payable to the stockholders if uninvested funds
are returned to them.
ADDITIONAL OFFERINGS AND EXCHANGE LISTING
We anticipate that by September 15, 2008, our board will determine
when, and if, to apply to have our shares of common stock listed for trading on
a national stock exchange or included for quotation on a national market system,
if we meet the then applicable listing requirements; and/or whether to commence
subsequent offerings after completion of this offering. We believe that an
exchange listing or inclusion of our shares in a national market system may
allow us to increase our size, portfolio diversity, stockholder liquidity,
access to capital and stability, and decrease our operating costs through
economies of scale. However, we cannot assure that such listing or inclusion
will ever occur. If it is not feasible to list shares or include them in a
national market system by September 15, 2008, our board may decide to sell our
assets individually, list our shares at a future date; or liquidate us within
ten years of such date. The sale of all or substantially all of our assets as
well as our liquidation would also require the affirmative vote of a majority of
the then-outstanding voting shares of stock.
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JOINT VENTURES
We may invest in joint venture arrangements with other public real
estate programs formed by our advisor or any of its affiliates if a majority of
our directors not otherwise interested in the transaction and a majority of our
independent directors approve the transaction as being fair and reasonable. In
addition, the investment by each joint venture partner must be substantially on
the same terms and conditions as those received by other joint venturers.
We may also invest in general partnerships or joint venture
arrangements with our affiliates as co-owners of a property. The general
partnership or joint venture agreement for these investments will provide that
we will be able to increase our equity participation in such entity as we
receive additional proceeds of the offering. As a result, we will ultimately own
a 100% equity ownership of the property and the affiliated general or joint
venture partner will not be entitled to any profit or other benefit on the sale
of its equity participation to us. Once we own, directly or indirectly, 100% of
the ownership interests in the general partnership or joint venture entity, we
will determine whether the continued existence of that entity is necessary. For
example, we may determine to continue the existence of the entity to minimize
expenses or to meet lender requirements.
In addition, we may enter into joint venture or partnership
arrangements with unaffiliated third parties. Therefore, we may enter into
acquisitions with sellers who are desirous of transactions in tax advantaged
structures such as arrangements typically referred to as "Down REITs." A Down
REIT is an organizational structure in which, in addition to owning indirect
interests in real estate properties through the ownership of an interest in a
lower-tier operating partnership (as in an UPREIT), a REIT also owns real estate
properties directly at the REIT level. In a Down REIT structure, because the
REIT owns real estate properties directly, the value of the REIT shares do not
bear a direct relationship with the value of an interest in the lower-tier Down
REIT operating partnership. You should consider the potential risk that our
non-affiliated joint venture partner may be unable to agree with us on a matter
material to the joint venture. See "Risk Factors -- Risks Related to the
Offering."
We are unable to estimate the proportion of our assets that may be
invested in joint venture interests.
CONSTRUCTION AND DEVELOPMENT ACTIVITIES
From time to time, we may attempt to enhance investment opportunities
by undertaking construction and development activities and rendering services in
connection with them. Our advisor has advised us that, in its view, we may be
able to reduce overall purchase costs if we were to undertake construction and
development rather than merely being limited to purchasing properties subject to
completion of construction by a third party. The construction and development
activities would expose us to such risks as cost overruns, carrying costs of
projects under construction or development, availability and costs of materials
and labor, weather conditions, government regulation and our inability to obtain
tenants. We nevertheless have concluded that our investment prospects would be
enhanced by permitting us to engage in construction and development activities
so long as such activities did not cause us to lose our status as a REIT. To
comply with the applicable requirements under federal income tax law under
federal income tax law, and until the Internal Revenue Service changes its
pronouncements with regard to these requirements, we intends to limit our
construction and development activities to the performance of oversight and
review functions, including reviewing the construction and tenant improvement
design proposals, negotiating and contracting for feasibility studies and
supervising compliance with local, state or federal laws and regulations,
negotiating contracts, oversight of construction, accounts, and obtaining
financing. In addition to using independent contractors to provide services in
connection with the
95
operation of our properties, we may also use "taxable REIT subsidiaries" to
carry out these functions. See "Federal Future Tax Considerations - Federal
Income Taxation as a REIT" for a discussion of a "taxable REIT subsidiary." We
will retain independent contractors to perform the actual physical construction
work on tenant improvements, the installation of heating, ventilation and air
conditioning systems. See "Real Property Investments - General" for a detailed
description of the types of properties we may invest in.
OTHER POLICIES
Before we purchase a particular property, we may obtain an option to
purchase the property. The amount paid for the option, if any, usually would be
surrendered if the property was not purchased and normally would be credited
against the purchase price if the property was purchased. See "Real Property
Investments - General" for a detailed description of the types of properties we
may invest in.
We hold all funds, pending investment in properties, in assets which
will allow us to continue to qualify as a REIT. These investments are highly
liquid and provide for appropriate safety of principal and may include, but are
not limited to, investments such as bonds issued by the Government National
Mortgage Association, or GNMA, and real estate mortgage investment conduits also
known as REMICs. See "Federal Income Tax Considerations - Federal Income
Taxation as a REIT."
We will not make distributions-in-kind, except for:
- distributions of readily marketable securities;
- distributions of beneficial interests in a liquidating trust
established for our dissolution and the liquidation of our assets
in accordance with the terms of our articles of incorporation; or
- distributions of in-kind property which meet all of the following
conditions:
- our board of directors advises each stockholder of the risks
associated with direct ownership of the in-kind property;
- our board of directors offers each stockholder the election
of receiving in-kind property distributions; and
- the directors distribute in-kind property only to those
stockholders who accept our offer.
Although our articles of incorporation and bylaws do not prohibit the
following, we have no current plans to:
- underwrite the securities of other issuers;
- invest in real estate mortgages; or
- invest the proceeds of the offering, other than on a temporary
basis, in non-real estate related investments.
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We may change our current plans, without stockholder approval, if our board of
directors determines that it would be in the best interests of our stockholder
to engage in any such transaction.
Although we are authorized to issue senior securities, we have no
current plans to do so. See "Description of Securities - Preferred Stock," "-
Issuance of Additional Securities and Debt Instruments" and "- Restrictions on
Issuance of Securities."
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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REAL PROPERTY INVESTMENTS
INVESTING IN REITS
A real estate investment trust or REIT is a company that owns and, in most
cases, operates income-producing properties. To qualify as a REIT, generally a
company must annually distribute at least 90% of its taxable income to
stockholders.
According to the National Association of Real Estate Investment Trusts
(NAREIT), dividend growth for publicly traded REITs has consistently outpaced
inflation. Stock price appreciation for publicly-traded REITs has historically
tracked the rate of increase in the Consumer Price Index, according to NAREIT.
This information is based on REITs that are listed and traded on a national
exchange and would not be representative of an investment in a REIT that is not
publicly traded such as us, and there is no assurance that an investment in a
non-publicly traded REIT will produce comparable results.
An analysis of historical data on publicly-traded REITs by Ibbotson
Associates, a leading financial research firm, concluded that REITs have a low
correlation with other stocks and bonds and represent a potentially powerful
diversification tool. Ibbotson noted, "The asset allocation decision is the most
important determinant of portfolio performance, outweighing the benefits of
market timing and security selection." In particular, Ibbotson found that REITs
may boost return and reduce risk when added to a diversified portfolio. Ibbotson
also found that REITs outperformed most other major market benchmarks over the
1972-2002 period with much less volatility. There can be no assurance that
future performance will mirror past performance and that these results would be
comparable to non-traded REITs, like us.
GENERAL
Our advisor is experienced in acquiring and managing real estate,
particularly retail focused shopping centers. We intend to acquire and manage a
diversified (by geographical location and by type and size of retail centers)
portfolio of real estate primarily improved for use as retail establishments,
principally multi-tenant shopping centers. Our portfolio will consist
predominantly of grocery and discount store anchored retail, including net lease
retail. We may acquire certain mixed use properties that may include lodging,
office and/or multi-family residential if they are part of a retail center. And,
we may also acquire other types of retail shopping centers, such as enclosed
malls, outlet malls and power centers. We also anticipate acquiring real estate
improved with other commercial facilities which provide goods and services as
well as double or triple net leased properties, which are either commercial or
retail, including properties acquired in sale and leaseback transactions. A
triple-net leased property is one which is leased to a tenant who is responsible
for the base rent and all costs and expenses associated with their occupancy,
including property taxes, insurance, repairs and maintenance.
The retail centers we intend to acquire would be located primarily in
states west of the Mississippi River in the United States. Where feasible, we
will endeavor to acquire multiple properties within the same major metropolitan
markets where the acquisitions result in efficient property management
operations with the potential to achieve market dominance.
We do not intend to invest in real estate properties that are primarily:
- farms;
- health care facilities;
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- industrial properties;
- leisure home sites;
- manufacturing facilities;
- mining properties;
- ranches;
- single-family residential properties;
- timberlands; or
- unimproved properties not intended to be developed (vacant land).
Subject to compliance with the applicable requirement under the federal
income tax laws, we may also undertake construction and development activities
and render services in connection with such activities.
See "Investment Objectives and Policies" generally pertaining to our
policies relating to the maintenance, operation and disposition of our
properties.
We intend to initially focus on acquisition activity in major metropolitan
areas in the western United States. The western United States, which consists of
the southwest, rocky mountain and far west states, is projected to experience
the most growth of any region of the country over the next 25 years. Population
is expected to increase by 33.5 million between 2000 and 2025. Most of the
states in the region will experience population growth rates ahead of the
national average. In addition, the western region is forecast to lead the nation
in the rate of employment growth. The western states will generate 22.8 million
new jobs between 1999 and 2025 and account for 38% of total United States job
growth.
California is projected to show the largest gains in population and
employment; however, the region's growth is expected to become more dispersed as
other western states experience higher rates of growth. Texas is expected to
retain its position as the second largest state, with a population likely to
exceed 29.8 million by 2025. Nevada is likely to experience the fastest rate of
growth (2.4% annually between 2000 and 2025), followed by Arizona, Utah, Idaho,
Colorado, Texas, New Mexico, Oregon and Washington.
Employment growth is expected to follow a similar pattern. Nevada, Arizona
and Utah are projected to lead the nation by generating the fastest rate of
annual employment growth. Several western cities are expected to rank among the
nation's ten fastest growing metropolitan markets. These areas include Laredo
and Austin-San Marcos in Texas, Las Vegas in Nevada, Provo-Orem in Utah and
Phoenix-Mesa in Arizona.
The Western region benefits from the diversity of its economy, which has
enabled many western states to maintain employment and income growth even when
some sectors experience reduced demand. Agriculture, natural resources,
manufacturing, trade and services are all represented in the region's economy.
In addition many of the goods and services produced in the west have
international markets. Much of the total United States output of agricultural
products, oil and natural gas, lumber and wood products and electronic equipment
is produced in the West.
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INSURANCE COVERAGE ON PROPERTIES
We carry comprehensive general liability coverage and umbrella liability
coverage on all of our properties with limits of liability which we deem
adequate to insure against liability claims and provide for the costs of
defense. Similarly, we are insured against the risk of direct physical damage in
amounts we estimate to be adequate to reimburse us on a replacement cost basis
for costs incurred to repair or rebuild each property, including loss of rental
income during the reconstruction period. In addition, we intend to insure our
properties against loss caused by earthquake and flood if deemed necessary and
economically justified. The form of management agreement for each property
specifically provides for us to procure and carry public liability, fire and
extended coverage, burglary and theft, rental interruption, flood, if
appropriate, and boiler, if appropriate, insurance. The cost of such insurance
is passed through to tenants whenever possible. Insurance risks associated with
potential terrorism acts could sharply increase the premiums we pay for coverage
against property and casualty claims. Additional, mortgage lenders in some cases
have begun to insist that specific coverage against terrorism be purchased by
commercial property owners as a condition for providing mortgage loans. It is
uncertain whether such insurance policies will be available, or available at
reasonable cost, which could inhibit our ability to finance or refinance our
properties. In such instances, we may be required to provide other financial
support, either through financial assurances or self-insurance, to cover
potential losses. We cannot assure you that we will have adequate coverage for
such losses. Legislation has been enacted to provide federal insurance for
property losses due to terrorism. We cannot be certain what impact this
legislation will have on us or what additional costs to us, if any, could
result.
PROPERTIES
An affiliate, Inland Real Estate Acquisitions, Inc., has entered into an
agreement to acquire a community shopping center in Phoenix, Arizona. This
Safeway-anchored grocery shopping center has approximately 180,000 square feet.
We intend to primarily invest in retail properties ranging from 100,000 to
300,000 square feet in size, we may also purchase larger shopping centers, and
properties in larger centers. We may also purchase these larger shopping
centers, and properties in larger centers, in the future if such purchases are
approved by our board of directors, including a majority of the independent
directors.
We expect that our neighborhood and community shopping centers will be
"anchored" or "shadow-anchored" by a national or regional discount department
store, supermarket or drugstore. A "shadow-anchor" is an anchor tenant that has
leased space in that portion of the center not owned or controlled by us.
In evaluating each of our properties as a potential acquisition and
determining the appropriate amount of consideration to be paid for the property,
we consider a variety of factors including overall valuation of net rental
income, location, demographics, tenant mix, quality of tenants, length of
leases, price per square foot, occupancy and that overall rental rates at each
property are comparable to market rates. We anticipate that each property will
be located within a vibrant economic area. We believe that each of the
properties will be well-located, will have acceptable roadway access, will
attract high quality tenants, will be well-maintained and will have been
professionally managed. Nonetheless, each property will be subject to
competition from similar shopping centers within its market area, and its
economic performance could be affected by changes in local economic conditions.
We generally do not consider any other factors materially relevant to the
decision to acquire each of the properties.
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When we calculate depreciation expense for tax purposes, we use the
straight-line method. We depreciate buildings and improvements based upon
estimated useful lives of 40 and 20 years, respectively.
A substantial portion of our income will consist of rent received under
long-term leases. In general, each tenant pays its proportionate share of real
estate taxes, insurance and common area maintenance costs, although the leases
with some tenants provide that the tenant's liability for such expenses is
limited in some way, usually so that their liability for such expenses does not
exceed a specified amount.
A lease termination by an anchor tenant could result in lease terminations
or reductions in rent by other tenants whose leases permit cancellation or rent
reduction if another tenant's lease is terminated. We may own centers where the
tenants may have rights to terminate their leases if certain other tenants are
no longer open for business. These "co-tenancy" provisions may also exist in
some leases where we own a portion of a shopping center and one or more of the
anchor tenants leases space in that portion of the center not owned or
controlled by us. If such tenants were to vacate their space, tenants with
co-tenancy provisions would have the right to terminate their leases with us, or
seek a rent reduction from us.
Some of our leases may also contain provisions requiring the payment of
additional rent calculated as a percentage of tenants' gross sales above
predetermined thresholds.
We seek to reduce our operating and leasing risks through geographic and
tenant diversity.
We will receive an appraisal for each of our properties which states that
it was prepared in conformity with the Code of Professional Ethics Standards of
Professional Appraisal Practice of the Appraisal Institute and the Uniform
Standards of Professional Appraisal Practice of the Appraisal Foundation by an
independent appraiser who is a member of the Appraisal Institute. Appraisals are
estimates of value and should not be relied on as a measure of truth worth or
realizable value.
In cases where we have purchased properties from our affiliates, our
directors, including the independent directors, must approve the acquisitions of
the properties from our affiliates as being fair and reasonable.
POTENTIAL PROPERTY ACQUISITIONS
We are currently considering acquiring the one property in Phoenix,
Arizona. Our decision to acquire this property will generally depend upon:
- no material adverse change occurring in the property, the tenants or
the local economic conditions;
- our receipt of sufficient net proceeds from this offering to make this
acquisition or sufficient availability of credit; and
- our receipt of satisfactory due diligence information including
appraisals, environmental reports and lease information.
Other properties may be identified in the future that we may acquire before
or instead of this property. We cannot guarantee that we will complete this
acquisition.
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POTENTIAL PROPERTY: PEORIA STATION, PEORIA, ARIZONA
We anticipate purchasing an existing shopping center known as Peoria
Station, which will contain 181,500 gross leasable square feet upon completion
of the current redevelopment. The center currently contains 140,019 gross
leasable square feet. The center is located at 10160 North 67th Avenue in
Peoria, Arizona.
Inland Real Estate Acquisitions, Inc., an affiliate of our advisor, has
entered into a contract to acquire this property. We anticipate that Inland Real
Estate Acquisitions will assign this purchase contract to us at no cost. We
would then anticipate purchasing Peoria Station from PDG America, an
unaffiliated third party. Our total acquisition cost, including expenses, is
expected to be approximately $25,867,000. This amount may be adjusted based on
actual rental rates achieved on the redeveloped square feet. This amount may
also increase by additional costs, which have not yet been finally determined.
We expect any additional costs to be insignificant. Our acquisition cost is
expected to be approximately $143 per square foot of leasable space.
We may place financing on the property at the time of acquisition.
In evaluating this property as a potential acquisition and determining the
appropriate amount of consideration to be paid for the property, we considered a
variety of factors including overall valuation of net rental income, location,
demographics, tenant mix, quality of tenants, length of leases, price per square
foot, occupancy and the fact that overall rental rates at the shopping center
are comparable to market rates. We believe that this property is well located,
has acceptable roadway access, attracts high-quality tenants, is well maintained
and has been professionally managed. This property will be subject to
competition from similar shopping centers within its market area, and its
economic performance could be affected by changes in local economic conditions.
We did not consider any other factors materially relevant to the decision to
acquire this property.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Peoria Station was built in 1987 and redeveloped in 2002/2003. As of June
30, 2003, this property was 98% leased. We anticipate that all existing leases
will be assigned to us.
For federal income tax purposes, the depreciable basis in this property
will be approximately $19,400,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Two tenants, Safeway and LA Fitness, each lease more than 10% of the total
gross leasable area of the property. The leases with these tenants require the
tenants to pay base annual rent on a monthly basis as follows:
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Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------
Safeway 55,471 31% 5.60 04/01/95 12/31/97
6.92 01/01/98 12/31/17
LA Fitness 40,916 23% 6.60 05/01/02 01/31/03
13.20 02/01/03 01/31/07
* 02/01/07 01/31/12
* 02/01/12 01/31/17
* Rent increases by CPI
As of June 30, 2003, a total 137,319 square feet was leased to 17 tenants
at this property. The following table sets forth certain information with
respect to those leases:
Approximate Base Rent Per
GLA Leased Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
---------------------------------------------------------------------------
Blackbelt Academy 1,800 08/03 23,886 13.27
Barro's Pizza 2,400 08/03 36,000 15.00
Ombundsman
Education 1,763 11/03 28,208 16.00
Melly's Hallmark 3,000 01/04 40,500 13.50
Smartcare Medical
Center 1,200 10/04 30,724 25.60
Other Mothers 4,197 12/04 65,054 15.50
Circus Cleaners 900 01/05 14,362 15.96
Cents Store 5,300 04/05 57,400 10.83
H & R Block 1,800 04/05 33,048 18.36
Great Clips 1,200 06/05 21,900 18.25
Peter Piper Pizza 11,067 12/05 138,337 12.50
#1 Nails 900 01/06 14,812 16.46
Tan Banana 1,800 09/06 30,600 17.00
China Palace 1,885 08/07 41,885 22.22
Dunkin Donuts 1,720 04/09 51,416 29.89
LA Fitness 40,916 01/17 540,091 13.20
Safeway 55,471 12/17 383,859 6.92
In general, each tenant pays its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants provide that the tenant's liability for such expenses is limited in some
way, usually so that their liability for such expenses does not exceed a
specified amount.
We will obtain an appraisal on this property prior to acquisition. As with
any other property we acquire, our property manager will receive a property
management fee for managing this property and our advisor will receive an
advisor asset management fee.
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CAPITALIZATION
The following table sets forth our historical capitalization as of June 30,
2003 and our pro forma capitalization as of that date as adjusted to give effect
to the sale of 200,000 shares of common stock and the application of the
estimated net proceeds therefrom as described in "Estimated Use of Proceeds." We
were originally capitalized in March 2003 through the cash contribution of
$200,000 by the advisor, for which the advisor received 20,000 shares of common
stock. Additionally, the table does not include shares of common stock issuable
upon the exercise of options which may be, but have not been, granted under our
independent director stock option plan. The information set forth in the
following table should be read in conjunction with our historical financial
statements included elsewhere in this prospectus and the discussion set forth in
"Management's Discussion and Analysis of Our Financial Condition--Liquidity and
Capital Resources."
June 30, 2003
Historical Pro Forma
------------ ------------
DEBT:
Mortgage notes payable................................................... $ 0 $ 0
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 10,000,000 authorized, none
outstanding.............................................................. 0 0
Common stock, $.001 par value, 350,000,000 authorized, 20,000
shares issued and outstanding historical; 220,000 shares
issued and outstanding pro forma ...................................... 20 220
Additional paid-in capital............................................... 202,230 1,902,030
Retained earnings deficit................................................ (9,750) (9,750)
------------ ------------
Total stockholders' equity............................................. 192,500 1,892,500
------------ ------------
Total capitalization................................................... $ 192,500 $ 1,892,500
============ ============
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF OUR
FINANCIAL CONDITION
Certain statements contained in this "Management's Discussion and Analysis
of Our Financial Condition" and elsewhere in this prospectus constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. See "Cautionary Note Regarding
Forward-Looking Statements." You should read the following discussion along with
our financial statements and the related notes included in this prospectus.
LIQUIDITY AND CAPITAL RESOURCES
We were formed in March 2003 to acquire and manage a diversified portfolio
of real estate, primarily located in states west of the Mississippi River. We
may also acquire single-user retail properties in locations throughout the
United States, certain of which may be sale and leaseback transactions, net
leased to creditworthy tenants. The advisor has guaranteed payment of all public
offering expenses (excluding selling commissions and other fees payable to the
managing dealer) in excess of 5.5% of the gross offering proceeds or all
organization and offering expenses (including such selling expenses) which
together exceeds 15% of the gross offering proceeds.
We will provide the following programs to facilitate investment in the
shares and to provide limited liquidity for stockholders until such time as a
market for the shares develops:
The distribution reinvestment program will allow stockholders who purchase
shares pursuant to this offering to automatically reinvest distributions by
purchasing additional shares from us. Such purchases will not be subject to
selling commissions or the marketing contribution and due diligence expense
allowance and will be sold at a price of $9.50 per share.
The share repurchase program will provide existing stockholders with
limited, interim liquidity by enabling them to sell shares back to us. The
prices at which shares may be sold back to us are as follows:
- One year from the purchase date, at $9.25 per share;
- Two years from the purchase date, at $9.50 per share;
- Three years from the purchase date, at $9.75 per share; and
- Four years from the purchase date, at the greater of: $10.00 per
share; or a price equal to ten times our "funds available for
distribution" per weighted average share outstanding for per prior
calendar year.
Shares purchased by us will not be available for resale. During any offering,
the repurchase price shall be equal to or below the price of the shares offered
in any offering.
The net proceeds of the offering will enable us to purchase properties. It
is our policy to acquire properties free and clear of permanent mortgage
indebtedness if we deem it advantageous by paying the entire purchase price of
each property in cash or for shares, interest in entities that own our
properties, or a combination of these means, and to selectively encumber all or
some properties. We may, however, acquire properties subject to existing
indebtedness. Following acquisition, the proceeds from such loans will be used
to acquire additional properties to increase cash flow and provide further
diversity. If the
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offering is not fully sold, our ability to diversify our investments may be
diminished. Our advisor expects that the cash to be generated from operations of
the properties identified for acquisition, which we intend to acquire if
sufficient proceeds are raised in the offering, will be adequate to pay our
operating expenses and provide distributions to stockholders.
Our management will monitor the various qualification tests we must meet to
maintain our status as a REIT. We test large ownership of the shares upon
purchase to determine that no more than 50% in value of the outstanding shares
is owned, directly or indirectly, by five or fewer persons or entities at any
time. Our management also determines, on a quarterly basis, that the gross
income, asset and distribution tests described in the section entitled "Federal
Income Tax Considerations -- Federal Income Taxation as a REIT" are met. On an
ongoing basis, as we and the advisor perform due diligence on potential
purchases of properties or temporary investment of uninvested capital,
management of both entities will determine that the income from the new asset
will qualify for REIT purposes.
CAPITAL RESOURCES
As of the date of this prospectus, we have identified one property in which
to invest. If the minimum 200,000 shares are sold, we would not have sufficient
resources to acquire the property identified.
We have rights to purchase an investment property currently being
redeveloped, known as Peoria Station, from an unaffiliated third party for
approximately $25,867,000. This amount may be adjusted based on actual rental
rates achieved on the redeveloped square feet. We expect to purchase this
property by November 1, 2003, however, the seller may extend the closing date if
minimum rental rates stated in the contract have not yet been achieved.
The number of properties we will acquire will depend upon the amount of the
net proceeds of the offering. The advisor is not aware of any material trends,
favorable or unfavorable, in either capital resources or the outlook for
long-term cash generation, nor does it expect any material changes in the
availability and relative cost of such capital resources, other than as referred
to herein.
The advisor has guaranteed payment of all organization and offering
expenses, including selling commissions and the other fees payable to the
managing dealer, in excess of 15% of the gross offering proceeds of the offering
and all organization and offering expenses, excluding such selling expenses, in
excess of 5.5% of the gross offering proceeds. In addition, if we do not sell
the minimum offering, neither our sponsor nor our advisor will be reimbursed for
any organization and offering expenses.
As of June 30, 2003, we had incurred $691,911 of offering and organization
costs, all of which was advanced by our advisor.
Certain compensation and fees payable to our advisor for services to be
provided to us are limited to maximum amounts. Set forth below is a table
describing compensation and fees payable by us to our advisor.
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Nonsubordinated payments:
Offering stage:
Selling commissions 7.5% of the sale price for each share
Marketing contribution and due 3.0% of the gross offering proceeds
diligence allowance
Reimbursable expenses and other We will reimburse our sponsor for
expenses of issuance actual costs incurred, on our behalf, in
connection with the offering
Acquisition stage:
Acquisition expenses We will reimburse an affiliate of
our advisor for costs incurred, on
our behalf, in connection with the
acquisition of properties
Operational stage
Property management fee. THIS FEE 4.5% of the gross income from the
TERMINATES UPON A BUSINESS properties. (Cannot exceed 90% of
COMBINATION WITH OUR PROPERTY the fee which would be payable to
MANAGER an unrelated third party)
Loan servicing fee .08% of the total principal amount
of the loans being serviced for
each full year, up to the first
$100 million and a lesser
percentage on a sliding scale
thereafter
Reimbursable expenses relating to The compensation and reimbursements
administrative services to our advisor and its affiliates
will be approved by a majority of
our directors
Liquidation stage:
Property disposition fee. THIS FEE Lesser of 3% of sales price or 50%
TERMINATES UPON A BUSINESS of the customary commission which
COMBINATION WITH THE ADVISOR would be paid to a third party
Subordinated payments:
Operational stage:
Advisor asset management fee. Not more than 1% per annum of our
THIS FEE TERMINATES UPON A average assets; subordinated to a
BUSINESS COMBINATION WITH OUR non-cumulative, non-compounded return,
ADVISOR equal to 6% per annum
Liquidation stage:
Incentive advisory fee. THIS FEE After our stockholders have first
TERMINATES UPON A BUSINESS received a 10% cumulative, non-
COMBINATION WITH OUR ADVISOR compounded return and a return on
their net investment, an incentive
advisory fee equal to 15% on net
proceeds from the sale of a property
will be paid to our advisor
As of the date of this prospectus, we have no current plans to acquire the
property manager or advisor. No subscriptions for shares have been received from
the public. The only funds received to date are from the advisor's contribution
of $200,000 for 20,000 common shares.
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RESULTS OF OPERATIONS
As of the date of this prospectus, we have not yet had any operations. We
intend to use the proceeds of this offering as set forth under "Estimated Use of
Proceeds," principally to acquire properties. Our primary business objective
will be to enhance the performance and value of our properties through
management strategies designed to meet the needs of an evolving retail
marketplace.
As we have not acquired any properties yet, our advisor is not aware of any
known trends or uncertainties, other than national economic conditions, which
have had or which may be reasonably expected to have a material impact,
favorable or unfavorable, on revenues or income from the acquisition and
operation of real properties other than those referred to in the prospectus.
We have paid no distributions yet.
FUNDS FROM OPERATIONS
One of our objectives is to provide cash distributions to our stockholders
from cash generated by our operations. Cash generated from operations is not
equivalent to our net operating income as determined under accounting principles
generally accepted in the United States of America or GAAP. Due to certain
unique operating characteristics of real estate companies, the National
Association of REITs, also known as "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 ours. 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 properties plus depreciation
and amortization and after adjustments for unconsolidated partnership and joint
ventures in which the REIT holds an interest. We have adopted the NAREIT
definition for computing FFO because management believes that, subject to the
following limitations, FFO provides a basis for comparing our performance and
operations 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 us 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 our
performance nor to "Cash Flows from Operating Activities" as determined by GAAP
as a measure of our capacity to pay distributions.
INITIAL PROPERTY
We have the right to acquire a neighborhood center, being the initial
property. If sufficient funds are raised in the offering, we will, subject to
certain conditions, acquire the initial property from an unaffiliated third
party. See "Real Property Investments" for a more detailed description of the
initial property.
CRITICAL ACCOUNTING POLICIES
GENERAL.
The following disclosure pertains to critical accounting policies
management believes will be most "critical" to the portrayal of our financial
condition and results of operations which require management's most difficult,
subjective or complex judgments. These judgments often result from the need to
make estimates about the effect of matters that are inherently uncertain.
Critical accounting
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policies discussed in this section are not to be confused with accounting
principles and methods disclosed in accordance with GAAP. GAAP requires
information in financial statements about accounting principles, methods used
and disclosures pertaining to significant estimates. This discussion addresses
judgments known to management pertaining to trends, events or uncertainties
known which will be taken into consideration upon the application of those
policies and the likelihood that materially different amounts would be reported
upon taking into consideration different conditions and assumptions.
VALUATION AND ALLOCATION OF INVESTMENT PROPERTY. In order to ascertain the
value of an investment property management will take into consideration many
factors which require difficult, subjective or complex judgments to be made.
These judgments require management to make assumptions when valuing each
investment property. Such assumptions include projecting vacancy rates, rental
rates, property operating expenses, capital expenditures, and debt financing
rates, among others. The capitalization rate is also a significant driving
factor in determining the property valuation which requires management's
judgment of factors such as market knowledge, historical experience, length of
leases, tenant financial strength, economy, demographics, environment, property
location, visibility, age, and physical condition, and investor return
requirements, among others. Furthermore, at the acquisition date, every property
acquired will be supported by an independent appraisal. All of the
aforementioned factors are taken as a whole by management in determining the
valuation. The valuation is sensitive to the actual results of any of these
uncertain factors, either individually or taken as a whole. Should the actual
results, differ from management's judgment, the valuation could be negatively
effected.
We will allocate the purchase price of the each acquired investment
property between land, building and improvements, acquired favorable and
unfavorable leases, lease origination value (the market cost avoidance of
executing each acquired lease), and any assumed financing that is determined to
be above or below market terms. The allocation of the purchase price is an area
that requires complex judgments and significant estimates. We use the
information contained in the independent appraisal we obtained as the primary
basis for the allocation to land and building improvements. We determine whether
any financing assumed is above or below market based upon comparison to similar
financing terms for similar investment properties. We also will allocate a
portion of the purchase price to the estimated lease origination value based on
estimated lease execution costs for similar leases and consider various factors
including geographic location and size of leased space. We also will evaluate
each acquired lease based upon current market rates at the acquisition date and
consider various factors including geographical location, size and location of
leased space within the investment property, tenant profile and the credit risk
of the tenant in determining whether the acquired lease is favorable or
unfavorable. After an acquired lease is determined to be favorable or
unfavorable, we will allocate a portion of the purchase price to such favorable
or unfavorable acquired lease based upon the present value of the difference
between the contractual lease rate and the estimated market rate. The
determination of the discount rate used in the present value calculation is
based upon the "risk free rate" for each individual lease and primarily based
upon the credit worthiness of each individual tenant.
On a quarterly basis, we will conduct an impairment analysis in accordance
with Statement of Financial Accounting Standards No. 144 to ensure that the
property's carrying value does not exceed its fair value. If this were to occur,
we are required to record an impairment loss.
The valuation and allocation of purchase price, and possible subsequent
impairment of investment properties is a significant estimate that can and does
change based on management's continuous process of analyzing each property and
on management's assumptions about uncertain inherent factors.
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COST CAPITALIZATION AND DEPRECIATION POLICIES. Our policy will be to review
all expenses paid and capitalize any item exceeding a threshold deemed to be an
upgrade or a tenant improvement that is included in the investment property
asset classification. In addition, we will capitalize costs incurred during the
development period, including direct costs and indirect costs such as
construction, insurance, architectural costs, and legal fees, interest and other
financing costs, and real estate taxes. We will cease capitalization of indirect
costs once management considers the property is substantially complete and
available for occupancy.
Buildings and improvements will be depreciated on a straight line basis
based upon estimated useful lives of 30 years for buildings and improvements and
15 years for site improvements. That portion of the purchase price is allocated
to acquired favorable and unfavorable leases will be amortized on a straight
line basis over the life of the related lease as an adjustment to rental income.
Lease origination value, other leasing costs, and tenant improvements will be
amortized on a straight line basis over the life of the related lease as a
component of amortization expense.
Cost capitalization and the estimate of useful lives requires management
judgment and includes significant estimates that can and do change based on
management's continuous process of analyzing each property and on management's
assumptions about uncertain inherent factors.
REVENUE RECOGNITION. We will recognize rental income on a straight-line
basis over the term of each lease. The difference between rental income earned
on a straight line basis and the cash rent due under the provisions of the lease
agreements will be recorded as deferred rent receivable and is included as a
component of accounts and rents receivable in the accompanying consolidated
balance sheets. We anticipate collecting these amounts over the terms of the
leases as scheduled rent payments are made.
Reimbursements from tenants for recoverable real estate tax and operating
expenses will be accrued as revenue in the period the applicable expenditures
are incurred. Management makes certain assumptions and judgments in estimating
the reimbursements at the end of each reporting period. Should the actual
results differ from management's judgment, the estimated reimbursement could be
negatively effected adjusted appropriately.
In connection with certain acquisitions, we will receive payments under
master lease agreements pertaining to some non-revenue producing spaces either
at the time or subsequent to the purchase. GAAP requires that as these payments
are received, they be recorded as a reduction in the purchase price rather than
as rental income. These master leases may be established at the time of purchase
in order to mitigate the potential negative effects of rent and occupancy
assumptions utilized in the valuation of the investment property. Master lease
payments will be received through a draw of funds escrowed at the time of
purchase and will be for a period from one to three years. There is no assurance
that upon the expiration of the master leases agreements that the valuation
factors pertaining to rent and occupancy assumed by management will be met.
Should the actual results differ from management's judgment, the property
valuation could be negatively or positively affected.
VALUATION OF ACCOUNTS AND RENTS RECEIVABLE. Management will take into
consideration certain factors that require judgments to be made as to the
collectability of receivables. Collectability factors taken into consideration
are the amounts outstanding, payment history, and financial strength of the
tenant, which taken as a whole determines the valuation.
REIT STATUS. In order to maintain our status as a REIT, we are required to
distribute at least 90% of its REIT taxable income to our stockholders. We must
also meet certain asset and income tests, as well as other requirements. We will
monitor the business and transactions that may potentially impact our
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REIT status. If we fail to qualify as a REIT in any taxable year, we will be
subject to Federal income tax (including any applicable alternative minimum tax)
on our taxable income at regular corporate rates.
NEW ACCOUNTING PRONOUNCEMENT
On May 15, 2003, the Financial Accounting Standards Board issued Statement No.
150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY. The Statement requires issuers to classify as
liabilities (or assets in some circumstances) three classes of freestanding
financial instruments that embody obligations for the issuer.
Generally, the Statement is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The Company adopted the
provisions of the Statement on July 1, 2003.
The Company did not enter into any financial instruments within the scope of the
Statement during June 2003. To the extent stockholders request shares to be
repurchased by the Company under the Share Repurchase Program, the Company's
obligation to repurchase such shares will be classified as a liability at the
redemption amount at the date documentation is complete and accepted by the
Company in accordance with the plan documents.
INFLATION
Inflation is likely to increase rental income from leases to new tenants
and lease renewals, subject to market conditions, for any retail centers we
acquire. Our rental income and operating expenses for any properties to be owned
and operated on a triple-net lease basis are not likely to be directly affected
by future inflation, since rents are or will be fixed under those leases and
property expenses are the responsibility of the tenants. The capital
appreciation of properties leased on triple-net lease basis is likely to be
influenced by interest rate fluctuations. To the extent that inflation
determines interest rates, future inflation may have an effect on the capital
appreciation of properties leased on a triple-net-lease basis.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We may be exposed to interest rate changes primarily as a result of
long-term debt used to maintain liquidity and fund capital expenditures and
expansion of our real estate investment portfolio and operations. Our interest
rate risk management objectives will be to limit the impact of interest rate
changes on earnings and cash flows and to lower its overall borrowing costs. To
achieve our objectives we will borrow primarily at fixed rates or variable rates
with the lowest margins available and in some cases, with the ability to convert
variable rates to fixed rates.
We may use derivative financial instruments to hedge exposures to changes
in interest rates on loans secured by our properties. To the extent we do, we
are exposed to credit risk and market risk. Credit risk is the failure of the
counterparty to perform under the terms of the derivative contract. When the
fair value of a derivative contract is positive, the counterparty owes us, which
creates credit risk for us. When the fair value of a derivative contract is
negative, we owe the counterparty and, therefore, it does not possess credit
risk. It is our policy to enter into these transactions with the same party
providing the financing, with the right of offset. In the alternative, we will
minimize the credit risk in derivative instruments by entering into transactions
with high-quality counterparties. Market risk is the adverse effect on the value
of a financial instrument that results from a change in interest rates. The
market risk
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associated with interest-rate contracts is managed by establishing and
monitoring parameters that limit the types and degree of market risk that may be
undertaken.
With regard to variable rate financing, we assess interest rate cash flow
risk by continually identifying and monitoring changes in interest rate
exposures that may adversely impact expected future cash flows and by evaluating
hedging opportunities. We maintain risk management control systems to monitor
interest rate cash flow risk attributable to both of our outstanding or
forecasted debt obligations as well as our potential offsetting hedge positions.
The risk management control systems involve the use of analytical techniques,
including cash flow sensitivity analysis, to estimate the expected impact of
changes in interest rates on our future cash flows.
While this hedging strategy will have the effect of smoothing out interest
rate fluctuations, the result may be to reduce the overall returns on your
investments.
As we have yet to raise any money, our board has not yet established
policies and procedures regarding our use of derivative financial instruments
for hedging or other purposes.
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DESCRIPTION OF SECURITIES
We were formed under the laws of the State of Maryland. Your rights are
governed by Maryland law, our articles of incorporation and our bylaws. The
following summary of the terms of our stock is only a summary and you should
refer to our articles of incorporation and bylaws for a full description. Copies
of our articles of incorporation and bylaws are filed as exhibits to the
registration statement of which this prospectus is a part. You can obtain copies
of our articles of incorporation and bylaws and every other exhibit to our
registration statement. See "Where You Can Find More Information," below.
AUTHORIZED STOCK
Our articles of incorporation provide that we may issue up to 350,000,000
shares of common stock and 10,000,000 shares of preferred stock. Upon completion
of this offering, if 250,000,000 shares are sold, there will be 250,020,000
shares of common stock outstanding and no preferred stock outstanding.
As permitted by Maryland law, our articles of incorporation contain a
provision permitting the board, without any action by the stockholders, to amend
our articles of incorporation from time to time, to increase or decrease the
aggregate number of shares of stock and the number of shares of stock of any
class or series that we have authority to issue. Our articles of incorporation
also contain a provision permitting our board of directors, without any action
by stockholders, to classify or reclassify any unissued common stock or
preferred stock into one or more classes or series by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or distributions, qualifications or terms or
conditions of redemption of any new class or series of shares of stock.
Nevertheless, certain laws to which we are subject require the approval by a
majority of our then outstanding shares to amend our articles of incorporation
to increase or decrease the number of shares authorized by our articles of
incorporation.
We believe that the power of our board to issue additional authorized but
unissued shares of common stock or preferred stock and to classify or reclassify
shares of stock will provide us with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs which
might arise. Following amendment of our articles of incorporation to increase
the number of our authorized shares, our board would be able to issue the
additional common stock or preferred stock without further action by our
stockholders.
COMMON STOCK
Upon issuance of our shares for full payment in accordance with the terms
of this offering, all of the common stock we are offering will be duly
authorized, fully paid and nonassessable. Subject to the preferential rights of
any other class or series of stock and to the provisions of our articles of
incorporation regarding the restriction on the transfer of shares of our stock,
holders of our common stock will be entitled to receive distributions if
authorized and declared by our board and to share ratably in our assets
available for distribution to the stockholders in the event of a liquidation,
dissolution or winding-up.
Each outstanding share of our common stock entitles the holder to one vote
on all matters submitted to a vote of stockholders, including the election of
directors. There is no cumulative voting in the election of directors, which
means that the holders of a majority of the outstanding common stock can elect
all of the directors then standing for election, and the holders of the
remaining common stock will not be able to elect any directors.
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Holders of our common stock have no conversion, sinking fund, redemption,
exchange or appraisal rights, and have no preemptive rights to subscribe for any
of our securities. Our articles of incorporation provide that holders of our
common stock are not entitled to exercise any rights of an objecting stockholder
provided for under Maryland law. Shares of our common stock have equal dividend,
distribution, liquidation and other rights.
Under Maryland law and our articles of incorporation, we cannot make
certain material changes to our business form or operations without the approval
of stockholders holding at least a majority of the shares of stock entitled to
vote on the matter. The following events, however, do not require stockholder
approval:
- share exchanges in which we are the acquiror;
- mergers with or into a 90 percent or more owned subsidiary;
- mergers in which we do not:
- reclassify or change the terms of any of our stock that is
outstanding immediately before the effective time of the merger;
- amend our articles of incorporation; and
- issue in the merger more than 20 percent of the number of shares
of any class or series of stock outstanding immediately before
the merger; and
- transfers of less than substantially all of our assets. Our articles
of incorporation provide that the sale of two-thirds or more of our
assets or the then current fair market value of our properties and
mortgages other than in the ordinary course of our business will be
considered the sale of substantially all of our assets.
Our bylaws provide that the presence in person or by proxy by the holders
of a majority of our outstanding shares will constitute a quorum for the
transaction of business at a meeting of our stockholders. Our articles of
incorporation provide that the election of directors requires a majority of all
the votes present in person or by proxy at a meeting of our stockholders at
which a quorum is present. Our articles of incorporation also provide that the
affirmative vote of the holders of a majority of our outstanding common stock
may remove any director with or without cause.
We will act as our own registrar and transfer agent for our common stock.
PREFERRED STOCK
Shares of our preferred stock may be issued in the future in one or more
series as authorized by our board. Prior to the issuance of shares of any
series, our board is required by Maryland law and our articles of incorporation
to fix the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption for each series. Because our board has the
power to establish the preferences, powers and rights of each series of
preferred stock, it may, without any consideration or approval by our
stockholders, provide the holders of any series of preferred stock with
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of our common stock. The issuance of preferred stock could have the
effect of delaying, deferring or preventing a change of control of us, including
an extraordinary
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transaction (such as merger, tender offer or sale of all or substantially all of
our assets) that might provide a premium price for holders of our common stock.
We have no present plans to issue any preferred stock.
ISSUANCE OF ADDITIONAL SECURITIES AND DEBT INSTRUMENTS
Our directors are authorized to issue additional stock or other convertible
securities for cash, property or other consideration on such terms as they may
deem advisable. Our directors are also authorized to classify or reclassify any
unissued shares of our capital stock without approval of the holders of our
outstanding securities. Subject to some restrictions, our directors may cause us
to issue debt obligations, including debt with conversion privileges on more
than one class of our capital stock. Our directors may issue debt obligations on
such terms and conditions as they may determine, including debt with conversion
privileges, where the holders of our debt obligations may acquire our common
stock. Subject to some restrictions, our directors may also cause us to issue
warrants, options and rights to buy our common stock on such terms as they deem
advisable to our stockholders, as part of a financing arrangement, or pursuant
to stock option plans. Our directors may cause us to issue warrants, options and
rights to buy our common stock and debt with conversion privileges even though
their exercise or conversion could result in dilution in the value of our
outstanding common stock.
RESTRICTIONS ON ISSUANCE OF SECURITIES
Our articles of incorporation provide that we will not issue:
- common stock which is redeemable at the option of the holder;
- debt securities unless the historical debt service coverage in the
most recently completed fiscal year is sufficient to properly service
the higher level of debt;
- options or warrants to purchase stock to our advisor, sponsor,
director(s) or any affiliates of our advisor, sponsor or directors
except on the same terms as sold to the general public and in an
amount not to exceed 10% of our outstanding common or preferred stock
on the date of grant of any options or warrants; or
- stock on a deferred payment basis or similar arrangement.
Our articles of incorporation also provide that we will not issue nonvoting
or assessable common stock or warrants, options or similar evidences of rights
to buy stock unless they are issued to the holders of stock ratably, as part of
a financing arrangement or as part of a stock plan to our directors, officers or
employees.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
In order for us to continue to qualify as a REIT under the Internal Revenue
Code, shares of our stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of twelve months (other than the
first year for which an election to be a REIT has been made) or during a
proportionate part of a shorter taxable year. Also not more than 50% of the
value of our outstanding shares of stock may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Internal Revenue Code to include
some entities such as qualified person plans) during the last half of a taxable
year (other than the first year for which an election to be a REIT has been
made).
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Our articles of incorporation, subject to some exceptions, contain
restrictions on the number of shares of our stock that a person may own. Our
articles of incorporation prohibit any person from acquiring or holding,
directly or indirectly, shares of stock in excess of 9.8% in value of the
aggregate of our outstanding shares of stock. In addition, our articles of
incorporation prohibit any person from acquiring or holding, directly or
indirectly, shares of common stock in excess of 9.8% of the aggregate number of
our outstanding shares of common stock. The 9.8% common stock ownership limit
must be measured in terms of the more restrictive of value or number of shares.
Our board of directors, in its sole discretion, may exempt a person from
the 9.8% limit and the common stock ownership limit. However, the board may not
grant such an exception to any person whose ownership, direct or indirect, of in
excess of 9.8% of the value of our outstanding shares of stock would result in
us being "closely held" within the meaning of Section 856(h) of the Internal
Revenue Code or otherwise would result in us failing to qualify as a REIT. In
order to be considered as an excepted holder, a person also must not own,
directly or indirectly, an interest in any of our tenants (or in a tenant of any
entity owned or controlled by us) that would cause us to own, directly or
indirectly, more than a 9.9% interest in such a tenant. The person seeking an
exemption must represent to our board's satisfaction that it will not violate
these two restrictions. The person also must agree that any violation or
attempted violation of any of these restrictions will result in the automatic
transfer of the shares of stock causing the violation to a trust as explained
below. Our board may require a ruling from the Internal Revenue Service or an
opinion of counsel, in either case in form and substance satisfactory to our
board of directors in its sole discretion, in order to determine or ensure our
status as a REIT.
In addition, our articles of incorporation prohibit any person from
beneficially or constructively owning shares of our common or preferred stock
that would result in us being "closely held" within the meaning of Section
856(h) of the Internal Revenue Code. Our articles of incorporation further
provide that any transfer of our common stock or preferred stock that would
result in our common stock and preferred stock being beneficially owned by fewer
than 100 persons will be void. Any person who acquires or attempts or intends to
acquire beneficial or constructive ownership of our common or preferred stock
that will or may violate any of the foregoing restrictions on transferability
and ownership, or any person who would have owned shares of our common or
preferred stock that resulted in a transfer of shares to the trust, is required
to give us notice immediately and to provide us with such other information as
we may request in order to determine the effect of such transfer on our status
as a REIT. The foregoing restrictions on transferability and ownership will not
apply if our board determines that it is no longer in our best interests to
attempt to qualify, or to continue to qualify, as a REIT.
If any transfer of shares of our stock occurs which, if effective, would
result in any person beneficially or constructively owning shares of our stock
in excess or in violation of the above transfer or ownership limitations, then
the number of shares of our stock the beneficial or constructive ownership of
which would cause the person to violate the limitations will be automatically
transferred under the provisions of our articles of incorporation to a trust for
the exclusive benefit of one or more charitable beneficiaries within the meaning
of 501(c)(3) of the Internal Revenue Code. The proposed transferee that exceeds
the ownership limitations will not acquire any rights in these shares. The
automatic transfer is deemed effective as of the close of business on the
business day, as defined in our articles of incorporation, prior to the date of
the violative transfer. Shares of stock held in the trust will continue as
issued and outstanding common stock or preferred stock. The proposed transferee
will not benefit economically from ownership or any shares of stock held in the
trust, will have no rights to dividends and will not possess any rights to vote
or other rights attributable to the shares of stock held in the trust. The
trustee of the trust will have all voting rights and rights to dividends or
other distributions with respect to shares of stock held in the trust. The
voting rights and rights to dividends will be exercised for the exclusive
benefit of the charitable beneficiary. Any dividend or other distribution paid
prior to our
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discovery that shares of stock have been transferred to the trustee will be paid
by the recipient of the dividend or distribution to the trustee upon demand, and
any dividend or other distributions authorized but unpaid will be paid when due
to the trustee. Any dividend or distribution paid to the trustee will be held in
trust for the charitable beneficiary. The proposed transferee will have no
voting rights with respect to shares of stock held in the trust. Subject to
Maryland law, effective as of the date that such shares of stock have been
transferred to the trust, the trustee will have the authority at his sole
discretion (i) to rescind as void any vote cast by the proposed transferee prior
to our discovery that such shares have been transferred to the trust and (ii) to
recast such vote in accordance with the desires of the trustee acting for the
benefit of the charitable beneficiary. However, if we have already taken
irreversible corporate action, then the trustee will not have the authority to
rescind and recast the vote.
Within twenty days of receiving notice from us that shares have been
transferred to the trust, the trustee shall sell the shares to a person,
designated by the trustee, whose ownership of the shares will not violate the
ownership limitations set forth in the articles of incorporation. Upon the sale,
the interest of the charitable beneficiary in the shares sold will terminate and
the trustee will distribute the net proceeds of the sale to the proposed
transferee and to the charitable beneficiary as follows. The proposed transferee
will receive the lesser of (i) the price paid by him for the shares or, if the
proposed transferee did not give value for the shares in connection with the
event causing the shares to be held in the trust (e.g. a gift, devise or other
such transaction), the market price, as defined in our articles of
incorporation, of the shares on the day of the event causing the shares to
beheld in the trust and (ii) the price per share received by the trustee from
the sale or other disposition of the shares held in the trust. Any net sale
proceeds in excess of the amount payable to the proposed transferee will be paid
immediately to the charitable beneficiary. If, prior to our discovery that
shares of stock have been transferred to the trust, such shares are sold by the
proposed transferee, then (i) shares will be deemed to have been sold on behalf
of the trust and (ii) to the extent that the proposed transferee received an
amount for such shares that exceeds the amount that the proposed transferee was
entitled to receive, the excess will be paid to the trustee upon demand.
In addition, shares of our stock held in the trust will be deemed to have
been offered for sale to us or our designees, at a price per share equal to the
lesser of (i) the price per share in the transaction that resulted in the
transfer to the trust, or, in the case of a devise or gift, the market price at
the time of the devise or gift, and (ii) the market price on the date we, or our
designate, accept such offer. We can accept this offer until the trustee has
sold the shares held in the trust. Upon a sale to us, the interest of the
charitable beneficiary in the shares sold will terminate and the trustee will
distribute the net proceeds of the sale to the proposed transferee.
Our articles of incorporation require all persons who own more than 5%, or
any lower percentages as required pursuant to the Internal Revenue Code or the
regulations under the Internal Revenue Code, of our outstanding common and
preferred stock, within 30 days after the end of each taxable year, to provide
to us written notice stating their name and address, the number of shares of
common and preferred stock they beneficially own directly or indirectly, and a
description of how the shares are held. In addition, each beneficial owner must
provide to us any addition information as we may request in order to determine
the effect, if any, of their beneficial ownership on our status as a REIT and to
ensure compliance with the 9.8% ownership limit. In addition, each stockholder
will, upon demand, be required to provide us any information as we may request,
in good faith, in order to determine our status as a REIT and to comply with the
requirements of any taxing authority or governmental authority or to determine
such compliance.
All certificates representing any shares of our common or preferred stock
will bear a legend referring to the restrictions described above.
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PROVISIONS OF MARYLAND LAW AND OF OUR ARTICLES OF INCORPORATION AND BYLAWS
The following paragraphs summarize some provisions of Maryland law and the
material terms of our articles of incorporation and bylaws. The following
summary does not purport to be complete and is subject to and qualified in its
entirety by reference to Maryland law and our articles of incorporation and
bylaws, copies of which are exhibits to the registration statement of which the
prospectus is a part. See "Where You Can Find More Information."
BUSINESS COMBINATIONS. Under the Maryland Business Combination Act, an
anti-takeover statute, completion of a business combination (including a merger,
consolidation, share exchange or an asset transfer or issuance or
reclassification of equity securities) between a Maryland corporation and an
interested stockholder is prohibited for five years following the most recent
date on which the interested stockholder becomes an interested stockholder.
Maryland law defines an interested stockholder as any person who beneficially
owns ten percent or more of the voting power of the corporation's shares or an
affiliate or associate of the corporation who, at any time within the two-year
period prior to the date in question, was the beneficial owner of ten percent or
more of the voting power of the then-outstanding voting stock of the corporation
(an interested stockholder) or an affiliate of such interested stockholder. A
person is not an interested stockholder if, prior to the most recent time at
which the person would otherwise have become an interested stockholder, the
board of directors of the Maryland corporation approved the transaction which
otherwise would have resulted in the person becoming an interested stockholder.
The board of directors may provide that its approval is subject to compliance
with any terms and conditions determined by the board. Following the five-year
prohibition period, any such business combination with that interested
stockholder must be recommended by the board of directors of such corporation
and approved by the affirmative vote of at least:
- 80% of the votes entitled to be cast by holders of outstanding shares
of voting stock of the corporation; and
- two-thirds of the votes entitled to be cast by holders of voting stock
of the corporation other than shares held by the interested
stockholder with whom (or with whose affiliate) the business
combination is to be effected or held by an affiliate or associate of
the interested stockholder, unless, among other conditions, the
corporation's common stockholders receive a minimum price (as defined
in the Maryland business combination statute) equal to the highest
price paid by the interested stockholder for its shares and the
consideration is received in cash or in the same form as previously
paid by the interested stockholder for its shares.
These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by our board of directors prior to
the time that the interested stockholder becomes an interested stockholder. As
permitted under Maryland law, our articles of incorporation exempt any business
combinations involving us and The Inland Group or any of its affiliates. As a
result, the five-year prohibition and the super-majority vote requirement will
not apply to any business combinations between The Inland Group or any affiliate
of The Inland Group and us. Therefore, The Inland Group or any affiliate of The
Inland Group may be able to enter into business combinations with us, which may
or may not be in the best interests of the stockholders.
CONTROL SHARE ACQUISITION. Maryland's Control Share Acquisition Act, an
anti-takeover statute, prohibits interested stockholders from engaging in
self-dealing business combinations with a Maryland corporation, except to the
extent approved by the corporation's disinterested stockholders. Maryland law
provides that control shares of a Maryland corporation acquired in a control
share acquisition have no
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voting rights except to the extent approved by the corporation's disinterested
stockholders by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares owned by the corporation's disinterested stockholders,
whom the Act defines as (1) the acquiring person, (2) the corporation's officers
and (3) employees of the corporation who are also directors. Control shares mean
voting shares which, if aggregated with all other voting shares owned by an
acquiring person or which the acquiring person can exercise or direct the
exercise of voting power, would entitle the acquiring person to exercise or
direct the exercise of voting power of shares of the corporation in electing
directors within one of the following ranges of voting power:
- one-tenth or more but less than one-third;
- one-third or more but less than a majority; or
- a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled
to vote as a result of having previously obtained stockholder approval. A
control share acquisition occurs when, subject to some exceptions, a person
directly or indirectly acquires ownership or the power to direct the exercise of
voting power of issued and outstanding control shares. A person who has made or
proposes to make a control share acquisition, upon satisfaction of some specific
conditions, including an undertaking to pay expenses, may compel our board to
call a special meeting of stockholders to be held within 50 days after that
person's demand upon the corporation to consider the voting rights to be
accorded to the control shares. If no request for a meeting is made, we may
present the question at any stockholders' meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to some statutory conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of stockholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights and be entitled to receive in
cash the fair value for their shares of our stock. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is party to the
transaction or to acquisitions approved or exempted by the articles of
incorporation or bylaws of the corporation.
Our bylaws contain a provision exempting from the control share acquisition
statute any and all acquisitions by The Inland Group or any affiliate of The
Inland Group of our shares of stock.
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SHARES ELIGIBLE FOR FUTURE SALE
SHARES TO BE OUTSTANDING OR ISSUABLE UPON EXERCISE OR CONVERSION OF OTHER
OUTSTANDING SECURITIES
Upon the completion of the offering and the consummation of the formation
transactions, we expect to have outstanding 270,020,000 shares of common stock.
This includes:
- the 20,000 shares purchased by our advisor;
and assumes that:
- we sell all 250,000,000 shares of common stock offered on a best
efforts basis in this initial public offering;
- we sell all 20,000,000 shares to be issued under our distribution
reinvestment program described in this offering; and
- that there is no exercise of options which are expected to be
outstanding and exercisable.
In addition, we have reserved:
- 75,000 shares for issuance upon exercise of options which may be
granted under our independent director stock option plan.
Subject to the provisions of our articles of incorporation, we could issue
an undetermined number of shares of our common or preferred stock in the
discretion of our board and without the approval by our stockholders:
- directly for equity interests in real properties; or
- upon exchange of any interests in entities that own our properties or
in other companies we control, which might be issued for equity
interests in real properties.
All of the common stock we are offering by this prospectus will be freely
tradable in the public market, should a public market develop, which we cannot
guarantee, without restriction or limitation under the Securities Act of 1933 by
persons other than our affiliates and soliciting dealers considered
underwriters. However, all common stock issuable by us in this offering and
otherwise will be subject to the restrictions explained under "Description Of
Securities - Restrictions on Ownership and Transfer."
SECURITIES ACT RESTRICTIONS
The common stock owned by our affiliates will be subject to Rule 144
adopted under the Securities Act and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including exemptions contained in Rule 144.
In general, under Rule 144, a person, or persons whose common stock is
aggregated with them in accordance with Rule 144, who has beneficially owned
securities acquired from an issuer or an affiliate of the issuer for at least
one year, would be entitled, within any three-month period, to sell a number of
shares of common stock that does not exceed the greater of (1) 1% of the
then-outstanding number of shares or (2) the average weekly reported trading
volume of the common stock on a national securities
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exchange or market during the four calendar weeks preceding each sale. Sales
under Rule 144 must be transacted in the manner specified by Rule 144 and must
meet requirements for public notice as well as public information about us. Any
person who (1) is not deemed to have been our affiliate at any time during the
three months preceding a sale, and (2) has beneficially owned our common stock
for at least two years, would be entitled to sell the common stock under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
notice requirements or public information requirements of Rule 144. An
affiliate, for purposes of the Securities Act, is a person that directly, or
indirectly, through one or more intermediaries, controls, or is controlled by,
or under common control with, us.
INDEPENDENT DIRECTOR STOCK OPTION PLAN
We have established an independent director stock option plan for the
purpose of attracting and retaining independent directors. See
"Management--Independent Director Stock Option Plan." We will issue in the
aggregate options to purchase 9,000 shares of our common stock to our
independent directors, at the exercise price of $8.95 per share, when, and if,
we have 90,000 shares of common stock issued and outstanding. One-third of the
shares will be exercisable upon their grant. An additional 66,000 shares will be
available for future option grants under the independent director stock option
plan. See "Management--Independent Director Stock Option Plan" for additional
information regarding the independent director stock option plan. Rule 701 under
the Securities Act provides that common stock acquired on the exercise of
outstanding options by affiliates may be resold by them subject to all
provisions of Rule 144 except its one-year minimum holding period. We intend to
register the common stock to be issued under the independent director stock
option plan in a registration statement or statements on SEC Form S-8 or other
appropriate form.
EFFECT OF AVAILABILITY OF SHARES ON MARKET PRICE OF SHARES
Prior to the date of this prospectus, there has been no public market for
our common stock. No assurance can be given that a public market for our common
stock will develop. We cannot predict the effects that future sales of common
stock, including sales under Rule 144, or the availability of common stock for
future sale will have on the market price, if any, prevailing from time to time.
Sales of substantial amounts of our common stock, including shares issued upon
the exercise of options or the perception that these sales could occur, could
adversely affect prevailing market prices of our common stock and impair our
ability to obtain additional capital through the sale of equity securities. See
"Risk Factors--Risks Related to the Offering." For a description of restrictions
on transfers of common stock, see "Description of Securities--Restrictions on
Ownership and Transfer." Also, see the following section regarding registration
rights.
REGISTRATION RIGHTS
In the future we may grant "demand" and/or "piggyback" registration rights
to:
- stockholders receiving our common stock directly in exchange for their
equity interests in assets of theirs we would acquire; and
- persons receiving interests in any real property partnership for their
interests in real properties we would acquire.
"Piggyback" registration rights allow the holder to have his, her or its
shares registered along with our shares ONLY at such time(s) in the future when
we would choose to register some of our shares for financing purposes - that is,
to join with us in the registration of our shares. "Demand" registration rights
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permit the holder of demand rights to REQUIRE us to register with the SEC his,
her or its shares at such time(s) as the holder requests, regardless of any
desire by us to register our own shares for financing purposes, even if we do
not have sufficient capital resources to effect a registration of shares.
These rights will be for registration under the Securities Act of any of
our common stock acquired by them directly. The terms and conditions of any
agreements for registration rights will be negotiated and determined at such
future time as we determine advisable in connection with the acquisition of one
or more properties. Our future granting of registration rights could include
registration of the subject shares at our expense. If that were the case, our
obligation could result in a substantial expense to us at a time when we might
not be able to afford such an expense and could also hinder our future attempts
to obtain financing.
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SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS
Each stockholder is bound by and is deemed to have agreed to the terms of
our organizational documents by his, her or its election to become a stockholder
of our company. Our organizational documents consist of our articles of
incorporation and bylaws. Our directors, including all the independent
directors, reviewed and unanimously ratified our articles of incorporation and
bylaws at our first board meeting, which was required. The following is a
summary of material provisions of our organizational documents and does not
purport to be complete. This summary is qualified in its entirety by specific
reference to the organizational documents filed as exhibits to our registration
statement of which this prospectus is a part. See "Where You Can Find More
Information."
Our articles of incorporation were filed with the State Department of
Assessments and Taxation of Maryland and became operative on March 5, 2003. Our
articles of incorporation were filed in Maryland, and provide that we have
perpetual existence. The bylaws in their present form became operative when our
board approved them on March 5, 2003. Neither our articles of incorporation nor
bylaws have an expiration date. As a result, they will remain operative in their
current form throughout our existence, unless they are amended or we are
dissolved.
ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
The stockholders' rights and related matters are governed by our articles
of incorporation and bylaws and Maryland law. Some provisions of the articles of
incorporation and bylaws, summarized below, may make it more difficult to change
the composition of our board and could have the effect of delaying, deferring,
preventing a change in control of us, including an extraordinary transaction
(such as a merger, tender offer or sale of all or substantially all of our
assets) that might provide a premium price for holders of our common stock.
STOCKHOLDERS' MEETINGS
Our bylaws provide that an annual meeting of the stockholders will be held
on the date and at such time as our board may designate. However, the meeting
will not be held less than 30 days after the delivery of our annual report to
stockholders. The purpose of each annual meeting of the stockholders is to elect
directors and to transact any other proper business. The chairman, the
president, a majority of the directors or a majority of the independent
directors may call a special meeting of the stockholders. The secretary or some
other officer must call a special meeting when stockholders holding 10% or more
of the outstanding shares entitled to vote make a written request for a meeting.
The written request may be in person or by mail and must state the purpose(s) of
the meeting and the matters to be acted upon. We have entered into an agreement
with Inland Real Estate Investment Corporation, our sponsor, which provides that
it will pay for the reasonably estimated cost to prepare and mail a notice of
any special meeting of stockholders requested by the stockholders. The meeting
will be held on a date not less than 15 nor more than 60 days after the
distribution of the notice, at the time and place specified in the notice.
Except as provided in the preceding sentence, we will give notice of any annual
or special meeting of stockholders not less than 10 nor more than 90 days before
the meeting. The notice will state the purpose of the meeting. At any meeting of
the stockholders, each stockholder is entitled to one vote for each share owned
of record on the applicable record date. In general, the presence in person or
by proxy of a majority of the outstanding shares entitled to vote at a meeting
will constitute a quorum. The affirmative vote of a majority of the shares of
our stock, present in person or by proxy at a meeting of stockholders duly
called and at which a quorum is present, will be sufficient, without the
necessity for concurrence by the directors, to elect the directors. A majority
of the votes cast at a meeting of stockholders duly called and at which a quorum
is present will be sufficient to approve any other matter which may properly
come
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before the meeting, unless more than a majority of the votes cast is required by
statute or our articles of incorporation.
BOARD OF DIRECTORS
Our articles of incorporation and bylaws provide that we may not have fewer
than three nor more than eleven directors. Our bylaws currently provide that the
number of directors shall be seven. Our articles of incorporation require that a
majority of our directors must be independent directors. Independent directors
are directors who are not and have not been affiliated with us, our sponsor, or
our advisor, within the two years prior to their becoming our independent
director and who perform no services on our behalf other than as a director. A
vacancy on the board caused by the death, resignation or incapacity of a
director or by an increase in the number of directors, within the limits
described above, may be filled by the vote of a majority of the remaining
directors whether or not the voting directors constitute a quorum. Our articles
of incorporation require that our independent directors must nominate
replacements to vacancies in independent director positions irrespective of how
the vacancy arises. Our bylaws provide that a vacancy on our board caused by an
increase in the number of directors may be filled by a majority of the entire
board; that when a vacancy occurs as a result of the removal of a director by
our stockholders, the vacancy must be filled by a majority vote of our
stockholders; and that any director may resign at any time and may be removed
with or without cause by the affirmative vote of the holders of not less than a
majority of the outstanding shares. Our bylaws provide that the majority of
members of each committee of our board of directors be comprised of independent
directors and that all the members of our audit committee be independent
directors.
Our articles of incorporation provide that a director must have at least
three years of relevant experience and demonstrate the knowledge required to
successfully acquire and manage the type of assets that we intend to acquire. At
least one of our independent directors must have three years of relevant real
estate experience.
STOCKHOLDER VOTING RIGHTS
Each share of our common stock has one vote on each matter submitted to a
vote of stockholders. Shares of common stock do not have cumulative voting
rights or preemptive rights. Stockholders may vote in person or by proxy.
Directors are elected when they receive the majority of votes of holders of
shares present in person or by proxy at a stockholders' meeting, provided there
was a quorum when the meeting commenced. A quorum is reached when the
stockholders holding a majority of the outstanding shares entitled to vote are
present either in person or represented by proxy. All questions other than
election of directors, removal of a director or directors and except as set
forth below must be decided by a majority of the votes cast at a meeting at
which a quorum is present. Maryland law provides that any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting by the unanimous written consent of all stockholders (which may be
impracticable for a publicly held corporation).
The approval by our board and by holders of at least a majority of our
outstanding voting shares of stock is necessary for us to do any of the
following:
- amend our articles of incorporation, except to increase or decrease
authorized stock as permitted by Maryland law;
- transfer all or substantially all of our assets other than in the
ordinary course of business;
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- engage in mergers, consolidations or share exchanges, except in
certain circumstances; or
- dissolve or liquidate.
Our articles of incorporation provide that a sale of two-thirds or more of
our assets, based on the total number or the current fair market value of
properties and mortgages we own, is a sale of substantially all of our assets.
See "Description of Securities -- Common Stock" for an explanation of instances
where stockholder approval is not required.
Our articles of incorporation provide that neither the advisor, the
sponsor, the directors, nor any affiliate may vote their shares of stock or
consent on matters submitted to the stockholders regarding the removal of the
advisor, the sponsor, the directors or any affiliate or any transaction between
us and any of them. For purposes of determining the necessary percentage and
interest of shares needed to approve a matter on which the advisor, the sponsor,
the directors and any affiliate may not vote or consent, the shares of our
common stock owned by them will not be included.
RIGHTS OF OBJECTING STOCKHOLDERS
As permitted by Maryland law, our articles of incorporation provide that
our stockholders are not entitled to exercise any rights of an objecting
stockholder provided for under Maryland law. As a result of this provision, our
stockholders will not have any right to dissent under Maryland law to an
extraordinary transaction, such as the merger of our company into another
company or the sale of all or substantially all of our assets, and in the
proceedings to receive a cash payment representing the fair value of their
shares of our common stock.
STOCKHOLDER LISTS; INSPECTION OF BOOKS AND RECORDS
Any stockholder or his designated representative will be permitted access
to all of our records at all reasonable times and may inspect and copy any of
them for the purposes specified below. We maintain an alphabetical list of
names, record addresses and business telephone numbers, if any, of all
stockholders with the number of shares held by each at our principal office. The
stockholder list is updated at least quarterly and is open for inspection by a
stockholder or his designated agent at the stockholder's request. A stockholder
may request a copy of the stockholder list to find out about matters relating to
the stockholder's voting rights and their exercise under federal proxy laws. We
will mail the stockholder list to any stockholder requesting it within 10 days
of receiving the request. We may impose a reasonable charge for expenses
incurred in reproducing the list.
If our advisor or directors neglect or refuse to produce or mail a copy of
the stockholder list as requested, then in accordance with applicable law and
our articles of incorporation, the advisor and the directors will be liable to
the stockholder who requested the list. Their liability will include the costs,
including reasonable attorneys' fees, incurred by the stockholder in compelling
the production of the list and actual damages suffered by the stockholder
because of the refusal or neglect. However, the fact that the actual purpose of
the request is to secure the list for the purpose of selling it, or using it for
a commercial or other purpose is a defense against liability for refusal to
supply the list. We may require the stockholder requesting the list to represent
that the stockholder list is not requested for a commercial purpose unrelated to
the stockholder's interest in us.
In addition, our books and records are open for inspection by state
securities administrators upon reasonable notice and during normal business
hours at our principal place of business.
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AMENDMENT OF THE ORGANIZATIONAL DOCUMENTS
Our articles of incorporation may be amended, after approval by our board,
by the affirmative vote of a majority of our then-outstanding voting shares of
stock. Our bylaws may be amended in a manner not inconsistent with the articles
of incorporation and bylaws by a majority vote of our directors present at the
board meeting.
DISSOLUTION OR TERMINATION OF THE COMPANY
As a Maryland corporation, we may be dissolved under Maryland law at any
time with the approval of a majority of our outstanding shares of stock.
However, we anticipate that by September 15, 2008, our board will determine
whether to:
- apply to have our shares of common stock listed for trading on a
national stock exchange or included for quotation on a national market
system, provided we meet the then applicable listing requirements;
and/or
- commence subsequent offerings after completion of the offering.
If listing our shares of common stock is not feasible by that time, our
board may decide to:
- sell our assets individually, provided, however, that if this action
would constitute the sale of all or substantially all of our assets,
such an action is approved by the holders of at least a majority of
the then-outstanding voting shares of stock;
- list our shares of common stock at a future date; or
- liquidate us within 10 years of such date, provided however, that such
an action is approved by the holders of at least a majority of our
then-outstanding voting shares of stock.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
Our bylaws provide that, with respect to our annual meeting of
stockholders, nominations for election to our board and the proposal of business
to be considered by stockholders may be made only:
- in accordance with our notice of the meeting;
- by or at the direction of our board; or
- by a stockholder who was a stockholder of record both at the time of
the giving of notice and at the time of the meeting, who is entitled
to vote at the meeting and who has complied with the advance notice
procedures set forth in the bylaws.
Our bylaws also provide that, with respect to special meetings of
stockholders, only the business specified in our notice of meeting may be
brought before a meeting of stockholders and nominations for election to the
board may be made only:
- in accordance with our notice of the meeting;
- by or at the direction of our board; or
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- provided that our board has determined that directors will be elected
at the meeting, by a stockholder who was a stockholder of record both
at the time of the giving of notice and at the time of the annual
meeting, who is entitled to vote at the meeting and has complied with
the advance notice procedures set forth in our bylaws.
A stockholder's notice for an annual meeting must be delivered to our secretary
at our principal executive offices:
- not less than 45 days prior to the first anniversary of the date of
mailing of the notice of the previous year's annual meeting; or
- if the number of directors to be elected is increased and there is no
announcement of that fact, at least 70 days before the first
anniversary of the date of mailing of the notice of the previous
year's annual meeting, or not later than the close of business on the
tenth day of our first public announcement.
A stockholder's notice for a special meeting must be delivered to our secretary
at our principal executive offices:
- not earlier than the ninetieth day prior to the special meeting, and
- not later than the close of business on the later of either:
- the sixtieth day prior to the special meeting; or
- the tenth day following the day of our first public announcement
of the date of the special meeting and the nominees proposed by
our board to be elected at the meeting.
RESTRICTIONS ON CERTAIN CONVERSION TRANSACTIONS AND ROLL-UPS
Our articles of incorporation require that some transactions involving an
acquisition, merger, conversion or consolidation in which our stockholders
receive securities in a surviving entity, a roll-up entity, must be approved by
the holders of a majority of our then-outstanding shares. Approval by a majority
of our then-outstanding shares for a transaction resulting in a roll-up entity
is only required, however, until our board determines that it is no longer in
our best interest to attempt or continue to qualify as a REIT. The holders of a
majority of the shares do not need to approve any such transaction effected
because of changes in applicable law, or to preserve tax advantages for a
majority in interest of our stockholders.
A roll-up entity is a partnership, REIT, corporation, trust or other entity
that would be created or would survive after the successful completion of a
proposed roll-up transaction. A roll-up does not include (1) a transaction
involving securities that have been listed on a national securities exchange or
traded through The Nasdaq Stock Market -- Nasdaq National Market for at least 12
months, or (2) a transaction involving our conversion to a trust or association
form if, as a consequence of the transaction, there will be no significant
adverse change in any of the following:
- stockholders' voting rights;
- our term and existence;
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- sponsor or advisor compensation; or
- our investment objectives.
In the event of a proposed roll-up, an appraisal of all our assets must be
obtained from a person with no current or prior business or personal
relationship with our advisor or directors. Further, that person must be
substantially engaged in the business of rendering valuation opinions of assets
of the kind we hold. The appraisal must be included in a prospectus used to
offer the securities of a roll-up entity. It must also be filed with the
Securities and Exchange Commission and the state regulatory commissions as an
exhibit to the registration statement for the offering of the roll-up entity's
shares. As a result, an issuer using the appraisal will be subject to liability
for violation of Section 11 of the Securities Act and comparable provisions
under state laws for any material misrepresentations or material omissions in
the appraisal. Our assets will be appraised in a consistent manner and the
appraisal will:
- be based on an evaluation of all relevant information;
- indicate the value of our assets as of a date immediately prior to the
announcement of the proposed roll-up transaction; and
- assume an orderly liquidation of our assets over a 12-month period.
The terms of the engagement of the appraiser will clearly state that the
engagement is for the benefit of us and our stockholders. A summary of the
independent appraisal, indicating all material assumptions underlying it, will
be included in a report to the stockholders in the event of a proposed roll-up.
We may not participate in any proposed roll-up which would:
- result in the stockholders of the roll-up entity having rights which
are more restrictive to stockholders than those provided in our
articles of incorporation, including any restriction on the frequency
of meetings;
- result in the stockholders having less comprehensive voting rights
than are provided in our articles of incorporation;
- result in the stockholders having greater liability than provided in
our articles of incorporation;
- result in the stockholders having fewer rights to receive reports than
those provided in our articles of incorporation;
- result in the stockholders having access to records that are more
limited than those provided for in our articles of incorporation;
- include provisions which would operate to materially impede or
frustrate the accumulation of shares by any purchaser of the
securities of the roll-up entity, except to the minimum extent
necessary to preserve the tax status of the roll-up entity;
- limit the ability of an investor to exercise its voting rights in the
roll-up entity on the basis of the number of the shares held by that
investor;
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- result in investors in the roll-up having less comprehensive rights of
access to the records of the roll-up than those provided in our
articles of incorporation; or
- place any of the costs of the transaction on us if the roll-up is not
approved by our stockholders.
However, with the prior approval of a majority of our then-outstanding shares of
our stock, we may participate in a proposed roll-up if the stockholders would
have rights and be subject to restrictions comparable to those contained in our
articles of incorporation.
Stockholders who vote "no" on the proposed roll-up will have the choice of:
- accepting the securities of the roll-up entity offered; or
- one of either:
- remaining as our stockholders and preserving their interests on
the same terms and conditions as previously existed; or
- receiving cash in an amount equal to their pro rata share of the
appraised value of our net assets.
These provisions in our articles of incorporation, bylaws and Maryland law
could have the effect of delaying, deferring or preventing a change in control
of us, including an extraordinary transaction (such as a merger, tender offer or
sale of all or substantially all of our assets) that might provide a premium
price for holders of our common stock.
The limitations and restrictions set forth below under " -- Limitation on
Total Operating Expenses," " -- Transactions with Affiliates," and " --
Restrictions on Borrowing" in this section will be effective until our board
determines that it is no longer in our or our stockholders' best interests that
we continue to operate as a REIT, or until such time as we fail to qualify as a
REIT.
LIMITATION ON TOTAL OPERATING EXPENSES
Our articles of incorporation provide that, subject to the conditions
described in the following paragraph, our annual total operating expenses in any
fiscal year shall not exceed the greater of 2% of our average assets or 25% of
our net income, before any additions to or allowances for reserves for
depreciation, amortization or bad debts or other similar non-cash reserve and
before any gain from the sale of an our assets. Our independent directors have a
fiduciary responsibility to limit our annual total operating expenses to amounts
that do not exceed these limits. Our independent directors may, however,
determine that a higher level of total operating expenses is justified for such
period because of unusual and non-recurring expenses. Such a finding by our
independent directors and the reasons supporting it shall be recorded in our
minutes of meetings of our directors. If at the end of any fiscal quarter our
total operating expenses for the 12 months then ended are more than 2% of
average assets or more than 25% of net income, before any additions to or
allowances for reserves for depreciation, amortization or bad debts or other
similar non-cash revenues and before any gain from the sale of our assets,
whichever is greater, as described above, we will disclose this in writing to
the stockholders within 60 days of the end of the fiscal quarter. If our
independent directors conclude that higher total operating expenses are
justified, the disclosure will also contain an explanation of the conclusion. If
total operating expenses exceed the limitations described above and if our
directors are unable to conclude that the excess was justified, then the advisor
will reimburse us the amount by which the aggregate annual total operating
expenses we paid
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or incurred exceed the limitation. We must make the reimbursement within 60 days
after the end of the fiscal year.
TRANSACTIONS WITH AFFILIATES
Our articles of incorporation impose restrictions on transactions between
us and our advisor, sponsor and any director or their affiliates as follows:
- SALES AND LEASES TO US. We will not purchase property from our
sponsor, advisor, directors or any of their affiliates, unless a
majority or our disinterested directors, including a majority of our
disinterested independent directors, approves it as fair and
reasonable for us. The price to us can be no greater than the cost of
the asset to our sponsor, adviser, director or their affiliate. If our
price to us is greater than such cost, there must be substantial,
reasonable justification for the excess cost. In no event will our
cost for the property exceed its appraised value at the time we
acquired it.
- SALES AND LEASES TO SPONSOR, ADVISOR, DIRECTOR OR ANY AFFILIATE. Our
sponsor, advisor, directors or any of their affiliates will not
acquire assets from us unless a majority of disinterested directors,
including a majority of our disinterested independent directors,
approves the transaction as being fair and reasonable to us. We may
lease assets to our sponsor, advisor, director or any of their
affiliates, but still only if a majority of our disinterested
directors, including a majority of our disinterested independent
directors, approves it as fair and reasonable to us.
- LOANS. We will not make loans to our sponsor, advisor, directors or
any of their affiliates except as provided in clauses (4) and (6)
under " -- Restrictions on Investments" below in this section, or to
our wholly owned subsidiaries. Also, we may not borrow money from our
sponsor, advisor, director or any of their affiliates, unless a
majority of our disinterested directors, including a majority of our
disinterested independent directors, approves the transaction as fair,
competitive and commercially reasonable and no less favorable to us
than loans between unaffiliated parties under the same circumstances.
- INVESTMENTS. We will not invest in joint ventures with our sponsor,
advisor, directors or any of their affiliates, unless a majority of
our disinterested directors, including a majority of our disinterested
independent directors, approves the transaction as fair and reasonable
to us and on substantially the same terms and conditions as those
received by the other joint ventures. Neither can we invest in equity
securities unless a majority of our disinterested directors, including
a majority of our disinterested independent directors, approves the
transaction as being fair, competitive and commercially reasonable.
- OTHER TRANSACTIONS. All other transactions between us and our sponsor,
advisor, directors or any of their affiliates, require approval by a
majority of our disinterested directors, including a majority of our
disinterested independent directors, as being fair and reasonable and
on terms and conditions not less favorable to us than those available
from unaffiliated third parties.
RESTRICTIONS ON BORROWING
We may not incur indebtedness to enable us to make distributions except as
necessary to satisfy the requirement to distribute at least the percentage of
our REIT taxable income required for annual distribution of dividends by the
Internal Revenue Code of 1986, or otherwise as necessary or advisable to
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ensure that we maintain our qualification as a REIT for federal income tax
purposes. Our aggregate borrowings, secured and unsecured, will be reasonable in
relation to our net assets and will be reviewed by our board at least quarterly.
We anticipate that, in general, aggregate borrowings secured by all our
properties will not exceed 55% of their combined fair market value. This
anticipated amount of leverage will be achieved over time. Our articles of
incorporation provide that the aggregate amount of borrowing in relation to our
net assets will, in the absence of a satisfactory showing that a higher level of
borrowing is appropriate, not exceed 300% of net assets. Any excess in borrowing
over such 300% of net assets level will be:
approved by a majority of our independent directors;
- disclosed to our stockholders in our next quarterly report to them,
along with justification for such excess; and
- subject to approval of our stockholders.
See "Investment Objectives and Policies -- Borrowing."
RESTRICTIONS ON INVESTMENTS
The investment policies set forth in our articles of incorporation have
been approved by a majority of independent directors. Our articles of
incorporation prohibit our investments in:
- any foreign currency or bullion;
- short sales; and
- any security in any entity holding investments or engaging in
activities prohibited by our articles of incorporation.
In addition to other investment restrictions imposed by our directors from
time to time consistent with our objective to qualify as a REIT, we will observe
the following restrictions on our investments as set forth in our articles of
incorporation:
(1) Not more than 10% of our total assets will be invested in unimproved
real property or mortgage loans on unimproved real property. For
purposes of this paragraph, "unimproved real property" does not
include properties acquired for the purpose of producing rental or
other operating income, properties under development or construction,
and properties under contract for development or in planning for
development within one year.
(2) We will not invest in commodities or commodity future contracts. This
limitation does not apply to interest rate futures when used solely
for hedging purposes.
(3) We will not invest in contracts for the sale of real estate.
(4) We will not invest in or make mortgage loans unless we obtain an
appraisal of the underlying property. Mortgage indebtedness on any
property will not exceed the property's appraised value. In cases in
which the majority of independent directors so determine, and in all
cases in which the mortgage loan involves our advisor, sponsor,
directors or their affiliates, we must obtain the appraisal from an
independent expert. We
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will keep the appraisal in our records for at least five years, where
it will be available for inspection and duplication by any
stockholder. In addition to the appraisal, we will also obtain a
mortgagee's or owner's title insurance policy or commitment as to the
priority of the mortgage or condition of the title. We will not invest
in real estate contracts of sale otherwise known as land sale
contracts.
(5) We will not make or invest in mortgage loans, including construction
loans, on any one property if the aggregate amount of all outstanding
mortgage loans outstanding on the property, including our loans, would
exceed an amount equal to 85% of the appraised value of the property.
However, if there is substantial justification due to other
underwriting criteria and provided that loans would not exceed the
appraised value of the property at the date of the loans, we could
invest in mortgage loans that exceed 85% of the appraised value of the
property. The aggregate amount of all mortgage loans outstanding on
the property, including the loans of the REIT, shall include all
interest (excluding contingent participation in income and/or
appreciation in value of the mortgaged property), the current payment
of which may be deferred pursuant to the terms of such loans, to the
extent that deferred interest on each loan exceeds 5% per annum of the
principal balance of the loan.
(6) We will not make or invest in any mortgage loans that are subordinate
to any mortgage or equity interest of the advisor, the sponsor, any
director or their affiliates.
(7) We will not invest in equity securities unless a majority of our
disinterested directors, including a majority of our disinterested
independent directors, approves the transaction as being fair,
competitive and commercially reasonable. Investments in entities
affiliated with our advisor, the sponsor, any director or their
affiliates are subject to the restrictions on joint venture
investments. Notwithstanding these restrictions, we may purchase our
own securities when traded on a national securities exchange or market
if a majority of our directors, including a majority of our
independent directors, determines the purchase to be in our best
interests.
(8) We will not engage in any short sale nor will we borrow on an
unsecured basis if the borrowing will result in an asset coverage of
less than 300%.
(9) To the extent we invest in properties, a majority of the directors,
including a majority of the independent directors, will approve the
consideration paid for such properties based on the fair market value
of the properties. If a majority of independent directors so
determines, the fair market value will be determined by a qualified
independent real estate appraiser selected by our independent
directors. If any property is acquired from our sponsor, our advisor,
any director, or any of their affiliates, the provisions on
transactions with affiliates will apply.
(10) We will not invest in debt that is secured by a mortgage on real
property that is subordinate to the lien of other debt, except where
the amount of total debt does not exceed 90% of the appraised value of
the property. The value of all of these investments may not exceed 25%
of our tangible assets. The value of all investments in this debt that
does not meet these requirements will be limited to 10% of our
tangible assets, which would be included within the 25% limitation.
(11) We will not engage in trading, as compared with investment,
activities.
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(12) We will not engage in underwriting activities, or distribute as agent,
securities issued by others.
(13) We will not acquire securities in any entity holding investments or
engaging in activities prohibited by the restrictions on investments
set forth in the foregoing clauses (1) through (12). Temporary
investments in cash may be in such entities.
Our independent directors will review our investment policies at least
annually to determine whether our policies that we are following are in the best
interests of our stockholders. Subject to the above restrictions and so long as
we qualify as a REIT, a majority of our directors, including a majority of our
independent directors, may alter the investment policies if they determine that
a change is in our best interests.
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FEDERAL INCOME TAX CONSIDERATIONS
We intend to qualify as a REIT under the applicable provisions of the
Internal Revenue Code of 1986, as amended, and the Treasury regulations
promulgated thereunder and receive the beneficial federal income tax treatment
described below. However, we cannot assure you that we will meet the applicable
requirements under federal income tax laws, which are highly technical and
complex. The following discusses the applicable requirements under federal
income tax laws, the federal income tax consequences to maintaining REIT status
and the material federal income tax consequences to you. Duane Morris LLP has
acted and will act as our tax counsel in connection with our election to be
taxed as a REIT, and has rendered the opinion set forth below. Some of the
federal income tax implications of your investment are set forth in the
"--Federal Income Taxation of Stockholders" section below. We, however, urge you
to consult your tax advisor with respect to the federal, state, local, foreign
and other tax consequences of the purchase, ownership and disposition of common
shares which may be particular to your tax situation.
In brief, a corporation that invests primarily in real estate can, if it
complies with the provisions in Sections 856-860 of the Internal Revenue Code,
qualify as a REIT and claim federal income tax deductions for the dividends it
pays to its stockholders. Such a corporation generally is not taxed on its net
income that is currently distributed to its shareholders. This treatment
substantially eliminates the "double taxation" that a corporation and its
shareholders generally bear together. However, as discussed in greater detail
below, a corporation could be subject to federal income tax in some
circumstances even if it qualifies as a REIT, and would likely suffer adverse
consequences, including reduced cash available for distribution to its
stockholders, if it failed to qualify as a REIT. We intend to operate in a
manner that permits us to elect REIT status for the taxable year ending December
31, 2003, and to maintain this status in each taxable year thereafter, so long
as REIT status remains advantageous.
Duane Morris LLP is of the opinion, assuming that the actions described in
this section are completed on a timely basis and we timely file the requisite
elections, that we have been organized in conformity with the requirements for
qualification as a REIT beginning with our taxable year ending December 31,
2003, and our proposed method of operation (as described in this prospectus)
will enable us to satisfy the applicable requirements under federal income tax
laws for qualification as a REIT. This opinion has been filed as an exhibit to
the registration statement of which this prospectus is a part, and is based and
conditioned, in part, on various assumptions made by Duane Morris LLP and
representations made to Duane Morris LLP by us and the advisor as to factual
matters. Our qualification and federal income tax treatment as a REIT depends
upon our ability to meet, through operation of the properties we acquire and our
investment in other assets, the applicable requirements under federal income tax
laws. Duane Morris LLP has not reviewed, and will not in the future review,
these operating results for compliance with the applicable requirements under
federal income tax laws. Therefore, we cannot assure you that our actual
operating results will allow us to satisfy the applicable requirements under
federal income tax laws in any taxable year. In addition, this opinion
represents Duane Morris LLP's legal judgment and is not binding on the Internal
Revenue Service.
FEDERAL INCOME TAXATION AS A REIT
GENERAL. In any year in which we qualify as a REIT and have a valid
election in place, we will claim deductions for the dividends we pay to the
stockholders, and therefore will not be subject to federal income tax on that
portion of our REIT Taxable Income as defined Section 857(b)(2) of the Internal
Revenue Code or REIT capital gain which is distributed to our stockholders. We
will, however, be subject to federal income tax at normal corporate rates on any
REIT Taxable Income or capital gain not distributed.
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Although we can eliminate or substantially reduce our federal income tax
liability by maintaining our REIT status and paying sufficient dividends, we
could be subject to federal income tax on certain items of income. If we fail to
satisfy either the 95% Gross Income Test or the 75% Gross Income Test (each of
which is described below), yet maintain our REIT status by meeting other
requirements, we will be subject to a penalty tax based on the amount of income
which caused us to fail these tests, as described below. We will also be subject
to a 100% federal income tax on the net income from any "prohibited
transaction," as described below. In addition, in order to retain our REIT
status, we generally must distribute annually at least 90% of our REIT Taxable
Income for such year. While we are not required to distribute REIT net capital
gain income for any year in order to retain our REIT status, we will pay tax on
such income to the extent we do not distribute it in such year. We may also be
subject to the corporate alternative minimum tax. Additionally, we will be
subject to federal income tax at the highest corporate rate on certain
"nonqualifying" income from foreclosure property. In general, foreclosure
property consists of property acquired (by foreclosure or otherwise) in
connection with the default of a loan secured by such property.
REIT QUALIFICATION TESTS. The Code defines a REIT as a corporation, trust
or association:
- that is managed by one or more trustees or directors;
- the beneficial ownership of which is evidenced by transferable shares
or by transferable certificates of beneficial interest;
- that would be taxable as a domestic corporation but for its status as
a REIT;
- that is neither a financial institution nor an insurance company;
- the beneficial ownership of which is held by 100 or more persons on at
least 335 days in each full taxable year, proportionately adjusted for
a partial taxable year;
- generally in which, at any time during the last half of each taxable
year, no more than 50% in value of the outstanding stock is owned,
directly, or indirectly, by five or fewer individuals or certain
entities; and
- that meets the gross income, asset and annual distribution
requirements, described in greater detail below.
The first four and last conditions must be met during each taxable year for
which REIT status is sought, while the other two conditions do not have to be
met until after the first taxable year for which a REIT election is made.
Although the 25% Asset Test (as defined below) generally prevents a REIT
from owning more than 10% of the voting stock of an entity other than another
REIT, the Internal Revenue Code provides an exception for ownership of voting
stock in a "qualified REIT subsidiary." A qualified REIT subsidiary is a
corporation that is wholly owned by a REIT throughout its existence. For
purposes of the 25% Asset Test and the Gross Income Tests described below, all
assets, liabilities and tax attributes of a qualified REIT subsidiary are
treated as owned by the REIT. A qualified REIT subsidiary is not subject to
federal income tax, but may be subject to state or local tax. We may hold
investments through qualified REIT subsidiaries.
We, in satisfying the general tests described above, must meet, among
others, the following requirements:
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- SHARE OWNERSHIP TESTS. The common stock and any other stock we issue must
be held by a minimum of 100 persons (determined without attribution to the
owners of any entity owning our stock) for at least 335 days in each full
taxable year, proportionately adjusted for partial taxable years. In
addition, at all times during the second half of each taxable year, no more
than 50% in value of our stock may be owned, directly or indirectly, by
five or fewer individuals (determined with attribution to the owners of any
entity owning our stock). However, these two requirements do not apply
until after the first taxable year an entity elects REIT status. In
addition, our articles of incorporation contain provisions restricting the
transfer of our stock, which provisions are intended to assist us in
satisfying both requirements. Furthermore, the distribution reinvestment
program contains provisions that prevent it from causing a violation of
these tests as do the terms of the options granted to the independent
directors and the warrants issuable to the dealer manager and soliciting
dealers. Pursuant to the applicable requirements under federal income tax
laws, we will maintain records which disclose the actual ownership of the
outstanding stock, and demand written statements each year from the record
holders of specified percentages of the stock disclosing the beneficial
owners. Those stockholders failing or refusing to comply with our written
demand are required by the Internal Revenue Code and our articles of
incorporation to submit, with their tax returns, a similar statement
disclosing the actual ownership of stock and certain other information. See
"Description of Securities--Restrictions on ownership and transfer."
- ASSET TESTS. We must satisfy, at the close of each calendar quarter of the
taxable year, two tests based on the composition of our assets. After
initially meeting the Asset Tests at the close of any quarter, we will not
lose our status as a REIT for failure to satisfy the Asset Tests at the end
of a later quarter solely due to changes in value of our assets. In
addition, if the failure to satisfy the Asset Tests results from an
acquisition during a quarter, the failure can be cured by disposing of
nonqualifying assets within 30 days after the close of that quarter. We
intend to maintain adequate records of the value of our assets to insure
compliance with these tests, and will act within 30 days after the close of
any quarter as may be required to cure any noncompliance.
75% ASSET TEST. At least 75% of the value of our assets must be
represented by "real estate assets," cash, cash items (including
receivables) and government securities. Real estate assets include (i) real
property (including interests in real property and interests in mortgages
on real property), (ii) shares in other qualifying REITs, and (iii) any
property (not otherwise a real estate asset) attributable to the temporary
investment of "new capital" in stock or a debt instrument, but only for the
one-year period beginning on the date we received the new capital. Property
will qualify as being attributable to the temporary investment of new
capital if the money used to purchase the stock or debt instrument is
received by us in exchange for our stock (other than amounts received
pursuant to our distribution reinvestment program) or in a public offering
of debt obligations that have a maturity of at least five years.
Additionally, regular and residual interests in a real estate mortgage
investment conduit, known as a REMIC, and regular interests in a financial
asset securitization trust, known as a FASIT, are considered real estate
assets. However, if less than 95% of the assets of a REMIC or FASIT are
real estate assets, we will be treated as holding a proportionate share of
the assets and income of the REMIC or FASIT directly.
When we purchase new real estate properties, we intend that the
purchase contracts will apportion no more than 5% of the purchase price of
any property to property other than "real property," as defined in the
Code. In addition, we intend to invest funds not used to acquire properties
in cash sources, "new capital" investments or other liquid investments
which will allow us to qualify under the 75% Asset Test. Therefore, our
investment in the real properties will constitute "real estate assets" and
should allow us to meet the 75% Asset Test.
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25% ASSET TEST. The remaining 25% of our assets may generally be
invested subject to the following restrictions: If we invest in any
securities that do not qualify under the 75% Asset Test, such securities
may not exceed either (i) 5% of the value of our assets as to any one
issuer; or (ii) 10% of the outstanding securities by vote or value of any
one issuer.
Modifications apply to the 25% Asset Test for qualified REIT
subsidiaries and taxable REIT subsidiaries. As discussed above, the stock
of a "qualified REIT subsidiary" is not counted for purposes of the 25%
Asset Test. A qualified REIT subsidiary is a corporation that is wholly
owned by a REIT throughout the subsidiary's existence. All assets,
liabilities and tax attributes of a qualified REIT subsidiary are treated
as belonging to the REIT. A qualified REIT subsidiary is not subject to
federal income tax, but may be subject to state or local tax. We may hold
investments through qualified REIT subsidiaries.
Additionally, for purposes of the 25% Asset Test, securities of a
taxable REIT subsidiary are excepted from the 10% vote and value
limitations on a REIT's ownership of securities of a single issuer.
However, no more than 20% of the value of a REIT may be represented by
securities of one or more taxable REIT subsidiaries. A taxable REIT
subsidiary is a corporation (other than another REIT) that is owned in
whole or in part by a REIT, and joins in an election with the REIT to be
classified as a taxable REIT subsidiary. Corporations that directly or
indirectly operate or manage lodging or health care facilities cannot be
taxable REIT subsidiaries. A corporation that is 35% owned by a taxable
REIT subsidiary will also be treated as a taxable REIT subsidiary. A
taxable REIT subsidiary may not be a qualified REIT subsidiary, and vice
versa. As described below regarding the 75% Gross Income Test, a taxable
REIT subsidiary is utilized in much the same way an independent contractor
is used to provide certain types of services without causing the REIT to
receive or accrue certain types of non-qualifying income. In addition to
utilizing independent contractors to provide certain services in connection
with the operation of our properties, we may also utilize taxable REIT
subsidiaries to carry out these functions.
We intend to invest funds not otherwise invested in properties in cash
sources and other liquid investments in a manner which will enable us to
satisfy the 25% Asset Test.
GROSS INCOME TESTS. We must satisfy for each calendar year two separate
tests based on the composition of our gross income, as defined under our method
of accounting.
THE 75% GROSS INCOME TEST. At least 75% of our gross income for the
taxable year must result from (i) rents from real property, (ii) interest
on obligations secured by mortgages on real property or on interests in
real property, (iii) gains from the sale or other disposition of real
property (including interests in real property and interests in mortgages
on real property) other than property held primarily for sale to customers
in the ordinary course of our trade or business, (iv) dividends from other
qualifying REITs and gain (other than gain from prohibited transactions)
from the sale of shares of other qualifying REITs, (v) other specified
investments relating to real property or mortgages thereon, and, (vi) for a
limited time, qualified temporary investment income, as defined under the
75% Asset Test. We intend to invest funds not otherwise invested in real
properties in cash sources or other liquid investments in a manner that
will allow us to qualify under the 75% Gross Income Test.
Income attributable to a lease of real property will generally qualify
as "rents from real property" under the 75% Gross Income Test (and the 95%
Gross Income Test, described below), subject to the rules discussed below:
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- Rent from a particular tenant will not qualify if we, or an owner of
10% or more of our stock, directly or indirectly, owns 10% or more of
the voting stock or the total number of shares of all classes of stock
in, or 10% or more assets or net profits of, the tenant.
- The portion of rent attributable to personal property rented in
connection with real property will not qualify, unless the portion
attributable to personal property is 15% or less of the total rent
received under, or in connection with, the lease.
- Generally, rent will not qualify if it is based in whole, or in part,
on the income or profits of any person from the underlying property.
However, rent will not fail to qualify if it is based on a fixed
percentage (or designated varying percentages) of receipts or sales,
including amounts above a base amount so long as the base amount is
fixed at the time the lease is entered into, the provisions are in
accordance with normal business practice and the arrangement is not an
indirect method for basing rent on income or profits.
- Rental income will not qualify if we furnish or render services to
tenants or manage or operate the underlying property, other than
through a permissible "independent contractor" from whom we derive no
revenue, or through a taxable REIT subsidiary. This requirement,
however, does not apply to the extent that the services, management or
operations we provide are "usually or customarily rendered" in
connection with the rental of space, and are not otherwise considered
"rendered to the occupant."
With respect to the "usual or customarily rendered" rule, our tenants will
receive some services in connection with their leases to the real properties. We
believe that the services to be provided are usually or customarily rendered in
connection with the rental of the properties, and, therefore, that providing
these services will not cause the rents we receive with respect to the
properties to fail to qualify as rents from real property for purposes of the
75% Gross Income Test (and the 95% Gross Income Test, described below). The
board of directors intends to hire qualifying independent contractors or to
utilize taxable REIT subsidiaries to render services which it believes, after
consultation with Duane Morris LLP, are not usually or customarily rendered in
connection with the rental of space.
THE 95% GROSS INCOME TEST. In addition to deriving 75% of our gross income
from the sources listed above, at least 95% of our gross income (excluding gross
income from prohibited transactions) for the taxable year must be derived from
(i) sources which satisfy the 75% Gross Income Test, (ii) dividends, (iii)
interest, or (iv) gain from the sale or disposition of stock or other securities
that are not assets held primarily for sale to customers in the ordinary course
of our trade or business. It is important to note that dividends and interest on
obligations not collateralized by an interest in real property qualify under the
95% Gross Income Test, but not under the 75% Gross Income Test. We intend to
invest funds not otherwise invested in properties in cash sources or other
liquid investments which will allow us to qualify under the 95% Gross Income
Test.
Our share of income from the properties will primarily give rise to rental
income and gains on sales of the properties, substantially all of which will
generally qualify under the 75% gross income and 95% Gross Income Tests. Our
anticipated operations indicate that it is likely that we will have little or no
nonqualifying income to cause adverse federal income tax consequences.
If we fail to satisfy either the 75% Gross Income Test or the 95% Gross
Income Test for any taxable year, we may retain our status as a REIT for such
year if we satisfy the Internal Revenue Service that: (i) the failure was due to
reasonable cause and not due to willful neglect, (ii) we attach to our return a
schedule describing the nature and amount of each item of our gross income, and
(iii) any incorrect information on such schedule was not due to fraud with
intent to evade federal income tax. If this relief
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provision is available, we would remain subject to a 100% tax based upon the
amount by which we failed the 75% Gross Income Test or the 95% Gross Income
Test.
ANNUAL DISTRIBUTION REQUIREMENTS. In addition to the other tests described
above, we are required to distribute dividends (other than capital gain
dividends) to the stockholders each year in an amount at least equal to the
excess of: (1) the sum of: (a) 90% of our REIT Taxable Income (determined
without regard to the deduction for dividends paid and by excluding any net
capital gain); and (b) 90% of the excess of the net income (after tax) from
foreclosure property; less (2) the sum of certain types of items of non-cash
income. Whether sufficient amounts have been distributed is based on amounts
paid in the taxable year to which they relate, or in the following taxable year
if we: (1) declare a dividend before the due date of our tax return (including
extensions), (2) distribute the dividend within the 12-month period following
the close of the taxable year (and not later than the date of the first regular
dividend payment made after such declaration), and (3) file an election with our
tax return. Additionally, dividends that we declare in October, November or
December in a given year payable to stockholders of record in any such month
will be treated as having been paid on December 31 of that year so long as the
dividends are actually paid during January of the following year. If we fail to
meet the annual distribution requirements as a result of an adjustment to our
federal income tax return by the Internal Revenue Service, we may cure the
failure by paying a "deficiency dividend" (plus penalties and interest to the
Internal Revenue Service) within a specified period.
If we do not distribute all of our net capital gain or distribute at least
90%, but less than 100% of our REIT Taxable Income, we will be subject to
federal income tax on the undistributed portion. Furthermore, to the extent that
we fail to distribute by year end at least the sum of: (1) 85% of our REIT
Taxable Income for such year; (2) 95% of our REIT capital gain net income for
such year; and (3) any undistributed taxable income from prior years, we would
be subject to an excise tax equal to 4% of the difference between the amount
required to be distributed under this formula and the amount actually
distributed.
We intend to pay sufficient dividends each year to satisfy the annual
distribution requirements and avoid federal income tax on net capital gains. It
is possible that we may not have sufficient cash or other liquid assets to meet
the annual distribution requirements due to tax accounting rules and other
timing differences. We will closely monitor the relationship between our REIT
Taxable Income and cash flow and, if necessary to comply with the annual
distribution requirements, will borrow funds to fully provide the necessary cash
flow.
FAILURE TO QUALIFY AS A REIT. If we fail to qualify for federal income tax
purposes as a REIT in any taxable year and the relief provisions are not
available or cannot be met, we will not be able to deduct our dividends and will
be subject to federal income tax (including any applicable alternative minimum
tax) on our taxable income at regular corporate rates, thereby reducing cash
available for distributions. In such event, all distributions to stockholders
(to the extent of our current and accumulated earnings and profits), will be
taxable as ordinary income. This "double taxation" results from our failure to
qualify as a REIT. Unless entitled to relief under specific statutory
provisions, we will not be eligible to elect REIT status for the four taxable
years following the year during which qualification was lost.
PROHIBITED TRANSACTIONS. As discussed above, we will be subject to a 100%
federal income tax on any net income derived from "prohibited transactions." Net
income derived from prohibited transactions arises from the sale or exchange of
property held for sale to customers in the ordinary course of our business which
is not foreclosure property. There is an exception to this rule for sales of
property that:
- is a real estate asset under the 75% Asset Test;
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- has been held for at least four years;
- has aggregate expenditures which are includable in the basis of the
property not in excess of 30% of the net selling price;
- in certain cases, was held for production of rental income for at
least four years;
- when combined with other sales in the year, either does not cause the
REIT to have made more than seven sales of property during the taxable
year, or occurs in a year when the REIT disposes of less than 10% of
its assets (measured by federal income tax basis and ignoring
involuntary dispositions and sales of foreclosure property); and
- in certain cases, substantially all of the marketing and development
expenditures were made through an independent contractor.
Although we may eventually sell some or all of our properties, our primary
intention in acquiring and operating the properties is the production of rental
income and we do not expect to hold any property for sale to customers in the
ordinary course of our business.
FEDERAL INCOME TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as we qualify as a REIT,
distributions paid to our domestic stockholders out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
ordinary dividend income. Distributions in excess of current and accumulated
earnings and profits are treated first as a tax-deferred return of capital to
the stockholder, reducing the stockholder's tax basis in his or her common stock
by the amount of such distribution, and then to the extent such a distribution
exceeds a stockholder's tax basis, as capital gain. Because earnings and profits
are reduced for depreciation and other noncash items, it is possible that a
portion of each distribution will constitute a tax-deferred return of capital.
Additionally, because distributions in excess of earnings and profits reduce the
stockholder's basis in our stock, this will increase the stockholder's gain on
any subsequent sale of the stock.
Dividend income is characterized as "portfolio" income under the passive
loss rules and cannot be offset by a stockholder's current or suspended passive
losses. Corporate stockholders cannot claim the dividends received deduction for
such dividends unless we lose our REIT status. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains to the extent
they do not exceed our actual net capital gain for the taxable year. However,
corporate stockholders may be required to treat up to 20% of some types of
capital gain dividends as ordinary income. Although stockholders generally
recognize taxable income in the year that a distribution is received, any
distribution we declare in October, November or December of any year and is
payable to a stockholder of record on a specific date in any such month will be
treated as both paid by us and received by the stockholder on December 31 of the
year it was declared even if paid by us during January of the following calendar
year. Because we are not a pass-through entity for federal income tax purposes,
stockholders may not use any of our operating or capital losses to reduce their
tax liabilities. We may also decide to retain, rather than distribute, our net
long-term capital gains and pay any tax thereon. In this case, stockholders
would include their proportionate shares of such gains in income and receive a
credit on their returns for their proportionate share of our tax payments.
In general, the sale of common stock held for more than 12 months will
produce long-term capital gain or loss. All other sales of common stock
generally will produce short-term gain or loss. In each case, the gain or loss
is equal to the difference between the amount of cash and fair market value of
any property received from the sale and the stockholder's basis in the common
stock sold. However, any loss
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from a sale or exchange of common stock by a stockholder who has held such stock
for six months or less will be treated as a long-term capital loss, to the
extent of our distributions that the stockholder treated as long-term capital
gains.
We will report to our domestic stockholders and to the Internal Revenue
Service the amount of dividends paid during each calendar year, and the amount
(if any) of federal income tax we withhold. A stockholder may be subject to
backup withholding (the current rate of which is 30%) with respect to dividends
paid unless such stockholder: (a) is a corporation or comes within other exempt
categories; or (b) provides us with a taxpayer identification number, certifies
as to no loss of exemption, and otherwise complies with applicable requirements.
A stockholder that does not provide us with its correct taxpayer identification
number may also be subject to penalties imposed by the Internal Revenue Service.
Any amount paid as backup withholding can be credited against the stockholder's
federal income tax liability. In addition, we may be required to withhold a
portion of distributions made to any stockholders who fail to certify their
nonforeign status to us. See "--Taxation of Foreign Stockholders" in this
section.
TAXATION OF TAX EXEMPT STOCKHOLDERS. Our distributions to a stockholder
that is a tax-exempt entity should not constitute unrelated business taxable
income, or UBTI, unless the stockholder borrows funds (or otherwise incurs
acquisition indebtedness within the meaning of the Internal Revenue Code) to
acquire its common shares, or the common shares are otherwise used in an
unrelated trade or business of the tax-exempt entity.
Special rules apply to the ownership of REIT shares by certain tax-exempt
pension trusts. If we would fail to satisfy the "five or fewer" share ownership
test (discussed above with respect to the Share Ownership tests) because the
stock held by tax-exempt pension trusts was viewed as being held by the trusts
rather than by their respective beneficiaries, tax-exempt pension trusts owning
more than 10% by value of our stock may be required to treat a percentage of our
dividends as UBTI. This rule applies if: (1) at least one tax-exempt pension
trust owns more than 25% by value of our shares, or (2) one or more tax-exempt
pension trusts (each owning more than 10% by value of our shares) hold in the
aggregate more than 50% by value of our shares. The percentage treated as UBTI
is our gross income (less direct expenses) derived from an unrelated trade or
business (determined as if we were a tax-exempt pension trust) divided by our
gross income from all sources (less direct expenses). If this percentage is less
than 5%, however, none of the dividends will be treated as UBTI. Because of the
restrictions in our articles of incorporation of incorporation regarding the
ownership concentration of our common stock, we believe that a tax-exempt
pension trust should not become subject to these rules. However, because our
common shares may be publicly traded, we can give no assurance of this.
Prospective tax-exempt purchasers should consult their own tax advisors as
to the applicability of these rules and consequences to their particular
circumstances.
TAXATION OF FOREIGN STOCKHOLDERS. The following discussion is intended only
as a summary of the rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and foreign trusts and
estates. These rules are quite complex and prospective foreign stockholders
should consult with their own tax advisors to determine the impact of federal,
state, and local income tax laws including any reporting requirements with
respect to their investment in our REIT.
In general, foreign stockholders will be subject to regular U.S. income tax
with respect to their investment if such investment is "effectively connected"
with the conduct of a trade or business in the U.S. A corporate foreign
stockholder that receives (or is deemed to have received) income that is
effectively connected with a U.S. trade or business may also be subject to the
30% "branch profits tax" under Code Section 884, which is payable in addition to
regular federal corporate income tax. The
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following discussion applies to foreign stockholders whose investment is not
considered "effectively connected."
Generally, any dividend that constitutes ordinary income for federal income
tax purposes will be subject to a U.S. tax equal to the lesser of 30% of the
gross amount of dividends or the rate in an applicable tax treaty. Generally, a
distribution that does not exceed our earnings and profits will be treated as a
dividend taxable as ordinary income. A distribution in excess of our earnings
and profits is treated first as a nontaxable return of capital that will reduce
a foreign stockholder's basis in its common stock (but not below zero) and then
as gain from the disposition of such common stock, subject to the rules
discussed below for dispositions.
Our distributions that are attributable to gain from the sale or exchange
of a "U.S. real property interest" are taxed to a foreign stockholder as if the
distributions were gains "effectively connected" with a United States trade or
business conducted by such foreign shareholder. As a result, a foreign
stockholder will be taxed on these amounts at the capital gain rates applicable
to a U.S. stockholder (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals).
In addition, such dividends may also be subject to a 30% branch profits tax when
made to a corporate foreign stockholder that is not entitled to treaty
exemptions.
We will report to our foreign stockholders and the Internal Revenue Service
the amount of dividends paid during each calendar year, and the amount (if any)
of federal income tax we withhold. These information reporting requirements
apply regardless of whether withholding was reduced or eliminated in any
applicable tax treaty. Copies of these information returns may also be made
available under the provisions of a specific treaty or agreement with the tax
authorities in the country in which the foreign stockholder resides. As
discussed below, withholding tax rates of 30% and 35% may apply to distributions
on common stock to foreign stockholders.
Although tax treaties may reduce our withholding obligations, we will
generally be required to withhold from dividends to foreign stockholders, and
remit to the Internal Revenue Service, 35% of any distribution that could be
designated as a capital gain dividend (regardless of the amount actually
designated as a capital gain dividend) and 30% of ordinary dividends paid out of
earnings and profits. In addition, if we designate prior dividends as capital
gain dividends, subsequent dividends, up to the amount of such prior dividends,
will be treated as capital gain dividends for withholding purposes. The amount
of federal income tax withheld is creditable against the foreign stockholder's
federal income tax liability, and if the amount of tax we withhold exceeds the
U.S. tax liability, the foreign stockholder may file for a refund of such excess
from the Internal Revenue Service. (Note that the 35% withholding tax rate on
capital gain dividends currently corresponds to the maximum income tax rate
applicable to corporations, but is higher than the 20% maximum rate on long-term
capital gains of individuals.)
Applicable Treasury regulations provide certain presumptions under which a
foreign stockholder would be subject to backup withholding and information
reporting until we receive certification from these stockholders of their
foreign status. The regulations generally require a foreign stockholder to
provide us with federal Form W-8BEN referred to as a Certificate of Foreign
Status of Beneficial Owner for United States Tax Withholding, Form W-8ECI
referred to as a Certificate of Foreign Person's Claim for Exemption From
Withholding on Income Effectively Connected With the Conduct of a Trade or
Business in the United States, or Form W-8EXP referred to as a Certificate of
Foreign Government or Other Foreign Organization for United States Tax
Withholding certifying the foreign stockholder's entitlement to the benefits of
any treaty.
Unless the common shares constitute a "U.S. real property interest" under
Section 897 of the Internal Revenue Code, gain on a sale of common stock by a
foreign stockholder generally will not be
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subject to U.S. income taxation unless (i) investment in the common stock is
effectively connected with the foreign stockholder's U.S. trade or business, in
which case, as discussed above, the foreign shareholder would be subject to the
federal income tax, or (ii) the foreign stockholder is a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year, in which case the nonresident alien individual may be subject to a
30% tax on such gain.
The common shares will not constitute a "U.S. real property interest" if we
are a "domestically controlled REIT." A domestically controlled REIT is a REIT,
which at all times during the preceding five-year period, had less than 50% in
value of its common stock held directly or indirectly by foreign stockholders.
We (or, if shorter, the period during which the REIT is in existence) expect to
be a domestically controlled REIT, and, therefore, the sale of common stock
should not be subject to such taxation for foreign stockholders, except as
discussed above. However, because the common shares may be (but are not
guaranteed to be) publicly traded, we can not assure you that we will continue
to be a domestically controlled REIT. If we do not constitute a domestically
controlled REIT, whether a foreign stockholder's gain on the sale of stock is
subject to federal income tax as a sale of a U.S. real property interest depends
primarily on whether the common shares are "regularly traded" on an established
securities market and on the size of the selling stockholder's interest. If the
gain on the sale of common shares is subject to federal income tax under these
rules, the foreign stockholder would be subject to the same treatment as a U.S.
stockholder with respect to the gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals). In any event, a purchaser of common stock from a foreign
stockholder will not be required to withhold on the purchase price if the
purchased shares are "regularly traded" on an established securities market or
if we are a domestically controlled REIT. Otherwise, the purchaser of stock may
be required to withhold 10% of the purchase price and remit this amount to the
Internal Revenue Service.
If the proceeds of a disposition of common stock are paid by or through a
U.S. office of a broker-dealer, the payment is generally subject to information
reporting and to backup withholding (the current rate of which is 30%) unless
the disposing foreign stockholder certifies as to his name, address and non-U.S.
status or otherwise establishes an exemption. Generally, U.S. information
reporting and backup withholding may not apply to a payment of disposition
proceeds if the payment is made outside the U.S. through a foreign office of a
foreign broker-dealer. Prospective foreign purchasers should consult their tax
advisers concerning these rules.
OTHER TAX CONSIDERATIONS
DISTRIBUTION REINVESTMENT PROGRAM. Stockholders who participate in the
distribution reinvestment program will recognize taxable dividend income in the
amount they would have received had they elected not to participate, even though
they receive no cash. These deemed dividends will be treated as actual dividends
from us to the participating stockholders and will retain the character and
federal income tax effects applicable to all dividends. See "--Taxation of
Stockholders" in this section. Stock received under the program will have a
holding period beginning with the day after purchase, and a federal income tax
basis equal to its cost, which is the gross amount of the deemed distribution.
STATE AND LOCAL TAXES. We and you may be subject to state or local taxation
in various jurisdictions, including those in which we transact business or
reside. Our and your state and local tax treatment may not conform to the
federal income tax consequences discussed above. Consequently, you should
consult your own tax advisors regarding the effect of state and local tax laws
on an investment in the common shares.
LEGISLATIVE PROPOSALS. You should recognize that our and your present
federal income tax treatment may be modified by legislative, judicial or
administrative actions at any time, which may be
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retroactive in effect. The rules dealing with federal income taxation are
constantly under review by Congress, the Internal Revenue Service and the
Treasury Department, and statutory changes as well as promulgation of new
regulations, revisions to existing statutes, and revised interpretations of
established concepts occur frequently. We are not currently aware of any pending
legislation that would materially affect our or your taxation as described in
this prospectus. You should, however, consult your advisors concerning the
status of legislative proposals that may pertain to a purchase of common shares.
President Bush has proposed to exempt certain dividend payments made by certain
corporations from federal taxation. We cannot be sure what impact, if any, any
possible legislation could have on us or you as a stockholder.
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ERISA CONSIDERATIONS
The following is a summary of material considerations arising under ERISA,
including the prohibited transaction provisions of ERISA, and of Section 4975 of
the Internal Revenue Code that may be relevant to a prospective purchaser of the
shares where such prospective purchaser is an employee benefit plan, IRA or
other tax-exempt entity under the Internal Revenue Code. This discussion does
not deal with all aspects of ERISA or Section 4975 of the Internal Revenue Code
or, to the extent not preempted, state law that may be relevant to particular
employee benefit plan stockholders (including plans subject to Title I of ERISA,
other employee benefit plans and IRAs subject to the prohibited transaction
provisions of Section 4975 of the Internal Revenue Code, and governmental plans
and church plans that are exempt from ERISA and Section 4975 of the Internal
Revenue Code but that may be subject to state law and other Internal Revenue
Code requirements) in light of their particular circumstances.
A FIDUCIARY MAKING THE DECISION TO INVEST IN SHARES ON BEHALF OF A
PROSPECTIVE INVESTOR WHICH IS A PENSION, PROFIT-SHARING, RETIREMENT, IRA OR
OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR
REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE
INTERNAL REVENUE CODE, AND (TO THE EXTENT NOT PREEMPTED) STATE LAW WITH RESPECT
TO THE PURCHASE, OWNERSHIP, OR SALE OF SHARES BY SUCH BENEFIT PLAN. BENEFIT
PLANS SHOULD ALSO CONSIDER THE ENTIRE DISCUSSION UNDER THE PRECEDING SECTION
ENTITLED "FEDERAL INCOME TAX CONSIDERATIONS," AS MATERIAL CONTAINED THEREIN IS
RELEVANT TO ANY DECISION BY A BENEFIT PLAN TO PURCHASE THE SHARES.
In considering whether to invest a portion of the assets of a benefit plan
in shares, fiduciaries of the benefit plan should consider, among other things,
whether the investment:
- will be in accordance with the governing documents of the benefit
plan and is authorized and consistent with their fiduciary
responsibilities under ERISA;
- will allow the benefit plan to satisfy the diversification
requirements of ERISA, if applicable;
- will result in UBTI to the benefit plan (see "Federal Income Tax
Considerations -- Taxation of Stockholders -- Taxation of
Tax-Exempt Stockholders");
- will be sufficiently liquid for the benefit plan after taking
this investment into account; and
- is prudent and in the best interests of the benefit plan, its
participants and beneficiaries under ERISA standards.
The fiduciary of an IRA or a benefit plan not subject to Title I of ERISA
because it is a governmental or church plan or because it does not cover common
law employees should consider that such an IRA or non-ERISA plan may be subject
to prohibitions against certain related-party transactions under Section 503 of
the Internal Revenue Code, which operate similar to the prohibited transaction
rules of ERISA and the Internal Revenue Code. In addition, the fiduciary of any
governmental or church plan must consider applicable state or local laws, if
any, and the restrictions and duties of common law, if any, imposed upon such
plan. We express no opinion on whether an investment in shares is appropriate or
permissible for any governmental or church plan under Section 503 of the
Internal Revenue Code, or under any state, county, local, or other law
respecting such plan.
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In addition to imposing general fiduciary standards of investment prudence
and diversification, ERISA and the corresponding provisions of the Internal
Revenue Code prohibit a wide range of transactions involving the assets of the
benefit plan and persons who have certain specified relationships to the benefit
plan ("parties in interest" under ERISA and "disqualified persons" under the
Internal Revenue Code).
Benefit plan fiduciaries may not enter into a prohibited transaction
involving "plan assets" and a "party in interest" or "disqualified person" with
respect to a plan investor, unless an exemption applies. A prohibited
transaction may occur if our assets are deemed to be assets of a benefit plan
(i.e., the "look-through rule") which invests in shares and thereafter a "party
in interest" or a "disqualified person" deals with the assets in a manner not
permitted under ERISA or the Internal Revenue Code. Under such circumstances,
any person that exercises authority or control with respect to the management or
disposition of benefit plan assets is a benefit plan fiduciary and, therefore,
is a "party in interest" and a "disqualified person" capable of participating in
a prohibited transaction with the benefit plan. Thus, the actions of an employee
of ours in dealing with our assets could, under certain circumstances, cause a
benefit plan which invests in the shares to be a participant in a prohibited
transaction. While "plan assets" are not defined in ERISA or the Internal
Revenue Code, the United States Department of Labor, or the DOL, has issued
regulations that provide guidance on the circumstances under which a benefit
plan's investment in shares will be subject to the "look-through rule" and thus
result in our assets being deemed benefit plan assets. The DOL regulations
provide an exception to the "look-through rule" for a benefit plan which invests
in a "publicly-offered security." This exception would apply to the shares, if
they are part of a class of securities that is "widely-held,"
"freely-transferable," and either registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, or sold to the benefit plan pursuant to an
effective registration statement under the Securities Act of 1933, provided the
class of securities of which the security is a part are registered under the
Securities Exchange Act of 1934 within 120 days or such longer period as is
allowed by the Securities and Exchange Commission after the end of the fiscal
year of the issuer during which the offering occurred. The shares are being sold
in an offering registered under the Securities Act of 1933 and we represent that
the class of securities of which the shares are a part have been registered
under the Securities Exchange Act within the applicable time limits.
The DOL regulations indicate that a security is "widely-held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. A security will not fail to be "widely-held"
because the number of independent investors falls below 100 subsequent to the
initial offering as a result of events beyond the issuer's control. We expect
(although no assurances can be given) that the shares will be held by over 100
independent investors and, therefore, should be considered "widely-held."
The DOL regulations further provide that whether a security is
"freely-transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL regulations state that generally, when
a security is part of an offering in which the minimum investment is $10,000 or
less, as is the case with this offering, certain restrictions ordinarily will
not, alone or in combination, affect the determination of the finding that such
securities are "freely-transferable." One such example under the DOL regulations
is that a restriction or prohibition against a transfer or assignment which
would result in a termination or reclassification of an entity for federal or
state income tax purposes will not affect the determination of whether
securities are "freely transferable." We believe that the ownership limits
imposed under our charter of incorporation on the transfer of the shares are
designed to prevent violations of the five or fewer requirement of federal
income tax laws (which would cause a termination of REIT status for tax
purposes) or are otherwise permitted under the DOL regulations and, therefore,
will not cause the shares to not be "freely-transferable."
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The DOL regulations are interpretive in nature and, therefore, no assurance
can be given that the DOL and the United States Department of the Treasury will
not conclude that the shares are not "freely-transferable," or not
"widely-held." However, we believe that the shares are "publicly offered
securities" for purposes of the DOL regulations and that:
- our assets will not be deemed to be "plan assets" of any benefit
plan that invests in the shares; and
- any person who exercises authority or control with respect to our
assets should not be treated as a benefit plan fiduciary of any
benefit plan that invests in the shares, for purposes of the
prohibited transaction rules of ERISA and Section 4975 of the
Internal Revenue Code.
In addition, a prohibited transaction may also occur under ERISA or the
Internal Revenue Code where there are circumstances indicating that:
- investment in the shares is made or retained for the purposes of
avoiding application of the fiduciary standards of ERISA;
- the investment in the REIT constitutes an arrangement under which
it is expected that the REIT will engage in transactions which
would otherwise be prohibited if entered into directly by the
benefit plan purchasing the shares;
- the investing benefit plan, by itself, has the authority or
influence to cause the REIT to engage in such transactions; or
- the person who is prohibited from transacting with the investing
benefit plan may, but only with the aid of its affiliates and the
investing benefit plan, cause the REIT to engage in such
transactions with such person.
In any event, a fiduciary or other person investing "plan assets" of any
benefit plan should not purchase shares if we or any of our affiliates either:
- have investment discretion with respect to the investment of such
assets; or
- have authority or responsibility to give or regularly gives investment
advice with respect to such assets, for a fee, pursuant to an
agreement or understanding that such advice will serve as a primary
basis for investment decisions with respect to such assets and that
such advice will be based on the particular investment needs of such
benefit plan.
Unless an exemption is available for an employer maintaining or
contributing to such benefit plans, any such purchase might result in a
non-exempt prohibited transaction under ERISA or Section 4975 of the Internal
Revenue Code.
See "Risk Factors -- Employee Benefit Plan Risks -- Annual Statement of
Value is an Estimate" for an explanation of the annual statement of value we
will provide stockholders subject to ERISA.
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PLAN OF DISTRIBUTION
GENERAL
Of the 270,000,000 shares of our common stock offered by this prospectus,
we are offering:
- up to 250,000,000 shares at a purchase price of $10.00 per share
through Inland Securities Corporation, the managing dealer, to the
public on a best-efforts basis. Our managing dealer is one of our
affiliates. A "best-efforts" basis means that neither the managing
dealer nor the soliciting dealers are under any obligation to purchase
any of the shares being offered. Therefore, no specified number of
shares are guaranteed to be sold and no specified amount of money is
guaranteed to be raised from this offering.
- up to 20,000,000 shares at a purchase price of $9.50 per share for
issuance through our distribution reinvestment program which will
provide you with an opportunity to purchase additional shares of our
common stock at a reduced rate by reinvesting your distributions.
The offering price of our stock is subjective and was determined by our
board of directors. Our board of directors determined the offering price based
on the offering price of earlier REITs organized by our sponsor, the range of
offering prices of other REITs that do not have a public trading market and the
recommendation of the managing dealer based on its consultations with likely
soliciting dealers. This offering will commence as of the date of this
prospectus. If the minimum offering of 200,000 shares is not sold by
September 15, 2004, we will cancel this offering and your investment will be
returned to you within five business days after cancellation with any interest
earned on your investment and with no deduction from your investment. If the
minimum offering of 200,000 shares of common stock is sold and if this offering
continues thereafter, the offering will terminate on or before, September 15,
2004, unless we elect to extend it to a date no later than September 15, 2005,
in states that permit an extension. We reserve the right to terminate this
offering at any time.
Our dealer manager is a wholly owned subsidiary of our sponsor, Inland Real
Estate Investment Corporation. Our dealer manager was also the dealer manager
for the offerings for Inland Real Estate Corporation and Inland Retail Real
Estate Trust, Inc. Inland Real Estate Corporation raised approximately
$679,780,000 in its offering. As of June 30, 2003, Inland Retail Real Estate
Trust, Inc. raised approximately $2,156,104,000 in its offering.
Our sponsor is an affiliate of our dealer manager.
ESCROW CONDITIONS
If you are qualified to participate in this offering, the proceeds from
your subscription will be deposited in a segregated escrow account with the
escrow agent, LaSalle Bank National Association, 120 South LaSalle Street,
Chicago, Illinois, and will be held in trust for your benefit, pending release
to us. Your investment will not be commingled with any other funds. None of the
common stock offered by this prospectus will be sold, no commissions or fees
will be paid, and your initial admission as a stockholder will not take place
unless the escrow agent has received and accepted paid subscriptions for at
least 200,000 shares of common stock for $2,000,000 within six months from the
date of this prospectus. If subscriptions for at least the minimum offering have
not been received, accepted, and paid for within six months from the date of
this prospectus, the escrow agent will promptly refund your investment, together
with your pro rata share of any interest earned. If a refund is made, our
sponsor will pay any escrow fees.
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The escrow agreement between us, the managing dealer and the escrow agent
provides that escrowed funds will be invested by the escrow agent in an interest
bearing account with the power of investment in short term securities issued or
guaranteed by the United States Government which can be readily sold, or other
investments permitted under the Securities Exchange Act of 1934. Additionally,
as soon as we have received subscription proceeds for at least 200,000 shares of
our common stock, we may invest the proceeds in other short term investments
which can be readily sold, with appropriate safety of principal. After the
minimum offering amount is sold, subscription proceeds are expected to be
released to us as subscriptions are accepted. We will accept or reject
subscriptions within 10 days after our receipt of a fully completed copy of the
subscription agreement and payment for the number of shares of common stock
subscribed for.
The interest, if any, earned on subscription proceeds relating to the
minimum offering prior to the release of the subscription proceeds to us from
escrow will be distributed to you on a pro rata basis within 30 days after the
end of the quarter during which you were admitted as a stockholder. After your
initial admission as a stockholder in connection with the sale of at least
200,000 shares, you will not be entitled to interest earned on our funds or to
receive interest on your investment.
The escrow agreement provides that the escrow agent will be appointed as an
investment manager by a named fiduciary of any ERISA plan that is providing
money to the escrow. The escrow agreement among us, the managing dealer, and the
escrow agent also provides (1) that until all the conditions precedent for
transferring the monies held in escrow are met, the escrow property may be
considered plan assets under ERISA and the escrow holder shall act as a
fiduciary to any benefit plan with respect to those assets, and (2) that the
property will be returned to the benefit plan if the conditions precedent are
not met in a reasonable period of time.
SUBSCRIPTION PROCESS
We are offering up to 250,000,000 shares of our common stock to the public
through the managing dealer and the soliciting dealers. The agreement between
our managing dealer and the soliciting dealers requires the soliciting dealers
to make diligent inquiries of you in order to determine whether a purchase of
our common stock is suitable for you, and to transmit promptly to us the
completed subscription documentation and any supporting documentation we may
reasonably require.
The managing dealer or a soliciting dealer is also required to deliver to
you a copy of this prospectus and its appendices. We plan to make this
prospectus and the appendices available electronically to the managing dealer
and the soliciting dealers, as well as to provide them paper copies. As a
result, if the managing dealer or a soliciting dealer chooses, with your prior
consent, it may provide you with the option of receiving this prospectus and the
appendices electronically. In any case, however, you may always receive a paper
copy upon request. For at least six years, we shall maintain records of the
information we have to determine that an investment in our shares is suitable
and appropriate for a stockholder.
Our common stock is being sold as subscriptions for the common stock are
received and accepted by us, subject to the satisfaction by us of the escrow
conditions described in the section immediately above. We have the unconditional
right to accept or reject your subscription within 10 days after our receipt of
a fully completed copy of the subscription agreement and payment for the number
of shares of common stock subscribed for. If we accept your subscription, a
confirmation will be mailed to you not more than three business days after our
acceptance. No sale of our common stock may be completed until at least five
business days after the date you receive this prospectus and, if required by
state regulatory authorities, a copy of our organizational documents. If for any
reason your subscription is rejected, your
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funds and your subscription agreement will be returned to you, without interest
or deduction, within 10 days after receipt.
REPRESENTATIONS AND WARRANTIES IN THE SUBSCRIPTION AGREEMENT
The subscription agreement requires you to make the following factual
representations:
- Your tax identification number set forth in the subscription agreement
is accurate and you are not subject to backup withholding;
- You received a copy of this prospectus not less than five business
days prior to signing the subscription agreement (unless your state
requires otherwise);
- You meet the minimum income, net worth and any other applicable
suitability standards established for you, as described in "Who May
Invest," which appears earlier in this prospectus;
- You are purchasing our common stock for your own account; and
- You acknowledge that our common stock cannot be readily sold.
Each of the above representations is included in the subscription agreement
in order to help satisfy our responsibility to make every reasonable effort to
determine that the purchase of our common stock is a suitable and appropriate
investment for you and that appropriate income tax reporting information is
obtained. We will not sell any common stock to you unless you are able to make
the above factual representations by executing the subscription agreement.
By executing the subscription agreement, you will not be waiving any rights
under the federal securities laws.
DETERMINATION OF YOUR SUITABILITY AS AN INVESTOR
We, our managing dealer, each soliciting dealer and our sponsor will make
reasonable efforts to determine that you satisfy the suitability standards set
forth herein and that an investment in our common stock is an appropriate
investment for you. The soliciting dealers must determine whether you can
reasonably benefit from this investment. In making this determination, the
soliciting dealers will consider whether:
- you have the capability of understanding fundamental aspects of our
business based on your employment experience, education, access to
advice from qualified sources such as attorneys, accountants and tax
advisors and prior experience with investments of a similar nature;
- you have an apparent understanding of:
- the fundamental risks and possible financial hazards of this type
of investment;
- that the shares cannot be readily sold;
- the role of our advisor in directing or managing your investment
in us; and
- the tax consequences of your investment; and
- you have the financial capability to invest in our common stock.
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By executing the subscription agreement, each soliciting dealer
acknowledges its determination that our common stock is a suitable investment
for you. Each soliciting dealer is required to represent and warrant that it has
complied with all applicable laws in determining the suitability of our common
stock as an investment for you. We and our affiliates will coordinate the
processes and procedures used by the managing dealer and the soliciting dealers
and, where necessary, implement additional reviews and procedures to determine
that you meet the suitability standards set forth in this prospectus.
COMPENSATION WE WILL PAY FOR THE SALE OF OUR SHARES
Except for the special sales described later in this section, we will pay
the managing dealer cash selling commissions of 7.5% on all of the up to
250,000,000 shares of common stock sold on a best-efforts basis. Of this 7.5%
selling commissions, the managing dealer will reallow up to 7% to soliciting
dealers as compensation for their services in soliciting and obtaining
subscriptions from you and other investors. Except for the special sales
described later in this section, we will pay an additional 2.5% of the gross
proceeds from this offering to the managing dealer as a marketing contribution
in lieu of reimbursement of expenses associated with marketing, and we may
reimburse the managing dealer for its bona fide due diligence expenses and for
those of the soliciting dealers. The maximum reimbursement, however, will not
exceed 0.5% of the gross proceeds from the up to 250,000,000 shares sold. The
managing dealer may, at its discretion, retain or give all or any portion of the
marketing contribution and due diligence expense allowance to soliciting
dealers. Generally, the managing dealer will not give any portion of the
marketing contribution to soliciting dealers unless they have a prescribed
minimum annual sales volume of our common stock. Marketing and due diligence
costs paid by the managing dealer on behalf of, or to, the soliciting dealers
will be deducted from any marketing contribution or due diligence expense
allowance otherwise payable to the soliciting dealers.
The following table shows the compensation payable to our dealer manager.
TYPE OF COMPENSATION AMOUNT ESTIMATED MAXIMUM AMOUNT
--------------------------------------------------------
Selling commissions 7.5% of sale price for
each share $ 187,500,000
--------------------------------------------------------
Marketing contribution and due 3% of gross offering
diligence allowance proceeds $ 75,000,000
--------------------------------------------------------
We will not pay selling commissions, marketing contributions or due
diligence expense allowances in connection with the following special sales:
- the sale of common stock in connection with the performance of
services to our employees, directors and associates and our
affiliates, our advisor, affiliates of our advisor, the managing
dealer or their respective officers and employees and some of their
affiliates; and
- the purchase of common stock under the distribution reinvestment
program.
- No selling commissions will be paid in connection with the following
special sales:
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- the sale of our common stock to one or more soliciting dealers and to
their respective officers and employees and some of their respective
affiliates who request and are entitled to purchase common stock net
of selling commissions;
- the sale of common stock to investors whose contracts for investment
advisory and related brokerage services include a fixed or "wrap" fee
feature; and
- the common stock credited to an investor as a result of a volume
discount.
It is illegal for us to pay or award any commissions or other compensation
to any person engaged by you for investment advice as an inducement to such
advisor to advise you to purchase our common stock; however, nothing herein will
prohibit a registered broker dealer or other properly licensed person from
earning a sales commission in connection with a sale of the common stock.
We will not pay any registered investment advisory fees in connection with
any purchase by you of our common stock, although you may elect to have your
registered investment advisory fees deducted from your account with us and paid
directly to your registered investment advisor. See "How to Subscribe."
VOLUME DISCOUNTS
Investors making an initial purchase of at least $250,010 worth of common
stock (25,001 shares) through the same soliciting dealer may receive a reduction
of the reallowable 7.0% selling commission payable in connection with the
purchase of those shares in accordance with the following schedule:
AMOUNT OF PURCHASER'S INVESTMENT
AMOUNT OF SELLING MAXIMUM COMMISSION
VOLUME DISCOUNT FROM TO PER SHARE
----------------- ------------ ------------ ------------------
1% $ 250,010 $ 500,000 6%
2% $ 500,010 $ 1,000,000 5%
3% $ 1,000,010 $ 2,500,000 4%
4% $ 2,500,010 $ 5,000,000 3%
5% $ 5,000,010 $ 10,000,000 2%
6% $ 10,000,010 more than 1%
$ 10,000,000
Any reduction in the amount of the selling commissions in respect of volume
discounts received may be credited to the investor in the form of additional
whole shares or fractional shares. Selling commissions will not be paid on any
such whole shares or fractional shares issued for a volume discount.
Some purchases may be combined for the purpose of qualifying for a volume
discount, and for determining commissions payable to the managing dealer or the
soliciting dealers, so long as all the combined purchases are made through the
same soliciting dealer. You may combine subscriptions made in this offer with
other subscriptions in this offering for the purposes of computing amounts
invested. Purchases by spouses may also be combined and purchases by you may be
combined with other purchases of common stock to be held as a joint tenant or as
tenants-in-common by you with others for purposes of computing amounts invested.
Purchases by entities not required to pay federal income tax may only be
combined with purchases by other entities not required to pay federal income tax
for purposes of computing amounts invested if investment decisions are made by
the same person. If the
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investment decisions are made by an independent investment adviser, that
investment adviser may not have any direct or indirect beneficial interest in
any of the entities not required to pay federal income tax whose purchases are
sought to be combined. You must mark the "Additional Investment" space on the
subscription agreement signature page in order for purchases to be combined. We
are not responsible for failing to combine purchases if you fail to mark the
"Additional Investment" space.
If the subscription agreements for the purchases to be combined are
submitted at the same time, then the additional common stock to be credited to
you as a result of such combined purchases will be credited on a pro rata basis.
If the subscription agreements for the purchases to be combined are not
submitted at the same time, then any additional common stock to be credited as a
result of the combined purchases will be credited to the last component
purchase, unless we are otherwise directed in writing at the time of the
submission. However, the additional common stock to be credited to any entities
not required to pay federal income tax whose purchases are combined for purposes
of the volume discount will be credited only on a pro rata basis based on the
amount of the investment of each entity not required to pay federal income tax
and their combined purchases.
Notwithstanding the preceding paragraphs, you may not receive a discount
greater than 5% on any purchase of shares if you already own, or may be deemed
to already own, any shares. This restriction may limit the amount of the volume
discount available to you after your initial purchase and the amount of
additional shares that you may be credited as a result of the combination of
purchases.
If the dollar amount of commissions paid for combined purchases exceeds the
maximum commissions for combined purchases, taking the volume discount into
effect, the managing dealer will be obligated to return to us, and soliciting
dealers will be obligated to return to the managing dealer, any excess
commissions received. The managing dealer and we may adjust any future
commissions due for any such excess commissions that are not returned.
DEFERRED COMMISSION OPTION
DETERMINATION OF THE NUMBER OF SHARES TO BE ISSUED AND THE AMOUNT OF THE
DEFERRED SELLING COMMISSIONS. You may agree with the participating soliciting
dealer and the managing dealer to have selling commissions due with respect to
the purchase of your shares paid over a period of up to six years pursuant to a
deferred commission option arrangement. Our net proceeds from this offering will
not be affected by the election of the deferred commission option. Under this
arrangement and based upon a $10 per share deemed value to each share issued, if
you elect the deferred commission option, you will pay a 1.5% selling commission
upon subscription, of which 1% will be reallowed upon subscription, rather than
the 7.5% selling commission, of which 7% is reallowable, and we will deduct an
amount equal to up to 1% selling commission per year thereafter for up to the
next six years from cash distributions otherwise payable to you. For example, if
you elect the deferred commission option, you will be required to pay a total of
$9.40 per share purchased upon subscription, rather than $10 per share, with
respect to which $0.15 per share will be payable as selling commissions due upon
subscription, of which $0.10 per share will be reallowed (based on the number of
shares that would have been issued if the deferred commission option had not
been elected). For example, for a $100,000 initial investment, we will issue
10,638.298 shares ($100,000 divided by $9.40), and you would pay maximum selling
commissions of $1,500 upon subscription ($0.15 times the 10,000 shares which
would have been issued for $100,000 if the deferred commission option had not
been elected), of which $1,000 is reallowable. For each of the up to six years
following the subscription, on a date or dates to be determined from time to
time by the managing dealer (initially contemplated to be monthly as of when
distributions are paid), we will deduct $0.10 per share (based on the number of
shares that would have been issued if the deferred commission option had not
been elected) on an annual basis from cash distributions otherwise payable to
you. This amount will be used to pay deferred commission obligations. In the
example of an initial cash investment of $100,000,
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$1,000 would be deducted on an annual basis and used in the above described
manner for each of the six years following the subscription. The managing dealer
will pay the selling commissions paid upon subscription and in each of the
following up to six years, which selling commissions may be reallowed to the
soliciting dealer by the managing dealer and the deferred commission obligations
would be satisfied.
As in any volume discount situation, selling commissions are not paid on
any shares issued for a volume discount. Therefore, when the deferred commission
option is used, we will not make deductions for deferred commission obligations
from cash distributions payable on the shares issued for a volume discount,
because there will not be any deferred commission obligation as to those
particular shares. The number of shares issued, if any, for a volume discount,
will be determined as provided above under "Plan of Distribution--Volume
Discounts."
TAXES. If you elect the deferred commission option and you are subject to
federal income taxation, you will incur tax liability for cash distributions
payable to them with respect to their shares even though we will withhold such
cash distributions and will instead pay third parties to satisfy deferred
commission obligations.
SUBSCRIPTION AGREEMENT. If you wish to elect the deferred commission
option, you must make the election on the subscription agreement/signature page.
In addition, the broker-dealer must also complete and sign the subscription
agreement/signature page to acknowledge its agreement to the deferred commission
option.
AUTHORIZATION TO WITHHOLD CASH DISTRIBUTIONS. If you elect the deferred
commission option you will be authorizing us to withhold cash distributions
otherwise payable to you for the purpose of paying selling commissions due under
the deferred commission option; provided, however, that in no event may we
withhold in excess of $0.60 per share in the aggregate (lower when the volume
discount provisions are also applicable and less than 6% of the selling
commissions are deferred) under the deferred commission option.
ACCELERATION OF DEFERRED COMMISSION OBLIGATION. If our shares become listed
for trading on a national securities exchange or included for quotation on a
national market system, or such listing or inclusion is reasonably anticipated
to occur at any time prior to the satisfaction of the remaining deferred
commission obligations, we will accelerate the remaining selling commissions due
under the deferred commission option. In such event, we will provide notice of
such acceleration to stockholders who have elected the deferred commission
option. The amount of the remaining selling commissions due will be deducted and
paid by us out of cash distributions otherwise payable to such stockholders
during the time period prior to any such listing of the shares for trading on a
national securities exchange or inclusion for quotation on a national market
system. However, in no event may we withhold in excess of $0.60 per share in the
aggregate during the six-year period following the subscription. The maximum
amount that we may withhold and the maximum number of years for which we may
offer selling commissions will be lower when the volume discount provisions are
also applicable and less than 6% of the selling commissions are deferred. To the
extent that the cash distributions during such time period are insufficient to
satisfy the remaining deferred selling commissions due, the obligation of us and
our stockholders to make any further payments of deferred selling commissions
under the deferred commission option shall terminate and the managing dealer
(and participating soliciting dealers if the deferred selling commissions are
reallowed to them by the managing dealer) will not be entitled to receive any
further portion of the unpaid deferred selling commissions following any such
listing for trading or inclusion for quotation of our shares.
In addition, if you elect the deferred commission option and subsequently
elect to participate in our share repurchase program or request that we transfer
your shares for any other reason prior to the time
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that the remaining deferred selling commissions have been deducted from cash
distributions otherwise payable to you during the mentioned period of up to six
years, then we will accelerate the remaining selling commissions due under the
deferred commission option. In such event, we shall provide notice of such
acceleration to you, and:
- in the case of an election to sell the shares under our share
repurchase program, you will be required to pay to us the unpaid
portion of the remaining deferred commission obligation prior to or
concurrently with our purchase of your shares pursuant to our share
repurchase program or we may deduct such unpaid portion of the
remaining deferred commission obligation from the amount otherwise due
to you for our purchase of your shares under our share repurchase
program; or
- if you request that we transfer the shares for any other reason, you
will not be entitled to effect any such transfer until you first
either:
- pay to us the unpaid portion of the remaining deferred commission
obligation; or
- provide a written instrument in form and substance satisfactory
to us, and appropriately signed by the transferee, to the effect
that the proposed transferee agrees to have the unpaid portion of
the remaining deferred commission obligation deducted from cash
distributions otherwise payable to the transferee during the
remaining portion of the specified up to six year period.
LEGEND. All certificates representing any shares that elect the deferred
commission option (including any shares issued for the volume discount in
connection with the election of the deferred commission option) will bear a
legend referring to the fact that such shares are subject to the terms of the
deferred commission option including the withholding of cash distributions
otherwise payable to the stockholders for the purpose of paying the deferred
selling commission obligation.
MARKETING CONTRIBUTION AND DUE DILIGENCE EXPENSE ALLOWANCE. The marketing
contribution of 2.5% and the due diligence expense allowance of 0.5% will be
payable by us on the gross offering proceeds for all of the shares issued based
on an assumed price of $10 per share. We will pay those amounts due from the
proceeds we receive at the time of the initial investment.
INDEMNIFICATION
We will indemnify the managing dealer and the soliciting dealers against
liabilities, including liabilities under the Securities Act of 1933, if one or
more of the following conditions are met:
- there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular
indemnitee and a court of competent jurisdiction has approved
indemnification of the litigation costs; or
- the claims have been dismissed with prejudice on the merits by a court
of competent jurisdiction as to the particular indemnitee and the
court has approved indemnification of the litigation costs; or
- a court of competent jurisdiction approves a settlement of the claims
against a particular indemnitee and approves indemnification of the
settlement and related costs after being advised of the position of
the Securities and Exchange Commission and the published opinions of
any state securities regulatory authority in which our common stock
was offered and sold respecting the availability and/or propriety of
indemnification for
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securities law violations. The soliciting dealer will be required to
indemnify us and our advisor against such liabilities.
In the opinion of the Securities and Exchange Commission, indemnification
for liabilities arising under the Securities Act of 1933 is against public
policy and, therefore, unenforceable. The managing dealer and each of the
soliciting dealers may be deemed to be an "underwriter" as that term is defined
in the Securities Act of 1933.
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HOW TO SUBSCRIBE
Investors who meet the suitability standards described above may purchase
shares of common stock. See "Who May Invest" and "Plan of Distribution --
Determination of Your Suitability as an Investor," above, for the suitability
standards. Investors who want to purchase shares must proceed as follows:
- Read the entire prospectus and the current supplement(s), if any,
accompanying the prospectus.
- Complete the execution copy of the subscription agreement. A specimen
copy of the subscription agreement, including instructions for
completing it, is included in the prospectus as Appendix C.
- Deliver a check for the full purchase price of the shares being
subscribed for, payable to "LNB/Escrow Agent for IWRRET ", along with
the completed subscription agreement to the soliciting dealer. If you
are qualified to participate in this offering, for administrative
convenience, the proceeds from your subscription will be deposited in
a segregated escrow account with the escrow agent, LaSalle Bank
National Association, 120 South LaSalle Street, Chicago, Illinois, and
will be held in trust for your benefit, pending release to us. Your
investment will not be commingled with any other funds. Subject to us
selling the minimum amount, subscription proceeds are expected to be
released to us as subscriptions are accepted. We will accept or reject
subscriptions within ten days after we receive them. The name of your
soliciting dealer appears on your subscription agreement.
- By executing the subscription agreement and paying the full purchase
price for the shares subscribed for, each investor attests that he or
she meets the suitability standards as stated in the subscription
agreement and agrees to be bound by all of its terms.
In addition, if a subscriber elects the deferred commission option, he or
she must do so by completing and signing the subscription agreement/signature
page of the form of subscription agreement. The soliciting dealer must also
complete and sign the subscription agreement/signature page to acknowledge its
agreement to the deferred commission option. This is more fully explained under
"Plan of Distribution - Deferred Commission Option."
A sale of the shares may not be completed until at least five business days
after the subscriber receives the prospectus. Within 10 days, and generally
within 24 hours, of our receipt of each completed subscription agreement, we
will accept or reject the subscription. If we accept the subscription, we will
mail a confirmation within three days. If for any reason we reject the
subscription, we will promptly return the check and the subscription agreement,
without interest or deduction, within 10 days after we received it.
An approved trustee must process through us and forward to us subscriptions
made through individual retirement accounts, Keogh plans and 401(k) plans. In
the case of individual retirement accounts, Keogh plans and 401(k) plan
stockholders, we will send the confirmation to the trustee.
You have the option of placing a transfer on death, or TOD, designation on
your shares purchased in this offering. A TOD designation transfers ownership of
the shares to your designated beneficiary upon your death. This designation may
only be made by individuals, not entities, who are the sole or joint owners with
right of survivorship of the shares. This option, however, is not available to
residents of the States of Louisiana, New York, and North Carolina. If you would
like to place a transfer on death
157
designation on your shares, you must check the TOD box on the subscription
agreement and you must complete and return the transfer on death form included
as Appendix D to this prospectus in order to effect the designation.
You may elect to have any registered investment advisory fees deducted from
your account with us and paid directly to your registered investment advisor by
completing and signing a letter of instruction (in the form attached as Appendix
E1 to this prospectus). The letter of instruction will authorize us to deduct a
specified dollar amount or percentage of distributions paid by us as advisory
fees payable to your registered investment advisor on a periodic basis.
The letter of instruction will be irrevocable and we will continue to pay
advisory fees payable from your account until such time as you provide us with a
notice (in the form attached as Appendix E2 to this prospectus) of your election
to terminate deductions from your account for the purposes of such advisory
fees.
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SALES LITERATURE
In addition to and apart from this prospectus, we may use certain
supplemental sales material in connection with the offering. This material,
prepared by our advisor, may consist of a brochure describing the advisor and
its affiliates and our objectives. The material may also contain pictures and
summary descriptions of properties similar to those we intend to acquire that
our affiliates have previously acquired. This material may also include
audiovisual materials and taped presentations highlighting and explaining
various features of the offering, properties of prior real estate programs and
real estate investments in general; and articles of incorporation and
publications concerning real estate. Business reply cards, introductory letters
and seminar invitation forms may be sent to the dealer members of the National
Association of Securities Dealers designated by Inland Securities Corporation
and prospective investors. No person has been authorized to prepare for, or
furnish to, a prospective investor any sales literature other than that
described herein and "tombstone" newspaper advertisements or solicitations of
interest that are limited to identifying the offering and the location of
sources of further information.
The use of any sales materials is conditioned upon filing with and, if
required, clearance by appropriate regulatory agencies. Such clearance (if
provided), however, does not indicate that the regulatory agency allowing the
use of the materials has passed on the merits of the offering or the adequacy or
accuracy of the materials.
This offering is made only by means of this prospectus. Except as described
herein, we have not authorized the use of other supplemental literature or sales
material in connection with this offering.
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DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS
DISTRIBUTION REINVESTMENT PROGRAM
Our distribution reinvestment program provides our stockholders with an
opportunity to purchase additional shares of common stock by reinvesting
distributions. Stockholders who elect to participate in the distribution
reinvestment program will authorize us to use distributions payable to them to
purchase additional shares of common stock. A participant will not be able to
acquire common stock under the program if the purchase would cause it to exceed
the 9.8% ownership limit or would violate any of the other share ownership
restrictions imposed by our articles of incorporation.
As further explained below, purchases under the distribution reinvestment
program are made at a price, $9.50 per share at first, equal to 95% of the
market price of a share of common stock on the date of purchase until such time
as our shares are listed on a national stock exchange or included for quotation
on a national market system. This reduced price reflects a decrease in costs
associated with these issuances. Participants in the distribution reinvestment
program may also purchase fractional shares of common stock, so that 100% of
distributions will be used to acquire common stock. Common stock will be
purchased under the distribution reinvestment program on the record date for the
distribution used to purchase the common stock. Distributions on common stock
acquired under the distribution reinvestment program will be paid at the same
time as distributions are paid on common stock purchased outside the program and
are calculated with a daily record and distribution declaration date. Each
participant agrees that if, at any time prior to listing the common stock on a
national stock exchange or inclusion of them for quotation on a national market
system, he or she fails to meet the suitability requirements for making an
investment in us or cannot make the other representations or warranties set
forth in the subscription agreement, he or she will promptly notify us in
writing.
Beginning with the first distribution paid after the effective date of the
offering, participants will acquire our shares at a fixed price of $9.50 per
share. This will continue until the earlier of (1) the increase of the public
offering price per share of common stock in the offering from $10 per share, if
there is an increase, and (2) the termination of the offering. Thereafter,
participants may acquire our shares at a price equal to 95% of the market price
of a share on the date of purchase until our shares are listed on a national
stock exchange or included for quotation on a national market system. In the
event of listing or inclusion, we will purchase shares for the distribution
reinvestment program on the exchange or market at the prevailing market price.
We will then sell the shares to stockholders at that price. The discount from
the public offering price per share will not exceed 5% of the market price of a
share on the date of purchase. It is possible that a secondary market will
develop for the shares, and that the prices on the secondary market will be
lower or higher than the price of shares purchased through the distribution
reinvestment program. Neither we nor our affiliates will receive a fee for
selling shares through the distribution reinvestment program. We do not warrant
or guarantee that participants will acquire shares at the lowest possible price
through the program.
A participant may stop participating in the distribution reinvestment
program at any time without penalty, by delivering written notice to us. Prior
to listing the shares on a national securities exchange or including them for
quotation on a national market system, any transfer of shares by a participant
to a non-participant will terminate participation in the distribution
reinvestment program with respect to the transferred shares. Within 90 days
after the end of our fiscal year, we will:
- issue certificates showing ownership of shares purchased through the
distribution reinvestment program during the prior fiscal year,
ownership of these shares will be in book-entry form prior to the
issuance of certificates; and
160
- provide each participant with an individualized report on his or her
investment, including the purchase date(s), purchase price and number
of shares owned, as well as the dates of distribution and amount of
distributions received during the prior fiscal year.
The individualized statement to participants will include receipts and purchases
relating to each participant's participation in the distribution reinvestment
program including the tax consequences relative thereto. The directors,
including a majority of independent directors, by majority vote may amend or
terminate the distribution reinvestment program upon 30 days notice to
participants.
Stockholders who participate in the distribution reinvestment program will
recognize dividend income, taxable to the extent of our current or accumulated
earnings and profits, in the amount and as though they had received the cash
rather than purchased shares through the distribution reinvestment program.
These deemed dividends will be treated as actual dividends and will retain the
character and tax effects applicable to all dividends. In addition, the 5%
discount applicable to shares purchased under the dividend reinvestment program
will itself be treated as a deemed distribution to the purchaser. Shares
received under the distribution reinvestment program will have a holding period,
for tax purposes, beginning with the day after purchase, and a tax basis equal
to their cost, which is the gross amount of the deemed distribution. See
"Federal Income Tax Considerations -- Federal Income Taxation of Stockholders"
for a full discussion of the tax effects of dividend distributions.
As explained under "Description of Securities -- Restrictions on Ownership
and Transfer," the certificates representing shares purchased through the
distribution reinvestment program will bear a legend referring to the
restrictions on their ownership and transfer.
SHARE REPURCHASE PROGRAM
The share repurchase program may, subject to certain restrictions discussed
below, provide eligible stockholders with limited, interim liquidity by enabling
them to sell shares back to us. The prices at which shares may be sold back to
us are as follows:
- One year from the purchase date, at $9.25 per share;
- Two years from the purchase date, at $9.50 per share;
- Three years from the purchase date, at $9.75 per share; and
- Four years from the purchase date, at the greater of: $10.00 per
share; or a price equal to 10 times our "funds available for
distribution" per weighted average share outstanding for the prior
calendar year.
During any offering, the repurchase price shall be equal to or below the
price of the shares offered in any offering. A stockholder must have
beneficially held the shares for at least one year prior to offering them for
sale to us through the share repurchase program. However, if a stockholder dies,
we may waive this one-year holding period for the beneficiaries or heirs, as
appropriate.
We will make repurchases under the share repurchase program, if requested
by a stockholder, monthly. Subject to funds being available, we will limit the
number of shares repurchased during any calendar year to five percent (5%) of
the weighted average number of shares outstanding during the prior calendar
year. Funding for the share repurchase program will come exclusively from
proceeds we receive from the sale of shares under our distribution reinvestment
plan and other operating funds, if any, as the board, at its sole discretion,
may reserve for this purpose.
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A stockholder may request that his or her shares be repurchased by
submitting a written request, and then generally within one week an assignment
form is sent for execution by the stockholder or his custodian/trustee along
with a request to return the certificate of ownership.
At the end of each month, the completed requests are reviewed. It is
possible that a stockholder may not have his or her entire request honored due
to the funds available. If that were to occur, the shares would then be
purchased on a "pro rata basis" and the portion of his or her request
unfulfilled would then be held until the next month, unless withdrawn.
We accept shares on a pro rata basis. Consequently, a stockholder might not
be able to have us repurchase his or her shares. Therefore, that stockholder
might not be able to sell or otherwise liquidate his or her shares and might
have to hold his or her shares for an indeterminate period of time.
Following commencement of our offering, we will be subject to the reporting
requirements of the Securities Exchange Act of 1934. In this regard, we will
prepare and file with the SEC annual reports on SEC Form 10-K and quarterly
reports on SEC Form 10-Q; we will provide copies of these filings to our
stockholders regularly following our filing with the SEC. Additionally, we will
amend on a quarterly basis the registration statement of which this prospectus
is a part; we will distribute to our stockholders the updated prospectus
regularly.
Any stockholder who wishes us to repurchase his or her shares must
beneficially own the shares for at least one year. Our obligation to repurchase
any shares under the program is conditioned upon our having sufficient funds
available for repurchase of shares and the other conditions of the plan. The
stockholder should direct a written request to Ms. Roberta S. Matlin, Vice
President of Administration, Inland Western Retail Real Estate Trust, Inc., 2901
Butterfield Road Oak Brook, Illinois 60523. The request must state the name of
the person/entity who owns the shares, the date of purchase of the subject
shares and the number of shares to be repurchased. We will forward an assignment
form to the owner of record of the subject shares for execution. The requesting
stockholder must properly execute and return the form along with the stock
certificate for the shares to be repurchased and evidence that no lien or
encumbrance is on the shares. Upon receipt of the form, if satisfactory evidence
is not provided, we will conduct a Uniform Commercial Code (UCC) search to
ensure that no liens are held against the shares at the cost of $100 to the
stockholder, which will be deducted from the proceeds of the repurchase. We use
a third party to conduct this UCC search. The repurchase will occur on a prorata
basis each month assuming all documentation is complete, including a negative
response from a UCC search. If the UCC search determines that a lien exists
against the shares, we will charge the requesting stockholder for the UCC
search. If we do not have sufficient funds available for repurchase of the
entire request or we exceed the share limitation, we will purchase only those
shares for which we have sufficient funds available or are below the limitation;
and we will place the requesting stockholder's request into the next month until
funds become available sufficient to complete the transaction or we do not
exceed the limitation.
If a stockholder wishes to withdraw his or her request to have his or her
shares repurchased, the stockholder must notify us in writing. We will not
repurchase that stockholder's shares so long as we receive the written request
to withdraw prior to the date we send payment to the applicable stockholder. The
requesting stockholder will be responsible for payment of the $100 UCC search
fee even if that stockholder withdraws his or her request, if we have conducted
a UCC search.
There is no limit on the number of shares that an individual stockholder
may request to be repurchased, subject to the limitations regarding availability
of funds and the aggregate amount of stock that we are permitted to purchase
under the program.
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Payment for repurchased shares from the time of the initial request to
receipt of the funds is usually three to four weeks dependent upon receipt of
the executed assignment form and certificate of ownership, and completion of a
UCC search to ensure that no liens are held against the stock or other
satisfactory evidence.
The board, at its sole discretion, may choose to terminate the share
repurchase program after the end of the offering period, or reduce the number of
shares purchased under the program, if it determines that the funds allocated to
the share repurchase program are needed for other purposes, such as the
acquisition, maintenance or repair of properties, or for use in making a
declared distribution. A determination by the board to eliminate or reduce the
share repurchase program will require the unanimous affirmative vote of the
independent directors.
We cannot guarantee that the funds set aside for the share repurchase
program will be sufficient to accommodate all requests made each year. If no
funds are available for the program when repurchase is requested, the
stockholder may withdraw the request, or ask that we honor the request when
funds are available. Pending requests would be pro rated, depending upon
availability of funds.
Stockholders are not required to sell their shares to us. The share
repurchase program is only intended to provide interim liquidity for
stockholders until a liquidity event occurs, such as the listing of the shares
on a national securities exchange, inclusion of the shares for quotation on a
national market system, or our merger with a listed company. The share
repurchase plan will be terminated if the shares become listed on a national
securities exchange or included for quotation on a national market system. We
cannot guarantee that a liquidity event will occur.
Shares we purchase under the share repurchase program will be canceled, and
will have the status of authorized but unissued shares. Shares we acquire
through the share repurchase program will not be reissued unless they are first
registered with the Securities and Exchange Commission under the Securities Act
of 1933 and under appropriate state securities laws or otherwise issued in
compliance with such laws.
If we terminate, reduce or otherwise change the share repurchase program,
we will send a letter to stockholders informing them of the change at least 30
days in advance, and we will disclose the changes in quarterly reports filed
with the Securities and Exchange Commission on Form 10-Q.
See "Plan of Distribution -- Deferred Commission Option" for an explanation
of what will be required of the stockholder if the stockholder has elected the
deferred commission option and subsequently elects to participate in our share
repurchase program while there is an unpaid portion of the remaining deferred
commission obligation.
[THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
163
REPORTS TO STOCKHOLDERS
Our advisor will keep, or cause to be kept, full and true books of account
on an accrual basis of accounting, in accordance with generally accepted
accounting principles. All of these books of account, together with a copy of
our articles of incorporation, will at all times be maintained at our principal
office, and will be open to inspection, examination and duplication at
reasonable times by the stockholders or their agents.
The advisor will submit to each stockholder our audited annual reports
within 120 days following the close of each fiscal year. The annual reports will
contain the following:
- audited financial statements;
- the ratio of the costs of raising capital during the period to the
capital raised;
- the aggregate amount of advisory fees and the aggregate amount of fees
paid to the advisor and any affiliate of the advisor, including fees
or charges paid to the advisor and to any affiliate of the advisor by
third parties doing business with us;
- our total operating expenses, stated as a percentage of the average
assets and as a percentage of net income;
- a report from the independent directors that the policies we follow
are in the best interests of our stockholders and the basis for such
determination; and
- separately stated, full disclosure of all material terms, factors and
circumstances surrounding any and all transactions involving us, the
directors, the advisor and any of their affiliates occurring in the
year for which the annual report is made. Independent directors are
specifically charged with the duty to examine and comment in the
report on the fairness of such transactions.
In addition, unaudited quarterly reports containing the information
required by Form 10-Q will be submitted to each stockholder within 60 days after
the end of the first three fiscal quarters.
At the same time as any distribution, we will provide stockholders with a
statement disclosing the source of the funds distributed. If the information is
not available when the distribution is made, we will provide a statement setting
forth the reasons why the information is not available. In no event will the
information be provided to stockholders more than 60 days after we make the
distribution.
Within 60 days following the end of any calendar quarter during the period
of the offering in which we have closed an acquisition of a property, we will
submit a report to each stockholder containing:
- the location and a description of the general character of the
property acquired during the quarter;
- the present or proposed use of the property and its suitability and
adequacy for that use;
- the terms of any material leases affecting the property;
- the proposed method of financing, if any, including estimated down
payment, leverage ratio, prepaid interest, balloon payment(s),
prepayment penalties, "due-on-sale" or
164
encumbrance clauses and possible adverse effects thereof and similar
details of the proposed financing plan; and
- a statement that title insurance has been or will be obtained on the
property acquired.
- In addition, we will send a report to each stockholder and submit to
prospective investors when the advisor believes a property will
probably be acquired:
- on specified terms, i.e., upon completion of due diligence which
includes review of the title insurance commitment, appraisal and
environmental analysis; and
- involving the use of 10% or more, on a cumulative basis, of the net
proceeds of the offering.
After the completion of the last acquisition, the advisor will, upon
request, send a schedule to the Commissioner of Corporations of the State of
California. The schedule, verified under the penalty of perjury, reflects: each
acquisition made; the purchase price paid; the aggregate of all acquisition
expenses paid on each transaction; and a computation showing compliance with our
articles of incorporation. We will, upon request, submit to the Commissioner of
Corporations of the State of California or to any of the various state
securities administrators, any report or statement required to be distributed to
stockholders pursuant to our articles of incorporation or any applicable law or
regulation.
The accountants we regularly retain will prepare our federal tax return and
any applicable state income tax returns. We will submit appropriate tax
information to the stockholders within 30 days following the end of each of our
fiscal years. We will not provide a specific reconciliation between generally
accepted accounting principles and income tax information to the stockholders.
However, the reconciling information will be available in our office for
inspection and review by any interested stockholder. Annually, at the same time
as the dissemination of appropriate tax information to stockholders, we will
provide each stockholder with an individualized report on his or her investment,
including the purchase date(s), purchase price and number of shares owned, as
well as the dates of distribution and amounts of distributions received during
the prior fiscal year. The individualized statement to stockholders will include
any purchases of shares under the distribution reinvestment program.
Stockholders requiring individualized reports on a more frequent basis may
request these reports. We will make every reasonable effort to supply more
frequent reports, as requested, but we may, at our sole discretion, require
payment of an administrative charge either directly by the stockholder, or
through pre-authorized deductions from distributions payable to the stockholder
making the request.
See "Risk Factors -- Employee Benefit Plan Risks" for an explanation of the
annual statement of value we provide to stockholders subject to ERISA.
PRIVACY POLICY NOTICE
To help you understand how we protect your personal information, we have
included our Privacy Policy Notice as Appendix F to this Prospectus. This Notice
describes our current privacy policy and practices. Should you decide to
establish or continue a shareholder relationship with us, we will advise you of
our policy and practices at least once annually, as required by law.
LITIGATION
We are not subject to any material pending legal proceedings.
165
RELATIONSHIPS AND RELATED TRANSACTIONS
We have entered into agreements to pay our advisor and its affiliates
certain fees or other compensation for providing services to us.
The compensation arrangements between us and our advisor, The Inland Group
and its affiliates, were not determined by arm's-length negotiations. See
"Conflicts of Interest." The following table discloses the compensation which we
may pay our advisor and its affiliates. In those instances in which there are
maximum amounts or ceilings on the compensation which may be received, our
advisor and its affiliates may not recover any excess amounts for those services
by reclassifying them under a different compensation or fee category.
We define net income as total revenues less expenses other than additions
to reserves for depreciation or bad debts or other similar non-cash reserves.
When we use the term "net income" for purposes of calculating some expenses and
fees, it excludes the gain from the sale of our assets. This definition of net
income is prescribed by the Statement of Policy Regarding REITs adopted by the
North American Securities Administrators Association, Inc., or NASAA; but it is
not in accordance with generally accepted accounting principles in the United
States, because depreciation and other non-cash reserves are not deducted in
determining net income under the NASAA REIT Statement. Excluding depreciation
will result in not reimbursing our Advisor for a non-cash expenditure and not
excluding the gain from the sale of our assets could result in greater net
income on which the 25% reimbursement to our Advisor is allowed.
NONSUBORDINATED PAYMENTS
The following aggregate amounts of compensation, allowances and fees we may
pay to our advisor and its affiliates are not subordinated to the returns on net
investments that we are required to pay to our stockholders.
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
----------------------------- ---------------------------------------------------- -------------------------------
OFFERING STAGE
Selling commissions payable We will pay a selling commission of 7.5% of the sale The actual amount depends upon
to the managing dealer and price for each share (and reallow 7%), subject to the amount of shares sold. We
dealers designated by the reduction for special sales under the circumstances will not pay selling
managing dealer referred to as described in the "Plan of Distribution - commissions if the minimum
as soliciting dealers. Compensation - We Will Pay For the Sale of Our offering is not sold. If only
Neither the managing dealer, Shares." the minimum offering is sold
the soliciting dealers, nor and there are no special sales,
our officers or directors We will permit the managing dealer and its a total of $150,000 in selling
will be offered to purchase respective officers and employees and certain of its commissions will be paid. A
shares of our stock in order affiliates to purchase shares net of sales total of $187,500,000 in
to meet the minimum commissions and the marketing contribution and due selling commissions will be
thresholds. diligence expense allowance or for $8.95 per share. paid if the maximum offering is
sold and there are no special
Also, soliciting dealers and their respective sales.
officers and employees and certain of their
respective affiliates who request and are
entitled to purchase shares net of selling
commissions may make an initial purchase of
shares net of sales commissions or for $9.30 per
share; however, any subsequent purchases of
shares by any such persons are limited to a
maximum discount of 5%.
166
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
----------------------------- ---------------------------------------------------- -------------------------------
Marketing contribution and due We will pay an amount equal to 2.5% of the gross The actual amount depends on
diligence expense allowance offering proceeds to the managing dealer, all or a the number of shares. If there
paid to the managing dealer portion of which may be passed on to soliciting are no special sales,
and soliciting dealers. dealers, in lieu of reimbursement of specific approximately the following
expenses associated with marketing. We may pay an amounts will be paid for the
additional 0.5% of the gross offering proceeds to marketing contribution and the
the managing dealer, which may be passed on to the due diligence expense
soliciting dealers, for due diligence expenses. We allowance:
will not pay the marketing contribution and due
diligence expense allowance in connection with any - $60,000 if we sell the
special sales, except those receiving volume minimum number of shares;
discounts and those described in "Plan of or
Distribution - Volume Discounts."
- $75,000,000 if we sell the
maximum number of shares.
Other expenses of issuance We expect to incur the following expenses in All amounts other than the
and distribution connection with this offering: Securities and Exchange
Commission registration fee
Securities and Exchange and the NASD filing fee are
Commission registration estimates. The actual amounts
fee $ 217,621 of these expenses cannot be
NASD filing fee $ 30,500 determined at the present
Printing and mailing time. We estimate the total
expenses $ 3,500,000 amount of the issuance and
Blue Sky fees and distribution expenses to be
expenses $ 136,000 approximately $14,684,121.
Legal fees and
expenses $ 650,000
Accounting fees and
expenses $ 650,000
Advertising and sales
literature $ 5,000,000
Due diligence $ 3,000,000
Data Processing fees $ 500,000
Bank fees and other
administrative
expenses $ 200,000
We will reimburse our sponsor for actual costs Expenses of approximately
incurred in connection with the offering on our $691,911 have been advanced by
behalf. However, if the aggregate of all offering our sponsor through June 30,
expenses, including selling commissions, the 2003 in connection with this
marketing contribution and due diligence expense offering. We may reimburse for
allowance, exceeds 15% of the gross offering offering expenses advanced:
proceeds, or if the aggregate of all offering - $90,000 if we sell the
expenses, excluding the selling expenses, exceeds minimum offering based on
5.5% of the gross offering proceeds, our advisor or the 15% limitation; or
its affiliates will promptly pay the excess and we
will have no liability for these expenses at any - $14,684,000 if we sell the
time afterward. maximum offering.
If the offering is not
successful, then our sponsor
will be solely responsible for
the organization and offering
expenses to the extent it has
not been reimbursed.
167
ESTIMATED MAXIMUM
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
---------------------------------- ---------------------------------------------------- -------------------------------
ACQUISITION STAGE
Acquisition expenses paid to We will pay an amount, estimated to be up to 0.5% We may pay the following
our advisor and its of the total of (1) the gross offering proceeds amounts for the reimbursement
affiliates. from the sale of 250,000,000 shares, (2) the gross of acquisition expenses:
proceeds from the sale of up to 20,000,000 shares
pursuant to the distribution reinvestment - no more than $10,000 if the
programs. The acquisition expenses for any minimum number of shares
particular property will not exceed 6% of the are sold; or
gross purchase price of the property.
- no more than $13,450,000 if
However, if we request additional services, the the maximum number of
compensation will be provided on separate shares are sold and all of
agreed-upon terms and the rate will be approved by the 20,000,000 shares are
a majority of disinterested directors, including a sold pursuant to the
majority of the disinterested independent distribution reinvestment
directors, as fair and reasonable for us. program.
However, the actual amounts
cannot be determined at the
present time.
Interest expenses paid to our We may borrow money from our advisor and its The actual amounts are
advisor and its affiliates and affiliates in order to acquire properties. In such dependent on actual
Inland Mortgage Corporation in instances, we will pay our advisor and its borrowings. Therefore, these
connection with loans. affiliates customary interest payments. amounts cannot be determined
at the present time.
ESTIMATED MAXIMUM
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
---------------------------------- ---------------------------------------------------- -------------------------------
OPERATIONAL STAGE
Property management fee paid We will pay a monthly fee of 4.5% of the gross The actual amounts are
to our property manager, income from the properties. We will also pay a dependent upon results of
Inland Western Management monthly fee for any extra services equal to no operations and, therefore,
Corp. We will pay the fee for more than 90% of that which would be payable to an cannot be determined at the
services in connection with unrelated party providing the services. The present time. If we acquire
the rental, leasing, operation property manager may subcontract its and/or our the businesses of our advisor
and management of the property manager, duties for a fee that may be
properties. less than the property management fees the fee
provided for in the management will cease.
services agreements.
Advisor asset management fee. We will pay our advisor an asset management fee The actual amounts are
We will pay the fee for after our stockholders have first received a 6% dependent upon results of
services in connection with annual return. operations and, therefore,
our day-to-day operations, cannot be determined at the
including making strategic present time.
decisions, performing
day-to-day operations that
include accounting,
168
investment advisory services,
risk management services and
tax reduction services and
providing other services as
our board deems appropriate.
ESTIMATED MAXIMUM
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
---------------------------------- ---------------------------------------------------- -------------------------------
OPERATIONAL STAGE
Reimbursable expenses to our We will reimburse some expenses of the advisor. The actual amounts are
advisor. These may include The compensation and reimbursements to our advisor dependent upon results of
costs of goods and services, will be approved by a majority of our directors operations and, therefore,
administrative services and and a majority of our independent directors as cannot be determined at the
non-supervisory services fair and reasonable for us. present time.
performed directly for us by
independent parties.
We will reimburse some Inland Risk and Insurance Management Services The actual amounts are
expenses of the Inland Risk charges us $50 per hour for assistance in dependent upon results of
and Insurance Management obtaining insurance coverage. Any commissions they operations and, therefore,
Services for insurance receive are credited against this hourly rate. We cannot be determined at the
coverage. believe this hourly rate is approximately 90% of present time.
the rate charged by unaffiliated third parties.
The compensation to this company will be approved
by a majority of our directors and a majority of
our independent directors as fair and reasonable
for us.
We will compensate the Inland Inland Mortgage Servicing Corporation charges us The actual amounts are
Mortgage Servicing Corporation .03% per year on the first billion dollars of dependent upon results of
and Inland Mortgage Investment mortgages serviced and .01% thereafter. Inland operations and, therefore,
Corporation for purchase, sale Mortgage Investment Corporation charges us .02% of cannot be determined at the
and servicing of mortgages. the principal amount of each loan placed. The present time.
compensation to these companies will be approved
by a majority of our directors and a majority of
our independent directors as fair and reasonable
for us.
ESTIMATED MAXIMUM
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
---------------------------------- ---------------------------------------------------- -------------------------------
LIQUIDATION STAGE
Property disposition fee We may pay a property disposition fee to our The actual amounts to be
payable to our advisor's advisor and its affiliates if we sell any of our received depend upon the sale
affiliates, Inland Real real property in an amount equal to the lesser of: price of our properties and,
Estate Sales, Inc. and Inland therefore, cannot be
Partnership Property Sales 3. 3% of the contract sales price of the property; determined at the present
Corp. or time. If we acquire the
advisor, the property
disposition fee will
169
ESTIMATED MAXIMUM
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
---------------------------------- ---------------------------------------------------- -------------------------------
LIQUIDATION STAGE
4. 50% of the customary commission which would be cease.
paid to a third party broker for the sale of a
comparable property.
The amount paid, when added to the sums paid to
unaffiliated parties, will not exceed either the
customary commission or an amount equal to 6% of
the contracted for sales price. Payment of such
fees will be made only if the advisor provides a
substantial service in connection with the sale of
the property. See "Management -- Our Advisory
Agreement."
SUBORDINATED PAYMENTS
We may pay the following additional fees to our advisor after returns on
net investment have been paid to the stockholders:
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
---------------------------------- ---------------------------------------------------- -------------------------------
OPERATIONAL STAGE
Advisor asset management fee We pay an annual advisor asset management fee of The actual amounts to be
payable to our advisor. not more than 1% of our average assets. Our received depend upon the sale
average assets means the average of the total book price of our properties and,
value of our real estate assets plus the total therefore, cannot be
value of our loans receivables secured by real determined at the present
estate, before reserves for depreciation or bad time. If we acquire the
debts or other similar non-cash reserves. We will advisor, the property
compute our average assets by taking the average disposition fee will cease.
of these values at the end of each month during
the quarter for which we are calculating the fee.
The fee is payable quarterly in an amount equal
to 1/4 of 1% of average assets as of the last day of
the immediately preceding quarter. For any year in
which we qualify as a REIT, our advisor must
reimburse us for the following amounts if any:
(3) the amounts by which our total operating
expenses, the sum of the advisor asset
management fee plus other operating expenses,
paid during the previous fiscal year exceed
the greater of:
- 2% of our average assets for that fiscal year,
or
- 25% of our net income for that fiscal year.
(4) an amount, which will not exceed the advisor
asset management fee for that year, equal to
any difference between the
170
total amount of distributions to stockholders
for that year and the 6% annual return on the
net investment of stockholders.
Items such as organization and offering expenses,
property expenses, interest payments, taxes,
non-cash expenditures, the incentive advisory fee
and acquisition expenses are excluded from the
definition of total operating expenses.
See "Management -- Our Advisory Agreement" for an
explanation of circumstances where the excess
amount specified in clause (1) may not need to be
reimbursed.
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
----------------------------- ---------------------------------------------------- -----------------------------------
LIQUIDATION STAGE
Incentive advisory fee We will pay to the advisor an amount equal to 15% The actual amounts to be
payable to our advisor. of the net proceeds from the sale of a property received depend upon the sale
after the stockholders have first received: price of our properties and,
therefore, cannot be
(1) a cumulative non-compounded return equal to determined at the present
10% a year on their net investment; and time. If we acquire or
consolidate with the business
(2) their net investment. conducted by our advisor, the
incentive advisory fee will
terminate.
171
LEGAL MATTERS
Duane Morris LLP, Washington, D.C., has passed upon the legality of the
common stock and Duane Morris LLP, Philadelphia, Pennsylvania, has passed upon
legal matters in connection with our status as a REIT for federal income tax
purposes. Duane Morris LLP is generally referred to in this prospectus as Duane
Morris. Duane Morris does not purport to represent our stockholders or potential
investors, who should consult their own counsel. Duane Morris also provides
legal services to affiliates of our advisor.
Duane Morris has reviewed the statements in the section in the prospectus
titled "Federal Income Tax Considerations" and elsewhere as they relate to
federal income tax matters and the statements in the section in the prospectus
titled "ERISA Considerations."
EXPERTS
The balance sheet of Inland Western Retail Real Estate Trust, Inc. as of
June 30, 2003, and the historical summary of gross income and direct operating
expenses of Peoria Station for the year ended December 31, 2002, have been
included herein in reliance upon the reports of KPMG LLP, independent
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are filing this registration statement on Form S-11 with the Securities
and Exchange Commission in connection with our initial public offering. We are
required to file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement and all of its
exhibits, certificates and schedules. Whenever a reference is made in this
prospectus to any contract or other document of ours, the reference may not be
complete and you should refer to the exhibits that are a part of the
registration statement for a copy of the contract or document.
You can read our registration statement and our future SEC filings over the
Internet at www.sec.gov. You may also read and copy any document we file with
the SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549.
You may also obtain copies of the documents at prescribed rates by writing
to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1 800 SEC-0330 or e-mail at
publicinfo@sec.gov for further information on the operation of the public
reference facilities.
172
INDEX TO FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENTS
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Report of Independent Registered Public Accounting Firm F-1
(b) Balance Sheet at June 30, 2003 F-2
(c) Notes to Balance Sheet at June 30, 2003 F-3
2. PEORIA STATION:
(a) Independent Auditors' Report F-8
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2002 and six months ended June 30, 2003
(unaudited) F-9
(c) Notes to the Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 2002 and
six months ended June 30, 2003 (unaudited) F-10
F-i
Report of Independent
Registered Public Accounting Firm
Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying balance sheet of Inland Western Retail Real
Estate Trust, Inc. (the "Company") as of June 30, 2003. This financial statement
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the balance sheet
is free of material misstatement. An audit of a balance sheet includes
examining, on a test basis, evidence supporting the amounts and disclosures in
that balance sheet. An audit of a balance sheet also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Inland Western Retail Real Estate
Trust, Inc. as of June 30, 2003, in conformity with U.S. generally accepted
accounting principles.
KPMG LLP
Chicago, Illinois
August 15, 2003
F-1
Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
BALANCE SHEET
June 30, 2003
ASSETS
Cash $ 200,000
Deferred offering costs 684,411
------------
Total assets $ 884,411
============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued offering expenses $ 691,911
Commitments and contingencies (Note 3)
Stockholder's equity:
Preferred stock, $.001 par value,
10,000,000 shares authorized, none
outstanding -
Common stock, $.001 par value,
350,000,000 shares authorized, 20,000
shares issued and outstanding 20
Additional paid in capital 202,230
Retained earnings deficit (9,750)
------------
Total stockholders' equity 192,500
------------
Total liabilities and stockholders' equity $ 884,411
============
See accompanying notes to balance sheet.
F-2
Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
NOTES TO BALANCE SHEET
June 30, 2003
(1) Organization
Inland Western Retail Real Estate Trust, Inc. (the "Company") was formed on
March 5, 2003 to acquire and manage a diversified portfolio of real estate,
primarily multi-tenant shopping centers and has not commenced operations. The
Advisory Agreement (the "Agreement") provides for Inland Western Retail Real
Estate Advisory Services, Inc. (the "Advisor"), an Affiliate of the Company, to
be the Advisor to the Company. The Company contemplates the sale of up to
250,000,000 shares of common stock ("Shares") at $10 each in an initial public
offering (the "Offering") to be registered with the Securities and Exchange
Commission (the "Registration Statement") and the issuance of 20,000,000 shares
at $9.50 each which may be distributed pursuant to the Company's distribution
reinvestment program. No shares will be sold unless subscriptions for at least
200,000 shares (the minimum offering) have been obtained within one year after
commencement of the Offering.
The Company intends to qualify as a real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, as amended, for federal income tax purposes
commencing with the tax year ending December 31, 2003. If the Company qualifies
for taxation as a REIT, the Company generally will not be subject to federal
income tax to the extent it distributes its REIT taxable income to its
stockholders. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income tax on its taxable income at regular
corporate tax rates. Even if the Company qualifies for taxation as a REIT, the
Company may be subject to certain state and local taxes on its income and
property and federal income and excise taxes on its undistributed income.
The Company will provide the following programs to facilitate investment in the
Company's shares and to provide limited liquidity for stockholders.
The Company will allow stockholders who purchase shares in the offering to
purchase additional shares from the Company by automatically reinvesting
distributions through the distribution reinvestment program ("DRP"), subject to
certain share ownership restrictions. Such purchases under the DRP will not be
subject to selling commissions or the marketing contribution and due diligence
expense allowance, and are made at a price of $9.50 per share.
The Company will repurchase shares under the share repurchase program ("SRP"),
if requested, monthly on a first-come, first-served basis, subject to certain
restrictions. Subject to funds being available, the Company will limit the
number of shares repurchased during any calendar year to 5% of the weighted
average number of shares outstanding during the prior calendar year. Funding for
the SRP will come exclusively from proceeds that the Company receives from the
sale of shares under the DRP and such other operating funds, if any, as the
Company's Board of Directors, at its sole discretion, may reserve for this
purpose. The board, at its sole discretion, may choose to terminate the share
repurchase program after the end of the offering period, or reduce the number of
shares purchased under the program, if it determines that the funds allocated to
the share repurchase program are needed for other purposes, such as the
acquisition, maintenance or repair of properties, or for use in making a
declared distribution. A determination by the board to eliminate or reduce the
share repurchase program will require the unanimous affirmative vote of the
independent directors.
F-3
Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
NOTES TO BALANCE SHEET
(continued)
June 30, 2003
(2) Summary of Significant Accounting Policies
The preparation of a balance sheet requires management of the Company to make a
number of estimates and assumptions relating to the reported amount of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the balance sheet. Actual results could differ from those estimates.
Costs associated with the offering are deferred and charged against the gross
proceeds of the offering upon closing. Formation and organizational costs are
expensed as incurred. As of June 30, 2003, $7,500 of organizational costs were
expensed.
The Company applies the fair value method of accounting as prescribed by SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION for its stock options granted.
Under this method, the Company will report the value of granted options as a
charge against earnings ratably over the vesting period.
(3) Transactions with Affiliates
The Advisor contributed $200,000 to the capital of the Company for which it
received 20,000 shares of common stock.
As of June 30, 2003, the Company had incurred $691,911 of offering and
organization costs, all of which was advanced by the Advisor. Pursuant to the
terms of the offering, the Advisor has guaranteed payment of all public offering
expenses (excluding sales commissions and the marketing contribution and the due
diligence expense allowance) in excess of 5.5% of the gross proceeds of the
offering or all organization and offering expenses (including selling
commissions) which together exceed 15% of gross proceeds. In the event that the
minimum offering is not successful, an Affiliate of the Advisor will bear the
related costs of the Offering.
F-4
Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
NOTES TO BALANCE SHEET
(continued)
June 30, 2003
Certain compensation and fees payable to the Advisor for services to be provided
to the Company are limited to maximum amounts.
Nonsubordinated payments:
Offering stage:
Selling commissions 7.5% of the sale price for each share
Marketing contribution 3.0% of the gross offering proceeds
and due diligence
allowance
Reimbursable expenses We will reimburse our sponsor for
and other expenses of actual costs incurred, on our behalf,
issuance in connection with the offering.
Acquisition stage:
Acquisition expenses We will reimburse an affiliate of our
Advisor for costs incurred, on our
behalf, in connection with the
acquisition of properties
Operational stage:
Property management fee 4.5% of the gross income from the
THIS FEE TERMINATES UPON A properties. (cannot exceed 90% of the
BUSINESS COMBINATION WITH THE fee which would be payable to an
PROPERTY MANAGEMENT COMPANY. unrelated third party)
Loan servicing fee .08% of the total principal amount of
the loans being serviced for each full
year, up to the first $100 million and
a lesser percentage on a sliding scale
thereafter
Reimbursable expenses The compensation and reimbursements to
relating to administrative our advisor and its affiliates will be
services approved by a majority of our
directors.
F-5
Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
NOTES TO BALANCE SHEET
(continued)
June 30, 2003
Liquidation stage:
Property disposition fee Lesser of 3% of sales price or 50% of
THIS FEE TERMINATES UPON customary the commission which would
A BUSINESS COMBINATION be paid to a third party
WITH THE ADVISOR
Subordinated payments:
Operational stage:
Advisor asset management fee Not more than 1% per annum of our
THIS FEE TERMINATES UPON A average assets; Subordinated to a
BUSINESS COMBINATION WITH non-cumulative, non-compounded return,
THE ADVISOR equal to 6% per annum
Liquidation stage:
Incentive advisory fee After the stockholders have first
THIS FEE TERMINATES UPON A received a 10% cumulative,
BUSINESS COMBINATION WITH non-compounded return and a return on
THE ADVISOR their net investment, an incentive
advisory fee equal to 15% on net
proceeds from the sale of a property
will be paid to the Advisor.
(3) Commitments
The Company has adopted an Independent Director Stock Option Plan which, subject
to certain conditions, provides for the grant to each Independent Director of an
option to acquire 3,000 shares following their becoming a Director and for the
grant of additional options to acquire 500 shares on the date of each annual
stockholders' meeting. The options for the initial 3,000 shares are exercisable
as follows: 1,000 shares on the date of grant and 1,000 shares on each of the
first and second anniversaries of the date of grant. The subsequent options will
be exercisable on the second anniversary of the date of grant. The initial
options will be exercisable at $8.95 per share. The subsequent options will be
exercisable at the fair market value of a share on the last business day
preceding the annual meeting of stockholders. As of June 30, 2003, we have
issued 3,000 options to acquire shares to each of our Independent Directors, for
a total of 9,000 options, of which none have been exercised or expired.
F-6
Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
NOTES TO BALANCE SHEET
(continued)
June 30, 2003
The per share weighted average fair value of options granted was $0.60 on the
date of the grant using the Black Scholes option-pricing model with the
following assumptions: expected dividend yield of 8%, risk free interest rate of
2.0%, expected life of five years and expected volatility rate of 18.0%. The
Company has recorded $2,250 as expense for the 3,000 options (1,000 options per
director) vesting upon the date of grant and will record the remaining $3,150 in
expense ratably over the two-year vesting period.
The Company anticipates that the aggregate borrowings related to all of the
Company's properties will be limited to certain maximum amounts. See "Investment
Objectives and Policies" elsewhere in this Prospectus for a description of such
maximum borrowing amounts.
The Company has rights to purchase an investment property currently being
redeveloped, known as Peoria Station, from an unaffiliated third party for
approximately $25,867,000. This amount may be adjusted based on actual rental
rates achieved on the redeveloped square feet. The Company expects to purchase
this property by November 1, 2003, however, the seller may extend the closing
date if minimum rental rates stated in the contract have not yet been achieved.
(4) New Accounting Pronouncement
On May 15, 2003, the Financial Accounting Standards Board issued Statement No.
150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY. The Statement requires issuers to classify as
liabilities (or assets in some circumstances) three classes of freestanding
financial instruments that embody obligations for the issuer.
Generally, the Statement is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The Company adopted the
provisions of the Statement on July 1, 2003.
The Company did not enter into any financial instruments within the scope of the
Statement during June 2003. To the extent stockholders request shares to be
repurchased by the Company under the Share Repurchase Program, the Company's
obligation to repurchase such shares will be classified as a liability at the
redemption amount at the date documentation is complete and accepted by the
Company in accordance with the plan documents.
F-7
Independent Auditors' Report
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Peoria Station ("the Property") for
the year ended December 31, 2002. This Historical Summary is the responsibility
of the management of Inland Western Retail Real Estate Trust, Inc. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Historical
Summary is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the Historical
Summary. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the Historical Summary. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Western Retail
Real Estate Trust, Inc., as described in note 2. The presentation is not
intended to be a complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Peoria Station for the year ended December 31, 2002, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
March 10, 2003
F-8
PEORIA STATION
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
December 31, June 30,
2002 2003 (unaudited)
------------------ ------------------
Gross income:
Base rental income $ 1,524,218 779,009
Operating expense and real estate tax recoveries 479,053 229,566
------------------ ------------------
Total gross income 2,003,271 1,008,575
------------------ ------------------
Direct operating expenses:
Operating expenses 130,419 59,264
Real estate taxes 322,362 155,379
Insurance 26,179 14,923
------------------ ------------------
Total direct operating expenses 478,960 229,566
------------------ ------------------
Excess of gross income over direct operating expenses $ 1,524,310 779,009
================== ==================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-9
PEORIA STATION
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
(1) Business
Peoria Station (the "Property") is located in Phoenix, Arizona. The Property
consists of 140,019 square feet of gross leasable area and was 100% occupied at
December 31, 2002. Three tenants account for 66% of base rental revenue. Inland
Real Estate Acquisitions, Inc., on behalf of Inland Western Retail Real Estate
Trust, Inc. ("IWRRETI"), has signed a purchase and sale agreement for the
purchase of the Property from an unaffiliated third-party ("Seller").
(2) Basis of Presentation and Combination
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of IWRRETI and is not intended to be
a complete presentation of the Property's revenues and expenses. The Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Property to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2003.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed tenants pursuant to the
lease agreements. Certain leases contain renewal options at various periods at
various rental rates. None of the existing leases include any contingent
rentals.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by
$335,653 for the year ended December 31, 2002.
F-10
PEORIA STATION
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
Minimum rents to be received from tenants under operating leases, which terms
range from three to thirty-one years, in effect at December 31, 2002, are as
follows:
Year Total
--------------- --------------
2003 $ 1,563,237
2004 1,765,821
2005 1,611,422
2006 1,513,498
2007 1,331,269
Thereafter 14,420,530
--------------
Total $ 22,205,777
==============
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-11
APPENDIX A
PRIOR PERFORMANCE TABLES
The following prior performance tables contain information concerning real
estate programs sponsored by affiliates of our advisor which have investment
objectives similar to ours. This information has been summarized in narrative
form under "Prior Performance of Our Affiliates" in the prospectus. The tables
provide information on the performance of a number of programs. You can use the
information to evaluate the experience of our advisor's affiliates as sponsors
of the programs. The inclusion of these tables does not imply that we will make
investments comparable to those reflected in the tables or that investors in our
shares will experience returns comparable to those experienced in the programs
referred to in these tables. If you purchase our shares, you will not acquire
any ownership in any of the programs to which these tables relate. The tables
consist of:
Table I Experience in Raising and Investing Funds (unaudited)
Table II Compensation to IREIC and Affiliates (unaudited)
Table III Operating Results of Prior Programs (unaudited)
Table IV Results of Completed Programs (unaudited)
Table V Sales or Disposals of Properties (unaudited)
Table VI Acquisition of Properties by Programs* (unaudited)
* Our prospective investors may obtain copies of Table VI by contacting Inland
Western Retail Real Estate Advisory Services, Inc., our advisor.
Table VI is included in Part II of the Registration Statement filed with the
Securities and Exchange Commission of which this Prospectus is a part. Upon
written request to us or our advisor, any prospective investor may obtain,
without charge, a copy of Table VI. See also "Where You Can Find More
Information" for information on examining at, or obtaining copies from, offices
of the SEC.
Upon written request, any potential investor may obtain, without charge, the
most recent annual report on Form 10-K filed with the SEC by any public program
sponsored by any of the Inland's affiliated companies which has reported to the
SEC within the last 24 months. For a reasonable fee, the affiliated companies
will provide copies of any exhibits to such annual reports upon request.
Our investment objectives are to: (i) provide regular distributions to
stockholders in amounts which may exceed our taxable income due to the non-cash
nature of depreciation expense and, to such extent, will constitute a tax-
deferred return of capital, but in no event less than 90% of our taxable income,
pursuant to the REIT requirements; (ii) provide a hedge against inflation by
entering into leases which contain clauses for scheduled rent escalations or
participation in the growth of tenant sales, permitting us to increase
distributions and provide capital appreciation; and (iii) preserve stockholders'
capital.
The following programs have investment objectives similar to ours and are
included in the tables. Inland Retail Real Estate Trust, Inc. and Inland Real
Estate Corporation are two REITs formed primarily to invest in multi-tenant
shopping centers, Inland's Monthly Income Fund, L.P. and Inland Monthly Income
Fund II, L.P. are public real estate limited partnerships formed primarily to
acquire, operate and sell existing residential and commercial real properties.
Inland Mortgage Investors Fund, L.P., Inland Mortgage Investors Fund-II, L.P.
and Inland Mortgage Investors Fund III, L.P. were public real estate limited
partnerships formed primarily to make or acquire loans secured by mortgages on
improved, income producing multifamily residential properties.
A-1
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
Table I is intended to present information on a dollar and percentage basis
showing the experience of Inland Real Estate Investment Corporation ("IREIC"),
of which the Advisor is a wholly owned subsidiary, in raising and investing
funds in prior programs where the offering closed in the three years prior to
December 31, 2002. The table is intended to focus on the dollar amount available
for investment in properties expressed as a percentage of total dollars raised.
However, since no offering closed in the three years prior to December 31, 2002,
Table I is not included.
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
Table II summarizes the amount and type of compensation paid to Inland Real
Estate Investment Corporation and its affiliates during the three years ended
December 31, 2002 in connection with the prior programs.
Some partnerships acquired their properties from affiliates of our Advisor which
had purchased such properties from unaffiliated third parties.
A-2
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
(000'S OMITTED)
Inland's Inland
Inland Retail Inland Real Monthly Monthly
Real Estate Estate Income Income
Trust, Inc. Corporation Fund, L.P. Fund II, L. P.
----------------------------------------------------------------------------
Date offering commenced 02/11/99 10/14/94 08/03/87 08/04/88
Dollar amount raised $ 1,217,656 673,860 30,000 25,324
==========================================================================
Total amounts paid to general partner or affiliates
from proceeds of offerings:
Selling commissions and underwriting fees 105,809(C) 49,869(C) 273(B) 423(B)
Other offering expenses (D) 5,786 2,350 116 230
Acquisition cost and expense 844 925 2,550(E) 1,706(E)
==========================================================================
Dollar amount of cash available from
operations before deducting payments to
general partner or affiliates (F) 78,357 201,947 4,867 4,286
==========================================================================
Amounts paid to general partner or affiliates
related to operations: (J)
Property management fees (G) 7,403 3,045 69 55
Advisor asset management fee 5,413 2,414 0 0
Accounting services 578 77 50 48
Data processing service 229 43 27 27
Legal services 94 54 14 11
Mortgage servicing fees 253 50 0 0
Mortgage interest expense 0 27 0 0
Acquisition costs expensed 33 138 0 0
Other administrative services 849 138 70 44
Property upgrades 0 0 0 0
Dollar amount of property sales and
refinancings before payments to general
partner and affiliates (H):
Cash 0 1,314 4,964 0
Notes 0 0 0 0
Dollar amounts paid or payable to general
partner or affiliates from sales and
refinancings (I):
Sales commissions 0 0 0 0
Participation in cash distributions 0 0 0 0
A-3
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
NOTES TO TABLE II
(A) The figures in this Table II relating to proceeds of the offerings are
cumulative and are as of December 31, 2002 and the figures relating to cash
available from operations are for the three years ending December 31, 2002.
The dollar amount raised represents the cash proceeds collected by the
partnerships or program. Amounts paid or payable to IREIC or affiliates
from proceeds of the offerings represent payments made or to be made to
IREIC and affiliates from investor capital contributions.
(B) The selling commissions paid to an affiliate is net of amounts which were
in turn paid to third party soliciting dealers.
(C) The selling commissions paid to an affiliate includes amounts which were in
turn paid to third party soliciting dealers.
(D) Consists of legal, accounting, printing and other offering expenses,
including amounts to be paid to Inland Securities Corporation to be used as
incentive compensation to its regional marketing representatives and
amounts for reimbursement of the general partner for marketing, salaries
and direct expenses of its employees while directly engaged in registering
and marketing the Units and other marketing and organization expenses.
(E) Represents acquisition fees paid to IREIC and its affiliates in connection
with the acquisition of properties.
(F) See Note (B) to Table III.
(G) An affiliate provides property management services for all properties
acquired by the partnerships or program. Management fees have not exceeded
4.5% of the gross receipts from the properties managed.
(H) See Table V and Notes thereto regarding sales and disposals of properties.
(I) Real estate sales commissions and participations in cash distributions are
paid or payable to IREIC and/or its affiliates in connection with the sales
of properties in the public partnership programs. Payments of all amounts
shown are subordinated to the receipt by the limited partners of their
original capital investment. See Table V and Notes thereto.
(J) On July 1, 2000, IREC completed the acquisition of Inland Real Estate
Advisory Services, Inc., the former advisor, and Inland Commercial Property
Management, Inc., the former property manager (the "Merger"). Each of these
entities was merged into subsidiaries that are wholly owned by IREC. As a
result of the merger, IREC is now "self-administered." IREC no longer pays
advisory or property management fees but instead has hired an internal
staff to perform these tasks.
A-4
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents operating results for programs, the offerings of which closed
during each of the five years ended December 31, 2002. The operating results
consist of:
- The components of taxable income (loss);
- Taxable income or loss from operations and property sales;
- Cash available and source, before and after cash distributions to
investors; and
- Tax and distribution data per $1,000 invested.
Based on the following termination dates of the offerings, only IREC is included
in Table III.
- Inland Retail Real Estate Trust, Inc. - currently offering shares
- Inland's Monthly Income Fund, L.P. - offering terminated in 1988
- Inland Monthly Income Fund II, L.P. - offering terminated in 1990
- Inland Mortgage Investors Fund, L.P. - offering terminated in 1987
- Inland Mortgage Investors Fund-II, L.P. - offering terminated in 1988
- Inland Mortgage Investors Fund III, L.P. - offering terminated in 1991
A-5
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
INLAND REAL ESTATE CORPORATION
2002 2001 2000 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------
Gross revenues $ 156,358 155,048 150,892 123,788 73,302 29,422 6,328 1,180
Profit on sale of properties 1,546 467 0 0 0 0 0 0
Less:
Merger consideration costs (D) 0 0 68,775 0 0 0 0 0
Operating expenses 48,967 47,477 47,727 40,303 21,017 8,863 1,873 327
Interest expense 34,428 34,797 33,682 25,654 13,422 5,655 597 164
Program expenses 5,805 5,367 6,493 7,298 3,114 1,576 449 22
Depreciation & amortization 29,428 27,208 26,219 20,361 11,663 4,681 957 170
--------------------------------------------------------------------------------------
Net income (loss)-GAAP basis $ 39,276 40,666 (32,004) 30,172 24,086 8,647 2,452 497
======================================================================================
Taxable income (loss) (A): 0 0 0 0 0 0 0 0
======================================================================================
Cash available (deficiency) from
operations (B) 69,451 74,062 58,434 53,636 40,142 15,857 5,530 978
Cash available from sales (C) 8,175 2,364 0 0 0 0 0 0
--------------------------------------------------------------------------------------
Total cash available before
distributions and special items 77,626 76,426 58,434 53,636 40,142 15,857 5,530 978
Less distributions to investors:
From operations 61,913 62,367 54,368 48,773 33,454 11,899 3,286 607
From sales and refinancings 0 467 0 0 0 0 0 0
--------------------------------------------------------------------------------------
Cash available after distributions
before special items 15,713 13,592 4,066 4,863 6,688 3,958 2,244 371
Special items: 0 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------
Cash available after distributions
and special items $ 15,713 13,592 4,066 4,863 6,688 3,958 2,244 371
======================================================================================
Tax data per $1,000 invested (A): 0 0 0 0 0 0 0 0
Distribution data per $1,000 invested:
Cash distributions to investors:
Source (on GAAP basis):
Investment income 94 93 90 89 88 86 82 78
Source (on cash basis):
Sales 0 0 0 0 0 0 0 0
Operations (E) 94 93 90 89 88 86 82 78
Percent of properties remaining
unsold(F) 100.00%
=========
A-6
TABLE III--(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
NOTES TO TABLE III
(A) Inland Real Estate Corporation qualified as a real estate investment trust
("REIT") under the Internal Revenue Code for federal income tax purposes
commencing with the tax year ending December 31, 1995. Since it qualified
for taxation as a REIT, it generally will not be subject to federal income
tax to the extent it distributes its REIT taxable income to its
stockholders. If Inland Real Estate Corporation fails to qualify as a REIT
in any taxable year, it will be subject to federal income tax on its
taxable income at regular corporate tax rates. However, even if the program
qualifies for taxation as a REIT, it may be subject to certain state and
local taxes on its income and property and federal income and excise taxes
on its undistributed income.
(B) "Cash Available (Deficiency) from Operations," represents all cash revenues
and funds received by the programs, including but not limited to operating
income less operating expenses, and interest income. These amounts do not
include payments made by the programs from offering proceeds nor do they
include proceeds from sales or refinancings. These amounts also exclude
advances from or repayments to IREIC and affiliates which are disclosed
elsewhere in the table and include principal payments on long-term debt.
For example:
Inland Real Estate Corporation
(000's omitted)
2002 2001 2000 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------
Net cash provided by
operating activities per
the Form 10-K annual
report or 10-Q quarterly
report $ 69,500 74,091 58,505 53,724 40,216 15,924 5,530 978
Principal payments on
long-term debt (49) (29) (71) (88) (74) (67) - -
--------------------------------------------------------------------------------------
$ 69,451 74,062 58,434 53,636 40,142 15,857 5,530 978
======================================================================================
(C) See Table V and Notes thereto regarding sales and disposals of properties.
(D) On July 1, 2000, IREC completed the acquisition of Inland Real Estate
Advisory Services, Inc., the former advisor, and Inland Commercial Property
Management, Inc., the former property manager (the "Merger"). Each of these
entities was merged into subsidiaries that are wholly owned by IREC. IREC
issued an aggregate of 6,181,818 shares of its common stock valued at
$11.00 per share to Inland Real Estate Investment Corporation and The
Inland Property Management Group, Inc. The expense of these shares and
additional costs relating to the merger are reported as an operational
expense on IREC's Consolidated Statements of Operations.
A-7
TABLE III--(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
NOTES TO TABLE III
(E) Distributions by IREC to the extent of its current and accumulated earnings
and profits for federal income tax purposes are taxable to stockholders as
ordinary income. Distributions in excess of these earnings and profits
generally are treated as a non-taxable reduction of the stockholder's basis
in the shares to the extent thereof, and thereafter as taxable gain (a
return of capital). These distributions in excess of earnings and profits
will have the effect of deferring taxation of the amount of the
distribution until the sale of the stockholder's shares.
2002 2001 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------
% of Distribution
representing:
Ordinary income 69.52 78.33 76.37 73.67 76.22 74.19 83.50 94.24
Return of Capital 30.48 21.67 23.63 26.33 23.78 25.81 16.50 5.76
------------------------------------------------------------------------------
100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
(F) Percent of properties remaining unsold represents original total
acquisition costs of properties retained divided by original total
acquisition cost of all properties in the program, plus the total of
uninvested offering proceeds (if any). Sales proceeds from the sale of
three properties were used to acquire new properties.
A-8
TABLE IV
RESULTS OF COMPLETED PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
Table IV is a summary of operating and disposition results of prior programs
sponsored by affiliates of our advisor, which during the five years ended prior
to December 31, 2002 have sold their properties and either hold notes with
respect to such sales or have liquidated. Three programs with investment
objectives similar to ours have disposed of all of their properties during the
five years ended prior to December 31, 2002.
INLAND MORTGAGE INLAND MORTGAGE INLAND MORTGAGE
PROGRAM NAME INVESTORS FUND, L.P. INVESTORS FUND L.P.- II INVESTORS FUND III, L.P.
Dollar amount raised 10,065 9,388 2,837
Number of properties/loans purchased 15 13 7
Date of closing of offering 02/87 08/88 01/91
Date of first sale of property 12/88 09/89 06/93
Date of final sale of property 03/99 12/98 10/98
Tax and distribution data per
$1,000 invested (A):
Federal income tax results:
Ordinary income (loss):
Operations 547 633 419
Recapture 0 0 0
Capital Gain 30 0 0
Deferred Gain:
Capital 0 0 0
Ordinary 0 0 0
Cash distributions to investors (cash basis):
Source (on GAAP basis)
Investment income 624 631 421
Return of capital 745 809 827
Source (on cash basis)
Sales 745 809 827
Operations 624 631 421
(A) Data per $1,000 invested is presented as of December 31, 2002. See Table V
and Notes thereto regarding sales and disposals of properties.
A-9
TABLE V
SALES OR DISPOSALS OF PROPERTIES
Table V presents information on the results of the sale or disposals of
properties in programs with investment objectives similar to ours during the
three years ended December 31, 2002. Since January 1, 2000, programs sponsored
by affiliates of our advisor had five sales transactions. The table provides
certain information to evaluate property performance over the holding period
such as:
- Sales proceeds received by the partnerships in the form of cash down
payments at the time of sale after expenses of sale and secured notes
received at sale;
- Cash invested in properties;
- Cash flow (deficiency) generated by the property;
- Taxable gain (ordinary and total); and
- Terms of notes received at sale.
The entities listed in Table V are Inland's Monthly Income Fund, L.P. and IREC.
- Inland Real Estate Corporation - offering terminated in 1999.
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
Cash Selling Mortgage Secured
Received, Commissions at Notes
Date Date of net of Closing Paid or Payable Time of Received
Acquired Sale Costs(B) to Inland Sale at Sale
-------------------------------------------------------------------------------------------------------------------------
Monthly Income Fund I - McHenry Plaza 10/19/87 07/19/00 3,249 69 0 0
Monthly Income Fund I - Rantoul Walmart 08/05/88 11/17/00 1,715 83 985 0
IREC - Lincoln Park Place 01/24/97 04/17/01 1,314 0 1,050 0
IREC - Antioch Plaza 12/95 03/28/02 943 0 875 0
IREC - Shorecrest Plaza 07/97 06/12/02 3,107 0 2,989 0
Adjust
Resulting Partnership
from Net Original Capital
Application Selling Mortgage Invested
of GAAP Price Financing (C) Total
-------------------------------------------------------------------------------------------------------
Monthly Income Fund I - McHenry Plaza 0 3,180 0 1,967 1,967
Monthly Income Fund I - Rantoul Walmart 0 2,617 0 2,656 2,656
IREC - Lincoln Park Place 0 2,364 0 1,897 1,897
IREC - Antioch Plaza 0 1,818 875 753 1,628
IREC - Shorecrest Plaza 0 6,085 2,978 2,947 5,925
Excess (deficiency) of Amount of
property operating cash subsidies included Total Taxable
receipts over cash in operating cash Gain (loss) Ordinary Income Capital
expenditures (D) receipts from Sale from Sale Gain (loss)
-----------------------------------------------------------------------------------------------------------------------------------
Monthly Income Fund I - McHenry Plaza 1,092 0 374 0 374
Monthly Income Fund I - Rantoul Walmart 2,534 0 787 0 787
IREC - Lincoln Park Place 218 0 467 0 467
IREC - Antioch Plaza 130 0 0(E) 0 0
IREC - Shorecrest Plaza 1,556 0 0(E) 0 0
A-10
TABLE V - (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES
NOTES TO TABLE V
(A) The table includes all sales of properties by the programs with investment
objectives similar to ours during the three years ended December 31, 2002.
All sales have been made to parties unaffiliated with the partnerships.
(B) Consists of cash payments received from the buyers and the assumption of
certain liabilities by the buyers at the date of sale, less expenses of
sale.
(C) Amounts represent the dollar amount raised from the offerings, less sales
commissions and other offering expenses plus additional costs incurred on
the development of the land parcels.
(D) Represents "Cash Available (Deficiency) from Operations (including
subsidies)" as adjusted for applicable "Fixed Asset Additions" through the
year of sale.
(E) For tax purposes, this sale qualified as part of a tax-deferred exchange.
As a result, no taxable gain will be recognized until the replacement
property is disposed of in a subsequent taxable transaction.
A-11
APPENDIX B
DIVIDEND REINVESTMENT PLAN
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
DISTRIBUTION REINVESTMENT PROGRAM
Inland Western Retail Real Estate Trust, Inc., a Maryland corporation (the
"Company"), pursuant to its Articles of Incorporation (the "Articles") has
adopted a Distribution Reinvestment Program (the "DRP"), the terms and
conditions of which are set forth below. Capitalized terms shall have the same
meaning as set forth in the Company's Prospectus dated September 15, 2003 (as
the same may be supplemented or modified from time to time) unless otherwise
defined herein.
i. Distributions. As agent for the Stockholders who purchase Shares from
the Company pursuant to the prospectus dated September 15, 2003 (the "Offering")
and elect to participate in the DRP (the "Participants"), the Company will apply
all distributions, paid with respect to the Shares held by each Participant (the
"Distributions"), including Distributions paid with respect to any full or
fractional Shares acquired under the DRP, to the purchase of the Shares for said
Participants directly, if permitted under state securities laws and, if not,
through the Dealer Manager or Soliciting Dealers registered in the Participant's
state of residence. Neither the Company nor its Affiliates will receive a fee
for selling Shares under the DRP.
ii. Procedure for Participation. Any Stockholder who purchases Shares
pursuant to the Company's Offering may elect to become a Participant by
completing and executing the Subscription Agreement or other appropriate
authorization form as may be available from the Company, the Dealer Manager or
the Soliciting Dealer. Participation in the DRP will begin with the next
Distribution payable after receipt of a Participant's subscription or
authorization. Shares will be purchased under the DRP on the record date for the
Distribution used to purchase the Shares. Distributions for Shares acquired
under the DRP will be paid at the same time as Distributions are paid on Shares
purchased outside the DRP and are calculated with a daily record and
Distribution declaration date. Each Participant agrees that if, at any time
prior to listing of the Shares on a national stock exchange or inclusion of the
Shares for quotation on a national market system, he or she fails to meet the
suitability requirements for making an investment in the Company or cannot make
the other representations or warranties set forth in the Subscription Agreement,
he or she will promptly so notify the Company in writing.
iii. Purchase of Shares. Participants will acquire Shares from the Company
at a fixed price of $10.00 per Share until the first to occur of (i) the
termination of the Offering, or (ii) the public offering price per Share in the
Offering is increased above $10.00 per share. Thereafter, Participants will
acquire Shares from the Company at a price equal to 95% of the Market Price of a
Share on the date of purchase until such time as the Company's Shares are listed
on a national stock exchange or included for quotation on a national market
system. In the event of such listing or inclusion, Shares purchased by the
Company for the DRP will be purchased on such exchange or market, at the
prevailing market price, and will be sold to Stockholders at such price. The
discount per Share is never intended to exceed 5% of the current Market Price of
a Share on the date of purchase. Participants in the DRP may also purchase
fractional Shares so that 100% of the Distributions will be used to acquire
Shares. However, a Participant will not be able to acquire Shares under the DRP
to the extent such purchase would cause it to exceed the Ownership Limit or
other Share ownership restrictions imposed by the Articles.
It is possible that a secondary market will develop for the Shares, and
that the Shares may be bought and sold on the secondary market at prices lower
or higher than the $10.00 per Share price which will be paid under the DRP.
The Company shall endeavor to acquire Shares on behalf of Participants at
the lowest price then available. However, the Company does not guarantee or
warrant that the Participant will be acquiring Shares at the lowest possible
price.
If the Company's Shares are listed on a national stock exchange or included
for quotation on a national market system, the reservation of any Shares from
the Offering for issuance under the DRP, which have not been
B-1
issued as of the date of such listing or inclusion, will be canceled, and such
Shares will continue to have the status of authorized but unissued Shares. Those
unissued Shares will not be issued unless they are first registered with the
Securities and Exchange Commission (the "Commission") under the Act and under
appropriate state securities laws or are otherwise issued in compliance with
such laws.
It is understood that reinvestment of Distributions does not relieve a
Participant of any income tax liability which may be payable on the
Distributions.
iv. Share Certificates. Within 90 days after the end of the Company's
fiscal year, the Company will issue certificates evidencing ownership of Shares
purchased through the DRP during the prior fiscal year. The ownership of the
Shares will be in book-entry form prior to the issuance of such certificates.
v. Reports. Within 90 days after the end of the Company's fiscal year,
the Company will provide each Participant with an individualized report on his
or her investment, including the purchase date(s), purchase price and number of
Shares owned, as well as the dates of distribution and amounts of Distributions
received during the prior fiscal year. The individualized statement to
Stockholders will include receipts and purchases relating to each Participant's
participation in the DRP including the tax consequences relative thereto.
vi. Termination by Participant. A Participant may terminate participation
in the DRP at any time, without penalty, by delivering to the Company a written
notice. Prior to listing of the Shares on a national stock exchange or inclusion
of the Shares for quotation on a national market system, any transfer of Shares
by a Participant to a non-Participant will terminate participation in the DRP
with respect to the transferred Shares. If a Participant terminates DRP
participation, the Company will provide the terminating Participant with a
certificate evidencing the whole shares in his or her account and a check for
the cash value of any fractional share in such account. Upon termination of DRP
participation, Distributions will be distributed to the Stockholder in cash.
vii. Amendment or Termination of DRP by the Company. The Directors of the
Company may by majority vote (including a majority of the Independent Directors)
amend or terminate the DRP for any reason upon 30 days' written notice to the
Participants.
viii. Liability of the Company. The Company shall not be liable for any act
done in good faith, or for any good faith omission to act, including, without
limitation, any claims or liability: (a) arising out of failure to terminate a
Participant's account upon such Participant's death prior to receipt of notice
in writing of such death; and (b) with respect to the time and the prices at
which Shares are purchased or sold for a Participant's account. To the extent
that indemnification may apply to liabilities arising under the Act or the
securities laws of a state, the Company has been advised that, in the opinion of
the Commission and certain state securities commissioners, such indemnification
is contrary to public policy and, therefore, unenforceable.
ix. Governing Law. This DRP shall be governed by the laws of the State
of Maryland.
B-2
APPENDIX C
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
INSTRUCTIONS TO SUBSCRIBERS
[LOGO]
Any person desiring to subscribe for our common shares should
carefully read and review the Prospectus, as supplemented to
date, and if he/she desires to subscribe for shares, complete the
Subscription Agreement/Signature Page that follows these
instructions. Follow the appropriate instructions listed below
for the items indicated. Please print in ballpoint pen or type
the information.
A - INVESTMENT
Item (1)a Enter the dollars and cents amount of the purchase and the number
of shares to be purchased. Minimum purchase 300 shares ($3,000).
Qualified Plans 100 shares ($1,000). (Iowa requires 300 shares
($3,000) for IRA accounts; Minnesota requires 200 shares ($2,000)
for IRA and qualified accounts).
Check the box to indicate whether this is an initial or an
additional investment. The "Additional Investment" box must be
checked in order for this subscription to be combined with
another subscription for purposes of a volume discount. A
COMPLETED SUBSCRIPTION AGREEMENT IS REQUIRED FOR EACH INITIAL AND
ADDITIONAL INVESTMENT.
Item (1)b Deferred Commission Option: Please check the box if you have
agreed with your Soliciting Dealer to elect the Deferred
Commission Option, as described in the Prospectus, as
supplemented to date. By electing the Deferred Commission Option,
you are required to pay only $9.40 per share purchased upon
subscription. For the next six years, following the year of
subscription, you will have a sales commission of $0.10 per share
deducted from and paid out of cash distributions otherwise
distributable to you. Election of the Deferred Commission Option
shall authorize the Company to withhold such amounts from cash
distributions otherwise payable to you and to pay them as
described in the "Plan of Distribution-Deferred Commission
Option" section of the Prospectus, as supplemented to date.
Item (1)c Check the box to indicate whether the Registered Representative
chooses to purchase common stock net of selling commissions.
B - TYPE OF OWNERSHIP
FOR NON-CUSTODIAL OWNERSHIP ACCOUNTS, please mail the properly
completed and executed Subscription Agreement/Signature Page and
your check MADE PAYABLE TO "LBNA/ESCROW AGENT FOR IWRRET" to:
Inland Securities Corporation, 2901 Butterfield Road, Oak Brook,
Illinois 60523, Attn: Investor Services. If you have questions,
please call 800-826-8228.
FOR CUSTODIAL OWNERSHIP ACCOUNTS, checks should be MADE PAYABLE
TO THE CUSTODIAN AND SENT ALONG WITH THIS PROPERLY COMPLETED AND
EXECUTED FORM TO THE CUSTODIAN.
Item (2)a Check the appropriate box to indicate the type of entity that is
subscribing. (Entities for non-custodial ownership accounts
appear on the left side; entities for custodial ownership
accounts appear on the right side.) If this is an additional
purchase, this should be completed exactly the same as previous
investment. If the entity is a pension or profit sharing plan,
indicate whether it is taxable or exempt from taxation under
Section 501A of the Internal Revenue Code. Note: Pension or
profit sharing plan appears under non-custodial ownership as well
as custodial ownership -- check non-custodial ownership if the
plan has a trustee; custodial ownership if the plan has a
custodian. If you check the Individual Ownership box and you wish
to designate a Transfer on Death beneficiary, you may check the
"TOD" box and you must fill out the Transfer on Death Form in
order to effect the designation.
Item (2)b Enter the exact name of the custodian or trustee and mailing
address. IF THIS IS AN ADDITIONAL PURCHASE BY A QUALIFIED PLAN,
PLEASE USE THE SAME EXACT PLAN NAME AS PREVIOUSLY USED.
Item (2)c The custodian must complete this box by entering its custodian
Tax ID number (for tax purposes), custodial account number and
its telephone number.
C - SUBSCRIBER INFORMATION
Item (3) For non-custodial ownership accounts, enter the exact name in
which the shares are to be held. For co-subscribers enter the
names of all subscribers. For custodial ownership accounts, enter
FBO the name of the subscriber.
Item (4) Enter mailing address, city, state, and zip code of the
subscriber. Note: The custodian or trustee of custodial ownership
accounts is the mailing address or address of record completed in
Item (2) b.
Item (5) Enter the residence address if different than the mailing address
in Item (4). For custodial ownership accounts, enter the
residence address of the subscriber.
Item (6) Enter home telephone, business telephone and email address.
Item (7) Enter birth date of subscriber and co-subscriber, if applicable,
or date of incorporation.
Item (8) Enter the Social Security number of subscriber and co-subscriber,
if applicable. The subscriber is certifying that this number is
correct. For custodial ownership accounts, enter the subscriber's
Social Security number (for identification purposes). Enter Tax
ID number, if applicable.
Item (9) Check the appropriate box. If the subscriber is a non-resident
alien, he must apply to the United States Internal Revenue
Service for an identification number via Form SS-4 for an
individual or SS-5 for a corporation, and supply the number to
the Company as soon as it is available.
Item (10) Check this box if the subscriber is an employee of Inland or an
individual who has been continuously affiliated with Inland as an
independent contractor.
D - DISTRIBUTION OPTIONS
CHECK THE APPROPRIATE BOX TO INDICATE DISTRIBUTION OPTIONS FOR
NON-CUSTODIAL OWNERSHIP ACCOUNTS.
Item (11)a Check if you desire distributions to be mailed to address of
record in Section C, Item (4) above.
Item (11)b Check if you desire to participate in Distribution Reinvestment
Program.
Item (11)c If subscriber desires direct deposit of his/her/their cash
distributions to an account or address other than as set forth in
the Subscription Agreement/Signature Page, check the preferred
option and complete the required information. For ACH, indicate
whether it is a checking or savings account, and enter the name
of the institution/individual, mailing address, ABA number, and
account number. MUST ENCLOSE VOIDED CHECK, if applicable.
CHECK THE APPROPRIATE BOX TO INDICATE DISTRIBUTION OPTIONS FOR
CUSTODIAL OWNERSHIP ACCOUNTS.
Item (12)a Check if you desire distributions to be mailed to custodian.
Item (12)b Check if you desire to participate in Distribution Reinvestment
Program.
E - SIGNATURE
Item (13) The Subscription Agreement/Signature Page MUST BE EXECUTED by the
subscriber(s), and if applicable, the trustee or custodian.
F - BROKER/DEALER REGISTERED REPRESENTATIVE
Item (14) Enter the Registered Representative name, address, B/D Rep ID
number, telephone number, and e-mail address. Also, enter the
name of the broker/dealer, home office address, and B/D Client
Account number. By executing the Subscription Agreement/Signature
Page, the Registered Representative substantiates compliance with
the conduct rules of the NASD, by certifying that the Registered
Representative has reasonable grounds to believe, based on
information obtained from the investor concerning his, her or its
investment objectives, other investments, financial situation and
needs and any other information known by such Registered
Representative, that investment in the Company is suitable for
such investor in light of his, her or its financial position, net
worth and other suitability characteristics and that the
Registered Representative has informed the investor of all
pertinent facts relating to the liability, liquidity and
marketability of an investment in the Company during its term.
The Registered Representative (authorized signature) should sign
where provided.
Item (14)a Check the box to indicate whether the broker/dealer agrees to the
Deferred Commission Option if the subscriber has elected the
deferred Commission Option; the broker/dealer must sign to
acknowledge that agreement.
Item (14)b Check the box to indicate whether the Registered Representative
chooses to purchase common stock net of selling commissions.
G - REGISTERED INVESTMENT ADVISOR (RIA)
Item (15) Check the box to indicate whether this subscription was solicited
or recommended by an investment advisor/broker/dealer whose
agreement with the subscriber includes a fixed or "wrap" fee
feature for advisory and related brokerage services, and,
accordingly, may not charge the regular selling commission. NO
SALES COMMISSIONS ARE PAID ON THESE ACCOUNTS. This box must be
checked in order for such subscriber(s) to purchase shares net of
the selling commissions.
C-1
SUBMISSION OF SUBSCRIPTION
FOR NON-CUSTODIAL OWNERSHIP ACCOUNTS, the properly completed and executed
Subscription Agreement/Signature Page together with a check MADE PAYABLE TO
"LBNA/ESCROW AGENT FOR IWRRET" should be mailed to: Inland Securities
Corporation, 2901 Butterfield Road, Oak Brook, Illinois 60523. Attn: Investor
Services.
FOR CUSTODIAL OWNERSHIP ACCOUNTS, checks should be MADE PAYABLE TO THE CUSTODIAN
AND SENT ALONG WITH THIS PROPERLY COMPLETED AND EXECUTED FORM TO THE CUSTODIAN.
NOTE: If a person other than the person in whose name the shares will be held
is reporting the income received from the Company, you must notify the
Company in writing of that person's name, address and Social Security
number.
ALL INVESTORS AND THEIR REGISTERED REPRESENTATIVES MUST SIGN THE SUBSCRIPTION
AGREEMENT/ SIGNATURE PAGE PRIOR TO TENDERING ANY FUNDS FOR INVESTMENT IN SHARES.
CALIFORNIA INVESTORS
All Certificates representing shares which are sold in the State of California
will bear the following legend conditions: IT IS UNLAWFUL TO CONSUMMATE A SALE
OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFORE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
Any subscriber seeking to purchase shares pursuant to a discount offered by the
Company must submit such request in writing and set forth the basis for the
request. Any such request will be subject to verification by the Company.
Lack of Liquidity: There is no current market for the shares and the investors
may not be able to sell the securities.
SPECIAL SUITABILITY STANDARDS
CERTAIN STATES HAVE IMPOSED SPECIAL FINANCIAL SUITABILITY STANDARDS FOR
SUBSCRIBERS WHO PURCHASE SHARES.
IF THE SUBSCRIBER IS A RESIDENT OF MAINE, THE SUBSCRIBER MUST HAVE EITHER: (i) A
MINIMUM NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF
$200,000; OR (ii) A MINIMUM ANNUAL GROSS INCOME OF $50,000 AND A MINIMUM NET
WORTH (EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $50,000.
IF THE SUBSCRIBER IS A RESIDENT OF ARIZONA, CALIFORNIA, IOWA, MASSACHUSETTS,
MICHIGAN, MISSOURI, OREGON OR TENNESSEE, THE SUBSCRIBER MUST HAVE EITHER: (i) A
MINIMUM NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF
$225,000; OR (II) A MINIMUM ANNUAL GROSS INCOME OF $60,000 AND A MINIMUM NET
WORTH (EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $60,000.
IN ADDITION, IF THE SUBSCRIBER IS A RESIDENT OF KANSAS, OHIO OR PENNSYLVANIA,
THE INVESTMENT MAY NOT EXCEED 10% OF THE INVESTOR'S LIQUID NET WORTH.
WE INTEND TO ASSERT THE FOREGOING REPRESENTATIONS AS A DEFENSE IN ANY SUBSEQUENT
LITIGATION WHERE SUCH ASSERTION WOULD BE RELEVANT. WE HAVE THE RIGHT TO ACCEPT
OR REJECT THIS SUBSCRIPTION IN WHOLE OR IN PART, SO LONG AS SUCH PARTIAL
ACCEPTANCE OR REJECTION DOES NOT RESULT IN AN INVESTMENT OF LESS THAN THE
MINIMUM AMOUNT SPECIFIED IN THE PROSPECTUS. AS USED ABOVE, THE SINGULAR INCLUDES
THE PLURAL IN ALL RESPECTS IF SHARES ARE BEING ACQUIRED BY MORE THAN ONE PERSON.
AS USED IN THIS SUBSCRIPTION AGREEMENT, "INLAND" REFERS TO INLAND REAL ESTATE
GROUP, INC. AND ITS AFFILIATES. THIS SUBSCRIPTION AGREEMENT AND ALL RIGHTS
HEREUNDER SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF ILLINOIS.
BY EXECUTING THIS SUBSCRIPTION AGREEMENT, THE SUBSCRIBER IS NOT WAIVING ANY
RIGHTS UNDER THE FEDERAL SECURITIES LAWS.
ACH LANGUAGE
I (WE) HEREBY AUTHORIZE INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
("COMPANY") TO DEPOSIT DISTRIBUTIONS FROM MY (OUR) INTEREST IN STOCK OF THE
COMPANY INTO THE ACCOUNT LISTED IN SECTION D OF SUBSCRIPTION AGREEMENT AT THE
FINANCIAL INSTITUTION INDICATED IN SECTION D OF SUBSCRIPTION AGREEMENT. I
FURTHER AUTHORIZE THE COMPANY TO DEBIT MY ACCOUNT NOTED IN SECTION D OF
SUBSCRIPTION AGREEMENT IN THE EVENT THAT THE COMPANY ERRONEOUSLY DEPOSITS
ADDITIONAL FUNDS TO WHICH I AM NOT ENTITLED, PROVIDED THAT SUCH DEBIT SHALL NOT
EXCEED THE ORIGINAL AMOUNT OF THE ERRONEOUS DEPOSIT. IN THE EVENT THAT I
WITHDRAW FUNDS ERRONEOUSLY DEPOSITED INTO MY ACCOUNT BEFORE THE COMPANY REVERSES
SUCH DEPOSIT, I AGREE THAT THE COMPANY HAS THE RIGHT TO RETAIN ANY FUTURE
DISTRIBUTIONS THAT I AM ENTITLED UNTIL THE ERRONEOUSLY DEPOSITED AMOUNTS ARE
RECOVERED BY THE COMPANY.
THIS AUTHORIZATION IS TO REMAIN IN FULL FORCE AND EFFECT UNTIL THE COMPANY HAS
RECEIVED WRITTEN NOTICE FROM ME OF THE TERMINATION OF THIS AUTHORIZATION IN TIME
TO ALLOW REASONABLE OPPORTUNITY TO ACT ON IT, OR UNTIL THE COMPANY HAS SENT ME
WRITTEN NOTICE OF TERMINATION OF THIS AUTHORIZATION.
C-2
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
2901 BUTTERFIELD ROAD, OAK BROOK, ILLINOIS 60523 ~ 800.826.8228
SUBSCRIPTION AGREEMENT/SIGNATURE PAGE FOR PROSPECTUS DATED ______________
[LOGO]
PLEASE READ THIS SUBSCRIPTION AGREEMENT/SIGNATURE PAGE AND THE
TERMS AND CONDITIONS BEFORE SIGNING.
SUBSCRIBER MUST READ THE SUBSCRIPTION INSTRUCTIONS.
A - INVESTMENT
(1)a This subscription is in the amount of $_________________ for the purchase
of ________________ shares of Inland Western Retail Real Estate Trust,
Inc. at $10 per share. Minimum initial investment: 300 shares (100 shares
for IRA, Keogh and qualified plan accounts-Iowa requires 300 Shares for
IRA accounts; Minnesota requires 200 shares for IRA and qualified plan
accounts).
THIS IS AN: / / INITIAL INVESTMENT / / ADDITIONAL INVESTMENT A completed
Subscription Agreement is required for each initial and additional
investment.
(1)b / / CHECK THE BOX TO ELECT THE DEFERRED COMMISSION OPTION. (This election
must be agreed to by the broker/dealer listed on the following page)
(1)c / / REGISTERED REPRESENTATIVE NAV PURCHASE
B - TYPE OF OWNERSHIP
NON-CUSTODIAL OWNERSHIP
MAKE CHECK PAYABLE TO: LBNA/ESCROW AGENT FOR IWRRET
(2)a / / INDIVIDUAL OWNERSHIP - one signature required
/ / TOD (FILL OUT TOD FORM TO EFFECT DESIGNATION)
/ / JOINT TENANTS WITH RIGHT OF SURVIVORSHIP - all parties must sign
/ / COMMUNITY PROPERTY - all parties must sign
/ / TENANTS IN COMMON - all parties must sign
/ / TENANTS BY THE ENTIRETY - all parties must sign
/ / CORPORATE OWNERSHIP - authorized signature required
/ / PARTNERSHIP OWNERSHIP - authorized signature required
/ / LLC OWNERSHIP - authorized signature required
/ / UNIFORM GIFTS TO MINORS ACT - custodian signature required
STATE OF ________________ A CUSTODIAN FOR______________________
/ / PENSION OR PROFIT SHARING PLAN - trustee signature(s) required
/ / TAXABLE / / EXEMPT UNDER Section 501A
NAME OF TRUSTEE OR OTHER ADMINISTRATOR_________________________
_______________________________________________________________
/ / TRUST - trustee or grantor signature(s) required
/ / TAXABLE / / GRANTOR A OR B DATE TRUST ESTABLISHED ______
NAME OF TRUSTEE OR OTHER ADMINISTRATOR_________________________
_______________________________________________________________
/ / ESTATE - personal representative signature required
/ / OTHER (SPECIFY) ______________________________________________
CUSTODIAL OWNERSHIP
MAKE CHECK PAYABLE TO THE CUSTODIAN LISTED BELOW AND SEND ALL PAPERWORK
DIRECTLY TO THE CUSTODIAN
(2)a / / TRADITIONAL IRA - custodian signature required
/ / ROTH IRA - custodian signature required
/ / KEOGH - trustee signature required
/ / SIMPLIFIED EMPLOYEE PENSION/TRUST (S.E.P.) - trustee signature
required
/ / PENSION OR PROFIT SHARING PLAN - custodian signature required
/ / TAXABLE / / EXEMPT UNDER Section 501A
NAME OF TRUSTEE OR OTHER ADMINISTRATOR_________________________
_______________________________________________________________
/ / OTHER (SPECIFY) _______________________________________________
(2)b
___________________________________________________________________
NAME OF CUSTODIAN OR TRUSTEE
___________________________________________________________________
MAILING ADDRESS
___________________________________________________________________
CITY, STATE, ZIP
(2)c CUSTODIAN INFORMATION TO BE COMPLETED BY CUSTODIAN LISTED ABOVE
CUSTODIAN TAX ID # -
CUSTODIAL ACCOUNT #
CUSTODIAN TELEPHONE - -
C - SUBSCRIBER INFORMATION
(3) SUBSCRIBER
/ / Mr. / / Mrs. / / Ms.
CO-SUBSCRIBER
/ / Mr. / / Mrs. / / Ms.
(4) MAILING ADDRESS
CITY, STATE & ZIP CODE
(5) RESIDENCE ADDRESS
(if different from above)
CITY, STATE & ZIP CODE
(6) HOME TELEPHONE - - BUSINESS TELEPHONE - -
EMAIL ADDRESS
(7) BIRTH DATE/DATE / / MM/DD/YYYY
OF INCORPORATION
CO-SUBSCRIBER BIRTH / / MM/DD/YYYY
DATE
(8) SOCIAL SECURITY # - -
CO-SUBSCRIBER SOCIAL - -
SECURITY #
TAX ID # -
(9) PLEASE INDICATE CITIZENSHIP STATUS
/ / U.S. CITIZEN / / RESIDENT ALIEN / / NON-RESIDENT ALIEN
(10) / / EMPLOYEE OR AFFILIATE
C-3
D - DISTRIBUTION OPTIONS
DISTRIBUTION OPTIONS FOR NON-CUSTODIAL ACCOUNTS
(11)a / / MAIL TO ADDRESS OF RECORD
(11)b / / DISTRIBUTION REINVESTMENT PROGRAM: Subscriber elects to participate
in the Distribution Reinvestment Program described in the Prospectus.
(11)c / / DISTRIBUTIONS DIRECTED TO:
/ / VIA MAIL COMPLETE INFORMATION BELOW.
/ / VIA ELECTRONIC DEPOSIT (ACH) COMPLETE INFORMATION BELOW. See ACH
language on page 2 of the instructions. MUST ENCLOSE VOIDED CHECK
/ / CHECKING / / SAVINGS
___________________________________________________________________
NAME OF BANK, BROKERAGE FIRM OR INDIVIDUAL
___________________________________________________________________
MAILING ADDRESS
___________________________________________________________________
CITY, STATE, ZIP
BANK ABA # (FOR ACH ONLY) ACCOUNT NUMBER-MUST BE FILLED IN
MUST ENCLOSE VOIDED CHECK
DISTRIBUTION OPTIONS FOR CUSTODIAL ACCOUNTS
(12)a / / MAIL TO CUSTODIAL ACCOUNT
(12)b / / DISTRIBUTION REINVESTMENT PROGRAM: Subscriber elects to participate
in the Distribution Reinvestment Program described in the Prospectus.
E - SIGNATURE
(13) THE UNDERSIGNED CERTIFIES, under penalties of perjury (i) that the
taxpayer identification number shown on the Subscription
Agreement/Signature Page is true, correct and complete, and (ii) that he
is not subject to backup withholding either because he has not been
notified that he is subject to backup withholding as a result of a
failure to report all interest or distributions, or the Internal Revenue
Service has notified him that he is no longer subject to backup
withholding.
The undersigned further acknowledges and/or represents (or in the case of
fiduciary accounts, the person authorized to sign on such Investor's
behalf) the following:
(a) acknowledges receipt, not less than five (5) business days prior to
the signing of this Subscription Agreement, of the Prospectus of the
COMPANY RELATING TO THE SHARES, WHEREIN THE TERMS AND CONDITIONS OF
THE OFFERING OF THE SHARES ARE DESCRIBED, including among other
things, the restrictions on ownership and transfer of shares, which
require, under certain circumstances, that a holder of shares shall
give written notice and provide certain information to the Company.
(Does not apply to Minnesota residents.)
(b) represents that I (we) either: (i) have a net worth (excluding home,
home furnishings and automobiles) of at least $45,000 and estimate
that (without regard to investment in the Company) I (we) have gross
income due in the current year of at least $45,000; or (ii) have a
net worth (excluding home, home furnishings and automobiles) of at
least $150,000 or such higher suitability as may be required by
certain states and set forth on page 2 hereof; IN THE CASE OF SALES
TO FIDUCIARY ACCOUNTS, THE SUITABILITY STANDARDS MUST BE MET BY THE
BENEFICIARY, THE FIDUCIARY ACCOUNT OR BY THE DONOR OR GRANTOR WHO
DIRECTLY OR INDIRECTLY SUPPLIES THE FUNDS FOR THE PURCHASE OF THE
SHARES.
(c) represents that the investor is purchasing the shares for his or her
own account and if I am (we are) purchasing shares on behalf of a
trust or other entity of which I am (we are) trustee(s) or authorized
agent(s) I (we) have due authority to execute the Subscription
Agreement/Signature Page and do hereby legally bind the trust or
other entity of which I am (we are) trustee(s) or authorized
agent(s).
(d) acknowledges that the shares are not liquid; (not required for
Minnesota or Maine residents)
(e) if an Affiliate of the Company, represents that the shares are being
purchased for investment purposes only and not for immediate resale.
X
--------------------------------- ----------------------------------
SIGNATURE -- REGISTERED OWNER DATE
X X
--------------------------------- ----------------------------------
SIGNATURE -- CO-OWNER (IF APPLICABLE) AUTHORIZED SIGNATURE (CUSTODIAN OR
TRUSTEE IF APPLICABLE)
A SALE OF THE SHARES MAY NOT BE COMPLETED UNTIL AT LEAST FIVE BUSINESS DAYS
AFTER THE DATE THE SUBSCRIBER RECEIVES THE PROSPECTUS.
F - BROKER/DEALER-REGISTERED REPRESENTATIVE
(14) BROKER/DEALER DATA--COMPLETED BY SELLING REGISTERED REPRESENTATIVE
(PLEASE USE REP'S ADDRESS--NOT HOME OFFICE)
NAME OF REGISTERED
REPRESENTATIVE
/ / Mr. / / Mrs. / / Ms.
MAILING ADDRESS
CITY, STATE &
ZIP CODE
BROKER/DEALER
NAME
HOME OFFICE
MAILING ADDRESS
CITY, STATE &
ZIP CODE
B/D CLIENT
ACCOUNT NUMBER #
B/D REP ID NUMBER #
- -
REGISTERED REPRESENTATIVE'S TELEPHONE
HAVE YOU CHANGED BROKER/DEALERS? / / YES / / NO
----------------------------------------------------------
REGISTERED REPRESENTATIVE'S E-MAIL
X
----------------------------------------------------------
SIGNATURE--REGISTERED REPRESENTATIVE
X
----------------------------------------------------------
SIGNATURE--BROKER/DEALER (IF APPLICABLE)
(14)a / / DEFERRED COMMISSION OPTION: Requires broker/dealer signature:
------
(14)b / / REGISTERED REPRESENTATIVE NAV PURCHASE
G - REGISTERED INVESTMENT ADVISOR (RIA)
(15) REGISTERED INVESTMENT ADVISOR (RIA) NO SALES COMMISSIONS ARE PAID ON
THESE ACCOUNTS. / / CHECK ONLY IF investment is made through the RIA in
its capacity as an RIA and not in its capacity as a Registered
Representative, if applicable, whose agreement with the subscriber
includes a fixed or "wrap" fee feature for advisory and related brokerage
services. If an owner or principal or any member of the RIA firm is an
NASD licensed Registered Representative affiliated with a broker/dealer,
the transaction should be conducted through that broker/dealer, not
through the RIA.
C-4
APPENDIX D
[LOGO]
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
TRANSFER ON DEATH FORM (T.O.D.)
THIS FORM IS NOT VALID FOR TRUST OR IRA ACCOUNTS.
Please mail this form to:
Inland Securities Corporation, Attn: Investor Services
Use this form to designate 2901 Butterfield Road, Oak Brook,
a T.O.D. beneficiary (ies) Illinois 60523
800.826.8228
A - INVESTOR INFORMATION
1. Name of registered owner(s), exactly as name(s) appear(s) on stock
certificate or subscription agreement:
______________________________________________________________________
______________________________________________________________________
2. Social Security number(s) of registered owner(s):
- - - -
3. Daytime phone number:
- -
4. State of Residence:
______________________________________________________________________
Not accepted from residents of Louisiana, New York or North Carolina
B - TRANSFER ON DEATH DESIGNATION
I authorize Inland Western Retail Real Estate Trust, Inc. to register all of my
shares of its common stock in beneficiary form, assigning ownership on my death
to my beneficiary(ies). I understand that if more than one beneficiary is
listed, percentages for each must be designated. If percentages are not
designated, the shares will be divided equally. Percentages must equal 100%.
Additional beneficiaries may be listed on a separate page.
1. Name of Primary Beneficiary:
______________________________________________________________________
2. Social Security Number: - -
OR Tax Identification Number: -
3. Percentage: %
1. Name of Primary Beneficiary:
______________________________________________________________________
2. Social Security Number: - -
OR Tax Identification Number: -
3. Percentage: %
1. Name of Primary Beneficiary:
______________________________________________________________________
2. Social Security Number: - -
OR Tax Identification Number: -
3. Percentage: %
1. Name of Primary Beneficiary:
______________________________________________________________________
2. Social Security Number: - -
OR Tax Identification Number: -
3. Percentage: %
C - SIGNATURE
By signing below, I (we) authorize Inland Western Retail Real Estate Trust, Inc.
to register all of my (our) shares of its common stock in T.O.D. form. The
designation(s) will be effective on the date of receipt. Accordingly, I (we)
hereby revoke any beneficiary designation(s) made previously with respect to my
(our) Inland shares. I (we) have reviewed the information set forth below. I
(we) agree on behalf of myself (ourselves) and my (our) heirs, assigns,
executors, administrators and beneficiaries to indemnify and hold harmless
Inland Western Retail Real Estate Trust, Inc. and any and all of its affiliates,
agents, successors and assigns, and their respective directors, officers and
employees, from and against any and all claims, liability, damages, actions and
expenses arising directly or indirectly out of or resulting from the transfer of
my (our) shares in accordance with this T.O.D. designation.
I (we) further understand that Inland Western Retail Real Estate Trust, Inc.
cannot provide any legal advice and I (we) agree to consult with my (our)
attorney, if necessary, to make certain that the T.O.D. designation is
consistent with my (our) estate and tax planning. Sign exactly as the name(s)
appear(s) on the stock certificate or subscription agreement. All registered
owners must sign. THIS AUTHORIZATION FORM IS SUBJECT TO THE ACCEPTANCE OF INLAND
WESTERN RETAIL REAL ESTATE TRUST, INC.
X X
------------------ ------------ ------------------- ---------
Signature Date Signature Date
TRANSFER ON DEATH INFORMATION
- A Transfer on Death (T.O.D.) designation transfers ownership of shares to the
registered owner's beneficiary(ies) upon death; provided that Inland Western
Retail Real Estate Trust, Inc. receives proof of death and other
documentation it deems necessary or appropriate.
- Until the death of the account owner(s), the T.O.D. beneficiary(ies) has
(have) no present interest in, or authority over, the T.O.D. account.
- A T.O.D. designation will be accepted only where (1) shares are owned by a
natural person and registered in that individual's name or (2) by two or more
natural persons as joint tenants with rights of survivorship.
- Accounts registered to trusts, corporations, charities, and other such
entities may not declare a T.O.D. designation because they are considered
perpetual. These entities, however, may be listed as a beneficiary on a
T.O.D. for accounts registered to a natural person.
- A T.O.D. designation made by joint tenants with rights of survivorship does
not take effect until the last of all multiple owners dies. The surviving
owners may revoke or change the T.O.D. designation at any time.
- If the beneficiary(ies) does (do) not survive the registered owner(s), the
shares will be treated as belonging to the decedent's estate.
- A minor may not be named as a beneficiary.
- A T.O.D. designation will not be accepted from residents of Louisiana, New
York or North Carolina.
- A T.O.D. designation and all rights related thereto shall be governed by the
laws of the state of Illinois.
- A T.O.D. designation may be voided at any time by Inland Western Retail Real
Estate Trust, Inc., in its sole discretion, if there is any doubt as to the
validity or effectiveness of a T.O.D. designation.
D-1
APPENDIX E1
LETTER OF DIRECTION
_________________, 2003
Inland Real Estate Investment Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
RE: Registered Investment Advisory Fees
Account No. ______________ ("Account")
You are hereby instructed and authorized by me to deduct advisory fees payable
to ________________, my registered investment advisor, in the following amount
from my Account, and to pay such amount by wire transfer in immediately
available funds to my registered investment advisor, upon each distribution by
Inland Western Retail Real Estate Trust, Inc. (the "Company") on my Account, as
payment for my registered investment advisor's advisory fees (select only one).
(1) $________________; OR
(2) _______________% Annual Fee (calculated on a monthly basis) of the
Asset Value to be paid by the Company on my Account.
I understand and acknowledge that any and all advisory fees payable to my
registered investment advisor are my sole responsibility and you are paying the
amounts directed by me as an accommodation.
This letter shall serve as an irrevocable instruction to you to pay such
advisory fees from my Account until such time as I provide you with written
notice of my election to revoke this instruction.
Sincerely,
E1-1
APPENDIX E2
NOTICE OF REVOCATION
__________________, 20__
Inland Real Estate Investment Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
RE: Revocation of Instruction
Account No. _________ ("Account")
This letter shall serve as notice to you of my revocation of my instruction to
you to deduct advisory fees from my Account any pay such fees directly to
_________________, my registered investment advisor, pursuant to my letter to
you dated _____________.
I hereby instruct you to cease any and all future deductions from my Account for
the purpose of such advisory fee payments. I understand and acknowledge that
this revocation will be effective within one business day of receipt by you.
Sincerely,
E2-1
APPENDIX F
PRIVACY POLICY NOTICE
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
PRIVACY POLICY
OUR COMMITMENT TO PROTECTING YOUR PRIVACY. We consider customer privacy to be
fundamental to our relationship with our shareholders. In the course of
servicing your account, we collect personal information about you ("NONPUBLIC
PERSONAL INFORMATION"). We collect this information to know who you are so that
we can provide you with products and services that meet your particular
financial and investing needs, and to meet our obligations under the laws and
regulations that govern us.
Throughout our history we have been, and we remain, committed to maintaining the
confidentiality, integrity and security of our shareholders' personal
information. It is our policy to respect the privacy of our current and former
shareholders and to protect the personal information entrusted to us. This
Privacy Policy (the "POLICY") describes the standards we follow for handling
your personal information, with the dual goals of meeting your financial needs
while respecting your privacy.
This Policy applies to the Inland family of companies, which includes Inland
Western Retail Real Estate Trust, Inc.
1. Information We May Collect
We may collect nonpublic personal information about you from three sources:
- Information on applications, subscription agreements or other
forms. This category may include your name, address, tax
identification number, age, marital status, number of dependents,
assets, debts, income, employment history, beneficiary
information and personal bank account information.
- Information about your transactions with us, our affiliates and
others such as: the types of products you purchase, your account
balances, margin loan history and payment history.
- Information obtained from others, such as from consumer credit
reporting agencies. This may include information about your
creditworthiness, financial circumstances and credit history,
including any bankruptcies and foreclosures.
2. Persons to Whom We May Disclose Information
We may disclose all three types of nonpublic personal information about you to
the unaffiliated third parties and in the circumstances described below, as
permitted by applicable laws and regulations.
- Companies with whom we have contracted to provide account-related
services, such as statement preparation, execution services,
custodial services, and report preparation. (Every contract with
each of these service providers prohibits the service provider
from disclosing or using your nonpublic personal information for
any purpose except to provide the service for which we have
contracted.)
- Our lawyers, accountants, auditors, regulators, advisors, and
quality-control consultants.
- If we suspect fraud.
- To protect the security of our records, Web site and telephone
customer service center.
- Information you have authorized us to disclose.
3. Protecting Your Information
F-1
Our employees are required to follow the procedures we have developed to protect
the integrity of your information. These procedures include:
- Restricting physical and other access to your nonpublic personal
information to persons with a legitimate business need to know
the information in order to service your account.
- Contractually obligating third parties doing business with us to
comply with all applicable privacy and security laws.
- Providing information to you only after we have used reasonable
efforts to assure ourselves of your identity by asking for and
receiving from you information only you should know.
- Maintaining reasonably adequate physical, electronic and
procedural safeguards to protect your information.
4. Former Customers
We treat information concerning our former customers the same way we treat
information about our current customers.
5. Keeping You Informed
We will send you a copy of this Policy annually. We will also send you all
changes to this Policy as they occur. You have the right to "opt out" of this
policy by notifying us in writing.
QUESTIONS? If you have any questions about this Policy, please do not hesitate
to call Roberta Matlin at 630-218-8000.
F-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than selling
commissions) incurred by us while issuing and distributing the securities
registered pursuant to this Registration Statement. All amounts other than the
SEC registration fee and NASD filing fee are estimates.
Initial Offering Second Offering
---------------- ---------------
Securities and Exchange Commission Registration Fee $ 228,621 $ 340,823
NASD Filing Fee $ 31,435 $ -
Printing and Mailing Expenses $ 522,749 $ -
Blue Sky Fees and Expenses $ 519,779 $ -
Legal Fees and Expenses $ 548,878 $ 111,158
Accounting Fees and Expenses $ 229,183 $ 103,593
Advertising and Sales Literature $ 4,897,657 $ 6,198
Due Diligence $ 344,067 $ -
Transfer agent fees $ 161,909 $ -
Data processing fees $ 67,098 $ -
Bank fees and other administrative expenses $ 432,883 $ -
---------------- ---------------
Total $ 8,020,259 $ 561,772*
* As December 31, 2004
ITEM 32. SALES TO SPECIAL PARTIES.
Our employees and associates and those of our affiliates are permitted to
purchase shares net of sales commissions and the marketing contribution and due
diligence expense allowance fee or for $8.95 per share.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
As of March 14, 2005, we have sold the following securities for the
following aggregate offering prices: In March 2003, Inland Western Retail Real
Estate Advisory Services, Inc., the advisor, purchased from us 20,000 shares for
$10 per share, for an aggregate purchase price of $200,000 in connection with
our organization. No sales commissions or other consideration was paid in
connection with such sales The sales were consummated without registration under
the Act in reliance upon Rule 506 of Regulation D and the exemption from
registration in Section 4(2) of the Securities Act as transactions not involving
any public offering.
Options to purchase an aggregate of 15,000 shares at an exercise price of
$8.95 per share have been granted to the Independent Directors pursuant to the
Independent Director Stock Option Plan (options to purchase 3,000 shares as to
each of the five independent directors plus options for 500 shares each on the
date of the first annual meeting). None of such options have been exercised.
Therefore, no shares have been issued in connection with such options.
II-1
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XV of our articles of incorporation provides as follows:
SECTION 3. INDEMNIFICATION
(a) Subject to paragraphs (b), (c) and (d) of this Section 3, we shall, to
the fullest extent permitted by Maryland statutory or decisional law, as amended
or interpreted and, without limiting the generality of the foregoing, in
accordance with Section 2-418 of the Maryland General Corporation Law, indemnify
and pay, advance, or reimburse reasonable expenses to any Director, officer,
employee and agent of the Company and the Advisor and its Affiliates (each an
"Indemnified Party").
(b) As long as we qualify as a REIT, it shall not indemnify nor pay,
advance or reimburse expenses to an Indemnified Party unless: (i) Directors have
determined, in good faith, that the course of conduct which caused the loss or
liability was in our best interests; (ii) the Indemnified Party was acting on
behalf of or performing services on the part of the Company; (iii) such
liability or loss was not the result of negligence or misconduct on the part of
the Indemnified Party except that in the event the Indemnified Party is or was
an Independent Director, such liability or loss shall not have been the result
of gross negligence or willful misconduct; and (iv) such indemnification or
agreement to be held harmless is recoverable only out of our Net Assets and not
from the Stockholders.
(c) As long as we qualify as a REIT and notwithstanding anything to the
contrary in Section 3(b) of this Article XV, the Company shall not indemnify a
Director, officer, employee or agent of ours or the Advisor or its Affiliates
for losses, liabilities or expenses arising from or out of an alleged violation
of federal or state securities laws by such party unless one or more of the
following conditions are met: (i) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular Indemnified Party; (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to the
particular Indemnified Party; or (iii) a court of competent jurisdiction
approves a settlement of the claims and finds that indemnification of the
settlement and related costs should be made and the court considering the
request has been advised of the position of the Securities and Exchange
Commission (the "Commission") and the published opinions of any state securities
regulatory authority in which securities of ours were offered or sold as to
indemnification for violations of securities laws.
(d) We may advance amounts to an Indemnified Party for legal and other
expenses and costs incurred as a result of any legal action for which
indemnification is being sought only in accordance with Section 2-418 of the
Maryland General Corporation Law, and, as long as we qualify as a REIT, only if
all of the following conditions are satisfied: (i) the legal action relates to
acts or omissions with respect to the performance of duties or services by the
Indemnified Party for or on our behalf; (ii) the legal action is initiated by a
third party who is not a Stockholder or the legal action is initiated by a
Stockholder acting in his or her capacity as such and a court of competent
jurisdiction specifically approves such advancement; and (iii) the Indemnified
Party receiving such advances undertakes in writing to repay the advanced funds
to us, together with the applicable legal rate of interest thereon, in cases in
which such party is found not to be entitled to indemnification.
(e) We shall have the power to purchase and maintain insurance or provide
similar protection on behalf of an Indemnified Party against any liability
asserted which was incurred in any such capacity with us or arising out of such
status; provided, however, that we shall not incur the costs of any liability
insurance which insures any person against liability for which he, she or it
could not be indemnified under these Articles. Nothing contained herein shall
constitute a waiver by any Indemnified Party of any right which he, she or it
may have against any party under federal or state securities laws. We shall also
have power to enter into any contract for indemnity and advancement of expenses
with an officer, employee or agent who is not a Director to such further extent
consistent with law.
II-2
Our article of incorporation authorize and direct us to indemnify, and pay
or reimburse reasonable expenses to, any director, officer, employee or agent we
employ to the fullest extent provided by Maryland law. The Maryland General
Corporation Law provides that a Maryland corporation may indemnify a director,
officer, employee or agent made a party to any proceeding by reason of service
in that capacity unless it has been established that (1) the act or omission was
material to the matter giving rise to the proceeding and (a) was committed in
bad faith or (b) was the result of active and deliberate dishonesty; or (2) the
individual actually received an improper personal benefit in money, property, or
services; or (3) in the case of a criminal proceeding, the individual had
reasonable cause to believe that the act or omission was unlawful.
The Bylaws provide that neither the amendment, nor the repeal, nor the
adoption of any other provision of the articles of incorporation or the bylaws
will apply to or affect, in any respect, the Indemnitee's right to
indemnification for actions or failures to act which occurred prior to such
amendment, repeal or adoption.
To the extent that the indemnification may apply to liabilities arising
under the Act, we have been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is contrary to public policy and,
therefore, unenforceable.
We entered into separate indemnification agreements with each of our
directors and some of our executive officers. The indemnification agreements
require, among other things, that we indemnify the directors and officers to the
fullest extent permitted by law, and advance to the directors and officers all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. We must also indemnify and advance all
expenses incurred by directors and officers seeking to enforce their rights
under the indemnification agreements and cover directors and officers under our
Directors' and officers' liability insurance, if any. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by provisions in the articles of incorporation and the Bylaws, as a
contract, it cannot be unilaterally modified by the board or by the stockholders
to eliminate the rights it provides.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Inapplicable.
II-3
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS.
The following financial statements were previously filed as part of the
registration statement in the prospectus and are incorporated herein by
reference:
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Report of Independent Registered Public Accounting Firm
(b) Balance Sheet at June 30, 2003 (audited)
(c) Notes to Balance Sheet at June 30, 2003 (audited)
2. PEORIA STATION:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2002 and six months ended June 30, 2003
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2002 and six months ended
June 30, 2003 (unaudited)
The following financial statements are included as part of Post Effective
Amendment No. 2 and are incorporated herein by reference:
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Pro Forma Balance Sheet at September 30, 2003 (unaudited)
(b) Notes to Pro Forma Balance Sheet at September 30, 2003 (unaudited)
(c) Pro Forma Statement of Operations for the nine months ended
September 30, 2003 (unaudited)
(d) Notes to Pro Forma Statement of Operations for the nine months ended
September 30, 2003 (unaudited)
(e) Pro Forma Statement of Operations for the year ended December 31, 2003
(unaudited)
(f) Notes to Pro Forma Statement of Operations for the year ended
December 31, 2003 (unaudited)
2. SHOPS AT PARK PLACE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2002 and nine months ended September 30,
2003 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2002 and nine months ended
September 30, 2003 (unaudited)
3. STONY CREEK MARKETPLACE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the nine months ended September 30, 2003 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the nine months ended September 30, 2003 (unaudited)
II-4
The following financial statements are included as part of Post Effective
Amendment No. 3 and are incorporated herein by reference:
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Report of Independent Registered Public Accounting Firm
(b) Consolidated Balance Sheet at December 31, 2003 (audited)
(c) Consolidated Statement of Operations for the period from March 5, 2003
(inception) to December 31, 2003 (audited)
(d) Consolidated Statement of Stockholders' Equity for the period from
March 5, 2003 (inception) to December 31, 2003 (audited)
(e) Consolidated Statement of Cash Flows for the period from March 5,
2003 (inception) to December 31, 2003 (audited)
(f) Notes to Consolidated Financial Statements (audited)
(g) Real Estate and Accumulated Depreciation (Schedule III)
(h) Pro Forma Consolidated Balance Sheet (unaudited) at December 31, 2003
(i) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at
December 31, 2003
(j) Pro Forma Consolidated Statement of Operations (unaudited) for the
year ended December 31, 2003
(k) Notes to Pro Forma Consolidated Statement of Operations (unaudited)
for the year ended December 31, 2003
The following financial statements are included as part of Post Effective
Amendment No. 3 and are incorporated herein by reference:
2. DARIEN TOWNE CENTER:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2002
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2002
(d) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 (unaudited)
(e) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 (unaudited)
3. PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES IN 2003:
(a) Independent Auditors' Report
(b) Combined Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
(c) Notes to the Combined Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 2003
4. STONY CREEK MARKETPLACE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 (unaudited)
II-5
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 (unaudited)
5. SHOPS AT PARK PLACE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 (unaudited)
6. SHAW'S SUPERMARKET (NEW BRITAIN):
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 (unaudited)
7. HICKORY RIDGE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
8. CORWEST PLAZA:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the period from May 29, 2003 through December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from May 29, 2003 through December 31, 2003
9. METRO SQUARE CENTER (SUPERVALUE) :
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
10. LARKSPUR LANDING:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
II-6
11. NORTH RANCH PAVILION:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
12. LA PLAZA DEL NORTE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
13. MACARTHUR CROSSING:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
14. PROMENADE AT RED CLIFF:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
15. PEORIA CROSSINGS:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
16. DORMAN CENTRE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
II-7
17. HERITAGE TOWNE CROSSING:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
The following financial statements are included as part of Post Effective
Amendment No. 4 and are incorporated herein by reference:
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Consolidated Balance Sheets at March 31, 2004 (unaudited) and
December 31, 2003 (audited)
(b) Consolidated Statements of Operations for the three months ended March
31, 2004 (unaudited) and for the period from March 5, 2003 (inception)
to March 31, 2003 (unaudited).
(c) Consolidated Statement of Stockholders' Equity for the three months
ended March 31, 2004 (unaudited)
(d) Consolidated Statements of Cash Flows for the three months ended March
31, 2004 (unaudited) and for the period from March 5, 2003 (inception)
to March 31, 2003 (unaudited).
(e) Notes to Consolidated Financial Statements (unaudited).
2. PARADISE VALLEY MARKETPLACE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the three months ended March 31,
2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months
ended March 31, 2004 (unaudited)
3. BEST ON THE BOULEVARD:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the three months ended March 31,
2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months
ended March 31, 2004 (unaudited)
4. BLUEBONNET PARC:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the three months ended March 31,
2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months
ended March 31, 2004 (unaudited)
II-8
5. NORTH RIVERS TOWN CENTER:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the period of October 1, 2003 (commencement of operations) to
December 31, 2003 and the three months ended March 31, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the period of October 1, 2003 (commencement of
operations) to December 31, 2003 and the three months ended
March 31, 2004 (unaudited)
6. ARVADA MARKETPLACE AND CONNECTION:
(a) Independent Auditors' Report
(b) Combined Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months
ended March 31, 2004 (unaudited)
(c) Notes to Combined Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 2003 and the
three months ended March 31, 2004 (unaudited)
7. EASTWOOD TOWNE CENTER:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the three months ended March 31,
2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months
ended March 31, 2004 (unaudited)
8. WATAUGA PAVILION:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the period of August 15, 2003 (commencement of operations) to
December 31, 2003 and the three months ended March 31, 2004
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of August 15, 2003 (commencement of
operations) to December 31, 2003 and the three months ended
March 31, 2004 (unaudited)
9. NORTHPOINTE PLAZA:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the three months ended March 31,
2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months
ended March 31, 2004 (unaudited)
10. PLAZA SANTA FE II:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the three months ended
March 31, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months
ended March 31, 2004 (unaudited)
II-9
11. PINE RIDGE PLAZA:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
12. HUEBNER OAKS CENTER:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the three months ended March 31,
2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months
ended March 31, 2004 (unaudited)
13. ALISON'S CORNER:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the period from September 1, 2003 (commencement of operations) through
December 31, 2003 and the three months ended March 31, 2004
(unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from September 1, 2003 (commencement of
operations) through December 31, 2003 and the three months ended
March 31, 2004 (unaudited)
The following financial statements are included as part of Post Effective
Amendment No. 5 and are incorporated herein by reference:
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Consolidated Balance Sheets at June 30, 2004 (unaudited) and
December 31, 2003 (audited)
(b) Consolidated Statements of Operations for the three and six months
ended June 30, 2004 (unaudited), for the three months ended June 30,
2003, and the period from March 5, 2003 (inception) to June 30, 2003
(unaudited).
(c) Consolidated Statement of Stockholders' Equity for the six months
period ended June 30, 2004 (unaudited)
(d) Consolidated Statements of Cash Flows for the three and six months
ended June 30, 2004 (unaudited), three months ended June 30, 2003 and
for the period from March 5, 2003 (inception) to June 30, 2003
(unaudited).
(e) Notes to Consolidated Financial Statements (unaudited).
2. JOHN'S CREEK VILLAGE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the period from September 21, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the period from September 21, 2003 (commencement of
operations) to December 31, 2003 and the six months ended June 30,
2004 (unaudited)
II-10
3. LAKEWOOD TOWN CENTER:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
4. FULLERTON METROCENTER:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the six months ended June 30,
2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
5. DAVIS TOWNE CROSSING:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the period from July 18, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the period from July 18, 2003 (commencement of
operations) to December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
6. NORTHGATE NORTH:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
7. CRANBERRY SQUARE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the six months ended June 30,
2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
8. GATEWAY PLAZA SHOPPING CENTER:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
II-11
9. SAFEWAY PLAZA AT MARYSVILLE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
10. FORKS TOWN CENTER:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
11. CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE
JOINT VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA
HOLDINGS, LLC:
(a) Independent Auditors' Report
(b) Combined Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
(c) Notes to the Combined Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 2003 and the six
months ended June 30, 2004 (unaudited)
12. THE SHOPS AT BOARDWALK:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the period from May 30, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from May 30, 2003 (commencement of operations)
to December 31, 2003 and the six months ended June 30, 2004
(unaudited)
13. MANCHESTER MEADOWS:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
14. GOVERNOR'S MARKETPLACE:
(a) Independent Auditors' Report
(b) Combined Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
(c) Notes to the Combined Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 2003 and the six
months ended June 30, 2004 (unaudited)
II-12
14. MITCHELL RANCH PLAZA:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the period from June 30, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from June 30, 2003 (commencement of
operations) to December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
15. THE COLUMNS:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the period from October 8, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from October 8, 2003 (commencement of
operations) to December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
16. SAUCON VALLEY SQUARE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
17. LINCOLN PARK:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
18. SHOPPES AT PROMINENCE POINT:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the period of March 1, 2004 (commencement of operations) through
June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of March 1, 2004 (commencement of operations)
through June 30, 2004 (unaudited)
19. LOW COUNTRY VILLAGE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the period of February 1, 2004 (commencement of operations) through
June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of February 1, 2004 (commencement of
operations) through June 30, 2004 (unaudited)
II-13
20. SHOPPES AT DALLAS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the period of March 1, 2004 (commencement of operations) through
June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of March 1, 2004 (commencement of operations)
through June 30, 2004 (unaudited)
21. DORMAN CENTRE - PHASE II:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the period of March 15, 2004 (commencement of operations) through
June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of March 15, 2004 (commencement of operations)
through June 30, 2004 (unaudited)
22. VILLAGE SHOPPES AT SIMONTON:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the period of May 1, 2004 (commencement of operations) through
June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of May 1, 2004 (commencement of operations)
through June 30, 2004 (unaudited)
23. HARVEST TOWN CENTER:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the period of March 15, 2004 (commencement of operations) through
June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of March 15, 2004 (commencement of operations)
through June 30, 2004 (unaudited)
24. BED, BATH & BEYOND PLAZA:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the period of March 3, 2004 (commencement of operations) through June
30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of March 3, 2004 (commencement of operations)
through June 30, 2004 (unaudited)
The following financial statements are included as part of Post Effective
Amendment No. 7: and are incorporated herein by reference:
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Consolidated Balance Sheets at September 30, 2004 (unaudited) and
December 31, 2003 (audited)
(b) Consolidated Statements of Operations for the three and nine months
ended September 30, 2004, three months ended September 30, 2003, and
the period from March 5, 2003 (inception) through September 30, 2003
(unaudited)
(c) Consolidated Statement of Stockholders' Equity for the nine month
period ended September 30, 2004 (unaudited)
(d) Consolidated Statements of Cash Flows for nine months ended
September 30, 2004, and the period from March 5, 2003 (inception) to
September 30, 2003 (unaudited)
(e) Notes to Consolidated Financial Statements (unaudited)
(f) Pro Forma Consolidated Balance Sheet (unaudited) at September 30, 2004
II-14
(g) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at
September 30, 2004
(h) Pro Forma Consolidated Statement of Operations (unaudited) for the
nine months ended September 30, 2004
(i) Notes to Pro Forma Consolidated Statement of Operations (unaudited)
for the nine months ended September 30, 2004
(j) Pro Forma Consolidated Statement of Operations (unaudited) for the
year ended December 31, 2003
(k) Notes to Pro Forma Consolidated Statement of Operations (unaudited)
for the year ended December 31, 2003
2. AZALEA SQUARE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the period of July 4, 2003 (commencement of operations) through
December 31, 2003 and the nine months ended September 30, 2004
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of July 4, 2003 (commencement of operations)
through December 31, 2003 and the nine months ended September 30, 2004
(unaudited)
3. PROPERTIES ACQUIRED FROM BAYER PROPERTIES, INC:
(a) Independent Auditors' Report
(b) Combined Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the nine months
ended September 30, 2004 (unaudited)
(c) Notes to the Combined Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 2003 and the nine
months ended September 30, 2004 (unaudited)
4. DENTON TOWN CROSSING:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the period of August 11, 2003 (commencement of operations) through
December 31, 2003 and the nine months ended September 30, 2004
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of August 11, 2003 (commencement of
operations) through December 31, 2003 and the nine months ended
September 30, 2004 (unaudited)
5. THE PROPERTIES ACQUIRED FROM DONAHUE SCHRIBER:
(a) Independent Auditors' Report
(b) Combined Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the nine months
ended September 30, 2004 (unaudited)
(c) Notes to the Combined Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 2003 and the nine
months ended September 30, 2004 (unaudited)
6. GURNEE TOWN CENTRE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the nine months ended September
30, 2004 (unaudited)
II-15
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the nine months
ended September 30, 2004 (unaudited)
7. WINCHESTER COMMONS:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the nine months ended
September 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the nine months
ended September 30, 2004 (unaudited)
8. MANSFIELD TOWNE CENTRE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the period of July 23, 2003 (commencement of operations) through
December 31, 2003 and the nine months ended September 30, 2004
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the July 23, 2003 (commencement of operations) through
December 31, 2003 and the nine months ended September 30, 2004
(unaudited)
9. FOX CREEK VILLAGE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the November 12, 2003 (commencement of operations) through
December 31, 2003 and the nine months ended September 30, 2004
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the November 12, 2003 (commencement of operations)
through December 31, 2003 and the nine months ended September 30, 2004
(unaudited)
10. GATEWAY PAVILION:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the period from February 15, 2003 (commencement of operations) to
December 31, 2003 and the nine months ended September 30, 2004
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from February 15, 2003 (commencement of
operations) to December 31, 2003 and the nine months ended
September 30, 2004 (unaudited)
11. NORTHWOODS SHOPPING CENTER:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the nine months ended
September 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the nine months
ended September 30, 2004 (unaudited)
II-16
12. OSWEGO COMMONS:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the nine months ended
September 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the nine months
ended September 30, 2004 (unaudited)
13. LAKE MARY POINTE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the nine months ended
September 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the nine months
ended September 30, 2004 (unaudited)
14. PUBLIX CENTER - MT. PLEASANT:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the period from April 18, 2004 (commencement of operations) to
September 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from April 18, 2004 (commencement of
operations) to September 30, 2004 (unaudited)
15. FIVE FORKS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the for the year ended December 31, 2003 and the nine months ended
September 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the nine months
ended September 30, 2004 (unaudited)
16. GATEWAY STATION
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the period from June 21 2004 (commencement of operations) to
September 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from June 21, 2004 (commencement of
operations) to September 30, 2004 (unaudited)
17. SHOPS AT FOREST COMMONS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 and the nine months ended
September 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the nine months
ended September 30, 2004 (unaudited)
18. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Report of Independent Registered Public Accounting Firm
(b) Consolidated Balance Sheet at December 31, 2003 (audited)
(c) Consolidated Statement of Operations for the period from March 5, 2003
(inception) to December 31, 2003 (audited)
(d) Consolidated Statement of Stockholders' Equity for the period from
March 5, 2003 (inception) to December 31, 2003 (audited)
II-17
(e) Consolidated Statement of Cash Flows for the period from March 5, 2003
(inception) to December 31, 2003 (audited)
(f) Notes to Consolidated Financial Statements (audited)
(g) Real Estate and Accumulated Depreciation (Schedule III)
The following financial statements are included as part of Post Effective
Amendment No. 8:
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Reports of Independent Registered Public Accounting Firm
(b) Consolidated Balance Sheets at December 31, 2004 and 2003
(c) Consolidated Statements of Operations for the year ended December 31, 2004
and the period from March 5, 2003 (inception) through December 31, 2003
(d) Consolidated Statement of Stockholders' Equity for the year ended
December 31, 2004 and for the period from March 5, 2003 (inception) to
December 31, 2003
(e) Consolidated Statements of Cash Flows for the year ended December 31, 2004
and the period from March 5, 2003 (inception) to December 31, 2003
(f) Notes to Consolidated Financial Statements
(g) Real Estate and Accumulated Depreciation (Schedule III)
(h) Pro Forma Consolidated Balance Sheet (unaudited) at December 31, 2004
(i) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at
December 31, 2004
(j) Pro Forma Consolidated Statement of Operations (unaudited) for the year
ended December 31, 2004
(k) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the
year ended December 31, 2004
HENRY TOWN CENTER:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the nine months ended September 30, 2004
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the nine months ended
September 30, 2004 (unaudited)
THE PROPERTIES ACQUIRED FROM CERUZZI HOLDINGS:
(a) Independent Auditors' Report
(b) Combined Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 2004
(c) Notes to the Combined Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 2004
PROPERTIES ACQUIRED FROM FFI AMERICAN MARKET FUND, L.P.:
(a) Independent Auditors' Report
II-18
(b) Combined Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 2004
(c) Notes to the Combined Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 2004
SHOPPES AT LAKE ANDREW:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2004
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2004
MESA FIESTA:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2004
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2004
MIDTOWN CENTER:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2004
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2004
TRENTON CROSSING:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2004
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2004
PROPERTIES ACQUIRED FROM WEBER & COMPANY:
(a) Independent Auditors' Report
(b) Combined Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 2004
(c) Notes to the Combined Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 2004
MCALLEN SHOPPING CENTER:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2004 (unaudited)
II-19
23RD STREET PLAZA:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2004 (unaudited)
PHENIX CROSSING:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
period from July 1, 2004 (commencement of operations) through
December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from July 1, 2004 (commencement of operations)
through December 31, 2004 (unaudited)
MAGNOLIA SQUARE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
period from February 1, 2004 (commencement of operations) through
December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from February 1, 2004 (commencement of operations)
through December 31, 2004 (unaudited)
COTTAGE PLAZA:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
period from November 1, 2004 (commencement of operations) through
December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from November 1, 2004 (commencement of operations)
through December 31, 2004 (unaudited)
VILLAGE AT QUAIL SPRINGS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2004 (unaudited)
HOLLIDAY TOWN CENTER:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2004 (unaudited)
HIGH RIDGE CROSSING:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
period from May 17, 2004 (commencement of operations) through December 31,
2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from May 17, 2004 (commencement of operations)
through December 31, 2004 (unaudited)
II-20
STATELINE STATION:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for year
ended December 31, 2004
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2004
(b) EXHIBITS.
EXHIBIT NO. DESCRIPTION
----------- -----------
1.1********** Form of Dealer Manager Agreement by and between Inland
Western Retail Real Estate Trust, Inc. and Inland
Securities Corporation.
1.2********** Form of Soliciting Dealers Agreement by and between
Inland Securities Corporation and the Soliciting
Dealers.
3.1********** First Amended and Restated Articles of Incorporation
of Inland Western Retail Real Estate Trust, Inc.
3.2* Bylaws of Inland Western Retail Real Estate Trust,
Inc.
3.2. X3 Second Amended and Restated Bylaws of Inland Western
Retail Real Estate Trust, Inc. as of February 11, 2005
4.1* Specimen Certificate for the Shares.
5********** Opinion of Duane Morris LLP as to the legality of the
Shares being registered.
8********** Opinion of Duane Morris LLP as to tax matters.
10.1** Form of Escrow Agreement by and among Inland Western
Retail Real Estate Trust, Inc., Inland Securities
Corporation and LaSalle Bank National Association.
10.2** Form of Advisory Agreement by and between Inland
Western Retail Real Estate Trust, Inc. and Inland
Western Retail Real Estate Advisory Services, Inc.
10.2.1 X3 Amended and Restated Advisory Agreement dated
December 28, 2004
10.2.2 X3 Second Amended and Restated Advisory Agreement dated
December 28, 2004
10.3** Form of Master Management Agreement, including the
form of Management Agreement for each Property by and
between Inland Western Retail Real Estate Trust, Inc.
and Inland Western Property Management Corp.
10.4** Property Acquisition Service Agreement by and among
Inland Western Retail Real Estate Trust, Inc., Inland
Western Retail Real Estate Advisory Services, Inc.,
Inland Real Estate Corporation, Inland Real Estate
Advisory Services, Inc., and Inland Real Estate
Acquisitions, Inc.
10.4.1 X3 Property Acquisition Agreement dated February 10, 2005
by and between Inland Real Estate Acquisitions, inc,
Inland Western Retail Real Estate Trust, Inc., and
Inland Western Retail Real Estate Advisory Services,
Inc.
10.5* Independent Director Stock Option Plan.
10.6* Indemnification Agreement by and between Inland
Western Retail Real Estate Trust, Inc. and its
directors and executive officers.
II-21
EXHIBIT NO. DESCRIPTION
----------- -----------
10.7** Purchase and Sale Agreement (Re: Peoria Station) dated
January 31, 2003.
10.8*** Assignment of Purchase and Sale Agreement (Re: Peoria
Station) dated June 3, 2003.
10.9**** Share Repurchase Plan.
10.10***** Agreement for Purchase and Sale (Re: Stony Creek)
dated November 11, 2003.
10.11***** Real Property Purchase Agreement (Re: Plaza 205 and
Mall 205) dated December 3, 2003.
10.12***** Amended Real Estate Purchase Contract (Re: Edmond
Oklahoma Eckerd Drug Store) dated November 11, 2003.
10.13***** Amended Real Estate Purchase Contract (Re: Norman
Oklahoma Eckerd Drug Store) dated November 11, 2003.
10.14****** Sale-Purchase Agreement Contract (Re: Shops at Park
Place) dated September 5, 2003.
10.15****** Assignment of Contract (Re: Shops at Park Place) dated
September 23, 2003.
10.16****** Assignment of Membership Interests (Re: Shops at Park
Place) dated October 31, 2003.
10.17****** Promissory Note (Re: Shops at Park Place) dated
October 31, 2003.
10.18****** Loan Agreement (Re: Shops at Park Place) dated
October 31, 2003.
10.19****** Post Closing Agreement (Re: Shops at Park Place) dated
October 31, 2003.
10.20****** Purchase and Sale Agreement (Re: Darien Towne Center)
dated November 12, 2003.
10.21****** Purchase and Sale Agreement (Re: Shaws Supermarkets-
New Britain) dated November 20, 2003.
10.22****** Agreement Relating to PetsMart Claims (Re: Darien
Towne Center) dated December 18, 2003.
10.23****** Agreement Relating to Irv's Lease (Re: Darien Towne
Center) dated December 18, 2003.
10.24****** Amended Purchase Agreement (Re: Newnan Crossing) dated
December 18, 2003.
10.25****** Mortgage Note $10M (Re: Darien Towne Center) dated
December 19, 2003.
10.26****** Mortgage Note $6.5M (Re: Darien Towne Center) dated
December 19, 2003.
10.27****** Mortgage, Assignment of Leases, Rents and Contracts,
Security Agreement and Fixture Filing (Re: Darien
Towne Center) dated December 19, 2003.
10.28****** Related Agreement (Re: Darien Towne Center) dated
December 19, 2003.
10.29****** Assignment (Re: Darien Towne Center) dated
December 19, 2003.
10.30****** Partial Assignment and Assumption of Purchase and Sale
Agreement (Re: Shaws Supermarket - New Britain) dated
December 30, 2003.
10.31****** Amended Purchase Agreement (Re: Pavilion at Kings
Grant) dated December 31, 2003.
10.32****** Post Closing and Indemnity Agreement (Re: Pavilion at
Kings Grant) dated December 31, 2003.
10.33****** Mortgage Note (Re: CorWest Plaza) dated
January 1, 2004.
II-22
EXHIBIT NO. DESCRIPTION
----------- -----------
10.34****** Mortgage, Assignment of Leases and Rents and Security
Agreement (Re: CorWest Plaza) dated January 1, 2004.
10.35****** Guaranty Agreement (Re: CorWest Plaza) dated
January 1, 2004.
10.36****** Letter Agreement (Re: Stoney Creek Marketplace) dated
January 5, 2004.
10.37****** Mortgage Note (Re: Stoney Creek Marketplace) dated
January 5, 2004.
10.38****** Mortgage, Assignment of Leases and Rents and Security
Agreement (Re: Stoney Creek Marketplace) dated
January 5, 2004.
10.39****** Amended Contract of Sale (Re: La Plaza Del Norte)
dated January 16, 2004.
10.40****** Promissory Note (Re: Hickory Ridge) dated
January 23, 2004.
10.41****** Post Closing Agreement (Re: Hickory Ridge) dated
January 2004.
10.42****** Loan Agreement (Re: Hickory Ridge) dated
January 23, 2004.
10.43****** Amended and Restated Promissory Noted (Re: Shops at
Park Place and Shaws Supermarket - New Britain) dated
January 2004.
10.44****** Promissory Note (Re: Shops at Park Place and Shaws
Supermarket - New Britain) dated January 2004.
10.45****** Open-End Mortgage and Security Agreement (Re: Shops at
Park Place and Shaws Supermarket - New Britain) dated
January 2004.
10.46****** Loan Agreement (Re: Shops at Park Place and Shaws
Supermarket - New Britain) dated January 2004.
10.47****** Guaranty Agreement Regarding Cross-Collateralization
(Re: Shops at Park Place) dated January 2004.
10.48****** Guaranty Agreement Regarding Cross-Collateralization
(Re: Shaws Supermarket - New Britain) dated
January 2004.
10.49****** Notice of Final Agreement (Re: La Plaza Del Norte)
dated February 2004.
10.50****** Secured Promissory Note Loan No. 753821 (Re: La Plaza
Del Norte) dated February 2004.
10.51****** Deed of Trust, Security Agreement and Assignment of
Rents Loan No. 753821 (Re: La Plaza Del Norte) dated
February 2004.
10.52****** Guaranty Loan No, 753821 (Re: La Plaza Del Norte)
dated February 2004.
10.53******* Amended Purchase and Sale Agreement (Re: CorWest
Plaza) dated October 8, 2003.
10.54******* Assignment and Assumption of Purchase and Sale
Agreement (Re: CorWest Plaza) dated January 5, 2004.
10.55******* Amended Purchase and Sale Agreement (Re: Metro Square
Center) dated January 16, 2004.
10.56******* Assignment and Assumption of Letter Agreement (Re:
Metro Square Center) dated January 20, 2004.
10.57******* Reinstatement of and Amendment to Purchase and Sale
Agreement (Re: North Ranch Pavilions) dated
January 14, 2004.
10.58******* Assignment and Assumption of Purchase and Sale
Agreement (Re: North Ranch Pavilions) dated
January 15, 2004.
10.59******* Letter Agreement (Re: MacArthur Crossing) dated
November 20, 2003.
II-23
EXHIBIT NO. DESCRIPTION
----------- -----------
10.60******* Assignment of Contract (Re: MacArthur Crossing) dated
February 2004.
10.61******* Secured Promissory Note Loan No. 753820 (Re: Larkspur
Landing) dated January 30, 2004.
10.62******* Deed of Trust, Security Agreement and Assignment of
Rents (Re: Larkspur Landing) dated January 30, 2004.
10.63******* Guaranty Loan No. 753820 (Re: Larkspur Landing) dated
January 30, 2004.
10.64******* Amended Option to Purchase Partnership Interests (Re:
Hickory Ridge) dated December 23, 2003.
10.65******* Assignment (Re: La Plaza Del Norte) dated
January 21, 2004.
10.66******* Purchase and Sale Agreement (Re: Larkspur Landing)
dated December 12, 2003.
10.67******* Assignment (Re: Larkspur Landing) dated
January 14, 2004.
10.68******* Amended Letter Agreement Offer to Purchase (Re: The
Promenade at Red Cliff) dated February 13, 2004.
10.69******** Agreement of Sale (Re: Peoria Crossing) dated
January, 2004
10.70******** Letter Agreement to Purchase (Re: Heritage Towne
Crossing) dated January 8, 2004.
10.71********* Secured Promissory Note Loan No. 753865 (Re: Pavilion
at King's Grant) dated April 6, 2004.
10.72********* Deed of Trust, Security Agreement and Assignment of
Rents Loan No. 753865 (Re: Pavilion at King's Grant)
dated April 6, 2004.
10.73********* Guaranty Loan No. 753865 (Re: Pavilion at King's
Grant) dated April 6, 2004.
10.74********* Guaranty - II Loan No. 753865 (Re: Pavilion at King's
Grant) dated April 6, 2004.
10.75********* Assignment of Contract (Re: Hickory Ridge ) dated
January 9, 2004.
10.76********* Promissory Note Loan No. 6518303 (Re: Metro Square
Center) dated March 26, 2004.
10.77********* Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing Loan No. 6518303
(Re: Metro Square Center) dated March 26, 2004.
10.78********* Non-Recourse Guaranty Agreement Loan No. 6518303 (Re:
Metro Square Center) dated March 26, 2004.
10.79********* Payment Guaranty Agreement Loan No. 6518303 (Re: Metro
Square Center) dated March 26, 2004.
10.80********* Secured Promissory Note Loan No. 753864 (Re: MacArthur
Crossing) dated March 26, 2004.
10.81********* Deed of Trust, Security Agreement and Assignment of
Rents Loan No. 753864 (Re: MacArthur Crossing) dated
March 26, 2004.
10.82********* Guaranty Loan No. 753864 (Re: MacArthur Crossing)
dated March 26, 2004.
10.83********* Promissory Note Loan No. 57968 (Re: Promenade at Red
Cliff) dated April 8, 2004.
10.84********* Exceptions to Non-Recourse Guaranty Agreement Loan No.
57968 (Re: Promenade at Red Cliff) dated
April 8, 2004.
10.85********* Loan Agreement No. 57968 (Re: Promenade at Red Cliff)
dated April 8, 2004.
10.86********* Post Closing and Indemnity Agreement (Re: Heritage
Towne Crossing) dated March 5, 2004.
II-24
EXHIBIT NO. DESCRIPTION
----------- -----------
10.87********* Vacancy Escrow Agreement (Re: Heritage Towne Crossing)
dated March 5, 2004.
10.88********* General Assignment (Re: Heritage Towne Crossing) dated
March 5, 2004.
10.89********* Assignment of Contract (Re: Heritage Towne Crossing)
dated March 5, 2004.
10.90********* Assignment of Contract (Re: Dorman Center) dated
December 29, 2003.
10.92********* Dorman Center Pier 1 Escrow (Re: Dorman Center) dated
March 4, 2004.
10.93********* Dorman Center Escrow (Re: Dorman Center) dated
March 4, 2004.
10.94********* Mortgage Note Loan No. 6518291 (Re: Dorman Center)
dated April 9, 2004.
10.95********* Mortgage, Assignment of Leases and Rents and Security
Agreement (Re: Dorman Center) dated April 9, 2004.
10.96********* Transitional Security (Phase II) Reserve Agreement
(Re: Dorman Center) dated April 9, 2004,
10.97********* Guaranty Agreement Loan No. 6518291 (Re: Dorman
Center) dated April 9, 2004.
10.98********* Promissory Note: (Re: Heritage Towne Crossing) dated
April 26, 2004.
10.99********* Promissory Note: (Re: Eckerds - Edmond, OK.) dated
April 26, 2004.
10.100******** Promissory Note: (Re: Eckerds - Norman, OK.) dated
April 26, 2004.
10.101******** Loan Agreement (Re: Heritage Towne Crossing, Eckerds -
Edmond, OK. And Eckerds - Norman, OK.) dated
April 26, 2004.
10.102******** Post-Closing Agreement (Re: Heritage Towne Crossing,
Eckerds - Edmond, OK. And Eckerds - Norman, OK.) dated
April 26, 2004.
10.103******** Guaranty Agreement Regarding Cross-Collateralization
(Re: Heritage Towne Crossing) dated April 26, 2004.
10.104******** Guaranty Agreement Regarding Cross-Collateralization
(Re: Eckerds - Edmond, OK.) dated April 26, 2004.
10.105******** Guaranty Agreement Regarding Cross-Collateralization
(Re: Eckerds - Norman, OK.) dated April 26, 2004.
10.106******** Assignment of Contract (Re: Promenade at Red Cliff)
dated February 13, 2004.
10.107******** Assignment of Contract (Re: Peoria Crossings) dated
March 3, 2004.
10.108******** Post Closing Agreement (Re: Peoria Crossings) dated
March 3, 2004.
10.109******** Master Lease Escrow Agreement (Re: Peoria Crossings)
dated February 4, 2004.
10.110******** Tax Proration Agreement (Re: Peoria Crossings) dated
March 3, 2004.
10.111******** Promissory Note Loan No. 10023006 (Re: Peoria
Crossings) dated March 5, 2004.
10.112******** Loan Agreement -Loan No. 10023006 (Re: Peoria
Crossings) dated March 5, 2004.
10.113******** Assignment of Contract (Re: Paradise Valley
Marketplace) dated April 8, 2004.
10.114******** Revised Letter Agreement to Purchase (Re: Paradise
Valley Marketplace) dated January 21, 2004.
II-25
EXHIBIT NO. DESCRIPTION
----------- -----------
10.115******** Escrow Agreement (Re: Paradise Valley Marketplace)
dated April 8, 2004.
10.116******** Assignment and Assumption of Purchase and Sale
Agreement (Re: Best on the Boulevard) dated
April 4, 2004.
10.117******** Post-Closing Agreement (Re: Best on the Boulevard)
dated April 14, 2004.
10.118******** Amended Purchase and Sale Agreement (Re: Best on the
Boulevard) dated March 29, 2004.
10.119******** Assignment and Assumption of Purchase and Sales
Agreement (Re: Bluebonnet Parc) dated April 21, 2004.
10.120******** Escrow Agreement (Re: Bluebonnet Parc) dated
April 22, 2004.
10.121******** Letter Agreement to Purchase (Re: Bluebonnet Parc)
dated February 4, 2004.
10.122******** Loan Agreement (Re: Bluebonnet Parc) dated
May 7, 2004.
10.123******** Assignment and Assumption of Agreement for Purchase
and Sale (Re: Alison's Corner) dated April 20, 2004.
10.124******** Post Closing Agreement (Re: Alison's Corner) dated
April 28, 2004.
10.125******** Amended Purchase and Sale Agreement (Re: Alison's
Corner) dated April 23, 2004.
10.126******** Promissory Note (Re: Alison's Corner) dated
May 10, 2004.
10.127******** Loan Agreement (Re: Alison's Corner) dated
May 10, 2004.
10.128******** Letter Agreement Regarding Escrow (Re: Alison's
Corner) dated May 10, 2004.
10.129******** Post-Closing Agreement (Re: Alison's Corner) dated
May 10, 2004.
10.130******** Assignment and Assumption of Purchase and Sales
Agreement (Re: North Rivers Town Center) dated
April 27, 2004.
10.131******** Post-Closing Agreement (Re: North Rivers Town Center)
dated April 2004.
10.132******** Amended Agreement for Purchase and Sale (Re: North
Rivers Town Center) dated April 26, 2004.
10.133******** Assignment and Assumption of Purchase and Sales
Agreement (Re: Eastwood Towne Center) dated
May 12, 2004.
10.134******** Revised Letter Agreement (Re: Eastwood Towne Center)
dated March 29, 2004.
10.135******** Master Fund Escrow Agreement (Eastwood Towne Center)
dated May 13, 2004.
10.136******** Holdback Agreement (Re: Eastwood Towne Center) dated
May 13, 2004.
10.137******** Bill of Sale, Assignment and Assumption of Contracts
(Re: Eastwood Towne Center) dated May 13, 2004.
10.138******** Assignment and Assumption of Purchase and Sales
Agreement (Re: Arvada Connection and Arvada
Marketplace) dated April 28, 2004.
10.139******** Bill of Sale, Assignment and Assumption of Contracts
(Re: Arvada Connection and Arvada Marketplace) dated
April 29, 2004.
10.140******** Purchase and Sale Agreement (Re: Arvada Connection and
Arvada Marketplace) dated March 31, 2004.
II-26
EXHIBIT NO. DESCRIPTION
----------- -----------
10.141******** Escrow Agreement (Re: Arvada Connection and Arvada
Marketplace) dated April 29, 2004.
10.142******** Redevelopment Agreement (Re: Arvada Connection and
Arvada Marketplace) dated April 28, 2004.
10.144******** Assignment of Contract (Re: Watauga Pavilion) dated
May 20, 2004.
10.145******** Amended Purchase and Sale Agreement (Re: Watauga
Pavilion) dated May 11, 2004.
10.146******** Post-Closing Escrow and Master Lease Agreement (Re:
Watauga Pavilion) dated May 21, 2004.
10.147******** CAM Reconciliation Escrow Agreement (Re: Northpointe
Plaza) dated May 2004.
10.148******** Reinstatement of and First Amendment to Agreement of
Purchase and Sale (Re: Northpointe Plaza) dated
April 2004.
10.149******** Vacancy Escrow Agreement (Re: Northpointe Plaza) dated
May 2004.
10.150******** Promissory Note - Loan No. 58108 (Re: Paradise Valley
Marketplace) dated June 3, 2004.
10.151******** Loan Agreement - Loan No. 58108 (Re: Paradise Valley
Marketplace) dated June 3, 2004.
10.152******** Promissory Note (Re: North Rivers Town Center) dated
June 3, 2004.
10.153******** Mortgage and Security Agreement (Re: North Rivers Town
Center) dated June 3, 2004.
10.154******** Post-Closing Agreement (Re: North Rivers Town Center)
dated June 3, 2004.
10.155******** Real Estate Purchase and Leaseback Agreement (Re:
Eckerds - Kill Devil Hills, NC) dated March 18, 2004.
10.156******** Real Estate Purchase and Leaseback Agreement (Re:
Eckerds - Greer, SC) dated April 1, 2004.
10.157******** Real Estate Purchase and Leaseback Agreement (Re:
Eckerds - Columbia, SC) dated March 18, 2004.
10.158******** Real Estate Purchase and Leaseback Agreement (Re:
Eckerds - Crossville, TN) dated March 18, 2004.
10.159******* Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing Loan No. 58108
(Re: Peoria Crossing) dated June 3, 2004.
10.160******* Loan Agreement (Re: North Rivers Town) dated
June 3, 2004.
10.161******* Secured Promissory Note Loan No. 753946 (Re: Arvada
Marketplace) dated June 17, 2004.
10.162******* Deed of Trust, Security Agreement and Assignment of
Rents Loan No. 753946 (Re: Arvada Marketplace) dated
June 17, 2004.
10.163******* Guaranty Loan No. 753946 (Re: Arvada Marketplace)
dated June 17, 2004.
10.164******* Mortgage Note Loan No. 6518370 (Re: Eastwood Town
Center) dated June 15, 2004.
10.165******* Mortgage - Loan No. 6518370 (Re: Eastwood Town Center)
dated June 15, 2004.
10.166******* Guaranty Agreement Loan No. 6518370 (Re: Eastwood Town
Center) dated June 15, 2004.
10.167******* Secured Promissory Note Loan No. 753943 (Re: Watauga
Pavilion) dated June 7, 2004.
10.168******* Deed of Trust, Security Agreement and Assignment of
Rents Loan No. 753943 (Re: Watauga Pavilion) dated
June 7, 2004.
II-27
EXHIBIT NO. DESCRIPTION
----------- -----------
10.169******* Notice of Final Agreement Loan No. 753943 (Re: Watauga
Pavilion) dated June 7, 2004.
10.170******* Guaranty Loan No. 753943 (Re: Watauga Pavilion) dated
June 7, 2004.
10.171******* General Assignment (Re: Northpointe Plaza) dated
May 25, 2004.
10.172******* Post Closing and Indemnity Agreement (Re: Northpointe
Plaza) dated May, 2004.
10.173******* Promissory Note (Re: Northpointe Plaza) dated
June 4, 2004.
10.174******* Loan Agreement (Re: Northpointe Plaza) dated
June 4, 2004.
10.175******* Deed of Trust, Security Agreement and Fixture Filing
(Re: Northpointe Plaza) dated June 4, 2004.
10.176******* Revised Letter Agreement to Purchase (Re: Plaza Santa
Fe) dated December 4, 2004.
10.177******* Promissory Note Secured By Leasehold Deed of Trust
(Re: Plaza Santa Fe) dated November 22, 2002.
10.178******* Leasehold Deed of Trust and Absolute Assignment of
Rents and Leases and Security Agreement and Fixture
Filing Loan No. 31-0900141A (Re: Plaza Santa Fe) dated
November, 2002.
10.179******* Assignment of Purchase and Sale Agreement (Re: Pine
Ridge Plaza) dated June 4, 2004.
10.180******** Assignment and Assumption Agreement Purchase and Sale
Agreement (Re: Pine Ridge Plaza) dated May 26, 2004.
10.181******* Amended Purchase and Sale Agreement (Re: Pine Ridge
Plaza) dated March 30, 2004.
10.182******* Assignment of Contract (Re: Huebner Oaks Center) dated
June 8, 2004.
10.183******* Agreement of Purchase and Sale (Re: Huebner Oaks
Center).
10.184******* Secured Promissory Note 1 Loan No. 753971 (Re: Huebner
Oaks Center) dated June 22, 2004.
10.185******* Secured Promissory Note 2 Loan No. 753972 (Re: Huebner
Oaks Center) dated June 22, 2004.
10.186******* Deed of Trust, Security Agreement and Assignment of
Rents Loan Nos. 753971 and 753972 (Re: Huebner Oaks
Center) dated June 22, 2004.
10.187******* Guaranty Loan Nos. 753971 and 753972 (Re: Huebner Oaks
Center) dated June 22, 2004.
10.188******* Notice of Final Agreement Loan Nos. 753971 and 753972
(Huebner Oaks Center) dated June 22, 2004.
10.189******* Amended Letter Purchase Agreement (Re: John's Creek
Village) dated June 18, 2004.
10.190******* Earn-out Agreement (Re: John's Creek Village) dated
June 23, 2004.
10.191******* Assignment of Contract (Re: Lakewood Towne Center)
dated June, 2004.
10.192******* Agreement for Purchase and Sale of Real Property and
Escrow Instructions (Re: Lakewood Towne Center) dated
May 6, 2004.
10.193******* Escrow and Leasing Agreement (Re: Lakewood Towne
Center) dated June, 2004.
10.194******* Commitment Letter Loan Nos. 122498 and 122499 (Re:
Lakewood Towne Center) dated June 28, 2004.
10.195******* Deed of Trust Note A Loan No. 122498 (Re: Lakewood
Towne Center) dated June 28, 2004.
10.196******* Deed of Trust Note B Loan No. 122499 (Re: Lakewood
Towne Center) dated June 28, 2004.
II-28
EXHIBIT NO. DESCRIPTION
----------- -----------
10.197******* Deed of Trust, Assignment of Leases, Rents and
Contracts, Security Agreement and Fixture Filing (Re:
Lakewood Towne Center) dated June 28, 2004.
10.198******* First Amendment to Escrow and Leasing Agreement Loan
Nos. 122498 and 122499 (Re: Lakewood Towne Center)
dated June 28, 2004.
10.199******* Master Lease Escrow Agreement (Re: Paradise Shoppes at
Prominence Point) dated June 30, 2004.
10.200******* Assignment of Purchase and Sale Agreement (Re:
Northgate North) dated June 24, 2004.
10.201******* Amended Agreement to Purchase and Sale Agreement (Re:
Northgate North) dated June 23, 2004.
10.202******* Escrow Agreement Regarding July Rents (Re: Northgate
North) dated June 30, 2004.
10.203******* Escrow Agreement Regarding Bassett TI Work/Leasing
Commission (Re: Northgate North) dated June, 2004.
10.204******* Access Agreement (Re: Northgate North) dated
June 30, 2004.
10.205******* Post Closing and Indemnity Agreement (Re: Davis Towne
Crossing) dated June 30, 2004.
10.206******* Letter Agreement to Purchase (Re: Davis Towne
Crossing) dated April 21, 2004.
10.207 ** NOT USED
10.208******* Assignment of Purchase and Sale Agreement (Re:
Fullerton Metrocenter) dated June 24, 2004.
10.209******* Post Closing and Indemnity Agreement (Re: Fullerton
Metrocenter) dated June, 2004.
10.210******* Amended Purchase and Sale Agreement and Joint Escrow
Instructions (Re: Fullerton Metrocenter) dated
June 30, 2004.
10.211******* Assignment and Assumption of Agreement for Purchase
and Sale (Re: Low Country Village) dated
June 30, 2004.
10.212******* Post Closing Agreement (Re: Low Country Village) dated
June 30, 2004.
10.213******* Agreement of Purchase and Sale (Re: Low Country
Village) dated May 20, 2004.
10.214******* Installment Note (Re: Pacheco Pass) dated
June 30, 2004.
10.215******* Loan Proceeds Holdback Agreement (Re: Pacheco Pass)
dated June 30, 2004.
10.216******* Interest Reserve Holdback Agreement (Re: Pacheco Pass)
dated June 30, 2004.
10.217******* Loan Guaranty Agreement (Secured Note) (Re: Pacheco
Pass) dated June 30, 2004.
10.218******* Escrow Agreement (Re: Shoppes at Boardwalk) dated July
1, 2004.
10.219******* Secured Promissory Note Loan No. 753948 (Re: Shoppes
at Boardwalk) dated July 2, 2004.
10.220******* Deed of Trust, Security Agreement and Assignment of
Rents (Re: Shoppes at Boardwalk) dated July 2, 2004.
10.221******* Guaranty Loan No. 75348 (Re: Shoppes at Boardwalk)
dated July 2, 2004.
10.222******* Property Reserves Agreement Loan No. 753948 (Re:
Shoppes at Boardwalk) dated July 2, 2004.
10.223******* Master Lease Escrow Agreement (Re: Paradise Shoppes at
Dallas) dated July 1, 2004.
II-29
EXHIBIT NO. DESCRIPTION
----------- -----------
10.224********* Assignment of Purchase Agreement (Re: Plaza Santa Fe
II) dated May 25, 2004
10.225********* Assignment of Contract (Re: Eckerds - Greer) dated
May 2004
10.226********* Assignment of Contract (Re: Eckerds - Kill Devil
Hills) dated May 2004
10.227********* Assignment of Contract (Re: Eckerds - Crossville)
dated May 2004
10.228********* Assignment of Contract (Re: Eckerds - Columbia) dated
May 2004
10.229********* Promissory Note (Re: Eckerds - Crossville) dated
July 21, 2004
10.230********* Post-Closing Agreement (Re: Eckerds - Crossville)
dated July 21, 2004
10.231********* Guaranty Agreement Regarding Cross-Collateralization
(Re: Eckerds- Crossville) dated July 21, 2004
10.232********* Promissory Note (Re: Eckerds - Columbia) dated
July 21, 2004
10.233********* Guaranty Agreement Regarding Cross-Collateralization
(Re: Eckerds- Columbia) dated July 21, 2004
10.234********* Promissory Note (Re: Eckerds - Kill Devil Hills) dated
July 21, 2004
10.235********* Post-Closing Agreement (Re: Eckerds - Kill Devil
Hills) dated July 21, 2004
10.236********* Guaranty Agreement Regarding Cross-Collateralization
(Re: Eckerds - Kill Devil Hills) dated July 21, 2004
10.237********* Promissory Note (Re: Eckerds - Greer) dated
July 21, 2004
10.238********* Guaranty Agreement Regarding Cross-Collateralization
(Re: Eckerds - Greer) dated July 21, 2004
10.239********* Loan Agreement (Re: Eckerds - Crossville, Columbia,
Greer and Kill Devil Hills) dated July 21, 2003
10.240********* Promissory Note (Re: Pine Ridge Plaza) dated
July 27, 2004
10.241********* Loan Agreement (Re: Pine Ridge Plaza) dated
July 27, 2004
10.242********* Earn-Out Agreement (Re: Johns Creek Village) dated
June 23, 2004
10.243********* Transitional Security (Phase II) Reserve Agreement
(Re: Johns Creek Village) dated June 28, 2004
10.244********* Mortgage Note (Re: Johns Creek Village) dated
June 28, 2004
10.245********* Deed to Secure Debt, Assignment of Leases and Rents
and Security Agreement (Re: Johns Creek Village) dated
June 28, 2004
10.246********* Guaranty Agreement (Re: Johns Creek Village) dated
June 28, 2004
10.247********* Post-Closing Agreement (Re: Fullerton Metrocenter)
dated July 9, 2004
10.248********* Promissory Note (Re: Fullerton Metrocenter) dated
July 9, 2004
10.249********* Loan Agreement (Re: Fullerton Metrocenter) dated
July 9, 2004
10.250********* Deed of Trust Note (Re: Northgate North) dated
July 2004
10.251********* Letter Agreement (Re: Northgate North) dated
July 14, 2004
10.252********* Closing Certificate (Re: Northgate North) dated
July 2004
II-30
EXHIBIT NO. DESCRIPTION
----------- -----------
10.253********* Limited Payment Guaranty (Re: Northgate North) dated
July 2004
10.254********* Post-Closing Agreement (Re: Cranberry Square) dated
July 2004
10.255********* Loan Agreement (Re: Cranberry Square) dated July 2004
10.256********* Letter Agreement (Re: Tollgate Marketplace) dated
July 21, 2004
10.257********* Closing Certificate (Re: Tollgate Marketplace) dated
July 21, 2004
10.258********* Mortgage Note (Re: Tollgate Marketplace) dated
July 21, 2004
10.259********* Post Closing Delivery Covenant (Re: Tollgate
Marketplace) dated July 21, 2004
10.260********* Indemnity Guaranty (Re: Tollgate Marketplace) dated
July 21, 2004
10.261********* Real Estate Purchase Contract (Re: Wal-Mart
Supercenter - Blytheville) dated May 28, 2004
10.262********* Letter Agreement (Re: Gateway Village) dated
July 21, 2004
10.263********* Closing Certificate (Re: Gateway Village) dated
July 21, 2004
10.264********* Mortgage Note A (Re: Gateway Village) dated
July 21, 2004
10.265********* Mortgage Note B (Re: Gateway Village) dated
July 21, 2004
10.266********* Indemnity Guaranty (Re: Gateway Village) dated
July 21, 2004
10.267********* Post Closing Delivery Covenant (Re: Gateway Village,
Towson Circle, and Tollgate Marketplace) dated
July 21, 2004
10.268********* Letter Agreement (Re: Towson Circle) dated
July 21, 2004
10.269********* Closing Certificate (Re: Towson Circle) dated
July 21, 2004
10.270********* Mortgage Note A (Re: Towson Circle) dated
July 21, 2004
10.271********* Mortgage Note B (Re: Towson Circle) dated
July 21, 2004
10.272********* Indemnity Guaranty (Re: Towson Circle) dated
July 21, 2004
10.273********* Letter Agreement (Re: Gateway Plaza Shopping Center)
dated May 20, 2004
10.274********* Promissory Note (Re: Wrangler Company Western
Headquarters and Distribution Facility) dated
July 26, 2004
10.275********* Loan Agreement (Re: Wrangler Company Western
Headquarters and Distribution Facility) Dated
July 26, 2004
10.276********* Promissory Note (Re: Plaza at Marysville) dated
July 30, 2004
10.277********* Loan Agreement (Re: Plaza at Marysville) dated
July 30, 2004
10.278********* Forks Town Center China Moon Escrow (Re: Forks Town
Center) dated July 27, 2004
10.279********* Earn Out Agreement (Re: Forks Town Center) dated
July 27, 2004
10.280********* Promissory Note (Re: Academy Sports and Outdoors -
Houma) dated August 4, 2004
II-31
EXHIBIT NO. DESCRIPTION
----------- -----------
10.281********* Loan Agreement (Re: Academy Sports and Outdoors -
Houma) dated August 4, 2004
10.282********* Promissory Note (Re: Reisterstown Plaza) dated
August 4, 2004
10.283********* Letter Agreement (Re: Reisterstown Plaza) dated
July 30, 2004
10.284********* Loan Agreement (Re: Reisterstown Plaza) dated
August 4, 2004
10.285********* Guaranty Agreement (Re: Reisterstown Plaza) dated
August 4, 2004
10.286********* Limited Guaranty Agreement (Re: Reisterstown Plaza)
dated August 4, 2004
10.287********* Post-Closing Agreement (Re: Reisterstown Plaza) dated
August 4, 2004
10.288********* Letter Agreement (Re: Wal-Mart Supercenter -
Jonesboro) dated June 4, 2004
10.289********* Promissory Note (Re: Wal-Mart Supercenter - Jonesboro)
dated August 6, 2004
10.290********* Loan Agreement (Re: Wal-Mart Supercenter - Jonesboro)
dated August 6, 2004
10.291********** Promissory Note Loan No. 10024997 (Re: Davis Towne
Crossing) dated August 9, 2004.
10.292********** Loan Agreement No. 10024997 (Re: Davis Towne Crossing)
dated August 9, 2004.
10.293********** Promissory Note Loan No. 10024995 (Re: Shoppes of
Prominence Point) dated August 2004.
10.294********** Loan Agreement No. 10024995 (Re: Shoppes of Prominence
Point) dated August 2004.
10.295********** Assignment of Contract (Re: Shops at Boardwalk) dated
July 1, 2004.
10.296********** Letter Agreement to Purchase (Re: Shops at Boardwalk)
dated March 2004.
10.297********** Amended Agreement of Sale (Re: Shops at Boardwalk)
dated April 15, 2004.
10.298********** Assignment of Contract (Re: Cranberry Square) dated
June 23, 2004.
10.299********** Letter Agreement to Purchase (Re: Cranberry Square)
dated April 27, 2004.
10.300********** Construction Agreement (Re: Dorman Center Phase II)
dated July 15, 2004.
10.301********** Escrow Agreement (Re: Dorman Center Phase II) dated
July 14, 2004.
10.302********** Assignment and Assumption of Purchase and Sale
Agreement (Re: Gateway Plaza) dated July 21, 2004.
10.303********** Amended Purchase and Sale Agreement (Re: Gateway
Plaza) dated July 15, 2004.
10.304********** Letter Agreement to Purchase (Re: Gateway Plaza) dated
May 20, 2004.
10.305********** Assignment of Contract (Re: Plaza at Marysville) dated
July 26, 2004.
10.306********** Reinstated and Amended Purchase and Sale Agreement
(Re: Plaza at Marysville) dated July 23, 2004.
10.307********** Purchase and Sale Agreement (Re: Plaza at Marysville)
dated May 6, 2004.
10.308********** Letter Agreement to Purchase (Re: Forks Town Center)
dated August 10, 2004.
10.309********** Mortgage Note Loan No. 122483 (Re: Forks Town Center)
dated August 10, 2004.
II-32
EXHIBIT NO. DESCRIPTION
----------- -----------
10.310********** Limited Payment Guarantee Agreement Loan No. 122483
(Re: Forks Town Center) dated August 10, 2004.
10.311********** Post-Closing Agreement (Re: Village Shoppes at
Simonton) dated August 9, 2004.
10.312********** Escrow and Guarantee Agreement (Re: Village Shoppes at
Simonton) dated August 2004.
10.313********** Assignment and Assumption of Purchase and Sale
Agreement (Re: Village Shoppes at Simonton) dated
August 2004.
10.314********** Letter Agreement to Purchase (Re: Village Shoppes at
Simonton) dated April 30, 2004.
10.315********** Secured Promissory Note Loan No. 754044 (Re:
Manchester Meadows) dated August 24, 2004.
10.316********** Deed of Trust, Security Agreement and Assignment of
Rents (Re: Manchester Meadows) dated August 24, 2004.
10.317********** Guaranty Agreement Loan No. 754044 (Re: Manchester
Meadows) dated August 24, 2004.
10.318********** Escrow and Guarantee Agreement (Re: Manchester
Meadows) dated August 2004.
10.319********** St. Louis Plays capes Escrow and Guarantee Agreement
(Re: Manchester Meadows) dated August 2004.
10.320********** Assignment and Assumption of Purchase and Sale
Agreement (Re: Manchester Meadows) dated August 2004.
10.321********** Purchase and Sale Agreement (Re: Manchester Meadows)
dated July 13, 2004.
10.322********** Amended and Restated Promissory Note Loan No. 10024998
(Re: Governor's Marketplace) dated August 17, 2004.
10.323********** Post-Closing Agreement (Re: Governor's Marketplace)
dated August 2004.
10.324********** Loan Agreement No. 10024998 (Re: Governor's
Marketplace) dated August 17, 2004.
10.325********** Master Lease Escrow Agreement (Re: Mitchell Ranch
Plaza) dated August 23, 2004.
10.326********** Agreement of Purchase and Sale (Re: Mitchell Ranch
Plaza) dated July 20, 2004.
10.327********** Master Lease Escrow Agreement (Re: The Columns) dated
August 24, 2004.
10.328********** Escrow Agreement (Re: The Columns) dated
August 24, 2004.
10.329 X1 Assignment (Re: John's Creek Village) dated
June 23, 2004.
10.330 X1 Assignment (Re: Shoppes at Prominence Point) dated
June 30, 2004.
10.331 X1 Amended Agreement of Purchase and Sale of Shopping
Center (Re: Shoppes at Prominence Point) dated
June 18, 2004.
10.332 X1 Assignment (Re: Shoppes of Dallas) dated July, 2 2004.
10.333 X1 Amended Agreement of Purchase and Sale of Shopping
Center (Re: Shoppes of Dallas) dated June 29, 2004.
II-33
EXHIBIT NO. DESCRIPTION
----------------------------------------------------------------------------
10.334 X1 Letter Agreement (Re: Shoppes of Dallas) dated
September 27, 2004.
10.335 X1 Mortgage Note A Loan No. 122533 (Re: Shoppes of
Dallas) dated September 27, 2004.
10.336 X1 Mortgage Note B Loan No. 122533 (Re: Shoppes of
Dallas) dated September 27, 2004.
10.337 X1 Deed to Secure Debt and Security Agreement (Re:
Shoppes of Dallas) dated September 27, 2004.
10.338 X2 Contribution Agreement (Re: Boulevard at the
Capital Centre) dated July 21, 2004.
10.339 X1 Contribution Agreement (Re: Tollgate Marketplace)
dated July 19, 2004.
10.340 X1 Contribution Agreement (Re: Gateway Village) dated
July 21, 2004.
10.341 X1 Promissory Note (Re: Plaza at Marysville) dated
July 30, 2004.
10.342 X1 Loan Agreement (Re: Plaza at Marysville) dated
July 30, 2004.
10.343 X1 Assignment of Contract (Re: Forks Town Center)
dated June 18, 2004.
10.344 X1 Reinstated and Amended Contract (Re: Forks Town
Center) dated July 2, 2004.
10.345 NOT USED
10.346 X1 Contribution Agreement (Re: Towson Circle) dated
July 2004.
10.347 X1 Letter Agreement (Re: Gateway Plaza) dated
August 19, 2004.
10.348 X1 Deed of Trust Note Loan No. 122520 (Re: Gateway
Plaza) dated August 19, 2004.
10.349 X1 Limited Payment Guaranty (Re: Gateway Plaza) dated
August 19, 2004.
10.350 X1 Contribution Agreement (Re: Reisterstown Road Plaza)
dated July 2004.
10.351 X1 Letter Agreement (Re: Village Shops at Simonton) dated
September 27, 2004.
10.352 X1 Mortgage Note A Loan No. 122532 (Re: Village Shops at
Simonton) dated September 27, 2004.
10.353 X1 Mortgage Note A Loan No. 122532 (Re: Village Shops at
Simonton) dated September 27, 2004.
10.354 X1 Deed to Secure Debt and Security Agreement (Re:
Village Shops at Simonton) dated September 27, 2004.
10.355 X1 Amendment Agreement (Re: Governor's Marketplace) dated
August 12, 2004.
10.356 X1 Master Lease Escrow Agreement (Re: Governor's
Marketplace) dated August 17, 2004.
10.357 X1 Secured Promissory Note Loan No. 754065 (Re: Mitchell
Ranch Plaza) dated September 2, 2004.
10.358 X1 Mortgage and Security Agreement (Re: Mitchell Ranch
Plaza) dated September 2, 2004.
10.359 X1 Guaranty (Re: Mitchell Ranch Plaza) dated
September 2, 2004.
10.360 X1 Assignment (Re: The Columns) dated August 24, 2004.
10.361 X1 Amendment Agreement (Re: The Columns) dated
August 2, 2004.
10.362 X1 Letter Agreement (Re: The Columns) dated
October 1, 2004.
II-34
EXHIBIT NO. DESCRIPTION
10.363 X1 Mortgage Note A Loan No. 122534 (Re: The Columns)
dated September 27, 2004.
10.364 X1 Mortgage Note B Loan No. 122534 (Re: The Columns)
dated September 27, 2004.
10.365 X1 Installment Note (Re: Quakertown) dated
August 25, 2004.
10.366 X1 Loan Guaranty Agreement (Re: Quakertown) dated
August 25, 2004.
10.367 X1 Amended Agreement (Re: Saucon Valley Square) dated
September 7, 2004.
10.368 X1 Assignment and Assumption of Purchase and Sale
Agreement (Re: Lincoln Park) dated September 1, 2004.
10.369 X1 Amended and Restated Purchase and Sale Agreement (Re:
Lincoln Park) dated August 6, 2004.
10.369 X1 Promissory Note (Re: Lincoln Park) dated
October 8, 2004.
10.370 X1 Loan Agreement (Re: Lincoln Park) dated
October 8, 2004.
10.371 X1 Assignment and Assumption of Purchase and Sale
Agreement (Re: Harvest Towne Center) dated
September 2004.
10.372 X1 Amended Purchase Agreement (Re: Harvest Towne Center)
dated August 2004.
10.373 X1 Easement Indemnity Escrow Agreement (Re: Harvest Towne
Center) dated September 8, 2004.
10.374 X1 Master Lease Agreement (Re: Harvest Towne Center)
dated September 8, 2004.
10.375 X1 Amended and Restated Promissory Note (Re: Boulevard at
the Capital Centre) dated September 8, 2004.
10.376 X1 Loan Agreement (Re: Boulevard at the Capital Centre)
dated September 8, 2004.
10.377 X1 Amended and Restated Limited Guaranty Agreement (Re:
Boulevard at the Capital Centre) dated
September 8, 2004.
10.378 X1 Post Closing Agreement (Re: Boulevard at the Capital
Centre) dated September 8, 2004.
10.379 X1 Agreement of Sale (Re: GMAC Insurance Building) dated
August 2004.
10.380 X1 Escrow Agreement (Re: GMAC Insurance Building) dated
September 2004.
10.381 X1 Guaranty (Re: GMAC Insurance Building) dated
September 2004.
10.382 X1 Promissory Note (Re: GMAC Insurance Building) dated
September 29, 2004.
10.383 X1 Loan Agreement (Re: GMAC Insurance Building) dated
September 29, 2004.
10.384 X1 Promissory Note (Re: Saucon Valley Square) dated
September 7, 2004.
10.385 X1 Loan Agreement (Re: Saucon Valley Square) dated
September 7, 2004.
10.386 NOT USED
10.387 X2 Amended Agreement to Option to Purchase Real Property
(Re: Azalea Square) dated September 29, 2004.
10.388 X2 Amended Agreement to Contract for Sale and Purchase
(Re: Edgemont Town Center) dated November 23, 2004.
II-35
EXHIBIT NO. DESCRIPTION
----------- -----------
10.389 X2 Assignment (Re: University Town Center) dated
November 23, 2004.
10.390 X2 Amended Agreement to Contract for Sale and Purchase
(Re: University Town Center) dated November 19, 2004.
10.391 X2 Promissory Note (Re: Azalea Square) dated
November 11, 2004.
10.392 X2 Loan Agreement (Re: Azalea Square) dated
November 11, 2004.
10..393 X2 Promissory Note (Re: Mansfield Towne Crossing) dated
November 12, 2004.
10.394 X2 Loan Agreement (Re: Mansfield Towne Crossing) dated
November 12, 2004.
10.395 X2 Amendment to Loan Documents (Re: The Columns) dated
November 2, 2004.
10.396 X2 Mortgage Note A Loan No. 122541 (Re: The Columns)
dated November 2, 2004.
10.397 X2 Mortgage Note B Loan No. 122541 (Re: The Columns)
dated November 2, 2004.
10.398 X2 Promissory Note (Re: Bed Bath & Beyond Plaza) dated
November 12, 2004.
10.399 X2 Loan Agreement (Re: Bed Bath & Beyond Plaza) dated
November 12, 2004.
10.400 X2 Promissory Note (Re: Oswego Commons) dated
November 23, 2004.
10.401 X2 Loan Agreement (Re: Oswego Commons) dated
November 23, 2004.
10.402 X2 Promissory Note (Re: Zurich Towers) dated
November 23, 2004.
10.403 X2 Loan Agreement (Re: Zurich Towers) dated
November 23, 2004.
10.404 X2 Assignment and Assumption of Purchase and Sale
Agreement (Bed, Bath & Beyond Plaza) dated
September 2004.
10.405 X2 Agreement to Purchase (Re: Bed, Bath & Beyond Plaza)
dated March 24, 2004.
10.406 X2 Amended Ground Lease Agreement (Re: Bed, Bath & Beyond
Plaza) dated May 28, 2004.
10.407 X2 Letter Agreement to Purchase (Re: Publix - Mt.
Pleasant) dated August 27, 2004.
10.408 X2 Agreement of Purchase and Sale (Re: Denton Crossing)
dated August 20, 2004.
10.409 X2 Escrow Agreement (Re: Denton Crossing) dated
October 18, 2004.
10.410 X2 Letter Agreement to Purchase (Re: Oswego Commons)
dated July 21, 2004.
10.411 X2 Agreement of Purchase and Sale (Re: Gurnee Town
Centre) dated October 5, 2004.
10.412 X2 Vacancy Escrow Agreement (Re: Gurnee Town Centre)
dated October 29, 2004.
10.413 X2 Assignment of Contract (Re: Mansfield Town Crossing)
dated November 3, 2004.
10.414 X2 Amended Letter Agreement to Purchase (Re: Mansfield
Town Crossing) dated October 29, 2004.
10.415 X2 Amended Purchase and Sale Agreement and Joint Escrow
Instructions (Re: Mansfield Town Crossing) dated
October 20, 2004.
10.416 X2 Assignment of Contract (Re: Fox Creek Village) dated
November 21, 2004.
II-36
EXHIBIT NO. DESCRIPTION
----------- -----------
10.417 X2 Amended Letter Agreement (Re: Fox Creek Village) dated
November 15, 2004.
10.418 X2 Escrow Agreement (Re: Fox Creek Village) dated
November 22, 2004.
10.419 X2 Letter Agreement to Purchase (Re: Winchester Commons)
dated September 8, 2004.
10.420 X2 Escrow Agreement (Re: Winchester Commons) dated
November 5, 2004.
10.421 X2 Assignment of Contract (Re: Zurich Towers) dated
November 2, 2004.
10.422 X2 Purchase and Sale Agreement (Re: Zurich Towers) dated
November 2, 2004.
10.423 X3 Assignment of Contract (Re: Denton Crossing) dated
October 12, 2004.
10.424 X3 Promissory Note (Re: Denton Crossing) dated
December 7, 2004.
10.425 X3 Promissory Note (Re: Denton Crossing) dated
December 7, 2004.
10.426 X3 Guaranty Agreement (Re: Denton Crossing) dated
December 7, 2004.
10.427 X3 Assignment of Purchase Agreement (Re: Plaza at
Riverlakes) dated October 21, 2004.
10.428 X3 Amended Purchase and Sale Agreement and Joint Escrow
Instructions (Re: Plaza at Riverlakes) dated
October 20, 2004.
10.429 X3 Assignment of Contract (Re: Gurnee Town Center) dated
October 26, 2004.
10.430 X3 Promissory Note (Re: Gurnee Town Center) dated
December 20, 2004.
10.431 X3 Loan Agreement (Re: Gurnee Town Center) dated
December 20, 2004.
10.432 X3 Mortgage Note (Re: Fox Creek Village) dated
December 23, 2004.
10.433 X3 Loan Letter Agreement (Re: Fox Creek Village) dated
December 23, 2004.
10.434 X3 Assignment of Contract (Re: Five Forks) dated
December 6, 2004.
10.435 X3 Agreement of Purchase and Sale (Re: Five Forks) dated
September 10, 2004.
10.436 X3 Assignment of Real Estate Purchase Contract (Re:
Placentia Town Center) dated November 29, 2004.
10.437 X3 Reinstated and Amended Purchase and Sale Agreement and
Joint Escrow Instructions (Re: Placentia Town Center)
dated November 4, 2004.
10.438 X3 Promissory Note (Re: Placentia Town Center) dated
December 21, 2004.
10.439 X3 Loan Agreement (Re: Placentia Town Center) dated
December 21, 2004.
10.440 X3 Assignment and Assumption of Purchase and Sale
Agreement (Re: Gateway Station) dated December 2004.
10.441 X3 Letter Agreement to Purchase (Re: Gateway Station)
dated October 22, 2004.
10.442 X3 Assignment (Re: Northwoods) dated November 7, 2004.
II-37
EXHIBIT NO. DESCRIPTION
----------- -----------
10.443 X3 Amended Agreement to Sale (Re: Northwoods) dated
November 8, 2004.
10.444 X3 Promissory Note (Re: Northwoods) dated
December 29, 2004.
10.445 X3 Loan Agreement (Re: Northwoods) dated
December 29, 2004.
10.446 X3 Assignment of Contract (Re: Gateway Pavilions) dated
December, 2004.
10.447 X3 Purchase and Sale Agreement and Escrow Instructions
(Re: Gateway Pavilions) dated August 9, 2004.
10.448 X3 Promissory Note (Re: Gateway Pavilions) dated
December 30, 2004.
10.449 X3 Loan Agreement (Re: Gateway Pavilions) dated
December 30, 2004.
10.450 X3 Assignment and Assumption of Purchase and Sale
Agreement (Re: American Express - 31st Avenue,
Phoenix, AZ) dated December 16, 2004.
10.451 X3 Assignment and Assumption of Purchase and Sale
Agreement (Re: American Express - 19th Avenue,
Phoenix, AZ) dated December 16, 2004.
10.452 X3 Assignment and Assumption of Purchase and Sale
Agreement (Re: American Express - Minneapolis, MN)
dated December 16, 2004.
10.453 X3 Assignment and Assumption of Purchase and Sale
Agreement (Re: American Express - De Pere, WI) dated
December 16, 2004.
10.454 X3 Assignment and Assumption of Purchase and Sale
Agreement (Re: American Express - Greensboro, NC)
dated December 16, 2004.
10.455 X3 Assignment and Assumption of Purchase and Sale
Agreement (Re: American Express - Fort Lauderdale, FL)
dated December 16, 2004.
10.456 X 3 Purchase and Sale Agreement (Re: American Express -
31st Avenue, Phoenix, AZ, 19th Avenue, Phoenix, AZ,
Minneapolis, MN, De Pere, WI, Greensboro, NC and Fort
Lauderdale, FL) dated December 16, 2004.
10.457 X3 Promissory Note (Re: American Express - 31st Avenue,
Phoenix, AZ) dated December 16, 2004.
10.458 X3 Loan Agreement (Re: American Express - 31st Avenue,
Phoenix, AZ) dated December 16, 2004.
10.459 X3 Promissory Note (Re: American Express - 19th Avenue,
Phoenix, AZ) dated December 16, 2004.
10.460 X3 Loan Agreement (Re: American Express - 19th Avenue,
Phoenix, AZ) dated December 16, 2004.
10.461 X3 Promissory Note (Re: American Express - Minneapolis,
MN) dated December 16, 2004.
10.462 X3 Loan Agreement (Re: American Express - Minneapolis,
MN) dated December 16, 2004.
10.463 X3 Promissory Note (Re: American Express - De Pere, WI)
dated December 16, 2004.
II-38
EXHIBIT NO. DESCRIPTION
----------- -----------
10.464 X3 Loan Agreement (Re: American Express - De Pere, WI)
dated December 16, 2004.
10.465 X3 Promissory Note (Re: American Express - Greensboro,
NC) dated December 16, 2004.
10.466 X3 Loan Agreement (Re: American Express - Greensboro, NC)
dated December 16, 2004.
10.467 X3 Promissory Note (Re: American Express - Fort
Lauderdale, FL) dated December 16, 2004.
10.468 X3 Loan Agreement (Re: American Express - Fort
Lauderdale, FL) dated December 16, 2004.
10.469 X3 Assignment and Assumption of Purchase and Sale
Agreement (Re: Southlake Town Square) dated
December 22, 2004.
10.470 X3 Amended and Restated Purchase and Sale Agreement (Re:
Southlake Town Square) dated November 5, 2004.
10.471 X3 Assignment and Assumption of Agreement to Admit
Partners (Re: Southlake Town Square) dated
December 22, 2004.
10.472 X3 Agreement to Admit Partner (Re: Southlake Town Square)
dated November 5, 2004.
10.473 X3 Assignment (Re: Henry Town Center) dated
December 23, 2004.
10.474 X3 Amended Agreement of Purchase and Sale (Re: Henry Town
Center) dated December 1, 2004.
10.475 X3 Promissory Note (Re: Henry Town Center) dated
January 8, 2003.
10.476 X3 Deed to Secure Debt and Security Agreement (Re: Henry
Town Center) dated January 8, 2003.
10.477 X3 Assignment (Re: 23rd Street Plaza) dated
December 23, 2004.
10.478 X3 Agreement of Sale (Re: 23rd Street Plaza) dated
November 19, 2004.
10.479 X3 Assignment (Re: Coram Plaza) dated December 23, 2004.
10.480 X3 Amended Agreement of Purchase and Sale (Re: Coram
Plaza) dated October 21, 2004.
10.481 X3 Assignment (Re: Phenix Crossing) dated
December 28, 2004.
10.482 X3 Amended Real Estate Sale Agreement (Re: Phenix
Crossing) dated December 20, 2004.
10.483 X3 Assignment and Assumption of Purchase and Sale
Agreement (Re: Mesa Fiesta) dated December 2004.
10.484 X3 Agreement of Purchase and Sale (Re: Mesa Fiesta) dated
December 7, 2004.
10.485 X3 Assignment (Re: Green's Corner, Newton Crossroads and
Stilesboro Oaks) dated December 29, 2004.
10.486 X3 Amended Purchase and Sale Agreement (Re: Green's
Corner, Newton Crossroads and Stilesboro Oaks) dated
December 20, 2004.
10.487 X3 Assignment of Contract (Re: Shoppes at Lake Andrew)
dated December 30, 2004.
II-39
EXHIBIT NO. DESCRIPTION
----------- -----------
10.488 X3 Letter Agreement to Purchase (Re: Shoppes at Lake
Andrew) dated November 8, 2004.
10.489 X3 Promissory Note (Re: Shoppes at Lake Andrew) dated
October 30, 2002.
10.490 X3 Future Advance and Renewal Note (Re: Shoppes at Lake
Andrew) dated February 26, 2004.
10.491 X3 Notice of Future Advance, Mortgage Modification and
Amended and Restated Mortgage and Security Agreement
(Re: Shoppes at Lake Andrew) dated February 26, 2004.
10.492 X3 Renewal Note (Re: Shoppes at Lake Andrew) dated
December 2004.
10.493 X3 Mortgage Modification and Amended and Restated
Mortgage and Security Agreement (Re: Shoppes at Lake
Andrew) dated December 30, 2004.
10.494 X3 Assignment of Contract (Re: Pleasant Run Towne
Crossing) dated December 29, 2004.
10.495 X3 Promissory Note (Re: Pleasant Run Towne Crossing)
dated December 30, 2004.
10.496 X3 Loan Agreement (Re: Pleasant Run Towne Crossing) dated
December 30, 2004.
10.497 X3 Assignment and Assumption of Purchase and Sale
Agreement (Re: Evans Town Center) dated December 2004.
10.498 X3 Assignment and Assumption of Purchase and Sale
Agreement (Re: Irmo Station) dated December 2004.
10.499 X3 Amended Agreement of Purchase and Sale (Re: Evans Town
Center and Irmo Station) dated December 29, 2004.
10.500 X3 Assignment and Assumption of Purchase and Sale
Agreement (Re: American Express - Markham, Ontario,
Canada) dated January 25, 2005.
10.501 X3 Purchase and Sale Agreement (Re: American Express -
Markham, Ontario, Canada) dated January 25, 2005.
10.502 X3 Purchase Agreement (Re: American Express - Markham,
Ontario, Canada) dated January 25, 2005.
10.503 X3 Promissory Note (Re: American Express - Markham,
Ontario, Canada) dated January 26, 2005.
10.504 X3 Loan Agreement (Re: American Express - Markham,
Ontario, Canada) dated January 26, 2005.
10.505 X3 Amended and Restated Project Promissory Note (Re:
Coram Plaza) dated December 7, 2004.
10.506 X3 Amended and Restated Acquisition Promissory Note (Re:
Coram Plaza) dated December 7, 2004.
10.507 X3 Amended and Restated Building Loan Promissory Note
(Re: Coram Plaza) dated December 7, 2004.
II-40
EXHIBIT NO. DESCRIPTION
----------- -----------
10.508 X3 Assignment, Assumption, Modification and Release
Agreement (Re: Coram Plaza) dated December 7, 2004.
10.509 X3 Interim Secured Promissory Note Loan No. 754183 (Re:
Coram Plaza) dated January 26, 2005.
10.510 X3 Consolidated, Amended and Restated Secured Promissory
Note Loan No. 754183 (Re: Coram Plaza) dated January
26, 2005.
10.511 X3 Loan Agreement Loan No. 754183 (Re: Coram Plaza) dated
January 26, 2005.
10.512 X3 Guaranty Loan No. 754183 (Re: Coram Plaza) dated
January 26, 2005.
23.1 Consent of KPMG LLP
23.2********* Consent of Duane Morris LLP (included in Exhibit 5)
23.3********** Consent of Duane Morris LLP (included in Exhibit 8)
24* Power of Attorney (included in signature page to the
Registration Statement)
31.1 X3 Rule 13a-15(e)/15d-15(e) Certification by Chief
Executive Officer
31.2 X3 Rule 13a-15(e)/15d-15(e) Certification by Principal
Financial Officer
31.3 X3 Rule 13a-15(e)/15d-15(e) Certification by Principal
Accounting Officer
32.1 X3 Section 1350 Certification by Chief Executive Officer
and Principal Accounting Officer and Principal
Financial Officer
99.1 X2 Code of Business Conduct and Ethics
99.2 X2 Nonretaliation Policy
* Incorporated by reference to the Company's
Registration Statement on Form S-11 (File No.
333-103799) originally filed March 13, 2003.
** Incorporated by reference to Amendment No. 1 to the
Company's Registration Statement on Form S-11 (File
No. 333-103799) originally filed May 8, 2003.
*** Incorporated by reference to Amendment No. 2 to the
Company's Registration Statement on Form S-11 (File
No. 333-103799) originally filed June 30, 2003.
**** Incorporated by reference to Amendment No. 3 to the
Company's Registration Statement on Form S-11 (File
No. 333-103799) originally filed August 20, 2003.
***** Incorporated by reference to Post-Effective Amendment
No. 1 to the Company's Registration Statement on Form
S-11 (File No. 333-103799) originally filed December
15, 2003.
****** Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
2003, originally filed February 27, 2004.
******* Incorporated by reference to Post-Effective Amendment
No. 3 to the Company's Registration Statement on Form
S-11 (File No. 333-103799) originally filed March 15,
2004.
II-41
******** Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30,
2004, originally filed July 29, 2004.
********* Incorporated by reference to Post-Effective Amendment
No. 4 to the Company's Registration Statement on Form
S-11 (File No. 333-103799) originally filed June 15,
2004.
********** Incorporated by reference to Post-Effective Amendment
No. 5 to the Company's Registration Statement on Form
S-11 (File No. 333-103799) originally filed September
15, 2004.
X1 Incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004, originally filed on
November
X2 Incorporated by reference to Post-Effective Amendment
No. 7 to the Company's Registration Statement on Form
S-11 (File No. 333-103799) originally filed.
X3 Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
2004, originally filed on March 7, 2005
II-42
ITEM 37. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i). To include any prospectus required by section 10(a)(3) of
the Act;
(ii). To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and
(iii). To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(b) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
2. The Registrant undertakes to send to each Stockholder at least on annual
basis a detailed statement of any transactions with the Advisor or its
Affiliates, and of fees, commissions, compensation and other benefits paid
or accrued to the Advisor or its Affiliates for the fiscal year completed,
showing the amount paid or accrued to each recipient and the services
performed.
3. The Registrant undertakes to provide to the Stockholders the financial
statements required by Form 10-K for the first full fiscal year of
operations of the Company.
4. The Registrant hereby undertakes to send to the Stockholders, within 60
days after the close of each quarterly fiscal period, the information
specified by Form 10-Q, if such report is required to be filed with the
Commission.
5. The Registrant undertakes to file a sticker supplement pursuant to Rule
424(c) under the Act during the distribution period describing each
Property not identified in the Prospectus at such time as there arises a
reasonable probability that such Property will be acquired and to
consolidate all such stickers into a post-effective amendment filed at
least once every three months, with the information contained in such
amendment provided simultaneously to the existing Stockholders. Each
sticker supplement should also disclose all compensation and fees received
by the Advisor and its Affiliates in connection with any such acquisition.
The post-effective amendment shall include audited financial statements
meeting the requirements of Rule 3-14 of Regulation S-X only for Properties
acquired during the distribution period.
The Registrant also undertakes to file, after the end of the distribution
period, a current report on Form 8-K containing the financial statements
and additional information required by Rule 3-14 of Regulation S-X, to
reflect each commitment (i.e., the signing of a binding purchase agreement)
made after the end of the distribution period involving the use of 10% or
more (on a cumulative basis) of the net proceeds of the offering and to
provide the information contained in such report to the Stockholders at
least once each quarter after the distribution period of the offering has
ended.
6. Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a Director, officer or controlling person of
the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such Director, officer or controlling person in connection
with securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
II-43
TABLE VI
ACQUISITION OF PROPERTIES BY PROGRAMS (A)
(000's omitted, except for Square Feet or Acres)
Table VI presents information concerning the acquisition of real properties by
programs with similar investment objectives, sponsored by Inland Real Estate
Investment Corporation ("IREIC"), in the three years ended December 31, 2003.
The detail provided with respect to each acquisition includes the property size,
location, purchase price and the amount of mortgage financing. This information
is intended to assist the prospective investor in evaluating the property mix as
well as the terms involved in acquisitions by programs sponsored by IREIC.
II-44
TABLE VI- (CONTINUED)
ACQUISITIONS OF PROPERTIES BY PROGRAMS (A)
(000'S OMITTED, EXCEPT FOR NUMBER OF SQUARE FEET)
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE
--------------------------------------------------------------------------------------------------------
INLAND REAL ESTATE CORPORATION:
PETsMART, Gurnee, IL 25,692 04/01 3,304 -
Eckerd Drug Store, Chattanooga, TN 10,908 05/02 2,367 -
Michael's, Coon Rapids, MN 24,317 07/02 2,808 -
Deer Trace, Kohler, WI 149,881 07/02 13,281 -
Disney, Celebration, FL 166,131 07/02 27,281 13,600
Townes Crossing, Oswego, IL 105,989 08/02 12,043 -
Park Square, Brooklyn Park, MN 137,116 08/02 9,873 5,850
Forest Lake Marketplace, Forest Lake, MN 93,853 09/02 11,856 -
Naper West Ph II, Naperville, IL 50,000 10/02 3,116 -
Walgreens, Jennings, MO 15,120 10/02 2,706 -
Four Flaggs Annex, Niles, IL 21,790 11/02 3,289 -
Four Flaggs, Niles, IL 306,479 11/02 21,298 12,510
Brunswick Market Center, Brunswick, OH 119,540 12/02 13,458 -
Medina Marketplace, Medina, OH 72,781 12/02 9,511 -
Shakopee Valley, Shakopee, MN 146,436 12/02 14,700 -
Shops at Orchard Place, Skokie, IL 164,542 12/02 42,752 -
Cub Foods, Hutchinson, MN 60,208 01/03 5,388 -
Mankato Heights, Mankato, MN 129,410 04/03 15,102 -
Caton Crossing, Plainfield, IL 83,792 06/03 11,165 -
Village Ten, Coon Rapids, MN 211,568 08/03 15,104 -
Rochester Marketplace, Rochester, MN 69,914 09/03 9,371 -
University Crossing, Mishawaka, IN 136,422 10/03 14,913 -
Total for Inland Real Estate Corporation 2,301,889 $ 264,686 $ 31,960
=========== ================ =================
OTHER CASH
CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY PAYMENT CAPITALIZED (A) COST(B)
-------------------------------------------------------------------------------------------
INLAND REAL ESTATE CORPORATION:
PETsMART, Gurnee, IL 3,304 0 3,304
Eckerd Drug Store, Chattanooga, TN 2,367 2 2,369
Michael's, Coon Rapids, MN 2,808 0 2,808
Deer Trace, Kohler, WI 13,281 0 13,281
Disney, Celebration, FL 13,681 0 27,281
Townes Crossing, Oswego, IL 12,043 319 12,362
Park Square, Brooklyn Park, MN 4,023 160 10,033
Forest Lake Marketplace, Forest Lake, MN 11,856 (41) 11,815
Naper West Ph II, Naperville, IL 3,116 1,298 4,414
Walgreens, Jennings, MO 2,706 6 2,712
Four Flaggs Annex, Niles, IL 3,289 6 3,295
Four Flaggs, Niles, IL 8,788 2,645 23,943
Brunswick Market Center, Brunswick, OH 13,458 247 13,705
Medina Marketplace, Medina, OH 9,511 4 9,515
Shakopee Valley, Shakopee, MN 14,700 12 14,712
Shops at Orchard Place, Skokie, IL 42,752 (129) 42,623
Cub Foods, Hutchinson, MN 5,388 7 5,395
Mankato Heights, Mankato, MN 15,102 (12) 15,090
Caton Crossing, Plainfield, IL 11,165 7 11,172
Village Ten, Coon Rapids, MN 15,104 0 15,104
Rochester Marketplace, Rochester, MN 9,371 (7) 9,364
University Crossing, Mishawaka, IN 14,913 20 14,933
Total for Inland Real Estate Corporation $ 232,726 $ 4,544 $ 269,230
========= =============== =================
II-45
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE
------------------------------------------------------------------------------------------------------------------
INLAND RETAIL REAL ESTATE TRUST, INC.:
Columbia Promenade, Kissimmee, FL 65,870 01/01 7,440 -
K-Mart, Macon, GA 102,098 02/01 9,031 -
Lowe's Home Improvement Center, Warner Robbins, GA 131,575 02/01 9,431 -
West Oaks, Ocoee, FL 66,539 03/01 11,221 -
PETsMART - Chattanooga, Chattanooga, TN 26,040 04/01 3,103 -
PETsMART - Daytona Beach, Daytona Beach, FL 26,194 04/01 3,238 -
PETsMART - Fredricksburg, Fredricksburg, VA 26,067 04/01 3,410 -
Sand Lake Corners, Orlando, FL 189,741 05/01 22,256 -
Jo-Ann Fabrics, Alpharetta, GA 44,418 06/01 4,911 -
Woodstock Square, Atlanta, GA 218,819 06/01 27,596 -
Chickasaw Trails Shopping Center, Orlando, FL 75,492 08/01 8,631 -
Just for Feet - Daytona, Daytona Beach, FL 22,255 08/01 3,901 -
Skyview Plaza, Orlando, FL 281,247 09/01 21,332 -
Aberdeen Square, Boynton Beach, FL 70,555 10/01 6,717 -
Anderson Central, Anderson, SC 223,211 11/01 15,863 11,000
Brandon Blvd. Shoppes, Brandon, FL 85,377 11/01 9,482 -
Creekwood Crossing, Bradenton, FL 227,052 11/01 23,616 -
Eckerd Drug Store - Greenville, Greenville, SC 10,908 11/01 2,828 -
Abernathy Square, Atlanta, GA 131,649 12/01 24,131 -
Citrus Hills, Citrus Hills, FL 68,927 12/01 6,027 -
Douglasville Pavilion, Douglasville, GA 267,764 12/01 27,377 20,000
Eckerd Drug Store - Spartanburg, Spartanburg, SC 10,908 12/01 2,807 -
Fayetteville Pavilion, Fayetteville, NC 272,385 12/01 26,898 20,133
Southlake Pavilion, Morrow, GA 525,162 12/01 56,377 39,740
Steeplechase Plaza, Ocala, FL 87,380 12/01 8,647 -
Venture Pointev, Duluth, GA 334,620 12/01 26,533 13,334
Sarasota Pavilion, Sarasota, FL 324,140 01/02 42,100 -
OTHER CASH
CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY PAYMENT CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------------------
INLAND RETAIL REAL ESTATE TRUST, INC.:
Columbia Promenade, Kissimmee, FL 7,440 (6) 7,434
K-Mart, Macon, GA 9,031 - 9,031
Lowe's Home Improvement Center, Warner Robbins, GA 9,431 - 9,431
West Oaks, Ocoee, FL 11,221 27 11,248
PETsMART - Chattanooga, Chattanooga, TN 3,103 - 3,103
PETsMART - Daytona Beach, Daytona Beach, FL 3,238 - 3,238
PETsMART - Fredricksburg, Fredricksburg, VA 3,410 - 3,410
Sand Lake Corners, Orlando, FL 22,256 (90) 22,166
Jo-Ann Fabrics, Alpharetta, GA 4,911 - 4,911
Woodstock Square, Atlanta, GA 27,596 (56) 27,540
Chickasaw Trails Shopping Center, Orlando, FL 8,631 14 8,645
Just for Feet - Daytona, Daytona Beach, FL 3,901 4 3,905
Skyview Plaza, Orlando, FL 21,332 624 21,956
Aberdeen Square, Boynton Beach, FL 6,717 (30) 6,687
Anderson Central, Anderson, SC 4,863 (111) 15,752
Brandon Blvd. Shoppes, Brandon, FL 9,482 5 9,487
Creekwood Crossing, Bradenton, FL 23,616 96 23,712
Eckerd Drug Store - Greenville, Greenville, SC 2,828 (17) 2,811
Abernathy Square, Atlanta, GA 24,131 280 24,411
Citrus Hills, Citrus Hills, FL 6,027 191 6,218
Douglasville Pavilion, Douglasville, GA 7,377 (156) 27,221
Eckerd Drug Store - Spartanburg, Spartanburg, SC 2,807 11 2,818
Fayetteville Pavilion, Fayetteville, NC 6,765 1,285 28,183
Southlake Pavilion, Morrow, GA 16,637 7,413 63,790
Steeplechase Plaza, Ocala, FL 8,647 457 9,104
Venture Pointev, Duluth, GA 13,199 (149) 26,384
Sarasota Pavilion, Sarasota, FL 42,100 182 42,282
II-46
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE
---------------------------------------------------------------------------------------------------------------------------
Turkey Creek Phase I, Knoxville, TN 284,224 01/02 21,762 -
Universal Plaza, Lauderhill, FL 49,816 01/02 9,872 -
Hairston Crossing, Decatur, GA 57,884 02/02 6,630 -
Just for Feet - Augusta, Augusta, GA 22,115 02/02 3,054 -
Just For Feet - Covington, Covington, LA 20,116 02/02 3,447 -
Logger Head Junction, Sarasota, FL 4,711 02/02 665 -
Shoppes of Golden Acres, Newport Richey, FL 76,371 02/02 10,831 -
Newnan Pavilion, Newnan, GA 481,004 03/02 33,114 -
Eisenhower Crossing I & II, Macon, GA 403,013 11/01,03/02 43,292 -
Acworth Avenue Retail Shopping Center, Acworth, GA 16,130 12/00,3/02 2,834 -
Crystal Springs Shopping Center, Crystal Springs, FL 67,021 04/02 7,478 -
Eckerd Drug Store - Concord, Concord, NC 10,908 04/02 2,039 -
Eckerd Drug Store - Tega Cay, Tega Cay, SC 13,824 04/02 2,544 -
Melbourne Shopping Center, Melbourne, FL 209,217 04/02 9,842 5,949
Riverstone Plaza, Canton, GA 302,024 04/02 31,943 -
Target Center, Columbia, SC 79,253 04/02 7,673 -
Hampton Point, Taylors, SC 58,316 05/02 4,526 -
Northpoint Marketplace, Spartanburg, SC 101,982 05/02 8,269 -
Oleander Shopping Center, Wilmington, NC 51,888 05/02 5,221 3,000
Sharon Greens, Cumming, GA 98,317 05/02 13,062 -
Bass Pro Outdoor World, Dania Beach, FL 165,000 06/02 18,220 -
Chesterfield Crossings, Richmond, VA, 68,898 06/02 10,982 -
Circuit City-Rome, Rome, GA 33,056 06/02 4,476 -
Circuit City-Vero Beach, Vero Beach, FL 33,243 06/02 5,648 -
Hillsboro Square, Deerfield Beach, FL 145,647 06/02 18,985 -
Stonebridge Square, Roswell, GA 160,104 06/02 19,529 -
Ward's Crossing, Lynchburg, VA 80,918 06/02 11,100 -
Circuit City Plaza, Orlando, FL 78,625 07/02 11,518 -
Eckerd Drug Store - Woodruff, Woodruff, SC 13,824 07/02 2,475 -
McFarland Plaza, Tuscaloosa, AL 221,807 07/02 15,259 -
OTHER CASH
CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY PAYMENT CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------------------------
Turkey Creek Phase I, Knoxville, TN 21,762 10,181 31,943
Universal Plaza, Lauderhill, FL 9,872 2 9,874
Hairston Crossing, Decatur, GA 6,630 34 6,664
Just for Feet - Augusta, Augusta, GA 3,054 3 3,057
Just For Feet - Covington, Covington, LA 3,447 - 3,447
Logger Head Junction, Sarasota, FL 665 - 665
Shoppes of Golden Acres, Newport Richey, FL 10,831 101 10,932
Newnan Pavilion, Newnan, GA 33,114 2,623 35,737
Eisenhower Crossing I & II, Macon, GA 43,292 (286) 43,006
Acworth Avenue Retail Shopping Center, Acworth, GA 2,834 16 2,850
Crystal Springs Shopping Center, Crystal Springs, FL 7,478 (2) 7,476
Eckerd Drug Store - Concord, Concord, NC 2,039 156 2,195
Eckerd Drug Store - Tega Cay, Tega Cay, SC 2,544 544 3,088
Melbourne Shopping Center, Melbourne, FL 3,893 935 10,777
Riverstone Plaza, Canton, GA 31,943 243 32,186
Target Center, Columbia, SC 7,673 20 7,693
Hampton Point, Taylors, SC 4,526 55 4,581
Northpoint Marketplace, Spartanburg, SC 8,269 (128) 8,141
Oleander Shopping Center, Wilmington, NC 2,221 12 5,233
Sharon Greens, Cumming, GA 13,062 79 13,141
Bass Pro Outdoor World, Dania Beach, FL 18,220 16 18,236
Chesterfield Crossings, Richmond, VA, 10,982 723 11,705
Circuit City-Rome, Rome, GA 4,476 6 4,482
Circuit City-Vero Beach, Vero Beach, FL 5,648 9 5,657
Hillsboro Square, Deerfield Beach, FL 18,985 2,565 21,550
Stonebridge Square, Roswell, GA 19,529 1,653 21,182
Ward's Crossing, Lynchburg, VA 11,100 (76) 11,024
Circuit City Plaza, Orlando, FL 11,518 - 11,518
Eckerd Drug Store - Woodruff, Woodruff, SC 2,475 374 2,849
McFarland Plaza, Tuscaloosa, AL 15,259 21 15,280
II-47
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE
---------------------------------------------------------------------------------------------------------------------------
Sycamore Commons, Matthews, NC 256,523 07/02 38,184 -
Walk at Highwoods I, Tampa, FL 133,940 07/02 23,999 -
Eckerd Drug Store - Blackstock, Spartanburg, SC 10,908 08/02 2,723 -
Forestdale Plaza, Jamestown, NC 53,239 08/02 6,670 -
Sexton Commons, Fuquay Varina, NC 49,097 08/02 8,023 -
Shoppes at Lake Mary, Lake Mary, FL 69,843 08/02 11,140 -
Wakefield Crossing, Raleigh, NC 75,929 08/02 10,794 -
Circuit City-Cary, Cary, NC 27,891 09/02 5,650 -
Cox Creek, Florence, AL 173,934 09/02 19,231 15,287
Forest Hills Centre, Wilson, NC 73,280 09/02 6,675 -
Golden Gate, Greensboro, NC 153,114 10/02 10,545 -
Goldenrod Groves, Orlando, FL 108,944 10/02 9,177 -
City Crossing, Warner Robins, GA 187,099 11/02 14,644 -
Clayton Corners, Clayton, NC 125,656 11/02 14,994 9,740
CompUSA Retail Center, Newport News, VA 47,134 11/02 7,324 -
Duvall Village, Bowie, MD 82,522 11/02 13,046 -
Gateway Plaza - Jacksonville, Jacksonville, NC 101,682 11/02 11,865 -
Harundale Plaza, Glen Burnie, MD 274,160 11/02 24,752 -
Jones Bridge Plaza, Norcross, GA 83,363 11/02 7,525 -
Lakewood Ranch, Bradenton, FL 69,472 11/02 9,494 4,400
North Aiken Bi-Lo Center, Aiken, SC 59,204 11/02 5,816 -
Plant City Crossing, Plant City, FL 85,252 11/02 10,879 -
Presidential Commons, Snellville, GA 372,149 11/02 45,032 26,113
Rainbow Foods - Garland, Garland, TX 70,576 11/02 5,098 -
Rainbow Foods - Rowlett, Rowlett, TX 63,117 11/02 4,604 -
River Ridge, Birmingham, AL 158,755 11/02 26,492 -
Rosedale Shopping Center, Huntersville, NC 94,248 11/02 19,544 13,300
Shoppes on the Circle, Dothan, AL 149,085 11/02 15,013 12,210
Southlake Shopping Center, Cornelius, NC 131,247 11/02 13,633 7,962
Village Square at Golf, Boynton Beach, FL 134,894 11/02 18,537 -
OTHER CASH
CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY PAYMENT CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------------------------
Sycamore Commons, Matthews, NC 38,184 3,077 41,261
Walk at Highwoods I, Tampa, FL 23,999 72 24,071
Eckerd Drug Store - Blackstock, Spartanburg, SC 2,723 - 2,723
Forestdale Plaza, Jamestown, NC 6,670 (114) 6,556
Sexton Commons, Fuquay Varina, NC 8,023 (129) 7,894
Shoppes at Lake Mary, Lake Mary, FL 11,140 59 11,199
Wakefield Crossing, Raleigh, NC 10,794 (182) 10,612
Circuit City-Cary, Cary, NC 5,650 4 5,654
Cox Creek, Florence, AL 3,944 31 19,262
Forest Hills Centre, Wilson, NC 6,675 11 6,686
Golden Gate, Greensboro, NC 10,545 23 10,568
Goldenrod Groves, Orlando, FL 9,177 741 9,918
City Crossing, Warner Robins, GA 14,644 3,204 17,848
Clayton Corners, Clayton, NC 5,254 (5) 14,989
CompUSA Retail Center, Newport News, VA 7,324 5 7,329
Duvall Village, Bowie, MD 13,046 369 13,415
Gateway Plaza - Jacksonville, Jacksonville, NC 11,865 (24) 11,841
Harundale Plaza, Glen Burnie, MD 24,752 (40) 24,712
Jones Bridge Plaza, Norcross, GA 7,525 401 7,926
Lakewood Ranch, Bradenton, FL 5,094 39 9,533
North Aiken Bi-Lo Center, Aiken, SC 5,816 13 5,829
Plant City Crossing, Plant City, FL 10,879 (16) 10,863
Presidential Commons, Snellville, GA 18,919 6 45,038
Rainbow Foods - Garland, Garland, TX 5,098 5 5,103
Rainbow Foods - Rowlett, Rowlett, TX 4,604 2 4,606
River Ridge, Birmingham, AL 26,492 79 26,571
Rosedale Shopping Center, Huntersville, NC 6,244 (122) 19,422
Shoppes on the Circle, Dothan, AL 2,803 19 15,032
Southlake Shopping Center, Cornelius, NC 5,671 (15) 13,618
Village Square at Golf, Boynton Beach, FL 18,537 (263) 18,274
II-48
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE
---------------------------------------------------------------------------------------------------------------------------
Chatham Crossing, Siler City, NC 32,000 12/02 3,964 -
Columbiana Station, Columbia, SC 270,649 12/02 46,615 -
Gateway Plaza - Conway, Conway, SC 62,428 12/02 6,295 -
Lakeview Plaza, Kissimmee, FL 54,788 12/02 6,187 3,613
Meadowmont Village Center, Chapel Hill, NC 133,471 12/02 26,808 -
Shoppes at Citiside, Charlotte, NC 75,478 12/02 9,706 -
Shoppes at New Tampa, Wesley Chapel, FL 158,342 12/02 19,196 -
Camp Hill Center, Harrisburg, PA 63,350 01/03 7,786 -
Eckerd Drug Store - #5018, Amherst, NY 10,908 01/03 2,805 1,582
Eckerd Drug Store - #5661, Buffalo, NY 12,732 01/03 3,145 1,777
Eckerd Drug Store - #5786, Dunkirk, NY 10,908 01/03 1,720 905
Eckerd Drug Store - #5797, Cheektowaga, NY 10,908 01/03 3,756 1,636
Eckerd Drug Store - #6007, Connelsville, PA 10,908 01/03 3,503 1,636
Eckerd Drug Store - #6036, Pittsburgh, PA 10,908 01/03 3,840 1,636
Eckerd Drug Store - #6040, Monroeville,PA 12,738 01/03 5,430 1,911
Eckerd Drug Store - #6043, Monroeville,PA 10,908 01/03 3,315 1,637
Eckerd Drug Store - #6062, Harborcreek, PA 10,908 01/03 2,527 1,418
Eckerd Drug Store - #6089, Weirton, WV 10,908 01/03 2,472 1,374
Eckerd Drug Store - #6095, Cheswick, PA 10,908 01/03 2,791 1,571
Eckerd Drug Store - #6172, New Castle,PA 10,908 01/03 2,877 1,636
Eckerd Drug Store - #6193, Erie, PA 10,908 01/03 2,919 1,636
Eckerd Drug Store - #6199, Millcreek, PA 10,908 01/03 3,729 1,637
Eckerd Drug Store - #6257, Millcreek, PA 10,908 01/03 1,444 640
Eckerd Drug Store - #6286, Erie, PA 10,908 01/03 4,193 1,601
Eckerd Drug Store - #6334, Erie, PA 10,908 01/03 2,997 1,636
Eckerd Drug Store - #6392, Penn, PA 10,908 01/03 2,949 1,636
Eckerd Drug Store - #6695, Plum Borough, PA 10,908 01/03 3,669 1,637
Eckerd Drug Store - Piedmont, Piedmont, SC 10,908 01/03 1,968 -
Market Square, Douglasville, GA 121,774 01/03 12,905 8,390
Springfield Park, Lawrenceville, GA 105,321 01/03 10,924 -
OTHER CASH
CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY PAYMENT CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------------------------
Chatham Crossing, Siler City, NC 3,964 16 3,980
Columbiana Station, Columbia, SC 46,615 193 46,808
Gateway Plaza - Conway, Conway, SC 6,295 - 6,295
Lakeview Plaza, Kissimmee, FL 2,574 19 6,206
Meadowmont Village Center, Chapel Hill, NC 26,808 (581) 26,227
Shoppes at Citiside, Charlotte, NC 9,706 326 10,032
Shoppes at New Tampa, Wesley Chapel, FL 19,196 (266) 18,930
Camp Hill Center, Harrisburg, PA 7,786 5 7,791
Eckerd Drug Store - #5018, Amherst, NY 1,223 - 2,805
Eckerd Drug Store - #5661, Buffalo, NY 1,368 - 3,145
Eckerd Drug Store - #5786, Dunkirk, NY 815 - 1,720
Eckerd Drug Store - #5797, Cheektowaga, NY 2,120 (1) 3,755
Eckerd Drug Store - #6007, Connelsville, PA 1,867 - 3,503
Eckerd Drug Store - #6036, Pittsburgh, PA 2,204 (1) 3,839
Eckerd Drug Store - #6040, Monroeville,PA 3,519 (2) 5,428
Eckerd Drug Store - #6043, Monroeville,PA 1,678 - 3,315
Eckerd Drug Store - #6062, Harborcreek, PA 1,109 - 2,527
Eckerd Drug Store - #6089, Weirton, WV 1,098 - 2,472
Eckerd Drug Store - #6095, Cheswick, PA 1,220 - 2,791
Eckerd Drug Store - #6172, New Castle,PA 1,241 - 2,877
Eckerd Drug Store - #6193, Erie, PA 1,283 - 2,919
Eckerd Drug Store - #6199, Millcreek, PA 2,092 (1) 3,728
Eckerd Drug Store - #6257, Millcreek, PA 804 - 1,444
Eckerd Drug Store - #6286, Erie, PA 2,592 (1) 4,192
Eckerd Drug Store - #6334, Erie, PA 1,361 - 2,997
Eckerd Drug Store - #6392, Penn, PA 1,313 - 2,949
Eckerd Drug Store - #6695, Plum Borough, PA 2,032 - 3,669
Eckerd Drug Store - Piedmont, Piedmont, SC 1,968 5 1,973
Market Square, Douglasville, GA 4,515 787 13,692
Springfield Park, Lawrenceville, GA 10,924 5 10,929
II-49
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE
---------------------------------------------------------------------------------------------------------------------------
Tequesta Shoppes Plaza, Tequesta, FL 109,937 01/03 11,439 -
Capital Crossing, Raleigh, NC 92,248 02/03 9,984 -
Colonial Promenade Bardmore Center, Largo, FL 152,667 02/03 17,151 -
Commonwealth Center II, Richmond, VA 165,382 02/03 22,278 -
Concord Crossing, Concord, NC 55,930 02/03 5,331 -
Fountains, Plantation, FL 408,807 02/03 44,412 -
Marketplace at Mill Creek, Buford, GA 398,407 02/03 50,118 -
Monroe Shopping Center, Monroe, NC 45,080 02/03 3,548 -
Oakley Plaza, Asheville, NC 118,727 02/03 9,469 -
Overlook at King of Prussia, King of Prussia, PA 186,980 02/03 57,045 30,000
Paraiso Plaza, Hialeah, FL 61,012 02/03 9,481 -
Publix Brooker Creek, Palm Harbor, FL 77,596 02/03 8,719 4,468
Sheridan Square, Dania, FL 67,425 02/03 7,586 -
Stonecrest Marketplace, Lithonia, GA 264,447 02/03 34,742 -
Suwanee Crossroads, Suwanee, GA 69,500 02/03 12,068 -
Windsor Court Shopping Center, Windsor Court, CT 78,480 02/03 14,639 -
Downtown Short Pump, Richmond, VA 125,553 03/03 33,515 -
Valley Park Commons, Hagerstown, MD 89,579 03/03 11,317 -
Eckerd - Perry Creek, Perry Creek, NC 10,908 09/02 2,795 -
Village Center, Mt. Pleasant, WI 217,103 03/03 23,987 -
Watercolor Crossing, Tallahassee, FL 43,200 03/03 5,485 -
Bi-Lo - Southern Pines, Southern Pines, NC 57,404 04/03 8,127 -
Creeks at Virginia Center, Richmond, VA 266,266 04/03 39,458 27,804
Flamingo Falls, Pembroke Pines, FL 108,565 04/03 23,946 -
Glenmark Shopping Center, Morgantown, WV 122,167 04/03 12,982 -
River Run, Miramar, FL 93,643 04/03 11,638 -
Westside Centre Shopping Center, Huntsville, AL 490,784 04/03 46,015 39,350
440 Commons, Jersey City, NJ 162,533 05/03 18,046 -
Barrett Pavilion, Kennesaw, GA 460,755 05/03 80,183 -
Bi-Lo - Asheville, Asheville, NC 54,319 05/03 7,727 -
OTHER CASH
CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY PAYMENT CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------------------------
Tequesta Shoppes Plaza, Tequesta, FL 11,439 (248) 11,191
Capital Crossing, Raleigh, NC 9,984 14 9,998
Colonial Promenade Bardmore Center, Largo, FL 17,151 45 17,196
Commonwealth Center II, Richmond, VA 22,278 (133) 22,145
Concord Crossing, Concord, NC 5,331 5 5,336
Fountains, Plantation, FL 44,412 - 44,412
Marketplace at Mill Creek, Buford, GA 50,118 50 50,168
Monroe Shopping Center, Monroe, NC 3,548 5 3,553
Oakley Plaza, Asheville, NC 9,469 4 9,473
Overlook at King of Prussia, King of Prussia, PA 27,045 15 57,060
Paraiso Plaza, Hialeah, FL 9,481 26 9,507
Publix Brooker Creek, Palm Harbor, FL 4,251 146 8,865
Sheridan Square, Dania, FL 7,586 23 7,609
Stonecrest Marketplace, Lithonia, GA 34,742 (115) 34,627
Suwanee Crossroads, Suwanee, GA 12,068 (69) 11,999
Windsor Court Shopping Center, Windsor Court, CT 14,639 10 14,649
Downtown Short Pump, Richmond, VA 33,515 (147) 33,368
Valley Park Commons, Hagerstown, MD 11,317 12 11,329
Eckerd - Perry Creek, Perry Creek, NC 2,795 (66) 2,729
Village Center, Mt. Pleasant, WI 23,987 (33) 23,954
Watercolor Crossing, Tallahassee, FL 5,485 - 5,485
Bi-Lo - Southern Pines, Southern Pines, NC 8,127 (62) 8,065
Creeks at Virginia Center, Richmond, VA 11,654 1,608 41,066
Flamingo Falls, Pembroke Pines, FL 23,946 - 23,946
Glenmark Shopping Center, Morgantown, WV 12,982 335 13,317
River Run, Miramar, FL 11,638 (5) 11,633
Westside Centre Shopping Center, Huntsville, AL 6,665 2,035 48,050
440 Commons, Jersey City, NJ 18,046 9 18,055
Barrett Pavilion, Kennesaw, GA 80,183 (51) 80,132
Bi-Lo - Asheville, Asheville, NC 7,727 (1) 7,726
II-50
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE
---------------------------------------------------------------------------------------------------------------------------
Bi-Lo - Shelmore, Mt. Pleasant, SC 61,705 05/03 11,836 -
Bi-Lo - Sylvania, Sylvania, GA 36,000 05/03 4,407 -
Birkdale Village, Charlotte, NC 653,983 05/03 96,410 -
BJ'S Wholesale Club, Charlotte, NC 99,792 05/03 13,025 -
Brick Center Plaza, Brick, NJ 114,028 05/03 19,451 -
East Hanover Plaza, East Hanover, NJ 122,028 05/03 17,312 -
Eckerd Drug Store - #0234, Marietta, GA 10,880 05/03 2,044 1,161
Eckerd Drug Store - #0444, Gainesville, GA 10,594 05/03 1,986 1,129
Eckerd Drug Store - #0818, Ft. Worth, TX 10,908 05/03 2,691 1,540
Eckerd Drug Store - #0862, Wichita Falls, TX 9,504 05/03 2,087 1,203
Eckerd Drug Store - #0943, Richardson, TX 10,560 05/03 2,354 1,338
Eckerd Drug Store - #0963, Richardson, TX 10,560 05/03 2,313 1,316
Eckerd Drug Store - #0968, Wichita Falls, TX 9,504 05/03 1,837 1,036
Eckerd Drug Store - #0980, Dallas, TX 9,504 05/03 1,917 1,097
Eckerd Drug Store - #2320, Snellville, GA 10,594 05/03 2,230 1,271
Eckerd Drug Store - #2506, Dallas, TX 9,504 05/03 2,073 1,177
Eckerd Drug Store - #3072, Richland Hills, TX 10,908 05/03 2,663 1,521
Eckerd Drug Store - #3152, Lake Worth, TX 9,504 05/03 1,805 1,021
Eckerd Drug Store - #3169, River Oaks, TX 10,908 05/03 2,705 1,546
Eckerd Drug Store - #3192, Tyler, TX 9,504 05/03 1,495 845
Eckerd Drug Store - #3338, Kissimmee, FL 10,880 05/03 2,479 1,407
Eckerd Drug Store - #3350, Oklahoma City, OK 9,504 05/03 1,776 1,005
Eckerd Drug Store - #3363, Ft. Worth, TX 9,504 05/03 1,661 941
Eckerd Drug Store - #3449, Lawrenceville, GA 9,504 05/03 2,061 -
Eckerd Drug Store - #3528, Plano, TX 10,908 05/03 2,535 1,445
Edgewater Town Center, Edgewater, NJ 77,446 05/03 27,030 -
Goody's Shopping Center, Augusta, GA 22,560 05/03 2,051 -
Heritage Pavilion, Smyrna, GA 262,961 05/03 40,013 -
Hiram Pavilion, Hiram, GA 363,618 05/03 36,787 -
Killearn Shopping Center, Tallahassee, FL 94,547 05/03 10,945 4,041
OTHER CASH
CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY PAYMENT CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------------------------
Bi-Lo - Shelmore, Mt. Pleasant, SC 11,836 10 11,846
Bi-Lo - Sylvania, Sylvania, GA 4,407 2 4,409
Birkdale Village, Charlotte, NC 96,410 (897) 95,513
BJ'S Wholesale Club, Charlotte, NC 13,025 1 13,026
Brick Center Plaza, Brick, NJ 19,451 13 19,464
East Hanover Plaza, East Hanover, NJ 17,312 5 17,317
Eckerd Drug Store - #0234, Marietta, GA 883 4 2,048
Eckerd Drug Store - #0444, Gainesville, GA 857 4 1,990
Eckerd Drug Store - #0818, Ft. Worth, TX 1,151 4 2,695
Eckerd Drug Store - #0862, Wichita Falls, TX 884 4 2,091
Eckerd Drug Store - #0943, Richardson, TX 1,016 4 2,358
Eckerd Drug Store - #0963, Richardson, TX 997 4 2,317
Eckerd Drug Store - #0968, Wichita Falls, TX 801 4 1,841
Eckerd Drug Store - #0980, Dallas, TX 820 4 1,921
Eckerd Drug Store - #2320, Snellville, GA 959 4 2,234
Eckerd Drug Store - #2506, Dallas, TX 896 4 2,077
Eckerd Drug Store - #3072, Richland Hills, TX 1,142 4 2,667
Eckerd Drug Store - #3152, Lake Worth, TX 784 4 1,809
Eckerd Drug Store - #3169, River Oaks, TX 1,159 4 2,709
Eckerd Drug Store - #3192, Tyler, TX 650 4 1,499
Eckerd Drug Store - #3338, Kissimmee, FL 1,072 4 2,483
Eckerd Drug Store - #3350, Oklahoma City, OK 771 4 1,780
Eckerd Drug Store - #3363, Ft. Worth, TX 720 4 1,665
Eckerd Drug Store - #3449, Lawrenceville, GA 2,061 4 2,065
Eckerd Drug Store - #3528, Plano, TX 1,090 4 2,539
Edgewater Town Center, Edgewater, NJ 27,030 11 27,041
Goody's Shopping Center, Augusta, GA 2,051 - 2,051
Heritage Pavilion, Smyrna, GA 40,013 4 40,017
Hiram Pavilion, Hiram, GA 36,787 1,559 38,346
Killearn Shopping Center, Tallahassee, FL 6,904 80 11,025
II-51
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE
---------------------------------------------------------------------------------------------------------------------------
Midway Plaza, Tamarac, FL 227,209 05/03 26,858 -
North Hill Commons, Anderson, SC 42,942 05/03 4,541 -
Sandy Plains Village, Roswell, GA 175,035 05/03 18,055 -
Shoppes at Paradise Pointe, Ft Walton Beach, FL 84,070 05/03 11,591 -
Sony Theatre Complex, East Hanover, NJ 70,549 05/03 12,068 -
Town & Country, Knoxville, TN 639,135 05/03 49,812 -
Village Crossing, Skokie, IL 427,722 05/03 69,443 -
West Falls Plaza, West Paterson, NJ 88,913 05/03 20,980 -
CostCo Plaza, White Marsh, MD 209,841 06/03 16,857 -
Denbigh Village Shopping Center, Newport News, VA 311,583 06/03 20,855 -
Shoppes at Lake Dow, McDonough, GA 73,271 06/03 11,014 -
Willoughby Hills Shopping Center, Willoughby Hills, OH 359,414 06/03 37,705 14,480
Cascades Marketplace, Sterling, VA 98,532 07/03 16,840 -
Fayette Pavilion III, Fayetteville, GA 619,856 07/03 46,308 -
Northlake Commons, Palm Beach Gardens, FL 143,955 07/03 21,643 -
Route 22 Retail Shopping Center, Union, NJ 110,453 07/03 19,054 11,355
Vision Works, Plantation, FL 6,891 07/03 1,732 -
Bellevue Place Shopping Center, Nashville, TN 77,249 08/03 10,884 -
Camfield Corners, Charlotte, NC 69,887 08/03 9,339 -
Kensington Place, Murfreesboro, TN 70,624 08/03 7,167 -
Largo Town Center, Upper Marlboro, MD 270,310 08/03 30,947 -
Naugatuck Valley Shopping Center, Waterbury, CT 383,332 08/03 50,452 -
Riverdale Shops, West Springfield, MA 273,928 08/03 42,055 -
Spring Mall Center, Springfield, VA 56,511 08/03 10,481 -
Walgreen's, Port Huron, MI 14,998 08/03 4,368 -
Bank First, Winter Park, FL 3,348 09/03 723 -
Carlisle Commons, Carlisle, PA 393,023 09/03 39,635 -
Circuit City - Culver City, Culver City, CA 32,873 09/03 8,781 -
Circuit City - Highland Ranch, Highland Ranch, CO 43,480 09/03 5,628 -
Circuit City - Olympia, Olympia, WA 35,776 09/03 5,632 -
OTHER CASH
CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY PAYMENT CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------------------------
Midway Plaza, Tamarac, FL 26,858 265 27,123
North Hill Commons, Anderson, SC 4,541 1 4,542
Sandy Plains Village, Roswell, GA 18,055 84 18,139
Shoppes at Paradise Pointe, Ft Walton Beach, FL 11,591 (94) 11,497
Sony Theatre Complex, East Hanover, NJ 12,068 5 12,073
Town & Country, Knoxville, TN 49,812 1,397 51,209
Village Crossing, Skokie, IL 69,443 6,001 75,444
West Falls Plaza, West Paterson, NJ 20,980 5 20,985
CostCo Plaza, White Marsh, MD 16,857 5 16,862
Denbigh Village Shopping Center, Newport News, VA 20,855 (106) 20,749
Shoppes at Lake Dow, McDonough, GA 11,014 (68) 10,946
Willoughby Hills Shopping Center, Willoughby Hills, OH 23,225 22 37,727
Cascades Marketplace, Sterling, VA 16,840 5 16,845
Fayette Pavilion III, Fayetteville, GA 46,308 2,540 48,848
Northlake Commons, Palm Beach Gardens, FL 21,643 523 22,166
Route 22 Retail Shopping Center, Union, NJ 7,699 - 19,054
Vision Works, Plantation, FL 1,732 6 1,738
Bellevue Place Shopping Center, Nashville, TN 10,884 5 10,889
Camfield Corners, Charlotte, NC 9,339 2 9,341
Kensington Place, Murfreesboro, TN 7,167 - 7,167
Largo Town Center, Upper Marlboro, MD 30,947 7 30,954
Naugatuck Valley Shopping Center, Waterbury, CT 50,452 8 50,460
Riverdale Shops, West Springfield, MA 42,055 34 42,089
Spring Mall Center, Springfield, VA 10,481 2 10,483
Walgreen's, Port Huron, MI 4,368 9 4,377
Bank First, Winter Park, FL 723 8 731
Carlisle Commons, Carlisle, PA 39,635 10 39,645
Circuit City - Culver City, Culver City, CA 8,781 4 8,785
Circuit City - Highland Ranch, Highland Ranch, CO 5,628 3 5,631
Circuit City - Olympia, Olympia, WA 5,632 3 5,635
II-52
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE
---------------------------------------------------------------------------------------------------------------------------
Fayette Pavilion I & II, Fayetteville, GA 791,373 09/03 88,521 -
Kroger - Cincinnati, Cincinnati, OH 56,634 09/03 7,431 -
Kroger - Grand Prairie, Grand Prairie, TX 64,522 09/03 5,793 -
Kroger - Westchester, Westchester, OH 56,083 09/03 4,670 -
Lowe's Home Improvement - Baytown, Baytown, TX 125,357 09/03 11,478 -
Lowe's Home Improvement - Cullman, Cullman, AL 101,287 09/03 8,960 -
Lowe's Home Improvement - Houston, Houston, TX 131,644 09/03 12,050 -
Lowe's Home Improvement - Steubenville, Steubenville, OH 130,497 09/03 11,442 -
Southwood Plantation, Tallahassee, FL 62,700 10/02 7,738 -
Super Wal-Mart - Alliance, Alliance, OH 200,084 09/03 15,879 -
Super Wal-Mart - Greenville, Greenville, SC 200,084 09/03 16,971 -
Super Wal-Mart - Winston-Salem, Winston-Salem, NC 204,931 09/03 18,721 -
Eckerd - Gaffney, Gaffney, SC 13,813 12/02 2,374 -
Wal-Mart/Sam's Club, Worcester, MA 107,929 09/03 11,194 -
Bi-Lo at Northside Plaza, Greenwood, SC 41,581 10/03 4,069 -
Cedar Springs Crossing, Spartanburg, SC 86,581 10/03 10,191 -
Clearwater Crossing, Flowery Branch, GA 90,566 10/03 13,303 -
Cortez Plaza, Bradenton, FL 286,610 10/03 26,819 16,828
Houston Square, Warner Robins, GA 60,799 10/03 5,214 -
Lexington Place, Lexington, SC 83,167 10/03 8,481 -
Manchester Broad Street, Manchester, CT 68,509 10/03 13,119 -
Plaza Del Paraiso, Miami, FL 82,442 10/03 15,417 -
Seekonk Town Center, Seekonk, MA 80,713 10/03 11,068 -
Shoppes of Ellenwood, Ellenwood, GA 67,721 10/03 10,703 -
Shoppes of Lithia, Brandon, FL 71,430 10/03 12,926 -
Crossroads Plaza, Lumberton, NJ 89,627 11/03 18,232 -
Hilliard Rome, Columbus, OH 110,772 11/03 17,171 11,883
Loisdale Center, Springfield, VA 120,742 11/03 29,051 -
Middletown Village, Middletown, RI 98,161 11/03 17,871 -
Shoppes at Oliver's Crossing, Winston-Salem, NC 76,512 11/03 10,386 -
OTHER CASH
CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY PAYMENT CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------------------------
Fayette Pavilion I & II, Fayetteville, GA 88,521 (357) 88,164
Kroger - Cincinnati, Cincinnati, OH 7,431 3 7,434
Kroger - Grand Prairie, Grand Prairie, TX 5,793 7 5,800
Kroger - Westchester, Westchester, OH 4,670 3 4,673
Lowe's Home Improvement - Baytown, Baytown, TX 11,478 7 11,485
Lowe's Home Improvement - Cullman, Cullman, AL 8,960 3 8,963
Lowe's Home Improvement - Houston, Houston, TX 12,050 7 12,057
Lowe's Home Improvement - Steubenville, Steubenville, OH 11,442 3 11,445
Southwood Plantation, Tallahassee, FL 7,738 4 7,742
Super Wal-Mart - Alliance, Alliance, OH 15,879 3 15,882
Super Wal-Mart - Greenville, Greenville, SC 16,971 3 16,974
Super Wal-Mart - Winston-Salem, Winston-Salem, NC 18,721 3 18,724
Eckerd - Gaffney, Gaffney, SC 2,374 502 2,876
Wal-Mart/Sam's Club, Worcester, MA 11,194 3 11,197
Bi-Lo at Northside Plaza, Greenwood, SC 4,069 - 4,069
Cedar Springs Crossing, Spartanburg, SC 10,191 - 10,191
Clearwater Crossing, Flowery Branch, GA 13,303 - 13,303
Cortez Plaza, Bradenton, FL 9,991 1,854 28,673
Houston Square, Warner Robins, GA 5,214 - 5,214
Lexington Place, Lexington, SC 8,481 - 8,481
Manchester Broad Street, Manchester, CT 13,119 - 13,119
Plaza Del Paraiso, Miami, FL 15,417 - 15,417
Seekonk Town Center, Seekonk, MA 11,068 - 11,068
Shoppes of Ellenwood, Ellenwood, GA 10,703 - 10,703
Shoppes of Lithia, Brandon, FL 12,926 - 12,926
Crossroads Plaza, Lumberton, NJ 18,232 - 18,232
Hilliard Rome, Columbus, OH 5,288 231 17,402
Loisdale Center, Springfield, VA 29,051 - 29,051
Middletown Village, Middletown, RI 17,871 - 17,871
Shoppes at Oliver's Crossing, Winston-Salem, NC 10,386 - 10,386
II-53
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE
---------------------------------------------------------------------------------------------------------------------------
Squirewood Village, Dandridge, TN 46,150 11/03 3,442 -
Waterfront Marketplace/Town Center, Homestead, PA 755,407 11/03 113,024 72,035
Winslow Bay Commons, Mooresville, NC 255,598 11/03 42,132 -
Albertson's at Bloomingdale Hills, Brandon, FL 78,686 12/03 5,856 -
Oak Summit, Winston-Salem, NC 142,739 12/03 13,666 -
Paradise Place, West Palm Beach, FL 69,620 12/03 11,688 -
Pointe at Tampa Plams, Tampa, FL 20,258 12/03 5,282 -
Southhampton Village, Tyrone, GA 77,900 11/02 10,610 -
Shoppes on the Ridge 91,165 12/02 11,422 -
----------------------------------------------------------------
Total for 2001 through 2003 acquisitions 29,573,733 3,653,755 497,556
================================================================
DEVELOPMENT PROJECTS
Fayette Pavilion III, Fayetteville, GA N/A 07/03 203 -
Fountains, Plantation, FL N/A 02/03 2,664 -
Hiram Pavilion, Hiram, GA N/A 05/03 695 -
Northlake Commons, Palm Beach Gardens, FL N/A 07/03 640 -
Redbud Commons Gastonia, NC N/A 06/03 5,101 -
Shoppes of Golden Acres II, Newport Richey, FL N/A 02/02 189 -
Southhampton Village, Tyrone, GA N/A 11/02 62 -
Southlake Pavilion, Morrow, GA N/A 12/01 702 -
Turkey Creek II, Knoxville, TN N/A 01/02 1,317 -
Watercolor Crossing, Tallahassee, FL N/A 03/03 1,028 -
Westside Center, Huntsville, AL N/A 04/03 4,888 -
----------------------------------------------------------------
Total for Development projects at 12/31/03 - 17,489 -
================================================================
GRAND TOTAL 31,875,622 3,935,930 529,516
================================================================
OTHER CASH
CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY PAYMENT CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------------------------
Squirewood Village, Dandridge, TN 3,442 - 3,442
Waterfront Marketplace/Town Center, Homestead, PA 40,989 4,694 117,718
Winslow Bay Commons, Mooresville, NC 42,132 - 42,132
Albertson's at Bloomingdale Hills, Brandon, FL 5,856 - 5,856
Oak Summit, Winston-Salem, NC 13,666 - 13,666
Paradise Place, West Palm Beach, FL 11,688 - 11,688
Pointe at Tampa Plams, Tampa, FL 5,282 - 5,282
Southhampton Village, Tyrone, GA 10,610 - 10,610
Shoppes on the Ridge 11,422 - 11,422
------------------------------------------------
Total for 2001 through 2003 acquisitions 3,156,199 59,541 3,713,296
================================================
DEVELOPMENT PROJECTS
Fayette Pavilion III, Fayetteville, GA 203 - 203
Fountains, Plantation, FL 2,664 - 2,664
Hiram Pavilion, Hiram, GA 695 - 695
Northlake Commons, Palm Beach Gardens, FL 640 - 640
Redbud Commons Gastonia, NC 5,101 - 5,101
Shoppes of Golden Acres II, Newport Richey, FL 189 - 189
Southhampton Village, Tyrone, GA 62 - 62
Southlake Pavilion, Morrow, GA 702 - 702
Turkey Creek II, Knoxville, TN 1,317 - 1,317
Watercolor Crossing, Tallahassee, FL 1,028 - 1,028
Westside Center, Huntsville, AL 4,888 - 4,888
------------------------------------------------
Total for Development projects at 12/31/03 17,489 - 17,489
================================================
GRAND TOTAL 3,406,414 64,085 4,000,015
================================================
II-54
TABLE VI- (CONTINUED)
ACQUISITION OF PROPERTIES BY PROGRAMS
NOTES TO TABLE VI
(A) "Other Cash Expenditures Capitalized" consists of improvements to the
property and acquisition expenses which are capitalized and paid or to be paid
from the proceeds of the offering. As part of several purchases, rent is
received under master lease agreements on the spaces currently vacant for
periods ranging from one to two years or until the spaces are leased. As these
payments are received, they are recorded as a reduction in the purchase price of
the properties and have been netted against other cash expenditures capitalized.
(B) "Total Acquisition Cost" is the sum of columns captioned "Purchase Price
Plus Acquisition Fee" and "Other Cash Expenditures Capitalized.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-11 and has duly caused this
Post-Effective Amendment No.8 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oak Brook,
State of Illinois, on the 15th day of March, 2005.
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
By: /s/ Robert D. Parks
-------------------------------------------
Robert D. Parks
President, Chief Executive Officer and
Chief Operating Officer
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Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 8 to the Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
NAME CAPACITY DATE
---- -------- ----
/s/ Robert D. Parks Chairman and Director March 15, 2005
------------------------------
Robert D. Parks
/s/ Steven P. Grimes Treasurer and Principal financial officer March 15, 2005
------------------------------
Steven P. Grimes
/s/ Lori J. Foust Principal accounting officer March 15, 2005
------------------------------
Lori J. Foust
/s/ Brenda G. Gujral Director March 15, 2005
------------------------------
Brenda G. Gujral
* Independent Director March 15, 2005
------------------------------
Frank Catalano
* Independent Director March 15, 2005
-------------------------
Ken Beard
* Independent Director March 15, 2005
-------------------------
Paul R. Gauvreau
* Independent Director March 15, 2005
-------------------------
Gerald M. Gorski
* Independent Director March 15, 2005
-------------------------
Barbara A. Murphy
/s/ Roberta S. Matlin
------------------------------
* Signed on behalf of the named individuals by Roberta S. Matlin, under power of
attorney.
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