As filed with the Securities and Exchange Commission on March 16, 2005
Registration No. 333-118860
================================================================================
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(Exact name of registrant as specified in governing instruments)
------------------------------
2901 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60523
(630) 218-8000
(Address, including zip code, and telephone number,
including, area code of Principal executive offices)
----------------------
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)
--------------------------
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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================================================================================
i
This Post-Effective Amendment No. 1 consists of the following:
1. Supplement No. 12 dated March 16, 2005 to the Registrant's Prospectus dated
December 21, 2004, included herewith, which will be delivered as an unattached
document along with the Prospectus dated December 21, 2004.
2. The Registrant's final form of Prospectus dated December 21, 2004, previously
filed pursuant to Rule 424(b)(1) on December 21, 2004 and refiled herewith.
3. Part II, included herewith.
4. Signatures, included herewith.
ii
SUPPLEMENT NO. 12
DATED MARCH 16, 2005
TO THE PROSPECTUS DATED DECEMBER 21, 2004
OF INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
We are providing this Supplement No. 12 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. 12
supplements, modifies or supersedes certain information contained in our
prospectus, and prior Supplements No. 1 through 11 (dated December 29, 2004
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 1
Risk Factors 5 12
How We Operate 8 34
Conflicts of Interest 9 36
Compensation Table 12 40
Prior Performance of Our Affiliates 13 49
Management 35 68
Principal Stockholders 38 95
Investment Objectives and Policies 39 99
Real Property Investments 41 109
Management's Discussion and Analysis of Our Financial
Condition and Results of Operations 57 298
Shares Eligible for Future Sale 71 332
Summary of Our Organizational Documents 72 335
Stockholders' Meeting 72 335
Plan of Distribution 72 360
Litigation 73 378
Relationships and Related Transactions 73 378
Experts 74 384
PROSPECTUS SUMMARY
THE FIFTH SENTENCE UNDER THE SECTION REGARDING "OUR SPONSOR, OUR BUSINESS
MANAGER/ADVISOR AND THE INLAND GROUP"" WHICH STARTS ON PAGE 2 OF OUR PROSPECTUS
HAS BEEN MODIFIED AS FOLLOWS:
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 FIRST PARAGRAPH UNDER THE SECTION REGARDING "CONFLICTS OF INTEREST" WHICH
STARTS ON PAGE 4 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
1
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 4 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 4 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;
- 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. may compete for the same
properties we are interested in;
2
- 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 by Inland American Real Estate Trust, Inc.
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 7 OF OUR PROSPECTUS IN THE
ENTIRETY, TO READ AS FOLLOWS:
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 managers. fee which would be payable to an
unrelated third party). We will pay
the fee for services in connection with
the rental, leasing, 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, 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.
ORGANIZATIONAL CHART
THE ORGANIZATIONAL CHART UNDER THIS SECTION; WHICH IS LISTED ON PAGE 3 OF OUR
PROSPECTUS IS SUPERCEDED WITH THE FOLLOWING:
3
The following organizational chart depicts the services that affiliates or our
sponsor will render to us and our organizational structure.
[CHART]
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*
------------------ --------- --------- ---------
|| || || ||
====================================================================
||
-----------------------
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
| ---------------- ----------------- | ---------------- ----------- --------- ---------
| | | | | | | |
| | | | | | | |
| | | | | | | |
--------------------------------------------------------------------------------------------------------------------------------
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.
4
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 13 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 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;
- 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:
5
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 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
6
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 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 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 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
7
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 efforts related to the sales
of shares offered 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.
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,
8
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 a lower initial distribution rate offered 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.
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. may 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
9
- potential time and effort spent by Inland Securities Corporation on
the selling of our securities and their sales effort due to a 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, 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
10
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 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.
11
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.
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 sales of shares by Inland American Real Estate Trust, Inc.
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 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.
COMPENSATION TABLE
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 43 OF OUR PROSPECTUS IN THE ENTIRETY, TO READ AS
FOLLOWS:
12
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 the For the year ended December 31,
property managers, Inland US Management gross income from the properties. We 2004, and the period from
LLC, Inland Southwest Management LLC and will also pay a monthly fee for any March 5, 2003 (inception) to
Inland Pacific Property Services LLC. We extra services equal to no more than 90% December 31, 2003 we have
will pay the fee for services in of that which would be payable to an incurred and paid property
connection with the rental, leasing, unrelated party providing the services. management fees of $5,381,721
operation and management of the The property managers may subcontract and $16,627, of which
properties their duties for a fee that may be less $5,381,721 and $16,627 were
than the fee provided for in the retained by Inland US
management services agreements. Management LLC, Inland
Southwest Management LLC and
Inland Pacific Property
Services LLC. If we 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 "COMPENSATION TO OFFICERS AND DIRECTORS" ON
THE DIRECTOR FEES, WHICH STARTS ON PAGE 47 OF OUR PROSPECTUS, SHOULD READ AS
FOLLOWS:
Director fees Independent directors receive We will pay the five independent
an annual fee of $5,000 directors $25,000 in the aggregate
(increasing to $10,000 (increasing to $50,000 effective
effective October 1, 2004) and October 1, 2004), plus fees for
a fee of $500 for attending attending meetings. The actual
each meeting of the board or amounts to be received for future
one of its committees meetings depends upon the number of
(excluding the audit meetings and their attendance and,
committee) in person and $350 therefore, cannot be determined at
for attending a meeting via the present time.
the telephone. Effective
December 1, 2004, we pay our
audit committee members $750
for each in person audit
committee meeting and $500 for
each audit committee meeting
attended by telephone. Our
officers who are also our
directors do not receive
director fees.
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
13
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 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.
14
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
15
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.
16
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.
17
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.
18
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 beneficial interests in the trust to
certain qualified persons in need of replacement properties to complete a
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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.
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
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$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.
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 &
21
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 were required by the lender. In September 2003, certain
information in the offering was amended and
22
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 in debt assumption and
$4,300,000 in equity investment, a minimum of 1% of which is required by the
23
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 10920-10948 Cross Creek Boulevard,
Tampa, Florida for $6,930,000 in cash plus the assumption of the existing
24
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.
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
25
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 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.
26
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 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
27
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.
28
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 Office 1031 Shopping Celebration
of 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%
Property Management Paid by
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
29
Davenport White
Deere Settlement
Fleet Office Distribution Macon Road Plainfield
Building Facility Grand Chute 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
30
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.
31
(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 $1,200 monthly.
Termination Fees - (i) MASTER LEASE: 8.333% of the last 12 Months of NOI
less Rent payments for the same 12 months multiplied by the number of months
remaining on the then-current term of the Master Lease and (ii) ASSET & PROPERTY
MANAGEMENT AGREEMENTS: The sum of the current monthly AM & PM fees times the
number of months remaining on the term.
32
The following table summarizes cash distributions to investors for each of
the 1031 Exchange Private Placement Offering Projects through December 31, 2004:
1031 EXCHANGE PERFORMANCE
DISTRIBUTIONS THROUGH DECEMBER 31, 2004
2001 2002 2003 2004
Number Offering Offering Distributions Annual Annual Annual Annual
of Equity Completed To Date Distribution Distribution Distribution Distribution
Name of Entity Investors ($) ($) ($) (%) (%) (%) (%)
------------------------------------------------------------------------------------------------------------------------------------
Landings of Sarasota DBT 9 4,000,000 05/2002 967,036 8.00 8.00 8.07 8.39
Sentry Office Building DBT 7 3,500,000 04/2002 838,352 8.20 8.73 9.25
Pets Bowie DBT 7 2,600,000 07/2002 583,006 8.89 8.89 9.12
1031 Chattanooga DBT 9 1,900,000 05/2002 396,165 8.19 8.26 8.26
Lansing Shopping Center DBT 5 5,000,000 09/2001 966,308 8.47 8.29 8.96
Inland 220 Celebration Place DBT 35 15,800,000 09/2003 2,461,974 8.08 8.10 8.10
Taunton Circuit DBT 1 3,750,000 09/2002 678,650 8.22 8.31 8.31
Broadway Commons DBT 32 8,400,000 12/2003 981,185 8.14 8.22 8.26
Bell Plaza 1031, LLC 1 890,000 11/2003 254,491 13.53 14.67 16.05
Inland 210 Celebration Place DBT 1 6,300,000 01/2003 1,020,331 8.23 8.23
CompUSA Retail Building, LLC 11 3,950,000 02/2004 386,560 8.05 8.17
Janesville Deere Distribution
Facility 1031, LLC 35 10,050,000 01/2004 858,827 7.23 7.35
Fleet Office Building 1031, LLC 30 10,000,000 01/2004 796,941 7.19 7.19
Davenport Deere Distribution
Facility 1031, LLC 35 15,700,000 04/2004 1,063,928 7.36 7.36
Grand Chute DST 29 5,370,000 03/2004 400,400 8.48 8.49
Macon Office DST 29 6,600,000 03/2004 515,838 8.20 8.20
White Settlement Road Investment,
LLC 1 1,420,000 12/2003 115,084 8.34
Plainfield Marketplace 1031, LLC 31 12,475,000 06/2004 406,197 7.09
Pier 1 Retail Center 1031, LLC 22 4,300,000 06/2004 134,212 7.20
Long Run 1031, LLC 1 4,935,000 05/2004 215,000 9.42
Forestville 1031, LLC 1 3,900,000 05/2004 148,563 7.55
Bed, Bath & Beyond 1031, LLC 19 6,633,000 * 49,536 7.58
Cross Creek Commons 1031, LLC 26 6,930,000 08/2004 122,412 7.30
BJ's Shopping Center 1031, LLC 7 8,365,000 * 8,606 7.69
Barnes & Noble Retail Center
1031, LLC 1 3,930,000 * 1,507 6.65
Port Richey 1031, LLC 1 3,075,000 07/2004 47,330 9.24
Walgreen Store Hobart 1031, LLC 11 6,534,000 * 19,907 5.78
Kraft Cold Storage Facility
1031, LLC 19 11,000,000 * 28,440 7.00
Huntington Square Plaza 1031,
LLC 16 39,200,000 * - N/A
Best Buy Store Reynoldsburg
1031, LLC 4 10,345,000 * - N/A
Jefferson City 1031, LLC 0 10,973,000 - N/A
Stoughton 1031, LLC 1 19,950,000 - N/A
33
2001 2002 2003 2004
Number Offering Offering Distributions Annual Annual Annual Annual
of Equity Completed To Date Distribution Distribution Distribution Distribution
Name of Entity Investors ($) ($) ($) (%) (%) (%) (%)
------------------------------------------------------------------------------------------------------------------------------------
Indianapolis Entertainment 1031,
LLC 1 2,190,000 - N/A
Mobile Entertainment 1031, LLC 1 1,578,000 * - N/A
----------- -------------
261,543,000 14,466,786
=========== =============
* Offering was not complete as of December 31, 2004
34
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 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, Officer 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 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
35
of Inland Retail Real Estate Trust, Inc from 1998 until 2004. 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).
36
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.
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 76 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 79 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 "TERM OF THE ADVISORY AGREEMENT" SECTION WHICH STARTS ON
PAGE 79 OF OUR PROSPECTUS HAS BEEN MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
TERM OF THE ADVISORY AGREEMENT
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
37
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 81 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 TWENTIETH PARAGRAPH, UNDER THE SECTION "THE PROPERTY MANAGERS AND THE
MANAGEMENT AGREEMENT", WHICH STARTS ON PAGE 86 OF OUR PROSPECTUS HAS BEEN
SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS:
The following sets forth information with respect to the executive officers and
managers of Inland Pacific Property Services LLC.
INLAND SECURITIES CORPORATION
THE DISCUSSION UNDER THIS SUBSECTION WHICH STARTS ON PAGE 87 OF OUR PROSPECTUS
IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION:
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.
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.
PRINCIPAL STOCKHOLDERS
THE TABLE UNDER THIS SECTION, WHICH STARTS ON PAGE 95 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION:
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
38
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.
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 300,007.0877(1) *
group (12 persons)
----------
*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 99 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION REGARDING DISTRIBUTIONS.
Our Board of Directors approved the following distributions payable to holders
of our common stock:
- $.65 per share per annum for the stockholders of record on December 31,
2004, payable on January 10, 2005
- $.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.
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.
THE DISCUSSION UNDER THIS SECTION ON "PROPERTY ACQUISITION STANDARDS", WHICH
STARTS ON PAGE 101 OF OUR PROSPECTUS HAS BEEN MODIFIED TO INCLUDE THE FOLLOWING
FOURTH PARAGRAPH:
39
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.
40
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.
% OF
MORTGAGE GROSS TOTAL
APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
23rd Street Plaza NC 2003 Dec-04 7,258,000 - 53,376 0.2% 95% 2 Bed, Bath &
Panama City, Florida Beyond
Ross Dress for
Less
Academy Sports SU 2004 Jul-04 5,250,000 2,920,000 60,001 0.3% 100% 1 Academy Sports
Houma, Louisiana
Academy Sports SU 2004 Oct-04 4,250,000 2,337,500 61,150 0.3% 100% 1 Academy Sports
Midland, Texas
Academy Sports SU 2004 Oct-04 5,000,000 2,775,000 61,001 0.3% 100% 1 Academy Sports
Port Arthur, Texas
Academy Sports SU 2004 Jan-05 7,150,000 3,933,000 70,910 0.3% 100% 1 Academy Sports
San Antonio, Texas
Alison's Corner NC 2003 Apr-04 7,042,000 3,850,000 55,066 0.2% 100% 4 Ross Dress for
San Antonio, Texas Less
Shoe Carnival
Mattress Firm
American Express SU 2000 Dec-04 18,000,000 11,623,000 132,336 0.6% 100% 1 American
Depere, Wisconsin Express
American Express SU 1975 Dec-04 63,000,000 37,170,000 376,348 1.6% 100% 1 American
Fort Lauderdale, Express
Florida
American Express SU 1986 Dec-04 56,000,000 33,040,000 389,377 1.7% 100% 1 American
Greensboro, North Express
Carolina
American Express SU 1983 & Feb-05 42,000,000 25,380,000 306,710 1.3% 100% 1 American
Markham, Ontario, 1987 Express
Canada
41
% OF
MORTGAGE GROSS TOTAL
APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
American Express SU 1989 Dec-04 95,000,000 56,050,000 541,542 2.4% 100% 1 American
Minneapolis, Express
Minnesota
American SU 1983 Dec-04 14,000,000 8,260,000 117,556 0.5% 100% 1 American
Express-19th Ave. Express
Phoenix, Arizona
American SU 1985 Dec-04 54,000,000 31,860,000 337,439 1.5% 100% 1 American
Express-31st Ave. Express
Phoenix, Arizona
Arvada Connection Old Country
and RC 1987 -1990 Apr-04 51,550,000 28,510,000 61,079 0.3% 91% 13 Buffet
Arvada Marketplace 313,559 1.4% 92% 26 Pier 1 Imports
Arvada, Colorado Sam's Club
Gart Sports
Azalea Square RC 2004 Oct-04 30,013,000 16,535,000 190,142 0.8% 99% 21 T.J. Maxx
Summerville, South Linens 'N
Carolina Things
Ross Dress for
Less
Cost Plus
World Market
PETsMART
Bed, Bath & NC 2004 Oct-04 20,350,000 11,192,500 97,456 0.4% 99% 15 Bed, Bath &
Beyond Plaza Beyond
Miami, Florida Office Depot
Pier 1 Imports
Party City
Best on the Boulevard RC 1996 - 1999 Apr-04 35,500,000 19,525,000 204,427 0.9% 79% 9 Best Buy
Las Vegas, Nevada Barnes & Noble
Copeland
Enterprises
Bluebonnet Parc RC 2002 Apr-04 22,000,000 12,100,000 135,289 0.6% 95% 7 Best Buy
Baton Rouge, Linens 'N
Louisiana Things
Cost Plus
World Market
Boulevard at the JV 2004 Sept-04 127,499,000 71,500,000 479,072 2.1% 94% 64 Lowe's
Capital Centre Theaters Magic
Largo, Maryland Johnson
CarMax SU 1998 Mar-05 14,600,000 - 60,772 0.3% 100% 1 CarMax
San Antonio, Texas
42
% OF
MORTGAGE GROSS TOTAL
APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
The Columns RC 2004 Aug-04 26,510,000 14,865,400 173,427 0.8% 96% 15 Best Buy
Jackson, Tennessee Ross Dress for
Less
Marshalls
Bed, Bath
& Beyond
Coram Plaza RC 2004 Dec-04 37,292,000 20,755,300 144,191 0.6% 92% 22 Stop & Shop
Coram, New York
CorWest Plaza RC 1999 - 2003 Jan-04 33,000,000 18,150,000 115,011 0.5% 99% 10 Super Stop &
New Britain, Shop
Connecticut Liquor Depot
CVS Pharmacy
Cottage Plaza NC 2004-2005 Feb-05 23,440,000 13,025,000 85,363 0.4% 91% 5 Stop & Shop
Pawtucket,
Rhode Island
Cranberry Square RC 1996 - 1997 Jul-04 20,220,000 10,900,000 195,566 0.9% 92% 5 Barnes & Noble
Cranberry Township, Dick's
Pennsylvania Sporting
Goods
Best Buy
OfficeMax
Toys "R" Us
CVS Pharmacy (Eckerd SU 2003 Dec-03 3,364,000 1,850,000 13,824 0.1% 100% 1 CVS Pharmacy
Drug Store)
Edmund, Oklahoma
CVS Pharmacy (Eckerd SU 2003 Dec-03 5,288,000 2,900,000 13,824 0.1% 100% 1 CVS Pharmacy
Drug Store)
Norman, Oklahoma
CVS Pharmacy SU Mar-05 5,895,000 - 13,824 0.1% 100% 1 CVS Pharmacy
Jacksonville,
Florida
CVS Pharmacy SU 2004 Oct-04 3,066,000 1,685,000 10,055 0.1% 100% 1 CVS Pharmacy
Sylacauga, Alabama
Darien Towne Center RC 1994 Dec-03 30,000,000 16,500,000 223,844 1.0% 93% 11 Home Depot
Darien, Illinois Circuit City
PETsMART
Davis Towne Crossing NC 2003 & Jun-04 8,141,000 5,365,200 34,091 0.1% 91% 12 Lady USA
North Richland Hills, 2004 Fitness
Texas Cotton Patch
Cafe
43
% OF
MORTGAGE GROSS TOTAL
APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Denton Towne Crossing RC 2003 & Oct-04 54,688,000 35,200,000 283,040 1.2% 99% 33 Oshman's
Denton, Texas 2004 Sporting
Goods
Best Buy
T.J. Maxx
Dorman Center - RC 2003 - 2004 Mar-04 & 50,200,000 27,610,000 388,067 1.7% 98% 27 Wal-Mart
Phase I & II Jul-04 Supercenter
Spartanburg, South
Carolina
Eastwood Towne Center RC 2002 May-04 85,000,000 46,750,000 332,131 1.5% 98% 62 Dick's
Lansing, Michigan Sporting
Goods
Eckerd Drug Store SU 2003 - 2004 Jun-04 3,260,000 1,750,000 13,440 0.1% 100% 1 Eckerd Drug
Columbia, Store
South Carolina
Eckerd Drug Store SU 2003 - 2004 Jun-04 2,625,000 1,425,000 13,824 0.1% 100% 1 Eckerd Drug
Crossville, Store
Tennessee
Eckerd Drug Store SU 2003 - 2004 Jun-04 3,069,000 1,650,000 13,824 0.1% 100% 1 Eckerd Drug
Greer, Store
South Carolina
Eckerd Drug Store SU 2003 - 2004 Jun-04 3,650,000 1,975,000 13,824 0.1% 100% 1 Eckerd Drug
Kill Devil Hills, Store
North Carolina
Edgemont Town Center NC 2003 Nov-04 15,639,000 8,600,000 77,655 0.3% 90% 14 Publix
Homewood, Alabama
Evans Town Center NC 1995 Dec-04 8,795,000 5,005,000 75,695 0.3% 97% 14 Publix
Evans, Georgia
Fairgrounds Plaza NC 2002 - 2004 Jan-05 21,994,000 15,965,749 58,970 0.3% 100% 1 Super Stop
Middletown, & Shop
New York
Five Forks NC 1999 Dec-04 8,086,000 4,482,500 64,173 0.3% 95% 8 Bi-Lo
Simpsonville,
South Carolina
Forks Town Center NC 2002 Jul-04 18,199,000 10,395,000 92,660 0.4% 96% 16 Giant Food
Easton, Stores
Pennsylvania
Fox Creek Village RC 2003 - 2004 Nov-04 20,883,000 11,485,000 114,033 0.5% 87% 16 King Soopers
Longmont,
Colorado
44
% OF
MORTGAGE GROSS TOTAL
APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Fullerton Metrocenter RC 1988 Jun-04 51,275,000 28,050,000 253,296 1.1% 96% 43 Sportmart
Fullerton, Henry's
California Marketplace
Gateway Pavilions RC 2003 - 2004 Dec-04 65,141,000 35,842,000 301,233 1.3% 93% 36 Circuit City
Avondale, Arizona The Sports
Authority
Mor Furniture
Gateway Plaza RC 2000 Jul-04 33,025,000 18,163,000 358,091 1.6% 93% 26 Kohl's
Southlake, Texas
Gateway Station NC 2003 - 2004 Dec-04 5,093,000 - 19,537 0.1% 100% 6 Kirland's
College Station, Talbots
Texas Joseph
A. Banks
Chicos
Gateway Village JV 1996 Jul-04 53,150,000 31,458,000 273,307 1.2% 99% 15 Safeway
Annapolis, Burlington
Maryland Coat Factory
Best Buy
GMAC Insurance SU 1980/1990 Sept-04 59,997,000 33,000,000 501,064 2.2% 100% 1 GMAC Insurance
Building
Winston-Salem,
North Carolina
Governor's Marketplace RC 2001 Aug-04 32,654,000 20,625,000 231,915 1.0% 94% 20 Bed, Bath &
Tallahassee, Florida Beyond
Sports
Authority
Marshalls
Michaels
Green's Corner NC 1997 Dec-04 12,768,000 7,022,366 85,271 0.4% 100% 12 Kroger
Cumming, Georgia
Gurnee Towne Center RC 2000 Oct-04 44,256,000 24,360,000 179,602 0.8% 96% 26 Linens 'N
Gurnee, Illinois Things
Old Navy
Borders Books
& Music
Cost Plus
World Market
Harris Teeter SU 1977/1995 Sept-04 7,200,000 3,960,000 57,230 0.2% 100% 1 Harris Teeter
Wilmington, North
Carolina
45
% OF
MORTGAGE GROSS TOTAL
APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Harvest Towne Center NC 1996-1999 Sept-04 8,950,000 5,005,000 42,235 0.2% 92% 11 CVS Pharmacy
Knoxville, Tennessee Pet Supplies
Plus
Ruby Tuesday
Henry Town Center RC 2002 Dec-04 61,397,000 35,814,616 444,296 1.9% 99% 43 BJ's Wholesale
McDonough, Georgia Club
Belk's
Heritage Towne NC 2002 Mar-04 16,123,000 8,950,000 80,639 0.4% 91% 30 N/A
Crossing
Euless, Texas
Hickory Ridge RC 1999 Jan-04 41,900,000 23,650,000 380,487 1.7% 100% 21 Best Buy
Hickory, Kohl's
North Carolina Dick's
Sporting
Goods
High Ridge Crossing NC 2004 Mar-05 13,200,000 - 76,857 0.3% 95% 7 Shop'N Save
High Ridge, Missouri Warehouse
Hobby Lobby SU 2004 Jan-05 5,500,000 3,025,000 60,000 0.3% 100% 1 Hobby Lobby
Concord,
North Carolina
Holliday Towne Center RC 2003 Feb-05 14,828,000 8,050,000 83,122 0.4% 85% 8 Martin's Food
Duncansville,
Pennsylvania
Huebner Oaks Center RC 1997 & 1998 Jun-04 79,721,000 48,000,000 286,684 1.3% 98% 56 Bed, Bath
San Antonio, Texas & Beyond
Irmo Station NC 1980 & Dec-04 12,800,000 7,085,000 99,619 0.4% 91% 17 Kroger
Irmo, South Carolina 1985
John's Creek Village RC 2003 & 2004 Jun-04 34,255,000 23,300,000 156,582 0.7% 100% 21 LA Fitness
Duluth, Georgia Ross Dress
for Less
T.J. Maxx
Kohl's/Wilshire SU 2004 Nov-04 10,099,000 5,417,500 88,248 0.4% 100% 1 Kohl's
Plaza III
Kansas City,
Missouri
La Plaza Del Norte RC 1996/1999 Jan-04 59,143,000 32,528,000 320,345 1.4% 97% 18 Oshman's
San Antonio, Texas Sporting
Goods
Best Buy
Beall's
Lake Mary Pointe NC 1999 Oct-04 6,620,000 3,657,500 51,052 0.2% 94% 8 Publix
Lake Mary, Florida
46
% OF
MORTGAGE GROSS TOTAL
APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Lakewood Towne Center RC 1988 Jun-04 81,100,000 51,260,000 578,913 2.5% 95% 27 Gottschalk's
Lakewood, Washington Rebuilt Burlington
2002-2003 Coat Factory
Larkspur Landing RC 1978/2001 Jan-04 61,145,000 33,630,000 172,433 0.8% 92% 39 Bed, Bath
Larkspur, California & Beyond
24 Hour
Fitness
Lincoln Park RC 1998 Sept-04 47,515,000 26,153,000 148,806 0.6% 100% 14 Tom Thumb
Dallas, Texas Barnes & Noble
The Container
Store
Low Country Village NC 2004 Jun-04 11,090,000 10,810,000 76,385 0.3% 100% 8 Ross Dress for
Bluffton, Less
South Carolina Michaels
PETsMART
MacArthur Crossing RC 1995 - 1996 Feb-04 23,102,000 12,700,000 109,755 0.5% 98% 28 Stein Mart
Los Colinas, Texas
Magnolia Square RC 2004 Feb-05 19,114,000 10,265,000 116,049 0.5% 91% 10 Ross Dress for
Houma, Louisiana Less
PETsMART
Circuit City
Manchester Meadows RC 1994 - 1995 Aug-04 56,200,000 31,064,550 454,172 2.0% 97% 21 Wal-Mart
Town and Country, Home Depot
Missouri
Mansfield Towne RC 2004 Nov-04 18,322,000 10,982,300 105,286 0.5% 93% 19 Ross Dress for
Crossing Less
Mansfield, Texas Staples
Maytag Distribution SU 2004 Jan-05 23,159,000 12,740,000 750,000 3.3% 100% 1 Maytag
Center
Iowa City, Iowa
McAllen Shopping NC 2004 Dec-04 4,150,000 2,455,000 17,625 0.1% 100% 7 Hollywood
Center Video
McAllen, Texas
Mesa Fiesta RC 2004 Dec-04 36,855,000 23,500,000 194,892 0.9% 100% 8 Best Buy
Mesa, Arizona Marshalls
Borders Books
& Music
CompUSA
Oak Showcase
47
% OF
MORTGAGE GROSS TOTAL
APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Midtown Center RC 1986-1987 Jan-05 53,000,000 28,227,617 319,072 1.4% 98% 24 Wal-Mart
Milwaukee, Wisconsin Pick 'N Save
Mitchell Ranch Plaza RC 2003 Aug-04 34,000,000 18,700,000 200,404 0.9% 97% 38 Publix
New Port Richey, Marshalls
Florida Ross Dress for
Less
Newnan RC 1999-2004 Dec-03 & 52,360,000 23,766,191 392,050 1.7% 100% 29 BJ's Wholesale
Crossing I & II Feb-04 Club
Newnan, Georgia
Newton Crossroads NC 1997 Dec-04 10,072,000 5,547,622 78,896 0.3% 100% 11 Kroger
Covington, Georgia
North Ranch Pavilions NC 1992 Jan-04 18,468,000 10,157,400 62,812 0.3% 91% 25 Savvy Salon
Thousand Oaks,
California
North Rivers RC 2003 - 2004 Apr-04 20,100,000 11,050,000 141,204 0.6% 100% 16 Ross Dress for
Town Center Less
Charleston, Bed, Bath &
South Carolina Beyond
Office Depot
Babies "R" Us
Northgate North RC 1999 - 2003 Jun-04 48,455,000 26,650,000 302,095 1.3% 98% 8 Target
Seattle, Washington Best Buy
Northpointe Plaza RC 1991 - 1993 May-04 54,524,000 30,850,000 377,949 1.7% 99% 31 Safeway
Spokane, Washington Gart Sports
Best Buy
Northwoods Center NC 2002 - 2004 Dec-04 13,964,000 11,192,500 74,647 0.3% 100% 16 Marshalls
Wesley Chapel, PETCO
Florida
Oswego Commons RC 2002 - 2004 Nov-04 35,022,000 19,262,100 187,651 0.8% 100% 24 Dominick's
Oswego, Illinois T.J. Maxx
OfficeMax
Paradise Valley NC 2002 Apr-04 28,510,000 15,680,500 92,158 0.4% 76% 16 Whole Foods
Marketplace Eckerd Drug
Phoenix, Arizona Store
Pavilion at King's NC 2002/2003 Dec-03 8,151,000 5,342,000 79,109 0.3% 100% 7 Toys "R" Us
Grant Olive Garden
Concord,
North Carolina
48
% OF
MORTGAGE GROSS TOTAL
APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Peoria Crossings RC 2002 - 2003 Mar-04 37,368,000 20,497,400 213,733 0.9% 98% 21 Kohl's
Glendale, Arizona Ross Dress for
Less
Michaels
Phenix Crossing NC 2004 Dec-04 10,065,000 - 56,563 0.2% 95% 9 Publix
Phenix City, Alabama
Pine Ridge Plaza RC 1998 - 2004 Jun-04 26,982,000 14,700,000 230,510 1.0% 100% 14 T.J. Maxx
Lawrence, Kansas Bed, Bath &
Beyond
Kohl's
Placentia Town Center RC 1973/2000 Dec-04 24,865,000 13,695,000 110,962 0.5% 97% 20 Ross Dress for
Placentia, California Less
OfficeMax
Bank of
America
Plaza at Marysville RC 1995 Jul-04 21,266,000 11,800,000 115,656 0.5% 97% 26 Safeway
Marysville,
Washington
Plaza at Riverlakes RC 2001 Oct-04 17,000,000 - 102,836 0.4% 100% 22 Ralph's
Bakersfield, Grocery Store
California
Plaza Santa Fe II RC 2000 - 2002 Jun-04 30,971,000 17,342,953 222,389 1.0% 98% 21 Linens 'N
Santa Fe, New Mexico Things
Best Buy
T.J. Maxx
Pleasant Run Towne RC 2004 Dec-04 35,370,000 22,800,000 201,587 0.9% 100% 22 Oshman's
Center Ce Sporting
Hill, Texas Goods
Circuit City
Promenade at Red Cliff NC 1997 Feb-04 19,537,000 10,590,000 94,445 0.4% 90% 17 Staples
St. George, Utah Old Navy
Big 5 Sporting
Goods
Reisterstown JV 1986/2004 Aug-04 94,762,000 49,650,000 789,926 3.5% 98% 86 Home Depot
Road Plaza Dept. of
Baltimore, Maryland Public Safety
National
Wholesale
Liquidators
Saucon Valley Square NC 1999 Sept-04 16,043,000 8,850,900 80,695 0.4% 100% 14 Super Fresh
Bethlehem, Food
Pennsylvania Market
Shaw's Supermarket SU 1995 Dec-03 13,656,000 6,450,000 65,658 0.3% 100% 1 Shaw's
New Britain, Supermarket
Connecticut
49
% OF
MORTGAGE GROSS TOTAL
APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Shoppes at Lake Andrew RC 2003 Dec-04 28,300,000 15,656,511 144,733 0.6% 100% 18 Ross Dress for
Viera, Florida Less Linens
'N Things
The Rag Shop
The Shoppes at Park NC 2004 Nov-04 12,047,000 6,655,000 64,832 0.3% 95% 11 Publix
West (Publix Center)
Mount Pleasant, South
Carolina
Shoppes at NC 1999 Jan-04 11,031,000 6,067,183 61,817 0.3% 96% 2 Shoppers Food
Quarterfield Warehouse
(Metro Square Center)
Severn, Maryland
Shoppes of New Hope NC 2004 Jul-04 13,052,000 7,178,700 70,610 0.3% 100% 17 Publix
(Shoppes of Dallas)
Dallas, Georgia
Shoppes of Prominence NC 2004 Jun-04 15,155,000 9,954,300 78,058 0.3% 98% 18 Publix
Point
Canton, Georgia
The Shops at Boardwalk RC 2003 & 2004 Jul-04 36,642,000 20,150,000 122,916 0.5% 87% 25 Borders Books
Kansas City, Missouri
Shops at Forest NC 2002 Dec-04 7,505,000 5,220,981 34,756 0.2% 100% 16 Blockbuster
Commons Video
Round Rock, Texas
Shops at Park Place RC 2001 Oct-03 24,000,000 13,127,000 116,300 0.5% 99% 11 Bed, Bath
Plano, Texas & Beyond
Michaels
OfficeMax
Walgreens
50
% OF
MORTGAGE GROSS TOTAL
APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Southgate Plaza NC 1998-2002 Mar-05 12,253,000 - 86,010 0.4% 100% 7 Best Buy
Heath, Ohio Office Depot
Michaels
Southlake Town Square RC 1998-2004 Dec-04 135,606,000 81,000,000 456,569 2.0% 99% 152 N/A
Southlake, Texas
Stanley Works/Mac SU 2004 Jan-05 10,000,000 - 72,500 0.3% 100% 1 Mac Tools
Tools
Westerville, Ohio
Stateline Station RC 2003-2004 Mar-05 32,000,000 - 141,686 0.6% 93% 17 Linens 'N
High Ridge, Missouri Things
Cost Plus
World Market
Petco
Stilesboro Oaks NC 1997 Dec-04 12,640,000 6,951,971 80,772 0.4% 100% 13 Kroger
Acworth, Georgia
Stony Creek RC 2003 Dec-03 25,750,000 14,162,000 153,796 0.7% 100% 20 T.J. Maxx
Marketplace Linens 'N
Noblesville, Indiana Things Barnes
& Noble
Tollgate Marketplace JV 1979/1994 Jul-04 72,300,000 39,765,000 392,587 1.7% 100% 34 Giant Food
Bel Air, Maryland Jo Ann Fabrics
Towson Circle JV 1998 Jul-04 28,450,000 19,197,500 116,012 0.5% 94% 13 Barnes & Noble
Towson, Maryland Trader Joe's
East
Bally's Total
Fitness
Pier 1 Imports
Trenton Crossing RC 2003 Feb-05 29,212,000 19,307,037 215,220 0.9% 99% 19 Hobby Lobby
McAllen, Texas Ross Dress for
Less
Marshalls
Beall's
University Town Center NC 2002 Nov-04 10,569,000 5,810,000 57,250 0.3% 100% 15 Publix
Tuscaloosa, Alabama
The Village at Quail RC 2003-2004 Feb-05 10,429,000 5,740,000 100,404 0.4% 100% 2 Gordman's
Springs Best Buy
Oklahoma City,
Oklahoma
Village Shoppes at NC 2004 Aug-04 13,750,000 7,561,700 66,415 0.3% 87% 10 Publix
Simonton
Lawrenceville, Georgia
51
% OF
MORTGAGE GROSS TOTAL
APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE PURCHASE MARCH 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
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
Wautauga, Texas Sporting
Goods
Ross Dress for
Less
Bed, Bath &
Beyond
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
Schaumburg, Illinois American
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 $5,108,656 at
December 31, 2004.
We have a 95% ownership interest in the limited liability companies which own
Boulevard at the Capital Centre, Gateway Village, Reisterstown Road Plaza,
Tollgate Marketplace, and Towson Circle.
52
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 98 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION REGARDING PROPERTIES WE
HAVE ACQUIRED OR INTEND TO ACQUIRE.
DESCRIPTION OF PROPERTIES
AMERICAN EXPRESS - SALT LAKE CITY, UTAH
We anticipate purchasing the following office building constructed in 1982 and
leasing the entire building back to American Express Travel Related Services
Company, Inc.
Approximate Approximate
Location Square Feet Lease Term Purchase Price ($)
-------- ----------- ---------- ------------------
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.
APPROXIMATE
ACQUISITION GROSS PHYSICAL
COSTS LEASABLE OCCUPANCY
YEAR INCLUDING AREA AS OF NO. OF MAJOR
PROPERTY TYPE BUILT EXPENSES ($) * (SQ. FT.) 03/01/05 TENANTS TENANTS
-------- ---- ----- -------------- --------- ----------- ------- -------
Advance Auto
Advance Auto Parts SU 2004 1,483,675 7,000 100% 1 Parts
8603 Culebra
San Antonio, TX
53
APPROXIMATE
ACQUISITION GROSS PHYSICAL
COSTS LEASABLE OCCUPANCY
YEAR INCLUDING AREA AS OF NO. OF MAJOR
PROPERTY TYPE BUILT EXPENSES ($) * (SQ. FT.) 03/01/05 TENANTS TENANTS
-------- ---- ----- -------------- --------- ----------- ------- -------
Advance Auto
Advance Auto Parts SU 2004 1,547,609 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
Lakepointe Towne Sportsman's
Crossing RC 2004 39,482,000 192,679 70% 10 Warehouse
715 Hebron
Parkway Circuit City
Lewisville, TX Ross Stores
1988- Ross Dress for
Metro Town Center RC 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.
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.
54
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.
% 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 1.80% 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%
55
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 Shopping 38 2,639,716 11.5% 36,817,904 13.1%
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.
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%
================================================================================
56
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 (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
57
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.
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
58
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 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.
59
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:
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)
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
60
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.
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.
61
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.
62
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
63
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.
64
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.
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
65
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.
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.
66
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 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
67
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 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
68
APPROXIMATE GROSS LEASABLE
DATE YEAR PURCHASE PRICE AREA
ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS
-------- -------- ----- -------------- --------------- -------------
02/18/05 Trenton Crossing 2003 29,212,209 221,019 Hobby Lobby
McAllen, TX Ross Dress for Less
Marshalls
Bealls
The mortgage debt and financings obtained during the period January 1 to
February 28, 2005, are detailed in the table below.
DATE MATURITY PRINCIPAL BORROWED
FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($)
----------------------------------------------------------------------------------------------------------------
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
69
DATE MATURITY PRINCIPAL BORROWED
FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($)
----------------------------------------------------------------------------------------------------------------
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
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.
70
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 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 333 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.
71
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.
SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS
THE DISCUSSION UNDER THIS HEADING, WHICH STARTS ON PAGE 335 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.
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.
PLAN OF DISTRIBUTION
THE THIRD PARAGRAPH, UNDER THE SECTION "GENERAL", WHICH STARTS ON PAGE 360 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 $2,262,000,000 in its offerings.
Inland American Real Estate Trust, Inc. filed a registration statement on Form
S-11 to register 500,000,000 shares of common stock and up to 40,000,000 shares
of their common stock for participants in their distribution reinvestment
program. The registration statement has not been declared effective by the
Securities and Exchange Commission, and there is no assurance when and if it
will be declared effective.
THE FOLLOWING NEW SUBSECTION IS INSERTED AT THE END OF THIS SECTION ON PAGE 360
OUR PROSPECTUS.
72
UPDATE
The following table updates shares sold in our offering as of March 8, 2005:
Commission
Gross and fees Net
Shares proceeds ($) ($) (1) proceeds ($)
------------------------------------------------------------------
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
==================================================================
(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.
LITIGATION
THE FOLLOWING NEW PARAGRAPH IS INSERTED AT THE END OF THIS SECTION ON PAGE 378
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:
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,
property managers, Inland US Management gross income from the properties. We 2004, and the period from March 5,
LLC, Inland Southwest Management LLC and will also pay a monthly fee for any 2003 (inception) to December 31,
Inland Pacific Property Services LLC. We extra services equal to no more than 90% 2003 we have incurred and paid
will pay the fee for services in of that which would be payable to an property management fees of
connection with the rental, leasing, unrelated party providing the services. $5,381,721 and $16,627, of which
operation and management of the The property managers may subcontract $5,381,721 and $16,627 were retained
properties their duties for a fee that may be less by Inland US Management LLC, Inland
than the fee provided for in the Southwest Management LLC and Inland
management Pacific Property Services LLC. If we
acquire
73
services agreements. 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.
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 combined historical summary of
income and direct operating gross income and direct operating
expenses of Azalea Square expenses of
for the period from July 4, 2003 The Properties Acquired
(commencement of operations) to from Bayer Properties, Inc. for the
December 31, 2003, year ended 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 Donahue Schriber for the year
(commencement of operations) to 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 Gurnee Town Center of Winchester Commons 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 Mansfield Town Center of Fox Creek Village for the period
for the period from July 23, 2003 from November 12, 2003 (commencement
(commencement of operations) to of 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 Gateway Pavilions for of Northwoods Center for the year
the period from February 15, 2003 ended December 31, 2003,
(commencement of operations) to - the combined historical summary of
December 31, 2003, gross income and direct operating
- he consolidated balance sheet of expenses of The Properties Acquired
Inland Western Retail Real Estate from Eastern Retail Holdings, LP for
Trust, Inc. as of December 31, the year ended December 31, 2003,
2003 and the related consolidated - the historical summary of gross
statements of operations, income and direct operating expenses
stockholders' equity and cash of Southlake Town Square for the
flows for the period from March year ended December 31, 2003,
5, 2003 (inception) through - and the historical summary of gross
December 31, 2003 and related income and direct operating expenses
financial statement schedule, of Oswego Commons for the year ended
December 31, 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 expenses of
for the year ended December 31, the Properties Acquired from Weber
2004, & 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
- the combined historical summary consolidated statements of
of gross income and direct operations, stockholders' equity and
operating expenses of the cash flows for the year ended
Properties Acquired from Ceruzzi December 31, 2004 and the period
Holdings the year ended December from March 5, 2003 (inception)
31, 2004, through December 31, 2003 and
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. 1 to Form
S-11 Registration Statement filed with the Securities and Exchange Commission on
March 16, 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 $ (4,657) 3,094 1,207 (733) 1,473
special items
====================================================================
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 F-83
ended December 31, 2004 (unaudited)
23RD STREET PLAZA:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 F-84
(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 February 1, 2004 F-88
(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 November 1, 2004 F-90
(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 December 31, 2004 F-92
(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 December 31, 2004 F-94
(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
January 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
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
[INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. LOGO]
PROSPECTUS
270,000,000 shares of common stock
$10.00 per share: Minimum Initial Purchase - 300 shares (100 shares for
Tax-Exempt Entities)
We are a real estate investment trust or a REIT. We were formed in 2003 to
acquire and manage properties which are located primarily in states west of the
Mississippi River. As of December 7, 2004, we owned 91 properties which have an
aggregate gross leasable area of approximately 16.1 million square feet. 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). The common stock will be issued in book entry form only.
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 250,000,000 of
our shares. Your subscription payments will be placed in an escrow account
held by the escrow agent, LaSalle Bank National Association, and will be held
in trust for your benefit, pending release to us. Subscription proceeds are
expected to be released to us as subscriptions are accepted. This offering
will end no later than December [.], 2005, unless we elect to extend it to a
date no later than December [.], 2006 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 12 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 - there are limits on ownership, transferability and
exchange and cannot be readily sold (and sales by redemption of shares;
stockholders may be made at a loss); - risks that the incentive structure of fees payable
- we have no ownership in our business manager/advisor and to our business manager/advisor and its affiliates
the business manager/advisor is owned by our sponsor or may encourage our business manager/advisor to make
their affiliates; investments that have greater risks to generate
- our business manager/advisor and its affiliates will higher fees; and
receive substantial fees, including participation in - although we anticipate that aggregate borrowings
proceeds from the sale, refinancing or liquidation of our will not exceed 55% of the combined fair market
assets value of our properties, our charter imposes a
- our business manager/advisor, property managers and two of limitation on our borrowings of less than 300% of
our directors are subject to conflicts of interest as a net assets and there are risks associated with a
result of their affiliation with The Inland Group; high amount of leverage.
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 Max. Offering
Public offering price, primary shares (1)............... $ 10.00 $ $2,500,000,000
Public offering price, distribution reinvestment program $ 9.50 $ 190,000,000
Selling commissions (1)................................. $ 1.05 $ 262,500,000
Proceeds, before expenses, to us........................ $ 8.95 $ 2,427,500,000
(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 [-], 2004.
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
a
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 general standards 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;
b
- 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]
c
TABLE OF CONTENTS
PAGE
WHO MAY INVEST...............................................................................................a
Suitability Standards....................................................................................a
Minimum Purchase.........................................................................................b
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 business manager/advisor and The Inland Group...........................................2
Conflicts of interest....................................................................................4
Compensation to be paid to our business manager/advisor and affiliates...................................5
Primary business objective and strategies................................................................8
Terms of the offering....................................................................................9
Is an investment in us appropriate for you?.............................................................10
Distributions...........................................................................................10
Real property investments...............................................................................10
Share repurchase program................................................................................10
Estimated Use of Proceeds...............................................................................11
RISK FACTORS................................................................................................12
Our common stock is not currently listed on an exchange or trading market and cannot be
readily sold...................................................................................12
The price of our common stock is subjective and may not bear any relationship to what a stockholder
could receive if it was sold...................................................................12
You do not know what real properties and other assets we may acquire in the future, and must rely
on our business manager/advisor, our board and officers to select them and stockholders
will not participate in these decisions........................................................12
Competition with third parties in acquiring properties will reduce our profitability and
the return on your investment..................................................................12
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...................13
i
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.....................13
If we have insufficient working capital reserves, we will have to obtain financing from other
sources........................................................................................14
The types of properties which we intend to acquire and the area in which we may acquire retail
centers is limited.............................................................................14
The aggregate amount we may borrow is limited under our articles of incorporation.......................14
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.........................................14
Your investment return may be reduced if we are required to register as an investment company
under the Investment Company Act...............................................................16
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.........................................................................................18
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................................18
Stockholders have limited control over changes in our policies..........................................18
If we invest in joint ventures, the objectives of our partners may conflict with our objectives.........18
If we sell properties by providing financing to purchasers, we will bear the risk of default
by the purchaser...............................................................................18
Delays in acquisitions of properties may have an adverse effect.........................................19
We may not be able to immediately invest proceeds in real estate, which will harm your
returns........................................................................................19
We depend on our board of directors, business manager/advisor and property managers 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 business manager/advisor and our
other affiliates...............................................................................21
The managing dealer has not made an independent review of us or the prospectus..........................22
ii
Our rights and the rights of our stockholders to take action against our directors and officers
and the business manager/advisor are limited...................................................22
The business of our business manager/advisor and our property managers 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.........................23
There are inherent risks with real estate investments...................................................23
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......................24
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..........................................................................24
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..............................25
Our properties will be subject to competition for tenants and customers.................................25
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.........................................26
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.....................................................................27
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.......................................................................................27
iii
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....................................................................28
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.................................................29
Our investments in unimproved real property may result in additional cost to us to comply with
re-zoning restrictions or environmental regulations............................................29
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..............................29
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 maintain our REIT status, our dividends will not be deductible to us and our income
will be subject to taxation....................................................................30
You may have tax liability on distributions you elect to reinvest in common stock.......................30
The opinion of Duane Morris LLP regarding our status as a REIT does not guarantee our ability to
remain a REIT..................................................................................30
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............................................................................31
CAUTIONING NOTE REGARDING FORWARD-LOOKING STATEMENTS........................................................32
HOW WE OPERATE..............................................................................................34
CONFLICTS OF INTEREST.......................................................................................36
COMPENSATION TABLE..........................................................................................40
ESTIMATED USE OF PROCEEDS...................................................................................48
PRIOR PERFORMANCE OF OUR AFFILIATES.........................................................................49
iv
Prior Investment Programs...............................................................................49
Summary Information.....................................................................................49
Publicly Registered REITS...............................................................................51
Private Partnerships....................................................................................54
1031 Exchange Private Placement Offering Program........................................................55
MANAGEMENT..................................................................................................68
Inland Affiliated Companies.............................................................................68
Our General Management..................................................................................71
Our Directors and Executive Officers....................................................................72
Committees of Our Board of Directors....................................................................75
Compensation of Directors and Officers..................................................................76
Executive Compensation..................................................................................76
Independent Director Stock Option Plan..................................................................77
Our Business Manager/Advisor............................................................................78
Our Advisory Agreement..................................................................................79
The Property Managers and the Management Agreements.....................................................82
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND OUR BUSINESS MANAGER/ADVISOR.........92
PRINCIPAL STOCKHOLDERS......................................................................................95
OUR STRUCTURE AND FORMATION.................................................................................96
Structure...............................................................................................96
SELECTED FINANCIAL DATA.....................................................................................97
INVESTMENT OBJECTIVES AND POLICIES..........................................................................99
General ...............................................................................................99
Distributions...........................................................................................99
Types of Investments...................................................................................100
Property Acquisition Standards.........................................................................101
Description of Leases..................................................................................102
v
Property Acquisition...................................................................................102
Borrowing..............................................................................................103
Sale or Disposition of Properties......................................................................104
Change in Investment Objectives and Policies...........................................................105
Investment Limitations.................................................................................105
Other Investments......................................................................................105
Appraisals.............................................................................................106
Return of Uninvested Proceeds..........................................................................106
Additional Offerings and Exchange Listing..............................................................107
Joint Ventures.........................................................................................107
Construction and Development Activities................................................................107
Other Policies.........................................................................................108
REAL PROPERTY INVESTMENTS..................................................................................110
Investing in REITS.....................................................................................110
General ..............................................................................................110
Insurance Coverage on Properties.......................................................................112
Properties.............................................................................................112
Retail Shopping Centers................................................................................113
Neighborhood and Community Shopping Centers............................................................114
Single-User Properties.................................................................................114
Summary Tabular Presentation of Properties Owned.......................................................115
Description of Properties..............................................................................124
Potential Property Acquisitions........................................................................262
Tenant Lease Expiration................................................................................292
Tenant Concentration...................................................................................293
Property Allocation....................................................................................295
vi
CAPITALIZATION.............................................................................................297
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION............................................298
DESCRIPTION OF SECURITIES..................................................................................324
Authorized Stock.......................................................................................324
Common Stock...........................................................................................324
Preferred Stock........................................................................................325
Issuance of Additional Securities and Debt Instruments.................................................326
Restrictions on Issuance of Securities.................................................................326
Restrictions on Ownership and Transfer.................................................................327
Anti-Takeover Provisions of Maryland Law and Our Articles of Incorporation and Bylaws..................329
SHARES ELIGIBLE FOR FUTURE SALE............................................................................332
Shares to be Outstanding or Issuable upon Exercise or Conversion of Other Outstanding Securities.......332
Securities Act Restrictions............................................................................332
Independent Director Stock Option Plan.................................................................333
Effect of Availability of Shares on Market Price of Shares.............................................333
Registration Rights....................................................................................333
SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS....................................................................335
Articles of Incorporation and Bylaw Provisions.........................................................335
Stockholders' Meetings.................................................................................335
Board of Directors.....................................................................................336
Stockholder Voting Rights..............................................................................336
Rights of Objecting Stockholders.......................................................................337
Stockholder Lists; Inspection of Books and Records.....................................................337
Amendment of the Organizational Documents..............................................................338
Dissolution or Termination of the Company..............................................................338
Advance Notice of Director Nominations and New Business................................................338
Restrictions on Certain Conversion Transactions and Roll-Ups...........................................339
vii
Limitation on Total Operating Expenses.................................................................341
Transactions with Affiliates...........................................................................342
Restrictions on Borrowing..............................................................................343
Restrictions on Investments............................................................................343
FEDERAL INCOME TAX CONSIDERATIONS..........................................................................346
Federal Income Taxation as a REIT......................................................................346
Federal Income Taxation of Stockholders................................................................353
Other Tax Considerations...............................................................................356
ERISA CONSIDERATIONS.......................................................................................357
PLAN OF DISTRIBUTION.......................................................................................360
General ..............................................................................................360
Escrow Conditions......................................................................................360
Subscription Process...................................................................................361
Representations and Warranties in the Subscription Agreement...........................................361
Determination of Your Suitability as an Investor.......................................................362
Compensation We Will Pay for the Sale of Our Shares....................................................363
Volume Discounts.......................................................................................364
Deferred Commission Option.............................................................................365
Indemnification........................................................................................367
HOW TO SUBSCRIBE...........................................................................................369
SALES LITERATURE...........................................................................................371
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS....................................................372
Distribution Reinvestment Program......................................................................372
Share Repurchase Program...............................................................................373
viii
REPORTS TO STOCKHOLDERS....................................................................................376
PRIVACY POLICY NOTICE......................................................................................377
LITIGATION.................................................................................................378
RELATIONSHIPS AND RELATED TRANSACTIONS.....................................................................378
LEGAL MATTERS..............................................................................................384
EXPERTS....................................................................................................384
WHERE YOU CAN FIND MORE INFORMATION........................................................................387
Index to Financial Statements F-1
Appendix A - Prior Performance Tables A-1
Appendix B - Distribution 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 G - Privacy Policy Notice G-1
ix
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 and we operate as a real
estate investment trust, or a REIT, for federal and state income tax purposes.
Our company owns all of our assets, either directly or indirectly.
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 business manager/advisor is experienced in acquiring and managing real
estate, particularly retail focused shopping centers. We 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 does and 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 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
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.
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;
- ranches;
- single-family residential properties;
1
- timberlands; or
- unimproved properties not intended to be developed (vacant land).
Subject to compliance with the applicable requirements 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 BUSINESS MANAGER/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 business
manager/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 Management 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 business manager/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.
The following organizational chart depicts the services that affiliates or
our sponsor will render to us and our organizational structure.
2
The following organizational chart depicts the services that affiliates of 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 Inland ||
Northwest Southwest Western Pacific -----------------------
Management Management Management Management THE INLAND GROUP, INC.*
Corp. Corp. Corp. Corp. -----------------------
---------- ---------- ---------- ---------- ||
|| || || || ||
============================================== ==========================================================================
|| || || || ||
|| || || || ||
--------------------------------------------------- ------------------- ----------------------------- ------------------- ||
Inland Holdco Management LLC The Inland Services Inland Real The Inland Real ||
Group, Inc. Estate Investment Corporation Estate Transactions ||
(our sponsor) Group, Inc. ||
--------------------------------------------------- ------------------- ----------------------------- ------------------- ||
| | | || || || ||
| | | || || || ||
---------- ---------------- -------------- || || || ||
Inland US Inland Southwest Inland Pacific || || || ||
Management Property Property --------------- || || ||
LLC Management Management Inland Risk and || || ||
(property LLC LLC Insurance || || ||
manager) (property (property Management || || ||
manager) manager) Services, Inc. || || ||
---------- ---------------- -------------- --------------- || || ||
| | | | || || ||
| | | | || || ||
--------------------------------------------------- | || || ||
| | || || ||
| | || || ||
| ---------------------------------------------------------- || || ||
| | || || ||
| | || || ||
| | ======================================================== || ||
| | || || || || ||
| | || || || || ||
| | ----------------- ------------------------------ ------------------ || ----------------------
| | Inland Securities Inland Western Retail Real Inland Partnership || Inland Mortgage
| | Corporation Estate Advisory Services, Inc. Property Sales || Investment Corporation
| | (our business manager/advisor) Corporation ||
| | ----------------- ------------------------------ ------------------ || ----------------------
| | | | || ||
| | | | ======================================== ============
| | | | || || || || ||
| | | | || ----------- || || -----------
| ------------ | | ----------- Inland Real ------------------ ----------- Inland
| Insurance | | Inland Real Estate Inland Real Inland Mortgage
| Services | | Estate Development Estate Mortgage Servicing
| ------------ | | Sales, Inc. Corporation Acquisitions, Inc. Corporation Corporation
| | | | ----------- ----------- ------------------ ----------- -----------
| | | | | | | | |
| | | | -------------- | | | |
| | | | Real Estate | | | |
----------------------- | | | Sales Services | | | |
Property Management and | | | -------------- | | | |
Related Services | | | | | | | |
----------------------- | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | ---------------- ----------------- | ---------------- ----------- --------- ---------
| | Securities Sales Organization, | Construction and Property Mortgage Mortgage
| | Advisory and Real | Development Acquisition Brokerage Loan
| | Estate Services | Services Services Services Servicing
| | ---------------- ----------------- | ---------------- ----------- --------- ---------
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
-----------------------------------------------------------------------------------------------------------------------------------
Inland Western Retail Real Estate Trust, Inc.
We are 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);
- 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 business manager/advisor and the business
manager/advisor is owned by our sponsor or their affiliates;
- our business manager/advisor and its affiliates will receive
substantial fees, including participation in proceeds from the sale,
refinancing or liquidation of our assets;
- our business manager/advisor, property managers 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 advisor 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 business
manager/advisor and our affiliates; and
- the allocation of investment opportunities between us and their
other business ventures.
- we may make distributions that include a return of principal for
federal tax purposes;
- 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; and
- risks that incentive structure of fees payable to our business
manager/advisor and its affiliates may encourage our business
manager/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 BUSINESS MANAGER/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 TRADED REIT
THAT IS SELF-ADMINISTERED 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. GENERALLY PURCHASES SHOPPING
CENTERS LOCATED EAST OF THE MISSISSIPPI RIVER. INLAND REAL
4
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, Thomas P.
McGuinness, Roberta S. Matlin 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., Inland US Management LLC, Inland Southwest Management LLC and
Inland Pacific Management 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;
- 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 certain properties
west of the Mississippi River; 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 business manager/advisor and/or our property managers for shares of
common stock.
COMPENSATION TO BE PAID TO OUR BUSINESS MANAGER/ADVISOR AND AFFILIATES
We pay our business manager/advisor and affiliates substantial fees for
managing our business.
We will also pay the business manager/advisor and other affiliates of our
sponsor a number of other fees for services or expense reimbursements during our
offering, operational and liquidation stage.
5
Set forth below is a tabular summary of fees and compensation payable to
our business manager/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. Through
September 30, 2004, we have incurred
$135,587,028 in selling commissions in
connection with our initial public
offering. In our initial public
offering, we intend to sell 250,000,000
shares of our common stock at $10.00 per
share.
Marketing allowance and due 2.5% of the gross offering proceeds for
diligence expense allowance marketing allowance and 0.5% of the
gross offering proceeds for due
diligence expense allowance. Through
September 30, 2004, we have incurred
$16,811,558 in marketing allowance and
due diligence expense allowance in
connection with our initial public
offering. The actual amount of marketing
allowance and due diligence expense
allowance in connection with this
offering will depend on the number of
shares sold. If there are no special
sales, and we sell the maximum number of
shares offered, approximately
$75,000,000 will be paid for the
marketing allowance and the due
diligence expense allowance.
Reimbursable expenses and other Estimated amount: $14,684,000. Through
expenses of issuance September 30, 2004, we have incurred
$969,524 of reimbursable expenses to our
business manager/advisor in connection
with our initial public offering. In
addition, in connection with our initial
public offering, as of December 31,
2003, our business manager/advisor had
advanced an aggregate of approximately
$1,763,306 for the payment of offering
expenses to non-affiliated third
parties, all of which has been repaid.
Our sponsor has not advanced any
reimbursable expenses in connection with
this offering. We may reimburse up to
$14,684,000 for offering expenses
advanced if we sell the maximum number
of shares offered.
If the offering is not successful, then
our sponsor will be solely responsible
for the offering expenses to the extent
it has not been reimbursed.
6
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. 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 and (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.
Operational stage:
Property management fee 4.5% of the gross income from the
This fee terminates upon a business properties. (cannot exceed 90% of the
combination with our property fee which would be payble to an
managers. unrelated third party). We will pay the
fee for services in connection with the
rental, leasing, operation and
management of the properties. For the
year ended December 31, 2003, and the
nine months ended September 30, 2004, we
have incurred and paid property
management fees of $16,627 and
$2,847,427, of which $16,627 and
$2,847,427 were retained by Inland US
Management LLC, Inland Southwest
Management LLC and Inland Pacific
Management LLC. Actual amounts we will
incur in the future cannot be determined
at the present time.
Loan servicing fee and mortgage 0.08% of the total principal amount of
brokerage fee the loans being serviced for each full
year, up to the first $100 million and a
lesser percentage on a sliding scale
thereafter. For the year ended December
31, 2003, and the nine months ended
September 30, 2004, we have incurred and
paid $328 and $63,978 to Inland Mortgage
Servicing Corporation. For the year
ended December 31, 2003, and the nine
months ended September 30, 2004, we have
incurred and paid $59,523 and $2,241,986
to Inland Mortgage Investment
Corporation.
Reimbursable expenses relating to The compensation and reimbursements to
administrative services our business manager/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.
7
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 business paid to a third party. Actual amounts
manager/advisor. 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 business non-cumulative, non-compounded return,
manager/advisor. 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. As of September 30,
2004, we have not paid or accrued any
advisor asset management fees. Actual
amounts we will incur in the future
cannot be determined at the present
time.
Liquidation stage:
Incentive advisory fee After our stockholders have first
This fee terminates upon a business received a 10% cumulative,
combination with the business non-compounded return and a return of
manager/advisor. their net investment, an incentive
advisory fee equal to 15% on net
proceeds from the sale of a property
will be paid to our business
manager/advisor.
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
8
prospectus, we had not paid the purchase price of any properties using
shares or interests in entities that will own our properties.
- 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 continue 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 continue to emphasize regular maintenance and periodic
renovation to meet the needs of tenants and to maximize long-term
returns.
- We intend to continue to maintain a diversified tenant base at our
retail centers, consisting primarily of retail tenants providing
consumer goods and services.
TERMS OF THE OFFERING
If we sell the maximum amount of shares under the offering, we will have
sold a total of 500,020,000 shares, assuming that we sell all of the 250,000,000
shares offered in our initial public offering which began September 2003. These
numbers do not include shares issued upon exercise of options granted and which
may be granted under our independent director stock option plan, nor do they
include shares issued pursuant to our existing distribution reinvestment
program.
We are offering a maximum of 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 in our initial public offering in September 2003, 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.
9
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 stockholders. We have paid
regular distributions to our domestic and foreign stockholders for the
past nine months and the past three quarters. 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 have, and intend to
continue 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. Currently, our aggregate borrowings secured by our properties
is approximately 55% of their combined fair market value.
WE CANNOT GUARANTEE THAT WE WILL ACHIEVE THESE OBJECTIVES.
DISTRIBUTIONS
We have and intend to continue 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
As of December 7, 2004, our real estate portfolio was comprised of 91
properties containing approximately 16.1 million square feet of gross leasable
area. The 91 properties consist of 42 retail shopping centers, 26 neighborhood
and community shopping center properties, 18 single-user facilities and five
joint venture retail shopping centers that we have operating control of, located
in 25 states.
SHARE REPURCHASE PROGRAM
We have instituted a share repurchase program. Our share repurchase program
provides 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.
10
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. The amounts set forth below assume:
- 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.
We have not given effect to any special sales or volume discounts which
could reduce selling commissions.
MAXIMUM OFFERING
(INCLUDING SHARES SOLD UNDER THE
DISTRIBUTION REINVESTMENT PROGRAM)
-------------------------------------
AMOUNT PERCENT
---------------- -----------------
Gross proceeds................................................... $ 2,690,000,000 100.00%
---------------- -----------------
Less expenses:
Selling commissions......................................... 187,500,000 6.97%
Marketing allowance......................................... 62,500,000 2.32%
Due diligence expense allowance............................. 12,500,000 0.46%
---------------- -----------------
Organization and offering................................... 14,684,000 .55%
---------------- -----------------
Total expenses.............................................. 277,184,000 10.30%
---------------- -----------------
Gross amount available........................................... 2,412,816,000 89.70%
Less
Acquisition expenses........................................ 13,450,000 0.50%
Working capital reserve..................................... 26,900,000 1.00%
---------------- -----------------
Net cash available............................................... $ 2,372,466,000 88.20%
================ =================
We will pay the managing dealer cash selling commissions of up to 7.5% on
all of the 250,000,000 shares of common stock sold on a best-efforts basis. No
selling commission is paid on shares sold through our distribution reinvestment
program.
11
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.
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.
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 our common stock in our initial public offering
in September 2003;
- 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.
YOU DO NOT KNOW WHAT REAL PROPERTIES AND OTHER ASSETS WE MAY ACQUIRE IN THE
FUTURE, AND MUST RELY ON OUR BUSINESS MANAGER/ADVISOR, OUR BOARD AND OFFICERS TO
SELECT THEM AND STOCKHOLDERS WILL NOT PARTICIPATE IN THESE DECISIONS. We intend
to acquire commercial retail properties. Although we have already acquired 91
properties, and we are considering acquiring others, no information is available
as to the identification, location, operating histories, lease terms or other
relevant economic and financial data of any other properties or other assets we
may purchase in the future. As a result, you must rely on us to locate and
acquire additional 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
12
operating efficiencies. In addition, the number of entities and the
amount of funds competing for suitable 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 business manager/advisor and affiliates of
our business manager/advisor in connection with our operation and the management
of our assets, and for obtaining and retaining investors for our common stock.
We will generally 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 may 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.
Currently, our aggregate borrowings secured by our properties is approximately
55% of their combined fair market value.
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.
13
IF WE HAVE INSUFFICIENT WORKING CAPITAL RESERVES, WE WILL HAVE TO OBTAIN
FINANCING FROM OTHER SOURCES. We have established 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 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 primarily acquire and manage retail
centers. We intend to acquire retail centers primarily in the 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.
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. Currently, our aggregate borrowings
are approximately 164% of our net assets. 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.
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:
- 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, subject to some exceptions, no
person may beneficially own more than 9.8% of our common stock.
14
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. The votes cited in the previous sentence would not
apply if, 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, as permitted by the Maryland Business
Combination Act, 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 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 two-thirds of the votes
entitled to be cast on the matter; shares of stock owned by interested
stockholders, that
15
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. As permitted by the
Maryland Control Share Acquisition Act, 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 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
16
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
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
17
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. We have had limited experience with
derivative financial instruments and so far we have recognized losses in our use
of derivative financial instruments.
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 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
18
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.
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 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, 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.
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.
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 entities to be formed by The Inland Group, Inc. Inland
Real Estate Corporation is a publicly traded REIT that is self-administered and
is no longer affiliated with The Inland Group. Inland Real Estate Corporation
generally 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
19
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 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. 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. 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
20
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. 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 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 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. 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. 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.
WE CANNOT PREDICT THE AMOUNTS OF COMPENSATION TO BE PAID TO OUR BUSINESS
MANAGER/ADVISOR AND OUR OTHER AFFILIATES. Because the fees that we will pay to
our business manager/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.
21
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 allowance and a due
diligence expense allowance.
OUR RIGHTS AND THE RIGHTS OF OUR STOCKHOLDERS TO TAKE ACTION AGAINST OUR
DIRECTORS AND OFFICERS AND THE BUSINESS MANAGER/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 ordinarily 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 business manager/advisor,
require us to indemnify our directors, officers, employees and agents and the
business manager/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, and the business
manager/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 business manager/advisor in some cases. See
"Limitation of Liability and Indemnification of Directors, Officers and Our
Business Manager/Advisor."
THE BUSINESS OF OUR BUSINESS MANAGER/ADVISOR AND OUR PROPERTY MANAGERS MAY
BE ACQUIRED BY US WITHOUT FURTHER ACTION OF OUR STOCKHOLDERS. During the term of
our agreements with our business manager/advisor and our property managers, we
have the option to cause the business conducted by our business manager/advisor
and/or our property managers (including all of their assets) to be acquired by
or consolidated into us, without any consent of our stockholders, our business
manager/advisor or our property managers 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 September 15, 2008. 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 business manager/advisor and our property managers
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 business manager/advisor and/or our property managers, 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
22
result, our stockholders will not have a right to vote on a decision to acquire
the business manager/advisor or property managers 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:
- 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. We
intend to acquire properties that will be located primarily 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 areas where we have acquired or intend to acquire properties and in the
market for retail space generally. Therefore, to the extent that there are
adverse economic conditions in an area 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.
23
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 (if at all) 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 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
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
24
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
have and intend to continue to acquire properties located in developed areas.
Therefore, there are and will undoubtedly be numerous other retail 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
25
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 business manager/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 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.
26
The United States' armed conflict in Iraq and continued efforts against
terrorism could have a further impact on our tenants. The consequences of any
armed conflict and efforts against terrorism 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 an 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 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
27
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. 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.
28
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 have and
intend to continue 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. They 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 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
29
the effects of federal, state and local income tax law on an investment and on
your individual tax situation.
IF WE FAIL TO MAINTAIN OUR REIT STATUS, OUR DIVIDENDS WILL NOT BE
DEDUCTIBLE TO US AND OUR INCOME WILL BE SUBJECT TO TAXATION. We have qualified
as a REIT under the Internal Revenue Code of 1986, as amended, which affords us
significant tax advantages. The requirements for this qualification, however,
are complex. If we fail to continue 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,
has rendered its opinion that we qualify as a REIT, based upon our
representations as to the manner in which are 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
30
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:
- 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.
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;
- 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 business manager/advisor and the business
manager/advisor is owned by our sponsor or their affiliates;
- our business manager/advisor and its affiliates will receive
substantial fees, including participation in proceeds from the sales,
refinancing or liquidation of our assets;
- our business manager/advisor, property managers 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 advisor 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 business
manager/advisor and our affiliates; and
- the allocation of investment opportunities between us and
their other business ventures.
- we may make distributions that include a return of principal for
federal tax purposes;
- there are limits on ownership, transferability and redemption of
shares;
- our investment policies and strategies may be changed without
stockholder consent;
- our investments may lack geographic diversification; and
- risks that incentive structure of fees payable to our business
manager/advisor and its affiliates may encourage our business
manager/advisor to make investments that have greater risks to
generate higher fees.
32
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.
33
HOW WE OPERATE
We 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 business manager/advisor. Our business manager/advisor
has the responsibility for our day-to-day operations and the management of our
assets.
In addition to the services of our business manager/advisor, we contract
with Inland US Management LLC, Inland Southwest Management LLC and Inland
Pacific Management LLC for their services as our property managers. Inland US
Management LLC, Inland Southwest Management LLC and Inland Pacific Management
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 Management
LLC, are 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
The following organizational chart depicts the services that affiliates or
our sponsor will render to us and our organizational structure.
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. Goodwin* Robert H. G. Joseph Robert D.
Baum* Cosenza* Parks*
------------------ --------- --------- ---------
|| || || ||
=================================================================================================================
|| || || || ||
---------- ---------- ---------- ---------- ||
Inland Inland Inland Inland ||
Northwest Southwest Western Pacific -----------------------
Management Management Management Management THE INLAND GROUP, INC.*
Corp. Corp. Corp. Corp. -----------------------
---------- ---------- ---------- ---------- ||
|| || || || ||
============================================== ==========================================================================
|| || || || ||
|| || || || ||
--------------------------------------------------- ------------------- ----------------------------- ------------------- ||
Inland Holdco Management LLC The Inland Services Inland Real The Inland Real ||
Group, Inc. Estate Investment Corporation Estate Transactions ||
(our sponsor) Group, Inc. ||
--------------------------------------------------- ------------------- ----------------------------- ------------------- ||
| | | || || || ||
| | | || || || ||
---------- ---------------- -------------- || || || ||
Inland US Inland Southwest Inland Pacific || || || ||
Management Property Property --------------- || || ||
LLC Management Management Inland Risk and || || ||
(property LLC LLC Insurance || || ||
manager) (property (property Management || || ||
manager) manager) Services, Inc. || || ||
---------- ---------------- -------------- --------------- || || ||
| | | | || || ||
| | | | || || ||
--------------------------------------------------- | || || ||
| | || || ||
| | || || ||
| ---------------------------------------------------------- || || ||
| | || || ||
| | || || ||
| | ======================================================== || ||
| | || || || || ||
| | || || || || ||
| | ----------------- ------------------------------ ------------------ || ----------------------
| | Inland Securities Inland Western Retail Real Inland Partnership || Inland Mortgage
| | Corporation Estate Advisory Services, Inc. Property Sales || Investment Corporation
| | (our business manager/advisor) Corporation ||
| | ----------------- ------------------------------ ------------------ || ----------------------
| | | | || ||
| | | | ======================================== ============
| | | | || || || || ||
| | | | || ----------- || || -----------
| ------------ | | ----------- Inland Real ------------------ ----------- Inland
| Insurance | | Inland Real Estate Inland Real Inland Mortgage
| Services | | Estate Development Estate Mortgage Servicing
| ------------ | | Sales, Inc. Corporation Acquisitions, Inc. Corporation Corporation
| | | | ----------- ----------- ------------------ ----------- -----------
| | | | | | | | |
| | | | -------------- | | | |
| | | | Real Estate | | | |
----------------------- | | | Sales Services | | | |
Property Management and | | | -------------- | | | |
Related 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
-----------------------------------------------------------------------------------------------------------------------------------
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 business manager/advisor and their affiliates. All of our
agreements and arrangements with our business manager/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 business manager/advisor and its affiliates, and the limitations on our
business manager/advisor adopted to address these conflicts, are described
below. Our business manager/advisor and its affiliates will try to balance our
interests with their own. However, to the extent that our business
manager/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
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. 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.
In order to address this situation, we have an agreement with our business
manager/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
business manager/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 RETAIL 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. We have acquired and will continue to
acquire properties east of the Mississippi River. However, if any conflicts do
arise, they will be resolved as provided in the agreement with our business
manager/advisor discussed above.
36
All actions taken by our business manager/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
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. 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.
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 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.
37
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. 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 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.
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. Before this date, we need the consent of the business manager/advisor and
the property managers to exercise this right. Our decision to exercise this
right will be determined by a vote of a majority of our disinterested directors.
Our business manager/advisor and our property managers 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 business manager/advisor and/or the property
managers for services rendered through the closing of such acquisitions.
38
WE DO NOT HAVE ARM'S-LENGTH AGREEMENTS. 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, but we believe these agreements and arrangements approximate the
terms of arm's length transactions.
39
COMPENSATION TABLE
The compensation arrangements between us and our business manager/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 business manager/advisor and its affiliates.
In those instances in which there are maximum amounts or ceilings on the
compensation which may be received, our business manager/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 business manager/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 business
manager/advisor is allowed.
NONSUBORDINATED PAYMENTS
The following aggregate amounts of compensation, allowances and fees we may
pay to our business manager/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 AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------------ ------------------------------------------------- --------------------------------
OFFERING STAGE
Selling commissions payable to We will pay a selling commission of 7.5% of Through September 30, 2004,
the managing dealer and dealers the sale price for each share (and reallow we have incurred $135,587,028
designated by the managing 7%), subject to reduction for special sales in selling commissions in
dealers referred to as soliciting under the circumstances as described in the connection with our initial
dealers. "Plan of Distribution - Compensation - We Will public offering. We intend
Pay For the Sale of Our Shares." to sell 250,000,000 shares of
our common stock at $10.00
We will permit the managing dealer and its per share in our initial
respective officers and employees and certain public offering. The actual
of its affiliates to purchase shares net of amount we will incur in this
sales commissions and the marketing allowance offering depends upon the
and due diligence expense allowance or for amount of shares sold. A
$8.95 per share; however, any subsequent total of $187,500,000 in
purchases of shares by any such persons are selling commissions will be
limited to a maximum discount of 5%. paid if the maximum offering
is sold and there are no
special sales.
40
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------------ ------------------------------------------------- --------------------------------
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%.
Marketing allowance and due We will pay an amount equal to 2.5% of the Through September 30, 2004,
diligence expense allowance paid gross offering proceeds to the managing we have incurred $16,811,558
to the managing dealer and dealer, all or a portion of which may be in marketing allowance and
soliciting dealers. passed on to soliciting dealers, in lieu of due diligence expense
reimbursement of specific expenses associated allowance in connection with
with marketing. We may pay an additional our initial public offering.
0.5% of the gross offering proceeds to the The actual amount of
managing dealer, which may be passed on to marketing allowance and due
the soliciting dealers, for due diligence diligence expense allowance
expenses. We will not pay the marketing in connection with this
allowance and due diligence expense allowance offering will depend on the
in connection with any special sales, except number of shares sold. If
those receiving volume discounts and those there are no special sales
described in "Plan of Distribution - Volume and we sell the maximum
Discounts." number of shares offered,
approximately $75,000,000
will be paid for the
marketing allowance and the
due diligence expense
allowance.
41
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------------ ------------------------------------------------- --------------------------------
Reimbursable expenses and other We expect to incur the following expenses in All amounts other than the
expenses of issuance and connection with this offering: Securities and Exchange
distribution Commission registration fee
Securities and Exchange Commission and the NASD filing fee are
registration estimates. The actual
amounts of these expenses
Fee $ 340,823 cannot be determined at the
present time. We estimate
NASD filing fee $ 30,500 the total amount of the
Printing and mailing issuance and distribution
expenses $ 4,250,000 expenses to be approximately
$13,307,323. Through
Blue Sky fees and September 30, 2004, we have
expenses $ 136,000 incurred $969,524 of
reimbursable expenses to our
Legal fees and expenses $ 900,000 business manager/advisor in
Accounting fees and connection with our initial
expenses $ 650,000 public offering. In
addition, as of December 31,
Advertising and sales 2003, our business
literature $ 5,500,000 manager/advisor had advanced
an aggregate of approximately
Transfer Agent fees $ 800,000 $1,763,306 for the payment of
offering expenses to
Data processing fees $ 500,000 non-affiliated third parties
in connection with our
Bank fees and other initial public offering, all
administrative expenses $ 200,000 of which has been repaid.
If the aggregate of all offering expenses, Our sponsor has not advanced
including selling commissions, the marketing any reimbursable expenses in
allowance and due diligence expense allowance, connection with this
exceeds 15% of the gross offering proceeds, of offering. We may reimburse
if the aggregate of all offering expenses, up to $13,307,323 for
excluding the selling expenses, exceeds 5.5% offering expenses advanced if
of the gross offering proceeds, our business we sell the maximum number of
manager/advisor or its affiliates will shares offered in this
promptly pay the excess and we will have no offering.
liability for these expenses at any time
afterward. If this offering is not
successful, then our sponsor
will be solely responsible
for the offering expenses to
the extent it has not been
reimbursed.
42
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------------ ------------------------------------------------- --------------------------------
Acquisition expenses paid to our We will pay an amount, estimated to be up to We may pay no more than
business manager/advisor's 0.5% of the total of (1) the gross offering $13,450,000 for the
affiliates, Inland Real Estate proceeds from the sale of 250,000,000 shares, reimbursement of acquisition
Acquisitions, Inc. and The Inland (2) the gross proceeds from the sale of up to expenses if the maximum
Real Estate Group, Inc. 20,000,000 shares pursuant to the distribution number of shares are sold and
reinvestment programs. The acquisition all of the 20,000,000 shares
expenses for any particular property will not are sold pursuant to the
exceed 6% of the gross purchase price of the distribution reinvestment
property. program.
However, if we request additional services, However, the actual amounts
the compensation will be provided on separate cannot be determined at the
agreed-upon terms and the rate will be present time.
approved by a majority of disinterested
directors, 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 business The actual amounts are
business manager/advisor and manager/advisor and its affiliates in order to dependent on actual
Inland Mortgage Corporation in acquire properties. In such instances, we borrowings. Therefore, these
connection with loans. will pay our business manager/advisor and its amounts cannot be determined
affiliates interest at prevailing market rates. at the present time.
OPERATIONAL STAGE
Property management fee paid to We will pay a monthly fee of 4.5% of the gross For the year ended December
our property managers, Inland US income from the properties. We will also pay 31, 2003, and the nine months
Management LLC, Inland Southwest a monthly fee for any extra services equal to ended September 30, 2004 we
Management LLC and Inland Pacific no more than 90% of that which would be have incurred and paid
Management LLC. We will pay the payable to an unrelated party providing the property management fees of
fee for services in connection services. The property managers may $16,627 and $2,847,427, of
with the rental, leasing, subcontract their duties for a fee that may be which 16,627 and $2,847,427
operation and management of the less than the fee provided for in the were retained by Inland US
properties. management services agreements. Management LLC, Inland
Southwest Management LLC and
Inland Pacific Management
LLC. If we 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.
43
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------------ ------------------------------------------------- --------------------------------
Reimbursable expenses to our We will reimburse some expenses of the The actual amounts are
business manager/advisor. These business manager/advisor. The compensation dependent upon results of
may include costs of goods and and reimbursements to our business operations and, therefore,
services, administrative manager/advisor will be approved by a cannot be determined at the
services and non-supervisory majority of our directors and a majority of present time.
services performed directly for our independent directors as fair and
us by independent parties. reasonable for us.
We will reimburse some expenses Inland Risk and Insurance Management Services The actual amounts are
of the Inland Risk and Insurance charges us $50 per hour for assistance in dependent upon results of
Management Services for obtaining insurance coverage. Any commissions operations and, therefore,
insurance coverage. they receive are credited against this cannot be determined at the
hourly rate. We believe this hourly present time.
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 For the year ended December
Mortgage Servicing Corporation us .03% per year on the first billion dollars 31, 2003, and the nine
and Inland Mortgage Investment of mortgages serviced and .01% thereafter. months ended September 30,
Corporation for purchase, sale Inland Mortgage Investment Corporation charges 2004 we have incurred and
and servicing of mortgages us .02% of the principal amount of each loan paid $328 and $63,978 to
placed. The compensation to these companies Inland Mortgage Servicing
will be approved by a majority of our Corporation. For the year
directors and a majority of our independent ended December 31, 2003, and
directors as fair and reasonable for us. the nine months ended
September 30, 2004 we have
incurred and paid $59,523
and $2,241,986 to Inland
Mortgage Investment
Corporation. The actual
amounts we will incur in the
future are dependent upon
results of operations and
cannot be determined at the
present time.
44
LIQUIDATION STAGE
Property disposition fee payable We may pay a property disposition fee to our The actual amounts to be
to our business manager/advisor's business manager/advisor and its affiliates if received depend upon the sale
affiliates, Inland Real Estate we sell any of our real property in an amount price of our properties and,
Sales, Inc. and Inland equal to the lesser of: therefore, cannot be
Partnership Property Sales Corp. determined at the present
1. 3% of the contract sales price of the time. If we acquire the
property; or business manager/advisor, the
property disposition fee will
2. 50% of the customary commission which cease.
would be 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 business manager/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 business manager/advisor
after returns on net investment have been paid to the stockholders:
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM DOLLAR
RECIPIENT METHOD OF COMPENSATION AMOUNT
---------------------------------------------------------------------------------------------------------------------------
OPERATIONAL STAGE
Advisor asset management fee We pay an annual advisor asset management fee The actual amounts to be
payable to our business of not more than 1% of our average assets. Our received depend upon the sale
manager/advisor. average assets means the average of the total price of our properties and,
book value including acquired intangibles of therefore, cannot be
our real estate assets plus the total value of determined at the present
our loans receivables secured by real estate, time. If we acquire the
before reserves for depreciation or bad debts business manager/advisor, the
or other similar non-cash reserves. We will advisor asset management fee
compute our average assets by taking the will cease.
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 business
manager/advisor must reimburse us for the
following amounts if any:
45
(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.
Incentive advisory fee payable We will pay to the business manager/advisor an The actual amounts to be
to our business manager/advisor. amount equal to 15% of the net proceeds from received depend upon the sale
the sale of a property after the stockholders price of our properties and,
have first received: therefore, cannot be
determined at the present
(1) a cumulative non-compounded return equal time. If we acquire or
to 10% a year on their net investment; and consolidate with the business
conducted by our business
manager/advisor, the
(2) their net investment. incentive advisory fee will
terminate.
46
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 We will pay the five independent
an annual fee of $5,000 directors $25,000 in the aggregate
(increased to $10,000 (increased to $50,000 effective
effective October 1, 2004) October 1, 2004), plus fees for
and a fee of $500 for attending meetings. As of September
attending each meeting of the 30, 2004 our five independent
board or one of its directors were paid fees in the
committees in person and $350 aggregate of $105,550. The actual
for attending a meeting via amounts to be received for future
the telephone. Our officers meetings depends upon the number of
who are also our directors do meetings and their attendance and,
not receive director fees. therefore, cannot be determined at the
present time.
Stock options to independent Each independent director This form of compensation is not paid
directors receives in cash.
- 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."
47
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. The amounts assume:
- 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 this scenario we have not given effect to any special sales or volume
discounts which could reduce selling commissions.
MAXIMUM OFFERING
(INCLUDING SHARES SOLD UNDER THE
DISTRIBUTION REINVESTMENT PROGRAM)
-----------------------------------
AMOUNT PERCENT
---------------- ----------------
Gross proceeds ....................................................... $ 2,690,000,000 100.00%
---------------- ----------------
Less expenses:
Selling commissions ............................................. 187,500,000 6.97%
Marketing allowance ............................................. 62,500,000 2.32%
Due diligence expense allowance ................................. 12,500,000 0.46%
---------------- ----------------
Organization and offering ....................................... 13,307,000 0.50%
---------------- ----------------
Total expenses .................................................. 275,807,000 10.26%
---------------- ----------------
Gross amount available ............................................... 2,414,193,000 89.74%
Less:
Acquisition expenses ............................................ 13,450,000 0.50%
Working capital reserve ......................................... 26,900,000 1.00%
---------------- ----------------
Net cash available ................................................... $ 2,373,843,000 88.24%
================ ================
We will pay the managing dealer cash selling commissions of up to 7.5% on
all of the 250,000,000 shares of common stock sold on a best efforts basis. No
selling commission is paid on shares sold through our distribution reinvestment
program.
48
PRIOR PERFORMANCE OF OUR AFFILIATES
PRIOR INVESTMENT PROGRAMS
During the 10-year period ending September 30, 2004, The Inland Group and
its affiliates have sponsored two other REITs and 30 real estate exchange
private placements, which altogether have raised more than $3,132,378,000 from
over 73,000 investors. During that period, Inland Real Estate Corporation and
Inland Retail Real Estate Trust, Inc., the other REITs, have raised over
$2,980,790,000 from over 73,000 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 prospectus 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 September 30, 2004,
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 this 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.
49
INLAND RETAIL INLAND REAL
REAL ESTATE INLAND REAL ESTATE ESTATE
TRUST, INC. CORPORATION EXCHANGE PRIVATE
REIT REIT PLACEMENT
PROGRAM AS OF PROGRAM AS OF OFFERINGS AS OF
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2004 2004
--------------------------------------------------------------
Number of programs sponsored 1 1 30
Aggregate amount raised from investors $ 2,279,622,000 701,168,000 151,588,000
Approximate aggregate number of
investors 59,000 14,000 386
Number of properties purchased 274 148 30
Aggregate cost of properties $ 4,053,516,000 1,276,000,000 294,864,000
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% 44.82%
Single-user net-lease 10.00% 14.00% 9.10%
Nursing homes 0.00% 0.00% 0.00%
Offices 0.00% 0.00% 30.22%
Industrial 0.00% 0.00% 15.86%
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 September 30, 2004, Inland Real Estate
Corporation purchased 26 commercial properties and Inland Retail Real Estate
Trust, Inc. purchased 249 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 prospectus. The table provides more
information about these acquisitions.
50
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 September 30,
2004, Inland Real Estate Corporation issued 14,293,208 shares of common stock
through its distribution reinvestment program. As of September 30, 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
approximately $701,168,000 as of September 30, 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 September 30, 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 September 30, 2004, Inland Real Estate Corporation owned interests in
139 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 September 30,
2004, Inland Real Estate Corporation financed approximately $641,370,000 on its
properties and had $110,000,000 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 September 30, 2004, Inland Retail Real Estate Trust, Inc. issued
18,653,894 shares through its distribution reinvestment program, and has
repurchased a total of 3,087,940 shares through the share reinvestment program.
As a result, Inland Retail Real Estate Trust Inc. has realized total gross
offering proceeds of approximately $2,279,622,000 as of September 30, 2004.
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 September 30, 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.
51
As of September 30, 2004, Inland Retail Real Estate Trust, Inc. owned 274
properties for a total investment of approximately $4,053,516,000. These
properties were purchased with proceeds received from the above described
offerings of shares of its common stock and financings. As of September 30,
2004, Inland Retail Real Estate Trust, Inc. financed approximately
$2,208,835,000 on its properties.
52
The following table summarizes distributions for each of the publicly registered
REITS through September 30,2004:
REIT PERFORMANCE
Distributions through September 30, 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 $11 per
Distribution Income Distribution Distribution Share Share
($) ($) * ($) ** ($) *** ($) ($)
---------------------------------------------------------------------------------------------------
1995 736,627 694,213 42,414 - 7.6 N/A
1996 3,704,943 3,093,525 611,418 - 8.1 N/A
1997 13,127,597 9,739,233 3,388,364 - 8.6 N/A
1998 35,443,213 27,015,143 8,428,070 - 8.8 7.9
1999 48,379,621 35,640,732 12,738,889 - 8.9 8.0
2000 52,964,010 40,445,730 12,518,280 - 9.0 8.1
2001 58,791,604 45,754,604 12,662,414 374,586 9.3 8.4
2002 60,090,685 41,579,944 18,315,640 195,101 9.4 8.5
2003 61,165,608 47,254,096 13,577,679 333,833 9.4 8.6
2004 40,734,316 40,734,316 * - 9.4 8.6
--------------------------------------------------------------------
381,138,224 297,951,536 82,283,168 903,520
====================================================================
INLAND RETAIL REAL ESTATE TRUST, INC.
OFFERING COMPLETED 2003
--------------------------------------------------------------
Average
Total Ordinary Non-taxable Annualized
Distribution Income Distribution Distribution
($) ($) * ($) ** (%)
--------------------------------------------------------------
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 141,029,478 141,029,478 * 8.3
-----------------------------------------------
384,945,437 289,457,308 95,488,129
===============================================
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.
53
PRIVATE PARTNERSHIPS
Since our inception and through September 30, 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 September 30, 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.
54
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 September 30, 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 September 30, 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 September 30,
2004, IREX offered the sale of thirty properties with a total property value of
$363,006,000.
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 beneficial interests in the trust to
certain qualified persons in need of replacement properties to complete a
55
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.
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
56
$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.
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 &
57
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 were required by the lender. In September 2003, certain
information in the offering was amended and
58
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 in debt assumption and
$4,300,000 in equity investment, a minimum of 1% of which is required by the
59
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
was $3,900,000 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, $3,900,000000 consisted of $1,793,630 in
debt assumption 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. 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
60
the undivided tenant in common interests in the real estate and improvements
thereon located at 10920-10948 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.
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. 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 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. 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.
PORT RICHEY 1031, L.L.C. Port Richey 1031, L.L.C., a Delaware limited
liability company, purchased a multi-tenant retain 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 certain qualified persons
in need of a replacement property to complete a 1031 tax-deferred exchange. The
total price was $3,075,000 in cash plus the assumption of the existing
indebtedness. The total price, $5,975,000, consisted of $2,900,000 in debt
assumption and $3,075 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, $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.
61
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
improvements 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. As of September 30, 2004 there were no investors.
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 $5,330,000 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.
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
improvements 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.
BEST BUY STORE, REYNOLDSBURG, OHIO. Reynoldsburg 1031, L.L.C., a Delaware
limited liability company, purchased 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. 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 a property reserve account and $795,000 of
estimated costs and expenses.
62
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 Office 1031 Shopping Celebration
of 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%
11.25%-
Total Load(4) 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%
Property Management Paid by
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
------------------------------------------------------------------------------------
Up to Up to Up to Up to
Commissions & Fees(1) Up to 8.0% 8.77% 9.19% 5.27% 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
63
Davenport White
Fleet Deere Settlement
Office Distribution Grand Macon Road Plainfield
Building Facility Chute Office Investment Marketplace
1031 LLC 1031 LLC DST DST LLC 1031 LLC
------------------------------------------------------------------------------------
Up to Up to Up to Up to Up to Up to
Commissions & Fees(1) 8.52% 8.42% 8.82% 8.52% 8.52% 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 N/A N/A N/A N/A N/A
Pier 1 Cross BJ's
Retail Bed, Bath & Creek Shopping
Center Long Run Forestville Beyond Commons Center
1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC
------------------------------------------------------------------------------------
Up to Up to Up to Up to
Commissions & Fees(1) 8.73% Up to 8.37% 8.40% Up to 8.70% 8.64% 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) 8.28% 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 N/A N/A N/A N/A N/A N/A
64
Barnes & Best Buy
Noble Walgreens Kraft Cold Huntington Store
Retail Store Storage Square Reynolds-
Center Port Richey Hobart Facility Plaza burg
1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC
------------------------------------------------------------------------------------
Up to Up to Up to Up to Up to
Commissions & Fees(1) 8.69% Up to 8.4% 9.02% 8.75% 8.02% 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% 0.050%
Marketing Expenses 1.00% 0.93% 1.00% 1.00% 1.00% 1.00%
Offering & Organization 1.19% 1.46% 1.02% 1.25% 0.52% 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% 0.00% 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 N/A N/A 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.
(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 $1,200 monthly.
Termination Fees - (i) MASTER LEASE: 8.333% of the last 12 Months of NOI
less Rent payments for the same 12 months multiplied by the number of months
remaining on the then-current term of the Master Lease and (ii) ASSET & PROPERTY
MANAGEMENT AGREEMENTS: The sum of the current monthly AM & PM fees times the
number of months remaining on the term.
65
The following table summarizes cash distributions to investors for each of
the 1031 Exchange Private Placement Offering Projects through September 30,
2004:
1031 EXCHANGE PERFORMANCE
DISTRIBUTIONS THROUGH SEPTEMBER 30, 2004
Number Offering Offering Distributions 2001 Annual 2002 Annual
of Equity Completed To Date Distribution Distribution
Name of Entity Investors ($) ($) ($) (%) (%)
-------------------------------------------------------------------------------------------------------------------------------
Landings of Sarasota DBT 9 4,000,000 05/2002 887,036 8.00 8.00
Sentry Office Building DBT 7 3,500,000 04/2002 757,374 8.20
Pets Bowie DBT 7 2,600,000 07/2002 523,311 8.89
1031 Chattanooga DBT 9 1,900,000 05/2002 356,946 8.19
Lansing Shopping Center DBT 5 5,000,000 09/2001 854,591 8.47
Inland 220 Celebration Place DBT 35 15,800,000 09/2003 2,141,924 8.08
Taunton Circuit DBT 1 3,750,000 09/2002 600,700 8.22
Broadway Commons DBT 32 8,400,000 12/2003 813,185 8.14
Bell Plaza 1031, LLC 1 890,000 11/2003 218,782 13.53
Inland 210 Celebration Place DBT 1 6,300,000 01/2003 891,228
CompUSA Retail Building, LLC 11 3,950,000 02/2004 307,569
Janesville Deere Distribution Facility 1031,
LLC 35 10,050,000 01/2004 675,167
Fleet Office Building 1031, LLC 30 10,000,000 01/2004 620,754
Davenport Deere Distribution Facility 1031,
LLC 35 15,700,000 04/2004 781,099
Grand Chute DST 29 5,370,000 03/2004 265,163
Macon Office DST 29 6,600,000 03/2004 380,623
White Settlement Road Investment, LLC 1 1,420,000 12/2003 85,467
Plainfield Marketplace 1031, LLC 31 12,475,000 06/2004 184,437
Pier 1 Retail Center 1031, LLC 22 4,300,000 06/2004 105,430
Long Run 1031, LLC 1 4,935,000 05/2004 120,000
Forestville 1031, LLC 1 3,900,000 05/2004 80,525
Bed, Bath & Beyond 1031, LLC 19 6,633,000 * 49,536
Cross Creek Commons 1031, LLC 26 6,930,000 08/2004 119,446
BJ's Shopping Center 1031, LLC 7 8,365,000 * 8,606
Barnes & Noble Retail Center 1031, LLC 1 3,930,000 * 1,507
2003 Annual 2004 Annual
Distribution Distribution
Name of Entity (%) (%)
---------------------------------------------------------------------------
Landings of Sarasota DBT 8.07 8.39
Sentry Office Building DBT 8.73 9.25
Pets Bowie DBT 8.89 9.12
1031 Chattanooga DBT 8.26 8.26
Lansing Shopping Center DBT 8.29 8.96
Inland 220 Celebration Place DBT 8.10 8.10
Taunton Circuit DBT 8.31 8.31
Broadway Commons DBT 8.22 8.26
Bell Plaza 1031, LLC 14.67 16.05
Inland 210 Celebration Place DBT 8.23 8.23
CompUSA Retail Building, LLC 8.05 8.17
Janesville Deere Distribution Facility 1031,
LLC 7.23 7.35
Fleet Office Building 1031, LLC 7.19 7.19
Davenport Deere Distribution Facility 1031,
LLC 7.36 7.36
Grand Chute DST 8.48 8.49
Macon Office DST 8.20 8.20
White Settlement Road Investment, LLC 8.34
Plainfield Marketplace 1031, LLC 7.09
Pier 1 Retail Center 1031, LLC 7.20
Long Run 1031, LLC 9.42
Forestville 1031, LLC 7.55
Bed, Bath & Beyond 1031, LLC 7.58
Cross Creek Commons 1031, LLC 7.30
BJ's Shopping Center 1031, LLC 7.69
Barnes & Noble Retail Center 1031, LLC 6.65
66
Number Offering Offering Distributions 2001 Annual 2002 Annual
of Equity Completed To Date Distribution Distribution
Name of Entity Investors ($) ($) ($) (%) (%)
-------------------------------------------------------------------------------------------------------------------------------
Port Richey 1031 LLC 1 3,075,000 07/2004 -
Walgreen Store Hobart 1031, LLC 0 6,534,000 * -
Kraft Cold Storage Facility 1031, LLC 0 11,000,000 * -
Huntington Square Plaza 1031, LLC 0 39,200,000 * -
Best Buy Store Reynoldsburg 1031, LLC 0 10,345,000 * -
------------- -------------
226,852,000 11,830,406
============= =============
2003 Annual 2004 Annual
Distribution Distribution
Name of Entity (%) (%)
---------------------------------------------------------------------------
Port Richey 1031 LLC 9.24
Walgreen Store Hobart 1031, LLC 5.78
Kraft Cold Storage Facility 1031, LLC 7.00
Huntington Square Plaza 1031, LLC 6.48
Best Buy Store Reynoldsburg 1031, LLC 6.73
* Offering was not complete as of September 30, 2004
67
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 2004 as the 28th largest
privately held company headquartered in the Chicago area. Among the affiliates
of Inland is one of the largest property management firms in Illinois and one of
the largest commercial real estate and mortgage banking firms in the Midwest.
As of September 30, 2004 Inland and its affiliates have more than 1,000
employees, own properties in 42 states, and have managed assets in excess of $10
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 business manager/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 September 30, 2004, our sponsor, Inland Real Estate Investment
Corporation, is the general partner of limited partnerships which own in excess
of 3,455 acres of pre-development land in the Chicago area, as well as
approximately 16.9 million 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 September 30, 2004 Inland Mortgage Corporation has originated more than $7
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 September 30, 2004, Inland Mortgage Investment
Corporation owned an approximately $76 million loan portfolio, and Inland
Mortgage Servicing Corporation serviced a loan portfolio of 558 loans exceeding
$3.7 billion.
The Inland Property Management companies are responsible for collecting
rent, and leasing and maintaining the rental properties they manage.
The Inland Property Management companies managed over 54 million square
feet of commercial properties in 42 states as of September 30, 2004. A
substantial portion of the portfolio, approximately 14.8 million square feet,
consists of properties leased on a triple-net lease basis. A triple-net lease
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. This group also manages more than 11,500 multi-family units
that are principally located in the Chicago area.
Inland US Management LLC, Inland Southwest Management LLC and Inland
Pacific Management 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.
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 over 1,700 properties for over
$10 billion.
Inland Real Estate Development Corporation has handled the design, approval
and entitlement of land parcels which have included in excess of 10,900
residential units, 11.8 million square feet of retail land and 7.6 million
square feet of industrial land. They have been responsible for the land
development of land for over 3,300 of those residential units, 6.7 million
square feet of the retail land and all 7.6 million square feet of the industrial
land. They currently handle an inventory of over 3,000 acres of prime land 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 $380 million in commercial real
estate sales. Inland Real Estate Sales, Inc. has been involved in the sale of
more than 2,500 multi-family units and over 3.5 million square feet of
commercial property.
See also "Prior Performance of our Affiliates" and APPENDIX A - "Prior
Performance Tables" for information concerning over $2.9 billion raised from
over 75,000 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 September 30, 2004, and the prior performance of those
programs. During the last 35 years, more than 100,000 investors were in the
Inland Group's 238 completed programs as of December 8, 2004, with no investor
losses of initial invested capital in any completed equity program.
69
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 60 Chairman, president and director
Robert H. Baum 60 Vice chairman, executive vice president - general
counsel and director
G. Joseph Cosenza 60 Vice chairman and director
Robert D. Parks 60 Director
----------
*As of January 1, 2004
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 is a director of Inland Real Estate Corporation and 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
70
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 and founders. Mr. Cosenza is a
director and vice chairman of The Inland Group and oversees, coordinates and
directs Inland's many enterprises. In addition, Mr. Cosenza immediately
supervises a staff of 19 persons who engage in property acquisition and due
diligence. Mr. Cosenza has been a consultant to other real estate entities and
lending institutions on property appraisal methods. He has directly overseen the
purchase of close to $10.5 billion of income-producing real estate from 1968 to
present.
Mr. Cosenza received his B.A. Degree from Northeastern Illinois University
and his Master's Degree from Northern Illinois University. From 1967 to 1972, he
taught in the LaGrange and Wheeling, Illinois School Districts and he served as
assistant principal and taught in the Wheeling, Illinois School District while
the four schoolteacher partners operated Inland on a part time basis. 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 also has been chairman of the board of American 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 on the board of Inland
Bankcorp, which owns Westbank in Westchester, Hillside and Lombard, Illinois.
Mr. Cosenza has been a director since 1994 to Inland Real Estate Corporation, a
$1.7 billion asset publicly traded REIT and is also a member of the management
committee.
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, a
director of Inland Securities Corporation, and a director of Inland Investment
Advisors, Inc. Mr. Parks is president, chief executive officer and a director of
Inland Real Estate Corporation. He is chairman, chief executive officer and an
affiliated director of Inland Retail Real Estate Trust, Inc., and is our
chairman, chief executive officer, and an affiliated director.
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 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 business manager/advisor is responsible for the day-to-day
management of our affairs and the implementation of the policies of our board.
Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific
Management LLC are responsible for managing, maintaining and leasing the
individual properties.
71
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 of the fees
paid to our affiliates.
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............ 60 Chairman, chief executive officer and affiliated
director
Roberta S. Matlin.......... 59 Vice president -- administration
Scott W. Wilton............ 43 Secretary
Steven P. Grimes........... 37 Treasurer and principal financial officer
Lori J. Foust.............. 39 Principal accounting officer
Brenda G. Gujral........... 61 Affiliated director
Frank A. Catalano, Jr...... 42 Independent director
Kenneth H. Beard........... 64 Independent director
Paul R. Gauvreau........... 64 Independent director
Gerald M. Gorski........... 61 Independent director
Barbara A. Murphy.......... 66 Independent director
----------
*As of January 1, 2004
ROBERTA S. MATLIN has been our vice president of administration since our
formation. Ms. Matlin joined Inland Real Estate Investment Corporation in 1984
as director of investor administration and currently serves as senior vice
president of our sponsor, directing its day-to-day internal operations. Ms.
Matlin is a director of our sponsor, 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. Since 1998, she
has been vice president of administration of Inland Retail Real Estate Trust.
She is president and a director of Inland Investment Advisors, Inc. and
Intervest Southern Real Estate Corporation. She was vice president of
administration of Inland Real Estate Corporation from 1995 until 2000. 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 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.
72
STEVEN P. GRIMES joined our business manager/advisor as its Chief Financial
Officer and became our treasurer and principal financial officer in 2004. He is
responsible for our finances and borrowings. Prior to joining our business
manager/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 and is a Certified Public Accountant. Mr.
Grimes is a member of the American Institute of Certified Public Accountants, or
AICPA, and the Illinois CPA Society.
LORI J. FOUST joined the Inland organization as Vice President of Inland
Western Retail Real Estate Advisory Services, Inc. in 2003. Ms. Foust is also
our principal accounting officer. She is responsible for our financial and SEC
reporting. Prior to joining the Inland organization, Ms. Foust worked in the
field of public accounting and was a senior manager in the real estate division
for Ernst and Young, LLP. She received her B.S. Degree in Accounting and her
M.B.A. Degree from the University of Central Florida. Ms. Foust is a certified
public accountant and a member of the AICPA.
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 business manager/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.
73
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.
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 and 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
74
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.
Our Board has established an audit committee comprised of Messrs. Catalano,
Beard and Gauvreau. Mr. Gauvreau serves as the chair of the Audit Committee and
qualifies as our "financial expert" under the rules of the Securities and
Exchange Commission. These three directors are independent in accordance with
the National Association of Securities Dealers' listing standards and under the
Sarbanes-Oxley Act. The board has adopted a written charter for the audit
committee.
The audit committee is responsible for the engagement of our independent
auditors, reviewing the plans and results of the audit engagement with our
auditors, approving services performed by and the independence of our
independent auditors, considering the range of audit and non-audit fees, and
consulting with our independent auditors regarding the adequacy of our internal
accounting controls.
Although we do not have a standing nominating committee or compensation
committee of the board, the board itself serves in those capacities.
There is no compensation committee. The board has been responsible for all
compensation decisions. As we have no employees, there are no compensation
decisions to be made by the board.
Our board does not currently have a nominating committee. Rather, each
member of our board participates in the process of identifying and considering
individuals for board membership. Our board believes its current process is
effective since the current members of the board are seasoned executives from a
variety of backgrounds. Each member of our board satisfies the independence
requirements under the National Association of Securities Dealers' listing
standards and the Sarbanes-Oxley Act, other than Mr. Parks and Mrs. Gujral. The
board will consider for recommendation to the board nominations made by
stockholders that comply with the procedures described in our proxy statement
under the caption "Advance Notice Procedures for Making Director Nominations and
Stockholder Proposals."
Once our board has identified a possible nominee (whether through a
recommendation from a shareholder or otherwise), the independent members of the
board make an initial determination as to whether to conduct a full evaluation
of the candidate. This initial determination is based on the information
provided to the board when the candidate is recommended, the board's own
knowledge of the prospective candidate and information, if any, obtained by the
board's inquiries. The preliminary determination is based primarily on the need
for additional board members to fill vacancies, expand the size of the board or
obtain representation in market areas without board representation and the
likelihood that the candidate can satisfy the evaluation factors described
below. If the independent members of the board determine that additional
consideration is warranted, it may gather additional information about the
candidate's background and experience. The independent members of the board then
evaluate the prospective nominee against the following standards and
qualifications:
- achievement, experience and independence;
- wisdom, integrity and judgment;
75
- understanding of the business environment; and
- willingness to devote adequate time to Board duties.
The independent members of the board also consider such other relevant
factors as they deem appropriate, including the current composition of the
board, the need for audit committee or other expertise and the evaluations of
other candidates. In connection with this evaluation, the independent members of
the board determine whether to interview the candidate. If the independent
members of the board decide that an interview is warranted, one or more of those
members, and others as appropriate, interviews the candidate in person or by
telephone. After completing this evaluation and interview, the independent
members of the board make a recommendation to the full board as to the persons
who should be nominated by the board, and the board determines the nominees
after considering the recommendation and report of the independent members of
the board.
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 business manager/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 (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 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.
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.
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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 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
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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;
- 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 BUSINESS MANAGER/ADVISOR
Our business manager/advisor, Inland Western Retail Real Estate Advisory
Services, Inc., is an Illinois corporation and a wholly owned subsidiary of our
sponsor. Our business manager/advisor 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.
The following table sets forth information regarding the executive officers
and directors of our business manager/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 biographies of Mr. Grimes, Ms. Foust and Mr. Wilton are set
forth under "-- Our Directors and Executive Officers."
POSITION AND OFFICE WITH OUR BUSINESS
NAME AGE MANAGER/ADVISOR
---- ---- ----------------------------------------
Daniel L. Goodwin.......................... 60 Director
Robert D. Parks............................ 60 Director and president
G. Joseph Cosenza.......................... 60 Director
Steven P. Grimes........................... 37 Chief financial officer
Brenda G. Gujral........................... 61 Vice president
Lori J. Foust.............................. 39 Vice president and controller
Scott W. Wilton............................ 43 Secretary
Debra J. Randall........................... 48 Assistant vice president and assistant
controller
----------
*As of January 1, 2004
DEBRA J. RANDALL joined our business manager/advisor as assistant vice
president on January 30, 2004. Ms. Randall is responsible for our financial and
SEC reporting. Prior to joining the business manager/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
78
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.
OUR ADVISORY AGREEMENT
DUTIES OF OUR BUSINESS MANAGER/ADVISOR. Under the terms of our advisory
agreement, our business manager/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 business manager/advisor is subject to the supervision of its board and
has only such functions as are delegated to it by its board.
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 business
manager/advisor, as the case may be, upon 60 days' written notice. If the
advisory agreement is terminated, the business manager/advisor must cooperate
with us and take all reasonable steps requested by our board to assist it in
making an orderly transition of the business management/advisory function. Our
board shall determine that any successor business manager/advisor possesses
sufficient qualifications to perform the business management/advisory function
for us and justify the compensation provided for in its contract with us.
COMPENSATION TO BUSINESS MANAGER/ADVISOR. The advisory agreement provides
for the business manager/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 business manager/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 business manager/advisor and the independent
directors.
The business manager/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;
79
- telephone;
- equipment expenses to the extent they relate to the office maintained
by both us and the business manager/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 business
manager/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 business manager/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 BUSINESS MANAGER/ADVISOR. For any year in which we qualify
as a REIT, our business manager/advisor must reimburse us for the amounts, if
any:
- 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 business manager/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 business manager/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 BUSINESS MANAGER/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
business manager/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
business manager/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
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business manager/advisor and property managers. After September 15, 2008, we
could acquire these companies in a business combination without their consent.
If the businesses conducted by the business manager/advisor and/or a
property manager are acquired by or consolidated into us, the business
manager/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 business manager/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 business manager/advisor
and/or the property manager, as the case may be, of our election to
proceed with such a transaction.
- Next, the net income of the business manager/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 business manager/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 net income in accordance with generally
accepted accounting principles, excluding gains or losses from sales of
properties, plus depreciation on real property and amortization, and after
adjustments for unconsolidated partnerships and joint ventures in which we hold
an interest.
The resulting quotient will constitute the number of shares to be issued by
us to the business manager/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 must 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 business manager/advisor, then all obligations of the
business manager/advisor and its affiliates to offer properties to us will also
terminate.
LIABILITY AND INDEMNIFICATION OF BUSINESS MANAGER/ADVISOR. Under the
advisory agreement, we are required to indemnify the business manager/advisor
and to pay or reimburse reasonable expenses in advance of final disposition of a
proceeding with respect to the business manager/advisor's acts or omissions.
However, this is only a requirement so long as:
81
- the business manager/advisor determined in good faith that the course
of conduct which caused a loss or liability was in our best interest;
- the business manager/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 business manager/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;
- 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.
Although Inland Retail Real Estate Trust, Inc. is no longer offering its
securities, it 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 primarily 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 MANAGERS AND THE MANAGEMENT AGREEMENTS
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 limited liability companies
owned by a Delaware limited liability holding company, which in turn is owned by
a Delaware corporation 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 manager 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.
82
Our property managers, Inland US Management LLC, Inland Southwest
Management LLC and Inland Pacific Management LLC, conduct their activities
within states where they manager our properties. The principal executive office
of the holding company, Inland HOLDCO Management LLC, is located at 2907
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 managers of Inland HOLDCO Management LLC.
POSITION AND OFFICE
WITH INLAND HOLDCO
NAME AGE* MANAGEMENT LLC
---- ---- --------------
Thomas P. McGuinness 47 President and manager
Robert M. Barg 50 Senior vice president/treasurer, secretary
and manager
James H. Neubauer 62 Senior vice president
Linda Centanni 49 Vice president
Elizabeth D. McNeely 49 Vice president
Frank Natanek 36 Vice president
Ulana B. Horawelskyj 57 Manager
Alan F. Kremin 57 Manager
Frances c. Panico 54 Manager
----------
*As of January 1, 2004
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 CPA
Society.
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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 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, 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
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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 and
resolution process. Ms. Panico received her BA Degree in Business 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 47 President and manager
Robert M. Barg 50 Senior vice president/treasurer, secretary
and manager
Linda Centanni 49 Vice President
Elizabeth D. McNeely 49 Vice President
Frank Natanek 30 Vice President
Lawrence R. Sajdak, Jr. 24 Assistant vice president
Steven Yee 37 Assistant vice president
Anthony A. Casaccio 48 Manager
Alan F. Kremin 57 Manager
Pamela C. Stewart 47 Manager
----------
*As of January 1, 2004
The biographies of Mr. McGuinness, Mr. Barg, Ms. Centanni, Ms. McNeely,
Mr. Natanek and Mr. Kremin are set forth above.
LAWRENCE R. 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 by 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
85
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 Management LLC.
POSITION AND OFFICE
WITH INLAND PACIFIC
NAME AGE* MANAGEMENT LLC
---- ---- --------------
Thomas P. McGuinness 47 President and manager
Robert M. Barg 50 Senior vice president/treasurer, secretary and manager
James H. Neubauer 62 Senior vice president and manager
Linda Centanni 49 Vice President
Elizabeth D. McNeely 49 Vice President
Frank Natanek 30 Vice President
David M. Benjamin 49 Manager
Alan F. Kremin 57 Manager
----------
*As of January 1, 2004
86
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.
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 47 President and manager
Robert M. Barg 50 Senior vice president/treasurer, secretary and
manager
James H. Neubauer 62 Senior vice president
Linda Centanni 49 Vice President
Elizabeth D. McNeely 49 Vice President
Frank Natanek 30 Vice President
Alan F. Kremin 57 Manager
Ulana B. Horalewskyj 57 Manager
Frances C. Panico 54 Manager
----------
*As of January 1, 2004
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
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 not 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 is 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.
87
POSITION AND OFFICE
NAME AGE* WITH OUR MANAGING DEALER
---- ---- ------------------------
Brenda G. Gujral.................... 61 President, chief operating officer and director
Roberta S. Matlin................... 59 Vice president and director
Catherine L. Lynch.................. 45 Treasurer, secretary and director
Robert D. Parks..................... 60 Director
Brian Conlon........................ 45 Executive vice president
R. Martel Day....................... 54 Executive vice president - national sales and
marketing
Fred C. Fisher...................... 59 Senior vice president
David Bassitt....................... 61 Senior vice president
John Cunningham..................... 45 Senior vice president
Tomas Giardino...................... 29 Vice president
Curtis Shoch........................ 31 Vice president
Shawn Vaughan....................... 32 Vice president
Mark Lavery......................... 28 Vice president
Ralph Rudolph....................... 40 Vice president
Robert J. Babcock................... 28 Vice president
Frank V. Pinelli.................... 57 Vice president
Matthew Podolsky.................... 32 Vice president
Darrell Rau......................... 48 Vice president
Jeffrey S. Hertz.................... 30 Vice president
Carl Pikus.......................... 37 Vice president
Nathan Rachels...................... 29 Vice president
Michele Sorce....................... 39 Assistant vice president and controller
----------
*As of January 1, 2004
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 Inland Securities Corporation 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.
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 and national sales director for
Inland Securities Corporation, and he is responsible for the sale of Inland's
investment products nationwide. Mr. Day joined
88
Inland 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 graduated with an Engineering degree from the Georgia Institute of
Technology. He is a member of the board of directors of the Investment Program
Association (IPA), a member of the Financial Planning Association (FPA), and the
National Association of Real Estate Investment Trusts (NAREIT). He holds General
Securities and Registered Investment Advisor licenses with the National
Association of Securities Dealers, Inc.
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
89
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.
ROBERT J. BABCOCK 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 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 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 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.
JEFFREY S. HERTZ 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 B.A. in psychology. He holds Series 7, 63 and 65
licenses with the National Association of Securities Dealers, Inc.
CARL PIKUS 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
90
to joining Inland, Mr. Pikus was a Midwest sales manager for Ultimus, a software
company, managing existing clients and establishing new accounts. He has worked
in the same capacity for other IT companies. Mr. Pikus is a University of
Wisconsin graduate.
NATHAN RACHELS joined Inland Securities Corporation as vice president in
September 2004. Prior to joining Inland 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
successful planning firm and then was an account manager at Deutsche Bank.
He graduated from the University of Alabama with double majors in Public
Relations and Business. Mr. Rachels holds Series 7 and 63 licenses with National
Association of Securities Dealers.
MICHELE SORCE joined Inland Securities as assistant vice president and
controller in November 2003. Michele started her career with Inland almost 19
years ago. She served as controller for Inland Commercial, Residential and Real
Estate Auction companies. She received a B.S. 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.
91
LIMITATION OF LIABILITY AND INDEMNIFICATION OF
DIRECTORS, OFFICERS AND OUR BUSINESS MANAGER/ADVISOR
The laws that we are subject to and our articles of incorporation provide
that our business manager/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 business
manager/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 ordinarily
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.
Maryland law provides that a corporation may indemnify any director,
officer, employee or agent, unless it is established that:
- the act or omission of the person was material to the matter giving
rise to the proceeding, and
- was committed in bad faith, or
- was the result of active and deliberate dishonesty;
- the person actually received an improper personal benefit in money,
property or services; or
- in the case of any criminal proceeding, the person had reasonable
cause to believe the act or omission was unlawful.
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 business manager/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 business manager/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
92
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 business manager/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;
- 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 business manager/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 or bylaws. 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. We have not purchased insurance
on behalf of any person but we intend to do so in the future.
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
93
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 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.
94
PRINCIPAL STOCKHOLDERS
The following table provides information as of December 7, 2004 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 December 7, 2004, no stockholder beneficially owned more than 5%
of our outstanding shares. As of December 7, 2004, we had approximately 56,000
stockholders of record and approximately 199,433,713 shares of common stock
outstanding. 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 98,100.9094 (1) *
Roberta S. Matlin 176.8117 *
Scott W. Wilton 0 0
Steven P. Grimes 0 0
Lori A. Foust 0 0
Brenda G. Gujral 0 0
Frank A. Catalano, Jr. 2,000 (2) *
Kenneth H. Beard 2,000 (2) *
Paul R. Gauvreau 113,731.8436 (2) *
Gerald M. Gorski 4,002.0800 (2) *
Barbara A. Murphy 2,000 (2) *
All directors and executive officers as a
group (12 persons) 222,011.6447 (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 2,000 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.
95
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
business manager/advisor contributed $200,000 to us for 20,000 shares of our
common stock to form us. Our business manager/advisor has agreed to not sell
their initial investment while the business manager/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 rendered by our affiliates to us, as well as our organizational
structure.
Prior to this offering, if all of the 250,000,000 shares from our first
offering are sold, the business manager/advisor's 20,000 shares represent .008%
of the outstanding shares. If all of the 250,000,000 shares from our first
offering are sold for gross offering proceeds of $2,500,000,000 and if all of
the 250,000,000 of the shares offered by this prospectus are sold for gross
offering proceeds of $2,500,000,000 as set forth on the cover page of this
prospectus, assuming no other shares are issued or sold, the business
manager/advisor's 20,000 shares will then represent only .004% of the
outstanding shares.
We have formed entities to acquire each of the properties currently owned
by us. We may form entities to acquire additional properties. They will be owned
or controlled directly or indirectly by us. In the case of the properties
currently owned by us, the entities that own our properties are all directly or
indirectly owned by us.
Robert D. Parks, Brenda G. Gujral, Roberta S. Matlin, Daniel L. Goodwin,
Steven P. Grimes and Lori J. Foust are considered our promoters. Mr. Parks is
our chairman and a director. Ms. Gujral is a director. Ms. Matlin is our vice
president. Mr. Grimes is our Principal Financial Officer and Ms. Foust is our
Principal Accounting Officer. None of our promoters are employed by us. Other
than Mr. Parks and Ms. Gujral, Ms. Matlin, Mr. Grimes and Ms. Foust, none of our
promoters are officers or directors of us.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
96
SELECTED FINANCIAL DATA
The following table sets forth selected financial information about us, and
should be read in conjunction with the "Management's Discussion and Analysis of
Our Consolidated Financial Condition and Results of Operation" and the Financial
Statements and related notes included elsewhere in this prospectus.
The following net income (loss) and distributions per share basic and
diluted are based upon the weighted average number of common shares outstanding
for the period. For the period from March 5, 2003 (inception) to December 31,
2003 the distributions per common share are based upon the weighted average
number of common shares outstanding for the period from October 2, 2003 (first
day shares were sold to the public) to December 31, 2003. For the period from
March 5, 2003 (inception) to December 31, 2003, $357,790 (or 100% of the
distributions paid for 2003) represented a return of capital due to the tax loss
in 2003.
PERIOD FROM PERIOD FROM
MARCH 5, 2003 MARCH 5, 2003
FOR THE NINE (INCEPTION) (INCEPTION)
MONTHS ENDED THROUGH THROUGH
30-SEPT-04 30-SEPT-03 31-DEC-03
--------------------- --------------- -----------------
Total assets................................ $ 2,672,152,034 1,584,105 212,102,163
Mortgages payable........................... $ 1,141,248,461 0 29,627,000
Total income................................ $ 69,766,533 0 782,281
Net income (loss)........................... $ 4,413,798 (42,544) (173,279)
Net income (loss) per common share,
basic and diluted......................... $ 0.06 (2.13) (0.07)
Distributions declared...................... $ 35,132,000 0 1,285,329
Distributions per weighted average
common share ............................. $ 0.50 0 .15
Funds from operations ...................... $ 29,217,346 0 18,991
Cash flows provided by operating
activities................................ $ 39,961,000 (74,021) 723,501
Cash flows used in investing activities..... $ (2,015,984,000) 0 (133,424,163)
Cash flows provided by financing
activities................................ $ 2,192,056,000 274,021 197,081,796
Weighted average number of common
shares outstanding, basic and diluted..... 70,052,000 20,000 2,520,986
The distributions per common share are based upon the weighted average
number of common shares outstanding for the period from October 2, 2003 (first
day shares were sold to the public) to December 31, 2003.
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 income from continuing
97
operations as determined under Generally Accepted Accounting Principles in the
United States of America or GAAP. Due to certain unique operating
characteristics of real estate companies, the National Association of Real
Estate Investment Trusts or 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 us. As
defined by NAREIT, FFO means net income computed in accordance with GAAP,
excluding gains (or losses) from sales of property, plus depreciation on real
property and amortization, and after adjustments for unconsolidated partnerships
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, our presentation of FFO 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. We believe that FFO is a
better measure of our operating performance because FFO excludes non-cash items
from GAAP net income. This allows us to compare our relative property
performance to determine our return on capital. Management uses the calculation
of FFO for several reasons. We use FFO to compare our performance to that of
other REITs in our peer group. Additionally, we use FFO in conjunction with our
acquisition policy to determine investment capitalization strategy. FFO is
calculated as follows:
PERIOD FROM MARCH 5,
FOR THE NINE MONTHS 2003 (INCEPTION) THROUGH
ENDED 30-SEPTEMBER-04 31-DEC-03
------------------------------- ------------------------------
Net income (loss) $ 4,413,798 $ (173,279)
Depreciation and amortization
related to investment properties 24,803,548 192,270
------------------------------- ------------------------------
Funds from operations (1) $ 29,217,346 $ 18,991
=============================== ==============================
(1) FFO does not represent cash generated from operating activities calculated
in accordance with GAAP and is not necessarily indicative of cash available
to fund cash needs. FFO should not be considered as an alternative to net
income as an indicator of our operating performance or as an alternative to
cash flow as a measure of liquidity.
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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.
At the March 19, 2004 regularly scheduled board meeting, the board
unanimously approved a resolution to delegate to our management committee, which
includes our chief executive officer, principal financial officer, principal
accounting officer and secretary, 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.
Our board 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;
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- $.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;
- $.65 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; and
- $.65 per share per annum for the stockholders of record on November
30, 2004, payable on December 10, 2004.
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. We believe that our
real estate will be located primarily 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 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.
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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 business
manager/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;
- 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;
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- 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 business
manager/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, 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 or leasehold 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
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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 business manager/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 business
manager/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, 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 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 business manager/advisor or its
affiliates which makes or invests in mortgage loans. We seek to obtain financing
which will result in the
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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.
Our board 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. The
commitment letter was signed on November 17, 2004, and will have optional
unsecured borrowing capacity of $150,000,000, for a total unsecured borrowing
capacity of $250,000,000. The facility will have an initial term of one year
with two one year extension options, and will replace the current line of credit
on or about December 1, 2004, subject to final documentation. The line of credit
has not yet been executed.
Our board unanimously approved that consistent with our borrowing policies,
we may commit up to the aggregate of $25 million for letters of credit in order
to obtain financing for properties.
Our board 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 general facilities.
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 and to
the extent the notes or other property are actually paid, sold, refinanced or
otherwise disposed.
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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.
Our business manager/advisor has informed our board that it is increasingly
concerned about the potential that mortgage interest rates at which we can
borrow will increase during 2004. Management also believes that mortgage
interest rates we can borrow at will increase during 2005. Our board, including
all of our 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
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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.
An affiliate of our business manager/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.
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.
We may enter into an initial $50 million (which could increase to $100
million) twelve month credit facility with an affiliate of our business
manager/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.
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 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
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 business manager/advisor for our expenses, to the extent
allowable under the advisory agreement,
- pay the business manager/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.
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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.
JOINT VENTURES
We may invest in joint venture arrangements with other public real estate
programs formed by our business manager/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 business manager/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
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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 intend 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 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:
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- 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.
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."
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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 business manager/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 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
distinguished from primarily for capital gain. As a result, many of our recently
acquired 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 River.
We do not intend to invest in real estate properties that are primarily:
110
- farms;
- health care facilities;
- 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 continue focusing 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.
111
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.
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
As of December 7, 2004, our real estate portfolio was comprised of 91
properties containing approximately 16,123,537 square feet of gross leasable
area. The 91 properties consist of 42 retail shopping centers, 26 neighborhood
and community shopping center properties, 18 single-user facilities and five
joint venture retail shopping centers that we have operating control of, located
in 25 states.
We intend to continue 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, 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
112
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.
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.
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 own or 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. No single tenant accounted for more than 5.6% of our total
gross leasable area or more than 4.5% of our total annualized base rental
revenues as of December 7, 2004. Our five largest tenants include Zurich
American Insurance Company, Wal-Mart, GMAC Insurance, Best Buy and Ross Dress
for Less, which represent approximately 4.5%, 2.2%, 2.6%, 3.6% and 2.5% of
annualized base rental revenues at December 7, 2004.
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 true 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.
Our neighborhood and community shopping centers and our retail shopping
centers are usually "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. National and regional companies that are tenants in our
shopping center properties include Wal-Mart, Best Buy, Ross Dress for Less,
Kohl's and Home Depot.
RETAIL SHOPPING CENTERS
Retail shopping centers comprise the primary focus of our current
portfolio. As of December 7, 2004, approximately 96% of our shopping center
space was leased, and the average annualized base rent per leased square foot of
the shopping center portfolio was $13.37.
113
Our shopping center properties, generally owned and operated through
subsidiaries, had an average size of approximately 232,000 square feet as of
December 7, 2004. Although we primarily invest in retail properties ranging from
100,000 to 500,000 square feet in size, as of December 7, 2004, we have also
purchased 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.
NEIGHBORHOOD AND COMMUNITY SHOPPING CENTERS
We acquired neighborhood and community shopping centers as part of our
current portfolio. As of December 7, 2004, approximately 95% of these shopping
centers were leased, and the average annualized base rent per leased square foot
of these shopping centers was $15.51.
Our neighborhood and community shopping center properties, generally owned
and operated through subsidiaries, had an average size of approximately 68,000
square feet as of December 7, 2004.
SINGLE-USER PROPERTIES
In addition to neighborhood and community shopping centers, we acquired
single-user properties that are triple-net-leased properties, including
properties acquired in sale and leaseback transactions. Single-user properties
represent approximately 15.7% of our total portfolio gross leasable area. As of
December 7, 2004, the average annualized base rent per leased square foot of the
single-user property portfolio was $9.02.
National and regional companies that are tenants in our single-user
properties include CVS Pharmacy, Eckerds, Wal-Mart, Shaw's Supermarket, Harris
Teeter, Academy Outdoor Sports, GMAC Insurance, Kohl's, Wrangler and Zurich
American Insurance Company.
114
SUMMARY TABULAR PRESENTATION OF PROPERTIES OWNED
As of December 7, 2004, we, through separate limited partnerships or
limited liability companies, have acquired fee ownership of, or a leasehold
interest in, 91 shopping centers consisting of an aggregate of approximately
16,123,537 gross leasable square feet located in Alabama, Arizona, Arkansas,
California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana,
Kansas, Louisiana, Maryland, Michigan, Missouri, Nevada, New Mexico, North
Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah and
Washington. The following table summarizes these properties in alphabetical
order.
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED 7, 2004($) 2004 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Academy Sports SU 2004 Jul-04 5,272,721 2,920,000 60,001 0.4% 100% 1 Academy Sports
Houma, Louisiana
Academy Sports SU 2004 Oct-04 4,257,044 2,337,500 61,150 0.4% 100% 1 Academy Sports
Midland, Texas
Academy Sports SU 2004 Oct-04 5,004,157 2,775,000 61,001 0.4% 100% 1 Academy Sports
Port Arthur, Texas
Alison's Corner NC 2003 Apr-04 6,992,339 3,850,000 55,066 0.3% 100% 4 Ross Dress for
San Antonio, Texas Less Shoe Carnival
Mattress Firm
Arvada Connection Old Country Buffet
and RC 1987 -1990 Apr-04 52,308,117 28,510,000 61,079 0.4% 78% 12 Pier 1 Imports
Arvada Marketplace RC 297,678 1.8% 97% 26 Sam's Club
Arvada, Colorado Gart Sports
Azalea Square RC 2004 Oct-04 29,904,320 16,535,000 181,942 1.1% 97% 20 T.J. Maxx
Summerville, South Linens 'N Things
Carolina Ross Dress for
Less Cost Plus
World Market
PETsMART
Bed, Bath & Beyond
Plaza NC 2004 Oct-04 20,305,879 11,192,500 97,496 0.6% 97% 14 Bed, Bath & Beyond
Miami, Florida Office Depot
Pier 1 Imports
Party City
Best on the
Boulevard RC 1996 - 1999 Apr-04 35,547,369 19,525,000 204,427 1.3% 77% 8 Best Buy
Las Vegas, Nevada Barnes & Noble
Copeland
Enterprises
115
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED 7, 2004($) 2004 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Bluebonnet Parc RC 2002 Apr-04 22,072,024 12,100,000 135,289 0.8% 95% 7 Best Buy
Baton Rouge, Linens 'N Things
Louisiana Cost Plus World
Market
Boulevard at the JV 2004 Sept-04 123,490,577 71,500,000 482,455 3.0% 88% 59 Lowe's Theaters
Capital Centre Magic Johnson
Largo, MD
The Columns RC 2004 Aug-04 20,816,598 14,865,400 173,427 1.1% 96% 15 Best Buy
Jackson, Tennessee Ross Dress for
Less Marshalls
Bed, Bath & Beyond
CorWest Plaza RC 1999 - 2003 Jan-04 33,338,803 18,150,000 115,011 0.7% 99% 10 Super Stop & Shop
New Britain, Liquor Depot
Connecticut CVS Pharmacy
Cranberry Square RC 1996 - 1997 Jul-04 20,346,674 10,900,000 195,566 1.2% 92% 5 Barnes & Noble
Cranberry Township, Dick's Sporting
Pennsylvania Goods Best Buy
Office Max
Toys "R" Us
CVS Pharmacy (Eckerd SU 2003 Dec-03 3,376,585 1,850,000 13,824 0.1% 100% 1 CVS Pharmacy
Drug Store)
Edmund, Oklahoma
CVS Pharmacy (Eckerd SU 2003 Dec-03 5,301,730 2,900,000 13,824 0.1% 100% 1 CVS Pharmacy
Drug Store)
Norman, Oklahoma
CVS Pharmacy SU 2004 Oct-04 3,066,716 - 10,055 0.1% 100% 1 CVS Pharmacy
Sylacauga, Alabama
Darien Towne Center RC 1994 Dec-03 29,920,706 16,500,000 223,844 1.4% 94% 12 Home Depot
Darien, Illinois Circuit City
PETsMART
116
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED 7, 2004($) 2004 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Davis Towne Crossing NC 2003 & 2004 Jun-04 8,215,165 5,365,200 34,091 0.2% 91% 12 Lady USA Fitness
North Richland Cotton Patch Cafe
Hills, Texas
Denton Towne RC 2003 & Oct-04 51,336,957 35,200,000 278,840 1.7% 92% 27 Oshman's Sporting
Crossing 2004 Goods
Denton, Texas Best Buy
T.J. Maxx
Dorman Center - RC 2003 - 2004 Mar-04 & 50,288,688 27,610,000 388,067 2.4% 97% 26 Wal-Mart
Phase I & II Jul-04 Supercenter
Spartanburg, South
Carolina
Eastwood Towne RC 2002 May-04 85,157,861 46,750,000 332,131 2.1% 97% 61 Dick's Sporting
Center Goods
Lansing, Michigan
Eckerd Drug Store SU 2003 - 2004 Jun-04 3,276,504 1,750,000 13,440 0.1% 100% 1 Eckerd Drug Store
Columbia, South
Carolina
Eckerd Drug Store SU 2003 - 2004 Jun-04 2,633,000 1,425,000 13,824 0.1% 100% 1 Eckerd Drug Store
Crossville,
Tennessee
Eckerd Drug Store SU 2003 - 2004 Jun-04 3,097,200 1,650,000 13,824 0.1% 100% 1 Eckerd Drug Store
Greer, South
Carolina
Eckerd Drug Store SU 2003 - 2004 Jun-04 3,660,139 1,975,000 13,824 0.1% 100% 1 Eckerd Drug Store
Kill Devil Hills,
North Carolina
Edgemont Town Center NC 2003 Nov-04 15,641,041 - 77,655 0.5% 95% 15 Publix
Homewood, Alabama
Five Forks NC 1999 Dec-04 8,087,600 - 64,173 0.4% 95% 8 Bi-Lo
Simpsonville, South
Carolina
Forks Town Center NC 2002 Jul-04 18,440,369 10,395,000 92,660 0.6% 96% 16 Giant Food Stores
Easton, Pennsylvania
Fox Creek Village RC 2003 - 2004 Nov-04 20,997,333 - 139,730 0.9% 86% 14 King Soopers
Longmont, Colorado King Soopers-Fuel
Site
117
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED 7, 2004($) 2004 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Fullerton Metrocenter RC 1988 Jun-04 51,389,458 28,050,000 253,296 1.6% 81% 40 Sportmart
Fullerton, California Henry's
Marketplace
Gateway Pavilion RC 2003 - 2004 Dec-04 65,141,045 - 318,410 2.0% 68% 33 Circuit City
Avondale, Arizona The Sports
Authority
Mor Furniture
Gateway Plaza RC 2000 Jul-04 33,056,095 18,163,000 358,091 2.2% 93% 26 Kohl's
Southlake, Texas
Gateway Station NC 2003 - 2004 Dec-04 5,093,435 - 19,537 0.1% 100% 6 Kirland's
College Station, Talbots
Texas Joseph A. Banks
Chicos
Gateway Village JV 1996 Jul-04 49,616,650 31,458,000 273,788 1.7% 96% 14 Safeway
Annapolis, Maryland Burlington Coat
Factory
Best Buy
GMAC Insurance SU 1980/1990 Sept-04 60,037,192 33,000,000 501,064 3.1% 100% 1 GMAC Insurance
Building
Winston-Salem, North
Carolina
Governor's RC 2001 Aug-04 32,749,285 20,625,000 231,915 1.4% 94% 20 Bed, Bath & Beyond
Marketplace Sports Authority
Tallahassee, Marshalls
Florida
Gurnee Towne Center RC 2000 Oct-04 44,303,902 - 179,602 1.1% 96% 26 Linens 'N Things
Gurnee, Illinois Old Navy
Borders Books &
Music
Cost Plus World
Market
Harris Teeter SU 1977/1995 Sept-04 7,212,401 3,960,000 57,230 0.4% 100% 1 Harris Teeter
Wilmington, North
Carolina
Harvest Towne Center NC 1996-1999 Sept-04 8,958,341 5,005,000 42,213 0.3% 100% 12 CVS Pharmacy
Knoxville, Tennessee Pet Supplies Plus
Ruby Tuesday
118
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED 7, 2004($) 2004 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Heritage Towne
Crossing NC 2002 Mar-04 14,855,156 8,950,000 73,579 0.5% 98% 29 N/A
Euless, Texas
Hickory Ridge RC 1999 Jan-04 42,022,293 23,650,000 380,487 2.4% 100% 21 Best Buy
Hickory, North Kohl's
Carolina Dick's Sporting
Goods
Huebner Oaks Center RC 1997 & Jun-04 79,578,905 48,000,000 286,684 1.8% 98% 56 Bed, Bath & Beyond
San Antonio, Texas 1998
John's Creek Village RC 2003 & Jun-04 29,192,357 23,300,000 141,802 0.9% 100% 17 LA Fitness
Duluth, Georgia 2004 Ross Dress for
Less T.J. Maxx
Kohl's/Wilshire
Plaza III SU 2004 Nov-04 5,705,154 5,417,500 88,248 0.5% 100% 1 Kohl's
Kansas City, Missouri
La Plaza Del Norte RC 1996/1999 Jan-04 59,206,004 32,528,000 320,345 2.0% 95% 16 Oshman's Sporting
San Antonio, Texas Goods
Best Buy
Bealls
Lake Mary Pointe NC 1999 Oct-04 6,603,760 3,657,500 51,052 0.3% 96% 9 Publix
Lake Mary, Florida
Lakewood Towne Center RC 1988 Jun-04 80,932,733 51,260,000 578,863 3.6% 95% 26 Gottschalk's
Lakewood, Washington Rebuilt Burlington Coat
2002-2003 Factory
Larkspur Landing RC 1978/2001 Jan-04 60,721,335 33,630,000 173,821 1.1% 87% 33 Bed, Bath & Beyond
Larkspur, California 24 Hour Fitness
Lincoln Park RC 1998 Sept-04 47,360,050 26,153,000 148,806 0.9% 100% 14 Tom Thumb
Dallas, Texas Barnes & Noble
The Container
Store
Low Country Village NC 2004 Jun-04 11,140,058 5,370,000 76,479 0.5% 97% 6 Ross Dress for
Bluffton, South Less
Carolina Michaels PETsMART
MacArthur Crossing RC 1995 - 1996 Feb-04 23,076,236 12,700,000 109,755 0.7% 98% 28 Stein Mart
Los Colinas, Texas
119
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED 7, 2004($) 2004 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Manchester Meadows RC 1994 - 1995 Aug-04 56,543,403 31,064,550 454,172 2.8% 97% 21 Wal-Mart
Town and Country, Home Depot
Missouri
Mansfield Towne NC 2004 Nov-04 16,055,333 10,982,300 95,277 0.6% 100% 18 Ross Dress for
Center Less Staples
Mansfield, Texas
Mitchell Ranch Plaza RC 2003 Aug-04 33,886,359 18,700,000 200,404 1.2% 95% 36 Publix
New Port Richey, Marshalls
Florida Ross Dress for
Less
Newnan Crossing RC 1999-2003 Dec-03 & 39,246,282 21,543,091 291,450 1.8% 100% 22 BJ's Wholesale
I & II Feb-04 Club Office Depot
Newnan, Georgia T.J. Maxx
North Ranch Pavilions NC 1992 Jan-04 18,264,794 10,157,400 62,812 0.4% 89% 24 Savvy Salon
Thousand Oaks,
California
North Rivers Town RC 2003 - 2004 Apr-04 20,170,224 11,050,000 141,204 0.9% 100% 16 Ross Dress for
Center Less Bed, Bath &
Charleston, South Beyond Office
Carolina Depot Babies "R"
Us
Northgate North RC 1999 - 2003 Jun-04 48,488,931 26,650,000 302,095 1.9% 98% 8 Target
Seattle, Washington Best Buy
Northpointe Plaza RC 1991 - 1993 May-04 54,591,996 30,850,000 377,949 2.3% 99% 31 Safeway
Spokane, Washington Gart Sports
Best Buy
Northwoods Center NC 2002 - 2004 Dec-04 13,963,847 - 74,647 0.5% 100% 16 Marshalls
Wesley Chapel, PETCO
Florida
Oswego Commons RC 2002 - 2004 Nov-04 35,134,068 19,262,100 188,150 1.2% 98% 21 Dominick's
Oswego, Illinois T.J. Maxx
Office Max
Paradise Valley NC 2002 Apr-04 28,571,619 15,680,500 92,158 0.6% 79% 17 Whole Foods
Marketplace Eckerd Drug Store
Phoenix, Arizona
Pavilion at King's NC 2002/2003 Dec-03 8,200,912 5,342,000 79,109 0.5% 100% 7 Toys "R" Us
Grant Olive Garden
Concord, North
Carolina
120
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED 7, 2004($) 2004 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Peoria Crossings RC 2002 - 2003 Mar-04 37,430,091 20,497,400 213,733 1.3% 98% 21 Kohl's Department
Peoria, Arizona Store
Ross Dress for
Less Michaels
Pine Ridge Plaza RC 1998 - 2004 Jun-04 29,961,150 14,700,000 230,510 1.4% 100% 14 T.J. Maxx
Lawrence, Kansas Bed, Bath & Beyond
Kohl's
Placentia Town Center RC 1973/2000 Dec-04 24,865,000 - 110,962 0.7% 100% 21 Ross Dress for
Placentia, California Less Office Max
Bank of America
Plaza at Marysville RC 1995 Jul-04 21,335,075 11,800,000 115,656 0.7% 95% 25 Safeway
Marysville,
Washington
Plaza at Riverlakes RC 2001 Oct-04 17,022,680 - 102,836 0.6% 100% 22 Ralph's Grocery
Bakersfield, Store
California
Plaza Santa Fe II RC 2000 - 2002 Jun-04 31,063,632 17,551,721 222,389 1.4% 98% 20 Linens 'N Things
Santa Fe, New Mexico Best Buy
T.J. Maxx
Promenade at Red NC 1997 Feb-04 19,502,610 10,590,000 94,445 0.6% 95% 18 Staples
Cliff Old Navy
St. George, Utah Big 5 Sporting
Goods
Publix Center NC 2004 Nov-04 12,072,693 - 63,916 0.4% 95% 11 Publix
Mount Pleasant, South
Carolina
Reisterstown Road
Plaza JV 1986/2004 Aug-04 88,833,173 49,650,000 779,047 4.8% 94% 75 Home Depot
Baltimore, Maryland Public Safety
National Wholesale
Liquidators
Saucon Valley Square NC 1999 Sept-04 16,219,240 8,850,900 80,695 0.5% 100% 14 Super Fresh Foods
Bethlehem,
Pennsylvania
Shaw's Supermarket SU 1995 Dec-03 13,630,416 6,450,000 65,658 0.4% 100% 1 Shaw's Supermarket
New Britain,
Connecticut
121
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED 7, 2004($) 2004 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Shoppes at NC 1999 Jan-04 11,029,520 6,067,183 61,817 0.4% 96% 2 Shoppers Food
Quarterfield Warehouse
(Metro Square
Center)
Severn, Maryland
Shoppes of Dallas NC 2004 Jul-04 13,095,345 7,178,700 70,610 0.4% 86% 12 Publix
Dallas, Georgia
Shoppes of Prominence NC 2004 Jun-04 15,198,965 9,954,300 78,058 0.5% 91% 15 Publix
Point
Canton, Georgia
The Shops at RC 2003 & Jul-04 36,702,208 20,150,000 122,916 0.8% 81% 24 Borders Books
Boardwalk 2004
Kansas City, Missouri
Shops at Forest NC 2002 Dec-04 7,505,000 - 34,756 0.2% 100% 16 Blockbuster Video
Commons
Round Rock, Texas
Shops at Park Place RC 2001 Oct-03 24,088,248 13,127,000 116,300 0.7% 99% 11 Bed, Bath & Beyond
Plano, Texas Michaels
Office Max
Walgreens
Stony Creek RC 2003 Dec-03 26,026,321 14,162,000 153,796 1.0% 100% 20 T.J. Maxx
Marketplace Linens 'N Things
Noblesville, Indiana Barnes & Noble
Tollgate Marketplace JV 1979/1994 Jul-04 72,060,645 39,765,000 392,587 2.4% 100% 34 Giant Food
Bel Air, Maryland Jo Ann Fabrics
Towson Circle JV 1998 Jul-04 28,580,147 19,197,500 116,119 0.7% 92% 12 Barnes & Noble
Towson, Maryland Trader Joe's East
Bally's Total
Fitness Pier 1
Imports
University Town NC 2002 Nov-04 10,571,989 - 57,250 0.4% 100% 15 Publix
Center
Tuscaloosa, Alabama
Village Shoppes at NC 2004 Aug-04 13,770,143 7,561,700 66,415 0.4% 87% 10 Publix
Simonton
Lawrenceville,
Georgia
Wal-Mart Supercenter SU 1999 Jul-04 13,269,942 7,100,000 183,047 1.1% 100% 1 Wal-Mart
Blytheville, Arkansas Supercenter
122
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS PHYSICAL
YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY NO. OF
PROPERTY TYPE RENOVATED ACQUIRED 7, 2004($) 2004 ($) FT.) AREA % TENANTS MAJOR TENANTS*
------------------------------------------------------------------------------------------------------------------------------------
Wal-Mart Supercenter SU 1997 Aug-04 11,086,320 6,088,500 149,704 0.9% 100% 1 Wal-Mart
Jonesboro, Arkansas Supercenter
Watauga Pavilion RC 2003/2004 May-04 35,685,886 19,617,000 205,195 1.3% 96% 16 Oshman's Sporting
Wautauga, Texas Goods
Ross Dress for
Less Bed, Bath &
Beyond
Winchester Commons NC 1999 Nov-04 13,051,599 7,235,000 93,024 0.6% 98% 15 Kroger
Memphis, Tennessee
Wrangler SU 1993 Jul-04 18,518,590 11,300,000 316,800 2.0% 100% 1 Wrangler
El Paso, Texas
Zurich Towers SU 1988 - 1990 Nov-04 138,094,923 81,420,000 895,418 5.6% 100% 1 Zurich American
Schaumburg, Illinois Insurance
Company
----------------------------------------------- -------
PORTFOLIO TOTAL 2,680,495,380 1,394,703,445 16,123,537 100% 1,501
=============================================== =======
----------
* 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
D Development Project
JV Joint Venture
The table above represents book value to include land, building and
improvements, site improvements and acquired intangibles
123
DESCRIPTION OF PROPERTIES
The following discussion provides more detail on each of the properties we
have acquired that are summarized in the table above and probable acquisitions.
SOUTHLAKE TOWN SQUARE, SOUTHLAKE, TEXAS
We anticipate purchasing a portion of an existing shopping center known as
Southlake Town Square, containing 471,324 gross leasable square feet. The center
is located at North Carroll Avenue and East Southlake Boulevard in Southlake,
Texas.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $142,917,000. This
amount may 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 $303 per square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we
expect to place financing on the property at a later date.
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.
There are no tenants that lease more than 10% of the total gross leasable
area of the property.
For federal income tax purposes, the depreciable basis in this property
will be approximately $107,188,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Southlake Town Square built between 1998 and 2004. As of December 1, 2004,
this property was 96% occupied, with a total 450,595 square feet leased to 152
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Gymboree 2,077 01/09 57,117 27.50
Magic Moon 2,329 03/09 65,212 28.00
Animal Crackers 1,491 03/09 41,748 28.00
Corner Bakery 4,223 03/09 117,188 27.75
Bombay Company 4,131 03/09 107,406 26.00
Williams-Sonoma 4,500 01/09 122,625 27.25
Chico's 2,013 03/09 46,299 23.00
Talbots 4,398 01/11 114,348 26.00
Harold's 5,462 03/11 164,406 30.10
Eyes Nouveau 2,470 08/07 74,100 30.00
The Mother's Place 1,475 09/07 43,512 29.50
Any Occasion Gifts 1,338 11/07 38,802 29.00
The Paper Closet 858 01/08 24,882 29.00
X's & O's 4,100 05/09 123,000 30.00
124
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
FNB of Wichita Falls 3,456 07/12 103,680 30.00
The Container Store 23,796 02/12 431,568 18.00
Taylor G 1,654 10/06 52,928 32.00
Kobe Steakhouse 5,128 02/09 148,712 29.00
Joseph A. Bank 5,131 01/12 148,799 29.00
The Paper Closet 105 Month-to-Month 2,625 25.00
Of the Vine 2,429 11/07 72,870 30.00
Barse Retail 1,458 11/07 36,450 25.00
Jamba Juice 919 03/09 28,029 30.50
Sweet & Sassy 3,061 04/09 65,811 21.50
Francesca's 1,919 04/09 57,570 30.00
BA Framer 1,987 05/09 49,675 25.00
Rockfish 2,651 06/09 75,819 28.60
Mi Cocina 5,206 06/09 135,356 26.00
Lover's Eggroll 2,138 06/09 56,657 26.50
Board Room 2,082 08/09 62,460 30.00
Village Jewelers 2,277 03/12 75,141 33.00
Vignettes 3,306 03/09 92,568 28.00
Pottery Barn 7,989 01/10 194,835 24.39
Pottery Barn (2nd Floor Storage) 3,106
Crate & Barrel (BS-1) 5,517 10/10 67,629 12.26
Crate & Barrel 10,215 01/11 137,698 13.48
Crate & Barrel (BS-2) 217 01/11 4,580 21.11
Origins 1,140 10/10 45,600 40.00
Talbots Petites and Kids 6,528 12/10 188,500 28.88
L'Occitane 773 01/11 34,785 45.00
Paws and Claws 143 12/06 4,290 30.00
Lane Bryant 5,069 10/13 145,000 28.61
D'Hierro 4,000 10/13 84,000 21.00
Cafe Express 5,643 11/13 153,772 27.25
Oshkosh B'Gosh Retail 5,162 03/14 154,860 30.00
Terrace Day Spa & Salon 1,179 10/09 30,250 25.66
The Market 7,086 06/06 155,892 22.00
Eddie Bauer 6,440 01/10 127,963 19.87
Ann Taylor 4,252 01/10 106,300 25.00
Thai Chili 2,359 04/10 63,693 27.00
American Eagle 5,250 11/12 136,500 26.00
Young Nim Cho 435 09/09 15,660 36.00
Banana Republic 7,000 03/07 133,280 19.04
Stylette dba Glass Slipper 750 06/08 22,500 30.00
Victoria's Secret 4,607 03/09 105,961 23.00
Gap 5,880 03/07 111,955 19.04
Gap Kids 3,819 03/07 72,714 19.04
Milwaukee Joe's 636 03/07 22,260 35.00
Bath & Body Works 3,213 03/09 73,899 23.00
Starbucks 1,867 05/09 52,276 28.00
Riding High 2,480 02/07 76,880 31.00
125
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
James Avery 2,491 04/07 74,730 30.00
Three Feet 2,134 10/08 53,350 25.00
Just Add Water 2,046 03/12 62,403 30.50
Village Jewelers 2,337 03/12 70,110 30.00
LC Footwear 1,914 06/12 57,420 30.00
Sprint 2,639 07/09 87,087 33.00
Sharper Image 5,829 01/15 156,000 26.76
The Langley Holding Company 570 Month-to-Month 9,396 16.48
Audra D. Boxma, PA 516 02/05 10,320 20.00
Countrywide Home Loans 2,599 05/05 44,183 17.00
Heinen & Associates 1,150 05/05 18,975 16.50
Century 21 2,825 07/05 50,844 18.00
Rattikin Title Group 3,992 04/07 62,080 15.55
Sylvan Learning Center 2,780 05/07 44,841 16.13
Williams-Sonoma Storage 500 01/09 5,450 10.90
Abemathy 817 10/09 10,552 12.92
Brownstones 814 Month-to-Month 9,768 12.00
Charles Schwab 1,764 03/05 29,106 16.50
Johnson & Johnson 881 11/06 16,739 19.00
Stifel, Nicolas & Co. 3,415 05/07 61,470 18.00
Harken Energy Corporation 4,062 04/08 66,763 16.44
Collins Industries 2,125 05/09 31,875 15.00
Harold's (Office) 669 03/11 9,366 14.00
Exar 563 08/05 9,370 16.64
Villaroy and Bach 623 11/14 9,968 16.00
Coldwell Bankers 2,522 Month-to-Month 34,420 13.65
Cooper & Stebbins 5,212 Month-to-Month 83,392 16.00
Bradley, Luce & Bradley 3,154 08/04 47,310 15.00
Jennifer Gray 1,075 11/06 15,650 14.56
Dallas Morning News 4,148 10/05 66,368 16.00
House of Representatives 589 01/05 9,768 16.58
Vicki Truitt 193 01/05 4,176 21.64
Benefit Architects 2,098 02/05 35,666 17.00
Main Street Financial 2,589 10/05 49,191 19.00
Town Square Mortgage 1,464 12/05 19,560 13.36
Swedish Match 1,371 07/07 21,251 15.50
Educational Tech 1,459 12/08 14,855 10.18
Standerfer Law Firm 791 Month-to-Month 13,570 17.16
Newell Rubbermaid 2,110 03/05 40,090 19.00
Insight Equity Holdings 4,568 01/06 70,298 15.39
Lifeguard 4,515 01/06 34,050 7.54
KTL Industries 1,857 01/06 19,430 10.46
GSCS 2,328 01/06 26,720 11.48
Salomon Smith Barney 9,393 08/11 150,288 16.00
Larsen & King 1,470 08/09 15,597 10.61
Texas Nations 2,427 02/09 38,832 16.00
Pearlstone Energy-M Young 1,067 03/09 14,943 14.00
126
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Southtrust Mortgage 3,033 03/09 48,528 16.00
Dr. Scott Kasden 2,875 07/09 46,000 16.00
Michael Bryan 2,326 02/05 38,379 16.50
Dr. Angela Bowers 2,868 06/05 46,376 16.17
Dr. Mary Wyant 936 07/05 14,976 16.00
Natural Healing Center 541 05/06 8,115 15.00
Dr. Steven J. Fugua 1,986 07/06 29,790 15.00
Feet Feet 1,454 07/06 24,718 17.00
Just For Kids 2,321 08/06 40,617 17.50
Dr. Todd White 1,720 02/07 29,240 17.00
Terrace Day Spa (Office) 3,403 02/07 49,888 14.66
Terrace Day Spa (Expansion) 1,568 02/07 25,088 16.00
Gregory Taylor 3,077 07/07 61,540 20.00
Ortho-Alliance 3,033 09/07 51,561 17.00
Viking Office Products (Office
Depot) 16,530 05/09 252,909 15.30
Hometrust Mortgage 2,849 06/07 34,188 12.00
Lifeguard 619 09/04 10,616 17.15
Lyons, Butler & Pesserillo 1,286 Month-to-Month 23,148 18.00
Lifeguard 2,227 01/06 34,730 15.59
Johnson, Rooney, Welch 675 12/05 13,650 20.22
General Mills 1,725 08/05 29,325 17.00
Keller Williams Realty 2,576 05/07 37,627 14.61
Farmers Insurance 462 03/09 7,041 15.24
Edward Jones 697 05/09 11,152 16.00
Prizm Development 1,659 06/09 26,544 16.00
Larry North Total Fitness 10,896 08/11 159,900 14.68
Southlake Dance Academy 3,840 03/06 60,096 15.65
Sunshine Glaze 1,400 05/06 21,200 15.14
Mail & Copy Shoppe 1,600 12/07 25,600 16.00
REB Photo Lab 1,764 03/06 38,808 22.00
Segal Enterprises 1,200 09/06 24,000 20.00
Po Melvin's 6,740 01/08 101,100 15.00
Kidztime 1,791 08/08 26,865 15.00
Storehouse 8,800 12/05 176,000 20.00
Gingiss Formal Wear 1,000 12/05 22,000 22.00
Cingular Wireless 1,495 12/05 32,890 22.00
Stride Rite Children's Group 1,495 01/06 29,900 20.00
Sandella's Cafe 1,493 02/06 32,846 22.00
Olivia Bennett 1,985 04/06 30,000 15.11
Trees of the Field 2,472 09/11 54,384 22.00
Blue Mesa 3,000 09/13 87,000 29.00
Pei Wei 3,000 10/13 78,000 26.00
American Express 1,350 04/09 44,550 33.00
Fidelity 4,050 05/14 113,400 28.00
127
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
IRMO STATION, COLUMBIA, SOUTH CAROLINA
We anticipate purchasing an existing shopping center known as Irmo
Station, containing 99,619 gross leasable square feet. The center is located
at 7467 St. Andrews Road in Columbia, South Carolina.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $13,100,000. This
amount may 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 $131 per square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we
expect to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Kroger, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Kroger 56,942 57 9.71 10/99 10/19
For federal income tax purposes, the depreciable basis in this property
will be approximately $9,825,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Irmo Station was built in phases in 1980 and 1985, with an expansion of one
tenant's space in 1999. As of December 1, 2004, this property was 91% occupied,
with a total 90,960 square feet leased to 17 tenants. The following table sets
forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
--------------------------------------------------------------------------------------------------------------
Dr. John Edwards, DDS 1,750 03/05 31,500 18.00
Hemingway's Saloon 5,550 04/05 30,803 5.55
Invitation Station 2,205 08/05 24,255 11.00
The Cutting Point 1,050 09/05 14,175 13.50
Dollar Tree Store 6,892 01/06 55,136 8.00
Pizza Hut 1,470 05/06 21,771 14.81
128
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
--------------------------------------------------------------------------------------------------------------
Julie Stephens Agency 1,050 06/06 13,497 12.85
Wilson Wireless 1,000 10/06 18,000 18.00
Columbia Conservatory 1,761 05/07 19,899 11.30
Irmo Interiors 2,000 07/07 30,000 15.00
Kroger Liquor 1,250 01/08 15,625 12.50
Firehouse Subs 1,750 06/08 29,750 17.00
Han's Alterations 1,050 03/09 14,595 13.90
Tripp's Cleaners 1,250 05/09 18,125 14.50
ITA Taekwondo Academy 2,940 08/09 33,810 11.50
Lovely Nails 1,050 12/09 13,650 13.00
Kroger 56,942 10/19 552,800 9.71
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
EVANS TOWNE CENTRE, AUGUSTA, GEORGIA
We anticipate purchasing an existing shopping center known as Evans
Towne Centre, containing 75,695 gross leasable square feet. The center is
located at 4274 Washington Road in Augusta, Georgia.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $8,880,000. This
amount may 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 $117 per square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we
expect to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Publix 47,955 63 8.25 06/95 06/15
For federal income tax purposes, the depreciable basis in this property
will be approximately $6,660,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line
129
method. We depreciate buildings and improvements based upon estimated useful
lives of 40 and 20 years, respectively.
Evans Towne Center was built in 1995. As of December 1, 2004, this property
was 97% occupied, with a total 73,295 square feet leased to 14 tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
--------------------------------------------------------------------------------------------------------------------
Evans Hibachi 2,800 01/06 32,200 11.50
Gorins Cafe & Grill 1,200 03/06 14,832 12.36
Great Expectations Precision
Haircutters 2,100 04/06 28,119 13.39
Physical Therapy Associates 2,240 04/06 26,870 12.00
Classical Ballet Conservatory 1,600 06/06 21,424 13.39
Master Cleaners 1,200 09/06 15,600 13.00
Professional Network Support 1,600 12/06 18,960 11.85
Quizno's 1,600 01/07 20,800 13.00
The Augusta Chronicle 4,000 02/08 44,000 11.00
Mai Thai Restaurant 1,400 04/08 18,018 12.87
U.S. Nails 1,200 09/08 15,600 13.00
Sun Rayz Tanning 3,200 01/09 35,200 11.00
Top Shelf Cigar & Tobacco Shoppe 1,200 07/09 15,600 13.00
Publix 47,955 06/15 395,629 8.25
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may provide that the tenant's liability for such expenses is
limited in some way, usually so that their liability for such expenses does not
exceed a specified amount.
AMERICAN EXPRESS PORTFOLIO
We anticipate purchasing the following eight office buildings constructed
between 1975 and 2000 and leasing them back to American Express Travel Related
Services Company, Inc., IDS Property Casualty Insurance Corporation and AMEX
Canada, Inc. The office buildings contain a total of 2,597,000 gross leasable
square feet.
Approximate Approximate
Location Square Feet Lease Term Purchase Price ($)
-------------------------------------------------------------------------------------------------------------------
20022 N. 31st Avenue 337,439 10 years 54,000,000
Phoenix, AZ
20002 N. 19th Avenue 117,556 10 years 14,000,000
Phoenix, AZ
1001 N. 3rd Avenue 541,542 10 years 95,000,000
Minneapolis, MN
130
Approximate Approximate
Location Square Feet Lease Term Purchase Price ($)
-------------------------------------------------------------------------------------------------------------------
3500 Packerland Drive 132,336 10 years 18,000,000
Depere, WI
101 McNabb Street 306,710 10 years 42,000,000
Markham, Ontario, Canada
4315 South 2700 West 395,787 10 years 48,000,000
Salt Lake City, UT
7701 Airport Center 389,377 10 years 56,000,000
Greensboro, NC
777 American Expressway 376,348 10 years 63,000,000
Ft. Lauderdale, FL
Total 2,597,095 390,000,000
We anticipate purchasing this American Express Portfolio from an
unaffiliated third party. Our total acquisition cost, including expenses, is
expected to be approximately $390,000,000. This amount may 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 $150 per square foot of leasable space.
We intend to purchase these properties with our own funds. However, we
expect to place financing on the properties totaling $233,532,000. The loan will
require interest only payments at annual rates ranging between 4.2675% to
4.2975% and mature in January 2010
In evaluating these properties as potential acquisitions and determining
the appropriate amount of consideration to be paid for the properties, we
considered a variety of factors including location, demographics, quality of
tenant, length of lease, price per square foot, occupancy and the fact that
overall rental rate at the property is comparable to market rates. We believe
that each of these properties is well located, has acceptable roadway access and
is well maintained. These properties will be subject to competition from similar
properties within their market area, and economic performance could be affected
by changes in local economic conditions. We did not consider any other factors
materially relevant to the decision to acquire these properties.
American Express' related entities will lease 100% of the total gross
square feet of each property. The leases with these tenants require the tenants
to pay base annual rent on a monthly basis as follows:
Base Rent
% of Gross
Total Square
Approximate GSF of Estimated Foot Per Estimated
Lessee/ Gross each Annual Annum Lease Term*
Location Sq. Ft. Property Rent ($)** ($) Beginning To
-------------------------------------------------------------------------------------------------------------------
20022 N. 31st Avenue 337,439 100 3,505,734 10.39 12/04 11/13
Phoenix, AZ
131
Base Rent
% of Gross
Total Square
Approximate GSF of Estimated Foot Per Estimated
Lessee/ Gross each Annual Annum Lease Term*
Location Sq. Ft. Property Rent ($)** ($) Beginning To
-------------------------------------------------------------------------------------------------------------------
20002 N. 19th Avenue 117,556 100 908,894 7.73 12/04 11/14
Phoenix, AZ
1001 N. 3rd Avenue 541,542 100 6,167,495 11.39 12/04 11/14
Minneapolis, MN
3500 Packerland Drive 132,336 100 1,168,578 8.83 12/04 11/14
Depere, WI
101 McNabb Street 306,710 100 2,726,682 8.89 12/04 11/14
Markham, Ontario,
Canada
4315 South 2700 West 395,787 100 3,116,208 7.87 12/04 11/14
Salt Lake City, UT
7701 Airport Center 389,377 100 3,635,576 9.34 12/04 11/14
Greensboro, NC
777 American
Expressway 376,348 100 4,090,023 10.87 12/04 11/14
Ft. Lauderdale, FL
* Estimated lease term - Lease term to commence on date of sale of the
property and have a primary ten year term. Tenant can exercise up to six
five-year options on each property.
** Estimated annual rent for the first five years of the primary term.
For federal income tax purposes, the depreciable basis in these properties
will be approximately $292,500,000. 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.
For financial information of American Express, please see their financial
statements filed with the United States of America Securities and Exchange
Commission at www.sec.gov.
GATEWAY PAVILION, AVONDALE, ARIZONA
We purchased 318,410 gross leasable square feet (which includes 7,000
square feet of ground lease space) of a 620,000 square foot newly constructed
shopping center known as Gateway Pavilion. We have the option to purchase the
remaining portion upon completion during 2005. The center is located at
Interstate 10 and 101 Loop Freeway in Avondale, Arizona.
132
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost was approximately $65,141,000. This amount may
increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost was
approximately $216 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Circuit City, Sports Authority and Mor Furniture, each lease
more than 10% of the total gross leasable area of the property. The lease terms
will be determined in accordance with the tenant's commencement date. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
Base Rent
Approximate % of Total Per Square
GLA Leased Phase I Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Circuit City 32,500 10 13.08 12/03 01/19
Sports Authority 35,700 11 11.50 10/03 01/14
Mor Furniture* 35,000 11 9.90 12/04 11/14
* Ten year lease term has not yet commenced, however, the expiration date may
change based upon the tenant's actual occupancy date.
For federal income tax purposes, the depreciable basis in this property
will be approximately $51,576,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
The portion of Gateway Pavilion which we purchased was newly constructed
between 2003 and 2004. As of December 1, 2004, this property was 92% occupied,
with a total of 292,505 square feet leased to 39 tenants and one ground lease
tenant. The following table sets forth certain information with respect to those
leases:
Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Mattress Outlet 3,262 01/08 81,550 25.00
T-Mobile 2,200 02/08 61,600 28.00
Great Clips 1,200 02/08 31,200 26.00
Game Stop 1,505 02/08 39,130 26.00
Cold Stone Creamery 1,400 03/08 37,694 26.92
Port of Subs 1,800 04/08 48,204 26.78
133
Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Cactus Creek 1,300 05/08 33,800 26.00
Studio 101 1,261 11/08 30,264 24.00
Liberty Fitness 1,653 12/08 38,019 23.00
Eagle Flooring 3,220 12/08 81,272 25.24
AT&T Wireless 1,300 01/09 36,153 27.81
Tan Frenzee 1,443 01/09 36,075 25.00
Jamba Juice 1,200 06/09 33,600 28.00
Remedy Temp, Inc. 1,200 06/09 32,400 27.00
Johnny Rockets* 2,368 09/09 59,200 25.00
Ray's Pizza 1,980 04/11 51,480 26.00
Saba's Western Wear 4,509 06/11 54,108 12.00
Native New Yorker 7,001 03/13 138,023 19.71
La Nails 2,200 03/13 55,000 25.00
Sunny Neigh DDS 2,000 03/13 51,000 25.50
Koyoto Bowl 1,980 03/13 43,560 22.00
Panda Express 2,256 03/13 58,656 26.00
Quizno's 1,472 03/13 36,800 25.00
Baja Fresh Mexican Grill 2,969 04/13 71,256 24.00
Starbucks 1,504 08/13 42,112 28.00
Marshalls 28,150 10/13 267,425 9.50
Bed, Bath & Beyond 25,063 01/14 275,693 11.00
Carrabbas 6,100 01/14 86,986 14.26
Sports Authority 35,700 01/14 410,550 11.50
Peter Piper Pizza 10,000 10/14 180,000 18.00
The Vitamin Shoppe* 4,500 10/14 135,000 30.00
Mor Furniture* 35,000 11/14 346,500 9.90
PETCO 14,668 01/15 238,355 16.25
Krispy Creme Doughnuts 4,200 12/18 80,000 19.05
Borders Books 20,000 01/19 245,000 12.25
Circuit City 32,500 01/19 438,750 13.50
Red Robin (Ground Lease) 7,000 03/19 85,000 N/A
Paul Lee's Chinese Kitchen* 6,000 10/19 87,500 14.58
Village Inn 4,441 11/19 140,025 31.53
McDonalds 5,000 09/23 72,500 14.50
* Lease terms have not yet commenced, however, the expiration date may change
based upon the tenant's actual occupancy date.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
134
FIVE FORKS, SIMPSONVILLE, SOUTH CAROLINA
We purchased an existing shopping center known as Five Forks, containing
64,173 gross leasable square feet. The center is located at Woodruff Road and
Batesville Road in Simpsonville, South Carolina.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost was approximately $8,086,000. This amount may
increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost was
approximately $126 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Bi-Lo, leases more than 10% of the total gross leasable area of
the property. The lease with this tenant requires the tenant to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Bi-Lo 46,673 73 8.71 10/99 10/19
For federal income tax purposes, the depreciable basis in this property
will be approximately $6,065,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Five Forks was built in 1999. As of December 1, 2004, this property was 95%
occupied, with a total 60,673 square feet leased to eight tenants. The following
table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Dr. Brian Hodges DMD 2,100 11/05 29,400 14.00
Summer Sun Adventures 2,000 12/06 28,000 14.00
Cost Cutters 1,600 12/06 22,400 14.00
Prime Communications 1,200 05/07 16,200 13.50
Postal Annex 1,600 11/07 23,200 14.50
Oxford Cleaners 1,500 12/09 21,750 14.50
El Jalisco 4,000 01/10 48,000 12.00
Bi-Lo 46,673 10/19 406,522 8.71
135
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
SHOPS AT FOREST COMMONS, ROUND ROCK, TEXAS
We purchased an existing shopping center known as Shops at Forest Commons,
containing 34,756 gross leasable square feet. The center is located at Gattis
School Road and CR 12 in Round Rock, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $7,505,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$216 per square foot of leasable space.
We anticipate purchasing this property with our own funds and assumption of
the existing mortgage debt on the property. The outstanding balance on the
mortgage debt is approximately $5,250,000. This loan requires monthly principal
and interest payments based on a fixed interest rate of 6.34% per annum. The
loan matures in September 2013.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Blockbuster Video, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Blockbuster
Video 4,000 12 18.00 01/03 12/07
For federal income tax purposes, the depreciable basis in this property
will be approximately $5,629,800. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Shops at Forest Commons was built during 2002. As of December 1, 2004, this
property was 100% occupied, with a total 34,756 square feet leased to 16
tenants. The following table sets forth certain information with respect to
those leases:
136
Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Scap Stop 2,226 09/07 40,068 18.00
Austin's Pizza 1,442 11/07 25,956 18.00
Subway 1,602 11/07 28,836 18.00
Blockbuster Video 4,000 12/07 72,000 18.00
Moondance Wine and Spirit 3,162 12/07 56,916 18.00
Post Net 1,522 12/07 28,918 19.00
Reid's Cleaners 1,242 12/07 22,356 18.00
Nail & Skin 1,362 12/07 27,240 20.00
Cost Cutters 1,522 01/08 27,396 18.00
TCBY 1,282 01/08 25,640 20.00
Common Grounds (Coffee
House) 2,228 04/08 40,104 18.00
Bamboo Cafe 2,721 05/08 54,420 20.00
Niblocks ATA Black B 2,424 07/08 43,632 18.00
VP Salon & Gifts 2,684 08/08 48,312 18.00
Cardsmart 2,645 11/09 47,610 18.00
St. David's 2,692 05/10 48,456 18.00
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
PLACENTIA TOWN CENTER, PLACENTIA, CALIFORNIA
We purchased 110,962 gross leasable square feet of a 142,666 square foot
existing shopping center known as Placentia Town Center. The center is located
at Yorba Linda Boulevard and Kraemer Boulevard in Placentia, California.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $24,865,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$224 per square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we
expect to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Ross Dress for Less, OfficeMax and Bank of America, each
lease more than 10% of the total gross leasable area of the portion of the
property we purchased. The leases with these tenants require the tenants to pay
base annual rent on a monthly basis as follows:
137
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Ross Dress for Less 26,400 24 12.75 12/95 01/06
OfficeMax 24,768 22 12.00 01/97 12/11
Bank of America 11,162 10 22.44 05/75 05/14
For federal income tax purposes, the depreciable basis in this property
will be approximately $18,649,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Placentia Town Center was built in 1973 and redeveloped in 2000. As of
December 1, 2004, the portion of the property we purchased was 100% occupied,
with a total 110,962 square feet leased to 21 tenants. The following table sets
forth certain information with respect to those leases:
Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Bagel Me 2,000 01/05 50,148 25.07
Baskin Robbins 1,117 04/05 26,808 24.00
Beauty Avenue 4,720 09/05 84,205 17.84
Courtesy Cleaners 1,200 10/05 25,896 21.56
Ross Dress for Less 26,400 01/06 336,600 12.75
Don's Shoe Repair 480 01/08 12,115 25.24
Suntan Shop 2,000 04/08 47,841 23.92
KC Nails 1,080 06/08 17,304 16.02
One N One Clothing 2,950 08/08 55,209 18.71
Ha-P Discount 4,130 11/08 64,428 15.60
Paolini's 3,940 06/09 59,100 15.00
Whole Enchilada 2,580 07/09 42,500 16.47
Tossed Board Shop 2,596 09/09 52,335 20.16
Jewels by Justin 2,360 10/09 37,620 15.94
Kwon's Olympic Tae Kwon
Do 1,800 12/09 23,362 12.98
Huntington Learning Center 3,304 01/10 65,419 19.80
Philly's Best 1,525 12/10 42,410 27.81
OfficeMax 24,768 12/11 297,216 12.00
Wok Experience 1,915 10/13 62,142 32.45
Bank of America 11,162 05/14 250,475 22.44
Marie Callender's 8,935 10/14 128,160 14.34
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
138
NORTHWOODS SHOPPING CENTER, WESLEY CHAPEL, FLORIDA
We purchased a portion of a newly constructed shopping center known as
Northwoods Shopping Center, consisting of 96,151 gross leasable square feet. We
purchased 74,647 gross leasable square feet (which includes 3,150 square feet of
ground lease space) and intend to purchase the remaining 21,504 square feet when
construction has been completed and the tenants have commenced paying rent for
the remaining portion. The center is located Bruce B. Downs Boulevard and County
Line Road in Wesley Chapel, Florida.
We purchased this property from an unaffiliated third party. Our total
acquisition cost for the portion we purchased was approximately $13,963,800 and
the remaining portion will be approximately $6,386,000. This amount may increase
by additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost for the portion we
purchased was approximately $212 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Marshalls and PETCO, each lease more than 10% of the total
gross leasable area of the portion of the property we purchased. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Marshalls 30,000 31 7.95 08/03 07/13
PETCO 15,257 16 15.25 11/02 11/12
For federal income tax purposes, the depreciable basis in the portion of
the property we purchased will be approximately $10,473,000 and will be
approximately $15,263,000 once we have purchased the remaining portion. When we
calculate depreciation expense for tax purposes, we will use the straight-line
method. We depreciate buildings and improvements based upon estimated useful
lives of 40 and 20 years, respectively.
Northwoods Center was built between 2002 and 2004. As of December 1, 2004,
the portion of the property we purchased was 100% occupied, with a total 74,647
square feet leased to 15 tenants and one ground lease tenant. The following
table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Nails on Nails 1,139 12/07 27,336 24.00
Hair Masters 1,106 01/08 24,332 22.00
139
Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Art Mart 1,301 02/08 28,622 22.00
Post Net 1,302 02/08 27,459 21.09
EB Games 2,000 04/08 50,000 25.00
Leslie's Poolmart, Inc. 2,269 12/08 51,053 22.50
Washington Mutual Bank 4,000 04/09 104,000 26.00
Pizza Suprema II 2,304 03/10 46,080 20.00
Dr. Jiminez 1,700 04/10 35,700 21.00
PETCO 15,257 11/12 232,669 15.25
Futons, Etc. 2,500 12/12 52,500 21.00
Ho's Chinese 1,019 01/13 22,418 22.00
Honey Baked Ham 2,800 06/13 61,600 22.00
Marshalls 30,000 07/13 238,500 7.95
Payless Shoesource 2,800 11/13 50,008 17.86
Arby's (Ground Lease) 3,150 03/23 54,999 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
GATEWAY STATION, COLLEGE STATION, TEXAS
We purchased a portion of a newly constructed shopping center known as
Gateway Station, consisting of 23,438 gross leasable square feet. We purchased
19,537 gross leasable square feet and intend to purchase the remaining 3,901
square feet when construction has been completed and the tenants have commenced
paying rent for the remaining portion. The center is located at 1501 University
Drive at Loop 6 in College Station, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost for the portion we purchased was approximately $5,093,400 and
the remaining portion will be approximately $1,407,000. This amount may increase
by additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost for the portion we
purchased was approximately $261 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Five tenants, Kirkland's, Talbots, Joseph A. Banks, Chico's and Heartworks,
each lease more than 10% of the total gross leasable area of the portion of the
property we purchased. The leases with these tenants require the tenants to pay
base annual rent on a monthly basis as follows:
140
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Kirkland's 5,000 20 22.00 06/04 01/15
Talbots 4,200 20 18.00 08/04 01/15
Joseph A. Banks 3,905 10 20.00 06/04 01/15
Chico's 2,740 10 20.00 06/04 06/09
Heartworks 2,191 10 25.00 12/04 11/09
For federal income tax purposes, the depreciable basis in the portion of
the property we purchased will be approximately $3,820,000 and will be
approximately $4,875,000 once we purchase the remaining portion. When we
calculate depreciation expense for tax purposes, we will use the straight-line
method. We depreciate buildings and improvements based upon estimated useful
lives of 40 and 20 years, respectively.
Gateway Station was built during 2003 and 2004. As of December 1, 2004, the
portion of the property we purchased was 100% occupied, with a total 19,537
square feet leased to six tenants. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Chico's 2,740 06/09 54,806 20.00
Heartworks 2,191 11/09 54,774 25.00
Douglas Jewelers 1,754 03/10 43,850 25.00
Kirkland's 5,000 01/15 110,000 22.00
Talbots 4,200 01/15 75,600 18.00
Joseph A. Banks 3,905 01/15 78,100 20.00
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
EDGEMONT TOWN CENTER, HOMEWOOD, ALABAMA
We purchased an existing shopping center known as Edgemont Town Center,
containing 77,655 gross leasable square feet. The center is located at 411 Green
Springs Highway in Homewood, Alabama.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $15,639,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$201 per square foot of leasable space.
141
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of nay
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Publix 44,840 58 12.00 11/03 12/23
For federal income tax purposes, the depreciable basis in this property
will be approximately $11,729,000. When we calculate depreciation expense for
tax purposes, we will sue the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Edgemont Town Center was built in 2003. As of December 1, 2004, this
property was 95% occupied, with a total 74,055 square feet leased to 15 tenants.
The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
-------------------------------------------------------------------------------------------------------------
Nextel Communications 1,360 11/06 25,840 19.00
Crown Jewelry 1,600 11/08 30,400 19.00
Mr. Burch Formalwear, Inc. 2,000 11/08 38,000 19.00
Pet Supplies Plus 6,000 12/08 114,000 19.00
Firehouse Subs 1,600 12/08 30,400 19.00
Headstart Family Hair Salons 1,680 01/09 23,940 14.25
Mobility Central, Inc. 1,600 02/09 30,400 25.00
Sally Beauty Supplies 1,615 08/09 32,300 20.00
EB Games 1,200 10/09 30,000 25.00
L.V. Nails 1,360 11/13 25,840 19.00
Hunan Wok 1,600 02/14 30,400 19.00
Qdoba Mexican Grill* 2,400 12/14 60,000 25.00
Bama Wings* 1,200 12/14 30,000 25.00
Deep South Barbecue* 4,000 01/15 76,000 19.00
Publix 44,840 12/23 538,080 12.00
* Ten year lease term has not yet commenced, however, the expiration date may
change based upon the tenant's actual occupancy date.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may provide that the tenant's liability for
142
such expenses is limited in some way, usually so that their liability for such
expenses does not exceed a specified amount.
UNIVERSITY TOWN CENTER, TUSCALOOSA, ALABAMA
We purchased an existing shopping center known as University Town Center,
containing 57,250 gross leasable square feet. The center is located at 1190
University Boulevard in Tuscaloosa, Alabama.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $10,569,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$185 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Publix 28,800 50 13.85 06/04 06/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $7,927,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
University Town Center was built in 2002. As of December 1, 2004, this
property was 100% occupied, with a total 57,250 square feet leased to 15
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
-------------------------------------------------------------------------------------------------------------
Sun and Soul 3,665 09/07 62,305 17.00
Movie Gallery 2,411 10/07 40,987 17.00
The UPS Store 2,479 12/07 44,622 18.00
Cold Stone Creamery 1,713 01/08 39,399 23.00
Firehouse Subs 1,827 01/08 34,713 19.00
Bad Ass Coffee 1,947 02/08 44,781 23.00
Headstart Family Hair Salons 1,485 02/08 34,155 23.00
Southtrust Bank (ATM) 42 04/08 7,800 185.71
143
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
-------------------------------------------------------------------------------------------------------------
Private Gallery 1,964 09/08 45,172 23.00
Nail Club 1,449 02/09 27,531 19.00
The Buzz 1,378 03/09 26,871 19.50
University Wireless 3,022 07/09 57,418 19.00
Qdoba Mexican Grill 2,641 11/12 60,743 23.00
Hud Guthrie's 2,427 12/12 46,113 19.00
Publix 28,800 06/24 398,880 13.85
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
ZURICH TOWERS, SCHAUMBURG, ILLINOIS
We purchased two connecting, 20 story, tower office buildings, containing
approximately 895,418 gross leasable square feet. The towers are located at
1400-1450 E. American Lane in Schaumburg, Illinois.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $138,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$154 per square foot of leasable space.
We purchased this property with our own funds. On November 23, 2004, we
obtained financing in the amount of $81,420,000. The loan requires interest only
payments at an annual rate of 4.247% and matures in December 2034.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenant would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of its lease.
One tenant, Zurich American Insurance Company, leases 100% of the total
gross leasable area of the property. The lease with this tenant requires the
tenant to pay base annual rent on a monthly basis over the next twelve years as
follows:
Base Rent
Approximate % of Current Per Square
GLA Leased Total Annual Foot Per Renewal Lease Term
Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To
--------------------------------------------------------------------------------------------------------------------
Zurich American
Insurance
Company 895,418 100 8,883,864 9.92 5/5 yr. 12/04 11/16
144
For federal income tax purposes, the depreciable basis in this property is
approximately $103,500,000. When we calculate depreciation expense for tax
purposes, we will sue the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
OSWEGO COMMONS, OSWEGO, ILLINOIS
We purchased a portion of an existing shopping center known as Oswego
Commons. This transaction is comprised of 188,150 gross leasable square feet.
The center is located at 3080 Route 34 in Oswego, Illinois.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $35,022,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$186 per square foot of leasable space.
We purchased this property with our own funds. On November 23, 2004, we
obtained financing in the amount of $19,262,100. The loan requires interest only
payments at an annual rate of 4.75% and matures in December 2011.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Dominick's, T.J. Maxx and OfficeMax, each lease more than
10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Dominick's 65,844 35 12.21 03/02 03/22
T.J. Maxx 28,144 15 10.20 10/02 09/12
OfficeMax 20,015 11 14.00 11/03 10/18
For federal income tax purposes, the depreciable basis in this property
will be approximately $26,267,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Oswego Commons was constructed in phases from 2002 to 2004. As of December
1, 2004, this property was 98% occupied, with a total 183,950 square feet leased
to 21 tenants. The following table sets forth certain information with respect
to those leases:
145
Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
3 Day Blinds 1,802 09/07 44,100 24.47
Quizno's 1,612 09/07 36,864 22.87
Lee Nails 919 10/07 22,938 24.96
EB Games 2,015 01/08 47,352 23.50
All Cleaners 1,100 01/08 28,920 26.29
Lemstone 2,334 10/08 44,340 19.00
American Mattress 4,200 03/09 92,400 22.00
Oreck Home Care 1,500 05/09 34,500 23.00
Hallmark 4,413 01/10 72,240 16.37
T-Mobile 1,920 12/11 57,900 30.16
Great Clips 1,163 07/12 27,660 23.78
Panera Bread 4,200 09/12 96,600 23.00
T.J. Maxx 28,144 09/12 287,000 10.20
Coldstone Creamery 1,400 01/13 33,600 24.00
Payless Shoes 2,496 02/13 52,416 21.00
Famous Footwear 9,773 03/13 134,376 13.75
Party City 12,012 03/13 176,448 14.69
PETCO 13,788 10/13 181,308 13.15
Zales Jewelry 3,300 04/14 79,200 24.00
OfficeMax 20,015 10/18 280,200 14.00
Dominick's 65,844 03/22 804,000 12.21
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
FOX CREEK VILLAGE, LONGMONT, COLORADO
We purchased a newly constructed shopping center known as Fox Creek
Village, containing 139,730 gross leasable square feet which includes 39,200
square feet of ground lease space. The center is located at 1601 Pace Street and
815 East 175th Avenue in Longmont, Colorado.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $20,883,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$149 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
146
One tenant, King Soopers, leases more than 10% of the total gross leasable
area of the property under a lease and a ground lease. The leases with this
tenant require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
King Soopers 68,657 49 10.12 11/03 11/23
King Soopers
Fuel Site
(Ground Lease) 29,200 21 N/A 11/03 11/18
For federal income tax purposes, the depreciable basis in this property
will be approximately $15,750,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Fox Creek Village was built during 2003 and 2004. As of December 1, 2004,
this property was 86% occupied, with a total 120,162 square feet leased to 12
tenants and two ground lease tenants. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Caliber Cleaners 1,300 02/09 29,904 23.00
Cost Cutters 1,300 02/09 29,904 23.00
Nicolo's Chicago Style
Pizza 2,477 02/09 54,504 22.00
Eyeluminations 1,400 02/09 30,804 22.00
Subway 1,580 03/09 34,764 22.00
Starbucks Coffee 1,500 06/09 40,500 27.00
Hi-Fi Nails 1,300 05/09 29,904 23.00
Shape Up to Ship Out 1,300 05/09 27,300 21.00
Squeeze International 1,400 08/09 31,500 22.50
PostNet 1,300 09/09 28,596 22.00
Vino Cellars Wine & Liquor 3,948 01/14 82,908 21.00
King Soopers Fuel Site
(Ground Lease) 29,200 11/18 20,000 N/A
King Soopers 68,657 11/23 695,100 10.12
World Savings Bank
(Ground Lease) 3,500 08/24 88,000 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
147
PUBLIX SHOPPING CENTER, MT. PLEASANT, SOUTH CAROLINA
We purchased a newly constructed shopping center known as Publix Shopping
Center, containing 63,916 gross leasable square feet. The center is located at
US Highway 17 and Park West boulevard in Mt. Pleasant, South Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $12,047,000. These amounts may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$188 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Publix 44,840 70 11.50 04/04 04/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $9,035,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Publix Center is newly constructed and was completed during 2004. As of
December 1, 2004, the property was 95% occupied with a total of 60,510 square
feet leased to 11 tenants. The following table sets forth certain information
with respect to those leases:
Base Rent
Approximate Current Per Square
GLA Leased Lease Renewal Annual Rent Foot Per
Lessee (Sq. Ft.) Ends Options ($) Annum ($)
--------------------------------------------------------------------------------------------------------------------
O'Neill Liquor 1,427 05/09 1/4 yr. 25,814 18.09
Dry Clean USA 1,056 06/09 2/5 yr. 20,592 19.50
Homeflix/Zone 3
Entertainment 3,756 06/09 3/4 yr. 67,608 18.00
Dr. Joe Marcuvich,
Chiropractor 1,414 07/09 2/5 yr. 27,573 19.50
Cellular Wireless 1,000 08/09 - 21,500 21.50
Pak Mail 970 08/09 - 20,855 21.50
Chinese Restaurant 1,656 08/09 1/5 yr. 33,120 20.00
148
Base Rent
Approximate Current Per Square
GLA Leased Lease Renewal Annual Rent Foot Per
Lessee (Sq. Ft.) Ends Options ($) Annum ($)
--------------------------------------------------------------------------------------------------------------------
Lady Fitness Center 1,502 09/09 1/5 yr. 28,538 19.00
Nail Salon 1,014 09/09 1/5 yr. 20,280 20.00
The Salon at Parkwest 1,875 10/09 - 36,563 19.50
Publix 44,840 04/24 6/5 yr. 515,660 11.50
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
WINCHESTER COMMONS, MEMPHIS, TENNESSEE
We purchased an existing shopping center known as Winchester Commons,
containing 93,024 gross leasable square feet. The center is located on 7956
Winchester Road, in Memphis, Tennessee.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $13,023,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$140 per square foot of leasable space.
We purchased this property with our own funds. On November 15, 2004, we
obtained financing in the amount of $7,235,000. The loan requires interest only
payments at an annual rate of 5.12% and matures in December 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Kroger, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Kroger 59,670 64 8.24 05/99 04/19
For federal income tax purposes, the depreciable basis in this property
will be approximately $9,767,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Winchester Commons was built in 1999. As of December 1, 2004, this property
was 98% occupied, with a total 91,424 square feet leased to 15 tenants. The
following table sets forth certain information with respect to those leases:
149
Base Rent Per
Approximate Current Square Foot
GLA Leased Lease Renewal Annual Rent Per Annum
Lessee (Sq. Ft.) Ends Options ($) ($)
--------------------------------------------------------------------------------------------------------------------
The Steak Escape 1,600 01/05 2/5 yr. 26,800 16.75
Shirley's Hallmark 4,400 02/05 3/5 yr. 52,800 12.00
The Wine Cellar 4,000 03/06 - 68,000 17.00
China Dragon Restaurant 2,400 10/06 1/5 yr. 39,600 16.50
Opportunity Mortgage
(A+ Wireless) 1,534 12/06 - 24,544 16.00
Dental Partners of Tennessee 2,000 02/07 1/6 yr. 35,500 17.75
Sunsations 1,600 07/07 - 28,000 17.50
Greg Pickett Golf 1,600 01/09 1/5 yr. 28,272 17.67
The UPS Store 2,000 01/09 - 34,000 17.00
Southwinds Cleaners 1,600 01/09 - 27,600 17.25
Fantastic Sam's 1,600 05/09 - 30,000 18.75
Nextel Communications 1,600 05/09 1/5 yr. 33,600 21.00
East End Grill 3,600 07/09 1/5 yr. 59,400 16.50
For Your Eyes Only 2,220 09/09 - 39,960 18.00
Kroger 59,670 04/19 6/5 yr. 491,760 8.24
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
MANSFIELD TOWNE CROSSING, MANSFIELD, TEXAS
We purchased 95,227 square feet of a newly constructed shopping center
known as Mansfield Towne Crossing, which will contain 111,651 gross leasable
square feet of which 4,500 square feet is ground lease space. The center is
located at Highway 287 and Debbie Lane, in Mansfield, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost for the entire property will be approximately $19,967,700. Our
acquisition cost for the portion we purchased was approximately $16,055,000.
This amount may increase by additional costs which have not yet been finally
determined. We expect any additional costs to be insignificant. Our acquisition
cost for the entire property will be approximately $178 per square foot of
leasable space.
We purchased this property with our own funds. On November 12, 2004, we
obtained financing in the amount of $10,982,300. The loan requires interest only
payments at an annual rate of 5.215% and matures in December 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Ross Dress for Less and Staples, will lease more than 10% of
the total gross leasable area of the property. The leases with these tenants
require the tenants to pay base annual rent on a monthly basis as follows:
150
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------------
Ross Dress for
Less 30,187 27 9.25 05/04 01/15
Staples 20,388 18 10.50 08/03 08/18
For federal income tax purposes, the depreciable basis in this property
when completed will be approximately $14,976,000. When we calculate depreciation
expense for tax purposes, we will use the straight-line method. We depreciate
buildings and improvements based upon estimated useful lives of 40 and 20 years,
respectively.
Mansfield Towne Crossing was newly constructed in 2003 and 2004. As of
December 1, 2004, the portion of the property we purchased was 100% occupied,
with a total 95,227 square feet leased to 19 tenants and one ground lease
tenant, and is currently leasing up the remaining retail space within the
shopping center. The following table sets forth certain information with respect
to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
AT & T Wireless 2,500 07/08 1/5 yr. 55,000 22.00
EB Games 1,500 09/08 2/5 yr. 31,500 21.00
The Cash Store 1,600 09/08 2/5 yr. 30,400 19.00
Sport Clips 1,440 10/08 2/5 yr. 30,240 21.00
GNC 1,200 01/09 2/5 yr. 22,800 19.00
Luxury Nails 1,013 02/09 2/5 yr. 20,260 20.00
Dr. Michael Polson 1,060 05/09 1/5 yr. 20,140 19.00
Robertson Pools 1,440 06/09 2/5 yr. 25,920 18.00
Bath Junkie 1,200 06/09 2/5 yr. 22,800 19.00
Sally Beauty Supplies 1,600 07/09 2/5 yr. 27,200 17.00
Subway 1,600 08/09 2/5 yr. 28,800 18.00
Creekside Collections 3,811 09/09 1/5 yr. 62,882 16.50
Zales Jewelers 3,000 11/13 3/5 yr. 64,500 21.50
Payless Shoesource 3,000 03/14 2/5 yr. 54,000 18.00
Famous Footwear 8,000 07/14 3/5 yr. 120,000 15.00
Pier 1 Imports 10,807 08/14 2/5 yr. 162,105 15.00
Ross Dress for Less 30,068 01/15 5/5 yr. 278,129 9.25
Staples 20,388 08/18 3/5 yr. 214,074 10.50
Mansfield Urgent Care* 3,000 09/09 58,500 19.50
Regions Bank (Ground
Lease)* 4,500 09/23 75,000 N/A
* Tenant has leased space in the portion of the property we have not yet
purchased. The lease has not commenced as of December 1, 2004.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may provide that the tenant's liability for
151
such expenses is limited in some way, usually so that their liability for such
expenses does not exceed a specified amount.
ACADEMY SPORTS & OUTDOORS, MIDLAND, TEXAS
We purchased a newly constructed freestanding retail center known as
Academy Sports & Outdoors, containing 61,150 gross leasable square feet. The
center is located at 5312 West Wadley Avenue in Midland, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $4,250,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately $70
per square foot of leasable space.
We purchased this property with our own funds. On December 2, 2004, we
obtained financing in the amount of $2,337,500. The loan requires interest only
payments at an annual rate of 5.12% and matures in January 2010.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenant would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their lease.
One tenant, Academy Sports & Outdoors, will lease 100% of the total gross
leasable area of the property. The lease term will be determined in accordance
with the tenant's commencement date. The lease with this tenant requires the
tenant to pay base annual rent on a monthly basis as follows:
Approximate Current Base Rent Per
GLA Leased % of Total Annual Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Academy Sports
& Outdoors 61,150 100 340,000 5.56 10/04 10/14
374,000 6.12 11/14 10/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $3,188,000. 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.
CVS PHARMACY, SYLACAUGA, ALABAMA
We purchased a newly constructed 10,055 square foot retail building, leased
to CVS Pharmacy. The center is located at 2 North Broadway Avenue in Sylacauga,
Alabama.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $3,066,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$305 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
152
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenant would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their lease.
One tenant, CVS Pharmacy, leases 100% of the total gross leasable area of
the property. The lease with this tenant requires the tenant to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate % of Current Per Square
GLA Leased Total Annual Foot Per Renewal Lease Term
(Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To
---------------------------------------------------------------------------------------------------------------------
CVS Pharmacy 10,055 100 231,164 22.99 - 08/04 01/30
For federal income tax purposes, the depreciable basis in this property
will be approximately $2,299,500. 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.
GURNEE TOWN CENTER, GURNEE, ILLINOIS
We purchased an existing shopping center known as Gurnee Town Center,
containing 179,602 gross leasable square feet. The center is located at 7105
Grand Avenue in Gurnee, Illinois.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $44,256,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$246 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Linens 'N Things, Old Navy, Borders Books & Music and Cost
Plus World Market, each lease more than 10% of the total gross leasable area of
the property. The leases with these tenants require the tenants to pay base
annual rent on a monthly basis as follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Linens 'N Things 34,000 19 11.50 12/00 01/06
12.50 02/06 01/11
Old Navy 25,090 14 14.00 02/01 01/06
153
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------------------
Borders Books &
Music 24,878 14 16.00 10/00 10/05
17.00 11/05 10/10
19.36 11/10 10/15
21.30 11/15 01/21
Cost Plus World
Market 18,300 10 13.50 10/00 01/03
14.00 02/03 01/06
14.50 02/06 01/11
For federal income tax purposes, the depreciable basis in this property
will be approximately $33,192,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Gurnee Towne Center was built during 2000. As of December 1, 2004, this
property was 96% occupied, with a total 172,188 square feet leased to 26
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
--------------------------------------------------------------------------------------------------------------------
Earthly Goods 2,300 12/05 2/5 yr. 42,550 18.50
Oreck Floor Care Centers 1,600 01/06 1/5 yr. 35,200 22.00
Old Navy 25,090 01/06 2/5 yr. 251,260 14.00
Quizno's Classic Subs 1,600 02/06 2/5 yr. 44,800 28.00
Famous Footwear 8,650 01/06 4/5 yr. 155,700 18.00
Hallmark Creations 6,405 02/06 3/5 yr. 115,290 18.00
Supercuts 1,200 05/06 3/5 yr. 33,600 28.00
After Hours Formalwear 1,050 06/06 2/5 yr. 31,500 30.00
Salon Jazz 1,785 08/06 1/5 yr. 48,195 27.00
Cali Nails 1,000 11/06 1/5 yr. 30,000 30.00
Towne Vision Center 1,360 12/06 1/5 yr. 40,800 30.00
RadioShack 2,700 02/07 2/5 yr. 81,000 30.00
Slott's Hots 2,000 09/07 2/5 yr. 67,900 33.95
Linens 'N Things 34,000 01/11 2/5 yr. 391,000 11.50
Cost Plus World Market 18,300 01/11 3/5 yr. 256,200 14.00
PPG Architectural Finishes 4,000 01/11 2/5 yr. 76,000 19.00
AT&T Wireless 2,800 01/11 2/5 yr. 72,800 26.00
Panda Express 2,240 02/11 2/5 yr. 62,720 28.00
Starbucks 2,500 03/11 2/5 yr. 75,000 30.00
Signature Cleaner 1,600 04/11 2/5 yr. 48,000 30.00
Bedding Experts 3,500 04/11 2/5 yr. 105,000 30.00
Giordano's 3,200 07/11 4/5 yr. 96,000 30.00
154
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
--------------------------------------------------------------------------------------------------------------------
Bath & Body Works 2,340 01/12 2/5 yr. 51,480 22.00
The Avenue 5,250 01/13 4/5 yr. 94,500 18.00
Pier 1 Imports 10,840 08/13 2/5 yr. 217,340 20.05
Borders Books & Music 24,878 01/21 4/5 yr. 398,048 16.00
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
ACADEMY SPORTS & OUTDOORS, PORT ARTHUR, TEXAS
We purchased a newly constructed freestanding retail center known as
Academy Sports & Outdoors, containing 61,001 gross leasable square feet. The
center is located at Memorial Boulevard at Highway 365 in Port Arthur, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $5,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately $82
per square foot of leasable space.
We purchased this property with our own funds. On November 1, 2004, we
obtained financing in the amount of $2,775,000. The loan requires interest only
payments at an annual rate of 5.12% and matures in November 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Academy Sports & Outdoors, will lease 100% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per
GLA Leased % of Total Annual Square Foot Per Lease Term
(Sq. Ft.) GLA Rent ($) Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Academy Sports
& Outdoors 61,001 100 400,000 6.56 10/04 10/12
440,000 7.21 11/12 10/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $3,750,000. 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.
155
PLAZA AT RIVERLAKES, BAKERSFIELD, CALIFORNIA
We purchased an existing shopping center known as Plaza at Riverlakes,
containing 102,836 gross leasable square feet. The center is located at Hageman
Road and Calloway Drive in Bakersfield, California.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $17,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$165 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Ralph's Grocery Store, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Ralph's Grocery Store 58,000 56 6.03 11/01 11/26
For federal income tax purposes, the depreciable basis in this property
will be approximately $13,050,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Plaza at Riverlakes was built during 2001. As of December 1, 2004, this
property was 100% occupied, with a total 102,836 square feet leased to 22
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Base Rent Per
GLA Leased Lease Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Jane's Jewelers 1,170 12/04 1/5 yr. 23,868 20.40
State Farm Insurance 1,170 12/04 1/4 yr. 24,300 20.77
Team Gear 1,463 01/06 1/3 yr. 28,944 19.78
Coldwell Banker 2,260 07/06 2/1 yr. 45,288 20.04
Movie Gallery 4,800 11/06 1/5 yr. 103,680 21.60
Pacific West Wireless 1,495 12/06 1/5 yr. 31,392 21.00
Desired Image Tanning
Salon 1,275 02/07 - 26,772 21.00
Angel Food Donuts 1,268 02/07 1/5 yr. 24,684 19.47
156
Approximate Base Rent Per
GLA Leased Lease Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
--------------------------------------------------------------------------------------------------------------------
Supercuts 1,202 02/07 1/5 yr. 26,916 22.39
One House Martinizing 1,200 04/07 1/5 yr. 26,208 21.84
Miss Holiday 1,360 06/07 1/3 yr. 24,480 18.00
R.J.'s at Riverlakes 2,500 08/07 1/5 yr. 54,621 21.85
Teaze Salon 1,885 10/07 1/5 yr. 30,028 15.93
Xanders Grill 2,000 10/07 1/5 yr. 42,012 21.01
Planet Smoothie 1,490 09/09 29,508 19.80
Wells Fargo Financial 1,925 09/09 1/5 yr. 41,580 21.60
Dewar's Candy Shop 2,885 12/11 2/5 yr. 48,468 16.80
Baja Fresh Mexican Grill 3,010 03/13 3/5 yr. 61,404 20.40
Fitness 19 7,200 03/13 2/5 yr. 127,728 17.74
The UPS Store 1,778 05/13 2/5 yr. 37,344 21.00
Quick One Chinese 1,500 06/14 30,060 20.04
Ralph's Grocery Store 58,000 11/26 7/5 yr. 350,004 6.03
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
LAKE MARY POINTE, ORLANDO, FLORIDA
We purchased an existing shopping center known as Lake Mary Pointe,
containing 51,052 gross leasable square feet. The center is located at U.S.
17-92 and Weldon Boulevard, in Orlando, Florida.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $6,620,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$130 per square foot of leasable space.
We purchased this property with our own funds. On November 8, 2004, we
obtained financing in the amount of $3,657,500. The loan requires interest only
payments at an annual rate of 5.17% and matures in December 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
157
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Publix 37,866 74 8.60 12/99 12/19
For federal income tax purposes, the depreciable basis in this property
will be approximately $4,965,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Lake Mary Pointe was built in 1999. As of December 1, 2004, this property
was 96% occupied, with a total 48,952 square feet leased to nine tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Rent Square Foot
Lessee (Sq. Ft.) Lease Ends Options ($) Per Annum ($)
--------------------------------------------------------------------------------------------------------------------
GNC 1,050 12/04 - 21,525 20.50
Hair Cuttery 1,050 02/05 1/5 yr. 23,931 22.79
Avenue Nails 1,043 08/05 1/5 yr. 25,623 24.57
Pak Mail Center 1,050 09/05 1/5 yr. 24,227 23.07
Vivonia's Italian Pizzeria 3,750 09/06 1/5 yr. 84,365 22.50
White Swan Cleaners 1,050 12/08 - 16,800 16.00
Subway 1,050 02/09 3/5 yr. 17,063 16.25
China Cook 1,043 07/11 1/5 yr. 20,516 19.67
Publix 37,866 12/19 6/5 yr. 325,648 8.60
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
AZALEA SQUARE SHOPPING CENTER, SUMMERVILLE, SOUTH CAROLINA
We purchased a portion of a newly constructed shopping center known as
Azalea Square Shopping Center, containing 395,738 gross leasable square feet
(which includes one ground lease space). We intend to purchase 181,942 square
feet of that shopping center including the ground lease space. The center is
located at U.S. 17-A and Interstate 26 in Summerville, South Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost for the portion we purchased was approximately $30,012,500.
This amount may increase by additional costs which have not yet been finally
determined. We expect any additional costs to be insignificant. Our acquisition
cost for the portion we purchased was approximately $165 per square foot of
leasable space.
We purchased this property with our own funds. On November 12, 2004, we
obtained financing in the amount of $16,535,000. The loan requires interest only
payments at an annual rate of 5.01% and matures in December 2009.
158
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Five tenants, T.J. Maxx, Linens 'N Things, Ross Dress for Less, Cost Plus
World Market and PETsMART, each lease more than 10% of the total gross leasable
area of the portion of the property we purchased. The leases with these tenants
require the tenants to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
-----------------------------------------------------------------------------------------------------------------
T.J. Maxx 30,000 16 7.75 07/03 07/08
8.25 08/08 07/13
Linens 'N Things 25,395 14 10.75 09/03 01/09
11.00 02/09 01/14
Ross Dress for Less 30,187 17 9.50 06/03 01/14
Cost Plus World 18,300 10 12.50 09/04 01/10
Market 13.50 02/10 01/15
PETsMART 19,107 11 11.00 08/04 01/10
11.75 02/10 01/15
12.50 02/15 01/20
For federal income tax purposes, the depreciable basis in this property
will be approximately $22,509,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Azalea Square was newly constructed in 2003 and 2004. As of December 1,
2004, the property was 97% occupied with a total 177,042 square feet leased to
19 tenants and one ground lease tenant. The following table sets forth certain
information with respect to those leases:
Current Base Rent Per
Approximate GLA Lease Renewal Annual Rent Square Foot Per
Lessee Leased (Sq. Ft.) Ends Options ($) Annum ($)
----------------------------------------------------------------------------------------------------------------------
Dress Barn 8,050 09/08 3/5 yr. 120,750 15.00
Artisan Jewelers 2,400 10/08 1/5 yr. 59,328 24.72
EB Games 1,600 10/08 1/5 yr. 36,800 23.00
S&K Menswear 3,603 10/08 2/5 yr. 64,854 18.00
Sport Clips 1,200 11/08 2/5 yr. 25,200 21.00
Phone Smart 1,800 12/08 2/5 yr. 37,800 21.00
Princess Nails 1,500 04/09 1/5 yr. 36,000 24.00
Marble Slab
Creamery 1,200 06/09 1/5 yr. 26,400 22.00
American Mattress 2,800 08/09 1/5 yr. 64,400 23.00
159
Current Base Rent Per
Approximate GLA Lease Renewal Annual Rent Square Foot Per
Lessee Leased (Sq. Ft.) Ends Options ($) Annum ($)
----------------------------------------------------------------------------------------------------------------------
Rococo Bakery 1,500 10/09 1/5 yr. 27,744 18.50
Hibbett Sporting
Goods 5,000 01/10 2/5 yr. 70,000 14.00
T.J. Maxx 30,000 07/13 3/5 yr. 232,500 7.75
Pier 1 Imports 10,800 08/13 2/5 yr. 167,400 15.50
Linens 'N Things 25,395 01/14 3/5 yr. 272,996 10.75
Ross Dress for Less 30,000 01/14 4/5 yr. 286,776 9.50
Shoe Carnival 9,000 03/14 2/5 yr. 112,500 12.50
McAllisters Deli 3,600 06/14 2/5 yr. 75,600 21.00
Cost Plus World
Market 18,300 01/15 3/5 yr. 228,750 12.50
PETsMART 19,107 01/20 4/5 yr. 210,177 11.00
Logans (Ground
Lease) * 11/23 4/5 yr. 65,000 N/A
* To be determined
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
DENTON CROSSING, DENTON, TEXAS
We purchased the completed portion of a shopping center that is still under
construction which is known as Denton Crossing. We purchased 278,840 gross
leasable square feet which had been completed out of approximately 329,663 gross
leasable square feet. The remaining portion of the shopping center will be
completed in stages over the next two years. The center is located at 1800 S.
Loop 288 in Denton, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost for the portion we purchased was approximately $53,402,000 with
$10,598,000 remaining under contract for completion. These amounts may increase
by additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost for the portion we
purchased was approximately $192 per square foot of leasable space and, upon
completion, we be approximately $194 per square foot of leasable space.
We purchased this property with our own funds. On December 7, 2004, we
obtained financing in the amount of $35,200,000. The loan requires interest only
payments at an annual rate of 4.30% and matures in January 2010.
We do not intent to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
160
Three tenants, Oshman's Sporting Goods, Best Buy and T.J. Maxx, each lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
--------------------------------------------------------------------------------------------------------------
Oshman's
Sporting Goods 50,000 18 10.00 12/03 01/14
Best Buy 30,000 11 12.00 10/03 01/09
12.50 02/09 01/14
T.J. Maxx 28,000 10 9.25 09/03 09/08
9.75 10/08 09/13
For federal income tax purposes, the depreciable basis in this property
will be approximately $38,428,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Denton Crossing commenced construction in 2003 and we believe it will be
completed within the next two years. As of December 1, 2004, the portion of the
shopping center we purchased was 92% occupied with a total 257,833 square feet
leased to 27 tenants. The following table sets forth certain information with
respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Lane Bryant 5,000 10/08 3/5 yr. 95,000 19.00
Dress Barn 8,000 12/08 3/5 yr. 120,000 15.00
Chipolte Mexican Grill 2,578 12/08 4/5 yr. 61,872 24.00
Advance America 1,440 12/08 2/5 yr. 34,560 24.00
Happy Nails Spa 1,297 12/08 1/5 yr. 27,237 21.00
Fantasy Nails 1,200 12/08 1/5 yr. 27,600 23.00
Sally Beauty Supplies 1,600 01/09 3/5 yr. 35,200 22.00
H & R Block 2,000 01/09 1/5 yr. 47,000 23.50
Roly Poly Rolled
Sandwiches 1,200 01/09 2/5 yr. 29,100 24.25
New York Subway 1,500 01/09 1/5 yr. 33,750 22.50
Sport Clips 1,400 01/09 2/5 yr. 31,500 22.50
Rice Boxx Asian Cafe 2,504 03/09 3/5 yr. 65,104 23.50
T-Mobile 1,873 04/09 1/5 yr. 45,345 24.21
The Mattress Firm 6,000 05/09 2/5 yr. 147,000 24.50
Old Navy 14,800 05/09 3/5 yr. 206,460 13.95
Wing Pit 1,807 08/09 2/5 yr. 45,175 25.00
Wells Fargo Bank 1,818 08/09 2/5 yr. 45,450 25.00
T.J. Maxx 28,000 09/13 3/5 yr. 259,000 9.25
161
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Pier 1 Imports 9,500 09/13 2/5 yr. 152,000 16.00
Famous Footwear 10,000 10/13 3/5 yr. 145,000 14.50
Mattress Giant 4,553 12/13 2/5 yr. 104,719 23.00
Hollywood Video 6,300 01/14 2/5 yr. 126,000 20.00
Cost Plus World Market 18,300 01/14 3/5 yr. 228,750 12.50
Oshman's Sporting
Goods 50,000 01/14 3/5 yr. 500,000 10.00
Bed, Bath & Beyond 24,000 01/14 3/5 yr. 234,000 9.75
Best Buy 30,000 01/14 4/5 yr. 360,000 12.00
Michaels 21,163 02/14 3/5 yr. 222,212 10.50
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
BED, BATH & BEYOND PLAZA, MIAMI, FLORIDA
We purchased a shopping center newly constructed during 2003 and 2004 known
as Bed, Bath & Beyond Plaza, containing 97,496 gross leasable square feet. This
center has entered into a 65-year ground lease with the owner of the real
property. We are not acquiring the underlying real property but only the
buildings on the real property and will continue to be under a 65 year ground
lease. The center is located at Northwest 107th Avenue and Northwest 19th Street
in Miami, Florida.
We purchased this center from an unaffiliated third party. Our total
acquisition cost was approximately $20,350,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$209 per square foot of leasable space.
We purchased this center with our own funds. On November 12, 2004, we
obtained financing in the amount of $11,192,500. The loan requires interest only
payments at an annual rate of 5.17% and matures in December 2009.
We do not intend to make significant repairs and improvements to this
center over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Bed, Bath & Beyond, Office Depot, Pier 1 Imports and Party
City, will lease more than 10% of the total gross leasable area of the center.
The leases with these tenants require the tenant to pay base annual rent on a
monthly basis as follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------------------
Bed, Bath & Beyond 28,053 29 13.50 03/04 01/20
162
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------------------
Office Depot 16,175 17 23.32 08/04 08/14
Pier 1 Imports 10,582 11 25.41 12/03 12/04
25.50 01/05 12/08
26.50 01/09 12/13
Party City 10,930 11 18.00 09/04 09/07
19.62 10/07 09/10
21.93 10/10 09/13
23.31 10/13 09/14
For federal income tax purposes, the depreciable basis in this center will
be approximately $15,263,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Bed, Bath & Beyond Plaza is a newly constructed center completed during
2003 and 2004. As of December 1, 2004, the property was 97% occupied, with a
total of 94,544 square feet leased to 14 tenants. The following table sets forth
certain information with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------------------------------------
Sally Beauty Supplies 1,368 05/09 2/5 yr. 34,200 25.00
A+ Nails 1,301 05/09 1/5 yr. 36,428 28.00
Bo Concept 5,100 06/09 1/5 yr. 122,400 24.00
Young Eye Associates 1,339 08/09 37,492 28.00
Sprint PCS 3,622 12/10 2/5 yr. 103,227 28.50
Pier 1 Imports 10,582 12/13 3/5 yr. 268,898 25.41
Starbucks 1,402 03/14 3/5 yr. 49,070 35.00
Fuddruckers 6,000 04/14 4/5 yr. 162,000 27.00
Cargo Kids! 4,565 04/14 3/5 yr. 118,912 26.05
Moe's Southwestern Grill 2,400 05/14 62,400 26.00
Doral Dentist Partners 1,707 07/14 2/5 yr. 40,968 24.00
Office Depot 16,175 08/14 4/5 yr. 377,201 23.32
Party City 10,930 09/14 2/2 yr. 196,740 18.00
&
2/3 yr.
Bed, Bath & Beyond 28,053 01/20 4/5 yr. 378,716 13.50
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
163
GMAC INSURANCE OFFICE BUILDING, WINSTON-SALEM, NORTH CAROLINA
We purchased a commercial office complex, containing approximately 501,064
of gross leasable square feet. The property is comprised of an 18-story office
building, a six-story office building and various parcels of land that are used
as surface and deck parking lots. The complex is located at 500 West 5th Street
in Winston-Salem, North Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition was approximately $60,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$120 per square foot of leasable space.
We purchased this property with our own funds. On September 29, 2004, we
obtained financing in the amount of $33,000,000. The loan requires interest only
payments at an annual interest rate of 4.61% and matures October 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenant would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of its lease.
One tenant, GMAC Insurance, leases 100% of the total gross leasable area of
the property. The lease with this tenant requires the tenant to pay base annual
rent on a monthly basis over the next ten years as follows:
Approximate % of Current Base Rent Per
GLA Leased Total Annual Square Foot Renewal Lease Term
(Sq. Ft.) GLA Rent ($) Per Annum ($) Options Beginning To
--------------------------------------------------------------------------------------------------------------------
GMAC
Insurance 501,064 100 5,164,449 10.31 2/5 yr. 10/04 09/09
5,266,828 10.51 10/09 09/10
5,369,206 10.72 10/10 09/11
5,475,680 10.93 10/11 09/12
5,582,154 11.14 10/12 09/13
5,692,722 11.36 10/13 09/14
For federal income tax purposes, the depreciable basis in this property is
approximately $45,000,000. 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.
BOULEVARD AT THE CAPITAL CENTRE, LANDOVER, MARYLAND
We entered into a joint venture agreement with the current owners of a
newly constructed shopping center known as Boulevard at the Capital Centre,
containing 482,445 gross leasable square feet. The center is located on the
Washington D.C. Beltway (I-495 and I-95), in Landover, Maryland. The property is
on a long term ground lease with the Revenue Authority of Price George's County
for about 70 years.
We entered into a joint venture agreement with the current owners of this
property, who are unaffiliated third parties. We made a capital contribution in
the amount of $121,724,000 to this joint
164
venture and received an equity interest representing a majority ownership and
operating control of the joint venture.
We made our capital contribution to the joint venture with our own funds.
On September 8, 2004, we obtained financing in the amount of $71,500,000. The
loan requires interest only payments at an annual rate of 5.12% and matures
October 2009. Through additional joint ventures, the joint venture partners may
acquire additional properties, which would be managed by our joint venture
partner.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Lowe's Theaters Magic Johnson, will lease more than 10% of the
total gross leasable area of the property. The lease term has been projected in
accordance with the tenant's lease commencement date. The lease with this tenant
requires the tenant to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------------------
Lowe's Theaters
Magic Johnson 52,500 11 22.00 10/04 09/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $91,293,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Boulevard at the Capital Centre was newly constructed in 2004. The property
has been in a leasing up phase and nine tenants have executed leases for retail
space within the shopping center whose leases have not yet commenced. As of
December 1, 2004, this property was 88% occupied with a total of 423,372 square
feet leased by 59 tenants. The following table sets forth certain information
with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
EB Game World 1,200 11/08 1/5 yr. 40,800 34.00
Claire's Boutique 1,166 11/08 1/5 yr. 34,980 30.00
Sprint Spectrum 1,965 11/08 1/5 yr. 64,809 32.98
Nextel 1,871 11/08 1/5 yr. 74,840 40.00
Capital Nails 1,500 11/08 1/5 yr. 61,800 41.20
Kay Jewelers 1,552 12/08 1/5 yr. 60,000 38.66
Cold Stone Creamery 1,157 01/09 2/5 yr. 42,809 37.00
Sweet Tooth Cakes &
Pastries 1,400 02/09 1/5 yr. 49,000 35.00
Casual Male Big & Tall 3,500 03/09 1/5 yr. 84,000 24.00
The Classic Woman 2,200 04/09 2/5 yr. 63,800 29.00
Next Day Blinds* 3,000 09/09 93,000 31.00
165
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Head 2 Head 2,568 12/10 - 65,484 25.50
Oxford Street 3,400 12/10 1/5 yr. 86,974 25.58
T-Mobile 1,800 01/11 - 72,000 40.00
Gallery of African Wildlife 2,000 02/11 1/3 yr. 58,000 29.00
Jilliano Shoes 1,998 04/11 1/5 yr. 40,955 20.50
Qdoba Mexican Grill 3,000 11/13 2/5 yr. 97,500 32.50
Lens Crafters 4,653 11/13 2/5 yr. 139,590 30.00
Pier 1 Imports 10,068 11/13 ** 181,224 18.00
Foot Locker 3,433 11/13 ** 102,048 29.73
Yankee Candle Company 2,000 11/13 1/5 yr. 48,000 24.00
Men's Wearhouse 6,400 11/13 2/5 yr. 147,200 23.00
Penner Clothing 5,194 11/13 2/2 yr. & 142,835 27.50
1/1 yr.
Panda Express 2,100 11/13 1/5 yr. 73,500 35.00
Foot Action USA 3,500 11/13 2/5 yr. 98,000 28.00
Shoe City 7,700 11/13 2/5 yr. 180,950 23.50
Drake's Place 2,000 11/13 1/5 yr. 49,440 24.72
Quiznos 1,562 11/13 2/5 yr. 51,546 33.00
Cambridge Beauty Supply 2,900 11/13 1/5 yr. 77,662 26.78
The Children's Place 6,000 11/13 2/5 yr. 132,012 22.00
Lane Bryant 5,000 11/13 2/5 yr. 120,000 24.00
Starbucks 1,250 11/13 2/5 yr. 37,500 30.00
Changes at Capital Centre 4,000 12/13 1/5 yr. 104,000 26.00
Lucaya 3,000 12/13 1/5 yr. 63,000 21.00
Teaming Up/Expressions 3,103 12/13 1/5 yr. 80,678 26.00
The Big Screen Store 4,500 12/13 2/5 yr. 103,500 23.00
Total Sport 3,756 12/13 1/5 yr. 103,553 27.57
Technicolor Salon & Spa 4,413 12/13 1/5 yr. 110,325 25.00
Payless Shoesource 2,800 01/14 2/5 yr. 78,400 28.00
Mattress Warehouse 4,112 02/14 2/5 yr. 102,800 30.00
Honeycomb Hideout 2,500 02/14 ** 68,750 27.50
Five Guys Restaurant 1,500 02/14 1/5 yr. 48,000 32.00
Red Star Tavern 7,661 02/14 2/5 yr. 268,135 35.00
Babalu/Carraba's Glory
Days* 6,085 04/14 146,040 24.00
Kobe Japanese
Steakhouse* 7,520 04/14 172,960 23.00
African Stargina 1,500 05/14 1/5 yr. 47,250 31.50
McHunu House of Style 2,900 05/14 2/5 yr. 76,850 26.50
Reggiano's* 2,000 05/14 50,000 25.00
Anne Taylor Loft 5,471 05/14 ** 75,000 13.71
Sports Authority 40,500 07/14 3/5 yr. 506,250 12.50
DSW Shoe Warehouse 25,000 07/14 4/5 yr. 331,250 13.25
Stonefish Grill 6,085 08/14 ** 212,975 35.00
Soul Fixins'* 2,085 08/14 62,550 30.00
Infusions Cafe* 3,350 09/14 83,750 25.00
Linens 'N Things 34,440 01/15 ** 430,512 12.50
166
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Pizzeria Uno 5,719 10/18 3/5 yr. 110,000 19.23
Bugaboo Creek Steakhouse 6,400 11/18 2/5 yr. 110,000 17.19
Provident Bank of
Maryland 3,215 11/18 3/5 yr. 95,000 29.55
Borders Books & Music 22,915 11/18 4/5 yr. 441,801 19.28
Chuck E. Cheese 11,300 02/19 3/5 yr. 95,000 8.41
Circuit City 33,828 07/19 3/5 yr. 490,506 14.50
Office Depot 18,000 07/19 ** 234,000 13.00
Blu Bambu* 4,050 09/19 113,250 27.96
Chic-Fil-A 4,250 11/23 3/5 yr. 85,000 20.00
Golden Corrall 11,967 12/23 3/5 yr. 112,500 9.40
Lowe's Theaters Magic
Johnson 52,500 09/24 ** 1,155,000 22.00
* As of December 1, 2004 the tenant's lease term had not yet commenced.
** Renewal option information not available.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
HARRIS TEETER STORE #158, WILMINGTON, NORTH CAROLINA
We purchased a freestanding retail building leased to a Harris Teeter
grocery store, containing 57,230 gross leasable square feet. The center is
located at Wilshire Boulevard and Kerr Avenue in Wilmington, North Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $7,200,000. This amount may 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 $126 per square foot of leasable space.
We purchased this property with our own funds. On November 1, 2004, we
obtained financing in the amount of $3,960,000. The loan requires interest only
payments at an annual rate of 4.915% and matures in November 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Harris Teeter Store #158, will lease 100% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
167
Approximate % of Current Base Rent Per
GLA Leased Total Annual Square Foot Renewal Lease Term
Lessee (Sq. Ft.) GLA Rent ($) Per Annum ($) Options Beginning To
----------------------------------------------------------------------------------------------------------------------
Harris 1/5 yr.
Teeter &
Store #158 57,230 100 558,340 9.76 1/4 yr. 05/95 05/15
For federal income tax purposes, the depreciable basis in this property
will be approximately $5,400,000. 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.
HARVEST TOWNE CENTER, KNOXVILLE, TENNESSEE
We purchased an existing shopping center known as Harvest Towne Center,
containing 42,213 gross leasable square feet. The center is located at 4824 N.
Broadway Street in Knoxville, Tennessee.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $8,950,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$212 per square foot of leasable space.
We purchased this property with our own funds. On December 3, 2004, we
obtained financing in the amount of $5,005,000. The loan requires interest only
payments at an annual rate of 4.935% and matures in January 2010.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, CVS Pharmacy, Pet Supplies Plus and Ruby Tuesday, each lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
CVS Pharmacy 10,125 24 24.50 09/99 08/04
25.97 09/04 08/09
27.53 09/09 08/14
29.18 09/14 01/20
Pet Supplies Plus 8,120 19 14.08 02/04 01/05
14.33 02/05 01/06
168
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Ruby Tuesday
(Ground Lease) 4,582 11 N/A 07/02 12/12
For federal income tax purposes, the depreciable basis in this property
will be approximately $6,713,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Harvest Towne Center was built in 1996 to 1999. As of December 1, 2004,
this property was 100% occupied, with a total 42,213 square feet lease to nine
tenants and three ground lease tenants. The following table sets forth certain
information with respect to those leases:
Approximate Base Rent Per
GLA Leased Lease Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Month-to-
Northside Properties 3,480 Month 33,225 9.55
Krispy Creme Donuts
(Ground Lease) 2,158 06/05 2/5 yr. 41,400 N/A
Pet Supplies Plus 8,120 01/06 2/5 yr. 114,365 14.08
Vacuums Unlimited 986 05/06 - 11,832 12.00
Ross the Boss 4,104 09/06 - 61,560 15.00
Stuart R. Humberg D.C. 1,000 11/06 2/3 yr. 15,815 15.82
US Cleaners, Inc. 1,427 11/07 1/5 yr. 20,691 14.50
Briano's Pizza 2,053 01/08 1/5 yr. 29,769 14.50
Beneficial Tennessee, Inc. 1,670 06/08 1/5 yr. 23,380 14.00
Ruby Tuesday (Ground
Lease) 4,582 12/12 4/5 yr. 59,400 N/A
Taco Bell (Ground Lease) 2,508 11/14 4/5 yr. 42,504 N/A
CVS Pharmacy 10,125 01/20 3/5 yr. 262,946 25.97
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
LINCOLN PARK, DALLAS, TEXAS
We purchased an existing shopping center known as Lincoln Park, containing
148,806 gross leasable square feet. The center is located at 7700 W. Northwest
Highway in Dallas, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $47,515,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$319 per square foot of leasable space.
169
We purchased this property with our own funds. On October 8, 2004, we
obtained financing in the amount of $26,153,000. The loan requires interest only
payments at an annual rate of 4.61% and matures in November 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Tom Thumb, Barnes & Noble and The Container Store, each
lease more than 10% of the total gross leasable area of the property. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Tom Thumb 50,000 34 11.50 08/98 07/13
12.00 08/13 07/23
Barnes & Noble 29,485 20 20.00 05/98 09/03
21.00 10/03 09/08
22.00 10/08 01/14
The Container Store 25,000 17 28.00 02/00 01/05
29.00 02/05 01/10
30.00 02/10 01/15
For federal income tax purposes, the depreciable basis in this property
will be approximately $35,636,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Lincoln Park was built in 1998. As of December 1, 2004, this property was
100% occupied, with a total 148,806 square feet leased to 14 tenants. The
following table sets forth certain information with respect to those leases:
Base Rent Per
Approximate Current Square Foot
GLA Leased Renewal Annual Rent Per Annum
Lessee (Sq. Ft.) Lease Ends Options ($) ($)
--------------------------------------------------------------------------------------------------------------------
Marvin Brown 4,408 05/05 2/5 yr. 119,016 27.00
T-Mobile 1,402 10/05 1/5 yr. 68,698 49.00
Maggie Moo's Ice Cream 1,375 12/07 1/5 yr. 48,125 35.00
Romies Nail Boutique 1,098 12/07 2/5 yr. 39,528 36.00
Blue Mesa Grill 8,250 12/08 2/5 yr. 235,950 28.60
Eyemasters 3,000 12/08 2/5 yr. 134,400 44.80
Elizabeth Arden 6,058 01/09 2/5 yr. 151,450 25.00
Up In Smoke 1,164 01/09 1/5 yr. 58,200 50.00
Bag 'N Baggage 3,554 04/09 - 106,620 30.00
Barnes & Noble 29,485 01/14 3/5 yr. 619,185 21.00
170
Base Rent Per
Approximate Current Square Foot
GLA Leased Renewal Annual Rent Per Annum
Lessee (Sq. Ft.) Lease Ends Options ($) ($)
--------------------------------------------------------------------------------------------------------------------
A Pea in the Pod 4,012 09/14 2/5 yr. 144,432 36.00
The Container Store 25,000 01/15 3/5 yr. 725,000 28.00
Cheesecake Factory 10,000 09/18 2/5 yr. 347,500 34.75
Tom Thumb 50,000 07/23 3/5 yr. 575,000 11.50
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
SAUCON VALLEY SQUARE, BETHLEHEM, PENNSYLVANIA
We purchased an existing shopping center known as Saucon Valley Square,
containing 80,695 gross leasable square feet, including 6,208 square feet of
ground lease space. The center is located on I-78 and Rouse 378 in Bethlehem,
Pennsylvania.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $16,042,600. This amount may 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 $199 per square foot of leasable space.
We purchased this property with our own funds. On September 7, 2004, we
obtained financing in the amount of $8,850,900. The loan requires interest only
payments at an annual rate of 5.115% and matures in October 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Super Fresh Food Market, leases more than 10% of the total
gross leasable area of the property. The lease with this tenant requires the
tenant to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Super Fresh Food
Market 47,827 59 13.00 12/98 12/03
13.75 01/04 12/08
14.50 01/09 12/13
15.25 01/14 12/18
For federal income tax purposes, the depreciable basis in this property
will be approximately $12,032,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line
171
method. We depreciate buildings and improvements based upon estimated useful
lives of 40 and 20 years, respectively.
Saucon Valley Square was built in 1999. As of December 1, 2004, this
property was 100% occupied, with a total 80,695 square feet leased to 13 tenants
and one ground lease tenant. The following table sets forth certain information
with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
--------------------------------------------------------------------------------------------------------------------
Lafayette Ambassador 2,800 05/08 3/5 yr. 42,900 15.32
Starter's Pub (Ground
Lease) 6,208 12/08 3/5 yr. 88,000 N/A
Holiday Hair 1,200 01/09 1/5 yr. 20,790 17.33
Casa Mia Pizzeria 2,000 01/09 2/5 yr. 34,650 17.33
Subway 1,200 02/09 1/5 yr. 22,050 18.38
Foxes Hallmark 5,200 02/09 2/5 yr. 96,200 18.50
Blockbuster Video 5,140 03/09 2/5 yr. 92,520 18.00
No. 1 Chinese
Restaurant 1,200 03/09 1/5 yr. 25,080 20.90
RadioShack 2,320 03/09 1/5 yr. 36,800 15.86
La Nails 1,200 04/09 - 24,000 20.00
Buena Bistro 1,600 05/09 - 29,840 18.65
Werkheiser Jewelers 1,200 12/13 - 20,790 17.33
Saucon Valley 1,600 01/14 - 27,720 17.33
Cleaners
Super Fresh Food
Market 47,827 12/18 8/5 yr. 657,621 13.75
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
QUAKERTOWN SHOPPING CENTER, QUAKERTOWN, PENNSYLVANIA
We anticipate purchasing a newly constructed shopping center known as
Quakertown Shopping Center, containing 61,832 gross leasable square feet (which
includes 3,500 square feet of ground leased space). The center is located at
Route 309 and Tollgate Road in Quakertown, Pennsylvania.
On August 25, 2004, we funded the initial installment of a $12,664,794
first mortgage in the amount of $11,398,314. The remaining $1,266,480 is
expected to be funded in 2004. The interest rate of this first mortgage is
7.5573% and it matures in August 2005. We anticipates purchasing the center when
the mortgage matures for approximately $12,665,000. We will use the funds from
repayment of the first mortgage towards our purchase price.
One tenant, Giant Food Stores, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenants
to pay base annual rent on a monthly basis as follows:
172
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Giant Food Stores 54,332 88 15.86 05/04 02/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $9,499,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Quakertown Shopping Center was constructed in 2004. As of December 1, 2004,
this property was 100% occupied, with a total 61,832 (including ground leased
space) square feet leased to four tenants and one ground lease tenant. The
following table sets forth certain information with respect to those leases:
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
--------------------------------------------------------------------------------------------------------
Best Cuts 1,200 02/09 25,200 21.00
Electronics Boutique 1,200 02/14 25,200 21.00
Dry Cleaner Drop Off 1,600 02/14 33,600 21.00
Giant Food Stores 54,332 02/24 861,706 15.86
Perkasie Bank (Ground Lease) 3,500 02/24 90,000 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
THE COLUMNS SHOPPING CENTER, JACKSON, TENNESSEE
We purchased Phase II of The Columns Shopping Center, containing 44,827
gross leasable square feet, for approximately $5,741,000. We previously
purchased Phase I and Phase II containing 128,600 gross leasable square feet for
approximately $20,770,000. The total shopping center contains 173,427 gross
leasable square feet and is newly constructed. The center is located at 1300
Vann Drive in Jackson, Tennessee.
We purchased this property from an unaffiliated third party. Our total
acquisition cost for Phase I, Phase II and Phase III was approximately
$26,511,000. These amounts may increase by additional costs which have not yet
been finally determined. We expect any additional costs to be insignificant. Our
acquisition cost was approximately $153 per square foot of leasable space.
We purchased this property with our own funds. On November 4, 2004 and
October 5, 2004, we obtained financing in the amount of $3,442,100 and
$11,423,300, respectively. The loans require interest only payments at an annual
rate of 4.95% and 4.91%, respectively, and mature in May 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
173
Four tenants, Best Buy, Ross Dress for Less, Marshalls and Bed, Bath &
Beyond, will lease more than 10% of the total gross leasable area of the
property. The lease term will be determined in accordance with the tenant's
commencement date. The leases with these tenants require the tenants to pay base
annual rent on a monthly basis as follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Best Buy 30,000 17 16.00 08/03 09/08
16.50 10/08 01/14
Ross Dress for Less 30,187 17 9.70 08/04 01/15
Marshalls 28,000 16 7.75 10/02 10/08
8.10 11/08 10/13
Bed, Bath & Beyond 20,000 12 9.75 11/03 01/14
For federal income tax purposes, the depreciable basis in this property
will be approximately $19,883,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
The Columns Shopping Center is newly constructed in 2003/2004. As of
December 1, 2004, the property was 96% occupied, with a total 166,227 square
feet leased to 15 tenants. The following table sets forth certain information
with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
--------------------------------------------------------------------------------------------------------------------
Oreck Vacuums 1,600 11/08 1/5 yr. 24,800 15.50
Dress Barn 7,700 12/08 3/5 yr. 102,795 13.35
Books A Million 12,500 01/09 4/3 yr. 134,375 10.75
Rack Room Shoes 6,000 03/09 3/5 yr. 85,500 14.25
Spoil Me Rotten 2,000 03/09 - 31,000 15.50
Grass Monkey 1,600 03/09 1/5 yr. 24,000 15.00
Don Panchos Restaurant 4,000 04/09 1/5 yr. 60,000 15.00
Wells Fargo 2,400 05/09 1/5 yr. 37,200 15.50
Old Navy 14,800 10/09 2/5 yr. 186,480 12.60
Rue 21 4,000 12/09 2/5 yr. 64,000 16.00
Marshalls 28,000 10/13 3/5 yr. 217,000 7.75
Best Buy 30,000 01/14 4/5 yr. 480,000 16.00
Bed, Bath & Beyond 20,000 01/14 3/5 yr. 195,000 9.75
Quizno's 1,600 03/14 2/5 yr. 28,800 18.00
Ross Dress for Less 30,027 01/15 4/5 yr. 292,763 9.75
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may provide that the tenant's liability for
174
such expenses is limited in some way, usually so that their liability for such
expenses does not exceed a specified amount.
MITCHELL RANCH PLAZA, NEW PORT RICHEY, FLORIDA
We purchased 200,404 square feet of a portion of a 324,108 square foot
newly constructed shopping center known as Mitchell Ranch Plaza. The center is
located at State Road 54 and Little Road in New Port Richey, Florida.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $34,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$170 per square foot of leasable space.
We purchased this property with our own funds. On September 2, 2004, we
obtained financing in the amount of $18,700,000. The loan requires interest only
payments at an annual rate of 4.53% and matures in October 2007.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Publix, Marshalls and Ross Dress for Less, each leases more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------------------
Publix 44,840 22 9.85 07/03 07/23
Marshalls 30,000 15 7.95 07/03 07/08
8.45 08/08 07/13
Ross Dress for 30,176 15 9.75 07/03 01/09
Less 10.25 02/09 01/14
For federal income tax purposes, the depreciable basis in this property
will be approximately $25,500,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Mitchell Ranch Plaza was constructed in 2003. As of December 1, 2004, this
property was 95% occupied, with a total 190,404 square feet leased to 36
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
--------------------------------------------------------------------------------------------------------------------
Cruise Warehouse 900 09/06 1/3 yr. 18,228 20.25
175
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Pocket Change 1,200 09/06 - 26,400 22.00
Tampa Bay
Insurance 900 09/06 1/3 yr. 16,656 18.51
Curves for Women 1,200 09/06 - 22,500 18.75
Vitamin Tree 1,200 10/06 - 22,800 19.00
Brazilian Tanning 1,800 11/06 - 32,856 18.25
Christian Boutique 1,200 06/07 - 22,800 19.00
Cottage Florist 1,200 06/07 - 22,212 18.51
Magic Touch
Cleaners 900 08/08 1/5 yr. 22,800 25.33
La Bebe's Salon 900 08/08 16,428 18.25
Working Cow 1,200 09/08 1/5 yr. 22,200 18.50
Charles Pope
Cellular 1,200 09/08 1/5 yr. 22,116 18.43
Payless Shoesource 2,400 09/08 3/5 yr. 60,000 25.00
Aspasia Nails 1,200 09/08 1/5 yr. 22,644 18.87
Christos 2,400 10/08 1/5 yr. 43,200 18.00
Great Clips 1,000 10/08 2/5 yr. 19,248 19.25
The UPS Store 1,200 10/08 1/5 yr. 21,600 18.00
Sally Beauty Supply 1,200 10/08 2/5 yr. 21,300 17.75
George Josef Salon 1,200 10/08 1/5 yr. 21,900 18.25
China Express 1,200 11/08 - 23,100 19.25
American Family
Dentist 1,200 11/08 1/5 yr. 21,780 18.15
Carlucci's 3,600 12/08 1/5 yr. 64,800 18.00
VIP Martial Arts 4,050 01/09 1/5 yr. 67,836 16.75
EB Games 1,200 01/09 2/5 yr. 24,600 20.50
Hallmark Gold
Crown 3,950 02/09 2/5 yr. 65,172 16.50
Beef O'Brady's 2,800 02/09 3/5 yr. 50,400 18.00
The Mattress Firm 3,000 02/09 2/5 yr. 72,300 24.10
Cingular Wireless 900 06/09 1/5 yr. 27,000 30.00
Trinity Spirits 3,950 07/09 1/5 yr. 63,590 16.10
Marshalls 30,000 07/13 3/5 yr. 238,500 7.95
Panera Bread 4,531 12/13 3/5 yr. 111,010 24.50
Ross Dress for Less 30,176 01/14 4/5 yr. 294,216 9.75
Pier 1 Imports 10,000 02/14 3/5 yr. 161,796 16.18
Starbucks 1,500 03/14 3/5 yr. 42,000 28.00
PETsMART 19,107 01/19 3/5 yr. 211,128 11.05
Publix 44,840 07/23 6/5 yr. 441,672 9.85
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
176
GOVERNOR'S MARKETPLACE SHOPPING CENTER, TALLAHASSEE, FLORIDA
We purchased a portion of an existing shopping center known as Governor's
Marketplace Shopping Center, containing 265,541 gross leasable square feet. We
purchased 231,915 square feet of the shopping center, which includes 3,800
square feet of ground lease space. The center is located on Governor's Square
Boulevard, in Tallahassee, Florida.
We purchased this property from an unaffiliated third part with our own
funds. Our total acquisition cost for the portion we purchased was approximately
$32,654,000. This amount may increase by additional costs which have not yet
been finally determined. We expect any additional costs to be insignificant. Our
acquisition cost for the portion we purchased was approximately $141 per square
foot of leasable space.
On August 17, 2004, we obtained financing on the property in the amount of
$20,625,000. The loan requires interest only payments at an annual rate of
5.185% and matures in September 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Bed Bath & Beyond, Sports Authority and Marshalls, each
lease more than 10% of the total gross leasable area of the property. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------------------
Bed Bath & Beyond 35,000 15 10.50 06/01 01/12
11.00 02/12 01/17
Sports Authority 34,775 15 0 08/03 01/04
11.91 01/04 08/08
Marshalls 30,000 13 7.75 05/01 05/06
8.25 06/06 05/11
For federal income tax purposes, the depreciable basis in this property
will be approximately $24,491,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Governor's Marketplace was built in 2001. As of December 1, 2004, this
property was 94% occupied, with a total 218,437 square feet leased to 19 tenants
and one ground lease tenant. The following table sets forth certain information
with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Famous Footwear 10,070 07/06 2/5 yr. 156,085 15.50
Student Body 3,721 08/06 1/5 yr. 81,321 21.85
177
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Old Navy 20,000 09/06 2/5 yr. 230,000 11.50
Clark's Maytag 3,466 05/07 2/5 yr. 67,587 19.50
Life's Uniforms 1,217 06/07 1/5 yr. 26,774 22.00
Cingular Wireless 1,200 06/07 2/5 yr. 30,600 25.50
Sprint PCS 4,206 12/07 1/5 yr. 75,708 18.00
Sports Authority 34,775 08/08 5/5 yr. 414,170 11.91
Nextel
Communications 1,443 09/08 1/5 yr. 36,075 25.00
ALLTEL 2,000 06/09 1/5 yr. 48,000 24.00
Michaels 23,965 02/11 4/5 yr. 251,633 10.50
Marshalls 30,000 05/11 2/5 yr. 232,500 7.75
Lifeway Christian 6,324 09/11 2/5 yr. 132,804 21.00
Atlanta Bread 4,000 11/11 2/5 yr. 94,520 23.63
Company
Boston Market
(Ground Lease) 3,800 11/12 4/5 yr. 60,000 N/A
David's Bridal 9,000 05/13 2/5 yr. 133,200 14.80
Petco 13,750 05/13 3/5 yr. 212,025 15.42
Bombay Company 8,500 08/13 1/5 yr. 208,250 24.50
Qdoba 2,000 04/14 2/5 yr. 42,000 21.00
Bed Bath & Beyond 35,000 01/17 3/5 yr. 367,500 10.50
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
MANCHESTER MEADOWS, TOWN AND COUNTRY, MISSOURI
We purchased an existing shopping center known as Manchester Meadows,
containing 454,172 gross leasable square feet (which includes 3,412 square feet
of ground lease space). The center is located at 13901 Manchester Road in Town
and Country, Missouri.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $56,200,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$124 per square foot of leasable space.
We purchased this property with our own funds. On August 23, 2004, we
obtained financing in the amount of $31,064,550. The loan requires interest only
payments at an annual rate of 4.48% and matures in September 2007.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
178
Two tenants, Wal-Mart and Home Depot, each lease more than 10% of the total
gross leasable area of the property. The leases with these tenants require the
tenants to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------------------------
Wal-Mart 154,717 34 7.00 01/95 01/15
Home Depot 111,175 24 7.47 11/94 11/19
For federal income tax purposes, the depreciable basis in this property
will be approximately $42,150,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years.
Manchester Meadows was built in 1994 and 1995. As of December 1, 2004, this
property was 97% occupied, with a total 442,772 square feet leased to 20 tenants
and one ground lease tenant. The following table sets forth certain information
with respect to those leases:
Base Rent Per
Approximate Current Square Foot
GLA Leased Lease Renewal Annual Rent Per Annum
Lessee (Sq. Ft.) Ends Options ($) ($)
-------------------------------------------------------------------------------------------------------------------
Linens 'N Things 34,917 01/05 3/5 yr. 340,441 9.75
Sears Portrait Studio 2,123 03/05 - 39,063 18.40
3 Day Blinds 4,550 03/05 1/5 yr. 104,640 23.00
Payless Shoesource 3,000 05/05 1/5 yr. 55,200 18.40
HobbyTown USA 2,450 07/05 - 44,100 18.00
Boston Chicken (Ground
Lease) 3,412 08/05 7/5 yr. 79,200 N/A
Chic Nails 1,400 05/06 - 28,000 20.00
Town & Country Tobacco 1,400 01/07 - 26,600 19.00
Fast Track Fitness 3,000 02/07 - 54,000 18.00
United States Postal Service 3,570 04/07 1/5 yr. 63,225 17.71
Cobblestone Shoe Repairs 1,400 04/07 - 27,300 19.50
99 Cent Only Store 3,000 04/07 1/5 yr. 49,500 16.50
Memories Unlimited 2,500 04/07 - 43,750 17.50
Home Decorators 15,000 12/07 2/3 yr. 247,500 16.50
Art & Frame 1,400 11/08 - 28,700 20.50
Great Clips 1,400 04/09 - 29,400 21.00
OfficeMax 23,920 11/09 3/5 yr. 251,160 10.50
PETsMART 27,438 03/10 5/5 yr. 240,083 8.75
The Sports Authority 40,500 11/14 10/5 yr. 324,000 8.00
179
Base Rent Per
Approximate Current Square Foot
GLA Leased Lease Renewal Annual Rent Per Annum
Lessee (Sq. Ft.) Ends Options ($) ($)
-------------------------------------------------------------------------------------------------------------------
Wal-Mart 154,717 04/15 6/5 yr. 1,083,018 7.00
Home Depot 111,175 11/19 10/5 yr. 830,088 7.47
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
THE VILLAGE SHOPPES AT SIMONTON, LAWRENCEVILLE, GEORGIA
We purchased a newly constructed shopping center known as The Village
Shoppes at Simonton, containing 66,415 gross leasable square feet. The center is
located at New Hope Road and Simonton Road in Lawrenceville, Georgia.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $13,750,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$207 per square foot of leasable space.
We purchased this property with our own funds. On September 30, 2004, we
obtained financing in the amount of $7,561,700. The loan requires interest only
payments at an annual rate of 4.96% and matures in October 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, will lease more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Publix 44,271 67 10.95 05/04 05/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $10,312,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
The Village Shoppes at Simonton was newly constructed in 2004. As of
December 1, 2004, this property was 87% occupied with a total of 58,015 square
feet leased to ten tenants. The following table sets forth certain information
with respect to those leases:
180
Base Rent
Approximate Current Per Square
GLA Leased Lease Renewal Annual Rent Foot Per
Lessee (Sq. Ft.) Ends Options ($) Annum ($)
-------------------------------------------------------------------------------------------------------------------
Subway Real Estate Corp. 1,400 04/09 3/5 yr. 32,900 23.50
Dollar Store 2,644 06/09 1/5 yr. 60,812 23.00
World Dry Cleaners 1,500 07/09 1/5 yr. 42,000 28.00
Pak Mail Center 1,400 07/09 1/5 yr. 35,000 25.00
Cummings Nails and
Tanning 1,200 07/09 1/5 yr. 30,000 25.00
New China 1,400 07/09 1/5 yr. 32,200 23.00
Supercuts 1,400 08/09 1/5 yr. 33,600 24.00
Apex Beauty Supply 1,400 10/09 - 35,000 25.00
Pizza Hut of America 1,400 07/10 - 32,900 23.50
Publix 44,271 05/24 1/5 yr. 484,767 10.95
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
REISTERSTOWN ROAD PLAZA, BALTIMORE, MARYLAND
We entered into a joint venture agreement with the current owners of an
existing shopping center known as Reisterstown Road Plaza, containing 779,047
gross leasable square feet. The center is located at 6500-6512 Reisterstown
Road, Baltimore, Maryland.
We entered into a joint venture agreement with the current owners of this
property, who are unaffiliated third parties. We made a capital contribution in
the amount of $88,500,000 to this joint venture and received an equity interest
representing a majority ownership and operating control of this joint venture.
We made our capital contribution to the joint venture with our own funds.
On August 11, 2004, we obtained financing in the amount of $49,650,000. The loan
requires interest only payments at an annual rate of 5.30% and matures September
2009. Through additional joint ventures, the joint venture partners may acquire
additional properties, which would be managed by our joint venture partner.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Home Depot, Public Safety Service and National Wholesale
Liquidators, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
Approximate % of Base Rent Per
GLA Leased Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Home Depot 115,289 15 5.20 11/02 01/33
181
Approximate % of Base Rent Per
GLA Leased Total Square Foot Lease Term
Lessee (Sq.Ft.) GLA Per Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Public Safety Service 107,705 14 12.00 01/98 04/11
National Wholesale Liquidators 91,129 12 4.00 05/00 01/11
For federal income tax purposes, the depreciable basis in this property
will be approximately $66,375,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Reisterstown Road Plaza was built in 1986 and renovated in 2004. As of
December 1, 2004, this property was 93% occupied, with a total 729,559 square
feet leased to 75 tenants. The following table sets forth certain information
with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Rent Square Foot Per
Lessee (Sq. Ft.) Ends Options ($) Annum ($)
-------------------------------------------------------------------------------------------------------------------------
Month-to-
African Art and Craft 222 Month 10,800 48.65
Shingar 2,250 09/04 41,333 18.37
Fragrance Galore 225 12/04 - 7,200 32.00
Perfumery International,
Inc. 200 01/05 - 16,000 80.00
Injury Treatment Center 3,501 03/05 - 50,660 14.47
Hip Hop One Stop 283 06/05 - 10,800 38.16
Baltimore City Community
College (BCCC) 14,620 05/06 2/5 yr. 189,329 12.95
Royal Gems & Jewelry 330 09/06 - 14,190 43.00
Time and More 787 09/06 13,757 17.48
Changes 4,500 09/06 - 28,176 6.16
Burlington Coat Factory 60,000 10/06 - 330,000 5.50
Gifts and Balloons 238 12/06 - 12,000 50.42
Avenue 5,000 01/07 - 71,250 14.25
Popeyes 3,523 01/07 2/5 yr. 59,891 17.00
Bank of America 5,250 01/07 - 77,976 14.85
Payless Shoesource 4,985 07/07 43,519 8.73
Sally Beauty Supply 1,500 11/07 - 27,000 18.00
Power Gamer 1,902 12/07 - 31,954 16.80
Nuvo 2,017 12/07 - 25,213 12.50
Furniture Palace 39,243 12/07 - 247,231 6.30
Accent Hair 1,690 01/08 - 36,558 21.63
Rent-A-Center 4,300 01/08 1/5 yr. 73,100 17.00
Juvenile Justice 7,291 01/08 1/5 yr. 98,428 13.50
Revelations Shoe Shop 845 03/08 - 11,314 13.39
Jackson Hewitt Tax Service 1,217 04/08 1/5 yr. 30,425 25.00
182
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Rent Square Foot Per
Lessee (Sq. Ft.) Ends Options ($) Annum ($)
-------------------------------------------------------------------------------------------------------------------------
Gallo 5,000 04/08 - 42,790 8.56
Vogue Hair Supply 1,050 05/08 20,066 19.11
Park West Medical 7,646 06/08 - 92,229 12.06
Thai Delight 588 08/08 18,346 31.20
Economy Shoes 3,293 09/08 2/5 yr. 32,930 10.00
Vital Records 11,500 11/08 1/5 yr. 154,675 13.45
Sepia Sand & Sable 1,267 12/08 20,880 16.48
Shoe Crazy 4,655 02/09 - 93,100 20.00
An Angel's Touch 1,598 02/09 - 19,751 12.36
Board of Nursing 15,232 02/09 195,731 12.85
Dollar City 5,181 04/09 - 51,810 10.00
Curves For Women 1,600 06/09 - 22,400 14.00
His and Hers 3,478 06/09 1/5 yr. 76,516 22.00
The Great Cookie 751 06/09 1/5 yr. 14,344 19.10
Chic Nails 839 08/09 1/5 yr. 18,668 22.25
New Direction Barber Shop 1,086 10/09 23,653 21.78
Gold Lagoon 839 03/10 - 13,827 16.48
Provident Bank 2,593 11/10 - 57,046 22.00
National Wholesale
Liquidators 91,314 01/11 6/5 yr. 365,256 4.00
Public Safety Service 107,705 04/11 1,292,400 12.00
Household Finance 2,476 07/11 1/5 yr. 71,185 28.75
Subway 250 05/12 - 27,000 108.00
Beauty Vision 2,184 07/12 33,852 15.50
All Eyes 1,857 07/12 - 29,545 15.91
Plaza Podiatry 1,964 08/12 - 39,280 20.00
DHMN State (BCCC) 23,250 10/12 290,625 12.50
Mattress Warehouse 4,000 11/12 2/5 yr. 76,000 19.00
Mall Spirits 2,236 01/13 27,637 12.36
Footlocker 3,000 03/13 - 54,000 18.00
Square Circle 651 03/13 1/5 yr. 10,416 16.00
K's Alterations 500 03/13 - 15,750 31.50
Cobblers And Cleaners 1,374 04/13 - 27,480 20.00
Social Security
Administration 14,885 07/13 145,873 9.80
Evergreen Cafe 835 07/13 - 26,052 31.20
Sausage Plus 386 07/13 - 8,747 22.66
Steak Busters 813 07/13 32,520 40.00
Harbor City Bake Shop 1,061 07/13 - 26,483 24.96
Blackstone Men's Wear 3,540 07/13 46,020 13.00
Lot Stores 5,500 08/13 2/5 yr. 34,678 6.30
Pick-A-Pretzel 318 07/13 - 8,268 26.00
Burgundy Park Seafood 544 07/13 - 26,895 49.44
Total Health Center 1,050 09/13 15,750 15.00
Metro II 1,453 10/13 23,528 16.19
Shoe City 6,740 01/14 3/5 yr. 90,000 13.35
183
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Rent Square Foot Per
Lessee (Sq. Ft.) Ends Options ($) Annum ($)
-------------------------------------------------------------------------------------------------------------------------
Marshalls 28,500 04/14 3/5 yr. 299,250 10.50
Original Mamma Lucia 1,695 05/14 59,325 35.00
Baltimore City Community
College WBJC Radio
Station 5,010 06/14 64,629 12.90
Applebee's Neighborhood
Grill & Bar 6,000 02/18 3/5 yr. 88,020 14.67
Giant 59,064 07/29 6/5 yr. 1,004,088 17.00
Home Depot 115,289 01/33 6/5 yr. 600,000 5.20
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
WAL-MART SUPERCENTER, JONESBORO, ARKANSAS
We purchased an existing freestanding retail center known as Wal-Mart
Supercenter, containing 149,704 gross leasable square feet. The center is
located at 1911 West Parker Road in Jonesboro, Arkansas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $11,071,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately $74
per square foot of leasable space.
We purchased this property with our own funds. On August 6, 2004, we
obtained financing in the amount of $6,088,500. The loan requires interest only
payments at an annual rate of 5.085% and matures September 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Wal-Mart Supercenter, will lease 100% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
Base Rent
Approximate % of Current Per Square
GLA Leased Total Annual Foot Per Renewal Lease Term
Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To
----------------------------------------------------------------------------------------------------------------------
Wal-Mart
Supercenter 149,704 100 808,402 5.40 5/5 yr. 10/97 10/17
184
For federal income tax purposes, the depreciable basis in this property
will be approximately $8,303,000. 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.
ACADEMY SPORTS & OUTDOORS, HOUMA, LOUISIANA
We purchased a newly constructed freestanding retail center known as
Academy Sports & Outdoors, containing 60,001 gross leasable square feet. The
center is located at 1777 Martin Luther King Boulevard in Houma, Louisiana.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $5,250,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately $88
per square foot of leasable space.
We purchased this property with our own funds. On August 4, 2004, we
obtained financing for this property in the amount of $2,920,000. The loan
requires interest only payments at an annual rate of 5.12% and matures September
2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Academy Sports & Outdoors, will lease 100% of the total gross
leasable area of the property. The lease term will be determined in accordance
with the tenant's commencement date. The lease with this tenant requires the
tenant to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate % of Current Per Square
GLA Leased Total Annual Foot Per Renewal Lease Term
Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To
----------------------------------------------------------------------------------------------------------------------
Academy Sports
& Outdoors 60,001 100 420,000 7.00 4/5 yr. 07/04 07/14
7.70 08/14 07/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $3,937,000. 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.
FORKS TOWN CENTER, EASTON, PENNSYLVANIA
We purchased an existing shopping center known as Forks Town Center,
containing 92,660 gross leasable square feet (which includes 5,100 square feet
of ground lease space). The center is located at 301 Town Center Boulevard in
Easton, Pennsylvania.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $18,198,700. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$196 per square foot of leasable space.
185
We purchased this property with our own funds. On August 13, 2004, we
obtained financing in the amount of $10,395,000. The loan requires interest only
payments at an annual rate of 4.97% and matures August 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Giant Food Stores, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
Approximate % of Base Rent Per
GLA Leased Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------------------
Giant Food Stores 54,300 59 16.04 08/02 08/12
17.04 09/12 08/17
18.04 09/17 08/22
For federal income tax purposes, the depreciable basis in this property
will be approximately $13,649,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Forks Town Center was built in 2002. As of December 1, 2004, this property
was 96% occupied, with a total 88,660 square feet leased to 14 tenants and
ground lease space leased to two tenants. The following table sets forth certain
information with respect to those leases:
Approximate Base Rent Per
GLA Leased Lease Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------------
H & R Block 1,600 04/06 1/3 yr. 30,400 19.00
Holiday Hair 1,600 08/07 - 33,600 21.00
Movie Gallery 3,200 08/07 3/5 yr. 44,800 14.00
Something Different 1,600 10/07 1/5 yr. 32,000 20.00
Subway 1,600 11/07 1/5 yr. 28,800 18.00
Vista Bank United Trust 2,500 12/07 3/5 yr. 50,000 20.00
Hollywood Tans 2,400 02/08 1/5 yr. 49,416 20.59
PL Nails 1,200 04/08 1/5 yr. 21,600 18.00
China Moon 3,200 04/08 1/5 yr. 48,000 15.00
D & J Cleaners 1,200 11/08 1/5 yr. 19,200 16.00
Data Danz Wireless 1,360 03/09 - 20,400 15.00
Foxes Hallmark 5,400 02/10 2/5 yr. 129,600 24.00
Catanzaretti's Pizza 2,400 08/12 - 43,200 18.00
Giant Food Stores 54,300 01/23 8/5 yr. 870,972 16.04
186
Approximate Base Rent Per
GLA Leased Lease Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------------
Giant Gas Station (Ground
Lease) 2,400 01/23 8/5 yr. 12,500 N/A
Dunkin Donuts (Ground
Lease) 2,700 08/13 3/5 yr. & 40,000 N/A
1/4 yr.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
PLAZA AT MARYSVILLE, MARYSVILLE, WASHINGTON
We purchased an existing shopping center known as Plaza at Marysville,
containing 115,656 gross leasable square feet and one ground lease space. The
center is located at State Avenue and Grove Street, in Marysville, Washington.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $21,266,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$184 per square foot of leasable space.
We purchased this property with our own funds. On July 30, 2004, we
obtained financing in the amount of $11,800,000. The loan requires interest only
payments at an annual rate of 5.085% and matures August 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Safeway, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Approximate % of Base Rent Per
GLA Leased Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------------------
Safeway 53,850 47 11.00 07/01 07/21
For federal income tax purposes, the depreciable basis in this property
will be approximately $15,950,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Plaza at Marysville was built in 1995. As of December 1, 2004, this
property was 95% occupied, with a total 110,356 square feet leased to 24 tenants
and one ground lease space. The following table sets forth certain information
with respect to those leases:
187
Base Rent
Approximate Current Per Square
GLA Leased Renewal Annual Rent Foot Per
Lessee (Sq. Ft.) Lease Ends Options ($) Annum ($)
----------------------------------------------------------------------------------------------------------------------
Alderwood Auto Glass 1,500 07/05 - 20,112 13.41
Northwest Credit Union 1,300 11/05 1/2 yr. 25,350 19.50
Supercuts 1,300 11/05 2/5 yr. 24,696 19.00
GNC 1,422 01/06 - 25,344 17.82
Marysville Daycare 7,345 01/06 - 97,321 13.25
Alta's Pet Gallery 3,375 05/06 1/5 yr. 45,563 13.50
Papa Murphy's 1,300 07/06 1/5 yr. 26,004 20.00
Safeway District Office 901 07/06 2/5 yr. 12,468 13.84
Mail Box Junction 904 09/06 - 17,176 19.00
Alpha Denture Clinic 904 10/06 - 17,172 19.00
Hi-Tek Nails 863 11/06 1/5 yr. 18,120 21.00
Play It Again Sports 3,000 11/06 1/5 yr. 50,720 16.91
Fowlds Cleaners 1,500 12/06 1/5 yr. 24,000 16.00
Sally Beauty Supplies 1,300 01/07 1/5 yr. 24,696 19.00
The Everett Clinic 1,200 03/07 - 24,600 20.50
Cigar Land 1,050 03/07 1/5 yr. 22,281 21.22
Check into Cash 1,546 07/07 1/3 yr. 30,920 20.00
Edward Jones 1,500 07/08 1/5 yr. 27,750 18.50
Rent-A-Center 3,961 09/08 - 51,492 13.00
The Sun Factory 1,803 09/08 1/5 yr. 32,454 18.00
Hollywood Video 6,540 07/09 2/5 yr. 110,363 16.88
Party City 7,992 01/10 2/5 yr. 107,892 13.50
Safeway Fuel Site
(Ground Lease) N/A 07/11 10/5 yr. 50,000 N/A
Home Street Bank 4,000 12/20 - 80,004 20.00
Safeway 53,850 07/21 8/5 yr. 592,356 11.00
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
WRANGLER COMPANY, WESTERN HEADQUARTERS AND DISTRIBUTION FACILITY, EL PASO, TEXAS
We purchased an existing freestanding office and distribution center leased
to Wrangler Company, containing 316,800 gross leasable square feet. The center
is located at 12173 Rojas Drive in El Paso, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $18,476,800. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately $58
per square foot of leasable space.
We purchased this property with our own funds. On July 26, 2004, we
obtained financing in the amount of $11,300,000. The loan requires interest only
payments at an annual rate of 5.09% and matures August 2034.
188
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Wrangler Company, will lease 100% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate % of Current Per Square
GLA Leased Total Annual Foot Per Renewal Lease Term
Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To
----------------------------------------------------------------------------------------------------------------------
Wrangler
Company 316,800 100 1,504,800 4.75 3/7 yr. 11/93 11/13
For federal income tax purposes, the depreciable basis in this property
will be approximately $13,858,000. 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.
GATEWAY PLAZA SHOPPING CENTER, SOUTHLAKE, TEXAS
We purchased an existing shopping center known as Gateway Plaza Shopping
Center, containing 358,091 gross leasable square feet (which includes 87,423
square feet of ground lease space). The center is located on State Highway 114
and Southlake Boulevard, in Southlake, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $33,025,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately $92
per square foot of leasable space.
We purchased this property with our own funds. On September 1, 2004, we
obtained financing in the amount of $18,163,000. The loan requires interest only
payments at an annual rate of 5.10% and matures in August 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Kohl's, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Approximate % of Base Rent Per
GLA Leased Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------------------
Kohl's* 87,423 24 N/A 08/00 01/21
* Ground Lease
For federal income tax purposes, the depreciable basis in this property
will be approximately $24,769,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line
189
method. We depreciate buildings and improvements based upon estimated useful
lives of 40 and 20 years, respectively.
Gateway Plaza Shopping Center was built in 2000. As of December 1, 2004,
this property was 93% occupied, with a total 334,030 square feet leased to 25
tenants and one ground lease tenant. The following table sets forth certain
information with respect to those leases:
Approximate Base Rent Per
GLA Leased Lease Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
--------------------------------------------------------------------------------------------------------------------------
Cool Cuts for Kids 1,194 09/05 1/5 yr. 28,656 24.00
Old Navy 25,000 09/05 3/5 yr. 225,000 9.00
Mattress Firm 4,008 09/05 2/5 yr. 88,176 22.00
Rack Room 7,996 09/05 2/5 yr. 147,926 18.50
Carpet Mills of America 3,493 11/05 1/5 yr. 76,846 22.00
Dress Barn 8,127 12/05 3/5 yr. 121,905 15.00
Baker Brothers 3,000 12/05 - 75,000 25.00
Calico Corners 5,278 12/05 2/5 yr. 126,672 24.00
Chipotle Mexican Grill 2,432 12/05 3/5 yr. 59,025 24.27
Fitness Headquarters 2,500 01/06 2/5 yr. 62,500 25.00
Home Theater Store 6,000 02/08 1/6 mo. 156,000 26.00
Shogun Sushi 4,253 05/09 2/5 yr. 114,831 27.00
Bassett Furniture 10,200 07/09 2/5 yr. 98,124 9.62
Michaels 23,428 02/10 4/5 yr. 257,708 11.00
T.J. Maxx 30,600 08/10 3/5 yr. 267,750 8.75
Ultra Cosmetics & Salon 11,250 10/10 3/5 yr. 202,500 18.00
Thomasville Home
Furniture 18,615 12/10 2/5 yr. 252,792 13.58
Bed Bath & Beyond 30,000 01/11 4/5 yr. 330,000 11.00
Anamia's Tex-Mex 5,058 02/11 2/5 yr. 126,450 25.00
Aaron Brothers Art &
Frame 6,500 02/11 2/5 yr. 143,000 22.00
Starbucks 1,830 03/11 2/5 yr. 54,900 30.00
Pearle Vision 3,027 10/12 2/5 yr. 71,437 23.60
Zales 3,587 11/13 3/5 yr. 60,979 17.00
OfficeMax 23,801 01/16 4/5 yr. 261,250 10.98
Bank of America 5,430 12/20 3/5 yr. 190,000 34.99
Kohl's (Ground Lease) 87,423 01/21 6/5 yr. 502,187 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
WAL-MART SUPERCENTER, BLYTHEVILLE, ARKANSAS
We purchased an existing retail store known as Wal-Mart Supercenter,
containing 183,047 gross leasable square feet. The store is located at 3700
Highway 18, in Blytheville, Arkansas.
190
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $13,248,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately $72
per square foot of leasable space.
We purchased this property with our own funds. On August 31, 2004, we
obtained financing in the amount of $7,100,000. The loan requires interest only
payments at an annual rate of 4.39% and matures in September 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Wal-Mart Supercenter, leases 100% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base
Rent
Per
Square
Approximate % of Current Foot Per
GLA Leased Total Annual Annum Renewal Lease Term
Lessee (Sq. Ft.) GLA Rent ($) ($) Options Beginning To
----------------------------------------------------------------------------------------------------------------------
Wal-Mart Supercenter 183,047 100 902,422 4.93 6/5 yr. 04/99 04/19
For federal income tax purposes, the depreciable basis in this property
will be approximately $9,701,000. 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.
GATEWAY VILLAGE, ANNAPOLIS, MARYLAND
We entered into a joint venture agreement with the current owners of an
existing shopping center known as Gateway Village, containing 273,788 gross
leasable square feet. The center is located at Housley Road and Defense Highway
in Annapolis, Maryland.
We entered into a joint venture agreement with the current owners of this
property who are unaffiliated third parties. We made a capital contribution in
the amount of $49,513,455 to this joint venture and received an equity interest
representing a majority ownership and operating control of this joint venture.
We made our capital contribution to the joint venture with our own funds.
On July 21, 2004, we obtained financing in the form of two loans totaling
$31,458,000. The first loan requires interest only payments on $27,233,000 at an
annual rate of the three month LIBOR Rate and 113 basis points and matures July
2009. The second loan requires interest only payments on $4,225,000 at an annual
interest rate of the three month LIBOR Rate and 200 basis points and matures
August 2005. Through additional joint ventures, the joint venture partners may
acquire additional properties, which would be managed by our joint venture
partner.
191
Three tenants, Safeway, Burlington Coat Factory and Best Buy, each lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Approximate % of Base Rent Per
GLA Leased Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------------------
Safeway 53,000 19 10.00 07/02 06/22
Burlington Coat Factory 68,400 25 6.00 03/99 02/04
6.29 03/04 02/09
Best Buy 58,000 21 16.00 04/96 04/01
17.00 05/01 04/06
18.00 05/06 04/11
For federal income tax purposes, the depreciable basis in this property
will be approximately $37,135,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Gateway Village was built in 1996. As of December 1, 2004, this property
was 96% occupied, with a total 261,807 square feet leased to 14 tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($)
--------------------------------------------------------------------------------------------------------------------------
Big Screen Store 3,525 10/05 2/5 yr. 88,125 25.00
Career Partners 1,600 02/06 1/5 yr. 36,716 22.95
Chesapeake Open MRI 3,000 04/06 1/5 yr. 72,120 24.04
Annapolis Hair 6,400 03/07 - 95,155 14.87
US Army 2,877 04/07 1/1 yr. 63,294 22.00
Standard Carpet 3,975 08/07 1/5 yr. 113,279 28.50
Burlington Coat Factory 68,400 02/09 4/5 yr. 430,543 6.29
Jenny Craig 3,200 03/09 1/5 yr. 51,200 16.00
Best Buy 58,000 04/11 3/5 yr. 986,000 17.00
Staples 24,491 08/11 3/5 yr. 404,101 16.50
Sakura 4,600 12/11 2/5 yr. 82,800 18.00
PETsMART 25,416 01/12 5/5 yr. 419,364 16.50
Safeway 53,000 06/22 6/5 yr. 530,000 10.00
Beneficial Maryland 3,323 Month- - 63,137 19.00
to-Month
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
192
TOWSON CIRCLE, TOWSON, MARYLAND
We entered into a joint venture agreement with the current owners of an
existing shopping center known as Towson Circle, containing 116,119 gross
leasable square feet of which 40,060 is a ground lease. The center is located at
York, Dulaney Valley and Joppa Roads, in Towson, Maryland.
We entered into a joint venture agreement with the current owners of this
property, who are unaffiliated third parties. We made a capital contribution in
the amount of $28,450,000 to this joint venture and received an equity interest
representing a majority ownership and operating control of this joint venture.
We made our capital contribution to the joint venture with our own funds.
On July 21, 2004, we obtained financing in the form of two loans totaling
$19,197,500. The first loan requires interest only payments on $15,647,500 at an
annual rate of 5.10% and matures July 2009. The second loan requires interest
only payments on $3,550,000 at an annual rate of 3.60% for the first ninety days
and thereafter at the three month LIBOR Rate and 200 basis points. The loan
matures August 2005. Through additional joint ventures, the joint venture
partners may acquire additional properties, which would be managed by our joint
venture partner.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Barnes & Noble, Trader Joe's East, Bally Total Fitness and
Pier 1 Imports, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
Approximate % of Base Rent Per
GLA Leased Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------------------
Barnes & Noble (Ground Lease) 31,222 27 20.42 11/98 01/14
Trader Joe's East 11,875 10 * 09/00 09/10
Bally Total Fitness 21,713 19 20.50 12/99 12/04
21.50 01/05 12/09
22.50 01/10 12/14
Pier 1 Imports 12,252 10 17.06 12/98 12/03
19.62 01/04 12/08
* This tenant's lease requires payment of percentage rent only on a monthly
basis.
For federal income tax purposes, the depreciable basis in this property
will be approximately $21,338,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Towson Circle was built in 1998. As of December 1, 2004, this property was
92% occupied, with a total 106,374 square feet leased to ten tenants and two
ground lease tenants. The following table sets forth certain information with
respect to those leases:
193
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($)
--------------------------------------------------------------------------------------------------------------------------
Mattress Discounters 2,518 05/05 1/5 yr. 62,950 25.00
T-Mobile 1,996 09/05 5/1 yr. 53,916 27.01
Hollywood Tanning System 2,087 09/07 1/5 yr. 55,352 26.52
Nextel 400 03/08 1/5 yr. 24,720 61.80
Sprint PCS 3,128 11/08 - 86,250 27.57
Pier 1 Imports 12,252 12/08 2/5 yr. 240,350 19.62
Storehouse, Inc. 6,345 09/09 - 170,681 26.90
Country Curtains 4,000 07/10 1/5 yr. 80,000 20.00
Trader Joe's East 11,875 09/10 2/5 yr. * N/A
Barnes & Noble (Ground
Lease) 31,222 01/14 3/5 yr. 637,553 N/A
Bally Total Fitness 21,713 12/14 2/5 yr. 445,116 20.50
Bahama Breeze Restaurant
(Ground Lease) 8,838 09/18 3/5 yr. 238,336 N/A
* This tenant's lease requires payment of percentage rent only on a monthly
basis.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
TOLLGATE MARKETPLACE, BEL AIR, MARYLAND
We entered into a joint venture agreement with the current owners of an
existing shopping center known as Tollgate Marketplace, containing 392,587 gross
leasable square feet. The center is located at Route 24 and Route 1, in Bel Air,
Maryland.
We entered into a joint venture agreement with the current owners of this
property, who are unaffiliated third parties. We made a capital contribution in
the amount of $72,300,000 to this joint venture and received an equity interest
representing a majority ownership and operating control of this joint venture.
We made our capital contribution to the joint venture with our own funds.
On July 21, 2004, we obtained financing in the amount of $39,765,000. The loan
requires interest only payments at an annual rate of 2.80% for the first ninety
days and thereafter at the three month LIBOR Rate and 120 basis points. The loan
matures July 2009. Through additional joint ventures, the joint venture partners
may acquire additional properties, which would be managed by our joint venture
partner.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Giant Food and Jo Ann Fabrics, each lease more than 10% of the
total gross leasable area of the property. The leases with these tenants require
the tenants to pay base annual rent on a monthly basis as follows:
194
Approximate % of Base Rent Per
GLA Leased Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------------------
Giant Food 40,400 10 4.36 11/79 10/09
Jo Ann Fabrics 46,000 12 11.00 07/98 01/09
For federal income tax purposes, the depreciable basis in this property
will be approximately $54,225,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Tollgate Marketplace was built in 1979 and renovated in 1994. As of
December 1, 2004, this property was 100% occupied, with a total 392,587 square
feet leased to 34 tenants. The following table sets forth certain information
with respect to those leases:
Base Rent
Approximate Current Per Square
GLA Leased Lease Renewal Annual Foot Per
Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($)
--------------------------------------------------------------------------------------------------------------------------
T.J. Maxx 27,769 03/05 - 242,978 8.75
Sylvan Learning Center 3,900 06/05 1/5 yr. 75,335 19.32
AT & T Wireless 2,000 09/05 1/5 yr. 63,999 32.00
Carvel Ice Cream 1,250 10/05 1/5 yr. 32,500 26.00
Foto Image 1 Hour 1,600 11/05 - 35,200 22.00
Outback Steakhouse 6,200 12/05 3/5 yr. 77,000 12.42
Factory Card Outlet 11,500 12/05 2/5 yr. 149,500 13.00
Dubinclipped 1,230 06/06 2/5 yr. 33,495 27.23
Rockway Bedding 3,200 08/06 1/5 yr. 70,400 22.00
Starbucks Coffee 1,200 09/06 2/5 yr. 33,732 28.11
Hollywood Tanning System 3,000 03/07 1/5 yr. 89,115 29.71
Only Nails 1,230 06/07 1/5 yr. 39,147 31.83
Standard Carpet 3,500 07/07 1/5 yr. 92,829 26.52
Rack Room Shoes 6,980 11/07 1/5 yr. 127,385 18.25
JoAnn Fabrics 46,000 01/09 3/5 yr. 506,000 11.00
Red Lobster 8,355 01/09 3/5 yr. 78,750 9.43
Giant Food 40,400 10/09 3/5 yr. 176,341 4.36
Boston Markets 5,200 12/09 - 95,000 18.27
Staples 20,285 12/09 3/5 yr. 303,260 14.95
Toys "R" Us 30,000 11/10 10/5 yr. 137,499 4.58
TGI Fridays 7,041 12/10 4/5 yr. 151,381 21.50
Petco 12,000 01/11 2/5 yr. 222,000 18.50
The Men's Wearhouse 6,906 02/11 2/5 yr. 151,932 22.00
Pier 1 Imports 9,920 02/11 2/5 yr. 200,681 20.23
Joo Dry Cleaners 1,500 03/11 - 31,827 21.22
Sakura 5,380 06/11 2/5 yr. 114,648 21.31
Barnes & Noble Superstores 23,115 01/12 3/5 yr. 369,840 16.00
Michaels 35,000 01/12 3/5 yr. 349,999 10.00
Baja Fresh 3,000 04/12 2/5 yr. 84,000 28.00
195
Base Rent
Approximate Current Per Square
GLA Leased Lease Renewal Annual Foot Per
Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($)
--------------------------------------------------------------------------------------------------------------------------
First Union Bank 6,050 10/12 2/5 yr. 138,000 22.81
Bassett Furniture 14,144 12/13 2/5 yr. 169,728 12.00
Tollgate Liquors 4,282 05/14 10/1 yr. 51,384 12.00
Pizzeria Uno's 6,360 11/14 4/5 yr. 84,700 13.32
Circuit City 33,090 11/15 4/5 yr. 390,828 11.81
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
DORMAN CENTER, SPARTANBURG, SOUTH CAROLINA
We purchased the second phase of Dorman Center, containing 37,200 gross
leasable square feet for approximately $7,082,000. We acquired the first phase
of Dorman Center, containing 350,867 gross leasable square feet on March 4, 2004
for approximately $43,118,000. The center is located at Blackstock Road and W.L.
Ezell Road, in Spartanburg, South Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $50,200,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$123 per square foot of leasable space for Phase I and $190 for per square foot
of leasable space for Phase II.
We purchased this property with our own funds. On April 20, 2004, we
obtained financing in the amount of $27,610,000. The loan requires interest only
payments at an annual rate of 4.18% and matures May 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Wal-Mart Supercenter, leases more than 10% of the combined
total gross leasable area of the Phase I and Phase II properties. The lease with
this tenant requires the tenant to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Wal-Mart Supercenter 219,622 57 7.45 08/03 08/23
For federal income tax purposes, the total depreciable basis in this
property will be approximately $37,650,000. When we calculate depreciation
expense for tax purposes, we will use the straight-line
196
method. We depreciate buildings and improvements based upon estimated useful
lives of 40 and 20 years, respectively.
Dorman Center Phase I was built in 2003 and Dorman Center Phase II was
newly constructed in 2004. As of December 1, 2004, this property was 97%
occupied, with a total 377,467 square feet leased to 26 tenants. The following
table sets forth certain information with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
--------------------------------------------------------------------------------------------------------------------------
DORMAN CENTER I
Happy Nails 2,000 08/06 1/3 yr. 38,000 19.00
Pilgrim's Pathway 2,000 09/06 1/3 yr. 32,000 16.00
Alltel 2,500 09/06 2/3 yr. 45,000 18.00
Payless Shoesource 2,800 08/08 3/5 yr. 47,600 17.00
Your Dollar Store 5,000 08/08 2/5 yr. 77,500 15.50
JD's Fashion 3,500 08/08 1/5 yr. 63,000 18.00
Lee Jewelers 1,700 09/08 2/5 yr. 33,150 19.50
Catherine's 4,000 09/08 3/5 yr. 69,000 17.25
Super Tans 2,500 10/08 2/3 yr. 42,500 17.00
Grand China Buffet 6,000 11/08 4/5 yr. 78,000 13.00
Pier 1 Imports 10,800 07/13 3/5 yr. 199,800 18.50
Michaels 23,758 09/13 4/5 yr. 249,459 10.50
McAllister's Deli 4,000 10/13 2/5 yr. 66,000 16.50
Moe's Southwestern 3,000 01/14 2/5 yr. 45,000 15.00
Linens 'N Things 25,000 01/14 3/5 yr. 252,050 10.08
Ross Dress for Less 30,187 01/14 4/5 yr. 332,057 11.00
Wal-Mart Supercenter 219,622 08/23 15/5 yr. 1,636,184 7.45
& 1/4 yr.
DORMAN CENTER II
American Cash Advance 1,400 04/07 1/3 yr. 24,500 17.50
Cingular Wireless 1,600 05/07 2/2 yr. 28,000 17.50
Aim Mail Center 1,600 06/09 - 28,000 17.50
Sally Beauty Supply 1,400 04/09 2/5 yr. 25,200 18.00
Cost Cutters 1,400 05/09 1/5 yr. 25,900 18.50
American's Home Place 3,500 06/09 2/3 yr. 57,225 16.35
America's Best 3,000 07/09 1/5 yr. 46,500 15.50
Italian Pie 3,200 07/14 2/5 yr. 52,800 16.50
Shoe Carnival 12,000 03/14 2/5 yr. 156,000 13.00
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
197
CRANBERRY SQUARE, CRANBERRY TOWNSHIP, PENNSYLVANIA
We purchased an existing shopping center known as Cranberry Square,
containing 195,566 gross leasable square feet. The center is located on U.S.
Route 19 in Cranberry Township, Pennsylvania.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $20,220,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$103 per square foot of leasable space.
We purchased this property with our own funds. On July 16, 2004, we
obtained financing for this property in the amount of $10,900,000. The loan
requires interest only payments at an annual rate of 4.975% and matures August
2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
All five tenants, Barnes & Noble, Dick's Sporting Goods, Best Buy,
OfficeMax and Toys "R" Us, each lease more than 10% of the total gross leasable
area of the property. The leases with these tenants require the tenants to pay
base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Barnes & Noble 25,200 13 12.50 11/96 10/06
15.00 11/06 10/11
Dick's Sporting Goods 50,000 26 10.25 02/97 01/12
Best Buy 37,005 19 12.25 11/02 01/08
13.25 02/08 01/13
OfficeMax 23,380 12 10.10 10/96 09/01
10.60 10/01 09/06
10.80 10/06 09/11
Toys "R" Us 45,000 23 3.78 11/96 01/07
4.16 02/07 01/12
For federal income tax purposes, the depreciable basis in this property
will be approximately $15,165,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Cranberry Square was built in 1996. As of December 1, 2004, this property
was 92% occupied, with a total 180,585 square feet leased to five tenants. The
following table sets forth certain information with respect to those leases:
198
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
--------------------------------------------------------------------------------------------------------------------------
OfficeMax 23,380 09/11 3/5 yr. 247,828 10.60
Barnes & Noble 25,200 10/11 2/5 yr. 315,000 12.50
Toys "R" Us 45,000 01/12 6/5 yr. 170,100 3.78
Dick's Sporting Goods 50,000 01/12 3/5 yr. 512,500 10.25
Best Buy 37,005 01/13 4/5 yr. 453,311 12.25
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
KOHL'S/WILSHIRE PLAZA III, KANSAS CITY, MISSOURI
We finalized our purchase of 88,248 gross leasable square feet of a newly
constructed single tenant space that is part of a shopping center known as
Wilshire Plaza III. The center is located at I-35 and Highway 152 in Kansas
City, Missouri.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $10,099,050. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$114 per square foot of leasable space.
On November 17, 2004, we obtained financing in the amount of $5,417,500.
The loan requires interest only payments at an annual rate of 5.12% and matures
in December 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Kohl's, leases 100% of the total gross leasable area of the
property. The lease with this tenant requires the tenant to pay base annual rent
on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Annual Foot Per Renewal Lease Term
Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To
----------------------------------------------------------------------------------------------------------------------
Kohl's 88,248 100 738,396 8.37 6/5 yr. 10/04 10/14
782,760 8.87 11/14 01/25
For federal income tax purposes, the depreciable basis in this property
will be approximately $7,574,000. 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.
199
SHOPPES OF DALLAS, DALLAS, GEORGIA
We purchased a newly constructed shopping center known as Shoppes of
Dallas, containing 70,610 gross leasable square feet. The center is located at
Highway 381 and East Paulding Drive, in Dallas, Georgia.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $13,052,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$185 per square foot of leasable space.
We purchased this property with our own funds. On September 30, 2004, we
obtained financing in the amount of $7,178,700. The loan requires interest only
payments at an annual rate of 4.96% and matures in April 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------------------
Publix 44,840 64 10.25 03/04 03/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $9,789,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Shoppes of Dallas was newly constructed in 2004. The property is currently
in a leasing up phase and certain tenants have executed leases for retail space
within the shopping center. As of December 1, 2004, this property was 86%
occupied, with a total of 61,010 square feet leased to 12 tenants. In addition,
the seller is funding the shortfall rent for certain tenants until the space is
occupied. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
--------------------------------------------------------------------------------------------------------------------------
Creative Tan 1,200 04/07 1/3 yr. 24,000 20.00
Ladies Fitness Express 1,200 04/07 1/3 yr. 19,800 16.50
West Georgia Wireless 900 04/07 1/3 yr. 15,300 17.00
Evan Blake Salon 1,200 04/07 1/3 yr. 21,000 17.00
Dollar Train 2,100 06/07 1/3 yr. 36,750 17.50
USA Nails 1,200 03/09 2/5 yr. 28,800 24.00
Great Clips 1,200 04/09 2/5 yr. 26,400 22.00
China Fun 1,200 05/09 2/5 yr. 25,200 21.00
200
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
--------------------------------------------------------------------------------------------------------------------------
Dry Clean USA 1,200 06/09 2/5 yr. 28,800 24.00
Subway 1,200 07/09 2/5 yr. 22,800 19.00
Beef O' Brady's 3,570 08/09 - 80,325 22.50
Publix 44,840 03/24 6/5 yr. 459,600 10.25
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
THE SHOPS AT BOARDWALK, KANSAS CITY, MISSOURI
We purchased a newly constructed shopping center known as The Shops at
Boardwalk, containing 122,916 gross leasable square feet. The center is located
at North Boardwalk Avenue and Ambassador Drive in Kansas City, Missouri.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $36,642,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$298 per square foot of leasable space.
We purchased this property with our own funds. On July 2, 2004, we obtained
financing in the amount of $20,150,000. The loan requires interest only payments
at an annual rate of 4.13% and matures August 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Borders Books, leases more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------------------
Borders Books 19,000 16 13.95 09/02 08/08
14.65 09/08 08/13
15.38 09/13 08/18
16.11 09/18 01/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $27,500,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
201
The Shops at Boardwalk was newly constructed during 2003 and 2004. The
property is currently in a leasing up phase and certain tenants have executed
leases for retail space within the shopping center. In addition, the seller is
funding the shortfall rent for certain tenants until the space is occupied. As
of December 1, 2004, this property was 81% occupied, with a total of 99,881
square feet leased to 24 tenants. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
--------------------------------------------------------------------------------------------------------------------------
Coldwater Creek* 4,620 Month-to- 2/5 yr. 110,808 24.00
Month
Nextel Communications 2,004 05/08 2/5 yr. 54,108 27.00
Electronic Boutique 2,195 06/08 1/5 yr. 60,582 27.60
Chicos 2,735 07/08 2/5 yr. 68,375 25.00
Planet Sub 3,147 07/08 1/3 yr. & 84,969 27.00
1/2 yr.
Jos. A. Banks 4,200 08/08 1/5 yr. 92,400 22.00
Claire's Boutique 1,200 08/08 2/2 yr. 36,000 30.00
Maurices 3,781 08/08 2/3 yr. 94,525 25.00
Noggin Noodle 2,390 10/08 1/5 yr. 62,140 26.00
Select Comfort 2,158 12/08 1/3 yr. & 64,740 30.00
1/2 yr.
Archivers 5,957 01/09 1/5 yr. 119,140 20.00
2nd Swing 3,580 04/09 1/10 yr. 93,080 26.00
Hallmark 3,477 05/09 2/5 yr. 71,279 20.50
Trade Secrets 2,763 08/09 1/5 yr. 74,601 27.00
J. Jill 4,040 07/13 - 121,200 30.00
Chipolte Mexican Grill 2,801 07/13 2/5 yr. 78,428 28.00
Yankee Candle 2,000 07/13 1/5 yr. 50,000 25.00
Red Star Tavern 7,200 08/13 2/5 yr. 209,061 29.00
Christopher & Banks 3,500 08/13 - 91,000 26.00
Kirklands 4,915 01/14 - 108,130 22.00
Payless Shoesource 3,294 04/14 2/4 yr. 88,938 27.00
Genghis Khan 4,423 05/14 2/5 yr. 88,460 20.00
Talbots 4,501 01/16 2/4 yr. 117,026 26.00
Borders Books 19,000 01/24 4/5 yr. 265,050 13.95
* Renewal negotiations in progress
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
SHOPPES OF PROMINENCE POINT, CANTON, GEORGIA
We purchased a newly constructed shopping center known as Shoppes of
Prominence Point, containing 78,058 gross leasable square feet. The center is
located at Interstate 575 and State Route 5, in Canton, Georgia.
202
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $15,155,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$194 per square foot of leasable space.
We purchased this property with our own funds. On August 13, 2004, we
obtained financing in the amount of $9,954,300. The loan requires interest only
payments at an annual rate of 5.235% and matures September 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
--------------------------------------------------------------------------------------------------------------------
Publix 44,840 57 10.80 03/04 03/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $11,366,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Shoppes of Prominence Point was newly constructed in 2004. As of December
1, 2004, this property was 91% occupied, with a total of 70,758 square feet
leased to 15 tenants. The following table sets forth certain information with
respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
--------------------------------------------------------------------------------------------------------------------------
World Wireless 1,050 03/07 1/3 yr. 21,000 20.00
World Dollar Store 1,610 04/07 1/3 yr. 30,590 19.00
Curves 1,400 04/07 1/3 yr. 27,300 19.50
Prominence Chiropractic 1,400 05/07 1/3 yr. 26,600 19.00
Oceanside Tanning 1,400 04/08 1/4 yr. 32,200 23.00
Bowen's TaeKwonDo Plus 2,450 04/08 1/4 yr. 47,775 19.50
Blockbuster Video 5,268 01/09 4/5 yr. 92,190 17.50
Holly Nails 1,050 04/09 1/4 yr. 25,200 24.00
Dry Clean USA 1,400 04/09 - 33,600 24.00
Yoon Sushi Restaurant 1,400 05/09 1/5 yr. 25,900 18.50
Great Clips 1,400 05/09 2/5 yr. 30,800 22.00
The UPS Store 1,400 05/09 1/5 yr. 26,600 19.00
Mui Lan Restaurant 2,100 05/09 1/5 yr. 40,950 19.50
Beef O'Brady's 2,590 05/12 1/8 yr. 46,620 18.00
Publix 44,840 03/24 6/5 yr. 484,272 10.80
203
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
DAVIS TOWNE CROSSING, NORTH RICHLAND HILLS, TEXAS
We purchased 34,091 square feet of a newly constructed shopping center
known as Davis Towne Crossing, which will contain 41,295 gross leasable square
feet of which 4,000 square feet will be a ground lease. The center is located at
Davis Boulevard and Precinct Line Road in North Richland Hills, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost for the entire property will be approximately $9,755,000. Our
acquisition cost for the portion we purchased was $8,141,000. This amount may
increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost for the
entire property will be approximately $236 per square foot of leasable space.
We purchased this property with our own funds. On August 9, 2004, we
obtained financing in the amount of $5,365,200. The loan requires interest only
payments at an annual rate of 5.185% and matures September 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Lady USA Fitness and Cotton Patch Cafe, each lease more than
10% of the total gross leasable area of the property. The leases with these
tenants require the tenant to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
--------------------------------------------------------------------------------------------------------------------
Lady USA Fitness 6,000 14 17.00 10/03 10/08
Cotton Patch Cafe 4,400 11 20.00 12/03 11/08
For federal income tax purposes, the depreciable basis in this property
when completed will be approximately $7,316,000. When we calculate depreciation
expense for tax purposes, we will use the straight-line method. We depreciate
buildings and improvements based upon estimated useful lives of 40 and 20 years,
respectively.
Davis Towne Crossing was newly constructed during 2003 and 2004. The
property is currently in a leasing up phase and certain tenants have executed
leases for retail space within the shopping center. In addition, the seller is
funding the shortfall rent for certain tenants until the space is occupied. As
of December 1, 2004, the portion of the property we purchased was 91% occupied
with 31,091 square feet leased to 11 tenants and one ground lease tenant. The
following table sets forth certain information with respect to those leases:
204
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
--------------------------------------------------------------------------------------------------------------------------
H & R Block 2,264 05/07 1/3 yr. 45,280 20.00
RadioShack 2,400 08/08 3/5 yr. 48,000 20.00
Sport Clips 1,440 08/08 2/5 yr. 28,800 20.00
EB Games 1,500 09/08 2/5 yr. 31,500 21.00
Luxury Nails 1,400 09/08 1/5 yr. 29,400 21.00
Friedman's Jewelers 1,727 10/08 3/3 yr. 32,813 19.00
Lady USA Fitness 6,000 10/08 2/5 yr. 102,000 17.00
Cotton Patch Cafe 4,400 11/08 1/5 yr. 88,000 20.00
The UPS Store 1,360 02/09 1/5 yr. 25,840 19.00
Payless Shoes 3,000 07/13 2/5 yr. 54,000 18.00
Quiznos Subs 1,600 11/13 1/5 yr. 30,400 19.00
Washington Mutual
(Ground Lease) 4,000 08/28 4/5 yr. 85,000 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
FULLERTON METROCENTER, FULLERTON, CALIFORNIA
We purchased an existing shopping center known as Fullerton Metrocenter,
containing 253,296 gross leasable square feet which includes 5,178 square feet
of ground lease space. The center is located at Harbor Boulevard and
Orangethorpe Avenue, in Fullerton, California.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $51,275,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$202 per square foot of leasable space.
We purchased this property with our own funds. On July 9, 2004, we obtained
financing in the amount of $28,050,000. The loan requires interest only payments
at an annual rate of 5.09% and matures August 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Sportmart, leases more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
205
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Sportmart 43,660 17 8.25 10/88 10/93
9.13 11/93 10/98
9.54 11/98 10/03
9.95 11/03 02/06
For federal income tax purposes, the depreciable basis in this property
will be approximately $38,456,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Fullerton Metrocenter was built in 1988. As of December 1, 2004, this
property was 82% occupied, with a total 208,174 square feet leased to 38 tenants
and two ground lease tenants. The following table sets forth certain information
with respect to those leases:
Base Rent Per
Approximate Current Square Foot
GLA Leased Renewal Annual Per Annum
Lessee (Sq. Ft.) Lease Ends Options Rent ($) ($)
---------------------------------------------------------------------------------------------------------------------
H & R Block 5,250 Month-to- - 141,816 27.01
Month
Sportmart 43,660 02/06 3/5 yr. 434,334 9.95
La Caffepia 1,245 03/06 - 36,708 29.48
Citi Financial 1,560 05/06 - 35,604 22.82
KFC (Ground Lease) 2,304 05/06 - 100,800 N/A
AT & T Wireless Services 2,775 10/06 1/5 yr. 75,980 27.38
Payless Shoesource 2,525 10/06 1/5 yr. 49,768 19.71
Jenny Craig 1,900 02/07 - 53,656 28.24
RadioShack 2,050 04/07 1/3 yr. 47,970 23.40
Party America 9,610 05/07 - 128,064 13.33
Adelphia Communications 1,515 06/07 1/5 yr. 41,465 27.37
Quizno's Subs 1,400 08/07 1/5 yr. 40,460 28.90
Brite Dental 2,250 08/07 2/5 yr. 43,920 19.52
Lilacs Flowers and Gifts 1,200 11/07 1/5 yr. 42,275 35.23
GameStop 1,550 12/07 - 36,900 23.81
Ruby's Diner 3,592 02/08 - 106,320 29.60
Pop's Unfinished Furniture 6,650 04/08 2/5 yr. 101,745 15.30
Burger King (Ground Lease) 2,874 04/08 2/5 yr. 130,968 N/A
Record Town 6,350 06/08 2/5 yr. 99,920 15.74
GMP Vitamin 1,020 07/08 - 30,681 30.08
Beneficial Finance 1,775 10/08 - 51,456 28.99
Fantastic Sams 1,170 11/08 - 34,728 29.68
Beauty Avenue 5,400 11/08 - 110,808 20.52
Jewelry Mart 7,000 12/08 2/5 yr. 273,432 39.06
Tilly's 6,040 12/08 1/5 yr. 132,276 21.90
Sylvan Learning Center 3,648 05/09 2/3 yr. 71,646 19.64
206
Base Rent Per
Approximate Current Square Foot
GLA Leased Renewal Annual Per Annum
Lessee (Sq. Ft.) Lease Ends Options Rent ($) ($)
---------------------------------------------------------------------------------------------------------------------
Miry Collection 4,350 05/09 - 109,260 25.12
Vans 1,650 06/09 - 46,348 28.09
Super Mex Restaurants 5,500 10/09 - 163,334 29.70
Kim Sun Young Salon 1,280 10/09 - 37,860 29.58
Metro Dry Cleaning 1,950 11/09 1/5 yr. 53,904 27.64
Tip Top Nails 900 01/10 1/5 yr. 36,468 40.52
Matsunoya 2,900 06/10 - 70,932 24.46
Baskin-Robbins 1,275 10/10 1/5 yr. 39,948 31.33
China Buffet 10,828 06/11 - 184,617 17.05
First Bank and Trust 21,600 02/13 2/5 yr. 201,256 9.31
Orange County Credit Union 4,000 12/13 1/5 yr. 81,600 20.40
Big Island BBQ 1,090 03/14 1/5 yr. 31,932 28.80
Avenue 5,300 01/15 2/5 yr. 104,256 19.67
PETsMART 19,238 03/19 3/5 yr. 278,544 14.48
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
LOW COUNTRY VILLAGE SHOPPING CENTER, BLUFFTON, SOUTH CAROLINA
We purchased a newly constructed shopping center known as Low Country
Village Shopping Center, containing 76,479 gross leasable square feet (Phase I).
We signed an agreement, subject to conditions, to purchase an additional 63,460
gross leasable square feet (Phase II) of construction estimated to be completed
in late 2004 to early 2005 for approximately $10,542,800. The center is located
at Highway 278 and Foreman Hill Road in Bluffton, South Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $11,091,000 for Phase I. This amount may
increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost was
approximately $145 per square foot of leasable space for Phase I and $166 per
square foot of leasable space for Phase II.
We purchased Phase I and intend to purchase Phase II with our own funds. On
October 6, 2004, we obtained financing in the amount of $5,370,000. The loan
requires interest only payments at an annual rate of 4.96% and matures in May
2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Ross Dress for Less, Michaels and PETsMART, lease more than
10% of the total gross leasable area of the Phase I property. The lease term
will be determined in accordance with the tenant's commencement date. The lease
with this tenant requires the tenant to pay base annual rent on a monthly basis
as follows:
207
Base Rent
Approximate Phase I Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Ross Dress for Less 30,131 39 9.75 05/04 04/09
10.25 05/09 04/14
Michaels 21,360 28 9.75 02/04 02/14
PETsMART 19,107 25 12.95 02/04 01/09
13.95 02/09 01/14
14.95 02/14 01/19
For federal income tax purposes, the depreciable basis in this property
will be approximately $8,318,000 for Phase I. When we calculate depreciation
expense for tax purposes, we will use the straight-line method. We depreciate
buildings and improvements based upon estimated useful lives of 40 and 20 years,
respectively.
Low Country Village Shopping Center is newly constructed in 2004. As of
December 1, 2004, Phase I was 97% occupied, with a total of 74,299 square feet
leased to six tenants. The property is currently in a leasing up phase for Phase
II and certain tenants have executed lease for retail space within the shopping
center. The following table sets forth certain information with respect to those
leases:
Base Rent Per
Approximate Current Square Foot
GLA Leased Lease Renewal Annual Per Annum
Lessee (Sq. Ft.) Ends Options Rent ($) ($)
--------------------------------------------------------------------------------------------------------------------
PHASE I
Kim Nails 1,088 07/09 1/5 yr. 18,496 17.00
Sport Clips 1,107 07/09 2/5 yr. 19,373 17.50
Quizno's 1,506 09/09 2/5 yr. 27,108 18.00
Michaels 21,360 02/14 4/5 yr. 208,260 9.75
Ross Dress for Less 30,131 04/14 4/5 yr. 293,777 9.75
PETsMART 19,107 01/19 3/5 yr. 247,436 12.95
PHASE II
Linens 'N Things* 25,080 07/14 244,530 9.75
Cost Plus World Market* 18,300 01/15 215,025 11.75
* Lease renewal option information not currently available.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
208
NORTHGATE NORTH, SEATTLE, WASHINGTON
We purchased a newly constructed shopping center known as Northgate North,
containing 302,095 gross leasable square feet. The center is located at 302
Northeast Northgate Way in Seattle, Washington.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $48,455,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$160 per square foot of leasable space.
We purchased this property with our own funds. On July 14, 2004, we
obtained financing in the amount of $26,650,000. The loan requires interest only
payments at an annual rate of 4.60% and matures July 2008.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Target and Best Buy, each leases more than 10% of the total
gross leasable area of the property. The leases with these tenants require the
tenants to pay base annual rent on a monthly basis as follows:
Base Rent Lease Term
Approximate Per Square
GLA Leased % of Total Foot Per
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------------------
Target 147,582 49 4.34 01/01 12/25
Best Buy 51,202 17 25.00 10/00 01/06
27.00 02/06 01/11
29.00 02/11 01/16
31.00 02/16 01/21
For federal income tax purposes, the depreciable basis in this property
will be approximately $36,341,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Northgate North was constructed between 2000 and 2003. As of December 1,
2004, this property was 98% occupied, with a total 297,006 square feet leased to
eight tenants. The following table sets forth certain information with respect
to those leases:
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------------------------------------
Qwest Wireless 1,950 12/07 2/5 yr. 40,000 20.51
Quizno's 1,315 07/12 2/5 yr. 41,856 31.83
Olive Garden 7,930 10/12 4/5 yr. 205,000 25.85
Ross Dress for Less 25,278 01/14 4/5 yr. 391,809 15.50
209
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------------------------------------
G.I. Joe's (Storage) 1,968 05/18 4/5 yr. 11,808 6.00
G.I. Joe's 44,370 05/18 4/5 yr. 532,440 12.00
Bassett Furniture 15,411 10/19 - 295,000 19.14
Best Buy 51,202 01/21 4/5 yr. 1,280,060 25.00
Target 147,582 12/25 6/5 yr. 640,000 4.34
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
PACHECO PASS SHOPPING CENTER, GILROY, CALIFORNIA
We anticipate purchasing a portion of a newly constructed shopping center
known as Pacheco Pass Shopping Center, containing 99,356 gross leasable square
feet (which includes 11,810 square feet of ground lease space). The center is
located at Camino Arroyo and State Highway 152 in Gilroy, California.
On June 30, 2004, we funded the initial installment of a $22,000,000 first
mortgage in the amount of $15,332,906. The remainder of $6,667,094 is expected
to be funded in the fourth quarter of 2004. The interest rate of this first
mortgage is 6.9933% and it matures on July 15, 2005. We anticipate purchasing
the center when the mortgage matures for approximately $24,400,000. We will use
the principal towards our purchase price.
Two tenants, Best Buy and Linens 'N Things, will lease more than 10% of the
total gross leasable area of the property. The lease term will be determined in
accordance with the tenant's commencement date. The lease with this tenant
requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------------------
Best Buy 30,000 30 13.91 11/03 01/14
Linens 'N Things 27,984 28 13.50 03/04 01/15
For federal income tax purposes, the depreciable basis in this property
will be approximately $18,300,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Pacheco Pass Shopping Center was newly constructed in 2004. As of December
1, 2004, the property is currently in a leasing up phase and certain tenants
have executed lease for retail space within the shopping center. The following
table sets forth certain information with respect to those leases:
210
Approximate Current Base Rent Per
GLA Leased Lease Annual Square Foot
Lessee (Sq. Ft.) Ends Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------------------------------------
Nextel Communications 1,500 12/10 54,000 36.00
Electronics Boutique 1,500 11/13 52,500 35.00
The Sleep Train 4,550 11/13 111,475 24.50
Best Buy 30,000 01/14 417,240 13.91
Cold Stone Creamery 1,200 01/14 38,880 32.40
Jamba Juice 1,500 01/14 50,400 33.60
Subway 1,500 01/14 54,000 36.00
Sip n' Hot 1,650 01/14 56,925 34.50
Maui Taco 2,528 06/14 87,216 34.50
Monterey Spa & Stove 4,612 07/14 103,770 22.50
Linens 'N Things 27,984 01/15 377,784 13.50
Bank of America (Ground Lease) N/A 01/24 120,000 N/A
Chili's (Ground Lease) N/A 04/14 100,000 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
LAKEWOOD TOWNE CENTER, LAKEWOOD, WASHINGTON
We purchased an existing shopping center known as Lakewood Towne Center,
containing 578,863 gross leasable square feet. The center is located at Gravelly
Lake Drive and 100th Street, in Lakewood, Washington.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $81,100,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$140 per square foot of leasable space.
We purchased this property with our own funds. On June 30,2004, we obtained
financing in the form of two loans totaling $51,260,000. The first loan requires
interest only payments on $44,000,000 at an annual rate of 2.68% for the first
ninety days and thereafter at the three month LIBOR Rate. This loan matures June
2009. The second loan requires interest only payments on $7,260,000 at an annual
rate of 3.83% for the first ninety days and thereafter at the LIBOR Rate. This
loan matures July 2005.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Gottschalk's and Burlington Coat Factory, each lease more than
10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
211
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Gottschalk's 119,256 21 3.35 04/02 02/12
Burlington Coat Factory 70,533 12 5.50 08/03 08/08
5.75 09/08 08/13
For federal income tax purposes, the depreciable basis in this property
will be approximately $60,825,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Lakewood Towne Center was rebuilt in 2002 and 2003. As of December 1, 2004,
this property was 95% occupied, with a total 548,113 square feet leased to 26
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Rent-A-Center 4,275 05/05 2/5 yr. 47,025 11.00
Catherine P.S. Plus 4,507 07/05 - 63,098 14.00
Pierce Transit 4,200 07/06 - 42,000 10.00
Merino's Fine Custom 1,095 09/06 1/5 yr. 21,900 20.00
Old Country Buffet 9,500 12/06 2/5 yr. 118,750 12.50
Old Navy 16,172 01/08 2/5 yr. 177,892 11.00
Famous Footwear 8,355 10/08 2/5 yr. 125,325 15.00
EB Games 1,400 08/09 1/5 yr. 35,000 25.00
Wells Fargo Financial 1,750 11/09 - 19,565 11.18
Lowes Cineplex 48,229 11/11 4/5 yr. 516,816 10.72
Barnes & Noble 23,104 01/12 2/5 yr. 317,680 13.75
Michaels 24,035 02/12 3/5 yr. 288,420 12.00
Gottschalk's 119,256 02/12 - 400,000 3.35
Bed Bath & Beyond 30,530 01/13 3/5 yr. 381,625 12.50
The Dollar Store 15,564 01/13 1/5 yr. 210,114 13.50
Ross Dress for Less 30,151 01/13 4/5 yr. 354,274 11.75
Lakewood Dialysis 9,450 03/13 2/5 yr. 135,418 14.33
Burlington Coat Factory 70,533 08/13 3/5 yr. 387,932 5.50
Office Depot 18,000 09/13 4/5 yr. 265,500 14.75
La Palma Restaurant 5,120 01/14 2/5 yr. 51,200 10.00
Pier 1 Imports 11,142 02/14 2/5 yr. 192,200 17.25
Motherhood Maternity 1,750 05/14 1/5 yr. 42,875 24.50
Avenue 5,682 01/16 3/5 yr. 88,469 15.57
24 Hour Fitness 20,219 12/16 2/5 yr. 279,022 13.80
G.I. Joes 45,005 11/17 4/5 yr. 540,060 12.00
PETsMART 19,089 01/19 4/5 yr. 209,979 11.00
212
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
JOHN'S CREEK VILLAGE, DULUTH, GEORGIA
We purchased 141,802 square feet of a newly constructed shopping center
known as John's Creek Village, which will contain 191,752 gross leasable square
feet (which includes 10,555 square feet of ground lease space). The center is
located at 11720 Medlock Bridge Road, in Duluth, Georgia.
We purchased this property from an unaffiliated third party. Our total
acquisition cost for the entire property will be approximately $42,503,000. Our
acquisition cost for the portion we purchased was approximately $29,158,000.
This amount may increase by additional costs which have not yet been finally
determined. We expect any additional costs to be insignificant. Our acquisition
cost for the entire property will be approximately $222 per square foot of
leasable space.
We purchased this property with our own funds. On July 2, 2004, we obtained
financing in the amount of $23,300,000. The loan requires interest only payments
at an annual rate of 5.10% and matures August 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, LA Fitness, Ross Dress For Less and T.J. Maxx, will lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent Lease Term
Approximate % of Per Square
GLA Leased Total Foot Per
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
LA Fitness 41,000 21 17.00 12/03 11/13
CPI 12/13 04/19
Ross Dress for Less 30,187 16 10.75 05/04 01/15
T.J. Maxx 30,000 16 8.95 09/03 09/13
For federal income tax purposes, the depreciable basis in this property
when completed will be approximately $31,877,200. When we calculate depreciation
expense for tax purposes, we will use the straight-line method. We depreciate
buildings and improvements based upon estimated useful lives of 40 and 20 years,
respectively.
John's Creek Village was newly constructed in 2003 and 2004. The property
is currently leasing up the remaining vacancies and certain tenants have
executed leases for retail space within the shopping center. As of December 1,
2004, the portion of the property we purchased was 100% occupied with a total
141,802 square feet leased to 15 tenants and two ground lease tenants. The
following table sets forth certain information with respect to those leases:
213
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Nextel Communications 1,640 11/08 2/5 yr. 46,740 28.50
American Mattress 6,500 11/08 1/5 yr. 100,750 15.50
Electronics Boutique 1,200 01/09 2/5 yr. 36,000 30.00
State Farm Insurance 1,700 01/09 1/5 yr. 45,050 26.50
T-Mobile 1,500 02/09 1/5 yr. 51,000 34.00
Cold Stone Creamery 1,360 02/09 2/5 yr. 39,440 29.00
Portrait Innovations 2,375 05/09 - 64,125 27.00
T.J. Maxx 30,000 09/13 4/5 yr. 268,500 8.95
Dry Cleaners 1,700 12/13 2/5 yr. 47,600 28.00
Chipolte Mexican Grill 3,000 12/13 3/5 yr. 93,000 31.00
Starbucks 1,665 02/14 4/5 yr. 56,527 33.95
Ross Dress for Less 30,187 01/15 4/5 yr. 324,510 10.75
Doctor's Visionworks 2,400 03/14 2/5 yr. 64,800 27.00
Hollywood Video 5,020 06/14 4/5 yr. 124,245 24.75
LA Fitness 41,000 04/19 3/5 yr. 697,000 17.00
Chili's (Ground Lease) 5,555 05/14 4/5 yr. 100,000 N/A
IHOP (Ground Lease) 5,000 12/23 4/5 yr. 85,000 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
HUEBNER OAKS CENTER, SAN ANTONIO, TEXAS
We purchased an existing shopping center known as Huebner Oaks Center,
containing 286,684 gross leasable square feet (which includes 8,036 square feet
of ground lease space). The center is located at I-10 and Huebner Road, in San
Antonio, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $79,721,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$278 per square foot of leasable space.
We purchased this property with our own funds. On June 22, 2004, we
obtained financing in the form of two loans totaling $48,000,000. The first loan
requires interest only payments on $31,723,000 at an annual rate of 4.20% and
matures July 2010. The second loan requires interest only payments on
$16,277,000 at an annual rate of 3.96% and matures July 2010.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Bed, Bath & Beyond, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
214
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------
Bed, Bath & Beyond 35,009 12 9.65 03/97 03/02
10.62 04/02 03/07
11.68 04/07 01/08
For federal income tax purposes, the depreciable basis in this property
will be approximately $60,006,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Huebner Oaks Center was built between 1997 and 1998. As of December 1,
2004, this property was 98% occupied, with a total 282,286 square feet leased to
55 tenants and one ground lease tenant. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Mattress Firm 2,942 05/05 - 64,724 22.00
Compass ATM 60 07/05 1/2 yr. 20,000 N/A
AAA Texas 3,682 11/05 1/5 yr. 77,322 21.00
Marble Slab 1,542 12/05 1/3 yr. & 37,008 24.00
1/5 yr.
Kinko's 4,760 02/06 3/5 yr. 92,249 19.38
EB Game World 1,160 08/06 1/5 yr. 33,640 29.00
Pier 1 Imports 8,990 02/07 3/5 yr. 182,137 20.26
Old Navy 14,000 03/07 1/5 yr. 196,000 14.00
Shoes 4 Kids 1,000 02/07 1/3 yr. 26,500 26.50
La Madeleine 4,200 03/07 2/5 yr. 86,100 20.50
Moon Mippy 930 04/07 1/4 yr. 26,040 28.00
Club Humidor 2,254 06/07 - 54,096 24.00
Cingular Wireless 2,502 06/07 - 60,048 24.00
All Ashore Sportswear 1,264 07/07 - 27,808 22.00
Pearle Vision 2,721 07/07 2/5 yr. 68,025 25.00
Beauty First 3,681 09/07 1/5 yr. 77,301 21.00
Verizon Wireless 1,803 10/07 1/5 yr. 46,878 26.00
Oreck Homecare 1,103 10/07 1/5 yr. 24,266 22.00
Bed, Bath & Beyond 35,009 01/08 2/5 yr. 371,796 10.62
Frankly Fake Copy 854 01/08 1/5 yr. 23,912 28.00
Ross Dress for Less 28,200 01/08 5/5 yr. 267,900 9.50
Men's Wearhouse 4,500 02/08 2/5 yr. 88,020 19.56
Fire Wok 2,500 03/08 1/5 yr. 52,500 21.00
Ride Away Bicycles 3,917 04/08 - 58,755 15.00
Claire's Boutique 1,200 08/08 - 33,600 28.00
Sports Clips 1,057 09/08 - 27,482 26.00
Gap Kids 8,500 09/08 1/5 yr. 180,540 21.24
Victoria's Secret 4,500 09/08 - 94,500 21.00
215
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Bath & Body Works 2,500 09/08 - 58,750 23.50
Lane Bryant 4,500 09/08 - 94,500 21.00
Banana Republic 5,964 09/08 1/5 yr. 114,807 19.25
California Pizza Kitchen 4,301 10/08 2/5 yr. 118,708 27.60
GNC 1,155 10/08 - 28,875 25.00
Hallmark Creations 6,416 10/08 2/5 yr. 130,566 20.35
Barbeques Galore 4,498 11/08 2/5 yr. 124,145 27.60
Abercrombie & Fitch 6,766 11/08 - 135,320 20.00
Casual Male Big & Tall 3,914 12/08 - 90,022 23.00
Eddie Bauer 6,384 01/09 - 193,691 30.34
Gymboree 1,925 01/09 - 46,200 24.00
Ann Taylor 4,500 01/09 - 131,175 29.15
Starbucks 1,690 02/09 2/5 yr. 38,870 23.00
Steak Escape 1,663 03/09 1/5 yr. 39,912 24.00
Tanfastic 1,824 04/09 - 43,776 24.00
Cactus Low Carb Superstore 2,083 05/09 1/5 yr. 33,328 16.00
Brighton 1,498 06/09 - 41,285 27.56
Inksell.com 1,000 07/09 1/5 yr. 30,000 30.00
Ben Adams Jewelers 3,234 11/09 - 83,853 25.93
Bombay Company 4,500 12/09 - 121,500 27.00
Yankee Candle 2,028 02/10 - 54,756 27.00
Talbots 6,314 01/11 1/3 yr. 164,164 26.00
Chico's 3,060 07/11 2/5 yr. 107,100 35.00
Macaroni Grill 7,846 08/12 2/5 yr. 107,000 13.64
American Eagle 5,800 01/14 - 168,200 29.00
Chipotle Mexican Grill 2,556 03/14 2/5 yr. 69,012 27.00
Borders Books 27,500 01/18 5/5 yr. 411,670 14.97
Saltgrass Restaurant (Ground
Lease) 8,036 06/07 4/5 yr. 105,000 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
PINE RIDGE PLAZA, LAWRENCE, KANSAS
We purchased an existing shopping center known as Pine Ridge Plaza,
containing 230,510 gross leasable square feet (which includes 84,676 square feet
of ground lease space). The center is located at 3106 - 3140 Iowa Street, in
Lawrence, Kansas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $26,982,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$117 per square foot of leasable space.
216
We purchased this property with our own funds. On July 27, 2004, we
obtained financing in the amount of $14,700,000. The loan requires interest only
payments at an annual rate of 5.085% and matures August 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Kohl's, T.J. Maxx and Bed, Bath & Beyond, each lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Kohl's* 80,654 35 N/A 03/98 01/19
T.J. Maxx 25,420 11 8.50 04/04 03/09
9.00 04/09 03/14
Bed, Bath & Beyond 24,000 10 10.00 12/03 01/14
* Ground lease
For federal income tax purposes, the depreciable basis in this property
will be approximately $20,236,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Pine Ridge Plaza was redeveloped from 1998 through 2004 and the inline
strip center portion of the property was completed in 2001. As of December 1,
2004, this property was 100% occupied, with a total 230,510 square feet leased
to 12 tenants and two ground lease tenants. The following table sets forth
certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Old Navy 22,000 07/06 2/5 yr. 220,000 10.00
Deals 9,862 08/07 2/5 yr. 128,206 13.00
Electronic Boutique 2,190 03/08 2/5 yr. 41,063 18.75
Sports Clips 2,190 05/08 1/5 yr. 31,317 14.30
Famous Footwear 12,000 05/11 3/5 yr. 180,000 15.00
Bath & Body Works 2,500 01/12 2/5 yr. 37,500 15.00
Hurst Diamonds 1,375 01/12 1/5 yr. 24,750 18.00
Jason's Deli 5,000 02/12 3/5 yr. 90,000 18.00
Bed, Bath & Beyond 24,000 01/14 3/5 yr. 240,000 10.00
Michaels 21,000 02/14 4/5 yr. 201,495 9.60
T.J. Maxx 25,420 03/14 4/5 yr. 216,070 8.50
Cost Plus World Market 18,297 01/15 3/5 yr. 247,010 13.50
217
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Kohl's (Ground Lease) 80,654 01/19 6/5 yr. 360,000 N/A
IHOP (Ground Lease) 4,022 11/19 3/5 yr. 60,504 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may provide that the tenant's liability for such expenses is
limited in some way, usually so that their liability for such expenses does not
exceed a specified amount.
ECKERD DRUG STORES
We purchased the following four separate existing freestanding retail
properties built during 2003 and 2004 known as Eckerd Drug Stores, containing a
total of 54,912 gross leasable square feet.
Location Square Feet Lease Term Purchase Price ($)
----------------------------------------------------------------------------------------------------------------------
1100 W. Hampton Boulevard 13,824 06/03/04 - 06/02/24 3,069,000
Greer, South Carolina
2041 S. Croatan Highway 13,824 06/03/04 - 06/02/24 3,650,000
Kill Devil Hills, North Carolina
Broad River and Kennerly 13,440 06/03/04 - 06/02/24 3,260,000
Columbia, South Carolina
1106 Main Street 13,824 06/03/04 - 06/02/24 2,625,000
Crossville, Tennessee
We purchased the four Eckerd Drug Stores from Eckerd, an unaffiliated third
party. Our total acquisition cost, including expenses, was approximately
$12,604,000. This amount may increase by additional costs which have not yet
been finally determined. We expect any additional costs to be insignificant. Our
acquisition cost was approximately $230 per square foot of leasable space.
We purchased these properties with our own funds. On July 21, 2004, we
obtained financing in the form of four loans totaling $6,800,000. The loans on
each property are as follows: Eckerd Drug Store in Greer, South Carolina
requires interest only payments on $1,650,000; Eckerd Drug Store in Kill Devil
Hills, North Carolina requires interest only payments on $1,975,000; Eckerd Drug
Store in Columbia, South Carolina requires interest only payments on $1,750,000;
and Eckerd Drug Store in Crossville, Tennessee requires interest only payments
on $1,425,000. The interest rate of all the properties' loans is 5.275% and all
the properties' loans mature in August 2009.
In evaluating these properties as potential acquisitions and determining
the appropriate amount of consideration to be paid for the properties, we
considered a variety of factors including location, demographics, quality of
tenant, length of lease, price per square foot, occupancy and the fact that
overall rental rate at the property is comparable to market rates. We believe
that each of these properties is well located, has acceptable roadway access and
is well maintained. These properties will be subject to competition from similar
properties within their market area, and economic performance could be
218
affected by changes in local economic conditions. We did not consider any other
factors materially relevant to the decision to acquire these properties.
One tenant, Eckerd Drug Store, leases 100% of the total gross leasable area
of each property. The leases with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
% of Total Current Base Rent
Approximate GLA of Annual Per Square
GLA Leased each Rent Renewal Foot Per Lease Term
Lessee/Location (Sq. Ft.) Property ($) Options Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------------------
1100 W. 13,824 100 254,727 4/5 yr. 18.43 06/03/04 06/02/24
Hampton
Blvd.
Greer, SC
2041 S. Croatan 13,824 100 302,950 4/5 yr. 21.91 06/03/04 06/02/24
Hwy.
Kill Devil Hills,
NC
Broad River 13,440 100 270,580 4/5 yr. 20.13 06/03/04 06/02/24
and Kennerly
Columbia, SC
1106 Main 13,824 100 217,875 4/5 yr. 15.76 06/03/04 06/02/24
Street
Crossville, TN
For federal income tax purposes, the depreciable basis in these properties
will be approximately $9,453,000. 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.
PLAZA SANTA FE, PHASE II, SANTA FE, NEW MEXICO
We purchased an existing shopping center known as Plaza Santa Fe, Phase II,
containing 222,389 gross leasable square feet. The center is located at Cerrilos
Road and Zafarano Boulevard in Santa Fe, New Mexico.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $30,971,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$139 per square foot of leasable space.
We purchased this property with our own funds and by assuming the existing
mortgage debt on the property. The outstanding balance on the mortgage debt at
the date of acquisition was $17,551,721. This loan requires monthly principal
and interest payments based on a fixed interest rate of 6.2% per annum and
cannot be prepaid prior to January 2005. The loan matures on December 1, 2012.
219
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Best Buy, Linens 'N Things and T.J. Maxx, each lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Best Buy 31,226 14 13.50 09/01 01/09
14.00 02/09 01/17
Linens 'N Things 31,500 14 13.50 11/00 01/06
14.85 02/06 01/11
16.34 02/11 01/16
T.J. Maxx 30,900 14 10.50 11/00 11/10
For federal income tax purposes, the depreciable basis in this property
will be approximately $23,300,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Plaza Santa Fe Phase II was built between 2000 to 2002. As of December 1,
2004, this property was 98% occupied, with a total 217,329 square feet leased to
20 tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
State Farm Insurance 1,250 02/05 2/3 yr. 27,500 22.00
Old Navy 20,115 11/06 2/5 yr. 251,438 12.50
H & R Block 1,900 10/07 1/5 yr. 38,000 20.00
Corral West 7,556 10/07 1/5 yr. 75,560 10.00
Cactus Salon 1,250 01/08 1/5 yr. 30,000 24.00
French & French 3,038 11/08 1/7 yr. 69,874 23.00
Alltel 3,932 12/08 2/5 yr. 112,612 28.64
T.J. Maxx 30,900 11/10 3/5 yr. 324,450 10.50
Michaels 20,280 03/11 3/5 yr. 253,500 12.50
D & A Mattress 4,710 05/11 2/5 yr. 89,490 19.00
Famous Footwear 8,000 01/12 2/5 yr. 136,000 17.00
Super Nails 1,000 05/12 1/5 yr. 30,000 30.00
Quizno's 1,900 08/12 1/5 yr. 37,715 19.85
Osaka Grill 6,000 09/12 2/5 yr. 150,000 25.00
Payless Shoe Source 2,850 09/13 2/5 yr. 57,000 20.00
Men's Wearhouse 4,505 02/15 1/5 yr. 83,343 18.50
220
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Linens 'N Things 31,500 01/16 3/5 yr. 425,250 13.50
Best Buy 31,226 01/17 2/5 yr. 421,551 13.50
PETsMART 20,010 01/17 3/5 yr. 284,742 14.23
Borders 15,407 01/18 5/5 yr. 234,957 15.25
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
NORTHPOINTE PLAZA, SPOKANE, WASHINGTON
We purchased an existing shopping center known as Northpointe Plaza,
containing 377,949 gross leasable square feet (which consists of 18,719 square
feet of ground lease space). The center is located at 10100 N. Newport Highway
in Spokane, Washington.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $54,524,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$144 per square foot of leasable space.
We purchased this property with our own funds. On June 4, 2004, we obtained
financing in the amount of $30,850,000. The loan requires interest only payments
at an annual rate of 4.272% and matures in May 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Safeway, Best Buy and Gart Sports, each leases more than 10%
of the total gross leasable area of the property. The leases with these tenants
require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Safeway 47,000 12 7.09 11/90 10/95
7.43 11/95 11/95
7.44 12/95 10/00
7.80 11/00 11/00
7.82 12/00 10/05
8.19 11/05 11/05
8.21 12/05 11/10
221
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Best Buy 45,000 12 7.56 10/01 01/07
8.12 02/07 01/12
8.71 02/12 01/17
Gart Sports 45,658 12 9.95 10/97 08/98
10.56 09/98 10/02
11.56 11/02 10/07
12.66 11/07 01/13
For federal income tax purposes, the depreciable basis in this property
will be approximately $40,893,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Northpointe Plaza was built between 1991 to 1993. As of December 1, 2004,
this property was 99% occupied, with a total 373,207 square feet leased to 27
tenants and four ground lease tenants. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
RadioShack 2,764 08/05 - 34,550 12.50
Payless Shoes 2,992 11/05 1/5 yr. 52,659 17.60
T.J. Maxx 24,894 01/06 2/5 yr. 186,705 7.50
Sally Beauty Supplies 1,778 03/06 2/5 yr. 22,401 12.60
Corral West 7,560 03/06 1/5 yr. 64,260 8.50
Great Clips 1,600 05/06 - 27,920 17.45
Mother Cupboard 1,600 05/06 1/5 yr. 26,400 16.50
Washington Mutual 4,500 06/06 2/5 yr. 82,404 18.31
Fashion Bug 9,000 01/07 3/5 yr. 81,000 9.00
Pier 1 Imports 10,000 06/07 2/5 yr. 148,200 14.82
Foxy Nails 1,840 10/07 1/5 yr. 33,180 18.03
Payday Plus 1,250 06/08 1/5 yr. 26,400 21.12
Mark Webb 1,500 01/09 - 25,500 17.00
America's Best 4,500 03/09 - 72,000 16.00
Hollywood Video 7,500 08/09 1/5 yr. 141,450 18.86
Safeway 47,000 11/10 7/5 yr. 367,386 7.82
Safeway Gas Bar (Ground
Lease) 4,000 01/11 7/5 yr. 98,000 N/A
Bath & Body Works 2,363 01/11 2/5 yr. 42,888 18.15
Marks Hallmark 3,426 01/11 - 75,390 22.01
Mail Boxes, Etc. 1,600 07/11 1/5 yr. 27,200 17.00
Red Robin Restaurant (Ground
Lease) 6,469 11/11 4/5 yr. 87,808 N/A
Taco Bell (Ground Lease) 3,000 05/12 4/5 yr. 54,996 N/A
222
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Gart Sports 45,658 01/13 2/5 yr. 527,592 11.56
Old Country Buffet 10,172 01/13 2/5 yr. 140,373 13.80
Azteca Restaurant 5,275 04/13 2/5 yr. 87,860 16.66
Staples 25,356 07/13 3/5 yr. 305,793 12.06
PETsMART 26,175 08/13 4/5 yr. 376,396 14.38
Linens 'N Things 36,554 09/15 3/5 yr. 448,517 12.27
Best Buy 45,000 01/17 3/5 yr. 340,000 7.56
Borders 22,631 01/18 5/5 yr. 178,785 7.90
Applebees (Ground Lease) 5,230 12/27 4/5 yr. 66,999 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
WATAUGA PAVILION, WATAUGA, TEXAS
We purchased a newly constructed shopping center known as Watauga Pavilion,
containing 205,195 gross leasable square feet. The center is located at
7600-7620 Denton Highway in Watauga, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $35,669,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$173 per square foot of leasable space.
We purchased this property with our own funds. On June 7, 2004, we obtained
financing in the amount of $19,617,000. The loan requires interest only payments
at an annual rate of 4.140% and matures in July 2010.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Oshman's Sporting Goods, Ross Dress for Less and Bed, Bath &
Beyond, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Oshman's Sporting Goods 32,630 16 10.50 03/04 01/10
11.00 02/10 01/15
223
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Ross Dress for Less 30,130 15 9.25 05/04 05/09
9.50 06/09 01/15
Bed, Bath & Beyond 24,272 12 7.50 01/04 01/14
For federal income tax purposes, the depreciable basis in this property
will be approximately $26,800,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Watauga Pavilion was built during 2003 to 2004. As of December 1, 2004,
this property was 96% occupied, with a total 197,218 square feet leased to 16
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Cool Cuts 4 Kids 1,210 10/08 1/5 yr. 25,410 21.00
Sprint Spectrum 2,738 12/08 2/5 yr. 60,236 22.00
Mattress Giant 5,000 01/09 2/5 yr. 110,000 22.00
EB Games 1,500 02/09 2/5 yr. 34,500 23.00
Beauty Brands 6,260 02/09 2/5 yr. 138,600 22.14
Vision City 2,258 10/09 3/5 yr. 63,224 28.00
Half Price Books 9,663 01/14 2/5 yr. 115,956 12.00
Bed, Bath & Beyond 24,272 01/14 3/5 yr. 182,040 7.50
Pier 1 Imports 9,373 02/14 2/5 yr. 161,491 17.23
Office Depot 20,000 04/14 3/5 yr. 260,832 13.04
Zales Fine Jewelry 2,805 12/14 2/5 yr. 78,540 28.00
Party City 12,000 01/15 3/5 yr. 159,000 13.25
Ross Dress for Less 30,130 01/15 5/5 yr. 278,703 9.25
Oshman's Sporting
Goods 32,630 01/15 3/5 yr. 342,615 10.50
Cost Plus World Market 17,999 01/15 3/5 yr. 238,487 13.25
PETsMART 19,380 03/19 4/5 yr. 201,552 10.40
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
224
EASTWOOD TOWNE CENTER, LANSING, MICHIGAN
We purchased an existing shopping center known as Eastwood Towne Center,
containing 332,131 gross leasable square feet (which consists of 24,110 square
feet of ground lease space). The center is located at 3003 Preyde Boulevard in
Lansing, Michigan.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $85,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$256 per square foot of leasable space.
We purchased this property with our own funds. On June 23, 2004, we
obtained financing in the amount of $46,750,000. The loan requires interest only
payments at an annual rate of 4.64% and matures in July 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Dick's Sporting Goods, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------------------------
Dick's Sporting Goods 45,000 13 0 09/02 06/04
8.00 07/04 01/08
8.50 02/08 01/13
9.00 02/13 01/18
For federal income tax purposes, the depreciable basis in this property
will be approximately $63,750,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Eastwood Towne Center was built in 2002. As of December 1, 2004, this
property was 97% occupied, with a total 322,722 square feet leased to 57 tenants
and four ground lease tenants. The following table sets forth certain
information with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
State Employee
Credit Union 2,120 09/07 2/5 yr. 74,200 35.00
Panchero's 2,409 09/07 2/5 yr. 52,998 22.00
Claire's 1,200 09/07 1/5 yr. 38,400 32.00
Sprint PCS 1,089 09/07 1/5 yr. 47,916 44.00
Fabiano's Candies 1,090 09/07 1/5 yr. 27,250 25.00
225
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Electronics Boutique 1,148 09/07 2/3 yr. 45,920 40.00
Hallmark 4,500 02/08 2/5 yr. 94,500 21.00
Star Image
Photography 825 07/08 3/5 yr. 28,875 35.00
LA Weight Loss 1,100 04/09 - 22,000 20.00
See Optics 1,200 09/09 1/5 yr. 45,000 37.50
1/4 yr.
Banana Republic 7,000 09/10 1/4 yr. & 105,000 15.00
1/3 yr.
The Gap 7,526 09/10 1/4 yr. & 120,416 16.00
1/3 yr.
1/3 yr.
Maggie Moo's 1,105 10/10 2/5 yr. 44,200 40.00
Beauty First 3,388 10/10 1/7 yr. 84,700 25.00
Pier 1 Imports 10,002 06/12 2/5 yr. 200,040 20.00
Limited Too 3,980 09/12 1/5 yr. 91,540 23.00
Old Thyme Herbs 1,000 09/12 2/5 yr. 38,000 38.00
Mall Office 1,000 09/12 - 20,000 20.00
Ritz Camera 1,500 09/12 2/5 yr. 37,500 25.00
Johnny Rockets 2,592 09/12 4/5 yr. 85,536 33.00
Claddagh Pub 5,987 09/12 2/5 yr. 137,701 23.00
Forever 21 6,838 09/12 2/5 yr. 143,598 21.00
Casual Corner 6,019 09/12 1/5 yr. 150,475 25.00
Subway 1,729 10/12 2/5 yr. 60,515 35.00
Treehouse Toys 4,716 10/12 2/5 yr. 113,184 24.00
Mitchell's Fish
Market 7,264 11/12 2/5 yr. 183,416 25.25
Coldwater Creek 6,000 11/12 2/5 yr. 150,000 25.00
J. Crew 6,000 01/13 1/5 yr. 144,000 24.00
Guess 5,000 01/13 - 125,000 25.00
White House Black 1,850 01/13 2/5 yr. 61,050 33.00
Market
Express 8,000 01/13 2/5 yr. 192,000 24.00
Victoria's Secret 6,500 01/13 2/5 yr. 156,000 24.00
DSW Shoe
Warehouse 25,000 01/13 4/5 yr. 300,000 12.00
Jos A. Banks 4,500 01/13 1/5 yr. 121,500 27.00
American Eagle 5,400 01/13 2/5 yr. 129,600 24.00
Ann Taylor Loft 5,280 01/13 2/5 yr. 132,000 25.00
Bath & Body Works 3,360 01/13 2/5 yr. 80,640 24.00
Yankee Candle 2,500 01/13 2/5 yr. 75,000 30.00
The Children's Place 4,526 01/13 2/5 yr. 117,676 26.00
Aeropostal 3,600 01/13 1/5 yr. 86,400 24.00
Starbuck's 1,440 02/13 4/5 yr. 50,400 35.00
Lane Bryant 5,390 02/13 2/5 yr. 140,140 26.00
McAlister's Deli 3,311 02/13 2/5 yr. 79,464 24.00
Christopher & Banks 3,000 03/13 2/5 yr. 105,000 35.00
226
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Venetian Nails 1,376 04/13 2/5 yr. 48,160 35.00
April Cornell 2,250 05/13 2/5 yr. 76,500 34.00
Mother's Work 2,685 06/13 2/5 yr. 93,975 35.00
Capitol Fur 1,157 10/13 2/5 yr. 30,081 26.00
Hampton Jewelers 2,163 10/13 2/5 yr. 43,260 20.00
Talbots 4,800 01/14 2/5 yr. 112,800 23.50
Ecco Shoes 1,599 05/14 2/5 yr. 51,168 32.00
Wlliams-Sonoma 5,500 01/15 - 121,000 22.00
Pottery Barn 10,500 01/15 - 231,000 22.00
Earport, Inc. 1,046 04/16 - 26,150 25.00
Brio/Bravo 7,134 09/17 1/5 yr. 190,000 26.63
Borders (Schuler
Books) 24,418 01/18 3/5 yr. 439,524 18.00
Dick's Sporting
Goods 45,000 01/18 4/5 yr. 360,000 8.00
CoAmerica (Ground
Lease) 3,310 10/18 4/5 yr. 125,000 N/A
Max & Erma's
(Ground Lease) 7,000 09/19 4/5 yr. 202,000 N/A
PF Changs (Ground
Lease) 6,800 11/12 3/5 yr. 60,000 N/A
Smoky Bones
(Ground Lease) 7,000 10/13 4/5 yr. 110,000 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
ARVADA MARKETPLACE AND ARVADA CONNECTION, ARVADA, COLORADO
We purchased two existing shopping centers, situated directly across the
street from each other, containing 358,757 total gross leasable square feet.
Arvada Marketplace contains 297,678 square feet and Arvada Connection contains
61,079 square feet (which includes 2,040 square feet of ground lease space). The
centers are located at 7320-7490 West 52nd Street in Arvada, Colorado.
We purchased these two centers from one unaffiliated third party. Our total
acquisition cost was approximately $51,550,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$144 per square foot of leasable space.
We purchased this property with our own funds. On June 21, 2004 we obtained
financing in the amount of $28,510,000. The loan requires interest only payments
at an annual rate of 4.13% and matures in July 2009.
227
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Sam's Club and Gart Sports, each lease more than 10% of the
total gross leasable area of Arvada Marketplace and two tenants, Old Country
Buffet and Pier 1 Imports, each lease more than 10% of the total gross leasable
area at Arvada Connection. The leases with these tenants require the tenants to
pay base annual rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
--------------------------------------------------------------------------------------------------------------
ARVADA MARKETPLACE
Sam's Club 142,491 48 4.04 03/86 07/90
5.25 08/90 06/95
6.31 07/95 03/01
8.01 04/01 03/11
Gart Sports 54,903 18 6.24 10/93 01/99
7.15 02/99 12/03
5.75 01/04 01/04
7.03 02/04 01/09
7.25 02/09 01/14
ARVADA CONNECTION
Old Country Buffet 10,000 16 8.00 09/92 12/97
10.00 01/98 12/02
11.00 01/03 12/07
Pier 1 Imports 8,068 13 14.00 04/88 04/93
15.00 05/93 04/98
15.00 05/98 04/99
15.50 05/99 04/00
16.00 05/00 04/01
16.50 05/01 04/02
17.00 05/02 04/03
17.00 05/03 04/06
18.00 05/06 04/08
For federal income tax purposes, the depreciable basis in this property
will be approximately $38,700,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Arvada Marketplace and Arvada Connection were built between 1987 through
1990. As of December 1, 2004, Arvada Marketplace was 97% occupied, with a total
288,819 square feet leased to 26 tenants and Arvada Connection was 78% occupied,
with a total 47,483 square feet leased to 11 tenants
228
and one ground lease tenant. The following table sets forth certain information
with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
ARVADA
MARKETPLACE
Carefree Spas & Pools 6,367 Month-to-Month - 54,120 8.50
Elegant Nails 1,000 Month-to-Month - 17,000 17.00
Ted Johnson, DDS 1,564 Month-to-Month 1/5 yr. 25,376 16.23
Lady of America Fitness 4,200 02/05 1/5 yr. 88,200 21.00
Amanda's Bridal 5,155 05/05 1/5 yr. 54,128 10.50
Fast Signs 1,600 06/05 1/5 yr. 24,000 15.00
American General
Finance 1,381 11/05 1/5 yr. 24,168 17.50
Namiko's Restaurant 3,015 02/06 - 53,577 17.77
Cruise Holidays 1,400 02/06 - 21,000 15.00
Citi Financial 2,251 12/06 1/5 yr. 35,821 15.91
Schlotzsky's Deli 1,900 07/07 - 26,600 14.00
The UPS Store 1,375 12/07 1/5 yr. 24,063 17.50
Supercuts 2,213 12/07 1/5 yr. 37,621 17.00
Fantastic Sam's 1,350 12/07 1/5 yr. 22,275 16.50
Fashion Bug 10,000 03/08 1/15 yr. 80,000 8.00
Subway 1,230 10/08 1/5 yr. 22,755 18.50
RadioShack 2,791 10/08 2/5 yr. 43,958 15.75
Lone Star Steakhouse 6,000 11/08 1/5 yr. 85,430 14.24
Tile for Less 3,016 03/09 - 48,256 16.00
Executive Tans 1,500 06/09 - 22,687 15.13
1st Cleaners 1,400 04/10 1/5 yr. 23,800 17.00
Red Robin Burger 7,300 12/10 1/5 yr. 201,795 27.64
Sam's Club 142,491 03/11 4/5 yr. 1,142,063 8.01
Famous American Bar-B-Que 6,054 03/12 2/5 yr. 149,836 24.75
Gart Sports 54,903 01/14 2/5 yr. 385,902 7.03
Office Depot 17,363 05/14 3/5 yr. 138,904 8.00
ARVADA CONNECTION
Liquor Paradise 2,600 04/06 1/5 yr. 34,450 13.25
Kwal-Howell Paint Center 3,965 05/06 - 58,484 14.75
State Farm Insurance 1,190 07/06 1/5 yr. 20,825 17.50
U-Frame-It 1,680 09/06 - 24,780 14.75
Verizon Wireless 1,400 10/06 - 27,398 19.57
Pier 1 Imports 8,068 04/08 - 137,156 17.00
229
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Household Finance 1,680 11/07 1/5 yr. 26,880 16.00
Old Country Buffet 10,000 12/07 2/5 yr. 110,000 11.00
Taco Bell (Ground Lease) 2,240 12/07 2/5 yr. 74,347 N/A
Waldenbooks & More 7,600 01/09 - 176,700 23.25
SAS Shoes 2,600 11/09 1/5 yr. 28,600 11.00
IHOP 4,460 01/10 1/3 yr. 101,900 22.85
1/4 yr.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
ALISON'S CORNER SHOPPING CENTER, SAN ANTONIO, TEXAS
We purchased an existing shopping center known as Alison's Corner Shopping
Center containing 55,066 gross leasable square feet. The center is located at
2720 SW Military Drive in San Antonio, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $7,042,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$128 per square foot of leasable space.
We purchased this property with our own funds. On May 10, 2004, we obtained
financing in the amount of $3,850,000. The loan requires interest only payments
at an annual rate of 4.272% and matures June 2010.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Ross Dress for Less, Shoe Carnival and Mattress Firm, each
lease more than 10% of the total gross leasable area of the property. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Ross Dress for Less 30,066 55 10.00 09/03 01/14
Shoe Carnival 12,000 22 13.00 09/03 08/13
Mattress Firm 9,000 16 12.00 01/04 12/08
230
For federal income tax purposes, the depreciable basis in this property
will be approximately $5,282,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Alison's Corner was built in 2003. As of December 1, 2004, this property
was 100% occupied, with a total 55,066 square feet leased to four tenants. The
following table sets forth certain information with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Mattress Firm 9,000 12/08 2/5 yr. 108,000 12.00
Dots 4,000 01/09 3/5 yr. 67,000 16.75
Shoe Carnival 12,000 08/13 2/5 yr. 156,000 13.00
Ross Dress for Less 30,066 01/14 5/5 yr. 300,660 10.00
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
NORTH RIVERS TOWN CENTER, CHARLESTON, SOUTH CAROLINA
We purchased a portion of a newly constructed shopping center known as
North Rivers Town Center. The property we acquired contains 141,204 gross
leasable square feet, (which includes 31,280 square feet of ground lease space).
The center is located at Rivers Avenue and Ashley Phosphate Road in Charleston,
South Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $20,100,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$142 per square foot of leasable space.
We purchased this property with our own funds. On June 3, 2004, we obtained
financing in the amount of $11,050,000. The loan requires interest only payments
at an annual rate of 4.76% and matures May 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Babies "R" Us, Bed, Bath & Beyond, Ross Dress for Less and
Office Depot, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
231
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Bed, Bath & Beyond 28,200 20 10.85 11/03 01/14
Ross Dress For Less 30,024 21 11.00 02/04 01/15
Office Depot 16,000 11 11.50 02/04 01/14
Babies "R" Us * 31,280 22 N/A 11/03 01/14
* Ground Lease
For federal income tax purposes, the depreciable basis in this property
will be approximately $15,100,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
North Rivers Town Center was built during 2003 and 2004. As of December 1,
2004, this property was 100% occupied, with a total 141,204 square feet leased
to 15 tenants and one ground lease tenant. The following table sets forth
certain information with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
All About Cellular 1,400 01/07 1/3 yr. 27,300 19.50
Mattress Gallery 2,400 10/08 2/5 yr. 52,800 22.00
Super Nails 1,400 11/08 1/3 yr. 28,000 20.00
GameStop 1,750 11/08 2/5 yr. 35,000 20.00
Great Clips 1,250 01/09 2/5 yr. 26,250 21.00
Cold Stone
Creamery 1,500 01/09 3/5 yr. 30,000 20.00
Firehouse Subs 1,800 02/09 2/3 yr. 36,000 20.00
Towne Centre 1,600 04/09 2/3 yr. 26,400 16.50
Pro Golf of
Charleston 4,800 03/10 2/3 yr. 76,800 16.00
David's Bridal 10,000 10/13 2/5 yr. 155,000 15.50
Bed, Bath & Beyond 28,200 01/14 3/5 yr. 305,970 10.85
Office Depot 16,000 01/14 4/5 yr. 184,000 11.50
Babies "R" Us
(Ground Lease) 31,280 01/14 6/5 yr. 160,776 N/A
Just Fresh Bakery &
Cafe 4,800 02/14 2/5 yr. 100,800 21.00
Pearle Vision 3,000 02/14 2/5 yr. 60,000 20.00
Ross Dress For Less 30,024 01/15 4/5 yr. 330,264 11.00
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may provide that the tenant's liability for
232
such expenses is limited in some way, usually so that their liability for such
expenses does not exceed a specified amount.
BLUEBONNET PARC, BATON ROUGE, LOUISIANA
We purchased an existing shopping center known as Bluebonnet Parc
containing 135,289 gross leasable square feet. The center is located at I-10 and
Bluebonnet Road in Baton Rouge, Louisiana.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $22,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$163 per square foot of leasable space.
We purchased this property with our own funds. On May 10, 2004, we obtained
financing in the amount of $12,100,000. The loan requires interest only payments
at an annual rate of 4.372% and matures May 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Best Buy, Linens 'N Things and Cost Plus World Market, each
lease more than 10% of the total gross leasable area of the property. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Best Buy 45,439 34 13.00 08/02 01/08
13.50 02/08 01/13
14.25 02/13 01/18
Linens 'N Things 32,418 24 11.50 10/02 01/09
12.50 02/09 01/14
Cost Plus World Market 18,300 14 14.00 12/02 01/09
14.50 02/09 01/14
For federal income tax purposes, the depreciable basis in this property
will be approximately $16,500,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Bluebonnet Parc was built in 2002. As of December 1, 2004, this property
was 95% occupied, with a total 120,289 square feet leased to seven tenants. The
following table sets forth certain information with respect to those leases:
233
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Brook May Music 8,000 06/09 2/5 yr. 128,000 16.00
David's Bridal 9,998 09/12 2/5 yr. 159,968 16.00
Lifeway Christian
Bookstore 9,161 10/12 2/5 yr. 141,995 15.50
Cost Plus World
Market 18,300 01/14 3/5 yr. 256,200 14.00
Linens' N Things 32,418 01/14 3/5 yr. 372,807 11.50
The Men's
Wearhouse 4,973 02/14 2/5 yr. 99,460 20.00
Best Buy 45,439 01/18 3/5 yr. 590,707 13.00
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
BEST ON THE BOULEVARD, LAS VEGAS, NEVADA
We purchased an existing shopping center known as Best on the Boulevard,
containing 204,427 gross leasable square feet. The center is located at 3820
Maryland Parkway in Las Vegas, Nevada.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $35,500,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$174 per square foot of leasable space.
We purchased this property with our own funds. On May 7, 2004, we obtained
financing in the amount of $19,525,000. The loan requires interest only payments
at an annual rate of 3.99% and matures May 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to reimburse a substantial portion
of any monies spent pursuant to the provisions of their respective leases.
Three tenants, Best Buy, Barnes & Noble Booksellers and Copeland's Sporting
Goods, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Best Buy 57,726 28 15.00 11/94 01/05
CPI 02/05 01/10
CPI 02/10 01/15
234
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Barnes & Noble Booksellers 26,092 13 13.41 09/99 09/04
14.35 10/04 01/10
Copeland's Sporting Goods 25,129 12 27.52 07/97 08/99
13.50 09/99 06/02
15.12 07/02 06/07
16.93 07/07 06/12
For federal income tax purposes, the depreciable basis in this property
will be approximately $26,265,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Best on the Boulevard was built during the three year period from 1996 to
1999. As of December 1, 2004, this property was 77% occupied, with a total
156,756 square feet leased to eight tenants. The following table sets forth
certain information with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------
Barnes & Noble
Booksellers 26,092 01/10 3/5 yr. 374,500 14.35
Rochester Big &
Tall 7,000 08/10 2/5 yr. 206,533 29.50
Deli Planet 4,800 11/10 2/5 yr. 115,200 24.00
Cost Plus World
Market 18,508 02/11 3/5 yr. 303,531 16.40
Hallmark 7,500 02/12 3/5 yr. 205,500 27.40
Copeland's Sporting
Goods 25,129 06/12 4/5 yr. 379,950 15.12
Pier 1 Imports 10,001 02/14 3/5 yr. 169,753 16.97
Best Buy 57,726 01/15 2/5 yr. 865,890 15.00
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
PARADISE VALLEY MARKETPLACE, PHOENIX, ARIZONA
We purchased an existing shopping center known as Paradise Valley
Marketplace containing 92,158 gross leasable square feet (which includes 10,908
square feet of ground lease space). The center is located at Tatum Boulevard and
Shea Boulevard in Phoenix, Arizona.
235
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $28,510,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$309 per square foot of leasable space. Included in the purchase price was
11,000 square feet is vacant land that has been approved for development.
We purchased this property with our own funds. On June 3, 2004, we obtained
financing in the amount of $15,680,500. The loan requires interest only payments
at an annual rate of 4.55% and matures May 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Whole Foods Grocery Store, leases more than 10% of the total
gross leasable area of the property. The lease with this tenant requires the
tenant to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Whole Foods 32,000 35 13.50 01/02 01/12
CPI 02/12 01/17
CPI 02/17 01/22
For federal income tax purposes, the depreciable basis in this property
will be approximately $21,383,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Paradise Valley Marketplace was built in 2002. As of December 1, 2004, this
property was 79% occupied, with a total 72,704 square feet leased to 17 tenants.
The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
EB Gameworld 1,015 11/05 2/3 yr. 30,450 30.00
Beauty Brands 5,510 12/06 1/5 yr. 176,320 32.00
Verizon Wireless 2,047 12/06 2/3 yr. 65,504 32.00
Soma Restaurant 3,452 10/07 1/5 yr. 112,190 32.50
Ship Rite 1,340 11/07 1/5 yr. 36,673 28.11
So-Oh! Fashion
Outlet 1,964 02/08 1/5 yr. 53,028 27.00
Hava Java 1,587 05/08 1/5 yr. 58,846 37.08
Mattress Authority 2,453 08/08 - 75,062 30.60
Nick's Restaurant 2,100 11/08 2/5 yr. 73,542 35.02
Washington Mutual 4,114 01/09 3/5 yr. 131,648 32.00
236
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
The Village Frame
Shop 1,400 04/09 1/5 yr. 37,800 27.00
The Diamond
Source 1,677 11/09 1/3 yr. 46,956 28.00
Baja Fresh 2,544 12/11 2/6 yr. 97,079 38.16
Pick Up Stix 1,820 01/12 2/5 yr. 67,363 37.01
Select Dry Cleaning 2,505 01/13 2/5 yr. 77,404 30.90
The Men's
Wearhouse 5,176 03/13 2/5 yr. 165,632 32.00
Whole Foods 32,000 01/22 4/5 yr. 432,000 13.50
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
HERITAGE TOWNE CROSSING, EULESS, TEXAS
We purchased an existing shopping center known as Heritage Towne Crossing
containing 73,579 gross leasable square feet (which includes 7,246 square feet
of ground lease space). The center is located at Glade Road and State Highway
121 in Euless, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $14,855,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$202 per square foot of leasable space. A portion of the purchase price will be
held in an escrow, to be paid to the seller when the remaining spaces are
leased.
We purchased this property with our own funds. On April 30, 2004, we
obtained financing in the amount of $8,950,000. The loan requires interest only
payments at an annual rate of 4.374% and matures June 2009.
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.
No individual tenant leases more than 10% of the total gross leasable area
of the property.
For federal income tax purposes, the depreciable basis in this property
will be approximately $12,200,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Heritage Towne Crossing was built in 2002. As of December 1, 2004, this
property was 98% occupied, with a total 72,119 square feet leased to 27 tenants
and two ground lease tenants. The following table sets forth certain information
with respect to those leases:
237
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
APB Mortgage 2,530 09/06 1/3 yr. 45,540 18.00
GameStop 1,400 03/07 1/3 yr. 29,400 21.00
Mattress Firm 4,000 04/07 2/5 yr. 96,000 24.00
All Battery Store 2,000 04/07 2/5 yr. 44,000 22.00
Cow Fireworks 1,200 05/07 2/5 yr. 20,400 17.00
Dapper Dan
Cleaners 2,000 06/07 1/5 yr. 38,000 19.00
Lava Asian Grill 3,000 07/07 1/5 yr. 51,000 17.00
Salon G 2,800 08/07 1/5 yr. 50,400 18.00
Ultra Tan 1,600 08/07 2/5 yr. 24,000 15.00
Golf USA of Euless 3,473 12/07 1/5 yr. 69,460 20.00
Coppell
Spine/Sports Rehab 2,000 03/08 1/3 yr. 38,000 19.00
Sara Donuts 1,400 04/08 1/5 yr. 23,800 17.00
Plato's Closet 3,000 04/08 1/5 yr. 54,000 18.00
Village Barber 1,100 04/08 1/5 yr. 23,100 21.00
Town & Country 1,800 04/08 2/5 yr. 32,400 18.00
Parker Uniforms 3,000 05/08 1/5 yr. 42,000 14.00
The Cash Store 1,300 07/08 2/5 yr. 24,700 19.00
Art & Frame
Warehouse 2,546 07/08 1/5 yr. 39,463 15.50
Wings to Go 2,000 09/08 1/5 yr. 32,000 16.00
Delicious Delights 1,500 10/08 1/5 yr. 27,000 18.00
Ultima Fitness 2,266 11/08 1/5 yr. 37,389 16.50
Nails Spa 3,410 01/09 1/5 yr. 61,380 18.00
Double Daves 3,308 03/09 1/5 yr. 54,582 16.50
The Soccer Corner 4,000 05/10 2/5 yr. 62,600 15.65
Panda Express 2,250 04/12 2/5 yr. 47,250 21.00
Washington Mutual 4,000 10/12 4/5 yr. 84,000 21.00
Pearle Vision 1,990 12/12 2/5 yr. 35,820 18.00
Whataburger
(Ground lease) 3,500 08/18 3/5 yr. 60,000 N/A
Taco Bell (Ground
lease) 3,746 09/23 4/5 yr. 51,000 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
PEORIA CROSSINGS, PEORIA, ARIZONA
We purchased a newly constructed shopping center known as Peoria Crossings,
containing 213,733 gross leasable square feet. The center is located at 9350
West Northern Avenue, in Peoria, Arizona.
238
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $37,368,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$175 per square foot of leasable space.
We originally purchased this property with our own funds. On March 5, 2004,
we obtained financing in the amount of $20,497,000. The loan requires interest
only payments at an annual rate of 4.09% and matures April 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Ross Dress for Less, Michaels and Petco, each lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenant to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Ross Dress for Less 30,171 14 10.00 05/03 01/14
Michaels 24,063 11 11.00 03/02 02/12
Kohl's 88,408 41 8.79 03/04 01/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $28,026,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Peoria Crossing was built in 2002 and 2003. As of December 1, 2004, this
property was 98% occupied, with a total 209,211 square feet leased to 21
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Famous Footwear 10,030 01/08 2/5 yr. 162,988 16.25
EB Games 1,500 01/08 1/5 yr. 37,500 25.00
Sally Beauty Supply 1,200 02/08 1/5 yr. 26,400 22.00
Claire's Boutique 1,269 02/08 1/5 yr. 30,456 24.00
Voice Stream 1,200 02/08 5/1 yr. 32,400 27.00
Sleep America 4,500 03/08 1/5 yr. 112,500 25.00
Cold Stone
Creamery 1,400 05/08 5/1 yr. 37,492 26.78
Sarpino's Pizzeria 1,200 07/08 1/5 yr. 32,136 26.78
Great Clips 1,405 08/08 5/1 yr. 36,179 25.75
239
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Salon 74 1,300 12/08 1/5 yr. 33,800 26.00
Supercuts 1,202 12/08 2/5 yr. 33,656 28.00
Michaels 24,063 02/12 4/5 yr. 264,693 11.00
Petco 15,216 10/12 2/5 yr. 216,067 14.20
Payless Shoes 4,042 01/13 2/5 yr. 80,840 20.00
Quizno's 1,400 05/13 2/5 yr. 38,500 27.50
Panda Express 2,205 06/13 2/5 yr. 59,535 27.00
Dress Barn 8,000 06/13 2/5 yr. 140,000 17.50
Anna's Linens 8,000 09/13 2/5 yr. 112,000 14.00
Ross Dress for Less 30,171 01/14 4/5 yr. 301,710 10.00
Jazzy Java 1,500 11/14 - 43,645 29.10
Kohl's 88,408 01/24 6/5 yr. 777,524 8.79
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
PROMENADE AT RED CLIFF, ST. GEORGE, UTAH
We acquired an existing shopping center known as Promenade at Red Cliff
containing 94,445 gross leasable square feet. The center is located at 250 N.
Red Cliffs Drive in St. George, Utah.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $19,537,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$207 per square foot of leasable space.
We purchased this property with our own funds. On April 8, 2004, we
obtained financing in the amount of $10,590,000. The loan requires interest only
payments at an annual rate of 4.29% and matures May 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Old Navy, Staples, and Big 5 Sporting Goods, each lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Big 5 Sporting Goods 10,000 11 11.50 06/97 05/02
12.54 06/02 01/07
240
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Old Navy 19,324 20 12.00 02/98 11/03
13.51 12/03 11/08
Staples 22,500 24 11.50 06/97 05/12
For federal income tax purposes, the depreciable basis in this property
will be approximately $14,650,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Promenade at Red Cliff was built in 1998. As of December 1, 2004, this
property was 95% occupied, with a total 89,561 square feet leased to 18 tenants.
The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Franklin Quest 1,206 12/06 - 30,150 25.00
Hollywood
Entertainment 6,200 12/06 2/5 yr. 122,328 19.73
Big 5 Sporting
Goods 10,000 01/07 4/5 yr. 125,352 12.54
Vitamin World 1,280 06/07 - 26,880 21.00
Sally Beauty Supply 1,200 06/07 - 22,876 19.06
Gen X Clothing 7,816 06/07 1/5 yr. 131,543 16.83
Prudential 1,017 06/07 1/5 yr. 25,628 25.20
Papa John's Pizza 1,347 12/07 1/5 yr. 35,022 26.00
Durango Grill 2,693 02/08 1/5 yr. 75,404 28.00
Supercuts 1,030 02/08 - 24,720 24.00
Cold Stone
Creamery 1,173 08/08 2/5 yr. 33,501 28.56
Country Clutter 1,545 09/08 1/5 yr. 39,398 25.50
Old Navy 19,324 11/08 1/5 yr. 261,036 13.51
Samuri 21 4,057 12/08 1/5 yr. 97,368 24.00
Quizno's 1,424 01/09 1/5 yr. 30,828 21.65
2 Fat Guys Pizza 4,236 02/09 1/5 yr. 91,074 21.50
Panda Express 1,513 12/09 2/5 yr. 36,312 24.00
Staples 22,500 05/12 3/5 yr. 258,750 11.50
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
241
NEWNAN CROSSING WEST AND PHASE II, NEWNAN, GEORGIA
We acquired an existing shopping center known as Newnan Crossing Phase II
containing 160,254 gross leasable square feet (which includes 6,650 square feet
of ground lease space), for approximately $22,362,000. This property is adjacent
to Newnan Crossing West, which we acquired on December 24, 2003 for
approximately $16,808,000. Newnan Crossing West contains 131,196 gross leasable
square feet. The center is located at 591 Bullsboro Drive in Newnan, Georgia.
We purchased the property from an unaffiliated third party. This amount may
increase by additional costs which have not been finally determined. We expect
any additional costs to be insignificant. Our acquisition cost was approximately
$139 per square foot, and $128 per square foot of leasable space for Newnan
Crossing Phase II and Newnan Crossing West, respectively. We intend to purchase
an additional 28,000 gross leasable square feet for approximately $4,042,000 in
late 2004 when construction has been completed.
We originally purchased this property with our own funds. On February 17,
2004, we obtained financing in the amount of $21,543,091. On December 8, 2004,
we increased the loan amount by an additional $2,223,100 to a total of
$23,766,191. The loan requires interest only payments at an annual rate of 4.38%
and matures March 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, BJ's Wholesale, T.J. Maxx and Office Depot, each lease more
than 10% of the combined total gross leasable area of the West and Phase II
properties The leases with these tenants require the tenant to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Office Depot 30,000 10 10.75 06/99 06/14
T.J. Maxx 30,000 10 7.35 08/99 08/04
8.00 09/04 08/09
BJ's Wholesale 115,396 40 8.75 05/03 04/08
CPI 05/08 04/13
CPI 05/13 04/18
CPI 05/18 05/23
For federal income tax purposes, the depreciable basis will be
approximately $15,930,000 and $11,356,000 for Phase II and West, respectively.
When we calculate depreciation expense for tax purposes, we will use the
straight-line method. We depreciate buildings and improvements based upon
estimated useful lives of 40 and 20 years, respectively.
Newnan Crossing West and Phase II were built in 1999. As of December 1,
2004, the property was 100% occupied, with a total 291,450 square feet leased to
21 tenants and one ground lease. The following table sets forth certain
information with respect to those leases:
242
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Hallmark 5,000 07/06 2/5 yr. 72,500 14.50
RadioShack 3,000 08/06 2/5 yr. 51,000 17.00
Stratus
Communication 1,300 12/06 1/5 yr. 22,750 17.50
Hibbett's Sporting
Goods 7,000 01/07 2/5 yr. 94,500 13.50
USA Tan 1,300 04/07 1/5 yr. 23,400 18.00
Ted's Montana Grill 4,000 04/08 4/5 yr. 64,000 16.00
Planet Smoothie 1,040 07/08 1/5 yr. 18,200 17.50
The Corner Tavern 5,000 08/08 2/5 yr. 85,000 17.00
Great Clips 1,200 10/08 1/5 yr. 21,600 18.00
Banana Beach 1,200 12/08 1/5 yr. 21,600 18.00
Cingular Wireless 1,760 12/08 1/5 yr. 31,680 18.00
Michaels 23,704 02/09 4/5 yr. 213,336 9.00
My Friend's Place 1,600 03/09 2/5 yr. 28,800 18.00
T.J. Maxx 30,000 08/09 3/5 yr. 240,000 8.00
Old Navy 25,000 09/09 1/5 yr. 236,925 9.48
Party City 12,000 10/09 2/5 yr. 156,000 13.00
Payless Shoesource 3,000 11/09 2/5 yr. 51,000 17.00
Rack Room 7,300 01/10 3/5 yr. 124,100 17.00
Sizes Unlimited 5,000 01/12 2/4 yr. 77,500 15.50
O'Charley's
(Ground Lease) 6,650 02/14 3/5 yr. 66,000 N/A
Office Depot 30,000 06/14 3/5 yr. 322,500 10.75
BJ's Wholesale 115,396 05/23 4/5 yr. 1,009,715 8.75
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
MACARTHUR CROSSING, LAS COLINAS (IRVING), TEXAS
We purchased an existing shopping center known as MacArthur Crossing
containing 109,755 gross leasable square feet (which includes 6,500 square feet
of ground lease space). The center is located at MacArthur Boulevard and LBJ
Freeway in Las Colinas (Irving), Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $23,102,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$210 per square foot of leasable space.
We purchased this property with our own funds. On April 2, 2004, we
obtained financing in the amount of $12,700,000. The loan requires interest only
payments at an annual rate of 4.29% and matures May 1, 2009.
243
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Stein Mart, leases more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Stein Mart 34,000 31 6.75 07/96 07/06
7.25 08/06 07/11
For federal income tax purposes, the depreciable basis in this property
will be approximately $17,340,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
MacArthur Crossing was built in 1995 and 1996. As of December 1, 2004, this
property was 98% occupied, with a total 107,759 square feet leased to 27 tenants
and one ground lease tenant. The following table sets forth certain information
with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Monarch Dental 3,920 12/04 1/5 yr. 66,640 17.00
Valley Ranch
Vacations 1,381 06/05 - 24,858 18.00
Regis Haircutters 1,500 01/06 1/5 yr. 37,500 25.00
RadioShack 2,000 02/06 1/5 yr. 31,000 15.50
Wolf Camera 1,780 02/06 1/5 yr. 35,600 20.00
Merle Norman 1,457 02/06 1/5 yr. 23,880 16.39
GNC 1,400 02/06 1/5 yr. 25,200 18.00
Rice Boxx 2,101 02/06 - 52,525 25.00
Starbucks Coffee 1,604 03/06 2/5 yr. 32,080 20.00
The UPS Store 1,260 06/06 1/5 yr. 30,240 24.00
Sally Beauty Supply 1,500 06/06 1/5 yr. 29,100 19.40
I Fratelli Restaurant 5,000 08/06 - 107,500 21.50
Subway 1,400 09/06 1/5 yr. 21,000 15.00
Planet Tan 4,400 10/06 1/5 yr. 79,200 18.00
Blockbuster Video
(Ground Lease) 6,500 12/06 4/5 yr. 127,335 N/A
Flowers For You 2,100 02/07 - 42,000 20.00
Isshin Sushi 4,000 03/07 - 80,000 20.00
State Farm Insurance 2,000 04/07 1/5 yr. 34,000 17.00
Eyecare 20/20 2,000 06/07 1/5 yr. 40,000 20.00
244
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Marshall Message
Therapy 640 03/08 2/5 yr. 11,520 18.00
TD Waterhouse 2,500 04/08 2/5 yr. 55,000 22.00
Custom Cleaners 2,100 02/09 1/5 yr. 58,800 28.00
Quizno's 2,100 06/09 2/5 yr. 52,500 25.00
Stein Mart 34,000 07/11 3/5 yr. 229,500 6.75
MiCocina 4,964 01/12 2/5 yr. 124,100 25.00
Pei Wei 3,160 02/12 2/5 yr. 96,380 30.50
Mattress Firm 4,000 04/14 2/5 yr. 108,000 27.00
Firestone Tire 6,992 07/16 2/5 yr. 145,000 20.74
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
LA PLAZA DEL NORTE, SAN ANTONIO, TEXAS
We purchased an existing shopping center known as La Plaza Del Norte,
containing 320,345 gross leasable square feet. The center is located at 125
Northwest Loop 410, in San Antonio, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $58,143,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$182 per square foot of leasable space.
We purchased this property with our own funds. On February 4, 2004, we
obtained financing in the amount of $32,528,000. The loan requires interest only
payments at an annual rate of 4.61% and matures March 1, 2010.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Oshman's Sporting Goods and Best Buy, each lease more than 10%
of the total gross leasable area of the property. The leases with these tenants
require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Oshman's Sporting Goods 65,000 20 11.11 09/96 01/02
11.61 02/02 01/07
12.11 02/07 01/12
12.61 02/12 01/17
245
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Best Buy 58,000 18 14.00 08/96 01/02
14.75 02/02 01/07
15.50 02/07 01/12
For federal income tax purposes, the depreciable basis in this property
will be approximately $43,076,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
La Plaza Del Norte was built in 1996 and 1999. As of December 1, 2004, this
property was 95% occupied, with a total 303,245 square feet leased to 16
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------
Lifeway Christian 6,000 11/06 2/5 yr. 132,000 22.00
Pearle Vision 3,500 12/06 2/5 yr. 120,750 34.50
Ross Dress for Less 28,438 01/07 4/5 yr. 288,640 10.15
Office Max 23,229 11/12 2/5 yr. 261,326 11.25
DSW Shoe Warehouse 22,000 04/07 4/5 yr. 374,000 17.00
All Battery Center 1,600 05/07 2/5 yr. 36,800 23.00
Successories 1,200 09/08 1/3 yr. 26,400 22.00
and
1/2 yr.
GameStop 2,006 12/08 - 52,156 26.00
Half Price Books 8,000 10/09 1/5 yr. 96,000 12.00
David's Bridal 12,000 11/09 2/5 yr. 198,240 16.52
Petco 13,650 11/11 3/5 yr. 278,187 20.38
Cost Plus World
Market 18,900 01/12 3/5 yr. 302,400 16.00
Best Buy 58,000 01/12 3/5 yr. 855,500 14.75
Simpson-Williams 9,875 12/12 - 161,600 16.36
Bealls 29,847 01/14 2/5 yr. 194,005 6.50
Oshman's Sporting
Goods 65,000 01/17 4/5 yr. 754,650 11.61
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
246
SHOPPES AT QUARTERFIELD (METRO SQUARE CENTER/SUPER VALU SHOPPING CENTER),
SEVERN, MARYLAND
We purchased an existing shopping center formerly known as Metro Square
Center and Super Valu Shopping Center, containing 61,817 gross leasable square
feet. The center is located at 7858 Quarterfield in Severn (Annapolis),
Maryland.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $11,031,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$178 per square foot of leasable space.
We purchased this property with our own funds. On April 1, 2004, we
obtained financing in the amount of $6,067,183. The loan requires interest only
payments at an annual rate of 4.28% and matures April 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Shoppers Food Warehouse, leases more than 10% of the total
gross leasable area of the property. The lease with this tenant requires the
tenant to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Shoppers Food Warehouse 58,217 94 14.00 09/99 08/04
14.50 09/04 08/09
15.24 09/09 08/14
16.00 09/14 01/20
For federal income tax purposes, the depreciable basis in this property
will be approximately $8,840,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Shoppes at Quarterfield was built in 1999. As of December 1, 2004, this
property was 96% occupied, with a total 59,417 square feet leased to two
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------
Great Clips 1,200 12/05 5/1 yr. 28,366 23.64
Shoppers Food 58,217 01/20 4/5 yr. 844,146 14.50
Warehouse
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may provide that the tenant's liability for
247
such expenses is limited in some way, usually so that their liability for such
expenses does not exceed a specified amount.
LARKSPUR LANDING, LARKSPUR, CALIFORNIA
We purchased an existing shopping center known as Larkspur Landing,
containing 173,821 gross leasable square feet. The center is located at 2257
Larkspur Landing Circle, in Larkspur, California.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $61,145,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$352 per square foot of leasable space.
We originally purchased this property with our own funds. On January 30,
2004, we obtained financing in the amount of $33,630,000. The loan requires
interest only payments at an annual rate of 4.45% and matures February 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Bed, Bath & Beyond, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Bed, Bath & Beyond 42,318 24 20.50 11/02 11/06
21.83 12/06 11/11
23.21 12/11 11/17
For federal income tax purposes, the depreciable basis in this property
will be approximately $45,859,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Larkspur Landing was built in 1978 and renovated in 2001. As of December 1,
2004, this property was 87% occupied, with a total 150,893 square feet leased to
33 tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------
Golden Gate Month-to
Printing* 3,287 -Month - 30,010 9.13
Allstate Insurance* 405 Month-to - 13,365 33.00
-Month
248
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------
Avanti* 1,115 Month-to - 2,400 2.15
-Month
John Connelly* 880 Month-to - 6,924 7.87
-Month
Benchmark Medical 5,791 04/05 1/5 yr. 152,786 26.38
Roadrunner Burrito 800 06/05 - 30,624 38.28
Redhill 2,688 07/05 3/1 yr. 74,189 27.60
Jaeger 1,500 07/05 - 42,966 28.64
Oliver Allen Corp. 9,392 09/05 1/5 yr. 242,313 25.80
Robert Buerger 880 06/06 1/3 yr. 18,480 21.00
Maxwell Cleaners 2,748 09/06 - 107,172 39.00
Norman Mahan
Jewelers 1,333 01/07 - 43,669 32.76
Determined
Productions 11,185 03/07 1/4 yr. 608,663 54.42
Larkspur Shoes &
Repair 807 03/07 - 23,564 29.20
Marin Visitor
Bureau 720 07/07 - 19,440 27.00
Bay Area Wireless 610 04/08 2/5 yr. 23,790 39.00
Larkspur Landing
Optometry 1,165 06/08 - 39,598 33.99
American Nails 745 06/08 - 23,691 31.80
AAA 5,245 07/08 2/5 yr. 169,938 32.40
Togo's Eatery 1,625 07/08 - 40,677 28.03
Timothy Bricca DD 1,064 07/08 - 36,133 33.96
All California 3,359 07/08 - 114,172 33.99
Weight Watchers 1,291 09/08 - 61,219 47.42
Cooper Alley 2,000 11/08 - 107,987 53.99
Ragged Sailor 1,207 12/08 - 33,888 28.08
Larkspur Landing
Pet Clinic 1,141 04/09 - 36,831 32.28
Sushi Ko 1,709 08/09 - 55,372 32.40
24 Hour Fitness 17,844 03/10 1/5 yr. 535,320 30.00
Marin Brewing Co. 5,978 03/11 - 190,219 31.82
Fidelity Investments 7,232 07/11 2/5 yr. 459,955 63.60
Yogalive 6,150 09/12 - 184,500 30.00
Bed, Bath & Beyond 42,318 11/17 3/5 yr. 867,519 20.50
Noonan's Restaurant 6,679 12/18 2/5 yr. 222,878 33.37
* Renewal negotiations in progress
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
249
NORTH RANCH PAVILIONS, THOUSAND OAKS, CALIFORNIA
We purchased an existing shopping center known as North Ranch Pavilions,
containing 62,812 gross leasable square feet. The center is located at 1125-85
Lindero Road, in Thousand Oaks, California.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $18,468,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$294 per square foot of leasable space.
We purchased this property with our own funds. On March 3, 2004, we
obtained financing in the amount of $10,157,000. The loan requires interest only
payments at an annual rate of 4.12% and matures April 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Savvy Salon, leases more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Savvy Salon 6,500 10 11.71 10/03 01/04
25.20 02/04 01/06
26.76 02/06 01/08
28.32 02/08 01/10
30.00 02/10 01/12
31.80 02/12 02/14
For federal income tax purposes, the depreciable basis in this property
will be approximately $13,851,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
North Ranch Pavilions was built in 1992. As of December 1, 2004, this
property was 89% occupied, with a total 55,928 square feet leased to 24 tenants.
The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Prudential Realty 3,379 11/04 - 103,397 30.60
Ilene's Boutique 2,105 12/04 - 51,590 24.51
Seta's Shoes 1,086 04/05 - 19,548 18.00
Walton's Portraits 1,300 08/06 1/5 yr. 31,359 24.12
Postal Club 1,086 10/06 1/5 yr. 24,891 22.92
Dance Trends 2,338 11/06 1/5 yr. 41,523 17.76
250
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Bank of America 4,500 12/06 - 194,619 43.25
Clubhouse Cleaners 1,505 12/06 1/5 yr. 43,765 29.08
Cookies by Design 1,353 01/07 1/5 yr. 32,822 24.26
Malibu Gymnastics 3,740 02/07 1/1 yr. & 67,320 18.00
3/3 yr.
State Farm Insurance 1,023 03/07 - 22,791 22.28
Tae Kwon Do
Academy 1,512 06/07 2/5 yr. 34,648 22.92
Treasured Memories 3,691 08/07 1/5 yr. 46,129 12.50
Kay's Nails 1,028 10/07 - 24,178 23.52
Total Body Fitness 1,998 12/07 1/5 yr. 37,042 18.54
Malibu Gymnastics 3,040 11/08 5/1 yr. 56,362 18.54
Sudore Pilates 1,346 01/09 1/5 yr. 36,342 27.00
Exotic Thai 1,746 02/11 - 52,380 30.00
Rustico Ristorante 3,495 08/11 2/5 yr. 94,412 27.01
We Frame It 1,526 09/11 1/5 yr. 36,075 23.64
Lamp Post Pizza 3,600 11/11 - 90,145 25.04
Sushi Tei 1,725 07/12 2/5 yr. 52,705 30.55
North Ranch
Dentistry 1,306 10/13 2/5 yr. 39,548 30.28
Savvy Salon 6,500 02/14 2/5 yr. 163,800 25.20
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
HICKORY RIDGE SHOPPING CENTER, HICKORY, NORTH CAROLINA
We purchased an existing shopping center known as Hickory Ridge Shopping
Center containing 380,487 gross leasable square feet (which includes 70,127
square feet of ground lease space). The center is located at Catawba Valley Road
in Hickory, North Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $41,900,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$110 per square foot of leasable space.
We originally purchased this property with our own funds. On January 23,
2004, we obtained financing in the amount of $23,650,000. The loan requires
interest only payments as an annual rate of 4.531% and matures February 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
251
Three tenants, Best Buy, Kohl's and Dick's Sporting Goods, each lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Best Buy 45,000 12 10.75 07/99 01/15
Dick's Sporting Goods * 45,000 12 N/A 01/00 01/20
Kohl's 86,584 23 6.83 08/99 02/20
* Ground lease
For federal income tax purposes, the depreciable basis in this property
will be approximately $35,068,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Hickory Ridge Shopping Center was built in 1999. As of December 1, 2004,
this property was 100% occupied, with a total 380,487 square feet leased to 19
tenants and two ground lease tenants. The following table sets forth certain
information with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Osaka Japanese
Cuisine 2,100 01/05 1/5 yr. 40,950 19.50
Thai Orchid 2,800 01/05 1/5 yr. 53,200 19.00
Tony's Pizza 2,100 01/05 1/5 yr. 45,150 21.50
EB Games 1,600 10/05 1/5 yr. 32,000 20.00
Factory Mattress 3,600 11/06 1/5 yr. 66,600 18.50
Party City 12,000 06/09 2/5 yr. 162,000 13.50
Marshalls 30,000 08/09 3/5 yr. 234,000 7.80
Great Clips 1,200 12/09 - 23,400 19.50
Old Navy 25,000 01/10 1/5 yr. 212,500 8.50
Shoe Carnival 12,000 01/10 2/5 yr. 129,000 10.75
Sprint PCS 2,800 01/10 - 50,400 18.00
Hallmark Cards 6,000 02/10 1/5 yr. 93,900 15.65
Family Christian
Bookstore 5,000 03/10 2/5 yr. 90,000 18.00
Pier 1 Imports 9,976 03/12 2/5 yr. 174,580 17.50
The Avenue 6,600 01/13 2/5 yr. 78,012 11.82
Best Buy 45,000 01/15 3/5 yr. 483,750 10.75
A.C. Moore 21,000 12/15 3/5 yr. 248,730 11.84
Linens 'N Things 35,000 01/16 3/5 yr. 367,500 10.50
Kohl's 86,584 02/20 6/5 yr. 590,995 6.83
252
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Dicks Sporting
Goods (Ground Lease) 45,000 01/20 6/5 yr. 185,000 N/A
Babies "R" Us
(Ground Lease) 25,127 01/13 6/5 yr. 126,647 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
CORWEST PLAZA, NEW BRITAIN, CONNECTICUT
We purchased an existing shopping center known as CorWest Plaza containing
115,011 gross leasable square feet. The center is located at 665 and 687 West
Main Street in New Britain, Connecticut.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $33,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$287 per square foot of leasable space.
We originally purchased this property with our own funds. On January 7,
2004, we obtained financing in the amount of $18,150,000. The loan requires
interest only payments at an annual rate of 4.56% and matures February 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Super Stop and Shop, Liquor Depot and CVS Pharmacy, each
lease more than 10% of the total gross leasable area of the property. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Super Stop &
Shop 68,073 59 26.00 05/03 05/08
26.50 06/08 05/13
27.00 06/13 05/18
27.50 06/18 05/23
28.00 06/23 05/28
CVS Pharmacy 12,150 11 26.00 06/01 01/22
253
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Liquor Depot 14,000 12 14.00 08/01 08/06
16.00 09/06 08/11
For federal income tax purposes, the depreciable basis in this property
will be approximately $26,101,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
CorWest Plaza was built in phases between 1999 to 2003. As of December 1,
2004, this property was 99% occupied, with a total 114,023 square feet leased to
10 tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------
Video One 3,500 09/05 2/3 yr. 51,181 14.62
Rent-A-Center 6,000 02/06 1/5 yr. 90,000 15.00
Cingular Wireless 1,553 06/06 1/5 yr. 27,954 18.00
Subway 1,500 08/06 4/2 yr. 20,011 13.34
Webster Bank 2,147 11/05 2/5 yr. 38,646 18.00
Papa Gino's 3,000 02/11 2/5 yr. 60,000 20.00
Liquor Depot 14,000 08/11 2/5 yr. 196,000 14.00
Frazier's Two Cleaners &
Laundromat 2,100 10/11 2/5 yr. 37,800 18.00
CVS Pharmacy 12,150 01/22 4/5 yr. 315,900 26.00
Super Stop & Shop 68,073 05/28 6/5 yr. 1,769,898 26.00
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
SHAW'S SUPERMARKET, NEW BRITAIN, CONNECTICUT
We purchased a single user retail center known as Shaw's Supermarket, New
Britain, containing 65,658 gross leasable square feet. The property is located
in New Britain, Connecticut.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $13,656,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$208 per square foot of leasable space.
We originally purchased this property with our own funds. On January 28,
2004, we obtained financing in the amount of $6,450,000. The loan requires
interest only payments as an annual rate of 4.684% and matures November 1, 2028.
254
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenant would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of its lease.
Shaw's Supermarket was built in 1995. One tenant, Shaw's Supermarket,
leases 100% of the total gross leasable area of the property. The lease with
this tenant requires the tenant to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate % of Base Rent Per Square
GLA Leased Total Renewal Per Annum Foot Per Lease Term
Lessee (Sq. Ft.) GLA Options ($) Annum ($) Beginning To
--------------------------------------------------------------------------------------------------------------------
Shaw's 65,658 100 6/5 yr. 1,017,699 15.50 12/95 02/01
Supermarkets - 1,083,357 16.50 03/01 02/06
New Britain 1,149,015 17.50 03/06 02/11
1,181,844 18.00 03/11 04/16
For federal income tax purposes, the depreciable basis in this property
will be approximately $10,681,000. 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.
PAVILION AT KING'S GRANT, CONCORD, NORTH CAROLINA
We purchased a newly constructed shopping center known as Pavilion at
King's Grant, containing 79,109 gross leasable square feet (which includes
65,000 square feet of ground lease space). The center is located at 8050 Concord
Mills Boulevard in Concord, North Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $8,151,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. One tenant, Toys "R" Us, is currently
paying half rent. When the tenant begins paying full rent, we will pay the
balance of the purchase price of approximately $1,563,000. Our total acquisition
cost is expected to be approximately $103 per square foot of leasable space.
We originally purchased this property with our own funds. On April 6, 2004,
we obtained financing in the amount of $5,342,000. The loan requires interest
only payments at an annual rate of 4.39% and matures May 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Toys "R" Us and Olive Garden, each lease more than 10% of the
total gross leasable area of the property. The leases with these tenants require
the tenants to pay base annual rent on a monthly basis as follows:
255
Approximate Base Rent Per
GLA Leased % of Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
--------------------------------------------------------------------------------------------------
Toys "R" Us * 49,000 62 5.10 10/02 01/13
Olive Garden* 8,500 11 9.41 04/02 04/07
10.35 05/07 04/12
* ground lease
For federal income tax purposes, the depreciable basis in this property
will be approximately $2,741,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Pavilion at King's Grant was built in 2002 and 2003. As of December 1,
2004, this property was 100% occupied, with a total 79,109 square feet leased to
four tenants and three ground lessees. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
-----------------------------------------------------------------------------------------------------
RadioShack 2,400 04/08 2/5 yr. 40,800 17.00
Bank of America 100 08/08 2/5 yr. 14,400 144.00
Panera Bread 5,609 12/14 2/5 yr. 109,376 19.50
Jared Jewelers 6,000 01/23 2/5 yr. 220,020 36.67
Olive Garden * 8,500 04/12 4/5 yr. 80,000 N/A
Red Lobster * 7,500 05/12 4/5 yr. 80,000 N/A
Toys "R" Us * 49,000 01/13 6/5 yr. 250,000 N/A
* Ground lease
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may provide that the tenant's liability for such expenses is
limited in some way, usually so that their liability for such expenses does not
exceed a specified amount.
CVS PHARMACIES (ECKERD DRUG STORES)
We purchased the following two separate existing freestanding retail
properties known as CVS Pharmacies, formerly Eckerd Drug Stores, containing a
total of 27,648 gross leasable square feet.
Location Square Feet Completion Date Purchase Price ($)
---------------------------------------------------------------------------------------------
33rd Street and Santa Fe 13,824 2003 3,364,000
Edmond, Oklahoma
36th and Robinson 13,824 2003 5,288,000
Norman, Oklahoma
256
We purchased these CVS Pharmacies from an unaffiliated third party. Our
total acquisition cost was approximately $8,652,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$313 per square foot of leasable space.
We purchased these properties with our own funds. On April 30, 2004, we
obtained financing in the amounts of $1,850,000 and $2,900,000 for CVS Pharmacy
- Edmond and CVS Pharmacy - Norman, respectively. Both loans require interest
only payments at an annual rate of 4.374% and mature June 2009.
One tenant, CVS Pharmacy, leases 100% of the total gross leasable area of
each property. The leases with this tenant require the tenant to pay base annual
rent on a monthly basis as follows:
% of
Total Base Rent
Approximate GLA of Current Per Square
GLA Leased each Annual Renewal Foot Per Lease Term
Lessee/Location (Sq. Ft.) Property Rent ($) Options Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------------------
33rd Street & 13,824 100 289,292 4/5 yr. 20.93 10/03 10/23
Santa Fe
Edmond, OK
36th & 13,824 100 454,806 4/5 yr. 32.90 11/03 11/23
Robinson
Norman, OK
A twenty year lease commenced as of the date of acquisition with no
increases during the term of the lease. Each lease includes four options, each
for a term of five years.
These properties are on triple net leases and the tenant will be
responsible for all repairs.
For federal income tax purposes, the depreciable basis in these properties
will be approximately $6,770,000 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.
DARIEN TOWNE CENTRE, DARIEN, ILLINOIS
We purchased an existing shopping center known as Darien Towne Centre
containing 223,844 gross leasable square feet (which includes 6,371 square feet
of ground lease space). The center is located at 2189 75th Street, in Darien,
Illinois.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $30,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$134 per square foot of leasable space.
Simultaneously with the purchase this property, we obtained a new loan in
the amount of $16,500,000. The loan requires interest only payments based on a
rate of 4.65% per annum and matures June 2010.
257
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Home Depot, Circuit City and PETsMART, each lease more than
10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
--------------------------------------------------------------------------------------------------
Home Depot 109,200 49 7.98 05/94 04/99
8.35 05/99 04/04
8.60 05/04 04/09
9.10 05/09 04/14
Circuit City 32,984 15 10.50 05/94 01/05
CPI 02/05 01/10
CPI 02/10 01/15
PETsMART 25,487 11 11.20 10/94 09/04
11.70 10/04 09/09
For federal income tax purposes, the depreciable basis in this property
will be approximately $22,468,400. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Darien Towne Centre was built in 1994. As of December 1, 2004, this
property was 94% occupied, with a total 210,010 square feet was leased to 11
tenants and one ground lease tenant. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------
Gingiss Formalwear 2,000 12/04 - 35,010 17.50
Coldwell Banker 2,468 03/05 - 45,831 18.57
Jenny Craig 2,000 05/07 1/3 yr. 44,000 22.00
Deals 12,000 07/07 1/5 yr. 120,000 10.00
TGI Fridays (Ground Lease) 6,371 05/09 3/5 yr. 79,860 N/A
Great Clips 1,500 08/09 2/3 yr. 33,000 22.00
PETsMART 25,487 09/09 5/5 yr. 298,197 11.70
Murray's Discount Auto 10,000 10/09 1/5 yr. 115,000 11.50
Panera Bread 4,500 12/12 3/5 yr. 94,500 21.00
Home Depot 109,200 04/14 4/5 yr. 939,120 8.60
Signature Cleaners 1,500 11/14 - 37,260 24.84
Circuit City 32,984 01/15 4/5 yr. 346,332 10.50
258
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
STONY CREEK MARKETPLACE, NOBLESVILLE, INDIANA
We purchased a newly constructed shopping center known as Stony Creek
Marketplace containing 153,796 gross leasable square feet (which consists of
8,000 square feet of ground lease space). The center is located at 1713C
Mercantile Boulevard in Noblesville, Indiana.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $25,750,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$167 per square foot of leasable space.
We originally purchased this property with our own funds. On January 20,
2004, we obtained financing in the amount of $14,162,000. The loan requires
interest only payments at an annual rate of 4.77% and matures January 1, 2011.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, T.J. Maxx, Linens 'N Things and Barnes & Noble, each lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
--------------------------------------------------------------------------------------------------
T.J. Maxx 30,000 20 9.50 09/03 09/13
Linens 'N Things 28,444 18 11.50 07/03 01/09
12.00 02/09 01/14
Barnes & Noble 21,980 14 13.50 09/03 01/16
For federal income tax purposes, the depreciable basis in this property
will be approximately $17,564,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Stony Creek Marketplace was built in 2003. As of December 1, 2004, this
property was 100% occupied, with a total 153,796 square feet leased to 19
tenants and one ground lease tenant. The following table sets forth certain
information with respect to those leases:
259
Approximate Base Rent Per
GLA Leased Lease Renewal Current Annual Square Foot Per
Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($)
---------------------------------------------------------------------------------------------------------------
Cingular Wireless 1,487 06/08 2/5 yr. 31,227 21.00
RJ Fastframe 1,618 06/08 1/5 yr. 33,915 20.96
The UPS Store 1,618 08/08 1/5 yr. 33,978 21.00
Scrapbook Corner 4,095 12/08 - 75,758 18.50
Papa Johns Pizza 1,615 01/09 - 33,915 21.00
Giovanni Jewelers 1,615 02/09 1/5 yr. 33,915 21.00
Quizno's Classic Subs 1,600 12/09 2/4 yr. 29,600 18.50
Blockbuster Video 4,892 05/11 2/5 yr. 102,732 21.00
Today's Bedroom One 4,890 06/11 1/5 yr. 90,465 18.50
Panera Bread 4,200 12/12 2/5 yr. 88,200 21.00
Maggie Moo's Ice Cream 1,615 03/13 2/5 yr. 33,915 21.00
Qdoba Mexican Restaurant 2,272 04/13 2/5 yr. 45,440 20.00
Ossip Optometry, P.C. 3,230 04/13 2/5 yr. 60,563 18.75
Pier 1 Imports 9,375 07/13 2/5 yr. 160,696 17.14
Shoe Carnival 10,000 07/13 2/5 yr. 130,000 13.00
T.J. Maxx 30,000 09/13 3/5 yr. 285,000 9.50
Linens 'N Things 28,444 01/14 3/5 yr. 327,118 11.50
Factory Card Outlet 11,250 01/14 2/5 yr. 160,313 14.25
Barnes & Noble 21,980 01/16 2/5 yr. 296,730 13.50
Logan's Roadhouse
(Ground Lease) 8,000 03/18 3/5 yr. 75,500 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
THE SHOPS AT PARK PLACE, PLANO, TEXAS
We 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 interest of limited partner of the limited partnership
holding title to this center. The center contains 116,300 gross leasable square
feet (which includes 3,822 square feet of ground lease space) and is located at
6401 W. Plano Parkway in Plano, Texas.
An affiliate of our business manager/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 us when we had raised sufficient
funds from the sale of shares to acquire this property from them. The affiliate
agreed to sell us this property for the price it paid to the unaffiliated third
party, plus any actual costs incurred. Our board of directors unanimously
approved acquiring this property, including a unanimous vote of the independent
directors.
Our total acquisition cost was $24,000,000, which included $132,000 of
costs incurred by Inland Park Place Limited Partnership. We expect any
additional costs to be insignificant. Our acquisition cost is approximately $206
per square foot of leasable space.
260
As part of the purchase, title to the property was subject to a loan placed
on the property by Inland Park Place Limited Partnership for our benefit. The
loan is in the amount of $13,127,000, requires interest only payments at a rate
of 4.71% per annum and matures November 2008. We believe the interest rate on
this loan is no greater than what we could have obtained from an unaffiliated
third party lender.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Walgreens, OfficeMax, Michaels and Bed, Bath & Beyond, each
lease more than 10% of the total gross leasable area of the property. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
--------------------------------------------------------------------------------------------------
Walgreens 15,120 13 20.83 05/00 04/60
OfficeMax 23,429 20 13.50 11/01 11/11
14.00 12/11 11/16
Michaels 24,133 21 13.50 08/01 10/11
Bed, Bath &
Beyond 25,000 21 11.00 10/01 01/12
For federal income tax purposes, the depreciable basis in this property
will be approximately $13,175,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
The Shops at Park Place was built in 2001. As of December 1, 2004, this
property was 99% leased, with a total 115,460 square feet leased to ten tenants
and one ground lease tenant. The following table sets forth certain information
with respect to those leases:
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Ebby Halliday Realty 5,314 10/06 2/5 yr. 154,100 29.00
North Dallas Eye
Associates 3,000 10/06 1/5 yr. 90,000 30.00
The Nail Club 1,100 10/06 1/5 yr. 33,000 30.00
Oxford Cleaners 1,042 10/06 1/5 yr. 31,260 30.00
Carpet Mills of America 3,500 11/06 2/5 yr. 91,000 26.00
Michaels 24,133 10/11 3/5 yr. 325,800 13.50
Bed, Bath & Beyond 25,000 01/12 3/5 yr. 275,000 11.00
Salon Boutique 10,000 02/12 2/5 yr. 180,000 18.00
OfficeMax 23,429 11/16 4/5 yr. 316,300 13.50
261
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Walgreens 15,120 04/60 - 315,000 20.83
Chick-Fil-A (Ground
Lease) 3,822 10/15 3/5 yr. 78,500 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
POTENTIAL PROPERTY ACQUISITIONS
As of December 7, 2004, we are considering acquiring the 24 properties
described below. Our decision to acquire these properties will generally depend
upon:
- no material adverse change occurring in the properties, the tenants or
the local economic conditions;
- our receipt of sufficient net proceeds from our offerings to make
these acquisitions 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 these properties. We cannot guarantee that we will complete these
acquisitions.
SHOPPES OF WARNER ROBBINS, WARNER ROBINS, GEORGIA
We anticipate purchasing a newly constructed shopping center known as
Shoppes of Warner Robins, containing 70,740 of gross leasable square feet. The
center is located at S.R. 96 and Lakejoy Road in Warner Robins, Georgia.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $13,374,000. This
amount may 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 $189 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
262
Base Rent
Approximate % of Total Per Square
GLA Leased Phase I Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Publix 38,990 55 9.50 11/04 11/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $10,031,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Shoppes at Warner Robins was newly constructed in 2004. This property is
currently leasing up the remaining vacancies. As of December 1, 2004, this
property was 78% occupied, with a total of 55,140 square feet leased to 12
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
Cutting Edge Salon 1,400 10/07 28,000 20.00
Sprint Wireless 1,400 10/07 26,600 19.00
International Tan 1,050 11/07 18,900 18.00
Nextel Communications 1,050 10/09 19,425 18.50
Love Your Clothes Cleaners 1,400 10/09 30,800 22.00
Just Mail 1,400 10/09 24,500 17.50
Luv Nail Salon 1,400 10/09 30,800 22.00
Hong Kong Restaurant 1,400 11/09 26,600 19.00
Subway 1,400 11/09 23,800 17.00
Cuts by Us 1,050 11/09 18,900 18.00
Paradise Video 3,200 12/09 52,800 16.50
Publix 38,990 11/24 370,405 9.50
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
ACADEMY SPORTS & OUTDOORS, SAN ANTONIO, TEXAS
We anticipate purchasing a newly constructed freestanding retail center
known as Academy Sports & Outdoors, containing 70,910 of gross leasable square
feet. The center is located at 2643 NW Loop 410 in San Antonio, Texas.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $6,825,000. This
amount may 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 $96 per square foot of leasable space.
263
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenant would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of its lease.
One tenant, Academy Sports & Outdoors, will lease 100% of the total gross
leasable area of the property. The lease term will be determined in accordance
with the tenant's commencement date. The lease with this tenant requires the
tenant to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate % of Per Square Estimated
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Academy Sports & Outdoors 70,910 100 7.51 12/04 11/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $5,119,000. 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.
MESA FIESTA, MESA, ARIZONA
We anticipate purchasing an existing shopping center known as Mesa Fiesta,
containing 194,892 of gross leasable square feet. The center is located at South
Alma School Road and Grove Avenue in Mesa, Arizona.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $36,855,000. This
amount may 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 $189 per square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we
expect to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Five tenants, Best Buy, Marshalls, Borders Books & Music, Comp USA and Oak
Showcase, leases more than 10% of the total gross leasable area of the property.
The leases with these tenants require the tenants to pay base annual rent on a
monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Best Buy 39,482 20 11.35 09/94 08/08
264
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Marshalls 31,500 16 11.50 02/95 01/10
Borders Books & Music 30,000 15 22.27 04/94 03/09
Comp USA 25,000 13 12.71 03/94 02/09
Oak Showcase 25,010 13 10.00 05/04 04/09
For federal income tax purposes, the depreciable basis in this property
will be approximately $27,641,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Mesa Fiesta was built in 1994. As of December 1, 2004, this property was
100% occupied, with a total 194,892 square feet leased to eight tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
Famous Footwear 8,000 03/07 97,600 12.20
Best Buy 39,482 08/08 448,121 11.35
Comp USA 25,000 02/09 317,750 12.71
Cost Plus World Market 18,900 02/09 288,225 15.25
Staples 17,000 02/09 225,803 13.28
Borders Books & Music 30,000 03/09 668,226 22.27
Oak Showcase 25,010 04/09 250,100 10.00
Marshalls 31,500 01/10 362,250 11.50
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
PHENIX CROSSING, PHENIX CITY, ALABAMA
We anticipate purchasing a newly constructed shopping center known as
Phenix Crossing, containing 56,563 of gross leasable square feet. The center is
located at 5408 Summerville Highway in Phenix City, Alabama.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $10,065,000. This
amount may 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 $178 per square foot of leasable space.
265
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate % of Total Per Square
GLA Leased Phase I Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Publix 38,997 69 11.95 06/04 06/24
For federal income tax purposes, the depreciable basis in this property
will be approximately $7,549,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Phenix Crossing was newly constructed in 2004. As of December 1, 2004, this
property was 95% occupied, with a total of 53,817 square feet leased to nine
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
Package Store 1,400 11/07 20,384 14.56
Ace Cleaners 1,400 06/09 22,400 16.00
Nail Salon & Day Spa 1,400 07/09 22,400 16.00
China Panda 1,400 07/09 22,400 16.00
Movie Gallery 4,200 08/09 56,700 13.50
Headstart Hair 2,220 08/09 35,520 16.00
Zeb's Seafood & Chicken 1,400 08/09 23,310 16.65
Blimpie 1,400 09/09 22,400 16.00
Publix 38,997 06/24 466,014 11.95
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
METRO TOWN CENTER, PHOENIX, ARIZONA
We anticipate purchasing an existing shopping center known as Metro Town
Center, containing 147,056 of gross leasable square feet. The center is located
at 2821 West Peoria in Phoenix, Arizona.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $31,266,000. This
amount may increase by additional costs which have
266
not yet been finally determined. We expect any additional costs to be
insignificant. Our acquisition cost is expected to be approximately $213 per
square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we
expect to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Ross Dress for Less and PETsMART, each lease more than 10%
of the total gross leasable area of the property. The leases with these tenants
require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Ross Dress for Less 30,187 21 11.50 04/04 01/15
PETsMART 22,500 15 10.91 01/03 01/18
For federal income tax purposes, the depreciable basis in this property
will be approximately $23,450,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Metro Town Center was built during 1988 through 1990 and renovated in 2003
and 2004. This property is currently leasing up the remaining vacancies and
certain tenants have executed leases for retail space within the shopping
center. As of December 1, 2004, this property was 78% occupied, with a total
115,017 square feet leased to 19 tenants. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
Metro Mattress 2,400 02/08 72,000 30.00
Subway 1,400 02/08 43,260 30.90
Cold Stone Creamery 1,200 02/08 35,844 29.87
Nextel Communications 1,200 03/08 38,400 32.00
Supercuts 1,200 04/08 33,600 28.00
Blockbuster Video 6,896 12/08 104,681 15.18
Tina Nails 1,710 03/09 47,779 27.94
Robeks 960 04/09 28,800 30.00
The UPS Store 1,600 08/09 44,800 28.00
Samurai Sams 1,600 02/10 52,800 33.00
Naturally Women 13,464 03/10 204,518 15.19
Chipotle Mexican Grill 2,800 12/12 89,600 32.00
Starbucks 1,500 03/13 47,100 31.40
267
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
Big 5 Sporting Goods 10,000 01/14 120,000 12.00
Vitamin Shoppe 5,000 09/14 170,000 34.00
Ross Dress for Less 30,187 01/15 347,151 11.50
PETsMART 22,500 01/18 245,375 10.91
Mimi's Cafe 7,000 12/18 70,000 10.00
Wendy's 2,400 07/19 74,500 31.04
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
SHOPPES AT LAKE ANDREW, VIERA, FLORIDA
We anticipate purchasing an existing shopping center known as Shoppes at
Lake Andrew, containing 144,772 of gross leasable square feet. The center is
located at Wickham and I-95 in Viera, Florida.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $28,300,000. This
amount may 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 $195 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Ross Dress for Less, Linens 'N Things and Rag Shop, each
lease more than 10% of the total gross leasable area of the property. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
Base Rent
Approximate % of Total Per Square
GLA Leased Phase I Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Ross Dress for Less 30,187 21 9.50 02/04 01/16
Linens 'N Things 28,240 20 12.50 02/04 01/15
Rag Shop 19,976 14 11.00 11/03 11/13
For federal income tax purposes, the depreciable basis in this property
will be approximately $21,225,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line
268
method. We depreciate buildings and improvements based upon estimated useful
lives of 40 and 20 years, respectively.
Shoppes at Lake Andrew was built in 2003. As of December 1, 2004, this
property was 100% occupied, with a total of 144,772 square feet leased to 18
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
EB Games 1,800 08/08 43,200 24.00
Hair Cuttery 1,200 08/08 32,400 27.00
Asian Wok 1,200 09/08 32,400 27.00
Mattress Barn 4,520 10/08 83,620 18.50
The Blind Spot 1,200 01/09 31,200 26.00
Gulf Atlantic Hearing Aid 900 01/09 29,700 33.00
Subway 1,200 02/09 31,200 26.00
Dress Barn 4,312 06/09 74,536 18.50
Your House Interiors 9,748 07/09 151,094 15.50
Payless Shoesource 2,700 06/13 59,400 22.00
Cellular Express 1,200 08/13 33,372 27.81
Professional Nail 1,200 08/13 31,200 26.00
Petco 13,767 09/13 213,388 15.50
Shoe Carnival 10,800 10/13 135,000 12.50
Rag Shop 19,976 11/13 219,736 11.00
Pier 1 Imports 10,622 02/14 191,196 18.00
Linens 'N Things 28,240 01/15 353,000 12.50
Ross Dress for Less 30,187 01/16 286,776 9.50
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
GREEN'S CORNER, CUMMING, GEORGIA
We anticipate purchasing an existing shopping center known as Green's
Corner, containing 82,792 of gross leasable square feet (which includes a ground
lease space). The center is located at Georgia Highway 20 and Bethelview Road in
Cumming, Georgia.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $12,768,000. This
amount may 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 $154 per square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we
expect to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
269
One tenant, Kroger, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Kroger 63,296 76 8.49 01/98 01/18
For federal income tax purposes, the depreciable basis in this property
will be approximately $9,576,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Green's Corner was built in 1997. As of December 1, 2004, this property was
100% occupied, with a total 82,792 square feet leased to 11 tenants and one
tenant subject to a ground lease. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
Designer Cleaners 1,800 08/07 39,600 22.00
Blockbuster Video 6,000 09/07 99,000 16.50
The UPS Store 1,320 09/07 22,730 17.22
Subway 1,400 10/07 24,528 17.52
Great Clips 1,253 11/07 21,576 17.22
KB's BBQ & Rib Company 1,200 03/08 20,400 17.00
Golden Palace 2,793 04/08 48,905 17.51
Allstate Insurance 930 08/08 16,284 17.51
Cumming Nails & Tan 1,600 09/08 28,016 17.51
Bucks Pizza 1,200 01/09 19,800 16.50
McDonalds (Ground Lease) * 01/17 49,280 N/A
Kroger 63,296 01/18 537,225 8.49
* To be determined
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
NEWTON CROSSROADS, COVINGTON, GEORGIA
We anticipate purchasing an existing shopping center known as Newton
Crossroads, containing 78,896 of gross leasable square feet. The center is
located at Georgia Highway 20 and Brown Bridge Road in Covington, Georgia.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $10,087,000. This
amount may increase by additional costs which have
270
not yet been finally determined. We expect any additional costs to be
insignificant. Our acquisition cost is expected to be approximately $128 per
square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we
expect to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Kroger, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Kroger 63,296 80 7.36 01/98 01/18
For federal income tax purposes, the depreciable basis in this property
will be approximately $7,565,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Newton Crossroads was built in 1997. As of December 1, 2004, this property
was 100% occupied, with a total 78,896 square feet leased to 11 tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
H & R Block 1,200 04/05 19,464 16.22
Washington Mutual Bank 3,000 04/07 51,300 17.10
Great Clips 1,200 06/07 20,664 17.22
GNC 1,200 07/07 19,476 16.23
Subway 1,200 07/07 22,140 18.45
Daily Nails 1,200 08/07 21,648 18.04
Family Dentistry 1,800 10/07 32,724 18.18
Peking Chinese Restaurant 1,200 10/07 19,476 16.23
Just New Releases 1,800 04/08 30,096 16.72
Best Cleaners 1,800 07/12 42,012 23.34
Kroger 63,296 01/18 465,700 7.36
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
271
STILESBORO OAKS, ACWORTH, GEORGIA
We anticipate purchasing an existing shopping center known as Stilesboro
Oaks, containing 80,772 of gross leasable square feet. The center is located at
State Highway 176 and Stilesboro Road in Acworth, Georgia.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $12,640,000. This
amount may 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 $156 per square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we
expect to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Kroger, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Kroger 54,872 68 8.41 06/97 06/22
For federal income tax purposes, the depreciable basis in this property
will be approximately $9,480,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Stilesboro Oaks was built in 1996. As of December 1, 2004, this property
was 100% occupied, with a total 80,772 square feet leased to 13 tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
Nail Lite 1,050 03/06 22,438 21.37
Blockbuster Video 6,300 04/06 96,957 15.39
Mr. Wonton Chinese Takeout 1,050 05/06 19,509 18.58
The UPS Store 1,400 05/06 24,094 17.21
Vintage Bottle Shop 3,500 07/06 63,000 18.00
Gondolier Pizza 1,400 08/06 24,878 17.77
Great Clips 1,050 09/06 20,653 19.67
GNC 1,400 04/07 24,094 17.21
Solar Dimension Tanning 1,750 04/07 29,890 17.08
Dickson's Tae Kwon Do Plus 2,800 05/07 42,000 15.00
Clothing Care Cleaners 2,450 05/09 69,727 28.46
272
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
Subway 1,750 08/09 28,875 16.50
Kroger 54,872 06/22 461,606 8.41
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
HOLLIDAY TOWNE CENTER, DUNCANSVILLE, PENNSYLVANIA
We anticipate purchasing an existing shopping center known as Holliday
Towne Center, containing 83,122 of gross leasable square feet. The center is
located at 1264 Old Route 22 in Duncansville, Pennsylvania.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $14,727,000. This
amount may 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 $177 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Martins Food, leases more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate % of Total Per Square
GLA Leased Phase I Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Martins 54,322 65 15.55 11/03 10/23
For federal income tax purposes, the depreciable basis in this property
will be approximately $11,045,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Holliday Towne Center was built in 2003. As of December 1, 2004, this
property was 80% occupied, with a total of 66,722 square feet leased to seven
tenants and 3,600 square feet leased to one tenant who has not yet occupied
their space. The following table sets forth certain information with respect to
those leases:
273
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
FlexCheck 1,200 12/07 16,800 14.00
H&R Block 1,200 04/08 15,600 13.00
Movie Gallery 4,000 11/08 52,000 13.00
Holiday Hair 1,200 11/08 25,200 21.00
Fox's Pizza Den 1,600 11/09 22,400 14.00
Isabella's Hallmark * 3,600 12/09 43,200 12.00
STS Tanning 3,200 01/11 38,656 12.08
Martins 54,322 10/23 844,707 15.55
* Lease term has not yet commenced, however, the expiration date may change
based upon the tenant's actual occupancy date.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
CROSS CREEK SHOPPING CENTER, MEMPHIS, TENNESSEE
We anticipate purchasing an existing shopping center known as Cross Creek
Shopping Center, containing 363,333 of gross leasable square feet. The center is
located at 3593 Riverdale Road in Memphis, Tennessee.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $56,300,000. This
amount may 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 $155 per square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we
expect to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Home Depot, Kroger, Rhodes Furniture and Babies "R" Us, each
lease more than 10% of the total gross leasable area of the property. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Home Depot 102,661 28 10.84 09/96 01/17
Kroger 63,941 18 8.92 10/96 09/16
274
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Rohdes Furniture 48,925 13 10.00 12/96 12/11
Babies "R" Us 42,296 12 8.80 09/96 09/06
For federal income tax purposes, the depreciable basis in this property
will be approximately $42,225.000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Cross Creek Shopping Center was built in 1995. As of December 1, 2004, this
property was 100% occupied, with a total 363,333 square feet leased to 19
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
BA Framer 2,011 05/05 34,187 17.00
Gould's Styling Salon 1,609 05/05 29,767 18.50
Le Nail Studio 1,206 09/05 22,308 18.50
Babies "R" Us 42,296 09/06 372,205 8.80
Old Navy 14,000 11/06 245,000 17.50
Bed, Bath & Beyond 35,000 01/07 367,500 10.50
Hallmark 3,975 02/07 59,625 15.00
Besigner's Fine Cleaners 1,206 03/07 21,708 18.00
Household Finance 2,183 02/08 41,472 19.00
GNC 1,450 07/08 29,767 20.53
Sprint PCS 3,000 11/08 64,560 21.52
Lenny's Sub Shop 2,183 09/09 39,300 18.00
Eye Masters 3,500 05/10 110,700 31.63
Rhodes Furniture 48,925 12/11 489,250 10.00
Comp USA 23,000 03/12 256,910 11.17
Hollywood Video 8,000 03/12 158,400 19.80
Kroger 63,941 09/16 570,132 8.92
Home Depot 102,661 01/17 1,113,162 10.84
Fazoli's Italian Restaurant 3,187 04/18 63,252 19.85
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
275
23RD STREET PLAZA, PANAMA CITY, FLORIDA
We anticipate purchasing an existing shopping center known as 23rd Street
Plaza, containing 53,367 of gross leasable square feet. The center is located at
23rd Street and State Road 77 in Panama City, Florida.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $7,257,000. This
amount may 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 $136 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Bed, Bath & Beyond and Ross Dress for Less, each lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate % of Total Per Square
GLA Leased Phase I Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Bed, Bath & Beyond 20,570 39 10.50 02/03 01/13
Ross Dress for Less 30,122 56 9.75 04/03 03/13
For federal income tax purposes, the depreciable basis in this property
will be approximately $5,443,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
23rd Street Plaza was built in 2003. As of December 1, 2004, this property
was 95% occupied, with a total of 50,692 square feet leased to two tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
Bed, Bath & Beyond 20,570 01/13 215,985 10.50
Ross Dress for Less 30,122 03/13 293,690 9.75
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
276
A TEXAS PROPERTY, TARRANT COUNTY, TEXAS
We anticipate investing into an existing retail and office property which
we have designated as A Texas Property, containing over 417,700 of gross
leasable square feet. The retail and office property is located in Tarrant
County, Texas.
We anticipate investing into this property with an unaffiliated third
party. Our total investment cost is expected to be approximately $120,000,000.
This amount may increase by additional costs which have not been finally
determined. We expect any additional costs to be insignificant. Our investment
cost is expected to be approximately $287 per square foot of leasable space.
We anticipate investing into this retail and office property with our own
funds. However, we expect to place financing on this portion of the property at
a later date.
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.
There are no tenants that lease more than 10% of the total gross leasable
area of the property.
The retail and office property we are anticipating investing into was built
between 1998 and 2004. The tenants' leasable square feet of the retail and
office property we are anticipating investing into range between 105 and 23,796
square feet, with lease terms ranging from three years to 12 years, and base
rent ranging from $7.50 to $36.00 per square feet per annum.
For federal income tax purposes, the depreciable basis in this investment
into the retail and office property we are anticipating investing into will be
approximately $90,000,000. 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.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
HENRY TOWN CENTER, MCDONOUGH, GEORGIA
We anticipate purchasing 444,296 of gross leasable square feet (which
includes 63,354 square feet of ground lease space) of a 722,244 square foot
shopping center known as Henry Town Center. The center is located at I-75 and
Jonesboro Road in McDonough, Georgia.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $62,000,000. This
amount may 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 $140 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
277
Two tenants, BJ's Wholesale Club and Belk, each lease more than 10% of the
total gross leasable area of the property. The leases with these tenants require
the tenants to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate % of Total Per Square
GLA Leased Phase I Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
BJ's Wholesale Club 115,396 26 9.00 05/02 05/22
Belk (Ground Lease) 58,267 13 N/A 06/02 07/22
For federal income tax purposes, the depreciable basis in this property
will be approximately $46,500,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
The portion of Henry Town Center which we anticipate purchasing was built
in 2002. As of November 1, 2004, the property was 100% leased to 42 tenants and
two ground lease tenants. The following table sets forth certain information
with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
Friedman's Jewelers 2,386 07/05 42,948 18.00
Cellular Depot 1,155 07/05 24,925 21.58
Water Sports South 1,200 01/06 21,600 18.00
H & R Block 1,986 05/07 34,755 17.50
Famous Footwear 10,000 07/07 145,000 14.50
Sally Beauty Supply 1,400 07/07 27,300 19.50
GNC 1,200 07/07 24,000 20.00
Oreck Home Care 1,600 07/07 27,200 17.00
Hibbett Sporting Goods 5,000 08/07 75,000 15.00
Fantastic Sam's 1,600 08/07 30,400 19.00
Motherhood Maternity 1,600 08/07 38,000 23.75
Dollar Exclusive 3,200 09/07 54,400 17.00
Dessert Factory 1,200 09/07 21,600 18.00
Nails & Tan 1,200 09/07 20,400 17.00
EB Games 1,600 09/07 28,800 18.00
Subway Real Estate 1,600 10/07 32,960 20.60
Hong Kong Cafe 1,400 10/07 23,800 17.00
Orthodontic Centers 3,235 11/07 58,230 18.00
Dress Barn 7,200 12/07 86,400 12.00
The School Box 4,800 12/07 72,000 15.00
Planet Beach Real Estate 1,200 12/07 22,200 18.50
Scrap Happy 3,000 12/07 51,000 17.00
Mattress King 4,685 12/07 81,987 17.50
Liberty Mutual Insurance 1,400 01/08 24,500 17.50
RadioShack 2,786 02/08 44,576 16.00
278
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
Gloria's Hallmark 4,500 02/08 72,000 16.00
Lane Bryant 4,800 03/08 79,200 16.50
Gecko Grill 1,600 03/08 27,200 17.00
Serenity Spa & Salon 2,400 04/08 40,800 17.00
Michael's 23,754 02/12 237,540 10.00
Marshalls 30,000 05/12 226,500 7.55
Longhorn (Ground Lease) 5,087 06/12 81,500 N/A
Payless Shoesource 2,800 06/12 54,404 19.43
Pier 1 Imports 10,000 08/12 155,000 15.50
Staples 24,229 08/12 230,175 9.50
Woody's Bar B Que 5,080 08/12 87,478 17.22
Cici's Pizza 4,200 09/12 67,200 16.00
Ross Dress for Less 30,187 01/13 324,510 10.75
Bath & Body Works 3,000 01/13 59,700 19.90
Books-A-Million 12,510 01/13 125,100 10.00
Bed, Bath & Beyond 19,978 01/13 214,764 10.75
PETsMART 18,875 08/17 202,906 10.75
BJ's Wholesale Club 115,396 05/22 1,038,564 9.00
Belk (Ground Lease) 58,267 07/22 203,934 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
THE VILLAGE AT QUAIL SPRINGS, OKLAHOMA CITY, OKLAHOMA
We anticipate purchasing a freestanding retail building located at The
Village at Quail Springs Shopping Center, containing 100,671 of gross leasable
square feet. The center is located at 2201 West Memorial Road in Oklahoma City,
Oklahoma.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $10,450,000. This
amount may 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 $104 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Best Buy and Gordmans, lease 100% of the total gross leasable
area of the property. The leases with these tenants require the tenants to pay
base annual rent on a monthly basis as follows:
279
Base Rent
Approximate Per Square
GLA Leased % of Total Renewal Foot Per Lease Term
Lessee (Sq. Ft.) GLA Options Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------
Best Buy 45,545 45 3/5 yr. 5.75 11/04 01/15
Gordmans 55,126 55 4/5 yr. 9.10 10/03 01/14
For federal income tax purposes, the depreciable basis in this property
will be approximately $7,838,000. 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.
McALLEN SHOPPING CENTER, McALLEN, TEXAS
We anticipate purchasing a newly constructed shopping center known as
McAllen Shopping Center, containing 17,625 of gross leasable square feet. The
center is located at 10th Street and Trenton Road in McAllen, Texas.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $4,150,000. This
amount may 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 $235 per square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we
expect to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Payless Shoesource, RadioShack, Hollywood Video, and Dr.
Fiona Kolia, Optometrist, each lease more than 10% of the total gross leasable
area of the property. The leases with these tenants require the tenants to pay
base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Payless Shoesource 2,800 16 18.25 08/03 07/08
RadioShack 2,500 14 19.00 11/04 03/09
Hollywood Video 6,282 36 18.50 11/03 10/13
Dr. Fiona Kolia, Optometrist 1,736 10 19.50 11/03 01/08
For federal income tax purposes, the depreciable basis in this property
will be approximately $3,113,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line
280
method. We depreciate buildings and improvements based upon estimated useful
lives of 40 and 20 years, respectively.
McAllen Shopping Center was built during 2004. As of November 1, 2004, this
property was 100% occupied, with a total 17,625 square feet leased to seven
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
Dr. Fiona Kolia, Optometrist 1,736 01/08 33,860 19.50
Classic Cleaners 1,400 07/08 26,600 19.00
Payless Shoesource 2,800 07/08 51,100 18.25
RadioShack 2,500 03/09 47,500 19.00
Sally Beauty Supply 1,500 04/09 33,750 22.50
Just a Cut 1,407 01/13 25,326 18.00
Hollywood Video 6,282 10/13 116,217 18.50
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may provide that the tenant's liability for such expenses is
limited in some way, usually so that their liability for such expenses does not
exceed a specified amount.
ADVANCE AUTO PARTS PORTFOLIO
We anticipate purchasing the following three separate newly constructed
triple-net leased retail properties built in 2004 known as Advance Auto Parts,
containing a total of 21,000 gross leasable square feet.
Location Square Feet Lease Term Purchase Price ($)
----------------------------------------------------------------------------------------------------------------------
8603 Culebra 7,000 07/04-06/19 1,483,675
San Antonio, Texas
465 E. Central Texas Expressway 7,000 08/04-07/19 1,547,609
Harker Heights, Texas
3915 E. Stan Schlueter 7,000 08/04-07/19 1,433,113
Killeen, Texas
------------------------- ------------------------
Total 21,000 4,464,397
We anticipate purchasing these Advance Auto Parts stores from an
unaffiliated third party. Our total acquisition cost, including expenses, is
expected to be approximately $4,464,397. This amount may increase by additional
costs which have not yet been finally determined. We expect any additional costs
to be insignificant. Our acquisition cost will be approximately $213 per square
foot of leasable space.
We anticipate purchasing these properties with our own funds. However, we
expect to place financing on the properties at a later date.
281
In evaluating these properties as potential acquisitions and determining
the appropriate amount of consideration to be paid for the properties, we
considered a variety of factors including location, demographics, quality of
tenant, length of lease, price per square foot, occupancy and the fact that
overall rental rate at the property is comparable to market rates. We believe
that each of these properties is well located, has acceptable roadway access and
is well maintained. These properties will be subject to competition from similar
properties within their market area, and economic performance could be affected
by changes in local economic conditions. We did not consider any other factors
materially relevant to the decision to acquire these properties.
One tenant, Advance Auto Parts, will lease 100% of the total gross leasable
area of each property. The leas with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
% of Total Base Rent
Approximate GLA of Current Per Square
Lessee/ GLA Leased each Annual Foot Per Lease Term
Location (Sq. Ft.) Property* Rent ($) Annum ($) Beginning To
--------------------------------------------------------------------------------------------------------
8603 Culebra Road 7,000 100 110,505 15.79 07/04 06/19
San Antonio, Texas
465 E. Central Texas
Expressway 7,000 100 115,290 16.47 08/04 07/19
Harker Heights,
Texas
3915 E. Stan
Schlueter 7,000 100 106,750 15.25 08/04 07/19
Killeen, Texas
For federal income tax purposes, the depreciable basis in these properties
will be approximately $3,349,000. 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.
THUNDERBIRD CROSSING, PEORIA, ARIZONA
We anticipate purchasing 55,646 of gross leasable square foot portion of a
79,774 square feet existing shopping center known as Thunderbird Crossing. The
center is located at 8375 West Thunderbird Road in Peoria, Arizona.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $8,500,000. This
amount may 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 $153 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
282
Thunderbird Crossing was built in 2003 and 2004. Two tenants, Sprouts
Farmers Market and 99 Cents Only, each lease more than 10% of the total gross
leasable area of the property. The leases with these tenants require the tenants
to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate % of Current Per Square
GLA Leased Total Annual Foot Per Lease Term
Lessee (Sq. Ft.) GLA Rent Annum ($) Beginning To
--------------------------------------------------------------------------------------------------------
Sprouts Farmers
Market 30,146 54 417,522 13.85 05/04 05/19
99 Cents Only 25,500 46 204,400 8.02 04/04 04/14
For federal income tax purposes, the depreciable basis in this property
will be approximately $6,375,000. 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.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
POINCIANA PLACE, KISSIMMEE, FLORIDA
We anticipate purchasing an existing shopping center known as Poinciana
Place, containing 107,139 of gross leasable square feet. The center is located
at Highway 192 and SR 535 in Kissimmee, Florida.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $14,850,000. This
amount may 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 $139 per square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we
expect to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Publix 56,000 52 7.25 06/88 06/08
283
For federal income tax purposes, the depreciable basis in this property
will be approximately $11,138,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Poinciana Place was built in 1988 and redeveloped in 2004. As of October 1,
2004, this property was 100% occupied, with a total 107,139 square feet leased
to 18 tenants. The following table sets forth certain information with respect
to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------
H.W. Lockner, Inc. 3,297 04/07 45,004 13.65
Publix 56,000 06/08 406,000 7.25
Coast Dental Services, Inc. 3,226 08/08 82,932 25.54
Blockbuster Video 5,000 06/09 90,000 18.00
Alber Investments 2,160 06/09 38,880 18.00
Elite Vacations, Inc. 2,972 07/09 65,384 22.00
Nailstyle Salon & Spa 1,427 07/09 28,540 20.00
Rita Rector 643 08/09 5,466 8.50
Vista Investments Enterprise, Inc. 4,755 08/09 66,570 14.00
Timescape Resorts, LLC 7,251 08/09 50,757 7.00
Pizzeria Mashka, Inc. 1,609 09/09 38,616 24.00
Faz Corporation 1,542 09/09 30,840 20.00
Sunstate Gifts, Inc. 1,532 09/09 30,640 20.00
Gemstone Properties, LLC 1,432 09/09 27,280 19.00
Phu Lock of Kissimmee, Inc. 1,096 09/09 21,920 20.00
Cave Run Eagles, LLC 3,324 09/09 59,832 18.00
Oriental Pearl 2,791 07/14 55,820 20.00
Smokey Bones 7,082 08/14 120,000 16.94
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
FAIRGROUNDS PLAZA, MIDDLETOWN, NEW YORK
We anticipate purchasing a redeveloped shopping center which will be known
as Fairgrounds Plaza, containing 98,021 of gross leasable square feet. The
center is located at 330 Route 211 East in Middletown, New York.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $27,448,000. These
amounts may 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 $280 per square foot of leasable space.
We intend to purchase this property with our own funds. We are assuming the
existing debt in the amount of $16,032,000. The loan requires monthly principal
and interest payments at an annual fixed rate of 5.69% and matures in February
2013.
284
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Super Stop & Shop, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Super Stop & Shop 59,970 61 28.51 01/03 01/28
For federal income tax purposes, the depreciable basis in this property
will be approximately $20,586,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Fairgrounds Plaza commenced redevelopment construction during 2002 that
will be completed in stages by 2005. This property has been in a leasing up
phase and seven tenants have executed leases for retail within the shopping
center whose leases have not yet commenced. As of October 1, 2004, the property
was 68% leased with a total 66,254 square feet leased to three tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
First Union Bank 2,284 09/08 38,828 17.00
Majestic Carpet 4,000 12/14 54,000 13.50
Super Stop & Shop 59,970 01/28 1,710,000 28.51
* Lease term information is based on the estimated date the tenant begins
occupancy and is not currently available.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
CORAM PLAZA, CORAM, NEW YORK
We anticipate purchasing a portion of a shopping center, under
construction, known as Coram Plaza. This transaction is comprised of 144,301 of
gross leasable square feet. The center is located on 264 Middle County Road in
Coram, New York.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $38,500,000. This
amount may increase by additional costs which have
285
not yet been finally determined. We expect any additional costs to be
insignificant. Our acquisition cost is expected to be approximately $267 per
square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Stop & Shop, leases more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Stop & Shop 66,194 46 23.91 11/03 10/29
For federal income tax purposes, the depreciable basis in this property
will be approximately $28,875,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Coram Plaza was built in the 1950's with a complete renovation and
expansion during 2004. As of October 1, 2004, this property was 89% occupied,
with a total 128,419 square feet leased to 20 tenants of which three tenants'
leases are anticipated to commence on December 1, 2004. The following table sets
forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------
Longwood Sports Association 4,000 03/05 68,080 16.75
Plaza Deli 1,440 04/05 27,404 17.68
Family Dollar 8,000 12/05 80,000 8.85
Aqua Hut * 3,300 11/06 50,496 15.30
RFK Furniture & Mattress 7,500 08/07 98,750 13.17
G&M Family Card 2,000 08/07 34,833 17.42
Subway 1,320 08/07 23,718 17.97
Blockbuster Video 3,017 09/07 45,255 15.00
Bridgestone/Firestone 7,398 02/08 24,000 3.51
Middle County Cleaners 1,080 11/09 30,000 27.78
Bella Rama 3,260 08/10 60,679 18.61
Joyce Leslie 8,000 08/10 128,000 16.00
Tan City 1,080 11/10 20,780 19.24
Joann Michael Org Beauty Supply 1,510 03/12 30,962 20.51
Path Liquors 2,500 05/12 61,276 24.51
KYCR Hair & Nails * 1,350 11/12 23,362 17.31
286
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------
Dunkin Donuts 1,500 08/13 42,000 28.00
Homes 4-Sale Realty 2,800 11/14 60,000 21.43
Ming Chang Cheung 1,170 12/18 30,420 26.00
Stop & Shop 66,194 10/29 1,583,000 23.91
* Rent commencement for these tenants is December 1, 2004.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
MAGNOLIA SQUARE, HOUMA, LOUISIANA
We anticipate purchasing a shopping center being built and which will be
known as Magnolia Square, containing 115,746 of gross leasable square feet. The
center is located at Martin Luther King Boulevard in Houma, Louisiana.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $18,552,000. These
amounts may 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 $160 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Circuit City, Ross Stores and PETsMART, will lease more than
10% of the total gross leasable area of the property. The lease term will be
determined in accordance with the tenant's commencement date. The lease with
this tenant requires the tenant to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per
Lessee * (Sq. Ft.) GLA Annum ($)
---------------------------------------------------------------------------------------
Circuit City 20,000 17 13.85
Ross Stores 30,186 26 9.25
PETsMART 20,030 17 12.50
* Lease term information is based on the date the tenant begins occupancy and is
not currently available.
287
For federal income tax purposes, the depreciable basis in this property
will be approximately $13,914,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Magnolia Square is being constructed during 2004. The property is currently
leasing up the remaining vacancies and certain tenants have executed lease for
retail space within the shopping center. As of August 1, 2004, the property was
90% leased to nine tenants. The following table sets forth certain information
with respect to those leases:
Approximate Base Rent Per
GLA Leased Current Annual Square Foot
Lessee * (Sq. Ft.) Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------
Circuit City 20,000 277,000 13.85
Ross Dress for Less 30,186 279,221 9.25
PETsMART 20,030 250,375 12.50
Dress Barn 7,700 109,725 14.25
Chuck E. Cheese 7,000 126,000 18.00
Sally Beauty Supplies 1,600 26,000 16.25
Dollar Tree 10,030 72,718 7.25
Starbucks 1,600 39,600 24.75
West Marine 6,000 113,700 18.95
* Lease term information is based on the date the tenant begins occupancy and is
not currently available.
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
LAKEPOINTE TOWNE CROSSING, LEWISVILLE, TEXAS
We anticipate purchasing a newly constructed shopping center known as
Lakepointe Towne Crossing, containing 193,502 of gross leasable square feet. The
center is located at 715 Hebron Parkway, in Lewisville, Texas.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $39,482,000. This
amount may 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 $204 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Sportsman's Warehouse, Circuit City and Ross Dress for Less,
will each lease more than 10% of the total gross leasable area of the property.
The lease term has been determined in
288
accordance with the tenant's projected lease commencement date. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------
Sportsman's Warehouse 45,250 23 12.00 08/04 08/19
Circuit City 33,862 18 14.00 06/04 01/19
Ross Dress for Less 30,187 16 9.75 04/03 04/23
For federal income tax purposes, the depreciable basis in this property
will be approximately $29,611,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Lakepointe Towne Crossing was newly constructed in 2004. As of September 1,
2004, the property is currently in a leasing up phase and certain tenants have
executed leases for retail space within the shopping center. The following table
sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
--------------------------------------------------------------------------------------------------------------
Mattress Firm 6,500 08/08 162,500 25.00
Hawk Electronics 5,000 10/08 125,000 25.00
EB Games 1,500 10/08 34,500 23.00
Carter Floors and Countertops 2,240 12/08 51,520 23.00
Great Clips 1,200 10/09 28,800 24.00
Dr. John Launius 2,880 11/10 63,360 22.00
Pei Wei Asian Diner 3,300 10/13 85,800 26.00
Moe's Southwest Grill 3,121 11/13 78,025 25.00
Circuit City 33,862 01/19 474,068 14.00
Sportsman's Warehouse 45,250 08/19 543,000 12.00
Ross Dress for Less 30,187 04/23 294,323 9.75
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
PLEASANT RUN TOWNE CROSSING, CEDAR HILL, TEXAS
We anticipate purchasing a newly constructed shopping center known as
Pleasant Run Towne Crossing, containing 225,431 of gross leasable square feet of
which 20,200 is on ground leases. The center is located at Pleasant Run and
Highway 67, in Cedar Hill, Texas.
289
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $41,417,800. This
amount may 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 $176 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Oshman's Sporting Goods and Circuit City, will lease more than
10% of the total gross leasable area of the property. The lease term will be
determined in accordance with the tenant's lease commencement date. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Oshman's Sporting Goods 40,954 17 10.00 05/04 04/14
Circuit City 32,570 14 14.00 11/03 01/18
For federal income tax purposes, the depreciable basis in this property
will be approximately $31,063,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Pleasant Run Towne Crossing was newly constructed in 2004. As of September
1, 2004, the property is currently in a leasing up phase and certain tenants
have executed leases for retail space within the shopping center. The following
table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
The Maytag Store 5,225 04/09 94,050 18.00
Justice Just for Girls 4,500 04/09 81,000 18.00
Sleep Experts 4,500 06/09 99,000 22.00
Mattress Firm 6,000 08/09 132,000 22.00
ASAP Mail 2,000 08/09 40,000 20.00
Luxury Nails 1,200 08/09 25,200 21.00
Brook Mays Music 6,250 09/09 112,500 18.00
Michaels 21,390 11/13 224,595 10.50
Bombay Company 4,500 11/13 81,000 18.00
Bed, Bath & Beyond 22,000 01/14 220,000 10.00
Half Price Books 10,108 02/14 121,296 12.00
Mothers Work 1,805 03/14 36,100 20.00
290
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Zales Jewelry 3,000 05/14 66,000 22.00
Vitamin Shop 5,000 08/14 135,000 27.00
Panera Bread 4,999 10/14 119,976 24.00
Oshman's Sporting Goods 40,954 01/15 409,540 10.00
Circuit City 32,570 01/18 455,980 14.00
JP Morgan Chase Bank (Ground Lease) 4,700 02/24 84,999 N/A
Saltgrass Steakhouse (Ground Lease) 8,500 05/24 84,999 N/A
Joe's Crab Shack (Ground Lease) 7,000 05/24 75,000 N/A
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may 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.
As of December 8, 2004, we have over $362,597,000 in pending acquisitions
and we believe, based in part on projected sales of our common stock, that cash
on hand and future financings will provide us with sufficient cash to clse these
properties at the time of their projected closings.
TERMINATED CONTRACTS
Our board previously approved the acquisition of Albertson's Grocery Store
in Loveland, Colorado, Mall 205 and Plaza 205, Portland Oregon, Eckerd Drug
Store at Danforth and Santa Fe in Edmond, Oklahoma and Casa Paloma (disclosed as
probable) Woodbury Village Shopping Center (disclosed as probable), Shaw's
Supermarket at Bristol, Connecticut (disclosed as probable) and Peoria Station
(disclosed as probable). Based on information received during our due diligence
process, we have decided not to acquire the properties and our affiliate has
terminated the contracts on these acquisitions.
291
TENANT LEASE EXPIRATION
The following table sets forth, as of December 7, 2004, lease expirations
for the next ten years at our properties, assuming that no renewal options are
exercised. For purposes of the table, the "total annual base rental income"
column represents annualized base rent of each tenant as of January 1 of each
year. Therefore, as each lease expires, no amount is included in this column for
any subsequent year for that lease. In view of the assumption made with regard
to total annual base rent, the percent of annual base rent represented by
expiring leases may not be reflective of the expected actual percentages.
Average
Base
Approx. % Total of Rental
Gross Portfolio % of Total Income
Leasable Gross Total Annual Annual Base Per Square
Area of Leasable Area Base Rental Rental Income Foot
Number of Expiring Represented Income of Represented Total Annual Under
Year Ending Leases Leases (Sq. by Expiring Expiring by Expiring Base Rental Expiring
December 31, Expiring Ft.) Leases Leases ($) Leases Income ($) Leases ($)
--------------------------------------------------------------------------------------------------------------------
Consolidated
2004 36 126,699 0.8% 1,980,296 1.0% 198,886,836 15.63
2005 82 264,362 1.7% 5,059,399 2.6% 197,728,346 19.14
2006 134 603,457 3.9% 9,118,717 4.7% 193,630,395 15.11
2007 164 559,348 3.6% 10,030,425 5.4% 185,584,833 17.93
2008 248 807,416 5.2% 15,836,792 9.0% 176,706,669 19.61
2009 223 943,389 6.1% 15,099,395 9.3% 161,693,736 16.01
2010 48 450,974 2.9% 6,137,053 4.2% 146,907,152 13.61
2011 63 929,855 6.0% 12,816,709 9.1% 141,051,408 13.78
2012 83 907,832 5.8% 13,093,523 10.2% 128,639,551 14.42
2013 141 1,501,909 9.7% 18,865,006 16.3% 115,891,608 12.56
292
TENANT CONCENTRATION
The following table sets forth, as of December 7, 2004, our individual
tenant concentrations for the properties that we currently own.
% OF % OF
GROSS TOTAL ANNUALIZED
LEASABLE GROSS ANNUALIZED BASE
TOTAL AREA (SQ. LEASABLE BASE RENTAL RENTAL
DESCRIPTION NUMBER FT.) AREA INCOME INCOME
----------------------------------------------------------------------------------------------------
INDIVIDUAL TENANT CONCENTRATIONS (MGMT. CRITERIA TOP 10 OF GLA AND BASE RENT)
Zurich American Insurance Company 1 895,418 5.6% 8,883,864 4.5%
Wal-Mart 4 707,090 4.4% 4,430,026 2.2%
GMAC 1 501,064 3.1% 5,164,449 2.6%
Best Buy 11 488,598 3.0% 7,116,746 3.6%
Ross Dress for Less 16 469,821 2.9% 4,952,789 2.5%
Kohl's 5 431,317 2.7% 2,969,102 1.5%
Bed, Bath & Beyond 13 371,445 2.3% 4,404,859 2.2%
Home Depot 3 335,664 2.1% 2,369,208 1.2%
Publix 8 335,217 2.1% 3,649,391 1.8%
Linens 'N Things 10 317,668 2.0% 3,628,167 1.8%
Wrangler 1 316,800 2.0% 1,504,800 0.8%
T.J. Maxx 11 315,727 2.0% 2,809,953 1.4%
Michaels 12 285,889 1.8% 3,086,511 1.5%
Old Navy 12 241,301 1.5% 2,743,066 1.4%
PETsMART 11 239,554 1.5% 2,977,597 1.5%
Marshalls 7 204,684 1.3% 1,727,175 0.9%
Burlington Coat Factory 3 198,933 1.2% 1,148,475 0.6%
Pier 1 Imports 19 192,504 1.2% 3,477,851 1.7%
Academy Sports 3 182,152 1.1% 1,160,000 0.6%
Barnes & Noble 7 180,198 1.1% 2,930,488 1.5%
Borders Books 8 176,749 1.1% 2,614,835 1.3%
OfficeMax 7 162,542 1.0% 1,915,272 1.0%
Safeway 3 153,850 1.0% 1,489,742 0.7%
Giant Food 3 153,764 1.0% 2,051,401 1.0%
The Sports Authority 4 151,475 0.9% 1,654,970 0.8%
Oshman's Sporting Goods 3 147,630 0.9% 1,597,265 0.8%
Target 1 147,582 0.9% 640,000 0.3%
Cost Plus World Market 8 146,904 0.9% 2,061,328 1.0%
Sam's Club 1 142,491 0.9% 1,142,063 0.6%
Dick's Sporting Goods 3 140,000 0.9% 1,057,500 0.5%
Office Depot 7 135,538 0.8% 1,782,105 0.9%
293
% OF % OF
GROSS TOTAL ANNUALIZED
LEASABLE GROSS ANNUALIZED BASE
TOTAL AREA (SQ. LEASABLE BASE RENTAL RENTAL
DESCRIPTION NUMBER FT.) AREA INCOME INCOME
----------------------------------------------------------------------------------------------------
INDIVIDUAL TENANT CONCENTRATIONS (MGMT. CRITERIA TOP 10 OF GLA AND BASE RENT)
Circuit City 4 132,402 0.8% 1,666,416 0.8%
Toys "R" Us 3 124,000 0.8% 557,500 0.3%
Gottschalk's 1 119,256 0.7% 400,000 0.2%
BJ's Wholesale 1 115,396 0.7% 1,009,715 0.5%
Staples 5 113,020 0.7% 1,485,980 0.7%
Public Safety Service 1 107,705 0.7% 1,292,400 0.6%
Gart Sports 2 100,561 0.6% 913,494 0.5%
King Soopers 1 97,857 0.6% 715,100 0.4%
National Wholesale Liquidators 1 91,314 0.6% 365,256 0.2%
G.I. Joe's 2 89,375 0.6% 1,072,500 0.5%
DSW Shoe Warehouse 3 72,000 0.4% 1,005,250 0.5%
Super Stop & Shop 1 68,073 0.4% 1,769,898 0.9%
Dominick's 1 65,844 0.4% 804,000 0.4%
Shaw's Supermarkets 1 65,658 0.4% 1,083,357 0.5%
CVS Pharmacy 5 59,978 0.4% 1,554,106 0.8%
Kroger 1 59,670 0.4% 491,681 0.2%
Shopper's Food Warehouse 1 58,217 0.4% 844,146 0.4%
Ralph's Grocery Store 1 58,000 0.4% 350,004 0.2%
Harris Teeter 1 57,230 0.4% 558,340 0.3%
Babies "R" Us 2 56,407 0.3% 287,423 0.1%
Shoe Carnival 5 55,000 0.3% 683,500 0.3%
Party City 5 54,922 0.3% 781,632 0.4%
Eckerd Drug Store 4 54,912 0.3% 1,046,132 0.5%
PETCO 4 54,616 0.3% 928,279 0.5%
Lowes Magic Johnson 1 52,500 0.3% 1,155,000 0.6%
Tom Thumb 1 50,000 0.3% 575,000 0.3%
Lowes Cineplex 1 48,229 0.3% 516,816 0.3%
Super Fresh Food Market 1 47,827 0.3% 657,621 0.3%
Bi-Lo 1 46,673 0.3% 406,522 0.2%
Jo Ann Fabrics 1 46,000 0.3% 506,000 0.3%
Sportmart 1 43,660 0.3% 434,334 0.2%
LA Fitness 1 41,000 0.3% 697,000 0.3%
Stein Mart 1 34,000 0.2% 229,500 0.1%
Whole Foods 1 32,000 0.2% 432,000 0.2%
Bealls 1 29,847 0.2% 194,005 0.1%
294
% OF % OF
GROSS TOTAL ANNUALIZED
LEASABLE GROSS ANNUALIZED BASE
TOTAL AREA (SQ. LEASABLE BASE RENTAL RENTAL
DESCRIPTION NUMBER FT.) AREA INCOME INCOME
----------------------------------------------------------------------------------------------------
INDIVIDUAL TENANT CONCENTRATIONS (MGMT. CRITERIA TOP 10 OF GLA AND BASE RENT)
Copeland's Sporting Goods 1 25,129 0.2% 379,950 0.2%
The Container Store 1 25,000 0.2% 725,000 0.4%
PROPERTY ALLOCATION
The following table provides a summary of the properties in our investment
portfolio by type of investment and by state at December 7, 2004.
% OF
GROSS % OF TOTAL ANNUALIZED
LEASABLE GROSS ANNUALIZED BASE
TOTAL AREA (SQ. LEASABLE BASE RENTAL RENTAL
DESCRIPTION NUMBER FT.) AREA INCOME INCOME
----------------------------------------------------------------------------------------------------
PORTFOLIO ALLOCATION BY TYPE
Neighborhood and Community
Retail Shopping Center 26 1,788,990 11.1% 26,419,622 13.3%
Single-User Property 18 2,531,936 15.7% 22,825,422 11.5%
Retail Shopping Center 42 9,758,625 60.5% 123,773,647 62.1%
Joint Venture 5 2,043,986 12.7% 26,307,650 13.2%
--------------------------------------------------------
Total 91 16,123,537 100.0% 199,326,341 100.0%
========================================================
PORTFOLIO ALLOCATION BY STATE
California 5 703,727 4.4% 12,955,611 6.5%
Florida 5 655,514 4.1% 9,468,309 4.8%
Georgia 5 648,335 4.0% 7,875,955 4.0%
Maryland 6 2,105,803 13.1% 27,180,163 13.6%
North Carolina 5 1,031,714 6.4% 10,308,637 5.2%
South Carolina 8 943,045 5.8% 10,360,093 5.2%
Tennessee 4 322,488 2.0% 3,914,311 2.0%
295
GROSS % OF TOTAL % OF
LEASABLE GROSS ANNUALIZED ANNUALIZED
TOTAL AREA (SQ. LEASABLE BASE RENTAL BASE RENTAL
DESCRIPTION NUMBER FT.) AREA INCOME INCOME
----------------------------------------------------------------------------------------------------
Texas 17 2,575,273 16.0% 33,596,184 16.9%
Washington 4 1,374,563 8.5% 14,559,999 7.3%
Other 32 5,763,075 35.7% 69,107,079 34.7%
--------------------------------------------------------
Total 91 16,123,537 100% 199,326,341 100%
========================================================
296
CAPITALIZATION
The following table sets forth our historical capitalization as of
September 30, 2004, our as adjusted capitalization giving effect to the issuance
of 165,649,805 shares of common stock remaining for sale in our initial public
offering and our as adjusted capitalization giving effect to the issuance of
250,000,000 shares of common stock in this offering 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 business manager/advisor, for which the business manager/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."
SEPTEMBER 30, 2004
HISTORICAL AS ADJUSTED (2) AS ADJUSTED (3)
-----------------------------------------------------
(Amounts in thousands, except per share data)
DEBT:
Mortgages and notes payable $ 1,141,248 $ 1,141,248 $ 1,141,248
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value,
10,000,000 authorized, none
outstanding - - -
Common stock, $.001 par value,
250,000 authorized, 146,284
shares issued and outstanding
historical; 250,000 shares issued
and outstanding issued pro forma; and
500,000 shares issued and
outstanding pro forma as adjusted 146 252 502
Additional paid-in-capital (1) 1,304,817 2,244,531 4,474,469
Retained earnings deficit (32,177) (32,177) (32,177)
Accumulated other comprehensive
income 204 204 204
-----------------------------------------------------
Total stockholders' equity $ 1,272,990 $ 2,212,810 $ 4,442,998
-----------------------------------------------------
Total capitalization $ 2,414,238 $ 3,354,058 $ 5,584,246
=====================================================
----------
(1) Additional paid-in capital reduced by selling commissions either paid or
estimated to be paid.
(2) Includes the issuance of 250,000 primary shares plus 1,636 distribution
reinvestment shares issued in connection with the initial public offering.
(3) Includes the issuance of 250,000 primary shares plus 1,636 distribution
reinvestment shares issued in connection with the initial public offering
and 250,000 shares issued in connection with this offering.
297
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OUR
FINANCIAL CONDITION
The following discussion and analysis relates to the three and nine months
ended September 30, 2004. The period from March 5, 2003 (inception) to September
30, 2003 is not comparable because no properties were owned by us during that
2003 period. You should read the following discussion and analysis along with
our consolidated financial statements and the related notes included elsewhere
in this prospectus.
OVERVIEW
We were formed to acquire and manage a diversified portfolio of real
estate, principally multi-tenant shopping centers. 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-tenant 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., 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 November 5, 2004 we have
purchased 11 additional properties located in the states of Alabama, California,
Florida, Illinois, South Carolina, Tennessee and Texas.
During the nine months ended September 30, 2004, we purchased 60
properties, of which 29 were not located in our primary geographical area of
interest. We purchased these 29 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 through the end of the 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 third 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 subsequent 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.
Retail continues to benefit from property market conditions that have
remained the healthiest of all property types. Absorption, which is the change
in the amount of retail space occupied, has remained solidly positive in the
retail sector. During the third quarter of 2004, new tenants absorbed 6.6
million square feet of retail space, the largest jump in occupied space in four
years, according to Reis, a real estate research firm. In addition, shopping
center rents posted their second-largest increase in the last 3 1/2 years and
vacancies dropped slightly to 6.9%.
298
While sustained consumer spending, spurred by low interest rates, has
helped to maintain retail sales growth, changing demographics and consumer
preferences have resulted in a fundamental shift in consumer spending patterns
and the emergence of discount retail as a dominant category. Today a majority of
general merchandise sales occur at a discount department store or a warehouse
club/supercenter. As a result of this trend, some conventional department stores
are struggling and a number of local, regional and national retailers have been
forced to voluntarily close their stores or file for bankruptcy protection. Some
bankrupt retailers have reorganized their operations and/or sold stores to
stronger operators. In some instances, bankruptcies and store closings may
create opportunities to lease space at higher rents to tenants with better sales
performance. Therefore, we do not expect store closings or bankruptcy
reorganizations to have a material impact on our consolidated financial position
or the results of our operations in the near term.
We believe our risk exposure to potential future downturns in the economy
is mitigated because the tenants at our current and targeted properties, to a
large extent, consist or will consist of: retailers who serve primary
non-discretionary shopping needs, such as grocers and pharmacies; discount
chains that can compete effectively during an economic downturn; and national
tenants with strong credit ratings who can withstand a downturn. We believe that
the diversification of our current and targeted tenant base and our focus on
creditworthy tenants further reduces our risk exposure.
We are subject to risks existing due to a concentration of any single
tenant within the portfolio. Currently, the largest tenant by leased area is
Wal-Mart, which has 4 leases representing approximately 707,254 square feet, or
approximately 5% of the total gross leasable area owned by us as of November 5,
2004. The annualized base rental income from these leases is approximately
$4,430,026, or approximately 2.6% of the total annualized base rental income,
based on our portfolio of properties as of November 5, 2004. The two largest
tenants in annualized base rental income are Best Buy and GMAC Insurance which
together total approximately $12,281,195 or 7.2% of the total annualized base
rental income, based on our portfolio of properties as of November 5, 2004.
We are in the process of offering our common stock and have raised
$1,461,406,060 as of September 30, 2004. We raised on average approximately $204
million per month during the third quarter of 2004.
As of September 30, 2004, we owned through separate limited partnership,
limited liability company, or joint venture agreements, a portfolio of 68
properties located in Arizona, Arkansas, California, Colorado, Connecticut,
Florida, Georgia, Illinois, Indiana, Kansas, Louisiana, Maryland, Michigan,
Missouri, Nevada, New Mexico, North Carolina, Oklahoma, Pennsylvania, South
Carolina, Tennessee, Texas, Utah, and Washington containing an aggregate of
approximately 12,900,000 square feet of gross leasable area. As of September 30,
2004, approximately 93% of gross leasable area in the properties was physically
leased and 96% was economically leased.
The following is a summary of the properties we own as of September 30,
2004:
AMOUNT OF
GROSS MORTGAGES
LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT
PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04
-------- ------------- ------------- ----------- ---------------
Academy Sports 60,001 07/04 2004 $ 2,920,000
Houma, LA
299
AMOUNT OF
GROSS MORTGAGES
LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT
PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04
-------- ------------- ------------- ----------- ---------------
Alison's Corner 55,066 04/04 2003 3,850,000
San Antonio, TX
Arvada
Connection and
Arvada
Marketplace 358,757 04/04 1987/1990 28,510,000
Arvada, CO
Best on the
Boulevard 204,427 04/04 1996/1999 19,525,000
Las Vegas, NV
Bluebonnet Parc 135,289 04/04 2002 12,100,000
Baton Rouge, LA
Boulevard at the
Capital Centre 482,377 09/04 2004 71,500,000
Largo, MD
CorWest Plaza 115,011 01/04 1999/2003 18,150,000
New Britain, CT
Cranberry Square 195,566 07/04 1996/1997 10,900,000
Cranberry
Township, PA
Darien Towne
Centre 223,844 12/03 1994 16,500,000
Darien, IL
Davis Towne
Crossing 41,295 06/04 2004 5,365,200
North Richland
Hills, TX
Dorman Center -
Phases I & II 388,067 03/04 & 07/04 2003/2004 27,610,000
Spartanburg, SC
Eastwood Towne
Center 326,981 05/04 2002 46,750,000
Lansing, MI
Eckerd Drug Store 13,440 06/04 2004 1,750,000
Columbia, SC
300
AMOUNT OF
GROSS MORTGAGES
LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT
PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04
-------- ------------- ------------- ----------- ---------------
Eckerd Drug Store 13,824 06/04 2004 1,425,000
Crossville, TN
Eckerd Drug Store 13,824 12/03 2003 1,850,000
Edmund, OK
Eckerd Drug Store 13,824 06/04 2004 1,650,000
Greer, SC
Eckerd Drug Store 13,824 06/04 2004 1,975,000
Kill Devil Hills,
NC
Eckerd Drug Store 13,824 12/03 2003 2,900,000
Norman, OK
Forks Town
Center 92,660 07/04 2002 10,395,000
Easton, PA
Fullerton
Metrocenter 253,296 06/04 1988 28,050,000
Fullerton, CA
Gateway Plaza 358,501 07/04 2000 18,163,000
Southlake, TX
Gateway Village 273,788 07/04 1996 31,458,000
Annapolis, MD
Governor's
Marketplace 231,915 08/04 2001 20,625,000
Tallahassee, FL
GMAC 501,064 09/04 1980/1990 33,000,000
Winston-Salem,
NC
Harris Teeter 57,230 09/04 1977/1995 -
Wilmington, NC
Harvest Towne
Center 42,213 09/04 1996/1999 -
Knoxville, TN
301
AMOUNT OF
GROSS MORTGAGES
LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT
PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04
-------- ------------- ------------- ----------- ---------------
Heritage Towne
Crossing 80,639 03/04 2002 8,950,000
Euless, TX
Hickory Ridge 380,487 01/04 1999 23,650,000
Hickory, NC
Huebner Oaks
Center 286,684 06/04 1998 48,000,000
San Antonio, TX
John's Creek
Village 191,752 06/04 2004 23,300,000
Duluth, GA
La Plaza Del Norte 320,345 01/04 1996/1999 32,528,000
San Antonio, TX
Lakewood Towne
Center 578,863 06/04 1988/2003 51,260,000
Lakewood, WA
Larkspur Landing 173,821 01/04 1978/2001 33,630,000
Larkspur, CA
Lincoln Park 148,806 09/04 1998 -
Dallas, TX
Low Country
Village 76,376 06/04 2004 -
Bluffton, SC
MacArthur
Crossing 109,755 02/04 1996 12,700,000
Los Colinas, TX
Manchester
Meadows 454,172 08/04 1994/1995 31,064,550
Town and
Country, MO
Metro Square
Center 61,817 01/04 1999 6,067,183
Severn, MD
302
AMOUNT OF
GROSS MORTGAGES
LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT
PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04
-------- ------------- ------------- ----------- ---------------
Mitchell Ranch
Plaza 200,404 08/04 2003 18,700,000
New Port Richey,
FL
Newnan Crossing
I & II 291,450 12/03 & 3/04 1999/2003 21,543,091
Newnan, GA
Northgate North 302,095 06/04 2004 26,650,000
Seattle, WA
Northpointe Plaza 377,924 05/04 1991/1993 30,850,000
Spokane, WA
North Ranch
Pavilions 62,812 01/04 1992 10,157,400
Thousand Oaks,
CA
North Rivers
Town Center 141,004 04/04 2004 11,050,000
Charleston, SC
Paradise Valley
Marketplace 92,158 04/04 2002 15,680,500
Phoenix, AZ
Pavilion at King's
Grant 79,109 12/03 2003 5,342,000
Concord, NC
Peoria Crossings 213,733 03/04 2003 20,497,400
Peoria, AZ
Pine Ridge Plaza 230,510 06/04 1998/2004 14,700,000
Lawrence, KS
Plaza at Marysville 115,656 07/04 1995 11,800,000
Marysville, WA
Plaza Santa Fe II 222,389 06/04 2000/2002 17,474,839
Santa Fe, NM
303
AMOUNT OF
GROSS MORTGAGES
LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT
PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04
-------- ------------- ------------- ----------- ---------------
Promenade at Red
Cliff 94,364 02/04 1997 10,590,000
St. George, UT
Reisterstown Road
Plaza 779,397 08/04 1986/2004 49,650,000
Baltimore, MD
Saucon Valley
Square 80,695 09/04 1999 8,850,900
Bethlehem, PA
Shaw's
Supermarket 65,658 12/03 1995 6,450,000
New Britain, CT
Shoppes of Dallas 70,610 07/04 2004 7,178,700
Dallas, GA
Shoppes of
Prominence Point 78,058 06/04 2004 9,954,300
Canton, GA
Shops at
Boardwalk 122,413 07/04 2003/2004 20,150,000
Kansas City, MO
Shops at Park
Place 116,300 10/03 2001 13,127,000
Plano, TX
Stony Creek
Market Place 153,796 12/03 2003 14,162,000
Noblesville, IN
The Columns 128,600 08/04 2004 -
Jackson, TN
Tollgate
Marketplace 392,587 07/04 1979/1994 39,765,000
Belair, MD
Towson Circle 116,366 07/04 1998 19,197,500
Towson, MD
304
AMOUNT OF
GROSS MORTGAGES
LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT
PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04
-------- ------------- ------------- ----------- ---------------
Village Shoppes of
Simonton 66,415 08/04 2004 7,561,700
Lawrenceville,
GA
Wal-Mart
Supercenter 183,211 07/04 1999 7,100,000
Blytheville, AR
Wal-Mart
Supercenter 149,704 08/04 1997 6,088,500
Jonesboro, AR
Wautauga Pavilion 205,740 05/04 2004 17,100,000
Wautauga, TX
Wilshire Plaza
(under
construction) 88,248 07/04 2004 -
Kansas City, MO
Wrangler
El Paso, TX 316,800 07/04 1993 11,300,000
---------- ---------------
Total 12,881,631 $ 1,140,741,763
========== ===============
The square footage for Arvada Connection , Darien Towne Centre, Davis Towne
Crossing, Eastwood Towne Center, Forks Town Center, Fullerton Metrocenter,
Gateway Plaza, Governor's Marketplace, Harvest Towne Center, Heritage Towne
Crossing, Hickory Ridge, Huebner Oaks Center, John's Creek Village, MacArthur
Crossing, Manchester Meadows, Newnan Crossing I & II, Northpointe Plaza, North
Rivers Town Center, Paradise Valley Marketplace, Pavilion at King's Grant, Pine
Ridge Plaza, Shops at Park Place, Stony Creek Market Place and Towson Circle
includes 2,240, 6,371, 4,000, 24,110, 5,100, 5,178, 87,423, 3,800, 9,248, 7,246,
70,127, 8,036, 10,555, 6,500, 3,412, 6,650, 18,719, 31,280, 10,908, 65,000,
84,676, 3,822, 8,000 and 40,060, respectively, square feet of space leased to
tenants under ground lease agreements.
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
305
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 and as of September 30, 2004, no cost has
been allocated to such 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. The aggregate
value of intangibles is measured based on the difference between the stated
price and the property value calculation as if vacant. 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. We conduct an impairment analysis on a
quarterly basis in accordance with SFAS 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 possible subsequent
impairment of investment properties is a significant estimate that can and does
change based on our continuous process of 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
306
in-place lease costs, 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 quarter ended September 30,
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 $1,033,930 was
applied as a reduction to rental income for the three months ended September 30,
2004 and $1,847,107 for the nine months ended September 30, 2004. Amortization
pertaining to the below market lease costs of $1,742,220 was applied as an
increase to rental income for the three months ended September 30, 2004 and
$2,644,833 for the nine months ended September 30, 2004. The table below
presents the amortization during the next five years related to the acquired
above market lease costs and the below market lease costs for properties owned
at September 30, 2004:
OCTOBER 1,
2004 THROUGH
DECEMBER 31,
AMORTIZATION OF: 2004 2005 2006 2007 2008 THEREAFTER
---------------- ------------- ------------ ------------ ------------ ------------ --------------
Acquired above
market lease
costs $ (1,248,545) (4,978,152) (4,796,242) (3,982,664) (3,737,860) (18,834,489)
Acquired below
market lease
costs 1,958,637 7,650,263 7,056,626 6,459,045 5,818,709 41,413,189
----------------------------------------------------------------------------------------------
Net rental income
increase $ 710,092 2,672,111 2,260,384 2,476,381 2,080,849 22,578,700
==============================================================================================
Acquired in-place
lease intangibles $ 3,832,781 15,331,125 15,331,125 15,331,125 15,331,125 83,439,574
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
$3,198,593 for the three months ended September 30, 2004 and $5,492,587 for the
nine months ended September 30, 2004. The table above presents the amortization
during the next five years related to acquired in-place lease costs for
properties owned at September 30, 2004.
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
307
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 accrue 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 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.
During the third quarter of 2004, we entered into treasury contracts with a
futures commission merchant with yields ranging from 3.27% to 3.40% for five
year treasury contracts and 4.0% to 4.3% for ten year treasury contracts. The
amount on deposit for our treasury contracts was $3,712,900. On September 30,
2004, our investment in treasury contracts had a liquidation value of $361,186
resulting in a loss of $3,351,714. As these treasury contracts are not
offsetting future commitments and therefore do not qualify as hedges, the net
loss is recognized currently in earnings. On October 29, 2004, we liquidated all
of our treasury contracts for a liquidation value of $126,213, resulting in a
cumulative realized net loss of $3,586,687.
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
308
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
triple-net leased properties, (ii) 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.
If necessary, we may use financings or other sources of capital in the
event of unforeseen significant capital expenditures.
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 September 30, 2004, subscriptions for a total of
146,283,829 shares had been received from the public, which include the 20,000
shares issued to the business manager/advisor and 1,636,031 shares distributed
pursuant to the DRP as of September 30, 2004. As a result of such sales, we
received a total of $1,461,406,060 of gross offering proceeds as of September
30, 2004.
MORTGAGE DEBT. As of September 30, 2004 we have obtained mortgage debt on
62 properties totaling $1,140,741,763. With the exception of Plaza Santa Fe II,
these loans require monthly payments of interest only and bear interest at a
range between 2.68% and 5.30% per annum. The mortgage loan on Plaza Santa Fe II
requires monthly payments of principal and interest at 6.20% per annum, and
payments into taxes, insurance and replacement reserve escrows.
During the period from October 1, 2004 through November 5, 2004 we obtained
mortgage financing on properties that we purchased during 2004 totaling
approximately $53,123,000 that require monthly payments of interest only and
bear interest at a range of 4.61% to 5.12% per annum.
From July 1, 2004 through November 5, 2004, we entered into interest rate
lock agreements, as described below, to secure the interest rate on mortgage
debt on properties we currently own or will purchase in the future. The funds
under the rate agreements and the deposits are applied to the mortgage fundings
as they occur.
On July 2, 2004, we entered into two separate rate lock agreements with
Bear Stearns Commercial Mortgage, Inc. We paid one rate lock deposit of $400,000
to lock the interest rate at 5.06% for a period of 90 days on $20,000,000 in
principal. We paid a second rate lock deposit of $600,000 to lock the interest
rate at 5.01% for a period of 90 days on $30,000,000 in principal. Of the total
amount,
309
approximately $2,500,000 has been applied to closed mortgage fundings, with the
remainder allocated to new or pending acquisitions.
On July 9, 2004, we entered into a rate lock agreement with LaSalle Bank
National Association. We paid a rate lock deposit of $500,000 to lock the
interest rate at 5.04% for a period of 90 days on $50,000,000 in principal, all
of which has been allocated to new or pending acquisitions.
On July 16, 2004, we entered into a rate lock agreement with Nomura Credit
& Capital, Inc. We paid a rate lock deposit of $500,000 to lock the interest
rate at 4.815% for a period of 90 days on $50,000,000 in principal,
approximately $42,500,000 of which has been allocated to new or pending
acquisitions.
On August 6, 2004, we entered into a rate lock agreement with LaSalle Bank
National Association. We paid a rate lock deposit of $1,000,000 to lock the
interest rate at 4.67% for a period of 90 days on $100,000,000 in principal. Of
this amount $33,000,000 has been applied to closed mortgage fundings, with the
remainder allocated to new or pending acquisitions.
On September 27, 2004, we entered into a rate lock agreement with Principal
Life Insurance Company. We paid a rate lock deposit of $500,000 to lock the
interest rate at 4.45% for a period of 90 days on $50,000,000 in principal, all
of which has been allocated to new or pending acquisitions..
On September 28, 2004, we entered into a rate lock agreement with Bear
Stearns Commercial Mortgage, Inc. We paid a rate lock deposit of $1,000,000 to
lock the interest rate at 4.497% for a period of 90 days on $50,000,000 in
principal, approximately $49,300,000 of which has been allocated to new or
pending acquisitions.
On October 20, 2004, we entered into a rate lock agreement with Bank of
America, N.A. We paid a rate lock fee of $2,301,000 to lock the interest rate at
4.27% for a period of 58 days on $230,100,000 in principal, all of which has
been allocated to new or pending acquisitions.
On October 29, 2004, we entered into a rate lock agreement with Bear
Stearns Commercial Mortgage, Inc. We paid a rate lock fee of $1,645,400 to lock
the interest rate at 4.247% for a period of 60 days on $81,420,000 in principal,
all of which has been allocated to new or pending acquisitions.
LINE OF CREDIT. We have an unsecured line of credit arrangement with
KeyBank N.A. which matures on December 24, 2004 in the amount of $225,000,000.
The funds from this line of credit may be used to provide funds 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
2.94% to 3.56% during the quarter ended September 30, 2004. We are also required
to pay, on a quarterly basis, an amount ranging from .15% to .30%, 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. In
addition to, and in conjunction with these financial covenants, we maintain a
cash collateral account. Amounts deposited in the cash collateral account
provide that loan to value covenants required under the line are not exceeded.
Funds may be deposited into and withdrawn from the cash collateral account as
our properties are purchased without debt. On September 27, 2004, the
outstanding balance of $110,000,000 on this line was repaid resulting in no
outstanding balance as of September 30, 2004. As of September 30, 2004, we were
in compliance with such covenants and no funds were required to be deposited in
the cash collateral account.
310
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
allowance and due diligence expense allowance and will be sold at a price of
$9.50 per share. As of September 30, 2004, we issued 1,636,031 shares pursuant
to the DRP for an aggregate amount of $15,542,222.
Subject to certain restrictions, the share repurchase program 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 September
30, 2004, no shares have been repurchased.
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 nine months ended September 30, 2004, we closed on mortgage debt
with a principal amount of $1,111,191,645. At September 30, 2004, the weighted
average cost of mortgage funds was approximately 4.48%. $985,158,645 of these
mortgage loans are fixed-rate loans that bear interest at a rate between 3.96%
and 6.20% per annum. The remaining $126,033,000 represents variable-rate loans
with a weighted average interest rate of 2.85% per annum at September 30, 2004.
With the exception of the mortgage loan on Plaza Santa Fe II, all of the
loans closed during the nine months ended September 30, 2004 require monthly
payments of interest only and may be prepaid with a penalty after specific
lockout periods. The mortgage loan on Plaza Santa Fe II requires monthly
payments of principal and interest, as well as payments into tax, insurance, and
replacement reserve escrows and has no prepayment privileges.
311
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
Cash flows provided by operating activities were approximately $39,961,000
for the nine month period ended September 30, 2004, which is due primarily to
net income from property operations.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows used in investing activities were approximately $2,015,984,000
for the nine month period ended September 30, 2004 which were primarily used for
the acquisition of 60 properties for approximately $1,959,554,000.
As of November 5, 2004, we had approximately $375 million available for
investment in additional properties. As of November 5, 2004 we are considering
the acquisition of approximately $244 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 offering, we believe that we will have
sufficient resources to acquire these properties.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows provided by financing activities was approximately
$2,192,056,000 for the nine month period ended September 30, 2004. We generated
proceeds from the sale of shares, net of offering costs paid, of approximately
$1,139,185,000. We generated approximately $1,094,146,000 from the issuance of
new mortgages secured by 60 of our properties and $165,000,000 from funding on
the line of credit. We paid approximately $10,707,000 for loan fees and
approximately $28,873,000 in distributions to our stockholders, and $170,000,000
was paid off on the line of credit for the nine months ended September 30, 2004.
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.
Given the current size of our offering, as of November 5, 2004, we could
raise approximately $944 million 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 have also registered with the
Securities and Exchange Commission for another offering of 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 which is not effective as of
November 5, 2004. There is no assurance that we will be effective in selling all
of these additional shares.
312
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
September 30, 2004, we had incurred $159,233,813 of offering costs, of which
$119,656,429 was paid or accrued to affiliates. In accordance with the terms of
our offering, our business manager/advisor has guaranteed payment of all public
offering expenses (excluding sales commissions and the marketing allowance and
the due diligence expense allowance) in excess of 5.5% of the gross proceeds of
the offering or gross offering proceeds or all organization and offering
expenses (including selling commissions) which together exceed 15% of gross
offering proceeds. As of September 30, 2004, 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 offering. Any excess amounts at the
completion of the offering 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 offering. In addition, an
affiliate of our business manager/advisor is entitled to receive selling
commissions, and the marketing allowance and due diligence expense allowance
from us in connection with the offering. Such costs are offset against the
stockholders' equity accounts. Such costs totaled $119,656,429 as of September
30, 2004, of which $3,502,335 was unpaid at September 30, 2004.
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 nine months ended September 30, 2004, we incurred
$1,103,717 of these costs, of which $778,277 remained unpaid as of September 30,
2004 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 $63,978 for the nine months ended
September 30, 2004.
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 nine months ended September 30, 2004, we paid
loan fees totaling $2,241,986 to this affiliate.
We 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 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 business
313
manager/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 nine months ended September 30, 2004, we neither paid nor accrued such fees
because our business manager/advisor agreed to forego such fees for the first,
second and third quarters of 2004.
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 $2,847,427 for the
nine months ended September 30, 2004. None remained unpaid as of September 30,
2004.
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 530,574 shares of common stock to
affiliates and recognized an expense related to these discounts of $352,303 for
the nine months ended September 30, 2004.
As of September 30, 2004 we were due funds from our affiliates in the
amount of $1,571,960, $1,567,481 of which is due from our sponsor for
reimbursement of a portion of the distributions paid by us during 2004. The
remaining $4,479 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 September 30, 2004 we owe funds to our sponsor in the amount of $2,868,666
for repayment of the funds advanced for payment of distributions.
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 September 30, 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 $ 1,141,248,461 15,035,000 38,671,248 813,276,474 274,265,739
Ground lease payments $ 298,329,805 1,021,807 5,324,069 5,328,897 286,655,032
CONTRACTS AND COMMITMENTS
The purchase and sale contract for Pavilion at King's Grant provides that
if anytime during the period from January 1, 2004 through December 31, 2007 the
tenant Toys "R" Us should increase its base rent up to a maximum amount of
$250,000 and no decrease has occurred in their requirement to pay for a
314
certain percentage of expenses at the property, then we would be obligated to
pay the seller additional funds related to the purchase based upon an agreed
income capitalization formula. We have not reserved any funds for this
contingency.
In connection with the purchase of Stony Creek Market Place, we are
obligated to purchase the seller's interest in the leases if the seller
exercises the right to develop and lease a vacant 50,000 square foot pad site
within 48 months after the closing date. In connection with the purchase of
Newnan Crossing, we are obligated to purchase the remaining portion of the
shopping center that is currently under construction (Phase III) once
construction has been completed and a major tenant has moved in and commenced
payment of rent, with the additional purchase price based upon an agreed income
capitalization formula. In connection with the purchase of Low Country Village,
we are obligated to purchase a portion of the shopping center that is currently
under construction once construction has been completed and the respective
tenants have moved in and commenced payment of rent, with the additional
purchase price of the center based upon an agreed income capitalization formula.
As part of the commitment to purchase this remaining portion of the shopping
center, we have deposited $300,000 of earnest money with an escrow agent. In
connection with the purchase of Wilshire Plaza III, we are obligated to pay the
remainder of the purchase price in the amount of $2,967,088 when Kohl's
department store has moved in and commenced payment of rent. Also, in
conjunction with this purchase, we are obligated to fund to Kohl's a second
construction payment in the amount of $1,164,874 when they have moved in and
commenced payment of rent. In connection with the purchase of an interest in the
entity that owns Reisterstown Road Plaza, we are obligated to pay the remaining
purchase price of $11,546,674 if the unfinished space has been built and rented
within 24 months of the closing date. In connection with the purchase of
Governor's Marketplace, we are obligated to pay the remaining purchase price of
$4,846,152 if the seller completes the construction and leasing of additional
components within 24 months of the closing date. In connection with the purchase
of an interest in the entity that owns Boulevard at the Capital Centre, we are
required to pay the remaining purchase price of $6,947,764 upon completion of
the construction and satisfaction of tenant conditions of certain units of the
shopping center. We have not reserved any funds for these contingencies.
In connection with the purchase of Eastwood Towne Center, we are obligated
to pay the remaining purchase price of $3,836,317 once a major tenant's base
rent increases upon two shadow anchors' commencement of operations. In
connection with the purchase of John's Creek Village, we are obligated to pay
the remaining purchase price of $13,385,390 if the vacancies have been leased
and the respective tenants have moved in and commenced payment of rent within 18
months of the closing date. In connection with the purchase of Davis Towne
Crossing, we are obligated to pay the remaining purchase price of $1,604,304 if
the vacancies have been leased and respective tenants have moved in and
commenced payment of rent within 24 months of the initial closing date. In
connection with the purchase of Towson Circle, we are obligated to pay an
additional amount to be determined based upon an agreed income capitalization
formula if two spaces that were vacant at closing have been leased within 24
months of the closing date. In connection with the purchase of Forks Town
Center, if a certain tenant has moved into its space and is paying rent within
12 months of the original closing, we are obligated to pay the remaining
purchase of $701,299. We have not reserved any funds for these contingencies.
In conjunction with the financing of Dorman Center on April 20, 2004, we
were required to obtain a $3.65 million irrevocable letter of credit for a one
year period. Once we purchase the remaining portion of Dorman Center, and meet
certain occupancy requirements, the letter of credit will be released. On July
16, 2004, we purchased the remaining portion of Dorman Center. The irrevocable
letter of credit is still outstanding as the occupancy requirements had not been
met as of November 5, 2004. In conjunction with the financing of John's Creek
Village on July 2, 2004, we were required to obtain a $5.7 million irrevocable
letter of credit for a one year period. Once we purchase the remaining portion
of John's Creek Village, and meet certain occupancy requirements, the letter of
credit will be released. The
315
irrevocable letter of credit is still outstanding as the remaining portion of
the center had not been purchased as of November 5, 2004.
In connection with the purchase of Larkspur Landing, we assumed a liability
in the amount of $1,982,504 for tenant improvements and leasing commission
obligations. As of September 30, 2004, the remaining liability after
disbursements is $1,303,530.
On August 11, 2004, CR Investors, LLC, a 100% owned LLC of Reisterstown
Plaza Holdings, LLC (a joint venture consolidated by us), purchased a 36.5%
tenancy in common interest in an apartment complex known as Courthouse Square
located in Towson, MD. This investment is accounted for utilizing the equity
method of accounting. Under the equity method of accounting, our net equity
investment is reflected on the consolidated balance sheet and the consolidated
statement of operations includes our share of net income or loss from the
unconsolidated entity.
Subsequent to September 30, 2004, we purchased 11 properties for a purchase
price of approximately $217 million. In addition, we are currently considering
acquiring ten properties for an estimated purchase price of $244 million. Our
decision to acquire each property generally depends 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.
RESULTS OF OPERATIONS
GENERAL
The following discussion is based primarily on our consolidated financial
statements as of September 30, 2004 and for the three and nine months ended
September 30, 2004.
Properties
Purchased per Square Feet
Quarter Ended 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 2,123,905 $ 384,053,000
June 30, 2004 23 4,213,576 $ 713,925,000
September 30, 2004 26 5,746,599 $ 869,128,000
-------------------------------------------------------------
Total 68 12,881,631 $ 2,094,301,000
=============================================================
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 $56,404,514 and all
additional property income was $13,362,039 for the nine months ended September
30, 2004.
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 $1,885,751 for the nine months ended September 30, 2004.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist of salaries and computerized information services costs reimbursed to
affiliates for maintaining our accounting and
316
investor records, affiliates common share purchase discounts, insurance,
postage, printer costs and fees paid to accountants and lawyers. These expenses
were $2,843,944 for the nine months ended September 30, 2004 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 $17,017,451 for the nine months ended September 30, 2004.
DEPRECIATION AND AMORTIZATION. Depreciation expense was $19,285,397 and is
due to depreciation on the properties owned during the nine months ended
September 30, 2004. Amortization expense was $6,717,805 and is due to the
application of SFAS 141 and SFAS 142 resulting from the amortization of
intangible assets of approximately $154 million and loan and leasing fees of
$7.5 million during the nine months ended September 30, 2004.
INTEREST. Interest was $21,315,926 for the nine months ended September 30,
2004 and is due to the financing on 62 properties as of September 30, 2004 and
funds drawn during the first quarter of 2004 on the line of credit.
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 income from continuing operations as determined under
Generally Accepted Accounting Principles in the United States of America or
GAAP. Due to certain unique operating characteristics of real estate companies,
the National Association of Real Estate Investment Trusts or 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 us. As defined by NAREIT, FFO means net income
computed in accordance with GAAP, excluding gains (or losses) from sales of
property, plus depreciation on real property and amortization, and after
adjustments for unconsolidated partnerships 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, our presentation of FFO 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. We believe that FFO is a better measure of our
operating performance because FFO excludes non-cash items from GAAP net income.
This allows us to compare our relative property performance to determine our
return on capital. Management uses the calculation of FFO for several reasons.
We use FFO to compare our performance to that of other REITs in our peer group.
Additionally, we use FFO in conjunction with our acquisition policy to determine
investment strategy. FFO is calculated as follows:
317
Nine months ended
September 30, 2004
--------------------
Net income $ 4,413,798
Depreciation and amortization related to
investment properties 24,803,548
--------------------
Funds from operations (1) $ 29,217,346
====================
(1) FFO does not represent cash generated from operating activities calculated
in accordance with GAAP and is not necessarily indicative of cash available
to fund cash needs. FFO should not be considered as an alternative to net
income as an indicator of our operating performance or as an alternative to
cash flow as a measure of liquidity.
The following table lists the approximate physical occupancy levels and
gross leasable area for our investment properties as of September 30, 2004 and
December 31, 2003. The weighted average gross leasable area occupied at
September 30, 2004 and December 31, 2003 was 94% and 98%, respectively. N/A
indicates the property was not owned by us at the end of the period.
September 30, 2004 December 31, 2003
---------------------------------------------
GLA GLA
Properties: Occupied (%) Occupied (%)
------------------------------------------------------------------------------------------------------------
Academy Sports, Houma, LA 60,001 100 N/A N/A
Alison's Corner, San Antonio, TX 55,066 100 N/A N/A
Arvada Connection and Marketplace, Arvada, CO 336,302 94 N/A N/A
Best on the Boulevard, Las Vegas, NV 156,756 77 N/A N/A
Bluebonnet Parc, Baton Rouge, LA 128,289 95 N/A N/A
Boulevard at the Capital Centre, Largo, MD 352,804 73 N/A N/A
CorWest Plaza, New Britain, CT 114,023 99 N/A N/A
Cranberry Square, Cranberry Township, PA 180,585 92 N/A N/A
Darien Towne Centre, Darien, IL 210,010 94 212,682 95
Davis Towne Crossing, North Richland Hills, TX 31,091 75 N/A N/A
Dorman Center - Phases I & II, Spartanburg, SC 374,267 99 N/A N/A
Eastwood Towne Center, Lansing, MI 321,066 98 N/A N/A
Eckerd Drug Store, Columbia, SC 13,440 100 N/A N/A
Eckerd Drug Store, Crossville, TN 13,824 100 N/A N/A
Eckerd Drug Store, Edmund, OK 13,824 100 13,824 100
Eckerd Drug Store, Greer, SC 13,824 100 N/A N/A
Eckerd Drug Store, Kill Devil Hills, NC 13,824 100 N/A N/A
Eckerd Drug Store, Norman, OK 13,824 100 13,824 100
Forks Town Center, Easton, PA 88,660 96 N/A N/A
Fullerton Metrocenter, Fullerton, CA 208,264 82 N/A N/A
Gateway Plaza, Southlake, TX 334,440 93 N/A N/A
Gateway Village, Annapolis, MD 273,788 100 N/A N/A
GMAC, Winston-Salem, NC 501,064 100 N/A N/A
Governor's Marketplace, Tallahassee, FL 218,437 94 N/A N/A
Harris Teeter, Wilmington, NC 57,230 100 N/A N/A
Harvest Towne Center, Knoxville, TN 42,213 100 N/A N/A
Heritage Towne Crossing, Euless, TX 72,119 89 N/A N/A
Hickory Ridge, Hickory, NC 380,487 100 N/A N/A
Huebner Oaks Center, San Antonio, TX 279,461 97 N/A N/A
John's Creek Village, Duluth, GA 136,782 71 N/A N/A
La Plaza Del Norte, San Antonio, TX 303,245 95 N/A N/A
318
September 30, 2004 December 31, 2003
---------------------------------------------
GLA GLA
Properties: Occupied (%) Occupied (%)
------------------------------------------------------------------------------------------------------------
Lakewood Towne Center, Lakewood, WA 546,713 94 N/A N/A
Larkspur Landing, Larkspur, CA 150,893 87 N/A N/A
Lincoln Park, Dallas, TX 144,794 97 N/A N/A
Low Country Village, Bluffton, SC 70,598 92 N/A N/A
MacArthur Crossing, Los Colinas, TX 107,759 98 N/A N/A
Manchester Meadows, St. Louis, MO 434,772 96 N/A N/A
Metro Square Center, Severn, MD 61,817 100 N/A N/A
Mitchell Ranch Plaza, New Port Richey, FL 184,973 92 N/A N/A
Newnan Crossing I & II, Newnan, GA 291,450 100 127,260 97
Northgate North, Seattle, WA 281,595 93 N/A N/A
Northpointe Plaza, Seattle, WA 373,699 99 N/A N/A
North Ranch Pavilions, Thousand Oaks, CA 55,928 89 N/A N/A
North Rivers Town Center, Charleston, SC 141,004 100 N/A N/A
Paradise Valley Marketplace, Phoenix, AZ 71,304 77 N/A N/A
Pavilion at King's Grant, Concord, NC 79,109 100 79,009 100
Peoria Crossings, Peoria, AZ 207,711 97 N/A N/A
Pine Ridge Plaza, Lawrence, KS 230,510 100 N/A N/A
Plaza at Marysville, Marysville, WA 110,356 95 N/A N/A
Plaza Santa Fe II, Santa Fe, NM 217,329 98 N/A N/A
Promenade at Red Cliff, St. George, UT 89,480 95 N/A N/A
Reisterstown Road Plaza, Baltimore, MD 668,369 86 N/A N/A
Saucon Valley Square, Bethlehem, PA 80,695 100 N/A N/A
Shaw's Supermarket, New Britain, CT 65,658 100 65,658 100
Shoppes of Dallas, Dallas, GA 59,810 85 N/A N/A
Shoppes of Prominence Point, Canton, GA 69,358 89 N/A N/A
Shops at Boardwalk, Kansas City, MO 99,881 82 N/A N/A
Shops at Park Place, Plano, TX 115,460 99 116,300 100
Stony Creek Market Place, Noblesville, IN 153,796 100 150,727 98
The Columns, Jackson, TN 121,400 94 N/A N/A
Tollgate Marketplace, Bel Air, MD 392,587 100 N/A N/A
Towson Circle, Towson, MD 106,621 92 N/A N/A
Village Shoppes of Simonton, Lawrenceville, GA 56,615 85 N/A N/A
Wal-Mart SuperCenter, Blytheville, AR 183,211 100 N/A N/A
Wal-Mart SuperCenter, Jonesboro, AR 149,704 100 N/A N/A
Watauga Pavilion, Watauga, TX 192,155 93 N/A N/A
Wrangler, El Paso, TX 316,800 100 N/A N/A
----------- ---------
11,982,924 779,284
=========== =========
As part of the purchase of Darien Towne Centre, CorWest Plaza, La Plaza Del
Norte, Dorman Center - Phase I, Peoria Crossings, Paradise Valley Marketplace,
Best on the Boulevard, Bluebonnet Parc, Arvada Marketplace, Eastwood Towne
Center, Watauga Pavilion, Northpointe Plaza, Plaza Santa Fe II, Lakewood Towne
Center, Shoppes of Prominence Point, Fullerton Metrocenter, Shops at Boardwalk,
Shoppes of Dallas, Dorman Center - Phase II, Towson Circle, Reisterstown Road
Plaza, Village Shoppes of Simonton, Governor's Marketplace, Mitchell Ranch
Plaza, The Columns, Harvest Towne Center, Boulevard at the Capital Centre and
Low Country Village, we are entitled to receive payments in accordance with a
master lease agreement for space, which was not producing revenue either at the
time of or subsequent to the purchase. The master lease agreement covers rental
payments due for periods
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ranging between three months and three years from the purchase date or until the
space is leased. The percentage in the table above does not include non-revenue
producing space covered by the master lease agreement. The master lease
agreements combined with the physical occupancy results in an economic occupancy
ranging between 71% and 100% at September 30, 2004.
SUBSEQUENT EVENTS
We paid distributions of $7,186,753 to our stockholders in October 2004.
We issued 29,541,198 shares of common stock from October 1, 2004 through
November 5, 2004, resulting in a total of 175,825,027 shares of common stock
outstanding. As of November 5, 2004, subscriptions for a total of 173,294,068
shares were received resulting in total gross offering proceeds of
$1,732,326,464 and an additional 2,530,959 shares were issued pursuant to the
DRP for $24,044,115 of additional gross proceeds.
On October 15, 2004, CR Investors, LLC, a 100% owned LLC of Reisterstown
Plaza Holdings, LLC (a joint venture consolidated by us), purchased a 60.94%
interest in an apartment complex known as Cardiff Hall East located in Towson,
MD for approximately $2.7 million.
As of October 31, 2004, Cordish Power Plant Management, LLC, a Maryland
limited liability company ("CPP") admitted two new members in exchange for the
capital contributions described below that were made on November 5, 2004. CRP
Power Plant Investors, LLC, a Maryland limited liability company that is wholly
owned by Reisterstown Plaza Holdings, LLC, contributed capital in the amount of
$15 million in exchange for a 37.5% member interest in CPP. CGW Power Plant
Investors, LLC, a Maryland limited liability company that is wholly owned by
Gateway Village Holdings, LLC contributed capital in the amount of $5 million in
exchange for a 12.5% member interest in CPP. CPP owns a 99.5% interest in
Cordish Power Plant Limited Partnership. Cordish Power Plant Limited Partnership
owns a ground lease interest in a mixed use retail/office complex located in the
Inner Harbor area of Baltimore, Maryland that is known as The Power Plant. The
Power Plant contains approximately 180,000 square feet of space and is 100%
leased and occupied.
As of October 31, 2004, Cordish Power Plant Management Number Two, LLC, a
Maryland limited liability company ("CPP2") admitted two new members in exchange
for the capital contributions described below that were made on November 5,
2004. CTC Pier IV Investors, LLC, a Maryland limited liability company that is
wholly owned by Towson Circle Holdings, LLC contributed capital in the amount of
$5 million in exchange for a 16.67% member interest in CPP2. CTOLL Pier IV
Investors, LLC, a Maryland limited liability company that is wholly owned by
Tollgate Marketplace Holding Company, LLC contributed capital in the amount of
$15 million in exchange for a 50.0% member interest in CPP2. CPP2 owns all of
the membership interest in Cordish Power Plant Number Two, LLC. Cordish Power
Plant Number Two, LLC owns a ground lease interest in a mixed use retail/office
complex located in the Inner Harbor area of Baltimore, Maryland that is known as
Pier IV Office Building. The Pier IV Office Building contains approximately
120,000 square feet of space and is 100% leased and occupied.
We have acquired the following properties during the period October 1 to
November 5, 2004. The respective acquisitions are summarized in the table below.
Approximate Gross
Date Year Purchase Leasable Area
Acquired Property Built Price ($) (Sq. Ft.) Major Tenants
-------------------------------------------------------------------------------------------------------------
10/05/04 Bed Bath & Beyond Plaza 2004 20,350,000 97,496 Bed, Bath & Beyond,
Miami, FL Office Depot,
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Approximate Gross
Date Year Purchase Leasable Area
Acquired Property Built Price ($) (Sq. Ft.) Major Tenants
-------------------------------------------------------------------------------------------------------------
Pier 1 Imports,
Party City
10/12/04 The Columns - Phase II 2004 5,740,596 44,987 Ross Dress for Less,
Jackson, TN Old Navy
10/18/04 Denton Town Crossing 2003/2004 51,236,687 272,722 Oshman's Sporting Goods
Denton, TX
10/19/04 Azalea Square 2004 30,012,525 181,942 T.J. Maxx,
Summerville, SC Linens 'N Things,
Ross Dress for Less,
Cost Plus World Market,
PETsMART
10/21/04 Lake Mary Pointe 1999 6,620,000 51,052 Publix
Orlando, FL
10/25/04 Plaza at Riverlakes 2001 17,000,000 102,836 Ralph's Grocery Store
Bakersville, CA
10/26/04 Academy Sports 2004 5,000,000 61,001 Academy Sports
Port Arthur, TX
10/28/04 Gurnee Town Center 2002 44,256,387 179,840 Linens 'N Things,
Gurnee, IL Old Navy,
Borders Books & Music
10/29/04 CVS Pharmacy 2004 3,066,241 10,055 CVS Pharmacy
Sylacauge, AL
10/29/04 Academy Sports 2004 4,250,000 61,654 Academy Sports
Midland, TX
11/03/04 Mansfield Towne Center 2004 16,055,074 111,898 Ross Dress for Less,
Mansfield, TX Staples
11/05/04 Winchester Commons 1999 13,022,687 93,024 Kroger
Memphis, TN
The mortgage debt and financings obtained during the period October 1, 2004
to November 5, 2004, are detailed in the list below.
Date Annual Interest Maturity Principal Borrowed
Funded Mortgage Payable Rate Date ($)
---------------------------------------------------------------------------------------------------
10/05/04 The Columns 4.910% 05/01/09 11,423,300
10/06/04 Low Country Village 4.960% 05/01/09 5,370,000
10/08/04 Lincoln Park 4.610% 11/01/09 26,153,000
11/01/04 Academy Sports - Port Arthur, TX 5.120% 11/01/09 2,775,000
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Date Annual Interest Maturity Principal Borrowed
Funded Mortgage Payable Rate Date ($)
---------------------------------------------------------------------------------------------------
11/01/04 Harris Teeter - Wilmington, NC 4.915% 11/01/09 3,960,000
11/04/04 The Columns - Phase II 4.950% 11/01/09 3,442,100
We are currently considering acquiring ten properties for an estimated
purchase price of $244 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. For further
information on these potential property acquisitions and financings, see "Real
Property Investments."
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 triple-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 triple-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
triple-net leased properties. As of September 30, 2004, we owned 14 single-user
triple-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.
During the third quarter of 2004, we entered into treasury contracts with a
futures commission merchant with yields ranging from 3.27% to 3.40% for 5 year
treasury contracts and 4.0% to 4.3% for 10 year treasury contracts. The amount
on deposit for our investment in treasury contracts is $3,712,900. On September
30, 2004, our investment in treasury contracts had a liquidation value of
$361,186 resulting in a loss of $3,351,714. As these treasury contracts are not
offsetting future commitments and therefore do
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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 n the treasury contracts and
secured permanent financing in the amount of $350,000,000 for pending
acquisitions. On October 29, 2004, we liquidated all of our treasury contracts
for a liquidation value of $126,213 resulting in a cumulative net realized loss
of $3,586,687.
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 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 September
30, 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.
2004 2005 2006 2007 2008 Thereafter
---- ---- ---- ---- ---- ----------
Maturing debt
Fixed rate debt (mortgage
loans) - - - 56,864,550 46,227,000 911,617,213
Variable rate debt
(including line of credit) - 15,035,000 - - - 110,998,000
Average interest rate on debt:
Fixed rate debt - - - 4.49% 4.64% 4.69%
Variable rate debt - 3.71% - - - 2.74%
We have $126,033,000 of variable rate interest averaging 2.85% as of
September 30, 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 September 30, 2004, interest expense increases by $1,260,330
on an annual basis.
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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 600,000,000
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 500,020,000
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.
324
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. Our articles of incorporation
provide that with respect to shares of our common stock owned by our business
manager/advisor, sponsor, directors or any affiliate, neither our business
manager/advisor, sponsor, directors nor affiliates will be permitted to vote or
consent on matters submitted to our stockholders regarding the removal of any
director. Additionally, in determining the requisite percentage interest of
voting shares of our common stock necessary to approve a matter on which our
business manager/advisor, sponsor, directors or affiliates may not vote or
consent, any shares of our common stock owned by any of them will not be
included.
We will act as our own registrar and transfer agent for our common stock or
we will hire an outside firm to act as our registrar and transfer agent.
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
325
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 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 without approval of the holders of our outstanding securities.
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, including that the aggregate amount of
our borrowings in relation to our net assets may not exceed 300% of net assets,
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 business manager/advisor,
sponsor, director(s) or any affiliates of our business
manager/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 on a
proportional basis, as part of a financing arrangement or as part of a stock
option plan to our directors, officers or employees.
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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).
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
327
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 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
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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 and book entries representing any shares of our common or
preferred stock will be noted with a legend referring to the restrictions
described above. We will issue the common stock in book entry form only. This
means that we will not issue actual share certificates to each holder of our
common stock. The use of book entry only registration permits ownership of
fractional shares, protects you against loss, theft or destruction of stock
certificates and reduces offering costs. Once we accept your subscription to
purchase common stock, we will create an account in our book entry registration
system for you and credit the principal amount of your subscription to your
account. We will send you a book entry receipt indicating acceptance of your
subscription. All issuances of common stock through our distribution
reinvestment program also will be made in book entry form only.
ANTI-TAKEOVER PROVISIONS OF MARYLAND LAW AND OUR ARTICLES OF INCORPORATION AND
BYLAWS
The following paragraphs summarize some anti-takeover provisions of
Maryland law and the material terms of our articles of incorporation and bylaws
regarding business combinations and control share acquisitions. 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
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
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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. Nevertheless, the
provisions of the Maryland Business Combination Act, as summarized in this
section, will apply to any business combinations and interested stockholders
involving persons other than The Inland Group and its affiliates.
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 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
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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. Nevertheless, the provisions of the
Maryland Control Share Acquisition Act, as summarized in this section, will
apply to any control share acquisition involving persons other than The Inland
Group and its affiliates.
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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 this offering, out initial offering and the
consummation of the formation transactions, we expect to have outstanding
540,020,000 shares of common stock. This includes:
- the 20,000 shares purchased by our business manager/advisor;
and assumes that:
- we sell all 250,000,000 shares of common stock offered on a best
efforts basis in this public offering;
- we sell all 20,000,000 shares to be issued under our distribution
reinvestment program described in this offering;
- we sell all 250,000,000 shares of common stock offered on a best
efforts basis in our initial public offering;
- we sell all 20,000,000 shares to be issued under our distribution
reinvestment program described in our initial public 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.
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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 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 have issued in the
aggregate options to purchase 11,500 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.
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.
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"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
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 or assets. 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 or when registration would not be
beneficial to our interests 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 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 business manager/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;
- engage in mergers, consolidations or share exchanges, except in
certain circumstances; or
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- 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 business
manager/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 business manager/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 business manager/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, the consolidation of our company with another company or the sale of
all or substantially all of our assets. Because our stockholders will not be
permitted to object and dissent to an extraordinary transaction, our
stockholders will receive upon completion of the extraordinary transaction the
consideration negotiated by our board of directors with the other party to the
transaction and will not 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 business manager/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 business manager/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. Additionally, our stockholders may amend our bylaws by the
affirmative vote of a majority of all votes cast at a meeting at which a quorum
is present.
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;
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- by or at the direction of our board; or
- 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 of existence;
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- sponsor or business manager/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 business manager/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
business manager/advisor will reimburse us the amount by which the aggregate
annual total operating
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expenses we paid 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 business manager/advisor, sponsor and any director or their
affiliates as follows:
- SALES AND LEASES TO US. We will not purchase property from our
sponsor, business manager/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, BUSINESS MANAGER/ADVISOR, DIRECTOR OR ANY
AFFILIATE. Our sponsor, business manager/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, business
manager/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, business
manager/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, business
manager/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,
business manager/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,
business manager/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.
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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 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.
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(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 business
manager/advisor, sponsor, directors or their affiliates, we must
obtain the appraisal from an independent expert. We 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 business manager/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 business manager/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 business
manager/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
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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.
(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 business manager/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:
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
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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.
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
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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:
- 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
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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 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
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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;
- 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.
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AMERICAN JOBS CREATION ACT OF 2004. The recently enacted American Jobs
Creation Act of 2004, or the 2004 Act, which, except as described below, is
effective for tax years beginning in 2005, contains a number of relief
provisions applicable to REITs.
First, the 2004 Act expands significantly the number and nature of
securities that are no longer subject to testing under a 10% value test. The
10% value test will not apply to (a) any loan made to an individual or an
estate, (b) certain rental agreements in which one or more payments are to be
made in subsequent years (other than agreements between a REIT and certain
persons related to the REIT), (c) any obligation to pay rents from real
property, (d) securities issued by governmental entities that are not
dependent in whole or in part on the profits of (or payments made by) a
non-governmental entity, and (e) any security issued by another REIT. The
2004 Act also modifies the definition of "straight debt" effective for
taxable years beginning after December 31, 2000, to provide that certain
contingency features do not result in an obligation failing to qualify as
straight debt. The 2004 Act does, however, limit the definition of "straight
debt" by providing that no securities issued by a corporation or partnership
shall qualify as straight debt if the REIT (or a "taxable REIT subsidiary" in
which the REIT owns a greater than 50% interest, as measured by vote or
value) owns non-straight debt securities of such issuer that represent more
than 1% of the total value of all securities of such issuer.
Second, the 2004 Act provides that, for taxable years beginning after
December 31, 2000, certain debt instruments issued by a partnership that do no
qualify as "straight debt" are not subject to testing under the 10% value test
to the extent of the REIT's interest as a partner in that partnership. In
addition, such debt instruments are excluded from testing under the 10% value
test if at least 75% of the partnership's gross income (excluding income from
"prohibited transactions") consists of income described in the 75% gross income
test discussed above.
Third, the 2004 Act excludes from the 95% REIT income test any income
arising from "clearly identified" hedging transactions that are entered into by
the REIT, either directly or through certain subsidiary entities, to manage the
risk of interest rate movements, price changes, or currency fluctuations with
respect to borrowings incurred or to be incurred by the REIT to acquire or carry
real estate assets. In general for a hedging transaction to be "clearly
identified," (a) the transaction must be identified as a hedging transaction
before the end of the day on which it is entered into, and (b) the items or
risks being hedged must be identified "substantially contemporaneously" with the
hedging transaction, meaning that the identification of the items or risks being
hedged must generally occur within 35 days after the date the transaction is
entered into.
Fourth, the 2004 Act contains provisions for REITs which own one or more
assets that cause a violation of the 5% value and 10% vote or value tests
described above. A REIT that fails the 5% value or the 10% vote or value tests
is excused if the failure was (a) de minimis (generally, if the value of the
assets causing the failure does not exceed the lesser of 1% of the REIT's total
assets, and $10,000,000), and (b) either the REIT disposes of the assets causing
the failure within 6 months after the last day of the quarter in which the REIT
identifies the failure, or the 5% value or the 10% vote and value tests are
otherwise satisfied within that time frame. There is an additional provision
pursuant to which a REIT that fails the asset tests in a taxable year may still
qualify as a REIT if (a) the REIT provides the IRS with a description of each
asset causing the failure, (b) the failure was due to reasonable cause and not
willful neglect, (c) the REIT pays a tax equal to the greater of $50,000 and the
highest rate of corporate tax imposed on the net income generated by the assets
causing the failure and (d) either the REIT disposes of the assets causing the
failure within six months after the last day of the quarter in which the REIT
identifies the failure, or otherwise satisfies the asset tests within that time
frame.
In addition to the relief provisions described above, the 2004 Act provides
that capital gain dividends received by a foreign holder will be treated in the
same manner as ordinary income dividends,
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provided that (1) the capital gain dividends are received with respect to a
class of stock that is regularly traded on an established securities market
located in the United States and (2) the foreign holder does not own more
than 5% of that class of stock at any time during the taxable year in which
the capital gain dividends are received.
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 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.
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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 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
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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 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
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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 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. New legislation
exempts certain dividend payments made by certain corporations from federal
taxation. We cannot be sure what impact, if any, this or other 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 in our initial public offering, 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. The offering will terminate on or before, December [.], 2005,
unless we elect to extend it to a date no later than December [.], 2006 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
$696,827,000 in its offerings. Inland Retail Real Estate Trust, Inc. raised
approximately $2,262,000,000 in its offerings.
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.
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. 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.
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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 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 funds and your subscription agreement
will be returned to you, without interest or deduction, within 10 days after
receipt.
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
processs. For example, it is likely that we will no longer issue fractional
shares. Further, it is likely we will ask all stockholdesr to remit currently
outstanding stock certificates so that they may be held in book entry form.
In order to transition into the book entry form, effective October 1, 2004 we
stopped issuing stock certificates for new subscriptions or for shares earned
through participation in the distribution reinvestment program. All shares
issued in this offering will be held in book entry form.
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);
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- 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 business manager/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.
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.
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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 allowance 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 allowance and due diligence expense allowance to soliciting dealers.
Generally, the managing dealer will not give any portion of the marketing
allowance 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 allowance 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 allowance 2.5% of gross offering proceeds $ 62,500,000
Due diligence allowance 0.5% of gross offering proceeds $ 12,500,000
We will not pay selling commissions, marketing allowances 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 business manager/advisor, affiliates of our business
manager/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:
- 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
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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 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 and over 1%
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 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
decisions are made by the same person. If the investment decisions are made by
an 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
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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.
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, $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
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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 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
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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 or book entries 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
be noted with 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 ALLOWANCE AND DUE DILIGENCE EXPENSE ALLOWANCE. The marketing
allowance 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 securities law violations. The soliciting dealer
will be required to indemnify us and our business manager/advisor
against such liabilities.
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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.
[THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.]
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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 "LBNA/Escrow Agent for IWRRETI", 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. 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
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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 business manager/advisor, may consist of a brochure describing
the business manager/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, if
required, 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. A copy of the form of our distribution reinvestment plan is
attached as EXHIBIT B to this prospectus. 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 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
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- 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 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 shares.
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 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 pro rata 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.
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 shares, and
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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.
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REPORTS TO STOCKHOLDERS
Our business manager/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 business manager/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 business manager/advisor and any affiliate of the business
manager/advisor, including fees or charges paid to the business
manager/advisor and to any affiliate of the business manager/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 business manager/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;
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- the proposed method of financing, if any, including estimated down
payment, leverage ratio, prepaid interest, balloon payment(s),
prepayment penalties, "due-on-sale" or 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 business manager/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 business manager/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 G 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.
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LITIGATION
We are not subject to any material pending legal proceedings.
RELATIONSHIPS AND RELATED TRANSACTIONS
We have entered into agreements to pay our business manager/advisor and its
affiliates certain fees or other compensation for providing services to us. The
compensation arrangements between us and our business manager/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 business manager/advisor and its affiliates.
In those instances in which there are maximum amounts or ceilings on the
compensation which may be received, our business manager/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 business manager/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 business
manager/advisor is allowed.
NONSUBORDINATED PAYMENTS
The following aggregate amounts of compensation, allowances and fees we may
pay to our business manager/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
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OFFERING STAGE
Selling commissions payable to We will pay a selling commission of 7.5% of the Through September 30, 2004, we have incurred
the managing dealer and sale price for each share (and reallow 7%), $135,587,028 in selling commissions in
dealers designated by the subject to reduction for special sales under the connection with our initial public offering.
managing dealers referred to circumstances as described in the "Plan of We intend to sell 250,000,000 shares of our
as soliciting dealers. Distribution - Compensation - We Will Pay For the common stock at $10.00 per share in our
Sale of Our Shares." initial public offering. The actual amount we
will incur in this offering depends upon the
We will permit the managing dealer and its amount of shares sold. A total of
respective officers and employees and certain $187,500,000 in selling commissions will be
of its affiliates to purchase shares net of paid if the maximum offering is sold and
sales commissions and the marketing allowance there are no special sales.
and due diligence expense allowance or for
$8.95 per share; however, any subsequent
purchases of shares by any such persons are
limited to a maximum discount of 5%.
Also, soliciting dealers and their respective
officers and employees and certain of their
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TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
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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%.
Marketing allowance and due We will pay an amount equal to 2.5% of the Through September 30, 2004, we have
diligence expense allowance gross offering proceeds to the managing incurred $16,811,558 in marketing
paid to the managing dealer dealer, all or a portion of which may be allowance and due diligence expense
and soliciting dealers. passed on to soliciting dealers, in lieu of allowance in connection with our
reimbursement of specific expenses associated initial public offering. The actual
with marketing. We may pay an additional 0.5% amount of marketing allowance and due
of the gross offering proceeds to the managing diligence expense allowance in
dealer, which may be passed on to the connection with this offering will
soliciting dealers, for due diligence depend on the number of shares sold.
expenses. We will not pay the marketing If there are no special sales and we
allowance and due diligence expense allowance sell the maximum number of shares
in connection with any special sales, except offered, approximately $75,000,000
those receiving volume discounts and those will be paid for the marketing
described in "Plan of Distribution - Volume allowance and the due diligence
Discounts." expense allowance.
Reimbursable expenses and We expect to incur the following expenses in All amounts other than the Securities
other expenses of issuance connection with this offering: and Exchange Commission registration
and distribution Securities and Exchange fee and the NASD filing fee are
Commission registration estimates. The actual amounts of
fee $ 340,823 these expenses cannot be determined
NASD filing fee $ 30,500 at the present time. We estimate the
Printing and mailing total amount of the issuance and
expenses $ 4,250,000 distribution expenses to be
Blue Sky fees and approximately $13,307,323. Through
expenses $ 136,000 September 30, 2004, we have incurred
Legal fees and $969,524 of reimbursable expenses to
expenses $ 900,000 our business manager/advisor in
Accounting fees and connection with our initial public
expenses $ 650,000 offering. In addition, as of
Advertising and sales December 31, 2003, our business
literature $ 5,500,000 manager/advisor had advanced an
Transfer Agent fees $ 800,000 aggregate of approximately $1,763,306
Data processing fees $ 500,000 for the payment of offering expenses
Bank fees and other to non-affiliated third parties in
administrative connection with our initial public
expenses $ 200,000 offering, all of which has been
repaid.
If the aggregate of all offering expenses,
including selling commissions, the marketing
allowance and due diligence expense allowance, Our sponsor has not advanced any
exceeds 15% of the gross offering proceeds, of reimbursable expenses in connection
if the aggregate of all offering expenses, with this offering. We may reimburse
excluding the selling expenses, exceeds 5.5% up to $14,807,323 for offering
of the gross offering proceeds, our business expenses advanced if we sell the
manager/advisor or its affiliates will maximum number of shares offered in
promptly pay the excess and we will have this offering.
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TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
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no liability for these expenses at any time If this offering is not successful,
afterward. then our sponsor will be solely
responsible for the offering expenses
to the extent it has not been
reimbursed.
ACQUISITION STAGE
Acquisition expenses paid to We will pay an amount, estimated to be up to 0.5% We may pay no more than $13,450,000
our business manager/advisor's of the total of (1) the gross offering proceeds for the reimbursement of acquisition
affiliates, Inland Real Estate from the sale of 250,000,000 shares, (2) the expenses if the maximum number of
Acquisitions, Inc. and The gross proceeds from the sale of up to 20,000,000 shares are sold and all of the
Inland Real Estate Group, Inc. shares pursuant to the distribution reinvestment 20,000,000 shares are sold pursuant
programs. The acquisition expenses for any to the distribution reinvestment
particular property will not exceed 6% of the program. However, the actual amounts
gross purchase price of the property. cannot be determined at the present
time.
However, if we request additional services, the
compensation will be provided on separate
agreed-upon terms and the rate will be approved
by a majority of disinterested directors,
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 business The actual amounts are dependent on
business manager/advisor and manager/advisor and its affiliates in order to actual borrowings. Therefore, these
Inland Mortgage Corporation acquire properties. In such instances, we amounts cannot be determined at the
in connection with loans. will pay our business manager/advisor and its present time.
affiliates interest at prevailing market rates.
OPERATIONAL STAGE
Property management fee paid We will pay a monthly fee of 4.5% of the gross For the year ended December 31, 2003,
to our property managers, income from the properties. We will also pay and the nine months ended September
Inland US Management LLC, a monthly fee for any extra services equal to 30, 2004 we have incurred and paid
Inland Southwest Management no more than 90% of that which would be property management fees of $16,627
LLC and Inland Pacific payable to an unrelated party providing the and $2,847,427, of which 16,627 and
Management LLC. We will pay services. The property managers may $2,847,427 were retained by Inland US
the fee for services in subcontract their duties for a fee that may be Management LLC, Inland Southwest
connection with the rental, less than the fee provided for in the Management LLC and Inland Pacific
leasing, operation and management services agreements. Management LLC. If we acquire the
management of the properties. 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.
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TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
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Reimbursable expenses to our We will reimburse some expenses of the The actual amounts are dependent upon
business manager/advisor. business manager/advisor. The compensation results of operations and, therefore,
These may include costs of and reimbursements to our business cannot be determined at the present
goods and services, manager/advisor will be approved by a majority time.
administrative services and of our directors and a majority of our
non-supervisory services independent directors as fair and reasonable
performed directly for us by for us.
independent parties.
We will reimburse some Inland Risk and Insurance Management Services The actual amounts are dependent upon
expenses of the Inland Risk charges us $50 per hour for assistance in results of operations and, therefore,
and Insurance Management obtaining insurance coverage. Any commissions cannot be determined at the present
Services for insurance they receive are credited against this hourly time.
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 For the year ended December 31, 2003,
Mortgage Servicing us .03% per year on the first billion dollars and the nine months ended September
Corporation and Inland of mortgages serviced and .01% thereafter. 30, 2004 we have incurred and paid
Mortgage Investment Inland Mortgage Investment Corporation charges $328 and $63,978, respectively to
Corporation for purchase, us .02% of the principal amount of each loan Inland Mortgage Servicing
sale and servicing of placed. The compensation to these companies Corporation. For the year ended
mortgages. will be approved by a majority of our December 31, 2003, and the nine
directors and a majority of our independent months ended September 30, 2004 we
directors as fair and reasonable for us. have incurred and paid $59,523 and
$2,241,986, respectively to Inland
Mortgage Investment Corporation.
The actual amounts we will incur in
the future are dependent upon results
of operations and cannot be
determined at the present time.
LIQUIDATION STAGE
Property disposition fee We may pay a property disposition fee to our The actual amounts to be received
payable to our business business manager/advisor and its affiliates if depend upon the sale price of our
manager/advisor's affiliates, we sell any of our real property in an amount properties and, therefore, cannot be
Inland Real Estate Sales, equal to the lesser of: determined at the present time. If
Inc. and Inland Partnership - 3% of the contract sales price we acquire the business
Property Sales Corp. of the property; or manager/advisor, the property
- 50% of the customary commission disposition fee will cease.
which would be paid to a third
party broker for the sale of a
comparable property.
The amount paid, when added to the sums
381
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------------------------------------------------------------------------------------------------
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 business manager/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 business manager/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 The actual amounts to be received
payable to our business of not more than 1% of our average assets. depend upon the sale price of our
manager/advisor. 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 business
total value of our loans receivables secured manager/advisor, the advisor asset
by real estate, before reserves for management fee will 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
business manager/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
382
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.
LIQUIDATION STAGE
Incentive advisory fee We will pay to the business manager/advisor an The actual amounts to be received
payable to our business amount equal to 15% of the net proceeds from depend upon the sale price of our
manager/advisor. the sale of a property after the stockholders properties and, therefore, cannot
have first received: be determined at the present time.
If we acquire or consolidate with
(1) a cumulative non-compounded the business conducted by our
return equal to 10% a year on their business manager/advisor, the
net investment; and incentive advisory fee will
terminate.
(2) their net investment.
383
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 business manager/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 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 consolidated balance sheet of Inland - the historical summary of gross income and
Western Retail Real Estate Trust, Inc. as of direct operating expenses of Darien Towne
December 31, 2003 and the related consolidated Center for the year ended December 31, 2002,
statements of operations, stockholders' equity
and cash flows for the period from March 5, 2003
(inception) through December 31, 2003 and
related financial statement schedule,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Shops at Park Place direct operating expenses of Hickory Ridge for
for the year ended December 31, 2002, the year ended December 31, 2003,
- the combined historical summary of gross - the historical summary of gross income and
income and direct operating expenses of direct operating expenses of Metro Square
Properties Acquired from Thomas Enterprises for Center (SuperValue) for the year ended
the year ended December 31, 2003, December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of CorWest Plaza for direct operating expenses of North Ranch
the period from May 29, 2003 through December Pavilion for the year ended December 31, 2003,
31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Larkspur Landing direct operating expenses of MacArthur
for the year ended December 31, 2003, Crossing for the year ended December 31, 2003,
384
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of La Plaza Del Norte direct operating expenses of Peoria Crossing
for the year ended December 31, 2003, for the year ended December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Promenade at Red direct operating expenses of Heritage Towne
Cliff for the year ended December 31, 2003, Crossing for the year ended December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Dorman Centre for direct operating expenses of Best on the
the year ended December 31, 2003, Boulevard for the year ended December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Paradise Valley direct operating expenses of North Rivers Town
Marketplace for the year ended December 31, 2003, Center for the period of October 1, 2003
(commencement of operations) to December 31,
2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Bluebonnet Parc for direct operating expenses of Eastwood Town
the year ended December 31, 2003, Center for the year ended December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Arvada Marketplace direct operating expenses of Northpointe Plaza
and Connection for the year ended December 31, for the year ended December 31, 2003,
2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Watauga Pavilion direct operating expenses of Pine Ridge Plaza
for the period of August 15, 2003 (commencement for the year ended December 31, 2003,
of operations) to December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Plaza Santa Fe II direct operating expenses of John's Creek
for the year ended December 31, 2003, Village for the period from September 21, 2003
(commencement of operations) to December 31,
2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Huebner Oaks Center direct operating expenses of Fullerton
for the year ended December 31, 2003, Metrocenter for the year ended December 31,
2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Lakewood Town direct operating expenses of Northgate North
Center for the year ended December 31, 2003, for the year ended December 31, 2003,
385
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Davis Towne direct operating expenses of Gateway Plaza
Crossing for the period from July 18, 2003 Shopping Center for the year ended December
(commencement of operations) to December 31, 31, 2003,
2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Cranberry Square direct operating expenses of Forks Town Center
for the year ended December 31, 2003, for the year ended December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Safeway Plaza at direct operating expenses of The Shops at
Marysville for the year ended December 31, 2003, Boardwalk for the period from May 30, 2003
(commencement of operations) to December 31,
2003,
- the combined historical summary of gross - the historical summary of gross income and
income and direct operating expenses of the direct operating expenses of Governor's
Properties owned by Capital Centre, LLC, Gateway Marketplace for the year ended December 31,
Village Limited Partnership, Bel Air Square 2003,
Joint Venture, Towson Circle Joint Venture LLP,
and Reisterstown Plaza Holdings, LLC for the
year ended December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Manchester Meadows direct operating expenses of The Columns for
for the year ended December 31, 2003, the period from October 8, 2003 (commencement
of operations) to December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Mitchell Ranch direct operating expenses of Lincoln Park for
Plaza for the period from June 30, 2003 the year ended December 31, 2003,
(commencement of operations) to December 31,
2003,
- the historical summary of gross income and - the combined historical summary of gross
direct operating expenses of Saucon Valley income and direct operating expenses of The
Square for the year ended December 31, 2003, Properties Acquired from Bayer Properties,
Inc. for the year ended December 31, 2003,
- the historical summary of gross income and - the combined historical summary of gross
direct operating expenses of Azalea Square for income and direct operating expenses of The
the period from July 4, 2003 (commencement of Properties Acquired from Donahue Schriber for
operations) to December 31, 2003, the year ended December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Denton Crossing for direct operating expenses of Winchester
the period from August 11, 2003 (commencement of Commons for the year ended December 31, 2003,
operations) to December 31, 2003,
386
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Gurnee Town Center direct operating expenses of Fox Creek Village
for the year ended December 31, 2003, for the period from November 12, 2003
(commencement of operations) to December 31,
2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Mansfield Town direct operating expenses of Northwoods Center
Center for the period from July 23, 2003 for the year ended December 31, 2003,
(commencement of operations) to December 31,
2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Gateway Pavilions direct operating expenses of Oswego Commons
for the period from February 15, 2003 for the year ended December 31, 2003,
(commencement of operations) to December 31,
2003,
- the historical summary of gross income and - and the combined historical summary of
direct operating expenses of Southlake Town gross income and direct operating expenses of
Square for the year ended December 31, 2003, The Properties Acquired from Eastern Retail
Holdings, L.P. for the year ended December 31,
2003.
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.
387
INDEX TO FINANCIAL STATEMENTS
PAGE
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1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Report of Independent Registered Public Accounting Firm F- 14
(b) Consolidated Balance Sheet at December 31, 2003 (audited) F- 15
(c) Consolidated Statement of Operations for the period from March 5, 2003 (inception) through December 31, F- 17
2003 (audited)
(d) Consolidated Statement of Stockholders' Equity for the period from March 5, 2003 (inception) to December 31, F- 18
2003 (audited)
(e) Consolidated Statement of Cash Flows for the period from March 5, 2003 (inception) to December 31, 2003 F- 19
(audited)
(f) Notes to Consolidated Financial Statements (audited) F- 21
(g) Consolidated Balance Sheets at September 30, 2004 (unaudited) and December 31, 2003 (audited) F- 37
(h) Consolidated Statements of Operations for the three and nine months ended September 30, 2004, three F- 39
months ended September 30, 2003, and the period from March 5, 2003 (inception) through September 30, 2003
(unaudited)
(i) Consolidated Statement of Stockholders' Equity for the nine month period ended September 30, 2004 F- 41
(unaudited)
(j) Consolidated Statements of Cash Flows for nine months ended September 30, 2004, and the period from March 5, F- 42
2003 (inception) to September 30, 2003 (unaudited)
(k) Notes to Consolidated Financial Statements (unaudited) F- 44
(l) Pro Forma Consolidated Balance Sheet (unaudited) at September 30, 2004 F- 58
(m) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at September 30, 2004 F- 60
(n) Pro Forma Consolidated Statement of Operations (unaudited) for the nine months ended September 30, 2004 F- 62
(o) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the nine months ended September 30, F- 64
2004
(p) Pro Forma Consolidated Statements of Operations (unaudited) for the year ended December 31, 2003 F- 68
(q) Notes to Pro Forma Consolidated Statements of Operations (unaudited) for the year ended December 31, 2003 F- 70
2. SHOPS AT PARK PLACE:
(a) Independent Auditors' Report F- 76
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 and F- 77
the nine months ended September 30, 2003 (unaudited)
F-1
PAGE
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(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F- 78
2002 and the nine months ended September 30, 2003 (unaudited)
3. DARIEN TOWN CENTER:
(a) Independent Auditors' Report F- 80
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 F- 81
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F- 82
2002
4. PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES IN 2003:
(a) Independent Auditors' Report F- 86
(b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F- 87
2003
(c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended F- 88
December 31, 2003
5. STONY CREEK MARKETPLACE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 F- 90
(unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F- 91
31, 2003 (unaudited)
6. HICKORY RIDGE:
(a) Independent Auditors' Report F- 92
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 F- 93
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F- 94
31, 2003 (unaudited)
7. CORWEST PLAZA:
(a) Independent Auditors' Report F- 96
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 29, 2003 through F- 97
December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from May 29, F- 98
2003 through December 31, 2003
F-2
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8. METRO SQUARE CENTER (SUPERVALUE):
(a) Independent Auditors' Report F-100
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 F-101
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-102
31, 2003
9. LARKSPUR LANDING:
(a) Independent Auditors' Report F-104
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 F-105
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-106
2003
10. NORTH RANCH PAVILION:
(a) Independent Auditors' Report F-108
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 F-109
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-110
31, 2003
11. LA PLAZA DEL NORTE:
(a) Independent Auditors' Report F-112
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 F-113
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-114
31, 2003
12. MACARTHUR CROSSING:
(a) Independent Auditors' Report F-116
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 F-117
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-118
31, 2003
13. PROMENADE AT RED CLIFF:
(a) Independent Auditors' Report F-120
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 F-121
(unaudited)
F-3
PAGE
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(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-122
2003 (unaudited)
14. PEORIA CROSSING:
(a) Independent Auditors' Report F-124
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 F-125
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-126
2003
15. DORMAN CENTRE:
(a) Independent Auditors' Report F-128
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 F-129
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-130
2003
16. HERITAGE TOWNE CROSSING:
(a) Independent Auditors' Report F-132
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 F-133
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-134
2003
17. PARADISE VALLEY MARKETPLACE:
(a) Independent Auditors' Report F-136
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-137
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, F-138
2003 and the three months ended March 31, 2004 (unaudited)
18. BEST ON THE BOULEVARD:
(a) Independent Auditors' Report F-140
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-141
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, F-142
2003 and the three months ended March 31, 2004 (unaudited)
19. BLUEBONNET PARC:
(a) Independent Auditors' Report F-144
F-4
PAGE
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(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-145
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, F-146
2003 and the three monthsended March 31, 2004 (unaudited)
20. NORTH RIVERS TOWN CENTER:
(a) Independent Auditors' Report F-148
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period of October 1, 2003 F-149
(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 October 1, F-150
2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004
(unaudited)
21. ARVADA MARKETPLACE AND CONNECTION:
(a) Independent Auditors' Report F-152
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-153
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, F-154
2003 and the three months ended March 31, 2004 (unaudited)
22. EASTWOOD TOWNE CENTER:
(a) Independent Auditors' Report F-156
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-157
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, F-158
2003 and the three months ended March 31, 2004 (unaudited)
23. WATAUGA PAVILION:
(a) Independent Auditors' Report F-160
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period of August 15, 2003 F-161
(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, F-162
2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited)
24. NORTHPOINTE PLAZA:
(a) Independent Auditors' Report F-164
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-165
the three months ended March 31, 2004 (unaudited)
F-5
PAGE
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(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-166
2003 and the three months ended March 31, 2004 (unaudited)
25. PLAZA SANTA FE II:
(a) Independent Auditors' Report F-168
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-169
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, F-170
2003 and the three months ended March 31, 2004 (unaudited)
26. PINE RIDGE PLAZA:
(a) Independent Auditors' Report F-172
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-173
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, F-174
2003 and the three months ended March 31, 2004 (unaudited)
27. HUEBNER OAKS CENTER:
(a) Independent Auditors' Report F-176
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-177
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, F-178
2003 and the three months ended March 31, 2004 (unaudited)
28. JOHN'S CREEK VILLAGE:
(a) Independent Auditors' Report F-180
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from September 21, 2003 F-181
(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, F-182
2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
29. LAKEWOOD TOWN CENTER
(a) Independent Auditors' Report F-184
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-185
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, F-186
2003 and the six months ended June 30, 2004 (unaudited)
F-6
PAGE
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30. FULLERTON METROCENTER:
(a) Independent Auditors' Report F-188
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-189
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, F-190
2003 and the six months ended June 30, 2004 (unaudited)
31. DAVIS TOWNE CROSSING:
(a) Independent Auditors' Report F-192
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from July 18, 2003 F-193
(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, F-194
2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
32. NORTHGATE NORTH:
(a) Independent Auditors' Report F-196
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-197
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, F-198
2003 and the six months ended June 30, 2004 (unaudited)
33. CRANBERRY SQUARE:
(a) Independent Auditors' Report F-200
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-201
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, F-202
2003 and the six months ended June 30, 2004 (unaudited)
34. GATEWAY PLAZA SHOPPING CENTER:
(a) Independent Auditors' Report F-204
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-205
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, F-206
2003 and the six months ended June 30, 2004 (unaudited)
35. SAFEWAY PLAZA AT MARYSVILLE:
(a) Independent Auditors' Report F-208
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-209
F-7
PAGE
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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, F-210
2003 and the six months ended June 30, 2004 (unaudited)
36. FORKS TOWN CENTER:
(a) Independent Auditors' Report F-212
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-213
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, F-214
2003 and the six months ended June 30, 2004 (unaudited)
37. 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 F-216
(b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-217
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 F-218
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
38. THE SHOPS AT BOARDWALK:
(a) Independent Auditors' Report F-221
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 30, 2003 F-222
(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, F-223
2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004
(unaudited)
39. MANCHESTER MEADOWS:
(a) Independent Auditors' Report F-225
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-226
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, F-227
2003 and the six months ended June 30, 2004 (unaudited)
40. GOVERNOR'S MARKETPLACE:
(a) Independent Auditors' Report F-229
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-230
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, F-231
2003 and the six months ended June 30, 2004 (unaudited)
F-8
PAGE
--------
41. MITCHELL RANCH PLAZA:
(a) Independent Auditors' Report F-233
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from June 30, 2003 F-224
(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, F-235
2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
42. THE COLUMNS:
(a) Independent Auditors' Report F-237
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from October 8, 2003 F-238
(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, F-239
2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
43. SAUCON VALLEY SQUARE:
(a) Independent Auditors' Report F-241
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-242
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, F-243
2003 and the six months ended June 30, 2004 (unaudited)
44. LINCOLN PARK:
(a) Independent Auditors' Report F-245
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-246
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, F-247
2003 and the six months ended June 30, 2004 (unaudited)
45. SHOPPES AT PROMINENCE POINT:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, 2004 F-249
(commencement of operations) to June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, F-250
2004 (commencement of operations) to June 30, 2004 (unaudited)
46. LOW COUNTRY VILLAGE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from February 1, 2004 F-251
(commencement of operations) to June 30, 2004 (unaudited)
F-9
PAGE
--------
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from February 1, F-252
2004 (commencement of operations) to June 30, 2004 (unaudited)
47. SHOPPES AT DALLAS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, 2004 F-253
(commencement of operations) to June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, F-254
2004 (commencement of operations) to June 30, 2004 (unaudited)
48. DORMAN CENTRE - PHASE II:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 15, 2004 F-255
(commencement of operations) to June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from March 15, F-256
2004 (commencement of operations) to June 30, 2004 (unaudited)
49. VILLAGE SHOPPES AT SIMONTON:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 1, 2004 F-257
(commencement of operations) to June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from May 1, F-258
2004 (commencement of operations) to June 30, 2004 (unaudited)
50. HARVEST TOWN CENTER:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-259
the six months ended June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-260
2003 and the six months ended June 30, 2004 (unaudited)
51. BED, BATH & BEYOND PLAZA:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 3, 2004 F-261
(commencement of operations) to June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from March 3, F-262
2004 (commencement of operations) to June 30, 2004 (unaudited)
52. AZALEA SQUARE:
(a) Independent Auditors' Report F-263
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from July 4, 2004 F-264
(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 July 4, F-265
2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30,
2004 (unaudited)
F-10
PAGE
--------
53. THE PROPERTIES ACQUIRED FROM BAYER PROPERTIES, INC.:
(a) Independent Auditors' Report F-267
(b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-268
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 F-269
December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
54. DENTON TOWN CROSSING:
(a) Independent Auditors' Report F-271
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from August 11, 2003 to F-272
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 August 11, F-273
2003 to December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
55. THE PROPERTIES ACQUIRED FROM DONAHUE SCHRIBER:
(a) Independent Auditors' Report F-275
(b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-276
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 F-277
December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
56. GURNEE TOWN CENTRE:
(a) Independent Auditors' Report F-279
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-280
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) F-281
57. WINCHESTER COMMONS:
(a) Independent Auditors' Report F-283
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-284
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, F-285
2003 and the nine months ended September 30, 2004 (unaudited)
58. MANSFIELD TOWNE CENTRE:
(a) Independent Auditors' Report F-287
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from July 23, 2003 F-288
(commencement of operations) to December 31, 2003 and the nine months ended September
F-11
PAGE
--------
30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from July 23, F-289
2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30,
59. FOX CREEK VILLAGE:
(a) Independent Auditors' Report F-291
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from November 12, 2003 F-292
(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 November 12, F-293
2003 to December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
60. GATEWAY PAVILION:
(a) Independent Auditors' Report F-295
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-296
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, F-297
2003 and the nine months ended September 30, 2004 (unaudited)
61. NORTHWOODS SHOPPING CENTER:
(a) Independent Auditors' Report F-299
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-300
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, F-301
2003 and the nine months ended September 30, 2004 (unaudited)
62. OSWEGO COMMONS:
(a) Independent Auditors' Report F-303
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-304
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, F-305
2003 and the nine months ended September 30, 2004 (unaudited)
63. LAKE MARY POINTE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-307
the nine months ended September 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for year ended December 31, F-308
2003 and the nine months ended September 30, 2004 (unaudited)
F-12
PAGE
--------
64. PUBLIX CENTER - MT. PLEASANT:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from April 18, 2004 F-309
(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, F-310
2004 (commencement of operations) to September 30, 2004 (unaudited)
65. FIVE FORKS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-311
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, F-312
2003 and the nine months ended September 30, 2004 (unaudited)
66. GATEWAY STATION:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from June 21, 2004 F-313
(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, F-314
2004 (commencement of operations) to September 30, 2004 (unaudited)
67. SHOPS AT FOREST COMMONS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and F-315
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, F-316
2003 and the nine months ended September 30, 2004 (unaudited)
68. SOUTHLAKE TOWN SQUARE:
(a) Independent Auditors' Report F-317
(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) F-318
(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) F-319
69. THE PROPERTIES ACQUIRED FROM EASTERN RETAIL HOLDINGS, LP:
(a) Independent Auditors' Report F-321
(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) F-322
(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) F-323
F-13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Inland Western Retail Real Estate Trust, Inc.:
We have audited the consolidated financial statements of Inland Western Retail
Real Estate Trust, Inc. (the Company) as listed in the accompanying index. In
connection with our audit of the consolidated financial statements, we also have
audited the financial statement schedule as listed in the accompanying index.
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 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 the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 audit provides 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, 2003 and the results of their
operations and their cash flows for 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.
KPMG LLP
Chicago, Illinois
February 13, 2004
F-14
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Balance Sheet
December 31, 2003
ASSETS
Investment properties:
Land $ 36,280,244
Building and other improvements 86,439,670
-----------------
122,719,914
Less accumulated depreciation (140,497)
-----------------
Net investment properties 122,579,417
Cash and cash equivalents 64,381,134
Accounts and rents receivable 1,147,551
Due from affiliates 918,750
Note receivable 7,552,155
Acquired in-place lease intangibles (net of accumulated
amortization of $51,773) 8,753,908
Acquired above market lease intangibles (net of accumulated
amortization of $5,227) 1,590,446
Loan fees (net of accumulated amortization of $24,835) 1,434,160
Other assets 3,744,642
-----------------
Total assets $ 212,102,163
=================
See accompanying notes to consolidated financial statements.
F-15
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Balance Sheet
(continued)
December 31, 2003
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable $ 505,448
Accrued offering costs due to affiliates 1,369,366
Accrued real estate taxes 1,392,069
Distributions payable 927,539
Security deposits 108,189
Mortgages payable 29,627,000
Line of credit 5,000,000
Prepaid rental and recovery income 104,756
Advances from sponsor 1,202,519
Acquired below market lease intangibles (net of accumulated
amortization of $15,386) 5,910,413
Other liabilities 71,927
Due to affiliates 2,154,158
-----------------
Total liabilities 48,373,384
-----------------
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized, none outstanding -
Common stock, $.001 par value, 250,000,000 shares authorized,
18,737,141 shares issued and outstanding 18,737
Additional paid in capital (net of offering costs of
$22,144,814 of which $1,369,366 was paid or accrued to
affiliates) 165,168,650
Accumulated distributions in excess of net loss (1,458,608)
-----------------
Total stockholders' equity 163,728,779
-----------------
Commitments and contingencies (Note 11)
Total liabilities and stockholders' equity $ 212,102,163
=================
See accompanying notes to consolidated financial statements.
F-16
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Statement of Operations
For the period from March 5, 2003 (inception) through December 31, 2003
Income:
Rental income $ 606,645
Real estate tax recovery income 95,654
Common area costs recovery income 42,334
Interest income 37,648
-----------------
Total income 782,281
-----------------
Expenses:
Professional services 88,058
General and administrative expenses to affiliates 104,259
General and administrative expenses to non-affiliates 127,896
Property operating expenses to affiliates 16,627
Property operating expenses to non-affiliates 30,963
Real estate tax 95,654
Interest 135,735
Depreciation 140,497
Amortization 76,608
Acquisition cost expenses to affiliates 7,563
Acquisition cost expenses to non-affiliates 131,700
-----------------
Total expenses 955,560
-----------------
Net loss $ (173,279)
=================
Net loss per common share, basic and diluted $ (.07)
=================
Weighted average number of common shares outstanding, basic
and diluted 2,520,986
=================
See accompanying notes to consolidated financial statements
F-17
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Statement of Stockholders' Equity
For the period from March 5, 2003 (inception) to December 31, 2003
ACCUMULATED
ADDITIONAL DISTRIBUTIONS
NUMBER OF COMMON PAID-IN IN EXCESS OF
SHARES STOCK CAPITAL NET INCOME TOTAL
-----------------------------------------------------------------------------------------
Balance at March 5, 2003 (inception) - - - - -
Net loss - - - (173,279) (173,279)
Distributions declared ($.15 per
weighted average number of
common shares outstanding) - - - (1,285,329) (1,285,329)
Proceeds from offering 18,718,092 18,718 187,127,565 - 187,146,283
Offering costs - (22,144,814) - (22,144,814)
Proceeds from DRP 19,049 19 180,949 - 180,968
Common stock option expense - - 4,950 - 4,950
-----------------------------------------------------------------------------------------
Balance at December 31, 2003 18,737,141 $ 18,737 $ 165,168,650 $ (1,458,608) $ 163,728,779
=========================================================================================
See accompanying notes to consolidated financial statements.
F-18
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
STATEMENT OF CASH FLOWS
For the period from March 5, 2003 (inception) through December 31, 2003
Cash flows from operations:
Net loss $ (173,279)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation 140,497
Amortization 76,608
Amortization on acquired above market leases 5,227
Amortization on acquired below market leases (15,386)
Stock option expense 4,950
Changes in assets and liabilities:
Accounts and rents receivable (1,147,551)
Accrued real estate taxes 1,240,567
Accounts payable 306,996
Prepaid rental and recovery income 104,756
Other liabilities 71,927
Security deposits 108,189
---------------
Net cash flows provided by operating activities 723,501
---------------
Cash flows from investing activities:
Purchase of investment properties (122,719,914)
Acquired above market leases (1,595,673)
Acquired in place lease intangibles (8,805,681)
Acquired below market leases 5,925,799
Other assets (830,697)
Funding of note receivable (7,552,155)
Due to affiliates 2,154,158
---------------
Net cash flows used in investing activities (133,424,163)
---------------
Cash flows from financing activities:
Proceeds from offering 187,146,283
Proceeds from the DRP 180,968
Payment of offering costs (20,775,448)
Loan proceeds 29,627,000
Proceeds from unsecured line of credit 5,000,000
Loan fees (4,022,986)
Distributions paid (357,790)
Due from affiliates (918,750)
Advances from sponsor 1,202,519
---------------
Net cash flows provided by financing activities 197,081,796
---------------
See accompanying notes to financial statements
F-19
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
STATEMENT OF CASH FLOWS
(continued)
For the period from March 5, 2003 (inception) through December 31, 2003
Net increase in cash and cash equivalents $ 64,381,134
Cash and cash equivalents, at beginning of period -
---------------
Cash and cash equivalents, at end of period $ 64,381,134
===============
Supplement disclosure of cash flow information:
Cash paid for interest $ 135,735
===============
Supplement schedule of non-cash financing activities:
Distributions payable $ 927,539
===============
Accrued offering costs payable $ 1,369,366
===============
See accompanying notes to financial statements
F-20
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
(unaudited)
(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. The Advisory 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. On September 15,
2003, the Company commenced an 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 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 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 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, 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, 2003, no shares have been repurchased
by the Company.
The accompanying Consolidated Financial Statements include the accounts of the
Company, as well as all wholly owned subsidiaries. Wholly owned subsidiaries
generally consist of limited liability companies ("LLC's"). The effects of all
significant intercompany transactions have been eliminated.
F-21
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
(2) Summary of Significant Accounting Policies
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United State of America ("GAAP") requires
management of the Company to make 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 financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
Highly liquid investments with a maturity of three months or less when purchased
are classified as cash equivalents.
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 December 31, 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.
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.
The Company performed an impairment analysis for its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 144 ("SFAS 144")
to ensure that the investment property's carrying value does not exceed its fair
value. The valuation analysis performed by the Company was 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, 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.
F-22
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
The Company allocates the purchase price of the each acquired investment
property between land, building and improvements, acquired above market and
below market leases, in-place lease value, customer relationship value, 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 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 aggregate value of
intangibles is measured based on the difference between the stated price and the
property value as if vacant. 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 and we consider 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 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, 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. 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, economic, demographics, location, visibility,
location, age and physical condition of the property.
The application of SFAS 141 and SFAS 142 resulted in the recognition upon
acquisition of additional intangible assets and liabilities relating to the 2003
real estate acquisitions. 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 $5,227 was applied as a reduction to rental income for the period from
March 5, 2003 (inception) to December 31, 2003. Amortization pertaining to the
below market lease costs of $15,386 was applied as an increase to rental income
for the period from March 5, 2003 (inception) to December 31, 2003. The table
below presents the amortization during the next five years related to the
acquired above market lease costs and the below market lease costs for
properties owned at December 31, 2003:
Amortization of: 2004 2005 2006 2007 2008 THEREAFTER
---- ---- ---- ---- ---- ----------
Acquired above
market lease costs (431,185) (431,185) (429,043) (37,016) (37,016) (225,001)
Acquired below
market lease costs 582,355 582,355 582,355 561,053 531,230 3,071,065
Net rental income
increase / (decrease) 151,170 151,170 153,312 524,037 494,214 2,846,064
Acquired in place lease
intangibles 963,821 963,821 963,821 963,821 963,821 3,934,803
The portion of the purchase price allocated to acquired in-place lease
intangibles are amortized on a straight line basis over the life of the related
lease. We incurred amortization expense pertaining to acquired in-place lease
intangibles of $51,773 for the period from March 5, 2003 (inception) to December
31, 2003.
F-23
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
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 carrying amount of the Company's debt approximates fair value. The carrying
amount of the Company's other financial instruments approximate fair value
because of the relatively short maturity of these instruments.
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101"), 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.
(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 December 31, 2003, the Company had incurred $22,144,814 of offering costs.
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. As
of 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 offering.
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
F-24
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
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 fee which would be payable to an
THE PROPERTY MANAGEMENT unrelated third party)
COMPANY.
Loan servicing fee .03% 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
Other property level Compensation for these services will
services not exceed 90% of that which would be
paid to any third party for such
services
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
Liquidation stage:
Property disposition fee Lesser of 3% of sales price or 50% of
THIS FEE TERMINATES UPON A the customary commission which would be
BUSINESS COMBINATION WITH paid to a third party
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 per year and a
THE ADVISOR 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 the Advisor
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
F-25
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
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.
The Advisor and its affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its affiliates relating to the
offering. In addition, an affiliate of the Advisor is entitled to receive
selling commissions, and the marketing contribution and due diligence expense
allowance from the Company in connection with the offering. Such costs are
offset against the Stockholders' equity accounts. Such costs totaled $16,859,779
for the period from March 5, 2003 (inception) to December 31, 2003, of which
$1,369,366 was unpaid at December 31, 2003.
The Advisor and its affiliates are entitled to reimbursement for general and
administrative costs of the Advisor and its affiliates relating to our
administration. Such costs are included in general and administrative expenses
to affiliates, professional services to affiliates, and acquisition cost
expenses to affiliates, in addition to costs that were capitalized pertaining to
property acquisitions. During the period from March 5, 2003 (inception) to
December 31, 2003, the Company incurred $194,017 of these costs, of which
$40,703 remained unpaid as of December 31, 2003.
An affiliate of the Advisor provides loan servicing to the Company for an annual
fee. The agreement allows for annual fees totaling .05% of the first
$100,000,000 in mortgage balance outstanding and .03% of the remaining mortgage
balance, payable monthly. Such fees totaled $328 in the period from March 5,
2003 (inception) to December 31, 2003.
The Company used the services of an affiliate of the Advisor to facilitate the
mortgage financing that the Company obtained on some of the properties
purchased. Such costs are capitalized as loan fees and amortized over the
respective loan term. During the period from March 5, 2003 (inception) to
December 31, 2003, the Company paid loan fees totaling $59,523 to this
affiliate.
The property managers, entities owned principally by individuals who are
affiliates of the Advisor, are entitled to receive property management fees
totaling 4.5% of gross operating income, for management and leasing services.
The Company incurred and paid property management fees of $16,627 for the period
from March 5, 2003 (inception) to December 31, 2003. None remained unpaid as of
December 31, 2003.
The Company established a discount stock purchase policy for affiliates of the
Company and the Advisor that enables the affiliates to purchase shares of common
stock at a discount at either $8.95 or $9.50 per share depending when the shares
are purchased. The Company sold 59,497 shares to affiliates and recognized an
expense related to these discounts of $62,472 for the period from March 5, 2003
(inception) to December 31, 2003.
As of December 31, 2003 the Company was due funds from affiliates in the amount
of $918,750 which is comprised of $73,750 due from an affiliate for costs paid
on their behalf by the Company and $845,000 which is due from the sponsor for
reimbursement of December distributions paid in January by the Company. The
sponsor has agreed to advance funds to the Company for distributions paid to our
shareholders until funds from operations are adequate to cover the
distributions. As of December 31, 2003 the Company owed funds to the sponsor in
the amount of $1,202,517 for repayment of these funds.
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.
F-26
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
(3) 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, 2003, we have
issued 3,000 options to acquire shares to each of our independent directors, for
a total of 15,000 options, 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 has 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 will record
the remaining $6,000 in expense ratably over the remaining two-year vesting
period.
(4) New Accounting Pronouncements
In January 2003, FASB ISSUED INTERPRETATION 46, Consolidation of Variable
Interest Entities or Interpretation 46, which addresses the consolidation of
certain entities in which a company has a controlling financial interest through
means other than voting rights. This interpretation was revised in December
2003. For calendar year companies, Interpretation 46 contains an effective date
of December 31, 2003 for special purpose entities and periods ending after March
15, 2004 for all other entities. The Company does not own interests in special
purpose entities and management does not believe that the adoption of
Interpretation 46 will have a material impact on the Company's financial
statements.
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 the period from March 5, 2003 (inception) to December 31, 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-27
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
(5) Leases
Minimum lease payments to be received in the future under operating leases,
assuming no expiring leases are renewed, are as follows:
Minimum Lease
Payments
--------------------
2004 $ 10,053,640
2005 9,758,805
2006 9,684,354
2007 9,273,557
2008 9,033,324
Thereafter 78,836,462
--------------------
Total $ 126,640,142
====================
The remaining lease terms range from one year to 56 years. Pursuant to the lease
agreements, tenants of the property are required to reimburse the Company for
some or all of their pro rata share of the real estate taxes, operating expenses
and management fees of the properties. Such amounts are included in additional
rental income.
(6) Note Receivable
The note receivable balance of $7,552,155 as of December 31 2003 consists of an
installment note from Fourth Quarter Properties XIV, LLC (Fourth) that matures
on January 15, 2004. This installment note is secured by a 49% interest in
Fourth, which owns the remaining portion of the Newnan Crossing shopping center
and is also guaranteed personally by the owner of Fourth. Interest only at a
rate of 7.6192% per annum is 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.
F-28
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
(7) Mortgages Payable
Mortgages payable consist of the following at December 31, 2003:
BALANCE AT
INTEREST MATURITY DECEMBER 31,
FIXED RATE MORTGAGES PAYABLE RATE AT DATE 2003
-------------------------------------------------------------------------------------------
Property as collateral:
Darien Commons 4.65% 06/01/10 $ 16,500,000
Park Place 4.71% 11/01/08 13,127,000
----------------
Total Fixed Rate Mortgages Payable $ 29,627,000
================
The following table shows the mortgage debt maturing during the next five years
as of December 31, 2003.
2004 $ -
2005 -
2006 -
2007 -
2008 13,127,000
Thereafter 16,500,000
-------------------
$ 29,627,000
===================
All of the Company's mortgage loans require monthly payments of interest only.
The fixed-rate loans may be prepaid with a penalty after specific lockout
periods.
On February 9, 2004, the Company entered into a rate lock agreement with Bear
Stearns and paid a rate lock deposit of $1,200,000 to lock the interest rate at
4.372% for a period of 90 days on $60,000,000. The rate lock was entered into to
secure the interest rate on mortgage debt to be identified as debt is placed on
properties the Company currently owns or will acquire in the future.
(8) Line of Credit
On December 24, 2003, the Company entered into a $150,000,000 unsecured line of
credit arrangement with KeyBank N.A. for a period of one year. The funds from
this line of credit will be used to provide liquidity from the time a property
is purchased until permanent debt is place on the property. The Company is
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 is 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 requires compliance with certain covenants, such as debt service rations,
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 includes 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.
F-29
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
(9) Segment Reporting
The Company owns and seeks to acquire multi-tenant shopping centers primarily in
the western United States. All of the Company's shopping centers are currently
located in Connecticut, Georgia, Illinois, Indiana, North Carolina, Oklahoma,
and Texas. The Company's shopping centers are typically anchored by 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.
Net property operations are summarized in the following table for the period
from March 5, 2003 (inception) to December 31, 2003, and a reconciliation to net
loss.
Property rental and additional rental income $ 744,633
Total property operating expenses (143,244)
Mortgage interest (132,471)
--------------
Net property operations 468,918
--------------
Interest income 37,648
Less non-property expenses:
Professional services (88,058)
General and administrative expenses (235,419)
Acquisition cost expenses (139,263)
Depreciation and amortization (217,105)
--------------
Net loss $ (173,279)
==============
The following table summarizes property asset information as of December 31,
2003.
Total assets:
Shopping centers $ 142,804,128
Non-segment assets 69,298,035
--------------
$ 212,102,163
==============
The Company does not derive any of it's consolidated revenue from foreign
countries and does not have any major customer that individually account for 10%
or more of the Company's consolidated revenues
F-30
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
(10) Earnings (loss) per Share
Basic and diluted earnings (loss) per share ("EPS") is computed by dividing
income by the weighted average number of common shares outstanding for the
period (the "common shares"). 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.
The basic and diluted weighted average number of common shares outstanding were
2,520,986 for the period from March 5, 2003 (inception) to December 31, 2003.
(11) Commitments and Contingencies
On December 10, 2003, in connection with the purchase of Stony Creek Market
Place, the Company entered into an earnout agreement with the seller of the
property. The earnout agreement stipulates that the seller shall retain the
right, for a 48 month period after the date of purchase, to purchase the
development and leasing rights to a vacant 50,000 square foot padsite included
in the purchase of the property. If the seller develops and leases the padsite
within the 48 month period, the Company is required to purchase the seller's
interest in the leases based on an agreed upon base rent divider stipulated in
the purchase and sale agreement. If the base rent divider should fall above or
below certain limits, then the seller and purchaser have certain rights to
terminate this agreement.
On December 31, 2003, in connection with the purchase of Pavilion at King's
Grant, the purchase and sale contract stipulates that if anytime during the
period from January 1, 2004 through December 31, 2007 the tenant, Toys R Us
located in the shopping center, should increase their base rent up to a maximum
amount of $250,000 and no decrease occurs in their requirement to pay for a
certain percentage of expenses at the property, then the Company would be
obligated to pay the seller additional funds related to the purchase based on a
income capitalization formula stipulated in the purchase and sale agreement.
After December 31, 2007 the Company is no longer obligated to pay the seller
additional funds.
As part of the purchase and sale agreement for Newnan Crossing, the Company is
obligated to purchase the remaining portion of the shopping center that is
currently under construction (approximately 28,000 square feet to be occupied by
Linen's N Things) after construction is complete and the tenant has moved in and
is paying rent. The purchase price for this portion of the center will be based
on an income capitalization formula.
(12) Subsequent Events
The Company issued 12,698,273 shares of common stock from January 1, 2004
through February 13, 2004 in connection with the offering, resulting in gross
proceeds of $126,917,854.
The Company is currently considering acquiring seven properties for an estimated
purchase price of $167,000,000. 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 an information prior to purchasing the property.
The Company has signed an application for an addition of $75,000,000 to the line
of credit with Key Bank. Fundings under the line of credit will require interest
only payments based on the provisions of the existing line of credit with Key
Bank. As of February 13, 2004, the Company's outstanding balance owed on the
line of credit is $70,000,000.
F-31
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Notes to Consolidated Financial Statements
(continued)
December 31, 2003
The Company has acquired the following properties during the period January 1 to
February 13, 2004. The respective acquisitions are summarized in the table
below.
APPROXIMATE GROSS LEASABLE
DATE YEAR PURCHASE PRICE AREA
ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS
-------- -------- ----- --- --------- -------------
01/06/04 CorWest Plaza 2000/ 33,000,000 115,011 Stop & Shop
New Britain, CT 2001 CVS Pharmacy
Liquor Depot
01/09/04 Hickory Ridge 1999 41,900,000 310,360 Best Buy
Hickory, NC Kohl's
Marshall's
Linens N Things
Old Navy
Party City
Shoe Carnival
A.C. Moore
01/14/04 Larkspur Landing 1978/ 61,100,000 173,814 Bed Bath & Beyond
Larkspur, CA 2001 24 Hour Fitness
01/15/04 North Ranch Pavilions 1992 18,468,000 62,812 Bank of America
Thousand Oaks, CA
01/20/04 Metro Square Center 1999 11,031,000 61,817 Shoppers Food
Severn, MD Warehouse
01/21/04 La Plaza Del Norte 1996/ 59,100,000 320,362 Best Buy
San Antonia, TX 1999 Bealls
Ross Stores
Office Max
Oshman's Superstores
Cost Plus
DSW Shoe Warehouse
David's Bridal
Petco
02/05/04 MacArthur Crossing 1995/ 23,100,000 110,975 Stein Mart
Los Colinas, TX 1996
02/13/04 Promenade at Red Cliff 1999/ 19,618,000 94,936 Old Navy
St. George, UT 1998 Staples
Big 5 Sporting Goods
02/13/04 Newnan Crossing, Phase II 1997 22,362,000 153,798 TJ Maxx
Newnan, GA Office Depot
Old Navy
Michaels
Party City
F-32
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Notes to Consolidated Financial Statements
(continued)
December 31, 2003
The mortgage debt and financings obtained subsequent to December 31, 2003, are
detailed in the list below.
DATE MATURITY PRINCIPAL BORROWED
FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($)
----------------------------------------------------------------------------------------------------------------------
2/04/04 La Plaza Del Norte 4.61% 03/01/10 32,528,000
San Antonio, TX
1/30/04 Larkspur Landing 4.45% 02/01/09 33,630,000
Larkspur, CA
1/28/04 Shaw's - New Britain (A) 4.684% 11/01/33 6,450,000
New Britain, CT
1/21/04 Hickory Ridge 4.531% 02/01/09 23,650,000
Hickory, NC
1/07/04 Cor West Plaza 4.56% 02/01/09 18,150,000
New Britain, CT
1/05/04 Stony Creek Marketplace 4.77% 01/01/11 14,162,000
Noblesville, IN
(A) In connection with the financing of Shaw's - New Britain on January 28,
2004, the Park Place mortgage debt was modified to be cross-collateralized
with the Shaw's - New Britain mortgage debt. All other terms of the Park
Place debt generally remained the same.
(13) Supplemental Financial Information (unaudited)
The following represents the results of operations, for the each quarterly
period, during 2003.
2003
Dec. 31 Sept. 30 June 30 March 31
----------------------------------------------------------
Total income $ 782,281 - - -
Net loss (123,235) (32,794) (9,750) (7,500)
Net loss, per common share, basic and diluted: (.01) (1.64) (.49) (.38)
Weighted average number of common shares outstanding,
basic and diluted 8,319,975 20,000 20,000 20,000
F-33
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F-34
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A MARYLAND CORPORATION)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
Initial Costs (A) Gross Amount at which carried at end of period
----------------- ----------------------------------------------
Buildings Adjustments Buildings
And to And
Encumbrance Land Improvements Basis Land Improvements
----------- ---- ------------ ----- ---- ------------
Darien Commons 16,500,000 7,000,000 22,468,408 - 7,000,000 22,468,408
Eckerd Drug Store
- Edmund - 975,000 2,400,249 - 975,000 2,400,249
Eckerd Drug Store
- Norman - 932,000 4,369,730 - 932,000 4,369,730
Newnan Crossing - 4,542,244 12,188,579 - 4,542,244 12,188,579
Park Place 13,127,000 9,096,000 13,174,867 - 9,096,000 13,174,867
Pavilion at King's
Grant - 4,300,000 2,741,212 - 4,300,000 2,741,212
Shaw's Supermarket - 2,700,000 11,532,191 - 2,700,000 11,532,191
Stony Creek Market
Place - 6,735,000 17,564,434 - 6,735,000 17,564,434
---------------------------------------------------------------------------------------------------------
Total: $ 29,627,000 $ 36,280,244 $ 86,439,670 - $ 36,280,244 $ 86,439,670
=========================================================================================================
Accumulated
Depreciation Date Date
Total (C) (D) Constructed Acquired
--------- --- ----------- --------
Darien Commons 29,468,408 56,280 1994 12/03
Eckerd Drug Store
- Edmund 3,375,249 - 2003 12/03
Eckerd Drug Store
- Norman 5,301,730 - 2003 12/03
Newnan Crossing 16,730,823 84,217 1999 12/03
Park Place 22,270,867 - 2001 10/03
Pavilion at King's
Grant 7,041,212 - 2002/2003 12/03
Shaw's Supermarket 14,232,191 - 1995 12/03
Stony Creek Market
Place 24,299,434 - 2003 12/03
--------------------------------
Total: $ 122,719,914 $ 140,497
================================
F-35
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Schedule III (continued)
Real Estate and Accumulated Depreciation
December 31, 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, 2003 for
Federal income tax purposes was approximately $127,195,000
(unaudited).
(C) Reconciliation of real estate owned:
Balance at March 5, 2003 (inception) $ -
Purchases of property 127,195,469
Acquired in-place lease intangibles (8,805,681)
Acquired above market lease intangibles (1,595,673)
Acquired below below market lease
intangibles 5,925,799
----------------
Balance at December 31, 2003 $ 122,719,914
================
(D) Reconciliation of accumulated depreciation:
Balance at March 5, 2003 (inception) $ -
Depreciation expense 140,497
----------------
Balance at December 31, 2003 $ 140,497
================
F-36
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED BALANCE SHEETS
September 30, 2004 and December 31, 2003
(Dollars in thousands, except per share amounts)
ASSETS
September 30, 2004
(unaudited) December 31, 2003
----------- -----------------
Investment properties:
Land $ 376,290 $ 36,280
Building and other improvements 1,614,585 86,440
------------------ ------------------
1,990,875 122,720
Less accumulated depreciation (19,441) (141)
------------------ ------------------
Net investment properties 1,971,434 122,579
Cash and cash equivalents (including cash held by
management company of $0 and $239 as of September 30,
2004 and December 31, 2003, respectively) 280,414 64,381
Restricted cash (Note 2) 80,094 -
Investment in marketable securities and treasury contracts (Note 2) 1,566 -
Investment in unconsolidated joint venture (Note 9) 5,782 -
Restricted escrows (Note 2) 67,874 -
Accounts and rents receivable (net of allowance of $146 and
$0 as of September 30, 2004 and December 31, 2003, respectively) 11,683 1,148
Due from affiliates (Note 3) 1,572 919
Notes receivable (Note 6) 28,419 7,552
Acquired in-place lease intangibles (net of accumulated
amortization of $5,545 and $52 as of September 30, 2004
and December 31, 2003, respectively) 148,597 8,754
Acquired above market lease intangibles (net of accumulated
amortization of $1,852 and $5 as of September 30, 2004
and December 31, 2003, respectively) 37,578 1,590
Loan fees, leasing fees and loan fee deposits (net of
accumulated amortization of $1,235 and $25 as of
September 30, 2004 and December 31, 2003, respectively) 14,118 3,998
Other assets 23,021 1,181
------------------ ------------------
Total assets $ 2,672,152 $ 212,102
================== ==================
See accompanying notes to consolidated financial statements.
F-37
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED BALANCE SHEETS
(continued)
September 30, 2004 and December 31, 2003
(Dollars in thousands, except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 2004
(unaudited) December 31, 2003
------------------ ------------------
Liabilities:
Mortgages and notes payable (Note 7) $ 1,141,248 $ 29,627
Accounts payable 1,352 150
Accrued offering costs due to affiliates 3,502 1,369
Accrued interest payable 2,947 -
Tenant improvements payable 3,605 5
Accrued real estate taxes 10,529 1,392
Distributions payable 7,187 928
Security deposits 2,195 108
Line of credit (Note 8) - 5,000
Prepaid rental income and other liabilities 3,717 179
Advances from sponsor (Note 3) 2,869 1,203
Acquired below market lease intangibles (net of accumulated
amortization of $2,660 and $15 as of September 30, 2004
and December 31, 2003, respectively) 70,356 5,910
Restricted cash liability (Note 2) 80,094 -
Due to affiliates 778 2,502
------------------ ------------------
Total liabilities 1,330,379 48,373
------------------ ------------------
Minority interests 68,783 -
Stockholders' equity:
Preferred stock, $.001 par value, 10,000 shares authorized,
none outstanding - -
Common stock, $.001 par value, 250,000 shares authorized,
146,284 and 18,737 shares issued and outstanding as of
September 30, 2004 and December 31, 2003, respectively 146 19
Additional paid-in capital (net of offering costs of $159,234
and $22,145 as of September 30, 2004 and December 31,
2003, respectively, of which $119,656 and $16,860 was paid
or accrued to affiliates as of September 30, 2004 and
December 31, 2003, respectively) 1,304,817 165,169
Accumulated distributions in excess of net income(loss) (32,177) (1,459)
Accumulated other comprehensive income 204 -
------------------ ------------------
Total stockholders' equity 1,272,990 163,729
------------------ ------------------
Commitments and contingencies (Note 12)
Total liabilities and stockholders' equity $ 2,672,152 $ 212,102
================== ==================
See accompanying notes to consolidated financial statements.
F-38
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
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
(Dollars in thousands, except per share amounts)
(unaudited)
Period from
March 5, 2003
Three months Three months Nine months (inception)
ended ended ended through
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
Revenues:
Rental income $ 33,519 $ - $ 56,405 $ -
Tenant recovery income 7,002 - 12,802 -
Other property income 265 - 560 -
-------------------------------------------------------------
Total revenues 40,786 - 69,767 -
-------------------------------------------------------------
Expenses:
General and administrative
expenses to affiliates 449 12 1,304 12
General and administrative
expenses to non-affiliates 539 21 1,540 31
Property operating
expenses to affiliates 1,693 - 2,848 -
Property operating
expenses to non-affiliates 4,116 - 6,612 -
Real estate taxes 4,495 - 7,509 -
Depreciation and
amortization 15,575 - 26,003 -
-------------------------------------------------------------
Total expenses 26,867 33 45,816 43
-------------------------------------------------------------
Operating income (loss) $ 13,919 $ (33) $ 23,951 $ (43)
Other income 1,413 - 1,886 -
Interest expense (10,954) - (17,964) -
Realized loss on sale of
treasury contracts (2,004) - (3,352) -
Minority interests (107) - (107) -
-------------------------------------------------------------
Net income (loss) $ 2,267 $ (33) $ 4,414 $ (43)
=============================================================
See accompanying notes to consolidated financial statements.
F-39
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
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
(Dollars in thousands, except per share amounts)
(unaudited)
Period from
March 5, 2003
Three months Three months Nine months (inception)
ended ended ended through
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
Other comprehensive
income:
Unrealized gain on
investment securities 157 - 204 -
-------------------------------------------------------------
Comprehensive income (loss) $ 2,424 $ (33) $ 4,618 $ (43)
=============================================================
Net income(loss) per
common share, basic and
diluted $ .02 $ (1.65) $ .06 $ (2.15)
=============================================================
Weighted average number
of common shares
outstanding, basic and
diluted 112,887 20 70,052 20
=============================================================
See accompanying notes to consolidated financial statements
F-40
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the nine month period ended September 30, 2004
(Dollars in thousands, except per share amounts)
(unaudited)
ACCUMULATED
DISTRIBUTIONS ACCUMULATED
ADDITIONAL IN EXCESS OF OTHER
NUMBER OF COMMON PAID-IN NET INCOME COMPREHENSIVE
SHARES STOCK CAPITAL (LOSS) INCOME TOTAL
--------- -------- ----------- ------------- ------------- ------------
Balance at December 31, 2003 18,737 $ 19 $ 165,169 $ (1,459) $ - $ 163,729
Net income - - - 4,414 - 4,414
Unrealized gain on investment
securities - - - - 204 204
Distributions declared - - - (35,132) - (35,132)
Proceeds from offering 125,930 126 1,258,654 - - 1,258,780
Offering costs - - (137,089) - - (137,089)
Proceeds from dividend reinvestment
program 1,617 1 15,360 - - 15,361
Forgiveness of affiliate debt - - 2,369 - - 2,369
Issuance of stock options and
discounts on shares issued to
affiliates - - 354 - - 354
--------- -------- ----------- ------------- ------------- ------------
Balance at September 30, 2004 146,284 $ 146 $ 1,304,817 (32,177) $ 204 $ 1,272,990
========= ======== =========== ============= ============= ============
See accompanying notes to consolidated financial statements.
F-41
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2004 and the period from March 5, 2003
(inception) through September 30, 2003.
(Dollars in thousands, except per share amounts)
(unaudited)
Period from March
5, 2003 (inception)
Nine months ended through
September 30, 2004 September 30, 2003
------------------ -------------------
Cash flows from operations:
Net income (loss) $ 4,414 $ (43)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 19,300 -
Amortization 6,703 -
Amortization of acquired above market leases 1,847 -
Amortization of acquired below market leases (2,645) -
Rental income under master leases 892 -
Straight line rental income (1,970) -
Straight line lease expense 301 -
Minority interests 107 -
Issuance of stock options and discount on shares issued to affiliates 354 4
Realized loss on sale of treasury contracts 3,352 -
Changes in assets and liabilities:
Accounts and rents receivable net of change in allowance of $146
and $0 for September 30, 2004 and September 30, 2003,
respectively. (8,565) -
Other assets (2,791) (50)
Accounts payable 1,202 -
Accrued interest payable 2,947 -
Accrued real estate taxes 9,189 -
Security deposits 2,087 -
Prepaid rental and recovery income and other liabilities 3,237 -
------------------ -------------------
Net cash flows provided by (used in) operating activities 39,961 (89)
------------------ -------------------
Cash flows used in investing activities:
Purchase of investment securities and treasury contracts (4,714) -
Restricted escrows (67,874) -
Purchase of investment properties (1,843,474) -
Acquired in-place lease intangibles (145,336) -
Acquired above market leases (37,835) -
Acquired below market leases 67,091 -
Contributions from minority interest-joint ventures 68,676 -
Purchase of unconsolidated joint ventures (5,782) -
Payment of leasing fees (623) -
Tenant improvements payable 3,079 -
Other assets (19,049) -
Funding of notes receivable (28,419) -
Due to affiliates (1,724) 14
------------------ -------------------
Net cash flows (used in) provided by investing activities (2,015,984) 14
------------------ -------------------
See accompanying notes to financial statements
F-42
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2004 and the period from March 5, 2003
(inception) through September 30, 2003.
(Dollars in thousands, except per share amounts)
(unaudited)
Period from March
5, 2003 (inception)
Nine months ended through
September 30, 2004 September 30, 2003
------------------ -------------------
Cash flows from financing activities:
Proceeds from offering $ 1,258,780 $ 200
Proceeds from the dividend reinvestment program 15,361 -
Payment of offering costs (134,956) (1,038)
Proceeds from mortgage debt and notes payable 1,094,146 -
Principal payments on mortgage debt (77) -
Proceeds from unsecured line of credit 165,000 -
Payoff of unsecured line of credit (170,000) -
Loan fees and deposits (10,707) -
Distributions paid (28,873) -
Due from affiliates 1,013 -
Advances from advisor - 1,113
Forgiveness of affiliate debt 2,369 -
------------------ -------------------
Net cash flows provided by financing activities 2,192,056 275
------------------ -------------------
Net increase in cash and cash equivalents 216,033 200
Cash and cash equivalents, at beginning of period 64,381 -
------------------ -------------------
Cash and cash equivalents, at end of period $ 280,414 $ 200
================== ===================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 15,017 $ -
================== ===================
Restricted cash $ (80,094) $ -
Restricted cash liability 80,094 -
================== ===================
Due from sponsor $ (1,567) -
Due to sponsor 1,567 -
================== ===================
Supplemental schedule of non-cash investing and financing
activities:
Purchase of investment properties $ (1,872,247) $ -
Assumption of mortgage debt 17,552 -
Write-off of acquisition reserve 521 -
Purchase price adjustments 3,148 -
Conversion of mortgage receivable to investment property 7,552 -
------------------ -------------------
$ (1,843,474) $ -
================== ===================
Distributions payable $ 7,187 $ -
================== ===================
Accrued offering costs payable $ 3,502 $ 295
================== ===================
See accompanying notes to financial statements
F-43
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(unaudited)
(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 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 has
also registered with the Securities and Exchange Commission for another public
offering of 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 which is not effective as of November 5, 2004.
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 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 September 30, 2004, no shares have been repurchased
by the Company.
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-44
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 variable interest entities (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.
(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") for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
Readers of this Quarterly Report should refer to the audited financial
statements of Inland Western Retail Real Estate Trust, Inc. for the fiscal year
ended December 31, 2003, which are included in the Company's 2003 Annual Report,
as certain footnote disclosures contained in such audited financial statements
have been omitted from this Report.
Certain reclassifications have been made to the 2003 financial statements to
conform to the 2004 presentations.
The Company classifies its investment in securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which the Company has the
ability and intent to hold the security until maturity. All securities not
included in trading or held-to-maturity are classified as available for sale.
Investment in securities at September 30, 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 September 30,
2004, the Company has accumulated other comprehensive income of $204,393. The
Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents and are carried at cost, which
approximates market.
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
F-45
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
which the hedge will reduce risk, identifying the specific asset, liability or
firm commitment being hedged, and citing the time horizon being hedged.
During the third quarter of 2004, the Company entered into treasury contracts
with a futures commission merchant with yields ranging from 3.27% to 3.40% for 5
year treasury contracts and 4.0% to 4.3% for 10 year treasury contracts. The
amount on deposit for these treasury contracts was $3,712,900. On September 30,
2004, the treasury contracts had a liquidation value of $361,186 resulting in a
loss of $3,351,714. As these treasury contracts are not offsetting future
commitments and therefore do not qualify as hedges, the net loss is recognized
currently in earnings. On October 29, 2004, these treasury contracts were
liquidated for a liquidation value of $126,213 resulting in a cumulative
realized net loss of $3,586,687.
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 and as of September 30, 2004,
no cost has been allocated to such 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 aggregate value of intangibles is measured based on the
difference between the stated price and the property value calculated as if
vacant. 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 Financial Accounting Standards Board's Statement of
Financial Accounting Standards or SFAS Nos. 141 and 142 resulted in the
recognition upon acquisition of additional intangible assets and liabilities
relating to real estate acquisitions during the quarter ended September 30,
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 and
over the respective renewal period for below market lease costs with fixed rate
renewals. Amortization pertaining to the above market lease costs of $1,033,930
was applied as a reduction to rental income for the three months ended September
30, 2004 and $1,847,107 for the nine months ended September 30, 2004.
Amortization pertaining to the below market lease costs of $1,742,220 was
applied as an increase to rental income for the three months ended September 30,
2004 and $2,644,833 for the nine months ended September 30, 2004.
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 $3,198,593 for the three month period ended September 30,
2004 and $5,492,587 for the nine month period ended September 30, 2004.
F-46
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The following table presents the amortization during the next five years related
to the acquired in-place lease intangibles, acquired above market lease costs
and the below market lease costs for properties owned at September 30, 2004.
October 1, 2004
through
December 31,
Amortization of: 2004 2005 2006 2007 2008 Thereafter
---- ---- ---- ---- ---- ----------
Acquired above
market lease costs $ (1,248,545) (4,978,152) (4,796,242) (3,982,664) (3,737,860) (18,834,489)
Acquired below
market lease costs 1,958,637 7,650,263 7,056,626 6,459,045 5,818,709 41,413,189
--------------------------------------------------------------------------------------------------------
Net rental income
increase $ 710,092 2,672,111 2,260,384 2,476,381 2,080,849 22,578,700
========================================================================================================
Acquired in-place lease
intangibles $ 3,832,781 15,331,125 15,331,125 15,331,125 15,331,125 83,439,574
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.
The Company accrues 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.
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-47
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 not 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 carrying
amount of the Company's other financial instruments approximate fair value
because of the relatively short maturity of these instruments.
(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.
As of September 30, 2004 and December 31, 2003, the Company had incurred
$159,233,813 and $22,144,814 of offering costs, of which $119,656,429 and
$16,859,779, respectively, were paid or accrued to affiliates. Pursuant to the
terms of the offering, 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 offering or all organization and offering expenses
(including selling commissions) which together exceed 15% of gross proceeds. As
of September 30, 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 offering.
The Company pays 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 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 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 Advisor
agreed to forego such fees for the nine months ended September 30, 2004.
F-48
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 offering. 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 offering. Such costs are offset against the stockholders'
equity accounts. Such costs totaled $119,656,429 as of September 30, 2004, of
which $3,502,335 was unpaid at September 30, 2004.
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 three month period ended September 30, 2004 and the nine month period ended
September 30, 2004, the Company incurred $466,359 and $1,103,717 of these costs,
respectively, of which $778,277 remained unpaid as of September 30, 2004 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 $42,703 for the three
months ended September 30, 2004 and $63,978 for the nine months ended September
30, 2004, respectively.
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 three months
ended September 30, 2004 and for the nine months ended September 30, 2004, the
Company paid loan fees totaling $1,119,944 and $2,241,986 to this affiliate,
respectively.
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 $1,693,155
and $2,847,427 for the three and nine months ended September 30, 2004,
respectively. None remained unpaid as of September 30, 2004.
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 19,735 and 530,574
shares of common stock to affiliates and recognized an expense related to these
discounts of $16,174 and $352,303 for the three and nine months ended September
30, 2004, respectively.
As of September 30, 2004 and December 31, 2003 the Company was due funds from
affiliates in the amount of $1,571,960 and $918,750, respectively which is
comprised of $1,567,481 and $845,000, respectively, which is due from the
sponsor for reimbursement of a portion of distributions paid in 2004. The
remaining $4,479 and $73,750 as of September 30, 2004 and December 31, 2003,
respectively 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 September 30, 2004 the
Company owed funds to the sponsor in the amount of $2,868,666 for repayment of
the funds advanced for payment of distributions.
F-49
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
As of September 30, 2004 and December 31, 2003 the Company owed funds to an
affiliate in the amount of $0 and $2,154,158, respectively, 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.
(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 September 30, 2004 and
December 31, 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, of which none have been exercised or expired.
(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 $891,982 as of September 30, 2004.
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
------------------
2004 $ 91,591,315*
2005 146,904,527
2006 140,787,601
2007 133,105,552
2008 125,444,736
Thereafter 766,271,796
------------------
Total $ 1,404,105,527
==================
* For the twelve month period from January 1, 2004 through December 31, 2004.
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 all of their 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-50
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 three months and
the nine months ended September 30, 2004, ground lease rent was $478,995 and
$510,245, respectively. Minimum future rental payments to be paid under the
ground leases are as follows:
Minimum Lease
Payments
------------------
2004 $ 1,021,807
2005 2,661,464
2006 2,662,605
2007 2,663,811
2008 2,665,086
Thereafter 286,655,032
------------------
Total $ 298,329,805
==================
* For the twelve month period from January 1, 2004 through December 31, 2004.
(6) Notes Receivable
The notes receivable balance of $28,419,189 as of September 30, 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 September 30, 2004 were $1,140,741,763, of
which $1,014,708,763 had fixed rates ranging from 3.96% to 6.20% and a weighted
average interest rate of 4.68% at September 30, 2004. The remaining $126,033,000
represented variable rate loans with a weighted average interest rate of 2.85%
at September 30, 2004. Retail properties with a net carrying value of
$1,861,465,315 at September 30, 2004 and related tenant leases are pledged as
collateral.
As of September 30, 2004, scheduled maturities for the Company's outstanding
mortgage indebtedness have various due dates through August 2027. At September
30, 2004, the weighted average interest rate on the Company's mortgage debt was
4.48%. With the exception of the mortgage loan on Plaza Santa Fe II, all of the
Company's mortgage loans as of
F-51
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 2004 require monthly payments of interest only and may be prepaid
with a penalty after specific lockout periods. The mortgage loan on Plaza Santa
Fe II, which was assumed as part of the acquisition of the property on June 1,
2004, requires monthly payments of principal and interest, as well as payments
into tax, insurance, and replacement reserve escrows. The loan has no prepayment
privileges.
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
September 30, 2004 is approximately $507,000.
(8) Line of Credit
The Company has an unsecured line of credit arrangement with KeyBank N.A. which
matures on December 24, 2004 in the amount of $225,000,000. 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 2.94% to
3.56% during the quarter ended September 30, 2004. The Company is also required
to pay, on a quarterly basis, an amount ranging from .15% to .30%, 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. In
addition to, and in conjunction with these financial covenants, the Company
maintains a cash collateral account. Amounts deposited in the cash collateral
account provide that loan to value covenants required under the line are not
exceeded. Funds may be deposited into and withdrawn from the cash collateral
account as the Company's properties are purchased without debt. On September 27,
2004, the outstanding balance of $110,000,000 on this line was repaid resulting
in no outstanding balance as of September 30, 2004. As of September 30, 2004,
the Company was in compliance with such covenants and no amounts were required
to be deposited in the cash collateral account.
(9) Investment in Unconsolidated Joint Venture
On August 11, 2004, CR Investors, LLC, a 100% owned LLC of Reisterstown Plaza
Holdings, LLC (a joint venture consolidated by the Company), purchased a 36.5%
tenancy in common interest in an apartment complex known as Courthouse Square
located in Towson, MD. This investment is 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 Sheet and the
Consolidated Statement of Operations includes the Company's share of net income
or loss from the unconsolidated entity.
(10) Segment Reporting
The Company owns and seeks to acquire single-tenant buildings and multi-tenant
shopping centers primarily 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-52
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Net property operations are summarized in the following table for the three and
nine months ended September 30, 2004, along with a reconciliation to net income.
Nine months ended Three months ended
September 30, 2004 September 30, 2004
------------------ ------------------
Property rental income and additional property income $ 69,766,553 $ 40,786,027
Total property operating expenses (16,968,381) (10,304,035)
Interest expense (21,315,926) (12,958,477)
------------------ ------------------
Net property operations 31,482,246 17,523,515
------------------ ------------------
Other income 1,885,751 1,413,350
Less non-property expenses:
General and administrative expenses (2,843,943) (988,303)
Depreciation and amortization (26,003,202) (15,574,851)
Minority interests (107,054) (107,054)
------------------ ------------------
Net income $ 4,413,798 $ 2,266,657
================== ==================
The following table summarizes property asset information as of September 30,
2004 and December 31, 2003.
September 30, 2004 December 31, 2003
------------------ -----------------
Total assets:
Shopping centers $ 2,301,440,049 $ 142,804,128
Non-segment assets 370,711,987 69,298,035
------------------ ------------------
$ 2,672,152,036 $ 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") is 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 September 30, 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 were
112,887,491 for the three months ended September 30, 2004 and 70,051,926 for the
nine months ended September 30, 2004.
F-53
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(12) Commitments and Contingencies
The purchase and sale contract for Pavilion at King's Grant, provides that if
anytime during the period from January 1, 2004 through December 31, 2007 the
tenant Toys R' Us should increase its base rent up to a maximum amount of
$250,000 and no decrease has occurred in their requirement to pay for a certain
percentage of expenses at the property, then the Company would be obligated to
pay the seller additional funds related to the purchase based upon an agreed
income capitalization formula. The Company has not reserved any funds for this
contingency.
In connection with the purchase of Stony Creek Market Place, the Company is
obligated to purchase the seller's interest in the leases if the seller
exercises the right to develop and lease a vacant 50,000 square foot pad site
within 48 months after the closing date. In connection with the purchase of
Newnan Crossing, the Company is obligated to purchase the remaining portion of
the shopping center that is currently under construction (Phase III) once
construction has been completed and a major tenant has moved in and commenced
payment of rent, with the additional purchase price based upon an agreed income
capitalization formula. In connection with the purchase of Low Country Village,
the Company is obligated to purchase a portion of the shopping center that is
currently under construction once construction has been completed and the
respective tenants have moved in and commenced payment of rent, with the
additional purchase price of the center based upon an agreed income
capitalization formula. As part of the commitment to purchase this remaining
portion of the shopping center, the Company had deposited $300,000 of earnest
money with an escrow agent. In connection with the purchase of Wilshire Plaza
III, the Company is obligated to pay the remainder of the purchase price in the
amount of $2,967,088 when Kohl's department store has moved in and commenced
payment of rent. Also, in conjunction with this purchase, the Company is
obligated to fund to Kohl's a second construction payment in the amount
$1,164,874 when they have moved in and commenced payment of rent. In connection
with the purchase of an interest in the entity that owns Reisterstown Road
Plaza, the Company is obligated to pay the remaining purchase price of
$11,546,674 if the unfinished space has been built and rented within 24 months
of the closing date. In connection with the purchase of Governor's Marketplace,
the Company is obligated to pay the remaining purchase price of $4,846,152 if
the seller completes the construction and leasing of additional components
within 24 months of the closing date. In connection with the purchase of an
interest in the entity that owns Boulevard at the Capital Centre, the Company is
required to pay the remaining purchase price of $6,947,764 upon completion of
the construction and satisfaction of tenant conditions of certain units of the
shopping center. The Company has not reserved any funds for these contingencies.
In connection with the purchase of Eastwood Towne Center, the Company is
obligated to pay the remaining purchase price of $3,836,317 once a major
tenant's base rent increases upon two shadow anchors' commencement of
operations. In connection with the purchase of John's Creek Village, the Company
is obligated to pay the remaining purchase price of $13,385,390 if the vacancies
have been leased and the respective tenants have moved in and commenced payment
of rent within 18 months of the closing date. In connection with the purchase of
Davis Towne Crossing, the Company is obligated to pay the remaining purchase
price of $1,604,304 if the vacancies have been leased and respective tenants
have moved in and commenced payment of rent within 24 months of the initial
closing date. In connection with the purchase of Towson Circle, the Company is
obligated to pay an additional amount to be determined based upon an agreed
income capitalization formula if two spaces that were vacant at closing have
been leased within 24 months of the closing date. In connection with the
purchase of Forks Town Center, if a certain tenant has moved into its space and
is paying rent within 12 months of the original closing, the Company is
obligated to pay the remaining purchase of $701,299. The Company has not
reserved any funds for these contingencies.
In conjunction with the financing of Dorman Center on April 20, 2004, the
Company was required to obtain a $3.65 million irrevocable letter of credit for
a one year period. Once the Company purchases the remaining portion of Dorman
Center, and meets certain occupancy requirements, the letter of credit will be
released. On July 16, 2004, the Company purchased the remaining portion of
Dorman Center. The irrevocable letter of credit is still outstanding as the
occupancy requirements had not been met as of November 5, 2004. In conjunction
with the financing of John's Creek Village on July
F-54
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2, 2004, the Company was required to obtain a $5.7 million irrevocable letter of
credit for a one year period. Once the Company purchases the remaining portion
of John's Creek Village, and meets certain occupancy requirements, the letter of
credit will be released. The irrevocable letter of credit is still outstanding
as the remaining portion of the center had not been purchased as of November 5,
2004.
In connection with the purchase of Larkspur Landing, the Company assumed a
liability in the amount of $1,982,504 for tenant improvements and leasing
commission obligations. As of September 30, 2004, the remaining liability after
disbursements is $1,303,530.
The Company is currently considering acquiring 10 properties for an estimated
purchase price of $244 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 29,541,198 shares of common stock from October 1, 2004
through November 5, 2004 in connection with the offering, resulting in gross
proceeds of $294,964,519.
The Company paid distributions of $7,186,753 to its stockholders in October
2004.
On October 15, 2004, CR Investors, LLC, a 100% owned LLC of Reisterstown Plaza
Holdings, LLC (a joint venture consolidated by the Company), purchased a 60.94%
interest in an apartment complex known as Cardiff Hall East located in Towson,
MD for approximately $2.7 million.
As of October 31, 2004, Cordish Power Plant Management, LLC, a Maryland limited
liability company ("CPP") admitted two new members in exchange for the capital
contributions described below that were made on November 5, 2004. CRP Power
Plant Investors, LLC, a Maryland limited liability company that is wholly owned
by Reisterstown Plaza Holdings, LLC, contributed capital in the amount of $15
million in exchange for a 37.5% member interest in CPP. CGW Power Plant
Investors, LLC, a Maryland limited liability company that is wholly owned by
Gateway Village Holdings, LLC contributed capital in the amount of $5 million in
exchange for a 12.5% member interest in CPP. CPP owns a 99.5% interest in
Cordish Power Plant Limited Partnership. Cordish Power Plant Limited Partnership
owns a ground lease interest in a mixed use retail/office complex located in the
Inner Harbor area of Baltimore, Maryland that is known as The Power Plant. The
Power Plant contains approximately 180,000 square feet of space and is 100%
leased and occupied.
As of October 31, 2004, Cordish Power Plant Management Number Two, LLC, a
Maryland limited liability company ("CPP2") admitted two new members in exchange
for the capital contributions described below that were made on November 5,
2004. CTC Pier IV Investors, LLC, a Maryland limited liability company that is
wholly owned by Towson Circle Holdings, LLC contributed capital in the amount of
$5 million in exchange for a 16.67% member interest in CPP2. CTOLL Pier IV
Investors, LLC, a Maryland limited liability company that is wholly owned by
Tollgate Marketplace Holding Company, LLC contributed capital in the amount of
$15 million in exchange for a 50.0% member interest in CPP2. CPP2 owns all of
the membership interest in Cordish Power Plant Number Two, LLC. Cordish Power
Plant Number Two, LLC owns a ground lease interest in a mixed use retail/office
complex located in the Inner Harbor area of Baltimore, Maryland that is known as
Pier IV Office Building. The Pier IV Office Building contains approximately
120,000 square feet of space and is 100% leased and occupied.
F-55
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company has acquired the following properties or joint venture interests in
properties during the period October 1 to November 5, 2004. The respective
acquisitions are summarized in the table below.
APPROXIMATE GROSS LEASABLE
DATE YEAR PURCHASE PRICE AREA
ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS
-------- -------- ----- --- --------- -------------
10/05/04 Bed, Bath & Beyond Plaza 2004 20,350,000 97,496 Bed, Bath & Beyond,
Miami, FL Office Depot,
Pier 1 Imports,
Party City
10/12/04 The Columns - Phase II 2004 5,740,596 44,987 Ross Dress for Less,
Jackson, TN Old Navy
10/18/04 Denton Town Crossing 2003/ 51,236,687 272,722 Oshman's Sporting Goods
Denton, TX 2004
10/19/04 Azalea Square 2004 30,012,525 181,942 T.J. Maxx,
Summerville, SC Linens 'N Things,
Ross Dress for Less,
Cost Plus World Market,
PETsMART
10/21/04 Lake Mary Pointe 1999 6,620,000 51,052 Publix
Orlando, FL
10/25/04 Plaza at Riverlakes 2001 17,000,000 102,836 Ralph's Grocery store
Bakersville, CA
10/26/04 Academy Sports 2004 5,000,000 61,001 Academy Sports
Port Arthur, TX
10/28/04 Gurnee Town Center 2002 44,256,387 179,840 Linens 'N Things,
Gurnee, IL Old Navy,
Borders Books & Music
10/29/04 CVS Pharmacy 2004 3,066,241 10,055 CVS Pharmacy
Sylacauga, AL
10/29/04 Academy Sports 2004 4,250,000 61,654 Academy Sports
Midland, TX
11/03/04 Mansfield Towne Center 2004 16,055,074 111,898 Ross Dress for Less,
Mansfield, TX Staples
11/05/04 Winchester Commons 1999 13,022,687 93,024 Kroger
Memphis, TN
F-56
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The mortgage debt and financings obtained during the period October 1, 2004 to
November 5, 2004, are detailed in the list below.
DATE MATURITY PRINCIPAL BORROWED
FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($)
--------------------------------------------------------------------------------------------------
10/05/04 The Columns 4.910% 05/01/09 11,423,300
10/06/04 Low Country Village 4.960% 05/01/09 5,370,000
10/08/04 Lincoln Park 4.610% 11/01/09 26,153,000
11/01/04 Academy Sports - Port Arthur, TX 5.120% 11/01/09 2,775,000
11/01/04 Harris Teeter - Wilmington, NC 4.915% 11/01/09 3,960,000
11/04/04 The Columns - Phase II 4.950% 11/01/09 3,442,100
F-57
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Balance Sheet
September 30, 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 September 30, 2004.
This unaudited Pro Forma Consolidated Balance Sheet is not necessarily
indicative of what the actual financial position would have been at September
30, 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 December 17, 2004. 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 December 17, 2004. 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-58
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Balance Sheet
September 30, 2004
(unaudited)
Historical Pro Forma
(A) Adjustments Pro Forma
-------------------------------------------------------
ASSETS
Net investment properties (B) $ 1,971,434,000 1,050,892,000 3,022,326,000
Cash and cash equivalents 280,414,000 (76,440,000) 203,914,000
Restricted cash 80,094,000 - 80,094,000
Investment in marketable securities and treasury contracts 1,566,000 - 1,566,000
Investment in unconsolidated joint venture 5,782,000 - 5,782,000
Restricted escrows 67,874,000 - 67,874,000
Accounts and rents receivable 11,683,000 - 11,683,000
Due from affiliates 1,572,000 - 1,572,000
Note receivable 28,419,000 3,400,000 31,819,000
Acquired in-place lease intangibles (B)(D) 148,597,000 79,648,000 228,245,000
Acquired above market lease intangibles (B)(D) 37,578,000 997,000 38,575,000
Loan fees, leasing fees and loan fee deposits (G) 14,118,000 (2,182,000) 11,936,000
Other assets (G) 23,021,000 (19,378,000) 3,643,000
-------------------------------------------------------
Total assets $ 2,672,152,000 1,036,937,000 3,709,089,000
=======================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage and notes payable (B)(E) 1,141,248,000 488,942,000 1,630,190,000
Accounts payable 1,352,000 - 1,352,000
Accrued offering costs to affiliates 3,502,000 - 3,502,000
Accrued interest payable 2,947,000 - 2,947,000
Tenant improvement payable 3,605,000 - 3,605,000
Accrued real estate taxes 10,529,000 - 10,529,000
Distributions payable 7,187,000 - 7,187,000
Security deposits 2,195,000 - 2,195,000
Line of credit - - -
Prepaid rent and other liabilities 3,717,000 - 3,717,000
Advances from sponsor 2,869,000 - 2,869,000
Acquired below market lease intangibles (B)(D) 70,356,000 2,399,000 72,755,000
Restricted cash liability 80,094,000 - 80,094,000
Due to affiliates 778,000 - 778,000
-------------------------------------------------------
Total liabilities 1,330,379,000 491,341,000 1,821,720,000
=======================================================
Minority interests 68,783,000 - 68,783,000
Common stock (C) 146,000 62,000 208,000
Additional paid-in capital (net of offering costs)(C) 1,304,817,000 545,534,000 1,850,351,000
Accumulated distributions in excess of net loss (F) (32,177,000) - (32,177,000)
Accumulated other comprehensive income 204,000 - 204,000
-------------------------------------------------------
Total stockholders' equity 1,272,990,000 545,596,000 1,818,586,000
-------------------------------------------------------
Total liabilities and stockholders' equity $ 2,672,152,000 1,036,937,000 3,709,089,000
=======================================================
See accompanying notes to pro forma consolidated sheet.
F-59
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Balance Sheet
September 30, 2004
(unaudited)
(A) The historical column represents our Consolidated Balance Sheet as of
September 30, 2004 as filed with the Securities Exchange Commission on Form
10-Q. As of September 30, 2004, the Company had sold 144,628,000 shares to
the public and 1,636,000 shares were issued pursuant to the Company's
distribution reinvestment program. As a result, the Company received
$1,461,206,000 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. 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
--------------------------------
Bed, Bath & Beyond Plaza $ 20,350,000 11,193,000
The Columns - Phase II 5,741,000 3,442,000
Denton Crossing 53,112,000 35,200,000
Azalea Square 30,013,000 16,535,000
Lake Mary Pointe 6,620,000 3,658,000
Plaza at Riverlakes 17,000,000 -
Academy Sports - Port Arthur 5,000,000 2,775,000
Gurnee Town Centre 44,256,000 -
CVS Pharmacy - Sylacauga 3,066,000 -
Academy Sports - Midland 4,250,000 2,338,000
Mansfield Towne Crossing 16,055,000 10,982,000
Winchester Commons 13,023,000 7,235,000
Kohl's - Wilshire (Final Construction Funding) 4,132,000 -
Publix Center 12,047,000 -
Fox Creek Village 20,883,000 -
Oswego Commons 35,022,000 19,262,000
Zurich Towers 138,000,000 81,420,000
University Town Center 10,569,000 -
Edgemont Town Center 15,639,000 -
Five Forks 8,086,000 -
Placentia Town Center 24,865,000 -
Gateway Station 6,300,000 -
Northwoods Center 13,964,000 -
Shops at Forest Commons 7,505,000 5,250,000
Gateway Pavilions 65,141,000 -
American Express Portfolio 390,000,000 230,100,000
Southlake Town Square 136,519,000 -
Evans Towne Center 8,880,000 -
Irmo Station 13,100,000 -
--------------------------------
Total $ 1,129,138,000 429,390,000
================================
F-60
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Balance Sheet
September 30, 2004
(unaudited)
Allocation of net investments in properties:
Land $ 219,270,000
Building and improvements 831,622,000
Acquired in-place lease intangibles 79,648,000
Acquired above market lease intangibles 997,000
Acquired below market lease intangibles (2,399,000)
------------------
Total $ 1,129,138,000
==================
(C) Additional offering proceeds of $620,000,000, net of additional offering
costs of $74,404,000 are reflected as received as of September 30, 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 December 17, 2004. 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. The value of the acquired leases will
be amortized over the lease term.
(E) Additional mortgages payable of $488,942,000, reflected as funded as of
September 30, 2004, includes $429,390,000 of mortgages payable obtained
subsequent to the acquisition of the properties described in (B) and
$59,552,000 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 $2,182,000
represents prepaid loan fees applied to mortgage payables obtained as
described in (E). Change in other assets of $19,378,000 represents advance
purchase deposits on properties purchased as described in (B) and loan
proceeds due from title companies.
F-61
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Statement of Operations
For the nine months ended September 30, 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, 2003 or the date significant operations commenced.
No pro forma adjustments have been made for any potential property acquisitions
identified as of December 17, 2004. 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 December 17, 2004. 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 or Academy Sports - Midland, as the
properties were completed in 2004 and there were no significant operations prior
to our 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 our 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 nine
months ended September 30, 2004, nor does it purport to represent our future
results of operations.
F-62
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Statement of Operations
For the nine months ended September 30, 2004 (unaudited)
Pro Forma
Historical Adjustments
(A) (B) Pro Forma
--------------------------------------------------
Rental income $ 56,405,000 109,850,000 166,255,000
Tenant recovery income 12,802,000 19,641,000 32,443,000
Other property income 560,000 - 560,000
--------------------------------------------------
Total revenues 69,767,000 129,491,000 199,258,000
--------------------------------------------------
General and administrative expenses 2,844,000 - 2,844,000
Advisor asset management fee (C) - - -
Property operating expenses (F) 16,969,000 33,340,000 50,309,000
Depreciation and amortization (D) (G) 26,003,000 49,870,000 75,873,000
--------------------------------------------------
Total expenses 45,816,000 83,210,000 129,026,000
--------------------------------------------------
Operating income 23,951,000 46,281,000 70,232,000
Other income 1,886,000 - 1,886,000
Interest expense (H) (17,964,000) (35,824,000) (53,788,000)
Realized loss on sale of treasury contacts (3,352,000) - (3,352,000)
Minority interests (107,000) - (107,000)
--------------------------------------------------
Net income (loss) $ 4,414,000 10,457,000 14,871,000
==================================================
Other comprehensive income:
Unrealized gain/loss on investment securities 204,000 - 204,000
--------------------------------------------------
Comprehensive income (loss) $ 4,618,000 10,457,000 15,075,000
==================================================
Weighted average number of shares of common stock
outstanding, basic and diluted (E) 70,052,000 208,000,000
============== ==============
Net income (loss) per share, basic and diluted (E) .06 0.07
============== ==============
See accompanying notes to pro forma consolidated statement operations.
F-63
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the nine months ended September 30, 2004
(unaudited)
(A) The historical information represents the historical statement of
operations of the Company for the period from January 1, 2004 to September
30, 2004 as filed with the Securities Exchange Commission on Form 10-Q.
(B) Total pro forma adjustments for acquisitions consummated as of December 17,
2004 are as though the properties were acquired January 1, 2003. No
adjustment was 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 or Academy
Sports - Midland as the properties were completed in 2004 and there were no
significant operations prior to our 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 our funding of the notes receivable.
Gross Income
& Direct Total
Operating Pro Forma Pro Forma
Expenses (1) Adjustments Adjustments
----------------------------------------------------------
Rental income $ 111,653,000 (1,803,000) 109,850,000
Tenant recovery income 19,641,000 - 19,641,000
----------------------------------------------------------
Total revenues 131,294,000 (1,803,000) 129,491,000
----------------------------------------------------------
Advisor asset management fee - - -
Property operating expenses 27,554,000 5,786,000 33,340,000
Depreciation and amortization - 49,870,000 49,870,000
Interest expense - 35,824,000 35,824,000
----------------------------------------------------------
Total expenses 27,554,000 91,480,000 119,034,000
----------------------------------------------------------
Net income (loss) $ 103,740,000 (93,283,000) 10,457,000
==========================================================
(1) Unaudited combined gross income and direct operating expenses based on
information provided by the Seller for the following properties:
Newnan Crossing II, Hickory Ridge, CorWest Plaza, Shoppes at Quarterfield,
Larkspur Landing, North Ranch Pavilion, La Plaza Del Norte, MacArthur Crossing,
Promenade at Red Cliff, Peoria Crossings, Dorman Center - Phase I, 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, Dorman Center - Phase II, 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, 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,
Southlake Town Square, Evans Towne Centre and Irmo Station.
F-64
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the nine months ended September 30, 2004
(unaudited)
Gross rental income based on information provided by tenant net leases for
the following properties:
Wal-Mart Supercenter - Blytheville, Wrangler Company Western Headquarters,
Wal-Mart Supercenter - Jonesboro, Harris Teeter - Wilmington, GMAC
Insurance, CVS Pharmacy - Sylacauga, Zurich Towers and the American Express
portfolio.
(C) The advisor asset management fee is expected to be subordinated to the
shareholders' receipt of a stated return thus no amount is reflected.
(D) 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 and in-place lease
intangibles will be amortized on a straight line basis over the life of the
related leases as a component of amortization expense.
(E) The pro forma weighted average shares of common stock outstanding for the
six months ended September 30, 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.
(F) Management fees are calculated as 4.5% of gross revenues pursuant to the
management agreement and are included in property operating expenses.
(G) The value of the acquired leases will be amortized over the lease term.
(H) The pro forma adjustments relating to interest expense were based on the
following debt terms:
Principal Interest Maturity
Property Balance Rate Date
--------------------------------------------------------------------------------------
Darien Towne Center 16,500,000 4.650% 06/10
CVS Pharmacy - Edmond 1,850,000 4.374% 06/09
CVS Pharmacy - Norman 2,900,000 4.374% 06/09
Newnan Crossing 23,766,100 4.380% 03/09
Shops at Park Place 13,127,000 4.710% 11/08
Pavilion at King's Grant 5,342,000 4.390% 05/09
Shaw's Supermarket - New Britain 6,450,000 4.680% 11/28
Stony Creek Marketplace 14,162,000 4.770% 01/11
CorWest Plaza 18,150,000 4.560% 02/09
Hickory Ridge 23,650,000 4.531% 02/09
Larkspur Landing 33,630,000 4.450% 02/09
North Ranch Pavilion 10,157,000 4.120% 04/09
Shoppes at Quarterfield 6,067,000 4.280% 04/09
La Plaza Del Norte 32,528,000 4.610% 03/10
MacArthur Crossing 12,700,000 4.290% 05/09
Promenade at Red Cliff 10,590,000 4.290% 05/09
Dorman Center - Phase I and Phase II 27,610,000 4.180% 05/09
Peoria Crossings 20,497,000 4.090% 04/09
Heritage Towne Crossing 8,950,000 4.374% 06/09
Paradise Valley Marketplace 15,681,000 4.550% 05/09
Best on the Boulevard 19,525,000 3.990% 05/09
F-65
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the nine months ended September 30, 2004
(unaudited)
Principal Interest Maturity
Property Balance Rate Date
--------------------------------------------------------------------------------------
Bluebonnet Parc 12,100,000 4.372% 05/09
North Rivers Town Center 11,050,000 4.760% 05/09
Alison's Corner 3,850,000 4.272% 06/10
Arvada Marketplace and Arvada Connection 28,510,000 4.130% 07/09
Eastwood Towne Center 46,750,000 4.640% 07/09
Watauga Pavilion 17,100,000 4.140% 06/10
Northpointe Plaza 30,850,000 4.272% 05/09
Plaza Santa Fe II 17,474,500 6.200% 12/12
Eckerds Drug Stores (4) 6,800,000 5.275% 08/09
Pine Ridge Plaza 14,700,000 5.085% 08/09
Huebner Oaks Center (Note A) 31,723,000 4.200% 07/10
Huebner Oaks Center (Note B) 16,277,000 3.960% 07/10
John's Creek Village 23,300,000 5.100% 08/09
Lakewood Towne Center (Note A) 44,000,000 2.680% 06/09
Lakewood Towne Center (Note B) 7,260,000 3.830% 07/05
Shoppes of Prominence Point 9,954,300 5.235% 09/09
Northgate North 26,650,000 4.600% 07/08
Davis Towne Crossing 5,365,200 5.185% 09/09
Fullerton Metrocenter 28,050,000 5.090% 08/09
The Shops at Boardwalk 20,150,000 4.130% 08/09
Shoppes of Dallas 7,179,000 4.960% 04/09
Cranberry Square 10,900,000 4.975% 08/09
Tollgate Marketplace 39,765,000 LIBOR +120 07/09
Gateway Village (Note A) 27,233,000 LIBOR + 113 07/09
Gateway Village (Note B) 4,225,000 LIBOR + 200 08/05
Towson Circle (Note A) 15,647,500 5.100% 07/09
Towson Circle (Note B) 3,550,000 LIBOR + 200 08/05
Wal-Mart Supercenter - Blytheville 7,100,000 4.390% 09/09
Gateway Plaza 18,163,000 5.100% 09/09
Wrangler Company Western Headquarters 11,300,000 5.090% 08/27
Plaza at Marysville 11,800,000 5.085% 08/09
Forks Town Center 10,395,000 4.970% 09/09
Academy Sports - Houma 2,920,000 5.120% 09/09
Wal-Mart Supercenter - Jonesboro 6,088,500 5.085% 09/09
Reisterstown Road Plaza 49,650,000 5.300% 09/09
Village Shoppes at Simonton 7,562,000 4.960% 10/09
Manchester Meadows 31,065,000 4.480% 09/07
Governor's Marketplace 20,625,000 5.185% 09/09
Mitchell Ranch Plaza 18,700,000 4.480% 10/09
Saucon Valley Square 8,851,000 5.115% 10/09
Boulevard at Capital Centre 71,500,000 5.120% 10/09
GMAC Insurance 33,000,000 4.610% 10/09
Low Country Village 5,370,000 4.960% 10/09
The Columns - Phase I 11,423,000 4.910% 11/09
Lincoln Park 26,153,000 4.610% 11/09
Harris Teeter - Wilmington 3,960,000 4.915% 11/09
F-66
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the nine months ended September 30, 2004
(unaudited)
Principal Interest Maturity
Property Balance Rate Date
--------------------------------------------------------------------------------------
Kohl's - Wilshire Plaza III 5,418,000 5.120% 12/09
Harvest Town Center 5,005,000 4.935% 01/10
Bed Bath & Beyond Plaza 11,193,000 5.170% 12/09
The Columns - Phase II 3,442,000 4.950% 05/09
Denton Crossing 35,200,000 4.300% 01/10
Azalea Square 16,535,000 5.010% 12/09
Lake Mary Pointe 3,658,000 5.170% 12/09
Academy Sports - Port Arthur 2,775,000 5.120% 11/09
Academy Sports - Midland 2,338,000 5.120% 01/10
Mansfield Towne Crossing 10,982,000 5.215% 12/09
Winchester Commons 7,235,000 5.120% 12/09
Oswego Commons 19,262,000 4.750% 12/09
Zurich Towers 81,420,000 4.247% 12/34
Shops at Forest Commons 5,250,000 6.340% 09/13
American Express Portfolio 230,100,000 4.268% 12/09
F-67
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003
(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, 2003 or the date significant operations commenced.
No pro forma adjustments have been made for any potential property acquisitions
identified as of December 17, 2004. 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 December 17, 2004. 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 CVS Pharmacy-Edmond or CVS Pharmacy-Norman as the properties were
completed in 2003 and there were no significant operations prior to our
acquisition. No pro forma adjustments were made for Eckerd-Greer, Eckerd-Kill
Devil Hills, Eckerd-Columbia, Eckerd-Crossville, Shoppes of Prominence Point,
Low Country Village, Shoppes of Dallas, Kohl's - Wilshire Plaza III, Dorman
Center - Phase II, Academy Sports - Houma, Village Shoppes at Simonton, Bed,
Bath & Beyond Plaza, The Columns - Phase II, Academy Sports - Port Arthur, CVS
Pharmacy - Sylacauga, Academy Sports - Midland, Publix Center and Gateway
Station as the properties were completed in 2004 and there were no significant
operations in 2003. 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 our 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, 2003, nor does it purport to represent our future results of
operations.
F-68
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003 (unaudited)
Pro Forma Pro Forma
Historical Adjustments Adjustments
(A) (B) (C) Pro Forma
-----------------------------------------------------
Rental income $ 607,000 130,815,000 46,779,000 178,201,000
Tenant recovery income 138,000 36,782,000 1,047,000 33,967,000
Other property income 38,000 - - 38,000
-----------------------------------------------------
Total revenues 783,000 163,597,000 47,826,000 212,206,000
-----------------------------------------------------
General and administrative expenses 454,000 - - 454,000
Advisor asset management fee (D) - - - -
Property operating expenses (G) 144,000 53,282,000 3,293,000 56,719,000
Depreciation and amortization (E)(H) 223,000 63,862,000 18,603,000 82,688,000
-----------------------------------------------------
Total expenses 821,000 117,144,000 21,896,000 139,861,000
-----------------------------------------------------
Operating income (38,000) 46,453,000 25,930,000 72,345,000
Other income - - - -
Interest expense (I) (136,000) (41,636,000) (17,843,000) (59,615,000)
Realized loss on sale of treasury contacts - - - -
Minority interests - - - -
-----------------------------------------------------
Net income (loss) $ (174,000) 4,817,000 8,087,000 12,730,000
=====================================================
Weighted average number of shares of
common stock outstanding, basic and
diluted (F) 2,521,000 208,000,000
=========== ===========
Net income (loss) per share, basic and
diluted (F) (.07) 0.06
=========== ===========
See accompanying notes to pro forma consolidated statement of operations.
F-69
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003
(unaudited)
(A) The historical information represents the historical statement of operations
of the Company for the period from March 5, 2003 (inception) to December 31,
2003 as filed with the Securities Exchange Commission on Form 10-K.
(B) Total pro forma adjustments for acquisitions consummated as of December 17,
2004 are as though the properties were acquired January 1, 2003.
Gross Income
& Direct Total
Operating Pro Forma Pro Forma
Expenses (1) Adjustments Adjustments
---------------------------------------------
Rental income $ 133,977,000 (3,162,000) 130,815,000
Tenant recovery income 32,782,000 - 32,782,000
---------------------------------------------
Total income 166,759,000 (3,162,000) 163,597,000
---------------------------------------------
Advisor asset management fee - - -
Property operating expenses 46,020,000 7,262,000 53,282,000
Depreciation and amortization - 63,862,000 63,862,000
Interest expense - 41,636,000 41,636,000
---------------------------------------------
Total expenses 46,020,000 112,760,000 158,780,000
---------------------------------------------
Net income (loss) $ 120,739,000 (115,922,000) 4,817,000
=============================================
(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:
Shops at Park Place, Darien Towne Center, Newnan Crossing Phase I and II,
Pavilion at Kings Grant, Hickory Ridge, CorWest Plaza, Shoppes at
Quarterfield, Larkspur Landing, North Ranch Pavilion, La Plaza Del Norte,
MacArthur Crossing, Promenade at Red Cliff, Peoria Crossings, Dorman Center
- Phase I, Heritage Towne Crossing, Paradise Valley Marketplace, Best on the
Boulevard, Bluebonnet Parc, North Rivers Town Center, 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, Northgate North, Davis Towne Crossing,
Fullerton Metrocenter, The Shops at Boardwalk, Cranberry Square, Tollgate
Marketplace, Gateway Village, Towson Circle, Gateway Plaza, Plaza at
Marysville, Forks Town Center, Reisterstown Road Plaza, Manchester Meadows,
Governor's Marketplace, Mitchell Ranch Plaza, The Columns, Saucon Valley
Square, Lincoln Park, Boulevard at the Capital Centre, Denton Crossing,
Azalea Square, Plaza at Riverlakes, Gurnee Town Centre, Mansfield Towne
Crossing, Winchester Commons, Fox Creek Village, Oswego Commons, University
Town Center, Edgemont Town Center, Placentia Town Center, Gateway Pavilions,
Northwoods Center, Southlake Town Square, Evans Towne Centre and Irmo
Station.
The following properties did not require audits in accordance with Rule 3-14 of
Regulation S-X:
CVS Pharmacy (Eckerds) - Edmond, CVS Pharmacy (Eckerds) - Norman, Shaw's
Supermarket - New Britain, Eckerds - Greer, Eckerds - Kill Devil Hills, Eckerds
- Columbia, Eckerds - 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 - Sylacauga, Academy Sports -
Midland, and Zurich Towers did not require 3-14 audits as these are
single-tenant properties. Stony Creek Marketplace did not require a 3-14 audit
as the property was complete in 2003 and there were no significant operations
F-70
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003
(unaudited)
prior to our acquisition. Alison's Corner, Shoppes of Prominence Point, Low
Country Village, Shoppes of Dallas, Village Shoppes at Simonton, Harvest Town
Center, Bed Bath & Beyond Plaza, Lake Mary Pointe, Publix Center, Five Forks,
and Gateway Station did not require 3-14 audits as the properties were completed
in 2004 and there were no significant operations in 2003. Pacheco Pass and
Quakertown did not require 3-14 audits as the properties were completed in 2004
and there were no significant operations prior to our funding of the notes
receivables.
F-71
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003
(unaudited)
(C) Total pro forma adjustments for acquisitions consummated as of December 17,
2004 are as though the properties were acquired January 1, 2003. No pro
forma adjustments were made for the CVS Pharmacy - Edmond and the CVS
Pharmacy - Norman as the properties were completed in 2003 and there were no
significant operations prior to our acquisition. No pro forma adjustments
were made for Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd - Columbia,
Eckerd - Crossville, Shoppes of Prominence Point, Low Country Village,
Shoppes of Dallas, Kohl's - Wilshire Plaza III, Dorman Center - Phase II,
Academy Sports - Houma, Village Shoppes at Simonton, Bed, Bath & Beyond
Plaza, The Columns - Phase II, Academy Sports - Port Arthur, CVS Pharmacy -
Sylacauga, Academy Sports - Midland, Publix Center and Gateway Station as
the properties were completed in 2004 and there were no significant
operations in 2003. 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 our
funding of the notes receivable.
Gross Income
& Direct Total
Operating Pro Forma Pro Forma
Expenses (1) Adjustments Adjustments
---------------------------------------------
Rental income $ 46,899,000 (120,000) 46,779,000
Tenant recovery income 1,047,000 - 1,047,000
---------------------------------------------
Total revenues 47,946,000 (120,000) 47,826,000
---------------------------------------------
Advisor asset management fee - - -
Property operating expenses 1,135,000 2,158,000 3,293,000
Depreciation and amortization - 18,603,000 18,603,000
Interest expense - 17,843,000 17,843,000
---------------------------------------------
Total expenses 38,604,000 39,739,000
---------------------------------------------
Net income (loss) $ 46,811,000 (38,724,000) 8,087,000
=============================================
(1) Unaudited combined gross income and direct operating expenses based on
information provided by the Seller for the following properties:
Stony Creek Marketplace, Shaw's Supermarket (New Britain), Alison's Corner,
Harvest Towne Center, Lake Mary Pointe, Five Forks and Shops at Forest
Commons.
Gross rental income based on information provided by tenant net leases for
the following properties:
Wal-Mart Supercenter - Blytheville, Wrangler Company Western Headquarters,
Wal-Mart Supercenter - Jonesboro, Harris Teeter - Wilmington, GMAC
Insurance, Zurich Towers and the American Express portfolio.
F-72
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003
(unaudited)
(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 and in-place lease
intangibles 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, 2003 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 value of the acquired leases will be amortized over the lease term.
(I) The pro forma adjustments relating to interest expense were based on the
following debt terms:
Principal Interest Maturity
Property Balance Rate Date
--------------------------------------------------------------------------------------
Darien Towne Center 16,500,000 4.650% 06/10
CVS Pharmacy - Edmond 1,850,000 4.374% 06/09
CVS Pharmacy - Norman 2,900,000 4.374% 06/09
Newnan Crossing 23,766,100 4.380% 03/09
Shops at Park Place 13,127,000 4.710% 11/08
Pavilion at King's Grant 5,342,000 4.390% 05/09
Shaw's Supermarket - New Britain 6,450,000 4.680% 11/28
Stony Creek Marketplace 14,162,000 4.770% 01/11
CorWest Plaza 18,150,000 4.560% 02/09
Hickory Ridge 23,650,000 4.531% 02/09
Larkspur Landing 33,630,000 4.450% 02/09
North Ranch Pavilion 10,157,000 4.120% 04/09
Shoppes at Quarterfield 6,067,000 4.280% 04/09
La Plaza Del Norte 32,528,000 4.610% 03/10
MacArthur Crossing 12,700,000 4.290% 05/09
Promenade at Red Cliff 10,590,000 4.290% 05/09
Dorman Center - Phase I and Phase II 27,610,000 4.180% 05/09
Peoria Crossings 20,497,000 4.090% 04/09
Heritage Towne Crossing 8,950,000 4.374% 06/09
Paradise Valley Marketplace 15,681,000 4.550% 05/09
Best on the Boulevard 19,525,000 3.990% 05/09
F-73
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003
(unaudited)
Principal Interest Maturity
Property Balance Rate Date
--------------------------------------------------------------------------------------
Bluebonnet Parc 12,100,000 4.372% 05/09
North Rivers Town Center 11,050,000 4.760% 05/09
Alison's Corner 3,850,000 4.272% 06/10
Arvada Marketplace and Arvada Connection 28,510,000 4.130% 07/09
Eastwood Towne Center 46,750,000 4.640% 07/09
Watauga Pavilion 17,100,000 4.140% 06/10
Northpointe Plaza 30,850,000 4.272% 05/09
Plaza Santa Fe II 17,474,500 6.200% 12/12
Eckerds Drug Stores (4) 6,800,000 5.275% 08/09
Pine Ridge Plaza 14,700,000 5.085% 08/09
Huebner Oaks Center (Note A) 31,723,000 4.200% 07/10
Huebner Oaks Center (Note B) 16,277,000 3.960% 07/10
John's Creek Village 23,300,000 5.100% 08/09
Lakewood Towne Center (Note A) 44,000,000 2.680% 06/09
Lakewood Towne Center (Note B) 7,260,000 3.830% 07/05
Shoppes of Prominence Point 9,954,300 5.235% 09/09
Northgate North 26,650,000 4.600% 07/08
Davis Towne Crossing 5,365,200 5.185% 09/09
Fullerton Metrocenter 28,050,000 5.090% 08/09
The Shops at Boardwalk 20,150,000 4.130% 08/09
Shoppes of Dallas 7,179,000 4.960% 04/09
Cranberry Square 10,900,000 4.975% 08/09
Tollgate Marketplace 39,765,000 LIBOR +120 07/09
Gateway Village (Note A) 27,233,000 LIBOR + 113 07/09
Gateway Village (Note B) 4,225,000 LIBOR + 200 08/05
Towson Circle (Note A) 15,647,500 5.100% 07/09
Towson Circle (Note B) 3,550,000 LIBOR + 200 08/05
Wal-Mart Supercenter - Blytheville 7,100,000 4.390% 09/09
Gateway Plaza 18,163,000 5.100% 09/09
Wrangler Company Western Headquarters 11,300,000 5.090% 08/27
Plaza at Marysville 11,800,000 5.085% 08/09
Forks Town Center 10,395,000 4.970% 09/09
Academy Sports - Houma 2,920,000 5.120% 09/09
Wal-Mart Supercenter - Jonesboro 6,088,500 5.085% 09/09
Reisterstown Road Plaza 49,650,000 5.300% 09/09
Village Shoppes at Simonton 7,562,000 4.960% 10/09
Manchester Meadows 31,065,000 4.480% 09/07
Governor's Marketplace 20,625,000 5.185% 09/09
Mitchell Ranch Plaza 18,700,000 4.480% 10/09
Saucon Valley Square 8,851,000 5.115% 10/09
Boulevard at Capital Centre 71,500,000 5.120% 10/09
GMAC Insurance 33,000,000 4.610% 10/09
Low Country Village 5,370,000 4.960% 10/09
The Columns - Phase I 11,423,000 4.910% 11/09
Lincoln Park 26,153,000 4.610% 11/09
Harris Teeter - Wilmington 3,960,000 4.915% 11/09
F-74
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003
(unaudited)
Principal Interest Maturity
Property Balance Rate Date
--------------------------------------------------------------------------------------
Kohl's - Wilshire Plaza III 5,418,000 5.120% 12/09
Harvest Town Center 5,005,000 4.935% 01/10
Bed Bath & Beyond Plaza 11,193,000 5.170% 12/09
The Columns - Phase II 3,442,000 4.950% 05/09
Denton Crossing 35,200,000 4.300% 01/10
Azalea Square 16,535,000 5.010% 12/09
Lake Mary Pointe 3,658,000 5.170% 12/09
Academy Sports - Port Arthur 2,775,000 5.120% 11/09
Academy Sports - Midland 2,338,000 5.120% 01/10
Mansfield Towne Crossing 10,982,000 5.215% 12/09
Winchester Commons 7,235,000 5.120% 12/09
Oswego Commons 19,262,000 4.750% 12/09
Zurich Towers 81,420,000 4.247% 12/34
Shops at Forest Commons 5,250,000 6.340% 09/13
American Express Portfolio 230,100,000 4.268% 12/09
F-75
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 Shops at Park Place ("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 Post-Effective Amendment No. 1 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 Shops at Park Place for the year ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Chicago, Illinois
November 10, 2003
F-76
SHOPS AT PARK PLACE
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2002 and the nine months ended September 30,
2003 (unaudited)
For the
nine months ended For the year
September 30, 2003 ended
(unaudited) December 31, 2002
---------------------------------------
Gross income:
Base rental income $ 1,437,200 1,908,061
Operating expense and real estate tax recoveries 379,258 483,930
---------------------------------------
Total gross income 1,816,458 2,391,991
---------------------------------------
Direct operating expenses:
Operating expenses 168,382 266,939
Real estate taxes 269,037 326,106
Insurance 27,897 33,813
---------------------------------------
Total direct operating expenses 465,316 626,858
---------------------------------------
Excess of gross income over direct operating expenses $ 1,351,142 1,765,133
=======================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-77
SHOPS AT PARK PLACE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2002 and the nine months ended September 30,
2003
(1) Business
Shops at Park Place (the "Property") is located in Plano, Texas. The Property
consists of approximately 112,478 square feet of gross leasable retail area
which was 100% occupied at December 31, 2002. Three retail tenants account for
approximately 44% of the base retail rental revenue. On October 31, 2003, Inland
Western Retail Real Estate Trust, Inc. (IWRRETI) acquired 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 the Post-Effective Amendment No. 1 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, 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 to tenants pursuant to
the lease agreements. Certain leases contain renewal to options at various
periods at various rental rates. Certain of the leases contain provisions for
contingent rentals.
The Property has one ground lease which is classified as an operating lease with
a term expiring in October 2015. Total ground lease income was $88,297 and is
included in base rental income in the accompanying Historical Summary for the
year ended December 31, 2002.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exists 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 $14,536
for the year ended December 31, 2002.
F-78
SHOPS AT PARK PLACE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2002 and the nine months ended September 30,
2003 (continued)
Minimum rents to be received from tenants under operating leases, which terms
range from rive to sixty years, in effect at December 31, 2002, are as follows:
YEAR TOTAL
---------------------------------------
2003 $ 1,913,069
2004 1,913,416
2005 1,916,724
2006 1,861,396
2007 1,500,007
Thereafter 23,437,097
-------------
Total $ 32,541,709
==============
(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-79
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 Darien Towne Center ("the
Property") for the year ended December 31, 2002. This Historical Summary is the
responsibility of management. 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 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 Darien Towne Center for the year ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Los Angeles, California
December 4, 2003
F-80
DARIEN TOWNE CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2002
(in thousands)
For the year
ended
December 31, 2002
-----------------
Gross income:
rental income $ 2,051
Tenant reimbursements 449
-----------------
Total gross income 2,500
-----------------
Direct operating expenses:
Utilities, maintenance, and repairs 201
Real estate taxes 344
Insurance 35
-----------------
Total direct operating expenses 580
-----------------
Excess of gross income over direct operating expenses $ 1,920
=================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-81
DARIEN TOWNE CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2002
(1) Business
Darien Towne Center (the Property) is a shopping center located in Darien,
Illinois. The Property consists of 217,505 square feet of gross leasable area
and was 95% occupied at December 31, 2002. Approximately 77% of the property's
leasable area is leased to three tenants, Home Depot, Circuit City, and
PetSmart. 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
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,
and insurance costs. Certain leases contain renewal to options at various
periods at various rental rates.
Rental income is recognized using the accrual method based on contractual
amounts provided for in the lease agreements. Rental revenue is recognized on a
straight-line basis over the term of the respective leases.
The following is a schedule of minimum future rental to be received on
noncancelable operating leases as of December 31, 2002 (in thousands):
YEAR TOTAL
---------------------------------------
2003 $ 2,089
2004 1,938
2005 1,452
2006 1,440
2007 1,390
Thereafter 9,148
-------------
Total $ 17,457
=============
F-82
DARIEN TOWNE CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2002 (continued)
(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-83
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F-84
(This page intentionally left blank)
F-85
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 Thomas Enterprises ("the Properties") for the year ended December
31, 2003. This Combined Historical Summary is the responsibility of 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
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 Thomas Enterprises 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 24, 2004
F-86
THE PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES
Combined Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
For the year
ended
December 31, 2003
-----------------
Gross income:
Base rental income $ 2,968,855
Operating expense and real estate tax recoveries 529,344
-----------------
Total gross income 3,498,199
-----------------
Direct operating expenses:
Operating expenses 372,962
Real estate taxes 217,447
Insurance 35,600
-----------------
Total direct operating expenses 626,009
-----------------
Excess of gross income over direct operating expenses $ 2,872,190
=================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-87
PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES
Notes to Combined Historical Summary of Gross Income and Direct Operating
Expenses
For the year ended December 31, 2003
(1) Business
The Properties Acquired from Thomas Enterprises ("the Properties") consists of
the following:
Gross Occupancy at
Leasable December 31,
Area 2003
Name (unaudited) Location (unaudited)
--------------------------------------------------------------------------------------------
Pavilion at King's Grant 79,909 Concord, North Carolina 100%
Newnan Crossing I and II 288,284 Newnan, Georgia 100%
Two tenants account for 41% of the Properties' base rental income.
Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Pavilion
at King's Grant on December 30, 2003, Newnan Crossing on December 23, 2003 and
Newnan Crossing Phase II on February 13, 2004, from Thomas Enterprises, an
unaffiliated party. The Historical Summary represents the combination of the
Properties described above since the Properties are all owned by Thomas
Enterprises.
A portion of Pavilion at King's Grant and Newnan Crossing (representing
approximately 71,000 square feet and 275,800 square feet, respectively,) of the
Properties' gross leasable area was completed as of December 31, 2002. The
remaining portion of the Properties' gross leasable area (representing the
remaining approximately 8,000 square feet and 12,400 square feet, respectively,)
was under construction and completed during 2003.
(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 Properties' revenues and expenses. The 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.
(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, 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. 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 Properties have five ground leases which are classified as operating leases
with terms ranging through February 2014. Total ground lease income was $363,323
and is included in base rental income in the accompanying Historical Summary for
the year ended December 31, 2003.
F-88
PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES
Notes to Combined Historical Summary of Gross Income and Direct Operating
Expenses
For the year ended December 31, 2003
(continued)
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exists 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
$294,000 for the year ended December 31, 2003.
Minimum rents to be received from tenants under operating leases, which terms
range from five to twenty years in effect at December 31, 2003, are as follows:
YEAR TOTAL
---------------------------------------
2004 $ 3,537,586
2005 3,396,343
2006 3,351,239
2007 3,155,649
2008 3,124,333
Thereafter 22,863,275
-------------
Total $ 39,428,425
=============
(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-89
STONY CREEK MARKETPLACE
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 (unaudited)
For the
year ended
December 31, 2003
(unaudited)
-----------------
Gross income:
Base rental income $ 393,702
Operating expense and real estate tax recoveries 130,140
-----------------
Total gross income 523,842
-----------------
Direct operating expenses:
Property operating expenses 98,974
-----------------
Total direct operating expenses 98,974
-----------------
Excess of gross income over direct operating expenses $ 424,868
=================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-90
STONY CREEK MARKETPLACE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 (unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 has been prepared from the operating statements
provided by the owners of the property during that period and requires
management of Stony Creek Marketplace 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, 2003.
F-91
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 Hickory Ridge ("the Property") for
the year ended December 31, 2003. This Historical Summary is the responsibility
of 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 Post-Effective Amendment No. 3 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 Hickory Ridge for the year ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
March 2, 2004
F-92
HICKORY RIDGE
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
For the year
ended
December 31, 2003
-----------------
Gross income:
Base rental income $ 3,633,058
Operating expense and real estate tax recoveries 447,314
-----------------
Total gross income 4,080,372
-----------------
Direct operating expenses:
Operating expenses 156,997
Real estate taxes 244,786
Insurance 59,317
-----------------
Total direct operating expenses 461,100
-----------------
Excess of gross income over direct operating expenses $ 3,619,272
=================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-93
HICKORY RIDGE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(1) Business
Hickory Ridge (the Property) is located in Hickory, North Carolina. The Property
consists of 375,587 square feet of gross leasable area and was 100% occupied at
December 31, 2003. The Property is leased to twenty-one tenants of which four
tenants account for approximately 51% of base rental revenue for the year ended
December 31, 2003. On January 9, 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 Post-Effective Amendment No. 3 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 to 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 $25,762 was earned during the year ended December 31, 2003.
In addition, rental income includes $95,959 of rent from one tenant that pays
monthly rent based upon a percentage of monthly sales in lieu of minimum rents
provided in the lease. The minimum rents schedule below excludes such tenant.
The Property has two ground leases that are classified as operating leases with
terms extending through January 2013 and January 2021, respectively. Total
ground lease income was $311,590 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 increase base rental income by $132,919
for the year ended December 31, 2003.
F-94
HICKORY RIDGE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from one to seventeen years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
---------------------------------------
2004 $ 3,393,768
2005 3,053,077
2006 3,065,441
2007 3,016,833
2008 3,019,568
Thereafter 18,476,329
-------------
Total $ 34,025,016
=============
(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-95
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 CorWest Plaza ("the Property") for
the period from May 29, 2003 through December 31, 2003. This Historical Summary
is the responsibility of 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 Post-Effective Amendment No. 3 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 CorWest Plaza for the period from May 29, 2003 through December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America.
KPMG LLP
Chicago, Illinois
March 3, 2004
F-96
CORWEST PLAZA
Historical Summary of Gross Income and Direct Operating Expenses
For the period from May 29, 2003 through December 31, 2003
For the period from
May 29, 2003
through
December 31, 2003
-------------------
Gross income:
Base rental income $ 1,425,025
Operating expense and real estate tax recoveries 424,278
-------------------
Total gross income 1,849,303
-------------------
Direct operating expenses:
Operating expenses 54,893
Real estate taxes 347,412
Insurance 16,407
-------------------
Total direct operating expenses 418,712
-------------------
Excess of gross income over direct operating expenses $ 1,430,591
===================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-97
CORWEST PLAZA
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from May 29, 2003 through December 31, 2003
(1) Business
CorWest Plaza (the Property) is located in New Britain, Connecticut. The
Property consists of approximately 115,011 square feet of gross leasable area
and was 100% occupied at December 31, 2003. The Property is leased to ten
tenants of which four tenants account for approximately 90% of base rental
revenue for the period from May 29, 2003 through December 31, 2003. On January
6, 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 Post-Effective Amendment No. 3 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 As
the Property was acquired by the seller on May 29, 2003, financial statements
were not available prior to such date. As such, the Historical Summary includes
only operations for the period from May 29, 2003 through December 31, 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 to tenants pursuant to
the lease agreements. Certain leases contain renewal to 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 from the period from May 29, 2003 through December 31, 2003.
The Property has 3 ground leases that are classified as operating leases with
terms extending through May 2028. Total ground lease income was $1,225,693 and
is included in base rental income in the accompanying Historical Summary for the
period from May 29, 2003 through December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exists 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 $44,806
for the period from May 29, 2003 through December 31, 2003.
F-98
CORWEST PLAZA
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from May 29, 2003 through December 31, 2003
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from 48 months to 25 years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
---------------------------------------
2004 $ 2,612,698
2005 2,594,038
2006 2,464,015
2007 2,416,598
2008 2,433,616
Thereafter 40,960,776
-------------
Total $ 53,481,742
=============
(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-99
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 Metro Square Center (SuperValue)
("the Property") for the year ended December 31, 2003. This Historical Summary
is the responsibility of 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 Post-Effective Amendment No. 3 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 Metro Square Center (SuperValue) for the year ended December 31, 2003,
in conformity with accounting principles generally accepted in the United States
of America.
KPMG LLP
Chicago, Illinois
March 3, 2004
F-100
METRO SQUARE CENTER (SUPERVALUE)
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
For the year
ended
December 31, 2003
-----------------------
Gross income:
Base rental income $ 949,573
Operating expense and real estate tax recoveries 125,792
-----------------------
Total gross income 1,075,365
-----------------------
Direct operating expenses:
Operating expenses 59,440
Real estate taxes 47,018
Insurance 18,815
-----------------------
Total direct operating expenses 125,273
-----------------------
Excess of gross income over direct operating expenses $ 950,092
=======================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-101
METRO SQUARE CENTER (SUPERVALUE)
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(1) Business
Metro Square Center (SuperValue) (the Property) is located in Severn, Maryland.
The Property consists of approximately 62,000 square feet of gross leasable area
and was 100% occupied at December 31, 2003. The Property is leased to three
tenants of which one tenant accounts for approximately 91% of base rental
revenue for the year ended December 31, 2003. On January 22, 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 Post-Effective Amendment No. 3 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 to options at various
periods at various rental rates. Certain of the leases contain provisions 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.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exists 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 $54,197
for the year ended December 31, 2003.
F-102
METRO SQUARE CENTER (SUPERVALUE)
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from five to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
------------------------------------------------
2004 $ 897,786
2005 922,082
2006 902,574
2007 904,327
2008 844,146
Thereafter 10,010,898
-----------------
Total $ 14,481,813
=================
(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-103
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 Larkspur Landing, ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No. 3 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 Larkspur Landing, 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 26, 2004
F-104
LARKSPUR LANDING
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
For the year
ended
December 31, 2003
---------------------
Gross income:
Base rental income $ 4,735,363
Operating expense and real estate tax recoveries 1,055,794
---------------------
Total gross income 5,791,157
---------------------
Direct operating expenses:
Operating expenses 707,903
Real estate taxes 336,380
Insurance 236,462
---------------------
Total direct operating expenses 1,280,745
---------------------
Excess of gross income over direct operating expenses $ 4,510,412
=====================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-105
LARKSPUR LANDING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(1) Business
Larkspur Landing, (the Property) is located in Larkspur, California. The
Property consists of approximately 173,800 square feet of gross leasable area
and was approximately 91% occupied at December 31, 2003. The Property is leased
to thirty-seven tenants of which four tenants account for approximately 62% of
base rental revenue for the year ended December 31, 2003. On January 14, 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 Post-Effective Amendment No. 3 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 to options at various
periods at various rental rates. Certain of the leases contain provisions for
contingent rentals. Recognition of contingent rental income is deferred until
the target that triggers the contingent rental income is achieved. Contingent
rent of $339,129 was earned during 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 exists 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
$171,513 for the year ended December 31, 2003.
F-106
LARKSPUR LANDING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from 1 to 15 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
--------------------------------------------------
2004 $ 4,305,051
2005 3,779,574
2006 3,409,006
2007 2,769,297
2008 2,410,278
Thereafter 13,617,128
-------------------
Total $ 30,290,334
===================
(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-107
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 North Ranch Pavilion ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No. 3 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 North Ranch Pavilion 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 25, 2004
F-108
NORTH RANCH PAVILION
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
For the year
ended
December 31, 2003
-----------------------
Gross income:
Base rental income $ 1,100,047
Operating expense and real estate tax recoveries 322,680
-----------------------
Total gross income 1,422,727
-----------------------
Direct operating expenses:
Operating expenses 210,864
Real estate taxes 129,164
Insurance 33,635
-----------------------
Total direct operating expenses 373,663
-----------------------
Excess of gross income over direct operating expenses $ 1,049,064
=======================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-109
NORTH RANCH PAVILION
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(1) Business
North Ranch Pavilion (the Property) is located in Thousand Oaks, California. The
Property consists of approximately 63,000 square feet of gross leasable area and
was approximately 91% occupied at December 31, 2003. The Property is leased to
twenty-seven tenants of which three tenants account for approximately 34% of
base rental revenue for the year ended December 31, 2003. On January 15, 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 Post-Effective Amendment No. 3 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 to 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.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exists 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 $39,515
for the year ended December 31, 2003.
F-110
NORTH RANCH PAVILION
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from three to 14 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
---------------------------------------------------
2004 $ 1,308,503
2005 1,187,162
2006 1,196,362
2007 768,560
2008 665,216
Thereafter 2,245,095
--------------------
Total $ 7,370,898
====================
(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-111
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 La Plaza Del Norte ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No. 3 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 La Plaza Del Norte 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 26, 2004
F-112
LA PLAZA DEL NORTE
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
For the year
ended
December 31, 2003
-----------------------
Gross income:
Base rental income $ 4,003,605
Operating expense and real estate tax recoveries 1,421,860
-----------------------
Total gross income 5,425,465
-----------------------
Direct operating expenses:
Operating expenses 240,045
Real estate taxes 1,199,850
Insurance 84,577
-----------------------
Total direct operating expenses 1,524,472
-----------------------
Excess of gross income over direct operating expenses $ 3,900,993
=======================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-113
LA PLAZA DEL NORTE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(1) Business
La Plaza Del Norte (the Property) is located in San Antonio, Texas. The Property
consists of approximately 320,000 square feet of gross leasable area and was
approximately 96% occupied at December 31, 2003. The Property is leased to
eighteen tenants of which two tenants account for approximately 41% of base
rental revenue for the year ended December 31, 2003. On January 21, 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 Post-Effective Amendment No. 3 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 to 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 $827 was earned during 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 exists 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 $72,859
for the year ended December 31, 2003.
F-114
LA PLAZA DEL NORTE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from five to twenty years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 4,113,332
2005 4,070,499
2006 3,942,489
2007 3,358,048
2008 3,258,479
Thereafter 14,294,929
-------------------
Total $ 33,037,776
===================
(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-115
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 MacArthur Crossing ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No. 3 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 MacArthur Crossing for the year ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
March 1, 2004
F-116
MACARTHUR CROSSING
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
For the year
ended
December 31, 2003
-----------------------
Gross income:
Base rental income $ 1,760,907
Operating expense and real estate tax recoveries 608,826
-----------------------
Total gross income 2,369,733
-----------------------
Direct operating expenses:
Operating expenses 249,689
Real estate taxes 400,391
Insurance 48,208
-----------------------
Total direct operating expenses 698,288
-----------------------
Excess of gross income over direct operating expenses $ 1,671,445
=======================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-117
MACARTHUR CROSSING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(1) Business
MacArthur Crossing (the Property) is located in Las Colinas, Texas. The Property
consists of 111,035 square feet of gross leasable area and was approximately 98%
occupied at December 31, 2003. The Property is leased to twenty-nine tenants of
which seven tenants account for approximately 54% of base rental revenue for the
year ended December 31, 2003. On February 5, 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 Post-Effective Amendment No. 3 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 to 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 $14,807 was earned during 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 exists 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 $4,655
for the year ended December 31, 2003.
F-118
MACARTHUR CROSSING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from five to twenty years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
--------------------------------------------------
2004 $ 1,771,533
2005 1,713,801
2006 1,290,824
2007 809,370
2008 678,292
Thereafter 2,761,095
-------------------
Total $ 9,024,915
===================
(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-119
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 Promenade at Red Cliff ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No. 3 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 Promenade at Red Cliff for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Chicago, Illinois
March 5, 2004
F-120
PROMENADE AT RED CLIFF
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
For the year
ended
December 31, 2003
-----------------------
Gross income:
Base rental income $ 1,250,480
Operating expense and real estate tax recoveries 237,743
-----------------------
Total gross income 1,488,223
-----------------------
Direct operating expenses:
Operating expenses 136,724
Real estate taxes 113,395
Insurance 38,288
-----------------------
Total direct operating expenses 288,407
-----------------------
Excess of gross income over direct operating expenses $ 1,199,816
=======================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-121
PROMENADE AT RED CLIFF
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(1) Business
Promenade at Red Cliff (the Property) is located in St. George, Utah. The
Property consists of 94,947 square feet of gross leasable area and was
approximately 97% occupied at December 31, 2003. The Property is leased to
twenty-tenants of which four tenants account for approximately 61% of base
rental revenue for the year ended December 31, 2003. On February 13, 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 Post-Effective Amendment No. 3 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 to 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 $21,297 was earned during 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 exists 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 $1,622
for the year ended December 31, 2003.
F-122
PROMENADE AT RED CLIFF
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from 10 months to fifteen years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
--------------------------------------------------
2004 $ 1,468,781
2005 1,513,674
2006 1,526,952
2007 1,149,127
2008 852,421
Thereafter 921,631
-------------------
Total $ 7,432,586
===================
(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-123
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 Crossings ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No. 3 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 Peoria Crossing 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 25, 2004
F-124
PEORIA CROSSINGS
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
For the year
ended
December 31, 2003
-----------------------
Gross income:
Base rental income $ 2,247,654
Operating expense and real estate tax recoveries 367,902
-----------------------
Total gross income 2,615,556
-----------------------
Direct operating expenses:
Operating expenses 158,120
Real estate taxes 212,946
Insurance -
-----------------------
Total direct operating expenses 371,066
-----------------------
Excess of gross income over direct operating expenses $ 2,244,490
=======================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-125
PEORIA CROSSINGS
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(1) Business
Peoria Crossings (the Property) is located in Peoria, Arizona. The Property
consists of approximately 213,500 square feet of gross leasable area and was
approximately 97% occupied at December 31, 2003. The Property is leased to
twenty-one tenants of which five tenants account for approximately 59% of base
rental revenue for the year ended December 31, 2003. Inland Western Retail Real
Estate Trust, Inc. ("IWRRETI") has signed a sale and purchase agreement for the
purchase of the Property from an unaffiliated third-party ("Seller").
The Property commenced operations in 2002 with a portion of Peoria Crossings
(representing approximately 207,500 square feet) of the Properties' gross
leasable area complete as of December 31, 2003. The remaining portion of the
Properties' gross leasable area (representing the remaining approximately 6, 000
square feet) is under construction and scheduled to be completed during 2004.
(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 Post-Effective Amendment No. 3 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 to 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.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exists 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
$780,986 for the year ended December 31, 2003.
F-126
PEORIA CROSSINGS
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from five to twenty-one years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
---------------------------------------------------
2004 $ 2,584,513
2005 2,606,123
2006 2,613,453
2007 2,623,407
2008 2,245,206
Thereafter 17,152,265
-------------------
Total $ 29,824,967
===================
(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-127
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 Dorman Centre ("the Property") for
the year ended December 31, 2003. This Historical Summary is the responsibility
of 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 Post-Effective Amendment No. 3 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 Dorman Centre 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 25, 2004
F-128
DORMAN CENTRE
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
For the year
ended
December 31, 2003
-----------------------
Gross income:
Base rental income $ 1,195,938
Operating expense and real estate tax recoveries 83,579
-----------------------
Total gross income 1,279,517
-----------------------
Direct operating expenses:
Operating expenses 37,886
Real estate taxes 51,474
Insurance 9,656
-----------------------
Total direct operating expenses 99,016
-----------------------
Excess of gross income over direct operating expenses $ 1,180,501
=======================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-129
DORMAN CENTRE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(1) Business
Dorman Centre (the Property) is located in Spartanburg, South Carolina. The
Property consists of approximately 388,000 square feet of gross leasable area
and was approximately 90% occupied at December 31, 2003. The Property is leased
to twenty-one tenants of which four tenants account for approximately 77% of
base rental revenue for the year ended December 31, 2003. On March 4, 2004,
Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property
from an unaffiliated third party.
The Property commenced operations on July 1, 2003 with a portion of Dorman
Center (representing approximately 348,000 square feet) complete as of December
31, 2003. The remaining portion (representing the remaining approximately 40,000
square feet) is under construction and scheduled to be completed during the
first quarter of 2004.
(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 Post-Effective Amendment No. 3 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 to 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.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exists 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 $4,778
for the year ended December 31, 2003.
F-130
DORMAN CENTRE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from three to twenty years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
---------------------------------------------------
2004 $ 3,504,788
2005 3,540,088
2006 3,513,673
2007 3,430,584
2008 3,313,461
Thereafter 30,804,111
-------------------
Total $ 48,106,705
===================
(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-131
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 Heritage Towne Crossing ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No. 3 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 Heritage Towne Crossing for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Chicago, Illinois
March 3, 2004
F-132
HERITAGE TOWNE CROSSING
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
For the year
ended
December 31, 2003
-----------------------
Gross income:
Base rental income $ 876,078
Operating expense and real estate tax recoveries 198,515
-----------------------
Total gross income 1,074,593
-----------------------
Direct operating expenses:
Operating expenses 106,131
Real estate taxes 211,070
Insurance 21,825
-----------------------
Total direct operating expenses 339,026
-----------------------
Excess of gross income over direct operating expenses $ 735,567
=======================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-133
HERITAGE TOWN CROSSING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(1) Business
Heritage Towne Crossing (the Property) is located in Euless, Texas. The Property
consists of 80,730 square feet of gross leasable area and was approximately 81%
occupied at December 31, 2003. The Property is leased to twenty-five tenants of
which five tenants account for approximately 40% of base rental revenue for the
year ended December 31, 2003. On March 5, 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 Post-Effective Amendment No. 3 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 to options at various
periods at various rental rates.
The Property has two ground leases that are classified as operating leases with
terms extending through September, 2023. Total ground lease income was $44,417
and is included in base rental income int he 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 exists 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 $15,184
for the year ended December 31, 2003.
F-134
HERITAGE TOWNE CROSSING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from three to twenty years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
---------------------------------------------------
2004 $ 1,289,587
2005 1,300,384
2006 1,292,499
2007 1,069,311
2008 653,115
Thereafter 2,698,001
-------------------
Total $ 8,302,897
===================
(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-135
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 Paradise Valley Marketplace ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No 4 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 Paradise Valley Marketplace for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Chicago, Illinois
May 21, 2004
F-136
PARADISE VALLEY MARKETPLACE
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)
For the For the year
three months ended ended
March 31, 2004 December 31, 2003
------------------------------------------------
(unaudited)
Gross income:
Base rental income $ 449,832 1,486,785
Operating expense and real estate tax recoveries 54,799 219,877
-----------------------------------------------
Total gross income 504,631 1,706,662
-----------------------------------------------
Direct operating expenses:
Operating expenses 26,470 130,116
Real estate taxes 47,629 181,118
Insurance 7,942 30,256
-----------------------------------------------
Total direct operating expenses 82,041 341,490
-----------------------------------------------
Excess of gross income over direct operating expenses $ 422,590 1,365,172
===============================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-137
PARADISE VALLEY MARKETPLACE
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)
(1) Business
Paradise Valley Marketplace (the Property) is located in Phoenix, Arizona. The
Property consists of approximately 138,627 square feet of gross leasable area
and was 81% occupied at December 31, 2003. The Property is leased to two tenants
that account for approximately 41% of base rental revenue for the year ended
December 31, 2003. On April 8, 2004, Inland Western Retail Real Estate Trust,
Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller.
(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 Post-Effective Amendment No. 4 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the three months ended March 31, 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,
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.
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 $46,680
for the year ended December 31, 2003.
F-138
PARADISE VALLEY MARKETPLACE
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 (continued) (unaudited)
Minimum rents to be received from tenants under operating leases which terms
range from five to twenty years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
---------------------------------------------------
2004 $ 1,847,829
2005 1,860,272
2006 1,852,512
2007 1,596,997
2008 1,368,899
Thereafter 10,350,861
-------------------
$ 18,877,370
===================
(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-139
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 Best on the Boulevard ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No 4 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 Best on the Boulevard for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Chicago, Illinois
June 14, 2004
F-140
BEST ON THE BOULEVARD
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)
For the For the year
three months ended ended
March 31, 2004 December 31, 2003
------------------------------------------------
(unaudited)
Gross income:
Base rental income $ 777,350 2,946,442
Operating expense and real estate tax recoveries 48,915 196,720
------------------------------------------------
Total gross income 826,265 3,143,162
------------------------------------------------
Direct operating expenses:
Operating expenses 67,731 197,234
Real estate taxes 20,288 77,799
Insurance 10,133 56,336
------------------------------------------------
Total direct operating expenses 98,152 331,369
------------------------------------------------
Excess of gross income over direct operating expenses $ 728,113 2,811,793
================================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-141
BEST ON THE BOULEVARD
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)
(1) Business
Best on the Boulevard (the Property) is located in Las Vegas, Nevada. The
Property consists of approximately 204,000 square feet of gross leasable area
and was 98% occupied at December 31, 2003. The Property is leased to four
tenants that account for approximately 70% of base rental revenue for the year
ended December 31, 2003. On April 14, 2004, Inland Western Retail Real Estate
Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party
seller.
(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 Post-Effective Amendment No. 4 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the three months ended March 31, 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,
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
$152,725 was earned during 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 $21,111
for the year ended December 31, 2003.
Gross income excludes lease buy-out income as such amounts are not comparable to
the proposed future operations of the property.
F-142
BEST ON THE BOULEVARD
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 (continued) (unaudited)
Minimum rents to be received from tenants under operating leases which terms
range from one to eleven years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
---------------------------------------------------
2004 $ 2,777,000
2005 2,615,000
2006 2,657,000
2007 2,705,000
2008 2,732,000
Thereafter 10,162,000
-------------------
$ 23,648,000
===================
(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-143
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 Bluebonnet Parc ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No 4 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 Bluebonnet Parc for the year ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
June 14, 2004
F-144
BLUEBONNET PARC
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)
For the For the year
three months ended ended
March 31, 2004 December 31, 2003
------------------------------------------------
(unaudited)
Gross income:
Base rental income $ 405,509 1,680,019
Operating expense and real estate tax recoveries 54,952 247,837
------------------------------------------------
Total gross income 460,461 1,927,856
------------------------------------------------
Direct operating expenses:
Operating expenses 28,732 102,120
Real estate taxes 31,210 124,838
Insurance 11,103 44,410
------------------------------------------------
Total direct operating expenses 71,045 271,368
------------------------------------------------
Excess of gross income over direct operating expenses $ 389,416 1,656,488
================================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-145
BLUEBONNET PARC
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)
(1) Business
Bluebonnet Parc (the Property) is located in Baton Rouge, Louisiana. The
Property consists of approximately 135,000 square feet of gross leasable area
and was approximately 89% occupied at December 31, 2003. The Property is leased
to two tenants that account for approximately 58% of base rental revenue for the
year ended December 31, 2003. On April 22, 2004, Inland Western Retail Real
Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated
third-party seller.
(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 Post-Effective Amendment No. 4 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the three months ended March 31, 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,
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.
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 $58,881
for the year ended December 31, 2003.
F-146
BLUEBONNET PARC
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 (continued) (unaudited)
Minimum rents to be received from tenants under operating leases which terms
range from one to seventeen years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
---------------------------------------------------
2004 $ 1,621,138
2005 1,621,138
2006 1,621,138
2007 1,632,710
2008 1,671,590
Thereafter 9,990,092
-------------------
$ 18,157,806
===================
(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-147
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 North Rivers Town Center ("the
Property") for the period of October 1, 2003 (commencement of operations) to
December 31, 2003. This Historical Summary is the responsibility of 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 Post-Effective Amendment No 4 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 North Rivers Town Center for the period of October 1, 2003
(commencement of operations) to December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
May 25, 2004
F-148
NORTH RIVERS TOWN CENTER
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)
For the period of
October 1, 2003
For the three (commencement of
months ended operations) to
March 31, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 475,837 119,006
Operating expense and real estate tax recoveries 41,591 49,926
-------------------------------------
Total gross income 517,428 168,932
-------------------------------------
Direct operating expenses:
Operating expenses 38,133 53,201
Real estate taxes 12,136 46,233
-------------------------------------
Total direct operating expenses 50,269 99,434
-------------------------------------
Excess of gross income over direct operating expenses $ 467,159 69,498
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-149
NORTH RIVERS TOWN CENTER
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)
(1) Business
North Rivers Town Center (the Property) is located in Charleston, South
Carolina. The Property consists of approximately 141,167 square feet of gross
leasable area and was 53% occupied at December 31, 2003. The Property is leased
to six tenants of which three account for approximately 82% of base rental
revenue for the year ended December 31, 2003. On April 27, 2004, Inland Western
Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an
unaffiliated third-party seller.
(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 Post-Effective Amendment No. 4 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the three months ended March 31, 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,
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 one ground lease that is classified as an operating lease with
terms extending through January 2014. Total ground lease income was $20,097 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 $3,583
for the year ended December 31, 2003.
F-150
NORTH RIVERS TOWN CENTER
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 (continued) (unaudited)
Minimum rents to be received from tenants under operating leases which terms
range from three to ten years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 1,507,058
2005 1,635,570
2006 1,647,145
2007 1,627,461
2008 1,616,978
Thereafter 7,128,154
---------------------
$ 15,162,366
=====================
(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-151
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 Arvada Marketplace and Connection
("the Property") for the year ended December 31, 2003. This Historical Summary
is the responsibility of 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 Post-Effective Amendment No 4 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 Arvada Marketplace and Connection for the year ended December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America.
KPMG LLP
Chicago, Illinois
June 8, 2004
F-152
ARVADA MARKETPLACE AND CONNECTION
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)
For the For the year
three months ended ended
March 31, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 864,350 3,609,715
Contingent rent - 152,934
Operating expense and real estate tax recoveries 271,869 1,118,604
-------------------------------------
Total gross income 1,136,219 4,881,253
-------------------------------------
Direct operating expenses:
Operating expenses 123,217 513,159
Real estate taxes 276,372 1,105,488
Insurance 8,660 32,699
-------------------------------------
Total direct operating expenses 408,249 1,651,346
-------------------------------------
Excess of gross income over direct operating expenses $ 727,970 3,229,907
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-153
ARVADA MARKETPLACE AND CONNECTION
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)
(1) Business
Arvada Marketplace and Connection ("the Property) is located in Arvada,
Colorado. The Property consists of approximately 528,000 square feet of gross
leasable area and was approximately 67% occupied at December 31, 2003. The
Property is leased to four tenants that account for approximately 53% of base
rental revenue for the year ended December 31, 2003. On April 29, 2004, Inland
Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an
unaffiliated third-party seller.
(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 Post-Effective Amendment No. 4 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the three months ended March 31, 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,
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
$152,934 was earned during 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 $482
for the year ended December 31, 2003.
F-154
ARVADA MARKETPLACE AND CONNECTION
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)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from three to twenty years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 3,451,409
2005 3,315,310
2006 3,049,468
2007 2,882,800
2008 2,210,180
Thereafter 5,724,575
---------------------
$ 20,633,742
=====================
(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-155
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 Eastwood Town Center ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No 4 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 Eastwood 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
June 8, 2004
F-156
EASTWOOD TOWN CENTER
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)
For the For the year
three months ended ended
March 31, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 1,652,801 6,251,312
Contingent rent - 10,123
Operating expense and real estate tax recoveries 281,464 1,309,884
------- ---------- -----------------
Total gross income 1,934,265 7,571,319
------- ---------- -----------------
Direct operating expenses:
Operating expenses 286,259 1,214,244
Real estate taxes 58,697 234,786
Insurance 40,338 161,355
------- ---------- -----------------
Total direct operating expenses 385,294 1,610,385
------- ---------- -----------------
Excess of gross income over direct operating expenses $ 1,548,971 5,960,934
================= =================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-157
EASTWOOD TOWN CENTER
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)
(1) Business
Eastwood Town Center (the Property) is located in Lansing, Michigan. The
Property consists of approximately 334,500 square feet of gross leasable area
and was approximately 98% occupied at December 31, 2003. The Property is leased
to four tenants that account for approximately 19% of base rental revenue for
the year ended December 31, 2003. On May 13, 2004, Inland Western Retail Real
Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated
third-party seller.
(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 Post-Effective Amendment No. 4 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the three months ended March 31, 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,
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
$10,123 was earned during the year ended December 31, 2003.
In addition, rental income includes $135,059 of rent from one tenant that pays
monthly rent based upon a percentage of monthly sales in lieu of minimum rents
provided in the lease. The minimum rents schedule below excludes such tenant.
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
$236,890 for the year ended December 31, 2003.
F-158
EASTWOOD TOWN CENTER
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)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from five to fifteen years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 6,347,034
2005 6,364,074
2006 6,389,942
2007 6,409,218
2008 6,354,825
Thereafter 31,443,155
---------------------
$ 63,308,248
=====================
(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-159
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 Watauga Pavilion ("the Property")
for the period of August 15, 2003 (commencement of operations) to December 31,
2003. This Historical Summary is the responsibility of 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 Post-Effective Amendment No 4 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 Watauga Pavilion for the period of August 15, 2003 (commencement of
operations) to December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
May 28, 2004
F-160
WATAUGA PAVILION
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)
For the For the period from
three months ended August 15, 2003 to
March 31, 2004 December 31, 2003
--------------------------------------
(unaudited)
Gross income:
Base rental income $ 547,045 198,325
Operating expense and real estate tax recoveries 122,473 7,110
--------------------------------------
Total gross income 669,518 205,435
--------------------------------------
Direct operating expenses:
Operating expenses 28,568 9,288
Real estate taxes 129,422 8,692
Insurance 9,446 9,446
--------------------------------------
Total direct operating expenses 167,436 27,426
--------------------------------------
Excess of gross income over direct operating expenses $ 502,082 178,009
======================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-161
WATAUGA PAVILION
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period August 15, 2003 (commencement of operations) to December 31, 2003
and the three months ended March 31, 2004 (unaudited)
(1) Business
Watauga Pavilion (the Property) is located in Watauga, Texas. The Property
consists of approximately 205,575 square feet of gross leasable area and was 93%
leased and 43% occupied at December 31, 2003. The Property is leased to three
tenants that account for approximately 49% of base rental revenue for the period
of August 15, 2003 (commencement of operations) to December 31, 2003. On May 21,
2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the
Property.
Watauga Pavilion was under construction during 2003 and commenced operations
August 15, 2003, with a portion of the Property's gross leasable area
(representing approximately 88,300 square feet) complete as of December 31,
2003. The remaining portion of the Property's gross leasable area (representing
the remaining approximately 117,275 square feet) is under construction and
scheduled to be completed during 2004.
(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 Post-Effective Amendment No. 4 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the three months ended March 31, 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,
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 period from August 15, 2003 (commencement of operations) to
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
$157,979 for the period from August 15, 2003 (commencement of operations) to
December 31, 2003.
F-162
WATAUGA PAVILION-
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period August 15, 2003 (commencement of operations) to December 31, 2003
and the three months ended March 31, 2004 (unaudited)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from five to fifteen years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 1,778,694
2005 2,311,353
2006 2,311,555
2007 2,312,565
2008 2,308,121
Thereafter 12,657,110
---------------------
$ 23,679,398
=====================
(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-163
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 Northpointe Plaza ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No 4 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 Northpointe Plaza for the year ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
June 7, 2004
F-164
NORTHPOINTE PLAZA
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)
For the For the year
three months ended ended
March 31, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 1,019,796 4,258,776
- 554,354
Operating expense and real estate tax recoveries 315,392 1,119,324
----------------- -----------------
Total gross income 1,335,188 5,932,454
----------------- -----------------
Direct operating expenses:
Operating expenses 159,522 481,111
Real estate taxes 165,847 663,388
Insurance 22,687 90,748
----------------- -----------------
Total direct operating expenses 348,056 1,235,247
----------------- -----------------
Excess of gross income over direct operating expenses $ 987,132 4,697,207
================= =================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-165
NORTHPOINTE PLAZA
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)
(1) Business
Northpointe Plaza (the Property) is located in Spokane, Washington. The Property
consists of approximately 484,000 square feet of gross leasable area and was
approximately 99.8% occupied at December 31, 2003. The Property is leased to
four tenants that account for approximately 53% of base rental revenue for the
year ended December 31, 2003. On May 28, 2004, Inland Western Retail Real Estate
Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party
seller.
(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 Post-Effective Amendment No. 4 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the three months ended March 31, 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,
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
$554,354 was earned during 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 $62,126
for the year ended December 31, 2003.
Gross income excludes lease termination income as such amounts are not
comparable to the proposed future operations of the Property.
F-166
NORTHPOINTE PLAZA
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)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from one to fourteen years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 4,035,578
2005 3,915,240
2006 3,581,719
2007 3,388,281
2008 3,338,415
Thereafter 18,175,030
---------------------
$ 36,434,263
=====================
(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-167
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 Plaza Santa Fe II ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No 4 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 Plaza Santa Fe II for the year ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
May 25, 2004
F-168
PLAZA SANTA FE II
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)
For the For the year
three months ended ended
March 31, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 811,853 3,110,836
Operating expense and real estate tax recoveries 104,886 504,170
-------------------------------------
Total gross income 916,739 3,615,006
-------------------------------------
Direct operating expenses:
Operating expenses 52,703 319,032
Ground rent expense 107,411 429,643
Real estate taxes 33,162 141,555
Insurance 23,321 64,254
Interest 273,764 1,107,262
-------------------------------------
Total direct operating expenses 490,361 2,061,746
-------------------------------------
Excess of gross income over direct operating expenses $ 426,378 1,553,260
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-169
PLAZA SANTA FE II
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)
(1) Business
Plaza Santa Fe II (the Property) is located in Santa Fe, New Mexico. The
Property consists of approximately 222,400 square feet of gross leasable area
and was approximately 98% occupied at December 31, 2003. The Property is leased
to four tenants that account for approximately 49% of base rental revenue for
the year ended December 31, 2003. On June 1, 2004, Inland Western Retail Real
Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated
third-party seller.
(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 Post-Effective Amendment No. 4 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the three months ended March 31, 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,
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.
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 $81,729
for the year ended December 31, 2003.
F-170
PLAZA SANTA FE II
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)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from three to fifteen years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 3,161,371
2005 3,123,383
2006 3,007,686
2007 2,947,969
2008 2,859,712
Thereafter 15,738,974
---------------------
$ 30,839,095
=====================
(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.
The property is subject to a ground lease with annual payments, payable to an
unaffiliated third party of $375,000 until November 30, 2010, $431,250 until
November 30, 2020 and $495,938 until maturity. The ground lease matures in 2023.
Although the ground lease provided for increases in minimum rent payments over
the term of the lease, ground lease expense accrues on a straight-line basis.
The related adjustment increased ground rent expense by approximately $55,000
for the year ended December 31, 2003.
Minimum rents to be paid to the unaffiliated third party under the ground lease
in effect at December 31, 2003 are as follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 375,000
2005 375,000
2006 375,000
2007 375,000
2008 375,000
Thereafter 8,998,750
---------------------
$ 10,873,750
=====================
(5) Interest Expense
Inland Western Retail Real Estate Trust, Inc. assumed a $17,600,000 mortgage
loan secured by the Property in connection with the acquisition. The mortgage
loan bears a fixed interest rate of 6.2%, payable in monthly installments of
principal and interest, and matures on December 1, 2012.
F-171
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 Pine Ridge Plaza ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No 4 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 Pine Ridge Plaza for the year ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
June 7, 2004
F-172
PINE RIDGE PLAZA
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)
For the For the year
three months ended ended
March 31, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 360,937 1,194,069
Operating expense and real estate tax recoveries 102,740 275,432
-------------------------------------
Total gross income 463,677 1,469,501
-------------------------------------
Direct operating expenses:
Operating expenses 40,336 158,676
Real estate taxes 76,980 307,918
Insurance 4,778 19,110
-------------------------------------
Total direct operating expenses 122,094 485,704
-------------------------------------
Excess of gross income over direct operating expenses $ 341,583 983,797
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-173
PINE RIDGE PLAZA
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)
(1) Business
Pine Ridge Plaza (the Property) is located in Lawrence, Kansas. The Property
consists of approximately 275,800 square feet of gross leasable area and was
approximately 75% occupied at December 31, 2003. The Property is leased to three
tenants that account for approximately 66% of base rental revenue for the year
ended December 31, 2003. On June 7, 2004, Inland Western Retail Real Estate
Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party
seller.
(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 Post-Effective Amendment No. 4 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the three months ended March 31, 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,
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.
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 $49,168
for the year ended December 31, 2003.
Gross income excludes condemnation income as such amounts are not comparable to
the proposed future operations of the Property.
F-174
PINE RIDGE PLAZA
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)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from five to twenty years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 1,408,301
2005 1,414,600
2006 1,330,048
2007 1,167,794
2008 1,061,244
Thereafter 6,934,670
---------------------
$ 13,316,657
=====================
(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-175
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 Huebner Oaks Center ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No 4 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 Huebner Oaks 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
June 7, 2004
F-176
HUEBNER OAKS CENTER
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)
For the For the year
three months ended ended
March 31, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 1,315,356 5,352,653
Operating expense and real estate tax recoveries 467,059 1,853,927
----------------- -----------------
Total gross income 1,782,415 7,206,580
----------------- -----------------
Direct operating expenses:
Operating expenses 175,366 689,252
Real estate taxes 291,585 1,112,014
Insurance 20,174 105,825
----------------- -----------------
Total direct operating expenses 487,125 1,907,091
----------------- -----------------
Excess of gross income over direct operating expenses $ 1,295,290 5,299,489
================= =================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-177
HUEBNER OAKS CENTER
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)
(1) Business
Huebner Oaks Center (the Property) is located in San Antonio, Texas. The
Property consists of approximately 287,000 square feet of gross leasable area
and was approximately 96% occupied at December 31, 2003. The Property is leased
to four tenants that account for approximately 24% of base rental revenue for
the year ended December 31, 2003. On June 8, 2004, Inland Western Retail Real
Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated
third-party seller.
(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 Post-Effective Amendment No. 4 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the three months ended March 31, 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,
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
$474,883 was earned during 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 $48,392
for the year ended December 31, 2003.
F-178
HUEBNER OAKS CENTER
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)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from one to fourteen years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 4,912,549
2005 4,836,548
2006 4,592,763
2007 4,002,328
2008 2,629,263
Thereafter 5,218,634
---------------------
$ 26,192,085
=====================
(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-179
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 John's Creek Village ("the
Property") for the period from September 21, 2003 (commencement of operations)
to December 31, 2003. This Historical Summary is the responsibility of
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. 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 John's Creek Village for the year ended December 31, 2003, in
conformity with principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
August 13, 2004
F-180
JOHN'S CREEK VILLAGE
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)
For the period from
September 21, 2003
For the (commencement of
six months ended operations) to
June 30, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 834,163 143,640
Operating expense and real estate tax recoveries 327,885 11,701
--------------------------------------
Total gross income 1,162,048 155,341
--------------------------------------
Direct operating expenses:
Operating expenses 46,272 22,596
Real estate taxes 340,373 3,764
Insurance 13,215 478
--------------------------------------
Total direct operating expenses 399,860 26,838
--------------------------------------
Excess of gross income over direct operating expenses $ 762,188 128,503
======================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-181
JOHN'S CREEK VILLAGE
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)
(1) Business
John's Creek Village (the Property) is located in Duluth, Georgia. The Property
consists of approximately 190,444 square feet of gross leasable area and was 47%
leased and occupied at December 31, 2003. The Property is leased to eight
tenants of which one tenant accounts for approximately 55% of base rental
revenue for the period from September 21, 2003 (commencement of operations) to
December 31, 2003. On June 23, 2004, Inland Western Retail Real Estate Trust,
Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller.
John's Creek Village was under construction during 2003 and commenced operations
on September 21, 2003 with a portion of the Property's gross leasable area
(representing approximately 90,005 square feet) complete as of December 31,
2003. The remaining portion of the Property's gross leasable area (representing
the remaining approximately 100,439 square feet) is under construction and
scheduled to be completed during 2004.
(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 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, 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,
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 period from September 21, 2003 (commencement of operations) to
December 31, 2003.
The Property has two ground leases that are classified as operating leases with
terms extending through December 31, 2023 and May 31, 2014. Total ground lease
income was $2,054 and is included in base rental income in the accompanying
Historical Summary for the period from September 21, 2003 (commencement of
operations) to 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 $1,473
for the period from September 21, 2003 (commencement of operations) to December
31, 2003.
F-182
JOHN'S CREEK VILLAGE
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)
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from five to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 1,668,326
2005 1,743,692
2006 1,754,959
2007 1,763,747
2008 1,759,391
Thereafter 12,090,223
---------------------
$ 20,780,338
=====================
(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-183
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 Lakewood Towne Center ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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. 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 Lakewood Towne 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
July 15, 2004
F-184
LAKEWOOD TOWNE CENTER
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)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 2,688,280 4,540,210
Contingent Rent - 67,758
Operating expense and real estate tax recoveries 731,788 1,270,667
-------------------------------------
Total gross income 3,420,068 5,878,635
-------------------------------------
Direct operating expenses:
Operating expenses 472,284 741,397
Real estate taxes 313,628 597,386
Insurance 87,680 180,379
-------------------------------------
Total direct operating expenses 873,592 1,519,162
-------------------------------------
Excess of gross income over direct operating expenses $ 2,546,476 4,359,473
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-185
LAKEWOOD TOWNE CENTER
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)
(1) Business
Lakewood Towne Center (the Property) is located in Lakewood, Washington. The
Property consists of approximately 579,000 square feet of gross leasable area
and was approximately 93% occupied at December 31, 2003. The Property is leased
to twenty-four tenants of which five tenants account for approximately 51% of
base rental revenue for the year ended December 31, 2003. On June 25, 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 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, 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,
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
$67,758 was earned during 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
$300,309 for the year ended December 31, 2003.
F-186
LAKEWOOD TOWNE CENTER
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)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from two to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 5,177,316
2005 5,141,493
2006 5,082,303
2007 5,100,379
2008 5,061,449
Thereafter 25,865,016
---------------------
$ 51,427,956
=====================
(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-187
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 Fullerton Metrocenter ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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. 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 Fullerton Metrocenter for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Chicago, Illinois
August 3, 2004
F-188
FULLERTON METROCENTER
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)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 1,639,005 3,523,208
Operating expense and real estate tax recoveries 531,978 971,604
-------------------------------------
Total gross income 2,170,983 4,494,812
-------------------------------------
Direct operating expenses:
Operating expenses 376,538 658,405
Ground lease expense 207,500 415,000
Real estate taxes 178,938 357,876
Insurance 19,569 39,138
-------------------------------------
Total direct operating expenses 782,545 1,470,419
-------------------------------------
Excess of gross income over direct operating expenses $ 1,388,438 3,024,393
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-189
FULLERTON METROCENTER
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)
(1) Business
Fullerton Metrocenter (the Property) is located in Fullerton, California. The
Property consists of approximately 254,880 square feet of gross leasable area
and was approximately 78% occupied at December 31, 2003. The Property is leased
to forty-one tenants of which two tenants account for approximately 19% of base
rental revenue for the year ended December 31, 2003. On June 30, 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 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, 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,
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
$268,823 was earned during the year ended December 31, 2003 and recorded as base
rental income in the accompanying Historical Summary.
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
$143,851 for the year ended December 31, 2003.
F-190
FULLERTON METROCENTER
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)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from one to 17 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 3,518,723
2005 3,284,218
2006 2,801,342
2007 2,405,044
2008 1,754,107
Thereafter 2,995,333
---------------------
$ 16,758,767
=====================
(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.
The property is subject to a ground lease with annual payments, payable to an
unaffiliated third party, of $415,000 until maturity. The ground lease matures
in 2050.
F-191
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 Davis Towne Crossing ("the
Property") for the period from July 18, 2003 (commencement of operations) to
December 31, 2003. This Historical Summary is the responsibility of 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. 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 Davis Towne Crossing for the period of July 18, 2003 (commencement of
operations) to December 31, 2003, in conformity with principles generally
accepted in the United States of America.
KPMG LLP
Chicago, Illinois
July 30, 2004
F-192
DAVIS TOWNE CROSSING
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)
For the period from
July 18, 2003
For the (commencement of
six months ended operations)to
June 30, 2004 December 31, 2003
---------------------------------------
(unaudited)
Gross income:
Base rental income $ 317,309 141,436
Operating expense and real estate tax recoveries 78,451 57,649
Other income 918 -
---------------------------------------
Total gross income 396,678 199,085
---------------------------------------
Direct operating expenses:
Operating expenses 45,368 75,557
Real estate taxes 45,426 22,713
Insurance 20,484 10,242
---------------------------------------
Total direct operating expenses 122,278 108,512
---------------------------------------
Excess of gross income over direct operating expenses $ 274,400 90,573
=======================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-193
DAVIS TOWNE CROSSING
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)
(1) Business
Davis Towne Crossing (the Property) is located in North Richland Hills, Texas.
The Property consists of approximately 41,000 square feet of gross leasable area
and was approximately 83% occupied at December 31, 2003. The Property is leased
to thirteen tenants of which two tenants account for approximately 43% of base
rental revenue for the period of July 18, 2003 (commencement of operations) to
December 31, 2003. On June 30, 2004, Inland Western Retail Real Estate Trust,
Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party.
Davis Towne Crossing was under construction during 2003 and commenced operations
July 18, 2003, with construction complete as of December 31, 2003.
(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 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, 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,
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 period of July 18, 2003 (commencement of operations) to
December 31, 2003.
In addition, rental income includes $5,963 of rent from one tenant that pays
monthly rent based upon a percentage of monthly sales in lieu of minimum rents
provided in the lease. The minimum rents schedule below excludes such tenant.
The Property has one ground lease that is classified as an operating lease with
terms extending through August 2028. Total ground lease income was $34,509 and
is included in base rental income in the accompanying Historical Summary for the
period of July 18, 2003 (commencement of operations) to 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 $5,344
for the period of July 18 2003 (commencement of operations) to December 31,
2003.
F-194
DAVIS TOWNE CROSSING
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)
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from three to 25 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 653,726
2005 658,033
2006 658,033
2007 631,620
2008 541,343
Thereafter 2,270,444
---------------------
$ 5,413,199
=====================
(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-195
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 Northgate North ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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. 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 Northgate North for the year ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
August 13, 2004
F-196
NORTHGATE NORTH
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)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 1,674,674 3,092,086
Operating expense and real estate tax recoveries 795,771 1,242,613
-------------------------------------
Total gross income 2,470,445 4,334,699
-------------------------------------
Direct operating expenses:
Operating expenses 553,185 867,906
Real estate taxes 197,392 375,985
Insurance 103,050 206,100
-------------------------------------
Total direct operating expenses 853,627 1,449,991
-------------------------------------
Excess of gross income over direct operating expenses $ 1,616,818 2,884,708
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-197
NORTHGATE NORTH
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)
(1) Business
Northgate North (the Property) is located in Seattle, Washington. The Property
consists of 302,461 square feet of gross leasable area and was approximately 93%
occupied at December 31, 2003. The Property is leased to nine tenants of which
four tenants account for approximately 86% of base rental revenue for the year
ended December 31, 2003. On June 30, 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 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, 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,
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.
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
$353,216 for the year ended December 31, 2003.
F-198
NORTHGATE NORTH
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)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from five to 25 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-----------------------------------------------
2004 $ 3,161,072
2005 3,162,848
2006 3,258,533
2007 3,271,528
2008 3,292,733
Thereafter 38,248,658
---------------------
$ 54,395,372
=====================
(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-199
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 Cranberry Square ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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. 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 Cranberry Square for the year ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
August 1, 2004
F-200
CRANBERRY SQUARE
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)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-----------------------------------------
(unaudited)
Gross income:
Base rental income $ 870,100 1,740,201
Operating expense and real estate tax recoveries 186,206 353,892
-----------------------------------------
Total gross income 1,056,306 2,094,093
-----------------------------------------
Direct operating expenses:
Operating expenses 60,482 115,963
Real estate taxes 148,030 273,704
Insurance 6,765 13,640
-----------------------------------------
Total direct operating expenses 215,277 403,307
-----------------------------------------
Excess of gross income over direct operating expenses $ 841,029 1,690,786
=========================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-201
CRANBERRY SQUARE
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)
(1) Business
Cranberry Square (the Property) is located in Cranberry Township, Pennsylvania.
The Property consists of approximately 195,566 square feet of gross leasable
area and was approximately 92% occupied at December 31, 2003. The Property is
leased to five tenants of which three tenants account for approximately 76% of
base rental revenue for the year ended December 31, 2003. On July 14, 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 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, 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,
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.
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 $54,138
for the year ended December 31, 2003.
F-202
CRANBERRY SQUARE
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)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from ten to 15 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
------------------------------------------
2004 $ 1,723,839
2005 1,723,839
2006 1,728,158
2007 1,815,820
2008 1,820,320
Thereafter 5,872,510
-------------------
$ 14,684,486
===================
(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-203
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 Gateway Plaza Shopping Center ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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. 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 Gateway Plaza Shopping Center for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Dallas, Texas
August 18, 2004
F-204
GATEWAY PLAZA SHOPPING CENTER
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)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-----------------------------------------
(unaudited)
Gross income:
Base rental income $ 2,080,063 4,118,141
Operating expense and real estate tax recoveries 706,337 1,360,980
-----------------------------------------
Total gross income 2,786,400 5,479,121
-----------------------------------------
Direct operating expenses:
Operating expenses 198,640 466,631
Ground rent expense 1,496,542 2,993,084
Real estate taxes 542,676 1,033,669
Insurance 48,686 101,711
-----------------------------------------
Total direct operating expenses 2,286,544 4,595,095
-----------------------------------------
Excess of gross income over direct operating expenses $ 499,856 884,026
=========================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-205
GATEWAY PLAZA SHOPPING CENTER
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)
(1) Business
Gateway Plaza Shopping Center (the Property) is located in Southlake, Texas. The
Property consists of approximately 358,193 square feet of gross leasable area
and was approximately 89% occupied at December 31, 2003. The Property is leased
to twenty-five tenants of which one tenant accounts for approximately 13% of
base rental revenue for the year ended December 31, 2003. On July 21, 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 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, 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,
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.
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 $83,000
for the year ended December 31, 2003.
F-206
GATEWAY PLAZA SHOPPING CENTER
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)
(continued)
Minimum rents to be received from tenants under operating leases, excluding
tenant reimbursements of operating expenses, which terms range from five to 20
years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
------------------------------------------
2004 $ 3,961,000
2005 3,870,000
2006 3,126,000
2007 3,127,000
2008 2,990,000
Thereafter 14,635,000
-------------------
$ 31,709,000
===================
(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.
The property is subject to a ground lease with annual payments, payable to an
unaffiliated third party. The ground lease matures in 2073. Although the ground
lease provides for increases in minimum rent payments over the term of the
lease, ground lease expense accrues on a straight-line basis. The straight-line
adjustment increased ground rent expense by approximately $1,785,000 for the
year ended December 31, 2003.
Minimum rents to be paid to the unafffiliated third party under the ground lease
in effect at December 31, 2003, are as follows:
YEAR TOTAL
------------------------------------------
2004 $ 1,339,368
2005 1,339,368
2006 1,339,368
2007 1,339,368
2008 1,339,368
Thereafter 210,231,145
-------------------
$ 216,927,985
===================
F-207
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 Safeway Plaza at Marysville ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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. 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 Safeway Plaza at Marysville for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Chicago, Illinois
August 3, 2004
F-208
SAFEWAY PLAZA AT MARYSVILLE
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)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-----------------------------------------
(unaudited)
Gross income:
Base rental income $ 763,686 1,513,469
Operating expense and real estate tax recoveries 240,324 358,545
-----------------------------------------
Total gross income 1,004,010 1,872,014
-----------------------------------------
Direct operating expenses:
Operating expenses 138,514 164,027
Real estate taxes 79,251 150,954
Insurance 17,081 34,162
-----------------------------------------
Total direct operating expenses 234,846 349,143
-----------------------------------------
Excess of gross income over direct operating expenses $ 769,164 1,522,871
=========================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-209
SAFEWAY PLAZA AT MARYSVILLE
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)
(1) Business
Safeway Plaza at Marysville (the Property) is located in Marysville, Washington.
The Property consists of approximately 116,000 square feet of gross leasable
area and was approximately 97% occupied at December 31, 2003. The Property is
leased to one tenant that accounts for approximately 39% of base rental revenue
for the year ended December 31, 2003. On July 26, 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 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, 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,
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.
The Property has one ground lease that is classified as an operating lease with
terms extending through July 31, 2011. Total ground lease income was $50,000 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 $23,176
for the year ended December 31, 2003.
F-210
SAFEWAY PLAZA AT MARYSVILLE
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)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from three to 17 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
------------------------------------------
2004 $ 1,510,279
2005 1,492,217
2006 1,277,628
2007 1,072,386
2008 1,027,416
Thereafter 8,958,070
-------------------
$ 15,337,996
===================
(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-211
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 Forks Town Center ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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. 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 Forks 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
August 11, 2004
F-212
FORKS TOWN CENTER
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)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-----------------------------------------
(unaudited)
Gross income:
Base rental income $ 771,917 1,376,494
Operating expense and real estate tax recoveries 248,489 350,400
-----------------------------------------
Total gross income 1,020,406 1,726,894
-----------------------------------------
Direct operating expenses:
Operating expenses 144,775 162,022
Real estate taxes 110,551 189,136
Insurance 7,880 15,759
-----------------------------------------
Total direct operating expenses 263,206 366,917
-----------------------------------------
Excess of gross income over direct operating expenses $ 757,200 1,359,977
=========================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-213
FORKS TOWN CENTER
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)
(1) Business
Forks Town Center (the Property) is located in Easton, Pennsylvania. The
Property consists of approximately 93,000 square feet of gross leasable area and
was approximately 97% occupied at December 31, 2003. The Property is leased to
sixteen tenants of which one tenant accounts for approximately 66% of base
rental revenue for the year ended December 31, 2003. On July 27, 2004, Inland
Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an
unaffiliated third-party.
A portion of Forks Town Center (representing approximately 75,000 square feet of
the Property's gross leasable area) was completed as of December 31, 2002. The
remaining portion f the Property (representing the remaining approximately 18,
000 square feet of the Property's gross leasable area) was under construction
and completed during 2003.
(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 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, 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,
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.
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 $53,375
for the year ended December 31, 2003.
F-214
FORKS TOWN CENTER
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)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from three to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
------------------------------------------
2004 $ 1,488,512
2005 1,493,112
2006 1,480,646
2007 1,438,846
2008 1,158,106
Thereafter 13,467,776
-------------------
$ 20,526,998
===================
Base rental income includes $36,000 of rent from one tenant that subsequently
terminated its rental agreement in June 2004. The minimum rents schedule above
includes $177,000 related to such tenant, as the lease was still valid as of
December 31, 2003.
(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-215
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 ("Historical Summary") of the Properties owned by
Capital Centre, LLC, Gateway Village Limited Partnership, Bel Air Square Joint
Venture, Towson Circle Joint Venture LLP, and Reisterstown Plaza Holdings, LLC
(collectively the "Properties") for the year ended December 31, 2003. This
Combined Historical Summary is the responsibility of 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 Combined
Historical Summary is free of material misstatement. 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 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 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 owned by Capital Centre, LLC, Gateway
Village limited Partnership, Bel Air Square Joint Venture, Towson Circle Joint
Venture LLP, and Reisterstown Plaza Holdings, LLC for the year ended December
31, 2003, in conformity with accounting principles generally accepted in the
United States of America.
KPMG LLP
Chicago, Illinois
August 6, 2004
F-216
CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT
VENTURE, TOWSON CIRCLE JOINT VENTURE LLP, AND REISTERSTOWN PLAZA HOLDINGS, LLC
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)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-----------------------------------------
(unaudited)
Gross income:
Base rental income $ 11,388,110 17,102,545
Operating expense and real estate tax recoveries 1,935,133 3,537,216
Other Income 104,905 88,513
-----------------------------------------
Total gross income 13,428,148 20,728,274
-----------------------------------------
Direct operating expenses:
Operating expenses 2,479,864 4,282,398
Real estate taxes 997,206 1,352,455
Insurance 293,718 599,009
Ground Rent 73,147 24,382
-----------------------------------------
Total direct operating expenses 3,843,935 6,258,244
-----------------------------------------
Excess of gross income over direct operating expenses $ 9,584,213 14,470,030
=========================================
See accompanying notes to combined historical summary of gross income and
direct operating expense.
F-217
CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT
VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC
Notes to 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)
(1) Business
The Properties owned by Capital Centre, LLC, Gateway Village Limited
Partnership, Bel Air Square Joint Venture, Towson Circle Joint Venture LLP, and
Reisterstown Plaza Holdings, LLC (collectively the "Properties") consists of the
following:
Gross Occupancy at
Leasable December 31,
Area 2003
Entity Name (unaudited) Location (unaudited)
---------------------------------------------------------------------------------------------------------------------------
Capital Centre, LLC Boulevard at Capital Centre 515,000 Landover, MD 59%
Gateway Village Limited Gateway Village 274,000 Annapolis, MD 98%
Partnership
Bel Air Square Joint Venture Tollgate Marketplace 393,000 Bel Air, MD 99%
Towson Circle Joint Venture, LLP Towson Circle 178,000 Towson, MD 91%
Reisterstown Plaza Holdings, LLC Reisterstown Road Plaza 782,000 Baltimore, MD 89%
Thirteen tenants account for 40% or the Properties' base rental income.
Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") through established
limited liability companies ("LLC's") entered into contracts to become joint
venture partners in the ownership and operation of the Properties with
unaffiliated third parties. IWRRETI has contributed into all but Capital Centre
LLC.
In each instance IWRRETI owns or will own a 95% profits interest in the LLC's
and will control the LLC's management and operation of the Properties. The
Combined Historical Summary represents the combination of the Propertes
described above prior to IWRRETI's contribution into the LLCs. There were no
transactions between the Properties which required elimination in combination.
A portion of Boulevard at Capital Centre and Reisterstown Road Plaza
(representing approximately 321,000 and 694,000 square feet, respectively) of
the Properties gross leasable area was under construction and completed during
2003. The remaining portion f the Properties' gross leasable area (representing
approximately 194,000 and 88,000 square feet, respectively) was under
construction as of December 31, 2003. Real estate taxes and ground rent are
excluded in the Combined Historical Summary related to the portions of the
Properties under construction.
F-218
CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT
VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC
Notes to 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)
(continued)
( 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 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 Combined 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, 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,
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
$384,157 was earned during the year ended December 31, 2003 and included in base
rental income in the Combined Historical Summary.
In addition, rental income included $51,381 of rent from three tenants that pay
monthly rent based upon a percentage of monthly sales in lieu of minimum rents
provided in the lease. The minimum rents schedule below excludes such tenants.
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
$385,193 for the year ended December 31, 2003.
F-219
CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT
VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC
Notes to 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)
(continued)
Minimum rents to be received from tenants under operating leases which terms
range from one year to 25 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
------------------------------------------
2004 $ 23,146,780
2005 25,731,908
2006 25,160,727
2007 24,317,293
2008 23,244,717
Thereafter 160,625,600
-------------------
$ 282,227,025
===================
( 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 Combined Historical Summary.
Boulevard at Capital Centre is subject to a ground lease with annual payments,
payable to an unaffiliated third party. The ground lease matures in 2070.
Although the ground lease provides for increases in minimum rent payments over
the term of the lease, ground lease expense accrues on a straight-line basis.
The related adjustment increased ground rent expense by approximately $9,078 for
the year ended December 31, 2003.
Minimum rents to be paid to the unaffiliated third party under the ground lease
in effect at December 31, 2003 are as follows:
YEAR TOTAL
------------------------------------------
2004 $ 92,824
2005 94,057
2006 97,433
2007 98,579
2008 99,791
Thereafter 9,477,524
-------------------
$ 9,960,208
===================
F-220
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 The Shops at Boardwalk ("the
Property") for the period from May 30, 2003 (commencement of operations) to
December 31, 2003. This Historical Summary is the responsibility of 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. 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 The Shops at Boardwalk for the period from May 30, 2003 (commencement
of operations) to December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
August 25, 2004
F-221
THE SHOPS AT BOARDWALK
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)
For the period from
May 30, 2003
For the (commencement of
six months ended operations) to
June 30, 2004 December 31, 2003
-------------------------------------------
(unaudited)
Gross income:
Base rental income $ 976,541 707,251
Operating expense and real estate tax recoveries 357,069 94,219
-------------------------------------------
Total gross income 1,333,610 801,470
-------------------------------------------
Direct operating expenses:
Operating expenses 288,162 234,198
Real estate taxes 207,700 9,280
Insurance 18,684 24,417
-------------------------------------------
Total direct operating expenses 514,546 267,895
-------------------------------------------
Excess of gross income over direct operating expenses $ 819,064 533,575
===========================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-222
THE SHOPS AT BOARDWALK
Notes to 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)
(1) Business
The Shops at Boardwalk ("the Property") is located in Kansas City,
Missouri. The Property consists of approximately 123,265 square feet of
gross leasable area and was approximately 61.97% occupied at December 31,
2003. The Property is leased to 18 tenants of which one tenant that
accounts for approximately 16% of base rental revenue for the period from
May 30, 2003 (commencement of operations) to December 31, 2003. On July 1,
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 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, 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, 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 period from
May 30, 2003 (commencement of operations) to 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 $184,160 for the period from May 30, 2003 (commencement of
operations) to December 31, 2003.
F-223
THE SHOPS AT BOARDWALK
Notes to 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)
(continued)
Minimum rents to be received from tenants under operating leases, which
terms range from five to 20 years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
---------------------------------------
2004 $ 1,716,081
2005 1,978,726
2006 1,988,182
2007 1,998,578
2008 1,748,381
Thereafter 9,118,444
----------------
$ 18,548,392
================
(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-224
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 Manchester Meadows ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No. 5 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 Manchester Meadows for the year ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
September 1, 2004
F-225
MANCHESTER MEADOWS
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)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-----------------------------------------
(unaudited)
Gross income:
Base rental income $ 2,041,721 4,035,915
Contingent Rent - 17,086
Operating expense and real estate tax recoveries 644,313 1,223,383
-----------------------------------------
Total gross income 2,686,034 5,276,384
-----------------------------------------
Direct operating expenses:
Operating expenses 200,959 360,741
Real estate taxes 397,296 785,067
Insurance 48,066 95,178
-----------------------------------------
Total direct operating expenses 646,321 1,240,986
-----------------------------------------
Excess of gross income over direct operating expenses $ 2,039,713 4,035,398
=========================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-226
MANCHESTER MEADOWS
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)
(1) Business
Manchester Meadows ("the Property") is located in Town and Country,
Missouri. The Property consists of 454,172 square feet of gross leasable
area and was approximately 99% occupied at December 31, 2003. The Property
is leased to a total of 22 tenants, of which two tenants account for
approximately 47% of base rental revenue for the year ended December 31,
2003. On August 12, 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 the Post-Effective Amendment No. 5 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 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, 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 $17,086 was earned during the year
ended December 31, 2003.
The Property has one ground lease that is classified as an operating lease
with a term extending until August 31, 2005. Total ground lease income was
$75,600 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 decreased base
rental income by $10,221 for the year ended December 31, 2003.
F-227
MANCHESTER MEADOWS
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)
(continued)
Minimum rents to be received from tenants under operating leases, which
terms range from five to 25 years, in effect at December 31, 2003, are as
follows:
TOTAL
--------------------
$ 3,790,741
2,996,909
2,880,005
2,766,580
2,702,438
18,154,477
-------------------
$ 33,291,150
===================
(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-228
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 Governor's Marketplace ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No. 5 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 Governor's Marketplace for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Chicago, Illinois
September 3, 2004
F-229
GOVERNOR'S MARKETPLACE
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)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-----------------------------------------
(unaudited)
Gross income:
Base rental income $ 1,445,892 2,391,430
Operating expense and real estate tax recoveries 171,315 312,733
-----------------------------------------
Total gross income 1,617,207 2,704,163
-----------------------------------------
Direct operating expenses:
Operating expenses 102,701 179,023
Real estate taxes 91,472 147,863
Insurance 173,835 273,576
-----------------------------------------
Total direct operating expenses 368,008 600,462
-----------------------------------------
Excess of gross income over direct operating expenses $ 1,249,199 2,103,701
=========================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-230
GOVERNOR'S MARKETPLACE
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)
(1) Business
Governor's Marketplace ("the Property") is located in Tallahassee, Florida. The
Property consists of approximately 265,541 square feet of gross leasable area
and was approximately 83% occupied at December 31, 2003. The Property is leased
to 18 tenants of which five tenants account for approximately 53% of base rental
revenue for the year ended December 31, 2003. On August 17, 2004, Inland Western
Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an
unaffiliated third-party.
A portion of Governor's Marketplace was under construction during 2003.
Operations commenced on July 28, 2000 with a portion of the Property's gross
leasable area (representing 220,850 square feet) completed as of December 31,
2003. Of the remaining portion of the Property's gross leasable area, 16,690
square feet is under construction and scheduled to be completed during 2004.
28,001 square feet is undeveloped land.
(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 Post-Effective Amendment No. 5 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 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,
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 one ground lease that is classified as an operating lease with
terms extending through November 30, 2012. Total ground lease income was $63,600
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
$223,324 for the year ended December 31, 2003.
F-231
GOVERNOR'S MARKETPLACE
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)
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from five to 16 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
------------------------------------------
2004 $ 2,870,026
2005 3,028,732
2006 2,901,670
2007 2,529,017
2008 2,260,420
Thereafter 8,985,450
-------------------
$ 22,575,315
===================
(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, insurance, interest expense related to mortgage debt not
assumed, and professional fees are excluded from the Historical Summary.
The property is subject to ground leases with fixed annual payments, payable to
an unaffiliated third party, of $270,000 until September 30, 2085, and $60,000
until December 31, 2087. In addition, the property incurred overage rent of
$12,876 for the twelve months ended December 31, 2003. The ground leases mature
in 2085 and 2087, respectively. A portion of the ground lease expense has been
capitalized in 2003 as the Property was under construction.
Fixed minimum rents to be paid to the unaffiliated third party under the ground
lease in effect at December 31, 2003 are as follows:
YEAR TOTAL
------------------------------------------
2004 $ 330,000
2005 330,000
2006 330,000
2007 330,000
2008 330,000
Thereafter 25,530,000
-------------------
$ 27,180,000
===================
F-232
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 Mitchell Ranch Plaza
("the Property") for the period from June 30, 2003 (commencement of
operations) to December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No. 5 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 Mitchell Ranch Plaza for the period from June 30,
2003 (commencement of operations) to December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
September 1, 2004
F-233
MITCHELL RANCH PLAZA
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)
For the period from
June 30, 2003
For the six months (commencement of
ended operations) to
June 30, 2004 December 31, 2003
-------------------------------------------
(unaudited)
Gross income:
Base rental income $ 1,122,351 580,219
Operating expense and real estate tax recoveries 187,757 126,065
-------------------------------------------
Total gross income 1,310,108 706,284
-------------------------------------------
Direct operating expenses:
Operating expenses 90,848 84,005
Real estate taxes 90,030 48,985
Insurance 21,402 6,147
-------------------------------------------
Total direct operating expenses 202,280 139,137
-------------------------------------------
Excess of gross income over direct operating expenses $ 1,107,828 567,147
===========================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-234
MITCHELL RANCH PLAZA
Notes to 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)
(1) Business
Mitchell Ranch Plaza ("the Property") is located in New Port Richey, Florida.
The Property consists of approximately 200,304 square feet of gross leasable
area and was approximately 85% occupied at December 31, 2003. The Property is
leased to 33 tenants of which three tenants account for approximately 72% of
base rental revenue for the period from June 30, 2003 (commencement of
operations) to December 31, 2003. On August 25, 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 the Post-Effective Amendment No. 5 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 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,
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 period from June 30, 2003 (commencement of operations) to
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 $77,602
for the period from June 30, 2003 (commencement of operations) to December 31,
2003.
F-235
MITCHELL RANCH PLAZA
Notes to 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)
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from three to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
------------------------------------------
2004 $ 2,237,421
2005 2,279,929
2006 2,253,825
2007 2,127,567
2008 2,058,164
Thereafter 12,355,030
-------------------
$ 23,311,936
===================
(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-236
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 The Columns ("the Property") for
the period from October 8, 2003 (commencement of operations) to December 31,
2003. This Historical Summary is the responsibility of 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 Post-Effective Amendment No. 5 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 The Columns for the period from October 8, 2003 (commencement of
operations) to December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
September 10, 2004
F-237
THE COLUMNS
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)
For the period from
October 8, 2003
For the six months (commencement of
ended operations) to
June 30, 2004 December 31, 2003
-------------------------------------------
(unaudited)
Gross income:
Base rental income $ 615,902 239,197
Operating expense and real estate tax recoveries 105,488 25,794
-------------------------------------------
Total gross income 721,390 264,991
-------------------------------------------
Direct operating expenses:
Operating expenses 51,836 29,157
Real estate taxes 66,571 2,180
Insurance 12,662 6,503
-------------------------------------------
Total direct operating expenses 131,069 37,840
-------------------------------------------
Excess of gross income over direct operating expenses $ 590,321 227,151
===========================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-238
THE COLUMNS
Notes to 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)
(1) Business
The Columns ("the Property") is located in Jackson, Tennessee. The Property
consists of approximately 128,600 square feet of gross leasable area and was
approximately 78% occupied at December 31, 2003. The Property is leased to five
tenants of which two tenants account for approximately 71% of base rental
revenue for the period from October 8, 2003 (commencement of operations) to
December 31, 2003. On August 25, 2004, Inland Western Retail Real Estate Trust,
Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party.
The Columns was under construction during 2003 and commenced operations October
8, 2003, with construction complete as of December 31, 2003.
(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. 5 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 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,
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 of
was earned during the period from October 8, 2003 (commencement of operations)
to December 31, 2003.
In addition, rental income includes $9,732 of rent from one tenant that pays
monthly rent based upon a percentage of monthly sales in lieu of minimum rents
provided in the lease as the cotenancy requirement was not met for the period
from October 8, 2003 (commencement of operations) to 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 $2,774
for the period from October 8, 2003 (commencement of operations) to December 31,
2003.
F-239
THE COLUMNS
Notes to 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)
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from five to ten years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
------------------------------------------
2004 $ 1,346,993
2005 1,480,470
2006 1,482,468
2007 1,485,966
2008 1,489,103
Thereafter 4,900,972
-------------------
$ 12,185,972
===================
(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-240
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 Saucon Valley Square ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No. 5 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 Saucon Valley Square for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Chicago, Illinois
September 7, 2004
F-241
SAUCON VALLEY SQUARE
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)
For the six months
ended For the year ended
June 30, 2004 December 31, 2003
------------------------------------------
(unaudited)
Gross income:
Base rental income $ 606,848 1,213,696
Operating expense and real estate tax recoveries 116,965 285,028
------------------------------------------
Total gross income 723,813 1,498,724
------------------------------------------
Direct operating expenses:
Operating expenses 46,772 149,770
Real estate taxes 67,547 128,661
------------------------------------------
Total direct operating expenses 114,319 278,431
------------------------------------------
Excess of gross income over direct operating expenses $ 609,494 1,220,293
==========================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-242
SAUCON VALLEY SQUARE
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)
(1) Business
Saucon Valley Square ("the Property") is located in Bethlehem, PA. The Property
consists of approximately 80,695 square feet of gross leasable area and was
approximately 100% occupied at December 31, 2003. The Property is leased to 15
tenants of which one tenant accounts for approximately 73% of base rental
revenue for the year ended December 31, 2003. On September 7, 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 Post-Effective Amendment No. 5 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 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,
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.
The Property has one ground lease that is classified as an operating lease with
terms extending through July 12, 2008. Total ground lease income was $3,750 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 $52,248
for the year ended December 31, 2003.
F-243
SAUCON VALLEY SQUARE
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)
(continued)
Minimum rents to be received from tenants under operating leases, which terms
range from three to 15 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
------------------------------------------
2004 $ 910,599
2005 845,071
2006 845,071
2007 845,071
2008 821,160
Thereafter 7,271,335
-------------------
$ 11,538,307
===================
(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-244
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 Lincoln Park Shopping Center (the
Property) for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No. 5 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 Lincoln Park Shopping Center for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Dallas, Texas
September 13, 2004
F-245
LINCOLN PARK SHOPPING CENTER
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)
For the six
months ended For the year ended
June 30, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 1,713,722 3,386,458
Operating expense and real estate tax recoveries 607,814 1,179,700
-------------------------------------
Total gross income 2,321,536 4,566,158
-------------------------------------
Direct operating expenses:
Operating expenses 266,185 442,073
Real estate taxes 445,322 871,151
Insurance 12,566 33,190
-------------------------------------
Total direct operating expenses 724,073 1,346,414
-------------------------------------
Excess of gross income over direct operating expenses $ 1,597,463 3,219,744
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-246
LINCOLN PARK SHOPPING CENTER
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)
(1) Business
Lincoln Park Shopping Center (the Property) is located in Dallas, Texas. The
Property consists of approximately 148,806 square feet of gross leasable area
and was 97% occupied at December 31, 2003. The Property is leased to 13 tenants
of which 4 tenants account for approximately 68% of base rental revenue for the
year ended December 31, 2003. On September 7, 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
Post-Effective Amendment No. 5 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 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,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and become billable 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 approximately $19,000 was earned during 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
approximately $141,000 for the year ended December 31, 2003.
F-247
LINCOLN PARK SHOPPING CENTER
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)
(continued)
Minimum rents to be received from tenants under operating leases, excluding
tenant reimbursements of operating expenses, which terms range from 5 to 25
years, in effect at December 31, 2003, are as follows:
Year Total
--------------------------------------
2004 $ 3,342,000
2005 3,299,000
2006 3,203,000
2007 3,207,000
2008 3,005,000
Thereafter 19,704,000
-----------------
$ 35,760,000
=================
Tenant reimbursements of operating expenses are included in operating expense
and real estate tax recoveries in the accompanying Historical Summary.
(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-248
SHOPPES AT PROMINENCE POINT
Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 1, 2004 (commencement of operations)
to June 30, 2004 (unaudited)
For the period from
March 1, 2004
(commencement of
oeprations) to
June 30, 2004
---------------------
Gross income:
Base rental income $ 264,247
Operating expense and real estate tax recoveries 35,817
---------------------
Total gross income 300,064
---------------------
Direct operating expenses:
Operating expenses 9,259
Real estate taxes 32,055
Insurance 4,590
---------------------
Total direct operating expenses 45,904
---------------------
Excess of gross income over direct operating expenses $ 254,160
=====================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-249
SHOPPES AT PROMINENCE POINT
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 1, 2004 (commencement of operations)
to June 30, 2004 (unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from March 1, 2004 (commencement of operations) to June 30, 2004 has been
prepared from the operating statements provided by the owners of the property
during that period and requires management of Shoppes at Prominence Point to
make estimates and assumptions that affect the amounts of the revenues and
expense during that period. Actual results may differ from those estimates. The
property was completed in 2004 and had no significant operations through the
date of acquisition.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from March 1, 2004 (commencement
of operations) to June 30, 2004.
F-250
LOW COUNTRY VILLAGE
Historical Summary of Gross Income and Direct Operating Expenses
For the period from February 1, 2004 (commencement of operations)
to June 30, 2004 (unaudited)
For the period from
February 1, 2004
(commencement of
operations) to
June 30, 2004
---------------------
Gross income:
Base rental income $ 301,293
Operating expense and real estate tax recoveries 49,137
---------------------
Total gross income 350,430
---------------------
Direct operating expenses:
Operating expenses 4,715
Real estate taxes 38,184
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-251
LOW COUNTRY VILLAGE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from February 1, 2004 (commencement of operations)
to June 30, 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 June 30, 2004 has
been prepared from the operating statements provided by the owners of the
property during that period and requires management of Low Country Village to
make estimates and assumptions that affect the amounts of the revenues and
expense during that period. Actual results may differ from those estimates. The
property was completed in 2004 and had no significant operations through the
date of acquisition.
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 June 30, 2004.
F-252
SHOPPES OF DALLAS
Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 1, 2004 (commencement of operations)
to June 30, 2004 (unaudited)
For the period from
March 1, 2004
(commencement of
operations) to
June 30, 2004
---------------------
Gross income:
Base rental income $ 195,042
Operating expense and real estate tax recoveries 23,198
---------------------
Total gross income 218,240
---------------------
Direct operating expenses:
Operating expenses 11,199
Real estate taxes 3,781
Insurance 4,014
---------------------
Total direct operating expenses 18,994
---------------------
Excess of gross income over direct operating expenses $ 199,246
=====================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-253
SHOPPES OF DALLAS
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 1, 2004 (commencement of operations)
to June 30, 2004 (unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from March 1, 2004 (commencement of operations) to June 30, 2004 has been
prepared from the operating statements provided by the owners of the property
during that period and requires management of Shoppes of Dallas to make
estimates and assumptions that affect the amounts of the revenues and expense
during that period. Actual results may differ from those estimates. The property
was completed in 2004 and had no significant operations through the date of
acquisition.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from March 1, 2004 (commencement
of operations) to June 30, 2004.
F-254
DORMAN CENTRE - PHASE II
Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 15, 2004 (commencement of operations)
to June 30, 2004 (unaudited)
For the period from
March 15, 2004
(commencement of
operations) to
June 30, 2004
---------------------
Gross income:
Base rental income $ 78,177
Operating expense and real estate tax recoveries 13,140
---------------------
Total gross income 91,317
---------------------
Direct operating expenses:
Operating expenses 4,518
Real estate taxes 29,016
Insurance 1,403
---------------------
Total direct operating expenses 34,937
---------------------
Excess of gross income over direct operating expenses $ 56,380
=====================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-255
DORMAN CENTER - PHASE II
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 15, 2004 (commencement of operations)
to June 30, 2004 (unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from March 15, 2004 (commencement of operations) to June 30, 2004 has
been prepared from the operating statements provided by the owners of the
property during that period and requires management of Dorman Center - Phase II
to make estimates and assumptions that affect the amounts of the revenues and
expense during that period. Actual results may differ from those estimates. The
property was completed in 2004 and had no significant operations through the
date of acquisition.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from March 15, 2004 (commencement
of operations) to June 30, 2004.
F-256
VILLAGE SHOPPES AT SIMONTON
Historical Summary of Gross Income and Direct Operating Expenses
For the period from May 1, 2004 (commencement of operations)
to June 30, 2004 (unaudited)
For the period from
May 1, 2004
(commencement of
operations) to
June 30, 2004
---------------------
Gross income:
Base rental income $ 65,553
Operating expense and real estate tax recoveries 18,393
---------------------
Total gross income 83,946
---------------------
Direct operating expenses:
Operating expenses 4,240
Real estate taxes 17,348
Insurance 3,875
---------------------
Total direct operating expenses 25,463
---------------------
Excess of gross income over direct operating expenses $ 58,483
=====================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-257
VILLAGE SHOPPES AT SIMONTON
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from May 1, 2004 (commencement of operations)
to June 30, 2004 (unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from May 1, 2004 (commencement of operations) to June 30, 2004 has been
prepared from the operating statements provided by the owners of the property
during that period and requires management of Village Shoppes at Simonton to
make estimates and assumptions that affect the amounts of the revenues and
expense during that period. Actual results may differ from those estimates. The
property was completed in 2004 and had no significant operations through the
date of acquisition.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from May 1, 2004 (commencement of
operations) to June 30, 2004.
F-258
HARVEST TOWNE CENTER
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)
For the six months
ended For the year ended
June 30, 2004 December 31, 2003
-------------------------------------------
Gross income:
Base rental income $ 348,503 655,423
Operating expense and real estate tax recoveries 49,445 90,044
-------------------------------------------
Total gross income 397,948 745,467
-------------------------------------------
Direct operating expenses:
Operating expenses 22,463 43,617
Real estate taxes 25,957 45,585
Insurance 5,311 10,312
-------------------------------------------
Total direct operating expenses 53,731 99,514
-------------------------------------------
Excess of gross income over direct operating expenses $ 344,217 645,953
===========================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-259
HARVEST TOWNE CENTER
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)
1. Basis of Presentation
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,
respectively, has been prepared from the operating statements provided by the
owners of the property during that period and requires management of Harvest
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. The property was completed in 2004 and had no significant operations
through the date of acquisition.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the year ended December 31, 2003 and the six
months ended June 30, 2004, respectively.
F-260
BED, BATH & BEYOND PLAZA
Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 3, 2004 (commencement of operations) to June 30, 2004
(unaudited)
For the period from
March 3, 2004
(commencement of
operations) to
June 30, 2004
--------------------
(unaudited)
Gross income:
Base rental income $ 378,432
Operating expense and real estate tax recoveries 45,399
--------------------
Total gross income 423,831
--------------------
Direct operating expenses:
Operating expenses 74,921
Real estate taxes 52,800
Insurance 213
--------------------
Total direct operating expenses 127,934
--------------------
Excess of gross income over direct operating expenses $ 295,897
====================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-261
BED, BATH & BEYOND PLAZA
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 3, 2004 (commencement of operations) to June 30, 2004
(unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from March 3, 2004 (commencement of operations) to June 30, 2004 has been
prepared from the operating statements provided by the owners of the property
during that period and requires management of Bed, Bath & Beyond 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. The property
was completed in 2004 and had no significant operations during 2003.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from March 3, 2004 (commencement
of operations) to June 30, 2004.
F-262
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 Azalea Square ("the Property") for
the period from July 4, 2003 (commencement of operations) to December 31, 2003.
This Historical Summary is the responsibility of 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 Post-Effective Amendment No. 7 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 Azalea Square for the period from July 4, 2003 (commencement of
operations) to December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
December 8, 2004
F-263
AZALEA SQUARE
Historical Summary of Gross Income and Direct Operating Expenses
For the period from July 4, 2003 (commencement of operations) to
December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE PERIOD FROM
JULY 4, 2003
FOR THE NINE MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------- -------------------
(unaudited)
Gross income:
Base rental income $ 1,410,022 $ 488,517
Operating expense and real estate tax recoveries 392,542 139,567
-------------------- -------------------
Total gross income 1,802,564 628,084
-------------------- -------------------
Direct operating expenses:
Operating expenses 157,724 68,236
Insurance 21,416 7,056
Real estate taxes 251,487 76,149
-------------------- -------------------
Total direct operating expenses 430,627 151,441
-------------------- -------------------
Excess of gross income over direct operating expenses $ 1,371,937 $ 476,643
==================== ===================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-264
AZALEA SQUARE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from July 4, 2003 (commencement of operations) to
December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
(1) BUSINESS
Azalea Square ("the Property") is located in Charleston (Summerville),
South Carolina. The Property consists of approximately 117,135 square feet
of gross leasable area. The Property is leased to 19 tenants and is
approximately 98% occupied as of December 31, 2003. Of those tenants, four
tenants account for approximately 76% of base rental revenue for the period
from July 4, 2003 (commencement of operations) to December 31, 2003. On
October 19, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI")
acquired the Property from an unaffiliated third party.
Azalea Square was under construction during 2003 and commenced operations
July 4, 2003, with construction complete of 117,135 square feet of gross
leasable area as of December 31, 2003. An additional 64,000 square feet
remained under construction as of December 31, 2003.
(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. 7 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.
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, 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 period from
July 4, 2003 (commencement of operations) to 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 $63,279 for the period from July 4, 2003 (commencement of
operations) to December 31, 2003.
F-265
AZALEA SQUARE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from July 4, 2003 (commencement of operations) to
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 five years to 20 years, as of December 31 2003, are as
follows:
YEAR
----
2004 $ 1,911,620
2005 2,346,448
2006 2,386,455
2007 2,392,650
2008 2,328,321
Thereafter 10,984,144
--------------
$ 22,349,638
==============
(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-266
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 Bayer Properties, Inc. for the year ended December 31, 2003. This
Combined Historical Summary is the responsibility of 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
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 the Post-Effective Amendment No. 7 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 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 Bayer Properties, Inc. for
the year ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
December 8, 2004
F-267
THE PROPERTIES ACQUIRED FROM BAYER PROPERTIES, INC.
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)
FOR THE FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------- -------------------
(unaudited)
Gross income:
Base rental income $ 1,189,106 $ 535,643
Operating expense and real estate tax recoveries 181,747 114,359
-------------------- -------------------
Total gross income
1,370,853 650,002
-------------------- -------------------
Direct operating expenses:
Operating expenses 140,047 116,766
Real estate taxes 67,620 21,499
Ground rent expense 102,238 91,638
Insurance 17,047 10,749
-------------------- -------------------
Total direct operating expenses
326,952 240,652
-------------------- -------------------
Excess of gross income over direct operating expenses $ 1,043,901 $ 409,350
==================== ===================
See accompanying notes to combined historical summary of gross income and direct
operating expenses.
F-268
THE PROPERTIES ACQUIRED FROM BAYER PROPERTIES, INC.
Notes to 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)
(1) BUSINESS
The Properties acquired from Bayer Properties, Inc. consist of:
OCCUPANCY AT DECEMBER 31,
NAME GROSS LEASABLE AREA LOCATION 2003
Edgemont Town Center 71,660 Homewood, Alabama 82%
University Town Center 28,450 Tuscaloosa, Alabama 79%
Three tenants account for 36% of the Properties' base rental income for the
year ended December 31, 2003.
Edgemont Town Center's 71,660 square feet of gross leasable area was under
construction and completed during 2003. An additional 6,000 square feet was
under construction as of December 31, 2003. Real estate taxes are excluded
in the Combined Historical Summary related to the portions of the Property
under construction.
(2) BASIS OF PRESENTATION
The Combined Historical Summary of Gross Income and Direct Operating
Expenses 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. 7 to the Registration Statement on Form
S-11 of Inland Western Retail Real Estate Trust, Inc. 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.
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 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, 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 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 $18,860 for the year ended December 31, 2003.
F-269
THE PROPERTIES ACQUIRED FROM BAYER PROPERTIES, INC.
Notes to 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)
Minimum rents to be received from tenants under operating leases, which
terms range from two to 20 years, as of December 31, 2003, are as follows:
YEAR
----
2004 $ 1,569,399
2005 1,837,792
2006 1,841,130
2007 1,803,439
2008 1,530,669
Thereafter 14,442,120
-------------
$ 23,024,549
=============
(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.
University Town Center is subject to two ground leases. One of which is a
ground lease with semi-annual payments of $25,000, payable to an
unaffiliated third party. This ground lease was subject to abatement
periods and terminates in 2039. The other ground lease requires semi-annual
payments, payable to an unaffiliated third party, of $ 37,478 until
December 31, 2022, $50,492 until December 31, 2027, $51,273 until December
31, 2032, $52,054 until December 31, 2037, and $52,834 until the
termination date. This ground lease is subject to abatement periods and
terminates in 2043.
Although the ground leases provide for abatement periods or increases in
minimum rent payments over the term of the leases, ground rent expense
accrues on a straight-line basis. The related adjustment to ground rent
increased ground rent expense by $41,368 for the year ended December 31,
2003.
Minimum rents to be paid to the unaffiliated third parties under the ground
leases in effect at December 31, 2003 are as follows:
YEAR
----
2004 $ 87,479
2005 124,958
2006 124,958
2007 124,958
2008 124,958
Thereafter 4,693,773
-------------
$ 5,281,084
=============
F-270
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 Denton Crossing ("the Property")
for the period from August 11, 2003 (commencement of operations) to December 31,
2003. This Historical Summary is the responsibility of 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 Post-Effective Amendment No. 7 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 Denton Crossing for the period from August 11, 2003 (commencement of
operations) to December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
December 8, 2004
F-271
DENTON CROSSING
Historical Summary of Gross Income and Direct Operating Expenses
For the period from August 11, 2003 (commencement of operations) to
December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE PERIOD FROM
AUGUST 11, 2003
FOR THE NINE MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------- -------------------
(unaudited)
Gross income:
Base rental income $ 2,446,572 $ 915,298
Operating expense and real estate tax recoveries 513,330 163,250
Other Income -- 2,413
-------------------- -------------------
Total gross income 2,959,902 1,080,961
-------------------- -------------------
Direct operating expenses:
Operating expenses 240,720 59,360
Real estate taxes 259,517 84,049
Insurance 52,193 31,896
-------------------- -------------------
Total direct operating expenses 552,430 175,305
-------------------- -------------------
Excess of gross income over direct operating expenses $ 2,407,472 $ 905,656
==================== ===================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-272
DENTON CROSSING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from August 11, 2003 (commencement of operations) to
December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
(1) BUSINESS
Denton Crossing ("the Property") is located in Denton, Texas. The Property
consists of approximately 259,470 square feet of gross leasable area and
was approximately 89% occupied at December 31, 2003. The Property is leased
to 24 tenants of which four tenants accounts for approximately 50% of base
rental revenue for the period from August 11, 2003 (commencement of
operations) to December 31, 2003. On October 18, 2004, Inland Western
Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an
unaffiliated third-party.
Denton Crossing had 259,470 square feet that was under construction and
completed during 2003. The remaining portion of the Properties' gross
leasable area (representing approximately 70,000 square feet) was under
construction as of December 31, 2003. Real estate taxes are excluded in the
Historical Summary related to the portions of the Properties under
construction.
(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. 7 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.
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, 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 for the period from
August 11, 2003 (commencement of operations) to 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 $595,495 for the period from August 11, 2003 (commencement
of operations) to December 31, 2003.
F-273
DENTON CROSSING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from August 11, 2003 (commencement of operations) to
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 five to 10 years, in effect at December 31, 2003, are as
follows:
YEAR
----
2004 $ 2,937,465
2005 3,203,931
2006 3,203,931
2007 3,203,931
2008 3,197,065
Thereafter 12,348,490
--------------
$ 28,094,813
==============
(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-274
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 Donahue Schriber for the year ended December 31,
2003. This Combined Historical Summary is the responsibility of 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 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 the Post-Effective Amendment No. 7 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 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 Donahue
Schriber for the year ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
December 9, 2004
F-275
THE PROPERTIES ACQUIRED FROM DONAHUE SCHRIBER
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)
FOR THE FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------- -------------------
(unaudited)
Base rental income $ 1,933,199 $ 2,362,490
Operating expense and real estate tax recoveries 568,561 714,524
Other Income -- 140,503
-------------------- -------------------
Total gross income 2,501,760 3,217,517
-------------------- -------------------
Operating expenses 325,646 451,756
Real estate taxes 266,619 304,012
Insurance 50,545 51,242
-------------------- -------------------
Total direct operating expenses 642,810 807,010
-------------------- -------------------
Excess of gross income over direct operating expenses $ 1,858,950 $ 2,410,507
==================== ===================
See accompanying notes to combined historical summary of gross income and direct
operating expenses.
F-276
THE PROPERTIES ACQUIRED FROM DONAHUE SCHRIBER
Notes to 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)
(1) BUSINESS
The Properties acquired from Donahue Schriber consist of:
OCCUPANCY AT DECEMBER 31,
NAME GROSS LEASABLE AREA LOCATION 2003
Plaza at Riverlakes 102,836 Bakersfield, California 93%
Placentia Town Center 110,962 Placentia, California 89%
Five tenants account for 52% of the Properties' base rental income for the
year ended December 31, 2003.
Plaza at Riverlakes had 17,160 of square feet that was under construction
and completed during 2003. Real estate taxes are excluded in the Combined
Historical Summary related to the portions of the Property under
construction.
(2) BASIS OF PRESENTATION
The Combined Historical Summary of Gross Income and Direct Operating
Expenses 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. 7 to the Registration Statement on Form
S-11 of Inland Western Retail Real Estate Trust, Inc. 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 Historical Summary is presented on a combined basis since
the properties were acquired from the same seller.
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 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, 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 $122,128 was earned 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 $80,433 for the year ended December 31, 2003.
F-277
THE PROPERTIES ACQUIRED FROM DONAHUE SCHRIBER
Notes to 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)
Minimum rents to be received from tenants under operating leases, which
terms range from one to 30 years, as of December 31, 2003, are as follows:
YEAR
----
2004 $ 2,532,357
2005 2,594,314
2006 2,212,058
2007 2,018,686
2008 1,844,145
Thereafter 13,463,957
-------------
$ 24,665,517
=============
(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-278
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 Gurnee 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 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. 7 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 Gurnee 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
December 8, 2004
F-279
GURNEE 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 FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------- -------------------
(unaudited)
Gross income:
Base rental income $ 2,335,149 $ 2,974,963
Operating expense and real estate tax recoveries 512,624 602,648
-------------------- -------------------
Total gross income 2,847,773 3,577,611
-------------------- -------------------
Direct operating expenses:
Operating expenses 156,716 210,453
Real estate taxes 368,762 413,650
Insurance 37,150 45,696
-------------------- -------------------
Total direct operating expenses 562,628 669,799
-------------------- -------------------
Excess of gross income over direct operating expenses $ 2,285,145 $ 2,907,812
==================== ===================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-280
GURNEE 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
Gurnee Town Center ("the Property") is located in Gurnee, IL. The Property
consists of approximately 179,840 square feet of gross leasable area and
was approximately 96% occupied at December 31, 2003. The Property is leased
to a total of twenty-seven tenants, of which five tenants account for
approximately 55% of base rental revenue for the year ended December 31,
2003. On October 28, 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 the Post-Effective Amendment No. 7 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.
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, 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.
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 $49,806 for the year ended December 31, 2003.
F-281
GURNEE 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 two and a half years to 20 years, in effect at December
31, 2003, are as follows:
YEAR
----
2004 $ 3,024,647
2005 3,031,410
2006 2,347,157
2007 2,073,736
2008 2,016,451
Thereafter 10,205,810
--------------
$ 22,699,211
==============
(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-282
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 Winchester Commons ("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 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. 7 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 Winchester Commons for the year ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
November 3, 2004
F-283
WINCHESTER COMMONS
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 FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------- -------------------
(unaudited)
Gross income:
Base rental income $ 793,963 $ 1,033,025
Operating expense and real estate tax recoveries 279,045 389,938
-------------------- -------------------
Total gross income 1,073,008 1,422,963
-------------------- -------------------
Direct operating expenses:
Operating expenses 85,206 113,004
Real estate taxes 204,490 276,156
Insurance 7,988 10,270
-------------------- -------------------
Total direct operating expenses 297,684 399,430
-------------------- -------------------
Excess of gross income over direct operating expenses $ 775,324 $ 1,023,533
==================== ===================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-284
WINCHESTER COMMONS
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
Winchester Commons ("the Property") is located in Memphis, Tennessee. The
Property consists of approximately 93,024 square feet of gross leasable
area and was 100% occupied at December 31, 2003. The Property is leased to
16 tenants, of which one tenant accounts for 47% of base rental revenue for
the year ended December 31, 2003. On November 5, 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 the Post-Effective Amendment No. 7 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.
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, 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.
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 $5,784 for the year ended December 31, 2003.
F-285
WINCHESTER COMMONS
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 16 years, in effect at December 31, 2003, are as
follows:
YEAR
----
2004 $ 1,008,019
2005 946,941
2006 870,713
2007 765,269
2008 744,965
Thereafter 5,197,703
--------------
$ 9,533,610
==============
(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-286
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 Mansfield Towne Crossing ("the
Property") for the period from July 23, 2003 (commencement of operations) to
December 31, 2003. This Historical Summary is the responsibility of 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 Post-Effective Amendment No. 7 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 Mansfield Towne Crossing for the period from July 23, 2003
(commencement of operations) to December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.
KPMGLLP
Chicago, Illinois
December 8, 2004
F-287
MANSFIELD TOWNE CROSSING
Historical Summary of Gross Income and Direct Operating Expenses
For the period from July 23, 2003 (commencement of operations) to
December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE PERIOD FROM
JULY 23, 2003
FOR THE (COMMENCEMENT OF
NINE MONTHS ENDED OPERATIONS) TO
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------------------------------
(unaudited)
Gross income:
Base rental income $ 462,693 $ 124,647
Operating expense and real estate tax recoveries 158,753 59,451
-------------------------------------------
Total gross income 621,446 184,098
-------------------------------------------
Direct operating expenses:
Operating expenses 108,480 58,335
Insurance 5,521 2,141
Real estate taxes 125,868 42,595
-------------------------------------------
Total direct operating expenses 239,869 103,071
-------------------------------------------
Excess of gross income over direct operating expenses $ 381,577 $ 81,027
===========================================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-288
MANSFIELD TOWNE CROSSING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from July 23, 2003 (commencement of operations) to
December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
(1) BUSINESS
Mansfield Towne Crossing ("the Property") is located in Mansfield, Texas.
The Property consists of approximately 111,898 square feet of gross
leasable area and was approximately 27% occupied at December 31, 2003. The
Property is leased to 20 tenants of whom six tenants occupied the area in
2003. One tenant represented approximately 59% of base rental revenue for
the period from July 23, 2003 (commencement of operations) to December 31,
2003. On November 3, 2004, Inland Western Retail Real Estate Trust, Inc.
("IWRRETI") acquired the Property from an unaffiliated third party.
Mansfield Towne Crossing was under construction during 2003 and commenced
operations July 23, 2003.
(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. 7 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.
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, 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. No contingent rent was
earned during the period from July 23, 2003 (commencement of operations) to
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 $9,080 for the period from July 23, 2003 (commencement of
operations) to December 31, 2003.
F-289
MANSFIELD TOWNE CROSSING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from July 23, 2003 (commencement of operations) to
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 five years to 15 years, in effect at December 31, 2003,
are as follows:
YEAR
----
2004 $ 579,467
2005 921,979
2006 921,979
2007 921,979
2008 882,805
Thereafter 5,205,573
--------------
$ 9,433,782
==============
(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-290
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 Fox Creek Village ("the Property")
for the period from November 12, 2003 (commencement of operations) to 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 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. 7 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 Fox Creek Village for period from November 12, 2003 (commencement of
operations) to December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
December 8, 2004
F-291
FOX CREEK VILLAGE
Historical Summary of Gross Income and Direct Operating Expenses
For the period from November 12, 2003 (commencement of operations) to
December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE PERIOD FROM
NOVEMBER 12, 2003
FOR THE NINE MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------------------------------
(unaudited)
Gross income:
Base rental income $ 849,779 $ 97,333
Operating expense and real estate tax recoveries 216,707 10,994
-------------------------------------------
Total gross income 1,066,486 108,327
-------------------------------------------
Direct operating expenses:
Operating expenses 94,833 14,247
Real estate taxes 163,170 3,025
Insurance 5,168 --
-------------------------------------------
Total direct operating expenses 263,171 17,272
-------------------------------------------
Excess of gross income over direct operating expenses $ 803,315 $ 91,055
===========================================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-292
FOX CREEK VILLAGE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from November 12, 2003 (commencement of operations) to
December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
(1) BUSINESS
Fox Creek Village ("the Property") is located in Longmont, Colorado. The
Property consists of approximately 139,730 square feet of gross leasable
area of which approximately 39,600 represents square footage of gross
leasable are available for ground leases. The Property was approximately
66% occupied at December 31, 2003. The Property is leased to two tenants
that account for 100% of base rental revenue for period from November 12,
2003 (commencement of operations) to December 31, 2003. On November 22,
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 the Post-Effective Amendment No. 7 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.
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, 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. No contingent rent was
earned during the period from November 12, 2003 (commencement of
operations) to December 31, 2003.
The Property has one ground lease that is classified as an operating lease
with terms extending through November 12, 2018. Total ground lease income
was $2,717 and is included in base rental income in the accompanying
Historical Summary for the year ended December 31, 2003.
F-293
FOX CREEK VILLAGE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from November 12, 2003 (commencement of operations) to
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 five to 20 years, in effect at December 31, 2003, are as
follows:
YEAR
----
2004 $ 988,109
2005 1,051,949
2006 1,056,498
2007 1,061,046
2008 1,065,595
Thereafter 11,020,462
--------------
$ 16,243,659
==============
(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. No insurance expense was recorded for the period from
November 12, 2003 (commencement of operations) to December 31, 2003 as the
tenants that occupied the space during this period incurred and paid their
own insurance.
F-294
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 Gateway Pavilions ("the Property")
for the period from February 15, 2003 (commencement of operations) to December
31, 2003. This Historical Summary is the responsibility of 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 Post-Effective Amendment No. 7 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 Gateway Pavilions for the period from February 15, 2003 (commencement
of operations) to December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
December 9, 2004
F-295
GATEWAY PAVILIONS
Notes to 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)
FOR THE PERIOD FROM
FEBRUARY 15, 2003
FOR THE NINE MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------- -------------------
(unaudited)
Gross income:
Base rental income $ 2,317,394 $ 1,059,788
Operating expense and real estate tax recoveries 507,792 179,363
-------------------- -------------------
Total gross income 2,825,186 1,239,151
-------------------- -------------------
Direct operating expenses:
Operating expenses 300,936 256,310
Real estate taxes 303,496 38,083
Insurance 45,673 57,784
-------------------- -------------------
Total direct operating expenses 650,105 352,177
-------------------- -------------------
Excess of gross income over direct operating expenses $ 2,175,081 $ 886,974
==================== ===================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-296
GATEWAY PAVILIONS
Notes to 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)
(1) BUSINESS
Gateway Pavilions ("the Property") is located in Avondale, Arizona, which
when completed will consist of approximately 318,410 square feet of gross
leasable area. The Property consists of approximately 197,512 square feet
of gross leasable area and was approximately 93% occupied at December 31,
2003. The Property is leased to 22 tenants of which 5 tenants account for
approximately 38% of base rental revenue for the period from February 15,
2003 (commencement of operations) to December 31, 2003. On December 7, 2004
Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the
Property from an unaffiliated third party.
Gateway Pavilions' 197,512 square feet of gross leasable area was under
construction and completed during 2003. The remaining portion of the
Property's gross leasable area (representing 104,278 square feet) was under
construction as of December 31, 2003. Real estate taxes are excluded in the
Historical Summary related to the portion of the Property under
construction.
(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. 7 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.
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, 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 for the period from
February 15, 2003 (commencement of operations) to December 31, 2003.
The Property has one ground lease that is classified as an operating lease
with a term extending until October 1, 2023. Total ground lease income was
$19,335 and is included in base rental income in the accompanying
Historical Summary for the period from February 15, 2003 (commencement of
operations) to 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 $50,513 for the period from February 15, 2003
(commencement of operations) to December 31, 2003.
F-297
GATEWAY PAVILIONS
Notes to 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)
Minimum rents to be received from tenants under operating leases, which
terms range from one to 15 years, in effect at December 31, 2003, are as
follows:
YEAR
----
2004 $ 2,914,743
2005 3,275,666
2006 3,292,521
2007 3,311,622
2008 3,100,049
Thereafter 19,399,071
--------------
$ 35,293,672
==============
(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-298
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 Northwoods Center ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of 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 Post-Effective Amendment No. 7 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 Northwoods 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
November 26, 2004
F-299
NORTHWOODS 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 FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------------------------------
(unaudited)
Gross income:
Base rental income $ 904,767 $ 839,905
Operating expense and real estate tax recoveries 166,042 123,888
-------------------------------------------
Total gross income 1,070,809 963,793
-------------------------------------------
Direct operating expenses:
Operating expenses 66,253 73,410
Real estate taxes 110,615 60,745
-------------------------------------------
Total direct operating expenses 176,868 134,155
-------------------------------------------
Excess of gross income over direct operating expenses $ 893,941 $ 829,638
===========================================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-300
NORTHWOODS 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
Northwoods Center ("the Property") is located in Wesley Chapel, Florida.
The Property consists of approximately 95,994 square feet of gross leasable
area of which approximately 70,647 square feet of gross leasable area was
available and occupied at December 31, 2003. The Property is leased to 25
tenants, of which two tenants account for approximately 44% of base rental
revenue for the year ended December 31, 2003. On December 7, 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 the Post-Effective Amendment No. 7 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.
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, 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 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 $81,206 for year ended December 31, 2003.
F-301
NORTHWOODS 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 four years to 20 years, as of December 31, 2003, are as
follows:
YEAR
----
2004 $ 1,104,172
2005 1,405,893
2006 1,438,591
2007 1,446,935
2008 1,388,421
Thereafter 5,189,216
--------------
$ 11,973,228
==============
(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, insurance and professional fees are excluded
from the Historical Summary.
F-302
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 Oswego Commons ("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 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. 7 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 Oswego Commons for the year ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
December 8, 2004
F-303
OSWEGO COMMONS
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 FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------- -------------------
(unaudited)
Base rental income $ 2,013,952 $ 1,943,882
Operating expense and real estate tax recoveries 654,718 607,134
-------------------- -------------------
Total gross income 2,668,670 2,551,016
-------------------- -------------------
Operating expenses 350,629 327,556
Real estate taxes 307,644 269,449
Insurance 26,697 32,613
-------------------- -------------------
Total direct operating expenses 684,970 629,618
-------------------- -------------------
Excess of gross income over direct operating expenses $ 1,983,700 $ 1,921,398
==================== ===================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-304
OSWEGO COMMONS
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
Oswego Commons ("the Property") is located in Oswego, Illinois. The
Property consists of approximately 186,451 square feet of gross leasable
area and was approximately 97% occupied at December 31, 2003. The Property
is leased to a total of 18 tenants, of which two tenants account for
approximately 60% of base rental revenue for the year ended December 31,
2003. On November 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 the Post-Effective Amendment No. 7 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.
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, 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. There was no contingent rent earned during 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 $112,535 for the year ended December 31, 2003.
F-305
OSWEGO COMMONS
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 three to 18 years, in effect at December 31, 2003, are as follows:
YEAR
----
2004 $ 2,526,561
2005 2,561,597
2006 2,571,681
2007 2,558,120
2008 2,445,179
Thereafter 18,967,101
-------------
$ 31,630,239
=============
(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-306
LAKE MARY POINTE
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 FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------------------------------
(unaudited) (unaudited)
Gross income:
Base rental income $ 402,077 $ 567,542
Operating expense and real estate tax recoveries 59,071 179,588
-------------------------------------------
Total gross income 461,148 747,130
-------------------------------------------
Direct operating expenses:
Operating expenses 52,066 74,065
Real estate taxes 75,265 91,230
Insurance 10,560 12,800
-------------------------------------------
Total direct operating expenses 137,891 178,095
-------------------------------------------
Excess of gross income over direct operating expenses $ 323,257 $ 569,035
===========================================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-307
LAKE MARY POINTE
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. Basis of Presentation
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,
respectively, has been prepared from the operating statements provided by the
owners of the property during that period and requires management of Lake Mary
Pointe 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, 2003 and the nine
months ended September 30, 2004, respectively.
F-308
PUBLIX CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the period from April 18, 2004 (commencement of operations) to
September 30, 2004 (unaudited)
FOR THE PERIOD FROM APRIL 18, 2004
(COMMENCEMENT OF OPERATIONS)
TO SEPTEMBER 30, 2004
----------------------------------
(unaudited)
Gross income:
Base rental income $ 226,058
Operating expense and real estate tax recoveries 33,458
----------------------------------
Total gross income 259,516
----------------------------------
Direct operating expenses:
Operating expenses 65,118
Real estate taxes 64,650
Insurance 25,970
----------------------------------
Total direct operating expenses 155,738
----------------------------------
Excess of gross income over direct operating expenses $ 103,778
==================================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-309
PUBLIX CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the period from April 18, 2004 (commencement of operations) to
September 30, 2004 (unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from April 18, 2004 (commencement of operations) to September 30, 2004
has been prepared from the operating statements provided by the owners of the
property during that period and requires management of Publix 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 period from April 18, 2004 (commencement
of operations) to September 30, 2004.
F-310
FIVE FORKS
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 FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------- -------------------
(unaudited) (unaudited)
Gross income:
Base rental income $ 493,104 $ 633,672
Operating expense and real estate tax recoveries 58,221 70,261
-------------------- -------------------
Total gross income 551,325 703,933
-------------------- -------------------
Direct operating expenses:
Operating expenses 41,158 53,780
Real estate taxes 68,250 81,900
Insurance 7,307 8,768
-------------------- -------------------
Total direct operating expenses 116,715 144,448
-------------------- -------------------
Excess of gross income over direct operating expenses $ 434,610 $ 559,485
==================== ===================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-311
FIVE FORKS
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. Basis of Presentation
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,
respectively, has been prepared from the operating statements provided by the
owners of the property during that period and requires management of Five Forks
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, 2003 and the nine
months ended September 30, 2004, respectively.
F-312
GATEWAY STATION
Historical Summary of Gross Income and Direct Operating Expenses
For the period from June 21, 2004 (commencement of operations) to
September 30, 2004 (unaudited)
FOR THE PERIOD FROM JUNE 21, 2004
(COMMENCEMENT OF OPERATIONS)
TO SEPTEMBER 30, 2004
---------------------------------
(unaudited)
Gross income:
Base rental income $ 72,431
Operating expense and real estate tax recoveries 16,167
---------------------------------
Total gross income 88,598
---------------------------------
Direct operating expenses:
Operating expenses 5,665
Real estate taxes 62,000
Insurance 3,376
---------------------------------
Total direct operating expenses 71,041
---------------------------------
Excess of gross income over direct operating expenses $ 17,557
================================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-313
GATEWAY STATION
Historical Summary of Gross Income and Direct Operating Expenses
For the period from June 21, 2004 (commencement of operations) to
September 30, 2004 (unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from June 21, 2004 (commencement of operations) to September 30, 2004 has
been prepared from the operating statements provided by the owners of the
property during that period and requires management of Gateway Station 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 June 21, 2004 (commencement
of operations) to September 30, 2004.
F-314
SHOPS AT FOREST COMMONS
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 FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------- -------------------
(unaudited) (unaudited)
Gross income:
Base rental income $ 386,076 $ 405,451
Operating expense and real estate tax recoveries 124,949 103,538
-------------------- -------------------
Total gross income 511,025 508,989
-------------------- -------------------
Direct operating expenses:
Operating expenses 76,399 67,720
Real estate taxes 76,670 68,614
Insurance 3,562 10,672
-------------------- -------------------
Total direct operating expenses 156,631 147,006
-------------------- -------------------
Excess of gross income over direct operating expenses $ 354,394 $ 361,983
==================== ===================
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-315
SHOPS AT FOREST COMMONS
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. Basis of Presentation
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,
respectively, has been prepared from the operating statements provided by the
owners of the property during that period and requires management of Shops at
Forest Commons 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, 2003 and the nine
months ended September 30, 2004, respectively.
F-316
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 Southlake Town Square
("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
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 Pre-Effective Amendment No. 2 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 Southlake Town Square for the year ended December
31, 2003, in conformity with accounting principles generally accepted in
the United States of America.
KPMG LLP
Chicago, Illinois
December 7, 2004
F-317
SOUTHLAKE TOWN SQUARE
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 FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 2004 DECEMBER 31, 2003
----------------------- -------------------
(unaudited)
Gross income:
Base rental income $ 7,384,989 $ 9,017,634
Operating expense and real estate tax recoveries 2,351,712 2,812,230
----------------- --------------
Total gross income 9,736,701 11,829,864
----------------- --------------
Direct operating expenses:
Operating expenses 1,071,140 1,483,675
Real estate taxes 1,619,671 1,946,159
Insurance 75,909 100,029
----------------- --------------
Total direct operating expenses 2,766,720 3,529,863
----------------- --------------
Excess of gross income over direct operating
expenses $ 6,969,981 $ 8,300,001
================= ==============
See accompanying notes to historical summary of gross income
and direct operating expense.
F-318
SOUTHLAKE TOWN SQUARE
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
Southlake Town Square ("the Property") is located in Southlake, Texas.
The Property consists of approximately 471,000 square feet of gross
leasable area and was approximately 98% occupied at December 31, 2003.
As of December 31, 2003 the Property is leased to 139 tenants. Inland
Western Retail Real Estate Trust, Inc. ("IWRRETI") is expected to close
on the acquisition of the Property from an unaffiliated third party on
December 22, 2004.
(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 Pre-Effective Amendment No. 2 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.
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, 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 acheived. No contingent
rent was earned during 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 $343,431 for the year ended December 31,
2003.
F-319
SOUTHLAKE TOWN SQUARE
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 20 years, in effect as of December 31, 2003, are
as follows:
Year
------------------ -----------------
2004 $ 9,649,153
2005 9,887,579
2006 9,186,648
2007 8,394,728
2008 7,599,776
Thereafter 15,943,145
-----------------
$ 60,661,029
=================
(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-320
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 Eastern Retail Holdings, L.P. for the year ended
December 31, 2003. This Combined Historical Summary is the responsibility
of 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 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 the Pre-Effective Amendment No. 2 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 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 Eastern Retail
Holdings, L.P. for the year ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
December 3, 2004
F-321
THE PROPERTIES ACQUIRED FROM EASTERN RETAIL HOLDINGS, L.P.
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)
FOR THE NINE MONTHS FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 2004 DECEMBER 31, 2003
--------------------- -------------------
(unaudited)
Gross income:
Base rental income $ 1,234,825 $ 1,528,186
Operating expense and real estate tax recoveries 195,977 282,757
------------- ---------------
Total gross income 1,430,802 1,810,943
------------- ---------------
Direct operating expenses:
Operating expenses 73,719 140,974
Real estate taxes 120,266 157,811
Insurance 23,768 33,624
------------- ---------------
Total direct operating expenses 217,753 332,409
------------- ---------------
Excess of gross income over direct operating expenses $ 1,213,049 $ 1,478,534
============= ===============
See accompanying notes to combined historical summary of gross income
and direct operating expense.
F-322
THE PROPERTIES ACQUIRED FROM EASTERN RETAIL HOLDINGS, L.P.
Notes to 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)
(1) BUSINESS
The Properties acquired from Eastern Retail Holdings, LP ("the
Properties") consist of the following:
GROSS LEASABLE OCCUPANCY AT DECEMBER 31,
NAME AREA LOCATION 2003
---- -------------- -------- -------------------------
Irmo Station 99,619 Irmo, South Carolina 98%
Evans Towne Centre 75,695 Evans, Georgia 95%
The Properties are leased to a total of 35 tenants, of which eight
tenants account for approximately 74% of base rental revenue for the
year ended December 31, 2003. Inland Western Retail Real Estate
Trust, Inc. ("IWRRETI") is expected to close on the acquisition of the
Property from an unaffiliated third party on December 23, 2004.
(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 the Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-11 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.
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 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, 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.
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 $24,923 for the year ended December 31,
2003.
F-323
THE PROPERTIES ACQUIRED FROM EASTERN RETAIL HOLDINGS, L.P.
Notes to 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)
Minimum rents to be received from tenants under operating leases, which
terms range from one to 20 years, in effect at December 31, 2003, are as
follows:
Year
------------------- -------------------
2004 $ 1,547,749
2005 1,390,016
2006 1,195,315
2007 1,077,948
2008 991,186
Thereafter 8,514,187
-------------
$ 14,716,401
=============
(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-324
APPENDIX A
PRIOR PERFORMANCE TABLES
The following prior performance tables contain information concerning
real estate programs sponsored by affiliates of our business manager/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 business
manager/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*
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.
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
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 business manager/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)
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
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.
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
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 business
manager/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
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
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.
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
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
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
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 distributions
and special items 148,231 55,250 17,170 5,366 2,538
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%
============
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
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.
(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
==================================================================
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
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 business manager/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.
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
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, 2003. Since January 1, 2001, programs sponsored
by affiliates of our business manager/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.
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-10
TABLE V (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
Cash Selling Adjust.
Received, Commissions Secured Resulting
net of Paid or Mortgage Notes from Net
Date Date of Closing Payable to at Time Received Application Selling
Acquired Sale Costs(B) Inland of Sale at Sale of GAAP Price
-------------------------------------------------------------------------------------------------------------------------
IREC - Lincoln Park Place 01/24/97 04/17/01 1,314 0 1,050 0 0 2,364
IREC - Antioch Plaza 12/95 03/28/02 943 0 875 0 0 1,818
IREC - Shorecrest Plaza 07/97 06/12/02 3,107 0 2,978 0 0 6,085
IREC - Popeye's 06/97 04/08/03 343 0 0 0 0 343
IREC - Summit of Park Ridge 12/96 12/24/03 3,578 0 1,600 0 0 5,178
IREC - Eagle Country Market 11/97 12/24/03 5,182 0 1,450 0 0 6,632
IREC - Eagle Ridge Center 04/99 12/30/03 3,185 0 3,000 0 0 6,185
Partnership
Original Capital
Mortgage Invested
Financing (C) Total
-------------------------------------------------------------
IREC - Lincoln Park Place 0 1,897 1,897
IREC - Antioch Plaza 875 753 1,628
IREC - Shorecrest Plaza 2,978 2,947 5,925
IREC - Popeye's 0 346 346
IREC - Summit of Park Ridge 0 5,181 5,181
IREC - Eagle Country Market 0 6,635 6,635
IREC - Eagle Ridge Center 0 6,187 6,187
Excess (deficiency) Amount of
of property operating subsidies
cash receipts over included in Total Taxable
cash expenditures operating cash Gain (loss) Ordinary Income Capital
(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
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-11
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.
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-12
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.
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-13
TABLE VL- (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 CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
---------------------------------------------------------------------------------------------------------------------------------
INLAND REAL ESTATE CORPORATION:
PETsMART, Gurnee, IL 25,692 04/01 3,304 - 3,304
Eckerd Drug Store, Chattanooga, TN 10,908 05/02 2,367 - 2,367
Michael's, Coon Rapids, MN 24,317 07/02 2,808 - 2,808
Deer Trace, Kohler, WI 149,881 07/02 13,281 - 13,281
Disney, Celebration, FL 166,131 07/02 27,281 13,600 13,681
Townes Crossing, Oswego, IL 105,989 08/02 12,043 - 12,043
Park Square, Brooklyn Park, MN 137,116 08/02 9,873 5,850 4,023
Forest Lake Marketplace, Forest Lake, MN 93,853 09/02 11,856 - 11,856
Naper West Ph II, Naperville, IL 50,000 10/02 3,116 - 3,116
Walgreens, Jennings, MO 15,120 10/02 2,706 - 2,706
Four Flaggs Annex, Niles, IL 21,790 11/02 3,289 - 3,289
Four Flaggs, Niles, IL 306,479 11/02 21,298 12,510 8,788
Brunswick Market Center, Brunswick, OH 119,540 12/02 13,458 - 13,458
Medina Marketplace, Medina, OH 72,781 12/02 9,511 - 9,511
Shakopee Valley, Shakopee, MN 146,436 12/02 14,700 - 14,700
Shops at Orchard Place, Skokie, IL 164,542 12/02 42,752 - 42,752
Cub Foods, Hutchinson, MN 60,208 01/03 5,388 - 5,388
Mankato Heights, Mankato, MN 129,410 04/03 15,102 - 15,102
Caton Crossing, Plainfield, IL 83,792 06/03 11,165 - 11,165
Village Ten, Coon Rapids, MN 211,568 08/03 15,104 - 15,104
Rochester Marketplace, Rochester, MN 69,914 09/03 9,371 - 9,371
University Crossing, Mishawaka, IN 136,422 10/03 14,913 - 14,913
Total for Inland Real Estate Corporation 2,301,889 $ 264,686 $ 31,960 $ 232,726
============ ========== ================ ================= =========
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------
INLAND REAL ESTATE CORPORATION:
PETsMART, Gurnee, IL 0 3,304
Eckerd Drug Store, Chattanooga, TN 2 2,369
Michael's, Coon Rapids, MN 0 2,808
Deer Trace, Kohler, WI 0 13,281
Disney, Celebration, FL 0 27,281
Townes Crossing, Oswego, IL 319 12,362
Park Square, Brooklyn Park, MN 160 10,033
Forest Lake Marketplace, Forest Lake, MN (41) 11,815
Naper West Ph II, Naperville, IL 1,298 4,414
Walgreens, Jennings, MO 6 2,712
Four Flaggs Annex, Niles, IL 6 3,295
Four Flaggs, Niles, IL 2,645 23,943
Brunswick Market Center, Brunswick, OH 247 13,705
Medina Marketplace, Medina, OH 4 9,515
Shakopee Valley, Shakopee, MN 12 14,712
Shops at Orchard Place, Skokie, IL (129) 42,623
Cub Foods, Hutchinson, MN 7 5,395
Mankato Heights, Mankato, MN (12) 15,090
Caton Crossing, Plainfield, IL 7 11,172
Village Ten, Coon Rapids, MN 0 15,104
Rochester Marketplace, Rochester, MN (7) 9,364
University Crossing, Mishawaka, IN 20 14,933
Total for Inland Real Estate Corporation $ 4,544 $ 269,230
=============== =================
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-14
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
---------------------------------------------------------------------------------------------------------------------------------
INLAND RETAIL REAL ESTATE TRUST, INC.:
Columbia Promenade, Kissimmee, FL 65,870 01/01 7,440 - 7,440
K-Mart, Macon, GA 102,098 02/01 9,031 - 9,031
Lowe's Home Improvement Center, Warner Robbins, GA 131,575 02/01 9,431 - 9,431
West Oaks, Ocoee, FL 66,539 03/01 11,221 - 11,221
PETsMART - Chattanooga, Chattanooga, TN 26,040 04/01 3,103 - 3,103
PETsMART - Daytona Beach, Daytona Beach, FL 26,194 04/01 3,238 - 3,238
PETsMART - Fredricksburg, Fredricksburg, VA 26,067 04/01 3,410 - 3,410
Sand Lake Corners, Orlando, FL 189,741 05/01 22,256 - 22,256
Jo-Ann Fabrics, Alpharetta, GA 44,418 06/01 4,911 - 4,911
Woodstock Square, Atlanta, GA 218,819 06/01 27,596 - 27,596
Chickasaw Trails Shopping Center, Orlando, FL 75,492 08/01 8,631 - 8,631
Just for Feet - Daytona, Daytona Beach, FL 22,255 08/01 3,901 - 3,901
Skyview Plaza, Orlando, FL 281,247 09/01 21,332 - 21,332
Aberdeen Square, Boynton Beach, FL 70,555 10/01 6,717 - 6,717
Anderson Central, Anderson, SC 223,211 11/01 15,863 11,000 4,863
Brandon Blvd. Shoppes, Brandon, FL 85,377 11/01 9,482 - 9,482
Creekwood Crossing, Bradenton, FL 227,052 11/01 23,616 - 23,616
Eckerd Drug Store - Greenville, Greenville, SC 10,908 11/01 2,828 - 2,828
Abernathy Square, Atlanta, GA 131,649 12/01 24,131 - 24,131
Citrus Hills, Citrus Hills, FL 68,927 12/01 6,027 - 6,027
Douglasville Pavilion, Douglasville, GA 267,764 12/01 27,377 20,000 7,377
Eckerd Drug Store - Spartanburg, Spartanburg, SC 10,908 12/01 2,807 - 2,807
Fayetteville Pavilion, Fayetteville, NC 272,385 12/01 26,898 20,133 6,765
Southlake Pavilion, Morrow, GA 525,162 12/01 56,377 39,740 16,637
Steeplechase Plaza, Ocala, FL 87,380 12/01 8,647 - 8,647
Venture Pointev, Duluth, GA 334,620 12/01 26,533 13,334 13,199
Sarasota Pavilion, Sarasota, FL 324,140 01/02 42,100 - 42,100
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------
INLAND RETAIL REAL ESTATE TRUST, INC.:
Columbia Promenade, Kissimmee, FL (6) 7,434
K-Mart, Macon, GA - 9,031
Lowe's Home Improvement Center, Warner Robbins, GA - 9,431
West Oaks, Ocoee, FL 27 11,248
PETsMART - Chattanooga, Chattanooga, TN - 3,103
PETsMART - Daytona Beach, Daytona Beach, FL - 3,238
PETsMART - Fredricksburg, Fredricksburg, VA - 3,410
Sand Lake Corners, Orlando, FL (90) 22,166
Jo-Ann Fabrics, Alpharetta, GA - 4,911
Woodstock Square, Atlanta, GA (56) 27,540
Chickasaw Trails Shopping Center, Orlando, FL 14 8,645
Just for Feet - Daytona, Daytona Beach, FL 4 3,905
Skyview Plaza, Orlando, FL 624 21,956
Aberdeen Square, Boynton Beach, FL (30) 6,687
Anderson Central, Anderson, SC (111) 15,752
Brandon Blvd. Shoppes, Brandon, FL 5 9,487
Creekwood Crossing, Bradenton, FL 96 23,712
Eckerd Drug Store - Greenville, Greenville, SC (17) 2,811
Abernathy Square, Atlanta, GA 280 24,411
Citrus Hills, Citrus Hills, FL 191 6,218
Douglasville Pavilion, Douglasville, GA (156) 27,221
Eckerd Drug Store - Spartanburg, Spartanburg, SC 11 2,818
Fayetteville Pavilion, Fayetteville, NC 1,285 28,183
Southlake Pavilion, Morrow, GA 7,413 63,790
Steeplechase Plaza, Ocala, FL 457 9,104
Venture Pointev, Duluth, GA (149) 26,384
Sarasota Pavilion, Sarasota, FL 182 42,282
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-15
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
----------------------------------------------------------------------------------------------------------------------------------
Turkey Creek Phase I, Knoxville, TN 284,224 01/02 21,762 - 21,762
Universal Plaza, Lauderhill, FL 49,816 01/02 9,872 - 9,872
Hairston Crossing, Decatur, GA 57,884 02/02 6,630 - 6,630
Just for Feet - Augusta, Augusta, GA 22,115 02/02 3,054 - 3,054
Just For Feet - Covington, Covington, LA 20,116 02/02 3,447 - 3,447
Logger Head Junction, Sarasota, FL 4,711 02/02 665 - 665
Shoppes of Golden Acres, Newport Richey, FL 76,371 02/02 10,831 - 10,831
Newnan Pavilion, Newnan, GA 481,004 03/02 33,114 - 33,114
Eisenhower Crossing I & II, Macon, GA 403,013 11/01,03/02 43,292 - 43,292
Acworth Avenue Retail Shopping Center, Acworth, GA 16,130 12/00,3/02 2,834 - 2,834
Crystal Springs Shopping Center, Crystal
Springs, FL 67,021 04/02 7,478 - 7,478
Eckerd Drug Store - Concord, Concord, NC 10,908 04/02 2,039 - 2,039
Eckerd Drug Store - Tega Cay, Tega Cay, SC 13,824 04/02 2,544 - 2,544
Melbourne Shopping Center, Melbourne, FL 209,217 04/02 9,842 5,949 3,893
Riverstone Plaza, Canton, GA 302,024 04/02 31,943 - 31,943
Target Center, Columbia, SC 79,253 04/02 7,673 - 7,673
Hampton Point, Taylors, SC 58,316 05/02 4,526 - 4,526
Northpoint Marketplace, Spartanburg, SC 101,982 05/02 8,269 - 8,269
Oleander Shopping Center, Wilmington, NC 51,888 05/02 5,221 3,000 2,221
Sharon Greens, Cumming, GA 98,317 05/02 13,062 - 13,062
Bass Pro Outdoor World, Dania Beach, FL 165,000 06/02 18,220 - 18,220
Chesterfield Crossings, Richmond, VA, 68,898 06/02 10,982 - 10,982
Circuit City-Rome, Rome, GA 33,056 06/02 4,476 - 4,476
Circuit City-Vero Beach, Vero Beach, FL 33,243 06/02 5,648 - 5,648
Hillsboro Square, Deerfield Beach, FL 145,647 06/02 18,985 - 18,985
Stonebridge Square, Roswell, GA 160,104 06/02 19,529 - 19,529
Ward's Crossing, Lynchburg, VA 80,918 06/02 11,100 - 11,100
Circuit City Plaza, Orlando, FL 78,625 07/02 11,518 - 11,518
Eckerd Drug Store - Woodruff, Woodruff, SC 13,824 07/02 2,475 - 2,475
McFarland Plaza, Tuscaloosa, AL 221,807 07/02 15,259 - 15,259
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------
Turkey Creek Phase I, Knoxville, TN 10,181 31,943
Universal Plaza, Lauderhill, FL 2 9,874
Hairston Crossing, Decatur, GA 34 6,664
Just for Feet - Augusta, Augusta, GA 3 3,057
Just For Feet - Covington, Covington, LA - 3,447
Logger Head Junction, Sarasota, FL - 665
Shoppes of Golden Acres, Newport Richey, FL 101 10,932
Newnan Pavilion, Newnan, GA 2,623 35,737
Eisenhower Crossing I & II, Macon, GA (286) 43,006
Acworth Avenue Retail Shopping Center, Acworth, GA 16 2,850
Crystal Springs Shopping Center, Crystal
Springs, FL (2) 7,476
Eckerd Drug Store - Concord, Concord, NC 156 2,195
Eckerd Drug Store - Tega Cay, Tega Cay, SC 544 3,088
Melbourne Shopping Center, Melbourne, FL 935 10,777
Riverstone Plaza, Canton, GA 243 32,186
Target Center, Columbia, SC 20 7,693
Hampton Point, Taylors, SC 55 4,581
Northpoint Marketplace, Spartanburg, SC (128) 8,141
Oleander Shopping Center, Wilmington, NC 12 5,233
Sharon Greens, Cumming, GA 79 13,141
Bass Pro Outdoor World, Dania Beach, FL 16 18,236
Chesterfield Crossings, Richmond, VA, 723 11,705
Circuit City-Rome, Rome, GA 6 4,482
Circuit City-Vero Beach, Vero Beach, FL 9 5,657
Hillsboro Square, Deerfield Beach, FL 2,565 21,550
Stonebridge Square, Roswell, GA 1,653 21,182
Ward's Crossing, Lynchburg, VA (76) 11,024
Circuit City Plaza, Orlando, FL - 11,518
Eckerd Drug Store - Woodruff, Woodruff, SC 374 2,849
McFarland Plaza, Tuscaloosa, AL 21 15,280
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-16
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
---------------------------------------------------------------------------------------------------------------------------------
Sycamore Commons, Matthews, NC 256,523 07/02 38,184 - 38,184
Walk at Highwoods I, Tampa, FL 133,940 07/02 23,999 - 23,999
Eckerd Drug Store - Blackstock, Spartanburg, SC 10,908 08/02 2,723 - 2,723
Forestdale Plaza, Jamestown, NC 53,239 08/02 6,670 - 6,670
Sexton Commons, Fuquay Varina, NC 49,097 08/02 8,023 - 8,023
Shoppes at Lake Mary, Lake Mary, FL 69,843 08/02 11,140 - 11,140
Wakefield Crossing, Raleigh, NC 75,929 08/02 10,794 - 10,794
Circuit City-Cary, Cary, NC 27,891 09/02 5,650 - 5,650
Cox Creek, Florence, AL 173,934 09/02 19,231 15,287 3,944
Forest Hills Centre, Wilson, NC 73,280 09/02 6,675 - 6,675
Golden Gate, Greensboro, NC 153,114 10/02 10,545 - 10,545
Goldenrod Groves, Orlando, FL 108,944 10/02 9,177 - 9,177
City Crossing, Warner Robins, GA 187,099 11/02 14,644 - 14,644
Clayton Corners, Clayton, NC 125,656 11/02 14,994 9,740 5,254
CompUSA Retail Center, Newport News, VA 47,134 11/02 7,324 - 7,324
Duvall Village, Bowie, MD 82,522 11/02 13,046 - 13,046
Gateway Plaza - Jacksonville, Jacksonville, NC 101,682 11/02 11,865 - 11,865
Harundale Plaza, Glen Burnie, MD 274,160 11/02 24,752 - 24,752
Jones Bridge Plaza, Norcross, GA 83,363 11/02 7,525 - 7,525
Lakewood Ranch, Bradenton, FL 69,472 11/02 9,494 4,400 5,094
North Aiken Bi-Lo Center, Aiken, SC 59,204 11/02 5,816 - 5,816
Plant City Crossing, Plant City, FL 85,252 11/02 10,879 - 10,879
Presidential Commons, Snellville, GA 372,149 11/02 45,032 26,113 18,919
Rainbow Foods - Garland, Garland, TX 70,576 11/02 5,098 - 5,098
Rainbow Foods - Rowlett, Rowlett, TX 63,117 11/02 4,604 - 4,604
River Ridge, Birmingham, AL 158,755 11/02 26,492 - 26,492
Rosedale Shopping Center, Huntersville, NC 94,248 11/02 19,544 13,300 6,244
Shoppes on the Circle, Dothan, AL 149,085 11/02 15,013 12,210 2,803
Southlake Shopping Center, Cornelius, NC 131,247 11/02 13,633 7,962 5,671
Village Square at Golf, Boynton Beach, FL 134,894 11/02 18,537 - 18,537
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------
Sycamore Commons, Matthews, NC 3,077 41,261
Walk at Highwoods I, Tampa, FL 72 24,071
Eckerd Drug Store - Blackstock, Spartanburg, SC - 2,723
Forestdale Plaza, Jamestown, NC (114) 6,556
Sexton Commons, Fuquay Varina, NC (129) 7,894
Shoppes at Lake Mary, Lake Mary, FL 59 11,199
Wakefield Crossing, Raleigh, NC (182) 10,612
Circuit City-Cary, Cary, NC 4 5,654
Cox Creek, Florence, AL 31 19,262
Forest Hills Centre, Wilson, NC 11 6,686
Golden Gate, Greensboro, NC 23 10,568
Goldenrod Groves, Orlando, FL 741 9,918
City Crossing, Warner Robins, GA 3,204 17,848
Clayton Corners, Clayton, NC (5) 14,989
CompUSA Retail Center, Newport News, VA 5 7,329
Duvall Village, Bowie, MD 369 13,415
Gateway Plaza - Jacksonville, Jacksonville, NC (24) 11,841
Harundale Plaza, Glen Burnie, MD (40) 24,712
Jones Bridge Plaza, Norcross, GA 401 7,926
Lakewood Ranch, Bradenton, FL 39 9,533
North Aiken Bi-Lo Center, Aiken, SC 13 5,829
Plant City Crossing, Plant City, FL (16) 10,863
Presidential Commons, Snellville, GA 6 45,038
Rainbow Foods - Garland, Garland, TX 5 5,103
Rainbow Foods - Rowlett, Rowlett, TX 2 4,606
River Ridge, Birmingham, AL 79 26,571
Rosedale Shopping Center, Huntersville, NC (122) 19,422
Shoppes on the Circle, Dothan, AL 19 15,032
Southlake Shopping Center, Cornelius, NC (15) 13,618
Village Square at Golf, Boynton Beach, FL (263) 18,274
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-17
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
---------------------------------------------------------------------------------------------------------------------------------
Chatham Crossing, Siler City, NC 32,000 12/02 3,964 - 3,964
Columbiana Station, Columbia, SC 270,649 12/02 46,615 - 46,615
Gateway Plaza - Conway, Conway, SC 62,428 12/02 6,295 - 6,295
Lakeview Plaza, Kissimmee, FL 54,788 12/02 6,187 3,613 2,574
Meadowmont Village Center, Chapel Hill, NC 133,471 12/02 26,808 - 26,808
Shoppes at Citiside, Charlotte, NC 75,478 12/02 9,706 - 9,706
Shoppes at New Tampa, Wesley Chapel, FL 158,342 12/02 19,196 - 19,196
Camp Hill Center, Harrisburg, PA 63,350 01/03 7,786 - 7,786
Eckerd Drug Store - #5018, Amherst, NY 10,908 01/03 2,805 1,582 1,223
Eckerd Drug Store - #5661, Buffalo, NY 12,732 01/03 3,145 1,777 1,368
Eckerd Drug Store - #5786, Dunkirk, NY 10,908 01/03 1,720 905 815
Eckerd Drug Store - #5797, Cheektowaga, NY 10,908 01/03 3,756 1,636 2,120
Eckerd Drug Store - #6007, Connelsville, PA 10,908 01/03 3,503 1,636 1,867
Eckerd Drug Store - #6036, Pittsburgh, PA 10,908 01/03 3,840 1,636 2,204
Eckerd Drug Store - #6040, Monroeville,PA 12,738 01/03 5,430 1,911 3,519
Eckerd Drug Store - #6043, Monroeville,PA 10,908 01/03 3,315 1,637 1,678
Eckerd Drug Store - #6062, Harborcreek, PA 10,908 01/03 2,527 1,418 1,109
Eckerd Drug Store - #6089, Weirton, WV 10,908 01/03 2,472 1,374 1,098
Eckerd Drug Store - #6095, Cheswick, PA 10,908 01/03 2,791 1,571 1,220
Eckerd Drug Store - #6172, New Castle,PA 10,908 01/03 2,877 1,636 1,241
Eckerd Drug Store - #6193, Erie, PA 10,908 01/03 2,919 1,636 1,283
Eckerd Drug Store - #6199, Millcreek, PA 10,908 01/03 3,729 1,637 2,092
Eckerd Drug Store - #6257, Millcreek, PA 10,908 01/03 1,444 640 804
Eckerd Drug Store - #6286, Erie, PA 10,908 01/03 4,193 1,601 2,592
Eckerd Drug Store - #6334, Erie, PA 10,908 01/03 2,997 1,636 1,361
Eckerd Drug Store - #6392, Penn, PA 10,908 01/03 2,949 1,636 1,313
Eckerd Drug Store - #6695, Plum Borough, PA 10,908 01/03 3,669 1,637 2,032
Eckerd Drug Store - Piedmont, Piedmont, SC 10,908 01/03 1,968 - 1,968
Market Square, Douglasville, GA 121,774 01/03 12,905 8,390 4,515
Springfield Park, Lawrenceville, GA 105,321 01/03 10,924 - 10,924
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------
Chatham Crossing, Siler City, NC 16 3,980
Columbiana Station, Columbia, SC 193 46,808
Gateway Plaza - Conway, Conway, SC - 6,295
Lakeview Plaza, Kissimmee, FL 19 6,206
Meadowmont Village Center, Chapel Hill, NC (581) 26,227
Shoppes at Citiside, Charlotte, NC 326 10,032
Shoppes at New Tampa, Wesley Chapel, FL (266) 18,930
Camp Hill Center, Harrisburg, PA 5 7,791
Eckerd Drug Store - #5018, Amherst, NY - 2,805
Eckerd Drug Store - #5661, Buffalo, NY - 3,145
Eckerd Drug Store - #5786, Dunkirk, NY - 1,720
Eckerd Drug Store - #5797, Cheektowaga, NY (1) 3,755
Eckerd Drug Store - #6007, Connelsville, PA - 3,503
Eckerd Drug Store - #6036, Pittsburgh, PA (1) 3,839
Eckerd Drug Store - #6040, Monroeville,PA (2) 5,428
Eckerd Drug Store - #6043, Monroeville,PA - 3,315
Eckerd Drug Store - #6062, Harborcreek, PA - 2,527
Eckerd Drug Store - #6089, Weirton, WV - 2,472
Eckerd Drug Store - #6095, Cheswick, PA - 2,791
Eckerd Drug Store - #6172, New Castle,PA - 2,877
Eckerd Drug Store - #6193, Erie, PA - 2,919
Eckerd Drug Store - #6199, Millcreek, PA (1) 3,728
Eckerd Drug Store - #6257, Millcreek, PA - 1,444
Eckerd Drug Store - #6286, Erie, PA (1) 4,192
Eckerd Drug Store - #6334, Erie, PA - 2,997
Eckerd Drug Store - #6392, Penn, PA - 2,949
Eckerd Drug Store - #6695, Plum Borough, PA - 3,669
Eckerd Drug Store - Piedmont, Piedmont, SC 5 1,973
Market Square, Douglasville, GA 787 13,692
Springfield Park, Lawrenceville, GA 5 10,929
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-18
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
---------------------------------------------------------------------------------------------------------------------------------
Tequesta Shoppes Plaza, Tequesta, FL 109,937 01/03 11,439 - 11,439
Capital Crossing, Raleigh, NC 92,248 02/03 9,984 - 9,984
Colonial Promenade Bardmore Center, Largo, FL 152,667 02/03 17,151 - 17,151
Commonwealth Center II, Richmond, VA 165,382 02/03 22,278 - 22,278
Concord Crossing, Concord, NC 55,930 02/03 5,331 - 5,331
Fountains, Plantation, FL 408,807 02/03 44,412 - 44,412
Marketplace at Mill Creek, Buford, GA 398,407 02/03 50,118 - 50,118
Monroe Shopping Center, Monroe, NC 45,080 02/03 3,548 - 3,548
Oakley Plaza, Asheville, NC 118,727 02/03 9,469 - 9,469
Overlook at King of Prussia, King of Prussia, PA 186,980 02/03 57,045 30,000 27,045
Paraiso Plaza, Hialeah, FL 61,012 02/03 9,481 - 9,481
Publix Brooker Creek, Palm Harbor, FL 77,596 02/03 8,719 4,468 4,251
Sheridan Square, Dania, FL 67,425 02/03 7,586 - 7,586
Stonecrest Marketplace, Lithonia, GA 264,447 02/03 34,742 - 34,742
Suwanee Crossroads, Suwanee, GA 69,500 02/03 12,068 - 12,068
Windsor Court Shopping Center, Windsor Court, CT 78,480 02/03 14,639 - 14,639
Downtown Short Pump, Richmond, VA 125,553 03/03 33,515 - 33,515
Valley Park Commons, Hagerstown, MD 89,579 03/03 11,317 - 11,317
Eckerd - Perry Creek, Perry Creek, NC 10,908 09/02 2,795 - 2,795
Village Center, Mt. Pleasant, WI 217,103 03/03 23,987 - 23,987
Watercolor Crossing, Tallahassee, FL 43,200 03/03 5,485 - 5,485
Bi-Lo - Southern Pines, Southern Pines, NC 57,404 04/03 8,127 - 8,127
Creeks at Virginia Center, Richmond, VA 266,266 04/03 39,458 27,804 11,654
Flamingo Falls, Pembroke Pines, FL 108,565 04/03 23,946 - 23,946
Glenmark Shopping Center, Morgantown, WV 122,167 04/03 12,982 - 12,982
River Run, Miramar, FL 93,643 04/03 11,638 - 11,638
Westside Centre Shopping Center, Huntsville, AL 490,784 04/03 46,015 39,350 6,665
440 Commons, Jersey City, NJ 162,533 05/03 18,046 - 18,046
Barrett Pavilion, Kennesaw, GA 460,755 05/03 80,183 - 80,183
Bi-Lo - Asheville, Asheville, NC 54,319 05/03 7,727 - 7,727
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------
Tequesta Shoppes Plaza, Tequesta, FL (248) 11,191
Capital Crossing, Raleigh, NC 14 9,998
Colonial Promenade Bardmore Center, Largo, FL 45 17,196
Commonwealth Center II, Richmond, VA (133) 22,145
Concord Crossing, Concord, NC 5 5,336
Fountains, Plantation, FL - 44,412
Marketplace at Mill Creek, Buford, GA 50 50,168
Monroe Shopping Center, Monroe, NC 5 3,553
Oakley Plaza, Asheville, NC 4 9,473
Overlook at King of Prussia, King of Prussia, PA 15 57,060
Paraiso Plaza, Hialeah, FL 26 9,507
Publix Brooker Creek, Palm Harbor, FL 146 8,865
Sheridan Square, Dania, FL 23 7,609
Stonecrest Marketplace, Lithonia, GA (115) 34,627
Suwanee Crossroads, Suwanee, GA (69) 11,999
Windsor Court Shopping Center, Windsor Court, CT 10 14,649
Downtown Short Pump, Richmond, VA (147) 33,368
Valley Park Commons, Hagerstown, MD 12 11,329
Eckerd - Perry Creek, Perry Creek, NC (66) 2,729
Village Center, Mt. Pleasant, WI (33) 23,954
Watercolor Crossing, Tallahassee, FL - 5,485
Bi-Lo - Southern Pines, Southern Pines, NC (62) 8,065
Creeks at Virginia Center, Richmond, VA 1,608 41,066
Flamingo Falls, Pembroke Pines, FL - 23,946
Glenmark Shopping Center, Morgantown, WV 335 13,317
River Run, Miramar, FL (5) 11,633
Westside Centre Shopping Center, Huntsville, AL 2,035 48,050
440 Commons, Jersey City, NJ 9 18,055
Barrett Pavilion, Kennesaw, GA (51) 80,132
Bi-Lo - Asheville, Asheville, NC (1) 7,726
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-19
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
---------------------------------------------------------------------------------------------------------------------------------
Bi-Lo - Shelmore, Mt. Pleasant, SC 61,705 05/03 11,836 - 11,836
Bi-Lo - Sylvania, Sylvania, GA 36,000 05/03 4,407 - 4,407
Birkdale Village, Charlotte, NC 653,983 05/03 96,410 - 96,410
BJ'S Wholesale Club, Charlotte, NC 99,792 05/03 13,025 - 13,025
Brick Center Plaza, Brick, NJ 114,028 05/03 19,451 - 19,451
East Hanover Plaza, East Hanover, NJ 122,028 05/03 17,312 - 17,312
Eckerd Drug Store - #0234, Marietta, GA 10,880 05/03 2,044 1,161 883
Eckerd Drug Store - #0444, Gainesville, GA 10,594 05/03 1,986 1,129 857
Eckerd Drug Store - #0818, Ft. Worth, TX 10,908 05/03 2,691 1,540 1,151
Eckerd Drug Store - #0862, Wichita Falls, TX 9,504 05/03 2,087 1,203 884
Eckerd Drug Store - #0943, Richardson, TX 10,560 05/03 2,354 1,338 1,016
Eckerd Drug Store - #0963, Richardson, TX 10,560 05/03 2,313 1,316 997
Eckerd Drug Store - #0968, Wichita Falls, TX 9,504 05/03 1,837 1,036 801
Eckerd Drug Store - #0980, Dallas, TX 9,504 05/03 1,917 1,097 820
Eckerd Drug Store - #2320, Snellville, GA 10,594 05/03 2,230 1,271 959
Eckerd Drug Store - #2506, Dallas, TX 9,504 05/03 2,073 1,177 896
Eckerd Drug Store - #3072, Richland Hills, TX 10,908 05/03 2,663 1,521 1,142
Eckerd Drug Store - #3152, Lake Worth, TX 9,504 05/03 1,805 1,021 784
Eckerd Drug Store - #3169, River Oaks, TX 10,908 05/03 2,705 1,546 1,159
Eckerd Drug Store - #3192, Tyler, TX 9,504 05/03 1,495 845 650
Eckerd Drug Store - #3338, Kissimmee, FL 10,880 05/03 2,479 1,407 1,072
Eckerd Drug Store - #3350, Oklahoma City, OK 9,504 05/03 1,776 1,005 771
Eckerd Drug Store - #3363, Ft. Worth, TX 9,504 05/03 1,661 941 720
Eckerd Drug Store - #3449, Lawrenceville, GA 9,504 05/03 2,061 - 2,061
Eckerd Drug Store - #3528, Plano, TX 10,908 05/03 2,535 1,445 1,090
Edgewater Town Center, Edgewater, NJ 77,446 05/03 27,030 - 27,030
Goody's Shopping Center, Augusta, GA 22,560 05/03 2,051 - 2,051
Heritage Pavilion, Smyrna, GA 262,961 05/03 40,013 - 40,013
Hiram Pavilion, Hiram, GA 363,618 05/03 36,787 - 36,787
Killearn Shopping Center, Tallahassee, FL 94,547 05/03 10,945 4,041 6,904
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------
Bi-Lo - Shelmore, Mt. Pleasant, SC 10 11,846
Bi-Lo - Sylvania, Sylvania, GA 2 4,409
Birkdale Village, Charlotte, NC (897) 95,513
BJ'S Wholesale Club, Charlotte, NC 1 13,026
Brick Center Plaza, Brick, NJ 13 19,464
East Hanover Plaza, East Hanover, NJ 5 17,317
Eckerd Drug Store - #0234, Marietta, GA 4 2,048
Eckerd Drug Store - #0444, Gainesville, GA 4 1,990
Eckerd Drug Store - #0818, Ft. Worth, TX 4 2,695
Eckerd Drug Store - #0862, Wichita Falls, TX 4 2,091
Eckerd Drug Store - #0943, Richardson, TX 4 2,358
Eckerd Drug Store - #0963, Richardson, TX 4 2,317
Eckerd Drug Store - #0968, Wichita Falls, TX 4 1,841
Eckerd Drug Store - #0980, Dallas, TX 4 1,921
Eckerd Drug Store - #2320, Snellville, GA 4 2,234
Eckerd Drug Store - #2506, Dallas, TX 4 2,077
Eckerd Drug Store - #3072, Richland Hills, TX 4 2,667
Eckerd Drug Store - #3152, Lake Worth, TX 4 1,809
Eckerd Drug Store - #3169, River Oaks, TX 4 2,709
Eckerd Drug Store - #3192, Tyler, TX 4 1,499
Eckerd Drug Store - #3338, Kissimmee, FL 4 2,483
Eckerd Drug Store - #3350, Oklahoma City, OK 4 1,780
Eckerd Drug Store - #3363, Ft. Worth, TX 4 1,665
Eckerd Drug Store - #3449, Lawrenceville, GA 4 2,065
Eckerd Drug Store - #3528, Plano, TX 4 2,539
Edgewater Town Center, Edgewater, NJ 11 27,041
Goody's Shopping Center, Augusta, GA - 2,051
Heritage Pavilion, Smyrna, GA 4 40,017
Hiram Pavilion, Hiram, GA 1,559 38,346
Killearn Shopping Center, Tallahassee, FL 80 11,025
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-20
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
---------------------------------------------------------------------------------------------------------------------------------
Midway Plaza, Tamarac, FL 227,209 05/03 26,858 - 26,858
North Hill Commons, Anderson, SC 42,942 05/03 4,541 - 4,541
Sandy Plains Village, Roswell, GA 175,035 05/03 18,055 - 18,055
Shoppes at Paradise Pointe, Ft Walton Beach, FL 84,070 05/03 11,591 - 11,591
Sony Theatre Complex, East Hanover, NJ 70,549 05/03 12,068 - 12,068
Town & Country, Knoxville, TN 639,135 05/03 49,812 - 49,812
Village Crossing, Skokie, IL 427,722 05/03 69,443 - 69,443
West Falls Plaza, West Paterson, NJ 88,913 05/03 20,980 - 20,980
CostCo Plaza, White Marsh, MD 209,841 06/03 16,857 - 16,857
Denbigh Village Shopping Center, Newport News, VA 311,583 06/03 20,855 - 20,855
Shoppes at Lake Dow, McDonough, GA 73,271 06/03 11,014 - 11,014
Willoughby Hills Shopping Center, Willoughby
Hills, OH 359,414 06/03 37,705 14,480 23,225
Cascades Marketplace, Sterling, VA 98,532 07/03 16,840 - 16,840
Fayette Pavilion III, Fayetteville, GA 619,856 07/03 46,308 - 46,308
Northlake Commons, Palm Beach Gardens, FL 143,955 07/03 21,643 - 21,643
Route 22 Retail Shopping Center, Union, NJ 110,453 07/03 19,054 11,355 7,699
Vision Works, Plantation, FL 6,891 07/03 1,732 - 1,732
Bellevue Place Shopping Center, Nashville, TN 77,249 08/03 10,884 - 10,884
Camfield Corners, Charlotte, NC 69,887 08/03 9,339 - 9,339
Kensington Place, Murfreesboro, TN 70,624 08/03 7,167 - 7,167
Largo Town Center, Upper Marlboro, MD 270,310 08/03 30,947 - 30,947
Naugatuck Valley Shopping Center, Waterbury, CT 383,332 08/03 50,452 - 50,452
Riverdale Shops, West Springfield, MA 273,928 08/03 42,055 - 42,055
Spring Mall Center, Springfield, VA 56,511 08/03 10,481 - 10,481
Walgreen's, Port Huron, MI 14,998 08/03 4,368 - 4,368
Bank First, Winter Park, FL 3,348 09/03 723 - 723
Carlisle Commons, Carlisle, PA 393,023 09/03 39,635 - 39,635
Circuit City - Culver City, Culver City, CA 32,873 09/03 8,781 - 8,781
Circuit City - Highland Ranch, Highland Ranch, CO 43,480 09/03 5,628 - 5,628
Circuit City - Olympia, Olympia, WA 35,776 09/03 5,632 - 5,632
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------
Midway Plaza, Tamarac, FL 265 27,123
North Hill Commons, Anderson, SC 1 4,542
Sandy Plains Village, Roswell, GA 84 18,139
Shoppes at Paradise Pointe, Ft Walton Beach, FL (94) 11,497
Sony Theatre Complex, East Hanover, NJ 5 12,073
Town & Country, Knoxville, TN 1,397 51,209
Village Crossing, Skokie, IL 6,001 75,444
West Falls Plaza, West Paterson, NJ 5 20,985
CostCo Plaza, White Marsh, MD 5 16,862
Denbigh Village Shopping Center, Newport News, VA (106) 20,749
Shoppes at Lake Dow, McDonough, GA (68) 10,946
Willoughby Hills Shopping Center, Willoughby
Hills, OH 22 37,727
Cascades Marketplace, Sterling, VA 5 16,845
Fayette Pavilion III, Fayetteville, GA 2,540 48,848
Northlake Commons, Palm Beach Gardens, FL 523 22,166
Route 22 Retail Shopping Center, Union, NJ - 19,054
Vision Works, Plantation, FL 6 1,738
Bellevue Place Shopping Center, Nashville, TN 5 10,889
Camfield Corners, Charlotte, NC 2 9,341
Kensington Place, Murfreesboro, TN - 7,167
Largo Town Center, Upper Marlboro, MD 7 30,954
Naugatuck Valley Shopping Center, Waterbury, CT 8 50,460
Riverdale Shops, West Springfield, MA 34 42,089
Spring Mall Center, Springfield, VA 2 10,483
Walgreen's, Port Huron, MI 9 4,377
Bank First, Winter Park, FL 8 731
Carlisle Commons, Carlisle, PA 10 39,645
Circuit City - Culver City, Culver City, CA 4 8,785
Circuit City - Highland Ranch, Highland Ranch, CO 3 5,631
Circuit City - Olympia, Olympia, WA 3 5,635
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-21
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
---------------------------------------------------------------------------------------------------------------------------------
Fayette Pavilion I & II, Fayetteville, GA 791,373 09/03 88,521 - 88,521
Kroger - Cincinnati, Cincinnati, OH 56,634 09/03 7,431 - 7,431
Kroger - Grand Prairie, Grand Prairie, TX 64,522 09/03 5,793 - 5,793
Kroger - Westchester, Westchester, OH 56,083 09/03 4,670 - 4,670
Lowe's Home Improvement - Baytown, Baytown, TX 125,357 09/03 11,478 - 11,478
Lowe's Home Improvement - Cullman, Cullman, AL 101,287 09/03 8,960 - 8,960
Lowe's Home Improvement - Houston, Houston, TX 131,644 09/03 12,050 - 12,050
Lowe's Home Improvement - Steubenville,
Steubenville, OH 130,497 09/03 11,442 - 11,442
Southwood Plantation, Tallahassee, FL 62,700 10/02 7,738 - 7,738
Super Wal-Mart - Alliance, Alliance, OH 200,084 09/03 15,879 - 15,879
Super Wal-Mart - Greenville, Greenville, SC 200,084 09/03 16,971 - 16,971
Super Wal-Mart - Winston-Salem, Winston-Salem, NC 204,931 09/03 18,721 - 18,721
Eckerd - Gaffney, Gaffney, SC 13,813 12/02 2,374 - 2,374
Wal-Mart/Sam's Club, Worcester, MA 107,929 09/03 11,194 - 11,194
Bi-Lo at Northside Plaza, Greenwood, SC 41,581 10/03 4,069 - 4,069
Cedar Springs Crossing, Spartanburg, SC 86,581 10/03 10,191 - 10,191
Clearwater Crossing, Flowery Branch, GA 90,566 10/03 13,303 - 13,303
Cortez Plaza, Bradenton, FL 286,610 10/03 26,819 16,828 9,991
Houston Square, Warner Robins, GA 60,799 10/03 5,214 - 5,214
Lexington Place, Lexington, SC 83,167 10/03 8,481 - 8,481
Manchester Broad Street, Manchester, CT 68,509 10/03 13,119 - 13,119
Plaza Del Paraiso, Miami, FL 82,442 10/03 15,417 - 15,417
Seekonk Town Center, Seekonk, MA 80,713 10/03 11,068 - 11,068
Shoppes of Ellenwood, Ellenwood, GA 67,721 10/03 10,703 - 10,703
Shoppes of Lithia, Brandon, FL 71,430 10/03 12,926 - 12,926
Crossroads Plaza, Lumberton, NJ 89,627 11/03 18,232 - 18,232
Hilliard Rome, Columbus, OH 110,772 11/03 17,171 11,883 5,288
Loisdale Center, Springfield, VA 120,742 11/03 29,051 - 29,051
Middletown Village, Middletown, RI 98,161 11/03 17,871 - 17,871
Shoppes at Oliver's Crossing, Winston-Salem, NC 76,512 11/03 10,386 - 10,386
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------
Fayette Pavilion I & II, Fayetteville, GA (357) 88,164
Kroger - Cincinnati, Cincinnati, OH 3 7,434
Kroger - Grand Prairie, Grand Prairie, TX 7 5,800
Kroger - Westchester, Westchester, OH 3 4,673
Lowe's Home Improvement - Baytown, Baytown, TX 7 11,485
Lowe's Home Improvement - Cullman, Cullman, AL 3 8,963
Lowe's Home Improvement - Houston, Houston, TX 7 12,057
Lowe's Home Improvement - Steubenville,
Steubenville, OH 3 11,445
Southwood Plantation, Tallahassee, FL 4 7,742
Super Wal-Mart - Alliance, Alliance, OH 3 15,882
Super Wal-Mart - Greenville, Greenville, SC 3 16,974
Super Wal-Mart - Winston-Salem, Winston-Salem, NC 3 18,724
Eckerd - Gaffney, Gaffney, SC 502 2,876
Wal-Mart/Sam's Club, Worcester, MA 3 11,197
Bi-Lo at Northside Plaza, Greenwood, SC - 4,069
Cedar Springs Crossing, Spartanburg, SC - 10,191
Clearwater Crossing, Flowery Branch, GA - 13,303
Cortez Plaza, Bradenton, FL 1,854 28,673
Houston Square, Warner Robins, GA - 5,214
Lexington Place, Lexington, SC - 8,481
Manchester Broad Street, Manchester, CT - 13,119
Plaza Del Paraiso, Miami, FL - 15,417
Seekonk Town Center, Seekonk, MA - 11,068
Shoppes of Ellenwood, Ellenwood, GA - 10,703
Shoppes of Lithia, Brandon, FL - 12,926
Crossroads Plaza, Lumberton, NJ - 18,232
Hilliard Rome, Columbus, OH 231 17,402
Loisdale Center, Springfield, VA - 29,051
Middletown Village, Middletown, RI - 17,871
Shoppes at Oliver's Crossing, Winston-Salem, NC - 10,386
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-22
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
---------------------------------------------------------------------------------------------------------------------------------
Squirewood Village, Dandridge, TN 46,150 11/03 3,442 - 3,442
Waterfront Marketplace/Town Center, Homestead, PA 755,407 11/03 113,024 72,035 40,989
Winslow Bay Commons, Mooresville, NC 255,598 11/03 42,132 - 42,132
Albertson's at Bloomingdale Hills, Brandon, FL 78,686 12/03 5,856 - 5,856
Oak Summit, Winston-Salem, NC 142,739 12/03 13,666 - 13,666
Paradise Place, West Palm Beach, FL 69,620 12/03 11,688 - 11,688
Pointe at Tampa Plams, Tampa, FL 20,258 12/03 5,282 - 5,282
Southhampton Village, Tyrone, GA 77,900 11/02 10,610 - 10,610
Shoppes on the Ridge 91,165 12/02 11,422 - 11,422
----------------------------------------------------------------------------
Total for 2001 through 2003 acquisitions 29,573,733 3,653,755 497,556 3,156,199
============================================================================
DEVELOPMENT PROJECTS
Fayette Pavilion III, Fayetteville, GA N/A 07/03 203 - 203
Fountains, Plantation, FL N/A 02/03 2,664 - 2,664
Hiram Pavilion, Hiram, GA N/A 05/03 695 - 695
Northlake Commons, Palm Beach Gardens, FL N/A 07/03 640 - 640
Redbud Commons Gastonia, NC N/A 06/03 5,101 - 5,101
Shoppes of Golden Acres II, Newport Richey, FL N/A 02/02 189 - 189
Southhampton Village, Tyrone, GA N/A 11/02 62 - 62
Southlake Pavilion, Morrow, GA N/A 12/01 702 - 702
Turkey Creek II, Knoxville, TN N/A 01/02 1,317 - 1,317
Watercolor Crossing, Tallahassee, FL N/A 03/03 1,028 - 1,028
Westside Center, Huntsville, AL N/A 04/03 4,888 - 4,888
----------------------------------------------------------------------------
Total for Development projects at 12/31/03 - 17,489 - 17,489
============================================================================
GRAND TOTAL 31,875,622 3,935,930 529,516 3,406,414
============================================================================
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-----------------------------------------------------------------------------------------
Squirewood Village, Dandridge, TN - 3,442
Waterfront Marketplace/Town Center, Homestead, PA 4,694 117,718
Winslow Bay Commons, Mooresville, NC - 42,132
Albertson's at Bloomingdale Hills, Brandon, FL - 5,856
Oak Summit, Winston-Salem, NC - 13,666
Paradise Place, West Palm Beach, FL - 11,688
Pointe at Tampa Plams, Tampa, FL - 5,282
Southhampton Village, Tyrone, GA - 10,610
Shoppes on the Ridge - 11,422
------------------------------------
Total for 2001 through 2003 acquisitions 59,541 3,713,296
====================================
DEVELOPMENT PROJECTS
Fayette Pavilion III, Fayetteville, GA - 203
Fountains, Plantation, FL - 2,664
Hiram Pavilion, Hiram, GA - 695
Northlake Commons, Palm Beach Gardens, FL - 640
Redbud Commons Gastonia, NC - 5,101
Shoppes of Golden Acres II, Newport Richey, FL - 189
Southhampton Village, Tyrone, GA - 62
Southlake Pavilion, Morrow, GA - 702
Turkey Creek II, Knoxville, TN - 1,317
Watercolor Crossing, Tallahassee, FL - 1,028
Westside Center, Huntsville, AL - 4,888
------------------------------------
Total for Development projects at 12/31/03 - 17,489
====================================
GRAND TOTAL 64,085 4,000,015
====================================
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-23
TABLE VL- (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."
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE]
A-24
APPENDIX B
DISTRIBUTION 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 _____________ (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 _____________________ (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 (TM) LOGO]
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
INSTRUCTIONS TO SUBSCRIBERS - NOT VALID FOR RESIDENTS OF AZ, NE, OK, AND TX
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.
PAGE 1 OF 4
C-l
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, Missouri, 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.
PAGE 2 OF 4
C-2
[INLAND WESTERN(TM) LOGO]
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
2901 BUTTERFIELD ROAD, OAK BROOK, ILLINOIS 60523 - 800.826.8228
SUBSCRIPTION AGREEMENT/SIGNATURE PAGE For Prospectus Dated September 15, 2003
Please read this Subscription Agreement/Signature Page and the
Terms and Conditions before signing.
Subscriber must read the Subscription Instructions. Residents of AZ, NE, OK, and
TX should use the specific Subscription Agreement for these states.
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 CUSTODIAN 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
OF INCORPORATION __/__/____ MM/DD/YYYY 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
PAGE 3 OF 4
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
------------------------------------ --------------------------------------
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 B/D REP ID NUMBER #
REPRESENTATIVE _____________________________
/ / MR. / / MRS. / / MS. ___-___-____
MAILING ADDRESS _____________________________ REGISTERED REPRESENTATIVE'S TELEPHONE
HAVE YOU CHANGED BROKER/DEALERS? / / YES / / NO
CITY, STATE &
ZIP CODE _____________________________ ------------------------------------------------
REGISTERED REPRESENTATIVE'S E-MAIL
BROKER/DEALER
NAME _____________________________ X
------------------------------------------------
HOME OFFICE SIGNATURE--REGISTERED REPRESENTATIVE
MAILING ADDRESS _____________________________
X
CITY, STATE & ------------------------------------------------
ZIP CODE _____________________________ SIGNATURE--BROKER/DEALER (IF APPLICABLE)
B/D CLIENT
ACCOUNT NUMBER #
(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.
PAGE 4 OF 4
C-4
APPENDIX D
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
TRANSFER ON DEATH FORM (T.O.D.)
Use this form to designate a T.O.D. beneficiary(ies).
This form is NOT VALID for IRA accounts.
Please mail this form to:
Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
Attn: Investor Services
A. INVESTOR INFORMATION
1. Name of registered owner(s), exactly as name(s) appear(s) on stock
certificate of subscription agreement:
___________________________________________________________________________
___________________________________________________________________________
2. Social Security number(s) of registered owner(s):
___-___-____
___-___-____
3. Daytime phone number:
___-___-____
4. State of Residence:
___________________________________________________________________________
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%.
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, 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 but 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 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
D-1
- 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 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 (1) where 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, North Carolina or Texas.
- 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.
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
D-2
APPENDIX E1
LETTER OF DIRECTION
_________________, 20__
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 G
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
G-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.
G-2
[INLAND WESTERN(TM) LOGO]
Retail Real Estate Trust, Inc.
Up to 270,000,000 shares
Inland Western Retail Real Estate Trust, Inc.
Common Stock
----------
PROSPECTUS
----------
[-], 2004
Inland Securities Corporation
You should rely only on the information contained in this prospectus. No
dealer, salesperson or other person is authorized to make any representations
other than those contained in the prospectus and supplemental literature
authorized by Inland Western Retail Real Estate Trust, Inc. and referred to in
this prospectus, and, if given or made, such information and representations
must not be relied upon. This prospectus is not an offer to sell nor is it
seeking an offer to buy these securities in any jurisdiction where the offer or
sale is not permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or any sale of these securities. You should not assume that the
delivery of this prospectus or that any sale made pursuant to this prospectus
implies that the information contained in this prospectus will remain fully
accurate and correct as of any time subsequent to the date of this prospectus.
Until, ______ 2004 (40 days after the date of this prospectus), all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealer's obligation to deliver a prospectus when acting as soliciting
dealers with respect to their unsold allotments or subscriptions.
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.
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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) 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) Consolidated Balance Sheets at September 30, 2004 (unaudited) and
December 31, 2003 (audited)
(h) 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)
(i) Consolidated Statement of Stockholders' Equity for the nine month
period ended September 30, 2004 (unaudited)
(j) 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)
(k) Notes to Consolidated Financial Statements (unaudited)
(l) Pro Forma Consolidated Balance Sheet (unaudited) at September 30, 2004
(m) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at September
30, 2004
(n) Pro Forma Consolidated Statement of Operations (unaudited) for the
nine months ended September 30, 2004
(o) Notes to Pro Forma Consolidated Statement of Operations (unaudited)
for the nine months ended September 30, 2004
(p) Pro Forma Consolidated Statement of Operations (unaudited) for the
year ended December 31, 2003
(q) Notes to Pro Forma Consolidated Statement of Operations (unaudited)
for the year ended December 31, 2003
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)
II-4
3. 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
4. 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
5. STONY CREEK MARKETPLACE:
(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. 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
7. 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
8. 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
9. LARKSPUR LANDING:
(a) Independent Auditors' Report
II-5
(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. 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
11. 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
12. 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
13. 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
14. 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
15. 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-6
16. 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
17. 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)
18. 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)
19. 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)
20. 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)
21. 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)
II-7
22. 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)
23. 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)
24. 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)
25. 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)
26. 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
27. 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)
II-8
28. 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)
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)
29. 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)
30. 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)
31. 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)
32. 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)
33. 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)
II-9
(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)
34. 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)
35. 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)
36. 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)
37. 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)
38. 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)
39. 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)
II-10
(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)
40. 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)
41. 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)
42. 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)
43. 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)
44. 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)
45. 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)
II-11
(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)
46. 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)
47. 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)
48. 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)
49. 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)
50. 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)
51. 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)
52. 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
II-12
(unaudited)
53. 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)
54. 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)
55. 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)
56. 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)
(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)
57. 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)
58. 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)
II-13
(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)
59. 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)
60. 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)
61. 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)
62. 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)
63. 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)
64. 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)
II-14
(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)
65. 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)
66. 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)
67. 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)
68. SOUTHLAKE TOWN SQUARE:
(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)
69. THE PROPERTIES ACQUIRED FROM EASTERN RETAIL HOLDINGS, LP:
(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)
The following financial statements are included as part of Post Effective
Amendment No. 1:
1. 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
II-15
(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
2. 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)
3. 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
4. PROPERTIES ACQUIRED FROM FFI AMERICAN MARKET FUND, L.P.:
(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
5. 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
6. MESA FIESTA:
(a) Independent Auditors' Report
II-16
(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
7. 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
8. 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
9. 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
10. 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)
11. 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)
12. 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)
13. 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)
II-17
(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)
14. 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)
15. 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)
16. 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)
17. 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)
18. 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
II-18
(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.
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.
II-19
EXHIBIT NO. DESCRIPTION
----------- -----------
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.
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.
II-20
EXHIBIT NO. DESCRIPTION
----------- -----------
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.
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.
II-21
EXHIBIT NO. DESCRIPTION
----------- -----------
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.
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.
II-22
EXHIBIT NO. DESCRIPTION
----------- -----------
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.
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.
II-23
EXHIBIT NO. DESCRIPTION
----------- -----------
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.
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.
II-24
EXHIBIT NO. DESCRIPTION
----------- -----------
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.
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.
II-25
EXHIBIT NO. DESCRIPTION
----------- -----------
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.
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.
II-26
EXHIBIT NO. DESCRIPTION
----------- -----------
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.
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
II-27
EXHIBIT NO. DESCRIPTION
----------- -----------
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
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
II-28
EXHIBIT NO. DESCRIPTION
----------- -----------
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
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
II-29
EXHIBIT NO. DESCRIPTION
----------- -----------
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.
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.
II-30
EXHIBIT NO. DESCRIPTION
----------- -----------
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-31
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-32
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-33
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-34
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-35
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-36
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 X 3 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-37
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-38
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-39
EXHIBIT NO. DESCRIPTION
----------- -----------
******** 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-40
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-41
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-42
TABLE VI-(CONTINUED)
ACQUISITIONS OF PROPERTIES BY PROGRAMS (A)
(000'S OMITTED, EXCEPT FOR NUMBER OF SQUARE FEET)
PURCHASE PRICE MORTGAGE OTHER CASH
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT CAPITALIZED (A) COST(B)
------------------------------------------------------------------------------------------------------------------------------------
INLAND REAL ESTATE CORPORATION:
PETsMART, Gurnee, IL 25,692 04/01 3,304 - 3,304 0 3,304
Eckerd Drug Store, Chattanooga,
TN 10,908 05/02 2,367 - 2,367 2 2,369
Michael's, Coon Rapids, MN 24,317 07/02 2,808 - 2,808 0 2,808
Deer Trace, Kohler, WI 149,881 07/02 13,281 - 13,281 0 13,281
Disney, Celebration, FL 166,131 07/02 27,281 13,600 13,681 0 27,281
Townes Crossing, Oswego, IL 105,989 08/02 12,043 - 12,043 319 12,362
Park Square, Brooklyn Park, MN 137,116 08/02 9,873 5,850 4,023 160 10,033
Forest Lake Marketplace, Forest
Lake, MN 93,853 09/02 11,856 - 11,856 (41) 11,815
Naper West Ph II, Naperville,
IL 50,000 10/02 3,116 - 3,116 1,298 4,414
Walgreens, Jennings, MO 15,120 10/02 2,706 - 2,706 6 2,712
Four Flaggs Annex, Niles, IL 21,790 11/02 3,289 - 3,289 6 3,295
Four Flaggs, Niles, IL 306,479 11/02 21,298 12,510 8,788 2,645 23,943
Brunswick Market Center,
Brunswick, OH 119,540 12/02 13,458 - 13,458 247 13,705
Medina Marketplace, Medina, OH 72,781 12/02 9,511 - 9,511 4 9,515
Shakopee Valley, Shakopee, MN 146,436 12/02 14,700 - 14,700 12 14,712
Shops at Orchard Place, Skokie,
IL 164,542 12/02 42,752 - 42,752 (129) 42,623
Cub Foods, Hutchinson, MN 60,208 01/03 5,388 - 5,388 7 5,395
Mankato Heights, Mankato, MN 129,410 04/03 15,102 - 15,102 (12) 15,090
Caton Crossing, Plainfield, IL 83,792 06/03 11,165 - 11,165 7 11,172
Village Ten, Coon Rapids, MN 211,568 08/03 15,104 - 15,104 0 15,104
Rochester Marketplace,
Rochester, MN 69,914 09/03 9,371 - 9,371 (7) 9,364
University Crossing, Mishawaka,
IN 136,422 10/03 14,913 - 14,913 20 14,933
Total for Inland Real Estate
Corporation 2,301,889 $ 264,686 $ 31,960 $ 232,726 $ 4,544 $ 269,230
=========== ================ ================= ========= =============== =================
II-43
PURCHASE PRICE MORTGAGE OTHER CASH
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT CAPITALIZED (A) COST(B)
------------------------------------------------------------------------------------------------------------------------------------
INLAND RETAIL REAL ESTATE
TRUST, INC.:
Columbia Promenade, Kissimmee,
FL 65,870 01/01 7,440 - 7,440 (6) 7,434
K-Mart, Macon, GA 102,098 02/01 9,031 - 9,031 - 9,031
Lowe's Home Improvement Center,
Warner Robbins, GA 131,575 02/01 9,431 - 9,431 - 9,431
West Oaks, Ocoee, FL 66,539 03/01 11,221 - 11,221 27 11,248
PETsMART - Chattanooga,
Chattanooga, TN 26,040 04/01 3,103 - 3,103 - 3,103
PETsMART - Daytona Beach,
Daytona Beach, FL 26,194 04/01 3,238 - 3,238 - 3,238
PETsMART - Fredricksburg,
Fredricksburg, VA 26,067 04/01 3,410 - 3,410 - 3,410
Sand Lake Corners, Orlando, FL 189,741 05/01 22,256 - 22,256 (90) 22,166
Jo-Ann Fabrics, Alpharetta, GA 44,418 06/01 4,911 - 4,911 - 4,911
Woodstock Square, Atlanta, GA 218,819 06/01 27,596 - 27,596 (56) 27,540
Chickasaw Trails Shopping
Center, Orlando, FL 75,492 08/01 8,631 - 8,631 14 8,645
Just for Feet - Daytona,
Daytona Beach, FL 22,255 08/01 3,901 - 3,901 4 3,905
Skyview Plaza, Orlando, FL 281,247 09/01 21,332 - 21,332 624 21,956
Aberdeen Square, Boynton Beach,
FL 70,555 10/01 6,717 - 6,717 (30) 6,687
Anderson Central, Anderson, SC 223,211 11/01 15,863 11,000 4,863 (111) 15,752
Brandon Blvd. Shoppes, Brandon,
FL 85,377 11/01 9,482 - 9,482 5 9,487
Creekwood Crossing, Bradenton,
FL 227,052 11/01 23,616 - 23,616 96 23,712
Eckerd Drug Store - Greenville,
Greenville, SC 10,908 11/01 2,828 - 2,828 (17) 2,811
Abernathy Square, Atlanta, GA 131,649 12/01 24,131 - 24,131 280 24,411
Citrus Hills, Citrus Hills, FL 68,927 12/01 6,027 - 6,027 191 6,218
Douglasville Pavilion,
Douglasville, GA 267,764 12/01 27,377 20,000 7,377 (156) 27,221
Eckerd Drug Store -
Spartanburg, Spartanburg, SC 10,908 12/01 2,807 - 2,807 11 2,818
Fayetteville Pavilion,
Fayetteville, NC 272,385 12/01 26,898 20,133 6,765 1,285 28,183
Southlake Pavilion, Morrow, GA 525,162 12/01 56,377 39,740 16,637 7,413 63,790
Steeplechase Plaza, Ocala, FL 87,380 12/01 8,647 - 8,647 457 9,104
Venture Pointev, Duluth, GA 334,620 12/01 26,533 13,334 13,199 (149) 26,384
Sarasota Pavilion, Sarasota, FL 324,140 01/02 42,100 - 42,100 182 42,282
II-44
PURCHASE PRICE MORTGAGE OTHER CASH
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT CAPITALIZED (A) COST(B)
------------------------------------------------------------------------------------------------------------------------------------
Turkey Creek Phase I,
Knoxville, TN 284,224 01/02 21,762 - 21,762 10,181 31,943
Universal Plaza, Lauderhill,
FL 49,816 01/02 9,872 - 9,872 2 9,874
Hairston Crossing, Decatur,
GA 57,884 02/02 6,630 - 6,630 34 6,664
Just for Feet - Augusta,
Augusta, GA 22,115 02/02 3,054 - 3,054 3 3,057
Just For Feet - Covington,
Covington, LA 20,116 02/02 3,447 - 3,447 - 3,447
Logger Head Junction,
Sarasota, FL 4,711 02/02 665 - 665 - 665
Shoppes of Golden Acres,
Newport Richey, FL 76,371 02/02 10,831 - 10,831 101 10,932
Newnan Pavilion, Newnan, GA 481,004 03/02 33,114 - 33,114 2,623 35,737
Eisenhower Crossing I & II,
Macon, GA 403,013 11/01,03/02 43,292 - 43,292 (286) 43,006
Acworth Avenue Retail
Shopping Center, Acworth,
GA 16,130 12/00,3/02 2,834 - 2,834 16 2,850
Crystal Springs Shopping
Center, Crystal Springs,
FL 67,021 04/02 7,478 - 7,478 (2) 7,476
Eckerd Drug Store - Concord,
Concord, NC 10,908 04/02 2,039 - 2,039 156 2,195
Eckerd Drug Store - Tega
Cay, Tega Cay, SC 13,824 04/02 2,544 - 2,544 544 3,088
Melbourne Shopping Center,
Melbourne, FL 209,217 04/02 9,842 5,949 3,893 935 10,777
Riverstone Plaza, Canton, GA 302,024 04/02 31,943 - 31,943 243 32,186
Target Center, Columbia, SC 79,253 04/02 7,673 - 7,673 20 7,693
Hampton Point, Taylors, SC 58,316 05/02 4,526 - 4,526 55 4,581
Northpoint Marketplace,
Spartanburg, SC 101,982 05/02 8,269 - 8,269 (128) 8,141
Oleander Shopping Center,
Wilmington, NC 51,888 05/02 5,221 3,000 2,221 12 5,233
Sharon Greens, Cumming, GA 98,317 05/02 13,062 - 13,062 79 13,141
Bass Pro Outdoor World,
Dania Beach, FL 165,000 06/02 18,220 - 18,220 16 18,236
Chesterfield Crossings,
Richmond, VA, 68,898 06/02 10,982 - 10,982 723 11,705
Circuit City-Rome, Rome, GA 33,056 06/02 4,476 - 4,476 6 4,482
Circuit City-Vero Beach,
Vero Beach, FL 33,243 06/02 5,648 - 5,648 9 5,657
Hillsboro Square, Deerfield
Beach, FL 145,647 06/02 18,985 - 18,985 2,565 21,550
Stonebridge Square, Roswell,
GA 160,104 06/02 19,529 - 19,529 1,653 21,182
Ward's Crossing, Lynchburg,
VA 80,918 06/02 11,100 - 11,100 (76) 11,024
Circuit City Plaza, Orlando,
FL 78,625 07/02 11,518 - 11,518 - 11,518
Eckerd Drug Store -
Woodruff, Woodruff, SC 13,824 07/02 2,475 - 2,475 374 2,849
McFarland Plaza, Tuscaloosa,
AL 221,807 07/02 15,259 - 15,259 21 15,280
II-45
PURCHASE PRICE MORTGAGE OTHER CASH
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT CAPITALIZED (A) COST(B)
------------------------------------------------------------------------------------------------------------------------------------
Sycamore Commons, Matthews, NC 256,523 07/02 38,184 - 38,184 3,077 41,261
Walk at Highwoods I, Tampa, FL 133,940 07/02 23,999 - 23,999 72 24,071
Eckerd Drug Store - Blackstock,
Spartanburg, SC 10,908 08/02 2,723 - 2,723 - 2,723
Forestdale Plaza, Jamestown, NC 53,239 08/02 6,670 - 6,670 (114) 6,556
Sexton Commons, Fuquay Varina,
NC 49,097 08/02 8,023 - 8,023 (129) 7,894
Shoppes at Lake Mary, Lake
Mary, FL 69,843 08/02 11,140 - 11,140 59 11,199
Wakefield Crossing, Raleigh, NC 75,929 08/02 10,794 - 10,794 (182) 10,612
Circuit City-Cary, Cary, NC 27,891 09/02 5,650 - 5,650 4 5,654
Cox Creek, Florence, AL 173,934 09/02 19,231 15,287 3,944 31 19,262
Forest Hills Centre, Wilson, NC 73,280 09/02 6,675 - 6,675 11 6,686
Golden Gate, Greensboro, NC 153,114 10/02 10,545 - 10,545 23 10,568
Goldenrod Groves, Orlando, FL 108,944 10/02 9,177 - 9,177 741 9,918
City Crossing, Warner Robins,
GA 187,099 11/02 14,644 - 14,644 3,204 17,848
Clayton Corners, Clayton, NC 125,656 11/02 14,994 9,740 5,254 (5) 14,989
CompUSA Retail Center, Newport
News, VA 47,134 11/02 7,324 - 7,324 5 7,329
Duvall Village, Bowie, MD 82,522 11/02 13,046 - 13,046 369 13,415
Gateway Plaza - Jacksonville,
Jacksonville, NC 101,682 11/02 11,865 - 11,865 (24) 11,841
Harundale Plaza, Glen Burnie,
MD 274,160 11/02 24,752 - 24,752 (40) 24,712
Jones Bridge Plaza, Norcross,
GA 83,363 11/02 7,525 - 7,525 401 7,926
Lakewood Ranch, Bradenton, FL 69,472 11/02 9,494 4,400 5,094 39 9,533
North Aiken Bi-Lo Center,
Aiken, SC 59,204 11/02 5,816 - 5,816 13 5,829
Plant City Crossing, Plant
City, FL 85,252 11/02 10,879 - 10,879 (16) 10,863
Presidential Commons,
Snellville, GA 372,149 11/02 45,032 26,113 18,919 6 45,038
Rainbow Foods - Garland,
Garland, TX 70,576 11/02 5,098 - 5,098 5 5,103
Rainbow Foods - Rowlett,
Rowlett, TX 63,117 11/02 4,604 - 4,604 2 4,606
River Ridge, Birmingham, AL 158,755 11/02 26,492 - 26,492 79 26,571
Rosedale Shopping Center,
Huntersville, NC 94,248 11/02 19,544 13,300 6,244 (122) 19,422
Shoppes on the Circle, Dothan,
AL 149,085 11/02 15,013 12,210 2,803 19 15,032
Southlake Shopping Center,
Cornelius, NC 131,247 11/02 13,633 7,962 5,671 (15) 13,618
Village Square at Golf, Boynton
Beach, FL 134,894 11/02 18,537 - 18,537 (263) 18,274
II-46
PURCHASE PRICE MORTGAGE OTHER CASH
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT CAPITALIZED (A) COST(B)
------------------------------------------------------------------------------------------------------------------------------------
Chatham Crossing, Siler City,
NC 32,000 12/02 3,964 - 3,964 16 3,980
Columbiana Station, Columbia,
SC 270,649 12/02 46,615 - 46,615 193 46,808
Gateway Plaza - Conway, Conway,
SC 62,428 12/02 6,295 - 6,295 - 6,295
Lakeview Plaza, Kissimmee, FL 54,788 12/02 6,187 3,613 2,574 19 6,206
Meadowmont Village Center,
Chapel Hill, NC 133,471 12/02 26,808 - 26,808 (581) 26,227
Shoppes at Citiside, Charlotte,
NC 75,478 12/02 9,706 - 9,706 326 10,032
Shoppes at New Tampa, Wesley
Chapel, FL 158,342 12/02 19,196 - 19,196 (266) 18,930
Camp Hill Center, Harrisburg,
PA 63,350 01/03 7,786 - 7,786 5 7,791
Eckerd Drug Store - #5018,
Amherst, NY 10,908 01/03 2,805 1,582 1,223 - 2,805
Eckerd Drug Store - #5661,
Buffalo, NY 12,732 01/03 3,145 1,777 1,368 - 3,145
Eckerd Drug Store - #5786,
Dunkirk, NY 10,908 01/03 1,720 905 815 - 1,720
Eckerd Drug Store - #5797,
Cheektowaga, NY 10,908 01/03 3,756 1,636 2,120 (1) 3,755
Eckerd Drug Store - #6007,
Connelsville, PA 10,908 01/03 3,503 1,636 1,867 - 3,503
Eckerd Drug Store - #6036,
Pittsburgh, PA 10,908 01/03 3,840 1,636 2,204 (1) 3,839
Eckerd Drug Store - #6040,
Monroeville,PA 12,738 01/03 5,430 1,911 3,519 (2) 5,428
Eckerd Drug Store - #6043,
Monroeville,PA 10,908 01/03 3,315 1,637 1,678 - 3,315
Eckerd Drug Store - #6062,
Harborcreek, PA 10,908 01/03 2,527 1,418 1,109 - 2,527
Eckerd Drug Store - #6089,
Weirton, WV 10,908 01/03 2,472 1,374 1,098 - 2,472
Eckerd Drug Store - #6095,
Cheswick, PA 10,908 01/03 2,791 1,571 1,220 - 2,791
Eckerd Drug Store - #6172,
New Castle,PA 10,908 01/03 2,877 1,636 1,241 - 2,877
Eckerd Drug Store - #6193,
Erie, PA 10,908 01/03 2,919 1,636 1,283 - 2,919
Eckerd Drug Store - #6199,
Millcreek, PA 10,908 01/03 3,729 1,637 2,092 (1) 3,728
Eckerd Drug Store - #6257,
Millcreek, PA 10,908 01/03 1,444 640 804 - 1,444
Eckerd Drug Store - #6286,
Erie, PA 10,908 01/03 4,193 1,601 2,592 (1) 4,192
Eckerd Drug Store - #6334,
Erie, PA 10,908 01/03 2,997 1,636 1,361 - 2,997
Eckerd Drug Store - #6392,
Penn, PA 10,908 01/03 2,949 1,636 1,313 - 2,949
Eckerd Drug Store - #6695,
Plum Borough, PA 10,908 01/03 3,669 1,637 2,032 - 3,669
Eckerd Drug Store - Piedmont,
Piedmont, SC 10,908 01/03 1,968 - 1,968 5 1,973
Market Square, Douglasville,
GA 121,774 01/03 12,905 8,390 4,515 787 13,692
Springfield Park,
Lawrenceville, GA 105,321 01/03 10,924 - 10,924 5 10,929
II-47
PURCHASE PRICE MORTGAGE OTHER CASH
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT CAPITALIZED (A) COST(B)
------------------------------------------------------------------------------------------------------------------------------------
Tequesta Shoppes Plaza,
Tequesta, FL 109,937 01/03 11,439 - 11,439 (248) 11,191
Capital Crossing, Raleigh, NC 92,248 02/03 9,984 - 9,984 14 9,998
Colonial Promenade Bardmore
Center, Largo, FL 152,667 02/03 17,151 - 17,151 45 17,196
Commonwealth Center II,
Richmond, VA 165,382 02/03 22,278 - 22,278 (133) 22,145
Concord Crossing, Concord, NC 55,930 02/03 5,331 - 5,331 5 5,336
Fountains, Plantation, FL 408,807 02/03 44,412 - 44,412 - 44,412
Marketplace at Mill Creek,
Buford, GA 398,407 02/03 50,118 - 50,118 50 50,168
Monroe Shopping Center, Monroe,
NC 45,080 02/03 3,548 - 3,548 5 3,553
Oakley Plaza, Asheville, NC 118,727 02/03 9,469 - 9,469 4 9,473
Overlook at King of Prussia,
King of Prussia, PA 186,980 02/03 57,045 30,000 27,045 15 57,060
Paraiso Plaza, Hialeah, FL 61,012 02/03 9,481 - 9,481 26 9,507
Publix Brooker Creek, Palm
Harbor, FL 77,596 02/03 8,719 4,468 4,251 146 8,865
Sheridan Square, Dania, FL 67,425 02/03 7,586 - 7,586 23 7,609
Stonecrest Marketplace,
Lithonia, GA 264,447 02/03 34,742 - 34,742 (115) 34,627
Suwanee Crossroads, Suwanee, GA 69,500 02/03 12,068 - 12,068 (69) 11,999
Windsor Court Shopping Center,
Windsor Court, CT 78,480 02/03 14,639 - 14,639 10 14,649
Downtown Short Pump, Richmond,
VA 125,553 03/03 33,515 - 33,515 (147) 33,368
Valley Park Commons,
Hagerstown, MD 89,579 03/03 11,317 - 11,317 12 11,329
Eckerd - Perry Creek, Perry
Creek, NC 10,908 09/02 2,795 - 2,795 (66) 2,729
Village Center, Mt. Pleasant,
WI 217,103 03/03 23,987 - 23,987 (33) 23,954
Watercolor Crossing,
Tallahassee, FL 43,200 03/03 5,485 - 5,485 - 5,485
Bi-Lo - Southern Pines,
Southern Pines, NC 57,404 04/03 8,127 - 8,127 (62) 8,065
Creeks at Virginia Center,
Richmond, VA 266,266 04/03 39,458 27,804 11,654 1,608 41,066
Flamingo Falls, Pembroke Pines,
FL 108,565 04/03 23,946 - 23,946 - 23,946
Glenmark Shopping Center,
Morgantown, WV 122,167 04/03 12,982 - 12,982 335 13,317
River Run, Miramar, FL 93,643 04/03 11,638 - 11,638 (5) 11,633
Westside Centre Shopping
Center, Huntsville, AL 490,784 04/03 46,015 39,350 6,665 2,035 48,050
440 Commons, Jersey City, NJ 162,533 05/03 18,046 - 18,046 9 18,055
Barrett Pavilion, Kennesaw, GA 460,755 05/03 80,183 - 80,183 (51) 80,132
Bi-Lo - Asheville, Asheville, NC 54,319 05/03 7,727 - 7,727 (1) 7,726
II-48
PURCHASE PRICE MORTGAGE OTHER CASH
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT CAPITALIZED (A) COST(B)
------------------------------------------------------------------------------------------------------------------------------------
Bi-Lo - Shelmore, Mt. Pleasant,
SC 61,705 05/03 11,836 - 11,836 10 11,846
Bi-Lo - Sylvania, Sylvania, GA 36,000 05/03 4,407 - 4,407 2 4,409
Birkdale Village, Charlotte, NC 653,983 05/03 96,410 - 96,410 (897) 95,513
BJ'S Wholesale Club, Charlotte,
NC 99,792 05/03 13,025 - 13,025 1 13,026
Brick Center Plaza, Brick, NJ 114,028 05/03 19,451 - 19,451 13 19,464
East Hanover Plaza, East
Hanover, NJ 122,028 05/03 17,312 - 17,312 5 17,317
Eckerd Drug Store - #0234,
Marietta, GA 10,880 05/03 2,044 1,161 883 4 2,048
Eckerd Drug Store - #0444,
Gainesville, GA 10,594 05/03 1,986 1,129 857 4 1,990
Eckerd Drug Store - #0818, Ft.
Worth, TX 10,908 05/03 2,691 1,540 1,151 4 2,695
Eckerd Drug Store - #0862,
Wichita Falls, TX 9,504 05/03 2,087 1,203 884 4 2,091
Eckerd Drug Store - #0943,
Richardson, TX 10,560 05/03 2,354 1,338 1,016 4 2,358
Eckerd Drug Store - #0963,
Richardson, TX 10,560 05/03 2,313 1,316 997 4 2,317
Eckerd Drug Store - #0968,
Wichita Falls, TX 9,504 05/03 1,837 1,036 801 4 1,841
Eckerd Drug Store - #0980,
Dallas, TX 9,504 05/03 1,917 1,097 820 4 1,921
Eckerd Drug Store - #2320,
Snellville, GA 10,594 05/03 2,230 1,271 959 4 2,234
Eckerd Drug Store - #2506,
Dallas, TX 9,504 05/03 2,073 1,177 896 4 2,077
Eckerd Drug Store - #3072,
Richland Hills, TX 10,908 05/03 2,663 1,521 1,142 4 2,667
Eckerd Drug Store - #3152,
Lake Worth, TX 9,504 05/03 1,805 1,021 784 4 1,809
Eckerd Drug Store - #3169,
River Oaks, TX 10,908 05/03 2,705 1,546 1,159 4 2,709
Eckerd Drug Store - #3192,
Tyler, TX 9,504 05/03 1,495 845 650 4 1,499
Eckerd Drug Store - #3338,
Kissimmee, FL 10,880 05/03 2,479 1,407 1,072 4 2,483
Eckerd Drug Store - #3350,
Oklahoma City, OK 9,504 05/03 1,776 1,005 771 4 1,780
Eckerd Drug Store - #3363,
Ft. Worth, TX 9,504 05/03 1,661 941 720 4 1,665
Eckerd Drug Store - #3449,
Lawrenceville, GA 9,504 05/03 2,061 - 2,061 4 2,065
Eckerd Drug Store - #3528,
Plano, TX 10,908 05/03 2,535 1,445 1,090 4 2,539
Edgewater Town Center,
Edgewater, NJ 77,446 05/03 27,030 - 27,030 11 27,041
Goody's Shopping Center,
Augusta, GA 22,560 05/03 2,051 - 2,051 - 2,051
Heritage Pavilion, Smyrna, GA 262,961 05/03 40,013 - 40,013 4 40,017
Hiram Pavilion, Hiram, GA 363,618 05/03 36,787 - 36,787 1,559 38,346
Killearn Shopping Center,
Tallahassee, FL 94,547 05/03 10,945 4,041 6,904 80 11,025
II-49
PURCHASE PRICE MORTGAGE OTHER CASH
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT CAPITALIZED (A) COST(B)
------------------------------------------------------------------------------------------------------------------------------------
Midway Plaza, Tamarac, FL 227,209 05/03 26,858 - 26,858 265 27,123
North Hill Commons, Anderson,
SC 42,942 05/03 4,541 - 4,541 1 4,542
Sandy Plains Village, Roswell,
GA 175,035 05/03 18,055 - 18,055 84 18,139
Shoppes at Paradise Pointe, Ft
Walton Beach, FL 84,070 05/03 11,591 - 11,591 (94) 11,497
Sony Theatre Complex, East
Hanover, NJ 70,549 05/03 12,068 - 12,068 5 12,073
Town & Country, Knoxville, TN 639,135 05/03 49,812 - 49,812 1,397 51,209
Village Crossing, Skokie, IL 427,722 05/03 69,443 - 69,443 6,001 75,444
West Falls Plaza, West
Paterson, NJ 88,913 05/03 20,980 - 20,980 5 20,985
CostCo Plaza, White Marsh, MD 209,841 06/03 16,857 - 16,857 5 16,862
Denbigh Village Shopping
Center, Newport News, VA 311,583 06/03 20,855 - 20,855 (106) 20,749
Shoppes at Lake Dow, McDonough,
GA 73,271 06/03 11,014 - 11,014 (68) 10,946
Willoughby Hills Shopping
Center, Willoughby Hills, OH 359,414 06/03 37,705 14,480 23,225 22 37,727
Cascades Marketplace, Sterling,
VA 98,532 07/03 16,840 - 16,840 5 16,845
Fayette Pavilion III,
Fayetteville, GA 619,856 07/03 46,308 - 46,308 2,540 48,848
Northlake Commons, Palm Beach
Gardens, FL 143,955 07/03 21,643 - 21,643 523 22,166
Route 22 Retail Shopping
Center, Union, NJ 110,453 07/03 19,054 11,355 7,699 - 19,054
Vision Works, Plantation, FL 6,891 07/03 1,732 - 1,732 6 1,738
Bellevue Place Shopping Center,
Nashville, TN 77,249 08/03 10,884 - 10,884 5 10,889
Camfield Corners, Charlotte, NC 69,887 08/03 9,339 - 9,339 2 9,341
Kensington Place, Murfreesboro,
TN 70,624 08/03 7,167 - 7,167 - 7,167
Largo Town Center, Upper
Marlboro, MD 270,310 08/03 30,947 - 30,947 7 30,954
Naugatuck Valley Shopping
Center, Waterbury, CT 383,332 08/03 50,452 - 50,452 8 50,460
Riverdale Shops, West
Springfield, MA 273,928 08/03 42,055 - 42,055 34 42,089
Spring Mall Center,
Springfield, VA 56,511 08/03 10,481 - 10,481 2 10,483
Walgreen's, Port Huron, MI 14,998 08/03 4,368 - 4,368 9 4,377
Bank First, Winter Park, FL 3,348 09/03 723 - 723 8 731
Carlisle Commons, Carlisle, PA 393,023 09/03 39,635 - 39,635 10 39,645
Circuit City - Culver City,
Culver City, CA 32,873 09/03 8,781 - 8,781 4 8,785
Circuit City - Highland Ranch,
Highland Ranch, CO 43,480 09/03 5,628 - 5,628 3 5,631
Circuit City - Olympia,
Olympia, WA 35,776 09/03 5,632 - 5,632 3 5,635
II-50
PURCHASE PRICE MORTGAGE OTHER CASH
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT CAPITALIZED (A) COST(B)
------------------------------------------------------------------------------------------------------------------------------------
Fayette Pavilion I & II,
Fayetteville, GA 791,373 09/03 88,521 - 88,521 (357) 88,164
Kroger - Cincinnati,
Cincinnati, OH 56,634 09/03 7,431 - 7,431 3 7,434
Kroger - Grand Prairie, Grand
Prairie, TX 64,522 09/03 5,793 - 5,793 7 5,800
Kroger - Westchester,
Westchester, OH 56,083 09/03 4,670 - 4,670 3 4,673
Lowe's Home Improvement -
Baytown, Baytown, TX 125,357 09/03 11,478 - 11,478 7 11,485
Lowe's Home Improvement -
Cullman, Cullman, AL 101,287 09/03 8,960 - 8,960 3 8,963
Lowe's Home Improvement -
Houston, Houston, TX 131,644 09/03 12,050 - 12,050 7 12,057
Lowe's Home Improvement -
Steubenville, Steubenville, OH 130,497 09/03 11,442 - 11,442 3 11,445
Southwood Plantation,
Tallahassee, FL 62,700 10/02 7,738 - 7,738 4 7,742
Super Wal-Mart - Alliance,
Alliance, OH 200,084 09/03 15,879 - 15,879 3 15,882
Super Wal-Mart - Greenville,
Greenville, SC 200,084 09/03 16,971 - 16,971 3 16,974
Super Wal-Mart - Winston-Salem,
Winston-Salem, NC 204,931 09/03 18,721 - 18,721 3 18,724
Eckerd - Gaffney, Gaffney, SC 13,813 12/02 2,374 - 2,374 502 2,876
Wal-Mart/Sam's Club, Worcester,
MA 107,929 09/03 11,194 - 11,194 3 11,197
Bi-Lo at Northside Plaza,
Greenwood, SC 41,581 10/03 4,069 - 4,069 - 4,069
Cedar Springs Crossing,
Spartanburg, SC 86,581 10/03 10,191 - 10,191 - 10,191
Clearwater Crossing, Flowery
Branch, GA 90,566 10/03 13,303 - 13,303 - 13,303
Cortez Plaza, Bradenton, FL 286,610 10/03 26,819 16,828 9,991 1,854 28,673
Houston Square, Warner Robins,
GA 60,799 10/03 5,214 - 5,214 - 5,214
Lexington Place, Lexington, SC 83,167 10/03 8,481 - 8,481 - 8,481
Manchester Broad Street,
Manchester, CT 68,509 10/03 13,119 - 13,119 - 13,119
Plaza Del Paraiso, Miami, FL 82,442 10/03 15,417 - 15,417 - 15,417
Seekonk Town Center, Seekonk,
MA 80,713 10/03 11,068 - 11,068 - 11,068
Shoppes of Ellenwood,
Ellenwood, GA 67,721 10/03 10,703 - 10,703 - 10,703
Shoppes of Lithia, Brandon, FL 71,430 10/03 12,926 - 12,926 - 12,926
Crossroads Plaza, Lumberton, NJ 89,627 11/03 18,232 - 18,232 - 18,232
Hilliard Rome, Columbus, OH 110,772 11/03 17,171 11,883 5,288 231 17,402
Loisdale Center, Springfield,
VA 120,742 11/03 29,051 - 29,051 - 29,051
Middletown Village, Middletown,
RI 98,161 11/03 17,871 - 17,871 - 17,871
Shoppes at Oliver's Crossing,
Winston-Salem, NC 76,512 11/03 10,386 - 10,386 - 10,386
II-51
PURCHASE PRICE MORTGAGE OTHER CASH
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN EXPENDITURES TOTAL ACQUISITION
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT CAPITALIZED (A) COST(B)
------------------------------------------------------------------------------------------------------------------------------------
Squirewood Village, Dandridge,
TN 46,150 11/03 3,442 - 3,442 - 3,442
Waterfront Marketplace/Town
Center, Homestead, PA 755,407 11/03 113,024 72,035 40,989 4,694 117,718
Winslow Bay Commons,
Mooresville, NC 255,598 11/03 42,132 - 42,132 - 42,132
Albertson's at Bloomingdale
Hills, Brandon, FL 78,686 12/03 5,856 - 5,856 - 5,856
Oak Summit, Winston-Salem, NC 142,739 12/03 13,666 - 13,666 - 13,666
Paradise Place, West Palm
Beach, FL 69,620 12/03 11,688 - 11,688 - 11,688
Pointe at Tampa Plams, Tampa,
FL 20,258 12/03 5,282 - 5,282 - 5,282
Southhampton Village, Tyrone,
GA 77,900 11/02 10,610 - 10,610 - 10,610
Shoppes on the Ridge 91,165 12/02 11,422 - 11,422 - 11,422
----------------------------------------------------------------------------------------------------
Total for 2001 through 2003
acquisitions 29,573,733 3,653,755 497,556 3,156,199 59,541 3,713,296
====================================================================================================
DEVELOPMENT PROJECTS
Fayette Pavilion III,
Fayetteville, GA N/A 07/03 203 - 203 - 203
Fountains, Plantation, FL N/A 02/03 2,664 - 2,664 - 2,664
Hiram Pavilion, Hiram, GA N/A 05/03 695 - 695 - 695
Northlake Commons, Palm Beach
Gardens, FL N/A 07/03 640 - 640 - 640
Redbud Commons Gastonia, NC N/A 06/03 5,101 - 5,101 - 5,101
Shoppes of Golden Acres II,
Newport Richey, FL N/A 02/02 189 - 189 - 189
Southhampton Village, Tyrone,
GA N/A 11/02 62 - 62 - 62
Southlake Pavilion, Morrow, GA N/A 12/01 702 - 702 - 702
Turkey Creek II, Knoxville, TN N/A 01/02 1,317 - 1,317 - 1,317
Watercolor Crossing,
Tallahassee, FL N/A 03/03 1,028 - 1,028 - 1,028
Westside Center, Huntsville,
AL N/A 04/03 4,888 - 4,888 - 4,888
----------------------------------------------------------------------------------------------------
Total for Development
projects at 12/31/03 - 17,489 - 17,489 - 17,489
====================================================================================================
GRAND TOTAL 31,875,622 3,935,930 529,516 3,406,414 64,085 4,000,015
====================================================================================================
II-52
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.
II-53
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.1 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 16th 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
II-54
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 1 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 16, 2005
---------------------------------
Robert D. Parks
/s/ Steven P. Grimes Treasurer and Principal financial officer March 16, 2005
---------------------------------
Steven P. Grimes
/s/ Lori J. Foust Principal accounting officer March 16, 2005
---------------------------------
Lori J. Foust
/s/ Brenda G. Gujral Director March 16, 2005
---------------------------------
Brenda G. Gujral
* Independent Director March 16, 2005
--------------------------
Frank Catalano
* Independent Director March 16, 2005
--------------------------
Ken Beard
* Independent Director March 16, 2005
--------------------------
Paul R. Gauvreau
* Independent Director March 16, 2005
--------------------------
Gerald M. Gorski
* Independent Director March 16, 2005
---------------------------------
Barbara A. Murphy
/s/ Roberta S. Matlin
---------------------------------
* Signed on behalf of the named individuals by Roberta S. Matlin, under power of
attorney.
II-55