-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q0BOxQMDVwu9NJ6oynlqrZNfFN331JEkP+UtdtWyWjuUUufX+H1jTbTmQTwI3RaE bkz6edN5Ntl+no7mNVWCGg== 0000923284-00-000002.txt : 20000323 0000923284-00-000002.hdr.sgml : 20000323 ACCESSION NUMBER: 0000923284-00-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INLAND REAL ESTATE CORP CENTRAL INDEX KEY: 0000923284 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 363953261 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-28382 FILM NUMBER: 575725 BUSINESS ADDRESS: STREET 1: 2901 BUTTERFIELD RD CITY: OAK BROOK STATE: IL ZIP: 60523 BUSINESS PHONE: 7082188000 MAIL ADDRESS: STREET 1: 2901 BUTTERFIELD RD CITY: OAK BROOK STATE: IL ZIP: 60523 FORMER COMPANY: FORMER CONFORMED NAME: INLAND MONTHLY INCOME FUND III INC DATE OF NAME CHANGE: 19940518 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For The Fiscal Year Ended December 31, 1999 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File #33-79012 Inland Real Estate Corporation (Exact name of registrant as specified in its charter) Maryland 36-3953261 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2901 Butterfield Road, Oak Brook, Illinois 60523 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: 630-218-8000 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered: None None Securities registered pursuant to Section 12(g) of the Act: Title of each class: Name of each exchange on which registered: Common Stock, $.01 par value None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of February 28, 2000, the aggregate market value of the Shares of Common Stock held by non-affiliates of the registrant was approximately $613,199,840. As of February 28, 2000, there were 55,765,440 Shares of Common Stock outstanding. Documents Incorporated by Reference: The Prospectus of the Registrant dated April 7, 1998 as amended, are incorporated by reference in Parts I, II and III of this Annual Report on Form 10-K. -1- INLAND REAL ESTATE CORPORATION (A Maryland corporation) TABLE OF CONTENTS Part I Page ------ ---- Item 1. Business...................................................... 3 Item 2. Properties.................................................... 6 Item 3. Legal Proceedings............................................. 16 Item 4. Submission of Matters to a Vote of Security Holders........... 16 Part II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................. 16 Item 6. Selected Financial Data....................................... 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 20 Item 7(a).Quantitative and Qualitative Disclosures About Market Risk.... 26 Item 8. Financial Statements and Supplementary Data................... 27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................... 57 Part III -------- Item 10. Directors and Executive Officers of the Registrant............ 57 Item 11. Executive Compensation........................................ 60 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................... 60 Item 13. Certain Relationships and Related Transactions................ 61 Part IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................................. 62 SIGNATURES............................................................. 64 -2- PART I Item 1. Business The Company Inland Real Estate Corporation (the "Company") was formed on May 12, 1994. On October 14, 1994, the Company commenced an initial public offering, on a best effort basis, ("Initial Offering") of 5,000,000 shares of common stock ("Shares") at $10.00 per Share. As of July 24, 1996, the Company had received subscriptions for a total of 5,000,000 Shares, thereby completing the Initial Offering. On July 24, 1996, the Company commenced an offering of an additional 10,000,000 Shares at $10.00 per Share, on a best efforts basis, (the "Second Offering"). As of July 10, 1997, the Company had received subscriptions for a total of 10,000,000 Shares, thereby completing the Second Offering. On July 14, 1997, the Company commenced an offering of an additional 20,000,000 Shares at $10.00 per Share, on a best efforts basis, (the "Third Offering"). As of March 19, 1998, the Company had received subscriptions for a total of 20,000,000 Shares, thereby completing the Third Offering. On April 7, 1998, the Company commenced an offering of an additional 27,000,000 Shares at $11.00 per Share, on a best efforts basis, (the "Fourth Offering"). In order to maximize the Company's flexibility in evaluating strategic alternatives, the Board of Directors decided to terminate the Fourth Offering on December 31, 1998. The Company received subscriptions for a total of 16,642,397 Shares in the Fourth Offering. The Initial, Second, Third and Fourth are collectively called the "Offerings". In addition, as of December 31, 1999, the Company has issued 4,364,623 Shares through the Company's Distribution Reinvestment Program ("DRP"). As of December 31, 1999, the Company has repurchased a total of 608,132 Shares through the Company's Share Repurchase Program, for an aggregate amount of $5,526,180. As a result, gross offering proceeds from the Offerings ("Gross Offering Proceeds") total $571,937,123, as of December 31, 1999. Inland Real Estate Advisory Services, Inc. (the "Advisor"), an Affiliate of the Company, is the advisor to the Company. On September 28, 1998, the Board of Directors authorized the Company to engage First Union Securities, Inc. (formerly known as Everen Securities, Inc.) to advise the Company on strategic alternatives designed to maximize stockholder value. These alternative include, but are not limited to, evaluating whether the Company should: (1) become self-administered by acquiring the Advisor and the Company's property manager; (2) list its common stock on an exchange or other trading system; or (3) seek to merge with a third party that is already listed on an exchange or other trading system. First Union Securities has assisted in the determination by the Company that it desires to become internally advised and managed and has provided valuation information to the Company to help accomplish that goal. -3- On March 7, 2000, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which it agreed to acquire the Advisor and the Company's property manager and become a self-administered REIT, through a tax- free, non-cash merger (the "Merger"). Pursuant to the Merger Agreement, upon closing, the Company will issue an aggregate of 6,181,818 Shares, or approximately eleven percent (10%) of its common stock taking into account such issuance, to the respective parents of the Advisor and the Company's property manager. The closing of the Merger is subject to numerous conditions including (i) approval of the Merger Agreement by the Stockholders at the Company's upcoming Annual Meeting; (ii) the delivery of an opinion of counsel that the completion of the Merger will not result in the revocation of the Company's status as a REIT for federal income tax purposes; (iii) delivery of an opinion of counsel that the transaction shall be treated as a tax free reorganization under the Internal Revenue Code of 1986, as amended, and (iv) the delivery of an opinion that the Merger is fair to the Company from a financial point of view. Concurrent with completing the Merger, the Board of Directors contemplates: (i) appointing new officers and entering into employment agreements with these individuals; (ii) entering into a lease agreement for office space with The Inland Group, Inc.; and (iii) receiving a license from The Inland Group, Inc. that gives to Company the right to the continued use of the name "Inland Real Estate Corporation" and the corporate logo. The Company had no employees during 1999, 1998 and 1997. Description of Business The Company is in the business of acquiring Neighborhood Retail Centers, with gross leasable area ranging from approximately 5,000 to 150,000 square feet, and Community Centers, with gross leasable area ranging from 150,000 to 300,000 square feet, located primarily within an approximate 400-mile radius of its headquarters in Oak Brook, Illinois. The Company may also acquire single-user retail properties located throughout the United States. The Company is also permitted to construct or develop properties, or render services in connection with such development or construction, subject to the Company's compliance with the rules governing real estate investment trusts under the Internal Revenue Code of 1986, ("Code"), as amended. The Company anticipates that aggregate borrowings secured by all of the Company's properties will not exceed 50% of their combined fair market values; furthermore, the maximum amount of borrowings in the absence of the consent of a majority of the Stockholders, may not exceed 300% of Net Assets. The Company has incurred mortgage indebtedness subsequent to acquisition on properties initially acquired on an all cash basis. The proceeds from such loans were used to acquire additional properties. The Company may also incur indebtedness to finance improvements to the properties it acquires. In certain instances, where the terms were more favorable than those that could be obtained by the Company or prepayment of the debt was not allowed, the Company has acquired properties subject to existing debt. -4- The Company's real property investments are subject to competition from similar types of properties in the vicinity in which each is located. Approximate occupancy levels for the properties are in the table set forth in Item 2 below to which reference is hereby made. The Company's real property investments are all currently located within 400 miles of the Company's headquarters in Illinois. The Company does not segregate revenues or assets by geographic region, and such a presentation would not be material to an understanding of the Company's business taken as a whole. Certain risks exist due to a concentration of any single tenant within the portfolio. Currently, the largest single tenant is Dominick's Finer Foods, which has ten leases totaling 685,473 square feet, or approximately 7.64% of the total gross leasable area owned by the Company. Annualized base rental income of these ten leases is projected to be $8,132,128 for the year ended December 31, 2000, or approximately 8.20% of the total annualized base rental income based on the current portfolio. The second largest single tenant is Jewel Food Stores, which has six leases totaling 395,996 square feet, or approximately 4.41% of the total gross leasable area owned by the Company. Annualized base rental income of these six leases is projected to be $3,815,656 for the year ended December 31, 2000, or approximately 3.8% of the total annualized base rental income based on the current portfolio. Both Dominick's Finer Foods and Jewel Food Stores are SEC registrants. Qualification as a Real Estate Investment Trust The Company qualified as a real estate investment trust ("REIT") under the Code for federal income tax purposes commencing with the tax year ending December 31, 1995. Since the Company qualified for taxation as a REIT, the Company generally will not be subject to federal income tax to the extent it distributes its REIT taxable income to its stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and federal income and excise taxes on its undistributed income. -5- Item 2. Properties As of December 31, 1999, the Company and its subsidiaries has acquired fee ownership or an ownership interest in 115 properties, including 23 single-user retail properties, 74 Neighborhood Retail Centers and 18 Community Centers. The Company owns property in Illinois, Wisconsin, Indiana, Minnesota, Michigan and Ohio. Tenants of the properties are responsible for the payment of some or all of the real estate taxes, insurance and common area maintenance. Gross Mortgages Leasable Year Payable Current Area Date Built/ at No. of Anchor Property (Sq Ft) Acq. Renovated 12/31/99 Tenants Tenants* - --------------------------- -------- ------ --------- ----------- -------- ----------
Single-User Retail Properties - ----------------------------- Walgreens, Decatur, IL 13,500 01/95 1988 $ 700,381 1 Walgreens Zany Brainy, Wheaton, IL 12,499 07/96 1995 1,245,000 1 Zany Brainy Ameritech, Joliet, IL 4,504 05/97 1995 522,375 1 Ameritech Dominick's Schaumburg, IL 71,400 05/97 1996 5,345,500 1 Dominick's Finer Foods Dominick's Highland Park, IL 71,442 06/97 1996 6,400,000 1 Dominick's Finer Foods Dominick's Glendale Heights, IL 68,879 09/97 1997 4,100,000 1 Dominick's Finer Foods Party City Oakbrook Terrace, IL 10,000 11/97 1985 987,500 1 Party City Eagle Country Market, Roselle, IL 42,283 11/97 1990 1,450,000 1 Eagle Foods Dominick's West Chicago, IL 78,158 01/98 1990 3,150,000 1 Dominick's Finer Foods Walgreens 15,856 06/98 1973 569,610 1 Walgreens Woodstock, IL Bakers Shoes Chicago, IL 20,000 09/98 1891 - 1 Bakers Shoes Staples Freeport, IL 24,049 12/98 1998 1,480,000 1 Staples Carmax Schaumburg, IL 93,333 12/98 1998 7,260,000 1 Carmax Carmax Tinley Park, IL 94,518 12/98 1998 9,450,000 1 Carmax Hollywood Video Hammond, IN 7,488 12/98 1998 740,000 1 Hollywood Video Circuit City Traverse City, MI 21,337 01/99 1998 1,603,000 1 Circuit City Cub Foods Plymouth, MN 67,510 03/99 1991 - 1 Cub Foods Cub Foods Indianapolis, IN 67,541 03/99 1991 - 1 Cub Foods Eagle Ridge Center Lindenhurst, IL 56,142 04/99 1998 3,000,000 1 Eagle Foods Dominick's Hammond, IN 71,313 05/99 1999 4,100,000 - None -6- Gross Mortgages Leasable Year Payable Current Area Date Built/ at No. of Anchor Property (Sq Ft) Acq. Renovated 12/31/99 Tenants Tenants* - --------------------------- -------- ------ --------- ----------- -------- ---------- Single-User Retail Properties, cont. - ------------------------------------ Eagle Foods Buffalo Grove, IL 56,192 06/99 1999 - 1 Eagle Foods United Audio Center Schaumburg, IL 9,988 09/99 1998 1,240,000 1 United Audio Bally's Total Fitness St. Paul, MN 43,000 09/99 1988 3,145,300 1 Bally's Health Club Neighborhood Retail Centers - --------------------------- Eagle Crest Naperville, IL 67,632 03/95 1991 2,350,000 11 Eagle Foods Goodyear Montgomery, IL 12,903 09/95 1991 630,000 1 Merlin Corp. Hartford Plaza Naperville, IL 43,762 09/95 1995 2,310,000 8 Blockbuster Video Sears Hardware Keller/Williams Realty Nantucket Square Schaumburg, IL 56,981 09/95 1980 2,200,000 20 Hallmark Trak Auto The Dental Store Ltd. Antioch Plaza, Antioch, IL 19,810 12/95 1995 875,000 5 Blockbuster Video Radio Shack Mundelein Plaza Mundelein, IL 68,056 03/96 1990 2,810,000 7 Sears Regency Point, Lockport, IL 54,911 04/96 1993/ 4,241,187 19 Walgreens 1995 Ace Hardware Prospect Heights Prospect Heights, IL 28,080 06/96 1985 1,095,000 5 Walgreens Blockbuster Video Sears Montgomery, IL 34,300 06/96 1990 1,645,000 6 Sears Paint & Hardware Blockbuster Video Salem Square Countryside, IL 112,310 08/96 1973/ 3,130,000 4 TJ Maxx 1985 Marshalls Hawthorn Village Vernon Hills,IL 98,806 08/96 1979 4,280,000 22 Dominick's Finer Foods Walgreens Six Corners, Chicago, IL 80,650 10/96 1966 3,100,000 8 Chicago Health Club Illinois Masonic Medical Center Spring Hill Fashion Center West Dundee, IL 125,198 11/96 1985 4,690,000 20 TJ Maxx Michaels Crafts Crestwood Plaza Crestwood, IL 20,044 12/96 1992 904,380 1 Entenmann's Park St. Claire Schaumburg, IL 11,859 12/96 1994 762,500 2 Ameritech Hallmark Showcase Summit of Park Ridge Park Ridge, IL 33,252 12/96 1986 1,600,000 14 LePeep Rest. Giappos Pizza -7- Gross Mortgages Leasable Year Payable Current Area Date Built/ at No. of Anchor Property (Sq Ft) Acq. Renovated 12/31/99 Tenants Tenants* - --------------------------- -------- ------ --------- ----------- -------- ---------- Neighborhood Retail Centers, cont. - ---------------------------------- Grand and Hunt Club, Gurnee, IL 21,222 12/96 1996 1,796,000 2 Helzberg Diamonds Super Crown Books Quarry Outlot, Hodgkins, IL 9,650 12/96 1996 900,000 3 Dunkin Donuts/ Baskin Robbins The Casual Male Helzberg Diamonds Aurora Commons, Aurora, IL 127,302 01/97 1988 9,000,328 23 Jewel/Osco Lincoln Park Place Chicago, IL 10,678 01/97 1990 1,050,000 1 Lechters Housewares Niles Shopping Center Niles, IL 26,109 04/97 1982 1,617,500 6 Jennifer Convertibles Acel Cellular Wolf Camera & Video American Oak Design Mallard Crossing Elk Grove Village, IL 82,929 05/97 1993 4,050,000 10 Eagle Foods Cobblers Crossing Elgin, IL 102,643 05/97 1993 5,476,500 15 Jewel Food Store Calumet Square Calumet City, IL 39,936 06/97 1967/ 1,032,920 3 Aronson Furniture 1994 Super Trak Warehouse Sequoia Shopping Center Milwaukee, WI 35,407 06/97 1988 1,505,000 12 Kinko's U.S. Post Office Play It Again Sports Wong's Palace Riversquare Shopping Center Naperville, IL 58,556 06/97 1988 3,050,000 20 Salon Suites Limited Harbour Contractors, Inc. Shorecrest Plaza Racine, WI 91,244 07/97 1977 2,978,000 12 Piggly Wiggly Grocery Wisconsin Health & Fitness Dominick's Countryside, IL 62,344 12/97 1975 1,150,000 1 Dominick's Finer Foods Terramere Plaza Arlington Heights, IL 40,965 12/97 1980 2,202,500 17 None Wilson Plaza Batavia, IL 11,160 12/97 1986 650,000 7 White Hen Pantry Dimples Donuts Riverside Liquors Iroquois Center Naperville, IL 140,981 12/97 1983 5,950,000 26 Total Beverage Sears Fashion Square, Skokie, IL 84,580 12/97 1984 6,200,000 13 Cost Plus Designer Shoe Outlet Shops at Coopers Grove Country Club Hills, IL 72,518 01/98 1991 2,900,000 9 Eagle Foods Maple Plaza Downers Grove, IL 31,298 01/98 1988 1,582,500 11 J.C. Licht Co. Goodyear Tire & Rubber Copy Center -8- Gross Mortgages Leasable Year Payable Current Area Date Built/ at No. of Anchor Property (Sq Ft) Acq. Renovated 12/31/99 Tenants Tenants* - --------------------------- -------- ------ --------- ----------- -------- ---------- Neighborhood Retail Centers, cont. - ---------------------------------- Orland Park Retail Orland Park, IL 8,500 02/98 1997 625,000 2 All Cleaners Gianni's Pizza Wisner/Milwaukee Plaza Chicago, IL 14,677 02/98 1994 974,725 4 Blockbuster Video Giordano's Restaurant Spincycle Coin Laundry Homewood Plaza Homewood, IL 19,000 02/98 1993 1,013,201 3 Blockbuster Video Trak Auto Elmhurst City Center Elmhurst, IL 39,481 02/98 1994 2,513,765 7 Walgreens Famous Footwear Shoppes of Mill Creek Palos Park, IL 102,443 03/98 1989 - 19 Jewel Food Store Prairie Square Sun Prairie, WI 35,755 03/98 1995 1,550,000 13 Famous Footwear Blockbuster Video Hallmark Oak Forest Commons Oak Forest, IL 108,330 03/98 1998 6,617,871 13 Dominick's Finer Foods Downers Grove Market Downers Grove, IL 104,445 03/98 1998 10,600,000 14 Dominick's Finer Foods St. James Crossing Westmont, IL 49,994 03/98 1990 3,847,599 20 Nevada Bob's Luciano's High Point Center Madison, WI 86,009 04/98 1984 5,360,988 21 Pier 1 Imports Western & Howard Chicago, IL 12,784 04/98 1985 992,681 2 Pearle Vision Payless Shoe Source Wauconda Shopping Center Wauconda, IL 31,157 05/98 1988 1,333,834 3 Sears Hardware Spasso, Ltd. Berwyn Plaza Berwyn, IL 18,138 05/98 1983 708,638 4 Radio Shack Woodland Heights Streamwood, IL 120,436 06/98 1956 3,940,009 10 Jewel Food Store U.S. Post Office Schaumburg Plaza Schaumburg, IL 61,485 06/98 1994 3,908,082 6 Sears Hardware Trak Auto Ulta 3 Winnetka Commons New Hope, MN 42,415 07/98 1990 2,233,744 16 Walgreens Big Wheel Auto Store Eastgate Shopping Center Lombard, IL 132,519 07/98 1959 3,345,000 36 Ace Hardware Secretary of State Orland Greens Orland Park, IL 45,031 09/98 1984 2,132,000 13 Walgreens MacFrugals Two Rivers Plaza Bolingbrook, IL 57,900 10/98 1994 3,658,000 7 Kay-Bee Toy Store Sizes Unlimited Marshalls -9- Gross Mortgages Leasable Year Payable Current Area Date Built/ at No. of Anchor Property (Sq Ft) Acq. Renovated 12/31/99 Tenants Tenants* - --------------------------- -------- ------ --------- ----------- -------- ---------- Neighborhood Retail Centers, cont. - ---------------------------------- Edinburgh Festival Brooklyn Park, MN 91,536 10/98 1997 4,625,000 13 Knowlan's Super Markets Riverplace Center Noblesville, IN 74,414 11/98 1992 3,323,000 9 Fashion Bug Kroger Rose Plaza Elmwood Park, IL 24,204 11/98 1997 2,008,000 3 Binny's Marketplace at Six Corners Chicago, IL 117,000 11/98 1997 11,200,000 5 Jewel Food Store Marshalls Plymouth Collection Plymouth, MN 40,815 01/99 1999 3,441,000 9 Golf Galaxy Vintage Liquors Paper Warehouse Loehmann's Plaza Brookfield, WI 107,952 02/99 1985 6,643,000 27 Loehmann's Dickens Books Richards Market Baytowne Square Champaign, IL 118,842 02/99 1993 7,027,000 20 Staples Berean Bookstore Petsmart Gateway Square Hinsdale, IL 40,170 03/99 1985 3,470,000 20 Malson Fabrics Oak Forest Commons Ph III Oak Forest, IL 7,424 06/99 1999 552,700 3 Country Companies Insurance Dollar Store Jackson Hewitt Tax Oak Lawn Town Center Oak Lawn, IL 12,506 06/99 1999 1,200,000 4 Bed Mart Starbucks Coffee Hollywood Video Southwestern Bell Stuart's Crossing St. Charles, IL 70,529 07/99 1999 - 1 Jewel Food Stores West River Crossing Joliet, IL 31,132 08/99 1999 2,806,700 10 Hollywood Video Secret Nails Budget Golf Hickory Creek Market Place Frankfort, IL 35,451 08/99 1999 3,108,300 12 Hallmark Burnsville Crossing Burnsville, MN 91,015 09/99 1989 2,858,100 14 Petsmart Schreiderman's Furniture Byerly's Burnsville Burnsville, MN 72,365 09/99 1988 2,915,900 6 Byerly's Food Store Cliff Lake Center Eagan, MN 74,215 09/99 1988 5,121,280 25 Silas Creek Retail Park Place Plaza St. Louis Park, MN 84,999 09/99 1997 6,407,000 12 Petsmart Office Max Shingle Creek Brooklyn Center, MN 39,456 09/99 1986 1,735,000 16 Panera Bread Maple Grove Retail Maple Grove, MN 79,130 09/99 1998 3,958,000 1 Rainbow Foods -10- Gross Mortgages Leasable Year Payable Current Area Date Built/ at No. of Anchor Property (Sq Ft) Acq. Renovated 12/31/99 Tenants Tenants* - --------------------------- -------- ------ --------- ----------- -------- ---------- Neighborhood Retail Centers, cont. - ---------------------------------- Rose Naper Plaza West Naperville, IL 14,335 09/99 1997 - 5 Hollywood Video Papa John's Pizza Caribou Coffee Elegante Salon Signature Cleaners Schaumburg Promenade Schaumburg, IL 91,825 12/99 1999 9,650,000 5 Eastern Mountain Sports Zany Brainy Pier One DSW Shoe Warehouse Linens and Things Community Centers - ----------------- Lansing Square Lansing, IL 233,508 12/96 1991 8,150,000 15 Sam's Club Baby Superstore Office Max Maple Park Place Bolingbrook, IL 220,095 01/97 1992 7,650,000 18 K-Mart Corporation Cub Foods Rivertree Court Vernon Hills, IL 298,862 07/97 1988 17,547,999 38 Best Buy Plitt Theaters Naper West Naperville, IL 164,812 12/97 1985 7,695,199 27 Douglas TV TJ Maxx Woodfield Plaza Schaumburg, IL 177,160 01/98 1992 9,600,000 9 Kohl's Barnes & Noble Lake Park Plaza Michigan City, IN 229,639 02/98 1990 6,489,618 13 Walmart Chestnut Court Darien, IL 170,027 03/98 1987 8,618,623 23 Just Ducky Stein Mart Bergen Plaza Oakdale, MN 270,283 04/98 1978 9,141,896 36 Rainbow Foods K-Mart Fairview Heights Plaza Fairview Heights, IL 167,491 08/98 1991 5,637,000 8 1/2 Price Store Michaels The Sports Authority Sears Homelife Woodfield Commons-East/West Schaumburg, IL 207,583 10/98 1973 13,500,000 19 Toys R Us 1975 Tower Records 1997 Comp USA Joliet Commons Joliet, IL 158,915 10/98 1995 14,447,153 13 Barnes and Noble Old Navy M.C. Sports Springboro Plaza Springboro, OH 154,034 11/98 1992 5,161,000 4 K-Mart Kroger Foods Park Center Plaza Tinley Park, IL 193,179 12/98 1988 7,337,000 26 Cub Foods Woodland Commons Buffalo Grove, IL 170,070 02/99 1991 10,734,710 37 Dominick's Finer Foods -11- Gross Mortgages Leasable Year Payable Current Area Date Built/ at No. of Anchor Property (Sq Ft) Acq. Renovated 12/31/99 Tenants Tenants* - --------------------------- -------- ------ --------- ----------- -------- ---------- Community Centers, cont. - ------------------------ Randall Square Geneva, IL 205,164 05/99 1999 - 21 TJ Maxx Bed, Bath & Beyond Riverdale Commons Coon Rapids, MN 168,277 09/99 1998 9,752,000 13 Rainbow Foods Office Max Wickes Furniture Quarry Retail Minneapolis, MN 273,648 09/99 1997 15,670,000 12 Rainbow Foods Home Depot Pine Tree Plaza Janesville, WI 187,413 10/99 1998 - 16 Michaels Staples TJ Maxx Gander Mountain * Anchor tenants include tenants leasing more than 10% of the gross leasable area of a property.
-12- The following table lists the approximate physical occupancy levels for the Company's properties as of the end of each year during 1999, 1998, 1997 and 1996. N/A indicates the property was not owned by the Company at the end of the year. As of December 31, ---------------------------------- 1999 1998 1997 1996 (%) (%) (%) (%) Properties -------- -------- -------- ------- ---------- Walgreens, Decatur, IL .................... 100 100 100 100 Eagle Crest, Naperville, IL................ 94 100 97 100 Goodyear, Montgomery, IL................... 28(b) 77 77 100 Hartford Plaza, Naperville, IL............. 100 100 100 100 Nantucket Square, Schaumburg, IL........... 100 100 96 85 Antioch Plaza, Antioch, IL................. 67 68 68 57 Mundelein Plaza, Mundelein, IL............. 96 100 100 100 Regency Point, Lockport, IL................ 98 97 97 97 Prospect Heights, Prospect Heights, IL..... 25(b) 92 83 100 Sears, Montgomery, IL...................... 100 100 95 85 Zany Brainy, Wheaton, IL................... 100 100 100 100 Salem Square, Countryside, IL.............. 93 97 97 97 Hawthorn Village, Vernon Hills, IL......... 100 100 99 98 Six Corners, Chicago, IL................... 89 82 90 92 Spring Hill Fashion Center, W. Dundee, IL.. 97 95 100 95 Crestwood Plaza, Crestwood, IL............. 68 100 100 100 Park St. Claire, Schaumburg, IL............ 100 100 100 100 Lansing Square, Lansing, IL................ 98(b) 98 90 89 Summit of Park Ridge, Park Ridge, IL....... 84 87 83 81 Grand and Hunt Club, Gurnee, IL............ 100 100 100 100 Quarry Outlot, Hodgkins, IL................ 100 100 100 100 Maple Park Place, Bolingbrook, IL.......... 97 99 98 N/A Aurora Commons, Aurora, IL................. 93 95 98 N/A Lincoln Park Place, Chicago, IL............ 60 60 60 N/A Ameritech, Joliet, IL...................... 100 100 100 N/A Dominick's, Schaumburg, IL................. 100 100 100 N/A Dominick's, Highland Park, IL.............. 100 100 100 N/A Niles Shopping Center, Niles, IL........... 87 100 60 N/A Mallard Crossing, Elk Grove Village, IL.... 97 97 95 N/A Cobblers Crossing, Elgin, IL............... 100 91 89 N/A Calumet Square, Calumet City, IL........... 100 100 100 N/A Sequoia Shopping Center, Milwaukee, WI..... 93 100 93 N/A Riversquare Shopping Ctr., Naperville, IL.. 76(b) 97 95 N/A Rivertree Court, Vernon Hills, IL.......... 99 99 99 N/A Shorecrest Plaza, Racine, WI............... 89 87 96 N/A Dominick's, Glendale Heights, IL........... 100 100 100 N/A Party City, Oakbrook Terrace, IL........... 100 100 100 N/A Eagle Country Market, Roselle, IL.......... 100 100 100 N/A Dominick's, Countryside, IL................ 100 100 100 N/A Terramere Plaza, Arlington Heights, IL..... 79 95 80 N/A Wilson Plaza, Batavia, IL.................. 100 100 100 N/A Iroquois Center, Naperville, IL............ 69(b) 73 81 N/A Fashion Square, Skokie, IL................. 81 100 88 N/A Naper West, Naperville, IL................. 93 83 86 N/A Dominick's, West Chicago, IL............... 100 100 N/A N/A Shops at Coopers Grove, Country Club Hills,IL.................... 100 100 N/A N/A Maple Plaza, Downers Grove, IL............. 87 100 N/A N/A -13- As of December 31, ---------------------------------- 1999 1998 1997 1996 (%) (%) (%) (%) Properties -------- -------- -------- ------- ---------- Orland Park Retail, Orland Park, IL........ 36 100 N/A N/A Wisner/Milwaukee Plaza, Chicago, IL........ 100 100 N/A N/A Homewood Plaza, Homewood, IL............... 100 100 N/A N/A Elmhurst City Center, Elmhurst, IL......... 62 100 N/A N/A Shoppes of Mill Creek, Palos Park, IL...... 97 98 N/A N/A Oak Forest Commons, Oak Forest, IL......... 97 100 N/A N/A Prairie Square, Sun Prairie, WI............ 83(a) 90 N/A N/A Downers Grove Market, Downers Grove, IL.... 100 100 N/A N/A St. James Crossing, Westmont, IL........... 83 91 N/A N/A Woodfield Plaza, Schaumburg, IL............ 82(a) 97 N/A N/A Lake Park Plaza, Michigan City, IN......... 71(b) 74 N/A N/A Chestnut Court, Darien, IL................. 95 98 N/A N/A Western & Howard, Chicago, IL.............. 38(b) 100 N/A N/A High Point Center, Madison, WI............. 92(b) 90 N/A N/A Wauconda Shopping Center, Wauconda, IL..... 92 100 N/A N/A Berwyn Plaza, Berwyn, IL................... 26(a)(b)100 N/A N/A Woodland Heights, Streamwood, IL........... 81 81 N/A N/A Schaumburg Plaza, Schaumburg, IL........... 93 93 N/A N/A Bergen Plaza, Oakdale, MN.................. 97(a) 98 N/A N/A Walgreens, Woodstock, IL................... 100 100 N/A N/A Winnetka Commons, New Hope, MN............. 100 100 N/A N/A Eastgate Shopping Center, Lombard, IL...... 92(a) 91 N/A N/A Fairview Heights Plaza, Fairview Heights,IL 78(a)(b) 78 N/A N/A Orland Greens, Orland Park, IL............. 97 100 N/A N/A Bakers Shoes, Chicago, IL.................. 100 100 N/A N/A Staples, Freeport, IL...................... 100 100 N/A N/A Two Rivers Plaza, Bolingbrook, IL.......... 100 100 N/A N/A Edinburgh Festival, Brooklyn Park, MN...... 100 97 N/A N/A Woodfield Commons-East/West, Schaumburg, IL 95(a) 89 N/A N/A Riverplace Center, Noblesville, IN......... 94 100 N/A N/A Rose Plaza, Elmwood Park, IL............... 100 100 N/A N/A Marketplace at Six Corners, Chicago, IL.... 100 100 N/A N/A Joliet Commons, Joliet, IL................. 96(a) 97 N/A N/A Springboro Plaza, Springboro, OH........... 100 100 N/A N/A Carmax, Schaumburg, IL..................... 100 100 N/A N/A Carmax, Tinley Park, IL.................... 100 100 N/A N/A Hollywood Video, Hammond, IN............... 100 100 N/A N/A Park Center Plaza, Tinley Park, IL......... 72(a) 71 N/A N/A Plymouth Collection, Plymouth, MN.......... 100 N/A N/A N/A Circuit City, Traverse City, MI............ 100 N/A N/A N/A Loehmann's Plaza, Brookfield, WI........... 100 N/A N/A N/A Woodland Commons, Buffalo Grove, IL........ 97 N/A N/A N/A Baytowne Square, Champaign, IL............. 97 N/A N/A N/A Cub Foods, Plymouth, MN.................... 100 N/A N/A N/A Cub Foods, Indianapolis, IN................ 100 N/A N/A N/A Gateway Square, Hinsdale, IL............... 100 N/A N/A N/A Eagle Ridge Center, Lindenhurst, IL........ 100 N/A N/A N/A Dominick's, Hammond, IN.................... 0(b) N/A N/A N/A Randall Square, Geneva, IL................. 94(a) N/A N/A N/A Eagle Foods, Buffalo Grove, IL............. 100 N/A N/A N/A Oak Forest Commons Ph III, Oak Forest, IL.. 82 N/A N/A N/A Oak Lawn Town Center, Oak Lawn, IL......... 100 N/A N/A N/A -14- As of December 31, ---------------------------------- 1999 1998 1997 1996 (%) (%) (%) (%) Properties -------- -------- -------- ------- ---------- West River Crossing, Joliet, IL............ 87 N/A N/A N/A Hickory Creek Market Place, Frankfort, IL.. 65 N/A N/A N/A Bally's Total Fitness, St. Paul, MN........ 100 N/A N/A N/A Riverdale Commons, Coon Rapids, MN......... 99 N/A N/A N/A Burnsville Crossing, Burnsville, MN........ 100 N/A N/A N/A Byerly's Burnsville, Burnsville, MN........ 84 N/A N/A N/A Cliff Lake Center, Eagan, MN............... 88 N/A N/A N/A Maple Grove Retail, Maple Grove, MN........ 100 N/A N/A N/A Park Place Plaza, St. Louis Park, MN...... 100 N/A N/A N/A Quarry Retail, Minneapolis, MN............. 99 N/A N/A N/A Shingle Creek, Brooklyn Center, MN......... 73 N/A N/A N/A United Audio Center, Schaumburg, IL........ 100 N/A N/A N/A Rose Naper Plaza West, Naperville, IL...... 100 N/A N/A N/A Schaumburg Promenade, Schaumburg, IL....... 100 N/A N/A N/A Stuart's Crossing, St. Charles, IL......... 100 N/A N/A N/A Pine Tree Plaza, Janesville, WI............ 93(a) N/A N/A N/A (a) As part of the purchase of these properties, the Company receives rent under master lease agreements on the space which was vacant at the time of the purchase which results in economic occupancy ranging from 90% to 100% at December 31, 1999 for each of these centers. The master lease agreements are for periods ranging from one to two years from the purchase date or until the spaces are leased. (b) The Company receives rent from tenants who have vacated but are still obligated under their lease terms which results in economic occupancy ranging from 70% to 100% at December 31, 1999 for each of these centers. -15- Item 3. Legal Proceedings The Company is not a party to any material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of 1999. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Market Information As of December 31, 1999, there were 19,190 stockholders of the Company. There is no public market for the shares. Distributions The Company declared distributions to Stockholders totaling $.89 and $.88 per weighted average share outstanding (paid monthly) during the years ended December 31, 1999 and 1998, respectively. Of this amount, $.66 and $.67 qualifies as distributions taxable as ordinary income for 1999 and 1998, respectively, and the remainder constitutes a return of capital for tax purposes. Sales of Unregistered Securities On October 24, 1996, Roland Burris, a Director of the Company, exercised options to purchase 1,000 shares at a price equal to $9.05 per share. Both the option and the shares were issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1993, as amended. -16- Item 6. Selected Financial Data
INLAND REAL ESTATE CORPORATION (a Maryland corporation) For the years ended December 31, 1999, 1998, 1997, 1996 and 1995 (not covered by the Independent Auditors' Report) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Total assets......... $ 982,281,972 787,608,547 333,590,131 104,508,686 18,750,877 Mortgages payable.... $ 440,740,296 288,982,470 106,589,710 30,838,233 750,727 Total income......... $ 123,787,569 73,302,278 29,421,585 6,327,734 1,180,422 Net income........... $ 30,171,901 24,085,871 8,647,221 2,452,221 496,514 Net income per common share, basic and diluted (b)........ $ .55 .60 .57 .55 .53 Distributions declared........... $ 48,379,621 35,443,213 13,127,597 3,704,943 736,627 Distributions per common share (b).......... $ .89 .88 .86 .82 .78 Funds From Operations (b)(c)............. $ 49,605,022 35,474,823 13,203,666 3,391,365 666,408 Funds available for distribution (c)... $ 49,271,463 35,698,975 13,141,242 3,680,824 787,011 Cash flows provided by operating activities......... $ 59,201,034 43,031,662 15,923,839 5,529,709 978,350 Cash flows used in investing activities......... $(278,013,144) (344,562,533) (146,994,619) (68,976,841) (6,577,843) Cash flows provided by financing activities........ $ 115,179,751 373,363,545 173,724,632 71,199,936 6,327,490 Weighted average common Stock shares outstanding, basic and diluted........ 54,603,088 40,359,796 15,225,983 4,494,620 943,156
-17- -17- (a) The above selected financial data should be read in conjunction with the financial statements and related notes appearing elsewhere in this Annual Report. (b) The net income and distributions per share are based upon the weighted average number of common shares outstanding. The $.89 per share distributions for the year ended December 31, 1999, represented 98.8% of the Company's Funds From Operations ("FFO") and 99.2% of funds available for distribution for that period. See Footnote (c) below for information regarding the Company's calculation of FFO. Distributions by the Company 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. For the year ended December 31, 1999, $12,738,889 (or 26.33% of the $48,379,621 distributions declared for 1999) represented a return of capital. The balance of the distribution constitutes ordinary income. In order to maintain its qualification as a REIT, the Company must make annual distributions to stockholders of at least 95% of its REIT taxable income, or approximately $33,543,750 for 1999. REIT taxable income does not include net capital gains. Under certain circumstances, the Company may be required to make distributions in excess of cash available for distribution in order to meet the REIT distribution requirements. Distributions are determined by the Company's Board of Directors and are dependent on a number of factors, including the amount of funds available for distribution, the Company's financial condition, any decision by the Board of Directors to reinvest funds rather than to distribute the funds, the Company's capital expenditures, the annual distribution required to maintain REIT status under the Code and other factors the Board of Directors may deem relevant. (c) One of the Company's objectives is to provide cash distributions to its Stockholders from cash generated by the Company's operations. Cash generated from operations is not equivalent to the Company's net operating income as determined under GAAP. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a standard known as "Funds From Operations" or "FFO" for short, which it believes more accurately reflects the operating performance of a REIT such as the Company. As defined by NAREIT, FFO means net income computed in accordance with GAAP, less extraordinary, unusual and non- recurring items, excluding gains (or losses) from debt restructuring and sales of property plus depreciation on real property and amortization and after adjustments for unconsolidated partnership and joint ventures in which the REIT holds an interest. The Company has adopted the NAREIT definition for computing FFO because management believes that, subject to the following limitations, FFO provides a basis for comparing the performance and operations of the Company to those of other REITs. The calculation of FFO may vary from entity to entity since capitalization and expense policies tend to vary from entity to entity. Items which are capitalized do not impact FFO, whereas items that are expensed reduce FFO. -18- Consequently, the presentation of FFO by the Company may not be comparable to other similarly titled measures presented by other REITs. FFO is not intended to be an alternative to "Net Income" as an indicator of the Company's performance nor to "Cash Flows from Operating Activities" as determined by GAAP as a measure of the Company's capacity to pay distributions. FFO and funds available for distribution are calculated as follows: Year ended December 31, 1999 1998 1997 ---- ---- ---- Net income.................... $ 30,171,901 24,085,871 8,647,221 Depreciation, net of minority interest........... 19,433,122 11,388,952 4,556,445 ------------- ------------- ------------ Funds From Operations (1)..... 49,605,022 35,474,823 13,203,666 Principal amortization of debt, net of minority interest.... (87,752) (74,454) (67,300) Deferred rent receivable, net of minority interest (2) (2,327,251) (2,120,951) (654,978) Acquisition cost expenses (3). - 437,783 249,493 Rental income received under master lease agreements, net of minority interest (4) 2,081,444 1,981,774 410,361 ------------- ------------- ------------ Funds available for distribution................ $ 49,271,463 35,698,975 13,141,242 ============= ============= ============ (1) FFO does not represent cash generated from operating activities calculated in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. (2) Certain tenant leases contain provisions providing for stepped rent increases. GAAP requires the Company to record rental income for the period of occupancy using the effective monthly rent, which is the average monthly rent for the entire period of occupancy during the term of the lease. (3) Acquisition cost expenses include costs and expenses relating to the acquisition of properties. These costs were estimated to be up to .5% of the Gross Offering Proceeds and were paid from the Proceeds of the Offering. No acquisition costs have been included for the year ended December 31, 1999, due to the termination of the Company's Offering on December 31, 1998. (4) In connection with the purchase of several properties, the Company will receive payments under master lease agreements covering spaces vacant at the time of acquisition of those properties. The payments will be made to the Company for periods ranging from one to two years from the date of acquisition of the property or until the spaces are leased. GAAP requires that as these payments are received, they be recorded as a reduction in the purchase price of the properties rather than as rental income. -19- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this annual report on 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 the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among other things, limitations on the area in which the Company may acquire properties; risks associated with borrowings secured by the Company's properties; competition for tenants and customers; federal, state or local regulations; adverse changes in general economic or local conditions; competition for property acquisitions with third parties that have greater financial resources than the Company; inability of lessees to meet financial obligations; uninsured losses; risks of failing to qualify as a REIT; and potential conflicts of interest between the Company and its Affiliates including the Advisor. Liquidity and Capital Resources Cash and cash equivalents consists of cash and short-term investments. Cash and cash equivalents, at December 31, 1999 and December 31, 1998, were $19,424,343 and $123,056,702, respectively. The decrease in cash and cash equivalents since December 31, 1998 resulted primarily from the use of cash resources to purchase additional properties. Partially offsetting the decrease in cash and cash equivalents was additional proceeds received through the Company's Distribution Reinvestment Program ("DRP"). The Company intends to use cash and cash equivalents to purchase additional properties, to pay distributions and for working capital requirements. The source of future cash for investing in properties will be from financing obtained on currently unencumbered properties and amounts raised through the Company's DRP. As of December 31, 1999, the Company had acquired 115 properties. The properties owned by the Company are currently generating sufficient cash flow to cover operating expenses of the Company plus pay a monthly distribution on weighted average shares. Beginning July 1999, the Company increased the distribution paid to stockholders from $.88 per annum to $.89 per annum on weighted average shares. Distributions declared for the year ended December 31, 1999 were $48,379,621, of which $12,738,889 represents a return of capital for federal income tax purposes. The Advisor to the Company monitors the various qualification tests the Company must meet to maintain its status as a real estate investment trust. Large ownership of the Company's stock is tested upon purchase to determine that no more than 50% in value of the outstanding stock is owned directly, or indirectly, by five or fewer persons or entities at any time. The Advisor to the Company also determines, on a quarterly basis, that the Gross Income, Asset and Distribution Tests imposed by the REIT requirements are met. On an ongoing basis, as due diligence is performed by the Advisor on potential real estate purchases or temporary investment of uninvested capital, the Advisor determines that the income from the new asset will qualify for REIT purposes. Beginning with the tax year ended December 31, 1995, the Company has qualified as a REIT. -20- Cash Flows From Operating Activities Net cash provided by operating activities increased from $15,923,839 for the year ended December 31, 1997 to $43,031,662 for the year ended December 31, 1998 to $59,201,034 for the year ended December 31, 1999. These increases are due primarily to the increase in the number of properties owned by the Company. As of December 31, 1999 the Company had acquired 115 properties, as compared to 85 properties as of December 31, 1998, and 44 properties as of December 31, 1997. Cash Flows From Investing Activities The Company used $278,013,144 in cash for investing activities during the year ended December 31, 1999 as compared to $344,562,533 and $146,994,619 for the years ended December 31, 1998 and 1997, respectively. Substantially all of the cash was used primarily for the purchase of and additions to properties. Additionally, during 1999 the Company purchased $10,659,289 of investment securities. Cash Flows From Financing Activities For the year ended December 31, 1999, the Company generated $115,179,751 of cash flows from financing activities as compared to $373,363,545 of cash flows generated from financing activities for the year ended December 31, 1998. This decrease is due primarily to the termination of the Fourth Offering on December 31, 1998. For the year ended December 31, 1999, the Company had proceeds from the DRP, net of remaining offering costs paid and shares repurchased, of $30,432,466 compared to $261,217,625 for the year ended December 31, 1998. The decrease is also due to an increase in distributions paid for the year ended December 31, 1999 of $48,773,272 compared to $33,454,118 for the year ended December 31, 1998 and a decrease in loan proceeds received for the year ended December 31, 1999 of $145,814,000 compared to $166,352,000 for the year ended December 31, 1998. This decrease was partially offset by a decrease in principal payments made on debt for the year ended December 31, 1999 of $10,659,708 compared to $18,041,255 for the year ended December 31, 1998. For the year ended December 31, 1998, the Company generated $373,363,545 of cash flows from financing activities as compared to $173,724,632 of cash flows from financing activities for the year ended December 31, 1997. The increase is due to the increase in proceeds raised from the Offerings and an increase in loan proceeds received in 1998. This increase was partially offset by an increase in distributions paid and an increase in principal payments made on debt. The weighted annual average interest rate on the mortgages payable outstanding at December 31, 1999 was approximately 7.07%. See Note 7 of the Notes to Consolidated Financial Statements (Item 8 of the Annual Report) for a description of the terms of the mortgages payable. -21- The Advisor guaranteed payment of all public offering expenses (excluding selling commissions, the marketing contribution and the due diligence expense allowance fee) in excess of 5.5% of the Gross Offering Proceeds of the Offering (the "Gross Offering Proceeds") or all organization and offering expenses (including such selling expenses) which together exceed 15% of the Gross Offering Proceeds. Organizational and offering costs totaling $58,852,618 did not exceed these limitations. Results of Operations At December 31, 1999, the Company owned 23 single-user retail properties, 74 Neighborhood Retail Centers and 18 Community Centers. Total income for the years ended December 31, 1999, 1998 and 1997 was $123,787,569, $73,302,278 and $29,421,585, respectively. The increases are due primarily to the purchase of additional properties. As of December 31, 1999, the Company had acquired 115 properties, as compared to 85 properties as of December 31, 1998 and 44 properties as of December 31, 1997. The purchase of additional properties also resulted in increases in property operating expenses and depreciation expense. During March 1999, the Company received a fee of $803,158 for the termination of a lease at one of the Company's properties. This termination fee is included in additional rental income for the year ended December 31, 1999. The Company signed a lease with a new tenant for this space and began receiving rent from the new tenant in April 1999. Interest income is the result of cash and cash equivalents being invested in short-term investments until a property is purchased. The increases in professional services to Affiliates and non-affiliates and general and administrative expenses to Affiliates and non-affiliates for the year ended December 31, 1999, as compared to the years ended December 31, 1998 and 1997, is due primarily to the management of an increased number of real estate assets and an increased number of stockholders. The Advisor may receive an annual Advisor Asset Management Fee of not more than 1% of the Average Invested Assets, paid quarterly. The Company paid an Advisor Asset Management Fee which represented .58, .20 and .45 of the 1% of the Average Invested Assets for the years ended December 31, 1999, 1998 and 1997, respectively. Remaining Advisor Asset Management Fees are forfeited by the Advisor and, accordingly, not accrued in the accompanying financial statements. The increase in mortgage interest to non-affiliates for the year ended December 31, 1999, as compared to the years ended December 31, 1998 and 1997, is due to an increase in mortgages payable to approximately $440,740,000 from approximately $289,000,000 and $106,600,000, respectively. The increase in acquisition cost expenses paid to Affiliates and non-affiliates for the years ended December 31, 1999 and 1998, as compared to the year ended December 31, 1997, is due to the increased number of properties considered for acquisition by the Company and not purchased. -22- The accompanying consolidated financial statements include the accounts of the Company, Inland Joliet Commons LLC, Inland Ryan LLC and Inland Ryan Cliff Lake LLC. Due to the Company's ability as managing member to directly control the LLCs, they are consolidated for financial reporting purposes. The third parties' interests are reflected as minority interest in the accompanying financial statements. In October 1998, the Company formed the Inland Joliet Commons LLC, an Illinois limited liability company, with an unaffiliated third party which purchased Phase I of the Joliet Commons Shopping Center. The Company contributed approximately $52,000 for a 1% interest in the Inland Joliet Commons LLC and the third party contributed a property with a fair market value of approximately $19,733,000 and debt of approximately $14,569,000 to the Inland Joliet Commons LLC for a 99% stated interest. The Company is the managing member of the Inland Joliet Commons LLC. The non-managing member (third party seller) has a right, on or after October 30, 2000 and prior to the time the Company has listed its shares on a national securities exchange, to tender its units in the Inland Joliet Commons LLC to the managing member for a cash payment equal to the equity in the property at the time of its contribution to the LLC. If the units are tendered after October 30, 1999 and the Company has not listed its shares on a national securities exchange, the non-managing member has a right to receive 469,480 shares of the Company's stock. In September 1999, the Company formed the Inland Ryan LLC, a Delaware limited liability company, with an unaffiliated third party which purchased nine shopping centers. The Company contributed approximately $76,720,000 for an approximate 77% interest in the Inland Ryan LLC. The third party seller contributed nine properties with a fair market value of approximately $99,427,000, debt of approximately $65,500,000 to the LLC and received a cash payment of $11,175,000 from the Company for an approximate 23% interest. The Company is the managing member of the Inland Ryan LLC. The non-managing member (third party seller) has a right on or after January 1, 2001 to tender up to 1/2 of its interest in the Inland Ryan LLC to the managing member for a cash payment. The remaining interest may be tendered to the managing member on or after June 30, 2002. If the non-managing member has not tendered all of its interest by August 31, 2004, then at any time after that date, the managing member, at its sole and exclusive option, may require the tender of all remaining non-managing member interests. Generally, profit and loss allocations and distributions are made in accordance with stated ownership interests. In September 1999, the Company formed the Inland Ryan Cliff Lake LLC, a Delaware limited liability company, with the Inland Ryan LLC in order to comply with covenants of an assumed mortgage. The Company contributed approximately $6,000 in cash for a 1% interest in the Inland Ryan Cliff Lake LLC. The Inland Ryan LLC contributed one property with a fair market value of approximately $5,554,000 and debt of approximately $5,134,000 to the LLC for an approximate 99% interest. The Company is the managing member of the Inland Ryan Cliff Lake LLC. The non-managing member (third party seller) has a right on or after January 1, 2001 to tender up to 1/2 of its interest in the Inland Ryan LLC to the managing member for a cash payment. The remaining interest may be tendered to the managing member on or after June 30, 2002. If the non-managing member has not tendered all of its interest by August 31, 2004, then at any time after that date, the managing member, at its sole and exclusive option, may require the tender of all remaining non-managing member interests. Generally, profit and loss allocations and distributions are made in accordance with stated ownership interests. -23- Year 2000 Issues As part of it's year 2000 readiness plan, the Company had identified three areas for compliance efforts: business computer systems, tenants and suppliers and non-information technology systems. The Company has not experienced any problems relating to year 2000 issues in any of these areas. Total costs associated with year 2000 readiness were not material. Subsequent Events In January 2000, the Company paid a distribution of $4,374,462 to the Stockholders. On January 13, 2000, the Company purchased Rose Plaza East from an unaffiliated third party for approximately $2,171,400 using cash and cash equivalents. The property is located in Naperville, Illinois and contains approximately 11,658 square feet of leasable space. Its anchor tenants are Starbuck's, BoRics, Plus Signs, Alpha Communications and Kinko's. On February 1, 2000, the Company purchased Chatham Ridge Shopping Center from an unaffiliated third party for approximately $19,475,240. The property is located in Chicago, Illinois and contains approximately 175,730 square feet of leasable space. Its anchor tenants are Cub Foods and Marshalls. To purchase the property, the Company used cash and cash equivalents of approximately $9,480,000 and obtained a loan from a third party lender for the balance of the purchase price. On February 1, 2000, the Company borrowed $3,000,000 from First Union Securities. The loan, secured by the Company's investment in securities, accrues interest at 6.5%. The loan was for 14 days with additional 14-day renewal options. The loan was paid in full on March 14, 2000. On February 8, 2000, the Company purchased Joliet Commons Phase II from an unaffiliated third party for approximately $4,800,000 using cash and cash equivalents. The property is located in Joliet, Illinois and contains approximately 40,395 square feet of leasable space. Its anchor tenants are Office Max, Eddie Bauer and Peppers Bedroom City. On behalf of the Company, the Advisor is currently exploring the purchase of additional shopping centers from unaffiliated third parties. -24- On March 7, 2000, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which it agreed to acquire the Advisor and the Company's property manager and become a self-administered REIT, through a tax- free, non-cash merger (the "Merger"). Pursuant to the Merger Agreement, upon closing, the Company will issue an aggregate of 6,181,818 Shares, or approximately eleven percent (10%) of its common stock taking into account such issuance, to the respective parents of the Advisor and the Company's property manager. The closing of the Merger is subject to numerous conditions including (i) approval of the Merger Agreement by the Stockholders at the Company's upcoming Annual Meeting; (ii) the delivery of an opinion of counsel that the completion of the Merger will not result in the revocation of the Company's status as a REIT for federal income tax purposes; (iii) delivery of an opinion of counsel that the transaction shall be treated as a tax free reorganization under the Internal Revenue Code of 1986, as amended, and (iv) the delivery of an opinion that the Merger is fair to the Company from a financial point of view. Concurrent with completing the Merger, the Board of Directors contemplates: (i) appointing new officers and entering into employment agreements with these individuals; (ii) entering into a lease agreement for office space with The Inland Group, Inc.; and (iii) receiving a license from The Inland Group, Inc. that gives to Company the right to the continued use of the name "Inland Real Estate Corporation" and the corporate logo. Impact of Accounting Principles Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued in 1998 and is effective for fiscal years beginning after June 15, 2000. On December 2, 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101 "Revenue Recognition in Financial Statements." The staff 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. Inflation For the Company's Neighborhood Retail Centers and Community Centers, inflation is likely to increase rental income from leases to new tenants and lease renewals, subject to market conditions. The Company's 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. -25- Item 7(a). Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to interest rate changes primarily as a result of its long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Company's real estate investment portfolio and operations. The Company's interest rate risk management objectives is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Company closely monitors its variable rate debt and on each such debt it has the right to convert the interest rate to a fixed rate. The Company's interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes. 2000 2001 2002 2003 2004 ----------- ----------- ----------- ---------- ----------- Fixed rate debt..... $ 400,800 19,745,770 233,000 31,550,014 110,429,253 Average interest rate on maturing debt.. - 7.46% - 7.32% 7.21% Variable rate debt.. $4,235,659 - - - 88,364,000 Average interest rate on maturing debt.. 8.28% - - - 7.31% As the table incorporates only those exposures that exist as of December 31, 1999, it does not consider those exposures of positions which could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value. As a result, the Company's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, the Company's hedging strategies at that time, and interest rates. The fair value of mortgages payable is the amount at which the instrument could be exchanged in a current transaction between willing parties. The fair value of the Company's mortgages is estimated to be $402,786,000. 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 Company entered into rate lock agreements in connection with three separate loans between the Company and Lehman Brothers Holdings, Inc., Column Financial, Inc. and Bear, Stearns Funding, Inc. These Agreements allowed the Company to set the interest rate on the loan at time of execution of such Agreements rather than at the funding. These Agreements were designed to hedge against higher interest rates at the time of the loan closings. The Company paid Lehman Brothers Holdings, Inc. $636,000 of loan fees and $503,295 of other costs, Column Financial, Inc. $37,125 of loan fees and $267,884 of other costs and Bear, Stearns Funding, Inc. $415,766 of loan fees and $134,429 of other costs in connection with these loans. The Lehman Brothers Holdings, Inc. loan, the Column Financial, Inc. loan and the Bear, Stearns Funding, Inc. loan closed in October 1998, November 1998 and June 1999, respectively. Approximately $92,605,000, or 21% of the Company's mortgages payable at December 31, 1999, have variable interest rates averaging 7.35%. An increase in the variable interest rate on certain mortgages payable constitutes a market risk. -26- Item 8. Consolidated Financial Statements and Supplementary Data INLAND REAL ESTATE CORPORATION (a Maryland corporation) Index ----- Page Independent Auditors' Report............................................. 28 Financial Statements: Consolidated Balance Sheets, December 31, 1999 and 1998................ 29 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997..................................... 31 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997..................................... 33 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997..................................... 34 Notes to Consolidated Financial Statements............................. 36 Real Estate and Accumulated Depreciation (Schedule III).................. 51 Schedules not filed: All schedules other than those indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. -27- INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Inland Real Estate Corporation: We have audited the consolidated financial statements of Inland Real Estate Corporation (the Company) as listed in the accompanying index. In connection with the audits 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 audits. We conducted our audits in accordance with generally accepted auditing standards. 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 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 Real Estate Corporation as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with 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 January 31, 2000 -28- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Consolidated Balance Sheets December 31, 1999 and 1998 Assets ------ 1999 1998 ---- ---- Investment properties (Note 4): Land............................................ $271,905,942 193,093,898 Construction in progress (Note 8)............... 1,699,356 1,230,448 Building and improvements....................... 671,201,002 452,885,969 ------------- ------------- 944,806,300 647,210,315 Less accumulated depreciation................... 37,424,871 17,161,998 ------------- ------------- Net investment properties....................... 907,381,429 630,048,317 ------------- ------------- Cash and cash equivalents including amount held by property manager........................ 19,424,343 123,056,702 Investment in securities (net of allowance for unrealized loss of $2,088,633 at December 31, 1999) (Note 1).................................. 8,570,656 - Investment in marketable securities............... 260,000 - Restricted cash (Notes 8 and 11).................. 15,340,902 15,613,197 Accounts and rents receivable (net of allowance for doubtful accounts of approximately $1,064,300 and $200,000 at December 31, 1999 and 1998, respectively) (Note 5).......................... 19,794,687 12,720,962 Mortgage receivable (Note 6)...................... 6,495,541 - Deposits and other assets......................... 358,986 2,854,836 Deferred organization costs (net of accumulated amortization of $36,526 and $16,780 at December 31, 1999 and 1998, respectively)................ - 19,746 Leasing fees (net of accumulated amortization of $39,031 at December 31, 1999)................ 360,486 - Loan fees (net of accumulated amortization of $1,029,522 and $395,962 at December 31, 1999 and 1998, respectively)......................... 4,294,942 3,294,787 ------------- ------------- Total assets...................................... $982,281,972 787,608,547 ============= ============= See accompanying notes to consolidated financial statements. -29- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Consolidated Balance Sheets (continued) December 31, 1999 and 1998 Liabilities and Stockholders' Equity ------------------------------------ 1999 1998 Liabilities: ---- ---- Accounts payable................................ $ 384,665 917,483 Accrued offering costs to Affiliate (Note 2).... - 890,786 Accrued offering costs to non-affiliates........ - 2,740 Accrued interest payable to Affiliate (Note 2).. 4,468 4,558 Accrued interest payable to non-affiliates...... 1,786,331 1,651,334 Accrued real estate taxes....................... 18,829,084 14,384,234 Distributions payable (Note 12)................. 4,374,462 3,844,649 Security deposits............................... 1,976,082 1,561,020 Mortgages payable (Note 7)...................... 440,740,296 288,982,470 Prepaid rents and unearned income............... 1,536,008 448,809 Other liabilities (Notes 4 and 11).............. 8,525,986 5,208,755 Due to Affiliates (Note 2)...................... 1,517,775 32,925 ------------- ------------- Total liabilities................................. 479,675,157 317,929,763 ------------- ------------- Minority interest................................. 27,112,690 5,214,298 ------------- ------------- Stockholders' Equity (Note 2): Preferred stock, $.01 par value, 6,000,000 Shares authorized; none issued and outstanding....... - - Common stock, $.01 par value, 100,000,000 Shares authorized; 55,398,888 and 52,394,500 issued and outstanding at December 31, 1999 and 1998, respectively.................................. 553,988 523,945 Additional paid-in capital (net of offering costs of $58,816,092 and $57,536,374 at December 31, 1999 and 1998, respectively, of which $52,218,524 and $51,108,966 was paid to Affiliates, respectively).................. 512,567,043 481,271,094 Accumulated distributions in excess of net income................................. (35,538,273) (17,330,553) Accumulated other comprehensive income (loss)... (2,088,633) - ------------- ------------- Total stockholders' equity........................ 475,494,125 464,464,486 Commitments and contingencies ------------- ------------- (Notes 5, 7, 8 and 11).......................... Total liabilities and stockholders' equity........ $982,281,972 787,608,547 ============= ============= See accompanying notes to consolidated financial statements. -30- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Consolidated Statements of Operations For the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 Income: ---- ---- ---- Rental income (Notes 1 and 5)..... $ 85,951,584 51,133,774 21,112,365 Additional rental income.......... 32,952,348 16,679,388 6,592,983 Interest income................... 4,206,809 5,185,534 1,615,520 Other income...................... 676,828 303,582 100,717 ------------- ------------- ------------ 123,787,569 73,302,278 29,421,585 Expenses: ------------- ------------- ------------ Professional services to Affiliates...................... 126,302 83,203 29,304 Professional services to non-affiliates.................. 644,643 357,142 96,681 General and administrative expenses to Affiliates.......... 625,937 330,651 115,468 General and administrative expenses to non-affiliates...... 1,027,660 811,952 241,501 Advisor asset management fee...... 4,193,068 965,108 843,000 Property operating expenses to Affiliates...................... 4,869,514 2,779,053 1,120,429 Property operating expenses to non-affiliates.................. 35,433,061 18,238,307 7,742,595 Mortgage interest to Affiliates... 54,114 55,154 86,455 Mortgage interest to non-affiliates.................. 25,599,610 13,366,445 5,568,109 Depreciation...................... 20,262,873 11,496,515 4,556,445 Amortization...................... 98,396 166,635 124,884 Acquisition cost expenses to Affiliates...................... 380,606 236,380 194,187 Acquisition cost expenses to non-affiliates.................. 185,217 201,403 55,306 ------------- ------------- ------------ 93,501,001 49,087,948 20,774,364 ------------- ------------- ------------ Income before minority interest..... 30,286,568 24,214,330 8,647,221 Minority interest................... (114,667) (128,459) - ------------- ------------- ------------ Net income.......................... 30,171,901 24,085,871 8,647,221 Other comprehensive income (loss): Unrealized holding loss on investment securities........... (2,088,633) - - ------------- ------------- ------------ Comprehensive income................ $ 28,083,268 24,085,871 8,647,221 ============= ============= ============ See accompanying notes to consolidated financial statements. -31- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Consolidated Statements of Operations (continued) For the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 ---- ---- ---- Net income per common share, basic and diluted....................... $ .55 .60 .57 ============= ============= ============ Weighted average common stock shares outstanding, basic and diluted.... 54,603,088 40,359,796 15,225,983 ============= ============= ============ See accompanying notes to consolidated financial statements. -32- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Consolidated Statements of Stockholders' Equity For the years ended December 31, 1999, 1998 and 1997
Accumulated Accumulated Additional Distributions Other Common Paid-in in excess of Comprehensive Stock Capital net income Loss Total ---------- ------------- ------------- -------------- ------------ Balance January 1, 1997........... $ 81,000 70,512,073 (1,492,835) - 69,100,238 Net income........................ - - 8,647,221 - 8,647,221 Distributions declared ($.86 per weighted average common shares outstanding).................... - - (13,127,597) - (13,127,597) Proceeds from Offering including DRP (net of Offering costs of $17,841,611).................... 169,198 150,548,641 - - 150,717,839 Treasury stock.................... (465) (420,369) - - (420,834) ---------- ------------- ------------- -------------- ------------- Balance December 31, 1997......... 249,733 220,640,345 (5,973,211) - 214,916,867 Net income........................ - - 24,085,871 - 24,085,871 Distributions declared ($.88 per weighted average common shares outstanding).................... - - (35,443,213) - (35,443,213) Proceeds from Offering including DRP (net of Offering costs of $29,194,655 and subscriptions receivable)..................... 275,668 261,946,748 - - 262,222,416 Treasury stock.................... (1,456) (1,315,999) - - (1,317,455) ---------- ------------- ------------- -------------- ------------- Balance December 31, 1998......... 523,945 481,271,094 (17,330,553) - 464,464,486 Net income........................ - - 30,171,901 - 30,171,901 Other comprehensive loss.......... - - - (2,088,633) (2,088,633) Distributions declared ($.89 per weighted average common shares outstanding).................... - - (48,379,621) - (48,379,621) Proceeds from Offering including DRP (net of Offering costs of $1,279,718)..................... 34,135 34,995,429 - - 35,029,564 Treasury stock.................... (4,092) (3,699,480) - - (3,703,572) ---------- ------------- ------------- -------------- ------------- Balance December 31, 1999......... $ 553,988 512,567,043 (35,538,273) (2,088,633) 475,494,125 ========== ============= ============= ============== =============
See accompanying notes to consolidated financial statements. -33- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Consolidated Statements of Cash Flows For the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 Cash flows from operating activities: ---- ---- ---- Net income........................ $ 30,171,901 24,085,871 8,647,221 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.................... 20,262,873 11,496,515 4,556,445 Amortization.................... 98,396 166,635 124,884 Minority interest............... 114,667 128,459 - Rental income under master lease agreements.............. 2,185,830 1,981,774 410,361 Straight line rental income..... (2,490,459) (2,120,951) (654,978) Allowance for doubtful accounts. 864,256 200,000 - Interest on unamortized loan fees..................... 593,961 103,855 - Changes in assets and liabilities: Accounts and rents receivable. (5,447,522) (5,873,368) (2,356,909) Other assets.................. 2,495,850 (848,935) (810,073) Accounts payable.............. (532,818) 98,201 (242,362) Accrued interest payable...... 134,907 1,090,430 508,342 Accrued real estate taxes..... 4,444,850 7,352,502 4,260,843 Security deposits............. 415,062 806,661 506,590 Other liabilities............. 3,317,231 4,715,639 460,296 Due to Affiliates............. 1,484,850 (304,900) 82,234 Prepaid rents and unearned income....................... 1,087,199 (46,726) 430,945 Net cash provided by operating -------------- ------------- ------------- activities........................ 59,201,034 43,031,662 15,923,839 -------------- ------------- ------------- Cash flows from investing activities: Restricted cash................... 272,295 (13,539,398) (1,951,756) Purchase of investment in securities...................... (10,659,289) - - Purchase of marketable securities. (260,000) - - Additions to investment properties (5,893,566) (2,514,122) (836,962) Purchase of investment properties. (255,226,283) (329,197,095) (141,187,371) Mortgage receivable............... (6,495,541) - - Construction in progress.......... (468,908) (1,230,448) - Leasing fees...................... (399,517) - - Proceeds from sale of land........ 1,117,665 - - Deposits on investment properties. - 1,918,530 (3,018,530) Net cash used in investing -------------- ------------- ------------- activities........................ (278,013,144) (344,562,533) (146,994,619) -------------- ------------- ------------- See accompanying notes to consolidated financial statements. -34- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Consolidated Statements of Cash Flows (continued) For the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 Cash flows from financing activities: ---- ---- ---- Proceeds from offering............ $ 36,329,118 291,417,071 168,559,450 Repurchase of Shares.............. (3,723,408) (1,317,455) (420,834) Payments of offering costs........ (2,173,244) (28,881,991) (17,563,326) Loan proceeds..................... 145,814,000 166,352,000 43,926,176 Loan fees......................... (1,633,735) (2,701,644) (638,819) Distributions paid................ (48,773,272) (33,454,118) (11,899,431) Repayment of notes from Affiliate. - - (8,000,000) Principal payments of debt........ (10,659,708) (18,041,255) (238,584) Payment of deferred organization costs........................... - (9,063) - Net cash provided by financing -------------- ------------- ------------- activities........................ 115,179,751 373,363,545 173,724,632 Net increase (decrease) in cash and -------------- ------------- ------------- cash equivalents.................. (103,632,359) 71,911,115 42,653,852 Cash and cash equivalents at beginning of year................. 123,056,702 51,145,587 8,491,735 Cash and cash equivalents at -------------- ------------- ------------- end of year....................... $ 19,424,343 123,056,702 51,145,587 ============== ============= ============= Supplemental schedule of noncash investing and financing activities: 1999 1998 1997 ---- ---- ---- Purchase of investment properties.. $(294,537,006) (368,364,949) (181,251,256) Assumption of mortgage debt...... 16,603,534 34,082,015 32,063,885 Note payable to Affiliate........ - - 8,000,000 Minority interest................ 22,707,189 5,164,280 - -------------- ------------- ------------- $(255,226,283) (329,197,095) (141,187,371) ============== ============= ============= Distributions payable.............. $ 4,374,462 3,844,649 1,777,113 ============== ============= ============= Cash paid for interest............. $ 25,074,768 12,435,024 5,146,222 ============== ============= ============= See accompanying notes to consolidated financial statements. -35- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements For the years ended December 31, 1999, 1998, and 1997 (1) Organization and Basis of Accounting Inland Real Estate Corporation (the "Company") was formed on May 12, 1994. The Company may acquire existing Neighborhood Retail Centers and Community Centers located primarily within an approximate 400-mile radius of its headquarters in Oak Brook, Illinois. The Company may also acquire single-user retail properties in locations throughout the United States, some of which may be sale and leaseback transactions, net leased to creditworthy tenants. The Company is also permitted to construct or develop properties, or render services in connection with such development or construction, subject to the Company's compliance with the rules governing real estate investment trusts under the Internal Revenue Code of 1986, as amended (the "Code"). Inland Real Estate Advisory Services, Inc. (the "Advisor"), an Affiliate of the Company, is the advisor to the Company. On October 14, 1994, the Company commenced an initial public offering, on a best efforts basis, ("Initial Offering") of 5,000,000 shares of common stock ("Shares") at $10 per Share. As of July 24, 1996, the Company had received subscriptions for a total of 5,000,000 Shares, thereby completing the Initial Offering. On July 24, 1996, the Company commenced an offering of an additional 10,000,000 Shares at $10.00 per Share, on a best efforts basis, (the "Second Offering"). As of July 10, 1997, the Company had received subscriptions for a total of 10,000,000 Shares, thereby completing the Second Offering. On July 14, 1997, the Company commenced an offering of an additional 20,000,000 Shares at $10.00 per Share, on a best efforts basis, (the "Third Offering"). As of March 19, 1998, the Company had received subscriptions for a total of 20,000,000 Shares, thereby completing the Third Offering. On April 7, 1998, the Company commenced an offering of an additional 27,000,000 Shares at $11.00 per Share, on a best efforts basis, (the "Fourth Offering"). The Company received subscriptions for a total of 16,642,397 Shares in the Fourth Offering. The Initial, Second, Third and Fourth are collectively called the "Offerings". In addition, as of December 31, 1999, the Company has issued 4,364,623 Shares through the Company's Distribution Reinvestment Program ("DRP"). As of December 31, 1999, the Company has repurchased a total of 608,132 Shares through the Company's Share Repurchase Program, for an aggregate amount of $5,526,180. As a result, gross offering proceeds from the Offerings ("Gross Offering Proceeds") total $571,937,123, as of December 31, 1999. On September 28, 1998, the Board of Directors authorized the Company to engage First Union Securities, Inc. (formerly known as Everen Securities, Inc.) to advise the Company on strategic alternatives designed to maximize stockholder value. These alternative include, but are not limited to, evaluating whether the Company should: (1) become self-administered by acquiring the Advisor and the Company's property manager; (2) list its common stock on an exchange or other trading system; or (3) seek to merge with a third party that is already listed on an exchange or other trading system. First Union Securities has assisted in the determination by the Company that it desires to become internally advised and managed and has provided valuation information to the Company to help accomplish that goal. -36- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) The Company qualified as a real estate investment trust ("REIT") under the Code for federal income tax purposes commencing with the tax year ending December 31, 1995. Since the Company qualified for taxation as a REIT, the Company generally will not be subject to federal income tax to the extent it distributes its REIT taxable income to its stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and federal income and excise taxes on its undistributed income. The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Certain reclassifications were made to the 1998 and 1997 financial statements to conform with the 1999 presentation. 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, 1999 consist of preferred stock investments in various real estate investment trusts and are classified as available-for-sale securities. Available-for-sale securities are recorded at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported as a separate component of other comprehensive income until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. A decline in the market value of any available-for-sale security below cost that is deemed to be other that temporary results in a reduction in the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Dividend income is recognized when earned. No sales of investment securities available-for-sale were made during the year ended December 31, 1999. Statement of Financial Accounting Standards No. 121 requires the Company to record an impairment loss on its property to be held for investment whenever its carrying value cannot be fully recovered through estimated undiscounted future cash flows from operations and sale of properties. The amount of the impairment loss to be recognized would be the difference between the property's carrying value and the property's estimated fair value. As of December 31, 1999, the Company does not believe any of its properties are impaired. -37- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) Depreciation expense is computed using the straight-line method. Buildings and improvements are depreciated based upon estimated useful lives of 30 years for buildings and improvements and 15 years for site improvements. 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 loan. The fair value of mortgages payable is the amount at which the instrument could be exchanged in a current transaction between willing parties. The fair value of the Company's mortgages is estimated to be $402,786,000. 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 cash and cash equivalents, restricted cash, accounts and rents receivable, accounts payable and other liabilities, accrued offering costs to Affiliates and non-Affiliates, accrued interest payable to Affiliates and non-affiliates, accrued real estate taxes, distributions payable and Due to Affiliates approximate fair value because of the relatively short maturity of these instruments. Offering costs are offset against the Stockholders' equity accounts. Offering costs consist principally of printing, selling and registration costs. 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 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. On December 2, 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101 "Revenue Recognition in Financial Statements." The staff 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. The Company may enter into derivative financial instrument transactions in order to mitigate its interest rate risk on a related financial instrument. The Company has designated these derivative financial instruments as hedges and applies deferral accounting, as the instrument to be hedged exposes the Company to interest rate risk, and the derivative financial instrument reduces that exposure. Gains and losses related to the derivative financial instrument are deferred and amortized over the terms of the hedged instrument. If a derivative terminates or is sold, the gain or loss is deferred and amortized over the remaining life of the derivative. The Company has only entered into derivative transactions that satisfy the aforementioned criteria. -38- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) The accompanying consolidated financial statements include the accounts of the Company, Inland Joliet Commons LLC, Inland Ryan LLC and Inland Ryan Cliff Lake LLC. Due to the Company's ability as managing member to directly control the LLCs, they are consolidated for financial reporting purposes. The third parties' interests are reflected as minority interest in the accompanying financial statements. In October 1998, the Company formed the Inland Joliet Commons LLC, an Illinois limited liability company, with an unaffiliated third party which purchased Phase I of the Joliet Commons Shopping Center. The Company contributed approximately $52,000 for a 1% interest in the Inland Joliet Commons LLC and the third party contributed a property with a fair market value of approximately $19,733,000 and debt of approximately $14,569,000 to the Inland Joliet Commons LLC for a 99% stated interest. The Company is the managing member of the Inland Joliet Commons LLC. The non-managing member (third party seller) has a right, on or after October 30, 2000 and prior to the time the Company has listed its shares on a national securities exchange, to tender its units in the Inland Joliet Commons LLC to the managing member for a cash payment equal to the equity in the property at the time of its contribution to the LLC. If the units are tendered after October 30, 1999 and the Company has not listed its shares on a national securities exchange, the non-managing member has a right to receive 469,480 shares of the Company's stock. In September 1999, the Company formed the Inland Ryan LLC, a Delaware limited liability company, with an unaffiliated third party which purchased nine shopping centers. The Company contributed approximately $76,720,000 for an approximate 77% interest in the Inland Ryan LLC. The third party seller contributed nine properties with a fair market value of approximately $99,427,000, debt of approximately $65,500,000 to the LLC and received a cash payment of $11,175,000 from the Company for an approximate 23% interest. The Company is the managing member of the Inland Ryan LLC. The non-managing member (third party seller) has a right on or after January 1, 2001 to tender up to 1/2 of its interest in the Inland Ryan LLC to the managing member for a cash payment. The remaining interest may be tendered to the managing member on or after June 30, 2002. If the non-managing member has not tendered all of its interest by August 31, 2004, then at any time after that date, the managing member, at its sole and exclusive option, may require the tender of all remaining non-managing member interests. Generally, profit and loss allocations and distributions are made in accordance with stated ownership interests. -39- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) In September 1999, the Company formed the Inland Ryan Cliff Lake LLC, a Delaware limited liability company, with the Inland Ryan LLC in order to comply with covenants of an assumed mortgage. The Company contributed approximately $6,000 in cash for a 1% interest in the Inland Ryan Cliff Lake LLC. The Inland Ryan LLC contributed one property with a fair market value of approximately $5,554,000 and debt of approximately $5,134,000 to the LLC for an approximate 99% interest. The Company is the managing member of the Inland Ryan Cliff Lake LLC. The non-managing member (third party seller) has a right on or after January 1, 2001 to tender up to 1/2 of its interest in the Inland Ryan LLC to the managing member for a cash payment. The remaining interest may be tendered to the managing member on or after June 30, 2002. If the non-managing member has not tendered all of its interest by August 31, 2004, then at any time after that date, the managing member, at its sole and exclusive option, may require the tender of all remaining non-managing member interests. Generally, profit and loss allocations and distributions are made in accordance with stated ownership interests. (2) Transactions with Affiliates The Advisor and its Affiliates are entitled to reimbursement for salaries and expenses of employees of the Advisor and its Affiliates relating to each of the Offerings. Such expenses include postage, data processing and marketing and are reimbursed at cost. The aggregate cost to Affiliates incurred and paid relating to the Offerings were $2,349,336 and $1,489,541 as of December 31, 1999 and 1998, respectively. In addition, an Affiliate of the Advisor serves as Dealer Manager of each of the Offerings and is entitled to receive selling commissions, a marketing contribution and a due diligence expense allowance fee from the Company in connection with each of the Offerings. Such amounts incurred were $49,869,188 and $49,619,425 as of December 31, 1999 and 1998, respectively, of which $0 and $890,786 was unpaid as of December 31, 1999 and 1998, respectively. Approximately $42,500,000 and $42,200,000 of these commissions had been passed through from the Affiliate to unaffiliated soliciting broker/dealers as of December 31, 1999 and 1998, respectively. As of December 31, 1999, the Company had incurred $58,852,618 of organization and offering costs to Affiliates and non-affiliates. Pursuant to the terms of each of the Offerings, the Advisor is required to pay organizational and offering expenses (excluding sales commissions, the marketing contribution and the due diligence expense allowance fee) in excess of 5.5% of the gross proceeds of the Offerings (the "Gross Offering Proceeds") or all organization and offering expenses (including selling commissions) which together exceed 15% of Gross Offering Proceeds. Organizational and offering costs expenses did not exceed the 5.5% and 15% limitations. -40- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) The Advisor and its Affiliates are entitled to reimbursement for salaries and expenses of employees of the Advisor and its Affiliates relating to the administration of the Company. Such costs of $126,302, $625,937 and $380,606 are included in professional services to Affiliates, general and administrative expenses to Affiliates and acquisition costs expensed to Affiliates, respectively, for the year ended December 31, 1999. Such costs of $83,203, $330,651 and $236,380 are included in professional services to Affiliates, general and administrative expenses to Affiliates and acquisition costs expensed to Affiliates, respectively, for the year ended December 31, 1998. An Affiliate of the Advisor holds the mortgage on the Walgreens/Decatur property. As of December 31, 1999, the remaining balance of the mortgage is $700,381. For the years ended December 31, 1999 and 1998, the Company paid principal and interest payments totaling $68,266 and $68,183, respectively, on this mortgage. The Advisor and its Affiliates are entitled to reimbursement for salaries and expense of employees of the Advisor and its Affiliates relating to selecting, evaluating and acquiring of properties. Such amounts are included in building and improvements for those costs relating to properties purchased. Such amounts are included in acquisition cost expenses to Affiliates for costs relating to properties not acquired. The Advisor may receive an annual Advisor Asset Management Fee of not more than 1% of the Average Invested Assets, paid quarterly. For any year in which the Company qualifies as a REIT, the Advisor must reimburse the Company: (i) to the extent that the Advisor Asset Management Fee plus Other Operating Expenses paid during the previous calendar year exceed 2% of the Company's Average Invested Assets for the calendar year or 25% of the Company's Net Income for that calendar year; and (ii) to the extent that Stockholders have not received an annual Distribution equal to or greater than the 8% Current Return. The Advisor Asset Management Fee plus other operating expenses paid during the previous calendar year did not exceed 2% of the Company's Average Invested Assets for the calendar year or 25% of the Company's Net Income for that calendar year and Stockholder's received an annual Distribution greater than an 8% return. Accordingly, for the years ended December 31, 1999 and 1998, the Company has incurred $4,193,068 and $965,108, respectively, of Advisor Asset Management Fees, of which $1,500,000 and $32,925 remained unpaid at December 31, 1999 and 1998, respectively. The Company paid an Advisor Asset Management Fee which represented .58, .20 and .45 of the 1% of the Average Invested Assets for the years ended December 31, 1999, 1998 and 1997, respectively. Remaining Advisor Asset Management Fees are forfeited by the Advisor and, accordingly, not accrued in the accompanying financial statements. An Affiliate of the Advisor is entitled to receive Property Management Fees for management and leasing services. Such fees may not exceed 4.5% of the gross income earned by the Company on properties managed. The Company incurred and paid Property Management Fees of $4,869,514, $2,779,053 and $1,120,429 for the years ended December 31, 1999, 1998 and 1997, respectively, all of which has been paid. -41- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) (3) Stock Option Plan and Soliciting Dealer Warrant Plan The Company adopted an amended and restated Independent Director Stock Option Plan which granted each Independent Director an option to acquire 3,000 Shares as of the date they become a Director and an additional 500 Shares on the date of each annual stockholders' meeting commencing with the annual meeting in 1995 if the Independent Director is a member of the Board on such date. The options for the initial 3,000 Shares granted 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 succeeding options are exercisable on the second anniversary of the date of grant. As of December 31, 1999, options for 1,000 Shares have been exercised for $9.05 per Share. For the years ended December 31, 1999, 1998 and 1997, options to purchase 15,000, 13,500 and 12,500 shares of common stock at prices ranging from $9.05 to $10.45 per share were outstanding during each of the respective periods. In addition to sales commissions, Soliciting Dealers may also have received one Soliciting Dealer Warrant for each 40 Shares sold by such Soliciting Dealer during the offerings, subject to state and federal securities laws. The holder of a Soliciting Dealer Warrant will be entitled to purchase one Share from the Company at a price stated in the Offering during the period commencing with the first date upon which the Soliciting Dealer Warrants are issued and ending upon the exercise period. Notwithstanding the foregoing no Soliciting Dealer Warrant will be exercisable until one year from the date of issuance. As of December 31, 1999, 1,156,520 warrants had been issued. As of December 31, 1999, none of these warrants were exercised. These warrants have no value. (4) Investment Properties In connection with the purchase of several properties, the Company will receive payments under master lease agreements covering spaces of several properties vacant at the time of acquisition of these properties. The payments will be made to the Company for periods ranging from one to two years from the date of acquisition of the property or until the spaces are leased and tenants begin paying rent. GAAP requires the Company to reduce the purchase price of the property as these payments are received, rather than record the payments as rental income. The cumulative amount of such payments was $5,148,659 and $2,962,829 as of December 31, 1999 and 1998, respectively (Note 5). -42- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) Pro Forma Information (unaudited) The Company acquired its investment properties at various times. The following table sets forth certain summary unaudited pro forma operating data as if the acquisitions had been consummated as of the beginning of the previous respective period. For the years ended December 31, 1999 1998 ---- ---- Rental income........................... $ 95,624,113 81,201,253 Additional rental income................ 35,974,834 26,464,900 Total revenues.......................... 136,482,584 113,155,269 Property operating expenses............. 43,276,089 33,921,159 Total depreciation...................... 23,225,306 20,421,721 Total expenses.......................... 101,406,993 75,436,090 Net income.............................. 35,075,591 37,719,179 The unaudited pro forma operating data are presented for comparative purposes only and are not necessarily indicative of what the actual results of operations would have been for each of the periods presented, nor does such data purport to represent the results to be achieved in future periods. (5) Operating Leases Minimum lease payments under operating leases to be received in the future, excluding rental income under master lease agreements and assuming no expiring leases are renewed are as follows: 2000...................................... $ 92,867,805 2001...................................... 85,589,822 2002...................................... 79,401,650 2003...................................... 73,467,144 2004...................................... 66,007,471 Thereafter................................ 511,782,824 ------------- Total..................................... $909,116,716 ============= Remaining lease terms range from one year to forty-five 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 and operating expenses of the property. Such amounts are included in additional rental income. -43- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) Certain tenant leases contain provisions providing for stepped rent increases. GAAP requires the Company to record rental income for the period of occupancy using the effective monthly rent, which is the average monthly rent for the entire period of occupancy during the term of the lease. The accompanying consolidated financial statements include increases of $2,490,459, $2,120,951 and $654,978 in 1999, 1998 and 1997, of rental income for the period of occupancy for which stepped rent increases apply and $5,398,026 and $2,907,567 in related accounts and rents receivable as of December 31, 1999 and 1998, respectively. The Company anticipates collecting these amounts over the terms of the related leases as scheduled rent payments are made. (6) Mortgage Receivable On May 28, 1999, the Company entered into a construction loan agreement with an unaffiliated third party, the borrower, for an aggregate loan amount of $15,500,000 secured by Thatcher Woods Shopping Center in River Grove, Illinois. The construction loan matures on December 31, 2000 and requires the borrower to make monthly interest only payments on amounts disbursed at a rate of 9%. The Company, at its option, may elect to purchase this property, upon completion, subject to certain fair-value-based criteria stated in the contract. (7) Mortgages Payable The Company's mortgages payable are secured by various of its investment properties and consist of the following at December 31, 1999 and 1998: Interest Current Balance at Rate Maturity Monthly Dec. 31, Dec. 31, @ 12/31/99 Date Payment 1999 1998 ---------- --------- --------- ------------ ----------- Mortgage payable to Affiliate: Inland Mortgage Servicing Corp. (a) 7.65% 05/2004 $ 5,689 $ 700,381 714,443 Mortgages payable to non-affiliates: Bank One (a) 7.21% 08/2000 (b) 4,241,187 4,312,036 LaSalle Bank National Association 7.85% 10/2003 57,992 8,865,000 8,865,000 LaSalle Bank N.A. 7.85% 09/2003 25,872 3,955,000 3,955,000 LaSalle Bank N.A. 7.59% 01/2004 81,277 12,850,000 12,850,000 LaSalle Bank N.A. 7.80% 02/2004 83,460 12,840,000 12,840,000 John Hancock (a) (c) 9.00% 10/2001 85,423 9,000,328 9,205,252 LaSalle Bank N.A. 7.65% 06/2004 65,133 10,216,880 10,216,880 LaSalle Bank N.A. 7.49% 06/2004 61,116 9,791,500 9,791,500 LaSalle Bank N.A. 7.23% 01/2005 28,183 4,677,795 4,677,795 Allstate 7.21% 12/2004 38,453 6,400,000 6,400,000 LaSalle Bank N.A.(d) 3.13% 12/2014 19,740 6,200,000 6,200,000 -44- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) Interest Current Balance at Rate Maturity Monthly Dec. 31, Dec. 31, @ 12/31/99 Date Payment 1999 1998 ---------- --------- --------- ------------ ----------- LaSalle Bank N.A. 7.28% 03/2005 $ 25,041 $ 4,050,000 4,050,000 LaSalle Bank N.A. 6.99% 04/2003 6,827 1,150,000 1,150,000 LaSalle Bank N.A. 7.00% 04/2005 106,404 17,897,500 17,897,500 Allstate 7.00% 02/2005 31,946 5,476,500 5,476,500 Allstate 7.00% 01/2005 23,917 4,100,000 4,100,000 Allstate 7.15% 01/2005 18,173 3,050,000 3,050,000 Allstate 7.10% 03/2003 17,620 2,978,000 2,978,000 Nationwide Life Insurance Co. (i) 8.00% 09/1999 63,333 - 9,500,000 Allstate 6.65% 05/2005 53,200 9,600,000 9,600,000 Allstate (e) 9.25% 12/2009 30,125 3,908,082 3,908,082 Allstate 6.82% 08/2005 60,243 10,600,000 10,600,000 LaSalle Bank N.A. 6.50% 12/2005 72,123 13,500,000 13,500,000 Allstate 6.66% 10/2003 17,483 3,150,000 3,150,000 Allstate 7.00% 12/2003 65,333 11,200,000 11,200,000 Berkshire Mortgage (a) 7.79% 10/2007 105,719 14,447,153 14,569,482 Woodmen of the World 6.75% 06/2008 26,015 4,625,000 4,625,000 Lehman secured financing (f) 6.36% 10/2008 299,025 54,600,000 54,600,000 Column secured financing (g) 7.00% 11/2008 150,695 25,000,000 25,000,000 Principal Life Ins. 6.24% 09/2001 55,820 10,734,710 - Bear, Stearns secured financing (h) 6.86% 06/2004 328,662 57,450,000 - LaSalle Bank N.A. 6.71% 10/2004 (j) 34,017,000 - Allstate 7.00% 10/2004 (j) 35,787,000 - Midland Loan Serv. (a) 7.86% 01/2008 37,649 5,121,280 - LaSalle Bank N.A. 6.93% 12/2004 (j) 8,910,000 - LaSalle Bank N.A. 7.13% 12/2004 (j) 9,650,000 - ------------ ----------- Mortgages Payable.................................... $440,740,296 288,982,470 ============ =========== (a) These loans require payments of principal and interest monthly, all other loans listed are interest only. (b) Payments on this mortgage are based on a floating interest rate of 180 basis points over the 30-day LIBOR rate, which adjusts monthly, amortizing over 25 years. (c) The Company received a credit for interest expense on the debt at closing, which is included in restricted cash along with an amount set aside by the Company for principal payments on the debt. Interest income earned on the restricted cash amounts, when netted with interest expense on the debt, results in an adjusted interest rate on the debt of approximately 8.2%. -45- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) (d) As part of the purchase of this property, the Company assumed the existing mortgage-backed Economic Development Revenue Bonds, Series 1994 offered by the Village of Skokie, Illinois. The interest rate floats and is reset weekly by a re-marketing agent. The rate at December 31, 1999 is 3.13%. The bonds are further secured by an Irrevocable Letter of Credit, issued by LaSalle Bank at a fee of 1.25% of the bond outstanding. In addition, there is a .125% re-marketing fee paid annually and a trustee fee of $250 paid quarterly. (e) The Company received a subsidy at closing from the seller for a period of five years, which together with interest earnings on the initial deposit, will provide a sum that will be drawn down on a monthly basis by the Company to reduce the effective interest rate paid on the loan to 7% per annum. (f) The Company paid $636,000 of loan fees and $503,295 of other costs associated with this financing with Lehman Brothers Holdings, Inc. This allowed the Company to secure a rate lock agreement to set the interest rate at the time of execution of this financing, thus protecting the Company from future interest rate increases. (g) The Company paid $37,125 of loan fees and $267,884 of other costs associated with this financing with Column Financial, Inc. This allowed the Company to secure a rate lock agreement to set the interest rate at the time of execution of this financing, thus protecting the Company from future interest rate increases. (h) The Company paid $415,766 of loan fees and $134,429 of other costs associated with this financing with Bear, Stearns Funding, Inc. This allowed the Company to secure a rate lock agreement to set the interest rate at the time of execution of this financing, thus protecting the Company from future interest rate increases. (i) On September 10, 1999, the Company paid off the loan secured by the Shoppes of Mill Creek Shopping Center. (j) Payments on these mortgages are calculated using a floating rate of interest based on LIBOR. As of December 31, 1999, the required future principal payments on the Company's mortgages payable over the next five years are as follows: 2000.................................... $ 4,636,459 2001.................................... 19,745,770 2002.................................... 233,000 2003.................................... 31,550,014 2004.................................... 198,793,253 -46- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) (8) Construction in Progress On August 6, 1998, the Company acquired title to approximately 27 acres of land in St. Charles, Illinois, to be developed into a 204,640 square foot shopping center to be known as "Stuart's Crossing" from an unaffiliated third party. The initial purchase price of $14,176,627 was funded with cash and cash equivalents. Included in the purchase price paid by the Company is $5,351,744 of land and $8,824,883 in cash which has been placed in a development escrow for infrastructure development, construction, and a deposit on the final purchase price of a 70,640 square foot Jewel Food Store and adjacent stores. In July 1999, the Jewel Food Store was completed and $6,069,437 was released from escrow which represents the final purchase price of the Jewel Food Store. Additionally, $1,434,037 of construction in progress was recorded as operating property. In November 1999, the Company funded an additional $1,221,750 to escrow for the construction of a 15,000 square foot store space adjacent to the Jewel Food Store. Contingent upon the lease-up of the 15,000 square foot space, the Company is required to deposit additional cash into the development escrow to fund the space's final purchase price. As of December 31, 1999, $478,584 of this development escrow is included in restricted cash and $1,517,305 is included in construction in progress. (9) Earnings per Share Basic earnings per share ("EPS") is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by reflecting the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. For the years ended December 31, 1999, 1998 and 1997, options to purchase 15,000, 13,500 and 12,500 shares of common stock at prices ranging from $9.05 to $10.45 per share were outstanding during each of the respective periods. As of December 31, 1999, warrants to purchase 1,156,520 shares of common stock at a price of $12.00 per share were outstanding, but were not included in the computation of diluted EPS because the warrants exercise price was greater than the average market prices of common shares. The weighted average number of common shares outstanding were 54,603,088, 40,359,796 and 15,225,983 for the years ended December 31, 1999, 1998 and 1997, respectively. -47- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) (10) Segment Reporting The Company owns and seeks to acquire single-user, neighborhood and community retail shopping centers in the Midwest, generally within the states of Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin. All of the Company's shopping centers are located within these states and are typically anchored by grocery and drug stores complemented with additional stores providing a wide range of other goods and services to shoppers. The Company assesses and measures operating results on an individual property basis for each of its properties based on net property operations. Since all of the Company's properties exhibit highly similar economic characteristics, cater to the day-to-day living needs of their respective surrounding communities, and offer similar degrees of risk and opportunities for growth,the shopping centers have been aggregated and reported as one operating segment. The property revenues, property net operations, and property assets of the reportable segments are summarized in the following tables as of December 31, 1999, 1998 and 1997, and for each of the years in the three-year period then ended, along with a reconciliation to net income: 1999 1998 1997 ---- ---- ---- Total property revenues.......... $119,580,760 68,116,744 27,806,065 Total property operating expenses....................... 39,493,573 21,017,360 8,863,024 Mortgage interest................ 25,653,724 13,421,599 5,654,564 ------------- ------------- ------------- Net property operations.......... 54,433,463 33,677,785 13,288,477 ------------- ------------- ------------- Interest income.................. 4,206,809 5,185,534 1,615,520 Less non property expenses: Professional services.......... 770,945 440,345 125,985 General and administrative..... 2,462,597 1,142,603 356,969 Advisor asset management fee... 4,193,068 965,108 843,000 Depreciation and amortization.. 20,361,271 11,663,150 4,681,329 Acquisition cost expense....... 565,823 437,783 249,493 ------------- ------------- ------------- Income before minority interest.. $ 30,286,568 24,214,330 8,647,221 ============= ============= ============= Net investment properties........ $907,381,429 630,048,317 270,645,355 ============= ============= ============= (11) Commitments and Contingencies The Company is not subject to any material pending legal proceedings. In connection with a tax increment financing district for three of the Company's properties, the Company is contingently liable for any shortfalls in the Tax Increment as defined. At December 31, 1999, the Company does not believe any shortfall under the Tax Increment will be due. -48- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) On May 21, 1999, the Company acquired title to a 210,321 square foot shopping center in Geneva, Illinois known as "Randall Square." The initial purchase price of $30,122,756 was funded with cash and cash equivalents. Included in the purchase price paid, the Company deposited $5,895,895 into a purchase price escrow. The Company is required to purchase stores adjacent to the property, contingent upon their lease-up. As of December 31, 1999, the $5,895,895 is included in restricted cash and other liabilities. On August 4, 1999, the Company acquired title to a 32,000 square foot shopping center known as "Hickory Creek Marketplace" and an additional six acres of vacant land in Frankfort, Illinois. Upon the remaining acreage, a 20,800 square foot store is to be developed by an unaffiliated third party. The initial purchase price of $6,216,535 was funded with cash and cash equivalents. In addition to the purchase price paid, the Company deposited $2,707,303 in a development escrow to fund the construction and the final purchase price of the 20,800 square foot structure. As of December 31, 1999, the $2,707,303 is included in restricted cash. (12) Subsequent Events In January 2000, the Company paid a distribution of $4,374,462 to the Stockholders. On January 13, 2000, the Company purchased Rose Plaza East from an unaffiliated third party for approximately $2,171,400 using cash and cash equivalents. The property is located in Naperville, Illinois and contains approximately 11,658 square feet of leasable space. Its anchor tenants are Starbuck's, BoRics, Plus Signs, Alpha Communications and Kinko's. On February 1, 2000, the Company purchased Chatham Ridge Shopping Center from an unaffiliated third party for approximately $19,475,240. The property is located in Chicago, Illinois and contains approximately 175,730 square feet of leasable space. Its anchor tenants are Cub Foods and Marshalls. To purchase the property, the Company used cash and cash equivalents of approximately $9,480,000 and obtained a loan from a third party lender for the balance of the purchase price. On February 1, 2000, the Company borrowed $3,000,000 from First Union Securities. The loan, secured by the Company's investment in securities, accrues interest at 6.5%. The loan was for 14 days with additional 14-day renewal options. The loan was paid in full on March 14, 2000. On February 8, 2000, the Company purchased Joliet Commons Phase II from an unaffiliated third party for approximately $4,800,000 using cash and cash equivalents. The property is located in Joliet, Illinois and contains approximately 40,395 square feet of leasable space. Its anchor tenants are Office Max, Eddie Bauer and Peppers Bedroom City. -49- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) On behalf of the Company, the Advisor is currently exploring the purchase of additional shopping centers from unaffiliated third parties. On March 7, 2000, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which it agreed to acquire the Advisor and the Company's property manager and become a self-administered REIT, through a tax- free, non-cash merger (the "Merger"). Pursuant to the Merger Agreement, upon closing, the Company will issue an aggregate of 6,181,818 Shares, or approximately eleven percent (10%) of its common stock taking into account such issuance, to the respective parents of the Advisor and the Company's property manager. The closing of the Merger is subject to numerous conditions including (i) approval of the Merger Agreement by the Stockholders at the Company's upcoming Annual Meeting; (ii) the delivery of an opinion of counsel that the completion of the Merger will not result in the revocation of the Company's status as a REIT for federal income tax purposes; (iii) delivery of an opinion of counsel that the transaction shall be treated as a tax free reorganization under the Internal Revenue Code of 1986, as amended, and (iv) the delivery of an opinion that the Merger is fair to the Company from a financial point of view. Concurrent with completing the Merger, the Board of Directors contemplates: (i) appointing new officers and entering into employment agreements with these individuals; (ii) entering into a lease agreement for office space with The Inland Group, Inc.; and (iii) receiving a license from The Inland Group, Inc. that gives to Company the right to the continued use of the name "Inland Real Estate Corporation" and the corporate logo. -50- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III Real Estate and Accumulated Depreciation December 31, 1999
Initial Cost Gross amount at which carried (A) at end of period (B) ------------------------ -------------------------------------------------- Date Buildings Adjustments Land Buildings Accumulated Con- and to and and Total Depreciation stru- Date Encumbrance Land improvements Basis (C) improvements improvements (D) (E) cted Acq ------------ ----------- ------------ ------------ ------------ ------------ ---------- ------------- ----- ----- Single-user Retail - ------------------ Walgreens Decatur, IL..... $ 700,381 78,330 1,130,723 - 78,330 1,130,723 1,209,053 185,313 1988 01/95 Zany Brainy Wheaton, IL..... 1,245,000 838,000 1,626,033 664 838,000 1,626,697 2,464,697 189,761 1995 07/96 Ameritech Joliet, IL...... 522,375 170,000 883,293 2,544 170,000 885,837 1,055,837 79,523 1995 05/97 Dominick's Schaumburg, IL.. 5,345,500 2,294,437 8,392,661 2,679 2,294,437 8,395,340 10,689,777 722,809 1996 05/97 Dominick's Highland Park, IL. 6,400,000 3,200,000 9,597,963 2,200 3,200,000 9,600,163 12,800,163 996,404 1996 06/97 Dominick's Glendale Hghts, IL 4,100,000 1,265,000 6,942,997 9,194 1,265,000 6,952,191 8,217,191 558,064 1997 09/97 Party City Oakbrook Terr., IL. 987,500 750,000 1,231,271 - 750,000 1,231,271 1,981,271 88,886 1985 11/97 Eagle Country Market Roselle, IL..... 1,450,000 966,667 1,940,898 - 966,667 1,940,898 2,907,565 177,432 1990 11/97 Dominick's West Chicago, IL 3,150,000 1,980,130 4,325,331 13,063 1,980,130 4,338,394 6,318,524 311,995 1990 01/98 Walgreens Woodstock, IL... 569,610 395,080 774,906 - 395,080 774,906 1,169,986 43,743 1973 06/98 Bakers Shoes Chicago, IL..... - 645,284 342,993 15,120 645,284 358,113 1,003,397 14,536 1891 09/98 Staples Freeport, IL.... 1,480,000 725,288 1,969,690 - 725,288 1,969,690 2,694,978 79,957 1998 04/98 Carmax Schaumburg, IL.. 7,260,000 7,142,020 13,461,169 - 7,142,020 13,461,169 20,603,189 486,083 1998 12/98 Carmax Tinley Park, IL. 9,450,000 6,788,880 12,116,751 - 6,788,880 12,116,751 18,905,631 437,533 1998 12/98 Hollywood Video Hammond, IN..... 740,000 405,213 948,925 - 405,213 948,925 1,354,138 34,234 1998 12/98 Circuit City Traverse City, MI 1,603,000 1,123,170 1,778,861 - 1,123,170 1,778,861 2,902,031 56,167 1998 01/99 Cub Foods Plymouth, MN.... - 1,551,104 3,916,470 - 1,551,104 3,916,470 5,467,574 120,305 1991 03/99 Cub Foods Indianapolis, IN - 2,182,557 3,560,502 - 2,182,557 3,560,502 5,743,059 128,868 1991 03/99 Eagle Ridge Center Lindenhurst, IL. 3,000,000 866,702 5,144,821 - 866,702 5,144,821 6,011,523 141,513 1998 04/99 Dominick's Hammond, IN..... 4,100,000 825,225 8,025,601 - 825,225 8,025,601 8,850,826 192,672 1999 05/99 Eagle Foods Buffalo Grove, IL - 1,425,840 5,925,015 - 1,425,840 5,925,015 7,350,855 128,539 1999 06/99 United Audio Center Schaumburg, IL... 1,240,000 1,215,143 1,272,717 - 1,215,143 1,272,717 2,487,860 14,318 1998 09/99 Bally's Total Fitness St. Paul, MN..... 3,145,300 1,298,052 4,612,336 - 1,298,052 4,612,336 5,910,388 53,089 1988 09/99 -51- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III (continued) Real Estate and Accumulated Depreciation December 31, 1999 Initial Cost Gross amount at which carried (A) at end of period (B) ------------------------ -------------------------------------------------- Date Buildings Adjustments Land Buildings Accumulated Con- and to and and Total Depreciation stru- Date Encumbrance Land improvements Basis (C) improvements improvements (D) (E) cted Acq ------------ ----------- ------------ ------------ ------------ ------------ ---------- ------------- ----- ----- Neighborhood Retail Centers - --------------------------- Eagle Crest Naperville, IL.. $ 2,350,000 1,878,618 2,938,352 269,531 1,878,618 3,207,883 5,086,501 500,618 1991 03/95 Goodyear Montgomery, IL.. 630,000 315,000 834,659 (11,158) 315,000 823,501 1,138,501 116,751 1991 09/95 Hartford Plaza Naperville, IL.. 2,310,000 990,000 3,427,961 20,912 990,000 3,448,873 4,438,873 527,891 1995 09/95 Nantucket Square Schaumburg, IL.. 2,200,000 1,908,000 2,349,918 (55,972) 1,908,000 2,293,946 4,201,946 323,931 1980 09/95 Antioch Plaza Antioch, IL..... 875,000 268,000 1,360,445 (104,977) 268,000 1,255,468 1,523,468 180,485 1995 12/95 Mundelein Plaza Mundelein, IL... 2,810,000 1,695,000 3,965,561 (32,703) 1,695,000 3,932,858 5,627,858 491,271 1990 03/96 Regency Point Lockport, IL.... 4,241,187 1,000,000 4,720,800 (19,377) 1,000,000 4,701,423 5,701,423 587,683 1993 04/96 Prospect Heights Prospect Hghts, IL 1,095,000 494,300 1,683,005 63,714 494,300 1,746,719 2,241,019 195,092 1985 06/96 Sears Montgomery, IL.. 1,645,000 768,000 2,654,681 (77,754) 768,000 2,576,927 3,344,927 305,865 1990 06/96 Salem Square Countryside, IL. 3,130,000 1,735,000 4,449,217 (13,596) 1,735,000 4,435,621 6,170,621 504,986 1973 08/96 Hawthorn Village Vernon Hills, IL 4,280,000 2,619,500 5,887,640 46,891 2,619,500 5,934,531 8,554,031 674,374 1979 08/96 Six Corners Chicago, IL..... 3,100,000 1,440,000 4,532,977 220,141 1,440,000 4,753,118 6,193,118 492,423 1966 10/96 Spring Hill Fashion Center West Dundee, IL. 4,690,000 1,794,000 7,415,396 211,873 1,794,000 7,627,269 9,421,269 778,352 1985 11/96 Crestwood Plaza Crestwood, IL... 904,380 325,577 1,483,183 4,750 325,577 1,487,933 1,813,510 148,763 1992 12/96 Park St. Claire Schaumburg, IL.. 762,500 319,578 986,920 226,674 319,578 1,213,594 1,533,172 230,716 1994 12/96 Summit of Park Ridge Park Ridge, IL.. 1,600,000 672,000 2,498,050 29,070 672,000 2,527,120 3,199,120 252,722 1986 12/96 Grand and Hunt Club Gurnee, IL...... 1,796,000 969,840 2,622,575 (52,811) 969,840 2,569,764 3,539,604 256,972 1996 12/96 Quarry Outlot Hodgkins, IL.... 900,000 522,000 1,278,431 8,872 522,000 1,287,303 1,809,303 128,684 1996 12/96 Aurora Commons Aurora, IL...... 9,000,328 3,220,000 8,318,861 11,391 3,220,000 8,330,252 11,550,252 894,795 1988 01/97 Lincoln Park Place Chicago, IL..... 1,050,000 819,000 1,299,902 (86,237) 819,000 1,213,665 2,032,665 121,082 1990 01/97 Niles Shopping Center Niles, IL....... 1,617,500 850,000 2,466,389 26,658 850,000 2,493,047 3,343,047 221,199 1982 04/97 Mallard Crossing Elk Grove Vill., IL 4,050,000 1,778,667 6,331,943 109,253 1,778,667 6,441,196 8,219,863 594,077 1993 05/97 Cobblers Crossing Elgin, IL....... 5,476,500 3,200,000 7,763,940 119,311 3,200,000 7,883,251 11,083,251 711,250 1993 05/97 -52- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III (continued) Real Estate and Accumulated Depreciation December 31, 1999 Initial Cost Gross amount at which carried (A) at end of period (B) ------------------------ -------------------------------------------------- Date Buildings Adjustments Land Buildings Accumulated Con- and to and and Total Depreciation stru- Date Encumbrance Land improvements Basis (C) improvements improvements (D) (E) cted Acq ------------ ----------- ------------ ------------ ------------ ------------ ---------- ------------- ----- ----- Calumet Square Calumet City, IL $ 1,032,920 527,000 1,540,046 124,186 527,000 1,664,232 2,191,232 138,022 67/94 06/97 Sequoia Shopping Center Milwaukee, WI... 1,505,000 1,216,914 1,805,784 (11,425) 1,216,914 1,794,359 3,011,273 151,801 1988 06/97 Riversquare Shopping Center Naperville, IL.. 3,050,000 2,853,226 3,129,477 205,697 2,853,226 3,335,174 6,188,400 309,490 1988 06/97 Shorecrest Plaza Racine, WI...... 2,978,000 1,150,000 4,775,119 37,402 1,150,000 4,812,521 5,962,521 384,122 1977 07/97 Dominick's Countryside, IL. 1,150,000 1,375,000 925,106 - 1,375,000 925,106 2,300,106 72,781 1975 12/97 Terramere Plaza Arlington Hghts, IL 2,202,500 1,435,000 2,981,314 220,369 1,435,000 3,201,683 4,636,683 209,534 1980 12/97 Wilson Plaza Batavia, IL..... 650,000 310,000 999,366 23,960 310,000 1,023,326 1,333,326 77,217 1986 12/97 Iroquois Center Naperville, IL.. 5,950,000 3,668,347 8,276,041 404,076 3,668,347 8,680,117 12,348,464 587,735 1983 12/97 Fashion Square Skokie, IL...... 6,200,000 2,393,534 6,901,769 162,000 2,393,534 7,063,769 9,457,303 479,001 1984 12/97 Shops at Coopers Grove Ctry Club Hills,IL 2,900,000 1,400,897 4,417,565 (24,924) 1,400,897 4,392,641 5,793,538 306,074 1991 01/98 Maple Plaza Downers Grove, IL. 1,582,500 1,364,202 1,822,493 78,000 1,364,202 1,900,493 3,264,695 129,235 1988 01/98 Orland Park Retail Orland Park, IL... 625,000 460,867 795,939 (22,566) 460,867 773,373 1,234,240 55,954 1997 02/98 Wisner/Milwaukee Plaza Chicago, IL....... 974,725 528,576 1,383,292 - 528,576 1,383,292 1,911,868 88,058 1994 02/98 Homewood Plaza Homewood, IL...... 1,013,201 534,599 1,398,042 8,360 534,599 1,406,402 1,941,001 94,070 1993 02/98 Elmhurst City Center Elmhurst, IL...... 2,513,765 2,050,217 3,011,298 (533,465) 2,050,217 2,477,833 4,528,050 158,747 1994 02/98 Shoppes of Mill Creek Palos Park, IL.... - 3,305,949 8,005,850 23,847 3,305,949 8,029,697 11,335,646 539,507 1989 03/98 Prairie Square Sun Prairie, WI... 1,550,000 739,575 2,381,050 2,227 739,575 2,383,277 3,122,852 160,464 1995 03/98 Oak Forest Commons Oak Forest, IL.... 6,617,871 2,795,519 9,033,988 616,978 2,795,519 9,650,966 12,446,485 603,821 1998 03/98 Downers Grove Market Downers Grove, IL. 10,600,000 6,224,467 11,616,661 (29,297) 6,224,467 11,587,364 17,811,831 784,426 1998 03/98 St. James Crossing Westmont, IL.... 3,847,599 2,610,600 4,938,351 (125,002) 2,610,600 4,813,349 7,423,949 296,831 1990 03/98 High Point Center Madison, WI..... 5,360,988 1,449,560 8,817,508 (4,280) 1,449,560 8,813,228 10,262,788 508,501 1984 04/98 Western & Howard Chicago, IL..... 992,681 439,990 1,523,460 - 439,990 1,523,460 1,963,450 86,839 1985 04/98 Wauconda Shopping Center Wauconda, IL.... 1,333,834 454,500 2,067,622 - 454,500 2,067,622 2,522,122 122,615 1988 05/98 Berwyn Plaza Berwyn, IL...... 708,638 769,073 1,078,379 - 769,073 1,078,379 1,847,452 60,657 1983 05/98 -53- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III (continued) Real Estate and Accumulated Depreciation December 31, 1999 Initial Cost Gross amount at which carried (A) at end of period (B) ------------------------ -------------------------------------------------- Date Buildings Adjustments Land Buildings Accumulated Con- and to and and Total Depreciation stru- Date Encumbrance Land improvements Basis (C) improvements improvements (D) (E) cted Acq ------------ ----------- ------------ ------------ ------------ ------------ ---------- ------------- ----- ----- Woodland Heights Streamwood, IL.. $ 3,940,009 2,976,000 6,898,100 (106,493) 2,976,000 6,791,607 9,767,607 366,279 1956 06/98 Schaumburg Plaza Schaumburg, IL... 3,908,082 2,445,555 4,565,548 28,971 2,445,555 4,594,519 7,040,074 243,572 1994 06/98 Winnetka Commons New Hope, MN..... 2,233,744 1,596,600 2,858,630 13,873 1,596,600 2,872,503 4,469,103 171,501 1990 07/98 Eastgate Shopping Center Lombard, IL...... 3,345,000 4,252,440 2,577,933 1,550,219 4,252,440 4,128,152 8,380,592 150,802 1959 07/98 Orland Greens Orland Park, IL.. 2,132,000 1,246,440 3,877,755 - 1,246,440 3,877,755 5,124,195 172,173 1984 09/98 Two Rivers Plaza Bolingbrook, IL.. 3,658,000 1,820,453 4,993,133 6,050 1,820,453 4,999,183 6,819,636 262,326 1994 10/98 Edinburgh Festival Brooklyn Park, MN 4,625,000 2,472,746 6,372,809 5,270 2,472,746 6,378,079 8,850,825 278,616 1997 10/98 Riverplace Center Noblesville, IN. 3,323,000 1,591,682 4,497,515 - 1,591,682 4,497,515 6,089,197 176,034 1992 11/98 Rose Plaza Elmwood Park, IL 2,008,000 1,530,149 2,665,910 - 1,530,149 2,665,910 4,196,059 112,328 1997 11/98 Marketplace at Six Corners Chicago, IL..... 11,200,000 9,007,150 10,014,533 - 9,007,150 10,014,533 19,021,683 365,247 1997 11/98 Plymouth Collection Plymouth, MN.... 3,441,000 1,459,045 5,174,725 (6,488) 1,459,045 5,168,237 6,627,282 193,550 1999 01/99 Loehmann's Plaza Brookfield, WI.. 6,643,000 4,797,940 8,758,688 (2,921) 4,797,940 8,755,767 13,553,707 285,837 1985 02/99 Baytowne Square Champaign, IL... 7,027,000 3,820,545 8,853,078 (65,374) 3,820,545 8,787,704 12,608,249 307,408 1993 02/99 Gateway Square Hinsdale, IL.... 3,470,000 3,045,966 3,899,226 58,490 3,045,966 3,957,716 7,003,682 122,477 1985 03/99 Oak Forest Commons Ph III Oak Forest, IL.. 552,700 204,881 906,609 985 204,881 907,594 1,112,475 17,789 1999 06/99 Oak Lawn Town Center Oak Lawn, IL.... 1,200,000 1,384,049 1,034,346 - 1,384,049 1,034,346 2,418,395 20,481 1999 06/99 Stuart's Crossing St. Charles, IL. - 4,234,079 7,503,474 - 4,234,079 7,503,474 11,737,553 139,546 1999 08/98 West River Crossing Joliet, IL...... 2,806,700 2,316,806 3,320,482 (76,352) 2,316,806 3,244,130 5,560,936 52,047 1999 08/99 Hickory Creek Marketplace Frankfort, IL... 3,108,300 1,796,717 4,435,125 (103,088) 1,796,717 4,332,037 6,128,754 71,078 1999 08/99 Burnsville Crossing Burnsville, MN.. 2,858,100 2,061,340 4,667,414 - 2,061,340 4,667,414 6,728,754 58,373 1989 09/99 Byerly's Burnsville Burnsville, MN.. 2,915,900 1,706,797 4,144,841 - 1,706,797 4,144,841 5,851,638 51,952 1988 09/99 Cliff Lake Center Eagan, MN....... 5,121,280 2,517,253 3,056,771 - 2,517,253 3,056,771 5,574,024 42,466 1988 09/99 Park Place Plaza St. Louis Park, MN 6,407,000 4,255,856 8,575,148 - 4,255,856 8,575,148 12,831,004 97,677 1997 09/99 Maple Grove Retail Maple Grove, MN. 3,958,000 2,172,777 5,758,017 - 2,172,777 5,758,017 7,930,794 68,085 1998 09/99 -54- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III (continued) Real Estate and Accumulated Depreciation December 31, 1999 Initial Cost Gross amount at which carried (A) at end of period (B) ------------------------ -------------------------------------------------- Date Buildings Adjustments Land Buildings Accumulated Con- and to and and Total Depreciation stru- Date Encumbrance Land improvements Basis (C) improvements improvements (D) (E) cted Acq ------------ ----------- ------------ ------------ ------------ ------------ ---------- ------------- ----- ----- Shingle Creek Brooklyn Ctr, MN $ 1,735,000 1,228,197 2,261,560 279 1,228,197 2,261,839 3,490,036 29,819 1986 09/99 Rose Naper Plaza West Naperville, IL.. - 989,499 1,790,417 - 989,499 1,790,417 2,779,916 20,056 1997 09/99 Schaumburg Promenade Schaumburg, IL.. 9,650,000 6,562,000 12,741,877 (45,121) 6,562,000 12,696,756 19,258,756 19,114 1999 12/99 Community Centers - ----------------- Lansing Square Lansing, IL....... 8,150,000 4,075,000 12,179,383 834,722 4,075,000 13,014,105 17,089,105 1,250,561 1991 12/96 Maple Park Place Bolingbrook, IL... 7,650,000 3,665,909 11,669,428 208,478 3,665,909 11,877,906 15,543,815 1,322,731 1992 01/97 Rivertree Court Vernon Hills, IL. 17,547,999 8,651,875 22,963,475 (17,483) 8,651,875 22,945,992 31,597,867 2,016,637 1988 07/97 Naper West Naperville, IL... 7,695,199 5,335,000 9,611,971 (175,143) 5,335,000 9,436,828 14,771,828 700,089 1985 12/97 Woodfield Plaza Schaumburg, IL... 9,600,000 4,612,277 15,160,000 (254,931) 4,612,277 14,905,069 19,517,346 1,059,237 1992 01/98 Lake Park Plaza Michigan City, IN 6,489,618 3,252,861 9,208,072 858,779 3,252,861 10,066,851 13,319,712 643,763 1990 02/98 Chestnut Court Darien, IL...... 8,618,623 5,719,982 10,350,084 153,341 5,719,982 10,503,425 16,223,407 647,994 1987 03/98 Bergen Plaza Oakdale, MN..... 9,141,896 5,346,781 11,700,498 53,988 5,346,781 11,754,486 17,101,267 696,705 1978 04/98 Fairview Heights Plaza Fairview Hghts, IL. 5,637,000 2,350,493 8,914,458 5,500 2,350,493 8,919,958 11,270,451 416,045 1991 08/98 Woodfield Commons-East/West 73/75 Schaumburg, IL... 13,500,000 8,352,858 18,336,997 237,787 8,352,858 18,574,784 26,927,642 840,501 1997 10/98 Joliet Commons Joliet, IL....... 14,447,153 4,088,806 15,684,488 (103,677) 4,088,806 15,580,811 19,669,617 750,899 1995 10/98 Springboro Plaza Springboro, OH... 5,161,000 1,079,108 8,240,455 - 1,079,108 8,240,455 9,319,563 318,257 1992 11/98 Park Center Plaza Tinley Park, IL.. 7,337,000 5,363,000 9,633,491 (370,070) 5,363,000 9,263,421 14,626,421 403,276 1988 12/98 Woodland Commons Buffalo Grove, IL 10,734,710 5,337,727 15,410,472 277,468 5,337,727 15,687,940 21,025,667 507,558 1991 02/99 Randall Square Geneva, IL...... - 8,434,372 21,707,845 (16,491) 8,434,372 21,691,354 30,125,726 460,594 1999 05/99 Riverdale Commons Coon Rapids, MN. 9,752,000 4,324,439 15,131,793 635 4,324,439 15,132,428 19,456,867 171,238 1998 09/99 Quarry Retail Minneapolis, MN. 15,670,000 7,761,542 23,603,421 (2,952) 7,761,542 23,600,469 31,362,011 265,773 1997 09/99 Pine Tree Plaza Janesville, WI.. - 2,889,136 15,644,108 (35,668) 2,889,136 15,608,440 18,497,576 169,152 1998 10/99 ------------ ----------- ------------ ------------ ----------- ------------ ----------- ------------ Total $440,740,296 271,905,942 666,172,357 5,028,645 271,905,942 671,201,002 943,106,944 37,424,871 ============ =========== ============ =========== =========== ============ =========== ============
-55- INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III (continued) Real Estate and Accumulated Depreciation December 31, 1999, 1998 and 1997 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, 1999 and 1998 for federal income tax purposes was approximately $824,300,000 and $626,000,000, unaudited, respectively. (C) Adjustments to basis includes additions to investment properties net of payments received under master lease agreements. As part of several purchases, the Company will receive rent under master lease agreements on the spaces currently vacant for periods ranging from one to two years or until the spaces are leased. GAAP requires that as these payments are received, they be recorded as a reduction in the purchase price of the properties rather than as rental income. (D) Reconciliation of real estate owned: 1999 1998 1997 ------------- ------------- ------------- Balance at beginning of year... $645,979,867 276,310,838 94,632,981 Purchases of property.......... 294,537,006 368,364,949 181,251,256 Additions...................... 5,893,566 3,285,854 836,962 Sales.......................... (1,117,665) - - Payments received under master leases................ (2,185,830) (1,981,774) (410,361) ------------- ------------- ------------- Balance at end of year......... $943,106,944 645,979,867 276,310,838 ============= ============= ============= (E) Reconciliation of accumulated depreciation: Balance at beginning of year... $ 17,161,998 5,665,483 1,109,038 Depreciation expense........... 20,262,873 11,496,515 4,556,445 ------------- ------------- ------------- Balance at end of year......... $ 37,424,871 17,161,998 5,665,483 ============= ============= ============= -56- Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no disagreements on accounting or financial disclosure during 1999. PART III Item 10. Directors and Executive Officers of the Registrant Officers and Directors The Company's current officers and directors are as follows: Functional Title Robert D. Parks......... President, Chief Executive Officer, Chief Operating Officer and Affiliated Director G. Joseph Cosenza....... Affiliated Director Heidi N. Lawton......... Independent Director Roland W. Burris........ Independent Director Joel G. Herter.......... Independent Director Roberta S. Matlin....... Vice President - Administration Kelly Tucek............. Secretary, Treasurer and Chief Financial Officer Patricia A. DelRosso.... Assistant Secretary ROBERT D. PARKS (age 56) is a Director of The Inland Group, Inc.; Chairman of Inland Real Estate Investment Corporation; President, Chief Executive Officer, Chief Operating Officer and Affiliated Director of Inland Real Estate Corporation, and Chairman, Chief Executive Officer and Affiliated Director of inland Retail Real Estate Trust, Inc. 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 member of the Real Estate Investment Association as well as a member of the National Association of Real Estate Investment Trusts (NAREIT). G. JOSEPH COSENZA (age 56) has been with The Inland Group, Inc. and its affiliates since 1968 and is one of the four original principals. Mr. Cosenza is a Director and Vice Chairman of The Inland Group, Inc. and oversees, coordinates and directs Inland's many enterprises. In addition, Mr. Cosenza immediately supervises a staff of twelve persons who engage in property acquisition. Mr. Cosenza has been a consultant to other real estate entities and lending institutions on property appraisal methods. -57- Mr. Cosenza received his B.A. Degree from Northeastern Illinois University and his M.S. Degree from Northern Illinois University. From 1967 to 1968, he taught in the LaGrange Illinois School District and from 1968 to 1972, he served as Assistant Principal and taught in the Wheeling Illinois School District. Mr. Cosenza has been a licensed real estate broker since 1968 and an active member of various national and local real estate associations, including the National Association of Realtors and the Urban Land Institute. Mr. Cosenza has also been Chairman of the Board of American National Bank of DuPage and has served on the Board of Directors of Continental Bank of Oakbrook Terrace. He is presently a Director on the Board of Westbank in Westchester and Hillside, Illinois. HEIDI N. LAWTON (age 37) Independent Director since October 1994, Ms. Lawton is managing broker and owner of Lawton Realty Group, an Oak Brook, Illinois real estate brokerage firm which she founded in 1989. Lawton Realty Group specializes in commercial, industrial and investment real estate brokerage. Ms. Lawton is responsible for all aspects of the operations of Lawton Realty Group. She also structures real estate investments for clients, procures partner/investors, acquires properties and obtains financing for development. Prior to founding Lawton Realty Group and while she was earning her B.S. Degree in business management from the National College of Education, she was managing broker for VCR Realty located in Addison, Illinois. While at VCR Realty, she was engaged primarily in brokerage of industrial and commercial properties. She also provided property management services, including leasing, for a portfolio of more than 100 properties, including condominium complexes, industrial properties, apartment complexes and small retail shopping centers. At the beginning of her career in real estate, Ms. Lawton served as a general contractor for the building and selling of single-family homes as well as a retail center in Lombard, Illinois. As a licensed real estate professional since 1982, she has served as a member of the Certified Commercial Investment Members, Director of the Northern Illinois Association of Commercial Realtors, Commercial Director of the DuPage Association of Realtors, and an Independent Director for CCS Mortgage. ROLAND W. BURRIS (age 62) Independent Director since January 1996. Mr. Burris is serving as Of Counsel to the Chicago law firm of Buford, Peters, Ware & Zansitis, LLC. Prior to joining Buford, Peters, Ware & Zansitis, LLC, he was the Managing Partner of Jones, Ware & Grenard. His areas of practice are business transactions, estate planning, probate and trust, environment and consumer affairs. From 1973 to 1995, Mr. Burris was involved in the State of Illinois government holding the positions of State Comptroller and Attorney General of the State of Illinois. Mr. Burris completed his undergraduate studies at Southern Illinois University and studied international law as an exchange student at the University of Hamburg in Germany. Mr. Burris served on many boards including the Illinois Criminal Justice Authority, the Financial Accounting Foundation, the Law Enforcement Foundation of Illinois, the African American Citizens Coalition on Regional Development, the Boy Scouts of America and chair of the Illinois State Justice Commission. He is also serving as an adjunct professor in the Master of Public Administration Program at Southern Illinois University. -58- JOEL G. HERTER (age 61) Independent Director of the Company since 1997, Mr. Herter is a senior consultant and advisor to Wolf & Company LLP ("Wolf") where he has been employed since 1978. Mr. Herter graduated from Elmhurst College in 1959 with a Bachelor of Science degree in business administration. His business experience includes accounting and auditing, tax and general business services including venture and conventional financing, forecasts and projections, and strategic planning to a variety of industries. From 1978 to 1991, Mr. Herter served as managing partner for Wolf. Mr. Herter is a member of the American Institute of Certified Public Accountants and the Illinois CPA Society and was a past president and director of the Elmhurst Chamber of Commerce and was appointed by Governor Thompson of the State of Illinois to serve on the 1992 World's Fair Authority. Mr. Herter currently serves as chairman of the Board of Trustees, Elmhurst Memorial Hospital; director of Suburban Bank and Trust Company; chairman of the Board of Trustees of Elmhurst College; chairman of the DuPage Water Commission; treasurer to the House Republican Campaign Committee and Friends of Lee Daniels Committee; treasurer for Illinois Attorney General, Jim Ryan. Mr. Herter has also been appointed by Governor Edgar of the State of Illinois to the Illinois Sports Facilities Authority. ROBERTA S. MATLIN (age 55) Vice President-Administration of the Company since March 1995. Ms. Matlin joined TIGI in 1984 as Director of Investor Administration and currently serves as Senior Vice President-Investments of IREIC directing the day-to-day internal operations and Vice President of Inland Retail Real Estate Trust, Inc. Ms. Matlin is a Director of Inland Real Estate Investment Corporation, Inland Securities Corporation and the Advisor. Prior to joining TIGI, Ms. Matlin was employed for eleven years by the Chicago Region of the Social Security Administration of the United States Department of Health and Human Services. Ms. Matlin received her B.A. Degree from the University of Illinois in 1966 and is registered with the National Association of Securities Dealers, Inc. as a General Securities Principal. KELLY TUCEK (age 37) Secretary, Treasurer and Chief Financial Officer of the Company since August 1996. Ms. Tucek joined TIGI in 1989 and is an Assistant Vice President of Inland Real Estate Investment Corporation and Treasurer and Chief Financial Officer of Inland Retail Real Estate Trust, Inc. Ms. Tucek is responsible for the Investment Accounting Department which includes the accounting for the Company and all public limited partnership accounting functions along with quarterly and annual SEC filings. Prior to joining TIGI, Ms. Tucek was on the audit staff of Coopers and Lybrand since 1984. She received her B.A. Degree in Accounting and Computer Science from North Central College in 1984. PATRICIA A. DELROSSO (age 47) Assistant Secretary of the Company since March 1995. Ms. DelRosso joined Inland in 1985. She is currently a Senior Vice President of IREIC in charge of the Asset Management Department, where she is responsible for developing operating and disposition strategies for properties owned by IREIC related entities. Ms. DelRosso received her B.S. degree from George Washington University in 1975 and her Master's Degree from Virginia Tech University. Ms. DelRosso is a licensed real estate broker, a National Association of Securities Dealers registered securities sales representative and a member of the Urban Land Institute. -59- Item 11. Executive Compensation The Company's executive officers are all employees of Inland Real Estate Investment Corporation, the owner of Inland Real Estate Advisory Services, Inc., the Company's Advisor. The Company does not pay any of these individuals for serving in their respective positions. For a discussion of these fees paid to the Advisor, see "Certain Relationships and Related Transactions" below. The Company pays its Independent Directors an annual fee of $15,000. In addition, each Independent Director receives $500 for attendance in person or $250 for attendance by telephone at each meeting of the Board or committee thereof. Officers of the Company who are Directors (Messrs. Parks and Cosenza) are not paid fees for serving as directors. Under the Company's amended and restated Independent Director Stock Option Plan, each Independent Director is granted an option to acquire 3,000 shares as of the date they become a Director and an additional 500 shares on the date of each annual stockholders' meeting commencing with the annual meeting in 1995 so long as the Independent Director remains a member of the Board on such date. The options for the initial 3,000 Shares granted 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. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information as of December 31, 1999 regarding the number and percentage of shares beneficially owned by: (i) each director; (ii) each executive officer; (iii) all directors and executive officers as a group; and (iv) as of December 31, 1999, any person known to us to be the beneficial owner of more than 5% of the shares. Share amounts and percentages shown for each person or entity are adjusted to give effect to shares that are not outstanding but which may be acquired by the person or entity on exercise of all options exercisable by the person or entity within sixty dates of the date hereof. Those shares are not deemed to be outstanding for purposes of computing the percentage of shares beneficially owned by any other person. Amount of shares Beneficially Percent Title of Class Owned of Class -------------- ---------------- -------------- Name of Beneficial Owner ------------------------ Robert D. Parks G. Joseph Cosenza Heidi N. Lawton Roland W. Burris Joel G. Herter Roberta S. Matlin Kelly Tucek Patricia A. DelRosso Common Stock 72,612 Shares Less than 1% There exists no arrangement, known to the Company, the operation of which may, at a subsequent date, result in a change in control of the Company. -60- Item 13. Certain Relationships and Related Transactions The Advisor and its Affiliates are entitled to reimbursement for salaries and expenses of employees of the Advisor and its Affiliates relating to each of the Offerings. For the year ended December 31, 1999, the Company incurred and paid $1,109,558 organizational and offering costs to Affiliates. The Advisor and its Affiliates are entitled to reimbursement for salaries and expenses of employees of the Advisor and its Affiliates relating to the administration of the Company. For the year ended December 31, 1999, the Company incurred and paid $752,239 of these costs. An Affiliate of the Advisor holds the mortgage on the Walgreens/Decatur property. As of December 31, 1999, the remaining balance of the mortgage is $700,381. For the year ended December 31, 1999, the Company paid principal and interest payments totaling $68,266 on this mortgage. The Advisor and its Affiliates are entitled to reimbursement for salaries and expense of employees of the Advisor and its affiliates relating to selecting, evaluating and acquiring of properties. Such amounts are included in building and improvements for those costs relating to properties purchased. Such amounts are included in acquisition cost expenses to Affiliates for costs relating to properties not acquired. The Advisor may receive an annual Advisor Asset Management Fee of not more than 1% of the Average Invested Assets, paid quarterly. For any year in which the Company qualifies as a REIT, the Advisor must reimburse the Company: (i) to the extent that the Advisor Asset Management Fee plus Other Operating Expenses paid during the previous calendar year exceed 2% of the Company's Average Invested Assets for the calendar year or 25% of the Company's Net Income for that calendar year; and (ii) to the extent that Stockholders have not received an annual Distribution equal to or greater than the 8% Current Return. For the year ended December 31, 1999, the Company has incurred $4,193,068 of such fees, of which $1,500,000 remained unpaid at December 31, 1999. The Company paid an Advisor Asset Management Fee which represented .58 of the 1% of the Average Invested Assets for the year ended December 31, 1999. Remaining Advisor Asset Management Fee is forfeited by the Advisor and, accordingly, not accrued in the accompanying financial statements. An Affiliate of the Advisor is entitled to receive Property Management Fees for management and leasing services. Such fees may not exceed 4.5% of the gross income earned by the Company on properties managed. The Company incurred and paid Property Management Fees of $4,869,514 for the year ended December 31, 1999. -61- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) List of documents filed: (1) The consolidated financial statements of the Company are set forth in the report in Item 8. (2) Financial Statement Schedules: Financial statement schedule for the year ended December 31, 1999 is submitted herewith. Page ---- Real Estate and Accumulated Depreciation (Schedule III)...... 51 Schedules not filed: All schedules other than those indicated in the index have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. (3) Exhibits. Required by the Securities and Exchange Commission Regulation S-K, Item 601. Item No. Description The following exhibits are filed as part of this document: 21 Subsidiaries of the Registrant 23 Consent of KPMG LLP dated March 22, 2000. 27 Financial Data Schedule The following exhibits are incorporated herein by reference: 3.1 Inland Monthly Income Fund III, Inc. Second Articles of Amendment and Restatement (2) 3.2 Amend and Restated bylaws of Inland Real Estate Corporation (3) 3.3 Inland Monthly Income Fund III, Inc. Articles of Amendment (3) 3.4 Inland Real Estate Corporation Articles of Amendment of Second Articles of Amendment and Restatement (1) 4.1 Specimen Stock Certificate (1) 10.1 Advisory Agreement between Inland Real Estate Corporation and Inland Real Estate Advisory Services dated October 14, 1994 (2) 10.1 (a) Amendment No. 1 to the Advisory Agreement dated October 13, 1995 (4) -62- 10.1 (b) Amendment No. 2 to the Advisory Agreement dated October 13, 1996 (4) 10.1 (c) Amendment No. 3 to the Advisory Agreement effective as of October 13, 1997 (1) 10.1 (d) Amendment No. 4 to the Advisory Agreement dated March 27, 1998 (5) 10.1 (e) Amendment No. 5 to the Advisory Agreement dated March 31, 1998 (5) 10.2 Form of Management Agreement Between Inland Real Estate Corporation and Inland Commercial Property Management, Inc. (3) 10.3 Amended and Restated Independent Director Stock Option Plan (2) (1) Included in the Registrant's Registration Statement on Form S-11 as filed by Registrant on January 30, 1998. (2) Included in the Registrant's Registration Statement on Form S-11 (file number 333-6459) as filed by Registrant on June 20, 1996. (3) Included in Pre-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-11 (file number 333-6459) as filed by the Registrant on July 18, 1996. (4) Included in Pre-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-11 (file number 333-6459) as filed by the Registrant on November 1, 1996. (5) Included in Pre-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-11 (file number 333-45233) as filed by the Registrant on April 6, 1998. (b) Reports on Form 8-K: Report on Form 8-K dated November 2, 1999 Item 2. Acquisition or Disposition of Assets Item 7. Financial Statements and Exhibits Report on Form 8-K/A dated November 23, 1999 Item 7. Financial Statements and Exhibits (c) See exhibit index included above. (d) None -63- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INLAND REAL ESTATE CORPORATION /s/ Robert D. Parks By: Robert D. Parks Chief Executive Officer and Affiliated Director Date: March 21, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: /s/ Robert D. Parks By: Robert D. Parks Chief Executive Officer and Affiliated Director Date: March 21, 2000 /s/ Kelly Tucek /s/ Heidi N. Lawton By: Kelly Tucek By: Heidi N. Lawton Chief Financial and Independent Director Accounting Officer Date: March 21, 2000 Date: March 21, 2000 /s/ G. Joseph Cosenza /s/ Roland W. Burris By: G. Joseph Cosenza By: Roland W. Burris Affiliated Director Independent Director Date: March 21, 2000 Date: March 21, 2000 /s/ Joel G. Herter By: Joel G. Herter Independent Director Date: March 21, 2000 -64- EX-21 2 Subsidiaries on the Registrant Inland Real Estate LB I, LLC, an Illinois limited liability company Inland Real Estate Column I, LLC, an Illinois limited liability company Inland Real Estate BSC I, LLC, an Illinois limited liability company EX-23 3 Consent of KPMG LLP The Board of Directors Inland Real Estate Corporation: We consent to incorporation by reference in the registration statement (No. 333-70699) on Form S-3 of Inland Real Estate Corporation of our report dated January 31, 2000 relating to the consolidated balance sheets of Inland Real Estate Corporation as of December 31, 1999, and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, and related schedule, which report appears in the December 31, 1999 annual report of Form 10-K of inland Real Estate Corporation. Chicago, Illinois March 22, 2000 EX-27 4
5 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 19424343 8830656 20290228 (1064300) 0 70245115 944806300 37424871 982281972 28432793 0 0 0 553988 512567043 475494125 0 123787569 0 0 70847277 0 25653724 30171901 0 30171901 0 (2088633) 0 28083268 .55 .55
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