10-K405 1 c61206e10-k405.txt ANNUAL REPORT 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, 2000 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 March 28, 2001, the aggregate market value of the Shares of Common Stock held by of the registrant was $692,255,872. As of March 28, 2001, there were 62,932,352 Shares of Common Stock outstanding. Documents Incorporated by Reference: Portions of the Registrant's proxy statement for the annual shareholders meeting to be held in 2001 are incorporated by reference into Part III. 1 2 INLAND REAL ESTATE CORPORATION (a Maryland corporation) TABLE OF CONTENTS Page Part I Item 1. Business 3 Item 2. Properties 6 Item 3. Legal Proceedings 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 17 Item 6. Selected Financial Data 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation 20 Item 7(a). Quantitative and Qualitative Disclosures About Market Risk 31 Item 8. Financial Statements and Supplementary Data 32 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 63 Part III Item 10. Directors and Executive Officers of the Registrant 63 Item 11. Executive Compensation 63 Security Ownership of Certain Beneficial Owners and Item 12. Management 63 Item 13. Certain Relationships and Related Transactions 63 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 64 SIGNATURES 67 2 3 PART I ITEM 1. BUSINESS GENERAL Inland Real Estate Corporation (the "Company") was formed on May 12, 1994 under Maryland law. The Company has elected to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended, which means that subject to satisfying certain tests set forth in the Code and the rules and regulations thereunder, the Company generally will not be subject to federal corporate income tax on any of its net income which is distributed currently to the shareholders. The Company is in the business of acquiring "Neighborhood Retail Centers" (gross leasable areas ranging from 5,000 to 150,000 square feet) and "Community Centers" (gross leasable areas ranging from 150,000 to 300,000 square feet) located within a 400-mile radius of the headquarters located in Oak Brook, Illinois. In addition, the Company may, from time to time, acquire single user: retail properties located throughout the United States. The Company may also construct or develop properties and render services in connection with developing and constructing projects. As of December 31, 2000, the Company had ownership interests in 120 investment properties comprised of: - Seventy-seven Neighborhood Retail Centers totaling approximately 4,500,000 gross leasable square feet; - Nineteen Community Centers totaling approximately 3,800,000 gross leasable square feet; - Twenty-four single user retail properties totaling approximately 1,000,000 gross leasable square feet. During the year ended December 31, 2000, the Company completed the acquisition of Inland Real Estate Advisory Services, Inc., the former advisor, and Inland Commercial Property Management, Inc., the former property manager (the "Merger"). Each of these entities was merged into subsidiaries that are wholly owned by the Company. The Company issued an aggregate of 6,181,818 shares of its common stock valued at $11.00 per share to Inland Real Estate Investment Corporation and The Inland Property Management Group, Inc. As a result of the merger, the Company is now "self-administered." The Company no longer pays advisory or property management fees but instead has hired an internal staff to perform these tasks. Therefore, the financial results for prior years are not comparable to the results for the year ended December 31, 2000. The Company generally limits its indebtedness to an amount not to exceed fifty percent (50%) of the combined fair market value of its investment properties, as determined by appraisal at the time of financing. Further, the Company is limited by its organizational documents from incurring indebtedness exceeding three hundred percent (300%) of "net assets" as defined in the organizational documents. As of December 31, 2000, the Company had borrowed a total of approximately $467,766,000, of which approximately $120,051,000 bears interest at variable rates. Indebtedness at December 31, 2000 was approximately 47% of the Company's book value of its investment properties. The Company competes with numerous other properties in attracting tenants. Some of the competing properties may be newer, better located or owned by parties that are better capitalized. The Company believes that its investment properties will continue to attract tenants on a competitive basis. 3 4 The Company's business is not seasonal. The Company competes on the basis of rental rates and property operations with similar types of properties located in the vicinity of its investment properties. The Company has no real property investments located outside of the United States. The Company does not segregate revenue or assets by geographic region, since, in management's view, such a presentation would not be significant to an understanding of its business or financial results taken as a whole. As of December 31, 2000, the Company employed a total of fifty-three people, none of whom are represented by a union. The Company reviews and monitors compliance with federal, state and local provisions, which have been enacted or adopted regulating the discharge of material into the environment, or otherwise relating to the protection of the environment. For the year ended December 31, 2000, the Company did not incur any material capital expenditures for environmental control facilities nor does it anticipate making any such expenditures for the year ending December 31, 2001. Currently, the tenant occupying the largest amount of square feet in the aggregate is Dominick's Finer Food, Inc. (a division of Safeway Inc.), which occupies approximately 685,473 square feet pursuant to ten separate leases, or approximately 7.17% of the total gross leasable area owned by the Company. Annualized base rental income of these ten leases is projected to be $8,133,026 for the year ended December 31, 2001, or approximately 8.06% of the total annualized base rental income projected for the entire portfolio. The tenant occupying the next largest amount of square feet in the aggregate is Jewel Food Stores, Inc. (a division of Albertson's Inc.), which occupies approximately 395,996 square feet pursuant to six separate leases, or approximately 4.14% of the total gross leasable area owned by the Company. Annualized base rental income of these six leases is projected to be $3,945,119 for the year ended December 31, 2000, or approximately 3.9% of the total annualized base rental income projected for the entire portfolio. During the year ended December 31, 2000, the Company acquired five additional investment properties aggregating approximately 335,000 square feet for approximately $43,223,000. The investment properties purchased ranged in size from a 10,000 square foot single-user up to a 175,730 square foot community center anchored by a Cub Foods Store, Inc. All but one of the investment properties is located in the greater Chicago area. One property is located in Minnesota. The Company intends to continue to acquire new investment properties of the type previously described in this Item 1, utilizing its cash resources as well as acquisition indebtedness. The Company is also exploring additional growth strategies including participating in joint ventures with institutional investors such as pension funds where by the Company would acquire and manage a pool of properties funded primarily with capital provided by the institutional investor. JOINT VENTURES The accompanying consolidated financial statements include the accounts of the Company, Inland Joliet Commons, LLC, Inland Ryan, LLC and Inland Ryan Cliff Lake, LLC (collectively the "LLCs"). 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 in the LLCs are reflected as minority interest in the accompanying consolidated financial statements. The accompanying consolidated financial statements also include the accounts of the Company's wholly owned subsidiaries, the Advisor and Manager. 4 5 In October 1998, the Company formed the Inland Joliet Commons, LLC, an Illinois limited liability company, with an unaffiliated third party. The Company contributed approximately $52,000 for a 1% interest and the third party contributed the Joliet Commons Shopping Center Phase I, with a fair market value of approximately $19,733,000 and debt of approximately $14,569,000 for a 99% interest. The Company is the managing member of the Inland Joliet Commons, LLC. On October 31, 2000, the non-managing member tendered all of its 469,480 units to the Company for a cash payment of approximately $5,164,000, an amount equal to the non-managing member's equity in the property at the time the property was contributed to the LLC. In September 1999, the Company formed the Inland Ryan, LLC, a Delaware limited liability company, with an unaffiliated third party, which then purchased nine shopping centers. The Company contributed approximately $76,720,000 for an approximate 77% interest in the Inland Ryan, LLC. The third party contributed nine properties with a fair market value of approximately $99,427,000, debt of approximately $65,500,000 and received a cash payment of approximately $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 members have a right on or after January 1, 2001 to tender up to 50% of its interest in the Inland Ryan, LLC to the Company for a cash payment of approximately $13,000,000. The non-managing members' remaining interest may be tendered to the Company on or after June 30, 2002. If the non-managing members have not tendered all of its interest by August 31, 2004, then at any time after that date, the Company, at its sole and exclusive option, may require the tender of all remaining interests of the non-managing members. Generally, profit and loss allocations and distributions from operations of the properties owned by the Inland Ryan, LLC are made in accordance with the respective ownership interests of each member. During the year ended December 31, 2000, the Company and the non-managing members entered into three amendments to the LLC agreement to reflect various transactions with individual members of Inland Ryan, LLC. In aggregate, these amendments had no effect on the Company's and the non-managing members' interest in Inland Ryan, LLC which remains at approximately 77% and 23%, respectively. 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 50% 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. 5 6 ITEM 2. PROPERTIES As of December 31, 2000, the Company and its subsidiaries have acquired fee ownership or an ownership interest in 120 investment properties, including 24 single-user retail properties, 77 Neighborhood Retail Centers and 19 Community Centers. The Company owns investment properties in Illinois, Wisconsin, Indiana, Minnesota, Michigan and Ohio. Tenants of the investment properties are responsible for the payment of some or all of the real estate taxes, insurance and common area maintenance.
Gross Leasable Year Mortgages Current Lease Area Date Built/ Payable at No. of Expiration Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date --------------------- -------- ------- ---------- ------------- --------- ------------------------ ------------- Single-User Retail Properties ----------------------------- Walgreens 13,500 01/95 1988 $ 685,204 1 Walgreen Co. 2028 Decatur, IL Zany Brainy Children's Concept, Wheaton, IL 12,499 07/96 1995 1,245,000 1 Inc. d/b/a Zany 2005 Brainy Ameritech Joliet, IL 4,504 05/97 1995 522,375 1 Verizon Wireless 2005 Dominick's Byerly's Food of Illinois, Schaumburg, IL 71,400 05/97 1996 5,345,500 1 Inc. 2021 d/b/a Dominick's Finer Food, Inc. Dominick's Dominick's Finer Food, Highland Park, IL 71,442 06/97 1996 6,400,000 1 Inc. 2021 Dominick's Glendale Heights, IL 68,879 09/97 1997 4,100,000 1 Dominick's Finer Food, Inc. 2017 Party City Oakbrook Terrace, IL 10,000 11/97 1985 987,500 1 Party City Corporation 2007 Eagle Country Market Roselle, IL 42,283 11/97 1990 1,450,000 1 Eagle Food Centers, L.P. 2011 Dominick's Dominick's Finer Food, West Chicago, IL 78,158 01/98 1990 3,150,000 1 Inc. 2010 Walgreens Woodstock, IL 15,856 06/98 1973 569,610 1 Walgreen Co. 2030 Bakers Shoes Chicago, IL 20,000 09/98 1891 N/A 1 Edison Brothers Apparel 2003 Staples Staples, The Office Freeport, IL 24,049 12/98 1998 1,480,000 1 Superstore East, Inc. 2013 Carmax Circuit City Stores, Schaumburg, IL 93,333 12/98 1998 7,260,000 1 Inc. 2021 Carmax Circuit City Stores, Tinley Park, IL 94,518 12/98 1998 9,450,000 1 Inc. 2021 Hollywood Hollywood Video Entertainment Hammond, IN 7,488 12/98 1998 740,000 1 Corporation 2013 Circuit City Circuit City Stores, Traverse City, MI 21,337 01/99 1998 1,603,000 1 Inc. 2021 Cub Foods Innsbruck Investments, Plymouth, MN 67,510 03/99 1991 2,732,000 1 Inc. 2006 Cub Foods Indianapolis, IN 67,541 03/99 1991 2,867,000 1 Goldmark, Inc. 2011
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Gross Leasable Year Mortgages Current Lease Area Date Built/ Payable at No. of Expiration Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date --------------------- -------- ------- ---------- ------------- --------- ------------------------ ------------- Single-User Retail Properties, cont. ------------------------------------ Eagle Ridge Center 56,142 04/99 1998 $ 3,000,000 1 Eagle Food Centers #072 2021 Lindenhurst, IL Dominick's Hammond, IN 71,313 05/99 1999 4,100,000 1 None Cub Foods Buffalo Grove, IL 56,192 06/99 1999 3,650,000 1 Supervalue-Buffalo Grove 2021 Tweeter Home United Audio Center Entertainment Schaumburg, IL 9,988 09/99 1998 1,240,000 1 Group, Inc. 2013 Scandinavian U.S. Swim Bally's Total Fitness & Fitness, Inc. St. Paul, MN 43,000 09/99 1998 3,145,300 1 d/b/a Bally Total Fitness 2011 Riverdale Commons Outlot Coon Rapids, MN 6,566 03/00 1999 N/A 1 Tom & Ben's, Inc. 2010 Neighborhood Retail Centers --------------------------- Eagle Crest Naperville, IL 67,632 03/95 1991 2,350,000 12 Eagle Food Centers, Inc. 2014 Goodyear Montgomery, IL 12,903 09/95 1991 630,000 2 Merlin Corporation 2007 Goodyear Tire & Rubber Co. 2006 Hartford Plaza Naperville, IL 43,762 09/95 1995 2,310,000 8 Blockbuster Videos, Inc. 2005 Nuttco, Inc. d/b/a Nantucket Square Kathy's Hallmark 2001 Schaumburg, IL 56,981 09/95 1980 2,200,000 19 SuperTrak Corporation 2003 The Dental Store, Ltd. 2006 Antioch Plaza Antioch, IL 19,810 12/95 1995 875,000 3 Blockbuster Videos, Inc. 2005 Tandy Corporation 2002 Mundelein Plaza Mundelein, IL 68,056 03/96 1990 2,810,000 7 Sears, Roebuck & Co. 2005 Regency Point Bond Drug Co. of Illinois 2043 Lockport, IL 54,841 04/96 1993/ N/A 19 Kin-ko Ace Stores, Inc. 2008 1995 Prospect Heights Prospect Heights, IL 28,080 06/96 1985 1,095,000 5 None Sears Montgomery, IL 34,300 06/96 1990 1,645,000 6 Sears, Roebuck & Co. 2005 Blockbuster Videos, Inc. 2003 Salem Square Countryside, IL 112,310 08/96 1973/ 3,130,000 5 TJX Companies, Inc. 2004 1985 Marshalls of Countryside 2002 Hawthorn Village Dominick's Finer Food, Vernon Hills, IL 98,806 08/96 1979 4,280,000 22 Inc. 2003 Walgreen Co. 2005 Six Corners Chicago Health Clubs, Inc. 2010 Chicago, IL 80,650 10/96 1966 3,100,000 8 Advocate Northside 2004 Spring Hill Fashion Ctr West Dundee, IL 125,198 11/96 1985 4,690,000 18 TJ Maxx of Illinois, LLC 2006 Michaels Stores, Inc. 2006
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Gross Leasable Year Mortgages Current Lease Area Date Built/ Payable at No. of Expiration Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date --------------------- -------- ------- ---------- ------------- --------- ------------------------ ------------- Neighborhood Retail Centers, cont. ---------------------------------- Crestwood Plaza 20,044 12/96 1992 $ 904,380 2 Entenmann's, Inc. 2002 Crestwood, IL Mattress Giant Corporation 2004 Park St. Claire Schaumburg, IL 11,859 12/96 1994 762,500 2 Verizon Wireless 2004 Evenson Card Shop, Inc. 2001 Summit of Park Ridge Park Ridge, IL 33,252 12/96 1986 1,600,000 14 LePeep Restaurant, Inc. 2002 Park Ridge Pizza, Inc. 2007 Grand and Hunt Club Helzberg's Diamond Gurnee, IL 21,222 12/96 1996 1,796,000 2 Shops, Inc. 2006 Super Crown Books Corp. 2007 Quarry Outlot Hodgkins, IL 9,650 12/96 1996 900,000 3 The Casual Male, Inc. 2006 Helzberg's Diamond Shops, Inc. 2006 Noorruddin Sadruddin & Farida Sadruddin d/b/a Dunkin Donuts/Baskin Robbins 2006 Aurora Commons Aurora, IL 127,302 01/97 1988 8,776,181 24 Jewel Food Stores, Inc. 2009 Lincoln Park Place Chicago, IL 10,678 01/97 1990 1,050,000 2 Lechters Illinois, Inc. 2006 Domicile Furniture 2006 Niles Shopping J.C. Niles d/b/a Center Jennifer Niles, IL 26,109 04/97 1982 1,617,500 7 Convertibles 2002 Areawide Cellular LLC 2006 Wolf Camera, inc. 2002 H.W.J. Corporation 2008 Quartersawn, Inc. 2001 Mallard Crossing Elk Grove Village, IL 82,929 05/97 1993 4,050,000 10 None Cobblers Crossing Elgin, IL 102,643 05/97 1993 5,476,500 16 Jewel Food Stores, Inc. 2013 Calumet Square Calumet City, IL 39,936 06/97 1967/ 1,032,920 3 Aronson Furniture Co. 2005 1994 Trak Auto #245 2004 Sequoia Shopping Center Milwaukee, WI 35,407 06/97 1988 1,505,000 12 Kinko's, Inc. 2004 U.S. Postal Service 2006 O'D & E, Inc. d/b/a Play It Again Sports 2001 River Square S/C Naperville, IL 58,556 06/97 1988 3,050,000 21 Salon Suites Limited 2005 Shorecrest Plaza Schultz Sav-O Stores, Inc. 2011 Racine, WI 91,244 07/97 1977 2,978,000 12 Wisconsin Health & Fitness 2006 Dominick's Dominick's Finer Food, Countryside, IL 62,344 12/97 1975 1,150,000 1 Inc. 2005 Terramere Plaza Arlington Heights, IL 40,965 12/97 1980 2,202,500 18 None
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Gross Leasable Year Mortgages Current Lease Area Date Built/ Payable at No. of Expiration Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date --------------------- -------- ------- ---------- ------------- --------- ------------------------ ------------- Neighborhood Retail Centers, cont. ---------------------------------- Wilson Plaza 11,160 12/97 1986 $ 650,000 7 White Hen Pantry, Inc. 2002 Batavia, IL Henry Chao and Khorn Chao d/b/a Dimples Donuts 2001 Frank Hernandez d/b/a Riverside Liquors 2003 Iroquois Center Naperville, IL 140,981 12/97 1983 5,950,000 29 TB Naperville, Inc. 2008 Naperville Total Fitness 2015 Fashion Square Skokie, IL 84,580 12/97 1984 6,200,000 15 Cost Plus, Inc. 2008 Wilkerson Shoe Corporation 2005 Shops at Coopers Grove Country Club Hills, IL 72,518 01/98 1991 2,900,000 7 None Maple Plaza Downers Grove, IL 31,298 01/98 1988 1,582,500 10 J.C. Licht Co. 2003 Goodyear Tire & Rubber Co. 2003 Copy Center, Inc. 2005 Orland Park Retail Orland Park, IL 8,500 02/98 1997 625,000 3 All Cleaners 2003 Amsleep, Inc. 2003 Marc Anthony Enterprises 2003 Wisner/Milwaukee Plaza Chicago, IL 14,677 02/98 1994 974,725 4 Blockbuster Videos, Inc. 2003 Giordano's Enterprises, Inc. 2004 Spincycle, Inc. 2006 Homewood Plaza Homewood, IL 19,000 02/98 1993 1,013,201 3 Blockbuster Videos, Inc. 2003 Super Trak Corporation 2004 Elmhurst City Center Bond Drug Co. of Illinois 2044 Elmhurst, IL 39,481 02/98 1994 2,513,765 9 First Chicago 2099 Brown Group Retail, Inc. 2001 Shoppes of Mill Creek Jewel Companies, Inc. Palos Park, IL 102,406 03/98 1989 N/A 20 #3160 2009 Prairie Square Sun Prairie, WI 35,755 03/98 1995 1,550,000 12 Brown Group Retail, Inc. 2001 Blockbuster Videos, Inc. 2005 Amie's, Inc. 2003 Oak Forest Commons Dominick's Finer Food, Oak Forest, IL 108,330 03/98 1998 6,617,871 16 Inc. 2017 Downers Grove Market Dominick's Finer Food, Downers Grove, IL 104,449 03/98 1998 10,600,000 14 Inc. 2017 St. James Crossing Westmont, IL 49,994 03/98 1990 3,847,599 20 Nevada Bob's Pro Shops 2002 Cafe Roma Ltd. Partnership 2010 High Point Center Pier 1 Imports (U.S.), Madison, WI 85,944 04/98 1984 5,360,988 22 Inc. 2005 Western & Howard Pearle Vision Center, Inc. 2005 Chicago, IL 12,784 04/98 1985 992,681 3 Gap, Inc. #558 2002 Payless Shoe Source #2684 2001 Wauconda Shopping Ctr Wauconda, IL 31,157 05/98 1988 1,333,834 2 Sears, Roebuck & Co. 2006 Spasso, Ltd. 2005 Berwyn Plaza Berwyn, IL 18,138 05/98 1983 708,638 4 Tandy Corporation 2004
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Gross Leasable Year Mortgages Current Lease Area Date Built/ Payable at No. of Expiration Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date --------------------- -------- ------- ---------- ------------- --------- ------------------------ ------------- Neighborhood Retail Centers, cont. ---------------------------------- Woodland Heights 120,436 06/98 1956 $ 3,940,009 12 Jewel Food Stores #3268 2012 Streamwood, IL U.S. Postal Service 2004 Schaumburg Plaza Schaumburg, IL 61,485 06/98 1994 3,908,082 6 Sears, Roebuck & Co. 2004 Super Trak Corporation, Inc. 2004 Ulta 3 Cosmetics & Salon, Inc. 2005 APSCO Products Co., Inc. Winnetka Commons d/b/a Big Wheel Auto New Hope, MN 42,415 07/98 1990 2,233,744 16 Stores 2002 Eastgate Shopping Ctr Lombard, IL 132,145 07/98 1959 3,345,000 38 Schroeder Hardware, Inc. 2003 State of Illinois, Dept. of Central Mgmt. Services 2002 Orland Greens Orland Park, IL 45,031 09/98 1984 2,132,000 12 Walgreen Co. 2021 PNS Stores, Inc. 2006 Two Rivers Plaza Two Rivers Plaza Toy Bolingbrook, IL 57,900 10/98 1994 3,658,000 11 Works, Inc. 2005 United Retail, Inc. d/b/a Sizes Unlimited 2007 Marshalls of Bolingbrook 2010 Edinburgh Festival Knowlan's Super Brooklyn Park, MN 91,536 10/98 1997 4,625,000 13 Markets, Inc. 2017 Riverplace Center Noblesville, IN 74,414 11/98 1992 3,323,000 10 Fashion Bug, Inc. #2724 2005 Kroger Co. 2004 Rose Plaza Total Beverage Elmwood Park, IL 24,204 11/98 1997 2,008,000 3 Corporation 2007 St. Louis Bread Co., Inc 2008 Sprint Com, Inc. 2003 Marketplace at 6 Corners Chicago, IL 117,000 11/98 1997 11,200,000 6 Jewel Food Stores, Inc. 2012 Marshalls of Chicago 2013 Plymouth Collection Plymouth, MN 40,815 01/99 1999 3,441,000 10 Golf Galaxy, Inc. 2013 James Slattery and Walter Bauer d/b/a Vintage Liquors 2008 Paper Warehouse, Inc. 2008 Loehmann's Plaza Brookfield, WI 107,952 02/99 1985 6,643,000 26 Dickens Books, Ltd. 2005 V. Richards Market, Inc. 2007 Baytowne Square Champaign, IL 118,842 02/99 1993 7,027,000 21 Staples, Inc. 2010 Berean Bookstore, Inc. 2003 Petsmart, Inc. 2012 Mil-Mar Shoe Co., Inc. 2006 Factory Card Outlet of America, Ltd. 2006 R.J.S. Mgmt. Corp. d/b/a Jenny Craig Weight Loss Centre 2002 Dent Lease, Inc. 2002 Buffalo Wild Wings 2010 Gateway Square Malson Fabrics, Inc. Hinsdale, IL 40,170 03/99 1985 3,470,000 19 d/b/a Calico Corners 2005
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Gross Leasable Year Mortgages Current Lease Area Date Built/ Payable at No. of Expiration Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date --------------------- -------- ------- ---------- ------------- --------- ------------------------ ------------- Neighborhood Retail Centers, cont. ---------------------------------- Oak Lawn Town Center 12,506 06/99 1999 $ 1,200,000 4 Bed Mart, Inc. 2003 Oak Lawn, IL Starbucks Corporation 2008 Hollywood Video #013959 2008 Southwestern Bell Mobile Leader Communications 2003 Oak Forest Commons Ph III Star Consultants, Inc. 2004 Oak Forest, IL 7,424 06/99 1999 552,700 2 Dollar Store Plus, Inc. 2004 Stuart's Crossing St. Charles, IL 85,633 07/99 1999 N/A 3 Jewel Food Stores, Inc. 2019 West River Crossing Joliet, IL 32,452 08/99 1999 2,806,700 13 Hollywood Video 2009 Budget Golf 2004 Hickory Creek Marketplace Frankfort, IL 43,251 08/99 1999 3,108,300 16 Hallmark 2005 Burnsville Crossing Burnsville, MN 91,015 09/99 1989 2,858,100 14 Petsmart, Inc. 2013 Schneiderman's Furniture, Inc. 2009 Byerly's Burnsville Burnsville, MN 72,365 09/99 1988 2,915,900 7 Byerly's, Inc. 2008 Zany Brainy, Inc. #516 2011 Cliff Lake Center Eagan, MN 74,215 09/99 1988 5,069,384 31 None Park Place Plaza St. Louis Park, MN 84,999 09/99 1997 6,407,000 14 Petsmart, Inc. 2013 Office Max, Inc. 2012 SLB of Minnesota Shingle Creek d/b/a Brooklyn Center, MN 39,456 09/99 1986 1,735,000 18 Panera Bread Co. 2009 Maple Grove Retail Maple Grove, MN 79,130 09/99 1998 3,958,000 3 Fleming Companies, Inc. 2018 Hollywood Rose Plaza West Entertainment Corp. 2007 Naperville, IL 14,335 09/99 1997 1,382,000 5 P.J. Chicago LLC 2002 Caribou Coffee Co., Inc. 2007 Kay and Dale Smith d/b/a Elegante Salon 2003 Signature Group, Inc. 2007 Schaumburg Promenade Schaumburg, IL 91,831 12/99 1999 9,650,000 5 Eastern Mountain Sports 2009 Pier 1 Imports Store #856 2009 DSW Shoe Warehouse 2009 Linens and Things Store #418 2015 Rose Plaza East Naperville, IL 11,658 01/00 1999 1,085,700 5 Starbucks Corporation 2008 Borics of Indiana, Ltd. 2003 Plus Signs & Banners, Inc. 2003 Alpha Communications, Inc. 2003 Kinko's, Inc. 2008
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Gross Leasable Year Mortgages Current Lease Area Date Built/ Payable at No. of Expiration Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date --------------------- -------- ------- ---------- ------------- --------- ------------------------ ------------- Neighborhood Retail Centers, cont. ---------------------------------- Joliet Commons Ph II 40,395 02/00 1999 $ 2,400,000 3 Office Max, Inc. 2015 Joliet, IL Eddie Bauer, Inc. 2005 Furniture Distributors of America, Inc. d/b/a Peppers Bedroom City 2005 Bohl Farm Marketplace Crystal Lake, IL 97,287 12/00 2000 7,833,000 14 Linens & Things, Inc. 2015 Dress Barn, Inc. 2010 Barnes & Noble Booksellers, Inc. 2014 Community Centers ----------------- Lansing Square Lansing, IL 233,508 12/96 1991 8,150,000 18 Wal-Mart Stores, Inc. 2011 Baby Superstore, Inc. 2006 Office Max, Inc. #64 2008 Maple Park Place Bolingbrook, IL 220,095 01/97 1992 7,650,000 22 K-Mart Corporation 2020 Supervalue-Bolingbrook 2017 Rivertree Court Vernon Hills, IL 298,862 07/97 1988 17,547,999 43 Best Buy Stores, L.P. 2011 Naper West Douglas Audio Video Naperville, IL 164,812 12/97 1985 7,695,199 30 Centers, Inc. 2002 Newton Buying Corp. d/b/a TJ Maxx 2004 Woodfield Plaza Kohl's Dept. Stores, Onc. 2012 Schaumburg, IL 177,160 01/98 1992 9,600,000 9 B. Dalton Bookseller, Inc. 2012 Lake Park Plaza Michigan City, IN 229,639 02/98 1990 6,489,618 15 Wal-Mart Stores, Inc. 2010 Chestnut Court Darien, IL 170,027 03/98 1987 8,618,623 24 Just Ducky, Ltd. 2003 Stein Mart, Inc. 2008 Bergen Plaza Oakdale, MN 270,283 04/98 1978 9,141,896 35 Fleming Companies, Inc. 2009 K-Mart Corporation 2003 Fairview Heights Richman Gordman d/b/a Plaza 1/2 Price Store 2009 Fairview Heights, IL Leewards Creative 167,491 08/98 1991 5,637,000 9 Crafts, Inc. 2004 Sports Authority, Inc. 2011 Woodfield Commons E/W Children's Bargain Town Schaumburg, IL 207,583 10/98 1973 13,500,000 20 USA, Inc. 2006 1975 MTS, Inc. d/b/a Tower Records 2009 1997 Comp USA, Inc. 2012 Cost Plus, Inc 2008 Party City Corporation 2008 R & R Goldman Assoc., Inc. 2005 Barnes and Noble 2006 Joliet Commons Superstores, Inc. 2006 Joliet, IL 158,922 10/98 1995 14,318,117 16 Cinemark USA, Inc. 2016 Gap, Inc. 2005 Petsmart, Inc. 2010
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Gross Leasable Year Mortgages Current Lease Area Date Built/ Payable at No. of Expiration Property (Sq Ft) Acq. Renovated 12/31/00 Tenants Anchor Tenants* Date --------------------- -------- ------- ---------- ------------- --------- ------------------------ ------------- Community Centers, cont. ------------------------ Springboro Plaza 154,034 11/98 1992 $ 5,161,000 5 K-Mart Corporation 2017 Springboro, OH Kroger Co. 2017 Park Center Plaza Bally Total Fitness Tinley Park, IL 193,179 12/98 1988 7,337,000 27 Corporation 2010 Supervalu Stores, Inc. 2008 Woodland Commons Dominick's Finer Food, Buffalo Grove, IL 170,070 02/99 1991 10,734,710 34 Inc. 2011 Jewish Community Centers 2009 Randall Square TJ Maxx of Illinois, Geneva, IL 216,201 05/99 1999 N/A 25 Inc, 2008 Petsmart, Inc. 2014 Bed, Bath & Beyond of Geneva , Inc. 2014 Riverdale Commons Coon Rapids, MN 168,277 09/99 1998 9,752,000 16 Fleming Companies, Inc. 2018 Office Max, Inc. 2013 Wickes Furniture Co., Inc. 2014 Quarry Retail Minneapolis, MN 273,648 09/99 1997 15,670,000 15 Fleming Companies, Inc. 2017 Home Depot #2807 2018 Pine Tree Plaza Janesville, WI 187,413 10/99 1998 N/A 18 Michaels Stores, Inc. 2010 Staples, The Office Superstore East, Inc. 2013 TJX Companies, Inc. 2008 Gander Mountain LLC 2014 Chatham Ridge Chicago, IL 175,774 02/00 1999 9,737,620 27 Cub Foods Stores, Inc. 2019 Marshalls of Chicago 2007 ----------- -------------- Total 9,365,394 $467,766,173 =========== ==============
* Anchor tenants are defined as any tenant occupying more than 10% of the gross leasable area of a property. 13 14 The following table lists the approximate physical occupancy levels for the Company's investment properties as of December 31, 2000, 1999, 1998, and 1997. N/A indicates the property was not owned by the Company at the end of the year.
As of December 31, -------------------------------------------- 2000 1999 1998 1997 % % % % -------------------------------------------- Properties Ameritech, Joliet, IL 100 100 100 100 Antioch Plaza, Antioch, IL 61 67 68 68 Aurora Commons, Aurora, IL 94 93 95 98 Bakers Shoes, Chicago, IL 100 100 100 N/A Bally's Total Fitness, St. Paul, MN 100 100 N/A N/A Baytowne Square, Champaign, IL 98 97 N/A N/A Bergen Plaza, Oakdale, MN 98 97 98 N/A Berwyn Plaza, Berwyn, IL 26(a) 26 100 N/A Bohl Farm Marketplace, Crystal Lake, IL 100 N/A N/A N/A Burnsville Crossing, Burnsville, MN 100 100 N/A N/A Byerly's Burnsville, Burnsville, MN 100 84 N/A N/A Calumet Square, Calumet City, IL 100 100 100 100 Carmax, Schaumburg, IL 100 100 100 N/A Carmax, Tinley Park, IL 100 100 100 N/A Chatham Ridge, Chicago, IL 99 N/A N/A N/A Chestnut Court, Darien, IL 97 95 98 N/A Circuit City, Traverse City, MI 100 100 N/A N/A Cliff Lake Center, Eagan, MN 88 88 N/A N/A Cobblers Crossing, Elgin, IL 98 100 91 89 Crestwood Plaza, Crestwood, IL 100 68 100 100 Cub Foods, Buffalo Grove, IL 100 100 N/A N/A Cub Foods, Indianapolis, IN 100 100 N/A N/A Cub Foods, Plymouth, MN 100 100 N/A N/A Dominick's, Countryside, IL 100 100 100 100 Dominick's, Glendale Heights, IL 100 100 100 100 Dominick's, Hammond, IN 0(a) 0 N/A N/A Dominick's, Highland Park, IL 100 100 100 100 Dominick's, Schaumburg, IL 100 100 100 100 Dominick's, West Chicago, IL 100 100 100 N/A Downers Grove Market, Downers Grove, IL 99(a) 100 100 N/A Eagle Country Market, Roselle, IL 100 100 100 100 Eagle Crest, Naperville, IL 98 94 100 97 Eagle Ridge Center, Lindenhurst, IL 100 100 N/A N/A Eastgate Shopping Center, Lombard, IL 89(a) 92 91 N/A Edinburgh Festival, Brooklyn Park, MN 100 100 97 N/A Elmhurst City Center, Elmhurst, IL 66 62 100 N/A Fairview Heights Plaza, Fairview Heights, IL 78(a) 78 78 N/A Fashion Square, Skokie, IL 78(a) 81 100 88 Gateway Square, Hinsdale, IL 98 100 N/A N/A Goodyear, Montgomery, IL 77 28 77 77 Grand and Hunt Club, Gurnee, IL 100 100 100 100 Hartford Plaza, Naperville, IL 100 100 100 100 Hawthorn Village, Vernon Hills, IL 100 100 100 99 Hickory Creek Market Place, Frankfort, IL 100 65 N/A N/A
14 15
As of December 31, -------------------------------------------- 2000 1999 1998 1997 % % % % ---------- ----------- ---------- ---------- Properties High Point Center, Madison, WI 82(a) 92 90 N/A Hollywood Video, Hammond, IN 100 100 100 N/A Homewood Plaza, Homewood, IL 100 100 100 N/A Iroquois Center, Naperville, IL 75(a) 69 73 81 Joliet Commons, Joliet, IL 100 96 97 N/A Joliet Commons Ph II, Joliet, IL 100 N/A N/A N/A Lake Park Plaza, Michigan City, IN 72(a) 71 74 N/A Lansing Square, Lansing, IL 99(a) 98 98 90 Lincoln Park Place, Chicago, IL 100 60 60 60 Loehmann's Plaza, Brookfield, WI 82(a) 100 N/A N/A Mallard Crossing, Elk Grove Village, IL 30 97 97 95 Maple Grove Retail, Maple Grove, MN 91 100 N/A N/A Maple Park Place, Bolingbrook, IL 100 97 99 98 Maple Plaza, Downers Grove, IL 96 87 100 N/A Marketplace at Six Corners, Chicago, IL 100 100 100 N/A Mundelein Plaza, Mundelein, IL 97 96 100 100 Nantucket Square, Schaumburg, IL 98 100 100 96 Naper West, Naperville, IL 96 93 83 86 Niles Shopping Center, Niles, IL 100 87 100 60 Oak Forest Commons, Oak Forest, IL 100 97 100 N/A Oak Forest Commons Ph III, Oak Forest, IL 50 82 N/A N/A Oak Lawn Town Center, Oak Lawn, IL 100 100 N/A N/A Orland Greens, Orland Park, IL 94 97 100 N/A Orland Park Retail, Orland Park, IL 100 36 100 N/A Park Center Plaza, Tinley Park, IL 99 72 71 N/A Park Place Plaza, St. Louis Park, MN 100 100 N/A N/A Park St. Claire, Schaumburg, IL 100 100 100 100 Party City, Oakbrook Terrace, IL 100 100 100 100 Pine Tree Plaza, Janesville, WI 96(b) 93 N/A N/A Plymouth Collection, Plymouth, MN 100 100 N/A N/A Prairie Square, Sun Prairie, WI 87 83 90 N/A Prospect Heights, Prospect Heights, IL 69 25 92 83 Quarry Outlot, Hodgkins, IL 100 100 100 100 Quarry Retail, Minneapolis, MN 99 99 N/A N/A Randall Square, Geneva, IL 99 94 N/A N/A Regency Point, Lockport, IL 97(a) 98 97 97 Riverdale Commons, Coon Rapids, MN 100 99 N/A N/A Riverdale Commons Outlot, Coon Rapids, MN 100 N/A N/A N/A Riverplace Center, Noblesville, IN 94 94 100 N/A River Square Shopping Center, Naperville, IL 74 76 97 95 Rivertree Court, Vernon Hills, IL 100 99 99 99 Rose Naper Plaza East, Naperville, IL 100 N/A N/A N/A Rose Naper Plaza West, Naperville, IL 100 100 N/A N/A Rose Plaza, Elmwood Park, IL 100 100 100 N/A Salem Square, Countryside, IL 100 93 97 97 Schaumburg Plaza, Schaumburg, IL 93 93 93 N/A Schaumburg Promenade, Schaumburg, IL 100 100 N/A N/A
15 16
As of December 31, -------------------------------------------- 2000 1999 1998 1997 % % % % ---------- ----------- ---------- ---------- Properties Sears, Montgomery, IL 100 100 100 95 Sequoia Shopping Center, Milwaukee, WI 80(a) 93 100 93 Shingle Creek, Brooklyn Center, MN 83 73 N/A N/A Shoppes of Mill Creek, Palos Park, IL 94 97 98 N/A Shops at Coopers Grove, Country Club Hills, IL 20 100 100 N/A Shorecrest Plaza, Racine, WI 95 89 87 96 Six Corners, Chicago, IL 86(a) 89 82 90 Spring Hill Fashion Center, W. Dundee, IL 96 97 95 100 Springboro Plaza, Springboro, OH 100 100 100 N/A St. James Crossing, Westmont, IL 94 83 91 N/A Staples, Freeport, IL 100 100 100 N/A Stuart's Crossing, St. Charles, IL 86 100 N/A N/A Summit of Park Ridge, Park Ridge, IL 94 84 87 83 Terramere Plaza, Arlington Heights, IL 87 79 95 80 Two Rivers Plaza, Bolingbrook, IL 100 100 100 N/A United Audio Center, Schaumburg, IL 100 100 N/A N/A Walgreens, Decatur, IL 100 100 100 100 Walgreens, Woodstock, IL 100 100 100 N/A Wauconda Shopping Center, Wauconda, IL 92 92 100 N/A West River Crossing, Joliet, IL 97 87 N/A N/A Western & Howard, Chicago, IL 100 38 100 N/A Wilson Plaza, Batavia, IL 100 100 100 100 Winnetka Commons, New Hope, MN 72(a) 100 100 N/A Wisner/Milwaukee Plaza, Chicago, IL 100 100 100 N/A Woodfield Commons-East/West, Schaumburg, IL 100 95 89 N/A Woodfield Plaza, Schaumburg, IL 100 82 97 N/A Woodland Commons, Buffalo Grove, IL 97 97 N/A N/A Woodland Heights, Streamwood, IL 89 81 81 N/A Zany Brainy, Wheaton, IL 100 100 100 100
(a) The Company receives rent from tenants who have vacated but are still obligated under their lease terms which results in economic occupancy ranging from 81% to 100% at December 31, 2000 for each of these centers. (b) As part of the purchase of this property, the Company receives rent under a master lease agreement relating to 13,600 square feet which was vacant at the time of the purchase, which results in economic occupancy for this center of 99% at December 31, 2000. The master lease agreements are typically for periods ranging from one to two years from the purchase date or until the spaces are leased. GAAP requires that the Company treat these payments as a reduction to the purchase price of the properties upon receipt, rather than as rental income. The Company can re-lease the space that is subject to master lease. 16 17 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 2000. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION As of March 28, 2001, there were 18,820 stockholders of the Company's common stock. There is no established public trading market for the Company's common stock. DISTRIBUTIONS The Company declared distributions to Stockholders totaling $.90 and $.89 on an annual basis per weighted average share outstanding during the years ended December 31, 2000 and 1999, respectively. Of this amount, $.69 and $.66 is taxable as ordinary income for 2000 and 1999, respectively, and the remainder constitutes a return of capital for tax purposes. SALES OF UNREGISTERED SECURITIES In connection with employment agreements entered into in December 2000 between the Company and each of Norbert J. Treonis, Samuel A. Orticelli and Mark E. Zalatoris, the Company issued a total of 90,910, 27,273, and 27,273 restricted shares of its common stock to Messrs. Treonis, Orticelli and Zalatoris, respectively. These shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. Each of these individuals were officers of the Company at the time of issuance with access to the type of information that would otherwise have been provided to them by a registration statement and prospectus. In connection with the merger of Inland Real Estate Advisory Services, Inc. and Inland Commercial Property Management, Inc., the Company issued an aggregate of 6,181,818 shares of common stock to Inland Real Estate Investment Corporation and The Inland Property Management Group, Inc.. The shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. The Company believes that the purchasers are "sophisticated" and were provided with access to the type of information that would otherwise have been provided to them by a registration statement and prospectus. 17 18 ITEM 6. SELECTED FINANCIAL DATA INLAND REAL ESTATE CORPORATION (a Maryland corporation) For the years ended December 31, 2000, 1999, 1998, 1997 and 1996 (not covered by the Independent Auditors' Report)
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Total assets $1,002,893,982 982,281,972 787,608,547 333,590,131 104,508,686 Mortgages payable 467,766,173 440,740,296 288,982,470 106,589,710 30,838,233 Total income 150,891,834 123,787,569 73,302,278 29,421,585 6,327,734 Net income (loss) (a) (32,003,807) 30,171,901 24,085,871 8,647,221 2,452,221 Net income (loss) per common share, basic and diluted (b) (.54) .55 .60 .57 .55 Distributions declared 52,964,010 48,379,621 35,443,213 13,127,597 3,704,943 Distributions per common share (b) .90 .89 .88 .86 .82 Funds From Operations (b)(c) (7,196,547) 49,605,023 35,474,823 13,203,666 3,391,365 Adjusted Funds From Operations (b)(c) 61,578,902 49,605,023 35,474,823 13,203,666 3,391,365 Funds available for distribution (c) 59,534,329 49,271,464 35,698,975 13,141,242 3,680,824 Cash flows provided by (used in) operating activities 58,504,916 53,983,803 40,216,023 15,923,839 5,529,709 Cash flows provided by (used in) investing activities (54,297,104) (272,795,913) (341,668,453) (146,994,619) (68,976,841) Cash flows provided by (used in) financing activities (15,234,423) 115,179,751 373,363,545 173,724,632 71,199,936 Weighted average common stock shares outstanding, basic and diluted 59,138,837 54,603,088 40,359,796 15,225,983 4,494,620
The above selected financial data should be read in conjunction with the financial statements and related notes appearing elsewhere in this Annual Report. 18 19 (a) Net income (loss) for the year ended December 31, 2000 includes $68,775,449 of merger consideration costs which were a one-time expense for costs relating to the Merger. (b) The net income and distributions per share are based upon the weighted average number of common shares outstanding as of December 31, 2000. The $.90 per share distributions for the year ended December 31, 2000, represented 86% of the Company's "Adjusted Funds From Operations" and 89% of funds available for distribution for that period. See footnote (c) below for information regarding calculation of Funds From Operations. Distributions by the Company to the extent of its current and accumulated earnings and profits for federal income tax purposes are taxable to the recipient as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the recipient's basis in the shares to the extent thereof (return of capital), and thereafter as taxable gain. 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, 2000, $12,518,280 (or 23.64% of the $52,964,010 distributions declared and paid for 2000) represented a return of capital. The balance of the distribution constituted ordinary income. In order to maintain its qualification as a REIT, the Company must make annual distributions to stockholders of at least 95% (90% beginning January 1, 2001) of its "REIT taxable income," or approximately $38,184,238 for 2000. REIT taxable income does not include net capital gains. Under certain circumstances, the Company may be required to make distributions in excess of funds 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, 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, excluding gains (or losses) from 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 FFO provides a basis for comparing the performance and operations of the Company to those of other REITs. The calculation of FFO may vary from entity to entity since capitalization and expense policies tend to vary from entity to entity. Items which are capitalized do not impact FFO, whereas items that are expensed reduce FFO. Consequently, the presentation of FFO by the Company may not be comparable to other similarly titled measures presented by other REITs. FFO is not intended to be an alternative to "Net Income" as an indicator of the Company's performance nor to "Cash Flows from Operating Activities" as determined by GAAP as a measure of the Company's capacity to pay distributions. Reference is made to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for the Company's calculation of FFO and funds available for distribution. 19 20 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. On July 1, 2000, the Company became a self-administered real estate investment trust by completing its acquisition of Inland Real Estate Advisory Services, Inc., the Company's advisor (the "Advisor") and Inland Commercial Property Management, Inc., the Company's property manager (the "Manager"), through a merger in which two wholly owned subsidiaries of the Company were merged with and into the Advisor and the Manager, respectively, with the Advisor and the Manager the surviving entities (the "Merger"). As a result of the Merger, the Company issued to Inland Real Estate Investment Corporation, the sole shareholder of the Advisor ("IREIC") and The Inland Property Management Group, Inc., the sole shareholder of the Manager ("TIPMG"), an aggregate of 6,181,818 shares of the Company's common stock valued at $11 per share, or approximately 10% of the Company's common stock taking into account such issuance. The expense of these shares and additional costs relating to the Merger are reported as an operational expense on the Company's Consolidated Statements of Operations and are included in the Company's calculation of Funds From Operations. During November 2000, the Company restated its previously filed quarterly reports on Form 10-Q for the three months ended March 31, 2000 and for the six months ended June 30, 2000, as filed with the Securities and Exchange Commission on May 12, 2000 and August 11, 2000, respectively. The restatement was done to correct an error in the accrual calculation of reimbursements to the Company for real estate tax and common area maintenance expenses. In particular, "additional rental income" was revised for the three months ended March 31, 2000 and the three and six months ended June 30, 2000. The revision, after adjusting for minority interest, had the effect of lowering net income from $8,366,383 to $5,522,734, and decreasing net income per share from $.15 to $.10, for the three months ended March 31, 2000. The revision, after adjusting for minority interest, had the effect of lowering net income from $10,576,271 to $10,044,445 and from $18,942,654 to $15,567,179, and decreasing net income per share from $.19 to $.18 and from $.34 to $.28 for the three and six months ended June 30, 2000, respectively. The restatements had no effect on the results being reported for the year ended December 31, 2000. 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 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 Company on potential real estate purchases or temporary investment of uninvested capital, the Company 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 21 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents consists of cash and short-term investments. Cash and cash equivalents were $8,397,732 at December 31, 2000 and $19,424,343 at December 31, 1999. The decrease in total cash and cash equivalents from the year ended December 31, 1999 to the year ended December 31, 2000 results from receiving approximately $58,500,000 from operations, while using approximately $54,300,000 in investing activities and approximately $15,200,000 in financing activities. This decrease resulted primarily from the use of cash resources to purchase and upgrade investment properties, pay distributions, repurchase shares through the "Share Repurchase Program" and pay off debt. Partially offsetting the decrease in cash and cash equivalents was additional proceeds from the sale of shares received through the Company's Distribution Reinvestment Program ("DRP") and loan proceeds received from financing of previously unencumbered investment properties. The Company intends to use cash and cash equivalents to purchase additional investment properties, to pay distributions and for working capital requirements. The primary source of future cash for investing in properties will be from financings secured by unencumbered investment properties and amounts raised through the Company's DRP. As of December 31, 2000, the Company owned interests in 120 investment properties. These investment properties are currently generating sufficient cash flow to cover operating expenses of the Company plus pay distributions equal to $.92 per share on an annual basis. Distributions declared for the year ended December 31, 2000 were $52,964,010 or $.90 per weighted average common stock shares outstanding, of which $12,518,280 or $.21 per weighted average common stock shares outstanding represented a return of capital for federal income tax purposes. CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the year ended December 31, 2000 includes $68,775,449 of merger consideration costs which were a one-time expense for costs relating to the Merger. The merger consideration costs consist of $775,451 in cash expenditures related to legal and accounting services in connection with the Merger and $67,999,998 in a non-cash issuance of 6,181,818 shares of the Company's common stock with a value of $11.00 per share. Net cash provided by operating activities increased from $53,983,803 for the year ended December 31, 1999 to $58,504,916 for the year ended December 31, 2000. This increase is due primarily to the acquisition of additional investment properties and cash flows from existing investment properties resulting in increases in depreciation, accounts payable and other liabilities. This increase was partially offset by decreases in other assets, accrued real estate taxes, due to affiliates and prepaid rents and unearned income. As of December 31, 2000, the Company owned 120 investment properties as compared to 115 investment properties as of December 31, 1999. Net cash provided by operating activities increased from $40,216,023 for the year ended December 31, 1998 to $53,983,803 for the year ended December 31, 1999. This increase is due primarily to the increase in the number of investment properties owned by the Company. As of December 31, 1999, the Company owned 115 investment properties as compared to 85 investment properties as of December 31, 1998. CASH FLOWS FROM INVESTING ACTIVITIES The Company used $54,297,104 of cash in investing activities during the year ended December 31, 2000 as compared to $272,795,913 and $341,668,453 for the years ended December 31, 1999 and 1998, respectively. The primary reason for the decrease in cash used is due to a reduction in property acquisition activity. During the year ended December 31, 2000, the Company purchased five investment properties as compared to thirty and forty-one properties during the years ended December 31, 1999 and 1998, respectively. 21 22 CASH FLOWS FROM FINANCING ACTIVITIES For the year ended December 31, 2000, the Company used $15,234,423 of cash in financing activities as compared to generating $115,179,751 of net cash by financing activities for the year ended December 31, 1999. For the year ended December 31, 2000, the Company had proceeds from the DRP, net of remaining offering costs paid and shares repurchased, of $12,478,673 compared to $30,432,466 for the year ended December 31, 1999. The decrease is also due to an increase in distributions paid for the year ended December 31, 2000 of $54,367,630 compared to $48,773,272 for the year ended December 31, 1999 and a decrease in loan proceeds received for the year ended December 31, 2000 of $31,687,320 compared to $145,814,000 for the year ended December 31, 1999. This decrease was partially offset by a decrease in principal payments and payoffs made on debt for the year ended December 31, 2000 of $4,661,443 compared to $10,659,708 for the year ended December 31, 1999. For the year ended December 31, 1999, the Company had $115,179,751 of net cash provided by financing activities as compared to $373,363,545 of net cash provided by financing activities for the year ended December 31, 1998. The decrease is due primarily to a decrease in offering proceeds from year to year since the Company terminated its Offering on December 31, 1998 and aside from DRP proceeds, did not offer and sell securities during 1999. 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 $33,375,677 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. At December 31, 2000, mortgages payable outstanding were $467,766,173 with a weighted annual average interest rate of approximately 8.20% as compared to mortgages payable outstanding of $440,740,296 at December 31, 1999 with a weighted annual average interest rate of approximately 7.07%. See Note 8 of the Notes to Consolidated Financial Statements (Item 8 of the Annual Report) for a description of the terms of the mortgages payable. RESULTS OF OPERATIONS As a result of the Merger, the Company no longer pays advisory or property management fees but instead has hired an internal staff to perform these tasks. As a result, the Company has incurred additional corporate expenses relating to such things as payroll, office rents and various other general and administrative expenses. Therefore, the financial results for prior years are not comparable to the results for the year ended December 31, 2000. At December 31, 2000, the Company owned 24 single-user retail properties, 77 Neighborhood Retail Centers and 19 Community Centers. Rental and additional rental income increased to approximately $146,600,000 for the year ended December 31, 2000, as compared to approximately $118,900,000 and $67,800,000 for the years ended December 31, 1999 and 1998, respectively, due to the Company purchasing five, thirty and forty-one additional investment properties during the years ended December 31, 2000, 1999 and 1998, respectively. The purchase of additional investment properties also resulted in increases in net investment properties, property operating expenses to non-affiliates and depreciation. Leases on approximately 4% and 5% of the Company's rentable square feet expire during 2001 and 2002, respectively. 22 23 Eagle Food Stores, Inc., a tenant at six of the Company's investment properties at the beginning of 2000, filed for protection under Chapter 11 of the Federal bankruptcy code in February 2000. Of these six stores leased by this tenant, three remain open for business; one has a substitute tenant in place; and two closed in April 2000. On July 7, 2000, the tenant rejected its lease on the two closed stores. On February 12, 2001, the Company received a bankruptcy court-approved settlement from the tenant in the amount of $4,120,000 for the Company's claims for damages as a result of the two rejected leases. The Company is in the process of marketing these two spaces for replacement tenants and as a result of the settlement, does not expect this bankruptcy filing to have a material effect on the operations of the Company as a whole. Interest income is the result of cash and cash equivalents being invested in short-term investments until a property is purchased. Interest income decreased to $2,209,214 for the year ended December 31, 2000, as compared to $4,206,809 and $5,185,534 for the years ended December 31, 1999 and 1998, respectively, due to the use of cash resources to purchase and upgrade investment properties, pay distributions, repurchase shares through the Share Repurchase Program and pay off debt. Other income increased for the year ended December 31, 2000, as compared to the years ended December 31, 1999 and 1998. This increase is due to the Company receiving a full year of dividend income on its investment in securities for the year ended December 31, 2000, as compared to receiving only six months of dividend income for the year ended December 31, 1999. Since the Company began to purchase its investment in securities in July 1999, it has purchased a total of approximately $11,360,000, of which approximately $1,228,000 was sold as of December 31, 2000. Also included in other income for the year ended December 31, 2000 is a one-time lease termination fee of $500,000 received upon termination of a lease at one of the Company's investment properties. The Company has signed a lease for this space and has begun receiving rent from the new tenant. Professional services to Affiliates increased for the year ended December 31, 2000, as compared to the years ended December 31, 1999 and 1998, due to an increase in the number of investment properties and for legal and accounting services required in connection with the Merger. Professional services to non-affiliates decreased for the year ended December 31, 2000, as compared to the year ended December 31, 1999, due to a decrease in investment properties acquired and a decrease of services required in connection with the additional offerings. Professional services to non-affiliates increased for the year ended December 31, 1999, as compared to the year ended December 31, 1998, due to an increase in investment properties acquired and an increase in the number of stockholders. General and administrative expenses to Affiliates decreased for the year December 31, 2000, as compared to the year ended December 31, 1999, due to a reclassification of certain expenses from expenses to Affiliates to expense to non-affiliates, beginning on July 1, 2000, the effective date of the Merger. The increase in general and administrative expenses to Affiliates for the year ended December 31, 1999, as compared to the year ended December 31, 1998, was due primarily to the an increased number of investment properties under management. General and administrative expenses to non-affiliates increased for the year ended December 31, 2000, as compared to the year ended December 31, 1999, due to a reclassification of certain expenses from expenses to Affiliates to expenses to non-affiliates beginning on July 1, 2000. In addition, as a result of the Merger, the Company is now incurring additional general and administrative expenses because it is now self-administered. The increase in general and administrative expenses to non-affiliates for the year December 31, 1999, as compared to the year ended December 31, 1998, is due to an increase in investment properties acquired and an increase in the number of stockholders. Prior to the Merger, the Company paid an affiliate Advisor Asset Management Fees of $2,413,500 for the six months ended June 30, 2000 and $4,193,068 and $965,108 for the years ended December 31, 1999 and 1998, respectively. As of July 1, 2000, the Advisor became a subsidiary of the Company and, accordingly, no Advisor Asset Management Fees are accrued in the accompanying consolidated financial statements. 23 24 Bad debt expense increased for the year ended December 31, 2000, as compared to the year ended December 31, 1999 and 1998; due primarily to the increase in the allowance for doubtful accounts for the year ended December 31, 2000. The allowance was increased due to the additional number of investment properties and tenants with outstanding balances due for a period greater than ninety days. Management of the Company does not believe that amounts reserved against will be uncollectible, but merely reflect timing issues in collection of account receivable balances relating to real estate tax and common area maintenance expenses of the larger national tenants. For the year ended December 31, 2000, property operating expenses to Affiliates were $3,044,834, as compared to $4,869,514 for the year ended December 31, 1999. This decrease is due to the fact that no property management fees were incurred or paid by the Company after July 1, 2000, the effective date of the Merger. As of July 1, 2000, the Manager became a subsidiary of the Company and, accordingly, the net effect of these fees on a consolidated basis is zero. For the year ended December 31, 1999, property operating expenses to Affiliates were $4,869,514, as compared to $2,779,053 for the year ended December 31, 1998. This increase is due to the management of an increased number of investment properties. The increase in mortgage interest to non-affiliates for the year ended December 31, 2000, as compared to the years ended December 31, 1999 and 1998, is partially due to an increase in mortgages payable to approximately $467,766,000 from approximately $440,740,000 and $289,000,000, respectively. This increase is also due to an increase in the interest rates charged on the variable rate debt from approximately 7.35% for the year ended December 31, 1999, as compared to approximately 8.20% for the year ended December 31, 2000. Acquisition cost expense to Affiliates and non-Affiliates decreased for the year ended December 31, 2000, as compared to the year ended December 31, 1999, due to the decrease in investment properties being considered for acquisition by the Company. The increase in acquisition cost expenses paid to Affiliates and non-affiliates for the year ended December 31, 1999, as compared to the year ended December 31, 1998, is due to the increased number of investment properties considered for acquisition by the Company and not purchased. 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, excluding gains (or losses) from 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 FFO provides a basis for comparing the performance and operations of the Company to those of other REITs. The calculation of FFO may vary from entity to entity since capitalization and expense policies tend to vary from entity to entity. Items which are capitalized do not impact FFO, whereas items that are expensed reduce FFO. Consequently, the presentation of FFO by the Company may not be comparable to other similarly titled measures presented by other REITs. FFO is not intended to be an alternative to "Net Income" as an indicator of the Company's performance nor to "Cash Flows from Operating Activities" as determined by GAAP as a measure of the Company's capacity to pay distributions. FFO and funds available for distribution are calculated as follows: 24 25 FUNDS FROM OPERATIONS
Year ended December 31, ---------------------------------------------- 2000 1999 1998 ------------- ------------ ------------ Net income (loss) (32,003,807) 30,171,901 24,085,871 Depreciation, net of minority interest 24,807,260 19,433,122 11,388,952 ------------- ------------ ------------ Funds From Operations (1) (7,196,547) 49,605,023 35,474,823 Merger consideration costs 68,775,449 - - ------------- ------------ ------------ Adjusted Funds From Operations (2) 61,578,902 49,605,023 35,474,823 Principal amortization of debt, net of minority interest (71,402) (87,752) (74,454) Deferred rent receivable, net of minority interest (3) (3,351,414) (2,327,251) (2,120,951) Acquisition cost expenses (4) - - 437,783 Rental income received under master lease agreements, net of minority interest (5) 1,378,243 2,081,444 1,981,774 ------------- ------------ ------------ Funds available for distribution $ 59,534,329 49,271,464 35,698,975 ============ ============ ============ Funds From Operations per common share, basic and diluted $ (.12) 0.91 0.88 ============= ============ ============ Adjusted Funds From Operations per common share, basic and diluted $ 1.04 0.91 0.88 ============= ============ ============ Weighted average common stock shares outstanding, basic and diluted 59,138,837 54,603,088 40,359,796 ============= ============ ============
(1) Funds From Operations ("FFO") does not represent cash generated from 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) Adjusted Funds From Operations is FFO adjusted for merger consideration costs. Management believes that this adjustment to FFO will enhance the reader's comprehension of the impact of the Merger to the Company. Net income (loss) for the year ended December 31, 2000 includes $68,775,449 of merger consideration costs, which were a one-time expense for costs relating to the Merger. The merger consideration costs consist of $775,451 in cash expenditures related to legal and accounting services in connection with the Merger and $67,999,998 in a non-cash issuance of 6,181,818 shares of the Company's common stock with a value of $11.00 per share. (3) 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. (4) Acquisition cost expenses include costs and expenses relating to the acquisition of investment 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 years ended December 31, 2000 and 1999, due to the termination of the Company's Offering on December 31, 1998. (5) In connection with the purchase of several investment properties, the Company received payments under master lease agreements covering spaces vacant at the time of acquisition of those investment properties. The payments were made to the Company for periods ranging from one to two years from the date of acquisition of the property or until the spaces wee leased. As of December 31, 2000, the Company had one property subject to a master lease agreement. GAAP requires that the Company treat these payments as a reduction to the purchase price of the investment properties upon receipt, rather than as rental income. 25 26 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. As of December 31, 2000, the Company had no derivative instruments and did not engage in any hedging activities. 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, such as percentage/excess rent until the specified target that triggers the contingent rental income is achieved. The Company has recorded percentage rental revenue in accordance with the SAB for all years presented. INFLATION Inflation is likely to eventually increase rental income as existing leases expire and new leases are negotiated. The Company's rental income and operating expenses for its 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. SUBSEQUENT EVENTS In January 2001, the Company paid a distribution of $5,063,089 to its Stockholders. On January 1, 2001, the Company converted approximately $56,000,000 of variable rate debt to a fixed rate basis ranging from 6.8% to 7.4%. These fixed rates are effective upon expiration of the current 30-day LIBOR contract maturing December 31, 2000. On January 1, 2001, the Company issued to Norbert J. Treonis, Samuel A. Orticelli and Mark E. Zalatoris a total of 90,910, 27,273 and 27,273 shares of the Company's common stock, respectively, in connection with employment agreements dated December 14, 2000. On January 30, 2001, the Company obtained a mortgage loan secured by three of its previously unencumbered investment properties, Stuart's Crossing, St. Charles, Illinois, Pine Tree Plaza, Janesville, Wisconsin, and Shoppes of Mill Creek, Palos Park, Illinois. The loan amounts were $6,050,000, $9,890,000 and $5,660,000, respectively. These mortgage loans have a term of five years and require monthly payments of interest only at the annual rate of 7.375%. The Company paid loan fees of approximately $200,000 in connection with these mortgage loans, which will be amortized over five years, the loan term. On January 31, 2001, based on the third amendment to the LLC agreement of Inland Ryan, LLC, the Company caused Inland Ryan, LLC to distribute $2,097,609 in cash to Ryan CL, LLC to reimburse for certain pre-formation expenditures incurred by Ryan CL. Upon payment of this distribution, the LLC units owned by Ryan CL, LLC were reduced from approximately 4,164,000 to 2,066,000 and the LLC units owned by the Company increased from approximately 88,232,000 to 90,330,000. The third amendment to the LLC agreement decreases Ryan CL, LLC interest in Inland Ryan, LLC to approximately 2% and increases the Company's interest in Inland Ryan, LLC to approximately 77%. The remaining non-managing members' interests, aggregating 21%, were not affected by this amendment. 26 27 On February 1, 2001, the Company and the non-managing members of Inland Ryan, LLC entered into a fourth amendment to the LLC agreement. This amendment reflects the right of Ryan MPLS, LLC to receive an earnout amount of approximately $1,075,000. This increase in capital contribution to Inland Ryan, LLC by Ryan MPLS, LLC of approximately $1,075,000 increases their interest in Inland Ryan, LLC to approximately 16% and decreases the Company's interest in Inland Ryan, LLC to approximately 76.5%. On February 1, 2001, the Company entered into a joint venture with Tri-Land Properties, Inc. for the acquisition and redevelopment of the Century Consumer Mall in Merrillville, Indiana. The property is located at the southeast corner of the intersection of U.S. Route 30 and Broadway in Merrillville, west of Interstate 65. The property has two anchor tenants, including a 148,420 square foot Montgomery Wards store at the north end of the property and a 139,451 square foot Burlington Coat Factory store on the south. In between is 105,000 square feet of enclosed mall space. The phased redevelopment of the property calls for the demolition of the existing enclosed mall space, construction of 26,000 square feet of new retail space along Route 30, construction of 30,000 square feet of new retail space on the western portion of the property, and construction of 104,700 square feet of new open-air retail space between the existing anchors. The Montgomery Wards store is scheduled to close; the future use of that part of the property has not been determined. A wholly owned subsidiary of the Company is a 50% venture partner with Tri-Land Properties, Inc. in an LLC that was formed to acquire and redevelop the property. Each partner's initial equity contribution was $500,000. In addition, the Company has committed to lend the LLC joint venture, over the five year loan term, up to an additional $17.8 million to fund the initial acquisition and subsequent redevelopment. The loan terms include a 9% initial note rate paid monthly on average outstanding balances and a term of five years. The Company will fund such loan amounts with its available cash balances. In February 2001, Plitt Theaters, Inc. and its parent corporation, Loews Cineplex Entertainment Corporation, a tenant occupying 40,000 square feet at one of the Company's investment properties, filed for Chapter 11 bankruptcy protection under the Federal bankruptcy laws. On March 1, 2001, Plitt Theaters, Inc. rejected its lease. Management is in the process of marketing this space for a replacement tenant and does not expect this bankruptcy filing to have a material adverse effect on the operations or financial condition of the Company as a whole. In February 2001, Crown Books Corporation, a tenant occupying a total of 25,013 square feet at two of the Company's investment properties, filed for Chapter 11 bankruptcy protection under the Federal bankruptcy laws. Management does not expect this bankruptcy filing to have a material adverse effect on the operations or financial condition of the Company as a whole. On February 12, 2001, the Company received a bankruptcy court-approved settlement from Eagle Food Stores, Inc. in the amount of $4,120,000 for the Company's claims for damages as a result of the two rejected leases. On March 9, 2001, the Company's president, Norbert J. Treonis, resigned citing personal reasons. Robert D. Parks, the Company's chairman for the past six years, reassumed the duties of president and chief executive officer. Mr. Parks previously served in these positions from October 1994 through June 2000. Mr. Parks, along with Mr. G. Joseph Cosenza, also a member of the Company's board of directors for the past six years, was named to the Company's management committee. Mr. Parks will not receive any additional compensation for serving as president and chief executive officer. The board did not name a replacement to fill the vacancy on the board created by Mr. Treonis' resignation. 27 28 In connection with Mr. Treonis' resignation, the Company and Mr. Treonis entered into a "Separation Agreement." Under this agreement, the Company paid Mr. Treonis $57,451.93 (which after withholding taxes, nets to $34,801.92). The Company's board of directors had raised questions regarding an employment agreement signed by Mr. Treonis in December 2000. This agreement purportedly replaced a prior employment agreement signed by Mr. Treonis in July 2000. As part of the Separation Agreement, Mr. Treonis canceled and assigned to the Company any rights he may have had to shares of the Company's common stock, which were issued under the December agreement. The Separation Agreement contains mutual releases by Mr. Treonis and the Company of all claims arising from or relating to the signing of the December agreement. On March 21, 2001, the board of directors approved the purchase of Gurnee Town Center, a 179,855 square foot, newly constructed shopping center on Grand Avenue located in Gurnee, Illinois. The projected closing date is May 1, 2001 with an estimated purchase price of $31,500,000. The Company anticipates the purchase price to be funded from a combination of cash and acquisition indebtedness. INVESTMENT CONSIDERATIONS COMPETITION FOR TENANTS The Company competes with a number of properties that are similar in size to its properties. Some of these properties are newer or better located than the Company's investment properties. Further, the Company's competitors may have greater resources, which could allow them to reduce rents to a level that is not profitable for the Company. The Company may be required to spend money upgrading or renovating investment properties to make them attractive to both existing and potential tenants thus increasing expenses and reducing cash resources. The Company's investment properties are located within a 400-mile radius of Oak Brook, Illinois, a suburb of Chicago. Hence, the Company's results are affected by economic conditions in this region. This region has experienced economic downturns in the past and will likely experience downturns in the future. Layoffs or downsizing, industry slowdowns, changing demographics, increases in the supply of property or reduced demand may decrease the Company's revenues or increase operating expenses or both. LEASES ON APPROXIMATELY 4% OF THE COMPANY'S RENTABLE SQUARE FEET EXPIRE DURING 2001 AND 7% OF RENTABLE SQUARE FOOTAGE WAS VACANT AS OF DECEMBER 31, 2000 As leases expire, the Company may not be able to renew or re-lease space at rates comparable to or better than the rates contained in the expiring leases. Leases on approximately 4% of rentable square feet will expire prior to December 31, 2001. If the Company fails to renew or re-lease space at rates that are at least comparable to the rates on expiring leases, revenues may decline. Further, the Company may have to spend significant sums of money to renew or re-lease space covered by expiring leases. TENANTS MAY NOT PAY THEIR RENT OR MAY DECLARE BANKRUPTCY The Company derives substantially all of its revenue from leasing space at its investment properties. Thus, the Company's results may be negatively affected by the failure of tenants to pay rent when due. The Company may experience substantial delays and incur significant expenses enforcing rights against tenants who do not pay their rent. A tenant may also seek the protection of the bankruptcy laws and delay making rental payments or actually reject or terminate its lease under those laws. Even if a tenant did not seek the protection of the bankruptcy laws, the tenant may from time to time experience a downturn in its business which may weaken its financial condition and its ability to make rental payments when due. 28 29 THE COMPANY MAY NOT BE ABLE TO QUICKLY VARY ITS PORTFOLIO Investments in real estate are relatively illiquid. Except in certain circumstances, in order to continue qualifying as a REIT, the Company is subject to rules and regulations that limit the ability to sell investment properties within a short period of time. THE COMPANY IS REQUIRED TO COMPLY WITH VARIOUS LAWS AND REGULATIONS As an owner of property, the Company is required to comply with a variety of federal, state and local laws. Complying with these laws and regulations may increase operating expenses and reduce profits. For example, the Company must comply with laws and regulations that impose liability on a property owner for the costs of removing or remediating certain hazardous materials released on a property. The Company is subject to these laws even if it is not aware of, or responsible for, releasing these materials. These law or regulations may also restrict the way that the Company can use a property or the type of business which may be operated on the property. Further, if the Company fails to comply with these laws or regulations by, for example, failing to properly remediate a release of hazardous material, it may not be able to sell the affected property or borrow money using the property as collateral for a loan. The Company may also be required to pay money to individuals who are injured due to the presence of hazardous materials on its property. Although the Company is not aware of any hazardous materials at its investment properties, these materials may exist and the cost of removing or remediating them may be material and could adversely impact the value of the property affected. The Company may also be required to pay the cost of removing or remediating hazardous materials from disposal or treatment facility to which we may have shipped hazardous or toxic substances even if it never owned or operated the disposal or treatment facility. The Company's investment properties must also comply with the Americans with Disabilities Act. This act establishes certain standards related to access to and use of properties by disabled persons. The Company may be required, for example, to remove any barriers to access. If the Company fails to comply, the U.S. government may fine it or require it to pay damages to a disabled person. Complying with these requirements may increase expenses and changes in these requirements may result in unexpected expenses. THE COMPANY'S OBJECTIVES MAY CONFLICT WITH THOSE OF ITS JOINT VENTURE PARTNERS The Company owns nine investment properties, representing approximately 949,000 rentable square feet, through Inland Ryan, LLC, a joint venture with a third party. Investments in joint ventures which own properties may involve risks that are not otherwise present for wholly owned properties. For example, a joint venture partner may file for bankruptcy protection or may have economic or business interests or goals which are inconsistent with the Company's goals or interests. Further, although the Company owns a controlling interest in this joint venture and have authority over major decisions such as the sale or refinancing of investment properties, the Company may owe fiduciary duties to the joint venture partner or the joint venture itself that may cause it to take or refrain from taking actions that it otherwise would if it owned the investment property outright. THE COMPANY MAY NOT HAVE ENOUGH INSURANCE The Company carries comprehensive liability, fire, flood, earthquake, extended coverage and rental loss policies that insure it against losses with policy specifications and insurance limits that the Company believes are reasonable. There are certain types of losses that we may decide not to insure against since the cost of insuring is not economical. The Company may suffer losses that exceed its insurance coverage. Further, inflation, changes in building codes and ordinances or other factors such as environmental laws may make it too expensive to repair or replace a property that has been damaged or destroyed, even if covered by insurance. 29 30 PROPERTY TAXES MAY INCREASE The Company is required to pay taxes based on the assessed value of its investment properties determined by various taxing authorities such as state or local governments. These taxing authorities may increase the tax rate imposed on a property or may reassess property value, either of which would increase operating expenses. THE COMPANY OFTEN NEEDS TO BORROW MONEY TO FINANCE ITS BUSINESS The Company's ability to internally fund capital needs is limited since it must distribute at least 95% (90% effective January 1, 2001) of its net taxable income (excluding net capital gains) to stockholders to qualify as a REIT. Consequently, the Company may borrow money to fund operating or capital needs or to satisfy the distribution requirements. The governing documents limit the amount of money that the Company may borrow to 300% of the value of its net assets. Borrowing money to fund operating or capital needs exposes the Company to various risks. For example, the investment properties may not generate enough cash to pay the principal and interest obligations on loans or the Company may violate a loan covenant that results in the lender accelerating the maturity date of a loan. As of December 31, 2000, we owed a total of approximately $467,700,000, secured by mortgages on certain investment properties. If the Company fails to make timely payments on loans, including those cases where a lender has accelerated the maturity date due to a violation of a loan covenant, the lenders could foreclose on the investment properties securing their loans and the Company could lose its entire investment in those properties. Once a loan becomes due, the Company must either pay the remaining balance or borrow additional money to pay off the maturing loan. The Company may not, however, be able to obtain a new loan, or the terms of the new loan, such as the interest rate or payment schedule, may not be as favorable as the terms of the maturing loan. Thus, the Company may be forced to sell a property at an unfavorable price to pay off the maturing loan or agree to less favorable loan terms. A total of approximately $19,700,000 and $233,000 of the Company's indebtedness matures on or before December 31, 2001 and 2002, respectively. As of December 31, 2000, the Company owed approximately $120,000,000 on indebtedness that bore interest at variable rates. The Company may borrow additional amounts that bear interest at variable rates. If interest rates increase, the amount of interest that the Company would be required to pay on these borrowings will also increase. THIRD PARTIES MAY BE DISCOURAGED FROM MAKING ACQUISITION OR OTHER PROPOSALS THAT MAY BE IN STOCKHOLDERS' BEST INTERESTS Under the Company's governing documents, no single person or group of persons (an entity is considered a person) may own more that 9.8% of our outstanding shares of common stock (unless permitted by the board). These provisions may prevent or discourage a third party from making a tender offer of other business combination proposal such as a merger, even if such a proposal would be in the best interest of the stockholders. THE COMPANY MAY FAIL TO QUALIFY AS A REIT If the Company fails to qualify as a REIT, it would not be allowed to deduct amounts distributed to its stockholders in computing taxable income and would incur substantially greater expenses for taxes and have less money available to distribute. The Company would also be subject to federal income tax at regular corporate rates as well as potentially the alternative minimum tax. Unless the Company satisfied some exception, it could not elect to be taxed as a REIT for the four taxable years following the year during which the Company was disqualified. The Company may fail to qualify as a REIT if, among other things: - less than 75% of the value of its total assets consists of real estate assets, cash and government securities at the close of each fiscal quarter; 30 31 - more than 5% of the value of its assets consists of securities of any one issuer or the Company holds more than 10% of the outstanding voting securities (subsequent to January 1, 2001, 10% of the value of the securities) of any one issuer at the close of each fiscal quarter; - less than 75% of its gross income is generated from rents from real property, interest on obligations secured by mortgages, gain from the sale of property, and certain other property-related revenue sources; or - it fails to distribute at least 95% (90% effective January 1, 2001) of "REIT taxable income" to stockholders. ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate changes primarily as a result of the fact that some of the Company's long-term debt consists of variable interest rate loans. The Company seeks to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs by closely monitoring its variable rate debt converting such debt to fixed rates when it deems such conversion advantageous. The Company's interest rate risk is monitored using a variety of techniques, including periodically evaluating fixed interest rate quotes on all variable rate debt and the costs associated with such conversion. Also, existing fixed and variable rate loans which are scheduled to mature in the next year or two are evaluated for possible early refinancing and or extension due to consideration given to current interest rates. The table below presents the principal amount of the debt maturing each year through December 31, 2005 and thereafter, monthly annual amortization of principal and weighted average interest rates for the average debt outstanding in each specified period.
2001 2002 2003 2004 2005 Thereafter ------------ ------- ---------- ----------- ---------- ----------- Fixed rate debt $ 19,726,314 233,000 31,550,014 110,429,253 73,224,129 112,552,143 Weighted average interest rate 6.99% 6.96% 6.96% 6.93% 6.76% 4.56% Variable rate debt - - - 88,364,000 31,687,320 - Weighted average interest rate 8.20% 8.20% 8.20% 8.20% 8.18% N/A
The table above reflects indebtedness outstanding as of December 31, 2000, and does not reflect indebtedness incurred after that date. The Company's ultimate exposure to interest rate fluctuations depends on the amount of indebtedness that bears interest at variable rates, the time at which the interest rate is adjusted, the amount of the adjustment, the Company's ability to prepay or refinance variable rate indebtedness and hedging strategies used to reduce the impact of any increases in 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 $116,578,000 of variable rate debt and $323,964,000 of fixed rate debt. 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. Approximately $120,051,000, or 26% of the Company's mortgages payable at December 31, 2000, have variable interest rates averaging 8.20%. As of the filing of this report, these variable interest rates are at approximately 6.5%. On January 1, 2001, the Company converted approximately $56,000,000 of variable rate debt to a fixed rate basis ranging from 6.8% to 7.4%. An increase in variable interest rates charged on mortgages payable containing variable interest rate terms, constitutes a market risk. 31 32 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INLAND REAL ESTATE CORPORATION (a Maryland corporation) Index Page Independent Auditors' Report 33 Financial Statements: Consolidated Balance Sheets, December 31, 2000 and 1999 34 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 36 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998 37 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 38 Notes to Consolidated Financial Statements 40 Real Estate and Accumulated Depreciation (Schedule III) 55 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. 32 33 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Inland Real Estate Corporation as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 26, 2001, except as to Note 13, which is as of March 21, 2001 33 34 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Consolidated Balance Sheets December 31, 2000 and 1999 Assets
2000 1999 -------------- ------------ Investment properties (Note 5): Land $ 283,182,798 271,905,942 Construction in progress (Note 9) 1,300,592 1,699,356 Building and improvements 709,203,272 671,201,002 -------------- ------------ 993,686,662 944,806,300 Less accumulated depreciation 63,414,018 37,424,871 -------------- ------------ Net investment properties 930,272,644 907,381,429 -------------- ------------ Cash and cash equivalents including amounts held by property manager 8,397,732 19,424,343 Investment in securities (net of allowance for Unrealized loss of $646,568 and $2,088,633 at December 31, 2000 and 1999, respectively) (Note 1) 9,484,741 8,570,656 Investment in marketable securities 260,000 260,000 Restricted cash (Notes 9 and 12) 7,685,266 15,340,902 Accounts and rents receivable (net of allowance for doubtful accounts of approximately $1,654,000 and $1,064,000 at December 31, 2000 and 1999, respectively) (Note 6) 28,183,934 19,794,687 Mortgage receivable (Note 7) 13,313,976 6,495,541 Deposits and other assets 736,271 358,986 Leasing fees (net of accumulated amortization of $175,313 and $39,031 at December 31, 2000 and 1999, respectively) (Note 1) 649,548 360,486 Loan fees (net of accumulated amortization of $1,785,902 and $1,029,487 at December 31, 2000 and 1999, respectively) (Note 1) 3,909,870 4,294,942 -------------- ------------ Total assets $1,002,893,982 982,281,972 ============== ============
See accompanying notes to consolidated financial statements. 34 35 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Consolidated Balance Sheets (continued) December 31, 2000 and 1999 Liabilities and Stockholders' Equity
2000 1999 --------------- ------------ Liabilities: Accounts payable $ 3,015,787 384,665 Accrued interest payable to Affiliate (Note 3) - 4,468 Accrued interest payable to non-affiliates 2,177,703 1,786,331 Accrued real estate taxes 19,951,154 18,829,084 Distributions payable (Note 13) 5,063,089 4,374,462 Security deposits 1,929,933 1,976,082 Mortgages payable (Note 8) 467,766,173 440,740,296 Prepaid rents and unearned income 1,102,831 1,536,008 Other liabilities (Notes 5) 2,174,279 8,525,986 Due to Affiliates (Note 3) - 1,517,775 --------------- ------------ Total liabilities 503,180,949 479,675,157 --------------- ------------ Minority interest 27,265,989 27,112,690 --------------- ------------ Stockholders' Equity (Note 3): Preferred stock, $.01 par value, 6,000,000 Shares authorized; none issued and Outstanding - - Common stock, $.01 par value, 100,000,000 Shares authorized; 62,635,344 and 55,398,888 issued and outstanding at December 31, 2000 and 1999, respectively 626,353 553,988 Additional paid-in-capital (net of offering costs of $58,816,092 at December 31, 2000 and 1999, respectively, of which $52,218,524 was paid to Affiliates) 592,973,349 512,567,043 Accumulated distributions in excess of net income (120,506,090) (35,538,273) Accumulated other comprehensive loss (646,568) (2,088,633) --------------- ------------ Total stockholders' equity 472,447,044 475,494,125 --------------- ------------ Commitments and contingencies (Notes 6, 8, 9 and 12) Total liabilities and stockholders' equity $ 1,002,893,982 982,281,972 =============== ============
See accompanying notes to consolidated financial statements. 35 36 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Consolidated Statements of Operations For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998 --------------- ------------- ------------ Income: Rental income (Notes 1 and 6) $ 105,159,473 85,951,584 51,133,774 Additional rental income 41,454,690 32,952,348 16,679,388 Interest income 2,209,214 4,206,809 5,185,534 Other income 2,068,457 676,828 303,582 --------------- ------------- ------------ 150,891,834 123,787,569 73,302,278 --------------- ------------- ------------ Expenses: Professional services to Affiliates 130,974 126,302 83,203 Professional services to non-affiliates 359,710 644,643 357,142 Merger consideration costs (Note 1) 68,775,449 - - General and administrative expenses to Affiliates 230,894 625,937 330,651 General and administrative expenses to non-affiliates 2,362,522 1,027,660 611,952 Bad debt expense 1,458,604 1,300,550 200,000 Advisor asset management fee 2,413,500 4,193,068 965,108 Property operating expenses to Affiliates 3,044,834 4,869,514 2,779,053 Property operating expenses to non-affiliates 43,223,189 34,132,511 18,238,307 Mortgage interest to Affiliates 26,642 54,114 55,154 Mortgage interest to non-affiliates 33,655,464 25,599,610 13,366,445 Depreciation 25,989,147 20,262,873 11,496,515 Amortization 229,816 98,396 166,635 Acquisition cost expenses to Affiliates 137,729 380,606 236,380 Acquisition cost expenses to non-affiliates (9,578) 185,217 201,403 --------------- ------------- ------------ 182,028,896 93,501,001 49,087,948 --------------- ------------- ------------ Income (loss) before minority interest (31,137,062) 30,286,568 24,214,330 Minority interest (866,745) (114,667) (128,459) --------------- ------------- ------------ Net income (loss) (32,003,807) 30,171,901 24,085,871 Other comprehensive income (loss): Unrealized holding income (loss) on investment securities 1,442,065 (2,088,633) - --------------- ------------- ------------ Comprehensive income (loss) $ (30,561,742) 28,083,268 24,085,871 =============== ============= ============ Net income (loss) per common share, basic and diluted $ (.54) .55 .60 =============== ============= ============ Weighted average common stock shares outstanding, basic and diluted 59,138,837 54,603,088 40,359,796 =============== ============= ============
See accompanying notes to consolidated financial statements 36 37 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Consolidated Statements of Stockholders' Equity For the years ended December 31, 2000, 1999 and 1998
Accumulated Accumulated Additional Distributions Other Common Paid-in in excess of Comprehensive Stock Capital Net Income Income (loss) Total ---------- ------------ -------------- ------------ ------------- Balance January 1, 1998 $ 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 $1,279,718) 34,135 34,995,429 - - 35,029,564 Treasury Stock (4,092) (3,699,480) - - (3,703,572) ---------- ------------ --------------- ------------- -------------- Balance December 31, 1999 553,988 512,567,043 (35,538,273) (2,088,633) 475,494,125 Net loss - - (32,003,807) - (32,003,807) Other comprehensive income - - - 1,442,065 1,442,065 Distributions declared ($.90 per weighted average common shares outstanding) (52,964,010) (52,964,010) Proceeds from DRP 21,142 22,072,818 22,093,960 Shares issued as a result of Merger 61,818 67,938,180 67,999,998 Treasury Stock (10,595) (9,604,692) (9,615,287) ---------- ------------ --------------- ------------- -------------- Balance December 31, 2000 $ 626,353 592,973,349 (120,506,090) (646,568) 472,447,044 ========== ============ =============== ============= ==============
See accompanying notes to consolidated financial statements. 37 38 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Consolidated Statements of Cash Flows For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998 --------------- -------------- ------------- Cash flows from operating activities: Net income (loss) $ (32,003,807) 30,171,901 24,085,871 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Merger consideration costs 67,999,998 - - Depreciation 25,989,147 20,262,873 11,496,515 Amortization 229,816 98,396 166,635 Minority interest 866,745 114,667 128,459 Rental income under master lease agreements 1,378,872 2,185,830 1,981,774 Straight line rental income (3,557,848) (2,490,459) (2,120,951) Allowance for doubtful accounts 589,816 864,256 200,000 Interest on unamortized loan fees 686,057 593,961 103,855 Changes in assets and liabilities: Accounts and rents receivable (5,421,215) (5,447,522) (5,873,368) Other assets (400,461) 2,495,850 (848,935) Accounts payable 2,631,122 (532,818) 98,201 Accrued interest payable 386,904 134,907 1,090,430 Accrued real estate taxes 1,122,070 4,444,850 7,352,502 Security deposits (46,149) 415,062 806,661 Other liabilities 4,801 (1,900,000) 1,900,000 Due to Affiliates (1,517,775) 1,484,850 (304,900) Prepaid rents and unearned income (433,177) 1,087,199 (46,726) --------------- -------------- ------------- Net cash provided by operating activities 58,504,916 53,983,803 40,216,023 --------------- -------------- ------------- Cash flows from investing activities: Restricted cash 7,655,636 272,295 (13,539,398) Escrows held for others (6,356,508) 5,217,231 2,815,639 Purchase of investment in securities (699,968) (10,659,289) - Sale of investment in securities 1,227,948 - - Purchase of marketable securities - (260,000) - Additions to investment properties (5,488,050) (5,893,566) (2,514,122) Purchase of investment properties (38,626,870) (255,226,283) (329,118,654) Purchase of minority interest units (5,164,277) - - Mortgage receivable (6,818,435) (6,495,541) - Construction in progress 398,764 (468,908) (1,230,448) Leasing fees (425,344) (399,517) - Proceeds from sale of land - 1,117,665 - Deposits on investment properties - - 1,918,530 --------------- -------------- ------------- Net cash used in investing activities (54,297,104) (272,795,913) (341,668,453) --------------- -------------- -------------
See accompanying notes to consolidated financial statements. 38 39 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Consolidated Statements of Cash Flows (continued) For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998 -------------- ------------- ------------- Cash flows from financing activities: Proceeds from offering, including DRP $ 22,093,960 36,309,282 291,417,071 Repurchase of Shares (9,615,287) (3,703,572) (1,317,455) Payments of offering costs - (2,173,244) (28,881,991) Loan proceeds 31,687,320 145,814,000 166,352,000 Loan fees (371,343) (1,633,735) (2,701,644) Distributions paid (54,367,630) (48,773,272) (33,454,118) Payoff of debt (4,196,898) - - Principal payments of debt (464,545) (10,659,708) (18,041,255) Payment of deferred organization costs - - (9,063) -------------- ------------- ------------- Net cash provided by (used in) financing activities (15,234,423) 115,179,751 373,363,545 -------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents (11,026,611) (103,632,359) 71,911,115 -------------- ------------- ------------- Cash and cash equivalents at beginning of year 19,424,343 123,056,702 51,145,587 -------------- ------------- ------------- Cash and cash equivalents at end of year $ 8,397,732 19,424,343 123,056,702 ============== ============= =============
Supplemental schedule of noncash investing and financing activities:
2000 1999 1998 -------------- --------------- -------------- Purchase of investment properties $ (45,169,948) (294,537,006) (368,364,949) Assumption of mortgage debt - 16,603,534 34,082,015 Minority interest 6,543,078 22,707,189 5,164,280 -------------- --------------- -------------- $ (38,626,870) (255,226,283) (329,118,654) ============== =============== ============== Distributions payable $ 5,063,089 4,374,462 3,844,649 ============== =============== ============== Cash paid for interest $ 32,609,145 25,074,768 12,435,024 ============== =============== ==============
See accompanying notes to consolidated financial statements. 39 40 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements For the years ended December 31, 2000, 1999 and 1998 (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"). On October 14, 1994, the Company commenced an initial public offering of common stock ("Shares"), on a best efforts basis at $10 per Share followed by three additional offerings in which a total of 51,642,397 Shares were sold. As of December 31, 2000, the Company has issued 6,489,793 Shares through the Company's Distribution Reinvestment Program ("DRP"). As of December 31, 2000, the Company has repurchased a total of 1,678,664 Shares through the Company's Share Repurchase Program, for an aggregate cost of $15,194,657. As a result, total offering proceeds were $652,415,794 as of December 31, 2000. On July 1, 2000, the Company became a self-administered real estate investment trust by completing its acquisition of Inland Real Estate Advisory Services, Inc., the Company's advisor (the "Advisor") and Inland Commercial Property Management, Inc., the Company's property manager (the "Manager"), through a merger in which two wholly owned subsidiaries of the Company were merged with and into the Advisor and the Manager, respectively, with the Advisor and the Manager the surviving entities (the "Merger"). As a result of the Merger, the Company issued to Inland Real Estate Investment Corporation, the sole shareholder of the Advisor ("IREIC") and The Inland Property Management Group, Inc., the sole shareholder of the Manager ("TIPMG"), an aggregate of 6,181,818 shares of the Company's common stock valued at $11 per share, or approximately 10% of the Company's common stock taking into account such issuance. The expense of these shares and additional costs relating to the Merger are reported as an operational expense on the Company's Consolidated Statements of Operations and are included in the Company's calculation of Funds From Operations. 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. 40 41 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) Certain reclassifications were made to the 1999 and 1998 financial statements to conform with the 2000 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, 2000 and 1999 consist of preferred and common 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 than 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 and is included in other income in the accompanying consolidated financial statements. Sales of investment securities available-for-sale during the year ended December 31, 2000 resulted in a gain on sale of $46,650, which is included in other income. 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 investment 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, 2000, the Company does not believe any of its investment properties are impaired. The accompanying consolidated financial statements include the accounts of the Company, Inland Joliet Commons, LLC, Inland Ryan, LLC and Inland Ryan Cliff Lake, LLC (collectively the "LLCs"). 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 in the LLCs are reflected as minority interest in the accompanying consolidated financial statements. The accompanying consolidated financial statements also include the accounts of the Company's wholly owned subsidiaries, the Advisor and Manager. 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 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 Company on potential real estate purchases or temporary investment of uninvested capital, the Company 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. 41 42 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 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. 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 $440,542,000. 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. 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, such as percentage/excess rent until the specified target that triggers the contingent rental income is achieved. The Company has recorded percentage rental revenue in accordance with the SAB for all years presented. 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. As of December 31, 2000, the Company had no derivative instruments. 42 43 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) In October 1998, the Company formed the Inland Joliet Commons, LLC, an Illinois limited liability company, with an unaffiliated third party. The Company contributed approximately $52,000 for a 1% interest in the Inland Joliet Commons, LLC and the third party contributed the Joliet Commons Shopping Center Phase I, with a fair market value of approximately $19,733,000 and debt of approximately $14,569,000 for a 99% interest. The Company is the managing member of the Inland Joliet Commons, LLC. On October 31, 2000, the non-managing member tendered all of its 469,480 units to the managing member for a cash payment of approximately $5,164,000, an amount equal to the non-managing member's equity in the property at the time the property was contributed to the LLC. (2) INLAND RYAN, LLC AND INLAND RYAN CLIFF LAKE, LLC In September 1999, the Company formed the Inland Ryan, LLC, a Delaware limited liability company, with an unaffiliated third party, which then purchased nine shopping centers. The Company contributed approximately $76,720,000 for an approximate 77% interest in the Inland Ryan, LLC. The third party contributed nine properties with a fair market value of approximately $99,427,000, debt of approximately $65,500,000 and received a cash payment of approximately $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 members have a right on or after January 1, 2001 to tender up to 50% of its interest in the Inland Ryan, LLC to the Company for a cash payment of approximately $13,000,000. The non-managing members' remaining interest may be tendered to the Company on or after June 30, 2002. If the non-managing members have not tendered all of its interest by August 31, 2004, then at any time after that date, the Company, at its sole and exclusive option, may require the tender of all remaining interests of the non-managing members. Generally, profit and loss allocations and distributions from operations of the properties owned by the Inland Ryan, LLC are made in accordance with the respective ownership interests of each member. During the year ended December 31, 2000, the Company and the non-managing members entered into three amendments to the limited liability company ("LLC") agreement to reflect various transactions with individual members of Inland Ryan, LLC. In aggregate, these amendments had no effect on the Company's and the non-managing members' interest in Inland Ryan, LLC which remains at approximately 77% and 23%, respectively. 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 50% 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. 43 44 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) (3) TRANSACTIONS WITH AFFILIATES Subsequent to the Merger, previously related parties may provide to the Company the following services: general and administrative services, payroll preparation and management services, employee benefits management services, human resource management services, data processing, computer equipment and support services, insurance consultation and insurance coverage placement services, marketing communications services, property tax and processing services, office management services, and investor relation services. These services will be performed on the Company's behalf at cost, with no mark-up to the Company. Prior to the Merger, the Advisor and its Affiliates were entitled to reimbursement for salaries and expenses of employees relating to the administration of the Company. Such costs of $130,974, $230,894 and $137,729 are allocated among professional services to Affiliates, general and administrative expenses to Affiliates and acquisition costs expenses to Affiliates, respectively, for the year ended December 31, 2000. Such costs of $126,302, $625,937 and $380,606 are allocated among professional services to Affiliates, general and administrative expenses to Affiliates and acquisition costs expenses to Affiliates, respectively, for the year ended December 31, 1999. A previously related party holds the mortgage on the Walgreens, Decatur, Illinois property. As of December 31, 2000, the remaining balance of the mortgage is $685,204. For the year ended December 31, 2000 and 1999, the Company paid principal and interest payments totaling $68,266 annually on this mortgage. Prior to the Merger, the Advisor and its Affiliates were entitled to reimbursement for salaries and expenses of employees relating to selecting, evaluating and acquiring of investment properties. Such amounts are included in building and improvements for those costs relating to investment properties purchased. Such amounts are included in acquisition cost expenses to Affiliates for costs relating to investment properties not acquired. No such costs were incurred subsequent to the Merger as discussed above. Prior to the Merger, the Advisor was entitled to 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 qualified as a REIT, the Advisor would have reimbursed the Company: (i) to the extent that the Advisor Asset Management Fee plus other operating expenses paid during the previous calendar year exceeded 2% of the Company's Average Invested Assets for the calendar year or 25% of the Company's net income for that calendar year; and (ii) to the extent that stockholders have not received an annual distribution equal to or greater than an 8% current return. The 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 stockholders received an annual distribution greater than an 8% return. The Company incurred $2,413,500 and $4,193,068 of Advisor Asset Management Fees for the years ended December 31, 2000 and 1999, respectively, of which $0 and $1,517,775 was unpaid at December 31, 2000 and 1999, respectively. No fee was incurred subsequent to the Merger as discussed above. The Company paid an Advisor Asset Management Fee which represented .50, .58 and .20 of the 1% of the Average Invested Assets for the six months ended June 30, 2000 and the years ended December 31, 1999 and 1998, respectively. As of July 1, 2000, the Advisor became a subsidiary of the Company and, accordingly, no Advisor Asset Management Fees are accrued in the accompanying consolidated financial statements. 44 45 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) Prior to the Merger, the Manager was entitled to receive Property Management Fees for management and leasing services. Such fees could not exceed 4.5% of the gross income earned by the Company on properties managed. The Company incurred and paid Property Management Fees of $3,044,834, $4,869,514 and $2,779,053 for the years ended December 31, 2000, 1999 and 1998, respectively, all of which have been paid. As of July 1, 2000, the date of the Merger, the net effect of these fees on a consolidated basis is zero. (4) 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 of common stock 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, 2000, options for 1,000 Shares have been exercised for $9.05 per Share. For the years ended December 31, 2000, 1999 and 1998, options to purchase 19,500, 15,000 and 13,500 shares of common stock exercise at prices ranging from $9.05 to $10.45 per share were outstanding during each of the respective periods. In connection with the issuance of shares of common stock by the Company in public offerings conducted between October 1994 and December 1998, the Company issued warrants to purchase a total of 1,156,520 shares at a price stated in the Offering during the period commencing with the first date upon which the Soliciting Dealer Warrants were issued and ending upon the exercise period. These warrants were issued to broker dealers who sold shares in the offerings as additional selling commissions. As of December 31, 2000, none of these warrants have been exercised and the Company ascribes no value to them for financial reporting purposes. (5) INVESTMENT PROPERTIES In connection with the purchase of several investment properties, the Company received payments under master lease agreements covering spaces vacant at the time of acquisition of those investment properties. The payments were made to the Company for periods ranging from one to two years from the date of acquisition of the property or until the spaces were leased. As of December 31, 2000, the Company had one property subject to a master lease agreement. GAAP requires that the Company treat these payments as a reduction to the purchase price of the investment properties upon receipt, rather than as rental income. The cumulative amount of such payments was $6,527,531 and $5,148,659 as of December 31, 2000 and 1999, respectively. 45 46 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 period. For the years ended December 31, -------------------------------- 2000 1999 -------------- ------------- Rental income $106,681,447 95,624,113 Additional rental income 41,819,409 35,974,834 Total revenues 152,778,527 136,482,584 Property operating expenses 46,677,546 43,276,089 Total depreciation 26,373,574 23,225,306 Total expenses 183,538,941 101,406,993 Net income (31,627,159) 35,075,591 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. 46 47 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) (6) 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: 2001 $ 100,490,806 2002 94,219,331 2003 87,858,777 2004 79,580,907 2005 70,605,620 Thereafter 496,350,754 --------------- Total $ 929,106,197 =============== 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. 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 $3,557,848, $2,490,459 and $2,120,951 in 2000, 1999 and 1998, respectively, of rental income for the period of occupancy for which stepped rent increases apply and $8,955,874 and $5,398,026 in related accounts and rents receivable as of December 31, 2000 and 1999, respectively. The Company anticipates collecting these amounts over the terms of the related leases as scheduled rent payments are made. (7) 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 June 29, 2001 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. As of December 31, 2000, the principal balance of this mortgage receivable is $13,313,976. 47 48 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) (8) MORTGAGES PAYABLE The Company's mortgages payable are secured by various of its investment properties and consist of the following at December 31, 2000 and 1999:
Interest Rate Current Balance at Balance at at Dec. 31, Maturity Monthly Dec. 31, Dec. 31, 2000 Date Payment 2000 1999 --------------- ----------- ----------- ----------- ----------- Mortgage payable to Affiliate: Inland Mortgage 7.65% 05/2004 $ 5,689 $ 685,204 700,381 Servicing Corp. (a) Mortgages payable to non-affiliates: Bank One (a) 7.21% 08/2000 (b) - 4,241,187 LaSalle Bank N.A. 7.85% 10/2003 57,992 8,865,000 8,865,000 LaSalle Bank N.A. 7.85% 09/2003 25,872 3,955,000 3,955,000 LaSalle Bank N.A. 7.59% 01/2004 81,277 12,850,000 12,850,000 LaSalle Bank N.A. 7.80% 02/2004 83,460 12,840,000 12,840,000 John Hancock (a) (c) 9.00% 12/2001 85,423 8,776,181 9,000,328 LaSalle Bank N.A. 7.65% 06/2004 65,133 10,216,880 10,216,880 LaSalle Bank N.A. 7.49% 06/2004 61,116 9,791,500 9,791,500 LaSalle Bank N.A. 7.23% 01/2005 28,183 4,677,795 4,677,795 Allstate 7.21% 12/2004 38,453 6,400,000 6,400,000 LaSalle Bank N.A. 5.33% 12/2004 19,740 6,200,000 6,200,000 LaSalle Bank N.A. 7.28% 03/2005 25,041 4,050,000 4,050,000 LaSalle Bank N.A. 6.99% 04/2003 6,827 1,150,000 1,150,000 LaSalle Bank N.A. 7.00% 04/2005 106,404 17,897,500 17,897,500 Allstate 7.00% 02/2005 31,946 5,476,500 5,476,500 Allstate 7.00% 01/2005 23,917 4,100,000 4,100,000 Allstate 7.15% 01/2005 18,173 3,050,000 3,050,000 Allstate 7.10% 03/2003 17,620 2,978,000 2,978,000 Allstate 6.65% 05/2005 53,200 9,600,000 9,600,000 Allstate (e) 9.25% 12/2009 30,125 3,908,082 3,908,082 Allstate 6.82% 08/2005 60,243 10,600,000 10,600,000 LaSalle Bank N.A. 6.50% 12/2005 72,123 13,500,000 13,500,000 Allstate 6.66% 10/2003 17,483 3,150,000 3,150,000 Allstate 7.00% 12/2003 65,333 11,200,000 11,200,000 Berkshire Mortgage (a) 7.79% 10/2007 105,719 14,318,117 14,447,153 Woodmen of the World 6.75% 06/2008 26,015 4,625,000 4,625,000 Lehman secured financing (f) 6.36% 10/2008 299,025 54,600,000 54,600,000 Column secured financing (g) 7.00% 11/2008 150,695 25,000,000 25,000,000 Principal Life Insurance 6.24% 09/2001 55,820 10,734,710 10,734,710 Bear, Stearns secured financing (h) 6.86% 06/2004 328,662 57,450,000 57,450,000
48 49 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued)
Interest Rate Current Balance at Balance at at Dec. 31, Maturity Monthly Dec. 31, Dec. 31, 2000 Date Payment 2000 1999 ------------- -------- ------- ------------ ----------- LaSalle Bank N.A. 8.12% 10/2004 (i) $ 34,017,000 34,017,000 Allstate 8.32% 10/2004 (i) 35,787,000 35,787,000 Midland Loan Serv (a) 7.86% 01/2008 $ 37,649 5,069,384 5,121,280 LaSalle Bank N.A. 8.12% 12/2004 (i) 8,910,000 8,910,000 LaSalle Bank N.A. 8.22% 12/2004 (i) 9,650,000 9,650,000 LaSalle Bank N.A. 8.12% 01/2005 (i) 9,737,620 - LaSalle Bank N.A. 8.22% 03/2005 (i) 2,400,000 - LaSalle Bank N.A. 8.22% 04/2005 (i) 2,467,700 - LaSalle Bank N.A. 8.22% 06/2005 (i) 5,599,000 - LaSalle Bank N.A. 8.12% 11/2005 (i) 3,650,000 - LaSalle Bank N.A. 8.22% 12/2005 (i) 7,833,000 - ------------ ----------- Mortgages Payable $467,766,173 440,740,296 ============ ===========
(a) These loans require payments of principal and interest monthly; all other loans listed are interest only. (b) Payments on this mortgage are based on a floating interest rate of 180 basis points over the 30-day LIBOR rate, which adjusts monthly, amortizing over 25 years. (c) The Company received a credit for interest expense on the debt at closing, which is included in restricted cash along with an amount set aside by the Company for principal payments on the debt. Interest income earned on the restricted cash amounts, when netted with interest expense on the debt, results in an adjusted interest rate on the debt of approximately 8.2%. (d) As part of the purchase of this property, the Company assumed the existing mortgage-backed Economic Development Revenue Bonds, Series 1994 offered by the Village of Skokie, Illinois. The interest rate floats and is reset weekly by a re-marketing agent. The rate at December 31, 2000 is 5.33%. 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) Payments on these mortgages are calculated using a floating rate of interest based on LIBOR. 49 50 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) As of December 31, 2000, the required future principal payments on the Company's mortgages payable over the next five years are as follows: 2001 $ 19,726,314 2002 233,000 2003 31,550,014 2004 198,793,253 2005 104,911,449 (9) CONSTRUCTION IN PROGRESS On August 4, 1999, in addition to the Company purchasing the first phase of Hickory Creek Market in Frankfort, Illinois, the Company acquired title to an additional approximately 3.5 acres of adjacent land to be developed into a 20,800 square foot building to be known as "Hickory Creek Market Phase II" from an unaffiliated third party. Included in the purchase price was $1,600,149, which had been placed in a construction escrow for Phase II. As of December 31, 2000, the balance of the construction escrow was $364,502 and is included in restricted cash and $1,300,592 is recorded as construction in progress. (10) 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, 2000, 1999 and 1998, options to purchase 19,500, 15,000 and 13,500 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, 2000, 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 59,138,837, 54,603,088 and 40,359,796 for the years ended December 31, 2000, 1999 and 1998, respectively. 50 51 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) (11) 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 investment properties based on net property operations. Since all of the Company's investment 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, 2000, 1999 and 1998, and for each of the years in the three-year period then ended, along with a reconciliation to net income:
2000 1999 1998 ---------------- ------------- ------------- Total property revenues $ 148,682,620 119,580,760 68,116,744 Total property operating expenses (46,268,023) (39,002,025) (21,017,360) Mortgage interest (33,682,106) (25,653,724) (13,421,599) ---------------- ------------- ------------- Net property operations 68,732,491 54,925,011 33,677,785 ---------------- ------------- ------------- Interest income 2,209,214 4,206,809 5,185,534 Non property expenses: Merger consideration costs (68,775,449) - - Professional services (490,684) (770,945) (440,345) General and administrative (2,593,416) (1,653,597) (942,603) Bad debt expense (1,458,604) (1,300,550) (200,000) Advisor asset management fee (2,413,500) (4,193,068) (965,108) Depreciation and amortization (26,218,963) (20,361,269) (11,663,150) Acquisition cost expense (128,151) (565,823) (437,783) ---------------- ------------- ------------- Income (loss) before minority interest $ (31,137,062) 30,286,568 24,214,330 ================ ============= ============= Net investment properties $ 930,272,644 907,381,429 630,048,317 ================ ============= ============= Total assets $ 1,002,893,982 982,281,972 787,608,547 ================ ============= =============
51 52 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) (12) 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 investment properties, the Company is contingently liable for any shortfalls in the Tax Increment as defined. At December 31, 2000, the Company does not believe any shortfall under the Tax Increment will be due. 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, 2000, the balance of the development escrow including interest was $1,540,130 and is included in restricted cash. (13) SUBSEQUENT EVENTS In January 2001, the Company paid a distribution of $5,063,089 to its Stockholders. On January 1, 2001, the Company converted approximately $56,000,000 of variable rate debt to a fixed rate basis ranging from 6.8% to 7.4%. These fixed rates are effective upon expiration of the current 30-day LIBOR contract maturing December 31, 2000. On January 1, 2001, the Company issued to Norbert J. Treonis, Samuel A. Orticelli and Mark E. Zalatoris a total of 90,910, 27,273 and 27,273 shares of the Company's common stock, respectively, in connection with employment agreements dated December 14, 2000. On January 30, 2001, the Company obtained a mortgage loan secured by three of its previously unencumbered investment properties, Stuart's Crossing, St. Charles, Illinois, Pine Tree Plaza, Janesville, Wisconsin, and Shoppes of Mill Creek, Palos Park, Illinois. The loan amounts were $6,050,000, $9,890,000 and $5,660,000, respectively. These mortgage loans have a term of five years and require monthly payments of interest only at the annual rate of 7.375%. The Company paid loan fees of approximately $200,000 in connection with these mortgage loans, which will be amortized over five years, the loan term. On January 31, 2001, based on the third amendment to the LLC agreement of Inland Ryan, LLC, the Company caused Inland Ryan, LLC to distribute $2,097,609 in cash to Ryan CL, LLC to reimburse for certain pre-formation expenditures incurred by Ryan CL. Upon payment of this distribution, the LLC units owned by Ryan CL, LLC were reduced from approximately 4,164,000 to 2,066,000 and the LLC units owned by the Company increased from approximately 88,232,000 to 90,330,000. The third amendment to the LLC agreement decreases Ryan CL, LLC interest in Inland Ryan, LLC to approximately 2% and increases the Company's interest in Inland Ryan, LLC to approximately 77%. The remaining non-managing members' interests, aggregating 21%, were not affected by this amendment. 52 53 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) On February 1, 2001, the Company and the non-managing members of Inland Ryan, LLC entered into a fourth amendment to the LLC agreement. This amendment reflects the right of Ryan MPLS, LLC to receive an earnout amount of approximately $1,075,000. This increase in capital contribution to Inland Ryan, LLC by Ryan MPLS, LLC of approximately $1,075,000 increases their interest in Inland Ryan, LLC to approximately 16% and decreases the Company's interest in Inland Ryan, LLC to approximately 76.5%. On February 1, 2001, the Company entered into a joint venture with Tri-Land Properties, Inc. for the acquisition and redevelopment of the Century Consumer Mall in Merrillville, Indiana. The property is located at the southeast corner of the intersection of U.S. Route 30 and Broadway in Merrillville, west of Interstate 65. The property has two anchor tenants, including a 148,420 square foot Montgomery Wards store at the north end of the property and a 139,451 square foot Burlington Coat Factory store on the south. In between is 105,000 square feet of enclosed mall space. The phased redevelopment of the property calls for the demolition of the existing enclosed mall space, construction of 26,000 square feet of new retail space along Route 30, construction of 30,000 square feet of new retail space on the western portion of the property, and construction of 104,700 square feet of new open-air retail space between the existing anchors. The Montgomery Wards store is scheduled to close; the future use of that part of the property has not been determined. A wholly owned subsidiary of the Company is a 50% venture partner with Tri-Land Properties, Inc. in an LLC that was formed to acquire and redevelop the property. Each partner's initial equity contribution was $500,000. In addition, the Company has committed to lend the LLC joint venture, over the five year loan term, up to an additional $17.8 million to fund the initial acquisition and subsequent redevelopment. The loan terms include a 9% initial note rate paid monthly on average outstanding balances and a term of five years. The Company will fund such loan amounts with its available cash balances. In February 2001, Plitt Theaters, Inc. and its parent corporation, Loews Cineplex Entertainment Corporation, a tenant occupying 40,000 square feet at one of the Company's investment properties, filed for Chapter 11 bankruptcy protection under the Federal bankruptcy laws. On March 1, 2001, Plitt Theaters, Inc. rejected its lease. Management is in the process of marketing this space for a replacement tenant and does not expect this bankruptcy filing to have a material adverse effect on the operations or financial condition of the Company as a whole. In February 2001, Crown Books Corporation, a tenant occupying a total of 25,013 square feet at two of the Company's investment properties, filed for Chapter 11 bankruptcy protection under the Federal bankruptcy laws. Management does not expect this bankruptcy filing to have a material adverse effect on the operations or financial condition of the Company as a whole. On February 12, 2001, the Company received a bankruptcy court-approved settlement from Eagle Food Stores, Inc. in the amount of $4,120,000 for the Company's claims for damages as a result of the two rejected leases. On March 9, 2001, the Company's president, Norbert J. Treonis, resigned citing personal reasons. Robert D. Parks, the Company's chairman for the past six years, reassumed the duties of president and chief executive officer. Mr. Parks previously served in these positions from October 1994 through June 2000. Mr. Parks, along with Mr. G. Joseph Cosenza, also a member of the Company's board of directors for the past six years, was named to the Company's management committee. Mr. Parks will not receive any additional compensation for serving as president and chief executive officer. The board did not name a replacement to fill the vacancy on the board created by Mr. Treonis' resignation. 53 54 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Notes to Consolidated Financial Statements (continued) In connection with Mr. Treonis' resignation, the Company and Mr. Treonis entered into a "Separation Agreement." Under this agreement, the Company paid Mr. Treonis $57,451.93 (which after withholding taxes, nets to $34,801.92). The Company's board of directors had raised questions regarding an employment agreement signed by Mr. Treonis in December 2000. This agreement purportedly replaced a prior employment agreement signed by Mr. Treonis in July 2000. As part of the Separation Agreement, Mr. Treonis canceled and assigned to the Company any rights he may have had to shares of the Company's common stock, which were issued under the December agreement. The Separation Agreement contains mutual releases by Mr. Treonis and the Company of all claims arising from or relating to the signing of the December agreement. On March 21, 2001, the board of directors approved the purchase of Gurnee Town Center, a 179,855 square foot, newly-constructed shopping center on Grand Avenue located in Gurnee, Illinois. The projected closing date is May 1, 2001 with an estimated purchase price of $31,500,000. The Company anticipates the purchase price to be funded from a combination of cash and acquisition indebtedness. (14) QUARTERLY OPERATING RESULTS (UNAUDITED) The following represents results of operations for the quarters during the years 2000 and 1999:
2000 -------------------------------------------------------- December 31 September 30 June 30 March 31 ------------- ------------ ---------- ---------- Total income $ 39,251,846 36,690,148 38,475,529 36,474,311 Net income (loss) 10,046,416 (57,617,402) 10,044,445 5,522,734 Net income (loss) per common share, basic and diluted .11 (.93) .18 .10 1999 -------------------------------------------------------- December 31 September 30 June 30 March 31 ------------ ------------ ---------- ---------- Total income $ 35,368,179 32,453,367 28,775,662 27,190,361 Net income 6,565,101 8,269,930 8,233,982 7,102,888 Net income per common share, basic and diluted .12 .15 .15 .13
54 55 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III Real Estate and Accumulated Depreciation December 31, 2000
Initial Cost (A) ---------------------------- Buildings And Adjustments Encumbrance Land improvements To Basis (C) ------------- ------------ -------------- ------------ Single-user Retail ------------------ Walgreens $ 685,204 78,330 1,130,723 - Decatur, IL Zany Brainy Wheaton, IL 1,245,000 838,000 1,626,033 664 Ameritech Joliet, IL 522,375 170,000 883,293 2,544 Dominick's Schaumburg, IL 5,345,500 2,294,437 8,392,661 2,679 Dominick's Highland Park, IL 6,400,000 3,200,000 9,597,963 2,200 Dominick's Glendale Heights, IL 4,100,000 1,265,000 6,942,997 9,194 Party City Oakbrook Terrace, IL 987,500 750,000 1,231,271 - Eagle Country Market Roselle, IL 1,450,000 966,667 1,940,898 - Dominick's West Chicago, IL 3,150,000 1,980,130 4,325,331 28,272 Walgreens Woodstock, IL 569,610 395,080 774,906 - Bakers Shoes Chicago, IL - 645,284 342,993 15,120 Staples Freeport, IL 1,480,000 725,288 1,969,690 - Carmax Schaumburg, IL 7,260,000 7,142,020 13,461,169 - Carmax Tinley Park, IL 9,450,000 6,788,880 12,116,751 - Hollywood Video Hammond, IN 740,000 405,213 948,925 - Circuit City Traverse City, MI 1,603,000 1,123,170 1,778,861 - Cub Foods Plymouth, MN 2,732,000 1,551,104 3,916,470 - Cub Foods Indianapolis, IN 2,867,000 2,182,557 3,560,502 - Eagle Ridge Center Lindenhurst, IL 3,000,000 866,702 5,144,821 -
Gross amount at which carried at end of period(B) --------------------------------------------------------------- Date Land Buildings Accumulated Con- and and Total Depreciation struct- Date Improvements improvements (D) (E) ed Acq ---------------- --------------- ------------- ------------ ------- ------ Single-user Retail ------------------ Walgreens 78,330 1,130,723 1,209,053 223,004 1988 01/95 Decatur, IL Zany Brainy Wheaton, IL 838,000 1,626,697 2,464,697 243,985 1995 07/96 Ameritech Joliet, IL 170,000 885,837 1,055,837 109,073 1995 05/97 Dominick's Schaumburg, IL 2,294,437 8,395,340 10,689,777 1,002,769 1996 05/97 Dominick's Highland Park, IL 3,200,000 9,600,163 12,800,163 1,382,160 1996 06/97 Dominick's Glendale Heights, IL 1,265,000 6,952,191 8,217,191 806,191 1997 09/97 Party City Oakbrook Terrace, IL 750,000 1,231,271 1,981,271 129,952 1985 11/97 Eagle Country Market Roselle, IL 966,667 1,940,898 2,907,565 248,303 1990 11/97 Dominick's West Chicago, IL 1,980,130 4,353,603 6,333,733 468,589 1990 01/98 Walgreens Woodstock, IL 395,080 774,906 1,169,986 72,939 1973 06/98 Bakers Shoes Chicago, IL 645,284 358,113 1,003,397 26,530 1891 09/98 Staples Freeport, IL 725,288 1,969,690 2,694,978 196,836 1998 04/98 Carmax Schaumburg, IL 7,142,020 13,461,169 20,603,189 934,789 1998 12/98 Carmax Tinley Park, IL 6,788,880 12,116,751 18,905,631 841,427 1998 12/98 Hollywood Video Hammond, IN 405,213 948,925 1,354,138 65,866 1998 12/98 Circuit City Traverse City, MI 1,123,170 1,778,861 2,902,031 117,446 1998 01/99 Cub Foods Plymouth, MN 1,551,104 3,916,470 5,467,574 264,701 1991 03/99 Cub Foods Indianapolis, IN 2,182,557 3,560,502 5,743,059 283,527 1991 03/99 Eagle Ridge Center Lindenhurst, IL 866,702 5,144,821 6,011,523 330,273 1998 04/99
55 56 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III (continued) Real Estate and Accumulated Depreciation December 31, 2000
Initial Cost (A) ---------------------------- Buildings And Adjustments Encumbrance Land improvements To Basis (C) ------------- ------------ -------------- ------------ Dominick's Hammond, IN $ 4,100,000 825,225 8,025,601 - Cub Foods Buffalo Grove, IL 3,650,000 1,425,840 5,928,515 - United Audio Center Schaumburg, IL 1,240,000 1,215,143 1,272,717 - Bally's Total Fitness St. Paul, MN 3,145,300 1,298,052 4,612,336 - Riverdale Commons Outlot Coon Rapids, MN - 544,676 605,205 - Neighborhood Retail Centers --------------------------- Eagle Crest Naperville, IL 2,350,000 1,878,618 2,938,352 337,860 Goodyear Montgomery, IL 630,000 315,000 834,659 (11,158) Hartford Plaza Naperville, IL 2,310,000 990,000 3,427,961 20,912 Nantucket Square Schaumburg, IL 2,200,000 1,908,000 2,349,918 (55,972) Antioch Plaza Antioch, IL 875,000 268,000 1,360,445 (104,977) Mundelein Plaza Mundelein, IL 2,810,000 1,695,000 3,965,561 (28,547) Regency Point Lockport, IL - 1,000,000 4,720,800 (19,377) Prospect Heights Prospect Heights, IL 1,095,000 494,300 1,683,005 63,714 Sears Montgomery, IL 1,645,000 768,000 2,654,681 9,606 Salem Square Countryside, IL 3,130,000 1,735,000 4,449,217 93,344 Hawthorn Village Vernon Hills, IL 4,280,000 2,619,500 5,887,640 278,697 Six Corners Chicago, IL 3,100,000 1,440,000 4,532,977 351,256 Spring Hill Fashion Center West Dundee, IL 4,690,000 1,794,000 7,415,396 250,852
Gross amount at which carried at end of period(B) --------------------------------------------------------------- Date Land Buildings Accumulated Con- and and Total Depreciation struct- Date Improvements improvements (D) (E) ed Acq ---------------- --------------- ------------- ------------ ------- ------ Dominick's Hammond, IN 825,225 8,025,601 8,850,826 481,720 1999 05/99 Cub Foods Buffalo Grove, IL 1,425,840 5,928,515 7,354,355 349,017 1999 06/99 United Audio Center Schaumburg, IL 1,215,143 1,272,717 2,487,860 65,454 1998 09/99 Bally's Total Fitness St. Paul, MN 1,298,052 4,612,336 5,910,388 242,691 1988 09/99 Riverdale Commons Outlot Coon Rapids, MN 544,676 605,205 1,149,881 23,325 1999 03/00 Neighborhood Retail Centers --------------------------- Eagle Crest Naperville, IL 1,878,618 3,276,212 5,154,830 615,943 1991 03/95 Goodyear Montgomery, IL 315,000 823,501 1,138,501 146,495 1991 09/95 Hartford Plaza Naperville, IL 990,000 3,448,873 4,438,873 662,692 1995 09/95 Nantucket Square Schaumburg, IL 1,908,000 2,293,946 4,201,946 400,329 1980 09/95 Antioch Plaza Antioch, IL 268,000 1,255,468 1,523,468 219,949 1995 12/95 Mundelein Plaza Mundelein, IL 1,695,000 3,937,014 5,632,014 622,334 1990 03/96 Regency Point Lockport, IL 1,000,000 4,701,423 5,701,423 744,403 1993 04/96 Prospect Heights Prospect Heights, IL 494,300 1,746,719 2,241,019 262,039 1985 06/96 Sears Montgomery, IL 768,000 2,664,287 3,432,287 394,905 1990 06/96 Salem Square Countryside, IL 1,735,000 4,542,561 6,277,561 657,733 1973 08/96 Hawthorn Village Vernon Hills, IL 2,619,500 6,166,337 8,785,837 901,719 1979 08/96 Six Corners Chicago, IL 1,440,000 4,884,233 6,324,233 654,949 1966 10/96 Spring Hill Fashion Center West Dundee, IL 1,794,000 7,666,248 9,460,248 1,044,352 1985 11/96
56 57 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III (continued) Real Estate and Accumulated Depreciation December 31, 2000
Initial Cost (A) ---------------------------- Buildings And Adjustments Encumbrance Land improvements To Basis (C) ------------- ------------ -------------- ------------ Crestwood Plaza Crestwood, IL $ 904,380 325,577 1,483,183 81,603 Park St. Claire Schaumburg, IL 762,500 319,578 986,920 226,674 Summit of Park Ridge Park Ridge, IL 1,600,000 672,000 2,498,050 64,483 Grand and Hunt Club Gurnee, IL 1,796,000 969,840 2,622,575 (52,811) Quarry Outlot Hodgkins, IL 900,000 522,000 1,278,431 8,872 Aurora Commons Aurora, IL 8,776,181 3,220,000 8,318,861 421,701 Lincoln Park Place Chicago, IL 1,050,000 819,000 1,299,902 (86,237) Niles Shopping Center Niles, IL 1,617,500 850,000 2,466,389 26,658 Mallard Crossing Elk Grove Village, IL 4,050,000 1,778,667 6,331,943 123,843 Cobblers Crossing Elgin, IL 5,476,500 3,200,000 7,763,940 193,452 Calumet Square Calumet City, IL 1,032,920 527,000 1,540,046 124,186 Sequoia Shopping Center Milwaukee, WI 1,505,000 1,216,914 1,805,784 (11,425) River Square Shopping Center Naperville, IL 3,050,000 2,853,226 3,129,477 280,718 Shorecrest Plaza Racine, WI 2,978,000 1,150,000 4,775,119 37,402 Dominick's Countryside, IL 1,150,000 1,375,000 925,106 - Terramere Plaza Arlington Heights, IL 2,202,500 1,435,000 2,981,314 251,600 Wilson Plaza Batavia, IL 650,000 310,000 999,366 23,960 Iroquois Center Naperville, IL 5,950,000 3,668,347 8,276,041 726,789 Fashion Square Skokie, IL 6,200,000 2,393,534 6,901,769 151,719
Gross amount at which carried at end of period(B) --------------------------------------------------------------- Date Land Buildings Accumulated Con- and and Total Depreciation struct- Date Improvements improvements (D) (E) ed Acq ---------------- --------------- ------------- ------------ ------- ------ Crestwood Plaza Crestwood, IL 325,577 1,564,786 1,890,363 212,451 1992 12/96 Park St. Claire Schaumburg, IL 319,578 1,213,594 1,533,172 329,503 1994 12/96 Summit of Park Ridge Park Ridge, IL 672,000 2,562,533 3,234,533 339,647 1986 12/96 Grand and Hunt Club Gurnee, IL 969,840 2,569,764 3,539,604 342,702 1996 12/96 Quarry Outlot Hodgkins, IL 522,000 1,287,303 1,809,303 171,594 1996 12/96 Aurora Commons Aurora, IL 3,220,000 8,740,562 11,960,562 1,223,897 1988 01/97 Lincoln Park Place Chicago, IL 819,000 1,213,665 2,032,665 161,444 1990 01/97 Niles Shopping Center Niles, IL 850,000 2,493,047 3,343,047 307,886 1982 04/97 Mallard Crossing Elk Grove Village, IL 1,778,667 6,455,786 8,234,453 821,533 1993 05/97 Cobblers Crossing Elgin, IL 3,200,000 7,957,392 11,157,392 1,014,589 1993 05/97 Calumet Square Calumet City, IL 527,000 1,664,232 2,191,232 193,775 67/94 06/97 Sequoia Shopping Center Milwaukee, WI 1,216,914 1,794,359 3,011,273 211,622 1988 06/97 River Square Shopping Center Naperville, IL 2,853,226 3,410,195 6,263,421 437,298 1988 06/97 Shorecrest Plaza Racine, WI 1,150,000 4,812,521 5,962,521 544,850 1977 07/97 Dominick's Countryside, IL 1,375,000 925,106 2,300,106 112,204 1975 12/97 Terramere Plaza Arlington Heights, IL 1,435,000 3,232,914 4,667,914 318,183 1980 12/97 Wilson Plaza Batavia, IL 310,000 1,023,326 1,333,326 116,364 1986 12/97 Iroquois Center Naperville, IL 3,668,347 9,002,830 12,671,177 913,542 1983 12/97 Fashion Square Skokie, IL 2,393,534 7,053,488 9,447,022 720,106 1984 12/97
57 58 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III (continued) Real Estate and Accumulated Depreciation December 31, 2000
Initial Cost (A) ---------------------------- Buildings And Adjustments Encumbrance Land improvements To Basis (C) ------------- ------------ -------------- ------------ Shops at Coopers Grove Country Club Hills, IL $ 2,900,000 1,400,897 4,417,565 (15,241) Maple Plaza Downers Grove, IL 1,582,500 1,364,202 1,822,493 179,100 Orland Park Retail Orland Park, IL 625,000 460,867 795,939 (22,566) Wisner/Milwaukee Plaza Chicago, IL 974,725 528,576 1,383,292 - Homewood Plaza Homewood, IL 1,013,201 534,599 1,398,042 8,360 Elmhurst City Center Elmhurst, IL 2,513,765 2,050,217 3,011,298 (522,814) Shoppes of Mill Creek Palos Park, IL - 3,305,949 8,005,850 30,267 Prairie Square Sun Prairie, WI 1,550,000 739,575 2,381,050 66,231 Oak Forest Commons Oak Forest, IL 6,617,871 2,795,519 9,033,988 607,327 Downers Grove Market Downers Grove, IL 10,600,000 6,224,467 11,616,661 (29,297) St. James Crossing Westmont, IL 3,847,599 2,610,600 4,938,351 128,410 High Point Center Madison, WI 5,360,988 1,449,560 8,817,508 83,025 Western & Howard Chicago, IL 992,681 439,990 1,523,460 - Wauconda Shopping Center Wauconda, IL 1,333,834 454,500 2,067,622 - Berwyn Plaza Berwyn, IL 708,638 769,073 1,078,379 10,105 Woodland Heights Streamwood, IL 3,940,009 2,976,000 6,898,100 (108,624) Schaumburg Plaza Schaumburg, IL 3,908,082 2,445,555 4,565,548 38,413 Winnetka Commons New Hope, MN 2,233,744 1,596,600 2,858,630 13,873 Eastgate Shopping Center Lombard, IL 3,345,000 4,252,440 2,577,933 1,753,215
Gross amount at which carried at end of period(B) --------------------------------------------------------------- Date Land Buildings Accumulated Con- and and Total Depreciation struct- Date Improvements improvements (D) (E) ed Acq ---------------- --------------- ------------- ------------ ------- ------ Shops at Coopers Grove Country Club Hills, IL 1,400,897 4,402,324 5,803,221 459,509 1991 01/98 Maple Plaza Downers Grove, IL 1,364,202 2,001,593 3,365,795 216,786 1988 01/98 Orland Park Retail Orland Park, IL 460,867 773,373 1,234,240 85,127 1997 02/98 Wisner/Milwaukee Plaza Chicago, IL 528,576 1,383,292 1,911,868 140,124 1994 02/98 Homewood Plaza Homewood, IL 534,599 1,406,402 1,941,001 149,910 1993 02/98 Elmhurst City Center Elmhurst, IL 2,050,217 2,488,484 4,538,701 253,285 1994 02/98 Shoppes of Mill Creek Palos Park, IL 3,305,949 8,036,117 11,342,066 834,326 1989 03/98 Prairie Square Sun Prairie, WI 739,575 2,447,281 3,186,856 251,508 1995 03/98 Oak Forest Commons Oak Forest, IL 2,795,519 9,641,315 12,436,834 945,840 1998 03/98 Downers Grove Market Downers Grove, IL 6,224,467 11,587,364 17,811,831 1,212,228 1998 03/98 St. James Crossing Westmont, IL 2,610,600 5,066,761 7,677,361 518,684 1990 03/98 High Point Center Madison, WI 1,449,560 8,900,533 10,350,093 846,601 1984 04/98 Western & Howard Chicago, IL 439,990 1,523,460 1,963,450 143,317 1985 04/98 Wauconda Shopping Center Wauconda, IL 454,500 2,067,622 2,522,122 196,233 1988 05/98 Berwyn Plaza Berwyn, IL 769,073 1,088,484 1,857,557 97,169 1983 05/98 Woodland Heights Streamwood, IL 2,976,000 6,789,476 9,765,476 610,989 1956 06/98 Schaumburg Plaza Schaumburg, IL 2,445,555 4,603,961 7,049,516 420,988 1994 06/98 Winnetka Commons New Hope, MN 1,596,600 2,872,503 4,469,103 286,216 1990 07/98 Eastgate Shopping Center Lombard, IL 4,252,440 4,331,148 8,583,588 342,621 1959 07/98
58 59 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III (continued) Real Estate and Accumulated Depreciation December 31, 2000
Initial Cost (A) ---------------------------- Buildings And Adjustments Encumbrance Land improvements To Basis (C) ------------- ------------ -------------- ------------ Orland Greens Orland Park, IL $ 2,132,000 1,246,440 3,877,755 190,785 Two Rivers Plaza Bolingbrook, IL 3,658,000 1,820,453 4,993,133 6,050 Edinburgh Festival Brooklyn Park, MN 4,625,000 2,472,746 6,372,809 5,270 Riverplace Center Noblesville, IN 3,323,000 1,591,682 4,497,515 - Rose Plaza Elmwood Park, IL 2,008,000 1,530,149 2,665,910 - Marketplace at Six Corners Chicago, IL 11,200,000 9,007,150 10,014,533 - Plymouth Collection Plymouth, MN 3,441,000 1,459,045 5,174,725 (6,488) Loehmann's Plaza Brookfield, WI 6,643,000 4,797,940 8,758,688 220,475 Baytowne Square Champaign, IL 7,027,000 3,820,545 8,853,078 (85,251) Gateway Square Hinsdale, IL 3,470,000 3,045,966 3,899,226 58,490 Oak Lawn Town Center Oak Lawn, IL 1,200,000 1,384,049 1,034,346 - Oak Forest Commons Ph III Oak Forest, IL 552,700 204,881 906,609 (14,803) Stuart's Crossing St. Charles, IL - 4,234,079 9,421,791 - West River Crossing Joliet, IL 2,806,700 2,316,806 3,320,482 (147,559) Hickory Creek Marketplace Frankfort, IL 3,108,300 1,796,717 4,435,125 (145,876) Burnsville Crossing Burnsville, MN 2,858,100 2,061,340 4,667,414 109,271 Byerly's Burnsville Burnsville, MN 2,915,900 1,706,797 4,144,841 1,847,683 Cliff Lake Center Eagan, MN 5,069,384 2,517,253 3,056,771 339,308 Park Place Plaza St. Louis Park, MN 6,407,000 4,255,856 8,575,148 -
Gross amount at which carried at end of period(B) --------------------------------------------------------------- Date Land Buildings Accumulated Con- and and Total Depreciation struct- Date Improvements improvements (D) (E) ed Acq ---------------- --------------- ------------- ------------ ------- ------ Orland Greens Orland Park, IL 1,246,440 4,068,540 5,314,980 316,134 1984 09/98 Two Rivers Plaza Bolingbrook, IL 1,820,453 4,999,183 6,819,636 459,983 1994 10/98 Edinburgh Festival Brooklyn Park, MN 2,472,746 6,378,079 8,850,825 516,327 1997 10/98 Riverplace Center Noblesville, IN 1,591,682 4,497,515 6,089,197 339,133 1992 11/98 Rose Plaza Elmwood Park, IL 1,530,149 2,665,910 4,196,059 227,357 1997 11/98 Marketplace at Six Corners Chicago, IL 9,007,150 10,014,533 19,021,683 702,398 1997 11/98 Plymouth Collection Plymouth, MN 1,459,045 5,168,237 6,627,282 387,212 1999 01/99 Loehmann's Plaza Brookfield, WI 4,797,940 8,979,163 13,777,103 598,984 1985 02/99 Baytowne Square Champaign, IL 3,820,545 8,767,827 12,588,372 641,918 1993 02/99 Gateway Square Hinsdale, IL 3,045,966 3,957,716 7,003,682 276,334 1985 03/99 Oak Lawn Town Center Oak Lawn, IL 1,384,049 1,034,346 2,418,395 54,967 1999 06/99 Oak Forest Commons Ph III Oak Forest, IL 204,881 891,806 1,096,687 56,902 1999 06/99 Stuart's Crossing St. Charles, IL 4,234,079 9,421,791 13,655,870 444,060 1999 08/98 West River Crossing Joliet, IL 2,316,806 3,172,923 5,489,729 174,381 1999 08/99 Hickory Creek Marketplace Frankfort, IL 1,796,717 4,289,249 6,085,966 241,824 1999 08/99 Burnsville Crossing Burnsville, MN 2,061,340 4,776,685 6,838,025 269,170 1989 09/99 Byerly's Burnsville Burnsville, MN 1,706,797 5,992,524 7,699,321 237,497 1988 09/99 Cliff Lake Center Eagan, MN 2,517,253 3,396,079 5,913,332 226,968 1988 09/99 Park Place Plaza St. Louis Park, MN 4,255,856 8,575,148 12,831,004 446,525 1997 09/99
59 60 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III (continued) Real Estate and Accumulated Depreciation December 31, 2000
Initial Cost (A) ---------------------------- Buildings And Adjustments Encumbrance Land improvements To Basis (C) ------------- ------------ -------------- ------------ Maple Grove Retail Maple Grove, MN $ 3,958,000 2,172,777 5,758,017 - Shingle Creek Brooklyn Center, MN 1,735,000 1,228,197 2,261,560 91,797 Rose Plaza West Naperville, IL 1,382,000 989,499 1,790,417 - Schaumburg Promenade Schaumburg, IL 9,650,000 6,562,000 12,763,506 (45,121) Rose Plaza East Naperville, IL 1,085,700 825,132 1,380,144 - Joliet Commons Ph II Joliet, IL 2,400,000 810,798 3,998,532 - Bohl Farm Marketplace Crystal Lake, IL 7,833,000 5,800,157 9,888,134 - Community Centers ----------------- Lansing Square Lansing, IL 8,150,000 4,075,000 12,179,383 878,357 Maple Park Place Bolingbrook, IL 7,650,000 3,665,909 11,669,428 526,874 Rivertree Court Vernon Hills, IL 17,547,999 8,651,875 22,963,475 262,113 Naper West Naperville, IL 7,695,199 5,335,000 9,611,971 (158,606) Woodfield Plaza Schaumburg, IL 9,600,000 4,612,277 15,160,000 (682,587) Lake Park Plaza Michigan City, IN 6,489,618 3,252,861 9,208,072 859,963 Chestnut Court Darien, IL 8,618,623 5,719,982 10,350,084 161,429 Bergen Plaza Oakdale, MN 9,141,896 5,346,781 11,700,498 378,940 Fairview Heights Plaza Fairview Heights, IL 5,637,000 2,350,493 8,914,458 5,500 Woodfield Commons E/W Schaumburg, IL 13,500,000 8,352,858 18,336,997 651,961
Gross amount at which carried at end of period(B) --------------------------------------------------------------- Date Land Buildings Accumulated Con- and and Total Depreciation struct- Date Improvements improvements (D) (E) ed Acq ---------------- --------------- ------------- ------------ ------- ------ Maple Grove Retail Maple Grove, MN 2,172,777 5,758,017 7,930,794 311,246 1998 09/99 Shingle Creek Brooklyn Center, MN 1,228,197 2,353,357 3,581,554 138,978 1986 09/99 Rose Plaza West Naperville, IL 989,499 1,790,417 2,779,916 88,820 1997 09/99 Schaumburg Promenade Schaumburg, IL 6,562,000 12,718,385 19,280,385 478,558 1999 12/99 Rose Plaza East Naperville, IL 825,132 1,380,144 2,205,276 54,831 1999 01/00 Joliet Commons Ph II Joliet, IL 810,798 3,998,532 4,809,330 132,007 1999 02/00 Bohl Farm Marketplace Crystal Lake, IL 5,800,157 9,888,134 15,688,291 29,168 2000 12/00 Community Centers ----------------- Lansing Square Lansing, IL 4,075,000 13,057,740 17,132,740 1,694,767 1991 12/96 Maple Park Place Bolingbrook, IL 3,665,909 12,196,302 15,862,211 1,790,507 1992 01/97 Rivertree Court Vernon Hills, IL 8,651,875 23,225,588 31,877,463 2,846,771 1988 07/97 Naper West Naperville, IL 5,335,000 9,453,365 14,788,365 1,070,467 1985 12/97 Woodfield Plaza Schaumburg, IL 4,612,277 14,477,413 19,089,690 1,580,329 1992 01/98 Lake Park Plaza Michigan City, IN 3,252,861 10,068,035 13,320,896 1,000,129 1990 02/98 Chestnut Court Darien, IL 5,719,982 10,511,513 16,231,495 1,058,044 1987 03/98 Bergen Plaza Oakdale, MN 5,346,781 12,079,438 17,426,219 1,168,306 1978 04/98 Fairview Heights Plaza Fairview Heights, IL 2,350,493 8,919,958 11,270,451 728,160 1991 08/98 Woodfield Commons E/W Schaumburg, IL 8,352,858 18,988,958 27,341,816 1,553,203 1997 10/98
60 61 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III (continued) Real Estate and Accumulated Depreciation December 31, 2000
Initial Cost (A) ---------------------------- Buildings And Adjustments Encumbrance Land improvements To Basis (C) ------------- ------------ -------------- ------------ Joliet Commons Joliet, IL $ 14,318,117 4,088,806 15,684,488 (92,292) Springboro Plaza Springboro, OH 5,161,000 1,079,108 8,240,455 - Park Center Plaza Tinley Park, IL 7,337,000 5,363,000 9,633,491 (750,323) Woodland Commons Buffalo Grove, IL 10,734,710 5,337,727 15,410,472 336,344 Randall Square Geneva, IL - 7,640,665 19,745,173 (16,512) Riverdale Commons Coon Rapids, MN 9,752,000 4,324,439 15,131,353 11,687 Quarry Retail Minneapolis, MN 15,670,000 7,761,542 23,603,421 898 Pine Tree Plaza Janesville, WI - 2,889,136 15,644,108 (228,273) Chatham Ridge Chicago, IL 9,737,620 4,089,800 15,455,577 356,149 --------------- ------------- --------------- ------------- Total $ 467,766,173 283,182,798 697,480,282 10,985,507 =============== ============= =============== =============
Gross amount at which carried at end of period(B) --------------------------------------------------------------- Date Land Buildings Accumulated Con- and and Total Depreciation struct- Date Improvements improvements (D) (E) ed Acq ---------------- --------------- ------------- ------------ ------- ------ Joliet Commons Joliet, IL 4,088,806 15,592,196 19,681,002 1,394,650 1995 10/98 Springboro Plaza Springboro, OH 1,079,108 8,240,455 9,319,563 613,055 1992 11/98 Park Center Plaza Tinley Park, IL 5,363,000 8,883,168 14,246,168 758,239 1988 12/98 Woodland Commons Buffalo Grove, IL 5,337,727 15,746,816 21,084,543 1,072,931 1991 02/99 Randall Square Geneva, IL 7,640,665 19,728,661 27,369,326 1,212,015 1999 05/99 Riverdale Commons Coon Rapids, MN 4,324,439 15,143,040 19,467,479 782,671 1998 09/99 Quarry Retail Minneapolis, MN 7,761,542 23,604,319 31,365,861 1,215,079 1997 09/99 Pine Tree Plaza Janesville, WI 2,889,136 15,415,835 18,304,971 745,523 1998 10/99 Chatham Ridge Chicago, IL 4,089,800 15,811,726 19,901,526 513,818 1999 02/00 ----------------- --------------- -------------- ------------- Total 283,182,798 708,465,789 991,648,587 63,393,406 ================= =============== ============== =============
61 62 INLAND REAL ESTATE CORPORATION (a Maryland corporation) Schedule III (continued) Real Estate and Accumulated Depreciation December 31, 2000, 1999 and 1998 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, 2000 and 1999 for federal income tax purposes was approximately $880,350,000 and $824,300,000, 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 investment properties rather than as rental income. (D) Reconciliation of real estate owned: 2000 1999 1998 --------------- ------------- ------------- Balance at beginning of year $ 943,106,944 645,979,867 276,310,838 Purchases of property 45,169,948 294,537,006 368,364,949 Additions 5,488,050 5,893,566 3,285,854 Sales - (1,117,665) - Payments received under master leases (1,378,872) (2,185,830) (1,981,774) --------------- ------------- ------------- Balance at end of year $ 992,386,070 943,106,944 645,979,867 =============== ============= ============= (E) Reconciliation of accumulated depreciation: Balance at beginning of year $ 37,424,871 17,161,998 5,665,483 Depreciation expense 25,989,147 20,262,873 11,496,515 --------------- ------------- ------------- Balance at end of year $ 63,414,018 37,424,871 17,161,998 =============== ============= ============= 62 63 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements on accounting or financial disclosure during 2000. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information which appears under the captions "Proposal No. 1 - Election of Directors" and Executive Officers" in the Company's definitive proxy statement for its 2001 Annual Meeting of Stockholders is incorporated by reference into this Item 10. ITEM 11. EXECUTIVE COMPENSATION The information which appears under the caption "Executive Compensation: in the Company's definitive proxy statement for its 2001 Annual Meeting of Stockholders is incorporated by reference into this Item 11: provided, however, that the Report of the Compensation Committee of the Board of Directors on Executive Compensation set forth therein shall not be incorporated by reference herein, in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or in any of the Company's future filings. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information which appears under the captions "Certain Relationships and Related Transactions" and "Common Stock Ownership of Management" in the Company's definitive proxy statement for its 2001 Annual Meeting of Stockholders is incorporated by reference into this Item 12. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information which appears under the caption "Certain Relationships and Related Transactions" in the Company's definitive proxy statement for its 2001 Annual Meeting of Stockholders is incorporated by reference into this Item 13. 63 64 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, 2000 is submitted herewith. Page Real Estate and Accumulated Depreciation (Schedule III)....... 55 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. (b) Reports on Form 8-K: None (c) Exhibits: Required by the Securities and Exchange Commission Regulation S-K, Item 601. The following exhibits are filed as part of this document or incorporated herein by reference: Item No. Description 2.1 Agreement and Plan of Merger by and among the Registrant, Inland Advisors, Inc., Inland Management Corporation, Inland Real Estate Investment Corporation, Inland Real Estate Advisory Services, Inc., The Inland Property Management Group, Inc., Inland Commercial Property Management, Inc. and The Inland Group, Inc. dated March 7, 2000 (7) 3.1 Third Articles of Amendment and Restatement of the Registrant dated July 1, 2000 (8) 3.2 Amended and Restated Bylaws of the Registrant (1) 4.1 Specimen Stock Certificate (2) 10.1 Advisory Agreement between the Registrant and Inland Real Estate Advisory Services, Inc. dated October 14, 1994 (3) 10.1 (a) Amendment No. 1 to the Advisory Agreement dated October 13, 1995 (5) 10.1 (b) Amendment No. 2 to the Advisory Agreement dated October 13, 1996 (5) 10.1 (c) Amendment No. 3 to the Advisory Agreement effective as of October 13, 1997 (2) 10.1 (d) Amendment No. 4 to the Advisory Agreement dated March 27, 1998 (6) 64 65 10.1 (e) Amendment No. 5 to the Advisory Agreement dated June 30, 1998 (6) 10.2 Form of Management Agreement between the Registrant and Inland Commercial Property Management, Inc. (4) 10.3 Amended and Restated Independent Director Stock Option Plan (3) 10.4 Consulting Agreement between the Registrant and Robert D. Parks dated July 1, 2000 (8) 10.5 Employment Agreement between the Registrant and Norbert J. Treonis dated December 14, 2000 (9) 10.6 Separation Agreement between the Registrant and Norbert J. Treonis dated March 9, 2001 (9) 10.7 [Reserved] 10.8 Employment Agreement between the Registrant and Samuel A. Orticelli dated December 14, 2000 (9) 10.9 Employment Agreement between the Registrant and Mark E. Zalatoris dated December 14, 2000 (9) 10.10 Sublease between the Registrant and Inland Real Estate Investment Corporation dated July 1, 2000 (8) 10.11 Services Agreement between the Registrant and Inland Real Estate Investment Corporation, Inland Payroll Services, Inc., Inland Computer Services, Inc., Inland Risk and Insurance Management Services, Inc., Inland Communications, Inc., Investors Property Tax Services, Inc. and Inland Office Management, Inc. dated July 1, 2000 (1) 10.12 Software License Agreement between the Registrant and Inland Computer Services, Inc. dated July 1, 2000 (1) 10.13 Service Mark and Tradename License Agreement between the Registrant and The Inland Group, Inc. dated July 1, 2000 (1) 10.14 First Amendment to Sublease between the Registrant and Inland Real Estate Investment Corporation dated February 27, 2001 (1) 21 Subsidiaries of the Registrant (1) 23 Consent of KPMG LLP dated March 28, 2001 (1) (1) Filed as part of this document. (2) Included in the Registrant's Registration Statement on Form S-11 as filed by the Registrant on January 30, 1998. (3) Included in the Registrant's Registration Statement on Form S-11 (file number 333-6459) as filed by the Registrant on June 20, 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 July 18, 1996. 65 66 (5) 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. (6) 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. (7) Included in the Registrant's Current Report on Form 8-K (File number 000-28382) as filed by the Registrant on March 21, 2000. (8) Included in the Registrant's Current Report on Form 8-K (File number 000-28382) as filed by the Registrant on July 14, 2000. (9) Included in the Registrant's Current Report on Form 8-K (File number 000-28382) as filed by the Registrant on March 16, 2001. (d) Financial Statement Schedules: None 66 67 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 President, Chief Executive Officer and Chairman of the Board Date: March 28, 2001 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 /s/ HEIDI N. LAWTON By: Robert D. Parks By: By: Heidi N. Lawton President, Chief Executive Officer Director and Chairman of the Board Date: March 28, 2001 Date: March 28, 2001 /s/ JOEL D. SIMMONS /s/ ROLAND W. BURRIS By: Joel D. Simmons By: Roland W. Burris Director Director Date: March 28, 2001 Date: March 28, 2001 /s/ G. JOSEPH COSENZA /s/ JOEL G. HERTER By: G. Joseph Cosenza By: Joel G. Herter Director Director Date: March 28, 2001 Date: March 28, 2001 /s/ MARK E. ZALATORIS By: Mark E. Zalatoris Senior Vice President, Chief Financial Officer and Treasurer Date: March 28, 2001 67