3:
3:
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2002
Or
[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File #0-28382
Inland Real Estate Corporation
(Exact name of registrant as specified in its charter)
Maryland |
#36-3953261 |
(State or other jurisdiction |
(I.R.S. Employer Identification Number) |
of incorporation or organization) |
|
2901 Butterfield Road, Oak Brook, Illinois |
60523 |
(Address of principal executive office) |
(Zip code) |
Registrant's telephone number, including area code: 630-218-8000
N/A
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No
As of November 13, 2002, there were 64,436,253 Shares of Common Stock outstanding.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
TABLE OF CONTENTS
|
Part I - Financial Information |
|
|
|
|
|
|
|
|
|
Page |
Item 1. |
Consolidated Financial Statements |
|
|
|
|
|
|
|
Consolidated Balance Sheets |
|
3 |
|
|
|
|
|
Consolidated Statements of Operations |
|
5 |
|
|
|
|
|
Consolidated Statement of Stockholders' Equity |
|
7 |
|
|
|
|
|
Consolidated Statements of Cash Flows |
|
8 |
|
|
|
|
|
Notes to Consolidated Financial Statements |
|
10 |
|
|
|
|
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
|
24 |
|
|
|
|
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
|
36 |
|
|
|
|
Item 4. |
Controls and Procedures |
|
36 |
|
|
|
|
|
|
|
|
|
Part II - Other Information |
|
|
|
|
|
|
Item 6. |
Exhibits and Reports on Form 8-K |
|
37 |
|
|
|
|
SIGNATURES |
|
|
38 |
|
|
|
|
CERTIFICATIONS |
|
|
39 |
Part I - Financial Information
Item 1. Consolidated Financial Statements
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Balance Sheets
September 30, 2002 and December 31, 2001
Assets
|
September 30, 2002 (unaudited) |
|
December 31, 2001 |
Investment properties: |
|
|
|
Land |
$ 303,140,146 |
|
283,915,378 |
Building and improvements |
797,367,821 |
|
721,578,066 |
|
|
|
|
|
1,100,507,967 |
|
1,005,493,444 |
Less accumulated depreciation |
110,189,619 |
|
90,090,870 |
|
|
|
|
Net investment properties |
990,318,348 |
|
915,402,574 |
|
|
|
|
Cash and cash equivalents |
32,412,113 |
|
29,976,991 |
Investment in securities (net of an unrealized gain of $1,390,169 and $1,251,426 at September 30, 2002 and December 31, 2001, respectively) |
12,817,562 |
|
13,584,987 |
Investment in LLC |
129,830 |
|
270,223 |
Investment in marketable securities |
63,073 |
|
63,073 |
Restricted cash |
8,039,781 |
|
6,606,300 |
Accounts and rents receivable (net of provision for doubtful accounts of $2,886,478 and $1,968,492 at September 30, 2002 and December 31, 2001, respectively) |
29,465,289 |
|
28,314,800 |
Mortgages receivable |
6,327,944 |
|
21,152,753 |
Deposits and other assets |
946,376 |
|
396,506 |
Leasing fees (net of accumulated amortization of $696,607 and $419,416 at September 30, 2002 and December 31, 2001, respectively) |
1,281,078 |
|
1,083,869 |
Loan fees (net of accumulated amortization of $2,804,352 and $2,924,063 at September 30, 2002 and December 31, 2001, respectively) |
4,758,162 |
|
3,511,060 |
|
|
|
|
Total assets |
$ 1,086,559,556 |
|
1,020,363,136 |
|
================ |
|
================ |
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Balance Sheets
(continued)
September 30, 2002 and December 31, 2001
Liabilities and Stockholders' Equity
|
September 30, 2002 (unaudited) |
|
December 31, 2001 |
Liabilities: |
|
|
|
Accounts payable and accrued expenses |
$ 1,469,075 |
|
1,182,570 |
Accrued interest |
1,998,425 |
|
1,971,689 |
Accrued real estate taxes |
24,639,766 |
|
21,526,708 |
Distributions payable |
5,107,217 |
|
5,174,998 |
Security and other deposits |
3,738,571 |
|
3,940,037 |
Mortgages payable |
540,144,567 |
|
493,119,857 |
Line of credit |
25,000,000 |
|
- |
Prepaid rents and unearned income |
1,529,023 |
|
2,305,092 |
Other liabilities |
738,496 |
|
566,020 |
|
|
|
|
Total liabilities |
604,365,140 |
|
529,786,971 |
|
|
|
|
Minority interest |
22,711,692 |
|
24,982,490 |
|
|
|
|
Stockholders' Equity: |
|
|
|
Preferred stock, $.01 par value, 6,000,000 Shares authorized; none issued and outstanding at September 30, 2002 and December 31, 2001 |
- |
|
- |
Common stock, $.01 par value, 100,000,000 Shares authorized; 64,172,879 and 63,392,122 Shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively |
641,728 |
|
633,921 |
Additional paid-in capital (net of offering costs of $58,816,092) |
611,234,632 |
|
602,340,085 |
Deferred stock compensation |
(60,000) |
|
- |
Accumulated distributions in excess of net income |
(153,723,805) |
|
(138,631,757) |
Accumulated other comprehensive income |
1,390,169 |
|
1,251,426 |
|
|
|
|
Total stockholders' equity |
459,482,724 |
|
465,593,675 |
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
$ 1,086,559,556 |
|
1,020,363,136 |
|
================ |
|
=============== |
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Operations
For the three and nine months ended September 30, 2002 and 2001
(unaudited)
|
Three months ended Sept 30, 2002 |
|
Three months ended Sept 30, 2001 |
|
Nine months ended Sept 30, 2002 |
|
Nine months ended Sept 30, 2001 |
Income: |
|
|
|
|
|
|
|
Rental income |
$ 28,282,552 |
|
26,324,141 |
|
80,370,460 |
|
80,140,750 |
Additional rental income |
9,517,097 |
|
10,218,459 |
|
30,142,643 |
|
31,512,663 |
Lease termination income |
- |
|
333,500 |
|
618,981 |
|
2,481,404 |
Interest income |
282,228 |
|
770,102 |
|
1,165,519 |
|
2,310,955 |
Dividend income |
371,764 |
|
364,828 |
|
960,079 |
|
972,079 |
Other income |
169,131 |
|
141,635 |
|
357,095 |
|
408,914 |
|
|
|
|
|
|
|
|
|
38,622,772 |
|
38,152,665 |
|
113,614,777 |
|
117,826,765 |
Expenses: |
|
|
|
|
|
|
|
Professional services |
70,194 |
|
69,244 |
|
303,100 |
|
468,041 |
General and administrative expenses |
1,028,074 |
|
911,674 |
|
3,183,485 |
|
2,891,561 |
Bad debt expense |
1,369,246 |
|
195,562 |
|
2,036,780 |
|
1,523,555 |
Property operating expenses |
9,779,683 |
|
10,792,008 |
|
32,882,041 |
|
33,532,439 |
Interest expense |
8,968,775 |
|
8,817,888 |
|
24,809,567 |
|
26,079,936 |
Depreciation |
7,357,708 |
|
6,634,291 |
|
21,072,245 |
|
19,806,089 |
Amortization |
100,995 |
|
115,260 |
|
340,204 |
|
265,523 |
Acquisition cost expenses |
35,532 |
|
6,256 |
|
35,552 |
|
43,731 |
|
|
|
|
|
|
|
|
|
28,710,207 |
|
27,542,183 |
|
84,662,974 |
|
84,610,875 |
|
|
|
|
|
|
|
|
Income from operations |
9,912,565 |
|
10,610,482 |
|
28,951,803 |
|
33,215,890 |
Minority interest |
(249,441) |
|
(98,920) |
|
(695,381) |
|
(559,330) |
Income (loss) from operations of unconsolidated ventures |
(91,393) |
|
(95,370) |
|
40,232 |
|
(141,907) |
|
|
|
|
|
|
|
|
Income before discontinued operations and extraordinary items |
9,571,731 |
|
10,416,192 |
|
28,296,654 |
|
32,514,653 |
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
Income (loss) from discontinued operations (including gain on sale of investment properties of $220,335 for the three months ended September 30, 2002 and $1,582,421 and $467,337 for the nine months ended September 30, 2002 and 2001, respectively) |
220,073 |
|
(65,701) |
|
1,587,956 |
|
483,013 |
Extraordinary loss on early extinguishment of debt |
- |
|
- |
|
(136,120) |
|
(49,823) |
|
|
|
|
|
|
|
|
Net income |
$ 9,791,804 |
|
10,350,491 |
|
29,748,490 |
|
32,947,843 |
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Operations
(continued)
For the three and nine months ended September 30, 2002 and 2001
(unaudited)
|
Three months ended Sept 30, 2002 |
|
Three months ended Sept 30, 2001 |
|
Nine months ended Sept 30, 2002 |
|
Nine months ended Sept 30, 2001 |
|
|
|
|
|
|
|
|
Net income |
$ 9,791,804 |
|
10,350,491 |
|
29,748,490 |
|
32,947,843 |
Other comprehensive income: |
|
|
|
|
|
|
|
Unrealized gain on investment securities |
(595,342) |
|
(715,636) |
|
138,743 |
|
1,400,973 |
|
|
|
|
|
|
|
|
Comprehensive income |
$ 9,196,462 |
|
9,634,855 |
|
29,887,233 |
|
34,348,816 |
|
========== |
|
========== |
|
========== |
|
========== |
|
|
|
|
|
|
|
|
Net income per common share, basic and diluted |
$ .15 |
|
.16 |
|
.47 |
|
.52 |
|
========== |
|
========== |
|
========== |
|
========== |
Weighted average common shares outstanding, basic |
63,736,497 |
|
63,172,951 |
|
63,739,999 |
|
63,037,736 |
|
========== |
|
========== |
|
========== |
|
========== |
Weighted average common shares outstanding, diluted |
63,741,951 |
|
63,172,951 |
|
63,745,453 |
|
63,037,736 |
|
========== |
|
========== |
|
========== |
|
========== |
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Stockholders' Equity
For the nine months ended September 30, 2002
(unaudited)
|
Number of Shares |
|
Common Stock |
|
Additional Paid-in Capital |
|
Deferred Stock Compensation |
|
Accumulated Distributions in Excess of Net Income |
|
Accumulated Other Comprehensive Income |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2002 |
63,392,122 |
|
$ 633,921 |
|
602,340,085 |
|
- |
|
(138,631,757) |
|
1,251,426 |
|
465,593,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
- |
|
- |
|
- |
|
- |
|
29,748,490 |
|
- |
|
29,748,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
- |
|
- |
|
- |
|
- |
|
- |
|
138,743 |
|
138,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared ($.70 for the nine months ended September 30, 2002 per diluted weighted average common shares outstanding) |
- |
|
- |
|
- |
|
- |
|
(44,840,538) |
|
- |
|
(44,840,538) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from DRP |
1,554,760 |
|
15,547 |
|
16,231,703 |
|
- |
|
- |
|
- |
|
16,247,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted common stock |
5,454 |
|
55 |
|
59,945 |
|
(60,000) |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock |
(779,457) |
|
(7,795) |
|
(7,397,101) |
|
- |
|
- |
|
- |
|
(7,404,896) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2002 |
63,172,879 |
|
$ 641,728 |
|
611,234,632 |
|
(60,000) |
|
(153,723,805) |
|
1,390,169 |
|
459,482,724 |
|
======== |
|
========= |
|
========== |
|
=========== |
|
============= |
|
============= |
|
============ |
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2002 and 2001
(unaudited)
|
Nine months ended Sept 30, 2002 |
|
Nine months ended Sept 30, 2001 |
Cash flows from operating activities: |
|
|
|
Net income |
$ 29,748,490 |
|
32,947,843 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
Depreciation |
21,072,245 |
|
19,806,089 |
Amortization |
340,204 |
|
265,523 |
Non-cash charges associated with discontinued operations |
71,643 |
|
162,857 |
Gain on sale of investment properties |
(1,582,421) |
|
(467,337) |
Minority interest |
695,381 |
|
559,330 |
Loss from operations of unconsolidated ventures |
140,393 |
|
141,907 |
Extraordinary loss on early extinguishment of debt |
- |
|
49,823 |
Rental income under master lease agreements |
13,412 |
|
265,727 |
Straight line rental income |
(1,381,902) |
|
(1,795,155) |
Provision for doubtful accounts |
917,986 |
|
1,013,141 |
Interest on unamortized loan fees |
863,611 |
|
557,480 |
Donation of land |
- |
|
2,575 |
Changes in assets and liabilities: |
|
|
|
Accounts and rents receivable |
(686,573) |
|
(3,279,459) |
Other assets |
(549,870) |
|
583,491 |
Investment in marketable securities |
- |
|
260,000 |
Accounts payable and accrued expenses |
286,505 |
|
(1,302,860) |
Accrued interest payable |
26,736 |
|
(8,501) |
Accrued real estate taxes |
3,113,058 |
|
4,286,619 |
Security and other deposits |
(201,466) |
|
2,120,281 |
Other liabilities |
937 |
|
(3,781) |
Prepaid rents and unearned income |
(776,069) |
|
557,749 |
|
|
|
|
Net cash provided by operating activities |
52,112,300 |
|
56,723,342 |
|
|
|
|
Cash flows from investing activities: |
|
|
|
Restricted cash |
(1,433,481) |
|
1,738,759 |
Escrows held for others |
171,539 |
|
(1,450,524) |
Purchase of investment securities |
- |
|
(2,604,252) |
Sale of investment securities |
906,168 |
|
275,000 |
Additions to investment properties |
(5,180,255) |
|
(5,770,379) |
Purchase of investment properties |
(78,000,546) |
|
(3,303,657) |
Proceeds from sale of investment properties |
8,211,791 |
|
2,364,378 |
Investment in LLC |
- |
|
(500,000) |
Purchase of minority interest units |
(1,500,000) |
|
- |
Mortgages receivable |
14,824,809 |
|
(6,624,349) |
Construction in progress |
- |
|
1,300,592 |
Leasing fees |
(526,089) |
|
(471,760) |
|
|
|
|
Net cash used in investing activities |
$ (62,526,064) |
|
(15,046,192) |
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Cash Flows
(continued)
For the nine months ended September 30, 2002 and 2001
(unaudited)
|
Nine months ended Sept 30, 2002 |
|
Nine months ended Sept 30, 2001 |
Cash flows from financing activities: |
|
|
|
Proceeds from DRP |
$ 16,247,250 |
|
16,447,370 |
Repurchases of shares |
(7,404,896) |
|
(8,867,471) |
Loan proceeds |
31,600,000 |
|
35,130,000 |
Proceeds from unsecured line of credit |
25,000,000 |
|
- |
Loan fees |
(2,193,679) |
|
(360,975) |
Distributions paid |
(46,374,499) |
|
(46,983,305) |
Payoff of debt |
(3,853,000) |
|
(1,050,000) |
Prepayment penalty on payoff of debt |
- |
|
(40,604) |
Principal payments of debt |
(172,290) |
|
(341,034) |
|
|
|
|
Net cash provided by (used in) financing activities |
12,848,886 |
|
(6,066,019) |
|
|
|
|
Net increase in cash and cash equivalents |
2,435,122 |
|
35,611,131 |
|
|
|
|
Cash and cash equivalents at beginning of period |
29,976,991 |
|
8,397,732 |
|
|
|
|
Cash and cash equivalents at end of period |
$ 32,412,113 |
|
44,008,863 |
|
============== |
|
============== |
|
|
|
|
Supplemental schedule of noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
Purchase of investment properties |
$ (97,450,546) |
|
(3,303,657) |
Assumption of mortgage debt |
19,450,000 |
|
- |
|
|
|
|
|
$ (78,000,546) |
|
(3,303,657) |
|
============== |
|
============== |
Distributions payable |
$ 5,107,217 |
|
5,288,064 |
|
============== |
|
============== |
Cash paid for interest |
$ 23,919,220 |
|
25,747,203 |
|
============== |
|
============== |
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Readers of this Quarterly Report should refer to the audited financial statements of Inland Real Estate Corporation (the "Company") for the fiscal year ended December 31, 2001, which are included in the Company's 2001 Annual Report, as certain footnote disclosures contained in such audited financial statements have been omitted from this Report. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included in this quarterly report.
(1) Organization and Basis of Accounting
Inland Real Estate Corporation was formed on May 12, 1994. The Company owns, and may acquire, additional Neighborhood Retail Centers and Community Centers located primarily within an approximate 400-mile radius of its headquarters in Oak Brook, Illinois. The Company owns, and may also acquire, single-user retail properties located throughout the United States, either directly or through sale and leaseback transactions. 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 a total of four public offerings of common stock, on a best efforts basis, at prices ranging from $10 to $11 per share, in which a total of 51,642,397 shares were sold. In addition, as of September 30, 2002, the Company has issued 10,142,694 shares through the Company's Distribution Reinvestment Program ("DRP") at prices ranging from $9.05 to $10.45 per share and has repurchased a total of 3,800,019 shares through the Company's Share Repurchase Program at prices ranging from $9.05 to $9.50 per share for an aggregate cost of $35,156,420. As a result, total offering proceeds, net of offering expenses, were $670,632,452 as of September 30, 2002.
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.
In the opinion of management, the financial statements contain all the adjustments necessary, which are of a normal recurring nature, to present fairly the financial position and results of operations for the period presented herein. Results of interim periods are not necessarily indicative of results to be expected for the year.
The Company monitors the various qualification tests the Company must meet to maintain its status as a real estate investment trust. The Company 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.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 2002
(unaudited)
The Company records stock compensation granted to officers of the Company in accordance with Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based Compensation." Under SFAS 123, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period.
On October 10, 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 replaces and supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 also supersedes the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business", for the disposal of segments of a business. SFAS 144 establishes accounting and reporting standards for the impairment or disposal of long-lived assets by requiring those long-lived assets be measured at the lower of carrying costs or fair value less selling costs, whether reported on continuing operations or in discontinued operations. The provisions of SFAS 144 are effective for financial statements issued for fiscal years beginning afte r December 15, 2001. The Company adopted SFAS 144 on January 1, 2002.
On April 30, 2002, the FASB issued Statement of Financial Accounting Standards No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections." The rescission of SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," which amended SFAS No. 4, will affect income statement classification of gains and losses from extinguishment of debt. SFAS No. 4 required that gains and losses from extinguishment of debt be classified as an extraordinary item, if material. Under SFAS No. 145, extinguishment of debt is now considered a risk management strategy by the reporting enterprise and the FASB does not believe it should be considered extraordinary under the criteria in APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurr ing Events and Transactions," unless the debt extinguishment meets the unusual in nature and infrequency of occurrence criteria in APB Opinion No. 30. SFAS 145 will be effective for fiscal years beginning after May 15, 2002. Upon adoption, extinguishments of debt shall be classified under the criteria in APB Opinion No. 30.
Certain reclassifications were made to the 2001 financial statements to conform to the 2002 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 September 30, 2002 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 identificati on basis. A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary results in a reduction in the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Dividend income is recognized when received. Sale of investment securities available-for-sale during the nine months ended September 30, 2002 and 2001 resulted in a gain on sale of $101,957 and $51,122, respectively, which is included in other income.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 2002
(unaudited)
(2) Joint Ventures
The accompanying consolidated financial statements of the Company include, in addition to the accounts of the wholly-owned subsidiaries, the accounts of Inland Ryan, LLC and Inland Ryan Cliff Lake, LLC (Inland Ryan and Inland Ryan Cliff Lake are collectively referred to as the "LLCs"). Due to the Company's ability as managing member to directly control these LLCs, they are consolidated with the Company for financial reporting purposes. The third parties' interests in the LLCs are reflected as minority interest in the accompanying consolidated financial statements. As of September 30, 2002, the Company and the non-managing members have entered into five 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 78% and 22%.
On February 1, 2001, a wholly-owned subsidiary of the Company entered into an LLC agreement with a wholly-owned subsidiary of Tri-Land Properties, Inc., an unaffiliated third party, 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 currently has one anchor tenant, a 139,451 square foot Burlington Coat Factory store on the south end of the property. On the north end of the property, there is a vacant 148,420 square foot store, previously occupied by Montgomery Wards, which is currently being marketed to new users. In between was 105,000 square feet of enclosed mall space, which has been demolished, as part of the phased redevelopment of the property. The phased redevelopment also calls for 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. Each partner's initial equity contribution was $500,000. The Company is a non-managing member of the LLC, therefore, the operations are not consolidated for financial reporting purposes. A wholly-owned subsidiary of the Company has the right of first refusal to acquire the property after it is redeveloped. As of September 30, 2002, the Company's net investment was $129,830. In addition, the Company has committed to lend the LLC up to an additional $17,800,000. The loan bears interest at an initial rate of 9% per annum, paid monthly on average outstanding balances. The loan matures in five years. As of September 30, 2002, the principal balance of this mortgage receivable was $6,327,944.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 2002
(unaudited)
(3) Transactions with Affiliates
During the three and nine months ended September 30, 2002 and 2001, the Company purchased various administrative services, such as payroll preparation and management, data processing, insurance consultation and placement, investor relations and mail processing from affiliates of The Inland Group, Inc. The Inland Group, Inc., through affiliates, owns approximately 10% of the Company's outstanding common stock. These services were purchased from these entities based on an hourly cost assigned to each employee of the affiliate providing the services. The hourly rate is based on the employee's salary, plus a pro rata allocation of overhead including, but not limited to, employee benefits, rent, materials, fees, taxes and operating expenses incurred by each entity in operating their respective businesses. Computer services were purchased at a contract rate of $30.00 per hour. The Company continues to purchase these services from The Inland Group, Inc. affiliates and for the nine months ende d September 30, 2002 and 2001, these expenses, totaling $2,388,595 and $1,848,143, respectively, are included in general and administrative expenses. Additionally, the Company leases its corporate office space from an affiliate of The Inland Group, Inc. Payments under this lease for the nine months ended September 30, 2002 and 2001 were $112,724 and $98,370, respectively, and are also included in general and administrative expenses.
During the nine months ended September 30, 2002, the Company purchased legal services from attorneys employed by The Inland Real Estate Group, Inc., a wholly-owned subsidiary of The Inland Group, Inc. The fees for these services are purchased at a rate equal to $190.00 per hour. For the nine months ended September 30, 2002 and 2001, the Company paid $166,511 and $100,410, respectively, for these legal services.
An affiliate of The Inland Group, Inc. holds a mortgage on the Walgreens property, located in Decatur, Illinois. As of September 30, 2002, the remaining balance of the mortgage was $655,692. The loan secured by this mortgage bears interest at a rate equal to 7.65% per annum and matures on May 31, 2004. For the nine months ended September 30, 2002, the Company paid principal and interest payments totaling $51,199 on this mortgage.
On July 18, 2002, the Company purchased a property from an affiliate of The Inland Group, Inc. for $27,187,100, which is equal to the price paid by the affiliate. The Company assumed the current mortgage on the property in the amount of $13,600,000 and the balance of the purchase price was funded using cash and cash equivalents. The property is located in Celebration, Florida and contains 166,131 square feet of net rentable space leased entirely by the Walt Disney Company for a minimum period of 10 years. An affiliate of The Inland Group, Inc. was paid an acquisition fee equal to 1% of the purchase price of the property, excluding assumption of indebtedness, or $271,871, in connection with the purchase of this property.
During the nine months ended September 30, 2002, the Company completed financing transactions which resulted in the Company incurring additional indebtedness of $31,600,000. In connection with obtaining this financing, the Company retained the services of Cohen Financial and paid a commission to Cohen in an amount equal to $158,000 (equivalent to one-half of one percent of the principal amount of the indebtedness). The Company anticipates utilizing the services of Cohen Financial in future financing activities. In each case, the Company anticipates paying Cohen Financial a brokerage fee equal to one-half of one percent. Joel D. Simmons, one of the Company's directors, is a limited partner of Cohen Financial.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 2002
(unaudited)
In February 2002, the Company completed a financing transaction which resulted in the Company incurring additional indebtedness of $8,000,000. In connection with obtaining this financing, the Company paid a commission for mortgage brokerage services to Inland Mortgage Corporation, an affiliate of The Inland Group, Inc., in an amount equal to $20,000 (equivalent to one-quarter of one percent of the principal amount of the indebtedness). In July 2002, the Company completed a financing transaction which resulted in the Company incurring additional indebtedness of $13,600,000. In connection with obtaining this financing, the Company paid a commission for mortgage brokerage services to Inland Mortgage Corporation, in an amount equal to $68,000 (equivalent to one-half of one percent of the principal amount of the indebtedness).
(4) Investment Properties
In connection with the purchase of several investment properties, the Company, from time to time, receives payments under master lease agreements covering space vacant at the time of acquisition. The payments to be made to the Company range from one to two years from the date of acquisition of the property or until the vacant space is leased and tenants begin paying rent. As of September 30, 2002, the Company has two investment properties, Townes Crossing, located in Oswego, Illinois and Forest Lake Marketplace, located in Forest Lake, Minnesota, subject to master lease agreements. GAAP requires the Company to treat these payments as a reduction to the purchase price of the investment properties upon receipt of the payment, rather than as rental income. The cumulative amount of such payments was $6,886,869 and $6,873,457 for the nine months ended September 30, 2002 and the year ended December 31, 2001, respectively (Note 6).
On February 12, 2001, the Company entered into a bankruptcy court-approved settlement with Eagle Food Stores, Inc. receiving $4,120,000 to settle the Company's claims for damages as a result of two leases previously rejected by Eagle Food Stores, Inc. Of the $4,120,000, approximately $1,972,000 was for rental and additional rental income due through February 12, 2001 and approximately $2,148,000 was a one-time lease termination fee.
(5) Discontinued Operations
On April 17, 2001, the Company sold one of its investment properties, Lincoln Park Place, located in Chicago, Illinois, to a tenant at the property for $2,372,500. In conjunction with this sale, the Company paid off existing debt on the property of $1,050,000. The Company recorded an extraordinary loss on the early extinguishment of this debt totaling $49,823, of which $40,604 was a prepayment penalty and $9,219 was the write-off of unamortized deferred loan fees. After the debt payoff, the Company received net sales proceeds of approximately $1,274,000, net of closing costs. This sale resulted in a gain on sale of $467,337.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 2002
(unaudited)
On March 28, 2002, the Company sold one of its investment properties, Antioch Plaza, located in Antioch, Illinois, to a third party for $1,818,344, net of closing costs. The Company had assigned its interest in Antioch Plaza to a qualified tax deferred agent (the "agent"), which in turn handled the sale. In conjunction with this sale, the agent paid off existing debt on the property of $875,000. The Company recorded an extraordinary loss on the early extinguishment of this debt totaling $4,378, which was for the write-off of unamortized deferred loan fees. The agent held the net proceeds of $926,000 until July 2002 when the funds were used to partially fund the purchase of an investment property (the "replacement property"). This sale resulted in a gain on sale of $533,942. For Federal and state income tax purposes, the Antioch Plaza sale qualified as part of a tax deferred exchange. As a result, the gain is deferred until the replacement property is disposed of in a subs equent taxable transaction.
Results of operations for Antioch Plaza for the period from January 1, 2002 through March 28, 2002, the date of sale, and for the nine months ended September 30, 2001 were as follows:
|
March 28, 2002 |
|
September 30, 2001 |
|
|
|
|
Total income |
$ 38,796 |
|
133,501 |
Total expenses |
82,196 |
|
154,761 |
Net loss from operations |
$ (43,400) |
|
(21,260) |
|
================= |
|
================= |
On June 12, 2002, the Company sold one of its investment properties, Shorecrest Plaza, located in Racine, Wisconsin, to a third party for $6,085,261, net of closing costs. The Company had assigned its interest in Shorecrest Plaza to a qualified tax deferred agent (the "agent"), which in turn handled the sale. In conjunction with this sale, the agent paid off existing debt on the property of $2,978,000. The Company recorded an extraordinary loss on the early extinguishment of this debt totaling $131,742, of which $111,289 was a prepayment penalty and $20,453 was the write-off of unamortized deferred loan fees. The agent held the net proceeds of $2,877,000 until July 2002 when the funds were used to partially fund the purchase of an investment property (the "replacement property"). This sale resulted in a gain on sale of $828,144. For Federal and state income tax purposes, the Shorecrest Plaza sale qualified as part of a tax deferred exchange. As a result, the gain is deferr ed until the replacement property is disposed of in a subsequent taxable transaction.
Results of operations for Shorecrest Plaza for the period from January 1, 2002 through June 12, 2002, the date of sale, and for the nine months ended September 30, 2001 were as follows:
|
June 12, 2002 |
|
September 30, 2001 |
|
|
|
|
Total income |
$ 340,514 |
|
703,820 |
Total expenses |
427,699 |
|
666,884 |
Net income (loss) from operations |
$ (87,185) |
|
36,936 |
|
================== |
|
================= |
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 2002
(unaudited)
On August 1, 2002, the Company sold approximately 1/3 of an acre of land at one of its investment properties, Maple Grove Retail, located in Maple Grove, Minnesota, to the city of Maple Grove for $308,186, net of closing costs. This land was taken by the city to be used to expand a road adjacent to the Company's investment property. The Company does not expect this sale to have any affect on the operations of this investment property. This sale resulted in a gain on sale of $220,335.
(6) Operating Leases
Certain of the Company's leases with tenants contain provisions providing for "stepped" rent increases. GAAP requires the Company to record rental income for the period of occupancy using the effective monthly rent, which is the average monthly rent for the entire period of occupancy during the term of the lease. The accompanying consolidated financial statements include increases of $1,381,902 and $1,795,155 for the nine months ended September 30, 2002 and 2001, respectively, of rental income for the period of occupancy for which stepped rent increases apply and $12,474,587 and $11,092,685 in related accounts and rents receivable as of September 30, 2002 and December 31, 2001, respectively. The Company anticipates collecting these amounts over the terms of the leases as scheduled rent payments are made.
Trak Auto, a tenant at six of the Company's investment properties filed for Chapter 11 bankruptcy protection under the Federal bankruptcy code in July 2001. As of September 30, 2002, all six leases have been rejected and the stores have closed. As of September 30, 2002, the Company has re-leased three of the vacant spaces, totaling approximately 39,000 square feet, as well as approximately 11,000 square feet of the approximately 42,000 square feet vacant at a fourth location. K-Mart, a tenant at three of the Company's investment properties filed for Chapter 11 bankruptcy protection under the Federal bankruptcy code in January 2002. As of September 30, 2002, two of the stores remain open and one has closed. The remaining vacant Trak Auto spaces and the three K-Mart locations account for approximately 3% of the Company's total square footage and approximately 1% of the Company's annual rental income. Management of the Company does not expect these bankruptcy filings to have a material advers e effect on the Company's results of operations or financial condition.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 2002
(unaudited)
(7) Mortgage Receivable
On May 28, 1999, the Company entered into a loan agreement with an unaffiliated third party and committed to lend a total of $15,500,000. The loan, secured by Thatcher Woods Shopping Center in River Grove, Illinois, had a maturity date of June 30, 2002 and required the borrower to make monthly interest-only payments on amounts outstanding at a rate of 9% per annum. The Company had, at its option, an election to purchase this property, upon completion of construction, subject to certain fair-value-based criteria stated in the contract. On April 25, 2002, the Company exercised its option to purchase Thatcher Woods Shopping Center for approximately $18,500,000. Of the purchase price, approximately $15,456,000, which was included in mortgages receivable, was from the repayment of the loan agreement and the balance was funded using cash and cash equivalents. Subsequently, the mortgage receivable was reclassified to net investment properties. The property contains approximately 193,300 squar e feet of leasable space. Its major tenants are Dominick's Finer Foods, A.J. Wright, Walgreens and Ace Hardware.
On February 1, 2001, the Company entered into an LLC agreement with Tri-Land Properties, Inc. and committed to lend the LLC up to $17,800,000 to fund the initial acquisition and subsequent redevelopment. Draws on the loan bear interest at a rate of 9% per annum with interest only paid monthly. The loan, secured by Century Consumer Mall in Merrillville, Indiana, matures on January 31, 2006. As of September 30, 2002, the principal balance of this mortgage receivable is $6,327,944. A wholly-owned subsidiary of the Company has the right of first refusal to acquire the property after it is redeveloped.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 2002
(unaudited)
(8) Mortgages Payable
The Company's mortgages payable are secured by certain of its investment properties and consist of the following at September 30, 2002 and December 31, 2001:
|
Interest Rate at September 30, 2002 |
|
Interest Rate at December 31, 2001 |
|
Maturity Date |
|
Current Monthly Payment |
|
Balance at September 30, 2002 |
|
Balance at December 31, 2001 |
|
|
|
|
|
|
|
|
|
|
|
|
Inland Mortgage Serv. Corp. (a) |
7.65% |
|
7.65% |
|
05/2004 |
|
$ 5,689 |
|
$ 655,692 |
|
668,824 |
Allstate |
7.21% |
|
7.21% |
|
12/2004 |
|
38,453 |
|
6,400,000 |
|
6,400,000 |
LaSalle Bank N.A. (b) |
2.08% |
|
2.13% |
|
12/2014 |
|
9,788 |
|
6,200,000 |
|
6,200,000 |
LaSalle Bank N.A. |
7.00% |
|
7.00% |
|
04/2005 |
|
102,972 |
|
17,897,500 |
|
17,897,500 |
Allstate |
7.00% |
|
7.00% |
|
02/2005 |
|
31,946 |
|
5,476,500 |
|
5,476,500 |
Allstate |
7.00% |
|
7.00% |
|
01/2005 |
|
23,917 |
|
4,100,000 |
|
4,100,000 |
Allstate |
7.15% |
|
7.15% |
|
01/2005 |
|
18,173 |
|
3,050,000 |
|
3,050,000 |
Allstate |
- |
|
- |
|
- |
|
- |
|
- |
|
2,978,000 |
Allstate |
6.65% |
|
6.65% |
|
05/2005 |
|
53,200 |
|
9,600,000 |
|
9,600,000 |
Allstate (c) |
9.25% |
|
9.25% |
|
12/2009 |
|
30,125 |
|
3,908,081 |
|
3,908,081 |
Allstate |
6.82% |
|
6.82% |
|
08/2005 |
|
60,243 |
|
10,600,000 |
|
10,600,000 |
LaSalle Bank N.A. |
6.50% |
|
6.50% |
|
12/2005 |
|
72,123 |
|
13,500,000 |
|
13,500,000 |
Allstate |
6.66% |
|
6.66% |
|
10/2003 |
|
17,483 |
|
3,150,000 |
|
3,150,000 |
Allstate |
7.00% |
|
7.00% |
|
12/2003 |
|
65,333 |
|
11,200,000 |
|
11,200,000 |
Berkshire Mortgage (a) |
7.79% |
|
7.79% |
|
10/2007 |
|
105,719 |
|
14,061,115 |
|
14,175,198 |
Woodmen of the World |
6.75% |
|
6.75% |
|
06/2008 |
|
26,016 |
|
4,625,000 |
|
4,625,000 |
Lehman Brothers Holding, Inc. |
6.36% |
|
6.36% |
|
10/2008 |
|
299,025 |
|
54,600,000 |
|
54,600,000 |
Column Financial, Inc |
7.00% |
|
7.00% |
|
11/2008 |
|
145,833 |
|
25,000,000 |
|
25,000,000 |
Bear, Stearns Funding, Inc. |
6.86% |
|
6.86% |
|
06/2004 |
|
328,662 |
|
57,450,000 |
|
57,450,000 |
LaSalle Bank N.A. |
3.12% |
|
3.49% |
|
10/2004 |
|
(d) |
|
13,912,700 |
|
13,912,700 |
LaSalle Bank N.A. |
7.26% |
|
7.26% |
|
10/2004 |
|
56,389 |
|
9,450,000 |
|
9,450,000 |
LaSalle Bank N.A. |
7.25% |
|
7.25% |
|
10/2004 |
|
63,488 |
|
10,654,300 |
|
10,654,300 |
Allstate |
7.40% |
|
7.40% |
|
09/2005 |
|
220,687 |
|
35,787,000 |
|
35,787,000 |
Midland Loan Serv. (a) |
7.86% |
|
7.86% |
|
01/2008 |
|
37,649 |
|
4,968,184 |
|
5,013,259 |
LaSalle Bank N.A. |
7.26% |
|
7.26% |
|
12/2004 |
|
53,167 |
|
8,910,000 |
|
8,910,000 |
LaSalle Bank N.A. |
7.36% |
|
7.36% |
|
12/2004 |
|
58,376 |
|
9,650,000 |
|
9,650,000 |
LaSalle Bank N.A. |
7.26% |
|
7.26% |
|
01/2005 |
|
58,106 |
|
9,737,620 |
|
9,737,620 |
LaSalle Bank N.A. |
3.22% |
|
3.54% |
|
03/2005 |
|
(d) |
|
2,400,000 |
|
2,400,000 |
LaSalle Bank N.A. |
3.22% |
|
3.54% |
|
04/2005 |
|
(d) |
|
2,467,700 |
|
2,467,700 |
LaSalle Bank N.A. |
3.22% |
|
3.54% |
|
06/2005 |
|
(d) |
|
5,599,000 |
|
5,599,000 |
LaSalle Bank N.A. |
3.12% |
|
3.44% |
|
11/2005 |
|
(d) |
|
3,650,000 |
|
3,650,000 |
LaSalle Bank N.A. |
6.81% |
|
6.81% |
|
12/2005 |
|
43,843 |
|
7,833,000 |
|
7,833,000 |
Allstate |
7.38% |
|
7.38% |
|
02/2006 |
|
132,750 |
|
21,600,000 |
|
21,600,000 |
Bear, Stearns Funding, Inc. |
6.50% |
|
6.50% |
|
09/2006 |
|
73,288 |
|
13,530,000 |
|
13,530,000 |
Principal Life Insurance |
5.96% |
|
5.96% |
|
12/2008 |
|
54,633 |
|
11,000,000 |
|
11,000,000 |
LaSalle Bank N.A. (g) |
4.86% |
|
3.73% |
|
12/2006 |
|
84,129 |
|
21,061,000 |
|
21,061,000 |
LaSalle Bank N.A. |
3.62% |
|
3.73% |
|
12/2006 |
|
(d) |
|
45,410,175 |
|
46,285,175 |
Bear, Stearns Funding, Inc. (e) (f) |
6.60% |
|
- |
|
02/2009 |
|
44,000 |
|
8,000,000 |
|
- |
Allstate (e) |
5.87% |
|
- |
|
09/2009 |
|
29,350 |
|
6,000,000 |
|
- |
Principal Life Insurance (e) |
5.57% |
|
- |
|
10/2012 |
|
47,345 |
|
10,200,000 |
|
- |
Principal Life Insurance |
8.27% |
|
- |
|
09/2010 |
|
40,316 |
|
5,850,000 |
|
- |
Principal Life Insurance (e) |
5.25% |
|
- |
|
10/2009 |
|
32,375 |
|
7,400,000 |
|
- |
Bear, Stearns Funding, Inc. (f) |
6.03% |
|
- |
|
07/2007 |
|
68,340 |
|
13,600,000 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages Payable |
|
|
|
|
|
|
|
|
$ 540,144,567 |
|
493,119,857 |
|
|
|
|
|
|
|
|
|
============== |
|
============= |
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 2002
(unaudited)
(9) Line of Credit
On June 28, 2002, the Company entered into a $100,000,000 unsecured line of credit arrangement with KeyBank N.A. for a period of three years. The funds from this line of credit will be used to purchase additional investment properties. Monthly interest only payments will be made on the outstanding balance charged at the rate of 3.75% over LIBOR. The line of credit requires compliance with certain covenants, such as debt service ratios, minimum net worth requirements, distribution limitations and investment restrictions. As of September 30, 2002, the Company was in compliance with such covenants. In connection with obtaining this line of credit, the Company paid fees in an amount totaling approximately $1,500,000 (which includes a one and one-half percent commitment fee). Additionally, on June 28, 2002, the Company drew an initial advance of $25,000,000 at an interest rate of 5.625%. As of September 30, 2002, the interest rate on the initial draw was 5.5625%.
(10) Earnings per Share
Basic earnings per share ("EPS") is computed by dividing net income by the basic weighted average number of common shares outstanding for the period. Diluted EPS is computed by reflecting the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. As of September 30, 2002 and December 31, 2001, options to purchase 27,500 and 23,500 shares of common stock, respectively, at prices ranging from $9.05 to $10.45 per share were outstanding.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 2002
(unaudited)
As of September 30, 2002, 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 basic or diluted EPS because the warrants exercise price was greater than the average market prices of common shares,
As of September 30, 2002, 5,454.45 shares of restricted common stock at a price of $11 per share were outstanding. Such shares, which were issued in conjunction with certain employment agreements, are excluded from the computation of basic EPS but reflected in diluted EPS by application of the treasury stock method.
The basic weighted average number of common shares outstanding were 63,739,999 and 63,037,736 for the nine months ended September 30, 2002 and 2001 respectively. The diluted weighted average number of common shares outstanding were 63,745,453 and 63,037,736 for the nine months ended September 30, 2002 and 2001, respectively.
(11) Deferred Stock Compensation
The Company has entered into stock compensation plans with certain officers of the Company. The stock compensation plans, included as a component of the officers' employment agreements, became effective January 1, 2002.
As of September 30, 2002, an aggregate of 5,454.45 shares of the Company's common stock, with a value of $11.00 per share, comprising an aggregate value of $60,000, were issued pursuant to the plans. For purposes of determining the fair value, the Company has used the offering price of $11.00 per share, which is the last price at which shares were issued in a public offering, excluding shares issued through the Company's DRP. The compensation plans provide for each officer to vest in an equal portion of their shares over a five-year vesting period beginning January 1, 2003, therefore, no compensation cost has been recognized related to these shares as of September 30, 2002.
Pursuant to the stock compensation plans, the officers may also receive additional restricted shares of the Company's common stock, which are also subject to a five-year vesting period. The number of these shares is to be determined based upon the future performance of the Company beginning January 1, 2003.
(12) Segment Reporting
The Company owns, and may acquire, additional Neighborhood Retail Centers and Community Centers located primarily within an approximate 400-mile radius of its headquarters in Oak Brook, Illinois. The Company owns, and may also acquire, single-user retail properties located throughout the United States, either directly or through sale and leaseback transactions. The Company currently owns investment properties within the states of Florida, Illinois, Indiana, Michigan, Minnesota, Ohio, Tennessee and Wisconsin and are typically anchored by grocery and drug stores complemented with additional stores providing a wide range of other goods and services.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 2002
(unaudited)
The Company assesses and measures operating results on an individual property basis for each of its investment properties. Since all of the Company's investment properties exhibit highly similar economic characteristics, generally have tenants that offer products catering to the day-to-day living needs of individuals, 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 and property net operations are summarized in the following table for the three and nine months ended September 30, 2002 and 2001, along with a reconciliation to income from operations. Also, net investment properties and total assets are presented as of September 30, 2002 and 2001:
|
Three months ended Sept 30, 2002 |
|
Three months ended Sept 30, 2001 |
|
Nine months ended Sept 30, 2002 |
|
Nine months ended Sept 30, 2001 |
|
|
|
|
|
|
|
|
Total rental and additional rental income |
$ 37,799,649 |
|
36,542,600 |
|
110,513,103 |
|
111,653,413 |
Total property operating expenses |
(9,779,683) |
|
(10,792,008) |
|
(32,882,041) |
|
(33,532,439) |
|
|
|
|
|
|
|
|
Property net operating income |
28,019,966 |
|
25,750,592 |
|
77,631,062 |
|
78,120,974 |
|
|
|
|
|
|
|
|
Other income: |
|
|
|
|
|
|
|
Lease termination income |
- |
|
333,500 |
|
618,981 |
|
2,481,404 |
Interest income |
282,228 |
|
770,102 |
|
1,165,519 |
|
2,310,955 |
Dividend income |
371,764 |
|
364,828 |
|
960,079 |
|
972,079 |
Other income |
169,131 |
|
141,635 |
|
357,095 |
|
408,914 |
|
|
|
|
|
|
|
|
Other expenses: |
|
|
|
|
|
|
|
Professional services |
(70,194) |
|
(69,244) |
|
(303,100) |
|
(468,041) |
General and administrative |
(1,028,074) |
|
(911,674) |
|
(3,183,485) |
|
(2,891,561) |
Bad debt expense |
(1,369,246) |
|
(195,562) |
|
(2,036,780) |
|
(1,523,555) |
Interest expense |
(8,968,775) |
|
(8,817,888) |
|
(24,809,567) |
|
(26,079,936) |
Depreciation and amortization |
(7,458,703) |
|
(6,749,551) |
|
(21,412,449) |
|
(20,071,612) |
Acquisition cost expenses |
(35,532) |
|
(6,256) |
|
(35,552) |
|
(43,731) |
|
|
|
|
|
|
|
|
Income from operations |
$ 9,912,565 |
|
10,610,482 |
|
28,951,803 |
|
33,215,890 |
|
============== |
|
============== |
|
=========== |
|
========== |
Net investment properties |
|
|
|
|
$ 990,318,348 |
|
916,993,239 |
|
|
|
|
|
=========== |
|
========== |
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
$ 1,086,559,556 |
|
1,037,411,589 |
|
|
|
|
|
=========== |
|
========== |
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 2002
(unaudited)
(13) Commitments and Contingencies
The Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material adverse effect on the financial statements of the Company.
Three of the Company's investment properties are located in tax increment-financing districts. The Company has agreed to be liable for any shortfalls in the Tax Increment generated in these districts. At September 30, 2002, the Company does not believe any shortfalls will be due.
On July 15, 2002, the Company resolved the lawsuit previously filed in the Circuit Court of Cook County on May 1, 2001 between the Company and Samuel A. Orticelli, who had served as the Company's General Counsel and Secretary from July 1, 2000 until April 6, 2001. Management of the Company does not believe the settlement and any obligations thereunder to have a material effect on the operations or financial condition of the Company.
(14) Subsequent Events
On October 17, 2002, the Company paid a distribution of $4,958,011 to stockholders of record as of September 1, 2002.
On October 17, 2002, the Company purchased a property from an unaffiliated third party for $3,100,000. The purchase price was funded using cash and cash equivalents. The property is located in Naperville, Illinois and contains 50,000 square feet of leasable space. This building is adjacent to Naper West, one of the Company's current investment properties, and is currently vacant.
On October 30, 2002, the Company purchased a property from an unaffiliated third party for $2,380,000. The purchase price was funded using cash and cash equivalents. The property is located in Jennings, Missouri and contains 15,120 square feet of leasable space currently leased by Walgreens.
On November 5, 2002, the Company purchased a property from an unaffiliated third party for $3,400,000. The purchase price was funded using cash and cash equivalents. The property is located in Niles, Illinois and contains 21,415 square feet of leasable space. Its major tenant is Factory Card Outlet.
On November 5, 2002, the Company purchased a property from an unaffiliated third party for $18,159,020. The Company assumed the current mortgage on the property in the amount of $12,527,611 and the balance of the purchase price was funded using cash and cash equivalents. The property is located in Niles, Illinois and contains 281,368 square feet of leasable space. Its major tenants include Jewel Food Store, Rhodes and Wickes Furniture.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 2002
(unaudited)
On November 8, 2002, the Company incurred debt secured by the property commonly known as Forest Lake Marketplace, located in Forest Lake, Minnesota. The loan has a principal balance of $6,589,000, an interest rate of 4.35% and a maturity date of December 1, 2007. In connection with obtaining this financing, the Company retained the services of Cohen Financial and paid a commission to Cohen in an amount equal to $32,945 (equivalent to one-half of one percent of the principal amount of the indebtedness). Joel D. Simmons, one of the Company's directors, is a limited partner of Cohen Financial. Additionally, in connection with obtaining this financing, the Company paid a commission for mortgage brokerage services to Inland Mortgage Corporation, an affiliate of The Inland Group, Inc., an amount equal to $8,236 (equivalent to one-eighth of one percent of the principal amount of the indebtedness).
The Company is currently exploring the purchase of additional shopping centers from unaffiliated third parties.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this quarterly report on Form 10-Q constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Examples of factors which could affect the Company's performance are set forth in the Company's annual report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on March 14, 2002 under the heading "Investment Considerations."
Critical Accounting Policies
The Company defines a critical accounting policy as one that would materially effect the Company's operations or financial condition, and requires management to make estimates or judgements in certain circumstances. The Company believes that its most critical accounting policies relate to the valuation of investment properties, recognition of rental income, cost capitalization and depreciation policies and consolidation/equity accounting policies. These policies are set forth in the Company's annual report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on March 14, 2002.
Liquidity and Capital Resources
Cash and cash equivalents consist of cash and short-term investments. Cash and cash equivalents at September 30, 2002 and December 31, 2001 were $32,412,113 and $29,976,991, respectively. The increase in total cash and cash equivalents from December 31, 2001 to September 30, 2002 results from receiving approximately $52,100,000 from operations, approximately $12,800,000 in financing activities, while using approximately $62,500,000 in investing activities. These changes are described in more detail below. The Company intends to use cash and cash equivalents to purchase additional investment properties, to pay distributions and for working capital requirements. The source of future cash for investing in properties will be from financing secured by unencumbered investment properties, operations from current investment properties, amounts raised through the Company's DRP and proceeds received from the $100,000,000 unsecured acquisition line of credit facility the Company arranged with Key Bank, N.A.
As of September 30, 2002, the Company owned interests in 126 investment properties. Eight investment properties were purchased during 2002, one was purchased during 2001 and 120 were purchased prior to 2001. As of September 30, 2002, the Company had sold three of its 129 investment properties purchased. Of the 126 investment properties owned, seven are currently unencumbered by any indebtedness. As the Company generally limits its indebtedness to approximately fifty percent (50%) of the carrying value of its investment properties, the remaining seven unencumbered investment properties, with a carrying value of approximately $28,000,000, would yield approximately $14,000,000 in additional cash from financing. These 126 investment properties are currently generating sufficient cash flow to cover operating expenses of the Company, pay current debt service requirements and pay distributions equal to $.94 per share on an annual basis. For the nine months ended September 30, 2002, Funds Availabl e for Distribution were $47,552,808 and distributions declared for the nine months ended September 30, 2002 were $44,840,538, or $.70 per diluted weighted average common shares outstanding, a portion of which represents a return of capital for federal income tax purposes. The return of capital portion of the distributions cannot be determined at this time and will be calculated at year-end. For the nine months ended September 30, 2002, the Company received proceeds from the Company's DRP totaling $16,247,250 and repurchased shares through the Company's Share Repurchase Program totaling $7,404,896.
Cash Flows from Operating Activities
Net cash provided by operating activities decreased from $56,723,342 for the nine months ended September 30, 2001 to $52,112,300 for the nine months ended September 30, 2002, due to a number of factors. Net income decreased approximately $3,200,000 partially due to the fact that income for the nine months ended September 30, 2001 included amounts received from Eagle Food Stores, Inc. in settlement of claims the Company had for damages as a result of the two leases rejected by Eagle during its bankruptcy. Within cash flows from operating activities, net income is adjusted by certain non-cash items to reconcile to actual operating cash flows. During the nine months ended September 30, 2002, the Company recorded a gain on sale of investment properties of $1,582,421, as compared to a gain of $467,337 for the nine months ended September 30, 2001, resulting in a larger reduction in net income. During the nine months ended September 30, 2002, the Company recorded depreciation expense on the C ompany's investment properties of $21,072,245, as compared to depreciation of $19,806,089 for the nine months ended September 30, 2001, resulting in a larger addition to net income. The decrease in cash provided by operating activities is also due to a reduction of approximately $2,300,000 in security and other deposits. Included in security and other deposits for the nine months ended September 30, 2001, was cash received as a result of a claim for damages relating to certain of the Company's investment properties. Additionally, the decrease is due to a reduction of approximately $1,100,000 in other assets, a reduction of approximately $1,200,000 in accrued real estate taxes, and a reduction of approximately $1,300,000 in prepaid rents and unearned income. This decrease was partially offset by an increase of approximately $2,600,000 in accounts and rents receivable and an increase of approximately $1,600,000 in accounts payable and accrued expenses.
Cash Flows from Investing Activities
The Company used $62,526,064 in cash for investing activities for the nine months ended September 30, 2002, as compared to $15,046,192 for the nine months ended September 30, 2001. The primary reason for the increase in cash used was an increase in cash resources used for the purchase of investment properties. During the nine months ended September 30, 2002, the Company used $78,000,546 to purchase eight investment properties, as compared to using $3,303,657 to purchase one investment property during the nine months ended September 30, 2001. Additionally, the increase in cash used was due to an increase in the purchase of minority interest units of $1,500,000 and a decrease in cash used for construction in progress. The increase in cash used was partially offset by an increase in cash received from the sale of investment properties. During the nine months ended September 30, 2002, the Company received $8,211,791 for the sale of two investment properties, as compared to receiving $2,364 ,378 during the nine months ended September 30, 2001 for the sale of one investment property. Additionally, the increase in cash used was partially offset by the reduction in mortgages receivable of approximately $21,400,000, due primarily to the Company purchasing the Thatcher Woods Shopping Center and the mortgage receivable being paid off and a reduction in cash resources used for the purchase of investment securities
Cash Flows from Financing Activities
The Company received net cash of $12,848,886 from financing activities for the nine months ended September 30, 2002, as compared to using cash of $6,066,019 for the nine months ended September 30, 2001. The primary reason for the increase in cash is due to a draw by the Company of $25,000,000 on an unsecured line of credit. As of September 30, 2002, the Company had $75,000,000 of remaining availability under this $100,000,000 line of credit. This line of credit has a three year term, maturing on June 30, 2004. Interest is charged and paid monthly on the amounts outstanding at a variable rate of 3.75% plus the LIBOR (London Interbank) index. The Company used less cash for the repurchase of shares through the Share Repurchase Program, which was offset by a reduction in cash received from loan proceeds of approximately $3,500,000. The Company received $31,600,000 during the nine months ended September 30, 2002, as compared to receiving $35,130,000 during the nine months ended September 30 , 2001. Additionally, the increase in cash was also partially offset by an increase in loan fees paid of approximately $1,800,000 and an increase in payoffs of debt of $2,800,000.
The table below presents the principal amount of the debt maturing each year including monthly annual amortization of principal through December 31, 2006 and thereafter:
2002 |
$ 233,000 |
2003 |
14,602,014 |
2004 |
117,963,565 |
2005 |
131,970,654 |
2006 |
101,895,783 |
Thereafter |
173,479,551 |
Results of Operations
Net income for the nine months ended September 30, 2002 was $29,748,490, as compared to $32,947,843 for the nine months ended September 30, 2001. Net income per common share, basic and diluted, for the nine months ended September 30, 2002 was $.47, as compared to $.52 for the nine months ended September 30, 2001 (based on basic weighted average common shares outstanding of 63,739,999 and 63,037,736, respectively, and diluted weighted average common shares outstanding of 63,745,453 and 63,037,736, respectively). The decrease in net income and net income per common share is due primarily to a decrease in net operating income from the Company's "same store" investment properties. The Company has experienced increased vacancies in these "same store" properties due to the bankruptcy of certain national tenants, most notably, K-Mart and Trak Auto, and their subsequent rejection of leases at several sites. On a "same store" basis, (comparing the results of operations of the investment propert ies owned during the nine months ended September 30, 2002, with the results of the same investment properties during the nine months ended September 30, 2001), net operating income decreased by approximately $3,170,000 with total rental and additional rental income decreasing by approximately $4,540,000 and total property operating expenses decreasing by approximately $1,370,000. Included in rental and additional rental income for the nine months ended September 30, 2001, was approximately $1,972,000 which was received through a bankruptcy settlement from Eagle Food Stores, Inc. as a result of the two rejected leases.
At September 30, 2002, the Company owned 29 single-user retail properties, 77 Neighborhood Retail Centers and 20 Community Centers. The Company's property operations account for almost all of the net operating income earned by the Company. In order to evaluate the Company's overall portfolio, management analyzes the operating performance of properties that have been owned and operated by the Company for comparable periods. A total of 117 investment properties owned by the Company, or "same store" properties, comprising approximately 9.3 million square feet, satisfied this criterion during the periods presented below. The remaining nine investment properties, those that have been acquired, sold or held for sale during 2002 and 2001 are presented as "other investment properties" in the table below. The "same store" investment properties represent approximately 91% of the square footage of the Company's portfolio at September 30, 2002. The following table presents the pre-depreciation operati ng results of the investment properties for the nine months ended September 30, 2002 and 2001:
|
Nine months ended September 30, 2002 |
|
Nine months ended September 30, 2001 |
Rental and additional rental income: |
|
|
|
"Same store" investment properties (117 properties, approximately 9.3 million square feet) |
$ 106,856,745 |
|
111,401,008 |
Other investment properties |
4,035,619 |
|
1,096,655 |
|
|
|
|
Total rental and additional rental income |
$ 110,892,364 |
|
112,497,663 |
|
=============== |
|
=============== |
Property operating expenses: |
|
|
|
"Same store" investment properties (excluding interest, depreciation and amortization) |
$ 32,077,748 |
|
33,448,740 |
Other investment properties |
940,372 |
|
432,929 |
|
|
|
|
Total property operating expenses |
$ 33,018,120 |
|
33,881,669 |
|
=============== |
|
=============== |
Net operating income (rental and additional rental income less property operating expenses): |
|
|
|
"Same store" investment properties |
$ 74,778,997 |
|
77,952,268 |
Other investment properties |
3,095,247 |
|
663,726 |
|
|
|
|
Total net operating income |
$ 77,874,244 |
|
78,615,994 |
|
=============== |
|
=============== |
Trak Auto, a tenant at six of the Company's investment properties filed for Chapter 11 bankruptcy protection under the Federal bankruptcy code in July 2001. As of September 30, 2002, all six leases have been rejected and the stores have closed. As of September 30, 2002, the Company has re-leased three of the vacant spaces, totaling approximately 39,000 square feet, as well as approximately 11,000 square feet of the approximately 42,000 square feet vacant at a fourth location. K-Mart, a tenant at three of the Company's investment properties filed for Chapter 11 bankruptcy protection under the Federal bankruptcy code in January 2002. As of September 30, 2002, two of the stores remain open and one has closed. The remaining vacant Trak Auto spaces and the three K-Mart locations account for approximately 3% of the Company's total square footage and approximately 1% of the Company's annual rental income. Management of the Company does not expect these bankruptcy filings to have a ma terial adverse effect on the Company's results of operations or financial condition.
Lease termination income was higher for the nine months ended September 30, 2001, as compared to the nine months ended September 30, 2002, due primarily to the Company receiving a one-time lease termination fee in February 2001 of approximately $2,148,000 through a bankruptcy settlement from Eagle Food Stores, Inc., as a result of the two rejected leases. During 2002, the Company received two lease termination fees totaling approximately $619,000 upon termination of leases at two of the Company's investment properties.
The Company earns interest income on the investment of cash and cash equivalents in short-term instruments pending investment in real estate. Interest income decreased for the three and nine months ended September 30, 2002, as compared to the three and nine months ended September 30, 2001, 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. Additionally, interest income decreased as a result of lower interest rates.
Professional services decreased for the nine months ended September 30, 2002, as compared to the nine months ended September 30, 2001, as a result of a decrease in legal and accounting expenses required by the Company.
General and administrative expenses increased for the three and nine months ended September 30, 2002, as compared to the three and nine months ended September 30, 2001, due primarily to an increase in salary expense due to the addition of staff as well as annual increases. Additionally, annual conference expenses, postage and printing increased for the nine months ended September 30, 2002, as compared to the nine months ended September 30, 2001.
Bad debt expense increased for the three and nine months ended September 30, 2002, as compared to the three and nine months ended September 30, 2001 as a result of the amounts written off as uncollectable and the change in the provision for doubtful accounts. The provision for doubtful accounts at September 30, 2002 was increased from December 31, 2001, due to an increase in tenants with outstanding balances due for a period greater than ninety days and tenants with outstanding balances due for a period less than ninety days but that management believes are potentially uncollectable.
Interest expense decreased for the nine months ended September 30, 2002, as compared to the nine months ended September 30, 2001, due to a decrease in interest rates charged on the variable rate debt from approximately 5.0% for the nine months ended September 30, 2001, as compared to approximately 3.4% for the nine months ended September 30, 2002. The decrease was partially offset by an increase in mortgages payable from approximately $501,505,000 at September 30, 2001 to approximately $540,145,000 at September 30, 2002.
Related Party Transactions
During the three and nine months ended September 30, 2002 and 2001, the Company purchased various administrative services, such as payroll preparation and management, data processing, insurance consultation and placement, investor relations and mail processing from affiliates of The Inland Group, Inc. The Inland Group, Inc., through affiliates, owns approximately 10% of the Company's outstanding common stock. These services were purchased from these entities based on an hourly cost assigned to each employee of the affiliate providing the services. The hourly rate is based on the employee's salary, plus a pro rata allocation of overhead including, but not limited to, employee benefits, rent, materials, fees, taxes and operating expenses incurred by each entity in operating their respective businesses. Computer services were purchased at a contract rate of $30.00 per hour. The Company continues to purchase these services from The Inland Group, Inc. affiliates and for the nine months ende d September 30, 2002 and 2001, these expenses, totaling $2,388,595 and $1,848,143, respectively, are included in general and administrative expenses. Additionally, the Company leases its corporate office space from an affiliate of The Inland Group, Inc. Payments under this lease for the nine months ended September 30, 2002 and 2001 were $112,724 and $98,370, respectively, and are also included in general and administrative expenses.
During the nine months ended September 30, 2002, the Company purchased legal services from attorneys employed by The Inland Real Estate Group, Inc., a wholly-owned subsidiary of The Inland Group, Inc. The fees for these services are purchased at a rate equal to $190.00 per hour. For the nine months ended September 30, 2002 and 2001, the Company paid $166,511 and $100,410, respectively, for these legal services.
An affiliate of The Inland Group, Inc. holds a mortgage on the Walgreens property, located in Decatur, Illinois. As of September 30, 2002, the remaining balance of the mortgage was $655,692. The loan secured by this mortgage bears interest at a rate equal to 7.65% per annum and matures on May 31, 2004. For the nine months ended September 30, 2002, the Company paid principal and interest payments totaling $51,199 on this mortgage.
On July 18, 2002, the Company purchased a property from an affiliate of The Inland Group, Inc. for $27,187,100, which is equal to the price paid by the affiliate. The Company assumed the current mortgage on the property in the amount of $13,600,000 and the balance of the purchase price was funded using cash and cash equivalents. The property is located in Celebration, Florida and contains 166,131 square feet of net rentable space leased entirely by the Walt Disney Company for a minimum period of 10 years. An affiliate of The Inland Group, Inc. was paid an acquisition fee equal to 1% of the purchase price of the property, excluding assumption of indebtedness, or $271,871, in connection with the purchase of this property.
During the nine months ended September 30, 2002, the Company completed financing transactions which resulted in the Company incurring additional indebtedness of $31,600,000. In connection with obtaining this financing, the Company retained the services of Cohen Financial and paid a commission to Cohen in an amount equal to $158,000 (equivalent to one-half of one percent of the principal amount of the indebtedness). The Company anticipates utilizing the services of Cohen Financial in future financing activities. In each case, the Company anticipates paying Cohen Financial a brokerage fee equal to one-half of one percent. Joel D. Simmons, one of the Company's directors, is a limited partner of Cohen Financial.
In February 2002, the Company completed a financing transaction which resulted in the Company incurring additional indebtedness of $8,000,000. In connection with obtaining this financing, the Company paid a commission for mortgage brokerage services to Inland Mortgage Corporation, an affiliate of The Inland Group, Inc., in an amount equal to $20,000 (equivalent to one-quarter of one percent of the principal amount of the indebtedness). In July 2002, the Company completed a financing transaction which resulted in the Company incurring additional indebtedness of $13,600,000. In connection with obtaining this financing, the Company paid a commission for mortgage brokerage services to Inland Mortgage Corporation, in an amount equal to $68,000 (equivalent to one-half of one percent of the principal amount of the indebtedness).
Joint Ventures
The accompanying consolidated financial statements of the Company include, in addition to the accounts of the wholly-owned subsidiaries, the accounts of Inland Ryan, LLC and Inland Ryan Cliff Lake, LLC (Inland Ryan and Inland Ryan Cliff Lake are collectively referred to as the "LLCs"). Due to the Company's ability as managing member to directly control the LLCs, they are consolidated with the Company for financial reporting purposes. The third parties' interests in the LLCs are reflected as minority interest in the accompanying consolidated financial statements. As of September 30, 2002, the Company and the non-managing members have entered into five 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 78% and 22%, respectively.
On February 1, 2001, a wholly-owned subsidiary of the Company entered into an LLC agreement with a wholly-owned subsidiary of Tri-Land Properties, Inc., an unaffiliated third party, 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 currently has one anchor tenant, a 139,451 square foot Burlington Coat Factory store on the south end of the property. On the north end of the property, there is a vacant 148,420 square foot store, previously occupied by Montgomery Wards, which is currently being marketed to new users. In between was 105,000 square feet of enclosed mall space, which has been demolished, as part of the phased redevelopment of the property. The phased redevelopment also calls for 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. Each partner's initial equity contribution was $500,000. The Company is a non-managing member of the LLC, therefore, the operations are not consolidated for financial reporting purposes. A wholly-owned subsidiary of the Company has the right of first refusal to acquire the property after it is redeveloped. As of September 30, 2002, the Company's net investment was $129,830. In addition, the Company has committed to lend the LLC up to an additional $17,800,000. The loan bears interest at an initial rate of 9% per annum, paid monthly on average outstanding balances. The loan matures in five years. As of September 30, 2002, the principal balance of this mortgage receivable was $6,327,944.
Funds From Operations
One of the Company's objectives is to provide cash distributions to its stockholders from funds generated by the Company's operations. Funds 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 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 bett er basis than net income 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 should not be considered as an alternative to "Net Income" as an indicator of the Company's operating performance or to as an alternative to "Cash Flows from Operating Activities" as determined by GAAP as a measure of the Company's capacity to pay distributions. "Funds Available for Distribution" or "FAD" for short, means excluding from FFO normalized recurring real estate related expenditures and other non-cash items. FFO and FAD are calculated as follows:
|
Nine months ended |
|
Nine months ended |
|
September 30, 2002 |
|
September 30, 2001 |
|
|
|
|
Net income (1) |
$ 29,748,490 |
|
32,947,843 |
Gain on sale of investment properties |
(1,582,421) |
|
(467,337) |
Extraordinary loss on early extinguishment of debt |
136,120 |
|
49,823 |
Equity in depreciation of unconsolidated ventures |
61,536 |
|
80,010 |
Depreciation, net of minority interest |
20,484,739 |
|
19,370,782 |
|
|
|
|
Funds From Operations |
48,848,464 |
|
51,981,121 |
Principal amortization of debt, net of minority interest |
(23,049) |
|
(21,753) |
Deferred rent receivable, net of minority interest (2) |
(1,286,019) |
|
(1,798,253) |
Rental income received under master lease agreements, net of minority interest (3) |
13,412 |
|
265,726 |
|
|
|
|
Funds Available for Distribution |
$ 47,552,808 |
|
50,426,841 |
|
================== |
|
================= |
Funds From Operations per common share, basic and diluted (1) |
$ .77 |
|
.82 |
|
================== |
|
================= |
Weighted average common stock shares outstanding, basic |
63,739,999 |
|
63,037,736 |
|
================== |
|
================= |
Weighted average common stock shares outstanding, diluted |
63,745,453 |
|
63,037,736 |
|
================== |
|
================= |
The following table lists the approximate physical occupancy levels for the Company's investment properties as of the end of each quarter during 2001 and 2002. N/A indicates the property was not owned by the Company at the end of the quarter.
|
Gross |
|
|
|
|
|
|
|
|
|
Leasable |
|
|
|
|
|
|
|
|
|
Area |
03/31/01 |
06/30/01 |
09/30/01 |
12/31/01 |
03/31/02 |
06/30/02 |
09/30/02 |
12/31/02 |
Properties |
(Sq Ft) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
|
|
|
|
|
|
|
|
|
|
Ameritech, Joliet, IL |
4,504 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Antioch Plaza, Antioch, IL |
- |
69 |
69 |
69 |
76 |
N/A |
N/A |
N/A |
|
Aurora Commons, Aurora, IL |
126,908 |
94 |
94 |
97 |
97 |
97 |
97 |
97 |
|
Bakers Shoes, Chicago, IL |
20,000 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Bally's Total Fitness, St Paul, MN |
43,000 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Baytowne Square, Champaign, IL |
118,842 |
98 |
98 |
98 |
98 |
98 |
98 |
87(a) |
|
Bergen Plaza, Oakdale, MN |
272,283 |
96 |
97 |
97 |
99 |
99 |
99 |
99(a) |
|
Berwyn Plaza, Berwyn, IL |
18,138 |
26 |
26 |
26 |
26 |
26 |
26 |
26(a) |
|
Bohl Farm Marketplace, Crystal Lake, IL |
97,287 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Burnsville Crossing, Burnsville, MN |
91,015 |
100 |
100 |
100 |
100 |
100 |
100 |
95 |
|
Byerly's Burnsville, Burnsville, MN |
72,365 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Calumet Square, Calumet City, IL |
39,936 |
100 |
100 |
100 |
100 |
53 |
53 |
53 |
|
Carmax, Schaumburg, IL |
93,333 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Carmax, Tinley Park, IL |
94,518 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Chatham Ridge, Chicago, IL |
175,774 |
100 |
100 |
100 |
100 |
95 |
95 |
93 |
|
Chestnut Court, Darien, IL |
170,027 |
96 |
98 |
98 |
99 |
100 |
99 |
98 |
|
Circuit City, Traverse City, MI |
21,337 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Cliff Lake Centre, Eagan, MN |
73,582 |
92 |
98 |
94 |
95 |
95 |
95 |
99 |
|
Cobblers Crossing, Elgin, IL |
102,643 |
98 |
98 |
100 |
100 |
100 |
100 |
100 |
|
Crestwood Plaza, Crestwood, IL |
20,044 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Cub Foods, Buffalo Grove, IL |
56,192 |
100 |
100 |
0 |
0 |
0 |
0 |
0(a) |
|
Cub Foods, Indianapolis, IN |
67,541 |
100 |
100 |
0 |
0 |
0 |
0 |
0(a) |
|
Cub Foods, Plymouth, MN |
67,510 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Deer Trace, Kohler, WI |
149,869 |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
100 |
|
Disney, Celebration, FL |
166,131 |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
100 |
|
Dominick's, Countryside, IL |
62,344 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Dominick's, Glendale Heights, IL |
68,879 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Dominick's, Hammond, IN |
71,313 |
0 |
0 |
0 |
0 |
0 |
0 |
0(a) |
|
Dominick's, Highland Park, IL |
71,442 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Dominick's, Schaumburg, IL |
71,400 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Dominick's, West Chicago, IL |
78,158 |
100 |
100 |
100 |
100 |
100 |
100 |
0(a) |
|
Downers Grove Mkt, Downers Grove, IL |
104,449 |
98 |
98 |
99 |
99 |
99 |
99 |
99(a) |
|
|
Gross |
|
|
|
|
|
|
|
|
|
Leasable |
|
|
|
|
|
|
|
|
|
Area |
03/31/01 |
06/30/01 |
09/30/01 |
12/31/01 |
03/31/02 |
06/30/02 |
09/30/02 |
12/31/02 |
Properties |
(Sq Ft) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
|
|
|
|
|
|
|
|
|
|
Eagle Country Market, Roselle, IL |
42,283 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Eagle Crest, Naperville, IL |
67,632 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Eagle Ridge Center, Lindenhurst, IL |
56,142 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Eastgate Shopping Center, Lombard, IL |
132,145 |
90 |
90 |
90 |
90 |
89 |
85 |
87 |
|
Eckerd Drug, Chattanooga, TN |
10,908 |
N/A |
N/A |
N/A |
N/A |
N/A |
100 |
100 |
|
Edinburgh Festival, Brooklyn Park, MN |
91,536 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Elmhurst City Center, Elmhurst, IL |
39,481 |
66 |
66 |
66 |
66 |
66 |
84 |
84 |
|
Fairview Hts. Plaza, Fairview Hts., IL |
167,491 |
78 |
77 |
77 |
77 |
89 |
89 |
89 |
|
Fashion Square, Skokie, IL |
84,580 |
85 |
85 |
81 |
85 |
78 |
78 |
86 |
|
Forest Lake Marketplace, Forest Lake, MN |
93,853 |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
96(b) |
|
Gateway Square, Hinsdale, IL |
40,170 |
98 |
98 |
100 |
100 |
96 |
97 |
97(a) |
|
Goodyear, Montgomery, IL |
12,903 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Grand and Hunt Club, Gurnee, IL |
21,222 |
100 |
21 |
21 |
21 |
67 |
67 |
100 |
|
Hartford Plaza, Naperville, IL |
43,762 |
47 |
47 |
47 |
47 |
100 |
100 |
100 |
|
Hawthorn Village, Vernon Hills, IL |
98,806 |
99 |
97 |
96 |
98 |
96 |
96 |
97 |
|
Hickory Creek Market, Frankfort, IL |
55,831 |
94 |
96 |
91 |
91 |
97 |
90 |
94(a) |
|
High Point Center, Madison, WI |
86,004 |
80 |
77 |
85 |
86 |
94 |
87 |
87(a) |
|
Hollywood Video, Hammond, IN |
7,488 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Homewood Plaza, Homewood, IL |
19,000 |
100 |
100 |
100 |
100 |
47 |
47 |
47 |
|
Iroquois Center, Naperville, IL |
140,981 |
73 |
73 |
70 |
84 |
87 |
87 |
87(a) |
|
Joliet Commons, Joliet, IL |
158,922 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Joliet Commons Phase II, Joliet, IL |
40,395 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Lake Park Plaza, Michigan City, IN |
229,639 |
72 |
72 |
70 |
69 |
69 |
69 |
69(a) |
|
Lansing Square, Lansing, IL |
233,508 |
99 |
98 |
98 |
98 |
99 |
99 |
96 |
|
Lincoln Park Place, Chicago, IL |
- |
100 |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
|
Mallard Crossing, Elk Grove Village, IL |
82,929 |
30 |
30 |
29 |
29 |
29 |
29 |
97 |
|
Maple Grove Retail, Maple Grove, MN |
79,130 |
91 |
91 |
91 |
97 |
97 |
97 |
87(a) |
|
Maple Park Place, Bolingbrook, IL |
220,095 |
100 |
73 |
73 |
73 |
73 |
23 |
23(a) |
|
Maple Plaza, Downers Grove, IL |
31,298 |
96 |
96 |
96 |
100 |
100 |
100 |
100 |
|
Marketplace at Six Corners, Chicago, IL |
117,000 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Michael's, Coon Rapids, MN |
24,317 |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
100 |
|
Mundelein Plaza, Mundelein, IL |
68,056 |
100 |
94 |
94 |
94 |
97 |
97 |
97 |
|
Nantucket Square, Schaumburg, IL |
56,981 |
98 |
98 |
98 |
79 |
79 |
79 |
75(a) |
|
Naper West, Naperville, IL |
164,812 |
94 |
94 |
96 |
73 |
66 |
66 |
66 |
|
Niles Shopping Center, Niles, IL |
26,109 |
100 |
73 |
73 |
73 |
73 |
75 |
95 |
|
|
Gross |
|
|
|
|
|
|
|
|
|
Leasable |
|
|
|
|
|
|
|
|
|
Area |
03/31/01 |
06/30/01 |
09/30/01 |
12/31/01 |
03/31/02 |
06/30/02 |
09/30/02 |
12/31/02 |
Properties |
(Sq Ft) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
|
|
|
|
|
|
|
|
|
|
Oak Forest Commons, Oak Forest, IL |
108,330 |
99 |
99 |
99 |
99 |
99 |
99 |
100 |
|
Oak Forest Commons III, Oak Forest, IL |
7,424 |
50 |
50 |
50 |
50 |
50 |
72 |
100 |
|
Oak Lawn Town Center, Oak Lawn, IL |
12,506 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Orland Greens, Orland Park, IL |
45,031 |
94 |
94 |
97 |
97 |
97 |
100 |
100 |
|
Orland Park Retail, Orland Park, IL |
8,500 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Park Center Plaza, Tinley Park, IL |
193,179 |
93 |
93 |
96 |
97 |
98 |
98 |
98 |
|
Park Place Plaza, St. Louis Park, MN |
84,999 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Park Square, Brooklyn Park, MN |
137,571 |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
92 |
|
Park St. Claire, Schaumburg, IL |
11,859 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Party City, Oakbrook Terrace, IL |
10,000 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Petsmart, Gurnee, IL |
25,692 |
N/A |
100 |
100 |
100 |
100 |
100 |
100 |
|
Pine Tree Plaza, Janesville, WI |
187,413 |
95 |
95 |
96 |
96 |
97 |
98 |
98 |
|
Plymouth Collection, Plymouth, MN |
40,815 |
100 |
100 |
100 |
96 |
96 |
96 |
91 |
|
Prairie Square, Sun Prairie, WI |
35,755 |
83 |
69 |
86 |
76 |
71 |
68 |
72 |
|
Prospect Heights, Prospect Heights, IL |
28,080 |
69 |
69 |
69 |
69 |
69 |
61 |
61 |
|
Quarry Outlot, Hodgkins, IL |
9,650 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Quarry Retail, Minneapolis, MN |
276,848 |
99 |
99 |
99 |
100 |
100 |
100 |
100 |
|
Randall Square, Geneva, IL |
216,201 |
99 |
99 |
99 |
100 |
99 |
99 |
99 |
|
Regency Point, Lockport, IL |
54,841 |
97 |
97 |
97 |
97 |
92 |
100 |
100 |
|
Riverdale Commons, Coon Rapids, MN |
168,277 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Riverdale Outlot, Coon Rapids, MN |
6,566 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Riverplace Center, Noblesville, IN |
74,414 |
94 |
96 |
96 |
96 |
94 |
94 |
94 |
|
River Square Center, Naperville, IL |
58,556 |
74 |
70 |
82 |
84 |
86 |
89 |
81(a) |
|
Rivertree Court, Vernon Hills, IL |
298,862 |
85 |
85 |
86 |
98 |
98 |
98 |
99(a) |
|
Rose Naper Plaza East, Naperville, IL |
11,658 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Rose Naper Plaza West, Naperville, IL |
14,335 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Rose Plaza, Elmwood Park, IL |
24,204 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Salem Square, Countryside, IL |
112,310 |
100 |
100 |
100 |
91 |
91 |
91 |
91(a) |
|
Schaumburg Plaza, Schaumburg, IL |
61,485 |
93 |
93 |
93 |
60 |
60 |
59 |
93 |
|
Schaumburg Promenade, Schaumburg, IL |
91,831 |
100 |
100 |
100 |
90 |
89 |
79 |
90(a) |
|
Sears, Montgomery, IL |
34,300 |
100 |
95 |
95 |
90 |
90 |
90 |
90 |
|
Sequoia Shopping Ctr, Milwaukee, WI |
35,407 |
80 |
80 |
69 |
73 |
67 |
63 |
63(a) |
|
Shingle Creek, Brooklyn Center, MN |
39,456 |
73 |
88 |
83 |
97 |
97 |
96 |
96 |
|
Shoppes of Mill Creek, Palos Park, IL |
102,422 |
93 |
93 |
94 |
96 |
98 |
95 |
95(a) |
|
Shops at Coopers Grove, Ctry Club Hills, IL |
72,518 |
20 |
18 |
18 |
18 |
18 |
18 |
18 |
|
|
Gross |
|
|
|
|
|
|
|
|
|
Leasable |
|
|
|
|
|
|
|
|
|
Area |
03/31/01 |
06/30/01 |
09/30/01 |
12/31/01 |
03/31/02 |
06/30/02 |
09/30/02 |
12/31/02 |
Properties |
(Sq Ft) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
|
|
|
|
|
|
|
|
|
|
Shorecrest Plaza, Racine, WI |
- |
95 |
95 |
95 |
95 |
95 |
N/A |
N/A |
|
Six Corners, Chicago, IL |
80,650 |
86 |
89 |
86 |
86 |
86 |
86 |
91 |
|
Spring Hill Fashion Ctr, W. Dundee, IL |
125,198 |
96 |
98 |
100 |
98 |
98 |
98 |
93 |
|
Springboro Plaza, Springboro, OH |
154,034 |
100 |
100 |
99 |
99 |
100 |
100 |
100 |
|
St. James Crossing, Westmont, IL |
49,994 |
91 |
93 |
96 |
100 |
100 |
98 |
97(a) |
|
Staples, Freeport, IL |
24,049 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Stuart's Crossing, St. Charles, IL |
85,529 |
86 |
88 |
88 |
90 |
93 |
93 |
95 |
|
Summit of Park Ridge, Park Ridge, IL |
33,252 |
86 |
98 |
89 |
98 |
91 |
94 |
94(a) |
|
Terramere Plaza, Arlington Heights, IL |
40,965 |
85 |
80 |
77 |
69 |
67 |
69 |
68(a) |
|
Thatcher Woods, River Grove, IL |
193,313 |
N/A |
N/A |
N/A |
N/A |
N/A |
98 |
98 |
|
Townes Crossing, Oswego, IL |
105,989 |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
86(b) |
|
Two Rivers Plaza, Bolingbrook, IL |
57,900 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
United Audio Center, Schaumburg, IL |
9,988 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
V. Richard's Plaza, Brookfield, WI |
107,952 |
82 |
86 |
95 |
80 |
77 |
79 |
79 |
|
Walgreens, Decatur, IL |
13,500 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Walgreens, Woodstock, IL |
15,856 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Wauconda Shopping Ctr, Wauconda, IL |
31,357 |
77 |
77 |
77 |
77 |
77 |
77 |
77 |
|
West River Crossing, Joliet, IL |
32,452 |
99 |
99 |
96 |
96 |
96 |
96 |
91 |
|
Western and Howard, Chicago, IL |
12,784 |
100 |
78 |
78 |
78 |
78 |
78 |
78 |
|
Wilson Plaza, Batavia, IL |
11,160 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Winnetka Commons, New Hope, MN |
42,415 |
72 |
57 |
62 |
62 |
60 |
65 |
65(a) |
|
Wisner/Milwaukee Plaza, Chicago, IL |
14,677 |
90 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Woodfield Comm E/W, Schaumburg, IL |
207,583 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
Woodfield Plaza, Schaumburg, IL |
177,160 |
81 |
81 |
97 |
78 |
78 |
78 |
94(a) |
|
Woodland Commons, Buffalo Grove, IL |
170,070 |
95 |
94 |
93 |
95 |
95 |
93 |
93(a) |
|
Woodland Heights, Streamwood, IL |
120,436 |
89 |
89 |
94 |
94 |
87 |
87 |
87 |
|
Zany Brainy, Wheaton, IL |
12,499 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
|
10,168,230 |
|
|
|
|
|
|
|
|
|
======== |
|
|
|
|
|
|
|
|
Subsequent Events
On October 17, 2002, the Company paid a distribution of $4,958,011 to stockholders of record as of September 1, 2002.
On October 17, 2002, the Company purchased a property from an unaffiliated third party for $3,100,000. The purchase price was funded using cash and cash equivalents. The property is located in Naperville, Illinois and contains 50,000 square feet of leasable space. This building is adjacent to Naper West, one of the Company's current investment properties, and is currently vacant.
On October 30, 2002, the Company purchased a property from an unaffiliated third party for $2,380,000. The purchase price was funded using cash and cash equivalents. The property is located in Jennings, Missouri and contains 15,120 square feet of rentable space currently leased by Walgreens.
On November 5, 2002, the Company purchased a property from an unaffiliated third party for $3,400,000. The purchase price was funded using cash and cash equivalents. The property is located in Niles, Illinois and contains 21,415 square feet of leasable space. Its major tenant is Factory Card Outlet.
On November 5, 2002, the Company purchased a property from an unaffiliated third party for $18,159,020. The Company assumed the current mortgage on the property in the amount of $12,527,611 and the balance of the purchase price was funded using cash and cash equivalents. The property is located in Niles, Illinois and contains 281,368 square feet of leasable space. Its major tenants include Jewel Food Store, Rhodes and Wickes Furniture.
On November 8, 2002, the Company incurred debt secured by the property commonly known as Forest Lake Marketplace, located in Forest Lake, Minnesota. The loan has a principal balance of $6,589,000, an interest rate of 4.35% and a maturity date of December 1, 2007. In connection with obtaining this financing, the Company retained the services of Cohen Financial and paid a commission to Cohen in an amount equal to $32,945 (equivalent to one-half of one percent of the principal amount of the indebtedness). Joel D. Simmons, one of the Company's directors, is a limited partner of Cohen Financial. Additionally, in connection with obtaining this financing, the Company paid a commission for mortgage brokerage services to Inland Mortgage Corporation, an affiliate of The Inland Group, Inc., an amount equal to $8,236 (equivalent to one-eighth of one percent of the principal amount of the indebtedness).
The Company is currently exploring the purchase of additional shopping centers from unaffiliated third parties.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to interest rate changes primarily as a result of 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 and 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 including monthly annual amortization of principal through December 31, 2006 and thereafter, and weighted average interest rates for the average debt outstanding in each specified period.
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt |
$ 233,000 |
|
14,602,014 |
|
104,050,865 |
|
117,853,954 |
|
56,485,608 |
|
173,479,551 |
Weighted average interest rate |
6.71% |
|
6.71% |
|
6.71% |
|
6.60% |
|
6.39% |
|
4.50% |
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate debt |
- |
|
- |
|
13,912,700 |
|
14,116,700 |
|
45,410,175 |
|
- |
Weighted average interest rate |
3.44% |
|
3.44% |
|
3.44% |
|
3.52% |
|
3.62% |
|
N/A |
The table above reflects indebtedness outstanding as of September 30, 2002, 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 $73,440,000 of variable rate debt and $454,114,000 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 $73,440,000, or 14% of the Company's mortgages payable at September 30, 2002, have variable interest rates averaging 3.4%. An increase in the variable interest rates charged on mortgages payable containing variable interest rate terms, constitutes a market risk.
Item 4. Controls and Procedures
The Company's chief executive officer and chief financial officer have concluded, based on their evaluation within 90 days of the filing date of this report, that the Company's disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Company is required to disclose in its reports filed under the Securities Exchange Act of 1934. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the previously mentioned evaluation.
PART II - Other Information
Items 1 through 5 are omitted because of the absence of conditions under which they are required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Required by the Securities and Exchange Commission Regulations S-K, Item 601.
The following exhibits are filed as part of this document or incorporated herein by reference:
Item No. Description
3.1 Third Articles of Amendment and Restatement of the Registrant dated July 1, 2000 (1)
3.2 Amended and Restated Bylaws of the Registrant (1)
10.4 Credit Agreement dated as of June 28, 2002 among Inland Real Estate Corporation, as Borrower and KeyBank National Association as administrative agent and co-lead arranger and Fleet National Bank as syndication agent and co-lead arranger and the several lenders from time to time parties hereto, as lenders (2)
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INLAND REAL ESTATE CORPORATION
/s/ ROBERT D. PARKS |
|
By: Robert D. Parks |
President, Chief Executive Officer |
and Chairman of the Board |
Date: November 13, 2002 |
|
|
/s/ MARK E. ZALATORIS |
|
By: Mark E. Zalatoris |
Senior Vice President, Chief |
Financial Officer and Treasurer |
Date: November 13, 2002 |
|
|
|
|
CERTIFICATION
Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
I, Robert D. Parks, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Inland Real Estate Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I (herein the "Certifying Officers") are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such internal controls to ensure that material information relating to the registrant, including its consolidated subsidiaries, (collectively the "Company") is made known to the Certifying Officers by others within the Company, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's internal controls as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report the conclusions of the Certifying Officers about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's Certifying Officers have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors:
a) all significant deficiencies (if any) in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's Certifying Officers have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 |
|
/s/ ROBERT D. PARKS |
|
By: Robert D. Parks |
Chief Executive Officer |
See also the certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002, which is also attached to this report.
CERTIFICATION
Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
I, Mark E. Zalatoris, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Inland Real Estate Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I (herein the "Certifying Officers") are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such internal controls to ensure that material information relating to the registrant, including its consolidated subsidiaries, (collectively the "Company") is made known to the Certifying Officers by others within the Company, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's internal controls as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report the conclusions of the Certifying Officers about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's Certifying Officers have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors:
a) all significant deficiencies (if any) in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's Certifying Officers have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 |
|
/s/ MARK E. ZALATORIS |
|
By: Mark E. Zalatoris |
Chief Financial Officer |
See also the certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002, which is also attached to this report.
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Inland Real Estate Corporation (the "Company") for the quarterly period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Robert D. Parks, as Chief Executive Officer of the Company, and Mark E. Zalatoris, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
/s/ ROBERT D. PARKS |
|
Name: Robert D. Parks |
Chief Executive Officer |
Date: November 13, 2002 |
|
|
/s/ MARK E. ZALATORIS |
|
Name: Mark E. Zalatoris |
Chief Financial Officer |
Date: November 13, 2002 |
|
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section18 of the Securities Exchange Act of 1934, as amended.
See also the certification pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002, which is also attached to this Report.