-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AKvttSeNAGUcIbtw5k8plMWGhB8WOxLntUSwxTl9Rpdkc4TSgZLnShOUpwIBuAtU hAjDQDssUjhwvdXHxDMKbg== 0001047469-05-022951.txt : 20050915 0001047469-05-022951.hdr.sgml : 20050915 20050915152942 ACCESSION NUMBER: 0001047469-05-022951 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20050915 DATE AS OF CHANGE: 20050915 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INLAND WESTERN RETAIL REAL ESTATE TRUST INC CENTRAL INDEX KEY: 0001222840 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 421579325 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 333-118860 FILM NUMBER: 051086654 MAIL ADDRESS: STREET 1: 2901 BUTTERFIELD RD CITY: OAK BROOK STATE: IL ZIP: 60523 POS AM 1 a2162828zposam.txt POS AM As filed with the Securities and Exchange Commission on September 15, 2005 Registration No. 333-118860 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- POST-EFFECTIVE AMENDMENT NO. 4 TO FORM S-11 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (Exact name of registrant as specified in governing instruments) ---------- 2901 BUTTERFIELD ROAD OAK BROOK, ILLINOIS 60523 (630) 218-8000 (Address, including zip code, and telephone number, including, area code of Principal executive offices) ---------- ROBERT H. BAUM, ESQ. VICE CHAIRMAN, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL THE INLAND GROUP, INC. 2901 BUTTERFIELD ROAD OAK BROOK, ILLINOIS 60523 (630) 218-8000 (Name and address, including zip code, and telephone number, including area code of agent for service) ---------- WITH A COPY TO: DAVID J. KAUFMAN, ESQ. DUANE MORRIS LLP 227 WEST MONROE STREET SUITE 3400 CHICAGO, ILLINOIS 60606 (312) 499-6700 ================================================================================ This Post-Effective Amendment No. 4 consists of the following: 1. Supplement No. 33 dated September 15, 2005 to the Registrant's Prospectus dated December 21, 2004, included herewith, which will be delivered as an unattached document along with the Prospectus dated December 21, 2004. 2. The Registrant's final form of Prospectus dated December 21, 2004, previously filed pursuant to Rule 424(b)(3) on December 21, 2004 and refiled herewith. 3. Part II, included herewith. 4. Signatures, included herewith. ii SUPPLEMENT NO. 33 DATED SEPTEMBER 15, 2005 TO THE PROSPECTUS DATED DECEMBER 21, 2004 OF INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. We are providing this Supplement No. 33 to you in order to supplement our prospectus. This supplement updates information in the sections of our prospectus noted in the table of contents below. This Supplement No. 33 supplements, modifies or supersedes certain information contained in our prospectus, and prior Supplements No. 1 through 32 (dated December 29, 2004 through September 8, 2005) and must be read in conjunction with our prospectus. TABLE OF CONTENTS
Supplement Prospectus Page No. Page No. ----------------------- Prospectus Summary 1 1 Risk Factors 6 12 How We Operate 9 34 Conflicts of Interest 9 36 Compensation Table 13 40 Prior Performance of Our Affiliates 15 49 Management 33 68 Principal Stockholders 37 95 Investment Objectives and Policies 38 99 Real Property Investments 40 110 Management's Discussion and Analysis of Our Financial Condition 68 298 Shares Eligible for Future Sale 90 332 Summary of Our Organizational Documents 91 335 Stockholders' Meetings 91 335 Plan of Distribution 91 360 Litigation 92 378 Relationships and Related Transactions 92 378 Experts 93 384
We have completed our sales effort for our $2.5 billion initial public offering where we offered for sale 250 million shares of common stock. We consummated the sale of all of the shares of the offering on March 22, 2005. We commenced our $2.5 billion follow-on offering in January 2005 and are in the closing stage of the offering. We announced on September 6, 2005 that subscriptions for our common stock in our second offering will no longer be accepted after September 9, 2005. Completed subscription agreements, documents and funds for qualified and non-qualified investments must be postmarked on or before the close of business on September 9, 2005. Our distribution reinvestment program will continue in accordance with the terms of this prospectus and is unaffected by this announcement. Consult the subscription document for suitability standards in your state. PROSPECTUS SUMMARY THE FIFTH SENTENCE UNDER THE SECTION REGARDING "Our Sponsor, Our Business Manager/Advisor and The Inland Group"" WHICH STARTS ON PAGE 2 OF OUR PROSPECTUS HAS BEEN MODIFIED AS FOLLOWS: Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Property Services LLC, our property managers, are entities owned principally by individuals who are affiliates of The Inland Group. -1- THE FIRST PARAGRAPH UNDER THE SECTION REGARDING "CONFLICTS OF INTEREST" WHICH STARTS ON PAGE 4 OF OUR PROSPECTUS HAS BEEN SUPERCEDED AND WAS UPDATED IN THE ENTIRETY TO READ AS FOLLOWS: CONFLICTS OF INTEREST EXIST BETWEEN US AND SOME OF OUR AFFILIATES, INCLUDING OUR BUSINESS MANAGER/ADVISOR. THESE AFFILIATES INCLUDE INLAND REAL ESTATE CORPORATION, INLAND RETAIL REAL ESTATE TRUST, INC., INLAND REAL ESTATE EXCHANGE CORPORATION AND INLAND AMERICAN REAL ESTATE TRUST, INC. INLAND REAL ESTATE CORPORATION IS A PUBLICLY TRADED REIT THAT IS SELF-ADMINISTERED AND GENERALLY PURCHASES SHOPPING CENTERS LOCATED IN THE MIDWEST. INLAND RETAIL REAL ESTATE TRUST, INC. IS SELF-ADMINISTERED AND GENERALLY PURCHASES SHOPPING CENTERS LOCATED EAST OF THE MISSISSIPPI RIVER. INLAND REAL ESTATE EXCHANGE CORPORATION IS A SUBSIDIARY OF INLAND REAL ESTATE INVESTMENT CORPORATION. INLAND REAL ESTATE EXCHANGE CORPORATION PROVIDES REPLACEMENT PROPERTIES FOR PEOPLE WISHING TO COMPLETE AN IRS SECTION 1031 REAL ESTATE EXCHANGE. INLAND AMERICAN REAL ESTATE TRUST, INC.'S REGISTRATION STATEMENT ON FORM S-11 TO REGISTER 500,000,000 SHARES OF COMMON STOCK AND UP TO 40,000,000 SHARES OF THEIR COMMON STOCK FOR PARTICIPANTS IN THEIR DISTRIBUTION REINVESTMENT PROGRAM WAS DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 2005. INLAND AMERICAN REAL ESTATE TRUST, INC. IS AFFILIATED WITH THE INLAND GROUP. INLAND AMERICAN REAL ESTATE TRUST, INC. HAS BEEN FORMED TO ACQUIRE COMMERCIAL REAL ESTATE, PRIMARILY RETAIL PROPERTIES AND MULTI-FAMILY, OFFICE AND INDUSTRIAL BUILDINGS, LOCATED IN THE UNITED STATES AND CANADA. INLAND AMERICAN REAL ESTATE TRUST, INC. MAY INVEST IN THOSE ASSETS DIRECTLY BY PURCHASING THE PROPERTY ALSO KNOWN AS A "FEE INTEREST" OR INDIRECTLY BY PURCHASING INTERESTS, INCLUDING CONTROLLING INTERESTS, IN "REAL ESTATE OPERATING COMPANIES." INLAND AMERICAN REAL ESTATE TRUST, INC. MAY ALSO INVEST IN OTHER REAL ESTATE ASSETS AND ENTITIES OWNING THOSE ASSETS, SUCH AS MORTGAGE LOANS SECURED BY COMMERCIAL REAL ESTATE. Midwest Real Estate Equities, Inc. is not a subsidiary of The Inland Group, Inc or its affiliates but does have some of the same shareholders as The Inland Group, Inc. Midwest Real Estate Equities buys, manages and sells commercial and multi-family property. THE SECOND BULLET POINT AFTER THE SECOND PARAGRAPH UNDER THE SECTION "CONFLICTS OF INTEREST" WHICH STARTS ON PAGE 4 OF OUR PROSPECTUS HAS BEEN SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS: - substantial compensation payable by us to Inland Securities Corporation, Inland Western Retail Real Estate Advisory Services, Inc., Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Property Services LLC for their various services which may not be on market terms and is payable, in most cases, whether or not our stockholders receive distributions; WE HAVE ADDED A FOURTH PARAGRAPH WITH RELATED BULLET POINTS UNDER THE SECTION "CONFLICTS OF INTEREST" WHICH STARTS ON PAGE 4 OF OUR PROSPECTUS WHICH HAS BEEN UPDATED TO READ AS FOLLOWS: When Inland American Real Estate Trust, Inc.'s registration statement was declared effective by the Securities and Exchange Commission on August 31, 2005 the conflicts of interest that may arise in connection with the sale of shares and use of the offering's proceeds are as follows: - competition for the time and attention of management and affiliates that provide services to us, which may limit the amount of time that these people may spend on our matters; - potentially overlapping fiduciary duties owed by certain affiliated directors sitting on more than one board of directors; - potentially overlapping fiduciary duties owed by certain directors particularly arising in the potential purchase of shopping or retails centers, and office buildings, located in the United States; - Inland American Real Estate Trust, Inc. may compete for the same properties we are interested in; - Inland American Real Estate Trust, Inc. may acquire real estate operating companies that may have been a historical or future source for us to acquire properties from; and -2- - potential time and effort spent by Inland Securities Corporation on the selling of our securities and the sales effort due to the effort related to the sales of shares by Inland American Real Estate Trust, Inc. A NEW PARAGRAPH IS INSERTED AFTER THE FOURTH PARAGRAPH IN THE "CONFLICTS OF INTEREST" SUBSECTION, WHICH STARTS ON PAGE 4 OF OUR PROSPECTUS TO READ AS FOLLOWS: Our company has entered into an agreement and purchased 1,000 shares of The Inland Real Estate Group of Companies, Inc., which is a marketing entity to promote the business interests of its individual shareholder members. Its goals are to 1) enhance shareholder value of the members by: (a) assisting in the coordination of marketing efforts among members; (b) increasing buying power; (c) acting as a conduit for blind business leads; (d) identifying and monitoring proposed legislation that affects members; (e) providing an advocacy platform for issues of mutual concern; (f) sharing broad based expertise among members; (g) offering prospective tenants the broadest possible number of location choices; and 2) to clarify members' roles in the market place. WE HAVE SUPERCEDED THE FOLLOWING DESCRIPTION LOCATED UNDER THE NONSUBORDINATED PAYMENTS AT THE OPERATIONAL STAGE WITHIN THE TABULAR SUMMARY OF FEES AS DISCUSSED UNDER THE SECTION "Compensation To Be Paid to Our Business Manager/Advisor and Affiliates" WHICH STARTS ON PAGE 7 OF OUR PROSPECTUS IN THE ENTIRETY, TO READ AS FOLLOWS: Property management fee 4.5% of the gross income from the properties This fee terminates upon a business combination (cannot exceed 90% of the fee which would be with our property managers. payable to an unrelated third party). We will pay the fee for services in connection with the rental, leasing, operation and management of the properties. For the quarter ended June 30, 2005 and the year ended December 31, 2004, we have incurred and paid property management fees of $8,297,378 and $5,381,721, respectively, of which $8,297,378 and $5,381,721 were retained by Inland US Management LLC, Inland Southwest Property Management LLC and Inland Pacific Property Services LLC. Actual amounts we will incur in the future cannot be determined at the present time. Loan servicing fee and mortgage brokerage fee Annual fees totaling 0.3% of the first billion in mortgage balance outstanding and .01% thereafter through April 30, 2005. Effective May 1, 2005, if the number of loans exceeds 100, a monthly fee will be charged in the amount of $190 per month, per loan being serviced. If the amount of loans being serviced are less than 100, then the amount per month, per loan increases to $225. For the year ended December 31, 2004, and the six months ended June 30, 2005, we have incurred and paid $140,859 and $175,008 to Inland Mortgage Servicing Corporation. .2% of the principal amount of each loan is charged to facilitate the mortgage financing. For the year ended December 31, 2004, we have incurred and paid $3,475,472 to Inland Mortgage Corporation. For the six months ended June 30, 2005, we have incurred and paid $2,710,721 to Inland Mortgage Brokerage Corporation.
-3- ORGANIZATIONAL CHART The organizational chart included in the "Property Summary" and the "How We Operate" sections in our prospectus which are located on pages 3 and 35, respectively are both superceded with the following: -4- The following organizational chart depicts the services that affiliates of our sponsor will render to us and our organizational structure. ORGANIZATIONAL CHART ------------------ --------- --------- --------- Daniel L. Goodwin* Robert H. G. Joseph Robert D. Baum* Cosenza* Parks* ------------------ --------- --------- --------- | | | | - ----------------------------------------------------------------------------------------------------------------- | | | | - ---------- ---------- ---------- | Inland Inland Inland | Northwest Southwest Western ----------------------- Management Management Management THE INLAND GROUP, INC.* Corp. Corp. Corp. ----------------------- - ---------- ---------- ---------- | | | | | - ---------------------------------------------- ------------------------------------------------------------------------- | | | | | | | | | | - --------------------------------------------------- ------------------- ----------------------------- ------------------- | Inland Holdco Management LLC The Inland Services Inland Real The Inland Real | Group, Inc. Estate Investment Corporation Estate Transactions | (our sponsor) Group, Inc. | - --------------------------------------------------- ------------------- ----------------------------- ------------------- | | | | | | | | | | | | | | | - ---------- ---------------- -------------- | | | | Inland US Inland Southwest Inland Pacific | | | | Management Property Property --------------- | | | LLC Management Services Inland Risk and | | | (property LLC LLC Insurance | | | manager) (property (property Management | | | manager) manager) Services, Inc. | | | - ---------- ---------------- -------------- --------------- | | | | | | | | | | | | | | | | | - --------------------------------------------------- | | | | | | | | | | | | | | | ---------------------------------------------------------- | | | | | | | | | | | | | | | -------------------------------------------------------- | | | | | | | | | | | | | | | | | | ----------------- ------------------------------ ------------------ | ---------------------- | | Inland Securities Inland Western Retail Real Inland Partnership | Inland Mortgage | | Corporation Estate Advisory Services, Inc. Property Sales | Investment Corporation | | (our business manager/advisor) Corporation | | | ----------------- ------------------------------ ------------------ | ---------------------- | | | | | | | | | | ---------------------------------------- ------------ | | | | | | | | | | | | | | ----------- | ----------- ----------- | ------------ | | ----------- Inland Real ------------------ Inland Inland | Insurance | | Inland Real Estate Inland Real Mortgage Mortgage | Services | | Estate Development Estate Brokerage Servicing | ------------ | | Sales, Inc. Corporation Acquisitions, Inc. Corporation Corporation | | | | ----------- ----------- ------------------ ----------- ----------- | | | | | | | | | | | | | -------------- | | | | | | | | Real Estate | | | | - ----------------------- | | | Sales Services | | | | Property Management and | | | -------------- | | | | Related Services | | | | | | | | - ----------------------- | | | | | | | | | | | | | | | | | | | | | | | | | | | | ---------------- ----------------- | ---------------- ----------- --------- ----------- | | Securities Sales Organization, | Construction and Property Mortgage Mortgage | | Advisory and Real | Development Acquisition Brokerage Loan | | Estate Services | Services Services Services Servicing | | ---------------- ----------------- | ---------------- ----------- --------- ----------- | | | | | | | | | | | | | | | | | | | | | | | | | | | - ------------------------------------------------------------------------------------------------------------------------------------ Inland Western Retail Real Estate Trust, Inc. We are principally owned by public investors. Ownership is represented by shares of our common stock - ------------------------------------------------------------------------------------------------------------------------------------
Solid lines indicate 100% ownership. Broken lines indicate service. * The four indicated individuals control The Inland Group, Inc. and own substantially all of its stock. 5 RISK FACTORS THE SECOND SENTENCE UNDER THE DISCUSSION REGARDING "WE WILL COMPETE WITH REAL ESTATE INVESTMENT PROGRAMS SPONSORED BY COMPANIES AFFILIATED WITH US FOR ACQUISITION OF PROPERTIES AND FOR THE TIME AND SERVICES OF PERSONNEL" WHICH STARTS ON PAGE 12 OF OUR PROSPECTUS HAS BEEN MODIFIED TO READ AS FOLLOWS: These affiliated companies include Inland Real Estate Corporation, Inland Retail Real Estate Trust, Inc., Inland Real Estate Exchange Corporation, Inland American Real Estate Trust, Inc., and other entities to be formed by The Inland Group. THE DISCUSSION REGARDING "WE DEPEND ON OUR BOARD OF DIRECTOR, BUSINESS MANAGER/ADVISOR AND PROPERTY MANAGERS AND LOSING THOSE RELATIONSHIPS COULD NEGATIVELY AFFECT OUR OPERATIONS" WHICH STARTS ON PAGE 19 OF OUR PROSPECTUS HAS BEEN SUPERCEDED AND WAS UPDATED IN THE ENTIRETY TO READ AS FOLLOWS: WE DEPEND ON OUR BOARD OF DIRECTORS, BUSINESS MANAGER/ADVISOR AND PROPERTY MANAGERS AND LOSING THOSE RELATIONSHIPS COULD NEGATIVELY AFFECT OUR OPERATIONS. Our board of directors has supervisory control over all aspects of our operations. Our ability to achieve our investment objectives will depend to a large extent on the board's ability to oversee, and the quality of, the management provided by the business manager/advisor, the property managers, their affiliates and employees for day-to-day operations. Therefore, we depend heavily on the ability of the business manager/advisor and its affiliates to retain the services of each of its executive officers and key employees. However, none of these individuals has an employment agreement with the business manager/advisor or its affiliates. The loss of any of these individuals could have a material adverse effect on us. These individuals include Daniel L. Goodwin, Robert H. Baum, G. Joseph Cosenza, Robert D. Parks, Thomas P. McGuinness, Roberta S. Matlin and Brenda G. Gujral. Inland American Real Estate Trust, Inc.'s registration statement on Form S-11 to register 500,000,000 shares of common stock and up to 40,000,000 shares of their common stock for participants in their distribution reinvestment program was declared effective by the Securities and Exchange Commission on August 31, 2005. Specific conflicts of interest between us and Inland American Real Estate Trust, Inc., include: - competition for the time and attention of management and affiliates that provide services to us, which may limit the amount of time that these people may spend on our matters; - potentially overlapping fiduciary duties owed by certain affiliated directors sitting on more than one board of directors; and - potentially overlapping fiduciary duties owed by certain directors particularly arising in the potential purchase of shopping or retail centers, and office buildings, located in the United States. Our business manager/advisor must reimburse us for certain operational stage expenses exceeding 15% of the gross offering proceeds. If the business manager/advisor's net worth or cash flow is not sufficient to cover these expenses, we will not be reimbursed. THE DISCUSSION REGARDING "THERE ARE CONFLICTS OF INTEREST BETWEEN US AND OUR AFFILIATES" WHICH STARTS ON PAGE 19 OF OUR PROSPECTUS HAS BEEN SUPERCEDED AND WAS UPDATED IN THE ENTIRETY TO READ AS FOLLOWS: THERE ARE CONFLICTS OF INTEREST BETWEEN US AND OUR AFFILIATES. Our operation and management may be influenced or affected by conflicts of interest arising out of our relationship with our affiliates. Our business manager/advisor and its affiliates are or will be engaged in other activities that will result in potential conflicts of interest with the services that the business manager/advisor and affiliates will provide to us. Those affiliates 6 could take actions that are more favorable to other entities than to us. The resolution of conflicts in favor of other entities could have a negative impact on our financial performance. These affiliates include Inland Retail Real Estate Trust, Inc., Inland Western Retail Real Estate Advisory Services, Inc., our business manager/advisor, Inland Real Estate Corporation, Inland Real Estate Exchange Corporation, and Inland American Real Estate Trust, Inc., and entities to be formed by The Inland Group, Inc. Inland Real Estate Corporation is a publicly traded REIT that is self-administered and generally purchases shopping centers located in the Midwest. Inland Retail Real Estate Trust, Inc. is self-administered and generally purchases shopping centers located east of the Mississippi River. Inland Real Estate Exchange Corporation is a subsidiary of Inland Real Estate Investment Corporation. Inland Real Estate Exchange Corporation provides replacement properties for people wishing to complete an IRS Section 1031 real estate exchange. Inland American Real Estate Trust, Inc.'s registration statement on Form S-11 to register 500,000,000 shares of common stock and up to 40,000,000 shares of their common stock for participants in their distribution reinvestment program was declared effective by the Securities and Exchange Commission on August 31, 2005. Inland American Real Estate Trust, Inc. is affiliated with The Inland Group. Inland American Real Estate Trust, Inc. has been formed to acquire commercial real estate, primarily retail properties and multi-family, office and industrial buildings, located in the United States and Canada. Inland American Real Estate Trust, Inc. may invest in those assets directly by purchasing the property also known as a "fee interest" or indirectly by purchasing interests, including controlling interests, in "real estate operating companies." Inland American Real Estate Trust, Inc. may also invest in other real estate assets and entities owning those assets, such as mortgage loans secured by commercial real estate. Our business manager/advisor receives fees based on the book value including acquired intangibles of the properties under management. Specific conflicts of interest between us and our affiliates include: - WE MAY ACQUIRE PROPERTIES FROM AFFILIATES OF OUR SPONSOR IN TRANSACTIONS IN WHICH THE PRICE WILL NOT BE THE RESULT OF ARM'S LENGTH NEGOTIATIONS. The prices we pay to affiliates of our sponsor for our properties will be equal to the prices paid by them, plus the costs incurred by them relating to the acquisition and financing of the properties. These prices will not be the subject of arm's length negotiations, which could mean that the acquisitions may be on terms less favorable to us than those negotiated in an arm's-length transaction. Inland American Real Estate Trust, Inc. may acquire real estate operating companies that may have been a historical or future source for us to acquire properties from, which could create a conflict of interest for us. In addition, Inland American Real Estate Trust, Inc.'s offering could potentially negatively impact arm's length negotiations due to overlapping fiduciary duties owed by certain directors particularly arising in the potential purchase of shopping or retails centers, and office buildings, located in the United States. The result of these transactions could cause us to pay more for particular properties than we would have in an arm's length transaction and therefore, adversely affect our cash flow and our ability to pay your distributions. - WE MAY PURCHASE REAL PROPERTIES FROM PERSONS WITH WHOM OUR BUSINESS MANAGER/ADVISOR OR ITS' AFFILIATES HAVE PRIOR BUSINESS RELATIONSHIPS AND OUR INTERESTS IN THESE BUSINESS RELATIONSHIPS MAY BE DIFFERENT FROM THE INTERESTS OF OUR BUSINESS MANAGER/ADVISOR OR ITS AFFILIATES IN THESE BUSINESS RELATIONSHIPS. We may purchase properties from third parties who have sold properties in the past, or who may sell properties in the future, to our business manager/advisor or its affiliates. Inland American Real Estate Trust, Inc. may acquire real estate operating companies that may have been a historical or future source for acquiring properties, which could create a conflict of interest for our company. If we purchase properties from these third parties, our business manager/advisor will experience a conflict between our current interests and its interest in preserving any ongoing business relationship with these sellers. This could result in our business manager/advisor or its affiliates recommending properties that may be in the best interest of the third party seller, but not our best interest. This could adversely impact our portfolio by causing us to invest in properties that are not necessarily in our best interest. - OUR BUSINESS MANAGER/ADVISOR AND ITS AFFILIATES RECEIVE COMMISSIONS, FEES AND OTHER COMPENSATION BASED UPON OUR INVESTMENTS AND THEREFORE OUR BUSINESS MANAGER/ADVISOR AND ITS 7 AFFILIATES MAY RECOMMEND THAT WE MAKE INVESTMENTS IN ORDER TO INCREASE THEIR COMPENSATION. Our business manager/advisor and its affiliates receive commissions, fees and other compensation based upon our investments. They benefit by us retaining ownership of our assets and leveraging our assets, while you may be better served by sale or disposition or not leveraging the assets. In addition, our business manager/advisor's ability to receive fees and reimbursements depends on our continued investment in properties and in other assets which generate fees. Our business manager/advisor receives fees based on the book value including acquired intangibles of the properties under management. Our property managers receive fees based on the income from properties under management. Therefore, our business manager/advisor and/or property managers may recommend that we purchase properties that generate fees for our business manager/advisor and property managers, but are not necessarily the most suitable investment for our portfolio. In addition, our affiliates, who receive fees, including our business manager/advisor, may recommend that we acquire properties, which may result in our incurring substantive amounts of indebtedness. Therefore, the interest of our business manager/advisor and its affiliates in receiving fees may conflict with our ability to earn income and may result in our incurring substantive amounts of indebtedness. The resolution of this conflict of interest may adversely impact our cash flow and our ability to pay your distributions. - OUR BUSINESS MANAGER/ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IF WE ACQUIRE PROPERTIES WITH ITS AFFILIATES. Our business manager/advisor may cause us to acquire an interest in a property through a joint venture with its affiliates. In these circumstances, our business manager/advisor will have a fiduciary duty to both us and its affiliates participating in the joint venture. Inland American Real Estate Trust, Inc. may acquire real estate operating companies that may have been a historical or future source for acquiring properties, which could create a conflict of interest for us. In addition, Inland American Real Estate Trust, Inc.'s offering could potentially negatively impact arm's length negotiations due to overlapping fiduciary duties owed by certain directors particularly arising in the potential purchase of shopping or retails centers, and office buildings, located in the United States. The resolution of this conflict of interest may cause the business manager/advisor to sacrifice our best interest in favor of the seller of the property and therefore, we may enter into a transaction that is not in our best interest. The resolution of this conflict of interest may negatively impact our financial performance. - THERE IS COMPETITION FOR THE TIME AND SERVICES OF OUR BUSINESS MANAGER/ADVISOR AND OUR BUSINESS MANAGER/ADVISOR MAY NOT DEDICATE THE TIME NECESSARY TO MANAGER OUR BUSINESS. We rely on our business manager/advisor and its affiliates for our daily operation and the management of our assets. Our officers and other personnel of our business manager/advisor and its affiliates have conflicts in allocating their management time, services and functions among the real estate investment programs they currently service and any future real estate investment programs or other business ventures which they may organize or serve. Those personnel could take actions that are more favorable to other entities than to us. Inland American Real Estate Trust, Inc. competes with us for the time and attention of management and affiliates that provide services to us, which may limit the amount of time that these people may spend on our matters. The resolution of conflicts in favor of other entities could have a negative impact on our financial performance. - INLAND SECURITIES CORPORATION IS PARTICIPATING AS MANAGING DEALER IN THE SALE OF THE SHARES. Inland Securities Corporation is our managing dealer of this offering and is affiliated with The Inland Group. Our managing dealer is entitled to selling commissions and reimbursement for marketing and due diligence expenses. Our managing dealer may be subject to a conflict of interest arising out of its participation in this offering and its affiliation with The Inland Group in performing its "due diligence" obligations which arise under the Securities Act of 1933. Inland American Real Estate Trust, Inc.'s offering could negatively affect the time and effort spent on our capital raise and sales effort due to the efforts related to the sales of shares by Inland American Real Estate Trust, Inc. 8 - WE MAY ACQUIRE THE BUSINESS OF OUR BUSINESS MANAGER/ADVISOR AND OUR PROPERTY MANAGERS WITHOUT FURTHER ACTION BY OUR STOCKHOLDERS. During the term of our agreements with our business manager/advisor and our property managers, we have the option to acquire or consolidate the business conducted by them without any consent of our stockholders, our business manager/advisor or our property managers. We may elect to exercise this right at any time after September 15, 2008. This unfettered discretion could cause us to take action that otherwise we would not be able to do, and therefore could have a negative impact on our financial performance. - WE DO NOT HAVE ARM'S-LENGTH AGREEMENTS, WHICH COULD CONTAIN TERMS WHICH ARE NOT IN OUR BEST INTEREST. As we have noted, our agreements and arrangements with our business manager/advisor or any of its affiliates, including those relating to compensation, are not the result of arm's length negotiations. These agreements may contain terms that our not in our best interest and would not otherwise be applicable if we entered into arm's-length agreements. See "Conflicts of Interest" for a discussion of various conflicts of interest. HOW WE OPERATE THE THIRD AND FOURTH PARAGRAPH UNDER THIS HEADING WHICH STARTS ON PAGE 34 OF OUR PROSPECTUS IS SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS: In addition to the services of our business manager/advisor, we contract with Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Property Services LLC for their services as our property managers. Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Property Services LLC provide the day-to-day property management services for all of our properties. Our sponsor, Inland Real Estate Investment Corporation, is owned by The Inland Group, Inc. Our business manager/advisor Inland Western Retail Real Estate Advisory Services, Inc., is owned by our sponsor, and thus is indirectly controlled by The Inland Group. In addition, our property managers, Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Property Services LLC, are owned by individuals who are affiliates of the Inland Group. CONFLICTS OF INTEREST A NEW SECOND PARAGRAPH IS INSERTED AFTER THE FIRST PARAGRAPH WHICH STARTS ON PAGE 36 OF OUR PROSPECTUS TO READ AS FOLLOWS: Our company has entered into an agreement and purchased 1,000 shares of The Inland Real Estate Group of Companies, Inc., which is a marketing entity to promote the business interests of its individual shareholder members. Its goals are to 1) enhance shareholder value of the members by: (a) assisting in the coordination of marketing efforts among members; (b) increasing buying power; (c) acting as a conduit for blind business leads; (d) identifying and monitoring proposed legislation that affects members; (e) providing an advocacy platform for issues of mutual concern; (f) sharing broad based expertise among members; (g) offering prospective tenants the broadest possible number of location choices; and 2) to clarify members' roles in the market place. THE SECOND PARAGRAPH UNDER THIS HEADING WHICH STARTS ON PAGE 36 OF OUR PROSPECTUS IS SUPERCEDED AND WAS UPDATED IN THE ENTIRETY TO READ AS FOLLOWS: THERE MAY BE CONFLICTING INVESTMENT OPPORTUNITIES AMONG AFFILIATES OF OUR BUSINESS MANAGER/ADVISOR AND THE INLAND GROUP. Affiliates of our business manager/advisor and The Inland Group have sponsored multiple previous investment programs. Our sponsor may also sponsor other programs which may have investment objectives similar to ours. Inland American Real Estate Trust, Inc.'s registration statement on Form S-11 to register 500,000,000 shares of common stock and up to 40,000,000 shares of their common stock for participants in their distribution reinvestment program was declared effective by the Securities and Exchange Commission on August 31, 2005. Inland American Real Estate Trust, Inc. is affiliated with The Inland Group. Inland American Real Estate Trust, Inc.'s offering could negatively 9 affect the time and effort spent on our capital raise and sales effort due to the effort related to the sales of shares by Inland American Real Estate Trust, Inc. Therefore, our sponsor, our business manager/advisor and their affiliates could face conflicts of interest in determining which investment programs will have the first opportunity to acquire real properties and other assets as they become available. WE HAVE ADDED A SIXTH PARAGRAPH WHICH WAS SUBSEQUENTLY UPDATED UNDER THIS HEADING WHICH STARTS ON PAGE 36 OF OUR PROSPECTUS TO READ AS FOLLOWS: Inland American Real Estate Trust, Inc. has been formed to acquire commercial real estate, primarily retail properties and multi-family, office and industrial buildings, located in the United States and Canada. Inland American Real Estate Trust, Inc. may invest in those assets directly by purchasing the property also known as a "fee interest" or indirectly by purchasing interests, including controlling interests, in "real estate operating companies." Inland American Real Estate Trust, Inc. may also invest in other real estate assets and entities owning those assets, such as mortgage loans secured by commercial real estate. Inland American Real Estate Trust, Inc.'s registration statement was declared effective by the Securities and Exchange Commission on August 31, 2005, and the conflicts of interest that may arise in connection with the sale of these shares and use of the offering's proceeds as follows: - competition for the time and attention of management and affiliates that provide services to us, which may limit the amount of time that these people may spend on our matters; - potentially overlapping fiduciary duties owed by certain affiliated directors sitting on more than one board of directors; - potentially overlapping fiduciary duties owed by certain directors particularly arising in the potential purchase of shopping or retails centers, and office buildings, located in the United States; - Inland American Real Estate Trust, Inc. may compete for the same properties we are interested in; - Inland American Real Estate Trust, Inc. may acquire real estate operating companies that may have been a historical or future source for us to acquire properties from; and - potential time and effort spent by Inland Securities Corporation on the selling of our securities and the sales effort due to the effort related to the sales of shares by Inland American Real Estate Trust, Inc. THE SIXTH PARAGRAPH UNDER THIS HEADING WHICH STARTS ON PAGE 36 OF OUR PROSPECTUS IS SUPERCEDED IN THE ENTIRETY AND BECOMES THE SEVENTH PARAGRAPH AND WAS UPDATED TO READ AS FOLLOWS: We currently focus on purchase of properties in the states west of the Mississippi River. We have acquired and will continue to acquire properties east of the Mississippi River. Inland American Real Estate Trust, Inc.'s registration statement was declared effective by the Securities and Exchange Commission on August 31, 2005, and conflicts of interest may arise in connection with the sale of shares and use of the offering's proceeds. Those conflicts of interest are discussed above. However, if any conflicts do arise, they will be resolved as provided in the agreement with our business manager/advisor discussed above. THE NINTH THROUGH FIFTEENTH PARAGRAPHS UNDER THIS HEADING WHICH STARTS ON PAGE 36 OF OUR PROSPECTUS IS SUPERCEDED IN THE ENTIRETY AND WAS UPDATED TO READ AS FOLLOWS: WE MAY ACQUIRE PROPERTIES FROM AFFILIATES OF OUR SPONSOR. The prices we pay to affiliates of our sponsor for these properties will be equal to the prices paid by them, plus the costs incurred by them relating to the acquisition and financing of the properties. These prices will not be the subject of arm's length negotiations, which could mean that the acquisitions may be on terms less favorable to us than those negotiated in an arm's-length transaction. Inland American Real Estate Trust, Inc. may acquire real estate operating companies that 10 may have been a historical or future source for acquiring properties, which could create a conflict of interest for our company. In addition, Inland American Real Estate Trust, Inc.'s offering could potentially negatively impact arm's length negotiations due to overlapping fiduciary duties owed by certain directors particularly arising in the potential purchase of shopping or retails centers, and office buildings, located in the United States. However, our articles of incorporation provide that the purchase price of any property acquired from an affiliate may not exceed its fair market value as determined by a competent independent appraiser. In addition, the price must be approved by a majority of our directors who have no financial interest in the transaction. If the price to us exceeds the cost paid by our affiliate, there must be substantial justification for the excess cost. WE MAY PURCHASE REAL PROPERTIES FROM PERSONS WITH WHOM AFFILIATES OF OUR BUSINESS MANAGER/ADVISOR HAVE PRIOR BUSINESS RELATIONSHIPS. We may purchase properties from third parties who have sold properties in the past, or who may sell properties in the future, to our business manager/advisor or its affiliates. Inland American Real Estate Trust, Inc. may acquire real estate operating companies that may have been a historical or future source for acquiring properties, which could create a conflict of interest for our company. If we purchase properties from these third parties, our business manager/advisor could experience a conflict between our current interests and its interest in preserving any ongoing business relationship with these sellers. Nevertheless, our business manager/advisor has a fiduciary obligation to us. PROPERTY MANAGEMENT SERVICES ARE BEING PROVIDED BY COMPANIES OWNED PRINCIPALLY BY AFFILIATES OF THE INLAND GROUP. Our property managers, which are owned principally by individuals who are our affiliates, provide property management services to us pursuant to management services agreements which we can terminate only in the event of gross negligence or willful misconduct on the part of the property managers. However, our property management services agreements provide that we pay our property managers a monthly management fee of no greater than 90% of the fee which would be payable to an unrelated third party providing such services. In addition, the business manager/advisor and the property managers believe that the property managers have sufficient personnel and other required resources to discharge all responsibilities to us. Inland American Real Estate Trust, Inc. could compete with us for the time and attention of management and affiliates that provide services to us, which may limit the amount of time that these people may spend on our matters. OUR BUSINESS MANAGER/ADVISOR AND ITS AFFILIATES RECEIVE COMMISSIONS, FEES AND OTHER COMPENSATION BASED UPON OUR INVESTMENTS. We believe that the compensation we will pay to our business manager/advisor and its affiliates is no more than what we would pay for similar services performed by independent firms. Some compensation is payable whether or not there is cash available to make distributions to our stockholders. To the extent this occurs, our business manager/advisor and its affiliates benefit from us retaining ownership of our assets and leveraging our assets, while our stockholders may be better served by sale or disposition or not leveraging the assets. In addition, the business manager/advisor's ability to receive fees and reimbursements depends on our continued investment in properties and in other assets which generate fees. Our business manager/advisor receives fees based on the book value including acquired intangibles of the properties under management. Our property managers receive fees based on the income from properties under management. Therefore, our business manager/advisor and/or property managers may recommend that we purchase properties that generate fees for our business manager/advisor and property managers, but are not necessarily the most suitable investment for our portfolio. In addition, our affiliates, who receive fees, including our business manager/advisor, may recommend that we acquire properties, which may result in our incurring substantive amounts of indebtedness. Therefore, the interest of the business manager/advisor and its affiliates in receiving fees may conflict with the interest of our stockholders in earning income on their investment in our common stock. Our business manager/advisor and its affiliates recognize that they have a fiduciary duty to us and our stockholders, and have represented to us that their actions and decisions will be made in the manner most favorable to us and our stockholders. While we will not make loans to our business manager/advisor or its affiliates, we may borrow money from them for various purposes, including funding working capital requirements. If we do, the terms, such as the interest rate, security, fees and other charges, will be at least as favorable to us as those which would be charged by unaffiliated lending institutions in the same locality on comparable loans. Any money borrowed from an affiliate of The Inland Group is expected to be repaid within 180 days. 11 Our business manager/advisor and its affiliates may do business with others who do business with us, although presently there are no instances of this. However, our business manager/advisor or its affiliates may not receive rebates or participate in any reciprocal business arrangements which would have the effect of circumventing our agreement with our business manager/advisor. OUR BUSINESS MANAGER/ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IF WE ACQUIRE PROPERTIES WITH ITS AFFILIATES. Our business manager/advisor may cause us to acquire an interest in a property through a joint venture with its affiliates. Inland American Real Estate Trust, Inc. may acquire real estate operating companies that may have been a historical or future source for acquiring properties, which could create a conflict of interest for our company. In addition, Inland American Real Estate Trust, Inc.'s offering could potentially negatively impact arm's length negotiations due to overlapping fiduciary duties owed by certain directors particularly arising in the potential purchase of shopping or retails centers, and office buildings, located in the United States. In these circumstances, our business manager/advisor will have a fiduciary duty to both us and its affiliates participating in the joint venture. In order to minimize the conflict between these fiduciary duties, the advisory agreement provides guidelines for investments in joint ventures with affiliates. In addition, our articles of incorporation require a majority of our disinterested directors to determine that the transaction is fair and reasonable to us and is on terms and conditions no less favorable than from unaffiliated third parties entering into the venture. THERE IS COMPETITION FOR THE TIME AND SERVICES OF OUR BUSINESS MANAGER/ADVISOR. We rely on our business manager/advisor and its affiliates for our daily operation and the management of our assets. Personnel of our business manager/advisor and its affiliates have conflicts in allocating their management time, services and functions among the real estate investment programs they currently service and any future real estate investment programs or other business ventures which they may organize or serve. Our business manager/advisor and its affiliates believe they have enough staff to perform their responsibilities in connection with all of the real estate programs and other business ventures in which they are involved. Inland American Real Estate Trust, Inc. could compete with us for the time and attention of management and affiliates that provide services to us, which may limit the amount of time that these people may spend on our matters. INLAND SECURITIES CORPORATION IS PARTICIPATING AS MANAGING DEALER IN THE SALE OF THE SHARES. Inland Securities Corporation is the managing dealer of the offering and is affiliated with The Inland Group. The managing dealer is entitled to selling commissions and reimbursement for marketing and due diligence expenses. The managing dealer may be subject to a conflict of interest arising out of its participation in this offering and its affiliation with The Inland Group in performing its "due diligence" obligations which arise under the Securities Act of 1933. However, the managing dealer believes it has and will continue to properly perform these "due diligence" activities. Inland American Real Estate Trust, Inc.'s offering could negatively affect the time and effort spent on our capital raise and sales effort due to the efforts related to the sales of shares by Inland American Real Estate Trust, Inc. THE THIRD AND FOURTH PARAGRAPHS UNDER THIS HEADING WHICH STARTS ON PAGE 36 OF OUR PROSPECTUS IS SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS: On February 11, 2005, a new property acquisition agreement was entered into between Inland Real Estate Acquisitions, Inc., the Business Manager/Advisor, and us. The property acquisition agreement grants us an exclusive right of first refusal to acquire each and every Subject Property, as defined in the agreement. A Subject Property is defined as any retail facility, mixed-use property, or a single-user property identified by Acquisitions and located within our market area. Our market area is defined in the agreement as the geographic area located west of the Mississippi in the continental United States but excluding the portion of the geographic area within a four hundred (400) mile radius of Oak Brook, Illinois. Acquisitions are owned by The Inland Group, and we are sponsored by Inland Real Estate Investment Corporation. Inland Real Estate Investment Corporation and the Advisor are owned by The Inland Group. 12 The property acquisition agreement previously entered into by the parties dated September 18, 2003 has been terminated accordingly. The new property acquisition agreement is filed as an exhibit to the registration statement of which the prospectus is a part and is incorporated into this filing in its entirety. COMPENSATION TABLE WE HAVE SUPERCEDED THE FOLLOWING DESCRIPTION LOCATED UNDER THE NONSUBORDINATED PAYMENTS AT THE OPERATIONAL STAGE WITHIN THE TABULAR SUMMARY OF FEES AS DISCUSSED WHICH STARTS ON PAGE 43 OF OUR PROSPECTUS IN THE ENTIRETY, TO READ AS FOLLOWS:
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION ESTIMATED MAXIMUM DOLLAR AMOUNT - ----------------------------------------------------------------------------------------------------------------------- Property management fee paid to our property We will pay a monthly fee of 4.5% For the quarter ended June 30, managers, Inland US Management LLC, Inland of the gross income from the 2005 and the year ended December Southwest Management LLC and Inland Pacific properties. We will also pay a 31, 2004, we have incurred and paid Property Services LLC. We will pay the fee monthly fee for any extra services property management fees of for services in connection with the rental, equal to no more than 90% of that $8,297,378 and $5,381,721, leasing, operation and management of the which would be payable to an respectively, of which $8,297,378 properties unrelated party providing the and $5,381,721 were retained by services. The property managers may Inland US Management LLC, Inland subcontract their duties for a fee Southwest Management LLC and that may be less than the fee Inland Pacific Property Services provided for in the management LLC. If we acquire the businesses services agreements. of our business manager/advisor and/or our property managers, the property management fees will cease. The actual amounts we will incur in the future are dependent upon results of operations and, therefore, cannot be determined at the present time. We will compensate the Inland Mortgage Inland Mortgage Servicing For the year ended December 31, Servicing Corporation and Inland Mortgage Corporation charges us .3% per year 2004, and the six months ended Brokerage Corporation for purchase, sale and on the first billion dollars of June 30, 2005 we have incurred and servicing of mortgages. mortgages serviced and .01% paid $140,859 and $175,008, thereafter through April 30, 2005. respectively to Inland Mortgage Effective May 1, 2005, if the Servicing Corporation. For the year number of loans exceeds 100, a ended December 31, 2004, we have monthly fee will be charged in the incurred and paid $3,475,472 to amount of $190 per month, per loan Inland Mortgage Corporation. For being serviced. If the amount of the six months ended June 30, loans being serviced are less than 2005 we have incurred and paid 100, then the amount per month, per $2,710,721 to Inland Mortgage loan increases to $225. Inland Brokerage Corporation. Mortgage Brokerage Corporation charges us .2% of the principal The actual amounts we will incur in amount of each loan placed. The the future are dependent upon compensation to these companies results of operations and cannot be will be approved by a majority of determined at the present time. our directors and a majority of our independent directors as fair and reasonable for us.
13 THE DISCUSSION UNDER THIS SECTION "COMPENSATION TO OFFICERS AND DIRECTORS" ON THE DIRECTOR FEES, WHICH STARTS ON PAGE 47 OF OUR PROSPECTUS, SHOULD READ AS FOLLOWS:
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION ESTIMATED MAXIMUM DOLLAR AMOUNT Director fees Independent directors receive an We will pay the five independent annual fee of $5,000 (increasing to directors $25,000 in the aggregate $10,000 effective October 1, 2004) annually (increasing to $50,000 and a fee of $500 for attending effective October 1, 2004), plus each meeting of the board or one of fees for attending meetings. The its committees (excluding the audit actual amounts to be received for committee) in person and $350 for future meetings depend upon the attending a meeting via the number of meetings and their telephone. Effective December 1, attendance and, therefore, cannot 2004, we pay our audit committee be determined at the present time. members $750 for each in person audit committee meeting and $500 for each audit committee meeting attended by telephone. Our officers who are also our directors do not receive director fees.
14 PRIOR PERFORMANCE OF IREIC AFFILIATES PRIOR INVESTMENT PROGRAMS During the 10-year period ending June 30, 2005, The Inland Group and its affiliates have sponsored two other REITs and 38 real estate exchange private placements, which altogether have raised more than $3,289,536,000 from approximately 68,000 investors. During that period, Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc., the other REITs, have raised over $3,040,615,000 from approximately 67,000 investors. Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. have investment objectives and policies similar to ours and have invested principally in shopping centers that provide sales of convenience goods and personal services to neighboring communities in the Midwest and Southeast areas. However, both Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc., are now self-administered REITs. Our investment objectives and policies are similar to those of several of the other prior investment programs sponsored by our affiliates which have owned and operated retail properties. However, the vast majority of the other investment programs sponsored by our affiliates were dissimilar from our operation in that the prior programs owned apartment properties, pre-development land and whole or partial interests in mortgage loans. The information in this section and in the Prior Performance Tables included in this post-effective amendment as APPENDIX SHOWS relevant summary information concerning real estate programs sponsored by our affiliates. The purpose is to provide information on the prior performance of these programs so that you may evaluate the experience of the affiliated companies in sponsoring similar programs. The following discussion is intended to briefly summarize the objectives and performance of the prior programs and to disclose any material adverse business developments sustained by them. Past performance is not necessarily indicative of future performance. SUMMARY INFORMATION The table below provides summarized information concerning prior programs sponsored by our affiliates for the 10-year period ending June 30, 2005, and is qualified in its entirety by reference to the introductory discussion above and the detailed information appearing in the Prior Performance Tables in APPENDIX A of this post-effective amendment. YOU SHOULD NOT CONSTRUE INCLUSION OF THE SUCCEEDING TABLES AS IMPLYING IN ANY MANNER THAT WE WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN THE TABLES BECAUSE THE YIELD AND CASH AVAILABLE AND OTHER FACTORS COULD BE SUBSTANTIALLY DIFFERENT FOR OUR PROPERTIES. YOU SHOULD NOTE THAT BY ACQUIRING OUR SHARES, YOU WILL NOT BE ACQUIRING ANY INTERESTS IN ANY PRIOR PROGRAMS. 15
INLAND RETAIL INLAND REAL INLAND REAL REAL ESTATE ESTATE ESTATE EXCHANGE TRUST, INC. CORPORATION PRIVATE REIT REIT PLACEMENT PROGRAM AS OF PROGRAM AS OF OFFERINGS AS OF JUNE 30, 2005 JUNE 30, 2005 JUNE 30, 2005 ----------------------------------------------------- Number of programs sponsored 1 1 38 Aggregate amount raised from investors $ 2,333,750,000 706,865,000 248,921,000 Approximate aggregate number of investors 59,000 8,100 636 Number of properties purchased 284 155 38 Aggregate cost of properties $ 4,129,160,000 1,443,000,000 490,275,000 Number of mortgages/notes 0 0 0 Principal amount of mortgages/notes $ 0 0 0 Percentage of properties (based on cost) that were: Commercial-- Retail 90.00% 87.00% 37.00% Single-user retail net-lease 10.00% 13.00% 13.00% Nursing homes 0.00% 0.00% 0.00% Offices 0.00% 0.00% 35.00% Industrial 0.00% 0.00% 15.00% Health clubs 0.00% 0.00% 0.00% Mini-storage 0.00% 0.00% 0.00% Total commercial 100.00% 100.00% 100.00% Multi-family residential 0.00% 0.00% 0.00% Land 0.00% 0.00% 0.00% Percentage of properties (based on cost) that were: Newly constructed (within a year of acquisition) 38.00% 40.00% 25.00% Existing construction 62.00% 60.00% 75.00% Number of properties sold in whole or in part 2 12 0 Number of properties exchanged 0 0 0
Of the programs included in the above table, Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. have investment objectives similar to ours. Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. represent approximately 92% of the aggregate amount raised from investors, approximately 99% of the aggregate number of investors, approximately 92% of the number of properties purchased, and approximately 92% of the aggregate cost of the properties During the three years prior to June 30, 2005, Inland Real Estate Corporation purchased 32 commercial properties and Inland Retail Real Estate Trust, Inc., purchased 219 commercial properties. Upon written request, you may obtain, without charge, a copy of Table VI filed with the Securities and Exchange Commission in Part II of our post-effective amendment. The table provides more information about these acquisitions. PUBLICLY REGISTERED REITs INLAND REAL ESTATE CORPORATION was formed in May 1994. Through a total of four public offerings, the last of which was completed in 1998, Inland Real Estate Corporation, which we refer to herein as IRC, sold a total of 51,642,397 shares of common stock. In addition, as of June 30, 2005, IRC had issued 14,664,341 shares of common stock through its distribution reinvestment program. As of June 30, 2005, IRC repurchased 5,256,435 shares of common stock through its share repurchase program. As a result, IRC has realized total 16 gross offering proceeds of approximately $706,865,000 as of June 30, 2005. On June 9, 2004, IRC listed its shares on the New York Stock Exchange and began trading under the ticker "IRC". On July 18, 2005, the closing price of the stock on the New York Stock Exchange was $15.99 per share. IRC focuses on purchasing shopping centers that provide convenience goods, personal services, wearing apparel and hardware and appliances located within an approximate 400-mile radius of its headquarters in Oak Brook, Illinois. IRC seeks to provide stockholders with regular cash distributions and a hedge against inflation through capital appreciation. IRC also may acquire single-user retail properties throughout the United States. As of June 30, 2005, the properties owned by IRC were generating sufficient cash flow to pay operating expenses and an annual cash distribution of $0.96 per share, a portion of which is paid monthly. As of June 30, 2005, IRC owned one hundred forty three (143) properties for a total investment of approximately $1,443,000,000. These properties were purchased with proceeds received from the above described offerings of shares of its common stock and financings. As of June 30, 2005, IRC had borrowed approximately $619,301,000 secured by its properties and had $140,000,000 outstanding through an unsecured line of credit. On July 1, 2000, IRC became a self-administered REIT by acquiring, through merger, Inland Real Estate Advisory Services, Inc., its advisor, and Inland Commercial Property Management, Inc., its property manager, into two wholly owned subsidiaries. As a result of the merger, IREIC, the sole shareholder of the advisor, and The Inland Property Management Group, Inc., the sole shareholder of its property manager, received an aggregate of 6,181,818 shares of IRC's common stock valued at $11.00 per share, or approximately nine percent (9.0%) of its common stock. INLAND RETAIL REAL ESTATE TRUST, INC. was formed in February 1999. Through a total of three public offerings, the last of which was completed in 2003, Inland Retail Real Estate Trust, Inc., which we refer to herein as IRRETI, sold a total of 213,699,534 shares of its common stock. In addition, as of June 30, 2005, IRRETI had issued approximately 26,859,000 shares through its distribution reinvestment program, and has repurchased a total of approximately 5,679,000 shares through the share reinvestment program. As a result, IRRETI has realized total gross offering proceeds of approximately $2,333,705,000 as of June 30, 2005. On December 29, 2004, IRRETI issued 19,700,060 shares as a result of a merger with its advisor and property managers, as described below. IRRETI focuses on purchasing shopping centers located east of the Mississippi River in addition to single-user retail properties in locations throughout the United States. IRRETI seeks to provide investors with regular cash distributions and a hedge against inflation through capital appreciation. As of June 30, 2005, the properties owned by IRRETI were generating sufficient cash flow to pay operating expenses and an annual cash distribution of $0.83 per share, a portion of which is paid monthly. As of June 30, 2005, IRRETI owned two hundred eighty two (282) properties for a total investment of approximately $4,129,160,000. These properties were purchased with proceeds received from the above described offerings of shares of its common stock and financings. As of June 30, 2005, IRRETI borrowed approximately $2,292,863,000 on its properties. On December 29, 2004, IRRETI became a self-administered REIT by acquiring, through merger, Inland Retail Real Estate Advisory Services, Inc., its business manager and advisor, and Inland Southern Management Corp., Inland Mid-Atlantic Management Corp., and Inland Southeast Property Management Corp., its property managers. As a result of the merger, IRRETI issued to our sponsor, IREIC, the sole shareholder of the business manager and advisor, and the shareholders of the property managers, an aggregate of 19,700,060 shares of IRRETI's common stock, valued at $10.00 per share for purposes of the merger agreement, or approximately 7.9% of its common stock. 17 INLAND REAL ESTATE CORPORATION - OFFERING COMPLETED 1998
TOTAL ORDINARY NON TAXABLE CAPITAL GAIN TOTAL DISTRIBUTIONS DISTRIBUTION INCOME DISTRIBUTION DISTRIBUTION PER SHARE ----------------- ----------------- ----------------- ----------------- --------------------- $ $* $** $*** $ 1995 736,627 694,213 42,414 -- .76 1996 3,704,943 3,093,525 611,418 -- .81 1997 13,127,597 9,739,233 3,388,364 -- .86 1998 35,443,213 27,015,143 8,428,070 -- .88 1999 48,379,621 35,640,732 12,738,889 -- .89 2000 52,964,010 40,445,730 12,518,280 -- .89 2001 58,791,604 45,754,604 12,662,414 374,586 .93 2002 60,090,685 41,579,944 18,315,640 195,101 .94 2003 61,165,608 47,254,096 13,577,679 333,833 .94 2004 62,586,577 53,458,760 7,883,026 1,244,791 .94 2005 31,909,968 31,909,968 * * ----------------- ----------------- ----------------- ----------------- 428,900,453 336,585,948 90,166,194 2,148,311 ================= ================= ================= =================
- ------------------ * The breakout between ordinary income and return of capital is finalized on an annual basis after the calendar year end. ** Represents a reduction in basis for federal income tax purposes resulting from cash distributions (other than in respect of property sale proceeds) in excess of current or accumulated earnings and profits. *** Represents a capital gain distribution for federal income tax purposes. INLAND RETAIL REAL ESTATE TRUST, INC. - OFFERING COMPLETED 2003
TOTAL ORDINARY NON TAXABLE CAPITAL GAIN TOTAL DISTRIBUTIONS DISTRIBUTION INCOME DISTRIBUTION DISTRIBUTION PER SHARE ----------------- ---------------- ---------------- ----------------- --------------------- $ $* $** $*** $ 1999 1,396,861 318,484 1,078,377 -- .49**** 2000 6,615,454 3,612,577 3,002,877 -- .77 2001 17,491,342 10,538,534 6,952,808 -- .80 2002 58,061,491 36,387,136 21,674,355 -- .82 2003 160,350,811 97,571,099 62,779,712 -- .83 2004 190,630,575 110,922,403 79,708,172 -- .83 2005 104,347,512 104,347,512 * -- ----------------- ---------------- ---------------- ----------------- 538,894,046 363,697,745 175,196,301 -- ================= ================ ================ =================
- ------------------ * The breakout between ordinary income and return of capital is finalized on an annual basis after the calendar year end. ** Represents a reduction in basis for federal income tax purposes resulting from cash distributions (other than in respect of property sale proceeds) in excess of current or accumulated earnings and profits. *** Represents a capital gain distribution for federal income tax purposes. **** IRRETI began paying monthly distributions in May 1999. This amount represents total distributions per share made during the period from May 1999 through December 1999. 18 PRIVATE PARTNERSHIPS Through June 30, 2005, affiliates of IREIC have sponsored five hundred fourteen (514) private placement limited partnerships which have raised more than $524,201,000 from approximately 17,000 investors and invested in properties for an aggregate price of more than $1 billion in cash and notes. Of the five hundred twenty-two (522) properties purchased, ninety-three percent (93.0%) have been located in Illinois. Approximately ninety percent (90.0%) of the funds were invested in apartment buildings, six percent (6.0%) in shopping centers, two percent (2.0%) in office buildings and two percent (2.0%) in other properties. Including sales to affiliates, four hundred seventy-five (475) partnerships have sold their original property investments. Officers and employees of IREIC and its affiliates invested more than $17,000,000 in these limited partnerships. From July 1, 1995 through June 30, 2005, investors in these private partnerships have received total distributions in excess of $291 million consisting of cash flow from partnership operations, interest earnings, sales and refinancing proceeds and cash received during the course of property exchanges. Following a proposal by the former corporate general partner, which was an affiliate of The Inland Group, investors in three hundred one (301) private partnerships voted in 1990 to admit IREIC as the corporate general partner for those partnerships. Beginning in December 1993 and continuing into the first quarter of 1994, investors in one hundred one (101) private limited partnerships for which IREIC is the general partner received letters informing them of the possible opportunity to sell the sixty-six (66) apartment properties owned by those partnerships to a to-be-formed REIT in which affiliates of IREIC would receive stock and cash and the limited partners would receive cash. The underwriters of this apartment REIT subsequently advised IREIC to sell to a third party its management and general partner interests in those remaining limited partnerships not selling their apartment properties to the apartment REIT. Those not selling their apartment properties constituted approximately thirty percent (30.0%) of the IREIC-sponsored limited partnerships owning apartment buildings. The prospective third-party buyers of IREIC's interests in the remaining partnerships, however, would make no assurance to support those partnerships financially. As a result, in March 1994, IREIC informed investors of its decision not to form the apartment REIT. Following this decision, two investors filed a complaint in April 1994 in the Circuit Court of Cook County, Illinois, Chancery Division, purportedly on behalf of a class of other unnamed investors, alleging that IREIC had breached its fiduciary responsibility to those investors whose partnerships would have sold apartment properties to the apartment REIT. The complaint sought an accounting of information regarding the apartment REIT matter, an unspecified amount of damages and the removal of IREIC as general partner of the partnerships that would have participated in the sale of properties. In August 1994, the court granted IREIC's motion to dismiss, finding that the plaintiffs lacked standing to bring the case individually. The plaintiffs were granted leave to file an amended complaint. Thereafter, in August 1994, six investors filed an amended complaint, purportedly on behalf of a class of other investors, and derivatively on behalf of six limited partnerships of which IREIC is the general partner. The derivative counts sought damages from IREIC for alleged breach of fiduciary duty and breach of contract, and asserted a right to an accounting. IREIC filed a motion to dismiss in response to the amended complaint. The suit was dismissed in March 1995 with prejudice. The plaintiffs filed an appeal in April 1996. After the parties briefed the issue, arguments were heard by the appellate court in February 1997. In September 1997, the appellate court affirmed the trial court decision in favor of IREIC. IREIC is the general partner of twenty-seven (27) private limited partnerships and one public limited partnership that owned interests in fifteen buildings that are net leased to Kmart. The fourteen Kmarts owned by the private limited partnerships were all cross-collateralized. Relating to the Kmart bankruptcy, the status of the fifteen buildings is as follows: - - CATEGORY 1 - The leases of nine of the Kmarts were current and had been accepted by Kmart under their Chapter 11 reorganization plan. - - CATEGORY 2 - Kmart assigned its designation rights in one lease to Kohl's. The lease was amended and extended for Kohl's by IREIC, the general partner on behalf of the owners and lender and Kohl's began paying rent February 12, 2003. 19 - - CATEGORY 3 - Under Kmart's Chapter 11 reorganization plan and upon emergence from bankruptcy on April 22, 2003, Kmart rejected four property leases, one of which was subject to a ground lease to Kimco. Kmart ceased paying rent as of May 1, 2003. IREIC, as general partner, agreed with the note holders who owned the loan to conduct a liquidation of the fourteen properties which comprise Categories 1, 2 and 3. The Category 2 property, which is leased by Kohl's was sold on February 19, 2004. As of June 30, 2005, all of the Category 1 and Category 3 Kmart properties have been sold and the note holders have been paid off in full. - - CATEGORY 4 - Under Kmart's Chapter 11 reorganization, Kmart rejected the lease for the property owned by the public limited partnership and ceased paying rent as of June 29, 2002. This Kmart was sold in May 2005. 1031 EXCHANGE PRIVATE PLACEMENT OFFERING PROGRAM In March of 2001, Inland Real Estate Exchange Corporation (IREX) was established as a subsidiary of Inland Real Estate Investment Corporation. IREX was formed to provide replacement properties for people wishing to complete an IRS Section 1031 real estate exchange. Through June 30, 2005, IREX has offered the sale of thirty-eight (38) properties with a total property value of $490,275,000. LANDINGS OF SARASOTA DBT. Inland Southern Acquisitions, Inc., a Delaware corporation and an affiliate of IREX acquired The Landings, a multi-tenant shopping center located in Sarasota, Florida in December 1997 for $9,800,000. In August 2001, Inland Southern Acquisitions, Inc. contributed one hundred percent (100.0%) of its interest in the property into Landings of Sarasota DBT, a Delaware business trust, refinanced the property with a loan of $8,000,000 from Parkway Bank & Trust Co., an Illinois banking corporation, and began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $12,000,000, which consisted of $8,000,000 in debt assumption and $4,000,000 in equity investment. $200,000 of the offering proceeds were allocated to a property reserve account. The offering was completed in May 2002 when the maximum offering amount was raised. SENTRY OFFICE BUILDING, DBT, a Delaware business trust, purchased a newly constructed, single-tenant office building in Davenport, Iowa in December 2001 from Ryan Companies US Inc., a Minnesota corporation. The trust financed its acquisition of the property with a $7,500,000 first mortgage loan from Parkway Bank & Trust Co., an Illinois banking corporation. In January 2002, Sentry Office Building Corporation, a Delaware corporation and the initial beneficiary of the trust, began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $11,000,000, which consisted of $7,500,000 in debt assumption and $3,500,000 in equity investment. $100,000 of the offering proceeds obtained from the new owners was allocated to a property reserve account. The offering was completed in April 2002 when the maximum offering amount was raised. PETS BOWIE DELAWARE BUSINESS TRUST purchased a single-tenant retail building leased to PETsMART in Bowie, Maryland in October 2001 from PETsMART, Inc. and Wells Fargo Bank Northwest, N.A. The trust initially financed its acquisition of the property with a temporary loan of $2,625,305 from Parkway Bank & Trust Co., an Illinois banking corporation, and then replaced this loan with a permanent loan of $1,300,000 with the same lender. In May 2002, Pets Bowie Delaware Business Trust began offering all of its beneficial interests to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $3,900,000, which consisted of $1,300,000 in debt assumption and $2,600,000 in equity investment. $90,000 of the offering proceeds obtained from the new owners was allocated to a property reserve account. The offering was completed in July 2002 when the maximum offering amount was raised. 1031 CHATTANOOGA DBT, a Delaware business trust, acquired a retail property currently leased to Eckerd in Chattanooga, Tennessee in May 2002. The trust financed the property with a loan of $1,500,000 from Parkway Bank & Trust Co., an Illinois banking corporation. In July 2002, 1031 Chattanooga, L.L.C., the initial beneficiary of 1031 Chattanooga DBT, began offering all of the beneficial interests of the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $3,400,000, which consisted of $1,500,000 in debt assumption and $1,900,000 in equity investment. The offering was completed in May 2003 when the maximum offering amount was raised. 20 LANSING SHOPPING CENTER, DBT a Delaware business trust, purchased a newly constructed, multi-tenant retail shopping center in Lansing, Illinois in June 2002 from LaSalle Bank, N.A., as trustee under trust agreement dated May 22, 2001 and known as Trust No. 127294. The trust financed its acquisition of the property with a $5,900,000 first mortgage loan from Parkway Bank & Trust Co., an Illinois banking corporation. In August 2002, Lansing Shopping Center, L.L.C., a Delaware limited liability company and the initial beneficiary of Lansing Shopping Center, DBT, began offering all of the beneficial interests of the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $10,900,000, which consisted of $5,900,000 in debt assumption and $5,000,000 in equity investment. $80,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in September 2002 when the maximum offering amount was raised. INLAND 220 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a single-tenant office building currently leased to Walt Disney World Co., a Florida corporation, in Celebration, Osceola County, Florida, in June 2002 from Walt Disney World Co. in a sale/leaseback transaction. The trust financed its acquisition of the property with an $18,000,000 first mortgage loan from Bank of America, N.A., a national banking association. In September 2002, Inland 220 Celebration Place, L.L.C., a Delaware limited liability company and the initial beneficiary of Inland 220 Celebration Place Delaware Business Trust, began offering all of the beneficial interests of the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $33,800,000, which consisted of $18,000,000 in debt assumption and $15,800,000 in equity investment. $50,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in September 2003 when the maximum offering amount was raised. TAUNTON CIRCUIT DELAWARE BUSINESS TRUST acquired a retail property currently leased to Circuit City in Taunton, Massachusetts in July 2002. The Trust financed the property with a first mortgage of $2,800,000 from MB Financial Bank. In September 2002, Inland Taunton Circuit, L.L.C., the initial beneficiary of Taunton Circuit Delaware Business Trust, offered all of its interest in the trust to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $6,550,000, which consisted of $2,800,000 in debt assumption and $3,750,000 in equity investment. The offering was completed in September 2002. BROADWAY COMMONS DELAWARE BUSINESS TRUST acquired a multi-tenant retail center located in Rochester, Minnesota, in July 2002. The Trust financed the property with a first mortgage of $8,850,000 from Parkway Bank & Trust Co., an Illinois banking corporation. In October 2002, Broadway Commons, L.L.C., the initial beneficiary of Broadway Commons Delaware Business Trust, began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $17,250,000, which consisted of $8,850,000 in debt assumption and $8,400,000 in equity investment. $100,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in December 2003 when the maximum offering amount was raised. BELL PLAZA 1031, LLC. Rehab Associates XIII, Inc., an Illinois corporation and an affiliate of IREX acquired Bell Plaza, a multi-tenant shopping center in Oak Lawn, Illinois on August 28, 1998 for $1,675,000. In October 2002, Rehab Associates XIII contributed one hundred percent (100.0%) of its interest in the property into Bell Plaza 1031, LLC, a Delaware single member limited liability company, and then offered all of its membership interests in Bell Plaza, LLC to North Forsyth Associates, a North Carolina general partnership, which was in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $4,030,000, which consisted of $3,140,000 in debt assumption and $890,000 in equity investment. $25,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in November 2002. INLAND 210 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a single-tenant office building currently leased to Walt Disney World Co., a Florida corporation, in Celebration, Osceola County, Florida, in June 2002 from Walt Disney World Co .in a sale/leaseback transaction. The trust financed its acquisition of the property with a $5,700,000 first mortgage loan from Bear Stearns Commercial Mortgage, Inc. In January 2003, Inland 210 Celebration Place Delaware Business Trust sold its fee simple interest in 210 Celebration Place to Old Bridge Park Celebration, LLC, a Delaware limited liability company, which was in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $12,000,000, which consisted of $5,700,000 in debt assumption and $6,300,000 in equity investment. 21 COMPUSA RETAIL BUILDING. Lombard C-USA, L.L.C., a Delaware limited liability company, purchased a single-tenant retail building leased to CompUSA, Inc. in Lombard, Illinois in January 2003 from an unrelated third party. The L.L.C. financed its acquisition of the property with a $4,000,000 loan from Bear Stearns Commercial Mortgage, Inc. In April 2003, Lombard C-USA, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant in common interests in the real estate and improvements thereon located at 2840 S. Highland Avenue, Lombard, DuPage County, Illinois for $3,910,500 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $7,950,000, which consisted of $4,000,000 in debt assumption and $3,950,000 in equity investment. As required by the lender, Lombard C-USA, L.L.C. shall retain at least a one percent (1.0%) tenant in common interest, which is included in the $3,950,000 equity investment. $75,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in February 2004 when the maximum offering amount was raised. DEERE DISTRIBUTION FACILITY IN JANESVILLE, WISCONSIN. Janesville 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant, light industrial distribution center leased to Deere & Company, a Delaware corporation, in Janesville, Wisconsin in February 2003 from Ryan Janesville, L.L.C., a Minnesota corporation and an affiliate of Ryan Companies US, Inc. The L.L.C. financed its acquisition of the property with a $10,450,000 loan from Bear Stearns Commercial Mortgage, Inc. In May 2003, Janesville 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant in common interests in the real estate and improvements thereon located at 2900 Beloit Avenue, Janesville, Rock County, Wisconsin for $9,949,500 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $20,500,000, which consisted of $10,450,000 in debt assumption and $10,050,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by Janesville 1031, L.L.C. $100,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in January 2004 when the maximum offering was raised. FLEET OFFICE BUILDING. Westminster Office 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant office building leased entirely to Fleet National Bank, a national banking association, in Providence, Rhode Island in April 2003 from Fleet National Bank in a sale/leaseback transaction. The L.L.C. financed its acquisition of the property with a $12,900,000 loan from Bear Stearns Commercial Mortgage, Inc. In June 2003, Westminster Office 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant in common interests in the real estate and improvements thereon located at 111 Westminster Street, Providence, Providence County, Rhode Island for $9,900,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $22,900,000, which consisted of $12,900,000 in debt assumption and $10,000,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by Westminster Office 1031, L.L.C. $150,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in January 2004 when the maximum offering was raised. DEERE DISTRIBUTION FACILITY IN DAVENPORT, IOWA. Davenport 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant, light industrial distribution center leased to Quad Cities Consolidation and Distribution, Inc., an Illinois corporation, in Davenport, Iowa in April 2003 from Ryan Companies US, Inc., a Minnesota corporation. The lease is fully guaranteed by Deere & Company, a Delaware corporation. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc. In August 2003, Davenport 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant in common interests in the real estate and improvements thereon located at 2900 Research Parkway, Davenport, Scott County, Iowa for $15,543,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $28,200,000, which consisted of $12,500,000 in debt assumption and $15,700,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by Davenport 1031, L.L.C. $100,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in April 2004 when the maximum offering was raised. GRAND CHUTE DST, a Delaware statutory trust, purchased a multi-tenant retail shopping center in Grand Chute, Wisconsin in October 2002 from Continental 56 Fund Limited Partnership. The trust funded the acquisition of the property with cash from the sale of one hundred percent (100.0%) of the beneficial interests in the trust to Grand Chute, L.L.C., a Delaware limited liability company. Subsequent to the acquisition of the property, the trust obtained a 22 $5,678,350 loan from Bank of America, N.A. and the proceeds of the loan were distributed to Grand Chute, L.L.C. as a partial return of its capital contribution. In January 2003, Grand Chute, L.L.C. began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $12,048,350, which consisted of $5,678,350 in debt assumption and $6,370,000 in equity investment. $478,350 of the offering proceeds was allocated to four separate property reserve accounts, three of which were required by the lender. In September 2003, certain information in the offering was amended and supplemented through the release of the First Supplement to Private Placement Memorandum. The offering was completed in March 2004 when the maximum offering amount was raised. MACON OFFICE DST, a Delaware statutory trust, purchased a single-tenant office complex in Macon, Georgia in October 2002 from UTF Macon, L.L.C. The trust funded the acquisition of the property with cash from the sale of one hundred percent (100.0%) of the beneficial interests in the trust to Macon Office, L.L.C., a Delaware limited liability company. Subsequent to the acquisition of the property, the trust obtained a $5,560,000 loan from Bank of America, N.A. and the proceeds of the loan were distributed to Macon Office, L.L.C. as a partial return of its capital contribution. In October 2003, Macon Office, L.L.C. began offering all of its beneficial interests in the trust to certain qualified persons seeking a cash investment, in addition to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $12,160,000, which consisted of $5,560,000 in debt assumption and $6,600,000 in equity investment. $100,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in March 2004 when the maximum offering amount was raised. WHITE SETTLEMENT ROAD INVESTMENT, LLC, a Delaware limited liability company, acquired a retail property currently leased to Eckerd Corporation in Fort Worth, Texas in July 2003. The LLC funded the acquisition of the property with cash from an affiliate and with a short-term loan from Parkway Bank and Trust Co., an Illinois banking corporation, in the amount of $2,041,000. In November 2003, Fort Worth Exchange, LLC, a Delaware limited liability company and initial beneficiary of White Settlement Road Investment, LLC, offered its entire membership interest in the LLC to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $2,840,000, which consisted of $1,420,000 in debt assumption and $1,420,000 in equity investment. The offering was completed in December 2003. Simultaneous with the completion of the offering, the short-term loan with Parkway was converted to a permanent loan and the terms of the loan documents were modified in accordance with a loan commitment from Parkway. PLAINFIELD MARKETPLACE. Plainfield 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant shopping center located in Plainfield, Illinois on December 16, 2003 from Ryan Companies US, Inc., a Minnesota corporation. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc, a New York corporation. In January 2004, Plainfield 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant in common interests in the real estate and improvements thereon located at 11840 South Route 59, Plainfield, Will County, Illinois for $12,350,250 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $24,400,000, which consisted of $11,925,000 in debt assumption and $12,475,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by Plainfield 1031, L.L.C. The difference between the real estate acquisition price of $21,700,000 and the total price of $24,400,000 consists of $950,000 acquisition fee, $150,000 for a property reserve account, and $1,600,000 of estimated costs and expenses. The offering was completed in June 2004 when the maximum offering amount was raised. PIER 1 RETAIL CENTER. Butterfield-Highland 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on December 30, 2003 from the beneficiary of Trust No. 2314, an unrelated third party, which trust was held by North Side Community Bank as Trustee under the Trust Agreement dated December 12, 2003. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc, a New York corporation. In March 2004, Butterfield-Highland 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant in common interests in the real estate and improvements thereon located at 2830 S. Highland Avenue, Lombard, Illinois for $4,257,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $8,150,000, which consisted of $3,850,000 in debt assumption and $4,300,000 in equity investment, a minimum of one percent (1.0%) of which is required by the lender to be retained by Butterfield-Highland 1031, L.L.C. The difference between the real estate acquisition price of $7,025,000 and the total price of $8,150,000 consists of $350,000 acquisition fee, 23 $100,000 for a property reserve account, and $675,000 of estimated costs and expenses. The offering was completed in June 2004 when the maximum offering amount was raised. LONG RUN 1031, L.L.C. LR 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on January 27, 2003 from Ryan Lemont, L.L.C., the third party seller and developer of the property. The L.L.C. financed its acquisition of the property with cash and, on April 24, 2003, placed a loan on the Property in the amount of $4,700,000 from Principal Commercial Funding, LLC. In June 2004, LR 1031, L.L.C. a Delaware limited liability company and initial beneficiary of Long Run 1031, L.L.C. offered its entire membership interest in the LLC to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $4,935,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $9,635,000, which consisted of $4,700,000 in debt assumption and $4,935,000 in equity investment. The difference between the real estate acquisition price of $8,500,000 and the total price of $9,635,000 consists of $451,347 acquisition fee, $50,000 for a property reserve account, and $658,653 of estimated costs and expenses. The offering was completed in June 2004 when the maximum offering amount was raised. FORESTVILLE 1031, L.L.C. Forestville Exchange, L.L.C., a Delaware limited liability company, purchased a single-tenant retail shopping center on November 13, 2003 from Silver Hill, L.L.C., a North Carolina limited liability company, the property's developer. The L.L.C. financed its acquisition of the property with cash. In May 2004, Forestville Exchange, L.L.C. a Delaware limited liability company and initial beneficiary of Forestville 1031, L.L.C. offered its entire membership interest in the LLC to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $3,900,000, which consisted of $1,793,630 in mortgage financing from Parkway Bank and Trust Co. and $2,106,370 in equity investment. The difference between the real estate acquisition price of $3,450,000 and the total price of $3,900,000 consists of $172,500 acquisition fee and $277,500 of estimated costs and expenses. The offering was completed in May 2004 when the maximum offering amount was raised. BED BATH & BEYOND RETAIL CENTER. BBY Schaumburg 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on April 20, 2004 from the American Real Estate Holdings, L.P. a Delaware limited partnership, an unrelated third party. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc, a New York corporation. In June 2004, BBY Schaumburg 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant in common interests in the real estate and improvements thereon located at 905-915 East Golf Road, Schaumburg, Illinois for $6,633,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $13,605,000, which consisted of $6,905,000 in debt assumption and $6,700,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by BBY Schaumburg 1031, L.L.C. The difference between the real estate acquisition price of $11,655,110 and the total price of $13,605,000 consists of $600,000 acquisition fee, $400,000 for property reserve accounts, and $949,890 of estimated costs and expenses. The offering was completed in October 2004 when the maximum offering amount was raised. CROSS CREEK COMMONS SHOPPING CENTER. Cross Creek 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on February 17, 2004 from Buckley Shuler Real Estate, L.L.C., a Georgia limited liability company, an unrelated third party. The L.L.C. financed its acquisition of the property with cash and subsequently placed a loan from Bear Stearns Commercial Mortgage on the property. In March 2004, Cross Creek 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant in common interests in the real estate and improvements thereon located at 10920-10948 Cross Creek Boulevard, Tampa, Florida for $6,930,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. As of June 30, 2004 the L.L.C. had raised $2,788,000. The total price was $12,078,762, which consisted of $5,078,762 in debt assumption and $7,000,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by Cross Creek 1031, L.L.C. The difference between the real estate acquisition price of $10,319,583 and the total price of $12,078,762 consists of $520,000 acquisition fee, $150,000 for a property reserve account, and $1,089,179 of estimated costs and expenses. The offering was completed in August 2004 when the maximum offering amount was raised. 24 BJ'S SHOPPING CENTER EAST SYRACUSE, NEW YORK. BJS Syracuse 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on April 30, 2004 from the American Real Estate Holdings, L.P. a Delaware limited partnership, an unrelated third party. The L.L.C. financed its acquisition of the property with a loan and cash. In June 2004, BJS Syracuse 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant in common interests in the real estate and improvements thereon located at 2-4 Chevy Drive, East Syracuse, New York for $8,365,500 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $15,850,000, which consisted of $7,400,000 in debt assumption and $8,450,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by BJS Syracuse 1031, L.L.C. The difference between the real estate acquisition price of $13,500,000 and the total price of $15,850,000 consists of $675,000 acquisition fee, $150,000 for a property reserve account, and $1,525,000 of estimated costs and expenses. The offering was completed in October 2004 when the maximum offering amount was raised. BARNES & NOBLE RETAIL CENTER CLAY, NEW YORK. Clay 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on April 15, 2004 from the Clay First Associates, L.L.C., an unrelated third party. The L.L.C. financed its acquisition of the property with an assumed mortgage and note for $3,175,000 and cash. In June 2004, Clay 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant in common interests in the real estate and improvements thereon located at 3954-3956 Route 31, Clay, New York for $3,930,300 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $7,145,000, which consisted of $3,175,000 in debt assumption and $3,970,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by BJS Syracuse 1031, L.L.C. The difference between the real estate acquisition price of $6,100,000 and the total price of $7,145,000 consists of $305,000 acquisition fee, $100,000 for a property reserve account, and $640,000 of estimated costs and expenses. The offering was completed in February 2005 when the maximum offering amount was raised. PORT RICHEY 1031, L.L.C. Port Richey Exchange, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on January 30, 2004 from Land Capital Group, Inc., an unrelated third party. The L.L.C. financed its acquisition of the property with cash and, on February 25, 2004, placed a loan on the property in the amount of $2,900,000 from Bear Stearns Commercial Mortgage, Inc. In July 2004, Port Richey Exchange, L.L.C., a Delaware limited liability company and the initial beneficiary of Port Richey 1031, L.L.C., offered its entire membership interest in the LLC to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $5,975,000, which consisted of $2,900,000 in debt assumption and $3,075,000 in equity investment. The difference between the real estate acquisition price of $5,250,000 and the total price of $5,975,000 consists of $262,500 acquisition fee and $437,500 of estimated costs and expenses and $25,000 for a property reserve account. The offering was completed in July 2004 when the maximum offering amount was raised. WALGREENS STORE, HOBART, INDIANA. Hobart 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant retail shopping center on June 10, 2004 from C. Hobart, L.L.C., an unrelated third party. The L.L.C. financed its acquisition of the property with cash. In July 2004, Hobart 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant-in-common interests in the real estate and improvement thereon located at 732 West Old Ridge Road, Hobart, Indiana for $6,534,000 in cash to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $6,534,000, which consisted of an equity investment, one percent (1.0%) of which will be retained by Hobart 1031, L.L.C. The difference between the real estate acquisition price of $5,575,000 and the total price of $6,534,000 consists of $235,000 acquisition fee, $50,000 for a property reserve account, and $740,000 of estimated costs and expenses. The offering was completed in February 2005 when the maximum offering amount was raised. KRAFT COLD STORAGE FACILITY, MASON CITY, IOWA. Mason City 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant light industrial building on June 2, 2004 from MDG Iowa, L.P., an unrelated third party. The L.L.C. financed its acquisition of the property with a mortgage and note for $5,333,000 and cash. In July 2004, Mason City 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant-in-common interests in the real estate and improvements thereon located at 904 - 12th Street, Mason City Iowa for $5,610,330 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $11,000,000, which consisted of $5,333,000 in debt 25 assumption and $5,667,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by Mason City 1031, L.L.C. The difference between the real estate acquisition price of $9,550,000 and the total price of $11,000,000 consists of $480,000 acquisition fee, $100,000 for a property reserve account, environmental insurance credit of $50,000 and $820,000 of estimated costs and expenses. The offering was completed in December 2004 when the maximum offering amount was raised. HUNTINGTON SQUARE PLAZA, NEW YORK. Huntington Square 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on July 16, 2004 from Starwood Ceruzzi Commack, L.L.C., an unrelated third party. The L.L.C. financed its acquisition of the property with an assumed first mortgage and note for $19,150,000, a junior loan in the amount of $6,180,000 and cash. On August 30, 2004, Huntington Square 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant-in-common interests in the real estate and improvement thereon located at 3124 East Jericho Turnpike, New York for $20,050,000 in cash plus the assumption of the existing first mortgage indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $39,200,000, which consisted of $19,150,000 in debt assumption and $20,050,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by Huntington Square 1031, L.L.C. The difference between the real estate acquisition price of $24,821,392 and the total price of $39,200,000 consists of $1,500,000 acquisition fee, $150,000 for a property reserve account and $2,728,608 of estimated costs and expenses. The offering was completed in June 2005 after $19,093,129 was raised. BEST BUY STORE, REYNOLDSBURG, OHIO. Reynoldsburg 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant retail shopping center on August 5, 2004 from NOCA Retail Development Limited, an unrelated third party. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc., a New York corporation, for $4,950,000 and cash. In June 2004, Reynoldsburg 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant-in-common interests in the real estate and improvements thereon located at 2872 Taylor Road, Reynoldsburg, Ohio for $5,395,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $10,345,000, which consisted of $4,950,000 in debt assumption and $5,395,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by Reynoldsburg 1031, L.L.C. The difference between the real estate acquisition price of $9,000,000 and the total price of $10,345,000 consists of $450,000 acquisition fee, $100,000 for a property reserve account, and $795,000 of estimated costs and expenses. The offering was completed in February 2005 when the maximum offering amount was raised. DEERE & COMPANY DISTRIBUTION FACILITY IN JEFFERSON CITY, TENNESSEE. Jefferson City 1031, L.L.C., a Delaware limited liability company, purchased a free-standing industrial distribution facility from Flat Gap Road L.L.C. The property is fully leased by Deere & Company, a Delaware corporation. The L.L.C. financed its acquisition of the property with a loan from LaSalle Bank, National Association. In December 2004, Jefferson City 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant-in-common interests in the real estate and improvements thereon located at 1400 Flat Gap Road, Jefferson City, Jefferson County, Tennessee for $10,973,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $20,735,000, which consisted of $9,762,000 in debt assumption and $10,973,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by Jefferson City 1031, L.L.C. The difference between the real estate acquisition price of $17,750,000 and the total price of $20,735,000 consists of $1,300,000 acquisition fee and market value adjustment, $100,000 for a property reserve account and $1,585,000 of estimated costs and expenses. The offering was completed in April 2005 when the maximum offering amount was raised. INDIANAPOLIS ENTERTAINMENT 1031, L.L.C. Indianapolis Entertainment Exchange, L.L.C., a Delaware limited liability company purchased a single tenant restaurant on April 20, 2004 from American Real Estate Holdings Limited Partnership, a Delaware limited partnership, an unrelated third party. The L.L.C. financed its acquisition of the property with cash and, on June 30, 2004, placed a loan on the property in the amount of $1,061,000 from Bear Stearns Commercial Mortgage, Inc. In October 2004, Indianapolis Entertainment Exchange, L.L.C., a Delaware limited liability company and initial beneficiary of Indianapolis Entertainment 1031, L.L.C., offered its entire membership interest in the LLC to certain qualified persons in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $2,190,000, which consisted of $1,061,000 in debt assumption and $1,129,000 in equity investment. The difference between the real estate acquisition price of $1,929,316 and the total price of $2,190,000 26 consists of $95,000 acquisition fee and $165,684 of estimated costs and expenses. The offering was completed in November 2004 when the maximum offering amount was raised. MOBILE ENTERTAINMENT 1031, L.L.C. Indianapolis Entertainment Exchange, L.L.C., a Delaware limited liability company purchased a single tenant restaurant on April 20, 2004 from American Real Estate Holdings Limited Partnership, a Delaware limited partnership, an unrelated third party. The L.L.C. financed its acquisition of the property with cash and, on June 30, 2004, placed a loan on the property in the amount of $770,000 from Bear Stearns Commercial Mortgage, Inc. In October 2004, Indianapolis Entertainment Exchange, L.L.C., a Delaware limited liability company and initial beneficiary of Indianapolis Entertainment 1031, L.L.C., offered its entire membership interest in the LLC to certain qualified persons in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $1,578,000, which consisted of $770,000 in debt assumption and $808,000 in equity investment. The difference between the real estate acquisition price of $1,400,632 and the total price of $1,578,000 consists of $42,000 acquisition fee and $135,365 of estimated costs and expenses. The offering was completed in November 2004 when the maximum offering amount was raised. KOHL'S STORE IN STOUGHTON, MASSACHUSETTS. Stoughton 1031, L.L.C., a Delaware limited liability company, purchased a free standing retail building on August 13, 2004 from Koffler/GID Stoughton, LLC, an unrelated third party. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc., a New York corporation, for $12,063,000 and cash. In October 2004, Stoughton 1031, L.L.C. began offering ninety-nine percent (99.0%) of the undivided tenant-in-common interests in the real estate and improvements thereon located at 501 Technology Center Drive, Stoughton, Norfolk County, Massachusetts for $10,187,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $19,950,000, which consisted of $9,763,000 in debt assumption and $10,187,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by Stoughton 1031, L.L.C. The difference between the real estate acquisition price of $17,650,000 and the total price of $19,950,000 consists of $775,000 acquisition fee, $100,000 for a property reserve account and $1,425,000 of estimated costs and expenses. The offering was completed in May 2005 when the maximum offering amount was raised. CHENAL COMMONS SHOPPING CENTER, LITTLE ROCK ARKANSAS. Chenal Commons 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on November 18, 2004 from Chenal Retail, Inc., an unrelated third party. The L.L.C. financed its acquisition of the property with cash. On February 2, 2005, the L.L.C. placed a first mortgage and note for $6,740,000 and a junior loan in the amount of $2,450,000 from Bear Stearns Commercial Mortgage, Inc., a New York corporation. In February 2005, Chenal Commons 1031, L.L.C., began offering ninety-nine percent (99.0%) of the undivided tenant-in-common interests in the real estate and improvements thereon, located at 12801 Chenal Parkway, Little Rock, Arkansas for $7,474,500 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $14,290,000, which consisted of $6,740,000 in debt assumption and $7,550,000 in equity investment, one percent (1.0%) of which was required by the lender to be retained by Chenal Commons 1031, L.L.C. The difference between the real estate acquisition price of $12,251,621 and the total price of $14,290,000 consists of $700,000 acquisition fee, $320,000 for a property reserve account and $1,018,379 of estimated costs and expenses. The offering was completed in June 2005 when the maximum offering amount was raised. OAK BROOK KENSINGTON, OAK BROOK, ILLINOIS. Oak Brook Kensington 1031, L.L.C., a Delaware limited liability company, purchased two commercial office buildings on December 1, 2004 from Ace, an unrelated third party and then contributed the property in to Oak Brook Kensington, DST in exchange for 100% of the beneficial interests in the trust. The L.L.C. financed its acquisition of the property with cash a first mortgage and a note for $21,450,000, a junior loan in the amount of $7,800,000 from Bear Stearns Commercial Mortgage, Inc. In December 2004, Oak Brook Kensington 1031, L.L.C. began offering 99.5% of the beneficial interests in the trust. The property is located at 2200 and 2222 Kensington Court, Oak Brook for $23,382,500 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. Total price, $44,950,000, consisted of $21,450,000 in debt assumption and $23,500,000 in equity investment, 1% of which was required by the lender to be retained by Oak Brook Kensington 1031, L.L.C. The difference between the real estate acquisition price of $40,204,356 and the total price of $44,950,000 consists of $1,800,000 acquisition fee, $400,000 for a property reserve account, and $2,545,644 of estimated costs and expenses. The offering is currently selling. 27 BISYS, COLUMBUS, FRANKLIN COUNTY, OHIO. Columbus 1031, L.L.C., a Delaware limited liability company, purchased a 16.855-acre parcel of land upon which are located two connected office buildings, on May 10, 2005 for $47,800,000 from an unrelated third party, BISYS Crossings I LLC. The L.L.C. financed its acquisition of the property with cash. On May 12, 2005, placed a first mortgage and note for $30,245,000, a junior loan in the amount of $8,000,000 from LaSalle Mortgage, Inc. In June 2005 Columbus 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 3435 Stelzer Road, Columbus, Franklin County for $22,997,700 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. Total price, $53,475,000, consisted of $30,245,000 in debt assumption and $23,230,000 in equity investment, 1% of which was required by the lender to be retained by Columbus 1031, L.L.C. The difference between the real estate acquisition price of $47,800,000 and the total price of $53,475,000 consists of $2,390,000 acquisition fee, $500,000 for a property reserve account, and $2,785,000 of estimated costs and expenses. The offering is currently selling. EDMOND 1031, L.L.C. Edmond Exchange, L.L.C., a Delaware limited liability company purchased the property on March 26, 2004 from Commercial Net Lease Realty Services, Inc., an unrelated third party. The L.L.C. financed its acquisition of the property with cash and a loan in the amount of $2,421,465 from Parkway Bank & Trust Co. Simultaneous with the closing, the loan was paid down to $1,845,000. In February 2005, Edmond Exchange, L.L.C., a Delaware limited liability company and initial beneficiary of Edmond 1031, L.L.C., offered its entire membership interest in the LLC to certain qualified persons in need of a replacement property to complete a 1031 tax-deferred exchange. The total price, $3,765,000, consisted of $1,845,000 in debt assumption and $1,920,000 in equity investment. The difference between the real estate acquisition price of $3,228,621 and the total price of $3,765,000 consists of $250,000 acquisition fee and $286,379 of estimated costs and expenses. The offering was completed in May 2005 when the maximum offering amount was raised. The following summary table describes the fees and expenses incurred by each of the 1031 Exchange Private Placement Offerings.
Sentry Lansing Inland 220 Landings of Office 1031 Shopping Celebration Sarasota Building Pets Bowie Chattanooga Center Place DBT DBT DBT DBT DBT DBT ----------------------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Selling Commission To Third Party Reps 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% Due Diligence Fee 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% Marketing Expenses 1.00% 1.50% 1.50% 1.50% 1.50% 1.00% Offering & Organization 1.00% 0.50% 0.50% 0.50% 0.50% 1.00% Mortgage Broker Fee (2) 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% Acquisition Fee & Carrying Costs(3): Acquisition Fee N/A 0.71% 0.77% 0.90% 0.88% 1.18% Bridge Financing Fees N/A N/A 1.49% 0.50% 0.20% 0.10% 11.25% to Total Load(4) 12.75% 14.23% 13.68% 14.39% 13.68% 13.23% Asset Management Fees(5) N/A 0.75% 1.00% 0.56% 0.55% 0.52% Paid by Asset Property Management Fees(6) 4.5% 5.0% Manager 5.0% 5.0% 4.5% Backend Sales Commission 3.5% 3.5% 3.5% 3.5% 3.5% N/A
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Janesville Inland 210 CompUSA Deere Taunton Broadway Celebration Retail Distribution Circuit Commons Bell Plaza Place Building Facility DBT DBT 1031 LLC DBT LLC 1031 LLC ----------------------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.0% Up to 8.77% Up to 9.19% Up to 5.27% Up to 8.56% Up to 8.6% Selling Commission To Third Party Reps 6.00% 6.00% 6.00% 3.81% 6.00% 6.00% Due Diligence Fee 0.50% 0.50% 0.50% 0.00% 0.50% 0.50% Marketing Expenses 1.00% 1.00% 1.00% 0.50% 1.00% 1.00% Offering & Organization 0.50% 1.27% 1.69% 0.96% 1.06% 1.10% Mortgage Broker Fee (2) 0.61% 0.50% 0.50% 0.50% 0.50% 0.50% Acquisition Fee & Carrying Costs(3): Acquisition Fee 0.69% 0.75% N/A 0.89% 0.82% 0.87% Bridge Financing Fees 0.07% 0.23% N/A 0.23% 0.23% 0.23% Total Load(4) 11.89% 12.98% 23.02% 10.52% 14.93% 13.93% Asset Management Fees(5) 0.57% N/A 0.53% 0.53% 0.63% 0.49% Property Management Fees(6) 4.0% 5.0% 5.0% 4.5% 4.5% 4.5% Backend Sales Commission N/A N/A 3.5% N/A N/A N/A Davenport White Deere Settlement Fleet Office Distribution Road Plainfield Building Facility Grand Chute Macon Office Investment Marketplace 1031 LLC 1031 LLC DST DST LLC 1031 LLC ----------------------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.52% Up to 8.42% Up to 8.82% Up to 8.52% Up to 8.52% Up to 8.76% Selling Commission To Third Party Reps 6.00% 6.00% 6.00% 6.00% 7.04% 6.00% Due Diligence Fee 0.50% 0.50% 0.50% 0.50% 0.60% 0.50% Marketing Expenses 1.00% 1.00% 1.00% 1.00% 1.16% 1.00% Offering & Organization 1.02% 0.92% 1.32% 1.02% 1.66% 1.26% Mortgage Broker Fee (2) 0.50% 0.71% 0.50% 0.50% 0.97% 0.57% Acquisition Fee & Carrying Costs(3): Acquisition Fee 0.85% 0.77% 0.84% 0.72% 8.99% 3.89% Bridge Financing Fees 0.35% 0.72% 0.13% 0.81% 0.12% 0.92% Total Load(4) 14.57% 13.18% 12.96% 14.24% 30.90% 20.44% Asset Management Fees(5) 0.49% 0.50% 0.66% 0.66% 0.00% 0.04% Property Management Fees(6) 4.5% 4.5% 5.0% 4.5% 5.0% 5.0% Backend Sales Commission N/A N/A N/A N/A N/A N/A BJ's Pier 1 Retail Bed, Bath & Cross Creek Shopping Center Long Run Forestville Beyond Commons Center 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC ----------------------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.73% Up to 8.37% Up to 8.40% Up to 8.70% Up to 8.64% Up to 8.59% Selling Commission To Third Party Reps 6.00% 5.84% 5.54% 6.00% 6.00% 6.00% Due Diligence Fee 0.50% 0.49% 0.46% 0.50% 0.50% 0.50% Marketing Expenses 1.00% 0.97% 0.93% 1.00% 1.00% 1.00% Offering & Organization 1.23% 1.07% 1.46% 1.20% 1.14% 1.09% Mortgage Broker Fee (2) 0.50% 0.47% 0.43% 0.55% 0.40% 0.50% Acquisition Fee & Carrying Costs(3): Acquisition Fee 4.29% 5.31% 5.00% 5.15% 5.04% 5.00% Bridge Financing Fees 0.94% N/A N/A N/A N/A N/A
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BJ's Pier 1 Retail Bed, Bath & Cross Creek Shopping Center Long Run Forestville Beyond Commons Center 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC ----------------------------------------------------------------------------------------------- Total Load(4) 23.84% 22.38% 21.34% 23.13% 22.99% 26.04% Asset Management Fees(5) 0.06% 0.20% 0.00% 0.15% 0.11% 0.12% Property Management Fees(6) 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Backend Sales Commission N/A N/A N/A N/A N/A N/A Barnes & Kraft Cold Noble Retail Walgreens Storage Huntington Best Buy Store Center Port Richey Store Hobart Facility Square Plaza Reynoldsburg 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC ----------------------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.69% Up to 8.4% Up to 8.52% Up to 8.75% Up to 8.02% Up to 8.64% Selling Commission To Third 6.00% 5.55% 6.00% 6.00% 6.00% 6.00% Party Reps Due Diligence Fee 0.50% 0.46% 0.50% 0.50% 0.50% 0.50% Marketing Expenses 1.00% 0.93% 1.00% 1.00% 1.00% 1.00% Offering & Organization 1.19% 1.46% 1.02% 1.25% 0.52% 1.14% Mortgage Broker Fee (2) 0.50% 0.43% N/A 0.50% 0.58% 0.50% Acquisition Fee & Carrying Costs(3): Acquisition Fee 5.00% 5.00% 4.22% 5.03% 4.31% 5.00% Bridge Financing Fees 0.49% 0.56% 1.25% 0.56% 0.47% 0.69% Total Load(4) 23.80% 22.80% 14.77% 22.94% 12.14% 23.08% Asset Management Fees(5) 0.13% 0.08% 0.08% 0.05% 0.03% 0.06% Property Management Fees(6) 5.0% 5.0% 4.5% 4.5% 4.5% 2.9% Backend Sales Commission N/A N/A N/A N/A N/A N/A Jefferson Mobile Indianapolis Chenal City Stoughton Entertainment Entertainment Commons 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC ------------------------------------------------------------------------------ Commissions & Fees(1) Up to 8.63% Up to 8.61% Up to 9.88% Up to 9.07% Up to 8.54% Selling Commission To 3rd Party 6.00% 6.00% 5.86% 5.82% 6.00% Reps Due Diligence Fee 0.50% 0.50% 0.49% 0.48% 1.0% Marketing Expenses 1.00% 1.00% 0.98% 0.97% 1.0% Offering & Organization 1.13% 1.11% 2.56% 1.80% 1.04% Mortgage Broker Fee (IMC)(2) 0.61% 0.56% 0.50% 0.50% 0.59% Acquisition Fee & Carrying Costs(3): Acquisition Fee 7.32% 4.39% 3.00% 4.92% 5.71% Bridge Financing Fees 0.30% 0.42% 0.73% 0.73% 0.25% Total Load(4) 16.25% 21.60% 12.66% 23.09% 23.50% Asset Management Fees(5) 0.09% 0.10% 0.37% 0.27% 0.13% Property Management Fees(6) 2.9% 2.9% 2.9% 2.9% 5.0% Backend Sales Commission N/A N/A N/A N/A N/A
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Oak Brook Kensington Columbus Edmond 1031 LLC 1031 LLC 1031 LLC --------------------------------------------- Commissions & Fees(1) Up to 8.52% Up to 8.28% Up to 8.41% Selling Commission To 3rd Party 6.00% 6.00% 5.88% Reps Due Diligence Fee 0.50% 0.50% 0.49% Marketing Expenses 1.00% 1.00% 0.98% Offering & Organization 1.02% 0.78% 1.05% Mortgage Broker Fee (IMC)(2) 0.59% 0.57% 0.66% Acquisition Fee & Carrying Costs(3): Acquisition Fee 4.48% 5.00% 7.74% Bridge Financing Fees 0.36% 0.18% 0.28% Total Load(4) 18.49% 22.28% 27.94% Asset Management Fees(5) 0.46% 0.22% 0.16% Property Management Fees(6) N/A N/A 4.50% Backend Sales Commission N/A N/A N/A
(1) Commissions and fees are calculated as a percentage of the equity portion of each transaction. (2) The Mortgage Broker Fee is calculated as a percentage of the debt portion of each transaction (3) Acquisition Fee & Carrying Costs are calculated as a percentage of the real estate acquisition price. (4) The Total Load is calculated as a percentage of the equity portion of each transaction. The Total Load includes the Commissions & Fees, Mortgage Broker Fee, Acquisition Fee & Carrying Costs, as well as any other non-affiliated third party expenses. (5) Asset Management Fees are calculated as a percentage of the value of the assets under management. However, for The Landings and Broadway Commons, which are both Master Lease deals, the Master Tenant Income is the residual cash flow from the Property after payment of the Master Lease Rent. As a result, it is not possible to accurately represent the Master Tenant Income as a percentage of the value of the assets under management. (6) Property Management Fees are calculated as a percentage of Gross Income from the property. The following additional fees are the same for each offering: LOAN SERVICING FEE: IMSC is compensated with a monthly fee equal to the outstanding principal balance of the loan at the beginning of every month multiplied by one-eighth of one percent (0.125%) then divided by twelve (12). This figure, however, shall never exceed $10,000 nor be less than $1,200 monthly. TERMINATION FEES: MASTER LEASE: 8.333% of the last twelve (12) months of net operating income less rent payments for the same twelve (12) months multiplied by the number of months remaining on the then-current term of the Master Lease. ASSET AND PROPERTY MANAGEMENT AGREEMENTS: The sum of the current monthly asset management and property management fees times the number of months remaining on the term. 31 The following table summarizes cash distributions to investors for each of the 1031 Exchange Private Placement Offering projects through June 30, 2005:
Number Offering Distributions 2005 Annual 2004 Annual 2003 Annual of Equity Offering To Date Distribution Distribution Distribution Name of Entity Investors ($) Completed ($) (%) (%) (%) - ------------------------------------------------------------------------------------------------------------------------------------ Landings of Sarasota DBT(1) 9 4,000,000 05/2002 1,135,683 8.57 8.39 8.07 Sentry Office Building DBT(2) 7 3,500,000 04/2002 1,009,647 9.79 9.25 8.73 Pets Bowie DBT(3) 7 2,600,000 07/2002 702,733 9.24 9.12 8.89 1031 Chattanooga DBT(4) 9 1,900,000 05/2002 474,601 8.26 8.26 8.26 Lansing Shopping Center DBT(5) 5 5,000,000 09/2002 1,191,363 9.01 8.96 8.29 Inland 220 Celebration Place DBT(6) 35 15,800,000 09/2003 3,164,442 8.89 8.10 8.10 Taunton Circuit DBT(7) 1 3,750,000 09/2002 834,015 8.31 8.31 8.31 Broadway Commons DBT(8) 32 8,400,000 12/2003 1,332,410 8.31 8.26 8.22 Bell Plaza 1031, LLC(9) 1 890,000 11/2003 319,042 12.30 16.05 14.67 Inland 210 Celebration Place DBT 1 6,300,000 01/2003 1,300,616 8.23 8.23 8.23 CompUSA Retail Building, LLC 11 3,950,000 02/2004 548,382 8.28 8.17 8.05 Janesville Deere Distribution Facility 1031, LLC 35 10,050,000 01/2004 1,230,349 7.62 7.35 7.23 Fleet Office Building 1031, LLC 30 10,000,000 01/2004 1,174,890 8.08 7.19 7.19 Davenport Deere Distribution Facility 1031, LLC 35 15,700,000 04/2004 1,635,535 7.36 7.36 7.36 Grand Chute DST 29 6,370,000 03/2004 671,404 8.51 8.49 8.48 Macon Office DST 29 6,600,000 03/2004 786,409 8.20 8.20 8.20 White Settlement Road Investment, LLC 1 1,420,000 12/2003 174,320 8.34 8.34 - Plainfield Marketplace 1031, LLC 31 12,475,000 06/2004 846,445 7.13 7.09 - Pier 1 Retail Center 1031, LLC 22 4,300,000 06/2004 292,456 7.44 7.20 - Long Run 1031, LLC 1 4,935,000 05/2004 425,000 8.47 9.42 - Forestville 1031, LLC 1 2,106,000 05/2004 284,640 12.92 7.55 - Bed, Bath & Beyond 1031, LLC 20 6,700,000 08/2004 299,317 7.55 7.58 - Cross Creek Commons 1031, LLC 26 7,000,000 08/2004 375,493 7.31 7.30 - BJ's Shopping Center 1031, LLC 22 8,365,000 01/2005 337,898 7.68 7.69 - Barnes & Noble Retail Center 1031, LLC 12 3,930,000 02/2005 131,092 6.66 6.65 - Port Richey 1031, LLC 1 3,075,000 07/2004 190,353 9.30 9.24 - Walgreen Store Hobart 1031, LLC 24 6,534,000 02/2005 208,606 5.88 5.78 - Kraft Cold Storage Facility 1031, LLC 19 5,667,000 12/2004 224,680 7.00 7.00 - Huntington Square Plaza 1031, LLC 39 20,050,000 06/2005 468,445 6.48 - - Best Buy Store Reynoldsburg 1031, LLC 19 5,395,000 02/2005 166,742 6.73 - - Jefferson City 1031, LLC 28 10,973,000 04/2005 235,009 7.96 - - Stoughton 1031, LLC 27 10,187,000 05/2005 236,281 6.66 - - Indianapolis Entertainment 1031, LLC 1 1,129,000 11/2004 40,123 7.15 - - Mobile Entertainment 1031, LLC 1 808,000 11/2004 28,735 7.16 - - Chenal Commons 1031, LLC 19 7,550,000 06/2005 98,884 7.53 - - Oak Brook Kensington 1031, LLC 45 23,500,000 * 128,881 7.28 - - Columbus 1031, LLC 0 23,230,000 * - - - - Edmond 1031, LLC 1 1,920,000 05/2005 16,243 7.73 - - -------------- ------------- $ 275,922,000 $ 22,721,162 ============== =============
- ---------- * Offering was not complete as of June 30, 2005. (1) The 2002 Annual Distribution for this entity was 8.00% and the 2001 Annual Distribution was 8.00%. (2) The 2002 Annual Distribution for this entity was 8.20%. (3) The 2002 Annual Distribution for this entity was 8.89%. (4) The 2002 Annual Distribution for this entity was 8.19%. (5) The 2002 Annual Distribution for this entity was 8.47%. (6) The 2002 Annual Distribution for this entity was 8.08%. (7) The 2002 Annual Distribution for this entity was 8.22%. (8) The 2002 Annual Distribution for this entity was 8.14%. (9) The 2002 Annual Distribution for this entity was 13.53%. 32 MANAGEMENT INLAND AFFILIATED COMPANIES THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 68 OF OUR PROSPECTUS IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING: Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Property Services LLC, our management companies, were formed to segregate responsibility for management of our properties from Inland Property Management companies' growing management portfolio of retail properties. Our property management companies are responsible for collecting rent, leasing, and maintaining the retail properties they manage. These properties are primarily intended to be our properties in our primary geographical area of investment. Our property management companies are owned primarily by individuals who are affiliates of Inland. A NEW PARAGRAPH IS INSERTED AFTER THE THIRTEENTH PARAGRAPH IN THE "INLAND AFFILIATED COMPANIES" SUBSECTION, WHICH STARTS ON PAGE 68 OF OUR PROSPECTUS TO READ AS FOLLOWS: The Inland Real Estate Group of Companies, Inc., another affiliate of Inland, is a marketing entity to promote the business interests of its individual shareholder members. Its goals are to 1) enhance shareholder value of the members by: (a) assisting in the coordination of marketing efforts among members; (b) increasing buying power; (c) acting as a conduit for blind business leads; (d) identifying and monitoring proposed legislation that affects members; (e) providing an advocacy platform for issues of mutual concern; (f) sharing broad based expertise among members; (g) offering prospective tenants the broadest possible number of location choices; and 2) to clarify members' roles in the market place. WE HAVE ADDED A FOURTEENTH PARAGRAPH, UNDER THIS SECTION ON "INLAND AFFILIATED COMPANIES" WHICH STARTS ON PAGE 64 OF OUR PROSPECTUS WHICH HAS BEEN SUBSEQUENTLY UPDATED TO READ AS FOLLOWS: Inland American Real Estate Trust, Inc's. registration statement on Form S-11 to register 500,000,000 shares of common stock and up to 40,000,000 shares of their common stock for participants in their distribution reinvestment program was declared effective by the Securities and Exchange Commission on August 31, 2005. Inland American Real Estate Trust, Inc. is affiliated with The Inland Group. THE BIOGRAPHY UNDER THIS SECTION, WHICH STARTS ON PAGE 68 OF OUR PROSPECTUS, IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING: ROBERT D. PARKS is a Director of The Inland Group, Inc. and one of its four original principals; Chairman of Inland Real Estate Investment Corporation, Director of Inland Securities Corporation, and a Director of Inland Investment Advisors, Inc. Mr. Parks is Chairman and Affiliated Director of Inland American Real Estate Trust, Inc. and President, Chief Executive Officer, and a Director of Inland Real Estate Corporation. He is Chairman, and Director of Inland Retail Real Estate Trust, Inc., and Mr. Parks is Affiliated Director of Inland Real Estate Exchange Corporation. Mr. Parks is responsible for the ongoing administration of existing investment programs, corporate budgeting and administration for Inland Real Estate Investment Corporation. He oversees and coordinates the marketing of all investments and investor relations. Prior to joining Inland, Mr. Parks taught in Chicago's public schools. He received his B.A. Degree from Northeastern Illinois University and his M.A. Degree from the University of Chicago. He is a registered Direct Participation Program Limited Principal with the National Association of Securities Dealers. He is a member of the Real Estate Investment Association, the Financial Planning Association, the Foundation for Financial Planning as well as a member of the National Association of Real Estate Investment Trusts (NAREIT). 33 OUR GENERAL MANAGEMENT THE SECOND PARAGRAPH UNDER THIS SUBSECTION WHICH STARTS ON PAGE 71 OF OUR PROSPECTUS IS SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS: Inland Real Estate Acquisitions, Inc., is responsible for acquiring properties. Inland Risk and Insurance Management Services, Inc., an affiliate of The Inland Group, Inc., is responsible for providing insurance coverage on the properties. Inland Mortgage Brokerage Corporation and Inland Mortgage Servicing Corporation are responsible for the purchase, sales and servicing of mortgages. See "Compensation Table" for a description of the fees paid to our affiliates. OUR DIRECTORS AND EXECUTIVE OFFICERS EFFECTIVE JUNE 7, 2005, THE FOLLOWING TABLE SETS FORTH INFORMATION WITH RESPECT TO OUR DIRECTORS AND EXECUTIVE OFFICERS:
NAME AGE * POSITION AND OFFICE WITH US - ---- ----- --------------------------- Robert D. Parks 61 Chairman of the board and affiliated director Brenda G. Gujral 62 Chief executive officer and affiliated director Roberta S. Matlin 60 Vice president - administration Scott W. Wilton 44 Secretary Steven P. Grimes 38 Treasurer and principal financial officer Lori J. Foust 40 Principal accounting officer Frank A. Catalano, Jr. 43 Independent director Kenneth H. Beard 65 Independent director Paul R. Gauvreau 65 Independent director Gerald M. Gorski 62 Independent director Barbara A. Murphy 67 Independent director
*As of January 1, 2005 THE BIOGRAPHIES INCLUDED IN THIS SUBSECTION, WHICH STARTS ON PAGE 72 OF OUR PROSPECTUS, IS SUPERCEDED IN THE ENTIRETY AND REPLACED BY THE FOLLOWING: ROBERTA S. MATLIN joined Inland Real Estate Investment Corporation (IREIC) in 1984 as director of investor administration and currently serves as Senior Vice President of IREIC, directing the day-to-day internal operations. Ms. Matlin is a director of IREIC, a director and president of Inland Investment Advisors, Inc., and Intervest Southern Real Estate Corporation, and a director and vice president of Inland Securities Corporation. She is the president of Inland American Advisory Services, Inc. Since 2004, she has been vice president of administration of Inland American Real Estate Trust, Inc. She was Vice President of Administration of Inland Real Corporation from 1995 until 2000 and of Inland Retail Real Estate Trust, Inc from 1998 until 2004. From June 2001 until April 2004, she was a trustee and executive vice president of Inland Mutual Fund Trust. Prior to joining Inland, she worked for the Chicago Region of the Social Security Administration of the Untied States Department of Health and Human Services. Ms. Matlin is a graduate of the University of Illinois. She holds Series 7, 22, 24, 39, 63 and 65 licenses from the National Association of Securities Dealers. SCOTT W. WILTON has been our secretary since our formation. Mr. Wilton joined The Inland Group in January 1995. He is assistant vice president of The Inland Real Estate Group, Inc. and assistant counsel with The Inland Real Estate Group law department. From 1998 through 2004, Mr. Wilton was secretary of Inland Retail Real Estate Trust, Inc. and Inland Retail Real Estate Advisory Services, Inc. In 2001, he became the Secretary of Inland Real Estate Exchange Corporation. In 2004, he became secretary of Inland American Real Estate Trust, Inc. Mr. Wilton is involved in all aspects of The Inland Group's business, including real estate acquisitions and financing, securities law and corporate governance matters, leasing and tenant matters, and litigation management. He received B.S. degrees in economics and history from the University of Illinois at Champaign 1982 and his law degree from Loyola University of Chicago, Illinois 1985. Prior to joining The Inland Group, Mr. Wilton worked for the Chicago law firm of Williams, Rutstein, Goldfarb, Sibrava and Midura, Ltd., specializing in real estate and corporate transactions and litigation. 34 BRENDA G. GUJRAL is President, Chief Operating Officer and a director of Inland Real Estate Investment Corporation (IREIC) and President, Chief Operating Officer and a director of Inland Securities Corporation (ISC) - a member firm of the National Association of Securities Dealers (NASD). Mrs. Gujral is also a director of Inland Investment Advisors, Inc.; Chairman of the Board of Inland Real Estate Exchange Corporation; and Mrs. Gujral is Director and President of Inland American Real Estate Trust, Inc. Mrs. Gujral has overall responsibility for the operations of IREIC, including the distribution of checks to over 50,000 investors, review of periodic communications to those investors, the filing of quarterly and annual reports for Inland's publicly registered investment programs with the Securities and Exchange Commission, compliance with other SEC and NASD securities regulations both for IREIC and ISC, review of asset management activities, and marketing and communications with the independent broker/dealer firms selling Inland's current and prior programs. Mrs. Gujral works with internal and outside legal counsel in structuring IREIC's investment programs and in connection with the preparation of its offering documents and registering the related securities with the Securities and Exchange Commission and state securities commissions. Mrs. Gujral has been with the Inland organization for 22 years, becoming an officer in 1982. Prior to joining Inland, she worked for the Land Use Planning Commission establishing an office in Portland, Oregon, to implement land use legislation for that state. She is a graduate of California State University. She holds Series 7, 22, 39 and 63 licenses from the NASD. Mrs. Gujral is a member of the National Association of Real Estate Investment Trusts (NAREIT), the Financial Planning Association (FPA), the Foundation for Financial Planning (FFP) and the National Association for Female Executives. KENNETH H. BEARD is president and chief executive officer of Midwest Mechanical Group, a mechanical construction and service company. From 1999-2002 he was president and chief executive officer of Exelon Services, a subsidiary of Exelon Corporation, where he had responsibility for financial performance including being accountable for creating business strategy, growing the business through acquisition, integrating acquired companies and developing infrastructure for the combined acquired businesses. Prior to that position, from 1974 to 1999, Mr. Beard was the founder, president and chief executive officer of Midwest Mechanical, Inc., a heating, ventilation and air conditioning company providing innovative and cost effective construction services and solutions for commercial, industrial, and institutional facilities. From 1964 to 1974, Mr. Beard was employed by The Trane Company, a manufacturer of heating, ventilating and air conditioning equipment having positions in sales, sales management and general management. Mr. Beard holds a MBA and BSCE from the University of Kentucky and is a licensed mechanical engineer. He is on the board of directors of the Wellness House in Hinsdale, Illinois, a cancer support organization and serves on the Dean's Advisory Council of the University of Kentucky, School of Engineering. Mr. Beard is a past member of the Oak Brook, Illinois Plan Commission (1981-1991) and a past board member of Harris Bank, Hinsdale (1985-2004). PAUL R. GAUVREAU is the retired chief financial officer, financial vice president and treasurer of Pittway Corporation, New York Stock exchange listed manufacturer and distributor of professional burglar and fire alarm systems and equipment from 1966 until its sale to Honeywell, Inc. in 2001. He was president of Pittway's non-operating real estate and leasing subsidiaries through 2001. He was a financial consultant to Honeywell, Inc.; Genesis Cable, L.L.C.; ADUSA, Inc. He was a director and audit committee member of Cylink Corporation, a Nasdaq Stock Market listed manufacturer of voice and data security products from 1998 until its merger with Safenet, Inc. in February 2003. Mr. Gauvreau holds a MBA from the University of Chicago and a BSC from Loyola University of Chicago. He is on the Board of Trustees, and Chairman of the Finance Committee of Benedictine University, Lisle, Illinois; a member of the Board of Trustees of the Chaddick Institute of DePaul University, Chicago, Illinois; and a member of the board of directors and vice president of the Children's Brittle Bone Foundation, Pleasant Prairie, Wisconsin. 35 COMPENSATION OF DIRECTORS AND OFFICERS THE DISCUSSION INCLUDED IN THIS SUBSECTION, WHICH STARTS ON PAGE 76 OF OUR PROSPECTUS, IS SUPERCEDED IN THE ENTIRETY AND REPLACED BY THE FOLLOWING: We pay our independent directors an annual fee of $5,000 (increased to $10,000 effective October 1, 2004) plus $500 for each in person meeting, and $350 for each meeting of the board or a committee (excluding the audit committee) of the board attended by telephone, and reimbursement of their out-of-pocket expenses incurred. Effective December 1, 2004, we pay our audit committee members $750 for each in personal audit committee meeting and $500 for each audit committee meeting attended by telephone. Our two other directors, Robert D. Parks and Brenda G. Gujral, do not receive any fees or other remuneration for serving as directors. OUR BUSINESS MANAGER/ADVISOR THE DISCUSSION UNDER THIS SECTION ON "OUR ADVISORY AGREEMENT" WHICH STARTS ON PAGE 79 OF OUR PROSPECTUS HAS BEEN MODIFIED TO INCLUDE THE FOLLOWING SIXTEENTH PARAGRAPH: On February 11, 2005, a new property acquisition agreement was entered into between Inland Real Estate Acquisitions, Inc., the Business Manager/Advisor, and us. The property acquisition agreement grants us an exclusive right of first refusal to acquire each and every Subject Property, as defined in the agreement. A Subject Property is defined as any retail facility, mixed-use property, or a single-user property identified by Acquisitions and located within our market area. Our market area is defined in the agreement as the geographic area located west of the Mississippi in the continental United States but excluding the portion of the geographic area within a four hundred (400) mile radius of Oak Brook, Illinois. Acquisitions are owned by The Inland Group, and we are sponsored by Inland Real Estate Investment Corporation. Inland Real Estate Investment Corporation and the Advisor are owned by The Inland Group. The property acquisition agreement previously entered into by the parties dated September 18, 2003 has been terminated accordingly. The new property acquisition agreement is filed as an exhibit to the registration statement of which the prospectus is a part and is incorporated into this filing in its entirety. THE DISCUSSION UNDER "TERM OF THE ADVISORY AGREEMENT" SECTION WHICH STARTS ON PAGE 79 OF OUR PROSPECTUS HAS BEEN MODIFIED AND SUPPLEMENTED BY THE FOLLOWING: TERM OF THE ADVISORY AGREEMENT On December 28, 2004, the advisory agreement between us and the Business Manager/Advisor was amended and restated. The Business Manager/Advisor is owned by the Company's sponsor, and all of the Company's agreements and arrangements with the Business Manager/Advisor and its affiliates, including those relating to compensation, are not the result of arm's length negotiations but the Company believes that the fee it pays is equal to or less than the fee that would be payable to an unaffiliated third-party providing such service. The advisory agreement was amended and restated to include an initial term of one year instead of three years. THE LAST PARAGRAPH, UNDER THE SECTION "OUR ADVISORY AGREEMENT", SUBSECTION "LIABILITY AND INDEMNIFICATION OF BUSINESS MANAGER/ADVISOR WHICH STARTS ON PAGE 81 OF OUR PROSPECTUS HAS BEEN SUPERCEDED AND WAS UPDATED IN THE ENTIRETY TO READ AS FOLLOWS: Inland American Real Estate Trust, Inc. may acquire real estate operating companies that may have been a historical or future source for acquiring properties, which could create a conflict of interest for our company. In addition, Inland American Real Estate Trust, Inc.'s offering, could potentially negatively impact arm's length negotiations due to overlapping fiduciary duties owed by certain directors particularly arising in the potential purchase of shopping or retails centers, and office buildings, located in the United States. However, if any conflicts do arise, they will be resolved as provided in the property acquisition service agreement. 36 THE TWENTIETH PARAGRAPH, UNDER THE SECTION "THE PROPERTY MANAGERS AND THE MANAGEMENT AGREEMENT", WHICH STARTS ON PAGE 82 OF OUR PROSPECTUS HAS BEEN SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS: The following sets forth information with respect to the executive officers and managers of Inland Pacific Property Services LLC. INLAND SECURITIES CORPORATION THE DISCUSSION UNDER THIS SUBSECTION WHICH STARTS ON PAGE 87 OF OUR PROSPECTUS IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION: ANDREW DORNBUSCH (age 27) joined Inland Securities Corporation as a vice president in September 2004. Previously, Mr. Dornbusch was an attorney at Dorsey & Whitney LLP in Minneapolis, Minnesota. Mr. Dornbusch graduated from the University of Minnesota with a bachelor degree in International Relations. He obtained his law degree from Cornell Law School. Mr. Dornbusch holds Series 7, 63 and 65 licenses with the National Association of Securities Dealers, Inc. SANDRA L. PERION (age 47) joined Inland in 1994 as an administrative assistant to the Senior Vice President of Inland Real Estate Investment Corporation. Mrs. Perion's responsibilities included expense accounts, time and attendance reports, supervising file room clerks, furniture and supply orders, shareholder correspondence, arranging board of directors and annual shareholder meetings, proxy tabulation and scheduling seminars and classes for employees. In 2002, Mrs. Perion was promoted to administrator of Inland Securities Corporation, where she became responsible for securities industry registration, compliance procedures and maintaining corporation and shareholder records, and in 2003 she was promoted to Assistant Vice President of Inland Securities Corporation. Mrs. Perion holds Series 7, 24 and 63 licenses from the National Association of Securities Dealers. PRINCIPAL STOCKHOLDERS THE TABLE UNDER THIS SECTION, WHICH STARTS ON PAGE 95 OF OUR PROSPECTUS, IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION: The following table provides information as of September 8, 2005 regarding the number and percentage of shares beneficially owned by each director, each executive officer, all directors and executive officers as a group, and any person known to us to be the beneficial owner of more than 5% of our outstanding shares. As of September 8, 2005, no stockholder beneficially owned more than 5% of our outstanding shares. As of September 8, 2005, we had approximately 118,300 stockholders of record and approximately 403,227,289 shares of common stock outstanding for our two offerings. Beneficial ownership includes outstanding shares and shares which are not outstanding that any person has the right to acquire within 60 days after the date of this table. However, any such shares which are not outstanding are not deemed to be outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by any other person. Except as indicated, the persons named in the table have sole voting and investing power with respect to all shares beneficially owned by them.
Number of shares Beneficial Owner beneficially owned Percent of class - ------------------------------------------------------------------------------------------ Robert D. Parks 125,396.0342(1) * Roberta S. Matlin 288.7580 * Scott W. Wilton 0 0 Steven P. Grimes 0 0 Lori J. Foust 0 0 Brenda G. Gujral 0 0 Frank A. Catalano, Jr. 3,000(2) * Kenneth H. Beard 55,569.4632(2) * Paul R. Gauvreau 114,731.8436(2) * Gerald M. Gorski 5,104.9673(2) * Barbara A. Murphy 3,000(2) *
37 All directors and executive officers as a 307,091.0663(1) * group (11 persons)
- ---------- *Less than 1% (1) Includes 20,000 shares owned by our business manager/advisor. Our business manager/advisor is a wholly-owned subsidiary of our sponsor, which is an affiliate of The Inland Group. Mr. Parks is a control person of The Inland Group and disclaims beneficial ownership of these shares owned by our business manager/advisor. (2) Includes 3,000 shares issuable upon exercise of options granted to each independent director under our independent director stock option plan, to the extent that such options are currently exercisable or will become exercisable within 60 days after the date of this table. INVESTMENT OBJECTIVES AND POLICIES DISTRIBUTIONS THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 99 OF OUR PROSPECTUS, IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION REGARDING DISTRIBUTIONS. We made the following distributions payable to holders of our common stock: - $.65 per share per annum for the stockholders of record on December 31, 2004, payable on January 10, 2005 - $.63 per share per annum for the stockholders of record on January 31, 2005, payable on February 10, 2005 - $.6325 per share per annum for the stockholders of record on February 28, 2005, payable on March 10, 2005. - $.63 per share per annum for the stockholders of record on March 31, 2005, payable on April 10, 2005. - $.635 per share per annum for the stockholders of record on April 30, 2005, payable on May 10, 2005. - $.635 per share per annum for the stockholders of record on May 31, 2005, payable on June 10, 2005. - $.6375 per share per annum for the stockholders of record on June 30, 2005, payable on July 10, 2005. - $.6375 per share per annum for the stockholders of record on July 31, 2005, payable on August 10, 2005, and - $.6375 per share per annum for the stockholders of record on August 31, 2005, payable on September 10, 2005. At the January 27, 2005 regularly scheduled board meeting, the board of directors unanimously approved a resolution to delegate to our management committee the authority to continue to determine the amount of the monthly distributions to stockholders on our common stock to be an amount between 6.0% and 7.25% on an annualized basis, for the remainder of the 2005 calendar year. THE DISCUSSION UNDER THIS SECTION ON "PROPERTY ACQUISITION STANDARDS", WHICH STARTS ON PAGE 101 OF OUR PROSPECTUS, HAS BEEN MODIFIED TO INCLUDE THE FOLLOWING FOURTH PARAGRAPH: On February 11, 2005, a new property acquisition agreement was entered into between Inland Real Estate Acquisitions, Inc., the Business Manager/Advisor, and us. The property acquisition agreement grants us an exclusive right of first refusal to acquire each and every Subject Property, as defined in the agreement. A Subject Property is defined as any retail facility, mixed-use property, or a single-user property identified by Acquisitions and located within our market area. Our market area is defined in the agreement as the geographic area located west of the Mississippi in the continental United States but excluding the portion of the geographic area within a four hundred (400) mile radius of Oak Brook, Illinois. Acquisitions are owned by The Inland Group, and we are sponsored by Inland Real Estate Investment Corporation. Inland Real Estate Investment Corporation and the Advisor are owned by The Inland Group. The property acquisition agreement previously entered into by the parties dated September 18, 2003 has been terminated accordingly. The new property acquisition agreement is filed as an exhibit to the registration statement of which the prospectus is a part and is incorporated into this filing in its entirety. 38 THE DISCUSSION UNDER "OTHER INVESTMENTS" WHICH STARTS ON PAGE 105 OF OUR PROSPECTUS IS SUPPLEMENTED BY THE FOLLOWING INFORMATION: On March 22, 2005, the board of directors approved the increase of investments from $10 million to $20 million of our cash in publicly traded investment securities with no time limitation on the placement of these investments. At the April 14, 2005 board meeting, the board of directors approved the investment of up to $100 million in preferred and common stock of real estate investment trust companies. The investment could be leveraged up to a two-to-one basis. The investment in the preferred and common stock must meet certain parameters and criteria subject to the board's approval prior to investment. 39 REAL PROPERTY INVESTMENTS SUMMARY TABULAR PRESENTATION OF PROPERTIES OWNED As of September 8, 2005, we, through separate limited partnerships or limited liability companies, have acquired fee ownership of, or a leasehold interest in 213 properties consisting of an aggregate of approximately 35,976,381 gross leasable square feet located in Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Wisconsin and Ontario, Canada. The following table summarizes these properties in alphabetical order.
% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ 23rd Street Plaza NC 2003 Dec-04 7,258,000 3,990,000 53,376 0.15% 95% 2 Panama City, Florida Academy Sports SU 2004 Jul-04 5,250,000 2,920,000 60,001 0.17% 100% 1 Houma, Louisiana Academy Sports SU 2004 Oct-04 4,250,000 2,337,500 61,150 0.17% 100% 1 Midland, Texas Academy Sports SU 2004 Oct-04 5,000,000 2,775,000 61,001 0.17% 100% 1 Port Arthur, Texas Academy Sports SU 2004 Jan-05 7,150,000 3,933,000 70,910 0.20% 100% 1 San Antonio, Texas Alison's Corner NC 2003 Apr-04 7,042,000 3,850,000 55,066 0.15% 100% 4 San Antonio, Texas American Express SU 2000 Dec-04 18,000,000 11,623,000 132,336 0.37% 100% 1 DePere, Wisconsin American Express SU 1975 Dec-04 63,000,000 37,170,000 376,348 1.05% 100% 1 Fort Lauderdale, Florida American Express SU 1986 Dec-04 56,000,000 33,040,000 389,377 1.08% 100% 1 Greensboro, North Carolina American Express SU 1983 & Jan-05 42,000,000 25,380,000 306,710 0.85% 100% 1 Markham, Ontario, Canada 1987 American Express SU 1989 Dec-04 95,000,000 56,050,000 541,542 1.51% 100% 1 Minneapolis, Minnesota PROPERTY MAJOR TENANTS* - ----------------------------------------------------- 23rd Street Plaza Bed, Bath & Beyond Panama City, Florida Ross Dress for Less Academy Sports Academy Sports Houma, Louisiana Academy Sports Academy Sports Midland, Texas Academy Sports Academy Sports Port Arthur, Texas Academy Sports Academy Sports San Antonio, Texas Alison's Corner Ross Dress for Less San Antonio, Texas Shoe Carnival Mattress Firm American Express American Express DePere, Wisconsin American Express American Express Fort Lauderdale, Florida American Express American Express Greensboro, North Carolina American Express American Express Markham, Ontario, Canada American Express American Express Minneapolis, Minnesota
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ American Express-19th Ave. SU 1983 Dec-04 14,000,000 8,260,000 117,556 0.33% 100% 1 Phoenix, Arizona American Express-31st Ave. SU 1985 Dec-04 54,000,000 31,860,000 337,439 0.94% 100% 1 Phoenix, Arizona American Express SU 1982 Mar-05 48,000,000 30,149,000 395,787 1.10% 100% 1 Taylorsville, Utah Arvada Connection RC 1987 -1990 Apr-04 51,550,000 28,510,000 61,079 0.17% 94% 14 and Arvada Marketplace 313,559 0.87% 90% 25 Arvada, Colorado Ashland & Roosevelt RC 2002 May-05 24,139,000 15,016,082 110,858 0.31% 97% 17 Chicago, Illinois Azalea Square RC 2004 Oct-04 30,013,000 16,535,000 190,142 0.53% 99% 22 Summerville, South Carolina Beachway Plaza RC 1984 / 2004 Jun-05 17,000,000 10,235,450 120,990 0.34% 95% 19 Bradenton, Florida Bear Creek NC 2002 Apr-05 19,406,000 11,449,749 87,912 0.24% 100% 14 Houston, Texas Bed, Bath & Beyond Plaza NC 2004 Oct-04 20,350,000 11,192,500 97,456 0.27% 100% 16 Miami, Florida Bed, Bath & Beyond Plaza NC 2000-2002 Jul-05 16,641,000 9,818,000(1) 61,639 0.17% 100% 2 Westbury, New York Best on the Boulevard RC 1996 - 1999 Apr-04 35,500,000 19,525,000 204,427 0.57% 79% 9 PROPERTY MAJOR TENANTS* - ----------------------------------------------------- American Express-19th Ave. American Express Phoenix, Arizona American Express-31st Ave. American Express Phoenix, Arizona American Express American Express Taylorsville, Utah Arvada Connection Old Country Buffet Pier 1 Imports and Movie Trading Co. Waldenbooks Arvada Marketplace Sam's Club Arvada, Colorado Gart Sports Ashland & Roosevelt Jewel/Osco Chicago, Illinois Azalea Square T.J. Maxx Summerville, South Linens 'N Things Carolina Ross Dress for Less Cost Plus World Market PETsMART Beachway Plaza Publix Bradenton, Florida Beall's Staples Bear Creek HEB Grocery Houston, Texas Bed, Bath & Beyond Plaza Bed, Bath & Beyond Miami, Florida Office Depot Pier 1 Imports Party City Bed, Bath & Beyond Plaza Bed, Bath & Beyond Westbury, New York Best on the Boulevard Best Buy
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ Las Vegas, Nevada Bison Hollow RC 2004 Apr-05 19,525,000 10,774,225 134,798 0.37% 100% 3 Traverse City, Michigan Blockbuster at Five Forks SU 2004 - 2005 Mar-05 1,500,000 825,000 6,000 0.02% 100% 1 Greenville, South Carolina Bluebonnet Parc RC 2002 Apr-04 22,000,000 12,100,000 135,289 0.38% 95% 7 Baton Rouge, Louisiana Boston Commons RC 1993 May-05 14,748,000 9,869,408 103,070 0.29% 100% 7 Springfield, Massachusetts Boulevard at the Capital JV 2004 Sept-04 128,811,000 71,500,000 479,056 1.33% 99% 76 Centre Largo, Maryland Boulevard Plaza RC 1994 Apr-05 17,068,000 6,300,000 108,879 0.30% 46% 14 Pawtucket, Rhode Island The Brickyard RC 1977/2004 Apr-05 77,555,000 - 235,401 0.65% 94% 33 Chicago, Illinois Brown's Lane NC 1985 Apr-05 11,425,000 6,284,000 74,715 0.21% 100% 7 Middletown, Rhode Island CarMax SU 1998 Mar-05 14,600,000 8,030,000 60,772 0.17% 100% 1 San Antonio, Texas Century III Plaza JV 1996 Jun-05 42,903,000 25,313,000(1) 283,839 0.79% 100% 4 West Mifflin, Pennsylvania Chantilly Crossing JV 2004 May-05 25,685,000 15,675,000 77,044 0.21% 100% 23 Chantilly, Virginia Cinemark Theatre SU 2000 Mar-05 15,650,000 7,800,000 70,183 0.19% 100% 1 Woodridge, Illinois PROPERTY MAJOR TENANTS* - ----------------------------------------------------- Las Vegas, Nevada Barnes & Noble Copeland Enterprises Bison Hollow Kohl's Traverse City, Michigan Bed, Bath & Beyond Michaels Blockbuster at Five Forks Blockbuster Video Greenville, South Carolina Bluebonnet Parc Best Buy Baton Rouge, Louisiana Linens 'N Things Cost Plus World Market Boston Commons Super Big Y Springfield, Massachusetts CVS Pharmacy Boulevard at the Capital Lowe's Theaters Magic Centre Johnson Largo, Maryland Boulevard Plaza Super Valu Pawtucket, Rhode Island Auto Zone The Brickyard Jewel/Osco Chicago, Illinois Marshalls Brown's Lane Super Stop & Shop Middletown, Rhode Island CarMax CarMax San Antonio, Texas Century III Plaza Home Depot West Mifflin, Pennsylvania Circuit City Giant Eagle Chantilly Crossing Office Depot Chantilly, Virginia Party City Cinemark Theatre Cinemark Theatre Woodridge, Illinois
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ Circuit City Headquarters SU 1997 May-05 53,000,000 31,270,000 382,570 1.06% 100% 1 Richmond, Virginia Citizens Property Insurance SU 2005 Aug-05 10,165,000 - 59,800 0.17% 100% 1 Jacksonville, Florida Clearlake Shores NC 2003 - 2004 Apr-05 9,121,000 6,682,500 50,159 0.14% 100% 10 Clear Lake, Texas The Columns RC 2004 Aug-04 26,510,000 14,865,400 173,427 0.48% 100% 19 Jackson, Tennessee The Commons at Royal RC 2001 May-05 24,701,000 14,460,099 158,034 0.44% 100% 16 Palm Royal Palm Beach, Florida The Commons at Temecula RC 1999 Apr -05 51,536,000 29,623,024 293,003 0.81% 100% 17 Temecula, California Computershare Shareholder SU 2001 Jul-05 68,777,000 - 185,171 0.51% 100% 1 Services Canton, Massachusetts Coram Plaza RC 2004 Dec-04 37,292,000 20,755,300 144,301 0.40% 91% 21 Coram, New York Cornerstone Plaza NC 2004-2005 May-05 14,250,000 8,400,000 68,577 0.19% 87% 14 Cocoa Beach, Florida CorWest Plaza RC 1999 - 2003 Jan-04 33,000,000 18,150,000 115,011 0.32% 97% 10 New Britain, Connecticut PROPERTY MAJOR TENANTS* - ----------------------------------------------------- Circuit City Headquarters Circuit City Richmond, Virginia Citizens Property Insurance Citizens Property Jacksonville, Florida Insurance Clearlake Shores Office Depot Clear Lake, Texas Pier 1 Imports Dollar Tree The Columns Best Buy Jackson, Tennessee Ross Dress for Less Marshalls Bed, Bath & Beyond The Commons at Royal Toys "R" Us Palm T.J. Maxx Royal Palm Beach, Florida Michaels PETsMART The Commons at Temecula Jo-Ann, etc. Temecula, California Linens 'N Things Sport Chalet, Inc. Leisure Living Sportstore Computershare Shareholder Computershare Services Shareholder Services Canton, Massachusetts Coram Plaza Stop & Shop Coram, New York Cornerstone Plaza Publix Cocoa Beach, Florida CorWest Plaza Super Stop & Shop New Britain, Connecticut Liquor Depot CVS Pharmacy
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ Cottage Plaza NC 2004-2005 Feb-05 23,440,000 13,025,000 85,463 0.24% 100% 8 Pawtucket, Rhode Island Cranberry Square RC 1996 - 1997 Jul-04 20,220,000 10,900,000 195,566 0.54% 92% 5 Cranberry Township, Pennsylvania Crossroads Plaza SU 1987 May-05 5,882,000 4,972,831 16,000 0.04% 100% 1 North Attleborough, Massachusetts Crown Theater JV 2000 Jul-05 17,033,000 10,050,000(1) 74,170 0.21% 100% 1 Hartford, Connecticut Cuyahoga Falls Market Ctr. NC 1998 Apr-05 15,062,000 8,285,000 76,361 0.21% 100% 4 Cuyahoga Falls, Ohio CVS Pharmacy (Eckerd SU 2003 Dec-03 3,364,000 1,850,000 13,824 0.04% 100% 1 Drug Store) Edmund, Oklahoma CVS Pharmacy (Eckerd SU 2003 Dec-03 5,288,000 2,900,000 13,824 0.04% 100% 1 Drug Store) Norman, Oklahoma CVS Pharmacy SU 1999 Jun-05 3,986,000 2,192,684(2) 10,908 0.03% 100% 1 Burleson, Texas CVS Pharmacy SU 2004 Mar-05 5,895,000 - 13,824 0.04% 100% 1 Jacksonville, Florida CVS Pharmacy SU 1999 May-05 2,847,000 1,566,000(2) 10,908 0.03% 100% 1 Lawton, Oklahoma CVS Pharmacy SU 2001 Mar-05 3,064,000 1,685,000 10,055 0.03% 100% 1 Montevallo, Alabama CVS Pharmacy SU 2004 May-05 3,427,000 1,901,123(3) 13,813 0.04% 100% 1 Moore, Oklahoma PROPERTY MAJOR TENANTS* - ----------------------------------------------------- Cottage Plaza Stop & Shop Pawtucket, Rhode Island Cranberry Square Barnes & Noble Cranberry Township, Dick's Sporting Goods Pennsylvania Best Buy OfficeMax Toys "R" Us Crossroads Plaza CVS Pharmacy North Attleborough, Massachusetts Crown Theater Crown Theater Hartford, Connecticut Cuyahoga Falls Market Ctr. Linens 'N Things Cuyahoga Falls, Ohio PETsMART Deals CVS Pharmacy (Eckerd CVS Pharmacy Drug Store) Edmund, Oklahoma CVS Pharmacy (Eckerd CVS Pharmacy Drug Store) Norman, Oklahoma CVS Pharmacy CVS Pharmacy Burleson, Texas CVS Pharmacy CVS Pharmacy Jacksonville, Florida CVS Pharmacy CVS Pharmacy Lawton, Oklahoma CVS Pharmacy CVS Pharmacy Montevallo, Alabama CVS Pharmacy CVS Pharmacy Moore, Oklahoma
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ CVS Pharmacy SU 1999 Jun-05 4,417,000 2,429,316(2) 10,908 0.03% 100% 1 Oklahoma City, Oklahoma CVS Pharmacy SU 2004 Mar-05 4,435,000 2,460,191(3) 13,824 0.04% 100% 1 Saginaw, Texas CVS Pharmacy SU 2004 Oct-04 3,066,000 1,685,000 10,055 0.03% 100% 1 Sylacauga, Alabama Darien Towne Center RC 1994 Dec-03 30,000,000 16,500,000 223,694 0.62% 98% 14 Darien, Illinois Davis Towne Crossing NC 2003 & Jun-04 9,398,000 5,365,200 39,735 0.11% 88% 13 North Richland Hills, 2004 Texas Denton Towne Crossing RC 2003 & Oct-04 60,701,000 35,200,000 319,990 0.89% 100% 39 Denton, Texas 2004 Diebold Warehouse SU 2005 Jul-05 12,272,000 - 158,652 0.44% 100% 1 Green, Ohio Dorman Center - Phase I & RC 2003 - 2004 Mar-04 & 50,200,000 27,610,000 388,067 1.08% 98% 27 II Jul-04 Spartanburg, South Carolina Eastwood Towne Center RC 2002 May-04 85,000,000 46,750,000 332,131 0.92% 98% 61 Lansing, Michigan PROPERTY MAJOR TENANTS* - ----------------------------------------------------- CVS Pharmacy CVS Pharmacy Oklahoma City, Oklahoma CVS Pharmacy CVS Pharmacy Saginaw, Texas CVS Pharmacy CVS Pharmacy Sylacauga, Alabama Darien Towne Center Home Depot Darien, Illinois Circuit City PETsMART Davis Towne Crossing Lady USA Fitness North Richland Hills, Cotton Patch Cafe Texas Monarch Dental Washington Mutual Denton Towne Crossing Oshman's Sporting Denton, Texas Goods Best Buy Diebold Warehouse Diebold Warehouse Green, Ohio Dorman Center - Phase I & Wal-Mart Supercenter II Spartanburg, South Carolina Eastwood Towne Center Dick's Sporting Goods Lansing, Michigan
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ Eckerd Drug Store SU 1999-2000 May-05 2,206,000 1,223,606(3) 10,908 0.03% 100% 1 Atlanta, Georgia Eckerd Drug Store SU 1999 Jun-05 2,934,000 1,627,628(3) 10,908 0.03% 100% 1 Chattanooga, Tennessee Eckerd Drug Store SU 2005 May-05 7,438,000 3,199,700 13,361 0.04% 100% 1 Colesville Maryland Eckerd Drug Store SU 2003 - 2004 Jun-04 3,260,000 1,750,000 13,440 0.04% 100% 1 Columbia, South Carolina Eckerd Drug Store SU 2003 - 2004 Jun-04 2,625,000 1,425,000 13,824 0.04% 100% 1 Crossville, Tennessee Eckerd Drug Store SU 2003 - 2004 Jun-04 3,069,000 1,650,000 13,824 0.04% 100% 1 Greer, South Carolina Eckerd Drug Store SU 2004 Aug-05 5,781,000 - 13,813 0.04% 100% 1 Hellertown, Pennsylvania Eckerd Drug Store SU 2003 - 2004 Jun-04 3,650,000 1,975,000 13,824 0.04% 100% 1 Kill Devil Hills, North Carolina Eckerd Drug Store SU 2004 Aug-05 5,621,000 - 13,813 0.04% 100% 1 Lebanon, Pennsylvania Eckerd Drug Store SU 2004 Aug-05 5,607,000 - 13,824 0.04% 100% 1 Punxsutawney, Pennsylvania Edgemont Town Center NC 2003 Nov-04 15,639,000 8,600,000 77,655 0.22% 95% 15 Homewood, Alabama Edwards Megaplex Theater SU 1988 May-05 33,437,000 19,730,000 94,600 0.26% 100% 1 Fresno, California Edwards Megaplex Theater SU 1997 Apr-05 47,242,000 27,875,000 124,614 0.35% 100% 1 Ontario, California Evans Town Center NC 1995 Dec-04 8,795,000 5,005,000 75,695 0.21% 100% 15 Evans, Georgia PROPERTY MAJOR TENANTS* - ----------------------------------------------------- Eckerd Drug Store Eckerd Drug Store Atlanta, Georgia Eckerd Drug Store Eckerd Drug Store Chattanooga, Tennessee Eckerd Drug Store Eckerd Drug Store Colesville Maryland Eckerd Drug Store Eckerd Drug Store Columbia, South Carolina Eckerd Drug Store Eckerd Drug Store Crossville, Tennessee Eckerd Drug Store Eckerd Drug Store Greer, South Carolina Eckerd Drug Store Eckerd Drug Store Hellertown, Pennsylvania Eckerd Drug Store Eckerd Drug Store Kill Devil Hills, North Carolina Eckerd Drug Store Eckerd Drug Store Lebanon, Pennsylvania Eckerd Drug Store Eckerd Drug Store Punxsutawney, Pennsylvania Edgemont Town Center Publix Homewood, Alabama Edwards Megaplex Theater Edwards Megaplex Fresno, California Theater Edwards Megaplex Theater Edwards Megaplex Ontario, California Theater Evans Town Center Publix Evans, Georgia
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ Fairgrounds Plaza NC 2002 - 2004 Jan-05 21,994,000 15,888,208 59,970 0.17% 100% 1 Middletown, New York Fisher Scientific SU 2005 Jun-05 14,000,000 8,260,000 114,700 0.32% 100% 1 Kalamazoo, Michigan Five Forks NC 1999 Dec-04 8,086,000 4,482,500 64,173 0.18% 100% 9 Simpsonville, South Carolina Forks Town Center NC 2002 Jul-04 18,894,000 10,395,000 92,556 0.26% 95% 15 Easton, Pennsylvania Four Peaks Plaza RC 2004 Mar-05 26,301,000 17,071,500 122,058 0.34% 100% 21 Fountain Hills, Arizona Fox Creek Village RC 2003 - 2004 Nov-04 20,883,000 11,485,000 114,033 0.32% 87% 16 Longmont, Colorado Fullerton Metrocenter RC 1988 Jun-04 51,275,000 28,050,000 253,326 0.70% 96% 43 Fullerton, California Galvez Shopping Center NC 2004 Jun-05 6,704,000 4,470,000 25,660 0.07% 100% 8 Galveston, Texas Gardiner Manor Mall RC 2000 Jul-05 65,227,000 38,484,000(1) 220,716 0.61% 100% 17 Bay Shore, New York The Gateway RC 2001 - 2003 May-05 146,058,000 98,780,516 520,103 1.45% 100% 88 Salt Lake City, Utah Gateway Pavilions RC 2003 - 2004 Dec-04 65,141,000 35,842,000 301,233 0.84% 99% 45 Avondale, Arizona Gateway Plaza RC 2000 Jul-04 33,025,000 18,163,000 358,091 1.00% 96% 29 Southlake, Texas PROPERTY MAJOR TENANTS* - ----------------------------------------------------- Fairgrounds Plaza Super Stop & Shop Middletown, New York Fisher Scientific Fisher Scientific Kalamazoo, Michigan Five Forks Bi-Lo Simpsonville, South Carolina Forks Town Center Giant Food Stores Easton, Pennsylvania Four Peaks Plaza Ross Dress for Less Fountain Hills, Arizona Dollar Tree PETCO Fox Creek Village King Soopers Longmont, Colorado Fullerton Metrocenter Sportmart Fullerton, California Henry's Marketplace Galvez Shopping Center Pier 1 Imports Galveston, Texas Mattress Firm Gardiner Manor Mall King Sullen Bay Shore, New York Supermarkets Linens 'N Things Old Navy Staples Michaels The Gateway Dick's Sporting Goods Salt Lake City, Utah Theater 2005 Gateway Pavilions Circuit City Avondale, Arizona The Sports Authority Mor Furniture Gateway Plaza Kohl's Southlake, Texas
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ Gateway Station NC 2003 - 2004 Dec-04 6,300,000 3,717,262 23,348 0.06% 100% 8 College Station, Texas Gateway Village JV 1996 Jul-04 53,150,000 27,233,000 273,307 0.76% 99% 15 Annapolis, Maryland Gloucestor Town Center JV 2003 May-05 22,500,000 11,975,000 108,420 0.30% 100% 18 Gloucestor, New Jersey GMAC Insurance Building SU 1980/1990 Sept-04 59,997,000 33,000,000 501,064 1.39% 100% 1 Winston-Salem, North Carolina Golfland Plaza NC 1995 May-05 9,604,000 8,206,000(1) 45,654 0.13% 100% 1 Orange, Connecticut Governor's Marketplace RC 2001 Aug-04 32,654,000 20,625,000 231,915 0.64% 97% 21 Tallahassee, Florida Grapevine Crossing RC 2001 Apr-05 23,300,000 12,815,000 125,381 0.35% 100% 10 Grapevine, Texas Great Southwest Crossing NC 2003 Sep-05 16,233,000 9,136,653 92,270 0.26% 100% 22 Grand Prairie, Texas Green's Corner NC 1997 Dec-04 12,768,000 7,022,366 85,271 0.24% 100% 12 Cumming, Georgia Greensburg Commons RC 1999 Apr-05 24,200,000 14,200,000 272,893 0.76% 97% 17 Greensburg, Indiana Gurnee Towne Center RC 2000 Oct-04 44,256,000 24,360,000 179,602 0.50% 96% 26 Gurnee, Illinois PROPERTY MAJOR TENANTS* - ----------------------------------------------------- Gateway Station Kirland's College Station, Texas Talbots Joseph A. Banks Chicos Gateway Village Safeway Annapolis, Maryland Burlington Coat Factory Best Buy Gloucestor Town Center Acme Markets Gloucestor, New Jersey GMAC Insurance Building GMAC Insurance Winston-Salem, North Carolina Golfland Plaza Best Buy Orange, Connecticut Governor's Marketplace Bed, Bath & Beyond Tallahassee, Florida Sports Authority Marshalls Michaels Grapevine Crossing Best Buy Grapevine, Texas Academy Sports Great Southwest Crossing Office Depot Grand Prairie, Texas PETsMART Green's Corner Kroger Cumming, Georgia Greensburg Commons Wal-Mart Supercenter Greensburg, Indiana Gurnee Towne Center Linens 'N Things Gurnee, Illinois Old Navy Borders Books & Music Cost Plus World Market
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ Harris Teeter SU 1977/1995 Sept-04 7,200,000 3,960,000 57,230 0.16% 100% 1 Wilmington, North Carolina Hartford Fire Insurance SU 2005 Aug-05 16,294,000 - 97,377 0.27% 100% 1 Building Maple Grove, Minnesota Harvest Towne Center NC 1996-1999 Sept-04 8,950,000 5,005,000 42,235 0.12% 89% 10 Knoxville, Tennessee Henry Town Center RC 2002 Dec-04 61,397,000 35,577,679 444,296 1.23% 98% 41 McDonough, Georgia Heritage Towne Crossing NC 2002 Mar-04 16,123,000 8,950,000 80,639 0.22% 90% 29 Euless, Texas Hewitt Associates Campus SU 1974-1986 May-05 220,000,000 129,800,000 1,161,686 3.23% 100% 1 Lincolnshire, Illinois Hickory Ridge RC 1999 Jan-04 41,900,000 23,650,000 380,487 1.06% 100% 21 Hickory, North Carolina High Ridge Crossing NC 2004 Mar-05 13,200,000 7,438,500 76,857 0.21% 95% 7 High Ridge, Missouri Hobby Lobby SU 2004 Jan-05 5,500,000 3,025,000 60,000 0.17% 100% 1 Concord, North Carolina Holliday Towne Center NC 2003 Feb-05 14,828,000 8,050,000 83,122 0.23% 85% 8 Duncansville, Pennsylvania Home Depot Center JV 1996 Jun-05 17,705,000 10,446,000(1) 136,123 0.38% 100% 1 Pittsburgh, Pennsylvania Home Depot Plaza JV 1992 Jun-05 28,363,000 16,734,000(1) 135,643 0.38% 97% 3 Orange, Connecticut Huebner Oaks Center RC 1997 & Jun-04 79,721,000 48,000,000 287,219 0.80% 99% 56 San Antonio, Texas 1998 PROPERTY MAJOR TENANTS* - ----------------------------------------------------- Harris Teeter Harris Teeter Wilmington, North Carolina Hartford Fire Insurance Hartford Fire Insurance Building Maple Grove, Minnesota Harvest Towne Center CVS Pharmacy Knoxville, Tennessee Pet Supplies Plus Ruby Tuesday Henry Town Center BJ's Wholesale Club McDonough, Georgia Belk's Heritage Towne Crossing N/A Euless, Texas Hewitt Associates Campus Hewitt Associates Lincolnshire, Illinois Hickory Ridge Best Buy Hickory, North Carolina Kohl's Dick's Sporting Goods High Ridge Crossing Shop'N Save High Ridge, Missouri Warehouse Hobby Lobby Hobby Lobby Concord, North Carolina Holliday Towne Center Martin's Food Duncansville, Pennsylvania Home Depot Center Home Depot Pittsburgh, Pennsylvania Home Depot Plaza Home Depot Orange, Connecticut OfficeMax Huebner Oaks Center Bed, Bath & Beyond San Antonio, Texas
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ Irmo Station NC 1980 & Dec-04 12,800,000 7,085,000 99,619 0.28% 91% 17 Irmo, South Carolina 1985 John's Creek Village RC 2003 & Jun-04 36,224,000 23,300,000 164,882 0.46% 100% 25 Duluth, Georgia 2004 Kaiser Permanente Office SU 2004-2005 Jun-05 59,000,000 32,670,000 100,352 0.28% 100% 1 Buildings Cupertino, California Kohl's/Wilshire Plaza III SU 2004 Nov-04 10,099,000 5,417,500 88,248 0.25% 100% 1 Kansas City, Missouri La Plaza Del Norte RC 1996/1999 Jan-04 59,143,000 32,528,000 320,345 0.89% 96% 17 San Antonio, Texas Lake Forest Crossing NC 2004 Mar-05 7,942,000 4,520,000 28,626 0.08% 97% 17 McKinney, Texas Lake Mary Pointe NC 1999 Oct-04 6,620,000 3,657,500 51,052 0.14% 94% 8 Lake Mary, Florida Lakepointe Towne Crossing RC 2004 May-05 27,569,000 21,714,758 134,804 0.37% 100% 12 Lewisville, Texas Lakewood Towne Center RC 1988 Jun-04 81,100,000 44,000,000 578,761 1.61% 98% 29 Lakewood, Washington Rebuilt 2002-2003 Larkspur Landing RC 1978/2001 Jan-04 61,145,000 33,630,000 172,443 0.48% 93% 40 Larkspur, California Lincoln Park RC 1998 Sept-04 47,515,000 26,153,000 148,806 0.41% 97% 13 Dallas, Texas PROPERTY MAJOR TENANTS* - ----------------------------------------------------- Irmo Station Kroger Irmo, South Carolina John's Creek Village LA Fitness Duluth, Georgia Ross Dress for Less T.J. Maxx Kaiser Permanente Office Kaiser Foundation Buildings Hospitals Cupertino, California Kohl's/Wilshire Plaza III Kohl's Kansas City, Missouri La Plaza Del Norte Oshman's Sporting San Antonio, Texas Goods Best Buy Beall's Lake Forest Crossing Blockbuster Video McKinney, Texas Lake Mary Pointe Publix Lake Mary, Florida Lakepointe Towne Crossing Sportsman's Lewisville, Texas Warehouse Circuit City Ross Dress for Less Lakewood Towne Center Gottschalk's Lakewood, Washington Burlington Coat Factory Larkspur Landing Bed, Bath & Beyond Larkspur, California 24 Hour Fitness Lincoln Park Simon David (Tom Dallas, Texas Thumb) Barnes & Noble The Container Store
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ Lincoln Plaza RC 2001/2004 Sept-05 52,836,000 - 434,377 1.21% 100% 8 Worchester, Massachusetts Low Country Village NC 2004 Jun-04 11,090,000 10,810,000 76,385 0.21% 100% 8 Bluffton, South Carolina Lowe's/Bed, Bath & Beyond RC 2005 Aug-05 23,333,000 - 158,063 0.44% 100% 2 Butler, New Jersey MacArthur Crossing RC 1995 - 1996 Feb-04 23,102,000 12,700,000 111,035 0.31% 100% 30 Los Colinas, Texas Magnolia Square RC 2004 Feb-05 19,114,000 10,265,000 116,049 0.32% 97% 13 Houma, Louisiana Manchester Meadows RC 1994 - 1995 Aug-04 56,200,000 31,064,550 454,172 1.26% 98% 22 Town and Country, Missouri Mansfield Towne Crossing RC 2004 Nov-04 18,322,000 10,982,300 105,286 0.29% 100% 21 Mansfield, Texas Maple Tree Place RC 2004-2005 May-05 102,332,000 60,376,000(1) 486,488 1.35% 100% 34 Williston, Vermont Massillon Village Center RC 1986/2000 Apr-05 18,411,000 10,126,300 245,945 0.68% 90% 14 Massillon, Ohio Maytag Distribution Center SU 2004 Jan-05 23,159,000 12,740,000 750,000 2.08% 100% 1 Iowa City, Iowa McAllen Shopping Center NC 2004 Dec-04 4,150,000 2,455,000 17,625 0.05% 100% 7 McAllen, Texas Mesa Fiesta RC 2004 Dec-04 36,855,000 23,500,000 194,892 0.54% 87% 7 Mesa, Arizona PROPERTY MAJOR TENANTS* - ----------------------------------------------------- Lincoln Plaza Stop & Shop Worchester, Massachusetts Lowe's Target Low Country Village Ross Dress for Less Bluffton, South Carolina Michaels PETsMART Lowe's/Bed, Bath & Beyond Lowe's Butler, New Jersey Bed, Bath & Beyond MacArthur Crossing Stein Mart Los Colinas, Texas Magnolia Square Ross Dress for Less Houma, Louisiana PETsMART Circuit City Manchester Meadows Wal-Mart Town and Country, Home Depot Missouri Mansfield Towne Crossing Ross Dress for Less Mansfield, Texas Staples Pier 1 Imports Maple Tree Place Shaw's Supermarket Williston, Vermont Massillon Village Center Home Depot Massillon, Ohio Food 4 Less Maytag Distribution Center Maytag Iowa City, Iowa McAllen Shopping Center Hollywood Video McAllen, Texas Mesa Fiesta Best Buy Mesa, Arizona Marshalls Borders Books & Music CompUSA
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ Mid-Hudson Center JV 2000 Jul-05 42,637,000 25,156,000(1) 246,366 0.68% 71% 11 Poughkeepsie, New York Midtown Center RC 1986-1987 Jan-05 53,000,000 28,227,617 318,802 0.89% 98% 24 Milwaukee, Wisconsin Mission Crossing RC 2003-2005 Jul-05 16,273,000 13,630,000 149,692 0.42% 99% 16 San Antonio, Texas Renovation Mitchell Ranch Plaza RC 2003 Aug-04 34,000,000 18,700,000 199,554 0.55% 99% 39 New Port Richey, Florida New Forest Crossing RC 2002-2003 Jun-05 17,915,000 10,797,000 146,585 0.41% 100% 11 Houston, Texas Newnan Crossing I & II RC 1999-2004 Dec-03 & 54,735,000 23,766,191 406,510 1.13% 100% 32 Newnan, Georgia Feb-04 Newton Crossroads NC 1997 Dec-04 10,072,000 5,547,622 78,896 0.22% 98% 10 Covington, Georgia North Ranch Pavilions NC 1992 Jan-04 18,468,000 10,157,400 62,812 0.17% 92% 25 Thousand Oaks, California North Rivers Town Center RC 2003 - 2004 Apr-04 20,100,000 11,050,000 141,204 0.39% 100% 16 Charleston, South Carolina Northgate North RC 1999 - 2003 Jun-04 48,455,000 26,650,000 302,095 0.84% 98% 9 Seattle, Washington Northpointe Plaza RC 1991 - 1993 May-04 54,524,000 30,850,000 377,949 1.05% 98% 30 Spokane, Washington Northwoods Center NC 2002 - 2004 Dec-04 17,750,000 11,192,500 88,049 0.24% 100% 20 Wesley Chapel, Florida PROPERTY MAJOR TENANTS* - ----------------------------------------------------- Mid-Hudson Center Home Depot Poughkeepsie, New York Stop & Shop Midtown Center Wal-Mart Milwaukee, Wisconsin Pick 'N Save Mission Crossing Gold's Gym San Antonio, Texas Big Lots Goodwill Industries Mitchell Ranch Plaza Publix New Port Richey, Florida Marshalls Ross Dress for Less New Forest Crossing Ross Dress for Less Houston, Texas 99 Cent Only Store PETsMART Big Lots Newnan Crossing I & II BJ's Wholesale Club Newnan, Georgia Newton Crossroads Kroger Covington, Georgia North Ranch Pavilions Savvy Salon Thousand Oaks, California North Rivers Town Center Ross Dress for Less Charleston, South Carolina Bed, Bath & Beyond Office Depot Babies "R" Us Northgate North Target Seattle, Washington Best Buy Northpointe Plaza Safeway Spokane, Washington Gart Sports Best Buy Northwoods Center Marshalls Wesley Chapel, Florida PETCO
52
% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ The Orchard RC 2004-2005 Jul-05 21,402,000 - 163,529 0.45% 100% 9 New Hartford, New York Sep-05 Oswego Commons RC 2002 - 2004 Nov-04 35,022,000 19,262,100 187,666 0.52% 100% 24 Oswego, Illinois Pacheco Pass NC 2005 Jul-05 25,021,000 - 99,199 0.28% 98% 17 Gilroy, California Page Field Commons RC 1999 May-05 46,507,000 26,853,024 322,546 0.90% 95% 20 Fort Myers, Florida Paradise Valley NC 2002 Apr-04 28,510,000 15,680,500 92,158 0.26% 82% 18 Marketplace Phoenix, Arizona Pavilion at King's Grant NC 2002/2003 Dec-03 9,714,000 5,342,000 79,109 0.22% 100% 7 Concord, North Carolina Peoria Crossings I & II RC 2002 - 2005 Mar-04 42,082,000 20,497,400 228,576 0.64% 98% 23 Peoria, Arizona May-05 PETsMART Distribution SU 2004-2005 Jul-05 42,762,000 - 1,000,350 2.78% 100% 1 Center Ottawa, Illinois Phenix Crossing NC 2004 Dec-04 10,065,000 5,535,000 56,563 0.16% 95% 9 Phenix City, Alabama Pine Ridge Plaza RC 1998 - 2004 Jun-04 26,982,000 14,700,000 230,047 0.64% 100% 14 Lawrence, Kansas Placentia Town Center RC 1973/2000 Dec-04 24,865,000 13,695,000 110,962 0.31% 100% 21 Placentia, California Plaza at Marysville RC 1995 Jul-04 21,266,000 11,800,000 115,956 0.32% 97% 26 Marysville, Washington PROPERTY MAJOR TENANTS* - ----------------------------------------------------- The Orchard Kohl's New Hartford, New York Marquee Cinema Oswego Commons Dominick's Oswego, Illinois T.J. Maxx OfficeMax Pacheco Pass Best Buy Gilroy, California Linens 'N Things Page Field Commons Linens 'N Things Fort Myers, Florida Toys "R" Us Best Buy Paradise Valley Mrs. Gooch's (Whole Marketplace Foods) Phoenix, Arizona CVS Pharmacy Pavilion at King's Grant Toys "R" Us Concord, North Carolina Olive Garden Peoria Crossings I & II Kohl's Peoria, Arizona Ross Dress for Less Michaels PETsMART Distribution PETsMART Center Ottawa, Illinois Phenix Crossing Publix Phenix City, Alabama Pine Ridge Plaza T.J. Maxx Lawrence, Kansas Bed, Bath & Beyond Kohl's Placentia Town Center Ross Dress for Less Placentia, California OfficeMax Bank of America Plaza at Marysville Safeway Marysville, Washington
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ Plaza at Riverlakes RC 2001 Oct-04 17,000,000 9,350,000 102,836 0.29% 98% 21 Bakersfield, California Plaza Santa Fe II RC 2000 - 2002 Jun-04 30,971,000 17,227,663 222,389 0.62% 98% 21 Santa Fe, New Mexico Pleasant Run Towne Center RC 2004 Dec-04 37,864,000 22,800,000 211,302 0.59% 100% 25 Cedar Hill, Texas Promenade at Red Cliff NC 1997 Feb-04 19,537,000 10,590,000 94,456 0.26% 89% 17 St. George, Utah Publix SU 2004 Apr-05 7,970,000 4,384,000 44,271 0.12% 100% 1 Mountain Brook, Alabama Quakertown NC 2004-2005 Sep-05 12,665,000 - 61,832 0.17% 100% 5 Quakertown, Pennsylvania Rasmussen College Office SU 2005 Aug-05 5,175,000 - 26,660 0.07% 100% 1 Center Brooklyn Park, Minnesota Raytheon Office and SU 2001 Aug-05 20,069,000 - 105,000 0.29% 100% 1 Research and Development Renovated Building State College, Pennsylvania Reisterstown Road Plaza JV 1986/2004 Aug-04 95,422,000 49,650,000 784,278 2.18% 99% 84 Baltimore, Maryland Saucon Valley Square NC 1999 Sept-04 16,043,000 8,850,900 80,695 0.22% 100% 14 Bethlehem, Pennsylvania Shaw's Supermarket SU 1995 Dec-03 13,656,000 6,450,000 65,658 0.18% 100% 1 PROPERTY MAJOR TENANTS* - ----------------------------------------------------- Plaza at Riverlakes Save Mart Bakersfield, California Supermarkets Plaza Santa Fe II Linens 'N Things Santa Fe, New Mexico Best Buy T.J. Maxx Pleasant Run Towne Center Oshman's Sporting Cedar Hill, Texas Goods Circuit City Bed, Bath & Beyond Michaels Promenade at Red Cliff Staples St. George, Utah Old Navy Big 5 Sporting Goods Publix Publix Mountain Brook, Alabama Quakertown Giant Food Stores Quakertown, Pennsylvania Rasmussen College Office Rasmussen College Center System Brooklyn Park, Minnesota Raytheon Office and Raytheon Company Research and Development Building State College, Pennsylvania Reisterstown Road Plaza Home Depot Baltimore, Maryland Dept. of Public Safety National Wholesale Liquidators Saucon Valley Square Super Fresh Food Bethlehem, Pennsylvania Market Shaw's Supermarket Shaw's Supermarket
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ New Britain, Connecticut Shoppes at Lake Andrew RC 2003 Dec-04 28,300,000 15,656,511 144,733 0.40% 99% 17 Viera, Florida The Shoppes at Park West NC 2004 Nov-04 12,047,000 6,655,000 64,832 0.18% 100% 13 (Publix Center) Mount Pleasant, South Carolina Shoppes at Quarterfield NC 1999 Jan-04 11,031,000 6,067,183 61,817 0.17% 96% 2 (Metro Square Center) Severn, Maryland Shoppes of New Hope NC 2004 Jul-04 13,052,000 7,178,700 70,610 0.20% 100% 17 (Shoppes of Dallas) Dallas, Georgia Shoppes of Prominence NC 2004 Jun-04 15,155,000 9,954,300 78,058 0.22% 95% 16 Point Canton, Georgia Shoppes of Warner Robins NC 2004 Jun-05 13,246,000 7,286,000 70,747 0.20% 91% 16 Warner Robins, Georgia Shops at 5 RC 2005 Jun-05 68,100,000 - 417,856 1.16% 100% 22 Plymouth, Massachusetts The Shops at Boardwalk RC 2003 & Jul-04 36,642,000 20,150,000 122,876 0.34% 89% 26 Kansas City, Missouri 2004 Shops at Forest Commons NC 2002 Dec-04 7,505,000 5,199,348 34,756 0.10% 92% 15 Round Rock, Texas Shops at Park Place RC 2001 Oct-03 24,000,000 13,127,000 116,300 0.32% 98% 10 Plano, Texas PROPERTY MAJOR TENANTS* - ----------------------------------------------------- New Britain, Connecticut Shoppes at Lake Andrew Ross Dress for Less Viera, Florida Linens 'N Things The Rag Shop The Shoppes at Park West Publix (Publix Center) Mount Pleasant, South Carolina Shoppes at Quarterfield Shoppers Food (Metro Square Center) Warehouse Severn, Maryland Shoppes of New Hope Publix (Shoppes of Dallas) Dallas, Georgia Shoppes of Prominence Publix Point Canton, Georgia Shoppes of Warner Robins Publix Warner Robins, Georgia Shops at 5 BJ's Wholesale Club Plymouth, Massachusetts Kohl's T.J. Maxx The Shops at Boardwalk Borders Books & Kansas City, Missouri Music Shops at Forest Commons Blockbuster Video Round Rock, Texas Shops at Park Place Bed, Bath & Beyond Plano, Texas Michaels OfficeMax Walgreens
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ Southgate Plaza NC 1998-2002 Mar-05 12,253,000 6,740,000 85,920 0.24% 100% 7 Heath, Ohio Southlake Town Square RC 1998-2004 Dec-04 138,138,000 81,000,000 460,177 1.28% 94% 148 Southlake, Texas Southpark Meadows RC 2004 Jul-05 20,969,000 - 254,508 0.71% 100% 14 Austin, Texas Southwest Crossing RC 1999 Jun-05 24,900,000 - 113,627 0.32% 99% 15 Fort Worth, Texas Sprint Data Center SU 2001 Sep-05 95,700,000 52,800,000 185,000 0.51% 86% 1 Santa Clara, California Stanley Works/Mac Tools SU 2004 Jan-05 10,000,000 5,500,000 72,500 0.20% 100% 1 Westerville, Ohio Stateline Station RC 2003-2004 Mar-05 32,000,000 17,600,000 141,686 0.39% 93% 17 High Ridge, Missouri Stilesboro Oaks NC 1997 Dec-04 12,640,000 6,951,971 80,772 0.22% 100% 13 Acworth, Georgia Stonebridge Plaza NC 1997 Aug-05 7,251,000 - 33,700 0.09% 100% 16 McKinney, Texas Stony Creek Marketplace RC 2003 Dec-03 25,750,000 14,162,000 153,796 0.43% 100% 20 Noblesville, Indiana Tollgate Marketplace JV 1979/1994 Jul-04 72,300,000 39,765,000 392,599 1.09% 100% 34 Bel Air, Maryland Towson Circle JV 1998 Jul-04 28,450,000 15,647,500 108,679 0.30% 100% 14 Towson, Maryland Trenton Crossing RC 2003 Feb-05 29,696,000 19,307,037 215,860 0.60% 100% 20 PROPERTY MAJOR TENANTS* - ----------------------------------------------------- Southgate Plaza Best Buy Heath, Ohio Office Depot Michaels Southlake Town Square N/A Southlake, Texas Southpark Meadows Wal-Mart Austin, Texas Southwest Crossing CompUSA Fort Worth, Texas Cavender's Sprint Data Center Sprint Santa Clara, California Stanley Works/Mac Tools Mac Tools Westerville, Ohio Stateline Station Linens 'N Things High Ridge, Missouri Cost Plus World Market PETCO Stilesboro Oaks Kroger Acworth, Georgia Stonebridge Plaza Stonebridge Dental McKinney, Texas Stony Creek Marketplace T.J. Maxx Noblesville, Indiana Linens 'N Things Barnes & Noble Tollgate Marketplace Giant Food Bel Air, Maryland Jo Ann Fabrics Towson Circle Barnes & Noble Towson, Maryland Trader Joe's East Bally's Total Fitness Pier 1 Imports Trenton Crossing Hobby Lobby
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ McAllen, Texas University Square RC 2003 May-05 54,481,000 29,964,767 287,159 0.80% 65% 15 University Heights, Ohio University Town Center NC 2002 Nov-04 10,569,000 5,810,000 57,250 0.16% 95% 14 Tuscaloosa, Alabama Vail Ranch RC 2004 - 2005 Apr-05 24,525,000 13,488,798 101,784 0.28% 100% 12 Temecula, California The Village at Quail RC 2003-2004 Feb-05 10,429,000 5,740,000 100,404 0.28% 100% 2 Springs Oklahoma City, Oklahoma Village Shoppes at NC 2004 Aug-04 13,750,000 7,561,700 66,415 0.18% 89% 10 Simonton Lawrenceville, Georgia Walgreens SU 2000 Apr-05 5,850,000 3,217,500 16,335 0.05% 100% 1 Northwoods, Missouri Walgreens SU 1999 Apr-05 4,415,000 2,600,000 13,905 0.04% 100% 1 West Allis, Wisconsin Wal-Mart Supercenter SU 1999 Jul-04 13,248,000 7,100,000 183,047 0.51% 100% 1 Blytheville, Arkansas Wal-Mart Supercenter SU 1997 Aug-04 11,071,000 6,088,500 149,704 0.42% 100% 1 Jonesboro, Arkansas Watauga Pavilion RC 2003/2004 May-04 35,668,000 19,617,000 205,259 0.57% 98% 19 Watauga, Texas PROPERTY MAJOR TENANTS* - ----------------------------------------------------- McAllen, Texas Ross Dress for Less Marshalls Beall's University Square Tops Market University Heights, Ohio T.J. Maxx Jo Ann Fabrics University Town Center Publix Tuscaloosa, Alabama Vail Ranch Henry's Marketplace Temecula, California Sportmart PETsMART The Village at Quail Gordman's Springs Best Buy Oklahoma City, Oklahoma Village Shoppes at Publix Simonton Lawrenceville, Georgia Walgreens Walgreens Northwoods, Missouri Walgreens Walgreens West Allis, Wisconsin Wal-Mart Supercenter Wal-Mart Supercenter Blytheville, Arkansas Wal-Mart Supercenter Wal-Mart Supercenter Jonesboro, Arkansas Watauga Pavilion Oshman's Sporting Watauga, Texas Goods Ross Dress for Less Bed, Bath & Beyond
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% OF MORTGAGE GROSS TOTAL APPROXIMATE PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE PURCHASE SEPTEMBER 8, AREA (SQ. LEASABLE OCCUPANCY NO. OF PROPERTY TYPE RENOVATED ACQUIRED PRICE ($) 2005 ($) FT.) AREA % TENANTS - ------------------------------------------------------------------------------------------------------------------------------------ West Town Market NC 2004 Jun-05 10,250,000 6,047,500 67,940 0.19% 99% 11 Fort Mill, South Carolina Wickes Furniture Store SU 2005 May-05 8,488,000 4,964,000 41,331 0.11% 100% 1 Naperville, Illinois Wild Oats Marketplace SU 2000 Jul-05 13,580,000 - 48,000 0.13% 100% 1 Hinsdale, Illinois Wilton Square JV 2000 Jul-05 47,161,000 27,825,000(1) 438,097 1.22% 99% 17 Saratoga Springs, New York Winchester Commons NC 1999 Nov-04 13,023,000 7,235,000 93,024 0.26% 98% 15 Memphis, Tennessee Wrangler SU 1993 Jul-04 18,477,000 11,300,000 316,800 0.88% 100% 1 El Paso, Texas Zurich Towers SU 1988 - 1990 Nov-04 138,000,000 81,420,000 895,418 2.49% 100% 1 Schaumburg, Illinois ------------- ------------- ---------- ----- ----- PORTFOLIO TOTAL 6,159,073,000 3,218,796,840 35,976,381 100% 2,860 ===================================================== ===== PROPERTY MAJOR TENANTS* - ----------------------------------------------------- West Town Market Harris Teeter Fort Mill, South Carolina Wickes Furniture Store Wickes Furniture Store Naperville, Illinois Wild Oats Marketplace Wild Oats Marketplace Hinsdale, Illinois Wilton Square Home Depot Saratoga Springs, New York Target Price Chopper Winchester Commons Kroger Memphis, Tennessee Wrangler Wrangler El Paso, Texas Zurich Towers Zurich American Schaumburg, Illinois Insurance Company PORTFOLIO TOTAL
* Major tenants include tenants leasing more than 10% of the gross leasable area of the individual property. NC Neighborhood and Community Retail Shopping Center SU Single-User Property RC Retail Shopping Center D Development Project JV Joint Venture (1) We obtained a loan totaling $232,408,000 on these ten properties. (2) We obtained a loan totaling $6,188,000 on these three CVS Pharmacies. (3) We obtained a loan totaling $7,212,548 on these two CVS Drug Stores and these two Eckerd Drug Stores. The table above represents book value to include land, building and improvements, site improvements and acquired intangibles In addition to the properties listed above, we consolidate one 124-unit apartment property, Cardiff Hall East and one retail property, North Plaza Shopping Center, in which we made an investment through a joint venture arrangement on October 15, 2004 and December 23, 2004, respectively. These properties, which are located in Towson, Maryland and Parkville, Maryland, have mortgage payables with balances of $5,080,536 and $30,800,000 at June 30, 2005, respectively. We have ownership interests ranging between 52% and 95% in the limited liability companies or limited partnerships which own Gateway Village, Boulevard at the Capital Centre, Towson Circle, Reisterstown Road Plaza, Tollgate Marketplace, Chantilly Crossing, Gloucester Town Center, Home Depot Center, Home Depot Plaza, Century III Plaza and Southlake Town Square Building 3C. 58 THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 110 OF OUR PROSPECTUS, IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION REGARDING PROPERTIES WE HAVE ACQUIRED OR INTEND TO ACQUIRE. DESCRIPTION OF PROPERTIES
Approximate Gross Physical Acquisition Costs Leasable Occupancy Including Area as of No. of Property Year Built Expenses ($) * (Sq. Ft.) 09/01/05 Tenants Major Tenants - ----------------------------------------------------------------------------------------------------------------- Shops on Lake Avenue 2002 39,145,000 132,205 96 23 Stein Mart 455 South Lake Ave. Organized Living Pasadena, CA (1) Linens 'N Things 2002/2003 38,452,000 186,520 65 4 Circuit City Greenwich Center Linens 'N Things 1208 New Brunswick Avenue Staples Phillipsburg, NJ (2) Michaels Golfsmith 1992 4,500,000 14,920 100 1 Golfsmith 297 State Road 436 Renovated in Altamonte Springs, FL 2005 Montecito Crossing 2004/2005 51,414,000 185,522 84 21 Homegoods I-215 and North PETsMART Durango Drive Las Vegas, NV Ridge Tool Company 2005 7,700,000 128,537 100 1 Ridge Tool Company Distribution Facility 9877 Brick Church Road Cambridge, OH Mountain View 2003-2005 25,224,000 161,834 100 11 Borders U.S. Highway 93 and West Ross Stores Reserve Road TJX Companies Kalispell, MT (3)
* Our acquisition costs may increase by additional costs, which have not yet been finally determined. We expect any additional costs to be insignificant. ** Major tenants include tenants leasing more than 10% of the gross leasable area of the individual property. (1) We anticipate purchasing this property with our own funds and assumption of the existing mortgage debt of approximately $30,621,800. The loan requires monthly principal and interest payments based on a fixed interest rate of 5.02% and mature in March 2034. (2) We anticipate that the initial closing for a portion of the shopping center is expected to be for 106,115 gross leasable square feet at a purchase price of approximately $20,637,000. The occupancy percentage represents the estimated occupancy of the entire shopping center as if we purchased it completely based on tenant commitments to rent space. The remaining 80,405 gross leasable square feet is expected to close at a later date after development of several tenants' space has been completed by the seller, and the tenants occupy their 59 respective spaces and rent has commenced for the tenants. (3) We anticipate that the initial closing for a portion of the shopping center is expected to be for 106,334 gross leasable square feet at a purchase price of approximately $17,234,000. The occupancy percentage represents the estimated occupancy of the entire shopping center as if we purchased it completely based on tenant commitments to rent space. The remaining 55,500 gross leasable square feet is expected to close at a later date after development of several tenants' space has been completed by the seller, and the tenants occupy their respective spaces and rent has commenced for the tenants. POTENTIAL PROPERTY ACQUISITIONS We are currently considering acquiring the properties listed below. Our decision to acquire these properties will generally depend upon: - no material adverse change occurring relating to the properties, the tenants or in the local economic conditions; - our receipt of sufficient net proceeds from this offering and financing proceeds to make these acquisition; and - our receipt of satisfactory due diligence information including appraisals, environmental reports and lease information. Other properties may be identified in the future that we may acquire before or instead of these properties. We cannot guarantee that we will complete these acquisitions. In evaluating these properties as potential acquisitions and determining the appropriate amount of consideration to be paid for each property, we have considered a variety of factors including, overall valuation of net rental income, location, demographics, quality of tenant, length of lease, price per square foot, occupancy and the fact that overall rental rate at the shopping center is comparable to market rates. We believe that these properties are well located, have acceptable roadway access, are well maintained and have been professionally managed. These properties will be subject to competition from similar shopping centers within their market area, and their economic performance could be affected by changes in local economic conditions. We did not consider any other factors materially relevant to our decision to acquire these properties. SINGLE-USER PORTFOLIO We anticipate purchasing 25 single-user tenant buildings containing a total of approximately 1,896,968 gross leasable square feet for approximately $221.8 million. The single-user buildings are located in the western region of the United States. We intend to purchase these single-user buildings with our own funds. However, we expect to place financing on these single-user buildings at a later date. We do not intend to make significant repairs and improvements to these single-user buildings in this portfolio over the next few years. However, if we were to make any repairs or improvements, the tenant would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. The properties in this portfolio were constructed during different years ranging between 1973 through 1994. As of September 1, 2005, all single-user buildings are 100% occupied. In general, the tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with this tenant may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 60 In addition to the above, we are also considering the following:
Approximate Acquisition Costs Gross Physical Including Leasable Occupancy Expenses Area as of No. of Property Year Built ($) * (Sq. Ft.) 09/01/05 Tenants Major Tenants - ---------------------------------------------------------------------------------------------------------------- Red Bug Village 2004 8,252,000 23,800 95 10 Stonewood Grill Red Bug & Dodd Road Studio U Orlando, FL Moe's Southwest Grill Bangor Broadway 1961 15,235,000 183,079 91 16 Shop & Save 653 Broadway Renovated T.J. Maxx & More Bangor, ME 2000/ 2002 Eckerd Drug Store 2004 6,394,000 13,813 100 1 Eckerd Drug Store 7719 Main Street Fogelsville, PA Village Shoppes of Gainsville 2005 43,789,000 229,838 89 36 Publix 889 Dawsonville Hwy. Ross Dress for Gainsville, GA (1) Less Marshalls Duck Creek Plaza 2005 24,450,000 138,339 87 16 Schnucks Middle & Kimberly Roads Marshalls Bettendorf, IA (2) AM (Alta Mere) 2004 8,973,000 41,308 69 5 Office Max Crossing Alta Mere (State Hwy. 183 & Green Oaks White Settlement, TX (3) Riverpark Shopping Center 2003/2004 - 71,013,000 308,405 100%- 34 HEB Grocery Store - US Highway 59 and Grand Phase I Phase 1- Phase I Phase I Parkway 2005/2006 - 186,405 sf only Gander Mountain Sugarland, TX (4) Phase II Phase II- Phase II Phase II 122,000 sf in Develo- pment Beekman Stop 'N Shop 1995/ 2005 14,200,000 101,600 95 1 Stop 'N Shop 727 Beekman Road Renovation Beekman, NY (5) Battle Ridge Pavilion 1999 17,940,000 103,517 97 21 Kroger 1690 Powder Springs Rd. Powder Springs, GA
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Approximate Acquisition Costs Gross Physical Including Leasable Occupancy Expenses Area as of No. of Property Year Built ($) * (Sq. Ft.) 09/01/05 Tenants Major Tenants - ---------------------------------------------------------------------------------------------------------------- Colony Square 1998 45,200,000 435,249 99 17 Finger Furniture 16510 Southwest Freeway Academy Outdoors Sugarland, TX Lowe's (Ground Lease) Eckerd Drug Store 1997 2,338,000 12,000 100 1 Eckerd Drug Store 11204-08 Olean Road Yorkshire, NY (6) Eckerd Drug Store 1998 3,705,000 10,908 100 1 Eckerd Drug Store 2585 Main Street Buffalo, NY (6) Eckerd Drug Store 1999 4,949,000 10,908 100 1 Eckerd Drug Store 3249 Sheridan Drive Amherst, NY (6) Eckerd Drug Store 1999 3,609,000 10,908 100 1 Eckerd Drug Store 2561-63 Union Road Cheektowaga, NY (6) Eckerd Drug Store 1999 4,180,000 10,908 100 1 Eckerd Drug Store 265 N. Union Street Olean, NY (6) Eckerd Drug Store 1999 2,838,000 10,908 100 1 Eckerd Drug Store 2325 Grand Island Boulevard Grand Island, NY (6) Eckerd Drug Store 2001 4,341,000 12,738 100 1 Eckerd Drug Store 4155 W. Main Street Batavia, NY (6) Eckerd Drug Store 2000 2,867,000 10,908 100 1 Eckerd Drug Store 4374 Buffalo Road North Chili, NY (6) Eckerd Drug Store 2000 4,040,000 12,738 100 1 Eckerd Drug Store 47 Niagara Street Tonawanda, NY (6) Eckerd Drug Store 2000 4,081,000 10,908 100 1 Eckerd Drug Store 1454 Union Rd. West Seneca, NY (6) Eckerd Drug Store 1999 3,044,000 10,908 100 1 Eckerd Drug Store 4937 Transit Rd. Lancaster, NY (6)
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Approximate Acquisition Costs Gross Physical Including Leasable Occupancy Expenses Area as of No. of Property Year Built ($) * (Sq. Ft.) 09/01/05 Tenants Major Tenants - ---------------------------------------------------------------------------------------------------------------- Eckerd Drug Store 2000 3,746,000 10,908 100 1 Eckerd Drug Store 291 W. Ferry Street Buffalo, NY (6) Eckerd Drug Store 2001 5,472,000 13,198 100 1 Eckerd Drug Store 1490 Lake Avenue Rochester, NY (6) (7) Eckerd Drug Store 2001 4,050,000 10,908 100 1 Eckerd Drug Store 821 Culver Rd. Rochester, NY (6) Eckerd Drug Store 1998 3,282,000 10,908 100 1 Eckerd Drug Store 4433 Dewey Avenue Greece, NY (6) Eckerd Drug Store 2002 4,903,000 12,738 100 1 Eckerd Drug Store 689 E. Ridge Road Irondequoit, NY (6) Eckerd Drug Store 2002 4,630,000 13,824 100 1 Eckerd Drug Store 459 S. Transit Street Lockport, NY (6) Eckerd Drug Store 2002 4,105,000 10,908 100 1 Eckerd Drug Store 173 Fairview Avenue Hudson, NY (6) Eckerd Drug Store 2003 5,528,000 13,824 100 1 Eckerd Drug Store 8530 Transit Road Amherst, NY (6) Eckerd Drug Store 2004 4,756,000 13,813 100 1 Eckerd Drug Store 5137 North Road Canadalgua, NY (6) Eckerd Drug Store 2003 4,721,000 13,813 100 1 Eckerd Drug Store 850 Harlem Road West Seneca, NY (6) Eckerd Drug Store 2004 4,867,000 13,824 100 1 Eckerd Drug Store 601 E. Main Street Batavia, NY (6) Tim Horton's Donut Shop 2004 513,000 2,790 100 1 Tim Horton's 5137 North Road Donut Shop Canadalgua, NY (6)
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Approximate Acquisition Costs Gross Physical Including Leasable Occupancy Expenses Area as of No. of Property Year Built ($) * (Sq. Ft.) 09/01/05 Tenants Major Tenants - ---------------------------------------------------------------------------------------------------------------- Wickes Furniture Store 2005 8,380,000 37,329 100 1 Wickes Furniture Los Alamos & I-215 Murrieta, CA
* Our acquisition costs may increase by additional costs, which have not yet been finally determined. We expect any additional costs to be insignificant. ** Major tenants include tenants leasing more than 10% of the gross leasable area of the individual property. (1) We funded a first mortgage loan in the amount of $39,000,000 at a 6.73% annual interest rate to the owner of this property. (2) The initial closing is expected to be for 119,753 gross leasable square feet and the occupancy percentage represents the estimated occupancy of the entire shopping center as if we purchased it completely. The remaining 18,586 gross leasable square feet is expected to close at a later date when the tenants sign their leases, occupy their space and rent has commenced for the tenants. (3) The initial closing is expected to be for 28,620 gross leasable square feet and the occupancy percentage represents the estimated occupancy of the entire shopping center as if we purchased it completely. The remaining 12,688 gross leasable square feet are expected to close at a later date after the development of one tenant's space has been completed by the seller, the tenants have leased and occupy their respective spaces and rent has commenced for the tenants. (4) The property is being developed in two phases. The initial closing of the first phase is expected to be for 186,405 gross leasable square feet and the occupancy percentage represents the estimated occupancy of the first phase. The second phase containing 122,000 gross leasable square feet is expected to close at a later date after the development of several tenants' space has been completed by the seller, the tenants occupy their respective spaces and rent has commenced for the tenants. (5) The property is being renovated. The initial closing will be for 75,600 gross leasable square feet plus adjacent land. The remaining 26,000 gross leasable square feet is expected to close at a later date once development has been completed and the tenant has commenced their rent payment. The occupancy percentage represents the estimated occupancy of the entire shopping center as if we purchased it completely. (6) The properties will be purchased from the same unaffiliated seller. (7) The purchase price and gross leasable area include a 460 square feet area for ATMs. As of September 8, 2005, we have approximately $576,191,000 in potential acquisitions and we believe, based in part on projected sales of our common stock, that cash on hand and future financings will provide us with sufficient cash to close these properties at the time of their projected closings. TERMINATED CONTRACTS Our Board of Directors previously approved the acquisition of Albertson's Grocery Store in Loveland, Colorado, Mall 205 and Plaza 205 in Portland, Oregon, Eckerd Drug Store in Danforth and Santa Fe in Edmond, Oklahoma, Casa Paloma in Chandler, Arizona (disclosed as probable) Woodbury Village Shopping Center in Woodbury, Minnesota (disclosed as probable), Shaw's Supermarket in Bristol, Connecticut (disclosed as probable), Peoria Station in (disclosed as probable), Thunderbird Crossing in Peoria, Arizona (disclosed as probable), Poinciana Place in Kissimmee, Florida (disclosed as probable), Cross Creek Shopping Center in Memphis, Tennessee (disclosed as probable), Advance Auto Parts in Harker Heights, San Antonio and Schueter, Texas (disclosed as probable), Vintage Plaza in Round Rock, Texas (disclosed as probable), Eckerd Drug Store in Augusta, Georgia, Metro Town Center in Phoenix, Arizona and Software AG Building in Highlands Ranch, California. Based on information received during our due diligence process, we have decided not to acquire the properties and our affiliate has terminated the contracts on these acquisitions. TENANT LEASE EXPIRATION The following table sets forth for leases in place as of September 8, 2005, lease expirations for the next ten years at our properties, assuming that no renewal options are exercised. For purposes of the table, the "total annual base rental income" column represents annualized base rent of each tenant as of January 1 of each year. Therefore, as each lease expires, no amount is included in this column for any subsequent year for that lease. In view of the assumption made with regard to total annual base rent, the percent of annual base rent represented by expiring leases may not be reflective of the expected actual percentages. 64
Average Base Rental Approx. Gross % Total of Total Annual % of Total Income Per Leasable Area Portfolio Gross Base Rental Annual Base Square Foot Number of Expiring Leasable Area Income of Rental Income Total Annual Under Year Ending of Leases Leases Represented by Expiring Represented by Base Rental Expiring December 31 Expiring (Sq. Ft.) Expiring Leases Leases ($) Expiring Leases Income ($) Leases ($) - ------------------------------------------------------------------------------------------------------------------------------ Consolidated 2005 60 109,165 0.3% 2,261,131 0.5% 444,079,210 20.71 2006 210 669,265 1.9% 11,182,116 2.5% 445,384,409 16.71 2007 317 875,267 2.4% 16,495,453 3.8% 437,455,982 18.85 2008 380 1,274,130 3.5% 22,722,580 5.4% 424,197,946 17.83 2009 493 1,919,093 5.3% 33,542,789 8.3% 405,363,143 17.48 2010 278 1,401,561 3.9% 23,385,810 6.2% 376,338,401 16.69 2011 133 1,456,799 4.0% 22,610,810 6.4% 354,112,776 15.52 2012 156 1,356,175 3.8% 21,423,087 6.4% 333,103,219 15.80 2013 208 2,231,762 6.2% 30,428,095 9.7% 312,869,485 13.63 2014 263 5,725,528 15.9% 74,017,172 26.1% 283,782,176 12.93
TENANT CONCENTRATION The following table sets forth information regarding the twenty individual tenants at our properties comprising the greatest gross leasable area and greatest 2005 annualized base rent based on the properties owned as of September 8, 2005.
% OF GROSS TOTAL TOTAL LEASABLE GROSS NUMBER OF AREA (SQ. LEASABLE ANNUAL BASE TENANT NAME PROPERTIES FT.) AREA RENT - ------------------------------------------------------------------------------------------------------ INDIVIDUAL TENANT CONCENTRATIONS (MGMT. CRITERIA TOP 20 OF GLA AND ANNUALIZED BASE RENT IN ORDER OF GLA AND ANNUAL BASE RENT) American Express 8 2,597,095 7.22% 25,319,196 PETsMART 24 1,493,128 4.15% 9,220,207 Wal-Mart 7 1,254,150 3.49% 7,384,174 Hewitt Associates 1 1,161,686 3.23% 15,106,283 Home Depot 9 1,097,025 3.05% 8,562,600 Zurich American Insurance Company 1 895,418 2.49% 8,883,864 Best Buy 19 816,358 2.27% 11,284,543 Maytag 1 750,000 2.08% 1,726,500 Ross Dress for Less 24 711,090 1.98% 7,275,056 Kohl's 8 695,868 1.93% 4,280,014 Circuit City 10 684,684 1.90% 7,911,832 Linens 'N Things 19 594,045 1.65% 7,408,361 Publix 14 590,110 1.64% 6,350,600 Bed, Bath & Beyond 19 536,733 1.49% 7,194,107 GMAC 1 501,064 1.39% 5,164,449 Michaels 19 440,402 1.22% 4,980,064 T.J. Maxx 14 439,477 1.22% 4,353,326 Stop & Shop 7 436,873 1.21% 8,782,961 Target 3 396,958 1.10% 1,500,000 BJ's Wholesale Warehouse 3 350,750 0.97% 3,337,545 Pier 1 Imports 29 296,739 0.82% 5,278,774 Edwards Megaplex Theater 2 219,214 0.61% 6,030,998
65 PROPERTY ALLOCATION The following table provides a summary of the properties in our investment portfolio by type of investment and by state as of September 8, 2005.
% OF TOTAL % OF GROSS GROSS ANNUALIZED ANNUALIZED TOTAL LEASABLE LEASABLE BASE RENTAL BASE RENTAL DESCRIPTION NUMBER AREA (SQ. FT.) AREA INCOME INCOME PORTFOLIO ALLOCATION BY TYPE Neighborhood and Community Retail 53 3,608,481 10.0% 53,200,939 12.0% Shopping Center Single-User Property 66 10,356,637 28.8% 103,883,734 23.4% Retail Shopping Center 81 18,473,642 51.4% 241,133,478 54.2% Joint Venture 13 3,537,621 9.8% 46,484,540 10.4% --------------------------------------------------------------------- Total 213 35,976,381 100.0% 444,702,691 100.0% =====================================================================
*See our prospectus dated December 21, 2004, pages 113 through 114 for a description of what constitutes these types of properties. **In addition to the properties listed above, we consolidate one 124-unit apartment property, Cardiff Hall East and one retail property, North Plaza Shopping Center in which we made an investment through a joint venture arrangement on October 15, 2004 and December 23, 2004, respectively. PORTFOLIO ALLOCATION BY STATE Alabama 6 255,849 0.7% 3,795,977 0.9% Arizona 7 1,393,912 3.9% 18,709,958 4.3% California 12 1,700,931 4.7% 31,608,004 7.1% Connecticut 5 436,136 1.2% 7,303,299 1.6% Florida 14 1,986,254 5.5% 24,962,734 5.6% Georgia 12 1,633,060 4.5% 19,013,952 4.3% Illinois 10 4,154,189 11.6% 44,607,221 10.0% Maryland 7 2,113,097 5.9% 31,099,211 7.0% Massachusetts 5 1,156,474 3.2% 14,784,986 3.3% Missouri 6 900,174 2.5% 10,907,822 2.4% New York 7 1,334,618 3.7% 18,210,848 4.1% North Carolina 7 1,481,091 4.1% 14,423,192 3.2% Ohio 6 926,537 2.6% 7,499,837 1.7% Oklahoma 6 163,681 0.5% 2,289,027 0.5%
66
% OF TOTAL % OF GROSS GROSS ANNUALIZED ANNUALIZED TOTAL LEASABLE LEASABLE BASE RENTAL BASE RENTAL DESCRIPTION NUMBER AREA (SQ. FT.) AREA INCOME INCOME Pennsylvania 11 1,080,183 3.0% 13,672,563 3.1% South Carolina 11 1,125,626 3.1% 12,474,696 2.8% Tennessee 5 333,418 0.9% 4,222,884 0.9% Texas 37 4,949,128 13.8% 68,332,617 15.4% Washington 4 1,374,761 3.8% 15,057,741 3.4% Other 35 7,477,262 20.8% 81,726,122 18.4% --------------------------------------------------------------------- Total 213 $35,976,381 100% 444,702,691 100% =====================================================================
67 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis relates to the six months ended June 30, 2005 and 2004. You should read the following discussion and analysis along with our Consolidated Financial Statements and the related notes included in this report. All dollar amounts are stated in thousands, except per share amounts. Overview Inland Western Retail Real Estate Trust, Inc. is a real estate investment trust or REIT which was formed in March of 2003 to acquire and manage a diversified portfolio of real estate, primarily multi-tenant shopping centers and single-user net lease properties. As of June 30, 2005, our portfolio consisted of 177 properties wholly-owned by us or the wholly-owned properties, 10 properties of which we own between 52% and 95% or the majority-owned joint venture properties and two additional joint venture properties (Cardiff Hall East and North Plaza Shopping Center) which we also consolidate and classify as other joint venture properties. Subsequent discussion of our portfolio generally excludes the other joint venture properties as they are considered restricted assets. These assets are considered restricted because our joint venture partner is exclusively entitled to the economic benefits of the assets. The properties in our portfolio (excluding the other joint venture properties) are located in 35 states and one Canadian province. At June 30, 2005, the portfolio (excluding the other joint venture properties) consisted of 132 multi-tenant shopping centers and 55 free-standing single-user net lease properties containing an aggregate of approximately 31,500,000 square feet of gross leasable area or GLA, of which approximately 97% of GLA was leased. Our anchor tenants include nationally and regionally recognized financial companies, grocers, and tenants who provide basic household goods and services. Of our total annualized portfolio revenue, approximately 54% is generated by anchor or credit tenants, including American Express, Zurich Insurance Company, Best Buy, Ross Dress for Less, Bed, Bath & Beyond, GMAC, Wal-Mart, Publix Supermarket, and several others. The term "credit tenant" is subjective and we apply the term to tenants who we believe have a substantial net worth. Our goal is to purchase properties principally west of the Mississippi River and evaluate potential acquisition opportunities of properties east of the Mississippi River on a property by property basis, taking into consideration investment objectives and available funds. During the six months ended June 30, 2005, we purchased 76 properties (excluding the other joint venture properties), of which 46 were not located in our primary geographical area of interest. We purchased these 46 properties because we had the opportunity of taking advantage of our business manager/advisor's acquisition pipeline of properties located east of the Mississippi River which generally continue to have rates of return above those located in the Western United States. We expect this trend to continue through the end of the year. Our strategy in purchasing these properties was to deploy stockholder funds promptly and generate income for us as early as possible, while investing in properties which met our acquisition criteria. At June 30, 2005, approximately 43% of the GLA we owned was located west of the Mississippi River. We are unable to determine the ultimate geographic location of our portfolio of properties at this stage of our capital raise and acquisition of properties. The retail sector of the real estate industry has recently performed well, buoyed by an improving economy, strong consumer spending and relatively low interest rates. The International Council of Shopping Centers reported, in June 2005, that same store sales increased significantly over that of a year ago. This trend was broad based with increased reported by chain stores, wholesale clubs and department stores ranging from 5.3% to 6.6%. Further, because retail activity generally increases during the summer months, this trend is expected to continue in the near future based on the timing of the back-to-school sales followed by pre-Christmas and Christmas sales. Our goal is to maximize the possible return to our stockholders through the acquisition, development, re-development and management of our properties consisting of neighborhood and community shopping centers and single-user buildings. We actively manage our assets by leasing and releasing space at favorable rates, controlling costs, maintaining strong tenant relationships and creating additional value through redeveloping and repositioning our centers. We distribute funds generated from operations to our stockholders, and intend to continue distributions in order to maintain our REIT status. Selecting properties with high quality tenants and mitigating risk through diversifying our tenant base is at the forefront of our acquisition strategy. We believe our strategy of purchasing properties, primarily in the fastest growing 68 areas of the country and focusing on acquisitions with tenants who provide basic goods and services will produce stable earnings and growth opportunities in future years. We monitor the sales trends and financial strength of all of our retailers. We currently monitor tenants which include, but are not limited to, Payless Shoe Store, Bombay, Pier One, Bally's and Krispy Kreme. We have met with the heads of real estate for each of these retailers and have a good understanding of where they are at with any store closings that affect our REIT. We believe that many of their locations are below market rents and that if we take back any of their locations, we could receive a termination fee and have a re-leasing opportunity. We use this strategy to maximize the profitability and minimize any exposure that we have for store closings. All of these tenants that we have concerns with represent less than 2% of our income stream. We have completed our initial public offering of common stock with a total gross offering of $2,500,000 on March 22, 2005. On December 28, 2004, our second offering was declared effective for up to 250,000,000 shares of common stock at $10 each and the issuance of up to 20,000,000 shares at $9.50 each, which may be distributed pursuant to our distribution reinvestment program or DRP. We began selling shares of the second offering in January 2005. We raised on average approximately $230,000 per month during the first six months of 2005. As of June 30, 2005, we owned, through separate limited partnership, limited liability company, or joint venture agreements, a portfolio of 187 properties (excluding the other joint venture properties) at which approximately 97% of gross leasable area was physically leased and 98% was economically leased. The following is a summary of the properties we owned as of June 30, 2005 (excluding the other joint venture properties):
Multi-Tenant Single-User ------------------------------------------------------------------- Number of Square Number of Square Geographic Area Properties Feet Properties Feet - ---------------------------------------------------------------------------------------------------------------------------- WEST Arizona, California, Utah, Washington, New Mexico, 22 4,932,852 6 1,170,348 Colorado, Nevada SOUTHWEST Arkansas, Louisiana, Oklahoma, Texas 29 4,144,458 15 1,051,394 MIDWEST Illinois, Iowa, Kansas, Minnesota, Missouri, 19 3,871,586 13 4,204,894 Michigan, Indiana, Wisconsin, Ohio, Ontario, Canada
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Multi-Tenant Single-User ------------------------------------------------------------------- Number of Square Number of Square Geographic Area Properties Feet Properties Feet - ---------------------------------------------------------------------------------------------------------------------------- NORTHEAST Maryland, Massachusetts, New York, New Jersey, 23 4,754,423 4 231,142 Connecticut, Rhode Island, Pennsylvania, Vermont SOUTHEAST Florida, South Carolina, Alabama, Georgia, 39 5,261,182 17 1,927,522 --- ---------- -- --------- Tennessee, North Carolina, Virginia TOTALS 132 22,964,501 55 8,585,300 === ========== == =========
The following is a summary of the properties we acquired during the quarter ended June 30, 2005:
Amount of Date Mortgages Gross Leasable Acquired Year Built / Payable at Property Area (Sq. Ft.) (month/year) Renovated 6/30/05 - -------- -------------- ------------ ---------- ------- MULTI-TENANT Ashland & Roosevelt 110,858 05/05 2002 $ 15,016 Chicago, IL Beachway Plaza 120,990 06/05 1984 / 2004 10,235 Bradenton, FL Bear Creek 87,912 04/05 2002 11,450 Houston, TX Bison Hollow 134,798 04/05 2004 10,774 Traverse City, MI Boston Commons 103,070 05/05 1993 9,869 Springfield, MA Boulevard Plaza 108,879 04/04 1994 6,300 Pawtucket, RI The Brickyard 235,401 04/05 1977 / 2004 - Chicago, IL Brown's Lane 74,715 04/04 1985 6,284 Middletown, RI Century III Plaza 283,839 06/05 1996 - West Mifflin, PA Chantilly Crossing 77,044 05/05 2004 15,675 Chantilly, VA Clearlake Shores 50,159 04/05 2003-2004 6,683 Clear Lake, TX
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Amount of Date Mortgages Gross Leasable Acquired Year Built / Payable at Property Area (Sq. Ft.) (month/year) Renovated 6/30/05 - -------- -------------- ------------ ---------- ------- MULTI-TENANT The Commons at Royal Palm 158,034 05/05 2001 14,460 Royal Palm Beach, FL The Commons at Temecula 293,033 04/04 1999 29,623 Temecula, CA Cornerstone Plaza 68,577 05/05 2004-2005 8,400 Cocoa Beach, FL Cuyahoga Falls Market Center 76,361 04/04 1998 8,285 Cuyahoga Falls, OH Galvez Shopping Center 25,660 06/05 2004 4,470 Galveston, TX The Gateway 511,855 05/05 2001-2003 98,780 Salt Lake City, UT Gloucester Town Center 108,420 05/05 2003 11,975 Gloucester, NJ Golfland Plaza 45,654 05/05 1995 - Orange, CT Grapevine Crossing 125,381 04/05 2001 12,815 Grapevine, TX Greensburg Commons 272,893 04/05 1999 14,200 Greensburg, IN Home Depot Plaza 135,643 06/05 1992 - Orange, CT Lakepointe Towne Crossing 134,804 05/05 2004 21,715 Lewisville, TX Maple Tree Place 507,615 05/05 2004-2005 - Williston, VT Massillon Village Center 245,945 04/04 1986 / 2000 10,126 Massillion, OH New Forest Crossing 146,585 06/05 2002-2003 - Houston, TX Page Field Commons 322,546 05/05 1999 26,853 Fort Myers, FL Shoppes of Warner Robins 70,747 06/05 2004 - Warner Robins, GA
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Amount of Date Mortgages Gross Leasable Acquired Year Built / Payable at Property Area (Sq. Ft.) (month/year) Renovated 6/30/05 - -------- -------------- ------------ ---------- ------- MULTI-TENANT Shops at 5 417,856 06/05 2005 - Plymouth, MA Southwest Crossing 113,627 06/05 1999 - Fort Worth, TX University Square 287,158 05/05 2003 - University Heights, OH Vail Ranch 101,784 04/04 2004-2005 13,489 Temecula, CA West Town Market 68,544 06/05 2004 - Fort Mill, SC -------------- ----------- SUBTOTAL MULTI-TENANT 5,626,387 367,477 -------------- ----------- SINGLE USER Circuit City Headquarters 382,570 05/05 1997 31,270 Richmond, VA Crossroads Plaza 16,000 05/05 1987 4,973 North Attleborough, MA CVS Pharmacy 10,908 06/05 1999 - Burleson, TX CVS Pharmacy 10,908 05/05 1999 - Lawton, OK CVS Pharmacy 13,813 05/05 2004 - Moore, OK CVS Pharmacy 10,908 06/05 1999 - Oklahoma City, OK Eckerd Drug Store 10,908 05/05 1999-2000 - Atlanta, GA Eckerd Drug Store 10,908 06/05 1999 - Chattanooga, TN Eckerd Drug Store 13,361 05/05 2005 - Colesville, MD Edwards Megaplex Theater 94,600 05/05 1988 19,730 Fresno, CA Edwards Megaplex Theater 124,614 04/04 1997 27,875 Ontario, CA
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Amount of Date Mortgages Gross Leasable Acquired Year Built / Payable at Property Area (Sq. Ft.) (month/year) Renovated 6/30/05 - -------- -------------- ------------ ---------- ------- SINGLE-USER Fisher Scientific 114,700 06/05 2005 - Kalamazoo, MI Hewitt Associates Campus 1,161,686 05/05 1974-1986 129,800 Lincolnshire, IL Home Depot Center 136,123 06/05 1996 - Pittsburgh, PA Kaiser Foundation Hospital 100,352 06/05 2004-2005 32,670 Cupertino, CA Publix 44,271 04/05 2004 4,384 Mountain Brook, AL Walgreens 16,335 04/05 2000 3,218 Northwoods, MO Walgreens 13,905 04/05 1999 2,600 West Allis, WI Wickes Furniture Store 41,331 05/05 2005 4,964 Naperville, IL -------------- ----------- SUBTOTAL SINGLE-USER 2,328,201 261,484 -------------- ----------- TOTAL SECOND QUARTER ACQUISITIONS 7,954,588* 628,961 ============== ===========
*Square footage excludes 68,348 of square footage we acquired for earnouts on properties purchased prior to the second quarter of 2005. Critical Accounting Policies and Estimates GENERAL The following disclosure pertains to critical accounting policies and estimates we believe are most "critical" to the portrayal of our financial condition and results of operations which require our most difficult, subjective or complex judgments. These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain. Critical accounting policies discussed in this section are not to be confused with accounting principles and methods disclosed in accordance with accounting principles generally accepted in the United States of America or GAAP. GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates. This discussion addresses our judgment pertaining to trends, events or uncertainties known which were taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions. ACQUISITION OF INVESTMENT PROPERTY We allocate the purchase price of each acquired investment property between land, building and improvements, acquired above market and below market leases, in-place lease value, and any assumed financing that is determined to 73 be above or below market terms. In addition, we allocate a portion of the purchase price to the value of customer relationships, if any. The allocation of the purchase price is an area that requires judgment and significant estimates. We use the information contained in the independent appraisal obtained at acquisition as the primary basis for the allocation to land and building and improvements. We determine whether any financing assumed is above or below market based upon comparison to similar financing terms for similar investment properties. We allocate a portion of the purchase price to the estimated acquired in-place lease costs based on estimated lease execution costs for similar leases as well as lost rent payments during assumed lease up period when calculating as if vacant fair values. We consider various factors including geographic location and size of leased space. We also evaluate each acquired lease based upon current market rates at the acquisition date and we consider various factors including geographical location, size and location of leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired lease is above or below market lease costs. After an acquired lease is determined to be above or below market, we allocate a portion of the purchase price to such above or below acquired lease costs based upon the present value of the difference between the contractual lease rate and the estimated market rate. For below market leases with fixed rate renewals, renewal periods are included in the calculation of below market in-place lease values. The determination of the discount rate used in the present value calculation is based upon the "risk free rate." This discount rate is a significant factor in determining the market valuation which requires our judgment of subjective factors such as market knowledge, economics, demographics, location, visibility, age and physical condition of the property. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with Statement of Financial Accounting Standard or SFAS No. 144, we conduct an analysis on a quarterly basis to determine if indicators of impairment exist to ensure that the property's carrying value does not exceed its fair value. If this were to occur, we are required to record an impairment loss. The valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based on our continuous process of analyzing each property and reviewing assumptions about uncertain inherent factors, as well as the economic condition of the property at a particular point in time. No impairment losses have been taken in any year of our operation. COST CAPITALIZATION AND DEPRECIATION POLICIES Our policy is to review all expenses paid and capitalize any items exceeding $5 which are deemed to be an upgrade or a tenant improvement. These costs are capitalized and are included in the investment properties classification as an addition to buildings and improvements. Buildings and improvements are depreciated on a straight-line basis based upon estimated useful lives of 30 years for buildings and improvements, and 15 years for site improvements. Tenant improvements are depreciated on a straight-line basis over the life of the related lease as a component of depreciation and amortization expense. The portion of the purchase price allocated to acquired above market costs and acquired below market costs are amortized on a straight-line basis over the life of the related lease as an adjustment to net rental income. Acquired in-place lease costs, customer relationship value, other leasing costs, and tenant improvements are amortized on a straight-line basis over the life of the related lease as a component of amortization expense. The application of SFAS No. 141 and SFAS No. 142 resulted in the recognition upon acquisition of additional intangible assets and liabilities relating to our real estate acquisitions during the six months ended June 30, 2005. The portion of the purchase price allocated to acquired above market lease costs and acquired below market lease costs are amortized on a straight-line basis over the life of the related lease as an adjustment to rental income. Amortization pertaining to the above market lease costs of $3,297 was applied as a reduction to rental income for the six months ended June 30, 2005. Amortization pertaining to the below market lease costs of $5,906 was applied as an increase to rental income for the six months ended June 30, 2005. The portion of the purchase price allocated to acquired in-place lease costs are amortized on a straight line basis over the life of the related lease. We incurred amortization expense pertaining to acquired in-place lease costs of $16,858 for the six months ended June 30, 2005. 74 The portion of the purchase price allocated to customer relationship value is amortized on a straight-line basis over the life of the related lease. We incurred $119 of amortization expense pertaining to customer relationship value for the six months ended June 30, 2005. The table below presents the amortization during the next five years related to the acquired in-place lease intangibles, customer relationship value, acquired above market lease costs and below market lease costs for properties owned at June 30, 2005:
July 1, 2005 through December 31, Amortization of: 2005 2006 2007 2008 2009 Thereafter ---- ---- ---- ---- ---- ---------- Acquired above market lease costs $ (3,783) (7,394) (6,548) (6,242) (5,669) (26,769) Acquired below market lease costs 6,304 11,885 10,802 9,667 8,769 77,980 ------------------------------------------------------------------------------ Net rental income increase $ 2,521 4,491 4,254 3,425 3,100 51,211 ============================================================================== Acquired in-place lease intangibles $ 20,025 40,050 40,050 39,996 38,725 186,594 Customer relationship value $ 130 260 260 260 260 1,308
Cost capitalization and the estimate of useful lives requires our judgment and includes significant estimates that can and do change based on our process which periodically analyzes each property and on our assumptions about uncertain inherent factors. REVENUE RECOGNITION We recognize rental income on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable in the accompanying consolidated balance sheets. We anticipate collecting these amounts over the terms of the leases as scheduled rent payments are made. Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period the applicable expenditures are incurred. We make certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. Should the actual results differ from our judgment, the estimated reimbursement could be negatively affected and would be adjusted appropriately. In conjunction with certain acquisitions, we receive payments under master lease agreements pertaining to certain non-revenue producing spaces either at the time of, or subsequent to the purchase of some of our properties. Upon receipt of the payments, the receipts are recorded as a reduction in the purchase price of the related properties rather than as rental income. These master leases were established at the time of purchase in order to mitigate the potential negative effects of loss of rent and expense reimbursements. Master lease payments are received through a draw of funds escrowed at the time of purchase and may cover a period from three months to three years. These funds may be released to either us or the seller when certain leasing conditions are met. Restricted cash includes funds received by third party escrow agents, from sellers, pertaining to master lease agreements. We record such escrows as both an asset and a corresponding liability, until certain leasing conditions are met. We accrue lease termination income if there is a signed termination letter agreement, all of the conditions of the 75 agreement have been met, and the tenant is no longer occupying the property. Upon early lease termination, we provide for losses related to unrecovered intangibles and other assets. Liquidity and Capital Resources GENERAL Our principal demands for funds have been for property acquisitions, for the payment of operating expenses and distributions, and for the payment of interest on outstanding indebtedness. Generally, cash needs for items other than property acquisitions have been met from operations, and property acquisitions have been funded by public offerings of our shares of common stock. However, there may be a passage of time between the sale of the shares and our purchase of properties, which may result in a delay in the benefits to stockholders of returns generated from property operations. Our business manager/advisor evaluates potential additional property acquisitions and Inland Real Estate Acquisitions, Inc., one of the affiliates of our sponsor, engages in negotiations with sellers on our behalf. After a purchase contract is executed which contains specific terms, the property will not be purchased until due diligence, which includes review of the title insurance commitment, an appraisal and an environmental analysis, is successfully completed. In some instances, the proposed acquisition still requires the negotiation of final binding agreements, which may include financing documents. During this period, we may decide to temporarily invest any unused proceeds from the offering in certain investments that could yield lower returns than other investments, such as the acquisition of properties. These lower returns may affect our ability to make distributions. Potential future sources of capital include proceeds from the public or private offering of our equity or debt securities, secured or unsecured financings from banks or other lenders, proceeds from the sale of properties, as well as undistributed funds from operations. We anticipate that during the current year we will (i) acquire additional existing shopping centers and single-user net leased properties, (ii) begin to develop additional shopping center sites and (iii) continue to pay distributions to stockholders, and each is expected to be funded mainly from proceeds of our public offerings of shares, cash flows from operating activities, financings and other external capital resources available to us. We continue to explore ways to manage our cash on hand in order to enhance returns on our investments. Our leases typically provide that the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation, including utilities, property taxes and insurance. In addition, in some instances our leases provide that the tenant is responsible for roof and structural repairs. Certain of our properties are subject to leases under which we retain responsibility for certain costs and expenses associated with the property. We anticipate that capital demands to meet obligations related to capital improvements with respect to properties will be minimal for the foreseeable future (as many of our properties have recently been constructed or rehabbed) and can be met with funds from operations and working capital. We believe that our current capital resources (including cash on hand) and anticipated financings are sufficient to meet our liquidity needs for the foreseeable future. LIQUIDITY OFFERING. As of June 30, 2005, subscriptions for a total of 357,620,983 shares had been received from the public for both offerings, which include the 20,000 shares issued to the business manager/advisor and 7,748,882 shares distributed pursuant to the DRP as of June 30, 2005. As a result of such sales, we received a total of $3,571,711 of gross offering proceeds as of June 30, 2005. MORTGAGE DEBT. Mortgage loans outstanding as of June 30, 2005 were $2,867,747 and had a weighted average interest rate of 4.72%. Of this amount, $2,742,549 had fixed rates ranging from 3.96% to 8.02% and a weighted average fixed rate of 4.74% at June 30, 2005. The rate of 8.02% represented the interest rate on the mortgage for Cardiff Hall East (Cardiff), an other joint venture property which we consolidate. Excluding the Cardiff mortgage, the highest fixed rate on our mortgage debt was 7.48%. The remaining $125,198 represented variable rate loans with a weighted average interest rate of 4.35% at June 30, 2005. As of June 30, 2005, scheduled maturities for our outstanding mortgage indebtedness had various due dates through December 2035. 76 During the period from July 1, 2005 through July 29, 2005 we obtained mortgage financing on properties that we purchased during 2004 and 2005 totaling $301,107 that require monthly payments of interest only and bear interest at a range of 4.18% to 5.13% per annum. LINE OF CREDIT. We have an unsecured line of credit facility with a bank for up to $100,000 with an optional unsecured borrowing capacity of $150,000, for a total unsecured borrowing capacity of $250,000. The facility has an initial term of one year with two one-year extension options, with an annual variable interest rate. The funds from this line of credit may be used to provide liquidity from the time a property is purchased until permanent debt is placed on that property. The line of credit requires interest only payments monthly at the rate equal to the London InterBank Offered Rate or LIBOR plus up to 190 basis points depending on our leverage ratio. LIBOR ranged from 2.87% to 3.34% during the quarter ended June 30, 2005. We are also required to pay, on a quarterly basis, an amount ranging from .15% to .25%, per annum, on the average daily undrawn funds under this line. The line of credit requires compliance with certain covenants, such as debt service ratios, minimum net worth requirements, distribution limitations and investment restrictions. As of June 30, 2005, we were in compliance with such covenants. There was no outstanding balance on the line as of June 30, 2005. STOCKHOLDER LIQUIDITY. We provide the following programs to facilitate investment in the shares and to provide limited, interim liquidity for stockholders until such time as a market for the shares develops: The DRP allows stockholders who purchase shares pursuant to the offerings to automatically reinvest distributions by purchasing additional shares from us. Such purchases will not be subject to selling commissions or the marketing contribution and due diligence expense allowance and will be sold at a price of $9.50 per share. As of June 30, 2005, we issued 7,748,882 shares pursuant to the DRP for an aggregate amount of $73,614. Subject to certain restrictions, the share repurchase program or SRP provides existing stockholders with limited, interim liquidity by enabling them to sell shares back to us at the following prices: One year from the purchase date, at $9.25 per share; Two years from the purchase date, at $9.50 per share; Three years from the purchase date, at $9.75 per share; and Four years from the purchase date, at the greater of $10.00 per share, or a price equal to 10 times our "funds available for distribution" per weighted average shares outstanding for the prior calendar year. Shares purchased by us will not be available for resale. As of June 30, 2005, 411,708 shares have been repurchased for a total of $3,808. CAPITAL RESOURCES We expect to meet our short-term operating liquidity requirements generally through our net cash provided by property operations. We also expect that our properties will generate sufficient cash flow to cover our operating expenses plus pay a monthly distribution on our weighted average shares. Operating cash flows are expected to increase as additional properties are added to our portfolio. We believe that we should place mortgage debt on or leverage our properties at approximately 50% of their value. We also believe that we can borrow at the lowest overall cost of funds or interest rate by placing individual financing on each of our properties. Accordingly, mortgage loans will generally have been placed on each property at the time that the property is purchased, or shortly thereafter, with the property solely securing the financing. During the six months ended June 30, 2005, we closed on mortgage debt with a principal amount of $1,088,269. In addition, we consolidated one new mortgage in the amount of $30,800 in connection with one of the other joint venture properties. All new loans except one represented fixed rate loans which bear interest rates between 4.30% and 7.48%. The variable rate loan was assumed from the seller of a property and bears interest at a rate of 30-day LIBOR plus 155 basis points. We also paid off $35,742 of mortgage debt on four properties with variable interest rates ranging between 4.16% and 4.81%. 77 With the exception of the mortgage loans on Plaza Santa Fe II, Shops at Forest Commons, Henry Town Center, American Express - Canada, Boston Commons, Crossroads Plaza and Commons at Royal Palm, all of our outstanding loans that have closed may be prepaid with a penalty after specific lockout periods. The mortgage loans on Plaza Santa Fe II, Shops at Forest Commons, Henry Town Center and American Express - Canada have no prepayment privileges. The Company may defease the mortgage loans on Boston Commons, Crossroads Plaza and Commons at Royal Palm. We have entered into interest rate lock agreements with various lenders to secure interest rates on mortgage debt on properties we currently own or plan to purchase in the future. We have outstanding rate lock deposits in the amount of $15,710 as of June 30, 2005 which are applied as credits to the mortgage fundings as they occur. These agreements lock interest rates from 4.58% to 5.30% for periods from 60 days to 90 days on approximately $1,111,000 in principal. Although the loans we closed are generally non-recourse, occasionally, when it is deemed to be advantageous, we may guarantee all or a portion of the debt on a full-recourse basis. Individual decisions regarding interest rates, loan-to-value, fixed versus variable-rate financing, maturity dates and related matters are often based on the condition of the financial markets at the time the debt is incurred, which conditions may vary from time to time. Distributions are determined by our board of directors with the advice of our business manager/advisor and are dependent on a number of factors, including the amount of funds available for distribution, flow of funds, our financial condition, any decision by our board of directors to reinvest funds rather than to distribute the funds, our capital expenditures, the annual distribution required to maintain REIT status under the Internal Revenue Code and other factors the board of directors may deem relevant. CASH FLOWS FROM OPERATING ACTIVITIES Cash flows provided by operating activities were $108,392 and $13,148 for the six month periods ended June 30, 2005 and 2004, respectively, which is due primarily to net income from property operations. The increase in net cash provided by operating activities was due to additional revenues generated from the operation of 189 properties (including the other joint venture properties) owned as of June 30, 2005, compared to 42 properties owned as of June 30, 2004. CASH FLOWS FROM INVESTING ACTIVITIES Cash flows used in investing activities were $2,181,300 and $1,146,114, respectively, for the six month periods ended June 30, 2005 and 2004. Cash flows used in investing activities were primarily used for the acquisition of 76 wholly-owned and majority-owned properties and one other joint venture property for $2,007,251 and 34 wholly-owned properties for $1,090,426 during the six months ended June 30, 2005 and 2004, respectively. As of July 29, 2005, we had approximately $420,000 available for investment in additional properties. As of July 29, 2005 we are considering the acquisition of approximately $454,000 in properties. We are currently in the process of obtaining financings on properties which have been purchased, as well as certain of the properties which we anticipate purchasing. It is our intention to finance each of our acquisitions either at closing or subsequent to closing. As a result of the intended financings and based on our current experience in raising funds in our offering, we believe that we will have sufficient resources to acquire these properties. CASH FLOWS FROM FINANCING ACTIVITIES Cash flows provided by financing activities were $2,202,725 and $1,195,482, respectively, for the six month periods ended June 30, 2005 and 2004. We generated proceeds from the sale of shares, net of offering costs paid, of $1,250,686 and $593,471 for the six month periods ended June 30, 2005 and 2004, respectively. We also generated $1,076,277 and $541,543 from the issuance of new mortgages secured by 71 of our wholly-owned and majority-owned properties and one other joint venture property and 29 of our wholly-owned properties for the six month periods ended June 30, 2005 and 2004, respectively. During the six months ended June 30, 2004, we generated $105,000 from funding on the line of credit, which was paid off later in 2004. We paid $19,168 and $10,154 for loan fees and 78 $83,281 and $13,255 in distributions to our stockholders for the six months ended June 30, 2005 and 2004, respectively. The sponsor advanced us amounts to pay a portion of the 2004 distributions until funds available for distribution were sufficient to cover distributions. We repaid $2,000 of that advance during the six months ended June 30, 2005. Given the current size of our offerings, as of July 29, 2005, we could raise approximately $1,300,000 of additional capital. However, there can be no assurance that we will raise this amount of money or that we will be able to acquire additional attractive properties. We are exposed to interest rate changes primarily as a result of our long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve our objectives we borrow primarily at fixed rates or variable rates with the lowest margins available and, in some cases, with the ability to convert variable rates to current market fixed rates at the time of conversion. Effects of Transactions with Related and Certain Other Parties SERVICES PROVIDED BY AFFILIATES OF THE BUSINESS MANAGER/ADVISOR As of June 30, 2005 and December 31, 2004, we had incurred $379,556 and $234,014 of offering costs for both the initial public offering and the second offering, of which $283,906 and $175,509, respectively, was paid or accrued to affiliates. Pursuant to the terms of our offerings, our business manager/advisor has guaranteed payment of all public offering expenses (excluding sales commissions and the marketing contribution and the due diligence expense allowance) in excess of 5.5% of the gross proceeds of the offering or gross offering proceeds or all organization and offering expenses (including selling commissions) which together exceed 15% of gross offering proceeds. As of June 30, 2005 and December 31, 2004, offering costs did not exceed the 5.5% and 15% limitations. We anticipate that these costs will not exceed these limitations upon completion of the offerings. Any excess amounts at the completion of the offerings will be reimbursed by our business manager/advisor. Our business manager/advisor and its affiliates are entitled to reimbursement for salaries and expenses of employees of our business manager/advisor and its affiliates relating to the offerings. In addition, an affiliate of our business manager/advisor is entitled to receive selling commissions, and the marketing contribution and due diligence expense allowance from us in connection with the offering. Such costs are offset against the stockholders' equity accounts. Such costs totaled $283,906 and $175,509, of which $2,967 and $2,880 remained unpaid at June 30, 2005 and December 31, 2004, respectively. Our business manager/advisor and its affiliates are entitled to reimbursement for general and administrative expenses relating to our administration. During the six months ended June 30, 2005 and 2004, we incurred $2,030 and $637, respectively. Of these costs, $1,832 and $957 remained unpaid as of June 30, 2005 and December 31, 2004 and are included in due to affiliates on the Consolidated Balance Sheets. An affiliate of our business manager/advisor provides loan servicing to us for an annual fee. Such costs are included in general and administrative expenses to affiliates. Prior to May 1, 2005, the agreement allowed for annual fees totaling ..03% of the first $1 billion in mortgage balance outstanding and .01% of the remaining mortgage balance, payable monthly. Effective May 1, 2005, if the number of loans exceeds 100, a monthly fee will be charged in the amount of 190 dollars per month, per loan being serviced. If the amount of loans being serviced are less than 100, then the amount per month, per loan increases to 225 dollars. Such fees totaled $175 and $21 for the six months ended June 30, 2005 and 2004, respectively. None remained unpaid as of June 30, 2005 or December 31, 2004. We use the services of an affiliate of our business manager/advisor to facilitate the mortgage financing that we obtained on some of the properties purchased. We pay the affiliate .2% of the principal balance of mortgage loans obtained. Such costs are capitalized as loan fees and amortized over the respective loan term. During the six months ended June 30, 2005 and 2004, we paid loan fees totaling $2,712 and $1,122, respectively, to this affiliate. No amounts remained unpaid as of June 30, 2005 or December 31, 2004. 79 We may pay an advisor asset management fee of not more than 1% of our average assets. Our average asset value is defined as the average of the total book value, including acquired intangibles, of our real estate assets invested in equity interests plus our loans receivable secured by real estate, before reserves for depreciation, reserves for bad debt or other similar non-cash reserves. We compute our average assets by taking the average of these values at the end of each month for which we are calculating the fee. The fee is payable quarterly in an amount equal to 1/4 of 1% of our average assets as of the last day of the immediately preceding quarter. For any year in which we qualify as a REIT, our advisor must reimburse us for the following amounts if any: (1) the amounts by which our total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of: (i) 2% of our average assets for that fiscal year, or (ii) 25% of our net income for that fiscal year; plus (2) an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the total amount of distributions to stockholders for that year and the 6% minimum annual return on the net investment of stockholders. We neither paid nor accrued such fees for the six months ended June 30, 2004 because our business manager/advisor agreed to forego such fees. For the six months ended June 30, 2005, we accrued fees totaling $4,925, all of which remained unpaid as of that date. The Business Manager/Advisor agreed to forego any additional fees for these time periods. The property managers, entities owned principally by individuals who are affiliates of our business manager/advisor, are entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services. We incurred property management fees of $8,297 and $1,154, for the six months ended June 30, 2005 and 2004, respectively. None remained unpaid as of June 30, 2005 or December 31, 2004. We established a discount stock purchase policy for our affiliates and affiliates of our business manager/advisor that enables the affiliates to purchase shares of common stock at either $8.95 or $9.50 a share depending on when the shares are purchased. We sold 151,211 and 510,839 shares of common stock to affiliates and recognized an expense related to these discounts of $116 and $336 for the six months ended June 30, 2005 and June 30, 2004, respectively. As of December 31, 2004, we were due funds from our affiliates for costs paid by us on their behalf in the amount of $654. No funds were due from affiliates as of June 30, 2005. During 2004, our sponsor advanced us amounts to pay a portion of distributions to our stockholders until funds available for distribution were sufficient to cover the distributions. Our sponsor forgave $2,369 of these amounts during the second quarter of 2004 and these funds were no longer due. As of June 30, 2005 and December 31, 2004, we owe funds to our sponsor in the amount of $1,523 and $3,523, respectively, for repayment of the funds advanced for payment of distributions. The unpaid balance of $1,523 as of June 30, 2005 was repaid in full in July 2005. No funds have been advanced during 2005. Off-Balance Sheet Arrangements, Contractual Obligations, Liabilities and Contracts and Commitments The table below presents our obligations and commitments to make future payments under debt obligations and lease agreements as of June 30, 2005.
Contractual Obligations Payments due by period - ----------------------- ---------------------- Less than More than Total 1 year 1-3 years 3-5 years 5 years ------------------------------------------------------------------ Long-Term Debt Fixed rate $ 3,624,050 131,597 318,180 2,132,028 1,042,245 Variable rate 161,680 20,798 10,495 130,387 - Ground lease payments $ 480,461 4,217 9,771 10,148 456,325
The table includes interest payments to which we are contractually obligated under long term debt agreements. 80 We lease land under non-cancelable leases at certain of the properties expiring in various years from 2028 to 2096. The property attached to the land will revert back to the lessor at the end of the lease. CONTRACTS AND COMMITMENTS We have acquired several properties which have earnout components, meaning that we did not pay for portions of these properties that were not rent producing. We are obligated, under certain agreements, to pay for those portions when the tenant moves into its space and begins to pay rent. The earnout payments are based on a predetermined formula. Each earnout agreement has a time limit regarding the obligation to pay any additional monies. The time limits generally range from one to three years. If at the end of the time period allowed certain space has not been leased and occupied, we will own that space without any further payment obligation. Based on pro forma leasing rates, we may pay as much as $161,018 in the future as retail space covered by earnout agreements is occupied and becomes rent producing. We have entered into five installment note agreements and two construction loan agreements in which we have committed to fund up to a total of $226,977. Each loan requires monthly interest payments with the entire principal balance due at maturity. The combined receivable balance at June 30, 2005 was $136,000. Therefore, we may be required to fund up to an additional $90,977 on these loans. We have obtained ten irrevocable letters of credit related to loan fundings against earnout spaces at certain properties. Once we purchase the remaining portion of these properties and meet certain occupancy requirements, the letters of credit will be released. The balance of outstanding letters of credit at June 30, 2005 is $41,144. We have entered into interest rate lock agreements with various lenders to secure interest rates on mortgage debt on properties we currently own or plan to purchase in the future. We have outstanding rate lock deposits in the amount of $15,710 as of June 30, 2005 which are applied as credits to the mortgage fundings as they occur. These agreements lock interest rates from 4.58% to 5.30% for periods from 60 days to 90 days on approximately $1,111,000 in principal. We are currently considering acquiring 22 properties for an estimated aggregate purchase price of $454,000. Our decision to acquire each property generally depends upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions, and our receipt of satisfactory due diligence information including appraisals, environmental reports and lease information prior to purchasing the property. Results of Operations GENERAL The following discussion is based primarily on our Consolidated Financial Statements as of June 30, 2005 and December 31, 2004 and for the six months ended June 30, 2005 and 2004.
Properties Square Purchased Feet Quarter Ended per Quarter Acquired Purchase Price ------------- ----------- -------- -------------- March 31, 2003 None N/A N/A June 30, 2003 None N/A N/A September 30, 2003 None N/A N/A December 31, 2003 8 797,551 $ 127,195 March 31, 2004 11 2,116,839 $ 384,053 June 30, 2004 23 4,177,250 $ 713,925 September 30, 2004 26 5,682,446 $ 869,128 December 31, 2004 43 7,413,167 $ 1,241,693 March 31, 2005 24 3,339,612 $ 491,854 June 30, 2005 52 8,022,936 $ 1,515,397 ------------------------- ------------ Total 187 31,549,801 $ 5,397,221 ========================= ============
81 The table above excludes other joint venture properties. RENTAL INCOME, TENANT RECOVERIES AND OTHER PROPERTY INCOME. Rental income consists of basic monthly rent and percentage rental income due pursuant to tenant leases. Tenant recovery and other property income consist of property operating expenses recovered from the tenants including real estate taxes, property management fees and insurance. Rental income was $166,501 and $22,886 and all additional property income was $37,401 and $6,094 for the six months ended June 30, 2005 and 2004, respectively. The increase was due primarily to 189 properties (including the other joint venture properties) owned and operated for the six month period ended June 30, 2005 compared to 42 properties for the six month period ended June 30, 2004. OTHER INCOME (LOSS) Other income (loss) consists of interest income earned primarily on short term investments that are held by us and other non-operating income earned by us as well as the realized gain (loss) on security investments. Other income (loss) was $7,648 and $(874) for the six months ended June 30, 2005 and 2004, respectively. The increase was due primarily to the amount of cash that was invested in short term investments and amount of interest earned on notes receivable for the six month period ended June 30, 2005 compared to the six month period ended June 30, 2004 as well as a realized loss of $1,347 was realized on treasury contracts we held during the six months ended June 30, 2004. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist of salaries and computerized information services costs reimbursed to affiliates for maintaining our accounting and investor records, affiliates common share purchase discounts, insurance, postage, printing costs and fees paid to accountants and lawyers. These expenses were $4,813 and $1,856 for the six months ended June 30, 2005 and 2004, respectively. The increase in general and administrative expenses resulted from dramatically increased services required as we acquire properties and grow our portfolio of investment properties and our investor base. PROPERTY OPERATING EXPENSES. Property operating expenses consist of property management fees and property operating expenses, including real estate taxes, costs of owning and maintaining shopping centers, insurance, and maintenance to the exterior of the buildings and the parking lots. These expenses were $52,748 and $6,664 for the six months ended June 30, 2005 and 2004, respectively. The increase was due primarily to 189 properties (including the other joint venture properties) owned and operated for the six month period ended June 30, 2005 compared to 42 properties for the six month period ended June 30, 2004. DEPRECIATION AND AMORTIZATION. Depreciation expense was $58,900 and $7,494 and is due to depreciation on the 189 properties (including the other joint venture properties) and 42 properties owned during the six months ended June 30, 2005 and 2004, respectively. Amortization expense was $18,514 and $2,934 which was due to the application of SFAS 141 and SFAS 142 resulting in the amortization of intangible assets of approximately $393,000 and $97,000 and the amortization of loan and leasing fees of approximately $20,000 and $4,000 during the six months ended June 30, 2005 and 2004, respectively. INTEREST EXPENSE. Interest expense was $52,763 and $7,011 for the six months ended June 30, 2005 and 2004, respectively. The increase was due to the financing on 170 properties (including the other joint venture properties) compared to 31 properties as of June 30, 2005 and 2004, respectively. FUNDS FROM OPERATIONS One of our objectives is to provide cash distributions to our stockholders from cash generated by our operations. Cash generated from operations is not equivalent to our net income from continuing operations as determined under Generally Accepted Accounting Principles in the United States of America or GAAP. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts or NAREIT, an industry trade group, has promulgated a standard known as "Funds from Operations" or "FFO" for short, which it believes more accurately reflects the operating performance of a REIT such as us. As defined by NAREIT, FFO means net income computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus depreciation on real property and amortization, and after adjustments for unconsolidated partnerships and joint ventures in which the REIT holds an interest. We have adopted the NAREIT definition for computing FFO because management believes that, subject to the following limitations, FFO provides a basis for comparing our performance 82 and operations to those of other REITs. The calculation of FFO may vary from entity to entity since capitalization and expense policies tend to vary from entity to entity. Items which are capitalized do not impact FFO, whereas items that are expensed reduce FFO. Consequently, our presentation of FFO may not be comparable to other similarly-titled measures presented by other REITs. FFO is not intended to be an alternative to "Net Income" as an indicator of our performance nor to "Cash Flows from Operating Activities" as determined by GAAP as a measure of our capacity to pay distributions. We use FFO to compare our performance to that of other REITs in our peer group. Additionally, we use FFO in conjunction with our acquisition policy to determine investment strategy. FFO is calculated as follows:
Six months ended June 30, 2005 ------------- Net income $ 18,577 Add: Depreciation and amortization related to investment properties 75,937 Less: Depreciation and amortization related to consolidated joint ventures (1,005) ---------------- Funds from operations $ 93,509 ================
FFO does not represent cash generated from operating activities calculated in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity. PHYSICAL OCCUPANCY Physical occupancy percentages are one of the financial indicators we use to monitor the income performance of our properties. The following table lists the approximate physical occupancy levels and gross leasable area for our investment properties (excluding the other joint venture properties) as of June 30, 2005 and December 31, 2004. The weighted average gross leasable area occupied at June 30, 2005 and December 31, 2004 was 97% and 96%, respectively. N/A indicates the property was not owned by us at the end of the period.
June 30, 2005 December 31, 2004 GLA GLA Properties: Location Occupied (%) Occupied (%) - ----------- -------- -------- --- -------- --- 23rd Street Plaza* Panama City, FL 50,701 95 50,701 95 Academy Sports Houma, LA 60,001 100 60,001 100 Academy Sports Midland, TX 61,150 100 61,150 100 Academy Sports Port Arthur, TX 61,001 100 61,001 100 Academy Sports San Antonio, TX 70,910 100 N/A N/A Alison's Corner San Antonio, TX 55,066 100 55,066 100 American Express DePere, WI 132,336 100 132,336 100 American Express Greensboro, NC 389,377 100 389,377 100 American Express Ft. Lauderdale, FL 376,348 100 376,348 100 American Express Markham, Ontario, Canada 306,710 100 N/A N/A American Express Minneapolis, MN 541,542 100 541,542 100 American Express - 19th Avenue Phoenix, AZ 117,556 100 117,556 100 American Express - 31st Avenue Phoenix, AZ 337,439 100 337,439 100 American Express Taylorsville, UT 395,787 100 N/A N/A Arvada Connection and Arvada Marketplace * Arvada, CO 335,888 90 343,819 92
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June 30, 2005 December 31, 2004 GLA GLA Properties: Location Occupied (%) Occupied (%) - ----------- -------- -------- --- -------- --- Ashland & Roosevelt Chicago, IL 109,858 99 N/A N/A Azalea Square* Summerville, SC 187,342 99 187,342 99 Beachway Plaza* Bradenton, FL 115,490 95 N/A N/A Bear Creek Houston, TX 87,912 100 N/A N/A Bed, Bath & Beyond Plaza Miami, FL 97,456 100 97,456 100 Best on the Boulevard* Las Vegas, NV 161,809 79 161,809 79 Bison Hollow Traverse City, MI 134,798 100 N/A N/A Blockbuster at Five Forks Greenville, SC 6,000 100 N/A N/A Bluebonnet Parc* Baton Rouge, LA 128,289 95 128,289 95 Boston Commons Springfield, MA 103,070 100 N/A N/A Boulevard at the Capital Centre* Largo, MD 473,990 99 434,917 92 Boulevard Plaza Pawtucket, RI 49,932 46 N/A N/A The Brickyard Chicago, IL 235,401 100 N/A N/A Brown's Lane Middletown, RI 74,715 100 N/A N/A CarMax San Antonio, TX 60,772 100 N/A N/A Century III Plaza West Mifflin, PA 283,839 100 N/A N/A Chantilly Crossing Chantilly, VA 77,044 100 N/A N/A Cinemark Theatre Woodridge, IL 70,183 100 N/A N/A Circuit City Headquarters Richmond, VA 382,570 100 N/A N/A Clearlake Shores Clear Lake, TX 50,159 100 N/A N/A The Columns* Jackson, TN 171,027 99 166,227 96 The Commons at Royal Palm Royal Palm Beach, FL 158,034 100 N/A N/A The Commons at Temecula Temecula, CA 293,033 100 N/A N/A Coram Plaza Coram, NY 130,604 91 133,469 93 Cornerstone Plaza* Cocoa Beach, FL 58,077 85 N/A N/A CorWest Plaza* New Britain, CT 115,011 100 114,023 99 Cottage Plaza Pawtucket, RI 85,463 100 N/A N/A Cranberry Square Cranberry Township, PA 180,585 92 180,585 92 Crossroads Plaza North Attleborough, MA 16,000 100 N/A N/A Cuyahoga Falls Market Center Cuyahoga Falls, OH 76,361 100 N/A N/A CVS Pharmacy (Eckerd Drug Store) Edmund, OK 13,824 100 13,824 100 CVS Pharmacy (Eckerd Drug Store) Norman, OK 13,824 100 13,824 100 CVS Pharmacy Burleson, TX 10,908 100 N/A N/A CVS Pharmacy Jacksonville, FL 13,824 100 N/A N/A CVS Pharmacy Lawton, OK 10,908 100 N/A N/A CVS Pharmacy Montevallo, AL 10,055 100 N/A N/A CVS Pharmacy Moore, OK 13,813 100 N/A N/A CVS Pharmacy Oklahoma City, OK 10,908 100 N/A N/A CVS Pharmacy Saginaw, TX 13,824 100 N/A N/A CVS Pharmacy Sylacauga, AL 10,055 100 10,055 100 Darien Towne Center Darien, IL 217,558 97 217,558 97 Davis Towne Crossing North Richland Hills, TX 35,008 88 31,091 91 Denton Crossing* Denton, TX 309,740 100 266,040 95 Dorman Center - Phase I & II* Spartanburg, SC 379,067 98 381,567 98 Eastwood Towne Center* Lansing, MI 326,655 98 325,655 98 Eckerd Drug Store Atlanta, GA 10,908 100 N/A N/A Eckerd Drug Store Chattanooga, TN 10,908 100 N/A N/A Eckerd Drug Store Colesville, MD 13,361 100 N/A N/A Eckerd Drug Store Columbia, SC 13,440 100 13,440 100 Eckerd Drug Store Crossville, TN 13,824 100 13,824 100 Eckerd Drug Store Greer, SC 13,824 100 13,824 100
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June 30, 2005 December 31, 2004 GLA GLA Properties: Location Occupied (%) Occupied (%) - ----------- -------- -------- --- -------- --- Eckerd Drug Store Kill Devil Hills, NC 13,824 100 13,824 100 Edgemont Town Center* Homewood, AL 74,055 95 70,055 90 Edwards Megaplex Theater Fresno, CA 94,600 100 N/A N/A Edwards Megaplex Theater Ontario, CA 124,614 100 N/A N/A Evans Towne Centre Evans, GA 73,295 97 73,295 97 Fairgrounds Plaza Middletown, NY 59,970 100 N/A N/A Fisher Scientific Kalamazoo, MI 114,700 100 N/A N/A Five Forks Simpsonville, SC 64,173 100 60,673 95 Forks Town Center Easton, PA 87,996 95 85,460 92 Four Peaks Plaza Fountain Hills, AZ 122,058 100 N/A N/A Fox Creek Village Longmont, CO 99,507 87 94,833 83 Fullerton Metrocenter Fullerton, CA 243,489 96 236,356 93 Galvez Shopping Center Galveston, TX 25,660 100 N/A N/A The Gateway* Salt Lake City, UT 511,855 100 N/A N/A Gateway Pavilions* Avondale, AZ 297,167 99 244,020 81 Gateway Plaza Southlake, TX 336,862 94 334,030 93 Gateway Station College Station, TX 21,291 100 19,537 100 Gateway Village Annapolis, MD 271,304 99 261,807 96 Gloucester Town Center Gloucester, NJ 108,420 100 N/A N/A GMAC Winston-Salem, NC 501,064 100 501,064 100 Golfland Plaza Orange, CT 45,654 100 N/A N/A Governor's Marketplace* Tallahassee, FL 223,902 97 218,437 94 Grapevine Crossing Grapevine, TX 125,381 100 N/A N/A Green's Corner Cumming, GA 85,271 100 85,271 100 Greensburg Commons* Greensburg, IN 264,893 97 N/A N/A Gurnee Town Center* Gurnee, IL 172,188 96 172,188 96 Harris Teeter Wilmington, NC 57,230 100 57,230 100 Harvest Towne Center* Knoxville, TN 37,755 89 38,755 92 Henry Town Center* McDonough, GA 444,296 100 444,296 100 Heritage Towne Crossing Euless, TX 72,636 90 72,119 98 Hewitt Associates Campus Lincolnshire, IL 1,161,686 100 N/A N/A Hickory Ridge Hickory, NC 380,487 100 380,487 100 High Ridge Crossing* High Ridge, MO 72,657 95 N/A N/A Hobby Lobby Concord, NC 60,000 100 N/A N/A Holliday Towne Center* Duncansville, PA 70,322 85 N/A N/A Home Depot Center Pittsburgh, PA 136,123 100 N/A N/A Home Depot Plaza Orange, CT 135,643 100 N/A N/A Huebner Oaks Center San Antonio, TX 284,482 99 282,286 98 Irmo Station Irmo, SC 90,960 91 90,960 91 John's Creek Village Duluth, GA 164,882 100 141,802 100 Kaiser Foundation Hospital Cupertino, CA 100,352 100 N/A N/A Kohl's/Wilshire Plaza Kansas City, MO 88,248 100 88,248 100 La Plaza Del Norte* San Antonio, TX 306,640 96 306,640 96 Lake Forest Crossing McKinney, TX 28,673 100 N/A N/A Lake Mary Pointe Orlando, FL 47,902 94 48,952 96 Lakepointe Towne Crossing Lewisville, TX 134,804 100 N/A N/A Lakewood Towne Center* Lakewood, WA 567,413 98 550,613 95 Larkspur Landing Larkspur, CA 159,767 93 158,193 91 Lincoln Park Dallas, TX 148,806 100 148,806 100 Low Country Village* Bluffton, SC 76,385 100 75,241 98 MacArthur Crossing Los Colinas, TX 108,535 98 107,759 98
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June 30, 2005 December 31, 2004 GLA GLA Properties: Location Occupied (%) Occupied (%) - ----------- -------- -------- --- -------- --- Magnolia Square* Houma, LA 112,849 97 N/A N/A Manchester Meadows Town and Country, MO 445,272 98 442,272 97 Mansfield Towne Crossing Mansfield, TX 105,286 100 95,277 100 Maple Tree Place Williston, VT 394,647 78 N/A N/A Massillon Village Center Massillion, OH 220,658 90 N/A N/A Maytag Distribution Center Iowa City, IA 750,000 100 N/A N/A McAllen Shopping Center McAllen, TX 17,625 100 17,665 100 Mesa Fiesta Mesa, AZ 169,802 87 194,892 100 Midtown Center Milwaukee, WI 312,468 98 N/A N/A Mitchell Ranch Plaza* New Port Richey, FL 197,554 99 190,404 95 New Forest Crossing Houston, TX 146,585 100 N/A N/A Newnan Crossing I & II Newnan, GA 392,050 100 392,050 100 Newton Crossroads Covington, GA 77,096 98 78,896 100 North Ranch Pavilions Thousand Oaks, CA 57,975 92 55,928 89 North Rivers Town Center Charleston, SC 141,204 100 141,204 100 Northgate North Seattle, WA 297,006 98 297,006 98 Northpointe Plaza* Spokane, WA 372,124 98 373,207 99 Northwoods Center Wesley Chapel, FL 74,647 100 74,647 100 Oswego Commons Oswego, IL 187,666 100 186,451 99 Page Field Commons Fort Myers, FL 305,398 95 N/A N/A Paradise Valley Marketplace* Phoenix, AZ 73,700 80 72,704 79 Pavilion at King's Grant Concord, NC 79,109 100 79,109 100 Peoria Crossings* Peoria, AZ 224,054 98 209,211 98 Phenix Crossing Phenix City, AL 53,817 95 53,817 95 Pine Ridge Plaza Lawrence, KS 230,510 100 230,510 100 Placentia Town Center Placentia, CA 110,962 100 107,658 97 Plaza at Marysville Marysville, WA 111,956 97 111,656 97 Plaza at Riverlakes* Bakersfield, CA 100,836 98 102,836 100 Plaza Santa Fe II Santa Fe, NM 218,589 98 218,589 98 Pleasant Run Towne Center Cedar Hill, TX 201,185 100 201,587 100 Promenade at Red Cliff St. George, UT 85,336 90 89,561 95 Publix Mountain Brook, AL 44,271 100 N/A N/A Reisterstown Road Plaza* Baltimore, MD 780,295 98 749,370 97 Saucon Valley Square Bethlehem, PA 80,695 100 80,695 100 Shaw's Supermarket New Britain, CT 65,658 100 65,658 100 Shoppes at Lake Andrew Viera, FL 144,733 100 144,772 100 The Shoppes at Park West* Mt. Pleasant, SC 63,301 98 61,426 95 Shoppes at Quarterfield Severn, MD 59,417 96 59,417 96 Shoppes of New Hope* Dallas, GA 70,610 100 64,310 91 Shoppes of Prominence Point* Canton, GA 75,608 97 76,658 98 Shoppes of Warner Robins* Warner Robins, GA 64,397 91 N/A N/A Shops at 5 Plymouth, MA 417,856 100 N/A N/A The Shops at Boardwalk* Kansas City, MO 106,961 87 99,881 81 Shops at Forest Commons Round Rock, TX 34,756 100 34,756 100 Shops at Park Place Plano, TX 114,418 98 115,460 99 Southgate Plaza Heath, OH 85,920 100 N/A N/A Southlake Town Square* Southlake, TX 425,809 94 428,926 94 Southwest Crossing Fort Worth, TX 112,415 99 N/A N/A Stanley Works/Mac Tools Westerville, OH 72,500 100 N/A N/A Stateline Station* Kansas City, MO 132,436 93 N/A N/A Stilesboro Oaks Acworth, GA 80,772 100 80,772 100
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June 30, 2005 December 31, 2004 GLA GLA Properties: Location Occupied (%) Occupied (%) - ----------- -------- -------- --- -------- --- Stony Creek Marketplace Noblesville, IN 153,796 100 153,796 100 Tollgate Marketplace Bel Air, MD 392,587 100 392,587 100 Towson Circle* Towson, MD 108,679 100 108,679 94 Trenton Crossing McAllen, TX 214,060 100 N/A N/A University Square* University Heights, OH 186,225 65 N/A N/A University Town Center Tuscaloosa, AL 54,228 95 57,250 100 Vail Ranch Temecula, CA 100,384 99 N/A N/A The Village at Quail Springs* Oklahoma City, OK 100,404 100 N/A N/A Village Shoppes at Simonton* Lawrenceville, GA 60,815 92 58,015 87 Walgreens Northwoods, MO 16,335 100 N/A N/A Walgreens West Allis, WI 13,905 100 N/A N/A Wal-Mart Supercenter Blytheville, AR 183,047 100 183,047 100 Wal-Mart Supercenter Jonesboro, AR 149,704 100 149,704 100 Watauga Pavilion* Watauga, TX 201,811 98 199,767 97 West Town Market* Fort Mill, SC 65,800 96 N/A N/A Wickes Furniture Store Naperville, IL 41,331 100 N/A N/A Winchester Commons* Memphis, TN 91,424 98 91,424 98 Wrangler El Paso, TX 316,800 100 316,800 100 Zurich Towers Schaumburg, IL 895,418 100 895,418 100 ---------- ---------- 30,676,490 19,580,117 ========== ==========
* As part of the purchase of these properties, we are entitled to receive payments in accordance with a master lease agreement for space which was not producing revenue either at the time of or subsequent to the purchase. The master lease agreement covers rental payments due for periods ranging between three months and three years from the purchase date or until the space is leased. The percentage in the table above does not include non-revenue producing space covered by the master lease agreement. The master lease agreements combined with the physical occupancy results in an economic occupancy ranging between 78% and 100% at June 30, 2005. Subsequent Events We issued 23,415,448 shares of common stock and repurchased 110,502 shares of common stock from July 1 through July 29, 2005, resulting in a total of 380,514,221 shares of common stock outstanding at July 29, 2005. As of July 29, 2005, subscriptions for a total of 372,272,646 shares had been received resulting in total gross offering proceeds of approximately $3,723,000. An additional 8,763,785 shares had been issued pursuant to the DRP for approximately $83,000 of additional gross proceeds and 522,210 had been repurchased in connection with the SRP for approximately $5,000. We paid distributions of $18,074 to our stockholders in July 2005. We acquired the following properties during the period July 1 to July 29, 2005. The respective acquisitions are summarized in the table below.
APPROXIMATE GROSS PURCHASE LEASABLE DATE YEAR PRICE AREA ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS -------- -------- ----- --- --------- ------------- 07/01/05 Mission Crossing 2003/ 15,766 149,512 Gold's Gym San Antonio, TX 2005 Big Lots Goodwill Industries
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APPROXIMATE GROSS PURCHASE LEASABLE DATE YEAR PRICE AREA ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS -------- -------- ----- --- --------- ------------- 07/01/05 Southpark Meadows 2004 20,969 252,394 Wal-Mart Austin, TX Petsmart 07/08/05 Wild Oats Marketplace 2000 13,580 48,000 Wild Oats Marketplace Hinsdale, IL 07/08/05 Petsmart Distribution Center 2004/ 42,762 1,000,350 Petsmart Ottawa, IL 2005 07/15/05 Diebold Warehouse 2005 12,272 158,652 Diebold, Inc. Akron, OH 07/15/05 Pacheco Pass 2005 25,021 99,356 Best Buy Gilroy, CA Linen's N Things 07/19/05 Gardiner Manor Mall 1999 65,227 220,716 King Kullen Supermarkets Bay Shore, NY Linens 'N Things Old Navy Staples Michaels 07/19/05 Bed, Bath & Beyond Plaza 2000 - 16,640 61,639 Bed, Bath & Beyond Westbury, NY 2002 07/19/05 Crown Palace Theater 2000 17,033 74,170 Crown Theater Hartford, CT 07/19/05 Wilton Square 2000 - 47,161 438,097 Home Depot Saratoga Springs, NY 2001 Target Price Chopper 07/19/05 Mid-Hudson Center 1999 42,637 246,366 Home Depot Poughkeepsie, NY Stop & Shop 07/29/05 Computershare Shareholder 2000 68,777 185,171 Computershare Services Shareholder Services Canton, MA 07/29/05 The Orchard - Kohl's 2004- 6,280 88,407 Kohl's New Hartford, NY 2005
The mortgage debt obtained during the period July 1 to July 29, 2005, are detailed in the table below.
PRINCIPAL DATE MATURITY BORROWED FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($) ------ ---------------- -------------------- ---- ----------- 07/07/05 Fisher Scientific 5.13% 08/01/25 8,260 Kalamazoo, MI
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PRINCIPAL DATE MATURITY BORROWED FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($) ------ ---------------- -------------------- ---- ----------- 07/07/05 New Forest Crossing 4.75% 08/01/10 10,797 Houston, TX (5.42%)* 07/08/05 West Town Market 5.00% 07/11/10 6,048 Fort Mill, SC 07/11/05 University Square 4.78% 07/11/10 29,965 University Heights, OH 07/19/05 Acquisition Portfolio ** LIBOR + .76 08/01/07 232,408 Various locations 07/21/05 Mission Crossing 5.02% 08/01/10 13,630 San Antonio, TX
* The interest rate will increase to 5.42% after 09/01/07 ** Ten properties were financed under a single note. Together, the ten properties secure the note. We are obligated under earnout agreements to pay for certain tenant space in our existing properties after the tenant moves into its space and begins paying rent. During the period from July 1 to July 29, 2005, we funded earnouts totaling $7,559 at three of our existing properties. On July 7, 2005, we repaid our sponsor $1,523 representing the remaining unpaid balance of amounts which the sponsor had advanced us for payment of distributions in 2004. During the period from July 1 to July 29,2005, we funded a total of $16,398 on one new installment note, one outstanding installment note and one outstanding construction loan. On July 15, 2005, we received payment in full on one of our outstanding notes receivable in the amount of $22,238. On this date, we purchased the corresponding property. On July 26, 2005, we received $1,000 representing a contract breakage fee associated with a potential purchase. We will record the breakage fee, less applicable deferred acquisition costs, as other income during the third quarter of 2005. We are currently considering acquiring 59 properties for an estimated purchase price of $576 million. Our decision to acquire each property will generally depend upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions, and our receipt of satisfactory due diligence information including appraisals, environmental reports and lease information prior to purchasing the property. For further information on these potential property acquisitions and financings, see "Real Property Investments." Inflation For our multi-tenant shopping centers, inflation is likely to increase rental income from leases to new tenants and lease renewals, subject to market conditions. Our rental income and operating expenses for those properties owned, or to be owned and operated under net leases, are not likely to be directly affected by future inflation, since rents are or will be fixed under those leases and property expenses are the responsibility of the tenants. The capital appreciation of net leased properties is likely to be influenced by interest rate fluctuations. To the extent that inflation determines interest rates, future inflation may have an effect on the capital appreciation of net leased properties. As of June 30, 2005, we owned 55 single-user net lease properties. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We may be exposed to interest rate changes primarily as a result of long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations. Our interest rate risk 89 management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve our objectives we will borrow primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rates to fixed rates. We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our properties. To the extent we do, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not possess credit risk. It is our policy to enter into these transactions with the same party providing the financing, with the right of offset. In the alternative, we will minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. With regard to variable rate financing, we assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We maintain risk management control systems to monitor interest rate cash flow risk attributable to both of our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows. The fair value of our debt approximates its carrying amount as of June 30, 2005. Our interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year and expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.
2005 2006 2007 2008 2009 Thereafter ---- ---- ---- ---- ---- ---------- Maturing debt Fixed rate debt 770 1,632 58,612 58,304 966,393 1,656,838 Variable rate debt 15,907 712 - - 125,198 - Average interest rate on debt: Fixed rate debt 5.94% 5.95% 4.51% 4.73% 4.71% 4.76% Variable rate debt 3.78% 3.00% - - 4.35% -
We have $141,817 of variable rate debt with an average interest rate of 4.23% as of June 30, 2005. An increase in the variable interest rate on this debt constitutes a market risk. If interest rates increase by 1%, based on debt outstanding as of June 30, 2005, interest expense increases by approximately $1,418 on an annual basis. The table incorporates only those interest rate exposures that exist as of June 30, 2005. It does not consider those interest rate exposures or positions that could arise after that date. The information presented herein is merely an estimate and has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on the interest rate exposures that arise during the period, our hedging strategies at that time, and future changes in the level of interest rates. SHARES ELIGIBLE FOR FUTURE SALE INDEPENDENT DIRECTOR STOCK OPTION PLAN THE DISCUSSION INCLUDED IN THIS SUBSECTION, WHICH STARTS ON PAGE 332 OUR PROSPECTUS, IS SUPERCEDED IN THE ENTIRETY AND REPLACED BY THE FOLLOWING: We have established an independent director stock option plan for the purpose of attracting and retaining independent directors. See "Management--Independent Director Stock Option Plan." We have issued in the aggregate options to 90 purchase 20,000 shares of our common stock to our independent directors. An additional 61,000 shares will be available for future option grants under the independent director stock option plan. See "Management--Independent Director Stock Option Plan" for additional information regarding the independent director stock option plan. Rule 701 under the Securities Act provides that common stock acquired on the exercise of outstanding options by affiliates may be resold by them subject to all provisions of Rule 144 except its one-year minimum holding period. We intend to register the common stock to be issued under the independent director stock option plan in a registration statement or statements on SEC Form S-8 or other appropriate form. SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS THE DISCUSSION UNDER THIS HEADING, WHICH STARTS ON PAGE 335 OF OUR PROSPECTUS, IS MODIFIED TO ADD A THIRD PARAGRAPH AS FOLLOWS: On February 10, 2005, our board of directors approved the second amended and restated bylaws, which was effective as of that date. The bylaws were amended and restated to include the right of the majority of outstanding shares having the ability to vote to amend the articles, terminate our Company or remove any member of our board of directors. The bylaws were additionally amended to not allow any shares held by the business manager/advisor or the board of directors, and any affiliates the right to vote or consent on matters submitted to the shareholders regarding the removal of the business manager/advisor, board of directors or any affiliate or any transaction between us and any of the above referenced affiliated shareholders. The second amended and restated bylaws of Inland Western Retail Real Estate Trust, Inc., is filed as an exhibit to the registration statement of which this prospectus is a part and is incorporated into this filing in its entirety. STOCKHOLDERS' MEETINGS Our board of directors held the annual meeting of the stockholders on June 7, 2005, at 9:00 a.m., at our offices located at 2901 Butterfield Road, Oak Brook, IL. The meeting was for stockholders of record as of March 31, 2005. PLAN OF DISTRIBUTION THE THIRD PARAGRAPH, UNDER THE SECTION "GENERAL", WHICH STARTS ON PAGE 360 OF OUR PROSPECTUS, HAS BEEN SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS: Our dealer manager is a wholly owned subsidiary of our sponsor, Inland Real Estate Investment Corporation. Our dealer manager was also the dealer manager for the offerings for Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc., and will be the dealer manager for Inland American Real Estate Trust, Inc. once the offering becomes effective. Inland Real Estate Corporation raised approximately $696,827,000 in its offerings. Inland Retail Real Estate Trust, Inc. raised approximately $2,262,000,000 in its offerings. Inland American Real Estate Trust, Inc.'s registration statement on Form S-11 to register 500,000,000 shares of common stock and up to 40,000,000 shares of their common stock for participants in their distribution reinvestment program was declared effective by the Securities and Exchange Commission on August 31, 2005. 91 THE FOLLOWING NEW SUBSECTION IS INSERTED AT THE END OF THIS SECTION ON PAGE 360 OUR PROSPECTUS. UPDATE The following table updates shares sold in our offering as of September 8, 2005:
Commission Gross and fees Net Shares proceeds ($) ($) (1) proceeds ($) ---------------------------------------------------------------------- From our advisor 20,000 200,000 - 200,000 Our offering dated September 15, 2003: 249,980,000 2,499,720,014 262,079,815 2,237,640,199 Our second offering dated December 21, 2004 153,227,289 1,532,272,895 160,447,372 1,371,825,523 Shares sold pursuant to our distribution reinvestment program 11,097,933 105,430,364 - 105,430,364 Shares repurchased pursuant to our share repurchase program (633,136) (5,856,510) - (5,856,510) ---------------------------------------------------------------------- 413,692,086 4,131,766,763 422,527,187 3,709,239,576 ======================================================================
(1) Inland Securities Corporation serves as dealer manager of this offering and is entitled to receive selling commissions and certain other fees, as discussed further in our prospectus. We have completed our sales effort for our $2.5 billion initial public offering where we offered for sale 250 million shares of common stock. We consummated the sale of all of the shares of the offering on March 22, 2005. We commenced our $2.5 billion follow-on offering in January 2005 and are in the closing stage of the offering. We announced on September 6, 2005 that subscriptions for our common stock in our second offering will no longer be accepted after September 9, 2005. Completed subscription agreements, documents and funds for qualified and non-qualified investments must be postmarked on or before the close of business on September 9, 2005. Our distribution reinvestment program will continue in accordance with the terms of this prospectus and is unaffected by this announcement. Consult the subscription document for suitability standards in your state. LITIGATION THE FOLLOWING NEW PARAGRAPH IS INSERTED AT THE END OF THIS SECTION ON PAGE 380 OF OUR PROSPECTUS. We have received a subpoena from the New York office of the Securities and Exchange Commission regarding an investigation of Carey Financial Corporation. The information and documentation sought involves broker/dealer compensation in the sales of stock. We are cooperating with this request for information and documentation. RELATIONSHIPS AND RELATED TRANSACTIONS + WE HAVE SUPERCEDED THE FOLLOWING DESCRIPTION LOCATED UNDER THE NONSUBORDINATED PAYMENTS AT THE OPERATIONAL STAGE WITHIN THE TABULAR SUMMARY OF FEES AS DISCUSSED WHICH STARTS ON PAGE 380 OF OUR PROSPECTUS IN THE ENTIRETY, TO READ AS FOLLOWS:
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION ESTIMATED MAXIMUM DOLLAR AMOUNT Property management fee paid to our We will pay a monthly fee of 4.5% of For the quarter ended June 30, 2005 property managers, Inland US the gross income from the properties. and the year ended December 31, We 2004,
92 Management LLC, Inland Southwest will also pay a monthly fee for any we have incurred and paid property Management LLC and Inland Pacific extra services equal to no more than management fees of $8,297,378 and Property Services LLC. We will pay the 90% of that which would be payable to $5,381,721, respectively, of which fee for services in connection with the an unrelated party providing the $8,297,378 and $5,381,721 were rental, leasing, operation and services. The property managers may retained by Inland US Management management of the properties subcontract their duties for a fee LLC, Inland Southwest Management LLC that may be less than the fee and Inland Pacific Property Services provided for in the management LLC. If we acquire the businesses of services agreements. our business manager/advisor and/or our property managers, the property management fees will cease. The actual amounts we will incur in the future are dependent upon results of operations and, therefore, cannot be determined at the present time. We will compensate the Inland Mortgage Inland Mortgage Servicing Corporation For the year ended December 31, Servicing Corporation and Inland charges us .3% per year on the first 2004, and the six months ended Mortgage Brokerage Corporation for billion dollars of mortgages serviced June 30, 2005 we have incurred and purchase, sale and servicing of and .01% thereafter through April 30, paid $140,859 and $175,008, mortgages. 2005. Effective May 1, 2005, if the respectively to Inland Mortgage number of loans exceeds 100, a Servicing Corporation. For the year monthly fee will be charged in the ended December 31, 2004, we have amount of $190 per month, per loan incurred and paid $3,475,472 to being serviced. If the amount of Inland Mortgage Corporation. For the loans being serviced are less than six months ended June 30, 2005 we 100, then the amount per month, per have incurred and paid $2,710,721 to loan increases to $225. Inland Inland Mortgage Brokerage Corporation. Mortgage Brokerage Corporation charges us .2% of the principal The actual amounts we will incur in amount of each loan placed. The the future are dependent upon results compensation to these companies will of operations and cannot be determined be approved by a majority of our at the present time. directors and a majority of our independent directors as fair and reasonable for us.
EXPERTS The following financial statements have been incorporated by reference herein in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing: - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Shops at Park Place direct operating expenses of Darien Towne for the year ended December 31, 2002, Center for the year ended December 31, 2002, - - the combined historical summary of gross income - the historical summary of gross income and and direct operating expenses of Properties direct operating expenses of Hickory Ridge for Acquired from Thomas Enterprises for the year the year ended December 31, 2003, ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of CorWest Plaza for direct operating expenses of Metro Square the period from May 29, 2003 through December Center (SuperValue) for the year ended 31, 2003, December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Larkspur Landing direct operating expenses of North Ranch for the year ended December 31, 2003, Pavilion for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of La Plaza Del Norte direct operating expenses of MacArthur for the year ended December 31, 2003, Crossing for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Promenade at Red direct operating expenses of Peoria Crossing Cliff for the year ended December 31, 2003, for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Dorman Centre for direct operating expenses of Heritage Towne the year ended December 31, 2003, Crossing for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Paradise Valley direct operating expenses of Best on the Marketplace for the year ended December 31, 2003, Boulevard for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Bluebonnet Parc for direct operating expenses of North Rivers Town the year ended December 31, 2003, Center for the period of October 1, 2003 (commencement of operations) to December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Arvada Marketplace direct operating expenses of Eastwood Town and Connection for the year ended December 31, Center for the year ended December 31, 2003, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Watauga Pavilion direct operating expenses of Northpointe Plaza for the period of August 15, 2003 for the year ended December 31,
93 (commencement of operations) to December 31, 2003, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Plaza Santa Fe II direct operating expenses of Pine Ridge Plaza for the year ended December 31, 2003, for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Huebner Oaks Center direct operating expenses of John's Creek for the year ended December 31, 2003, Village for the period from September 21, 2003 (commencement of operations) to December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Lakewood Town direct operating expenses of Fullerton Center for the year ended December 31, 2003, Metrocenter for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Davis Towne direct operating expenses of Northgate North Crossing for the period from July 18, 2003 for the year ended December 31, 2003, (commencement of operations) to December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Cranberry Square direct operating expenses of Gateway Plaza for the year ended December 31, 2003, Shopping Center for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Safeway Plaza at direct operating expenses of Forks Town Center Marysville for the year ended December 31, 2003, for the year ended December 31, 2003, - - the combined historical summary of gross income - the historical summary of gross income and and direct operating expenses of the Properties direct operating expenses of The Shops at owned by Capital Centre, LLC, Gateway Village Boardwalk for the period from May 30, 2003 Limited Partnership, Bel Air Square Joint (commencement of operations) to December 31, Venture, Towson Circle Joint Venture LLP, and 2003, Reisterstown Plaza Holdings, LLC for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Manchester Meadows direct operating expenses of Governor's for the year ended December 31, 2003, Marketplace for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Mitchell Ranch direct operating expenses of The Columns for Plaza for the period from June 30, 2003 the period from October 8, 2003 (commencement (commencement of operations) to December 31, of operations) to December 31, 2003, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Saucon Valley direct operating expenses of Lincoln Park for Square for the year ended December 31, 2003, the year ended December 31, 2003, - - the historical summary of gross income and - the combined historical summary of gross direct operating expenses of Azalea Square income and direct operating expenses of
94 for the period from July 4, 2003 (commencement of The Properties Acquired from Bayer Properties, operations) to December 31, 2003, Inc. for the year ended December 31, 2003, - - the historical summary of gross income and - the combined historical summary of gross direct operating expenses of Denton Crossing for income and direct operating expenses of The the period from August 11, 2003 (commencement of Properties Acquired from Donahue Schriber for operations) to December 31, 2003, the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Gurnee Town Center direct operating expenses of Winchester for the year ended December 31, 2003, Commons for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Mansfield Town direct operating expenses of Fox Creek Village Center for the period from July 23, 2003 for the period from November 12, 2003 (commencement of operations) to December 31, (commencement of operations) to December 31, 2003, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Gateway Pavilions direct operating expenses of Northwoods Center for the period from February 15, 2003 for the year ended December 31, 2003, (commencement of operations) to December 31, - the combined historical summary of gross 2003, income and direct operating expenses of The - - the consolidated balance sheet of Inland Western Properties Acquired from Eastern Retail Retail Real Estate Trust, Inc. as of December Holdings, LP for the year ended December 31, 31, 2003 and the related consolidated statements 2003, of operations, stockholders' equity and cash - the historical summary of gross income and flows for the period from March 5, 2003 direct operating expenses of Southlake Town (inception) through December 31, 2003 and Square for the year ended December 31, 2003, related financial statement schedule, - the historical summary of gross income and direct operating expenses of Oswego Commons for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Henry Town Center direct operating expenses of Shoppes at Lake for the year ended December 31, 2003, Andrew for the year ended December 31, 2004, - - the combined historical summary of gross income - the historical summary of gross income and and direct operating expenses of the Properties direct operating expenses of Midtown Center Acquired from FFI American Market Fund, L.P. for for the year ended December 31, 2004, the year ended December 31, 2004, - - the historical summary of gross income and - the combined historical summary of gross direct operating expenses of Mesa Fiesta for the income and direct operating expenses of the year ended December 31, 2004, Properties Acquired from Weber & Company for the year ended December 31, 2004, - - the historical summary of gross income and - the consolidated balance sheets of Inland direct operating expenses of Trenton Crossing Western Retail Real Estate Trust, Inc. as of for the year ended December 31, December 31, 2004 and 2003 and the
95 2004, related consolidated statements of operations, - - the combined historical summary of gross income stockholders' equity and cash flows for the and direct operating expenses of the Properties year ended December 31, 2004 and the period Acquired from Ceruzzi Holdings the year ended from March 5, 2003 (inception) through December 31, 2004, December 31, 2003 and related financial statement schedule, management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 and the effectiveness of internal control over financial reporting as of December 31, 2004, - and the historical summary of gross income and direct operating expenses of the Stateline Station for the year ended December 31, 2004. - - the combined historical summary of gross income - the historical summary of gross income and and direct operating expenses of the Properties direct operating expenses of Montecito Acquired from Ainbinder Company for the year Crossing the year ended December 31, 2004, ended December 31, 2004, - - the combined historical summary of gross income - the historical summary of gross income and and direct operating expenses of the Properties direct operating expenses of Gateway for the Acquired from Starwood Wasserman for the year year ended December 31, 2004, ended December 31, 2004, - - the combined historical summary of gross income - the historical summary of gross income and and direct operating expenses of the Properties direct operating expenses of Four Peaks Plaza Acquired from Ceruzzi Holdings for the year for the year ended December 31, 2004, ended December 31, 2004, - and the historical summary of gross income and direct operating expenses Brickyard for the year ended December 31, 2004.
The following financial statements have been included herein in reliance upon the reports of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing: - - the combined historical summary of gross income - the historical summary of gross income and and direct operating expenses of the Properties direct operating expenses of New Forest Acquired from Newman Development Group for the Crossing the year ended December 31, 2004, year ended December 31, 2004, - - the historical summary of gross income and - and the historical summary of gross income and direct operating expenses of the Orchard for the direct operating expenses of Lincoln Plaza for year ended December 31, 2004, the year ended December 31, 2004.
Our reports related to the above Historical Summaries of gross income and direct operating expenses refer to the fact that the statements of revenue and certain expenses were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of revenue and expense. 96 APPENDIX D Our Transfer on Death (TOD) form which can be located on page D-1 in the prospectus has been updated to indicate that the states of New York and Texas have amended their statutory laws to accept TOD designations. The TOD designation is still not accepted from residents for the states of Louisiana and North Carolina. 97 INDEX TO FINANCIAL STATEMENTS
PAGE INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.: Consolidated Balance Sheets at June 30, 2005 (unaudited) and December 31, 2004 F-1 Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2005 and 2004 F-3 Consolidated Statement of Stockholders' Equity (unaudited) for the six month period ended June 30, 2005 F-4 Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2005 and 2004 F-5 Notes to Consolidated Financial Statements at June 30, 2005 F-7 Pro Forma Consolidated Balance Sheet at June 30, 2005 (unaudited) F-22 Notes to Pro Forma Consolidated Balance Sheet at June 30, 2005 (unaudited) F-24 Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2005 (unaudited) F-26 Notes to Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2005 (unaudited) F-29 Pro Forma Consolidated Statement of Operations for the year ended December 31, 2004 (unaudited) F-33 Notes to Pro Forma Consolidated Statement of Operations for the year ended December 31, 2004 (unaudited) F-35 LINCOLN PLAZA: (a) Independent Auditors' Report F-42 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-43 (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-44 NEW FOREST CROSSING: (a) Independent Auditors' Report F-46 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-47 (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-48 THE ORCHARD: (a) Independent Auditors' Report F-50 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-51 (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-52
F-i
PAGE PROPERTIES ACQUIRED FROM THE NEWMAN DEVELOPMENT GROUP: (a) Independent Auditors' Report F-54 (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-55 (c) Notes to Combined Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-56 MOUNTAIN VIEW: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-58 (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-59 WEST TOWN MARKET: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-60 (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-61 SHOPPES AT WARNER ROBINS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-62 (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-63 SOUTHPARK MEADOWS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, 2005 (commencement of operations) to June 30, 2005 (unaudited) F-64 (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, 2005 (commencement of operations) to June 30, 2005 (unaudited) F-65 MISSION CROSSING: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-66 (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-67
F-ii
PAGE STONEBRIDGE PLAZA: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-68 (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-69 GREAT SOUTHWEST CROSSING: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-70 (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) F-71
F-iii INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands) ASSETS
June 30, 2005 (unaudited) December 31, 2004 ----------- ----------------- Investment properties: Land $ 978,059 $ 575,032 Building and other improvements 4,209,187 2,654,585 ------------------- ------------------- 5,187,246 3,229,617 Less accumulated depreciation (95,190) (36,290) ------------------- ------------------- Net investment properties 5,092,056 3,193,327 Cash and cash equivalents (including cash held by management company of $17,712 and $8,574 as of June 30, 2005 and December 31, 2004, respectively) 371,041 241,224 Restricted cash (Note 2) 69,666 65,923 Restricted escrows (Note 2) 48,677 17,105 Investment in marketable securities and treasury contracts (Note 2) 58,666 1,287 Investment in unconsolidated joint ventures (Note 9) 69,933 75,261 Accounts and rents receivable (net of allowance of $1,347 and $346 as of June 30, 2005 and December 31, 2004, respectively) 43,259 19,962 Due from affiliates (Note 3) - 654 Notes receivable (Note 6) 136,000 31,772 Acquired in-place lease intangibles and customer relationship value (net of accumulated amortization of $25,691 and $9,976 as of June 30, 2005 and December 31, 2004, respectively) 367,918 240,116 Acquired above market lease intangibles (net of accumulated amortization of $6,318 and $3,124 as of June 30, 2005 and December 31, 2004, respectively) 56,405 40,774 Loan fees, leasing fees and loan fee deposits (net of accumulated amortization of $2,292 and $755 as of June 30, 2005 and December 31, 2004, respectively) 37,344 19,472 Other assets 30,301 8,939 ------------------- ------------------- Total assets $ 6,381,266 $ 3,955,816 =================== ===================
See accompanying notes to consolidated financial statements F-1 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED BALANCE SHEETS (continued) (Dollar amounts in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 2005 (unaudited) December 31, 2004 ----------- ----------------- Liabilities: Mortgages and notes payable (Note 7) $ 2,884,366 $ 1,783,114 Accounts payable 4,452 1,692 Accrued offering costs due to affiliates 2,967 2,880 Accrued offering costs due to non-affiliates 92 - Accrued interest payable 8,821 4,306 Tenant improvements payable 6,377 5,096 Accrued real estate taxes 21,518 4,254 Distributions payable 18,074 11,378 Security deposits 5,103 3,679 Prepaid rental income and other liabilities 41,170 7,765 Advances from sponsor (Note 3) 1,523 3,523 Acquired below market lease intangibles (net of accumulated amortization of $10,372 and $4,718 as of June 30, 2005 and December 31, 2004, respectively) 125,407 85,986 Restricted cash liability (Note 2) 69,666 65,923 Due to affiliates 6,757 957 ------------------- ------------------- Total liabilities 3,196,293 1,980,553 ------------------- ------------------- Minority interests 120,174 89,537 Stockholders' equity: Preferred stock, $.001 par value, 10,000,000 shares authorized, none outstanding - - Common stock, $.001 par value, 500,000,000 shares authorized, 357,209,275 and 217,457,528 shares issued and outstanding as of June 30, 2005 and December 31, 2004, respectively 357 217 Additional paid-in capital (net of offering costs of $379,556 and $234,014 as of June 30, 2005 and December 31, 2004, respectively, of which $283,906 and $175,509 was paid or accrued to affiliates as of June 30, 2005 and December 31, 2004, respectively) 3,189,470 1,940,018 Accumulated distributions in excess of net income (126,150) (54,750) Accumulated other comprehensive income 1,122 241 ------------------- ------------------- Total stockholders' equity 3,064,799 1,885,726 ------------------- ------------------- Commitments and contingencies (Note 12) Total liabilities and stockholders' equity $ 6,381,266 $ 3,955,816 =================== ===================
See accompanying notes to consolidated financial statements F-2 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED STATEMENTS OF OPERATIONS (Dollar amounts in thousands, except per share amounts) (unaudited)
Three months Three months Six months Six months ended ended ended ended June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004 ------------- ------------- ------------- ------------- Revenues: Rental income $ 92,438 $ 15,333 $ 166,501 $ 22,886 Tenant recovery income 19,650 4,051 35,469 5,799 Other income 1,027 290 1,932 295 ----------------- ----------------- ----------------- ----------------- Total revenues 113,115 19,674 203,902 28,980 ----------------- ----------------- ----------------- ----------------- Expenses: General and administrative expenses to affiliates 988 365 1,613 854 General and administrative expenses to non-affiliates 1,941 282 3,200 1,002 Advisor asset management fee 4,000 - 4,925 - Property operating expenses to affiliates 4,614 741 8,297 1,154 Property operating expenses to non-affiliates 13,345 1,876 25,515 2,496 Real estate taxes 10,775 2,027 18,936 3,014 Depreciation and amortization 42,655 6,735 77,414 10,428 ----------------- ----------------- ----------------- ----------------- Total expenses 78,318 12,026 139,900 18,948 ----------------- ----------------- ----------------- ----------------- Operating income $ 34,797 $ 7,648 $ 64,002 $ 10,032 Other income (expense) 5,030 (1,085) 7,648 (874) Interest expense (29,742) (4,452) (52,763) (7,011) Minority interests (97) - 373 - Equity in earnings (losses) of unconsolidated entities (425) - (683) - ----------------- ----------------- ----------------- ----------------- Net income $ 9,563 $ 2,111 $ 18,577 $ 2,147 ================= ================= ================= ================= Other comprehensive income: Unrealized gain on investment securities 847 48 881 48 ----------------- ----------------- ----------------- ----------------- Comprehensive income $ 10,410 $ 2,159 $ 19,458 $ 2,195 ================= ================= ================= ================= Net income per common share, basic and diluted $ .03 $ .04 $ .06 $ .04 ================= ================= ================= ================= Weighted average number of common shares outstanding, basic and diluted 321,169,565 59,688,094 286,142,048 48,805,229 ================= ================= ================= =================
See accompanying notes to consolidated financial statements F-3 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the six month period ended June 30, 2005 (Dollar amounts in thousands) (unaudited)
ACCUMULATED ACCUMULATED ADDITIONAL DISTRIBUTIONS OTHER NUMBER OF COMMON PAID-IN IN EXCESS OF COMPREHENSIVE SHARES STOCK CAPITAL NET INCOME INCOME TOTAL ----------- --------- ----------- --------------- --------------- ----------- Balance at December 31, 2004 217,457,528 $ 217 $ 1,940,018 $ (54,750) $ 241 $ 1,885,726 Net income - - - 18,577 - 18,577 Unrealized gain on investment securities - - - - 881 881 Distributions declared - - - (89,977) - (89,977) Proceeds from offering 135,472,747 135 1,355,165 - - 1,355,300 Offering costs - - (145,542) - - (145,542) Proceeds from dividend reinvestment program 4,669,879 5 44,359 - - 44,364 Shares repurchased (390,879) - (3,615) - - (3,615) Shares obligated to be repurchased as of June 30, 2005 - - (1,033) - - (1,033) Issuance of stock options and discounts on shares issued to affiliates - - 118 - - 118 ----------- --------- ----------- --------------- --------------- ----------- Balance at June 30, 2005 357,209,275 $ 357 $ 3,189,470 $ (126,150) $ 1,122 $ 3,064,799 =========== ========= =========== =============== =============== ===========
F-4 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar amounts in thousands) (unaudited)
Six months Six months ended ended June 30, 2005 June 30, 2004 ------------- ------------- Cash flows from operations: Net income $ 18,577 $ 2,147 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 58,900 7,494 Amortization 18,514 2,935 Amortization of acquired above market leases 3,297 813 Amortization of acquired below market leases (5,906) (903) Straight line rental income (6,087) (753) Straight line lease expense 1,485 - Minority interests (373) - Loss from investments in unconsolidated entities 683 - Issuance of stock options and discount on shares issued to affiliates 118 338 Realized loss on sale of treasury contracts 34 1,347 Write-off of bad debt 206 - Changes in assets and liabilities: Accounts and rents receivable net of change in allowance of $1,001 and $33 for June 30, 2005 and June 30, 2004, respectively. (17,416) (4,393) Other assets 1,194 (1,615) Accounts payable 2,760 1,373 Accrued interest payable 4,515 1,088 Accrued real estate taxes 17,298 2,042 Security deposits 1,424 1,163 Prepaid rental and recovery income and other liabilities 3,369 2,257 Due to affiliates 5,800 (2,185) ------------------- ------------------- Net cash flows provided by operating activities 108,392 13,148 ------------------- ------------------- Cash flows used in investing activities: Purchase of investment securities and treasury contracts (56,532) (3,135) Restricted escrows (31,572) (643) Purchase of investment properties (1,888,771) (1,023,123) Acquired in-place lease intangibles and customer relationship value (144,779) (88,036) Acquired above market leases (18,928) (23,519) Acquired below market leases 45,327 44,252 Contributions from minority interests - joint ventures 42,609 - Distributions to minority interests - joint ventures (6,954) - Rental income under master leases 4,044 364 Payment of leasing fees (241) (22) Tenant improvements payable 1,281 1,516 Other assets (22,556) (38,167) Funding of notes receivable (104,228) (15,601) ------------------- ------------------- Net cash flows used in investing activities (2,181,300) (1,146,114) ------------------- -------------------
See accompanying notes to consolidated financial statements F-5 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar amounts in thousands) (unaudited)
Six months ended Six months ended June 30, 2005 June 30, 2004 ------------- ------------- Cash flows from financing activities: Proceeds from offerings 1,355,300 658,417 Proceeds from the dividend reinvestment program 44,364 6,927 Shares repurchased (3,615) - Payment of offering costs (145,363) (71,873) Proceeds from mortgage debt and notes payable 1,076,277 541,453 Proceeds from margin securities debt 15,907 Principal payments on mortgage debt (608) - Lump-sum payoffs of mortgage debt (35,742) - Proceeds from unsecured line of credit - 105,000 Restricted cash collateral - (20,449) Payment of loan fees and deposits (19,168) (10,154) Distributions paid (83,281) (13,255) Due from affiliates 654 1,785 Repayment of sponsor advances (2,000) - Contribution from sponsor advances - (2,369) ------------------- ------------------- Net cash flows provided by financing activities 2,202,725 1,195,482 ------------------- ------------------- Net increase in cash and cash equivalents 129,817 62,516 Cash and cash equivalents, at beginning of period 241,224 64,381 ------------------- ------------------- Cash and cash equivalents, at end of period $ 371,041 $ 126,897 =================== =================== Supplemental disclosure of cash flow information: Cash paid for interest $ 52,592 $ 5,923 =================== =================== Consolidation of previously unconsolidated entities $ 2,245 $ - Consolidation of previously unconsolidated entities - minority interest (2,245) - =================== =================== Restricted cash $ (3,743) $ (19,997) Restricted cash liability 3,743 19,997 =================== =================== Share repurchase program $ (1,033) $ - Share repurchase program liability 1,033 - =================== =================== Supplemental schedule of non-cash investing and financing activities: Purchase of investment properties $ (1,961,673) $ (1,051,147) Assumption of mortgage debt 45,418 17,552 Assets recorded as a result of investment in joint venture 27,518 - Non-cash purchase price adjustments (34) 2,399 Write-off of acquisition reserve - 521 Conversion of mortgage receivable to investment property - 7,552 ------------------- ------------------- $ (1,888,771) $ (1,023,123) =================== =================== Distributions payable $ 18,074 $ 4,318 =================== =================== Accrued offering costs payable $ 3,059 $ 1,025 =================== =================== Write-off of in-place lease intangibles $ 1,262 $ - =================== =================== Write-off of above market lease intangibles $ 103 $ - =================== =================== Write-off of below market lease intangibles $ 252 $ - =================== ===================
See accompanying notes to consolidated financial statements F-6 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 (Dollar amounts in thousands, except per share amounts) THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA ("GAAP") FOR INTERIM FINANCIAL INFORMATION AND WITH THE INSTRUCTIONS TO FORM 10-Q AND ARTICLE 10 OF REGULATION S-X. ACCORDINGLY, THEY DO NOT INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA FOR COMPLETE FINANCIAL STATEMENTS. READERS OF THIS QUARTERLY REPORT SHOULD REFER TO THE AUDITED FINANCIAL STATEMENTS OF INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004, WHICH ARE INCLUDED IN THE COMPANY'S 2004 ANNUAL REPORT, AS CERTAIN FOOTNOTE DISCLOSURES CONTAINED IN SUCH AUDITED FINANCIAL STATEMENTS HAVE BEEN OMITTED FROM THIS REPORT. (1) Organization and Basis of Accounting Inland Western Retail Real Estate Trust, Inc. (the "Company") was formed on March 5, 2003 to acquire and manage a diversified portfolio of real estate, primarily multi-tenant shopping centers and single-user net lease properties. The Advisory Agreement provides for Inland Western Retail Real Estate Advisory Services, Inc. (the "Business Manager/Advisor"), an affiliate of the Company, to be the Business Manager/Advisor to the Company. On September 15, 2003, the Company commenced an initial public offering (the "initial public offering") of up to 250,000,000 shares of common stock at $10 each and the issuance of 20,000,000 shares at $9.50 each which may be distributed pursuant to the Company's distribution reinvestment program (the "DRP"). Sales of shares for the initial public offering were completed on March 22, 2005. The Company filed a registration statement for an offering (the "second offering") which became effective on December 28, 2004 with the Securities and Exchange Commission for up to 250,000,000 shares of common stock at $10 each and up to 20,000,000 shares at $9.50 each pursuant to the DRP. Sales of shares in the second offering began in early January 2005. The Company is qualified and has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended, for federal income tax purposes commencing with the tax year ending December 31, 2003. Since the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal income tax to the extent it distributes at least 90% of its REIT taxable income to its stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and federal income and excise taxes on its undistributed income. The Company provides the following programs to facilitate investment in the Company's shares and to provide limited liquidity for stockholders: The Company allows stockholders who purchase shares in the offerings to purchase additional shares from the Company by automatically reinvesting distributions through the DRP, subject to certain share ownership restrictions. Such purchases under the DRP are not subject to selling commissions or the marketing contribution and due diligence expense allowance, and are made at a price of $9.50 per share. The Company will repurchase shares under the share repurchase program (the "SRP"), if requested, at least once quarterly on a first-come, first-served basis, subject to certain restrictions. Subject to funds being available, the Company will limit the number of shares repurchased during any calendar year to 5% of the weighted average number of shares outstanding during the prior calendar year. Funding for the SRP will come exclusively from proceeds that the Company receives from the sale of shares under the DRP and such other operating funds, if any, as the Company's board of directors, at its sole discretion, may reserve for this purpose. The board, at its sole discretion, may choose to terminate the SRP after the end of the offering period, or reduce the number of shares purchased under the program, if it determines that the funds allocated to the SRP are needed for other purposes, such as the acquisition, maintenance or repair of properties, or for use in making a declared distribution. A determination by the board to eliminate or reduce the SRP will require the unanimous affirmative vote of the independent directors. F-7 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts) The accompanying Consolidated Financial Statements include the accounts of the Company, as well as all wholly-owned subsidiaries and consolidated joint venture investments. Wholly-owned subsidiaries generally consist of limited liability companies ("LLCs") and limited partnerships ("LPs"). The effects of all significant intercompany transactions have been eliminated. The Company consolidates certain property holding entities and other subsidiaries that it owns less than a 100% equity interest if the entity is a variable interest entity ("VIE") and the Company is the primary beneficiary (as defined in FASB Interpretation 46(R) CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51, AS REVISED ("FIN 46(R)")). For joint ventures that are not VIEs of which the Company owns less than 100% of the equity interest, the Company consolidates the entity if it has the direct or indirect ability to make major decisions. Major decisions are defined in the respective joint venture agreements and generally include participating and protective rights such as decisions regarding major leases, encumbering the entities with debt and whether to dispose of the entities. The Company has ownership interests ranging between 52% and 95% in the LLCs or LPs which own Gateway Village, Boulevard at the Capital Centre, Towson Circle, Reisterstown Road Plaza, Tollgate Marketplace, Chantilly Crossing, Gloucester Town Center, Home Depot Center, Home Depot Plaza, Century III Plaza and Southlake Town Square Building 3C. However, the Company shares equally in "major decisions" (as defined). These entities are considered VIEs as defined in FIN 46(R) and the Company is considered the primary beneficiary. Therefore, these entities are consolidated by the Company. All of the LLC or LP agreements contain put/call provisions which grant the right to the outside owners and the Company to require each LLC or LP to redeem the ownership interest of the outside owners during future periods. In instances where outside ownership interests are subject to put/call arrangements requiring settlement for fixed amounts, the LLC or LP is treated as a 100% owned subsidiary by the Company with the amount due the outside owner reflected as a financing and included within prepaid rental income and other liabilities in the accompanying Consolidate Financial Statements. Interest expense is recorded on such liabilities in amounts generally equal to the preferred returns due to the outside owners as provided in the LLC or LLP agreements. The Company has a 60.9% ownership interest in, and is the controlling member of the LLC which owns Cardiff Hall East Apartments. The other members' interests in the property are reflected as minority interest in the accompanying Consolidated Financial Statements. The Company has a 75% tenancy in common ownership in North Plaza Shopping Center. The other partners' interests in the property are reflected as minority interest in the accompanying Consolidated Financial Statements. Cardiff Hall East Apartments and North Plaza Shopping Center are considered restricted assets. These assets are considered restricted because the Company's joint venture partner is exclusively entitled to the economic benefits of the assets. Minority interest is adjusted for additional contributions and distributions to minority holders as well as the minority holders' share of the net earnings or losses of each respective entity. (2) Summary of Significant Accounting Policies Rental income is recognized on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable in the accompanying Consolidated Balance Sheets. The Company records lease termination income if there is a signed termination agreement, all of the conditions of the agreement have been met, and the tenant is no longer occupying the property. Upon early lease termination, the Company provides for losses related to unrecovered intangibles and other assets. F-8 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts) The Company considers all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements purchased with a maturity of three months or less, at the date of purchase, to be cash equivalents. The Company maintains its cash and cash equivalents at financial institutions. The combined account balances at one or more institutions periodically exceed the Federal Depository Insurance Corporation ("FDIC") insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes that the risk is not significant, as the Company does not anticipate the financial institutions' non-performance. 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 June 30, 2005 consists of preferred and common stock investments and is classified as available-for-sale securities and is recorded at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported as a separate component of other comprehensive income until realized. Of the investment securities held on June 30, 2005 and December 31, 2004, the Company has accumulated other comprehensive income of $1,122 and $241, respectively. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. During the six months ended June 30, 2005 and 2004, the Company realized losses of $34 and $1,347, respectively, on the sale of shares. A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary, results in a reduction in the carrying amount to fair value. The impairment is charged to earnings and a new costs basis for the security is established. To determine whether an impairment is other than temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year end and forecasted performance of the investee. The Company has purchased a portion of its securities through a margin account. As of June 30, 2005, the Company has recorded a payable of $15,907 for securities purchased on margin. There was no payable related to margin securities as of December 31, 2004. The Company allocates the purchase price of each acquired investment property between land, building and improvements, acquired above market and below market leases, in-place lease value, and any assumed financing that is determined to be above or below market terms. In addition, we allocate a portion of the purchase price to the value of the customer relationships, if any. The allocation of the purchase price is an area that requires judgment and significant estimates. The Company uses the information contained in the independent appraisal obtained at acquisition as the primary basis for the allocation to land and building and improvements. The Company determines whether any financing assumed is above or below market based upon comparison to similar financing terms for similar investment properties. The Company allocates a portion of the purchase price to the estimated acquired in-place lease costs based on estimated lease execution costs for similar leases as well as lost rent payments during assumed lease-up period when calculating as if vacant fair values. The Company considers various factors including geographic location and size of leased space. The Company also evaluates each acquired lease based upon current market rates at the acquisition date and considers various factors including geographical location, size and location of leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired lease is above or below market lease costs. After an acquired lease is determined to be above or below market, the Company allocates a portion of the purchase price to such above or below acquired lease costs based upon the present value of the difference between the contractual lease rate and the estimated market rate. For below market leases with fixed rate renewals, renewal periods are included in the calculation of below market in-place lease values. The determination of the discount rate used in the present value calculation is based upon the "risk free rate." This discount rate is a significant factor in determining the market valuation which requires the Company's judgment of subjective factors such as market knowledge, economics, demographics, location, visibility, age and physical condition of the property. F-9 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts) The application of the Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") Nos. 141 and 142 resulted in the recognition upon acquisition of additional intangible assets and liabilities relating to real estate acquisitions during the three and six months ended June 30, 2005. The portion of the purchase price allocated to acquired above market lease costs and acquired below market lease costs are amortized on a straight line basis over the life of the related lease as an adjustment to rental income and over the respective renewal period for below market lease costs with fixed rate renewals. Amortization pertaining to the above market lease costs of $1,827 and $3,297 was applied as a reduction to rental income for the three and six months ended June 30, 2005. Amortization pertaining to the below market lease costs of $3,046 and $5,906 was applied as an increase to rental income for the three and six months ended June 30, 2005. The portion of the purchase price allocated to acquired in-place lease intangibles is amortized on a straight line basis over the life of the related lease. The Company incurred amortization expense pertaining to acquired in-place lease intangibles of $9,042 and $16,858 for the three and six month periods ended June 30, 2005. The portion of the purchase price allocated to customer relationship value is amortized on a straight line basis over the life of the related lease. The Company incurred amortization expense pertaining to customer relationship value of $64 and $119 for the three and six months ended June 30, 2005. The following table presents the amortization during the next five years related to the acquired in-place lease intangibles, customer relationship value, acquired above market lease costs and the below market lease costs for properties owned at June 30, 2005.
July 1, 2005 through December 31, Amortization of: 2005 2006 2007 2008 2009 Thereafter ------------ ------------ ------------ ------------ ------------ ------------ Acquired above market lease costs $ (3,783) (7,394) (6,548) (6,242) (5,669) (26,769) Acquired below market lease costs 6,304 11,885 10,802 9,667 8,769 77,980 -------------------------------------------------------------------------------------------- Net rental income increase $ 2,521 4,491 4,254 3,425 3,100 51,211 ============================================================================================ Acquired in-place lease intangibles $ 20,025 40,050 40,050 39,996 38,725 186,594 Customer relationship value $ 130 260 260 260 260 1,308
Depreciation expense is computed using the straight line method. Building and improvements are depreciated based upon estimated useful lives of 30 years for building and improvements and 15 years for site improvements. Tenant improvements are depreciated on a straight line basis over the life of the related lease as a component of depreciation and amortization expense. F-10 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts) In accordance with SFAS No. 144, the Company performs a quarterly analysis to identify impairment indicators to ensure that the investment property's carrying value does not exceed its fair value. If an impairment indicator is present, the valuation analysis performed by the Company is based upon many factors which require difficult, complex or subjective judgments to be made. Such assumptions include projecting vacancy rates, rental rates, operating expenses, lease terms, tenant financial strength, economy, demographics, property location, capital expenditures and sales value among other assumptions to be made upon valuing each property. This valuation is sensitive to the actual results of any of these uncertain factors, either individually or taken as a whole. Based upon the Company's judgment, no impairment was warranted as of June 30, 2005 or December 31, 2004. In conjunction with certain acquisitions, the Company receives payments under master lease agreements pertaining to certain non-revenue producing spaces either at the time of, or subsequent to the purchase of some of the Company's properties. Upon receipt of the payments, the receipts are recorded as a reduction in the purchase price of the related properties rather than as rental income. These master leases were established at the time of purchase in order to mitigate the potential negative effects of loss of rent and expense reimbursements. Master lease payments are received through a draw of funds escrowed at the time of purchase and may cover a period from three months to three years. These funds may be released to either the Company or the seller when certain leasing conditions are met. Restricted cash includes funds received by third party escrow agents from sellers pertaining to master lease agreements. The Company records the third party escrow funds as both an asset and a corresponding liability, until certain leasing conditions are met. These amounts are recorded as restricted cash and restricted cash liabilities on the Consolidated Balance Sheets. Restricted escrows primarily consist of lenders' restricted escrows and funds restricted through joint ventures. Notes receivable relate to real estate financing arrangements and bear interest at a market rate based on the borrower's credit quality and are recorded at face value. Interest is recognized over the life of the note. The Company requires collateral for the notes. A note is considered impaired pursuant to SFAS No. 114, ("SFAS 114") ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN. Pursuant to SFAS 114, a note is impaired if it is probable that the Company will not collect all principal and interest contractually due. The impairment is measured based on the present value of expected future cash flows discounted at the note's effective interest rate. The Company does not accrue interest when a note is considered impaired. When ultimate collectibility of the principal balance of the impaired note is in doubt, all cash receipts on the impaired note are applied to reduce the principal amount of the note until the principal has been recovered and are recognized as interest income, thereafter. The carrying amount of the Company's debt approximates fair value. The Company estimates the fair value of its mortgages payable by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Company's lenders. The carrying amount of the Company's other financial instruments approximate fair value because of the relatively short maturity of these instruments. Certain reclassifications have been made to the 2004 financial statements to conform to the 2005 presentation. New Accounting Pronouncements In December 2004, the FASB issued SFAS No. 153, EXCHANGE OF NONMONETARY ASSETS, AN AMENDMENT OF APB OPINION NO. 29, ("SFAS 153"). The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured on the fair value of assets exchanged. It eliminates the exceptions for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. The statement is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not believe that the adoption of SFAS 153 will have a material impact on its Consolidated Financial Statements. F-11 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts) Emerging Issues Task Force ("EITF") Issue 04-5, INVESTOR'S ACCOUNTING FOR AN INVESTMENT IN A LIMITED PARTNERSHIP WHEN THE INVESTOR IS THE SOLE GENERAL PARTNER AND THE LIMITED PARTNERS HAVE CERTAIN RIGHTS, was ratified by the FASB in June 2005. At issue is what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would consolidate the limited partnership in accordance with U.S. generally accepted accounting principles. The assessment of limited partners' rights and their impact on the presumption of control of the limited partnership by the sole general partner should be made when an investor becomes the sole general partner and should be reassessed if (a) there is a change to the terms or in the exercisability of the rights of the limited partners, (b) the sole general partner increases or decreases its ownership of limited partnership interests, or (c) there is an increase or decrease in the number of outstanding limited partnership interests. This consensus applies to limited partnerships or similar entities, such as limited liability companies that have governing provisions that are the functional equivalent of a limited partnership. This Issue is effective no later than for fiscal years beginning after December 15, 2005 and as of June 29, 2005 for new or modified arrangements. The Company does not expect that it will be required to consolidate any of its current unconsolidated investments nor will this EITF have a material effect on its financial statements. (3) Transactions with Affiliates The Business Manager/Advisor contributed $200 to the capital of the Company for which it received 20,000 shares of common stock. As of June 30, 2005 and December 31, 2004, the Company had incurred $379,556 and $234,014 of offering costs for both the initial public offering and second offering, of which $283,906 and $175,509, respectively, was paid or accrued to affiliates. Pursuant to the terms of the offerings, the Business Manager/Advisor has guaranteed payment of all public offering expenses (excluding sales commissions and the marketing contribution and the due diligence expense allowance) in excess of 5.5% of the gross proceeds of the offering or all organization and offering expenses (including selling commissions) which together exceed 15% of gross proceeds. As of June 30, 2005 and December 31, 2004, offering costs did not exceed the 5.5% and 15% limitations. The Company anticipates that these costs will not exceed these limitations upon completion of the offerings. The Business Manager/Advisor and its affiliates are entitled to reimbursement for salaries and expenses of employees of the Business Manager/Advisor and its affiliates relating to the offerings. In addition, an affiliate of the Business Manager/Advisor is entitled to receive selling commissions, and the marketing contribution and due diligence expense allowance from the Company in connection with the offerings. Such offering costs are offset against the stockholders' equity accounts. Such costs totaled $283,906 and $175,509, of which $2,967 and $2,880 remained unpaid at June 30, 2005 and December 31, 2004, respectively. The Business Manager/Advisor and its affiliates are entitled to reimbursement for general and administrative costs relating to the Company's administration. For the three and six month periods ended June 30, 2005, the Company incurred $1,049 and $2,030, respectively, of these costs. For the three and six month periods ended June 30, 2004, the Company incurred $371 and $637, respectively. Of these costs, $1,832 and $957 remained unpaid as of June 30, 2005 and December 31, 2004, respectively, and are included in due to affiliates on the Consolidated Balance Sheets. An affiliate of the Business Manager/Advisor provides loan servicing to the Company for an annual fee. Such costs are included in general and administrative costs to affiliates. Prior to May 1, 2005, the agreement allowed for annual fees totaling .03% of the first $1 billion in mortgage balance outstanding and .01% of the remaining mortgage balances, payable monthly. Effective May 1, 2005, if the number of loans exceeds 100, a monthly fee will be charged in the amount of 190 dollars per month, per loan being serviced. If the amount of loans being serviced are less than 100, then the amount per month, per loan increases to 225 dollars. Such fees totaled $84 and $175 for the three and six months ended June 30, 2005 and $17 and $21 for the three and six months ended June 30, 2004, respectively. None remained unpaid as of June 30, 2005 or December 31, 2004. F-12 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts) The Company uses the services of an affiliate of the Business Manager/Advisor to facilitate the mortgage financing that the Company obtains on some of the properties purchased. The Company pays the affiliate .2% of the principal amount of each loan obtained on the Company's behalf. Such costs are capitalized as loan fees and amortized over the respective loan term. For the three and six months ended June 30, 2005, the Company paid loan fees totaling $1,811 and $2,712, respectively, to this affiliate. For the three and six months ended June 30, 2004, the Company paid loan fees totaling $754 and $1,122, respectively, to this affiliate. No amounts remained unpaid as of June 30, 2005 or December 31, 2004. The Company may pay an advisor asset management fee of not more than 1% of the average assets. Average asset value is defined as the average of the total book value, including acquired intangibles, of the Company's real estate assets plus the Company's loans receivable secured by real estate, before reserves for depreciation, reserves for bad debt or other similar non-cash reserves. The Company computes the average assets by taking the average of these values at the end of each month for which the fee is being calculated. The fee is payable quarterly in an amount equal to 1/4 of 1% of the Company's average assets as of the last day of the immediately preceding quarter. For any year in which the Company qualifies as a REIT, the advisor must reimburse the Company for the following amounts if any: (1) the amounts by which total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of: (i) 2% of average assets for that fiscal year, or (ii) 25% of net income for that fiscal year; plus (2) an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the total amount of distributions to stockholders for that year and the 6% minimum annual return on the net investment of stockholders. The Company neither paid nor accrued such fees for the three and six months ended June 30, 2004 because the Business Manager/Advisor agreed to forego such fees. The Company accrued fees totaling $4,000 and $4,925 for the three and six months ended June 30, 2005, all of which remained unpaid as of that date. The Business Manager/Advisor agreed to forego any additional fees for these time periods. The property managers, entities owned principally by individuals who are affiliates of the Business Manager/Advisor, are entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services. The Company incurred property management fees of $4,614 and $8,297 for the three and six months ended June 30, 2005 and $741 and $1,154 for the three and six months ended June 30, 2004, respectively. None remained unpaid as of June 30, 2005 or December 31, 2004. The Company established a discount stock purchase policy for affiliates of the Company and the Business Manager/Advisor that enables the affiliates to purchase shares of common stock at a discount at either $8.95 or $9.50 per share depending on when the shares are purchased. The Company sold 84,073 and 151,211 shares of common stock to affiliates and recognized an expense related to these discounts of $74 and $116 for the three and six months ended June 30, 2005 and sold 70,933 and 510,839 shares of common stock to affiliates and recognized an expense related to these discounts of $36 and $336 for the three and six months ended June 30, 2004, respectively. As of December 31, 2004, the Company was due funds from affiliates for costs paid by the Company on their behalf in the amount of $654. No funds were due from affiliates as of June 30, 2005. During 2004, the sponsor advanced funds to the Company for a portion of distributions paid to the Company's shareholders until funds available for distributions were sufficient to cover the distributions. The sponsor forgave $2,369 of these amounts during the second quarter of 2004 and these funds were no longer due and were recorded as a contribution to capital in the accompanying Consolidated Financial Statements. As of June 30, 2005 and December 31, 2004, the Company owed funds to the sponsor in the amount of $1,523 and $3,523, respectively, for repayment of the funds advanced for payment of distributions for 2004. The unpaid balance as of June 30, 2005 of $1,523 was repaid in full in July 2005. No funds have been advanced during 2005. F-13 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts) (4) Stock Option Plan The Company has adopted an Independent Director Stock Option Plan (the "Plan") which, subject to certain conditions, provides for the grant to each independent director of an option to acquire 3,000 shares following their becoming a director and for the grant of additional options to acquire 500 shares on the date of each annual stockholders' meeting. The options for the initial 3,000 shares are exercisable as follows: 1,000 shares on the date of grant and 1,000 shares on each of the first and second anniversaries of the date of grant. The subsequent options will be exercisable on the second anniversary of the date of grant. The initial options will be exercisable at $8.95 per share. The subsequent options will be exercisable at the fair market value of a share on the last business day preceding the annual meeting of stockholders as determined under the Plan. During the six months ended June 30, 2005, the Company issued 2,500 new options. As of June 30, 2005 and December 31, 2004, there had been a total of 20,000 and 17,500 options issued, of which none had been exercised or expired. The Company calculates the per share weighted average fair value of options granted on the date of the grant using the Black Scholes option-pricing model utilizing certain assumptions regarding the expected dividend yield, risk free interest rate, expected life and expected volatility rate. During the three and six months ended June 30, 2005, the Company recorded $1 and $2, respectively, of expense related to stock options. During the three and six months ended June 30, 2004, the Company also recorded $1 and $2, respectively, of expense related to stock options. (5) Leases Master Lease Agreements In conjunction with certain acquisitions, the Company receives payments under master lease agreements pertaining to certain non-revenue producing spaces at the time of purchase for periods ranging from three months to three years after the date of purchase or until the spaces are leased. As these payments are received, they are recorded as a reduction in the purchase price of the respective property rather than as rental income. The cumulative amount of such payments was $7,069 and $3,025 as of June 30, 2005 and December 31, 2004, respectively. Operating Leases Minimum lease payments to be received under operating leases, excluding rental income under master lease agreements and assuming no expiring leases are renewed, are as follows:
Minimum Lease Payments ------------------- 2005 $ 351,331* 2006 388,817 2007 378,349 2008 363,878 2009 338,555 Thereafter 2,344,223 ------------------- Total $ 4,165,153 ===================
* For the twelve month period from January 1, 2005 through December 31, 2005. The remaining lease terms range from one year to 55 years. Pursuant to the lease agreements, tenants of the property are required to reimburse the Company for a portion or their entire pro rata share of the real estate taxes, operating expenses and management fees of the properties. Such amounts are included in tenant recovery income. F-14 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts) Ground Leases The Company leases land under noncancelable operating leases at certain of the properties expiring in various years from 2028 to 2096. For the three and six months ended June 30, 2005, ground lease rent was $1,843 and $3,301, respectively. No ground lease payments were required to be made during the three and six months ended June 30, 2004. Minimum future rental payments to be paid under the ground leases are as follows:
Minimum Lease Payments ------------------- 2005 $ 4,217* 2006 4,828 2007 4,943 2008 4,986 2009 5,162 Thereafter 456,325 ------------------- Total $ 480,461 ===================
* For the twelve month period from January 1, 2005 through December 31, 2005. (6) Notes Receivable The notes receivable balance of $136,000 as of June 30, 2005 consisted of five installment notes and two construction loans. The installment notes have interest rates ranging from 5.00% to 7.56% and mature on dates ranging from July 15, 2005 to December 21, 2007. Interest only is due on all notes. All installment notes are secured by either a first mortgage on retail real estate or cash held in a restricted account. The outstanding balance on these installment notes was $93,277 as of June 30, 2005. The note maturing on July 15, 2005 was paid of in full on that date, at which time the Company purchased the corresponding property. The construction loans have interest rates of 7.48% and 8.50% and mature in May 2007 and October 2007. The loans are secured by first mortgages on the properties. The loans can be funded to up to a total of approximately $129,150, of which the outstanding balance was $42,723 as of June 30, 2005. (7) Mortgages and Note Payable Mortgages Payable Mortgage loans outstanding as of June 30, 2005 were $2,867,747 and had a weighted average interest rate of 4.72%. Of this amount, $2,742,549 had fixed rates ranging from 3.96% to 8.02% and a weighted average fixed rate of 4.74% at June 30, 2005. The rate of 8.02% represented the interest rate on the mortgage for Cardiff Hall East (Cardiff), a consolidated joint venture investment. Excluding the Cardiff mortgage, the highest fixed rate on our mortgage debt was 7.48%. The remaining $125,198 represented variable rate loans with a weighted average interest rate of 4.35% at June 30, 2005. Properties with a net carrying value of $4,593,396 at June 30, 2005 and related tenant leases are pledged as collateral. As of June 30, 2005, scheduled maturities for the Company's outstanding mortgage indebtedness had various due dates through December 2035. F-15 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts) The following table shows the mortgage debt maturing during the next five years:
2005 2006 2007 2008 2009 Thereafter ------------ ------------ ------------ ------------ ------------ ------------ Maturing debt Fixed rate debt 770 1,632 58,612 58,304 966,393 1,656,838 Variable rate debt - - - - 125,198 -
The debt is cross-collateralized among properties in connection with the financings of: Heritage Towne Crossing and Eckerd Drug Stores in Norman and Edmond, OK; the Eckerd Drug Stores in Crossville, TN, Columbia and Greer, SC, and Kill Devil Hills, NC; the Academy Sports stores in Houma, LA, and Port Arthur, Midland and San Antonio, TX; Shaw's Supermarket and Shops at Park Place; Five Forks and Blockbuster at Five Forks; Brown's Lane, Edwards Megaplex - Ontario and Massillon Village; Edwards Megaplex - Fresno and Cuyahoga Falls and Fairgrounds Plaza and another one of the seller's properties located in Norwalk, CT which the Company currently does not intend to acquire. Notes Payable As part of the Plaza Santa Fe II loan assumption, a promissory note with a principal amount approximating $414 was executed between the Company and the seller for the total amount that the seller had paid into escrows under the loan agreement as of the acquisition date. The note bears interest at the rate of prime less 3.00%, payable to the seller upon maturity of the note in 2006. The seller also agreed to fund the Company's monthly required payments into this escrow for a period of two years. Each monthly payment funded by the seller increases the principal balance of the note payable. The outstanding note payable balance at June 30, 2005 is approximately $712. Margin Payable The Company has purchased a portion of its securities through a margin account. As of June 30, 2005, the Company has recorded a payable of $15,907 for securities purchased on margin. There was no payable related to margin securities as of December 31, 2004. This debt bears variable interest rates ranging between the London InterBank Offered Rate ("LIBOR") plus 25 basis points and LIBOR plus 50 basis points. At June 30, 2005, these rates were equal to a range between 3.59% and 3.84%. (8) Line of Credit The Company has an unsecured line of credit facility with a bank for up to $100,000 with an optional unsecured borrowing capacity of $150,000, for a total unsecured borrowing capacity of $250,000. The facility has an initial term of one year with two one-year extension options, with an annual variable interest rate. The funds from this line of credit may be used to provide liquidity from the time a property is purchased until permanent debt is placed on that property. The line of credit requires interest only payments monthly at the rate equal to LIBOR plus up to 190 basis points depending on the Company's leverage ratio. LIBOR ranged from 2.87% to 3.34% during the quarter ended June 30, 2005. The Company is also required to pay, on a quarterly basis, an amount ranging from .15% to .25%, per annum, on the average daily undrawn funds under this line. The line of credit requires compliance with certain covenants, such as debt service ratios, minimum net worth requirements, distribution limitations and investment restrictions. As of June 30, 2005, the Company was in compliance with such covenants. There was no outstanding balance on the line as of June 30, 2005. F-16 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts) (9) Investment in Unconsolidated Joint Ventures The following table summarizes the Company's investments in unconsolidated joint ventures:
Ownership Investment in Date of Interest at Joint Venture at Property Location Investment June 30, 2005 June 30, 2005 - ----------------------------------------------------------------------------------------------------------- ------------------- Courthouse Square Apartments Towson, MD 08/11/04 36.50% $ 5,283 The Power Plant Baltimore, MD 11/05/04 50.00% $ 17,133 Pier IV Baltimore, MD 11/05/04 66.67% $ 18,938 Louisville Galleria Louisville, KY 12/29/04 47.10% $ 28,579
These investments are accounted for utilizing the equity method of accounting. Under the equity method of accounting, the net equity investment of the Company is reflected on the Consolidated Balance Sheets and the Consolidated Statements of Operations includes the Company's share of net income or loss from the unconsolidated entity. These investments are considered restricted. They are considered restricted because the Company's joint venture partner is entitled to all of the economic benefits of the investments. For the three and six months ended June 30, 2005, all equity in earnings of unconsolidated entities was allocated to the Company's joint venture partners in accordance with the joint venture operating agreements. (10) Segment Reporting The Company owns and seeks to acquire multi-tenant shopping centers and single-user net lease properties primarily in the western United States. The Company's shopping centers are typically anchored by credit tenants, discount retailers, home improvement retailers, grocery and drugstores complemented with additional stores providing a wide range of other goods and services to shoppers. The Company assesses and measures operating results of its properties based on net property operations. The Company's investment properties are considered one operating segment. Management internally evaluates the operating performance of the properties as a whole and does not differentiate properties by geography, size or type. Net property operations are summarized in the following table for the six months ended June 30, 2005 and 2004, along with a reconciliation to net income.
Six months ended Six months ended June 30, 2005 June 30, 2004 ------------------- ------------------- Property rental income and additional property income $ 203,902 $ 28,980 Total property operating expenses (52,748) (6,664) Interest expense (52,763) (7,011) ------------------- ------------------- Net property operations 98,391 15,305 ------------------- ------------------- Other income (expense) 7,648 (874) Less non-property expenses: General and administrative expenses (4,813) (1,856) Advisor asset management fee (4,925) - Depreciation and amortization (77,414) (10,428) Minority interests 373 - Equity in earnings (losses) of unconsolidated entities (683) - ------------------- ------------------- Net income $ 18,577 $ 2,147 =================== ===================
F-17 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts) The following table summarizes property asset information as of June 30, 2005 and December 31, 2004.
June 30, 2005 December 31, 2004 ------------------- ------------------- Total assets: Rental real estate $ 5,796,282 $ 3,601,513 Non-segment assets 584,984 354,303 ------------------- ------------------- $ 6,381,266 $ 3,955,816 =================== ===================
The Company does not derive any of its consolidated revenue from foreign countries and does not have any major customers that individually account for 10% or more of the Company's consolidated revenues. (11) Earnings per Share Basic earnings per share ("EPS") are computed by dividing income by the weighted average number of common shares outstanding for the period (the "common shares"). Diluted EPS is computed by dividing net income by the common shares plus shares issuable upon exercising options or other contracts. As of June 30, 2005 and 2004, options to purchase 20,000 and 15,000 shares of common stock, respectively, at an exercise price of $8.95 per share were outstanding. These options were not included in the computation of basic or diluted EPS as the effect would be immaterial. The basic and diluted weighted average number of common shares outstanding was 321,169,565 and 286,142,048 for the three and six months ended June 30, 2005 and 59,688,094 and 48,805,229 for the three and six months ended June 30, 2004, respectively. (12) Commitments and Contingencies The Company has acquired several properties which have earnout components, meaning the Company did not pay for portions of these properties that were not rent producing. The Company is obligated, under certain agreements, to pay for those portions when the tenant moves into its space and begins to pay rent. The earnout payments are based on a predetermined formula. Each earnout agreement has a time limit regarding the obligation to pay any additional monies. The time limits generally range from one to three years. If at the end of the time period allowed certain space has not been leased and occupied, the Company will own that space without any further payment obligation to the seller. Based on pro-forma leasing rates, the Company may pay as much as $161,018 in the future as retail space covered by earnout agreements is occupied and becomes rent producing. The Company has entered into five installment note agreements and two construction loan agreements in which the Company has committed to fund up to a total of $226,977. Each loan requires monthly interest payments with the entire principal balance due at maturity. The combined receivable balance at June 30, 2005 was $136,000. Therefore, the Company may be required to fund up to an additional $90,977 on these loans. The Company has obtained ten irrevocable letters of credit related to loan fundings against earnout spaces at certain properties. Once the Company purchases the remaining portion of these properties and meet certain occupancy requirements, the letters of credit will be released. The balance of outstanding letters of credit at June 30, 2005 was $41,144. F-18 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts) The Company has entered into interest rate lock agreements with various lenders to secure interest rates on mortgage debt on properties the Company currently owns or plans to purchase in the future. The Company has outstanding rate lock deposits in the amount of $15,710 as of June 30, 2005 which are applied as credits to the mortgage fundings as they occur. These agreements lock interest rates from 4.58% to 5.30% for periods from 60 days to 90 days on approximately $1,111,000 in principal. The Company is currently considering acquiring 22 properties for an estimated aggregate purchase price of $454,000. The Company's decision to acquire each property will generally depend upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions and the Company's receipt of satisfactory due diligence information including appraisals, environmental reports and lease information prior to purchasing the property. (13) Subsequent Events The Company issued 23,415,448 shares of common stock (including shares issued through the DRP) and repurchased 110,502 shares of common stock from July 1 through July 29, 2005, resulting in gross proceeds of approximately $233,000. The Company paid distributions of $18,074 to its stockholders in July 2005. The Company acquired the following properties during the period July 1 to July 29, 2005. The respective acquisitions are detailed in the table below.
APPROXIMATE GROSS PURCHASE LEASABLE DATE YEAR PRICE AREA ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS -------- -------- ----- --- --------- ------------- 07/01/05 Mission Crossing 2003/ 15,766 149,512 Gold's Gym San Antonio, TX 2005 Big Lots Goodwill Industries 07/01/05 Southpark Meadows 2004 20,969 252,394 Wal-Mart Austin, TX Petsmart 07/08/05 Wild Oats Marketplace 2000 13,580 48,000 Wild Oats Marketplace Hinsdale, IL 07/08/05 Petsmart Distribution Center 2004/ 42,761 1,000,350 Petsmart Ottawa, IL 2005 07/15/05 Diebold Warehouse 2005 12,272 158,652 Diebold, Inc. Akron, OH 07/15/05 Pacheco Pass 2005 25,021 99,356 Best Buy Gilroy, CA Linen's N Things
F-19 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts)
APPROXIMATE GROSS PURCHASE LEASABLE DATE YEAR PRICE AREA ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS -------- -------- ----- --- --------- ------------- 07/19/05 Gardiner Manor Mall 1999 65,227 220,716 King Kullen Supermarkets Bay Shore, NY Linens 'N Things Old Navy Staples Michaels 07/19/05 Bed, Bath & Beyond Plaza 2000 - 16,640 61,639 Bed, Bath & Beyond Westbury, NY 2002 07/19/05 Crown Palace Theater 2000 17,033 74,170 Crown Theater Hartford, CT 07/19/05 Wilton Square 2000 - 47,161 438,097 Home Depot Saratoga Springs, NY 2001 Target Price Chopper 07/19/05 Mid-Hudson Center 1999 42,637 246,366 Home Depot Poughkeepsie, NY Stop & Shop 07/29/05 Computershare Shareholder 2000 68,777 185,171 Computershare Shareholder Services Services Canton, MA 07/29/05 The Orchard - Kohl's 2004- 6,280 88,407 Kohl's New Hartford, NY 2005
F-20 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share amounts) The mortgage debt obtained during the period July 1 to July 29, 2005 are detailed in the table below.
PRINCIPAL DATE MATURITY BORROWED FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($) ------ ---------------- -------------------- ---- ----------- 07/07/05 Fisher Scientific 5.13% 08/01/25 8,260 Kalamazoo, MI 07/07/05 New Forest Crossing 4.75% 08/01/10 10,797 Houston, TX (5.42%)* 07/08/05 West Town Market 5.00% 07/11/10 6,048 Fort Mill, SC 07/11/05 University Square 4.78% 07/11/10 29,965 University Heights, OH 07/19/05 Acquisition Portfolio ** LIBOR + .76 08/01/07 232,408 Various locations 07/21/05 Mission Crossing 5.02% 08/01/10 13,630 San Antonio, TX
* The interest rate will increase to 5.42% after 09/01/07. ** Ten properties were financed under a single note. Together, the ten properties secure the note. The Company is obligated under earnout agreements to pay for certain tenant space in its existing properties after the tenant moves into its space and begins paying rent. During the period from July 1 to July 29, 2005, the Company funded earnouts totaling $7,559 at three of its existing properties. On July 7, 2005, the Company repaid its sponsor $1,523 representing the remaining unpaid balance of amounts which the sponsor had advanced the Company for payment of distributions in 2004. During the period from July 1 to July 29, 2005, the Company funded a total of $16,398 on one new installment note, one outstanding installment note and one outstanding construction loan. On July 15, 2005, the Company received payment in full on one of its outstanding notes receivable in the amount of $22,238. On this date, the Company purchased the corresponding property. On July 26, 2005, the Company received $1,000 representing a contract breakage fee associated with a potential purchase. The Company will record the breakage fee, less applicable deferred acquisition costs, as other income during the third quarter of 2005. F-21 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Balance Sheet June 30, 2005 (unaudited) The following unaudited Pro Forma Consolidated Balance Sheet is presented as if the acquisitions of the properties and the issuance of the notes receivable had occurred on June 30, 2005. This unaudited Pro Forma Consolidated Balance Sheet is not necessarily indicative of what the actual financial position would have been at June 30, 2005, nor does it purport to represent our future financial position. No pro forma adjustments have been made for any potential property acquisitions identified as of September 8, 2005. The Company does not consider these properties as probable under Rule 3-14 of Regulation S-X as the Company has not completed the due diligence process on these properties. Additionally, the Company has not received sufficient offering proceeds or obtained firm financing commitments to acquire all of these properties as of September 8, 2005. The Company believes it will have sufficient cash from offering proceeds raised and from additional financing proceeds to acquire these properties if and when the Company is prepared to acquire these properties. F-22 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Balance Sheet June 30, 2005 (unaudited) (Dollar amounts in thousands, except per share amounts)
Historical Pro Forma (A) Adjustments Pro Forma -------------------------------------------------- ASSETS Net investment properties (B) $ 5,092,056 812,068 5,904,124 Cash and cash equivalents 371,041 101,200 472,241 Restricted cash 69,666 - 69,666 Restricted escrows 48,677 - 48,677 Investment in marketable securities and treasury contracts 58,666 - 58,666 Investment in unconsolidated joint ventures 69,933 - 69,933 Accounts and rents receivable (net of allowance) 43,259 - 43,259 Due from affiliates - - - Notes receivable 136,000 (14,298) 121,702 Acquired in-place lease intangibles and customer relationship value (net of accumulated amortization) (B) (D) 367,918 70,052 437,970 Acquired above market lease intangibles (net of accumulated amortization) (B) (D) 56,405 1,148 57,553 Loan fees, leasing fees and loan fee deposits (net of accumulated amortization) (G) 37,344 (1,889) 35,455 Other assets (G) 30,301 (19,513) 10,788 -------------------------------------------------- Total assets $ 6,381,266 948,768 7,330,034 ================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Mortgage and notes payable (B) (E) 2,884,366 466,605 3,350,971 Accounts payable 4,452 - 4,452 Accrued offering costs due to affiliates 2,967 - 2,967 Accrued offering costs due to non-affiliates 92 - 92 Accrued interest payable 8,821 - 8,821 Tenant improvements payable 6,377 - 6,377 Accrued real estate taxes 21,518 - 21,518 Distributions payable 18,074 - 18,074 Security deposits 5,103 - 5,103 Prepaid rental income and other liabilities 41,170 - 41,170 Advances from sponsor 1,523 - 1,523 Acquired below market lease intangibles (net of accumulated amortization) (B) (D) 125,407 3,451 128,858 Restricted cash liability 69,666 - 69,666 Due to affiliates 6,757 - 6,757 -------------------------------------------------- Total liabilities 3,196,293 470,056 3,666,349 ================================================== Minority interests 120,174 - 120,174 Common stock (C) 357 54 411 Additional paid-in capital (net of offering costs) (C) 3,189,470 478,658 3,668,128 Accumulated distributions in excess of net income (F) (126,150) - (126,150) Accumulated other comprehensive income 1,122 - 1,122 -------------------------------------------------- Total stockholders' equity 3,064,799 478,712 3,543,511 -------------------------------------------------- Total liabilities and stockholders' equity $ 6,381,266 948,768 7,330,034 ==================================================
See accompanying notes to pro forma consolidated balance sheet. F-23 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Balance Sheet June 30, 2005 (unaudited) (Dollar amounts in thousands, except per share amounts) (A) The historical column represents our Consolidated Balance Sheet as of June 30, 2005 as filed with the Securities Exchange Commission on Form 10-Q. As of June 30, 2005, the Company had sold 349,852,101 shares to the public and 7,748,882 shares had been issued pursuant to the Company's distribution reinvestment program. In addition, the company had repurchased 411,708 shares pursuant to the Company's share repurchase program. As a result, the Company received $3,567,703 of gross offering proceeds. In addition, the Company received the Advisor's capital contribution of $200 for which the Advisor was issued 20,000 shares. (B) The pro forma adjustments reflect the acquisition of the following properties or earnout components. The Company is obligated under earnout agreements to pay for certain tenant space in its existing properties after the tenant moves into its space and begins paying rent. The mortgages payable represent mortgages either obtained from a third party, or mortgages assumed as part of the acquisition. No pro forma adjustment has been made for prorations or other closing costs as the amounts are not significant.
Acquisition Mortgage Price Payable ------------------- --------------- PURCHASES Southpark Meadows $ 20,969 $ - Mission Crossing 15,766 13,630 Wild Oats Marketplace 13,580 - PetsMart Distribution Center 42,762 - Diebold Warehouse 12,272 - Pacheco Pass 25,021 - Gardiner Manor Mall 65,227 38,484 Bed, Bath & Beyond Plaza - Westbury 16,640 9,818 Crown Theater 17,033 10,050 Wilton Square 47,161 27,825 Mid Hudson Center 42,637 25,156 Computershare Shareholder Services Building 68,777 44,500 The Orchard - Kohl's 6,280 - Raytheon Building 20,069 - Eckerds - Punxsutawney 5,607 - Eckerds - Hellertown 5,781 - Eckerds - Lebanon 5,621 - Stonebridge Plaza 7,251 - Rasmussen College 5,175 - Hartford Fire Insurance Building 16,294 - Lowe's Plaza 23,333 - Citizens Property Insurance Building 10,165 - The Orchard 15,122 - Sprint Data Center 95,700 52,800 Lincoln Plaza 52,836 - Mountain View 17,000 - Quakertown Shopping Center 12,665 - Great Southwest Crossing 16,300 9,145 Golfsmith 4,500 -
F-24 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Balance Sheet June 30, 2005 (unaudited) (Dollar amounts in thousands, except per share amounts)
Acquisition Mortgage Price Payable ------------------- ------------------- Ridge Tool Distribution Center 7,700 4,543 Montecito Crossing 51,414 - Shops on Lake Avenue 46,845 30,622 Greenwich Center 38,452 - EARNOUTS Southlake Town Square 1,882 - The Gateway 2,484 - Northwoods Center 3,787 - Newnan Crossing II 2,373 - Trenton Crossing 483 - Pleasant Run Towne Crossing 2,493 - Mission Crossing 507 - Gateway Station 663 - Denton Crossing 3,190 - Low Country Village 10,000 - ------------------- ------------------- Total $ 879,817 $ 266,573 =================== ===================
F-25 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Balance Sheet June 30, 2005 (unaudited) (Dollar amounts in thousands, except per share amounts) Allocation of net investments in properties: Land $ 177,813 Building and improvements 634,255 Acquired in-place lease intangibles and customer relationship value 70,052 Acquired above market lease intangibles 1,148 Acquired below market lease intangibles (3,451) ------------------ Total $ 879,817 ==================
(C) Additional offering proceeds of $543,987, net of additional offering costs of $65,275 are reflected as received as of June 30, 2005, prior to the purchase of the properties and are limited to offering proceeds necessary to acquire the properties and offering proceeds actually received as of September 8, 2005. Offering costs consist principally of registration costs, printing and selling costs, including commissions. (D) Acquired intangibles represent above and below market leases and the difference between the property valued with the existing in-place leases and the property valued as if vacant as well as the value associated with customer relationships. The value of the acquired leases and customer relationship values will be amortized over the lease term. (E) Additional mortgages payable of $466,605, reflected as funded as of June 30, 2005, includes $266,573 of mortgages payable obtained subsequent to the acquisition of the properties described in (B) and $200,032 of new financing placed on previously acquired properties. (F) No pro forma assumptions have been made for the additional payment of distributions resulting from the additional proceeds raised. (G) Change in loan fees, leasing fees and loan fee deposits of $1,889 represents prepaid loan fees applied to mortgage payables obtained as described in (E). Change in other assets of $19,513 represents advance purchase deposits on properties purchased as described in (B). F-26 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Statement of Operations For the six months ended June 30, 2005 (unaudited) The following unaudited Pro Forma Consolidated Statement of Operations is presented to give effect the acquisition of the properties indicated in Note B of the Notes to the Pro Forma Consolidated Statement of Operations as though they occurred on January 1, 2004 or the date significant operations commenced. No pro forma adjustments have been made for any potential property acquisitions identified as of September 8, 2005. The Company does not consider these property acquisitions as probable under Rule 3-14 of Regulation S-X as the Company has not completed the due diligence process on these properties. Additionally, the Company has not received sufficient offering proceeds or obtained firm financing commitments to acquire all of these properties as of September 8, 2005. The Company believes it will have sufficient cash from offering proceeds raised and from additional financing proceeds to acquire these properties if and when the Company is prepared to acquire these properties. No pro forma adjustments were made for Hobby Lobby - Concord, Stanley Works, Academy Sports - San Antonio, CVS Pharmacy - Jacksonville, Vail Ranch, Eckerd - Colesville, Wickes Furniture -Naperville, PETsMART Distribution Center, Diebold Warehouse, Hartford Fire Insurance Building, Lowe's Plaza, Citizens Property Insurance Building, Rasmussen College, Ridge Tool Distribution Center or any new earnout components as the properties and earnout components were completed in 2005 and there were no significant operations prior to the Company's acquisition. No pro forma adjustments were made related to the Company's notes receivable as there were no significant operations prior to the Company's funding of the notes receivable. This unaudited Pro Forma Consolidated Statement of Operations is not necessarily indicative of what the actual results of operations would have been for the six months ended June 30, 2005, nor does it purport to represent our future results of operations. F-27 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Statement of Operations For the six months ended June 30, 2005 (unaudited) (Dollar amounts in thousands, except per share amounts)
Pro Forma Historical Adjustments (A) (B) Pro Forma -------------------------------------------------- Rental income $ 166,501 68,194 234,695 Tenant recovery income 35,469 18,386 53,855 Other property income 1,932 - 1,932 -------------------------------------------------- Total income 203,902 86,580 290,482 -------------------------------------------------- General and administrative expenses 4,813 - 4,813 Advisor asset management fee (C) 4,925 - 4,925 Property operating expenses (F) 52,748 25,358 78,106 Depreciation and amortization (D) 77,414 31,726 109,140 -------------------------------------------------- Total expenses 139,900 57,084 196,984 -------------------------------------------------- Operating income 64,002 29,496 93,498 Other income 7,648 - 7,648 Interest expense (G) (52,763) (21,895) (74,658) Minority interests 373 - 373 Equity in earnings (losses) of unconsolidated entities (683) - (683) -------------------------------------------------- Net income (loss) $ 18,577 7,601 26,178 ================================================== Other comprehensive income: Unrealized gain on investment securities 881 - 881 -------------------------------------------------- Comprehensive income (loss) $ 19,458 7,601 27,059 ================================================== Weighted average number of shares of common stock outstanding, basic and diluted (E) 286,142,048 329,718,079 ============== ============== Net income (loss) per share, basic and diluted (E) .06 .08 ============== ==============
See accompanying notes to pro forma consolidated statement of operations. F-28 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the six months ended June 30, 2005 (unaudited) (Dollar amounts in thousands, except per share amounts) (A) The historical information represents the historical statement of operations of the Company for the period from January 1, 2005 to June 30, 2005 as filed with the Securities Exchange Commission on Form 10-Q. (B) Total pro forma adjustments for acquisitions consummated as of September 8, 2005 are as though the properties were acquired January 1, 2004.
Gross Income & Direct Total Operating Pro Forma Pro Forma Expenses (1) Adjustments Adjustments -------------------------------------------------- Rental income $ 68,425 (231) 68,194 Tenant recovery income 18,386 - 18,386 -------------------------------------------------- Total income 86,811 (231) 86,580 -------------------------------------------------- Property operating expenses 21,474 3,884 25,358 Depreciation and amortization - 31,726 31,726 Interest expense - 21,895 21,895 -------------------------------------------------- Total expenses 21,474 57,505 78,979 -------------------------------------------------- Net income (loss) $ 65,337 (57,736) 7,601 ==================================================
(1) Unaudited combined gross income and direct operating expenses from January 1, 2005 through the date of acquisition based on information provided by the Seller for the following properties: Fairgrounds Plaza, Midtown Center, Magnolia Square, Cottage Plaza, Village of Quail Springs, Holliday Towne Center, Trenton Crossing, Southgate Plaza, Stateline Station, High Ridge Crossing, Four Peaks Plaza, Lake Forest Crossing, The Brickyard, Greensburg Commons, Grapevine Crossing, Bear Creek, Bison Hollow, Massillon Village, Brown's Lane, Commons at Temecula, Boulevard Plaza, Cuyahoga Falls Market Center, Page Field Commons, University Square, Crossroads Plaza, Commons at Royal Palm, Boston Commons, Shops on Lake Avenue, Clearlake Shores, The Gateway, Lakepointe Towne Crossing, Ashland & Roosevelt, Cornerstone Plaza, Maple Tree Place, Golfland Center, Gardiner Manor Mall, Century III Plaza, Mid-Hudson Center, Wilton Square, Home Depot Plaza, Home Depot Center, Crown Palace Theater, Bed Bath & Beyond Plaza, Greenwich Center, Chantilly Crossing, Gloucester Town Center, Montecito Crossing, The Shops at 5, Beachway Plaza, Galvez Shopping Center, Southwest Crossing, West Town Market, New Forest Crossing, Shoppes at Warner Robins, Southpark Meadows, Mission Crossing, Pacheco Pass, Quakertown Shopping Center, Stonebridge Plaza, The Orchard, Lincoln Plaza, Mountain View and Great Southwest Crossing. F-29 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the six months ended June 30, 2005 (unaudited) (Dollar amounts in thousands, except per share amounts) Unaudited gross rental income from January 1, 2005 through the date of acquisition based on information provided by tenant net leases for the following properties: Maytag Distribution Center, American Express - Markham, CarMax - San Antonio, American Express - Salt Lake City, Blockbuster at Five Forks, CVS Pharmacy - Montevallo, Cinemark Seven Bridges, CVS Pharmacy - Saginaw, Walgreens - Northwoods, Walgreens - West Allis, Publix Supermarket - Mountain Brook, Circuit City Corporate Headquarters, CVS Pharmacy - Moore, Hewitt Associates Corporate Headquarters, Eckerd - Atlanta, CVS Pharmacy - Lawton, Edwards Multiplex - Ontario, Edward Multiplex - Fresno, CVS Pharmacy - Burleson, Fisher Scientific, Kaiser Foundation Hopsital, CVS Pharmacy - Oklahoma City, Eckerds - Chattanooga, Wild Oaks Marketplace, Computershare Shareholder Services, Raytheon Building, Eckerds - Punxsutawney, Eckerds - Hellertown, Eckerds - Lebanon, Sprint Data Center and Golfsmith. (C) No pro forma adjustment has been made related to the advisor asset management fee as it is assumed that a greater fee would not have been paid as a result of these additional properties. (D) Buildings and improvements will be depreciated on a straight line basis based upon estimated useful lives of 30 years for building and improvements and 15 years for site improvements. That portion of the purchase price that is allocated to above or below lease intangibles will be amortized on a straight line basis over the life of the related leases as an adjustment to rental income. Other leasing costs, tenant improvements, in-place lease intangibles and customer relationship values will be amortized on a straight line basis over the life of the related leases as a component of amortization expense. (E) The pro forma weighted average shares of common stock outstanding for the six months ended June 30, 2005 was calculated using the additional shares sold to purchase each of the properties on a weighted average basis plus the 20,000 shares purchased by the Advisor in connection with our organization. (F) Management fees are calculated as 4.5% of gross revenues pursuant to the management agreement and are included in property operating expenses. (G) The pro forma adjustments relating to interest expense were based on the following debt terms:
Principal Interest Maturity Balance Rate Date -------------------------------------------------- American Express - Markham, Ontario 25,380 4.2675% 02/15 American Express - Salt Lake City 30,149 4.2975% 04/15 Ashland & Roosevelt (1) 1,889 7.480% 02/22 Ashland & Roosevelt (2) 13,128 5.130% 07/10 Beachway Plaza 10,235 4.880% 07/10 Bear Creek 11,450 5.000% 06/10 Bed, Bath, & Beyond Plaza - Westbury 9,818 LIBOR +.76 08/07 Bison Hollow 10,774 4.560% 06/10 Blockbuster at Five Forks 825 4.815% 02/10 Boston Commons 9,880 5.360% 06/14 Boulevard Plaza 6,300 4.780% 06/10 Brown's Lane 6,284 4.668% 06/10 CarMax - San Antonio 8,030 4.690% 05/10 Century III Plaza 25,313 LIBOR +.76 08/07 Chantilly Crossing 15,675 4.700% 07/10 Cinemark Seven Bridges 7,800 4.690% 06/10
F-30 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the six months ended June 30, 2005 (unaudited) (Dollar amounts in thousands, except per share amounts)
Principal Interest Maturity Balance Rate Date -------------------------------------------------- Circuit City Corporate Headquarters 31,270 5.105% 07/10 Clearlake Shores 6,683 4.720% 07/10 Commons at Royal Palm 14,472 6.877% 11/12 Commons at Temecula 29,623 4.580% 06/10 Computershare Shareholder Services 44,500 5.340% 10/10 Cornerstone Plaza 8,400 4.830% 06/10 Cottage Plaza 13,025 4.600% 04/10 Crossroads Plaza 4,977 5.441% 01/15 Crown Theater 10,050 LIBOR +.76 08/07 Cuyahoga Falls Market Center 8,285 4.668% 06/10 CVS Pharmacy - Burleson 2,193 4.668% 09/10 CVS Pharmacy - Lawton 1,566 4.668% 09/10 CVS Pharmacy - Montevallo 1,685 4.690% 05/10 CVS Pharmacy - Moore 1,901 4.600% 09/10 CVS Pharmacy - Oklahoma City 2,429 4.668% 09/10 CVS Pharmacy - Saginaw 2,460 4.600% 09/10 Eckerds - Atlanta 1,224 4.600% 09/10 Eckerds - Chattanooga 1,628 4.600% 09/10 Edwards Multiplex - Fresno 19,730 4.818% 06/10 Edwards Multiplex - Ontario 27,875 4.818% 06/10 Fairgrounds Plaza 15,941 5.690% 01/33 Fisher Scientific 8,260 5.130% 08/25 Four Peaks Plaza 17,072 4.815% 04/10 Galvez Shopping Center 4,470 4.668% 07/10 Gardiner Manor Mall 38,484 LIBOR +.76 08/07 Gloucester Town Center 11,975 5.130% 07/10 Golfland Plaza 8,206 LIBOR +.76 08/07 Grapevine Crossing 12,815 4.590% 07/10 Great Southwest Crossing 9,145 6.300% 08/13 Greensburg Commons 14,200 LIBOR +1.55 05/09 Hewitt Associates Corporate Headquarters 129,800 5.040% 06/30 High Ridge Crossing 7,439 4.815% 06/10 Holliday Town Center 8,050 5.180% 03/10 Home Depot Center 10,446 LIBOR +.76 08/07 Home Depot Plaza 16,734 LIBOR +.76 08/07 Kaiser Foundation Hospital 32,670 4.450% 07/10 Lake Forest Crossing 4,520 4.900% 06/11 Lakepointe Towne Crossing 21,715 5.040% 06/10 Magnolia Square 10,265 5.115% 03/10 Maple Tree Place 60,376 LIBOR +.76 08/07 Massillon Village 10,126 4.668% 06/10 Maytag Distribution Center 12,740 4.840% 03/10 Mid Hudson Center 25,156 LIBOR +.76 08/07 Midtown Center 28,228 4.460% 03/10 Mission Crossing 13,630 5.020% 08/10 New Forest Crossing 10,797 4.750% 08/10 Page Field Commons 26,853 4.580% 05/10 Publix Supermarket - Mountain Brook 4,384 4.668% 07/10
F-31 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the six months ended June 30, 2005 (unaudited) (Dollar amounts in thousands, except per share amounts)
Principal Interest Maturity Balance Rate Date -------------------------------------------------- Shoppes at Warner Robins 7,286 4.718% 09/10 Shops on Lake Avenue 30,622 5.020% 03/34 Southgate Plaza 6,740 4.690% 05/10 Sprint Data Center 52,800 5.420% 10/12 Stateline Station 17,600 5.007% 05/10 The Gateway 90,428 4.790% 06/10 The Gateway - Central Power Plant 8,352 4.790% 06/10 Trenton Crossing 19,307 4.460% 03/10 University Square 29,965 4.780% 07/10 Village at Quail Springs 5,740 5.060% 03/01 Walgreens - Northwoods 3,218 4.820% 06/10 Walgreens - West Allis 2,600 5.130% 06/10 West Town Market 6,048 5.000% 07/10 Wilton Square 27,825 LIBOR +.76 08/07
F-32 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Statement of Operations For the year ended December 31, 2004 (unaudited) The following unaudited Pro Forma Consolidated Statement of Operations is presented to give effect the acquisition of the properties indicated in Note B of the Notes to the Pro Forma Consolidated Statement of Operations as though they occurred on January 1, 2004 or the date significant operations commenced. No pro forma adjustments have been made for any potential property acquisitions identified as of September 8, 2005. The Company does not consider these property acquisitions as probable under Rule 3-14 of Regulation S-X as the Company has not completed the due diligence process on these properties. Additionally, the Company has not received sufficient offering proceeds or obtained firm financing commitments to acquire all of these properties as of September 8, 2005. The Company believes it will have sufficient cash from offering proceeds raised and from additional financing proceeds to acquire these properties if and when the Company is prepared to acquire these properties. No pro forma adjustments were made for Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd - Columbia, Eckerd -Crossville, Kohl's - Wilshire Plaza III, Academy Sports - Houma, Academy Sports - Port Arthur, Academy Sports - Midland, Hobby Lobby - Concord, Stanley Works, Academy Sports - San Antonio, CVS Pharmacy - Jacksonville, Blockbuster at Five Forks, Vail Ranch, Eckerd - Colesville, Wickes Furniture - Naperville, PETsMART Distribution Center, Diebold Warehouse, Hartford Fire Insurance Building, Lowe's Plaza, Citizens Property Insurance Building, Rasmussen College, Ridge Tool Distribution Center or any new earnout components as the properties and earnout components were completed in 2004 or 2005 and there were no significant operations prior to the Company's acquisition. No pro forma adjustments were made related to the Company's notes receivable as there were no significant operations prior to the Company's funding of the notes receivable. This unaudited Pro Forma Consolidated Statement of Operations is not necessarily indicative of what the actual results of operations would have been for the year ended December 31, 2004, nor does it purport to represent our future results of operations. F-33 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Statement of Operations For the year ended December 31, 2004 (unaudited) (Dollar amounts in thousands, except per share amounts)
Pro Forma Pro Forma Historical Adjustments Adjustments (A) (B) (C) Pro Forma ------------------------------------------------------------------------ Rental income $ 106,425 101,537 183,484 391,446 Tenant recovery income 23,155 30,118 28,581 81,854 Other property income 825 - - 825 ------------------------------------------------------------------------ Total income 130,405 131,655 212,065 474,125 ------------------------------------------------------------------------ General and administrative expenses 4,857 - - 4,857 Advisor asset management fee (D) - - - - Property operating expenses (G) 32,522 42,962 47,337 122,821 Depreciation and amortization (E) 47,973 50,901 93,428 192,302 ------------------------------------------------------------------------ Total expenses 85,352 93,863 140,765 319,980 ------------------------------------------------------------------------ Operating income 45,053 37,792 71,300 154,145 Other income 3,681 - - 3,681 Interest expense (H) (33,175) (37,256) (70,124) (140,555) Realized loss on sale of treasury contacts (3,667) - - (3,667) Minority interests 398 - - 398 Equity in earnings (losses) of unconsolidated entities (589) - - (589) ------------------------------------------------------------------------ Net income (loss) $ 11,701 536 1,176 13,413 ======================================================================== Other comprehensive income: Unrealized gain on investment securities 241 - - 241 ------------------------------------------------------------------------ Comprehensive income (loss) $ 11,942 536 1,176 13,654 ======================================================================== Weighted average number of shares of common stock outstanding, basic and diluted (F) 98,562,885 329,718,079 =============== =============== Net income (loss) per share, basic and diluted (F) .12 .04 =============== ===============
See accompanying notes to pro forma consolidated statement of operations. F-34 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2004 (unaudited) (A) The historical information represents the historical statement of operations of the Company for the period from January 1, 2004 to December 31, 2004 as filed with the Securities Exchange Commission on Form 10-K. (B) Total pro forma adjustments for acquisitions consummated as of September 8, 2005 are as though the properties were acquired January 1, 2004.
Gross Income & Direct Total Operating Pro Forma Pro Forma Expenses (1) Adjustments Adjustments -------------------------------------------------- Rental income $ 101,698 (161) 101,537 Tenant recovery income 30,118 - 30,118 -------------------------------------------------- Total income 131,816 (161) 131,655 -------------------------------------------------- Property operating expenses 37,146 5,816 42,962 Depreciation and amortization - 50,901 50,901 Interest expense - 37,256 37,256 -------------------------------------------------- Total expenses 37,146 93,973 131,119 -------------------------------------------------- Net income (loss) $ 94,670 (94,134) 536 ==================================================
(1) Audited combined gross income and direct operating expenses as prepared in accordance with Rule 3-14 of Regulation S-X for the following properties: Coram Plaza, Mesa Fiesta, Green's Corner, Newton Crossroads, Stilesboro Oaks, Pleasant Run Towne Crossing, Shoppes at Lake Andrew, Fairgrounds Plaza, Midtown Center, Trenton Crossing, Lakepointe Towne Center, Stateline Station, Four Peaks Plaza, The Brickyard, Grapevine Crossing, Bear Creek, Massillon Village, Brown's Lane, Commons at Temecula, Boulevard Plaza, Cuyahoga Falls Market Center, Page Field Commons, University Square, Crossroads Plaza, Commons at Royal Palm, Boston Commons, Shops on Lake Avenue, The Gateway, Maple Tree Place, Golfland Center, Gardiner Manor Mall, Century III Plaza, Mid-Hudson Center, Wilton Square, Home Depot Plaza, Home Depot Center, Crown Palace Theater, Bed Bath & Beyond Plaza, Greenwich Center, Chantilly Crossing, Gloucester Town Center, Montecito Crossing, New Forest Crossing, Pacheco Pass, Quakertown Shopping Center, The Orchard and Lincoln Plaza. F-35 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2004 (unaudited) (C) Total pro forma adjustments for acquisitions consummated as of September 8, 2005 are as though the properties were acquired January 1, 2004. No pro forma adjustments were made for Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd - Columbia, Eckerd - Crossville, Kohl's - Wilshire Plaza III, Academy Sports - Houma, Academy Sports - Port Arthur, Academy Sports - Midland, Hobby Lobby - Concord, Stanley Works, Academy Sports - San Antonio, CVS Pharmacy - Jacksonville, Blockbuster at Five Forks, Vail Ranch, Peoria Crossing II, Eckerd - Colesville, Wickes Furniture - Naperville, PETsMART Distribution Center, Diebold Warehouse, Hartford Life Insurance Building, Lowe's Plaza, Citizens Property Insurance Building, Rasmussen College, Ridge Tool Distribution Center or any new earnout components as the properties and earnout components were completed in 2004 or 2005 and there were no significant operations prior to the Company's acquisition. No pro forma adjustments were made related to the Company's notes receivable as there were no significant operations prior to the Company's funding of the notes receivable.
Gross Income & Direct Total Operating Pro Forma Pro Forma Expenses (1) Adjustments Adjustments -------------------------------------------------- Rental income $ 186,578 (3,094) 183,484 Tenant recovery income 28,581 - 28,581 -------------------------------------------------- Total revenues 215,159 (3,094) 212,065 -------------------------------------------------- Property operating expenses 37,962 9,375 47,337 Depreciation and amortization - 93,428 93,428 Interest expense - 70,124 70,124 -------------- -------------- -------------- Total expenses 37,962 172,927 210,889 -------------- -------------- -------------- Net income (loss) $ 177,197 (176,021) 1,176 ============== ============== ==============
(1) Unaudited combined gross income and direct operating expenses from January 1, 2004 through the date of acquisition based on information provided by the Seller for the following properties: CorWest Plaza, Hickory Ridge, Shoppes at Quarterfield, Larkspur Landing, North Ranch Pavilion, La Plaza Del Norte, MacArthur Crossing, Promenade at Red Cliff, Peoria Crossings, Dorman Center, Heritage Towne Crossing, Paradise Valley Marketplace, Best on the Boulevard, Bluebonnet Parc, North Rivers Town Center, Alison's Corner, Arvada Connection and Arvada Marketplace, Eastwood Town Center, Watauga Pavilion, Northpointe Plaza, Plaza Santa Fe II, Pine Ridge Plaza, Huebner Oaks Center, John's Creek Village, Lakewood Towne Center, Shoppes of Prominence Point, Northgate North, Davis Towne Crossing, Fullerton Metrocenter, Low Country Village, The Shops at Boardwalk, Shoppes of New Hope, Cranberry Square, Tollgate Marketplace, Gateway Village, Towson Circle, Gateway Plaza, Plaza at Marysville, Forks Town Center, Reisterstown Road Plaza, Village Shoppes at Simonton, Manchester Meadows, Governor's Marketplace, Mitchell Ranch Plaza, The Columns, Saucon Valley Square, Lincoln Park, Harvest Towne Center, Boulevard at the Capital Centre, Bed, Bath & Beyond Plaza, Denton Crossing, Azalea Square, Lake Mary Pointe, Plaza at Riverlakes, Gurnee Town Centre, Mansfield Towne Crossing, Winchester Commons, Shoppes at Park West, Fox Creek Village, Oswego Commons, University Town Center, Edgemont Town Center, Five Forks, Placentia Town Center, Gateway Station, Northwoods Center, Shops at Forest Commons, Gateway Pavilions, Henry Town Center, McAllen Shopping Center, 23rd Street Plaza, Southlake Town Square, Irmo Station, Evans Towne Centre, Cottage Plaza, Village at Quail Springs, Phenix Crossing, Magnolia Square, Holliday Towne Center, Southgate Plaza, High Ridge Crossing, Lake Forest Crossing, Greensburg Commons, Bison Hollow, Clearlake Shores, Ashland & Roosevelt, Cornerstone Plaza, The Shops at 5, Beachway Plaza, Galvez Shopping Center, Southwest Crossing, West Town Market, Shoppes at Warner Robins, Southpark Meadows, Mission Crossing, Stonebridge Plaza, Mountain View and Great Southwest Crossing. F-36 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2004 (unaudited) Gross rental income from January 1, 2004 through the date of acquisition based on information provided by tenant net leases for the following properties: Wal-Mart Supercenter - Blytheville, Wrangler Company Western Headquarters, Wal-Mart Supercenter - Jonesboro, Harris Teeter - Wilmington, GMAC Insurance, CVS Pharmacy - Sylacauga, Zurich Towers, the American Express portfolio, Maytag Distribution Center, CarMax - San Antonio, CVS Pharmacy - Montevallo, Cinemark Seven Bridges, CVS Pharmacy - Saginaw, Walgreen's - Northwoods, Walgreens - West Allis, Publix Supermarket - Mountain Brook, Circuit City Corporate Headquarters, CVS Pharmacy - Moore, Eckerd - Atlanta, Hewitt Associates Corporate Headquarters, CVS Pharmacy - Lawton, Edwards Multiplex - Ontario, Edwards Multiplex - Fresno, CVS Pharmacy - Burleson, Fisher Scientific, Kaiser Foundation Hospital, CVS Pharmacy - Oklahoma City, Eckerds - Chattanooga, Wild Oats Marketplace, Computershare Shareholder Services, Raytheon Building, Eckerds - Punxsutawney, Eckerds - Hellertown, Eckerds - Lebanon, Sprint Data Center and Golfsmith. (D) No pro forma adjustment has been made related to the advisor asset management fee as it is assumed that a greater fee would not have been paid as a result of these additional properties. (E) Buildings and improvements will be depreciated on a straight line basis based upon estimated useful lives of 30 years for building and improvements and 15 years for site improvements. That portion of the purchase price that is allocated to above or below lease intangibles will be amortized on a straight line basis over the life of the related leases as an adjustment to rental income. Other leasing costs, tenant improvements, in-place lease intangibles and customer relationship values will be amortized on a straight line basis over the life of the related leases as a component of amortization expense. (F) The pro forma weighted average shares of common stock outstanding for the year ended December 31, 2004 was calculated using the additional shares sold to purchase each of the properties on a weighted average basis plus the 20,000 shares purchased by the Advisor in connection with our organization. (G) Management fees are calculated as 4.5% of gross revenues pursuant to the management agreement and are included in property operating expenses. (H) The pro forma adjustments relating to interest expense were based on the following debt terms:
Principal Interest Maturity Balance Rate Date ------------------------------------------------- 23rd Street Plaza 3,990 5.060% 05/10 Alison's Corner 3,850 4.272% 06/10 American Express - Markham, Ontario 25,380 4.2675% 02/15 American Express - Depere 11,623 4.2975% 01/15 American Express - 31st Avenue - Phoenix 31,860 4.2675% 01/15 American Express - 19th Avenue - Phoenix 8,260 4.2675% 01/15 American Express - Minneapolis 56,050 4.2675% 01/15 American Express - Greensboro 33,040 4.2675% 01/15 American Express - Fort Lauderdale 37,170 4.2675% 01/15 American Express - Salt Lake City 30,149 4.2975% 04/15 Arvada Marketplace and Arvada Connection 28,510 4.130% 07/09 Ashland & Roosevelt (1) 1,889 7.480% 02/22 Ashland & Roosevelt (2) 13,128 5.130% 07/10 Azalea Square 16,535 5.010% 12/09 Beachway Plaza 10,235 4.880% 07/10 Bear Creek 11,450 5.000% 06/10
F-37 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2004 (unaudited)
Principal Interest Maturity Balance Rate Date ------------------------------------------------- Bed Bath & Beyond Plaza 11,193 5.170% 12/09 Bed Bath & Beyond Plaza - Westbury 9,818 LIBOR +.76 08/07 Best on the Boulevard 19,525 3.990% 05/09 Bison Hollow 10,774 4.560% 06/10 Blockbuster at Five Forks 825 4.815% 02/10 Bluebonnet Parc 12,100 4.372% 05/09 Boston Commons 9,880 5.360% 06/14 Boulevard at the Capital Centre 71,500 5.120% 10/09 Boulevard Plaza 6,300 4.780% 06/10 Brown's Lane 6,284 4.668% 06/10 CarMax - San Antonio 8,030 4.690% 05/10 Century III Plaza 25,313 LIBOR +.76 08/07 Chantilly Crossing 15,675 4.700% 07/10 Cinemark Seven Bridges 7,800 4.690% 06/10 Circuit City Corporate Headquarters 31,270 5.105% 07/10 Clearlake Shores 6,683 4.720% 07/10 Commons at Royal Palm 14,472 6.877% 11/12 Commons at Temecula 29,623 4.580% 06/10 Computershare Shareholder Services 44,500 5.340% 10/10 Coram Plaza 20,755 4.550% 02/10 Cornerstone Plaza 8,400 4.830% 06/10 CorWest Plaza 18,150 4.560% 02/09 Cottage Plaza 13,025 4.600% 04/10 Cranberry Square 10,900 4.975% 08/09 Crossroads Plaza 4,977 5.441% 01/15 Crown Theater 10,050 LIBOR +.76 08/07 Cuyahoga Falls Market Center 8,285 4.668% 06/10 CVS Pharmacy - Burleson 2,193 4.668% 09/10 CVS Pharmacy - Lawton 1,566 4.668% 09/10 CVS Pharmacy - Montevallo 1,685 4.690% 05/10 CVS Pharmacy - Moore 1,901 4.600% 09/10 CVS Pharmacy - Oklahoma City 2,429 4.668% 09/10 CVS Pharmacy - Saginaw 2,460 4.600% 09/10 CVS Pharmacy - Sylacauga 1,685 5.060% 01/10 Davis Towne Crossing 5,365 5.185% 09/09 Denton Crossing 35,200 4.300% 01/10 Dorman Center 27,610 4.180% 05/09 Eastwood Towne Center 46,750 4.640% 07/09 Eckerds - Atlanta 1,224 4.600% 09/10 Eckerds - Chattanooga 1,628 4.600% 09/10 Edgemont Town Center 8,600 4.430% 03/10 Edwards Multiplex - Fresno 19,730 4.818% 06/10 Edwards Multiplex - Ontario 27,875 4.818% 06/10 Evans Towne Centre 5,005 4.670% 02/10 Fairgrounds Plaza 15,941 5.690% 01/33 Fisher Scientific 8,260 5.130% 08/25 Five Forks 4,483 4.815% 02/10
F-38 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2004 (unaudited)
Principal Interest Maturity Balance Rate Date ------------------------------------------------- Forks Town Center 10,395 4.970% 09/09 Four Peaks Plaza 17,072 4.815% 04/10 Fox Creek Village 11,485 5.210% 12/09 Fullerton Metrocenter 28,050 5.090% 08/09 Galvez Shopping Center 4,470 4.668% 07/10 Gardiner Manor Mall 38,484 LIBOR +.76 08/07 Gateway Pavilions 35,842 4.670% 01/10 Gateway Plaza 18,163 5.100% 09/09 Gateway Station 3,717 4.650% 07/10 Gateway Village 27,233 LIBOR +1.13 07/09 Gloucester Town Center 11,975 5.130% 07/10 GMAC Insurance 33,000 4.610% 10/09 Golfland Plaza 8,206 LIBOR +.76 08/07 Governor's Marketplace 20,625 5.185% 09/09 Grapevine Crossing 12,815 4.590% 07/10 Great Southwest Crossing 9,145 6.300% 08/13 Green's Corner 7,022 4.500% 02/10 Greensburg Commons 14,200 LIBOR +1.55 05/09 Gurnee Town Center 24,360 4.597% 01/10 Harris Teeter - Wilmington 3,960 4.915% 11/09 Harvest Towne Center 5,005 4.935% 01/10 Henry Town Center 35,692 5.420% 01/13 Heritage Towne Crossing 8,950 4.374% 06/09 Hewitt Corporate Headquarters 129,800 5.040% 06/30 Hickory Ridge 23,650 4.531% 02/09 High Ridge Crossing 7,439 4.815% 06/10 Holiday Town Center 8,050 5.180% 03/10 Home Depot Center 10,446 LIBOR +.76 08/07 Home Depot Plaza 16,734 LIBOR +.76 08/07 Huebner Oaks Center (Note A) 31,723 4.200% 07/10 Huebner Oaks Center (Note B) 16,277 3.960% 07/10 Irmo Station 7,085 5.124% 02/10 John's Creek Village 23,300 5.100% 08/09 Kaiser Foundation Hospital 32,670 4.450% 07/10 La Plaza Del Norte 32,528 4.610% 03/10 Lake Forest Crossing 4,520 4.900% 06/11 Lake Mary Pointe 3,658 5.170% 12/09 Lakepointe Towne Crossing 21,715 5.040% 06/10 Lakewood Towne Center 44,000 2.680% 06/09 Larkspur Landing 33,630 4.450% 02/09 Lincoln Park 26,153 4.610% 11/09 Low Country Village - Phase I 5,370 4.960% 10/09 Low Country Village - Phase II 5,440 5.130% 05/09 MacArthur Crossing 12,700 4.290% 05/09 Magnolia Square 10,265 5.115% 03/10 Manchester Meadows 31,065 4.480% 09/07 Mansfield Towne Crossing 10,982 5.215% 12/09 Maple Tree Place 60,376 LIBOR +.76 08/07 Massillon Village 10,126 4.668% 06/10
F-39 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2004 (unaudited)
Principal Interest Maturity Balance Rate Date ------------------------------------------------- Maytag Distribution Center 12,740 4.840% 03/10 McAllen Shopping Center 2,455 5.060% 03/10 Mesa Fiesta 23,500 5.300% 02/10 Mid Hudson Center 25,156 LIBOR +.76 08/07 Midtown Center 28,228 4.460% 03/10 Mission Crossing 13,630 5.020% 08/10 Mitchell Ranch Plaza 18,700 4.480% 10/09 New Forest Crossing 10,797 4.750% 08/10 Newnan Crossing II 2,223 4.380% 05/09 Newton Crossroads 5,548 4.500% 02/10 North Ranch Pavilion 10,157 4.120% 04/09 North Rivers Town Center 11,050 4.760% 05/09 Northgate North 26,650 4.600% 07/08 Northpointe Plaza 30,850 4.272% 05/09 Northwoods Center 11,193 4.815% 01/10 Oswego Commons 19,262 4.750% 12/09 Page Field Commons 26,853 4.580% 05/10 Paradise Valley Marketplace 15,681 4.550% 05/09 Peoria Crossings 20,497 4.090% 04/09 Phenix Crossing 5,535 5.030% 05/10 Pine Ridge Plaza 14,700 5.085% 08/09 Placentia Town Center 13,695 4.597% 01/10 Plaza at Marysville 11,800 5.085% 08/09 Plaza at Riverlakes 9,350 4.700% 05/10 Plaza Santa Fe II 17,308 6.200% 12/12 Pleasant Run Towne Crossing 22,800 5.215% 01/10 Promenade at Red Cliff 10,590 4.290% 05/09 Publix Supermarket - Mountain Brook 4,384 4.668% 07/10 Reisterstown Road Plaza 49,650 5.300% 09/09 Saucon Valley Square 8,851 5.115% 10/09 Shoppes at Lake Andrew 15,657 5.000% 03/14 Shoppes at Park West 6,655 4.597% 01/10 Shoppes at Quarterfield 6,067 4.280% 04/09 Shoppes at Warner Robins 7,286 4.718% 09/10 Shoppes of New Hope 7,179 4.960% 04/09 Shoppes of Prominence Point 9,954 5.235% 09/09 Shops at Boardwalk 20,150 4.130% 08/09 Shops at Forest Commons 5,214 6.340% 09/13 Shops on Lake Avenue 30,622 5.020% 03/34 Southgate Plaza 6,740 4.690% 05/10 Southlake Town Square 70,571 4.550% 03/10 Southlake Town Square II 10,429 4.550% 03/10 Sprint Data Center 52,800 5.420% 10/12 Stateline Station 17,600 5.007% 05/10 Stilesboro Oaks 6,592 4.500% 02/10 The Columns - Phase I 11,423 4.910% 11/09 The Gateway 90,428 4.790% 06/10
F-40 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2004 (unaudited)
Principal Interest Maturity Balance Rate Date ------------------------------------------------- The Gateway - Central Power Plant 8,352 4.790% 06/10 Tollgate Marketplace 39,765 LIBOR +1.20 07/09 Towson Circle 15,648 5.100% 07/09 Trenton Crossing 19,307 4.460% 03/10 University Square 29,965 4.780% 07/10 University Town Center 5,810 4.430% 03/10 Village at Quail Springs 5,740 5.060% 03/01 Village Shoppes at Simonton 7,562 4.960% 10/09 Walgreens - Northwoods 3,218 4.820% 06/10 Walgreens - West Allis 2,600 5.130% 06/10 Wal-Mart Supercenter - Blytheville 7,100 4.390% 09/09 Wal-Mart Supercenter - Jonesboro 6,089 5.085% 09/09 Watauga Pavilion (1) 17,100 4.140% 06/10 Watauga Pavilion (2) 2,517 4.166% 07/10 West Town Market 6,048 5.000% 07/10 Wilton Square 27,825 LIBOR +.76 08/07 Winchester Commons 7,235 5.120% 12/09 Wrangler Company Western Headquarters 11,300 5.090% 08/27 Zurich Towers 81,420 4.247% 12/34
F-41 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Lincoln Plaza ("the Property") for the year ended December 31, 2004. This Historical Summary is the responsibility of the management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Form 8-K of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Lincoln Plaza for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois September 7, 2005 F-42 LINCOLN PLAZA Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited)
For the six months ended For the year ended June 30, 2005 December 31, 2004 ------------- ------------------ (unaudited) Gross income: Base rental income $ 1,826,934 $ 3,576,844 Operating expense and real estate tax recoveries 501,809 906,460 ------------------- ------------------- Total gross income 2,328,743 4,483,304 ------------------- ------------------- Direct operating expenses: Operating expenses 202,982 386,633 Insurance 37,019 70,512 Real estate taxes 288,219 548,988 ------------------- ------------------- Total direct operating expenses 528,220 1,006,133 ------------------- ------------------- Excess of gross income over direct operating expenses $ 1,800,523 $ 3,477,171 =================== ===================
See accompanying notes to historical summary of gross income and direct operating expenses. F-43 LINCOLN PLAZA Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) (1) Business Lincoln Plaza ("the Property") is located in Worcester, Massachusetts. The Property consists of 434,377 square feet of gross leasable area and was approximately 92% occupied at December 31, 2004. The Property is leased to a total of nine tenants. Of these, four tenants account for 73% of base rental revenue for the year ended December 31, 2004. Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property on September 7, 2005 from Plaza Properties, an unaffiliated third party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Form 8-K of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to accompanying unaudited amounts for the six months ended June 30, 2005. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate tax, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provisions for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. There was no contingent rent earned for the year ended December 31, 2004. The Property has one billboard lease that is classified as an operating lease with terms extending through June 1, 2014. Total billboard lease income was $75,000 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2004. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $757,897 for the year ended December 31, 2004. F-44 LINCOLN PLAZA Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from one to 18 years, as of December 31, 2004, are as follows:
YEAR ---- 2005 $ 3,532,874 2006 3,780,151 2007 3,784,918 2008 3,830,916 2009 3,841,818 Thereafter 38,618,288 ------------------- $ 57,388,965 ===================
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-45 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of New Forest Crossing ("the Property") for the year ended December 31, 2004. This Historical Summary is the responsibility of the management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Form 8-K of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of New Forest Crossing for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois September 6, 2005 F-46 NEW FOREST CROSSING Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited)
For the six months ended For the year ended June 30, 2005 December 31, 2004 ------------- ----------------- (unaudited) Gross income: Base rental income $ 606,129 $ 962,519 Operating expense and real estate tax recoveries 318,002 257,013 -------------------- -------------------- Total gross income 924,131 1,219,532 -------------------- -------------------- Direct operating expenses: Operating expenses 98,634 71,878 Insurance 32,864 48,688 Real estate taxes 213,000 217,208 -------------------- -------------------- Total direct operating expenses 344,498 337,774 -------------------- -------------------- Excess of gross income over direct operating expenses $ 579,633 $ 881,758 ==================== ====================
See accompanying notes to historical summary of gross income and direct operating expenses. F-47 NEW FOREST CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) (1) Business New Forest Crossing ("the Property") is located in Houston, Texas. The Property consists of approximately 146,585 square feet of gross leasable area and was approximately 75% occupied at December 31, 2004. The Property is leased to a total of ten tenants, of which three tenants account for approximately 67% of base rental revenue for the year ended December 31, 2004. On June 30, 2005, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Form 8-K of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to accompanying unaudited amounts for the six months ended June 30, 2005. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate tax, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provisions for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. There was no contingent rent earned for the year ended December 31, 2004. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $73,377 for the year ended December 31, 2004. F-48 NEW FOREST CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from ten to 20 years, as of December 31, 2004, are as follows:
YEAR ---- 2005 $ 1,230,392 2006 1,276,654 2007 1,278,862 2008 1,306,937 2009 1,149,173 Thereafter 6,044,562 --------------- $ 12,286,580 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-49 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of the Orchard ("the Property") for the year ended December 31, 2004. This Historical Summary is the responsibility of the management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Form 8-K of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of the Orchard for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois September 6, 2005 F-50 THE ORCHARD Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited)
For the six months ended For the year ended June 30, 2005 December 31, 2004 ------------- ----------------- (unaudited) Gross income: Base rental income $ 833,147 $ 643,284 Operating expense and real estate tax recoveries 299,671 74,021 -------------------- -------------------- Total gross income 1,132,818 717,305 -------------------- -------------------- Direct operating expenses: Operating expenses 96,764 47,385 Insurance 10,843 3,745 Real estate taxes 233,374 5,828 -------------------- -------------------- Total direct operating expenses 340,981 56,958 -------------------- -------------------- Excess of gross income over direct operating expenses $ 791,837 $ 660,347 ==================== ====================
See accompanying notes to historical summary of gross income and direct operating expenses. F-51 THE ORCHARD Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) (1) Business The Orchard ("the Property") is located in New Hartford, New York. The Property consists of approximately 166,028 square feet of gross leasable area and was approximately 59% occupied at December 31, 2004. The Property is leased to a total of 6 tenants. Of these, 1 tenant accounts for 88% of base rental revenue for the year ended December 31, 2004. Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property through multiple closings. On July 29, 2005, IWRRETI acquired a portion of the Property consisting of 88,407 square feet from Judd Road Group, an unaffiliated third party. On August 31, 2005, IWRRETI acquired an additional 77,621 square feet of the Property. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Form 8-K of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to accompanying unaudited amounts for the six months ended June 30, 2005. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate tax, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Pursuant to the tenant lease agreements, common area costs are billed at a fixed rate per square foot. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provisions for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. There was no contingent rent earned for the year ended December 31, 2004. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $111,017 for the year ended December 31, 2004. F-52 THE ORCHARD Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from ten to 20 years, as of December 31, 2004, are as follows:
YEAR ---- 2005 $ 1,197,018 2006 1,197,685 2007 1,199,420 2008 1,200,636 2009 1,258,200 Thereafter 19,106,126 --------------- $ 25,159,085 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-53 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Combined Historical Summary of Gross Income and Direct Operating Expenses ("Combined Historical Summary") of the Properties Acquired from the Newman Development Group for the year ended December 31, 2004. This Combined Historical Summary is the responsibility of the management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Combined Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Combined Historical Summary is free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Properties' internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Combined Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Combined Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Combined Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Form 8-K of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Properties' revenues and expenses. In our opinion, the Combined Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of the Properties Acquired from the Newman Development Group for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois September 8, 2005 F-54 THE PROPERTIES ACQUIRED FROM THE NEWMAN DEVELOPMENT GROUP Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months June 30, 2005 (unaudited)
For the six months ended For the year ended June 30, 2005 December 31, 2004 ------------- ----------------- (unaudited) Gross income: Base rental income $ 1,479,419 $ 2,372,968 Operating expense and real estate tax recoveries 256,758 347,262 Percentage rent - 35,301 -------------------- -------------------- Total gross income 1,736,177 2,755,531 -------------------- -------------------- Direct operating expenses: Operating expenses 124,983 159,550 Insurance 36,158 66,292 Real estate taxes 122,347 176,899 -------------------- -------------------- Total direct operating expenses 283,488 402,741 -------------------- -------------------- Excess of gross income over direct operating expenses $ 1,452,689 $ 2,352,790 ==================== ====================
See accompanying notes to combined historical summary of gross income and direct operating expenses. F-55 THE PROPERTIES ACQUIRED BY THE NEWMAN DEVELOPMENT GROUP Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months June 30, 2005 (unaudited) (1) Business The Properties Acquired by the Newman Development Group ("the Properties") consist of:
Gross Occupancy At Name Leasable Area Location December 31, 2004 ---- ------------- -------- ----------------- Pacheco Pass 99,356 Gilroy, CA 97% Quakertown 61,832 Quakertown, PA 100%
The Properties are leased to a total of 22 tenants. Of these, four tenants account for 60% of base rental revenue for the year ended December 31, 2004. Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired Pacheco Pass and Quakertown on July 18, 2005 and September 7, 2005, respectively, from the Newman Development Group, an unaffiliated third party. (2) Basis of Presentation The Combined Historical Summary of Gross Income and Direct Operating Expenses ("Combined Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Form 8-K of IWRRETI and is not intended to be a complete presentation of the Properties' revenues and expenses. The Combined Historical Summary has been prepared on the accrual basis of accounting and requires management of the Properties to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. The Combined Historical Summary is presented on a combined basis since the Properties were acquired from the same seller. All adjustments necessary for a fair presentation have been made to accompanying unaudited amounts for the six months ended June 30, 2005. (3) Gross Income The Properties lease retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Properties are reimbursed for common area, real estate tax, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provisions for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. There was $35,301 contingent rent earned for the year ended December 31, 2004. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $475,613 for the year ended December 31, 2004. F-56 THE PROPERTIES ACQUIRED BY THE NEWMAN DEVELOPMENT GROUP Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from three to 18 years, as of December 31, 2004, are as follows:
YEAR ---- 2005 $ 2,893,163 2006 2,919,483 2007 2,921,433 2008 2,914,414 2009 2,930,457 Thereafter 25,286,972 --------------- $ 39,865,922 ================
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Properties. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Combined Historical Summary. F-57 MOUNTAIN VIEW SHOPPING CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited)
For the For the six months ended year ended June 30, 2005 December 31, 2004 ------------------------------------------- (unaudited) (unaudited) Gross income: Base rental income $ 613,731 1,114,160 Operating expense and real estate tax recoveries 147,019 285,461 ------------------------------------------- Total gross income 760,750 1,399,621 ------------------------------------------- Direct operating expenses: Operating expenses 47,749 96,798 Real estate taxes 28,295 53,895 Insurance 81,871 155,945 ------------------------------------------- Total direct operating expenses 157,915 306,638 ------------------------------------------- Excess of gross income over direct operating expenses $ 602,835 1,092,983 ===========================================
See accompanying notes to historical summary of gross income and direct operating expense. F-58 MOUNTAIN VIEW SHOPPING CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005, respectively, has been prepared from the operating statements provided by the owners of the property during those periods and requires management of Mountain View Shopping Center to make estimates and assumptions that affect the amounts of the revenues and expense during those periods. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the year ended December 31, 2004 and the six months ended June 30, 2005, respectively. F-59 WEST TOWN MARKET Historical Summary of Gross Income and Direct Operating Expenses For the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited)
For the For the six months ended year ended June 30, 2005 December 31 2004 ------------------------------------------- (unaudited) (unaudited) Gross income: Base rental income $ 379,442 137,115 Operating expense and real estate tax recoveries 50,245 25,868 ------------------------------------------- Total gross income 429,687 162,983 ------------------------------------------- Direct operating expenses: Operating expenses 34,359 22,118 Real estate taxes 38,703 2,918 Insurance 3,129 2,830 ------------------------------------------- Total direct operating expenses 76,191 27,866 ------------------------------------------- Excess of gross income over direct operating expenses $ 353,496 135,117 ===========================================
See accompanying notes to historical summary of gross income and direct operating expense. F-60 WEST TOWN MARKET Historical Summary of Gross Income and Direct Operating Expenses For the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005, respectively, has been prepared from the operating statements provided by the owners of the property during those periods and requires management of West Town Market to make estimates and assumptions that affect the amounts of the revenues and expense during those periods. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 31, 2005, respectively. F-61 SHOPPES AT WARNER ROBINS Historical Summary of Gross Income and Direct Operating Expenses For the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited)
For the period from November 1, 2004 For the (commencement of six months ended operations) to June 30, 2005 December 31 2004 ------------------------------------------- (unaudited) (unaudited) Gross income: Base rental income $ 423,454 63,058 Operating expense and real estate tax recoveries 82,398 8,371 -------------------- -------------------- Total gross income 505,852 71,429 -------------------- -------------------- Direct operating expenses: Operating expenses 68,881 6,215 Real estate taxes 18,330 2,064 Insurance 13,111 2,185 -------------------- -------------------- Total direct operating expenses 100,322 10,464 -------------------- -------------------- Excess of gross income over direct operating expenses $ 405,530 60,965 ==================== ====================
See accompanying notes to historical summary of gross income and direct operating expense. F-62 SHOPPES AT WARNER ROBINS Historical Summary of Gross Income and Direct Operating Expenses For the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005, respectively, has been prepared from the operating statements provided by the owners of the property during those periods and requires management of Shoppes at Warner Robins to make estimates and assumptions that affect the amounts of the revenues and expense during those periods. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005, respectively. F-63 SOUTHPARK MEADOWS Historical Summary of Gross Income and Direct Operating Expenses For the period from March 1, 2005 (commencement of operations) to June 30, 2005 (unaudited)
For the period from March 1, 2005 (commencement of operations) to June 30, 2005 -------------------- (unaudited) Gross income: Base rental income $ 531,133 Operating expense and real estate tax recoveries 72,405 -------------------- Total gross income 603,538 -------------------- Direct operating expenses: Operating expenses 32,187 Real estate taxes 45,253 Insurance 4,525 -------------------- Total direct operating expenses 81,965 -------------------- Excess of gross income over direct operating expenses $ 521,573 ====================
See accompanying notes to historical summary of gross income and direct operating expense. F-64 SOUTHPARK MEADOWS Historical Summary of Gross Income and Direct Operating Expenses For the period from March 1, 2005 (commencement of operations) to June 30, 2005 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, 2005 (commencement of operations) to June 30, 2005, has been prepared from the operating statements provided by the owners of the property during those periods and requires management of Southpark Meadows to make estimates and assumptions that affect the amounts of the revenues and expense during those periods. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from March 1, 2005 (commencement of operations) to June 30, 2005. F-65 MISSION CROSSING Historical Summary of Gross Income and Direct Operating Expenses For the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited)
For the period from November 1, 2004 For the (commencement of six months ended operations) to June 30, 2005 December 31 2004 ------------------------------------------- (unaudited) (unaudited) Gross income: Base rental income $ 292,523 32,351 Operating expense and real estate tax recoveries 111,583 12,170 ------------------------------------------- Total gross income 404,106 44,521 ------------------------------------------- Direct operating expenses: Operating expenses 38,820 10,515 Real estate taxes 75,550 6,923 Insurance 725 120 ------------------------------------------- Total direct operating expenses 115,095 17,558 ------------------------------------------- Excess of gross income over direct operating expenses $ 289,011 26,963 ===========================================
See accompanying notes to historical summary of gross income and direct operating expense. F-66 MISSION CROSSING Historical Summary of Gross Income and Direct Operating Expenses For the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005, respectively, has been prepared from the operating statements provided by the owners of the property during those periods and requires management of Mission Crossing to make estimates and assumptions that affect the amounts of the revenues and expense during those periods. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005, respectively. F-67 STONEBRIDGE PLAZA Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited)
For the For the six months ended year ended June 30, 2005 December 31 2004 ------------------------------------------- (unaudited) (unaudited) Gross income: Base rental income $ 247,889 531,054 Operating expense and real estate tax recoveries 105,639 237,425 ------------------------------------------- Total gross income 353,528 768,479 ------------------------------------------- Direct operating expenses: Operating expenses 88,474 144,947 Real estate taxes 67,865 135,730 Insurance 6,860 13,713 ------------------------------------------- Total direct operating expenses 163,199 294,390 ------------------------------------------- Excess of gross income over direct operating expenses $ 190,329 474,089 ===========================================
See accompanying notes to historical summary of gross income and direct operating expense. F-68 STONEBRIDGE PLAZA Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005, respectively, has been prepared from the operating statements provided by the owners of the property during those periods and requires management of Stonebridge Plaza to make estimates and assumptions that affect the amounts of the revenues and expense during those periods. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the year ended December 31, 2004 and the six months ended June 30, 2005, respectively. F-69 GREAT SOUTHWEST CROSSING Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited)
For the For the six months ended year ended June 30, 2005 December 31 2004 ------------------------------------------- (unaudited) (unaudited) Gross income: Base rental income $ 599,879 967,505 Operating expense and real estate tax recoveries 177,572 288,995 ------------------------------------------- Total gross income 777,451 1,256,500 ------------------------------------------- Direct operating expenses: Operating expenses 38,103 66,753 Real estate taxes 141,179 282,357 Insurance 16,009 30,493 ------------------------------------------- Total direct operating expenses 195,291 379,603 ------------------------------------------- Excess of gross income over direct operating expenses $ 582,160 876,897 ===========================================
See accompanying notes to historical summary of gross income and direct operating expense. F-70 GREAT SOUTHWEST CROSSING Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005, respectively, has been prepared from the operating statements provided by the owners of the property during those periods and requires management of Great Southwest Crossing to make estimates and assumptions that affect the amounts of the revenues and expense during those periods. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the year ended December 31, 2004 and the six months ended June 30, 2005, respectively. F-71 APPENDIX A PRIOR PERFORMANCE TABLES The following prior performance tables contain information concerning real estate programs sponsored by IREIC. This information has been summarized in narrative form under "Prior Performance of IREIC Affiliates" in this post-effective amendment. The tables provide information on the performance of a number of programs. You can use the information to evaluate the experience of IREIC and its affiliates. The inclusion of these tables does not imply that we will make investments comparable to those reflected in the tables or that investors in our shares will experience returns comparable to those experienced in the programs referred to in these tables. If you purchase our shares, you will not acquire any ownership in any of the programs to which these tables relate. The tables consist of: TABLE I Experience in Raising and Investing Funds TABLE II Compensation to IREIC and Affiliates TABLE III Operating Results of Prior Programs TABLE IV Results of Completed Programs TABLE V Sales or Disposals of Properties TABLE VI* Acquisition of Properties by Programs - --------------------- * Prospective investors may obtain copies of Table VI by contacting our Advisor/Business Manager. Table VI is included in Part II to this post-effective amendment no. 4. Upon written request to us or our Business Manager, any prospective investor may obtain, without charge, a copy of Table VI. See also "Where You Can Find More Information" for information on examining at offices of, or obtaining copies from, the SEC. Upon written request, any potential investor may obtain, without charge, the most recent annual report on Form 10-K filed with the SEC by any public program sponsored by any of the affiliated companies described below that has reported to the SEC within the last twenty-four (24) months. For a reasonable fee, these affiliated companies will provide copies of any exhibits to such annual reports upon request. Our investment objectives are to: (i) invest in real estate assets that produce attractive current yield and long-term risk-adjusted returns to our stockholders; and (ii) generate sustainable and predictable cash flow from our operations to distribute to our stockholders. The following programs have investment objectives similar to ours in that we all seek to provide regular distributions to stockholders, provide a hedge against inflation and preserve stockholders' capital. Inland Retail Real Estate Trust, Inc., or IRRETI, and Inland Real Estate Corporation, or IREC, are two REITs formed primarily to invest in multi-tenant shopping centers, and Inland Monthly Income Fund, L.P. and Inland Monthly Income Fund II, L.P. are public real estate limited partnerships formed primarily to acquire, operate and sell existing residential and commercial real properties. Inland Mortgage Investors Fund, L.P., Inland Mortgage Investors Fund-II, L.P. and Inland Mortgage Investors Fund III, L.P. were public real estate limited partnerships formed primarily to make or acquire loans secured by mortgages on improved, income producing multifamily residential properties. The real estate exchange private placements offered by Inland Real Estate Exchange Corporation, referred to as the 1031 Exchange Programs, are designed to provide replacement properties for persons wishing to complete an IRS Section 1031 real estate exchange. Thus, these 1031 Exchange Programs do not have investment objectives similar to ours. However, these 1031 Exchange Programs have owned real estate assets similar to those that we may seek to acquire, including industrial buildings, shopping centers, office buildings and other retail buildings. A-1 TABLE I EXPERIENCE IN RAISING AND INVESTING FUNDS (000's omitted) Table I is intended to present information on a dollar and percentage basis showing the experience of programs sponsored by Inland Real Estate Investment Corporation ("IREIC") in raising and investing funds in prior programs where the offering closed in the three years prior to December 31, 2004. The table is intended to focus on the dollar amount available for investment in properties expressed as a percentage of total dollars raised.
NLAND RETAIL 1031 REAL ESTATE EXCHANGE ITRUST, INC. PROGRAMS -------------- -------------- NUMBER OF PROGRAMS: 1 PROGRAM 27 PROGRAMS - --------------------------------------------------------------- -------------- -------------- Dollar amount offered $ 2,500,000(A) 154,425 Dollar amount raised 2,301,884(B) 100.00% 154,425 100.00% Less offering expenses: Syndication fees (C) 194,194 8.44 11,403 7.38% Other fees (D) 21,010 0.91 11,910 7.71% Organizational fees -- -- 1,536 0.99% Reserves (E) 23,000 1.00 2,598 1.68% -------------- --------------- -------------- --------------- Available for investment $ 2,063,680 89.65% 126,978 82.23% ============== =============== ============== =============== Acquisition costs: Cash down payments $ 1,244,486 126,978 Repayment of indebtedness 738,323 -- Investment in securities 12,390 -- -------------- -------------- Total acquisition costs $ 1,995,199 126,978 ============== ============== Percent leverage 55% 100% Date offerings commenced (F) 2001-2004 Length of offering (F) 1-14 months Months to invest 90% of amount available for investment (F) 1-14 months (measured from beginning of offering)
A-2 TABLE I - (CONTINUED) EXPERIENCE IN RAISING AND INVESTING FUNDS (A) NOTES TO TABLE I (A) This amount does not reflect shares offered for distribution to stockholders participating in Inland Retail Real Estate Trust Inc.'s distribution reinvestment program. (B) These figures are cumulative and are as of December 31, 2004. The dollar amount raised represents the cash proceeds collected by the program, including shares sold pursuant to its distribution reinvestment program and net of shares repurchased pursuant to its share repurchase program. (C) Syndication fees are paid by the program to an affiliate, Inland Securities Corporation, or unaffiliated third parties commissions for the sale of shares. All of these syndication fees were used to pay commissions and expenses of the offerings. (D) Other fees are paid by the program to unaffiliated parties and consist principally of printing, selling and registration costs related to the offering. (E) Generally, a working capital reserve is established to fund property upgrades and future cash flow deficits, if any, among other things. (F) On February 11, 1999, the program commenced an initial public offering, on a best effort basis, of 50,000,000 shares of common stock at $10.00 per share. On February 1, 2001, the program commenced an offering of an additional 50,000,000 shares at $10.00 per share, on a best efforts basis. On June 7, 2002, the program commenced an offering of an additional 150,000,000 shares at $10.00 per share, on a best efforts basis. As of December 31, 2003 (approximately fifty-eight (58) months from the commencement of the initial public offering), approximately ninety percent (90.0%) of the proceeds available for investment from the offerings were invested in real properties. A-3 TABLE II COMPENSATION TO IREIC AND AFFILIATES (A) (000's omitted) Table II summarizes the amount and type of compensation paid to IREIC and its affiliates during the three years ended December 31, 2004 in connection with the prior programs. Some partnerships acquired their properties from IREIC or its affiliates, which had purchased the properties from unaffiliated third parties.
INLAND 1031 INLAND INLAND MONTHLY EXCHANGE RETAIL REAL INLAND REAL MONTHLY INCOME PROGRAMS ESTATE TRUST, ESTATE INCOME FUND II, (27 INC. CORPORATION FUND, L.P. L.P. PROGRAMS) --------------- ---------------- ---------------- ---------------- --------------- Date offering commenced 02/11/99 10/14/94 08/03/87 08/04/88 2001-2004 Dollar amount raised $ 2,301,884 703,764 30,000 25,324 154,425 =============== ================ ================ ================ =============== Total amounts paid to general partner or affiliates from proceeds of offerings: Selling commissions and underwriting fees 194,194(C) 49,869(C) 273(B) 423(B) 9,618(C) Other offering expenses (D) 2,762 2,350 116 230 1,545 Acquisition cost and expense 10,502 925 2,550(E) 1,706(E) 7,712(E) =============== ================ ================ ================ =============== Dollar amount of cash available from operations before deducting payments to general partner or affiliates 469,205 233,044 2,492 2,855 22,332 =============== ================ ================ ================ =============== Amounts paid to general partner or affiliates related to operations: (H)(I) Property management fees (F) 38,495 0 45 47 2,044 Advisor asset management fee (J) 39,782 0 0 0 1,756 Accounting services 0 0 53 45 0 Data processing service 0 0 23 23 0 Legal services 0 0 11 7 0 Professional services 162 0 0 0 0 Mortgage servicing fees 842 0 0 0 264 Acquisition costs expensed 286 0 0 0 0 Other administrative services 5,491 0 83 45 0 Dollar amount of property sales and refinancings before payments to general partner and affiliates (G): Cash 0 48,285 3,557 0 0 Notes 0 0 0 0 0 Dollar amounts paid or payable to general partner or affiliates from sales and refinancings: Sales commissions 0 0 0 0 0 Participation in cash distributions 0 0 0 0 0
A-4 TABLE II COMPENSATION TO IREIC AND AFFILIATES (A) NOTES TO TABLE II (A) The figures in this Table II relating to proceeds of the offerings are cumulative and are as of December 31, 2004 and the figures relating to cash available from operations are for the three years ending December 31, 2004. The dollar amount raised represents the cash proceeds collected by the partnerships or program. Amounts paid or payable to IREIC or affiliates from proceeds of the offerings represent payments made or to be made to IREIC and affiliates from investor capital contributions. (B) The selling commissions paid to an affiliate are net of amounts which were in turn paid to third party soliciting dealers. (C) The selling commissions paid to an affiliate include amounts which were in turn paid to third party soliciting dealers. (D) Consists of legal, accounting, printing and other offering expenses, including amounts to be paid to Inland Securities Corporation to be used as incentive compensation to its regional marketing representatives and amounts for reimbursement of the general partner for marketing, salaries and direct expenses of its employees while directly engaged in registering and marketing the Units and other marketing and organization expenses. (E) Represents acquisition fees paid to IREIC and its affiliates in connection with the acquisition of properties. (F) An affiliate provides property management services for all properties acquired by the partnerships or program. Management fees have not exceeded four and one-half percent (4.5%) of the gross receipts from the properties managed. (G) See Table V and Notes thereto regarding sales and disposals of properties. (H) On July 1, 2000, IREC completed the acquisition of Inland Real Estate Advisory Services, Inc., its former business manager, and Inland Commercial Property Management, Inc., its former property manager (the "Merger"). Each of these entities was merged into subsidiaries that are wholly owned by IREC. As a result of the merger, IREC is now "self-administered." IREC no longer pays advisory or property management fees or other expenses to affiliates but instead has hired an internal staff to perform these tasks. (I) On December 29, 2004, IRRETI completed the acquisition of Inland Retail Real Estate Advisory Services, Inc., its business manager and advisor, and Inland Southern Management Corp., Inland Mid-Atlantic Management Corp., and Inland Southeast Property Management Corp., its property managers. Each of these entities was merged into subsidiaries that are wholly owned by IRRETI. As a result of the merger, IRRETI is now "self-administered" and no longer pays advisory or property management fees or other expenses to affiliates but instead has hired an internal staff to perform these tasks. Also as a result of the merger, IRRETI issued to our sponsor, IREIC, the sole shareholder of the business manager, and the shareholders of the property managers, an aggregate of 19,700,060 shares of IRRETI's common stock, valued at $10.00 per share for purposes of the merger agreement, or approximately 7.9% of its common stock. (J) With respect to IRRETI only, IREIC or its affiliates deferred a total of approximately $12.3 million in advisor fees during this three year period. IRRETI paid all deferred advisor fees during the year ended December 31, 2004. A-5 TABLE III OPERATING RESULTS OF PRIOR PROGRAMS Table III presents operating results for programs, the offerings of which closed during each of the five years ended December 31, 2004. The operating results consist of: o The components of taxable income (loss); o Taxable income or loss from operations and property sales; o Cash available and source, before and after cash distributions to investors; and o Tax and distribution data per $1,000 invested. Based on the following termination dates of the offerings, only IRRETI and the twenty-seven (27) 1031 Exchange Programs are included in Table III. o Inland Monthly Income Fund, L.P. - offering terminated in 1988 o Inland Monthly Income Fund II, L.P. - offering terminated in 1990 o Inland Mortgage Investors Fund, L.P. - offering terminated in 1987 o Inland Mortgage Investors Fund II, L.P. - offering terminated in 1988 o Inland Mortgage Investors Fund III, L.P. - offering terminated in 1991 o Inland Real Estate Corporation - offering terminated in 1998 o Inland Retail Real Estate Trust, Inc. - offering terminated in 2003 A-6 TABLE III OPERATING RESULTS OF PRIOR PROGRAMS (000's omitted, except for amounts presented per $1,000 invested) INLAND RETAIL REAL ESTATE TRUST INC.
2004 2003 2002 2001 2000 1999 ------------ ------------- ------------ ------------ ------------ ------------ Gross revenues $ 466,021 317,828 116,011 37,755 22,124 6,030 Profit on sale of properties 0 0 0 0 0 0 Less: Operating expenses (E) 128,826 78,568 27,614 10,178 6,279 1,872 Interest expense 111,573 62,349 23,508 9,712 8,127 2,368 Program expenses (F) 171,214 22,069 7,998 1,219 905 369 Depreciation & amortization 135,085 85,006 29,395 8,653 4,752 1,253 ------------ ------------- ------------ ------------ ------------ ------------ Net income (loss)-GAAP basis $ (80,677) 69,836 27,496 7,993 2,061 168 ============ ============= ============ ============ ============ ============ Taxable income (loss) (A): $ 0 0 0 0 0 0 ============ ============= ============ ============ ============ ============ Cash available (deficiency) from operations 178,470 142,493 53,814 15,748 4,946 2,435 Cash available from investing Payments under master leases (G) 7,337 6,637 1,780 1,679 419 213 Cash available from financing Principal amortization of debt (4,312) (1,678) (344) (257) (238) (110) ------------ ------------- ------------ ------------ ------------ ------------ Total cash available before distributions and special items 181,495 147,452 55,250 17,170 5,127 2,538 Less distributions to investors: From operations, financing and investing (excluding sales) 188,698 152,888 52,156 15,963 6,099 1,065 From sales 0 0 0 0 0 0 ------------ ------------- ------------ ------------ ------------ ------------ 188,698 152,888 52,156 15,963 6,099 1,065 Cash available after distributions before special items (B) (7,203) (5,436) 3,094 1,207 (972) 1,473 Special items: 0 0 0 0 0 0 ------------ ------------- ------------ ------------ ------------ ------------ Cash available after distributions and special items (B) $ (7,203) (5,436) 3,094 1,207 (972) 1,473 ============ ============= ============ ============ ============ ============ Available cash used to partially fund distributions (B) Excess cash available from prior years 0 4,802 0 0 972 0 Cash from financing activities 7,203 634 0 0 0 0 ------------ ------------- ------------ ------------ ------------ ------------ Total available cash used to partially fund distributions $ 7,203 5,436 0 0 972 0 ============ ============= ============ ============ ============ ============ Tax data per $1,000 invested (A): 0 0 0 0 0 0 Distribution data per $1,000 invested: Cash distributions to investors: Source (on GAAP basis): Investment income .83 .83 .83 .81 .77 .72 Source (on cash basis): Sales 0 0 0 0 0 0 Operations(D) .83 .83 .83 .81 .77 .72 Percent of properties remaining unsold 100% ============
A-7 TABLE III OPERATING RESULTS OF PRIOR PROGRAMS (000's omitted, except for amounts presented per $1,000 invested) 1031 EXCHANGE PROGRAMS (27 PROGRAMS)
2004 2003 2002 --------------- ---------------- ---------------- Gross revenues $ 24,497 13,563 4,171 Profit on sale of properties -- -- -- Less: Operating expenses (E) 4,333 1,910 612 Interest expense 8,031 5,049 1,782 Program expenses (F) 1,203 671 174 Depreciation & amortization (C) -- -- -- --------------- ---------------- ---------------- Net income (loss) $ 10,930 5,933 1,603 =============== ================ ================ Taxable income (loss) (C): -- -- -- =============== ================ ================ Cash available (deficiency) from operations 10,930 5,933 1,603 Cash available from financing Principal payment of debt amortization (84) (71) (43) --------------- ---------------- ---------------- Total cash available before distributions and special items 10,846 5,862 1,560 Less distributions to investors: From operations, financing and investing (excluding sales) 10,721 5,457 1,404 From sales 0 0 0 --------------- ---------------- ---------------- 10,721 5,457 1,404 Cash available after distributions before special items 125 404 156 Special items 0 0 0 --------------- ---------------- ---------------- Cash available after distributions and special items $ 125 404 156 =============== ================ ================ Tax data per $1,000 invested (C): -- -- -- =============== ================ ================ Distribution data per $1,000 invested: Cash distributions to investors: Source (on GAAP basis): Investment income 0 0 0 Source (on cash basis): Sales 0 0 0 Operations 86.88 121.26 84.50 Percent of properties remaining unsold 100% 100% 100% =============== ================ ================
A-8 TABLE III - (CONTINUED) OPERATING RESULTS OF PRIOR PROGRAMS NOTES TO TABLE III (A) IRRETI qualified as a real estate investment trust ("REIT") under the Internal Revenue Code for federal income tax purposes. Since it qualified for taxation as a REIT, it generally will not be subject to federal income tax to the extent it distributes its REIT taxable income to its stockholders. If IRRETI fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate tax rates. However, even if the program qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property and federal income and excise taxes on its undistributed income. (B) In any year in which distributions to investors exceeded total cash available before distributions and special items, IRRETI partially funded the distributions in that year with excess cash available from prior years or cash provided from financing activities, including proceeds from offerings and proceeds from issuance of debt. (C) For the 1031 Exchange Programs, depreciation and amortization and tax data are calculated by each individual investor based on their individual basis. (D) Distributions by a REIT to the extent of its current and accumulated earnings and profits for federal income tax purposes are taxable to stockholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the stockholder's basis in the shares to the extent thereof, and thereafter as taxable gain (a return of capital). These distributions in excess of earnings and profits will have the effect of deferring taxation of the amount of the distribution until the sale of the stockholder's shares. Inland Retail Real Estate Trust, Inc.
2004 2003 2002 2001 2000 1999 --------- --------- --------- --------- --------- --------- % of Distribution representing: Ordinary income 57.83 60.85 62.65 60.49 54.55 22.23 Return of Capital 42.17 39.15 37.35 39.51 45.45 77.77 --------- --------- --------- --------- --------- --------- 100.00 100.00 100.00 100.00 100.00 100.00 ========= ========= ========= ========= ========= =========
(E) Operating expenses include property operating expenses such as real estate tax expense, insurance expense, property management fees, utilities, repairs, maintenance and any provisions for asset impairment. (F) Program expenses include advisor fees and general and administrative costs such as salaries, audit and tax services, D&O insurance, printing and postage. In 2004, IRRETI program expenses also included one-time "terminated contract costs" incurred by Inland Retail as a result of the merger with its advisor and property managers. (G) From time to time, IRRETI may acquire a property that includes one or more unleased premises. In certain cases, IRRETI may enter into a master lease agreement with the seller of the property with respect to these unleased premises. These master lease agreements provide for payments to be made to IRRETI and are designed to offset lost rent and common area maintenance (or CAM) expenses paid by IRRETI with respect to the unleased premises. Payments are made from an escrow account established at the time of closing and may continue for a period of up to three years following the closing date as certain re-leasing conditions are satisfied. These escrow payments are recorded as a reduction in the purchase price of the property rather than as rental, or operating, income. A-9 TABLE IV RESULTS OF COMPLETED PROGRAMS (000's omitted, except for amounts presented per $1,000 invested) Table IV is a summary of operating and disposition results of prior programs sponsored by IREIC, which during the five years ended prior to December 31, 2004 have sold their properties and either hold notes with respect to such sales or have liquidated. There are no programs with investment objectives similar to ours that disposed of all of its properties during the five years ended prior to December 31, 2004. A-10 TABLE V SALES OR DISPOSALS OF PROPERTIES Table V presents information on the results of the sale or disposals of properties in programs with investment objectives similar to ours during the three years ended December 31, 2004. Since January 1, 2002, programs sponsored by IREIC had six sales transactions. The table provides certain information to evaluate property performance over the holding period such as: o Sales proceeds received by the partnerships in the form of cash down payments at the time of sale after expenses of sale and secured notes received at sale; o Cash invested in properties; o Cash flow (deficiency) generated by the property; o Taxable gain (ordinary and total); and o Terms of notes received at sale. A-11 TABLE V - (CONTINUED) SALES OR DISPOSALS OF PROPERTIES (A) (000's omitted)
Cash Selling Received, Commissions net of Paid or Mortgage Date Date of Closing Payable to at Time of Acquired Sale Costs(B) Inland Sale -------- --------- --------- ---------- -------------- IREC - Antioch Plaza 12/95 03/28/02 943 0 875 IREC - Shorecrest Plaza 7/97 6/12/02 3,107 0 2,978 IREC - Popeye's 6/97 4/08/03 343 0 0 IREC - Summit of Park Ridge 12/96 2/24/03 3,578 0 1,600 IREC - Eagle Country Market 11/97 2/24/03 5,182 0 1,450 IREC - Eagle Ridge Center 04/99 2/30/03 3,185 0 3,000
Adjust. Secured Resulting Notes From Net Original Partnership Received Application Selling Mortgage Capital At Sale of Gaap Price Financing Invested (C) Total -------- ------------ ----------- --------- ------------ -------- IREC - Antioch Plaza 0 0 1,818 875 753 1,628 IREC - Shorecre Plaza st 0 0 6,085 2,978 2,947 5,925 IREC - Popeye's 0 0 343 0 346 346 IREC - Summit of Park Ridge 0 0 5,178 0 5,181 5,181 IREC - Eagle Country Market 0 0 6,632 0 6,635 6,635 IREC - Eagle Ridge Center 0 0 6,185 0 6,187 6,187
Excess Amount of (Deficiency) of Subsidies Property Operating Included Total Cash Receipts Over in Operating Taxable Ordinary Capital Cash Cash Gain (Loss) Income Gain Expenditures (D) Receipts From Sale From Sale (Loss) ------------------------------------- ------------ ------------- ----------- IREC - Antioch Plaza 130 0 0(E) 0 0 IREC - Shorecrest Plaza 1,556 0 0(E) 0 0 IREC - Popeye's 241 0 3 0 3 IREC - Summit of Park Ridge 1,399 0 0(E) 0 0 IREC - Eagle Country Market 1,290 0 0(E) 0 0 IREC - Eagle Ridge Center 1,441 0 0(E) 0 0
A-12 TABLE V - (CONTINUED) SALES OR DISPOSALS OF PROPERTIES NOTES TO TABLE V (A) The table includes all sales of properties by the programs with investment objectives similar to ours during the three years ended December 31, 2004. All sales have been made to parties unaffiliated with the partnerships. (B) Consists of cash payments received from the buyers and the assumption of certain liabilities by the buyers at the date of sale, less expenses of sale. (C) Amounts represent the dollar amount raised from the offerings, less sales commissions and other offering expenses plus additional costs incurred on the development of the land parcels. (D) Represents "Cash Available (Deficiency) from Operations (including subsidies)" as adjusted for applicable "Fixed Asset Additions" through the year of sale. (E) For tax purposes, this sale qualified as part of a tax-deferred exchange. As a result, no taxable gain will be recognized until the replacement property is disposed of in a subsequent taxable transaction. A-13 [INLAND WESTERN LOGO] PROSPECTUS 270,000,000 shares of common stock $10.00 per share: Minimum Initial Purchase - 300 shares (100 shares for Tax-Exempt Entities) We are a real estate investment trust or a REIT. We were formed in 2003 to acquire and manage properties which are located primarily in states west of the Mississippi River. As of December 7, 2004, we owned 91 properties which have an aggregate gross leasable area of approximately 16.1 million square feet. No public market currently exists for our shares of common stock and our shares cannot be readily sold. We are offering 250,000,000 shares to investors who meet our suitability standards; and up to 20,000,000 shares to participants in our reinvestment plan (at $9.50 per share). The common stock will be issued in book entry form only. The managing dealer of the offering, Inland Securities Corporation, is our affiliate. The managing dealer is not required to sell any specific number or dollar amount of shares but will use its best efforts to sell 250,000,000 of our shares. Your subscription payments will be placed in an escrow account held by the escrow agent, LaSalle Bank National Association, and will be held in trust for your benefit, pending release to us. Subscription proceeds are expected to be released to us as subscriptions are accepted. This offering will end no later than December 21, 2005, unless we elect to extend it to a date no later than December 21, 2006 in states that permit us to make this extension. INVESTING IN OUR COMPANY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF THE MATERIAL RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH YOUR INVESTMENT IN OUR COMMON STOCK. THESE RISKS INCLUDE: - our common stock is not currently listed or traded on an exchange and cannot be readily sold (and sales by stockholders may be made at a loss); - we have no ownership in our business manager/advisor and the business manager/advisor is owned by our sponsor or their affiliates; - our business manager/advisor and its affiliates will receive substantial fees, including participation in proceeds from the sale, refinancing or liquidation of our assets - our business manager/advisor, property managers and two of our directors are subject to conflicts of interest as a result of their affiliation with The Inland Group; - there are limits on ownership, transferability and redemption of shares; - risks that the incentive structure of fees payable to our business manager/advisor and its affiliates may encourage our business manager/advisor to make investments that have greater risks to generate higher fees; and - although we anticipate that aggregate borrowings will not exceed 55% of the combined fair market value of our properties, our charter imposes a limitation on our borrowings of less than 300% of net assets and there are risks associated with a high amount of leverage. The use of forecasts in this offering is prohibited. Any representations to the contrary and any predictions, written or oral, as to the amount or certainty of any present or future cash benefit or tax consequence which may flow from an investment in this program is not permitted. Any stockholder loss of capital will be limited to the amount of their investment. You should purchase these securities only if you can afford a complete loss of your investment. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share Max. Offering Public offering price, primary shares (1)................. $ 10.00 $ $2,500,000,000 Public offering price, distribution reinvestment program.. $ 9.50 $ 190,000,000 Selling commissions (1)................................... $ 1.05 $ 262,500,000 Proceeds, before expenses, to us.......................... $ 8.95 $ 2,427,500,000
(1) The selling commission only applies to sales of primary shares and is composed of a 7.5% selling commission (7.0% of which is reallowable), 2.5% marketing allowance and .5% due diligence expense allowance. The date of this Prospectus is December 21, 2004. FOR RESIDENTS OF MICHIGAN ONLY: A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE DEPARTMENT OF CONSUMER & INDUSTRY SERVICES, MICHIGAN OFFICE OF FINANCIAL AND INSURANCE SERVICES. THE DEPARTMENT HAS NOT UNDERTAKEN TO PASS UPON THE VALUE OF THESE SECURITIES NOR TO MAKE ANY RECOMMENDATIONS AS TO THEIR PURCHASE. THE USE OF THIS PROSPECTUS IS CONDITIONED UPON ITS CONTAINING ALL MATERIAL FACTS AND THAT ALL STATEMENTS CONTAINED THEREIN ARE TRUE AND CAN BE SUBSTANTIATED. THE DEPARTMENT HAS NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. NO BROKER-DEALER, SALESMAN, AGENT OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING HEREBY MADE OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR EFFECTIVE LITERATURE. THIS IS A BEST EFFORTS OFFERING, AND WE RESERVE THE RIGHT TO ACCEPT OR REJECT ANY SUBSCRIPTION AND WILL PROMPTLY NOTIFY THE SUBSCRIBER OF ACCEPTANCE OR REJECTION. THERE IS NO ASSURANCE THAT THIS OFFERING WILL ALL BE SOLD. THERE ARE NO ASSURANCES AS TO WHAT SIZE WE MAY REACH. THERE IS NO ASSURANCE THAT OUR OPERATIONS WILL BE PROFITABLE OR THAT LOSSES WILL NOT OCCUR. IT IS NOT OUR POLICY TO REDEEM OUR STOCK (EXCEPT AS PROVIDED IN THIS OFFERING). ANY REPRESENTATIONS CONTRARY TO ANY OF THE FOREGOING SHOULD BE REPORTED FORTHWITH TO THE OFFICE OF FINANCIAL AND INSURANCE SERVICE AT 611 West Ottawa Street, 2nd Floor Ottawa Building, P.O. Box 30701, Lansing, MI 48909-8201, or Telephone (877) 999-6442. WHO MAY INVEST In order to purchase shares, you must: - Meet the financial suitability standards, and - Purchase a minimum number of shares. SUITABILITY STANDARDS Because an investment in our common stock is risky and is a long-term investment, it is suitable for you only if you have adequate financial means, you have no immediate need for liquidity in your investment and you can bear the complete loss of your investment. We have established financial suitability standards for investors who purchase shares of our common stock. In addition, residents of some states must meet higher suitability standards under state law. These standards require you to meet the applicable criteria below. In determining your net worth, do not include your home, home furnishings or your automobile. INVESTORS WITH INVESTMENT DISCRETION a OVER ASSETS OF AN EMPLOYEE BENEFIT PLAN COVERED BY ERISA SHOULD CAREFULLY REVIEW THE INFORMATION IN THE SECTION ENTITLED, "ERISA CONSIDERATIONS." GENERAL STANDARDS FOR ALL INVESTORS - Minimum net worth of at least $150,000; or - Minimum annual gross income of at least $45,000 and net worth of at least $45,000. Standards for Maine Residents - Minimum net worth of $200,000, or - Minimum annual gross income of $50,000 and a minimum net worth of $50,000. Standards for Arizona, California, Iowa, Massachusetts, Michigan, Missouri, Oregon or Tennessee Residents - Minimum net worth of $225,000, or - Minimum annual gross income of $60,000 and a minimum net worth of $60,000. Standards for Kansas, Missouri, Ohio and Pennsylvania Residents - In addition to meeting the general standards for all investors, your investment may not exceed 10% of your liquid net worth. In the case of sales to fiduciary accounts, these minimum standards must be met by the beneficiary, the fiduciary account, or by the donor or grantor who directly or indirectly supplies the funds to purchase the common stock if the donor or the grantor is the fiduciary. INVESTORS WITH INVESTMENT DISCRETION OVER ASSETS OF AN EMPLOYEE BENEFIT PLAN COVERED UNDER ERISA SHOULD CAREFULLY REVIEW THE INFORMATION ENTITLED "ERISA CONSIDERATIONS." In the case of gifts to minors, the suitability standards must be met by the custodian account or by the donor. MINIMUM PURCHASE Subject to the restrictions imposed by state law, we will sell shares of our common stock only to investors who initially purchase a minimum of 300 shares of common stock for a total purchase price of $3,000, or tax-exempt entities which purchase a minimum of 100 shares of common stock for a total purchase price of $1,000. For investors living in Iowa, the minimum investment for IRAs will be 300 shares of common stock for a total purchase price of $3,000, and for investors living in Minnesota, the minimum investment for IRAs and qualified plan accounts will be 200 shares of common stock for a total purchase price of $2,000. Tax-exempt entities are generally any investor that is exempt from federal income taxation, including: - a pension, profit-sharing, retirement, IRA or other employee benefit plan which satisfies the requirements for qualification under Section 401(a), 414(d) or 414(e) of the Internal Revenue Code; b - a pension, profit-sharing, retirement, IRA or other employee benefit plan which meets the requirements of Section 457 of the Internal Revenue Code; - trusts that are otherwise exempt under Section 501(a) of the Internal Revenue Code; - a voluntary employees' beneficiary association under Section 501(c)(9) of the Internal Revenue Code; or - an IRA which meets the requirements of Section 408 of the Internal Revenue Code. The term "plan" includes plans subject to Title I of ERISA, other employee benefit plans and IRAs subject to the prohibited transaction provisions of Section 4975 of the Internal Revenue Code, governmental or church plans that are exempt from ERISA and Section 4975 of the Internal Revenue Code, but that may be subject to state law requirements, or other employee benefit plans. Subject to any restrictions imposed by state law, subsequent additional investments by current investors require a minimum investment of $25. This limitation does not apply to the purchase of shares through the dividend reinvestment provision. [THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK] c TABLE OF CONTENTS
PAGE WHO MAY INVEST..................................................................................a Suitability Standards.......................................................................a Minimum Purchase............................................................................b PROSPECTUS SUMMARY..............................................................................1 Inland Western Retail Real Estate Trust, Inc................................................1 The types of real estate that we may acquire and manage.....................................1 Our sponsor, our business manager/advisor and The Inland Group..............................2 Conflicts of interest.......................................................................4 Compensation to be paid to our business manager/advisor and affiliates......................5 Primary business objective and strategies...................................................8 Terms of the offering.......................................................................9 Is an investment in us appropriate for you?................................................10 Distributions..............................................................................10 Real property investments..................................................................10 Share repurchase program...................................................................10 Estimated Use of Proceeds..................................................................11 RISK FACTORS...................................................................................12 Our common stock is not currently listed on an exchange or trading market and cannot be readily sold..........................................................................12 The price of our common stock is subjective and may not bear any relationship to what a stockholder could receive if it was sold..............................................12 You do not know what real properties and other assets we may acquire in the future, and must rely on our business manager/advisor, our board and officers to select them and stockholders will not participate in these decisions..............................12 Competition with third parties in acquiring properties will reduce our profitability and the return on your investment.........................................................12 We will compete with real estate investment programs sponsored by companies affiliated with us for the acquisition of properties and for the time and services of personnel..13
i We plan to incur mortgage indebtedness and other borrowings, which may reduce the funds available for distribution, may increase the risk of loss since defaults may result in foreclosure and mortgages may include cross-collateralization or cross-default provisions that increase the risk that more than one property may be affected by a default.................................................................13 If we have insufficient working capital reserves, we will have to obtain financing from other sources.........................................................................14 The types of properties which we intend to acquire and the area in which we may acquire retail centers is limited.............................................................14 The aggregate amount we may borrow is limited under our articles of incorporation..........14 Because of the way we are organized, we would be a difficult takeover target. This could depress the price of our stock and inhibit a management change........................14 Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act..............................................16 There are many factors which can affect distributions to stockholders......................16 Our derivative financial instruments used to hedge against interest rate fluctuations could reduce the overall returns on your investment...................................17 We could issue more shares in the future, which could reduce the market price of our outstanding shares....................................................................18 Our share repurchase program is limited to 5% of the weighted average number of shares of our stock outstanding during the prior calendar year and may be changed or terminated by us, thereby reducing the potential liquidity of your investment.........18 Stockholders have limited control over changes in our policies.............................18 If we invest in joint ventures, the objectives of our partners may conflict with our objectives............................................................................18 If we sell properties by providing financing to purchasers, we will bear the risk of default by the purchaser..............................................................18 Delays in acquisitions of properties may have an adverse effect............................19 We may not be able to immediately invest proceeds in real estate, which will harm your returns...............................................................................19 We depend on our board of directors, business manager/advisor and property managers and losing those relationships could negatively affect our operations.................19 There are conflicts of interest between us and our affiliates..............................19 We cannot predict the amounts of compensation to be paid to our business manager/advisor and our other affiliates..............................................................21 The managing dealer has not made an independent review of us or the prospectus.............22
ii Our rights and the rights of our stockholders to take action against our directors and officers and the business manager/advisor are limited.................................22 The business of our business manager/advisor and our property managers may be acquired by us without further action of our stockholders.........................................22 Your percentage of ownership may become diluted if we issue new shares of stock............23 There are inherent risks with real estate investments......................................23 Adverse economic conditions in our primary geographic region and in the market for retail space could reduce our income and distributions to you.........................23 Rising expenses could reduce cash flow and funds available for future acquisitions.........24 If our tenants are unable to make rental payments, if their rental payments are reduced, or if they terminate a lease, our financial condition and ability to pay distributions will be adversely affected..............................................24 Our financial condition and ability to make distributions may be adversely affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of a tenant that occupies a large area of the retail center or an anchor tenant................................................................................24 If a tenant claims bankruptcy, we may be unable to collect balances due under relevant leases................................................................................24 We may incur additional costs in acquiring or re-leasing retail properties.................25 Our properties will be subject to competition for tenants and customers....................25 Our properties will face competition which may affect tenants' ability to pay rent and the amount of rent paid to us and in turn affect the cash available for distributions and the amount of distributions.........................................25 We may be restricted from re-leasing space.................................................25 We may be unable to sell a property if or when we decide to do so..........................25 If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits............26 Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and other acts of violence or war may affect the markets in which we operate, our operations and our profitability................................26 Real estate related taxes may increase and if these increases are not passed on to tenants, our income will be reduced...................................................27 Revenue from our properties depends on the amount of our tenants' retail revenue, making us vulnerable to general economic downturns and other conditions affecting the retail industry.......................................................................27
iii The costs of compliance with environmental laws and other governmental laws and regulations may adversely affect our income and the cash available for any distributions.........................................................................27 Our costs associated with complying with the Americans with Disabilities Act may affect cash available for distributions......................................................28 If a sale or leaseback transaction is recharacterized, our financial condition could be adversely affected.................................................................28 We may incur additional costs in acquiring newly constructed properties which may adversely affect cash available for distributions to you..............................29 Our investments in unimproved real property may result in additional cost to us to comply with re-zoning restrictions or environmental regulations.......................29 Construction and development activities will expose us to risks such as cost overruns, carrying costs of projects under construction or development, availability and costs of materials and labor, weather conditions and government regulation............29 We may acquire or finance properties with lock-out provisions which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties....................................................29 Your investment has various federal income tax risks.......................................29 If we fail to maintain our REIT status, our dividends will not be deductible to us and our income will be subject to taxation................................................30 You may have tax liability on distributions you elect to reinvest in common stock..........30 The opinion of Duane Morris LLP regarding our status as a REIT does not guarantee our ability to remain a REIT..............................................................30 Even REITS are subject to federal and state income taxes...................................30 An investment in our common stock may not be suitable for every employee benefit plan......30 The annual statement of value that we will be sending to stockholders subject to ERISA and to certain other plan stockholders is only an estimate and may not reflect the actual value of our shares............................................................31 CAUTIONING NOTE REGARDING FORWARD-LOOKING STATEMENTS...........................................32 HOW WE OPERATE.................................................................................34 CONFLICTS OF INTEREST..........................................................................36 COMPENSATION TABLE.............................................................................40 ESTIMATED USE OF PROCEEDS......................................................................48 PRIOR PERFORMANCE OF OUR AFFILIATES............................................................49
iv Prior Investment Programs..................................................................49 Summary Information........................................................................49 Publicly Registered REITS..................................................................51 Private Partnerships.......................................................................54 1031 Exchange Private Placement Offering Program...........................................55 MANAGEMENT.....................................................................................68 Inland Affiliated Companies................................................................68 Our General Management.....................................................................71 Our Directors and Executive Officers.......................................................72 Committees of Our Board of Directors.......................................................75 Compensation of Directors and Officers.....................................................76 Executive Compensation.....................................................................76 Independent Director Stock Option Plan.....................................................77 Our Business Manager/Advisor...............................................................78 Our Advisory Agreement.....................................................................79 The Property Managers and the Management Agreements........................................82 LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND OUR BUSINESS MANAGER/ADVISOR................................................................................92 PRINCIPAL STOCKHOLDERS.........................................................................95 OUR STRUCTURE AND FORMATION....................................................................96 Structure..................................................................................96 SELECTED FINANCIAL DATA........................................................................97 INVESTMENT OBJECTIVES AND POLICIES.............................................................99 General ..................................................................................99 Distributions..............................................................................99 Types of Investments......................................................................100 Property Acquisition Standards............................................................101 Description of Leases.....................................................................102
v Property Acquisition......................................................................102 Borrowing.................................................................................103 Sale or Disposition of Properties.........................................................104 Change in Investment Objectives and Policies..............................................105 Investment Limitations....................................................................105 Other Investments.........................................................................105 Appraisals................................................................................106 Return of Uninvested Proceeds.............................................................106 Additional Offerings and Exchange Listing.................................................107 Joint Ventures............................................................................107 Construction and Development Activities...................................................107 Other Policies............................................................................108 REAL PROPERTY INVESTMENTS.....................................................................110 Investing in REITS........................................................................110 General .................................................................................110 Insurance Coverage on Properties..........................................................112 Properties................................................................................112 Retail Shopping Centers...................................................................113 Neighborhood and Community Shopping Centers...............................................114 Single-User Properties....................................................................114 Summary Tabular Presentation of Properties Owned..........................................115 Description of Properties.................................................................124 Potential Property Acquisitions...........................................................262 Tenant Lease Expiration...................................................................292 Tenant Concentration......................................................................293 Property Allocation.......................................................................295
vi CAPITALIZATION................................................................................297 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION...............................298 DESCRIPTION OF SECURITIES.....................................................................324 Authorized Stock..........................................................................324 Common Stock..............................................................................324 Preferred Stock...........................................................................325 Issuance of Additional Securities and Debt Instruments....................................326 Restrictions on Issuance of Securities....................................................326 Restrictions on Ownership and Transfer....................................................327 Anti-Takeover Provisions of Maryland Law and Our Articles of Incorporation and Bylaws.....329 SHARES ELIGIBLE FOR FUTURE SALE...............................................................332 Shares to be Outstanding or Issuable upon Exercise or Conversion of Other Outstanding Securities...........................................................................332 Securities Act Restrictions...............................................................332 Independent Director Stock Option Plan....................................................333 Effect of Availability of Shares on Market Price of Shares................................333 Registration Rights.......................................................................333 SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS.......................................................335 Articles of Incorporation and Bylaw Provisions............................................335 Stockholders' Meetings....................................................................335 Board of Directors........................................................................336 Stockholder Voting Rights.................................................................336 Rights of Objecting Stockholders..........................................................337 Stockholder Lists; Inspection of Books and Records........................................337 Amendment of the Organizational Documents.................................................338 Dissolution or Termination of the Company.................................................338 Advance Notice of Director Nominations and New Business...................................338 Restrictions on Certain Conversion Transactions and Roll-Ups..............................339
vii Limitation on Total Operating Expenses....................................................341 Transactions with Affiliates..............................................................342 Restrictions on Borrowing.................................................................343 Restrictions on Investments...............................................................343 FEDERAL INCOME TAX CONSIDERATIONS.............................................................346 Federal Income Taxation as a REIT.........................................................346 Federal Income Taxation of Stockholders...................................................353 Other Tax Considerations..................................................................356 ERISA CONSIDERATIONS..........................................................................357 PLAN OF DISTRIBUTION..........................................................................360 General .................................................................................360 Escrow Conditions.........................................................................360 Subscription Process......................................................................361 Representations and Warranties in the Subscription Agreement..............................361 Determination of Your Suitability as an Investor..........................................362 Compensation We Will Pay for the Sale of Our Shares.......................................363 Volume Discounts..........................................................................364 Deferred Commission Option................................................................365 Indemnification...........................................................................367 HOW TO SUBSCRIBE..............................................................................369 SALES LITERATURE..............................................................................371 DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS.......................................372 Distribution Reinvestment Program.........................................................372 Share Repurchase Program..................................................................373
viii REPORTS TO STOCKHOLDERS.......................................................................376 PRIVACY POLICY NOTICE.........................................................................377 LITIGATION....................................................................................378 RELATIONSHIPS AND RELATED TRANSACTIONS........................................................378 LEGAL MATTERS.................................................................................384 EXPERTS.......................................................................................384 WHERE YOU CAN FIND MORE INFORMATION...........................................................387
Index to Financial Statements F-1 Appendix A - Prior Performance Tables A-1 Appendix B - Distribution Reinvestment Plan B-1 Appendix C - Subscription Agreement C-1 Appendix D - Transfer on Death Designation D-1 Appendix E1 - Letter of Direction E1-1 Appendix E2 - Notice of Revocation E2-1 Appendix G - Privacy Policy Notice G-1
ix PROSPECTUS SUMMARY This summary highlights all of the material information in this prospectus. Because this is a summary, it does not contain all the information that may be important to you. You should read this entire prospectus and its appendices carefully before you decide to invest in our shares of common stock. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. We are a Maryland corporation formed in March 2003 and we operate as a real estate investment trust, or a REIT, for federal and state income tax purposes. Our company owns all of our assets, either directly or indirectly. Our principal executive offices are located at 2901 Butterfield Road, Oak Brook, Illinois 60523 and our telephone number is (630) 218-8000. THE TYPES OF REAL ESTATE THAT WE MAY ACQUIRE AND MANAGE Our business manager/advisor is experienced in acquiring and managing real estate, particularly retail focused shopping centers. We acquire and manage a diversified (by geographical location and by type and size of retail centers) portfolio of real estate primarily improved for use as retail establishments, principally multi-tenant shopping centers. Our portfolio does and will consist predominantly of grocery and discount store anchored retail, including net lease retail. We may acquire certain mixed use properties that may include lodging, office and/or multi-family residential if they are part of a retail center. And, we may also acquire other types of retail shopping centers, such as enclosed malls, outlet malls and power centers. We also anticipate acquiring real estate improved with other commercial facilities which provide goods and services as well as double or triple net leased properties, which are either commercial or retail, including properties acquired in sale and leaseback transactions. A triple-net leased property is one which is leased to a tenant who is responsible for the base rent and all costs and expenses associated with their occupancy, including property taxes, insurance, repairs and maintenance. The geographic focus of our portfolio continues to be western U.S. markets; yet, at the present time, we believe that properties available for sale east of the Mississippi River are offering more favorable investment returns. Our objective continues to be to acquire quality properties primarily for income as distinguished from primarily for capital gain. As a result, many of our recently acquired properties and properties that we currently have under contract for purchase are located in eastern U.S. markets. However, over the long-term, we expect the portfolio to consist of properties located primarily west of the Mississippi River. Where feasible, we will endeavor to acquire multiple properties within the same major metropolitan markets where the acquisitions result in efficient property management operations with the potential to achieve market dominance. As a result, we may have clusters of properties east of the Mississippi. We do not intend to invest in real estate properties that are primarily: - farms; - health care facilities; - industrial properties; - leisure home sites; - manufacturing facilities; - mining properties; - ranches; - single-family residential properties; 1 - timberlands; or - unimproved properties not intended to be developed (vacant land). Subject to compliance with the applicable requirements under the federal income tax laws, we may also undertake construction and development activities and render services in connection with such activities. OUR SPONSOR, OUR BUSINESS MANAGER/ADVISOR AND THE INLAND GROUP Our sponsor is Inland Real Estate Investment Corporation, which is owned by The Inland Group, Inc. The Inland Group, together with its subsidiaries and affiliates, is a fully-integrated group of legally and financially separate companies that have been engaged in diverse facets of real estate for over 35 years providing property management, leasing, marketing, acquisition, disposition, development, redevelopment, syndication, renovation, construction, finance and other related services. Inland Western Retail Real Estate Advisory Services, Inc., is a wholly owned subsidiary of our sponsor and is our business manager/advisor. Inland Securities Corporation, another affiliate of The Inland Group, is the managing dealer of this offering. Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Management LLC, our property managers, are entities owned principally by individuals who are affiliates of The Inland Group. The principal executive offices of The Inland Group, our sponsor, and our business manager/advisor are located at 2901 Butterfield Road, Oak Brook, Illinois 60523 and their telephone number is (630) 218-8000. The principal executive offices of our property managers are located at 2907 Butterfield Road, Oak Brook, Illinois 60523 and their telephone number is (630) 218-8000. The following organizational chart depicts the services that affiliates or our sponsor will render to us and our organizational structure. 2 The following organizational chart depicts the services that affiliates of our sponsor will render to us and our organizational structure. ORGANIZATIONAL CHART ------------------ --------- --------- --------- Daniel L. Goodwin* Robert H. G. Joseph Robert D. Baum* Cosenza* Parks* ------------------ --------- --------- --------- || || || || ================================================================================================================= || || || || || - ---------- ---------- ---------- ---------- || Inland Inland Inland Inland || Northwest Southwest Western Pacific ----------------------- Management Management Management Management THE INLAND GROUP, INC.* Corp. Corp. Corp. Corp. ----------------------- - ---------- ---------- ---------- ---------- || || || || || || ============================================== ========================================================================== || || || || || || || || || || - --------------------------------------------------- ------------------- ----------------------------- ------------------- || Inland Holdco Management LLC The Inland Services Inland Real The Inland Real || Group, Inc. Estate Investment Corporation Estate Transactions || (our sponsor) Group, Inc. || - --------------------------------------------------- ------------------- ----------------------------- ------------------- || | | | || || || || | | | || || || || - ---------- ---------------- -------------- || || || || Inland US Inland Southwest Inland Pacific || || || || Management Property Property --------------- || || || LLC Management Management Inland Risk and || || || (property LLC LLC Insurance || || || manager) (property (property Management || || || manager) manager) Services, Inc. || || || - ---------- ---------------- -------------- --------------- || || || | | | | || || || | | | | || || || - --------------------------------------------------- | || || || | | || || || | | || || || | ---------------------------------------------------------- || || || | | || || || | | || || || | | ======================================================== || || | | || || || || || | | || || || || || | | ----------------- ------------------------------ ------------------ || ---------------------- | | Inland Securities Inland Western Retail Real Inland Partnership || Inland Mortgage | | Corporation Estate Advisory Services, Inc. Property Sales || Investment Corporation | | (our business manager/advisor) Corporation || | | ----------------- ------------------------------ ------------------ || ---------------------- | | | | || || | | | | ======================================== ============ | | | | || || || || || | | | | || ----------- || || ----------- | ------------ | | ----------- Inland Real ------------------ ----------- Inland | Insurance | | Inland Real Estate Inland Real Inland Mortgage | Services | | Estate Development Estate Mortgage Servicing | ------------ | | Sales, Inc. Corporation Acquisitions, Inc. Corporation Corporation | | | | ----------- ----------- ------------------ ----------- ----------- | | | | | | | | | | | | | -------------- | | | | | | | | Real Estate | | | | - ----------------------- | | | Sales Services | | | | Property Management and | | | -------------- | | | | Related Services | | | | | | | | - ----------------------- | | | | | | | | | | | | | | | | | | | | | | | | | | | | ---------------- ----------------- | ---------------- ----------- --------- --------- | | Securities Sales Organization, | Construction and Property Mortgage Mortgage | | Advisory and Real | Development Acquisition Brokerage Loan | | Estate Services | Services Services Services Servicing | | ---------------- ----------------- | ---------------- ----------- --------- --------- | | | | | | | | | | | | | | | | | | | | | | | | | | | - ----------------------------------------------------------------------------------------------------------------------------------- Inland Western Retail Real Estate Trust, Inc. We are principally owned by public investors. Ownership is represented by shares of our common stock - -----------------------------------------------------------------------------------------------------------------------------------
* The four indicated individuals control Solid lines indicate 100% ownership. The Inland Group, Inc. and own Broken lines indicate service. substantially all of its stock. 3 Investment in shares of our common stock involves risks. If we are unable to effectively manage the impact of these risks, we may not meet our investment objectives and, therefore, you may lose some or all of your investment. The following is a summary of the material risks which we believe are most relevant to an investment in the shares. These risks are generally listed in the order of priority. - our common stock is not currently listed or traded on an exchange and cannot be readily sold (and sales by stockholders may be made at a loss); - although we anticipate that aggregate borrowings will not exceed 55% of the combined fair market value of our properties, our charter imposes a limitation on our borrowings of less than 300% of net assets and there are risks associated with a high amount of leverage; - we have no ownership in our business manager/advisor and the business manager/advisor is owned by our sponsor or their affiliates; - our business manager/advisor and its affiliates will receive substantial fees, including participation in proceeds from the sale, refinancing or liquidation of our assets; - our business manager/advisor, property managers and two of our directors are subject to conflicts of interest as a result of their affiliation with The Inland Group, including conflicts of interest relating to: - the negotiation of the terms of the advisor and property management agreements; - the allocation of their time between us and their other business ventures; - decisions whether to acquire and dispose of properties; - the purchase and sale of properties to or from the business manager/advisor and our affiliates; and - the allocation of investment opportunities between us and their other business ventures. - we may make distributions that include a return of principal for federal tax purposes; - there are limits on ownership, transferability and redemption of shares; - our investment policies and strategies may be changed without stockholder consent; - our investments will lack geographic diversification; and - risks that incentive structure of fees payable to our business manager/advisor and its affiliates may encourage our business manager/advisor to make investments that have greater risks to generate higher fees. CONFLICTS OF INTEREST CONFLICTS OF INTEREST EXIST BETWEEN US AND SOME OF OUR AFFILIATES, INCLUDING OUR BUSINESS MANAGER/ADVISOR. THESE AFFILIATES INCLUDE INLAND REAL ESTATE CORPORATION, INLAND RETAIL REAL ESTATE TRUST, INC. AND INLAND REAL ESTATE EXCHANGE CORPORATION. INLAND REAL ESTATE CORPORATION IS A PUBLICLY TRADED REIT THAT IS SELF-ADMINISTERED AND IS NO LONGER AFFILIATED WITH THE INLAND GROUP. INLAND REAL ESTATE CORPORATION PURCHASES SHOPPING CENTERS LOCATED IN THE MIDWEST. INLAND RETAIL REAL ESTATE TRUST, INC. IS AFFILIATED WITH THE INLAND GROUP. INLAND RETAIL REAL ESTATE TRUST, INC. GENERALLY PURCHASES SHOPPING CENTERS LOCATED EAST OF THE MISSISSIPPI RIVER. INLAND REAL 4 ESTATE EXCHANGE CORPORATION IS A SUBSIDIARY OF INLAND REAL ESTATE INVESTMENT CORPORATION. INLAND REAL ESTATE EXCHANGE CORPORATION PROVIDES REPLACEMENT PROPERTIES FOR PEOPLE WISHING TO COMPLETE AN IRS SECTION 1031 REAL ESTATE EXCHANGE. Midwest Real Estate Equities, Inc. is not a subsidiary of The Inland Group, Inc or its affiliates but does have some of the same shareholders as The Inland Group, Inc. Midwest Real Estate Equities buys, manages and sells commercial and multi-family property. Some of these conflicts include: - competition for the time and services of personnel that work for us and our affiliates, including such persons as Daniel L. Goodwin, Robert H. Baum, G. Joseph Cosenza, Robert D. Parks, Thomas P. McGuinness, Roberta S. Matlin and Brenda G. Gujral, which may limit the amount of time these people may spend on our business matters; - substantial compensation payable by us to Inland Securities Corporation, Inland Western Retail Real Estate Advisory Services, Inc., Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Management LLC for their various services which may not be on market terms and is payable, in most cases, whether or not our stockholders receive distributions; - competition for properties, although our affiliates are governed by the Property Acquisition Service Agreement which, with certain limitations, gives us a right of first refusal for certain properties west of the Mississippi River; and - the possibility that we may do business with entities that have pre-existing relationships with our affiliates which may result in a conflict between our business and the ongoing business relationships our affiliates have with each other. Conflicts of interest may also arise in connection with the potential sale or refinancing of our properties or the enforcement of agreements. We have an option to acquire or consolidate into us the business conducted by our business manager/advisor and/or our property managers for shares of common stock. COMPENSATION TO BE PAID TO OUR BUSINESS MANAGER/ADVISOR AND AFFILIATES We pay our business manager/advisor and affiliates substantial fees for managing our business. We will also pay the business manager/advisor and other affiliates of our sponsor a number of other fees for services or expense reimbursements during our offering, operational and liquidation stage. 5 Set forth below is a tabular summary of fees and compensation payable to our business manager/advisor and other affiliates. Type of Compensation Nonsubordinated payments: Offering stage: Selling commissions 7.5% of the sale price for each share Estimated maximum: $187,500,000. Through September 30, 2004, we have incurred $135,587,028 in selling commissions in connection with our initial public offering. In our initial public offering, we intend to sell 250,000,000 shares of our common stock at $10.00 per share. Marketing allowance and due 2.5% of the gross offering proceeds for diligence expense allowance marketing allowance and 0.5% of the gross offering proceeds for due diligence expense allowance. Through September 30, 2004, we have incurred $16,811,558 in marketing allowance and due diligence expense allowance in connection with our initial public offering. The actual amount of marketing allowance and due diligence expense allowance in connection with this offering will depend on the number of shares sold. If there are no special sales, and we sell the maximum number of shares offered, approximately $75,000,000 will be paid for the marketing allowance and the due diligence expense allowance. Reimbursable expenses and other Estimated amount: $14,684,000. Through expenses of issuance September 30, 2004, we have incurred $969,524 of reimbursable expenses to our business manager/advisor in connection with our initial public offering. In addition, in connection with our initial public offering, as of December 31, 2003, our business manager/advisor had advanced an aggregate of approximately $1,763,306 for the payment of offering expenses to non-affiliated third parties, all of which has been repaid. Our sponsor has not advanced any reimbursable expenses in connection with this offering. We may reimburse up to $14,684,000 for offering expenses advanced if we sell the maximum number of shares offered. If the offering is not successful, then our sponsor will be solely responsible for the offering expenses to the extent it has not been reimbursed.
6 Acquisition stage: Acquisition expenses We will reimburse Inland Real Estate Acquisitions, Inc. for costs incurred, on our behalf, in connection with the acquisition of properties. We will pay an amount, estimated to be up to 0.5% of the total of (1) the gross offering proceeds from the sale of 250,000,000 shares and (2) the gross proceeds from the sale of up to 20,000,000 shares pursuant to the distribution reinvestment programs. The acquisition expenses for any particular property will not exceed 6% of the gross purchase price of the property. Operational stage: Property management fee 4.5% of the gross income from the This fee terminates upon a business properties. (cannot exceed 90% of the combination with our property fee which would be payable to an managers. unrelated third party). We will pay the fee for services in connection with the rental, leasing, operation and management of the properties. For the year ended December 31, 2003, and the nine months ended September 30, 2004, we have incurred and paid property management fees of $16,627 and $2,847,427, of which $16,627 and $2,847,427 were retained by Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Management LLC. Actual amounts we will incur in the future cannot be determined at the present time. Loan servicing fee and mortgage 0.08% of the total principal amount of brokerage fee the loans being serviced for each full year, up to the first $100 million and a lesser percentage on a sliding scale thereafter. For the year ended December 31, 2003, and the nine months ended September 30, 2004, we have incurred and paid $328 and $63,978 to Inland Mortgage Servicing Corporation. For the year ended December 31, 2003, and the nine months ended September 30, 2004, we have incurred and paid $59,523 and $2,241,986 to Inland Mortgage Investment Corporation. Reimbursable expenses relating to The compensation and reimbursements to administrative services our business manager/advisor and its affiliates will be approved by a majority of our directors. Actual amounts cannot be determined at the present time. These may include cost of goods and services and non-supervisory services performed directly for us by independent parties.
7 Liquidation stage: Property disposition fee Lesser of 3% of sales price or 50% of This fee terminates upon a business the customary commission which would be combination with our business paid to a third party. Actual amounts manager/advisor. cannot be determined at the present time. Subordinated payments: Operational stage: Advisor asset management fee Not more than 1% per annum of our This fee terminates upon a business average assets; subordinated to a combination with our business non-cumulative, non-compounded return, manager/advisor. equal to 6% per annum. Actual amounts cannot be determined at the present time. We will pay the fee for services in connection with our day-to-day operations, including administering our bookkeeping and accounting functions, services as our consultant in connection with policy decisions made by our board, managing our properties or causing them to be managed by another party and providing other services as our board deems appropriate. As of September 30, 2004, we have not paid or accrued any advisor asset management fees. Actual amounts we will incur in the future cannot be determined at the present time. Liquidation stage: Incentive advisory fee After our stockholders have first This fee terminates upon a business received a 10% cumulative, combination with the business non-compounded return and a return of manager/advisor. their net investment, an incentive advisory fee equal to 15% on net proceeds from the sale of a property will be paid to our business manager/advisor.
PRIMARY BUSINESS OBJECTIVE AND STRATEGIES Our primary business objective is to enhance the performance and value of our properties through active management. Key elements of our strategy are: Acquisitions: - To selectively acquire real properties that are diversified types and well-located. - To selectively acquire properties on an all-cash basis if necessary to provide us with a competitive advantage over potential purchasers who must secure financing. We may, however, acquire properties subject to existing indebtedness if we believe this is in our best interest. We may acquire properties free and clear of permanent mortgage debt by paying the entire purchase price of each property in cash or for shares, interests in entities that own one or more of our properties or a combination of these. However, as of the date of this 8 prospectus, we had not paid the purchase price of any properties using shares or interests in entities that will own our properties. - To diversify geographically within the states west of the Mississippi by acquiring properties primarily located in major metropolitan areas to minimize the potential adverse impact of economic downturns in local markets. Operations: - We intend to continue to actively manage costs and minimize operating expenses by centralizing all management, leasing, marketing, financing, accounting, renovation and data processing activities. - We intend to improve rental income and cash flow by aggressively marketing rentable space. - We intend to continue to emphasize regular maintenance and periodic renovation to meet the needs of tenants and to maximize long-term returns. - We intend to continue to maintain a diversified tenant base at our retail centers, consisting primarily of retail tenants providing consumer goods and services. TERMS OF THE OFFERING If we sell the maximum amount of shares under the offering, we will have sold a total of 500,020,000 shares, assuming that we sell all of the 250,000,000 shares offered in our initial public offering which began September 2003. These numbers do not include shares issued upon exercise of options granted and which may be granted under our independent director stock option plan, nor do they include shares issued pursuant to our existing distribution reinvestment program. We are offering a maximum of 250,000,000 shares on a best efforts basis through the managing dealer at $10.00 per share, subject to discounts in some cases. An offering on a best efforts basis is one in which the securities dealers participating in the offering are under no obligation to purchase any of the securities being offered and, therefore, no specified number of securities are guaranteed to be sold and no specified amount of money is guaranteed to be raised from the offering. We are also offering up to 20,000,000 shares at a purchase price of $9.50 per share to stockholders who elect to participate in our distribution reinvestment program. The offering price of our shares is subjective and was determined by our board of directors. Our board of directors determined the offering price based upon the offering price in our initial public offering in September 2003, the offering price of earlier REITs organized by our sponsor, the range of other REITs that do not have a public trading market and the recommendation of the managing dealer based on its consultations with likely soliciting dealers. 9 IS AN INVESTMENT IN US APPROPRIATE FOR YOU? An investment in us might be appropriate as part of your investment portfolio if: - You are looking for regular distributions. We intend to pay regular monthly distributions to our domestic stockholders and regular quarterly distributions to our foreign stockholders. We have paid regular distributions to our domestic and foreign stockholders for the past nine months and the past three quarters. The maximum time that you should have to wait to receive the first distribution is 45 days from the date in which we accept your subscription. - You are looking for a hedge against inflation. We have, and intend to continue to hedge against inflation by entering into leases with tenants which provide for scheduled rent escalations or participation in the growth of tenant sales. This is designed to provide increased distributions and capital appreciation. - You are looking for capital preservation and appreciation. We intend to acquire, a portfolio of diverse properties, usually on an all cash basis, that are well located. After acquiring these properties, we may finance them, but we anticipate that aggregate borrowings secured by our properties will not exceed 55% of their combined fair market value. Currently, our aggregate borrowings secured by our properties is approximately 55% of their combined fair market value. WE CANNOT GUARANTEE THAT WE WILL ACHIEVE THESE OBJECTIVES. DISTRIBUTIONS We have and intend to continue to pay regular monthly distributions to our domestic stockholders and regular quarterly distributions to our foreign stockholders. The maximum time that you should have to wait to receive the first distribution is 45 days from the date in which we accept your subscription. In order to maintain our REIT status under federal income tax laws, we intend to distribute at least 90% of our taxable income to our stockholders. For federal income tax purposes only, we may make distributions that include a return of principal or an amount in excess of 95% of cash available to us. REAL PROPERTY INVESTMENTS As of December 7, 2004, our real estate portfolio was comprised of 91 properties containing approximately 16.1 million square feet of gross leasable area. The 91 properties consist of 42 retail shopping centers, 26 neighborhood and community shopping center properties, 18 single-user facilities and five joint venture retail shopping centers that we have operating control of, located in 25 states. SHARE REPURCHASE PROGRAM We have instituted a share repurchase program. Our share repurchase program provides eligible stockholders with limited interim liquidity by enabling them to sell shares back to us. The prices at which shares may be sold back to us will be one year from the purchase date at $9.25 per share; two years from the purchase date at $9.50 per share; three years from the purchase date at $9.75 per share; and four years from the purchase date at the greater of $10.00 per share or a price equal to ten times our "funds available for distribution" per weighted average share outstanding for the prior calendar year. We may terminate, reduce or otherwise change the above share repurchase program. 10 ESTIMATED USE OF PROCEEDS The amounts listed in the table below represent our current estimates concerning the use of the offering proceeds. Since these are estimates, they may not accurately reflect the actual receipt or application of the offering proceeds. The amounts set forth below assume: - we sell the maximum of 250,000,000 shares in this offering at $10 per share; and - we sell the maximum of 20,000,000 shares in our distribution reinvestment program at $9.50 per share. We have not given effect to any special sales or volume discounts which could reduce selling commissions.
MAXIMUM OFFERING (INCLUDING SHARES SOLD UNDER THE DISTRIBUTION REINVESTMENT PROGRAM) ---------------------------------- AMOUNT PERCENT ----------------- --------------- Gross proceeds.......................... $ 2,690,000,000 100.00% ----------------- --------------- Less expenses: Selling commissions................ 187,500,000 6.97% Marketing allowance................ 62,500,000 2.32% Due diligence expense allowance.... 12,500,000 0.46% ----------------- --------------- Organization and offering.......... 14,684,000 .55% ----------------- --------------- Total expenses..................... 277,184,000 10.30% ----------------- --------------- Gross amount available.................. 2,412,816,000 89.70% Less Acquisition expenses............... 13,450,000 0.50% Working capital reserve............ 26,900,000 1.00% ----------------- --------------- Net cash available...................... $ 2,372,466,000 88.20% ================= ===============
We will pay the managing dealer cash selling commissions of up to 7.5% on all of the 250,000,000 shares of common stock sold on a best-efforts basis. No selling commission is paid on shares sold through our distribution reinvestment program. 11 RISK FACTORS An investment in our shares involves significant risks and therefore is suitable only for those persons who understand those risks and the consequences of their investment and who are able to bear the risk of loss of their entire investment. You should consider the following material risks in addition to other information set forth elsewhere in this prospectus before making your investment decisions. OUR COMMON STOCK IS NOT CURRENTLY LISTED ON AN EXCHANGE OR TRADING MARKET AND CANNOT BE READILY SOLD. There is currently no public trading market for the shares and we cannot assure you that one will develop. We may never list the shares for trading on a national stock exchange or include the shares for quotation on a national market system. The absence of an active public market for our shares could impair your ability to sell our stock at a profit or at all. By September 15, 2008 our board of directors will determine whether it is in our best interests to apply to have the shares listed on a national stock exchange or included for quotation on a national market system if we meet the applicable listing requirements at that time. THE PRICE OF OUR COMMON STOCK IS SUBJECTIVE AND MAY NOT BEAR ANY RELATIONSHIP TO WHAT A STOCKHOLDER COULD RECEIVE IF IT WAS SOLD. Our board of directors determined the offering price of our shares of common stock based on the following factors: - the offering price of our common stock in our initial public offering in September 2003; - the offering price of the earlier REITs organized by our sponsor; - the range of offering prices of other REITs that do not have a public trading market; and - the recommendation of the managing dealer based on its consultations with likely soliciting dealers. However, the offering price of our shares of common stock may not be the same as the price at which the shares may trade if they were listed on an exchange or actively traded by brokers, nor of the proceeds that a stockholder may receive if we were liquidated or dissolved. As such, any sales may be made at a loss. YOU DO NOT KNOW WHAT REAL PROPERTIES AND OTHER ASSETS WE MAY ACQUIRE IN THE FUTURE, AND MUST RELY ON OUR BUSINESS MANAGER/ADVISOR, OUR BOARD AND OFFICERS TO SELECT THEM AND STOCKHOLDERS WILL NOT PARTICIPATE IN THESE DECISIONS. We intend to acquire commercial retail properties. Although we have already acquired 91 properties, and we are considering acquiring others, no information is available as to the identification, location, operating histories, lease terms or other relevant economic and financial data of any other properties or other assets we may purchase in the future. As a result, you must rely on us to locate and acquire additional suitable investment properties. In addition, our board of directors may approve future equity offerings or obtain financing, the proceeds of which may be invested in additional properties; therefore, you will not have an opportunity to evaluate all of the properties that will be in our portfolio. Stockholders will not participate in evaluating these investment opportunities. Nonetheless, you will be unable to evaluate the manner in which we invest the proceeds of this offering or the economic merit of particular properties prior to their acquisition. This prospectus only describes the parameters we will use to acquire additional real properties and other assets. COMPETITION WITH THIRD PARTIES IN ACQUIRING PROPERTIES WILL REDUCE OUR PROFITABILITY AND THE RETURN ON YOUR INVESTMENT. We compete with many other entities engaged in real estate investment activities, many of which have greater resources than we do. Larger REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced 12 operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase. This will result in increased demand for these assets and therefore increased prices paid for them. If we pay higher prices for properties, our profitability is reduced and you will experience a lower return on your investment. WE WILL COMPETE WITH REAL ESTATE INVESTMENT PROGRAMS SPONSORED BY COMPANIES AFFILIATED WITH US FOR THE ACQUISITION OF PROPERTIES AND FOR THE TIME AND SERVICES OF PERSONNEL. Affiliated companies have previously sponsored other REITs, private real estate equity programs and private placement mortgage and note programs, and affiliated companies in the future may sponsor other real estate investment programs. These affiliated companies include Inland Real Estate Corporation, Inland Retail Real Estate Trust, Inc., Inland Real Estate Exchange Corporation and other entities to be formed by The Inland Group, Inc. We will compete with these existing and future real estate investment programs for the acquisition of properties of a type suitable for our investment, for the time and services of personnel of our business manager/advisor and affiliates of our business manager/advisor in connection with our operation and the management of our assets, and for obtaining and retaining investors for our common stock. We will generally be acquiring properties that are located primarily west of the Mississippi River and single user net lease properties located anywhere in the United States and therefore our geographic diversity may be limited. WE PLAN TO INCUR MORTGAGE INDEBTEDNESS AND OTHER BORROWINGS, WHICH MAY REDUCE THE FUNDS AVAILABLE FOR DISTRIBUTION, MAY INCREASE THE RISK OF LOSS SINCE DEFAULTS MAY RESULT IN FORECLOSURE AND MORTGAGES MAY INCLUDE CROSS-COLLATERALIZATION OR CROSS-DEFAULT PROVISIONS THAT INCREASE THE RISK THAT MORE THAN ONE PROPERTY MAY BE AFFECTED BY A DEFAULT. We may, in some instances, use either existing financing or borrow new funds to acquire properties. We intend to incur or increase our mortgage debt by obtaining loans secured by selected or all of the real properties to obtain funds to acquire additional real properties. We may also borrow funds if necessary to satisfy the requirement that we distribute to stockholders as dividends at least 90% of our annual REIT taxable income, or otherwise as is necessary or advisable to assure that we maintain our qualification as a REIT for federal income tax purposes. Currently, our aggregate borrowings secured by our properties is approximately 55% of their combined fair market value. We may incur mortgage debt on a particular real property if we believe the property's projected cash flow is sufficient to service the mortgage debt. However, if there is a shortfall in cash flow, then the amount available for distributions to stockholders may be affected. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and our loss of the property securing the loan which is in default. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt to the entity that owns our properties. In such cases, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that more than one real property may be affected by a default. If mortgage debt is unavailable at reasonable rates, we will not be able to place financing on the properties, which could reduce distributions per share. If we place mortgage debt on the properties, we run the risk of being unable to refinance the properties when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when the properties are refinanced, our net income could be reduced, which would reduce cash available for distribution to stockholders and may prevent us from raising capital by issuing more stock and may prevent us from borrowing more money. 13 IF WE HAVE INSUFFICIENT WORKING CAPITAL RESERVES, WE WILL HAVE TO OBTAIN FINANCING FROM OTHER SOURCES. We have established working capital reserves which we believe are adequate to cover our cash needs. However, if these reserves are insufficient to meet our cash needs, we may have to obtain financing from either affiliated or unaffiliated sources to fund our cash requirements. We cannot assure you that sufficient financing will be available or, if available, will be available on economically feasible terms or on terms acceptable to us. Additional borrowing for working capital purposes will increase our interest expense and therefore, our financial condition and our ability to pay distributions may be adversely affected. THE TYPES OF PROPERTIES WHICH WE INTEND TO ACQUIRE AND THE AREA IN WHICH WE MAY ACQUIRE RETAIL CENTERS IS LIMITED. We primarily acquire and manage retail centers. We intend to acquire retail centers primarily in the states west of the Mississippi River. Adverse economic conditions affecting that area could adversely affect our profitability to a greater degree than if we had diversified our investments to include other types of real estate over a larger geographic region. THE AGGREGATE AMOUNT WE MAY BORROW IS LIMITED UNDER OUR ARTICLES OF INCORPORATION. Our articles of incorporation limit the aggregate amount we may borrow, secured and unsecured, to 300% of our net assets, absent a satisfactory showing that a higher level is appropriate. Currently, our aggregate borrowings are approximately 164% of our net assets. That limitation could have adverse consequences on our business, including: - freezing our ability to purchase properties; - causing us to lose our REIT status if borrowing was necessary to distribute the required minimum amount of cash to our stockholders for us to qualify as a REIT; - causing operational problems if there are cash flow shortfalls for working capital purposes; and - resulting in the loss of a property if, for example, financing was necessary to cure a default on a mortgage. In order to change this limitation, we must obtain approval by a majority of our independent directors and by a majority of our stockholders. There will be a delay before approval can be obtained, if it can be obtained at all. It is possible that even if the required approval is obtained, it may not be obtained in sufficient time to avoid the adverse consequences of not having the additional funding when it is needed. BECAUSE OF THE WAY WE ARE ORGANIZED, WE WOULD BE A DIFFICULT TAKEOVER TARGET. THIS COULD DEPRESS THE PRICE OF OUR STOCK AND INHIBIT A MANAGEMENT CHANGE. Provisions which may have an anti-takeover effect and inhibit a change in our management include: - THERE ARE OWNERSHIP LIMITS AND RESTRICTIONS ON TRANSFERABILITY AND OWNERSHIP IN OUR ARTICLES OF INCORPORATION. In order for us to qualify as a REIT, no more than 50% of the outstanding shares of our stock may be beneficially owned, directly or indirectly, by five or fewer individuals at any time during the last half of each taxable year. To assure that we will not fail to qualify as a REIT under this test, our articles of incorporation provide that, subject to some exceptions, no person may beneficially own more than 9.8% of our common stock. 14 This restriction may: - have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might involve a premium price for holders of our common stock; or - compel a stockholder who had acquired more than 9.8% of our stock to dispose of the additional shares and, as a result, to forfeit the benefits of owning the additional shares. - OUR ARTICLES OF INCORPORATION PERMIT OUR BOARD OF DIRECTORS TO ISSUE PREFERRED STOCK WITH TERMS THAT MAY DISCOURAGE A THIRD PARTY FROM ACQUIRING US. Our articles of incorporation permit our board of directors to issue, without stockholder approval, up to 10 million shares of preferred stock. The board may classify or reclassify any unissued preferred stock and establish preferences, conversion or other rights, voting power, restrictions, limitations as to dividends and other distributions, qualifications, or terms or conditions of redemption, of any preferred stock. Thus, our board could authorize, without the approval by our stockholders, the issuance of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as merger, tender offer or sale of all or substantially all of our assets) that might provide a premium for holders of our common stock. - MARYLAND LAW MAY DISCOURAGE A THIRD PARTY FROM ACQUIRING US. Maryland law restricts mergers and other business combinations between us and an interested stockholder. Under the Maryland Business Combination Act, an anti-takeover statute, for a period of five years after the most recent acquisition of stock by an interested stockholder, we may not engage in any merger or other business combination with that interested stockholder or any affiliate of that interested stockholder. After the five-year period, any merger or other business combination must be approved by our board of directors and by at least 80% of all the votes entitled to be cast by holders of outstanding shares of our voting stock and two-thirds of all the votes entitled to be cast by holders of outstanding shares of our voting stock other than the interested stockholder with whom the business combination is to be effected. The votes cited in the previous sentence would not apply if, among other things, the stockholders of the company receive in the business combination a minimum consideration for their common stock equal to the highest price paid by the interested stockholder for its common stock. However, as permitted by the Maryland Business Combination Act, our articles of incorporation provide that the business combination provisions of Maryland law do not apply to any business combination involving us and our affiliates. As a result, the five-year prohibition and the super-majority stockholder vote requirements will not apply to any business combinations between us and our affiliates. The Maryland Business Combination Act could have the effect of discouraging offers from third parties to acquire us and of increasing the difficulty of successfully completing a business combination. See "Description of Securities - Provisions of Maryland Law and our Articles of Incorporation and Bylaws." - MARYLAND LAW ALSO LIMITS THE ABILITY OF A THIRD PARTY TO BUY A LARGE STAKE IN US AND EXERCISE VOTING POWER IN ELECTING DIRECTORS. Maryland law provides a second anti-takeover statute, its Control Share Acquisition Act, which provides that "control shares" of a Maryland corporation acquired in a "control share acquisition" have no voting rights except to the extent approved by the corporation's disinterested stockholders by a vote of two-thirds of the votes entitled to be cast on the matter; shares of stock owned by interested stockholders, that 15 is, by the acquirer, by officers or by directors who are employees of the corporation, are not entitled to be cast on the matter. "Control shares" are voting shares of stock which would entitle the acquirer to exercise voting power in electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A "control share acquisition" means the acquisition of control shares. The control share acquisition statute does not apply (i) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (ii) to acquisitions approved or exempted by the articles of incorporation or bylaws of the corporation. As permitted by the Maryland Control Share Acquisition Act, our bylaws exempt our affiliates from the Maryland control share acquisition statute. This statute could have the effect of discouraging offers from third parties to acquire us and increasing the difficulty of successfully completing this type of offer by anyone other than our affiliates or any of their affiliates. See "Description of Securities - Provisions of Maryland Law and our Articles of Incorporation and Bylaws - Control Share Acquisition." YOUR INVESTMENT RETURN MAY BE REDUCED IF WE ARE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT. We are not registered as an investment company under the Investment Company Act of 1940. If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act. These requirements include: - limitations on capital structure; - restrictions on specified investments; - prohibitions on transactions with affiliates; and - compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations. In order to maintain our exemption from regulation under the Investment Company Act of 1940, we must engage primarily in the business of buying real estate, and these investments must be made within a year after the offering ends. If we are unable to invest a significant portion of the proceeds of this offering in properties within one year of the termination of the offering, we may avoid being required to register as an investment company by temporarily investing any unused proceeds in government securities with low returns. This would reduce the cash available for distribution to investors and possibly lower your returns. To maintain compliance with the Investment Company Act exemption, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional income or loss generating assets that we might not otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our strategy. If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business. THERE ARE MANY FACTORS WHICH CAN AFFECT DISTRIBUTIONS TO STOCKHOLDERS. Distributions will be based principally on cash available from our properties, real estate securities, and other investments. The 16 amount of cash available for distributions will be affected by many factors, such as our ability to buy properties as offering proceeds become available, the yields on securities of other REITs which we invest in, and our operating expense levels, as well as many other variables. Actual cash available for distributions may vary substantially from estimates. We can give no assurance that we will be able to pay or maintain distributions or that distributions will increase over time. Nor can we give any assurance that rents from the properties will increase, that the securities we buy will increase in value or provide increased dividends over time, or that future acquisitions of real properties or our investments in securities will increase our cash available for distributions to stockholders. Our actual results may differ from the assumptions used by our board of directors in establishing the initial distribution rate to stockholders. Some of these factors are beyond our control, and a change in any one factor could adversely affect our ability to pay future distributions: - If one or more tenants defaults or terminates their lease, there could be a decrease or cessation of rental payments which would mean less cash available for distributions. - Cash available for distributions may be reduced if we are required to spend money to correct defects or to make improvements to properties. - Cash available to make distributions may decrease if the assets we acquire have lower yields than expected. - There may be a delay between the sale of the common stock and our purchase of real properties. During that time, we may invest in lower yielding short term instruments, which could result in a lower yield on your investment. - Federal income tax laws require REITs to distribute at least 90% of their taxable income to stockholders. This limits the earnings which we may retain for corporate growth, such as property acquisition, development or expansion and makes us more dependent upon additional debt or equity financing than corporations which are not REITs. If we borrow more funds in the future, more of our operating cash will be needed to make debt payments and cash available for distributions may therefore decrease. - In connection with future property acquisitions, we may issue additional shares of common stock or interests in other entities that own our properties. We cannot predict the number of shares of common stock, units or interests which we may issue, or the effect that these additional shares might have on cash available for distributions to you. If we issue additional shares, they could reduce the cash available for distributions to you. - We make distributions to our stockholders to comply with the distribution requirements of the Internal Revenue Code and to eliminate, or at least minimize, exposure to federal income taxes and the nondeductible REIT excise tax. Differences in timing between the receipt of income and the payment of expenses and the effect of required debt payments could require us to borrow funds on a short term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. OUR DERIVATIVE FINANCIAL INSTRUMENTS USED TO HEDGE AGAINST INTEREST RATE FLUCTUATIONS COULD REDUCE THE OVERALL RETURNS ON YOUR INVESTMENT. We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our properties. To the extent we do, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty 17 owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not possess credit risk. Our hedging strategy and use of derivative financial instruments may reduce the overall returns on your investments. We have had limited experience with derivative financial instruments and so far we have recognized losses in our use of derivative financial instruments. WE COULD ISSUE MORE SHARES IN THE FUTURE, WHICH COULD REDUCE THE MARKET PRICE OF OUR OUTSTANDING SHARES. We have the power to issue more shares of our common stock in the future. We cannot predict the effect on the market price of our outstanding common stock, if any, of future sales by us of shares of our common stock, or the availability of shares for future sales through the exercise of options granted to independent directors under our independent director stock option plan. The issuance of these additional shares, or the perception that these shares could be issued, could adversely affect the prevailing market prices, if any, for our common stock. OUR SHARE REPURCHASE PROGRAM IS LIMITED TO 5% OF THE WEIGHTED AVERAGE NUMBER OF SHARES OF OUR STOCK OUTSTANDING DURING THE PRIOR CALENDAR YEAR AND MAY BE CHANGED OR TERMINATED BY US, THEREBY REDUCING THE POTENTIAL LIQUIDITY OF YOUR INVESTMENT. In accordance with our share repurchase program, a maximum of 5% of the weighed average number of shares of our stock outstanding during the prior calendar year may be repurchased by us. This standard limits the number of shares we can purchase. Our board also has the ability to change or terminate, at any time, our share repurchase program. If we terminate or modify our share repurchase program or if we do not have sufficient funds available to repurchase all shares that our stockholders request to repurchase, then our stockholders' ability to liquidate their shares will be diminished. STOCKHOLDERS HAVE LIMITED CONTROL OVER CHANGES IN OUR POLICIES. Our board of directors determines our major policies, including our investment objectives, financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. This means that stockholders will have limited control over changes in our policies. IF WE INVEST IN JOINT VENTURES, THE OBJECTIVES OF OUR PARTNERS MAY CONFLICT WITH OUR OBJECTIVES. We may make investments in joint ventures or other partnership arrangements between us and affiliates of our sponsor or with unaffiliated third parties. Investments in joint ventures which own real properties may involve risks otherwise not present when we purchase real properties directly. For example, our co-venturer may file for bankruptcy protection, may have economic or business interests or goals which are inconsistent with our interests or goals, or may take actions contrary to our instructions, requests, policies or objectives. Among other things, actions by a co-venturer might subject real properties owned by the joint venture to liabilities greater than those contemplated by the terms of the joint venture or other adverse consequences. IF WE SELL PROPERTIES BY PROVIDING FINANCING TO PURCHASERS, WE WILL BEAR THE RISK OF DEFAULT BY THE PURCHASER. If we decide to sell any of our properties, we will use our best efforts to sell for cash. However, we may sell our properties by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk of default by the purchaser and will be subject to remedies provided by law. There are no limitations or restrictions on our ability to take purchase money obligations. We may therefore take a purchase money obligation secured by a mortgage as part payment for the purchase price. The terms of payment to us will be affected by custom in the area where the property being sold is located and the then-prevailing economic conditions. If we receive promissory notes or other property in lieu of cash from property sales, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other properties, will be delayed until the promissory notes or other property are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in 18 cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. DELAYS IN ACQUISITIONS OF PROPERTIES MAY HAVE AN ADVERSE EFFECT. Delays we encounter in the selection, acquisition and development of properties could adversely affect your returns and distributions on your investment. Where we acquire properties prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Therefore, you could suffer delays in your distributions attributable to those particular properties. In addition, it takes a certain amount of time to locate, negotiate an acceptable purchase contract, conduct due diligence and ultimately acquire a property. If we are unable to invest our offering proceeds in income producing real properties in a timely manner, this may adversely affect the funds available for distribution. WE MAY NOT BE ABLE TO IMMEDIATELY INVEST PROCEEDS IN REAL ESTATE, WHICH WILL HARM YOUR RETURNS. Until we invest the proceeds of this offering in real estate investments, we may invest in short-term, highly liquid or other authorized investments. Such short-term investments are not likely to earn as high a return as we expect to earn on our real estate investments, and we cannot guarantee how long it will take us to fully invest the proceeds of this offering in real estate investments. If we are unable to locate and close on real estate investments promptly, or in a manner consistent with the capital we raise, the funds available for your distributions could be reduced. WE DEPEND ON OUR BOARD OF DIRECTORS, BUSINESS MANAGER/ADVISOR AND PROPERTY MANAGERS AND LOSING THOSE RELATIONSHIPS COULD NEGATIVELY AFFECT OUR OPERATIONS. Our board of directors has supervisory control over all aspects of our operations. Our ability to achieve our investment objectives will depend to a large extent on the board's ability to oversee, and the quality of, the management provided by the business manager/advisor, the property managers, their affiliates and employees for day-to-day operations. Therefore, we depend heavily on the ability of the business manager/advisor and its affiliates to retain the services of each of its executive officers and key employees. However, none of these individuals has an employment agreement with the business manager/advisor or its affiliates. The loss of any of these individuals could have a material adverse effect on us. These individuals include Daniel L. Goodwin, Robert H. Baum, G. Joseph Cosenza, Robert D. Parks, Thomas P. McGuinness, Roberta S. Matlin and Brenda G. Gujral. Our business manager/advisor must reimburse us for certain operational stage expenses exceeding 15% of the gross offering proceeds. If the business manager/advisor's net worth or cash flow is not sufficient to cover these expenses, we will not be reimbursed. THERE ARE CONFLICTS OF INTEREST BETWEEN US AND OUR AFFILIATES. Our operation and management may be influenced or affected by conflicts of interest arising out of our relationship with our affiliates. Our business manager/advisor and its affiliates are or will be engaged in other activities that will result in potential conflicts of interest with the services that the business manager/advisor and affiliates will provide to us. Those affiliates could take actions that are more favorable to other entities than to us. The resolution of conflicts in favor of other entities could have a negative impact on our financial performance. These affiliates include Inland Retail Real Estate Trust, Inc., Inland Western Retail Real Estate Advisory Services, Inc., our business manager/advisor, Inland Real Estate Corporation, Inland Real Estate Exchange Corporation and entities to be formed by The Inland Group, Inc. Inland Real Estate Corporation is a publicly traded REIT that is self-administered and is no longer affiliated with The Inland Group. Inland Real Estate Corporation generally purchases shopping centers located in the Midwest. Inland Retail Real Estate Trust, Inc. is affiliated with The Inland Group, Inc. Inland Retail Real Estate Trust, Inc. purchases shopping centers located east of the Mississippi River. Inland Real Estate Exchange Corporation is a subsidiary of Inland Real Estate Investment Corporation. Inland Real Estate Exchange 19 Corporation provides replacement properties for people wishing to complete an IRS Section 1031 real estate exchange. Our business manager/advisor receives fees based on the book value including acquired intangibles of the properties under management. Specific conflicts of interest between us and our affiliates include: - WE MAY ACQUIRE PROPERTIES FROM AFFILIATES OF OUR SPONSOR IN TRANSACTIONS IN WHICH THE PRICE WILL NOT BE THE RESULT OF ARM'S LENGTH NEGOTIATIONS. The prices we pay to affiliates of our sponsor for our properties will be equal to the prices paid by them, plus the costs incurred by them relating to the acquisition and financing of the properties. These prices will not be the subject of arm's length negotiations, which could mean that the acquisitions may be on terms less favorable to us than those negotiated in an arm's-length transaction. The result of these transactions could cause us to pay more for particular properties than we would have in an arm's length transaction and therefore, adversely affect our cash flow and our ability to pay your distributions. - WE MAY PURCHASE REAL PROPERTIES FROM PERSONS WITH WHOM OUR BUSINESS MANAGER/ADVISOR OR ITS AFFILIATES HAVE PRIOR BUSINESS RELATIONSHIPS AND OUR INTERESTS IN THESE BUSINESS RELATIONSHIPS MAY BE DIFFERENT FROM THE INTERESTS OF OUR BUSINESS MANAGER/ADVISOR OR ITS AFFILIATES IN THESE BUSINESS RELATIONSHIPS. We may purchase properties from third parties who have sold properties in the past, or who may sell properties in the future, to our business manager/advisor or its affiliates. If we purchase properties from these third parties, our business manager/advisor will experience a conflict between our current interests and its interest in preserving any ongoing business relationship with these sellers. This could result in our business manager/advisor or its affiliates recommending properties that may be in the best interest of the third party seller, but not our best interest. This could adversely impact our portfolio by causing us to invest in properties that are not necessarily in our best interest. - OUR BUSINESS MANAGER/ADVISOR AND ITS AFFILIATES RECEIVE COMMISSIONS, FEES AND OTHER COMPENSATION BASED UPON OUR INVESTMENTS AND THEREFORE OUR BUSINESS MANAGER/ADVISOR AND ITS AFFILIATES MAY RECOMMEND THAT WE MAKE INVESTMENTS IN ORDER TO INCREASE THEIR COMPENSATION. Our business manager/advisor and its affiliates receive commissions, fees and other compensation based upon our investments. They benefit by us retaining ownership of our assets and leveraging our assets, while you may be better served by sale or disposition or not leveraging the assets. In addition, our business manager/advisor's ability to receive fees and reimbursements depends on our continued investment in properties and in other assets which generate fees. Our business manager/advisor receives fees based on the book value including acquired intangibles of the properties under management. Our property managers receive fees based on the income from properties under management. Therefore, our business manager/advisor and/or property managers may recommend that we purchase properties that generate fees for our business manager/advisor and property managers, but are not necessarily the most suitable investment for our portfolio. In addition, our affiliates, who receive fees, including our business manager/advisor, may recommend that we acquire properties, which may result in our incurring substantive amounts of indebtedness. Therefore, the interest of our business manager/advisor and its affiliates in receiving fees may conflict with our ability to earn income and may result in our incurring substantive amounts of indebtedness. The resolution of this conflict of interest may adversely impact our cash flow and our ability to pay your distributions. - OUR BUSINESS MANAGER/ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IF WE ACQUIRE PROPERTIES WITH ITS AFFILIATES. Our business manager/advisor may cause us to acquire an 20 interest in a property through a joint venture with its affiliates. In these circumstances, our business manager/advisor will have a fiduciary duty to both us and its affiliates participating in the joint venture. The resolution of this conflict of interest may cause the business manager/advisor to sacrifice our best interest in favor of the seller of the property and therefore, we may enter into a transaction that is not in our best interest. The resolution of this conflict of interest may negatively impact our financial performance. - THERE IS COMPETITION FOR THE TIME AND SERVICES OF OUR BUSINESS MANAGER/ADVISOR AND OUR BUSINESS MANAGER/ADVISOR MAY NOT DEDICATE THE TIME NECESSARY TO MANAGER OUR BUSINESS. We rely on our business manager/advisor and its affiliates for our daily operation and the management of our assets. Our officers and other personnel of our business manager/advisor and its affiliates have conflicts in allocating their management time, services and functions among the real estate investment programs they currently service and any future real estate investment programs or other business ventures which they may organize or serve. Those personnel could take actions that are more favorable to other entities than to us. The resolution of conflicts in favor of other entities could have a negative impact on our financial performance. - INLAND SECURITIES CORPORATION IS PARTICIPATING AS MANAGING DEALER IN THE SALE OF THE SHARES. Inland Securities Corporation is our managing dealer of this offering and is affiliated with The Inland Group. Our managing dealer is entitled to selling commissions and reimbursement for marketing and due diligence expenses. Our managing dealer may be subject to a conflict of interest arising out of its participation in this offering and its affiliation with The Inland Group in performing its "due diligence" obligations which arise under the Securities Act of 1933. The resolution of this conflict of interest could have a negative impact on our financial performance. - WE MAY ACQUIRE THE BUSINESS OF OUR BUSINESS MANAGER/ADVISOR AND OUR PROPERTY MANAGERS WITHOUT FURTHER ACTION BY OUR STOCKHOLDERS. During the term of our agreements with our business manager/advisor and our property managers, we have the option to acquire or consolidate the business conducted by them without any consent of our stockholders, our business manager/advisor or our property managers. We may elect to exercise this right at any time after September 15, 2008. This unfettered discretion could cause us to take action that otherwise we would not be able to do, and therefore could have a negative impact on our financial performance. - WE DO NOT HAVE ARM'S-LENGTH AGREEMENTS, WHICH COULD CONTAIN TERMS WHICH ARE NOT IN OUR BEST INTEREST. As we have noted, our agreements and arrangements with our business manager/advisor or any of its affiliates, including those relating to compensation, are not the result of arm's length negotiations. These agreements may contain terms that our not in our best interest and would not otherwise be applicable if we entered into arm's-length agreements. See "Conflicts of Interest" for a discussion of various conflicts of interest. WE CANNOT PREDICT THE AMOUNTS OF COMPENSATION TO BE PAID TO OUR BUSINESS MANAGER/ADVISOR AND OUR OTHER AFFILIATES. Because the fees that we will pay to our business manager/advisor and our other affiliates are based on the level of our business activity, it is not possible to predict the amounts of compensation that we will be required to pay these entities. In addition, because key employees of our affiliates are given broad discretion to determine when to consummate a transaction, we rely on these key persons to dictate the level of our business activity. Fees paid to our affiliates will reduce funds available for distribution. Because we cannot predict the amount of fees due to these affiliates, we cannot predict how precisely such fees will impact our distributions. 21 THE MANAGING DEALER HAS NOT MADE AN INDEPENDENT REVIEW OF US OR THE PROSPECTUS. The managing dealer, Inland Securities Corporation, is one of our affiliates and will not make an independent review of us or the offering. Accordingly, you do not have the benefit of an independent review of the terms of this offering. Further, the due diligence investigation of us by the managing dealer, also an affiliate, cannot be considered to be an independent review and, therefore, may not be as meaningful as a review conducted by an unaffiliated broker-dealer or investment banker. In addition, a substantial portion of the proceeds of the offering will be paid to the managing dealer for managing the offering, including cash selling commissions, a marketing allowance and a due diligence expense allowance. OUR RIGHTS AND THE RIGHTS OF OUR STOCKHOLDERS TO TAKE ACTION AGAINST OUR DIRECTORS AND OFFICERS AND THE BUSINESS MANAGER/ADVISOR ARE LIMITED. Maryland law provides that a director has no liability in the capacity as a director if he performs his duties in good faith, in a manner he reasonably believes to be in our best interests, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Maryland law also provides that an act by a director of a Maryland corporation is presumed to satisfy the standards of the preceding sentence. Additionally, our articles of incorporation limit the liability of our directors and officers to us and to our stockholders for monetary damages to the maximum extent permitted under Maryland law. Our articles of incorporation, in the case of our directors, officers, employees and agents, and the advisory agreement, in the case of the business manager/advisor, require us to indemnify our directors, officers, employees and agents and the business manager/advisor for actions taken by them in good faith and without negligence or misconduct. Moreover, we have entered into separate indemnification agreements with each of our directors and some of our executive officers. As a result, we and our stockholders may have more limited rights against our directors, officers, employees and agents, and the business manager/advisor than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents or the business manager/advisor in some cases. See "Limitation of Liability and Indemnification of Directors, Officers and Our Business Manager/Advisor." THE BUSINESS OF OUR BUSINESS MANAGER/ADVISOR AND OUR PROPERTY MANAGERS MAY BE ACQUIRED BY US WITHOUT FURTHER ACTION OF OUR STOCKHOLDERS. During the term of our agreements with our business manager/advisor and our property managers, we have the option to cause the business conducted by our business manager/advisor and/or our property managers (including all of their assets) to be acquired by or consolidated into us, without any consent of our stockholders, our business manager/advisor or our property managers or their respective board of directors or stockholders or shareholders in certain instances. We may elect to exercise this right as soon as any time after September 15, 2008. Our decision to exercise this right will be determined by a vote of a majority of our directors not otherwise interested in the transaction (including a majority of our independent directors). Our business manager/advisor and our property managers and/or their respective stockholders and shareholders will receive in connection with such an acquisition and in exchange for the transfer of all of the stock or assets of our business manager/advisor and/or our property managers, as the case may be, and for terminating their contractual relationships with us and the release or waiver of all their fees payable under the provisions of those contractual arrangements until their stated termination, but not paid, a determinable number of our shares. We will be obligated to pay any fees accrued under such contractual arrangements for services rendered through the closing of such acquisitions. In the event such an acquisition transaction is structured as a purchase of assets by us or a share exchange in which we are the acquiring corporation, our articles of incorporation and Maryland law will permit us to enter into and to consummate such a transaction without obtaining the approval of our stockholders. We do not presently intend to seek such stockholder approval if it is not then required by Maryland law or our articles of incorporation. Any such transaction will occur, if at all, only if our board of directors obtains a fairness opinion from a recognized financial advisor or institution providing valuation services to the effect that the consideration to be paid therefore is fair, from a financial point of view, to our stockholders. As a 22 result, our stockholders will not have a right to vote on a decision to acquire the business manager/advisor or property managers and such transaction could dilute your holdings. YOUR PERCENTAGE OF OWNERSHIP MAY BECOME DILUTED IF WE ISSUE NEW SHARES OF STOCK. Stockholders have no rights to buy additional shares of stock in the event we issue new shares of stock, known as preemptive rights. We may issue common stock, convertible debt or preferred stock in a subsequent public offering or a private placement, upon exercise of options, or to sellers of properties we directly or indirectly acquire instead of, or in addition to, cash consideration. Investors purchasing common stock in this offering who do not participate in any future stock issues will experience dilution in the percentage of the issued and outstanding stock they own. Your investment will not be diluted as a result of any future stock issues if we sell any subsequently issued common stock for cash or property having a value of not less than $10 per share. Options to purchase common stock to be issued to independent directors under our independent director stock option plan, and/or convertible securities, if any, likely will be exercised or converted at a time when we seek to obtain needed capital through a new offering of our securities and on terms more favorable than those provided by the offered securities. As long as options on convertible securities remain unexercised or unconverted, the terms on which we could raise additional capital may be adversely affected, increasing the likelihood of your ownership percentage being diluted. THERE ARE INHERENT RISKS WITH REAL ESTATE INVESTMENTS. All real property investments are subject to some degree of risk. Equity real estate investments cannot be quickly converted to cash. This limits our ability to promptly vary our portfolio in response to changing economic, financial and investment conditions. Real property investments are also subject to adverse changes in general economic conditions or local conditions which reduce the demand for rental space. Other factors also affect real estate values, including: - possible federal, state or local regulations and controls affecting rents, prices of goods, fuel and energy consumption and prices, water and environmental restrictions; - increasing labor and material costs; and - the attractiveness of the property to tenants in the neighborhood. The yields available from equity investments in real estate depend in large part on the amount of rental income earned, as well as property operating expenses and other costs we incur. If our properties do not generate revenues sufficient to meet operating expenses, we may have to borrow amounts to cover fixed costs, and our cash available for distributions may be adversely affected. Prior investment programs of our sponsor experienced mortgage defaults and restructuring of debt. The principal real estate related adverse effects experienced by prior investment programs sponsored by The Inland Group and its affiliates were mortgage defaults and restructuring of debt. ADVERSE ECONOMIC CONDITIONS IN OUR PRIMARY GEOGRAPHIC REGION AND IN THE MARKET FOR RETAIL SPACE COULD REDUCE OUR INCOME AND DISTRIBUTIONS TO YOU. We intend to acquire properties that will be located primarily in states west of the Mississippi River in the United States. Our properties will primarily be used as retail establishments, principally multi-tenant shopping centers. The economic performance of our properties could be affected by changes in local economic conditions. Our performance is therefore linked to economic conditions in areas where we have acquired or intend to acquire properties and in the market for retail space generally. Therefore, to the extent that there are adverse economic conditions in an area and in the market for retail space generally that impact the market rents for retail space, such conditions could result in a reduction of our income and cash available for distributions and thus affect the amount of distributions we can make to you. 23 In addition, we intend to predominantly own and operate grocery and discount anchored retail centers. To the extent that the investing public has a negative perception of the retail sector, the value of our common stock may be negatively impacted, thereby resulting in the shares trading (if at all) at a discount below the inherent value of our assets as a whole. RISING EXPENSES COULD REDUCE CASH FLOW AND FUNDS AVAILABLE FOR FUTURE ACQUISITIONS. Our properties and any properties we buy in the future are and will be subject to operating risks common to real estate in general, any or all of which may negatively affect us. If any property is not fully occupied or if rents are being paid in an amount that is insufficient to cover operating expenses, we could be required to expend funds with respect to that property for operating expenses. The properties will be subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses. While some of our properties may be leased on a triple-net-lease basis or require the tenants to pay a portion of such expenses, renewals of leases or future leases may not be negotiated on that basis, in which event we will have to pay those costs. If we are unable to lease properties on a triple-net-lease basis or on a basis requiring the tenants to pay all or some of such expenses, or if tenants fail to pay required tax, utility and other impositions, we could be required to pay those costs which could adversely affect funds available for future acquisitions or cash available for distributions. IF OUR TENANTS ARE UNABLE TO MAKE RENTAL PAYMENTS, IF THEIR RENTAL PAYMENTS ARE REDUCED, OR IF THEY TERMINATE A LEASE, OUR FINANCIAL CONDITION AND ABILITY TO PAY DISTRIBUTIONS WILL BE ADVERSELY AFFECTED. We are subject to the risk that tenants, as well as lease guarantors, if any, may be unable to make their lease payments or may decline to extend a lease upon its expiration. A default by a tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a tenant's election not to extend a lease upon its expiration, could have an adverse effect on our financial condition and our ability to pay distributions. OUR FINANCIAL CONDITION AND ABILITY TO MAKE DISTRIBUTIONS MAY BE ADVERSELY AFFECTED BY THE BANKRUPTCY OR INSOLVENCY, A DOWNTURN IN THE BUSINESS, OR A LEASE TERMINATION OF A TENANT THAT OCCUPIES A LARGE AREA OF THE RETAIL CENTER OR AN ANCHOR TENANT. Generally, any tenant occupying a large portion of the gross leasable area of a retail center, a tenant of any of the triple-net single-user properties outside the primary geographical area of investment, commonly referred to as an anchor tenant, or a tenant that is an anchor tenant at more than one retail center, may become insolvent, may suffer a downturn in business, or may decide not to renew its lease. Any of these events would result in a reduction or cessation in rental payments to us and would adversely affect our financial condition. A lease termination by an anchor tenant could result in lease terminations or reductions in rent by other tenants whose leases permit cancellation or rent reduction if an anchor tenant's lease is terminated. In certain properties where there are large tenants, other tenants may require that if certain large tenants or "shadow" tenants discontinue operations, a right of termination or reduced rent may exist. In such event, we may be unable to re-lease the vacated space. Similarly, the leases of some anchor tenants may permit the anchor tenant to transfer its lease to another retailer. The transfer to a new anchor tenant could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center. A transfer lease to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate their leases at the retail center. If we are unable to re-lease the vacated space to a new anchor tenant, we may incur additional expenses in order to re-model the space to be able to re-lease the space to more than one tenant. IF A TENANT CLAIMS BANKRUPTCY, WE MAY BE UNABLE TO COLLECT BALANCES DUE UNDER RELEVANT LEASES. Any or all of the tenants, or a guarantor of a tenant's lease obligations, could be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States. Such a bankruptcy filing would bar all efforts by us to collect pre-bankruptcy debts from these entities or their properties, unless 24 we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be paid currently. If a lease is assumed, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. This claim could be paid only in the event funds were available, and then only in the same percentage as that realized on other unsecured claims. A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums. Such an event could cause a decrease or cessation of rental payments which would mean a reduction in our cash flow and the amount available for distributions to you. In the event of a bankruptcy, we cannot assure you that the tenant or its trustee will assume our lease. If a given lease, or guaranty of a lease, is not assumed, our cash flow and the amounts available for distributions to you may be adversely affected. WE MAY INCUR ADDITIONAL COSTS IN ACQUIRING OR RE-LEASING RETAIL PROPERTIES. Some of the properties we may acquire may be designed or built primarily for a particular tenant or a specific type of use. If a tenant fails to renew its lease or defaults on its lease obligations, we may not be able to readily market the property to a new tenant without substantial capital improvements or remodeling, which may adversely affect our results of operation and financial condition. OUR PROPERTIES WILL BE SUBJECT TO COMPETITION FOR TENANTS AND CUSTOMERS. We have and intend to continue to acquire properties located in developed areas. Therefore, there are and will undoubtedly be numerous other retail properties within the market area of each of our properties which will compete with our properties and which will compete with us for tenants. The number of competitive properties could have a material effect on our ability to rent space at our properties and the amount of rents charged. We could be adversely affected if additional competitive properties are built in locations competitive with our properties, causing increased competition for customer traffic and creditworthy tenants. This could result in decreased cash flow from tenants and may require us to make capital improvements to properties which we would not have otherwise made, thus affecting cash available for distributions, and the amount available for distributions to you. OUR PROPERTIES WILL FACE COMPETITION WHICH MAY AFFECT TENANTS' ABILITY TO PAY RENT AND THE AMOUNT OF RENT PAID TO US AND IN TURN AFFECT THE CASH AVAILABLE FOR DISTRIBUTIONS AND THE AMOUNT OF DISTRIBUTIONS. Each of our properties will be subject to competition from similar retail centers within their respective market areas. Other retail centers within the market area of our properties will compete with our properties for customers affecting their cash flows and thus affecting their ability to pay rent. In addition, some of our tenant rent payments may be based on the amount of sales revenue generated by them. If these tenants experience competition, the amount of their rent may decrease and our cash flow will decrease. WE MAY BE RESTRICTED FROM RE-LEASING SPACE. In many cases, tenant leases will contain provisions giving the tenant the exclusive right to sell particular types of merchandise or provide specific types of services within the particular retail center, or limit the ability of other tenants to sell such merchandise or provide such services. When re-leasing space after a vacancy is required, these provisions may limit the number and types of prospective tenants for the vacant space. The failure to re-lease or to re-lease on satisfactory terms could result in a reduction of net income, funds from operations and cash available for distributions and thus affect the amount of distributions to you. WE MAY BE UNABLE TO SELL A PROPERTY IF OR WHEN WE DECIDE TO DO SO. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and 25 other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct such defects or to make such improvements. In acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These provisions would restrict our ability to sell a property. IF WE SUFFER LOSSES THAT ARE NOT COVERED BY INSURANCE OR THAT ARE IN EXCESS OF INSURANCE COVERAGE, WE COULD LOSE INVESTED CAPITAL AND ANTICIPATED PROFITS. Each tenant is responsible for insuring its goods and premises and, in some circumstances, may be required to reimburse us for a share of the cost of acquiring comprehensive insurance for the property, including casualty, liability, fire and extended coverage customarily obtained for similar properties in amounts which our business manager/advisor determines are sufficient to cover reasonably foreseeable losses. Tenants of single-user properties leased on a triple-net-lease basis typically are required to pay all insurance costs associated with those properties. Material losses may occur in excess of insurance proceeds with respect to any property as insurance may not have sufficient resources to fund the losses. However, there are types of losses, generally of a catastrophic nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or copayments. Insurance risks associated with potential terrorism acts could sharply increase the premium we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases have begun to insist that specific coverage against terrorism be purchased by commercial property owners as a condition for providing mortgage loans. It is uncertain whether such insurance policies will be available, or available at reasonable cost, which could inhibit our ability to finance or refinance our potential properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure you that will have adequate coverage for such losses. The Terrorism Risk Insurance Act of 2002 is designed for a sharing of terrorism losses between insurance companies and the federal government. We cannot be certain how this act will impact us or what additional cost to us, if any, could result. If such an event occurred to, or caused the destruction of, one or more of our properties, we could lose both our invested capital and anticipated profits from such property. TERRORIST ATTACKS, SUCH AS THE ATTACKS THAT OCCURRED IN NEW YORK AND WASHINGTON, D.C. ON SEPTEMBER 11, 2001, AND OTHER ACTS OF VIOLENCE OR WAR MAY AFFECT THE MARKETS IN WHICH WE OPERATE, OUR OPERATIONS AND OUR PROFITABILITY. Terrorist attacks may negatively affect our operations and your investment in our common shares. We cannot assure you that there will not be further terrorist attacks against the United States or United States businesses. Properties we may acquire may be located in areas that may be susceptible to attack, which may make these properties more likely to be viewed as terrorist targets than similar, less recognizable properties. These attacks or armed conflicts may directly impact the value of our properties through damage, destruction, loss or increased security costs. We may obtain terrorism insurance as required by our lenders. The terrorism insurance that we obtain may not be sufficient to cover loss for damages to our properties as a result of terrorist attacks. In addition, certain losses resulting from these types of events are uninsurable and others would not be covered by our current terrorism insurance. Additional terrorism insurance may not be available at a reasonable price or at all. 26 The United States' armed conflict in Iraq and continued efforts against terrorism could have a further impact on our tenants. The consequences of any armed conflict and efforts against terrorism are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business or your investment. More generally, any of these events could result in increased volatility in or damage to the United States and worldwide financial markets and economy. They also could result in an economic uncertainty in the United States or abroad. Our revenues will be dependent upon payment of rent by retailers, which may be particularly vulnerable to uncertainty in the local economy. Adverse economic conditions could affect the ability of our tenants to pay rent, which could have a material adverse effect on our operating results and financial condition, as well as our ability to pay distributions to stockholders. REAL ESTATE RELATED TAXES MAY INCREASE AND IF THESE INCREASES ARE NOT PASSED ON TO TENANTS, OUR INCOME WILL BE REDUCED. Some local real property tax assessors may seek to reassess some of our properties as a result of our acquisition of the property. Generally, from time to time our property taxes increase as property values or assessment rates change or for other reasons deemed relevant by the assessors. An increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property. Although some tenant leases may permit us to pass through such tax increases to the tenants for payment, there is no assurance that renewal leases or future leases will be negotiated on the same basis. Increases not passed through to tenants will adversely affect our income, cash available for distributions, and the amount of distributions to you. REVENUE FROM OUR PROPERTIES DEPENDS ON THE AMOUNT OF OUR TENANTS' RETAIL REVENUE, MAKING US VULNERABLE TO GENERAL ECONOMIC DOWNTURNS AND OTHER CONDITIONS AFFECTING THE RETAIL INDUSTRY. Some of our leases may provide for base rent plus contractual base rent increases. Some of our leases may also include a percentage rent clause for additional rent above the base amount based upon a specified percentage of the sales our tenants generate. Under those leases which contain percentage rent clauses, our revenue from tenants may increase as the sales of our tenants increase. Generally, retailers face declining revenues during downturns in the economy. As a result, the portion of our revenue which we derive from percentage rent leases could decline upon a general economic downturn. THE COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS AND OTHER GOVERNMENTAL LAWS AND REGULATIONS MAY ADVERSELY AFFECT OUR INCOME AND THE CASH AVAILABLE FOR ANY DISTRIBUTIONS. All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal. Under various federal, state and local laws, ordinances and regulations, a current or previous owner, developer or operator of real estate may be liable for the costs of removal or remediation of hazardous or toxic substances at, on, under, or in its property. The costs of removal or remediation could be substantial. In addition, the presence of such substances, or the failure to properly remediate such substances, may adversely affect our ability to sell or rent such property or to use such property as collateral for future borrowing. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations, stricter interpretation of existing laws or the future discovery of environmental contamination may require 27 material expenditures by us. We cannot assure that future laws, ordinances or regulations will not impose any material environmental liability, or that the current environmental condition of our properties will not be affected by the operations of the tenants, by the existing condition of the land, by operations in the vicinity of the properties, such as the presence of underground storage tanks, or by the activities of unrelated third parties. These laws typically allow liens to be placed on the affected property. In addition, there are various local, state and federal fire, health, life-safety and similar regulations which we may be required to comply with, and be subject to liability in the form of fines or damages for noncompliance. State and federal laws in this area are constantly evolving, and we intend to monitor these laws and take commercially reasonable steps to protect ourselves from the impact of these laws, including obtaining environmental assessments of each property acquired. We cannot assure that such assessments will reveal all environmental liabilities or that a prior owner of a property did not create a material environmental condition not known to us. We cannot predict what other environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted, or what environmental conditions may be found to exist in the future. We cannot assure that our business, assets, results of operations, liquidity or financial condition will not be adversely affected by these laws, which may adversely affect cash available for distributions, and the amount of distributions to you. OUR COSTS ASSOCIATED WITH COMPLYING WITH THE AMERICANS WITH DISABILITIES ACT MAY AFFECT CASH AVAILABLE FOR DISTRIBUTIONS. Our properties will be subject to the Americans with Disabilities Act of 1990. Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for "public accommodations" and "commercial facilities" that generally requires that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The Disabilities Act's requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. We will attempt to acquire properties which comply with the Disabilities Act or place the burden on the seller or other third party, such as a tenant, to ensure compliance with the Disabilities Act. However, we cannot assure that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for Disabilities Act compliance may affect cash available for distributions and the amount of distributions to you. IF A SALE OR LEASEBACK TRANSACTION IS RECHARACTERIZED, OUR FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED. We may enter into sale and leaseback transactions, where we would purchase a property and then lease the same property back to the person from whom we purchased it. In the event of the bankruptcy of a tenant, a transaction structured as a sale and leaseback may be recharacterized as either a financing or a joint venture, either of which outcomes could adversely affect our business. If the sale and leaseback were recharacterized as a financing, we might not be considered the owner of the property, and as a result would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms, and prevented from foreclosing our lien on the property. These outcomes could adversely affect our cash flow and the amount available for distributions to you. 28 If the sale and leaseback were recharacterized as a joint venture, we and our lessee could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property. The imposition of liability on us could adversely affect our cash flow and the amount available for distributions to our stockholders. WE MAY INCUR ADDITIONAL COSTS IN ACQUIRING NEWLY CONSTRUCTED PROPERTIES WHICH MAY ADVERSELY AFFECT CASH AVAILABLE FOR DISTRIBUTIONS TO YOU. We have and intend to continue to primarily acquire existing or newly constructed properties. We may purchase properties that are subject to completion of construction and development. The builder's failure to perform may result in tenants terminating leases. These actions may increase our costs or necessitate legal action by us to rescind our purchase of a property, to compel performance, or to sue for damages. Any such legal action may result in increased costs to us. OUR INVESTMENTS IN UNIMPROVED REAL PROPERTY MAY RESULT IN ADDITIONAL COST TO US TO COMPLY WITH RE-ZONING RESTRICTIONS OR ENVIRONMENTAL REGULATIONS. We may invest up to 10% of our assets in unimproved real property. Investments in unimproved properties are subject to the risks of real estate investments in general. They are also subject to risks and uncertainties associated with re-zoning the land for higher use or development and environmental concerns of governmental entities and/or community groups. We do not intend to invest in any unimproved property which is not intended to be developed. CONSTRUCTION AND DEVELOPMENT ACTIVITIES WILL EXPOSE US TO RISKS SUCH AS COST OVERRUNS, CARRYING COSTS OF PROJECTS UNDER CONSTRUCTION OR DEVELOPMENT, AVAILABILITY AND COSTS OF MATERIALS AND LABOR, WEATHER CONDITIONS AND GOVERNMENT REGULATION. Should we elect to engage in construction and development activities, in accordance with current pronouncements of the Internal Revenue Service, we intend to have our employees only perform oversight and review functions. These functions may include selecting sites, reviewing construction and tenant improvement design proposals, negotiating and contracting for feasibility studies, supervising compliance with local, state or federal laws and regulations, negotiating contracts, oversight of construction, accounting and obtaining financing. We will retain an independent general contractor to perform the actual physical construction work on tenant improvements or the installation of heating, ventilation and air conditioning systems. These activities will expose us to risks inherent in construction and development, including cost overruns, carrying costs of projects under construction or development, availability and costs of materials and labor, adverse weather conditions and governmental regulation. WE MAY ACQUIRE OR FINANCE PROPERTIES WITH LOCK-OUT PROVISIONS WHICH MAY PROHIBIT US FROM SELLING A PROPERTY, OR MAY REQUIRE US TO MAINTAIN SPECIFIED DEBT LEVELS FOR A PERIOD OF YEARS ON SOME PROPERTIES. Lock out provisions could materially restrict us from selling or otherwise disposing of or refinancing properties. These provisions would affect our ability to turn our investments into cash and thus affect cash available for distributions to you. Lock out provisions may prohibit us from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness on a nonrecourse basis at maturity, or increasing the amount of indebtedness with respect to such properties. Lock out provisions could impair our ability to take actions during the lock-out period that would otherwise be in the best interests of our stockholders and, therefore, may have an adverse impact on the value of the shares, relative to the value that would result if the lock-out provisions did not exist. In particular, lock out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders. YOUR INVESTMENT HAS VARIOUS FEDERAL INCOME TAX RISKS. Although the provisions of the Internal Revenue Code relevant to your investment are generally described in the section of the prospectus titled "Federal Income Tax Considerations," we strongly urge you to consult your own tax advisor concerning 29 the effects of federal, state and local income tax law on an investment and on your individual tax situation. IF WE FAIL TO MAINTAIN OUR REIT STATUS, OUR DIVIDENDS WILL NOT BE DEDUCTIBLE TO US AND OUR INCOME WILL BE SUBJECT TO TAXATION. We have qualified as a REIT under the Internal Revenue Code of 1986, as amended, which affords us significant tax advantages. The requirements for this qualification, however, are complex. If we fail to continue to meet these requirements, our dividends will not be deductible to us and we will have to pay a corporate level tax on our income. This would substantially reduce our cash available to pay distributions and your yield on your investment. In addition, tax liability might cause us to borrow funds, liquidate some of our investments or take other steps which could negatively affect our operating results. Moreover, if our REIT status is terminated because of our failure to meet a technical REIT test, we would be disqualified from electing treatment as a REIT for the four taxable years following the year in which REIT status is lost. YOU MAY HAVE TAX LIABILITY ON DISTRIBUTIONS YOU ELECT TO REINVEST IN COMMON STOCK. If you participate in our distribution reinvestment program, you will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in common stock. As a result, unless you are a tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the value of the common stock received. THE OPINION OF DUANE MORRIS LLP REGARDING OUR STATUS AS A REIT DOES NOT GUARANTEE OUR ABILITY TO REMAIN A REIT. Our legal counsel, Duane Morris LLP, has rendered its opinion that we qualify as a REIT, based upon our representations as to the manner in which are owned, invest in assets, and operate, among other things. Our qualification as a REIT depends upon our ability to meet, through investments, actual operating results, distributions, and satisfaction of specific stockholder rules, the various tests imposed by the Internal Revenue Code. Duane Morris LLP will not review these operating results or compliance with the qualification standards. This means that we cannot assure you that we will satisfy the REIT requirements in the future. Also, this opinion represents Duane Morris LLP's legal judgment based on the law in effect as of the date of this prospectus and is not binding on the Internal Revenue Service, and could be subject to modification or withdrawal based on future legislative, judicial or administrative changes to the federal income tax laws, any of which could be applied retroactively. EVEN REITS ARE SUBJECT TO FEDERAL AND STATE INCOME TAXES. Even if we qualify and maintain our status as a REIT, we may become subject to federal income taxes and related state taxes. For example, if we have net income from a "prohibited transaction," such income will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain income we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. In addition, we may also be subject to state and local taxes on our income or property, either directly or at the level of the operating partnership or at the level of the other companies through which we indirectly own our assets. We cannot assure you that we will be able to continue to satisfy the REIT requirements. IN VIEW OF THE COMPLEXITY OF THE TAX ASPECTS OF THE OFFERING, PARTICULARLY IN LIGHT OF THE FACT THAT SOME OF THE TAX ASPECTS OF THE OFFERING WILL NOT BE THE SAME FOR ALL INVESTORS, PROSPECTIVE INVESTORS ARE STRONGLY ADVISED TO CONSULT THEIR TAX ADVISORS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATION PRIOR TO AN INVESTMENT IN SHARES OF OUR COMMON STOCK. AN INVESTMENT IN OUR COMMON STOCK MAY NOT BE SUITABLE FOR EVERY EMPLOYEE BENEFIT PLAN. When considering an investment in our common stock, an individual with investment discretion over assets of any pension plan, profit-sharing plan, retirement plan, IRA or other employee benefit plan 30 covered by ERISA should consider whether the investment satisfies the fiduciary requirements of ERISA and other applicable laws. In particular, attention should be paid to the diversification requirements of Section 404(a)(1)(C) of ERISA in light of all the facts and circumstances, including the portion of the plan's portfolio of which the investment will be a part. All plan investors should also consider whether the investment is prudent and meets plan liquidity requirements as there may be only a limited market in which to sell or otherwise dispose of our common stock, and whether the investment is permissible under the plan's governing instrument. We have not, and will not, evaluate whether an investment in our common stock is suitable for any particular plan. Rather, we will accept entities as stockholders if an entity otherwise meets the suitability standards. THE ANNUAL STATEMENT OF VALUE THAT WE WILL BE SENDING TO STOCKHOLDERS SUBJECT TO ERISA AND TO CERTAIN OTHER PLAN STOCKHOLDERS IS ONLY AN ESTIMATE AND MAY NOT REFLECT THE ACTUAL VALUE OF OUR SHARES. The annual statement of value will report the value of each common stock based as of the close of our fiscal year. No independent appraisals will be obtained and the value will be based upon an estimated amount we determine would be received if our properties and other assets were sold as of the close of our fiscal year and if such proceeds, together with our other funds, were distributed pursuant to a liquidation. However, the net asset value of each share of common stock will be deemed to be $10 during this offering and for the first three years following the termination of this offering. Because this is only an estimate, we may subsequently revise any annual valuation that is provided. We cannot assure that: - a value included in the annual statement could actually be realized by us or by our stockholders upon liquidation; - stockholders could realize that value if they were to attempt to sell their common stock; or - an annual statement of value would comply with any reporting and disclosure or annual valuation requirements under ERISA or other applicable law. We will stop providing annual statements of value if the common stock becomes listed for trading on a national stock exchange or included for quotation on a national market system. 31 CAUTIONING NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements that reflect management's expectations and projections about our future results, performance, prospects and opportunities. We have attempted to identify these forward-looking statements by using words such as "may," "will," "expects," "anticipates," "believes," "intends," "expects," "estimates," "could" or similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among other things, and are detailed on the previous pages: - our common stock is not currently listed or traded on an exchange and cannot be readily sold; - although we anticipate that aggregate borrowings will not exceed 55% of the combined fair market value of our properties, our charter imposes a limitation on our borrowings of less than 300% of net assets and there are risks associated with a high amount of leverage; - we have no ownership in our business manager/advisor and the business manager/advisor is owned by our sponsor or their affiliates; - our business manager/advisor and its affiliates will receive substantial fees, including participation in proceeds from the sales, refinancing or liquidation of our assets; - our business manager/advisor, property managers and two of our directors are subject to conflicts of interest as a result of their affiliation with The Inland Group, including conflicts of interest relating to: - the negotiation of the terms of the advisor and property management agreements; - the allocation of their time between us and their other business ventures; - decisions whether to acquire and dispose of properties - the purchase and sale of properties to or from the business manager/advisor and our affiliates; and - the allocation of investment opportunities between us and their other business ventures. - we may make distributions that include a return of principal for federal tax purposes; - there are limits on ownership, transferability and redemption of shares; - our investment policies and strategies may be changed without stockholder consent; - our investments may lack geographic diversification; and - risks that incentive structure of fees payable to our business manager/advisor and its affiliates may encourage our business manager/advisor to make investments that have greater risks to generate higher fees. 32 You should not place undue reliance on any forward-looking statements. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this prospectus. 33 HOW WE OPERATE We operate as a REIT for federal and state income tax purposes. Our sponsor is Inland Real Estate Investment Corporation. Our sponsor was instrumental in our organization. We contract with Inland Western Retail Real Estate Advisory Services, Inc. for its services as our business manager/advisor. Our business manager/advisor has the responsibility for our day-to-day operations and the management of our assets. In addition to the services of our business manager/advisor, we contract with Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Management LLC for their services as our property managers. Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Management LLC provide the day-to-day property management services for all of our properties. Our sponsor, Inland Real Estate Investment Corporation, is owned by The Inland Group, Inc. Our business manager/advisor Inland Western Retail Real Estate Advisory Services, Inc., is owned by our sponsor, and thus is indirectly controlled by The Inland Group. In addition, our property managers, Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Management LLC, are owned by individuals who are affiliates of the Inland Group. The Inland Group, together with its subsidiaries and affiliates, is a fully-integrated group of legally and financially separate companies that have been engaged in diverse facets of real estate for over 35 years providing the following and other related services: Property management Marketing Disposition Redevelopment Renovation Finance Leasing Acquisition Development Syndication Construction Other related services The following organizational chart depicts the services that affiliates or our sponsor will render to us and our organizational structure. 34 The following organizational chart depicts the services that affiliates or our sponsor will render to us and our organizational structure. ORGANIZATIONAL CHART ------------------ --------- --------- --------- Daniel L. Goodwin* Robert H. G. Joseph Robert D. Baum* Cosenza* Parks* ------------------ --------- --------- --------- || || || || ================================================================================================================= || || || || || - ---------- ---------- ---------- ---------- || Inland Inland Inland Inland || Northwest Southwest Western Pacific ----------------------- Management Management Management Management THE INLAND GROUP, INC.* Corp. Corp. Corp. Corp. ----------------------- - ---------- ---------- ---------- ---------- || || || || || || ============================================== ========================================================================== || || || || || || || || || || - --------------------------------------------------- ------------------- ----------------------------- ------------------- || Inland Holdco Management LLC The Inland Services Inland Real The Inland Real || Group, Inc. Estate Investment Corporation Estate Transactions || (our sponsor) Group, Inc. || - --------------------------------------------------- ------------------- ----------------------------- ------------------- || | | | || || || || | | | || || || || - ---------- ---------------- -------------- || || || || Inland US Inland Southwest Inland Pacific || || || || Management Property Property --------------- || || || LLC Management Management Inland Risk and || || || (property LLC LLC Insurance || || || manager) (property (property Management || || || manager) manager) Services, Inc. || || || - ---------- ---------------- -------------- --------------- || || || | | | | || || || | | | | || || || - --------------------------------------------------- | || || || | | || || || | | || || || | ---------------------------------------------------------- || || || | | || || || | | || || || | | ======================================================== || || | | || || || || || | | || || || || || | | ----------------- ------------------------------ ------------------ || ---------------------- | | Inland Securities Inland Western Retail Real Inland Partnership || Inland Mortgage | | Corporation Estate Advisory Services, Inc. Property Sales || Investment Corporation | | (our business manager/advisor) Corporation || | | ----------------- ------------------------------ ------------------ || ---------------------- | | | | || || | | | | ======================================== ============ | | | | || || || || || | | | | || ----------- || || ----------- | ------------ | | ----------- Inland Real ------------------ ----------- Inland | Insurance | | Inland Real Estate Inland Real Inland Mortgage | Services | | Estate Development Estate Mortgage Servicing | ------------ | | Sales, Inc. Corporation Acquisitions, Inc. Corporation Corporation | | | | ----------- ----------- ------------------ ----------- ----------- | | | | | | | | | | | | | -------------- | | | | | | | | Real Estate | | | | - ----------------------- | | | Sales Services | | | | Property Management and | | | -------------- | | | | Related Services | | | | | | | | - ----------------------- | | | | | | | | | | | | | | | | | | | | | | | | | | | | ---------------- ----------------- | ---------------- ----------- --------- --------- | | Securities Sales Organization, | Construction and Property Mortgage Mortgage | | Advisory and Real | Development Acquisition Brokerage Loan | | Estate Services | Services Services Services Servicing | | ---------------- ----------------- | ---------------- ----------- --------- --------- | | | | | | | | | | | | | | | | | | | | | | | | | | | - ----------------------------------------------------------------------------------------------------------------------------------- Inland Western Retail Real Estate Trust, Inc. We are principally owned by public investors. Ownership is represented by shares of our common stock - -----------------------------------------------------------------------------------------------------------------------------------
* The four indicated individuals control Solid lines indicate 100% ownership. The Inland Group, Inc. and own Broken lines indicate service. substantially all of its stock. 35 CONFLICTS OF INTEREST We are subject to conflicts of interest arising out of our relationship with our sponsor, our business manager/advisor and their affiliates. All of our agreements and arrangements with our business manager/advisor and its affiliates, including those relating to compensation, are not the result of arm's length negotiations. Some of the conflicts inherent in our transactions with our business manager/advisor and its affiliates, and the limitations on our business manager/advisor adopted to address these conflicts, are described below. Our business manager/advisor and its affiliates will try to balance our interests with their own. However, to the extent that our business manager/advisor or its affiliates take actions that are more favorable to other entities than to us, these actions could have a negative impact on our financial performance and, consequently, on distributions to you and the value of our stock. In addition, our directors and officers and security holders may engage for their own account in business activities of the types conducted or to be conducted by us and our subsidiaries. THERE MAY BE CONFLICTING INVESTMENT OPPORTUNITIES AMONG AFFILIATES OF OUR BUSINESS MANAGER/ADVISOR AND THE INLAND GROUP. Affiliates of our business manager/advisor and The Inland Group have sponsored multiple previous investment programs. Our sponsor may also sponsor other programs which may have investment objectives similar to ours. Therefore, our sponsor, our business manager/advisor and their affiliates could face conflicts of interest in determining which investment programs will have the first opportunity to acquire real properties and other assets as they become available. In order to address this situation, we have an agreement with our business manager/advisor, some of its affiliates, and Inland Retail Real Estate Trust, Inc., another REIT sponsored by our sponsor. This agreement gives us the right to purchase property in our primary geographic area of investment, which includes the states west of the Mississippi River, placed under contract by our business manager/advisor or any of its affiliates, if we are able to close the purchase within 60 days. Similarly, Inland Retail Real Estate Trust, Inc. has the first opportunity to purchase properties in its primary geographical area of investment, which is located in states east of the Mississippi. IN THE SITUATION INVOLVING SINGLE USER NET LEASED RETAIL PROPERTY LOCATED ANYWHERE WITHIN THE UNITED STATES, AND BOTH OF US HAVE FUNDS AVAILABLE TO MAKE THE PURCHASE, THE PROSPECTIVE PROPERTY WILL FIRST BE OFFERED TO INLAND RETAIL REAL ESTATE TRUST, INC. IF INLAND RETAIL REAL ESTATE TRUST, INC. DOES NOT PURCHASE THE PROSPECTIVE PROPERTY, IT WILL THEN BE OFFERED TO US. Factors which may be considered in connection with evaluating the suitability of the prospective property or other asset for investment by a particular investment program include: - the effect of the acquisition on the diversification of each program's portfolio; - the amount of funds available for investment; - cash flow; and - the estimated income tax effects of the purchase and subsequent disposition. We currently focus on purchase of properties in the states west of the Mississippi River which is outside Inland Retail Real Estate Trust Inc.'s primary geographic area of investment. We have acquired and will continue to acquire properties east of the Mississippi River. However, if any conflicts do arise, they will be resolved as provided in the agreement with our business manager/advisor discussed above. 36 All actions taken by our business manager/advisor or its affiliates which present potential conflicts with us will be APPROVED BY A MAJORITY OF OUR INDEPENDENT DIRECTORS. WE MAY ACQUIRE PROPERTIES FROM AFFILIATES OF OUR SPONSOR. The prices we pay to affiliates of our sponsor for these properties will be equal to the prices paid by them, plus the costs incurred by them relating to the acquisition and financing of the properties. These prices will not be the subject of arm's length negotiations, which could mean that the acquisitions may be on terms less favorable to us than those negotiated in an arm's-length transaction. However, our articles of incorporation provide that the purchase price of any property acquired from an affiliate may not exceed its fair market value as determined by a competent independent appraiser. In addition, the price must be approved by a majority of our directors who have no financial interest in the transaction. If the price to us exceeds the cost paid by our affiliate, there must be substantial justification for the excess cost. WE MAY PURCHASE REAL PROPERTIES FROM PERSONS WITH WHOM AFFILIATES OF OUR BUSINESS MANAGER/ADVISOR HAVE PRIOR BUSINESS RELATIONSHIPS. We may purchase properties from third parties who have sold properties in the past, or who may sell properties in the future, to our business manager/advisor or its affiliates. If we purchase properties from these third parties, our business manager/advisor will experience a conflict between our current interests and its interest in preserving any ongoing business relationship with these sellers. Nevertheless, our business manager/advisor has a fiduciary obligation to us. PROPERTY MANAGEMENT SERVICES ARE BEING PROVIDED BY COMPANIES OWNED PRINCIPALLY BY AFFILIATES OF THE INLAND GROUP. Our property managers, which are owned principally by individuals who are our affiliates, provide property management services to us pursuant to management services agreements which we can terminate only in the event of gross negligence or willful misconduct on the part of the property managers. However, our property management services agreements provide that we pay our property managers a monthly management fee of no greater than 90% of the fee which would be payable to an unrelated third party providing such services. In addition, the business manager/advisor and the property managers believe that the property managers have sufficient personnel and other required resources to discharge all responsibilities to us. OUR BUSINESS MANAGER/ADVISOR AND ITS AFFILIATES RECEIVE COMMISSIONS, FEES AND OTHER COMPENSATION BASED UPON OUR INVESTMENTS. We believe that the compensation we will pay to our business manager/advisor and its affiliates is no more than what we would pay for similar services performed by independent firms. Some compensation is payable whether or not there is cash available to make distributions to our stockholders. To the extent this occurs, our business manager/advisor and its affiliates benefit from us retaining ownership of our assets and leveraging our assets, while our stockholders may be better served by sale or disposition or not leveraging the assets. In addition, the business manager/advisor's ability to receive fees and reimbursements depends on our continued investment in properties and in other assets which generate fees. Our business manager/advisor receives fees based on the book value including acquired intangibles of the properties under management. Our property managers receive fees based on the income from properties under management. Therefore, our business manager/advisor and/or property managers may recommend that we purchase properties that generate fees for our business manager/advisor and property managers, but are not necessarily the most suitable investment for our portfolio. In addition, our affiliates, who receive fees, including our business manager/advisor, may recommend that we acquire properties, which may result in our incurring substantive amounts of indebtedness. Therefore, the interest of the business manager/advisor and its affiliates in receiving fees may conflict with the interest of our stockholders in earning income on their investment in our common stock. Our business manager/advisor and its affiliates recognize that they have a fiduciary duty to us and our stockholders, and have represented to us that their actions and decisions will be made in the manner most favorable to us and our stockholders. 37 While we will not make loans to our business manager/advisor or its affiliates, we may borrow money from them for various purposes, including funding working capital requirements. If we do, the terms, such as the interest rate, security, fees and other charges, will be at least as favorable to us as those which would be charged by unaffiliated lending institutions in the same locality on comparable loans. Any money borrowed from an affiliate of The Inland Group is expected to be repaid within 180 days. Our business manager/advisor and its affiliates may do business with others who do business with us, although presently there are no instances of this. However, our business manager/advisor or its affiliates may not receive rebates or participate in any reciprocal business arrangements which would have the effect of circumventing our agreement with our business manager/advisor. OUR BUSINESS MANAGER/ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IF WE ACQUIRE PROPERTIES WITH ITS AFFILIATES. Our business manager/advisor may cause us to acquire an interest in a property through a joint venture with its affiliates. In these circumstances, our business manager/advisor will have a fiduciary duty to both us and its affiliates participating in the joint venture. In order to minimize the conflict between these fiduciary duties, the advisory agreement provides guidelines for investments in joint ventures with affiliates. In addition, our articles of incorporation require a majority of our disinterested directors to determine that the transaction is fair and reasonable to us and is on terms and conditions no less favorable than from unaffiliated third parties entering into the venture. THERE IS COMPETITION FOR THE TIME AND SERVICES OF OUR BUSINESS MANAGER/ADVISOR. We rely on our business manager/advisor and its affiliates for our daily operation and the management of our assets. Personnel of our business manager/advisor and its affiliates have conflicts in allocating their management time, services and functions among the real estate investment programs they currently service and any future real estate investment programs or other business ventures which they may organize or serve. Our business manager/advisor and its affiliates believe they have enough staff to perform their responsibilities in connection with all of the real estate programs and other business ventures in which they are involved. INLAND SECURITIES CORPORATION IS PARTICIPATING AS MANAGING DEALER IN THE SALE OF THE SHARES. Inland Securities Corporation is the managing dealer of the offering and is affiliated with The Inland Group. The managing dealer is entitled to selling commissions and reimbursement for marketing and due diligence expenses. The managing dealer may be subject to a conflict of interest arising out of its participation in this offering and its affiliation with The Inland Group in performing its "due diligence" obligations which arise under the Securities Act of 1933. However, the managing dealer believes it has and will continue to properly perform these "due diligence" activities. WE MAY ACQUIRE THE BUSINESS OF OUR BUSINESS MANAGER/ADVISOR AND OUR PROPERTY MANAGERS WITHOUT FURTHER ACTION BY OUR STOCKHOLDERS. During the term of our agreements with our business manager/advisor and our property managers, we have the option to acquire or consolidate the business conducted by them without any consent of our stockholders, our business manager/advisor or our property managers. We may elect to exercise this right at any time after September 15, 2008. Before this date, we need the consent of the business manager/advisor and the property managers to exercise this right. Our decision to exercise this right will be determined by a vote of a majority of our disinterested directors. Our business manager/advisor and our property managers and their shareholders will receive shares of our common stock in the acquisition. The transaction will occur, if at all, only if the board of directors obtains a fairness opinion from a recognized financial valuation service provider to the effect that the consideration to be paid is fair, from a financial point of view, to our stockholders. We will be obligated to pay any fees accrued under any contractual arrangements we have with the business manager/advisor and/or the property managers for services rendered through the closing of such acquisitions. 38 WE DO NOT HAVE ARM'S-LENGTH AGREEMENTS. As we have noted, our agreements and arrangements with our business manager/advisor or any of its affiliates, including those relating to compensation, are not the result of arm's length negotiations, but we believe these agreements and arrangements approximate the terms of arm's length transactions. 39 COMPENSATION TABLE The compensation arrangements between us and our business manager/advisor, The Inland Group and its affiliates, were not determined by arm's-length negotiations. See "Conflicts of Interest." The following table discloses the compensation which we may pay our business manager/advisor and its affiliates. In those instances in which there are maximum amounts or ceilings on the compensation which may be received, our business manager/advisor and its affiliates may not recover any excess amounts for those services by reclassifying them under a different compensation or fee category. We define net income as total revenues less expenses other than additions to reserves for depreciation or bad debts or other similar non-cash reserves. When we use the term "net income" for purposes of calculating some expenses and fees, it excludes the gain from the sale of our assets. This definition of net income is prescribed by the Statement of Policy Regarding REITs adopted by the North American Securities Administrators Association, Inc., or NASAA; but it is not in accordance with generally accepted accounting principles in the United States, because depreciation and other non-cash reserves are not deducted in determining net income under the NASAA REIT Statement. Excluding depreciation will result in not reimbursing our business manager/advisor for a non-cash expenditure and not excluding the gain from the sale of our assets could result in greater net income on which the 25% reimbursement to our business manager/advisor is allowed. NONSUBORDINATED PAYMENTS The following aggregate amounts of compensation, allowances and fees we may pay to our business manager/advisor and its affiliates are not subordinated to the returns on net investments that we are required to pay to our stockholders.
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------- -------------------------------------- ---------------------------------- OFFERING STAGE Selling commissions We will pay a selling commission of Through September 30, 2004, we payable to the managing 7.5% of the sale price for each share have incurred $135,587,028 in dealer and dealers (and reallow 7%), subject to reduction selling commissions in connection designated by the for special sales under the with our initial public offering. managing dealers referred circumstances as described in the We intend to sell 250,000,000 to as soliciting dealers. "Plan of Distribution - Compensation - shares of our common stock at We Will Pay For the Sale of Our $10.00 per share in our initial Shares." public offering. The actual amount we will incur in this offering We will permit the managing dealer and depends upon the amount of shares its respective officers and employees sold. A total of $187,500,000 in and certain of its affiliates to selling commissions will be paid purchase shares net of sales if the maximum offering is sold commissions and the marketing and there are no special sales. allowance and due diligence expense allowance or for $8.95 per share; however, any subsequent purchases of shares by any such persons are limited to a maximum discount of 5%.
40
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------- -------------------------------------- ---------------------------------- Also, soliciting dealers and their respective officers and employees and certain of their respective affiliates who request and are entitled to purchase shares net of selling commissions may make an initial purchase of shares net of sales commissions or for $9.30 per share; however, any subsequent purchases of shares by any such persons are limited to a maximum discount of 5%. Marketing allowance and We will pay an amount equal to 2.5% of Through September 30, 2004, we due diligence expense the gross offering proceeds to the have incurred $16,811,558 in allowance paid to the managing dealer, all or a portion of marketing allowance and due managing dealer and which may be passed on to soliciting diligence expense allowance in soliciting dealers. dealers, in lieu of reimbursement of connection with our initial public specific expenses associated with offering. The actual amount of marketing. We may pay an additional marketing allowance and due 0.5% of the gross offering proceeds to diligence expense allowance in the managing dealer, which may be connection with this offering will passed on to the soliciting dealers, depend on the number of shares for due diligence expenses. We will sold. If there are no special not pay the marketing allowance and sales and we sell the maximum due diligence expense allowance in number of shares offered, connection with any special sales, approximately $75,000,000 will be except those receiving volume paid for the marketing allowance discounts and those described in "Plan and the due diligence expense of Distribution - Volume Discounts." allowance.
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TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------- -------------------------------------- ---------------------------------- Reimbursable expenses and We expect to incur the following All amounts other than the other expenses of expenses in connection with this Securities and Exchange Commission issuance and distribution offering: registration fee and the NASD filing fee are estimates. The Securities and Exchange Commission actual amounts of these expenses registration cannot be determined at the present time. We estimate the Fee $ 340,823 total amount of the issuance and distribution expenses to be NASD filing fee $ 30,500 approximately $13,307,323. Through Printing and mailing September 30, 2004, we have expenses $ 4,250,000 incurred $969,524 of reimbursable expenses to our business Blue Sky fees and manager/advisor in connection with expenses $ 136,000 our initial public offering. In addition, as of December 31, 2003, Legal fees and expenses $ 900,000 our business manager/advisor had Accounting fees and advanced an aggregate of expenses $ 650,000 approximately $1,763,306 for the payment of offering expenses to Advertising and sales non-affiliated third parties in literature $ 5,500,000 connection with our initial public offering, all of which has been Transfer Agent fees $ 800,000 repaid. Data processing fees $ 500,000 Bank fees and other administrative expenses $ 200,000 If the aggregate of all offering Our sponsor has not advanced any expenses, including selling reimbursable expenses in commissions, the marketing allowance connection with this offering. We and due diligence expense allowance, may reimburse up to $13,307,323 exceeds 15% of the gross offering for offering expenses advanced if proceeds, of if the aggregate of all we sell the maximum number of offering expenses, excluding the shares offered in this offering. selling expenses, exceeds 5.5% of the gross offering proceeds, our business If this offering is not manager/advisor or its affiliates will successful, then our sponsor will promptly pay the excess and we will be solely responsible for the have no liability for these expenses offering expenses to the extent it at any time afterward. has not been reimbursed.
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TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------- -------------------------------------- ---------------------------------- Acquisition expenses paid We will pay an amount, estimated to be We may pay no more than to our business up to 0.5% of the total of (1) the $13,450,000 for the reimbursement manager/advisor's gross offering proceeds from the sale of acquisition expenses if the affiliates, Inland Real of 250,000,000 shares, (2) the gross maximum number of shares are sold Estate Acquisitions, Inc. proceeds from the sale of up to and all of the 20,000,000 shares and The Inland Real 20,000,000 shares pursuant to the are sold pursuant to the Estate Group, Inc. distribution reinvestment programs. distribution reinvestment program. The acquisition expenses for any particular property will not exceed 6% However, the actual amounts cannot of the gross purchase price of the be determined at the present time. property. However, if we request additional services, the compensation will be provided on separate agreed-upon terms and the rate will be approved by a majority of disinterested directors, including a majority of the disinterested independent directors, as fair and reasonable for us. Interest expenses paid to We may borrow money from our business The actual amounts are dependent our business manager/advisor and its affiliates in on actual borrowings. Therefore, manager/advisor and order to acquire properties. In such these amounts cannot be determined Inland Mortgage instances, we will pay our business at the present time. Corporation in connection manager/advisor and its affiliates with loans. interest at prevailing market rates. OPERATIONAL STAGE Property management fee We will pay a monthly fee of 4.5% of For the year ended December 31, paid to our property the gross income from the properties. 2003, and the nine months ended managers, Inland US We will also pay a monthly fee for any September 30, 2004 we have Management LLC, Inland extra services equal to no more than incurred and paid property Southwest Management LLC 90% of that which would be payable to management fees of $16,627 and and Inland Pacific an unrelated party providing the $2,847,427, of which 16,627 and Management LLC. We will services. The property managers may $2,847,427 were retained by Inland pay the fee for services subcontract their duties for a fee US Management LLC, Inland in connection with the that may be less than the fee provided Southwest Management LLC and rental, leasing, for in the management services Inland Pacific Management LLC. If operation and management agreements. we acquire the businesses of our of the properties. business manager/advisor and/or our property managers, the property management fees will cease. The actual amounts we will incur in the future are dependent upon results of operations and, therefore, cannot be determined at the present time.
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TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------- -------------------------------------- ---------------------------------- Reimbursable expenses to We will reimburse some expenses of the The actual amounts are dependent our business business manager/advisor. The upon results of operations and, manager/advisor. These compensation and reimbursements to our therefore, cannot be determined at may include costs of business manager/advisor will be the present time. goods and services, approved by a majority of our administrative services directors and a majority of our and non-supervisory independent directors as fair and services performed reasonable for us. directly for us by independent parties. We will reimburse some Inland Risk and Insurance Management The actual amounts are dependent expenses of the Inland Services charges us $50 per hour for upon results of operations and, Risk and Insurance assistance in obtaining insurance therefore, cannot be determined at Management Services for coverage. Any commissions they receive the present time. insurance coverage. are credited against this hourly rate. We believe this hourly rate is approximately 90% of the rate charged by unaffiliated third parties. The compensation to this company will be approved by a majority of our directors and a majority of our independent directors as fair and reasonable for us. We will compensate the Inland Mortgage Servicing Corporation For the year ended December 31, Inland Mortgage Servicing charges us .03% per year on the first 2003, and the nine months ended Corporation and Inland billion dollars of mortgages serviced September 30, 2004 we have Mortgage Investment and .01% thereafter. Inland Mortgage incurred and paid $328 and $63,978 Corporation for purchase, Investment Corporation charges us .02% to Inland Mortgage Servicing sale and servicing of of the principal amount of each loan Corporation. For the year ended mortgages placed. The compensation to these December 31, 2003, and the nine companies will be approved by a months ended September 30, 2004 we majority of our directors and a have incurred and paid $59,523 and majority of our independent directors $2,241,986 to Inland Mortgage as fair and reasonable for us. Investment Corporation. The actual amounts we will incur in the future are dependent upon results of operations and cannot be determined at the present time.
44 LIQUIDATION STAGE Property disposition fee We may pay a property disposition fee The actual amounts to be received payable to our business to our business manager/advisor and depend upon the sale price of our manager/advisor's its affiliates if we sell any of our properties and, therefore, cannot affiliates, Inland Real real property in an amount equal to be determined at the present time. Estate Sales, Inc. and the lesser of: If we acquire the business Inland Partnership manager/advisor, the property Property Sales Corp. 1. 3% of the contract sales price of disposition fee will cease. the property; or 2. 50% of the customary commission which would be paid to a third party broker for the sale of a comparable property. The amount paid, when added to the sums paid to unaffiliated parties, will not exceed either the customary commission or an amount equal to 6% of the contracted for sales price. Payment of such fees will be made only if the business manager/advisor provides a substantial service in connection with the sale of the property. See "Management -- Our Advisory Agreement."
SUBORDINATED PAYMENTS We may pay the following additional fees to our business manager/advisor after returns on net investment have been paid to the stockholders:
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM DOLLAR RECIPIENT METHOD OF COMPENSATION AMOUNT - ------------------------- -------------------------------------- ---------------------------------- OPERATIONAL STAGE Advisor asset management We pay an annual advisor asset The actual amounts to be received fee payable to our management fee of not more than 1% of depend upon the sale price of our business manager/advisor. our average assets. Our average assets properties and, therefore, cannot means the average of the total book be determined at the present time. value including acquired intangibles If we acquire the business of our real estate assets plus the manager/advisor, the advisor asset total value of our loans receivables management fee will cease. secured by real estate, before reserves for depreciation or bad debts or other similar non-cash reserves. We will compute our average assets by taking the average of these values at the end of each month during the quarter for which we are calculating the fee. The fee is payable quarterly in an amount equal to1/4of 1% of average assets as of the last day of the immediately preceding quarter. For any year in which we qualify as a REIT, our business manager/advisor must reimburse us for the following amounts if any:
45 (1) the amounts by which our total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of: - 2% of our average assets for that fiscal year, or - 25% of our net income for that fiscal year. (2) plus an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the total amount of distributions to stockholders for that year and the 6% annual return on the net investment of stockholders. Items such as organization and offering expenses, property expenses, interest payments, taxes, non-cash expenditures, the incentive advisory fee and acquisition expenses are excluded from the definition of total operating expenses. See "Management -- Our Advisory Agreement" for an explanation of circumstances where the excess amount specified in clause (1) may not need to be reimbursed. Incentive advisory fee We will pay to the business The actual amounts to be received payable to our business manager/advisor an amount equal to 15% depend upon the sale price of our manager/advisor. of the net proceeds from the sale of a properties and, therefore, cannot property after the stockholders have be determined at the present time. first received: If we acquire or consolidate with the business conducted by our (1) a cumulative non-compounded return business manager/advisor, the equal to 10% a year on their net incentive advisory fee will investment; and terminate. (2) their net investment.
46 COMPENSATION TO OFFICERS AND DIRECTORS We expect to pay the following to our directors (as our officers are not paid directly by us):
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------- -------------------------------------- ---------------------------------- Director fees Independent directors receive an We will pay the five independent annual fee of $5,000 (increased to directors $25,000 in the aggregate $10,000 effective October 1, 2004) and (increased to $50,000 effective a fee of $500 for attending each October 1, 2004), plus fees for meeting of the board or one of its attending meetings. As of committees in person and $350 for September 30, 2004 our five attending a meeting via the telephone. independent directors were paid Our officers who are also our fees in the aggregate of $105,550. directors do not receive director The actual amounts to be received fees. for future meetings depends upon the number of meetings and their attendance and, therefore, cannot be determined at the present time. Stock options to Each independent director receives This form of compensation is not independent directors paid in cash. - an initial option to purchase 3,000 shares of common stock at a price of $8.95 per share, when they become an independent director, subject to some conditions; and - each year on the date of the stockholders' annual meeting, an additional option to purchase 500 shares of common stock at an exercise price equal to the then fair market value per share. For additional information on this option plan, see "Management-- Independent Director Stock Option Plan."
47 ESTIMATED USE OF PROCEEDS The amounts listed in the table below represent our current estimates concerning the use of the offering proceeds. Since these are estimates, they may not accurately reflect the actual receipt or application of the offering proceeds. The amounts assume: - we sell the maximum of 250,000,000 shares in this offering at $10 per share; and - we sell the maximum of 20,000,000 shares in our distribution reinvestment program at $9.50 per share. Under this scenario we have not given effect to any special sales or volume discounts which could reduce selling commissions.
MAXIMUM OFFERING (INCLUDING SHARES SOLD UNDER THE DISTRIBUTION REINVESTMENT PROGRAM) ------------------------------------ AMOUNT PERCENT ----------------- -------------- Gross proceeds.......................... $ 2,690,000,000 100.00% ----------------- -------------- Less expenses: Selling commissions................ 187,500,000 6.97% Marketing allowance................ 62,500,000 2.32% Due diligence expense allowance.... 12,500,000 0.46% ----------------- -------------- Organization and offering.......... 13,307,000 0.50% ----------------- -------------- Total expenses..................... 275,807,000 10.26% ----------------- -------------- Gross amount available.................. 2,414,193,000 89.74% Less: Acquisition expenses............... 13,450,000 0.50% Working capital reserve............ 26,900,000 1.00% ----------------- -------------- Net cash available...................... $ 2,373,843,000 88.24% ================= ==============
We will pay the managing dealer cash selling commissions of up to 7.5% on all of the 250,000,000 shares of common stock sold on a best efforts basis. No selling commission is paid on shares sold through our distribution reinvestment program. 48 PRIOR PERFORMANCE OF OUR AFFILIATES PRIOR INVESTMENT PROGRAMS During the 10-year period ending September 30, 2004, The Inland Group and its affiliates have sponsored two other REITs and 30 real estate exchange private placements, which altogether have raised more than $3,132,378,000 from over 73,000 investors. During that period, Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc., the other REITs, have raised over $2,980,790,000 from over 73,000 investors. Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. have investment objectives and policies similar to ours and have invested principally in shopping centers that provide sales of convenience goods and personal services to neighboring communities in the Midwest and Southeast areas. However, Inland Real Estate Corporation is now a self-administered REIT and is no longer affiliated with The Inland Group. Our investment objectives and policies are similar to those of several of the other prior investment programs sponsored by our affiliates which have owned and operated retail properties. However, the vast majority of the other investment programs sponsored by our affiliates were dissimilar from our operation in that the prior programs owned apartment properties, pre-development land and whole or partial interests in mortgage loans. The information in this section and in the Prior Performance Tables included in this prospectus as APPENDIX A shows relevant summary information concerning real estate programs sponsored by our affiliates. The purpose is to provide information on the prior performance of these programs so that you may evaluate the experience of the affiliated companies in sponsoring similar programs. The following discussion is intended to briefly summarize the objectives and performance of the prior programs and to disclose any material adverse business developments sustained by them. Past performance is not necessarily indicative of future performance. SUMMARY INFORMATION The table below provides summarized information concerning prior programs sponsored by our affiliates for the 10-year period ending September 30, 2004, and is qualified in its entirety by reference to the introductory discussion above and the detailed information appearing in the Prior Performance Tables in APPENDIX A of this prospectus. YOU SHOULD NOT CONSTRUE INCLUSION OF THE SUCCEEDING TABLES AS IMPLYING IN ANY MANNER THAT WE WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN THE TABLES BECAUSE THE YIELD AND CASH AVAILABLE AND OTHER FACTORS COULD BE SUBSTANTIALLY DIFFERENT FOR OUR PROPERTIES. YOU SHOULD NOTE THAT BY ACQUIRING OUR SHARES, YOU WILL NOT BE ACQUIRING ANY INTERESTS IN ANY PRIOR PROGRAMS. 49
INLAND RETAIL INLAND REAL REAL ESTATE INLAND REAL ESTATE ESTATE TRUST, INC. CORPORATION EXCHANGE PRIVATE REIT REIT PLACEMENT PROGRAM AS OF PROGRAM AS OF OFFERINGS AS OF SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,S 2004 2004 2004 ------------------------------------------------------------------- Number of programs sponsored 1 1 30 Aggregate amount raised from investors $ 2,279,622,000 701,168,000 151,588,000 Approximate aggregate number of investors 59,000 14,000 386 Number of properties purchased 274 148 30 Aggregate cost of properties $ 4,053,516,000 1,276,000,000 294,864,000 Number of mortgages/notes 0 0 0 Principal amount of mortgages/notes $ 0 0 0 Principal of properties (based on cost) that were: Commercial-- Retail 90.00% 86.00% 44.82% Single-user net-lease 10.00% 14.00% 9.10% Nursing homes 0.00% 0.00% 0.00% Offices 0.00% 0.00% 30.22% Industrial 0.00% 0.00% 15.86% Health clubs 0.00% 0.00% 0.00% Mini-storage 0.00% 0.00% 0.00% Total commercial 100.00% 100.00% 100.0% Multi-family residential 0.00% 0.00% 0.00% Land 0.00% 0.00% 0.00% Percentage of properties (based on cost) that were: Newly constructed (within a year of acquisition) 37.00% 40.00% 60.00% Existing construction 63.00% 60.00% 40.00% Number of properties sold in whole or in part 0 11 0 Number of properties exchanged 0 0 0
Of the programs included in the above table, Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. have investment objectives similar to ours. Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. represent approximately 97% of the aggregate amount raised from investors, approximately 99% of the aggregate number of investors, approximately 95% of the properties purchased, and approximately 95% of the aggregate cost of the properties. During the three years prior to September 30, 2004, Inland Real Estate Corporation purchased 26 commercial properties and Inland Retail Real Estate Trust, Inc. purchased 249 commercial properties. Upon written request, you may obtain, without charge, a copy of Table VI filed with the Securities and Exchange Commission in Part II of our prospectus. The table provides more information about these acquisitions. 50 PUBLICLY REGISTERED REITS INLAND REAL ESTATE CORPORATION. Through a total of four public offerings, the last of which was completed in 1999, Inland Real Estate Corporation sold a total of 51,642,397 shares of common stock. In addition, as of September 30, 2004, Inland Real Estate Corporation issued 14,293,208 shares of common stock through its distribution reinvestment program. As of September 30, 2004, Inland Real Estate Corporation repurchased 5,256,435 shares of common stock through its share repurchase program for an aggregate amount of $49,159,202. As a result, Inland Real Estate Corporation has realized total gross offering proceeds of approximately $701,168,000 as of September 30, 2004. On June 9, 2004, Inland Real Estate Corporation listed its shares on the New York Stock Exchange and began trading under the ticker "IRC". Inland Real Estate Corporation's objective is to purchase shopping centers that provide convenience goods, personal services, wearing apparel and hardware and appliances located within an approximate 400-mile radius of its headquarters in Oak Brook, Illinois, and to provide, at a minimum, cash distributions on a quarterly basis and a hedge against inflation through capital appreciation. It may also acquire single-user retail properties throughout the United States. As of September 30, 2004, the properties owned by Inland Real Estate Corporation were generating sufficient cash flow to cover operating expenses plus pay an annual cash distribution of $0.94 per share paid monthly. As of September 30, 2004, Inland Real Estate Corporation owned interests in 139 properties for a total investment of approximately $1,325,000,000. These properties were purchased with proceeds received from the above described offerings of shares of its common stock and financings. As of September 30, 2004, Inland Real Estate Corporation financed approximately $641,370,000 on its properties and had $110,000,000 outstanding through an unsecured line of credit. On July 1, 2000, Inland Real Estate Corporation became a self-administered REIT by completing its acquisition of Inland Real Estate Advisory Service, Inc., its advisor, and Inland Commercial Property Management, Inc., its property manager. The acquisition was accomplished by merging its advisor and its property manager into two wholly owned subsidiaries of Inland Real Estate Corporation. As a result of the merger, Inland Real Estate Corporation issued to our sponsor, the sole shareholder of the advisor, and The Inland Property Management Group, Inc., the sole shareholder of its property manager, an aggregate of 6,181,818 shares of Inland Real Estate Corporation's common stock at $11 per share, or approximately 9.008% of its common stock. INLAND RETAIL REAL ESTATE TRUST, INC. Through a total of three public offerings, the last of which was completed in 2003, Inland Retail Real Estate Trust, Inc. sold a total of 213,699,534 shares of its common stock. In addition, as of September 30, 2004, Inland Retail Real Estate Trust, Inc. issued 18,653,894 shares through its distribution reinvestment program, and has repurchased a total of 3,087,940 shares through the share reinvestment program. As a result, Inland Retail Real Estate Trust Inc. has realized total gross offering proceeds of approximately $2,279,622,000 as of September 30, 2004. Inland Retail Real Estate Trust, Inc.'s objective is to purchase shopping centers east of the Mississippi River in addition to single-user retail properties in locations throughout the United States, and to provide regular cash distributions and a hedge against inflation through capital appreciation. As of September 30, 2004, the properties owned by Inland Retail Real Estate Trust, Inc. were generating sufficient cash flow to cover operating expenses plus pay an annual cash distribution of $.83 per share per annum paid monthly. 51 As of September 30, 2004, Inland Retail Real Estate Trust, Inc. owned 274 properties for a total investment of approximately $4,053,516,000. These properties were purchased with proceeds received from the above described offerings of shares of its common stock and financings. As of September 30, 2004, Inland Retail Real Estate Trust, Inc. financed approximately $2,208,835,000 on its properties. 52 The following table summarizes distributions for each of the publicly registered REITS through September 30,2004: REIT PERFORMANCE Distributions through September 30, 2004
INLAND REAL ESTATE CORPORATION OFFERING COMPLETED 1999 ----------------------------------------------------------------------------------- Average Average Annualized Annualized Distribution Distribution for Purchases for Purchases Total Ordinary Non-taxable Capital Gain at $10 per at $11 per Distribution Income Distribution Distribution Share Share ($) ($) * ($) ** ($) *** ($) ($) ----------------------------------------------------------------------------------- 1995 736,627 694,213 42,414 - 7.6 N/A 1996 3,704,943 3,093,525 611,418 - 8.1 N/A 1997 13,127,597 9,739,233 3,388,364 - 8.6 N/A 1998 35,443,213 27,015,143 8,428,070 - 8.8 7.9 1999 48,379,621 35,640,732 12,738,889 - 8.9 8.0 2000 52,964,010 40,445,730 12,518,280 - 9.0 8.1 2001 58,791,604 45,754,604 12,662,414 374,586 9.3 8.4 2002 60,090,685 41,579,944 18,315,640 195,101 9.4 8.5 2003 61,165,608 47,254,096 13,577,679 333,833 9.4 8.6 2004 40,734,316 40,734,316 * - 9.4 8.6 ----------------------------------------------------- 381,138,224 297,951,536 82,283,168 903,520 ===================================================== INLAND RETAIL REAL ESTATE TRUST, INC. OFFERING COMPLETED 2003 ----------------------------------------------------- Average Total Ordinary Non-taxable Annualized Distribution Income Distribution Distribution ($) ($) * ($) ** (%) ----------------------------------------------------- 1999 1,396,861 318,484 1,078,377 7.2 2000 6,615,454 3,612,577 3,002,877 7.7 2001 17,491,342 10,538,534 6,952,808 8.0 2002 58,061,491 36,387,136 21,674,355 8.2 2003 160,350,811 97,571,099 62,779,712 8.3 2004 141,029,478 141,029,478 * 8.3 --------------------------------------- 384,945,437 289,457,308 95,488,129 =======================================
ON JUNE 9, 2004 INLAND REAL ESTATE CORPORATION LISTED ITS SHARES ON THE NEW YORK STOCK EXCHANGE AND BEGAN TRADING UNDER THE SYMBOL "IRC." * The breakout between ordinary income and return of capital is finalized on an annual basis after the calendar year end. ** Represents a return of capital for federal income tax purposes. *** Represents a capital gain distribution for federal income tax purposes. 53 PRIVATE PARTNERSHIPS Since our inception and through September 30, 2004, our affiliates have sponsored 514 private placement limited partnerships which have raised more than $524,201,000 from approximately 17,000 investors and invested in properties for an aggregate price of more than $1 billion in cash and notes. Of the 522 properties purchased, 93% have been in Illinois. Approximately 90% of the funds were invested in apartment buildings, 6% in shopping centers, 2% in office buildings and 2% in other properties. Including sales to affiliates, 475 partnerships have sold their original property investments. Officers and employees of our sponsor and its affiliates invested more than $17,000,000 in these private placement limited partnerships. From October 1, 1995 through September 30, 2004, investors in The Inland Group private partnerships have received total distributions in excess of $269,026,000, consisting of cash flow from partnership operations, interest earnings, sales and refinancing proceeds and cash received during the course of property exchanges. Following a proposal by the former corporate general partner, which was an affiliate of The Inland Group, investors in 301 private partnerships voted in 1990 to make our sponsor the corporate general partner for those partnerships. Beginning in December 1993 and continuing into the first quarter of 1994, investors in 101 private limited partnerships for which our sponsor is the general partner received letters from it informing them of the possible opportunity to sell the 66 apartment properties owned by those partnerships to a to-be-formed REIT in which affiliates of our sponsor would receive stock and cash and the limited partners would receive cash. The underwriters of this apartment REIT subsequently advised our sponsor to sell to a third party its management and general partner's interests in those remaining limited partnerships not selling their apartment properties to the apartment REIT. Those not selling their apartment properties constituted approximately 30% of the Inland-sponsored limited partnerships owning apartment buildings. The prospective third-party buyers of our sponsor's interests in the remaining partnerships, however, would make no assurance to support those partnerships financially. As a result, in a March 1994 letter, our sponsor informed investors of its decision not to go forward with the formation of the apartment REIT. Following this decision, two investors filed a complaint in April 1994 in the Circuit Court of Cook County, Illinois, Chancery Division, purportedly on behalf of a class of other unnamed investors, alleging that our sponsor had breached its fiduciary responsibility to those investors whose partnerships would have sold apartment properties to the apartment REIT. The complaint sought an accounting of information regarding the apartment REIT matter, an unspecified amount of damages and the removal of our sponsor as general partner of the partnerships that would have participated in the sale of properties. In August 1994, the court granted our sponsor's motion to dismiss, finding that the plaintiffs lacked standing to bring the case individually. The plaintiffs were granted leave to file an amended complaint. Thereafter, in August 1994, six investors filed an amended complaint, purportedly on behalf of a class of other investors, and derivatively on behalf of six limited partnerships of which our sponsor is the general partner. The derivative counts sought damages from our sponsor for alleged breach of fiduciary duty and breach of contract, and asserted a right to an accounting. Our sponsor filed a motion to dismiss in response to the amended complaint. The suit was dismissed in March 1995 with prejudice. The plaintiffs filed an appeal in April 1996. After the parties briefed the issue, arguments were heard by the Appellate Court in February 1997. In September 1997, the Appellate Court affirmed the trial court decision in favor of our sponsor. 54 Inland Real Estate Investment Corporation is the general partner of twenty-seven private limited partnerships and one public limited partnership that own corporate interests in fifteen buildings that are net leased to Kmart. The fourteen Kmarts owned by the private limited partnerships are all cross collateralized. Relating to the Kmart bankruptcy, the status of the fifteen is as follows: - CATEGORY 1 - The leases of nine of the Kmarts are current and have been accepted by Kmart under their Chapter 11 reorganization plan. - CATEGORY 2 - Kmart assigned its designation rights in one lease to Kohl's. The lease was amended and extended for Kohl's by IREIC, the general partner on behalf of the owners and lender; and Kohl's began paying rent February 12, 2003. - CATEGORY 3 - Under Kmart's Chapter 11 reorganization plan and upon emergence from bankruptcy on April 22, 2003, Kmart has rejected the remaining four property leases, one of which is subject to a ground lease to Kimco. Kmart ceased paying rent as of May 1, 2003. IREIC, the corporate general partner has agreed with the note holders who own the loan to conduct a liquidation of the 14 properties which comprise Categories 1, 2 and 3. The Category 2 property, which is leased by Kohl's, was sold on February 19, 2004. As of September 30, 2004, seven of the Category 1 K-Mart properties have been sold and the remaining two are under contract. Two of the Category 3 properties have been sold, one is under contract and one has an offer pending as of September 30, 2004. - CATEGORY 4 - Under Kmart's Chapter 11 reorganization, Kmart rejected the lease for the property owned by the public limited partnership and ceased paying rent as of June 29, 2002. The corporate general partner plans to either re-tenant or sell this facility. 1031 EXCHANGE PRIVATE PLACEMENT OFFERING PROGRAM In March of 2001, Inland Real Estate Exchange Corporation (IREX) was established as a subsidiary of Inland Real Estate Investment Corporation. The main objective of IREX is to provide replacement properties for people wishing to complete an IRS Section 1031 real estate exchange. Through September 30, 2004, IREX offered the sale of thirty properties with a total property value of $363,006,000. LANDINGS OF SARASOTA DBT. Inland Southern Acquisitions, Inc., a Delaware corporation and an affiliate of IREX acquired The Landings, a multi-tenant shopping center located in Sarasota, Florida in December 1997 for $9,800,000. In August 2001, Inland Southern Acquisitions, Inc. contributed 100% of its interest in the property into Landings of Sarasota DBT, a Delaware business trust, refinanced the property with a loan of $8,000,000 from Parkway Bank & Trust Co., an Illinois banking corporation, and began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $12,000,000, which consisted of $8,000,000 in debt assumption and $4,000,000 in equity investment. $200,000 of the offering proceeds were allocated to a property reserve account. The offering was completed in May 2002 when the maximum offering amount was raised. SENTRY OFFICE BUILDING, DBT, a Delaware business trust, purchased a newly constructed, single-tenant office building in Davenport, Iowa in December 2001 from Ryan Companies US Inc., a Minnesota corporation. The trust financed its acquisition of the property with a $7,500,000 first mortgage loan from Parkway Bank & Trust Co., an Illinois banking corporation. In January 2002, Sentry Office Building Corporation, a Delaware corporation and the initial beneficiary of the trust, began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 55 1031 tax-deferred exchange. The total price was $11,000,000, which consisted of $7,500,000 in debt assumption and $3,500,000 in equity investment. $100,000 of the offering proceeds obtained from the new owners was allocated to a property reserve account. The offering was completed in April 2002 when the maximum offering amount was raised. PETS BOWIE DELAWARE BUSINESS TRUST purchased a single-tenant retail building leased to PETsMART in Bowie, Maryland in October 2001 from PETsMART, Inc. and Wells Fargo Bank Northwest, N.A. The trust initially financed its acquisition of the property with a temporary loan of $2,625,305 from Parkway Bank & Trust Co., an Illinois banking corporation, and then replaced this loan with a permanent loan of $1,300,000 with the same lender. In May 2002, Pets Bowie Delaware Business Trust began offering all of its beneficial interests to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $3,900,000, which consisted of $1,300,000 in debt assumption and $2,600,000 in equity investment. $90,000 of the offering proceeds obtained from the new owners was allocated to a property reserve account. The offering was completed in July 2002 when the maximum offering amount was raised. 1031 CHATTANOOGA DBT, a Delaware business trust, acquired a retail property currently leased to Eckerd in Chattanooga, Tennessee in May 2002. The trust financed the property with a loan of $1,500,000 from Parkway Bank & Trust Co., an Illinois banking corporation. In July 2002, 1031 Chattanooga, L.L.C., the initial beneficiary of 1031 Chattanooga DBT, began offering all of the beneficial interests of the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $3,400,000, which consisted of $1,500,000 in debt assumption and $1,900,000 in equity investment. The offering was completed in May 2003 when the maximum offering amount was raised. LANSING SHOPPING CENTER, DBT a Delaware business trust, purchased a newly constructed, multi-tenant retail shopping center in Lansing, Illinois in June 2002 from LaSalle Bank National Association, as trustee under trust agreement dated May 22, 2001 and known as Trust No. 127294. The trust financed its acquisition of the property with a $5,900,000 first mortgage loan from Parkway Bank & Trust Co., an Illinois banking corporation. In August 2002, Lansing Shopping Center, L.L.C., a Delaware limited liability company and the initial beneficiary of Lansing Shopping Center, DBT, began offering all of the beneficial interests of the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $10,900,000, which consisted of $5,900,000 in debt assumption and $5,000,000 in equity investment. $80,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in September 2001 when the maximum offering amount was raised. INLAND 220 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a single-tenant office building currently leased to Walt Disney World Co., a Florida corporation, in Celebration, Osceola County, Florida, in June 2002 from Walt Disney World Co. in a sale/leaseback transaction. The trust financed its acquisition of the property with an $18,000,000 first mortgage loan from Bank of America, N.A., a national banking association. In September 2002, Inland 220 Celebration Place, L.L.C., a Delaware limited liability company and the initial beneficiary of Inland 220 Celebration Place Delaware Business Trust, began offering all of the beneficial interests of the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $33,800,000, which consisted of $18,000,000 in debt assumption and $15,800,000 in equity investment. $50,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in September 2003 when the maximum offering amount was raised. TAUNTON CIRCUIT DELAWARE BUSINESS TRUST acquired a retail property currently leased to Circuit City in Taunton, Massachusetts in July 2002. The Trust financed the property with a first mortgage of 56 $2,800,000 from MB Financial Bank. In September 2002, Inland Taunton Circuit, L.L.C., the initial beneficiary of Taunton Circuit Delaware Business Trust, offered all of its interest in the trust to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $6,550,000, which consisted of $2,800,000 in debt assumption and $3,750,000 in equity investment. The offering was completed in September 2002. BROADWAY COMMONS DELAWARE BUSINESS TRUST acquired a multi-tenant retail center located in Rochester, Minnesota, in July 2002. The Trust financed the property with a first mortgage of $8,850,000 from Parkway Bank & Trust Co., an Illinois banking corporation. In October 2002, Broadway Commons, L.L.C., the initial beneficiary of Broadway Commons Delaware Business Trust, began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $17,250,000, which consisted of $8,850,000 in debt assumption and $8,400,000 in equity investment. $100,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in December 2003 when the maximum offering amount was raised. BELL PLAZA 1031, LLC. REHAB ASSOCIATES XIII, INC., an Illinois corporation and an affiliate of IREX acquired Bell Plaza, a multi-tenant shopping center in Oak Lawn, IL on August 28, 1998 for $1,675,000. In October 2002, Rehab Associates XIII contributed 100% of its interest in the property into Bell Plaza 1031, LLC, a Delaware single member limited liability company, and then offered all of its membership interests in Bell Plaza, LLC to North Forsyth Associates, a North Carolina general partnership, which was in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $4,030,000, which consisted of $3,140,000 in debt assumption and $890,000 in equity investment. $25,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in November 2002. INLAND 210 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a single-tenant office building, currently leased to Walt Disney World Co., a Florida corporation, in Celebration, Osceola County, Florida, in June 2002 from Walt Disney World Co .in a sale/leaseback transaction. The trust financed its acquisition of the property with a $5,700,000 first mortgage loan from Bear Stearns Commercial Mortgage, Inc. In January 2003, Inland 210 Celebration Place Delaware Business Trust sold its fee simple interest in 210 Celebration Place to Old Bridge Park Celebration, LLC, a Delaware limited liability company, which was in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $12,000,000, which consisted of $5,700,000 in debt assumption and $6,300,000 in equity investment. COMPUSA RETAIL BUILDING. Lombard C-USA, L.L.C., a Delaware limited liability company, purchased a single-tenant retail building leased to CompUSA, Inc. in Lombard, Illinois in January 2003 from an unrelated third party. The L.L.C. financed its acquisition of the property with a $4,000,000 loan from Bear Stearns Commercial Mortgage, Inc. In April 2003, Lombard C-USA, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 2840 S. Highland Avenue, Lombard, DuPage County, Illinois for $3,910,500 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $7,950,000, which consisted of $4,000,000 in debt assumption and $3,950,000 in equity investment. As required by the lender, Lombard C-USA, L.L.C. shall retain at least a 1% tenant in common interest, which is included in the $3,950,000 equity investment. $75,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in February 2004 when the maximum offering amount was raised. DEERE DISTRIBUTION FACILITY IN JANESVILLE, WISCONSIN. Janesville 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant, light industrial distribution center leased to Deere & 57 Company, a Delaware corporation, in Janesville, Wisconsin in February 2003 from Ryan Janesville, L.L.C., a Minnesota corporation and an affiliate of Ryan Companies US, Inc. The L.L.C. financed its acquisition of the property with a $10,450,000 loan from Bear Stearns Commercial Mortgage, Inc. In May 2003, Janesville 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 2900 Beloit Avenue, Janesville, Rock County, Wisconsin for $9,949,500 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $20,500,000, consisted of $10,450,000 in debt assumption and $10,050,000 in equity investment, 1% of which was required by the lender to be retained by Janesville 1031, L.L.C. $100,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in January 2004 when the maximum offering was raised. FLEET OFFICE BUILDING. Westminster Office 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant office building leased entirely to Fleet National Bank, a national banking association, in Providence, Rhode Island in April 2003 from Fleet National Bank in a sale/leaseback transaction. The L.L.C. financed its acquisition of the property with a $12,900,000 loan from Bear Stearns Commercial Mortgage, Inc. In June 2003, Westminster Office 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 111 Westminster Street, Providence, Providence County, Rhode Island for $9,900,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $22,900,000, consisted of $12,900,000 in debt assumption and $10,000,000 in equity investment, 1% of which was required by the lender to be retained by Westminster Office 1031, L.L.C. $150,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in January 2004 when the maximum offering was raised. DEERE DISTRIBUTION FACILITY IN DAVENPORT, IOWA. Davenport 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant, light industrial distribution center leased to Quad Cities Consolidation and Distribution, Inc., an Illinois corporation, in Davenport, Iowa in April 2003 from Ryan Companies US, Inc., a Minnesota corporation. The lease is fully guaranteed by Deere & Company, a Delaware corporation. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc. In August 2003, Davenport 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 2900 Research Parkway, Davenport, Scott County, Iowa for $15,543,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $28,200,000, consisted of $12,500,000 in debt assumption and $15,700,000 in equity investment, 1% of which was required by the lender to be retained by Davenport 1031, L.L.C. $100,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in April 2004 when the maximum offering was raised. GRAND CHUTE DST, a Delaware statutory trust, purchased a multi-tenant retail shopping center in Grand Chute, Wisconsin in October 2002 from Continental 56 Fund Limited Partnership. The trust funded the acquisition of the property with cash from the sale of 100% of the beneficial interests in the trust to Grand Chute, L.L.C., a Delaware limited liability company. Subsequent to the acquisition of the property, the trust obtained a $5,678,350 loan from Bank of America, N.A. and the proceeds of the loan were distributed to Grand Chute, L.L.C. as a partial return of its capital contribution. In January 2003, Grand Chute, L.L.C. began offering all of its beneficial interests in the trust to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $12,048,350 which consisted of $5,678,350 in debt assumption and $6,370,000 in equity investment. $478,350 of the offering proceeds was allocated to four separate property reserve accounts, three of which were required by the lender. In September 2003, certain information in the offering was amended and 58 supplemented through the release of the First Supplement to Private Placement Memorandum. The offering was completed in March 2004 when the maximum offering amount was raised. MACON OFFICE DST, a Delaware statutory trust, purchased a single-tenant office complex in Macon, Georgia in October 2002 from UTF Macon, L.L.C. The trust funded the acquisition of the property with cash from the sale of 100% of the beneficial interests in the trust to Macon Office, L.L.C., a Delaware limited liability company. Subsequent to the acquisition of the property, the trust obtained a $5,560,000 loan from Bank of America, N.A. and the proceeds of the loan were distributed to Macon Office, L.L.C. as a partial return of its capital contribution. In October 2003, Macon Office, L.L.C. began offering all of its beneficial interests in the trust to certain qualified persons seeking a cash investment, in addition to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price was $12,160,000 which consisted of $5,560,000 in debt assumption and $6,600,000 in equity investment. $100,000 of the offering proceeds was allocated to a property reserve account. The offering was completed in March 2004 when the maximum offering amount was raised. WHITE SETTLEMENT ROAD INVESTMENT, LLC, a Delaware limited liability company, acquired a retail property currently leased to Eckerd Corporation in Fort Worth, Texas in July 2003. The LLC funded the acquisition of the property with cash from an affiliate and with a short-term loan from Parkway Bank and Trust Co., an Illinois banking corporation, in the amount of $2,041,000. In November 2003, Fort Worth Exchange, LLC, a Delaware limited liability company and initial beneficiary of White Settlement Road Investment, LLC, offered its entire membership interest in the LLC to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $2,840,000, which consisted of $1,420,000 in debt assumption and $1,420,000 in equity investment. The offering was completed in December 2003. Simultaneous with the completion of the offering, the short-term loan with Parkway was converted to a permanent loan and the terms of the loan documents were modified in accordance with a loan commitment from Parkway. PLAINFIELD MARKETPLACE. Plainfield 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant shopping center located in Plainfield, IL on December 16, 2003 from Ryan Companies US, Inc., a Minnesota corporation. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc, a New York corporation. In January 2004, Plainfield 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 11840 South Route 59, Plainfield, Will County, Illinois for $12,350,250 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $24,400,000, consisted of $11,925,000 in debt assumption and $12,475,000 in equity investment, 1% of which was required by the lender to be retained by Plainfield 1031, L.L.C. The difference between the real estate acquisition price of $21,700,000 and the total price of $24,400,000 consists of $950,000 acquisition fee, $150,000 for a property reserve account, and $1,600,000 of estimated costs and expenses. The offering was completed in June 2004 when the maximum offering amount was raised. PIER 1 RETAIL CENTER. Butterfield-Highland 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on December 30, 2003 from the beneficiary of Trust No. 2314, an unrelated third party, which trust was held by North Side Community Bank as Trustee under the Trust Agreement dated December 12, 2003. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc, a New York corporation. In March 2004, Butterfield-Highland 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 2830 S. Highland Avenue, Lombard, Illinois for $4,257,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $8,150,000, consisted of $3,850,000 in debt assumption and $4,300,000 in equity investment, a minimum of 1% of which is required by the 59 lender to be retained by Butterfield-Highland 1031, L.L.C. The difference between the real estate acquisition price of $7,025,000 and the total price of $8,150,000 consists of $350,000 acquisition fee, $100,000 for a property reserve account, and $675,000 of estimated costs and expenses. The offering was completed in June 2004 when the maximum offering amount was raised. LONG RUN 1031, L.L.C. LR 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on January 27, 2003 from Ryan Lemont, L.L.C., the third party seller and developer of the property. The L.L.C. financed its acquisition of the property with cash and, on April 24, 2003, placed a loan on the Property in the amount of $4,700,000 from Principal Commercial Funding, LLC. In June 2004, LR 1031, L.L.C. a Delaware limited liability company and initial beneficiary of Long Run 1031, L.L.C offered its entire membership interest in the LLC to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $4,960,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $9,660,000 consisted of $4,700,000 in debt assumption and $4,960,000 in equity investment. The difference between the real estate acquisition price of $8,500,000 and the total price of $9,660,000 consists of $451,347 acquisition fee, $50,000 for a property reserve account, and $658,653 of estimated costs and expenses. The offering was completed in June 2004 when the maximum offering amount was raised. FORESTVILLE 1031, L.L.C. Forestville Exchange, L.L.C., a Delaware limited liability company, purchased a single-tenant retail shopping center on November 13, 2003 from Silver Hill, L.L.C., a North Carolina limited liability company, the property's developer. The L.L.C. financed its acquisition of the property with cash. In May 2004, Forestville Exchange, L.L.C. a Delaware limited liability company and initial beneficiary of Forestville 1031, L.L.C offered its entire membership interest in the LLC to a qualified person in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $3,900,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $3,900,000000 consisted of $1,793,630 in debt assumption and $2,106,370 in equity investment. The difference between the real estate acquisition price of $3,450,000 and the total price of $3,900,000 consists of $172,500 acquisition fee and $277,500 of estimated costs and expenses. The offering was completed in May 2004 when the maximum offering amount was raised. BED BATH & BEYOND RETAIL CENTER. BBY Schaumburg 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on April 20, 2004 from the American Real Estate Holdings, L.P. a Delaware limited partnership, an unrelated third party. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc, a New York corporation. In June 2004, BBY Schaumburg 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 905-915 East Golf Road, Schaumburg, Illinois for $6,633,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. Total price, $12,605,000, consisted of $6,905,000 in debt assumption and $5,700,000 in equity investment, 1% of which was required by the lender to be retained by BBY Schaumburg 1031, L.L.C. The difference between the real estate acquisition price of $11,655,110 and the total price of $13,605,000 consists of $600,000 acquisition fee, $400,000 for property reserve accounts, and $949,890 of estimated costs and expenses. The offering was completed in October 2004 when the maximum offering amount was raised. CROSS CREEK COMMONS SHOPPING CENTER. Cross Creek 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on February 17, 2004 from Buckley Shuler Real Estate, L.L.C., a Georgia limited liability company, an unrelated third party. The L.L.C. financed its acquisition of the property with cash and subsequently placed a loan from bear Stearns Commercial Mortgage on the property. In March 2004, Cross Creek 1031, L.L.C. began offering 99% of 60 the undivided tenant in common interests in the real estate and improvements thereon located at 10920-10948 Cross Creek Boulevard, Tampa, Florida for $6,930,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. As of June 30, 2004 the L.L.C. had raised $2,788,000. Total price, $12,078,762, consisted of $5,078,762 in debt assumption and $7,000,000 in equity investment, 1% of which was required by the lender to be retained by Cross Creek 1031, L.L.C. The difference between the real estate acquisition price of $10,319,583 and the total price of $12,078,762 consists of $520,000 acquisition fee, $150,000 for a property reserve account, and $1,089,179 of estimated costs and expenses. The offering was completed in August 2004 when the maximum offering amount was raised. BJ'S SHOPPING CENTER EAST SYRACUSE, NEW YORK. BJS Syracuse 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on April 30, 2004 from the American Real Estate Holdings, L.P. a Delaware limited partnership, an unrelated third party. The L.L.C. financed its acquisition of the property with a loan and cash. In June 2004, BJS Syracuse 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 2-4 Chevy Drive, East Syracuse, New York for $8,365,500 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price of the purchase was $15,850,000. Total price, $15,850,000, consisted of $7,400,000 in debt assumption and $8,450,000 in equity investment, 1% of which was required by the lender to be retained by BJS Syracuse 1031, L.L.C. The difference between the real estate acquisition price of $13,500,000 and the total price of $15,850,000 consists of $675,000 acquisition fee, $150,000 for a property reserve account, and $1,525,000 of estimated costs and expenses. The offering was completed in October 2004 when the maximum offering amount was raised. BARNES & NOBLE RETAIL CENTER CLAY, NEW YORK. Clay 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on April 15, 2004 from Clay First Associates, L.L.C., an unrelated third party. The L.L.C. financed its acquisition of the property with an assumed mortgage and note for $3,175,000 and cash. In June 2004, Clay 1031, L.L.C. began offering 99% of the undivided tenant in common interests in the real estate and improvements thereon located at 3954-3956 Route 31, Clay, New York for $3,930,300 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. Total price, $7,145,000, consisted of $3,175,000 in debt assumption and $3,970,000 in equity investment, 1% of which was required by the lender to be retained by BJS Syracuse 1031, L.L.C. The difference between the real estate acquisition price of $6,100,000 and the total price of $7,145,000 consists of $305,000 acquisition fee, $100,000 for a property reserve account, and $640,000 of estimated costs and expenses. PORT RICHEY 1031, L.L.C. Port Richey 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retain shopping center on January 30, 2004 from Land Capital Group, Inc., an unrelated third party. The L.L.C. financed its acquisition of the property with cash and, on February 25, 2004, placed a loan on the property in the amount of $2,900,000 from Bear Stearns Commercial Mortgage, Inc. In July 2004, Port Richey Exchange, L.L.C., a Delaware limited liability company and initial beneficiary of Port Richey 1031, L.L.C., offered its entire membership interest in the LLC to certain qualified persons in need of a replacement property to complete a 1031 tax-deferred exchange. The total price was $3,075,000 in cash plus the assumption of the existing indebtedness. The total price, $5,975,000, consisted of $2,900,000 in debt assumption and $3,075 in equity investment. The difference between the real estate acquisition price of $5,250,000 and the total price of $5,975,000 consists of $262,500 acquisition fee, $437,500 of estimated costs and expenses and $25,000 for a property reserve account. The offering was completed in July 2004 when the maximum offering amount was raised. 61 WALGREENS STORE HOBART, INDIANA. Hobart 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant retail shopping center on June 10, 2004 from C. Hobart, L.L.C., an unrelated third party. The L.L.C. financed its acquisition of the property with cash. In July 2004, Hobart 1031, L.L.C. began offering 99% of the undivided tenant-in-common interests in the real estate and improvements thereon located at 732 West Old Ridge Road, Hobart, Indiana for $6,534,000 in cash to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $6,534,000, consists of an equity investment, 1% of which will be retained by Hobart 1031, L.L.C. The difference between the real estate acquisition price of $5,575,000 and the total price of $6,534,000 consists of $235,000 acquisition fee, $50,000 for a property reserve account and $740,000 of estimated costs and expenses. As of September 30, 2004 there were no investors. KRAFT COLD STORAGE FACILITY, MASON CITY, IOWA. Mason City 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant light industrial building on June 2, 2004 from MDG Iowa, L.P., an unrelated third party. The L.L.C. financed its acquisition of the property with a mortgage and note for $5,333,000 and cash. In July 2004, Mason City 1031, L.L.C. began offering 99% of the undivided tenant-in-common interests in the real estate and improvements thereon located at 904-12th Street, Mason City, Iowa for $5,610,330 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $11,000,000, consisted of $5,330,000 in debt assumption and $5,667,000 in equity investment, 1% of which was required by the lender to be retained by Mason City 1031, L.L.C. The difference between the real estate acquisition price of $9,550,000 and the total price of $11,000,000 consists of $480,000 acquisition fee, $100,000 for a property reserve account, environmental insurance credit of $50,000 and $820,000 of estimated costs and expenses. HUNTINGTON SQUARE PLAZA, NEW YORK. Huntington Square 1031, L.L.C., a Delaware limited liability company, purchased a multi-tenant retail shopping center on July 16, 2004 from Starwood Ceruzzi Commack, L.L.C., an unrelated third party. The L.L.C. financed its acquisition of the property with an assumed first mortgage and note for $19,150,000, a junior loan in the amount of $6,180,000 and cash. On August 30, 2004, Huntington Square 1031, L.L.C. began offering 99% of the undivided tenant-in-common interests in the real estate and improvements thereon located at 3124 East Jericho Turnpike, New York for $20,050,000 in cash plus the assumption of the existing first mortgage indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $39,200,000, consisted of $19,150,000 in debt assumption and $20,050,000 in equity investment, 1% of which was required by the lender to be retained by Huntington Square 1031, L.L.C. The difference between the real estate acquisition price of $24,821,392 and the total price of $39,200,000 consists of $1,500,000 acquisition fee, $150,000 for a property reserve account and $2,728,608 of estimated costs and expenses. BEST BUY STORE, REYNOLDSBURG, OHIO. Reynoldsburg 1031, L.L.C., a Delaware limited liability company, purchased a single-tenant retail shopping center on August 5, 2004 from NOCA Retail Development Limited, an unrelated third party. The L.L.C. financed its acquisition of the property with a loan from Bear Stearns Commercial Mortgage, Inc. for $4,950,000 and cash. In June 2004, Reynoldsburg 1031, L.L.C. began offering 99% of the undivided tenant-in-common interests in the real estate and improvements thereon located at 2872 Taylor Road, Reynoldsburg, Ohio for $5,395,000 in cash plus the assumption of the existing indebtedness to certain qualified persons in need of replacement properties to complete a 1031 tax-deferred exchange. The total price, $10,345,000, consisted of $4,950,000 in debt assumption and $5,395,000 in equity investment, 1% of which was required by the lender to be retained by Reynoldsburg 1031, L.L.C. The difference between the real estate acquisition price of $9,000,000 and the total price of $10,345,000 consists of $450,000 acquisition fee, $100,000 for a property reserve account and $795,000 of estimated costs and expenses. 62 The following summary table describes the fees and expenses incurred by each of our entities in our 1031 Exchange Private Placement Offering Project.
Sentry Lansing Inland 220 Landings Office 1031 Shopping Celebration of Sarasota Building Pets Bowie Chattanooga Center Place DBT DBT DBT DBT DBT DBT ------------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Selling Commission To 3rd Party Reps 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% Due Diligence Fee 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% Marketing Expenses 1.00% 1.50% 1.50% 1.50% 1.50% 1.00% Offering & Organization 1.00% 0.50% 0.50% 0.50% 0.50% 1.00% Mortgage Broker Fee (IMC)(2) 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% Acquisition Fee & Carrying Costs(3) Acquisition Fee N/A 0.71% 0.77% 0.90% 0.88% 1.18% Bridge Financing Fees N/A N/A 1.49% 0.50% 0.20% 0.10% Total Load(4) 11.25%-12.75% 14.23% 13.68% 14.39% 13.68% 13.23% Asset Management Fees(5) N/A 0.75% 1.00% 0.56% 0.55% 0.52% Paid by Property Management Fees(6) 4.5% 5.0% Asset Mgr. 5.0% 5.0% 4.5% Backend Sales Commission 3.5% 3.5% 3.5% 3.5% 3.5% N/A Janesville Inland 210 CompUSA Deere Taunton Broadway Celebration Retail Distribution Circuit Commons Bell Plaza Place Building Facility DBT DBT 1031 LLC DBT LLC 1031 LLC ------------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.0% Up to 8.77% Up to 9.19% Up to 5.27% Up to 8.56% Up to 8.6% Selling Commission To 3rd Party Reps 6.00% 6.00% 6.00% 3.81% 6.00% 6.00% Due Diligence Fee 0.50% 0.50% 0.50% 0.00% 0.50% 0.50% Marketing Expenses 1.00% 1.00% 1.00% 0.50% 1.00% 1.00% Offering & Organization 0.50% 1.27% 1.69% 0.96% 1.06% 1.10% Mortgage Broker Fee (IMC)(2) 0.61% 0.50% 0.50% 0.50% 0.50% 0.50% Acquisition Fee & Carrying Costs(3) Acquisition Fee 0.69% 0.75% N/A 0.89% 0.82% 0.87% Bridge Financing Fees 0.07% 0.23% N/A 0.23% 0.23% 0.23% Total Load(4) 11.89% 12.98% 23.02% 10.52% 14.93% 13.93% Asset Management Fees(5) 0.57% N/A 0.53% 0.53% 0.63% 0.49% Property Management Fees(6) 4.0% 5.0% 5.0% 4.5% 4.5% 4.5% Backend Sales Commission N/A N/A 3.5% N/A N/A N/A
63
Davenport White Fleet Deere Settlement Office Distribution Grand Macon Road Plainfield Building Facility Chute Office Investment Marketplace 1031 LLC 1031 LLC DST DST LLC 1031 LLC ---------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.52% Up to 8.42% Up to 8.82% Up to 8.52% Up to 8.52% Up to 8.76% Selling Commission To 3rd Party Reps 6.00% 6.00% 6.00% 6.00% 7.04% 6.00% Due Diligence Fee 0.50% 0.50% 0.50% 0.50% 0.60% 0.50% Marketing Expenses 1.00% 1.00% 1.00% 1.00% 1.16% 1.00% Offering & Organization 1.02% 0.92% 1.32% 1.02% 1.66% 1.26% Mortgage Broker Fee (IMC)(2) 0.50% 0.71% 0.50% 0.50% 0.97% 0.57% Acquisition Fee & Carrying Costs(3) Acquisition Fee 0.85% 0.77% 0.84% 0.72% 8.99% 3.89% Bridge Financing Fees 0.35% 0.72% 0.13% 0.81% 0.12% 0.92% Total Load(4) 14.57% 13.18% 12.96% 14.24% 30.90% 20.44% Asset Management Fees(5) 0.49% 0.50% 0.66% 0.66% 0.00% 0.04% Property Management Fees(6) 4.5% 4.5% 5.0% 4.5% 5.0% 5.0% Backend Sales Commission N/A N/A N/A N/A N/A N/A Pier 1 Cross BJ's Retail Bed, Bath & Creek Shopping Center Long Run Forestville Beyond Commons Center 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC ---------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.73% Up to 8.37% Up to 8.40% Up to 8.70% Up to 8.64% Up to 8.59% Selling Commission To 3rd Party Reps 6.00% 5.84% 5.54% 6.00% 6.00% 6.00% Due Diligence Fee 0.50% 0.49% 0.46% 0.50% 0.50% 0.50% Marketing Expenses 1.00% 0.97% 0.93% 1.00% 1.00% 1.00% Offering & Organization 1.23% 1.07% 1.46% 1.20% 1.14% 1.09% Mortgage Broker Fee (IMC)(2) 0.50% 0.47% 0.43% 0.55% 0.40% 0.50% Acquisition Fee & Carrying Costs(3) Acquisition Fee 4.29% 5.31% 5.00% 5.15% 5.04% 5.00% Bridge Financing Fees 0.94% Total Load(4) 8.28% 22.38% 21.34% 23.13% 22.99% 26.04% Asset Management Fees(5) 0.06% 0.20% 0.00% 0.15% 0.11% 0.12% Property Management Fees(6) 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Backend Sales Commission N/A N/A N/A N/A N/A N/A
64
Barnes & Best Buy Noble Walgreens Kraft Cold Huntington Store Retail Store Storage Square Reynolds- Center Port Richey Hobart Facility Plaza burg 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC ---------------------------------------------------------------------------------- Commissions & Fees(1) Up to 8.69% Up to 8.4% Up to 9.02% Up to 8.75% Up to 8.02% Up to 8.64% Selling Commission To 3rd Party Reps 6.00% 5.55% 6.00% 6.00% 6.00% 6.00% Due Diligence Fee 0.50% 0.46% 0.50% 0.50% 0.50% 0.050% Marketing Expenses 1.00% 0.93% 1.00% 1.00% 1.00% 1.00% Offering & Organization 1.19% 1.46% 1.02% 1.25% 0.52% 1.14% Mortgage Broker Fee (IMC)(2) 0.50% 0.43% N/A 0.50% 0.58% 0.50% Acquisition Fee & Carrying Costs(3) Acquisition Fee 5.00% 5.00% 4.22% 5.03% 4.31% 5.00% Bridge Financing Fees 0.49% 0.56% 1.25% 0.56% 0.47% 0.69% Total Load(4) 23.80% 22.80% 14.77% 22.94% 12.14% 23.08% Asset Management Fees(5) 0.13% 0.00% 0.08% 0.05% 0.03% 0.06% Property Management Fees(6) 5.0% 5.0% 4.5% 4.5% 4.5% 2.9% Backend Sales Commission N/A N/A N/A N/A N/A N/A
(1) Commissions and fees are calculated as a percentage of the equity portion of each deal. (2) The Mortgage Broker Fee is calculated as a percentage of the debt portion of each deal. (3) Acquisition & Carrying Costs are calculated as a percentage of the real estate acquisition price. (4) The Total Load is calculated as a percentage of the equity portion of each deal. The Total Load includes the Commissions & Fees, Mortgage Broker Fee, Acquisition Fee & Carrying Costs, as well as any other non-affiliated third party expenses. (5) Asset Management Fees are calculated as a percentage of the value of the assets under management. However, for The Landings and Broadway Commons, which are both Master Lease deals, the Master Tenant Income is the residual cash flow from the Property after payment of the Master Lease Rent. As a result, it is not possible to accurately represent the Master Tenant Income as a percentage of the value of the assets under management. (6) Property Management Fees are calculated as a percentage of Gross Income from the property. The following additional fees are the same for each deal: Loan Servicing Fee - IMSC will be compensated with a monthly fee equal to the outstanding principal balance of the loan at the beginning of every month multiplied by 1/8% then divided by 12. This figure, however, shall never exceed $10,000, nor be less than $1,200 monthly. Termination Fees - (i) MASTER LEASE: 8.333% of the last 12 Months of NOI less Rent payments for the same 12 months multiplied by the number of months remaining on the then-current term of the Master Lease and (ii) ASSET & PROPERTY MANAGEMENT AGREEMENTS: The sum of the current monthly AM & PM fees times the number of months remaining on the term. 65 The following table summarizes cash distributions to investors for each of the 1031 Exchange Private Placement Offering Projects through September 30, 2004: 1031 EXCHANGE PERFORMANCE DISTRIBUTIONS THROUGH SEPTEMBER 30, 2004
Number Offering Offering Distributions 2001 Annual 2002 Annual 2003 Annual 2004 Annual of Equity Completed To Date Distribution Distribution Distribution Distribution Name of Entity Investors ($) ($) ($) (%) (%) (%) (%) - ----------------------------------------------------------------------------------------------------------------------------------- Landings of Sarasota DBT 9 4,000,000 05/2002 887,036 8.00 8.00 8.07 8.39 Sentry Office Building DBT 7 3,500,000 04/2002 757,374 8.20 8.73 9.25 Pets Bowie DBT 7 2,600,000 07/2002 523,311 8.89 8.89 9.12 1031 Chattanooga DBT 9 1,900,000 05/2002 356,946 8.19 8.26 8.26 Lansing Shopping Center DBT 5 5,000,000 09/2001 854,591 8.47 8.29 8.96 Inland 220 Celebration Place DBT 35 15,800,000 09/2003 2,141,924 8.08 8.10 8.10 Taunton Circuit DBT 1 3,750,000 09/2002 600,700 8.22 8.31 8.31 Broadway Commons DBT 32 8,400,000 12/2003 813,185 8.14 8.22 8.26 Bell Plaza 1031, LLC 1 890,000 11/2003 218,782 13.53 14.67 16.05 Inland 210 Celebration Place DBT 1 6,300,000 01/2003 891,228 8.23 8.23 CompUSA Retail Building, LLC 11 3,950,000 02/2004 307,569 8.05 8.17 Janesville Deere Distribution Facility 1031, LLC 35 10,050,000 01/2004 675,167 7.23 7.35 Fleet Office Building 1031, LLC 30 10,000,000 01/2004 620,754 7.19 7.19 Davenport Deere Distribution Facility 1031, LLC 35 15,700,000 04/2004 781,099 7.36 7.36 Grand Chute DST 29 5,370,000 03/2004 265,163 8.48 8.49 Macon Office DST 29 6,600,000 03/2004 380,623 8.20 8.20 White Settlement Road Investment, LLC 1 1,420,000 12/2003 85,467 8.34 Plainfield Marketplace 1031, LLC 31 12,475,000 06/2004 184,437 7.09 Pier 1 Retail Center 1031, LLC 22 4,300,000 06/2004 105,430 7.20 Long Run 1031, LLC 1 4,935,000 05/2004 120,000 9.42 Forestville 1031, LLC 1 3,900,000 05/2004 80,525 7.55 Bed, Bath & Beyond 1031, LLC 19 6,633,000 * 49,536 7.58 Cross Creek Commons 1031, LLC 26 6,930,000 08/2004 119,446 7.30 BJ's Shopping Center 1031, LLC 7 8,365,000 * 8,606 7.69 Barnes & Noble Retail Center 1031, LLC 1 3,930,000 * 1,507 6.65
66
Number Offering Offering Distributions 2001 Annual 2002 Annual 2003 Annual 2004 Annual of Equity Completed To Date Distribution Distribution Distribution Distribution Name of Entity Investors ($) ($) ($) (%) (%) (%) (%) - -------------------------------------------------------------------------------------------------------------------------------- Port Richey 1031 LLC 1 3,075,000 07/2004 - 9.24 Walgreen Store Hobart 1031, LLC 0 6,534,000 * - 5.78 Kraft Cold Storage Facility 1031, LLC 0 11,000,000 * - 7.00 Huntington Square Plaza 1031, LLC 0 39,200,000 * - 6.48 Best Buy Store Reynoldsburg 1031, LLC 0 10,345,000 * - 6.73 ----------- ------------- 226,852,000 11,830,406 =========== =============
* Offering was not complete as of September 30, 2004 67 MANAGEMENT INLAND AFFILIATED COMPANIES The Inland Group, Inc. was started by a group of Chicago schoolteachers in 1967, and incorporated the following year. The founders of The Inland Group and its affiliates are still centered in the Chicago metropolitan area. Over the past 35 years, The Inland Group and its affiliates have experienced significant growth and now make up a fully-integrated group of legally and financially separate companies that have been engaged in diverse facets of real estate providing property management, leasing, marketing, acquisition, disposition, development, redevelopment, renovation, construction, finance, investment products, and other related services. The Inland Real Estate Group of Companies (sometimes referred to as "Inland") represents the marketing name for these separate legal entities that are either subsidiaries of the same entity, affiliates of each other, share some common ownership or were previously sponsored by Inland Real Estate Investment Corporation. Inland in the aggregate was ranked by Crain's Chicago Business in April 2004 as the 28th largest privately held company headquartered in the Chicago area. Among the affiliates of Inland is one of the largest property management firms in Illinois and one of the largest commercial real estate and mortgage banking firms in the Midwest. As of September 30, 2004 Inland and its affiliates have more than 1,000 employees, own properties in 42 states, and have managed assets in excess of $10 billion. The senior management includes executives of The Inland Group and its affiliates. Our management personnel have substantial experience in a full range of real estate services. Our top seven senior executives have an average of over 25 years experience in the real estate industry. Our business manager/advisor and managing dealer are affiliates of Inland. The relevant skills and experience of each of the Inland affiliated companies, developed over the course of more than 35 years in business, primarily in the Chicago metropolitan area, are available to us in the conduct of our business. As of September 30, 2004, our sponsor, Inland Real Estate Investment Corporation, is the general partner of limited partnerships which own in excess of 3,455 acres of pre-development land in the Chicago area, as well as approximately 16.9 million square feet of real property in Chicago and nationwide. Inland developed expertise in real estate financing as it bought and sold properties over the years. Inland Mortgage Corporation was incorporated in 1977. As of September 30, 2004 Inland Mortgage Corporation has originated more than $7 billion in financing including loans to third parties and affiliated entities. Inland Mortgage Investment Corporation and Inland Mortgage Servicing Corporation were incorporated in 1990, delineating the functions and duties associated with financing. As of September 30, 2004, Inland Mortgage Investment Corporation owned an approximately $76 million loan portfolio, and Inland Mortgage Servicing Corporation serviced a loan portfolio of 558 loans exceeding $3.7 billion. The Inland Property Management companies are responsible for collecting rent, and leasing and maintaining the rental properties they manage. The Inland Property Management companies managed over 54 million square feet of commercial properties in 42 states as of September 30, 2004. A substantial portion of the portfolio, approximately 14.8 million square feet, consists of properties leased on a triple-net lease basis. A triple-net lease means that the tenant operates and maintains the property and pays rent that is net of taxes, insurance, and 68 operating expenses. This group also manages more than 11,500 multi-family units that are principally located in the Chicago area. Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Management LLC, our management companies, were formed to segregate responsibility for management of our properties from Inland Property Management companies' growing management portfolio of retail properties. Our property management companies are responsible for collecting rent, leasing, and maintaining the retail properties they manage. These properties are primarily intended to be our properties in our primary geographical area of investment. Our property management companies are owned primarily by individuals who are affiliates of Inland. Inland Real Estate Acquisitions, Inc., another company affiliated with Inland, has extensive experience in acquiring real estate for investment. Over the years, it and its affiliates have acquired over 1,700 properties for over $10 billion. Inland Real Estate Development Corporation has handled the design, approval and entitlement of land parcels which have included in excess of 10,900 residential units, 11.8 million square feet of retail land and 7.6 million square feet of industrial land. They have been responsible for the land development of land for over 3,300 of those residential units, 6.7 million square feet of the retail land and all 7.6 million square feet of the industrial land. They currently handle an inventory of over 3,000 acres of prime land for development. Inland Real Estate Sales, Inc., another affiliate of Inland, is one of the largest "mid-market" commercial brokerage specialists in the Midwest. In the last three years it has completed more than $380 million in commercial real estate sales. Inland Real Estate Sales, Inc. has been involved in the sale of more than 2,500 multi-family units and over 3.5 million square feet of commercial property. See also "Prior Performance of our Affiliates" and APPENDIX A - "Prior Performance Tables" for information concerning over $2.9 billion raised from over 75,000 investors in connection with two other REITs, one other public real estate equity program, one private real estate equity program and five private placement mortgage and note programs and nine real estate exchange private placement offerings sponsored by The Inland Group affiliated companies during the 10-year period ending September 30, 2004, and the prior performance of those programs. During the last 35 years, more than 100,000 investors were in the Inland Group's 238 completed programs as of December 8, 2004, with no investor losses of initial invested capital in any completed equity program. 69 The following sets forth information with respect to the directors and principal executive officers of The Inland Group:
NAME AGE* POSITION AND OFFICE WITH THE INLAND GROUP - ---- ---- ----------------------------------------- Daniel L. Goodwin 60 Chairman, president and director Robert H. Baum 60 Vice chairman, executive vice president - general counsel and director G. Joseph Cosenza 60 Vice chairman and director Robert D. Parks 60 Director
- ---------- *As of January 1, 2004 Messrs. Goodwin, Baum, Cosenza and Parks were the founders of Inland. DANIEL L. GOODWIN, is a founding and controlling stockholder of and the Chairman of the Board and Chief Executive Officer of The Inland Group, Inc. Mr. Goodwin also serves as a director or officer of entities wholly owned or controlled by The Inland Group. In addition, Mr. Goodwin is the Chairman of the Board and Chief Executive Officer of Inland Mortgage Investment Corporation and Chairman and Chief Executive Officer of Inland Bancorp, a bank holding company. He is a director of Inland Real Estate Corporation and he also oversees numerous stock market investment portfolios and is the advisor for Inland Mutual Fund Trust, a publicly traded mutual fund. HOUSING. Mr. Goodwin is a member of the National Association of Realtors, the Illinois Association of Realtors and the Northern Illinois Commercial Association of Realtors. He is also the author of a nationally recognized real estate reference book for the management of residential properties. Mr. Goodwin serves on the Board of the Illinois State Affordable Housing Trust Fund. He served as an advisor for the Office of Housing Coordination Services of the State of Illinois, and as a member of the Seniors Housing Committee of the National Multi-Housing Council. He has served as Chairman of the DuPage County Affordable Housing Task Force. Mr. Goodwin also serves as Chairman of New Directions Affordable Housing Corporation. EDUCATION. Mr. Goodwin obtained his Bachelor's and Master's Degrees from Illinois State universities. Following graduation, he taught for five years in the Chicago Public Schools. More recently, Mr. Goodwin has served as a member of the Board of Governors of Illinois State Colleges and Universities. He is Vice Chairman of the Board of Trustees of Benedictine University, Vice Chairman of the Board of Trustees of Springfield College and Chairman of the Board of Trustees of Northeastern Illinois University. ROBERT H. BAUM has been with The Inland Group and has affiliates since 1968 and is one of the four original principals. Mr. Baum is vice chairman and executive vice president-general counsel of The Inland Group. In his capacity as general counsel, Mr. Baum is responsible for the supervision of the legal activities of The Inland Group and its affiliates. This responsibility includes the supervision of The Inland Group Law Department and serving as liaison with outside counsel. Mr. Baum has served as a member of the North American Securities Administrators Association Real Estate Advisory Committee and as a member of the Securities Advisory Committee to the Secretary of State of Illinois. He is a member of the American Corporation Counsel Association and has also been a guest lecturer for the Illinois State Bar Association. Mr. Baum has been admitted to practice before the Supreme Court of the 70 United States, as well as the bars of several federal courts of appeals and federal district courts and the State of Illinois. He is also an Illinois licensed real estate broker. He has served as a director of American National Bank of DuPage and currently serves as a director of Inland Bancorp Holding Company and of Westbank. Mr. Baum also is a member of the Governing Council of Wellness House, a charitable organization that provides emotional support for cancer patients and their families. G. JOSEPH COSENZA has been with The Inland Group and its affiliates since 1968 and is one of the four original principals and founders. Mr. Cosenza is a director and vice chairman of The Inland Group and oversees, coordinates and directs Inland's many enterprises. In addition, Mr. Cosenza immediately supervises a staff of 19 persons who engage in property acquisition and due diligence. Mr. Cosenza has been a consultant to other real estate entities and lending institutions on property appraisal methods. He has directly overseen the purchase of close to $10.5 billion of income-producing real estate from 1968 to present. Mr. Cosenza received his B.A. Degree from Northeastern Illinois University and his Master's Degree from Northern Illinois University. From 1967 to 1972, he taught in the LaGrange and Wheeling, Illinois School Districts and he served as assistant principal and taught in the Wheeling, Illinois School District while the four schoolteacher partners operated Inland on a part time basis. Mr. Cosenza has been a licensed real estate broker since 1968 and an active member of various national and local real estate associations, including the National Association of Realtors and the Urban Land Institute. Mr. Cosenza also has been chairman of the board of American Bank of DuPage and has served on the board of directors of Continental Bank of Oakbrook Terrace. He was the chairman and is presently a director on the board of Inland Bankcorp, which owns Westbank in Westchester, Hillside and Lombard, Illinois. Mr. Cosenza has been a director since 1994 to Inland Real Estate Corporation, a $1.7 billion asset publicly traded REIT and is also a member of the management committee. ROBERT D. PARKS is a director of The Inland Group, Inc. and one of its four original principals; chairman of Inland Real Estate Investment Corporation, a director of Inland Securities Corporation, and a director of Inland Investment Advisors, Inc. Mr. Parks is president, chief executive officer and a director of Inland Real Estate Corporation. He is chairman, chief executive officer and an affiliated director of Inland Retail Real Estate Trust, Inc., and is our chairman, chief executive officer, and an affiliated director. Mr. Parks is responsible for the ongoing administration of existing investment programs, corporate budgeting and administration for Inland Real Estate Investment Corporation. He oversees and coordinates the marketing of all investments and investor relations. Prior to joining Inland, Mr. Parks taught in Chicago's public schools. He received his B.A. Degree from Northeastern Illinois University and his M.A. Degree from the University of Chicago. He is a registered Direct Participation Program Limited Principal with the National Association of Securities Dealers. He is a member of the Real Estate Investment Association, the Financial Planning Association, the Foundation for Financial Planning as well as a member of the National Association of Real Estate Investment Trusts (NAREIT). OUR GENERAL MANAGEMENT We operate under the direction of our board of directors. Our board is responsible for our business and management. Our board sets our policies and strategies. Our business manager/advisor is responsible for the day-to-day management of our affairs and the implementation of the policies of our board. Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Management LLC are responsible for managing, maintaining and leasing the individual properties. 71 Inland Real Estate Acquisitions, Inc. is responsible for acquiring properties. Inland Risk and Insurance Management Services, Inc., an affiliate of The Inland Group, Inc., is responsible for providing insurance coverage on the properties. Inland Mortgage Corporation, Inland Mortgage Servicing Corporation and Inland Mortgage Investment Corporation are responsible for the purchase, sales and servicing of mortgages. See "Compensation Table" for a description of the fees paid to our affiliates. OUR DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information with respect to our directors and executive officers:
NAME AGE POSITION AND OFFICE WITH US ----------------------------- --- ------------------------------------------------ Robert D. Parks............ 60 Chairman, chief executive officer and affiliated director Roberta S. Matlin.......... 59 Vice president -- administration Scott W. Wilton............ 43 Secretary Steven P. Grimes........... 37 Treasurer and principal financial officer Lori J. Foust.............. 39 Principal accounting officer Brenda G. Gujral........... 61 Affiliated director Frank A. Catalano, Jr...... 42 Independent director Kenneth H. Beard........... 64 Independent director Paul R. Gauvreau........... 64 Independent director Gerald M. Gorski........... 61 Independent director Barbara A. Murphy.......... 66 Independent director
- ---------- *As of January 1, 2004 ROBERTA S. MATLIN has been our vice president of administration since our formation. Ms. Matlin joined Inland Real Estate Investment Corporation in 1984 as director of investor administration and currently serves as senior vice president of our sponsor, directing its day-to-day internal operations. Ms. Matlin is a director of our sponsor, a director and president of Inland Investment Advisors, Inc., and Intervest Southern Real Estate Corporation, and a director and vice president of Inland Securities Corporation. Since 1998, she has been vice president of administration of Inland Retail Real Estate Trust. She is president and a director of Inland Investment Advisors, Inc. and Intervest Southern Real Estate Corporation. She was vice president of administration of Inland Real Estate Corporation from 1995 until 2000. From June 2001 until April 2004 she was a trustee and executive vice president of Inland Mutual Fund Trust. Prior to joining Inland, she worked for the Chicago Region of the Social Security Administration of the United States Department of Health and Human Services. Ms. Matlin is a graduate of the University of Illinois. She holds Series 7, 22, 24, 39, 63 and 65 licenses from the National Association of Securities Dealers, Inc. SCOTT W. WILTON has been our secretary since our formation. Mr. Wilton joined The Inland Group in January 1995. He is assistant vice president of The Inland Real Estate Group, Inc. and assistant counsel with The Inland Real Estate Group law department. In 1998, Mr. Wilton became secretary of Inland Retail Real Estate Trust, Inc. and Inland Retail Real Estate Advisory Services, Inc. In 2001, he became the Secretary of Inland Real Estate Exchange Corporation. Mr. Wilton is involved in all aspects of The Inland Group's business, including real estate acquisitions and financing, securities law and corporate governance matters, leasing and tenant matters, and litigation management. He received B.S. degrees in economics and history from the University of Illinois at Champaign 1982 and his law degree from Loyola University of Chicago, Illinois 1985. Prior to joining The Inland Group, Mr. Wilton worked for the Chicago law firm of Williams, Rutstein, Goldfarb, Sibrava and Midura, Ltd., specializing in real estate and corporate transactions and litigation. 72 STEVEN P. GRIMES joined our business manager/advisor as its Chief Financial Officer and became our treasurer and principal financial officer in 2004. He is responsible for our finances and borrowings. Prior to joining our business manager/advisor, Mr. Grimes was a director with Cohen Financial and was a senior manager with Deloitte and Touche. Mr. Grimes received his B.S. Degree in Accounting from Indiana University and is a Certified Public Accountant. Mr. Grimes is a member of the American Institute of Certified Public Accountants, or AICPA, and the Illinois CPA Society. LORI J. FOUST joined the Inland organization as Vice President of Inland Western Retail Real Estate Advisory Services, Inc. in 2003. Ms. Foust is also our principal accounting officer. She is responsible for our financial and SEC reporting. Prior to joining the Inland organization, Ms. Foust worked in the field of public accounting and was a senior manager in the real estate division for Ernst and Young, LLP. She received her B.S. Degree in Accounting and her M.B.A. Degree from the University of Central Florida. Ms. Foust is a certified public accountant and a member of the AICPA. BRENDA G. GUJRAL, an affiliated director, is president, chief operating officer and a director of Inland Real Estate Investment Corporation, the parent company of our business manager/advisor. She is also president, chief operating officer and a director of our managing dealer. Mrs. Gujral is also a director of Inland Investment Advisors, Inc., an investment advisor. Mrs. Gujral has overall responsibility for the operations of Inland Real Estate Investment Corporation, including the distribution of checks to over 50,000 investors, the review of periodic communications to those investors, the filing of quarterly and annual reports for Inland Real Estate Investment Corporation-sponsored publicly registered investment programs with the Securities and Exchange Commission, compliance with other Securities and Exchange Commission and National Association of Securities Dealers securities regulations both for Inland Real Estate Investment Corporation and Inland Securities Corporation, review of asset management activities and marketing and communications with the independent broker-dealer firms selling current and prior Inland Real Estate Investment Corporation sponsored investment programs. She works with internal and outside legal counsel in structuring Inland Real Estate Investment Corporation's investment programs and in connection with the preparation of its offering documents and registering the related securities with the Securities and Exchange Commission and state securities commissions. Mrs. Gujral has been with the Inland organization for 22 years, becoming an officer in 1982. Prior to joining the Inland organization, she worked for the Land Use Planning Commission establishing an office in Portland, Oregon to implement land use legislation for that state. She is a graduate of California State University. She holds Series 7, 22, 39 and 63 licenses from the National Association of Securities Dealers and is a member of The National Association of Real Estate Investment Trusts. Ms. Gujral is also a member of the Financial Planning Association, the Foundation for Financial Planning and the National Association for Female Executives. FRANK A. CATALANO, JR. has served as president of Catalano & Associates since 1999. Catalano & Associates is a real estate company that includes brokerage, property management and rehabilitation and leasing of office buildings. Mr. Catalano's experience also includes mortgage banking. Since 2002, he has been a vice president of First Home Mortgage Company. Prior to that, Mr. Catalano was a regional manager at Flagstar Bank. He also was president and chief executive officer of CCS Mortgage, Inc. from 1995 through 2000, when Flagstar Bank acquired it. Mr. Catalano is a member of the Elmhurst, IL Chamber of Commerce and as past chairman of the board, he is also a member of the Elmhurst Jaycees, Elmhurst Hospital Board of Governors, Elmhurst Kiwanis and is currently the President of Elmhurst Historical Museum Commission. Mr. Catalano holds a mortgage broker's license. 73 KENNETH H. BEARD was president and chief executive officer of Exelon Services, an energy services company from 1999-2002, where he had responsibility for financial performance including being accountable for creating business strategy, growing the business through acquisition, integrating acquired companies and developing infrastructure for the combined acquired businesses. Exelon Services is a subsidiary of Exelon Corporation, a New York Stock Exchange listed company. Prior to that position, from 1974 to 1999, Mr. Beard was the founder, president and chief executive officer of Midwest Mechanical, Inc., a heating, ventilation and air conditioning company providing innovative and cost effective construction services and solutions for commercial, industrial, and institutional facilities. From 1964 to 1974 Mr. Beard was employed at The Trane Company, a manufacturer of heating, ventilating and air conditioning equipment having positions in sales, sales management and general management. Mr. Beard holds a MBA and BSCE from the University of Kentucky and is a licensed mechanical engineer. He is on the board of directors of the Wellness House in Hinsdale, Illinois, a cancer support organization, and Harris Bank - Hinsdale, serves on the Dean's Advisory Council of the University of Kentucky, School of Engineering, and is a past member of the Oak Brook, Illinois Plan Commission (1981-1991). PAUL R. GAUVREAU is the retired chief financial officer, financial vice president and treasurer of Pittway Corporation, New York Stock exchange listed manufacturer and distributor of professional burglar and fire alarm systems and equipment from 1966 until its sale to Honeywell, Inc. in 2001. He was president of Pittway's non-operating real estate and leasing subsidiaries through 2001. He was a financial consultant to Honeywell, Inc.; Genesis Cable, L.L.C.; ADUSA, Inc. He was a director and audit committee member of Cylink Corporation, a Nasdaq Stock Market listed manufacturer of voice and data security products from 1998 until its merger with Safenet, Inc. in February 2003. Prior to 1995, he was a director and acting chief financial officer instrumental in 1996 Cylink initial public offering. Mr. Gauvreau holds a MBA from the University of Chicago and a BSC from Loyola University of Chicago. He is on the Board of Trustees and Vice Chairman of the Finance Committee of Benedictine University, Lisle, Illinois; a member of the Board of Trustees of the Chaddick Institute of DePaul University, Chicago, Illinois; and a member of the board of directors and treasurer of the Children's Brittle Bone Foundation, Pleasant Prairie, Wisconsin. GERALD M. GORSKI is a partner in the law firm of Gorski and Good, Wheaton Illinois. Mr. Gorski's practice is limited to governmental law. His firm represents numerous units of local government in Illinois and Mr. Gorski has served as a Special Assistant State's Attorney and Special Assistant Attorney General in Illinois. He received a Bachelor of Arts degree from North Central College with majors in Political Science and Economics and a Juris Doctor degree from DePaul University Law School where he was placed on the Deans Honor List. Mr. Gorski serves as the Vice-Chairman of the Board of Commissioners for the DuPage Airport Authority. He has written numerous articles on various legal issues facing Illinois municipalities; has been a speaker at a number of municipal law conferences and is a member of the Illinois Bar Association, the Institute for Local Government Law and the International Municipal Lawyers Association. BARBARA A. MURPHY is the Chairwoman of the DuPage Republican Party. Ms. Murphy is also a member of Illinois Motor Vehicle Review Board and a member of Matrimonial Fee Arbitration Board. Ms. Murphy is a Milton Township Trustee and a committeeman for Milton Township Republican Central Committee. Ms. Murphy previously served as State Central Committeewoman for the Sixth Congressional District and has also served on the DuPage Civic Center Authority Board, the DuPage County Domestic Violence Task Force, and the Illinois Toll Highway Advisory Committee. Ms. Murphy is a founding member of the Family Shelter Service Board. As an active volunteer for Central DuPage Hospital, she acted as the "surgery hostess" (cared for families while a family member was undergoing 74 surgery). Ms. Murphy was a department manager and buyer for J.W. Robinson's and Bloomingdale's and the co-owner of Daffy Down Dilly Gift Shop. COMMITTEES OF OUR BOARD OF DIRECTORS Our bylaws provide that our board may establish such committees as the board believes appropriate. The board will appoint the members of the committee in the board's discretion. Our bylaws require that a majority of the members of each committee of our board is to be comprised of independent directors. Our Board has established an audit committee comprised of Messrs. Catalano, Beard and Gauvreau. Mr. Gauvreau serves as the chair of the Audit Committee and qualifies as our "financial expert" under the rules of the Securities and Exchange Commission. These three directors are independent in accordance with the National Association of Securities Dealers' listing standards and under the Sarbanes-Oxley Act. The board has adopted a written charter for the audit committee. The audit committee is responsible for the engagement of our independent auditors, reviewing the plans and results of the audit engagement with our auditors, approving services performed by and the independence of our independent auditors, considering the range of audit and non-audit fees, and consulting with our independent auditors regarding the adequacy of our internal accounting controls. Although we do not have a standing nominating committee or compensation committee of the board, the board itself serves in those capacities. There is no compensation committee. The board has been responsible for all compensation decisions. As we have no employees, there are no compensation decisions to be made by the board. Our board does not currently have a nominating committee. Rather, each member of our board participates in the process of identifying and considering individuals for board membership. Our board believes its current process is effective since the current members of the board are seasoned executives from a variety of backgrounds. Each member of our board satisfies the independence requirements under the National Association of Securities Dealers' listing standards and the Sarbanes-Oxley Act, other than Mr. Parks and Mrs. Gujral. The board will consider for recommendation to the board nominations made by stockholders that comply with the procedures described in our proxy statement under the caption "Advance Notice Procedures for Making Director Nominations and Stockholder Proposals." Once our board has identified a possible nominee (whether through a recommendation from a shareholder or otherwise), the independent members of the board make an initial determination as to whether to conduct a full evaluation of the candidate. This initial determination is based on the information provided to the board when the candidate is recommended, the board's own knowledge of the prospective candidate and information, if any, obtained by the board's inquiries. The preliminary determination is based primarily on the need for additional board members to fill vacancies, expand the size of the board or obtain representation in market areas without board representation and the likelihood that the candidate can satisfy the evaluation factors described below. If the independent members of the board determine that additional consideration is warranted, it may gather additional information about the candidate's background and experience. The independent members of the board then evaluate the prospective nominee against the following standards and qualifications: - achievement, experience and independence; - wisdom, integrity and judgment; 75 - understanding of the business environment; and - willingness to devote adequate time to Board duties. The independent members of the board also consider such other relevant factors as they deem appropriate, including the current composition of the board, the need for audit committee or other expertise and the evaluations of other candidates. In connection with this evaluation, the independent members of the board determine whether to interview the candidate. If the independent members of the board decide that an interview is warranted, one or more of those members, and others as appropriate, interviews the candidate in person or by telephone. After completing this evaluation and interview, the independent members of the board make a recommendation to the full board as to the persons who should be nominated by the board, and the board determines the nominees after considering the recommendation and report of the independent members of the board. EXECUTIVE COMMITTEE. Our board may establish an executive committee consisting of three directors, including two independent directors. The executive committee would likely exercise all powers of the board in the management of the business and affairs of our company, except for those which require actions by all of the directors or by the independent directors under our articles of incorporation or bylaws or under applicable law. MANAGEMENT AND DISCLOSURE COMMITTEE. Our board may establish a management disclosure committee to assist in reviewing our disclosures, controls and procedures. The committee may include our directors and directors and officers of our business manager/advisor. EXECUTIVE COMPENSATION COMMITTEE. Our board may establish an executive compensation committee consisting of three directors, including two independent directors, to establish compensation policies and programs for our executive officers. The executive compensation committee will exercise all powers of our board in connection with establishing and implementing compensation matters, including incentive compensation and benefit plans. COMPENSATION OF DIRECTORS AND OFFICERS We pay our independent directors an annual fee of $5,000 (increased to $10,000 effective October 1, 2004) plus $500 for each in person meeting and $350 for each meeting of the board or a committee of the board attended by telephone, and reimbursement of their out-of-pocket expenses incurred. Our two other directors, Robert D. Parks and Brenda G. Gujral, do not receive any fees or other remuneration for serving as directors. EXECUTIVE COMPENSATION We have no employees and our executive officers will not receive any compensation from us for their services as such officers. Our executive officers are officers of one or more of our affiliates, and are compensated by those entities, in part, for their services rendered to us. COMPLIANCE AND GOVERNANCE On October 12, 2004, our board of directors unanimously adopted a Code of Business Conduct and Ethics, Nonretaliation Policy, and Complaint Procedures for Accounting and Auditing Matters. 76 INDEPENDENT DIRECTOR STOCK OPTION PLAN We have an independent director stock option plan under which non-employee directors, as defined under Rule 16b-3 of the Securities Exchange Act of 1934, are eligible to participate. We have authorized and reserved a total of 75,000 shares of our common stock for issuance under our independent director stock option plan. The number and type of shares which could be issued under the plan may be adjusted if we are the surviving entity after a reorganization or merger or if our stock splits, is consolidated or we are recapitalized. If this occurs, the exercise price of the options will be correspondingly adjusted. The independent director stock option plan provides for the grant of non-qualified stock options to purchase 3,000 shares to each independent director upon his or her appointment if they meet the conditions in the plan. The plan also provides for subsequent grants of options to purchase 500 shares on the date of each annual stockholder's meeting to each independent director then in office. However, options may not be granted at any time when the grant, along with the grants to be made at the same time to other independent directors, would exceed 10% of our issued and outstanding shares. We have granted options to purchase 3,000 shares at $8.95 per share to each of our five independent directors. The option price for subsequent options will be equal to the fair market value of a share on the last business day preceding the annual meeting of stockholders. The option price will be fixed at $8.95 per share until the earlier of the termination of this offering or two years after the commencement of this offering. One-third of the options granted following an individual initially becoming an independent director are exercisable beginning on the date of their grant, one-third will first become exercisable on the first anniversary of the date of their grant, and the remaining one-third will first become exercisable on the second anniversary of the date of their grant. All other options granted under the independent director stock option plan will become fully exercisable on the second anniversary of their date of grant. Options granted under the independent director stock option plan are exercisable until the first to occur of - the tenth anniversary of the date of grant, - the removal for cause of the independent director as an independent director, or - three months following the date the independent director ceases to be an independent director for any other reason except death or disability. The options may be exercised by payment of cash or through the delivery of common stock. They are generally exercisable in the case of death or disability for a period of one year after death or the disabling event, provided that the death or disabling event occurs while the person is an independent director. However, if the option is exercised within the first six months after it becomes exercisable, any shares issued pursuant to such exercise may not be sold until the six month anniversary of the date of the grant of the option. Notwithstanding any other provisions of the independent director stock option plan to the contrary, no option issued pursuant thereto may be exercised if such exercise would jeopardize our status as a REIT under the Internal Revenue Code. No option may be sold, pledged, assigned or transferred by an independent director in any manner otherwise than by will or by the laws of descent or distribution. Upon our dissolution, liquidation, reorganization, merger or consolidation as a result of which we are not the surviving corporation, or upon sale of all or substantially all of our property, the independent 77 director stock option plan will terminate, and any outstanding unexercised options will terminate and be forfeited. However, holders of options may exercise any options that are otherwise exercisable immediately prior to the dissolution, liquidation, consolidation or merger. Additionally, our board may provide for any or all of the following alternatives: - for the assumption by the successor corporation of the options previously granted or the substitution by the corporation for the options covering the stock of the successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and exercise prices; - for the continuance of the independent director stock option plan by such successor corporation in which event the independent director stock option plan and the options will continue in the manner and under the terms so provided; or - for the payment in cash or common stock in lieu of and in complete satisfaction of the options. OUR BUSINESS MANAGER/ADVISOR Our business manager/advisor, Inland Western Retail Real Estate Advisory Services, Inc., is an Illinois corporation and a wholly owned subsidiary of our sponsor. Our business manager/advisor reviews and updates our mission statement, determines our businesses' direction, selects the criteria for acquisitions and financing, adjusts the demographic and geographic parameters, analyzes strategic alternatives, adjusts our rate of growth to maximize shareholder value, and updates our business plan that is performed by Inland employees on our behalf involving the combined efforts of highly skilled technical people with many years of experience. The following table sets forth information regarding the executive officers and directors of our business manager/advisor, all of whom have held their positions and offices since its formation in 1998. The biographies of Messrs. Parks, Cosenza, and Goodwin are set forth above under "-- Inland Affiliated Companies" and the biographies of Mr. Grimes, Ms. Foust and Mr. Wilton are set forth under "-- Our Directors and Executive Officers."
POSITION AND OFFICE WITH OUR BUSINESS NAME AGE MANAGER/ADVISOR ---- --- ------------------------------------- Daniel L. Goodwin.......................... 60 Director Robert D. Parks............................ 60 Director and president G. Joseph Cosenza.......................... 60 Director Steven P. Grimes........................... 37 Chief financial officer Brenda G. Gujral........................... 61 Vice president Lori J. Foust.............................. 39 Vice president and controller Scott W. Wilton............................ 43 Secretary Debra J. Randall........................... 48 Assistant vice president and assistant controller
- ---------- *As of January 1, 2004 DEBRA J. RANDALL joined our business manager/advisor as assistant vice president on January 30, 2004. Ms. Randall is responsible for our financial and SEC reporting. Prior to joining the business manager/advisor, Ms. Randall was a corporate controller for a privately held real estate company and has over 10 years of real estate experience at several public accounting firms. She received her B.A. Degree 78 in Liberal Arts and is in the process of completing her M.A. Degree from DePaul University. She is a certified public accountant, a member of the Illinois CPA Society and a licensed real estate salesperson. OUR ADVISORY AGREEMENT DUTIES OF OUR BUSINESS MANAGER/ADVISOR. Under the terms of our advisory agreement, our business manager/advisor generally has responsibility for our day-to-day operations. This includes the following: - administering our bookkeeping and accounting functions, - serving as our consultant in connection with policy decisions to be made by our board, managing our properties or causing them to be managed by another party, and - rendering other services as our board deems appropriate. Our business manager/advisor is subject to the supervision of its board and has only such functions as are delegated to it by its board. TERM OF THE ADVISORY AGREEMENT. The advisory agreement has an initial term of three years and is renewable for successive one-year terms upon the mutual consent of the parties. It may be terminated by either party, by mutual consent of the parties or by a majority of the independent directors or the business manager/advisor, as the case may be, upon 60 days' written notice. If the advisory agreement is terminated, the business manager/advisor must cooperate with us and take all reasonable steps requested by our board to assist it in making an orderly transition of the business management/advisory function. Our board shall determine that any successor business manager/advisor possesses sufficient qualifications to perform the business management/advisory function for us and justify the compensation provided for in its contract with us. COMPENSATION TO BUSINESS MANAGER/ADVISOR. The advisory agreement provides for the business manager/advisor to be paid: - an advisor asset management fee after the stockholders have first received a 6% annual return; and - a property disposition fee; and - an incentive advisory fee from the net proceeds of a sale of a property after the stockholders have first received a 10% cumulative return and a return of their net investment. If the business manager/advisor or its affiliates perform services that are outside of the scope of the advisory agreement, we will compensate them at rates and in amounts agreed upon by the business manager/advisor and the independent directors. The business manager/advisor bears the expenses it incurs in connection with performing its duties under the advisory agreement. These include: - employee expenses; - travel and other expenses of its directors, officers and employees; - rent; 79 - telephone; - equipment expenses to the extent they relate to the office maintained by both us and the business manager/advisor; and - miscellaneous administrative expenses incurred in supervising, monitoring and inspecting real property or our other investments or relating to its performance under the advisory agreement. The business manager/advisor is reimbursed for the cost to it and its affiliates of goods and services used for and by us and obtained from unaffiliated parties. It is also reimbursed for related administrative services. We bear our own expenses for functions the business manager/advisor is not required to perform under the advisory agreement. These generally include capital raising and financing activities, corporate governance matters and other activities not directly related to our properties. REIMBURSEMENT BY BUSINESS MANAGER/ADVISOR. For any year in which we qualify as a REIT, our business manager/advisor must reimburse us for the amounts, if any: - by which our total operating expenses paid during the previous fiscal year exceed the greater of - 2% of our average assets for that fiscal year or - 25% of our net income, before any additions to or allowance for reserves for depreciation, amortization or bad debts or other similar low-cash reserves before any gain from the sale of our assets, for that fiscal year; - PLUS an amount, so long as it does not exceed the amount of the advisor asset management fee for that year, equal to any deficit between the total amount of distributions to stockholders for such fiscal year and the current return. Current return refers to a cumulative, non-compounded return, equal to 6% per annum on net investment. The business manager/advisor is also obligated to pay organization and offering expenses in excess of specified levels. See "Compensation Table" for a description of the fees and reimbursements to which the business manager/advisor is entitled. Provided however, only so much of the excess specified in the first bullet point above will be required to be reimbursed as the board, including a majority of the independent directors, determines should justifiably be reimbursed in light of such unanticipated, unusual or non-recurring factors which may have occurred within 60 days after the end of the quarter for which the excess occurred. In this event, the stockholders will be sent a written disclosure and explanation of the factors the independent directors considered in arriving at the conclusion that the higher total operating expenses were justified. BUSINESS COMBINATION BETWEEN US AND THE BUSINESS MANAGER/ADVISOR. Many REITs that are listed on a national stock exchange or included for quotation on a national market system are considered self-administered, because their employees perform all significant management functions. In contrast, those that are not self-administered, like us, typically engage a third-party, such as our business manager/advisor, to perform management functions on its behalf. If for any reason the independent directors determine that we should become self-administered, the advisory agreement permits the business conducted by the business manager/advisor, including all of its assets, to be acquired by or consolidated into us. A similar provision is included in each management agreement permitting acquisition of the business conducted by the respective property manager, including all of its assets. Until September 15, 2008, such a business combination could only take place with our consent and that of the 80 business manager/advisor and property managers. After September 15, 2008, we could acquire these companies in a business combination without their consent. If the businesses conducted by the business manager/advisor and/or a property manager are acquired by or consolidated into us, the business manager/advisor and/or the property manager and/or their respective stockholders or members will receive a number of shares in exchange for terminating their respective management agreements and the release and waiver of all fees payable under them. We will be obligated to pay any fees accrued under such contractual arrangements for services rendered through the closing of the acquisitions. The number of shares we will issue to the business manager/advisor and/or the property managers, as the case may be, will be determined as follows: - We will first send an election notice to the business manager/advisor and/or the property manager, as the case may be, of our election to proceed with such a transaction. - Next, the net income of the business manager/advisor and/or the property manager, as the case may be, for the calendar monthly period immediately preceding the calendar month in which the business combination agreement is signed, as determined by an independent audit conducted in accordance with generally accepted auditing standards, will be annualized. The business manager/advisor or the property manager will bear the cost of the audit. - The annualized net income will then be multiplied by 90% and divided by our funds from operations per weighted average share. Funds from operations per weighted average share will be equal to our annualized funds from operations per weighted average share for the fiscal quarter immediately preceding the fiscal quarter in which the business combination agreement is signed, all based upon our quarterly report delivered to stockholders. Funds from operations means net income in accordance with generally accepted accounting principles, excluding gains or losses from sales of properties, plus depreciation on real property and amortization, and after adjustments for unconsolidated partnerships and joint ventures in which we hold an interest. The resulting quotient will constitute the number of shares to be issued by us to the business manager/advisor or the property manager, or their respective shareholders or members, as the case may be. Delivery of the shares and the closing of the transaction must occur within 90 days of delivery after the election notice. Under some circumstances, this kind of transaction can be entered into and consummated without seeking specific stockholder approval. See "Conflicts of Interest." Any transaction like this will occur, if at all, only if our board obtains a fairness opinion from a recognized financial advisor or institution providing valuation services to the effect that the consideration to be paid is fair to the stockholders from a financial point of view. If the advisory agreement is terminated for any reason other than our acquisition of the business conducted by the business manager/advisor, then all obligations of the business manager/advisor and its affiliates to offer properties to us will also terminate. LIABILITY AND INDEMNIFICATION OF BUSINESS MANAGER/ADVISOR. Under the advisory agreement, we are required to indemnify the business manager/advisor and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding with respect to the business manager/advisor's acts or omissions. However, this is only a requirement so long as: 81 - the business manager/advisor determined in good faith that the course of conduct which caused a loss or liability was in our best interest; - the business manager/advisor was acting on behalf of or performing services for us; - the liability or loss was not the result of misconduct on the part of the business manager/advisor; and - the indemnification or agreement to hold harmless is recoverable only out of our net assets and not from the assets of the stockholders. We will advance amounts to those entitled to indemnification for legal and other expenses only if: - the legal action relates to acts or omissions concerning the performance of duties or services by the person seeking indemnification for or on our behalf; - the legal action is initiated by a third party and a court of competent jurisdiction specifically approves its advancement; and - the person seeking indemnification who is receiving the advances undertakes to repay the advanced funds to us, together with the applicable legal rate of interest thereon, if such party is found not to be entitled to indemnification. Although Inland Retail Real Estate Trust, Inc. is no longer offering its securities, it has not fully invested all of its anticipated funds available for investment. Accordingly, material conflicting investment opportunities between them and us could be expected. However, we have primarily focused our purchase of retail centers to those west of the Mississippi River, which is outside Inland Retail Real Estate Trust, Inc.'s primary geographic area of investment. However, if any conflicts do arise, they will be resolved as provided in the property acquisition service agreement. THE PROPERTY MANAGERS AND THE MANAGEMENT AGREEMENTS Our present property managers provide property management services to us under the terms of the management agreements. The property managers provide services in connection with the rental, leasing, operation and management of the properties. Our property managers are each Delaware limited liability companies owned by a Delaware limited liability holding company, which in turn is owned by a Delaware corporation owned principally by individuals who are affiliates of The Inland Group. We have agreed to pay the property managers a monthly management fee in an amount no greater than 90% of the fee which would be payable to an unrelated party providing such services, which fee will initially be 4.5% of gross income, as defined in the relevant management agreement, from the properties managed for the month for which the payment is made. In addition, we have agreed to compensate each property manager if it provides us with services other than those specified in the management agreement. There is a separate management agreement for each property for an initial term ending as of December 31 in the year in which the property is acquired, and each management agreement is subject to three successive three-year renewals, unless either party notifies the other in writing of its intent to terminate between 60 and 90 days prior to the expiration of the initial or renewal term. We may terminate with 30 days prior written notice in the event of gross negligence or malfeasance by the property manager. The property managers may subcontract the required property management services for less than the management fee provided in the management agreement. See "Compensation Table -- Nonsubordinated Payments - -- Operational Stage." Our property managers may form additional property management companies as necessary to manage the properties we acquire, and may approve of the change of management of a property from one manager to another. 82 Our property managers, Inland US Management LLC, Inland Southwest Management LLC and Inland Pacific Management LLC, conduct their activities within states where they manager our properties. The principal executive office of the holding company, Inland HOLDCO Management LLC, is located at 2907 Butterfield Road in Oak Brook, Illinois. See "--The Advisory Agreement" above in this section and "Conflicts of Interest" for a discussion of our option to acquire or consolidate with the business conducted by the property managers. The following sets forth information with respect to the executive officers and managers of Inland HOLDCO Management LLC.
POSITION AND OFFICE WITH INLAND HOLDCO NAME AGE* MANAGEMENT LLC ---- ---- -------------- Thomas P. McGuinness 47 President and manager Robert M. Barg 50 Senior vice president/treasurer, secretary and manager James H. Neubauer 62 Senior vice president Linda Centanni 49 Vice president Elizabeth D. McNeely 49 Vice president Frank Natanek 36 Vice president Ulana B. Horawelskyj 57 Manager Alan F. Kremin 57 Manager Frances C. Panico 54 Manager
- ---------- *As of January 1, 2004 THOMAS P. MCGUINNESS joined Inland Property Management in 1982 and became president of Mid-America Management Corporation in July 1990 and chairman in 2001. He is also president of Inland Property Management, Inc. as well as a director of Inland Commercial Property Management. He is chairman and a director of Inland Mid-Atlantic Management Corp. Mr. McGuinness is a licensed real estate broker; and is past president of the Chicagoland Apartment Association, and past regional vice president of the National Apartment Association. He is currently on the board of directors of the Apartment Building Owners and Managers Association, and is a trustee with the Service Employees' Local No. 1 Health and Welfare Fund, as well as the Pension Fund and holds CLS and CSM accreditations from the International Council of Shopping Centers. ROBERT M. BARG joined the Inland organization in 1986 and is currently the treasurer of Inland Property Management Group, Inc. Since 2003 he has been a senior vice president, secretary and treasurer of Inland Western Management Corp. In July 2004 he became a director of Inland Western Management Corp. as well as a senior vice president, secretary, treasurer, and a director of Inland Northwest Management Corp., Inland Pacific Management Corp., and Inland Southwest Management Corp. He is also a director, senior vice president, and treasurer of Mid-America Management Corp., and secretary and treasurer of Inland Southern Management Corp. He was secretary and treasurer of Inland Southeast Property Management Corp. from 1998 to 2001. Prior to joining the Inland organization, Mr. Barg was an accounting manager of the Charles H. Shaw Co. He received his B.S. Degree in Business Administration from the University of Illinois at Chicago and a Masters Degree from Western Illinois University. Mr. Barg is a certified public accountant and is a member of the Illinois CPA Society. 83 JAMES H. NEUBAUER joined Inland Property Management in 1978 as an on-site manager. In 1981, he was promoted to the position of director of purchasing. Subsequently, in 1983, he became an on-site property manager and, in 1984, he became the president of Inland Western Property Management. From 1985 to 1996, Mr. Neubauer was president and senior vice president of Mid-America Management where he was responsible for all rental property operations outside the Chicagoland metropolitan area, which included New Hampshire, Arizona, Indiana, Wisconsin and Peoria, Moline and Danville, Illinois. He left Inland in 1996 to pursue other opportunities and rejoined Inland Southeast Property Management Corp. in 1999 as senior vice president and in May 2002 was promoted to president. In June 2004, he became a senior vice president of Inland Northwest Management Corp., Inland Pacific Management Corp., Inland Southwest Management Corp. and Inland Western Management Corp. He is a licensed real estate broker in Florida and holds a B.A. degree from the University of Maryland, a M.A. degree from Ball State University and a M.B.A. degree from Benedictine College. LINDA CENTANNI joined Mid-America Management Corp. in 1978 in the business office and in 1979 she began working in the accounting department specializing in the area of property management accounts receivable. In 1997 she was promoted to assistant vice president. Her current responsibilities include supervision of 12 people as department head of both accounts receivable and records. In July 2004 she was promoted to a vice president of Inland Northwest Management Corp., Inland Pacific Management Corp., Inland Southwest Management Corp., and Inland Western Management Corp. Ms. Centanni holds an Illinois real estate salesperson license. ELIZABETH D. MCNEELEY joined Inland Southeast Property Management as a property accountant in January of 2002. In January of 2003 she was promoted to senior property accountant for Inland Western Management Corp., and in July of 2003 was promoted to a vice president of Inland Northwest Management Corp., Inland Pacific Management Corp., Inland Southwest Management Corp., and Inland Western Management Corp. Prior to joining Inland, Ms. McNeeley was an accountant for the Burlington Northern Railroad, Pinnacle Relocation and Trase Miller Teleservices. She also taught mathematics at both the Middle School and Jr. College level. Ms. McNeeley holds a BA from North Central College and an MA from DePaul University. She is a licensed Real Estate Sales Agent. FRANK NATANEK joined The Inland Group in July 2004 as a vice president of Inland Northwest Property Management Corp., Inland Pacific Management Corp., Inland Southwest Management Corp., and Inland Western Management Corp. Prior to joining Inland, Mr. Natanek worked for the Hallmark Greeting Card Company from October 2002 to March 2004. Mr. Natanek has a degree from St. Xavier, and a law degree from Loyola University. In addition Mr. Natanek holds an MBA from the University of Chicago. ULANA B. HORALEWSKYJ joined The Inland Group in 1990 and is currently treasurer of Inland Real Estate Exchange Corporation, vice president of Inland Real Estate Investment Corporation and president of Partnership Ownership Corporation. In her capacity as vice president of Inland Real Estate Investment Corporation, Ms. Horalewskyj oversees the cash management and accounting for over 250 Inland private limited partnerships. Prior to joining Inland, she spent four years working for an accounting firm and 10 years in the banking industry. Ms. Horalewskyj received her B.A. from Roosevelt University in Chicago. ALAN F. KREMIN joined The Inland Group in 1982. Mr. Kremin was promoted to treasurer of The Inland Group, Inland Commercial Property Management, Inc., and various other Inland Group subsidiaries in March 1991. In his current capacity as the chief financial officer of The Inland Group, a position he has held since 1991, his responsibilities include financial management, cash budgeting and corporate taxes for the consolidated group and serving as a director for various Inland Group subsidiaries and outside affiliated entities, for which he also serves as treasurer. He is a director of Inland Southeast Property Management Corp., and in March 2002 he became a director, secretary and treasurer of Inland 84 Southern Management LLC. In November 2002, he became a director of Mid-Atlantic Management, LLC. Prior to his current position, Mr. Kremin was treasurer of Inland Real Estate Investment Corporation from 1986 to 1990, where he supervised the daily operations of its accounting department. That department encompasses corporate accounting for the general partner of the Inland Real Estate Investment Corporation-sponsored limited partnership investment programs. Prior to joining The Inland Group, Mr. Kremin served for one year as a controller of CMC Realty and three years as assistant controller of JMB Realty Corporation. Prior to his real estate experience, Mr. Kremin worked eight years in public accounting, including four years at Arthur Young & Company. He received his B.S. degree in accounting from Loyola University. Mr. Kremin is a certified public accountant, holds securities and insurance licenses and is a licensed real estate broker. FRANCES C. PANICO joined The Inland Group in 1972 and is president of Inland Mortgage Servicing Corporation and senior vice president of Inland Mortgage Corporation and Inland Mortgage Investment Corporation. Ms. Panico oversees the operation of loan services, which has a loan portfolio in excess of $4,200,000,000. She previously supervised the origination, processing and underwriting of single-family mortgages, and she packaged and sold mortgages to secondary markets. Ms. Panico's other primary duties for The Inland Group have included coordinating collection procedures and overseeing the default and resolution process. Ms. Panico received her BA Degree in Business Communication from Northern Illinois University. The following sets forth information with respect to the executive officers and managers of Inland US Management LLC.
POSITION AND OFFICE WITH INLAND US NAME AGE* MANAGEMENT LLC ---- --- -------------- Thomas P. McGuinness 47 President and manager Robert M. Barg 50 Senior vice president/treasurer, secretary and manager Linda Centanni 49 Vice President Elizabeth D. McNeely 49 Vice President Frank Natanek 30 Vice President Lawrence R. Sajdak, Jr. 24 Assistant vice president Steven Yee 37 Assistant vice president Anthony A. Casaccio 48 Manager Alan F. Kremin 57 Manager Pamela C. Stewart 47 Manager
- ---------- *As of January 1, 2004 The biographies of Mr. McGuinness, Mr. Barg, Ms. Centanni, Ms. McNeely, Mr. Natanek and Mr. Kremin are set forth above. LAWRENCE R. SAJDAK joined The Inland Group in September 1998 as a college intern, working every summer and holiday season. He started in the marketing department and soon became proficient in other departments in management. He has degrees in chemistry and business from North Central College. Prior to joining Inland he was employed by Cintas Corporation. Mr. Sajdak returned to Inland in December 2002 as a department head in the business management department, and subsequently became a property manager. In July 2004 Mr. Sajdak was promoted to an assistant vice president of Inland 85 Northwest Property Management Corp. He is a member of the International Council of Shopping Centers. STEVEN YEE joined The Inland Group in February of 2004 as a senior property manager, and in July 2004, Mr. Yee was promoted to assistant vice president of Inland Northwest Property Management Corp. Prior to joining Inland he worked for Manulife Financial. His was also the director of operations for MB real estate and a retail property manager for Trammel Crow. His real estate experience includes managing and leasing retail shopping centers in the greater Chicagoland area. Mr. Yee attended DePaul University, receiving a degree in real estate finance. He is a licensed real estate broker, and a member of the International Council of Shopping Centers, and holds CPM and CCIM designations. ANTHONY A. CASACCIO joined The Inland Group in 1984 working for Inland Condo Association Management. From 1987 to 1991 he was president of Partnership Asset Sales Corporation, and in 1991 when Inland Real Estate Development Corporation was formed, Mr. Casaccio became the president and a director. Mr. Casaccio holds a B.S. degree in accounting from DePaul University. He is a member of the DuPage Association of Realtors, the National Association of Realtors, Northern Illinois Commercial Association of Realtors, the National Home Builders Association, the Realtor Association of the Western Suburbs, The Urban Land Institute and the Oswego Economic Development Corporation. Mr. Casaccio is a licensed real estate broker in the state of Illinois. PAMELA C. STEWART joined Midwest Real Estate Equities, Inc., an affiliate of The Inland Group in 1995 as an acquisition specialist. Prior to joining Midwest Equities, Ms. Stewart worked for another affiliate company, New Directions Housing Corporation (NDHC), a not-for-profit organization that develops affordable housing. In 2002, Ms. Stewart became an assistant vice president and in 2004, she was promoted to vice president of Midwest Real Estate Equities, Inc. Ms. Stewart is responsible for acquiring commercial real estate properties for the company's portfolio and investing corporate funds into redevelopment projects, including rental properties, shopping centers, office buildings and industrial buildings. Ms. Stewart is also the corporate asset management director for The Inland Real Estate Group of Companies. Ms. Stewart has a B.A. degree in Marketing from Roosevelt University. She is a member of the National Association of Realtors, the Northern Illinois Commercial Association of Realtors and she is a Certified Commercial Investment Member (CCIM) and Candidate. She holds a real estate broker's license in the state of Illinois. The following sets forth information with respect to the executive officers and managers of Inland Pacific Management LLC.
POSITION AND OFFICE WITH INLAND PACIFIC NAME AGE* MANAGEMENT LLC ---- --- -------------- Thomas P. McGuinness 47 President and manager Robert M. Barg 50 Senior vice president/treasurer, secretary and manager James H. Neubauer 62 Senior vice president and manager Linda Centanni 49 Vice President Elizabeth D. McNeely 49 Vice President Frank Natanek 30 Vice President David M. Benjamin 49 Manager Alan F. Kremin 57 Manager
- ---------- *As of January 1, 2004 86 The biographies of Mr. McGuinness, Mr. Barg, Mr. Neubauer, Ms. Centanni, Ms. McNeely, Mr. Natanek and Mr. Kremin are set forth above. DAVID M. BENJAMIN joined The Inland Group in 1983 in the accounting department and is controller of The Inland Real Estate Group. Mr. Benjamin has spent his entire accounting career in the real estate industry, working for American Invesco and Draper and Kramer before coming to Inland. Mr. Benjamin is responsible for the accounting and corporate income tax preparation of various Inland entities and he assists in the day to day oversight of The Inland Real Estate Group accounting department. Mr. Benjamin is a CPA. The following sets forth information with respect to the executive officers and Managers of Inland Southwest Management LLC.
POSITION AND OFFICE WITH INLAND SOUTHWEST NAME AGE* MANAGEMENT LLC ---- --- -------------- Thomas P. McGuinness 47 President and manager Robert M. Barg 50 Senior vice president/treasurer, secretary and manager James H. Neubauer 62 Senior vice president Linda Centanni 49 Vice President Elizabeth D. McNeely 49 Vice President Frank Natanek 30 Vice President Alan F. Kremin 57 Manager Ulana B. Horalewskyj 57 Manager Frances C. Panico 54 Manager
- ---------- *As of January 1, 2004 The biographies of Mr. McGuinness, Mr. Barg, Mr. Neubauer, Ms. Centanni, Ms. McNeely, Mr. Natanek, Ms. Horalewskyj, Mr. Kremin and Ms. Panico are set forth above. INLAND SECURITIES CORPORATION Inland Securities Corporation, our managing dealer, was formed in 1984. It is registered under the applicable federal and state securities laws and is qualified to do business as a securities broker-dealer throughout the United States. Since its formation, the managing dealer has provided the marketing function for distribution of the investment products sponsored by our sponsor. It does not render these services to anyone other than affiliates of The Inland Group, and it does not focus its efforts on the retail sale side of the securities business. It is a member firm of the National Association of Securities Dealers, Inc. The following table sets forth information with respect to the directors, officers and principal employees of Inland Securities Corporation involved in national sales and marketing activities of Inland Securities Corporation. The biography of Mr. Parks is set forth above under "-Inland Affiliated Companies" in this section and the biographies of Mrs. Gujral and Ms. Matlin are set forth above under "-Our Directors and Executive Officers" in this section. 87
POSITION AND OFFICE NAME AGE* WITH OUR MANAGING DEALER ---- ---- ------------------------ Brenda G. Gujral 61 President, chief operating officer and director Roberta S. Matlin 59 Vice president and director Catherine L. Lynch 45 Treasurer, secretary and director Robert D. Parks 60 Director Brian Conlon 45 Executive vice president R. Martel Day 54 Executive vice president - national sales and marketing Fred C. Fisher 59 Senior vice president David Bassitt 61 Senior vice president John Cunningham 45 Senior vice president Tomas Giardino 29 Vice president Curtis Shoch 31 Vice president Shawn Vaughan 32 Vice president Mark Lavery 28 Vice president Ralph Rudolph 40 Vice president Robert J. Babcock 28 Vice president Frank V. Pinelli 57 Vice president Matthew Podolsky 32 Vice president Darrell Rau 48 Vice president Jeffrey S. Hertz 30 Vice president Carl Pikus 37 Vice president Nathan Rachels 29 Vice president Michele Sorce 39 Assistant vice president and controller
- ---------- *As of January 1, 2004 CATHERINE L. LYNCH joined the Inland organization in 1989 and is the treasurer/secretary of our sponsor. Ms. Lynch is responsible for managing the corporate accounting department of our sponsor. Ms. Lynch is also the treasurer/secretary and a director of Inland Securities Corporation and treasurer of Inland Retail Real Estate Advisory Services and Inland Investment Advisors, Inc. Prior to joining the Inland organization, Ms. Lynch worked in the field of public accounting for KPMG Peat Marwick LLP since 1980. She received her B.S. Degree in Accounting from Illinois State University. Ms. Lynch is a certified public accountant and a member of the American Institute of Certified Public Accountants and the Illinois CPA Society. She is registered with the National Association of Securities Dealers, Inc. as a financial operations principal. BRIAN M. CONLON joined Inland Securities Corporation as executive vice president in September 1999. Prior to joining Inland, Mr. Conlon was executive vice president and chief operating officer of Wells Real Estate Funds, where he was responsible for overseeing day to day operations of the firm's real estate investment and capital raising initiatives. Mr. Conlon is a General Securities Principal, is licensed as a real estate broker in Georgia, and has earned the Certified Financial Planner and Certified Commercial Investment Member designations. Mr. Conlon currently serves on the national board of directors for the Financial Planning Association. Mr. Conlon holds Series 7, 24 and 63 licenses with the National Association of Securities Dealers, Inc. R. MARTEL DAY is executive vice president and national sales director for Inland Securities Corporation, and he is responsible for the sale of Inland's investment products nationwide. Mr. Day joined 88 Inland in 1984 as a regional representative in the southeast. Since then, he has served as regional vice president, senior vice president and national marketing director. Mr. Day graduated with an Engineering degree from the Georgia Institute of Technology. He is a member of the board of directors of the Investment Program Association (IPA), a member of the Financial Planning Association (FPA), and the National Association of Real Estate Investment Trusts (NAREIT). He holds General Securities and Registered Investment Advisor licenses with the National Association of Securities Dealers, Inc. FRED C. FISHER is a senior vice president of Inland Securities Corporation, which he joined in 1984. Mr. Fisher began his career with Inland Securities Corporation as regional vice president for the Midwest region. In 1994, he was promoted to senior vice president. Mr. Fisher received his bachelor's degree from John Carroll University. Before joining Inland Securities Corporation, he spent nine years as a regional sales manager for the S.S. Pierce Company. Mr. Fisher holds Series 7, 22 and 63 licenses with the National Association of Securities Dealers, Inc. DAVID BASSITT joined Inland Securities Corporation as a senior vice president in March 2001. Prior to joining Inland, Mr. Bassitt was director of financial services with AEI Fund Management, Inc. and was responsible for wholesaling public and private net lease real estate investments and 1031 property exchanges to financial planners. Mr. Bassitt received his bachelor's degree from Ferris State University, and a master's degree from St. Cloud University. Mr. Bassitt holds Series 6, 7, 22 and 63 licenses with the National Association of Securities Dealers, Inc. JOHN CUNNINGHAM is a senior vice president of Inland Securities Corporation. He joined an affiliate of The Inland Group in January 1995 as a commercial real estate broker. In March 1997, Mr. Cunningham was hired by Inland Securities Corporation as a regional representative for the western region, and he was promoted to a vice president in 1999. In 2002, he became senior vice president of the western region. Mr. Cunningham graduated from Governors State University with a B.S. degree in business administration, concentrating in marketing. Before joining the Inland organization, Mr. Cunningham owned and operated his own business and developed real estate. He holds Series 7 and Series 63 licenses with the National Association of Securities Dealers, Inc. TOMAS GIARDINO joined Inland Securities Corporation as vice president in September 2000. Prior to joining Inland, Mr. Giardino was the director of mutual fund sales at SunAmerica Securities, where he was responsible for increasing the market share of nine focus firms at the broker dealer. Mr. Giardino entered the securities industry in January 1999. Prior to entering the securities industry, Mr. Giardino was in the advertising field for four years. Mr. Giardino received his B.A. in political science from Arizona State University in May 1998. He holds Series 7, 63 and 65 licenses with the National Association of Securities Dealers, Inc. CURTIS SHOCH joined Inland Securities Corporation as vice president in January 2000. Prior to joining Inland, Mr. Shoch was assistant vice president at Wells Real Estate Funds, where he was responsible for launching new real estate investment alternatives in the southeastern United States. Mr. Shoch began his career in 1994 with Keogler Investment Advisory Services. Mr. Shoch graduated from Lynchburg College in Lynchburg, Virginia in 1994 with a major in marketing and an emphasis in finance. He is a Registered Representative as well as a Registered Investment Advisor. Mr. Shoch holds Series 7, 63 and 65 licenses with the National Association of Securities Dealers, Inc. SHAWN VAUGHAN joined Inland Securities Corporation as vice president in August 2000. Prior to joining Inland, Mr. Vaughan was assistant vice president at Wells Real Estate Funds, where he was responsible for marketing real estate investments in the mid-Atlantic region. Mr. Vaughan started his career in financial services in 1994 on the retail side of the business with a successful financial planning 89 firm. During this time, he was responsible for handling every aspect of the financial planning process. Mr. Vaughan holds Series 7 and 63 licenses with the National Association of Securities Dealers, Inc. MARK LAVERY joined Inland Securities Corporation as a vice president in April 2001. Prior to joining Inland, Mr. Lavery was with Charles Schwab, where he was on an active trade team. Mr. Lavery began his career with Investment Planners. Mr. Lavery graduated from Milliken University in 1997 with a B.S. in finance. Mr. Lavery holds Series 7 and 66 licenses with the National Association of Securities Dealers, Inc. RALPH RUDOLPH joined Inland Securities Corporation in 1995 as a regional representative for Midwest team and was promoted to a vice president in 2000. Prior to joining Inland, Mr. Rudolph served in the United States Marine Corp. and worked for another broker-dealer. He is a graduate of Elmhurst College with a degree in business administration. Mr. Rudolph holds Series 7 and 63 licenses with the National Association of Securities Dealers, Inc. ROBERT J. BABCOCK joined Inland Securities Corporation as a vice president in March 2004. Prior to joining Inland, Mr. Babcock was an external wholesaler with AEI Fund Management, Inc. and was responsible for wholesaling public and private net lease real estate investments and 1031 property exchanges to financial planners. Mr. Babcock began his career as a financial advisor with American Express Financial Advisors in 1999. He received his bachelor's degree from Gustavus Adolphus College. Mr. Babcock holds Series 7 and 63 licenses with the National Association of Securities Dealers, Inc. FRANK V. PINELLI joined Inland Securities Corporation in 2004 as a vice president. He was previously employed with The Inland Group from 1973-1983 where he worked in property management, real estate sales, and real estate acquisitions. Prior to rejoining the Inland staff, from 1984-2003 Mr. Pinelli was a principal in his own real estate firm and developed an international marketing organization. Mr. Pinelli is a graduate of Southern Illinois University. He holds Series 7 and 63 licenses with the National Association of Securities Dealers, Inc and also is licensed as a real estate broker in Illinois and Oregon. MATTHEW PODOLSKY joined Inland Securities Corporation as a vice president in April 2003. Mr. Podolsky started his career in real estate in 1994 on the commercial sales and leasing side with Cushman and Wakefield of California, Inc. Prior to joining Inland Securities Corporation he was a vice president at CB Richard Ellis, Inc. Mr. Podolsky graduated from the University of Arizona with a B.S. in Regional Development/Urban Planning. He holds Series 7 and 63 licenses with the National Association of Securities Dealers, Inc. and a real estate license in the state of California. DARRELL RAU joined Inland Securities Corporation in 2004 as a vice president of the midwest region where he develops sales and new broker/dealer relationships. Prior to joining Inland in 2004, Mr. Rau was vice president of developing markets at CTE Pension Advisors. Mr. Rau graduated magna cum laude from Northwood University in Midland, Michigan with a degree in Business Administration. He holds Series 6,7,62 and 63 licenses with the National Association of Securities Dealers, Inc. JEFFREY S. HERTZ joined Inland Securities Corporation as a vice president in September 2004. Mr. Hertz started his career in the securities industry in 2000 with Nuveen Investments as a trader, working with unit investment trusts and exchange traded funds. Prior to joining Inland Securities Corporation, he was an advisor services representative for Nuveen. Mr. Hertz graduated from the University of Oregon with a B.A. in psychology. He holds Series 7, 63 and 65 licenses with the National Association of Securities Dealers, Inc. CARL PIKUS joined Inland Securities Corporation as a vice president in September 2004. His responsibilities include development of new broker/dealer relationships for Inland in the Midwest. Prior 90 to joining Inland, Mr. Pikus was a Midwest sales manager for Ultimus, a software company, managing existing clients and establishing new accounts. He has worked in the same capacity for other IT companies. Mr. Pikus is a University of Wisconsin graduate. NATHAN RACHELS joined Inland Securities Corporation as vice president in September 2004. Prior to joining Inland Mr. Rachels was assistant vice president at Wells Real Estate Funds, where he was responsible for marketing real estate investments in the southeast region of the United States. Mr. Rachels began his career in financial services in 1997 on the retail side of the business, with a successful planning firm and then was an account manager at Deutsche Bank. He graduated from the University of Alabama with double majors in Public Relations and Business. Mr. Rachels holds Series 7 and 63 licenses with National Association of Securities Dealers. MICHELE SORCE joined Inland Securities as assistant vice president and controller in November 2003. Michele started her career with Inland almost 19 years ago. She served as controller for Inland Commercial, Residential and Real Estate Auction companies. She received a B.S. Degree in Accounting from Elmhurst College. She is registered with the National Association of Securities Dealers, Inc. as a financial operations principal and also holds an Illinois Real Estate Broker's license. 91 LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND OUR BUSINESS MANAGER/ADVISOR The laws that we are subject to and our articles of incorporation provide that our business manager/advisor and directors are deemed to be in a fiduciary relationship to us and our stockholders and that our directors have a fiduciary duty to the stockholders to supervise our relationship with the business manager/advisor. Maryland law provides that a director has no liability in the capacity as a director if he performs his duties in good faith, in a manner he reasonably believes to be in our best interests, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Maryland law also provides that an act by a director of a Maryland corporation is presumed to satisfy the standards of the preceding sentence. Our articles of incorporation and bylaws provide that the liability of our directors and officers is limited to the fullest extent permitted by Maryland law and that none of our directors and officers will be liable to us or to any of our stockholders for money damages, including for breach of their fiduciary duty to us. As a result, our directors and officers will not be liable for monetary damages unless: - the person actually received an improper benefit or profit in money, property or services; and - the person is adjudged to be liable based on a finding that the person's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. Maryland law provides that a corporation may indemnify any director, officer, employee or agent, unless it is established that: - the act or omission of the person was material to the matter giving rise to the proceeding, and - was committed in bad faith, or - was the result of active and deliberate dishonesty; - the person actually received an improper personal benefit in money, property or services; or - in the case of any criminal proceeding, the person had reasonable cause to believe the act or omission was unlawful. Except as described below, our articles of incorporation authorize and direct us to indemnify and pay or reimburse reasonable expenses to any director, officer, employee or agent we employ, and the business manager/advisor and its affiliates, to the fullest extent permitted by Maryland law. As long as we qualify as a REIT we will not indemnify or reimburse the expenses of any director, officer, employee, agent or the business manager/advisor or its affiliates unless: - the directors have determined, in good faith, that the course of conduct which caused the loss or liability was in our best interests; - the person seeking indemnification was acting on our behalf or performing services for us; - the liability or loss was not the result of negligence or misconduct on the part of the person seeking indemnification, except that if the person seeking indemnification is or was an 92 independent director, the liability or loss will not have been the result of gross negligence or willful misconduct; and - such indemnification or agreement to be held harmless is recoverable only out of our net assets and not from the assets of the stockholders. As long as we qualify as a REIT, we will not indemnify any director, officer, employee, agent or the business manager/advisor or its affiliates for losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws unless one or more of the following conditions are met: - there has been a successful adjudication on the merits of each count involving alleged securities law violations; - the claims have been dismissed with prejudice on the merits by a court of competent jurisdiction; or - a court of competent jurisdiction approves a settlement of the claims and finds that indemnification of the settlement and related costs should be made, and the court considering the request has been advised of the position of the Securities and Exchange Commission and the published position of any state securities regulatory authority in which our securities were offered and sold as to indemnification for securities law violations. We will advance amounts to a person entitled to indemnification for legal and other expenses and costs incurred as a result of any legal action for which indemnification is being sought only in accordance with Maryland law and, as long as we qualify as a REIT, only if all of the following conditions are satisfied: - the legal action relates to acts or omissions relating to the performance of duties or services by the person seeking indemnification for us or on our behalf; - the legal action is initiated by a third party who is not a stockholder or the legal action is initiated by a stockholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves advancement; and - the person seeking indemnification undertakes in writing to repay us the advanced funds, together with interest at the applicable legal rate of interest, if the person seeking indemnification is found not to be entitled to indemnification. We may purchase and maintain insurance or provide similar protection on behalf of any director, officer, employee, agent or the business manager/advisor or its affiliates against any liability asserted which was incurred in any such capacity with us or arising out of such status; provided, however, that we will not incur the costs of any liability insurance which insures any person against liability for which he, she or it could not be indemnified under our articles of incorporation or bylaws. We may enter into any contract for indemnity and advancement of expenses with any director, officer, employee or agent as may be determined by the board and as permitted by law. We have not purchased insurance on behalf of any person but we intend to do so in the future. We have entered into separate indemnification agreements with each of our directors and some of our executive officers. The indemnification agreements will require that we indemnify our directors and officers to the fullest extent permitted by law, and advance to the directors and officers all related expenses, subject to reimbursement if it is subsequently determined that indemnification is not permitted. The agreements provide that we also must indemnify and advance all expenses incurred by directors and 93 officers seeking to enforce their rights under the indemnification agreements and cover directors and officers under our directors' and officers' liability insurance, if any. Although the indemnification agreements offer substantially the same scope of coverage afforded by provisions in our articles of incorporation and the bylaws, they provide greater assurance to directors and officers that indemnification will be available, because as a contract, it cannot be unilaterally modified by the board or by the stockholders to eliminate the rights it provides. We have been advised that, in the opinion of the Securities and Exchange Commission, any indemnification that applies to liabilities arising under the Securities Act is contrary to public policy and, therefore, unenforceable. 94 PRINCIPAL STOCKHOLDERS The following table provides information as of December 7, 2004 regarding the number and percentage of shares beneficially owned by each director, each executive officer, all directors and executive officers as a group and any person known to us to be the beneficial owner of more than 5% of our outstanding shares. As of December 7, 2004, no stockholder beneficially owned more than 5% of our outstanding shares. As of December 7, 2004, we had approximately 56,000 stockholders of record and approximately 199,433,713 shares of common stock outstanding. Beneficial ownership includes outstanding shares and shares which are not outstanding that any person has the right to acquire within 60 days after the date of this table. However, any such shares which are not outstanding are not deemed to be outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by any other person. Except as indicated, the persons named in the table have sole voting and investing power with respect to all shares beneficially owned by them.
NUMBER OF SHARES BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS ---------------- ------------------ ---------------- Robert D. Parks 98,100.9094(1) * Roberta S. Matlin 176.8117 * Scott W. Wilton 0 0 Steven P. Grimes 0 0 Lori A. Foust 0 0 Brenda G. Gujral 0 0 Frank A. Catalano, Jr. 2,000(2) * Kenneth H. Beard 2,000(2) * Paul R. Gauvreau 113,731.8436(2) * Gerald M. Gorski 4,002.0800(2) * Barbara A. Murphy 2,000(2) * All directors and executive officers as a group (12 persons) 222,011.6447(1) *
- ---------- *Less than 1% (1) Includes 20,000 shares owned by our business manager/advisor. Our business manager/advisor is a wholly-owned subsidiary of our sponsor, which is an affiliate of The Inland Group. Mr. Parks is a control person of The Inland Group and disclaims beneficial ownership of these shares owned by our business manager/advisor. (2) Includes 2,000 shares issuable upon exercise of options granted to each independent director under our independent director stock option plan, to the extent that such options are currently exercisable or will become exercisable within 60 days after the date of this table. 95 OUR STRUCTURE AND FORMATION We were formed in March 2003 as a Maryland corporation. Our articles of incorporation and bylaws became operative on March 5, 2003. Our existence is perpetual. STRUCTURE We intend to own all of our assets, either directly or indirectly. Our business manager/advisor contributed $200,000 to us for 20,000 shares of our common stock to form us. Our business manager/advisor has agreed to not sell their initial investment while the business manager/advisor remains our sponsor, but may transfer these shares to its own affiliates. A REIT may conduct some of its business and hold some of its interests in properties in "qualified REIT subsidiaries," which must be owned 100% by the REIT or through "taxable REIT subsidiaries" which may be wholly or partially owned. Although we currently do not intend to have any qualified REIT subsidiaries, we may in the future decide to conduct some business or hold some of our interests in properties in qualified REIT subsidiaries. See "How We Operate - Organizational Chart" for a diagram depicting the services rendered by our affiliates to us, as well as our organizational structure. Prior to this offering, if all of the 250,000,000 shares from our first offering are sold, the business manager/advisor's 20,000 shares represent .008% of the outstanding shares. If all of the 250,000,000 shares from our first offering are sold for gross offering proceeds of $2,500,000,000 and if all of the 250,000,000 of the shares offered by this prospectus are sold for gross offering proceeds of $2,500,000,000 as set forth on the cover page of this prospectus, assuming no other shares are issued or sold, the business manager/advisor's 20,000 shares will then represent only .004% of the outstanding shares. We have formed entities to acquire each of the properties currently owned by us. We may form entities to acquire additional properties. They will be owned or controlled directly or indirectly by us. In the case of the properties currently owned by us, the entities that own our properties are all directly or indirectly owned by us. Robert D. Parks, Brenda G. Gujral, Roberta S. Matlin, Daniel L. Goodwin, Steven P. Grimes and Lori J. Foust are considered our promoters. Mr. Parks is our chairman and a director. Ms. Gujral is a director. Ms. Matlin is our vice president. Mr. Grimes is our Principal Financial Officer and Ms. Foust is our Principal Accounting Officer. None of our promoters are employed by us. Other than Mr. Parks and Ms. Gujral, Ms. Matlin, Mr. Grimes and Ms. Foust, none of our promoters are officers or directors of us. [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 96 SELECTED FINANCIAL DATA The following table sets forth selected financial information about us, and should be read in conjunction with the "Management's Discussion and Analysis of Our Consolidated Financial Condition and Results of Operation" and the Financial Statements and related notes included elsewhere in this prospectus. The following net income (loss) and distributions per share basic and diluted are based upon the weighted average number of common shares outstanding for the period. For the period from March 5, 2003 (inception) to December 31, 2003 the distributions per common share are based upon the weighted average number of common shares outstanding for the period from October 2, 2003 (first day shares were sold to the public) to December 31, 2003. For the period from March 5, 2003 (inception) to December 31, 2003, $357,790 (or 100% of the distributions paid for 2003) represented a return of capital due to the tax loss in 2003.
PERIOD FROM PERIOD FROM MARCH 5, 2003 MARCH 5, 2003 FOR THE NINE (INCEPTION) (INCEPTION) MONTHS ENDED THROUGH THROUGH 30-SEPT-04 30-SEPT-03 31-DEC-03 ------------------ ------------- ------------- Total assets $ 2,672,152,034 1,584,105 212,102,163 Mortgages payable $ 1,141,248,461 0 29,627,000 Total income $ 69,766,533 0 782,281 Net income (loss) $ 4,413,798 (42,544) (173,279) Net income (loss) per common share, basic and diluted $ 0.06 (2.13) (0.07) Distributions declared $ 35,132,000 0 1,285,329 Distributions per weighted average common share $ 0.50 0 .15 Funds from operations $ 29,217,346 0 18,991 Cash flows provided by operating activities $ 39,961,000 (74,021) 723,501 Cash flows used in investing activities $ (2,015,984,000) 0 (133,424,163) Cash flows provided by financing activities $ 2,192,056,000 274,021 197,081,796 Weighted average number of common shares outstanding, basic and diluted 70,052,000 20,000 2,520,986
The distributions per common share are based upon the weighted average number of common shares outstanding for the period from October 2, 2003 (first day shares were sold to the public) to December 31, 2003. One of our objectives is to provide cash distributions to our stockholders from cash generated by our operations. Cash generated from operations is not equivalent to our net income from continuing 97 operations as determined under Generally Accepted Accounting Principles in the United States of America or GAAP. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts or NAREIT, an industry trade group, has promulgated a standard known as "Funds from Operations" or "FFO" for short, which it believes more accurately reflects the operating performance of a REIT such as us. As defined by NAREIT, FFO means net income computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus depreciation on real property and amortization, and after adjustments for unconsolidated partnerships and joint ventures in which the REIT holds an interest. We have adopted the NAREIT definition for computing FFO because management believes that, subject to the following limitations, FFO provides a basis for comparing our performance and operations to those of other REITs. The calculation of FFO may vary from entity to entity since capitalization and expense policies tend to vary from entity to entity. Items which are capitalized do not impact FFO, whereas items that are expensed reduce FFO. Consequently, our presentation of FFO may not be comparable to other similarly-titled measures presented by other REITs. FFO is not intended to be an alternative to "Net Income" as an indicator of our performance nor to "Cash Flows from Operating Activities" as determined by GAAP as a measure of our capacity to pay distributions. We believe that FFO is a better measure of our operating performance because FFO excludes non-cash items from GAAP net income. This allows us to compare our relative property performance to determine our return on capital. Management uses the calculation of FFO for several reasons. We use FFO to compare our performance to that of other REITs in our peer group. Additionally, we use FFO in conjunction with our acquisition policy to determine investment capitalization strategy. FFO is calculated as follows:
PERIOD FROM MARCH 5, FOR THE NINE MONTHS 2003 (INCEPTION) THROUGH ENDED 30-SEPTEMBER-04 31-DEC-03 --------------------- ------------------------ Net income (loss) $ 4,413,798 $ (173,279) Depreciation and amortization related to investment properties 24,803,548 192,270 --------------------- ------------------------ Funds from operations (1) $ 29,217,346 $ 18,991 ===================== ========================
(1) FFO does not represent cash generated from operating activities calculated in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity. 98 INVESTMENT OBJECTIVES AND POLICIES GENERAL Our investment objectives are to: - make regular distributions to the stockholders, which may be in amounts which may exceed our taxable income due to the non-cash nature of depreciation expense and, to such extent, will constitute a tax-deferred return of capital, but in no event less than 90% of our taxable income; - provide a hedge against inflation by entering into leases which contain clauses for scheduled rent escalations or participation in the growth of tenant sales, permitting us to increase distributions and realize capital appreciation; and - preserve stockholders' capital. It is our policy to acquire properties primarily for income as distinguished from primarily for possible capital gain. DISTRIBUTIONS Federal income tax law requires that a REIT distribute annually at least 90% of its REIT Taxable Income. See "Federal Income Tax Considerations -- Federal Income Taxation as a REIT." In order to qualify for REIT status we may be required to make distributions in excess of cash available. For a discussion of the tax treatment of distributions to you, see "Federal Income Tax Considerations." We anticipate that distributions will be paid to our domestic stockholders on a monthly basis and to our foreign stockholders on a quarterly basis. Distributions will be at the discretion of the board. Our ability to pay distributions and the size of these distributions will depend upon a variety of factors. We cannot assure that distributions will continue to be made or that any particular level of distributions established in the future, if any, will be maintained by us. At the March 19, 2004 regularly scheduled board meeting, the board unanimously approved a resolution to delegate to our management committee, which includes our chief executive officer, principal financial officer, principal accounting officer and secretary, the authority to make monthly distributions to stockholders on our common stock in an amount between 6.0% and 7.25% on an annualized basis, for the remainder of the 2004 calendar year. Our board approved the following distributions payable to holders of our common stock: - $.30 per share per annum for the stockholders of record on October 31, 2003, payable on November 10, 2003; - $.50 per share per annum for the stockholders of record on November 30, 2003, payable on December 10, 2003; - $.70 per share per annum for the stockholders of record on December 31, 2003, payable on January 10, 2004; - $.70 per share per annum for the stockholders of record on January 31, 2004, payable on February 10, 2004; 99 - $.70 per share per annum for the stockholders of record on February 29, 2004, payable on March 10, 2004; - $.70 per share per annum for the stockholders of record on March 31, 2004, payable on April 10, 2004; - $.67 per share per annum for the stockholders of record on April 30, 2004, payable on May 10, 2004; - $.675 per share per annum for the stockholders of record on May 31, 2004, payable on June 10, 2004; - $.65 per share per annum for the stockholders of record on June 30, 2004, payable on July 10, 2004; - $.65 per share per annum for the stockholders of record on July 31, 2004, payable on August 10, 2004; - $.65 per share per annum for the stockholders of record on August 31, 2004, payable on September 10, 2004; - $.65 per share per annum for the stockholders of record on September 30, 2004, payable on October 10, 2004; - $.65 per share per annum for the stockholders of record on October 31, 2004, payable on November 10, 2004; and - $.65 per share per annum for the stockholders of record on November 30, 2004, payable on December 10, 2004. TYPES OF INVESTMENTS We were formed to acquire and manage a portfolio of real estate which is diversified by geographical location and by type and size of retail centers. Our properties will consist of real estate primarily improved for use as retail establishments, principally multi-tenant shopping centers. We believe that our real estate will be located primarily in the states west of the Mississippi River in the United States. We will endeavor to acquire multiple properties within the same major metropolitan markets where acquisitions result in efficient property operations with the potential to achieve market leverage. See "Real Property Investments -- General." Most of these properties will be subject to "net" leases. "Net" leases typically require tenants to pay a share, either pro rata or fixed, of all or a majority of the operating expenses. Operating expenses include real estate taxes, special assessments, utilities, insurance, common area maintenance and building repairs related to the property, as well as base rent payments. We may also acquire real estate improved with other commercial facilities which provide goods and services as well as those leased on a double or triple-net-lease basis which are either commercial or retail. Triple-net-leases also require the tenant to pay a base minimum annual rent with periodic increases. We may enter into sale and leaseback transactions in which we will purchase a property and lease the property to the seller of the property. 100 To provide us with a competitive advantage over potential purchasers of properties who must secure financing, we intend to acquire properties free and clear of permanent mortgage debt. We will do this by paying the entire purchase price of property in cash, shares, interest in entities that own our properties or a combination of any of these. We may incur debt of a property to acquire properties where our board determines that incurring such debt is in our best interest. In addition, from time to time, we intend to acquire some properties without financing and later incur mortgage debt secured by selected or all such properties if favorable financing terms are available. We will use the proceeds from such loans to acquire additional properties. See "Borrowing" under this section for a more detailed explanation of our borrowing intentions and limitations. We may purchase properties subject to completion of construction in accordance with terms and conditions we specify. In these cases, we will be obligated to purchase the property at the completion of construction, if construction conforms to definitive plans, specifications and costs approved by us and embodied in the construction contract, as well as, in most instances, satisfaction that agreed upon percentages of the property are leased. We will receive a certificate of an architect, engineer or other appropriate party, stating that the property complies with all plans and specifications. We may construct or develop properties, and render services in connection with the development or construction, subject to compliance with applicable requirements under federal income tax laws. Construction and development activities will expose us to risks such as cost overruns, carrying costs of projects under construction and development, availability and costs of materials and labor, our inability to obtain tenants, weather conditions, and government regulation. See "- Investment Limitations" under this section and "Summary of Our Organizational Documents -- Restrictions on Investments" for investment limitations. PROPERTY ACQUISITION STANDARDS We have signed a property acquisition service agreement with Inland Real Estate Acquisitions, Inc. Under that agreement, Inland Real Estate Acquisitions has agreed to seek properties for us and to perform due diligence on the properties and negotiate the terms of the purchase. Through its experience with the acquisition of over 1,000 real properties by our affiliates, the business manager/advisor believes Inland Real Estate Acquisitions has the ability to identify quality real properties capable of meeting our investment objectives. When evaluating property, Inland Real Estate Acquisitions will consider a number of factors, including a real property's: - geographic location and type; - construction quality and condition; - current and projected cash flow; - potential for capital appreciation; - lease rent roll, including the potential for rent increases; - potential for economic growth in the tax and regulatory environment of the community in which the property is located; - potential for expanding the physical layout of the property and/or the number of sites; - occupancy and demand by tenants for properties of a similar type in the same geographic vicinity; 101 - prospects for liquidity through sale, financing or refinancing of the property; - competition from existing properties and the potential for the construction of new properties in the area; and - treatment under applicable federal, state and local tax and other laws and regulations. Inland Real Estate Acquisitions also requires the seller of a property to provide a current Phase I environmental report and, if necessary, a Phase II environmental report. Before purchasing a property, Inland Real Estate Acquisitions examines and evaluates the potential value of the site, the financial condition and business history of the property, the demographics of the area in which the property is located or to be located, the proposed purchase price, geographic and market diversification and potential sales. In a sale-leaseback situation, since the seller of the property generally is assuming the operating risk, the price paid for the property by us may be greater than if it was not leased back to the seller. All acquisitions from our affiliates must be approved by a majority of our directors, including a majority of the independent directors. DESCRIPTION OF LEASES When spaces become vacant or existing leases expire, we anticipate entering into "net" leases. Net leases require tenants to pay a share, either pro rata or fixed, of all or a majority of the operating expenses, including real estate taxes, special assessments, insurance, utilities, common area maintenance and building repairs related to the properties, as well as base rent payments. We intend to include provisions which increase the amount of base rent payable at various points during the lease term and/or provide for the payment of additional rent calculated as a percentage of a tenant's gross sales above predetermined thresholds in most leases. The leases with most anchor tenants generally have initial terms of 10 to 25 years, with one or more renewal options available to the tenant. By contrast, smaller tenant leases typically have three- to five-year terms. Triple net leases generally have a term of 15 to 25 years and are typically not less than 10 years. In addition, the tenant of a triple-net-lease is responsible for the base rent in addition to the costs and expenses related to property taxes, insurance, repairs and maintenance applicable to the leased space. Each net lease tenant is required to pay its share of the cost of the liability insurance covering the property in which it is a tenant. The third-party liability coverage insures, among others, us, our business manager/advisor and our property manager. Typically, each tenant is required to obtain, at its own expense, property insurance naming us as the insured party for fire and other casualty losses in an amount equal to the full value of its premises and the contents of the premises. All property insurance must be approved by the property manager. In general, the net lease may be assigned or subleased with our prior written consent, but the original tenant must remain liable under the lease unless the assignee meets income and net worth tests. In connection with sale and leaseback transactions, the tenant is responsible for paying a predetermined minimum annual rent generally based upon our cost of purchasing the land and building. In addition to the base rent, these tenants are generally responsible for the costs and expenses related to property taxes, insurance, repairs and maintenance applicable to the leased space. PROPERTY ACQUISITION We anticipate acquiring fee interests or leasehold interests in properties, although other methods of acquiring a property may be used if we deem it to be advantageous. For example, we may acquire 102 properties through a joint venture or the acquisition of substantially all of the interests of an entity which in turn owns the real property. We may also use separate entities to acquire a property. Such entities will be formed solely for the purpose of acquiring a property or properties. See " -- Joint Ventures" in this section and "Federal Income Tax Considerations -- Federal Income Taxation as a REIT." Our business manager/advisor and its affiliates may purchase properties in their own name, assume loans in connection with the purchase or loan and temporarily hold title to the properties for the purpose of facilitating acquisition or financing by us, the completion of construction of the property or any other purpose related to our business. Under our articles of incorporation, we are prohibited from purchasing a property from an affiliate unless a majority of the directors not interested in the transaction and a majority of our independent directors approve the purchase as fair and reasonable to us and at a cost to us no greater than the cost of the asset to our affiliate. However, the cost to us may be greater than the cost to our affiliate if a substantial justification for the excess exists and such excess is reasonable. Our policy currently provides that in no event may our cost of the asset exceed its appraised value at the time we acquire the property. If remodeling is required prior to the purchase of a property, we will pay a negotiated maximum amount either upon completion or in installments commencing prior to completion. The price will be based on the estimated cost of remodeling. In such instances, we will also have the right to review the tenant's books during and following completion of the remodeling to verify actual costs. If substantial disparity exists between estimated and actual costs, an adjustment in the purchase price may be negotiated. If remodeling is required after the purchase of a property, an affiliate of our business manager/advisor may serve as construction manager for a fee no greater than 90% of the fee a third party would charge for such services. BORROWING We intend to acquire properties free and clear of permanent mortgage indebtedness by paying the entire purchase price in cash or for shares, interest in our subsidiaries that own our properties, or a combination of any of these. However, we may incur indebtedness to acquire properties where our board determines that it is in our best interest. On properties purchased without financing, we may later incur mortgage debt by obtaining loans secured by selected properties, if favorable financing terms are available. We will use the proceeds from such loans to acquire additional properties. We may also incur debt to finance improvements to our properties. Aggregate borrowings secured by all of our properties will not exceed 55% of their combined fair market value. Our articles of incorporation provide that the aggregate amount of borrowing in relation to the net assets, in the absence of a satisfactory showing that a higher level is appropriate, not exceed 300% of net assets. Net assets means our total assets, other than intangibles at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors, disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. We may incur debt secured by our properties, but most likely on a non-recourse basis, some of which may be subject to certain carve outs. This means that a lender's rights on default will generally be limited to foreclosing on the property. We may secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property. We do not borrow funds from a program sponsored by our business manager/advisor or its affiliates which makes or invests in mortgage loans. We seek to obtain financing which will result in the 103 most favorable overall economic benefit while balancing various risk factors associated with the debt. At certain times the majority of debt may require level payments and at others the majority may be based on variable rates. We have determined that it may be in our best interest to make use of mortgages the majority of which provide for a balloon payment. There are no prescribed limits on the number or amount of mortgages which may be placed on any one property. Any mortgages secured by a property will comply with the restrictions set forth by the Commissioner of Corporations of the State of California. Our board adopted a policy to delegate to management the ability to obtain an unsecured line of credit facility with Key Bank for up to $100,000,000. The commitment letter was signed on November 17, 2004, and will have optional unsecured borrowing capacity of $150,000,000, for a total unsecured borrowing capacity of $250,000,000. The facility will have an initial term of one year with two one year extension options, and will replace the current line of credit on or about December 1, 2004, subject to final documentation. The line of credit has not yet been executed. Our board unanimously approved that consistent with our borrowing policies, we may commit up to the aggregate of $25 million for letters of credit in order to obtain financing for properties. Our board adopted a policy to delegate to management the ability to obtain unsecured general financing facilities up to $150,000,000 requiring a deposit not to exceed 3% of the facility amount without prior approval by the board of directors. These facilities would then be matched with specific properties, which would secure the amounts due under the general facilities. SALE OR DISPOSITION OF PROPERTIES Our board will determine whether a particular property should be sold or otherwise disposed of after considering the relevant factors, including performance or projected performance of the property and market conditions, with a view toward achieving our principal investment objectives. We intend to hold our properties for a minimum of four years prior to selling them. See "Federal Income Tax Considerations -- Federal Income Taxation as a REIT." We also intend to reinvest the proceeds from the sale, financing, refinancing or other disposition of our properties into additional properties. Alternatively, we may use these proceeds to fund maintenance or repair of existing properties or to increase reserves for such purposes. The objective of reinvesting the sale, financing and refinancing proceeds in new properties is to increase our real estate assets, and our net income, which our board believes will enhance our chances of having our shares traded in a public trading market. Notwithstanding this policy, the board, in its discretion, may distribute all or part of the proceeds from the sale, financing, refinancing or other disposition of all or any of our properties to our stockholders. In determining whether to distribute these proceeds to stockholders, the board will consider, among other factors, the desirability of properties available for purchase, real estate market conditions, the likelihood of the listing of our shares on a national stock exchange or including the shares for quotation on a national market system and compliance with the applicable requirements under federal income tax law under federal income tax laws. Because we may reinvest the proceeds from the sale, financing or refinancing of our properties, we could hold stockholders' capital indefinitely. However, upon the affirmative vote of a majority of the shares of common stock, we will be forced to liquidate our assets and dissolve. When we sell a property, we intend to obtain an all-cash sale price. However, we may take a purchase money obligation secured by a mortgage on the property as partial payment, and there are no limitations or restrictions on our ability to take such purchase money obligations. The terms of payment to us will be affected by custom in the area in which the property being sold is located and the then prevailing economic conditions. If we receive notes and other property instead of cash from sales, these proceeds, other than any interest payable on these proceeds, will not be available for distributions until and to the extent the notes or other property are actually paid, sold, refinanced or otherwise disposed. 104 Therefore, the distribution of the proceeds of a sale to the stockholders may be delayed until that time. In these cases, we will receive payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. See "Federal Income Tax Considerations." CHANGE IN INVESTMENT OBJECTIVES AND POLICIES Our stockholders have no voting rights to implement our investment objectives and policies. Our board has the responsibility for our investment objectives and policies. Our board may not, however, make any material changes regarding the restrictions on investment policies set forth in our articles of incorporation without amending the articles of incorporation. Any amendment to our articles of incorporation requires the affirmative vote of a majority of our then outstanding voting shares of common stock. See "Summary of Our Organizational Documents -- Restrictions on Investments." INVESTMENT LIMITATIONS We will not: - invest more than 10% of our total assets in unimproved real property (and will only invest in unimproved real property intended to be developed) or in mortgage loans on unimproved real property; - invest in commodities or commodity future contracts; - issue redeemable shares of common stock; - issue shares on a deferred payment basis or other similar arrangement; and - operate in such a manner as to be classified as an "investment company" for purposes of the Investment Company Act. See "Summary of Our Organizational Documents -- Restrictions on Investments" for additional investment limitations. We do not intend to engage in hedging or similar activities for speculative purposes. We have no current plans to invest any proceeds from this offering, or other funds, in the securities of other issuers for the purpose of exercising control over such other issuers. OTHER INVESTMENTS Consistent with our investment limitations, we may from time to time invest amounts of money in the securities of other companies that may or may not be REITs or companies related to real estate to seek superior returns on these investments. In addition, we may make loans to third parties from time to time in connection with retail centers we intend to purchase or on a short-term basis to real estate ventures. Our business manager/advisor has informed our board that it is increasingly concerned about the potential that mortgage interest rates at which we can borrow will increase during 2004. Management also believes that mortgage interest rates we can borrow at will increase during 2005. Our board, including all of our independent directors, unanimously approved a resolution for the following: We may invest in interest rate futures, an interest rate hedging strategy designed to offset the risks of potential interest rate increases on our long-term borrowings. Should conditions warrant, this interest 105 rate hedging strategy will be implemented over a period of time. We intend to invest in up to $100 million in interest rate futures, both five and seven year treasuries, with maturities of 90 days. Our initial cash outlay in this interest rate hedging strategy is expected to be between 1 to 2% of the value of our investment in the interest rate futures. Risks associated with this interest rate hedging strategy are primarily associated with declines in interest rates. As rates decline, we risk having to increase our initial cash outlay, and may incur losses on our investments in interest rate futures. An affiliate of our business manager/advisor, Inland Investment Advisors, Inc., the investment advisor, will be managing this interest rate hedging strategy. Fees paid to the investment advisor are expected to be similar to those incurred using a third party investment advisor. We may also retain the investment advisor to invest up to $10 million of our cash in publicly traded investment securities. Fees paid to the investment advisor are expected to be similar to those incurred using a third party investment advisor. We may enter into an initial $50 million (which could increase to $100 million) twelve month credit facility with an affiliate of our business manager/advisor, Inland Real Estate Exchange Corporation (IREX) for its 1031 exchange program. IREX will use the funds to purchase real estate investments that meet the criterion consistent with our real estate investment policies. APPRAISALS All real property acquisitions to be made by us will be supported by an appraisal prepared by a competent, independent appraiser who is a member-in-good standing of the Appraisal Institute prior to the purchase of the property. Our policy currently provides that the purchase price of each property will not exceed its appraised value at the time of our acquisition of the property. Appraisals are, however, estimates of value and should not be relied on as measures of true worth or realizable value. We will maintain the appraisal in our records for at least five years, and copies of each appraisal will be available for review by stockholders upon their request. RETURN OF UNINVESTED PROCEEDS Any of the proceeds of this offering allocable to investments in real property which have not been invested in real property or committed for investment within the later of 24 months from the original effective date of this prospectus or 12 months from the termination of the offering, will be distributed to the stockholders. All funds we receive out of the escrow account will be available for our general use from the time we receive them until expiration of the period discussed in the prior sentence. We may use these funds to: - fund expenses incurred to operate the properties which have been acquired, - reimburse the business manager/advisor for our expenses, to the extent allowable under the advisory agreement, - pay the business manager/advisor its compensation under the advisory agreement; and - pay the property manager its property management fee under the management agreement See "Estimated Use of Proceeds" and "Plan of Distribution -- Escrow Conditions." We will not segregate funds separate from our other funds pending investment, and interest will be payable to the stockholders if uninvested funds are returned to them. 106 ADDITIONAL OFFERINGS AND EXCHANGE LISTING We anticipate that by September 15, 2008, our board will determine when, and if, to apply to have our shares of common stock listed for trading on a national stock exchange or included for quotation on a national market system, if we meet the then applicable listing requirements; and/or whether to commence subsequent offerings after completion of this offering. We believe that an exchange listing or inclusion of our shares in a national market system may allow us to increase our size, portfolio diversity, stockholder liquidity, access to capital and stability, and decrease our operating costs through economies of scale. However, we cannot assure that such listing or inclusion will ever occur. If it is not feasible to list shares or include them in a national market system by September 15, 2008, our board may decide to sell our assets individually, list our shares at a future date; or liquidate us within ten years of such date. The sale of all or substantially all of our assets as well as our liquidation would also require the affirmative vote of a majority of the then-outstanding voting shares of stock. JOINT VENTURES We may invest in joint venture arrangements with other public real estate programs formed by our business manager/advisor or any of its affiliates if a majority of our directors not otherwise interested in the transaction and a majority of our independent directors approve the transaction as being fair and reasonable. In addition, the investment by each joint venture partner must be substantially on the same terms and conditions as those received by other joint venturers. We may also invest in general partnerships or joint venture arrangements with our affiliates as co-owners of a property. The general partnership or joint venture agreement for these investments will provide that we will be able to increase our equity participation in such entity as we receive additional proceeds of the offering. As a result, we will ultimately own a 100% equity ownership of the property and the affiliated general or joint venture partner will not be entitled to any profit or other benefit on the sale of its equity participation to us. Once we own, directly or indirectly, 100% of the ownership interests in the general partnership or joint venture entity, we will determine whether the continued existence of that entity is necessary. For example, we may determine to continue the existence of the entity to minimize expenses or to meet lender requirements. In addition, we may enter into joint venture or partnership arrangements with unaffiliated third parties. Therefore, we may enter into acquisitions with sellers who are desirous of transactions in tax advantaged structures such as arrangements typically referred to as "Down REITs." A Down REIT is an organizational structure in which, in addition to owning indirect interests in real estate properties through the ownership of an interest in a lower-tier operating partnership (as in an UPREIT), a REIT also owns real estate properties directly at the REIT level. In a Down REIT structure, because the REIT owns real estate properties directly, the value of the REIT shares do not bear a direct relationship with the value of an interest in the lower-tier Down REIT operating partnership. You should consider the potential risk that our non-affiliated joint venture partner may be unable to agree with us on a matter material to the joint venture. See "Risk Factors -- Risks Related to the Offering." We are unable to estimate the proportion of our assets that may be invested in joint venture interests. CONSTRUCTION AND DEVELOPMENT ACTIVITIES From time to time, we may attempt to enhance investment opportunities by undertaking construction and development activities and rendering services in connection with them. Our business manager/advisor has advised us that, in its view, we may be able to reduce overall purchase costs if we were to undertake construction and development rather than merely being limited to purchasing properties 107 subject to completion of construction by a third party. The construction and development activities would expose us to such risks as cost overruns, carrying costs of projects under construction or development, availability and costs of materials and labor, weather conditions, government regulation and our inability to obtain tenants. We nevertheless have concluded that our investment prospects would be enhanced by permitting us to engage in construction and development activities so long as such activities did not cause us to lose our status as a REIT. To comply with the applicable requirements under federal income tax law under federal income tax law, and until the Internal Revenue Service changes its pronouncements with regard to these requirements, we intend to limit our construction and development activities to the performance of oversight and review functions, including reviewing the construction and tenant improvement design proposals, negotiating and contracting for feasibility studies and supervising compliance with local, state or federal laws and regulations, negotiating contracts, oversight of construction, accounts, and obtaining financing. In addition to using independent contractors to provide services in connection with the operation of our properties, we may also use "taxable REIT subsidiaries" to carry out these functions. See "Federal Future Tax Considerations - Federal Income Taxation as a REIT" for a discussion of a "taxable REIT subsidiary." We will retain independent contractors to perform the actual physical construction work on tenant improvements, the installation of heating, ventilation and air conditioning systems. See "Real Property Investments - General" for a detailed description of the types of properties we may invest in. OTHER POLICIES Before we purchase a particular property, we may obtain an option to purchase the property. The amount paid for the option, if any, usually would be surrendered if the property was not purchased and normally would be credited against the purchase price if the property was purchased. See "Real Property Investments - General" for a detailed description of the types of properties we may invest in. We hold all funds, pending investment in properties, in assets which will allow us to continue to qualify as a REIT. These investments are highly liquid and provide for appropriate safety of principal and may include, but are not limited to, investments such as bonds issued by the Government National Mortgage Association, or GNMA, and real estate mortgage investment conduits also known as REMICs. See "Federal Income Tax Considerations - Federal Income Taxation as a REIT." We will not make distributions-in-kind, except for: - distributions of readily marketable securities; - distributions of beneficial interests in a liquidating trust established for our dissolution and the liquidation of our assets in accordance with the terms of our articles of incorporation; or - distributions of in-kind property which meet all of the following conditions: - our board of directors advises each stockholder of the risks associated with direct ownership of the in-kind property; - our board of directors offers each stockholder the election of receiving in-kind property distributions; and - the directors distribute in-kind property only to those stockholders who accept our offer. Although our articles of incorporation and bylaws do not prohibit the following, we have no current plans to: 108 - underwrite the securities of other issuers; - invest in real estate mortgages; or - invest the proceeds of the offering, other than on a temporary basis, in non-real estate related investments. We may change our current plans, without stockholder approval, if our board of directors determines that it would be in the best interests of our stockholder to engage in any such transaction. Although we are authorized to issue senior securities, we have no current plans to do so. See "Description of Securities - Preferred Stock," "- Issuance of Additional Securities and Debt Instruments" and "- Restrictions on Issuance of Securities." 109 REAL PROPERTY INVESTMENTS INVESTING IN REITS A real estate investment trust or REIT is a company that owns and, in most cases, operates income-producing properties. To qualify as a REIT, generally a company must annually distribute at least 90% of its taxable income to stockholders. According to the National Association of Real Estate Investment Trusts (NAREIT), dividend growth for publicly traded REITs has consistently outpaced inflation. Stock price appreciation for publicly-traded REITs has historically tracked the rate of increase in the Consumer Price Index, according to NAREIT. This information is based on REITs that are listed and traded on a national exchange and would not be representative of an investment in a REIT that is not publicly traded such as us, and there is no assurance that an investment in a non-publicly traded REIT will produce comparable results. An analysis of historical data on publicly-traded REITs by Ibbotson Associates, a leading financial research firm, concluded that REITs have a low correlation with other stocks and bonds and represent a potentially powerful diversification tool. Ibbotson noted, "The asset allocation decision is the most important determinant of portfolio performance, outweighing the benefits of market timing and security selection." In particular, Ibbotson found that REITs may boost return and reduce risk when added to a diversified portfolio. Ibbotson also found that REITs outperformed most other major market benchmarks over the 1972-2002 period with much less volatility. There can be no assurance that future performance will mirror past performance and that these results would be comparable to non-traded REITs, like us. GENERAL Our business manager/advisor is experienced in acquiring and managing real estate, particularly retail focused shopping centers. We intend to acquire and manage a diversified (by geographical location and by type and size of retail centers) portfolio of real estate primarily improved for use as retail establishments, principally multi-tenant shopping centers. Our portfolio will consist predominantly of grocery and discount store anchored retail, including net lease retail. We may acquire certain mixed use properties that may include lodging, office and/or multi-family residential if they are part of a retail center. And, we may also acquire other types of retail shopping centers, such as enclosed malls, outlet malls and power centers. We also anticipate acquiring real estate improved with other commercial facilities which provide goods and services as well as double or triple net leased properties, which are either commercial or retail, including properties acquired in sale and leaseback transactions. A triple-net leased property is one which is leased to a tenant who is responsible for the base rent and all costs and expenses associated with their occupancy, including property taxes, insurance, repairs and maintenance. The geographic focus of our portfolio continues to be western U.S. markets; yet, at the present time, we believe that properties available for sale east of the Mississippi River are offering more favorable investment returns. Our objective continues to be to acquire quality properties primarily for income as distinguished from primarily for capital gain. As a result, many of our recently acquired properties that we currently have under contract for purchase are located in eastern U.S. markets. However, over the long-term, we expect the portfolio to consist of properties located primarily west of the Mississippi River. Where feasible, we will endeavor to acquire multiple properties within the same major metropolitan markets where the acquisitions result in efficient property management operations with the potential to achieve market dominance. As a result, we may have clusters of properties east of the Mississippi River. We do not intend to invest in real estate properties that are primarily: 110 - farms; - health care facilities; - industrial properties; - leisure home sites; - manufacturing facilities; - mining properties; - ranches; - single-family residential properties; - timberlands; or - unimproved properties not intended to be developed (vacant land). Subject to compliance with the applicable requirement under the federal income tax laws, we may also undertake construction and development activities and render services in connection with such activities. See "Investment Objectives and Policies" generally pertaining to our policies relating to the maintenance, operation and disposition of our properties. We intend to continue focusing on acquisition activity in major metropolitan areas in the western United States. The western United States, which consists of the southwest, rocky mountain and far west states, is projected to experience the most growth of any region of the country over the next 25 years. Population is expected to increase by 33.5 million between 2000 and 2025. Most of the states in the region will experience population growth rates ahead of the national average. In addition, the western region is forecast to lead the nation in the rate of employment growth. The western states will generate 22.8 million new jobs between 1999 and 2025 and account for 38% of total United States job growth. California is projected to show the largest gains in population and employment; however, the region's growth is expected to become more dispersed as other western states experience higher rates of growth. Texas is expected to retain its position as the second largest state, with a population likely to exceed 29.8 million by 2025. Nevada is likely to experience the fastest rate of growth (2.4% annually between 2000 and 2025), followed by Arizona, Utah, Idaho, Colorado, Texas, New Mexico, Oregon and Washington. Employment growth is expected to follow a similar pattern. Nevada, Arizona and Utah are projected to lead the nation by generating the fastest rate of annual employment growth. Several western cities are expected to rank among the nation's ten fastest growing metropolitan markets. These areas include Laredo and Austin-San Marcos in Texas, Las Vegas in Nevada, Provo-Orem in Utah and Phoenix-Mesa in Arizona. The Western region benefits from the diversity of its economy, which has enabled many western states to maintain employment and income growth even when some sectors experience reduced demand. Agriculture, natural resources, manufacturing, trade and services are all represented in the region's economy. In addition many of the goods and services produced in the west have international markets. 111 Much of the total United States output of agricultural products, oil and natural gas, lumber and wood products and electronic equipment is produced in the West. INSURANCE COVERAGE ON PROPERTIES We carry comprehensive general liability coverage and umbrella liability coverage on all of our properties with limits of liability which we deem adequate to insure against liability claims and provide for the costs of defense. Similarly, we are insured against the risk of direct physical damage in amounts we estimate to be adequate to reimburse us on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. In addition, we intend to insure our properties against loss caused by earthquake and flood if deemed necessary and economically justified. The form of management agreement for each property specifically provides for us to procure and carry public liability, fire and extended coverage, burglary and theft, rental interruption, flood, if appropriate, and boiler, if appropriate, insurance. The cost of such insurance is passed through to tenants whenever possible. Insurance risks associated with potential terrorism acts could sharply increase the premiums we pay for coverage against property and casualty claims. Additional, mortgage lenders in some cases have begun to insist that specific coverage against terrorism be purchased by commercial property owners as a condition for providing mortgage loans. It is uncertain whether such insurance policies will be available, or available at reasonable cost, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure you that we will have adequate coverage for such losses. Legislation has been enacted to provide federal insurance for property losses due to terrorism. We cannot be certain what impact this legislation will have on us or what additional costs to us, if any, could result. PROPERTIES As of December 7, 2004, our real estate portfolio was comprised of 91 properties containing approximately 16,123,537 square feet of gross leasable area. The 91 properties consist of 42 retail shopping centers, 26 neighborhood and community shopping center properties, 18 single-user facilities and five joint venture retail shopping centers that we have operating control of, located in 25 states. We intend to continue to primarily invest in retail properties ranging from 100,000 to 300,000 square feet in size. We may also purchase larger shopping centers, and properties in larger centers, in the future if such purchases are approved by our board of directors, including a majority of the independent directors. We expect that our neighborhood and community shopping centers will be "anchored" or "shadow-anchored" by a national or regional discount department store, supermarket or drugstore. A "shadow-anchor" is an anchor tenant that has leased space in that portion of the center not owned or controlled by us. In evaluating each of our properties as a potential acquisition and determining the appropriate amount of consideration to be paid for the property, we consider a variety of factors including overall valuation of net rental income, location, demographics, tenant mix, quality of tenants, length of leases, price per square foot, occupancy and that overall rental rates at each property are comparable to market rates. We anticipate that each property will be located within a vibrant economic area. We believe that each of the properties will be well-located, will have acceptable roadway access, will attract high quality tenants, will be well-maintained and will have been professionally managed. Nonetheless, each property will be subject to competition from similar shopping centers within its market area, and its economic 112 performance could be affected by changes in local economic conditions. We generally do not consider any other factors materially relevant to the decision to acquire each of the properties. When we calculate depreciation expense for tax purposes, we use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years. A substantial portion of our income will consist of rent received under long-term leases. In general, each tenant pays its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. A lease termination by an anchor tenant could result in lease terminations or reductions in rent by other tenants whose leases permit cancellation or rent reduction if another tenant's lease is terminated. We own or may own centers where the tenants may have rights to terminate their leases if certain other tenants are no longer open for business. These "co-tenancy" provisions may also exist in some leases where we own a portion of a shopping center and one or more of the anchor tenants leases space in that portion of the center not owned or controlled by us. If such tenants were to vacate their space, tenants with co-tenancy provisions would have the right to terminate their leases with us, or seek a rent reduction from us. Some of our leases may also contain provisions requiring the payment of additional rent calculated as a percentage of tenants' gross sales above predetermined thresholds. We seek to reduce our operating and leasing risks through geographic and tenant diversity. No single tenant accounted for more than 5.6% of our total gross leasable area or more than 4.5% of our total annualized base rental revenues as of December 7, 2004. Our five largest tenants include Zurich American Insurance Company, Wal-Mart, GMAC Insurance, Best Buy and Ross Dress for Less, which represent approximately 4.5%, 2.2%, 2.6%, 3.6% and 2.5% of annualized base rental revenues at December 7, 2004. We will receive an appraisal for each of our properties which states that it was prepared in conformity with the Code of Professional Ethics Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation by an independent appraiser who is a member of the Appraisal Institute. Appraisals are estimates of value and should not be relied on as a measure of true worth or realizable value. In cases where we have purchased properties from our affiliates, our directors, including the independent directors, must approve the acquisitions of the properties from our affiliates as being fair and reasonable. Our neighborhood and community shopping centers and our retail shopping centers are usually "anchored" or "shadow -anchored" by a national or regional discount department store, supermarket or drugstore. A "shadow-anchor" is an anchor tenant that has leased space in that portion of the center not owned or controlled by us. National and regional companies that are tenants in our shopping center properties include Wal-Mart, Best Buy, Ross Dress for Less, Kohl's and Home Depot. RETAIL SHOPPING CENTERS Retail shopping centers comprise the primary focus of our current portfolio. As of December 7, 2004, approximately 96% of our shopping center space was leased, and the average annualized base rent per leased square foot of the shopping center portfolio was $13.37. 113 Our shopping center properties, generally owned and operated through subsidiaries, had an average size of approximately 232,000 square feet as of December 7, 2004. Although we primarily invest in retail properties ranging from 100,000 to 500,000 square feet in size, as of December 7, 2004, we have also purchased larger shopping centers and properties in larger centers. We may also purchase these larger shopping centers, and properties in larger centers, in the future if such purchases are approved by our board of directors, including a majority of the independent directors. NEIGHBORHOOD AND COMMUNITY SHOPPING CENTERS We acquired neighborhood and community shopping centers as part of our current portfolio. As of December 7, 2004, approximately 95% of these shopping centers were leased, and the average annualized base rent per leased square foot of these shopping centers was $15.51. Our neighborhood and community shopping center properties, generally owned and operated through subsidiaries, had an average size of approximately 68,000 square feet as of December 7, 2004. SINGLE-USER PROPERTIES In addition to neighborhood and community shopping centers, we acquired single-user properties that are triple-net-leased properties, including properties acquired in sale and leaseback transactions. Single-user properties represent approximately 15.7% of our total portfolio gross leasable area. As of December 7, 2004, the average annualized base rent per leased square foot of the single-user property portfolio was $9.02. National and regional companies that are tenants in our single-user properties include CVS Pharmacy, Eckerds, Wal-Mart, Shaw's Supermarket, Harris Teeter, Academy Outdoor Sports, GMAC Insurance, Kohl's, Wrangler and Zurich American Insurance Company. 114 SUMMARY TABULAR PRESENTATION OF PROPERTIES OWNED As of December 7, 2004, we, through separate limited partnerships or limited liability companies, have acquired fee ownership of, or a leasehold interest in, 91 shopping centers consisting of an aggregate of approximately 16,123,537 gross leasable square feet located in Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Kansas, Louisiana, Maryland, Michigan, Missouri, Nevada, New Mexico, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah and Washington. The following table summarizes these properties in alphabetical order.
% OF BOOK VALUE MORTGAGE GROSS TOTAL AT PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY PROPERTY TYPE RENOVATED ACQUIRED 7, 2004 ($) 2004 ($) FT.) AREA % - ------------------------------------------------------------------------------------------------------------------------------ Academy Sports SU 2004 Jul-04 5,272,721 2,920,000 60,001 0.4% 100% Houma, Louisiana Academy Sports SU 2004 Oct-04 4,257,044 2,337,500 61,150 0.4% 100% Midland, Texas Academy Sports SU 2004 Oct-04 5,004,157 2,775,000 61,001 0.4% 100% Port Arthur, Texas Alison's Corner NC 2003 Apr-04 6,992,339 3,850,000 55,066 0.3% 100% San Antonio, Texas Arvada Connection and RC 1987 -1990 Apr-04 52,308,117 28,510,000 61,079 0.4% 78% Arvada Marketplace RC 297,678 1.8% 97% Arvada, Colorado Azalea Square RC 2004 Oct-04 29,904,320 16,535,000 181,942 1.1% 97% Summerville, South Carolina Bed, Bath & Beyond Plaza NC 2004 Oct-04 20,305,879 11,192,500 97,496 0.6% 97% Miami, Florida Best on the Boulevard RC 1996 - 1999 Apr-04 35,547,369 19,525,000 204,427 1.3% 77% Las Vegas, Nevada NO. OF PROPERTY TENANTS MAJOR TENANTS* - ------------------------------------------------------------ Academy Sports 1 Academy Sports Houma, Louisiana Academy Sports 1 Academy Sports Midland, Texas Academy Sports 1 Academy Sports Port Arthur, Texas Alison's Corner 4 Ross Dress for Less San Antonio, Texas Shoe Carnival Mattress Firm Arvada Connection Old Country Buffet and 12 Pier 1 Imports Arvada Marketplace 26 Sam's Club Arvada, Colorado Gart Sports Azalea Square 20 T.J. Maxx Summerville, South Linens 'N Things Carolina Ross Dress for Less Cost Plus World Market PETsMART Bed, Bath & Beyond Plaza 14 Bed, Bath & Beyond Miami, Florida Office Depot Pier 1 Imports Party City Best on the Boulevard 8 Best Buy Las Vegas, Nevada Barnes & Noble Copeland Enterprises
115
% OF BOOK VALUE MORTGAGE GROSS TOTAL AT PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY PROPERTY TYPE RENOVATED ACQUIRED 7, 2004 ($) 2004 ($) FT.) AREA % - ------------------------------------------------------------------------------------------------------------------------------ Bluebonnet Parc RC 2002 Apr-04 22,072,024 12,100,000 135,289 0.8% 95% Baton Rouge, Louisiana Boulevard at the Capital JV 2004 Sept-04 123,490,577 71,500,000 482,455 3.0% 88% Centre Largo, MD The Columns RC 2004 Aug-04 20,816,598 14,865,400 173,427 1.1% 96% Jackson, Tennessee CorWest Plaza RC 1999 - 2003 Jan-04 33,338,803 18,150,000 115,011 0.7% 99% New Britain, Connecticut Cranberry Square RC 1996 - 1997 Jul-04 20,346,674 10,900,000 195,566 1.2% 92% Cranberry Township, Pennsylvania CVS Pharmacy (Eckerd SU 2003 Dec-03 3,376,585 1,850,000 13,824 0.1% 100% Drug Store) Edmund, Oklahoma CVS Pharmacy (Eckerd SU 2003 Dec-03 5,301,730 2,900,000 13,824 0.1% 100% Drug Store) Norman, Oklahoma CVS Pharmacy SU 2004 Oct-04 3,066,716 - 10,055 0.1% 100% Sylacauga, Alabama Darien Towne Center RC 1994 Dec-03 29,920,706 16,500,000 223,844 1.4% 94% Darien, Illinois NO. OF PROPERTY TENANTS MAJOR TENANTS* - ------------------------------------------------------------ Bluebonnet Parc 7 Best Buy Baton Rouge, Louisiana Linens 'N Things Cost Plus World Market Boulevard at the Capital 59 Lowe's Theaters Magic Centre Johnson Largo, MD The Columns 15 Best Buy Jackson, Tennessee Ross Dress for Less Marshalls Bed, Bath & Beyond CorWest Plaza 10 Super Stop & Shop New Britain, Connecticut Liquor Depot CVS Pharmacy Cranberry Square 5 Barnes & Noble Cranberry Township, Dick's Sporting Goods Pennsylvania Best Buy Office Max Toys "R" Us CVS Pharmacy (Eckerd 1 CVS Pharmacy Drug Store) Edmund, Oklahoma CVS Pharmacy (Eckerd 1 CVS Pharmacy Drug Store) Norman, Oklahoma CVS Pharmacy 1 CVS Pharmacy Sylacauga, Alabama Darien Towne Center 12 Home Depot Darien, Illinois Circuit City PETsMART
116
% OF BOOK VALUE MORTGAGE GROSS TOTAL AT PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY PROPERTY TYPE RENOVATED ACQUIRED 7, 2004 ($) 2004 ($) FT.) AREA % - ------------------------------------------------------------------------------------------------------------------------------ Davis Towne Crossing NC 2003 & Jun-04 8,215,165 5,365,200 34,091 0.2% 91% North Richland Hills, 2004 Texas Denton Towne Crossing RC 2003 & Oct-04 51,336,957 35,200,000 278,840 1.7% 92% Denton, Texas 2004 Dorman Center - Phase I & RC 2003 - 2004 Mar-04 & 50,288,688 27,610,000 388,067 2.4% 97% II Jul-04 Spartanburg, South Carolina Eastwood Towne Center RC 2002 May-04 85,157,861 46,750,000 332,131 2.1% 97% Lansing, Michigan Eckerd Drug Store SU 2003 - 2004 Jun-04 3,276,504 1,750,000 13,440 0.1% 100% Columbia, South Carolina Eckerd Drug Store SU 2003 - 2004 Jun-04 2,633,000 1,425,000 13,824 0.1% 100% Crossville, Tennessee Eckerd Drug Store SU 2003 - 2004 Jun-04 3,097,200 1,650,000 13,824 0.1% 100% Greer, South Carolina Eckerd Drug Store SU 2003 - 2004 Jun-04 3,660,139 1,975,000 13,824 0.1% 100% Kill Devil Hills, North Carolina Edgemont Town Center NC 2003 Nov-04 15,641,041 - 77,655 0.5% 95% Homewood, Alabama Five Forks NC 1999 Dec-04 8,087,600 - 64,173 0.4% 95% Simpsonville, South Carolina Forks Town Center NC 2002 Jul-04 18,440,369 10,395,000 92,660 0.6% 96% Easton, Pennsylvania Fox Creek Village RC 2003 - 2004 Nov-04 20,997,333 - 139,730 0.9% 86% Longmont, Colorado NO. OF PROPERTY TENANTS MAJOR TENANTS* - -------------------------------------------------------------- Davis Towne Crossing 12 Lady USA Fitness North Richland Hills, Cotton Patch Cafe Texas Denton Towne Crossing 27 Oshman's Sporting Denton, Texas Goods Best Buy T.J. Maxx Dorman Center - Phase I & 26 Wal-Mart Supercenter II Spartanburg, South Carolina Eastwood Towne Center 61 Dick's Sporting Goods Lansing, Michigan Eckerd Drug Store 1 Eckerd Drug Store Columbia, South Carolina Eckerd Drug Store 1 Eckerd Drug Store Crossville, Tennessee Eckerd Drug Store 1 Eckerd Drug Store Greer, South Carolina Eckerd Drug Store 1 Eckerd Drug Store Kill Devil Hills, North Carolina Edgemont Town Center 15 Publix Homewood, Alabama Five Forks 8 Bi-Lo Simpsonville, South Carolina Forks Town Center 16 Giant Food Stores Easton, Pennsylvania Fox Creek Village 14 King Soopers Longmont, Colorado King Soopers-Fuel Site
117
% OF BOOK VALUE MORTGAGE GROSS TOTAL AT PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY PROPERTY TYPE RENOVATED ACQUIRED 7, 2004 ($) 2004 ($) FT.) AREA % - ------------------------------------------------------------------------------------------------------------------------------ Fullerton Metrocenter RC 1988 Jun-04 51,389,458 28,050,000 253,296 1.6% 81% Fullerton, California Gateway Pavilion RC 2003 - 2004 Dec-04 65,141,045 - 318,410 2.0% 68% Avondale, Arizona Gateway Plaza RC 2000 Jul-04 33,056,095 18,163,000 358,091 2.2% 93% Southlake, Texas Gateway Station NC 2003 - 2004 Dec-04 5,093,435 - 19,537 0.1% 100% College Station, Texas Gateway Village JV 1996 Jul-04 49,616,650 31,458,000 273,788 1.7% 96% Annapolis, Maryland GMAC Insurance Building SU 1980/1990 Sept-04 60,037,192 33,000,000 501,064 3.1% 100% Winston-Salem, North Carolina Governor's Marketplace RC 2001 Aug-04 32,749,285 20,625,000 231,915 1.4% 94% Tallahassee, Florida Gurnee Towne Center RC 2000 Oct-04 44,303,902 - 179,602 1.1% 96% Gurnee, Illinois Harris Teeter SU 1977/1995 Sept-04 7,212,401 3,960,000 57,230 0.4% 100% Wilmington, North Carolina Harvest Towne Center NC 1996-1999 Sept-04 8,958,341 5,005,000 42,213 0.3% 100% Knoxville, Tennessee NO. OF PROPERTY TENANTS MAJOR TENANTS* - -------------------------------------------------------------- Fullerton Metrocenter 40 Sportmart Fullerton, California Henry's Marketplace Gateway Pavilion 33 Circuit City Avondale, Arizona The Sports Authority Mor Furniture Gateway Plaza 26 Kohl's Southlake, Texas Gateway Station 6 Kirland's College Station, Texas Talbots Joseph A. Banks Chicos Gateway Village 14 Safeway Annapolis, Maryland Burlington Coat Factory Best Buy GMAC Insurance Building 1 GMAC Insurance Winston-Salem, North Carolina Governor's Marketplace 20 Bed, Bath & Beyond Tallahassee, Florida Sports Authority Marshalls Gurnee Towne Center 26 Linens 'N Things Gurnee, Illinois Old Navy Borders Books & Music Cost Plus World Market Harris Teeter 1 Harris Teeter Wilmington, North Carolina Harvest Towne Center 12 CVS Pharmacy Knoxville, Tennessee Pet Supplies Plus Ruby Tuesday
118
% OF BOOK VALUE MORTGAGE GROSS TOTAL AT PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY PROPERTY TYPE RENOVATED ACQUIRED 7, 2004 ($) 2004 ($) FT.) AREA % - -------------------------------------------------------------------------------------------------------------------------------- Heritage Towne Crossing NC 2002 Mar-04 14,855,156 8,950,000 73,579 0.5% 98% Euless, Texas Hickory Ridge RC 1999 Jan-04 42,022,293 23,650,000 380,487 2.4% 100% Hickory, North Carolina Huebner Oaks Center RC 1997 & Jun-04 79,578,905 48,000,000 286,684 1.8% 98% San Antonio, Texas 1998 John's Creek Village RC 2003 & Jun-04 29,192,357 23,300,000 141,802 0.9% 100% Duluth, Georgia 2004 Kohl's/Wilshire Plaza III SU 2004 Nov-04 5,705,154 5,417,500 88,248 0.5% 100% Kansas City, Missouri La Plaza Del Norte RC 1996/1999 Jan-04 59,206,004 32,528,000 320,345 2.0% 95% San Antonio, Texas Lake Mary Pointe NC 1999 Oct-04 6,603,760 3,657,500 51,052 0.3% 96% Lake Mary, Florida Lakewood Towne Center RC 1988 Jun-04 80,932,733 51,260,000 578,863 3.6% 95% Lakewood, Washington Rebuilt 2002-2003 Larkspur Landing RC 1978/2001 Jan-04 60,721,335 33,630,000 173,821 1.1% 87% Larkspur, California Lincoln Park RC 1998 Sept-04 47,360,050 26,153,000 148,806 0.9% 100% Dallas, Texas Low Country Village NC 2004 Jun-04 11,140,058 5,370,000 76,479 0.5% 97% Bluffton, South Carolina MacArthur Crossing RC 1995 - 1996 Feb-04 23,076,236 12,700,000 109,755 0.7% 98% Los Colinas, Texas NO. OF PROPERTY TENANTS MAJOR TENANTS* - -------------------------------------------------------------- Heritage Towne Crossing 29 N/A Euless, Texas Hickory Ridge 21 Best Buy Hickory, North Carolina Kohl's Dick's Sporting Goods Huebner Oaks Center 56 Bed, Bath & Beyond San Antonio, Texas John's Creek Village 17 LA Fitness Duluth, Georgia Ross Dress for Less T.J. Maxx Kohl's/Wilshire Plaza III 1 Kohl's Kansas City, Missouri La Plaza Del Norte 16 Oshman's Sporting San Antonio, Texas Goods Best Buy Bealls Lake Mary Pointe 9 Publix Lake Mary, Florida Lakewood Towne Center 26 Gottschalk's Lakewood, Washington Burlington Coat Factory Larkspur Landing 33 Bed, Bath & Beyond Larkspur, California 24 Hour Fitness Lincoln Park 14 Tom Thumb Dallas, Texas Barnes & Noble The Container Store Low Country Village 6 Ross Dress for Less Bluffton, South Carolina Michaels PETsMART MacArthur Crossing 28 Stein Mart Los Colinas, Texas
119
% OF BOOK VALUE MORTGAGE GROSS TOTAL AT PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY PROPERTY TYPE RENOVATED ACQUIRED 7, 2004 ($) 2004 ($) FT.) AREA % - --------------------------------------------------------------------------------------------------------------------------------- Manchester Meadows RC 1994 - 1995 Aug-04 56,543,403 31,064,550 454,172 2.8% 97% Town and Country, Missouri Mansfield Towne Center NC 2004 Nov-04 16,055,333 10,982,300 95,277 0.6% 100% Mansfield, Texas Mitchell Ranch Plaza RC 2003 Aug-04 33,886,359 18,700,000 200,404 1.2% 95% New Port Richey, Florida Newnan Crossing I & II RC 1999-2003 Dec-03 & 39,246,282 21,543,091 291,450 1.8% 100% Newnan, Georgia Feb-04 North Ranch Pavilions NC 1992 Jan-04 18,264,794 10,157,400 62,812 0.4% 89% Thousand Oaks, California North Rivers Town Center RC 2003 - 2004 Apr-04 20,170,224 11,050,000 141,204 0.9% 100% Charleston, South Carolina Northgate North RC 1999 - 2003 Jun-04 48,488,931 26,650,000 302,095 1.9% 98% Seattle, Washington Northpointe Plaza RC 1991 - 1993 May-04 54,591,996 30,850,000 377,949 2.3% 99% Spokane, Washington Northwoods Center NC 2002 - 2004 Dec-04 13,963,847 - 74,647 0.5% 100% Wesley Chapel, Florida Oswego Commons RC 2002 - 2004 Nov-04 35,134,068 19,262,100 188,150 1.2% 98% Oswego, Illinois Paradise Valley NC 2002 Apr-04 28,571,619 15,680,500 92,158 0.6% 79% Marketplace Phoenix, Arizona Pavilion at King's Grant NC 2002/2003 Dec-03 8,200,912 5,342,000 79,109 0.5% 100% Concord, North Carolina NO. OF PROPERTY TENANTS MAJOR TENANTS* - -------------------------------------------------------------- Manchester Meadows 21 Wal-Mart Town and Country, Home Depot Missouri Mansfield Towne Center 18 Ross Dress for Less Mansfield, Texas Staples Mitchell Ranch Plaza 36 Publix New Port Richey, Florida Marshalls Ross Dress for Less Newnan Crossing I & II 22 BJ's Wholesale Club Newnan, Georgia Office Depot T.J. Maxx North Ranch Pavilions 24 Savvy Salon Thousand Oaks, California North Rivers Town Center 16 Ross Dress for Less Charleston, South Carolina Bed, Bath & Beyond Office Depot Babies "R" Us Northgate North 8 Target Seattle, Washington Best Buy Northpointe Plaza 31 Safeway Spokane, Washington Gart Sports Best Buy Northwoods Center 16 Marshalls Wesley Chapel, Florida PETCO Oswego Commons 21 Dominick's Oswego, Illinois T.J. Maxx Office Max Paradise Valley 17 Whole Foods Marketplace Eckerd Drug Store Phoenix, Arizona Pavilion at King's Grant 7 Toys "R" Us Concord, North Carolina Olive Garden
120
% OF BOOK VALUE MORTGAGE GROSS TOTAL AT PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY PROPERTY TYPE RENOVATED ACQUIRED 7, 2004 ($) 2004 ($) FT.) AREA % - --------------------------------------------------------------------------------------------------------------------------------- Peoria Crossings RC 2002 - 2003 Mar-04 37,430,091 20,497,400 213,733 1.3% 98% Peoria, Arizona Pine Ridge Plaza RC 1998 - 2004 Jun-04 29,961,150 14,700,000 230,510 1.4% 100% Lawrence, Kansas Placentia Town Center RC 1973/2000 Dec-04 24,865,000 - 110,962 0.7% 100% Placentia, California Plaza at Marysville RC 1995 Jul-04 21,335,075 11,800,000 115,656 0.7% 95% Marysville, Washington Plaza at Riverlakes RC 2001 Oct-04 17,022,680 - 102,836 0.6% 100% Bakersfield, California Plaza Santa Fe II RC 2000 - 2002 Jun-04 31,063,632 17,551,721 222,389 1.4% 98% Santa Fe, New Mexico Promenade at Red Cliff NC 1997 Feb-04 19,502,610 10,590,000 94,445 0.6% 95% St. George, Utah Publix Center NC 2004 Nov-04 12,072,693 - 63,916 0.4% 95% Mount Pleasant, South Carolina Reisterstown Road Plaza JV 1986/2004 Aug-04 88,833,173 49,650,000 779,047 4.8% 94% Baltimore, Maryland Saucon Valley Square NC 1999 Sept-04 16,219,240 8,850,900 80,695 0.5% 100% Bethlehem, Pennsylvania Shaw's Supermarket SU 1995 Dec-03 13,630,416 6,450,000 65,658 0.4% 100% New Britain, Connecticut NO. OF PROPERTY TENANTS MAJOR TENANTS* - -------------------------------------------------------------- Peoria Crossings 21 Kohl's Department Peoria, Arizona Store Ross Dress for Less Michaels Pine Ridge Plaza 14 T.J. Maxx Lawrence, Kansas Bed, Bath & Beyond Kohl's Placentia Town Center 21 Ross Dress for Less Placentia, California Office Max Bank of America Plaza at Marysville 25 Safeway Marysville, Washington Plaza at Riverlakes 22 Ralph's Grocery Store Bakersfield, California Plaza Santa Fe II 20 Linens 'N Things Santa Fe, New Mexico Best Buy T.J. Maxx Promenade at Red Cliff 18 Staples St. George, Utah Old Navy Big 5 Sporting Goods Publix Center 11 Publix Mount Pleasant, South Carolina Reisterstown Road Plaza 75 Home Depot Baltimore, Maryland Public Safety National Wholesale Liquidators Saucon Valley Square 14 Super Fresh Foods Bethlehem, Pennsylvania Shaw's Supermarket 1 Shaw's Supermarket New Britain, Connecticut
121
% OF BOOK VALUE MORTGAGE GROSS TOTAL AT PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY PROPERTY TYPE RENOVATED ACQUIRED 7, 2004 ($) 2004 ($) FT.) AREA % - -------------------------------------------------------------------------------------------------------------------------------- Shoppes at Quarterfield NC 1999 Jan-04 11,029,520 6,067,183 61,817 0.4% 96% (Metro Square Center) Severn, Maryland Shoppes of Dallas NC 2004 Jul-04 13,095,345 7,178,700 70,610 0.4% 86% Dallas, Georgia Shoppes of Prominence NC 2004 Jun-04 15,198,965 9,954,300 78,058 0.5% 91% Point Canton, Georgia The Shops at Boardwalk RC 2003 & Jul-04 36,702,208 20,150,000 122,916 0.8% 81% Kansas City, Missouri 2004 Shops at Forest Commons NC 2002 Dec-04 7,505,000 - 34,756 0.2% 100% Round Rock, Texas Shops at Park Place RC 2001 Oct-03 24,088,248 13,127,000 116,300 0.7% 99% Plano, Texas Stony Creek Marketplace RC 2003 Dec-03 26,026,321 14,162,000 153,796 1.0% 100% Noblesville, Indiana Tollgate Marketplace JV 1979/1994 Jul-04 72,060,645 39,765,000 392,587 2.4% 100% Bel Air, Maryland Towson Circle JV 1998 Jul-04 28,580,147 19,197,500 116,119 0.7% 92% Towson, Maryland University Town Center NC 2002 Nov-04 10,571,989 - 57,250 0.4% 100% Tuscaloosa, Alabama Village Shoppes at NC 2004 Aug-04 13,770,143 7,561,700 66,415 0.4% 87% Simonton Lawrenceville, Georgia Wal-Mart Supercenter SU 1999 Jul-04 13,269,942 7,100,000 183,047 1.1% 100% Blytheville, Arkansas NO. OF PROPERTY TENANTS MAJOR TENANTS* - -------------------------------------------------------------- Shoppes at Quarterfield 2 Shoppers Food (Metro Square Center) Warehouse Severn, Maryland Shoppes of Dallas 12 Publix Dallas, Georgia Shoppes of Prominence 15 Publix Point Canton, Georgia The Shops at Boardwalk 24 Borders Books Kansas City, Missouri Shops at Forest Commons 16 Blockbuster Video Round Rock, Texas Shops at Park Place 11 Bed, Bath & Beyond Plano, Texas Michaels Office Max Walgreens Stony Creek Marketplace 20 T.J. Maxx Noblesville, Indiana Linens 'N Things Barnes & Noble Tollgate Marketplace 34 Giant Food Bel Air, Maryland Jo Ann Fabrics Towson Circle 12 Barnes & Noble Towson, Maryland Trader Joe's East Bally's Total Fitness Pier 1 Imports University Town Center 15 Publix Tuscaloosa, Alabama Village Shoppes at 10 Publix Simonton Lawrenceville, Georgia Wal-Mart Supercenter 1 Wal-Mart Supercenter Blytheville, Arkansas
122
% OF BOOK VALUE MORTGAGE GROSS TOTAL AT PAYABLE AT LEASABLE GROSS PHYSICAL YEAR BUILT/ DATE DECEMBER DECEMBER 7, AREA (SQ. LEASABLE OCCUPANCY PROPERTY TYPE RENOVATED ACQUIRED 7, 2004 ($) 2004 ($) FT.) AREA % - --------------------------------------------------------------------------------------------------------------------------------- Wal-Mart Supercenter SU 1997 Aug-04 11,086,320 6,088,500 149,704 0.9% 100% Jonesboro, Arkansas Watauga Pavilion RC 2003/2004 May-04 35,685,886 19,617,000 205,195 1.3% 96% Wautauga, Texas Winchester Commons NC 1999 Nov-04 13,051,599 7,235,000 93,024 0.6% 98% Memphis, Tennessee Wrangler SU 1993 Jul-04 18,518,590 11,300,000 316,800 2.0% 100% El Paso, Texas Zurich Towers SU 1988 - 1990 Nov-04 138,094,923 81,420,000 895,418 5.6% 100% Schaumburg, Illinois -------------------------------------------------- PORTFOLIO TOTAL 2,680,495,380 1,394,703,445 16,123,537 100% ================================================== NO. OF PROPERTY TENANTS MAJOR TENANTS* - -------------------------------------------------------------- Wal-Mart Supercenter 1 Wal-Mart Supercenter Jonesboro, Arkansas Watauga Pavilion 16 Oshman's Sporting Wautauga, Texas Goods Ross Dress for Less Bed, Bath & Beyond Winchester Commons 15 Kroger Memphis, Tennessee Wrangler 1 Wrangler El Paso, Texas Zurich Towers 1 Zurich American Schaumburg, Illinois Insurance Company -------- PORTFOLIO TOTAL 1,501 ========
- ---------- * Major tenants include tenants leasing more than 10% of the gross leasable area of the individual property. NC Neighborhood and Community Retail Shopping Center SU Single-User Property RC Retail Shopping Center D Development Project JV Joint Venture The table above represents book value to include land, building and improvements, site improvements and acquired intangibles. 123 DESCRIPTION OF PROPERTIES The following discussion provides more detail on each of the properties we have acquired that are summarized in the table above and probable acquisitions. SOUTHLAKE TOWN SQUARE, SOUTHLAKE, TEXAS We anticipate purchasing a portion of an existing shopping center known as Southlake Town Square, containing 471,324 gross leasable square feet. The center is located at North Carroll Avenue and East Southlake Boulevard in Southlake, Texas. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $142,917,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $303 per square foot of leasable space. We anticipate purchasing this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. There are no tenants that lease more than 10% of the total gross leasable area of the property. For federal income tax purposes, the depreciable basis in this property will be approximately $107,188,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Southlake Town Square built between 1998 and 2004. As of December 1, 2004, this property was 96% occupied, with a total 450,595 square feet leased to 152 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------- Gymboree 2,077 01/09 57,117 27.50 Magic Moon 2,329 03/09 65,212 28.00 Animal Crackers 1,491 03/09 41,748 28.00 Corner Bakery 4,223 03/09 117,188 27.75 Bombay Company 4,131 03/09 107,406 26.00 Williams-Sonoma 4,500 01/09 122,625 27.25 Chico's 2,013 03/09 46,299 23.00 Talbots 4,398 01/11 114,348 26.00 Harold's 5,462 03/11 164,406 30.10 Eyes Nouveau 2,470 08/07 74,100 30.00 The Mother's Place 1,475 09/07 43,512 29.50 Any Occasion Gifts 1,338 11/07 38,802 29.00 The Paper Closet 858 01/08 24,882 29.00 X's & O's 4,100 05/09 123,000 30.00
124
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------- FNB of Wichita Falls 3,456 07/12 103,680 30.00 The Container Store 23,796 02/12 431,568 18.00 Taylor G 1,654 10/06 52,928 32.00 Kobe Steakhouse 5,128 02/09 148,712 29.00 Joseph A. Bank 5,131 01/12 148,799 29.00 The Paper Closet 105 Month-to-Month 2,625 25.00 Of the Vine 2,429 11/07 72,870 30.00 Barse Retail 1,458 11/07 36,450 25.00 Jamba Juice 919 03/09 28,029 30.50 Sweet & Sassy 3,061 04/09 65,811 21.50 Francesca's 1,919 04/09 57,570 30.00 BA Framer 1,987 05/09 49,675 25.00 Rockfish 2,651 06/09 75,819 28.60 Mi Cocina 5,206 06/09 135,356 26.00 Lover's Eggroll 2,138 06/09 56,657 26.50 Board Room 2,082 08/09 62,460 30.00 Village Jewelers 2,277 03/12 75,141 33.00 Vignettes 3,306 03/09 92,568 28.00 Pottery Barn 7,989 01/10 194,835 24.39 Pottery Barn (2nd Floor Storage) 3,106 Crate & Barrel (BS-1) 5,517 10/10 67,629 12.26 Crate & Barrel 10,215 01/11 137,698 13.48 Crate & Barrel (BS-2) 217 01/11 4,580 21.11 Origins 1,140 10/10 45,600 40.00 Talbots Petites and Kids 6,528 12/10 188,500 28.88 L'Occitane 773 01/11 34,785 45.00 Paws and Claws 143 12/06 4,290 30.00 Lane Bryant 5,069 10/13 145,000 28.61 D'Hierro 4,000 10/13 84,000 21.00 Cafe Express 5,643 11/13 153,772 27.25 Oshkosh B'Gosh Retail 5,162 03/14 154,860 30.00 Terrace Day Spa & Salon 1,179 10/09 30,250 25.66 The Market 7,086 06/06 155,892 22.00 Eddie Bauer 6,440 01/10 127,963 19.87 Ann Taylor 4,252 01/10 106,300 25.00 Thai Chili 2,359 04/10 63,693 27.00 American Eagle 5,250 11/12 136,500 26.00 Young Nim Cho 435 09/09 15,660 36.00 Banana Republic 7,000 03/07 133,280 19.04 Stylette dba Glass Slipper 750 06/08 22,500 30.00 Victoria's Secret 4,607 03/09 105,961 23.00 Gap 5,880 03/07 111,955 19.04 Gap Kids 3,819 03/07 72,714 19.04 Milwaukee Joe's 636 03/07 22,260 35.00 Bath & Body Works 3,213 03/09 73,899 23.00 Starbucks 1,867 05/09 52,276 28.00 Riding High 2,480 02/07 76,880 31.00
125
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------- James Avery 2,491 04/07 74,730 30.00 Three Feet 2,134 10/08 53,350 25.00 Just Add Water 2,046 03/12 62,403 30.50 Village Jewelers 2,337 03/12 70,110 30.00 LC Footwear 1,914 06/12 57,420 30.00 Sprint 2,639 07/09 87,087 33.00 Sharper Image 5,829 01/15 156,000 26.76 The Langley Holding Company 570 Month-to-Month 9,396 16.48 Audra D. Boxma, PA 516 02/05 10,320 20.00 Countrywide Home Loans 2,599 05/05 44,183 17.00 Heinen & Associates 1,150 05/05 18,975 16.50 Century 21 2,825 07/05 50,844 18.00 Rattikin Title Group 3,992 04/07 62,080 15.55 Sylvan Learning Center 2,780 05/07 44,841 16.13 Williams-Sonoma Storage 500 01/09 5,450 10.90 Abemathy 817 10/09 10,552 12.92 Brownstones 814 Month-to-Month 9,768 12.00 Charles Schwab 1,764 03/05 29,106 16.50 Johnson & Johnson 881 11/06 16,739 19.00 Stifel, Nicolas & Co. 3,415 05/07 61,470 18.00 Harken Energy Corporation 4,062 04/08 66,763 16.44 Collins Industries 2,125 05/09 31,875 15.00 Harold's (Office) 669 03/11 9,366 14.00 Exar 563 08/05 9,370 16.64 Villaroy and Bach 623 11/14 9,968 16.00 Coldwell Bankers 2,522 Month-to-Month 34,420 13.65 Cooper & Stebbins 5,212 Month-to-Month 83,392 16.00 Bradley, Luce & Bradley 3,154 08/04 47,310 15.00 Jennifer Gray 1,075 11/06 15,650 14.56 Dallas Morning News 4,148 10/05 66,368 16.00 House of Representatives 589 01/05 9,768 16.58 Vicki Truitt 193 01/05 4,176 21.64 Benefit Architects 2,098 02/05 35,666 17.00 Main Street Financial 2,589 10/05 49,191 19.00 Town Square Mortgage 1,464 12/05 19,560 13.36 Swedish Match 1,371 07/07 21,251 15.50 Educational Tech 1,459 12/08 14,855 10.18 Standerfer Law Firm 791 Month-to-Month 13,570 17.16 Newell Rubbermaid 2,110 03/05 40,090 19.00 Insight Equity Holdings 4,568 01/06 70,298 15.39 Lifeguard 4,515 01/06 34,050 7.54 KTL Industries 1,857 01/06 19,430 10.46 GSCS 2,328 01/06 26,720 11.48 Salomon Smith Barney 9,393 08/11 150,288 16.00 Larsen & King 1,470 08/09 15,597 10.61 Texas Nations 2,427 02/09 38,832 16.00 Pearlstone Energy-M Young 1,067 03/09 14,943 14.00
126
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------- Southtrust Mortgage 3,033 03/09 48,528 16.00 Dr. Scott Kasden 2,875 07/09 46,000 16.00 Michael Bryan 2,326 02/05 38,379 16.50 Dr. Angela Bowers 2,868 06/05 46,376 16.17 Dr. Mary Wyant 936 07/05 14,976 16.00 Natural Healing Center 541 05/06 8,115 15.00 Dr. Steven J. Fugua 1,986 07/06 29,790 15.00 Feet Feet 1,454 07/06 24,718 17.00 Just For Kids 2,321 08/06 40,617 17.50 Dr. Todd White 1,720 02/07 29,240 17.00 Terrace Day Spa (Office) 3,403 02/07 49,888 14.66 Terrace Day Spa (Expansion) 1,568 02/07 25,088 16.00 Gregory Taylor 3,077 07/07 61,540 20.00 Ortho-Alliance 3,033 09/07 51,561 17.00 Viking Office Products (Office Depot) 16,530 05/09 252,909 15.30 Hometrust Mortgage 2,849 06/07 34,188 12.00 Lifeguard 619 09/04 10,616 17.15 Lyons, Butler & Pesserillo 1,286 Month-to-Month 23,148 18.00 Lifeguard 2,227 01/06 34,730 15.59 Johnson, Rooney, Welch 675 12/05 13,650 20.22 General Mills 1,725 08/05 29,325 17.00 Keller Williams Realty 2,576 05/07 37,627 14.61 Farmers Insurance 462 03/09 7,041 15.24 Edward Jones 697 05/09 11,152 16.00 Prizm Development 1,659 06/09 26,544 16.00 Larry North Total Fitness 10,896 08/11 159,900 14.68 Southlake Dance Academy 3,840 03/06 60,096 15.65 Sunshine Glaze 1,400 05/06 21,200 15.14 Mail & Copy Shoppe 1,600 12/07 25,600 16.00 REB Photo Lab 1,764 03/06 38,808 22.00 Segal Enterprises 1,200 09/06 24,000 20.00 Po Melvin's 6,740 01/08 101,100 15.00 Kidztime 1,791 08/08 26,865 15.00 Storehouse 8,800 12/05 176,000 20.00 Gingiss Formal Wear 1,000 12/05 22,000 22.00 Cingular Wireless 1,495 12/05 32,890 22.00 Stride Rite Children's Group 1,495 01/06 29,900 20.00 Sandella's Cafe 1,493 02/06 32,846 22.00 Olivia Bennett 1,985 04/06 30,000 15.11 Trees of the Field 2,472 09/11 54,384 22.00 Blue Mesa 3,000 09/13 87,000 29.00 Pei Wei 3,000 10/13 78,000 26.00 American Express 1,350 04/09 44,550 33.00 Fidelity 4,050 05/14 113,400 28.00
127 In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. IRMO STATION, COLUMBIA, SOUTH CAROLINA We anticipate purchasing an existing shopping center known as Irmo Station, containing 99,619 gross leasable square feet. The center is located at 7467 St. Andrews Road in Columbia, South Carolina. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $13,100,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $131 per square foot of leasable space. We anticipate purchasing this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Kroger, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------- Kroger 56,942 57 9.71 10/99 10/19
For federal income tax purposes, the depreciable basis in this property will be approximately $9,825,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Irmo Station was built in phases in 1980 and 1985, with an expansion of one tenant's space in 1999. As of December 1, 2004, this property was 91% occupied, with a total 90,960 square feet leased to 17 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------- Dr. John Edwards, DDS 1,750 03/05 31,500 18.00 Hemingway's Saloon 5,550 04/05 30,803 5.55 Invitation Station 2,205 08/05 24,255 11.00 The Cutting Point 1,050 09/05 14,175 13.50 Dollar Tree Store 6,892 01/06 55,136 8.00 Pizza Hut 1,470 05/06 21,771 14.81 Julie Stephens Agency 1,050 06/06 13,497 12.85
128
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------- Wilson Wireless 1,000 10/06 18,000 18.00 Columbia Conservatory 1,761 05/07 19,899 11.30 Irmo Interiors 2,000 07/07 30,000 15.00 Kroger Liquor 1,250 01/08 15,625 12.50 Firehouse Subs 1,750 06/08 29,750 17.00 Han's Alterations 1,050 03/09 14,595 13.90 Tripp's Cleaners 1,250 05/09 18,125 14.50 ITA Taekwondo Academy 2,940 08/09 33,810 11.50 Lovely Nails 1,050 12/09 13,650 13.00 Kroger 56,942 10/19 552,800 9.71
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. EVANS TOWNE CENTRE, AUGUSTA, GEORGIA We anticipate purchasing an existing shopping center known as Evans Towne Centre, containing 75,695 gross leasable square feet. The center is located at 4274 Washington Road in Augusta, Georgia. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $8,880,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $117 per square foot of leasable space. We anticipate purchasing this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Publix, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------- Publix 47,955 63 8.25 06/95 06/15
For federal income tax purposes, the depreciable basis in this property will be approximately $6,660,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. 129 Evans Towne Center was built in 1995. As of December 1, 2004, this property was 97% occupied, with a total 73,295 square feet leased to 14 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------------- Evans Hibachi 2,800 01/06 32,200 11.50 Gorins Cafe & Grill 1,200 03/06 14,832 12.36 Great Expectations Precision Haircutters 2,100 04/06 28,119 13.39 Physical Therapy Associates 2,240 04/06 26,870 12.00 Classical Ballet Conservatory 1,600 06/06 21,424 13.39 Master Cleaners 1,200 09/06 15,600 13.00 Professional Network Support 1,600 12/06 18,960 11.85 Quizno's 1,600 01/07 20,800 13.00 The Augusta Chronicle 4,000 02/08 44,000 11.00 Mai Thai Restaurant 1,400 04/08 18,018 12.87 U.S. Nails 1,200 09/08 15,600 13.00 Sun Rayz Tanning 3,200 01/09 35,200 11.00 Top Shelf Cigar & Tobacco Shoppe 1,200 07/09 15,600 13.00 Publix 47,955 06/15 395,629 8.25
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. AMERICAN EXPRESS PORTFOLIO We anticipate purchasing the following eight office buildings constructed between 1975 and 2000 and leasing them back to American Express Travel Related Services Company, Inc., IDS Property Casualty Insurance Corporation and AMEX Canada, Inc. The office buildings contain a total of 2,597,000 gross leasable square feet.
Approximate Approximate Location Square Feet Lease Term Purchase Price ($) - ---------------------------------------------------------------------------------------------- 20022 N. 31st Avenue 337,439 10 years 54,000,000 Phoenix, AZ 20002 N. 19th Avenue 117,556 10 years 14,000,000 Phoenix, AZ 1001 N. 3rd Avenue 541,542 10 years 95,000,000 Minneapolis, MN 3500 Packerland Drive 132,336 10 years 18,000,000 Depere, WI
130
Approximate Approximate Location Square Feet Lease Term Purchase Price ($) - ---------------------------------------------------------------------------------------------- 101 McNabb Street 306,710 10 years 42,000,000 Markham, Ontario, Canada 4315 South 2700 West 395,787 10 years 48,000,000 Salt Lake City, UT 7701 Airport Center 389,377 10 years 56,000,000 Greensboro, NC 777 American Expressway 376,348 10 years 63,000,000 Ft. Lauderdale, FL ----------- -------------------- Total 2,597,095 390,000,000
We anticipate purchasing this American Express Portfolio from an unaffiliated third party. Our total acquisition cost, including expenses, is expected to be approximately $390,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $150 per square foot of leasable space. We intend to purchase these properties with our own funds. However, we expect to place financing on the properties totaling $233,532,000. The loan will require interest only payments at annual rates ranging between 4.2675% to 4.2975% and mature in January 2010 In evaluating these properties as potential acquisitions and determining the appropriate amount of consideration to be paid for the properties, we considered a variety of factors including location, demographics, quality of tenant, length of lease, price per square foot, occupancy and the fact that overall rental rate at the property is comparable to market rates. We believe that each of these properties is well located, has acceptable roadway access and is well maintained. These properties will be subject to competition from similar properties within their market area, and economic performance could be affected by changes in local economic conditions. We did not consider any other factors materially relevant to the decision to acquire these properties. American Express' related entities will lease 100% of the total gross square feet of each property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent % of Gross Total Square Approximate GSF of Estimated Foot Per Estimated Lessee/ Gross each Annual Annum Lease Term* Location Sq. Ft. Property Rent ($)** ($) Beginning To - ------------------------------------------------------------------------------------------------------------- 20022 N. 31st Avenue 337,439 100 3,505,734 10.39 12/04 11/13 Phoenix, AZ 20002 N. 19th Avenue 117,556 100 908,894 7.73 12/04 11/14 Phoenix, AZ
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Base Rent % of Gross Total Square Approximate GSF of Estimated Foot Per Estimated Lessee/ Gross each Annual Annum Lease Term* Location Sq. Ft. Property Rent ($)** ($) Beginning To - ------------------------------------------------------------------------------------------------------------- 1001 N. 3rd Avenue 541,542 100 6,167,495 11.39 12/04 11/14 Minneapolis, MN 3500 Packerland Drive 132,336 100 1,168,578 8.83 12/04 11/14 Depere, WI 101 McNabb Street 306,710 100 2,726,682 8.89 12/04 11/14 Markham, Ontario, Canada 4315 South 2700 West 395,787 100 3,116,208 7.87 12/04 11/14 Salt Lake City, UT 7701 Airport Center 389,377 100 3,635,576 9.34 12/04 11/14 Greensboro, NC 777 American Expressway 376,348 100 4,090,023 10.87 12/04 11/14 Ft. Lauderdale, FL
* Estimated lease term - Lease term to commence on date of sale of the property and have a primary ten year term. Tenant can exercise up to six five-year options on each property. ** Estimated annual rent for the first five years of the primary term. For federal income tax purposes, the depreciable basis in these properties will be approximately $292,500,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. For financial information of American Express, please see their financial statements filed with the United States of America Securities and Exchange Commission at www.sec.gov. GATEWAY PAVILION, AVONDALE, ARIZONA We purchased 318,410 gross leasable square feet (which includes 7,000 square feet of ground lease space) of a 620,000 square foot newly constructed shopping center known as Gateway Pavilion. We have the option to purchase the remaining portion upon completion during 2005. The center is located at Interstate 10 and 101 Loop Freeway in Avondale, Arizona. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost was approximately $65,141,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $216 per square foot of leasable space. 132 We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Circuit City, Sports Authority and Mor Furniture, each lease more than 10% of the total gross leasable area of the property. The lease terms will be determined in accordance with the tenant's commencement date. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Total Per Square GLA Leased Phase I Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------- Circuit City 32,500 10 13.08 12/03 01/19 Sports Authority 35,700 11 11.50 10/03 01/14 Mor Furniture* 35,000 11 9.90 12/04 11/14
* Ten year lease term has not yet commenced, however, the expiration date may change based upon the tenant's actual occupancy date. For federal income tax purposes, the depreciable basis in this property will be approximately $51,576,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. The portion of Gateway Pavilion which we purchased was newly constructed between 2003 and 2004. As of December 1, 2004, this property was 92% occupied, with a total of 292,505 square feet leased to 39 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per Square GLA Leased Annual Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------- Mattress Outlet 3,262 01/08 81,550 25.00 T-Mobile 2,200 02/08 61,600 28.00 Great Clips 1,200 02/08 31,200 26.00 Game Stop 1,505 02/08 39,130 26.00 Cold Stone Creamery 1,400 03/08 37,694 26.92 Port of Subs 1,800 04/08 48,204 26.78 Cactus Creek 1,300 05/08 33,800 26.00 Studio 101 1,261 11/08 30,264 24.00 Liberty Fitness 1,653 12/08 38,019 23.00 Eagle Flooring 3,220 12/08 81,272 25.24 AT&T Wireless 1,300 01/09 36,153 27.81
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Approximate Current Base Rent Per Square GLA Leased Annual Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------- Tan Frenzee 1,443 01/09 36,075 25.00 Jamba Juice 1,200 06/09 33,600 28.00 Remedy Temp, Inc. 1,200 06/09 32,400 27.00 Johnny Rockets* 2,368 09/09 59,200 25.00 Ray's Pizza 1,980 04/11 51,480 26.00 Saba's Western Wear 4,509 06/11 54,108 12.00 Native New Yorker 7,001 03/13 138,023 19.71 La Nails 2,200 03/13 55,000 25.00 Sunny Neigh DDS 2,000 03/13 51,000 25.50 Koyoto Bowl 1,980 03/13 43,560 22.00 Panda Express 2,256 03/13 58,656 26.00 Quizno's 1,472 03/13 36,800 25.00 Baja Fresh Mexican Grill 2,969 04/13 71,256 24.00 Starbucks 1,504 08/13 42,112 28.00 Marshalls 28,150 10/13 267,425 9.50 Bed, Bath & Beyond 25,063 01/14 275,693 11.00 Carrabbas 6,100 01/14 86,986 14.26 Sports Authority 35,700 01/14 410,550 11.50 Peter Piper Pizza 10,000 10/14 180,000 18.00 The Vitamin Shoppe* 4,500 10/14 135,000 30.00 Mor Furniture* 35,000 11/14 346,500 9.90 PETCO 14,668 01/15 238,355 16.25 Krispy Creme Doughnuts 4,200 12/18 80,000 19.05 Borders Books 20,000 01/19 245,000 12.25 Circuit City 32,500 01/19 438,750 13.50 Red Robin (Ground Lease) 7,000 03/19 85,000 N/A Paul Lee's Chinese Kitchen* 6,000 10/19 87,500 14.58 Village Inn 4,441 11/19 140,025 31.53 McDonalds 5,000 09/23 72,500 14.50
* Lease terms have not yet commenced, however, the expiration date may change based upon the tenant's actual occupancy date. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. FIVE FORKS, SIMPSONVILLE, SOUTH CAROLINA We purchased an existing shopping center known as Five Forks, containing 64,173 gross leasable square feet. The center is located at Woodruff Road and Batesville Road in Simpsonville, South Carolina. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost was approximately $8,086,000. This amount may increase by additional costs which have not yet been 134 finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $126 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Bi-Lo, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------- Bi-Lo 46,673 73 8.71 10/99 10/19
For federal income tax purposes, the depreciable basis in this property will be approximately $6,065,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Five Forks was built in 1999. As of December 1, 2004, this property was 95% occupied, with a total 60,673 square feet leased to eight tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per Square GLA Leased Annual Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------ Dr. Brian Hodges DMD 2,100 11/05 29,400 14.00 Summer Sun Adventures 2,000 12/06 28,000 14.00 Cost Cutters 1,600 12/06 22,400 14.00 Prime Communications 1,200 05/07 16,200 13.50 Postal Annex 1,600 11/07 23,200 14.50 Oxford Cleaners 1,500 12/09 21,750 14.50 El Jalisco 4,000 01/10 48,000 12.00 Bi-Lo 46,673 10/19 406,522 8.71
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 135 SHOPS AT FOREST COMMONS, ROUND ROCK, TEXAS We purchased an existing shopping center known as Shops at Forest Commons, containing 34,756 gross leasable square feet. The center is located at Gattis School Road and CR 12 in Round Rock, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $7,505,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $216 per square foot of leasable space. We anticipate purchasing this property with our own funds and assumption of the existing mortgage debt on the property. The outstanding balance on the mortgage debt is approximately $5,250,000. This loan requires monthly principal and interest payments based on a fixed interest rate of 6.34% per annum. The loan matures in September 2013. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Blockbuster Video, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------- Blockbuster Video 4,000 12 18.00 01/03 12/07
For federal income tax purposes, the depreciable basis in this property will be approximately $5,629,800. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Shops at Forest Commons was built during 2002. As of December 1, 2004, this property was 100% occupied, with a total 34,756 square feet leased to 16 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per Square GLA Leased Annual Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------ Scap Stop 2,226 09/07 40,068 18.00 Austin's Pizza 1,442 11/07 25,956 18.00 Subway 1,602 11/07 28,836 18.00 Blockbuster Video 4,000 12/07 72,000 18.00 Moondance Wine and Spirit 3,162 12/07 56,916 18.00 Post Net 1,522 12/07 28,918 19.00
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Approximate Current Base Rent Per Square GLA Leased Annual Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------ Reid's Cleaners 1,242 12/07 22,356 18.00 Nail & Skin 1,362 12/07 27,240 20.00 Cost Cutters 1,522 01/08 27,396 18.00 TCBY 1,282 01/08 25,640 20.00 Common Grounds (Coffee House) 2,228 04/08 40,104 18.00 Bamboo Cafe 2,721 05/08 54,420 20.00 Niblocks ATA Black B 2,424 07/08 43,632 18.00 VP Salon & Gifts 2,684 08/08 48,312 18.00 Cardsmart 2,645 11/09 47,610 18.00 St. David's 2,692 05/10 48,456 18.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PLACENTIA TOWN CENTER, PLACENTIA, CALIFORNIA We purchased 110,962 gross leasable square feet of a 142,666 square foot existing shopping center known as Placentia Town Center. The center is located at Yorba Linda Boulevard and Kraemer Boulevard in Placentia, California. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $24,865,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $224 per square foot of leasable space. We anticipate purchasing this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Ross Dress for Less, OfficeMax and Bank of America, each lease more than 10% of the total gross leasable area of the portion of the property we purchased. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------- Ross Dress for Less 26,400 24 12.75 12/95 01/06 OfficeMax 24,768 22 12.00 01/97 12/11
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Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------- Bank of America 11,162 10 22.44 05/75 05/14
For federal income tax purposes, the depreciable basis in this property will be approximately $18,649,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Placentia Town Center was built in 1973 and redeveloped in 2000. As of December 1, 2004, the portion of the property we purchased was 100% occupied, with a total 110,962 square feet leased to 21 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per Square GLA Leased Annual Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------- Bagel Me 2,000 01/05 50,148 25.07 Baskin Robbins 1,117 04/05 26,808 24.00 Beauty Avenue 4,720 09/05 84,205 17.84 Courtesy Cleaners 1,200 10/05 25,896 21.56 Ross Dress for Less 26,400 01/06 336,600 12.75 Don's Shoe Repair 480 01/08 12,115 25.24 Suntan Shop 2,000 04/08 47,841 23.92 KC Nails 1,080 06/08 17,304 16.02 One N One Clothing 2,950 08/08 55,209 18.71 Ha-P Discount 4,130 11/08 64,428 15.60 Paolini's 3,940 06/09 59,100 15.00 Whole Enchilada 2,580 07/09 42,500 16.47 Tossed Board Shop 2,596 09/09 52,335 20.16 Jewels by Justin 2,360 10/09 37,620 15.94 Kwon's Olympic Tae Kwon Do 1,800 12/09 23,362 12.98 Huntington Learning Center 3,304 01/10 65,419 19.80 Philly's Best 1,525 12/10 42,410 27.81 OfficeMax 24,768 12/11 297,216 12.00 Wok Experience 1,915 10/13 62,142 32.45 Bank of America 11,162 05/14 250,475 22.44 Marie Callender's 8,935 10/14 128,160 14.34
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 138 NORTHWOODS SHOPPING CENTER, WESLEY CHAPEL, FLORIDA We purchased a portion of a newly constructed shopping center known as Northwoods Shopping Center, consisting of 96,151 gross leasable square feet. We purchased 74,647 gross leasable square feet (which includes 3,150 square feet of ground lease space) and intend to purchase the remaining 21,504 square feet when construction has been completed and the tenants have commenced paying rent for the remaining portion. The center is located Bruce B. Downs Boulevard and County Line Road in Wesley Chapel, Florida. We purchased this property from an unaffiliated third party. Our total acquisition cost for the portion we purchased was approximately $13,963,800 and the remaining portion will be approximately $6,386,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost for the portion we purchased was approximately $212 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Marshalls and PETCO, each lease more than 10% of the total gross leasable area of the portion of the property we purchased. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------- Marshalls 30,000 31 7.95 08/03 07/13 PETCO 15,257 16 15.25 11/02 11/12
For federal income tax purposes, the depreciable basis in the portion of the property we purchased will be approximately $10,473,000 and will be approximately $15,263,000 once we have purchased the remaining portion. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Northwoods Center was built between 2002 and 2004. As of December 1, 2004, the portion of the property we purchased was 100% occupied, with a total 74,647 square feet leased to 15 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per Square GLA Leased Annual Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------- Nails on Nails 1,139 12/07 27,336 24.00 Hair Masters 1,106 01/08 24,332 22.00
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Approximate Current Base Rent Per Square GLA Leased Annual Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------- Art Mart 1,301 02/08 28,622 22.00 Post Net 1,302 02/08 27,459 21.09 EB Games 2,000 04/08 50,000 25.00 Leslie's Poolmart, Inc. 2,269 12/08 51,053 22.50 Washington Mutual Bank 4,000 04/09 104,000 26.00 Pizza Suprema II 2,304 03/10 46,080 20.00 Dr. Jiminez 1,700 04/10 35,700 21.00 PETCO 15,257 11/12 232,669 15.25 Futons, Etc. 2,500 12/12 52,500 21.00 Ho's Chinese 1,019 01/13 22,418 22.00 Honey Baked Ham 2,800 06/13 61,600 22.00 Marshalls 30,000 07/13 238,500 7.95 Payless Shoesource 2,800 11/13 50,008 17.86 Arby's (Ground Lease) 3,150 03/23 54,999 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. GATEWAY STATION, COLLEGE STATION, TEXAS We purchased a portion of a newly constructed shopping center known as Gateway Station, consisting of 23,438 gross leasable square feet. We purchased 19,537 gross leasable square feet and intend to purchase the remaining 3,901 square feet when construction has been completed and the tenants have commenced paying rent for the remaining portion. The center is located at 1501 University Drive at Loop 6 in College Station, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost for the portion we purchased was approximately $5,093,400 and the remaining portion will be approximately $1,407,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost for the portion we purchased was approximately $261 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Five tenants, Kirkland's, Talbots, Joseph A. Banks, Chico's and Heartworks, each lease more than 10% of the total gross leasable area of the portion of the property we purchased. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows: 140
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------------------- Kirkland's 5,000 20 22.00 06/04 01/15 Talbots 4,200 20 18.00 08/04 01/15 Joseph A. Banks 3,905 10 20.00 06/04 01/15 Chico's 2,740 10 20.00 06/04 06/09 Heartworks 2,191 10 25.00 12/04 11/09
For federal income tax purposes, the depreciable basis in the portion of the property we purchased will be approximately $3,820,000 and will be approximately $4,875,000 once we purchase the remaining portion. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Gateway Station was built during 2003 and 2004. As of December 1, 2004, the portion of the property we purchased was 100% occupied, with a total 19,537 square feet leased to six tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per Square GLA Leased Annual Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------ Chico's 2,740 06/09 54,806 20.00 Heartworks 2,191 11/09 54,774 25.00 Douglas Jewelers 1,754 03/10 43,850 25.00 Kirkland's 5,000 01/15 110,000 22.00 Talbots 4,200 01/15 75,600 18.00 Joseph A. Banks 3,905 01/15 78,100 20.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. EDGEMONT TOWN CENTER, HOMEWOOD, ALABAMA We purchased an existing shopping center known as Edgemont Town Center, containing 77,655 gross leasable square feet. The center is located at 411 Green Springs Highway in Homewood, Alabama. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $15,639,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $201 per square foot of leasable space. 141 We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of nay monies spent pursuant to the provisions of their respective leases. One tenant, Publix, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------------------- Publix 44,840 58 12.00 11/03 12/23
For federal income tax purposes, the depreciable basis in this property will be approximately $11,729,000. When we calculate depreciation expense for tax purposes, we will sue the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Edgemont Town Center was built in 2003. As of December 1, 2004, this property was 95% occupied, with a total 74,055 square feet leased to 15 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Current Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($) - ---------------------------------------------------------------------------------------------------------------------- Nextel Communications 1,360 11/06 25,840 19.00 Crown Jewelry 1,600 11/08 30,400 19.00 Mr. Burch Formalwear, Inc. 2,000 11/08 38,000 19.00 Pet Supplies Plus 6,000 12/08 114,000 19.00 Firehouse Subs 1,600 12/08 30,400 19.00 Headstart Family Hair Salons 1,680 01/09 23,940 14.25 Mobility Central, Inc. 1,600 02/09 30,400 25.00 Sally Beauty Supplies 1,615 08/09 32,300 20.00 EB Games 1,200 10/09 30,000 25.00 L.V. Nails 1,360 11/13 25,840 19.00 Hunan Wok 1,600 02/14 30,400 19.00 Qdoba Mexican Grill* 2,400 12/14 60,000 25.00 Bama Wings* 1,200 12/14 30,000 25.00 Deep South Barbecue* 4,000 01/15 76,000 19.00 Publix 44,840 12/23 538,080 12.00
* Ten year lease term has not yet commenced, however, the expiration date may change based upon the tenant's actual occupancy date. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for 142 such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. UNIVERSITY TOWN CENTER, TUSCALOOSA, ALABAMA We purchased an existing shopping center known as University Town Center, containing 57,250 gross leasable square feet. The center is located at 1190 University Boulevard in Tuscaloosa, Alabama. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $10,569,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $185 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Publix, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------------------- Publix 28,800 50 13.85 06/04 06/24
For federal income tax purposes, the depreciable basis in this property will be approximately $7,927,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. University Town Center was built in 2002. As of December 1, 2004, this property was 100% occupied, with a total 57,250 square feet leased to 15 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Current Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($) - ---------------------------------------------------------------------------------------------------------------------- Sun and Soul 3,665 09/07 62,305 17.00 Movie Gallery 2,411 10/07 40,987 17.00 The UPS Store 2,479 12/07 44,622 18.00 Cold Stone Creamery 1,713 01/08 39,399 23.00 Firehouse Subs 1,827 01/08 34,713 19.00 Bad Ass Coffee 1,947 02/08 44,781 23.00 Headstart Family Hair Salons 1,485 02/08 34,155 23.00 Southtrust Bank (ATM) 42 04/08 7,800 185.71
143
Approximate Base Rent Per GLA Leased Current Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($) - ---------------------------------------------------------------------------------------------------------------------- Private Gallery 1,964 09/08 45,172 23.00 Nail Club 1,449 02/09 27,531 19.00 The Buzz 1,378 03/09 26,871 19.50 University Wireless 3,022 07/09 57,418 19.00 Qdoba Mexican Grill 2,641 11/12 60,743 23.00 Hud Guthrie's 2,427 12/12 46,113 19.00 Publix 28,800 06/24 398,880 13.85
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. ZURICH TOWERS, SCHAUMBURG, ILLINOIS We purchased two connecting, 20 story, tower office buildings, containing approximately 895,418 gross leasable square feet. The towers are located at 1400-1450 E. American Lane in Schaumburg, Illinois. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $138,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $154 per square foot of leasable space. We purchased this property with our own funds. On November 23, 2004, we obtained financing in the amount of $81,420,000. The loan requires interest only payments at an annual rate of 4.247% and matures in December 2034. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenant would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of its lease. One tenant, Zurich American Insurance Company, leases 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis over the next twelve years as follows:
Base Rent Approximate % of Current Per Square GLA Leased Total Annual Foot Per Renewal Lease Term Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To - ---------------------------------------------------------------------------------------------------------------------- Zurich American Insurance Company 895,418 100 8,883,864 9.92 5/5 yr. 12/04 11/16
144 For federal income tax purposes, the depreciable basis in this property is approximately $103,500,000. When we calculate depreciation expense for tax purposes, we will sue the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. OSWEGO COMMONS, OSWEGO, ILLINOIS We purchased a portion of an existing shopping center known as Oswego Commons. This transaction is comprised of 188,150 gross leasable square feet. The center is located at 3080 Route 34 in Oswego, Illinois. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $35,022,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $186 per square foot of leasable space. We purchased this property with our own funds. On November 23, 2004, we obtained financing in the amount of $19,262,100. The loan requires interest only payments at an annual rate of 4.75% and matures in December 2011. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Dominick's, T.J. Maxx and OfficeMax, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------------------- Dominick's 65,844 35 12.21 03/02 03/22 T.J. Maxx 28,144 15 10.20 10/02 09/12 OfficeMax 20,015 11 14.00 11/03 10/18
For federal income tax purposes, the depreciable basis in this property will be approximately $26,267,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Oswego Commons was constructed in phases from 2002 to 2004. As of December 1, 2004, this property was 98% occupied, with a total 183,950 square feet leased to 21 tenants. The following table sets forth certain information with respect to those leases: 145
Approximate Current Base Rent Per Square GLA Leased Annual Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------ 3 Day Blinds 1,802 09/07 44,100 24.47 Quizno's 1,612 09/07 36,864 22.87 Lee Nails 919 10/07 22,938 24.96 EB Games 2,015 01/08 47,352 23.50 All Cleaners 1,100 01/08 28,920 26.29 Lemstone 2,334 10/08 44,340 19.00 American Mattress 4,200 03/09 92,400 22.00 Oreck Home Care 1,500 05/09 34,500 23.00 Hallmark 4,413 01/10 72,240 16.37 T-Mobile 1,920 12/11 57,900 30.16 Great Clips 1,163 07/12 27,660 23.78 Panera Bread 4,200 09/12 96,600 23.00 T.J. Maxx 28,144 09/12 287,000 10.20 Coldstone Creamery 1,400 01/13 33,600 24.00 Payless Shoes 2,496 02/13 52,416 21.00 Famous Footwear 9,773 03/13 134,376 13.75 Party City 12,012 03/13 176,448 14.69 PETCO 13,788 10/13 181,308 13.15 Zales Jewelry 3,300 04/14 79,200 24.00 OfficeMax 20,015 10/18 280,200 14.00 Dominick's 65,844 03/22 804,000 12.21
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. FOX CREEK VILLAGE, LONGMONT, COLORADO We purchased a newly constructed shopping center known as Fox Creek Village, containing 139,730 gross leasable square feet which includes 39,200 square feet of ground lease space. The center is located at 1601 Pace Street and 815 East 175th Avenue in Longmont, Colorado. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $20,883,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $149 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. 146 One tenant, King Soopers, leases more than 10% of the total gross leasable area of the property under a lease and a ground lease. The leases with this tenant require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------------------- King Soopers 68,657 49 10.12 11/03 11/23 King Soopers Fuel Site (Ground Lease) 29,200 21 N/A 11/03 11/18
For federal income tax purposes, the depreciable basis in this property will be approximately $15,750,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Fox Creek Village was built during 2003 and 2004. As of December 1, 2004, this property was 86% occupied, with a total 120,162 square feet leased to 12 tenants and two ground lease tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per Square GLA Leased Annual Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------ Caliber Cleaners 1,300 02/09 29,904 23.00 Cost Cutters 1,300 02/09 29,904 23.00 Nicolo's Chicago Style Pizza 2,477 02/09 54,504 22.00 Eyeluminations 1,400 02/09 30,804 22.00 Subway 1,580 03/09 34,764 22.00 Starbucks Coffee 1,500 06/09 40,500 27.00 Hi-Fi Nails 1,300 05/09 29,904 23.00 Shape Up to Ship Out 1,300 05/09 27,300 21.00 Squeeze International 1,400 08/09 31,500 22.50 PostNet 1,300 09/09 28,596 22.00 Vino Cellars Wine & Liquor 3,948 01/14 82,908 21.00 King Soopers Fuel Site (Ground Lease) 29,200 11/18 20,000 N/A King Soopers 68,657 11/23 695,100 10.12 World Savings Bank (Ground Lease) 3,500 08/24 88,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 147 PUBLIX SHOPPING CENTER, MT. PLEASANT, SOUTH CAROLINA We purchased a newly constructed shopping center known as Publix Shopping Center, containing 63,916 gross leasable square feet. The center is located at US Highway 17 and Park West boulevard in Mt. Pleasant, South Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $12,047,000. These amounts may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $188 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Publix, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------------------- Publix 44,840 70 11.50 04/04 04/24
For federal income tax purposes, the depreciable basis in this property will be approximately $9,035,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Publix Center is newly constructed and was completed during 2004. As of December 1, 2004, the property was 95% occupied with a total of 60,510 square feet leased to 11 tenants. The following table sets forth certain information with respect to those leases:
Base Rent Approximate Current Per Square GLA Leased Lease Renewal Annual Rent Foot Per Lessee (Sq. Ft.) Ends Options ($) Annum ($) - ---------------------------------------------------------------------------------------------------------------------- O'Neill Liquor 1,427 05/09 1/4 yr. 25,814 18.09 Dry Clean USA 1,056 06/09 2/5 yr. 20,592 19.50 Homeflix/Zone 3 Entertainment 3,756 06/09 3/4 yr. 67,608 18.00 Dr. Joe Marcuvich, Chiropractor 1,414 07/09 2/5 yr. 27,573 19.50 Cellular Wireless 1,000 08/09 - 21,500 21.50 Pak Mail 970 08/09 - 20,855 21.50 Chinese Restaurant 1,656 08/09 1/5 yr. 33,120 20.00
148
Base Rent Approximate Current Per Square GLA Leased Lease Renewal Annual Rent Foot Per Lessee (Sq. Ft.) Ends Options ($) Annum ($) - ---------------------------------------------------------------------------------------------------------------------- Lady Fitness Center 1,502 09/09 1/5 yr. 28,538 19.00 Nail Salon 1,014 09/09 1/5 yr. 20,280 20.00 The Salon at Parkwest 1,875 10/09 - 36,563 19.50 Publix 44,840 04/24 6/5 yr. 515,660 11.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. WINCHESTER COMMONS, MEMPHIS, TENNESSEE We purchased an existing shopping center known as Winchester Commons, containing 93,024 gross leasable square feet. The center is located on 7956 Winchester Road, in Memphis, Tennessee. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $13,023,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $140 per square foot of leasable space. We purchased this property with our own funds. On November 15, 2004, we obtained financing in the amount of $7,235,000. The loan requires interest only payments at an annual rate of 5.12% and matures in December 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Kroger, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------------------- Kroger 59,670 64 8.24 05/99 04/19
For federal income tax purposes, the depreciable basis in this property will be approximately $9,767,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Winchester Commons was built in 1999. As of December 1, 2004, this property was 98% occupied, with a total 91,424 square feet leased to 15 tenants. The following table sets forth certain information with respect to those leases: 149
Base Rent Per Approximate Current Square Foot GLA Leased Lease Renewal Annual Rent Per Annum Lessee (Sq. Ft.) Ends Options ($) ($) - --------------------------------------------------------------------------------------------------------------------- The Steak Escape 1,600 01/05 2/5 yr. 26,800 16.75 Shirley's Hallmark 4,400 02/05 3/5 yr. 52,800 12.00 The Wine Cellar 4,000 03/06 - 68,000 17.00 China Dragon Restaurant 2,400 10/06 1/5 yr. 39,600 16.50 Opportunity Mortgage (A+ Wireless) 1,534 12/06 - 24,544 16.00 Dental Partners of Tennessee 2,000 02/07 1/6 yr. 35,500 17.75 Sunsations 1,600 07/07 - 28,000 17.50 Greg Pickett Golf 1,600 01/09 1/5 yr. 28,272 17.67 The UPS Store 2,000 01/09 - 34,000 17.00 Southwinds Cleaners 1,600 01/09 - 27,600 17.25 Fantastic Sam's 1,600 05/09 - 30,000 18.75 Nextel Communications 1,600 05/09 1/5 yr. 33,600 21.00 East End Grill 3,600 07/09 1/5 yr. 59,400 16.50 For Your Eyes Only 2,220 09/09 - 39,960 18.00 Kroger 59,670 04/19 6/5 yr. 491,760 8.24
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. MANSFIELD TOWNE CROSSING, MANSFIELD, TEXAS We purchased 95,227 square feet of a newly constructed shopping center known as Mansfield Towne Crossing, which will contain 111,651 gross leasable square feet of which 4,500 square feet is ground lease space. The center is located at Highway 287 and Debbie Lane, in Mansfield, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost for the entire property will be approximately $19,967,700. Our acquisition cost for the portion we purchased was approximately $16,055,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost for the entire property will be approximately $178 per square foot of leasable space. We purchased this property with our own funds. On November 12, 2004, we obtained financing in the amount of $10,982,300. The loan requires interest only payments at an annual rate of 5.215% and matures in December 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Ross Dress for Less and Staples, will lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows: 150
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------- Ross Dress for Less 30,187 27 9.25 05/04 01/15 Staples 20,388 18 10.50 08/03 08/18
For federal income tax purposes, the depreciable basis in this property when completed will be approximately $14,976,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Mansfield Towne Crossing was newly constructed in 2003 and 2004. As of December 1, 2004, the portion of the property we purchased was 100% occupied, with a total 95,227 square feet leased to 19 tenants and one ground lease tenant, and is currently leasing up the remaining retail space within the shopping center. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ---------------------------------------------------------------------------------------------------------------------- AT & T Wireless 2,500 07/08 1/5 yr. 55,000 22.00 EB Games 1,500 09/08 2/5 yr. 31,500 21.00 The Cash Store 1,600 09/08 2/5 yr. 30,400 19.00 Sport Clips 1,440 10/08 2/5 yr. 30,240 21.00 GNC 1,200 01/09 2/5 yr. 22,800 19.00 Luxury Nails 1,013 02/09 2/5 yr. 20,260 20.00 Dr. Michael Polson 1,060 05/09 1/5 yr. 20,140 19.00 Robertson Pools 1,440 06/09 2/5 yr. 25,920 18.00 Bath Junkie 1,200 06/09 2/5 yr. 22,800 19.00 Sally Beauty Supplies 1,600 07/09 2/5 yr. 27,200 17.00 Subway 1,600 08/09 2/5 yr. 28,800 18.00 Creekside Collections 3,811 09/09 1/5 yr. 62,882 16.50 Zales Jewelers 3,000 11/13 3/5 yr. 64,500 21.50 Payless Shoesource 3,000 03/14 2/5 yr. 54,000 18.00 Famous Footwear 8,000 07/14 3/5 yr. 120,000 15.00 Pier 1 Imports 10,807 08/14 2/5 yr. 162,105 15.00 Ross Dress for Less 30,068 01/15 5/5 yr. 278,129 9.25 Staples 20,388 08/18 3/5 yr. 214,074 10.50 Mansfield Urgent Care* 3,000 09/09 58,500 19.50 Regions Bank (Ground Lease)* 4,500 09/23 75,000 N/A
* Tenant has leased space in the portion of the property we have not yet purchased. The lease has not commenced as of December 1, 2004. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for 151 such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. ACADEMY SPORTS & OUTDOORS, MIDLAND, TEXAS We purchased a newly constructed freestanding retail center known as Academy Sports & Outdoors, containing 61,150 gross leasable square feet. The center is located at 5312 West Wadley Avenue in Midland, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $4,250,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $70 per square foot of leasable space. We purchased this property with our own funds. On December 2, 2004, we obtained financing in the amount of $2,337,500. The loan requires interest only payments at an annual rate of 5.12% and matures in January 2010. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenant would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their lease. One tenant, Academy Sports & Outdoors, will lease 100% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Approximate Current Base Rent Per GLA Leased % of Total Annual Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------- Academy Sports & Outdoors 61,150 100 340,000 5.56 10/04 10/14 374,000 6.12 11/14 10/24
For federal income tax purposes, the depreciable basis in this property will be approximately $3,188,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. CVS PHARMACY, SYLACAUGA, ALABAMA We purchased a newly constructed 10,055 square foot retail building, leased to CVS Pharmacy. The center is located at 2 North Broadway Avenue in Sylacauga, Alabama. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $3,066,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $305 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. 152 We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenant would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their lease. One tenant, CVS Pharmacy, leases 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Current Per Square GLA Leased Total Annual Foot Per Renewal Lease Term (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To - ---------------------------------------------------------------------------------------------------------------------- CVS Pharmacy 10,055 100 231,164 22.99 - 08/04 01/30
For federal income tax purposes, the depreciable basis in this property will be approximately $2,299,500. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. GURNEE TOWN CENTER, GURNEE, ILLINOIS We purchased an existing shopping center known as Gurnee Town Center, containing 179,602 gross leasable square feet. The center is located at 7105 Grand Avenue in Gurnee, Illinois. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $44,256,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $246 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Four tenants, Linens 'N Things, Old Navy, Borders Books & Music and Cost Plus World Market, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------------- Linens 'N Things 34,000 19 11.50 12/00 01/06 12.50 02/06 01/11 Old Navy 25,090 14 14.00 02/01 01/06
153
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------------- Borders Books & Music 24,878 14 16.00 10/00 10/05 17.00 11/05 10/10 19.36 11/10 10/15 21.30 11/15 01/21 Cost Plus World Market 18,300 10 13.50 10/00 01/03 14.00 02/03 01/06 14.50 02/06 01/11
For federal income tax purposes, the depreciable basis in this property will be approximately $33,192,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Gurnee Towne Center was built during 2000. As of December 1, 2004, this property was 96% occupied, with a total 172,188 square feet leased to 26 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ---------------------------------------------------------------------------------------------------------------------- Earthly Goods 2,300 12/05 2/5 yr. 42,550 18.50 Oreck Floor Care Centers 1,600 01/06 1/5 yr. 35,200 22.00 Old Navy 25,090 01/06 2/5 yr. 251,260 14.00 Quizno's Classic Subs 1,600 02/06 2/5 yr. 44,800 28.00 Famous Footwear 8,650 01/06 4/5 yr. 155,700 18.00 Hallmark Creations 6,405 02/06 3/5 yr. 115,290 18.00 Supercuts 1,200 05/06 3/5 yr. 33,600 28.00 After Hours Formalwear 1,050 06/06 2/5 yr. 31,500 30.00 Salon Jazz 1,785 08/06 1/5 yr. 48,195 27.00 Cali Nails 1,000 11/06 1/5 yr. 30,000 30.00 Towne Vision Center 1,360 12/06 1/5 yr. 40,800 30.00 RadioShack 2,700 02/07 2/5 yr. 81,000 30.00 Slott's Hots 2,000 09/07 2/5 yr. 67,900 33.95 Linens 'N Things 34,000 01/11 2/5 yr. 391,000 11.50 Cost Plus World Market 18,300 01/11 3/5 yr. 256,200 14.00 PPG Architectural Finishes 4,000 01/11 2/5 yr. 76,000 19.00 AT&T Wireless 2,800 01/11 2/5 yr. 72,800 26.00 Panda Express 2,240 02/11 2/5 yr. 62,720 28.00 Starbucks 2,500 03/11 2/5 yr. 75,000 30.00 Signature Cleaner 1,600 04/11 2/5 yr. 48,000 30.00 Bedding Experts 3,500 04/11 2/5 yr. 105,000 30.00 Giordano's 3,200 07/11 4/5 yr. 96,000 30.00
154
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ---------------------------------------------------------------------------------------------------------------------- Bath & Body Works 2,340 01/12 2/5 yr. 51,480 22.00 The Avenue 5,250 01/13 4/5 yr. 94,500 18.00 Pier 1 Imports 10,840 08/13 2/5 yr. 217,340 20.05 Borders Books & Music 24,878 01/21 4/5 yr. 398,048 16.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. ACADEMY SPORTS & OUTDOORS, PORT ARTHUR, TEXAS We purchased a newly constructed freestanding retail center known as Academy Sports & Outdoors, containing 61,001 gross leasable square feet. The center is located at Memorial Boulevard at Highway 365 in Port Arthur, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $5,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $82 per square foot of leasable space. We purchased this property with our own funds. On November 1, 2004, we obtained financing in the amount of $2,775,000. The loan requires interest only payments at an annual rate of 5.12% and matures in November 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Academy Sports & Outdoors, will lease 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Annual Square Foot Per Lease Term (Sq. Ft.) GLA Rent ($) Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------------- Academy Sports & Outdoors 61,001 100 400,000 6.56 10/04 10/12 440,000 7.21 11/12 10/24
For federal income tax purposes, the depreciable basis in this property will be approximately $3,750,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. 155 PLAZA AT RIVERLAKES, BAKERSFIELD, CALIFORNIA We purchased an existing shopping center known as Plaza at Riverlakes, containing 102,836 gross leasable square feet. The center is located at Hageman Road and Calloway Drive in Bakersfield, California. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $17,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $165 per square foot of leasable space. We purchased this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Ralph's Grocery Store, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------- Ralph's Grocery Store 58,000 56 6.03 11/01 11/26
For federal income tax purposes, the depreciable basis in this property will be approximately $13,050,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Plaza at Riverlakes was built during 2001. As of December 1, 2004, this property was 100% occupied, with a total 102,836 square feet leased to 22 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Lease Renewal Current Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------ Jane's Jewelers 1,170 12/04 1/5 yr. 23,868 20.40 State Farm Insurance 1,170 12/04 1/4 yr. 24,300 20.77 Team Gear 1,463 01/06 1/3 yr. 28,944 19.78 Coldwell Banker 2,260 07/06 2/1 yr. 45,288 20.04 Movie Gallery 4,800 11/06 1/5 yr. 103,680 21.60 Pacific West Wireless 1,495 12/06 1/5 yr. 31,392 21.00 Desired Image Tanning Salon 1,275 02/07 - 26,772 21.00 Angel Food Donuts 1,268 02/07 1/5 yr. 24,684 19.47
156
Approximate Base Rent Per GLA Leased Lease Renewal Current Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------------ Supercuts 1,202 02/07 1/5 yr. 26,916 22.39 One House Martinizing 1,200 04/07 1/5 yr. 26,208 21.84 Miss Holiday 1,360 06/07 1/3 yr. 24,480 18.00 R.J.'s at Riverlakes 2,500 08/07 1/5 yr. 54,621 21.85 Teaze Salon 1,885 10/07 1/5 yr. 30,028 15.93 Xanders Grill 2,000 10/07 1/5 yr. 42,012 21.01 Planet Smoothie 1,490 09/09 29,508 19.80 Wells Fargo Financial 1,925 09/09 1/5 yr. 41,580 21.60 Dewar's Candy Shop 2,885 12/11 2/5 yr. 48,468 16.80 Baja Fresh Mexican Grill 3,010 03/13 3/5 yr. 61,404 20.40 Fitness 19 7,200 03/13 2/5 yr. 127,728 17.74 The UPS Store 1,778 05/13 2/5 yr. 37,344 21.00 Quick One Chinese 1,500 06/14 30,060 20.04 Ralph's Grocery Store 58,000 11/26 7/5 yr. 350,004 6.03
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. LAKE MARY POINTE, ORLANDO, FLORIDA We purchased an existing shopping center known as Lake Mary Pointe, containing 51,052 gross leasable square feet. The center is located at U.S. 17-92 and Weldon Boulevard, in Orlando, Florida. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $6,620,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $130 per square foot of leasable space. We purchased this property with our own funds. On November 8, 2004, we obtained financing in the amount of $3,657,500. The loan requires interest only payments at an annual rate of 5.17% and matures in December 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Publix, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows: 157
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------- Publix 37,866 74 8.60 12/99 12/19
For federal income tax purposes, the depreciable basis in this property will be approximately $4,965,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Lake Mary Pointe was built in 1999. As of December 1, 2004, this property was 96% occupied, with a total 48,952 square feet leased to nine tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------------ GNC 1,050 12/04 - 21,525 20.50 Hair Cuttery 1,050 02/05 1/5 yr. 23,931 22.79 Avenue Nails 1,043 08/05 1/5 yr. 25,623 24.57 Pak Mail Center 1,050 09/05 1/5 yr. 24,227 23.07 Vivonia's Italian Pizzeria 3,750 09/06 1/5 yr. 84,365 22.50 White Swan Cleaners 1,050 12/08 - 16,800 16.00 Subway 1,050 02/09 3/5 yr. 17,063 16.25 China Cook 1,043 07/11 1/5 yr. 20,516 19.67 Publix 37,866 12/19 6/5 yr. 325,648 8.60
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. AZALEA SQUARE SHOPPING CENTER, SUMMERVILLE, SOUTH CAROLINA We purchased a portion of a newly constructed shopping center known as Azalea Square Shopping Center, containing 395,738 gross leasable square feet (which includes one ground lease space). We intend to purchase 181,942 square feet of that shopping center including the ground lease space. The center is located at U.S. 17-A and Interstate 26 in Summerville, South Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost for the portion we purchased was approximately $30,012,500. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost for the portion we purchased was approximately $165 per square foot of leasable space. We purchased this property with our own funds. On November 12, 2004, we obtained financing in the amount of $16,535,000. The loan requires interest only payments at an annual rate of 5.01% and matures in December 2009. 158 We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Five tenants, T.J. Maxx, Linens 'N Things, Ross Dress for Less, Cost Plus World Market and PETsMART, each lease more than 10% of the total gross leasable area of the portion of the property we purchased. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Lease Term Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------- T.J. Maxx 30,000 16 7.75 07/03 07/08 8.25 08/08 07/13 Linens 'N Things 25,395 14 10.75 09/03 01/09 11.00 02/09 01/14 Ross Dress for Less 30,187 17 9.50 06/03 01/14 Cost Plus World 18,300 10 12.50 09/04 01/10 Market 13.50 02/10 01/15 PETsMART 19,107 11 11.00 08/04 01/10 11.75 02/10 01/15 12.50 02/15 01/20
For federal income tax purposes, the depreciable basis in this property will be approximately $22,509,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Azalea Square was newly constructed in 2003 and 2004. As of December 1, 2004, the property was 97% occupied with a total 177,042 square feet leased to 19 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Current Base Rent Per Approximate GLA Lease Renewal Annual Rent Square Foot Per Lessee Leased (Sq. Ft.) Ends Options ($) Annum ($) - ------------------------------------------------------------------------------------------------------------- Dress Barn 8,050 09/08 3/5 yr. 120,750 15.00 Artisan Jewelers 2,400 10/08 1/5 yr. 59,328 24.72 EB Games 1,600 10/08 1/5 yr. 36,800 23.00 S&K Menswear 3,603 10/08 2/5 yr. 64,854 18.00 Sport Clips 1,200 11/08 2/5 yr. 25,200 21.00 Phone Smart 1,800 12/08 2/5 yr. 37,800 21.00 Princess Nails 1,500 04/09 1/5 yr. 36,000 24.00 Marble Slab Creamery 1,200 06/09 1/5 yr. 26,400 22.00 American Mattress 2,800 08/09 1/5 yr. 64,400 23.00
159
Current Base Rent Per Approximate GLA Lease Renewal Annual Rent Square Foot Per Lessee Leased (Sq. Ft.) Ends Options ($) Annum ($) - ------------------------------------------------------------------------------------------------------------- Rococo Bakery 1,500 10/09 1/5 yr. 27,744 18.50 Hibbett Sporting Goods 5,000 01/10 2/5 yr. 70,000 14.00 T.J. Maxx 30,000 07/13 3/5 yr. 232,500 7.75 Pier 1 Imports 10,800 08/13 2/5 yr. 167,400 15.50 Linens 'N Things 25,395 01/14 3/5 yr. 272,996 10.75 Ross Dress for Less 30,000 01/14 4/5 yr. 286,776 9.50 Shoe Carnival 9,000 03/14 2/5 yr. 112,500 12.50 McAllisters Deli 3,600 06/14 2/5 yr. 75,600 21.00 Cost Plus World Market 18,300 01/15 3/5 yr. 228,750 12.50 PETsMART 19,107 01/20 4/5 yr. 210,177 11.00 Logans (Ground Lease) * 11/23 4/5 yr. 65,000 N/A
* To be determined In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. DENTON CROSSING, DENTON, TEXAS We purchased the completed portion of a shopping center that is still under construction which is known as Denton Crossing. We purchased 278,840 gross leasable square feet which had been completed out of approximately 329,663 gross leasable square feet. The remaining portion of the shopping center will be completed in stages over the next two years. The center is located at 1800 S. Loop 288 in Denton, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost for the portion we purchased was approximately $53,402,000 with $10,598,000 remaining under contract for completion. These amounts may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost for the portion we purchased was approximately $192 per square foot of leasable space and, upon completion, we be approximately $194 per square foot of leasable space. We purchased this property with our own funds. On December 7, 2004, we obtained financing in the amount of $35,200,000. The loan requires interest only payments at an annual rate of 4.30% and matures in January 2010. We do not intent to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. 160 Three tenants, Oshman's Sporting Goods, Best Buy and T.J. Maxx, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------- Oshman's Sporting Goods 50,000 18 10.00 12/03 01/14 Best Buy 30,000 11 12.00 10/03 01/09 12.50 02/09 01/14 T.J. Maxx 28,000 10 9.25 09/03 09/08 9.75 10/08 09/13
For federal income tax purposes, the depreciable basis in this property will be approximately $38,428,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Denton Crossing commenced construction in 2003 and we believe it will be completed within the next two years. As of December 1, 2004, the portion of the shopping center we purchased was 92% occupied with a total 257,833 square feet leased to 27 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------ Lane Bryant 5,000 10/08 3/5 yr. 95,000 19.00 Dress Barn 8,000 12/08 3/5 yr. 120,000 15.00 Chipolte Mexican Grill 2,578 12/08 4/5 yr. 61,872 24.00 Advance America 1,440 12/08 2/5 yr. 34,560 24.00 Happy Nails Spa 1,297 12/08 1/5 yr. 27,237 21.00 Fantasy Nails 1,200 12/08 1/5 yr. 27,600 23.00 Sally Beauty Supplies 1,600 01/09 3/5 yr. 35,200 22.00 H & R Block 2,000 01/09 1/5 yr. 47,000 23.50 Roly Poly Rolled Sandwiches 1,200 01/09 2/5 yr. 29,100 24.25 New York Subway 1,500 01/09 1/5 yr. 33,750 22.50 Sport Clips 1,400 01/09 2/5 yr. 31,500 22.50 Rice Boxx Asian Cafe 2,504 03/09 3/5 yr. 65,104 23.50 T-Mobile 1,873 04/09 1/5 yr. 45,345 24.21 The Mattress Firm 6,000 05/09 2/5 yr. 147,000 24.50 Old Navy 14,800 05/09 3/5 yr. 206,460 13.95 Wing Pit 1,807 08/09 2/5 yr. 45,175 25.00 Wells Fargo Bank 1,818 08/09 2/5 yr. 45,450 25.00 T.J. Maxx 28,000 09/13 3/5 yr. 259,000 9.25
161
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------ Pier 1 Imports 9,500 09/13 2/5 yr. 152,000 16.00 Famous Footwear 10,000 10/13 3/5 yr. 145,000 14.50 Mattress Giant 4,553 12/13 2/5 yr. 104,719 23.00 Hollywood Video 6,300 01/14 2/5 yr. 126,000 20.00 Cost Plus World Market 18,300 01/14 3/5 yr. 228,750 12.50 Oshman's Sporting Goods 50,000 01/14 3/5 yr. 500,000 10.00 Bed, Bath & Beyond 24,000 01/14 3/5 yr. 234,000 9.75 Best Buy 30,000 01/14 4/5 yr. 360,000 12.00 Michaels 21,163 02/14 3/5 yr. 222,212 10.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. BED, BATH & BEYOND PLAZA, MIAMI, FLORIDA We purchased a shopping center newly constructed during 2003 and 2004 known as Bed, Bath & Beyond Plaza, containing 97,496 gross leasable square feet. This center has entered into a 65-year ground lease with the owner of the real property. We are not acquiring the underlying real property but only the buildings on the real property and will continue to be under a 65 year ground lease. The center is located at Northwest 107th Avenue and Northwest 19th Street in Miami, Florida. We purchased this center from an unaffiliated third party. Our total acquisition cost was approximately $20,350,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $209 per square foot of leasable space. We purchased this center with our own funds. On November 12, 2004, we obtained financing in the amount of $11,192,500. The loan requires interest only payments at an annual rate of 5.17% and matures in December 2009. We do not intend to make significant repairs and improvements to this center over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Four tenants, Bed, Bath & Beyond, Office Depot, Pier 1 Imports and Party City, will lease more than 10% of the total gross leasable area of the center. The leases with these tenants require the tenant to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------- Bed, Bath & Beyond 28,053 29 13.50 03/04 01/20
162
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------- Office Depot 16,175 17 23.32 08/04 08/14 Pier 1 Imports 10,582 11 25.41 12/03 12/04 25.50 01/05 12/08 26.50 01/09 12/13 Party City 10,930 11 18.00 09/04 09/07 19.62 10/07 09/10 21.93 10/10 09/13 23.31 10/13 09/14
For federal income tax purposes, the depreciable basis in this center will be approximately $15,263,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Bed, Bath & Beyond Plaza is a newly constructed center completed during 2003 and 2004. As of December 1, 2004, the property was 97% occupied, with a total of 94,544 square feet leased to 14 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------------------- Sally Beauty Supplies 1,368 05/09 2/5 yr. 34,200 25.00 A+ Nails 1,301 05/09 1/5 yr. 36,428 28.00 Bo Concept 5,100 06/09 1/5 yr. 122,400 24.00 Young Eye Associates 1,339 08/09 37,492 28.00 Sprint PCS 3,622 12/10 2/5 yr. 103,227 28.50 Pier 1 Imports 10,582 12/13 3/5 yr. 268,898 25.41 Starbucks 1,402 03/14 3/5 yr. 49,070 35.00 Fuddruckers 6,000 04/14 4/5 yr. 162,000 27.00 Cargo Kids! 4,565 04/14 3/5 yr. 118,912 26.05 Moe's Southwestern Grill 2,400 05/14 62,400 26.00 Doral Dentist Partners 1,707 07/14 2/5 yr. 40,968 24.00 Office Depot 16,175 08/14 4/5 yr. 377,201 23.32 Party City 10,930 09/14 2/2 yr. 196,740 18.00 & 2/3 yr. Bed, Bath & Beyond 28,053 01/20 4/5 yr. 378,716 13.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 163 GMAC INSURANCE OFFICE BUILDING, WINSTON-SALEM, NORTH CAROLINA We purchased a commercial office complex, containing approximately 501,064 of gross leasable square feet. The property is comprised of an 18-story office building, a six-story office building and various parcels of land that are used as surface and deck parking lots. The complex is located at 500 West 5th Street in Winston-Salem, North Carolina. We purchased this property from an unaffiliated third party. Our total acquisition was approximately $60,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $120 per square foot of leasable space. We purchased this property with our own funds. On September 29, 2004, we obtained financing in the amount of $33,000,000. The loan requires interest only payments at an annual interest rate of 4.61% and matures October 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenant would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of its lease. One tenant, GMAC Insurance, leases 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis over the next ten years as follows:
Approximate % of Current Base Rent Per GLA Leased Total Annual Square Foot Renewal Lease Term (Sq. Ft.) GLA Rent ($) Per Annum ($) Options Beginning To - ----------------------------------------------------------------------------------------------------------------- GMAC Insurance 501,064 100 5,164,449 10.31 2/5 yr. 10/04 09/09 5,266,828 10.51 10/09 09/10 5,369,206 10.72 10/10 09/11 5,475,680 10.93 10/11 09/12 5,582,154 11.14 10/12 09/13 5,692,722 11.36 10/13 09/14
For federal income tax purposes, the depreciable basis in this property is approximately $45,000,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. BOULEVARD AT THE CAPITAL CENTRE, LANDOVER, MARYLAND We entered into a joint venture agreement with the current owners of a newly constructed shopping center known as Boulevard at the Capital Centre, containing 482,445 gross leasable square feet. The center is located on the Washington D.C. Beltway (I-495 and I-95), in Landover, Maryland. The property is on a long term ground lease with the Revenue Authority of Price George's County for about 70 years. We entered into a joint venture agreement with the current owners of this property, who are unaffiliated third parties. We made a capital contribution in the amount of $121,724,000 to this joint 164 venture and received an equity interest representing a majority ownership and operating control of the joint venture. We made our capital contribution to the joint venture with our own funds. On September 8, 2004, we obtained financing in the amount of $71,500,000. The loan requires interest only payments at an annual rate of 5.12% and matures October 2009. Through additional joint ventures, the joint venture partners may acquire additional properties, which would be managed by our joint venture partner. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Lowe's Theaters Magic Johnson, will lease more than 10% of the total gross leasable area of the property. The lease term has been projected in accordance with the tenant's lease commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------- Lowe's Theaters Magic Johnson 52,500 11 22.00 10/04 09/24
For federal income tax purposes, the depreciable basis in this property will be approximately $91,293,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Boulevard at the Capital Centre was newly constructed in 2004. The property has been in a leasing up phase and nine tenants have executed leases for retail space within the shopping center whose leases have not yet commenced. As of December 1, 2004, this property was 88% occupied with a total of 423,372 square feet leased by 59 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------------------------- EB Game World 1,200 11/08 1/5 yr. 40,800 34.00 Claire's Boutique 1,166 11/08 1/5 yr. 34,980 30.00 Sprint Spectrum 1,965 11/08 1/5 yr. 64,809 32.98 Nextel 1,871 11/08 1/5 yr. 74,840 40.00 Capital Nails 1,500 11/08 1/5 yr. 61,800 41.20 Kay Jewelers 1,552 12/08 1/5 yr. 60,000 38.66 Cold Stone Creamery 1,157 01/09 2/5 yr. 42,809 37.00 Sweet Tooth Cakes & Pastries 1,400 02/09 1/5 yr. 49,000 35.00 Casual Male Big & Tall 3,500 03/09 1/5 yr. 84,000 24.00 The Classic Woman 2,200 04/09 2/5 yr. 63,800 29.00 Next Day Blinds* 3,000 09/09 93,000 31.00
165
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------------------------- Head 2 Head 2,568 12/10 - 65,484 25.50 Oxford Street 3,400 12/10 1/5 yr. 86,974 25.58 T-Mobile 1,800 01/11 - 72,000 40.00 Gallery of African Wildlife 2,000 02/11 1/3 yr. 58,000 29.00 Jilliano Shoes 1,998 04/11 1/5 yr. 40,955 20.50 Qdoba Mexican Grill 3,000 11/13 2/5 yr. 97,500 32.50 Lens Crafters 4,653 11/13 2/5 yr. 139,590 30.00 Pier 1 Imports 10,068 11/13 ** 181,224 18.00 Foot Locker 3,433 11/13 ** 102,048 29.73 Yankee Candle Company 2,000 11/13 1/5 yr. 48,000 24.00 Men's Wearhouse 6,400 11/13 2/5 yr. 147,200 23.00 Penner Clothing 5,194 11/13 2/2 yr. & 1/1 142,835 27.50 yr. Panda Express 2,100 11/13 1/5 yr. 73,500 35.00 Foot Action USA 3,500 11/13 2/5 yr. 98,000 28.00 Shoe City 7,700 11/13 2/5 yr. 180,950 23.50 Drake's Place 2,000 11/13 1/5 yr. 49,440 24.72 Quiznos 1,562 11/13 2/5 yr. 51,546 33.00 Cambridge Beauty Supply 2,900 11/13 1/5 yr. 77,662 26.78 The Children's Place 6,000 11/13 2/5 yr. 132,012 22.00 Lane Bryant 5,000 11/13 2/5 yr. 120,000 24.00 Starbucks 1,250 11/13 2/5 yr. 37,500 30.00 Changes at Capital Centre 4,000 12/13 1/5 yr. 104,000 26.00 Lucaya 3,000 12/13 1/5 yr. 63,000 21.00 Teaming Up/Expressions 3,103 12/13 1/5 yr. 80,678 26.00 The Big Screen Store 4,500 12/13 2/5 yr. 103,500 23.00 Total Sport 3,756 12/13 1/5 yr. 103,553 27.57 Technicolor Salon & Spa 4,413 12/13 1/5 yr. 110,325 25.00 Payless Shoesource 2,800 01/14 2/5 yr. 78,400 28.00 Mattress Warehouse 4,112 02/14 2/5 yr. 102,800 30.00 Honeycomb Hideout 2,500 02/14 ** 68,750 27.50 Five Guys Restaurant 1,500 02/14 1/5 yr. 48,000 32.00 Red Star Tavern 7,661 02/14 2/5 yr. 268,135 35.00 Babalu/Carraba's Glory Days* 6,085 04/14 146,040 24.00 Kobe Japanese Steakhouse* 7,520 04/14 172,960 23.00 African Stargina 1,500 05/14 1/5 yr. 47,250 31.50 McHunu House of Style 2,900 05/14 2/5 yr. 76,850 26.50 Reggiano's* 2,000 05/14 50,000 25.00 Anne Taylor Loft 5,471 05/14 ** 75,000 13.71 Sports Authority 40,500 07/14 3/5 yr. 506,250 12.50 DSW Shoe Warehouse 25,000 07/14 4/5 yr. 331,250 13.25 Stonefish Grill 6,085 08/14 ** 212,975 35.00 Soul Fixins'* 2,085 08/14 62,550 30.00 Infusions Cafe* 3,350 09/14 83,750 25.00 Linens 'N Things 34,440 01/15 ** 430,512 12.50
166
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------------------------- Pizzeria Uno 5,719 10/18 3/5 yr. 110,000 19.23 Bugaboo Creek Steakhouse 6,400 11/18 2/5 yr. 110,000 17.19 Provident Bank of Maryland 3,215 11/18 3/5 yr. 95,000 29.55 Borders Books & Music 22,915 11/18 4/5 yr. 441,801 19.28 Chuck E. Cheese 11,300 02/19 3/5 yr. 95,000 8.41 Circuit City 33,828 07/19 3/5 yr. 490,506 14.50 Office Depot 18,000 07/19 ** 234,000 13.00 Blu Bambu* 4,050 09/19 113,250 27.96 Chic-Fil-A 4,250 11/23 3/5 yr. 85,000 20.00 Golden Corrall 11,967 12/23 3/5 yr. 112,500 9.40 Lowe's Theaters Magic Johnson 52,500 09/24 ** 1,155,000 22.00
* As of December 1, 2004 the tenant's lease term had not yet commenced. ** Renewal option information not available. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. HARRIS TEETER STORE #158, WILMINGTON, NORTH CAROLINA We purchased a freestanding retail building leased to a Harris Teeter grocery store, containing 57,230 gross leasable square feet. The center is located at Wilshire Boulevard and Kerr Avenue in Wilmington, North Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $7,200,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $126 per square foot of leasable space. We purchased this property with our own funds. On November 1, 2004, we obtained financing in the amount of $3,960,000. The loan requires interest only payments at an annual rate of 4.915% and matures in November 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Harris Teeter Store #158, will lease 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows: 167
Approximate % of Current Base Rent Per GLA Leased Total Annual Square Foot Renewal Lease Term Lessee (Sq. Ft.) GLA Rent ($) Per Annum ($) Options Beginning To - ------------------------------------------------------------------------------------------------------------------ Harris 1/5 yr. Teeter & Store #158 57,230 100 558,340 9.76 1/4 yr. 05/95 05/15
For federal income tax purposes, the depreciable basis in this property will be approximately $5,400,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. HARVEST TOWNE CENTER, KNOXVILLE, TENNESSEE We purchased an existing shopping center known as Harvest Towne Center, containing 42,213 gross leasable square feet. The center is located at 4824 N. Broadway Street in Knoxville, Tennessee. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $8,950,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $212 per square foot of leasable space. We purchased this property with our own funds. On December 3, 2004, we obtained financing in the amount of $5,005,000. The loan requires interest only payments at an annual rate of 4.935% and matures in January 2010. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, CVS Pharmacy, Pet Supplies Plus and Ruby Tuesday, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------------- CVS Pharmacy 10,125 24 24.50 09/99 08/04 25.97 09/04 08/09 27.53 09/09 08/14 29.18 09/14 01/20 Pet Supplies Plus 8,120 19 14.08 02/04 01/05 14.33 02/05 01/06
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Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------------- Ruby Tuesday (Ground Lease) 4,582 11 N/A 07/02 12/12
For federal income tax purposes, the depreciable basis in this property will be approximately $6,713,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Harvest Towne Center was built in 1996 to 1999. As of December 1, 2004, this property was 100% occupied, with a total 42,213 square feet lease to nine tenants and three ground lease tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Lease Renewal Current Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- Month-to- Northside Properties 3,480 Month 33,225 9.55 Krispy Creme Donuts (Ground Lease) 2,158 06/05 2/5 yr. 41,400 N/A Pet Supplies Plus 8,120 01/06 2/5 yr. 114,365 14.08 Vacuums Unlimited 986 05/06 - 11,832 12.00 Ross the Boss 4,104 09/06 - 61,560 15.00 Stuart R. Humberg D.C. 1,000 11/06 2/3 yr. 15,815 15.82 US Cleaners, Inc. 1,427 11/07 1/5 yr. 20,691 14.50 Briano's Pizza 2,053 01/08 1/5 yr. 29,769 14.50 Beneficial Tennessee, Inc. 1,670 06/08 1/5 yr. 23,380 14.00 Ruby Tuesday (Ground Lease) 4,582 12/12 4/5 yr. 59,400 N/A Taco Bell (Ground Lease) 2,508 11/14 4/5 yr. 42,504 N/A CVS Pharmacy 10,125 01/20 3/5 yr. 262,946 25.97
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. LINCOLN PARK, DALLAS, TEXAS We purchased an existing shopping center known as Lincoln Park, containing 148,806 gross leasable square feet. The center is located at 7700 W. Northwest Highway in Dallas, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $47,515,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $319 per square foot of leasable space. 169 We purchased this property with our own funds. On October 8, 2004, we obtained financing in the amount of $26,153,000. The loan requires interest only payments at an annual rate of 4.61% and matures in November 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Tom Thumb, Barnes & Noble and The Container Store, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------------- Tom Thumb 50,000 34 11.50 08/98 07/13 12.00 08/13 07/23 Barnes & Noble 29,485 20 20.00 05/98 09/03 21.00 10/03 09/08 22.00 10/08 01/14 The Container Store 25,000 17 28.00 02/00 01/05 29.00 02/05 01/10 30.00 02/10 01/15
For federal income tax purposes, the depreciable basis in this property will be approximately $35,636,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Lincoln Park was built in 1998. As of December 1, 2004, this property was 100% occupied, with a total 148,806 square feet leased to 14 tenants. The following table sets forth certain information with respect to those leases:
Base Rent Per Approximate Current Square Foot GLA Leased Renewal Annual Rent Per Annum Lessee (Sq. Ft.) Lease Ends Options ($) ($) - --------------------------------------------------------------------------------------------------------------------- Marvin Brown 4,408 05/05 2/5 yr. 119,016 27.00 T-Mobile 1,402 10/05 1/5 yr. 68,698 49.00 Maggie Moo's Ice Cream 1,375 12/07 1/5 yr. 48,125 35.00 Romies Nail Boutique 1,098 12/07 2/5 yr. 39,528 36.00 Blue Mesa Grill 8,250 12/08 2/5 yr. 235,950 28.60 Eyemasters 3,000 12/08 2/5 yr. 134,400 44.80 Elizabeth Arden 6,058 01/09 2/5 yr. 151,450 25.00 Up In Smoke 1,164 01/09 1/5 yr. 58,200 50.00 Bag 'N Baggage 3,554 04/09 - 106,620 30.00 Barnes & Noble 29,485 01/14 3/5 yr. 619,185 21.00
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Base Rent Per Approximate Current Square Foot GLA Leased Renewal Annual Rent Per Annum Lessee (Sq. Ft.) Lease Ends Options ($) ($) - --------------------------------------------------------------------------------------------------------------------- A Pea in the Pod 4,012 09/14 2/5 yr. 144,432 36.00 The Container Store 25,000 01/15 3/5 yr. 725,000 28.00 Cheesecake Factory 10,000 09/18 2/5 yr. 347,500 34.75 Tom Thumb 50,000 07/23 3/5 yr. 575,000 11.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. SAUCON VALLEY SQUARE, BETHLEHEM, PENNSYLVANIA We purchased an existing shopping center known as Saucon Valley Square, containing 80,695 gross leasable square feet, including 6,208 square feet of ground lease space. The center is located on I-78 and Rouse 378 in Bethlehem, Pennsylvania. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $16,042,600. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $199 per square foot of leasable space. We purchased this property with our own funds. On September 7, 2004, we obtained financing in the amount of $8,850,900. The loan requires interest only payments at an annual rate of 5.115% and matures in October 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Super Fresh Food Market, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------------- Super Fresh Food Market 47,827 59 13.00 12/98 12/03 13.75 01/04 12/08 14.50 01/09 12/13 15.25 01/14 12/18
For federal income tax purposes, the depreciable basis in this property will be approximately $12,032,000. When we calculate depreciation expense for tax purposes, we will use the straight-line 171 method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Saucon Valley Square was built in 1999. As of December 1, 2004, this property was 100% occupied, with a total 80,695 square feet leased to 13 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($) - -------------------------------------------------------------------------------------------------------------------- Lafayette Ambassador 2,800 05/08 3/5 yr. 42,900 15.32 Starter's Pub (Ground Lease) 6,208 12/08 3/5 yr. 88,000 N/A Holiday Hair 1,200 01/09 1/5 yr. 20,790 17.33 Casa Mia Pizzeria 2,000 01/09 2/5 yr. 34,650 17.33 Subway 1,200 02/09 1/5 yr. 22,050 18.38 Foxes Hallmark 5,200 02/09 2/5 yr. 96,200 18.50 Blockbuster Video 5,140 03/09 2/5 yr. 92,520 18.00 No. 1 Chinese Restaurant 1,200 03/09 1/5 yr. 25,080 20.90 RadioShack 2,320 03/09 1/5 yr. 36,800 15.86 La Nails 1,200 04/09 - 24,000 20.00 Buena Bistro 1,600 05/09 - 29,840 18.65 Werkheiser Jewelers 1,200 12/13 - 20,790 17.33 Saucon Valley 1,600 01/14 - 27,720 17.33 Cleaners Super Fresh Food Market 47,827 12/18 8/5 yr. 657,621 13.75
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. QUAKERTOWN SHOPPING CENTER, QUAKERTOWN, PENNSYLVANIA We anticipate purchasing a newly constructed shopping center known as Quakertown Shopping Center, containing 61,832 gross leasable square feet (which includes 3,500 square feet of ground leased space). The center is located at Route 309 and Tollgate Road in Quakertown, Pennsylvania. On August 25, 2004, we funded the initial installment of a $12,664,794 first mortgage in the amount of $11,398,314. The remaining $1,266,480 is expected to be funded in 2004. The interest rate of this first mortgage is 7.5573% and it matures in August 2005. We anticipates purchasing the center when the mortgage matures for approximately $12,665,000. We will use the funds from repayment of the first mortgage towards our purchase price. One tenant, Giant Food Stores, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenants to pay base annual rent on a monthly basis as follows: 172
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------ Giant Food Stores 54,332 88 15.86 05/04 02/24
For federal income tax purposes, the depreciable basis in this property will be approximately $9,499,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Quakertown Shopping Center was constructed in 2004. As of December 1, 2004, this property was 100% occupied, with a total 61,832 (including ground leased space) square feet leased to four tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Current Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($) - ------------------------------------------------------------------------------------------------------------ Best Cuts 1,200 02/09 25,200 21.00 Electronics Boutique 1,200 02/14 25,200 21.00 Dry Cleaner Drop Off 1,600 02/14 33,600 21.00 Giant Food Stores 54,332 02/24 861,706 15.86 Perkasie Bank (Ground Lease) 3,500 02/24 90,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. THE COLUMNS SHOPPING CENTER, JACKSON, TENNESSEE We purchased Phase II of The Columns Shopping Center, containing 44,827 gross leasable square feet, for approximately $5,741,000. We previously purchased Phase I and Phase II containing 128,600 gross leasable square feet for approximately $20,770,000. The total shopping center contains 173,427 gross leasable square feet and is newly constructed. The center is located at 1300 Vann Drive in Jackson, Tennessee. We purchased this property from an unaffiliated third party. Our total acquisition cost for Phase I, Phase II and Phase III was approximately $26,511,000. These amounts may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $153 per square foot of leasable space. We purchased this property with our own funds. On November 4, 2004 and October 5, 2004, we obtained financing in the amount of $3,442,100 and $11,423,300, respectively. The loans require interest only payments at an annual rate of 4.95% and 4.91%, respectively, and mature in May 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. 173 Four tenants, Best Buy, Ross Dress for Less, Marshalls and Bed, Bath & Beyond, will lease more than 10% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's commencement date. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------- Best Buy 30,000 17 16.00 08/03 09/08 16.50 10/08 01/14 Ross Dress for Less 30,187 17 9.70 08/04 01/15 Marshalls 28,000 16 7.75 10/02 10/08 8.10 11/08 10/13 Bed, Bath & Beyond 20,000 12 9.75 11/03 01/14
For federal income tax purposes, the depreciable basis in this property will be approximately $19,883,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. The Columns Shopping Center is newly constructed in 2003/2004. As of December 1, 2004, the property was 96% occupied, with a total 166,227 square feet leased to 15 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------------------- Oreck Vacuums 1,600 11/08 1/5 yr. 24,800 15.50 Dress Barn 7,700 12/08 3/5 yr. 102,795 13.35 Books A Million 12,500 01/09 4/3 yr. 134,375 10.75 Rack Room Shoes 6,000 03/09 3/5 yr. 85,500 14.25 Spoil Me Rotten 2,000 03/09 - 31,000 15.50 Grass Monkey 1,600 03/09 1/5 yr. 24,000 15.00 Don Panchos Restaurant 4,000 04/09 1/5 yr. 60,000 15.00 Wells Fargo 2,400 05/09 1/5 yr. 37,200 15.50 Old Navy 14,800 10/09 2/5 yr. 186,480 12.60 Rue 21 4,000 12/09 2/5 yr. 64,000 16.00 Marshalls 28,000 10/13 3/5 yr. 217,000 7.75 Best Buy 30,000 01/14 4/5 yr. 480,000 16.00 Bed, Bath & Beyond 20,000 01/14 3/5 yr. 195,000 9.75 Quizno's 1,600 03/14 2/5 yr. 28,800 18.00 Ross Dress for Less 30,027 01/15 4/5 yr. 292,763 9.75
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for 174 such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. MITCHELL RANCH PLAZA, NEW PORT RICHEY, FLORIDA We purchased 200,404 square feet of a portion of a 324,108 square foot newly constructed shopping center known as Mitchell Ranch Plaza. The center is located at State Road 54 and Little Road in New Port Richey, Florida. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $34,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $170 per square foot of leasable space. We purchased this property with our own funds. On September 2, 2004, we obtained financing in the amount of $18,700,000. The loan requires interest only payments at an annual rate of 4.53% and matures in October 2007. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Publix, Marshalls and Ross Dress for Less, each leases more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------- Publix 44,840 22 9.85 07/03 07/23 Marshalls 30,000 15 7.95 07/03 07/08 8.45 08/08 07/13 Ross Dress for 30,176 15 9.75 07/03 01/09 Less 10.25 02/09 01/14
For federal income tax purposes, the depreciable basis in this property will be approximately $25,500,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Mitchell Ranch Plaza was constructed in 2003. As of December 1, 2004, this property was 95% occupied, with a total 190,404 square feet leased to 36 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- Cruise Warehouse 900 09/06 1/3 yr. 18,228 20.25
175
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ----------------------------------------------------------------------------------------------------------------------- Pocket Change 1,200 09/06 - 26,400 22.00 Tampa Bay Insurance 900 09/06 1/3 yr. 16,656 18.51 Curves for Women 1,200 09/06 - 22,500 18.75 Vitamin Tree 1,200 10/06 - 22,800 19.00 Brazilian Tanning 1,800 11/06 - 32,856 18.25 Christian Boutique 1,200 06/07 - 22,800 19.00 Cottage Florist 1,200 06/07 - 22,212 18.51 Magic Touch Cleaners 900 08/08 1/5 yr. 22,800 25.33 La Bebe's Salon 900 08/08 16,428 18.25 Working Cow 1,200 09/08 1/5 yr. 22,200 18.50 Charles Pope Cellular 1,200 09/08 1/5 yr. 22,116 18.43 Payless Shoesource 2,400 09/08 3/5 yr. 60,000 25.00 Aspasia Nails 1,200 09/08 1/5 yr. 22,644 18.87 Christos 2,400 10/08 1/5 yr. 43,200 18.00 Great Clips 1,000 10/08 2/5 yr. 19,248 19.25 The UPS Store 1,200 10/08 1/5 yr. 21,600 18.00 Sally Beauty Supply 1,200 10/08 2/5 yr. 21,300 17.75 George Josef Salon 1,200 10/08 1/5 yr. 21,900 18.25 China Express 1,200 11/08 - 23,100 19.25 American Family Dentist 1,200 11/08 1/5 yr. 21,780 18.15 Carlucci's 3,600 12/08 1/5 yr. 64,800 18.00 VIP Martial Arts 4,050 01/09 1/5 yr. 67,836 16.75 EB Games 1,200 01/09 2/5 yr. 24,600 20.50 Hallmark Gold Crown 3,950 02/09 2/5 yr. 65,172 16.50 Beef O'Brady's 2,800 02/09 3/5 yr. 50,400 18.00 The Mattress Firm 3,000 02/09 2/5 yr. 72,300 24.10 Cingular Wireless 900 06/09 1/5 yr. 27,000 30.00 Trinity Spirits 3,950 07/09 1/5 yr. 63,590 16.10 Marshalls 30,000 07/13 3/5 yr. 238,500 7.95 Panera Bread 4,531 12/13 3/5 yr. 111,010 24.50 Ross Dress for Less 30,176 01/14 4/5 yr. 294,216 9.75 Pier 1 Imports 10,000 02/14 3/5 yr. 161,796 16.18 Starbucks 1,500 03/14 3/5 yr. 42,000 28.00 PETsMART 19,107 01/19 3/5 yr. 211,128 11.05 Publix 44,840 07/23 6/5 yr. 441,672 9.85
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 176 GOVERNOR'S MARKETPLACE SHOPPING CENTER, TALLAHASSEE, FLORIDA We purchased a portion of an existing shopping center known as Governor's Marketplace Shopping Center, containing 265,541 gross leasable square feet. We purchased 231,915 square feet of the shopping center, which includes 3,800 square feet of ground lease space. The center is located on Governor's Square Boulevard, in Tallahassee, Florida. We purchased this property from an unaffiliated third part with our own funds. Our total acquisition cost for the portion we purchased was approximately $32,654,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost for the portion we purchased was approximately $141 per square foot of leasable space. On August 17, 2004, we obtained financing on the property in the amount of $20,625,000. The loan requires interest only payments at an annual rate of 5.185% and matures in September 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Bed Bath & Beyond, Sports Authority and Marshalls, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------- Bed Bath & Beyond 35,000 15 10.50 06/01 01/12 11.00 02/12 01/17 Sports Authority 34,775 15 0 08/03 01/04 11.91 01/04 08/08 Marshalls 30,000 13 7.75 05/01 05/06 8.25 06/06 05/11
For federal income tax purposes, the depreciable basis in this property will be approximately $24,491,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Governor's Marketplace was built in 2001. As of December 1, 2004, this property was 94% occupied, with a total 218,437 square feet leased to 19 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ---------------------------------------------------------------------------------------------------------------------- Famous Footwear 10,070 07/06 2/5 yr. 156,085 15.50 Student Body 3,721 08/06 1/5 yr. 81,321 21.85
177
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ---------------------------------------------------------------------------------------------------------------------- Old Navy 20,000 09/06 2/5 yr. 230,000 11.50 Clark's Maytag 3,466 05/07 2/5 yr. 67,587 19.50 Life's Uniforms 1,217 06/07 1/5 yr. 26,774 22.00 Cingular Wireless 1,200 06/07 2/5 yr. 30,600 25.50 Sprint PCS 4,206 12/07 1/5 yr. 75,708 18.00 Sports Authority 34,775 08/08 5/5 yr. 414,170 11.91 Nextel 1,443 09/08 1/5 yr. 36,075 25.00 Communications ALLTEL 2,000 06/09 1/5 yr. 48,000 24.00 Michaels 23,965 02/11 4/5 yr. 251,633 10.50 Marshalls 30,000 05/11 2/5 yr. 232,500 7.75 Lifeway Christian 6,324 09/11 2/5 yr. 132,804 21.00 Atlanta Bread 4,000 11/11 2/5 yr. 94,520 23.63 Company Boston Market (Ground Lease) 3,800 11/12 4/5 yr. 60,000 N/A David's Bridal 9,000 05/13 2/5 yr. 133,200 14.80 Petco 13,750 05/13 3/5 yr. 212,025 15.42 Bombay Company 8,500 08/13 1/5 yr. 208,250 24.50 Qdoba 2,000 04/14 2/5 yr. 42,000 21.00 Bed Bath & Beyond 35,000 01/17 3/5 yr. 367,500 10.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. MANCHESTER MEADOWS, TOWN AND COUNTRY, MISSOURI We purchased an existing shopping center known as Manchester Meadows, containing 454,172 gross leasable square feet (which includes 3,412 square feet of ground lease space). The center is located at 13901 Manchester Road in Town and Country, Missouri. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $56,200,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $124 per square foot of leasable space. We purchased this property with our own funds. On August 23, 2004, we obtained financing in the amount of $31,064,550. The loan requires interest only payments at an annual rate of 4.48% and matures in September 2007. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. 178 Two tenants, Wal-Mart and Home Depot, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------- Wal-Mart 154,717 34 7.00 01/95 01/15 Home Depot 111,175 24 7.47 11/94 11/19
For federal income tax purposes, the depreciable basis in this property will be approximately $42,150,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years. Manchester Meadows was built in 1994 and 1995. As of December 1, 2004, this property was 97% occupied, with a total 442,772 square feet leased to 20 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Base Rent Per Approximate Current Square Foot GLA Leased Lease Renewal Annual Rent Per Annum Lessee (Sq. Ft.) Ends Options ($) ($) - ------------------------------------------------------------------------------------------------------------------------- Linens 'N Things 34,917 01/05 3/5 yr. 340,441 9.75 Sears Portrait Studio 2,123 03/05 - 39,063 18.40 3 Day Blinds 4,550 03/05 1/5 yr. 104,640 23.00 Payless Shoesource 3,000 05/05 1/5 yr. 55,200 18.40 HobbyTown USA 2,450 07/05 - 44,100 18.00 Boston Chicken (Ground Lease) 3,412 08/05 7/5 yr. 79,200 N/A Chic Nails 1,400 05/06 - 28,000 20.00 Town & Country Tobacco 1,400 01/07 - 26,600 19.00 Fast Track Fitness 3,000 02/07 - 54,000 18.00 United States Postal Service 3,570 04/07 1/5 yr. 63,225 17.71 Cobblestone Shoe Repairs 1,400 04/07 - 27,300 19.50 99 Cent Only Store 3,000 04/07 1/5 yr. 49,500 16.50 Memories Unlimited 2,500 04/07 - 43,750 17.50 Home Decorators 15,000 12/07 2/3 yr. 247,500 16.50 Art & Frame 1,400 11/08 - 28,700 20.50 Great Clips 1,400 04/09 - 29,400 21.00 OfficeMax 23,920 11/09 3/5 yr. 251,160 10.50 PETsMART 27,438 03/10 5/5 yr. 240,083 8.75 The Sports Authority 40,500 11/14 10/5 yr. 324,000 8.00
179
Base Rent Per Approximate Current Square Foot GLA Leased Lease Renewal Annual Rent Per Annum Lessee (Sq. Ft.) Ends Options ($) ($) - ------------------------------------------------------------------------------------------------------------------------- Wal-Mart 154,717 04/15 6/5 yr. 1,083,018 7.00 Home Depot 111,175 11/19 10/5 yr. 830,088 7.47
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. THE VILLAGE SHOPPES AT SIMONTON, LAWRENCEVILLE, GEORGIA We purchased a newly constructed shopping center known as The Village Shoppes at Simonton, containing 66,415 gross leasable square feet. The center is located at New Hope Road and Simonton Road in Lawrenceville, Georgia. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $13,750,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $207 per square foot of leasable space. We purchased this property with our own funds. On September 30, 2004, we obtained financing in the amount of $7,561,700. The loan requires interest only payments at an annual rate of 4.96% and matures in October 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Publix, will lease more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------------- Publix 44,271 67 10.95 05/04 05/24
For federal income tax purposes, the depreciable basis in this property will be approximately $10,312,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. The Village Shoppes at Simonton was newly constructed in 2004. As of December 1, 2004, this property was 87% occupied with a total of 58,015 square feet leased to ten tenants. The following table sets forth certain information with respect to those leases: 180
Base Rent Approximate Current Per Square GLA Leased Lease Renewal Annual Rent Foot Per Lessee (Sq. Ft.) Ends Options ($) Annum ($) - ---------------------------------------------------------------------------------------------------------- Subway Real Estate Corp. 1,400 04/09 3/5 yr. 32,900 23.50 Dollar Store 2,644 06/09 1/5 yr. 60,812 23.00 World Dry Cleaners 1,500 07/09 1/5 yr. 42,000 28.00 Pak Mail Center 1,400 07/09 1/5 yr. 35,000 25.00 Cummings Nails and Tanning 1,200 07/09 1/5 yr. 30,000 25.00 New China 1,400 07/09 1/5 yr. 32,200 23.00 Supercuts 1,400 08/09 1/5 yr. 33,600 24.00 Apex Beauty Supply 1,400 10/09 - 35,000 25.00 Pizza Hut of America 1,400 07/10 - 32,900 23.50 Publix 44,271 05/24 1/5 yr. 484,767 10.95
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. REISTERSTOWN ROAD PLAZA, BALTIMORE, MARYLAND We entered into a joint venture agreement with the current owners of an existing shopping center known as Reisterstown Road Plaza, containing 779,047 gross leasable square feet. The center is located at 6500-6512 Reisterstown Road, Baltimore, Maryland. We entered into a joint venture agreement with the current owners of this property, who are unaffiliated third parties. We made a capital contribution in the amount of $88,500,000 to this joint venture and received an equity interest representing a majority ownership and operating control of this joint venture. We made our capital contribution to the joint venture with our own funds. On August 11, 2004, we obtained financing in the amount of $49,650,000. The loan requires interest only payments at an annual rate of 5.30% and matures September 2009. Through additional joint ventures, the joint venture partners may acquire additional properties, which would be managed by our joint venture partner. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Home Depot, Public Safety Service and National Wholesale Liquidators, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate % of Base Rent Per GLA Leased Total Square Foot Lease Term Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------------- Home Depot 115,289 15 5.20 11/02 01/33
181
Approximate % of Base Rent Per GLA Leased Total Square Foot Lease Term Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------------- Public Safety Service 107,705 14 12.00 01/98 04/11 National Wholesale Liquidators 91,129 12 4.00 05/00 01/11
For federal income tax purposes, the depreciable basis in this property will be approximately $66,375,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Reisterstown Road Plaza was built in 1986 and renovated in 2004. As of December 1, 2004, this property was 93% occupied, with a total 729,559 square feet leased to 75 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Rent Square Foot Per Lessee (Sq. Ft.) Ends Options ($) Annum ($) - -------------------------------------------------------------------------------------------------------------------- Month-to- African Art and Craft 222 Month 10,800 48.65 Shingar 2,250 09/04 41,333 18.37 Fragrance Galore 225 12/04 - 7,200 32.00 Perfumery International, Inc. 200 01/05 - 16,000 80.00 Injury Treatment Center 3,501 03/05 - 50,660 14.47 Hip Hop One Stop 283 06/05 - 10,800 38.16 Baltimore City Community College (BCCC) 14,620 05/06 2/5 yr. 189,329 12.95 Royal Gems & Jewelry 330 09/06 - 14,190 43.00 Time and More 787 09/06 13,757 17.48 Changes 4,500 09/06 - 28,176 6.16 Burlington Coat Factory 60,000 10/06 - 330,000 5.50 Gifts and Balloons 238 12/06 - 12,000 50.42 Avenue 5,000 01/07 - 71,250 14.25 Popeyes 3,523 01/07 2/5 yr. 59,891 17.00 Bank of America 5,250 01/07 - 77,976 14.85 Payless Shoesource 4,985 07/07 43,519 8.73 Sally Beauty Supply 1,500 11/07 - 27,000 18.00 Power Gamer 1,902 12/07 - 31,954 16.80 Nuvo 2,017 12/07 - 25,213 12.50 Furniture Palace 39,243 12/07 - 247,231 6.30 Accent Hair 1,690 01/08 - 36,558 21.63 Rent-A-Center 4,300 01/08 1/5 yr. 73,100 17.00 Juvenile Justice 7,291 01/08 1/5 yr. 98,428 13.50 Revelations Shoe Shop 845 03/08 - 11,314 13.39 Jackson Hewitt Tax Service 1,217 04/08 1/5 yr. 30,425 25.00
182
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Rent Square Foot Per Lessee (Sq. Ft.) Ends Options ($) Annum ($) - -------------------------------------------------------------------------------------------------------------------- Gallo 5,000 04/08 - 42,790 8.56 Vogue Hair Supply 1,050 05/08 20,066 19.11 Park West Medical 7,646 06/08 - 92,229 12.06 Thai Delight 588 08/08 18,346 31.20 Economy Shoes 3,293 09/08 2/5 yr. 32,930 10.00 Vital Records 11,500 11/08 1/5 yr. 154,675 13.45 Sepia Sand & Sable 1,267 12/08 20,880 16.48 Shoe Crazy 4,655 02/09 - 93,100 20.00 An Angel's Touch 1,598 02/09 - 19,751 12.36 Board of Nursing 15,232 02/09 195,731 12.85 Dollar City 5,181 04/09 - 51,810 10.00 Curves For Women 1,600 06/09 - 22,400 14.00 His and Hers 3,478 06/09 1/5 yr. 76,516 22.00 The Great Cookie 751 06/09 1/5 yr. 14,344 19.10 Chic Nails 839 08/09 1/5 yr. 18,668 22.25 New Direction Barber Shop 1,086 10/09 23,653 21.78 Gold Lagoon 839 03/10 - 13,827 16.48 Provident Bank 2,593 11/10 - 57,046 22.00 National Wholesale Liquidators 91,314 01/11 6/5 yr. 365,256 4.00 Public Safety Service 107,705 04/11 1,292,400 12.00 Household Finance 2,476 07/11 1/5 yr. 71,185 28.75 Subway 250 05/12 - 27,000 108.00 Beauty Vision 2,184 07/12 33,852 15.50 All Eyes 1,857 07/12 - 29,545 15.91 Plaza Podiatry 1,964 08/12 - 39,280 20.00 DHMN State (BCCC) 23,250 10/12 290,625 12.50 Mattress Warehouse 4,000 11/12 2/5 yr. 76,000 19.00 Mall Spirits 2,236 01/13 27,637 12.36 Footlocker 3,000 03/13 - 54,000 18.00 Square Circle 651 03/13 1/5 yr. 10,416 16.00 K's Alterations 500 03/13 - 15,750 31.50 Cobblers And Cleaners 1,374 04/13 - 27,480 20.00 Social Security Administration 14,885 07/13 145,873 9.80 Evergreen Cafe 835 07/13 - 26,052 31.20 Sausage Plus 386 07/13 - 8,747 22.66 Steak Busters 813 07/13 32,520 40.00 Harbor City Bake Shop 1,061 07/13 - 26,483 24.96 Blackstone Men's Wear 3,540 07/13 46,020 13.00 Lot Stores 5,500 08/13 2/5 yr. 34,678 6.30 Pick-A-Pretzel 318 07/13 - 8,268 26.00 Burgundy Park Seafood 544 07/13 - 26,895 49.44 Total Health Center 1,050 09/13 15,750 15.00 Metro II 1,453 10/13 23,528 16.19 Shoe City 6,740 01/14 3/5 yr. 90,000 13.35
183
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Rent Square Foot Per Lessee (Sq. Ft.) Ends Options ($) Annum ($) - -------------------------------------------------------------------------------------------------------------------- Marshalls 28,500 04/14 3/5 yr. 299,250 10.50 Original Mamma Lucia 1,695 05/14 59,325 35.00 Baltimore City Community College WBJC Radio Station 5,010 06/14 64,629 12.90 Applebee's Neighborhood Grill & Bar 6,000 02/18 3/5 yr. 88,020 14.67 Giant 59,064 07/29 6/5 yr. 1,004,088 17.00 Home Depot 115,289 01/33 6/5 yr. 600,000 5.20
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. WAL-MART SUPERCENTER, JONESBORO, ARKANSAS We purchased an existing freestanding retail center known as Wal-Mart Supercenter, containing 149,704 gross leasable square feet. The center is located at 1911 West Parker Road in Jonesboro, Arkansas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $11,071,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $74 per square foot of leasable space. We purchased this property with our own funds. On August 6, 2004, we obtained financing in the amount of $6,088,500. The loan requires interest only payments at an annual rate of 5.085% and matures September 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Wal-Mart Supercenter, will lease 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Current Per Square GLA Leased Total Annual Foot Per Renewal Lease Term Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To - ---------------------------------------------------------------------------------------------------------------------- Wal-Mart Supercenter 149,704 100 808,402 5.40 5/5 yr. 10/97 10/17
184 For federal income tax purposes, the depreciable basis in this property will be approximately $8,303,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. ACADEMY SPORTS & OUTDOORS, HOUMA, LOUISIANA We purchased a newly constructed freestanding retail center known as Academy Sports & Outdoors, containing 60,001 gross leasable square feet. The center is located at 1777 Martin Luther King Boulevard in Houma, Louisiana. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $5,250,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $88 per square foot of leasable space. We purchased this property with our own funds. On August 4, 2004, we obtained financing for this property in the amount of $2,920,000. The loan requires interest only payments at an annual rate of 5.12% and matures September 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Academy Sports & Outdoors, will lease 100% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Current Per Square GLA Leased Total Annual Foot Per Renewal Lease Term Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To - ----------------------------------------------------------------------------------------------------------------------- Academy Sports & Outdoors 60,001 100 420,000 7.00 4/5 yr. 07/04 07/14 7.70 08/14 07/24
For federal income tax purposes, the depreciable basis in this property will be approximately $3,937,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. FORKS TOWN CENTER, EASTON, PENNSYLVANIA We purchased an existing shopping center known as Forks Town Center, containing 92,660 gross leasable square feet (which includes 5,100 square feet of ground lease space). The center is located at 301 Town Center Boulevard in Easton, Pennsylvania. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $18,198,700. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $196 per square foot of leasable space. 185 We purchased this property with our own funds. On August 13, 2004, we obtained financing in the amount of $10,395,000. The loan requires interest only payments at an annual rate of 4.97% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Giant Food Stores, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Approximate % of Base Rent Per GLA Leased Total Square Foot Lease Term Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------- Giant Food Stores 54,300 59 16.04 08/02 08/12 17.04 09/12 08/17 18.04 09/17 08/22
For federal income tax purposes, the depreciable basis in this property will be approximately $13,649,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Forks Town Center was built in 2002. As of December 1, 2004, this property was 96% occupied, with a total 88,660 square feet leased to 14 tenants and ground lease space leased to two tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Lease Renewal Current Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - ---------------------------------------------------------------------------------------------------------------------- H & R Block 1,600 04/06 1/3 yr. 30,400 19.00 Holiday Hair 1,600 08/07 - 33,600 21.00 Movie Gallery 3,200 08/07 3/5 yr. 44,800 14.00 Something Different 1,600 10/07 1/5 yr. 32,000 20.00 Subway 1,600 11/07 1/5 yr. 28,800 18.00 Vista Bank United Trust 2,500 12/07 3/5 yr. 50,000 20.00 Hollywood Tans 2,400 02/08 1/5 yr. 49,416 20.59 PL Nails 1,200 04/08 1/5 yr. 21,600 18.00 China Moon 3,200 04/08 1/5 yr. 48,000 15.00 D & J Cleaners 1,200 11/08 1/5 yr. 19,200 16.00 Data Danz Wireless 1,360 03/09 - 20,400 15.00 Foxes Hallmark 5,400 02/10 2/5 yr. 129,600 24.00 Catanzaretti's Pizza 2,400 08/12 - 43,200 18.00 Giant Food Stores 54,300 01/23 8/5 yr. 870,972 16.04
186
Approximate Base Rent Per GLA Leased Lease Renewal Current Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - ---------------------------------------------------------------------------------------------------------------------- Giant Gas Station (Ground Lease) 2,400 01/23 8/5 yr. 12,500 N/A Dunkin Donuts (Ground Lease) 2,700 08/13 3/5 yr. & 40,000 N/A 1/4 yr.
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PLAZA AT MARYSVILLE, MARYSVILLE, WASHINGTON We purchased an existing shopping center known as Plaza at Marysville, containing 115,656 gross leasable square feet and one ground lease space. The center is located at State Avenue and Grove Street, in Marysville, Washington. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $21,266,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $184 per square foot of leasable space. We purchased this property with our own funds. On July 30, 2004, we obtained financing in the amount of $11,800,000. The loan requires interest only payments at an annual rate of 5.085% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Safeway, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Approximate % of Base Rent Per GLA Leased Total Square Foot Lease Term Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To - --------------------------------------------------------------------------------------------------------- Safeway 53,850 47 11.00 07/01 07/21
For federal income tax purposes, the depreciable basis in this property will be approximately $15,950,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Plaza at Marysville was built in 1995. As of December 1, 2004, this property was 95% occupied, with a total 110,356 square feet leased to 24 tenants and one ground lease space. The following table sets forth certain information with respect to those leases: 187
Base Rent Approximate Current Per Square GLA Leased Renewal Annual Rent Foot Per Lessee (Sq. Ft.) Lease Ends Options ($) Annum ($) - -------------------------------------------------------------------------------------- Alderwood Auto Glass 1,500 07/05 - 20,112 13.41 Northwest Credit Union 1,300 11/05 1/2 yr. 25,350 19.50 Supercuts 1,300 11/05 2/5 yr. 24,696 19.00 GNC 1,422 01/06 - 25,344 17.82 Marysville Daycare 7,345 01/06 - 97,321 13.25 Alta's Pet Gallery 3,375 05/06 1/5 yr. 45,563 13.50 Papa Murphy's 1,300 07/06 1/5 yr. 26,004 20.00 Safeway District Office 901 07/06 2/5 yr. 12,468 13.84 Mail Box Junction 904 09/06 - 17,176 19.00 Alpha Denture Clinic 904 10/06 - 17,172 19.00 Hi-Tek Nails 863 11/06 1/5 yr. 18,120 21.00 Play It Again Sports 3,000 11/06 1/5 yr. 50,720 16.91 Fowlds Cleaners 1,500 12/06 1/5 yr. 24,000 16.00 Sally Beauty Supplies 1,300 01/07 1/5 yr. 24,696 19.00 The Everett Clinic 1,200 03/07 - 24,600 20.50 Cigar Land 1,050 03/07 1/5 yr. 22,281 21.22 Check into Cash 1,546 07/07 1/3 yr. 30,920 20.00 Edward Jones 1,500 07/08 1/5 yr. 27,750 18.50 Rent-A-Center 3,961 09/08 - 51,492 13.00 The Sun Factory 1,803 09/08 1/5 yr. 32,454 18.00 Hollywood Video 6,540 07/09 2/5 yr. 110,363 16.88 Party City 7,992 01/10 2/5 yr. 107,892 13.50 Safeway Fuel Site (Ground Lease) N/A 07/11 10/5 yr. 50,000 N/A Home Street Bank 4,000 12/20 - 80,004 20.00 Safeway 53,850 07/21 8/5 yr. 592,356 11.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. WRANGLER COMPANY, WESTERN HEADQUARTERS AND DISTRIBUTION FACILITY, EL PASO, TEXAS We purchased an existing freestanding office and distribution center leased to Wrangler Company, containing 316,800 gross leasable square feet. The center is located at 12173 Rojas Drive in El Paso, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $18,476,800. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $58 per square foot of leasable space. We purchased this property with our own funds. On July 26, 2004, we obtained financing in the amount of $11,300,000. The loan requires interest only payments at an annual rate of 5.09% and matures August 2034. 188 We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Wrangler Company, will lease 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Current Per Square GLA Leased Total Annual Foot Per Renewal Lease Term Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To - --------------------------------------------------------------------------------------------------------- Wrangler Company 316,800 100 1,504,800 4.75 3/7 yr. 11/93 11/13
For federal income tax purposes, the depreciable basis in this property will be approximately $13,858,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. GATEWAY PLAZA SHOPPING CENTER, SOUTHLAKE, TEXAS We purchased an existing shopping center known as Gateway Plaza Shopping Center, containing 358,091 gross leasable square feet (which includes 87,423 square feet of ground lease space). The center is located on State Highway 114 and Southlake Boulevard, in Southlake, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $33,025,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $92 per square foot of leasable space. We purchased this property with our own funds. On September 1, 2004, we obtained financing in the amount of $18,163,000. The loan requires interest only payments at an annual rate of 5.10% and matures in August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Kohl's, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Approximate % of Base Rent Per GLA Leased Total Square Foot Lease Term Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To - ------------------------------------------------------------------------------------------- Kohl's* 87,423 24 N/A 08/00 01/21
* Ground Lease For federal income tax purposes, the depreciable basis in this property will be approximately $24,769,000. When we calculate depreciation expense for tax purposes, we will use the straight-line 189 method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Gateway Plaza Shopping Center was built in 2000. As of December 1, 2004, this property was 93% occupied, with a total 334,030 square feet leased to 25 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Lease Renewal Current Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------- Cool Cuts for Kids 1,194 09/05 1/5 yr. 28,656 24.00 Old Navy 25,000 09/05 3/5 yr. 225,000 9.00 Mattress Firm 4,008 09/05 2/5 yr. 88,176 22.00 Rack Room 7,996 09/05 2/5 yr. 147,926 18.50 Carpet Mills of America 3,493 11/05 1/5 yr. 76,846 22.00 Dress Barn 8,127 12/05 3/5 yr. 121,905 15.00 Baker Brothers 3,000 12/05 - 75,000 25.00 Calico Corners 5,278 12/05 2/5 yr. 126,672 24.00 Chipotle Mexican Grill 2,432 12/05 3/5 yr. 59,025 24.27 Fitness Headquarters 2,500 01/06 2/5 yr. 62,500 25.00 Home Theater Store 6,000 02/08 1/6 mo. 156,000 26.00 Shogun Sushi 4,253 05/09 2/5 yr. 114,831 27.00 Bassett Furniture 10,200 07/09 2/5 yr. 98,124 9.62 Michaels 23,428 02/10 4/5 yr. 257,708 11.00 T.J. Maxx 30,600 08/10 3/5 yr. 267,750 8.75 Ultra Cosmetics & Salon 11,250 10/10 3/5 yr. 202,500 18.00 Thomasville Home Furniture 18,615 12/10 2/5 yr. 252,792 13.58 Bed Bath & Beyond 30,000 01/11 4/5 yr. 330,000 11.00 Anamia's Tex-Mex 5,058 02/11 2/5 yr. 126,450 25.00 Aaron Brothers Art & Frame 6,500 02/11 2/5 yr. 143,000 22.00 Starbucks 1,830 03/11 2/5 yr. 54,900 30.00 Pearle Vision 3,027 10/12 2/5 yr. 71,437 23.60 Zales 3,587 11/13 3/5 yr. 60,979 17.00 OfficeMax 23,801 01/16 4/5 yr. 261,250 10.98 Bank of America 5,430 12/20 3/5 yr. 190,000 34.99 Kohl's (Ground Lease) 87,423 01/21 6/5 yr. 502,187 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. WAL-MART SUPERCENTER, BLYTHEVILLE, ARKANSAS We purchased an existing retail store known as Wal-Mart Supercenter, containing 183,047 gross leasable square feet. The store is located at 3700 Highway 18, in Blytheville, Arkansas. 190 We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $13,248,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $72 per square foot of leasable space. We purchased this property with our own funds. On August 31, 2004, we obtained financing in the amount of $7,100,000. The loan requires interest only payments at an annual rate of 4.39% and matures in September 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Wal-Mart Supercenter, leases 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Per Square Approximate % of Current Foot Per GLA Leased Total Annual Annum Renewal Lease Term Lessee (Sq. Ft.) GLA Rent ($) ($) Options Beginning To - --------------------------------------------------------------------------------------------------------- Wal-Mart Supercenter 183,047 100 902,422 4.93 6/5 yr. 04/99 04/19
For federal income tax purposes, the depreciable basis in this property will be approximately $9,701,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. GATEWAY VILLAGE, ANNAPOLIS, MARYLAND We entered into a joint venture agreement with the current owners of an existing shopping center known as Gateway Village, containing 273,788 gross leasable square feet. The center is located at Housley Road and Defense Highway in Annapolis, Maryland. We entered into a joint venture agreement with the current owners of this property who are unaffiliated third parties. We made a capital contribution in the amount of $49,513,455 to this joint venture and received an equity interest representing a majority ownership and operating control of this joint venture. We made our capital contribution to the joint venture with our own funds. On July 21, 2004, we obtained financing in the form of two loans totaling $31,458,000. The first loan requires interest only payments on $27,233,000 at an annual rate of the three month LIBOR Rate and 113 basis points and matures July 2009. The second loan requires interest only payments on $4,225,000 at an annual interest rate of the three month LIBOR Rate and 200 basis points and matures August 2005. Through additional joint ventures, the joint venture partners may acquire additional properties, which would be managed by our joint venture partner. 191 Three tenants, Safeway, Burlington Coat Factory and Best Buy, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate % of Base Rent Per GLA Leased Total Square Foot Lease Term Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To - ---------------------------------------------------------------------------------------- Safeway 53,000 19 10.00 07/02 06/22 Burlington Coat Factory 68,400 25 6.00 03/99 02/04 6.29 03/04 02/09 Best Buy 58,000 21 16.00 04/96 04/01 17.00 05/01 04/06 18.00 05/06 04/11
For federal income tax purposes, the depreciable basis in this property will be approximately $37,135,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Gateway Village was built in 1996. As of December 1, 2004, this property was 96% occupied, with a total 261,807 square feet leased to 14 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Per Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($) - --------------------------------------------------------------------------------------- Big Screen Store 3,525 10/05 2/5 yr. 88,125 25.00 Career Partners 1,600 02/06 1/5 yr. 36,716 22.95 Chesapeake Open MRI 3,000 04/06 1/5 yr. 72,120 24.04 Annapolis Hair 6,400 03/07 - 95,155 14.87 US Army 2,877 04/07 1/1 yr. 63,294 22.00 Standard Carpet 3,975 08/07 1/5 yr. 113,279 28.50 Burlington Coat Factory 68,400 02/09 4/5 yr. 430,543 6.29 Jenny Craig 3,200 03/09 1/5 yr. 51,200 16.00 Best Buy 58,000 04/11 3/5 yr. 986,000 17.00 Staples 24,491 08/11 3/5 yr. 404,101 16.50 Sakura 4,600 12/11 2/5 yr. 82,800 18.00 PETsMART 25,416 01/12 5/5 yr. 419,364 16.50 Safeway 53,000 06/22 6/5 yr. 530,000 10.00 Beneficial Maryland 3,323 Month- - 63,137 19.00 to-Month
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 192 TOWSON CIRCLE, TOWSON, MARYLAND We entered into a joint venture agreement with the current owners of an existing shopping center known as Towson Circle, containing 116,119 gross leasable square feet of which 40,060 is a ground lease. The center is located at York, Dulaney Valley and Joppa Roads, in Towson, Maryland. We entered into a joint venture agreement with the current owners of this property, who are unaffiliated third parties. We made a capital contribution in the amount of $28,450,000 to this joint venture and received an equity interest representing a majority ownership and operating control of this joint venture. We made our capital contribution to the joint venture with our own funds. On July 21, 2004, we obtained financing in the form of two loans totaling $19,197,500. The first loan requires interest only payments on $15,647,500 at an annual rate of 5.10% and matures July 2009. The second loan requires interest only payments on $3,550,000 at an annual rate of 3.60% for the first ninety days and thereafter at the three month LIBOR Rate and 200 basis points. The loan matures August 2005. Through additional joint ventures, the joint venture partners may acquire additional properties, which would be managed by our joint venture partner. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Four tenants, Barnes & Noble, Trader Joe's East, Bally Total Fitness and Pier 1 Imports, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate % of Base Rent Per GLA Leased Total Square Foot Lease Term Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------- Barnes & Noble (Ground Lease) 31,222 27 20.42 11/98 01/14 Trader Joe's East 11,875 10 * 09/00 09/10 Bally Total Fitness 21,713 19 20.50 12/99 12/04 21.50 01/05 12/09 22.50 01/10 12/14 Pier 1 Imports 12,252 10 17.06 12/98 12/03 19.62 01/04 12/08
* This tenant's lease requires payment of percentage rent only on a monthly basis. For federal income tax purposes, the depreciable basis in this property will be approximately $21,338,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Towson Circle was built in 1998. As of December 1, 2004, this property was 92% occupied, with a total 106,374 square feet leased to ten tenants and two ground lease tenants. The following table sets forth certain information with respect to those leases: 193
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Per Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($) - ----------------------------------------------------------------------------------------------- Mattress Discounters 2,518 05/05 1/5 yr. 62,950 25.00 T-Mobile 1,996 09/05 5/1 yr. 53,916 27.01 Hollywood Tanning System 2,087 09/07 1/5 yr. 55,352 26.52 Nextel 400 03/08 1/5 yr. 24,720 61.80 Sprint PCS 3,128 11/08 - 86,250 27.57 Pier 1 Imports 12,252 12/08 2/5 yr. 240,350 19.62 Storehouse, Inc. 6,345 09/09 - 170,681 26.90 Country Curtains 4,000 07/10 1/5 yr. 80,000 20.00 Trader Joe's East 11,875 09/10 2/5 yr. * N/A Barnes & Noble (Ground Lease) 31,222 01/14 3/5 yr. 637,553 N/A Bally Total Fitness 21,713 12/14 2/5 yr. 445,116 20.50 Bahama Breeze Restaurant (Ground Lease) 8,838 09/18 3/5 yr. 238,336 N/A
* This tenant's lease requires payment of percentage rent only on a monthly basis. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. TOLLGATE MARKETPLACE, BEL AIR, MARYLAND We entered into a joint venture agreement with the current owners of an existing shopping center known as Tollgate Marketplace, containing 392,587 gross leasable square feet. The center is located at Route 24 and Route 1, in Bel Air, Maryland. We entered into a joint venture agreement with the current owners of this property, who are unaffiliated third parties. We made a capital contribution in the amount of $72,300,000 to this joint venture and received an equity interest representing a majority ownership and operating control of this joint venture. We made our capital contribution to the joint venture with our own funds. On July 21, 2004, we obtained financing in the amount of $39,765,000. The loan requires interest only payments at an annual rate of 2.80% for the first ninety days and thereafter at the three month LIBOR Rate and 120 basis points. The loan matures July 2009. Through additional joint ventures, the joint venture partners may acquire additional properties, which would be managed by our joint venture partner. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Giant Food and Jo Ann Fabrics, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows: 194
Approximate % of Base Rent Per GLA Leased Total Square Foot Lease Term Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To - ---------------------------------------------------------------------------------------- Giant Food 40,400 10 4.36 11/79 10/09 Jo Ann Fabrics 46,000 12 11.00 07/98 01/09
For federal income tax purposes, the depreciable basis in this property will be approximately $54,225,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Tollgate Marketplace was built in 1979 and renovated in 1994. As of December 1, 2004, this property was 100% occupied, with a total 392,587 square feet leased to 34 tenants. The following table sets forth certain information with respect to those leases:
Base Rent Approximate Current Per Square GLA Leased Lease Renewal Annual Foot Per Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($) - --------------------------------------------------------------------------------- T.J. Maxx 27,769 03/05 - 242,978 8.75 Sylvan Learning Center 3,900 06/05 1/5 yr. 75,335 19.32 AT & T Wireless 2,000 09/05 1/5 yr. 63,999 32.00 Carvel Ice Cream 1,250 10/05 1/5 yr. 32,500 26.00 Foto Image 1 Hour 1,600 11/05 - 35,200 22.00 Outback Steakhouse 6,200 12/05 3/5 yr. 77,000 12.42 Factory Card Outlet 11,500 12/05 2/5 yr. 149,500 13.00 Dubinclipped 1,230 06/06 2/5 yr. 33,495 27.23 Rockway Bedding 3,200 08/06 1/5 yr. 70,400 22.00 Starbucks Coffee 1,200 09/06 2/5 yr. 33,732 28.11 Hollywood Tanning System 3,000 03/07 1/5 yr. 89,115 29.71 Only Nails 1,230 06/07 1/5 yr. 39,147 31.83 Standard Carpet 3,500 07/07 1/5 yr. 92,829 26.52 Rack Room Shoes 6,980 11/07 1/5 yr. 127,385 18.25 JoAnn Fabrics 46,000 01/09 3/5 yr. 506,000 11.00 Red Lobster 8,355 01/09 3/5 yr. 78,750 9.43 Giant Food 40,400 10/09 3/5 yr. 176,341 4.36 Boston Markets 5,200 12/09 - 95,000 18.27 Staples 20,285 12/09 3/5 yr. 303,260 14.95 Toys "R" Us 30,000 11/10 10/5 yr. 137,499 4.58 TGI Fridays 7,041 12/10 4/5 yr. 151,381 21.50 Petco 12,000 01/11 2/5 yr. 222,000 18.50 The Men's Wearhouse 6,906 02/11 2/5 yr. 151,932 22.00 Pier 1 Imports 9,920 02/11 2/5 yr. 200,681 20.23 Joo Dry Cleaners 1,500 03/11 - 31,827 21.22 Sakura 5,380 06/11 2/5 yr. 114,648 21.31 Barnes & Noble Superstores 23,115 01/12 3/5 yr. 369,840 16.00 Michaels 35,000 01/12 3/5 yr. 349,999 10.00 Baja Fresh 3,000 04/12 2/5 yr. 84,000 28.00
195
Base Rent Approximate Current Per Square GLA Leased Lease Renewal Annual Foot Per Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($) - --------------------------------------------------------------------------------- First Union Bank 6,050 10/12 2/5 yr. 138,000 22.81 Bassett Furniture 14,144 12/13 2/5 yr. 169,728 12.00 Tollgate Liquors 4,282 05/14 10/1 yr. 51,384 12.00 Pizzeria Uno's 6,360 11/14 4/5 yr. 84,700 13.32 Circuit City 33,090 11/15 4/5 yr. 390,828 11.81
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. DORMAN CENTER, SPARTANBURG, SOUTH CAROLINA We purchased the second phase of Dorman Center, containing 37,200 gross leasable square feet for approximately $7,082,000. We acquired the first phase of Dorman Center, containing 350,867 gross leasable square feet on March 4, 2004 for approximately $43,118,000. The center is located at Blackstock Road and W.L. Ezell Road, in Spartanburg, South Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $50,200,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $123 per square foot of leasable space for Phase I and $190 for per square foot of leasable space for Phase II. We purchased this property with our own funds. On April 20, 2004, we obtained financing in the amount of $27,610,000. The loan requires interest only payments at an annual rate of 4.18% and matures May 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Wal-Mart Supercenter, leases more than 10% of the combined total gross leasable area of the Phase I and Phase II properties. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------- Wal-Mart Supercenter 219,622 57 7.45 08/03 08/23
For federal income tax purposes, the total depreciable basis in this property will be approximately $37,650,000. When we calculate depreciation expense for tax purposes, we will use the straight-line 196 method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Dorman Center Phase I was built in 2003 and Dorman Center Phase II was newly constructed in 2004. As of December 1, 2004, this property was 97% occupied, with a total 377,467 square feet leased to 26 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- DORMAN CENTER I Happy Nails 2,000 08/06 1/3 yr. 38,000 19.00 Pilgrim's Pathway 2,000 09/06 1/3 yr. 32,000 16.00 Alltel 2,500 09/06 2/3 yr. 45,000 18.00 Payless Shoesource 2,800 08/08 3/5 yr. 47,600 17.00 Your Dollar Store 5,000 08/08 2/5 yr. 77,500 15.50 JD's Fashion 3,500 08/08 1/5 yr. 63,000 18.00 Lee Jewelers 1,700 09/08 2/5 yr. 33,150 19.50 Catherine's 4,000 09/08 3/5 yr. 69,000 17.25 Super Tans 2,500 10/08 2/3 yr. 42,500 17.00 Grand China Buffet 6,000 11/08 4/5 yr. 78,000 13.00 Pier 1 Imports 10,800 07/13 3/5 yr. 199,800 18.50 Michaels 23,758 09/13 4/5 yr. 249,459 10.50 McAllister's Deli 4,000 10/13 2/5 yr. 66,000 16.50 Moe's Southwestern 3,000 01/14 2/5 yr. 45,000 15.00 Linens 'N Things 25,000 01/14 3/5 yr. 252,050 10.08 Ross Dress for Less 30,187 01/14 4/5 yr. 332,057 11.00 Wal-Mart Supercenter 219,622 08/23 15/5 yr. 1,636,184 7.45 & 1/4 yr. DORMAN CENTER II American Cash Advance 1,400 04/07 1/3 yr. 24,500 17.50 Cingular Wireless 1,600 05/07 2/2 yr. 28,000 17.50 Aim Mail Center 1,600 06/09 - 28,000 17.50 Sally Beauty Supply 1,400 04/09 2/5 yr. 25,200 18.00 Cost Cutters 1,400 05/09 1/5 yr. 25,900 18.50 American's Home Place 3,500 06/09 2/3 yr. 57,225 16.35 America's Best 3,000 07/09 1/5 yr. 46,500 15.50 Italian Pie 3,200 07/14 2/5 yr. 52,800 16.50 Shoe Carnival 12,000 03/14 2/5 yr. 156,000 13.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 197 CRANBERRY SQUARE, CRANBERRY TOWNSHIP, PENNSYLVANIA We purchased an existing shopping center known as Cranberry Square, containing 195,566 gross leasable square feet. The center is located on U.S. Route 19 in Cranberry Township, Pennsylvania. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $20,220,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $103 per square foot of leasable space. We purchased this property with our own funds. On July 16, 2004, we obtained financing for this property in the amount of $10,900,000. The loan requires interest only payments at an annual rate of 4.975% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. All five tenants, Barnes & Noble, Dick's Sporting Goods, Best Buy, OfficeMax and Toys "R" Us, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------ Barnes & Noble 25,200 13 12.50 11/96 10/06 15.00 11/06 10/11 Dick's Sporting Goods 50,000 26 10.25 02/97 01/12 Best Buy 37,005 19 12.25 11/02 01/08 13.25 02/08 01/13 OfficeMax 23,380 12 10.10 10/96 09/01 10.60 10/01 09/06 10.80 10/06 09/11 Toys "R" Us 45,000 23 3.78 11/96 01/07 4.16 02/07 01/12
For federal income tax purposes, the depreciable basis in this property will be approximately $15,165,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Cranberry Square was built in 1996. As of December 1, 2004, this property was 92% occupied, with a total 180,585 square feet leased to five tenants. The following table sets forth certain information with respect to those leases: 198
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($) - -------------------------------------------------------------------------------------- OfficeMax 23,380 09/11 3/5 yr. 247,828 10.60 Barnes & Noble 25,200 10/11 2/5 yr. 315,000 12.50 Toys "R" Us 45,000 01/12 6/5 yr. 170,100 3.78 Dick's Sporting Goods 50,000 01/12 3/5 yr. 512,500 10.25 Best Buy 37,005 01/13 4/5 yr. 453,311 12.25
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. KOHL'S/WILSHIRE PLAZA III, KANSAS CITY, MISSOURI We finalized our purchase of 88,248 gross leasable square feet of a newly constructed single tenant space that is part of a shopping center known as Wilshire Plaza III. The center is located at I-35 and Highway 152 in Kansas City, Missouri. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $10,099,050. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $114 per square foot of leasable space. On November 17, 2004, we obtained financing in the amount of $5,417,500. The loan requires interest only payments at an annual rate of 5.12% and matures in December 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Kohl's, leases 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Annual Foot Per Renewal Lease Term Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To - -------------------------------------------------------------------------------------------------------- Kohl's 88,248 100 738,396 8.37 6/5 yr. 10/04 10/14 782,760 8.87 11/14 01/25
For federal income tax purposes, the depreciable basis in this property will be approximately $7,574,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. 199 SHOPPES OF DALLAS, DALLAS, GEORGIA We purchased a newly constructed shopping center known as Shoppes of Dallas, containing 70,610 gross leasable square feet. The center is located at Highway 381 and East Paulding Drive, in Dallas, Georgia. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $13,052,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $185 per square foot of leasable space. We purchased this property with our own funds. On September 30, 2004, we obtained financing in the amount of $7,178,700. The loan requires interest only payments at an annual rate of 4.96% and matures in April 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Publix, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------ Publix 44,840 64 10.25 03/04 03/24
For federal income tax purposes, the depreciable basis in this property will be approximately $9,789,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Shoppes of Dallas was newly constructed in 2004. The property is currently in a leasing up phase and certain tenants have executed leases for retail space within the shopping center. As of December 1, 2004, this property was 86% occupied, with a total of 61,010 square feet leased to 12 tenants. In addition, the seller is funding the shortfall rent for certain tenants until the space is occupied. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($) - ------------------------------------------------------------------------------------- Creative Tan 1,200 04/07 1/3 yr. 24,000 20.00 Ladies Fitness Express 1,200 04/07 1/3 yr. 19,800 16.50 West Georgia Wireless 900 04/07 1/3 yr. 15,300 17.00 Evan Blake Salon 1,200 04/07 1/3 yr. 21,000 17.00 Dollar Train 2,100 06/07 1/3 yr. 36,750 17.50 USA Nails 1,200 03/09 2/5 yr. 28,800 24.00 Great Clips 1,200 04/09 2/5 yr. 26,400 22.00 China Fun 1,200 05/09 2/5 yr. 25,200 21.00
200
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($) - ------------------------------------------------------------------------------------- Dry Clean USA 1,200 06/09 2/5 yr. 28,800 24.00 Subway 1,200 07/09 2/5 yr. 22,800 19.00 Beef O' Brady's 3,570 08/09 - 80,325 22.50 Publix 44,840 03/24 6/5 yr. 459,600 10.25
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. THE SHOPS AT BOARDWALK, KANSAS CITY, MISSOURI We purchased a newly constructed shopping center known as The Shops at Boardwalk, containing 122,916 gross leasable square feet. The center is located at North Boardwalk Avenue and Ambassador Drive in Kansas City, Missouri. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $36,642,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $298 per square foot of leasable space. We purchased this property with our own funds. On July 2, 2004, we obtained financing in the amount of $20,150,000. The loan requires interest only payments at an annual rate of 4.13% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Borders Books, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Borders Books 19,000 16 13.95 09/02 08/08 14.65 09/08 08/13 15.38 09/13 08/18 16.11 09/18 01/24
For federal income tax purposes, the depreciable basis in this property will be approximately $27,500,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. 201 The Shops at Boardwalk was newly constructed during 2003 and 2004. The property is currently in a leasing up phase and certain tenants have executed leases for retail space within the shopping center. In addition, the seller is funding the shortfall rent for certain tenants until the space is occupied. As of December 1, 2004, this property was 81% occupied, with a total of 99,881 square feet leased to 24 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($) - ------------------------------------------------------------------------------------------------------ Coldwater Creek* 4,620 Month-to-Month 2/5 yr. 110,808 24.00 Nextel Communications 2,004 05/08 2/5 yr. 54,108 27.00 Electronic Boutique 2,195 06/08 1/5 yr. 60,582 27.60 Chicos 2,735 07/08 2/5 yr. 68,375 25.00 Planet Sub 3,147 07/08 1/3 yr. & 84,969 27.00 1/2 yr. Jos. A. Banks 4,200 08/08 1/5 yr. 92,400 22.00 Claire's Boutique 1,200 08/08 2/2 yr. 36,000 30.00 Maurices 3,781 08/08 2/3 yr. 94,525 25.00 Noggin Noodle 2,390 10/08 1/5 yr. 62,140 26.00 Select Comfort 2,158 12/08 1/3 yr. & 64,740 30.00 1/2 yr. Archivers 5,957 01/09 1/5 yr. 119,140 20.00 2nd Swing 3,580 04/09 1/10 yr. 93,080 26.00 Hallmark 3,477 05/09 2/5 yr. 71,279 20.50 Trade Secrets 2,763 08/09 1/5 yr. 74,601 27.00 J. Jill 4,040 07/13 - 121,200 30.00 Chipolte Mexican Grill 2,801 07/13 2/5 yr. 78,428 28.00 Yankee Candle 2,000 07/13 1/5 yr. 50,000 25.00 Red Star Tavern 7,200 08/13 2/5 yr. 209,061 29.00 Christopher & Banks 3,500 08/13 - 91,000 26.00 Kirklands 4,915 01/14 - 108,130 22.00 Payless Shoesource 3,294 04/14 2/4 yr. 88,938 27.00 Genghis Khan 4,423 05/14 2/5 yr. 88,460 20.00 Talbots 4,501 01/16 2/4 yr. 117,026 26.00 Borders Books 19,000 01/24 4/5 yr. 265,050 13.95
* Renewal negotiations in progress In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. SHOPPES OF PROMINENCE POINT, CANTON, GEORGIA We purchased a newly constructed shopping center known as Shoppes of Prominence Point, containing 78,058 gross leasable square feet. The center is located at Interstate 575 and State Route 5, in Canton, Georgia. 202 We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $15,155,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $194 per square foot of leasable space. We purchased this property with our own funds. On August 13, 2004, we obtained financing in the amount of $9,954,300. The loan requires interest only payments at an annual rate of 5.235% and matures September 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Publix, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Publix 44,840 57 10.80 03/04 03/24
For federal income tax purposes, the depreciable basis in this property will be approximately $11,366,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Shoppes of Prominence Point was newly constructed in 2004. As of December 1, 2004, this property was 91% occupied, with a total of 70,758 square feet leased to 15 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($) - -------------------------------------------------------------------------------------------------- World Wireless 1,050 03/07 1/3 yr. 21,000 20.00 World Dollar Store 1,610 04/07 1/3 yr. 30,590 19.00 Curves 1,400 04/07 1/3 yr. 27,300 19.50 Prominence Chiropractic 1,400 05/07 1/3 yr. 26,600 19.00 Oceanside Tanning 1,400 04/08 1/4 yr. 32,200 23.00 Bowen's TaeKwonDo Plus 2,450 04/08 1/4 yr. 47,775 19.50 Blockbuster Video 5,268 01/09 4/5 yr. 92,190 17.50 Holly Nails 1,050 04/09 1/4 yr. 25,200 24.00 Dry Clean USA 1,400 04/09 - 33,600 24.00 Yoon Sushi Restaurant 1,400 05/09 1/5 yr. 25,900 18.50 Great Clips 1,400 05/09 2/5 yr. 30,800 22.00 The UPS Store 1,400 05/09 1/5 yr. 26,600 19.00 Mui Lan Restaurant 2,100 05/09 1/5 yr. 40,950 19.50 Beef O'Brady's 2,590 05/12 1/8 yr. 46,620 18.00 Publix 44,840 03/24 6/5 yr. 484,272 10.80
203 In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. DAVIS TOWNE CROSSING, NORTH RICHLAND HILLS, TEXAS We purchased 34,091 square feet of a newly constructed shopping center known as Davis Towne Crossing, which will contain 41,295 gross leasable square feet of which 4,000 square feet will be a ground lease. The center is located at Davis Boulevard and Precinct Line Road in North Richland Hills, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost for the entire property will be approximately $9,755,000. Our acquisition cost for the portion we purchased was $8,141,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost for the entire property will be approximately $236 per square foot of leasable space. We purchased this property with our own funds. On August 9, 2004, we obtained financing in the amount of $5,365,200. The loan requires interest only payments at an annual rate of 5.185% and matures September 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Lady USA Fitness and Cotton Patch Cafe, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------- Lady USA Fitness 6,000 14 17.00 10/03 10/08 Cotton Patch Cafe 4,400 11 20.00 12/03 11/08
For federal income tax purposes, the depreciable basis in this property when completed will be approximately $7,316,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Davis Towne Crossing was newly constructed during 2003 and 2004. The property is currently in a leasing up phase and certain tenants have executed leases for retail space within the shopping center. In addition, the seller is funding the shortfall rent for certain tenants until the space is occupied. As of December 1, 2004, the portion of the property we purchased was 91% occupied with 31,091 square feet leased to 11 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases: 204
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($) - ----------------------------------------------------------------------------------------------- H & R Block 2,264 05/07 1/3 yr. 45,280 20.00 RadioShack 2,400 08/08 3/5 yr. 48,000 20.00 Sport Clips 1,440 08/08 2/5 yr. 28,800 20.00 EB Games 1,500 09/08 2/5 yr. 31,500 21.00 Luxury Nails 1,400 09/08 1/5 yr. 29,400 21.00 Friedman's Jewelers 1,727 10/08 3/3 yr. 32,813 19.00 Lady USA Fitness 6,000 10/08 2/5 yr. 102,000 17.00 Cotton Patch Cafe 4,400 11/08 1/5 yr. 88,000 20.00 The UPS Store 1,360 02/09 1/5 yr. 25,840 19.00 Payless Shoes 3,000 07/13 2/5 yr. 54,000 18.00 Quiznos Subs 1,600 11/13 1/5 yr. 30,400 19.00 Washington Mutual (Ground Lease) 4,000 08/28 4/5 yr. 85,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. FULLERTON METROCENTER, FULLERTON, CALIFORNIA We purchased an existing shopping center known as Fullerton Metrocenter, containing 253,296 gross leasable square feet which includes 5,178 square feet of ground lease space. The center is located at Harbor Boulevard and Orangethorpe Avenue, in Fullerton, California. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $51,275,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $202 per square foot of leasable space. We purchased this property with our own funds. On July 9, 2004, we obtained financing in the amount of $28,050,000. The loan requires interest only payments at an annual rate of 5.09% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Sportmart, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows: 205
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------- Sportmart 43,660 17 8.25 10/88 10/93 9.13 11/93 10/98 9.54 11/98 10/03 9.95 11/03 02/06
For federal income tax purposes, the depreciable basis in this property will be approximately $38,456,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Fullerton Metrocenter was built in 1988. As of December 1, 2004, this property was 82% occupied, with a total 208,174 square feet leased to 38 tenants and two ground lease tenants. The following table sets forth certain information with respect to those leases:
Base Rent Per Approximate Current Square Foot GLA Leased Renewal Annual Per Annum Lessee (Sq. Ft.) Lease Ends Options Rent ($) ($) - ----------------------------------------------------------------------------------------------- H & R Block 5,250 Month-to- - 141,816 27.01 Month Sportmart 43,660 02/06 3/5 yr. 434,334 9.95 La Caffepia 1,245 03/06 - 36,708 29.48 Citi Financial 1,560 05/06 - 35,604 22.82 KFC (Ground Lease) 2,304 05/06 - 100,800 N/A AT & T Wireless Services 2,775 10/06 1/5 yr. 75,980 27.38 Payless Shoesource 2,525 10/06 1/5 yr. 49,768 19.71 Jenny Craig 1,900 02/07 - 53,656 28.24 RadioShack 2,050 04/07 1/3 yr. 47,970 23.40 Party America 9,610 05/07 - 128,064 13.33 Adelphia Communications 1,515 06/07 1/5 yr. 41,465 27.37 Quizno's Subs 1,400 08/07 1/5 yr. 40,460 28.90 Brite Dental 2,250 08/07 2/5 yr. 43,920 19.52 Lilacs Flowers and Gifts 1,200 11/07 1/5 yr. 42,275 35.23 GameStop 1,550 12/07 - 36,900 23.81 Ruby's Diner 3,592 02/08 - 106,320 29.60 Pop's Unfinished Furniture 6,650 04/08 2/5 yr. 101,745 15.30 Burger King (Ground Lease) 2,874 04/08 2/5 yr. 130,968 N/A Record Town 6,350 06/08 2/5 yr. 99,920 15.74 GMP Vitamin 1,020 07/08 - 30,681 30.08 Beneficial Finance 1,775 10/08 - 51,456 28.99 Fantastic Sams 1,170 11/08 - 34,728 29.68 Beauty Avenue 5,400 11/08 - 110,808 20.52 Jewelry Mart 7,000 12/08 2/5 yr. 273,432 39.06 Tilly's 6,040 12/08 1/5 yr. 132,276 21.90 Sylvan Learning Center 3,648 05/09 2/3 yr. 71,646 19.64
206
Base Rent Per Approximate Current Square Foot GLA Leased Renewal Annual Per Annum Lessee (Sq. Ft.) Lease Ends Options Rent ($) ($) - ----------------------------------------------------------------------------------------------- Miry Collection 4,350 05/09 - 109,260 25.12 Vans 1,650 06/09 - 46,348 28.09 Super Mex Restaurants 5,500 10/09 - 163,334 29.70 Kim Sun Young Salon 1,280 10/09 - 37,860 29.58 Metro Dry Cleaning 1,950 11/09 1/5 yr. 53,904 27.64 Tip Top Nails 900 01/10 1/5 yr. 36,468 40.52 Matsunoya 2,900 06/10 - 70,932 24.46 Baskin-Robbins 1,275 10/10 1/5 yr. 39,948 31.33 China Buffet 10,828 06/11 - 184,617 17.05 First Bank and Trust 21,600 02/13 2/5 yr. 201,256 9.31 Orange County Credit Union 4,000 12/13 1/5 yr. 81,600 20.40 Big Island BBQ 1,090 03/14 1/5 yr. 31,932 28.80 Avenue 5,300 01/15 2/5 yr. 104,256 19.67 PETsMART 19,238 03/19 3/5 yr. 278,544 14.48
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. LOW COUNTRY VILLAGE SHOPPING CENTER, BLUFFTON, SOUTH CAROLINA We purchased a newly constructed shopping center known as Low Country Village Shopping Center, containing 76,479 gross leasable square feet (Phase I). We signed an agreement, subject to conditions, to purchase an additional 63,460 gross leasable square feet (Phase II) of construction estimated to be completed in late 2004 to early 2005 for approximately $10,542,800. The center is located at Highway 278 and Foreman Hill Road in Bluffton, South Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $11,091,000 for Phase I. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $145 per square foot of leasable space for Phase I and $166 per square foot of leasable space for Phase II. We purchased Phase I and intend to purchase Phase II with our own funds. On October 6, 2004, we obtained financing in the amount of $5,370,000. The loan requires interest only payments at an annual rate of 4.96% and matures in May 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Ross Dress for Less, Michaels and PETsMART, lease more than 10% of the total gross leasable area of the Phase I property. The lease term will be determined in accordance with the tenant's commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows: 207
Base Rent Approximate Phase I Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------- Ross Dress for Less 30,131 39 9.75 05/04 04/09 10.25 05/09 04/14 Michaels 21,360 28 9.75 02/04 02/14 PETsMART 19,107 25 12.95 02/04 01/09 13.95 02/09 01/14 14.95 02/14 01/19
For federal income tax purposes, the depreciable basis in this property will be approximately $8,318,000 for Phase I. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Low Country Village Shopping Center is newly constructed in 2004. As of December 1, 2004, Phase I was 97% occupied, with a total of 74,299 square feet leased to six tenants. The property is currently in a leasing up phase for Phase II and certain tenants have executed lease for retail space within the shopping center. The following table sets forth certain information with respect to those leases:
Base Rent Per Approximate Current Square Foot GLA Leased Lease Renewal Annual Per Annum Lessee (Sq. Ft.) Ends Options Rent ($) ($) - ----------------------------------------------------------------------------------------------- PHASE I Kim Nails 1,088 07/09 1/5 yr. 18,496 17.00 Sport Clips 1,107 07/09 2/5 yr. 19,373 17.50 Quizno's 1,506 09/09 2/5 yr. 27,108 18.00 Michaels 21,360 02/14 4/5 yr. 208,260 9.75 Ross Dress for Less 30,131 04/14 4/5 yr. 293,777 9.75 PETsMART 19,107 01/19 3/5 yr. 247,436 12.95 PHASE II Linens 'N Things* 25,080 07/14 244,530 9.75 Cost Plus World Market* 18,300 01/15 215,025 11.75
* Lease renewal option information not currently available. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 208 NORTHGATE NORTH, SEATTLE, WASHINGTON We purchased a newly constructed shopping center known as Northgate North, containing 302,095 gross leasable square feet. The center is located at 302 Northeast Northgate Way in Seattle, Washington. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $48,455,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $160 per square foot of leasable space. We purchased this property with our own funds. On July 14, 2004, we obtained financing in the amount of $26,650,000. The loan requires interest only payments at an annual rate of 4.60% and matures July 2008. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Target and Best Buy, each leases more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------- Target 147,582 49 4.34 01/01 12/25 Best Buy 51,202 17 25.00 10/00 01/06 27.00 02/06 01/11 29.00 02/11 01/16 31.00 02/16 01/21
For federal income tax purposes, the depreciable basis in this property will be approximately $36,341,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Northgate North was constructed between 2000 and 2003. As of December 1, 2004, this property was 98% occupied, with a total 297,006 square feet leased to eight tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------- Qwest Wireless 1,950 12/07 2/5 yr. 40,000 20.51 Quizno's 1,315 07/12 2/5 yr. 41,856 31.83 Olive Garden 7,930 10/12 4/5 yr. 205,000 25.85 Ross Dress for Less 25,278 01/14 4/5 yr. 391,809 15.50
209
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - -------------------------------------------------------------------------------------------------- G.I. Joe's (Storage) 1,968 05/18 4/5 yr. 11,808 6.00 G.I. Joe's 44,370 05/18 4/5 yr. 532,440 12.00 Bassett Furniture 15,411 10/19 - 295,000 19.14 Best Buy 51,202 01/21 4/5 yr. 1,280,060 25.00 Target 147,582 12/25 6/5 yr. 640,000 4.34
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PACHECO PASS SHOPPING CENTER, GILROY, CALIFORNIA We anticipate purchasing a portion of a newly constructed shopping center known as Pacheco Pass Shopping Center, containing 99,356 gross leasable square feet (which includes 11,810 square feet of ground lease space). The center is located at Camino Arroyo and State Highway 152 in Gilroy, California. On June 30, 2004, we funded the initial installment of a $22,000,000 first mortgage in the amount of $15,332,906. The remainder of $6,667,094 is expected to be funded in the fourth quarter of 2004. The interest rate of this first mortgage is 6.9933% and it matures on July 15, 2005. We anticipate purchasing the center when the mortgage matures for approximately $24,400,000. We will use the principal towards our purchase price. Two tenants, Best Buy and Linens 'N Things, will lease more than 10% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------- Best Buy 30,000 30 13.91 11/03 01/14 Linens 'N Things 27,984 28 13.50 03/04 01/15
For federal income tax purposes, the depreciable basis in this property will be approximately $18,300,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Pacheco Pass Shopping Center was newly constructed in 2004. As of December 1, 2004, the property is currently in a leasing up phase and certain tenants have executed lease for retail space within the shopping center. The following table sets forth certain information with respect to those leases: 210
Approximate Current Base Rent Per GLA Leased Lease Annual Square Foot Lessee (Sq. Ft.) Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Nextel Communications 1,500 12/10 54,000 36.00 Electronics Boutique 1,500 11/13 52,500 35.00 The Sleep Train 4,550 11/13 111,475 24.50 Best Buy 30,000 01/14 417,240 13.91 Cold Stone Creamery 1,200 01/14 38,880 32.40 Jamba Juice 1,500 01/14 50,400 33.60 Subway 1,500 01/14 54,000 36.00 Sip n' Hot 1,650 01/14 56,925 34.50 Maui Taco 2,528 06/14 87,216 34.50 Monterey Spa & Stove 4,612 07/14 103,770 22.50 Linens 'N Things 27,984 01/15 377,784 13.50 Bank of America (Ground Lease) N/A 01/24 120,000 N/A Chili's (Ground Lease) N/A 04/14 100,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. LAKEWOOD TOWNE CENTER, LAKEWOOD, WASHINGTON We purchased an existing shopping center known as Lakewood Towne Center, containing 578,863 gross leasable square feet. The center is located at Gravelly Lake Drive and 100th Street, in Lakewood, Washington. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $81,100,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $140 per square foot of leasable space. We purchased this property with our own funds. On June 30,2004, we obtained financing in the form of two loans totaling $51,260,000. The first loan requires interest only payments on $44,000,000 at an annual rate of 2.68% for the first ninety days and thereafter at the three month LIBOR Rate. This loan matures June 2009. The second loan requires interest only payments on $7,260,000 at an annual rate of 3.83% for the first ninety days and thereafter at the LIBOR Rate. This loan matures July 2005. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Gottschalk's and Burlington Coat Factory, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows: 211
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------- Gottschalk's 119,256 21 3.35 04/02 02/12 Burlington Coat Factory 70,533 12 5.50 08/03 08/08 5.75 09/08 08/13
For federal income tax purposes, the depreciable basis in this property will be approximately $60,825,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Lakewood Towne Center was rebuilt in 2002 and 2003. As of December 1, 2004, this property was 95% occupied, with a total 548,113 square feet leased to 26 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------- Rent-A-Center 4,275 05/05 2/5 yr. 47,025 11.00 Catherine P.S. Plus 4,507 07/05 - 63,098 14.00 Pierce Transit 4,200 07/06 - 42,000 10.00 Merino's Fine Custom 1,095 09/06 1/5 yr. 21,900 20.00 Old Country Buffet 9,500 12/06 2/5 yr. 118,750 12.50 Old Navy 16,172 01/08 2/5 yr. 177,892 11.00 Famous Footwear 8,355 10/08 2/5 yr. 125,325 15.00 EB Games 1,400 08/09 1/5 yr. 35,000 25.00 Wells Fargo Financial 1,750 11/09 - 19,565 11.18 Lowes Cineplex 48,229 11/11 4/5 yr. 516,816 10.72 Barnes & Noble 23,104 01/12 2/5 yr. 317,680 13.75 Michaels 24,035 02/12 3/5 yr. 288,420 12.00 Gottschalk's 119,256 02/12 - 400,000 3.35 Bed Bath & Beyond 30,530 01/13 3/5 yr. 381,625 12.50 The Dollar Store 15,564 01/13 1/5 yr. 210,114 13.50 Ross Dress for Less 30,151 01/13 4/5 yr. 354,274 11.75 Lakewood Dialysis 9,450 03/13 2/5 yr. 135,418 14.33 Burlington Coat Factory 70,533 08/13 3/5 yr. 387,932 5.50 Office Depot 18,000 09/13 4/5 yr. 265,500 14.75 La Palma Restaurant 5,120 01/14 2/5 yr. 51,200 10.00 Pier 1 Imports 11,142 02/14 2/5 yr. 192,200 17.25 Motherhood Maternity 1,750 05/14 1/5 yr. 42,875 24.50 Avenue 5,682 01/16 3/5 yr. 88,469 15.57 24 Hour Fitness 20,219 12/16 2/5 yr. 279,022 13.80 G.I. Joes 45,005 11/17 4/5 yr. 540,060 12.00 PETsMART 19,089 01/19 4/5 yr. 209,979 11.00
212 In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. JOHN'S CREEK VILLAGE, DULUTH, GEORGIA We purchased 141,802 square feet of a newly constructed shopping center known as John's Creek Village, which will contain 191,752 gross leasable square feet (which includes 10,555 square feet of ground lease space). The center is located at 11720 Medlock Bridge Road, in Duluth, Georgia. We purchased this property from an unaffiliated third party. Our total acquisition cost for the entire property will be approximately $42,503,000. Our acquisition cost for the portion we purchased was approximately $29,158,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost for the entire property will be approximately $222 per square foot of leasable space. We purchased this property with our own funds. On July 2, 2004, we obtained financing in the amount of $23,300,000. The loan requires interest only payments at an annual rate of 5.10% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, LA Fitness, Ross Dress For Less and T.J. Maxx, will lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------- LA Fitness 41,000 21 17.00 12/03 11/13 CPI 12/13 04/19 Ross Dress for Less 30,187 16 10.75 05/04 01/15 T.J. Maxx 30,000 16 8.95 09/03 09/13
For federal income tax purposes, the depreciable basis in this property when completed will be approximately $31,877,200. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. John's Creek Village was newly constructed in 2003 and 2004. The property is currently leasing up the remaining vacancies and certain tenants have executed leases for retail space within the shopping center. As of December 1, 2004, the portion of the property we purchased was 100% occupied with a total 141,802 square feet leased to 15 tenants and two ground lease tenants. The following table sets forth certain information with respect to those leases: 213
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------- Nextel Communications 1,640 11/08 2/5 yr. 46,740 28.50 American Mattress 6,500 11/08 1/5 yr. 100,750 15.50 Electronics Boutique 1,200 01/09 2/5 yr. 36,000 30.00 State Farm Insurance 1,700 01/09 1/5 yr. 45,050 26.50 T-Mobile 1,500 02/09 1/5 yr. 51,000 34.00 Cold Stone Creamery 1,360 02/09 2/5 yr. 39,440 29.00 Portrait Innovations 2,375 05/09 - 64,125 27.00 T.J. Maxx 30,000 09/13 4/5 yr. 268,500 8.95 Dry Cleaners 1,700 12/13 2/5 yr. 47,600 28.00 Chipolte Mexican Grill 3,000 12/13 3/5 yr. 93,000 31.00 Starbucks 1,665 02/14 4/5 yr. 56,527 33.95 Ross Dress for Less 30,187 01/15 4/5 yr. 324,510 10.75 Doctor's Visionworks 2,400 03/14 2/5 yr. 64,800 27.00 Hollywood Video 5,020 06/14 4/5 yr. 124,245 24.75 LA Fitness 41,000 04/19 3/5 yr. 697,000 17.00 Chili's (Ground Lease) 5,555 05/14 4/5 yr. 100,000 N/A IHOP (Ground Lease) 5,000 12/23 4/5 yr. 85,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. HUEBNER OAKS CENTER, SAN ANTONIO, TEXAS We purchased an existing shopping center known as Huebner Oaks Center, containing 286,684 gross leasable square feet (which includes 8,036 square feet of ground lease space). The center is located at I-10 and Huebner Road, in San Antonio, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $79,721,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $278 per square foot of leasable space. We purchased this property with our own funds. On June 22, 2004, we obtained financing in the form of two loans totaling $48,000,000. The first loan requires interest only payments on $31,723,000 at an annual rate of 4.20% and matures July 2010. The second loan requires interest only payments on $16,277,000 at an annual rate of 3.96% and matures July 2010. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Bed, Bath & Beyond, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows: 214
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Bed, Bath & Beyond 35,009 12 9.65 03/97 03/02 10.62 04/02 03/07 11.68 04/07 01/08
For federal income tax purposes, the depreciable basis in this property will be approximately $60,006,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Huebner Oaks Center was built between 1997 and 1998. As of December 1, 2004, this property was 98% occupied, with a total 282,286 square feet leased to 55 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------- Mattress Firm 2,942 05/05 - 64,724 22.00 Compass ATM 60 07/05 1/2 yr. 20,000 N/A AAA Texas 3,682 11/05 1/5 yr. 77,322 21.00 Marble Slab 1,542 12/05 1/3 yr. & 37,008 24.00 1/5 yr. Kinko's 4,760 02/06 3/5 yr. 92,249 19.38 EB Game World 1,160 08/06 1/5 yr. 33,640 29.00 Pier 1 Imports 8,990 02/07 3/5 yr. 182,137 20.26 Old Navy 14,000 03/07 1/5 yr. 196,000 14.00 Shoes 4 Kids 1,000 02/07 1/3 yr. 26,500 26.50 La Madeleine 4,200 03/07 2/5 yr. 86,100 20.50 Moon Mippy 930 04/07 1/4 yr. 26,040 28.00 Club Humidor 2,254 06/07 - 54,096 24.00 Cingular Wireless 2,502 06/07 - 60,048 24.00 All Ashore Sportswear 1,264 07/07 - 27,808 22.00 Pearle Vision 2,721 07/07 2/5 yr. 68,025 25.00 Beauty First 3,681 09/07 1/5 yr. 77,301 21.00 Verizon Wireless 1,803 10/07 1/5 yr. 46,878 26.00 Oreck Homecare 1,103 10/07 1/5 yr. 24,266 22.00 Bed, Bath & Beyond 35,009 01/08 2/5 yr. 371,796 10.62 Frankly Fake Copy 854 01/08 1/5 yr. 23,912 28.00 Ross Dress for Less 28,200 01/08 5/5 yr. 267,900 9.50 Men's Wearhouse 4,500 02/08 2/5 yr. 88,020 19.56 Fire Wok 2,500 03/08 1/5 yr. 52,500 21.00 Ride Away Bicycles 3,917 04/08 - 58,755 15.00 Claire's Boutique 1,200 08/08 - 33,600 28.00 Sports Clips 1,057 09/08 - 27,482 26.00 Gap Kids 8,500 09/08 1/5 yr. 180,540 21.24 Victoria's Secret 4,500 09/08 - 94,500 21.00
215
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------- Bath & Body Works 2,500 09/08 - 58,750 23.50 Lane Bryant 4,500 09/08 - 94,500 21.00 Banana Republic 5,964 09/08 1/5 yr. 114,807 19.25 California Pizza Kitchen 4,301 10/08 2/5 yr. 118,708 27.60 GNC 1,155 10/08 - 28,875 25.00 Hallmark Creations 6,416 10/08 2/5 yr. 130,566 20.35 Barbeques Galore 4,498 11/08 2/5 yr. 124,145 27.60 Abercrombie & Fitch 6,766 11/08 - 135,320 20.00 Casual Male Big & Tall 3,914 12/08 - 90,022 23.00 Eddie Bauer 6,384 01/09 - 193,691 30.34 Gymboree 1,925 01/09 - 46,200 24.00 Ann Taylor 4,500 01/09 - 131,175 29.15 Starbucks 1,690 02/09 2/5 yr. 38,870 23.00 Steak Escape 1,663 03/09 1/5 yr. 39,912 24.00 Tanfastic 1,824 04/09 - 43,776 24.00 Cactus Low Carb Superstore 2,083 05/09 1/5 yr. 33,328 16.00 Brighton 1,498 06/09 - 41,285 27.56 Inksell.com 1,000 07/09 1/5 yr. 30,000 30.00 Ben Adams Jewelers 3,234 11/09 - 83,853 25.93 Bombay Company 4,500 12/09 - 121,500 27.00 Yankee Candle 2,028 02/10 - 54,756 27.00 Talbots 6,314 01/11 1/3 yr. 164,164 26.00 Chico's 3,060 07/11 2/5 yr. 107,100 35.00 Macaroni Grill 7,846 08/12 2/5 yr. 107,000 13.64 American Eagle 5,800 01/14 - 168,200 29.00 Chipotle Mexican Grill 2,556 03/14 2/5 yr. 69,012 27.00 Borders Books 27,500 01/18 5/5 yr. 411,670 14.97 Saltgrass Restaurant (Ground Lease) 8,036 06/07 4/5 yr. 105,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PINE RIDGE PLAZA, LAWRENCE, KANSAS We purchased an existing shopping center known as Pine Ridge Plaza, containing 230,510 gross leasable square feet (which includes 84,676 square feet of ground lease space). The center is located at 3106 - 3140 Iowa Street, in Lawrence, Kansas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $26,982,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $117 per square foot of leasable space. 216 We purchased this property with our own funds. On July 27, 2004, we obtained financing in the amount of $14,700,000. The loan requires interest only payments at an annual rate of 5.085% and matures August 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Kohl's, T.J. Maxx and Bed, Bath & Beyond, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Kohl's* 80,654 35 N/A 03/98 01/19 T.J. Maxx 25,420 11 8.50 04/04 03/09 9.00 04/09 03/14 Bed, Bath & Beyond 24,000 10 10.00 12/03 01/14 * Ground lease
For federal income tax purposes, the depreciable basis in this property will be approximately $20,236,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Pine Ridge Plaza was redeveloped from 1998 through 2004 and the inline strip center portion of the property was completed in 2001. As of December 1, 2004, this property was 100% occupied, with a total 230,510 square feet leased to 12 tenants and two ground lease tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------- Old Navy 22,000 07/06 2/5 yr. 220,000 10.00 Deals 9,862 08/07 2/5 yr. 128,206 13.00 Electronic Boutique 2,190 03/08 2/5 yr. 41,063 18.75 Sports Clips 2,190 05/08 1/5 yr. 31,317 14.30 Famous Footwear 12,000 05/11 3/5 yr. 180,000 15.00 Bath & Body Works 2,500 01/12 2/5 yr. 37,500 15.00 Hurst Diamonds 1,375 01/12 1/5 yr. 24,750 18.00 Jason's Deli 5,000 02/12 3/5 yr. 90,000 18.00 Bed, Bath & Beyond 24,000 01/14 3/5 yr. 240,000 10.00 Michaels 21,000 02/14 4/5 yr. 201,495 9.60 T.J. Maxx 25,420 03/14 4/5 yr. 216,070 8.50 Cost Plus World Market 18,297 01/15 3/5 yr. 247,010 13.50
217
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------- Kohl's (Ground Lease) 80,654 01/19 6/5 yr. 360,000 N/A IHOP (Ground Lease) 4,022 11/19 3/5 yr. 60,504 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. ECKERD DRUG STORES We purchased the following four separate existing freestanding retail properties built during 2003 and 2004 known as Eckerd Drug Stores, containing a total of 54,912 gross leasable square feet.
Location Square Feet Lease Term Purchase Price ($) - ---------------------------------------------------------------------------------------------------------- 1100 W. Hampton Boulevard 13,824 06/03/04 - 06/02/24 3,069,000 Greer, South Carolina 2041 S. Croatan Highway 13,824 06/03/04 - 06/02/24 3,650,000 Kill Devil Hills, North Carolina Broad River and Kennerly 13,440 06/03/04 - 06/02/24 3,260,000 Columbia, South Carolina 1106 Main Street 13,824 06/03/04 - 06/02/24 2,625,000 Crossville, Tennessee
We purchased the four Eckerd Drug Stores from Eckerd, an unaffiliated third party. Our total acquisition cost, including expenses, was approximately $12,604,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $230 per square foot of leasable space. We purchased these properties with our own funds. On July 21, 2004, we obtained financing in the form of four loans totaling $6,800,000. The loans on each property are as follows: Eckerd Drug Store in Greer, South Carolina requires interest only payments on $1,650,000; Eckerd Drug Store in Kill Devil Hills, North Carolina requires interest only payments on $1,975,000; Eckerd Drug Store in Columbia, South Carolina requires interest only payments on $1,750,000; and Eckerd Drug Store in Crossville, Tennessee requires interest only payments on $1,425,000. The interest rate of all the properties' loans is 5.275% and all the properties' loans mature in August 2009. In evaluating these properties as potential acquisitions and determining the appropriate amount of consideration to be paid for the properties, we considered a variety of factors including location, demographics, quality of tenant, length of lease, price per square foot, occupancy and the fact that overall rental rate at the property is comparable to market rates. We believe that each of these properties is well located, has acceptable roadway access and is well maintained. These properties will be subject to competition from similar properties within their market area, and economic performance could be 218 affected by changes in local economic conditions. We did not consider any other factors materially relevant to the decision to acquire these properties. One tenant, Eckerd Drug Store, leases 100% of the total gross leasable area of each property. The leases with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
% of Total Current Base Rent Approximate GLA of Annual Per Square GLA Leased each Rent Renewal Foot Per Lease Term Lessee/Location (Sq. Ft.) Property ($) Options Annum ($) Beginning To - ---------------------------------------------------------------------------------------------------------------- 1100 W. 13,824 100 254,727 4/5 yr. 18.43 06/03/04 06/02/24 Hampton Blvd. Greer, SC 2041 S. Croatan 13,824 100 302,950 4/5 yr. 21.91 06/03/04 06/02/24 Hwy. Kill Devil Hills, NC Broad River 13,440 100 270,580 4/5 yr. 20.13 06/03/04 06/02/24 and Kennerly Columbia, SC 1106 Main 13,824 100 217,875 4/5 yr. 15.76 06/03/04 06/02/24 Street Crossville, TN
For federal income tax purposes, the depreciable basis in these properties will be approximately $9,453,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. PLAZA SANTA FE, PHASE II, SANTA FE, NEW MEXICO We purchased an existing shopping center known as Plaza Santa Fe, Phase II, containing 222,389 gross leasable square feet. The center is located at Cerrilos Road and Zafarano Boulevard in Santa Fe, New Mexico. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $30,971,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $139 per square foot of leasable space. We purchased this property with our own funds and by assuming the existing mortgage debt on the property. The outstanding balance on the mortgage debt at the date of acquisition was $17,551,721. This loan requires monthly principal and interest payments based on a fixed interest rate of 6.2% per annum and cannot be prepaid prior to January 2005. The loan matures on December 1, 2012. 219 We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Best Buy, Linens 'N Things and T.J. Maxx, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Best Buy 31,226 14 13.50 09/01 01/09 14.00 02/09 01/17 Linens 'N Things 31,500 14 13.50 11/00 01/06 14.85 02/06 01/11 16.34 02/11 01/16 T.J. Maxx 30,900 14 10.50 11/00 11/10
For federal income tax purposes, the depreciable basis in this property will be approximately $23,300,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Plaza Santa Fe Phase II was built between 2000 to 2002. As of December 1, 2004, this property was 98% occupied, with a total 217,329 square feet leased to 20 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------- State Farm Insurance 1,250 02/05 2/3 yr. 27,500 22.00 Old Navy 20,115 11/06 2/5 yr. 251,438 12.50 H & R Block 1,900 10/07 1/5 yr. 38,000 20.00 Corral West 7,556 10/07 1/5 yr. 75,560 10.00 Cactus Salon 1,250 01/08 1/5 yr. 30,000 24.00 French & French 3,038 11/08 1/7 yr. 69,874 23.00 Alltel 3,932 12/08 2/5 yr. 112,612 28.64 T.J. Maxx 30,900 11/10 3/5 yr. 324,450 10.50 Michaels 20,280 03/11 3/5 yr. 253,500 12.50 D & A Mattress 4,710 05/11 2/5 yr. 89,490 19.00 Famous Footwear 8,000 01/12 2/5 yr. 136,000 17.00 Super Nails 1,000 05/12 1/5 yr. 30,000 30.00 Quizno's 1,900 08/12 1/5 yr. 37,715 19.85 Osaka Grill 6,000 09/12 2/5 yr. 150,000 25.00 Payless Shoe Source 2,850 09/13 2/5 yr. 57,000 20.00 Men's Wearhouse 4,505 02/15 1/5 yr. 83,343 18.50
220
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------- Linens 'N Things 31,500 01/16 3/5 yr. 425,250 13.50 Best Buy 31,226 01/17 2/5 yr. 421,551 13.50 PETsMART 20,010 01/17 3/5 yr. 284,742 14.23 Borders 15,407 01/18 5/5 yr. 234,957 15.25
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. NORTHPOINTE PLAZA, SPOKANE, WASHINGTON We purchased an existing shopping center known as Northpointe Plaza, containing 377,949 gross leasable square feet (which consists of 18,719 square feet of ground lease space). The center is located at 10100 N. Newport Highway in Spokane, Washington. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $54,524,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $144 per square foot of leasable space. We purchased this property with our own funds. On June 4, 2004, we obtained financing in the amount of $30,850,000. The loan requires interest only payments at an annual rate of 4.272% and matures in May 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Safeway, Best Buy and Gart Sports, each leases more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Safeway 47,000 12 7.09 11/90 10/95 7.43 11/95 11/95 7.44 12/95 10/00 7.80 11/00 11/00 7.82 12/00 10/05 8.19 11/05 11/05 8.21 12/05 11/10
221
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Best Buy 45,000 12 7.56 10/01 01/07 8.12 02/07 01/12 8.71 02/12 01/17 Gart Sports 45,658 12 9.95 10/97 08/98 10.56 09/98 10/02 11.56 11/02 10/07 12.66 11/07 01/13
For federal income tax purposes, the depreciable basis in this property will be approximately $40,893,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Northpointe Plaza was built between 1991 to 1993. As of December 1, 2004, this property was 99% occupied, with a total 373,207 square feet leased to 27 tenants and four ground lease tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------- RadioShack 2,764 08/05 - 34,550 12.50 Payless Shoes 2,992 11/05 1/5 yr. 52,659 17.60 T.J. Maxx 24,894 01/06 2/5 yr. 186,705 7.50 Sally Beauty Supplies 1,778 03/06 2/5 yr. 22,401 12.60 Corral West 7,560 03/06 1/5 yr. 64,260 8.50 Great Clips 1,600 05/06 - 27,920 17.45 Mother Cupboard 1,600 05/06 1/5 yr. 26,400 16.50 Washington Mutual 4,500 06/06 2/5 yr. 82,404 18.31 Fashion Bug 9,000 01/07 3/5 yr. 81,000 9.00 Pier 1 Imports 10,000 06/07 2/5 yr. 148,200 14.82 Foxy Nails 1,840 10/07 1/5 yr. 33,180 18.03 Payday Plus 1,250 06/08 1/5 yr. 26,400 21.12 Mark Webb 1,500 01/09 - 25,500 17.00 America's Best 4,500 03/09 - 72,000 16.00 Hollywood Video 7,500 08/09 1/5 yr. 141,450 18.86 Safeway 47,000 11/10 7/5 yr. 367,386 7.82 Safeway Gas Bar (Ground Lease) 4,000 01/11 7/5 yr. 98,000 N/A Bath & Body Works 2,363 01/11 2/5 yr. 42,888 18.15 Marks Hallmark 3,426 01/11 - 75,390 22.01 Mail Boxes, Etc. 1,600 07/11 1/5 yr. 27,200 17.00 Red Robin Restaurant (Ground Lease) 6,469 11/11 4/5 yr. 87,808 N/A Taco Bell (Ground Lease) 3,000 05/12 4/5 yr. 54,996 N/A
222
Approximate Current Base Rent Per GLA Leased Lease Renewal Annual Square Foot Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------- Gart Sports 45,658 01/13 2/5 yr. 527,592 11.56 Old Country Buffet 10,172 01/13 2/5 yr. 140,373 13.80 Azteca Restaurant 5,275 04/13 2/5 yr. 87,860 16.66 Staples 25,356 07/13 3/5 yr. 305,793 12.06 PETsMART 26,175 08/13 4/5 yr. 376,396 14.38 Linens 'N Things 36,554 09/15 3/5 yr. 448,517 12.27 Best Buy 45,000 01/17 3/5 yr. 340,000 7.56 Borders 22,631 01/18 5/5 yr. 178,785 7.90 Applebees (Ground Lease) 5,230 12/27 4/5 yr. 66,999 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. WATAUGA PAVILION, WATAUGA, TEXAS We purchased a newly constructed shopping center known as Watauga Pavilion, containing 205,195 gross leasable square feet. The center is located at 7600-7620 Denton Highway in Watauga, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $35,669,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $173 per square foot of leasable space. We purchased this property with our own funds. On June 7, 2004, we obtained financing in the amount of $19,617,000. The loan requires interest only payments at an annual rate of 4.140% and matures in July 2010. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Oshman's Sporting Goods, Ross Dress for Less and Bed, Bath & Beyond, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Oshman's Sporting Goods 32,630 16 10.50 03/04 01/10 11.00 02/10 01/15
223
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Ross Dress for Less 30,130 15 9.25 05/04 05/09 9.50 06/09 01/15 Bed, Bath & Beyond 24,272 12 7.50 01/04 01/14
For federal income tax purposes, the depreciable basis in this property will be approximately $26,800,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Watauga Pavilion was built during 2003 to 2004. As of December 1, 2004, this property was 96% occupied, with a total 197,218 square feet leased to 16 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Cool Cuts 4 Kids 1,210 10/08 1/5 yr. 25,410 21.00 Sprint Spectrum 2,738 12/08 2/5 yr. 60,236 22.00 Mattress Giant 5,000 01/09 2/5 yr. 110,000 22.00 EB Games 1,500 02/09 2/5 yr. 34,500 23.00 Beauty Brands 6,260 02/09 2/5 yr. 138,600 22.14 Vision City 2,258 10/09 3/5 yr. 63,224 28.00 Half Price Books 9,663 01/14 2/5 yr. 115,956 12.00 Bed, Bath & Beyond 24,272 01/14 3/5 yr. 182,040 7.50 Pier 1 Imports 9,373 02/14 2/5 yr. 161,491 17.23 Office Depot 20,000 04/14 3/5 yr. 260,832 13.04 Zales Fine Jewelry 2,805 12/14 2/5 yr. 78,540 28.00 Party City 12,000 01/15 3/5 yr. 159,000 13.25 Ross Dress for Less 30,130 01/15 5/5 yr. 278,703 9.25 Oshman's Sporting Goods 32,630 01/15 3/5 yr. 342,615 10.50 Cost Plus World Market 17,999 01/15 3/5 yr. 238,487 13.25 PETsMART 19,380 03/19 4/5 yr. 201,552 10.40
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 224 EASTWOOD TOWNE CENTER, LANSING, MICHIGAN We purchased an existing shopping center known as Eastwood Towne Center, containing 332,131 gross leasable square feet (which consists of 24,110 square feet of ground lease space). The center is located at 3003 Preyde Boulevard in Lansing, Michigan. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $85,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $256 per square foot of leasable space. We purchased this property with our own funds. On June 23, 2004, we obtained financing in the amount of $46,750,000. The loan requires interest only payments at an annual rate of 4.64% and matures in July 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Dick's Sporting Goods, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Dick's Sporting Goods 45,000 13 0 09/02 06/04 8.00 07/04 01/08 8.50 02/08 01/13 9.00 02/13 01/18
For federal income tax purposes, the depreciable basis in this property will be approximately $63,750,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Eastwood Towne Center was built in 2002. As of December 1, 2004, this property was 97% occupied, with a total 322,722 square feet leased to 57 tenants and four ground lease tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- State Employee Credit Union 2,120 09/07 2/5 yr. 74,200 35.00 Panchero's 2,409 09/07 2/5 yr. 52,998 22.00 Claire's 1,200 09/07 1/5 yr. 38,400 32.00 Sprint PCS 1,089 09/07 1/5 yr. 47,916 44.00 Fabiano's Candies 1,090 09/07 1/5 yr. 27,250 25.00
225
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Electronics Boutique 1,148 09/07 2/3 yr. 45,920 40.00 Hallmark 4,500 02/08 2/5 yr. 94,500 21.00 Star Image Photography 825 07/08 3/5 yr. 28,875 35.00 LA Weight Loss 1,100 04/09 - 22,000 20.00 See Optics 1,200 09/09 1/5 yr. 45,000 37.50 1/4 yr. Banana Republic 7,000 09/10 1/4 yr. & 105,000 15.00 1/3 yr. The Gap 7,526 09/10 1/4 yr. & 120,416 16.00 1/3 yr. 1/3 yr. Maggie Moo's 1,105 10/10 2/5 yr. 44,200 40.00 Beauty First 3,388 10/10 1/7 yr. 84,700 25.00 Pier 1 Imports 10,002 06/12 2/5 yr. 200,040 20.00 Limited Too 3,980 09/12 1/5 yr. 91,540 23.00 Old Thyme Herbs 1,000 09/12 2/5 yr. 38,000 38.00 Mall Office 1,000 09/12 - 20,000 20.00 Ritz Camera 1,500 09/12 2/5 yr. 37,500 25.00 Johnny Rockets 2,592 09/12 4/5 yr. 85,536 33.00 Claddagh Pub 5,987 09/12 2/5 yr. 137,701 23.00 Forever 21 6,838 09/12 2/5 yr. 143,598 21.00 Casual Corner 6,019 09/12 1/5 yr. 150,475 25.00 Subway 1,729 10/12 2/5 yr. 60,515 35.00 Treehouse Toys 4,716 10/12 2/5 yr. 113,184 24.00 Mitchell's Fish Market 7,264 11/12 2/5 yr. 183,416 25.25 Coldwater Creek 6,000 11/12 2/5 yr. 150,000 25.00 J. Crew 6,000 01/13 1/5 yr. 144,000 24.00 Guess 5,000 01/13 - 125,000 25.00 White House Black 1,850 01/13 2/5 yr. 61,050 33.00 Market Express 8,000 01/13 2/5 yr. 192,000 24.00 Victoria's Secret 6,500 01/13 2/5 yr. 156,000 24.00 DSW Shoe Warehouse 25,000 01/13 4/5 yr. 300,000 12.00 Jos A. Banks 4,500 01/13 1/5 yr. 121,500 27.00 American Eagle 5,400 01/13 2/5 yr. 129,600 24.00 Ann Taylor Loft 5,280 01/13 2/5 yr. 132,000 25.00 Bath & Body Works 3,360 01/13 2/5 yr. 80,640 24.00 Yankee Candle 2,500 01/13 2/5 yr. 75,000 30.00 The Children's Place 4,526 01/13 2/5 yr. 117,676 26.00 Aeropostal 3,600 01/13 1/5 yr. 86,400 24.00 Starbuck's 1,440 02/13 4/5 yr. 50,400 35.00 Lane Bryant 5,390 02/13 2/5 yr. 140,140 26.00 McAlister's Deli 3,311 02/13 2/5 yr. 79,464 24.00 Christopher & Banks 3,000 03/13 2/5 yr. 105,000 35.00
226
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Venetian Nails 1,376 04/13 2/5 yr. 48,160 35.00 April Cornell 2,250 05/13 2/5 yr. 76,500 34.00 Mother's Work 2,685 06/13 2/5 yr. 93,975 35.00 Capitol Fur 1,157 10/13 2/5 yr. 30,081 26.00 Hampton Jewelers 2,163 10/13 2/5 yr. 43,260 20.00 Talbots 4,800 01/14 2/5 yr. 112,800 23.50 Ecco Shoes 1,599 05/14 2/5 yr. 51,168 32.00 Wlliams-Sonoma 5,500 01/15 - 121,000 22.00 Pottery Barn 10,500 01/15 - 231,000 22.00 Earport, Inc. 1,046 04/16 - 26,150 25.00 Brio/Bravo 7,134 09/17 1/5 yr. 190,000 26.63 Borders (Schuler Books) 24,418 01/18 3/5 yr. 439,524 18.00 Dick's Sporting Goods 45,000 01/18 4/5 yr. 360,000 8.00 CoAmerica (Ground Lease) 3,310 10/18 4/5 yr. 125,000 N/A Max & Erma's (Ground Lease) 7,000 09/19 4/5 yr. 202,000 N/A PF Changs (Ground Lease) 6,800 11/12 3/5 yr. 60,000 N/A Smoky Bones (Ground Lease) 7,000 10/13 4/5 yr. 110,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. ARVADA MARKETPLACE AND ARVADA CONNECTION, ARVADA, COLORADO We purchased two existing shopping centers, situated directly across the street from each other, containing 358,757 total gross leasable square feet. Arvada Marketplace contains 297,678 square feet and Arvada Connection contains 61,079 square feet (which includes 2,040 square feet of ground lease space). The centers are located at 7320-7490 West 52nd Street in Arvada, Colorado. We purchased these two centers from one unaffiliated third party. Our total acquisition cost was approximately $51,550,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $144 per square foot of leasable space. We purchased this property with our own funds. On June 21, 2004 we obtained financing in the amount of $28,510,000. The loan requires interest only payments at an annual rate of 4.13% and matures in July 2009. 227 We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Sam's Club and Gart Sports, each lease more than 10% of the total gross leasable area of Arvada Marketplace and two tenants, Old Country Buffet and Pier 1 Imports, each lease more than 10% of the total gross leasable area at Arvada Connection. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- ARVADA MARKETPLACE Sam's Club 142,491 48 4.04 03/86 07/90 5.25 08/90 06/95 6.31 07/95 03/01 8.01 04/01 03/11 Gart Sports 54,903 18 6.24 10/93 01/99 7.15 02/99 12/03 5.75 01/04 01/04 7.03 02/04 01/09 7.25 02/09 01/14 ARVADA CONNECTION Old Country Buffet 10,000 16 8.00 09/92 12/97 10.00 01/98 12/02 11.00 01/03 12/07 Pier 1 Imports 8,068 13 14.00 04/88 04/93 15.00 05/93 04/98 15.00 05/98 04/99 15.50 05/99 04/00 16.00 05/00 04/01 16.50 05/01 04/02 17.00 05/02 04/03 17.00 05/03 04/06 18.00 05/06 04/08
For federal income tax purposes, the depreciable basis in this property will be approximately $38,700,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Arvada Marketplace and Arvada Connection were built between 1987 through 1990. As of December 1, 2004, Arvada Marketplace was 97% occupied, with a total 288,819 square feet leased to 26 tenants and Arvada Connection was 78% occupied, with a total 47,483 square feet leased to 11 tenants 228 and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------------------------- ARVADA MARKETPLACE Carefree Spas & Pools 6,367 Month-to-Month - 54,120 8.50 Elegant Nails 1,000 Month-to-Month - 17,000 17.00 Ted Johnson, DDS 1,564 Month-to-Month 1/5 yr. 25,376 16.23 Lady of America Fitness 4,200 02/05 1/5 yr. 88,200 21.00 Amanda's Bridal 5,155 05/05 1/5 yr. 54,128 10.50 Fast Signs 1,600 06/05 1/5 yr. 24,000 15.00 American General Finance 1,381 11/05 1/5 yr. 24,168 17.50 Namiko's Restaurant 3,015 02/06 - 53,577 17.77 Cruise Holidays 1,400 02/06 - 21,000 15.00 Citi Financial 2,251 12/06 1/5 yr. 35,821 15.91 Schlotzsky's Deli 1,900 07/07 - 26,600 14.00 The UPS Store 1,375 12/07 1/5 yr. 24,063 17.50 Supercuts 2,213 12/07 1/5 yr. 37,621 17.00 Fantastic Sam's 1,350 12/07 1/5 yr. 22,275 16.50 Fashion Bug 10,000 03/08 1/15 yr. 80,000 8.00 Subway 1,230 10/08 1/5 yr. 22,755 18.50 RadioShack 2,791 10/08 2/5 yr. 43,958 15.75 Lone Star Steakhouse 6,000 11/08 1/5 yr. 85,430 14.24 Tile for Less 3,016 03/09 - 48,256 16.00 Executive Tans 1,500 06/09 - 22,687 15.13 1st Cleaners 1,400 04/10 1/5 yr. 23,800 17.00 Red Robin Burger 7,300 12/10 1/5 yr. 201,795 27.64 Sam's Club 142,491 03/11 4/5 yr. 1,142,063 8.01 Famous American Bar-B-Que 6,054 03/12 2/5 yr. 149,836 24.75 Gart Sports 54,903 01/14 2/5 yr. 385,902 7.03 Office Depot 17,363 05/14 3/5 yr. 138,904 8.00 ARVADA CONNECTION Liquor Paradise 2,600 04/06 1/5 yr. 34,450 13.25 Kwal-Howell Paint Center 3,965 05/06 - 58,484 14.75 State Farm Insurance 1,190 07/06 1/5 yr. 20,825 17.50 U-Frame-It 1,680 09/06 - 24,780 14.75 Verizon Wireless 1,400 10/06 - 27,398 19.57 Pier 1 Imports 8,068 04/08 - 137,156 17.00
229
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------------------------- Household Finance 1,680 11/07 1/5 yr. 26,880 16.00 Old Country Buffet 10,000 12/07 2/5 yr. 110,000 11.00 Taco Bell (Ground Lease) 2,240 12/07 2/5 yr. 74,347 N/A Waldenbooks & More 7,600 01/09 - 176,700 23.25 SAS Shoes 2,600 11/09 1/5 yr. 28,600 11.00 IHOP 4,460 01/10 1/3 yr. 101,900 22.85 1/4 yr.
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. ALISON'S CORNER SHOPPING CENTER, SAN ANTONIO, TEXAS We purchased an existing shopping center known as Alison's Corner Shopping Center containing 55,066 gross leasable square feet. The center is located at 2720 SW Military Drive in San Antonio, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $7,042,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $128 per square foot of leasable space. We purchased this property with our own funds. On May 10, 2004, we obtained financing in the amount of $3,850,000. The loan requires interest only payments at an annual rate of 4.272% and matures June 2010. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Ross Dress for Less, Shoe Carnival and Mattress Firm, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Ross Dress for Less 30,066 55 10.00 09/03 01/14 Shoe Carnival 12,000 22 13.00 09/03 08/13 Mattress Firm 9,000 16 12.00 01/04 12/08
230 For federal income tax purposes, the depreciable basis in this property will be approximately $5,282,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Alison's Corner was built in 2003. As of December 1, 2004, this property was 100% occupied, with a total 55,066 square feet leased to four tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Mattress Firm 9,000 12/08 2/5 yr. 108,000 12.00 Dots 4,000 01/09 3/5 yr. 67,000 16.75 Shoe Carnival 12,000 08/13 2/5 yr. 156,000 13.00 Ross Dress for Less 30,066 01/14 5/5 yr. 300,660 10.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. NORTH RIVERS TOWN CENTER, CHARLESTON, SOUTH CAROLINA We purchased a portion of a newly constructed shopping center known as North Rivers Town Center. The property we acquired contains 141,204 gross leasable square feet, (which includes 31,280 square feet of ground lease space). The center is located at Rivers Avenue and Ashley Phosphate Road in Charleston, South Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $20,100,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $142 per square foot of leasable space. We purchased this property with our own funds. On June 3, 2004, we obtained financing in the amount of $11,050,000. The loan requires interest only payments at an annual rate of 4.76% and matures May 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Four tenants, Babies "R" Us, Bed, Bath & Beyond, Ross Dress for Less and Office Depot, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows: 231
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Bed, Bath & Beyond 28,200 20 10.85 11/03 01/14 Ross Dress For Less 30,024 21 11.00 02/04 01/15 Office Depot 16,000 11 11.50 02/04 01/14 Babies "R" Us * 31,280 22 N/A 11/03 01/14
* Ground Lease For federal income tax purposes, the depreciable basis in this property will be approximately $15,100,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. North Rivers Town Center was built during 2003 and 2004. As of December 1, 2004, this property was 100% occupied, with a total 141,204 square feet leased to 15 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- All About Cellular 1,400 01/07 1/3 yr. 27,300 19.50 Mattress Gallery 2,400 10/08 2/5 yr. 52,800 22.00 Super Nails 1,400 11/08 1/3 yr. 28,000 20.00 GameStop 1,750 11/08 2/5 yr. 35,000 20.00 Great Clips 1,250 01/09 2/5 yr. 26,250 21.00 Cold Stone Creamery 1,500 01/09 3/5 yr. 30,000 20.00 Firehouse Subs 1,800 02/09 2/3 yr. 36,000 20.00 Towne Centre 1,600 04/09 2/3 yr. 26,400 16.50 Pro Golf of Charleston 4,800 03/10 2/3 yr. 76,800 16.00 David's Bridal 10,000 10/13 2/5 yr. 155,000 15.50 Bed, Bath & Beyond 28,200 01/14 3/5 yr. 305,970 10.85 Office Depot 16,000 01/14 4/5 yr. 184,000 11.50 Babies "R" Us (Ground Lease) 31,280 01/14 6/5 yr. 160,776 N/A Just Fresh Bakery & Cafe 4,800 02/14 2/5 yr. 100,800 21.00 Pearle Vision 3,000 02/14 2/5 yr. 60,000 20.00 Ross Dress For Less 30,024 01/15 4/5 yr. 330,264 11.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for 232 such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. BLUEBONNET PARC, BATON ROUGE, LOUISIANA We purchased an existing shopping center known as Bluebonnet Parc containing 135,289 gross leasable square feet. The center is located at I-10 and Bluebonnet Road in Baton Rouge, Louisiana. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $22,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $163 per square foot of leasable space. We purchased this property with our own funds. On May 10, 2004, we obtained financing in the amount of $12,100,000. The loan requires interest only payments at an annual rate of 4.372% and matures May 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Best Buy, Linens 'N Things and Cost Plus World Market, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Best Buy 45,439 34 13.00 08/02 01/08 13.50 02/08 01/13 14.25 02/13 01/18 Linens 'N Things 32,418 24 11.50 10/02 01/09 12.50 02/09 01/14 Cost Plus World Market 18,300 14 14.00 12/02 01/09 14.50 02/09 01/14
For federal income tax purposes, the depreciable basis in this property will be approximately $16,500,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Bluebonnet Parc was built in 2002. As of December 1, 2004, this property was 95% occupied, with a total 120,289 square feet leased to seven tenants. The following table sets forth certain information with respect to those leases: 233
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Brook May Music 8,000 06/09 2/5 yr. 128,000 16.00 David's Bridal 9,998 09/12 2/5 yr. 159,968 16.00 Lifeway Christian Bookstore 9,161 10/12 2/5 yr. 141,995 15.50 Cost Plus World Market 18,300 01/14 3/5 yr. 256,200 14.00 Linens' N Things 32,418 01/14 3/5 yr. 372,807 11.50 The Men's Wearhouse 4,973 02/14 2/5 yr. 99,460 20.00 Best Buy 45,439 01/18 3/5 yr. 590,707 13.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. BEST ON THE BOULEVARD, LAS VEGAS, NEVADA We purchased an existing shopping center known as Best on the Boulevard, containing 204,427 gross leasable square feet. The center is located at 3820 Maryland Parkway in Las Vegas, Nevada. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $35,500,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $174 per square foot of leasable space. We purchased this property with our own funds. On May 7, 2004, we obtained financing in the amount of $19,525,000. The loan requires interest only payments at an annual rate of 3.99% and matures May 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to reimburse a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Best Buy, Barnes & Noble Booksellers and Copeland's Sporting Goods, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Best Buy 57,726 28 15.00 11/94 01/05 CPI 02/05 01/10 CPI 02/10 01/15
234
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Barnes & Noble Booksellers 26,092 13 13.41 09/99 09/04 14.35 10/04 01/10 Copeland's Sporting Goods 25,129 12 27.52 07/97 08/99 13.50 09/99 06/02 15.12 07/02 06/07 16.93 07/07 06/12
For federal income tax purposes, the depreciable basis in this property will be approximately $26,265,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Best on the Boulevard was built during the three year period from 1996 to 1999. As of December 1, 2004, this property was 77% occupied, with a total 156,756 square feet leased to eight tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Barnes & Noble Booksellers 26,092 01/10 3/5 yr. 374,500 14.35 Rochester Big & Tall 7,000 08/10 2/5 yr. 206,533 29.50 Deli Planet 4,800 11/10 2/5 yr. 115,200 24.00 Cost Plus World Market 18,508 02/11 3/5 yr. 303,531 16.40 Hallmark 7,500 02/12 3/5 yr. 205,500 27.40 Copeland's Sporting Goods 25,129 06/12 4/5 yr. 379,950 15.12 Pier 1 Imports 10,001 02/14 3/5 yr. 169,753 16.97 Best Buy 57,726 01/15 2/5 yr. 865,890 15.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PARADISE VALLEY MARKETPLACE, PHOENIX, ARIZONA We purchased an existing shopping center known as Paradise Valley Marketplace containing 92,158 gross leasable square feet (which includes 10,908 square feet of ground lease space). The center is located at Tatum Boulevard and Shea Boulevard in Phoenix, Arizona. 235 We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $28,510,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $309 per square foot of leasable space. Included in the purchase price was 11,000 square feet is vacant land that has been approved for development. We purchased this property with our own funds. On June 3, 2004, we obtained financing in the amount of $15,680,500. The loan requires interest only payments at an annual rate of 4.55% and matures May 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Whole Foods Grocery Store, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Whole Foods 32,000 35 13.50 01/02 01/12 CPI 02/12 01/17 CPI 02/17 01/22
For federal income tax purposes, the depreciable basis in this property will be approximately $21,383,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Paradise Valley Marketplace was built in 2002. As of December 1, 2004, this property was 79% occupied, with a total 72,704 square feet leased to 17 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- EB Gameworld 1,015 11/05 2/3 yr. 30,450 30.00 Beauty Brands 5,510 12/06 1/5 yr. 176,320 32.00 Verizon Wireless 2,047 12/06 2/3 yr. 65,504 32.00 Soma Restaurant 3,452 10/07 1/5 yr. 112,190 32.50 Ship Rite 1,340 11/07 1/5 yr. 36,673 28.11 So-Oh! Fashion Outlet 1,964 02/08 1/5 yr. 53,028 27.00 Hava Java 1,587 05/08 1/5 yr. 58,846 37.08 Mattress Authority 2,453 08/08 - 75,062 30.60 Nick's Restaurant 2,100 11/08 2/5 yr. 73,542 35.02 Washington Mutual 4,114 01/09 3/5 yr. 131,648 32.00
236
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- The Village Frame Shop 1,400 04/09 1/5 yr. 37,800 27.00 The Diamond Source 1,677 11/09 1/3 yr. 46,956 28.00 Baja Fresh 2,544 12/11 2/6 yr. 97,079 38.16 Pick Up Stix 1,820 01/12 2/5 yr. 67,363 37.01 Select Dry Cleaning 2,505 01/13 2/5 yr. 77,404 30.90 The Men's Wearhouse 5,176 03/13 2/5 yr. 165,632 32.00 Whole Foods 32,000 01/22 4/5 yr. 432,000 13.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. HERITAGE TOWNE CROSSING, EULESS, TEXAS We purchased an existing shopping center known as Heritage Towne Crossing containing 73,579 gross leasable square feet (which includes 7,246 square feet of ground lease space). The center is located at Glade Road and State Highway 121 in Euless, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $14,855,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $202 per square foot of leasable space. A portion of the purchase price will be held in an escrow, to be paid to the seller when the remaining spaces are leased. We purchased this property with our own funds. On April 30, 2004, we obtained financing in the amount of $8,950,000. The loan requires interest only payments at an annual rate of 4.374% and matures June 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. No individual tenant leases more than 10% of the total gross leasable area of the property. For federal income tax purposes, the depreciable basis in this property will be approximately $12,200,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Heritage Towne Crossing was built in 2002. As of December 1, 2004, this property was 98% occupied, with a total 72,119 square feet leased to 27 tenants and two ground lease tenants. The following table sets forth certain information with respect to those leases: 237
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- APB Mortgage 2,530 09/06 1/3 yr. 45,540 18.00 GameStop 1,400 03/07 1/3 yr. 29,400 21.00 Mattress Firm 4,000 04/07 2/5 yr. 96,000 24.00 All Battery Store 2,000 04/07 2/5 yr. 44,000 22.00 Cow Fireworks 1,200 05/07 2/5 yr. 20,400 17.00 Dapper Dan Cleaners 2,000 06/07 1/5 yr. 38,000 19.00 Lava Asian Grill 3,000 07/07 1/5 yr. 51,000 17.00 Salon G 2,800 08/07 1/5 yr. 50,400 18.00 Ultra Tan 1,600 08/07 2/5 yr. 24,000 15.00 Golf USA of Euless 3,473 12/07 1/5 yr. 69,460 20.00 Coppell Spine/Sports Rehab 2,000 03/08 1/3 yr. 38,000 19.00 Sara Donuts 1,400 04/08 1/5 yr. 23,800 17.00 Plato's Closet 3,000 04/08 1/5 yr. 54,000 18.00 Village Barber 1,100 04/08 1/5 yr. 23,100 21.00 Town & Country 1,800 04/08 2/5 yr. 32,400 18.00 Parker Uniforms 3,000 05/08 1/5 yr. 42,000 14.00 The Cash Store 1,300 07/08 2/5 yr. 24,700 19.00 Art & Frame Warehouse 2,546 07/08 1/5 yr. 39,463 15.50 Wings to Go 2,000 09/08 1/5 yr. 32,000 16.00 Delicious Delights 1,500 10/08 1/5 yr. 27,000 18.00 Ultima Fitness 2,266 11/08 1/5 yr. 37,389 16.50 Nails Spa 3,410 01/09 1/5 yr. 61,380 18.00 Double Daves 3,308 03/09 1/5 yr. 54,582 16.50 The Soccer Corner 4,000 05/10 2/5 yr. 62,600 15.65 Panda Express 2,250 04/12 2/5 yr. 47,250 21.00 Washington Mutual 4,000 10/12 4/5 yr. 84,000 21.00 Pearle Vision 1,990 12/12 2/5 yr. 35,820 18.00 Whataburger (Ground lease) 3,500 08/18 3/5 yr. 60,000 N/A Taco Bell (Ground lease) 3,746 09/23 4/5 yr. 51,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PEORIA CROSSINGS, PEORIA, ARIZONA We purchased a newly constructed shopping center known as Peoria Crossings, containing 213,733 gross leasable square feet. The center is located at 9350 West Northern Avenue, in Peoria, Arizona. 238 We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $37,368,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $175 per square foot of leasable space. We originally purchased this property with our own funds. On March 5, 2004, we obtained financing in the amount of $20,497,000. The loan requires interest only payments at an annual rate of 4.09% and matures April 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Ross Dress for Less, Michaels and Petco, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Ross Dress for Less 30,171 14 10.00 05/03 01/14 Michaels 24,063 11 11.00 03/02 02/12 Kohl's 88,408 41 8.79 03/04 01/24
For federal income tax purposes, the depreciable basis in this property will be approximately $28,026,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Peoria Crossing was built in 2002 and 2003. As of December 1, 2004, this property was 98% occupied, with a total 209,211 square feet leased to 21 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Famous Footwear 10,030 01/08 2/5 yr. 162,988 16.25 EB Games 1,500 01/08 1/5 yr. 37,500 25.00 Sally Beauty Supply 1,200 02/08 1/5 yr. 26,400 22.00 Claire's Boutique 1,269 02/08 1/5 yr. 30,456 24.00 Voice Stream 1,200 02/08 5/1 yr. 32,400 27.00 Sleep America 4,500 03/08 1/5 yr. 112,500 25.00 Cold Stone Creamery 1,400 05/08 5/1 yr. 37,492 26.78 Sarpino's Pizzeria 1,200 07/08 1/5 yr. 32,136 26.78 Great Clips 1,405 08/08 5/1 yr. 36,179 25.75
239
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Salon 74 1,300 12/08 1/5 yr. 33,800 26.00 Supercuts 1,202 12/08 2/5 yr. 33,656 28.00 Michaels 24,063 02/12 4/5 yr. 264,693 11.00 Petco 15,216 10/12 2/5 yr. 216,067 14.20 Payless Shoes 4,042 01/13 2/5 yr. 80,840 20.00 Quizno's 1,400 05/13 2/5 yr. 38,500 27.50 Panda Express 2,205 06/13 2/5 yr. 59,535 27.00 Dress Barn 8,000 06/13 2/5 yr. 140,000 17.50 Anna's Linens 8,000 09/13 2/5 yr. 112,000 14.00 Ross Dress for Less 30,171 01/14 4/5 yr. 301,710 10.00 Jazzy Java 1,500 11/14 - 43,645 29.10 Kohl's 88,408 01/24 6/5 yr. 777,524 8.79
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PROMENADE AT RED CLIFF, ST. GEORGE, UTAH We acquired an existing shopping center known as Promenade at Red Cliff containing 94,445 gross leasable square feet. The center is located at 250 N. Red Cliffs Drive in St. George, Utah. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $19,537,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $207 per square foot of leasable space. We purchased this property with our own funds. On April 8, 2004, we obtained financing in the amount of $10,590,000. The loan requires interest only payments at an annual rate of 4.29% and matures May 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Old Navy, Staples, and Big 5 Sporting Goods, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Big 5 Sporting Goods 10,000 11 11.50 06/97 05/02 12.54 06/02 01/07
240
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Old Navy 19,324 20 12.00 02/98 11/03 13.51 12/03 11/08 Staples 22,500 24 11.50 06/97 05/12
For federal income tax purposes, the depreciable basis in this property will be approximately $14,650,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Promenade at Red Cliff was built in 1998. As of December 1, 2004, this property was 95% occupied, with a total 89,561 square feet leased to 18 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Franklin Quest 1,206 12/06 - 30,150 25.00 Hollywood Entertainment 6,200 12/06 2/5 yr. 122,328 19.73 Big 5 Sporting Goods 10,000 01/07 4/5 yr. 125,352 12.54 Vitamin World 1,280 06/07 - 26,880 21.00 Sally Beauty Supply 1,200 06/07 - 22,876 19.06 Gen X Clothing 7,816 06/07 1/5 yr. 131,543 16.83 Prudential 1,017 06/07 1/5 yr. 25,628 25.20 Papa John's Pizza 1,347 12/07 1/5 yr. 35,022 26.00 Durango Grill 2,693 02/08 1/5 yr. 75,404 28.00 Supercuts 1,030 02/08 - 24,720 24.00 Cold Stone Creamery 1,173 08/08 2/5 yr. 33,501 28.56 Country Clutter 1,545 09/08 1/5 yr. 39,398 25.50 Old Navy 19,324 11/08 1/5 yr. 261,036 13.51 Samuri 21 4,057 12/08 1/5 yr. 97,368 24.00 Quizno's 1,424 01/09 1/5 yr. 30,828 21.65 2 Fat Guys Pizza 4,236 02/09 1/5 yr. 91,074 21.50 Panda Express 1,513 12/09 2/5 yr. 36,312 24.00 Staples 22,500 05/12 3/5 yr. 258,750 11.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 241 NEWNAN CROSSING WEST AND PHASE II, NEWNAN, GEORGIA We acquired an existing shopping center known as Newnan Crossing Phase II containing 160,254 gross leasable square feet (which includes 6,650 square feet of ground lease space), for approximately $22,362,000. This property is adjacent to Newnan Crossing West, which we acquired on December 24, 2003 for approximately $16,808,000. Newnan Crossing West contains 131,196 gross leasable square feet. The center is located at 591 Bullsboro Drive in Newnan, Georgia. We purchased the property from an unaffiliated third party. This amount may increase by additional costs which have not been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $139 per square foot, and $128 per square foot of leasable space for Newnan Crossing Phase II and Newnan Crossing West, respectively. We intend to purchase an additional 28,000 gross leasable square feet for approximately $4,042,000 in late 2004 when construction has been completed. We originally purchased this property with our own funds. On February 17, 2004, we obtained financing in the amount of $21,543,091. On December 8, 2004, we increased the loan amount by an additional $2,223,100 to a total of $23,766,191. The loan requires interest only payments at an annual rate of 4.38% and matures March 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, BJ's Wholesale, T.J. Maxx and Office Depot, each lease more than 10% of the combined total gross leasable area of the West and Phase II properties The leases with these tenants require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Office Depot 30,000 10 10.75 06/99 06/14 T.J. Maxx 30,000 10 7.35 08/99 08/04 8.00 09/04 08/09 BJ's Wholesale 115,396 40 8.75 05/03 04/08 CPI 05/08 04/13 CPI 05/13 04/18 CPI 05/18 05/23
For federal income tax purposes, the depreciable basis will be approximately $15,930,000 and $11,356,000 for Phase II and West, respectively. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Newnan Crossing West and Phase II were built in 1999. As of December 1, 2004, the property was 100% occupied, with a total 291,450 square feet leased to 21 tenants and one ground lease. The following table sets forth certain information with respect to those leases: 242
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Hallmark 5,000 07/06 2/5 yr. 72,500 14.50 RadioShack 3,000 08/06 2/5 yr. 51,000 17.00 Stratus Communication 1,300 12/06 1/5 yr. 22,750 17.50 Hibbett's Sporting Goods 7,000 01/07 2/5 yr. 94,500 13.50 USA Tan 1,300 04/07 1/5 yr. 23,400 18.00 Ted's Montana Grill 4,000 04/08 4/5 yr. 64,000 16.00 Planet Smoothie 1,040 07/08 1/5 yr. 18,200 17.50 The Corner Tavern 5,000 08/08 2/5 yr. 85,000 17.00 Great Clips 1,200 10/08 1/5 yr. 21,600 18.00 Banana Beach 1,200 12/08 1/5 yr. 21,600 18.00 Cingular Wireless 1,760 12/08 1/5 yr. 31,680 18.00 Michaels 23,704 02/09 4/5 yr. 213,336 9.00 My Friend's Place 1,600 03/09 2/5 yr. 28,800 18.00 T.J. Maxx 30,000 08/09 3/5 yr. 240,000 8.00 Old Navy 25,000 09/09 1/5 yr. 236,925 9.48 Party City 12,000 10/09 2/5 yr. 156,000 13.00 Payless Shoesource 3,000 11/09 2/5 yr. 51,000 17.00 Rack Room 7,300 01/10 3/5 yr. 124,100 17.00 Sizes Unlimited 5,000 01/12 2/4 yr. 77,500 15.50 O'Charley's (Ground Lease) 6,650 02/14 3/5 yr. 66,000 N/A Office Depot 30,000 06/14 3/5 yr. 322,500 10.75 BJ's Wholesale 115,396 05/23 4/5 yr. 1,009,715 8.75
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. MACARTHUR CROSSING, LAS COLINAS (IRVING), TEXAS We purchased an existing shopping center known as MacArthur Crossing containing 109,755 gross leasable square feet (which includes 6,500 square feet of ground lease space). The center is located at MacArthur Boulevard and LBJ Freeway in Las Colinas (Irving), Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $23,102,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $210 per square foot of leasable space. We purchased this property with our own funds. On April 2, 2004, we obtained financing in the amount of $12,700,000. The loan requires interest only payments at an annual rate of 4.29% and matures May 1, 2009. 243 We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Stein Mart, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Stein Mart 34,000 31 6.75 07/96 07/06 7.25 08/06 07/11
For federal income tax purposes, the depreciable basis in this property will be approximately $17,340,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. MacArthur Crossing was built in 1995 and 1996. As of December 1, 2004, this property was 98% occupied, with a total 107,759 square feet leased to 27 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Monarch Dental 3,920 12/04 1/5 yr. 66,640 17.00 Valley Ranch Vacations 1,381 06/05 - 24,858 18.00 Regis Haircutters 1,500 01/06 1/5 yr. 37,500 25.00 RadioShack 2,000 02/06 1/5 yr. 31,000 15.50 Wolf Camera 1,780 02/06 1/5 yr. 35,600 20.00 Merle Norman 1,457 02/06 1/5 yr. 23,880 16.39 GNC 1,400 02/06 1/5 yr. 25,200 18.00 Rice Boxx 2,101 02/06 - 52,525 25.00 Starbucks Coffee 1,604 03/06 2/5 yr. 32,080 20.00 The UPS Store 1,260 06/06 1/5 yr. 30,240 24.00 Sally Beauty Supply 1,500 06/06 1/5 yr. 29,100 19.40 I Fratelli Restaurant 5,000 08/06 - 107,500 21.50 Subway 1,400 09/06 1/5 yr. 21,000 15.00 Planet Tan 4,400 10/06 1/5 yr. 79,200 18.00 Blockbuster Video (Ground Lease) 6,500 12/06 4/5 yr. 127,335 N/A Flowers For You 2,100 02/07 - 42,000 20.00 Isshin Sushi 4,000 03/07 - 80,000 20.00 State Farm Insurance 2,000 04/07 1/5 yr. 34,000 17.00 Eyecare 20/20 2,000 06/07 1/5 yr. 40,000 20.00
244
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Marshall Message Therapy 640 03/08 2/5 yr. 11,520 18.00 TD Waterhouse 2,500 04/08 2/5 yr. 55,000 22.00 Custom Cleaners 2,100 02/09 1/5 yr. 58,800 28.00 Quizno's 2,100 06/09 2/5 yr. 52,500 25.00 Stein Mart 34,000 07/11 3/5 yr. 229,500 6.75 MiCocina 4,964 01/12 2/5 yr. 124,100 25.00 Pei Wei 3,160 02/12 2/5 yr. 96,380 30.50 Mattress Firm 4,000 04/14 2/5 yr. 108,000 27.00 Firestone Tire 6,992 07/16 2/5 yr. 145,000 20.74
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. LA PLAZA DEL NORTE, SAN ANTONIO, TEXAS We purchased an existing shopping center known as La Plaza Del Norte, containing 320,345 gross leasable square feet. The center is located at 125 Northwest Loop 410, in San Antonio, Texas. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $58,143,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $182 per square foot of leasable space. We purchased this property with our own funds. On February 4, 2004, we obtained financing in the amount of $32,528,000. The loan requires interest only payments at an annual rate of 4.61% and matures March 1, 2010. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Oshman's Sporting Goods and Best Buy, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Oshman's Sporting Goods 65,000 20 11.11 09/96 01/02 11.61 02/02 01/07 12.11 02/07 01/12 12.61 02/12 01/17
245
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Best Buy 58,000 18 14.00 08/96 01/02 14.75 02/02 01/07 15.50 02/07 01/12
For federal income tax purposes, the depreciable basis in this property will be approximately $43,076,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. La Plaza Del Norte was built in 1996 and 1999. As of December 1, 2004, this property was 95% occupied, with a total 303,245 square feet leased to 16 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Lifeway Christian 6,000 11/06 2/5 yr. 132,000 22.00 Pearle Vision 3,500 12/06 2/5 yr. 120,750 34.50 Ross Dress for Less 28,438 01/07 4/5 yr. 288,640 10.15 Office Max 23,229 11/12 2/5 yr. 261,326 11.25 DSW Shoe Warehouse 22,000 04/07 4/5 yr. 374,000 17.00 All Battery Center 1,600 05/07 2/5 yr. 36,800 23.00 Successories 1,200 09/08 1/3 yr. 26,400 22.00 and 1/2 yr. GameStop 2,006 12/08 - 52,156 26.00 Half Price Books 8,000 10/09 1/5 yr. 96,000 12.00 David's Bridal 12,000 11/09 2/5 yr. 198,240 16.52 Petco 13,650 11/11 3/5 yr. 278,187 20.38 Cost Plus World Market 18,900 01/12 3/5 yr. 302,400 16.00 Best Buy 58,000 01/12 3/5 yr. 855,500 14.75 Simpson-Williams 9,875 12/12 - 161,600 16.36 Bealls 29,847 01/14 2/5 yr. 194,005 6.50 Oshman's Sporting Goods 65,000 01/17 4/5 yr. 754,650 11.61
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 246 SHOPPES AT QUARTERFIELD (METRO SQUARE CENTER/SUPER VALU SHOPPING CENTER), SEVERN, MARYLAND We purchased an existing shopping center formerly known as Metro Square Center and Super Valu Shopping Center, containing 61,817 gross leasable square feet. The center is located at 7858 Quarterfield in Severn (Annapolis), Maryland. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $11,031,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $178 per square foot of leasable space. We purchased this property with our own funds. On April 1, 2004, we obtained financing in the amount of $6,067,183. The loan requires interest only payments at an annual rate of 4.28% and matures April 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Shoppers Food Warehouse, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Shoppers Food Warehouse 58,217 94 14.00 09/99 08/04 14.50 09/04 08/09 15.24 09/09 08/14 16.00 09/14 01/20
For federal income tax purposes, the depreciable basis in this property will be approximately $8,840,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Shoppes at Quarterfield was built in 1999. As of December 1, 2004, this property was 96% occupied, with a total 59,417 square feet leased to two tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Great Clips 1,200 12/05 5/1 yr. 28,366 23.64 Shoppers Food 58,217 01/20 4/5 yr. 844,146 14.50 Warehouse
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for 247 such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. LARKSPUR LANDING, LARKSPUR, CALIFORNIA We purchased an existing shopping center known as Larkspur Landing, containing 173,821 gross leasable square feet. The center is located at 2257 Larkspur Landing Circle, in Larkspur, California. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $61,145,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $352 per square foot of leasable space. We originally purchased this property with our own funds. On January 30, 2004, we obtained financing in the amount of $33,630,000. The loan requires interest only payments at an annual rate of 4.45% and matures February 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Bed, Bath & Beyond, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Bed, Bath & Beyond 42,318 24 20.50 11/02 11/06 21.83 12/06 11/11 23.21 12/11 11/17
For federal income tax purposes, the depreciable basis in this property will be approximately $45,859,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Larkspur Landing was built in 1978 and renovated in 2001. As of December 1, 2004, this property was 87% occupied, with a total 150,893 square feet leased to 33 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------ Golden Gate Printing* 3,287 Month-to-Month - 30,010 9.13 Allstate Insurance* 405 Month-to-Month - 13,365 33.00
248
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------------------ Avanti* 1,115 Month-to-Month - 2,400 2.15 John Connelly* 880 Month-to-Month - 6,924 7.87 Benchmark Medical 5,791 04/05 1/5 yr. 152,786 26.38 Roadrunner Burrito 800 06/05 - 30,624 38.28 Redhill 2,688 07/05 3/1 yr. 74,189 27.60 Jaeger 1,500 07/05 - 42,966 28.64 Oliver Allen Corp. 9,392 09/05 1/5 yr. 242,313 25.80 Robert Buerger 880 06/06 1/3 yr. 18,480 21.00 Maxwell Cleaners 2,748 09/06 - 107,172 39.00 Norman Mahan Jewelers 1,333 01/07 - 43,669 32.76 Determined Productions 11,185 03/07 1/4 yr. 608,663 54.42 Larkspur Shoes & Repair 807 03/07 - 23,564 29.20 Marin Visitor Bureau 720 07/07 - 19,440 27.00 Bay Area Wireless 610 04/08 2/5 yr. 23,790 39.00 Larkspur Landing Optometry 1,165 06/08 - 39,598 33.99 American Nails 745 06/08 - 23,691 31.80 AAA 5,245 07/08 2/5 yr. 169,938 32.40 Togo's Eatery 1,625 07/08 - 40,677 28.03 Timothy Bricca DD 1,064 07/08 - 36,133 33.96 All California 3,359 07/08 - 114,172 33.99 Weight Watchers 1,291 09/08 - 61,219 47.42 Cooper Alley 2,000 11/08 - 107,987 53.99 Ragged Sailor 1,207 12/08 - 33,888 28.08 Larkspur Landing Pet Clinic 1,141 04/09 - 36,831 32.28 Sushi Ko 1,709 08/09 - 55,372 32.40 24 Hour Fitness 17,844 03/10 1/5 yr. 535,320 30.00 Marin Brewing Co. 5,978 03/11 - 190,219 31.82 Fidelity Investments 7,232 07/11 2/5 yr. 459,955 63.60 Yogalive 6,150 09/12 - 184,500 30.00 Bed, Bath & Beyond 42,318 11/17 3/5 yr. 867,519 20.50 Noonan's Restaurant 6,679 12/18 2/5 yr. 222,878 33.37
* Renewal negotiations in progress In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 249 NORTH RANCH PAVILIONS, THOUSAND OAKS, CALIFORNIA We purchased an existing shopping center known as North Ranch Pavilions, containing 62,812 gross leasable square feet. The center is located at 1125-85 Lindero Road, in Thousand Oaks, California. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $18,468,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $294 per square foot of leasable space. We purchased this property with our own funds. On March 3, 2004, we obtained financing in the amount of $10,157,000. The loan requires interest only payments at an annual rate of 4.12% and matures April 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Savvy Salon, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Savvy Salon 6,500 10 11.71 10/03 01/04 25.20 02/04 01/06 26.76 02/06 01/08 28.32 02/08 01/10 30.00 02/10 01/12 31.80 02/12 02/14
For federal income tax purposes, the depreciable basis in this property will be approximately $13,851,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. North Ranch Pavilions was built in 1992. As of December 1, 2004, this property was 89% occupied, with a total 55,928 square feet leased to 24 tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Prudential Realty 3,379 11/04 - 103,397 30.60 Ilene's Boutique 2,105 12/04 - 51,590 24.51 Seta's Shoes 1,086 04/05 - 19,548 18.00 Walton's Portraits 1,300 08/06 1/5 yr. 31,359 24.12 Postal Club 1,086 10/06 1/5 yr. 24,891 22.92 Dance Trends 2,338 11/06 1/5 yr. 41,523 17.76
250
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Bank of America 4,500 12/06 - 194,619 43.25 Clubhouse Cleaners 1,505 12/06 1/5 yr. 43,765 29.08 Cookies by Design 1,353 01/07 1/5 yr. 32,822 24.26 Malibu Gymnastics 3,740 02/07 1/1 yr. & 67,320 18.00 3/3 yr. State Farm Insurance 1,023 03/07 - 22,791 22.28 Tae Kwon Do Academy 1,512 06/07 2/5 yr. 34,648 22.92 Treasured Memories 3,691 08/07 1/5 yr. 46,129 12.50 Kay's Nails 1,028 10/07 - 24,178 23.52 Total Body Fitness 1,998 12/07 1/5 yr. 37,042 18.54 Malibu Gymnastics 3,040 11/08 5/1 yr. 56,362 18.54 Sudore Pilates 1,346 01/09 1/5 yr. 36,342 27.00 Exotic Thai 1,746 02/11 - 52,380 30.00 Rustico Ristorante 3,495 08/11 2/5 yr. 94,412 27.01 We Frame It 1,526 09/11 1/5 yr. 36,075 23.64 Lamp Post Pizza 3,600 11/11 - 90,145 25.04 Sushi Tei 1,725 07/12 2/5 yr. 52,705 30.55 North Ranch Dentistry 1,306 10/13 2/5 yr. 39,548 30.28 Savvy Salon 6,500 02/14 2/5 yr. 163,800 25.20
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. HICKORY RIDGE SHOPPING CENTER, HICKORY, NORTH CAROLINA We purchased an existing shopping center known as Hickory Ridge Shopping Center containing 380,487 gross leasable square feet (which includes 70,127 square feet of ground lease space). The center is located at Catawba Valley Road in Hickory, North Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $41,900,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $110 per square foot of leasable space. We originally purchased this property with our own funds. On January 23, 2004, we obtained financing in the amount of $23,650,000. The loan requires interest only payments as an annual rate of 4.531% and matures February 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. 251 Three tenants, Best Buy, Kohl's and Dick's Sporting Goods, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------- Best Buy 45,000 12 10.75 07/99 01/15 Dick's Sporting Goods * 45,000 12 N/A 01/00 01/20 Kohl's 86,584 23 6.83 08/99 02/20
* Ground lease For federal income tax purposes, the depreciable basis in this property will be approximately $35,068,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Hickory Ridge Shopping Center was built in 1999. As of December 1, 2004, this property was 100% occupied, with a total 380,487 square feet leased to 19 tenants and two ground lease tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Osaka Japanese Cuisine 2,100 01/05 1/5 yr. 40,950 19.50 Thai Orchid 2,800 01/05 1/5 yr. 53,200 19.00 Tony's Pizza 2,100 01/05 1/5 yr. 45,150 21.50 EB Games 1,600 10/05 1/5 yr. 32,000 20.00 Factory Mattress 3,600 11/06 1/5 yr. 66,600 18.50 Party City 12,000 06/09 2/5 yr. 162,000 13.50 Marshalls 30,000 08/09 3/5 yr. 234,000 7.80 Great Clips 1,200 12/09 - 23,400 19.50 Old Navy 25,000 01/10 1/5 yr. 212,500 8.50 Shoe Carnival 12,000 01/10 2/5 yr. 129,000 10.75 Sprint PCS 2,800 01/10 - 50,400 18.00 Hallmark Cards 6,000 02/10 1/5 yr. 93,900 15.65 Family Christian Bookstore 5,000 03/10 2/5 yr. 90,000 18.00 Pier 1 Imports 9,976 03/12 2/5 yr. 174,580 17.50 The Avenue 6,600 01/13 2/5 yr. 78,012 11.82 Best Buy 45,000 01/15 3/5 yr. 483,750 10.75 A.C. Moore 21,000 12/15 3/5 yr. 248,730 11.84 Linens 'N Things 35,000 01/16 3/5 yr. 367,500 10.50 Kohl's 86,584 02/20 6/5 yr. 590,995 6.83
252
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Dicks Sporting Goods (Ground Lease) 45,000 01/20 6/5 yr. 185,000 N/A Babies "R" Us (Ground Lease) 25,127 01/13 6/5 yr. 126,647 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. CORWEST PLAZA, NEW BRITAIN, CONNECTICUT We purchased an existing shopping center known as CorWest Plaza containing 115,011 gross leasable square feet. The center is located at 665 and 687 West Main Street in New Britain, Connecticut. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $33,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $287 per square foot of leasable space. We originally purchased this property with our own funds. On January 7, 2004, we obtained financing in the amount of $18,150,000. The loan requires interest only payments at an annual rate of 4.56% and matures February 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Super Stop and Shop, Liquor Depot and CVS Pharmacy, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------- Super Stop & Shop 68,073 59 26.00 05/03 05/08 26.50 06/08 05/13 27.00 06/13 05/18 27.50 06/18 05/23 28.00 06/23 05/28 CVS Pharmacy 12,150 11 26.00 06/01 01/22
253
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------- Liquor Depot 14,000 12 14.00 08/01 08/06 16.00 09/06 08/11
For federal income tax purposes, the depreciable basis in this property will be approximately $26,101,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. CorWest Plaza was built in phases between 1999 to 2003. As of December 1, 2004, this property was 99% occupied, with a total 114,023 square feet leased to 10 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Video One 3,500 09/05 2/3 yr. 51,181 14.62 Rent-A-Center 6,000 02/06 1/5 yr. 90,000 15.00 Cingular Wireless 1,553 06/06 1/5 yr. 27,954 18.00 Subway 1,500 08/06 4/2 yr. 20,011 13.34 Webster Bank 2,147 11/05 2/5 yr. 38,646 18.00 Papa Gino's 3,000 02/11 2/5 yr. 60,000 20.00 Liquor Depot 14,000 08/11 2/5 yr. 196,000 14.00 Frazier's Two Cleaners & Laundromat 2,100 10/11 2/5 yr. 37,800 18.00 CVS Pharmacy 12,150 01/22 4/5 yr. 315,900 26.00 Super Stop & Shop 68,073 05/28 6/5 yr. 1,769,898 26.00
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. SHAW'S SUPERMARKET, NEW BRITAIN, CONNECTICUT We purchased a single user retail center known as Shaw's Supermarket, New Britain, containing 65,658 gross leasable square feet. The property is located in New Britain, Connecticut. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $13,656,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $208 per square foot of leasable space. We originally purchased this property with our own funds. On January 28, 2004, we obtained financing in the amount of $6,450,000. The loan requires interest only payments as an annual rate of 4.684% and matures November 1, 2028. 254 We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenant would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of its lease. Shaw's Supermarket was built in 1995. One tenant, Shaw's Supermarket, leases 100% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Base Rent Per Square GLA Leased Total Renewal Per Annum Foot Per Lease Term Lessee (Sq. Ft.) GLA Options ($) Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------------- Shaw's 65,658 100 6/5 yr. 1,017,699 15.50 12/95 02/01 Supermarkets - 1,083,357 16.50 03/01 02/06 New Britain 1,149,015 17.50 03/06 02/11 1,181,844 18.00 03/11 04/16
For federal income tax purposes, the depreciable basis in this property will be approximately $10,681,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. PAVILION AT KING'S GRANT, CONCORD, NORTH CAROLINA We purchased a newly constructed shopping center known as Pavilion at King's Grant, containing 79,109 gross leasable square feet (which includes 65,000 square feet of ground lease space). The center is located at 8050 Concord Mills Boulevard in Concord, North Carolina. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $8,151,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. One tenant, Toys "R" Us, is currently paying half rent. When the tenant begins paying full rent, we will pay the balance of the purchase price of approximately $1,563,000. Our total acquisition cost is expected to be approximately $103 per square foot of leasable space. We originally purchased this property with our own funds. On April 6, 2004, we obtained financing in the amount of $5,342,000. The loan requires interest only payments at an annual rate of 4.39% and matures May 1, 2009. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Toys "R" Us and Olive Garden, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows: 255
Approximate Base Rent Per GLA Leased % of Total Square Foot Lease Term Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To - ------------------------------------------------------------------------------------------------ Toys "R" Us * 49,000 62 5.10 10/02 01/13 Olive Garden* 8,500 11 9.41 04/02 04/07 10.35 05/07 04/12
* ground lease For federal income tax purposes, the depreciable basis in this property will be approximately $2,741,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Pavilion at King's Grant was built in 2002 and 2003. As of December 1, 2004, this property was 100% occupied, with a total 79,109 square feet leased to four tenants and three ground lessees. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Per Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($) - ---------------------------------------------------------------------------------------------------- RadioShack 2,400 04/08 2/5 yr. 40,800 17.00 Bank of America 100 08/08 2/5 yr. 14,400 144.00 Panera Bread 5,609 12/14 2/5 yr. 109,376 19.50 Jared Jewelers 6,000 01/23 2/5 yr. 220,020 36.67 Olive Garden * 8,500 04/12 4/5 yr. 80,000 N/A Red Lobster * 7,500 05/12 4/5 yr. 80,000 N/A Toys "R" Us * 49,000 01/13 6/5 yr. 250,000 N/A
* Ground lease In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. CVS PHARMACIES (ECKERD DRUG STORES) We purchased the following two separate existing freestanding retail properties known as CVS Pharmacies, formerly Eckerd Drug Stores, containing a total of 27,648 gross leasable square feet.
Location Square Feet Completion Date Purchase Price ($) - ------------------------------------------------------------------------------------------ 33rd Street and Santa Fe 13,824 2003 3,364,000 Edmond, Oklahoma 36th and Robinson 13,824 2003 5,288,000 Norman, Oklahoma
256 We purchased these CVS Pharmacies from an unaffiliated third party. Our total acquisition cost was approximately $8,652,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $313 per square foot of leasable space. We purchased these properties with our own funds. On April 30, 2004, we obtained financing in the amounts of $1,850,000 and $2,900,000 for CVS Pharmacy - - Edmond and CVS Pharmacy - Norman, respectively. Both loans require interest only payments at an annual rate of 4.374% and mature June 2009. One tenant, CVS Pharmacy, leases 100% of the total gross leasable area of each property. The leases with this tenant require the tenant to pay base annual rent on a monthly basis as follows:
% of Total Base Rent Approximate GLA of Current Per Square GLA Leased each Annual Renewal Foot Per Lease Term Lessee/Location (Sq. Ft.) Property Rent ($) Options Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------------------- 33rd Street & 13,824 100 289,292 4/5 yr. 20.93 10/03 10/23 Santa Fe Edmond, OK 36th & 13,824 100 454,806 4/5 yr. 32.90 11/03 11/23 Robinson Norman, OK
A twenty year lease commenced as of the date of acquisition with no increases during the term of the lease. Each lease includes four options, each for a term of five years. These properties are on triple net leases and the tenant will be responsible for all repairs. For federal income tax purposes, the depreciable basis in these properties will be approximately $6,770,000 When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. DARIEN TOWNE CENTRE, DARIEN, ILLINOIS We purchased an existing shopping center known as Darien Towne Centre containing 223,844 gross leasable square feet (which includes 6,371 square feet of ground lease space). The center is located at 2189 75th Street, in Darien, Illinois. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $30,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $134 per square foot of leasable space. Simultaneously with the purchase this property, we obtained a new loan in the amount of $16,500,000. The loan requires interest only payments based on a rate of 4.65% per annum and matures June 2010. 257 We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Home Depot, Circuit City and PETsMART, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Lease Term Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To - ------------------------------------------------------------------------------------------------ Home Depot 109,200 49 7.98 05/94 04/99 8.35 05/99 04/04 8.60 05/04 04/09 9.10 05/09 04/14 Circuit City 32,984 15 10.50 05/94 01/05 CPI 02/05 01/10 CPI 02/10 01/15 PETsMART 25,487 11 11.20 10/94 09/04 11.70 10/04 09/09
For federal income tax purposes, the depreciable basis in this property will be approximately $22,468,400. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Darien Towne Centre was built in 1994. As of December 1, 2004, this property was 94% occupied, with a total 210,010 square feet was leased to 11 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Renewal Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Gingiss Formalwear 2,000 12/04 - 35,010 17.50 Coldwell Banker 2,468 03/05 - 45,831 18.57 Jenny Craig 2,000 05/07 1/3 yr. 44,000 22.00 Deals 12,000 07/07 1/5 yr. 120,000 10.00 TGI Fridays (Ground Lease) 6,371 05/09 3/5 yr. 79,860 N/A Great Clips 1,500 08/09 2/3 yr. 33,000 22.00 PETsMART 25,487 09/09 5/5 yr. 298,197 11.70 Murray's Discount Auto 10,000 10/09 1/5 yr. 115,000 11.50 Panera Bread 4,500 12/12 3/5 yr. 94,500 21.00 Home Depot 109,200 04/14 4/5 yr. 939,120 8.60 Signature Cleaners 1,500 11/14 - 37,260 24.84 Circuit City 32,984 01/15 4/5 yr. 346,332 10.50
258 In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. STONY CREEK MARKETPLACE, NOBLESVILLE, INDIANA We purchased a newly constructed shopping center known as Stony Creek Marketplace containing 153,796 gross leasable square feet (which consists of 8,000 square feet of ground lease space). The center is located at 1713C Mercantile Boulevard in Noblesville, Indiana. We purchased this property from an unaffiliated third party. Our total acquisition cost was approximately $25,750,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost was approximately $167 per square foot of leasable space. We originally purchased this property with our own funds. On January 20, 2004, we obtained financing in the amount of $14,162,000. The loan requires interest only payments at an annual rate of 4.77% and matures January 1, 2011. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, T.J. Maxx, Linens 'N Things and Barnes & Noble, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------- T.J. Maxx 30,000 20 9.50 09/03 09/13 Linens 'N Things 28,444 18 11.50 07/03 01/09 12.00 02/09 01/14 Barnes & Noble 21,980 14 13.50 09/03 01/16
For federal income tax purposes, the depreciable basis in this property will be approximately $17,564,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Stony Creek Marketplace was built in 2003. As of December 1, 2004, this property was 100% occupied, with a total 153,796 square feet leased to 19 tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases: 259
Approximate Base Rent Per GLA Leased Lease Renewal Current Annual Square Foot Per Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($) - ---------------------------------------------------------------------------------------------------- Cingular Wireless 1,487 06/08 2/5 yr. 31,227 21.00 RJ Fastframe 1,618 06/08 1/5 yr. 33,915 20.96 The UPS Store 1,618 08/08 1/5 yr. 33,978 21.00 Scrapbook Corner 4,095 12/08 - 75,758 18.50 Papa Johns Pizza 1,615 01/09 - 33,915 21.00 Giovanni Jewelers 1,615 02/09 1/5 yr. 33,915 21.00 Quizno's Classic Subs 1,600 12/09 2/4 yr. 29,600 18.50 Blockbuster Video 4,892 05/11 2/5 yr. 102,732 21.00 Today's Bedroom One 4,890 06/11 1/5 yr. 90,465 18.50 Panera Bread 4,200 12/12 2/5 yr. 88,200 21.00 Maggie Moo's Ice Cream 1,615 03/13 2/5 yr. 33,915 21.00 Qdoba Mexican Restaurant 2,272 04/13 2/5 yr. 45,440 20.00 Ossip Optometry, P.C. 3,230 04/13 2/5 yr. 60,563 18.75 Pier 1 Imports 9,375 07/13 2/5 yr. 160,696 17.14 Shoe Carnival 10,000 07/13 2/5 yr. 130,000 13.00 T.J. Maxx 30,000 09/13 3/5 yr. 285,000 9.50 Linens 'N Things 28,444 01/14 3/5 yr. 327,118 11.50 Factory Card Outlet 11,250 01/14 2/5 yr. 160,313 14.25 Barnes & Noble 21,980 01/16 2/5 yr. 296,730 13.50 Logan's Roadhouse (Ground Lease) 8,000 03/18 3/5 yr. 75,500 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. THE SHOPS AT PARK PLACE, PLANO, TEXAS We acquired an existing shopping center known as The Shops at Park Place through the purchase of all of the membership interests of the general partner and the membership interest of limited partner of the limited partnership holding title to this center. The center contains 116,300 gross leasable square feet (which includes 3,822 square feet of ground lease space) and is located at 6401 W. Plano Parkway in Plano, Texas. An affiliate of our business manager/advisor, Inland Park Place Limited Partnership, acquired this property on September 30, 2003 from CDG Park Place LLC, an unaffiliated third party for $23,868,000. Inland Park Place Limited Partnership agreed to sell this property to us when we had raised sufficient funds from the sale of shares to acquire this property from them. The affiliate agreed to sell us this property for the price it paid to the unaffiliated third party, plus any actual costs incurred. Our board of directors unanimously approved acquiring this property, including a unanimous vote of the independent directors. Our total acquisition cost was $24,000,000, which included $132,000 of costs incurred by Inland Park Place Limited Partnership. We expect any additional costs to be insignificant. Our acquisition cost is approximately $206 per square foot of leasable space. 260 As part of the purchase, title to the property was subject to a loan placed on the property by Inland Park Place Limited Partnership for our benefit. The loan is in the amount of $13,127,000, requires interest only payments at a rate of 4.71% per annum and matures November 2008. We believe the interest rate on this loan is no greater than what we could have obtained from an unaffiliated third party lender. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Four tenants, Walgreens, OfficeMax, Michaels and Bed, Bath & Beyond, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Approximate Base Rent Per GLA Leased % of Total Square Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------ Walgreens 15,120 13 20.83 05/00 04/60 OfficeMax 23,429 20 13.50 11/01 11/11 14.00 12/11 11/16 Michaels 24,133 21 13.50 08/01 10/11 Bed, Bath & Beyond 25,000 21 11.00 10/01 01/12
For federal income tax purposes, the depreciable basis in this property will be approximately $13,175,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. The Shops at Park Place was built in 2001. As of December 1, 2004, this property was 99% leased, with a total 115,460 square feet leased to ten tenants and one ground lease tenant. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Ebby Halliday Realty 5,314 10/06 2/5 yr. 154,100 29.00 North Dallas Eye Associates 3,000 10/06 1/5 yr. 90,000 30.00 The Nail Club 1,100 10/06 1/5 yr. 33,000 30.00 Oxford Cleaners 1,042 10/06 1/5 yr. 31,260 30.00 Carpet Mills of America 3,500 11/06 2/5 yr. 91,000 26.00 Michaels 24,133 10/11 3/5 yr. 325,800 13.50 Bed, Bath & Beyond 25,000 01/12 3/5 yr. 275,000 11.00 Salon Boutique 10,000 02/12 2/5 yr. 180,000 18.00 OfficeMax 23,429 11/16 4/5 yr. 316,300 13.50
261
Approximate Base Rent Per GLA Leased Renewal Current Annual Square Foot Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- Walgreens 15,120 04/60 - 315,000 20.83 Chick-Fil-A (Ground Lease) 3,822 10/15 3/5 yr. 78,500 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. POTENTIAL PROPERTY ACQUISITIONS As of December 7, 2004, we are considering acquiring the 24 properties described below. Our decision to acquire these properties will generally depend upon: - no material adverse change occurring in the properties, the tenants or the local economic conditions; - our receipt of sufficient net proceeds from our offerings to make these acquisitions or sufficient availability of credit; and - our receipt of satisfactory due diligence information including appraisals, environmental reports and lease information. Other properties may be identified in the future that we may acquire before or instead of these properties. We cannot guarantee that we will complete these acquisitions. SHOPPES OF WARNER ROBBINS, WARNER ROBINS, GEORGIA We anticipate purchasing a newly constructed shopping center known as Shoppes of Warner Robins, containing 70,740 of gross leasable square feet. The center is located at S.R. 96 and Lakejoy Road in Warner Robins, Georgia. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $13,374,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $189 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Publix, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows: 262
Base Rent Approximate % of Total Per Square GLA Leased Phase I Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ---------------------------------------------------------------------------------------- Publix 38,990 55 9.50 11/04 11/24
For federal income tax purposes, the depreciable basis in this property will be approximately $10,031,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Shoppes at Warner Robins was newly constructed in 2004. This property is currently leasing up the remaining vacancies. As of December 1, 2004, this property was 78% occupied, with a total of 55,140 square feet leased to 12 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Cutting Edge Salon 1,400 10/07 28,000 20.00 Sprint Wireless 1,400 10/07 26,600 19.00 International Tan 1,050 11/07 18,900 18.00 Nextel Communications 1,050 10/09 19,425 18.50 Love Your Clothes Cleaners 1,400 10/09 30,800 22.00 Just Mail 1,400 10/09 24,500 17.50 Luv Nail Salon 1,400 10/09 30,800 22.00 Hong Kong Restaurant 1,400 11/09 26,600 19.00 Subway 1,400 11/09 23,800 17.00 Cuts by Us 1,050 11/09 18,900 18.00 Paradise Video 3,200 12/09 52,800 16.50 Publix 38,990 11/24 370,405 9.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. ACADEMY SPORTS & OUTDOORS, SAN ANTONIO, TEXAS We anticipate purchasing a newly constructed freestanding retail center known as Academy Sports & Outdoors, containing 70,910 of gross leasable square feet. The center is located at 2643 NW Loop 410 in San Antonio, Texas. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $6,825,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $96 per square foot of leasable space. 263 We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenant would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of its lease. One tenant, Academy Sports & Outdoors, will lease 100% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square Estimated GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------------------- Academy Sports & Outdoors 70,910 100 7.51 12/04 11/24
For federal income tax purposes, the depreciable basis in this property will be approximately $5,119,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. MESA FIESTA, MESA, ARIZONA We anticipate purchasing an existing shopping center known as Mesa Fiesta, containing 194,892 of gross leasable square feet. The center is located at South Alma School Road and Grove Avenue in Mesa, Arizona. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $36,855,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $189 per square foot of leasable space. We anticipate purchasing this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Five tenants, Best Buy, Marshalls, Borders Books & Music, Comp USA and Oak Showcase, leases more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------- Best Buy 39,482 20 11.35 09/94 08/08
264
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------- Marshalls 31,500 16 11.50 02/95 01/10 Borders Books & Music 30,000 15 22.27 04/94 03/09 Comp USA 25,000 13 12.71 03/94 02/09 Oak Showcase 25,010 13 10.00 05/04 04/09
For federal income tax purposes, the depreciable basis in this property will be approximately $27,641,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Mesa Fiesta was built in 1994. As of December 1, 2004, this property was 100% occupied, with a total 194,892 square feet leased to eight tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Famous Footwear 8,000 03/07 97,600 12.20 Best Buy 39,482 08/08 448,121 11.35 Comp USA 25,000 02/09 317,750 12.71 Cost Plus World Market 18,900 02/09 288,225 15.25 Staples 17,000 02/09 225,803 13.28 Borders Books & Music 30,000 03/09 668,226 22.27 Oak Showcase 25,010 04/09 250,100 10.00 Marshalls 31,500 01/10 362,250 11.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PHENIX CROSSING, PHENIX CITY, ALABAMA We anticipate purchasing a newly constructed shopping center known as Phenix Crossing, containing 56,563 of gross leasable square feet. The center is located at 5408 Summerville Highway in Phenix City, Alabama. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $10,065,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $178 per square foot of leasable space. 265 We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Publix, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Total Per Square GLA Leased Phase I Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------- Publix 38,997 69 11.95 06/04 06/24
For federal income tax purposes, the depreciable basis in this property will be approximately $7,549,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Phenix Crossing was newly constructed in 2004. As of December 1, 2004, this property was 95% occupied, with a total of 53,817 square feet leased to nine tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Package Store 1,400 11/07 20,384 14.56 Ace Cleaners 1,400 06/09 22,400 16.00 Nail Salon & Day Spa 1,400 07/09 22,400 16.00 China Panda 1,400 07/09 22,400 16.00 Movie Gallery 4,200 08/09 56,700 13.50 Headstart Hair 2,220 08/09 35,520 16.00 Zeb's Seafood & Chicken 1,400 08/09 23,310 16.65 Blimpie 1,400 09/09 22,400 16.00 Publix 38,997 06/24 466,014 11.95
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. METRO TOWN CENTER, PHOENIX, ARIZONA We anticipate purchasing an existing shopping center known as Metro Town Center, containing 147,056 of gross leasable square feet. The center is located at 2821 West Peoria in Phoenix, Arizona. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $31,266,000. This amount may increase by additional costs which have 266 not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $213 per square foot of leasable space. We anticipate purchasing this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Ross Dress for Less and PETsMART, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------- Ross Dress for Less 30,187 21 11.50 04/04 01/15 PETsMART 22,500 15 10.91 01/03 01/18
For federal income tax purposes, the depreciable basis in this property will be approximately $23,450,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Metro Town Center was built during 1988 through 1990 and renovated in 2003 and 2004. This property is currently leasing up the remaining vacancies and certain tenants have executed leases for retail space within the shopping center. As of December 1, 2004, this property was 78% occupied, with a total 115,017 square feet leased to 19 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Metro Mattress 2,400 02/08 72,000 30.00 Subway 1,400 02/08 43,260 30.90 Cold Stone Creamery 1,200 02/08 35,844 29.87 Nextel Communications 1,200 03/08 38,400 32.00 Supercuts 1,200 04/08 33,600 28.00 Blockbuster Video 6,896 12/08 104,681 15.18 Tina Nails 1,710 03/09 47,779 27.94 Robeks 960 04/09 28,800 30.00 The UPS Store 1,600 08/09 44,800 28.00 Samurai Sams 1,600 02/10 52,800 33.00 Naturally Women 13,464 03/10 204,518 15.19 Chipotle Mexican Grill 2,800 12/12 89,600 32.00 Starbucks 1,500 03/13 47,100 31.40
267
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Big 5 Sporting Goods 10,000 01/14 120,000 12.00 Vitamin Shoppe 5,000 09/14 170,000 34.00 Ross Dress for Less 30,187 01/15 347,151 11.50 PETsMART 22,500 01/18 245,375 10.91 Mimi's Cafe 7,000 12/18 70,000 10.00 Wendy's 2,400 07/19 74,500 31.04
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. SHOPPES AT LAKE ANDREW, VIERA, FLORIDA We anticipate purchasing an existing shopping center known as Shoppes at Lake Andrew, containing 144,772 of gross leasable square feet. The center is located at Wickham and I-95 in Viera, Florida. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $28,300,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $195 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Ross Dress for Less, Linens 'N Things and Rag Shop, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Total Per Square GLA Leased Phase I Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------- Ross Dress for Less 30,187 21 9.50 02/04 01/16 Linens 'N Things 28,240 20 12.50 02/04 01/15 Rag Shop 19,976 14 11.00 11/03 11/13
For federal income tax purposes, the depreciable basis in this property will be approximately $21,225,000. When we calculate depreciation expense for tax purposes, we will use the straight-line 268 method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Shoppes at Lake Andrew was built in 2003. As of December 1, 2004, this property was 100% occupied, with a total of 144,772 square feet leased to 18 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- EB Games 1,800 08/08 43,200 24.00 Hair Cuttery 1,200 08/08 32,400 27.00 Asian Wok 1,200 09/08 32,400 27.00 Mattress Barn 4,520 10/08 83,620 18.50 The Blind Spot 1,200 01/09 31,200 26.00 Gulf Atlantic Hearing Aid 900 01/09 29,700 33.00 Subway 1,200 02/09 31,200 26.00 Dress Barn 4,312 06/09 74,536 18.50 Your House Interiors 9,748 07/09 151,094 15.50 Payless Shoesource 2,700 06/13 59,400 22.00 Cellular Express 1,200 08/13 33,372 27.81 Professional Nail 1,200 08/13 31,200 26.00 Petco 13,767 09/13 213,388 15.50 Shoe Carnival 10,800 10/13 135,000 12.50 Rag Shop 19,976 11/13 219,736 11.00 Pier 1 Imports 10,622 02/14 191,196 18.00 Linens 'N Things 28,240 01/15 353,000 12.50 Ross Dress for Less 30,187 01/16 286,776 9.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. GREEN'S CORNER, CUMMING, GEORGIA We anticipate purchasing an existing shopping center known as Green's Corner, containing 82,792 of gross leasable square feet (which includes a ground lease space). The center is located at Georgia Highway 20 and Bethelview Road in Cumming, Georgia. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $12,768,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $154 per square foot of leasable space. We anticipate purchasing this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. 269 One tenant, Kroger, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------- Kroger 63,296 76 8.49 01/98 01/18
For federal income tax purposes, the depreciable basis in this property will be approximately $9,576,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Green's Corner was built in 1997. As of December 1, 2004, this property was 100% occupied, with a total 82,792 square feet leased to 11 tenants and one tenant subject to a ground lease. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Designer Cleaners 1,800 08/07 39,600 22.00 Blockbuster Video 6,000 09/07 99,000 16.50 The UPS Store 1,320 09/07 22,730 17.22 Subway 1,400 10/07 24,528 17.52 Great Clips 1,253 11/07 21,576 17.22 KB's BBQ & Rib Company 1,200 03/08 20,400 17.00 Golden Palace 2,793 04/08 48,905 17.51 Allstate Insurance 930 08/08 16,284 17.51 Cumming Nails & Tan 1,600 09/08 28,016 17.51 Bucks Pizza 1,200 01/09 19,800 16.50 McDonalds (Ground Lease) * 01/17 49,280 N/A Kroger 63,296 01/18 537,225 8.49
* To be determined In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. NEWTON CROSSROADS, COVINGTON, GEORGIA We anticipate purchasing an existing shopping center known as Newton Crossroads, containing 78,896 of gross leasable square feet. The center is located at Georgia Highway 20 and Brown Bridge Road in Covington, Georgia. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $10,087,000. This amount may increase by additional costs which have 270 not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $128 per square foot of leasable space. We anticipate purchasing this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Kroger, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------- Kroger 63,296 80 7.36 01/98 01/18
For federal income tax purposes, the depreciable basis in this property will be approximately $7,565,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Newton Crossroads was built in 1997. As of December 1, 2004, this property was 100% occupied, with a total 78,896 square feet leased to 11 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- H & R Block 1,200 04/05 19,464 16.22 Washington Mutual Bank 3,000 04/07 51,300 17.10 Great Clips 1,200 06/07 20,664 17.22 GNC 1,200 07/07 19,476 16.23 Subway 1,200 07/07 22,140 18.45 Daily Nails 1,200 08/07 21,648 18.04 Family Dentistry 1,800 10/07 32,724 18.18 Peking Chinese Restaurant 1,200 10/07 19,476 16.23 Just New Releases 1,800 04/08 30,096 16.72 Best Cleaners 1,800 07/12 42,012 23.34 Kroger 63,296 01/18 465,700 7.36
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 271 STILESBORO OAKS, ACWORTH, GEORGIA We anticipate purchasing an existing shopping center known as Stilesboro Oaks, containing 80,772 of gross leasable square feet. The center is located at State Highway 176 and Stilesboro Road in Acworth, Georgia. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $12,640,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $156 per square foot of leasable space. We anticipate purchasing this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Kroger, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------- Kroger 54,872 68 8.41 06/97 06/22
For federal income tax purposes, the depreciable basis in this property will be approximately $9,480,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Stilesboro Oaks was built in 1996. As of December 1, 2004, this property was 100% occupied, with a total 80,772 square feet leased to 13 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Nail Lite 1,050 03/06 22,438 21.37 Blockbuster Video 6,300 04/06 96,957 15.39 Mr. Wonton Chinese Takeout 1,050 05/06 19,509 18.58 The UPS Store 1,400 05/06 24,094 17.21 Vintage Bottle Shop 3,500 07/06 63,000 18.00 Gondolier Pizza 1,400 08/06 24,878 17.77 Great Clips 1,050 09/06 20,653 19.67 GNC 1,400 04/07 24,094 17.21 Solar Dimension Tanning 1,750 04/07 29,890 17.08 Dickson's Tae Kwon Do Plus 2,800 05/07 42,000 15.00 Clothing Care Cleaners 2,450 05/09 69,727 28.46
272
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Subway 1,750 08/09 28,875 16.50 Kroger 54,872 06/22 461,606 8.41
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. HOLLIDAY TOWNE CENTER, DUNCANSVILLE, PENNSYLVANIA We anticipate purchasing an existing shopping center known as Holliday Towne Center, containing 83,122 of gross leasable square feet. The center is located at 1264 Old Route 22 in Duncansville, Pennsylvania. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $14,727,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $177 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Martins Food, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Total Per Square GLA Leased Phase I Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------------------- Martins 54,322 65 15.55 11/03 10/23
For federal income tax purposes, the depreciable basis in this property will be approximately $11,045,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Holliday Towne Center was built in 2003. As of December 1, 2004, this property was 80% occupied, with a total of 66,722 square feet leased to seven tenants and 3,600 square feet leased to one tenant who has not yet occupied their space. The following table sets forth certain information with respect to those leases: 273
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- FlexCheck 1,200 12/07 16,800 14.00 H&R Block 1,200 04/08 15,600 13.00 Movie Gallery 4,000 11/08 52,000 13.00 Holiday Hair 1,200 11/08 25,200 21.00 Fox's Pizza Den 1,600 11/09 22,400 14.00 Isabella's Hallmark * 3,600 12/09 43,200 12.00 STS Tanning 3,200 01/11 38,656 12.08 Martins 54,322 10/23 844,707 15.55
* Lease term has not yet commenced, however, the expiration date may change based upon the tenant's actual occupancy date. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. CROSS CREEK SHOPPING CENTER, MEMPHIS, TENNESSEE We anticipate purchasing an existing shopping center known as Cross Creek Shopping Center, containing 363,333 of gross leasable square feet. The center is located at 3593 Riverdale Road in Memphis, Tennessee. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $56,300,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $155 per square foot of leasable space. We anticipate purchasing this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Four tenants, Home Depot, Kroger, Rhodes Furniture and Babies "R" Us, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------- Home Depot 102,661 28 10.84 09/96 01/17 Kroger 63,941 18 8.92 10/96 09/16
274
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------- Rohdes Furniture 48,925 13 10.00 12/96 12/11 Babies "R" Us 42,296 12 8.80 09/96 09/06
For federal income tax purposes, the depreciable basis in this property will be approximately $42,225.000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Cross Creek Shopping Center was built in 1995. As of December 1, 2004, this property was 100% occupied, with a total 363,333 square feet leased to 19 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- BA Framer 2,011 05/05 34,187 17.00 Gould's Styling Salon 1,609 05/05 29,767 18.50 Le Nail Studio 1,206 09/05 22,308 18.50 Babies "R" Us 42,296 09/06 372,205 8.80 Old Navy 14,000 11/06 245,000 17.50 Bed, Bath & Beyond 35,000 01/07 367,500 10.50 Hallmark 3,975 02/07 59,625 15.00 Besigner's Fine Cleaners 1,206 03/07 21,708 18.00 Household Finance 2,183 02/08 41,472 19.00 GNC 1,450 07/08 29,767 20.53 Sprint PCS 3,000 11/08 64,560 21.52 Lenny's Sub Shop 2,183 09/09 39,300 18.00 Eye Masters 3,500 05/10 110,700 31.63 Rhodes Furniture 48,925 12/11 489,250 10.00 Comp USA 23,000 03/12 256,910 11.17 Hollywood Video 8,000 03/12 158,400 19.80 Kroger 63,941 09/16 570,132 8.92 Home Depot 102,661 01/17 1,113,162 10.84 Fazoli's Italian Restaurant 3,187 04/18 63,252 19.85
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 275 23RD STREET PLAZA, PANAMA CITY, FLORIDA We anticipate purchasing an existing shopping center known as 23rd Street Plaza, containing 53,367 of gross leasable square feet. The center is located at 23rd Street and State Road 77 in Panama City, Florida. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $7,257,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $136 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Bed, Bath & Beyond and Ross Dress for Less, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Total Per Square GLA Leased Phase I Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ----------------------------------------------------------------------------------------------------------------- Bed, Bath & Beyond 20,570 39 10.50 02/03 01/13 Ross Dress for Less 30,122 56 9.75 04/03 03/13
For federal income tax purposes, the depreciable basis in this property will be approximately $5,443,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. 23rd Street Plaza was built in 2003. As of December 1, 2004, this property was 95% occupied, with a total of 50,692 square feet leased to two tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Bed, Bath & Beyond 20,570 01/13 215,985 10.50 Ross Dress for Less 30,122 03/13 293,690 9.75
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. 276 A TEXAS PROPERTY, TARRANT COUNTY, TEXAS We anticipate investing into an existing retail and office property which we have designated as A Texas Property, containing over 417,700 of gross leasable square feet. The retail and office property is located in Tarrant County, Texas. We anticipate investing into this property with an unaffiliated third party. Our total investment cost is expected to be approximately $120,000,000. This amount may increase by additional costs which have not been finally determined. We expect any additional costs to be insignificant. Our investment cost is expected to be approximately $287 per square foot of leasable space. We anticipate investing into this retail and office property with our own funds. However, we expect to place financing on this portion of the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. There are no tenants that lease more than 10% of the total gross leasable area of the property. The retail and office property we are anticipating investing into was built between 1998 and 2004. The tenants' leasable square feet of the retail and office property we are anticipating investing into range between 105 and 23,796 square feet, with lease terms ranging from three years to 12 years, and base rent ranging from $7.50 to $36.00 per square feet per annum. For federal income tax purposes, the depreciable basis in this investment into the retail and office property we are anticipating investing into will be approximately $90,000,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. HENRY TOWN CENTER, MCDONOUGH, GEORGIA We anticipate purchasing 444,296 of gross leasable square feet (which includes 63,354 square feet of ground lease space) of a 722,244 square foot shopping center known as Henry Town Center. The center is located at I-75 and Jonesboro Road in McDonough, Georgia. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $62,000,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $140 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. 277 Two tenants, BJ's Wholesale Club and Belk, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Total Per Square GLA Leased Phase I Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------- BJ's Wholesale Club 115,396 26 9.00 05/02 05/22 Belk (Ground Lease) 58,267 13 N/A 06/02 07/22
For federal income tax purposes, the depreciable basis in this property will be approximately $46,500,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. The portion of Henry Town Center which we anticipate purchasing was built in 2002. As of November 1, 2004, the property was 100% leased to 42 tenants and two ground lease tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Friedman's Jewelers 2,386 07/05 42,948 18.00 Cellular Depot 1,155 07/05 24,925 21.58 Water Sports South 1,200 01/06 21,600 18.00 H & R Block 1,986 05/07 34,755 17.50 Famous Footwear 10,000 07/07 145,000 14.50 Sally Beauty Supply 1,400 07/07 27,300 19.50 GNC 1,200 07/07 24,000 20.00 Oreck Home Care 1,600 07/07 27,200 17.00 Hibbett Sporting Goods 5,000 08/07 75,000 15.00 Fantastic Sam's 1,600 08/07 30,400 19.00 Motherhood Maternity 1,600 08/07 38,000 23.75 Dollar Exclusive 3,200 09/07 54,400 17.00 Dessert Factory 1,200 09/07 21,600 18.00 Nails & Tan 1,200 09/07 20,400 17.00 EB Games 1,600 09/07 28,800 18.00 Subway Real Estate 1,600 10/07 32,960 20.60 Hong Kong Cafe 1,400 10/07 23,800 17.00 Orthodontic Centers 3,235 11/07 58,230 18.00 Dress Barn 7,200 12/07 86,400 12.00 The School Box 4,800 12/07 72,000 15.00 Planet Beach Real Estate 1,200 12/07 22,200 18.50 Scrap Happy 3,000 12/07 51,000 17.00 Mattress King 4,685 12/07 81,987 17.50 Liberty Mutual Insurance 1,400 01/08 24,500 17.50 RadioShack 2,786 02/08 44,576 16.00
278
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Gloria's Hallmark 4,500 02/08 72,000 16.00 Lane Bryant 4,800 03/08 79,200 16.50 Gecko Grill 1,600 03/08 27,200 17.00 Serenity Spa & Salon 2,400 04/08 40,800 17.00 Michael's 23,754 02/12 237,540 10.00 Marshalls 30,000 05/12 226,500 7.55 Longhorn (Ground Lease) 5,087 06/12 81,500 N/A Payless Shoesource 2,800 06/12 54,404 19.43 Pier 1 Imports 10,000 08/12 155,000 15.50 Staples 24,229 08/12 230,175 9.50 Woody's Bar B Que 5,080 08/12 87,478 17.22 Cici's Pizza 4,200 09/12 67,200 16.00 Ross Dress for Less 30,187 01/13 324,510 10.75 Bath & Body Works 3,000 01/13 59,700 19.90 Books-A-Million 12,510 01/13 125,100 10.00 Bed, Bath & Beyond 19,978 01/13 214,764 10.75 PETsMART 18,875 08/17 202,906 10.75 BJ's Wholesale Club 115,396 05/22 1,038,564 9.00 Belk (Ground Lease) 58,267 07/22 203,934 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. THE VILLAGE AT QUAIL SPRINGS, OKLAHOMA CITY, OKLAHOMA We anticipate purchasing a freestanding retail building located at The Village at Quail Springs Shopping Center, containing 100,671 of gross leasable square feet. The center is located at 2201 West Memorial Road in Oklahoma City, Oklahoma. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $10,450,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $104 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Best Buy and Gordmans, lease 100% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows: 279
Base Rent Approximate Per Square GLA Leased % of Total Renewal Foot Per Lease Term Lessee (Sq. Ft.) GLA Options Annum ($) Beginning To - ------------------------------------------------------------------------------------------------ Best Buy 45,545 45 3/5 yr. 5.75 11/04 01/15 Gordmans 55,126 55 4/5 yr. 9.10 10/03 01/14
For federal income tax purposes, the depreciable basis in this property will be approximately $7,838,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. MCALLEN SHOPPING CENTER, MCALLEN, TEXAS We anticipate purchasing a newly constructed shopping center known as McAllen Shopping Center, containing 17,625 of gross leasable square feet. The center is located at 10th Street and Trenton Road in McAllen, Texas. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $4,150,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $235 per square foot of leasable space. We anticipate purchasing this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Four tenants, Payless Shoesource, RadioShack, Hollywood Video, and Dr. Fiona Kolia, Optometrist, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------- Payless Shoesource 2,800 16 18.25 08/03 07/08 RadioShack 2,500 14 19.00 11/04 03/09 Hollywood Video 6,282 36 18.50 11/03 10/13 Dr. Fiona Kolia, Optometrist 1,736 10 19.50 11/03 01/08
For federal income tax purposes, the depreciable basis in this property will be approximately $3,113,000. When we calculate depreciation expense for tax purposes, we will use the straight-line 280 method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. McAllen Shopping Center was built during 2004. As of November 1, 2004, this property was 100% occupied, with a total 17,625 square feet leased to seven tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Dr. Fiona Kolia, Optometrist 1,736 01/08 33,860 19.50 Classic Cleaners 1,400 07/08 26,600 19.00 Payless Shoesource 2,800 07/08 51,100 18.25 RadioShack 2,500 03/09 47,500 19.00 Sally Beauty Supply 1,500 04/09 33,750 22.50 Just a Cut 1,407 01/13 25,326 18.00 Hollywood Video 6,282 10/13 116,217 18.50
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. ADVANCE AUTO PARTS PORTFOLIO We anticipate purchasing the following three separate newly constructed triple-net leased retail properties built in 2004 known as Advance Auto Parts, containing a total of 21,000 gross leasable square feet.
Location Square Feet Lease Term Purchase Price ($) - ------------------------------------------------------------------------------------------------------- 8603 Culebra 7,000 07/04-06/19 1,483,675 San Antonio, Texas 465 E. Central Texas Expressway 7,000 08/04-07/19 1,547,609 Harker Heights, Texas 3915 E. Stan Schlueter 7,000 08/04-07/19 1,433,113 Killeen, Texas ---------------- ---------------- Total 21,000 4,464,397
We anticipate purchasing these Advance Auto Parts stores from an unaffiliated third party. Our total acquisition cost, including expenses, is expected to be approximately $4,464,397. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost will be approximately $213 per square foot of leasable space. We anticipate purchasing these properties with our own funds. However, we expect to place financing on the properties at a later date. 281 In evaluating these properties as potential acquisitions and determining the appropriate amount of consideration to be paid for the properties, we considered a variety of factors including location, demographics, quality of tenant, length of lease, price per square foot, occupancy and the fact that overall rental rate at the property is comparable to market rates. We believe that each of these properties is well located, has acceptable roadway access and is well maintained. These properties will be subject to competition from similar properties within their market area, and economic performance could be affected by changes in local economic conditions. We did not consider any other factors materially relevant to the decision to acquire these properties. One tenant, Advance Auto Parts, will lease 100% of the total gross leasable area of each property. The leas with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
% of Total Base Rent Approximate GLA of Current Per Square Lessee/ GLA Leased each Annual Foot Per Lease Term Location (Sq. Ft.) Property* Rent ($) Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------ 8603 Culebra Road 7,000 100 110,505 15.79 07/04 06/19 San Antonio, Texas 465 E. Central Texas Expressway 7,000 100 115,290 16.47 08/04 07/19 Harker Heights, Texas 3915 E. Stan Schlueter 7,000 100 106,750 15.25 08/04 07/19 Killeen, Texas
For federal income tax purposes, the depreciable basis in these properties will be approximately $3,349,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. THUNDERBIRD CROSSING, PEORIA, ARIZONA We anticipate purchasing 55,646 of gross leasable square foot portion of a 79,774 square feet existing shopping center known as Thunderbird Crossing. The center is located at 8375 West Thunderbird Road in Peoria, Arizona. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $8,500,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $153 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. 282 Thunderbird Crossing was built in 2003 and 2004. Two tenants, Sprouts Farmers Market and 99 Cents Only, each lease more than 10% of the total gross leasable area of the property. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Current Per Square GLA Leased Total Annual Foot Per Lease Term Lessee (Sq. Ft.) GLA Rent Annum ($) Beginning To - ------------------------------------------------------------------------------------------------------- Sprouts Farmers Market 30,146 54 417,522 13.85 05/04 05/19 99 Cents Only 25,500 46 204,400 8.02 04/04 04/14
For federal income tax purposes, the depreciable basis in this property will be approximately $6,375,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. POINCIANA PLACE, KISSIMMEE, FLORIDA We anticipate purchasing an existing shopping center known as Poinciana Place, containing 107,139 of gross leasable square feet. The center is located at Highway 192 and SR 535 in Kissimmee, Florida. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $14,850,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $139 per square foot of leasable space. We anticipate purchasing this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Publix, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------------- Publix 56,000 52 7.25 06/88 06/08
283 For federal income tax purposes, the depreciable basis in this property will be approximately $11,138,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Poinciana Place was built in 1988 and redeveloped in 2004. As of October 1, 2004, this property was 100% occupied, with a total 107,139 square feet leased to 18 tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------------- H.W. Lockner, Inc. 3,297 04/07 45,004 13.65 Publix 56,000 06/08 406,000 7.25 Coast Dental Services, Inc. 3,226 08/08 82,932 25.54 Blockbuster Video 5,000 06/09 90,000 18.00 Alber Investments 2,160 06/09 38,880 18.00 Elite Vacations, Inc. 2,972 07/09 65,384 22.00 Nailstyle Salon & Spa 1,427 07/09 28,540 20.00 Rita Rector 643 08/09 5,466 8.50 Vista Investments Enterprise, Inc. 4,755 08/09 66,570 14.00 Timescape Resorts, LLC 7,251 08/09 50,757 7.00 Pizzeria Mashka, Inc. 1,609 09/09 38,616 24.00 Faz Corporation 1,542 09/09 30,840 20.00 Sunstate Gifts, Inc. 1,532 09/09 30,640 20.00 Gemstone Properties, LLC 1,432 09/09 27,280 19.00 Phu Lock of Kissimmee, Inc. 1,096 09/09 21,920 20.00 Cave Run Eagles, LLC 3,324 09/09 59,832 18.00 Oriental Pearl 2,791 07/14 55,820 20.00 Smokey Bones 7,082 08/14 120,000 16.94
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. FAIRGROUNDS PLAZA, MIDDLETOWN, NEW YORK We anticipate purchasing a redeveloped shopping center which will be known as Fairgrounds Plaza, containing 98,021 of gross leasable square feet. The center is located at 330 Route 211 East in Middletown, New York. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $27,448,000. These amounts may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $280 per square foot of leasable space. We intend to purchase this property with our own funds. We are assuming the existing debt in the amount of $16,032,000. The loan requires monthly principal and interest payments at an annual fixed rate of 5.69% and matures in February 2013. 284 We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Super Stop & Shop, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - -------------------------------------------------------------------------------------------- Super Stop & Shop 59,970 61 28.51 01/03 01/28
For federal income tax purposes, the depreciable basis in this property will be approximately $20,586,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Fairgrounds Plaza commenced redevelopment construction during 2002 that will be completed in stages by 2005. This property has been in a leasing up phase and seven tenants have executed leases for retail within the shopping center whose leases have not yet commenced. As of October 1, 2004, the property was 68% leased with a total 66,254 square feet leased to three tenants. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - --------------------------------------------------------------------------------------------------- First Union Bank 2,284 09/08 38,828 17.00 Majestic Carpet 4,000 12/14 54,000 13.50 Super Stop & Shop 59,970 01/28 1,710,000 28.51
* Lease term information is based on the estimated date the tenant begins occupancy and is not currently available. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. CORAM PLAZA, CORAM, NEW YORK We anticipate purchasing a portion of a shopping center, under construction, known as Coram Plaza. This transaction is comprised of 144,301 of gross leasable square feet. The center is located on 264 Middle County Road in Coram, New York. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $38,500,000. This amount may increase by additional costs which have 285 not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $267 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. One tenant, Stop & Shop, leases more than 10% of the total gross leasable area of the property. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - --------------------------------------------------------------------------------------------------- Stop & Shop 66,194 46 23.91 11/03 10/29
For federal income tax purposes, the depreciable basis in this property will be approximately $28,875,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Coram Plaza was built in the 1950's with a complete renovation and expansion during 2004. As of October 1, 2004, this property was 89% occupied, with a total 128,419 square feet leased to 20 tenants of which three tenants' leases are anticipated to commence on December 1, 2004. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------- Longwood Sports Association 4,000 03/05 68,080 16.75 Plaza Deli 1,440 04/05 27,404 17.68 Family Dollar 8,000 12/05 80,000 8.85 Aqua Hut * 3,300 11/06 50,496 15.30 RFK Furniture & Mattress 7,500 08/07 98,750 13.17 G&M Family Card 2,000 08/07 34,833 17.42 Subway 1,320 08/07 23,718 17.97 Blockbuster Video 3,017 09/07 45,255 15.00 Bridgestone/Firestone 7,398 02/08 24,000 3.51 Middle County Cleaners 1,080 11/09 30,000 27.78 Bella Rama 3,260 08/10 60,679 18.61 Joyce Leslie 8,000 08/10 128,000 16.00 Tan City 1,080 11/10 20,780 19.24 Joann Michael Org Beauty Supply 1,510 03/12 30,962 20.51 Path Liquors 2,500 05/12 61,276 24.51 KYCR Hair & Nails * 1,350 11/12 23,362 17.31
286
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------------- Dunkin Donuts 1,500 08/13 42,000 28.00 Homes 4-Sale Realty 2,800 11/14 60,000 21.43 Ming Chang Cheung 1,170 12/18 30,420 26.00 Stop & Shop 66,194 10/29 1,583,000 23.91
* Rent commencement for these tenants is December 1, 2004. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. MAGNOLIA SQUARE, HOUMA, LOUISIANA We anticipate purchasing a shopping center being built and which will be known as Magnolia Square, containing 115,746 of gross leasable square feet. The center is located at Martin Luther King Boulevard in Houma, Louisiana. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $18,552,000. These amounts may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $160 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Circuit City, Ross Stores and PETsMART, will lease more than 10% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's commencement date. The lease with this tenant requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent Approximate Per Square GLA Leased % of Total Foot Per Lessee * (Sq. Ft.) GLA Annum ($) - ---------------------------------------------------------------------------- Circuit City 20,000 17 13.85 Ross Stores 30,186 26 9.25 PETsMART 20,030 17 12.50
* Lease term information is based on the date the tenant begins occupancy and is not currently available. 287 For federal income tax purposes, the depreciable basis in this property will be approximately $13,914,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Magnolia Square is being constructed during 2004. The property is currently leasing up the remaining vacancies and certain tenants have executed lease for retail space within the shopping center. As of August 1, 2004, the property was 90% leased to nine tenants. The following table sets forth certain information with respect to those leases:
Approximate Base Rent Per GLA Leased Current Annual Square Foot Lessee * (Sq. Ft.) Rent ($) Per Annum ($) - ---------------------------------------------------------------------------- Circuit City 20,000 277,000 13.85 Ross Dress for Less 30,186 279,221 9.25 PETsMART 20,030 250,375 12.50 Dress Barn 7,700 109,725 14.25 Chuck E. Cheese 7,000 126,000 18.00 Sally Beauty Supplies 1,600 26,000 16.25 Dollar Tree 10,030 72,718 7.25 Starbucks 1,600 39,600 24.75 West Marine 6,000 113,700 18.95
* Lease term information is based on the date the tenant begins occupancy and is not currently available. In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. LAKEPOINTE TOWNE CROSSING, LEWISVILLE, TEXAS We anticipate purchasing a newly constructed shopping center known as Lakepointe Towne Crossing, containing 193,502 of gross leasable square feet. The center is located at 715 Hebron Parkway, in Lewisville, Texas. We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $39,482,000. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $204 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Three tenants, Sportsman's Warehouse, Circuit City and Ross Dress for Less, will each lease more than 10% of the total gross leasable area of the property. The lease term has been determined in 288 accordance with the tenant's projected lease commencement date. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------ Sportsman's Warehouse 45,250 23 12.00 08/04 08/19 Circuit City 33,862 18 14.00 06/04 01/19 Ross Dress for Less 30,187 16 9.75 04/03 04/23
For federal income tax purposes, the depreciable basis in this property will be approximately $29,611,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Lakepointe Towne Crossing was newly constructed in 2004. As of September 1, 2004, the property is currently in a leasing up phase and certain tenants have executed leases for retail space within the shopping center. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------- Mattress Firm 6,500 08/08 162,500 25.00 Hawk Electronics 5,000 10/08 125,000 25.00 EB Games 1,500 10/08 34,500 23.00 Carter Floors and Countertops 2,240 12/08 51,520 23.00 Great Clips 1,200 10/09 28,800 24.00 Dr. John Launius 2,880 11/10 63,360 22.00 Pei Wei Asian Diner 3,300 10/13 85,800 26.00 Moe's Southwest Grill 3,121 11/13 78,025 25.00 Circuit City 33,862 01/19 474,068 14.00 Sportsman's Warehouse 45,250 08/19 543,000 12.00 Ross Dress for Less 30,187 04/23 294,323 9.75
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. PLEASANT RUN TOWNE CROSSING, CEDAR HILL, TEXAS We anticipate purchasing a newly constructed shopping center known as Pleasant Run Towne Crossing, containing 225,431 of gross leasable square feet of which 20,200 is on ground leases. The center is located at Pleasant Run and Highway 67, in Cedar Hill, Texas. 289 We anticipate purchasing this property from an unaffiliated third party. Our total acquisition cost is expected to be approximately $41,417,800. This amount may increase by additional costs which have not yet been finally determined. We expect any additional costs to be insignificant. Our acquisition cost is expected to be approximately $176 per square foot of leasable space. We intend to purchase this property with our own funds. However, we expect to place financing on the property at a later date. We do not intend to make significant repairs and improvements to this property over the next few years. However, if we were to make any repairs or improvements, the tenants would be obligated to pay a substantial portion of any monies spent pursuant to the provisions of their respective leases. Two tenants, Oshman's Sporting Goods and Circuit City, will lease more than 10% of the total gross leasable area of the property. The lease term will be determined in accordance with the tenant's lease commencement date. The leases with these tenants require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent Approximate % of Per Square GLA Leased Total Foot Per Lease Term Lessee (Sq. Ft.) GLA Annum ($) Beginning To - ------------------------------------------------------------------------------------ Oshman's Sporting Goods 40,954 17 10.00 05/04 04/14 Circuit City 32,570 14 14.00 11/03 01/18
For federal income tax purposes, the depreciable basis in this property will be approximately $31,063,000. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 and 20 years, respectively. Pleasant Run Towne Crossing was newly constructed in 2004. As of September 1, 2004, the property is currently in a leasing up phase and certain tenants have executed leases for retail space within the shopping center. The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------ The Maytag Store 5,225 04/09 94,050 18.00 Justice Just for Girls 4,500 04/09 81,000 18.00 Sleep Experts 4,500 06/09 99,000 22.00 Mattress Firm 6,000 08/09 132,000 22.00 ASAP Mail 2,000 08/09 40,000 20.00 Luxury Nails 1,200 08/09 25,200 21.00 Brook Mays Music 6,250 09/09 112,500 18.00 Michaels 21,390 11/13 224,595 10.50 Bombay Company 4,500 11/13 81,000 18.00 Bed, Bath & Beyond 22,000 01/14 220,000 10.00 Half Price Books 10,108 02/14 121,296 12.00 Mothers Work 1,805 03/14 36,100 20.00
290
Approximate Current Base Rent Per GLA Leased Annual Square Foot Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($) - ------------------------------------------------------------------------------------ Zales Jewelry 3,000 05/14 66,000 22.00 Vitamin Shop 5,000 08/14 135,000 27.00 Panera Bread 4,999 10/14 119,976 24.00 Oshman's Sporting Goods 40,954 01/15 409,540 10.00 Circuit City 32,570 01/18 455,980 14.00 JP Morgan Chase Bank (Ground Lease) 4,700 02/24 84,999 N/A Saltgrass Steakhouse (Ground Lease) 8,500 05/24 84,999 N/A Joe's Crab Shack (Ground Lease) 7,000 05/24 75,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes, insurance and common area maintenance costs, although the leases with some tenants may provide that the tenant's liability for such expenses is limited in some way, usually so that their liability for such expenses does not exceed a specified amount. We will obtain an appraisal on this property prior to acquisition. As with any other property we acquire, our property manager will receive a property management fee for managing this property and our advisor will receive an advisor asset management fee. As of December 8, 2004, we have over $362,597,000 in pending acquisitions and we believe, based in part on projected sales of our common stock, that cash on hand and future financings will provide us with sufficient cash to clse these properties at the time of their projected closings. TERMINATED CONTRACTS Our board previously approved the acquisition of Albertson's Grocery Store in Loveland, Colorado, Mall 205 and Plaza 205, Portland Oregon, Eckerd Drug Store at Danforth and Santa Fe in Edmond, Oklahoma and Casa Paloma (disclosed as probable) Woodbury Village Shopping Center (disclosed as probable), Shaw's Supermarket at Bristol, Connecticut (disclosed as probable) and Peoria Station (disclosed as probable). Based on information received during our due diligence process, we have decided not to acquire the properties and our affiliate has terminated the contracts on these acquisitions. 291 TENANT LEASE EXPIRATION The following table sets forth, as of December 7, 2004, lease expirations for the next ten years at our properties, assuming that no renewal options are exercised. For purposes of the table, the "total annual base rental income" column represents annualized base rent of each tenant as of January 1 of each year. Therefore, as each lease expires, no amount is included in this column for any subsequent year for that lease. In view of the assumption made with regard to total annual base rent, the percent of annual base rent represented by expiring leases may not be reflective of the expected actual percentages.
Average Base Approx. % Total of Rental Gross Portfolio % of Total Income Leasable Gross Total Annual Annual Base Per Square Area of Leasable Area Base Rental Rental Income Foot Number Expiring Represented Income of Represented Total Annual Under Year Ending of Leases Leases (Sq. by Expiring Expiring by Expiring Base Rental Expiring December 31, Expiring Ft.) Leases Leases ($) Leases Income ($) Leases ($) - ------------------------------------------------------------------------------------------------------------------- Consolidated 2004 36 126,699 0.8% 1,980,296 1.0% 198,886,836 15.63 2005 82 264,362 1.7% 5,059,399 2.6% 197,728,346 19.14 2006 134 603,457 3.9% 9,118,717 4.7% 193,630,395 15.11 2007 164 559,348 3.6% 10,030,425 5.4% 185,584,833 17.93 2008 248 807,416 5.2% 15,836,792 9.0% 176,706,669 19.61 2009 223 943,389 6.1% 15,099,395 9.3% 161,693,736 16.01 2010 48 450,974 2.9% 6,137,053 4.2% 146,907,152 13.61 2011 63 929,855 6.0% 12,816,709 9.1% 141,051,408 13.78 2012 83 907,832 5.8% 13,093,523 10.2% 128,639,551 14.42 2013 141 1,501,909 9.7% 18,865,006 16.3% 115,891,608 12.56
292 TENANT CONCENTRATION The following table sets forth, as of December 7, 2004, our individual tenant concentrations for the properties that we currently own.
% OF % OF GROSS TOTAL ANNUALIZED LEASABLE GROSS ANNUALIZED BASE TOTAL AREA (SQ. LEASABLE BASE RENTAL RENTAL DESCRIPTION NUMBER FT.) AREA INCOME INCOME - ----------------------------------------------------------------------------------------------------------------------- INDIVIDUAL TENANT CONCENTRATIONS (MGMT. CRITERIA TOP 10 OF GLA AND BASE RENT) Zurich American Insurance Company 1 895,418 5.6% 8,883,864 4.5% Wal-Mart 4 707,090 4.4% 4,430,026 2.2% GMAC 1 501,064 3.1% 5,164,449 2.6% Best Buy 11 488,598 3.0% 7,116,746 3.6% Ross Dress for Less 16 469,821 2.9% 4,952,789 2.5% Kohl's 5 431,317 2.7% 2,969,102 1.5% Bed, Bath & Beyond 13 371,445 2.3% 4,404,859 2.2% Home Depot 3 335,664 2.1% 2,369,208 1.2% Publix 8 335,217 2.1% 3,649,391 1.8% Linens 'N Things 10 317,668 2.0% 3,628,167 1.8% Wrangler 1 316,800 2.0% 1,504,800 0.8% T.J. Maxx 11 315,727 2.0% 2,809,953 1.4% Michaels 12 285,889 1.8% 3,086,511 1.5% Old Navy 12 241,301 1.5% 2,743,066 1.4% PETsMART 11 239,554 1.5% 2,977,597 1.5% Marshalls 7 204,684 1.3% 1,727,175 0.9% Burlington Coat Factory 3 198,933 1.2% 1,148,475 0.6% Pier 1 Imports 19 192,504 1.2% 3,477,851 1.7% Academy Sports 3 182,152 1.1% 1,160,000 0.6% Barnes & Noble 7 180,198 1.1% 2,930,488 1.5% Borders Books 8 176,749 1.1% 2,614,835 1.3% OfficeMax 7 162,542 1.0% 1,915,272 1.0% Safeway 3 153,850 1.0% 1,489,742 0.7% Giant Food 3 153,764 1.0% 2,051,401 1.0% The Sports Authority 4 151,475 0.9% 1,654,970 0.8% Oshman's Sporting Goods 3 147,630 0.9% 1,597,265 0.8% Target 1 147,582 0.9% 640,000 0.3% Cost Plus World Market 8 146,904 0.9% 2,061,328 1.0% Sam's Club 1 142,491 0.9% 1,142,063 0.6% Dick's Sporting Goods 3 140,000 0.9% 1,057,500 0.5% Office Depot 7 135,538 0.8% 1,782,105 0.9%
293
% OF % OF GROSS TOTAL ANNUALIZED LEASABLE GROSS ANNUALIZED BASE TOTAL AREA (SQ. LEASABLE BASE RENTAL RENTAL DESCRIPTION NUMBER FT.) AREA INCOME INCOME - ----------------------------------------------------------------------------------------------------------------------- INDIVIDUAL TENANT CONCENTRATIONS (MGMT. CRITERIA TOP 10 OF GLA AND BASE RENT) Circuit City 4 132,402 0.8% 1,666,416 0.8% Toys "R" Us 3 124,000 0.8% 557,500 0.3% Gottschalk's 1 119,256 0.7% 400,000 0.2% BJ's Wholesale 1 115,396 0.7% 1,009,715 0.5% Staples 5 113,020 0.7% 1,485,980 0.7% Public Safety Service 1 107,705 0.7% 1,292,400 0.6% Gart Sports 2 100,561 0.6% 913,494 0.5% King Soopers 1 97,857 0.6% 715,100 0.4% National Wholesale Liquidators 1 91,314 0.6% 365,256 0.2% G.I. Joe's 2 89,375 0.6% 1,072,500 0.5% DSW Shoe Warehouse 3 72,000 0.4% 1,005,250 0.5% Super Stop & Shop 1 68,073 0.4% 1,769,898 0.9% Dominick's 1 65,844 0.4% 804,000 0.4% Shaw's Supermarkets 1 65,658 0.4% 1,083,357 0.5% CVS Pharmacy 5 59,978 0.4% 1,554,106 0.8% Kroger 1 59,670 0.4% 491,681 0.2% Shopper's Food Warehouse 1 58,217 0.4% 844,146 0.4% Ralph's Grocery Store 1 58,000 0.4% 350,004 0.2% Harris Teeter 1 57,230 0.4% 558,340 0.3% Babies "R" Us 2 56,407 0.3% 287,423 0.1% Shoe Carnival 5 55,000 0.3% 683,500 0.3% Party City 5 54,922 0.3% 781,632 0.4% Eckerd Drug Store 4 54,912 0.3% 1,046,132 0.5% PETCO 4 54,616 0.3% 928,279 0.5% Lowes Magic Johnson 1 52,500 0.3% 1,155,000 0.6% Tom Thumb 1 50,000 0.3% 575,000 0.3% Lowes Cineplex 1 48,229 0.3% 516,816 0.3% Super Fresh Food Market 1 47,827 0.3% 657,621 0.3% Bi-Lo 1 46,673 0.3% 406,522 0.2% Jo Ann Fabrics 1 46,000 0.3% 506,000 0.3% Sportmart 1 43,660 0.3% 434,334 0.2% LA Fitness 1 41,000 0.3% 697,000 0.3% Stein Mart 1 34,000 0.2% 229,500 0.1% Whole Foods 1 32,000 0.2% 432,000 0.2% Bealls 1 29,847 0.2% 194,005 0.1%
294
% OF % OF GROSS TOTAL ANNUALIZED LEASABLE GROSS ANNUALIZED BASE TOTAL AREA (SQ. LEASABLE BASE RENTAL RENTAL DESCRIPTION NUMBER FT.) AREA INCOME INCOME - ----------------------------------------------------------------------------------------------------------------------- INDIVIDUAL TENANT CONCENTRATIONS (MGMT. CRITERIA TOP 10 OF GLA AND BASE RENT) Copeland's Sporting Goods 1 25,129 0.2% 379,950 0.2% The Container Store 1 25,000 0.2% 725,000 0.4%
PROPERTY ALLOCATION The following table provides a summary of the properties in our investment portfolio by type of investment and by state at December 7, 2004.
% OF GROSS TOTAL % OF LEASABLE GROSS ANNUALIZED ANNUALIZED TOTAL AREA (SQ. LEASABLE BASE RENTAL BASE RENTAL DESCRIPTION NUMBER FT.) AREA INCOME INCOME - ----------------------------------------------------------------------------------------------------------------------- PORTFOLIO ALLOCATION BY TYPE Neighborhood and Community Retail Shopping Center 26 1,788,990 11.1% 26,419,622 13.3% Single-User Property 18 2,531,936 15.7% 22,825,422 11.5% Retail Shopping Center 42 9,758,625 60.5% 123,773,647 62.1% Joint Venture 5 2,043,986 12.7% 26,307,650 13.2% --------------------------------------------------------------------------- Total 91 16,123,537 100.0% 199,326,341 100.0% =========================================================================== PORTFOLIO ALLOCATION BY STATE California 5 703,727 4.4% 12,955,611 6.5% Florida 5 655,514 4.1% 9,468,309 4.8% Georgia 5 648,335 4.0% 7,875,955 4.0% Maryland 6 2,105,803 13.1% 27,180,163 13.6% North Carolina 5 1,031,714 6.4% 10,308,637 5.2% South Carolina 8 943,045 5.8% 10,360,093 5.2% Tennessee 4 322,488 2.0% 3,914,311 2.0%
295
% OF GROSS TOTAL % OF LEASABLE GROSS ANNUALIZED ANNUALIZED TOTAL AREA (SQ. LEASABLE BASE RENTAL BASE RENTAL DESCRIPTION NUMBER FT.) AREA INCOME INCOME - ----------------------------------------------------------------------------------------------------------------------- Texas 17 2,575,273 16.0% 33,596,184 16.9% Washington 4 1,374,563 8.5% 14,559,999 7.3% Other 32 5,763,075 35.7% 69,107,079 34.7% --------------------------------------------------------------------------- Total 91 16,123,537 100% 199,326,341 100% ===========================================================================
296 CAPITALIZATION The following table sets forth our historical capitalization as of September 30, 2004, our as adjusted capitalization giving effect to the issuance of 165,649,805 shares of common stock remaining for sale in our initial public offering and our as adjusted capitalization giving effect to the issuance of 250,000,000 shares of common stock in this offering and the application of the estimated net proceeds therefrom as described in "Estimated Use of Proceeds." We were originally capitalized in March 2003 through the cash contribution of $200,000 by the business manager/advisor, for which the business manager/advisor received 20,000 shares of common stock. Additionally, the table does not include shares of common stock issuable upon the exercise of options which may be, but have not been, granted under our independent director stock option plan. The information set forth in the following table should be read in conjunction with our historical financial statements included elsewhere in this prospectus and the discussion set forth in "Management's Discussion and Analysis of Our Financial Condition -- Liquidity and Capital Resources."
SEPTEMBER 30, 2004 HISTORICAL AS ADJUSTED (2) AS ADJUSTED (3) ------------------------------------------------- (Amounts in thousands, except per share data) DEBT: Mortgages and notes payable........... $ 1,141,248 $ 1,141,248 $ 1,141,248 STOCKHOLDERS' EQUITY Preferred stock, $.001 par value, 10,000,000 authorized, none outstanding........................... - - - Common stock, $.001 par value, 250,000 authorized, 146,284 shares issued and outstanding historical; 250,000 shares issued and outstanding issued pro forma; and 500,000 shares issued and outstanding pro forma as adjusted.............................. 146 252 502 Additional paid-in-capital (1).......... 1,304,817 2,244,531 4,474,469 Retained earnings deficit............... (32,177) (32,177) (32,177) Accumulated other comprehensive income ............................... 204 204 204 ------------------------------------------------ Total stockholders' equity.......... $ 1,272,990 $ 2,212,810 $ 4,442,998 ------------------------------------------------ Total capitalization................ $ 2,414,238 $ 3,354,058 $ 5,584,246 ================================================
- ---------- (1) Additional paid-in capital reduced by selling commissions either paid or estimated to be paid. (2) Includes the issuance of 250,000 primary shares plus 1,636 distribution reinvestment shares issued in connection with the initial public offering. (3) Includes the issuance of 250,000 primary shares plus 1,636 distribution reinvestment shares issued in connection with the initial public offering and 250,000 shares issued in connection with this offering. 297 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION The following discussion and analysis relates to the three and nine months ended September 30, 2004. The period from March 5, 2003 (inception) to September 30, 2003 is not comparable because no properties were owned by us during that 2003 period. You should read the following discussion and analysis along with our consolidated financial statements and the related notes included elsewhere in this prospectus. OVERVIEW We were formed to acquire and manage a diversified portfolio of real estate, principally multi-tenant shopping centers. We operate as a real estate investment trust or REIT for Federal and state income tax purposes. We have initially focused on acquiring properties in the Western states. We have begun to acquire and plan to continue acquiring properties in the Western states. We may also acquire retail and single-tenant properties in locations throughout the United States. We have also begun to acquire properties improved with commercial facilities which provide goods and services as well as double or triple net leased properties, which are either commercial or retail including properties acquired in sale and leaseback transactions. A triple-net leased property is one which is leased to a tenant who is responsible for the base rent and all costs and expenses associated with their occupancy including property taxes, insurance and repairs and maintenance. Inland Western Retail Real Estate Advisory Services, Inc., our business manager/advisor, has been retained to manage, for a fee, our day-to-day affairs, subject to the supervision of our board of directors. Our goal is to purchase properties principally west of the Mississippi River and evaluate potential acquisition opportunities of properties east of the Mississippi River on a property by property basis, taking into consideration investment objectives and available funds. As of November 5, 2004 we have purchased 11 additional properties located in the states of Alabama, California, Florida, Illinois, South Carolina, Tennessee and Texas. During the nine months ended September 30, 2004, we purchased 60 properties, of which 29 were not located in our primary geographical area of interest. We purchased these 29 properties because we had the unique opportunity of taking advantage of our business manager/advisor's acquisition pipeline of properties located east of the Mississippi River, which generally continue to have rates of return above those located in the Western United States. We expect this trend to continue through the end of the year. Our strategy in purchasing these properties was to deploy stockholder funds promptly and generate income for us as early as possible, while investing in properties which met our acquisition criteria. During the third quarter of 2004, the retail sector has remained relatively stable as a result of sustained consumer spending, which has helped maintain retail sales growth despite subsequent terrorist threats and the Iraqi war. A modest pace of new retail construction, and the expansion strategy of some retailers, who are renting more space to maintain market share and revenue growth and offset declining same store sales have also contributed to the stability. Retail continues to benefit from property market conditions that have remained the healthiest of all property types. Absorption, which is the change in the amount of retail space occupied, has remained solidly positive in the retail sector. During the third quarter of 2004, new tenants absorbed 6.6 million square feet of retail space, the largest jump in occupied space in four years, according to Reis, a real estate research firm. In addition, shopping center rents posted their second-largest increase in the last 3 1/2 years and vacancies dropped slightly to 6.9%. 298 While sustained consumer spending, spurred by low interest rates, has helped to maintain retail sales growth, changing demographics and consumer preferences have resulted in a fundamental shift in consumer spending patterns and the emergence of discount retail as a dominant category. Today a majority of general merchandise sales occur at a discount department store or a warehouse club/supercenter. As a result of this trend, some conventional department stores are struggling and a number of local, regional and national retailers have been forced to voluntarily close their stores or file for bankruptcy protection. Some bankrupt retailers have reorganized their operations and/or sold stores to stronger operators. In some instances, bankruptcies and store closings may create opportunities to lease space at higher rents to tenants with better sales performance. Therefore, we do not expect store closings or bankruptcy reorganizations to have a material impact on our consolidated financial position or the results of our operations in the near term. We believe our risk exposure to potential future downturns in the economy is mitigated because the tenants at our current and targeted properties, to a large extent, consist or will consist of: retailers who serve primary non-discretionary shopping needs, such as grocers and pharmacies; discount chains that can compete effectively during an economic downturn; and national tenants with strong credit ratings who can withstand a downturn. We believe that the diversification of our current and targeted tenant base and our focus on creditworthy tenants further reduces our risk exposure. We are subject to risks existing due to a concentration of any single tenant within the portfolio. Currently, the largest tenant by leased area is Wal-Mart, which has 4 leases representing approximately 707,254 square feet, or approximately 5% of the total gross leasable area owned by us as of November 5, 2004. The annualized base rental income from these leases is approximately $4,430,026, or approximately 2.6% of the total annualized base rental income, based on our portfolio of properties as of November 5, 2004. The two largest tenants in annualized base rental income are Best Buy and GMAC Insurance which together total approximately $12,281,195 or 7.2% of the total annualized base rental income, based on our portfolio of properties as of November 5, 2004. We are in the process of offering our common stock and have raised $1,461,406,060 as of September 30, 2004. We raised on average approximately $204 million per month during the third quarter of 2004. As of September 30, 2004, we owned through separate limited partnership, limited liability company, or joint venture agreements, a portfolio of 68 properties located in Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Kansas, Louisiana, Maryland, Michigan, Missouri, Nevada, New Mexico, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah, and Washington containing an aggregate of approximately 12,900,000 square feet of gross leasable area. As of September 30, 2004, approximately 93% of gross leasable area in the properties was physically leased and 96% was economically leased. The following is a summary of the properties we own as of September 30, 2004:
AMOUNT OF GROSS MORTGAGES LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04 -------- ------------- -------- ----------- ---------- Academy Sports 60,001 07/04 2004 $ 2,920,000 Houma, LA
299
AMOUNT OF GROSS MORTGAGES LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04 -------- ------------- -------- ----------- ---------- Alison's Corner 55,066 04/04 2003 3,850,000 San Antonio, TX Arvada Connection and Arvada Marketplace 358,757 04/04 1987/1990 28,510,000 Arvada, CO Best on the Boulevard 204,427 04/04 1996/1999 19,525,000 Las Vegas, NV Bluebonnet Parc 135,289 04/04 2002 12,100,000 Baton Rouge, LA Boulevard at the Capital Centre 482,377 09/04 2004 71,500,000 Largo, MD CorWest Plaza 115,011 01/04 1999/2003 18,150,000 New Britain, CT Cranberry Square 195,566 07/04 1996/1997 10,900,000 Cranberry Township, PA Darien Towne Centre 223,844 12/03 1994 16,500,000 Darien, IL Davis Towne Crossing 41,295 06/04 2004 5,365,200 North Richland Hills, TX Dorman Center - Phases I & II 388,067 03/04 & 07/04 2003/2004 27,610,000 Spartanburg, SC Eastwood Towne Center 326,981 05/04 2002 46,750,000 Lansing, MI Eckerd Drug Store 13,440 06/04 2004 1,750,000 Columbia, SC
300
AMOUNT OF GROSS MORTGAGES LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04 -------- ------------- -------- ----------- ---------- Eckerd Drug Store 13,824 06/04 2004 1,425,000 Crossville, TN Eckerd Drug Store 13,824 12/03 2003 1,850,000 Edmund, OK Eckerd Drug Store 13,824 06/04 2004 1,650,000 Greer, SC Eckerd Drug Store 13,824 06/04 2004 1,975,000 Kill Devil Hills, NC Eckerd Drug Store 13,824 12/03 2003 2,900,000 Norman, OK Forks Town Center 92,660 07/04 2002 10,395,000 Easton, PA Fullerton Metrocenter 253,296 06/04 1988 28,050,000 Fullerton, CA Gateway Plaza 358,501 07/04 2000 18,163,000 Southlake, TX Gateway Village 273,788 07/04 1996 31,458,000 Annapolis, MD Governor's Marketplace 231,915 08/04 2001 20,625,000 Tallahassee, FL GMAC 501,064 09/04 1980/1990 33,000,000 Winston-Salem, NC Harris Teeter 57,230 09/04 1977/1995 - Wilmington, NC Harvest Towne Center 42,213 09/04 1996/1999 - Knoxville, TN
301
AMOUNT OF GROSS MORTGAGES LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04 -------- ------------- -------- ----------- ---------- Heritage Towne Crossing 80,639 03/04 2002 8,950,000 Euless, TX Hickory Ridge 380,487 01/04 1999 23,650,000 Hickory, NC Huebner Oaks Center 286,684 06/04 1998 48,000,000 San Antonio, TX John's Creek Village 191,752 06/04 2004 23,300,000 Duluth, GA La Plaza Del Norte 320,345 01/04 1996/1999 32,528,000 San Antonio, TX Lakewood Towne Center 578,863 06/04 1988/2003 51,260,000 Lakewood, WA Larkspur Landing 173,821 01/04 1978/2001 33,630,000 Larkspur, CA Lincoln Park 148,806 09/04 1998 - Dallas, TX Low Country Village 76,376 06/04 2004 - Bluffton, SC MacArthur Crossing 109,755 02/04 1996 12,700,000 Los Colinas, TX Manchester Meadows 454,172 08/04 1994/1995 31,064,550 Town and Country, MO Metro Square Center 61,817 01/04 1999 6,067,183 Severn, MD
302
AMOUNT OF GROSS MORTGAGES LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04 -------- ------------- -------- ----------- ---------- Mitchell Ranch Plaza 200,404 08/04 2003 18,700,000 New Port Richey, FL Newnan Crossing I & II 291,450 12/03 & 3/04 1999/2003 21,543,091 Newnan, GA Northgate North 302,095 06/04 2004 26,650,000 Seattle, WA Northpointe Plaza 377,924 05/04 1991/1993 30,850,000 Spokane, WA North Ranch Pavilions 62,812 01/04 1992 10,157,400 Thousand Oaks, CA North Rivers Town Center 141,004 04/04 2004 11,050,000 Charleston, SC Paradise Valley Marketplace 92,158 04/04 2002 15,680,500 Phoenix, AZ Pavilion at King's Grant 79,109 12/03 2003 5,342,000 Concord, NC Peoria Crossings 213,733 03/04 2003 20,497,400 Peoria, AZ Pine Ridge Plaza 230,510 06/04 1998/2004 14,700,000 Lawrence, KS Plaza at Marysville 115,656 07/04 1995 11,800,000 Marysville, WA Plaza Santa Fe II 222,389 06/04 2000/2002 17,474,839 Santa Fe, NM
303
AMOUNT OF GROSS MORTGAGES LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04 -------- ------------- -------- ----------- ---------- Promenade at Red Cliff 94,364 02/04 1997 10,590,000 St. George, UT Reisterstown Road Plaza 779,397 08/04 1986/2004 49,650,000 Baltimore, MD Saucon Valley Square 80,695 09/04 1999 8,850,900 Bethlehem, PA Shaw's Supermarket 65,658 12/03 1995 6,450,000 New Britain, CT Shoppes of Dallas 70,610 07/04 2004 7,178,700 Dallas, GA Shoppes of Prominence Point 78,058 06/04 2004 9,954,300 Canton, GA Shops at Boardwalk 122,413 07/04 2003/2004 20,150,000 Kansas City, MO Shops at Park Place 116,300 10/03 2001 13,127,000 Plano, TX Stony Creek Market Place 153,796 12/03 2003 14,162,000 Noblesville, IN The Columns 128,600 08/04 2004 - Jackson, TN Tollgate Marketplace 392,587 07/04 1979/1994 39,765,000 Belair, MD Towson Circle 116,366 07/04 1998 19,197,500 Towson, MD
304
AMOUNT OF GROSS MORTGAGES LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT PROPERTY (SQ FT) ACQUIRED RENOVATED 09/30/04 -------- ------------- -------- ----------- ---------- Village Shoppes of Simonton 66,415 08/04 2004 7,561,700 Lawrenceville, GA Wal-Mart Supercenter 183,211 07/04 1999 7,100,000 Blytheville, AR Wal-Mart Supercenter 149,704 08/04 1997 6,088,500 Jonesboro, AR Wautauga Pavilion 205,740 05/04 2004 17,100,000 Wautauga, TX Wilshire Plaza (under construction) 88,248 07/04 2004 - Kansas City, MO Wrangler 316,800 07/04 1993 11,300,000 El Paso, TX ------------ --------------- Total 12,881,631 $ 1,140,741,763 ============ ===============
The square footage for Arvada Connection , Darien Towne Centre, Davis Towne Crossing, Eastwood Towne Center, Forks Town Center, Fullerton Metrocenter, Gateway Plaza, Governor's Marketplace, Harvest Towne Center, Heritage Towne Crossing, Hickory Ridge, Huebner Oaks Center, John's Creek Village, MacArthur Crossing, Manchester Meadows, Newnan Crossing I & II, Northpointe Plaza, North Rivers Town Center, Paradise Valley Marketplace, Pavilion at King's Grant, Pine Ridge Plaza, Shops at Park Place, Stony Creek Market Place and Towson Circle includes 2,240, 6,371, 4,000, 24,110, 5,100, 5,178, 87,423, 3,800, 9,248, 7,246, 70,127, 8,036, 10,555, 6,500, 3,412, 6,650, 18,719, 31,280, 10,908, 65,000, 84,676, 3,822, 8,000 and 40,060, respectively, square feet of space leased to tenants under ground lease agreements. CRITICAL ACCOUNTING POLICIES AND ESTIMATES GENERAL. The following disclosure pertains to critical accounting policies and estimates we believe are most "critical" to the portrayal of our financial condition and results of operations which require our most difficult, subjective or complex judgments. These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain. Critical accounting policies discussed in this section are not to be confused with accounting principles and methods disclosed in accordance with accounting principles generally accepted in the United States of America or GAAP. GAAP requires 305 information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates. This discussion addresses our judgment pertaining to trends, events or uncertainties known which were taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions. ACQUISITION OF INVESTMENT PROPERTY We allocate the purchase price of each acquired investment property between land, building and improvements, acquired above market and below market leases, in-place lease value, and any assumed financing that is determined to be above or below market terms. In addition, we allocate a portion of the purchase price to the value of customer relationships and as of September 30, 2004, no cost has been allocated to such relationships. The allocation of the purchase price is an area that requires judgment and significant estimates. We use the information contained in the independent appraisal obtained at acquisition as the primary basis for the allocation to land and building and improvements. The aggregate value of intangibles is measured based on the difference between the stated price and the property value calculation as if vacant. We determine whether any financing assumed is above or below market based upon comparison to similar financing terms for similar investment properties. We also allocate a portion of the purchase price to the estimated acquired in-place lease costs based on estimated lease execution costs for similar leases as well as lost rent payments during assumed lease up period when calculating as if vacant fair values. We consider various factors including geographic location and size of leased space. We also evaluate each acquired lease based upon current market rates at the acquisition date and we consider various factors including geographical location, size and location of leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired lease is above or below market lease costs. After an acquired lease is determined to be above or below market lease costs, we allocate a portion of the purchase price to such above or below acquired lease costs based upon the present value of the difference between the contractual lease rate and the estimated market rate. However, for below market leases with fixed rate renewals, renewal periods are included in the calculation of below market in-place lease values. The determination of the discount rate used in the present value calculation is based upon the "risk free rate." This discount rate is a significant factor in determining the market valuation which requires our judgment of subjective factors such as market knowledge, economics, demographics, location, visibility, age and physical condition of the property. IMPAIRMENT OF LONG-LIVED ASSETS. We conduct an impairment analysis on a quarterly basis in accordance with SFAS 144 to ensure that the property's carrying value does not exceed its fair value. If this were to occur, we are required to record an impairment loss. The valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based on our continuous process of analyzing each property and reviewing assumptions about uncertain inherent factors, as well as the economic condition of the property at a particular point in time. No impairment losses have been taken in 2003 or 2004. COST CAPITALIZATION AND DEPRECIATION POLICIES. Our policy is to review all expenses paid and capitalize any items exceeding $5,000 which are deemed to be an upgrade or a tenant improvement. These costs are capitalized and are included in the investment properties classification as an addition to buildings and improvements. Buildings and improvements are depreciated on a straight-line basis based upon estimated useful lives of 30 years for buildings and improvements, and 15 years for site improvements. The portion of the purchase price allocated to acquired above market costs and acquired below market costs are amortized on a straight-line basis over the life of the related lease as an adjustment to net rental income. Acquired 306 in-place lease costs, other leasing costs, and tenant improvements are amortized on a straight-line basis over the life of the related lease as a component of amortization expense. The application of SFAS No. 141 and SFAS No. 142 resulted in the recognition upon acquisition of additional intangible assets and liabilities relating to our real estate acquisitions during the quarter ended September 30, 2004. The portion of the purchase price allocated to acquired above market lease costs and acquired below market lease costs are amortized on a straight-line basis over the life of the related lease as an adjustment to rental income. Amortization pertaining to the above market lease costs of $1,033,930 was applied as a reduction to rental income for the three months ended September 30, 2004 and $1,847,107 for the nine months ended September 30, 2004. Amortization pertaining to the below market lease costs of $1,742,220 was applied as an increase to rental income for the three months ended September 30, 2004 and $2,644,833 for the nine months ended September 30, 2004. The table below presents the amortization during the next five years related to the acquired above market lease costs and the below market lease costs for properties owned at September 30, 2004:
OCTOBER 1, 2004 THROUGH DECEMBER 31, AMORTIZATION OF: 2004 2005 2006 2007 2008 THEREAFTER ---------------- ------------ ---- ---- ---- ---- ---------- Acquired above market lease costs $ (1,248,545) (4,978,152) (4,796,242) (3,982,664) (3,737,860) (18,834,489) Acquired below market lease costs 1,958,637 7,650,263 7,056,626 6,459,045 5,818,709 41,413,189 --------------------------------------------------------------------------------------- Net rental income increase $ 710,092 2,672,111 2,260,384 2,476,381 2,080,849 22,578,700 ======================================================================================= Acquired in-place lease intangibles $ 3,832,781 15,331,125 15,331,125 15,331,125 15,331,125 83,439,574
The portion of the purchase price allocated to acquired in-place lease costs are amortized on a straight line basis over the life of the related lease. We incurred amortization expense pertaining to acquired in-place lease costs of $3,198,593 for the three months ended September 30, 2004 and $5,492,587 for the nine months ended September 30, 2004. The table above presents the amortization during the next five years related to acquired in-place lease costs for properties owned at September 30, 2004. Cost capitalization and the estimate of useful lives requires our judgment and includes significant estimates that can and do change based on our process which periodically analyzes each property and on our assumptions about uncertain inherent factors. REVENUE RECOGNITION. We recognize rental income on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable in the accompanying consolidated balance sheets. We anticipate collecting these amounts over the terms of the leases as scheduled rent payments are made. Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period the applicable expenditures are incurred. We make certain assumptions and 307 judgments in estimating the reimbursements at the end of each reporting period. Should the actual results differ from our judgment, the estimated reimbursement could be negatively affected and would be adjusted appropriately. In conjunction with certain acquisitions, we receive payments under master lease agreements pertaining to certain, non-revenue producing spaces either at the time of, or subsequent to, the purchase of some of our properties. Upon receipt of the payments, the receipts are recorded as a reduction in the purchase price of the related properties rather than as rental income. These master leases were established at the time of purchase in order to mitigate the potential negative effects of loss of rent and expense reimbursements. Master lease payments are received through a draw of funds escrowed at the time of purchase and may cover a period from one to three years. These funds may be released to either us or the seller when certain leasing conditions are met. Restricted cash includes funds received by third party escrow agents, from sellers, pertaining to master lease agreements. We record such escrows as both an asset and a corresponding liability, until certain leasing conditions are met. We accrue lease termination income if there is a signed termination letter agreement, all of the conditions of the agreement have been met, and the tenant is no longer occupying the property. INTEREST RATE FUTURES CONTRACTS. We enter into interest rate futures contracts or treasury contracts as a means of reducing our exposure to rising interest rates. At inception, contracts are evaluated in order to determine if they will qualify for hedge accounting treatment and will be accounted for either on a deferral, accrual or market value basis depending on the nature of our hedge strategy and the method used to account for the hedged item. Hedge criteria include demonstrating the manner in which the hedge will reduce risk, identifying the specific asset, liability or firm commitment being hedged, and citing the time horizon being hedged. During the third quarter of 2004, we entered into treasury contracts with a futures commission merchant with yields ranging from 3.27% to 3.40% for five year treasury contracts and 4.0% to 4.3% for ten year treasury contracts. The amount on deposit for our treasury contracts was $3,712,900. On September 30, 2004, our investment in treasury contracts had a liquidation value of $361,186 resulting in a loss of $3,351,714. As these treasury contracts are not offsetting future commitments and therefore do not qualify as hedges, the net loss is recognized currently in earnings. On October 29, 2004, we liquidated all of our treasury contracts for a liquidation value of $126,213, resulting in a cumulative realized net loss of $3,586,687. LIQUIDITY AND CAPITAL RESOURCES GENERAL. Our principal demands for funds have been for property acquisitions, for the payment of operating expenses and distributions, and for the payment of interest on outstanding indebtedness. Generally, cash needs for items other than property acquisitions have been met from operations, and property acquisitions have been funded by a public offering of our shares of common stock. However, there may be a passage of time between the sale of the shares and our purchase of properties, which may result in a delay in the benefits to stockholders of returns generated from property operations. Our business manager/advisor evaluates potential additional property acquisitions and Inland Real Estate Acquisitions, Inc., one of the affiliates of our sponsor, engages in negotiations with sellers on our behalf. After a purchase contract is executed which contains specific terms, the property will not be purchased until due diligence, which includes review of the title insurance commitment, an appraisal and an environmental analysis, is successfully completed. In some instances, the proposed acquisition still requires the negotiation of final binding agreements, which may include financing documents. During 308 this period, we may decide to temporarily invest any unused proceeds from the offering in certain investments that could yield lower returns than other investments, such as the acquisition of properties. These lower returns may affect our ability to make distributions. Potential future sources of capital include proceeds from the public or private offering of our equity or debt securities, secured or unsecured financings from banks or other lenders, proceeds from the sale of properties, as well as undistributed funds from operations. We anticipate that during the current year we will (i) acquire additional existing shopping centers and triple-net leased properties, (ii) develop additional shopping center sites and (iii) continue to pay distributions to stockholders, and each is expected to be funded mainly from proceeds of our public offerings of shares, cash flows from operating activities, financings and other external capital resources available to us. Our leases typically provide that the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation, including utilities, property taxes and insurance. In addition, in some instances our leases provide that the tenant is responsible for roof and structural repairs. Certain of our properties are subject to leases under which we retain responsibility for certain costs and expenses associated with the property. We anticipate that capital demands to meet obligations related to capital improvements with respect to properties will be minimal for the foreseeable future and can be met with funds from operations and working capital. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures. We believe that our current capital resources (including cash on hand) and anticipated financings are sufficient to meet our liquidity needs for the foreseeable future. LIQUIDITY OFFERING. As of September 30, 2004, subscriptions for a total of 146,283,829 shares had been received from the public, which include the 20,000 shares issued to the business manager/advisor and 1,636,031 shares distributed pursuant to the DRP as of September 30, 2004. As a result of such sales, we received a total of $1,461,406,060 of gross offering proceeds as of September 30, 2004. MORTGAGE DEBT. As of September 30, 2004 we have obtained mortgage debt on 62 properties totaling $1,140,741,763. With the exception of Plaza Santa Fe II, these loans require monthly payments of interest only and bear interest at a range between 2.68% and 5.30% per annum. The mortgage loan on Plaza Santa Fe II requires monthly payments of principal and interest at 6.20% per annum, and payments into taxes, insurance and replacement reserve escrows. During the period from October 1, 2004 through November 5, 2004 we obtained mortgage financing on properties that we purchased during 2004 totaling approximately $53,123,000 that require monthly payments of interest only and bear interest at a range of 4.61% to 5.12% per annum. From July 1, 2004 through November 5, 2004, we entered into interest rate lock agreements, as described below, to secure the interest rate on mortgage debt on properties we currently own or will purchase in the future. The funds under the rate agreements and the deposits are applied to the mortgage fundings as they occur. On July 2, 2004, we entered into two separate rate lock agreements with Bear Stearns Commercial Mortgage, Inc. We paid one rate lock deposit of $400,000 to lock the interest rate at 5.06% for a period of 90 days on $20,000,000 in principal. We paid a second rate lock deposit of $600,000 to lock the interest rate at 5.01% for a period of 90 days on $30,000,000 in principal. Of the total amount, 309 approximately $2,500,000 has been applied to closed mortgage fundings, with the remainder allocated to new or pending acquisitions. On July 9, 2004, we entered into a rate lock agreement with LaSalle Bank National Association. We paid a rate lock deposit of $500,000 to lock the interest rate at 5.04% for a period of 90 days on $50,000,000 in principal, all of which has been allocated to new or pending acquisitions. On July 16, 2004, we entered into a rate lock agreement with Nomura Credit & Capital, Inc. We paid a rate lock deposit of $500,000 to lock the interest rate at 4.815% for a period of 90 days on $50,000,000 in principal, approximately $42,500,000 of which has been allocated to new or pending acquisitions. On August 6, 2004, we entered into a rate lock agreement with LaSalle Bank National Association. We paid a rate lock deposit of $1,000,000 to lock the interest rate at 4.67% for a period of 90 days on $100,000,000 in principal. Of this amount $33,000,000 has been applied to closed mortgage fundings, with the remainder allocated to new or pending acquisitions. On September 27, 2004, we entered into a rate lock agreement with Principal Life Insurance Company. We paid a rate lock deposit of $500,000 to lock the interest rate at 4.45% for a period of 90 days on $50,000,000 in principal, all of which has been allocated to new or pending acquisitions.. On September 28, 2004, we entered into a rate lock agreement with Bear Stearns Commercial Mortgage, Inc. We paid a rate lock deposit of $1,000,000 to lock the interest rate at 4.497% for a period of 90 days on $50,000,000 in principal, approximately $49,300,000 of which has been allocated to new or pending acquisitions. On October 20, 2004, we entered into a rate lock agreement with Bank of America, N.A. We paid a rate lock fee of $2,301,000 to lock the interest rate at 4.27% for a period of 58 days on $230,100,000 in principal, all of which has been allocated to new or pending acquisitions. On October 29, 2004, we entered into a rate lock agreement with Bear Stearns Commercial Mortgage, Inc. We paid a rate lock fee of $1,645,400 to lock the interest rate at 4.247% for a period of 60 days on $81,420,000 in principal, all of which has been allocated to new or pending acquisitions. LINE OF CREDIT. We have an unsecured line of credit arrangement with KeyBank N.A. which matures on December 24, 2004 in the amount of $225,000,000. The funds from this line of credit may be used to provide funds from the time a property is purchased until permanent debt is placed on that property. The line of credit requires interest only payments monthly at the rate equal to the London InterBank Offered Rate or LIBOR plus 175 basis points which ranged from 2.94% to 3.56% during the quarter ended September 30, 2004. We are also required to pay, on a quarterly basis, an amount ranging from .15% to .30%, per annum, on the average daily undrawn funds under this line. The line of credit requires compliance with certain covenants, such as debt service ratios, minimum net worth requirements, distribution limitations and investment restrictions. In addition to, and in conjunction with these financial covenants, we maintain a cash collateral account. Amounts deposited in the cash collateral account provide that loan to value covenants required under the line are not exceeded. Funds may be deposited into and withdrawn from the cash collateral account as our properties are purchased without debt. On September 27, 2004, the outstanding balance of $110,000,000 on this line was repaid resulting in no outstanding balance as of September 30, 2004. As of September 30, 2004, we were in compliance with such covenants and no funds were required to be deposited in the cash collateral account. 310 STOCKHOLDER LIQUIDITY. We provide the following programs to facilitate investment in the shares and to provide limited, interim liquidity for stockholders until such time as a market for the shares develops: The DRP allows stockholders who purchase shares pursuant to the offerings to automatically reinvest distributions by purchasing additional shares from us. Such purchases will not be subject to selling commissions or the marketing allowance and due diligence expense allowance and will be sold at a price of $9.50 per share. As of September 30, 2004, we issued 1,636,031 shares pursuant to the DRP for an aggregate amount of $15,542,222. Subject to certain restrictions, the share repurchase program provides existing stockholders with limited, interim liquidity by enabling them to sell shares back to us at the following prices: - One year from the purchase date, at $9.25 per share; - Two years from the purchase date, at $9.50 per share; - Three years from the purchase date, at $9.75 per share; and - Four years from the purchase date, at the greater of $10.00 per share, or a price equal to 10 times our "funds available for distribution" per weighted average shares outstanding for the prior calendar year. Shares purchased by us will not be available for resale. As of September 30, 2004, no shares have been repurchased. CAPITAL RESOURCES We expect to meet our short-term operating liquidity requirements generally through our net cash provided by property operations. We also expect that our properties will generate sufficient cash flow to cover our operating expenses plus pay a monthly distribution on our weighted average shares. Operating cash flows are expected to increase as additional properties are added to our portfolio. We believe that we should put mortgage debt on or leverage our properties at approximately 50% of their value. We also believe that we can borrow at the lowest overall cost of funds or interest rate by placing individual financing on each of our properties. Accordingly, mortgage loans will generally have been placed on each property at the time that the property is purchased, or shortly thereafter, with the property solely securing the financing. During the nine months ended September 30, 2004, we closed on mortgage debt with a principal amount of $1,111,191,645. At September 30, 2004, the weighted average cost of mortgage funds was approximately 4.48%. $985,158,645 of these mortgage loans are fixed-rate loans that bear interest at a rate between 3.96% and 6.20% per annum. The remaining $126,033,000 represents variable-rate loans with a weighted average interest rate of 2.85% per annum at September 30, 2004. With the exception of the mortgage loan on Plaza Santa Fe II, all of the loans closed during the nine months ended September 30, 2004 require monthly payments of interest only and may be prepaid with a penalty after specific lockout periods. The mortgage loan on Plaza Santa Fe II requires monthly payments of principal and interest, as well as payments into tax, insurance, and replacement reserve escrows and has no prepayment privileges. 311 Although the loans we closed are generally non-recourse, occasionally, when it is deemed to be advantageous, we may guarantee all or a portion of the debt on a full-recourse basis. Individual decisions regarding interest rates, loan-to-value, fixed versus variable-rate financing, maturity dates and related matters are often based on the condition of the financial markets at the time the debt is incurred, which conditions may vary from time to time. Distributions are determined by our board of directors with the advice of our business manager/advisor and are dependent on a number of factors, including the amount of funds available for distribution, flow of funds, our financial condition, any decision by our board of directors to reinvest funds rather than to distribute the funds, our capital expenditures, the annual distribution required to maintain REIT status under the Internal Revenue Code and other factors the board of directors may deem relevant. CASH FLOWS FROM OPERATING ACTIVITIES Cash flows provided by operating activities were approximately $39,961,000 for the nine month period ended September 30, 2004, which is due primarily to net income from property operations. CASH FLOWS FROM INVESTING ACTIVITIES Cash flows used in investing activities were approximately $2,015,984,000 for the nine month period ended September 30, 2004 which were primarily used for the acquisition of 60 properties for approximately $1,959,554,000. As of November 5, 2004, we had approximately $375 million available for investment in additional properties. As of November 5, 2004 we are considering the acquisition of approximately $244 million in properties. We are currently in the process of obtaining financings on properties which have been purchased, as well as certain of the properties which we anticipate purchasing. It is our intention to finance each of our acquisitions either at closing or subsequent to closing. As a result of the intended financings and based on our current experience in raising funds in our offering, we believe that we will have sufficient resources to acquire these properties. CASH FLOWS FROM FINANCING ACTIVITIES Cash flows provided by financing activities was approximately $2,192,056,000 for the nine month period ended September 30, 2004. We generated proceeds from the sale of shares, net of offering costs paid, of approximately $1,139,185,000. We generated approximately $1,094,146,000 from the issuance of new mortgages secured by 60 of our properties and $165,000,000 from funding on the line of credit. We paid approximately $10,707,000 for loan fees and approximately $28,873,000 in distributions to our stockholders, and $170,000,000 was paid off on the line of credit for the nine months ended September 30, 2004. The sponsor has agreed to advance us amounts to pay a portion of these distributions until funds available for distribution are sufficient to cover distributions. Given the current size of our offering, as of November 5, 2004, we could raise approximately $944 million of additional capital. However, there can be no assurance that we will raise this amount of money or that we will be able to acquire additional attractive properties. We have also registered with the Securities and Exchange Commission for another offering of up to 250,000,000 shares of common stock at $10 each and up to 20,000,000 shares at $9.50 each pursuant to the distribution reinvestment program which is not effective as of November 5, 2004. There is no assurance that we will be effective in selling all of these additional shares. 312 We are exposed to interest rate changes primarily as a result of our long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve our objectives we borrow primarily at fixed rates or variable rates with the lowest margins available and, in some cases, with the ability to convert variable rates to current market fixed rates at the time of conversion. EFFECTS OF TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES SERVICES PROVIDED BY AFFILIATES OF THE BUSINESS MANAGER/ADVISOR. As of September 30, 2004, we had incurred $159,233,813 of offering costs, of which $119,656,429 was paid or accrued to affiliates. In accordance with the terms of our offering, our business manager/advisor has guaranteed payment of all public offering expenses (excluding sales commissions and the marketing allowance and the due diligence expense allowance) in excess of 5.5% of the gross proceeds of the offering or gross offering proceeds or all organization and offering expenses (including selling commissions) which together exceed 15% of gross offering proceeds. As of September 30, 2004, offering costs did not exceed the 5.5% and 15% limitations. We anticipate that these costs will not exceed these limitations upon completion of the offering. Any excess amounts at the completion of the offering will be reimbursed by our business manager/advisor. Our business manager/advisor and its affiliates are entitled to reimbursement for salaries and expenses of employees of our business manager/advisor and its affiliates relating to the offering. In addition, an affiliate of our business manager/advisor is entitled to receive selling commissions, and the marketing allowance and due diligence expense allowance from us in connection with the offering. Such costs are offset against the stockholders' equity accounts. Such costs totaled $119,656,429 as of September 30, 2004, of which $3,502,335 was unpaid at September 30, 2004. Our business manager/advisor and its affiliates are entitled to reimbursement for general and administrative expenses relating to our administration. Such costs are included in general and administrative expenses to affiliates, in addition to costs that were capitalized pertaining to property acquisitions. During the nine months ended September 30, 2004, we incurred $1,103,717 of these costs, of which $778,277 remained unpaid as of September 30, 2004 and are included in due to affiliates on the consolidated balance sheets. An affiliate of our business manager/advisor provides loan servicing to us for an annual fee. Such costs are included in property operating expenses to affiliates. The agreement allows for annual fees totaling .03% of the first $1 billion in mortgage balance outstanding and .01% of the remaining mortgage balance, payable monthly. Such fees totaled $63,978 for the nine months ended September 30, 2004. We use the services of an affiliate of our business manager/advisor to facilitate the mortgage financing that we obtained on some of the properties purchased. We pay the affiliate .02% of the principal balance of mortgage loans obtained. Such costs are capitalized as loan fees and amortized over the respective loan term. During the nine months ended September 30, 2004, we paid loan fees totaling $2,241,986 to this affiliate. We pay an advisor asset management fee of not more than 1% of our average assets. Our average asset value is defined as the average of the total book value, including acquired intangibles, of our real estate assets invested in equity interests plus our loans receivable secured by real estate, before reserves for depreciation, reserves for bad debt or other similar non-cash reserves. We compute our average assets by taking the average of these values at the end of each month for which we are calculating the fee. The fee is payable quarterly in an amount equal to 1/4 of 1% of average assets as of the last day of the immediately preceding quarter. For any year in which we qualify as a REIT, our business 313 manager/advisor must reimburse us for the following amounts if any: (1) the amounts by which our total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of: (i) 2% of our average assets for that fiscal year, or (ii) 25% of our net income for that fiscal year; plus (2) an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the total amount of distributions to stockholders for that year and the 6% minimum annual return on the net investment of stockholders. For the nine months ended September 30, 2004, we neither paid nor accrued such fees because our business manager/advisor agreed to forego such fees for the first, second and third quarters of 2004. The property managers, entities owned principally by individuals who are affiliates of our business manager/advisor, are entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services. We incurred property management fees of $2,847,427 for the nine months ended September 30, 2004. None remained unpaid as of September 30, 2004. We established a discount stock purchase policy for our affiliates and affiliates of our business manager/advisor that enables the affiliates to purchase shares of common stock at either $8.95 or $9.50 a share depending on when the shares are purchased. We sold 530,574 shares of common stock to affiliates and recognized an expense related to these discounts of $352,303 for the nine months ended September 30, 2004. As of September 30, 2004 we were due funds from our affiliates in the amount of $1,571,960, $1,567,481 of which is due from our sponsor for reimbursement of a portion of the distributions paid by us during 2004. The remaining $4,479 is due from an affiliate for costs paid on their behalf by us. Our sponsor has agreed to advance to us amounts to pay a portion of distributions to our stockholders until funds available for distribution are sufficient to cover the distributions. Our sponsor forgave $2,369,139 of these amounts during the second quarter of 2004 and these funds are no longer due. As of September 30, 2004 we owe funds to our sponsor in the amount of $2,868,666 for repayment of the funds advanced for payment of distributions. OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, LIABILITIES AND CONTRACTS AND COMMITMENTS The table below presents our obligations and commitments to make future payments under debt obligations and lease agreements as of September 30, 2004.
Contractual Obligations Payments Due by Period - ----------------------- ---------------------- Less than More than Total 1 year 1-3 years 3-5 years 5 years ------------------------------------------------------------------------ Long-term debt $ 1,141,248,461 15,035,000 38,671,248 813,276,474 274,265,739 Ground lease payments $ 298,329,805 1,021,807 5,324,069 5,328,897 286,655,032
CONTRACTS AND COMMITMENTS The purchase and sale contract for Pavilion at King's Grant provides that if anytime during the period from January 1, 2004 through December 31, 2007 the tenant Toys "R" Us should increase its base rent up to a maximum amount of $250,000 and no decrease has occurred in their requirement to pay for a 314 certain percentage of expenses at the property, then we would be obligated to pay the seller additional funds related to the purchase based upon an agreed income capitalization formula. We have not reserved any funds for this contingency. In connection with the purchase of Stony Creek Market Place, we are obligated to purchase the seller's interest in the leases if the seller exercises the right to develop and lease a vacant 50,000 square foot pad site within 48 months after the closing date. In connection with the purchase of Newnan Crossing, we are obligated to purchase the remaining portion of the shopping center that is currently under construction (Phase III) once construction has been completed and a major tenant has moved in and commenced payment of rent, with the additional purchase price based upon an agreed income capitalization formula. In connection with the purchase of Low Country Village, we are obligated to purchase a portion of the shopping center that is currently under construction once construction has been completed and the respective tenants have moved in and commenced payment of rent, with the additional purchase price of the center based upon an agreed income capitalization formula. As part of the commitment to purchase this remaining portion of the shopping center, we have deposited $300,000 of earnest money with an escrow agent. In connection with the purchase of Wilshire Plaza III, we are obligated to pay the remainder of the purchase price in the amount of $2,967,088 when Kohl's department store has moved in and commenced payment of rent. Also, in conjunction with this purchase, we are obligated to fund to Kohl's a second construction payment in the amount of $1,164,874 when they have moved in and commenced payment of rent. In connection with the purchase of an interest in the entity that owns Reisterstown Road Plaza, we are obligated to pay the remaining purchase price of $11,546,674 if the unfinished space has been built and rented within 24 months of the closing date. In connection with the purchase of Governor's Marketplace, we are obligated to pay the remaining purchase price of $4,846,152 if the seller completes the construction and leasing of additional components within 24 months of the closing date. In connection with the purchase of an interest in the entity that owns Boulevard at the Capital Centre, we are required to pay the remaining purchase price of $6,947,764 upon completion of the construction and satisfaction of tenant conditions of certain units of the shopping center. We have not reserved any funds for these contingencies. In connection with the purchase of Eastwood Towne Center, we are obligated to pay the remaining purchase price of $3,836,317 once a major tenant's base rent increases upon two shadow anchors' commencement of operations. In connection with the purchase of John's Creek Village, we are obligated to pay the remaining purchase price of $13,385,390 if the vacancies have been leased and the respective tenants have moved in and commenced payment of rent within 18 months of the closing date. In connection with the purchase of Davis Towne Crossing, we are obligated to pay the remaining purchase price of $1,604,304 if the vacancies have been leased and respective tenants have moved in and commenced payment of rent within 24 months of the initial closing date. In connection with the purchase of Towson Circle, we are obligated to pay an additional amount to be determined based upon an agreed income capitalization formula if two spaces that were vacant at closing have been leased within 24 months of the closing date. In connection with the purchase of Forks Town Center, if a certain tenant has moved into its space and is paying rent within 12 months of the original closing, we are obligated to pay the remaining purchase of $701,299. We have not reserved any funds for these contingencies. In conjunction with the financing of Dorman Center on April 20, 2004, we were required to obtain a $3.65 million irrevocable letter of credit for a one year period. Once we purchase the remaining portion of Dorman Center, and meet certain occupancy requirements, the letter of credit will be released. On July 16, 2004, we purchased the remaining portion of Dorman Center. The irrevocable letter of credit is still outstanding as the occupancy requirements had not been met as of November 5, 2004. In conjunction with the financing of John's Creek Village on July 2, 2004, we were required to obtain a $5.7 million irrevocable letter of credit for a one year period. Once we purchase the remaining portion of John's Creek Village, and meet certain occupancy requirements, the letter of credit will be released. The 315 irrevocable letter of credit is still outstanding as the remaining portion of the center had not been purchased as of November 5, 2004. In connection with the purchase of Larkspur Landing, we assumed a liability in the amount of $1,982,504 for tenant improvements and leasing commission obligations. As of September 30, 2004, the remaining liability after disbursements is $1,303,530. On August 11, 2004, CR Investors, LLC, a 100% owned LLC of Reisterstown Plaza Holdings, LLC (a joint venture consolidated by us), purchased a 36.5% tenancy in common interest in an apartment complex known as Courthouse Square located in Towson, MD. This investment is accounted for utilizing the equity method of accounting. Under the equity method of accounting, our net equity investment is reflected on the consolidated balance sheet and the consolidated statement of operations includes our share of net income or loss from the unconsolidated entity. Subsequent to September 30, 2004, we purchased 11 properties for a purchase price of approximately $217 million. In addition, we are currently considering acquiring ten properties for an estimated purchase price of $244 million. Our decision to acquire each property generally depends upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions, and our receipt of satisfactory due diligence information including appraisals, environmental reports and lease information prior to purchasing the property. RESULTS OF OPERATIONS GENERAL The following discussion is based primarily on our consolidated financial statements as of September 30, 2004 and for the three and nine months ended September 30, 2004.
Properties Purchased per Square Feet Quarter Ended Quarter Acquired Purchase Price ----------------------------------------------------------------- March 31, 2003 None N/A N/A June 30, 2003 None N/A N/A September 30, 2003 None N/A N/A December 31, 2003 8 797,551 $ 127,195,000 March 31, 2004 11 2,123,905 $ 384,053,000 June 30, 2004 23 4,213,576 $ 713,925,000 September 30, 2004 26 5,746,599 $ 869,128,000 -------------------------------------------- Total 68 12,881,631 $ 2,094,301,000 ============================================
RENTAL INCOME, TENANT RECOVERIES AND OTHER PROPERTY INCOME. Rental income consists of basic monthly rent and percentage rental income due pursuant to tenant leases. Tenant recovery and other property income consist of property operating expenses recovered from the tenants including real estate taxes, property management fees and insurance. Rental income was $56,404,514 and all additional property income was $13,362,039 for the nine months ended September 30, 2004. OTHER INCOME. Other income consists of interest income earned primarily on short term investments that are held by us and other non-operating income earned by us. Other income was $1,885,751 for the nine months ended September 30, 2004. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist of salaries and computerized information services costs reimbursed to affiliates for maintaining our accounting and 316 investor records, affiliates common share purchase discounts, insurance, postage, printer costs and fees paid to accountants and lawyers. These expenses were $2,843,944 for the nine months ended September 30, 2004 and resulted from increased services required as we acquire properties and grow our portfolio of investment properties and our investor base. PROPERTY OPERATING EXPENSES. Property operating expenses consist of property management fees and property operating expenses, including real estate taxes, costs of owning and maintaining shopping centers, insurance, and maintenance to the exterior of the buildings and the parking lots. These expenses were $17,017,451 for the nine months ended September 30, 2004. DEPRECIATION AND AMORTIZATION. Depreciation expense was $19,285,397 and is due to depreciation on the properties owned during the nine months ended September 30, 2004. Amortization expense was $6,717,805 and is due to the application of SFAS 141 and SFAS 142 resulting from the amortization of intangible assets of approximately $154 million and loan and leasing fees of $7.5 million during the nine months ended September 30, 2004. INTEREST. Interest was $21,315,926 for the nine months ended September 30, 2004 and is due to the financing on 62 properties as of September 30, 2004 and funds drawn during the first quarter of 2004 on the line of credit. FUNDS FROM OPERATIONS One of our objectives is to provide cash distributions to our stockholders from cash generated by our operations. Cash generated from operations is not equivalent to our net income from continuing operations as determined under Generally Accepted Accounting Principles in the United States of America or GAAP. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts or NAREIT, an industry trade group, has promulgated a standard known as "Funds from Operations" or "FFO" for short, which it believes more accurately reflects the operating performance of a REIT such as us. As defined by NAREIT, FFO means net income computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus depreciation on real property and amortization, and after adjustments for unconsolidated partnerships and joint ventures in which the REIT holds an interest. We have adopted the NAREIT definition for computing FFO because management believes that, subject to the following limitations, FFO provides a basis for comparing our performance and operations to those of other REITs. The calculation of FFO may vary from entity to entity since capitalization and expense policies tend to vary from entity to entity. Items which are capitalized do not impact FFO, whereas items that are expensed reduce FFO. Consequently, our presentation of FFO may not be comparable to other similarly-titled measures presented by other REITs. FFO is not intended to be an alternative to "Net Income" as an indicator of our performance nor to "Cash Flows from Operating Activities" as determined by GAAP as a measure of our capacity to pay distributions. We believe that FFO is a better measure of our operating performance because FFO excludes non-cash items from GAAP net income. This allows us to compare our relative property performance to determine our return on capital. Management uses the calculation of FFO for several reasons. We use FFO to compare our performance to that of other REITs in our peer group. Additionally, we use FFO in conjunction with our acquisition policy to determine investment strategy. FFO is calculated as follows: 317
Nine months ended September 30, 2004 ------------------ Net income $ 4,413,798 Depreciation and amortization related to investment properties 24,803,548 ------------------ Funds from operations (1) $ 29,217,346 ==================
(1) FFO does not represent cash generated from operating activities calculated in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity. The following table lists the approximate physical occupancy levels and gross leasable area for our investment properties as of September 30, 2004 and December 31, 2003. The weighted average gross leasable area occupied at September 30, 2004 and December 31, 2003 was 94% and 98%, respectively. N/A indicates the property was not owned by us at the end of the period.
September 30, 2004 December 31, 2003 ----------------------------------------------------- GLA GLA Properties: Occupied (%) Occupied (%) - ---------------------------------------------------------------------------------------------------------- Academy Sports, Houma, LA 60,001 100 N/A N/A Alison's Corner, San Antonio, TX 55,066 100 N/A N/A Arvada Connection and Marketplace, Arvada, CO 336,302 94 N/A N/A Best on the Boulevard, Las Vegas, NV 156,756 77 N/A N/A Bluebonnet Parc, Baton Rouge, LA 128,289 95 N/A N/A Boulevard at the Capital Centre, Largo, MD 352,804 73 N/A N/A CorWest Plaza, New Britain, CT 114,023 99 N/A N/A Cranberry Square, Cranberry Township, PA 180,585 92 N/A N/A Darien Towne Centre, Darien, IL 210,010 94 212,682 95 Davis Towne Crossing, North Richland Hills, TX 31,091 75 N/A N/A Dorman Center - Phases I & II, Spartanburg, SC 374,267 99 N/A N/A Eastwood Towne Center, Lansing, MI 321,066 98 N/A N/A Eckerd Drug Store, Columbia, SC 13,440 100 N/A N/A Eckerd Drug Store, Crossville, TN 13,824 100 N/A N/A Eckerd Drug Store, Edmund, OK 13,824 100 13,824 100 Eckerd Drug Store, Greer, SC 13,824 100 N/A N/A Eckerd Drug Store, Kill Devil Hills, NC 13,824 100 N/A N/A Eckerd Drug Store, Norman, OK 13,824 100 13,824 100 Forks Town Center, Easton, PA 88,660 96 N/A N/A Fullerton Metrocenter, Fullerton, CA 208,264 82 N/A N/A Gateway Plaza, Southlake, TX 334,440 93 N/A N/A Gateway Village, Annapolis, MD 273,788 100 N/A N/A GMAC, Winston-Salem, NC 501,064 100 N/A N/A Governor's Marketplace, Tallahassee, FL 218,437 94 N/A N/A Harris Teeter, Wilmington, NC 57,230 100 N/A N/A Harvest Towne Center, Knoxville, TN 42,213 100 N/A N/A Heritage Towne Crossing, Euless, TX 72,119 89 N/A N/A Hickory Ridge, Hickory, NC 380,487 100 N/A N/A Huebner Oaks Center, San Antonio, TX 279,461 97 N/A N/A John's Creek Village, Duluth, GA 136,782 71 N/A N/A La Plaza Del Norte, San Antonio, TX 303,245 95 N/A N/A
318
September 30, 2004 December 31, 2003 ----------------------------------------------------- GLA GLA Properties: Occupied (%) Occupied (%) - ---------------------------------------------------------------------------------------------------------- Lakewood Towne Center, Lakewood, WA 546,713 94 N/A N/A Larkspur Landing, Larkspur, CA 150,893 87 N/A N/A Lincoln Park, Dallas, TX 144,794 97 N/A N/A Low Country Village, Bluffton, SC 70,598 92 N/A N/A MacArthur Crossing, Los Colinas, TX 107,759 98 N/A N/A Manchester Meadows, St. Louis, MO 434,772 96 N/A N/A Metro Square Center, Severn, MD 61,817 100 N/A N/A Mitchell Ranch Plaza, New Port Richey, FL 184,973 92 N/A N/A Newnan Crossing I & II, Newnan, GA 291,450 100 127,260 97 Northgate North, Seattle, WA 281,595 93 N/A N/A Northpointe Plaza, Seattle, WA 373,699 99 N/A N/A North Ranch Pavilions, Thousand Oaks, CA 55,928 89 N/A N/A North Rivers Town Center, Charleston, SC 141,004 100 N/A N/A Paradise Valley Marketplace, Phoenix, AZ 71,304 77 N/A N/A Pavilion at King's Grant, Concord, NC 79,109 100 79,009 100 Peoria Crossings, Peoria, AZ 207,711 97 N/A N/A Pine Ridge Plaza, Lawrence, KS 230,510 100 N/A N/A Plaza at Marysville, Marysville, WA 110,356 95 N/A N/A Plaza Santa Fe II, Santa Fe, NM 217,329 98 N/A N/A Promenade at Red Cliff, St. George, UT 89,480 95 N/A N/A Reisterstown Road Plaza, Baltimore, MD 668,369 86 N/A N/A Saucon Valley Square, Bethlehem, PA 80,695 100 N/A N/A Shaw's Supermarket, New Britain, CT 65,658 100 65,658 100 Shoppes of Dallas, Dallas, GA 59,810 85 N/A N/A Shoppes of Prominence Point, Canton, GA 69,358 89 N/A N/A Shops at Boardwalk, Kansas City, MO 99,881 82 N/A N/A Shops at Park Place, Plano, TX 115,460 99 116,300 100 Stony Creek Market Place, Noblesville, IN 153,796 100 150,727 98 The Columns, Jackson, TN 121,400 94 N/A N/A Tollgate Marketplace, Bel Air, MD 392,587 100 N/A N/A Towson Circle, Towson, MD 106,621 92 N/A N/A Village Shoppes of Simonton, Lawrenceville, GA 56,615 85 N/A N/A Wal-Mart SuperCenter, Blytheville, AR 183,211 100 N/A N/A Wal-Mart SuperCenter, Jonesboro, AR 149,704 100 N/A N/A Watauga Pavilion, Watauga, TX 192,155 93 N/A N/A Wrangler, El Paso, TX 316,800 100 N/A N/A ---------- -------- 11,982,924 779,284 ========== ========
As part of the purchase of Darien Towne Centre, CorWest Plaza, La Plaza Del Norte, Dorman Center - Phase I, Peoria Crossings, Paradise Valley Marketplace, Best on the Boulevard, Bluebonnet Parc, Arvada Marketplace, Eastwood Towne Center, Watauga Pavilion, Northpointe Plaza, Plaza Santa Fe II, Lakewood Towne Center, Shoppes of Prominence Point, Fullerton Metrocenter, Shops at Boardwalk, Shoppes of Dallas, Dorman Center - Phase II, Towson Circle, Reisterstown Road Plaza, Village Shoppes of Simonton, Governor's Marketplace, Mitchell Ranch Plaza, The Columns, Harvest Towne Center, Boulevard at the Capital Centre and Low Country Village, we are entitled to receive payments in accordance with a master lease agreement for space, which was not producing revenue either at the time of or subsequent to the purchase. The master lease agreement covers rental payments due for periods 319 ranging between three months and three years from the purchase date or until the space is leased. The percentage in the table above does not include non-revenue producing space covered by the master lease agreement. The master lease agreements combined with the physical occupancy results in an economic occupancy ranging between 71% and 100% at September 30, 2004. SUBSEQUENT EVENTS We paid distributions of $7,186,753 to our stockholders in October 2004. We issued 29,541,198 shares of common stock from October 1, 2004 through November 5, 2004, resulting in a total of 175,825,027 shares of common stock outstanding. As of November 5, 2004, subscriptions for a total of 173,294,068 shares were received resulting in total gross offering proceeds of $1,732,326,464 and an additional 2,530,959 shares were issued pursuant to the DRP for $24,044,115 of additional gross proceeds. On October 15, 2004, CR Investors, LLC, a 100% owned LLC of Reisterstown Plaza Holdings, LLC (a joint venture consolidated by us), purchased a 60.94% interest in an apartment complex known as Cardiff Hall East located in Towson, MD for approximately $2.7 million. As of October 31, 2004, Cordish Power Plant Management, LLC, a Maryland limited liability company ("CPP") admitted two new members in exchange for the capital contributions described below that were made on November 5, 2004. CRP Power Plant Investors, LLC, a Maryland limited liability company that is wholly owned by Reisterstown Plaza Holdings, LLC, contributed capital in the amount of $15 million in exchange for a 37.5% member interest in CPP. CGW Power Plant Investors, LLC, a Maryland limited liability company that is wholly owned by Gateway Village Holdings, LLC contributed capital in the amount of $5 million in exchange for a 12.5% member interest in CPP. CPP owns a 99.5% interest in Cordish Power Plant Limited Partnership. Cordish Power Plant Limited Partnership owns a ground lease interest in a mixed use retail/office complex located in the Inner Harbor area of Baltimore, Maryland that is known as The Power Plant. The Power Plant contains approximately 180,000 square feet of space and is 100% leased and occupied. As of October 31, 2004, Cordish Power Plant Management Number Two, LLC, a Maryland limited liability company ("CPP2") admitted two new members in exchange for the capital contributions described below that were made on November 5, 2004. CTC Pier IV Investors, LLC, a Maryland limited liability company that is wholly owned by Towson Circle Holdings, LLC contributed capital in the amount of $5 million in exchange for a 16.67% member interest in CPP2. CTOLL Pier IV Investors, LLC, a Maryland limited liability company that is wholly owned by Tollgate Marketplace Holding Company, LLC contributed capital in the amount of $15 million in exchange for a 50.0% member interest in CPP2. CPP2 owns all of the membership interest in Cordish Power Plant Number Two, LLC. Cordish Power Plant Number Two, LLC owns a ground lease interest in a mixed use retail/office complex located in the Inner Harbor area of Baltimore, Maryland that is known as Pier IV Office Building. The Pier IV Office Building contains approximately 120,000 square feet of space and is 100% leased and occupied. We have acquired the following properties during the period October 1 to November 5, 2004. The respective acquisitions are summarized in the table below.
Approximate Gross Date Year Purchase Leasable Area Acquired Property Built Price ($) (Sq. Ft.) Major Tenants - ----------------------------------------------------------------------------------------------------------------------- 10/05/04 Bed Bath & Beyond Plaza 2004 20,350,000 97,496 Bed, Bath & Beyond, Miami, FL Office Depot,
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Approximate Gross Date Year Purchase Leasable Area Acquired Property Built Price ($) (Sq. Ft.) Major Tenants - ----------------------------------------------------------------------------------------------------------------------- Pier 1 Imports, Party City 10/12/04 The Columns - Phase II 2004 5,740,596 44,987 Ross Dress for Less, Jackson, TN Old Navy 10/18/04 Denton Town Crossing 2003/2004 51,236,687 272,722 Oshman's Sporting Goods Denton, TX 10/19/04 Azalea Square 2004 30,012,525 181,942 T.J. Maxx, Summerville, SC Linens 'N Things, Ross Dress for Less, Cost Plus World Market, PETsMART 10/21/04 Lake Mary Pointe 1999 6,620,000 51,052 Publix Orlando, FL 10/25/04 Plaza at Riverlakes 2001 17,000,000 102,836 Ralph's Grocery Store Bakersville, CA 10/26/04 Academy Sports 2004 5,000,000 61,001 Academy Sports Port Arthur, TX 10/28/04 Gurnee Town Center 2002 44,256,387 179,840 Linens 'N Things, Gurnee, IL Old Navy, Borders Books & Music 10/29/04 CVS Pharmacy 2004 3,066,241 10,055 CVS Pharmacy Sylacauge, AL 10/29/04 Academy Sports 2004 4,250,000 61,654 Academy Sports Midland, TX 11/03/04 Mansfield Towne Center 2004 16,055,074 111,898 Ross Dress for Less, Mansfield, TX Staples 11/05/04 Winchester Commons 1999 13,022,687 93,024 Kroger Memphis, TN
The mortgage debt and financings obtained during the period October 1, 2004 to November 5, 2004, are detailed in the list below.
Date Annual Interest Maturity Principal Borrowed Funded Mortgage Payable Rate Date ($) - ------------------------------------------------------------------------------------------------------------------- 10/05/04 The Columns 4.910% 05/01/09 11,423,300 10/06/04 Low Country Village 4.960% 05/01/09 5,370,000 10/08/04 Lincoln Park 4.610% 11/01/09 26,153,000 11/01/04 Academy Sports - Port Arthur, TX 5.120% 11/01/09 2,775,000
321
Date Annual Interest Maturity Principal Borrowed Funded Mortgage Payable Rate Date ($) - ------------------------------------------------------------------------------------------------------------------- 11/01/04 Harris Teeter - Wilmington, NC 4.915% 11/01/09 3,960,000 11/04/04 The Columns - Phase II 4.950% 11/01/09 3,442,100
We are currently considering acquiring ten properties for an estimated purchase price of $244 million. Our decision to acquire each property will generally depend upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions, and our receipt of satisfactory due diligence information including appraisals, environmental reports and lease information prior to purchasing the property. For further information on these potential property acquisitions and financings, see "Real Property Investments." INFLATION For our multi-tenant shopping centers, inflation is likely to increase rental income from leases to new tenants and lease renewals, subject to market conditions. Our rental income and operating expenses for those properties owned, or to be owned and operated under triple-net leases, are not likely to be directly affected by future inflation, since rents are or will be fixed under the leases, and property expenses are the responsibility of the tenants. The capital appreciation of triple-net leased properties is likely to be influenced by interest rate fluctuations. To the extent that inflation determines interest rates, future inflation may have an effect on the capital appreciation of triple-net leased properties. As of September 30, 2004, we owned 14 single-user triple-net leased properties. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We may be exposed to interest rate changes primarily as a result of long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve our objectives we will borrow primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rates to fixed rates. We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our properties. To the extent we do, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not possess credit risk. It is our policy to enter into these transactions with the same party providing the financing, with the right of offset. In the alternative, we will minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. During the third quarter of 2004, we entered into treasury contracts with a futures commission merchant with yields ranging from 3.27% to 3.40% for 5 year treasury contracts and 4.0% to 4.3% for 10 year treasury contracts. The amount on deposit for our investment in treasury contracts is $3,712,900. On September 30, 2004, our investment in treasury contracts had a liquidation value of $361,186 resulting in a loss of $3,351,714. As these treasury contracts are not offsetting future commitments and therefore do 322 not qualify as hedges, the net loss is recognized currently in earnings. To offset the net loss recognized on the treasury contracts, we took advantage of the lower treasury yields which caused the loss n the treasury contracts and secured permanent financing in the amount of $350,000,000 for pending acquisitions. On October 29, 2004, we liquidated all of our treasury contracts for a liquidation value of $126,213 resulting in a cumulative net realized loss of $3,586,687. With regard to variable rate financing, we assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We maintain risk management control systems to monitor interest rate cash flow risk attributable to both of our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows. While this hedging strategy is intended to reduce our exposure to interest rate fluctuations, the result may be a reduction in overall returns on your investment. The fair value of our debt approximates its carrying amount as of September 30, 2004. Our interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year and expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.
2004 2005 2006 2007 2008 THEREAFTER ---- ---- ---- ---- ---- ---------- Maturing debt Fixed rate debt (mortgage loans) - - - 56,864,550 46,227,000 911,617,213 Variable rate debt (including line of credit) - 15,035,000 - - - 110,998,000 Average interest rate on debt: Fixed rate debt - - - 4.49% 4.64% 4.69% Variable rate debt - 3.71% - - - 2.74%
We have $126,033,000 of variable rate interest averaging 2.85% as of September 30, 2004. An increase in the variable interest rate on this debt constitutes a market risk. If interest rates increase by 1%, based on debt outstanding as of September 30, 2004, interest expense increases by $1,260,330 on an annual basis. 323 DESCRIPTION OF SECURITIES We were formed under the laws of the State of Maryland. Your rights are governed by Maryland law, our articles of incorporation and our bylaws. The following summary of the terms of our stock is only a summary and you should refer to our articles of incorporation and bylaws for a full description. Copies of our articles of incorporation and bylaws are filed as exhibits to the registration statement of which this prospectus is a part. You can obtain copies of our articles of incorporation and bylaws and every other exhibit to our registration statement. See "Where You Can Find More Information," below. AUTHORIZED STOCK Our articles of incorporation provide that we may issue up to 600,000,000 shares of common stock and 10,000,000 shares of preferred stock. Upon completion of this offering, if 250,000,000 shares are sold, there will be 500,020,000 shares of common stock outstanding and no preferred stock outstanding. As permitted by Maryland law, our articles of incorporation contain a provision permitting the board, without any action by the stockholders, to amend our articles of incorporation from time to time, to increase or decrease the aggregate number of shares of stock and the number of shares of stock of any class or series that we have authority to issue. Our articles of incorporation also contain a provision permitting our board of directors, without any action by stockholders, to classify or reclassify any unissued common stock or preferred stock into one or more classes or series by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or distributions, qualifications or terms or conditions of redemption of any new class or series of shares of stock. Nevertheless, certain laws to which we are subject require the approval by a majority of our then outstanding shares to amend our articles of incorporation to increase or decrease the number of shares authorized by our articles of incorporation. We believe that the power of our board to issue additional authorized but unissued shares of common stock or preferred stock and to classify or reclassify shares of stock will provide us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs which might arise. Following amendment of our articles of incorporation to increase the number of our authorized shares, our board would be able to issue the additional common stock or preferred stock without further action by our stockholders. COMMON STOCK Upon issuance of our shares for full payment in accordance with the terms of this offering, all of the common stock we are offering will be duly authorized, fully paid and nonassessable. Subject to the preferential rights of any other class or series of stock and to the provisions of our articles of incorporation regarding the restriction on the transfer of shares of our stock, holders of our common stock will be entitled to receive distributions if authorized and declared by our board and to share ratably in our assets available for distribution to the stockholders in the event of a liquidation, dissolution or winding-up. Each outstanding share of our common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors. There is no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding common stock can elect all of the directors then standing for election, and the holders of the remaining common stock will not be able to elect any directors. 324 Holders of our common stock have no conversion, sinking fund, redemption, exchange or appraisal rights, and have no preemptive rights to subscribe for any of our securities. Our articles of incorporation provide that holders of our common stock are not entitled to exercise any rights of an objecting stockholder provided for under Maryland law. Shares of our common stock have equal dividend, distribution, liquidation and other rights. Under Maryland law and our articles of incorporation, we cannot make certain material changes to our business form or operations without the approval of stockholders holding at least a majority of the shares of stock entitled to vote on the matter. The following events, however, do not require stockholder approval: - share exchanges in which we are the acquiror; - mergers with or into a 90 percent or more owned subsidiary; - mergers in which we do not: - reclassify or change the terms of any of our stock that is outstanding immediately before the effective time of the merger; - amend our articles of incorporation; and - issue in the merger more than 20 percent of the number of shares of any class or series of stock outstanding immediately before the merger; and - transfers of less than substantially all of our assets. Our articles of incorporation provide that the sale of two-thirds or more of our assets or the then current fair market value of our properties and mortgages other than in the ordinary course of our business will be considered the sale of substantially all of our assets. Our bylaws provide that the presence in person or by proxy by the holders of a majority of our outstanding shares will constitute a quorum for the transaction of business at a meeting of our stockholders. Our articles of incorporation provide that the election of directors requires a majority of all the votes present in person or by proxy at a meeting of our stockholders at which a quorum is present. Our articles of incorporation also provide that the affirmative vote of the holders of a majority of our outstanding common stock may remove any director with or without cause. Our articles of incorporation provide that with respect to shares of our common stock owned by our business manager/advisor, sponsor, directors or any affiliate, neither our business manager/advisor, sponsor, directors nor affiliates will be permitted to vote or consent on matters submitted to our stockholders regarding the removal of any director. Additionally, in determining the requisite percentage interest of voting shares of our common stock necessary to approve a matter on which our business manager/advisor, sponsor, directors or affiliates may not vote or consent, any shares of our common stock owned by any of them will not be included. We will act as our own registrar and transfer agent for our common stock or we will hire an outside firm to act as our registrar and transfer agent. PREFERRED STOCK Shares of our preferred stock may be issued in the future in one or more series as authorized by our board. Prior to the issuance of shares of any series, our board is required by Maryland law and our 325 articles of incorporation to fix the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each series. Because our board has the power to establish the preferences, powers and rights of each series of preferred stock, it may, without any consideration or approval by our stockholders, provide the holders of any series of preferred stock with preferences, powers and rights, voting or otherwise, senior to the rights of holders of our common stock. The issuance of preferred stock could have the effect of delaying, deferring or preventing a change of control of us, including an extraordinary transaction (such as merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock. We have no present plans to issue any preferred stock. ISSUANCE OF ADDITIONAL SECURITIES AND DEBT INSTRUMENTS Our directors are authorized to issue additional stock or other convertible securities for cash, property or other consideration on such terms as they may deem advisable without approval of the holders of our outstanding securities. Our directors are also authorized to classify or reclassify any unissued shares of our capital stock without approval of the holders of our outstanding securities. Subject to some restrictions, including that the aggregate amount of our borrowings in relation to our net assets may not exceed 300% of net assets, our directors may cause us to issue debt obligations, including debt with conversion privileges on more than one class of our capital stock. Our directors may issue debt obligations on such terms and conditions as they may determine, including debt with conversion privileges, where the holders of our debt obligations may acquire our common stock. Subject to some restrictions, our directors may also cause us to issue warrants, options and rights to buy our common stock on such terms as they deem advisable to our stockholders, as part of a financing arrangement, or pursuant to stock option plans. Our directors may cause us to issue warrants, options and rights to buy our common stock and debt with conversion privileges even though their exercise or conversion could result in dilution in the value of our outstanding common stock. RESTRICTIONS ON ISSUANCE OF SECURITIES Our articles of incorporation provide that we will not issue: - common stock which is redeemable at the option of the holder; - debt securities unless the historical debt service coverage in the most recently completed fiscal year is sufficient to properly service the higher level of debt; - options or warrants to purchase stock to our business manager/advisor, sponsor, director(s) or any affiliates of our business manager/advisor, sponsor or directors except on the same terms as sold to the general public and in an amount not to exceed 10% of our outstanding common or preferred stock on the date of grant of any options or warrants; or - stock on a deferred payment basis or similar arrangement. Our articles of incorporation also provide that we will not issue nonvoting or assessable common stock or warrants, options or similar evidences of rights to buy stock unless they are issued to the holders of stock ratably on a proportional basis, as part of a financing arrangement or as part of a stock option plan to our directors, officers or employees. 326 RESTRICTIONS ON OWNERSHIP AND TRANSFER In order for us to continue to qualify as a REIT under the Internal Revenue Code, shares of our stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of twelve months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also not more than 50% of the value of our outstanding shares of stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include some entities such as qualified person plans) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made). Our articles of incorporation, subject to some exceptions, contain restrictions on the number of shares of our stock that a person may own. Our articles of incorporation prohibit any person from acquiring or holding, directly or indirectly, shares of stock in excess of 9.8% in value of the aggregate of our outstanding shares of stock. In addition, our articles of incorporation prohibit any person from acquiring or holding, directly or indirectly, shares of common stock in excess of 9.8% of the aggregate number of our outstanding shares of common stock. The 9.8% common stock ownership limit must be measured in terms of the more restrictive of value or number of shares. Our board of directors, in its sole discretion, may exempt a person from the 9.8% limit and the common stock ownership limit. However, the board may not grant such an exception to any person whose ownership, direct or indirect, of in excess of 9.8% of the value of our outstanding shares of stock would result in us being "closely held" within the meaning of Section 856(h) of the Internal Revenue Code or otherwise would result in us failing to qualify as a REIT. In order to be considered as an excepted holder, a person also must not own, directly or indirectly, an interest in any of our tenants (or in a tenant of any entity owned or controlled by us) that would cause us to own, directly or indirectly, more than a 9.9% interest in such a tenant. The person seeking an exemption must represent to our board's satisfaction that it will not violate these two restrictions. The person also must agree that any violation or attempted violation of any of these restrictions will result in the automatic transfer of the shares of stock causing the violation to a trust as explained below. Our board may require a ruling from the Internal Revenue Service or an opinion of counsel, in either case in form and substance satisfactory to our board of directors in its sole discretion, in order to determine or ensure our status as a REIT. In addition, our articles of incorporation prohibit any person from beneficially or constructively owning shares of our common or preferred stock that would result in us being "closely held" within the meaning of Section 856(h) of the Internal Revenue Code. Our articles of incorporation further provide that any transfer of our common stock or preferred stock that would result in our common stock and preferred stock being beneficially owned by fewer than 100 persons will be void. Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of our common or preferred stock that will or may violate any of the foregoing restrictions on transferability and ownership, or any person who would have owned shares of our common or preferred stock that resulted in a transfer of shares to the trust, is required to give us notice immediately and to provide us with such other information as we may request in order to determine the effect of such transfer on our status as a REIT. The foregoing restrictions on transferability and ownership will not apply if our board determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT. If any transfer of shares of our stock occurs which, if effective, would result in any person beneficially or constructively owning shares of our stock in excess or in violation of the above transfer or ownership limitations, then the number of shares of our stock the beneficial or constructive ownership of which would cause the person to violate the limitations will be automatically transferred under the provisions of our articles of incorporation to a trust for the exclusive benefit of one or more charitable beneficiaries within the meaning of 501(c)(3) of the Internal Revenue Code. The proposed transferee that 327 exceeds the ownership limitations will not acquire any rights in these shares. The automatic transfer is deemed effective as of the close of business on the business day, as defined in our articles of incorporation, prior to the date of the violative transfer. Shares of stock held in the trust will continue as issued and outstanding common stock or preferred stock. The proposed transferee will not benefit economically from ownership or any shares of stock held in the trust, will have no rights to dividends and will not possess any rights to vote or other rights attributable to the shares of stock held in the trust. The trustee of the trust will have all voting rights and rights to dividends or other distributions with respect to shares of stock held in the trust. The voting rights and rights to dividends will be exercised for the exclusive benefit of the charitable beneficiary. Any dividend or other distribution paid prior to our discovery that shares of stock have been transferred to the trustee will be paid by the recipient of the dividend or distribution to the trustee upon demand, and any dividend or other distributions authorized but unpaid will be paid when due to the trustee. Any dividend or distribution paid to the trustee will be held in trust for the charitable beneficiary. The proposed transferee will have no voting rights with respect to shares of stock held in the trust. Subject to Maryland law, effective as of the date that such shares of stock have been transferred to the trust, the trustee will have the authority at his sole discretion (i) to rescind as void any vote cast by the proposed transferee prior to our discovery that such shares have been transferred to the trust and (ii) to recast such vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary. However, if we have already taken irreversible corporate action, then the trustee will not have the authority to rescind and recast the vote. Within twenty days of receiving notice from us that shares have been transferred to the trust, the trustee shall sell the shares to a person, designated by the trustee, whose ownership of the shares will not violate the ownership limitations set forth in the articles of incorporation. Upon the sale, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the proposed transferee and to the charitable beneficiary as follows. The proposed transferee will receive the lesser of (i) the price paid by him for the shares or, if the proposed transferee did not give value for the shares in connection with the event causing the shares to be held in the trust (e.g. a gift, devise or other such transaction), the market price, as defined in our articles of incorporation, of the shares on the day of the event causing the shares to beheld in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any net sale proceeds in excess of the amount payable to the proposed transferee will be paid immediately to the charitable beneficiary. If, prior to our discovery that shares of stock have been transferred to the trust, such shares are sold by the proposed transferee, then (i) shares will be deemed to have been sold on behalf of the trust and (ii) to the extent that the proposed transferee received an amount for such shares that exceeds the amount that the proposed transferee was entitled to receive, the excess will be paid to the trustee upon demand. In addition, shares of our stock held in the trust will be deemed to have been offered for sale to us or our designees, at a price per share equal to the lesser of (i) the price per share in the transaction that resulted in the transfer to the trust, or, in the case of a devise or gift, the market price at the time of the devise or gift, and (ii) the market price on the date we, or our designate, accept such offer. We can accept this offer until the trustee has sold the shares held in the trust. Upon a sale to us, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the proposed transferee. Our articles of incorporation require all persons who own more than 5%, or any lower percentages as required pursuant to the Internal Revenue Code or the regulations under the Internal Revenue Code, of our outstanding common and preferred stock, within 30 days after the end of each taxable year, to provide to us written notice stating their name and address, the number of shares of common and preferred stock they beneficially own directly or indirectly, and a description of how the shares are held. In addition, each beneficial owner must provide to us any addition information as we 328 may request in order to determine the effect, if any, of their beneficial ownership on our status as a REIT and to ensure compliance with the 9.8% ownership limit. In addition, each stockholder will, upon demand, be required to provide us any information as we may request, in good faith, in order to determine our status as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance. All certificates and book entries representing any shares of our common or preferred stock will be noted with a legend referring to the restrictions described above. We will issue the common stock in book entry form only. This means that we will not issue actual share certificates to each holder of our common stock. The use of book entry only registration permits ownership of fractional shares, protects you against loss, theft or destruction of stock certificates and reduces offering costs. Once we accept your subscription to purchase common stock, we will create an account in our book entry registration system for you and credit the principal amount of your subscription to your account. We will send you a book entry receipt indicating acceptance of your subscription. All issuances of common stock through our distribution reinvestment program also will be made in book entry form only. ANTI-TAKEOVER PROVISIONS OF MARYLAND LAW AND OUR ARTICLES OF INCORPORATION AND BYLAWS The following paragraphs summarize some anti-takeover provisions of Maryland law and the material terms of our articles of incorporation and bylaws regarding business combinations and control share acquisitions. The following summary does not purport to be complete and is subject to and qualified in its entirety by reference to Maryland law and our articles of incorporation and bylaws, copies of which are exhibits to the registration statement of which the prospectus is a part. See "Where You Can Find More Information." BUSINESS COMBINATIONS. Under the Maryland Business Combination Act, an anti-takeover statute, completion of a business combination (including a merger, consolidation, share exchange or an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and an interested stockholder is prohibited for five years following the most recent date on which the interested stockholder becomes an interested stockholder. Maryland law defines an interested stockholder as any person who beneficially owns ten percent or more of the voting power of the corporation's shares or an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the then-outstanding voting stock of the corporation or an affiliate of such interested stockholder. A person is not an interested stockholder if, prior to the most recent time at which the person would otherwise have become an interested stockholder, the board of directors of the Maryland corporation approved the transaction which otherwise would have resulted in the person becoming an interested stockholder. The board of directors may provide that its approval is subject to compliance with any terms and conditions determined by the board. Following the five-year prohibition period, any such business combination with that interested stockholder must be recommended by the board of directors of such corporation and approved by the affirmative vote of at least: - 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and - two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom (or with whose affiliate) the business combination is to be effected or held by an affiliate or associate of the interested stockholder, unless, among other conditions, the corporation's common stockholders receive a minimum price (as defined in the Maryland business combination statute) equal to the highest price paid by the interested stockholder for its shares and the 329 consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that the interested stockholder becomes an interested stockholder. As permitted under Maryland law, our articles of incorporation exempt any business combinations involving us and The Inland Group or any of its affiliates. As a result, the five-year prohibition and the super-majority vote requirement will not apply to any business combinations between The Inland Group or any affiliate of The Inland Group and us. Therefore, The Inland Group or any affiliate of The Inland Group may be able to enter into business combinations with us, which may or may not be in the best interests of the stockholders. Nevertheless, the provisions of the Maryland Business Combination Act, as summarized in this section, will apply to any business combinations and interested stockholders involving persons other than The Inland Group and its affiliates. CONTROL SHARE ACQUISITION. Maryland's Control Share Acquisition Act, an anti-takeover statute, prohibits interested stockholders from engaging in self-dealing business combinations with a Maryland corporation, except to the extent approved by the corporation's disinterested stockholders. Maryland law provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by the corporation's disinterested stockholders by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the corporation's disinterested stockholders, whom the Act defines as (1) the acquiring person, (2) the corporation's officers and (3) employees of the corporation who are also directors. Control shares mean voting shares which, if aggregated with all other voting shares owned by an acquiring person or which the acquiring person can exercise or direct the exercise of voting power, would entitle the acquiring person to exercise or direct the exercise of voting power of shares of the corporation in electing directors within one of the following ranges of voting power: - one-tenth or more but less than one-third; - one-third or more but less than a majority; or - a majority or more of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition occurs when, subject to some exceptions, a person directly or indirectly acquires ownership or the power to direct the exercise of voting power of issued and outstanding control shares. A person who has made or proposes to make a control share acquisition, upon satisfaction of some specific conditions, including an undertaking to pay expenses, may compel our board to call a special meeting of stockholders to be held within 50 days after that person's demand upon the corporation to consider the voting rights to be accorded to the control shares. If no request for a meeting is made, we may present the question at any stockholders' meeting. If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to some statutory conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of such shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights and be entitled to receive in cash the fair value for their shares of our stock. The fair value of the shares as 330 determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition. The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is party to the transaction or to acquisitions approved or exempted by the articles of incorporation or bylaws of the corporation. Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by The Inland Group or any affiliate of The Inland Group of our shares of stock. Nevertheless, the provisions of the Maryland Control Share Acquisition Act, as summarized in this section, will apply to any control share acquisition involving persons other than The Inland Group and its affiliates. [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 331 SHARES ELIGIBLE FOR FUTURE SALE SHARES TO BE OUTSTANDING OR ISSUABLE UPON EXERCISE OR CONVERSION OF OTHER OUTSTANDING SECURITIES Upon the completion of this offering, out initial offering and the consummation of the formation transactions, we expect to have outstanding 540,020,000 shares of common stock. This includes: - the 20,000 shares purchased by our business manager/advisor; and assumes that: - we sell all 250,000,000 shares of common stock offered on a best efforts basis in this public offering; - we sell all 20,000,000 shares to be issued under our distribution reinvestment program described in this offering; - we sell all 250,000,000 shares of common stock offered on a best efforts basis in our initial public offering; - we sell all 20,000,000 shares to be issued under our distribution reinvestment program described in our initial public offering; and - that there is no exercise of options which are expected to be outstanding and exercisable. In addition, we have reserved: - 75,000 shares for issuance upon exercise of options which may be granted under our independent director stock option plan. Subject to the provisions of our articles of incorporation, we could issue an undetermined number of shares of our common or preferred stock in the discretion of our board and without the approval by our stockholders: - directly for equity interests in real properties; or - upon exchange of any interests in entities that own our properties or in other companies we control, which might be issued for equity interests in real properties. All of the common stock we are offering by this prospectus will be freely tradable in the public market, should a public market develop, which we cannot guarantee, without restriction or limitation under the Securities Act of 1933 by persons other than our affiliates and soliciting dealers considered underwriters. However, all common stock issuable by us in this offering and otherwise will be subject to the restrictions explained under "Description Of Securities - Restrictions on Ownership and Transfer." SECURITIES ACT RESTRICTIONS The common stock owned by our affiliates will be subject to Rule 144 adopted under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including exemptions contained in Rule 144. 332 In general, under Rule 144, a person, or persons whose common stock is aggregated with them in accordance with Rule 144, who has beneficially owned securities acquired from an issuer or an affiliate of the issuer for at least one year, would be entitled, within any three-month period, to sell a number of shares of common stock that does not exceed the greater of (1) 1% of the then-outstanding number of shares or (2) the average weekly reported trading volume of the common stock on a national securities exchange or market during the four calendar weeks preceding each sale. Sales under Rule 144 must be transacted in the manner specified by Rule 144 and must meet requirements for public notice as well as public information about us. Any person who (1) is not deemed to have been our affiliate at any time during the three months preceding a sale, and (2) has beneficially owned our common stock for at least two years, would be entitled to sell the common stock under Rule 144(k) without regard to the volume limitations, manner of sale provisions, notice requirements or public information requirements of Rule 144. An affiliate, for purposes of the Securities Act, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or under common control with, us. INDEPENDENT DIRECTOR STOCK OPTION PLAN We have established an independent director stock option plan for the purpose of attracting and retaining independent directors. See "Management--Independent Director Stock Option Plan." We have issued in the aggregate options to purchase 11,500 shares of our common stock to our independent directors, at the exercise price of $8.95 per share. One-third of the shares will be exercisable upon their grant. An additional 63,500 shares will be available for future option grants under the independent director stock option plan. See "Management--Independent Director Stock Option Plan" for additional information regarding the independent director stock option plan. Rule 701 under the Securities Act provides that common stock acquired on the exercise of outstanding options by affiliates may be resold by them subject to all provisions of Rule 144 except its one-year minimum holding period. We intend to register the common stock to be issued under the independent director stock option plan in a registration statement or statements on SEC Form S-8 or other appropriate form. EFFECT OF AVAILABILITY OF SHARES ON MARKET PRICE OF SHARES Prior to the date of this prospectus, there has been no public market for our common stock. No assurance can be given that a public market for our common stock will develop. We cannot predict the effects that future sales of common stock, including sales under Rule 144, or the availability of common stock for future sale will have on the market price, if any, prevailing from time to time. Sales of substantial amounts of our common stock, including shares issued upon the exercise of options or the perception that these sales could occur, could adversely affect prevailing market prices of our common stock and impair our ability to obtain additional capital through the sale of equity securities. See "Risk Factors--Risks Related to the Offering." For a description of restrictions on transfers of common stock, see "Description of Securities--Restrictions on Ownership and Transfer." Also, see the following section regarding registration rights. REGISTRATION RIGHTS In the future we may grant "demand" and/or "piggyback" registration rights to: - stockholders receiving our common stock directly in exchange for their equity interests in assets of theirs we would acquire; and - persons receiving interests in any real property partnership for their interests in real properties we would acquire. 333 "Piggyback" registration rights allow the holder to have his, her or its shares registered along with our shares only at such time(s) in the future when we would choose to register some of our shares for financing purposes - that is, to join with us in the registration of our shares. "Demand" registration rights permit the holder of demand rights to require us to register with the SEC his, her or its shares at such time(s) as the holder requests, regardless of any desire by us to register our own shares for financing purposes, even if we do not have sufficient capital resources to effect a registration of shares. These rights will be for registration under the Securities Act of any of our common stock acquired by them directly. The terms and conditions of any agreements for registration rights will be negotiated and determined at such future time as we determine advisable in connection with the acquisition of one or more properties or assets. Our future granting of registration rights could include registration of the subject shares at our expense. If that were the case, our obligation could result in a substantial expense to us at a time when we might not be able to afford such an expense or when registration would not be beneficial to our interests and could also hinder our future attempts to obtain financing. [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 334 SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS Each stockholder is bound by and is deemed to have agreed to the terms of our organizational documents by his, her or its election to become a stockholder of our company. Our organizational documents consist of our articles of incorporation and bylaws. Our directors, including all the independent directors, reviewed and unanimously ratified our articles of incorporation and bylaws at our first board meeting, which was required. The following is a summary of material provisions of our organizational documents and does not purport to be complete. This summary is qualified in its entirety by specific reference to the organizational documents filed as exhibits to our registration statement of which this prospectus is a part. See "Where You Can Find More Information." Our articles of incorporation were filed with the State Department of Assessments and Taxation of Maryland and became operative on March 5, 2003. Our articles of incorporation provide that we have perpetual existence. The bylaws in their present form became operative when our board approved them on March 5, 2003. Neither our articles of incorporation nor bylaws have an expiration date. As a result, they will remain operative in their current form throughout our existence, unless they are amended or we are dissolved. ARTICLES OF INCORPORATION AND BYLAW PROVISIONS The stockholders' rights and related matters are governed by our articles of incorporation and bylaws and Maryland law. Some provisions of the articles of incorporation and bylaws, summarized below, may make it more difficult to change the composition of our board and could have the effect of delaying, deferring, preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock. STOCKHOLDERS' MEETINGS Our bylaws provide that an annual meeting of the stockholders will be held on the date and at such time as our board may designate. However, the meeting will not be held less than 30 days after the delivery of our annual report to stockholders. The purpose of each annual meeting of the stockholders is to elect directors and to transact any other proper business. The chairman, the president, a majority of the directors or a majority of the independent directors may call a special meeting of the stockholders. The secretary or some other officer must call a special meeting when stockholders holding 10% or more of the outstanding shares entitled to vote make a written request for a meeting. The written request may be in person or by mail and must state the purpose(s) of the meeting and the matters to be acted upon. We have entered into an agreement with Inland Real Estate Investment Corporation, our sponsor, which provides that it will pay for the reasonably estimated cost to prepare and mail a notice of any special meeting of stockholders requested by the stockholders. The meeting will be held on a date not less than 15 nor more than 60 days after the distribution of the notice, at the time and place specified in the notice. Except as provided in the preceding sentence, we will give notice of any annual or special meeting of stockholders not less than 10 nor more than 90 days before the meeting. The notice will state the purpose of the meeting. At any meeting of the stockholders, each stockholder is entitled to one vote for each share owned of record on the applicable record date. In general, the presence in person or by proxy of a majority of the outstanding shares entitled to vote at a meeting will constitute a quorum. The affirmative vote of a majority of the shares of our stock, present in person or by proxy at a meeting of stockholders duly called and at which a quorum is present, will be sufficient, without the necessity for concurrence by the directors, to elect the directors. A majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present will be sufficient to approve any other matter which may properly come 335 before the meeting, unless more than a majority of the votes cast is required by statute or our articles of incorporation. BOARD OF DIRECTORS Our articles of incorporation and bylaws provide that we may not have fewer than three nor more than eleven directors. Our bylaws currently provide that the number of directors shall be seven. Our articles of incorporation require that a majority of our directors must be independent directors. Independent directors are directors who are not and have not been affiliated with us, our sponsor, or our business manager/advisor, within the two years prior to their becoming our independent director and who perform no services on our behalf other than as a director. A vacancy on the board caused by the death, resignation or incapacity of a director or by an increase in the number of directors, within the limits described above, may be filled by the vote of a majority of the remaining directors whether or not the voting directors constitute a quorum. Our articles of incorporation require that our independent directors must nominate replacements to vacancies in independent director positions irrespective of how the vacancy arises. Our bylaws provide that a vacancy on our board caused by an increase in the number of directors may be filled by a majority of the entire board; that when a vacancy occurs as a result of the removal of a director by our stockholders, the vacancy must be filled by a majority vote of our stockholders; and that any director may resign at any time and may be removed with or without cause by the affirmative vote of the holders of not less than a majority of the outstanding shares. Our bylaws provide that the majority of members of each committee of our board of directors be comprised of independent directors and that all the members of our audit committee be independent directors. Our articles of incorporation provide that a director must have at least three years of relevant experience and demonstrate the knowledge required to successfully acquire and manage the type of assets that we intend to acquire. At least one of our independent directors must have three years of relevant real estate experience. STOCKHOLDER VOTING RIGHTS Each share of our common stock has one vote on each matter submitted to a vote of stockholders. Shares of common stock do not have cumulative voting rights or preemptive rights. Stockholders may vote in person or by proxy. Directors are elected when they receive the majority of votes of holders of shares present in person or by proxy at a stockholders' meeting, provided there was a quorum when the meeting commenced. A quorum is reached when the stockholders holding a majority of the outstanding shares entitled to vote are present either in person or represented by proxy. All questions other than election of directors, removal of a director or directors and except as set forth below must be decided by a majority of the votes cast at a meeting at which a quorum is present. Maryland law provides that any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting by the unanimous written consent of all stockholders (which may be impracticable for a publicly held corporation). The approval by our board and by holders of at least a majority of our outstanding voting shares of stock is necessary for us to do any of the following: - amend our articles of incorporation, except to increase or decrease authorized stock as permitted by Maryland law; - transfer all or substantially all of our assets other than in the ordinary course of business; - engage in mergers, consolidations or share exchanges, except in certain circumstances; or 336 - dissolve or liquidate. Our articles of incorporation provide that a sale of two-thirds or more of our assets, based on the total number or the current fair market value of properties and mortgages we own, is a sale of substantially all of our assets. See "Description of Securities -- Common Stock" for an explanation of instances where stockholder approval is not required. Our articles of incorporation provide that neither the business manager/advisor, the sponsor, the directors, nor any affiliate may vote their shares of stock or consent on matters submitted to the stockholders regarding the removal of the business manager/advisor, the sponsor, the directors or any affiliate or any transaction between us and any of them. For purposes of determining the necessary percentage and interest of shares needed to approve a matter on which the business manager/advisor, the sponsor, the directors and any affiliate may not vote or consent, the shares of our common stock owned by them will not be included. RIGHTS OF OBJECTING STOCKHOLDERS As permitted by Maryland law, our articles of incorporation provide that our stockholders are not entitled to exercise any rights of an objecting stockholder provided for under Maryland law. As a result of this provision, our stockholders will not have any right to dissent under Maryland law to an extraordinary transaction, such as the merger of our company into another company, the consolidation of our company with another company or the sale of all or substantially all of our assets. Because our stockholders will not be permitted to object and dissent to an extraordinary transaction, our stockholders will receive upon completion of the extraordinary transaction the consideration negotiated by our board of directors with the other party to the transaction and will not in the proceedings to receive a cash payment representing the fair value of their shares of our common stock. STOCKHOLDER LISTS; INSPECTION OF BOOKS AND RECORDS Any stockholder or his designated representative will be permitted access to all of our records at all reasonable times and may inspect and copy any of them for the purposes specified below. We maintain an alphabetical list of names, record addresses and business telephone numbers, if any, of all stockholders with the number of shares held by each at our principal office. The stockholder list is updated at least quarterly and is open for inspection by a stockholder or his designated agent at the stockholder's request. A stockholder may request a copy of the stockholder list to find out about matters relating to the stockholder's voting rights and their exercise under federal proxy laws. We will mail the stockholder list to any stockholder requesting it within 10 days of receiving the request. We may impose a reasonable charge for expenses incurred in reproducing the list. If our business manager/advisor or directors neglect or refuse to produce or mail a copy of the stockholder list as requested, then in accordance with applicable law and our articles of incorporation, the business manager/advisor and the directors will be liable to the stockholder who requested the list. Their liability will include the costs, including reasonable attorneys' fees, incurred by the stockholder in compelling the production of the list and actual damages suffered by the stockholder because of the refusal or neglect. However, the fact that the actual purpose of the request is to secure the list for the purpose of selling it, or using it for a commercial or other purpose is a defense against liability for refusal to supply the list. We may require the stockholder requesting the list to represent that the stockholder list is not requested for a commercial purpose unrelated to the stockholder's interest in us. In addition, our books and records are open for inspection by state securities administrators upon reasonable notice and during normal business hours at our principal place of business. 337 AMENDMENT OF THE ORGANIZATIONAL DOCUMENTS Our articles of incorporation may be amended, after approval by our board, by the affirmative vote of a majority of our then-outstanding voting shares of stock. Our bylaws may be amended in a manner not inconsistent with the articles of incorporation and bylaws by a majority vote of our directors present at the board meeting. Additionally, our stockholders may amend our bylaws by the affirmative vote of a majority of all votes cast at a meeting at which a quorum is present. DISSOLUTION OR TERMINATION OF THE COMPANY As a Maryland corporation, we may be dissolved under Maryland law at any time with the approval of a majority of our outstanding shares of stock. However, we anticipate that by September 15, 2008, our board will determine whether to: - apply to have our shares of common stock listed for trading on a national stock exchange or included for quotation on a national market system, provided we meet the then applicable listing requirements; and/or - commence subsequent offerings after completion of the offering. If listing our shares of common stock is not feasible by that time, our board may decide to: - sell our assets individually, provided, however, that if this action would constitute the sale of all or substantially all of our assets, such an action is approved by the holders of at least a majority of the then-outstanding voting shares of stock; - list our shares of common stock at a future date; or - liquidate us within 10 years of such date, provided however, that such an action is approved by the holders of at least a majority of our then-outstanding voting shares of stock. ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS Our bylaws provide that, with respect to our annual meeting of stockholders, nominations for election to our board and the proposal of business to be considered by stockholders may be made only: - in accordance with our notice of the meeting; - by or at the direction of our board; or - by a stockholder who was a stockholder of record both at the time of the giving of notice and at the time of the meeting, who is entitled to vote at the meeting and who has complied with the advance notice procedures set forth in the bylaws. Our bylaws also provide that, with respect to special meetings of stockholders, only the business specified in our notice of meeting may be brought before a meeting of stockholders and nominations for election to the board may be made only: - in accordance with our notice of the meeting; 338 - by or at the direction of our board; or - provided that our board has determined that directors will be elected at the meeting, by a stockholder who was a stockholder of record both at the time of the giving of notice and at the time of the annual meeting, who is entitled to vote at the meeting and has complied with the advance notice procedures set forth in our bylaws. A stockholder's notice for an annual meeting must be delivered to our secretary at our principal executive offices: - not less than 45 days prior to the first anniversary of the date of mailing of the notice of the previous year's annual meeting; or - if the number of directors to be elected is increased and there is no announcement of that fact, at least 70 days before the first anniversary of the date of mailing of the notice of the previous year's annual meeting, or not later than the close of business on the tenth day of our first public announcement. A stockholder's notice for a special meeting must be delivered to our secretary at our principal executive offices: - not earlier than the ninetieth day prior to the special meeting, and - not later than the close of business on the later of either: - the sixtieth day prior to the special meeting; or - the tenth day following the day of our first public announcement of the date of the special meeting and the nominees proposed by our board to be elected at the meeting. RESTRICTIONS ON CERTAIN CONVERSION TRANSACTIONS AND ROLL-UPS Our articles of incorporation require that some transactions involving an acquisition, merger, conversion or consolidation in which our stockholders receive securities in a surviving entity, a roll-up entity, must be approved by the holders of a majority of our then-outstanding shares. Approval by a majority of our then-outstanding shares for a transaction resulting in a roll-up entity is only required, however, until our board determines that it is no longer in our best interest to attempt or continue to qualify as a REIT. The holders of a majority of the shares do not need to approve any such transaction effected because of changes in applicable law, or to preserve tax advantages for a majority in interest of our stockholders. A roll-up entity is a partnership, REIT, corporation, trust or other entity that would be created or would survive after the successful completion of a proposed roll-up transaction. A roll-up does not include (1) a transaction involving securities that have been listed on a national securities exchange or traded through The Nasdaq Stock Market -- Nasdaq National Market for at least 12 months, or (2) a transaction involving our conversion to a trust or association form if, as a consequence of the transaction, there will be no significant adverse change in any of the following: - stockholders' voting rights; - our term of existence; 339 - sponsor or business manager/advisor compensation; or - our investment objectives. In the event of a proposed roll-up, an appraisal of all our assets must be obtained from a person with no current or prior business or personal relationship with our business manager/advisor or directors. Further, that person must be substantially engaged in the business of rendering valuation opinions of assets of the kind we hold. The appraisal must be included in a prospectus used to offer the securities of a roll-up entity. It must also be filed with the Securities and Exchange Commission and the state regulatory commissions as an exhibit to the registration statement for the offering of the roll-up entity's shares. As a result, an issuer using the appraisal will be subject to liability for violation of Section 11 of the Securities Act and comparable provisions under state laws for any material misrepresentations or material omissions in the appraisal. Our assets will be appraised in a consistent manner and the appraisal will: - be based on an evaluation of all relevant information; - indicate the value of our assets as of a date immediately prior to the announcement of the proposed roll-up transaction; and - assume an orderly liquidation of our assets over a 12-month period. The terms of the engagement of the appraiser will clearly state that the engagement is for the benefit of us and our stockholders. A summary of the independent appraisal, indicating all material assumptions underlying it, will be included in a report to the stockholders in the event of a proposed roll-up. We may not participate in any proposed roll-up which would: - result in the stockholders of the roll-up entity having rights which are more restrictive to stockholders than those provided in our articles of incorporation, including any restriction on the frequency of meetings; - result in the stockholders having less comprehensive voting rights than are provided in our articles of incorporation; - result in the stockholders having greater liability than provided in our articles of incorporation; - result in the stockholders having fewer rights to receive reports than those provided in our articles of incorporation; - result in the stockholders having access to records that are more limited than those provided for in our articles of incorporation; - include provisions which would operate to materially impede or frustrate the accumulation of shares by any purchaser of the securities of the roll-up entity, except to the minimum extent necessary to preserve the tax status of the roll-up entity; - limit the ability of an investor to exercise its voting rights in the roll-up entity on the basis of the number of the shares held by that investor; 340 - result in investors in the roll-up having less comprehensive rights of access to the records of the roll-up than those provided in our articles of incorporation; or - place any of the costs of the transaction on us if the roll-up is not approved by our stockholders. However, with the prior approval of a majority of our then-outstanding shares of our stock, we may participate in a proposed roll-up if the stockholders would have rights and be subject to restrictions comparable to those contained in our articles of incorporation. Stockholders who vote "no" on the proposed roll-up will have the choice of: - accepting the securities of the roll-up entity offered; or - one of either: - remaining as our stockholders and preserving their interests on the same terms and conditions as previously existed; or - receiving cash in an amount equal to their pro rata share of the appraised value of our net assets. These provisions in our articles of incorporation, bylaws and Maryland law could have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock. The limitations and restrictions set forth below under " -- Limitation on Total Operating Expenses," " -- Transactions with Affiliates," and " -- Restrictions on Borrowing" in this section will be effective until our board determines that it is no longer in our or our stockholders' best interests that we continue to operate as a REIT, or until such time as we fail to qualify as a REIT. LIMITATION ON TOTAL OPERATING EXPENSES Our articles of incorporation provide that, subject to the conditions described in the following paragraph, our annual total operating expenses in any fiscal year shall not exceed the greater of 2% of our average assets or 25% of our net income, before any additions to or allowances for reserves for depreciation, amortization or bad debts or other similar non-cash reserve and before any gain from the sale of an our assets. Our independent directors have a fiduciary responsibility to limit our annual total operating expenses to amounts that do not exceed these limits. Our independent directors may, however, determine that a higher level of total operating expenses is justified for such period because of unusual and non-recurring expenses. Such a finding by our independent directors and the reasons supporting it shall be recorded in our minutes of meetings of our directors. If at the end of any fiscal quarter our total operating expenses for the 12 months then ended are more than 2% of average assets or more than 25% of net income, before any additions to or allowances for reserves for depreciation, amortization or bad debts or other similar non-cash revenues and before any gain from the sale of our assets, whichever is greater, as described above, we will disclose this in writing to the stockholders within 60 days of the end of the fiscal quarter. If our independent directors conclude that higher total operating expenses are justified, the disclosure will also contain an explanation of the conclusion. If total operating expenses exceed the limitations described above and if our directors are unable to conclude that the excess was justified, then the business manager/advisor will reimburse us the amount by which the aggregate annual total operating 341 expenses we paid or incurred exceed the limitation. We must make the reimbursement within 60 days after the end of the fiscal year. TRANSACTIONS WITH AFFILIATES Our articles of incorporation impose restrictions on transactions between us and our business manager/advisor, sponsor and any director or their affiliates as follows: - SALES AND LEASES TO US. We will not purchase property from our sponsor, business manager/advisor, directors or any of their affiliates, unless a majority or our disinterested directors, including a majority of our disinterested independent directors, approves it as fair and reasonable for us. The price to us can be no greater than the cost of the asset to our sponsor, adviser, director or their affiliate. If our price to us is greater than such cost, there must be substantial, reasonable justification for the excess cost. In no event will our cost for the property exceed its appraised value at the time we acquired it. - SALES AND LEASES TO SPONSOR, BUSINESS MANAGER/ADVISOR, DIRECTOR OR ANY AFFILIATE. Our sponsor, business manager/advisor, directors or any of their affiliates will not acquire assets from us unless a majority of disinterested directors, including a majority of our disinterested independent directors, approves the transaction as being fair and reasonable to us. We may lease assets to our sponsor, business manager/advisor, director or any of their affiliates, but still only if a majority of our disinterested directors, including a majority of our disinterested independent directors, approves it as fair and reasonable to us. - LOANS. We will not make loans to our sponsor, business manager/advisor, directors or any of their affiliates except as provided in clauses (4) and (6) under " -- Restrictions on Investments" below in this section, or to our wholly owned subsidiaries. Also, we may not borrow money from our sponsor, business manager/advisor, director or any of their affiliates, unless a majority of our disinterested directors, including a majority of our disinterested independent directors, approves the transaction as fair, competitive and commercially reasonable and no less favorable to us than loans between unaffiliated parties under the same circumstances. - INVESTMENTS. We will not invest in joint ventures with our sponsor, business manager/advisor, directors or any of their affiliates, unless a majority of our disinterested directors, including a majority of our disinterested independent directors, approves the transaction as fair and reasonable to us and on substantially the same terms and conditions as those received by the other joint ventures. Neither can we invest in equity securities unless a majority of our disinterested directors, including a majority of our disinterested independent directors, approves the transaction as being fair, competitive and commercially reasonable. - OTHER TRANSACTIONS. All other transactions between us and our sponsor, business manager/advisor, directors or any of their affiliates, require approval by a majority of our disinterested directors, including a majority of our disinterested independent directors, as being fair and reasonable and on terms and conditions not less favorable to us than those available from unaffiliated third parties. 342 RESTRICTIONS ON BORROWING We may not incur indebtedness to enable us to make distributions except as necessary to satisfy the requirement to distribute at least the percentage of our REIT taxable income required for annual distribution of dividends by the Internal Revenue Code of 1986, or otherwise as necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes. Our aggregate borrowings, secured and unsecured, will be reasonable in relation to our net assets and will be reviewed by our board at least quarterly. We anticipate that, in general, aggregate borrowings secured by all our properties will not exceed 55% of their combined fair market value. This anticipated amount of leverage will be achieved over time. Our articles of incorporation provide that the aggregate amount of borrowing in relation to our net assets will, in the absence of a satisfactory showing that a higher level of borrowing is appropriate, not exceed 300% of net assets. Any excess in borrowing over such 300% of net assets level will be: approved by a majority of our independent directors; - disclosed to our stockholders in our next quarterly report to them, along with justification for such excess; and - subject to approval of our stockholders. See "Investment Objectives and Policies -- Borrowing." RESTRICTIONS ON INVESTMENTS The investment policies set forth in our articles of incorporation have been approved by a majority of independent directors. Our articles of incorporation prohibit our investments in: - any foreign currency or bullion; - short sales; and - any security in any entity holding investments or engaging in activities prohibited by our articles of incorporation. In addition to other investment restrictions imposed by our directors from time to time consistent with our objective to qualify as a REIT, we will observe the following restrictions on our investments as set forth in our articles of incorporation: (1) Not more than 10% of our total assets will be invested in unimproved real property or mortgage loans on unimproved real property. For purposes of this paragraph, "unimproved real property" does not include properties acquired for the purpose of producing rental or other operating income, properties under development or construction, and properties under contract for development or in planning for development within one year. (2) We will not invest in commodities or commodity future contracts. This limitation does not apply to interest rate futures when used solely for hedging purposes. (3) We will not invest in contracts for the sale of real estate. 343 (4) We will not invest in or make mortgage loans unless we obtain an appraisal of the underlying property. Mortgage indebtedness on any property will not exceed the property's appraised value. In cases in which the majority of independent directors so determine, and in all cases in which the mortgage loan involves our business manager/advisor, sponsor, directors or their affiliates, we must obtain the appraisal from an independent expert. We will keep the appraisal in our records for at least five years, where it will be available for inspection and duplication by any stockholder. In addition to the appraisal, we will also obtain a mortgagee's or owner's title insurance policy or commitment as to the priority of the mortgage or condition of the title. We will not invest in real estate contracts of sale otherwise known as land sale contracts. (5) We will not make or invest in mortgage loans, including construction loans, on any one property if the aggregate amount of all outstanding mortgage loans outstanding on the property, including our loans, would exceed an amount equal to 85% of the appraised value of the property. However, if there is substantial justification due to other underwriting criteria and provided that loans would not exceed the appraised value of the property at the date of the loans, we could invest in mortgage loans that exceed 85% of the appraised value of the property. The aggregate amount of all mortgage loans outstanding on the property, including the loans of the REIT, shall include all interest (excluding contingent participation in income and/or appreciation in value of the mortgaged property), the current payment of which may be deferred pursuant to the terms of such loans, to the extent that deferred interest on each loan exceeds 5% per annum of the principal balance of the loan. (6) We will not make or invest in any mortgage loans that are subordinate to any mortgage or equity interest of the business manager/advisor, the sponsor, any director or their affiliates. (7) We will not invest in equity securities unless a majority of our disinterested directors, including a majority of our disinterested independent directors, approves the transaction as being fair, competitive and commercially reasonable. Investments in entities affiliated with our business manager/advisor, the sponsor, any director or their affiliates are subject to the restrictions on joint venture investments. Notwithstanding these restrictions, we may purchase our own securities when traded on a national securities exchange or market if a majority of our directors, including a majority of our independent directors, determines the purchase to be in our best interests. (8) We will not engage in any short sale nor will we borrow on an unsecured basis if the borrowing will result in an asset coverage of less than 300%. (9) To the extent we invest in properties, a majority of the directors, including a majority of the independent directors, will approve the consideration paid for such properties based on the fair market value of the properties. If a majority of independent directors so determines, the fair market value will be determined by a qualified independent real estate appraiser selected by our independent directors. If any property is acquired from our sponsor, our business manager/advisor, any director, or any of their affiliates, the provisions on transactions with affiliates will apply. (10) We will not invest in debt that is secured by a mortgage on real property that is subordinate to the lien of other debt, except where the amount of total debt does not exceed 90% of the appraised value of the property. The value of all of these investments 344 may not exceed 25% of our tangible assets. The value of all investments in this debt that does not meet these requirements will be limited to 10% of our tangible assets, which would be included within the 25% limitation. (11) We will not engage in trading, as compared with investment, activities. (12) We will not engage in underwriting activities, or distribute as agent, securities issued by others. (13) We will not acquire securities in any entity holding investments or engaging in activities prohibited by the restrictions on investments set forth in the foregoing clauses (1) through (12). Temporary investments in cash may be in such entities. Our independent directors will review our investment policies at least annually to determine whether our policies that we are following are in the best interests of our stockholders. Subject to the above restrictions and so long as we qualify as a REIT, a majority of our directors, including a majority of our independent directors, may alter the investment policies if they determine that a change is in our best interests. [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 345 FEDERAL INCOME TAX CONSIDERATIONS We intend to qualify as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder and receive the beneficial federal income tax treatment described below. However, we cannot assure you that we will meet the applicable requirements under federal income tax laws, which are highly technical and complex. The following discusses the applicable requirements under federal income tax laws, the federal income tax consequences to maintaining REIT status and the material federal income tax consequences to you. Duane Morris LLP has acted and will act as our tax counsel in connection with our election to be taxed as a REIT, and has rendered the opinion set forth below. Some of the federal income tax implications of your investment are set forth in the "--Federal Income Taxation of Stockholders" section below. We, however, urge you to consult your tax advisor with respect to the federal, state, local, foreign and other tax consequences of the purchase, ownership and disposition of common shares which may be particular to your tax situation. In brief, a corporation that invests primarily in real estate can, if it complies with the provisions in Sections 856-860 of the Internal Revenue Code, qualify as a REIT and claim federal income tax deductions for the dividends it pays to its stockholders. Such a corporation generally is not taxed on its net income that is currently distributed to its shareholders. This treatment substantially eliminates the "double taxation" that a corporation and its shareholders generally bear together. However, as discussed in greater detail below, a corporation could be subject to federal income tax in some circumstances even if it qualifies as a REIT, and would likely suffer adverse consequences, including reduced cash available for distribution to its stockholders, if it failed to qualify as a REIT. We intend to operate in a manner that permits us to elect REIT status for the taxable year ending December 31, 2003, and to maintain this status in each taxable year thereafter, so long as REIT status remains advantageous. Duane Morris LLP is of the opinion, assuming that the actions described in this section are completed on a timely basis and we timely file the requisite elections, that we have been organized in conformity with the requirements for qualification as a REIT beginning with our taxable year ending December 31, 2003, and our proposed method of operation (as described in this prospectus) will enable us to satisfy the applicable requirements under federal income tax laws for qualification as a REIT. This opinion has been filed as an exhibit to the registration statement of which this prospectus is a part, and is based and conditioned, in part, on various assumptions made by Duane Morris LLP and representations made to Duane Morris LLP by us and the business manager/advisor as to factual matters. Our qualification and federal income tax treatment as a REIT depends upon our ability to meet, through operation of the properties we acquire and our investment in other assets, the applicable requirements under federal income tax laws. Duane Morris LLP has not reviewed, and will not in the future review, these operating results for compliance with the applicable requirements under federal income tax laws. Therefore, we cannot assure you that our actual operating results will allow us to satisfy the applicable requirements under federal income tax laws in any taxable year. In addition, this opinion represents Duane Morris LLP's legal judgment and is not binding on the Internal Revenue Service. FEDERAL INCOME TAXATION AS A REIT GENERAL. In any year in which we qualify as a REIT and have a valid election in place, we will claim deductions for the dividends we pay to the stockholders, and therefore will not be subject to federal income tax on that portion of our REIT Taxable Income as defined Section 857(b)(2) of the Internal Revenue Code or REIT capital gain which is distributed to our stockholders. We will, however, be subject to federal income tax at normal corporate rates on any REIT Taxable Income or capital gain not distributed. 346 Although we can eliminate or substantially reduce our federal income tax liability by maintaining our REIT status and paying sufficient dividends, we could be subject to federal income tax on certain items of income. If we fail to satisfy either the 95% Gross Income Test or the 75% Gross Income Test (each of which is described below), yet maintain our REIT status by meeting other requirements, we will be subject to a penalty tax based on the amount of income which caused us to fail these tests, as described below. We will also be subject to a 100% federal income tax on the net income from any "prohibited transaction," as described below. In addition, in order to retain our REIT status, we generally must distribute annually at least 90% of our REIT Taxable Income for such year. While we are not required to distribute REIT net capital gain income for any year in order to retain our REIT status, we will pay tax on such income to the extent we do not distribute it in such year. We may also be subject to the corporate alternative minimum tax. Additionally, we will be subject to federal income tax at the highest corporate rate on certain "nonqualifying" income from foreclosure property. In general, foreclosure property consists of property acquired (by foreclosure or otherwise) in connection with the default of a loan secured by such property. REIT QUALIFICATION TESTS. The Code defines a REIT as a corporation, trust or association: - that is managed by one or more trustees or directors; - the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; - that would be taxable as a domestic corporation but for its status as a REIT; - that is neither a financial institution nor an insurance company; - the beneficial ownership of which is held by 100 or more persons on at least 335 days in each full taxable year, proportionately adjusted for a partial taxable year; - generally in which, at any time during the last half of each taxable year, no more than 50% in value of the outstanding stock is owned, directly, or indirectly, by five or fewer individuals or certain entities; and - that meets the gross income, asset and annual distribution requirements, described in greater detail below. The first four and last conditions must be met during each taxable year for which REIT status is sought, while the other two conditions do not have to be met until after the first taxable year for which a REIT election is made. Although the 25% Asset Test (as defined below) generally prevents a REIT from owning more than 10% of the voting stock of an entity other than another REIT, the Internal Revenue Code provides an exception for ownership of voting stock in a "qualified REIT subsidiary." A qualified REIT subsidiary is a corporation that is wholly owned by a REIT throughout its existence. For purposes of the 25% Asset Test and the Gross Income Tests described below, all assets, liabilities and tax attributes of a qualified REIT subsidiary are treated as owned by the REIT. A qualified REIT subsidiary is not subject to federal income tax, but may be subject to state or local tax. We may hold investments through qualified REIT subsidiaries. We, in satisfying the general tests described above, must meet, among others, the following requirements: SHARE OWNERSHIP TESTS. The common stock and any other stock we issue must be held by a minimum of 100 persons (determined without attribution to the owners of any entity owning our stock) for at least 335 days in each full taxable year, proportionately adjusted for partial taxable years. In addition, at all times during the second half of each taxable year, no more than 50% in value of our stock may be owned, directly or indirectly, by five or fewer individuals (determined with attribution to the 347 owners of any entity owning our stock). However, these two requirements do not apply until after the first taxable year an entity elects REIT status. In addition, our articles of incorporation contain provisions restricting the transfer of our stock, which provisions are intended to assist us in satisfying both requirements. Furthermore, the distribution reinvestment program contains provisions that prevent it from causing a violation of these tests as do the terms of the options granted to the independent directors and the warrants issuable to the dealer manager and soliciting dealers. Pursuant to the applicable requirements under federal income tax laws, we will maintain records which disclose the actual ownership of the outstanding stock, and demand written statements each year from the record holders of specified percentages of the stock disclosing the beneficial owners. Those stockholders failing or refusing to comply with our written demand are required by the Internal Revenue Code and our articles of incorporation to submit, with their tax returns, a similar statement disclosing the actual ownership of stock and certain other information. See "Description of Securities--Restrictions on ownership and transfer." ASSET TESTS. We must satisfy, at the close of each calendar quarter of the taxable year, two tests based on the composition of our assets. After initially meeting the Asset Tests at the close of any quarter, we will not lose our status as a REIT for failure to satisfy the Asset Tests at the end of a later quarter solely due to changes in value of our assets. In addition, if the failure to satisfy the Asset Tests results from an acquisition during a quarter, the failure can be cured by disposing of nonqualifying assets within 30 days after the close of that quarter. We intend to maintain adequate records of the value of our assets to insure compliance with these tests, and will act within 30 days after the close of any quarter as may be required to cure any noncompliance. 75% ASSET TEST. At least 75% of the value of our assets must be represented by "real estate assets," cash, cash items (including receivables) and government securities. Real estate assets include (i) real property (including interests in real property and interests in mortgages on real property), (ii) shares in other qualifying REITs, and (iii) any property (not otherwise a real estate asset) attributable to the temporary investment of "new capital" in stock or a debt instrument, but only for the one-year period beginning on the date we received the new capital. Property will qualify as being attributable to the temporary investment of new capital if the money used to purchase the stock or debt instrument is received by us in exchange for our stock (other than amounts received pursuant to our distribution reinvestment program) or in a public offering of debt obligations that have a maturity of at least five years. Additionally, regular and residual interests in a real estate mortgage investment conduit, known as a REMIC, and regular interests in a financial asset securitization trust, known as a FASIT, are considered real estate assets. However, if less than 95% of the assets of a REMIC or FASIT are real estate assets, we will be treated as holding a proportionate share of the assets and income of the REMIC or FASIT directly. When we purchase new real estate properties, we intend that the purchase contracts will apportion no more than 5% of the purchase price of any property to property other than "real property," as defined in the Code. In addition, we intend to invest funds not used to acquire properties in cash sources, "new capital" investments or other liquid investments which will allow us to qualify under the 75% Asset Test. Therefore, our investment in the real properties will constitute "real estate assets" and should allow us to meet the 75% Asset Test. 25% ASSET TEST. The remaining 25% of our assets may generally be invested subject to the following restrictions: If we invest in any securities that do not qualify under the 75% Asset Test, such securities may not exceed either (i) 5% of the value of our assets as to any one issuer; or (ii) 10% of the outstanding securities by vote or value of any one issuer. Modifications apply to the 25% Asset Test for qualified REIT subsidiaries and taxable REIT subsidiaries. As discussed above, the stock of a "qualified REIT subsidiary" is not counted for purposes 348 of the 25% Asset Test. A qualified REIT subsidiary is a corporation that is wholly owned by a REIT throughout the subsidiary's existence. All assets, liabilities and tax attributes of a qualified REIT subsidiary are treated as belonging to the REIT. A qualified REIT subsidiary is not subject to federal income tax, but may be subject to state or local tax. We may hold investments through qualified REIT subsidiaries. Additionally, for purposes of the 25% Asset Test, securities of a taxable REIT subsidiary are excepted from the 10% vote and value limitations on a REIT's ownership of securities of a single issuer. However, no more than 20% of the value of a REIT may be represented by securities of one or more taxable REIT subsidiaries. A taxable REIT subsidiary is a corporation (other than another REIT) that is owned in whole or in part by a REIT, and joins in an election with the REIT to be classified as a taxable REIT subsidiary. Corporations that directly or indirectly operate or manage lodging or health care facilities cannot be taxable REIT subsidiaries. A corporation that is 35% owned by a taxable REIT subsidiary will also be treated as a taxable REIT subsidiary. A taxable REIT subsidiary may not be a qualified REIT subsidiary, and vice versa. As described below regarding the 75% Gross Income Test, a taxable REIT subsidiary is utilized in much the same way an independent contractor is used to provide certain types of services without causing the REIT to receive or accrue certain types of non-qualifying income. In addition to utilizing independent contractors to provide certain services in connection with the operation of our properties, we may also utilize taxable REIT subsidiaries to carry out these functions. We intend to invest funds not otherwise invested in properties in cash sources and other liquid investments in a manner which will enable us to satisfy the 25% Asset Test. GROSS INCOME TESTS. We must satisfy for each calendar year two separate tests based on the composition of our gross income, as defined under our method of accounting. THE 75% GROSS INCOME TEST. At least 75% of our gross income for the taxable year must result from (i) rents from real property, (ii) interest on obligations secured by mortgages on real property or on interests in real property, (iii) gains from the sale or other disposition of real property (including interests in real property and interests in mortgages on real property) other than property held primarily for sale to customers in the ordinary course of our trade or business, (iv) dividends from other qualifying REITs and gain (other than gain from prohibited transactions) from the sale of shares of other qualifying REITs, (v) other specified investments relating to real property or mortgages thereon, and, (vi) for a limited time, qualified temporary investment income, as defined under the 75% Asset Test. We intend to invest funds not otherwise invested in real properties in cash sources or other liquid investments in a manner that will allow us to qualify under the 75% Gross Income Test. Income attributable to a lease of real property will generally qualify as "rents from real property" under the 75% Gross Income Test (and the 95% Gross Income Test, described below), subject to the rules discussed below: - Rent from a particular tenant will not qualify if we, or an owner of 10% or more of our stock, directly or indirectly, owns 10% or more of the voting stock or the total number of shares of all classes of stock in, or 10% or more assets or net profits of, the tenant. - The portion of rent attributable to personal property rented in connection with real property will not qualify, unless the portion attributable to personal property is 15% or less of the total rent received under, or in connection with, the lease. - Generally, rent will not qualify if it is based in whole, or in part, on the income or profits of any person from the underlying property. However, rent will not fail to qualify if it is based on a fixed percentage (or designated varying percentages) of receipts or sales, including amounts above a base amount so long as the base amount is fixed at the time 349 the lease is entered into, the provisions are in accordance with normal business practice and the arrangement is not an indirect method for basing rent on income or profits. - Rental income will not qualify if we furnish or render services to tenants or manage or operate the underlying property, other than through a permissible "independent contractor" from whom we derive no revenue, or through a taxable REIT subsidiary. This requirement, however, does not apply to the extent that the services, management or operations we provide are "usually or customarily rendered" in connection with the rental of space, and are not otherwise considered "rendered to the occupant." With respect to the "usual or customarily rendered" rule, our tenants will receive some services in connection with their leases to the real properties. We believe that the services to be provided are usually or customarily rendered in connection with the rental of the properties, and, therefore, that providing these services will not cause the rents we receive with respect to the properties to fail to qualify as rents from real property for purposes of the 75% Gross Income Test (and the 95% Gross Income Test, described below). The board of directors intends to hire qualifying independent contractors or to utilize taxable REIT subsidiaries to render services which it believes, after consultation with Duane Morris LLP, are not usually or customarily rendered in connection with the rental of space. THE 95% GROSS INCOME TEST. In addition to deriving 75% of our gross income from the sources listed above, at least 95% of our gross income (excluding gross income from prohibited transactions) for the taxable year must be derived from (i) sources which satisfy the 75% Gross Income Test, (ii) dividends, (iii) interest, or (iv) gain from the sale or disposition of stock or other securities that are not assets held primarily for sale to customers in the ordinary course of our trade or business. It is important to note that dividends and interest on obligations not collateralized by an interest in real property qualify under the 95% Gross Income Test, but not under the 75% Gross Income Test. We intend to invest funds not otherwise invested in properties in cash sources or other liquid investments which will allow us to qualify under the 95% Gross Income Test. Our share of income from the properties will primarily give rise to rental income and gains on sales of the properties, substantially all of which will generally qualify under the 75% gross income and 95% Gross Income Tests. Our anticipated operations indicate that it is likely that we will have little or no nonqualifying income to cause adverse federal income tax consequences. If we fail to satisfy either the 75% Gross Income Test or the 95% Gross Income Test for any taxable year, we may retain our status as a REIT for such year if we satisfy the Internal Revenue Service that: (i) the failure was due to reasonable cause and not due to willful neglect, (ii) we attach to our return a schedule describing the nature and amount of each item of our gross income, and (iii) any incorrect information on such schedule was not due to fraud with intent to evade federal income tax. If this relief provision is available, we would remain subject to a 100% tax based upon the amount by which we failed the 75% Gross Income Test or the 95% Gross Income Test. ANNUAL DISTRIBUTION REQUIREMENTS. In addition to the other tests described above, we are required to distribute dividends (other than capital gain dividends) to the stockholders each year in an amount at least equal to the excess of: (1) the sum of: (a) 90% of our REIT Taxable Income (determined without regard to the deduction for dividends paid and by excluding any net capital gain); and (b) 90% of the excess of the net income (after tax) from foreclosure property; less (2) the sum of certain types of items of non-cash income. Whether sufficient amounts have been distributed is based on amounts paid in the taxable year to which they relate, or in the following taxable year if we: (1) declare a dividend before the due date of our tax return (including extensions), (2) distribute the dividend within the 12-month period following the close of the taxable year (and not later than the date of the first regular dividend payment made after such declaration), and (3) file an election with our tax return. Additionally, dividends that we 350 declare in October, November or December in a given year payable to stockholders of record in any such month will be treated as having been paid on December 31 of that year so long as the dividends are actually paid during January of the following year. If we fail to meet the annual distribution requirements as a result of an adjustment to our federal income tax return by the Internal Revenue Service, we may cure the failure by paying a "deficiency dividend" (plus penalties and interest to the Internal Revenue Service) within a specified period. If we do not distribute all of our net capital gain or distribute at least 90%, but less than 100% of our REIT Taxable Income, we will be subject to federal income tax on the undistributed portion. Furthermore, to the extent that we fail to distribute by year end at least the sum of: (1) 85% of our REIT Taxable Income for such year; (2) 95% of our REIT capital gain net income for such year; and (3) any undistributed taxable income from prior years, we would be subject to an excise tax equal to 4% of the difference between the amount required to be distributed under this formula and the amount actually distributed. We intend to pay sufficient dividends each year to satisfy the annual distribution requirements and avoid federal income tax on net capital gains. It is possible that we may not have sufficient cash or other liquid assets to meet the annual distribution requirements due to tax accounting rules and other timing differences. We will closely monitor the relationship between our REIT Taxable Income and cash flow and, if necessary to comply with the annual distribution requirements, will borrow funds to fully provide the necessary cash flow. FAILURE TO QUALIFY AS A REIT. If we fail to qualify for federal income tax purposes as a REIT in any taxable year and the relief provisions are not available or cannot be met, we will not be able to deduct our dividends and will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates, thereby reducing cash available for distributions. In such event, all distributions to stockholders (to the extent of our current and accumulated earnings and profits), will be taxable as ordinary income. This "double taxation" results from our failure to qualify as a REIT. Unless entitled to relief under specific statutory provisions, we will not be eligible to elect REIT status for the four taxable years following the year during which qualification was lost. PROHIBITED TRANSACTIONS. As discussed above, we will be subject to a 100% federal income tax on any net income derived from "prohibited transactions." Net income derived from prohibited transactions arises from the sale or exchange of property held for sale to customers in the ordinary course of our business which is not foreclosure property. There is an exception to this rule for sales of property that: - is a real estate asset under the 75% Asset Test; - has been held for at least four years; - has aggregate expenditures which are includable in the basis of the property not in excess of 30% of the net selling price; - in certain cases, was held for production of rental income for at least four years; - when combined with other sales in the year, either does not cause the REIT to have made more than seven sales of property during the taxable year, or occurs in a year when the REIT disposes of less than 10% of its assets (measured by federal income tax basis and ignoring involuntary dispositions and sales of foreclosure property); and - in certain cases, substantially all of the marketing and development expenditures were made through an independent contractor. Although we may eventually sell some or all of our properties, our primary intention in acquiring and operating the properties is the production of rental income and we do not expect to hold any property for sale to customers in the ordinary course of our business. 351 AMERICAN JOBS CREATION ACT OF 2004. The recently enacted American Jobs Creation Act of 2004, or the 2004 Act, which, except as described below, is effective for tax years beginning in 2005, contains a number of relief provisions applicable to REITs. First, the 2004 Act expands significantly the number and nature of securities that are no longer subject to testing under a 10% value test. The 10% value test will not apply to (a) any loan made to an individual or an estate, (b) certain rental agreements in which one or more payments are to be made in subsequent years (other than agreements between a REIT and certain persons related to the REIT), (c) any obligation to pay rents from real property, (d) securities issued by governmental entities that are not dependent in whole or in part on the profits of (or payments made by) a non-governmental entity, and (e) any security issued by another REIT. The 2004 Act also modifies the definition of "straight debt" effective for taxable years beginning after December 31, 2000, to provide that certain contingency features do not result in an obligation failing to qualify as straight debt. The 2004 Act does, however, limit the definition of "straight debt" by providing that no securities issued by a corporation or partnership shall qualify as straight debt if the REIT (or a "taxable REIT subsidiary" in which the REIT owns a greater than 50% interest, as measured by vote or value) owns non-straight debt securities of such issuer that represent more than 1% of the total value of all securities of such issuer. Second, the 2004 Act provides that, for taxable years beginning after December 31, 2000, certain debt instruments issued by a partnership that do no qualify as "straight debt" are not subject to testing under the 10% value test to the extent of the REIT's interest as a partner in that partnership. In addition, such debt instruments are excluded from testing under the 10% value test if at least 75% of the partnership's gross income (excluding income from "prohibited transactions") consists of income described in the 75% gross income test discussed above. Third, the 2004 Act excludes from the 95% REIT income test any income arising from "clearly identified" hedging transactions that are entered into by the REIT, either directly or through certain subsidiary entities, to manage the risk of interest rate movements, price changes, or currency fluctuations with respect to borrowings incurred or to be incurred by the REIT to acquire or carry real estate assets. In general for a hedging transaction to be "clearly identified," (a) the transaction must be identified as a hedging transaction before the end of the day on which it is entered into, and (b) the items or risks being hedged must be identified "substantially contemporaneously" with the hedging transaction, meaning that the identification of the items or risks being hedged must generally occur within 35 days after the date the transaction is entered into. Fourth, the 2004 Act contains provisions for REITs which own one or more assets that cause a violation of the 5% value and 10% vote or value tests described above. A REIT that fails the 5% value or the 10% vote or value tests is excused if the failure was (a) de minimis (generally, if the value of the assets causing the failure does not exceed the lesser of 1% of the REIT's total assets, and $10,000,000), and (b) either the REIT disposes of the assets causing the failure within 6 months after the last day of the quarter in which the REIT identifies the failure, or the 5% value or the 10% vote and value tests are otherwise satisfied within that time frame. There is an additional provision pursuant to which a REIT that fails the asset tests in a taxable year may still qualify as a REIT if (a) the REIT provides the IRS with a description of each asset causing the failure, (b) the failure was due to reasonable cause and not willful neglect, (c) the REIT pays a tax equal to the greater of $50,000 and the highest rate of corporate tax imposed on the net income generated by the assets causing the failure and (d) either the REIT disposes of the assets causing the failure within six months after the last day of the quarter in which the REIT identifies the failure, or otherwise satisfies the asset tests within that time frame. In addition to the relief provisions described above, the 2004 Act provides that capital gain dividends received by a foreign holder will be treated in the same manner as ordinary income dividends, 352 provided that (1) the capital gain dividends are received with respect to a class of stock that is regularly traded on an established securities market located in the United States and (2) the foreign holder does not own more than 5% of that class of stock at any time during the taxable year in which the capital gain dividends are received. FEDERAL INCOME TAXATION OF STOCKHOLDERS TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as we qualify as a REIT, distributions paid to our domestic stockholders out of current or accumulated earnings and profits (and not designated as capital gain dividends) will be ordinary dividend income. Distributions in excess of current and accumulated earnings and profits are treated first as a tax-deferred return of capital to the stockholder, reducing the stockholder's tax basis in his or her common stock by the amount of such distribution, and then to the extent such a distribution exceeds a stockholder's tax basis, as capital gain. Because earnings and profits are reduced for depreciation and other noncash items, it is possible that a portion of each distribution will constitute a tax-deferred return of capital. Additionally, because distributions in excess of earnings and profits reduce the stockholder's basis in our stock, this will increase the stockholder's gain on any subsequent sale of the stock. Dividend income is characterized as "portfolio" income under the passive loss rules and cannot be offset by a stockholder's current or suspended passive losses. Corporate stockholders cannot claim the dividends received deduction for such dividends unless we lose our REIT status. Distributions that are designated as capital gain dividends will be taxed as long-term capital gains to the extent they do not exceed our actual net capital gain for the taxable year. However, corporate stockholders may be required to treat up to 20% of some types of capital gain dividends as ordinary income. Although stockholders generally recognize taxable income in the year that a distribution is received, any distribution we declare in October, November or December of any year and is payable to a stockholder of record on a specific date in any such month will be treated as both paid by us and received by the stockholder on December 31 of the year it was declared even if paid by us during January of the following calendar year. Because we are not a pass-through entity for federal income tax purposes, stockholders may not use any of our operating or capital losses to reduce their tax liabilities. We may also decide to retain, rather than distribute, our net long-term capital gains and pay any tax thereon. In this case, stockholders would include their proportionate shares of such gains in income and receive a credit on their returns for their proportionate share of our tax payments. In general, the sale of common stock held for more than 12 months will produce long-term capital gain or loss. All other sales of common stock generally will produce short-term gain or loss. In each case, the gain or loss is equal to the difference between the amount of cash and fair market value of any property received from the sale and the stockholder's basis in the common stock sold. However, any loss from a sale or exchange of common stock by a stockholder who has held such stock for six months or less will be treated as a long-term capital loss, to the extent of our distributions that the stockholder treated as long-term capital gains. We will report to our domestic stockholders and to the Internal Revenue Service the amount of dividends paid during each calendar year, and the amount (if any) of federal income tax we withhold. A stockholder may be subject to backup withholding (the current rate of which is 30%) with respect to dividends paid unless such stockholder: (a) is a corporation or comes within other exempt categories; or (b) provides us with a taxpayer identification number, certifies as to no loss of exemption, and otherwise complies with applicable requirements. A stockholder that does not provide us with its correct taxpayer identification number may also be subject to penalties imposed by the Internal Revenue Service. Any amount paid as backup withholding can be credited against the stockholder's federal income tax liability. 353 In addition, we may be required to withhold a portion of distributions made to any stockholders who fail to certify their nonforeign status to us. See "--Taxation of Foreign Stockholders" in this section. TAXATION OF TAX EXEMPT STOCKHOLDERS. Our distributions to a stockholder that is a tax-exempt entity should not constitute unrelated business taxable income, or UBTI, unless the stockholder borrows funds (or otherwise incurs acquisition indebtedness within the meaning of the Internal Revenue Code) to acquire its common shares, or the common shares are otherwise used in an unrelated trade or business of the tax-exempt entity. Special rules apply to the ownership of REIT shares by certain tax-exempt pension trusts. If we would fail to satisfy the "five or fewer" share ownership test (discussed above with respect to the Share Ownership tests) because the stock held by tax-exempt pension trusts was viewed as being held by the trusts rather than by their respective beneficiaries, tax-exempt pension trusts owning more than 10% by value of our stock may be required to treat a percentage of our dividends as UBTI. This rule applies if: (1) at least one tax-exempt pension trust owns more than 25% by value of our shares, or (2) one or more tax-exempt pension trusts (each owning more than 10% by value of our shares) hold in the aggregate more than 50% by value of our shares. The percentage treated as UBTI is our gross income (less direct expenses) derived from an unrelated trade or business (determined as if we were a tax-exempt pension trust) divided by our gross income from all sources (less direct expenses). If this percentage is less than 5%, however, none of the dividends will be treated as UBTI. Because of the restrictions in our articles of incorporation of incorporation regarding the ownership concentration of our common stock, we believe that a tax-exempt pension trust should not become subject to these rules. However, because our common shares may be publicly traded, we can give no assurance of this. Prospective tax-exempt purchasers should consult their own tax advisors as to the applicability of these rules and consequences to their particular circumstances. TAXATION OF FOREIGN STOCKHOLDERS. The following discussion is intended only as a summary of the rules governing federal income taxation of nonresident alien individuals, foreign corporations, foreign partnerships, and foreign trusts and estates. These rules are quite complex and prospective foreign stockholders should consult with their own tax advisors to determine the impact of federal, state, and local income tax laws including any reporting requirements with respect to their investment in our REIT. In general, foreign stockholders will be subject to regular U.S. income tax with respect to their investment if such investment is "effectively connected" with the conduct of a trade or business in the U.S. A corporate foreign stockholder that receives (or is deemed to have received) income that is effectively connected with a U.S. trade or business may also be subject to the 30% "branch profits tax" under Code Section 884, which is payable in addition to regular federal corporate income tax. The following discussion applies to foreign stockholders whose investment is not considered "effectively connected." Generally, any dividend that constitutes ordinary income for federal income tax purposes will be subject to a U.S. tax equal to the lesser of 30% of the gross amount of dividends or the rate in an applicable tax treaty. Generally, a distribution that does not exceed our earnings and profits will be treated as a dividend taxable as ordinary income. A distribution in excess of our earnings and profits is treated first as a nontaxable return of capital that will reduce a foreign stockholder's basis in its common stock (but not below zero) and then as gain from the disposition of such common stock, subject to the rules discussed below for dispositions. Our distributions that are attributable to gain from the sale or exchange of a "U.S. real property interest" are taxed to a foreign stockholder as if the distributions were gains "effectively connected" with 354 a United States trade or business conducted by such foreign shareholder. As a result, a foreign stockholder will be taxed on these amounts at the capital gain rates applicable to a U.S. stockholder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In addition, such dividends may also be subject to a 30% branch profits tax when made to a corporate foreign stockholder that is not entitled to treaty exemptions. We will report to our foreign stockholders and the Internal Revenue Service the amount of dividends paid during each calendar year, and the amount (if any) of federal income tax we withhold. These information reporting requirements apply regardless of whether withholding was reduced or eliminated in any applicable tax treaty. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement with the tax authorities in the country in which the foreign stockholder resides. As discussed below, withholding tax rates of 30% and 35% may apply to distributions on common stock to foreign stockholders. Although tax treaties may reduce our withholding obligations, we will generally be required to withhold from dividends to foreign stockholders, and remit to the Internal Revenue Service, 35% of any distribution that could be designated as a capital gain dividend (regardless of the amount actually designated as a capital gain dividend) and 30% of ordinary dividends paid out of earnings and profits. In addition, if we designate prior dividends as capital gain dividends, subsequent dividends, up to the amount of such prior dividends, will be treated as capital gain dividends for withholding purposes. The amount of federal income tax withheld is creditable against the foreign stockholder's federal income tax liability, and if the amount of tax we withhold exceeds the U.S. tax liability, the foreign stockholder may file for a refund of such excess from the Internal Revenue Service. (Note that the 35% withholding tax rate on capital gain dividends currently corresponds to the maximum income tax rate applicable to corporations, but is higher than the 20% maximum rate on long-term capital gains of individuals.) Applicable Treasury regulations provide certain presumptions under which a foreign stockholder would be subject to backup withholding and information reporting until we receive certification from these stockholders of their foreign status. The regulations generally require a foreign stockholder to provide us with federal Form W-8BEN referred to as a Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, Form W-8ECI referred to as a Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States, or Form W-8EXP referred to as a Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding certifying the foreign stockholder's entitlement to the benefits of any treaty. Unless the common shares constitute a "U.S. real property interest" under Section 897 of the Internal Revenue Code, gain on a sale of common stock by a foreign stockholder generally will not be subject to U.S. income taxation unless (i) investment in the common stock is effectively connected with the foreign stockholder's U.S. trade or business, in which case, as discussed above, the foreign shareholder would be subject to the federal income tax, or (ii) the foreign stockholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year, in which case the nonresident alien individual may be subject to a 30% tax on such gain. The common shares will not constitute a "U.S. real property interest" if we are a "domestically controlled REIT." A domestically controlled REIT is a REIT, which at all times during the preceding five-year period, had less than 50% in value of its common stock held directly or indirectly by foreign stockholders. We (or, if shorter, the period during which the REIT is in existence) expect to be a domestically controlled REIT, and, therefore, the sale of common stock should not be subject to such taxation for foreign stockholders, except as discussed above. However, because the common shares may be (but are not guaranteed to be) publicly traded, we can not assure you that we will continue to be a 355 domestically controlled REIT. If we do not constitute a domestically controlled REIT, whether a foreign stockholder's gain on the sale of stock is subject to federal income tax as a sale of a U.S. real property interest depends primarily on whether the common shares are "regularly traded" on an established securities market and on the size of the selling stockholder's interest. If the gain on the sale of common shares is subject to federal income tax under these rules, the foreign stockholder would be subject to the same treatment as a U.S. stockholder with respect to the gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In any event, a purchaser of common stock from a foreign stockholder will not be required to withhold on the purchase price if the purchased shares are "regularly traded" on an established securities market or if we are a domestically controlled REIT. Otherwise, the purchaser of stock may be required to withhold 10% of the purchase price and remit this amount to the Internal Revenue Service. If the proceeds of a disposition of common stock are paid by or through a U.S. office of a broker-dealer, the payment is generally subject to information reporting and to backup withholding (the current rate of which is 30%) unless the disposing foreign stockholder certifies as to his name, address and non-U.S. status or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding may not apply to a payment of disposition proceeds if the payment is made outside the U.S. through a foreign office of a foreign broker-dealer. Prospective foreign purchasers should consult their tax advisers concerning these rules. OTHER TAX CONSIDERATIONS DISTRIBUTION REINVESTMENT PROGRAM. Stockholders who participate in the distribution reinvestment program will recognize taxable dividend income in the amount they would have received had they elected not to participate, even though they receive no cash. These deemed dividends will be treated as actual dividends from us to the participating stockholders and will retain the character and federal income tax effects applicable to all dividends. See "--Taxation of Stockholders" in this section. Stock received under the program will have a holding period beginning with the day after purchase, and a federal income tax basis equal to its cost, which is the gross amount of the deemed distribution. STATE AND LOCAL TAXES. We and you may be subject to state or local taxation in various jurisdictions, including those in which we transact business or reside. Our and your state and local tax treatment may not conform to the federal income tax consequences discussed above. Consequently, you should consult your own tax advisors regarding the effect of state and local tax laws on an investment in the common shares. LEGISLATIVE PROPOSALS. You should recognize that our and your present federal income tax treatment may be modified by legislative, judicial or administrative actions at any time, which may be retroactive in effect. The rules dealing with federal income taxation are constantly under review by Congress, the Internal Revenue Service and the Treasury Department, and statutory changes as well as promulgation of new regulations, revisions to existing statutes, and revised interpretations of established concepts occur frequently. We are not currently aware of any pending legislation that would materially affect our or your taxation as described in this prospectus. You should, however, consult your advisors concerning the status of legislative proposals that may pertain to a purchase of common shares. New legislation exempts certain dividend payments made by certain corporations from federal taxation. We cannot be sure what impact, if any, this or other legislation could have on us or you as a stockholder. 356 ERISA CONSIDERATIONS The following is a summary of material considerations arising under ERISA, including the prohibited transaction provisions of ERISA, and of Section 4975 of the Internal Revenue Code that may be relevant to a prospective purchaser of the shares where such prospective purchaser is an employee benefit plan, IRA or other tax-exempt entity under the Internal Revenue Code. This discussion does not deal with all aspects of ERISA or Section 4975 of the Internal Revenue Code or, to the extent not preempted, state law that may be relevant to particular employee benefit plan stockholders (including plans subject to Title I of ERISA, other employee benefit plans and IRAs subject to the prohibited transaction provisions of Section 4975 of the Internal Revenue Code, and governmental plans and church plans that are exempt from ERISA and Section 4975 of the Internal Revenue Code but that may be subject to state law and other Internal Revenue Code requirements) in light of their particular circumstances. A FIDUCIARY MAKING THE DECISION TO INVEST IN SHARES ON BEHALF OF A PROSPECTIVE INVESTOR WHICH IS A PENSION, PROFIT-SHARING, RETIREMENT, IRA OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE INTERNAL REVENUE CODE, AND (TO THE EXTENT NOT PREEMPTED) STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR SALE OF SHARES BY SUCH BENEFIT PLAN. BENEFIT PLANS SHOULD ALSO CONSIDER THE ENTIRE DISCUSSION UNDER THE PRECEDING SECTION ENTITLED "FEDERAL INCOME TAX CONSIDERATIONS," AS MATERIAL CONTAINED THEREIN IS RELEVANT TO ANY DECISION BY A BENEFIT PLAN TO PURCHASE THE SHARES. In considering whether to invest a portion of the assets of a benefit plan in shares, fiduciaries of the benefit plan should consider, among other things, whether the investment: - will be in accordance with the governing documents of the benefit plan and is authorized and consistent with their fiduciary responsibilities under ERISA; - will allow the benefit plan to satisfy the diversification requirements of ERISA, if applicable; - will result in UBTI to the benefit plan (see "Federal Income Tax Considerations -- Taxation of Stockholders -- Taxation of Tax-Exempt Stockholders"); - will be sufficiently liquid for the benefit plan after taking this investment into account; and - is prudent and in the best interests of the benefit plan, its participants and beneficiaries under ERISA standards. The fiduciary of an IRA or a benefit plan not subject to Title I of ERISA because it is a governmental or church plan or because it does not cover common law employees should consider that such an IRA or non-ERISA plan may be subject to prohibitions against certain related-party transactions under Section 503 of the Internal Revenue Code, which operate similar to the prohibited transaction rules of ERISA and the Internal Revenue Code. In addition, the fiduciary of any governmental or church plan must consider applicable state or local laws, if any, and the restrictions and duties of common law, if any, imposed upon such plan. We express no opinion on whether an investment in shares is appropriate or permissible for any governmental or church plan under Section 503 of the Internal Revenue Code, or under any state, county, local, or other law respecting such plan. 357 In addition to imposing general fiduciary standards of investment prudence and diversification, ERISA and the corresponding provisions of the Internal Revenue Code prohibit a wide range of transactions involving the assets of the benefit plan and persons who have certain specified relationships to the benefit plan ("parties in interest" under ERISA and "disqualified persons" under the Internal Revenue Code). Benefit plan fiduciaries may not enter into a prohibited transaction involving "plan assets" and a "party in interest" or "disqualified person" with respect to a plan investor, unless an exemption applies. A prohibited transaction may occur if our assets are deemed to be assets of a benefit plan (i.e., the "look-through rule") which invests in shares and thereafter a "party in interest" or a "disqualified person" deals with the assets in a manner not permitted under ERISA or the Internal Revenue Code. Under such circumstances, any person that exercises authority or control with respect to the management or disposition of benefit plan assets is a benefit plan fiduciary and, therefore, is a "party in interest" and a "disqualified person" capable of participating in a prohibited transaction with the benefit plan. Thus, the actions of an employee of ours in dealing with our assets could, under certain circumstances, cause a benefit plan which invests in the shares to be a participant in a prohibited transaction. While "plan assets" are not defined in ERISA or the Internal Revenue Code, the United States Department of Labor, or the DOL, has issued regulations that provide guidance on the circumstances under which a benefit plan's investment in shares will be subject to the "look-through rule" and thus result in our assets being deemed benefit plan assets. The DOL regulations provide an exception to the "look-through rule" for a benefit plan which invests in a "publicly-offered security." This exception would apply to the shares, if they are part of a class of securities that is "widely-held," "freely-transferable," and either registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, or sold to the benefit plan pursuant to an effective registration statement under the Securities Act of 1933, provided the class of securities of which the security is a part are registered under the Securities Exchange Act of 1934 within 120 days or such longer period as is allowed by the Securities and Exchange Commission after the end of the fiscal year of the issuer during which the offering occurred. The shares are being sold in an offering registered under the Securities Act of 1933 and we represent that the class of securities of which the shares are a part have been registered under the Securities Exchange Act within the applicable time limits. The DOL regulations indicate that a security is "widely-held" only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another. A security will not fail to be "widely-held" because the number of independent investors falls below 100 subsequent to the initial offering as a result of events beyond the issuer's control. We expect (although no assurances can be given) that the shares will be held by over 100 independent investors and, therefore, should be considered "widely-held." The DOL regulations further provide that whether a security is "freely-transferable" is a factual question to be determined on the basis of all relevant facts and circumstances. The DOL regulations state that generally, when a security is part of an offering in which the minimum investment is $10,000 or less, as is the case with this offering, certain restrictions ordinarily will not, alone or in combination, affect the determination of the finding that such securities are "freely-transferable." One such example under the DOL regulations is that a restriction or prohibition against a transfer or assignment which would result in a termination or reclassification of an entity for federal or state income tax purposes will not affect the determination of whether securities are "freely transferable." We believe that the ownership limits imposed under our charter of incorporation on the transfer of the shares are designed to prevent violations of the five or fewer requirement of federal income tax laws (which would cause a termination of REIT status for tax purposes) or are otherwise permitted under the DOL regulations and, therefore, will not cause the shares to not be "freely-transferable." 358 The DOL regulations are interpretive in nature and, therefore, no assurance can be given that the DOL and the United States Department of the Treasury will not conclude that the shares are not "freely-transferable," or not "widely-held." However, we believe that the shares are "publicly offered securities" for purposes of the DOL regulations and that: - our assets will not be deemed to be "plan assets" of any benefit plan that invests in the shares; and - any person who exercises authority or control with respect to our assets should not be treated as a benefit plan fiduciary of any benefit plan that invests in the shares, for purposes of the prohibited transaction rules of ERISA and Section 4975 of the Internal Revenue Code. In addition, a prohibited transaction may also occur under ERISA or the Internal Revenue Code where there are circumstances indicating that: - investment in the shares is made or retained for the purposes of avoiding application of the fiduciary standards of ERISA; - the investment in the REIT constitutes an arrangement under which it is expected that the REIT will engage in transactions which would otherwise be prohibited if entered into directly by the benefit plan purchasing the shares; - the investing benefit plan, by itself, has the authority or influence to cause the REIT to engage in such transactions; or - the person who is prohibited from transacting with the investing benefit plan may, but only with the aid of its affiliates and the investing benefit plan, cause the REIT to engage in such transactions with such person. In any event, a fiduciary or other person investing "plan assets" of any benefit plan should not purchase shares if we or any of our affiliates either: - have investment discretion with respect to the investment of such assets; or - have authority or responsibility to give or regularly gives investment advice with respect to such assets, for a fee, pursuant to an agreement or understanding that such advice will serve as a primary basis for investment decisions with respect to such assets and that such advice will be based on the particular investment needs of such benefit plan. Unless an exemption is available for an employer maintaining or contributing to such benefit plans, any such purchase might result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Internal Revenue Code. See "Risk Factors -- Employee Benefit Plan Risks -- Annual Statement of Value is an Estimate" for an explanation of the annual statement of value we will provide stockholders subject to ERISA. 359 PLAN OF DISTRIBUTION GENERAL Of the 270,000,000 shares of our common stock offered by this prospectus, we are offering: - up to 250,000,000 shares at a purchase price of $10.00 per share through Inland Securities Corporation, the managing dealer, to the public on a best-efforts basis. Our managing dealer is one of our affiliates. A "best-efforts" basis means that neither the managing dealer nor the soliciting dealers are under any obligation to purchase any of the shares being offered. Therefore, no specified number of shares are guaranteed to be sold and no specified amount of money is guaranteed to be raised from this offering. - up to 20,000,000 shares at a purchase price of $9.50 per share for issuance through our distribution reinvestment program which will provide you with an opportunity to purchase additional shares of our common stock at a reduced rate by reinvesting your distributions. The offering price of our stock is subjective and was determined by our board of directors. Our board of directors determined the offering price based on the offering price in our initial public offering, the offering price of earlier REITs organized by our sponsor, the range of offering prices of other REITs that do not have a public trading market and the recommendation of the managing dealer based on its consultations with likely soliciting dealers. This offering will commence as of the date of this prospectus. The offering will terminate on or before, December 21, 2005, unless we elect to extend it to a date no later than December 21, 2006 in states that permit an extension. We reserve the right to terminate this offering at any time. Our dealer manager is a wholly owned subsidiary of our sponsor, Inland Real Estate Investment Corporation. Our dealer manager was also the dealer manager for the offerings for Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc. Inland Real Estate Corporation raised approximately $696,827,000 in its offerings. Inland Retail Real Estate Trust, Inc. raised approximately $2,262,000,000 in its offerings. Our sponsor is an affiliate of our dealer manager. ESCROW CONDITIONS If you are qualified to participate in this offering, the proceeds from your subscription will be deposited in a segregated escrow account with the escrow agent, LaSalle Bank National Association, 120 South LaSalle Street, Chicago, Illinois, and will be held in trust for your benefit, pending release to us. Your investment will not be commingled with any other funds. We will accept or reject subscriptions within 10 days after our receipt of a fully completed copy of the subscription agreement and payment for the number of shares of common stock subscribed for. You will not be entitled to interest earned on our funds or to receive interest on your investment. The escrow agreement provides that the escrow agent will be appointed as an investment manager by a named fiduciary of any ERISA plan that is providing money to the escrow. The escrow agreement among us, the managing dealer, and the escrow agent also provides (1) that until all the conditions precedent for transferring the monies held in escrow are met, the escrow property may be considered plan assets under ERISA and the escrow holder shall act as a fiduciary to any benefit plan with respect to those 360 assets, and (2) that the property will be returned to the benefit plan if the conditions precedent are not met in a reasonable period of time. SUBSCRIPTION PROCESS We are offering up to 250,000,000 shares of our common stock to the public through the managing dealer and the soliciting dealers. The agreement between our managing dealer and the soliciting dealers requires the soliciting dealers to make diligent inquiries of you in order to determine whether a purchase of our common stock is suitable for you, and to transmit promptly to us the completed subscription documentation and any supporting documentation we may reasonably require. The managing dealer or a soliciting dealer is also required to deliver to you a copy of this prospectus and its appendices. We plan to make this prospectus and the appendices available electronically to the managing dealer and the soliciting dealers, as well as to provide them paper copies. As a result, if the managing dealer or a soliciting dealer chooses, with your prior consent, it may provide you with the option of receiving this prospectus and the appendices electronically. In any case, however, you may always receive a paper copy upon request. For at least six years, we shall maintain records of the information we have to determine that an investment in our shares is suitable and appropriate for a stockholder. Our common stock is being sold as subscriptions for the common stock are received and accepted by us, subject to the satisfaction by us of the conditions described in the section immediately above. We have the unconditional right to accept or reject your subscription within 10 days after our receipt of a fully completed copy of the subscription agreement and payment for the number of shares of common stock subscribed for. If we accept your subscription, a confirmation will be mailed to you not more than three business days after our acceptance. No sale of our common stock may be completed until at least five business days after the date you receive this prospectus and, if required by state regulatory authorities, a copy of our organizational documents. If for any reason your subscription is rejected, your funds and your subscription agreement will be returned to you, without interest or deduction, within 10 days after receipt. We no longer issue paper stock certificates for all subscriptions for common stock accepted by us. We also are responsible for all stock books and records and serve as our own stock transfer agent, processing stock transfers. We are currently moving to a "book entry" system for our stock records. Under a book entry system, we would no longer issue paper stock certificates. Using this system would eliminate the need for safekeeping by you to protect against loss, theft or destruction of stock certificates. We are currently interviewing firms to serve as our stock transfer agent. When we hire a third party stock transfer agent, we may need to modify our distribution reinvestment program and some of our other stock holding processs. For example, it is likely that we will no longer issue fractional shares. Further, it is likely we will ask all stockholdesr to remit currently outstanding stock certificates so that they may be held in book entry form. In order to transition into the book entry form, effective October 1, 2004 we stopped issuing stock certificates for new subscriptions or for shares earned through participation in the distribution reinvestment program. All shares issued in this offering will be held in book entry form. REPRESENTATIONS AND WARRANTIES IN THE SUBSCRIPTION AGREEMENT The subscription agreement requires you to make the following factual representations: - Your tax identification number set forth in the subscription agreement is accurate and you are not subject to backup withholding; 361 - You received a copy of this prospectus not less than five business days prior to signing the subscription agreement (unless your state requires otherwise); - You meet the minimum income, net worth and any other applicable suitability standards established for you, as described in "Who May Invest," which appears earlier in this prospectus; - You are purchasing our common stock for your own account; and - You acknowledge that our common stock cannot be readily sold. Each of the above representations is included in the subscription agreement in order to help satisfy our responsibility to make every reasonable effort to determine that the purchase of our common stock is a suitable and appropriate investment for you and that appropriate income tax reporting information is obtained. We will not sell any common stock to you unless you are able to make the above factual representations by executing the subscription agreement. By executing the subscription agreement, you will not be waiving any rights under the federal securities laws. DETERMINATION OF YOUR SUITABILITY AS AN INVESTOR We, our managing dealer, each soliciting dealer and our sponsor will make reasonable efforts to determine that you satisfy the suitability standards set forth herein and that an investment in our common stock is an appropriate investment for you. The soliciting dealers must determine whether you can reasonably benefit from this investment. In making this determination, the soliciting dealers will consider whether: - you have the capability of understanding fundamental aspects of our business based on your employment experience, education, access to advice from qualified sources such as attorneys, accountants and tax advisors and prior experience with investments of a similar nature; - you have an apparent understanding of: - the fundamental risks and possible financial hazards of this type of investment; - that the shares cannot be readily sold; - the role of our business manager/advisor in directing or managing your investment in us; and - the tax consequences of your investment; and - you have the financial capability to invest in our common stock. By executing the subscription agreement, each soliciting dealer acknowledges its determination that our common stock is a suitable investment for you. Each soliciting dealer is required to represent and warrant that it has complied with all applicable laws in determining the suitability of our common stock as an investment for you. We and our affiliates will coordinate the processes and procedures used by the 362 managing dealer and the soliciting dealers and, where necessary, implement additional reviews and procedures to determine that you meet the suitability standards set forth in this prospectus. COMPENSATION WE WILL PAY FOR THE SALE OF OUR SHARES Except for the special sales described later in this section, we will pay the managing dealer cash selling commissions of 7.5% on all of the up to 250,000,000 shares of common stock sold on a best-efforts basis. Of this 7.5% selling commissions, the managing dealer will reallow up to 7% to soliciting dealers as compensation for their services in soliciting and obtaining subscriptions from you and other investors. Except for the special sales described later in this section, we will pay an additional 2.5% of the gross proceeds from this offering to the managing dealer as a marketing allowance in lieu of reimbursement of expenses associated with marketing, and we may reimburse the managing dealer for its bona fide due diligence expenses and for those of the soliciting dealers. The maximum reimbursement, however, will not exceed 0.5% of the gross proceeds from the up to 250,000,000 shares sold. The managing dealer may, at its discretion, retain or give all or any portion of the marketing allowance and due diligence expense allowance to soliciting dealers. Generally, the managing dealer will not give any portion of the marketing allowance to soliciting dealers unless they have a prescribed minimum annual sales volume of our common stock. Marketing and due diligence costs paid by the managing dealer on behalf of, or to, the soliciting dealers will be deducted from any marketing allowance or due diligence expense allowance otherwise payable to the soliciting dealers. The following table shows the compensation payable to our dealer manager.
Type of Compensation Amount Estimated Maximum Amount - ------------------------------------------------------------------------------------------- Selling commissions 7.5% of sale price for each share $ 187,500,000 Marketing allowance 2.5% of gross offering proceeds $ 62,500,000 Due diligence allowance 0.5% of gross offering proceeds $ 12,500,000
We will not pay selling commissions, marketing allowances or due diligence expense allowances in connection with the following special sales: - the sale of common stock in connection with the performance of services to our employees, directors and associates and our affiliates, our business manager/advisor, affiliates of our business manager/advisor, the managing dealer or their respective officers and employees and some of their affiliates; and - the purchase of common stock under the distribution reinvestment program. - No selling commissions will be paid in connection with the following special sales: - the sale of our common stock to one or more soliciting dealers and to their respective officers and employees and some of their respective affiliates who request and are entitled to purchase common stock net of selling commissions; - the sale of common stock to investors whose contracts for investment advisory and related brokerage services include a fixed or "wrap" fee feature; and - the common stock credited to an investor as a result of a volume discount. 363 It is illegal for us to pay or award any commissions or other compensation to any person engaged by you for investment advice as an inducement to such advisor to advise you to purchase our common stock; however, nothing herein will prohibit a registered broker dealer or other properly licensed person from earning a sales commission in connection with a sale of the common stock. We will not pay any registered investment advisory fees in connection with any purchase by you of our common stock, although you may elect to have your registered investment advisory fees deducted from your account with us and paid directly to your registered investment advisor. See "How to Subscribe." VOLUME DISCOUNTS Investors making an initial purchase of at least $250,010 of common stock (25,001 shares) through the same soliciting dealer will receive a reduction of the reallowable 7.0% selling commission payable in connection with the purchase of those shares in accordance with the following schedule: AMOUNT OF PURCHASER'S INVESTMENT
AMOUNT OF SELLING MAXIMUM COMMISSION VOLUME DISCOUNT FROM TO PER SHARE ----------------- -------------- --------------- ------------------ 1% $ 250,010 $ 500,000 6% 2% $ 500,010 $ 1,000,000 5% 3% $ 1,000,010 $ 2,500,000 4% 4% $ 2,500,010 $ 5,000,000 3% 5% $ 5,000,010 $ 10,000,000 2% 6% $ 10,000,010 and over 1%
Any reduction in the amount of the selling commissions in respect of volume discounts received will be credited to the investor in the form of additional whole shares or fractional shares. Selling commissions will not be paid on any such whole shares or fractional shares issued for a volume discount. Some purchases may be combined for the purpose of qualifying for a volume discount, and for determining commissions payable to the managing dealer or the soliciting dealers, so long as all the combined purchases are made through the same soliciting dealer. Subscriptions made in this offer will be combined with other subscriptions in this offering for the purposes of computing amounts invested. Purchases by spouses will also be combined with other purchases by you and will be combined with other purchases of common stock to be held as a joint tenant or as tenants-in-common by you with others for purposes of computing amounts invested. Purchases by entities not required to pay federal income tax may only be combined with purchases by other entities not required to pay federal income tax for purposes of computing amounts invested if investment decisions are made by the same person. If the investment decisions are made by an independent investment advisor, that investment adviser may not have any direct or indirect beneficial interest in any of the entities not required to pay federal income tax whose purchases are sought to be combined. You must mark the "Additional Investment" space on the subscription agreement signature page in order for purchases to be combined. We are not responsible for failing to combine purchases if you fail to mark the "Additional Investment" space. 364 If the subscription agreements for the purchases to be combined are submitted at the same time, then the additional common stock to be credited to you as a result of such combined purchases will be credited on a pro rata basis. If the subscription agreements for the purchases to be combined are not submitted at the same time, then any additional common stock to be credited as a result of the combined purchases will be credited to the last component purchase, unless we are otherwise directed in writing at the time of the submission. However, the additional common stock to be credited to any entities not required to pay federal income tax whose purchases are combined for purposes of the volume discount will be credited only on a pro rata basis based on the amount of the investment of each entity not required to pay federal income tax and their combined purchases. Notwithstanding the preceding paragraphs, you may not receive a discount greater than 5% on any purchase of shares if you already own, or may be deemed to already own, any shares. This restriction may limit the amount of the volume discount available to you after your initial purchase and the amount of additional shares that you may be credited as a result of the combination of purchases. In the case of subsequent investments or combined investments, a volume discount will be given only on the portion of the subsequent or combined investment that caused the investment to exceed the breakpoint. For example, if you are investing $50,000 with us today, but had previously invested $240,000, these amounts can be combined to reach the $250,010 breakpoint, which will entitle you to a lower sales commission on your current $50,000 investment. DEFERRED COMMISSION OPTION DETERMINATION OF THE NUMBER OF SHARES TO BE ISSUED AND THE AMOUNT OF THE DEFERRED SELLING COMMISSIONS. You may agree with the participating soliciting dealer and the managing dealer to have selling commissions due with respect to the purchase of your shares paid over a period of up to six years pursuant to a deferred commission option arrangement. Our net proceeds from this offering will not be affected by the election of the deferred commission option. Under this arrangement and based upon a $10 per share deemed value to each share issued, if you elect the deferred commission option, you will pay a 1.5% selling commission upon subscription, of which 1% will be reallowed upon subscription, rather than the 7.5% selling commission, of which 7% is reallowable, and we will deduct an amount equal to up to 1% selling commission per year thereafter for up to the next six years from cash distributions otherwise payable to you. For example, if you elect the deferred commission option, you will be required to pay a total of $9.40 per share purchased upon subscription, rather than $10 per share, with respect to which $0.15 per share will be payable as selling commissions due upon subscription, of which $0.10 per share will be reallowed (based on the number of shares that would have been issued if the deferred commission option had not been elected). For example, for a $100,000 initial investment, we will issue 10,638.298 shares ($100,000 divided by $9.40), and you would pay maximum selling commissions of $1,500 upon subscription ($0.15 times the 10,000 shares which would have been issued for $100,000 if the deferred commission option had not been elected), of which $1,000 is reallowable. For each of the up to six years following the subscription, on a date or dates to be determined from time to time by the managing dealer (initially contemplated to be monthly as of when distributions are paid), we will deduct $0.10 per share (based on the number of shares that would have been issued if the deferred commission option had not been elected) on an annual basis from cash distributions otherwise payable to you. This amount will be used to pay deferred commission obligations. In the example of an initial cash investment of $100,000, $1,000 would be deducted on an annual basis and used in the above described manner for each of the six years following the subscription. The managing dealer will pay the selling commissions paid upon subscription and in each of the following up to six years, which selling commissions may be reallowed to the soliciting dealer by the managing dealer and the deferred commission obligations would be satisfied. 365 As in any volume discount situation, selling commissions are not paid on any shares issued for a volume discount. Therefore, when the deferred commission option is used, we will not make deductions for deferred commission obligations from cash distributions payable on the shares issued for a volume discount, because there will not be any deferred commission obligation as to those particular shares. The number of shares issued, if any, for a volume discount, will be determined as provided above under "Plan of Distribution--Volume Discounts." TAXES. If you elect the deferred commission option and you are subject to federal income taxation, you will incur tax liability for cash distributions payable to them with respect to their shares even though we will withhold such cash distributions and will instead pay third parties to satisfy deferred commission obligations. SUBSCRIPTION AGREEMENT. If you wish to elect the deferred commission option, you must make the election on the subscription agreement/signature page. In addition, the broker-dealer must also complete and sign the subscription agreement/signature page to acknowledge its agreement to the deferred commission option. AUTHORIZATION TO WITHHOLD CASH DISTRIBUTIONS. If you elect the deferred commission option you will be authorizing us to withhold cash distributions otherwise payable to you for the purpose of paying selling commissions due under the deferred commission option; provided, however, that in no event may we withhold in excess of $0.60 per share in the aggregate (lower when the volume discount provisions are also applicable and less than 6% of the selling commissions are deferred) under the deferred commission option. ACCELERATION OF DEFERRED COMMISSION OBLIGATION. If our shares become listed for trading on a national securities exchange or included for quotation on a national market system, or such listing or inclusion is reasonably anticipated to occur at any time prior to the satisfaction of the remaining deferred commission obligations, we will accelerate the remaining selling commissions due under the deferred commission option. In such event, we will provide notice of such acceleration to stockholders who have elected the deferred commission option. The amount of the remaining selling commissions due will be deducted and paid by us out of cash distributions otherwise payable to such stockholders during the time period prior to any such listing of the shares for trading on a national securities exchange or inclusion for quotation on a national market system. However, in no event may we withhold in excess of $0.60 per share in the aggregate during the six-year period following the subscription. The maximum amount that we may withhold and the maximum number of years for which we may offer selling commissions will be lower when the volume discount provisions are also applicable and less than 6% of the selling commissions are deferred. To the extent that the cash distributions during such time period are insufficient to satisfy the remaining deferred selling commissions due, the obligation of us and our stockholders to make any further payments of deferred selling commissions under the deferred commission option shall terminate and the managing dealer (and participating soliciting dealers if the deferred selling commissions are reallowed to them by the managing dealer) will not be entitled to receive any further portion of the unpaid deferred selling commissions following any such listing for trading or inclusion for quotation of our shares. In addition, if you elect the deferred commission option and subsequently elect to participate in our share repurchase program or request that we transfer your shares for any other reason prior to the time that the remaining deferred selling commissions have been deducted from cash distributions otherwise payable to you during the mentioned period of up to six years, then we will accelerate the remaining selling commissions due under the deferred commission option. In such event, we shall provide notice of such acceleration to you, and: 366 - in the case of an election to sell the shares under our share repurchase program, you will be required to pay to us the unpaid portion of the remaining deferred commission obligation prior to or concurrently with our purchase of your shares pursuant to our share repurchase program or we may deduct such unpaid portion of the remaining deferred commission obligation from the amount otherwise due to you for our purchase of your shares under our share repurchase program; or - if you request that we transfer the shares for any other reason, you will not be entitled to effect any such transfer until you first either: - pay to us the unpaid portion of the remaining deferred commission obligation; or - provide a written instrument in form and substance satisfactory to us, and appropriately signed by the transferee, to the effect that the proposed transferee agrees to have the unpaid portion of the remaining deferred commission obligation deducted from cash distributions otherwise payable to the transferee during the remaining portion of the specified up to six year period. LEGEND. All certificates or book entries representing any shares that elect the deferred commission option (including any shares issued for the volume discount in connection with the election of the deferred commission option) will be noted with a legend referring to the fact that such shares are subject to the terms of the deferred commission option including the withholding of cash distributions otherwise payable to the stockholders for the purpose of paying the deferred selling commission obligation. MARKETING ALLOWANCE AND DUE DILIGENCE EXPENSE ALLOWANCE. The marketing allowance of 2.5% and the due diligence expense allowance of 0.5% will be payable by us on the gross offering proceeds for all of the shares issued based on an assumed price of $10 per share. We will pay those amounts due from the proceeds we receive at the time of the initial investment. INDEMNIFICATION We will indemnify the managing dealer and the soliciting dealers against liabilities, including liabilities under the Securities Act of 1933, if one or more of the following conditions are met: - there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee and a court of competent jurisdiction has approved indemnification of the litigation costs; or - the claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee and the court has approved indemnification of the litigation costs; or - a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and approves indemnification of the settlement and related costs after being advised of the position of the Securities and Exchange Commission and the published opinions of any state securities regulatory authority in which our common stock was offered and sold respecting the availability and/or propriety of indemnification for securities law violations. The soliciting dealer will be required to indemnify us and our business manager/advisor against such liabilities. 367 In the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act of 1933 is against public policy and, therefore, unenforceable. The managing dealer and each of the soliciting dealers may be deemed to be an "underwriter" as that term is defined in the Securities Act of 1933. [THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.] 368 HOW TO SUBSCRIBE Investors who meet the suitability standards described above may purchase shares of common stock. See "Who May Invest" and "Plan of Distribution - -- Determination of Your Suitability as an Investor," above, for the suitability standards. Investors who want to purchase shares must proceed as follows: - Read the entire prospectus and the current supplement(s), if any, accompanying the prospectus. - Complete the execution copy of the subscription agreement. A specimen copy of the subscription agreement, including instructions for completing it, is included in the prospectus as APPENDIX C. - Deliver a check for the full purchase price of the shares being subscribed for, payable to "LBNA/Escrow Agent for IWRRETI", along with the completed subscription agreement to the soliciting dealer. If you are qualified to participate in this offering, for administrative convenience, the proceeds from your subscription will be deposited in a segregated escrow account with the escrow agent, LaSalle Bank National Association, 120 South LaSalle Street, Chicago, Illinois, and will be held in trust for your benefit, pending release to us. Your investment will not be commingled with any other funds. Subscription proceeds are expected to be released to us as subscriptions are accepted. We will accept or reject subscriptions within ten days after we receive them. The name of your soliciting dealer appears on your subscription agreement. - By executing the subscription agreement and paying the full purchase price for the shares subscribed for, each investor attests that he or she meets the suitability standards as stated in the subscription agreement and agrees to be bound by all of its terms. In addition, if a subscriber elects the deferred commission option, he or she must do so by completing and signing the subscription agreement/signature page of the form of subscription agreement. The soliciting dealer must also complete and sign the subscription agreement/signature page to acknowledge its agreement to the deferred commission option. This is more fully explained under "Plan of Distribution - Deferred Commission Option." A sale of the shares may not be completed until at least five business days after the subscriber receives the prospectus. Within 10 days, and generally within 24 hours, of our receipt of each completed subscription agreement, we will accept or reject the subscription. If we accept the subscription, we will mail a confirmation within three days. If for any reason we reject the subscription, we will promptly return the check and the subscription agreement, without interest or deduction, within 10 days after we received it. An approved trustee must process through us and forward to us subscriptions made through individual retirement accounts, Keogh plans and 401(k) plans. In the case of individual retirement accounts, Keogh plans and 401(k) plan stockholders, we will send the confirmation to the trustee. You have the option of placing a transfer on death, or TOD, designation on your shares purchased in this offering. A TOD designation transfers ownership of the shares to your designated beneficiary upon your death. This designation may only be made by individuals, not entities, who are the sole or joint owners with right of survivorship of the shares. This option, however, is not available to residents of the States of Louisiana, New York and North Carolina. If you would like to place a transfer on death 369 designation on your shares, you must check the TOD box on the subscription agreement and you must complete and return the transfer on death form included as APPENDIX D to this prospectus in order to effect the designation. You may elect to have any registered investment advisory fees deducted from your account with us and paid directly to your registered investment advisor by completing and signing a letter of instruction (in the form attached as APPENDIX E1 to this prospectus). The letter of instruction will authorize us to deduct a specified dollar amount or percentage of distributions paid by us as advisory fees payable to your registered investment advisor on a periodic basis. The letter of instruction will be irrevocable and we will continue to pay advisory fees payable from your account until such time as you provide us with a notice (in the form attached as APPENDIX E2 to this prospectus) of your election to terminate deductions from your account for the purposes of such advisory fees. [THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK] 370 SALES LITERATURE In addition to and apart from this prospectus, we may use certain supplemental sales material in connection with the offering. This material, prepared by our business manager/advisor, may consist of a brochure describing the business manager/advisor and its affiliates and our objectives. The material may also contain pictures and summary descriptions of properties similar to those we intend to acquire that our affiliates have previously acquired. This material may also include audiovisual materials and taped presentations highlighting and explaining various features of the offering, properties of prior real estate programs and real estate investments in general; and articles of incorporation and publications concerning real estate. Business reply cards, introductory letters and seminar invitation forms may be sent to the dealer members of the National Association of Securities Dealers designated by Inland Securities Corporation and prospective investors. No person has been authorized to prepare for, or furnish to, a prospective investor any sales literature other than that described herein and "tombstone" newspaper advertisements or solicitations of interest that are limited to identifying the offering and the location of sources of further information. The use of any sales materials is conditioned upon filing with, if required, and, if required, clearance by appropriate regulatory agencies. Such clearance (if provided), however, does not indicate that the regulatory agency allowing the use of the materials has passed on the merits of the offering or the adequacy or accuracy of the materials. This offering is made only by means of this prospectus. Except as described herein, we have not authorized the use of other supplemental literature or sales material in connection with this offering. [THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK] 371 DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS DISTRIBUTION REINVESTMENT PROGRAM Our distribution reinvestment program provides our stockholders with an opportunity to purchase additional shares of common stock by reinvesting distributions. A copy of the form of our distribution reinvestment plan is attached as EXHIBIT B to this prospectus. Stockholders who elect to participate in the distribution reinvestment program will authorize us to use distributions payable to them to purchase additional shares of common stock. A participant will not be able to acquire common stock under the program if the purchase would cause it to exceed the 9.8% ownership limit or would violate any of the other share ownership restrictions imposed by our articles of incorporation. As further explained below, purchases under the distribution reinvestment program are made at a price, $9.50 per share at first, equal to 95% of the market price of a share of common stock on the date of purchase until such time as our shares are listed on a national stock exchange or included for quotation on a national market system. This reduced price reflects a decrease in costs associated with these issuances. Participants in the distribution reinvestment program may also purchase fractional shares of common stock, so that 100% of distributions will be used to acquire common stock. Common stock will be purchased under the distribution reinvestment program on the record date for the distribution used to purchase the common stock. Distributions on common stock acquired under the distribution reinvestment program will be paid at the same time as distributions are paid on common stock purchased outside the program and are calculated with a daily record and distribution declaration date. Each participant agrees that if, at any time prior to listing the common stock on a national stock exchange or inclusion of them for quotation on a national market system, he or she fails to meet the suitability requirements for making an investment in us or cannot make the other representations or warranties set forth in the subscription agreement, he or she will promptly notify us in writing. Beginning with the first distribution paid after the effective date of the offering, participants will acquire our shares at a fixed price of $9.50 per share. This will continue until the earlier of (1) the increase of the public offering price per share of common stock in the offering from $10 per share, if there is an increase, and (2) the termination of the offering. Thereafter, participants may acquire our shares at a price equal to 95% of the market price of a share on the date of purchase until our shares are listed on a national stock exchange or included for quotation on a national market system. In the event of listing or inclusion, we will purchase shares for the distribution reinvestment program on the exchange or market at the prevailing market price. We will then sell the shares to stockholders at that price. The discount from the public offering price per share will not exceed 5% of the market price of a share on the date of purchase. It is possible that a secondary market will develop for the shares, and that the prices on the secondary market will be lower or higher than the price of shares purchased through the distribution reinvestment program. Neither we nor our affiliates will receive a fee for selling shares through the distribution reinvestment program. We do not warrant or guarantee that participants will acquire shares at the lowest possible price through the program. A participant may stop participating in the distribution reinvestment program at any time without penalty, by delivering written notice to us. Prior to listing the shares on a national securities exchange or including them for quotation on a national market system, any transfer of shares by a participant to a non-participant will terminate participation in the distribution reinvestment program with respect to the transferred shares. Within 90 days after the end of our fiscal year, we will: - issue shares purchased through the distribution reinvestment program during the prior fiscal year, ownership of these shares will be in book-entry form prior to the issuance of certificates; and 372 - provide each participant with an individualized report on his or her investment, including the purchase date(s), purchase price and number of shares owned, as well as the dates of distribution and amount of distributions received during the prior fiscal year. The individualized statement to participants will include receipts and purchases relating to each participant's participation in the distribution reinvestment program including the tax consequences relative thereto. The directors, including a majority of independent directors, by majority vote may amend or terminate the distribution reinvestment program upon 30 days notice to participants. Stockholders who participate in the distribution reinvestment program will recognize dividend income, taxable to the extent of our current or accumulated earnings and profits, in the amount and as though they had received the cash rather than purchased shares through the distribution reinvestment program. These deemed dividends will be treated as actual dividends and will retain the character and tax effects applicable to all dividends. In addition, the 5% discount applicable to shares purchased under the dividend reinvestment program will itself be treated as a deemed distribution to the purchaser. Shares received under the distribution reinvestment program will have a holding period, for tax purposes, beginning with the day after purchase, and a tax basis equal to their cost, which is the gross amount of the deemed distribution. See "Federal Income Tax Considerations -- Federal Income Taxation of Stockholders" for a full discussion of the tax effects of dividend distributions. As explained under "Description of Securities -- Restrictions on Ownership and Transfer," the shares purchased through the distribution reinvestment program will bear a legend referring to the restrictions on their ownership and transfer. SHARE REPURCHASE PROGRAM The share repurchase program may, subject to certain restrictions discussed below, provide eligible stockholders with limited, interim liquidity by enabling them to sell shares back to us. The prices at which shares may be sold back to us are as follows: - One year from the purchase date, at $9.25 per share; - Two years from the purchase date, at $9.50 per share; - Three years from the purchase date, at $9.75 per share; and - Four years from the purchase date, at the greater of: $10.00 per share; or a price equal to 10 times our "funds available for distribution" per weighted average share outstanding for the prior calendar year. During any offering, the repurchase price shall be equal to or below the price of the shares offered in any offering. A stockholder must have beneficially held the shares for at least one year prior to offering them for sale to us through the share repurchase program. However, if a stockholder dies, we may waive this one-year holding period for the beneficiaries or heirs, as appropriate. We will make repurchases under the share repurchase program, if requested by a stockholder, monthly. Subject to funds being available, we will limit the number of shares repurchased during any calendar year to five percent (5%) of the weighted average number of shares outstanding during the prior calendar year. Funding for the share repurchase program will come exclusively from proceeds we receive from the sale of shares under our distribution reinvestment plan and other operating funds, if any, as the board, at its sole discretion, may reserve for this purpose. 373 A stockholder may request that his or her shares be repurchased by submitting a written request, and then generally within one week an assignment form is sent for execution by the stockholder or his custodian/trustee along with a request to return the shares. At the end of each month, the completed requests are reviewed. It is possible that a stockholder may not have his or her entire request honored due to the funds available. If that were to occur, the shares would then be purchased on a "pro rata basis" and the portion of his or her request unfulfilled would then be held until the next month, unless withdrawn. We accept shares on a pro rata basis. Consequently, a stockholder might not be able to have us repurchase his or her shares. Therefore, that stockholder might not be able to sell or otherwise liquidate his or her shares and might have to hold his or her shares for an indeterminate period of time. Following commencement of our offering, we will be subject to the reporting requirements of the Securities Exchange Act of 1934. In this regard, we will prepare and file with the SEC annual reports on SEC Form 10-K and quarterly reports on SEC Form 10-Q; we will provide copies of these filings to our stockholders regularly following our filing with the SEC. Additionally, we will amend on a quarterly basis the registration statement of which this prospectus is a part; we will distribute to our stockholders the updated prospectus regularly. Any stockholder who wishes us to repurchase his or her shares must beneficially own the shares for at least one year. Our obligation to repurchase any shares under the program is conditioned upon our having sufficient funds available for repurchase of shares and the other conditions of the plan. The stockholder should direct a written request to Ms. Roberta S. Matlin, Vice President of Administration, Inland Western Retail Real Estate Trust, Inc., 2901 Butterfield Road Oak Brook, Illinois 60523. The request must state the name of the person/entity who owns the shares, the date of purchase of the subject shares and the number of shares to be repurchased. We will forward an assignment form to the owner of record of the subject shares for execution. The requesting stockholder must properly execute and return the form along with the shares to be repurchased and evidence that no lien or encumbrance is on the shares. Upon receipt of the form, if satisfactory evidence is not provided, we will conduct a Uniform Commercial Code (UCC) search to ensure that no liens are held against the shares at the cost of $100 to the stockholder, which will be deducted from the proceeds of the repurchase. We use a third party to conduct this UCC search. The repurchase will occur on a pro rata basis each month assuming all documentation is complete, including a negative response from a UCC search. If the UCC search determines that a lien exists against the shares, we will charge the requesting stockholder for the UCC search. If we do not have sufficient funds available for repurchase of the entire request or we exceed the share limitation, we will purchase only those shares for which we have sufficient funds available or are below the limitation; and we will place the requesting stockholder's request into the next month until funds become available sufficient to complete the transaction or we do not exceed the limitation. If a stockholder wishes to withdraw his or her request to have his or her shares repurchased, the stockholder must notify us in writing. We will not repurchase that stockholder's shares so long as we receive the written request to withdraw prior to the date we send payment to the applicable stockholder. The requesting stockholder will be responsible for payment of the $100 UCC search fee even if that stockholder withdraws his or her request, if we have conducted a UCC search. There is no limit on the number of shares that an individual stockholder may request to be repurchased, subject to the limitations regarding availability of funds and the aggregate amount of stock that we are permitted to purchase under the program. Payment for repurchased shares from the time of the initial request to receipt of the funds is usually three to four weeks dependent upon receipt of the executed assignment form and shares, and 374 completion of a UCC search to ensure that no liens are held against the stock or other satisfactory evidence. The board, at its sole discretion, may choose to terminate the share repurchase program after the end of the offering period, or reduce the number of shares purchased under the program, if it determines that the funds allocated to the share repurchase program are needed for other purposes, such as the acquisition, maintenance or repair of properties, or for use in making a declared distribution. A determination by the board to eliminate or reduce the share repurchase program will require the unanimous affirmative vote of the independent directors. We cannot guarantee that the funds set aside for the share repurchase program will be sufficient to accommodate all requests made each year. If no funds are available for the program when repurchase is requested, the stockholder may withdraw the request, or ask that we honor the request when funds are available. Pending requests would be pro rated, depending upon availability of funds. Stockholders are not required to sell their shares to us. The share repurchase program is only intended to provide interim liquidity for stockholders until a liquidity event occurs, such as the listing of the shares on a national securities exchange, inclusion of the shares for quotation on a national market system, or our merger with a listed company. The share repurchase plan will be terminated if the shares become listed on a national securities exchange or included for quotation on a national market system. We cannot guarantee that a liquidity event will occur. Shares we purchase under the share repurchase program will be canceled, and will have the status of authorized but unissued shares. Shares we acquire through the share repurchase program will not be reissued unless they are first registered with the Securities and Exchange Commission under the Securities Act of 1933 and under appropriate state securities laws or otherwise issued in compliance with such laws. If we terminate, reduce or otherwise change the share repurchase program, we will send a letter to stockholders informing them of the change at least 30 days in advance, and we will disclose the changes in quarterly reports filed with the Securities and Exchange Commission on Form 10-Q. See "Plan of Distribution -- Deferred Commission Option" for an explanation of what will be required of the stockholder if the stockholder has elected the deferred commission option and subsequently elects to participate in our share repurchase program while there is an unpaid portion of the remaining deferred commission obligation. [THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK] 375 REPORTS TO STOCKHOLDERS Our business manager/advisor will keep, or cause to be kept, full and true books of account on an accrual basis of accounting, in accordance with generally accepted accounting principles. All of these books of account, together with a copy of our articles of incorporation, will at all times be maintained at our principal office, and will be open to inspection, examination and duplication at reasonable times by the stockholders or their agents. The business manager/advisor will submit to each stockholder our audited annual reports within 120 days following the close of each fiscal year. The annual reports will contain the following: - audited financial statements; - the ratio of the costs of raising capital during the period to the capital raised; - the aggregate amount of advisory fees and the aggregate amount of fees paid to the business manager/advisor and any affiliate of the business manager/advisor, including fees or charges paid to the business manager/advisor and to any affiliate of the business manager/advisor by third parties doing business with us; - our total operating expenses, stated as a percentage of the average assets and as a percentage of net income; - a report from the independent directors that the policies we follow are in the best interests of our stockholders and the basis for such determination; and - separately stated, full disclosure of all material terms, factors and circumstances surrounding any and all transactions involving us, the directors, the business manager/advisor and any of their affiliates occurring in the year for which the annual report is made. Independent directors are specifically charged with the duty to examine and comment in the report on the fairness of such transactions. In addition, unaudited quarterly reports containing the information required by Form 10-Q will be submitted to each stockholder within 60 days after the end of the first three fiscal quarters. At the same time as any distribution, we will provide stockholders with a statement disclosing the source of the funds distributed. If the information is not available when the distribution is made, we will provide a statement setting forth the reasons why the information is not available. In no event will the information be provided to stockholders more than 60 days after we make the distribution. Within 60 days following the end of any calendar quarter during the period of the offering in which we have closed an acquisition of a property, we will submit a report to each stockholder containing: - the location and a description of the general character of the property acquired during the quarter; - the present or proposed use of the property and its suitability and adequacy for that use; - the terms of any material leases affecting the property; 376 - the proposed method of financing, if any, including estimated down payment, leverage ratio, prepaid interest, balloon payment(s), prepayment penalties, "due-on-sale" or encumbrance clauses and possible adverse effects thereof and similar details of the proposed financing plan; and - a statement that title insurance has been or will be obtained on the property acquired. - In addition, we will send a report to each stockholder and submit to prospective investors when the business manager/advisor believes a property will probably be acquired: - on specified terms, i.e., upon completion of due diligence which includes review of the title insurance commitment, appraisal and environmental analysis; and - involving the use of 10% or more, on a cumulative basis, of the net proceeds of the offering. After the completion of the last acquisition, the business manager/advisor will, upon request, send a schedule to the Commissioner of Corporations of the State of California. The schedule, verified under the penalty of perjury, reflects: each acquisition made; the purchase price paid; the aggregate of all acquisition expenses paid on each transaction; and a computation showing compliance with our articles of incorporation. We will, upon request, submit to the Commissioner of Corporations of the State of California or to any of the various state securities administrators, any report or statement required to be distributed to stockholders pursuant to our articles of incorporation or any applicable law or regulation. The accountants we regularly retain will prepare our federal tax return and any applicable state income tax returns. We will submit appropriate tax information to the stockholders within 30 days following the end of each of our fiscal years. We will not provide a specific reconciliation between generally accepted accounting principles and income tax information to the stockholders. However, the reconciling information will be available in our office for inspection and review by any interested stockholder. Annually, at the same time as the dissemination of appropriate tax information to stockholders, we will provide each stockholder with an individualized report on his or her investment, including the purchase date(s), purchase price and number of shares owned, as well as the dates of distribution and amounts of distributions received during the prior fiscal year. The individualized statement to stockholders will include any purchases of shares under the distribution reinvestment program. Stockholders requiring individualized reports on a more frequent basis may request these reports. We will make every reasonable effort to supply more frequent reports, as requested, but we may, at our sole discretion, require payment of an administrative charge either directly by the stockholder, or through pre-authorized deductions from distributions payable to the stockholder making the request. See "Risk Factors -- Employee Benefit Plan Risks" for an explanation of the annual statement of value we provide to stockholders subject to ERISA. PRIVACY POLICY NOTICE To help you understand how we protect your personal information, we have included our Privacy Policy Notice as APPENDIX G to this Prospectus. This Notice describes our current privacy policy and practices. Should you decide to establish or continue a shareholder relationship with us, we will advise you of our policy and practices at least once annually, as required by law. 377 LITIGATION We are not subject to any material pending legal proceedings. RELATIONSHIPS AND RELATED TRANSACTIONS We have entered into agreements to pay our business manager/advisor and its affiliates certain fees or other compensation for providing services to us. The compensation arrangements between us and our business manager/advisor, The Inland Group and its affiliates, were not determined by arm's-length negotiations. See "Conflicts of Interest." The following table discloses the compensation which we may pay our business manager/advisor and its affiliates. In those instances in which there are maximum amounts or ceilings on the compensation which may be received, our business manager/advisor and its affiliates may not recover any excess amounts for those services by reclassifying them under a different compensation or fee category. We define net income as total revenues less expenses other than additions to reserves for depreciation or bad debts or other similar non-cash reserves. When we use the term "net income" for purposes of calculating some expenses and fees, it excludes the gain from the sale of our assets. This definition of net income is prescribed by the Statement of Policy Regarding REITs adopted by the North American Securities Administrators Association, Inc., or NASAA; but it is not in accordance with generally accepted accounting principles in the United States, because depreciation and other non-cash reserves are not deducted in determining net income under the NASAA REIT Statement. Excluding depreciation will result in not reimbursing our business manager/advisor for a non-cash expenditure and not excluding the gain from the sale of our assets could result in greater net income on which the 25% reimbursement to our business manager/advisor is allowed. NONSUBORDINATED PAYMENTS The following aggregate amounts of compensation, allowances and fees we may pay to our business manager/advisor and its affiliates are not subordinated to the returns on net investments that we are required to pay to our stockholders.
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------------------------------------------------------------------------------------------- OFFERING STAGE Selling commissions payable to We will pay a selling commission of 7.5% of Through September 30, 2004, we have the managing dealer and the sale price for each share (and reallow incurred $135,587,028 in selling dealers designated by the 7%), subject to reduction for special sales commissions in connection with our managing dealers referred to under the circumstances as described in the initial public offering. We intend as soliciting dealers. "Plan of Distribution - Compensation - We to sell 250,000,000 shares of our Will Pay For the Sale of Our Shares." common stock at $10.00 per share in our initial public offering. The We will permit the managing dealer and its actual amount we will incur in this respective officers and employees and certain offering depends upon the amount of of its affiliates to purchase shares net of shares sold. A total of sales commissions and the marketing allowance $187,500,000 in selling commissions and due diligence expense allowance or for will be paid if the maximum $8.95 per share; however, any subsequent offering is sold and there are no purchases of shares by any such persons are special sales. limited to a maximum discount of 5%. Also, soliciting dealers and their respective officers and employees and certain of their
378
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------------------------------------------------------------------------------------------- respective affiliates who request and are entitled to purchase shares net of selling commissions may make an initial purchase of shares net of sales commissions or for $9.30 per share; however, any subsequent purchases of shares by any such persons are limited to a maximum discount of 5%. Marketing allowance and due We will pay an amount equal to 2.5% of the Through September 30, 2004, we have diligence expense allowance gross offering proceeds to the managing incurred $16,811,558 in marketing paid to the managing dealer dealer, all or a portion of which may be allowance and due diligence expense and soliciting dealers. passed on to soliciting dealers, in lieu of allowance in connection with our reimbursement of specific expenses associated initial public offering. The actual with marketing. We may pay an additional 0.5% amount of marketing allowance and of the gross offering proceeds to the due diligence expense allowance in managing dealer, which may be passed on to connection with this offering will the soliciting dealers, for due diligence depend on the number of shares expenses. We will not pay the marketing sold. If there are no special sales allowance and due diligence expense allowance and we sell the maximum number of in connection with any special sales, except shares offered, approximately those receiving volume discounts and those $75,000,000 will be paid for the described in "Plan of Distribution - Volume marketing allowance and the due Discounts." diligence expense allowance. Reimbursable expenses and We expect to incur the following expenses in All amounts other than the other expenses of issuance and connection with this offering: Securities and Exchange Commission distribution Securities and Exchange registration fee and the NASD Commission registration filing fee are estimates. The fee $ 340,823 actual amounts of these expenses NASD filing fee $ 30,500 cannot be determined at the present Printing and mailing time. We estimate the total amount expenses $4,250,000 of the issuance and distribution Blue Sky fees and expenses to be approximately expenses $ 136,000 $13,307,323. Through September 30, Legal fees and 2004, we have incurred $969,524 of expenses $ 900,000 reimbursable expenses to our Accounting fees and business manager/advisor in expenses $ 650,000 connection with our initial public Advertising and sales offering. In addition, as of literature $5,500,000 December 31, 2003, our business Transfer Agent fees $ 800,000 manager/advisor had advanced an Data processing fees $ 500,000 aggregate of approximately Bank fees and other $1,763,306 for the payment of administrative offering expenses to non-affiliated expenses $ 200,000 third parties in connection with our initial public offering, all of which has been repaid. If the aggregate of all offering expenses, including selling commissions, the marketing allowance and due diligence expense Our sponsor has not advanced any allowance, exceeds 15% of the gross offering reimbursable expenses in connection proceeds, of if the aggregate of all offering with this offering. We may expenses, excluding the selling expenses, reimburse up to $14,807,323 for exceeds 5.5% of the gross offering proceeds, offering expenses advanced if we our business manager/advisor or its sell the maximum number of shares affiliates will promptly pay the excess and offered in this offering. we will have
379
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------------------------------------------------------------------------------------------- no liability for these expenses at any time afterward. If this offering is not successful, then our sponsor will be solely responsible for the offering expenses to the extent it has not been reimbursed. ACQUISITION STAGE Acquisition expenses paid to We will pay an amount, estimated to be up to We may pay no more than $13,450,000 our business manager/advisor's 0.5% of the total of (1) the gross offering for the reimbursement of affiliates, Inland Real Estate proceeds from the sale of 250,000,000 shares, acquisition expenses if the maximum Acquisitions, Inc. and The (2) the gross proceeds from the sale of up to number of shares are sold and all Inland Real Estate Group, Inc. 20,000,000 shares pursuant to the of the 20,000,000 shares are sold distribution reinvestment programs. The pursuant to the distribution acquisition expenses for any particular reinvestment program. However, the property will not exceed 6% of the gross actual amounts cannot be determined purchase price of the property. at the present time. However, if we request additional services, the compensation will be provided on separate agreed-upon terms and the rate will be approved by a majority of disinterested directors, including a majority of the disinterested independent directors, as fair and reasonable for us. Interest expenses paid to our We may borrow money from our business The actual amounts are dependent on business manager/advisor and manager/advisor and its affiliates in order actual borrowings. Therefore, these Inland Mortgage Corporation in to acquire properties. In such instances, we amounts cannot be determined at the connection with loans. will pay our business manager/advisor and its present time. affiliates interest at prevailing market rates. OPERATIONAL STAGE Property management fee paid We will pay a monthly fee of 4.5% of the For the year ended December 31, to our property managers, gross income from the properties. We will 2003, and the nine months ended Inland US Management LLC, also pay a monthly fee for any extra services September 30, 2004 we have incurred Inland Southwest Management equal to no more than 90% of that which would and paid property management fees LLC and Inland Pacific be payable to an unrelated party providing of $16,627 and $2,847,427, of which Management LLC. We will pay the services. The property managers may 16,627 and $2,847,427 were retained the fee for services in subcontract their duties for a fee that may by Inland US Management LLC, Inland connection with the rental, be less than the fee provided for in the Southwest Management LLC and Inland leasing, operation and management services agreements. Pacific Management LLC. If we management of the properties. acquire the businesses of our business manager/advisor and/or our property managers, the property management fees will cease. The actual amounts we will incur in the future are dependent upon results of operations and, therefore, cannot be determined at the present time.
380
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------------------------------------------------------------------------------------------- Reimbursable expenses to our We will reimburse some expenses of the The actual amounts are dependent upon business manager/advisor. business manager/advisor. The results of operations and, therefore, These may include costs of compensation and reimbursements to our cannot be determined at the present goods and services, business manager/advisor will be time. administrative services and approved by a majority of our directors non-supervisory services and a majority of our independent performed directly for us by directors as fair and reasonable for us. independent parties. We will reimburse some Inland Risk and Insurance Management Services The actual amounts are dependent upon expenses of the Inland Risk charges us $50 per hour for assistance in results of operations and, therefore, and Insurance Management obtaining insurance coverage. Any commissions cannot be determined at the present Services for insurance they receive are credited against this hourly time. coverage. rate. We believe this hourly rate is approximately 90% of the rate charged by unaffiliated third parties. The compensation to this company will be approved by a majority of our directors and a majority of our independent directors as fair and reasonable for us. We will compensate the Inland Inland Mortgage Servicing Corporation charges For the year ended December 31, 2003, Mortgage Servicing Corporation us .03% per year on the first billion dollars and the nine months ended September 30, and Inland Mortgage Investment of mortgages serviced and .01% thereafter. 2004 we have incurred and paid $328 and Corporation for purchase, sale Inland Mortgage Investment Corporation $63,978, respectively to Inland Mortgage and servicing of mortgages. charges us .02% of the principal amount of Servicing Corporation. For the year each loan placed. The compensation to these ended December 31, 2003, and the nine companies will be approved by a majority of months ended September 30, 2004 we have our directors and a majority of our incurred and paid $59,523 and independent directors as fair and reasonable $2,241,986, respectively to Inland for us. Mortgage Investment Corporation. The actual amounts we will incur in the future are dependent upon results of operations and cannot be determined at the present time. LIQUIDATION STAGE Property disposition fee We may pay a property disposition fee to our The actual amounts to be received payable to our business business manager/advisor and its affiliates depend upon the sale price of our manager/advisor's affiliates, if we sell any of our real property in an properties and, therefore, cannot Inland Real Estate Sales, Inc. amount equal to the lesser of: be determined at the present time. and Inland Partnership - 3% of the contract sales price of the If we acquire the business Property Sales Corp. property; or manager/advisor, the property - 50% of the customary commission which disposition fee will cease. would be paid to a third party broker for the sale of a comparable property. The amount paid, when added to the sums
381
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------------------------------------------------------------------------------------------- paid to unaffiliated parties, will not exceed either the customary commission or an amount equal to 6% of the contracted for sales price. Payment of such fees will be made only if the business manager/advisor provides a substantial service in connection with the sale of the property. See "Management -- Our Advisory Agreement."
SUBORDINATED PAYMENTS We may pay the following additional fees to our business manager/advisor after returns on net investment have been paid to the stockholders:
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT - ------------------------------------------------------------------------------------------------------------------- OPERATIONAL STAGE Advisor asset management fee We pay an annual advisor asset management fee The actual amounts to be received payable to our business of not more than 1% of our average assets. depend upon the sale price of our manager/advisor. Our average assets means the average of the properties and, therefore, cannot total book value including acquired be determined at the present time. intangibles of our real estate assets plus If we acquire the business the total value of our loans receivables manager/advisor, the advisor asset secured by real estate, before reserves for management fee will cease. depreciation or bad debts or other similar non-cash reserves. We will compute our average assets by taking the average of these values at the end of each month during the quarter for which we are calculating the fee. The fee is payable quarterly in an amount equal to 1/4 of 1% of average assets as of the last day of the immediately preceding quarter. For any year in which we qualify as a REIT, our business manager/advisor must reimburse us for the following amounts if any: (1) the amounts by which our total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of: - 2% of our average assets for that fiscal year, or - 25% of our net income for that fiscal year. (2) plus an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the total amount of distributions to stockholders for that year and the 6% annual return on the
382 net investment of stockholders. Items such as organization and offering expenses, property expenses, interest payments, taxes, non-cash expenditures, the incentive advisory fee and acquisition expenses are excluded from the definition of total operating expenses. See "Management -- Our Advisory Agreement" for an explanation of circumstances where the excess amount specified in clause (1) may not need to be reimbursed. LIQUIDATION STAGE Incentive advisory fee payable We will pay to the business manager/advisor The actual amounts to be received to our business an amount equal to 15% of the net proceeds depend upon the sale price of our manager/advisor. from the sale of a property after the properties and, therefore, cannot stockholders have first received: be determined at the present time. If we acquire or consolidate with (1) a cumulative non-compounded return equal the business conducted by our to 10% a year on their net investment; business manager/advisor, the and incentive advisory fee will terminate. (2) their net investment.
383 LEGAL MATTERS Duane Morris LLP, Washington, D.C., has passed upon the legality of the common stock and Duane Morris LLP, Philadelphia, Pennsylvania, has passed upon legal matters in connection with our status as a REIT for federal income tax purposes. Duane Morris LLP is generally referred to in this prospectus as Duane Morris. Duane Morris does not purport to represent our stockholders or potential investors, who should consult their own counsel. Duane Morris also provides legal services to affiliates of our business manager/advisor. Duane Morris has reviewed the statements in the section in the prospectus titled "Federal Income Tax Considerations" and elsewhere as they relate to federal income tax matters and the statements in the section in the prospectus titled "ERISA Considerations." EXPERTS The following financial statements have been included herein in reliance upon the reports of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing: - - the consolidated balance sheet of Inland - the historical summary of gross income and Western Retail Real Estate Trust, Inc. as of direct operating expenses of Darien Towne December 31, 2003 and the related consolidated Center for the year ended December 31, 2002, statements of operations, stockholders' equity and cash flows for the period from March 5, 2003 (inception) through December 31, 2003 and related financial statement schedule, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Shops at Park Place direct operating expenses of Hickory Ridge for for the year ended December 31, 2002, the year ended December 31, 2003, - - the combined historical summary of gross - the historical summary of gross income and income and direct operating expenses of direct operating expenses of Metro Square Properties Acquired from Thomas Enterprises for Center (SuperValue) for the year ended the year ended December 31, 2003, December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of CorWest Plaza for direct operating expenses of North Ranch the period from May 29, 2003 through December Pavilion for the year ended December 31, 2003, 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Larkspur Landing direct operating expenses of MacArthur for the year ended December 31, 2003, Crossing for the year ended December 31, 2003,
384 - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of La Plaza Del Norte direct operating expenses of Peoria Crossing for the year ended December 31, 2003, for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Promenade at Red direct operating expenses of Heritage Towne Cliff for the year ended December 31, 2003, Crossing for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Dorman Centre for direct operating expenses of Best on the the year ended December 31, 2003, Boulevard for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Paradise Valley direct operating expenses of North Rivers Town Marketplace for the year ended December 31, 2003, Center for the period of October 1, 2003 (commencement of operations) to December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Bluebonnet Parc for direct operating expenses of Eastwood Town the year ended December 31, 2003, Center for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Arvada Marketplace direct operating expenses of Northpointe Plaza and Connection for the year ended December 31, for the year ended December 31, 2003, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Watauga Pavilion direct operating expenses of Pine Ridge Plaza for the period of August 15, 2003 (commencement for the year ended December 31, 2003, of operations) to December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Plaza Santa Fe II direct operating expenses of John's Creek for the year ended December 31, 2003, Village for the period from September 21, 2003 (commencement of operations) to December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Huebner Oaks Center direct operating expenses of Fullerton for the year ended December 31, 2003, Metrocenter for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Lakewood Town direct operating expenses of Northgate North Center for the year ended December 31, 2003, for the year ended December 31, 2003,
385 - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Davis Towne direct operating expenses of Gateway Plaza Crossing for the period from July 18, 2003 Shopping Center for the year ended December (commencement of operations) to December 31, 31, 2003, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Cranberry Square direct operating expenses of Forks Town Center for the year ended December 31, 2003, for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Safeway Plaza at direct operating expenses of The Shops at Marysville for the year ended December 31, 2003, Boardwalk for the period from May 30, 2003 (commencement of operations) to December 31, 2003, - - the combined historical summary of gross - the historical summary of gross income and income and direct operating expenses of the direct operating expenses of Governor's Properties owned by Capital Centre, LLC, Gateway Marketplace for the year ended December 31, Village Limited Partnership, Bel Air Square 2003, Joint Venture, Towson Circle Joint Venture LLP, and Reisterstown Plaza Holdings, LLC for the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Manchester Meadows direct operating expenses of The Columns for for the year ended December 31, 2003, the period from October 8, 2003 (commencement of operations) to December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Mitchell Ranch direct operating expenses of Lincoln Park for Plaza for the period from June 30, 2003 the year ended December 31, 2003, (commencement of operations) to December 31, 2003, - - the historical summary of gross income and - the combined historical summary of gross direct operating expenses of Saucon Valley income and direct operating expenses of The Square for the year ended December 31, 2003, Properties Acquired from Bayer Properties, Inc. for the year ended December 31, 2003, - - the historical summary of gross income and - the combined historical summary of gross direct operating expenses of Azalea Square for income and direct operating expenses of The the period from July 4, 2003 (commencement of Properties Acquired from Donahue Schriber for operations) to December 31, 2003, the year ended December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Denton Crossing for direct operating expenses of Winchester the period from August 11, 2003 (commencement of Commons for the year ended December 31, 2003, operations) to December 31, 2003,
386 - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Gurnee Town Center direct operating expenses of Fox Creek Village for the year ended December 31, 2003, for the period from November 12, 2003 (commencement of operations) to December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Mansfield Town direct operating expenses of Northwoods Center Center for the period from July 23, 2003 for the year ended December 31, 2003, (commencement of operations) to December 31, 2003, - - the historical summary of gross income and - the historical summary of gross income and direct operating expenses of Gateway Pavilions direct operating expenses of Oswego Commons for the period from February 15, 2003 for the year ended December 31, 2003, (commencement of operations) to December 31, 2003, - - the historical summary of gross income and - and the combined historical summary of direct operating expenses of Southlake Town gross income and direct operating expenses of Square for the year ended December 31, 2003, The Properties Acquired from Eastern Retail Holdings, L.P. for the year ended December 31, 2003.
WHERE YOU CAN FIND MORE INFORMATION We are filing this registration statement on Form S-11 with the Securities and Exchange Commission in connection with our initial public offering. We are required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. This prospectus is part of the registration statement and does not contain all of the information included in the registration statement and all of its exhibits, certificates and schedules. Whenever a reference is made in this prospectus to any contract or other document of ours, the reference may not be complete and you should refer to the exhibits that are a part of the registration statement for a copy of the contract or document. You can read our registration statement and our future SEC filings over the Internet at www.sec.gov. You may also read and copy any document we file with the SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1 800 SEC-0330 or e-mail at publicinfo@sec.gov for further information on the operation of the public reference facilities. 387 INDEX TO FINANCIAL STATEMENTS
PAGE -------- 1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.: (a) Report of Independent Registered Public Accounting Firm F- 14 (b) Consolidated Balance Sheet at December 31, 2003 (audited) F- 15 (c) Consolidated Statement of Operations for the period from March 5, 2003 (inception) through F- 17 December 31, 2003 (audited) (d) Consolidated Statement of Stockholders' Equity for the period from March 5, 2003 (inception) to F- 18 December 31, 2003 (audited) (e) Consolidated Statement of Cash Flows for the period from March 5, 2003 (inception) to December F- 19 31, 2003 (audited) (f) Notes to Consolidated Financial Statements (audited) F- 21 (g) Consolidated Balance Sheets at September 30, 2004 (unaudited) and December 31, 2003 (audited) F- 37 (h) Consolidated Statements of Operations for the three and nine months ended September 30, 2004, F- 39 three months ended September 30, 2003, and the period from March 5, 2003 (inception) through September 30, 2003 (unaudited) (i) Consolidated Statement of Stockholders' Equity for the nine month period ended September 30, F- 41 2004 (unaudited) (j) Consolidated Statements of Cash Flows for nine months ended September 30, 2004, and the period F- 42 from March 5, 2003 (inception) to September 30, 2003 (unaudited) (k) Notes to Consolidated Financial Statements (unaudited) F- 44 (l) Pro Forma Consolidated Balance Sheet (unaudited) at September 30, 2004 F- 58 (m) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at September 30, 2004 F- 60 (n) Pro Forma Consolidated Statement of Operations (unaudited) for the nine months ended September F- 62 30, 2004 (o) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the nine months ended F- 64 September 30, 2004
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PAGE -------- (p) Pro Forma Consolidated Statements of Operations (unaudited) for the year ended December 31, 2003 F- 68 (q) Notes to Pro Forma Consolidated Statements of Operations (unaudited) for the year ended December F- 70 31, 2003 2. SHOPS AT PARK PLACE: (a) Independent Auditors' Report F- 76 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F- 77 2002 and the nine months ended September 30, 2003 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F- 78 December 31, 2002 and the nine months ended September 30, 2003 (unaudited) 3. DARIEN TOWN CENTER: (a) Independent Auditors' Report F- 80 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F- 81 2002 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F- 82 December 31, 2002 4. PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES IN 2003: (a) Independent Auditors' Report F- 86 (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended F- 87 December 31, 2003 (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the F- 88 year ended December 31, 2003 5. STONY CREEK MARKETPLACE: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F- 90 2003 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F- 91 December 31, 2003 (unaudited) 6. HICKORY RIDGE: (a) Independent Auditors' Report F- 92 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F- 93 2003 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F- 94 December 31, 2003 (unaudited) 7. CORWEST PLAZA:
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PAGE -------- (a) Independent Auditors' Report F- 96 (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 29, F- 97 2003 through December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F- 98 from May 29, 2003 through December 31, 2003 8. METRO SQUARE CENTER (SUPERVALUE): (a) Independent Auditors' Report F-100 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-101 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-102 December 31, 2003 9. LARKSPUR LANDING: (a) Independent Auditors' Report F-104 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-105 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-106 December 31, 2003 10. NORTH RANCH PAVILION: (a) Independent Auditors' Report F-108 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-109 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-110 December 31, 2003 11. LA PLAZA DEL NORTE: (a) Independent Auditors' Report F-112 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-113 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-114 December 31, 2003 12. MACARTHUR CROSSING: (a) Independent Auditors' Report F-116 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-117 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-118 December 31, 2003
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PAGE -------- 13. PROMENADE AT RED CLIFF: (a) Independent Auditors' Report F-120 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-121 2003 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-122 December 31, 2003 (unaudited) 14. PEORIA CROSSING: (a) Independent Auditors' Report F-124 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-125 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-126 December 31, 2003 15. DORMAN CENTRE: (a) Independent Auditors' Report F-128 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-129 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-130 December 31, 2003 16. HERITAGE TOWNE CROSSING: (a) Independent Auditors' Report F-132 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-133 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-134 December 31, 2003 17. PARADISE VALLEY MARKETPLACE: (a) Independent Auditors' Report F-136 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-137 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-138 December 31, 2003 and the three months ended March 31, 2004 (unaudited) 18. BEST ON THE BOULEVARD: (a) Independent Auditors' Report F-140 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-141 2003 and the three months ended March 31, 2004 (unaudited)
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PAGE -------- (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-142 December 31, 2003 and the three months ended March 31, 2004 (unaudited) 19. BLUEBONNET PARC: (a) Independent Auditors' Report F-144 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-145 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-146 December 31, 2003 and the three months ended March 31, 2004 (unaudited) 20. NORTH RIVERS TOWN CENTER: (a) Independent Auditors' Report F-148 (b) Historical Summary of Gross Income and Direct Operating Expenses for the period of October 1, F-149 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of F-150 October 1, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited) 21. ARVADA MARKETPLACE AND CONNECTION: (a) Independent Auditors' Report F-152 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-153 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-154 December 31, 2003 and the three months ended March 31, 2004 (unaudited) 22. EASTWOOD TOWNE CENTER: (a) Independent Auditors' Report F-156 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-157 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-158 December 31, 2003 and the three months ended March 31, 2004 (unaudited) 23. WATAUGA PAVILION: (a) Independent Auditors' Report F-160 (b) Historical Summary of Gross Income and Direct Operating Expenses for the period of August 15, F-161 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of F-162 August 15, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited)
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PAGE -------- 24. NORTHPOINTE PLAZA: (a) Independent Auditors' Report F-164 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-165 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-166 December 31, 2003 and the three months ended March 31, 2004 (unaudited) 25. PLAZA SANTA FE II: (a) Independent Auditors' Report F-168 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-169 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-170 December 31, 2003 and the three months ended March 31, 2004 (unaudited) 26. PINE RIDGE PLAZA: (a) Independent Auditors' Report F-172 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-173 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-174 December 31, 2003 and the three months ended March 31, 2004 (unaudited) 27. HUEBNER OAKS CENTER: (a) Independent Auditors' Report F-176 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-177 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-178 December 31, 2003 and the three months ended March 31, 2004 (unaudited) 28. JOHN'S CREEK VILLAGE: (a) Independent Auditors' Report F-180 (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from September F-181 21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from F-182 September 21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 29. LAKEWOOD TOWN CENTER (a) Independent Auditors' Report F-184
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PAGE -------- (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-185 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-186 December 31, 2003 and the six months ended June 30, 2004 (unaudited) 30. FULLERTON METROCENTER: (a) Independent Auditors' Report F-188 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-189 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-190 December 31, 2003 and the six months ended June 30, 2004 (unaudited) 31. DAVIS TOWNE CROSSING: (a) Independent Auditors' Report F-192 (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from July 18, F-193 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from F-194 July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 32. NORTHGATE NORTH: (a) Independent Auditors' Report F-196 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-197 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-198 December 31, 2003 and the six months ended June 30, 2004 (unaudited) 33. CRANBERRY SQUARE: (a) Independent Auditors' Report F-200 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-201 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-202 December 31, 2003 and the six months ended June 30, 2004 (unaudited) 34. GATEWAY PLAZA SHOPPING CENTER: (a) Independent Auditors' Report F-204 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-205 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-206 December 31, 2003 and the six months ended June 30, 2004 (unaudited)
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PAGE -------- 35. SAFEWAY PLAZA AT MARYSVILLE: (a) Independent Auditors' Report F-208 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-209 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-210 December 31, 2003 and the six months ended June 30, 2004 (unaudited) 36. FORKS TOWN CENTER: (a) Independent Auditors' Report F-212 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-213 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-214 December 31, 2003 and the six months ended June 30, 2004 (unaudited) 37. CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC: (a) Independent Auditors' Report F-216 (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-217 December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the F-218 year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 38. THE SHOPS AT BOARDWALK: (a) Independent Auditors' Report F-221 (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 30, F-222 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-223 from May 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 39. MANCHESTER MEADOWS: (a) Independent Auditors' Report F-225 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-226 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-227 December 31, 2003 and the six months ended June 30, 2004 (unaudited) 40. GOVERNOR'S MARKETPLACE: (a) Independent Auditors' Report F-229
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PAGE -------- (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-230 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-231 December 31, 2003 and the six months ended June 30, 2004 (unaudited) 41. MITCHELL RANCH PLAZA: (a) Independent Auditors' Report F-233 (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from June 30, F-234 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-235 from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 42. THE COLUMNS: (a) Independent Auditors' Report F-237 (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from October 8, F-238 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-239 from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 43. SAUCON VALLEY SQUARE: (a) Independent Auditors' Report F-241 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-242 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-243 December 31, 2003 and the six months ended June 30, 2004 (unaudited) 44. LINCOLN PARK: (a) Independent Auditors' Report F-245 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-246 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-247 December 31, 2003 and the six months ended June 30, 2004 (unaudited) 45. SHOPPES AT PROMINENCE POINT: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, F-249 2004 (commencement of operations) to June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-250
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PAGE -------- from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) 46. LOW COUNTRY VILLAGE: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from February 1, F-251 2004 (commencement of operations) to June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-252 from February 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) 47. SHOPPES AT DALLAS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, F-253 2004 (commencement of operations) to June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-254 from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) 48. DORMAN CENTRE - PHASE II: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 15, F-255 2004 (commencement of operations) to June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-256 from March 15, 2004 (commencement of operations) to June 30, 2004 (unaudited) 49. VILLAGE SHOPPES AT SIMONTON: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 1, 2004 F-257 (commencement of operations) to June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-258 from May 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) 50. HARVEST TOWN CENTER: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-259 2003 and the six months ended June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-260 December 31, 2003 and the six months ended June 30, 2004 (unaudited) 51. BED, BATH & Beyond Plaza: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 3, F-261 2004 (commencement of operations) to June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-262 from March 3, 2004 (commencement of operations) to June 30, 2004 (unaudited) 52. AZALEA SQUARE: (a) Independent Auditors' Report F-263 (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from July 4, F-264 2004 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
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PAGE -------- (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-265 from July 4, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 53. THE PROPERTIES ACQUIRED FROM BAYER PROPERTIES, INC.: (a) Independent Auditor's Report F-267 (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-268 December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the F-269 year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 54. DENTON TOWN CROSSING: (a) Independent Auditors' Report F-271 (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from August 11, F-272 2003 to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-273 from August 11, 2003 to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 55. THE PROPERTIES ACQUIRED FROM DONAHUE SCHRIBER: (a) Independent Auditors' Report F-275 (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-276 December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the F-277 year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 56. GURNEE TOWN CENTRE: (a) Independent Auditors' Report F-279 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-280 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-281 December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 57. WINCHESTER COMMONS: (a) Independent Auditors' Report F-283 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-284 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-285 December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
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PAGE -------- 58. MANSFIELD TOWNE CENTRE: (a) Independent Auditors' Report F-287 (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from July 23, F-288 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-289 from July 23, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 59. FOX CREEK VILLAGE: (a) Independent Auditors' Report F-291 (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from November F-292 12, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-293 from November 12, 2003 to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 60. GATEWAY PAVILION: (a) Independent Auditors' Report F-295 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-296 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-297 December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 61. NORTHWOODS SHOPPING CENTER: (a) Independent Auditors' Report F-299 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-300 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-301 December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 62. OSWEGO COMMONS: (a) Independent Auditors' Report F-303 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-304 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-305 December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 63. LAKE MARY POINTE: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-307
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PAGE -------- 31, 2003 and the nine months ended September 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for year ended F-308 December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 64. PUBLIX CENTER - MT. PLEASANT: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from April 18, F-309 2004 (commencement of operations) to September 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-310 from April 18, 2004 (commencement of operations) to September 30, 2004 (unaudited) 65. FIVE FORKS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-311 2003 and the nine months ended September 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-312 December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 66. GATEWAY STATION: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from June 21, F-313 2004 (commencement of operations) to September 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-314 from June 21, 2004 (commencement of operations) to September 30, 2004 (unaudited) 67. SHOPS AT FOREST COMMONS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-315 2003 and the nine months ended September 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-316 December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 68. SOUTHLAKE TOWN SQUARE: (a) Independent Auditors' Report F-317 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, F-318 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-319 December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 69. THE PROPERTIES ACQUIRED FROM EASTERN RETAIL HOLDINGS, LP: (a) Independent Auditors' Report F-321 (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-322 December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the F-323 year ended December 31, 2003 and the nine months ended September 30, 2004
F-13 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Inland Western Retail Real Estate Trust, Inc.: We have audited the consolidated financial statements of Inland Western Retail Real Estate Trust, Inc. (the Company) as listed in the accompanying index. In connection with our audit of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Inland Western Retail Real Estate Trust, Inc. as of December 31, 2003 and the results of their operations and their cash flows for the period from March 5, 2003 (inception) to December 31, 2003, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Chicago, Illinois February 13, 2004 F-14 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Consolidated Balance Sheet December 31, 2003 ASSETS Investment properties: Land $ 36,280,244 Building and other improvements 86,439,670 --------------- 122,719,914 Less accumulated depreciation (140,497) --------------- Net investment properties 122,579,417 Cash and cash equivalents 64,381,134 Accounts and rents receivable 1,147,551 Due from affiliates 918,750 Note receivable 7,552,155 Acquired in-place lease intangibles (net of accumulated amortization of $51,773) 8,753,908 Acquired above market lease intangibles (net of accumulated amortization of $5,227) 1,590,446 Loan fees (net of accumulated amortization of $24,835) 1,434,160 Other assets 3,744,642 --------------- Total assets $ 212,102,163 ===============
See accompanying notes to consolidated financial statements. F-15 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Consolidated Balance Sheet (continued) December 31, 2003 LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accounts payable $ 505,448 Accrued offering costs due to affiliates 1,369,366 Accrued real estate taxes 1,392,069 Distributions payable 927,539 Security deposits 108,189 Mortgages payable 29,627,000 Line of credit 5,000,000 Prepaid rental and recovery income 104,756 Advances from sponsor 1,202,519 Acquired below market lease intangibles (net of accumulated amortization of $15,386) 5,910,413 Other liabilities 71,927 Due to affiliates 2,154,158 --------------- Total liabilities 48,373,384 --------------- Stockholders' equity: Preferred stock, $.001 par value, 10,000,000 shares authorized, none outstanding - Common stock, $.001 par value, 250,000,000 shares authorized, 18,737,141 shares issued and outstanding 18,737 Additional paid in capital (net of offering costs of $22,144,814 of which $1,369,366 was paid or accrued to affiliates) 165,168,650 Accumulated distributions in excess of net loss (1,458,608) --------------- Total stockholders' equity 163,728,779 --------------- Commitments and contingencies (Note 11) Total liabilities and stockholders' equity $ 212,102,163 ===============
See accompanying notes to consolidated financial statements. F-16 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Consolidated Statement of Operations For the period from March 5, 2003 (inception) through December 31, 2003 Income: Rental income $ 606,645 Real estate tax recovery income 95,654 Common area costs recovery income 42,334 Interest income 37,648 --------------- Total income 782,281 --------------- Expenses: Professional services 88,058 General and administrative expenses to affiliates 104,259 General and administrative expenses to non-affiliates 127,896 Property operating expenses to affiliates 16,627 Property operating expenses to non-affiliates 30,963 Real estate tax 95,654 Interest 135,735 Depreciation 140,497 Amortization 76,608 Acquisition cost expenses to affiliates 7,563 Acquisition cost expenses to non-affiliates 131,700 --------------- Total expenses 955,560 --------------- Net loss $ (173,279) =============== Net loss per common share, basic and diluted $ (.07) =============== Weighted average number of common shares outstanding, basic and diluted 2,520,986 ===============
See accompanying notes to consolidated financial statements F-17 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Consolidated Statement of Stockholders' Equity For the period from March 5, 2003 (inception) to December 31, 2003
ACCUMULATED ADDITIONAL DISTRIBUTIONS NUMBER OF COMMON PAID-IN IN EXCESS OF SHARES STOCK CAPITAL NET INCOME TOTAL ---------------------------------------------------------------------------------- Balance at March 5, 2003 (inception) - - - - - Net loss - - - (173,279) (173,279) Distributions declared ($.15 per weighted average number of common shares outstanding) - - - (1,285,329) (1,285,329) Proceeds from offering 18,718,092 18,718 187,127,565 - 187,146,283 Offering costs - (22,144,814) - (22,144,814) Proceeds from DRP 19,049 19 180,949 - 180,968 Common stock option expense - - 4,950 - 4,950 ---------------------------------------------------------------------------------- Balance at December 31, 2003 18,737,141 $ 18,737 $ 165,168,650 $ (1,458,608) $ 163,728,779 ==================================================================================
See accompanying notes to consolidated financial statements. F-18 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) STATEMENT OF CASH FLOWS For the period from March 5, 2003 (inception) through December 31, 2003 Cash flows from operations: Net loss $ (173,279) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 140,497 Amortization 76,608 Amortization on acquired above market leases 5,227 Amortization on acquired below market leases (15,386) Stock option expense 4,950 Changes in assets and liabilities: Accounts and rents receivable (1,147,551) Accrued real estate taxes 1,240,567 Accounts payable 306,996 Prepaid rental and recovery income 104,756 Other liabilities 71,927 Security deposits 108,189 --------------- Net cash flows provided by operating activities 723,501 --------------- Cash flows from investing activities: Purchase of investment properties (122,719,914) Acquired above market leases (1,595,673) Acquired in place lease intangibles (8,805,681) Acquired below market leases 5,925,799 Other assets (830,697) Funding of note receivable (7,552,155) Due to affiliates 2,154,158 --------------- Net cash flows used in investing activities (133,424,163) --------------- Cash flows from financing activities: Proceeds from offering 187,146,283 Proceeds from the DRP 180,968 Payment of offering costs (20,775,448) Loan proceeds 29,627,000 Proceeds from unsecured line of credit 5,000,000 Loan fees (4,022,986) Distributions paid (357,790) Due from affiliates (918,750) Advances from sponsor 1,202,519 --------------- Net cash flows provided by financing activities 197,081,796 ---------------
See accompanying notes to financial statements F-19 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) STATEMENT OF CASH FLOWS (continued) For the period from March 5, 2003 (inception) through December 31, 2003 Net increase in cash and cash equivalents $ 64,381,134 Cash and cash equivalents, at beginning of period - --------------- Cash and cash equivalents, at end of period $ 64,381,134 =============== Supplement disclosure of cash flow information: Cash paid for interest $ 135,735 =============== Supplement schedule of non-cash financing activities: Distributions payable $ 927,539 =============== Accrued offering costs payable $ 1,369,366 ===============
See accompanying notes to financial statements F-20 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003 (unaudited) (1) Organization Inland Western Retail Real Estate Trust, Inc. (the "Company") was formed on March 5, 2003 to acquire and manage a diversified portfolio of real estate, primarily multi-tenant shopping centers. The Advisory Agreement provides for Inland Western Retail Real Estate Advisory Services, Inc. (the "Advisor"), an Affiliate of the Company, to be the Advisor to the Company. On September 15, 2003, the Company commenced an initial public offering of up to 250,000,000 shares of common stock at $10 each and the issuance of 20,000,000 shares at $9.50 each which may be distributed pursuant to the Company's distribution reinvestment program. The Company is qualified and has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended, for federal income tax purposes commencing with the tax year ending December 31, 2003. Since the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal income tax to the extent it distributes at least 90% of its REIT taxable income to its stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and federal income and excise taxes on its undistributed income. The Company provides the following programs to facilitate investment in the Company's shares and to provide limited liquidity for stockholders. The Company allows stockholders who purchase shares in the offering to purchase additional shares from the Company by automatically reinvesting distributions through the distribution reinvestment program ("DRP"), subject to certain share ownership restrictions. Such purchases under the DRP are not be subject to selling commissions or the marketing contribution and due diligence expense allowance, and are made at a price of $9.50 per share. The Company will repurchase shares under the share repurchase program ("SRP"), if requested, at least once quarterly on a first-come, first-served basis, subject to certain restrictions. Subject to funds being available, the Company will limit the number of shares repurchased during any calendar year to 5% of the weighted average number of shares outstanding during the prior calendar year. Funding for the SRP will come exclusively from proceeds that the Company receives from the sale of shares under the DRP and such other operating funds, if any, as the Company's board of directors, at its sole discretion, may reserve for this purpose. The board, at its sole discretion, may choose to terminate the share repurchase program after the end of the offering period, or reduce the number of shares purchased under the program, if it determines that the funds allocated to the SRP are needed for other purposes, such as the acquisition, maintenance or repair of properties, or for use in making a declared distribution. A determination by the board to eliminate or reduce the share repurchase program will require the unanimous affirmative vote of the independent directors. As of December 31, 2003, no shares have been repurchased by the Company. The accompanying Consolidated Financial Statements include the accounts of the Company, as well as all wholly owned subsidiaries. Wholly owned subsidiaries generally consist of limited liability companies ("LLC's"). The effects of all significant intercompany transactions have been eliminated. F-21 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2003 (2) Summary of Significant Accounting Policies The preparation of the financial statements in conformity with accounting principles generally accepted in the United State of America ("GAAP") requires management of the Company to make estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Highly liquid investments with a maturity of three months or less when purchased are classified as cash equivalents. Costs associated with the offering are deferred and charged against the gross proceeds of the offering upon closing. Formation and organizational costs are expensed as incurred. As of December 31, 2003, $7,500 of organizational costs were expensed. The Company applies the fair value method of accounting as prescribed by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION for its stock options granted. Under this method, the Company will report the value of granted options as a charge against earnings ratably over the vesting period. Real estate acquisitions are recorded at costs less accumulated depreciation. Ordinary repairs and maintenance are expensed as incurred. Depreciation expense is computed using the straight line method. Building and improvements are depreciated based upon estimated useful lives of 30 years for building and improvements and 15 years for site improvements. The Company performed an impairment analysis for its long-lived assets in accordance with Statement of Financial Accounting Standards No. 144 ("SFAS 144") to ensure that the investment property's carrying value does not exceed its fair value. The valuation analysis performed by the Company was based upon many factors which require difficult, complex or subjective judgments to be made. Such assumptions include projecting vacancy rates, rental rates, operating expenses, lease terms, tenant financial strength, economy, demographics, property location, capital expenditures and sales value among other assumptions to be made upon valuing each property. This valuation is sensitive to the actual results of any of these uncertain factors, either individually or taken as a whole. Based upon the Company's judgment, no impairment was warranted as of December 31, 2003. Tenant improvements are amortized on a straight line basis over the life of the related lease as a component of amortization expense. Leasing fees are amortized on a straight-line basis over the life of the related lease. Loan fees are amortized on a straight-line basis over the life of the related loans. F-22 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2003 The Company allocates the purchase price of the each acquired investment property between land, building and improvements, acquired above market and below market leases, in-place lease value, customer relationship value, and any assumed financing that is determined to be above or below market terms. The allocation of the purchase price is an area that requires judgment and significant estimates. The Company uses the information contained in the independent appraisal obtained at acquisition as the primary basis for the allocation to land and building and improvements. The aggregate value of intangibles is measured based on the difference between the stated price and the property value as if vacant. The Company determines whether any financing assumed is above or below market based upon comparison to similar financing terms for similar investment properties. The Company also allocates a portion of the purchase price to the estimated acquired in-place lease costs based on estimated lease execution costs for similar leases and we consider various factors including geographic location and size of leased space. The Company also evaluates each acquired lease based upon current market rates at the acquisition date and we consider various factors including geographical location, size and location of leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired lease is above or below market lease costs. After an acquired lease is determined to be above or below market lease costs, the Company allocates a portion of the purchase price to such above or below acquired lease costs based upon the present value of the difference between the contractual lease rate and the estimated market rate. The determination of the discount rate used in the present value calculation is based upon the "risk free rate." This discount rate is a significant factor in determining the market valuation which requires our judgment of subjective factors such as market knowledge, economic, demographics, location, visibility, location, age and physical condition of the property. The application of SFAS 141 and SFAS 142 resulted in the recognition upon acquisition of additional intangible assets and liabilities relating to the 2003 real estate acquisitions. The portion of the purchase price allocated to acquired above market lease costs and acquired below market lease costs are amortized on a straight line basis over the life of the related lease as an adjustment to rental income. Amortization pertaining to the above market lease costs of $5,227 was applied as a reduction to rental income for the period from March 5, 2003 (inception) to December 31, 2003. Amortization pertaining to the below market lease costs of $15,386 was applied as an increase to rental income for the period from March 5, 2003 (inception) to December 31, 2003. The table below presents the amortization during the next five years related to the acquired above market lease costs and the below market lease costs for properties owned at December 31, 2003:
Amortization of: 2004 2005 2006 2007 2008 THEREAFTER ---- ---- ---- ---- ---- ---------- Acquired above market lease costs (431,185) (431,185) (429,043) (37,016) (37,016) (225,001) Acquired below market lease costs 582,355 582,355 582,355 561,053 531,230 3,071,065 Net rental income increase / (decrease) 151,170 151,170 153,312 524,037 494,214 2,846,064 Acquired in place lease intangibles 963,821 963,821 963,821 963,821 963,821 3,934,803
The portion of the purchase price allocated to acquired in-place lease intangibles are amortized on a straight line basis over the life of the related lease. We incurred amortization expense pertaining to acquired in-place lease intangibles of $51,773 for the period from March 5, 2003 (inception) to December 31, 2003. F-23 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2003 Rental income is recognized on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable in the accompanying consolidated balance sheets. The carrying amount of the Company's debt approximates fair value. The carrying amount of the Company's other financial instruments approximate fair value because of the relatively short maturity of these instruments. Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"), determined that a lessor should defer recognition of contingent rental income (i.e. percentage/excess rent) until the specified target (i.e. breakpoint) that triggers the contingent rental income is achieved. The Company records percentage rental revenue in accordance with the SAB 101. (3) Transactions with Affiliates The Advisor contributed $200,000 to the capital of the Company for which it received 20,000 shares of common stock. As of December 31, 2003, the Company had incurred $22,144,814 of offering costs. Pursuant to the terms of the offering, the Advisor has guaranteed payment of all public offering expenses (excluding sales commissions and the marketing contribution and the due diligence expense allowance) in excess of 5.5% of the gross proceeds of the offering or all organization and offering expenses (including selling commissions) which together exceed 15% of gross proceeds. As of December 31, 2003, offering costs did not exceed the 5.5% and 15% limitations. The Company anticipates that these costs will not exceed these limitations upon completion of the offering. Certain compensation and fees payable to the Advisor for services to be provided to the Company are limited to maximum amounts. Nonsubordinated payments: Offering stage: Selling commissions 7.5% of the sale price for each share Marketing contribution 3.0% of the gross offering proceeds and due diligence allowance Reimbursable expenses We will reimburse our sponsor for actual costs incurred, on our and other expenses of behalf, in connection with the offering issuance Acquisition stage: Acquisition expenses We will reimburse an affiliate of our Advisor for costs incurred, on our behalf, in connection with the acquisition of properties
F-24 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2003 Operational stage: Property management fee 4.5% of the gross income from the properties. THIS FEE TERMINATES UPON A (cannot exceed 90% of the fee which would be payable to BUSINESS COMBINATION WITH an unrelated third party) THE PROPERTY MANAGEMENT COMPANY. Loan servicing fee .03% of the total principal amount of the loans being serviced For each full year, up to the first $100 million and a lesser percentage on a sliding scale thereafter Other property level Compensation for these services will not exceed services 90% of that which would be paid to any third party for such services Reimbursable expenses The compensation and reimbursements to our Advisor and relating to administrative its affiliates will be approved by a majority of our services directors Liquidation stage: Property disposition fee Lesser of 3% of sales price or 50% of the customary THIS FEE TERMINATES UPON A commission which would be paid to a third party BUSINESS COMBINATION WITH THE ADVISOR Subordinated payments: Operational stage: Advisor asset management fee Not more than 1% per annum of our average assets; THIS FEE TERMINATES UPON A Subordinated to a non-cumulative, non-compounded return, BUSINESS COMBINATION WITH equal to 6% per annum THE ADVISOR Liquidation stage: Incentive advisory fee After the stockholders have first received a 10% cumulative, THIS FEE TERMINATES UPON A non-compounded return per year and a return of their net investment, BUSINESS COMBINATION WITH an incentive advisory fee equal to 15% on net proceeds THE ADVISOR from the sale of a property will be paid to the Advisor
On October 31, 2003, the Company acquired an existing shopping center known as The Shops at Park Place through the purchase of all of the membership interests of the general partner and the membership interests of the limited partner of the limited partnership holding title to this property. The center contains approximately 116,300 gross leasable square feet and is located in Plano, Texas. An affiliate of our Advisor, Inland Park Place Limited Partnership, acquired this property on September 30, 2003 from CDG Park Place LLC, an unaffiliated third party for $23,868,000. Inland Park Place Limited Partnership agreed to sell this property to the Company when sufficient funds from the sale of shares to acquire F-25 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2003 this property were raised. Inland Park Place Limited Partnership agreed to sell this property to the Company for the price the affiliate paid to the unaffiliated third party, plus any actual costs incurred. The Company's board of directors unanimously approved acquiring this property, including a unanimous vote of the independent directors. The total acquisition cost to the Company was $24,000,000, which included $132,000 of costs incurred by the affiliate. The Advisor and its affiliates are entitled to reimbursement for salaries and expenses of employees of the Advisor and its affiliates relating to the offering. In addition, an affiliate of the Advisor is entitled to receive selling commissions, and the marketing contribution and due diligence expense allowance from the Company in connection with the offering. Such costs are offset against the Stockholders' equity accounts. Such costs totaled $16,859,779 for the period from March 5, 2003 (inception) to December 31, 2003, of which $1,369,366 was unpaid at December 31, 2003. The Advisor and its affiliates are entitled to reimbursement for general and administrative costs of the Advisor and its affiliates relating to our administration. Such costs are included in general and administrative expenses to affiliates, professional services to affiliates, and acquisition cost expenses to affiliates, in addition to costs that were capitalized pertaining to property acquisitions. During the period from March 5, 2003 (inception) to December 31, 2003, the Company incurred $194,017 of these costs, of which $40,703 remained unpaid as of December 31, 2003. An affiliate of the Advisor provides loan servicing to the Company for an annual fee. The agreement allows for annual fees totaling .05% of the first $100,000,000 in mortgage balance outstanding and .03% of the remaining mortgage balance, payable monthly. Such fees totaled $328 in the period from March 5, 2003 (inception) to December 31, 2003. The Company used the services of an affiliate of the Advisor to facilitate the mortgage financing that the Company obtained on some of the properties purchased. Such costs are capitalized as loan fees and amortized over the respective loan term. During the period from March 5, 2003 (inception) to December 31, 2003, the Company paid loan fees totaling $59,523 to this affiliate. The property managers, entities owned principally by individuals who are affiliates of the Advisor, are entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services. The Company incurred and paid property management fees of $16,627 for the period from March 5, 2003 (inception) to December 31, 2003. None remained unpaid as of December 31, 2003. The Company established a discount stock purchase policy for affiliates of the Company and the Advisor that enables the affiliates to purchase shares of common stock at a discount at either $8.95 or $9.50 per share depending when the shares are purchased. The Company sold 59,497 shares to affiliates and recognized an expense related to these discounts of $62,472 for the period from March 5, 2003 (inception) to December 31, 2003. As of December 31, 2003 the Company was due funds from affiliates in the amount of $918,750 which is comprised of $73,750 due from an affiliate for costs paid on their behalf by the Company and $845,000 which is due from the sponsor for reimbursement of December distributions paid in January by the Company. The sponsor has agreed to advance funds to the Company for distributions paid to our shareholders until funds from operations are adequate to cover the distributions. As of December 31, 2003 the Company owed funds to the sponsor in the amount of $1,202,517 for repayment of these funds. As of December 31, 2003 the Company owed funds to an affiliate in the amount of $2,154,158 for the reimbursement of costs paid by the affiliate on behalf of the Company. F-26 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2003 (3) Stock Option Plan The Company has adopted an Independent Director Stock Option Plan which, subject to certain conditions, provides for the grant to each independent director of an option to acquire 3,000 shares following their becoming a director and for the grant of additional options to acquire 500 shares on the date of each annual stockholders' meeting. The options for the initial 3,000 shares are exercisable as follows: 1,000 shares on the date of grant and 1,000 shares on each of the first and second anniversaries of the date of grant. The subsequent options will be exercisable on the second anniversary of the date of grant. The initial options will be exercisable at $8.95 per share. The subsequent options will be exercisable at the fair market value of a share on the last business day preceding the annual meeting of stockholders. As of December 31, 2003, we have issued 3,000 options to acquire shares to each of our independent directors, for a total of 15,000 options, of which none have been exercised or expired. The per share weighted average fair value of options granted was $0.60 on the date of the grant using the Black Scholes option-pricing model with the following assumptions: expected dividend yield of 8%, risk free interest rate of 2.0%, expected life of five years and expected volatility rate of 18.0%. The Company has recorded $3,000 as expense for the 5,000 options (1,000 options per director) vesting upon the date of grant as of December 31, 2003 and will record the remaining $6,000 in expense ratably over the remaining two-year vesting period. (4) New Accounting Pronouncements In January 2003, FASB ISSUED INTERPRETATION 46, Consolidation of Variable Interest Entities or Interpretation 46, which addresses the consolidation of certain entities in which a company has a controlling financial interest through means other than voting rights. This interpretation was revised in December 2003. For calendar year companies, Interpretation 46 contains an effective date of December 31, 2003 for special purpose entities and periods ending after March 15, 2004 for all other entities. The Company does not own interests in special purpose entities and management does not believe that the adoption of Interpretation 46 will have a material impact on the Company's financial statements. On May 15, 2003, the Financial Accounting Standards Board issued Statement No. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. The Statement requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, the Statement is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted the provisions of the Statement on July 1, 2003. The Company did not enter into any financial instruments within the scope of the Statement during the period from March 5, 2003 (inception) to December 31, 2003. To the extent stockholders request shares to be repurchased by the Company under the Share Repurchase Program, the Company's obligation to repurchase such shares will be classified as a liability at the redemption amount at the date documentation is complete and accepted by the Company in accordance with the plan documents. F-27 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2003 (5) Leases Minimum lease payments to be received in the future under operating leases, assuming no expiring leases are renewed, are as follows:
Minimum Lease Payments --------------- 2004 $ 10,053,640 2005 9,758,805 2006 9,684,354 2007 9,273,557 2008 9,033,324 Thereafter 78,836,462 --------------- Total $ 126,640,142 ===============
The remaining lease terms range from one year to 56 years. Pursuant to the lease agreements, tenants of the property are required to reimburse the Company for some or all of their pro rata share of the real estate taxes, operating expenses and management fees of the properties. Such amounts are included in additional rental income. (6) Note Receivable The note receivable balance of $7,552,155 as of December 31 2003 consists of an installment note from Fourth Quarter Properties XIV, LLC (Fourth) that matures on January 15, 2004. This installment note is secured by a 49% interest in Fourth, which owns the remaining portion of the Newnan Crossing shopping center and is also guaranteed personally by the owner of Fourth. Interest only at a rate of 7.6192% per annum is due on the note. The installment note was advanced to Fourth in contemplation of the Company purchasing the remaining portions of Newnan Crossing. The Company did not call the note on January 15, 2004 and subsequently purchased the property on February 13, 2004 at which time the note was paid in full by Fourth. F-28 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2003 (7) Mortgages Payable Mortgages payable consist of the following at December 31, 2003:
BALANCE AT INTEREST MATURITY DECEMBER 31, FIXED RATE MORTGAGES PAYABLE RATE AT DATE 2003 - ------------------------------------------------------------------------------------- Property as collateral: Darien Commons 4.65% 06/01/10 $ 16,500,000 Park Place 4.71% 11/01/08 13,127,000 -------------- Total Fixed Rate Mortgages Payable $ 29,627,000 ==============
The following table shows the mortgage debt maturing during the next five years as of December 31, 2003. 2004 $ - 2005 - 2006 - 2007 - 2008 13,127,000 Thereafter 16,500,000 ------------ $ 29,627,000 ============
All of the Company's mortgage loans require monthly payments of interest only. The fixed-rate loans may be prepaid with a penalty after specific lockout periods. On February 9, 2004, the Company entered into a rate lock agreement with Bear Stearns and paid a rate lock deposit of $1,200,000 to lock the interest rate at 4.372% for a period of 90 days on $60,000,000. The rate lock was entered into to secure the interest rate on mortgage debt to be identified as debt is placed on properties the Company currently owns or will acquire in the future. (8) Line of Credit On December 24, 2003, the Company entered into a $150,000,000 unsecured line of credit arrangement with KeyBank N.A. for a period of one year. The funds from this line of credit will be used to provide liquidity from the time a property is purchased until permanent debt is place on the property. The Company is required to pay interest only on the outstanding balance from time to time under the line at the rate equal to LIBOR plus 175 basis points. The Company is also required to pay, on a quarterly basis, an amount ranging from .15% to .30%, per annum, on the average daily undrawn funds remaining under this line. The line of credit requires compliance with certain covenants, such as debt service rations, minimum net worth requirements, distribution limitations and investment restrictions. As of December 31, 2003, the Company was in compliance with such covenants. In connection with obtaining this line of credit, the Company paid fees in an amount totaling approximately $1,044,000 (which includes a .65% commitment fee). The outstanding balance on the line of credit was $5,000,000 as of December 31, 2003 with an effective interest rate of 2.9375% per annum. F-29 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2003 (9) Segment Reporting The Company owns and seeks to acquire multi-tenant shopping centers primarily in the western United States. All of the Company's shopping centers are currently located in Connecticut, Georgia, Illinois, Indiana, North Carolina, Oklahoma, and Texas. The Company's shopping centers are typically anchored by grocery and drugstores complemented with additional stores providing a wide range of other goods and services to shoppers. The Company assesses and measures operating results on an individual property basis for each of its properties based on net property operations. Since all of the Company's properties exhibit highly similar economic characteristics, cater to the day-to-day living needs of their respective surrounding communities, and offer similar degrees of risk and opportunities for growth, the properties have been aggregated and reported as one operating segment. Net property operations are summarized in the following table for the period from March 5, 2003 (inception) to December 31, 2003, and a reconciliation to net loss. Property rental and additional rental income $ 744,633 Total property operating expenses (143,244) Mortgage interest (132,471) --------------- Net property operations 468,918 --------------- Interest income 37,648 Less non-property expenses: Professional services (88,058) General and administrative expenses (235,419) Acquisition cost expenses (139,263) Depreciation and amortization (217,105) --------------- Net loss $ (173,279) ===============
The following table summarizes property asset information as of December 31, 2003. Total assets: Shopping centers $ 142,804,128 Non-segment assets 69,298,035 --------------- $ 212,102,163 ===============
The Company does not derive any of it's consolidated revenue from foreign countries and does not have any major customer that individually account for 10% or more of the Company's consolidated revenues F-30 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2003 (10) Earnings (loss) per Share Basic and diluted earnings (loss) per share ("EPS") is computed by dividing income by the weighted average number of common shares outstanding for the period (the "common shares"). As a result of the net loss incurred in 2003, diluted weighted average shares outstanding do not give effect to common stock equivalents as to do so would be anti-dilutive. The basic and diluted weighted average number of common shares outstanding were 2,520,986 for the period from March 5, 2003 (inception) to December 31, 2003. (11) Commitments and Contingencies On December 10, 2003, in connection with the purchase of Stony Creek Market Place, the Company entered into an earnout agreement with the seller of the property. The earnout agreement stipulates that the seller shall retain the right, for a 48 month period after the date of purchase, to purchase the development and leasing rights to a vacant 50,000 square foot padsite included in the purchase of the property. If the seller develops and leases the padsite within the 48 month period, the Company is required to purchase the seller's interest in the leases based on an agreed upon base rent divider stipulated in the purchase and sale agreement. If the base rent divider should fall above or below certain limits, then the seller and purchaser have certain rights to terminate this agreement. On December 31, 2003, in connection with the purchase of Pavilion at King's Grant, the purchase and sale contract stipulates that if anytime during the period from January 1, 2004 through December 31, 2007 the tenant, Toys R Us located in the shopping center, should increase their base rent up to a maximum amount of $250,000 and no decrease occurs in their requirement to pay for a certain percentage of expenses at the property, then the Company would be obligated to pay the seller additional funds related to the purchase based on a income capitalization formula stipulated in the purchase and sale agreement. After December 31, 2007 the Company is no longer obligated to pay the seller additional funds. As part of the purchase and sale agreement for Newnan Crossing, the Company is obligated to purchase the remaining portion of the shopping center that is currently under construction (approximately 28,000 square feet to be occupied by Linen's N Things) after construction is complete and the tenant has moved in and is paying rent. The purchase price for this portion of the center will be based on an income capitalization formula. (12) Subsequent Events The Company issued 12,698,273 shares of common stock from January 1, 2004 through February 13, 2004 in connection with the offering, resulting in gross proceeds of $126,917,854. The Company is currently considering acquiring seven properties for an estimated purchase price of $167,000,000. Our decision to acquire each property will generally depend upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions and our receipt of satisfactory due diligence information including appraisals, environmental reports and lease an information prior to purchasing the property. The Company has signed an application for an addition of $75,000,000 to the line of credit with Key Bank. Fundings under the line of credit will require interest only payments based on the provisions of the existing line of credit with Key Bank. As of February 13, 2004, the Company's outstanding balance owed on the line of credit is $70,000,000. F-31 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Notes to Consolidated Financial Statements (continued) December 31, 2003 The Company has acquired the following properties during the period January 1 to February 13, 2004. The respective acquisitions are summarized in the table below.
APPROXIMATE GROSS LEASABLE DATE YEAR PURCHASE PRICE AREA ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS -------- -------- ----- -------------- --------------- ------------- 01/06/04 CorWest Plaza 2000/ 33,000,000 115,011 Stop & Shop New Britain, CT 2001 CVS Pharmacy Liquor Depot 01/09/04 Hickory Ridge 1999 41,900,000 310,360 Best Buy Hickory, NC Kohl's Marshall's Linens N Things Old Navy Party City Shoe Carnival A.C. Moore 01/14/04 Larkspur Landing 1978/ 61,100,000 173,814 Bed Bath & Beyond Larkspur, CA 2001 24 Hour Fitness 01/15/04 North Ranch Pavilions 1992 18,468,000 62,812 Bank of America Thousand Oaks, CA 01/20/04 Metro Square Center 1999 11,031,000 61,817 Shoppers Food Severn, MD Warehouse 01/21/04 La Plaza Del Norte 1996/ 59,100,000 320,362 Best Buy San Antonia, TX 1999 Bealls Ross Stores Office Max Oshman's Superstores Cost Plus DSW Shoe Warehouse David's Bridal Petco 02/05/04 MacArthur Crossing 1995/ 23,100,000 110,975 Stein Mart Los Colinas, TX 1996 02/13/04 Promenade at Red Cliff 1999/ 19,618,000 94,936 Old Navy St. George, UT 1998 Staples Big 5 Sporting Goods 02/13/04 Newnan Crossing, Phase II 1997 22,362,000 153,798 TJ Maxx Newnan, GA Office Depot Old Navy Michaels Party City
F-32 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Notes to Consolidated Financial Statements (continued) December 31, 2003 The mortgage debt and financings obtained subsequent to December 31, 2003, are detailed in the list below.
DATE MATURITY PRINCIPAL BORROWED FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($) ---------------------------------------------------------------------------------------------------- 2/04/04 La Plaza Del Norte 4.61% 03/01/10 32,528,000 San Antonio, TX 1/30/04 Larkspur Landing 4.45% 02/01/09 33,630,000 Larkspur, CA 1/28/04 Shaw's - New Britain (A) 4.684% 11/01/33 6,450,000 New Britain, CT 1/21/04 Hickory Ridge 4.531% 02/01/09 23,650,000 Hickory, NC 1/07/04 Cor West Plaza 4.56% 02/01/09 18,150,000 New Britain, CT 1/05/04 Stony Creek Marketplace 4.77% 01/01/11 14,162,000 Noblesville, IN
(A) In connection with the financing of Shaw's - New Britain on January 28, 2004, the Park Place mortgage debt was modified to be cross-collateralized with the Shaw's - New Britain mortgage debt. All other terms of the Park Place debt generally remained the same. (13) Supplemental Financial Information (unaudited) The following represents the results of operations, for the each quarterly period, during 2003.
2003 Dec. 31 Sept. 30 June 30 March 31 --------------------------------------------------------- Total income $ 782,281 - - - Net loss (123,235) (32,794) (9,750) (7,500) Net loss, per common share, basic and diluted: (.01) (1.64) (.49) (.38) Weighted average number of common shares outstanding, basic and diluted 8,319,975 20,000 20,000 20,000
F-33 This page intentionally left blank. F-34 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A MARYLAND CORPORATION) SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2003
Initial Costs (A) Gross amount at which carried at end of period ----------------- ---------------------------------------------- Buildings Adjustments Buildings And to And Encumbrance Land Improvements Basis Land Improvements TOTAL (C) ------------ ------------- ------------ ----------- ------------- ------------ ------------- Darien Commons 16,500,000 7,000,000 22,468,408 - 7,000,000 22,468,408 29,468,408 Eckerd Drug Store - - Edmund - 975,000 2,400,249 - 975,000 2,400,249 3,375,249 Eckerd Drug Store - - Norman - 932,000 4,369,730 - 932,000 4,369,730 5,301,730 Newnan Crossing - 4,542,244 12,188,579 - 4,542,244 12,188,579 16,730,823 Park Place 13,127,000 9,096,000 13,174,867 - 9,096,000 13,174,867 22,270,867 Pavilion at King's Grant - 4,300,000 2,741,212 - 4,300,000 2,741,212 7,041,212 Shaw's Supermarket - 2,700,000 11,532,191 - 2,700,000 11,532,191 14,232,191 Stony Creek Market Place - 6,735,000 17,564,434 - 6,735,000 17,564,434 24,299,434 ------------------------------------------------------------------------------------------------------------- Total: $ 29,627,000 $ 36,280,244 $ 86,439,670 - $ 36,280,244 $ 86,439,670 $ 122,719,914 ============================================================================================================= Accumulated Depreciation Date Date (D) Constructed Acquired ------------- ----------- ---------- Darien Commons 56,280 1994 12/03 Eckerd Drug Store - - Edmund - 2003 12/03 Eckerd Drug Store - - Norman - 2003 12/03 Newnan Crossing 84,217 1999 12/03 Park Place - 2001 10/03 Pavilion at King's Grant - 2002/2003 12/03 Shaw's Supermarket - 1995 12/03 Stony Creek Market Place - 2003 12/03 ------------- Total: $ 140,497 =============
F-35 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) Schedule III (continued) Real Estate and Accumulated Depreciation December 31, 2003 Notes: (A) The initial cost to the Company represents the original purchase price of the property, including amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired. (B) The aggregate cost of real estate owned at December 31, 2003 for Federal income tax purposes was approximately $127,195,000 (unaudited). (C) Reconciliation of real estate owned: Balance at March 5, 2003 (inception) $ - Purchases of property 127,195,469 Acquired in-place lease intangibles (8,805,681) Acquired above market lease intangibles (1,595,673) Acquired below below market lease intangibles 5,925,799 --------------- Balance at December 31, 2003 $ 122,719,914 ===============
(D) Reconciliation of accumulated depreciation: Balance at March 5, 2003 (inception) $ - Depreciation expense 140,497 --------------- Balance at December 31, 2003 $ 140,497 ===============
F-36 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED BALANCE SHEETS September 30, 2004 and December 31, 2003 (Dollars in thousands, except per share amounts) ASSETS
September 30, 2004 (unaudited) December 31, 2003 ------------------ ------------------ Investment properties: Land $ 376,290 $ 36,280 Building and other improvements 1,614,585 86,440 ------------------ ------------------ 1,990,875 122,720 Less accumulated depreciation (19,441) (141) ------------------ ------------------ Net investment properties 1,971,434 122,579 Cash and cash equivalents (including cash held by management company of $0 and $239 as of September 30, 2004 and December 31, 2003, respectively) 280,414 64,381 Restricted cash (Note 2) 80,094 - Investment in marketable securities and treasury contracts (Note 2) 1,566 - Investment in unconsolidated joint venture (Note 9) 5,782 - Restricted escrows (Note 2) 67,874 - Accounts and rents receivable (net of allowance of $146 and $0 as of September 30, 2004 and December 31, 2003, respectively) 11,683 1,148 Due from affiliates (Note 3) 1,572 919 Notes receivable (Note 6) 28,419 7,552 Acquired in-place lease intangibles (net of accumulated amortization of $5,545 and $52 as of September 30, 2004 and December 31, 2003, respectively) 148,597 8,754 Acquired above market lease intangibles (net of accumulated amortization of $1,852 and $5 as of September 30, 2004 and December 31, 2003, respectively) 37,578 1,590 Loan fees, leasing fees and loan fee deposits (net of accumulated amortization of $1,235 and $25 as of September 30, 2004 and December 31, 2003, respectively) 14,118 3,998 Other assets 23,021 1,181 ------------------ ------------------ Total assets $ 2,672,152 $ 212,102 ================== ==================
See accompanying notes to consolidated financial statements. F-37 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED BALANCE SHEETS (continued) September 30, 2004 and December 31, 2003 (Dollars in thousands, except per share amounts) LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 2004 (unaudited) December 31, 2003 ------------------ ------------------ Liabilities: Mortgages and notes payable (Note 7) $ 1,141,248 $ 29,627 Accounts payable 1,352 150 Accrued offering costs due to affiliates 3,502 1,369 Accrued interest payable 2,947 - Tenant improvements payable 3,605 5 Accrued real estate taxes 10,529 1,392 Distributions payable 7,187 928 Security deposits 2,195 108 Line of credit (Note 8) - 5,000 Prepaid rental income and other liabilities 3,717 179 Advances from sponsor (Note 3) 2,869 1,203 Acquired below market lease intangibles (net of accumulated amortization of $2,660 and $15 as of September 30, 2004 and December 31, 2003, respectively) 70,356 5,910 Restricted cash liability (Note 2) 80,094 - Due to affiliates 778 2,502 ------------------ ------------------ Total liabilities 1,330,379 48,373 ------------------ ------------------ Minority interests 68,783 - Stockholders' equity: Preferred stock, $.001 par value, 10,000 shares authorized, none outstanding - - Common stock, $.001 par value, 250,000 shares authorized, 146,284 and 18,737 shares issued and outstanding as of September 30, 2004 and December 31, 2003, respectively 146 19 Additional paid-in capital (net of offering costs of $159,234 and $22,145 as of September 30, 2004 and December 31, 2003, respectively, of which $119,656 and $16,860 was paid or accrued to affiliates as of September 30, 2004 and December 31, 2003, respectively) 1,304,817 165,169 Accumulated distributions in excess of net income(loss) (32,177) (1,459) Accumulated other comprehensive income 204 - ------------------ ------------------ Total stockholders' equity 1,272,990 163,729 ------------------ ------------------ Commitments and contingencies (Note 12) Total liabilities and stockholders' equity $ 2,672,152 $ 212,102 ================== ==================
See accompanying notes to consolidated financial statements. F-38 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED STATEMENTS OF OPERATIONS For the three and nine months ended September 30, 2004, three months ended September 30, 2003 and the period from March 5, 2003 (inception) through September 30, 2003 (Dollars in thousands, except per share amounts) (unaudited)
Period from March 5, 2003 Three months Three months Nine months (inception) ended ended ended through September 30, September 30, September 30, September 30, 2004 2003 2004 2003 ------------- ------------- ------------- ------------- Revenues: Rental income $ 33,519 $ - $ 56,405 $ - Tenant recovery income 7,002 - 12,802 - Other property income 265 - 560 - ------------------------------------------------------------- Total revenues 40,786 - 69,767 - ------------------------------------------------------------- Expenses: General and administrative expenses to affiliates 449 12 1,304 12 General and administrative expenses to non-affiliates 539 21 1,540 31 Property operating expenses to affiliates 1,693 - 2,848 - Property operating expenses to non-affiliates 4,116 - 6,612 - Real estate taxes 4,495 - 7,509 - Depreciation and amortization 15,575 - 26,003 - ------------------------------------------------------------- Total expenses 26,867 33 45,816 43 ------------------------------------------------------------- Operating income (loss) $ 13,919 $ (33) $ 23,951 $ (43) Other income 1,413 - 1,886 - Interest expense (10,954) - (17,964) - Realized loss on sale of treasury contracts (2,004) - (3,352) - Minority interests (107) - (107) - ------------------------------------------------------------- Net income (loss) $ 2,267 $ (33) $ 4,414 $ (43) =============================================================
See accompanying notes to consolidated financial statements. F-39 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED STATEMENTS OF OPERATIONS For the three and nine months ended September 30, 2004, three months ended September 30, 2003 and the period from March 5, 2003 (inception) through September 30, 2003 (Dollars in thousands, except per share amounts) (unaudited)
Period from March 5, 2003 Three months Three months Nine months (inception) ended ended ended through September 30, September 30, September 30, September 30, 2004 2003 2004 2003 ------------- ------------- ------------- ------------- Other comprehensive income: Unrealized gain on investment securities 157 - 204 - ------------------------------------------------------------- Comprehensive income (loss) $ 2,424 $ (33) $ 4,618 $ (43) ============================================================= Net income(loss) per common share, basic and diluted $ .02 $ (1.65) $ .06 $ (2.15) ============================================================= Weighted average number of common shares outstanding, basic and diluted 112,887 20 70,052 20 =============================================================
See accompanying notes to consolidated financial statements F-40 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the nine month period ended September 30, 2004 (Dollars in thousands, except per share amounts) (unaudited)
ACCUMULATED DISTRIBUTIONS ACCUMULATED ADDITIONAL IN EXCESS OF OTHER NUMBER OF COMMON PAID-IN NET INCOME COMPREHENSIVE SHARES STOCK CAPITAL (LOSS) INCOME TOTAL ------------ ------------ ------------ ------------- ------------- ------------ Balance at December 31, 2003 18,737 $ 19 $ 165,169 $ (1,459) $ - $ 163,729 Net income - - - 4,414 - 4,414 Unrealized gain on investment securities - - - - 204 204 Distributions declared - - - (35,132) - (35,132) Proceeds from offering 125,930 126 1,258,654 - - 1,258,780 Offering costs - - (137,089) - - (137,089) Proceeds from dividend reinvestment program 1,617 1 15,360 - - 15,361 Forgiveness of affiliate debt - - 2,369 - - 2,369 Issuance of stock options and discounts on shares issued to affiliates - - 354 - - 354 ------------ ------------ ------------ ------------ ------------ ------------ Balance at September 30, 2004 146,284 $ 146 $ 1,304,817 (32,177) $ 204 $ 1,272,990 ============ ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements. F-41 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2004 and the period from March 5, 2003 (inception) through September 30, 2003. (Dollars in thousands, except per share amounts) (unaudited)
Period from March 5, 2003 (inception) Nine months ended through September 30, 2004 September 30, 2003 ------------------ ------------------- Cash flows from operations: Net income (loss) $ 4,414 $ (43) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 19,300 - Amortization 6,703 - Amortization of acquired above market leases 1,847 - Amortization of acquired below market leases (2,645) - Rental income under master leases 892 - Straight line rental income (1,970) - Straight line lease expense 301 - Minority interests 107 - Issuance of stock options and discount on shares issued to affiliates 354 4 Realized loss on sale of treasury contracts 3,352 - Changes in assets and liabilities: Accounts and rents receivable net of change in allowance of $146 and $0 for September 30, 2004 and September 30, 2003, respectively. (8,565) - Other assets (2,791) (50) Accounts payable 1,202 - Accrued interest payable 2,947 - Accrued real estate taxes 9,189 - Security deposits 2,087 - Prepaid rental and recovery income and other liabilities 3,237 - ------------------ ------------------ Net cash flows provided by (used in) operating activities 39,961 (89) ------------------ ------------------ Cash flows used in investing activities: Purchase of investment securities and treasury contracts (4,714) - Restricted escrows (67,874) - Purchase of investment properties (1,843,474) - Acquired in-place lease intangibles (145,336) - Acquired above market leases (37,835) - Acquired below market leases 67,091 - Contributions from minority interest-joint ventures 68,676 - Purchase of unconsolidated joint ventures (5,782) - Payment of leasing fees (623) - Tenant improvements payable 3,079 - Other assets (19,049) - Funding of notes receivable (28,419) - Due to affiliates (1,724) 14 ------------------ ------------------ Net cash flows (used in) provided by investing activities (2,015,984) 14 ------------------ ------------------
See accompanying notes to financial statements F-42 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2004 and the period from March 5, 2003 (inception) through September 30, 2003. (Dollars in thousands, except per share amounts) (unaudited)
Period from March 5, 2003 (inception) Nine months ended through September 30, 2004 September 30, 2003 ------------------ ------------------- Cash flows from financing activities: Proceeds from offering $ 1,258,780 $ 200 Proceeds from the dividend reinvestment program 15,361 - Payment of offering costs (134,956) (1,038) Proceeds from mortgage debt and notes payable 1,094,146 - Principal payments on mortgage debt (77) - Proceeds from unsecured line of credit 165,000 - Payoff of unsecured line of credit (170,000) - Loan fees and deposits (10,707) - Distributions paid (28,873) - Due from affiliates 1,013 - Advances from advisor - 1,113 Forgiveness of affiliate debt 2,369 - ------------------ ------------------ Net cash flows provided by financing activities 2,192,056 275 ------------------ ------------------ Net increase in cash and cash equivalents 216,033 200 Cash and cash equivalents, at beginning of period 64,381 - ------------------ ------------------ Cash and cash equivalents, at end of period $ 280,414 $ 200 ================== ================== Supplemental disclosure of cash flow information: Cash paid for interest $ 15,017 $ - ================== ================== Restricted cash $ (80,094) $ - Restricted cash liability 80,094 - ================== ================== Due from sponsor $ (1,567) - Due to sponsor 1,567 - ================== ================== Supplemental schedule of non-cash investing and financing activities: Purchase of investment properties $ (1,872,247) $ - Assumption of mortgage debt 17,552 - Write-off of acquisition reserve 521 - Purchase price adjustments 3,148 - Conversion of mortgage receivable to investment property 7,552 - ------------------ ------------------ $ (1,843,474) $ - ================== ================== Distributions payable $ 7,187 $ - ================== ================== Accrued offering costs payable $ 3,502 $ 295 ================== ==================
See accompanying notes to financial statements F-43 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2004 (UNAUDITED) (1) Organization and Basis of Accounting Inland Western Retail Real Estate Trust, Inc. (the "Company") was formed on March 5, 2003 to acquire and manage a diversified portfolio of real estate, primarily multi-tenant shopping centers. The Advisory Agreement provides for Inland Western Retail Real Estate Advisory Services, Inc. (the "Business Manager" or "Advisor"), an Affiliate of the Company, to be the Business Manager or Advisor to the Company. On September 15, 2003, the Company commenced an initial public offering of up to 250,000,000 shares of common stock at $10 each and the issuance of 20,000,000 shares at $9.50 each which may be distributed pursuant to the Company's distribution reinvestment program. The Company has also registered with the Securities and Exchange Commission for another public offering of up to 250,000,000 shares of common stock at $10 each and up to 20,000,000 shares at $9.50 each pursuant to the distribution reinvestment program which is not effective as of November 5, 2004. The Company is qualified and has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended, for federal income tax purposes commencing with the tax year ending December 31, 2003. Since the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal income tax to the extent it distributes at least 90% of its REIT taxable income to its stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and federal income and excise taxes on its undistributed income. The Company provides the following programs to facilitate investment in the Company's shares and to provide limited liquidity for stockholders. The Company allows stockholders who purchase shares in the offering to purchase additional shares from the Company by automatically reinvesting distributions through the distribution reinvestment program ("DRP"), subject to certain share ownership restrictions. Such purchases under the DRP are not subject to selling commissions or the marketing contribution and due diligence expense allowance, and are made at a price of $9.50 per share. The Company will repurchase shares under the share repurchase program ("SRP"), if requested, at least once quarterly on a first-come, first-served basis, subject to certain restrictions. Subject to funds being available, the Company will limit the number of shares repurchased during any calendar year to 5% of the weighted average number of shares outstanding during the prior calendar year. Funding for the SRP will come exclusively from proceeds that the Company receives from the sale of shares under the DRP and such other operating funds, if any, as the Company's board of directors, at its sole discretion, may reserve for this purpose. The board, at its sole discretion, may choose to terminate the share repurchase program after the end of the offering period, or reduce the number of shares purchased under the program, if it determines that the funds allocated to the SRP are needed for other purposes, such as the acquisition, maintenance or repair of properties, or for use in making a declared distribution. A determination by the board to eliminate or reduce the share repurchase program will require the unanimous affirmative vote of the independent directors. As of September 30, 2004, no shares have been repurchased by the Company. The accompanying Consolidated Financial Statements include the accounts of the Company, as well as all wholly owned subsidiaries and consolidated joint venture investments. Wholly owned subsidiaries generally consist of limited liability companies (LLC's) and limited partnerships (LP's). The effects of all significant intercompany transactions have been eliminated. F-44 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company would consolidate certain property holding entities and other subsidiaries that it owns less than a 100% equity interest if the entity is a variable interest entity ("VIE") and it is the primary beneficiary (as defined in FASB Interpretation 46(R) CONSOLIDATION OF VARIABLE INTEREST ENTITIES, an Interpretation of ARB No. 51, as revised ("FIN 46(R)")). For joint ventures that are not variable interest entities (VIE's) of which the Company owns less than 100% of the equity interest, the Company consolidates the property if it receives substantially all of the economics or has the direct or indirect ability to make major decisions. Major decisions are defined in the respective joint venture agreements and generally include participating and protective rights such as decisions regarding major leases, encumbering the entities with debt and whether to dispose of the entities. The Company has a 95% ownership interest in the LLC's which own Gateway Village, Boulevard at the Capital Centre, Towson Circle, Reisterstown Road Plaza and Tollgate Marketplace, however, the Company shares equally in major decisions. These entities are considered VIE's as defined in FIN 46(R) and the Company is considered the primary beneficiary. Therefore these entities are consolidated by the Company and the 5% outside ownership interest is reflected as minority interest in the accompanying Consolidated Financial Statements. (2) Summary of Significant Accounting Policies The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Readers of this Quarterly Report should refer to the audited financial statements of Inland Western Retail Real Estate Trust, Inc. for the fiscal year ended December 31, 2003, which are included in the Company's 2003 Annual Report, as certain footnote disclosures contained in such audited financial statements have been omitted from this Report. Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentations. The Company classifies its investment in securities in one of three categories: trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold the security until maturity. All securities not included in trading or held-to-maturity are classified as available for sale. Investment in securities at September 30, 2004 consists of common stock investments and is classified as available-for-sale securities and is recorded at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported as a separate component of other comprehensive income until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary, results in a reduction in the carrying amount to fair value. The impairment is charged to earnings and a new costs basis for the security is established. To determine whether an impairment is other than temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year end and forecasted performance of the investee. Of the investment securities held on September 30, 2004, the Company has accumulated other comprehensive income of $204,393. The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents and are carried at cost, which approximates market. The Company enters into interest rate futures contracts or treasury contracts as a means of reducing exposure to rising interest rates. At inception, contracts are evaluated in order to determine if they will qualify for hedge accounting treatment and will be accounted for either on a deferral, accrual or market value basis depending on the nature of the hedge strategy and the method used to account for the hedged item. Hedge criteria include demonstrating the manner in F-45 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) which the hedge will reduce risk, identifying the specific asset, liability or firm commitment being hedged, and citing the time horizon being hedged. During the third quarter of 2004, the Company entered into treasury contracts with a futures commission merchant with yields ranging from 3.27% to 3.40% for 5 year treasury contracts and 4.0% to 4.3% for 10 year treasury contracts. The amount on deposit for these treasury contracts was $3,712,900. On September 30, 2004, the treasury contracts had a liquidation value of $361,186 resulting in a loss of $3,351,714. As these treasury contracts are not offsetting future commitments and therefore do not qualify as hedges, the net loss is recognized currently in earnings. On October 29, 2004, these treasury contracts were liquidated for a liquidation value of $126,213 resulting in a cumulative realized net loss of $3,586,687. The Company allocates the purchase price of each acquired investment property between land, building and improvements, acquired above market and below market leases, in-place lease value, and any assumed financing that is determined to be above or below market terms. In addition, we allocate a portion of the purchase price to the value of the customer relationships and as of September 30, 2004, no cost has been allocated to such relationships. The allocation of the purchase price is an area that requires judgment and significant estimates. The Company uses the information contained in the independent appraisal obtained at acquisition as the primary basis for the allocation to land and building and improvements. The aggregate value of intangibles is measured based on the difference between the stated price and the property value calculated as if vacant. The Company determines whether any financing assumed is above or below market based upon comparison to similar financing terms for similar investment properties. The Company also allocates a portion of the purchase price to the estimated acquired in-place lease costs based on estimated lease execution costs for similar leases as well as lost rent payments during assumed lease-up period when calculating as if vacant fair values. The Company considers various factors including geographic location and size of leased space. The Company also evaluates each acquired lease based upon current market rates at the acquisition date and considers various factors including geographical location, size and location of leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired lease is above or below market lease costs. After an acquired lease is determined to be above or below market lease costs, the Company allocates a portion of the purchase price to such above or below acquired lease costs based upon the present value of the difference between the contractual lease rate and the estimated market rate. However, for below market leases with fixed rate renewals, renewal periods are included in the calculation of below market in-place lease values. The determination of the discount rate used in the present value calculation is based upon the "risk free rate." This discount rate is a significant factor in determining the market valuation which requires the Company's judgment of subjective factors such as market knowledge, economics, demographics, location, visibility, age and physical condition of the property. The application of the Financial Accounting Standards Board's Statement of Financial Accounting Standards or SFAS Nos. 141 and 142 resulted in the recognition upon acquisition of additional intangible assets and liabilities relating to real estate acquisitions during the quarter ended September 30, 2004. The portion of the purchase price allocated to acquired above market lease costs and acquired below market lease costs are amortized on a straight line basis over the life of the related lease as an adjustment to rental income and over the respective renewal period for below market lease costs with fixed rate renewals. Amortization pertaining to the above market lease costs of $1,033,930 was applied as a reduction to rental income for the three months ended September 30, 2004 and $1,847,107 for the nine months ended September 30, 2004. Amortization pertaining to the below market lease costs of $1,742,220 was applied as an increase to rental income for the three months ended September 30, 2004 and $2,644,833 for the nine months ended September 30, 2004. The portion of the purchase price allocated to acquired in-place lease intangibles is amortized on a straight line basis over the life of the related lease. The Company incurred amortization expense pertaining to acquired in-place lease intangibles of $3,198,593 for the three month period ended September 30, 2004 and $5,492,587 for the nine month period ended September 30, 2004. F-46 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table presents the amortization during the next five years related to the acquired in-place lease intangibles, acquired above market lease costs and the below market lease costs for properties owned at September 30, 2004.
October 1, 2004 through December 31, Amortization of: 2004 2005 2006 2007 2008 THEREAFTER --------------- ------------ ------------ ------------ ------------ ------------ Acquired above market lease costs $ (1,248,545) (4,978,152) (4,796,242) (3,982,664) (3,737,860) (18,834,489) Acquired below market lease costs 1,958,637 7,650,263 7,056,626 6,459,045 5,818,709 41,413,189 ------------ ------------ ------------ ------------ ------------ ------------ Net rental income increase $ 710,092 2,672,111 2,260,384 2,476,381 2,080,849 22,578,700 ============ ============ ============ ============ ============ ============ Acquired in-place lease intangibles $ 3,832,781 15,331,125 15,331,125 15,331,125 15,331,125 83,439,574
In conjunction with certain acquisitions, the Company receives payments under master lease agreements pertaining to certain, non-revenue producing spaces either at the time of, or subsequent to, the purchase of some of the Company's properties. Upon receipt of the payments, the receipts are recorded as a reduction in the purchase price of the related properties rather than as rental income. These master leases were established at the time of purchase in order to mitigate the potential negative effects of loss of rent and expense reimbursements. Master lease payments are received through a draw of funds escrowed at the time of purchase and may cover a period from three months to three years. These funds may be released to either the Company or the seller when certain leasing conditions are met. Restricted cash includes funds received by third party escrow agents from sellers pertaining to master lease agreements. The Company records the third party escrow funds as both an asset and a corresponding liability, until certain leasing conditions are met. The Company accrues lease termination income if there is a signed termination agreement, all of the conditions of the agreement have been met, and the tenant is no longer occupying the property. Restricted escrows primarily consist of lenders' restricted escrows and earnout escrows. Earnout escrows are established upon the acquisition of certain investment properties for which the funds may be released to the seller when certain leasing conditions have been met. Notes receivable relate to real estate financing arrangements and bear interest at a market rate based on the borrower's credit quality and are recorded at face value. Interest is recognized over the life of the note. The Company requires collateral for the notes. F-47 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) A note is considered impaired pursuant to SFAS No. 114, Accounting by Creditors for Impairment of a Loan. Pursuant to SFAS No. 114, a note is impaired if it is probable that the Company will not collect all principal and interest contractually due. The impairment is measured based on the present value of expected future cash flows discounted at the note's effective interest rate. The Company does not accrue interest when a note is considered impaired. When ultimate collectibility of the principal balance of the impaired not is in doubt, all cash receipts on impaired notes are applied to reduce the principal amount of such notes until the principal has been recovered and are recognized as interest income, thereafter. The carrying amount of the Company's debt approximates fair value. The carrying amount of the Company's other financial instruments approximate fair value because of the relatively short maturity of these instruments. (3) Transactions with Affiliates The Business Manager or Advisor contributed $200,000 to the capital of the Company for which it received 20,000 shares of common stock. As of September 30, 2004 and December 31, 2003, the Company had incurred $159,233,813 and $22,144,814 of offering costs, of which $119,656,429 and $16,859,779, respectively, were paid or accrued to affiliates. Pursuant to the terms of the offering, the Business Manager or Advisor has guaranteed payment of all public offering expenses (excluding sales commissions and the marketing contribution and the due diligence expense allowance) in excess of 5.5% of the gross proceeds of the offering or all organization and offering expenses (including selling commissions) which together exceed 15% of gross proceeds. As of September 30, 2004 and December 31, 2003, offering costs did not exceed the 5.5% and 15% limitations. The Company anticipates that these costs will not exceed these limitations upon completion of the offering. The Company pays an advisor asset management fee of not more than 1% of the average assets. Average asset value is defined as the average of the total book value, including acquired intangibles, of the Company's real estate assets plus the Company's loans receivable secured by real estate, before reserves for depreciation, reserves for bad debt or other similar non-cash reserves. The Company computes the average assets by taking the average of these values at the end of each month for which the fee is being calculated. The fee is payable quarterly in an amount equal to 1/4 of 1% of average assets as of the last day of the immediately preceding quarter. For any year in which the Company qualifies as a REIT, the advisor must reimburse the Company for the following amounts if any: (1) the amounts by which total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of: (i) 2% of average assets for that fiscal year, or (ii) 25% of net income for that fiscal year; plus (2) an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the total amount of distributions to stockholders for that year and the 6% minimum annual return on the net investment of stockholders. The Company neither paid nor accrued such fees because the Advisor agreed to forego such fees for the nine months ended September 30, 2004. F-48 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Business Manager or Advisor and its affiliates are entitled to reimbursement for salaries and expenses of employees of the Business Manager or Advisor and its affiliates relating to the offering. In addition, an affiliate of the Business Manager or Advisor is entitled to receive selling commissions, and the marketing contribution and due diligence expense allowance from the Company in connection with the offering. Such costs are offset against the stockholders' equity accounts. Such costs totaled $119,656,429 as of September 30, 2004, of which $3,502,335 was unpaid at September 30, 2004. The Business Manager or Advisor and its affiliates are entitled to reimbursement for general and administrative costs relating to the Company's administration. Such costs are included in general and administrative expenses to affiliates, in addition to costs that were capitalized pertaining to property acquisitions. For the three month period ended September 30, 2004 and the nine month period ended September 30, 2004, the Company incurred $466,359 and $1,103,717 of these costs, respectively, of which $778,277 remained unpaid as of September 30, 2004 and are included in due to affiliates on the Consolidated Balance Sheets. An affiliate of the Business Manager or Advisor provides loan servicing to the Company for an annual fee. The agreement allows for annual fees totaling .03% of the first $1 billion in mortgage balance outstanding and .01% of the remaining mortgage balances, payable monthly. Such fees totaled $42,703 for the three months ended September 30, 2004 and $63,978 for the nine months ended September 30, 2004, respectively. The Company used the services of an affiliate of the Business Manager or Advisor to facilitate the mortgage financing that the Company obtained on some of the properties purchased. The Company pays the affiliate .02% of the principal amount of each loan obtained on the Company's behalf. Such costs are capitalized as loan fees and amortized over the respective loan term. For the three months ended September 30, 2004 and for the nine months ended September 30, 2004, the Company paid loan fees totaling $1,119,944 and $2,241,986 to this affiliate, respectively. The property managers, entities owned principally by individuals who are affiliates of the Business Manager or Advisor, are entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services. The Company incurred property management fees of $1,693,155 and $2,847,427 for the three and nine months ended September 30, 2004, respectively. None remained unpaid as of September 30, 2004. The Company established a discount stock purchase policy for affiliates of the Company and the Business Manager or Advisor that enables the affiliates to purchase shares of common stock at a discount at either $8.95 or $9.50 per share depending on when the shares are purchased. The Company sold 19,735 and 530,574 shares of common stock to affiliates and recognized an expense related to these discounts of $16,174 and $352,303 for the three and nine months ended September 30, 2004, respectively. As of September 30, 2004 and December 31, 2003 the Company was due funds from affiliates in the amount of $1,571,960 and $918,750, respectively which is comprised of $1,567,481 and $845,000, respectively, which is due from the sponsor for reimbursement of a portion of distributions paid in 2004. The remaining $4,479 and $73,750 as of September 30, 2004 and December 31, 2003, respectively is due from an affiliate for costs paid on their behalf by the Company. The sponsor has agreed to advance funds to the Company for a portion of distributions paid to the Company's shareholders until funds available for distributions are sufficient to cover the distributions. The sponsor forgave $2,369,139 of these amounts during the second quarter of 2004 and these funds are no longer due and are recorded as a contribution to capital in the accompanying Consolidated Financial Statements. As of September 30, 2004 the Company owed funds to the sponsor in the amount of $2,868,666 for repayment of the funds advanced for payment of distributions. F-49 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) As of September 30, 2004 and December 31, 2003 the Company owed funds to an affiliate in the amount of $0 and $2,154,158, respectively, for the reimbursement of costs paid by the affiliate on behalf of the Company. The amount due at December 31, 2003 was repaid during 2004. (4) Stock Option Plan The Company has adopted an Independent Director Stock Option Plan which, subject to certain conditions, provides for the grant to each independent director of an option to acquire 3,000 shares following their becoming a director and for the grant of additional options to acquire 500 shares on the date of each annual stockholders' meeting. The options for the initial 3,000 shares are exercisable as follows: 1,000 shares on the date of grant and 1,000 shares on each of the first and second anniversaries of the date of grant. The subsequent options will be exercisable on the second anniversary of the date of grant. The initial options will be exercisable at $8.95 per share. The subsequent options will be exercisable at the fair market value of a share on the last business day preceding the annual meeting of stockholders. As of September 30, 2004 and December 31, 2003 we have issued 3,500 and 3,000 options, respectively, to acquire shares to each of our independent directors, for a total of 17,500 and 15,000 options, of which none have been exercised or expired. (5) Leases Master Lease Agreements In conjunction with certain acquisitions, the Company received payments under master lease agreements pertaining to certain non-revenue producing spaces at the time of purchase, for periods ranging from three months to three years after the date of purchase or until the spaces are leased. As these payments are received, they are recorded as a reduction in the purchase price of the respective property rather than as rental income. The cumulative amount of such payments was $891,982 as of September 30, 2004. Operating Leases Minimum lease payments to be received under operating leases, excluding rental income under master lease agreements and assuming no expiring leases are renewed, are as follows:
Minimum Lease Payments --------------- 2004 $ 91,591,315* 2005 146,904,527 2006 140,787,601 2007 133,105,552 2008 125,444,736 Thereafter 766,271,796 --------------- Total $ 1,404,105,527 ===============
* For the twelve month period from January 1, 2004 through December 31, 2004. The remaining lease terms range from one year to 55 years. Pursuant to the lease agreements, tenants of the property are required to reimburse the Company for some or all of their pro rata share of the real estate taxes, operating expenses and management fees of the properties. Such amounts are included in tenant recovery income. F-50 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Ground Leases The Company leases land under noncancelable operating leases at certain of the properties expiring in various years from 2028 to 2096. For the three months and the nine months ended September 30, 2004, ground lease rent was $478,995 and $510,245, respectively. Minimum future rental payments to be paid under the ground leases are as follows:
Minimum Lease Payments ---------------- 2004 $ 1,021,807 2005 2,661,464 2006 2,662,605 2007 2,663,811 2008 2,665,086 Thereafter 286,655,032 ---------------- Total $ 298,329,805 ================
* For the twelve month period from January 1, 2004 through December 31, 2004. (6) Notes Receivable The notes receivable balance of $28,419,189 as of September 30, 2004 consisted of two installment notes, one from Newman Development Group of Gilroy, LLC (Gilroy) and one from Newman Development Group of Richland, LLC (Richland) that mature on July 15, 2005 and August 15, 2005, respectively. These notes are secured by first mortgages on Pacheco Pass Shopping Center and Quakertown Shopping Center, respectively and are guaranteed personally by the owners of Gilroy and Richland. Interest only is due in advance on the first of each month at a rate of 6.993% per annum for Gilroy and 7.5572% per annum for Richland. Upon closing, an interest reserve escrow totaling three months of interest payments was established for both notes. The notes receivable balance of $7,552,155 as of December 31 2003 consisted of an installment note from Fourth Quarter Properties XIV, LLC (Fourth) that matured on January 15, 2004. This installment note was secured by a 49% interest in Fourth, which owned the remaining portion of the Newnan Crossing shopping center and was also guaranteed personally by the owner of Fourth. Interest only at a rate of 7.6192% per annum was due on the note. The installment note was advanced to Fourth in contemplation of the Company purchasing the remaining portions of Newnan Crossing. The Company did not call the note on January 15, 2004 and subsequently purchased the property on February 13, 2004 at which time the note was paid in full by Fourth as a credit to the purchase price of the property. (7) Mortgages and Note Payable Mortgage loans outstanding as of September 30, 2004 were $1,140,741,763, of which $1,014,708,763 had fixed rates ranging from 3.96% to 6.20% and a weighted average interest rate of 4.68% at September 30, 2004. The remaining $126,033,000 represented variable rate loans with a weighted average interest rate of 2.85% at September 30, 2004. Retail properties with a net carrying value of $1,861,465,315 at September 30, 2004 and related tenant leases are pledged as collateral. As of September 30, 2004, scheduled maturities for the Company's outstanding mortgage indebtedness have various due dates through August 2027. At September 30, 2004, the weighted average interest rate on the Company's mortgage debt was 4.48%. With the exception of the mortgage loan on Plaza Santa Fe II, all of the Company's mortgage loans as of F-51 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2004 require monthly payments of interest only and may be prepaid with a penalty after specific lockout periods. The mortgage loan on Plaza Santa Fe II, which was assumed as part of the acquisition of the property on June 1, 2004, requires monthly payments of principal and interest, as well as payments into tax, insurance, and replacement reserve escrows. The loan has no prepayment privileges. As part of the Plaza Santa Fe II loan assumption, a promissory note approximating $414,000 was executed between the Company and the seller for the total amount that the seller had paid into escrows under the loan agreement as of the acquisition date. The note bears interest at the rate of prime less 3.00%, payable to the seller upon maturity of the note in 2006. The seller also agreed to fund the Company's monthly required payments into this escrow for a period of two years. Each monthly payment funded by the seller increases the principal balance of the note payable. The outstanding note payable balance at September 30, 2004 is approximately $507,000. (8) Line of Credit The Company has an unsecured line of credit arrangement with KeyBank N.A. which matures on December 24, 2004 in the amount of $225,000,000. The funds from this line of credit may be used to provide liquidity from the time a property is purchased until permanent debt is placed on that property. The line of credit requires interest only payments monthly at the rate equal to the London InterBank Offered Rate or LIBOR plus 175 basis points which ranged from 2.94% to 3.56% during the quarter ended September 30, 2004. The Company is also required to pay, on a quarterly basis, an amount ranging from .15% to .30%, per annum, on the average daily undrawn funds under this line. The line of credit requires compliance with certain covenants, such as debt service ratios, minimum net worth requirements, distribution limitations and investment restrictions. In addition to, and in conjunction with these financial covenants, the Company maintains a cash collateral account. Amounts deposited in the cash collateral account provide that loan to value covenants required under the line are not exceeded. Funds may be deposited into and withdrawn from the cash collateral account as the Company's properties are purchased without debt. On September 27, 2004, the outstanding balance of $110,000,000 on this line was repaid resulting in no outstanding balance as of September 30, 2004. As of September 30, 2004, the Company was in compliance with such covenants and no amounts were required to be deposited in the cash collateral account. (9) Investment in Unconsolidated Joint Venture On August 11, 2004, CR Investors, LLC, a 100% owned LLC of Reisterstown Plaza Holdings, LLC (a joint venture consolidated by the Company), purchased a 36.5% tenancy in common interest in an apartment complex known as Courthouse Square located in Towson, MD. This investment is accounted for utilizing the equity method of accounting. Under the equity method of accounting, the net equity investment of the Company is reflected on the Consolidated Balance Sheet and the Consolidated Statement of Operations includes the Company's share of net income or loss from the unconsolidated entity. (10) Segment Reporting The Company owns and seeks to acquire single-tenant buildings and multi-tenant shopping centers primarily in the western United States. The Company's shopping centers are typically anchored by discount retailers, home improvement retailers, grocery and drugstores complemented with additional stores providing a wide range of other goods and services to shoppers. The Company assesses and measures operating results on an individual property basis for each of its properties based on net property operations. Since all of the Company's properties exhibit highly similar economic characteristics, cater to the day-to-day living needs of their respective surrounding communities, and offer similar degrees of risk and opportunities for growth, the properties have been aggregated and reported as one operating segment. F-52 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Net property operations are summarized in the following table for the three and nine months ended September 30, 2004, along with a reconciliation to net income.
Nine months ended Three months ended September 30, 2004 September 30, 2004 ------------------ ------------------ Property rental income and additional property income $ 69,766,553 $ 40,786,027 Total property operating expenses (16,968,381) (10,304,035) Interest expense (21,315,926) (12,958,477) ------------------ ------------------ Net property operations 31,482,246 17,523,515 ------------------ ------------------ Other income 1,885,751 1,413,350 Less non-property expenses: General and administrative expenses (2,843,943) (988,303) Depreciation and amortization (26,003,202) (15,574,851) Minority interests (107,054) (107,054) ------------------ ------------------ Net income $ 4,413,798 $ 2,266,657 ================== ==================
The following table summarizes property asset information as of September 30, 2004 and December 31, 2003.
September 30, 2004 December 31, 2003 ------------------ ----------------- Total assets: Shopping centers $ 2,301,440,049 $ 142,804,128 Non-segment assets 370,711,987 69,298,035 ------------------ ----------------- $ 2,672,152,036 $ 212,102,163 ================== =================
The Company does not derive any of its consolidated revenue from foreign countries and does not have any major customers that individually account for 10% or more of the Company's consolidated revenues. (11) Earnings (loss) per Share Basic earnings (loss) per share ("EPS") is computed by dividing income by the weighted average number of common shares outstanding for the period (the "common shares"). Diluted EPS is computed by dividing net income (loss) by the common shares plus shares issuable upon exercising options or other contracts. As a result of the net loss incurred in 2003, diluted weighted average shares outstanding do not give effect to common stock equivalents as to do so would be anti-dilutive. As of September 30, 2004, options to purchase 17,500 shares of common stock at an exercise price of $8.95 per share were outstanding. These options were not included in the computation of basic or diluted EPS as the effect would be immaterial. The basic and diluted weighted average number of common shares outstanding were 112,887,491 for the three months ended September 30, 2004 and 70,051,926 for the nine months ended September 30, 2004. F-53 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (12) Commitments and Contingencies The purchase and sale contract for Pavilion at King's Grant, provides that if anytime during the period from January 1, 2004 through December 31, 2007 the tenant Toys R' Us should increase its base rent up to a maximum amount of $250,000 and no decrease has occurred in their requirement to pay for a certain percentage of expenses at the property, then the Company would be obligated to pay the seller additional funds related to the purchase based upon an agreed income capitalization formula. The Company has not reserved any funds for this contingency. In connection with the purchase of Stony Creek Market Place, the Company is obligated to purchase the seller's interest in the leases if the seller exercises the right to develop and lease a vacant 50,000 square foot pad site within 48 months after the closing date. In connection with the purchase of Newnan Crossing, the Company is obligated to purchase the remaining portion of the shopping center that is currently under construction (Phase III) once construction has been completed and a major tenant has moved in and commenced payment of rent, with the additional purchase price based upon an agreed income capitalization formula. In connection with the purchase of Low Country Village, the Company is obligated to purchase a portion of the shopping center that is currently under construction once construction has been completed and the respective tenants have moved in and commenced payment of rent, with the additional purchase price of the center based upon an agreed income capitalization formula. As part of the commitment to purchase this remaining portion of the shopping center, the Company had deposited $300,000 of earnest money with an escrow agent. In connection with the purchase of Wilshire Plaza III, the Company is obligated to pay the remainder of the purchase price in the amount of $2,967,088 when Kohl's department store has moved in and commenced payment of rent. Also, in conjunction with this purchase, the Company is obligated to fund to Kohl's a second construction payment in the amount $1,164,874 when they have moved in and commenced payment of rent. In connection with the purchase of an interest in the entity that owns Reisterstown Road Plaza, the Company is obligated to pay the remaining purchase price of $11,546,674 if the unfinished space has been built and rented within 24 months of the closing date. In connection with the purchase of Governor's Marketplace, the Company is obligated to pay the remaining purchase price of $4,846,152 if the seller completes the construction and leasing of additional components within 24 months of the closing date. In connection with the purchase of an interest in the entity that owns Boulevard at the Capital Centre, the Company is required to pay the remaining purchase price of $6,947,764 upon completion of the construction and satisfaction of tenant conditions of certain units of the shopping center. The Company has not reserved any funds for these contingencies. In connection with the purchase of Eastwood Towne Center, the Company is obligated to pay the remaining purchase price of $3,836,317 once a major tenant's base rent increases upon two shadow anchors' commencement of operations. In connection with the purchase of John's Creek Village, the Company is obligated to pay the remaining purchase price of $13,385,390 if the vacancies have been leased and the respective tenants have moved in and commenced payment of rent within 18 months of the closing date. In connection with the purchase of Davis Towne Crossing, the Company is obligated to pay the remaining purchase price of $1,604,304 if the vacancies have been leased and respective tenants have moved in and commenced payment of rent within 24 months of the initial closing date. In connection with the purchase of Towson Circle, the Company is obligated to pay an additional amount to be determined based upon an agreed income capitalization formula if two spaces that were vacant at closing have been leased within 24 months of the closing date. In connection with the purchase of Forks Town Center, if a certain tenant has moved into its space and is paying rent within 12 months of the original closing, the Company is obligated to pay the remaining purchase of $701,299. The Company has not reserved any funds for these contingencies. In conjunction with the financing of Dorman Center on April 20, 2004, the Company was required to obtain a $3.65 million irrevocable letter of credit for a one year period. Once the Company purchases the remaining portion of Dorman Center, and meets certain occupancy requirements, the letter of credit will be released. On July 16, 2004, the Company purchased the remaining portion of Dorman Center. The irrevocable letter of credit is still outstanding as the occupancy requirements had not been met as of November 5, 2004. In conjunction with the financing of John's Creek Village on July F-54 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2, 2004, the Company was required to obtain a $5.7 million irrevocable letter of credit for a one year period. Once the Company purchases the remaining portion of John's Creek Village, and meets certain occupancy requirements, the letter of credit will be released. The irrevocable letter of credit is still outstanding as the remaining portion of the center had not been purchased as of November 5, 2004. In connection with the purchase of Larkspur Landing, the Company assumed a liability in the amount of $1,982,504 for tenant improvements and leasing commission obligations. As of September 30, 2004, the remaining liability after disbursements is $1,303,530. The Company is currently considering acquiring 10 properties for an estimated purchase price of $244 million. The Company's decision to acquire each property will generally depend upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions and the Company's receipt of satisfactory due diligence information including appraisals, environmental reports and lease information prior to purchasing the property. (13) Subsequent Events The Company issued 29,541,198 shares of common stock from October 1, 2004 through November 5, 2004 in connection with the offering, resulting in gross proceeds of $294,964,519. The Company paid distributions of $7,186,753 to its stockholders in October 2004. On October 15, 2004, CR Investors, LLC, a 100% owned LLC of Reisterstown Plaza Holdings, LLC (a joint venture consolidated by the Company), purchased a 60.94% interest in an apartment complex known as Cardiff Hall East located in Towson, MD for approximately $2.7 million. As of October 31, 2004, Cordish Power Plant Management, LLC, a Maryland limited liability company ("CPP") admitted two new members in exchange for the capital contributions described below that were made on November 5, 2004. CRP Power Plant Investors, LLC, a Maryland limited liability company that is wholly owned by Reisterstown Plaza Holdings, LLC, contributed capital in the amount of $15 million in exchange for a 37.5% member interest in CPP. CGW Power Plant Investors, LLC, a Maryland limited liability company that is wholly owned by Gateway Village Holdings, LLC contributed capital in the amount of $5 million in exchange for a 12.5% member interest in CPP. CPP owns a 99.5% interest in Cordish Power Plant Limited Partnership. Cordish Power Plant Limited Partnership owns a ground lease interest in a mixed use retail/office complex located in the Inner Harbor area of Baltimore, Maryland that is known as The Power Plant. The Power Plant contains approximately 180,000 square feet of space and is 100% leased and occupied. As of October 31, 2004, Cordish Power Plant Management Number Two, LLC, a Maryland limited liability company ("CPP2") admitted two new members in exchange for the capital contributions described below that were made on November 5, 2004. CTC Pier IV Investors, LLC, a Maryland limited liability company that is wholly owned by Towson Circle Holdings, LLC contributed capital in the amount of $5 million in exchange for a 16.67% member interest in CPP2. CTOLL Pier IV Investors, LLC, a Maryland limited liability company that is wholly owned by Tollgate Marketplace Holding Company, LLC contributed capital in the amount of $15 million in exchange for a 50.0% member interest in CPP2. CPP2 owns all of the membership interest in Cordish Power Plant Number Two, LLC. Cordish Power Plant Number Two, LLC owns a ground lease interest in a mixed use retail/office complex located in the Inner Harbor area of Baltimore, Maryland that is known as Pier IV Office Building. The Pier IV Office Building contains approximately 120,000 square feet of space and is 100% leased and occupied. F-55 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company has acquired the following properties or joint venture interests in properties during the period October 1 to November 5, 2004. The respective acquisitions are summarized in the table below.
APPROXIMATE GROSS LEASABLE DATE YEAR PURCHASE PRICE AREA ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS -------- -------- ----- --- --------- ------------- 10/05/04 Bed, Bath & Beyond Plaza 2004 20,350,000 97,496 Bed, Bath & Beyond, Miami, FL Office Depot, Pier 1 Imports, Party City 10/12/04 The Columns - Phase II 2004 5,740,596 44,987 Ross Dress for Less, Jackson, TN Old Navy 10/18/04 Denton Town Crossing 2003/ 51,236,687 272,722 Oshman's Sporting Goods Denton, TX 2004 10/19/04 Azalea Square 2004 30,012,525 181,942 T.J. Maxx, Summerville, SC Linens 'N Things, Ross Dress for Less, Cost Plus World Market, PETsMART 10/21/04 Lake Mary Pointe 1999 6,620,000 51,052 Publix Orlando, FL 10/25/04 Plaza at Riverlakes 2001 17,000,000 102,836 Ralph's Grocery store Bakersville, CA 10/26/04 Academy Sports 2004 5,000,000 61,001 Academy Sports Port Arthur, TX 10/28/04 Gurnee Town Center 2002 44,256,387 179,840 Linens 'N Things, Gurnee, IL Old Navy, Borders Books & Music 10/29/04 CVS Pharmacy 2004 3,066,241 10,055 CVS Pharmacy Sylacauga, AL 10/29/04 Academy Sports 2004 4,250,000 61,654 Academy Sports Midland, TX 11/03/04 Mansfield Towne Center 2004 16,055,074 111,898 Ross Dress for Less, Mansfield, TX Staples 11/05/04 Winchester Commons 1999 13,022,687 93,024 Kroger Memphis, TN
F-56 INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The mortgage debt and financings obtained during the period October 1, 2004 to November 5, 2004, are detailed in the list below.
DATE MATURITY PRINCIPAL BORROWED FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($) -------------------------------------------------------------------------------------------------- 10/05/04 The Columns 4.910% 05/01/09 11,423,300 10/06/04 Low Country Village 4.960% 05/01/09 5,370,000 10/08/04 Lincoln Park 4.610% 11/01/09 26,153,000 11/01/04 Academy Sports - Port Arthur, TX 5.120% 11/01/09 2,775,000 11/01/04 Harris Teeter - Wilmington, NC 4.915% 11/01/09 3,960,000 11/04/04 The Columns - Phase II 4.950% 11/01/09 3,442,100
F-57 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Balance Sheet September 30, 2004 (unaudited) The following unaudited Pro Forma Consolidated Balance Sheet is presented as if the acquisitions of the properties and the issuance of the notes receivable had occurred on September 30, 2004. This unaudited Pro Forma Consolidated Balance Sheet is not necessarily indicative of what the actual financial position would have been at September 30, 2004, nor does it purport to represent our future financial position. No pro forma adjustments have been made for any potential property acquisitions identified as of December 17, 2004. The Company does not consider these properties as probable under Rule 3-14 of Regulation S-X as the Company has not completed the due diligence process on these properties. Additionally, the Company has not received sufficient offering proceeds or obtained firm financing commitments to acquire all of these properties as of December 17, 2004. The Company believes it will have sufficient cash from offering proceeds raised and from additional financing proceeds to acquire these properties if and when the Company is prepared to acquire these properties. F-58 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Balance Sheet September 30, 2004 (unaudited)
Historical Pro Forma (A) Adjustments Pro Forma --------------------------------------------------------- ASSETS Net investment properties (B) $ 1,971,434,000 1,050,892,000 3,022,326,000 Cash and cash equivalents 280,414,000 (76,440,000) 203,914,000 Restricted cash 80,094,000 - 80,094,000 Investment in marketable securities and treasury contracts 1,566,000 - 1,566,000 Investment in unconsolidated joint venture 5,782,000 - 5,782,000 Restricted escrows 67,874,000 - 67,874,000 Accounts and rents receivable 11,683,000 - 11,683,000 Due from affiliates 1,572,000 - 1,572,000 Note receivable 28,419,000 3,400,000 31,819,000 Acquired in-place lease intangibles (B) (D) 148,597,000 79,648,000 228,245,000 Acquired above market lease intangibles (B) (D) 37,578,000 997,000 38,575,000 Loan fees, leasing fees and loan fee deposits (G) 14,118,000 (2,182,000) 11,936,000 Other assets (G) 23,021,000 (19,378,000) 3,643,000 --------------------------------------------------------- Total assets $ 2,672,152,000 1,036,937,000 3,709,089,000 ========================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Mortgage and notes payable (B) (E) 1,141,248,000 488,942,000 1,630,190,000 Accounts payable 1,352,000 - 1,352,000 Accrued offering costs to affiliates 3,502,000 - 3,502,000 Accrued interest payable 2,947,000 - 2,947,000 Tenant improvement payable 3,605,000 - 3,605,000 Accrued real estate taxes 10,529,000 - 10,529,000 Distributions payable 7,187,000 - 7,187,000 Security deposits 2,195,000 - 2,195,000 Line of credit - - - Prepaid rent and other liabilities 3,717,000 - 3,717,000 Advances from sponsor 2,869,000 - 2,869,000 Acquired below market lease intangibles (B) (D) 70,356,000 2,399,000 72,755,000 Restricted cash liability 80,094,000 - 80,094,000 Due to affiliates 778,000 - 778,000 --------------------------------------------------------- Total liabilities 1,330,379,000 491,341,000 1,821,720,000 ========================================================= Minority interests 68,783,000 - 68,783,000 Common stock (C) 146,000 62,000 208,000 Additional paid-in capital (net of offering costs) (C) 1,304,817,000 545,534,000 1,850,351,000 Accumulated distributions in excess of net loss (F) (32,177,000) - (32,177,000) Accumulated other comprehensive income 204,000 - 204,000 --------------------------------------------------------- Total stockholders' equity 1,272,990,000 545,596,000 1,818,586,000 --------------------------------------------------------- Total liabilities and stockholders' equity $ 2,672,152,000 1,036,937,000 3,709,089,000 =========================================================
See accompanying notes to pro forma consolidated balance sheet. F-59 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Balance Sheet September 30, 2004 (unaudited) (A) The historical column represents our Consolidated Balance Sheet as of September 30, 2004 as filed with the Securities Exchange Commission on Form 10-Q. As of September 30, 2004, the Company had sold 144,628,000 shares to the public and 1,636,000 shares were issued pursuant to the Company's distribution reinvestment program. As a result, the Company received $1,461,206,000 of gross offering proceeds. In addition, the Company received the Advisor's capital contribution of $200,000 for which the Advisor was issued 20,000 shares. (B) The pro forma adjustments reflect the acquisition of the following properties. The mortgages payable represent mortgages obtained from a third party, either assumed as part of the acquisition or subsequent to acquisition. No pro forma adjustment has been made for prorations or other closing costs as the amounts are not significant:
Acquisition Mortgage Price Payable ------------------------------- Bed, Bath & Beyond Plaza $ 20,350,000 11,193,000 The Columns - Phase II 5,741,000 3,442,000 Denton Crossing 53,112,000 35,200,000 Azalea Square 30,013,000 16,535,000 Lake Mary Pointe 6,620,000 3,658,000 Plaza at Riverlakes 17,000,000 - Academy Sports - Port Arthur 5,000,000 2,775,000 Gurnee Town Centre 44,256,000 - CVS Pharmacy - Sylacauga 3,066,000 - Academy Sports - Midland 4,250,000 2,338,000 Mansfield Towne Crossing 16,055,000 10,982,000 Winchester Commons 13,023,000 7,235,000 Kohl's - Wilshire (Final Construction Funding) 4,132,000 - Publix Center 12,047,000 - Fox Creek Village 20,883,000 - Oswego Commons 35,022,000 19,262,000 Zurich Towers 138,000,000 81,420,000 University Town Center 10,569,000 - Edgemont Town Center 15,639,000 - Five Forks 8,086,000 - Placentia Town Center 24,865,000 - Gateway Station 6,300,000 - Northwoods Center 13,964,000 - Shops at Forest Commons 7,505,000 5,250,000 Gateway Pavilions 65,141,000 - American Express Portfolio 390,000,000 230,100,000 Southlake Town Square 136,519,000 - Evans Towne Center 8,880,000 - Irmo Station 13,100,000 - ------------------------------- Total $ 970,639,000 429,390,000 ===============================
F-60 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Balance Sheet September 30, 2004 (unaudited) Allocation of net investments in properties: Land $ 219,270,000 Building and improvements 831,622,000 Acquired in-place lease intangibles 79,648,000 Acquired above market lease intangibles 997,000 Acquired below market lease intangibles (2,399,000) ----------------- Total $ 1,129,138,000 =================
(C) Additional offering proceeds of $620,000,000, net of additional offering costs of $74,404,000 are reflected as received as of September 30, 2004, prior to the purchase of the properties and are limited to offering proceeds necessary to acquire the properties and offering proceeds actually received as of December 17, 2004. Offering costs consist principally of registration costs, printing and selling costs, including commissions. (D) Acquired intangibles represent above and below market leases and the difference between the property valued with the existing in-place leases and the property valued as if vacant. The value of the acquired leases will be amortized over the lease term. (E) Additional mortgages payable of $488,942,000, reflected as funded as of September 30, 2004, includes $429,390,000 of mortgages payable obtained subsequent to the acquisition of the properties described in (B) and $59,552,000 of new financing placed on previously acquired properties. (F) No pro forma assumptions have been made for the additional payment of distributions resulting from the additional proceeds raised. (G) Change in loan fees, leasing fees and loan fee deposits of $2,182,000 represents prepaid loan fees applied to mortgage payables obtained as described in (E). Change in other assets of $19,378,000 represents advance purchase deposits on properties purchased as described in (B) and loan proceeds due from title companies. F-61 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Statement of Operations For the nine months ended September 30, 2004 (unaudited) The following unaudited Pro Forma Consolidated Statement of Operations is presented to give effect the acquisition of the properties indicated in Note B of the Notes to the Pro Forma Consolidated Statement of Operations as though they occurred on January 1, 2003 or the date significant operations commenced. No pro forma adjustments have been made for any potential property acquisitions identified as of December 17, 2004. The Company does not consider these properties as probable under Rule 3-14 of Regulation S-X as the Company has not completed the due diligence process on these properties. Additionally, the Company has not received sufficient offering proceeds or obtained firm financing commitments to acquire all of these properties as of December 17, 2004. The Company believes it will have sufficient cash from offering proceeds raised and from additional financing proceeds to acquire these properties if and when the Company is prepared to acquire these properties. No pro forma adjustments were made for Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd - Columbia, Eckerd - Crossville, Kohl's - Wilshire Plaza III, Academy Sports - Houma, The Columns - Phase II, Academy Sports - Port Arthur or Academy Sports - Midland, as the properties were completed in 2004 and there were no significant operations prior to our acquisition. No pro forma adjustments were made related to the Pacheco Pass and Quakertown notes receivable as the properties were completed in 2004 and there were no significant operations prior to our funding of the notes receivable. This unaudited Pro Forma Consolidated Statement of Operations is not necessarily indicative of what the actual results of operations would have been for the nine months ended September 30, 2004, nor does it purport to represent our future results of operations. F-62 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Statement of Operations For the nine months ended September 30, 2004 (unaudited)
Pro Forma Historical Adjustments (A) (B) Pro Forma --------------------------------------------------------- Rental income $ 56,405,000 109,850,000 166,255,000 Tenant recovery income 12,802,000 19,641,000 32,443,000 Other property income 560,000 - 560,000 --------------------------------------------------------- Total revenues 69,767,000 129,491,000 199,258,000 --------------------------------------------------------- General and administrative expenses 2,844,000 - 2,844,000 Advisor asset management fee (C) - - - Property operating expenses (F) 16,969,000 33,340,000 50,309,000 Depreciation and amortization (D) (G) 26,003,000 49,870,000 75,873,000 --------------------------------------------------------- Total expenses 45,816,000 83,210,000 129,026,000 --------------------------------------------------------- Operating income 23,951,000 46,281,000 70,232,000 Other income 1,886,000 - 1,886,000 Interest expense (H) (17,964,000) (35,824,000) (53,788,000) Realized loss on sale of treasury contacts (3,352,000) - (3,352,000) Minority interests (107,000) - (107,000) --------------------------------------------------------- Net income (loss) $ 4,414,000 10,457,000 14,871,000 ========================================================= Other comprehensive income: Unrealized gain/loss on investment securities 204,000 - 204,000 --------------------------------------------------------- Comprehensive income (loss) $ 4,618,000 10,457,000 15,075,000 ========================================================= Weighted average number of shares of common stock outstanding, basic and diluted (E) 70,052,000 208,000,000 ================= ================= Net income (loss) per share, basic and diluted (E) .06 .07 ================= =================
See accompanying notes to pro forma consolidated statement of operations. F-63 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the nine months ended September 30, 2004 (unaudited) (A) The historical information represents the historical statement of operations of the Company for the period from January 1, 2004 to September 30, 2004 as filed with the Securities Exchange Commission on Form 10-Q. (B) Total pro forma adjustments for acquisitions consummated as of December 17, 2004 are as though the properties were acquired January 1, 2003. No adjustment was made for Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd - Columbia, Eckerd - Crossville, Kohl's - Wilshire Plaza III, Academy Sports - Houma, The Columns - Phase II, Academy Sports - Port Arthur or Academy Sports - Midland as the properties were completed in 2004 and there were no significant operations prior to our acquisition. No pro forma adjustments were made related to the Pacheco Pass and Quakertown notes receivable as the properties were completed in 2004 and there were no significant operations prior to our funding of the notes receivable.
Gross Income & Direct Total Operating Pro Forma Pro Forma Expenses (1) Adjustments Adjustments ------------------------------------------------- Rental income $ 111,653,000 (1,803,000) 109,850,000 Tenant recovery income 19,641,000 - 19,641,000 ------------------------------------------------- Total revenues 131,294,000 (1,803,000) 129,491,000 ------------------------------------------------- Advisor asset management fee - - - Property operating expenses 27,554,000 5,786,000 33,340,000 Depreciation and amortization - 49,870,000 49,870,000 Interest expense - 35,824,000 35,824,000 ------------------------------------------------- Total expenses 27,554,000 91,480,000 119,034,000 ------------------------------------------------- Net income (loss) $ 103,740,000 (93,283,000) 10,457,000 =================================================
(1) Unaudited combined gross income and direct operating expenses based on information provided by the Seller for the following properties: Newnan Crossing II, Hickory Ridge, CorWest Plaza, Shoppes at Quarterfield, Larkspur Landing, North Ranch Pavilion, La Plaza Del Norte, MacArthur Crossing, Promenade at Red Cliff, Peoria Crossings, Dorman Center - Phase I, Heritage Towne Crossing, Paradise Valley Marketplace, Best on the Boulevard, Bluebonnet Parc, North Rivers Town Center, Alison's Corner, Arvada Connection and Arvada Marketplace, Eastwood Town Center, Watauga Pavilion, Northpointe Plaza, Plaza Santa Fe II, Pine Ridge Plaza, Huebner Oaks Center, John's Creek Village, Lakewood Towne Center, Shoppes of Prominence Point, Northgate North, Davis Towne Crossing, Fullerton Metrocenter, Low Country Village, The Shops at Boardwalk, Shoppes of Dallas, Cranberry Square, Dorman Center - Phase II, Tollgate Marketplace, Gateway Village, Towson Circle, Gateway Plaza, Plaza at Marysville, Forks Town Center, Reisterstown Road Plaza, Village Shoppes at Simonton, Manchester Meadows, Governor's Marketplace, Mitchell Ranch Plaza, The Columns, Saucon Valley Square, Lincoln Park, Harvest Towne Center, Boulevard at the Capital Centre,, Bed, Bath & Beyond Plaza, Denton Crossing, Azalea Square, Lake Mary Pointe, Plaza at Riverlakes, Gurnee Town Centre, Mansfield Towne Crossing, Winchester Commons, Publix Center, Fox Creek Village, Oswego Commons, University Town Center, Edgemont Town Center, Five Forks, Placentia Town Center, Gateway Station, Northwoods Center, Shops at Forest Commons, Gateway Pavilions Southlake Town Square, Evans Towne Centre and Irmo Station. F-64 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the nine months ended September 30, 2004 (unaudited) Gross rental income based on information provided by tenant net leases for the following properties: Wal-Mart Supercenter - Blytheville, Wrangler Company Western Headquarters, Wal-Mart Supercenter - Jonesboro, Harris Teeter - Wilmington, GMAC Insurance, CVS Pharmacy - Sylacauga, Zurich Towers and the American Express portfolio. (C) The advisor asset management fee is expected to be subordinated to the shareholders' receipt of a stated return thus no amount is reflected. (D) Buildings and improvements will be depreciated on a straight line basis based upon estimated useful lives of 30 years for building and improvements and 15 years for site improvements. That portion of the purchase price that is allocated to above or below lease intangibles will be amortized on a straight line basis over the life of the related leases as an adjustment to rental income. Other leasing costs, tenant improvements and in-place lease intangibles will be amortized on a straight line basis over the life of the related leases as a component of amortization expense. (E) The pro forma weighted average shares of common stock outstanding for the six months ended September 30, 2004 was calculated using the additional shares sold to purchase each of the properties on a weighted average basis plus the 20,000 shares purchased by the Advisor in connection with our organization. (F) Management fees are calculated as 4.5% of gross revenues pursuant to the management agreement and are included in property operating expenses. (G) The value of the acquired leases will be amortized over the lease term. (H) The pro forma adjustments relating to interest expense were based on the following debt terms:
Principal Interest Maturity Property Balance Rate Date ---------------------------------------------------------------------------------- Darien Towne Center 16,500,000 4.650% 06/10 CVS Pharmacy - Edmond 1,850,000 4.374% 06/09 CVS Pharmacy - Norman 2,900,000 4.374% 06/09 Newnan Crossing 23,766,100 4.380% 03/09 Shops at Park Place 13,127,000 4.710% 11/08 Pavilion at King's Grant 5,342,000 4.390% 05/09 Shaw's Supermarket - New Britain 6,450,000 4.680% 11/28 Stony Creek Marketplace 14,162,000 4.770% 01/11 CorWest Plaza 18,150,000 4.560% 02/09 Hickory Ridge 23,650,000 4.531% 02/09 Larkspur Landing 33,630,000 4.450% 02/09 North Ranch Pavilion 10,157,000 4.120% 04/09 Shoppes at Quarterfield 6,067,000 4.280% 04/09 La Plaza Del Norte 32,528,000 4.610% 03/10 MacArthur Crossing 12,700,000 4.290% 05/09 Promenade at Red Cliff 10,590,000 4.290% 05/09 Dorman Center - Phase I and Phase II 27,610,000 4.180% 05/09 Peoria Crossings 20,497,000 4.090% 04/09 Heritage Towne Crossing 8,950,000 4.374% 06/09 Paradise Valley Marketplace 15,681,000 4.550% 05/09 Best on the Boulevard 19,525,000 3.990% 05/09
F-65 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the nine months ended September 30, 2004 (unaudited)
Principal Interest Maturity Property Balance Rate Date ---------------------------------------------------------------------------------- Bluebonnet Parc 12,100,000 4.372% 05/09 North Rivers Town Center 11,050,000 4.760% 05/09 Alison's Corner 3,850,000 4.272% 06/10 Arvada Marketplace and Arvada Connection 28,510,000 4.130% 07/09 Eastwood Towne Center 46,750,000 4.640% 07/09 Watauga Pavilion 17,100,000 4.140% 06/10 Northpointe Plaza 30,850,000 4.272% 05/09 Plaza Santa Fe II 17,474,500 6.200% 12/12 Eckerds Drug Stores (4) 6,800,000 5.275% 08/09 Pine Ridge Plaza 14,700,000 5.085% 08/09 Huebner Oaks Center (Note A) 31,723,000 4.200% 07/10 Huebner Oaks Center (Note B) 16,277,000 3.960% 07/10 John's Creek Village 23,300,000 5.100% 08/09 Lakewood Towne Center (Note A) 44,000,000 2.680% 06/09 Lakewood Towne Center (Note B) 7,260,000 3.830% 07/05 Shoppes of Prominence Point 9,954,300 5.235% 09/09 Northgate North 26,650,000 4.600% 07/08 Davis Towne Crossing 5,365,200 5.185% 09/09 Fullerton Metrocenter 28,050,000 5.090% 08/09 The Shops at Boardwalk 20,150,000 4.130% 08/09 Shoppes of Dallas 7,179,000 4.960% 04/09 Cranberry Square 10,900,000 4.975% 08/09 Tollgate Marketplace 39,765,000 LIBOR +120 07/09 Gateway Village (Note A) 27,233,000 LIBOR + 113 07/09 Gateway Village (Note B) 4,225,000 LIBOR + 200 08/05 Towson Circle (Note A) 15,647,500 5.100% 07/09 Towson Circle (Note B) 3,550,000 LIBOR + 200 08/05 Wal-Mart Supercenter - Blytheville 7,100,000 4.390% 09/09 Gateway Plaza 18,163,000 5.100% 09/09 Wrangler Company Western Headquarters 11,300,000 5.090% 08/27 Plaza at Marysville 11,800,000 5.085% 08/09 Forks Town Center 10,395,000 4.970% 09/09 Academy Sports - Houma 2,920,000 5.120% 09/09 Wal-Mart Supercenter - Jonesboro 6,088,500 5.085% 09/09 Reisterstown Road Plaza 49,650,000 5.300% 09/09 Village Shoppes at Simonton 7,562,000 4.960% 10/09 Manchester Meadows 31,065,000 4.480% 09/07 Governor's Marketplace 20,625,000 5.185% 09/09 Mitchell Ranch Plaza 18,700,000 4.480% 10/09 Saucon Valley Square 8,851,000 5.115% 10/09 Boulevard at Capital Centre 71,500,000 5.120% 10/09 GMAC Insurance 33,000,000 4.610% 10/09 Low Country Village 5,370,000 4.960% 10/09 The Columns - Phase I 11,423,000 4.910% 11/09 Lincoln Park 26,153,000 4.610% 11/09 Harris Teeter - Wilmington 3,960,000 4.915% 11/09
F-66 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the nine months ended September 30, 2004 (unaudited)
Principal Interest Maturity Property Balance Rate Date ---------------------------------------------------------------------------------- Kohl's - Wilshire Plaza III 5,418,000 5.120% 12/09 Harvest Town Center 5,005,000 4.935% 01/10 Bed Bath & Beyond Plaza 11,193,000 5.170% 12/09 The Columns - Phase II 3,442,000 4.950% 05/09 Denton Crossing 35,200,000 4.300% 01/10 Azalea Square 16,535,000 5.010% 12/09 Lake Mary Pointe 3,658,000 5.170% 12/09 Academy Sports - Port Arthur 2,775,000 5.120% 11/09 Academy Sports - Midland 2,338,000 5.120% 01/10 Mansfield Towne Crossing 10,982,000 5.215% 12/09 Winchester Commons 7,235,000 5.120% 12/09 Oswego Commons 19,262,000 4.750% 12/09 Zurich Towers 81,420,000 4.247% 12/34 Shops at Forest Commons 5,250,000 6.340% 09/13 American Express Portfolio 230,100,000 4.268% 12/09
F-67 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited) The following unaudited Pro Forma Consolidated Statement of Operations is presented to give effect the acquisition of the properties indicated in Note B of the Notes to the Pro Forma Consolidated Statement of Operations as though they occurred on January 1, 2003 or the date significant operations commenced. No pro forma adjustments have been made for any potential property acquisitions identified as of December 17, 2004. The Company does not consider these properties as probable under Rule 3-14 of Regulation S-X as the Company has not completed the due diligence process on these properties. Additionally, the Company has not received sufficient offering proceeds or obtained firm financing commitments to acquire all of these properties as of December 17, 2004. The Company believes it will have sufficient cash from offering proceeds raised and from additional financing proceeds to acquire these properties if and when the Company is prepared to acquire these properties. No pro forma adjustments were made for CVS Pharmacy-Edmond or CVS Pharmacy-Norman as the properties were completed in 2003 and there were no significant operations prior to our acquisition. No pro forma adjustments were made for Eckerd-Greer, Eckerd-Kill Devil Hills, Eckerd-Columbia, Eckerd-Crossville, Shoppes of Prominence Point, Low Country Village, Shoppes of Dallas, Kohl's - Wilshire Plaza III, Dorman Center - Phase II, Academy Sports - Houma, Village Shoppes at Simonton, Bed, Bath & Beyond Plaza, The Columns - Phase II, Academy Sports - Port Arthur, CVS Pharmacy - Sylacauga, Academy Sports - Midland, Publix Center and Gateway Station as the properties were completed in 2004 and there were no significant operations in 2003. No pro forma adjustments were made related to the Pacheco Pass and Quakertown notes receivable as the properties were completed in 2004 and there were no significant operations prior to our funding of the notes receivable. This unaudited Pro Forma Consolidated Statement of Operations is not necessarily indicative of what the actual results of operations would have been for the year ended December 31, 2003, nor does it purport to represent our future results of operations. F-68 Inland Western Retail Real Estate Trust, Inc. Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited)
Pro Forma Pro Forma Historical Adjustments Adjustments (A) (B) (C) Pro Forma ----------------------------------------------------------------- Rental income $ 607,000 130,815,000 46,779,000 178,201,000 Tenant recovery income 138,000 36,782,000 1,047,000 33,967,000 Other property income 38,000 - - 38,000 ----------------------------------------------------------------- Total revenues 783,000 163,597,000 47,826,000 212,206,000 ----------------------------------------------------------------- General and administrative expenses 454,000 - - 454,000 Advisor asset management fee (D) - - - - Property operating expenses (G) 144,000 53,282,000 3,293,000 56,719,000 Depreciation and amortization (E) (H) 223,000 63,862,000 18,603,000 82,688,000 ----------------------------------------------------------------- Total expenses 821,000 117,144,000 21,896,000 139,861,000 ----------------------------------------------------------------- Operating income (38,000) 46,453,000 25,930,000 72,345,000 Other income - - - - Interest expense (I) (136,000) (41,636,000) (17,843,000) (59,615,000) Realized loss on sale of treasury contacts - - - - Minority interests - - - - ----------------------------------------------------------------- Net income (loss) $ (174,000) 4,817,000 8,087,000 12,730,000 ================================================================= Weighted average number of shares of common stock outstanding, basic and diluted (F) 2,521,000 208,000,000 ============== ============== Net income (loss) per share, basic and diluted (F) (.07) .06 ============== ==============
See accompanying notes to pro forma consolidated statement of operations. F-69 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited) (A) The historical information represents the historical statement of operations of the Company for the period from March 5, 2003 (inception) to December 31, 2003 as filed with the Securities Exchange Commission on Form 10-K. (B) Total pro forma adjustments for acquisitions consummated as of December 17, 2004 are as though the properties were acquired January 1, 2003.
Gross Income & Direct Total Operating Pro Forma Pro Forma Expenses (1) Adjustments Adjustments ------------------------------------------------- Rental income $ 133,977,000 (3,162,000) 130,815,000 Tenant recovery income 32,782,000 - 32,782,000 ------------------------------------------------- Total income 166,759,000 (3,162,000) 163,597,000 ------------------------------------------------- Advisor asset management fee - - - Property operating expenses 46,020,000 7,262,000 53,282,000 Depreciation and amortization - 63,862,000 63,862,000 Interest expense - 41,636,000 41,636,000 ------------------------------------------------- Total expenses 46,020,000 112,760,000 158,780,000 ------------------------------------------------- Net income (loss) $ 120,739,000 (115,922,000) 4,817,000 =================================================
(1) Audited combined gross income and direct operating expenses as prepared in accordance with Rule 3-14 of Regulation S-X for the following properties: Shops at Park Place, Darien Towne Center, Newnan Crossing Phase I and II, Pavilion at Kings Grant, Hickory Ridge, CorWest Plaza, Shoppes at Quarterfield, Larkspur Landing, North Ranch Pavilion, La Plaza Del Norte, MacArthur Crossing, Promenade at Red Cliff, Peoria Crossings, Dorman Center - Phase I, Heritage Towne Crossing, Paradise Valley Marketplace, Best on the Boulevard, Bluebonnet Parc, North Rivers Town Center, Arvada Connection and Arvada Marketplace, Eastwood Town Center, Watauga Pavilion, Northpointe Plaza, Plaza Santa Fe II, Pine Ridge Plaza, Huebner Oaks Center, John's Creek Village, Lakewood Towne Center, Northgate North, Davis Towne Crossing, Fullerton Metrocenter, The Shops at Boardwalk, Cranberry Square, Tollgate Marketplace, Gateway Village, Towson Circle, Gateway Plaza, Plaza at Marysville, Forks Town Center, Reisterstown Road Plaza, Manchester Meadows, Governor's Marketplace, Mitchell Ranch Plaza, The Columns, Saucon Valley Square, Lincoln Park, Boulevard at the Capital Centre, Denton Crossing, Azalea Square, Plaza at Riverlakes, Gurnee Town Centre, Mansfield Towne Crossing, Winchester Commons, Fox Creek Village, Oswego Commons, University Town Center, Edgemont Town Center, Placentia Town Center, Gateway Pavilions, Northwoods Center, Southlake Town Square, Evans Towne Center and Irmo Station. The following properties did not require audits in accordance with Rule 3-14 of Regulation S-X: CVS Pharmacy (Eckerds) - Edmond, CVS Pharmacy (Eckerds) - Norman, Shaw's Supermarket - New Britain, Eckerds - Greer, Eckerds - Kill Devil Hills, Eckerds - - Columbia, Eckerds - Crossville, Kohl's - Wilshire Plaza III, Wal-Mart Supercenter - Blytheville, Wrangler Company Western Headquarters, Academy Sports - - Houma, Wal-Mart Supercenter - Jonesboro, Harris Teeter - Wilmington, GMAC Insurance, Academy Sports - Port Arthur, CVS - Sylacauga, Academy Sports - Midland, and Zurich Towers did not require 3-14 audits as these are single-tenant properties. Stony Creek Marketplace did not require a 3-14 audit as the property was complete in 2003 and there were no significant operations F-70 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited) prior to our acquisition. Alison's Corner, Shoppes of Prominence Point, Low Country Village, Shoppes of Dallas, Village Shoppes at Simonton, Harvest Town Center, Bed Bath & Beyond Plaza, Lake Mary Pointe, Publix Center, Five Forks, and Gateway Station did not require 3-14 audits as the properties were completed in 2004 and there were no significant operations in 2003. Pacheco Pass and Quakertown did not require 3-14 audits as the properties were completed in 2004 and there were no significant operations prior to our funding of the notes receivables. F-71 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited) (C) Total pro forma adjustments for acquisitions consummated as of December 17, 2004 are as though the properties were acquired January 1, 2003. No pro forma adjustments were made for the CVS Pharmacy - Edmond and the CVS Pharmacy - Norman as the properties were completed in 2003 and there were no significant operations prior to our acquisition. No pro forma adjustments were made for Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd - Columbia, Eckerd - Crossville, Shoppes of Prominence Point, Low Country Village, Shoppes of Dallas, Kohl's - Wilshire Plaza III, Dorman Center - Phase II, Academy Sports - Houma, Village Shoppes at Simonton, Bed, Bath & Beyond Plaza, The Columns - Phase II, Academy Sports - Port Arthur, CVS Pharmacy - Sylacauga, Academy Sports - Midland, Publix Center and Gateway Station as the properties were completed in 2004 and there were no significant operations in 2003. No pro forma adjustments were made related to the Pacheco Pass and Quakertown notes receivable as the properties were completed in 2004 and there were no significant operations prior to our funding of the notes receivable.
Gross Income & Direct Total Operating Pro Forma Pro Forma Expenses (1) Adjustments Adjustments ------------------------------------------------- Rental income $ 46,899,000 (120,000) 46,779,000 Tenant recovery income 1,047,000 - 1,047,000 ------------------------------------------------- Total revenues 47,946,000 (120,000) 47,826,000 ------------------------------------------------- Advisor asset management fee - - - Property operating expenses 1,135,000 2,158,000 3,293,000 Depreciation and amortization - 18,603,000 18,603,000 Interest expense - 17,843,000 17,843,000 ------------------------------------------------- Total expenses 38,604,000 39,739,000 ------------------------------------------------- Net income (loss) $ 46,811,000 (38,724,000) 8,087,000 =================================================
(1) Unaudited combined gross income and direct operating expenses based on information provided by the Seller for the following properties: Stony Creek Marketplace, Shaw's Supermarket (New Britain), Alison's Corner, Harvest Towne Center, Lake Mary Pointe, Five Forks and Shops at Forest Commons. Gross rental income based on information provided by tenant net leases for the following properties: Wal-Mart Supercenter - Blytheville, Wrangler Company Western Headquarters, Wal-Mart Supercenter - Jonesboro, Harris Teeter - Wilmington, GMAC Insurance, Zurich Towers and the American Express portfolio. F-72 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited) (D) The advisor asset management fee is expected to be subordinated to the shareholders' receipt of a stated return thus no amount is reflected. (E) Buildings and improvements will be depreciated on a straight line basis based upon estimated useful lives of 30 years for building and improvements and 15 years for site improvements. That portion of the purchase price that is allocated to above or below lease intangibles will be amortized on a straight line basis over the life of the related leases as an adjustment to rental income. Other leasing costs, tenant improvements and in-place lease intangibles will be amortized on a straight line basis over the life of the related leases as a component of amortization expense. (F) The pro forma weighted average shares of common stock outstanding for the year ended December 31, 2003 was calculated using the additional shares sold to purchase each of the properties on a weighted average basis plus the 20,000 shares purchased by the Advisor in connection with our organization. (G) Management fees are calculated as 4.5% of gross revenues pursuant to the management agreement and are included in property operating expenses. (H) The value of the acquired leases will be amortized over the lease term. (I) The pro forma adjustments relating to interest expense were based on the following debt terms:
Principal Interest Maturity Property Balance Rate Date ---------------------------------------------------------------------------------- Darien Towne Center 16,500,000 4.650% 06/10 CVS Pharmacy - Edmond 1,850,000 4.374% 06/09 CVS Pharmacy - Norman 2,900,000 4.374% 06/09 Newnan Crossing 23,766,100 4.380% 03/09 Shops at Park Place 13,127,000 4.710% 11/08 Pavilion at King's Grant 5,342,000 4.390% 05/09 Shaw's Supermarket - New Britain 6,450,000 4.680% 11/28 Stony Creek Marketplace 14,162,000 4.770% 01/11 CorWest Plaza 18,150,000 4.560% 02/09 Hickory Ridge 23,650,000 4.531% 02/09 Larkspur Landing 33,630,000 4.450% 02/09 North Ranch Pavilion 10,157,000 4.120% 04/09 Shoppes at Quarterfield 6,067,000 4.280% 04/09 La Plaza Del Norte 32,528,000 4.610% 03/10 MacArthur Crossing 12,700,000 4.290% 05/09 Promenade at Red Cliff 10,590,000 4.290% 05/09 Dorman Center - Phase I and Phase II 27,610,000 4.180% 05/09 Peoria Crossings 20,497,000 4.090% 04/09 Heritage Towne Crossing 8,950,000 4.374% 06/09 Paradise Valley Marketplace 15,681,000 4.550% 05/09 Best on the Boulevard 19,525,000 3.990% 05/09
F-73 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited)
Principal Interest Maturity Property Balance Rate Date ---------------------------------------------------------------------------------- Bluebonnet Parc 12,100,000 4.372% 05/09 North Rivers Town Center 11,050,000 4.760% 05/09 Alison's Corner 3,850,000 4.272% 06/10 Arvada Marketplace and Arvada Connection 28,510,000 4.130% 07/09 Eastwood Towne Center 46,750,000 4.640% 07/09 Watauga Pavilion 17,100,000 4.140% 06/10 Northpointe Plaza 30,850,000 4.272% 05/09 Plaza Santa Fe II 17,474,500 6.200% 12/12 Eckerds Drug Stores (4) 6,800,000 5.275% 08/09 Pine Ridge Plaza 14,700,000 5.085% 08/09 Huebner Oaks Center (Note A) 31,723,000 4.200% 07/10 Huebner Oaks Center (Note B) 16,277,000 3.960% 07/10 John's Creek Village 23,300,000 5.100% 08/09 Lakewood Towne Center (Note A) 44,000,000 2.680% 06/09 Lakewood Towne Center (Note B) 7,260,000 3.830% 07/05 Shoppes of Prominence Point 9,954,300 5.235% 09/09 Northgate North 26,650,000 4.600% 07/08 Davis Towne Crossing 5,365,200 5.185% 09/09 Fullerton Metrocenter 28,050,000 5.090% 08/09 The Shops at Boardwalk 20,150,000 4.130% 08/09 Shoppes of Dallas 7,179,000 4.960% 04/09 Cranberry Square 10,900,000 4.975% 08/09 Tollgate Marketplace 39,765,000 LIBOR +120 07/09 Gateway Village (Note A) 27,233,000 LIBOR + 113 07/09 Gateway Village (Note B) 4,225,000 LIBOR + 200 08/05 Towson Circle (Note A) 15,647,500 5.100% 07/09 Towson Circle (Note B) 3,550,000 LIBOR + 200 08/05 Wal-Mart Supercenter - Blytheville 7,100,000 4.390% 09/09 Gateway Plaza 18,163,000 5.100% 09/09 Wrangler Company Western Headquarters 11,300,000 5.090% 08/27 Plaza at Marysville 11,800,000 5.085% 08/09 Forks Town Center 10,395,000 4.970% 09/09 Academy Sports - Houma 2,920,000 5.120% 09/09 Wal-Mart Supercenter - Jonesboro 6,088,500 5.085% 09/09 Reisterstown Road Plaza 49,650,000 5.300% 09/09 Village Shoppes at Simonton 7,562,000 4.960% 10/09 Manchester Meadows 31,065,000 4.480% 09/07 Governor's Marketplace 20,625,000 5.185% 09/09 Mitchell Ranch Plaza 18,700,000 4.480% 10/09 Saucon Valley Square 8,851,000 5.115% 10/09 Boulevard at Capital Centre 71,500,000 5.120% 10/09 GMAC Insurance 33,000,000 4.610% 10/09 Low Country Village 5,370,000 4.960% 10/09 The Columns - Phase I 11,423,000 4.910% 11/09 Lincoln Park 26,153,000 4.610% 11/09 Harris Teeter - Wilmington 3,960,000 4.915% 11/09
F-74 Inland Western Retail Real Estate Trust, Inc. Notes to Pro Forma Consolidated Statement of Operations For the year ended December 31, 2003 (unaudited)
Principal Interest Maturity Property Balance Rate Date ---------------------------------------------------------------------------------- Kohl's - Wilshire Plaza III 5,418,000 5.120% 12/09 Harvest Town Center 5,005,000 4.935% 01/10 Bed Bath & Beyond Plaza 11,193,000 5.170% 12/09 The Columns - Phase II 3,442,000 4.950% 05/09 Denton Crossing 35,200,000 4.300% 01/10 Azalea Square 16,535,000 5.010% 12/09 Lake Mary Pointe 3,658,000 5.170% 12/09 Academy Sports - Port Arthur 2,775,000 5.120% 11/09 Academy Sports - Midland 2,338,000 5.120% 01/10 Mansfield Towne Crossing 10,982,000 5.215% 12/09 Winchester Commons 7,235,000 5.120% 12/09 Oswego Commons 19,262,000 4.750% 12/09 Zurich Towers 81,420,000 4.247% 12/34 Shops at Forest Commons 5,250,000 6.340% 09/13 American Express Portfolio 230,100,000 4.268% 12/09
F-75 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Shops at Park Place ("the Property") for the year ended December 31, 2002. This Historical Summary is the responsibility of the management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 1 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Shops at Park Place for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois November 10, 2003 F-76 SHOPS AT PARK PLACE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2002 and the nine months ended September 30, 2003 (unaudited)
For the nine months ended For the year September 30, 2003 ended (unaudited) December 31, 2002 -------------------------------------- Gross income: Base rental income $ 1,437,200 1,908,061 Operating expense and real estate tax recoveries 379,258 483,930 -------------------------------------- Total gross income 1,816,458 2,391,991 -------------------------------------- Direct operating expenses: Operating expenses 168,382 266,939 Real estate taxes 269,037 326,106 Insurance 27,897 33,813 -------------------------------------- Total direct operating expenses 465,316 626,858 -------------------------------------- Excess of gross income over direct operating expenses $ 1,351,142 1,765,133 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-77 SHOPS AT PARK PLACE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2002 and the nine months ended September 30, 2003 (1) Business Shops at Park Place (the "Property") is located in Plano, Texas. The Property consists of approximately 112,478 square feet of gross leasable retail area which was 100% occupied at December 31, 2002. Three retail tenants account for approximately 44% of the base retail rental revenue. On October 31, 2003, Inland Western Retail Real Estate Trust, Inc. (IWRRETI) acquired the Property. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 1 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2003. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal to options at various periods at various rental rates. Certain of the leases contain provisions for contingent rentals. The Property has one ground lease which is classified as an operating lease with a term expiring in October 2015. Total ground lease income was $88,297 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2002. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exists in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $14,536 for the year ended December 31, 2002. F-78 SHOPS AT PARK PLACE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2002 and the nine months ended September 30, 2003 (continued) Minimum rents to be received from tenants under operating leases, which terms range from rive to sixty years, in effect at December 31, 2002, are as follows:
YEAR TOTAL ------------------------------------- 2003 $ 1,913,069 2004 1,913,416 2005 1,916,724 2006 1,861,396 2007 1,500,007 Thereafter 23,437,097 -------------- Total $ 32,541,709 ==============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-79 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Darien Towne Center ("the Property") for the year ended December 31, 2002. This Historical Summary is the responsibility of management. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Form 8-K/A of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Darien Towne Center for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Los Angeles, California December 4, 2003 F-80 DARIEN TOWNE CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2002 (in thousands)
For the year ended December 31, 2002 ----------------- Gross income: rental income $ 2,051 Tenant reimbursements 449 ----------------- Total gross income 2,500 ----------------- Direct operating expenses: Utilities, maintenance, and repairs 201 Real estate taxes 344 Insurance 35 ----------------- Total direct operating expenses 580 ----------------- Excess of gross income over direct operating expenses $ 1,920 =================
See accompanying notes to historical summary of gross income and direct operating expense. F-81 DARIEN TOWNE CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2002 (1) Business Darien Towne Center (the Property) is a shopping center located in Darien, Illinois. The Property consists of 217,505 square feet of gross leasable area and was 95% occupied at December 31, 2002. Approximately 77% of the property's leasable area is leased to three tenants, Home Depot, Circuit City, and PetSmart. Inland Western Retail Real Estate Trust, Inc. (IWRRETI) has signed a purchase and sale agreement for the purchase of the Property from an unaffiliated third-party seller. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Form 8-K/A of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Certain leases contain renewal to options at various periods at various rental rates. Rental income is recognized using the accrual method based on contractual amounts provided for in the lease agreements. Rental revenue is recognized on a straight-line basis over the term of the respective leases. The following is a schedule of minimum future rental to be received on noncancelable operating leases as of December 31, 2002 (in thousands):
YEAR TOTAL ------------------------------------- 2003 $ 2,089 2004 1,938 2005 1,452 2006 1,440 2007 1,390 Thereafter 9,148 -------------- Total $ 17,457 ==============
F-82 DARIEN TOWNE CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2002 (continued) (4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-83 (this page intentionally left blank) F-84 (this page intentionally left blank) F-85 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Combined Historical Summary of Gross Income and Direct Operating Expenses ("Combined Historical Summary") of the Properties Acquired from Thomas Enterprises ("the Properties") for the year ended December 31, 2003. This Combined Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Combined Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Combined Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Combined Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Combined Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Combined Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Form 8-K/A of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Properties' revenues and expenses. In our opinion, the Combined Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of the Properties Acquired from Thomas Enterprises for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois February 24, 2004 F-86 THE PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003
For the year ended December 31, 2003 ----------------- Gross income: Base rental income $ 2,968,855 Operating expense and real estate tax recoveries 529,344 ----------------- Total gross income 3,498,199 ----------------- Direct operating expenses: Operating expenses 372,962 Real estate taxes 217,447 Insurance 35,600 ----------------- Total direct operating expenses 626,009 ----------------- Excess of gross income over direct operating expenses $ 2,872,190 =================
See accompanying notes to historical summary of gross income and direct operating expense. F-87 PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (1) Business The Properties Acquired from Thomas Enterprises ("the Properties") consists of the following:
Gross Occupancy at Leasable December 31, Area 2003 Name (unaudited) Location (unaudited) - --------------------------------------------------------------------------------- Pavilion at King's Grant 79,909 Concord, North Carolina 100% Newnan Crossing I and II 288,284 Newnan, Georgia 100%
Two tenants account for 41% of the Properties' base rental income. Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Pavilion at King's Grant on December 30, 2003, Newnan Crossing on December 23, 2003 and Newnan Crossing Phase II on February 13, 2004, from Thomas Enterprises, an unaffiliated party. The Historical Summary represents the combination of the Properties described above since the Properties are all owned by Thomas Enterprises. A portion of Pavilion at King's Grant and Newnan Crossing (representing approximately 71,000 square feet and 275,800 square feet, respectively,) of the Properties' gross leasable area was completed as of December 31, 2002. The remaining portion of the Properties' gross leasable area (representing the remaining approximately 8,000 square feet and 12,400 square feet, respectively,) was under construction and completed during 2003. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Form 8-K/A of IWRRETI and is not intended to be a complete presentation of the Properties' revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Properties to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. (3) Gross Income The Properties lease retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Properties are reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. The Properties have five ground leases which are classified as operating leases with terms ranging through February 2014. Total ground lease income was $363,323 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2003. F-88 PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (continued) Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exists in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $294,000 for the year ended December 31, 2003. Minimum rents to be received from tenants under operating leases, which terms range from five to twenty years in effect at December 31, 2003, are as follows:
YEAR TOTAL ------------------------------------- 2004 $ 3,537,586 2005 3,396,343 2006 3,351,239 2007 3,155,649 2008 3,124,333 Thereafter 22,863,275 -------------- Total $ 39,428,425 ==============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-89 STONY CREEK MARKETPLACE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (unaudited)
For the year ended December 31, 2003 (unaudited) ----------------- Gross income: Base rental income $ 393,702 Operating expense and real estate tax recoveries 130,140 ----------------- Total gross income 523,842 ----------------- Direct operating expenses: Property operating expenses 98,974 ----------------- Total direct operating expenses 98,974 ----------------- Excess of gross income over direct operating expenses $ 424,868 =================
See accompanying notes to historical summary of gross income and direct operating expense. F-90 STONY CREEK MARKETPLACE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Stony Creek Marketplace to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the year ended December 31, 2003. F-91 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Hickory Ridge ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Hickory Ridge for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois March 2, 2004 F-92 HICKORY RIDGE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003
For the year ended December 31, 2003 ----------------- Gross income: Base rental income $ 3,633,058 Operating expense and real estate tax recoveries 447,314 ----------------- Total gross income 4,080,372 ----------------- Direct operating expenses: Operating expenses 156,997 Real estate taxes 244,786 Insurance 59,317 ----------------- Total direct operating expenses 461,100 ----------------- Excess of gross income over direct operating expenses $ 3,619,272 =================
See accompanying notes to historical summary of gross income and direct operating expense. F-93 HICKORY RIDGE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (1) Business Hickory Ridge (the Property) is located in Hickory, North Carolina. The Property consists of 375,587 square feet of gross leasable area and was 100% occupied at December 31, 2003. The Property is leased to twenty-one tenants of which four tenants account for approximately 51% of base rental revenue for the year ended December 31, 2003. On January 9, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal to options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $25,762 was earned during the year ended December 31, 2003. In addition, rental income includes $95,959 of rent from one tenant that pays monthly rent based upon a percentage of monthly sales in lieu of minimum rents provided in the lease. The minimum rents schedule below excludes such tenant. The Property has two ground leases that are classified as operating leases with terms extending through January 2013 and January 2021, respectively. Total ground lease income was $311,590 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increase base rental income by $132,919 for the year ended December 31, 2003. F-94 HICKORY RIDGE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (continued) Minimum rents to be received from tenants under operating leases, which terms range from one to seventeen years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ------------------------------------- 2004 $ 3,393,768 2005 3,053,077 2006 3,065,441 2007 3,016,833 2008 3,019,568 Thereafter 18,476,329 -------------- Total $ 34,025,016 ==============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-95 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of CorWest Plaza ("the Property") for the period from May 29, 2003 through December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of CorWest Plaza for the period from May 29, 2003 through December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois March 3, 2004 F-96 CORWEST PLAZA Historical Summary of Gross Income and Direct Operating Expenses For the period from May 29, 2003 through December 31, 2003
For the period from May 29, 2003 through December 31, 2003 ------------------- Gross income: Base rental income $ 1,425,025 Operating expense and real estate tax recoveries 424,278 ------------------- Total gross income 1,849,303 ------------------- Direct operating expenses: Operating expenses 54,893 Real estate taxes 347,412 Insurance 16,407 ------------------- Total direct operating expenses 418,712 ------------------- Excess of gross income over direct operating expenses $ 1,430,591 ===================
See accompanying notes to historical summary of gross income and direct operating expense. F-97 CORWEST PLAZA Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from May 29, 2003 through December 31, 2003 (1) Business CorWest Plaza (the Property) is located in New Britain, Connecticut. The Property consists of approximately 115,011 square feet of gross leasable area and was 100% occupied at December 31, 2003. The Property is leased to ten tenants of which four tenants account for approximately 90% of base rental revenue for the period from May 29, 2003 through December 31, 2003. On January 6, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates As the Property was acquired by the seller on May 29, 2003, financial statements were not available prior to such date. As such, the Historical Summary includes only operations for the period from May 29, 2003 through December 31, 2003. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal to options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned from the period from May 29, 2003 through December 31, 2003. The Property has 3 ground leases that are classified as operating leases with terms extending through May 2028. Total ground lease income was $1,225,693 and is included in base rental income in the accompanying Historical Summary for the period from May 29, 2003 through December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exists in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $44,806 for the period from May 29, 2003 through December 31, 2003. F-98 CORWEST PLAZA Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from May 29, 2003 through December 31, 2003 (continued) Minimum rents to be received from tenants under operating leases, which terms range from 48 months to 25 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ------------------------------------- 2004 $ 2,612,698 2005 2,594,038 2006 2,464,015 2007 2,416,598 2008 2,433,616 Thereafter 40,960,776 -------------- Total $ 53,481,742 ==============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-99 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Metro Square Center (SuperValue) ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Metro Square Center (SuperValue) for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois March 3, 2004 F-100 METRO SQUARE CENTER (SUPERVALUE) Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003
For the year ended December 31, 2003 ----------------- Gross income: Base rental income $ 949,573 Operating expense and real estate tax recoveries 125,792 ----------------- Total gross income 1,075,365 ----------------- Direct operating expenses: Operating expenses 59,440 Real estate taxes 47,018 Insurance 18,815 ----------------- Total direct operating expenses 125,273 ----------------- Excess of gross income over direct operating expenses $ 950,092 =================
See accompanying notes to historical summary of gross income and direct operating expense. F-101 METRO SQUARE CENTER (SUPERVALUE) Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (1) Business Metro Square Center (SuperValue) (the Property) is located in Severn, Maryland. The Property consists of approximately 62,000 square feet of gross leasable area and was 100% occupied at December 31, 2003. The Property is leased to three tenants of which one tenant accounts for approximately 91% of base rental revenue for the year ended December 31, 2003. On January 22, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal to options at various periods at various rental rates. Certain of the leases contain provisions for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exists in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $54,197 for the year ended December 31, 2003. F-102 METRO SQUARE CENTER (SUPERVALUE) Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (continued) Minimum rents to be received from tenants under operating leases, which terms range from five to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ------------------------------------- 2004 $ 897,786 2005 922,082 2006 902,574 2007 904,327 2008 844,146 Thereafter 10,010,898 --------------- Total $ 14,481,813 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-103 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Larkspur Landing, ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Larkspur Landing, for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois February 26, 2004 F-104 LARKSPUR LANDING Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003
For the year ended December 31, 2003 ----------------- Gross income: Base rental income $ 4,735,363 Operating expense and real estate tax recoveries 1,055,794 ----------------- Total gross income 5,791,157 ----------------- Direct operating expenses: Operating expenses 707,903 Real estate taxes 336,380 Insurance 236,462 ----------------- Total direct operating expenses 1,280,745 ----------------- Excess of gross income over direct operating expenses $ 4,510,412 =================
See accompanying notes to historical summary of gross income and direct operating expense. F-105 LARKSPUR LANDING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (1) Business Larkspur Landing, (the Property) is located in Larkspur, California. The Property consists of approximately 173,800 square feet of gross leasable area and was approximately 91% occupied at December 31, 2003. The Property is leased to thirty-seven tenants of which four tenants account for approximately 62% of base rental revenue for the year ended December 31, 2003. On January 14, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal to options at various periods at various rental rates. Certain of the leases contain provisions for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $339,129 was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exists in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $171,513 for the year ended December 31, 2003. F-106 LARKSPUR LANDING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (continued) Minimum rents to be received from tenants under operating leases, which terms range from 1 to 15 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ------------------------------------ 2004 $ 4,305,051 2005 3,779,574 2006 3,409,006 2007 2,769,297 2008 2,410,278 Thereafter 13,617,128 --------------- Total $ 30,290,334 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-107 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of North Ranch Pavilion ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of North Ranch Pavilion for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois February 25, 2004 F-108 NORTH RANCH PAVILION Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003
For the year ended December 31, 2003 ----------------- Gross income: Base rental income $ 1,100,047 Operating expense and real estate tax recoveries 322,680 ----------------- Total gross income 1,422,727 ----------------- Direct operating expenses: Operating expenses 210,864 Real estate taxes 129,164 Insurance 33,635 ----------------- Total direct operating expenses 373,663 ----------------- Excess of gross income over direct operating expenses $ 1,049,064 =================
See accompanying notes to historical summary of gross income and direct operating expense. F-109 NORTH RANCH PAVILION Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (1) Business North Ranch Pavilion (the Property) is located in Thousand Oaks, California. The Property consists of approximately 63,000 square feet of gross leasable area and was approximately 91% occupied at December 31, 2003. The Property is leased to twenty-seven tenants of which three tenants account for approximately 34% of base rental revenue for the year ended December 31, 2003. On January 15, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal to options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exists in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $39,515 for the year ended December 31, 2003. F-110 NORTH RANCH PAVILION Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (continued) Minimum rents to be received from tenants under operating leases, which terms range from three to 14 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,308,503 2005 1,187,162 2006 1,196,362 2007 768,560 2008 665,216 Thereafter 2,245,095 --------------- Total $ 7,370,898 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-111 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of La Plaza Del Norte ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of La Plaza Del Norte for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois February 26, 2004 F-112 LA PLAZA DEL NORTE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003
For the year ended December 31, 2003 ----------------- Gross income: Base rental income $ 4,003,605 Operating expense and real estate tax recoveries 1,421,860 ----------------- Total gross income 5,425,465 ----------------- Direct operating expenses: Operating expenses 240,045 Real estate taxes 1,199,850 Insurance 84,577 ----------------- Total direct operating expenses 1,524,472 ----------------- Excess of gross income over direct operating expenses $ 3,900,993 =================
See accompanying notes to historical summary of gross income and direct operating expense. F-113 LA PLAZA DEL NORTE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (1) Business La Plaza Del Norte (the Property) is located in San Antonio, Texas. The Property consists of approximately 320,000 square feet of gross leasable area and was approximately 96% occupied at December 31, 2003. The Property is leased to eighteen tenants of which two tenants account for approximately 41% of base rental revenue for the year ended December 31, 2003. On January 21, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal to options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $827 was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exists in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $72,859 for the year ended December 31, 2003. F-114 LA PLAZA DEL NORTE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (continued) Minimum rents to be received from tenants under operating leases, which terms range from five to twenty years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 4,113,332 2005 4,070,499 2006 3,942,489 2007 3,358,048 2008 3,258,479 Thereafter 14,294,929 --------------- Total $ 33,037,776 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-115 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of MacArthur Crossing ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of MacArthur Crossing for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois March 1, 2004 F-116 MACARTHUR CROSSING Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003
For the year ended December 31, 2003 ----------------- Gross income: Base rental income $ 1,760,907 Operating expense and real estate tax recoveries 608,826 ----------------- Total gross income 2,369,733 ----------------- Direct operating expenses: Operating expenses 249,689 Real estate taxes 400,391 Insurance 48,208 ----------------- Total direct operating expenses 698,288 ----------------- Excess of gross income over direct operating expenses $ 1,671,445 =================
See accompanying notes to historical summary of gross income and direct operating expense. F-117 MACARTHUR CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (1) Business MacArthur Crossing (the Property) is located in Las Colinas, Texas. The Property consists of 111,035 square feet of gross leasable area and was approximately 98% occupied at December 31, 2003. The Property is leased to twenty-nine tenants of which seven tenants account for approximately 54% of base rental revenue for the year ended December 31, 2003. On February 5, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal to options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $14,807 was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exists in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $4,655 for the year ended December 31, 2003. F-118 MACARTHUR CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (continued) Minimum rents to be received from tenants under operating leases, which terms range from five to twenty years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,771,533 2005 1,713,801 2006 1,290,824 2007 809,370 2008 678,292 Thereafter 2,761,095 --------------- Total $ 9,024,915 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-119 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Promenade at Red Cliff ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Promenade at Red Cliff for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois March 5, 2004 F-120 PROMENADE AT RED CLIFF Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003
For the year ended December 31, 2003 ----------------- Gross income: Base rental income $ 1,250,480 Operating expense and real estate tax recoveries 237,743 ----------------- Total gross income 1,488,223 ----------------- Direct operating expenses: Operating expenses 136,724 Real estate taxes 113,395 Insurance 38,288 ----------------- Total direct operating expenses 288,407 ----------------- Excess of gross income over direct operating expenses $ 1,199,816 =================
See accompanying notes to historical summary of gross income and direct operating expense. F-121 PROMENADE AT RED CLIFF Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (1) Business Promenade at Red Cliff (the Property) is located in St. George, Utah. The Property consists of 94,947 square feet of gross leasable area and was approximately 97% occupied at December 31, 2003. The Property is leased to twenty-tenants of which four tenants account for approximately 61% of base rental revenue for the year ended December 31, 2003. On February 13, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal to options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $21,297 was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exists in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $1,622 for the year ended December 31, 2003. F-122 PROMENADE AT RED CLIFF Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (continued) Minimum rents to be received from tenants under operating leases, which terms range from 10 months to fifteen years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,468,781 2005 1,513,674 2006 1,526,952 2007 1,149,127 2008 852,421 Thereafter 921,631 --------------- Total $ 7,432,586 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-123 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Peoria Crossings ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Peoria Crossing for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois February 25, 2004 F-124 PEORIA CROSSINGS Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003
For the year ended December 31, 2003 ----------------- Gross income: Base rental income $ 2,247,654 Operating expense and real estate tax recoveries 367,902 ----------------- Total gross income 2,615,556 ----------------- Direct operating expenses: Operating expenses 158,120 Real estate taxes 212,946 Insurance - ----------------- Total direct operating expenses 371,066 ----------------- Excess of gross income over direct operating expenses $ 2,244,490 =================
See accompanying notes to historical summary of gross income and direct operating expense. F-125 PEORIA CROSSINGS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (1) Business Peoria Crossings (the Property) is located in Peoria, Arizona. The Property consists of approximately 213,500 square feet of gross leasable area and was approximately 97% occupied at December 31, 2003. The Property is leased to twenty-one tenants of which five tenants account for approximately 59% of base rental revenue for the year ended December 31, 2003. Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") has signed a sale and purchase agreement for the purchase of the Property from an unaffiliated third-party ("Seller"). The Property commenced operations in 2002 with a portion of Peoria Crossings (representing approximately 207,500 square feet) of the Properties' gross leasable area complete as of December 31, 2003. The remaining portion of the Properties' gross leasable area (representing the remaining approximately 6, 000 square feet) is under construction and scheduled to be completed during 2004. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal to options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exists in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $780,986 for the year ended December 31, 2003. F-126 PEORIA CROSSINGS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (continued) Minimum rents to be received from tenants under operating leases, which terms range from five to twenty-one years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 2,584,513 2005 2,606,123 2006 2,613,453 2007 2,623,407 2008 2,245,206 Thereafter 17,152,265 --------------- Total $ 29,824,967 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-127 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Dorman Centre ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Dorman Centre for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois February 25, 2004 F-128 DORMAN CENTRE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003
For the year ended December 31, 2003 ----------------- Gross income: Base rental income $ 1,195,938 Operating expense and real estate tax recoveries 83,579 ----------------- Total gross income 1,279,517 ----------------- Direct operating expenses: Operating expenses 37,886 Real estate taxes 51,474 Insurance 9,656 ----------------- Total direct operating expenses 99,016 ----------------- Excess of gross income over direct operating expenses $ 1,180,501 =================
See accompanying notes to historical summary of gross income and direct operating expense. F-129 DORMAN CENTRE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (1) Business Dorman Centre (the Property) is located in Spartanburg, South Carolina. The Property consists of approximately 388,000 square feet of gross leasable area and was approximately 90% occupied at December 31, 2003. The Property is leased to twenty-one tenants of which four tenants account for approximately 77% of base rental revenue for the year ended December 31, 2003. On March 4, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. The Property commenced operations on July 1, 2003 with a portion of Dorman Center (representing approximately 348,000 square feet) complete as of December 31, 2003. The remaining portion (representing the remaining approximately 40,000 square feet) is under construction and scheduled to be completed during the first quarter of 2004. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal to options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exists in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $4,778 for the year ended December 31, 2003. F-130 DORMAN CENTRE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (continued) Minimum rents to be received from tenants under operating leases, which terms range from three to twenty years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 3,504,788 2005 3,540,088 2006 3,513,673 2007 3,430,584 2008 3,313,461 Thereafter 30,804,111 --------------- Total $ 48,106,705 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-131 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Heritage Towne Crossing ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Heritage Towne Crossing for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois March 3, 2004 F-132 HERITAGE TOWNE CROSSING Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003
For the year ended December 31, 2003 ----------------- Gross income: Base rental income $ 876,078 Operating expense and real estate tax recoveries 198,515 ----------------- Total gross income 1,074,593 ----------------- Direct operating expenses: Operating expenses 106,131 Real estate taxes 211,070 Insurance 21,825 ----------------- Total direct operating expenses 339,026 ----------------- Excess of gross income over direct operating expenses $ 735,567 =================
See accompanying notes to historical summary of gross income and direct operating expense. F-133 HERITAGE TOWN CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (1) Business Heritage Towne Crossing (the Property) is located in Euless, Texas. The Property consists of 80,730 square feet of gross leasable area and was approximately 81% occupied at December 31, 2003. The Property is leased to twenty-five tenants of which five tenants account for approximately 40% of base rental revenue for the year ended December 31, 2003. On March 5, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 3 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal to options at various periods at various rental rates. The Property has two ground leases that are classified as operating leases with terms extending through September, 2023. Total ground lease income was $44,417 and is included in base rental income int he accompanying Historical Summary for the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exists in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $15,184 for the year ended December 31, 2003. F-134 HERITAGE TOWNE CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 (continued) Minimum rents to be received from tenants under operating leases, which terms range from three to twenty years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,289,587 2005 1,300,384 2006 1,292,499 2007 1,069,311 2008 653,115 Thereafter 2,698,001 --------------- Total $ 8,302,897 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-135 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Paradise Valley Marketplace ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No 4 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Paradise Valley Marketplace for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois May 21, 2004 F-136 PARADISE VALLEY MARKETPLACE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited)
For the For the year three months ended ended March 31, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 449,832 1,486,785 Operating expense and real estate tax recoveries 54,799 219,877 -------------------------------------- Total gross income 504,631 1,706,662 -------------------------------------- Direct operating expenses: Operating expenses 26,470 130,116 Real estate taxes 47,629 181,118 Insurance 7,942 30,256 -------------------------------------- Total direct operating expenses 82,041 341,490 -------------------------------------- Excess of gross income over direct operating expenses $ 422,590 1,365,172 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-137 PARADISE VALLEY MARKETPLACE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (1) Business Paradise Valley Marketplace (the Property) is located in Phoenix, Arizona. The Property consists of approximately 138,627 square feet of gross leasable area and was 81% occupied at December 31, 2003. The Property is leased to two tenants that account for approximately 41% of base rental revenue for the year ended December 31, 2003. On April 8, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 4 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the three months ended March 31, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $46,680 for the year ended December 31, 2003. F-138 PARADISE VALLEY MARKETPLACE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (continued) (unaudited) Minimum rents to be received from tenants under operating leases which terms range from five to twenty years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,847,829 2005 1,860,272 2006 1,852,512 2007 1,596,997 2008 1,368,899 Thereafter 10,350,861 --------------- $ 18,877,370 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-139 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Best on the Boulevard ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No 4 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Best on the Boulevard for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois June 14, 2004 F-140 BEST ON THE BOULEVARD Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited)
For the For the year three months ended ended March 31, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 777,350 2,946,442 Operating expense and real estate tax recoveries 48,915 196,720 -------------------------------------- Total gross income 826,265 3,143,162 -------------------------------------- Direct operating expenses: Operating expenses 67,731 197,234 Real estate taxes 20,288 77,799 Insurance 10,133 56,336 -------------------------------------- Total direct operating expenses 98,152 331,369 -------------------------------------- Excess of gross income over direct operating expenses $ 728,113 2,811,793 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-141 BEST ON THE BOULEVARD Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (1) Business Best on the Boulevard (the Property) is located in Las Vegas, Nevada. The Property consists of approximately 204,000 square feet of gross leasable area and was 98% occupied at December 31, 2003. The Property is leased to four tenants that account for approximately 70% of base rental revenue for the year ended December 31, 2003. On April 14, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 4 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the three months ended March 31, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $152,725 was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $21,111 for the year ended December 31, 2003. Gross income excludes lease buy-out income as such amounts are not comparable to the proposed future operations of the property. F-142 BEST ON THE BOULEVARD Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (continued) (unaudited) Minimum rents to be received from tenants under operating leases which terms range from one to eleven years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 2,777,000 2005 2,615,000 2006 2,657,000 2007 2,705,000 2008 2,732,000 Thereafter 10,162,000 --------------- $ 23,648,000 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-143 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Bluebonnet Parc ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No 4 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Bluebonnet Parc for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois June 14, 2004 F-144 BLUEBONNET PARC Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited)
For the For the year three months ended ended March 31, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 405,509 1,680,019 Operating expense and real estate tax recoveries 54,952 247,837 -------------------------------------- Total gross income 460,461 1,927,856 -------------------------------------- Direct operating expenses: Operating expenses 28,732 102,120 Real estate taxes 31,210 124,838 Insurance 11,103 44,410 -------------------------------------- Total direct operating expenses 71,045 271,368 -------------------------------------- Excess of gross income over direct operating expenses $ 389,416 1,656,488 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-145 BLUEBONNET PARC Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (1) Business Bluebonnet Parc (the Property) is located in Baton Rouge, Louisiana. The Property consists of approximately 135,000 square feet of gross leasable area and was approximately 89% occupied at December 31, 2003. The Property is leased to two tenants that account for approximately 58% of base rental revenue for the year ended December 31, 2003. On April 22, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 4 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the three months ended March 31, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $58,881 for the year ended December 31, 2003. F-146 BLUEBONNET PARC Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (continued) (unaudited) Minimum rents to be received from tenants under operating leases which terms range from one to seventeen years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,621,138 2005 1,621,138 2006 1,621,138 2007 1,632,710 2008 1,671,590 Thereafter 9,990,092 --------------- $ 18,157,806 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-147 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of North Rivers Town Center ("the Property") for the period of October 1, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No 4 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in Note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of North Rivers Town Center for the period of October 1, 2003 (commencement of operations) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois May 25, 2004 F-148 NORTH RIVERS TOWN CENTER Historical Summary of Gross Income and Direct Operating Expenses For the period of October 1, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited)
For the period of October 1, 2003 For the three (commencement of months ended operations) to March 31, 2004 December 31, 2003 ---------------------------------- (unaudited) Gross income: Base rental income $ 475,837 119,006 Operating expense and real estate tax recoveries 41,591 49,926 ---------------------------------- Total gross income 517,428 168,932 ---------------------------------- Direct operating expenses: Operating expenses 38,133 53,201 Real estate taxes 12,136 46,233 ---------------------------------- Total direct operating expenses 50,269 99,434 ---------------------------------- Excess of gross income over direct operating expenses $ 467,159 69,498 ==================================
See accompanying notes to historical summary of gross income and direct operating expense. F-149 NORTH RIVERS TOWN CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period of October 1, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited) (1) Business North Rivers Town Center (the Property) is located in Charleston, South Carolina. The Property consists of approximately 141,167 square feet of gross leasable area and was 53% occupied at December 31, 2003. The Property is leased to six tenants of which three account for approximately 82% of base rental revenue for the year ended December 31, 2003. On April 27, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 4 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the three months ended March 31, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. The Property has one ground lease that is classified as an operating lease with terms extending through January 2014. Total ground lease income was $20,097 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $3,583 for the year ended December 31, 2003. F-150 NORTH RIVERS TOWN CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period of October 1, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (continued) (unaudited) Minimum rents to be received from tenants under operating leases which terms range from three to ten years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,507,058 2005 1,635,570 2006 1,647,145 2007 1,627,461 2008 1,616,978 Thereafter 7,128,154 --------------- $ 15,162,366 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-151 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Arvada Marketplace and Connection ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No 4 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Arvada Marketplace and Connection for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois June 8, 2004 F-152 ARVADA MARKETPLACE AND CONNECTION Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited)
For the For the year three months ended ended March 31, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 864,350 3,609,715 Contingent rent - 152,934 Operating expense and real estate tax recoveries 271,869 1,118,604 -------------------------------------- Total gross income 1,136,219 4,881,253 -------------------------------------- Direct operating expenses: Operating expenses 123,217 513,159 Real estate taxes 276,372 1,105,488 Insurance 8,660 32,699 -------------------------------------- Total direct operating expenses 408,249 1,651,346 -------------------------------------- Excess of gross income over direct operating expenses $ 727,970 3,229,907 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-153 ARVADA MARKETPLACE AND CONNECTION Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months March ended 31, 2004 (unaudited) (1) Business Arvada Marketplace and Connection ("the Property) is located in Arvada, Colorado. The Property consists of approximately 528,000 square feet of gross leasable area and was approximately 67% occupied at December 31, 2003. The Property is leased to four tenants that account for approximately 53% of base rental revenue for the year ended December 31, 2003. On April 29, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 4 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the three months ended March 31, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $152,934 was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $482 for the year ended December 31, 2003. F-154 ARVADA MARKETPLACE AND CONNECTION Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from three to twenty years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 3,451,409 2005 3,315,310 2006 3,049,468 2007 2,882,800 2008 2,210,180 Thereafter 5,724,575 --------------- $ 20,633,742 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-155 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Eastwood Town Center ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No 4 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Eastwood Town Center for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois June 8, 2004 F-156 EASTWOOD TOWN CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited)
For the For the year three months ended ended March 31, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 1,652,801 6,251,312 Contingent rent - 10,123 Operating expense and real estate tax recoveries 281,464 1,309,884 -------------------------------------- Total gross income 1,934,265 7,571,319 -------------------------------------- Direct operating expenses: Operating expenses 286,259 1,214,244 Real estate taxes 58,697 234,786 Insurance 40,338 161,355 -------------------------------------- Total direct operating expenses 385,294 1,610,385 -------------------------------------- Excess of gross income over direct operating expenses $ 1,548,971 5,960,934 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-157 EASTWOOD TOWN CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (1) Business Eastwood Town Center (the Property) is located in Lansing, Michigan. The Property consists of approximately 334,500 square feet of gross leasable area and was approximately 98% occupied at December 31, 2003. The Property is leased to four tenants that account for approximately 19% of base rental revenue for the year ended December 31, 2003. On May 13, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 4 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the three months ended March 31, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $10,123 was earned during the year ended December 31, 2003. In addition, rental income includes $135,059 of rent from one tenant that pays monthly rent based upon a percentage of monthly sales in lieu of minimum rents provided in the lease. The minimum rents schedule below excludes such tenant. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $236,890 for the year ended December 31, 2003. F-158 EASTWOOD TOWN CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from five to fifteen years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 6,347,034 2005 6,364,074 2006 6,389,942 2007 6,409,218 2008 6,354,825 Thereafter 31,443,155 --------------- $ 63,308,248 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-159 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Watauga Pavilion ("the Property") for the period of August 15, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No 4 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Watauga Pavilion for the period of August 15, 2003 (commencement of operations) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois May 28, 2004 F-160 WATAUGA PAVILION Historical Summary of Gross Income and Direct Operating Expenses For the period of August 15, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited)
For the For the period from three months ended August 15, 2003 to March 31, 2004 December 31, 2003 --------------------------------------- (unaudited) Gross income: Base rental income $ 547,045 198,325 Operating expense and real estate tax recoveries 122,473 7,110 --------------------------------------- Total gross income 669,518 205,435 --------------------------------------- Direct operating expenses: Operating expenses 28,568 9,288 Real estate taxes 129,422 8,692 Insurance 9,446 9,446 --------------------------------------- Total direct operating expenses 167,436 27,426 --------------------------------------- Excess of gross income over direct operating expenses $ 502,082 178,009 =======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-161 WATAUGA PAVILION Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period August 15, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited) (1) Business Watauga Pavilion (the Property) is located in Watauga, Texas. The Property consists of approximately 205,575 square feet of gross leasable area and was 93% leased and 43% occupied at December 31, 2003. The Property is leased to three tenants that account for approximately 49% of base rental revenue for the period of August 15, 2003 (commencement of operations) to December 31, 2003. On May 21, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property. Watauga Pavilion was under construction during 2003 and commenced operations August 15, 2003, with a portion of the Property's gross leasable area (representing approximately 88,300 square feet) complete as of December 31, 2003. The remaining portion of the Property's gross leasable area (representing the remaining approximately 117,275 square feet) is under construction and scheduled to be completed during 2004. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 4 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the three months ended March 31, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the period from August 15, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $157,979 for the period from August 15, 2003 (commencement of operations) to December 31, 2003. F-162 WATAUGA PAVILION- Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period August 15, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from five to fifteen years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,778,694 2005 2,311,353 2006 2,311,555 2007 2,312,565 2008 2,308,121 Thereafter 12,657,110 --------------- $ 23,679,398 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-163 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Northpointe Plaza ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No 4 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Northpointe Plaza for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois June 7, 2004 F-164 NORTHPOINTE PLAZA Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited)
For the For the year three months ended ended March 31, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 1,019,796 4,258,776 - 554,354 Operating expense and real estate tax recoveries 315,392 1,119,324 -------------------------------------- Total gross income 1,335,188 5,932,454 -------------------------------------- Direct operating expenses: Operating expenses 159,522 481,111 Real estate taxes 165,847 663,388 Insurance 22,687 90,748 -------------------------------------- Total direct operating expenses 348,056 1,235,247 -------------------------------------- Excess of gross income over direct operating expenses $ 987,132 4,697,207 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-165 NORTHPOINTE PLAZA Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (1) Business Northpointe Plaza (the Property) is located in Spokane, Washington. The Property consists of approximately 484,000 square feet of gross leasable area and was approximately 99.8% occupied at December 31, 2003. The Property is leased to four tenants that account for approximately 53% of base rental revenue for the year ended December 31, 2003. On May 28, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 4 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the three months ended March 31, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $554,354 was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $62,126 for the year ended December 31, 2003. Gross income excludes lease termination income as such amounts are not comparable to the proposed future operations of the Property. F-166 NORTHPOINTE PLAZA Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from one to fourteen years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 4,035,578 2005 3,915,240 2006 3,581,719 2007 3,388,281 2008 3,338,415 Thereafter 18,175,030 --------------- $ 36,434,263 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-167 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Plaza Santa Fe II ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No 4 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Plaza Santa Fe II for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois May 25, 2004 F-168 PLAZA SANTA FE II Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited)
For the For the year three months ended ended March 31, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 811,853 3,110,836 Operating expense and real estate tax recoveries 104,886 504,170 -------------------------------------- Total gross income 916,739 3,615,006 -------------------------------------- Direct operating expenses: Operating expenses 52,703 319,032 Ground rent expense 107,411 429,643 Real estate taxes 33,162 141,555 Insurance 23,321 64,254 Interest 273,764 1,107,262 -------------------------------------- Total direct operating expenses 490,361 2,061,746 -------------------------------------- Excess of gross income over direct operating expenses $ 426,378 1,553,260 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-169 PLAZA SANTA FE II Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (1) Business Plaza Santa Fe II (the Property) is located in Santa Fe, New Mexico. The Property consists of approximately 222,400 square feet of gross leasable area and was approximately 98% occupied at December 31, 2003. The Property is leased to four tenants that account for approximately 49% of base rental revenue for the year ended December 31, 2003. On June 1, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 4 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the three months ended March 31, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $81,729 for the year ended December 31, 2003. F-170 PLAZA SANTA FE II Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from three to fifteen years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 3,161,371 2005 3,123,383 2006 3,007,686 2007 2,947,969 2008 2,859,712 Thereafter 15,738,974 --------------- $ 30,839,095 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. The property is subject to a ground lease with annual payments, payable to an unaffiliated third party of $375,000 until November 30, 2010, $431,250 until November 30, 2020 and $495,938 until maturity. The ground lease matures in 2023. Although the ground lease provided for increases in minimum rent payments over the term of the lease, ground lease expense accrues on a straight-line basis. The related adjustment increased ground rent expense by approximately $55,000 for the year ended December 31, 2003. Minimum rents to be paid to the unaffiliated third party under the ground lease in effect at December 31, 2003 are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 375,000 2005 375,000 2006 375,000 2007 375,000 2008 375,000 Thereafter 8,998,750 --------------- $ 10,873,750 ===============
(5) Interest Expense Inland Western Retail Real Estate Trust, Inc. assumed a $17,600,000 mortgage loan secured by the Property in connection with the acquisition. The mortgage loan bears a fixed interest rate of 6.2%, payable in monthly installments of principal and interest, and matures on December 1, 2012. F-171 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Pine Ridge Plaza ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No 4 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Pine Ridge Plaza for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois June 7, 2004 F-172 PINE RIDGE PLAZA Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited)
For the For the year three months ended ended March 31, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 360,937 1,194,069 Operating expense and real estate tax recoveries 102,740 275,432 -------------------------------------- Total gross income 463,677 1,469,501 -------------------------------------- Direct operating expenses: Operating expenses 40,336 158,676 Real estate taxes 76,980 307,918 Insurance 4,778 19,110 -------------------------------------- Total direct operating expenses 122,094 485,704 -------------------------------------- Excess of gross income over direct operating expenses $ 341,583 983,797 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-173 PINE RIDGE PLAZA Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (1) Business Pine Ridge Plaza (the Property) is located in Lawrence, Kansas. The Property consists of approximately 275,800 square feet of gross leasable area and was approximately 75% occupied at December 31, 2003. The Property is leased to three tenants that account for approximately 66% of base rental revenue for the year ended December 31, 2003. On June 7, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 4 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the three months ended March 31, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $49,168 for the year ended December 31, 2003. Gross income excludes condemnation income as such amounts are not comparable to the proposed future operations of the Property. F-174 PINE RIDGE PLAZA Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from five to twenty years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,408,301 2005 1,414,600 2006 1,330,048 2007 1,167,794 2008 1,061,244 Thereafter 6,934,670 --------------- $ 13,316,657 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-175 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Huebner Oaks Center ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No 4 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Huebner Oaks Center for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois June 7, 2004 F-176 HUEBNER OAKS CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited)
For the For the year three months ended ended March 31, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 1,315,356 5,352,653 Operating expense and real estate tax recoveries 467,059 1,853,927 -------------------------------------- Total gross income 1,782,415 7,206,580 -------------------------------------- Direct operating expenses: Operating expenses 175,366 689,252 Real estate taxes 291,585 1,112,014 Insurance 20,174 105,825 -------------------------------------- Total direct operating expenses 487,125 1,907,091 -------------------------------------- Excess of gross income over direct operating expenses $ 1,295,290 5,299,489 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-177 HUEBNER OAKS CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (1) Business Huebner Oaks Center (the Property) is located in San Antonio, Texas. The Property consists of approximately 287,000 square feet of gross leasable area and was approximately 96% occupied at December 31, 2003. The Property is leased to four tenants that account for approximately 24% of base rental revenue for the year ended December 31, 2003. On June 8, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 4 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the three months ended March 31, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $474,883 was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $48,392 for the year ended December 31, 2003. F-178 HUEBNER OAKS CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from one to fourteen years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 4,912,549 2005 4,836,548 2006 4,592,763 2007 4,002,328 2008 2,629,263 Thereafter 5,218,634 --------------- $ 26,192,085 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-179 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of John's Creek Village ("the Property") for the period from September 21, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of John's Creek Village for the year ended December 31, 2003, in conformity with principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois August 13, 2004 F-180 JOHN'S CREEK VILLAGE Historical Summary of Gross Income and Direct Operating Expenses For the period from September 21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the period from September 21, 2003 For the (commencement of six months ended operations) to June 30, 2004 December 31, 2003 ---------------------------------------- (unaudited) Gross income: Base rental income $ 834,163 143,640 Operating expense and real estate tax recoveries 327,885 11,701 ---------------------------------------- Total gross income 1,162,048 155,341 ---------------------------------------- Direct operating expenses: Operating expenses 46,272 22,596 Real estate taxes 340,373 3,764 Insurance 13,215 478 ---------------------------------------- Total direct operating expenses 399,860 26,838 ---------------------------------------- Excess of gross income over direct operating expenses $ 762,188 128,503 ========================================
See accompanying notes to historical summary of gross income and direct operating expense. F-181 JOHN'S CREEK VILLAGE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from September 21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business John's Creek Village (the Property) is located in Duluth, Georgia. The Property consists of approximately 190,444 square feet of gross leasable area and was 47% leased and occupied at December 31, 2003. The Property is leased to eight tenants of which one tenant accounts for approximately 55% of base rental revenue for the period from September 21, 2003 (commencement of operations) to December 31, 2003. On June 23, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller. John's Creek Village was under construction during 2003 and commenced operations on September 21, 2003 with a portion of the Property's gross leasable area (representing approximately 90,005 square feet) complete as of December 31, 2003. The remaining portion of the Property's gross leasable area (representing the remaining approximately 100,439 square feet) is under construction and scheduled to be completed during 2004. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the period from September 21, 2003 (commencement of operations) to December 31, 2003. The Property has two ground leases that are classified as operating leases with terms extending through December 31, 2023 and May 31, 2014. Total ground lease income was $2,054 and is included in base rental income in the accompanying Historical Summary for the period from September 21, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $1,473 for the period from September 21, 2003 (commencement of operations) to December 31, 2003. F-182 JOHN'S CREEK VILLAGE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from September 21, 2003(commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases, which terms range from five to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,668,326 2005 1,743,692 2006 1,754,959 2007 1,763,747 2008 1,759,391 Thereafter 12,090,223 --------------- $ 20,780,338 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-183 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Lakewood Towne Center ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Lakewood Towne Center for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois July 15, 2004 F-184 LAKEWOOD TOWNE CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 2,688,280 4,540,210 Contingent Rent - 67,758 Operating expense and real estate tax recoveries 731,788 1,270,667 -------------------------------------- Total gross income 3,420,068 5,878,635 -------------------------------------- Direct operating expenses: Operating expenses 472,284 741,397 Real estate taxes 313,628 597,386 Insurance 87,680 180,379 -------------------------------------- Total direct operating expenses 873,592 1,519,162 -------------------------------------- Excess of gross income over direct operating expenses $ 2,546,476 4,359,473 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-185 LAKEWOOD TOWNE CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Lakewood Towne Center (the Property) is located in Lakewood, Washington. The Property consists of approximately 579,000 square feet of gross leasable area and was approximately 93% occupied at December 31, 2003. The Property is leased to twenty-four tenants of which five tenants account for approximately 51% of base rental revenue for the year ended December 31, 2003. On June 25, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $67,758 was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $300,309 for the year ended December 31, 2003. F-186 LAKEWOOD TOWNE CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from two to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 5,177,316 2005 5,141,493 2006 5,082,303 2007 5,100,379 2008 5,061,449 Thereafter 25,865,016 --------------- $ 51,427,956 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-187 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Fullerton Metrocenter ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Fullerton Metrocenter for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois August 3, 2004 F-188 FULLERTON METROCENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 1,639,005 3,523,208 Operating expense and real estate tax recoveries 531,978 971,604 -------------------------------------- Total gross income 2,170,983 4,494,812 -------------------------------------- Direct operating expenses: Operating expenses 376,538 658,405 Ground lease expense 207,500 415,000 Real estate taxes 178,938 357,876 Insurance 19,569 39,138 -------------------------------------- Total direct operating expenses 782,545 1,470,419 -------------------------------------- Excess of gross income over direct operating expenses $ 1,388,438 3,024,393 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-189 FULLERTON METROCENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Fullerton Metrocenter (the Property) is located in Fullerton, California. The Property consists of approximately 254,880 square feet of gross leasable area and was approximately 78% occupied at December 31, 2003. The Property is leased to forty-one tenants of which two tenants account for approximately 19% of base rental revenue for the year ended December 31, 2003. On June 30, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $268,823 was earned during the year ended December 31, 2003 and recorded as base rental income in the accompanying Historical Summary. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments decreased base rental income by $143,851 for the year ended December 31, 2003. F-190 FULLERTON METROCENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from one to 17 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 3,518,723 2005 3,284,218 2006 2,801,342 2007 2,405,044 2008 1,754,107 Thereafter 2,995,333 --------------- $ 16,758,767 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. The property is subject to a ground lease with annual payments, payable to an unaffiliated third party, of $415,000 until maturity. The ground lease matures in 2050. F-191 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Davis Towne Crossing ("the Property") for the period from July 18, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Davis Towne Crossing for the period of July 18, 2003 (commencement of operations) to December 31, 2003, in conformity with principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois July 30, 2004 F-192 DAVIS TOWNE CROSSING Historical Summary of Gross Income and Direct Operating Expenses For the period from July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the period from July 18, 2003 For the (commencement of six months ended operations)to June 30, 2004 December 31, 2003 ---------------------------------------- (unaudited) Gross income: Base rental income $ 317,309 141,436 Operating expense and real estate tax recoveries 78,451 57,649 Other income 918 - ---------------------------------------- Total gross income 396,678 199,085 ---------------------------------------- Direct operating expenses: Operating expenses 45,368 75,557 Real estate taxes 45,426 22,713 Insurance 20,484 10,242 ---------------------------------------- Total direct operating expenses 122,278 108,512 ---------------------------------------- Excess of gross income over direct operating expenses $ 274,400 90,573 ========================================
See accompanying notes to historical summary of gross income and direct operating expense. F-193 DAVIS TOWNE CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Davis Towne Crossing (the Property) is located in North Richland Hills, Texas. The Property consists of approximately 41,000 square feet of gross leasable area and was approximately 83% occupied at December 31, 2003. The Property is leased to thirteen tenants of which two tenants account for approximately 43% of base rental revenue for the period of July 18, 2003 (commencement of operations) to December 31, 2003. On June 30, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. Davis Towne Crossing was under construction during 2003 and commenced operations July 18, 2003, with construction complete as of December 31, 2003. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the period of July 18, 2003 (commencement of operations) to December 31, 2003. In addition, rental income includes $5,963 of rent from one tenant that pays monthly rent based upon a percentage of monthly sales in lieu of minimum rents provided in the lease. The minimum rents schedule below excludes such tenant. The Property has one ground lease that is classified as an operating lease with terms extending through August 2028. Total ground lease income was $34,509 and is included in base rental income in the accompanying Historical Summary for the period of July 18, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $5,344 for the period of July 18 2003 (commencement of operations) to December 31, 2003. F-194 DAVIS TOWNE CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases, which terms range from three to 25 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 653,726 2005 658,033 2006 658,033 2007 631,620 2008 541,343 Thereafter 2,270,444 --------------- $ 5,413,199 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-195 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Northgate North ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Northgate North for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois August 13, 2004 F-196 NORTHGATE NORTH Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 1,674,674 3,092,086 Operating expense and real estate tax recoveries 795,771 1,242,613 -------------------------------------- Total gross income 2,470,445 4,334,699 -------------------------------------- Direct operating expenses: Operating expenses 553,185 867,906 Real estate taxes 197,392 375,985 Insurance 103,050 206,100 -------------------------------------- Total direct operating expenses 853,627 1,449,991 -------------------------------------- Excess of gross income over direct operating expenses $ 1,616,818 2,884,708 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-197 NORTHGATE NORTH Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Northgate North (the Property) is located in Seattle, Washington. The Property consists of 302,461 square feet of gross leasable area and was approximately 93% occupied at December 31, 2003. The Property is leased to nine tenants of which four tenants account for approximately 86% of base rental revenue for the year ended December 31, 2003. On June 30, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $353,216 for the year ended December 31, 2003. F-198 NORTHGATE NORTH Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from five to 25 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 3,161,072 2005 3,162,848 2006 3,258,533 2007 3,271,528 2008 3,292,733 Thereafter 38,248,658 --------------- $ 54,395,372 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-199 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Cranberry Square ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Cranberry Square for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois August 1, 2004 F-200 CRANBERRY SQUARE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 870,100 1,740,201 Operating expense and real estate tax recoveries 186,206 353,892 -------------------------------------- Total gross income 1,056,306 2,094,093 -------------------------------------- Direct operating expenses: Operating expenses 60,482 115,963 Real estate taxes 148,030 273,704 Insurance 6,765 13,640 -------------------------------------- Total direct operating expenses 215,277 403,307 -------------------------------------- Excess of gross income over direct operating expenses $ 841,029 1,690,786 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-201 CRANBERRY SQUARE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Cranberry Square (the Property) is located in Cranberry Township, Pennsylvania. The Property consists of approximately 195,566 square feet of gross leasable area and was approximately 92% occupied at December 31, 2003. The Property is leased to five tenants of which three tenants account for approximately 76% of base rental revenue for the year ended December 31, 2003. On July 14, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $54,138 for the year ended December 31, 2003. F-202 CRANBERRY SQUARE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from ten to 15 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,723,839 2005 1,723,839 2006 1,728,158 2007 1,815,820 2008 1,820,320 Thereafter 5,872,510 --------------- $ 14,684,486 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-203 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Gateway Plaza Shopping Center ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Gateway Plaza Shopping Center for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Dallas, Texas August 18, 2004 F-204 GATEWAY PLAZA SHOPPING CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 2,080,063 4,118,141 Operating expense and real estate tax recoveries 706,337 1,360,980 -------------------------------------- Total gross income 2,786,400 5,479,121 -------------------------------------- Direct operating expenses: Operating expenses 198,640 466,631 Ground rent expense 1,496,542 2,993,084 Real estate taxes 542,676 1,033,669 Insurance 48,686 101,711 -------------------------------------- Total direct operating expenses 2,286,544 4,595,095 -------------------------------------- Excess of gross income over direct operating expenses $ 499,856 884,026 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-205 GATEWAY PLAZA SHOPPING CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Gateway Plaza Shopping Center (the Property) is located in Southlake, Texas. The Property consists of approximately 358,193 square feet of gross leasable area and was approximately 89% occupied at December 31, 2003. The Property is leased to twenty-five tenants of which one tenant accounts for approximately 13% of base rental revenue for the year ended December 31, 2003. On July 21, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $83,000 for the year ended December 31, 2003. F-206 GATEWAY PLAZA SHOPPING CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases, excluding tenant reimbursements of operating expenses, which terms range from five to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 3,961,000 2005 3,870,000 2006 3,126,000 2007 3,127,000 2008 2,990,000 Thereafter 14,635,000 --------------- $ 31,709,000 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. The property is subject to a ground lease with annual payments, payable to an unaffiliated third party. The ground lease matures in 2073. Although the ground lease provides for increases in minimum rent payments over the term of the lease, ground lease expense accrues on a straight-line basis. The straight-line adjustment increased ground rent expense by approximately $1,785,000 for the year ended December 31, 2003. Minimum rents to be paid to the unafffiliated third party under the ground lease in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,339,368 2005 1,339,368 2006 1,339,368 2007 1,339,368 2008 1,339,368 Thereafter 210,231,145 --------------- $ 216,927,985 ===============
F-207 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Safeway Plaza at Marysville ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Safeway Plaza at Marysville for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois August 3, 2004 F-208 SAFEWAY PLAZA AT MARYSVILLE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 763,686 1,513,469 Operating expense and real estate tax recoveries 240,324 358,545 -------------------------------------- Total gross income 1,004,010 1,872,014 -------------------------------------- Direct operating expenses: Operating expenses 138,514 164,027 Real estate taxes 79,251 150,954 Insurance 17,081 34,162 -------------------------------------- Total direct operating expenses 234,846 349,143 -------------------------------------- Excess of gross income over direct operating expenses $ 769,164 1,522,871 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-209 SAFEWAY PLAZA AT MARYSVILLE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Safeway Plaza at Marysville (the Property) is located in Marysville, Washington. The Property consists of approximately 116,000 square feet of gross leasable area and was approximately 97% occupied at December 31, 2003. The Property is leased to one tenant that accounts for approximately 39% of base rental revenue for the year ended December 31, 2003. On July 26, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. The Property has one ground lease that is classified as an operating lease with terms extending through July 31, 2011. Total ground lease income was $50,000 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $23,176 for the year ended December 31, 2003. F-210 SAFEWAY PLAZA AT MARYSVILLE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from three to 17 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,510,279 2005 1,492,217 2006 1,277,628 2007 1,072,386 2008 1,027,416 Thereafter 8,958,070 --------------- $ 15,337,996 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-211 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Forks Town Center ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Forks Town Center for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois August 11, 2004 F-212 FORKS TOWN CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 771,917 1,376,494 Operating expense and real estate tax recoveries 248,489 350,400 -------------------------------------- Total gross income 1,020,406 1,726,894 -------------------------------------- Direct operating expenses: Operating expenses 144,775 162,022 Real estate taxes 110,551 189,136 Insurance 7,880 15,759 -------------------------------------- Total direct operating expenses 263,206 366,917 -------------------------------------- Excess of gross income over direct operating expenses $ 757,200 1,359,977 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-213 FORKS TOWN CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Forks Town Center (the Property) is located in Easton, Pennsylvania. The Property consists of approximately 93,000 square feet of gross leasable area and was approximately 97% occupied at December 31, 2003. The Property is leased to sixteen tenants of which one tenant accounts for approximately 66% of base rental revenue for the year ended December 31, 2003. On July 27, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. A portion of Forks Town Center (representing approximately 75,000 square feet of the Property's gross leasable area) was completed as of December 31, 2002. The remaining portion f the Property (representing the remaining approximately 18, 000 square feet of the Property's gross leasable area) was under construction and completed during 2003. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $53,375 for the year ended December 31, 2003. F-214 FORKS TOWN CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from three to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,488,512 2005 1,493,112 2006 1,480,646 2007 1,438,846 2008 1,158,106 Thereafter 13,467,776 --------------- $ 20,526,998 ===============
Base rental income includes $36,000 of rent from one tenant that subsequently terminated its rental agreement in June 2004. The minimum rents schedule above includes $177,000 related to such tenant, as the lease was still valid as of December 31, 2003. (4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-215 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Combined Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of the Properties owned by Capital Centre, LLC, Gateway Village Limited Partnership, Bel Air Square Joint Venture, Towson Circle Joint Venture LLP, and Reisterstown Plaza Holdings, LLC (collectively the "Properties") for the year ended December 31, 2003. This Combined Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Combined Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Combined Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Combined Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Combined Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Properties' revenues and expenses. In our opinion, the Combined Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of the Properties owned by Capital Centre, LLC, Gateway Village limited Partnership, Bel Air Square Joint Venture, Towson Circle Joint Venture LLP, and Reisterstown Plaza Holdings, LLC for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois August 6, 2004 F-216 CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTURE, TOWSON CIRCLE JOINT VENTURE LLP, AND REISTERSTOWN PLAZA HOLDINGS, LLC Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 11,388,110 17,102,545 Operating expense and real estate tax recoveries 1,935,133 3,537,216 Other Income 104,905 88,513 -------------------------------------- Total gross income 13,428,148 20,728,274 -------------------------------------- Direct operating expenses: Operating expenses 2,479,864 4,282,398 Real estate taxes 997,206 1,352,455 Insurance 293,718 599,009 Ground Rent 73,147 24,382 -------------------------------------- Total direct operating expenses 3,843,935 6,258,244 -------------------------------------- Excess of gross income over direct operating expenses $ 9,584,213 14,470,030 ======================================
See accompanying notes to combined historical summary of gross income and direct operating expense. F-217 CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) ( 1 ) Business The Properties owned by Capital Centre, LLC, Gateway Village Limited Partnership, Bel Air Square Joint Venture, Towson Circle Joint Venture LLP, and Reisterstown Plaza Holdings, LLC (collectively the "Properties") consists of the following:
Gross Leasable Occupancy at Area December 31, 2003 Entity Name (unaudited) Location (unaudited) - -------------------------------------------------------------------------------------------------------------------------------- Capital Centre, LLC Boulevard at Capital Centre 515,000 Landover, MD 59% Gateway Village Limited Gateway Village 274,000 Annapolis, MD 98% Partnership Bel Air Square Joint Venture Tollgate Marketplace 393,000 Bel Air, MD 99% Towson Circle Joint Venture, LLP Towson Circle 178,000 Towson, MD 91% Reisterstown Plaza Holdings, LLC Reisterstown Road Plaza 782,000 Baltimore, MD 89%
Thirteen tenants account for 40% or the Properties' base rental income. Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") through established limited liability companies ("LLC's") entered into contracts to become joint venture partners in the ownership and operation of the Properties with unaffiliated third parties. IWRRETI has contributed into all but Capital Centre LLC. In each instance IWRRETI owns or will own a 95% profits interest in the LLC's and will control the LLC's management and operation of the Properties. The Combined Historical Summary represents the combination of the Propertes described above prior to IWRRETI's contribution into the LLCs. There were no transactions between the Properties which required elimination in combination. A portion of Boulevard at Capital Centre and Reisterstown Road Plaza (representing approximately 321,000 and 694,000 square feet, respectively) of the Properties gross leasable area was under construction and completed during 2003. The remaining portion f the Properties' gross leasable area (representing approximately 194,000 and 88,000 square feet, respectively) was under construction as of December 31, 2003. Real estate taxes and ground rent are excluded in the Combined Historical Summary related to the portions of the Properties under construction. F-218 CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) ( 2 ) Basis of Presentation The Combined Historical Summary of Gross Income and Direct Operating Expenses ("Combined Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Combined Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. ( 3 ) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $384,157 was earned during the year ended December 31, 2003 and included in base rental income in the Combined Historical Summary. In addition, rental income included $51,381 of rent from three tenants that pay monthly rent based upon a percentage of monthly sales in lieu of minimum rents provided in the lease. The minimum rents schedule below excludes such tenants. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $385,193 for the year ended December 31, 2003. F-219 CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases which terms range from one year to 25 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 23,146,780 2005 25,731,908 2006 25,160,727 2007 24,317,293 2008 23,244,717 Thereafter 160,625,600 --------------- $ 282,227,025 ===============
( 4 ) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Combined Historical Summary. Boulevard at Capital Centre is subject to a ground lease with annual payments, payable to an unaffiliated third party. The ground lease matures in 2070. Although the ground lease provides for increases in minimum rent payments over the term of the lease, ground lease expense accrues on a straight-line basis. The related adjustment increased ground rent expense by approximately $9,078 for the year ended December 31, 2003. Minimum rents to be paid to the unaffiliated third party under the ground lease in effect at December 31, 2003 are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 92,824 2005 94,057 2006 97,433 2007 98,579 2008 99,791 Thereafter 9,477,524 --------------- $ 9,960,208 ===============
F-220 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of The Shops at Boardwalk ("the Property") for the period from May 30, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of The Shops at Boardwalk for the period from May 30, 2003 (commencement of operations) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois August 25, 2004 F-221 THE SHOPS AT BOARDWALK Historical Summary of Gross Income and Direct Operating Expenses For the period from May 30, 2003 (commencement of operations) to December 31, 2003, and the six months ended June 30, 2004 (unaudited)
For the period from May 30, 2003 For the (commencement of six months ended operations) to June 30, 2004 December 31, 2003 ------------------ ----------------- (unaudited) Gross income: Base rental income $ 976,541 707,251 Operating expense and real estate tax recoveries 357,069 94,219 ------------------ ----------------- Total gross income 1,333,610 801,470 ------------------ ----------------- Direct operating expenses: Operating expenses 288,162 234,198 Real estate taxes 207,700 9,280 Insurance 18,684 24,417 ------------------ ----------------- Total direct operating expenses 514,546 267,895 ------------------ ----------------- Excess of gross income over direct operating expenses $ 819,064 533,575 ================== =================
See accompanying notes to historical summary of gross income and direct operating expense. F-222 THE SHOPS AT BOARDWALK Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from May 30, 2003 (commencement of operations) to December 31, 2003, and the six months ended June 30, 2004 (unaudited) (1) Business The Shops at Boardwalk ("the Property") is located in Kansas City, Missouri. The Property consists of approximately 123,265 square feet of gross leasable area and was approximately 61.97% occupied at December 31, 2003. The Property is leased to 18 tenants of which one tenant that accounts for approximately 16% of base rental revenue for the period from May 30, 2003 (commencement of operations) to December 31, 2003. On July 1, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the period from May 30, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $184,160 for the period from May 30, 2003 (commencement of operations) to December 31, 2003. F-223 THE SHOPS AT BOARDWALK Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from May 30, 2003 (commencement of operations) to December 31, 2003, and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases, which terms range from five to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,716,081 2005 1,978,726 2006 1,988,182 2007 1,998,578 2008 1,748,381 Thereafter 9,118,444 --------------- $ 18,548,392 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-224 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Manchester Meadows ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Manchester Meadows for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois September 1, 2004 F-225 MANCHESTER MEADOWS Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 2,041,721 4,035,915 Contingent Rent - 17,086 Operating expense and real estate tax recoveries 644,313 1,223,383 -------------------------------------- Total gross income 2,686,034 5,276,384 -------------------------------------- Direct operating expenses: Operating expenses 200,959 360,741 Real estate taxes 397,296 785,067 Insurance 48,066 95,178 -------------------------------------- Total direct operating expenses 646,321 1,240,986 -------------------------------------- Excess of gross income over direct operating expenses $ 2,039,713 4,035,398 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-226 MANCHESTER MEADOWS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Manchester Meadows ("the Property") is located in Town and Country, Missouri. The Property consists of 454,172 square feet of gross leasable area and was approximately 99% occupied at December 31, 2003. The Property is leased to a total of 22 tenants, of which two tenants account for approximately 47% of base rental revenue for the year ended December 31, 2003. On August 12, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $17,086 was earned during the year ended December 31, 2003. The Property has one ground lease that is classified as an operating lease with a term extending until August 31, 2005. Total ground lease income was $75,600 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments decreased base rental income by $10,221 for the year ended December 31, 2003. F-227 MANCHESTER MEADOWS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases, which terms range from five to 25 years, in effect at December 31, 2003, are as follows:
TOTAL --------------- $ 3,790,741 2,996,909 2,880,005 2,766,580 2,702,438 18,154,477 --------------- $ 33,291,150 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-228 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Governor's Marketplace ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Governor's Marketplace for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois September 3, 2004 F-229 GOVERNOR'S MARKETPLACE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the For the year six months ended ended June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 1,445,892 2,391,430 Operating expense and real estate tax recoveries 171,315 312,733 -------------------------------------- Total gross income 1,617,207 2,704,163 -------------------------------------- Direct operating expenses: Operating expenses 102,701 179,023 Real estate taxes 91,472 147,863 Insurance 173,835 273,576 -------------------------------------- Total direct operating expenses 368,008 600,462 -------------------------------------- Excess of gross income over direct operating expenses $ 1,249,199 2,103,701 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-230 GOVERNOR'S MARKETPLACE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Governor's Marketplace ("the Property") is located in Tallahassee, Florida. The Property consists of approximately 265,541 square feet of gross leasable area and was approximately 83% occupied at December 31, 2003. The Property is leased to 18 tenants of which five tenants account for approximately 53% of base rental revenue for the year ended December 31, 2003. On August 17, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. A portion of Governor's Marketplace was under construction during 2003. Operations commenced on July 28, 2000 with a portion of the Property's gross leasable area (representing 220,850 square feet) completed as of December 31, 2003. Of the remaining portion of the Property's gross leasable area, 16,690 square feet is under construction and scheduled to be completed during 2004. 28,001 square feet is undeveloped land. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. The Property has one ground lease that is classified as an operating lease with terms extending through November 30, 2012. Total ground lease income was $63,600 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $223,324 for the year ended December 31, 2003. F-231 GOVERNOR'S MARKETPLACE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases, which terms range from five to 16 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 2,870,026 2005 3,028,732 2006 2,901,670 2007 2,529,017 2008 2,260,420 Thereafter 8,985,450 --------------- $ 22,575,315 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, insurance, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. The property is subject to ground leases with fixed annual payments, payable to an unaffiliated third party, of $270,000 until September 30, 2085, and $60,000 until December 31, 2087. In addition, the property incurred overage rent of $12,876 for the twelve months ended December 31, 2003. The ground leases mature in 2085 and 2087, respectively. A portion of the ground lease expense has been capitalized in 2003 as the Property was under construction. Fixed minimum rents to be paid to the unaffiliated third party under the ground lease in effect at December 31, 2003 are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 330,000 2005 330,000 2006 330,000 2007 330,000 2008 330,000 Thereafter 25,530,000 --------------- $ 27,180,000 ===============
F-232 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Mitchell Ranch Plaza ("the Property") for the period from June 30, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Mitchell Ranch Plaza for the period from June 30, 2003 (commencement of operations) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois September 1, 2004 F-233 MITCHELL RANCH PLAZA Historical Summary of Gross Income and Direct Operating Expenses For the period from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the period from June 30, 2003 For the six months (commencement of ended operations) to June 30, 2004 December 31, 2003 ---------------------------------------- (unaudited) Gross income: Base rental income $ 1,122,351 580,219 Operating expense and real estate tax recoveries 187,757 126,065 ---------------------------------------- Total gross income 1,310,108 706,284 ---------------------------------------- Direct operating expenses: Operating expenses 90,848 84,005 Real estate taxes 90,030 48,985 Insurance 21,402 6,147 ---------------------------------------- Total direct operating expenses 202,280 139,137 ---------------------------------------- Excess of gross income over direct operating expenses $ 1,107,828 567,147 ========================================
See accompanying notes to historical summary of gross income and direct operating expense. F-234 MITCHELL RANCH PLAZA Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Mitchell Ranch Plaza ("the Property") is located in New Port Richey, Florida. The Property consists of approximately 200,304 square feet of gross leasable area and was approximately 85% occupied at December 31, 2003. The Property is leased to 33 tenants of which three tenants account for approximately 72% of base rental revenue for the period from June 30, 2003 (commencement of operations) to December 31, 2003. On August 25, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the period from June 30, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $77,602 for the period from June 30, 2003 (commencement of operations) to December 31, 2003. F-235 MITCHELL RANCH PLAZA Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases, which terms range from three to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 2,237,421 2005 2,279,929 2006 2,253,825 2007 2,127,567 2008 2,058,164 Thereafter 12,355,030 --------------- $ 23,311,936 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-236 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of The Columns ("the Property") for the period from October 8, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of The Columns for the period from October 8, 2003 (commencement of operations) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois September 10, 2004 F-237 THE COLUMNS Historical Summary of Gross Income and Direct Operating Expenses For the period from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the period from October 8, 2003 For the six months (commencement of ended operations) to June 30, 2004 December 31, 2003 ---------------------------------------- (unaudited) Gross income: Base rental income $ 615,902 239,197 Operating expense and real estate tax recoveries 105,488 25,794 ---------------------------------------- Total gross income 721,390 264,991 ---------------------------------------- Direct operating expenses: Operating expenses 51,836 29,157 Real estate taxes 66,571 2,180 Insurance 12,662 6,503 ---------------------------------------- Total direct operating expenses 131,069 37,840 ---------------------------------------- Excess of gross income over direct operating expenses $ 590,321 227,151 ========================================
See accompanying notes to historical summary of gross income and direct operating expense. F-238 THE COLUMNS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business The Columns ("the Property") is located in Jackson, Tennessee. The Property consists of approximately 128,600 square feet of gross leasable area and was approximately 78% occupied at December 31, 2003. The Property is leased to five tenants of which two tenants account for approximately 71% of base rental revenue for the period from October 8, 2003 (commencement of operations) to December 31, 2003. On August 25, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. The Columns was under construction during 2003 and commenced operations October 8, 2003, with construction complete as of December 31, 2003. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent of was earned during the period from October 8, 2003 (commencement of operations) to December 31, 2003. In addition, rental income includes $9,732 of rent from one tenant that pays monthly rent based upon a percentage of monthly sales in lieu of minimum rents provided in the lease as the cotenancy requirement was not met for the period from October 8, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $2,774 for the period from October 8, 2003 (commencement of operations) to December 31, 2003. F-239 THE COLUMNS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases, which terms range from five to ten years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 1,346,993 2005 1,480,470 2006 1,482,468 2007 1,485,966 2008 1,489,103 Thereafter 4,900,972 --------------- $ 12,185,972 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-240 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Saucon Valley Square ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Saucon Valley Square for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois September 7, 2004 F-241 SAUCON VALLEY SQUARE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the six months ended For the year ended June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 606,848 1,213,696 Operating expense and real estate tax recoveries 116,965 285,028 -------------------------------------- Total gross income 723,813 1,498,724 -------------------------------------- Direct operating expenses: Operating expenses 46,772 149,770 Real estate taxes 67,547 128,661 -------------------------------------- Total direct operating expenses 114,319 278,431 -------------------------------------- Excess of gross income over direct operating expenses $ 609,494 1,220,293 ======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-242 SAUCON VALLEY SQUARE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Saucon Valley Square ("the Property") is located in Bethlehem, PA. The Property consists of approximately 80,695 square feet of gross leasable area and was approximately 100% occupied at December 31, 2003. The Property is leased to 15 tenants of which one tenant accounts for approximately 73% of base rental revenue for the year ended December 31, 2003. On September 7, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. The Property has one ground lease that is classified as an operating lease with terms extending through July 12, 2008 . Total ground lease income was $3,750 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $52,248 for the year ended December 31, 2003. F-243 SAUCON VALLEY SQUARE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases, which terms range from three to 15 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL ----------------------------------- 2004 $ 910,599 2005 845,071 2006 845,071 2007 845,071 2008 821,160 Thereafter 7,271,335 --------------- $ 11,538,307 ===============
(4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-244 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc.: We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses (Historical Summary) of Lincoln Park Shopping Center (the Property) for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Lincoln Park Shopping Center for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Dallas, Texas September 13, 2004 F-245 LINCOLN PARK SHOPPING CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the six months ended For the year ended June 30, 2004 December 31, 2003 -------------------------------------- (unaudited) Gross income: Base rental income $ 1,713,722 3,386,458 Operating expense and real estate tax recoveries 607,814 1,179,700 --------------------------------------- Total gross income 2,321,536 4,566,158 --------------------------------------- Direct operating expenses: Operating expenses 266,185 442,073 Real estate taxes 445,322 871,151 Insurance 12,566 33,190 --------------------------------------- Total direct operating expenses 724,073 1,346,414 --------------------------------------- Excess of gross income over direct operating expenses $ 1,597,463 3,219,744 =======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-246 LINCOLN PARK SHOPPING CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (1) Business Lincoln Park Shopping Center (the Property) is located in Dallas, Texas. The Property consists of approximately 148,806 square feet of gross leasable area and was 97% occupied at December 31, 2003. The Property is leased to 13 tenants of which 4 tenants account for approximately 68% of base rental revenue for the year ended December 31, 2003. On September 7, 2004, Inland Western Retail Real Estate Trust, Inc. (IWRRETI) acquired the Property from an unaffiliated third-party. (2) Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses (Historical Summary) has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the six months ended June 30, 2004. (3) Gross Income The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and become billable to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of approximately $19,000 was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by approximately $141,000 for the year ended December 31, 2003. F-247 LINCOLN PARK SHOPPING CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (continued) Minimum rents to be received from tenants under operating leases, excluding tenant reimbursements of operating expenses, which terms range from 5 to 25 years, in effect at December 31, 2003, are as follows:
Year Total ----------------------------------- 2004 $ 3,342,000 2005 3,299,000 2006 3,203,000 2007 3,207,000 2008 3,005,000 Thereafter 19,704,000 --------------- $ 35,760,000 ===============
Tenant reimbursements of operating expenses are included in operating expense and real estate tax recoveries in the accompanying Historical Summary. (4) Direct Operating Expenses Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-248 SHOPPES AT PROMINENCE POINT Historical Summary of Gross Income and Direct Operating Expenses For the period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
For the period from March 1, 2004 (commencement of oeprations) to June 30, 2004 -------------------- Gross income: Base rental income $ 264,247 Operating expense and real estate tax recoveries 35,817 -------------------- Total gross income 300,064 -------------------- Direct operating expenses: Operating expenses 9,259 Real estate taxes 32,055 Insurance 4,590 -------------------- Total direct operating expenses 45,904 -------------------- Excess of gross income over direct operating expenses $ 254,160 ====================
See accompanying notes to historical summary of gross income and direct operating expense. F-249 SHOPPES AT PROMINENCE POINT Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, 2004 (commencement of operations) to June 30, 2004 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Shoppes at Prominence Point to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. The property was completed in 2004 and had no significant operations through the date of acquisition. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from March 1, 2004 (commencement of operations) to June 30, 2004. F-250 LOW COUNTRY VILLAGE Historical Summary of Gross Income and Direct Operating Expenses For the period from February 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
For the period from February 1, 2004 (commencement of operations) to June 30, 2004 ------------------- Gross income: Base rental income $ 301,293 Operating expense and real estate tax recoveries 49,137 ------------------- Total gross income 350,430 ------------------- Direct operating expenses: Operating expenses 4,715 Real estate taxes 38,184 Insurance 21,110 ------------------- Total direct operating expenses 64,009 ------------------- Excess of gross income over direct operating expenses $ 286,421 ===================
See accompanying notes to historical summary of gross income and direct operating expense. F-251 LOW COUNTRY VILLAGE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from February 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from February 1, 2004 (commencement of operations) to June 30, 2004 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Low Country Village to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. The property was completed in 2004 and had no significant operations through the date of acquisition. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from February 1, 2004 (commencement of operations) to June 30, 2004. F-252 SHOPPES OF DALLAS Historical Summary of Gross Income and Direct Operating Expenses For the period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
For the period from March 1, 2004 (commencement of operations) to June 30, 2004 ------------------- Gross income: Base rental income $ 195,042 Operating expense and real estate tax recoveries 23,198 ------------------- Total gross income 218,240 ------------------- Direct operating expenses: Operating expenses 11,199 Real estate taxes 3,781 Insurance 4,014 ------------------- Total direct operating expenses 18,994 ------------------- Excess of gross income over direct operating expenses $ 199,246 ===================
See accompanying notes to historical summary of gross income and direct operating expense. F-253 SHOPPES OF DALLAS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, 2004 (commencement of operations) to June 30, 2004 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Shoppes of Dallas to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. The property was completed in 2004 and had no significant operations through the date of acquisition. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from March 1, 2004 (commencement of operations) to June 30, 2004. F-254 DORMAN CENTRE - PHASE II Historical Summary of Gross Income and Direct Operating Expenses For the period from March 15, 2004 (commencement of operations) to June 30, 2004 (unaudited)
For the period from March 15, 2004 (commencement of operations) to June 30, 2004 ------------------- Gross income: Base rental income $ 78,177 Operating expense and real estate tax recoveries 13,140 ------------------- Total gross income 91,317 ------------------- Direct operating expenses: Operating expenses 4,518 Real estate taxes 29,016 Insurance 1,403 ------------------- Total direct operating expenses 34,937 ------------------- Excess of gross income over direct operating expenses $ 56,380 ===================
See accompanying notes to historical summary of gross income and direct operating expense. F-255 DORMAN CENTER - PHASE II Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from March 15, 2004 (commencement of operations) to June 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from March 15, 2004 (commencement of operations) to June 30, 2004 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Dorman Center - Phase II to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. The property was completed in 2004 and had no significant operations through the date of acquisition. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from March 15, 2004 (commencement of operations) to June 30, 2004. F-256 VILLAGE SHOPPES AT SIMONTON Historical Summary of Gross Income and Direct Operating Expenses For the period from May 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
For the period from May 1, 2004 (commencement of operations) to June 30, 2004 ------------------- Gross income: Base rental income $ 65,553 Operating expense and real estate tax recoveries 18,393 ------------------- Total gross income 83,946 ------------------- Direct operating expenses: Operating expenses 4,240 Real estate taxes 17,348 Insurance 3,875 ------------------- Total direct operating expenses 25,463 ------------------- Excess of gross income over direct operating expenses $ 58,483 ===================
See accompanying notes to historical summary of gross income and direct operating expense. F-257 VILLAGE SHOPPES AT SIMONTON Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from May 1, 2004 (commencement of operations) to June 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from May 1, 2004 (commencement of operations) to June 30, 2004 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Village Shoppes at Simonton to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. The property was completed in 2004 and had no significant operations through the date of acquisition. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from May 1, 2004 (commencement of operations) to June 30, 2004. F-258 HARVEST TOWNE CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the six months ended For the year ended June 30, 2004 December 31, 2003 --------------------------------------- Gross income: Base rental income $ 348,503 655,423 Operating expense and real estate tax recoveries 49,445 90,044 --------------------------------------- Total gross income 397,948 745,467 --------------------------------------- Direct operating expenses: Operating expenses 22,463 43,617 Real estate taxes 25,957 45,585 Insurance 5,311 10,312 --------------------------------------- Total direct operating expenses 53,731 99,514 --------------------------------------- Excess of gross income over direct operating expenses $ 344,217 645,953 =======================================
See accompanying notes to historical summary of gross income and direct operating expense. F-259 HARVEST TOWNE CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004, respectively, has been prepared from the operating statements provided by the owners of the property during that period and requires management of Harvest Towne Center to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. The property was completed in 2004 and had no significant operations through the date of acquisition. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the year ended December 31, 2003 and the six months ended June 30, 2004, respectively. F-260 BED, BATH & BEYOND PLAZA Historical Summary of Gross Income and Direct Operating Expenses For the period from March 3, 2004 (commencement of operations) to June 30, 2004 (unaudited)
For the period from March 3, 2004 (commencement of operations) to June 30, 2004 ------------------- (unaudited) Gross income: Base rental income $ 378,432 Operating expense and real estate tax recoveries 45,399 ------------------- Total gross income 423,831 ------------------- Direct operating expenses: Operating expenses 74,921 Real estate taxes 52,800 Insurance 213 ------------------- Total direct operating expenses 127,934 ------------------- Excess of gross income over direct operating expenses $ 295,897 ===================
See accompanying notes to historical summary of gross income and direct operating expense. F-261 BED, BATH & BEYOND PLAZA Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from March 3, 2004 (commencement of operations) to June 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from March 3, 2004 (commencement of operations) to June 30, 2004 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Bed, Bath & Beyond Plaza to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. The property was completed in 2004 and had no significant operations during 2003. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from March 3, 2004 (commencement of operations) to June 30, 2004. F-262 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Azalea Square ("the Property") for the period from July 4, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Azalea Square for the period from July 4, 2003 (commencement of operations) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois December 8, 2004 F-263 AZALEA SQUARE Historical Summary of Gross Income and Direct Operating Expenses For the period from July 4, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE PERIOD FROM JULY 4, 2003 (COMMENCEMENT FOR THE NINE MONTHS OF OPERATIONS) TO ENDED DECEMBER 31, SEPTEMBER 30, 2004 2003 ------------------- ------------------ (unaudited) Gross income: Base rental income $ 1,410,022 $ 488,517 Operating expense and real estate tax recoveries 392,542 139,567 ------------------- ------------------ Total gross income 1,802,564 628,084 ------------------- ------------------ Direct operating expenses: Operating expenses 157,724 68,236 Insurance 21,416 7,056 Real estate taxes 251,487 76,149 ------------------- ------------------ Total direct operating expenses 430,627 151,441 ------------------- ------------------ Excess of gross income over direct operating expenses $ 1,371,937 $ 476,643 =================== ==================
See accompanying notes to historical summary of gross income and direct operating expenses. F-264 AZALEA SQUARE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from July 4, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (1) BUSINESS Azalea Square ("the Property") is located in Charleston (Summerville), South Carolina. The Property consists of approximately 117,135 square feet of gross leasable area. The Property is leased to 19 tenants and is approximately 98% occupied as of December 31, 2003. Of those tenants, four tenants account for approximately 76% of base rental revenue for the period from July 4, 2003 (commencement of operations) to December 31, 2003. On October 19, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. Azalea Square was under construction during 2003 and commenced operations July 4, 2003, with construction complete of 117,135 square feet of gross leasable area as of December 31, 2003. An additional 64,000 square feet remained under construction as of December 31, 2003. (2) BASIS OF PRESENTATION The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2004. (3) GROSS INCOME The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the period from July 4, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $63,279 for the period from July 4, 2003 (commencement of operations) to December 31, 2003. F-265 AZALEA SQUARE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from July 4, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from five years to 20 years, as of December 31 2003, are as follows:
YEAR ---- 2004 $ 1,911,620 2005 2,346,448 2006 2,386,455 2007 2,392,650 2008 2,328,321 Thereafter 10,984,144 ---------------- $ 22,349,638 ================
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-266 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Combined Historical Summary of Gross Income and Direct Operating Expenses (Combined Historical Summary) of the Properties Acquired from Bayer Properties, Inc. for the year ended December 31, 2003. This Combined Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Combined Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Combined Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Combined Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Combined Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Combined Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Properties' revenues and expenses. In our opinion, the Combined Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of the Properties Acquired from Bayer Properties, Inc. for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois December 8, 2004 F-267 THE PROPERTIES ACQUIRED FROM BAYER PROPERTIES, INC. Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE FOR THE NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2004 DECEMBER 31, 2003 ------------------ ------------------ (unaudited) Gross income: Base rental income $ 1,189,106 $ 535,643 Operating expense and real estate tax recoveries 181,747 114,359 ------------------ ------------------ Total gross income 1,370,853 650,002 ------------------ ------------------ Direct operating expenses: Operating expenses 140,047 116,766 Real estate taxes 67,620 21,499 Ground rent expense 102,238 91,638 Insurance 17,047 10,749 ------------------ ------------------ Total direct operating expenses 326,952 240,652 ------------------ ------------------ Excess of gross income over direct operating expenses $ 1,043,901 $ 409,350 ================== ==================
See accompanying notes to combined historical summary of gross income and direct operating expenses. F-268 THE PROPERTIES ACQUIRED FROM BAYER PROPERTIES, INC. Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (1) BUSINESS The Properties acquired from Bayer Properties, Inc. consist of:
Gross Leasable Occupancy At December 31, Name Area Location 2003 ---- ------------------- ------------------- ------------------------- Edgemont Town Center 71,660 Homewood, Alabama 82% University Town Center 28,450 Tuscaloosa, Alabama 79%
Three tenants account for 36% of the Properties' base rental income for the year ended December 31, 2003. Edgemont Town Center's 71,660 square feet of gross leasable area was under construction and completed during 2003. An additional 6,000 square feet was under construction as of December 31, 2003. Real estate taxes are excluded in the Combined Historical Summary related to the portions of the Property under construction. (2) BASIS OF PRESENTATION The Combined Historical Summary of Gross Income and Direct Operating Expenses has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc. and is not intended to be a complete presentation of the Properties' revenues and expenses. The Combined Historical Summary has been prepared on the accrual basis of accounting and requires management of the Properties to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. The Combined Historical Summary is presented on a combined basis since the properties were acquired from the same seller. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2004. (3) GROSS INCOME The Properties lease retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Properties are reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $18,860 for the year ended December 31, 2003. F-269 THE PROPERTIES ACQUIRED FROM BAYER PROPERTIES, INC. Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from two to 20 years, as of December 31, 2003, are as follows:
YEAR ---- 2004 $ 1,569,399 2005 1,837,792 2006 1,841,130 2007 1,803,439 2008 1,530,669 Thereafter 14,442,120 ---------------- $ 23,024,549 ================
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Properties. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Combined Historical Summary. University Town Center is subject to two ground leases. One of which is a ground lease with semi-annual payments of $25,000, payable to an unaffiliated third party. This ground lease was subject to abatement periods and terminates in 2039. The other ground lease requires semi-annual payments, payable to an unaffiliated third party, of $ 37,478 until December 31, 2022, $50,492 until December 31, 2027, $51,273 until December 31, 2032, $52,054 until December 31, 2037, and $52,834 until the termination date. This ground lease is subject to abatement periods and terminates in 2043. Although the ground leases provide for abatement periods or increases in minimum rent payments over the term of the leases, ground rent expense accrues on a straight-line basis. The related adjustment to ground rent increased ground rent expense by $41,368 for the year ended December 31, 2003. Minimum rents to be paid to the unaffiliated third parties under the ground leases in effect at December 31, 2003 are as follows:
YEAR ---- 2004 $ 87,479 2005 124,958 2006 124,958 2007 124,958 2008 124,958 Thereafter 4,693,773 ---------------- $ 5,281,084 ================
F-270 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Denton Crossing ("the Property") for the period from August 11, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Denton Crossing for the period from August 11, 2003 (commencement of operations) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois December 8, 2004 F-271 DENTON CROSSING Historical Summary of Gross Income and Direct Operating Expenses For the period from August 11, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE PERIOD FROM AUGUST 11, 2003 FOR THE NINE MONTHS (COMMENCEMENT OF ENDED OPERATIONS) TO SEPTEMBER 30, 2004 DECEMBER 31, 2003 ------------------- ------------------- (unaudited) Gross income: Base rental income $ 2,446,572 $ 915,298 Operating expense and real estate tax recoveries 513,330 163,250 Other Income -- 2,413 ------------------- ------------------- Total gross income 2,959,902 1,080,961 ------------------- ------------------- Direct operating expenses: Operating expenses 240,720 59,360 Real estate taxes 259,517 84,049 Insurance 52,193 31,896 ------------------- ------------------- Total direct operating expenses 552,430 175,305 ------------------- ------------------- Excess of gross income over direct operating expenses $ 2,407,472 $ 905,656 =================== ===================
See accompanying notes to historical summary of gross income and direct operating expenses. F-272 DENTON CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from August 11, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (1) BUSINESS Denton Crossing ("the Property") is located in Denton, Texas. The Property consists of approximately 259,470 square feet of gross leasable area and was approximately 89% occupied at December 31, 2003. The Property is leased to 24 tenants of which four tenants accounts for approximately 50% of base rental revenue for the period from August 11, 2003 (commencement of operations) to December 31, 2003. On October 18, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. Denton Crossing had 259,470 square feet that was under construction and completed during 2003. The remaining portion of the Properties' gross leasable area (representing approximately 70,000 square feet) was under construction as of December 31, 2003. Real estate taxes are excluded in the Historical Summary related to the portions of the Properties under construction. (2) BASIS OF PRESENTATION The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2004. (3) GROSS INCOME The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned for the period from August 11, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $595,495 for the period from August 11, 2003 (commencement of operations) to December 31, 2003. F-273 DENTON CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from August 11, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from five to 10 years, in effect at December 31, 2003, are as follows:
YEAR ---- 2004 $ 2,937,465 2005 3,203,931 2006 3,203,931 2007 3,203,931 2008 3,197,065 Thereafter 12,348,490 ---------------- $ 28,094,813 ================
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-274 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Combined Historical Summary of Gross Income and Direct Operating Expenses (Combined Historical Summary) of the Properties Acquired from Donahue Schriber for the year ended December 31, 2003. This Combined Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Combined Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Combined Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Combined Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Combined Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Combined Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Properties' revenues and expenses. In our opinion, the Combined Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of the Properties Acquired from Donahue Schriber for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois December 9, 2004 F-275 THE PROPERTIES ACQUIRED FROM DONAHUE SCHRIBER Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE FOR THE NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2004 DECEMBER 31, 2003 ------------------ ------------------ (unaudited) Base rental income $ 1,933,199 $ 2,362,490 Operating expense and real estate tax recoveries 568,561 714,524 Other Income -- 140,503 ------------------ ------------------ Total gross income 2,501,760 3,217,517 ------------------ ------------------ Operating expenses 325,646 451,756 Real estate taxes 266,619 304,012 Insurance 50,545 51,242 ------------------ ------------------ Total direct operating expenses 642,810 807,010 ------------------ ------------------ Excess of gross income over direct operating expenses $ 1,858,950 $ 2,410,507 ================== ==================
See accompanying notes to combined historical summary of gross income and direct operating expenses. F-276 THE PROPERTIES ACQUIRED FROM DONAHUE SCHRIBER Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (1) BUSINESS The Properties acquired from Donahue Schriber consist of:
Gross Leasable Occupancy At December 31, Name Area Location 2003 ---- ------------------- ----------------------- ------------------------- Plaza at Riverlakes 102,836 Bakersfield, California 93% Placentia Town Center 110,962 Placentia, California 89%
Five tenants account for 52% of the Properties' base rental income for the year ended December 31, 2003. Plaza at Riverlakes had 17,160 of square feet that was under construction and completed during 2003. Real estate taxes are excluded in the Combined Historical Summary related to the portions of the Property under construction. (2) BASIS OF PRESENTATION The Combined Historical Summary of Gross Income and Direct Operating Expenses has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc. and is not intended to be a complete presentation of the Properties' revenues and expenses. The Combined Historical Summary has been prepared on the accrual basis of accounting and requires management of the Properties to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. The Historical Summary is presented on a combined basis since the properties were acquired from the same seller. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2004. (3) GROSS INCOME The Properties lease retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Properties are reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. Contingent rent of $122,128 was earned for the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $80,433 for the year ended December 31, 2003. F-277 THE PROPERTIES ACQUIRED FROM DONAHUE SCHRIBER Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from one to 30 years, as of December 31, 2003, are as follows:
YEAR ---- 2004 $ 2,532,357 2005 2,594,314 2006 2,212,058 2007 2,018,686 2008 1,844,145 Thereafter 13,463,957 ---------------- $ 24,665,517 ================
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Properties. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Combined Historical Summary. F-278 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Gurnee Town Center ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of the management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Gurnee Town Center for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois December 8, 2004 F-279 GURNEE TOWN CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE FOR THE NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2004 DECEMBER 31, 2003 ------------------ ------------------ (unaudited) Gross income: Base rental income $ 2,335,149 $ 2,974,963 Operating expense and real estate tax recoveries 512,624 602,648 ------------------ ------------------ Total gross income 2,847,773 3,577,611 ------------------ ------------------ Direct operating expenses: Operating expenses 156,716 210,453 Real estate taxes 368,762 413,650 Insurance 37,150 45,696 ------------------ ------------------ Total direct operating expenses 562,628 669,799 ------------------ ------------------ Excess of gross income over direct operating expenses $ 2,285,145 $ 2,907,812 ================== ==================
See accompanying notes to historical summary of gross income and direct operating expenses. F-280 GURNEE TOWN CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (1) BUSINESS Gurnee Town Center ("the Property") is located in Gurnee, IL. The Property consists of approximately 179,840 square feet of gross leasable area and was approximately 96% occupied at December 31, 2003. The Property is leased to a total of twenty-seven tenants, of which five tenants account for approximately 55% of base rental revenue for the year ended December 31, 2003. On October 28, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) BASIS OF PRESENTATION The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2004. (3) GROSS INCOME The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $49,806 for the year ended December 31, 2003. F-281 GURNEE TOWN CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from two and a half years to 20 years, in effect at December 31, 2003, are as follows:
YEAR ---- 2004 $ 3,024,647 2005 3,031,410 2006 2,347,157 2007 2,073,736 2008 2,016,451 Thereafter 10,205,810 ---------------- $ 22,699,211 ================
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-282 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Winchester Commons ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of the management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Winchester Commons for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois November 3, 2004 F-283 WINCHESTER COMMONS Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE FOR THE NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2004 DECEMBER 31, 2003 ------------------ ------------------ (unaudited) Gross income: Base rental income $ 793,963 $ 1,033,025 Operating expense and real estate tax recoveries 279,045 389,938 ------------------ ------------------ Total gross income 1,073,008 1,422,963 ------------------ ------------------ Direct operating expenses: Operating expenses 85,206 113,004 Real estate taxes 204,490 276,156 Insurance 7,988 10,270 ------------------ ------------------ Total direct operating expenses 297,684 399,430 ------------------ ------------------ Excess of gross income over direct operating expenses $ 775,324 $ 1,023,533 ================== ==================
See accompanying notes to historical summary of gross income and direct operating expenses. F-284 WINCHESTER COMMONS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (1) BUSINESS Winchester Commons ("the Property") is located in Memphis, Tennessee. The Property consists of approximately 93,024 square feet of gross leasable area and was 100% occupied at December 31, 2003. The Property is leased to 16 tenants, of which one tenant accounts for 47% of base rental revenue for the year ended December 31, 2003. On November 5, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) BASIS OF PRESENTATION The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2004. (3) GROSS INCOME The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments decreased base rental income by $5,784 for the year ended December 31, 2003. F-285 WINCHESTER COMMONS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from one to 16 years, in effect at December 31, 2003, are as follows:
YEAR ---- 2004 $ 1,008,019 2005 946,941 2006 870,713 2007 765,269 2008 744,965 Thereafter 5,197,703 ---------------- $ 9,533,610 ================
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-286 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Mansfield Towne Crossing ("the Property") for the period from July 23, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Mansfield Towne Crossing for the period from July 23, 2003 (commencement of operations) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMGLLP Chicago, Illinois December 8, 2004 F-287 MANSFIELD TOWNE CROSSING Historical Summary of Gross Income and Direct Operating Expenses For the period from July 23, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE PERIOD FROM JULY 23, 2003 FOR THE (COMMENCEMENT OF NINE MONTHS ENDED OPERATIONS) TO SEPTEMBER 30, 2004 DECEMBER 31, 2003 --------------------------------------- (unaudited) Gross income: Base rental income $ 462,693 $ 124,647 Operating expense and real estate tax recoveries 158,753 59,451 --------------------------------------- Total gross income 621,446 184,098 --------------------------------------- Direct operating expenses: Operating expenses 108,480 58,335 Insurance 5,521 2,141 Real estate taxes 125,868 42,595 --------------------------------------- Total direct operating expenses 239,869 103,071 --------------------------------------- Excess of gross income over direct operating expenses $ 381,577 $ 81,027 =======================================
See accompanying notes to historical summary of gross income and direct operating expenses. F-288 MANSFIELD TOWNE CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from July 23, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (1) BUSINESS Mansfield Towne Crossing ("the Property") is located in Mansfield, Texas. The Property consists of approximately 111,898 square feet of gross leasable area and was approximately 27% occupied at December 31, 2003. The Property is leased to 20 tenants of whom six tenants occupied the area in 2003. One tenant represented approximately 59% of base rental revenue for the period from July 23, 2003 (commencement of operations) to December 31, 2003. On November 3, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. Mansfield Towne Crossing was under construction during 2003 and commenced operations July 23, 2003. (2) BASIS OF PRESENTATION The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2004. (3) GROSS INCOME The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. No contingent rent was earned during the period from July 23, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $9,080 for the period from July 23, 2003 (commencement of operations) to December 31, 2003. F-289 MANSFIELD TOWNE CROSSING Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from July 23, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from five years to 15 years, in effect at December 31, 2003, are as follows:
YEAR ---- 2004 $ 579,467 2005 921,979 2006 921,979 2007 921,979 2008 882,805 Thereafter 5,205,573 ---------------- $ 9,433,782 ================
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-290 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Fox Creek Village ("the Property") for the period from November 12, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of the management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Fox Creek Village for period from November 12, 2003 (commencement of operations) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois December 8, 2004 F-291 FOX CREEK VILLAGE Historical Summary of Gross Income and Direct Operating Expenses For the period from November 12, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE PERIOD FROM NOVEMBER 12, 2003 FOR THE NINE MONTHS (COMMENCEMENT OF ENDED OPERATIONS) TO SEPTEMBER 30, 2004 DECEMBER 31, 2003 ---------------------------------------- (unaudited) Gross income: Base rental income $ 849,779 $ 97,333 Operating expense and real estate tax recoveries 216,707 10,994 ---------------------------------------- Total gross income 1,066,486 108,327 ---------------------------------------- Direct operating expenses: Operating expenses 94,833 14,247 Real estate taxes 163,170 3,025 Insurance 5,168 -- ---------------------------------------- Total direct operating expenses 263,171 17,272 ---------------------------------------- Excess of gross income over direct operating expenses $ 803,315 $ 91,055 ========================================
See accompanying notes to historical summary of gross income and direct operating expenses. F-292 FOX CREEK VILLAGE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from November 12, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (1) BUSINESS Fox Creek Village ("the Property") is located in Longmont, Colorado. The Property consists of approximately 139,730 square feet of gross leasable area of which approximately 39,600 represents square footage of gross leasable are available for ground leases. The Property was approximately 66% occupied at December 31, 2003. The Property is leased to two tenants that account for 100% of base rental revenue for period from November 12, 2003 (commencement of operations) to December 31, 2003. On November 22, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) BASIS OF PRESENTATION The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2004. (3) GROSS INCOME The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. No contingent rent was earned during the period from November 12, 2003 (commencement of operations) to December 31, 2003. The Property has one ground lease that is classified as an operating lease with terms extending through November 12, 2018. Total ground lease income was $2,717 and is included in base rental income in the accompanying Historical Summary for the year ended December 31, 2003. F-293 FOX CREEK VILLAGE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from November 12, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from five to 20 years, in effect at December 31, 2003, are as follows:
YEAR ---- 2004 $ 988,109 2005 1,051,949 2006 1,056,498 2007 1,061,046 2008 1,065,595 Thereafter 11,020,462 ---------------- $ 16,243,659 ================
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. No insurance expense was recorded for the period from November 12, 2003 (commencement of operations) to December 31, 2003 as the tenants that occupied the space during this period incurred and paid their own insurance. F-294 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Gateway Pavilions ("the Property") for the period from February 15, 2003 (commencement of operations) to December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Gateway Pavilions for the period from February 15, 2003 (commencement of operations) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois December 9, 2004 F-295 GATEWAY PAVILIONS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from February 15, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE PERIOD FROM FEBRUARY 15, 2003 FOR THE NINE MONTHS (COMMENCEMENT OF ENDED OPERATIONS) TO SEPTEMBER 30, 2004 DECEMBER 31, 2003 ------------------- ------------------- (unaudited) Gross income: Base rental income $ 2,317,394 $ 1,059,788 Operating expense and real estate tax recoveries 507,792 179,363 ------------------- ------------------- Total gross income 2,825,186 1,239,151 ------------------- ------------------- Direct operating expenses: Operating expenses 300,936 256,310 Real estate taxes 303,496 38,083 Insurance 45,673 57,784 ------------------- ------------------- Total direct operating expenses 650,105 352,177 ------------------- ------------------- Excess of gross income over direct operating expenses $ 2,175,081 $ 886,974 =================== ===================
See accompanying notes to historical summary of gross income and direct operating expenses. F-296 GATEWAY PAVILIONS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from February 15, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (1) BUSINESS Gateway Pavilions ("the Property") is located in Avondale, Arizona, which when completed will consist of approximately 318,410 square feet of gross leasable area. The Property consists of approximately 197,512 square feet of gross leasable area and was approximately 93% occupied at December 31, 2003. The Property is leased to 22 tenants of which 5 tenants account for approximately 38% of base rental revenue for the period from February 15, 2003 (commencement of operations) to December 31, 2003. On December 7, 2004 Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. Gateway Pavilions' 197,512 square feet of gross leasable area was under construction and completed during 2003. The remaining portion of the Property's gross leasable area (representing 104,278 square feet) was under construction as of December 31, 2003. Real estate taxes are excluded in the Historical Summary related to the portion of the Property under construction. (2) BASIS OF PRESENTATION The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2004. (3) GROSS INCOME The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned for the period from February 15, 2003 (commencement of operations) to December 31, 2003. The Property has one ground lease that is classified as an operating lease with a term extending until October 1, 2023. Total ground lease income was $19,335 and is included in base rental income in the accompanying Historical Summary for the period from February 15, 2003 (commencement of operations) to December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $50,513 for the period from February 15, 2003 (commencement of operations) to December 31, 2003. F-297 GATEWAY PAVILIONS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the period from February 15, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from one to 15 years, in effect at December 31, 2003, are as follows:
YEAR ---- 2004 $ 2,914,743 2005 3,275,666 2006 3,292,521 2007 3,311,622 2008 3,100,049 Thereafter 19,399,071 ---------------- $ 35,293,672 ================
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-298 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Northwoods Center ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Northwoods Center for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois November 26, 2004 F-299 NORTHWOODS CENTER Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited).
FOR THE FOR THE NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2004 DECEMBER 31, 2003 --------------------------------------- (unaudited) Gross income: Base rental income $ 904,767 $ 839,905 Operating expense and real estate tax recoveries 166,042 123,888 --------------------------------------- Total gross income 1,070,809 963,793 --------------------------------------- Direct operating expenses: Operating expenses 66,253 73,410 Real estate taxes 110,615 60,745 --------------------------------------- Total direct operating expenses 176,868 134,155 --------------------------------------- Excess of gross income over direct operating expenses $ 893,941 $ 829,638 =======================================
See accompanying notes to historical summary of gross income and direct operating expenses. F-300 NORTHWOODS CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (1) BUSINESS Northwoods Center ("the Property") is located in Wesley Chapel, Florida. The Property consists of approximately 95,994 square feet of gross leasable area of which approximately 70,647 square feet of gross leasable area was available and occupied at December 31, 2003. The Property is leased to 25 tenants, of which two tenants account for approximately 44% of base rental revenue for the year ended December 31, 2003. On December 7, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third party. (2) BASIS OF PRESENTATION The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2004. (3) GROSS INCOME The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned for the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $81,206 for year ended December 31, 2003. F-301 NORTHWOODS CENTER Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from four years to 20 years, as of December 31, 2003, are as follows:
YEAR ---- 2004 $ 1,104,172 2005 1,405,893 2006 1,438,591 2007 1,446,935 2008 1,388,421 Thereafter 5,189,216 --------------- $ 11,973,228 ===============
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, insurance and professional fees are excluded from the Historical Summary. F-302 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Oswego Commons ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of the management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Oswego Commons for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois December 8, 2004 F-303 OSWEGO COMMONS Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE FOR THE NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2004 DECEMBER 31, 2003 ------------------ ----------------- (unaudited) Base rental income $ 2,013,952 $ 1,943,882 Operating expense and real estate tax recoveries 654,718 607,134 ------------------ ----------------- Total gross income 2,668,670 2,551,016 ------------------ ----------------- Operating expenses 350,629 327,556 Real estate taxes 307,644 269,449 Insurance 26,697 32,613 ------------------ ----------------- Total direct operating expenses 684,970 629,618 ------------------ ----------------- Excess of gross income over direct operating expenses $ 1,983,700 $ 1,921,398 ================== =================
See accompanying notes to historical summary of gross income and direct operating expenses. F-304 OSWEGO COMMONS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (1) BUSINESS Oswego Commons ("the Property") is located in Oswego, Illinois. The Property consists of approximately 186,451 square feet of gross leasable area and was approximately 97% occupied at December 31, 2003. The Property is leased to a total of 18 tenants, of which two tenants account for approximately 60% of base rental revenue for the year ended December 31, 2003. On November 23, 2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party. (2) BASIS OF PRESENTATION The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Post-Effective Amendment No. 7 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2004. (3) GROSS INCOME The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. There was no contingent rent earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $112,535 for the year ended December 31, 2003. 305 OSWEGO COMMONS Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from three to 18 years, in effect at December 31, 2003, are as follows:
YEAR ---- 2004 $ 2,526,561 2005 2,561,597 2006 2,571,681 2007 2,558,120 2008 2,445,179 Thereafter 18,967,101 --------------- $ 31,630,239 ===============
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-306 LAKE MARY POINTE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE FOR THE NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2004 DECEMBER 31, 2003 -------------------------------------- (unaudited) (unaudited) Gross income: Base rental income $ 402,077 $ 567,542 Operating expense and real estate tax recoveries 59,071 179,588 -------------------------------------- Total gross income 461,148 747,130 -------------------------------------- Direct operating expenses: Operating expenses 52,066 74,065 Real estate taxes 75,265 91,230 Insurance 10,560 12,800 -------------------------------------- Total direct operating expenses 137,891 178,095 -------------------------------------- Excess of gross income over direct operating expenses $ 323,257 $ 569,035 ======================================
See accompanying notes to historical summary of gross income and direct operating expenses. F-307 LAKE MARY POINTE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004, respectively, has been prepared from the operating statements provided by the owners of the property during that period and requires management of Lake Mary Pointe to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the year ended December 31, 2003 and the nine months ended September 30, 2004, respectively. F-308 PUBLIX CENTER Historical Summary of Gross Income and Direct Operating Expenses For the period from April 18, 2004 (commencement of operations) to September 30, 2004 (unaudited)
FOR THE PERIOD FROM APRIL 18, 2004 (COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 2004 ----------------------------- (unaudited) Gross income: Base rental income $ 226,058 Operating expense and real estate tax recoveries 33,458 ----------------------------- Total gross income 259,516 ----------------------------- Direct operating expenses: Operating expenses 65,118 Real estate taxes 64,650 Insurance 25,970 ----------------------------- Total direct operating expenses 155,738 ----------------------------- Excess of gross income over direct operating expenses $ 103,778 =============================
See accompanying notes to historical summary of gross income and direct operating expenses. F-309 PUBLIX CENTER Historical Summary of Gross Income and Direct Operating Expenses For the period from April 18, 2004 (commencement of operations) to September 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from April 18, 2004 (commencement of operations) to September 30, 2004 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Publix Center to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from April 18, 2004 (commencement of operations) to September 30, 2004. F-310 FIVE FORKS Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE FOR THE NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2004 DECEMBER 31, 2003 ------------------ ----------------- (unaudited) (unaudited) Gross income: Base rental income $ 493,104 $ 633,672 Operating expense and real estate tax recoveries 58,221 70,261 ------------------ ----------------- Total gross income 551,325 703,933 ------------------ ----------------- Direct operating expenses: Operating expenses 41,158 53,780 Real estate taxes 68,250 81,900 Insurance 7,307 8,768 ------------------ ----------------- Total direct operating expenses 116,715 144,448 ------------------ ----------------- Excess of gross income over direct operating expenses $ 434,610 $ 559,485 ================== =================
See accompanying notes to historical summary of gross income and direct operating expenses. F-311 FIVE FORKS Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004, respectively, has been prepared from the operating statements provided by the owners of the property during that period and requires management of Five Forks to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the year ended December 31, 2003 and the nine months ended September 30, 2004, respectively. F-312 GATEWAY STATION Historical Summary of Gross Income and Direct Operating Expenses For the period from June 21, 2004 (commencement of operations) to September 30, 2004 (unaudited)
FOR THE PERIOD FROM JUNE 21, 2004 (COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 2004 --------------------------------- (unaudited) Gross income: Base rental income $ 72,431 Operating expense and real estate tax recoveries 16,167 --------------------------------- Total gross income 88,598 --------------------------------- Direct operating expenses: Operating expenses 5,665 Real estate taxes 62,000 Insurance 3,376 --------------------------------- Total direct operating expenses 71,041 --------------------------------- Excess of gross income over direct operating expenses $ 17,557 =================================
See accompanying notes to historical summary of gross income and direct operating expenses. F-313 GATEWAY STATION Historical Summary of Gross Income and Direct Operating Expenses For the period from June 21, 2004 (commencement of operations) to September 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the period from June 21, 2004 (commencement of operations) to September 30, 2004 has been prepared from the operating statements provided by the owners of the property during that period and requires management of Gateway Station to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the period from June 21, 2004 (commencement of operations) to September 30, 2004. F-314 SHOPS AT FOREST COMMONS Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE FOR THE NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2004 DECEMBER 31, 2003 ------------------ ----------------- (unaudited) (unaudited) Gross income: Base rental income $ 386,076 $ 405,451 Operating expense and real estate tax recoveries 124,949 103,538 ------------------ ----------------- Total gross income 511,025 508,989 ------------------ ----------------- Direct operating expenses: Operating expenses 76,399 67,720 Real estate taxes 76,670 68,614 Insurance 3,562 10,672 ------------------ ----------------- Total direct operating expenses 156,631 147,006 ------------------ ----------------- Excess of gross income over direct operating expenses $ 354,394 $ 361,983 ================== =================
See accompanying notes to historical summary of gross income and direct operating expenses. F-315 SHOPS AT FOREST COMMONS Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 1. Basis of Presentation The Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004, respectively, has been prepared from the operating statements provided by the owners of the property during that period and requires management of Shops at Forest Commons to make estimates and assumptions that affect the amounts of the revenues and expense during that period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the year ended December 31, 2003 and the nine months ended September 30, 2004, respectively. F-316 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") of Southlake Town Square ("the Property") for the year ended December 31, 2003. This Historical Summary is the responsibility of the management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Pre-Effective Amendment No. 2 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Property's revenues and expenses. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of Southlake Town Square for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois December 7, 2004 F-317 SOUTHLAKE TOWN SQUARE Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE NINE MONTHS FOR THE YEAR ENDED ENDED SEPTEMBER 30, 2004 DECEMBER 31, 2003 ------------------ ------------------ (unaudited) Gross income: Base rental income $ 7,384,989 $ 9,017,634 Operating expense and real estate tax recoveries 2,351,712 2,812,230 ------------------ ----------------- Total gross income 9,736,701 11,829,864 ------------------ ----------------- Direct operating expenses: Operating expenses 1,071,140 1,483,675 Real estate taxes 1,619,671 1,946,159 Insurance 75,909 100,029 ------------------ ----------------- Total direct operating expenses 2,766,720 3,529,863 ------------------ ----------------- Excess of gross income over direct operating expenses $ 6,969,981 $ 8,300,001 ================== =================
See accompanying notes to historical summary of gross income and direct operating expense. F-318 SOUTHLAKE TOWN SQUARE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (1) BUSINESS Southlake Town Square ("the Property") is located in Southlake, Texas. The Property consists of approximately 471,000 square feet of gross leasable area and was approximately 98% occupied at December 31, 2003. As of December 31, 2003 the Property is leased to 139 tenants. Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") is expected to close on the acquisition of the Property from an unaffiliated third party on December 22, 2004. (2) BASIS OF PRESENTATION The Historical Summary of Gross Income and Direct Operating Expenses ("Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Pre-Effective Amendment No. 2 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2004. (3) GROSS INCOME The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments increased base rental income by $343,431 for the year ended December 31, 2003. F-319 SOUTHLAKE TOWN SQUARE Notes to Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from one to 20 years, in effect as of December 31, 2003, are as follows:
YEAR ----------------------------------- 2004 $ 9,649,153 2005 9,887,579 2006 9,186,648 2007 8,394,728 2008 7,599,776 Thereafter 15,943,145 --------------- $ 60,661,029 ===============
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Historical Summary. F-320 INDEPENDENT AUDITORS' REPORT The Board of Directors Inland Western Retail Real Estate Trust, Inc. We have audited the accompanying Combined Historical Summary of Gross Income and Direct Operating Expenses ("Combined Historical Summary") of the Properties Acquired from Eastern Retail Holdings, L.P. for the year ended December 31, 2003. This Combined Historical Summary is the responsibility of management of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to express an opinion on the Combined Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Combined Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Combined Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Combined Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The accompanying Combined Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in the Pre-Effective Amendment No. 2 to the Registration Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not intended to be a complete presentation of the Properties' revenues and expenses. In our opinion, the Combined Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in note 2 of the Properties Acquired from Eastern Retail Holdings, L.P. for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Chicago, Illinois December 3, 2004 F-321 THE PROPERTIES ACQUIRED FROM EASTERN RETAIL HOLDINGS, L.P. Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited)
FOR THE NINE MONTHS FOR THE YEAR ENDED ENDED SEPTEMBER 30, 2004 DECEMBER 31, 2003 ------------------ ------------------ (unaudited) Gross income: Base rental income $ 1,234,825 $ 1,528,186 Operating expense and real estate tax recoveries 195,977 282,757 ------------------ ----------------- Total gross income 1,430,802 1,810,943 ------------------ ----------------- Direct operating expenses: Operating expenses 73,719 140,974 Real estate taxes 120,266 157,811 Insurance 23,768 33,624 ------------------ ----------------- Total direct operating expenses 217,753 332,409 ------------------ ----------------- Excess of gross income over direct operating expenses $ 1,213,049 $ 1,478,534 ================== =================
See accompanying notes to combined historical summary of gross income and direct operating expense. F-322 THE PROPERTIES ACQUIRED FROM EASTERN RETAIL HOLDINGS, L.P. Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (1) BUSINESS The Properties acquired from Eastern Retail Holdings, LP ("the Properties") consist of the following:
GROSS LEASABLE OCCUPANCY AT DECEMBER 31, -------------- ------------------------- NAME AREA LOCATION 2003 ---- ---- -------- ---- Irmo Station 99,619 Irmo, South Carolina 98% Evans Towne Centre 75,695 Evans, Georgia 95%
The Properties are leased to a total of 35 tenants, of which eight tenants account for approximately 74% of base rental revenue for the year ended December 31, 2003. Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") is expected to close on the acquisition of the Property from an unaffiliated third party on December 23, 2004. (2) BASIS OF PRESENTATION The Combined Historical Summary of Gross Income and Direct Operating Expenses ("Combined Historical Summary") has been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion in the Pre-Effective Amendment No. 2 to the Registration Statement on Form S-11 of IWRRETI and is not intended to be a complete presentation of the Properties' revenues and expenses. The Combined Historical Summary has been prepared on the accrual basis of accounting and requires management of the Properties to make estimates and assumptions that affect the reported amounts of the revenues and expenses during the reporting period. Actual results may differ from those estimates. The Combined Historical Summary is presented on a combined basis since the properties were acquired from the same seller. All adjustments necessary for a fair presentation have been made to the accompanying unaudited amounts for the nine months ended September 30, 2004. (3) GROSS INCOME The Properties lease retail space under various lease agreements with its tenants. All leases are accounted for as operating leases. The leases include provisions under which the Properties are reimbursed for common area, real estate, and insurance costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain renewal options at various periods at various rental rates. Certain of the leases contain provision for contingent rentals. Recognition of contingent rental income is deferred until the target that triggers the contingent rental income is achieved. No contingent rent was earned during the year ended December 31, 2003. Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income accrues for the full period of occupancy on a straight-line basis. Related adjustments decreased base rental income by $24,923 for the year ended December 31, 2003. F-323 THE PROPERTIES ACQUIRED FROM EASTERN RETAIL HOLDINGS, L.P. Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses For the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) Minimum rents to be received from tenants under operating leases, which terms range from one to 20 years, in effect at December 31, 2003, are as follows:
YEAR ----------------------------------- 2004 $ 1,547,749 2005 1,390,016 2006 1,195,315 2007 1,077,948 2008 991,186 Thereafter 8,514,187 --------------- $ 14,716,401 ===============
(4) DIRECT OPERATING EXPENSES Direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Properties. Repairs and maintenance expenses are charged to operations as incurred. Costs such as depreciation, amortization, management fees, interest expense related to mortgage debt not assumed, and professional fees are excluded from the Combined Historical Summary. F-324 APPENDIX A PRIOR PERFORMANCE TABLES The following prior performance tables contain information concerning real estate programs sponsored by affiliates of our business manager/advisor which have investment objectives similar to ours. This information has been summarized in narrative form under "Prior Performance of Our Affiliates" in the prospectus. The tables provide information on the performance of a number of programs. You can use the information to evaluate the experience of our business manager/advisor's affiliates as sponsors of the programs. The inclusion of these tables does not imply that we will make investments comparable to those reflected in the tables or that investors in our shares will experience returns comparable to those experienced in the programs referred to in these tables. If you purchase our shares, you will not acquire any ownership in any of the programs to which these tables relate. The tables consist of: Table I Experience in Raising and Investing Funds Table II Compensation to IREIC and Affiliates Table III Operating Results of Prior Programs Table IV Results of Completed Programs Table V Sales or Disposals of Properties Table VI Acquisition of Properties by Programs*
Upon written request, any potential investor may obtain, without charge, the most recent annual report on Form 10-K filed with the SEC by any public program sponsored by any of the Inland's affiliated companies which has reported to the SEC within the last 24 months. For a reasonable fee, the affiliated companies will provide copies of any exhibits to such annual reports upon request. Our investment objectives are to: (i) provide regular distributions to stockholders in amounts which may exceed our taxable income due to the non-cash nature of depreciation expense and, to such extent, will constitute a tax- deferred return of capital, but in no event less than 90% of our taxable income, pursuant to the REIT requirements; (ii) provide a hedge against inflation by entering into leases which contain clauses for scheduled rent escalations or participation in the growth of tenant sales, permitting us to increase distributions and provide capital appreciation; and (iii) preserve stockholders' capital. The following programs have investment objectives similar to ours and are included in the tables. Inland Retail Real Estate Trust, Inc. or IRRETI and Inland Real Estate Corporation or IREC are two REITs formed primarily to invest in multi-tenant shopping centers, Inland's Monthly Income Fund, L.P. and Inland Monthly Income Fund II, L.P. are public real estate limited partnerships formed primarily to acquire, operate and sell existing residential and commercial real properties. Inland Mortgage Investors Fund, L.P., Inland Mortgage Investors Fund-II, L.P. and Inland Mortgage Investors Fund III, L.P. were public real estate limited partnerships formed primarily to make or acquire loans secured by mortgages on improved, income producing multifamily residential properties. [PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-1 TABLE I EXPERIENCE IN RAISING AND INVESTING FUNDS (000's omitted) Table I is intended to present information on a dollar and percentage basis showing the experience of Inland Real Estate Investment Corporation ("IREIC"), of which the business manager/advisor is a wholly owned subsidiary, in raising and investing funds in prior programs where the offering closed in the three years prior to December 31, 2003. The table is intended to focus on the dollar amount available for investment in properties expressed as a percentage of total dollars raised. Inland Retail Real Estate Trust, Inc. is the only program that closed in the three years ended December 31, 2003.
Inland Retail Real Estate Trust, Inc. ------------------ 1 Program ------------------ Dollar amount offered (A) $ 2,500,000 Dollar amount raised (B) 2,223,010 100.00% Less offering expenses: Syndication fees (C) 194,194 8.74 Other fees (D) 20,861 .94 Organizational fees - - Reserves (E) 22,230 1.00 ------------------------------- Available for investment $ 1,985,725 89.32% =============================== Acquisition costs: Cash down payments $ 1,340,382 Repayment of indebtedness 543,206 Investment in securities 8,052 ----------------- Total acquisition costs $ 1,891,640 ================= Percent leverage 53% Date offerings commenced (F) Length of offering (F) Months to invest 90% of amount available for investment (measured from beginning of offering) (F)
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-2 TABLE I-(Continued) EXPERIENCE IN RAISING AND INVESTING FUNDS (A) NOTES TO TABLE I (A) This amount does not reflect shares offered for distribution to stockholders participating in Inland Retail Real Estate Trust Inc.'s distribution reinvestment program. (B) These figures are cumulative and are as of December 31, 2003. The dollar amount raised represents the cash proceeds collected by the program, including shares sold pursuant to our distribution reinvestment program and net of shares repurchased pursuant to our share repurchase program. (C) Syndication fees are paid by the program to an affiliate, Inland Securities Corporation, or unaffiliated third parties commissions for the sale of shares. All of these syndication fees were used to pay commissions and expenses of the offerings. (D) Other fees are paid by the program to unaffiliated parties and consist principally of printing, selling and registration costs related to the offering. (E) Generally, a working capital reserve is established to fund property upgrades and future cash flow deficits, if any, among other things. (F) On February 11, 1999, the program commenced an initial public offering, on a best effort basis, of 50,000,000 shares of common stock at $10.00 per share. On February 1, 2001, the program commenced an offering of an additional 50,000,000 shares at $10.00 per share, on a best efforts basis. On June 7, 2002, the program commenced an offering of an additional 150,000,000 shares at $10.00 per share, on a best efforts basis. As of December 31, 2003, substantially all proceeds available for investment from the offerings were invested in real properties. [PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-3 TABLE II COMPENSATION TO IREIC AND AFFILIATES (A) (000's omitted) Table II summarizes the amount and type of compensation paid to Inland Real Estate Investment Corporation and its affiliates during the three years ended December 31, 2003 in connection with the prior programs. Some partnerships acquired their properties from affiliates of our business manager/advisor which had purchased such properties from unaffiliated third parties.
Inland's Inland Inland Retail Inland Real Monthly Monthly Real Estate Estate Income Income Trust, Inc. Corporation Fund, L.P. Fund II, L. P. ------------------------------------------------------------------------- Date offering commenced 02/11/99 10/14/94 08/03/87 08/04/88 Dollar amount raised $ 2,223,010 686,602 30,000 25,324 ========================================================================= Total amounts paid to general partner or affiliates from proceeds of offerings: Selling commissions and underwriting fees 194,194(C) 49,869(C) 273(B) 423(B) Other offering expenses (D) 2,762 2,350 116 230 Acquisition cost and expense 1,725 925 2,550(E) 1,706(E) ========================================================================= Dollar amount of cash available from operations before deducting payments to general partner or affiliates (F) 264,442 217,142 4,522 3,505 ========================================================================= Amounts paid to general partner or affiliates related to operations: (J) Property management fees (G) 19,526 0 52 49 Advisor asset management fee 20,824 0 0 0 Accounting services 0 0 52 49 Data processing service 0 0 25 24 Legal services 0 0 15 10 Professional services 162 0 0 0 Mortgage servicing fees 495 0 0 0 Acquisition costs expensed 309 0 0 0 Other administrative services 3,303 0 69 51 Dollar amount of property sales and refinancings before payments to general partner and affiliates (H): Cash 0 22,978 34 0 Notes 0 0 0 0 Dollar amounts paid or payable to general partner or affiliates from sales and refinancings (I): Sales commissions 0 0 0 0 Participation in cash distributions 0 0 0 0
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-4 TABLE II COMPENSATION TO IREIC AND AFFILIATES (A) NOTES TO TABLE II (A) The figures in this Table II relating to proceeds of the offerings are cumulative and are as of December 31, 2003 and the figures relating to cash available from operations are for the three years ending December 31, 2003. The dollar amount raised represents the cash proceeds collected by the partnerships or program. Amounts paid or payable to IREIC or affiliates from proceeds of the offerings represent payments made or to be made to IREIC and affiliates from investor capital contributions. (B) The selling commissions paid to an affiliate is net of amounts which were in turn paid to third party soliciting dealers. (C) The selling commissions paid to an affiliate includes amounts which were in turn paid to third party soliciting dealers. (D) Consists of legal, accounting, printing and other offering expenses, including amounts to be paid to Inland Securities Corporation to be used as incentive compensation to its regional marketing representatives and amounts for reimbursement of the general partner for marketing, salaries and direct expenses of its employees while directly engaged in registering and marketing the Units and other marketing and organization expenses. (E) Represents acquisition fees paid to IREIC and its affiliates in connection with the acquisition of properties. (F) See Note (B) to Table III. (G) An affiliate provides property management services for all properties acquired by the partnerships or program. Management fees have not exceeded 4.5% of the gross receipts from the properties managed. (H) See Table V and Notes thereto regarding sales and disposals of properties. (I) Real estate sales commissions and participations in cash distributions are paid or payable to IREIC and/or its affiliates in connection with the sales of properties in the public partnership programs. Payments of all amounts shown are subordinated to the receipt by the limited partners of their original capital investment. See Table V and Notes thereto. (J) On July 1, 2000, IREC completed the acquisition of Inland Real Estate Advisory Services, Inc., the former advisor, and Inland Commercial Property Management, Inc., the former property manager (the "Merger"). Each of these entities was merged into subsidiaries that are wholly owned by IREC. As a result of the merger, IREC is now "self-administered." IREC no longer pays advisory or property management fees or other expenses to affiliates but instead has hired an internal staff to perform these tasks. [PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-5 TABLE III OPERATING RESULTS OF PRIOR PROGRAMS Table III presents operating results for programs, the offerings of which closed during each of the five years ended December 31, 2003. The operating results consist of: - The components of taxable income (loss); - Taxable income or loss from operations and property sales; - Cash available and source, before and after cash distributions to investors; and - Tax and distribution data per $1,000 invested. Based on the following termination dates of the offerings, only IRRETI is included in Table III. - Inland's Monthly Income Fund, L.P. - offering terminated in 1988 - Inland Monthly Income Fund II, L.P. - offering terminated in 1990 - Inland Mortgage Investors Fund, L.P. - offering terminated in 1987 - Inland Mortgage Investors Fund - II, L.P. - offering terminated in 1988 - Inland Mortgage Investors Fund III, L.P. - offering terminated in 1991 - Inland Real Estate Corporation - offering terminated in 1998 [PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-6 TABLE III OPERATING RESULTS OF PRIOR PROGRAMS (000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED) INLAND RETAIL REAL ESTATE TRUST INC.
2003 2002 2001 2000 1999 ---------------------------------------------------------------------------------- Gross revenues $ 317,828 116,011 37,755 22,124 6,030 Profit on sale of properties 0 0 0 0 0 Less: Operating expenses 78,568 27,614 10,178 6,279 1,872 Interest expense 62,349 23,508 9,712 8,127 2,368 Program expenses 22,069 7,998 1,219 905 369 Depreciation & amortization 85,006 29,395 8,653 4,752 1,253 ---------------------------------------------------------------------------------- Net income (loss)-GAAP basis $ 69,836 27,496 7,993 2,061 168 ================================================================================== Taxable income (loss) (A): 0 0 0 0 0 ================================================================================== Cash available (deficiency) from operations (B) 147,403 55,250 17,170 5,366 2,538 Cash available from sales (C) 828 0 0 0 0 ---------------------------------------------------------------------------------- Total cash available before distributions and special items 148,231 55,250 17,170 5,366 2,538 Less distributions to investors: From operations 152,888 52,156 15,963 6,099 1,065 From sales and refinancings 0 0 0 0 0 ---------------------------------------------------------------------------------- Cash available after distributions before special items (4,657) 3,094 1,207 (733) 1,473 Special items: 0 0 0 0 0 ---------------------------------------------------------------------------------- Cash available after distributions and special items $ (4,657) 3,094 1,207 (733) 1,473 ================================================================================== Tax data per $1,000 invested (A): 0 0 0 0 0 Distribution data per $1,000 invested: Cash distributions to investors: Source (on GAAP basis): Investment income .83 .83 .81 .77 .72 Source (on cash basis): Sales 0 0 0 0 0 Operations (D) .83 .83 .81 .77 .72 Percent of properties remaining unsold 100% ==============
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-7 TABLE III--(CONTINUED) OPERATING RESULTS OF PRIOR PROGRAMS NOTES TO TABLE III (A) IRRETI qualified as real estate investment trusts ("REITs") under the Internal Revenue Code for federal income tax purposes. Since it qualified for taxation as a REIT, it generally will not be subject to federal income tax to the extent it distributes its REIT taxable income to its stockholders. If IRRETI fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate tax rates. However, even if the program qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property and federal income and excise taxes on its undistributed income. (B) "Cash Available (Deficiency) from Operations," represents all cash revenues and funds received by the programs, including but not limited to operating income less operating expenses, and interest income. These amounts do not include payments made by the programs from offering proceeds nor do they include proceeds from sales or refinancings. These amounts also exclude advances from or repayments to IREIC and affiliates which are disclosed elsewhere in the table and include principal payments on long-term debt. For example: Inland Retail Real Estate Trust Inc. (000's omitted)
2003 2002 2001 2000 1999 ---------------------------------------------------------------------------------- Net cash provided by operating activities per the Form 10-K annual report $ 149,081 55,594 17,427 5,604 2,648 Principal payments on long-term debt (1,678) (344) (257) (238) (110) ---------------------------------------------------------------------------------- $ 147,403 55,250 17,170 5,366 2,538 ==================================================================================
(C) See Table V and Notes thereto regarding sales and disposals of properties. (D) Distributions by a REIT to the extent of its current and accumulated earnings and profits for federal income tax purposes are taxable to stockholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the stockholder's basis in the shares to the extent thereof, and thereafter as taxable gain (a return of capital). These distributions in excess of earnings and profits will have the effect of deferring taxation of the amount of the distribution until the sale of the stockholder's shares. Inland Retail Real Estate Trust, Inc.
2003 2002 2001 2000 1999 ---------------------------------------------------------------------------------- % of Distribution representing: Ordinary income 60.85 62.65 60.49 54.55 22.23 Return of Capital 39.15 37.35 39.51 45.45 77.77 ---------------------------------------------------------------------------------- 100.00 100.00 100.00 100.00 100.00 ==================================================================================
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-8 TABLE IV RESULTS OF COMPLETED PROGRAMS (000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED) Table IV is a summary of operating and disposition results of prior programs sponsored by affiliates of our business manager/advisor, which during the five years ended prior to December 31, 2003 have sold their properties and either hold notes with respect to such sales or have liquidated. One program with investment objectives similar to ours disposed of all of its properties during the five years ended prior to December 31, 2003.
Inland Mortgage Program Name Investors Fund, L.P. --------------------------------------------------------------------------- Dollar amount raised 10,065 Number of properties/loans purchased 15 Date of closing of offering 02/87 Date of first sale of property 12/88 Date of final sale of property 03/99 Tax and distribution data per $1,000 invested (A): Federal income tax results: Ordinary income (loss): Operations 547 Recapture 0 Capital Gain 30 Deferred Gain: Capital 0 Ordinary 0 Cash distributions to investors (cash basis): Source (on GAAP basis) Investment income 624 Return of capital 745 Source (on cash basis) Sales 745 Operations 624
(A) Data per $1,000 invested is presented as of December 31, 2003. See Table V and Notes thereto regarding sales and disposals of properties. [PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-9 TABLE V SALES OR DISPOSALS OF PROPERTIES Table V presents information on the results of the sale or disposals of properties in programs with investment objectives similar to ours during the three years ended December 31, 2003. Since January 1, 2001, programs sponsored by affiliates of our business manager/advisor had seven sales transactions. The table provides certain information to evaluate property performance over the holding period such as: - Sales proceeds received by the partnerships in the form of cash down payments at the time of sale after expenses of sale and secured notes received at sale; - Cash invested in properties; - Cash flow (deficiency) generated by the property; - Taxable gain (ordinary and total); and - Terms of notes received at sale. [PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-10 TABLE V (CONTINUED) SALES OR DISPOSALS OF PROPERTIES (A) (000'S OMITTED)
Cash Selling Received, Commissions net of Paid or Date Date of Closing Payable to Acquired Sale Costs(B) Inland - ----------------------------------------------------------------------------------------------- IREC - Lincoln Park Place 01/24/97 04/17/01 1,314 0 IREC - Antioch Plaza 12/95 03/28/02 943 0 IREC - Shorecrest Plaza 07/97 06/12/02 3,107 0 IREC - Popeye's 06/97 04/08/03 343 0 IREC - Summit of Park Ridge 12/96 12/24/03 3,578 0 IREC - Eagle Country Market 11/97 12/24/03 5,182 0 IREC - Eagle Ridge Center 04/99 12/30/03 3,185 0 Adjust. Secured Resulting Mortgage Notes from Net at Time Received Application Selling of Sale at Sale of GAAP Price - ----------------------------------------------------------------------------------------------- IREC - Lincoln Park Place 1,050 0 0 2,364 IREC - Antioch Plaza 875 0 0 1,818 IREC - Shorecrest Plaza 2,978 0 0 6,085 IREC - Popeye's 0 0 0 343 IREC - Summit of Park Ridge 1,600 0 0 5,178 IREC - Eagle Country Market 1,450 0 0 6,632 IREC - Eagle Ridge Center 3,000 0 0 6,185 Partnership Original Capital Mortgage Invested Financing (C) Total - ----------------------------------------------------------------------------- IREC - Lincoln Park Place 0 1,897 1,897 IREC - Antioch Plaza 875 753 1,628 IREC - Shorecrest Plaza 2,978 2,947 5,925 IREC - Popeye's 0 346 346 IREC - Summit of Park Ridge 0 5,181 5,181 IREC - Eagle Country Market 0 6,635 6,635 IREC - Eagle Ridge Center 0 6,187 6,187 Excess (deficiency) of property Amount of operating cash subsidies receipts over cash included in Total Taxable expenditures operating cash Gain (loss) Ordinary Income Capital (D) receipts from Sale from Sale Gain (loss) - ---------------------------------------------------------------------------------------------------------------------------- IREC - Lincoln Park Place 218 0 467 0 467 IREC - Antioch Plaza 130 0 0(E) 0 0 IREC - Shorecrest Plaza 1,556 0 0(E) 0 0 IREC - Popeye's 241 0 3 0 3 IREC - Summit of Park Ridge 1,399 0 0(E) 0 0 IREC - Eagle Country Market 1,290 0 0(E) 0 0 IREC - Eagle Ridge Center 1,441 0 0(E) 0 0
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-11 TABLE V - (CONTINUED) SALES OR DISPOSALS OF PROPERTIES NOTES TO TABLE V (A) The table includes all sales of properties by the programs with investment objectives similar to ours during the three years ended December 31, 2003. All sales have been made to parties unaffiliated with the partnerships. (B) Consists of cash payments received from the buyers and the assumption of certain liabilities by the buyers at the date of sale, less expenses of sale. (C) Amounts represent the dollar amount raised from the offerings, less sales commissions and other offering expenses plus additional costs incurred on the development of the land parcels. (D) Represents "Cash Available (Deficiency) from Operations (including subsidies)" as adjusted for applicable "Fixed Asset Additions" through the year of sale. (E) For tax purposes, this sale qualified as part of a tax-deferred exchange. As a result, no taxable gain will be recognized until the replacement property is disposed of in a subsequent taxable transaction. [PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-12 TABLE VI ACQUISITION OF PROPERTIES BY PROGRAMS (A) (000's omitted, except for Square Feet or Acres) Table VI presents information concerning the acquisition of real properties by programs with similar investment objectives, sponsored by Inland Real Estate Investment Corporation ("IREIC"), in the three years ended December 31, 2003. The detail provided with respect to each acquisition includes the property size, location, purchase price and the amount of mortgage financing. This information is intended to assist the prospective investor in evaluating the property mix as well as the terms involved in acquisitions by programs sponsored by IREIC. [PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-13 TABLE VI- (CONTINUED) ACQUISITIONS OF PROPERTIES BY PROGRAMS (A) (000'S OMITTED, EXCEPT FOR NUMBER OF SQUARE FEET)
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ----------------------------------------------------------------------------------------------------------------------------------- INLAND REAL ESTATE CORPORATION: PETsMART, Gurnee, IL 25,692 04/01 3,304 - Eckerd Drug Store, Chattanooga, TN 10,908 05/02 2,367 - Michael's, Coon Rapids, MN 24,317 07/02 2,808 - Deer Trace, Kohler, WI 149,881 07/02 13,281 - Disney, Celebration, FL 166,131 07/02 27,281 13,600 Townes Crossing, Oswego, IL 105,989 08/02 12,043 - Park Square, Brooklyn Park, MN 137,116 08/02 9,873 5,850 Forest Lake Marketplace, Forest Lake, MN 93,853 09/02 11,856 - Naper West Ph II, Naperville, IL 50,000 10/02 3,116 - Walgreens, Jennings, MO 15,120 10/02 2,706 - Four Flaggs Annex, Niles, IL 21,790 11/02 3,289 - Four Flaggs, Niles, IL 306,479 11/02 21,298 12,510 Brunswick Market Center, Brunswick, OH 119,540 12/02 13,458 - Medina Marketplace, Medina, OH 72,781 12/02 9,511 - Shakopee Valley, Shakopee, MN 146,436 12/02 14,700 - Shops at Orchard Place, Skokie, IL 164,542 12/02 42,752 - Cub Foods, Hutchinson, MN 60,208 01/03 5,388 - Mankato Heights, Mankato, MN 129,410 04/03 15,102 - Caton Crossing, Plainfield, IL 83,792 06/03 11,165 - Village Ten, Coon Rapids, MN 211,568 08/03 15,104 - Rochester Marketplace, Rochester, MN 69,914 09/03 9,371 - University Crossing, Mishawaka, IN 136,422 10/03 14,913 - Total for Inland Real Estate Corporation 2,301,889 $ 264,686 $ 31,960 ================= =================== ============== OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------------- INLAND REAL ESTATE CORPORATION: PETsMART, Gurnee, IL 3,304 0 3,304 Eckerd Drug Store, Chattanooga, TN 2,367 2 2,369 Michael's, Coon Rapids, MN 2,808 0 2,808 Deer Trace, Kohler, WI 13,281 0 13,281 Disney, Celebration, FL 13,681 0 27,281 Townes Crossing, Oswego, IL 12,043 319 12,362 Park Square, Brooklyn Park, MN 4,023 160 10,033 Forest Lake Marketplace, Forest Lake, MN 11,856 (41) 11,815 Naper West Ph II, Naperville, IL 3,116 1,298 4,414 Walgreens, Jennings, MO 2,706 6 2,712 Four Flaggs Annex, Niles, IL 3,289 6 3,295 Four Flaggs, Niles, IL 8,788 2,645 23,943 Brunswick Market Center, Brunswick, OH 13,458 247 13,705 Medina Marketplace, Medina, OH 9,511 4 9,515 Shakopee Valley, Shakopee, MN 14,700 12 14,712 Shops at Orchard Place, Skokie, IL 42,752 (129) 42,623 Cub Foods, Hutchinson, MN 5,388 7 5,395 Mankato Heights, Mankato, MN 15,102 (12) 15,090 Caton Crossing, Plainfield, IL 11,165 7 11,172 Village Ten, Coon Rapids, MN 15,104 0 15,104 Rochester Marketplace, Rochester, MN 9,371 (7) 9,364 University Crossing, Mishawaka, IN 14,913 20 14,933 Total for Inland Real Estate Corporation $ 232,726 $ 4,544 $ 269,230 ================= ================== ===================
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-14
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ----------------------------------------------------------------------------------------------------------------------------------- INLAND RETAIL REAL ESTATE TRUST, INC.: Columbia Promenade, Kissimmee, FL 65,870 01/01 7,440 - K-Mart, Macon, GA 102,098 02/01 9,031 - Lowe's Home Improvement Center, Warner Robbins, GA 131,575 02/01 9,431 - West Oaks, Ocoee, FL 66,539 03/01 11,221 - PETsMART - Chattanooga, Chattanooga, TN 26,040 04/01 3,103 - PETsMART - Daytona Beach, Daytona Beach, FL 26,194 04/01 3,238 - PETsMART - Fredricksburg, Fredricksburg, VA 26,067 04/01 3,410 - Sand Lake Corners, Orlando, FL 189,741 05/01 22,256 - Jo-Ann Fabrics, Alpharetta, GA 44,418 06/01 4,911 - Woodstock Square, Atlanta, GA 218,819 06/01 27,596 - Chickasaw Trails Shopping Center, Orlando, FL 75,492 08/01 8,631 - Just for Feet - Daytona, Daytona Beach, FL 22,255 08/01 3,901 - Skyview Plaza, Orlando, FL 281,247 09/01 21,332 - Aberdeen Square, Boynton Beach, FL 70,555 10/01 6,717 - Anderson Central, Anderson, SC 223,211 11/01 15,863 11,000 Brandon Blvd. Shoppes, Brandon, FL 85,377 11/01 9,482 - Creekwood Crossing, Bradenton, FL 227,052 11/01 23,616 - Eckerd Drug Store - Greenville, Greenville, SC 10,908 11/01 2,828 - Abernathy Square, Atlanta, GA 131,649 12/01 24,131 - Citrus Hills, Citrus Hills, FL 68,927 12/01 6,027 - Douglasville Pavilion, Douglasville, GA 267,764 12/01 27,377 20,000 Eckerd Drug Store - Spartanburg, Spartanburg, SC 10,908 12/01 2,807 - Fayetteville Pavilion, Fayetteville, NC 272,385 12/01 26,898 20,133 Southlake Pavilion, Morrow, GA 525,162 12/01 56,377 39,740 Steeplechase Plaza, Ocala, FL 87,380 12/01 8,647 - Venture Pointev, Duluth, GA 334,620 12/01 26,533 13,334 Sarasota Pavilion, Sarasota, FL 324,140 01/02 42,100 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------------- INLAND RETAIL REAL ESTATE TRUST, INC.: Columbia Promenade, Kissimmee, FL 7,440 (6) 7,434 K-Mart, Macon, GA 9,031 - 9,031 Lowe's Home Improvement Center, Warner Robbins, GA 9,431 - 9,431 West Oaks, Ocoee, FL 11,221 27 11,248 PETsMART - Chattanooga, Chattanooga, TN 3,103 - 3,103 PETsMART - Daytona Beach, Daytona Beach, FL 3,238 - 3,238 PETsMART - Fredricksburg, Fredricksburg, VA 3,410 - 3,410 Sand Lake Corners, Orlando, FL 22,256 (90) 22,166 Jo-Ann Fabrics, Alpharetta, GA 4,911 - 4,911 Woodstock Square, Atlanta, GA 27,596 (56) 27,540 Chickasaw Trails Shopping Center, Orlando, FL 8,631 14 8,645 Just for Feet - Daytona, Daytona Beach, FL 3,901 4 3,905 Skyview Plaza, Orlando, FL 21,332 624 21,956 Aberdeen Square, Boynton Beach, FL 6,717 (30) 6,687 Anderson Central, Anderson, SC 4,863 (111) 15,752 Brandon Blvd. Shoppes, Brandon, FL 9,482 5 9,487 Creekwood Crossing, Bradenton, FL 23,616 96 23,712 Eckerd Drug Store - Greenville, Greenville, SC 2,828 (17) 2,811 Abernathy Square, Atlanta, GA 24,131 280 24,411 Citrus Hills, Citrus Hills, FL 6,027 191 6,218 Douglasville Pavilion, Douglasville, GA 7,377 (156) 27,221 Eckerd Drug Store - Spartanburg, Spartanburg, SC 2,807 11 2,818 Fayetteville Pavilion, Fayetteville, NC 6,765 1,285 28,183 Southlake Pavilion, Morrow, GA 16,637 7,413 63,790 Steeplechase Plaza, Ocala, FL 8,647 457 9,104 Venture Pointev, Duluth, GA 13,199 (149) 26,384 Sarasota Pavilion, Sarasota, FL 42,100 182 42,282
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-15
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ----------------------------------------------------------------------------------------------------------------------------------- Turkey Creek Phase I, Knoxville, TN 284,224 01/02 21,762 - Universal Plaza, Lauderhill, FL 49,816 01/02 9,872 - Hairston Crossing, Decatur, GA 57,884 02/02 6,630 - Just for Feet - Augusta, Augusta, GA 22,115 02/02 3,054 - Just For Feet - Covington, Covington, LA 20,116 02/02 3,447 - Logger Head Junction, Sarasota, FL 4,711 02/02 665 - Shoppes of Golden Acres, Newport Richey, FL 76,371 02/02 10,831 - Newnan Pavilion, Newnan, GA 481,004 03/02 33,114 - Eisenhower Crossing I & II, Macon, GA 403,013 11/01,03/02 43,292 - Acworth Avenue Retail Shopping Center, Acworth, GA 16,130 12/00,3/02 2,834 - Crystal Springs Shopping Center, Crystal Springs, FL 67,021 04/02 7,478 - Eckerd Drug Store - Concord, Concord, NC 10,908 04/02 2,039 - Eckerd Drug Store - Tega Cay, Tega Cay, SC 13,824 04/02 2,544 - Melbourne Shopping Center, Melbourne, FL 209,217 04/02 9,842 5,949 Riverstone Plaza, Canton, GA 302,024 04/02 31,943 - Target Center, Columbia, SC 79,253 04/02 7,673 - Hampton Point, Taylors, SC 58,316 05/02 4,526 - Northpoint Marketplace, Spartanburg, SC 101,982 05/02 8,269 - Oleander Shopping Center, Wilmington, NC 51,888 05/02 5,221 3,000 Sharon Greens, Cumming, GA 98,317 05/02 13,062 - Bass Pro Outdoor World, Dania Beach, FL 165,000 06/02 18,220 - Chesterfield Crossings, Richmond, VA, 68,898 06/02 10,982 - Circuit City-Rome, Rome, GA 33,056 06/02 4,476 - Circuit City-Vero Beach, Vero Beach, FL 33,243 06/02 5,648 - Hillsboro Square, Deerfield Beach, FL 145,647 06/02 18,985 - Stonebridge Square, Roswell, GA 160,104 06/02 19,529 - Ward's Crossing, Lynchburg, VA 80,918 06/02 11,100 - Circuit City Plaza, Orlando, FL 78,625 07/02 11,518 - Eckerd Drug Store - Woodruff, Woodruff, SC 13,824 07/02 2,475 - McFarland Plaza, Tuscaloosa, AL 221,807 07/02 15,259 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------------- Turkey Creek Phase I, Knoxville, TN 21,762 10,181 31,943 Universal Plaza, Lauderhill, FL 9,872 2 9,874 Hairston Crossing, Decatur, GA 6,630 34 6,664 Just for Feet - Augusta, Augusta, GA 3,054 3 3,057 Just For Feet - Covington, Covington, LA 3,447 - 3,447 Logger Head Junction, Sarasota, FL 665 - 665 Shoppes of Golden Acres, Newport Richey, FL 10,831 101 10,932 Newnan Pavilion, Newnan, GA 33,114 2,623 35,737 Eisenhower Crossing I & II, Macon, GA 43,292 (286) 43,006 Acworth Avenue Retail Shopping Center, Acworth, GA 2,834 16 2,850 Crystal Springs Shopping Center, Crystal Springs, FL 7,478 (2) 7,476 Eckerd Drug Store - Concord, Concord, NC 2,039 156 2,195 Eckerd Drug Store - Tega Cay, Tega Cay, SC 2,544 544 3,088 Melbourne Shopping Center, Melbourne, FL 3,893 935 10,777 Riverstone Plaza, Canton, GA 31,943 243 32,186 Target Center, Columbia, SC 7,673 20 7,693 Hampton Point, Taylors, SC 4,526 55 4,581 Northpoint Marketplace, Spartanburg, SC 8,269 (128) 8,141 Oleander Shopping Center, Wilmington, NC 2,221 12 5,233 Sharon Greens, Cumming, GA 13,062 79 13,141 Bass Pro Outdoor World, Dania Beach, FL 18,220 16 18,236 Chesterfield Crossings, Richmond, VA, 10,982 723 11,705 Circuit City-Rome, Rome, GA 4,476 6 4,482 Circuit City-Vero Beach, Vero Beach, FL 5,648 9 5,657 Hillsboro Square, Deerfield Beach, FL 18,985 2,565 21,550 Stonebridge Square, Roswell, GA 19,529 1,653 21,182 Ward's Crossing, Lynchburg, VA 11,100 (76) 11,024 Circuit City Plaza, Orlando, FL 11,518 - 11,518 Eckerd Drug Store - Woodruff, Woodruff, SC 2,475 374 2,849 McFarland Plaza, Tuscaloosa, AL 15,259 21 15,280
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-16
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ----------------------------------------------------------------------------------------------------------------------------------- Sycamore Commons, Matthews, NC 256,523 07/02 38,184 - Walk at Highwoods I, Tampa, FL 133,940 07/02 23,999 - Eckerd Drug Store - Blackstock, Spartanburg, SC 10,908 08/02 2,723 - Forestdale Plaza, Jamestown, NC 53,239 08/02 6,670 - Sexton Commons, Fuquay Varina, NC 49,097 08/02 8,023 - Shoppes at Lake Mary, Lake Mary, FL 69,843 08/02 11,140 - Wakefield Crossing, Raleigh, NC 75,929 08/02 10,794 - Circuit City-Cary, Cary, NC 27,891 09/02 5,650 - Cox Creek, Florence, AL 173,934 09/02 19,231 15,287 Forest Hills Centre, Wilson, NC 73,280 09/02 6,675 - Golden Gate, Greensboro, NC 153,114 10/02 10,545 - Goldenrod Groves, Orlando, FL 108,944 10/02 9,177 - City Crossing, Warner Robins, GA 187,099 11/02 14,644 - Clayton Corners, Clayton, NC 125,656 11/02 14,994 9,740 CompUSA Retail Center, Newport News, VA 47,134 11/02 7,324 - Duvall Village, Bowie, MD 82,522 11/02 13,046 - Gateway Plaza - Jacksonville, Jacksonville, NC 101,682 11/02 11,865 - Harundale Plaza, Glen Burnie, MD 274,160 11/02 24,752 - Jones Bridge Plaza, Norcross, GA 83,363 11/02 7,525 - Lakewood Ranch, Bradenton, FL 69,472 11/02 9,494 4,400 North Aiken Bi-Lo Center, Aiken, SC 59,204 11/02 5,816 - Plant City Crossing, Plant City, FL 85,252 11/02 10,879 - Presidential Commons, Snellville, GA 372,149 11/02 45,032 26,113 Rainbow Foods - Garland, Garland, TX 70,576 11/02 5,098 - Rainbow Foods - Rowlett, Rowlett, TX 63,117 11/02 4,604 - River Ridge, Birmingham, AL 158,755 11/02 26,492 - Rosedale Shopping Center, Huntersville, NC 94,248 11/02 19,544 13,300 Shoppes on the Circle, Dothan, AL 149,085 11/02 15,013 12,210 Southlake Shopping Center, Cornelius, NC 131,247 11/02 13,633 7,962 Village Square at Golf, Boynton Beach, FL 134,894 11/02 18,537 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------------- Sycamore Commons, Matthews, NC 38,184 3,077 41,261 Walk at Highwoods I, Tampa, FL 23,999 72 24,071 Eckerd Drug Store - Blackstock, Spartanburg, SC 2,723 - 2,723 Forestdale Plaza, Jamestown, NC 6,670 (114) 6,556 Sexton Commons, Fuquay Varina, NC 8,023 (129) 7,894 Shoppes at Lake Mary, Lake Mary, FL 11,140 59 11,199 Wakefield Crossing, Raleigh, NC 10,794 (182) 10,612 Circuit City-Cary, Cary, NC 5,650 4 5,654 Cox Creek, Florence, AL 3,944 31 19,262 Forest Hills Centre, Wilson, NC 6,675 11 6,686 Golden Gate, Greensboro, NC 10,545 23 10,568 Goldenrod Groves, Orlando, FL 9,177 741 9,918 City Crossing, Warner Robins, GA 14,644 3,204 17,848 Clayton Corners, Clayton, NC 5,254 (5) 14,989 CompUSA Retail Center, Newport News, VA 7,324 5 7,329 Duvall Village, Bowie, MD 13,046 369 13,415 Gateway Plaza - Jacksonville, Jacksonville, NC 11,865 (24) 11,841 Harundale Plaza, Glen Burnie, MD 24,752 (40) 24,712 Jones Bridge Plaza, Norcross, GA 7,525 401 7,926 Lakewood Ranch, Bradenton, FL 5,094 39 9,533 North Aiken Bi-Lo Center, Aiken, SC 5,816 13 5,829 Plant City Crossing, Plant City, FL 10,879 (16) 10,863 Presidential Commons, Snellville, GA 18,919 6 45,038 Rainbow Foods - Garland, Garland, TX 5,098 5 5,103 Rainbow Foods - Rowlett, Rowlett, TX 4,604 2 4,606 River Ridge, Birmingham, AL 26,492 79 26,571 Rosedale Shopping Center, Huntersville, NC 6,244 (122) 19,422 Shoppes on the Circle, Dothan, AL 2,803 19 15,032 Southlake Shopping Center, Cornelius, NC 5,671 (15) 13,618 Village Square at Golf, Boynton Beach, FL 18,537 (263) 18,274
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-17
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ----------------------------------------------------------------------------------------------------------------------------------- Chatham Crossing, Siler City, NC 32,000 12/02 3,964 - Columbiana Station, Columbia, SC 270,649 12/02 46,615 - Gateway Plaza - Conway, Conway, SC 62,428 12/02 6,295 - Lakeview Plaza, Kissimmee, FL 54,788 12/02 6,187 3,613 Meadowmont Village Center, Chapel Hill, NC 133,471 12/02 26,808 - Shoppes at Citiside, Charlotte, NC 75,478 12/02 9,706 - Shoppes at New Tampa, Wesley Chapel, FL 158,342 12/02 19,196 - Camp Hill Center, Harrisburg, PA 63,350 01/03 7,786 - Eckerd Drug Store - #5018, Amherst, NY 10,908 01/03 2,805 1,582 Eckerd Drug Store - #5661, Buffalo, NY 12,732 01/03 3,145 1,777 Eckerd Drug Store - #5786, Dunkirk, NY 10,908 01/03 1,720 905 Eckerd Drug Store - #5797, Cheektowaga, NY 10,908 01/03 3,756 1,636 Eckerd Drug Store - #6007, Connelsville, PA 10,908 01/03 3,503 1,636 Eckerd Drug Store - #6036, Pittsburgh, PA 10,908 01/03 3,840 1,636 Eckerd Drug Store - #6040, Monroeville,PA 12,738 01/03 5,430 1,911 Eckerd Drug Store - #6043, Monroeville,PA 10,908 01/03 3,315 1,637 Eckerd Drug Store - #6062, Harborcreek, PA 10,908 01/03 2,527 1,418 Eckerd Drug Store - #6089, Weirton, WV 10,908 01/03 2,472 1,374 Eckerd Drug Store - #6095, Cheswick, PA 10,908 01/03 2,791 1,571 Eckerd Drug Store - #6172, New Castle,PA 10,908 01/03 2,877 1,636 Eckerd Drug Store - #6193, Erie, PA 10,908 01/03 2,919 1,636 Eckerd Drug Store - #6199, Millcreek, PA 10,908 01/03 3,729 1,637 Eckerd Drug Store - #6257, Millcreek, PA 10,908 01/03 1,444 640 Eckerd Drug Store - #6286, Erie, PA 10,908 01/03 4,193 1,601 Eckerd Drug Store - #6334, Erie, PA 10,908 01/03 2,997 1,636 Eckerd Drug Store - #6392, Penn, PA 10,908 01/03 2,949 1,636 Eckerd Drug Store - #6695, Plum Borough, PA 10,908 01/03 3,669 1,637 Eckerd Drug Store - Piedmont, Piedmont, SC 10,908 01/03 1,968 - Market Square, Douglasville, GA 121,774 01/03 12,905 8,390 Springfield Park, Lawrenceville, GA 105,321 01/03 10,924 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------------- Chatham Crossing, Siler City, NC 3,964 16 3,980 Columbiana Station, Columbia, SC 46,615 193 46,808 Gateway Plaza - Conway, Conway, SC 6,295 - 6,295 Lakeview Plaza, Kissimmee, FL 2,574 19 6,206 Meadowmont Village Center, Chapel Hill, NC 26,808 (581) 26,227 Shoppes at Citiside, Charlotte, NC 9,706 326 10,032 Shoppes at New Tampa, Wesley Chapel, FL 19,196 (266) 18,930 Camp Hill Center, Harrisburg, PA 7,786 5 7,791 Eckerd Drug Store - #5018, Amherst, NY 1,223 - 2,805 Eckerd Drug Store - #5661, Buffalo, NY 1,368 - 3,145 Eckerd Drug Store - #5786, Dunkirk, NY 815 - 1,720 Eckerd Drug Store - #5797, Cheektowaga, NY 2,120 (1) 3,755 Eckerd Drug Store - #6007, Connelsville, PA 1,867 - 3,503 Eckerd Drug Store - #6036, Pittsburgh, PA 2,204 (1) 3,839 Eckerd Drug Store - #6040, Monroeville,PA 3,519 (2) 5,428 Eckerd Drug Store - #6043, Monroeville,PA 1,678 - 3,315 Eckerd Drug Store - #6062, Harborcreek, PA 1,109 - 2,527 Eckerd Drug Store - #6089, Weirton, WV 1,098 - 2,472 Eckerd Drug Store - #6095, Cheswick, PA 1,220 - 2,791 Eckerd Drug Store - #6172, New Castle,PA 1,241 - 2,877 Eckerd Drug Store - #6193, Erie, PA 1,283 - 2,919 Eckerd Drug Store - #6199, Millcreek, PA 2,092 (1) 3,728 Eckerd Drug Store - #6257, Millcreek, PA 804 - 1,444 Eckerd Drug Store - #6286, Erie, PA 2,592 (1) 4,192 Eckerd Drug Store - #6334, Erie, PA 1,361 - 2,997 Eckerd Drug Store - #6392, Penn, PA 1,313 - 2,949 Eckerd Drug Store - #6695, Plum Borough, PA 2,032 - 3,669 Eckerd Drug Store - Piedmont, Piedmont, SC 1,968 5 1,973 Market Square, Douglasville, GA 4,515 787 13,692 Springfield Park, Lawrenceville, GA 10,924 5 10,929
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-18
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ----------------------------------------------------------------------------------------------------------------------------------- Tequesta Shoppes Plaza, Tequesta, FL 109,937 01/03 11,439 - Capital Crossing, Raleigh, NC 92,248 02/03 9,984 - Colonial Promenade Bardmore Center, Largo, FL 152,667 02/03 17,151 - Commonwealth Center II, Richmond, VA 165,382 02/03 22,278 - Concord Crossing, Concord, NC 55,930 02/03 5,331 - Fountains, Plantation, FL 408,807 02/03 44,412 - Marketplace at Mill Creek, Buford, GA 398,407 02/03 50,118 - Monroe Shopping Center, Monroe, NC 45,080 02/03 3,548 - Oakley Plaza, Asheville, NC 118,727 02/03 9,469 - Overlook at King of Prussia, King of Prussia, PA 186,980 02/03 57,045 30,000 Paraiso Plaza, Hialeah, FL 61,012 02/03 9,481 - Publix Brooker Creek, Palm Harbor, FL 77,596 02/03 8,719 4,468 Sheridan Square, Dania, FL 67,425 02/03 7,586 - Stonecrest Marketplace, Lithonia, GA 264,447 02/03 34,742 - Suwanee Crossroads, Suwanee, GA 69,500 02/03 12,068 - Windsor Court Shopping Center, Windsor Court, CT 78,480 02/03 14,639 - Downtown Short Pump, Richmond, VA 125,553 03/03 33,515 - Valley Park Commons, Hagerstown, MD 89,579 03/03 11,317 - Eckerd - Perry Creek, Perry Creek, NC 10,908 09/02 2,795 - Village Center, Mt. Pleasant, WI 217,103 03/03 23,987 - Watercolor Crossing, Tallahassee, FL 43,200 03/03 5,485 - Bi-Lo - Southern Pines, Southern Pines, NC 57,404 04/03 8,127 - Creeks at Virginia Center, Richmond, VA 266,266 04/03 39,458 27,804 Flamingo Falls, Pembroke Pines, FL 108,565 04/03 23,946 - Glenmark Shopping Center, Morgantown, WV 122,167 04/03 12,982 - River Run, Miramar, FL 93,643 04/03 11,638 - Westside Centre Shopping Center, Huntsville, AL 490,784 04/03 46,015 39,350 440 Commons, Jersey City, NJ 162,533 05/03 18,046 - Barrett Pavilion, Kennesaw, GA 460,755 05/03 80,183 - Bi-Lo - Asheville, Asheville, NC 54,319 05/03 7,727 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------------- Tequesta Shoppes Plaza, Tequesta, FL 11,439 (248) 11,191 Capital Crossing, Raleigh, NC 9,984 14 9,998 Colonial Promenade Bardmore Center, Largo, FL 17,151 45 17,196 Commonwealth Center II, Richmond, VA 22,278 (133) 22,145 Concord Crossing, Concord, NC 5,331 5 5,336 Fountains, Plantation, FL 44,412 - 44,412 Marketplace at Mill Creek, Buford, GA 50,118 50 50,168 Monroe Shopping Center, Monroe, NC 3,548 5 3,553 Oakley Plaza, Asheville, NC 9,469 4 9,473 Overlook at King of Prussia, King of Prussia, PA 27,045 15 57,060 Paraiso Plaza, Hialeah, FL 9,481 26 9,507 Publix Brooker Creek, Palm Harbor, FL 4,251 146 8,865 Sheridan Square, Dania, FL 7,586 23 7,609 Stonecrest Marketplace, Lithonia, GA 34,742 (115) 34,627 Suwanee Crossroads, Suwanee, GA 12,068 (69) 11,999 Windsor Court Shopping Center, Windsor Court, CT 14,639 10 14,649 Downtown Short Pump, Richmond, VA 33,515 (147) 33,368 Valley Park Commons, Hagerstown, MD 11,317 12 11,329 Eckerd - Perry Creek, Perry Creek, NC 2,795 (66) 2,729 Village Center, Mt. Pleasant, WI 23,987 (33) 23,954 Watercolor Crossing, Tallahassee, FL 5,485 - 5,485 Bi-Lo - Southern Pines, Southern Pines, NC 8,127 (62) 8,065 Creeks at Virginia Center, Richmond, VA 11,654 1,608 41,066 Flamingo Falls, Pembroke Pines, FL 23,946 - 23,946 Glenmark Shopping Center, Morgantown, WV 12,982 335 13,317 River Run, Miramar, FL 11,638 (5) 11,633 Westside Centre Shopping Center, Huntsville, AL 6,665 2,035 48,050 440 Commons, Jersey City, NJ 18,046 9 18,055 Barrett Pavilion, Kennesaw, GA 80,183 (51) 80,132 Bi-Lo - Asheville, Asheville, NC 7,727 (1) 7,726
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-19
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ----------------------------------------------------------------------------------------------------------------------------------- Bi-Lo - Shelmore, Mt. Pleasant, SC 61,705 05/03 11,836 - Bi-Lo - Sylvania, Sylvania, GA 36,000 05/03 4,407 - Birkdale Village, Charlotte, NC 653,983 05/03 96,410 - BJ'S Wholesale Club, Charlotte, NC 99,792 05/03 13,025 - Brick Center Plaza, Brick, NJ 114,028 05/03 19,451 - East Hanover Plaza, East Hanover, NJ 122,028 05/03 17,312 - Eckerd Drug Store - #0234, Marietta, GA 10,880 05/03 2,044 1,161 Eckerd Drug Store - #0444, Gainesville, GA 10,594 05/03 1,986 1,129 Eckerd Drug Store - #0818, Ft. Worth, TX 10,908 05/03 2,691 1,540 Eckerd Drug Store - #0862, Wichita Falls, TX 9,504 05/03 2,087 1,203 Eckerd Drug Store - #0943, Richardson, TX 10,560 05/03 2,354 1,338 Eckerd Drug Store - #0963, Richardson, TX 10,560 05/03 2,313 1,316 Eckerd Drug Store - #0968, Wichita Falls, TX 9,504 05/03 1,837 1,036 Eckerd Drug Store - #0980, Dallas, TX 9,504 05/03 1,917 1,097 Eckerd Drug Store - #2320, Snellville, GA 10,594 05/03 2,230 1,271 Eckerd Drug Store - #2506, Dallas, TX 9,504 05/03 2,073 1,177 Eckerd Drug Store - #3072, Richland Hills, TX 10,908 05/03 2,663 1,521 Eckerd Drug Store - #3152, Lake Worth, TX 9,504 05/03 1,805 1,021 Eckerd Drug Store - #3169, River Oaks, TX 10,908 05/03 2,705 1,546 Eckerd Drug Store - #3192, Tyler, TX 9,504 05/03 1,495 845 Eckerd Drug Store - #3338, Kissimmee, FL 10,880 05/03 2,479 1,407 Eckerd Drug Store - #3350, Oklahoma City, OK 9,504 05/03 1,776 1,005 Eckerd Drug Store - #3363, Ft. Worth, TX 9,504 05/03 1,661 941 Eckerd Drug Store - #3449, Lawrenceville, GA 9,504 05/03 2,061 - Eckerd Drug Store - #3528, Plano, TX 10,908 05/03 2,535 1,445 Edgewater Town Center, Edgewater, NJ 77,446 05/03 27,030 - Goody's Shopping Center, Augusta, GA 22,560 05/03 2,051 - Heritage Pavilion, Smyrna, GA 262,961 05/03 40,013 - Hiram Pavilion, Hiram, GA 363,618 05/03 36,787 - Killearn Shopping Center, Tallahassee, FL 94,547 05/03 10,945 4,041 OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------------- Bi-Lo - Shelmore, Mt. Pleasant, SC 11,836 10 11,846 Bi-Lo - Sylvania, Sylvania, GA 4,407 2 4,409 Birkdale Village, Charlotte, NC 96,410 (897) 95,513 BJ'S Wholesale Club, Charlotte, NC 13,025 1 13,026 Brick Center Plaza, Brick, NJ 19,451 13 19,464 East Hanover Plaza, East Hanover, NJ 17,312 5 17,317 Eckerd Drug Store - #0234, Marietta, GA 883 4 2,048 Eckerd Drug Store - #0444, Gainesville, GA 857 4 1,990 Eckerd Drug Store - #0818, Ft. Worth, TX 1,151 4 2,695 Eckerd Drug Store - #0862, Wichita Falls, TX 884 4 2,091 Eckerd Drug Store - #0943, Richardson, TX 1,016 4 2,358 Eckerd Drug Store - #0963, Richardson, TX 997 4 2,317 Eckerd Drug Store - #0968, Wichita Falls, TX 801 4 1,841 Eckerd Drug Store - #0980, Dallas, TX 820 4 1,921 Eckerd Drug Store - #2320, Snellville, GA 959 4 2,234 Eckerd Drug Store - #2506, Dallas, TX 896 4 2,077 Eckerd Drug Store - #3072, Richland Hills, TX 1,142 4 2,667 Eckerd Drug Store - #3152, Lake Worth, TX 784 4 1,809 Eckerd Drug Store - #3169, River Oaks, TX 1,159 4 2,709 Eckerd Drug Store - #3192, Tyler, TX 650 4 1,499 Eckerd Drug Store - #3338, Kissimmee, FL 1,072 4 2,483 Eckerd Drug Store - #3350, Oklahoma City, OK 771 4 1,780 Eckerd Drug Store - #3363, Ft. Worth, TX 720 4 1,665 Eckerd Drug Store - #3449, Lawrenceville, GA 2,061 4 2,065 Eckerd Drug Store - #3528, Plano, TX 1,090 4 2,539 Edgewater Town Center, Edgewater, NJ 27,030 11 27,041 Goody's Shopping Center, Augusta, GA 2,051 - 2,051 Heritage Pavilion, Smyrna, GA 40,013 4 40,017 Hiram Pavilion, Hiram, GA 36,787 1,559 38,346 Killearn Shopping Center, Tallahassee, FL 6,904 80 11,025
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-20
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ----------------------------------------------------------------------------------------------------------------------------------- Midway Plaza, Tamarac, FL 227,209 05/03 26,858 - North Hill Commons, Anderson, SC 42,942 05/03 4,541 - Sandy Plains Village, Roswell, GA 175,035 05/03 18,055 - Shoppes at Paradise Pointe, Ft Walton Beach, FL 84,070 05/03 11,591 - Sony Theatre Complex, East Hanover, NJ 70,549 05/03 12,068 - Town & Country, Knoxville, TN 639,135 05/03 49,812 - Village Crossing, Skokie, IL 427,722 05/03 69,443 - West Falls Plaza, West Paterson, NJ 88,913 05/03 20,980 - CostCo Plaza, White Marsh, MD 209,841 06/03 16,857 - Denbigh Village Shopping Center, Newport News, VA 311,583 06/03 20,855 - Shoppes at Lake Dow, McDonough, GA 73,271 06/03 11,014 - Willoughby Hills Shopping Center, Willoughby Hills, OH 359,414 06/03 37,705 14,480 Cascades Marketplace, Sterling, VA 98,532 07/03 16,840 - Fayette Pavilion III, Fayetteville, GA 619,856 07/03 46,308 - Northlake Commons, Palm Beach Gardens, FL 143,955 07/03 21,643 - Route 22 Retail Shopping Center, Union, NJ 110,453 07/03 19,054 11,355 Vision Works, Plantation, FL 6,891 07/03 1,732 - Bellevue Place Shopping Center, Nashville, TN 77,249 08/03 10,884 - Camfield Corners, Charlotte, NC 69,887 08/03 9,339 - Kensington Place, Murfreesboro, TN 70,624 08/03 7,167 - Largo Town Center, Upper Marlboro, MD 270,310 08/03 30,947 - Naugatuck Valley Shopping Center, Waterbury, CT 383,332 08/03 50,452 - Riverdale Shops, West Springfield, MA 273,928 08/03 42,055 - Spring Mall Center, Springfield, VA 56,511 08/03 10,481 - Walgreen's, Port Huron, MI 14,998 08/03 4,368 - Bank First, Winter Park, FL 3,348 09/03 723 - Carlisle Commons, Carlisle, PA 393,023 09/03 39,635 - Circuit City - Culver City, Culver City, CA 32,873 09/03 8,781 - Circuit City - Highland Ranch, Highland Ranch, CO 43,480 09/03 5,628 - Circuit City - Olympia, Olympia, WA 35,776 09/03 5,632 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------------- Midway Plaza, Tamarac, FL 26,858 265 27,123 North Hill Commons, Anderson, SC 4,541 1 4,542 Sandy Plains Village, Roswell, GA 18,055 84 18,139 Shoppes at Paradise Pointe, Ft Walton Beach, FL 11,591 (94) 11,497 Sony Theatre Complex, East Hanover, NJ 12,068 5 12,073 Town & Country, Knoxville, TN 49,812 1,397 51,209 Village Crossing, Skokie, IL 69,443 6,001 75,444 West Falls Plaza, West Paterson, NJ 20,980 5 20,985 CostCo Plaza, White Marsh, MD 16,857 5 16,862 Denbigh Village Shopping Center, Newport News, VA 20,855 (106) 20,749 Shoppes at Lake Dow, McDonough, GA 11,014 (68) 10,946 Willoughby Hills Shopping Center, Willoughby Hills, OH 23,225 22 37,727 Cascades Marketplace, Sterling, VA 16,840 5 16,845 Fayette Pavilion III, Fayetteville, GA 46,308 2,540 48,848 Northlake Commons, Palm Beach Gardens, FL 21,643 523 22,166 Route 22 Retail Shopping Center, Union, NJ 7,699 - 19,054 Vision Works, Plantation, FL 1,732 6 1,738 Bellevue Place Shopping Center, Nashville, TN 10,884 5 10,889 Camfield Corners, Charlotte, NC 9,339 2 9,341 Kensington Place, Murfreesboro, TN 7,167 - 7,167 Largo Town Center, Upper Marlboro, MD 30,947 7 30,954 Naugatuck Valley Shopping Center, Waterbury, CT 50,452 8 50,460 Riverdale Shops, West Springfield, MA 42,055 34 42,089 Spring Mall Center, Springfield, VA 10,481 2 10,483 Walgreen's, Port Huron, MI 4,368 9 4,377 Bank First, Winter Park, FL 723 8 731 Carlisle Commons, Carlisle, PA 39,635 10 39,645 Circuit City - Culver City, Culver City, CA 8,781 4 8,785 Circuit City - Highland Ranch, Highland Ranch, CO 5,628 3 5,631 Circuit City - Olympia, Olympia, WA 5,632 3 5,635
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-21
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ----------------------------------------------------------------------------------------------------------------------------------- Fayette Pavilion I & II, Fayetteville, GA 791,373 09/03 88,521 - Kroger - Cincinnati, Cincinnati, OH 56,634 09/03 7,431 - Kroger - Grand Prairie, Grand Prairie, TX 64,522 09/03 5,793 - Kroger - Westchester, Westchester, OH 56,083 09/03 4,670 - Lowe's Home Improvement - Baytown, Baytown, TX 125,357 09/03 11,478 - Lowe's Home Improvement - Cullman, Cullman, AL 101,287 09/03 8,960 - Lowe's Home Improvement - Houston, Houston, TX 131,644 09/03 12,050 - Lowe's Home Improvement - Steubenville, Steubenville, OH 130,497 09/03 11,442 - Southwood Plantation, Tallahassee, FL 62,700 10/02 7,738 - Super Wal-Mart - Alliance, Alliance, OH 200,084 09/03 15,879 - Super Wal-Mart - Greenville, Greenville, SC 200,084 09/03 16,971 - Super Wal-Mart - Winston-Salem, Winston-Salem, NC 204,931 09/03 18,721 - Eckerd - Gaffney, Gaffney, SC 13,813 12/02 2,374 - Wal-Mart/Sam's Club, Worcester, MA 107,929 09/03 11,194 - Bi-Lo at Northside Plaza, Greenwood, SC 41,581 10/03 4,069 - Cedar Springs Crossing, Spartanburg, SC 86,581 10/03 10,191 - Clearwater Crossing, Flowery Branch, GA 90,566 10/03 13,303 - Cortez Plaza, Bradenton, FL 286,610 10/03 26,819 16,828 Houston Square, Warner Robins, GA 60,799 10/03 5,214 - Lexington Place, Lexington, SC 83,167 10/03 8,481 - Manchester Broad Street, Manchester, CT 68,509 10/03 13,119 - Plaza Del Paraiso, Miami, FL 82,442 10/03 15,417 - Seekonk Town Center, Seekonk, MA 80,713 10/03 11,068 - Shoppes of Ellenwood, Ellenwood, GA 67,721 10/03 10,703 - Shoppes of Lithia, Brandon, FL 71,430 10/03 12,926 - Crossroads Plaza, Lumberton, NJ 89,627 11/03 18,232 - Hilliard Rome, Columbus, OH 110,772 11/03 17,171 11,883 Loisdale Center, Springfield, VA 120,742 11/03 29,051 - Middletown Village, Middletown, RI 98,161 11/03 17,871 - Shoppes at Oliver's Crossing, Winston-Salem, NC 76,512 11/03 10,386 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------------- Fayette Pavilion I & II, Fayetteville, GA 88,521 (357) 88,164 Kroger - Cincinnati, Cincinnati, OH 7,431 3 7,434 Kroger - Grand Prairie, Grand Prairie, TX 5,793 7 5,800 Kroger - Westchester, Westchester, OH 4,670 3 4,673 Lowe's Home Improvement - Baytown, Baytown, TX 11,478 7 11,485 Lowe's Home Improvement - Cullman, Cullman, AL 8,960 3 8,963 Lowe's Home Improvement - Houston, Houston, TX 12,050 7 12,057 Lowe's Home Improvement - Steubenville, Steubenville, OH 11,442 3 11,445 Southwood Plantation, Tallahassee, FL 7,738 4 7,742 Super Wal-Mart - Alliance, Alliance, OH 15,879 3 15,882 Super Wal-Mart - Greenville, Greenville, SC 16,971 3 16,974 Super Wal-Mart - Winston-Salem, Winston-Salem, NC 18,721 3 18,724 Eckerd - Gaffney, Gaffney, SC 2,374 502 2,876 Wal-Mart/Sam's Club, Worcester, MA 11,194 3 11,197 Bi-Lo at Northside Plaza, Greenwood, SC 4,069 - 4,069 Cedar Springs Crossing, Spartanburg, SC 10,191 - 10,191 Clearwater Crossing, Flowery Branch, GA 13,303 - 13,303 Cortez Plaza, Bradenton, FL 9,991 1,854 28,673 Houston Square, Warner Robins, GA 5,214 - 5,214 Lexington Place, Lexington, SC 8,481 - 8,481 Manchester Broad Street, Manchester, CT 13,119 - 13,119 Plaza Del Paraiso, Miami, FL 15,417 - 15,417 Seekonk Town Center, Seekonk, MA 11,068 - 11,068 Shoppes of Ellenwood, Ellenwood, GA 10,703 - 10,703 Shoppes of Lithia, Brandon, FL 12,926 - 12,926 Crossroads Plaza, Lumberton, NJ 18,232 - 18,232 Hilliard Rome, Columbus, OH 5,288 231 17,402 Loisdale Center, Springfield, VA 29,051 - 29,051 Middletown Village, Middletown, RI 17,871 - 17,871 Shoppes at Oliver's Crossing, Winston-Salem, NC 10,386 - 10,386
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-22
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ----------------------------------------------------------------------------------------------------------------------------------- Squirewood Village, Dandridge, TN 46,150 11/03 3,442 - Waterfront Marketplace/Town Center, Homestead, PA 755,407 11/03 113,024 72,035 Winslow Bay Commons, Mooresville, NC 255,598 11/03 42,132 - Albertson's at Bloomingdale Hills, Brandon, FL 78,686 12/03 5,856 - Oak Summit, Winston-Salem, NC 142,739 12/03 13,666 - Paradise Place, West Palm Beach, FL 69,620 12/03 11,688 - Pointe at Tampa Plams, Tampa, FL 20,258 12/03 5,282 - Southhampton Village, Tyrone, GA 77,900 11/02 10,610 - Shoppes on the Ridge 91,165 12/02 11,422 - ------------------------------------------------------------------------------- Total for 2001 through 2003 acquisitions 29,573,733 3,653,755 497,556 =============================================================================== DEVELOPMENT PROJECTS Fayette Pavilion III, Fayetteville, GA N/A 07/03 203 - Fountains, Plantation, FL N/A 02/03 2,664 - Hiram Pavilion, Hiram, GA N/A 05/03 695 - Northlake Commons, Palm Beach Gardens, FL N/A 07/03 640 - Redbud Commons Gastonia, NC N/A 06/03 5,101 - Shoppes of Golden Acres II, Newport Richey, FL N/A 02/02 189 - Southhampton Village, Tyrone, GA N/A 11/02 62 - Southlake Pavilion, Morrow, GA N/A 12/01 702 - Turkey Creek II, Knoxville, TN N/A 01/02 1,317 - Watercolor Crossing, Tallahassee, FL N/A 03/03 1,028 - Westside Center, Huntsville, AL N/A 04/03 4,888 - ------------------------------------------------------------------------------- Total for Development projects at 12/31/03 - 17,489 - =============================================================================== ------------------------------------------------------------------------------- GRAND TOTAL 31,875,622 3,935,930 529,516 =============================================================================== OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------------- Squirewood Village, Dandridge, TN 3,442 - 3,442 Waterfront Marketplace/Town Center, Homestead, PA 40,989 4,694 117,718 Winslow Bay Commons, Mooresville, NC 42,132 - 42,132 Albertson's at Bloomingdale Hills, Brandon, FL 5,856 - 5,856 Oak Summit, Winston-Salem, NC 13,666 - 13,666 Paradise Place, West Palm Beach, FL 11,688 - 11,688 Pointe at Tampa Plams, Tampa, FL 5,282 - 5,282 Southhampton Village, Tyrone, GA 10,610 - 10,610 Shoppes on the Ridge 11,422 - 11,422 ------------------------------------------------------------- Total for 2001 through 2003 acquisitions 3,156,199 59,541 3,713,296 ============================================================= DEVELOPMENT PROJECTS Fayette Pavilion III, Fayetteville, GA 203 - 203 Fountains, Plantation, FL 2,664 - 2,664 Hiram Pavilion, Hiram, GA 695 - 695 Northlake Commons, Palm Beach Gardens, FL 640 - 640 Redbud Commons Gastonia, NC 5,101 - 5,101 Shoppes of Golden Acres II, Newport Richey, FL 189 - 189 Southhampton Village, Tyrone, GA 62 - 62 Southlake Pavilion, Morrow, GA 702 - 702 Turkey Creek II, Knoxville, TN 1,317 - 1,317 Watercolor Crossing, Tallahassee, FL 1,028 - 1,028 Westside Center, Huntsville, AL 4,888 - 4,888 ------------------------------------------------------------- Total for Development projects at 12/31/03 17,489 - 17,489 ============================================================= ------------------------------------------------------------- GRAND TOTAL 3,406,414 64,085 4,000,015 =============================================================
[PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-23 TABLE VL- (CONTINUED) ACQUISITION OF PROPERTIES BY PROGRAMS NOTES TO TABLE VI (A) "Other Cash Expenditures Capitalized" consists of improvements to the property and acquisition expenses which are capitalized and paid or to be paid from the proceeds of the offering. As part of several purchases, rent is received under master lease agreements on the spaces currently vacant for periods ranging from one to two years or until the spaces are leased. As these payments are received, they are recorded as a reduction in the purchase price of the properties and have been netted against other cash expenditures capitalized. (B) "Total Acquisition Cost" is the sum of columns captioned "Purchase Price Plus Acquisition Fee" and "Other Cash Expenditures Capitalized." [PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE] A-24 APPENDIX B DISTRIBUTION REINVESTMENT PLAN INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. DISTRIBUTION REINVESTMENT PROGRAM Inland Western Retail Real Estate Trust, Inc., a Maryland corporation (the "Company"), pursuant to its Articles of Incorporation (the "Articles") has adopted a Distribution Reinvestment Program (the "DRP"), the terms and conditions of which are set forth below. Capitalized terms shall have the same meaning as set forth in the Company's Prospectus dated _______________ (as the same may be supplemented or modified from time to time) unless otherwise defined herein. i. Distributions. As agent for the Stockholders who purchase Shares from the Company pursuant to the prospectus dated ______________ (the "Offering") and elect to participate in the DRP (the "Participants"), the Company will apply all distributions, paid with respect to the Shares held by each Participant (the "Distributions"), including Distributions paid with respect to any full or fractional Shares acquired under the DRP, to the purchase of the Shares for said Participants directly, if permitted under state securities laws and, if not, through the Dealer Manager or Soliciting Dealers registered in the Participant's state of residence. Neither the Company nor its Affiliates will receive a fee for selling Shares under the DRP. ii. Procedure for Participation. Any Stockholder who purchases Shares pursuant to the Company's Offering may elect to become a Participant by completing and executing the Subscription Agreement or other appropriate authorization form as may be available from the Company, the Dealer Manager or the Soliciting Dealer. Participation in the DRP will begin with the next Distribution payable after receipt of a Participant's subscription or authorization. Shares will be purchased under the DRP on the record date for the Distribution used to purchase the Shares. Distributions for Shares acquired under the DRP will be paid at the same time as Distributions are paid on Shares purchased outside the DRP and are calculated with a daily record and Distribution declaration date. Each Participant agrees that if, at any time prior to listing of the Shares on a national stock exchange or inclusion of the Shares for quotation on a national market system, he or she fails to meet the suitability requirements for making an investment in the Company or cannot make the other representations or warranties set forth in the Subscription Agreement, he or she will promptly so notify the Company in writing. iii. Purchase of Shares. Participants will acquire Shares from the Company at a fixed price of $10.00 per Share until the first to occur of (i) the termination of the Offering, or (ii) the public offering price per Share in the Offering is increased above $10.00 per share. Thereafter, Participants will acquire Shares from the Company at a price equal to 95% of the Market Price of a Share on the date of purchase until such time as the Company's Shares are listed on a national stock exchange or included for quotation on a national market system. In the event of such listing or inclusion, Shares purchased by the Company for the DRP will be purchased on such exchange or market, at the prevailing market price, and will be sold to Stockholders at such price. The discount per Share is never intended to exceed 5% of the current Market Price of a Share on the date of purchase. Participants in the DRP may also purchase fractional Shares so that 100% of the Distributions will be used to acquire Shares. However, a Participant will not be able to acquire Shares under the DRP to the extent such purchase would cause it to exceed the Ownership Limit or other Share ownership restrictions imposed by the Articles. It is possible that a secondary market will develop for the Shares, and that the Shares may be bought and sold on the secondary market at prices lower or higher than the $10.00 per Share price which will be paid under the DRP. The Company shall endeavor to acquire Shares on behalf of Participants at the lowest price then available. However, the Company does not guarantee or warrant that the Participant will be acquiring Shares at the lowest possible price. If the Company's Shares are listed on a national stock exchange or included for quotation on a national market system, the reservation of any Shares from the Offering for issuance under the DRP, which have not been B-1 issued as of the date of such listing or inclusion, will be canceled, and such Shares will continue to have the status of authorized but unissued Shares. Those unissued Shares will not be issued unless they are first registered with the Securities and Exchange Commission (the "Commission") under the Act and under appropriate state securities laws or are otherwise issued in compliance with such laws. It is understood that reinvestment of Distributions does not relieve a Participant of any income tax liability which may be payable on the Distributions. iv. Share Certificates. Within 90 days after the end of the Company's fiscal year, the Company will issue certificates evidencing ownership of Shares purchased through the DRP during the prior fiscal year. The ownership of the Shares will be in book-entry form prior to the issuance of such certificates. v. Reports. Within 90 days after the end of the Company's fiscal year, the Company will provide each Participant with an individualized report on his or her investment, including the purchase date(s), purchase price and number of Shares owned, as well as the dates of distribution and amounts of Distributions received during the prior fiscal year. The individualized statement to Stockholders will include receipts and purchases relating to each Participant's participation in the DRP including the tax consequences relative thereto. vi. Termination by Participant. A Participant may terminate participation in the DRP at any time, without penalty, by delivering to the Company a written notice. Prior to listing of the Shares on a national stock exchange or inclusion of the Shares for quotation on a national market system, any transfer of Shares by a Participant to a non-Participant will terminate participation in the DRP with respect to the transferred Shares. If a Participant terminates DRP participation, the Company will provide the terminating Participant with a certificate evidencing the whole shares in his or her account and a check for the cash value of any fractional share in such account. Upon termination of DRP participation, Distributions will be distributed to the Stockholder in cash. vii. Amendment or Termination of DRP by the Company. The Directors of the Company may by majority vote (including a majority of the Independent Directors) amend or terminate the DRP for any reason upon 30 days' written notice to the Participants. viii. Liability of the Company. The Company shall not be liable for any act done in good faith, or for any good faith omission to act, including, without limitation, any claims or liability: (a) arising out of failure to terminate a Participant's account upon such Participant's death prior to receipt of notice in writing of such death; and (b) with respect to the time and the prices at which Shares are purchased or sold for a Participant's account. To the extent that indemnification may apply to liabilities arising under the Act or the securities laws of a state, the Company has been advised that, in the opinion of the Commission and certain state securities commissioners, such indemnification is contrary to public policy and, therefore, unenforceable. ix. Governing Law. This DRP shall be governed by the laws of the State of Maryland. B-2 APPENDIX C [INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(TM) LOGO] INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. INSTRUCTIONS TO SUBSCRIBERS - NOT VALID FOR RESIDENTS OF AZ, NE, OK, AND TX Any person desiring to subscribe for our common shares should carefully read and review the Prospectus, as supplemented to date, and if he/she desires to subscribe for shares, complete the Subscription Agreement/Signature Page that follows these instructions. Follow the appropriate instructions listed below for the items indicated. Please print in ballpoint pen or type the information. A - INVESTMENT Item (1)a Enter the dollars and cents amount of the purchase and the number of shares to be purchased. Minimum purchase 300 shares ($3,000). Qualified plans 100 shares ($1,000). (lowa requires 300 shares ($3,000) for IRA accounts; Minnesota requires 200 shares ($2,000) for IRA and qualified accounts). Check the box to indicate whether this is an initial or an additional investment. The "Additional Investment" box must be checked in order for this subscription to be combined with another subscription for purposes of a volume discount. A COMPLETED SUBSCRIPTION AGREEMENT IS REQUIRED FOR EACH INITIAL AND ADDITIONAL INVESTMENT. Item (1)b Deferred Commission Option: Please check the box if you have agreed with your Soliciting Dealer to elect the Deferred Commission Option, as described in the Prospectus, as supplemented to date. By electing the Deferred Commission Option, you are required to pay only $9.40 per share purchased upon subscription. For the next six years, following the year of subscription, you will have a sales commission of $0.10 per share deducted from and paid out of cash distributions otherwise distributable to you. Election of the Deferred Commission Option shall authorize the Company to withhold such amounts from cash distributions otherwise payable to you and to pay them as described in the "Plan of Distribution-Deferred Commission Option" section of the Prospectus, as supplemented to date. Item (1)c Check the box to indicate whether the Registered Representative chooses to purchase common stock net of selling commissions. B - TYPE OF OWNERSHIP FOR NON-CUSTODIAL OWNERSHIP ACCOUNTS, please mail the properly completed and executed Subscription Agreement/Signature Page and your check MADE PAYABLE TO "LBNA/ESCROW AGENT FOR IWRRET" to: Inland Securities Corporation, 2901 Butterfield Road, Oak Brook, Illinois 60523, Attn: Investor Services. If you have questions, please call 800.826.8228. FOR CUSTODIAL OWNERSHIP ACCOUNTS, checks should be MADE PAYABLE TO THE CUSTODIAN AND SET ALONG WITH THIS PROPERLY COMPLETED AD EXECUTED FORM TO THE CUSTODIAN. Item (2)a Check the appropriate box to indicate the type of entity that is subscribing. (Entities for non-custodial ownership accounts appear on the left side; entities for custodial ownership accounts appear on the right side.) If this is an additional purchase, this should be completed exactly the same as previous investment. If the entity is a pension or profit sharing plan, indicate whether it is taxable or exempt from taxation under Section 501A of the Internal Revenue Code. Note: Pension or profit sharing plan appears under non-custodial ownership as well as custodial ownership -- check non-custodial ownership if the plan has a trustee; custodial ownership if the plan has a custodian. If you check the Individual Ownership box and you wish to designate a Transfer on Death beneficiary, you may check the "TOD" box and you must fill out the Transfer on Death Form in order to effect the designation. Item (2)b Enter the exact name of the custodian or trustee and mailing address. IF THIS IS AN ADDITIONAL PURCHASE BY A QUALIFIED PLAN, PLEASE USE THE SAME EXACT PLAN NAME AS PREVIOUSLY USED. Item (2)c The custodian must complete this box by entering its custodian Tax ID number (for tax purposes), custodial account number and its telephone number. C - SUBSCRIBER INFORMATION Item (3) For non-custodial ownership accounts, enter the exact name in which the shares are to be held. For co-subscribers enter the names of all subscribers. For custodial ownership accounts, enter FBO the name of the subscriber. Item (4) Enter mailing address, city, state, and zip code of the subscriber. Note: The custodian or trustee of custodial ownership accounts is the mailing address or address of record completed in item (2)b. Item (5) Enter the residence address if different than the mailing address in Item (4). For custodial ownership accounts, enter the residence address of the subscriber. Item (6) Enter home telephone, business telephone and email address. Item (7) Enter birth date of subscriber and co-subscriber, if applicable, or date of incorporation. Item (8) Enter the Social Security number of subscriber and co-subscriber, if applicable. The subscriber is certifying that this number is correct. For custodial ownership accounts, enter the subscriber's Social Security number (for identification purposes). Enter Tax ID number, if applicable. Item (9) Check the appropriate box. If the subscriber is a non-resident alien, he must apply to the United States Internal Revenue Service for an identification number via Form SS-4 for an individual or SS-5 for a corporation, and supply the number to the Company as soon as it is available. Item (10) Check this box if the subscriber is an employee of Inland or an individual who has been continuously affiliated with Inland as an independent contractor. D - DISTRIBUTION OPTIONS CHECK THE APPROPRIATE BOX TO INDICATE DISTRIBUTION OPTIONS FOR NON-CUSTODIAL OWNERSHIP ACCOUNTS. Item (11)a Check if you desire distributions to be mailed to address of record in Section C, Item (4) above. Item (11)b Check if you desire to participate in Distribution Reinvestment Program. Item (11)c If subscriber desires direct deposit of his/her/their cash distributions to an account or address other than as set forth in the Subscription Agreement/Signature Page, check the preferred option and complete the required information. For ACH, indicate whether it is a checking or savings account, and enter the name of the institution/individual, mailing address, ABA number, and account number. MUST ENCLOSE VOIDED CHECK, if applicable. CHECK THE APPROPRIATE BOX TO INDICATE DISTRIBUTION OPTIONS FOR CUSTODIAL OWNERSHIP ACCOUNTS. Item (12)a Check if you desire distributions to be mailed to custodian. Item (12)b Check if you desire to participate in Distribution Reinvestment Program. E - SIGNATURE Item (13) The Subscription Agreement/Signature Page MUST BE EXECUTED by the subscriber(s), and if applicable, the trustee or custodian. F - BROKER/DEALER REGISTERED REPRESENTATIVE Item (14) Enter the Registered Representative name, address, B/D Rep ID number, telephone number, and e-mail address. Also, enter the name of the broker/dealer, home office address, and B/D Client Account number. By executing the Subscription Agreement/Signature Page, the Registered Representative substantiates compliance with the conduct rules of the NASD, by certifying that the Registered Representative has reasonable grounds to believe, based on information obtained from the investor concerning his, her or its investment objectives, other investments, financial situation and needs and any other information known by such Registered Representative, that investment in the Company is suitable for such investor in light of his, her or its financial position, net worth and other suitability characteristics and that the Registered Representative has informed the investor of all pertinent facts relating to the liability, liquidity and marketability of an investment in the Company during its term. The Registered Representative (authorized signature) should sign where provided. Item (14)a Check the box to indicate whether the broker/dealer agrees to the Deferred Commission Option if the subscriber has elected the deferred Commission Option; the broker/dealer must sign to acknowledge that agreement. Item (14)b Check the box to indicate whether the Registered Representative chooses to purchase common stock net of selling commissions. G - REGISTERED INVESTMENT ADVISOR (RIA) Item (15) Check the box to indicate whether this subscription was solicited or recommended by an investment advisor/broker/dealer whose agreement with the subscriber includes a fixed or "wrap" fee feature for advisory and related brokerage services, and, accordingly, may not charge the regular selling commission. NO SALES COMMISSIONS ARE PAID ON THESE ACCOUNTS. This box must be checked in order for such subscriber(s) to purchase shares net of the selling commissions. Page 1 of 4 C-1 SUBMISSION OF SUBSCRIPTION FOR NON-CUSTODIAL OWNERSHIP ACCOUNTS, the properly completed and executed Subscription Agreement/Signature Page together with a check MADE PAYABLE TO "LBNA/ESCROW AGENT FOR IWRRET" should be mailed to: Inland Securities Corporation, 2901 Butterfield Road, Oak Brook, Illinois 60523. Attn: Investor Services. FOR CUSTODIAL OWNERSHIP ACCOUNTS, checks should be MADE PAYABLE TO THE CUSTODIAN AND SENT ALONG WITH THIS PROPERLY COMPLETED AND EXECUTED FORM TO THE CUSTODIAN. NOTE: If a person other than the person in whose name the shares will be held is reporting the income received from the Company, you must notify the Company in writing of that person's name, address and Social Security number. ALL INVESTORS AND THEIR REGISTERED REPRESENTATIVES MUST SIGN THE SUBSCRIPTION AGREEMENT/ SIGNATURE PAGE PRIOR TO TENDERING ANY FUNDS FOR INVESTMENT IN SHARES. CALIFORNIA INVESTORS All Certificates representing shares which are sold in the State of California will bear the following legend conditions: IT IS UNLAWFUL TO CONSUMMATE A SALE OF TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. Any subscriber seeking to purchase shares pursuant to a discount offered by the Company must submit such request in writing and set forth the basis for the request. Any such request will be subject to verification by the Company. Lack of Liquidity: There is no current market for the shares and the investors may not be able to sell the securities. SPECIAL SUITABILITY STANDARDS Certain states have imposed special financial suitability standards for subscribers who purchase shares. If the subscriber is a resident of Maine, the subscriber must have either: (i) a minimum net worth (excluding home, home furnishings and automobiles) of $200,000; or (ii) a minimum annual gross income of $50,000 and minimum net worth (exclusive of home, home furnishings and automobiles) of $50,000. If the subscriber is a resident of Arizona, California, Iowa, Massachusetts, Michigan, Missouri, Oregon, or Tennessee, the subscriber must have either: (i) a minimum net worth (excluding home, home furnishings and automobiles) of $225,000; or (ii) a minimum annual gross income of $60,000 and a minimum net worth (exclusive of home, home furnishings and automobiles) of $60,000. In addition, if the subscriber is a resident of Kansas, Missouri, Ohio or Pennsylvania, the investment may not exceed 10% of the investor's liquid net worth. We intend to assert the foregoing representations as a defense in any subsequent litigation where such assertion would be relevant. We have the right to accept or reject this subscription in whole or in part, so long as such partial acceptance or rejection does not result in an investment of less than the minimum amount specified in the Prospectus. As used above, the singular includes the plural in all respects if shares are being acquired by more than one person. As used in this Subscription Agreement, "Inland" refers to Inland Real Estate Group, Inc. and its affiliates. This Subscription Agreement and all rights hereunder shall be governed by, and interpreted in accordance with, the laws of the State of Illinois. By executing this Subscription Agreement, the subscriber is not waiving any rights under the federal securities laws. ACH LANGUAGE I (we) hereby authorize Inland Western Retail Real Estate Trust, Inc. ("Company") to deposit distributions from my (our) interest in stock of the Company into the account listed in Section D of Subscription Agreement at the financial institution indicated in Section D of Subscription Agreement. I further authorize the Company to debit my account noted in Section D of Subscription Agreement in the event that the Company erroneously deposits additional funds to which I am not entitled, provided that such debit shall not exceed the original amount of the erroneous deposit. In the event that I withdraw funds erroneously deposited into my account before the Company reverses such deposit, I agree that the Company has the right to retain any future distributions that I am entitled until the erroneously deposited amounts are recovered by the Company. This authorization is to remain in full force and effect until the Company has received written notice from me of the termination of this authorization in time to allow reasonable opportunity to act on it, until the Company has sent me written notice of termination of this authorization. Page 2 of 4 C-2 [INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(TM) LOGO] INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. 2901 BUTTERFIELD ROAD, OAK BROOK, ILLINOIS 60523 - 800.826.8228 SUBSCRIPTION AGREEMENT/SIGNATURE PAGE FOR PROSPECTUS DATED SEPTEMBER 15, 2003 Please read this Subscription Agreement/Signature Page and the Terms and Conditions before signing. Subscriber must read the Subscription Instructions. Residents of AZ, NE, OK, and TX should use the specific Subscription Agreement for these states. A - INVESTMENT (1)a This subscription is in the amount of $_________________ for the purchase of ____________ shares of Inland Western Retail Real Estate Trust, Inc. at $10 per share. Minimum initial investment: 300 shares (100 shares for IRA, Keogh and qualified plan accounts-Iowa requires 300 Shares for IRA accounts; Minnesota requires 200 shares for IRA and qualified plan accounts). THIS IS AN: / / INITIAL INVESTMENT / / ADDITIONAL INVESTMENT A completed Subscription Agreement is required for each initial and additional investment. (1)b / / CHECK THE BOX TO ELECT THE DEFERRED COMMISSION OPTION. (This election must be agreed to by the broker/dealer listed on the following page) (1)c / / REGISTERED REPRESENTATIVE NAV PURCHASE B - TYPE OF OWNERSHIP NON-CUSTODIAL OWNERSHIP MAKE CHECK PAYABLE TO: LBNA/ESCROW AGENT FOR IWRRET (2)a / / INDIVIDUAL OWNERSHIP - one signature required / / TOD (FILL OUT TOD FORM TO EFFECT DESIGNATION) / / JOINT TENANTS WITH RIGHT OF SURVIVORSHIP - all parties must sign / / COMMUNITY PROPERTY - all parties must sign / / TENANTS IN COMMON - all parties must sign / / TENANTS BY THE ENTIRETY - all parties must sign / / CORPORATE OWNERSHIP - authorized signature required / / PARTNERSHIP OWNERSHIP - authorized signature required / / LLC OWNERSHIP - authorized signature required / / UNIFORM GIFTS TO MINORS ACT - custodian signature required STATE OF ________________________ A CUSTODIAN FOR ___________________ / / PENSION OR PROFIT SHARING PLAN - trustee signature(s) required / / TAXABLE / / EXEMPT UNDER Section 501A NAME OF TRUSTEE OR OTHER ADMINISTRATOR ______________________________ _____________________________________________________________________ / / TRUST - trustee or grantor signature(s) required / / TAXABLE / / GRANTOR A OR B DATE TRUST ESTABLISHED _____________ NAME OF TRUSTEE OR OTHER ADMINISTRATOR ______________________________ _____________________________________________________________________ / / ESTATE - personal representative signature required / / OTHER (SPECIFY) _____________________________________________________ CUSTODIAL OWNERSHIP MAKE CHECK PAYABLE TO THE CUSTODIAN LISTED BELOW AND SEND ALL PAPERWORK DIRECTLY TO THE CUSTODIAN (2)a / / TRADITIONAL IRA - custodian signature required / / ROTH IRA - custodian signature required / / KEOGH - trustee signature required / / SIMPLIFIED EMPLOYEE PENSION/TRUST (S.E.P) - trustee signature required / / PENSION OR PROFIT SHARING PLAN - custodian signature required / / TAXABLE / / EXEMPT UNDER Section 501A NAME OF CUSTODIAN OR OTHER ADMINISTRATOR ____________________________ _________________________________________________________________________ / / OTHER (SPECIFY) _____________________________________________________ (2)b _________________________________________________________________________ NAME OF CUSTODIAN OR TRUSTEE _________________________________________________________________________ MAILING ADDRESS _________________________________________________________________________ CITY, STATE, ZIP (2)c CUSTODIAN INFORMATION TO BE COMPLETED BY CUSTODIAN LISTED ABOVE CUSTODIAN TAX ID # ____-___________________ CUSTODIAN ACCOUNT # _____________________________ CUSTODIAN TELEPHONE ______-__________-________ C - SUBSCRIBER INFORMATION (3) SUBSCRIBER / / MR. / / MRS. / / MS. _________________________________________________________________________ CO-SUBSCRIBER / / MR. / / MRS. / / MS. _________________________________________________________________________ (4) MAILING ADDRESS _________________________________________________________________________ CITY, STATE & ZIP CODE _________________________________________________________________________ (5) RESIDENCE ADDRESS (if different from above) _________________________________________________________________________ CITY, STATE & ZIP CODE _________________________________________________________________________ (6) HOME TELEPHONE ____-_____-_______ BUSINESS TELEPHONE ____-____-_______ EMAIL ADDRESS _________________________________________________________________________ (7) BIRTH DATE/DATE ___/___/____ MM/DD/YYYY CO-SUBSCRIBER BIRTH OF INCORPORATION DATE ___/___/____ MM/DD/YYYY (8) SOCIAL SECURITY # ____-____-______ CO-SUBSCRIBER SOCIAL SECURITY # ____-____-______ TAX ID # ___-__________ (9) PLEASE INDICATE CITIZENSHIP STATUS / / U.S. Citizen / / Resident Alien / / Non-Resident Alien (10) / / Employee of Affiliate
Page 3 of 4 C-3 D - DISTRIBUTION OPTIONS DISTRIBUTION OPTIONS FOR NON-CUSTODIAL ACCOUNTS (11)a / / MAIL TO ADDRESS OF RECORD (11)b / / DISTRIBUTION REINVESTMENT PROGRAM: Subscriber elects to participate in the Distribution Reinvestment Program described in the Prospectus. (11)c / / DISTRIBUTIONS DIRECTED TO: / / VIA MAIL COMPLETE INFORMATION BELOW. / / VIA ELECTRONIC DEPOSIT (ACH) COMPLETE INFORMATION BELOW. See ACH language on page 2 of the instructions. MUST ENCLOSE VOIDED CHECK / / CHECKING / / SAVINGS ______________________________________________________________________ NAME OF BANK, BROKERAGE FIRM OR INDIVIDUAL ______________________________________________________________________ MAILING ADDRESS ______________________________________________________________________ CITY, STATE, ZIP ____________________________ _____________________________________ Bank ABA # (For ACH Only) Account Number-MUST BE FILLED IN MUST ENCLOSE VOIDED CHECK DISTRIBUTION OPTIONS FOR CUSTODIAL ACCOUNTS (12)a / / MAIL TO CUSTODIAL ACCOUNT (12)b / / DISTRIBUTION REINVESTMENT PROGRAM: Subscriber elects to participate in the Distribution Reinvestment Program described in the Prospectus. E - SIGNATURE (13) THE UNDERSIGNED CERTIFIES, under penalties of perjury (i) that the taxpayer identification number shown on the Subscription Agreement/Signature Page is true, correct and complete, and (ii) that he is not subject to backup withholding either because he has not been notified that he is subject to backup withholding as a result of a failure to report all interest or distributions, or the Internal Revenue Service has notified him that he is no longer subject to backup withholding. The undersigned further acknowledges and/or represents (or in the case of fiduciary accounts, the person authorized to sign on such Investor's behalf) the following: (a) acknowledges receipt, not less than five (5) business days prior to the signing of this Subscription Agreement, of the Prospectus of the COMPANY RELATING TO THE SHARES, WHEREIN THE TERMS AND CONDITIONS OF THE OFFERING OF THE SHARES ARE DESCRIBED, including among other things, the restrictions on ownership and transfer of shares, which require, under certain circumstances, that a holder of shares shall give written notice and provide certain information to the Company. (Does not apply to Minnesota residents.) (b) represents that I (we) either: (i) have a net worth (excluding home, home furnishings and automobiles) of at least $45,000 and estimate that (without regard to investment in the Company) I (we) have gross income due in the current year of at least $45,000; or (ii) have a net worth (excluding home, home furnishings and automobiles) of at least $150,000 or such higher suitability as may be required by certain states and set forth on page 2 hereof; IN THE CASE OF SALES TO FIDUCIARY ACCOUNTS, THE SUITABILITY STANDARDS MUST BE MET BY THE BENEFICIARY, THE FIDUCIARY ACCOUNT OR BY THE DONOR OR GRANTOR WHO DIRECTLY OR INDIRECTLY SUPPLIES THE FUNDS FOR THE PURCHASE OF THE SHARES. (c) represents that the investor is purchasing the shares for his or her own account and if I am (we are) purchasing shares on behalf of a trust or other entity of which I am (we are) trustee(s) or authorized agent(s) I (we) have due authority to execute the Subscription Agreement/Signature Page and do hereby legally bind the trust or OTHER ENTITY OF WHICH I AM (WE ARE) TRUSTEE(S) OR AUTHORIZED AGENT(S). (d) ACKNOWLEDGES THAT THE SHARES ARE NOT LIQUID; (NOT REQUIRED FOR MINNESOTA OR MAINE RESIDENTS) (e) IF AN AFFILIATE OF THE COMPANY, REPRESENTS THAT THE SHARES ARE BEING PURCHASED FOR INVESTMENT PURPOSES ONLY AND NOT FOR IMMEDIATE RESALE. X - --------------------------------------- -------------------------------------- SIGNATURE -- REGISTERED OWNER DATE X X - --------------------------------------- -------------------------------------- SIGNATURE -- CO-OWNER (IF APPLICABLE) AUTHORIZED SIGNATURE (CUSTODIAN OR TRUSTEE IF APPLICABLE) A SALE OF THE SHARES MAY NOT BE COMPLETED UNTIL AT LEAST FIVE BUSINESS DAYS AFTER THE DATE THE SUBSCRIBER RECEIVES THE PROSPECTUS. F - BROKER/DEALER-REGISTERED REPRESENTATIVE (14) BROKER/DEALER DATA--COMPLETED BY SELLING REGISTERED REPRESENTATIVE (PLEASE USE REP'S ADDRESS--NOT HOME OFFICE) NAME OF REGISTERED REPRESENTATIVE / / MR. / / MRS. / / MS. _____________________________________________ MAILING ADDRESS _____________________________________________ CITY, STATE & ZIP CODE _____________________________________________ BROKER/DEALER NAME _____________________________________________ HOME OFFICE MAILING ADDRESS _____________________________________________ CITY, STATE & ZIP CODE _____________________________________________ B/D CLIENT ACCOUNT NUMBER # _____________________________________________ B/D REP ID NUMBER # _____________________________________________ ____-____-______ REGISTERED REPRESENTATIVE'S TELEPHONE HAVE YOU CHANGED BROKER/DEALERS? / / YES / / NO ------------------------------------------------ REGISTERED REPRESENTATIVE'S E-MAIL X ------------------------------------------------ SIGNATURE--REGISTERED REPRESENTATIVE X ------------------------------------------------ SIGNATURE--BROKER/DEALER (IF APPLICABLE) (14)a / / DEFERRED COMMISSION OPTION: Requires broker/dealer signature: ------- (14)b / / REGISTERED REPRESENTATIVE NAV PURCHASE G - REGISTERED INVESTMENT ADVISOR (RIA) (15) REGISTERED INVESTMENT ADVISOR(RIA) NO SALES COMMISSIONS ARE PAID ON THESE ACCOUNTS. / / CHECK ONLY IF investment is made through the RIA in its capacity as an RIA and not in its capacity as a Registered Representative, if applicable, whose agreement with the subscriber includes a fixed or "wrap" fee feature for advisory and related brokerage services. If an owner or principal or any member of the RIA firm is an NASD licensed Registered Representative affiliated with a broker/dealer, the transaction should be conducted through that broker/dealer, not through the RIA. Page 4 of 4 C-4 APPENDIX D INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. TRANSFER ON DEATH FORM (T.O.D.) Use this form to designate a T.O.D. Please mail this form to: beneficiary(ies). Inland Securities Corporation This form is NOT VALID for IRA accounts. 2901 Butterfield Road Oak Brook, Illinois 60523 Attn: Investor Services A. INVESTOR INFORMATION 1. Name of registered owner(s), exactly as name(s) appear(s) on stock certificate of subscription agreement: ___________________________________________ ___________________________________________ 2. Social Security number(s) of registered owner(s): _____-_____-________ _____-_____-________ 3. Daytime phone number: _____-_____-________ 4. State of Residence: ___________________________________________ B. TRANSFER ON DEATH DESIGNATION I authorize Inland Western Retail Real Estate Trust, Inc. to register all of my shares of its common stock in beneficiary form, assigning ownership on my death to my beneficiary(ies). I understand that if more than one beneficiary is listed, percentages for each must be designated. If percentages are not designated, the shares will be divided equally. Percentages must equal 100%. 1. Name of Primary Beneficiary: ___________________________________________ 2. Social Security Number: _____-_____-________ OR Tax Identification Number: _____-______________ 3. Percentage: _____% 1. Name of Primary Beneficiary: ___________________________________________ 2. Social Security Number: _____-_____-________ OR Tax Identification Number: _____-______________ 3. Percentage: _____% C. SIGNATURE By signing below, I (we) authorize Inland Western Retail Real Estate Trust, Inc. to register all of my (our) shares of its common stock in T.O.D. form. The designation(s) will be effective on the date of receipt. Accordingly, I (we) hereby revoke any beneficiary designation(s) made previously with respect to my (our) Inland shares. I (we) have reviewed the information set forth below. I (we) agree on behalf of myself (ourselves) and my (our) heirs, assigns, executors, administrators and beneficiaries to indemnify and hold harmless Inland Western Retail Real Estate, Inc. and any and all of its affiliates, agents, successors and assigns, and their respective directors, officers and employees, from and against any and all claims, liability, damages, actions and expenses arising directly or indirectly but of or resulting from the transfer of my (our) shares in accordance with this T.O.D. designation. I (we) further understand that Inland Western Retail Estate Trust, Inc. cannot provide any legal advice and I (we) agree to consult with my (our) attorney, if necessary, to make certain that the T.O.D. designation is consistent with my (our) estate and tax planning. Sign exactly as the name(s) appear(s) on the stock certificate or subscription agreement. All registered owners must sign. THIS AUTHORIZATION FORM IS SUBJECT TO THE ACCEPTANCE OF INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. X X - --------------------------------------- -------------------------------------- Signature Date Signature Date D-1 - - A Transfer on Death (T.O.D) designation transfers ownership of shares to the registered owner's beneficiary(ies) upon death; provided that Inland Western Retail Estate Trust, Inc. receives proof of death and other documentation it deems necessary or appropriate. - - Until the death of the account owner(s), the T.O.D. beneficiary(ies) has (have) no present interest in, or authority over, the T.O.D. account. - - A T.O.D. designation will be accepted only (1) where shares are owned by a natural person and registered in that individual's name or (2) by two or more natural persons as joint tenants with rights of survivorship. - - Accounts registered to trusts, corporations, charities, and other such entities may not declare a T.O.D. designation because they are considered perpetual. These entities, however, may be listed as a beneficiary on a T.O.D. for accounts registered to a natural person. - - A T.O.D. designation made by joint tenants with rights of survivorship does not take effect until the last of all multiple owners dies. The surviving owners may revoke or change the T.O.D. designation at any time. - - If the beneficiary(ies) does (do) not survive the registered owner(s), the shares will be treated as belonging to the decedent's estate. - - A minor may not be named as a beneficiary. - - A T.O.D. designation will not be accepted from residents of Louisiana, New York, North Carolina or Texas. - - A T.O.D. designation and all rights related thereto shall be governed by the laws of the state of Illinois. - - A T.O.D. designation may be voided at any time by Inland Western Retail Real Estate Trust, Inc., in its sole discretion, if there is any doubt as to the validity or effectiveness of a T.O.D. designation. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. CHI\143061.1 D-2 APPENDIX E1 LETTER OF DIRECTION _________________, 20__ Inland Real Estate Investment Corporation 2901 Butterfield Road Oak Brook, Illinois 60523 RE: Registered Investment Advisory Fees Account No. ______________ ("Account") You are hereby instructed and authorized by me to deduct advisory fees payable to ________________, my registered investment advisor, in the following amount from my Account, and to pay such amount by wire transfer in immediately available funds to my registered investment advisor, upon each distribution by Inland Western Retail Real Estate Trust, Inc. (the "Company") on my Account, as payment for my registered investment advisor's advisory fees (select only one). (1) $________________; OR (2) _______________% Annual Fee (calculated on a monthly basis) of the Asset Value to be paid by the Company on my Account. I understand and acknowledge that any and all advisory fees payable to my registered investment advisor are my sole responsibility and you are paying the amounts directed by me as an accommodation. This letter shall serve as an irrevocable instruction to you to pay such advisory fees from my Account until such time as I provide you with written notice of my election to revoke this instruction. Sincerely, E1-1 APPENDIX E2 NOTICE OF REVOCATION __________________, 20__ Inland Real Estate Investment Corporation 2901 Butterfield Road Oak Brook, Illinois 60523 RE: Revocation of Instruction Account No. _________ ("Account") This letter shall serve as notice to you of my revocation of my instruction to you to deduct advisory fees from my Account any pay such fees directly to _________________, my registered investment advisor, pursuant to my letter to you dated _____________. I hereby instruct you to cease any and all future deductions from my Account for the purpose of such advisory fee payments. I understand and acknowledge that this revocation will be effective within one business day of receipt by you. Sincerely, E2-1 APPENDIX G PRIVACY POLICY NOTICE INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. PRIVACY POLICY OUR COMMITMENT TO PROTECTING YOUR PRIVACY. We consider customer privacy to be fundamental to our relationship with our shareholders. In the course of servicing your account, we collect personal information about you ("NONPUBLIC PERSONAL information"). We collect this information to know who you are so that we can provide you with products and services that meet your particular financial and investing needs, and to meet our obligations under the laws and regulations that govern us. Throughout our history we have been, and we remain, committed to maintaining the confidentiality, integrity and security of our shareholders' personal information. It is our policy to respect the privacy of our current and former shareholders and to protect the personal information entrusted to us. This Privacy Policy (the "POLICY") describes the standards we follow for handling your personal information, with the dual goals of meeting your financial needs while respecting your privacy. This Policy applies to the Inland family of companies, which includes Inland Western Retail Real Estate Trust, Inc. 1. Information We May Collect We may collect nonpublic personal information about you from three sources: - Information on applications, subscription agreements or other forms. This category may include your name, address, tax identification number, age, marital status, number of dependents, assets, debts, income, employment history, beneficiary information and personal bank account information. - Information about your transactions with us, our affiliates and others such as: the types of products you purchase, your account balances, margin loan history and payment history. - Information obtained from others, such as from consumer credit reporting agencies. This may include information about your creditworthiness, financial circumstances and credit history, including any bankruptcies and foreclosures. 2. Persons to Whom We May Disclose Information We may disclose all three types of nonpublic personal information about you to the unaffiliated third parties and in the circumstances described below, as permitted by applicable laws and regulations. - Companies with whom we have contracted to provide account-related services, such as statement preparation, execution services, custodial services, and report preparation. (Every contract with each of these service providers prohibits the service provider from disclosing or using your nonpublic personal information for any purpose except to provide the service for which we have contracted.) - Our lawyers, accountants, auditors, regulators, advisors, and quality-control consultants. - If we suspect fraud. - To protect the security of our records, Web site and telephone customer service center. - Information you have authorized us to disclose. 3. Protecting Your Information G-1 Our employees are required to follow the procedures we have developed to protect the integrity of your information. These procedures include: - Restricting physical and other access to your nonpublic personal information to persons with a legitimate business need to know the information in order to service your account. - Contractually obligating third parties doing business with us to comply with all applicable privacy and security laws. - Providing information to you only after we have used reasonable efforts to assure ourselves of your identity by asking for and receiving from you information only you should know. - Maintaining reasonably adequate physical, electronic and procedural safeguards to protect your information. 4. Former Customers We treat information concerning our former customers the same way we treat information about our current customers. 5. Keeping You Informed We will send you a copy of this Policy annually. We will also send you all changes to this Policy as they occur. You have the right to "opt out" of this policy by notifying us in writing. QUESTIONS? If you have any questions about this Policy, please do not hesitate to call Roberta Matlin at 630-218-8000. G-2 [INLAND WESTERN LOGO] RETAIL REAL ESTATE TRUST, INC. Up to 270,000,000 shares Inland Western Retail Real Estate Trust, Inc. Common Stock ---------- PROSPECTUS ---------- December 21, 2004 Inland Securities Corporation You should rely only on the information contained in this prospectus. No dealer, salesperson or other person is authorized to make any representations other than those contained in the prospectus and supplemental literature authorized by Inland Western Retail Real Estate Trust, Inc. and referred to in this prospectus, and, if given or made, such information and representations must not be relied upon. This prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of these securities. You should not assume that the delivery of this prospectus or that any sale made pursuant to this prospectus implies that the information contained in this prospectus will remain fully accurate and correct as of any time subsequent to the date of this prospectus. Until January 31, 2005 (40 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as soliciting dealers with respect to their unsold allotments or subscriptions. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses (other than selling commissions) incurred by us while issuing and distributing the securities registered pursuant to this Registration Statement. All amounts other than the SEC registration fee and NASD filing fee are estimates.
Initial Offering Second Offering ---------------- --------------- Securities and Exchange Commission Registration Fee $ 228,621 $ 340,823 NASD Filing Fee $ 31,435 $ - Printing and Mailing Expenses $ 1,089,403 $ 478,154 Blue Sky Fees and Expenses $ 575,518 $ 53,500 Legal Fees and Expenses $ 584,878 $ 365,190 Accounting Fees and Expenses $ 246,436 $ 166,967 Advertising and Sales Literature $ 5,062,849 $ 2,051,311 Due Diligence $ 344,067 $ - Transfer agent fees $ 172,346 $ - Data processing fees $ 85,204 $ 30,334 Bank fees and other administrative expenses $ 513,891 $ 159,094 ---------------------- ------------------- Total $ 8,934,648 $ 3,645,373 *
* As June 30, 2005 ITEM 32. SALES TO SPECIAL PARTIES. Our employees and associates and those of our affiliates are permitted to purchase shares net of sales commissions and the marketing contribution and due diligence expense allowance fee or for $8.95 per share. ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES. As of September 15, 2005, we have sold the following securities for the following aggregate offering prices: In March 2003, Inland Western Retail Real Estate Advisory Services, Inc., the advisor, purchased from us 20,000 shares for $10 per share, for an aggregate purchase price of $200,000 in connection with our organization. No sales commissions or other consideration was paid in connection with such sales The sales were consummated without registration under the Act in reliance upon Rule 506 of Regulation D and the exemption from registration in Section 4(2) of the Securities Act as transactions not involving any public offering. Options to purchase an aggregate of 20,000 shares have been granted to the Independent Directors pursuant to the Independent Director Stock Option Plan (options to purchase 3,000 shares as to each of the five independent directors plus options for 500 shares each on the date of the first and second annual meeting). None of such options have been exercised. Therefore, no shares have been issued in connection with such options. II-1 ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article XV of our articles of incorporation provides as follows: SECTION 3. INDEMNIFICATION (a) Subject to paragraphs (b), (c) and (d) of this Section 3, we shall, to the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted and, without limiting the generality of the foregoing, in accordance with Section 2-418 of the Maryland General Corporation Law, indemnify and pay, advance, or reimburse reasonable expenses to any Director, officer, employee and agent of the Company and the Advisor and its Affiliates (each an "Indemnified Party"). (b) As long as we qualify as a REIT, it shall not indemnify nor pay, advance or reimburse expenses to an Indemnified Party unless: (i) Directors have determined, in good faith, that the course of conduct which caused the loss or liability was in our best interests; (ii) the Indemnified Party was acting on behalf of or performing services on the part of the Company; (iii) such liability or loss was not the result of negligence or misconduct on the part of the Indemnified Party except that in the event the Indemnified Party is or was an Independent Director, such liability or loss shall not have been the result of gross negligence or willful misconduct; and (iv) such indemnification or agreement to be held harmless is recoverable only out of our Net Assets and not from the Stockholders. (c) As long as we qualify as a REIT and notwithstanding anything to the contrary in Section 3(b) of this Article XV, the Company shall not indemnify a Director, officer, employee or agent of ours or the Advisor or its Affiliates for losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular Indemnified Party; (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular Indemnified Party; or (iii) a court of competent jurisdiction approves a settlement of the claims and finds that indemnification of the settlement and related costs should be made and the court considering the request has been advised of the position of the Securities and Exchange Commission (the "Commission") and the published opinions of any state securities regulatory authority in which securities of ours were offered or sold as to indemnification for violations of securities laws. (d) We may advance amounts to an Indemnified Party for legal and other expenses and costs incurred as a result of any legal action for which indemnification is being sought only in accordance with Section 2-418 of the Maryland General Corporation Law, and, as long as we qualify as a REIT, only if all of the following conditions are satisfied: (i) the legal action relates to acts or omissions with respect to the performance of duties or services by the Indemnified Party for or on our behalf; (ii) the legal action is initiated by a third party who is not a Stockholder or the legal action is initiated by a Stockholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; and (iii) the Indemnified Party receiving such advances undertakes in writing to repay the advanced funds to us, together with the applicable legal rate of interest thereon, in cases in which such party is found not to be entitled to indemnification. (e) We shall have the power to purchase and maintain insurance or provide similar protection on behalf of an Indemnified Party against any liability asserted which was incurred in any such capacity with us or arising out of such status; provided, however, that we shall not incur the costs of any liability insurance which insures any person against liability for which he, she or it could not be indemnified under these Articles. Nothing contained herein shall constitute a waiver by any Indemnified Party of any right which he, she or it may have against any party under federal or state securities laws. We shall also have power to enter into any contract for indemnity and advancement of expenses with an officer, employee or agent who is not a Director to such further extent consistent with law. II-2 Our article of incorporation authorize and direct us to indemnify, and pay or reimburse reasonable expenses to, any director, officer, employee or agent we employ to the fullest extent provided by Maryland law. The Maryland General Corporation Law provides that a Maryland corporation may indemnify a director, officer, employee or agent made a party to any proceeding by reason of service in that capacity unless it has been established that (1) the act or omission was material to the matter giving rise to the proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty; or (2) the individual actually received an improper personal benefit in money, property, or services; or (3) in the case of a criminal proceeding, the individual had reasonable cause to believe that the act or omission was unlawful. The Bylaws provide that neither the amendment, nor the repeal, nor the adoption of any other provision of the articles of incorporation or the bylaws will apply to or affect, in any respect, the Indemnitee's right to indemnification for actions or failures to act which occurred prior to such amendment, repeal or adoption. To the extent that the indemnification may apply to liabilities arising under the Act, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is contrary to public policy and, therefore, unenforceable. We entered into separate indemnification agreements with each of our directors and some of our executive officers. The indemnification agreements require, among other things, that we indemnify the directors and officers to the fullest extent permitted by law, and advance to the directors and officers all related expenses, subject to reimbursement if it is subsequently determined that indemnification is not permitted. We must also indemnify and advance all expenses incurred by directors and officers seeking to enforce their rights under the indemnification agreements and cover directors and officers under our Directors' and officers' liability insurance, if any. Although the form of indemnification agreement offers substantially the same scope of coverage afforded by provisions in the articles of incorporation and the Bylaws, as a contract, it cannot be unilaterally modified by the board or by the stockholders to eliminate the rights it provides. ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED. Inapplicable. II-3 ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS. The following financial statements were previously filed as part of the registration statement in the prospectus and are incorporated herein by reference: 1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.: (a) Report of Independent Registered Public Accounting Firm (b) Consolidated Balance Sheet at December 31, 2003 (audited) (c) Consolidated Statement of Operations for the period from March 5, 2003 (inception) to December 31, 2003 (audited) (d) Consolidated Statement of Stockholders' Equity for the period from March 5, 2003 (inception) to December 31, 2003 (audited) (e) Consolidated Statement of Cash Flows for the period from March 5, 2003 (inception) to December 31, 2003 (audited) (f) Notes to Consolidated Financial Statements (audited) (g) Consolidated Balance Sheets at September 30, 2004 (unaudited) and December 31, 2003 (audited) (h) Consolidated Statements of Operations for the three and nine months ended September 30, 2004, three months ended September 30, 2003, and the period from March 5, 2003 (inception) through September 30, 2003 (unaudited) (i) Consolidated Statement of Stockholders' Equity for the nine month period ended September 30, 2004 (unaudited) (j) Consolidated Statements of Cash Flows for nine months ended September 30, 2004, and the period from March 5, 2003 (inception) to September 30, 2003 (unaudited) (k) Notes to Consolidated Financial Statements (unaudited) (l) Pro Forma Consolidated Balance Sheet (unaudited) at September 30, 2004 (m) Notes to Pro Forma Consolidated Balance Sheet(unaudited) at September 30, 2004 (n) Pro Forma Consolidated Statement of Operations (unaudited) for the nine months ended September 30, 2004 (o) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the nine months ended September 30, 2004 (unaudited) (p) Pro Forma Consolidated Statement of Operations (unaudited) for the year ended December 31, 2003 (q) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the year ended December 31, 2003 2. SHOPS AT PARK PLACE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 and nine months ended September 30, 2003 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 and nine months ended September 30, 2003 (unaudited) II-4 3. DARIEN TOWNE CENTER: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2002 4. PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES IN 2003: (a) Independent Auditors' Report (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 5. STONY CREEK MARKETPLACE: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (unaudited) 6. HICKORY RIDGE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 7. CORWEST PLAZA: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 29, 2003 through December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from May 29, 2003 through December 31, 2003 8. METRO SQUARE CENTER (SUPERVALUE) : (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 9. LARKSPUR LANDING: (a) Independent Auditors' Report II-5 (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 10. NORTH RANCH PAVILION: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 11. LA PLAZA DEL NORTE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 12. MACARTHUR CROSSING: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 13. PROMENADE AT RED CLIFF: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 14. PEORIA CROSSINGS: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 15. DORMAN CENTRE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 II-6 16. HERITAGE TOWNE CROSSING: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 17. PARADISE VALLEY MARKETPLACE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) 18. BEST ON THE BOULEVARD: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) 19. BLUEBONNET PARC: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) 20. NORTH RIVERS TOWN CENTER: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period of October 1, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period of October 1, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited) 21. ARVADA MARKETPLACE AND CONNECTION: (a) Independent Auditors' Report (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) II-7 22. EASTWOOD TOWNE CENTER: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) 23. WATAUGA PAVILION: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period of August 15, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of August 15, 2003 (commencement of operations) to December 31, 2003 and the three months ended March 31, 2004 (unaudited) 24. NORTHPOINTE PLAZA: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) 25. PLAZA SANTA FE II: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) 26. PINE RIDGE PLAZA: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 27. HUEBNER OAKS CENTER: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited) II-8 28. JOHN'S CREEK VILLAGE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from September 21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from September 21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 29. LAKEWOOD TOWN CENTER: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 30. FULLERTON METROCENTER: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 31. DAVIS TOWNE CROSSING: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 32. NORTHGATE NORTH: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 33. CRANBERRY SQUARE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) II-9 (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 34. GATEWAY PLAZA SHOPPING CENTER: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 35. SAFEWAY PLAZA AT MARYSVILLE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 36. FORKS TOWN CENTER: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 37. CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC: (a) Independent Auditors' Report (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 38. THE SHOPS AT BOARDWALK: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from May 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 39. MANCHESTER MEADOWS: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) II-10 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 40. GOVERNOR'S MARKETPLACE: (a) Independent Auditors' Report (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 41. MITCHELL RANCH PLAZA: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 42. THE COLUMNS: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30, 2004 (unaudited) 43. SAUCON VALLEY SQUARE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 44. LINCOLN PARK: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited) 45. SHOPPES AT PROMINENCE POINT: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period of March 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) II-11 (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of March 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) 46. LOW COUNTRY VILLAGE: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period of February 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of February 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) 47. SHOPPES AT DALLAS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period of March 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of March 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) 48. DORMAN CENTRE - PHASE II: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period of March 15, 2004 (commencement of operations) through June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of March 15, 2004 (commencement of operations) through June 30, 2004 (unaudited) 49. VILLAGE SHOPPES AT SIMONTON: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period of May 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of May 1, 2004 (commencement of operations) through June 30, 2004 (unaudited) 50. HARVEST TOWN CENTER: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period of March 15, 2004 (commencement of operations) through June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of March 15, 2004 (commencement of operations) through June 30, 2004 (unaudited) 51. BED, BATH & BEYOND PLAZA: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period of March 3, 2004 (commencement of operations) through June 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of March 3, 2004 (commencement of operations) through June 30, 2004 (unaudited) 52. AZALEA SQUARE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period of July 4, 2003 (commencement of operations) through December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of July 4, 2003 (commencement of operations) through December 31, 2003 and the nine months ended September 30, 2004 II-12 (unaudited) 53. PROPERTIES ACQUIRED FROM BAYER PROPERTIES, INC: (a) Independent Auditors' Report (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 54. DENTON TOWN CROSSING: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period of August 11, 2003 (commencement of operations) through December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period of August 11, 2003 (commencement of operations) through December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 55. THE PROPERTIES ACQUIRED FROM DONAHUE SCHRIBER: (a) Independent Auditors' Report (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 56. GURNEE TOWN CENTRE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 57. WINCHESTER COMMONS: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 58. MANSFIELD TOWNE CENTRE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period of July 23, 2003 (commencement of operations) through December 31, 2003 and the nine months ended September 30, 2004 (unaudited) II-13 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the July 23, 2003 (commencement of operations) through December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 59. FOX CREEK VILLAGE: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the November 12, 2003 (commencement of operations) through December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the November 12, 2003 (commencement of operations) through December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 60. GATEWAY PAVILION: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from February 15, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from February 15, 2003 (commencement of operations) to December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 61. NORTHWOODS SHOPPING CENTER: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 62. OSWEGO COMMONS: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 63. LAKE MARY POINTE: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 64. PUBLIX CENTER - MT. PLEASANT: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from April 18, 2004 (commencement of operations) to September 30, 2004 (unaudited) II-14 (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from April 18, 2004 (commencement of operations) to September 30, 2004 (unaudited) 65. FIVE FORKS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 66. GATEWAY STATION (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from June 21 2004 (commencement of operations) to September 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from June 21, 2004 (commencement of operations) to September 30, 2004 (unaudited) 67. SHOPS AT FOREST COMMONS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 68. SOUTHLAKE TOWN SQUARE (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 69. THE PROPERTIES ACQUIRED FROM EASTERN RETAIL HOLDINGS, LP: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) The following financial statements are included as part of Post Effective Amendment No. 2 1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.: (a) Reports of Independent Registered Public Accounting Firm (b) Consolidated Balance Sheets at December 31, 2004 and 2003 II-15 (c) Consolidated Statements of Operations for the year ended December 31, 2004 and the period from March 5, 2003 (inception) through December 31, 2003 (d) Consolidated Statement of Stockholders' Equity for the year ended December 31, 2004 and for the period from March 5, 2003 (inception) to December 31, 2003 (e) Consolidated Statements of Cash Flow for the year ended December 31, 2004 and for the period from March 5, 2003 (inception) to December 31, 2003 (f) Notes to Consolidated Financial Statements (g) Real Estate and Accumulated Depreciation (Schedule III) (h) Pro Forma Consolidated Balance Sheet (unaudited) at December 31, 2004 (i) Notes to Pro Forma Consolidated Balance Sheet (unaudited) for the year ended December 31, 2004 (j) Pro Forma Consolidated Statement of Operations (unaudited) for the year ended December 31, 2004 (k) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the year ended December 31, 2004 2. HENRY TOWN CENTER: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2003 and the nine months ended September 30, 2004 (unaudited) 3. THE PROPERTIES ACQUIRED FROM CERUZZI HOLDINGS: (a) Independent Auditors' Report (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 4. PROPERTIES ACQUIRED FROM FFI AMERICAN MARKET FUND, L.P.: (a) Independent Auditors' Report (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 5. SHOPPES AT LAKE ANDREW: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 II-16 6. MESA FIESTA: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 7. MIDTOWN CENTER: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 8. TRENTON CROSSING: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 9. PROPERTIES ACQUIRED FROM WEBER & COMPANY: (a) Independent Auditors' Report (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 10. McALLEN SHOPPING CENTER: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (unaudited) 11. 23RD STREET PLAZA: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (unaudited) 12. PHENIX CROSSING: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from July 1, 2004 (commencement of operations) through December 31, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from July 1, 2004 (commencement of operations) through December 31, 2004 (unaudited) II-17 13. MAGNOLIA SQUARE: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from February 1, 2004 (commencement of operations) through December 31, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from February 1, 2004 (commencement of operations) through December 31, 2004 (unaudited) 14. COTTAGE PLAZA: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) through December 31, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) through December 31, 2004 (unaudited) 15. VILLAGE AT QUAIL SPRINGS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (unaudited) 16. HOLLIDAY TOWN CENTER: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (unaudited) 17. HIGH RIDGE CROSSING: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 17, 2004 (commencement of operations) through December 31, 2004 (unaudited) (b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period from May 17, 2004 (commencement of operations) through December 31, 2004 (unaudited) 18. STATELINE STATION (a) (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (unaudited) (c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 (unaudited) The following financial statements are included as part of Post Effective Amendment No. 3 1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.: (a) Consolidated Balance Sheets at March 31, 2005 (unaudited) and December 31, 2004 (b) Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2005 and March 31, 2004 II-18 (c) Consolidated Statement of Stockholders' Equity (unaudited) for the three month period ended March 31, 2005 (d) Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2005 and the three months ended March 31, 2004 (e) Notes to Consolidated Financial Statements at March 31, 2005 (f) Pro Forma Consolidated Balance Sheet at March 31, 2005 (unaudited) (g) Notes to Pro Forma Consolidated Balance Sheet at March 31, 2005 (unaudited) (h) Pro Forma Consolidated Statement of Operations for the three months ended March 31, 2005 (unaudited) (i) Notes to Pro Forma Consolidated Statement of Operations for the three months ended March 31, 2005 (unaudited) (j) Pro Forma Consolidated Statement of Operations for the year ended December 31, 2004 (unaudited) (k) Notes to Pro Forma Consolidated Statement of Operations for the year ended December 31, 2004 (unaudited) 2. GATEWAY: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) 3. FOUR PEAKS PLAZA: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) 4. PROPERTIES ACQUIRED FROM CERUZZI HOLDINGS: (a) Independent Auditors' Report (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) (c) Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) 5. THE BRICKYARD: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) II-19 6. MONTECITO CROSSING: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the period from July 18, 2004 (commencement of operations) to December 31, 2004 and the three months ended March 31, 2005 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from July 18, 2004 (commencement of operations) to December 31, 2004 and the three months ended March 31, 2005 (unaudited) 7. PROPERTIES ACQUIRED FROM AINBINDER COMPANY: (a) Independent Auditors' Report (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) (c) Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) 8. ACQUISITION PROPERTIES: (a) Independent Auditors' Report (b) Combined Statement of Revenues and Certain Operating Expenses of the Operating Properties for the three months ended March 31, 2005 (unaudited) and the year ended December 31, 2004 (c) Notes to Combined Statement of Revenues and Certain Operating Expenses 9. PROPERTIES ACQUIRED FROM STARWOOD WASSERMAN: (a) Independent Auditors' Report (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) (c) Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) 10. GREENSBURG COMMONS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) (b) Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) 11. BISON HOLLOW: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, 2004 (commencement of operations) to December 31, 2004 and the three months ended March 31, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, 2004 (commencement of operations) to December 31, 2004 and the three months ended March 31, 2005 (unaudited) 12. CLEARLAKE SHORES: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, II-20 2004 and the three months ended March 31, 2005 (unaudited) 13. CORNERSTONE PLAZA: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from November 11, 2004 (commencement of operations) to December 31, 2004 and the three months ended March 31, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from November 11, 2004 (commencement of operations) to December 31, 2004 and the three months ended March 31, 2005 (unaudited) 14. LAKE FOREST CROSSING: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) 15. ASHLAND & ROOSEVELT: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) 16. THE SHOPS AT 5: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the three months ended March 31, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the three months ended March 31, 2005 (unaudited) 17. BEACHWAY PLAZA: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) 18. GALVEZ SHOPPING CENTER: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from April 1, 2004 (commencement of operations) to December 31, 2004 and the three months ended March 31, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from April 1, 2004 (commencement of operations) to December 31, 2004 and the three months ended March 31, 2005 (unaudited) 19. SOUTHWEST CROSSING: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the three months ended March 31, 2005 (unaudited) II-21 The following financial statements are included as part of Post Effective Amendment No. 4 1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.: (a) Consolidated Balance Sheets at June 30, 2005 (unaudited) and December 31, 2004 (b) Consolidated Statements of Operations (unaudited) for the six months ended June 30, 2005 and June 30, 2004 (c) Consolidated Statement of Stockholders' Equity (unaudited) for the six month period ended June 30, 2005 (d) Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2005 and the six months ended June 30, 2004 (e) Notes to Consolidated Financial Statements at June 30, 2005 (f) Pro Forma Consolidated Balance Sheet at June 30, 2005 (unaudited) (g) Notes to Pro Forma Consolidated Balance Sheet at June 30, 2005 (unaudited) (h) Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2005 (unaudited) (i) Notes to Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2005 (unaudited) (j) Pro Forma Consolidated Statement of Operations for the year ended December 31, 2004 (unaudited) (k) Notes to Pro Forma Consolidated Statement of Operations for the year ended December 31, 2004 (unaudited) 2. LINCOLN PLAZA: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) 3. NEW FOREST CROSSING: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) 4. THE ORCHARD: (a) Independent Auditors' Report (b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) (c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) II-22 5. PROPERTIES ACQUIRED FROM THE NEWMAN DEVELOPMENT GROUP: (a) Independent Auditors' Report (b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) (c) Notes to Combined Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) 6. MOUNTAIN VIEW: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) 7. WEST TOWN MARKET: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) 8. SHOPPES AT WARNER ROBINS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) 9. SOUTHPARK MEADOWS: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, 2005 (commencement of operations) to June 30, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to June 30, 2005 (unaudited) 10. MISSION CROSSING: (a) Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from November 1, 2004 (commencement of operations) to December 31, 2004 and the six months ended June 30, 2005 (unaudited) 11. STONEBRIDGE PLAZA: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) II-23 12. GREAT SOUTHWEST CROSSING: (a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) (b) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004 and the six months ended June 30, 2005 (unaudited) (b) EXHIBITS.
EXHIBIT NO. DESCRIPTION ----------- ----------- 1.1********** Form of Dealer Manager Agreement by and between Inland Western Retail Real Estate Trust, Inc. and Inland Securities Corporation. 1.2********** Form of Soliciting Dealers Agreement by and between Inland Securities Corporation and the Soliciting Dealers. 3.1********** First Amended and Restated Articles of Incorporation of Inland Western Retail Real Estate Trust, Inc. 3.2* Bylaws of Inland Western Retail Real Estate Trust, Inc. 3.2. X3 Second Amended and Restated Bylaws of Inland Western Retail Real Estate Trust, Inc. as of February 11, 2005 4.1* Specimen Certificate for the Shares. 5********** Opinion of Duane Morris LLP as to the legality of the Shares being registered. 8********** Opinion of Duane Morris LLP as to tax matters. 10.1** Form of Escrow Agreement by and among Inland Western Retail Real Estate Trust, Inc., Inland Securities Corporation and LaSalle Bank National Association. 10.2** Form of Advisory Agreement by and between Inland Western Retail Real Estate Trust, Inc. and Inland Western Retail Real Estate Advisory Services, Inc. 10.2.1 X3 Amended and Restated Advisory Agreement dated December 28, 2004 10.2.2 X3 Second Amended and Restated Advisory Agreement dated December 28, 2004 10.3** Form of Master Management Agreement, including the form of Management Agreement for each Property by and between Inland Western Retail Real Estate Trust, Inc. and Inland Western Property Management Corp. 10.4** Property Acquisition Service Agreement by and among Inland Western Retail Real Estate Trust, Inc., Inland Western Retail Real Estate Advisory Services, Inc., Inland Real Estate Corporation, Inland Real Estate Advisory Services, Inc., and Inland Real Estate Acquisitions, Inc. 10.4.1 X3 Property Acquisition Agreement dated February 10, 2005 by and between Inland Real Estate Acquisitions, inc, Inland Western Retail Real Estate Trust, Inc., and Inland Western Retail Real Estate Advisory Services, Inc. 10.5* Independent Director Stock Option Plan. 10.6* Indemnification Agreement by and between Inland Western Retail Real Estate Trust, Inc. and its directors and executive officers. 10.7** Purchase and Sale Agreement (Re: Peoria Station) dated January 31, 2003.
II-24 10.8*** Assignment of Purchase and Sale Agreement (Re: Peoria Station) dated June 3, 2003.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.9**** Share Repurchase Plan. 10.10***** Agreement for Purchase and Sale (Re: Stony Creek) dated November 11, 2003. 10.11***** Real Property Purchase Agreement (Re: Plaza 205 and Mall 205) dated December 3, 2003. 10.12***** Amended Real Estate Purchase Contract (Re: Edmond Oklahoma Eckerd Drug Store) dated November 11, 2003. 10.13***** Amended Real Estate Purchase Contract (Re: Norman Oklahoma Eckerd Drug Store) dated November 11, 2003. 10.14****** Sale-Purchase Agreement Contract (Re: Shops at Park Place) dated September 5, 2003. 10.15****** Assignment of Contract (Re: Shops at Park Place) dated September 23, 2003. 10.16****** Assignment of Membership Interests (Re: Shops at Park Place) dated October 31, 2003. 10.17****** Promissory Note (Re: Shops at Park Place) dated October 31, 2003. 10.18****** Loan Agreement (Re: Shops at Park Place) dated October 31, 2003. 10.19****** Post Closing Agreement (Re: Shops at Park Place) dated October 31, 2003. 10.20****** Purchase and Sale Agreement (Re: Darien Towne Center) dated November 12, 2003. 10.21****** Purchase and Sale Agreement (Re: Shaws Supermarkets- New Britain) dated November 20, 2003. 10.22****** Agreement Relating to PetsMart Claims (Re: Darien Towne Center) dated December 18, 2003. 10.23****** Agreement Relating to Irv's Lease (Re: Darien Towne Center) dated December 18, 2003. 10.24****** Amended Purchase Agreement (Re: Newnan Crossing) dated December 18, 2003. 10.25****** Mortgage Note $10M (Re: Darien Towne Center) dated December 19, 2003. 10.26****** Mortgage Note $6.5M (Re: Darien Towne Center) dated December 19, 2003. 10.27****** Mortgage, Assignment of Leases, Rents and Contracts, Security Agreement and Fixture Filing (Re: Darien Towne Center) dated December 19, 2003. 10.28****** Related Agreement (Re: Darien Towne Center) dated December 19, 2003. 10.29****** Assignment (Re: Darien Towne Center) dated December 19, 2003. 10.30****** Partial Assignment and Assumption of Purchase and Sale Agreement (Re: Shaws Supermarket - New Britain) dated December 30, 2003. 10.31****** Amended Purchase Agreement (Re: Pavilion at Kings Grant) dated December 31, 2003. 10.32****** Post Closing and Indemnity Agreement (Re: Pavilion at Kings Grant) dated December 31, 2003. 10.33****** Mortgage Note (Re: CorWest Plaza) dated January 1, 2004. 10.34****** Mortgage, Assignment of Leases and Rents and Security Agreement (Re: CorWest Plaza) dated January 1, 2004.
II-25 10.35****** Guaranty Agreement (Re: CorWest Plaza) dated January 1, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.36****** Letter Agreement (Re: Stoney Creek Marketplace) dated January 5, 2004. 10.37****** Mortgage Note (Re: Stoney Creek Marketplace) dated January 5, 2004. 10.38****** Mortgage, Assignment of Leases and Rents and Security Agreement (Re: Stoney Creek Marketplace) dated January 5, 2004. 10.39****** Amended Contract of Sale (Re: La Plaza Del Norte) dated January 16, 2004. 10.40****** Promissory Note (Re: Hickory Ridge) dated January 23, 2004. 10.41****** Post Closing Agreement (Re: Hickory Ridge) dated January 2004. 10.42****** Loan Agreement (Re: Hickory Ridge) dated January 23, 2004. 10.43****** Amended and Restated Promissory Noted (Re: Shops at Park Place and Shaws Supermarket - New Britain) dated January 2004. 10.44****** Promissory Note (Re: Shops at Park Place and Shaws Supermarket - New Britain) dated January 2004. 10.45****** Open-End Mortgage and Security Agreement (Re: Shops at Park Place and Shaws Supermarket - New Britain) dated January 2004. 10.46****** Loan Agreement (Re: Shops at Park Place and Shaws Supermarket - New Britain) dated January 2004. 10.47****** Guaranty Agreement Regarding Cross-Collateralization (Re: Shops at Park Place) dated January 2004. 10.48****** Guaranty Agreement Regarding Cross-Collateralization (Re: Shaws Supermarket - New Britain) dated January 2004. 10.49****** Notice of Final Agreement (Re: La Plaza Del Norte) dated February 2004. 10.50****** Secured Promissory Note Loan No. 753821 (Re: La Plaza Del Norte) dated February 2004. 10.51****** Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753821 (Re: La Plaza Del Norte) dated February 2004. 10.52****** Guaranty Loan No, 753821 (Re: La Plaza Del Norte) dated February 2004. 10.53******* Amended Purchase and Sale Agreement (Re: CorWest Plaza) dated October 8, 2003. 10.54******* Assignment and Assumption of Purchase and Sale Agreement (Re: CorWest Plaza) dated January 5, 2004. 10.55******* Amended Purchase and Sale Agreement (Re: Metro Square Center) dated January 16, 2004. 10.56******* Assignment and Assumption of Letter Agreement (Re: Metro Square Center) dated January 20, 2004. 10.57******* Reinstatement of and Amendment to Purchase and Sale Agreement (Re: North Ranch Pavilions) dated January 14, 2004. 10.58******* Assignment and Assumption of Purchase and Sale Agreement (Re: North Ranch Pavilions) dated January 15, 2004. 10.59******* Letter Agreement (Re: MacArthur Crossing) dated November 20, 2003. 10.60******* Assignment of Contract (Re: MacArthur Crossing) dated February 2004.
II-26 10.61******* Secured Promissory Note Loan No. 753820 (Re: Larkspur Landing) dated January 30, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.62******* Deed of Trust, Security Agreement and Assignment of Rents (Re: Larkspur Landing) dated January 30, 2004. 10.63******* Guaranty Loan No. 753820 (Re: Larkspur Landing) dated January 30, 2004. 10.64******* Amended Option to Purchase Partnership Interests (Re: Hickory Ridge) dated December 23, 2003. 10.65******* Assignment (Re: La Plaza Del Norte) dated January 21, 2004. 10.66******* Purchase and Sale Agreement (Re: Larkspur Landing) dated December 12, 2003. 10.67******* Assignment (Re: Larkspur Landing) dated January 14, 2004. 10.68******* Amended Letter Agreement Offer to Purchase (Re: The Promenade at Red Cliff) dated February 13, 2004. 10.69******** Agreement of Sale (Re: Peoria Crossing) dated January, 2004 10.70******** Letter Agreement to Purchase (Re: Heritage Towne Crossing) dated January 8, 2004. 10.71********* Secured Promissory Note Loan No. 753865 (Re: Pavilion at King's Grant) dated April 6, 2004. 10.72********* Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753865 (Re: Pavilion at King's Grant) dated April 6, 2004. 10.73********* Guaranty Loan No. 753865 (Re: Pavilion at King's Grant) dated April 6, 2004. 10.74********* Guaranty - II Loan No. 753865 (Re: Pavilion at King's Grant) dated April 6, 2004. 10.75********* Assignment of Contract (Re: Hickory Ridge ) dated January 9, 2004. 10.76********* Promissory Note Loan No. 6518303 (Re: Metro Square Center) dated March 26, 2004. 10.77********* Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing Loan No. 6518303 (Re: Metro Square Center) dated March 26, 2004. 10.78********* Non-Recourse Guaranty Agreement Loan No. 6518303 (Re: Metro Square Center) dated March 26, 2004. 10.79********* Payment Guaranty Agreement Loan No. 6518303 (Re: Metro Square Center) dated March 26, 2004. 10.80********* Secured Promissory Note Loan No. 753864 (Re: MacArthur Crossing) dated March 26, 2004. 10.81********* Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753864 (Re: MacArthur Crossing) dated March 26, 2004. 10.82********* Guaranty Loan No. 753864 (Re: MacArthur Crossing) dated March 26, 2004. 10.83********* Promissory Note Loan No. 57968 (Re: Promenade at Red Cliff) dated April 8, 2004. 10.84********* Exceptions to Non-Recourse Guaranty Agreement Loan No. 57968 (Re: Promenade at Red Cliff) dated April 8, 2004. 10.85********* Loan Agreement No. 57968 (Re: Promenade at Red Cliff) dated April 8, 2004. 10.86********* Post Closing and Indemnity Agreement (Re: Heritage Towne Crossing) dated March 5, 2004.
II-27 10.87********* Vacancy Escrow Agreement (Re: Heritage Towne Crossing) dated March 5, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.88********* General Assignment (Re: Heritage Towne Crossing) dated March 5, 2004. 10.89********* Assignment of Contract (Re: Heritage Towne Crossing) dated March 5, 2004. 10.90********* Assignment of Contract (Re: Dorman Center) dated December 29, 2003. 10.92********* Dorman Center Pier 1 Escrow (Re: Dorman Center) dated March 4, 2004. 10.93********* Dorman Center Escrow (Re: Dorman Center) dated March 4, 2004. 10.94********* Mortgage Note Loan No. 6518291 (Re: Dorman Center) dated April 9, 2004. 10.95********* Mortgage, Assignment of Leases and Rents and Security Agreement (Re: Dorman Center) dated April 9, 2004. 10.96********* Transitional Security (Phase II) Reserve Agreement (Re: Dorman Center) dated April 9, 2004, 10.97********* Guaranty Agreement Loan No. 6518291 (Re: Dorman Center) dated April 9, 2004. 10.98********* Promissory Note: (Re: Heritage Towne Crossing) dated April 26, 2004. 10.99********* Promissory Note: (Re: Eckerds - Edmond, OK.) dated April 26, 2004. 10.100******** Promissory Note: (Re: Eckerds - Norman, OK.) dated April 26, 2004. 10.101******** Loan Agreement (Re: Heritage Towne Crossing, Eckerds - Edmond, OK. And Eckerds - Norman, OK.) dated April 26, 2004. 10.102******** Post-Closing Agreement (Re: Heritage Towne Crossing, Eckerds - Edmond, OK. And Eckerds - Norman, OK.) dated April 26, 2004. 10.103******** Guaranty Agreement Regarding Cross-Collateralization (Re: Heritage Towne Crossing) dated April 26, 2004. 10.104******** Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds - Edmond, OK.) dated April 26, 2004. 10.105******** Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds - Norman, OK.) dated April 26, 2004. 10.106******** Assignment of Contract (Re: Promenade at Red Cliff) dated February 13, 2004. 10.107******** Assignment of Contract (Re: Peoria Crossings) dated March 3, 2004. 10.108******** Post Closing Agreement (Re: Peoria Crossings) dated March 3, 2004. 10.109******** Master Lease Escrow Agreement (Re: Peoria Crossings) dated February 4, 2004. 10.110******** Tax Proration Agreement (Re: Peoria Crossings) dated March 3, 2004. 10.111******** Promissory Note Loan No. 10023006 (Re: Peoria Crossings) dated March 5, 2004. 10.112******** Loan Agreement -Loan No. 10023006 (Re: Peoria Crossings) dated March 5, 2004. 10.113******** Assignment of Contract (Re: Paradise Valley Marketplace) dated April 8, 2004. 10.114******** Revised Letter Agreement to Purchase (Re: Paradise Valley Marketplace) dated January 21, 2004.
II-28 10.115******** Escrow Agreement (Re: Paradise Valley Marketplace) dated April 8, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.116******** Assignment and Assumption of Purchase and Sale Agreement (Re: Best on the Boulevard) dated April 4, 2004. 10.117******** Post-Closing Agreement (Re: Best on the Boulevard) dated April 14, 2004. 10.118******** Amended Purchase and Sale Agreement (Re: Best on the Boulevard) dated March 29, 2004. 10.119******** Assignment and Assumption of Purchase and Sales Agreement (Re: Bluebonnet Parc) dated April 21, 2004. 10.120******** Escrow Agreement (Re: Bluebonnet Parc) dated April 22, 2004. 10.121******** Letter Agreement to Purchase (Re: Bluebonnet Parc) dated February 4, 2004. 10.122******** Loan Agreement (Re: Bluebonnet Parc) dated May 7, 2004. 10.123******** Assignment and Assumption of Agreement for Purchase and Sale (Re: Alison's Corner) dated April 20, 2004. 10.124******** Post Closing Agreement (Re: Alison's Corner) dated April 28, 2004. 10.125******** Amended Purchase and Sale Agreement (Re: Alison's Corner) dated April 23, 2004. 10.126******** Promissory Note (Re: Alison's Corner) dated May 10, 2004. 10.127******** Loan Agreement (Re: Alison's Corner) dated May 10, 2004. 10.128******** Letter Agreement Regarding Escrow (Re: Alison's Corner) dated May 10, 2004. 10.129******** Post-Closing Agreement (Re: Alison's Corner) dated May 10, 2004. 10.130******** Assignment and Assumption of Purchase and Sales Agreement (Re: North Rivers Town Center) dated April 27, 2004. 10.131******** Post-Closing Agreement (Re: North Rivers Town Center) dated April 2004. 10.132******** Amended Agreement for Purchase and Sale (Re: North Rivers Town Center) dated April 26, 2004. 10.133******** Assignment and Assumption of Purchase and Sales Agreement (Re: Eastwood Towne Center) dated May 12, 2004. 10.134******** Revised Letter Agreement (Re: Eastwood Towne Center) dated March 29, 2004. 10.135******** Master Fund Escrow Agreement (Eastwood Towne Center) dated May 13, 2004. 10.136******** Holdback Agreement (Re: Eastwood Towne Center) dated May 13, 2004. 10.137******** Bill of Sale, Assignment and Assumption of Contracts (Re: Eastwood Towne Center) dated May 13, 2004. 10.138******** Assignment and Assumption of Purchase and Sales Agreement (Re: Arvada Connection and Arvada Marketplace) dated April 28, 2004. 10.139******** Bill of Sale, Assignment and Assumption of Contracts (Re: Arvada Connection and Arvada Marketplace) dated April 29, 2004. 10.140******** Purchase and Sale Agreement (Re: Arvada Connection and Arvada Marketplace) dated March 31, 2004.
II-29 10.141******** Escrow Agreement (Re: Arvada Connection and Arvada Marketplace) dated April 29, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.142******** Redevelopment Agreement (Re: Arvada Connection and Arvada Marketplace) dated April 28, 2004. 10.144******** Assignment of Contract (Re: Watauga Pavilion) dated May 20, 2004. 10.145******** Amended Purchase and Sale Agreement (Re: Watauga Pavilion) dated May 11, 2004. 10.146******** Post-Closing Escrow and Master Lease Agreement (Re: Watauga Pavilion) dated May 21, 2004. 10.147******** CAM Reconciliation Escrow Agreement (Re: Northpointe Plaza) dated May 2004. 10.148******** Reinstatement of and First Amendment to Agreement of Purchase and Sale (Re: Northpointe Plaza) dated April 2004. 10.149******** Vacancy Escrow Agreement (Re: Northpointe Plaza) dated May 2004. 10.150******** Promissory Note - Loan No. 58108 (Re: Paradise Valley Marketplace) dated June 3, 2004. 10.151******** Loan Agreement - Loan No. 58108 (Re: Paradise Valley Marketplace) dated June 3, 2004. 10.152******** Promissory Note (Re: North Rivers Town Center) dated June 3, 2004. 10.153******** Mortgage and Security Agreement (Re: North Rivers Town Center) dated June 3, 2004. 10.154******** Post-Closing Agreement (Re: North Rivers Town Center) dated June 3, 2004. 10.155******** Real Estate Purchase and Leaseback Agreement (Re: Eckerds - Kill Devil Hills, NC) dated March 18, 2004. 10.156******** Real Estate Purchase and Leaseback Agreement (Re: Eckerds - Greer, SC) dated April 1, 2004. 10.157******** Real Estate Purchase and Leaseback Agreement (Re: Eckerds - Columbia, SC) dated March 18, 2004. 10.158******** Real Estate Purchase and Leaseback Agreement (Re: Eckerds - Crossville, TN) dated March 18, 2004. 10.159******* Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing Loan No. 58108 (Re: Peoria Crossing) dated June 3, 2004. 10.160******* Loan Agreement (Re: North Rivers Town) dated June 3, 2004. 10.161******* Secured Promissory Note Loan No. 753946 (Re: Arvada Marketplace) dated June 17, 2004. 10.162******* Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753946 (Re: Arvada Marketplace) dated June 17, 2004. 10.163******* Guaranty Loan No. 753946 (Re: Arvada Marketplace) dated June 17, 2004. 10.164******* Mortgage Note Loan No. 6518370 (Re: Eastwood Town Center) dated June 15, 2004. 10.165******* Mortgage - Loan No. 6518370 (Re: Eastwood Town Center) dated June 15, 2004. 10.166******* Guaranty Agreement Loan No. 6518370 (Re: Eastwood Town Center) dated June 15, 2004. 10.167******* Secured Promissory Note Loan No. 753943 (Re: Watauga Pavilion) dated June 7, 2004. 10.168******* Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753943 (Re: Watauga Pavilion) dated June 7, 2004.
II-30 10.169******* Notice of Final Agreement Loan No. 753943 (Re: Watauga Pavilion) dated June 7, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.170******* Guaranty Loan No. 753943 (Re: Watauga Pavilion) dated June 7, 2004. 10.171******* General Assignment (Re: Northpointe Plaza) dated May 25, 2004. 10.172******* Post Closing and Indemnity Agreement (Re: Northpointe Plaza) dated May, 2004. 10.173******* Promissory Note (Re: Northpointe Plaza) dated June 4, 2004. 10.174******* Loan Agreement (Re: Northpointe Plaza) dated June 4, 2004. 10.175******* Deed of Trust, Security Agreement and Fixture Filing (Re: Northpointe Plaza) dated June 4, 2004. 10.176******* Revised Letter Agreement to Purchase (Re: Plaza Santa Fe) dated December 4, 2004. 10.177******* Promissory Note Secured By Leasehold Deed of Trust (Re: Plaza Santa Fe) dated November 22, 2002. 10.178******* Leasehold Deed of Trust and Absolute Assignment of Rents and Leases and Security Agreement and Fixture Filing Loan No. 31-0900141A (Re: Plaza Santa Fe) dated November, 2002. 10.179******* Assignment of Purchase and Sale Agreement (Re: Pine Ridge Plaza) dated June 4, 2004. 10.180******** Assignment and Assumption Agreement Purchase and Sale Agreement (Re: Pine Ridge Plaza) dated May 26, 2004. 10.181******* Amended Purchase and Sale Agreement (Re: Pine Ridge Plaza) dated March 30, 2004. 10.182******* Assignment of Contract (Re: Huebner Oaks Center) dated June 8, 2004. 10.183******* Agreement of Purchase and Sale (Re: Huebner Oaks Center). 10.184******* Secured Promissory Note 1 Loan No. 753971 (Re: Huebner Oaks Center) dated June 22, 2004. 10.185******* Secured Promissory Note 2 Loan No. 753972 (Re: Huebner Oaks Center) dated June 22, 2004. 10.186******* Deed of Trust, Security Agreement and Assignment of Rents Loan Nos. 753971 and 753972 (Re: Huebner Oaks Center) dated June 22, 2004. 10.187******* Guaranty Loan Nos. 753971 and 753972 (Re: Huebner Oaks Center) dated June 22, 2004. 10.188******* Notice of Final Agreement Loan Nos. 753971 and 753972 (Huebner Oaks Center) dated June 22, 2004. 10.189******* Amended Letter Purchase Agreement (Re: John's Creek Village) dated June 18, 2004. 10.190******* Earn-out Agreement (Re: John's Creek Village) dated June 23, 2004. 10.191******* Assignment of Contract (Re: Lakewood Towne Center) dated June, 2004. 10.192******* Agreement for Purchase and Sale of Real Property and Escrow Instructions (Re: Lakewood Towne Center) dated May 6, 2004. 10.193******* Escrow and Leasing Agreement (Re: Lakewood Towne Center) dated June, 2004. 10.194******* Commitment Letter Loan Nos. 122498 and 122499 (Re: Lakewood Towne Center) dated June 28, 2004. 10.195******* Deed of Trust Note A Loan No. 122498 (Re: Lakewood Towne Center) dated June 28, 2004. 10.196******* Deed of Trust Note B Loan No. 122499 (Re: Lakewood Towne Center) dated June 28, 2004.
II-31
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.197******* Deed of Trust, Assignment of Leases, Rents and Contracts, Security Agreement and Fixture Filing (Re: Lakewood Towne Center) dated June 28, 2004. 10.198******* First Amendment to Escrow and Leasing Agreement Loan Nos. 122498 and 122499 (Re: Lakewood Towne Center) dated June 28, 2004. 10.199******* Master Lease Escrow Agreement (Re: Paradise Shoppes at Prominence Point) dated June 30, 2004. 10.200******* Assignment of Purchase and Sale Agreement (Re: Northgate North) dated June 24, 2004. 10.201******* Amended Agreement to Purchase and Sale Agreement (Re: Northgate North) dated June 23, 2004. 10.202******* Escrow Agreement Regarding July Rents (Re: Northgate North) dated June 30, 2004. 10.203******* Escrow Agreement Regarding Bassett TI Work/Leasing Commission (Re: Northgate North) dated June, 2004. 10.204******* Access Agreement (Re: Northgate North) dated June 30, 2004. 10.205******* Post Closing and Indemnity Agreement (Re: Davis Towne Crossing) dated June 30, 2004. 10.206******* Letter Agreement to Purchase (Re: Davis Towne Crossing) dated April 21, 2004. 10.207 ** NOT USED 10.208******* Assignment of Purchase and Sale Agreement (Re: Fullerton Metrocenter) dated June 24, 2004. 10.209******* Post Closing and Indemnity Agreement (Re: Fullerton Metrocenter) dated June, 2004. 10.210******* Amended Purchase and Sale Agreement and Joint Escrow Instructions (Re: Fullerton Metrocenter) dated June 30, 2004. 10.211******* Assignment and Assumption of Agreement for Purchase and Sale (Re: Low Country Village) dated June 30, 2004. 10.212******* Post Closing Agreement (Re: Low Country Village) dated June 30, 2004. 10.213******* Agreement of Purchase and Sale (Re: Low Country Village) dated May 20, 2004. 10.214******* Installment Note (Re: Pacheco Pass) dated June 30, 2004. 10.215******* Loan Proceeds Holdback Agreement (Re: Pacheco Pass) dated June 30, 2004. 10.216******* Interest Reserve Holdback Agreement (Re: Pacheco Pass) dated June 30, 2004. 10.217******* Loan Guaranty Agreement (Secured Note) (Re: Pacheco Pass) dated June 30, 2004. 10.218******* Escrow Agreement (Re: Shoppes at Boardwalk) dated July 1, 2004. 10.219******* Secured Promissory Note Loan No. 753948 (Re: Shoppes at Boardwalk) dated July 2, 2004. 10.220******* Deed of Trust, Security Agreement and Assignment of Rents (Re: Shoppes at Boardwalk) dated July 2, 2004. 10.221******* Guaranty Loan No. 75348 (Re: Shoppes at Boardwalk) dated July 2, 2004. 10.222******* Property Reserves Agreement Loan No. 753948 (Re: Shoppes at Boardwalk) dated July 2, 2004.
II-32 10.223******* Master Lease Escrow Agreement (Re: Paradise Shoppes at Dallas) dated July 1, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.224********* Assignment of Purchase Agreement (Re: Plaza Santa Fe II) dated May 25, 2004 10.225********* Assignment of Contract (Re: Eckerds - Greer) dated May 2004 10.226********* Assignment of Contract (Re: Eckerds - Kill Devil Hills) dated May 2004 10.227********* Assignment of Contract (Re: Eckerds - Crossville) dated May 2004 10.229********* Promissory Note (Re: Eckerds - Crossville) dated July 21, 2004 10.230********* Post-Closing Agreement (Re: Eckerds - Crossville) dated July 21, 2004 10.231********* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds- Crossville) dated July 21, 2004 10.232********* Promissory Note (Re: Eckerds - Columbia) dated July 21, 2004 10.233********* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds- Columbia) dated July 21, 2004 10.234********* Promissory Note (Re: Eckerds - Kill Devil Hills) dated July 21, 2004 10.235********* Post-Closing Agreement (Re: Eckerds - Kill Devil Hills) dated July 21, 2004 10.236********* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds - Kill Devil Hills) dated July 21, 2004 10.237********* Promissory Note (Re: Eckerds - Greer) dated July 21, 2004 10.238********* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds - Greer) dated July 21, 2004 10.239********* Loan Agreement (Re: Eckerds - Crossville, Columbia, Greer and Kill Devil Hills) dated July 21, 2003 10.240********* Promissory Note (Re: Pine Ridge Plaza) dated July 27, 2004 10.241********* Loan Agreement (Re: Pine Ridge Plaza) dated July 27, 2004 10.242********* Earn-Out Agreement (Re: Johns Creek Village) dated June 23, 2004 10.243********* Transitional Security (Phase II) Reserve Agreement (Re: Johns Creek Village) dated June 28, 2004 10.244********* Mortgage Note (Re: Johns Creek Village) dated June 28, 2004 10.245********* Deed to Secure Debt, Assignment of Leases and Rents and Security Agreement (Re: Johns Creek Village) dated June 28, 2004 10.246********* Guaranty Agreement (Re: Johns Creek Village) dated June 28, 2004 10.247********* Post-Closing Agreement (Re: Fullerton Metrocenter) dated July 9, 2004 10.248********* Promissory Note (Re: Fullerton Metrocenter) dated July 9, 2004 10.249********* Loan Agreement (Re: Fullerton Metrocenter) dated July 9, 2004 10.250********* Deed of Trust Note (Re: Northgate North) dated July 2004 10.251********* Letter Agreement (Re: Northgate North) dated July 14, 2004 10.252********* Closing Certificate (Re: Northgate North) dated July 2004
II-33 10.253********* Limited Payment Guaranty (Re: Northgate North) dated July 2004
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.254********* Post-Closing Agreement (Re: Cranberry Square) dated July 2004 10.255********* Loan Agreement (Re: Cranberry Square) dated July 2004 10.256********* Letter Agreement (Re: Tollgate Marketplace) dated July 21, 2004 10.257********* Closing Certificate (Re: Tollgate Marketplace) dated July 21, 2004 10.258********* Mortgage Note (Re: Tollgate Marketplace) dated July 21, 2004 10.259********* Post Closing Delivery Covenant (Re: Tollgate Marketplace) dated July 21, 2004 10.260********* Indemnity Guaranty (Re: Tollgate Marketplace) dated July 21, 2004 10.261********* Real Estate Purchase Contract (Re: Wal-Mart Supercenter - Blytheville) dated May 28, 2004 10.262********* Letter Agreement (Re: Gateway Village) dated July 21, 2004 10.263********* Closing Certificate (Re: Gateway Village) dated July 21, 2004 10.264********* Mortgage Note A (Re: Gateway Village) dated July 21, 2004 10.265********* Mortgage Note B (Re: Gateway Village) dated July 21, 2004 10.266********* Indemnity Guaranty (Re: Gateway Village) dated July 21, 2004 10.267********* Post Closing Delivery Covenant (Re: Gateway Village, Towson Circle, and Tollgate Marketplace) dated July 21, 2004 10.268********* Letter Agreement (Re: Towson Circle) dated July 21, 2004 10.269********* Closing Certificate (Re: Towson Circle) dated July 21, 2004 10.270********* Mortgage Note A (Re: Towson Circle) dated July 21, 2004 10.271********* Mortgage Note B (Re: Towson Circle) dated July 21, 2004 10.272********* Indemnity Guaranty (Re: Towson Circle) dated July 21, 2004 10.273********* Letter Agreement (Re: Gateway Plaza Shopping Center) dated May 20, 2004 10.274********* Promissory Note (Re: Wrangler Company Western Headquarters and Distribution Facility) dated July 26, 2004 10.275********* Loan Agreement (Re: Wrangler Company Western Headquarters and Distribution Facility) Dated July 26, 2004 10.276********* Promissory Note (Re: Plaza at Marysville) dated July 30, 2004 10.277********* Loan Agreement (Re: Plaza at Marysville) dated July 30, 2004 10.278********* Forks Town Center China Moon Escrow (Re: Forks Town Center) dated July 27, 2004 10.279********* Earn Out Agreement (Re: Forks Town Center) dated July 27, 2004 10.280********* Promissory Note (Re: Academy Sports and Outdoors - Houma) dated August 4, 2004
II-34 10.281********* Loan Agreement (Re: Academy Sports and Outdoors - Houma) dated August 4, 2004
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.282********* Promissory Note (Re: Reisterstown Plaza) dated August 4, 2004 10.283********* Letter Agreement (Re: Reisterstown Plaza) dated July 30, 2004 10.284********* Loan Agreement (Re: Reisterstown Plaza) dated August 4, 2004 10.285********* Guaranty Agreement (Re: Reisterstown Plaza) dated August 4, 2004 10.286********* Limited Guaranty Agreement (Re: Reisterstown Plaza) dated August 4, 2004 10.287********* Post-Closing Agreement (Re: Reisterstown Plaza) dated August 4, 2004 10.288********* Letter Agreement (Re: Wal-Mart Supercenter - Jonesboro) dated June 4, 2004 10.289********* Promissory Note (Re: Wal-Mart Supercenter - Jonesboro) dated August 6, 2004 10.290********* Loan Agreement (Re: Wal-Mart Supercenter - Jonesboro) dated August 6, 2004 10.291********** Promissory Note Loan No. 10024997 (Re: Davis Towne Crossing) dated August 9, 2004. 10.292********** Loan Agreement No. 10024997 (Re: Davis Towne Crossing) dated August 9, 2004. 10.293********** Promissory Note Loan No. 10024995 (Re: Shoppes of Prominence Point) dated August 2004. 10.294********** Loan Agreement No. 10024995 (Re: Shoppes of Prominence Point) dated August 2004. 10.295********** Assignment of Contract (Re: Shops at Boardwalk) dated July 1, 2004. 10.296********** Letter Agreement to Purchase (Re: Shops at Boardwalk) dated March 2004. 10.297********** Amended Agreement of Sale (Re: Shops at Boardwalk) dated April 15, 2004. 10.298********** Assignment of Contract (Re: Cranberry Square) dated June 23, 2004. 10.299********** Letter Agreement to Purchase (Re: Cranberry Square) dated April 27, 2004. 10.300********** Construction Agreement (Re: Dorman Center Phase II) dated July 15, 2004. 10.301********** Escrow Agreement (Re: Dorman Center Phase II) dated July 14, 2004. 10.302********** Assignment and Assumption of Purchase and Sale Agreement (Re: Gateway Plaza) dated July 21, 2004. 10.303********** Amended Purchase and Sale Agreement (Re: Gateway Plaza) dated July 15, 2004. 10.304********** Letter Agreement to Purchase (Re: Gateway Plaza) dated May 20, 2004. 10.305********** Assignment of Contract (Re: Plaza at Marysville) dated July 26, 2004. 10.306********** Reinstated and Amended Purchase and Sale Agreement (Re: Plaza at Marysville) dated July 23, 2004. 10.307********** Purchase and Sale Agreement (Re: Plaza at Marysville) dated May 6, 2004. 10.308********** Letter Agreement to Purchase (Re: Forks Town Center) dated August 10, 2004. 10.309********** Mortgage Note Loan No. 122483 (Re: Forks Town Center) dated August 10, 2004. 10.310********** Limited Payment Guarantee Agreement Loan No. 122483 (Re: Forks Town Center) dated August 10,
II-35 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.311********** Post-Closing Agreement (Re: Village Shoppes at Simonton) dated August 9, 2004. 10.312********** Escrow and Guarantee Agreement (Re: Village Shoppes at Simonton) dated August 2004. 10.313********** Assignment and Assumption of Purchase and Sale Agreement (Re: Village Shoppes at Simonton) dated August 2004. 10.314********** Letter Agreement to Purchase (Re: Village Shoppes at Simonton) dated April 30, 2004. 10.315********** Secured Promissory Note Loan No. 754044 (Re: Manchester Meadows) dated August 24, 2004. 10.316********** Deed of Trust, Security Agreement and Assignment of Rents (Re: Manchester Meadows) dated August 24, 2004. 10.317********** Guaranty Agreement Loan No. 754044 (Re: Manchester Meadows) dated August 24, 2004. 10.318********** Escrow and Guarantee Agreement (Re: Manchester Meadows) dated August 2004. 10.319********** St. Louis Plays capes Escrow and Guarantee Agreement (Re: Manchester Meadows) dated August 2004. 10.320********** Assignment and Assumption of Purchase and Sale Agreement (Re: Manchester Meadows) dated August 2004. 10.321********** Purchase and Sale Agreement (Re: Manchester Meadows) dated July 13, 2004. 10.322********** Amended and Restated Promissory Note Loan No. 10024998 (Re: Governor's Marketplace) dated August 17, 2004. 10.323********** Post-Closing Agreement (Re: Governor's Marketplace) dated August 2004. 10.324********** Loan Agreement No. 10024998 (Re: Governor's Marketplace) dated August 17, 2004. 10.325********** Master Lease Escrow Agreement (Re: Mitchell Ranch Plaza) dated August 23, 2004. 10.326********** Agreement of Purchase and Sale (Re: Mitchell Ranch Plaza) dated July 20, 2004. 10.327********** Master Lease Escrow Agreement (Re: The Columns) dated August 24, 2004. 10.328********** Escrow Agreement (Re: The Columns) dated August 24, 2004. 10.329 X1 Assignment (Re: John's Creek Village) dated June 23, 2004. 10.330 X1 Assignment (Re: Shoppes at Prominence Point) dated June 30, 2004. 10.331 X1 Amended Agreement of Purchase and Sale of Shopping Center (Re: Shoppes at Prominence Point) dated June 18, 2004. 10.332 X1 Assignment (Re: Shoppes of Dallas) dated July, 2 2004. 10.333 X1 Amended Agreement of Purchase and Sale of Shopping Center (Re: Shoppes of Dallas) dated June 29, 2004. 10.334 X1 Letter Agreement (Re: Shoppes of Dallas) dated September 27, 2004. 10.335 X1 Mortgage Note A Loan No. 122533 (Re: Shoppes of Dallas) dated September 27, 2004. 10.336 X1 Mortgage Note B Loan No. 122533 (Re: Shoppes of Dallas) dated September 27, 2004.
II-36 10.337 X1 Deed to Secure Debt and Security Agreement (Re: Shoppes of Dallas) dated September 27, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.338 X2 Contribution Agreement (Re: Boulevard at the Capital Centre) dated July 21, 2004. 10.339 X1 Contribution Agreement (Re: Tollgate Marketplace) dated July 19, 2004. 10.340 X1 Contribution Agreement (Re: Gateway Village) dated July 21, 2004. 10.341 X1 Promissory Note (Re: Plaza at Marysville) dated July 30, 2004. 10.342 X1 Loan Agreement (Re: Plaza at Marysville) dated July 30, 2004. 10.343 X1 Assignment of Contract (Re: Forks Town Center) dated June 18, 2004. 10.344 X1 Reinstated and Amended Contract (Re: Forks Town Center) dated July 2, 2004. 10.345 NOT USED 10.346 X1 Contribution Agreement (Re: Towson Circle) dated July 2004. 10.347 X1 Letter Agreement (Re: Gateway Plaza) dated August 19, 2004. 10.348 X1 Deed of Trust Note Loan No. 122520 (Re: Gateway Plaza) dated August 19, 2004. 10.349 X1 Limited Payment Guaranty (Re: Gateway Plaza) dated August 19, 2004. 10.350 X1 Contribution Agreement (Re: Reisterstown Road Plaza) dated July 2004. 10.351 X1 Letter Agreement (Re: Village Shops at Simonton) dated September 27, 2004. 10.352 X1 Mortgage Note A Loan No. 122532 (Re: Village Shops at Simonton) dated September 27, 2004. 10.353 X1 Mortgage Note A Loan No. 122532 (Re: Village Shops at Simonton) dated September 27, 2004. 10.354 X1 Deed to Secure Debt and Security Agreement (Re: Village Shops at Simonton) dated September 27, 2004. 10.355 X1 Amendment Agreement (Re: Governor's Marketplace) dated August 12, 2004. 10.356 X1 Master Lease Escrow Agreement (Re: Governor's Marketplace) dated August 17, 2004. 10.357 X1 Secured Promissory Note Loan No. 754065 (Re: Mitchell Ranch Plaza) dated September 2, 2004. 10.358 X1 Mortgage and Security Agreement (Re: Mitchell Ranch Plaza) dated September 2, 2004. 10.359 X1 Guaranty (Re: Mitchell Ranch Plaza) dated September 2, 2004. 10.360 X1 Assignment (Re: The Columns) dated August 24, 2004. 10.361 X1 Amendment Agreement (Re: The Columns) dated August 2, 2004. 10.362 X1 Letter Agreement (Re: The Columns) dated October 1, 2004. 10.363 X1 Mortgage Note A Loan No. 122534 (Re: The Columns) dated September 27, 2004. 10.364 X1 Mortgage Note B Loan No. 122534 (Re: The Columns) dated September 27, 2004. 10.365 X1 Installment Note (Re: Quakertown) dated August 25, 2004.
II-37 10.366 X1 Loan Guaranty Agreement (Re: Quakertown) dated August 25, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.367 X1 Amended Agreement (Re: Saucon Valley Square) dated September 7, 2004. 10.368 X1 Assignment and Assumption of Purchase and Sale Agreement (Re: Lincoln Park) dated September 1, 2004. 10.369 X1 Amended and Restated Purchase and Sale Agreement (Re: Lincoln Park) dated August 6, 2004. 10.369 X1 Promissory Note (Re: Lincoln Park) dated October 8, 2004. 10.370 X1 Loan Agreement (Re: Lincoln Park) dated October 8, 2004. 10.371 X1 Assignment and Assumption of Purchase and Sale Agreement (Re: Harvest Towne Center) dated September 2004. 10.372 X1 Amended Purchase Agreement (Re: Harvest Towne Center) dated August 2004. 10.373 X1 Easement Indemnity Escrow Agreement (Re: Harvest Towne Center) dated September 8, 2004. 10.374 X1 Master Lease Agreement (Re: Harvest Towne Center) dated September 8, 2004. 10.375 X1 Amended and Restated Promissory Note (Re: Boulevard at the Capital Centre) dated September 8, 2004. 10.376 X1 Loan Agreement (Re: Boulevard at the Capital Centre) dated September 8, 2004. 10.377 X1 Amended and Restated Limited Guaranty Agreement (Re: Boulevard at the Capital Centre) dated September 8, 2004. 10.378 X1 Post Closing Agreement (Re: Boulevard at the Capital Centre) dated September 8, 2004. 10.379 X1 Agreement of Sale (Re: GMAC Insurance Building) dated August 2004. 10.380 X1 Escrow Agreement (Re: GMAC Insurance Building) dated September 2004. 10.381 X1 Guaranty (Re: GMAC Insurance Building) dated September 2004. 10.382 X1 Promissory Note (Re: GMAC Insurance Building) dated September 29, 2004. 10.383 X1 Loan Agreement (Re: GMAC Insurance Building) dated September 29, 2004. 10.384 X1 Promissory Note (Re: Saucon Valley Square) dated September 7, 2004. 10.385 X1 Loan Agreement (Re: Saucon Valley Square) dated September 7, 2004. 10.386 NOT USED 10.387 X2 Amended Agreement to Option to Purchase Real Property (Re: Azalea Square) dated September 29, 2004. 10.388 X2 Amended Agreement to Contract for Sale and Purchase (Re: Edgemont Town Center) dated November 23, 2004. 10.389 X2 Assignment (Re: University Town Center) dated November 23, 2004. 10.390 X2 Amended Agreement to Contract for Sale and Purchase (Re: University Town Center) dated November 19, 2004. 10.391 X2 Promissory Note (Re: Azalea Square) dated November 11, 2004.
II-38 10.392 X2 Loan Agreement (Re: Azalea Square) dated November 11, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10..393 X2 Promissory Note (Re: Mansfield Towne Crossing) dated November 12, 2004. 10.394 X2 Loan Agreement (Re: Mansfield Towne Crossing) dated November 12, 2004. 10.395 X2 Amendment to Loan Documents (Re: The Columns) dated November 2, 2004. 10.396 X2 Mortgage Note A Loan No. 122541 (Re: The Columns) dated November 2, 2004. 10.397 X2 Mortgage Note B Loan No. 122541 (Re: The Columns) dated November 2, 2004. 10.398 X2 Promissory Note (Re: Bed Bath & Beyond Plaza) dated November 12, 2004. 10.399 X2 Loan Agreement (Re: Bed Bath & Beyond Plaza) dated November 12, 2004. 10.400 X2 Promissory Note (Re: Oswego Commons) dated November 23, 2004. 10.401 X2 Loan Agreement (Re: Oswego Commons) dated November 23, 2004. 10.402 X2 Promissory Note (Re: Zurich Towers) dated November 23, 2004. 10.403 X2 Loan Agreement (Re: Zurich Towers) dated November 23, 2004. 10.404 X2 Assignment and Assumption of Purchase and Sale Agreement (Bed, Bath & Beyond Plaza) dated September 2004. 10.405 X2 Agreement to Purchase (Re: Bed, Bath & Beyond Plaza) dated March 24, 2004. 10.406 X2 Amended Ground Lease Agreement (Re: Bed, Bath & Beyond Plaza) dated May 28, 2004. 10.407 X2 Letter Agreement to Purchase (Re: Publix - Mt. Pleasant) dated August 27, 2004. 10.408 X2 Agreement of Purchase and Sale (Re: Denton Crossing) dated August 20, 2004. 10.409 X2 Escrow Agreement (Re: Denton Crossing) dated October 18, 2004. 10.410 X2 Letter Agreement to Purchase (Re: Oswego Commons) dated July 21, 2004. 10.411 X2 Agreement of Purchase and Sale (Re: Gurnee Town Centre) dated October 5, 2004. 10.412 X2 Vacancy Escrow Agreement (Re: Gurnee Town Centre) dated October 29, 2004. 10.413 X2 Assignment of Contract (Re: Mansfield Town Crossing) dated November 3, 2004. 10.414 X2 Amended Letter Agreement to Purchase (Re: Mansfield Town Crossing) dated October 29, 2004. 10.415 X2 Amended Purchase and Sale Agreement and Joint Escrow Instructions (Re: Mansfield Town Crossing) dated October 20, 2004. 10.416 X2 Assignment of Contract (Re: Fox Creek Village) dated November 21, 2004. 10.417 X2 Amended Letter Agreement (Re: Fox Creek Village) dated November 15, 2004. 10.418 X2 Escrow Agreement (Re: Fox Creek Village) dated November 22, 2004. 10.419 X2 Letter Agreement to Purchase (Re: Winchester Commons) dated September 8, 2004. 10.420 X2 Escrow Agreement (Re: Winchester Commons) dated November 5, 2004.
II-39 10.421 X2 Assignment of Contract (Re: Zurich Towers) dated November 2, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.422 X2 Purchase and Sale Agreement (Re: Zurich Towers) dated November 2, 2004. 10.423 X3 Assignment of Contract (Re: Denton Crossing) dated October 12, 2004. 10.424 X3 Promissory Note (Re: Denton Crossing) dated December 7, 2004. 10.425 X3 Promissory Note (Re: Denton Crossing) dated December 7, 2004. 10.426 X3 Guaranty Agreement (Re: Denton Crossing) dated December 7, 2004. 10.427 X3 Assignment of Purchase Agreement (Re: Plaza at Riverlakes) dated October 21, 2004. 10.428 X3 Amended Purchase and Sale Agreement and Joint Escrow Instructions (Re: Plaza at Riverlakes) dated October 20, 2004. 10.429 X3 Assignment of Contract (Re: Gurnee Town Center) dated October 26, 2004. 10.430 X3 Promissory Note (Re: Gurnee Town Center) dated December 20, 2004. 10.431 X3 Loan Agreement (Re: Gurnee Town Center) dated December 20, 2004. 10.432 X3 Mortgage Note (Re: Fox Creek Village) dated December 23, 2004. 10.433 X3 Loan Letter Agreement (Re: Fox Creek Village) dated December 23, 2004. 10.434 X3 Assignment of Contract (Re: Five Forks) dated December 6, 2004. 10.435 X3 Agreement of Purchase and Sale (Re: Five Forks) dated September 10, 2004. 10.436 X3 Assignment of Real Estate Purchase Contract (Re: Placentia Town Center) dated November 29, 2004. 10.437 X3 Reinstated and Amended Purchase and Sale Agreement and Joint Escrow Instructions (Re: Placentia Town Center) dated November 4, 2004. 10.438 X3 Promissory Note (Re: Placentia Town Center) dated December 21, 2004. 10.439 X3 Loan Agreement (Re: Placentia Town Center) dated December 21, 2004. 10.440 X3 Assignment and Assumption of Purchase and Sale Agreement (Re: Gateway Station) dated December 2004. 10.441 X3 Letter Agreement to Purchase (Re: Gateway Station) dated October 22, 2004. 10.442 X3 Assignment (Re: Northwoods) dated November 7, 2004. 10.443 X3 Amended Agreement to Sale (Re: Northwoods) dated November 8, 2004. 10.444 X3 Promissory Note (Re: Northwoods) dated December 29, 2004. 10.445 X3 Loan Agreement (Re: Northwoods) dated December 29, 2004.
II-40 10.446 X3 Assignment of Contract (Re: Gateway Pavilions) dated December, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.447 X3 Purchase and Sale Agreement and Escrow Instructions (Re: Gateway Pavilions) dated August 9, 2004. 10.448 X3 Promissory Note (Re: Gateway Pavilions) dated December 30, 2004. 10.449 X3 Loan Agreement (Re: Gateway Pavilions) dated December 30, 2004. 10.450 X3 Assignment and Assumption of Purchase and Sale Agreement (Re: American Express - 31st Avenue, Phoenix, AZ) dated December 16, 2004. 10.451 X3 Assignment and Assumption of Purchase and Sale Agreement (Re: American Express - 19th Avenue, Phoenix, AZ) dated December 16, 2004. 10.452 X3 Assignment and Assumption of Purchase and Sale Agreement (Re: American Express - Minneapolis, MN) dated December 16, 2004. 10.453 X3 Assignment and Assumption of Purchase and Sale Agreement (Re: American Express - De Pere, WI) dated December 16, 2004. 10.454 X3 Assignment and Assumption of Purchase and Sale Agreement (Re: American Express - Greensboro, NC) dated December 16, 2004. 10.455 X3 Assignment and Assumption of Purchase and Sale Agreement (Re: American Express - Fort Lauderdale, FL) dated December 16, 2004. 10.456 X3 Purchase and Sale Agreement (Re: American Express - 31st Avenue, Phoenix, AZ, 19th Avenue, Phoenix, AZ, Minneapolis, MN, De Pere, WI, Greensboro, NC and Fort Lauderdale, FL) dated December 16, 2004. 10.457 X3 Promissory Note (Re: American Express - 31st Avenue, Phoenix, AZ) dated December 16, 2004. 10.458 X3 Loan Agreement (Re: American Express - 31st Avenue, Phoenix, AZ) dated December 16, 2004. 10.459 X3 Promissory Note (Re: American Express - 19th Avenue, Phoenix, AZ) dated December 16, 2004. 10.460 X3 Loan Agreement (Re: American Express - 19th Avenue, Phoenix, AZ) dated December 16, 2004. 10.461 X3 Promissory Note (Re: American Express - Minneapolis, MN) dated December 16, 2004. 10.462 X3 Loan Agreement (Re: American Express - Minneapolis, MN) dated December 16, 2004. 10.463 X3 Promissory Note (Re: American Express - De Pere, WI) dated December 16, 2004. 10.464 X3 Loan Agreement (Re: American Express - De Pere, WI) dated December 16, 2004. 10.465 X3 Promissory Note (Re: American Express - Greensboro, NC) dated December 16, 2004. 10.466 X3 Loan Agreement (Re: American Express - Greensboro, NC) dated December 16, 2004.
II-41 10.467 X3 Promissory Note (Re: American Express - Fort Lauderdale, FL) dated December 16, 2004.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.468 X3 Loan Agreement (Re: American Express - Fort Lauderdale, FL) dated December 16, 2004. 10.469 X3 Assignment and Assumption of Purchase and Sale Agreement (Re: Southlake Town Square) dated December 22, 2004. 10.470 X3 Amended and Restated Purchase and Sale Agreement (Re: Southlake Town Square) dated November 5, 2004. 10.471 X3 Assignment and Assumption of Agreement to Admit Partners (Re: Southlake Town Square) dated December 22, 2004. 10.472 X3 Agreement to Admit Partner (Re: Southlake Town Square) dated November 5, 2004. 10.473 X3 Assignment (Re: Henry Town Center) dated December 23, 2004. 10.474 X3 Amended Agreement of Purchase and Sale (Re: Henry Town Center) dated December 1, 2004. 10.475 X3 Promissory Note (Re: Henry Town Center) dated January 8, 2003. 10.476 X3 Deed to Secure Debt and Security Agreement (Re: Henry Town Center) dated January 8, 2003. 10.477 X3 Assignment (Re: 23rd Street Plaza) dated December 23, 2004. 10.478 X3 Agreement of Sale (Re: 23rd Street Plaza) dated November 19, 2004. 10.479 X3 Assignment (Re: Coram Plaza) dated December 23, 2004. 10.480 X3 Amended Agreement of Purchase and Sale (Re: Coram Plaza) dated October 21, 2004. 10.481 X3 Assignment (Re: Phenix Crossing) dated December 28, 2004. 10.482 X3 Amended Real Estate Sale Agreement (Re: Phenix Crossing) dated December 20, 2004. 10.483 X3 Assignment and Assumption of Purchase and Sale Agreement (Re: Mesa Fiesta) dated December 2004. 10.484 X3 Agreement of Purchase and Sale (Re: Mesa Fiesta) dated December 7, 2004. 10.485 X3 Assignment (Re: Green's Corner, Newton Crossroads and Stilesboro Oaks) dated December 29, 2004. 10.486 X3 Amended Purchase and Sale Agreement (Re: Green's Corner, Newton Crossroads and Stilesboro Oaks) dated December 20, 2004. 10.487 X3 Assignment of Contract (Re: Shoppes at Lake Andrew) dated December 30, 2004. 10.488 X3 Letter Agreement to Purchase (Re: Shoppes at Lake Andrew) dated November 8, 2004. 10.489 X3 Promissory Note (Re: Shoppes at Lake Andrew) dated October 30, 2002. 10.490 X3 Future Advance and Renewal Note (Re: Shoppes at Lake Andrew) dated February 26, 2004.
II-42
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.491 X3 Notice of Future Advance, Mortgage Modification and Amended and Restated Mortgage and Security Agreement (Re: Shoppes at Lake Andrew) dated February 26, 2004. 10.492 X3 Renewal Note (Re: Shoppes at Lake Andrew) dated December 2004. 10.493 X3 Mortgage Modification and Amended and Restated Mortgage and Security Agreement (Re: Shoppes at Lake Andrew) dated December 30, 2004. 10.494 X3 Assignment of Contract (Re: Pleasant Run Towne Crossing) dated December 29, 2004. 10.495 X3 Promissory Note (Re: Pleasant Run Towne Crossing) dated December 30, 2004. 10.496 X3 Loan Agreement (Re: Pleasant Run Towne Crossing) dated December 30, 2004. 10.497 X3 Assignment and Assumption of Purchase and Sale Agreement (Re: Evans Town Center) dated December 2004. 10.498 X3 Assignment and Assumption of Purchase and Sale Agreement (Re: Irmo Station) dated December 2004. 10.499 X3 Amended Agreement of Purchase and Sale (Re: Evans Town Center and Irmo Station) dated December 29, 2004. 10.500 X3 Assignment and Assumption of Purchase and Sale Agreement (Re: American Express - Markham, Ontario, Canada) dated January 25, 2005. 10.501 X3 Purchase and Sale Agreement (Re: American Express - Markham, Ontario, Canada) dated January 25, 2005. 10.502 X3 Purchase Agreement (Re: American Express - Markham, Ontario, Canada) dated January 25, 2005. 10.503 X3 Promissory Note (Re: American Express - Markham, Ontario, Canada) dated January 26, 2005. 10.504 X3 Loan Agreement (Re: American Express - Markham, Ontario, Canada) dated January 26, 2005. 10.505 X3 Amended and Restated Project Promissory Note (Re: Coram Plaza) dated December 7, 2004. 10.506 X3 Amended and Restated Acquisition Promissory Note (Re: Coram Plaza) dated December 7, 2004. 10.507 X3 Amended and Restated Building Loan Promissory Note (Re: Coram Plaza) dated December 7, 2004. 10.508 X3 Assignment, Assumption, Modification and Release Agreement (Re: Coram Plaza) dated December 7, 2004. 10.509 X3 Interim Secured Promissory Note Loan No. 754183 (Re: Coram Plaza) dated January 26, 2005.
II-43 10.510 X3 Consolidated, Amended and Restated Secured Promissory Note Loan No. 754183 (Re: Coram Plaza) dated January 26, 2005.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.511 X3 Loan Agreement Loan No. 754183 (Re: Coram Plaza) dated January 26, 2005. 10.512 X3 Guaranty Loan No. 754183 (Re: Coram Plaza) dated January 26, 2005. 10.513 X4 Consolidated Promissory Note (Re: Bed, Bath & Beyond Plaza, Century III Plaza, Crown Theater, Gardiner Manor Mall, Golfland Plaza, Home Depot Center, Home Depot Plaza, Maple Tree Place, Mid-Hudson Center and Wilton Square) dated July 19, 2005. 10.514 X4 Loan Agreement (Re: Bed, Bath & Beyond Plaza, Century III Plaza, Crown Theater, Gardiner Manor Mall, Golfland Plaza, Home Depot Center, Home Depot Plaza, Maple Tree Place, Mid-Hudson Center and Wilton Square) dated July 19, 2005. 10.515 X4 Guaranty (Re: Bed, Bath & Beyond Plaza, Century III Plaza, Crown Theater, Gardiner Manor Mall, Golfland Plaza, Home Depot Center, Home Depot Plaza, Maple Tree Place, Mid-Hudson Center and Wilton Square) dated July 19, 2005. 10.516 X4 Post Closing Obligations Letter (Re: Bed, Bath & Beyond Plaza, Century III Plaza, Crown Theater, Gardiner Manor Mall, Golfland Plaza, Home Depot Center, Home Depot Plaza, Maple Tree Place, Mid-Hudson Center and Wilton Square) dated July 19, 2005. 23.1 Consent of KPMG LLP 23.2********* Consent of Duane Morris LLP (included in Exhibit 5) 23.3********** Consent of Duane Morris LLP (included in Exhibit 8) 23.4 X5 Consent of PricewaterhouseCoopers LLP 24* Power of Attorney 31.1 X3 Rule 13a-15(e)/15d-15(e) Certification by Chief Executive Officer 31.2 X3 Rule 13a-15(e)/15d-15(e) Certification by Principal Financial Officer 31.3 X3 Rule 13a-15(e)/15d-15(e) Certification by Principal Accounting Officer 32.1 X3 Section 1350 Certification by Chief Executive Officer and Principal Accounting Officer and Principal Financial Officer 99.1 X2 Code of Business Conduct and Ethics 99.2 X2 Nonretaliation Policy * Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 333-103799) originally filed March 13, 2003. ** Incorporated by reference to Amendment No. 1 to the Company's Registration Statement on Form S-11 (File No. 333-103799) originally filed May 8, 2003. *** Incorporated by reference to Amendment No. 2 to the Company's Registration Statement on Form S-11 (File No. 333-103799) originally filed June 30, 2003. **** Incorporated by reference to Amendment No. 3 to the Company's Registration Statement on Form S-11
II-44 (File No. 333-103799) originally filed August 20, 2003. ***** Incorporated by reference to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-11 (File No. 333-103799) originally filed December 15, 2003. ****** Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2003, originally filed February 27, 2004. ******* Incorporated by reference to Post-Effective Amendment No. 3 to the Company's Registration Statement on Form S-11 (File No. 333-103799) originally filed March 15, 2004. ******** Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, originally filed July 29, 2004. ********* Incorporated by reference to Post-Effective Amendment No. 4 to the Company's Registration Statement on Form S-11 (File No. 333-103799) originally filed June 15, 2004. ********** Incorporated by reference to Post-Effective Amendment No. 5 to the Company's Registration Statement on Form S-11 (File No. 333-103799) originally filed September 15, 2004. X1 Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, originally filed on November 12, 2004. X2 Incorporated by reference to Post-Effective Amendment No. 7 to the Company's Registration Statement on Form S-11 (File No. 333-103799) originally filed on December 16, 2004. X3 Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2004, originally filed on March 7, 2005 X4 Filed as part of the Company's Post-Effective Amendment No. 4 filed on September 15, 2005 X5 Incorporated by reference to Post-Effective Amendment No. 3 to the Company's Registration Statement on Form S-11 (File No. 333-118860) originally filed on June 16, 2005.
II-45 ITEM 37. UNDERTAKINGS. 1. The undersigned Registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i). To include any prospectus required by section 10(a)(3) of the Act; (ii). To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii). To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (b) That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 2. The Registrant undertakes to send to each Stockholder at least on annual basis a detailed statement of any transactions with the Advisor or its Affiliates, and of fees, commissions, compensation and other benefits paid or accrued to the Advisor or its Affiliates for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed. 3. The Registrant undertakes to provide to the Stockholders the financial statements required by Form 10-K for the first full fiscal year of operations of the Company. 4. The Registrant hereby undertakes to send to the Stockholders, within 60 days after the close of each quarterly fiscal period, the information specified by Form 10-Q, if such report is required to be filed with the Commission. 5. The Registrant undertakes to file a sticker supplement pursuant to Rule 424(c) under the Act during the distribution period describing each Property not identified in the Prospectus at such time as there arises a reasonable probability that such Property will be acquired and to consolidate all such stickers into a post-effective amendment filed at least once every three months, with the information contained in such amendment provided simultaneously to the existing Stockholders. Each sticker supplement should also disclose all compensation and fees received by the Advisor and its Affiliates in connection with any such acquisition. The post-effective amendment shall include audited financial statements meeting the requirements of Rule 3-14 of Regulation S-X only for Properties acquired during the distribution period. The Registrant also undertakes to file, after the end of the distribution period, a current report on Form 8-K containing the financial statements and additional information required by Rule 3-14 of Regulation S-X, to reflect each commitment (i.e., the signing of a binding purchase agreement) made after the end of the distribution period involving the use of 10% or more (on a cumulative basis) of the net proceeds of the offering and to provide the information contained in such report to the Stockholders at least once each quarter after the distribution period of the offering has ended. 6. Insofar as indemnification for liabilities arising under the Act may be permitted to Directors, officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Director, officer or controlling person in connection with securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-46 TABLE VI ACQUISITION OF PROPERTIES BY PROGRAMS (A) (000's omitted, except for Square Feet or Acres) Table VI presents information concerning the acquisition of real properties by programs with similar investment objectives, sponsored by Inland Real Estate Investment Corporation ("IREIC"), in the three years ended December 31, 2004. The detail provided with respect to each acquisition includes the property size, location, purchase price and the amount of mortgage financing. This information is intended to assist the prospective investor in evaluating the property mix as well as the terms involved in acquisitions by programs sponsored by IREIC. II-47 TABLE VI- (CONTINUED) ACQUISITIONS OF PROPERTIES BY PROGRAMS (A) (000'S OMITTED, EXCEPT FOR NUMBER OF SQUARE FEET)
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------ INLAND REAL ESTATE CORPORATION: Eckerd Drug Store, Chattanooga, TN 10,908 05/02 2,367 - Michael's, Coon Rapids, MN 24,317 07/02 2,808 - Deer Trace, Kohler, WI 149,881 07/02 13,281 - Disney, Celebration, FL 166,131 07/02 27,281 13,600 Townes Crossing, Oswego, IL 105,989 08/02 12,043 - Park Square, Brooklyn Park, MN 137,116 08/02 9,873 5,850 Forest Lake Marketplace, Forest Lake, MN 93,853 09/02 11,856 - Naper West Ph II, Naperville, IL 50,000 10/02 3,116 - Walgreens, Jennings, MO 15,120 10/02 2,706 - Four Flaggs Annex, Niles, IL 21,790 11/02 3,289 - Four Flaggs, Niles, IL 306,479 11/02 21,298 12,510 Brunswick Market Center, Brunswick, OH 119,540 12/02 13,458 - Medina Marketplace, Medina, OH 72,781 12/02 9,511 - Shakopee Valley, Shakopee, MN 146,436 12/02 14,700 - Shops at Orchard Place, Skokie, IL 164,542 12/02 42,752 - Cub Foods, Hutchinson, MN 60,208 01/03 5,388 - Mankato Heights, Mankato, MN 129,410 04/03 15,102 - Caton Crossing, Plainfield, IL 83,792 06/03 11,165 - Village Ten, Coon Rapids, MN 211,568 08/03 15,104 - Rochester Marketplace, Rochester, MN 69,914 09/03 9,371 - University Crossing, Mishawaka, IN 136,422 10/03 14,913 - Hastings Marketplace, Hastings, MN 97,535 2/04 13,379 - Cub Foods, Arden Hills, MN 68,442 3/04 9,716 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- INLAND REAL ESTATE CORPORATION: Eckerd Drug Store, Chattanooga, TN 2,367 2 2,369 Michael's, Coon Rapids, MN 2,808 0 2,808 Deer Trace, Kohler, WI 13,281 0 13,281 Disney, Celebration, FL 13,681 0 27,281 Townes Crossing, Oswego, IL 12,043 319 12,362 Park Square, Brooklyn Park, MN 4,023 160 10,033 Forest Lake Marketplace, Forest Lake, MN 11,856 (41) 11,815 Naper West Ph II, Naperville, IL 3,116 1,298 4,414 Walgreens, Jennings, MO 2,706 6 2,712 Four Flaggs Annex, Niles, IL 3,289 6 3,295 Four Flaggs, Niles, IL 8,788 2,645 23,943 Brunswick Market Center, Brunswick, OH 13,458 247 13,705 Medina Marketplace, Medina, OH 9,511 4 9,515 Shakopee Valley, Shakopee, MN 14,700 12 14,712 Shops at Orchard Place, Skokie, IL 42,752 (129) 42,623 Cub Foods, Hutchinson, MN 5,388 7 5,395 Mankato Heights, Mankato, MN 15,102 (12) 15,090 Caton Crossing, Plainfield, IL 11,165 7 11,172 Village Ten, Coon Rapids, MN 15,104 0 15,104 Rochester Marketplace, Rochester, MN 9,371 (7) 9,364 University Crossing, Mishawaka, IN 14,913 20 14,933 Hastings Marketplace, Hastings, MN 13,379 - 13,379 Cub Foods, Arden Hills, MN 9,716 - 9,716
II-48
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------------ INLAND REAL ESTATE CORPORATION (CONTINUED): Shannon Square Shoppes, Arden Hills, MN 29,196 6/04 6,936 - Crystal Point Shopping Center, Crystal Lake, MN 358,423 7/04 37,331 - Deer Trace II, Kolher, WI 24,410 8/04 4,600 - Fashion Square II, Skokie, IL 7,151 11/04 3,629 - Total for Inland Real Estate Corporation 2,861,354 $ 336,973 $ 31,960 ========= ================= ================= INLAND RETAIL REAL ESTATE TRUST, INC.: Sarasota Pavilion, Sarasota, FL 324,140 01/02 42,100 - Turkey Creek Phase I, Knoxville, TN 284,224 01/02 21,762 - Universal Plaza, Lauderhill, FL 49,816 01/02 9,872 - Hairston Crossing, Decatur, GA 57,884 02/02 6,630 - Just for Feet - Augusta, Augusta, GA 22,115 02/02 3,054 - Just For Feet - Covington, Covington, LA 20,116 02/02 3,447 - Logger Head Junction, Sarasota, FL 4,711 02/02 665 - Shoppes of Golden Acres, Newport Richey, FL 76,371 02/02 10,831 - Newnan Pavilion, Newnan, GA 481,004 03/02 33,114 - Eisenhower Crossing I & II, Macon, GA 403,013 11/01,03/02 43,292 - Acworth Avenue Retail Shopping Center, Acworth, GA 16,130 12/00,3/02 2,834 - Crystal Springs Shopping Center, Crystal Springs, FL 67,021 04/02 7,478 - Eckerd Drug Store - Concord, Concord, NC 10,908 04/02 2,039 - Eckerd Drug Store - Tega Cay, Tega Cay, SC 13,824 04/02 2,544 - Melbourne Shopping Center, Melbourne, FL 209,217 04/02 9,842 5,949 Riverstone Plaza, Canton, GA 302,024 04/02 31,943 - Target Center, Columbia, SC 79,253 04/02 7,673 - Hampton Point, Taylors, SC 58,316 05/02 4,526 - Northpoint Marketplace, Spartanburg, SC 101,982 05/02 8,269 - Oleander Shopping Center, Wilmington, NC 51,888 05/02 5,221 3,000 OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- INLAND REAL ESTATE CORPORATION (CONTINUED): Shannon Square Shoppes, Arden Hills, MN 6,936 - 6,936 Crystal Point Shopping Center, Crystal Lake, MN 37,331 - 37,331 Deer Trace II, Kolher, WI 4,600 - 4,600 Fashion Square II, Skokie, IL 3,629 - 3,629 Total for Inland Real Estate Corporation $ 305,013 $ 4,544 $ 341,517 ================= ================= ================= INLAND RETAIL REAL ESTATE TRUST, INC.: Sarasota Pavilion, Sarasota, FL 42,100 182 42,282 Turkey Creek Phase I, Knoxville, TN 21,762 10,181 31,943 Universal Plaza, Lauderhill, FL 9,872 2 9,874 Hairston Crossing, Decatur, GA 6,630 34 6,664 Just for Feet - Augusta, Augusta, GA 3,054 3 3,057 Just For Feet - Covington, Covington, LA 3,447 - 3,447 Logger Head Junction, Sarasota, FL 665 - 665 Shoppes of Golden Acres, Newport Richey, FL 10,831 101 10,932 Newnan Pavilion, Newnan, GA 33,114 2,623 35,737 Eisenhower Crossing I & II, Macon, GA 43,292 (286) 43,006 Acworth Avenue Retail Shopping Center, Acworth, GA 2,834 16 2,850 Crystal Springs Shopping Center, Crystal Springs, FL 7,478 (2) 7,476 Eckerd Drug Store - Concord, Concord, NC 2,039 156 2,195 Eckerd Drug Store - Tega Cay, Tega Cay, SC 2,544 544 3,088 Melbourne Shopping Center, Melbourne, FL 3,893 935 10,777 Riverstone Plaza, Canton, GA 31,943 243 32,186 Target Center, Columbia, SC 7,673 20 7,693 Hampton Point, Taylors, SC 4,526 55 4,581 Northpoint Marketplace, Spartanburg, SC 8,269 (128) 8,141 Oleander Shopping Center, Wilmington, NC 2,221 12 5,233
II-49
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------------ Sharon Greens, Cumming, GA 98,317 05/02 13,062 - Bass Pro Outdoor World, Dania Beach, FL 165,000 06/02 18,220 - Chesterfield Crossings, Richmond, VA, 68,898 06/02 10,982 - Circuit City-Rome, Rome, GA 33,056 06/02 4,476 - Circuit City-Vero Beach, Vero Beach, FL 33,243 06/02 5,648 - Hillsboro Square, Deerfield Beach, FL 145,647 06/02 18,985 - Stonebridge Square, Roswell, GA 160,104 06/02 19,529 - Ward's Crossing, Lynchburg, VA 80,918 06/02 11,100 - Circuit City Plaza, Orlando, FL 78,625 07/02 11,518 - Eckerd Drug Store - Woodruff, Woodruff, SC 13,824 07/02 2,475 - McFarland Plaza, Tuscaloosa, AL 221,807 07/02 15,259 - Sycamore Commons, Matthews, NC 256,523 07/02 38,184 - Walk at Highwoods I, Tampa, FL 133,940 07/02 23,999 - Eckerd Drug Store - Blackstock, Spartanburg, SC 10,908 08/02 2,723 - Forestdale Plaza, Jamestown, NC 53,239 08/02 6,670 - Sexton Commons, Fuquay Varina, NC 49,097 08/02 8,023 - Shoppes at Lake Mary, Lake Mary, FL 69,843 08/02 11,140 - Wakefield Crossing, Raleigh, NC 75,929 08/02 10,794 - Circuit City-Cary, Cary, NC 27,891 09/02 5,650 - Cox Creek, Florence, AL 173,934 09/02 19,231 15,287 Forest Hills Centre, Wilson, NC 73,280 09/02 6,675 - Golden Gate, Greensboro, NC 153,114 10/02 10,545 - Goldenrod Groves, Orlando, FL 108,944 10/02 9,177 - City Crossing, Warner Robins, GA 187,099 11/02 14,644 - Clayton Corners, Clayton, NC 125,656 11/02 14,994 9,740 CompUSA Retail Center, Newport News, VA 47,134 11/02 7,324 - Duvall Village, Bowie, MD 82,522 11/02 13,046 - Gateway Plaza - Jacksonville, Jacksonville, NC 101,682 11/02 11,865 - Harundale Plaza, Glen Burnie, MD 274,160 11/02 24,752 - Jones Bridge Plaza, Norcross, GA 83,363 11/02 7,525 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- Sharon Greens, Cumming, GA 13,062 79 13,141 Bass Pro Outdoor World, Dania Beach, FL 18,220 16 18,236 Chesterfield Crossings, Richmond, VA, 10,982 723 11,705 Circuit City-Rome, Rome, GA 4,476 6 4,482 Circuit City-Vero Beach, Vero Beach, FL 5,648 9 5,657 Hillsboro Square, Deerfield Beach, FL 18,985 2,565 21,550 Stonebridge Square, Roswell, GA 19,529 1,653 21,182 Ward's Crossing, Lynchburg, VA 11,100 (76) 11,024 Circuit City Plaza, Orlando, FL 11,518 - 11,518 Eckerd Drug Store - Woodruff, Woodruff, SC 2,475 374 2,849 McFarland Plaza, Tuscaloosa, AL 15,259 21 15,280 Sycamore Commons, Matthews, NC 38,184 3,077 41,261 Walk at Highwoods I, Tampa, FL 23,999 72 24,071 Eckerd Drug Store - Blackstock, Spartanburg, SC 2,723 - 2,723 Forestdale Plaza, Jamestown, NC 6,670 (114) 6,556 Sexton Commons, Fuquay Varina, NC 8,023 (129) 7,894 Shoppes at Lake Mary, Lake Mary, FL 11,140 59 11,199 Wakefield Crossing, Raleigh, NC 10,794 (182) 10,612 Circuit City-Cary, Cary, NC 5,650 4 5,654 Cox Creek, Florence, AL 3,944 31 19,262 Forest Hills Centre, Wilson, NC 6,675 11 6,686 Golden Gate, Greensboro, NC 10,545 23 10,568 Goldenrod Groves, Orlando, FL 9,177 741 9,918 City Crossing, Warner Robins, GA 14,644 3,204 17,848 Clayton Corners, Clayton, NC 5,254 (5) 14,989 CompUSA Retail Center, Newport News, VA 7,324 5 7,329 Duvall Village, Bowie, MD 13,046 369 13,415 Gateway Plaza - Jacksonville, Jacksonville, NC 11,865 (24) 11,841 Harundale Plaza, Glen Burnie, MD 24,752 (40) 24,712 Jones Bridge Plaza, Norcross, GA 7,525 401 7,926
II-50
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------------ Lakewood Ranch, Bradenton, FL 69,472 11/02 9,494 4,400 North Aiken Bi-Lo Center, Aiken, SC 59,204 11/02 5,816 - Plant City Crossing, Plant City, FL 85,252 11/02 10,879 - Presidential Commons, Snellville, GA 372,149 11/02 45,032 26,113 Rainbow Foods - Garland, Garland, TX 70,576 11/02 5,098 - Rainbow Foods - Rowlett, Rowlett, TX 63,117 11/02 4,604 - River Ridge, Birmingham, AL 158,755 11/02 26,492 - Rosedale Shopping Center, Huntersville, NC 94,248 11/02 19,544 13,300 Shoppes on the Circle, Dothan, AL 149,085 11/02 15,013 12,210 Southlake Shopping Center, Cornelius, NC 131,247 11/02 13,633 7,962 Village Square at Golf, Boynton Beach, FL 134,894 11/02 18,537 - Chatham Crossing, Siler City, NC 32,000 12/02 3,964 - Columbiana Station, Columbia, SC 270,649 12/02 46,615 - Gateway Plaza - Conway, Conway, SC 62,428 12/02 6,295 - Lakeview Plaza, Kissimmee, FL 54,788 12/02 6,187 3,613 Meadowmont Village Center, Chapel Hill, NC 133,471 12/02 26,808 - Shoppes at Citiside, Charlotte, NC 75,478 12/02 9,706 - Shoppes at New Tampa, Wesley Chapel, FL 158,342 12/02 19,196 - Camp Hill Center, Harrisburg, PA 63,350 01/03 7,786 - Eckerd Drug Store - #5018, Amherst, NY 10,908 01/03 2,805 1,582 Eckerd Drug Store - #5661, Buffalo, NY 12,732 01/03 3,145 1,777 Eckerd Drug Store - #5786, Dunkirk, NY 10,908 01/03 1,720 905 Eckerd Drug Store - #5797, Cheektowaga, NY 10,908 01/03 3,756 1,636 Eckerd Drug Store - #6007, Connelsville, PA 10,908 01/03 3,503 1,636 Eckerd Drug Store - #6036, Pittsburgh, PA 10,908 01/03 3,840 1,636 Eckerd Drug Store - #6040, Monroeville,PA 12,738 01/03 5,430 1,911 Eckerd Drug Store - #6043, Monroeville,PA 10,908 01/03 3,315 1,637 Eckerd Drug Store - #6062, Harborcreek, PA 10,908 01/03 2,527 1,418 Eckerd Drug Store - #6089, Weirton, WV 10,908 01/03 2,472 1,374 Eckerd Drug Store - #6095, Cheswick, PA 10,908 01/03 2,791 1,571 OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- Lakewood Ranch, Bradenton, FL 5,094 39 9,533 North Aiken Bi-Lo Center, Aiken, SC 5,816 13 5,829 Plant City Crossing, Plant City, FL 10,879 (16) 10,863 Presidential Commons, Snellville, GA 18,919 6 45,038 Rainbow Foods - Garland, Garland, TX 5,098 5 5,103 Rainbow Foods - Rowlett, Rowlett, TX 4,604 2 4,606 River Ridge, Birmingham, AL 26,492 79 26,571 Rosedale Shopping Center, Huntersville, NC 6,244 (122) 19,422 Shoppes on the Circle, Dothan, AL 2,803 19 15,032 Southlake Shopping Center, Cornelius, NC 5,671 (15) 13,618 Village Square at Golf, Boynton Beach, FL 18,537 (263) 18,274 Chatham Crossing, Siler City, NC 3,964 16 3,980 Columbiana Station, Columbia, SC 46,615 193 46,808 Gateway Plaza - Conway, Conway, SC 6,295 - 6,295 Lakeview Plaza, Kissimmee, FL 2,574 19 6,206 Meadowmont Village Center, Chapel Hill, NC 26,808 (581) 26,227 Shoppes at Citiside, Charlotte, NC 9,706 326 10,032 Shoppes at New Tampa, Wesley Chapel, FL 19,196 (266) 18,930 Camp Hill Center, Harrisburg, PA 7,786 5 7,791 Eckerd Drug Store - #5018, Amherst, NY 1,223 - 2,805 Eckerd Drug Store - #5661, Buffalo, NY 1,368 - 3,145 Eckerd Drug Store - #5786, Dunkirk, NY 815 - 1,720 Eckerd Drug Store - #5797, Cheektowaga, NY 2,120 (1) 3,755 Eckerd Drug Store - #6007, Connelsville, PA 1,867 - 3,503 Eckerd Drug Store - #6036, Pittsburgh, PA 2,204 (1) 3,839 Eckerd Drug Store - #6040, Monroeville,PA 3,519 (2) 5,428 Eckerd Drug Store - #6043, Monroeville,PA 1,678 - 3,315 Eckerd Drug Store - #6062, Harborcreek, PA 1,109 - 2,527 Eckerd Drug Store - #6089, Weirton, WV 1,098 - 2,472 Eckerd Drug Store - #6095, Cheswick, PA 1,220 - 2,791
II-51
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------------ Eckerd Drug Store - #6172, New Castle,PA 10,908 01/03 2,877 1,636 Eckerd Drug Store - #6193, Erie, PA 10,908 01/03 2,919 1,636 Eckerd Drug Store - #6199, Millcreek, PA 10,908 01/03 3,729 1,637 Eckerd Drug Store - #6257, Millcreek, PA 10,908 01/03 1,444 640 Eckerd Drug Store - #6286, Erie, PA 10,908 01/03 4,193 1,601 Eckerd Drug Store - #6334, Erie, PA 10,908 01/03 2,997 1,636 Eckerd Drug Store - #6392, Penn, PA 10,908 01/03 2,949 1,636 Eckerd Drug Store - #6695, Plum Borough, PA 10,908 01/03 3,669 1,637 Eckerd Drug Store - Piedmont, Piedmont, SC 10,908 01/03 1,968 - Market Square, Douglasville, GA 121,774 01/03 12,905 8,390 Springfield Park, Lawrenceville, GA 105,321 01/03 10,924 - Tequesta Shoppes Plaza, Tequesta, FL 109,937 01/03 11,439 - Capital Crossing, Raleigh, NC 92,248 02/03 9,984 - Colonial Promenade Bardmore Center, Largo, FL 152,667 02/03 17,151 - Commonwealth Center II, Richmond, VA 165,382 02/03 22,278 - Concord Crossing, Concord, NC 55,930 02/03 5,331 - Fountains, Plantation, FL 408,807 02/03 44,412 - Marketplace at Mill Creek, Buford, GA 398,407 02/03 50,118 - Monroe Shopping Center, Monroe, NC 45,080 02/03 3,548 - Oakley Plaza, Asheville, NC 118,727 02/03 9,469 - Overlook at King of Prussia, King of Prussia, PA 186,980 02/03 57,045 30,000 Paraiso Plaza, Hialeah, FL 61,012 02/03 9,481 - Publix Brooker Creek, Palm Harbor, FL 77,596 02/03 8,719 4,468 Sheridan Square, Dania, FL 67,425 02/03 7,586 - Stonecrest Marketplace, Lithonia, GA 264,447 02/03 34,742 - Suwanee Crossroads, Suwanee, GA 69,500 02/03 12,068 - Windsor Court Shopping Center, Windsor Court, CT 78,480 02/03 14,639 - Downtown Short Pump, Richmond, VA 125,553 03/03 33,515 - Valley Park Commons, Hagerstown, MD 89,579 03/03 11,317 - Eckerd - Perry Creek, Perry Creek, NC 10,908 09/02 2,795 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- Eckerd Drug Store - #6172, New Castle,PA 1,241 - 2,877 Eckerd Drug Store - #6193, Erie, PA 1,283 - 2,919 Eckerd Drug Store - #6199, Millcreek, PA 2,092 (1) 3,728 Eckerd Drug Store - #6257, Millcreek, PA 804 - 1,444 Eckerd Drug Store - #6286, Erie, PA 2,592 (1) 4,192 Eckerd Drug Store - #6334, Erie, PA 1,361 - 2,997 Eckerd Drug Store - #6392, Penn, PA 1,313 - 2,949 Eckerd Drug Store - #6695, Plum Borough, PA 2,032 - 3,669 Eckerd Drug Store - Piedmont, Piedmont, SC 1,968 5 1,973 Market Square, Douglasville, GA 4,515 787 13,692 Springfield Park, Lawrenceville, GA 10,924 5 10,929 Tequesta Shoppes Plaza, Tequesta, FL 11,439 (248) 11,191 Capital Crossing, Raleigh, NC 9,984 14 9,998 Colonial Promenade Bardmore Center, Largo, FL 17,151 45 17,196 Commonwealth Center II, Richmond, VA 22,278 (133) 22,145 Concord Crossing, Concord, NC 5,331 5 5,336 Fountains, Plantation, FL 44,412 - 44,412 Marketplace at Mill Creek, Buford, GA 50,118 50 50,168 Monroe Shopping Center, Monroe, NC 3,548 5 3,553 Oakley Plaza, Asheville, NC 9,469 4 9,473 Overlook at King of Prussia, King of Prussia, PA 27,045 15 57,060 Paraiso Plaza, Hialeah, FL 9,481 26 9,507 Publix Brooker Creek, Palm Harbor, FL 4,251 146 8,865 Sheridan Square, Dania, FL 7,586 23 7,609 Stonecrest Marketplace, Lithonia, GA 34,742 (115) 34,627 Suwanee Crossroads, Suwanee, GA 12,068 (69) 11,999 Windsor Court Shopping Center, Windsor Court, CT 14,639 10 14,649 Downtown Short Pump, Richmond, VA 33,515 (147) 33,368 Valley Park Commons, Hagerstown, MD 11,317 12 11,329 Eckerd - Perry Creek, Perry Creek, NC 2,795 (66) 2,729
II-52
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------------ Village Center, Mt. Pleasant, WI 217,103 03/03 23,987 - Watercolor Crossing, Tallahassee, FL 43,200 03/03 5,485 - Bi-Lo - Southern Pines, Southern Pines, NC 57,404 04/03 8,127 - Creeks at Virginia Center, Richmond, VA 266,266 04/03 39,458 27,804 Flamingo Falls, Pembroke Pines, FL 108,565 04/03 23,946 - Glenmark Shopping Center, Morgantown, WV 122,167 04/03 12,982 - River Run, Miramar, FL 93,643 04/03 11,638 - Westside Centre Shopping Center, Huntsville, AL 490,784 04/03 46,015 39,350 440 Commons, Jersey City, NJ 162,533 05/03 18,046 - Barrett Pavilion, Kennesaw, GA 460,755 05/03 80,183 - Bi-Lo - Asheville, Asheville, NC 54,319 05/03 7,727 - Bi-Lo - Shelmore, Mt. Pleasant, SC 61,705 05/03 11,836 - Bi-Lo - Sylvania, Sylvania, GA 36,000 05/03 4,407 - Birkdale Village, Charlotte, NC 653,983 05/03 96,410 - BJ'S Wholesale Club, Charlotte, NC 99,792 05/03 13,025 - Brick Center Plaza, Brick, NJ 114,028 05/03 19,451 - East Hanover Plaza, East Hanover, NJ 122,028 05/03 17,312 - Eckerd Drug Store - #0234, Marietta, GA 10,880 05/03 2,044 1,161 Eckerd Drug Store - #0444, Gainesville, GA 10,594 05/03 1,986 1,129 Eckerd Drug Store - #0818, Ft. Worth, TX 10,908 05/03 2,691 1,540 Eckerd Drug Store - #0862, Wichita Falls, TX 9,504 05/03 2,087 1,203 Eckerd Drug Store - #0943, Richardson, TX 10,560 05/03 2,354 1,338 Eckerd Drug Store - #0963, Richardson, TX 10,560 05/03 2,313 1,316 Eckerd Drug Store - #0968, Wichita Falls, TX 9,504 05/03 1,837 1,036 Eckerd Drug Store - #0980, Dallas, TX 9,504 05/03 1,917 1,097 Eckerd Drug Store - #2320, Snellville, GA 10,594 05/03 2,230 1,271 Eckerd Drug Store - #2506, Dallas, TX 9,504 05/03 2,073 1,177 Eckerd Drug Store - #3072, Richland Hills, TX 10,908 05/03 2,663 1,521 Eckerd Drug Store - #3152, Lake Worth, TX 9,504 05/03 1,805 1,021 Eckerd Drug Store - #3169, River Oaks, TX 10,908 05/03 2,705 1,546 OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- Village Center, Mt. Pleasant, WI 23,987 (33) 23,954 Watercolor Crossing, Tallahassee, FL 5,485 - 5,485 Bi-Lo - Southern Pines, Southern Pines, NC 8,127 (62) 8,065 Creeks at Virginia Center, Richmond, VA 11,654 1,608 41,066 Flamingo Falls, Pembroke Pines, FL 23,946 - 23,946 Glenmark Shopping Center, Morgantown, WV 12,982 335 13,317 River Run, Miramar, FL 11,638 (5) 11,633 Westside Centre Shopping Center, Huntsville, AL 6,665 2,035 48,050 440 Commons, Jersey City, NJ 18,046 9 18,055 Barrett Pavilion, Kennesaw, GA 80,183 (51) 80,132 Bi-Lo - Asheville, Asheville, NC 7,727 (1) 7,726 Bi-Lo - Shelmore, Mt. Pleasant, SC 11,836 10 11,846 Bi-Lo - Sylvania, Sylvania, GA 4,407 2 4,409 Birkdale Village, Charlotte, NC 96,410 (897) 95,513 BJ'S Wholesale Club, Charlotte, NC 13,025 1 13,026 Brick Center Plaza, Brick, NJ 19,451 13 19,464 East Hanover Plaza, East Hanover, NJ 17,312 5 17,317 Eckerd Drug Store - #0234, Marietta, GA 883 4 2,048 Eckerd Drug Store - #0444, Gainesville, GA 857 4 1,990 Eckerd Drug Store - #0818, Ft. Worth, TX 1,151 4 2,695 Eckerd Drug Store - #0862, Wichita Falls, TX 884 4 2,091 Eckerd Drug Store - #0943, Richardson, TX 1,016 4 2,358 Eckerd Drug Store - #0963, Richardson, TX 997 4 2,317 Eckerd Drug Store - #0968, Wichita Falls, TX 801 4 1,841 Eckerd Drug Store - #0980, Dallas, TX 820 4 1,921 Eckerd Drug Store - #2320, Snellville, GA 959 4 2,234 Eckerd Drug Store - #2506, Dallas, TX 896 4 2,077 Eckerd Drug Store - #3072, Richland Hills, TX 1,142 4 2,667 Eckerd Drug Store - #3152, Lake Worth, TX 784 4 1,809 Eckerd Drug Store - #3169, River Oaks, TX 1,159 4 2,709
II-53
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------------ Eckerd Drug Store - #3192, Tyler, TX 9,504 05/03 1,495 845 Eckerd Drug Store - #3338, Kissimmee, FL 10,880 05/03 2,479 1,407 Eckerd Drug Store - #3350, Oklahoma City, OK 9,504 05/03 1,776 1,005 Eckerd Drug Store - #3363, Ft. Worth, TX 9,504 05/03 1,661 941 Eckerd Drug Store - #3449, Lawrenceville, GA 9,504 05/03 2,061 - Eckerd Drug Store - #3528, Plano, TX 10,908 05/03 2,535 1,445 Edgewater Town Center, Edgewater, NJ 77,446 05/03 27,030 - Goody's Shopping Center, Augusta, GA 22,560 05/03 2,051 - Heritage Pavilion, Smyrna, GA 262,961 05/03 40,013 - Hiram Pavilion, Hiram, GA 363,618 05/03 36,787 - Killearn Shopping Center, Tallahassee, FL 94,547 05/03 10,945 4,041 Midway Plaza, Tamarac, FL 227,209 05/03 26,858 - North Hill Commons, Anderson, SC 42,942 05/03 4,541 - Sandy Plains Village, Roswell, GA 175,035 05/03 18,055 - Shoppes at Paradise Pointe, Ft Walton Beach, FL 84,070 05/03 11,591 - Sony Theatre Complex, East Hanover, NJ 70,549 05/03 12,068 - Town & Country, Knoxville, TN 639,135 05/03 49,812 - Village Crossing, Skokie, IL 427,722 05/03 69,443 - West Falls Plaza, West Paterson, NJ 88,913 05/03 20,980 - CostCo Plaza, White Marsh, MD 209,841 06/03 16,857 - Denbigh Village Shopping Center, Newport News, VA 311,583 06/03 20,855 - Shoppes at Lake Dow, McDonough, GA 73,271 06/03 11,014 - Willoughby Hills Shopping Center, Willoughby Hills, OH 359,414 06/03 37,705 14,480 Cascades Marketplace, Sterling, VA 98,532 07/03 16,840 - Fayette Pavilion III, Fayetteville, GA 619,856 07/03 46,308 - Northlake Commons, Palm Beach Gardens, FL 143,955 07/03 21,643 - Route 22 Retail Shopping Center, Union, NJ 110,453 07/03 19,054 11,355 Vision Works, Plantation, FL 6,891 07/03 1,732 - Bellevue Place Shopping Center, Nashville, TN 77,249 08/03 10,884 - Camfield Corners, Charlotte, NC 69,887 08/03 9,339 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- Eckerd Drug Store - #3192, Tyler, TX 650 4 1,499 Eckerd Drug Store - #3338, Kissimmee, FL 1,072 4 2,483 Eckerd Drug Store - #3350, Oklahoma City, OK 771 4 1,780 Eckerd Drug Store - #3363, Ft. Worth, TX 720 4 1,665 Eckerd Drug Store - #3449, Lawrenceville, GA 2,061 4 2,065 Eckerd Drug Store - #3528, Plano, TX 1,090 4 2,539 Edgewater Town Center, Edgewater, NJ 27,030 11 27,041 Goody's Shopping Center, Augusta, GA 2,051 - 2,051 Heritage Pavilion, Smyrna, GA 40,013 4 40,017 Hiram Pavilion, Hiram, GA 36,787 1,559 38,346 Killearn Shopping Center, Tallahassee, FL 6,904 80 11,025 Midway Plaza, Tamarac, FL 26,858 265 27,123 North Hill Commons, Anderson, SC 4,541 1 4,542 Sandy Plains Village, Roswell, GA 18,055 84 18,139 Shoppes at Paradise Pointe, Ft Walton Beach, FL 11,591 (94) 11,497 Sony Theatre Complex, East Hanover, NJ 12,068 5 12,073 Town & Country, Knoxville, TN 49,812 1,397 51,209 Village Crossing, Skokie, IL 69,443 6,001 75,444 West Falls Plaza, West Paterson, NJ 20,980 5 20,985 CostCo Plaza, White Marsh, MD 16,857 5 16,862 Denbigh Village Shopping Center, Newport News, VA 20,855 (106) 20,749 Shoppes at Lake Dow, McDonough, GA 11,014 (68) 10,946 Willoughby Hills Shopping Center, Willoughby Hills, OH 23,225 22 37,727 Cascades Marketplace, Sterling, VA 16,840 5 16,845 Fayette Pavilion III, Fayetteville, GA 46,308 2,540 48,848 Northlake Commons, Palm Beach Gardens, FL 21,643 523 22,166 Route 22 Retail Shopping Center, Union, NJ 7,699 - 19,054 Vision Works, Plantation, FL 1,732 6 1,738 Bellevue Place Shopping Center, Nashville, TN 10,884 5 10,889 Camfield Corners, Charlotte, NC 9,339 2 9,341
II-54
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------------ Kensington Place, Murfreesboro, TN 70,624 08/03 7,167 - Largo Town Center, Upper Marlboro, MD 270,310 08/03 30,947 - Naugatuck Valley Shopping Center, Waterbury, CT 383,332 08/03 50,452 - Riverdale Shops, West Springfield, MA 273,928 08/03 42,055 - Spring Mall Center, Springfield, VA 56,511 08/03 10,481 - Walgreen's, Port Huron, MI 14,998 08/03 4,368 - Bank First, Winter Park, FL 3,348 09/03 723 - Carlisle Commons, Carlisle, PA 393,023 09/03 39,635 - Circuit City - Culver City, Culver City, CA 32,873 09/03 8,781 - Circuit City - Highland Ranch, Highland Ranch, CO 43,480 09/03 5,628 - Circuit City - Olympia, Olympia, WA 35,776 09/03 5,632 - Fayette Pavilion I & II, Fayetteville, GA 791,373 09/03 88,521 - Kroger - Cincinnati, Cincinnati, OH 56,634 09/03 7,431 - Kroger - Grand Prairie, Grand Prairie, TX 64,522 09/03 5,793 - Kroger - Westchester, Westchester, OH 56,083 09/03 4,670 - Lowe's Home Improvement - Baytown, Baytown, TX 125,357 09/03 11,478 - Lowe's Home Improvement - Cullman, Cullman, AL 101,287 09/03 8,960 - Lowe's Home Improvement - Houston, Houston, TX 131,644 09/03 12,050 - Lowe's Home Improvement - Steubenville, Steubenville, OH 130,497 09/03 11,442 - Southwood Plantation, Tallahassee, FL 62,700 10/02 7,738 - Super Wal-Mart - Alliance, Alliance, OH 200,084 09/03 15,879 - Super Wal-Mart - Greenville, Greenville, SC 200,084 09/03 16,971 - Super Wal-Mart - Winston-Salem, Winston-Salem, NC 204,931 09/03 18,721 - Eckerd - Gaffney, Gaffney, SC 13,813 12/02 2,374 - Wal-Mart/Sam's Club, Worcester, MA 107,929 09/03 11,194 - Bi-Lo at Northside Plaza, Greenwood, SC 41,581 10/03 4,069 - Cedar Springs Crossing, Spartanburg, SC 86,581 10/03 10,191 - Clearwater Crossing, Flowery Branch, GA 90,566 10/03 13,303 - Cortez Plaza, Bradenton, FL 286,610 10/03 26,819 16,828 Houston Square, Warner Robins, GA 60,799 10/03 5,214 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- Kensington Place, Murfreesboro, TN 7,167 - 7,167 Largo Town Center, Upper Marlboro, MD 30,947 7 30,954 Naugatuck Valley Shopping Center, Waterbury, CT 50,452 8 50,460 Riverdale Shops, West Springfield, MA 42,055 34 42,089 Spring Mall Center, Springfield, VA 10,481 2 10,483 Walgreen's, Port Huron, MI 4,368 9 4,377 Bank First, Winter Park, FL 723 8 731 Carlisle Commons, Carlisle, PA 39,635 10 39,645 Circuit City - Culver City, Culver City, CA 8,781 4 8,785 Circuit City - Highland Ranch, Highland Ranch, CO 5,628 3 5,631 Circuit City - Olympia, Olympia, WA 5,632 3 5,635 Fayette Pavilion I & II, Fayetteville, GA 88,521 (357) 88,164 Kroger - Cincinnati, Cincinnati, OH 7,431 3 7,434 Kroger - Grand Prairie, Grand Prairie, TX 5,793 7 5,800 Kroger - Westchester, Westchester, OH 4,670 3 4,673 Lowe's Home Improvement - Baytown, Baytown, TX 11,478 7 11,485 Lowe's Home Improvement - Cullman, Cullman, AL 8,960 3 8,963 Lowe's Home Improvement - Houston, Houston, TX 12,050 7 12,057 Lowe's Home Improvement - Steubenville, Steubenville, OH 11,442 3 11,445 Southwood Plantation, Tallahassee, FL 7,738 4 7,742 Super Wal-Mart - Alliance, Alliance, OH 15,879 3 15,882 Super Wal-Mart - Greenville, Greenville, SC 16,971 3 16,974 Super Wal-Mart - Winston-Salem, Winston-Salem, NC 18,721 3 18,724 Eckerd - Gaffney, Gaffney, SC 2,374 502 2,876 Wal-Mart/Sam's Club, Worcester, MA 11,194 3 11,197 Bi-Lo at Northside Plaza, Greenwood, SC 4,069 - 4,069 Cedar Springs Crossing, Spartanburg, SC 10,191 - 10,191 Clearwater Crossing, Flowery Branch, GA 13,303 - 13,303 Cortez Plaza, Bradenton, FL 9,991 1,854 28,673 Houston Square, Warner Robins, GA 5,214 - 5,214
II-55
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------------ Lexington Place, Lexington, SC 83,167 10/03 8,481 - Manchester Broad Street, Manchester, CT 68,509 10/03 13,119 - Plaza Del Paraiso, Miami, FL 82,442 10/03 15,417 - Seekonk Town Center, Seekonk, MA 80,713 10/03 11,068 - Shoppes of Ellenwood, Ellenwood, GA 67,721 10/03 10,703 - Shoppes of Lithia, Brandon, FL 71,430 10/03 12,926 - Crossroads Plaza, Lumberton, NJ 89,627 11/03 18,232 - Hilliard Rome, Columbus, OH 110,772 11/03 17,171 11,883 Loisdale Center, Springfield, VA 120,742 11/03 29,051 - Middletown Village, Middletown, RI 98,161 11/03 17,871 - Shoppes at Oliver's Crossing, Winston-Salem, NC 76,512 11/03 10,386 - Squirewood Village, Dandridge, TN 46,150 11/03 3,442 - Waterfront Marketplace/Town Center, Homestead, PA 755,407 11/03 113,024 72,035 Winslow Bay Commons, Mooresville, NC 255,598 11/03 42,132 - Albertson's at Bloomingdale Hills, Brandon, FL 78,686 12/03 5,856 - Oak Summit, Winston-Salem, NC 142,739 12/03 13,666 - Paradise Place, West Palm Beach, FL 69,620 12/03 11,688 - Pointe at Tampa Palms, Tampa, FL 20,258 12/03 5,282 - Southampton Village, Tyrone, GA 77,900 11/02 10,610 - Shoppes on the Ridge 91,165 12/02 11,422 - Aiken Exchange, Aiken, SC 101,558 01/04 12,808 - Piedmont Plaza, Apopka, FL 148,075 01/04 8,299 2,500 Walks at Highwood Preserve II, Tampa, FL 28,452 01/04 6,627 - Warwick Center, Warwick, RI 159,958 01/04 24,543 - Mooresville Marketplace, Mooresville, NC 60,169 02/04 7,301 3,893 Paradise Promenade, Davie, FL 70,271 02/04 12,923 - Cypress Trace, Ft. Meyers, FL 276,211 03/04 19,148 - Adams Farm, Greensboro, NC 112,195 04/04 12,565 - Market Place, Ft. Meyers, FL 105,813 04/04 8,894 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- Lexington Place, Lexington, SC 8,481 - 8,481 Manchester Broad Street, Manchester, CT 13,119 - 13,119 Plaza Del Paraiso, Miami, FL 15,417 - 15,417 Seekonk Town Center, Seekonk, MA 11,068 - 11,068 Shoppes of Ellenwood, Ellenwood, GA 10,703 - 10,703 Shoppes of Lithia, Brandon, FL 12,926 - 12,926 Crossroads Plaza, Lumberton, NJ 18,232 - 18,232 Hilliard Rome, Columbus, OH 5,288 231 17,402 Loisdale Center, Springfield, VA 29,051 - 29,051 Middletown Village, Middletown, RI 17,871 - 17,871 Shoppes at Oliver's Crossing, Winston-Salem, NC 10,386 - 10,386 Squirewood Village, Dandridge, TN 3,442 - 3,442 Waterfront Marketplace/Town Center, Homestead, PA 40,989 4,694 117,718 Winslow Bay Commons, Mooresville, NC 42,132 - 42,132 Albertson's at Bloomingdale Hills, Brandon, FL 5,856 - 5,856 Oak Summit, Winston-Salem, NC 13,666 - 13,666 Paradise Place, West Palm Beach, FL 11,688 - 11,688 Pointe at Tampa Palms, Tampa, FL 5,282 - 5,282 Southampton Village, Tyrone, GA 10,610 - 10,610 Shoppes on the Ridge 11,422 - 11,422 Aiken Exchange, Aiken, SC 12,808 - 12,808 Piedmont Plaza, Apopka, FL 5,799 - 8,299 Walks at Highwood Preserve II, Tampa, FL 6,627 - 6,627 Warwick Center, Warwick, RI 24,543 6,252 30,795 Mooresville Marketplace, Mooresville, NC 3,408 - 7,301 Paradise Promenade, Davie, FL 12,923 - 12,923 Cypress Trace, Ft. Meyers, FL 19,148 - 19,148 Adams Farm, Greensboro, NC 12,565 - 12,565 Market Place, Ft. Meyers, FL 8,894 - 8,894
II-56
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------------ Mill Pond Village, Cary, NC 84,364 05/04 15,395 - Center Pointe Plaza I, Easley, SC 64,487 05/04 7,825 - Shoppes at Wendover Village I, Greensboro, NC 35,895 05/04 9,300 - Thompson Square Mall, Monticello, NY 240,135 05/04 24,331 - Wytheville Commons, Wytheville, VA 90,239 05/04 10,191 - Target Center, Columbia, SC 4,100 07/04 751 - Sofa Express, Duluth, GA 20,000 08/04 3,958 - Capital Plaza, Wake Forest, NC 46,793 08/04 7,439 - Alexander Place, Raleigh, NC 143,037 09/04 25,650 - David's Bridal Center, Macon, GA 14,000 10/04 2,705 - Sycamore Commons Outlot II, Matthews, NC 9,000 10/04 2,662 - -------------------------------------------------------------------------- Total for 2002 through 2004 acquisitions 27,796,232 3,504,266 399,742 ========================================================================== DEVELOPMENT PROJECTS Fayette Pavilion III, Fayetteville, GA N/A 07/03 203 - Fountains, Plantation, FL N/A 02/03 2,664 - Hiram Pavilion, Hiram, GA N/A 05/03 695 - Northlake Commons, Palm Beach Gardens, FL N/A 07/03 640 - Redbud Commons Gastonia, NC N/A 06/03 5,101 - Shoppes of Golden Acres II, Newport Richey, FL N/A 02/02 189 - Southhampton Village, Tyrone, GA N/A 11/02 62 - Southlake Pavilion, Morrow, GA N/A 12/01 702 - Turkey Creek II, Knoxville, TN N/A 01/02 1,317 - Watercolor Crossing, Tallahassee, FL N/A 03/03 1,028 - Westside Center, Huntsville, AL N/A 04/03 4,888 - -------------------------------------------------------------------------- Total for Development projects at 12/31/03 - 17,489 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- Mill Pond Village, Cary, NC 15,395 - 15,395 Center Pointe Plaza I, Easley, SC 7,825 - 7,825 Shoppes at Wendover Village I, Greensboro, NC 9,300 - 9,300 Thompson Square Mall, Monticello, NY 24,331 350 24,681 Wytheville Commons, Wytheville, VA 10,191 - 10,191 Target Center, Columbia, SC 751 - 751 Sofa Express, Duluth, GA 3,958 - 3,958 Capital Plaza, Wake Forest, NC 7,439 - 7,439 Alexander Place, Raleigh, NC 25,650 - 25,650 David's Bridal Center, Macon, GA 2,705 - 2,705 Sycamore Commons Outlot II, Matthews, NC 2,662 - 2,662 ------------------------------------------------------- Total for 2002 through 2004 acquisitions 3,104,524 56,351 3,560,617 ======================================================= DEVELOPMENT PROJECTS Fayette Pavilion III, Fayetteville, GA 203 - 203 Fountains, Plantation, FL 2,664 - 2,664 Hiram Pavilion, Hiram, GA 695 - 695 Northlake Commons, Palm Beach Gardens, FL 640 - 640 Redbud Commons Gastonia, NC 5,101 - 5,101 Shoppes of Golden Acres II, Newport Richey, FL 189 - 189 Southhampton Village, Tyrone, GA 62 - 62 Southlake Pavilion, Morrow, GA 702 - 702 Turkey Creek II, Knoxville, TN 1,317 - 1,317 Watercolor Crossing, Tallahassee, FL 1,028 - 1,028 Westside Center, Huntsville, AL 4,888 - 4,888 ------------------------------------------------------- Total for Development projects at 12/31/03 17,489 - 17,489
II-57
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------------ INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Shops at Park Place, Plano, TX 116,300 10/03 24,000 13,127 Darien Towne Center, Darien, IL 223,844 12/03 30,000 16,500 CVS Pharmacy (Eckerd Drug Store), Edmond, OK 13,824 12/03 3,364 - CVS Pharmacy (Eckerd Drug Store), Norman, OK 13,824 12/03 5,288 - Pavilion at King's Grant, Concord, NC 79,109 12/03 8,151 - Shaw's Supermarket, New Britain, CT 65,658 12/03 13,656 - Stony Creek Marketplace, Noblesville, IN 153,796 12/03 25,750 - Newnan Crossing I & II, Newnan, GA 392,050 12/03 & 02/04 52,360 - CorWest Plaza, New Britain, CT 115,011 01/04 33,000 18,150 Hickory Ridge, Hickory, NC 380,487 01/04 41,900 - Larkspur Landing, Larkspur, CA 172,433 01/04 61,145 - North Ranch Pavilions, Thousand Oaks, CA 62,812 01/04 18,468 - Shoppes at Quarterfield (Metro Square Center), Severn, MD 61,817 01/04 11,031 - La Plaza Del Norte, San Antonio, TX 320,345 01/04 59,143 - MacArthur Crossing, Los Colinas, TX 109,755 02/04 23,102 - Promenade at Red Cliff, St. George, UT 94,445 02/04 19,537 - Dorman Center - Phase I & II, Spartenburg, SC 388,067 03/04 & 07/04 50,200 - Peoria Crossings, Peoria, AZ 213,733 03/04 37,368 20,497 Heritage Towne Crossing, Euless, TX 73,579 03/04 14,860 8,950 Paradise Valley Marketplace, Phoenix, AZ 92,158 04/04 28,510 - Best on the Boulevard, Las Vegas, NV 204,427 04/04 35,500 - Bluebonnet Parc, Baton Rouge, LA 135,289 04/04 22,000 - North Rivers Town Center, Charleston, SC 141,204 04/04 20,100 - Alison's Corners, San Antonio, TX 55,066 04/04 7,042 - Arvada Connection and Arvada Marketplace, Arvada, CO 374,638 04/04 51,550 - Eastwood Towne Center, Lansing, MI 332,131 05/04 85,000 - Watauga Pavilion, Watauga, TX 205,195 05/04 35,668 - Northpointe Plaza, Spokane, WA 377,949 05/04 54,524 - Plaza Santa Fe II, Santa Fe, NM 222,389 06/04 30,971 17,552 Eckerd Drug Store, Columbia, SC 13,440 06/04 3,260 - Eckerd Drug Store, Crossville, TN 13,824 06/04 2,625 - OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Shops at Park Place, Plano, TX 10,873 257 24,257 Darien Towne Center, Darien, IL 13,500 213 30,213 CVS Pharmacy (Eckerd Drug Store), Edmond, OK 3,364 1 3,365 CVS Pharmacy (Eckerd Drug Store), Norman, OK 5,288 5,288 Pavilion at King's Grant, Concord, NC 8,151 16 8,167 Shaw's Supermarket, New Britain, CT 13,656 (140) 13,516 Stony Creek Marketplace, Noblesville, IN 25,750 21 25,771 Newnan Crossing I & II, Newnan, GA 52,360 (833) 51,527 CorWest Plaza, New Britain, CT 14,850 (14) 32,986 Hickory Ridge, Hickory, NC 41,900 41,900 Larkspur Landing, Larkspur, CA 61,145 481 61,626 North Ranch Pavilions, Thousand Oaks, CA 18,468 44 18,512 Shoppes at Quarterfield (Metro Square Center), Severn, MD 11,031 11,031 La Plaza Del Norte, San Antonio, TX 59,143 (289) 58,854 MacArthur Crossing, Los Colinas, TX 23,102 23,102 Promenade at Red Cliff, St. George, UT 19,537 19,537 Dorman Center - Phase I & II, Spartenburg, SC 50,200 (103) 50,097 Peoria Crossings, Peoria, AZ 16,871 (68) 37,300 Heritage Towne Crossing, Euless, TX 5,910 14,860 Paradise Valley Marketplace, Phoenix, AZ 28,510 (147) 28,363 Best on the Boulevard, Las Vegas, NV 35,500 (85) 35,415 Bluebonnet Parc, Baton Rouge, LA 22,000 (102) 21,898 North Rivers Town Center, Charleston, SC 20,100 20,100 Alison's Corners, San Antonio, TX 7,042 7,042 Arvada Connection and Arvada Marketplace, Arvada, CO 51,550 18 51,568 Eastwood Towne Center, Lansing, MI 85,000 85,000 Watauga Pavilion, Watauga, TX 35,668 35,668 Northpointe Plaza, Spokane, WA 54,524 (48) 54,476 Plaza Santa Fe II, Santa Fe, NM 13,419 (59) 30,912 Eckerd Drug Store, Columbia, SC 3,260 3,260 Eckerd Drug Store, Crossville, TN 2,625 2,625
II-58
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------------ Eckerd Drug Store, Greer, SC 13,824 06/04 3,069 - Eckerd Drug Store, Kill Devil Hills, NC 13,824 06/04 3,650 - Pine Ridge Plaza, Lawrence, KS 230,510 06/04 26,982 - Huebner Oaks Center, San Antonio, TX 286,684 06/04 79,721 - John's Creek Village, Duluth, GA 141,802 06/04 29,158 - Lakewood Towne Center, Lakewood, WA 578,913 06/04 81,100 - Davis Towne Crossing, North Richland, TX 34,091 06/04 8,141 - Fullerton Metrocenter, Fullerton, CA 253,296 06/04 51,275 - Low Country Village, Bluffton, SC 76,385 06/04 11,090 - Northgate North, Seattle, WA 302,095 06/04 48,455 - Shoppes of Prominence Point, Canton, GA 78,058 06/04 15,155 - The Shops at Boardwalk, Kansas City, MO 122,916 07/04 36,642 20,150 Shoppes of New Hope (Shoppes of Dallas), Dallas, GA 70,610 07/04 13,052 - Cranberry Square, Cranberry Township, PA 195,566 07/04 20,220 10,900 Tollgate Marketplace, Bel Air, MD 392,587 07/04 72,300 39,765 Gateway Plaza, Southlake, TX 358,091 07/04 33,025 - Gateway Village, Annapolis, MD 273,307 07/04 49,513 31,458 Towson Circle, Towson, MD 116,012 07/04 28,450 19,198 Wal-Mart Supercenter, Blytheville, AR 183,047 07/04 13,248 - Wrangler, El Paso, TX 316,800 07/04 18,477 - Plaza at Marysville, Marysville, WA 115,656 07/04 21,266 - Forks Town Center, Easton, PA 92,660 07/04 18,199 - Academy Sports, Houma, LA 60,001 07/04 5,250 - Reisterstown Road Plaza, Baltimore, MD 761,534 08/04 91,092 - Wal-Mart Supercenter, Jonesboro, AR 149,704 08/04 11,071 6,089 Village Shoppes at Simonton, Lawrenceville, GA 66,415 08/04 13,750 - Manchester Meadows, Town and Country, MO 454,172 08/04 56,200 - Governor's Marketplace, Tallahassee, FL 231,915 08/04 32,654 20,625 Mitchell Ranch Plaza, New Port Richey, FL 200,404 08/04 34,000 - The Columns, Jackson, TN 173,427 08/04 26,510 - Lincoln Park, Dallas, TX 148,806 09/04 47,515 - Saucon Valley Square, Bethlehem, PA 80,695 09/04 16,043 8,851 OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- Eckerd Drug Store, Greer, SC 3,069 3,069 Eckerd Drug Store, Kill Devil Hills, NC 3,650 3,650 Pine Ridge Plaza, Lawrence, KS 26,982 26,982 Huebner Oaks Center, San Antonio, TX 79,721 89 79,810 John's Creek Village, Duluth, GA 29,158 29,158 Lakewood Towne Center, Lakewood, WA 81,100 (360) 80,740 Davis Towne Crossing, North Richland, TX 8,141 8,141 Fullerton Metrocenter, Fullerton, CA 51,275 (199) 51,076 Low Country Village, Bluffton, SC 11,090 (5) 11,085 Northgate North, Seattle, WA 48,455 48,455 Shoppes of Prominence Point, Canton, GA 15,155 (7) 15,148 The Shops at Boardwalk, Kansas City, MO 16,492 (204) 36,438 Shoppes of New Hope (Shoppes of Dallas), Dallas, GA 13,052 84 13,136 Cranberry Square, Cranberry Township, PA 9,320 20,220 Tollgate Marketplace, Bel Air, MD 32,535 72,300 Gateway Plaza, Southlake, TX 33,025 33,025 Gateway Village, Annapolis, MD 18,055 49,513 Towson Circle, Towson, MD 9,252 (37) 28,413 Wal-Mart Supercenter, Blytheville, AR 13,248 13,248 Wrangler, El Paso, TX 18,477 18,477 Plaza at Marysville, Marysville, WA 21,266 21,266 Forks Town Center, Easton, PA 18,199 18,199 Academy Sports, Houma, LA 5,250 5,250 Reisterstown Road Plaza, Baltimore, MD 91,092 (260) 90,832 Wal-Mart Supercenter, Jonesboro, AR 4,982 11,071 Village Shoppes at Simonton, Lawrenceville, GA 13,750 (87) 13,663 Manchester Meadows, Town and Country, MO 56,200 (85) 56,115 Governor's Marketplace, Tallahassee, FL 12,029 (56) 32,598 Mitchell Ranch Plaza, New Port Richey, FL 34,000 (66) 33,934 The Columns, Jackson, TN 26,510 (22) 26,488 Lincoln Park, Dallas, TX 47,515 47,515 Saucon Valley Square, Bethlehem, PA 7,192 16,043
II-59
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------------ Boulevard at the Capital Centre, Largo, MD 470,322 09/04 122,956 71,500 Harris Teeter, Wilmington, NC 57,230 09/04 7,200 - Harvest Towne Center, Knoxville, TN 42,235 09/04 8,950 - GMAC Insurance Building, Winston-Salem, NC 501,064 09/04 59,997 33,000 Bed, Bath & Beyond Plaza, Miami, FL 97,456 10/04 20,350 - Denton Towne Crossing, Denton, TX 279,040 10/04 53,402 - Azalea Square, Summerville, SC 190,142 10/04 30,013 - Lake Mary Pointe, Lake Mary, FL 51,052 10/04 6,620 - Plaza at Riverlakes, Bakersfield, CA 102,836 10/04 17,000 - Academy Sports, Port Arthur, TX 61,001 10/04 5,000 - Gurnee Towne Center, Gurnee, IL 179,602 10/04 44,256 - Academy Sports, Midland, TX 61,150 10/04 4,250 - CVS Pharmacy, Sylacauga, AL 10,055 10/04 3,066 - Mansfield Towne Crossing, Mansfield, TX 95,227 11/04 16,055 - Kohl's/Wilshire Plaza III, Kansas City, MO 88,248 11/04 10,099 5,418 Winchester Commons, Memphis, TN 93,024 11/04 13,023 - The Shoppes at Park West (Publix Center), Mount Pleasant, SC 64,832 11/04 12,047 - Fox Creek Village, Longmont, CO 114,033 11/04 20,883 - Oswego Commons, Oswego, IL 187,651 11/04 35,022 19,262 Zurich Towers, Schaumburg, IL 895,418 11/04 138,000 81,420 Edgemont Town Center, Homewood, AL 77,655 11/04 15,639 - University Town Center, Tuscaloosa, AL 57,250 11/04 10,569 - Five Forks, Simpsonville, SC 64,173 12/04 8,086 - Gateway Pavilions, Avondale, AZ 301,233 12/04 65,141 - Gateway Station, College Station, TX 19,537 12/04 5,093 - Northwoods Center, Wesley Chapel, FL 74,647 12/04 13,964 - Placentia Town Center, Placentia, CA 110,962 12/04 24,865 - Shops at Forest Commons, Round Rock, TX 34,756 12/04 7,505 5,235 American Express, Depere, WI 132,336 12/04 18,000 11,623 American Express, Fort Lauderdale, FL 376,348 12/04 63,000 37,170 American Express, Greensboro, NC 389,377 12/04 56,000 33,040 American Express, Minneapolis, MN 541,542 12/04 95,000 56,050 OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- Boulevard at the Capital Centre, Largo, MD 51,456 (419) 122,537 Harris Teeter, Wilmington, NC 7,200 7,200 Harvest Towne Center, Knoxville, TN 8,950 8,950 GMAC Insurance Building, Winston-Salem, NC 26,997 59,997 Bed, Bath & Beyond Plaza, Miami, FL 20,350 20,350 Denton Towne Crossing, Denton, TX 53,402 53,402 Azalea Square, Summerville, SC 30,013 (15) 29,998 Lake Mary Pointe, Lake Mary, FL 6,620 6,620 Plaza at Riverlakes, Bakersfield, CA 17,000 17,000 Academy Sports, Port Arthur, TX 5,000 5,000 Gurnee Towne Center, Gurnee, IL 44,256 (23) 44,233 Academy Sports, Midland, TX 4,250 4,250 CVS Pharmacy, Sylacauga, AL 3,066 3,066 Mansfield Towne Crossing, Mansfield, TX 16,055 16,055 Kohl's/Wilshire Plaza III, Kansas City, MO 4,681 10,099 Winchester Commons, Memphis, TN 13,023 (3) 13,020 The Shoppes at Park West (Publix Center), Mount Pleasant, SC 12,047 - 12,047 Fox Creek Village, Longmont, CO 20,883 (33) 20,850 Oswego Commons, Oswego, IL 15,760 35,022 Zurich Towers, Schaumburg, IL 56,580 138,000 Edgemont Town Center, Homewood, AL 15,639 15,639 University Town Center, Tuscaloosa, AL 10,569 10,569 Five Forks, Simpsonville, SC 8,086 8,086 Gateway Pavilions, Avondale, AZ 65,141 65,141 Gateway Station, College Station, TX 5,093 5,093 Northwoods Center, Wesley Chapel, FL 13,964 13,964 Placentia Town Center, Placentia, CA 24,865 24,865 Shops at Forest Commons, Round Rock, TX 2,270 7,505 American Express, Depere, WI 6,377 18,000 American Express, Fort Lauderdale, FL 25,830 63,000 American Express, Greensboro, NC 22,960 56,000 American Express, Minneapolis, MN 38,950 95,000
II-60
PURCHASE PRICE MORTGAGE NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE - ------------------------------------------------------------------------------------------------------------------------------ American Express - 19th Avenue, Phoenix, AZ 117,556 12/04 14,000 8,260 American Express - 31st Avenue, Phoenix, AZ 337,439 12/04 54,000 31,860 Southlake Town Square, Southlake, TX 456,569 12/04 135,606 81,000 23rd Street Plaza, Panama City, FL 53,376 12/04 7,258 - Coram Plaza, Coram, NY 144,191 12/04 37,292 20,760 Henry Town Center, McDonough, GA 444,296 12/04 61,397 35,815 McAllen Shopping Center, McAllen, TX 17,625 12/04 4,150 - Mesa Fiesta, Mesa, AZ 194,892 12/04 36,855 - Phenix Crossing, Phenix, AL 56,563 12/04 10,065 - Green's Corner, Cumming, GA 85,271 12/04 12,768 - Newton Crossroads, Covington, GA 78,896 12/04 10,072 - Stilesboro Oaks, Acworth, GA 80,772 12/04 12,640 - Evans Town Center, Evans, GA 75,695 12/04 8,795 - Irmo Station, Irmo, SC 99,619 12/04 12,800 - Pleasant Run Towne Center, Cedar Hill, TX 201,587 12/04 35,370 22,800 Shoppes at Lake Andrew, Viera, FL 144,733 12/04 28,300 15,657 Total for Inland Western Retail Real Estate Trust, Inc. 20,202,920 3,417,765 821,682 ========== ========= ======= -------------------------------------------------------------------------- GRAND TOTAL 50,860,506 7,276,493 1,253,384 ========================================================================== OTHER CASH CASH DOWN EXPENDITURES TOTAL ACQUISITION PROPERTY PAYMENT CAPITALIZED (A) COST(B) - ----------------------------------------------------------------------------------------------------------- American Express - 19th Avenue, Phoenix, AZ 5,740 14,000 American Express - 31st Avenue, Phoenix, AZ 22,140 54,000 Southlake Town Square, Southlake, TX 54,606 135,606 23rd Street Plaza, Panama City, FL 7,258 7,258 Coram Plaza, Coram, NY 16,532 37,292 Henry Town Center, McDonough, GA 25,582 61,397 McAllen Shopping Center, McAllen, TX 4,150 4,150 Mesa Fiesta, Mesa, AZ 36,855 36,855 Phenix Crossing, Phenix, AL 10,065 10,065 Green's Corner, Cumming, GA 12,768 12,768 Newton Crossroads, Covington, GA 10,072 10,072 Stilesboro Oaks, Acworth, GA 12,640 12,640 Evans Town Center, Evans, GA 8,795 8,795 Irmo Station, Irmo, SC 12,800 12,800 Pleasant Run Towne Center, Cedar Hill, TX 12,570 35,370 Shoppes at Lake Andrew, Viera, FL 12,643 28,300 Total for Inland Western Retail Real Estate Trust, Inc. 2,596,083 (2,545) 3,415,220 ========= ====== ========= ------------------------------------------------------- GRAND TOTAL 6,023,109 58,350 7,334,843 =======================================================
II-61 TABLE VL- (CONTINUED) ACQUISITION OF PROPERTIES BY PROGRAMS NOTES TO TABLE VI (A) "Other Cash Expenditures Capitalized" consists of improvements to the property and acquisition expenses which are capitalized and paid or to be paid from the proceeds of the offering. As part of several purchases, rent is received under master lease agreements on the spaces currently vacant for periods ranging from one to two years or until the spaces are leased. As these payments are received, they are recorded as a reduction in the purchase price of the properties and have been netted against other cash expenditures capitalized. (B) "Total Acquisition Cost" is the sum of columns captioned "Purchase Price Plus Acquisition Fee" and "Other Cash Expenditures Capitalized. II-62 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this Post-Effective Amendment No. 4 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oak Brook, State of Illinois, on the 15th day of September, 2005. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. By: /s/ Brenda G. Gujral --------------------------------------- Brenda G. Gujral Chief Executive Officer II-63 Pursuant to the requirements of the Securities Act of 1933, as amended, this Post-Effective Amendment No. 4 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME CAPACITY DATE ---- -------- ----- /s/ Brenda G. Gujral Chief executive officer and affiliated director September 15, 2005 - ------------------------------------------ Brenda G. Gujral /s/ Steven P. Grimes Treasurer and principal financial officer September 15, 2005 - ------------------------------------------ Steven P. Grimes /s/ Lori J. Foust Principal accounting officer September 15, 2005 - ------------------------------------------ Lori J. Foust /s/ Robert D. Parks Chairman of the board and affiliated director September 15, 2005 - ------------------------------------------ Robert D. Parks * Independent director September 15, 2005 - ------------------------------------------ Frank Catalano * Independent director September 15, 2005 - ------------------------------------------ Ken Beard * Independent director September 15, 2005 - ------------------------------------------ Paul R. Gauvreau * Independent director September 15, 2005 - ------------------------------------------ Gerald M. Gorski * Independent director September 15, 2005 - ------------------------------------------ Barbara A. Murphy /s/ Roberta S. Matlin - ---------------------------------------------
* Signed on behalf of the named individuals by Roberta S. Matlin, under power of attorney. II-64 EX-10.513 2 a2162828zex-10_513.txt EXHIBIT 10.513 Exhibit 10.513 LOAN TERMS TABLE NOTE DATE: July 19, 2005 MERS MIN: 8000101-0000001252-5 ORIGINAL PRINCIPAL AMOUNT: $232,408,000.00 LOAN NO.: 59040 NOTE RATE: As defined in Section 1.1 of the Loan Agreement. SERVICING NO.: 3204419 MONTHLY PAYMENT AMOUNT: As defined in Article l(a) of this Note. BORROWER: INLAND WESTERN BAY SHORE GARDINER, L.L.C., a Delaware limited liability company ("Gardiner"), INLAND WESTERN POUGHKEEPSIE MID-HUDSON, L.L.C., a Delaware limited liability company ("Mid-Hudson"), INLAND WESTERN SARATOGA SPRINGS WILTON, L.L.C., a Delaware limited liability company ("Wilton"), INLAND WESTERN WESTBURY MERCHANTS PLAZA, L.L.C., a Delaware limited liability company ("Westbury"), INLAND WESTERN ORANGE 440 BOSTON, L.L.C., a Delaware limited liability company ("Orange 440"), INLAND WESTERN ORANGE 53 BOSTON, L.L.C., a Delaware limited liability company ("Orange 53"), INLAND WESTERN HARTFORD NEW PARK, L.L.C., a Delaware limited liability company ("New Park"), INLAND WESTERN WILLISTON MAPLE TREE, L.L.C., a Delaware limited liability company ("Maple Tree"), INLAND WESTERN WEST MIFFLIN CENTURY III, L.P., an Illinois limited partnership ("Century III"), and INLAND WESTERN PITTSBURGH WILLIAM PENN, L.P., an Illinois limited partnership ("William Penn"; Gardiner, Mid-Hudson, Wilton, Westbury, Orange 440, Orange 53, New Park, Maple Tree, Century III and William Penn, individually and collectively, as the context may require, "BORROWER"). BORROWERS' TINs: 20-2808179 (Gardiner); 20-2808150 (Mid-Hudson); 20-2808130 (Wilton); 20-2808060 (Westbury); 20-2784976 (Orange 440); 20-2785047 (Orange 53); 20-2785007 (New Park); 20-2808087 (Maple Tree); 20-3157397] (Century III); and 20-3157441 (William Penn). MATURITY DATE: August 1, 2007, as such date may be extended pursuant to Section 2.3 of the Loan Agreement. CONSOLIDATED PROMISSORY NOTE FOR VALUE RECEIVED Borrower, having its principal place of business at 2901 Butterfield Road, Oak Brook, IL 60523, hereby unconditionally promises to pay to the order of BANK OF AMERICA, N.A., a national banking association, having an address at Hearst Tower, 214 North Tryon Street, Charlotte, North Carolina NC1-027-20-03 ("LENDER"), the Original Principal Amount, in lawful money of the United States of America with interest thereon to be computed from the date of this Note at the Note Rate, and to be paid in accordance with the terms set forth below. The Loan Terms Table set forth above is a part of this Note and all terms used in this Note which are defined in the Loan Terms Table shall have the meaning set forth therein. All capitalized terms not defined herein shall have the respective meanings set forth in that certain Loan Agreement dated the date hereof between Lender and Borrower (the "LOAN AGREEMENT"). Subject to Article 18 hereof, this Note evidences the new and additional indebtedness of $155,940,911.53 (the "NEW INDEBTEDNESS") and also the existing indebtedness of $76,467,088.47 remaining unpaid on, and previously evidenced by, the bonds, notes, or obligations, including any supplemental or replacement notes, if any, secured by those certain mortgages described on SCHEDULE A hereto encumbering the Individual Properties located in the State of New York (the "EXISTING INDEBTEDNESS") contemporaneously assigned to Lender; it being the intention of this Note that it shall constitute a consolidation, renewal, extension and modification, amendment and restatement of the terms of payment of such Existing Indebtedness and also as an expression of the terms of payment of such New Indebtedness. ARTICLE 1 - PAYMENT TERMS; MANNER OF PAYMENT (a) Borrower hereby agrees to pay sums due under this Note as follows: an initial payment is due on the Closing Date for interest from the Closing Date through and including the last day of the calendar month in which the Closing Date occurs; and thereafter, consecutive monthly installments of interest only in an amount calculated in accordance with Article 2 below (such amount, the "MONTHLY PAYMENT AMOUNT") shall be payable pursuant to the terms hereof on each Payment Date beginning on the Payment Date occurring in September, 2005 (each such date through and including the Maturity Date, A "SCHEDULED PAYMENT DATE") through and including the Scheduled Payment Date occurring immediately prior to the Maturity Date, except that any remaining indebtedness, if not sooner paid, shall be due and payable on the Maturity Date. (b) Each payment by Borrower hereunder shall be made to Bank of America, N.A., P.O. Box 65585, Charlotte, NC 28265-0585, or at such other place as Lender may designate from time to time in writing. Whenever any payment hereunder shall be stated to be due on a day which is not a Business Day, such payment shall be made on the first Business Day preceding such scheduled due date. All payments made by Borrower hereunder or under the other Loan Documents shall be made irrespective of, and without any deduction for, any setoff, defense or counterclaims. (c) Prior to the occurrence of an Event of Default, all monthly payments made as scheduled on this Note shall be applied to the payment of interest computed at the Note Rate. All voluntary and involuntary prepayments on this Note shall be applied, to the extent thereof, to accrued but unpaid interest on the amount prepaid, to the remaining Principal Amount, and any other sums due and unpaid to the Lender in connection with the Loan, in such manner and order as Lender may elect in its sole and absolute discretion, including, but not limited to, application to principal installments in inverse order of maturity. Following the occurrence of an Event of Default, any payment made on this Note shall be applied to accrued but unpaid interest, late charges, accrued fees, the unpaid principal amount of this Note, and any other sums due and unpaid to Lender in connection with the Loan, in such manner and order as Lender may elect in its sole and absolute discretion. 2 (d) Remittances in payment of any part of the indebtedness other than in the required amount in immediately available U.S. funds shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by the holder hereof in immediately available U.S. funds and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practices of the collecting bank or banks. ARTICLE 2 - INTEREST The Loan shall bear interest at a fixed rate per annum equal to the Note Rate. Interest shall be computed in accordance with Section 2.2(c) of the Loan Agreement. Except as otherwise set forth herein or in the other Loan Documents, interest shall be paid in arrears. ARTICLE 3 - DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Note is not paid prior to the fifth day following the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default. ARTICLE 4 - PAYMENTS AFTER DEFAULT Upon the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance of the Loan and, to the extent permitted by law, overdue interest and other amounts due in respect of the Loan shall accrue at a rate per annum equal to the lesser of (a) the maximum rate permitted by applicable law, or (b) four percent (4%) above the Note Rate (such rate, the "DEFAULT RATE"). Interest at the Default Rate shall be computed from the occurrence of the Event of Default until the earlier of (i) the actual receipt and collection of the Debt (or that portion thereof that is then due) and (ii) the cure of such Event of Default. To the extent permitted by applicable law, interest at the Default Rate shall be added to the Debt, shall itself accrue interest at the same rate as the Loan and shall be secured by the Mortgages. This Article shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default; the acceptance of any payment from Borrower shall not be deemed to cure or constitute a waiver of any Event of Default; and Lender retains its rights under this Note, the Loan Agreement and the other Loan Documents to accelerate and to continue to demand payment of the Debt upon the happening of and during the continuance any Event of Default, despite any payment by Borrower to Lender. ARTICLE 5 -- PREPAYMENT (a) VOLUNTARY PREPAYMENT. Except as otherwise expressly permitted by Section 2.4(a) of the Loan Agreement, no voluntary prepayments, whether in whole or in part, of the Loan or any other amount at any time due and owing under this Note can be made by Borrower or any other Person without the express written consent of Lender. (b) INVOLUNTARY PREPAYMENT. In the event of any involuntary prepayment of the Loan or any other amount under this Note, whether in whole or in part, in connection with or following Lender's acceleration of this Note or otherwise, and whether any or all of the 3 Mortgages are satisfied or released by foreclosure (whether by power of sale or judicial proceeding), deed in lieu of foreclosure or by any other means, including, without limitation, repayment of the Loan by Borrower or any other Person pursuant to any statutory or common law right of redemption, Borrower shall, in addition to any portion of the principal balance of the Loan prepaid (together with all interest accrued and unpaid thereon and in the event the prepayment is made on a date other than a Scheduled Payment Date, a sum equal to the amount of interest which would have accrued under this Note on the amount of such prepayment if such prepayment had occurred on the next Scheduled Payment Date), pay to Lender a prepayment premium in an amount equal to Yield Maintenance (as defined herein) together with, an amount equal to one percent (1%) of the portion of the Loan being prepaid. As used herein, "Yield Maintenance" means a prepayment premium in an amount equal to the greater of: (i) 1% of the portion of the Loan being prepaid; or (ii) the product obtained by multiplying: (A) the portion of the Loan being prepaid, times; (B) the difference obtained by subtracting (I) the Yield Rate from (II) the Note Rate, times; (C) the present value factor calculated using the following formula: 1-(l+r)(TO THE POWER OF -n) --------------------------- r r = Yield Rate n = the number of years and any fraction thereof, remaining between the date the prepayment is made and the Maturity Date of this Note. As used herein, "YIELD RATE" means the yield calculated by the linear interpolation of the yields, as reported in the Federal Reserve Statistical Release H.15-Selected Interest Rates under the heading U.S. Government Securities/Treasury constant maturities for the week ending prior to the Prepayment Date, of the U.S. Treasury constant maturities with maturity dates (one longer and one shorter) most nearly approximating the Maturity Date. In the event Release H.15 is no longer published, Lender shall select a comparable publication to determine the Treasury Rate. The "PREPAYMENT CALCULATION DATE" shall mean, as applicable, the date on which (i) Lender applies any prepayment to the reduction of the outstanding principal amount this Note, (ii) Lender accelerates the Loan, in the case of a prepayment resulting from acceleration, or (iii) Lender applies funds held under any Reserve Account, in the case of a prepayment resulting from such an application (other than in connection with acceleration of the Loan). (c) INSURANCE PROCEEDS AND AWARDS; EXCESS INTEREST. Notwithstanding any other provision herein to the contrary, and provided no Default exists, Borrower shall not be required 4 to pay any prepayment premium in connection with any prepayment occurring solely as a result of (i) the application of Insurance Proceeds or Awards pursuant to the terms of the Loan Documents, or (ii) the application of any interest in excess of the maximum rate permitted by applicable law to the reduction of the Loan. (d) LIMITATION ON PARTIAL PREPAYMENTS. Except as otherwise expressly permitted by Section 2.4(a) of the Loan Agreement, Lender shall not have any obligation to accept a partial prepayment. ARTICLE 6 - SECURITY This Note is secured by the Mortgages and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, the Mortgages and the other Loan Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. ARTICLE 7 - USURY SAVINGS Borrower agrees to a "contracted for" rate of interest that is the rate stated in this Note, plus any additional rate of interest resulting from any other sums, amounts, and charges in the nature of interest paid or to be paid by or on behalf of Borrower, or any benefit or value received or to be received by the holder of this Note, in connection with this Note or the other Loan Documents. This Note is subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by this Note and as provided for herein or in the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan (such rate, the "MAXIMUM LEGAL RATE"). If, by the terms of this Note or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the Note Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. ARTICLE 8 - LATE PAYMENT CHARGE If any principal or interest payment is not paid by Borrower before the fifth (5th) day after the date the same is due (or such greater period, if any, required by applicable law), Borrower shall pay to Lender upon demand an amount equal to the lesser of four percent (4%) of 5 such unpaid sum or the maximum amount permitted by applicable law in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment, provided however, Borrower shall not be required to pay Lender a late charge in connection with the final payment under the loan. Any such amount shall be secured by the Mortgages and the other Loan Documents to the extent permitted by applicable law. ARTICLE 9 - NO ORAL CHANGE This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. ARTICLE 10 - WAIVERS Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind except as provided in the Loan Agreement. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Note, the Loan Agreement or the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Note, the Loan Agreement or the other Loan Documents. If Borrower is a limited liability company, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals comprising the limited liability company, and the term "Borrower," as used herein, shall include any alternate or successor limited liability company, but any predecessor limited liability company and its members shall not thereby be released from any liability. If Borrower is a partnership, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals comprising the partnership, and the term "Borrower," as used herein, shall include any alternate or successor partnership, but any predecessor partnership and their partners shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term "Borrower" as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. (Nothing in the foregoing sentence shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such borrowing entity which may be set forth in the Loan Agreement, the Mortgages or any other Loan Documents). 6 If this Note is executed by more than one person or entity as Borrower, the obligations of each such person or entity shall be joint and several. No person or entity shall be a mere accommodation maker, but each shall be primarily and directly liable hereunder. ARTICLE 11 - TRIAL BY JURY BORROWER AND LENDER EACH HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS NOTE, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH OF LENDER AND BORROWER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER AND LENDER. ARTICLE 12 - TRANSFER Upon the transfer of this Note, Borrower hereby waiving notice of any such transfer, Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter arising from events thereafter occurring; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred. ARTICLE 13 - EXCULPATION The provisions of Article 15 of the Loan Agreement are hereby incorporated by reference into this Note to the same extent and with the same force as if fully set forth herein. ARTICLE 14 - GOVERNING LAW This Note shall be governed, construed, applied and enforced in accordance with the laws of the state in which the Property is located and applicable federal laws of the United States of America. ARTICLE 15 - NOTICES All notices or other written communications hereunder shall be delivered in accordance with Article 16 of the Loan Agreement. 7 ARTICLE 16 - TAXPAYER IDENTIFICATION NUMBER This Note provides for the Borrower's federal taxpayer identification number to be inserted in the Loan Terms Table on the first page of this Note. If such number is not available at the time of execution of this Note or is not inserted by the Borrower, the Borrower hereby authorizes and directs the Lender to fill in such number on the first page of this Note when the Borrower provides to Lender, advises the Lender of, or the Lender otherwise obtains, such number. ARTICLE 17 - ATTORNEYS' FEES Any provisions in this Note or elsewhere in the Loan Documents providing for the payment of "attorneys' fees," "reasonable attorneys' fees" or words of similar import, shall mean actual attorneys' fees and paralegal fees incurred based upon the usual and customary fees or hourly rates of the attorneys and paralegals involved without giving effect to any statutory presumption that may then be in effect. ARTICLE 18 - CONSOLIDATION The Existing Indebtedness and the New Indebtedness are hereby consolidated to constitute a single indebtedness and, as so consolidated, is hereby extended, modified, renewed, amended and restated on the terms, covenants and conditions set forth in this Note. This Note evidences the same principal indebtedness as the Existing Indebtedness and the New Indebtedness and no further principal indebtedness. [NO FURTHER TEXT ON THIS PAGE] 8 IN WITNESS WHEREOF, each Borrower has duly executed this Note as of the day and year first above written. BORROWER: INLAND WESTERN BAY SHORE GARDINER, L.L.C, a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina -------------------------------- Name: Valerie Medina ------------------------------ Title: Asst. Secretary ------------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN HARTFORD NEW PARK, L.L.C, a Delaware limited liability company By: INLAND WESTERN HARTFORD NEW PARK MEMBER, L.L.C., a Delaware limited liability company, its sole member, By: INLAND WESTERN HARTFORD NEW PARK MEMBER II, L.L.C., a Delaware limited liability company, its Manager, By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina -------------------------------- Name: Valerie Medina ------------------------------ Title: Asst. Secretary ------------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN ORANGE 53 BOSTON, L.L.C., a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina -------------------------------- Name: Valerie Medina ------------------------------- Title: Asst. Secretary ------------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN ORANGE 440 BOSTON, L.L.C., a Delaware limited liability company By: INLAND WESTERN ORANGE 440 BOSTON MEMBER, L.L.C., a Delaware limited liability company, its sole member By: INLAND WESTERN ORANGE 440 BOSTON MEMBER II, L.L.C., a Delaware limited liability company, its Manager By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina -------------------------------- Name: Valerie Medina ------------------------------ Title: Asst. Secretary ------------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN PITTSBURGH WILLIAM PENN, L.P., an Illinois limited partnership By: INLAND WESTERN PITTSBURGH WILLIAM PENN GP, L.L.C. a Delaware limited liability company, its general partner By: INLAND WESTERN PITTSBURGH WILLIAM PENN PARTNER, L.P., a Delaware limited partnership, its sole member, By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its general partner By: /s/ Valerie Medina -------------------------------- Name: Valerie Medina ------------------------------ Title: Asst. Secretary ------------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN POUGHKEEPSIE MID-HUDSON, L.L.C., a Delaware limited liability company By: INLAND WESTERN POUGHKEEPSIE MID- HUDSON MEMBER, L.L.C., a Delaware limited liability company, its sole member, By: INLAND WESTERN POUGHKEEPSIE MID- HUDSON MEMBER II, L.L.C., a Delaware limited liability company, its Manager By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina -------------------------------- Name: Valerie Medina ------------------------------ Title: Asst. Secretary ------------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN SARATOGA SPRINGS WILTON, L.L.C., a Delaware limited liability company By: INLAND WESTERN SARATOGA SPRINGS WILTON MEMBER, L.L.C., a Delaware limited liability company, its sole member, By: INLAND WESTERN SARATOGA SPRINGS WILTON MEMBER II, L.L.C., a Delaware limited liability company, its Manager By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina -------------------------------- Name: Valerie Medina ------------------------------ Title: Asst. Secretary ------------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN WEST MIFFLIN CENTURY III, L.P., an Illinois limited partnership By: INLAND WESTERN WEST MIFFLIN CENTURY III GP, L.L.C., a Delaware limited liability company, its general partner By: INLAND WESTERN WEST MIFFLIN CENTURY III PARTNER, L.P., a Delaware limited partnership, its sole Member By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its general partner By: /s/ Valerie Medina -------------------------------- Name: Valerie Medina ------------------------------ Title: Asst. Secretary ------------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN WESTBURY MERCHANTS PLAZA, L.L.C., a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina -------------------------------- Name: Valerie Medina ------------------------------ Title: Asst. Secretary ------------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN WILLISTON MAPLE TREE, L.L.C., a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina -------------------------------- Name: Valerie Medina ------------------------------ Title: Asst. Secretary ------------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] SCHEDULE A MORTGAGE SCHEDULE I. MID - HUDSON SCHEDULE 1. MORTGAGE Mortgagor: Midhudson Center, LLC Dated: 05/10/95 Mortgagee: 221, Inc., Recorded: 05/19/95 Amount: $2,501,000.00 Liber: 2236 MP 187 Tax Paid: $25,010.00 1A ASSIGNMENT OF MORTGAGE Assignor: 221, Inc., Dated: 07/10/89 Assignee: Starwood Ceruzzi LLC Recorded: 08/06/98 Liber 100 RAP 448 Assigns Mortgage 1. 1B. ASSIGNMENT OF MORTGAGE Assignor: Starwood Ceruzzi LLC Dated:08/19/98 Assignee: KeyBank National Association Recorded:08/25/98 Liber: 101 RAP 386 Assigns Mortgage 1. 1C. ASSUMPTION, MODIFICATION AND EXTENSION AGREEMENT Starwood Ceruzzi Poughkeepsie, LLC Dated: 08/19/98 to Recorded: 08/25/98 KeyBank National Association Liber: 2360 MP: 32 Assumes, Modifies and extend Mortgage 1. 2. MORTGAGE Mortgagor: Starwood Ceruzzi Poughkeepsie LLC Dated: 08/19/98 Mortgagee: KeyBank National Association Recorded: 08/25/98 Amount: $15,468,373.00 Liber: 2360 MP 33 Tax Paid: $154,684.00 The above Mortgage is a Building Loan Mortgage and security agreement. 2A. MODIFICATION AGREEMENT KeyBank National Association Dated: 03/29/00 And Recorded:04/25/00 Starwood Ceruzzi Poughkeepsie LLC Document ID: 01.2000.3922 Modifies Mortgage 1 and 2 above. 2B. MODIFICATION AGREEMENT Starwood Ceruzzi Poughkeepsie, LLC Dated: 03/29/00 And Recorded: 04/25/00 KeyBank National Association Document No. 01.2000.3923 Modifies Mortgage 1 and 2 2C. ASSIGNMENT OF MORTGAGE Assignor: KeyBank National Association Dated: 02/29/00 Assignee: Security Life of Denver Insurance Recorded: 04/25/00 Company Assigns Mortgages 1 and 2 above Document No. 01.2000.1607A 3. MORTGAGE Mortgagor: Starwood Ceruzzi Poughkeepsie LLC Dated: 03/21/00 Mortgagee: Security Life of Denver Insurance Recorded: 04/25/00 Company Amount: $1,525,000.00 Document No. 01.2000.3920 Tax Paid $ 15,250.00 Covers Premises and More 3A BUILDING LOAN MORTGAGE AND MORTGAGE CONSOLIDATION, SPREADER MODIFICATION, EXTENSION AND SECURITY AGREEMENT Starwood Ceruzzi Poughkeepsie LLC Dated: 03/29/00 And Recorded: 04/25/00 Security Life of Denver Insurance Company Document: 01.2000.3921 Consolidates Mortgages 1, 2 and 3 to form a single lien of $19,025,000.00, and spreads them to cover premises and more (Easement and Leasehold Parcels on Parcel 3, Map No. 10650.) 20 II. WILTON MORTGAGE SCHEDULE 1. MORTGAGE Mortgagor: Pyramid Centers of Empire State, Inc. Dated: 06/15/73 Mortgagee: J. Henry Schroder Banking Corporation Recorded: 06/20/73 Amount: $6,500,000.00 Liber: 663 MP 174 Tax Paid $ 48,750.00 1A. ASSIGNMENT OF MORTGAGE Assignor: J. Henry Schroder Banking Corporation Dated: 05/17/74 Assignee: Teachers Insurance and Annuity Association Recorded: 05/30/74 Assigns Mortgage Number 1 above Book 46 pg 410 1B. EXTENSION AGREEMENT Pyramid Centers Inc., Dated:03/11/74 and Recorded: 05/30/74 Teachers Insurance and Annuity Liber: 673 PG 856 Association of America 2. MORTGAGE Mortgagor: Pyramid Centers of Empire State Inc., Dated: 05/20/74 Mortgagee: Teachers Insurance and Annuity Association of America Recorded:05/30/74 Amount: $1,000,000 Liber: 673 pg 863 2A. CONSOLIDATION, MODIFICATION, EXTENSION, SPREADER AGREEMENT Pyramid Centers Empire State Company Dated: 05/20/74 and Recorded: 05/30/74 Marine Midland Bank Liber: 673 pg 872 Consolidates mortgages in Liber 663 pg. 174 and Liber 673 pg 863 to form single lien of $7,500,000.00. 3. MORTGAGE Mortgagor: Pyramid Centers of Empire State Company Dated: 01/26/74 Mortgagee: Marine Midland Bank Recorded: 02/06/76 Amount: $3,300,000 Liber 688 pg 800 Tax Paid: $24,750.00 3A. MODIFICATION AGREEMENT Modified by Agreement dated 07/01/76 recorded July 6,1976 in Liber 692 page 399. 3B. ASSIGNMENT OF MORTGAGE 21 Assigned to Teachers Insurance and Annuity Association of America by Assignment dated 03/16/77 and recorded March 21, 1997 in Book 47 of Assignments page 351. 3C. CONSOLIDATION, MODIFICATION, EXTENSION AND SPREADER AGREEMENT Consolidation Agreement dated 03/17/77 and recorded 03/21/77 in Liber 699 page 1158. Consolidates Liber 663 pg 174, Liber 673 pg 863 and Liber 688 pg 800 into a single lien of $10,582,532.32. 3D. ASSIGNMENT OF MORTGAGE Assignment of Mortgage to KeyBank National Association dated 09/23/99 and recorded 11/01/99 in Liber 133 page 701. (Assigns Mortgages 1 through 3 above.) 4. MORTGAGE Mortgagor: Starwood Ceruzzi Saratoga LLC Dated: 10/28/99 Mortgagee: KeyBank National Association Recorded: 11/1/99 Amount: $1,527,643.08 Liber: 2379 pg. 405 Tax Paid: $ 15,276.00 The above mortgages were consolidated and modified so as to constitute a single lien of $7,213,320.00 and interest, by agreement dated 10/28/99 and recorded on 11/01/99 in Liber 2379 pg. 431. 5. BUILDING LOAN MORTGAGE Mortgagor: Starwood Ceruzzi Saratoga LLC Dated: 10/28/99 Mortgagee: KeyBank National Association Recorded: 11/01/99 Amount: $15,268,680.00 Liber: 2379 pg. 462 Tax Paid: $152,687.00 5A. ASSIGNMENT OF MORTGAGE Assignor: KeyBank National Association Dated: 03/23/01 Assignee: Security Life of Denver Insurance Company Recorded: 05/18/01 Liber: 145 pg. 748 Assigns mortgages in Liber 663 mp 174, Liber 673 mp. 863, Liber 688 mp 800, Liber 2379 mp 431 and Liber 2379 mp. 462. 6. MORTGAGE Mortgagor: Starwood Ceruzzi Saratoga LLC Dated: 03/23/01 Mortgagee: Security Life of Denver Insurance Company Recorded: 05/18/01 Amount: $1,875,000.00 Liber: 2549 pg 784 Tax Paid: $18,750.00 22 6A. BUILDING LOAN MORTGAGE AND MORTGAGE CONSOLIDATION, SPREADER, MODIFICATION, EXTENSION AND SECURITY AGREEMENT Mortgagor: Starwood Ceruzzi Saratoga LLC Dated: 03/23/01 Mortgagee: Security Life of Denver Insurance Company Recorded: 05/18/01 Liber: 2550 pg 17 Consolidates and Spreads mortgages in Liber 663 pg 174, Liber 673 mp 863, Liber 688 mp. 800, Liber 2379 mp 405, Liber 2379 mp 462 and Liber 2549 mp 784 to form a single lien of $24, 375, 000.00 III WESTBURY MORTGAGE SCHEDULE 1. PROJECT LOAN MORTGAGE Mortgagor: RM Westbury LLC Dated: 09/01/00 Mortgagee: Summit Bank Recorded: 11/30/00 Amount: $2,580,000.00 Liber: 20648 MP 768 Mortgage Tax $25,800.00 1A. ASSIGNMENT OF MORTGAGE Assignor: Fleet National Bank, Successor in Interest Dated: 03/28/02 to Summit Bank Recorded: 04/09/02 Assignee: Merrill Lynch Mortgage Lending, Inc. Liber: 22177 pg 409 Assigns Mortgage 1 above. 2. BUILDING LOAN MORTGAGE Mortgagor: RM Westbury LLC Dated: 09/01/00 Mortgagee: Summit Bank Recorded: 11/30/00 Amount: $6,320,000.00 Liber: 20648 pg. 798 Tax Paid: $63,200.00 2A. MODIFICATION AGREEMENT Mortgagor: RM Westbury LLC Dated: 09/28/01 Mortgagee: Fleet National Bank, Successor in Interest Recorded: 12/06/01 to Summit Bank Liber: 21659 pg 989 Modifies Mortgage 2 above. 2B. ASSIGNMENT OF MORTGAGE 23 Assignor: Fleet National Bank, successor in interest to Summit Bank Dated: 03/28/02 Assignee: Merrill Lynch Mortgage Lending, Inc Recorded: 04/09/02 Liber: 22177 pg. 403 Assigns Mortgage Number 2 above. 3. CONSOLIDATION AGREEMENT Mortgagor: RM Westbury LLC Dated: 03/28/02 Mortgagee: Merrill Lynch Mortgage Lending, Inc Recorded: 04/09/02 Liber: 22177 pg. 415 Consolidates Mortgage 1 and 2 above to form a single lien of $8,600,000.00 IV. BAYSHORE MORTGAGE SCHEDULE 1. MORTGAGE Mortgagor: Gardiner Manor, LLC and Dated: 05/11/98 Robert David Lion Gardiner Recorded: 05/28/98 Mortgagee: KeyBank National Association Liber: 19338 pg. 367 Amount: $36,520,000.00 Tax Paid: $365,200.00 1A.. NOTE AND MORTGAGE SPLITTER, SEVERANCE AND MODIFICATION AGREEMENT Mortgagor: Gardiner Manor LLC and Dated: 05/16/01 Gardiner Manor II, LLC and Gardiner Holdings, LLC Recorded: 02/13/02 Mortgagee: KeyBank National Association Liber: 20026 pg. 174 Severs and Splits Mortgage No. 1 above into two separate liens of $32,750,000.00(to be evidenced by existing mortgage) and $3,770,000.00(released from our premises) 1B. ASSIGNMENT OF MORTGAGE Assignor: KeyBank National Association Dated: 05/14/01 Assignee: Merrill Lynch Mortgage Lending Inc., Recorded: 02/13/02 Liber: 20026 pg. 177 Assigns Mortgage Number 1 above. (as to lien of $32,750,000.00) 1C. MODIFICATION AND SPREADER AGREEMENT Mortgagor: Gardiner Manor, LLC and Dated: 05/16/01 24 Gardiner Manor II, LLC Recorded: 02/13/02 Mortgagee: Merrill Lynch Mortgage Lending, Inc., Liber: 20026 pg 178 Modifies and Spreads mortgage 1 above. (as to lien of $32,750,000.00) 25 EX-10.514 3 a2162828zex-10_514.txt EXHIBIT 10.514 Exhibit 10.514 Loan No.: 59040 Servicing No.: 3204419 MERS MIN: 8000101-0000001252-5 ================================================================================ LOAN AGREEMENT Dated as of July 19, 2005 Between Inland Western Bay Shore Gardiner, L.L.C., Inland Western Poughkeepsie Mid-Hudson, L.L.C., Inland Western Saratoga Springs Wilton, L.L.C., Inland Western Westbury Merchants Plaza, L.L.C., Inland Western Orange 440 Boston, L.L.C., Inland Western Orange 53 Boston, L.L.C., Inland Western Hartford New Park, L.L.C., Inland Western Williston Maple Tree, L.L.C., Inland Western West Mifflin Century III, L.P., and Inland Western Pittsburgh William Penn, L.P. collectively as Borrowers and BANK OF AMERICA, N.A., as Lender ================================================================================ TABLE OF CONTENTS
PAGE ARTICLE 1. DEFINITIONS; PRINCIPLES OF CONSTRUCTION...................................1 Section 1.1. Definitions..........................................................1 Section 1.2. Principles of Construction..........................................16 ARTICLE 2. GENERAL TERMS............................................................16 Section 2.1. Loan Commitment; Disbursement To Borrowers..........................16 Section 2.2. Interest Rate.......................................................17 Section 2.3. Loan Payments.......................................................18 Section 2.4. Prepayments.........................................................23 ARTICLE 3. CONDITIONS PRECEDENT.....................................................24 ARTICLE 4. REPRESENTATIONS AND WARRANTIES...........................................25 Section 4.1. Organization........................................................25 Section 4.2. Status Of Each Borrower.............................................25 Section 4.3. Validity Of Documents...............................................25 Section 4.4. No Conflicts........................................................26 Section 4.5. Litigation..........................................................26 Section 4.6. Agreements..........................................................26 Section 4.7. Solvency............................................................26 Section 4.8. Full And Accurate Disclosure........................................27 Section 4.9. No Plan Assets......................................................27 Section 4.10. Not A Foreign Person................................................27 Section 4.11. Enforceability......................................................27 Section 4.12. Business Purposes...................................................28 Section 4.13. Compliance..........................................................28 Section 4.14. Financial Information...............................................28 Section 4.15. Condemnation........................................................28 Section 4.16. Utilities And Public Access; Parking................................29 Section 4.17. Separate Lots.......................................................29 Section 4.18. Assessments.........................................................29 Section 4.19. Insurance...........................................................29 Section 4.20. Use Of Property.....................................................29 Section 4.21. Certificate Of Occupancy; Licenses..................................29 Section 4.22. Flood Zone..........................................................30 Section 4.23. Physical Condition..................................................30 Section 4.24. Boundaries..........................................................30 Section 4.25. Leases And Rent Roll................................................30 Section 4.26. Filing And Recording Taxes..........................................31 Section 4.27. Management Agreements...............................................31 Section 4.28. Illegal Activity....................................................31 Section 4.29. Construction Expenses...............................................32
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PAGE Section 4.30. Personal Property...................................................32 Section 4.31. Taxes...............................................................32 Section 4.32. Permitted Encumbrances..............................................32 Section 4.33. Federal Reserve Regulations.........................................32 Section 4.34. Investment Company Act..............................................32 Section 4.35. Reciprocal Easement Agreements......................................33 Section 4.36. No Change In Facts Or Circumstances; Disclosure.....................33 Section 4.37. Intellectual Property...............................................34 Section 4.38. Compliance With Anti-Terrorism Laws.................................34 Section 4.39. Patriot Act.........................................................34 Section 4.40. Ground Leases.......................................................35 Section 4.41. Survival............................................................35 ARTICLE 5. BORROWER COVENANTS.......................................................35 Section 5.1. Existence; Compliance With Legal Requirements.......................35 Section 5.2. Maintenance And Use Of Property.....................................36 Section 5.3. Waste...............................................................36 Section 5.4. Taxes And Other Charges.............................................36 Section 5.5. Litigation..........................................................37 Section 5.6. Access To Property..................................................37 Section 5.7. Notice Of Default...................................................37 Section 5.8. Cooperate In Legal Proceedings......................................37 Section 5.9. Performance By Borrowers............................................37 Section 5.10. Awards; Insurance Proceeds..........................................38 Section 5.11. Financial Reporting.................................................38 Section 5.12. Estoppel Statement..................................................39 Section 5.13. Leasing Matters.....................................................40 Section 5.14. Property Management.................................................41 Section 5.15. Liens...............................................................42 Section 5.16. Debt Cancellation...................................................42 Section 5.17. Zoning..............................................................42 Section 5.18. ERISA...............................................................43 Section 5.19. No Joint Assessment.................................................43 Section 5.20. Reciprocal Easement Agreements......................................43 Section 5.21. Interest Rate Cap Agreement.........................................43 Section 5.22. Ground Leases.......................................................45 ARTICLE 6. ENTITY COVENANTS.........................................................46 Section 6.1. Single Purpose Entity/Separateness..................................46 Section 6.2. Change Of Name, Identity Or Structure...............................50 Section 6.3. Business And Operations.............................................50 Section 6.4. Independent Director................................................50
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PAGE ARTICLE 7. NO SALE OR ENCUMBRANCE...................................................51 Section 7.1. Transfer Definitions................................................51 Section 7.2. No Sale/Encumbrance.................................................52 Section 7.3. Permitted Transfers.................................................52 Section 7.4. Lender's Rights.....................................................53 Section 7.5. Assumption..........................................................53 Section 7.6. Assumption by Inland Permitted Transferee...........................55 ARTICLE 8. INSURANCE; CASUALTY; CONDEMNATION; RESTORATION...........................57 Section 8.1. Insurance...........................................................57 Section 8.2. Casualty............................................................60 Section 8.3. Condemnation........................................................61 Section 8.4. Restoration.........................................................61 ARTICLE 9. RESERVE FUNDS............................................................65 Section 9.1. Required Repairs....................................................65 Section 9.2. Replacements........................................................66 Section 9.3. Intentionally omitted...............................................66 Section 9.4. Required Work.......................................................66 Section 9.5. Release Of Reserve Funds............................................68 Section 9.6. Tax And Insurance Reserve Funds.....................................71 Section 9.7. Environmental Remediation/Monitoring Reserve........................72 Section 9.8. Mid-Hudson Ground Lease Estoppel Reserve............................72 Section 9.9. Reserve Funds Generally.............................................72 ARTICLE 10. INTENTIONALLY OMITTED....................................................74 ARTICLE 11. EVENTS OF DEFAULT; REMEDIES..............................................74 Section 11.1. Event Of Default....................................................74 Section 11.2. Remedies............................................................78 ARTICLE 12. ENVIRONMENTAL PROVISIONS.................................................79 Section 12.1. Environmental Representations And Warranties........................79 Section 12.2. Environmental Covenants.............................................79 Section 12.3. Lender's Rights.....................................................80 Section 12.4. Operations And Maintenance Programs.................................80 Section 12.5. Environmental Definitions...........................................81 Section 12.6. Indemnification.....................................................81 ARTICLE 13. SECONDARY MARKET.........................................................83 Section 13.1. Transfer Of Loan....................................................83 Section 13.2. Delegation Of Servicing.............................................83
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PAGE Section 13.3. Dissemination Of Information........................................83 Section 13.4. Cooperation.........................................................83 ARTICLE 14. INDEMNIFICATIONS.........................................................84 Section 14.1. General Indemnification.............................................84 Section 14.2. Mortgage And Intangible Tax Indemnification.........................85 Section 14.3. ERISA Indemnification...............................................85 Section 14.4. Survival............................................................85 ARTICLE 15. EXCULPATION..............................................................85 Section 15.1. Exculpation.........................................................85 Section 15.2. Environmental Remediation/Monitoring Exculpation....................87 ARTICLE 16. NOTICES..................................................................88 Section 16.1. Notices.............................................................88 ARTICLE 17. FURTHER ASSURANCES.......................................................89 Section 17.1. Replacement Documents...............................................89 Section 17.2. Recording Of Mortgage, Etc..........................................89 Section 17.3. Further Acts, Etc...................................................90 Section 17.4. Changes In Tax, Debt, Credit And Documentary Stamp Laws.............90 Section 17.5. Expenses............................................................91 ARTICLE 18. WAIVERS..................................................................91 Section 18.1. Remedies Cumulative; Waivers........................................91 Section 18.2. Modification, Waiver In Writing.....................................92 Section 18.3. Delay Not A Waiver..................................................92 Section 18.4. Trial By Jury.......................................................92 Section 18.5. Waiver Of Notice....................................................93 Section 18.6. Remedies Of Borrowers...............................................93 Section 18.7. Waiver Of Marshalling Of Assets.....................................93 Section 18.8. Waiver Of Statute Of Limitations....................................93 Section 18.9. Waiver Of Counterclaim..............................................93 ARTICLE 19. GOVERNING LAW............................................................94 Section 19.1. Choice Of Law.......................................................94 Section 19.2. Severability........................................................94 Section 19.3. Preferences.........................................................94 ARTICLE 20. MISCELLANEOUS............................................................94 Section 20.1. Survival............................................................94
-iv- LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of July 19, 2005 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this "AGREEMENT"), between BANK OF AMERICA, N.A., a national banking association, having an address at Bank of America Corporate Center, 214 North Tryon Street, Charlotte, North Carolina 28255 (together with its successors and/or assigns, "LENDER") and Inland Western Bay Shore Gardiner, L.L.C., a Delaware limited liability company, Inland Western Poughkeepsie Mid-Hudson, L.L.C., a Delaware limited liability company, Inland Western Saratoga Springs Wilton, L.L.C., a Delaware limited liability company, Inland Western Westbury Merchants Plaza, L.L.C., a Delaware limited liability company, Inland Western Orange 440 Boston, L.L.C., a Delaware limited liability company, Inland Western Orange 53 Boston, L.L.C., a Delaware limited liability company, Inland Western Hartford New Park, L.L.C., a Delaware limited liability company, Inland Western Williston Maple Tree, L.L.C., a Delaware limited liability company, and Inland Western West Mifflin Century III, L.P., an Illinois limited partnership, and Inland Western Pittsburgh William Penn, L.P., an Illinois limited partnership, each having an address c/o Inland Real Estate Investment Corporation, 2901 Butterfield Road, Oak Brook, Illinois 60523 (together with their respective successors and assigns, collectively "BORROWERS" and individually "BORROWER"). RECITALS: Borrowers desire to obtain the Loan (defined below) from Lender. Lender is willing to make the Loan to Borrowers, subject to and in accordance with the terms of this Agreement and the other Loan Documents (defined below). In consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows: ARTICLE 1. DEFINITIONS; PRINCIPLES OF CONSTRUCTION Section 1.1. DEFINITIONS For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent: "ACCEPTABLE COUNTERPARTY" shall mean any counterparty to the Rate Cap that has and shall maintain, until the expiration of the applicable Rate Cap, a credit rating of not less than AA from S&P and not less than Aa2 from Moody's. "ACT" shall have the meaning set forth in Section 6.l(c). "AFFILIATE" shall mean, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person or of an Affiliate of such Person. "AFFILIATED LOANS" shall mean a loan made by Lender to a parent, subsidiary or such other entity affiliated with a Borrower or Borrower Principal. "AFFILIATED MANAGER" shall have the meaning set forth in Section 7.1 hereof. "ALLOCATED LOAN AMOUNT" means the portion of the principal indebtedness of the Loan allocated to each Individual Property, as set forth on Schedule II attached hereto and made part hereof, as such amounts shall be adjusted from time to time as hereinafter set forth. Upon each reduction of the principal balance of the Loan resulting from a prepayment pursuant to SECTION 2.4, each Allocated Loan Amount shall be decreased by an amount equal to the product of (i) the amount of such principal payment and (ii) a fraction, the numerator of which is the applicable Allocated Loan Amount (prior to such reduction) and the denominator of which is the total of all Allocated Loan Amounts (prior to such reduction). At any time when the aggregate principal indebtedness is reduced as the result of Lender's receipt and retention of proceeds with respect to a Condemnation or Casualty of a specific Individual Property, such proceeds received and retained by Lender shall be applied against the Allocated Loan Amount relating to the affected Individual Property. "ALTA" shall mean American Land Title Association, or any successor thereto. "ASSIGNMENTS OF MANAGEMENT AGREEMENTS" shall mean those certain Assignments and Subordinations of Management Agreements dated the date hereof among Lender, Borrowers and Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "AWARD" shall mean any compensation paid by any Governmental Authority in connection with a Condemnation in respect of all or any part of an Individual Property. "BORROWER PRINCIPAL" shall mean Inland Western Retail Real Estate Trust, Inc., a Maryland corporation. "BREAKAGE COSTS" shall have the meaning set forth in Section 2.3(f)(iv) herein. "BUSINESS DAY" shall mean any day other than (i) a Saturday or a Sunday or (ii) a day on which federally insured depository institutions in the States of New York or North Carolina or the state in which the offices of the Servicer and the trustee in the Securitization are located are authorized or obligated by law, governmental decree or executive order to be closed, except that when used with respect to the determination of LIBOR, "Business Day" shall be a day on which commercial banks are open for international business (including dealings in U.S. Dollar deposits) in London, England. "CASUALTY" shall have the meaning set forth in Section 8.2. "CLOSING DATE" shall mean the date of the funding of the Loan. - 2 - "COLLATERAL ASSIGNMENT OF INTEREST RATE CAP" shall mean that certain Collateral Assignment of Interest Rate Cap Agreement, dated as of the date hereof, executed by Borrowers in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "CONDEMNATION" shall mean a temporary or permanent taking by any Governmental Authority as the result, in lieu or in anticipation, of the exercise of the right of condemnation or eminent domain, of all or any part of an Individual Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting an Individual Property or any part thereof. "CONDEMNATION PROCEEDS" shall have the meaning set forth in Section 8.4(b) "CONSEQUENTIAL LOSS" shall have the meaning set forth in Section 2.3(f)(ii). "CONTROL" shall have the meaning set forth in Section 7.1 hereof. "CREDITORS RIGHTS LAWS" shall mean with respect to any Person any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to its debts or debtors. "DEBT" shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums due to Lender in respect of the Loan under the Note, this Agreement, the Mortgages or any other Loan Document. "DEBT SERVICE" shall mean, with respect to any particular period of time, scheduled principal and/or interest payments under the Note. "DEBT SERVICE COVERAGE RATIO" shall mean, as of any date of determination, for the applicable period of calculation, the ratio, as determined by Lender, of (i) Net Operating Income to (ii) the aggregate amount of Debt Service which would be due for the same period assuming the maximum principal amount of the Loan is outstanding and calculated at a mortgage constant equal to nine and twenty-six hundredths percent (9.26%) or such other mortgage constant as may be required from time to time by the Rating Agencies. "DEFAULT" shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default. "DEFAULT RATE" shall mean, with respect to the Loan, a rate per annum equal to the lesser of (a) the maximum rate permitted by applicable law, or (b) four percent (4%) above the Note Rate. "DETERMINATION DATE" shall mean (a) with respect to any Interest Period prior to the Interest Period that commences in the month during which the Securitization Closing Date occurs, two (2) Business Days prior to the start of the applicable Interest Period; (b) with respect - 3 - to the Interest Period that commences in the month during which the Securitization Closing Date occurs, the date that is two (2) Business Days prior to the Securitization Closing Date and (c) with respect to each Interest Period thereafter, the date that is two (2) Business Days prior to the beginning of such Interest Period. "ELIGIBLE ACCOUNT" shall mean a separate and identifiable account from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or state chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. Section 9.10(b), having in either case a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal and state authority. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument. "ELIGIBLE INSTITUTION" shall mean a depository institution or trust company insured by the Federal Deposit Insurance Corporation, the short term unsecured debt obligations or commercial paper of which are rated at least "A-1+" by S&P, "P-1" by Moody's and "F-1+" by Fitch in the case of accounts in which funds are held for thirty (30) days or less (or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least "AA" by Fitch and S&P and "Aa2" by Moody's). "EMBARGOED PERSON" shall have the meaning set forth in Section 4.38. "ENVIRONMENTAL LAW" shall have the meaning set forth in Section 12.5 hereof. "ENVIRONMENTAL LIENS" shall have the meaning set forth in Section 12.5 hereof. "ENVIRONMENTAL REPORT" shall have the meaning set forth in Section 12.5 hereof. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and any successor statutes thereto and applicable regulations issued pursuant thereto in temporary or final form. "EVENT OF DEFAULT" shall have the meaning set forth in Section 11.1 hereof. "EXCHANGE ACT" shall mean the Securities and Exchange Act of 1934, as amended. "EXTENDED MATURITY DATE" shall have the meaning set forth in Section 2.3(b). "EXTENSION OPTION" shall have the meaning set forth in Section 2.3(b). "FITCH" shall mean Fitch, Inc. "GAAP" shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report. - 4 - "GOVERNMENTAL AUTHORITY" shall mean any court, board, agency, department, commission, office or other authority of any nature whatsoever for any governmental unit (federal, state, county, municipal, city, town, special district or otherwise) whether now or hereafter in existence. "GROUND LEASES" shall mean collectively, each ground lease of an Individual Property described on SCHEDULE I attached hereto and made a part hereof. "HAZARDOUS MATERIALS" shall have the meaning set forth in Section 12.5 hereof. "IMPROVEMENTS" shall have the meaning set forth in the granting clauses of the Mortgages. "INDEMNIFIED PARTIES" shall mean (a) Lender, (b) any prior owner or holder of the Loan or Participations in the Loan, (c) any servicer or prior servicer of the Loan, (d) any Investor or any prior Investor in any Securities, (e) any trustees, custodians or other fiduciaries who hold or who have held a full or partial interest in the Loan for the benefit of any Investor or other third party, (f) any receiver or other fiduciary appointed in a foreclosure or other Creditors Rights Laws proceeding, (g) any officers, directors, shareholders, partners, members, employees, agents, servants, representatives, contractors, subcontractors, affiliates or subsidiaries of any and all of the foregoing, and (h) the heirs, legal representatives, successors and assigns of any and all of the foregoing (including, without limitation, any successors by merger, consolidation or acquisition of all or a substantial portion of the Indemnified Parties' assets and business), in all cases whether during the term of the Loan or as part of or following a foreclosure of the Mortgages or any of them. "INDEPENDENT DIRECTOR" shall have the meaning set forth in Section 6.4. "INDIVIDUAL PROPERTY" shall mean each parcel of real property or a leasehold interest therein, the Improvements thereon and all Personal Property owned by a Borrower and encumbered by a Mortgage, together with all rights pertaining to such property and Improvements, as more particularly described in the granting clause of each Mortgage and referred to therein as the "Property." "INLAND PERMITTED TRANSFEREE" shall mean a newly-formed special purpose entity that is wholly owned (directly or indirectly) by Inland Retail Real Estate Trust, Inc., a Maryland corporation, Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, Inland Real Estate Corporation, a Maryland corporation, Inland Real Estate Investment Corporation, a Delaware corporation, Inland American Real Estate Trust, Inc., a Maryland corporation, any other real estate investment trust sponsored by Inland Real Estate Investment Corporation, or any other entity composed entirely of any of the foregoing by merger or other business combination. "INSURANCE PREMIUMS" shall have the meaning set forth in Section 8.1(b) hereof. "INSURANCE PROCEEDS" shall have the meaning set forth in Section 8.4(b) hereof. "INTEREST PERIOD" shall mean (a) with respect to the initial period for the accrual of interest due under this Agreement, the period from and including the Closing Date through but - 5 - excluding the Selected Day first occurring after the Closing Date, and (b) with respect to the Payment Date occurring in September, 2005 and each Payment Date thereafter, the period from and including the Selected Day immediately preceding the applicable Payment Date through but excluding the Selected Day next occurring after the applicable Payment Date. Notwithstanding the foregoing clause (b), if the Lender so elects at any time, the "Interest Period" shall be the calendar month preceding each Payment Date. "INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "INVESTOR" shall have the meaning set forth in Section 13.3 hereof. "LEASE" shall have the meaning set forth in the Mortgages. "LEASEHOLD PROPERTIES" shall mean those Individual Properties in which a Borrower has a leasehold interest as lessee under a Ground Lease as listed on Schedule I attached hereto and made part hereof. "LEGAL REQUIREMENTS" shall mean all statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting the Properties or any part thereof, or the construction, use, alteration or operation thereof, whether now or hereafter enacted and in force, and all permits, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in force affecting the Properties or any part thereof, including, without limitation, any which may (a) require repairs, modifications or alterations in or to an Individual Property or any part thereof, or (b) in any way limit the use and enjoyment thereof. "LIBOR" shall mean, with respect to each Interest Period, a rate of interest per annum obtained by dividing (a) the rate for deposits in U.S. Dollars, for a period equal to one month, which appears on the Telerate Page 3750 as of 11:00 a.m., London time, on the related Determination Date (provided, however, if Telerate is unavailable, the rate shall be as specified on Reuters Screen LIBOR Page and if more than one rate is specified on Reuters Screen LIBOR Page, the LIBOR Rate shall be the arithmetic mean of all rates), by (b) a percentage equal to 100% minus the applicable Reserve Percentage then in effect. Lender shall determine the LIBOR Rate for each Interest Period and the determination of the LIBOR Rate by Lender shall be binding upon Borrowers absent manifest error. LIBOR may or may not be the lowest rate based upon the market for U.S. Dollar deposits in the London Interbank Eurodollar Market at which the Lender prices loans on the date which LIBOR is determined by Lender as set forth above. - 6 - "LIBOR LOAN" shall mean the Loan at such time as interest thereon accrues at the LIBOR Rate. "LIBOR MARGIN" shall mean seventy-six hundredths percent (0.76%). "LIBOR RATE" shall mean the sum of (i) LIBOR plus (ii) the LIBOR Margin. "LIEN" shall mean any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance, charge or transfer of, on or affecting a Borrower, an Individual Property, any portion thereof or any interest therein, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic's, materialmen's and other similar liens and encumbrances. "LLC AGREEMENT" shall have the meaning set forth in Section 6.1. "LOAN" shall mean the loan made by Lender to Borrowers pursuant to this Agreement. "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Note, the Mortgages, the Assignments of Management Agreements, the Collateral Assignment of Interest Rate Cap and any and all other documents, agreements and certificates executed and/or delivered in connection with the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "LOSSES" shall mean any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, fines, penalties, charges, fees, judgments, awards, amounts paid in settlement of whatever kind or nature (including but not limited to legal fees and other costs of defense). "MAJOR LEASE" shall mean as to each Individual Property (i) any Lease which, individually or when aggregated with all other leases at such Individual Property with the same Tenant or its Affiliate, either (A) accounts for seven and one-half percent (7 1/2%) or more of such Individual Property's aggregate retail income, or (B) demises 7,500 square feet or more of such Individual Property's gross leasable area, (ii) any Lease which contains any option, offer, right of first refusal or other similar entitlement to acquire all or any portion of such Individual Property, or (iii) any instrument guaranteeing or providing credit support for any Lease meeting the requirements of (i) or (ii) above. "MANAGEMENT AGREEMENT" shall mean the management agreement entered into by and between a Borrower and Manager, pursuant to which Manager is to provide management and other services with respect to an Individual Property, as the same may be amended, restated, replaced, supplemented or otherwise modified in accordance with the terms of this Agreement. "MANAGER" shall mean Inland US Management LLC, a Delaware limited liability company, or such other entity selected as the manager of an Individual Property in accordance with the terms of this Agreement. - 7 - "MATERIAL LITIGATION" shall mean, with respect to any Person, any material conviction, indictment (that is not dismissed before trial), judgment, litigation or regulatory action. For purposes of this definition, a matter shall be deemed material if it is reasonably foreseeable that a prudent institutional commercial real estate mortgage lender would consider such matter as a material adverse factor in its underwriting of the Person in question. With respect to non-criminal matters, isolated actions occurring more than five (5) years prior to the date of a proposed transfer shall not be deemed material provided that there is no indication of fraud, intentional misrepresentation or intent to defraud creditors, with respect to such actions. "MATURITY DATE" shall mean the Payment Date occurring in August, 2007, as such date may be extended pursuant to Section 2.3(b) hereof. "MAXIMUM LEGAL RATE" shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan. "MEMBER" shall have the meaning set forth in Section 6.1(c). "MOLD" shall have the meaning set forth in Section 12.5. "MOODY'S" shall mean Moody's Investor Services, Inc. "MORTGAGES" shall mean those certain first priority mortgages/deeds of trust/deeds to secure debt and security agreements dated the date hereof, executed and delivered by Borrowers as security for the Loan and encumbering the Properties, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "NET OPERATING INCOME" shall mean, with respect to any period of time, the amount obtained by subtracting Operating Expenses from Operating Income, as such amount may be adjusted by Lender in its good faith discretion based on Lender's underwriting standards, including without limitation, adjustments for vacancy allowance. "NET PROCEEDS" shall have the meaning set forth in Section 8.4(b) hereof. "NET PROCEEDS DEFICIENCY" shall have the meaning set forth in Section 8.4(b)(vi) hereof. "NOTE" shall mean that certain promissory note of even date herewith in the principal amount of $TWO HUNDRED THIRTY-TWO MILLION FOUR HUNDRED EIGHT THOUSAND and No/100 Dollars ($232,408,000.00), made by Borrowers in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "NOTE RATE" shall mean (a) from and including the Closing Date through the last day of the calendar month in which the Closing Date occurs, an interest rate per annum equal to 4.17688%; and (b) from and including the first calendar day of the first Interest Period through and including the Maturity Date, an interest rate per annum equal to (i) the LIBOR Rate (in all - 8 - cases where clause (ii) below does not apply), or (ii) the Static LIBOR Rate, to the extent provided in accordance with the provisions of Section 2.2(b). "OFAC" shall have the meaning set forth in Section 4.38 hereof. "OPERATING EXPENSES" shall mean, with respect to any period of time, the total of all expenses actually paid or payable with respect to an Individual Property, computed in accordance with federal tax basis accounting or in accordance with other methods acceptable to Lender in its sole discretion, of whatever kind relating to the operation, maintenance and management of an Individual Property, including, without limitation, utilities, ordinary repairs and maintenance, Insurance Premiums, license fees, Taxes and Other Charges, advertising expenses, payroll and related taxes, computer processing charges, management fees equal to the greater of 4% of the Operating Income and the management fees actually paid under the Management Agreement, operational equipment or other lease payments as approved by Lender, normalized capital expenditures equal to $643,052.00 per annum and normalized tenant improvement costs and/or leasing commissions, but specifically excluding depreciation and amortization, income taxes, Debt Service, any incentive fees due under the Management Agreement, any item of expense that in accordance with federal tax basis accounting should be capitalized but only to the extent that the same would qualify for funding from the Reserve Accounts, any item of expense that would otherwise be covered by the provisions hereof but which is paid by any Tenant under such Tenant's Lease or other agreement, and deposits into the Reserve Accounts. "OPERATING INCOME" shall mean, with respect to any period of time, all income computed in accordance with federal tax basis accounting or in accordance with other methods acceptable to Lender in its sole discretion, derived from the ownership and operation of an Individual Property from whatever source, including, but not limited to, Rents, utility charges, escalations, forfeited security deposits, interest on credit accounts, source fees or charges, license fees, parking fees, rent concessions or credits, and other required pass-throughs, but excluding sales, use and occupancy or other taxes on receipts required to be accounted for by a Borrower to any Governmental Authority, refunds and uncollectible accounts, sales of furniture, fixtures and equipment, interest income from any source other than the escrow accounts, Reserve Accounts or other accounts required pursuant to the Loan Documents, Insurance Proceeds (other than business interruption or other loss of income insurance), Awards, percentage rents, unforfeited security deposits, utility and other similar deposits, income from tenants not paying rent, income from tenants in bankruptcy, non-recurring or extraordinary income, including, without limitation, lease termination payments, and any disbursements to a Borrower from the Reserve Funds. "OTHER CHARGES" shall mean all ground rents, maintenance charges, impositions other than Taxes, and any other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining any of the Properties, now or hereafter levied or assessed or imposed against any of the Properties, or any part thereof. "PARTICIPATIONS" shall have the meaning set forth in Section 13.1 hereof. "PATRIOT ACT" shall have the meaning set forth in Section 4.38 hereof. - 9 - "PAYMENT DATE" shall mean the day that is seven (7) Business Days prior to the Selected Day. "PERMITTED ENCUMBRANCES" shall mean collectively, (a) the Liens and security interests created by the Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance Policies, (c) Liens, if any, for Taxes imposed by any Governmental Authority not yet due or delinquent, and (d) such other title and survey exceptions as Lender has approved or may approve in writing in Lender's sole discretion. "PERMITTED INVESTMENTS" shall mean to the extent available from Lender or Lender's servicer for deposits in the Reserve Accounts, any one or more of the following obligations or securities acquired at a purchase price of not greater than par, including those issued by a servicer of the Loan, the trustee under any securitization or any of their respective Affiliates, payable on demand or having a maturity date not later than the Business Day immediately prior to the date on which the funds used to acquire such investment are required to be used under this Agreement and meeting one of the appropriate standards set forth below: (a) obligations of, or obligations fully guaranteed as to payment of principal and interest by, the United States or any agency or instrumentality thereof provided such obligations are backed by the full faith and credit of the United States of America including, without limitation, obligations of: the U.S. Treasury (all direct or fully guaranteed obligations), the Farmers Home Administration (certificates of beneficial ownership), the General Services Administration (participation certificates), the U.S. Maritime Administration (guaranteed Title XI financing), the Small Business Administration (guaranteed participation certificates and guaranteed pool certificates), the U.S. Department of Housing and Urban Development (local authority bonds) and the Washington Metropolitan Area Transit Authority (guaranteed transit bonds); provided, however, that the investments described in this clause must (i) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (ii) be rated "AAA" or the equivalent by each of the Rating Agencies, (iii) if rated by S&P, must not have an "r" highlighter affixed to their rating, (iv) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (v) such investments must not be subject to liquidation prior to their maturity; (b) Federal Housing Administration debentures; (c) obligations of the following United States government sponsored agencies: Federal Home Loan Mortgage Corp. (debt obligations), the Farm Credit System (consolidated systemwide bonds and notes), the Federal Home Loan Banks (consolidated debt obligations), the Federal National Mortgage Association (debt obligations), the Financing Corp. (debt obligations), and the Resolution Funding Corp. (debt obligations); PROVIDED, HOWEVER, that the investments described in this clause must (i) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (ii) if rated by S&P, must not have an "r" highlighter affixed to their rating, (iii) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (iv) such investments must not be subject to liquidation prior to their maturity; - 10 - (d) federal funds, unsecured certificates of deposit, time deposits, bankers' acceptances and repurchase agreements with maturities of not more than 365 days of any bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); provided, however, that the investments described in this clause must (i) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (ii) if rated by S&P, must not have an "r" highlighter affixed to their rating, (iii) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (iv) such investments must not be subject to liquidation prior to their maturity; (e) fully Federal Deposit Insurance Corporation-insured demand and time deposits in, or certificates of deposit of, or bankers' acceptances with maturities of not more than 365 days and issued by, any bank or trust company, savings and loan association or savings bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); provided, however, that the investments described in this clause must (i) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (ii) if rated by S&P, must not have an "r" highlighter affixed to their rating, (iii) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (iv) such investments must not be subject to liquidation prior to their maturity; (f) debt obligations with maturities of not more than 365 days and at all times rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest long-term unsecured rating category; provided, however, that the investments described in this clause must (i) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (ii) if rated by S&P, must not have an "r" highlighter affixed to their rating, (iii) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (iv) such investments must not be subject to liquidation prior to their maturity; (g) commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than one year after the date of issuance thereof) with maturities of not more than 365 days and that at all times is rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or - 11 - withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest short-term unsecured debt rating; provided, however, that the investments described in this clause must (i) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (ii) if rated by S&P, must not have an "r" highlighter affixed to their rating, (iii) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (iv) such investments must not be subject to liquidation prior to their maturity; (h) units of taxable money market funds or mutual funds, with maturities of not more than 365 days and which funds are regulated investment companies, seek to maintain a constant net asset value per share and invest solely in obligations backed by the full faith and credit of the United States, which funds have the highest rating available from each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) for money market funds or mutual funds; and (i) any other security, obligation or investment which has been approved as a Permitted Investment in writing by (i) Lender and (ii) each Rating Agency, as evidenced by a written confirmation that the designation of such security, obligation or investment as a Permitted Investment will not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities by such Rating Agency; PROVIDED, HOWEVER, that no obligation or security shall be a Permitted Investment if (A) such obligation or security evidences a right to receive only interest payments, (B) the right to receive principal and interest payments on such obligation or security are derived from an underlying investment that provides a yield to maturity in excess of one hundred twenty percent (120%) of the yield to maturity at par of such underlying investment or (C) such obligation or security has a remaining term to maturity in excess of one (1) year. "PERSON" shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "PERSONAL PROPERTY" shall have the meaning set forth in the granting clauses of the Mortgages. "PHYSICAL CONDITIONS REPORT" shall mean a report prepared by a company satisfactory to Lender regarding the physical condition of an Individual Property, satisfactory in form and substance to Lender in its sole discretion. "POLICIES" shall have the meaning specified in Section 8.1(b) hereof. "PROHIBITED TRANSFER" shall have the meaning set forth in Section 7.2 hereof. - 12 - "PROPERTIES" shall mean, collectively, each and every Individual Property which is subject to the terms of this Agreement, all of which are listed on Schedule II attached hereto and made part hereof. "QUALIFIED MANAGER" shall mean (a) Manager or (b) a reputable and experienced professional management organization (i) which manages, together with its Affiliates, at least ten (10) shopping centers totaling at least 1,000,000 square feet of gross leasable area exclusive of the Properties and (ii) approved by Lender, which approval shall not have been unreasonably withheld and for which Lender shall have received written confirmation from the Rating Agencies that the employment of such manager will not result in a downgrade, withdrawal or qualification of the initial, or if higher, then current ratings issued in connection with a Securitization, or if a Securitization has not occurred, any ratings to be assigned in connection with a Securitization. "RATE CAP" shall mean an interest rate cap with a maturity date of the initial Maturity Date entered into with Bank of America, N.A. or an Acceptable Counterparty with a notional amount equal to the Loan for the term of the Loan and a LIBOR strike price not greater than eight and five tenths percent (8.5%); PROVIDED, HOWEVER, that in the event the rating of the counterparty (including, but not limited to, Bank of America, N.A.) to any Rate Cap is downgraded, such Rate Cap will be replaced by a Rate Cap in the same form and substance as the Rate Cap purchased by the Borrowers in connection with the closing of the Loan and shall be obtained from a counterparty with a credit rating meeting the requirements set forth hereinabove with respect to an Acceptable Counterparty; and PROVIDED, FURTHER, such Rate Cap shall be accompanied by legal opinions regarding the Rate Cap, in form and substance acceptable to Lender, including, without limitation opinions with respect to (i) enforceability, (ii) payment priority, (iii) choice of law and (iv) enforcement of judgments. Furthermore, each Rate Cap shall provide for (i) the calculation of interest, (ii) the determination of the interest rate, (iii) the modification of the Interest Period and (iv) the distribution of payments thereunder to be identical to the definition of Interest Period set forth herein. "RATE CAP AGREEMENT" shall mean the agreement for a Rate Cap purchased by Borrowers entered into with an Acceptable Counterparty. "RATING AGENCIES" shall mean each of S&P, Moody's and Fitch, or any other nationally-recognized statistical rating agency which has been approved by Lender. "REA" shall mean any "construction, operation and reciprocal easement agreement" or similar agreement (including any "separate agreement" or other agreement between a Borrower and one or more other parties to an REA with respect to such REA) affecting an Individual Property or portion thereof. "RELEASE" shall have the meaning set forth in Section 12.5 hereof. "REMIC TRUST" shall mean a "real estate mortgage investment conduit" (within the meaning of Section 860D, or applicable successor provisions, of the Code) that holds the Note. "RENT ROLL" shall have the meaning set forth in Section 4.25 hereof. - 13 - "RENTS" shall have the meaning set forth in the Mortgages. "REPLACEMENT RATE CAP" shall mean an interest rate cap from an Acceptable Counterparty with terms identical to the Rate Cap. "REPLACEMENT RESERVE ACCOUNT" shall have the meaning set forth in Section 9.2(b) hereof. "REPLACEMENT RESERVE FUNDS" shall have the meaning set forth in Section 9.2(b) hereof. "REPLACEMENT RESERVE MONTHLY DEPOSIT" shall have the meaning set forth in Section 9.2(b) hereof. "REPLACEMENTS" shall have the meaning set forth in Section 9.2(a) hereof. "REQUIRED REPAIR ACCOUNT" shall have the meaning set forth in Section 9.1(b) hereof. "REQUIRED REPAIR FUNDS" shall have the meaning set forth in Section 9.1(b) hereof. "REQUIRED REPAIRS" shall have the meaning set forth in Section 9.1(a) hereof. "REQUIRED WORK" shall have the meaning set forth in Section 9.4 hereof. "RESERVE ACCOUNTS" shall mean the Tax and Insurance Reserve Account, the Replacement Reserve Account, the Required Repair Account or any other escrow account established by the Loan Documents. "RESERVE FUNDS" shall mean the Tax and Insurance Reserve Funds, the Replacement Reserve Funds, the Required Repair Funds or any other escrow funds established by the Loan Documents. "RESERVE PERCENTAGE" shall mean, with respect to any day of any Interest Period, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor), for determining the maximum reserve requirement (including basic, supplemental, emergency, special and marginal reserves) generally applicable to financial institutions regulated by the Federal Reserve Board comparable in size and type to Lender in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on the Loan is determined), whether or not Lender has any Eurocurrency liabilities or such requirement otherwise in fact applies to Lender. The LIBOR Rate shall be adjusted automatically as of the effective date of each change in the Reserve Percentage. As of the date hereof, the Reserve Percentage is zero, however, there can be no assurance as to what such amount may be in the future. "RESTORATION" shall mean, following the occurrence of a Casualty or a Condemnation which is of a type necessitating the repair of an Individual Property, the completion of the repair and restoration of such Individual Property as nearly as possible to the condition such Individual - 14 - Property was in immediately prior to such Casualty or Condemnation, with such alterations as may be reasonably approved by Lender. "RESTORATION CONSULTANT" shall have the meaning set forth in Section 8.4(b)(iii) hereof. "RESTORATION RETAINAGE" shall have the meaning set forth in Section 8.4(b)(iv) hereof. "RESTRICTED PARTY" shall have the meaning set forth in Section 7.1 hereof. "SALE OR PLEDGE" shall have the meaning set forth in Section 7.1 hereof. "SECURITIES" shall have the meaning set forth in Section 13.1 hereof. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SECURITIES LIABILITIES" shall have the meaning set forth in Section 3.5 hereof. "SECURITIZATION" shall have the meaning set forth in Section 13.1 hereof. "SECURITIZATION CLOSING DATE" shall mean a date selected by Lender in its sole discretion by providing not less than twenty-four (24) hours prior notice to Borrower. "SELECTED DAY" means the fifteenth (15th) day of each calendar month or such other date as determined by the Lender pursuant to Section 2.2(d) hereof. "SPE COMPONENT ENTITY" shall have the meaning set forth in Section 6.l(b) hereof. "SPECIAL MEMBER" shall have the meaning set forth in Section 6.1(c). "S&P" shall mean Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "STATE" shall mean the state or states in which the Properties or any part thereof are located. "STATIC LIBOR RATE" shall have the meaning set forth in Section 2.2(b) hereof. "STATIC LIBOR RATE LOAN" shall have the meaning set forth in Section 2.3(f)(iii) hereof. "TAX AND INSURANCE RESERVE FUNDS" shall have the meaning set forth in Section 9.6 hereof. "TAX AND INSURANCE RESERVE ACCOUNT" shall have the meaning set forth in Section 9.6 hereof. "TAXES" shall mean all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against an Individual Property or part thereof. - 15 - "TENANT" shall mean any Person leasing, subleasing or otherwise occupying any portion of an Individual Property under a Lease or other occupancy agreement with a Borrower. "TITLE INSURANCE POLICIES" shall mean those certain ALTA mortgagee title insurance policies issued with respect to the Properties and insuring the lien of the Mortgages. "TRANSFEREE" shall have the meaning set forth in Section 7.5 hereof. "TRIBUNAL" shall mean any state, commonwealth, federal, foreign, territorial or other court or governmental department, commission, board, bureau, district, authority, agency, central bank, or instrumentality, or any arbitration authority. "UCC" or "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as in effect in the State where the applicable Property is located. Section 1.2. PRINCIPLES OF CONSTRUCTION All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified. All uses of the word "including" shall mean "including, without limitation" unless the context shall indicate otherwise. Unless otherwise specified, the words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined. ARTICLE 2. GENERAL TERMS Section 2.1. LOAN COMMITMENT; DISBURSEMENT TO BORROWERS (a) Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrowers hereby agree to accept the Loan on the Closing Date. (b) Borrowers may request and receive only one borrowing in respect of the Loan and any amount borrowed and repaid in respect of the Loan may not be reborrowed. (c) The Loan shall be evidenced by the Note and secured by the Mortgages and the other Loan Documents. (d) Borrowers shall use the proceeds of the Loan to (i) pay the purchase price for acquiring the Properties, (ii) pay certain costs and expenses in connection with the closing of the Loan, as approved by Lender, (iii) make deposits into the Reserve Funds on the Closing Date in the amounts provided herein, (iv) fund any working capital requirements of the Properties, and (v) distribute the balance, if any, to its members or beneficiaries. - 16 - Section 2.2. INTEREST RATE (a) NOTE RATE. Interest on the outstanding principal balance of the Loan shall bear interest at the Note Rate. Except as otherwise set forth in this Agreement, interest shall be paid in arrears. (b) UNAVAILABILITY OF LIBOR RATE. In the event that Lender shall have determined (which determination shall be conclusive and binding upon Borrowers absent manifest error) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the LIBOR Rate, then Lender shall forthwith give notice by telephone of such determination, confirmed in writing, to Borrowers at least one (1) day prior to the last day of the related Interest Period. If such notice is given, the Note Rate, commencing with the first (1st) day of the next succeeding Interest Period, shall be the LIBOR Rate in effect for the most recent Interest Period (the "Static LIBOR Rate"). If, pursuant to the terms of this Agreement, the Loan has been converted to the Static LIBOR Rate and Lender shall determine (which determination shall be conclusive and binding upon Borrowers absent manifest error) that the event(s) or circumstance(s) which resulted in such conversion shall no longer be applicable, Lender shall give notice thereof to Borrowers, and the Static LIBOR Rate shall convert to the LIBOR Rate effective on the first day of the next succeeding Interest Period. Notwithstanding any provision of this Agreement to the contrary, in no event shall Borrowers have the right to elect to convert from the LIBOR Rate to the Static LIBOR Rate. (c) COMPUTATIONS AND DETERMINATIONS. All interest shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day of an Interest Period). Lender shall determine each interest rate applicable to the Debt in accordance with this Agreement and its determination thereof shall be conclusive in the absence of manifest error. The books and records of Lender shall be prima facie evidence of all sums owing to Lender from time to time under this Agreement, but the failure to record any such information shall not limit or affect the obligations of Borrowers under the Loan Documents. (d) SELECTED DAY. Prior to a Securitization, Lender may in its sole discretion change the day of the month that will constitute the Selected Day. (e) DEFAULT RATE. Any principal of, and to the extent permitted by applicable law, any interest on the Note, and any other sum payable hereunder, which is not paid when due shall bear interest from the date due and payable until paid, payable on demand, at a rate per annum (the "Default Rate") equal to the Note Rate plus four percent (4%). (f) USURY SAVINGS. This Agreement and the Note are subject to the express condition that at no time shall Borrowers be obligated or required to pay interest on the principal balance of the Loan at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan Documents, Borrowers are at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the LIBOR Rate, the - 17 - Static LIBOR Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. Section 2.3. LOAN PAYMENTS (a) PAYMENTS. Borrowers jointly and severally agree to pay sums under the Note in installments as follows: (i) a payment on the Closing Date of all interest that will accrue on the principal amount of the Note from and including the Closing Date up to, but excluding, the Selected Day first occurring after the Closing Date; (ii) a payment of interest only on each Payment Date; and (iii) the outstanding principal amount and all interest thereon shall be due and payable on the Payment Date occurring in August, 2007 (the "MATURITY DATE"), unless the Maturity Date is extended pursuant to Section 2.3(b) below. (b) EXTENSION OF THE MATURITY DATE. Borrowers shall have the option to extend the term of the Loan beyond the initial Maturity Date for three (3) successive terms (each, an "EXTENSION OPTION") of one (1) year each to (x) the Payment Date occurring in August, 2008, and (y) the Payment Date occurring in August, 2009 and (z) the Payment Date occurring in August, 2010 (each such date, the "EXTENDED MATURITY DATE"), respectively, and, as to each Extension Option, upon satisfaction of the following terms and conditions: (i) no Event of Default shall have occurred and be continuing at the time the applicable Extension Option is exercised and on the date that the applicable extension term is commenced; (ii) Borrowers shall notify Lender of their irrevocable election to extend the Maturity Date as aforesaid not earlier than three (3) months, and no later than one (1) month, prior to the then applicable Maturity Date; (iii) Borrowers shall obtain and deliver to Lender prior to exercise of such Extension Option, one or more Replacement Rate Caps, which Replacement Rate Caps shall be effective commencing on the first day of such Extension Option and shall have a maturity date not earlier than the Maturity Date as extended pursuant to the terms of this Section 2.3; and (iv) in connection with each Extension Option, Borrowers shall have delivered to Lender together with their notice pursuant to this subsection (b) of this Section 2.3 and - 18 - as of the commencement of the applicable Extension Option, Officer's Certificates in form acceptable to the Lender certifying that each of the representations and warranties of Borrowers contained in the Loan Documents is true, complete and correct in all material respects as of the date of such Officer's Certificate to the extent such representations and warranties are not matters which by their nature can no longer be true and correct as a result of the passage of time. The Extension Option, if exercised, must be exercised by all the Borrowers. All references in this Agreement and in the other Loan Documents to the Maturity Date shall mean the applicable Extended Maturity Date in the event the applicable Extension Option is exercised. (c) PAYMENTS AFTER DEFAULT. Upon the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance of the Loan and, to the extent permitted by law, overdue interest and other amounts due in respect of the Loan shall accrue at the Default Rate. Interest at the Default Rate shall be computed from the occurrence of the Event of Default until the earlier of (x) the actual receipt and collection of the Debt (or that portion thereof that is then due) and (y) the cure of such Event of Default. To the extent permitted by applicable law, interest at the Default Rate shall be added to the Debt, shall itself accrue interest at the same rate as the Loan and shall be secured by the Mortgages. This paragraph shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default; the acceptance of any payment from Borrowers shall not be deemed to cure or constitute a waiver of any Event of Default; and Lender retains its rights under this Agreement to accelerate and to continue to demand payment of the Debt upon the happening of and during the continuance of any Event of Default, despite any payment by a Borrower to Lender. (d) LATE PAYMENT CHARGE. If any principal or interest payment is not paid by Borrowers on or before the date on which it is due, Borrowers shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Any such amount shall be secured by the Mortgages and the other Loan Documents to the extent permitted by applicable law. (e) METHOD AND PLACE OF PAYMENT. Each payment by Borrowers hereunder or under the Note shall be payable at Bank of America, N.A., P.O. Box 65585, Charlotte, NC 28265-0585, or at such other place as the Lender may designate from time to time in writing, on the date such payment is due, to Lender by deposit to such account as Lender may designate by written notice to Borrowers. Each payment by Borrowers hereunder or under the Note shall be made in funds settled through the New York Clearing House Interbank Payments System or other funds immediately available to Lender by 11:00 a.m., New York City time, on the date such payment is due, to Lender by deposit to such account as Lender may designate by written notice to Borrowers. Whenever any payment hereunder or under the Note shall be stated to be - 19 - due on a day which is not a Business Day, such payment shall be made on the first Business Day preceding such scheduled due date. (f) ADDITIONAL PAYMENT PROVISIONS. (i) If at any time after the date hereof, Lender (which shall include, for purposes of this Section, any corporation controlling Lender) reasonably determines that due to the adoption or modification of any Legal Requirement regarding taxation, Lender's required levels of reserves, deposits, Federal Deposit Insurance Corporation insurance or capital (including any allocation of capital requirements or conditions), or similar requirements, or any interpretation or administration thereof by any Tribunal or compliance of Lender with any of such requirements, has or would have the effect of (a) increasing Lender's costs relating to the Loan, or (b) reducing the yield or rate of return of Lender on the Loan, to a level below that which Lender could have achieved but for the adoption or modification of any such Legal Requirements, Borrowers shall, within fifteen (15) days of any request by Lender, pay to Lender such additional amounts as (in Lender's sole judgment, after good faith and reasonable computation) will compensate Lender for such increase in costs or reduction in yield or rate of return of Lender (a "Consequential Loss"). No failure by Lender to immediately demand payment of any additional amounts payable hereunder shall constitute a waiver of Lender's right to demand payment of such amounts at any subsequent time. Nothing herein contained shall be construed or so operate as to require Borrowers to pay any interest, fees, costs or charges greater than is permitted by applicable Law. (ii) All payments made by Borrowers hereunder shall be made free and clear of, and without reduction for or on account of, income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions, reserves or withholdings imposed, levied, collected, withheld or assessed by any Governmental Authorities, which are imposed, enacted or become effective on or after the date hereof (such non-excluded taxes being referred to collectively as "Foreign Taxes"), excluding income and franchise taxes of the United States of America or any political subdivision or taxing authority thereof or therein. If any Foreign Taxes are required to be withheld from any amounts payable to Lender hereunder and such Foreign Taxes are not a result of activities of Lender unrelated to the Loan or Borrowers, the amounts so payable to Lender shall be increased to the extent necessary to yield to Lender (after payment of all Foreign Taxes) interest or any such other amounts payable hereunder at the rate or in the amounts specified hereunder. Whenever any Foreign Tax is payable pursuant to applicable law by Borrowers, as promptly as possible thereafter, Borrowers shall send to Lender an original official receipt, if available, or certified copy thereof showing payment of such Foreign Tax. Borrowers hereby jointly and severally indemnify Lender for any incremental taxes, interest or penalties that may become payable by Lender which may result from any failure by Borrowers to pay any such Foreign Tax when due to the appropriate taxing authority of which Lender shall have provided Borrowers with prior written notice, if possible, or any failure by Borrowers to remit to Lender the required receipts or other required documentary evidence. Lender's inability to notify Borrowers of any such Foreign Tax in accordance with the immediately preceding sentence shall in no way relieve Borrowers of their obligations under this Section 2.3(f)(ii). - 20 - (iii) If any requirement of law or any change therein or in the interpretation or application thereof, shall hereafter make it unlawful for Lender to make or maintain a Loan with the Note Rate being based on LIBOR as contemplated hereunder, (x) the obligation of Lender hereunder to make such Loan based on LIBOR or to convert the Loan from the Static LIBOR Rate to the LIBOR Rate shall be canceled forthwith and (y) any outstanding LIBOR Loan shall be converted automatically to a loan bearing interest at the Static LIBOR Rate (the "STATIC LIBOR RATE LOAN") on the next succeeding Payment Date or within such earlier period as required by law. Borrowers hereby agree promptly to pay Lender, upon demand, any additional amounts necessary to compensate Lender for any costs incurred by Lender in making any conversion in accordance with this Agreement, including, without limitation, any interest or fees payable by Lender to lenders of funds obtained by it in order to make or maintain the LIBOR Loan hereunder. If Lender becomes entitled to claim any additional amounts pursuant to this Section 2.3(f)(iii), Lender shall provide Borrowers with not less than ninety (90) days written notice specifying in reasonable detail the event by reason of which it has become so entitled and the additional amount required to fully compensate Lender for such additional costs. Lender's notice of such costs, as certified to Borrowers, shall be conclusive absent manifest error. (iv) In the event that any change in any requirement of law or in the interpretation or application thereof, or compliance by Lender with any request or directive (whether or not having the force of law) hereafter issued from any central bank or other Governmental Authority: (A) shall hereafter impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Lender which is not otherwise included in the determination of the LIBOR Rate hereunder, (B) shall hereafter have the effect of reducing the rate of return on Lender's capital as a consequence of its obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration Lender's policies with respect to capital adequacy) by any amount deemed by Lender to be material; or (C) shall hereafter impose on Lender any other condition and the result of any of the foregoing is to increase the cost to Lender of making, renewing or maintaining loans or extensions of credit or to reduce any amount receivable hereunder; then, in any such case, Borrowers shall promptly pay Lender, upon demand, any additional amounts necessary to compensate Lender for such additional cost or reduced amount receivable which Lender deems to be material as determined by Lender. If Lender becomes entitled to claim any additional amounts pursuant to this Section 2.3(f)(iv), Lender shall provide Borrowers with not less than ninety (90) days written notice specifying in reasonable detail the event by reason - 21 - of which it has become so entitled and the additional amount required to fully compensate Lender for such additional cost or reduced amount. A certificate as to any additional costs or amounts payable pursuant to the foregoing sentence submitted by Lender to Borrowers shall be conclusive in the absence of manifest error. This provision shall survive payment of the Note and the satisfaction of all other obligations of Borrowers under this Agreement and the Loan Documents. (v) Borrowers agree, jointly and severally, to indemnify Lender and to hold Lender harmless from any loss or expense which Lender sustains or incurs as a consequence of (x) any default by Borrowers in payment of the principal of or interest on a LIBOR Loan, including, without limitation, any such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain a LIBOR Loan hereunder, (y) any prepayment (whether voluntary or mandatory) of the LIBOR Loan that did not include all interest which had accrued (or would have accrued) at the Note Rate through the end of the related Interest Period, including, without limitation, such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the LIBOR Loan hereunder, and (z) the conversion (for any reason whatsoever, whether voluntary or involuntary) of the Note Rate from the LIBOR Rate to the Static LIBOR Rate with respect to any portion of the outstanding principal amount of the Loan then bearing interest at the LIBOR Rate on a date other than the Payment Date immediately following the last day of an Interest Period, including, without limitation, such loss or expenses arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain a LIBOR Loan hereunder (the amounts referred to in clauses (x), (y) and (z) are herein referred to collectively as the "BREAKAGE COSTS"). This provision shall survive payment of the Note in full and the satisfaction of all other obligations of Borrowers under this Agreement and the other Loan Documents. (vi) Lender shall not be entitled to claim compensation pursuant to this Section 2.3(f) for any Foreign Taxes, increased cost or reduction in amounts received or receivable hereunder, or any reduced rate of return, which was incurred or which accrued more than one hundred eighty (180) days before the date Lender notified Borrowers of the change in law or other circumstance on which such claim of compensation is based and delivered to Borrowers a written statement setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.3(f), which statement shall be conclusive and binding upon all parties hereto absent manifest error. (vii) Borrowers shall pay to Lender such amount or amounts as will compensate Lender for any loss, cost, expense, penalty, claim or liability, including any loss incurred in obtaining, prepaying, liquidating or employing deposits or other funds from third parties and any loss of yield, as determined by Lender in its judgment reasonably exercised incurred by it with respect to the Loan as a result of the payment or prepayment of any amount on a date other than the date such amount is required or permitted to be paid or prepaid; provided that Lender delivers to Borrowers a certificate as to the amounts of such costs described herein, which certificate shall be conclusive in the absence of manifest error. Lender shall have no obligation to purchase, sell and/or match funds in connection with the funding or maintaining of the Loan or any portion - 22 - thereof. The obligations of Borrowers under this Section shall survive any termination of the Loan Documents and payment of the Note and shall not be waived by any delay by Lender in seeking such compensation. (viii) All payments made by Borrowers hereunder or under the other Loan Documents shall be made irrespective of, and without any deduction for, any setoff, defense or counterclaims. (ix) Remittances in payment of any part of the Loan in less than the required amount in immediately available U.S. funds shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by the holder hereof in immediately available U.S. funds and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practices of the collecting bank or banks. (g) The maximum principal sum secured by the mortgage on the Individual Properties located in the State of New York (the "New York Mortgage") at execution of this Agreement or which under any contingency may be secured thereby at any time in the future is $126,603,750.00, plus (i) taxes, charges or assessments which may be imposed by law upon such Individual Properties, (ii) premiums or insurance policies covering such Individual Properties and (iii) expenses incurred in upholding the Lien of the New York Mortgage, including, but not limited to, (x) the expenses of any litigation to prosecute or defend the rights and Lien created by the New York Mortgage, (y) any amount, cost or charges to which Lender becomes subrogated upon payment, whether under recognized principles of law or equity or under express statutory authority and (z) interest at the Default Rate (or regular interest rate). Section 2.4. PREPAYMENTS. (a) VOLUNTARY PREPAYMENTS. (i) PREPAYMENT IN FULL. Borrowers may prepay the Loan in full at any time on not less than sixty (60), but no more than ninety (90), days' prior written notice provided that (A) any prepayment that is made during the first six (6) months after the Closing Date shall include a prepayment premium equal to 0.90% of the Loan, (B) any prepayment that is made during the seventh (7th) month through and including the twelfth (12th) month after the Closing Date shall include a prepayment premium equal to 0.75% of the Loan and (C) any prepayment that is made during the thirteenth (13th) month through and including the eighteenth (18th) month after the Closing Date shall include a prepayment premium equal to 0.50% of the Loan. No prepayment premium shall be payable with respect to a prepayment that is made during the nineteenth (19th) month through and including the Maturity Date. Any prepayment that is made on a date that is not a monthly Payment Date shall also include the full interest amount that would be due if the Loan had been outstanding through the entire related interest period. (ii) PARTIAL PREPAYMENT. Borrowers may prepay a portion of the Loan allocated to an Individual Property (the portion of the Loan allocated to each Individual Property, as shown on Schedule II attached hereto and made part hereof, an "ALLOCATED - 23 - AMOUNT") and Lender shall release such Individual Property from the related Mortgage thereon in connection with the sale of such Individual Property to a third party purchaser, provided that (A) Lender is paid 110% of the Allocated Amount for the Individual Property to be released, (B) the Debt Service Coverage Ratio of the Properties remaining after the release of the Individual Property shall not be less than (x) the Debt Service Coverage Ratio of the Properties that existed immediately prior to the release and (y) the Debt Service Coverage Ratio of the Properties that existed as of the Closing Date, each as determined by Lender, and (C) Lender shall be paid a processing fee of $5,000 for each release. Any prepayment made under this sub-paragraph (ii) shall also include the prepayment premium for the amount prepaid calculated as provided in the foregoing sub-paragraph (i), if applicable, and if such prepayment occurs on a date that is not a monthly Payment Date, the full interest amount that would be due with respect to the portion of the Loan being prepaid through the next monthly Payment Date. (b) INSURANCE AND CONDEMNATION PROCEEDS; EXCESS INTEREST. Notwithstanding any other provision herein to the contrary, and provided no Default exists, Borrowers shall not be required to pay any prepayment premium in connection with any prepayment occurring solely as a result of (i) the application of Insurance Proceeds or Condemnation Proceeds pursuant to the terms of the Loan Documents, or (ii) the application of any interest in excess of the maximum rate permitted by applicable law to the reduction of the Loan. (c) APPLICATION OF PAYMENTS. All voluntary and involuntary prepayments on the Note shall be applied, to the extent thereof, to accrued but unpaid interest on the amount prepaid, to the remaining principal amount, and any other sums due and unpaid to Lender in connection with the Loan, in such manner and order as Lender may elect in its sole and absolute discretion. Following the occurrence of an Event of Default, any payment made on the Note shall be applied to accrued but unpaid interest, late charges, accrued fees, the unpaid principal amount of the Note, and any other sums due and unpaid to Lender in connection with the Loan, in such manner and order as Lender may elect in its sole and absolute discretion. Notwithstanding anything to the contrary contained in this paragraph (c), any payments made in reduction of the principal amount of the Loan shall be applied first in reduction of that portion of the Debt in excess of the sums secured by the New York Mortgage, in such order as Lender shall elect (it being the intention of Borrower and Lender that the payments in reduction of the Debt shall not reduce the sums secured by the New York Mortgage until such time as the Debt shall have been reduced to $131,125,000.00 or less). ARTICLE 3. CONDITIONS PRECEDENT The obligation of Lender to make the Loan hereunder is subject to the fulfillment by Borrowers or waiver by Lender of all the conditions precedent to closing set forth in the application or term sheet for the Loan delivered by Borrowers to Lender and any commitment rider to the application for the Loan issued by Lender - 24 - ARTICLE 4. REPRESENTATIONS AND WARRANTIES Each Borrower and, where specifically indicated, Borrower Principal represent and warrant to Lender as of the Closing Date that: Section 4.1. ORGANIZATION Each Borrower and Borrower Principal (when not an individual) (a) has been duly organized and is validly existing and in good standing with requisite power and authority to own its properties and to transact the businesses in which it is now engaged, (b) is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its properties, businesses and operations, (c) possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own its properties and to transact the businesses in which it is now engaged, and the sole business of each Borrower is the ownership, management and operation of the Individual Property which it owns, and (d) in the case of each Borrower, has full power, authority and legal right to mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey the Individual Property which it owns, pursuant to the terms of the Loan Documents, and in the case of each Borrower and Borrower Principal, has full power, authority and legal right to keep and observe all of the terms of the Loan Documents to which it is a party. Each Borrower and Borrower Principal represent and warrant that the chart attached hereto as Exhibit A sets forth an accurate listing of the direct and indirect owners of the equity interests in each Borrower, each SPE Component Entity (if any) and Borrower Principal (when not an individual). Section 4.2. STATUS OF EACH BORROWER Each Borrower's exact legal name is correctly set forth on the first page of this Agreement, on the Mortgage which is a lien on the Individual Property owned by such Borrower and on any UCC-1 Financing Statements filed in connection with the Loan. Each Borrower is an organization of the type specified on the first page of this Agreement. Each Borrower is organized under the laws of the state of Delaware. Each Borrower's principal place of business and chief executive office, and the place where such Borrower keeps its books and records, including recorded data of any kind or nature, regardless of the medium of recording, including software, writings, plans, specifications and schematics, has been for the preceding four months (or, if less, the entire period of the existence of such Borrower) the address of such Borrower set forth on the first page of this Agreement. Each Borrower's organizational identification number, if any, assigned by the state of incorporation or organization is set forth on the signature page of this Agreement. Section 4.3. VALIDITY OF DOCUMENTS Each Borrower and Borrower Principal have taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents to which they are parties. This Agreement and such other Loan Documents have been duly executed and delivered by or on behalf of each Borrower and Borrower Principal and constitute the legal, valid and binding obligations of each Borrower and Borrower Principal enforceable against each - 25 - Borrower and Borrower Principal in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). Section 4.4. NO CONFLICTS The execution, delivery and performance of this Agreement and the other Loan Documents by Borrowers and Borrower Principal will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the property or assets of Borrowers or Borrower Principal pursuant to the terms of any agreement or instrument to which Borrowers or Borrower Principal is a party or by which any of Borrowers' or Borrower Principal's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any Governmental Authority having jurisdiction over any Borrower or Borrower Principal or any of Borrowers' or Borrower Principal's properties or assets, and any consent, approval, authorization, order, registration or qualification of or with any Governmental Authority required for the execution, delivery and performance by any Borrower or Borrower Principal of this Agreement or any of the other Loan Documents has been obtained and is in full force and effect. Section 4.5. LITIGATION There are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending or, to Borrowers' or Borrower Principal's knowledge, threatened against or affecting any Borrower, Borrower Principal, Manager or any Individual Property, which actions, suits or proceedings, if determined against a Borrower, Borrower Principal, Manager or such Individual Property, would materially adversely affect the condition (financial or otherwise) or business of such Borrower or Borrower Principal or the condition or ownership of such Individual Property. Section 4.6. AGREEMENTS None of the Borrowers is party to any agreement or instrument or subject to any restriction which would materially and adversely affect Borrowers or the Properties, or Borrowers' business, properties or assets, operations or condition, financial or otherwise. Borrowers are not in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which they are parties or by which they or the Properties are bound. Borrowers have no material financial obligation under any agreement or instrument to which Borrowers are a party or by which Borrowers or the Properties are otherwise bound, other than (a) obligations incurred in the ordinary course of the operation of the Properties and (b) obligations under the Loan Documents. Section 4.7. SOLVENCY Borrowers and Borrower Principal have (a) not entered into the transaction or executed the Note, this Agreement or any other Loan Documents with the actual intent to hinder, delay or - 26 - defraud any creditor and (b) received reasonably equivalent value in exchange for their obligations under such Loan Documents. Giving effect to the Loan, the fair saleable value of the assets of Borrowers and Borrower Principal exceeds and will, immediately following the making of the Loan, exceed the total liabilities of Borrowers and Borrower Principal, including, without limitation, subordinated, unliquidated, disputed and contingent liabilities. No petition in bankruptcy has been filed against any Borrower, Borrower Principal, any SPE Component Entity (if any) or Affiliated Manager in the last ten (10) years, and none of the Borrowers or Borrower Principal, any SPE Component Entity (if any) or Affiliated Manager in the last ten (10) years has made an assignment for the benefit of creditors or taken advantage of any Creditors Rights Laws. Neither any Borrower nor Borrower Principal, any SPE Component Entity (if any) or Affiliated Manager is contemplating either the filing of a petition by it under any Creditors Rights Laws or the liquidation of all or a major portion of its assets or property, and Borrowers have no knowledge of any Person contemplating the filing of any such petition against any Borrower or Borrower Principal, any SPE Component Entity (if any) or Affiliated Manager. Section 4.8. FULL AND ACCURATE DISCLOSURE No statement of fact made by or on behalf of any Borrower or Borrower Principal in this Agreement or in any of the other Loan Documents or in any other document or certificate delivered by or on behalf of Borrowers or Borrower Principal contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no material fact presently known to Borrowers or Borrower Principal which has not been disclosed to Lender which adversely affects, nor as far as Borrowers or Borrower Principal can reasonably foresee, might adversely affect, the Properties or any of them, or the business, operations or condition (financial or otherwise) of Borrowers or Borrower Principal. Section 4.9. NO PLAN ASSETS None of the Borrowers is an "employee benefit plan," as defined in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of Borrowers constitutes or will constitute "plan assets" of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101. In addition, (a) none of the Borrowers is a "governmental plan" within the meaning of Section 3(32) of ERISA and (b) transactions by or with Borrowers are not subject to state statutes regulating investment of, and fiduciary obligations with respect to, governmental plans similar to the provisions of Section 406 of ERISA or Section 4975 of the Internal Revenue Code currently in effect, which prohibit or otherwise restrict the transactions contemplated by this Agreement. Section 4.10. NOT A FOREIGN PERSON None of the Borrowers or Borrower Principal is a "foreign person" within the meaning of Section 1445(f)(3) of the Internal Revenue Code. Section 4.11. ENFORCEABILITY The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by any Borrower, including the defense of usury, nor would the operation of any of the - 27 - terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable, and neither Borrowers nor Borrower Principal has asserted any right of rescission, set-off, counterclaim or defense with respect thereto. No Default or Event of Default exists under or with respect to any Loan Document. Section 4.12. BUSINESS PURPOSES The Loan is solely for the business purpose of Borrowers, and is not for personal, family, household, or agricultural purposes. Section 4.13. COMPLIANCE Except as expressly disclosed by Borrowers to Lender in writing in connection with the closing of the Loan, to the best of Borrowers' knowledge Borrowers and the Properties, and the use and operation thereof, comply in all material respects with all Legal Requirements, including, without limitation, building and zoning ordinances and codes and the Americans with Disabilities Act. To Borrowers' knowledge, none of the Borrowers is in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority and none of the Borrowers has received written notice of any such default or violation. There has not been committed by Borrowers or, to Borrowers' knowledge, any other Person in occupancy of or involved with the operation or use of any of the Properties any act or omission affording any Governmental Authority the right of forfeiture as against any of the Properties or any part thereof or any monies paid in performance of Borrowers' obligations under any of the Loan Documents. Section 4.14. FINANCIAL INFORMATION All financial data, including, without limitation, the balance sheets, statements of cash flow, statements of income and operating expense and rent rolls, that have been delivered to Lender in respect of Borrowers, Borrower Principal and/or the Properties (a) are true, complete and correct in all material respects, (b) accurately represent the financial condition of Borrowers, Borrower Principal or the Properties, as applicable, as of the date of such reports, and (c) to the extent prepared or audited by an independent certified public accounting firm, have been prepared in accordance with federal tax basis accounting throughout the periods covered, except as disclosed therein. Borrowers do not have any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to Borrowers and reasonably likely to have a material adverse effect on the Properties or the current and/or intended operation thereof, except as referred to or reflected in said financial statements. Since the date of such financial statements, there has been no materially adverse change in the financial condition, operations or business of Borrowers or Borrower Principal from that set forth in said financial statements. Section 4.15. CONDEMNATION No Condemnation or other proceeding has been commenced or, to Borrowers' best knowledge, is threatened or contemplated with respect to all or any portion of any Individual Property or for the relocation of roadways providing access to any Individual Property. - 28 - Section 4.16. UTILITIES AND PUBLIC ACCESS; PARKING To the best of Borrowers' knowledge, each Individual Property has adequate rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service such Individual Property for full utilization for its intended uses. All public utilities necessary to the full use and enjoyment of the Properties as currently used and enjoyed are located either in the public right-of-way abutting each Individual Property (which are connected so as to serve the Individual Property without passing over other property) or in recorded easements serving the Individual Property and such easements are set forth in and insured by a Title Insurance Policy. All roads necessary for the use of the Properties for their current purposes have been completed and dedicated to public use and accepted by all Governmental Authorities. Each Individual Property has, or is served by, parking to the extent required to comply with all Legal Requirements. Section 4.17. SEPARATE LOTS Each Individual Property is assessed for real estate tax purposes as one or more wholly independent tax lot or lots, separate from any adjoining land or improvements not constituting a part of such lot or lots, and no other land or improvements is assessed and taxed together with such Individual Property or any portion thereof. Section 4.18. ASSESSMENTS To Borrowers' knowledge after due inquiry, there are no pending or proposed special or other assessments for public improvements or otherwise affecting any of the Properties, nor are there any contemplated improvements to any of the Properties that may result in such special or other assessments. Section 4.19. INSURANCE Borrowers have obtained and have delivered to Lender certified copies of all Policies or, to the extent such Policies are not available as of the Closing Date, certificates of insurance with respect to all such Policies reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. No claims have been made under any of the Policies, and to Borrowers' knowledge, no Person, including any Borrower, has done, by act or omission, anything which would impair the coverage of any of the Policies. Section 4.20. USE OF PROPERTY The Properties are used exclusively for general commercial purposes and other appurtenant and related uses. Section 4.21. CERTIFICATE OF OCCUPANCY; LICENSES All certificates of occupancy and to Borrowers' knowledge certifications, permits, licenses and approvals, including, without limitation, certificates of completion and any applicable liquor license required for the legal use, occupancy and operation of the Properties for the purpose intended herein, have been obtained and are valid and in full force and effect. - 29 - Borrowers shall keep and maintain all licenses necessary for the operation of the Properties for the purpose intended herein. The use being made of the Properties is in conformity with the certificates of occupancy and any permits or licenses issued for the Properties. Section 4.22. FLOOD ZONE None of the Improvements on the Properties is located in an area identified by the Federal Emergency Management Agency as an area having special flood hazards, or, if any portion of the Improvements is located within such area, Borrowers have obtained the insurance prescribed in Section 8.1(a)(i). Section 4.23. PHYSICAL CONDITION Except as set forth in the Physical Condition Reports, to Borrowers' knowledge after due inquiry, the Properties, including, without limitation, all buildings, improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects. Except as set forth in the Physical Condition Reports, to Borrowers' knowledge after due inquiry, there exist no structural or other material defects or damages in any Individual Property, as a result of a Casualty or otherwise, and whether latent or otherwise. Borrowers have not received notice from any insurance company or bonding company of any defects or inadequacies in any Individual Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond. Section 4.24. BOUNDARIES (a) None of the Improvements which were included in determining the appraised value of the Properties lie outside the boundaries and building restriction lines of the Properties to any material extent, and (b) no improvements on adjoining properties encroach upon any of the Properties and no easements or other encumbrances upon any of the Properties encroach upon any of the Improvements so as to materially affect the value or marketability of any of the Properties. Section 4.25. LEASES AND RENT ROLL Borrowers have delivered to Lender a true, correct and complete rent roll for each of the Properties (a "RENT ROLL") which includes all Leases affecting each of the Properties (including schedules for all executed Leases for Tenants not yet in occupancy or under which the rent commencement date has not occurred). Except as set forth in the Rent Roll (as same has been updated by written notice thereof to Lender) and estoppel certificates delivered to Lender on or prior to the Closing Date: (a) each Lease is in full force and effect; (b) the premises demised under the Leases have been completed and the Tenants under the Leases have accepted possession of and are in occupancy of all of their respective demised premises; (c) the Tenants under the Leases have commenced the payment of rent under the Leases, there are no offsets, claims or defenses to the enforcement thereof, and Borrowers have no monetary obligations to - 30 - any Tenant under any Lease; (d) all Rents due and payable under the Leases have been paid and no portion thereof has been paid for any period more than thirty (30) days in advance; (e) the rent payable under each Lease is the amount of fixed rent set forth in the Rent Roll, and there is no claim or basis for a claim by the Tenant thereunder for an offset or adjustment to the rent; (f) no Tenant has made any written claim of a material default against the landlord under any Lease which remains outstanding nor has any Borrower or Manager received, by telephonic, in-person, e-mail or other communication, any notice of a material default under any Lease; (g) to Borrowers' knowledge there is no present material default by the Tenant under any Lease; (h) all security deposits under the Leases have been collected by Borrowers; (i) each Borrower is the sole owner of the entire landlord's interest in each Lease affecting the Individual Property owned by such Borrower; (j) each Lease is the valid, binding and enforceable obligation of the Borrower owning the Individual Property subject to such lease and the applicable Tenant thereunder and there are no agreements with the Tenants under the Leases other than as expressly set forth in the Leases; (k) no Person has any possessory interest in, or right to occupy, any of the Properties or any portion thereof except under the terms of a Lease; (l) none of the Leases contains any option or offer to purchase or right of first refusal to purchase an Individual Property or any part thereof except that (i) Home Depot USA, Inc. has an option to purchase its demised premises at Home Depot Plaza, Orange, Connecticut and Century III Plaza, West Mifflin, Pennsylvania and a right of first offer with respect to a total or partial sale of the Individual Properties in which its demised premises are located and (ii) the Stop and Shop Supermarket Company has a right of first offer with respect to a total or partial sale of the Mid-Hudson Shopping Center, Poughkeepsie, New York; (m) neither the Leases nor the Rents have been assigned, pledged or hypothecated except to Lender, and no other Person has any interest therein except the Tenants thereunder; and (n) to the best of Borrower's actual knowledge, no conditions exist (to the extent which each Borrower can control such conditions) which now give any Tenant or party the right to "go dark" pursuant to the provision of its Lease and/or the REA. Section 4.26. FILING AND RECORDING TAXES All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including, without limitation, the Mortgages, have been paid or will be paid, and, under current Legal Requirements, the Mortgages are enforceable in accordance with their terms by Lender (or any subsequent holder thereof). Section 4.27. MANAGEMENT AGREEMENTS The Management Agreements are in full force and effect and there is no default thereunder by any party thereto and, to Borrowers' knowledge, no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder. No management fees under the Management Agreements are accrued and unpaid. - 31 - Section 4.28. ILLEGAL ACTIVITY No portion of the Properties has been or will be purchased with proceeds of any illegal activity, and no part of the proceeds of the Loan will be used in connection with any illegal activity. Section 4.29. CONSTRUCTION EXPENSES All costs and expenses of any and all labor, materials, supplies and equipment used in the construction, maintenance or repair of the Improvements have been paid in full. To Borrowers' knowledge after due inquiry, there are no claims for payment for work, labor or materials affecting the Properties (or any of them) which are or may become a lien prior to, or of equal priority with, the Liens created by the Loan Documents. Section 4.30. PERSONAL PROPERTY Borrowers have paid in full for, and are the owners of, all Personal Property (other than Tenants' property) used in connection with the operation of the Properties, free and clear of any and all security interests, liens or encumbrances, except for Permitted Encumbrances and the Lien and security interests created by the Loan Documents. Section 4.31. TAXES Borrowers and Borrower Principal have filed all federal, state, county, municipal, and city income, personal property and other tax returns required to have been filed by them and have paid all taxes and related liabilities which have become due pursuant to such returns or pursuant to any assessments received by them. None of the Borrowers nor Borrower Principal knows of any basis for any additional assessment in respect of any such taxes and related liabilities for prior years. Section 4.32. PERMITTED ENCUMBRANCES None of the Permitted Encumbrances, individually or in the aggregate, materially interferes with the benefits of the security intended to be provided by the Loan Documents, materially and adversely affects the value of any of the Properties, impairs the use or the operation of any of the Properties or impairs Borrowers' ability to pay their obligations in a timely manner. Section 4.33. FEDERAL RESERVE REGULATIONS No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or prohibited by the terms and conditions of this Agreement or the other Loan Documents. - 32 - Section 4.34. INVESTMENT COMPANY ACT None of the Borrowers is (a) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended; (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended; or (c) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. Section 4.35. RECIPROCAL EASEMENT AGREEMENTS (a) To the best of Borrowers' knowledge, neither any of the Borrowers, nor any other party is currently in default (nor has any notice been given or received with respect to an alleged or current default) under any of the terms and conditions of the REA, and the REA remains unmodified and in full force and effect; (b) All easements granted pursuant to the REA which were to have survived the site preparation and completion of construction (to the extent that the same has been completed), remain in full force and effect and have not been released, terminated, extinguished or discharged by agreement or otherwise; (c) To the best of Borrowers' knowledge, all sums due and owing by Borrowers to the other parties to the REA (or by the other parties to the REA to the Borrowers) pursuant to the terms of the REA, including without limitation, all sums, charges, fees, assessments, costs, and expenses in connection with any taxes, site preparation and construction, non-shareholder contributions, and common area and other property management activities have been paid, are current, and no lien has attached on any of the Properties (or threat thereof been made) for failure to pay any of the foregoing; (d) The terms, conditions, covenants, uses and restrictions contained in the REA do not conflict in any manner with any terms, conditions, covenants, uses and restrictions contained in any Lease or in any agreement between any Borrower and occupant of any peripheral parcels, including without limitation, conditions and restrictions with respect to kiosk placement, tenant restrictions (type, location or exclusivity), sale of certain goods or services, and/or other use restrictions; and (e) The terms, conditions, covenants, uses and restrictions contained in each Lease do not conflict in any manner with any terms, conditions, covenants, uses and restrictions contained in the REA, any other Lease or in any agreement between any Borrower and occupant of any peripheral parcel, including without limitation, conditions and restrictions with respect to kiosk placement, tenant restrictions (type, location or exclusivity), sale of certain goods or services, and/or other use restrictions. Section 4.36. NO CHANGE IN FACTS OR CIRCUMSTANCES; DISCLOSURE All information submitted by Borrowers or their agents to Lender and in all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by Borrowers in this - 33 - Agreement or in any other Loan Document, are accurate, complete and correct in all material respects. There has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading in any material respect or that otherwise materially and adversely affects or might materially and adversely affect any of the Properties or the business operations or the financial condition of any of the Borrowers. Borrowers have disclosed to Lender all material facts and have not failed to disclose any material fact that could cause any representation or warranty made herein to be materially misleading. Section 4.37. INTELLECTUAL PROPERTY All trademarks, trade names and service marks necessary to the business of Borrowers as presently conducted or as Borrowers contemplate conducting their business are in good standing and, to the extent of Borrowers' actual knowledge, uncontested. Borrowers have not infringed, are not infringing, and have not received notice of infringement with respect to asserted trademarks, trade names and service marks of others. To Borrowers' knowledge, there is no infringement by others of trademarks, trade names and service marks of any Borrower. Section 4.38. COMPLIANCE WITH ANTI-TERRORISM LAWS None of the Borrowers, Borrower Principal or any Person who Controls a Borrower or Borrower Principal currently is identified by the Office of Foreign Assets Control, Department of the Treasury ("OFAC") or otherwise qualifies as an Embargoed Person, and Borrowers have implemented procedures to ensure that no Person who now or hereafter owns a direct or indirect equity interest in any of the Borrowers is an Embargoed Person or is Controlled by an Embargoed Person. None of the Borrowers or Borrower Principal is in violation of any applicable law relating to anti-money laundering or anti-terrorism, including, without limitation, those related to transacting business with Embargoed Persons or the requirements of the United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, U.S. Public Law 107-56 and the related regulations issued thereunder, including temporary regulations (collectively, as the same may be amended from time to time, the "PATRIOT ACT"). To the best of Borrowers' knowledge, no tenant at any Individual Property is currently identified by OFAC or otherwise qualifies as an Embargoed Person, or is owned or Controlled by an Embargoed Person. Borrowers have determined that Manager has implemented procedures approved by Borrower to ensure that no tenant at any of the Individual Properties is currently identified by OFAC or otherwise qualifies as an Embargoed Person, or is owned or controlled by an Embargoed Person. Section 4.39. PATRIOT ACT Neither Borrowers nor Borrower Principal shall (a) be or become subject at any time to any law, regulation or list of any governmental agency (including, without limitation, the list maintained by OFAC and accessible through the OFAC website) that prohibits or limits any lender from making any advance or extension of credit to Borrowers or from otherwise conducting business with Borrowers and Borrower Principal, or (b) fail to provide documentary and other evidence of Borrowers' identity as may be requested by any lender at any time to enable any lender to verify Borrowers' identity or to comply with any applicable law or - 34 - regulation, including, without limitation, the Patriot Act. In addition, Borrowers shall provide to Lender any additional information that Lender deems necessary from time to time in order to ensure compliance with all applicable laws concerning money laundering and similar activities. Section 4.40. GROUND LEASES Borrowers have delivered to Lender true, correct and complete copies of the Ground Leases. Each of the Ground Leases is in full force and effect and has not been modified or amended; there are no agreements between Borrowers and the lessors under the Ground Leases other than as expressly set forth in the Ground Leases and otherwise disclosed to Lender in writing; all rents and other sums due and payable under the Ground Leases have been paid; neither of the lessors under the Ground Leases has made any written claim of a default by the tenant nor has any Borrower received by telephone, in person, e-mail or other communication, any notice of default thereunder; to Borrowers' knowledge, there is no present default by the tenant under either Ground Lease and no event has occurred which but for the passage of time or notice or both would constitute a default thereunder; neither of the Ground Leases has been assigned, pledged or hypothecated by Borrowers except to Lender and no other Person has any interest therein. Section 4.41. SURVIVAL Borrowers agree that, unless expressly provided otherwise, all of the representations and warranties of Borrowers set forth in this Agreement and in the other Loan Documents shall survive for so long as any portion of the Debt remains owing to Lender. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents by Borrowers shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf. ARTICLE 5. BORROWER COVENANTS From the date hereof and until repayment of the Debt in full and performance in full of all obligations of Borrowers under the Loan Documents or the earlier release of the Liens of the Mortgages (and all related obligations) in accordance with the terms of this Agreement and the other Loan Documents, Borrowers hereby covenant and agree with Lender that: Section 5.1. EXISTENCE; COMPLIANCE WITH LEGAL REQUIREMENTS (a) Each Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, licenses, permits and franchises and comply with all Legal Requirements applicable to it and the Individual Property owned by it. Each Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording any Governmental Authority the right of forfeiture as against the Individual Property owned by it or any part thereof or any monies paid in performance of such Borrower's obligations under any of the Loan Documents. Each Borrower shall at all times maintain, preserve and protect all franchises and trade names used in connection with the operation of the Individual Property. - 35 - (b) After prior written notice to Lender, Borrowers, at their own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the Legal Requirements affecting any of the Properties, provided that (i) no Default or Event of Default has occurred and is continuing; (ii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrowers or the Properties are subject and shall not constitute a default thereunder; (iii) neither any of the Properties nor any part thereof or interest therein, any of the tenants or occupants thereof, nor any Borrower shall be affected in any material adverse way as a result of such proceeding; (iv) non-compliance with the Legal Requirements shall not impose civil or criminal liability on any Borrower or Lender; (v) Borrowers shall have furnished the security as may be required in the proceeding or by Lender to ensure compliance by Borrowers with the Legal Requirements; and (vi) Borrowers shall have furnished to Lender all other items reasonably requested by Lender. Section 5.2. MAINTENANCE AND USE OF PROPERTY Borrowers shall cause the Properties to be maintained in good and safe condition and repair. The Improvements and the Personal Property shall not be removed, demolished or materially altered (except for normal replacement of the Personal Property) without the prior written consent of Lender. If under applicable zoning provisions the use of all or any portion of an Individual Property is or shall become a nonconforming use, Borrowers will not cause or permit the nonconforming use to be discontinued or the nonconforming Improvement to be abandoned without the express written consent of Lender. Section 5.3. WASTE Borrowers shall not commit or suffer any waste of any of the Properties or make any change in the use of any of the Properties which will in any way materially increase the risk of fire or other hazard arising out of the operation thereof, or take any action that might invalidate or give cause for cancellation of any Policy, or do or permit to be done thereon anything that may in any way impair the value of any of the Properties or the security for the Loan. Borrower will not, without the prior written consent of Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of any of the Properties, regardless of the depth thereof or the method of mining or extraction thereof. Section 5.4. TAXES AND OTHER CHARGES (a) Borrowers shall pay all Taxes and Other Charges now or hereafter levied or assessed or imposed against the Properties or any part thereof as the same become due and payable. Borrowers shall furnish to Lender receipts for the payment of the Taxes and the Other Charges and upon request by Lender, certificates from Borrowers and Borrower Principal that indicate that, as of the date of such certificates, there are no liens filed against the Properties, or any of them, arising form the non-payment of Taxes or Other Charges. Borrowers shall not suffer and shall promptly cause to be paid and discharged any Lien or charge whatsoever which may be or become a Lien or charge against any of the Properties, and shall promptly pay for all utility services provided to the Properties. - 36 - (b) After prior written notice to Lender, Borrowers, at their own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any Taxes or Other Charges, provided that (i) no Default or Event of Default has occurred and remains uncured; (ii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrowers are subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable Legal Requirements; (iii) neither any of the Properties nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, canceled or lost; (iv) Borrowers shall promptly upon final determination thereof pay the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith; (v) any such proceeding shall suspend the collection of such contested Taxes or Other Charges from the Individual Property; and (vi) Borrowers shall furnish such security as may be required in the proceeding, or deliver to Lender such reserve deposits as may be requested by Lender, to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon (unless all of the Taxes or Other Charges have been paid under protest). Lender may pay over any such cash deposit or part thereof held by Lender to the claimant entitled thereto at any time when, in the judgment of Lender, the entitlement of such claimant is established or an Individual Property (or part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, canceled or lost or there shall be any danger of the Lien of the Mortgage on such Individual Property being primed by any related Lien. Section 5.5. LITIGATION Borrowers shall give prompt written notice to Lender of any litigation or governmental proceedings pending or threatened in writing against any Borrower which might materially adversely affect such Borrower's condition (financial or otherwise) or business or the Individual Property owned by such Borrower. Section 5.6. ACCESS TO PROPERTY Subject to the rights of Tenants under Leases, Borrowers shall permit agents, representatives and employees of Lender to inspect the Properties or any part thereof at reasonable hours upon reasonable advance notice. Section 5.7. NOTICE OF DEFAULT Borrowers shall promptly advise Lender of any material adverse change in the condition (financial or otherwise) of any Borrower, Borrower Principal or any of the Properties or of the occurrence of any Default or Event of Default of which any Borrower has knowledge. Section 5.8. COOPERATE IN LEGAL PROCEEDINGS Borrowers shall at Borrowers' expense cooperate fully with Lender with respect to any proceedings before any court, board or other Governmental Authority which may in any way affect the rights of Lender hereunder or any rights obtained by Lender under any of the other Loan Documents and, in connection therewith, permit Lender, at its election, to participate in any such proceedings. - 37 - Section 5.9. PERFORMANCE BY BORROWERS Borrowers shall in a timely manner observe, perform and fulfill each and every covenant, term and provision to be observed and performed by Borrowers under this Agreement and the other Loan Documents and any other agreement or instrument affecting or pertaining to the Properties and any amendments, modifications or changes thereto. Section 5.10. AWARDS; INSURANCE PROCEEDS Borrowers shall cooperate with Lender in obtaining for Lender the benefits of any Awards or Insurance Proceeds lawfully or equitably payable in connection with any of the Properties, and Lender shall be reimbursed for any expenses incurred in connection therewith (including reasonable, actual attorneys' fees and disbursements, and the payment by Borrowers of the expense of an appraisal on behalf of Lender in case of a Casualty or Condemnation affecting any of the Properties or any part thereof) out of such Awards or Insurance Proceeds. The actual payment of any Awards shall be governed by Section 8.4 hereof. Section 5.11. FINANCIAL REPORTING (a) Borrowers and Borrower Principal shall each keep adequate books and records of account in accordance with federal tax basis accounting, or in accordance with other methods acceptable to Lender in its sole discretion, consistently applied and shall furnish to Lender: (i) quarterly and annual (and prior to a Securitization, at the request of Lender, monthly), certified rent rolls signed and dated by Borrowers, detailing the names of all Tenants of the Improvements, the portion of Improvements (in terms of square footage) occupied by each Tenant, the base rent, additional rent and any other charges payable under each Lease (including, by separate report, annual store sales required to be reported by Tenant under any Lease), and the term of each Lease, including the commencement and expiration dates and any tenant extension, expansion or renewal options, the extent to which any Tenant is in material default under any Lease, by separate report, and any other information as is reasonably required by Lender, within twenty (20) days after the end of each calendar month, forty-five (45) days after the end of each fiscal quarter or one hundred twenty (120) days after the close of each fiscal year of Borrowers, as applicable; (ii) quarterly and annual (and prior to a Securitization, at the request of Lender, monthly), operating statements of the Properties, prepared and certified by Borrowers in the form required by Lender, detailing the revenues received, the expenses incurred and the net operating income before and after debt service (principal and interest) and major capital improvements (including, without limitation, any capital improvements planned) for the period of calculation and containing appropriate year-to-date information, within twenty (20) days after the end of each calendar month, forty-five (45) days after the end of each fiscal quarter or one hundred twenty (120) days after the close of each fiscal year of Borrowers, as applicable; (iii) annual balance sheets, profit and loss statements, statements of cash flows, and statements of change in financial position of each Borrower, as applicable, and - 38 - Borrower Principal in the form required by Lender prepared and certified by each Borrower and Borrower Principal, within one hundred twenty (120) days after the close of each fiscal year of each Borrower and Borrower Principal, as the case may be. (b) Upon request from Lender, each Borrower shall promptly furnish to Lender: (i) a property management report for each Individual Property, showing the number of inquiries made and/or rental applications received from tenants or prospective tenants and deposits received from tenants and any other information requested by Lender, in reasonable detail and certified by Borrower, but no more frequently than quarterly; (ii) an accounting of all security deposits held in connection with any Lease of any part of each Individual Property, including the name and identification number of the accounts in which such security deposits are held, the name and address of the financial institutions in which such security deposits are held and the name of the Person to contact at such financial institution, along with any authority or release necessary for Lender to obtain information regarding such accounts directly from such financial institutions; and (iii) a report of all letters of credit provided by any Tenant in connection with any Lease of any part of each Individual Property, including the account numbers of such letters of credit, the names and addresses of the financial institutions that issued such letters of credit and the names of the Persons to contact at such financial institutions, along with any authority or release necessary for Lender to obtain information regarding such letters of credit directly from such financial institutions. (c) To the extent not inconsistent with the provisions of Section 5.11(a) hereof (e.g., GAAP accounting and audits shall not be required), each Borrower and Borrower Principal shall furnish Lender with such other additional financial or management information (including state and federal tax returns) as may, from time to time, be reasonably required by Lender in form and substance satisfactory to Lender (including, without limitation, any financial reports required to be delivered by any Tenant or any guarantor of any Lease pursuant to the terms of such Lease), and shall furnish to Lender and its agents convenient facilities for the examination and audit of any such books and records. (d) All items requiring the certification of a Borrower shall, except where the Borrower is an individual, require a certificate executed by the general partner, managing member or chief executive officer of Borrower, as applicable (and the same rules shall apply to any sole shareholder, general partner or managing member which is not an individual). (e) Without limiting any other rights available to Lender under this Loan Agreement or any of the other Loan Documents, in the event a Borrower shall fail timely to furnish Lender any financial document or statement in accordance with Section 5.11, Borrowers shall promptly pay to Lender a non-refundable charge in the amount of $500 for each such failure after written notice and a five (5) day cure period. The payment of such amount shall not be construed to relieve such Borrower of any Event of Default hereunder arising from such failure. - 39 - Section 5.12. ESTOPPEL STATEMENT (a) After request by Lender, Borrowers shall within ten (10) Business Days furnish Lender with statements, duly acknowledged and certified, setting forth (i) the amount of the original principal amount' of the Note, (ii) the rate of interest on the Note, (iii) the unpaid principal amount of the Note, (iv) the date installments of interest and/or principal were last paid, (v) any offsets or defenses to the payment of the Debt, if any, and (vi) that the Note, this Agreement, the Mortgages and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. (b) Borrowers shall use their best efforts to deliver to Lender, promptly upon request, duly executed estoppel certificates from any one or more Tenants as required by Lender attesting to such facts regarding the related Lease as Lender may require, including, but not limited to attestations that each Lease covered thereby is in full force and effect with no defaults thereunder on the part of any party, that none of the Rents have been paid more than one month in advance, except as security, and that the Tenant claims no defense or offset against the full and timely performance of its obligations under the Lease. Section 5.13. LEASING MATTERS (a) Each Borrower may enter into a proposed Lease (including the renewal or extension of an existing Lease (a "RENEWAL LEASE")) without the prior written consent of Lender, provided such proposed Lease or Renewal Lease (i) provides for rental rates and terms comparable to existing local market rates and terms (taking into account the type and quality of the tenant) as of the date such Lease is executed by Borrower (unless, in the case of a Renewal Lease, the rent payable during such renewal, or a formula or other method to compute such rent, is provided for in the original Lease), (ii) is an arm's-length transaction with a bona fide, independent third party tenant, (iii) does not have a materially adverse effect on the value of the Individual Property taken as a whole, (iv) is subject and subordinate to the Mortgage which is a Lien on the Individual Property and the Tenant thereunder agrees to attorn to Lender, (v) does not contain any option, offer, right of first refusal, or other similar right to acquire all or any portion of the Individual Property, (vi) has a base term of less than fifteen (15) years including options to renew, (vii) has no rent credits, free rents or concessions granted thereunder, other than commercially reasonable tenant improvement allowances and commercially reasonable rent abatements consistent with other comparable leases within the local market and (viii) is written on the standard form of lease approved by Lender. All proposed Leases which do not satisfy the requirements set forth in this subsection shall be subject to the prior approval of Lender and its counsel, at Borrowers' expense. Borrowers shall promptly deliver to Lender copies of all Leases which are entered into pursuant to this subsection together with the certification of the Borrower executing the Lease as landlord that it has satisfied all of the conditions of this Section. (b) Borrowers (i) shall observe and perform all the obligations imposed upon the landlord under the Leases and shall not do or permit to be done anything to impair the value of any of the Leases as security for the Debt; (ii) shall promptly send copies to Lender of all notices of default which Borrowers shall send or receive thereunder; (iii) shall enforce all of the material terms, covenants and conditions contained in the Leases upon the part of the tenant thereunder to be observed or performed; (iv) shall not collect any of the Rents more than one (1) month in - 40 - advance (except security deposits shall not be deemed Rents collected in advance); (v) shall not execute any other assignment of the landlord's interest in any of the Leases or the Rents; and (vi) shall not consent to any assignment of or subletting under any Leases not in accordance with their terms, without the prior written consent of Lender. (c) Borrowers may, without the prior written consent of Lender, amend, modify or waive the provisions of any Lease or terminate, reduce Rents under, accept a surrender of space under, or shorten the term of, any Lease (including any guaranty, letter of credit or other credit support with respect thereto) provided that such action (taking into account, in the case of a termination, reduction in rent, surrender of space or shortening of term, the planned alternative use of the affected space) does not have a materially adverse effect on the value of the Individual Property taken as a whole, and provided that such Lease, as amended, modified or waived, is otherwise in compliance with the requirements of this Agreement and any subordination agreement binding upon Lender with respect to such Lease. A termination of a Lease with a tenant who is in default beyond applicable notice and grace periods shall not be considered an action which has a materially adverse effect on the value of the Individual Property taken as a whole. Any amendment, modification, waiver, termination, rent reduction, space surrender or term shortening which does not satisfy the requirements set forth in this subsection shall be subject to the prior approval of Lender and its counsel, at Borrowers' expense. Borrowers shall promptly deliver to Lender copies of amendments, modifications and waivers which are entered into pursuant to this subsection together with a certification that it has satisfied all of the conditions of this subsection. (d) Notwithstanding anything contained herein to the contrary, Borrowers shall not, without the prior written consent of Lender, enter into, renew, extend, amend, modify, waive any provisions of, terminate, reduce Rents under, accept a surrender of space under, or shorten the term of any Major Lease. Section 5.14. PROPERTY MANAGEMENT (a) Borrowers shall (i) promptly perform and observe all of the covenants required to be performed and observed by it under the Management Agreements and do all things necessary to preserve and to keep unimpaired its material rights thereunder; (ii) promptly notify Lender of any default under a Management Agreement of which it is aware; (iii) promptly deliver to Lender a copy of any notice of default or other material notice received by a Borrower under any Management Agreement; (iv) promptly give notice to Lender of any notice or information that a Borrower receives which indicates that Manager is terminating a Management Agreement or that Manager is otherwise discontinuing its management of the Individual Property; and (v) promptly enforce the performance and observance of all of the covenants required to be performed and observed by Manager under each Management Agreement. (b) If at any time, (i) Manager shall become insolvent or a debtor in a bankruptcy proceeding, (ii) an Event of Default has occurred and is continuing; or (iii) a default has occurred and is continuing after the expiration of any applicable cure periods under a Management Agreement, Borrowers shall, at the request of Lender, terminate the Management Agreement upon thirty (30) days prior notice to Manager and replace Manager with a Qualified Manager, it - 41 - being understood and agreed that the management fee for such replacement manager shall not exceed then prevailing market rates. (c) In addition to the foregoing, in the event that Lender, in Lender's reasonable discretion, at any time prior to the termination of the Assignments of Management Agreement, determines that the Properties or any of them are not being managed in accordance with generally accepted management practices for projects similarly situated, Lender may deliver written notice thereof to Borrowers and Manager, which notice shall specify with particularity the grounds for Lender's determination. If Lender reasonably determines that the conditions specified in Lender's notice are not remedied to Lender's reasonable satisfaction by Borrowers or Manager within thirty (30) days from the date of such notice or that Borrowers or Manager have failed to diligently undertake correcting such conditions within such thirty (30) day period, Lender may direct Borrowers to terminate the Management Agreements and to replace Manager with a Qualified Manager, it being understood and agreed that the management fee for such replacement manager shall not exceed then prevailing market rates. (d) Borrowers shall not, without the prior written consent of Lender (which consent shall not be unreasonably withheld, conditioned or delayed): (i) surrender, terminate or cancel the Management Agreements or any of them or otherwise replace Manager or enter into any other management agreement with respect to an Individual Property; (ii) reduce or consent to the reduction of the term of any Management Agreement; (iii) increase or consent to the increase of the amount of any charges under a Management Agreement; or (iv) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under, a Management Agreement in any material respect. Section 5.15. LIENS Subject to Borrowers' right to contest a Lien pursuant to the terms of the Mortgages, Borrowers shall not, without the prior written consent of Lender, create, incur, assume or suffer to exist any Lien on any portion of any of the Properties or permit any such action to be taken, except Permitted Encumbrances. Section 5.16. DEBT CANCELLATION Borrowers shall not cancel or otherwise forgive or release any claim or debt (other than termination of Leases in accordance herewith) owed to Borrowers, or any of them, by any Person, except for adequate consideration and in the ordinary course of Borrowers' business. Section 5.17. ZONING Borrowers shall not initiate or consent to any zoning reclassification of any portion of any of the Properties or seek any variance under any existing zoning ordinance or use or permit the use of any portion of any of the Properties in any manner that could result in such use becoming a non-conforming use under any zoning ordinance or any other applicable land use law, rule or regulation, without the prior written consent of Lender. - 42 - Section 5.18. ERISA (a) Borrowers shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA. (b) Borrowers further covenant and agree to deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by Lender in its sole discretion, that (i) Borrowers are not and do not maintain an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA; (ii) Borrowers are not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (iii) one or more of the following circumstances is and at all times during the term of this Agreement will be true: (A) Equity interests in Borrowers are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (B) Less than twenty-five percent (25%) of each outstanding class of equity interests in each Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (C) Borrowers qualify as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e). Section 5.19. NO JOINT ASSESSMENT Borrowers shall not suffer, permit or initiate the joint assessment of any of the Properties with (a) any other real property constituting a tax lot separate therefrom, or (b) any portion of any of the Properties which may be deemed to constitute personal property, or any other procedure whereby the Lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to any of the Properties. Section 5.20. RECIPROCAL EASEMENT AGREEMENTS Borrowers shall not enter into, terminate or modify any REA without Lender's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. Borrowers shall enforce, comply with, and cause each of the parties to the REA to comply with all of the material economic terms and conditions contained in the REA, provided that a Borrower may agree, without Lender's consent, to modifications to any REA or to grant easements with respect to an Individual Property, which could not reasonably be expected to have a material adverse effect on the use, value or operation of such Individual Property or on Borrowers' ability to perform is obligations under the Loan Documents. - 43 - Section 5.21. INTEREST RATE CAP AGREEMENT (a) Prior to or contemporaneously with the Closing Date, Borrowers shall have obtained the Rate Cap, which shall be coterminous with the Loan and have a notional amount which shall not at any time be less than the outstanding principal balance of the Loan. The Rate Cap shall be maintained throughout the term of the Loan with an Acceptable Counterparty. If the provider of the Rate Cap or any Replacement Rate Cap ceases to be an Acceptable Counterparty, Borrowers shall obtain a Replacement Rate Cap at Borrowers' sole cost and expense within ten (10) days of receipt of notice from Lender or Borrowers' obtaining knowledge that the provider is no longer an Acceptable Counterparty. (b) Borrowers shall collaterally assign to Lender pursuant to the Collateral Assignment of Interest Rate Cap Agreement all of their right, title and interest to receive any and all payments under the Rate Cap or any Replacement Rate Cap (and any related guarantee, if any) and shall deliver to Lender counterparts of such Collateral Assignment of Interest Rate Cap Agreement executed by the Borrowers and by the Acceptable Counterparty and notify the Acceptable Counterparty of such collateral assignment (either in such Rate Cap or by separate instrument). At such time as the Loan is repaid in full, all of Lender's right, title and interest in the Rate Cap and any Replacement Rate Cap shall terminate and Lender shall execute and deliver at Borrowers' sole cost and expense, such documents as may be required to evidence Lender's release of the Rate Cap and any Replacement Rate Cap and to notify the Acceptable Counterparty of such release. (c) Borrowers shall comply with all of their obligations under the terms and provisions of the Rate Cap and any Replacement Rate Cap. All amounts paid by the Acceptable Counterparty under the Rate Cap to Borrowers shall be paid to Lender. Borrower shall take all actions reasonably requested by Lender to enforce Lender's rights under the Rate Cap and any Replacement Rate Cap in the event of a default by the Acceptable Counterparty and shall not waive, amend or otherwise modify any of its rights thereunder. (d) In the event that Borrowers fail to purchase and deliver to Lender the Rate Cap or any Replacement Rate Cap as and when required hereunder, or fail to maintain such agreement in accordance with the terms and provisions of this Agreement, Lender may purchase the Rate Cap or any Replacement Rate Cap, as applicable, and the cost incurred by Lender in purchasing the Rate Cap or any Replacement Rate Cap, as applicable, shall be paid by Borrowers to Lender with interest thereon at the Default Rate from the date such cost was incurred by Lender until such cost is reimbursed by Borrowers to Lender. (e) In connection with the Rate Cap and any Replacement Rate Cap, Borrowers shall obtain and deliver to Lender an opinion from counsel (which counsel may be in house counsel for the Acceptable Counterparty) for the Acceptable Counterparty (upon which Lender and its successors and assigns may rely) which shall provide, in relevant part, that: (i) the Acceptable Counterparty is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has the organizational power and authority to execute and deliver, and to perform its obligations under, the Rate Cap or the Replacement Rate Cap, as applicable; - 44 - (ii) the execution and delivery of the Rate Cap or the Replacement Rate Cap, as applicable, by the Acceptable Counterparty, and any other agreement which the Acceptable Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by laws (or equivalent organizational documents) or any law, regulation or contractual restriction binding on or affecting it or its property; (iii) all consents, authorizations and approvals required for the execution and delivery by the Acceptable Counterparty of the Rate Cap or the Replacement Rate Cap, as applicable, and any other agreement which the Acceptable Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance; and (iv) the Rate Cap or the Replacement Rate Cap, as applicable, and any other agreement which the Acceptable Counterparty has executed and delivered pursuant thereto, has been duly executed and delivered by the Acceptable Counterparty and constitutes the legal, valid and binding obligation of the Acceptable Counterparty, enforceable against the Acceptable Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). Section 5.22. GROUND LEASES (a) With respect to each Ground Lease, (a) Borrower shall (i) pay all rents, additional rents and other sums required to be paid by the tenant thereunder, (ii) diligently perform and observe all of the terms, covenants and conditions of each Ground Lease on the part of the tenant to be performed and observed thereunder, (iii) promptly notify Lender of the giving of any notice by the landlord under a Ground Lease of any default thereunder and deliver to Lender a true copy of each such notice within five (5) Business Days of receipt and (iv) promptly notify Lender of any bankruptcy, reorganization or insolvency of the landlord under a Ground Lease or of any notice thereof, and deliver to Lender a true copy of such notice within five (5) Business Days of receipt. Borrowers shall not, without the prior consent of Lender, surrender the leasehold estate created by a Ground Lease or terminate or cancel any Ground Lease or modify, change, supplement, alter or amend any Ground Lease, either orally or in writing, and if Borrowers shall default in the performance or observance of any term, covenant or condition of any Ground Lease to be performed or observed by the tenant thereunder and shall fail to cure such default prior to the expiration of any applicable cure period provided thereunder, Lender shall have the right, but shall be under no obligation, to pay any sums and to perform any act or take any action as may be appropriate to cause all of the terms, covenants and conditions of such Ground Lease on the tenant's part to be performed or observed on behalf of Borrowers, to the end that the rights of Borrowers in, to any under such Ground Lease shall be kept unimpaired and free from default. If the landlord under a Ground Lease shall deliver to Lender a copy of any notice of default under such Ground Lease, such notice shall constitute full protection to Lender - 45 - for any action taken or omitted to be taken by Lender in good faith in reliance thereon. Borrowers shall exercise each individual option, if any, to extend or renew the term of each Ground Lease upon demand by Lender made at any time within one (1) year prior to the last day upon which such option may be exercised, and Borrowers hereby expressly authorize and appoint Lender their attorney-in-fact to exercise any such option in the name of and on behalf of Borrowers, which power of attorney shall be irrevocable and shall be deemed coupled with an interest. (b) SUBLEASES. Notwithstanding anything contained in any Ground Lease to the contrary, Borrowers shall not further sublet any portion of the related Individual Property (other than as permitted pursuant to Section 5.13 hereof) without the prior written consent of Lender. Each sublease hereafter made shall provide that (a) in the event of the termination of the Ground Lease, the sublease shall not be terminable by the sublessee; (b) in the event of any action for the foreclosure of the Mortgage with respect to the related Individual Property, the sublease shall not terminate or be terminable by the sublessee by reason of the termination of the Ground Lease unless such sublessee is specifically named and joined in any such action and unless a judgment is obtained therein against such sublessee; and (c) in the event that the Ground Lease is terminated as aforesaid, the sublessee shall attorn to Lender or to the purchaser of the Individual Property in foreclosure, as the case may be. All subleases of such Individual Property shall be deemed part of the Individual Property. ARTICLE 6. ENTITY COVENANTS Section 6.1. SINGLE PURPOSE ENTITY/SEPARATENESS Until the Debt has been paid in full, each Borrower represents, warrants and covenants as follows: (a) Each Borrower has not and will not: (i) engage in any business or activity other than the ownership, operation and maintenance of the Individual Property owned by such Borrower, and activities incidental thereto; (ii) acquire or own any assets other than (A) the Individual Property owned by such Borrower, and (B) such incidental Personal Property as may be necessary for the operation of the such Individual Property; (iii) except as expressly provided in Article 7 hereof, merge into or consolidate with any Person, or dissolve, terminate, liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure; (iv) fail to observe all organizational formalities, or fail to preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the applicable Legal Requirements of the jurisdiction of its organization or formation, or amend, modify, terminate or fail to comply with the provisions of its organizational documents; - 46 - (v) own any subsidiary, or make any investment in, any Person; (vi) commingle its assets with the assets of any other Person or permit any Affiliate or constituent party independent access to its bank accounts; (vii) incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than (A) the Debt, (B) trade and operational indebtedness incurred in the ordinary course of business with trade creditors, provided such indebtedness is (1) unsecured, (2) not evidenced by a note, (3) on commercially reasonable terms and conditions, and (4) due not more than sixty (60) days past the date incurred and paid on or prior to such date, and/or (C) financing leases and purchase money indebtedness incurred in the ordinary course of business relating to Personal Property on commercially reasonable terms and conditions; provided however, the aggregate amount of the indebtedness described in (B) and (C) shall not exceed at any time three percent (3%) of the outstanding Allocated Loan Amount with respect to such Individual Property; (viii) fail to maintain its records, books of account, bank accounts, financial statements, accounting records and other entity documents separate and apart from those of any other Person; except that each Borrower's financial position, assets, liabilities, net worth and operating results may be included in the consolidated financial statements of an Affiliate or holder of a beneficial interest in such Borrower, provided that such consolidated financial statements contain a footnote indicating that such Borrower is a separate legal entity, that it maintains separate books and records and the assets of such Borrower are not available as collateral to creditors of the holder of a beneficial interest in Borrower; (ix) enter into any contract or agreement with any general partner, member, shareholder, principal, guarantor of the obligations of or the holder of a beneficial interest in Borrower, or any Affiliate of the foregoing, except upon terms and conditions that are intrinsically fair, commercially reasonable and substantially similar to those that would be available on an arm's-length basis with unaffiliated third parties (the Management Agreement shall be deemed to comply with this subsection); (x) maintain its assets in such a manner that it will be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person; (xi) assume or guaranty the debts of any other Person, hold itself out to be responsible for the debts of any other Person, or otherwise pledge its assets for the benefit of any other Person or hold out its credit as being available to satisfy the obligations of any other Person; (xii) make any loans or advances to any Person; (xiii) fail to file its own tax returns or be included on the tax returns of any other Person except as required by Applicable Law and to the extent not treated as a "disregarded entity" under Applicable Law; - 47 - (xiv) fail either to hold itself out to the public as a legal entity separate and distinct from any other Person or to conduct its business solely in its own name or fail to correct any known misunderstanding regarding its separate identity; (xv) fail to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations, provided that such Borrower's failure to do so solely because of a shortfall in cash flow derived from the Individual Property owned by such Borrower shall not, by itself, constitute a beach of this covenant; (xvi) without the unanimous written consent of all its partners, members or holders of beneficial interests, as applicable, and the written consent of 100% of the directors/managers of each SPE Component Entity, including, without limitation, each Independent Director, (a) file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any Creditors Rights Laws, (b) seek or consent to the appointment of a receiver, liquidator or any similar official, (c) take any action that might cause such entity to become insolvent or (d) make an assignment for the benefit of creditors; (xvii) fail to allocate shared expenses (including, without limitation, shared office space and services performed by an employee of an Affiliate) among the Persons sharing such expenses and to use separate stationery, invoices and checks; (xviii) fail to remain solvent or pay its own liabilities (including, without limitation, salaries of its own employees) only from its own funds, provided that Borrower's failure to do so solely because of a shortfall in cash flow from the operation of the Individual Property owned by Borrower shall not, by itself, constitute a breach of this covenant; (xix) acquire obligations or securities of its partners, members, shareholders or other affiliates, as applicable; (xx) violate or cause to be violated the assumptions made with respect to Borrower and its principals in any opinion letter pertaining to substantive consolidation delivered to Lender in connection with the Loan; or (xxi) fail to maintain a sufficient number of employees in light of its contemplated business operations. (b) If a Borrower is a partnership or limited liability company, each general partner in the case of a general partnership, each general partner in the case of a limited partnership, or the managing member in the case of a limited liability company (each an "SPE Component Entity") of such Borrower, as applicable, shall be a corporation whose sole asset is its interest in such Borrower. Each SPE Component Entity (i) will at all times comply with each of the covenants, terms and provisions contained in Section 6.1(a)(iii) - (vi) and (viii) - (xxi), as if such representation, warranty or covenant was made directly by such SPE Component Entity; (ii) will not engage in any business or activity other than owning an interest in such Borrower; (iii) will not acquire or own any assets other than its partnership, membership, or other equity interest in - 48 - such Borrower; (iv) will not incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation); and (v) will cause such Borrower to comply with the provisions of this Section 6.1 and Section 6.4. Prior to the withdrawal or the disassociation of any SPE Component Entity from a Borrower, such Borrower shall immediately appoint a new general partner or managing member whose articles of incorporation are substantially similar to those of such SPE Component Entity and, if an opinion letter pertaining to substantive consolidation was required at closing, deliver a new opinion letter acceptable to Lender and the Rating Agencies with respect to the new SPE Component Entity and its equity owners. Notwithstanding the foregoing, to the extent a Borrower is a single member Delaware limited liability company, so long as Borrower maintains such formation status, no SPE Component Entity shall be required. (c) In the event a Borrower is a single member Delaware limited liability company, the limited liability company agreement of such Borrower (the "LLC AGREEMENT") shall provide that (i) upon the occurrence of any event that causes the sole member of Borrower ("MEMBER") to cease to be the member of Borrower (other than (A) upon an assignment by Member of all of its limited liability company interest in Borrower and the admission of the transferee in accordance with the Loan Documents and the LLC Agreement, or (B) the resignation of Member and the admission of an additional member of Borrower in accordance with the terms of the Loan Documents and the LLC Agreement), the person executing the LLC Agreement as a "Special Member" (as such term is defined in the LLC Agreement) ("SPECIAL MEMBER") shall, without any action of any other Person and simultaneously with the Member ceasing to be the member of Borrower, automatically be admitted to Borrower and shall continue Borrower without dissolution and (ii) Special Member may not resign from Borrower or transfer its rights as Special Member unless a successor Special Member has been admitted to Borrower as Special Member in accordance with requirements of Delaware law. The LLC Agreement shall further provide that (i) Special Member shall automatically cease to be a member of Borrower upon the admission to Borrower of a substitute Member, (ii) Special Member shall be a member of Borrower that has no interest in the profits, losses and capital of Borrower and has no right to receive any distributions of Borrower assets, (iii) pursuant to Section 18-301 of the Delaware Limited Liability Company Act (the "ACT"), Special Member shall not be required to make any capital contributions to Borrower and shall not receive a limited liability company interest in Borrower, (iv) Special Member, in its capacity as Special Member, may not bind Borrower and (v) except as required by any mandatory provision of the Act, Special Member, in its capacity as Special Member, shall have no right to vote on, approve or otherwise consent to any action by, or matter relating to, Borrower, including, without limitation, the merger, consolidation or conversion of Borrower; provided, however, such prohibition shall not limit the obligations of Special Member, in its capacity as Independent Director, to vote on such matters required by the Loan Documents or the LLC Agreement. In order to implement the admission to Borrower of Special Member, Special Member shall execute a counterpart to the LLC Agreement. Prior to its admission to Borrower as Special Member, Special Member shall not be a member of Borrower. Upon the occurrence of any event that causes the Member to cease to be a member of Borrower, to the fullest extent permitted by law, the personal representative of Member shall, within ninety (90) days after the occurrence of the event that terminated the continued membership of Member in Borrower, agree in writing (i) to continue Borrower and (ii) to the admission of the personal representative or its nominee or designee, as the case may be, as a substitute member of Borrower, effective as of the occurrence of the event that terminated the - 49 - continued membership of Member of Borrower in Borrower. Any action initiated by or brought against Member or Special Member under any Creditors Rights Laws shall not cause Member or Special Member to cease to be a member of Borrower and upon the occurrence of such an event, the business of Borrower shall continue without dissolution. The LLC Agreement shall provide that each of Member and Special Member waives any right it might have to agree in writing to dissolve Borrower upon the occurrence of any action initiated by or brought against Member or Special Member under any Creditors Rights Laws, or the occurrence of an event that causes Member or Special Member to cease to be a member of Borrower. Section 6.2. CHANGE OF NAME, IDENTITY OR STRUCTURE Borrowers shall not change or permit to be changed (a) Borrowers' names, (b) Borrowers' identities (including its trade name or names), (c) Borrowers' principal place of business set forth on the first page of this Agreement, (d) the corporate, partnership or other organizational structure of any Borrower, each SPE Component Entity (if any), or Borrower Principal, (e) Borrowers' state of organization, or (f) Borrower's organizational identification number, without in each case notifying Lender of such change in writing at least thirty (30) days prior to the effective date of such change and, in the case of a change in a Borrower's structure, without first obtaining the prior written consent of Lender. In addition, Borrowers shall not change or permit to be changed any organizational documents of Borrowers or any SPE Component Entity (if any) if such change would adversely impact the covenants set forth in Section 6.1 and Section 6.4 hereof. Borrowers authorize Lender to file any financing statement or financing statement amendment required by Lender to establish or maintain the validity, perfection and priority of the security interest granted herein. At the request of Lender, Borrowers shall execute certificates in form satisfactory to Lender listing the trade names under which Borrowers intend to operate the Properties, and representing and warranting that Borrowers do business under no other trade name with respect to the Properties. If a Borrower does not now have an organizational identification number and later obtains one, or if the organizational identification number assigned to Borrower subsequently changes, such Borrower shall promptly notify Lender of such organizational identification number or change. Nothing in this Section 6.2 shall be deemed to restrict any express rights granted to Borrowers under Article 7 hereof. Section 6.3. BUSINESS AND OPERATIONS Each Borrower will qualify to do business and will remain in good standing under the laws of the State as and to the extent the same are required for the ownership, maintenance, management and operation of the Individual Property owned by such Borrower. Section 6.4. INDEPENDENT DIRECTOR (a) The organizational documents of each Borrower and of each SPE Component Entity (if any) shall provide that at all times there shall be, and each such Borrower shall cause there to be, at least one, or if requested by Lender upon request or advisement of the Rating Agencies, two duly appointed managers (each an "INDEPENDENT DIRECTOR") of Borrower and such SPE Component Entity reasonably satisfactory to Lender each of whom is not at the time of such individual's initial appointment, and shall not have been at any time during the preceding - 50 - five (5) years, and shall not be at any time while serving as a manager of such Borrower, either (i) a shareholder (or other equity owner) of, or an officer, director, partner, manager, member (other than as a Special Member in the case of single member Delaware limited liability companies), employee, attorney or counsel of, such Borrower or any of their respective shareholders, partners, members, subsidiaries or Affiliates; (ii) a customer or creditor of, or supplier to, such Borrower or any of its respective shareholders, partners, members, subsidiaries or Affiliates who derives any of its purchases or revenue from its activities with such Borrower or any Affiliate of any of them; (iii) a Person who Controls or is under common Control with any such shareholder, officer, director, partner, manager, member, employee, supplier, creditor or customer; or (iv) a member of the immediate family of any such shareholder, officer, director, partner, manager, member, employee, supplier, creditor or customer. Lender acknowledges that the Borrowers may have the same Independent Director, provided that such Independent Director has been appointed by an independent third-party corporate service and otherwise satisfies the criteria set forth in this Section 6.4(a). (b) The organizational documents of each Borrower shall provide that the managers of such Borrower shall not take any action which, under the terms of any certificate of incorporation, by-laws or any voting trust agreement with respect to any common stock, requires an unanimous vote of the managers of such Borrower unless at the time of such action there shall be at least two managers who are Independent Directors. No Borrower which is a limited liability company will, without the unanimous written consent of its managers including each Independent Director, on behalf of itself or such Borrower, (i) file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable Creditors Rights Laws; (ii) seek or consent to the appointment of a receiver, liquidator or any similar official; (iii) take any action that might cause such entity to become insolvent; or (iv) make an assignment for the benefit of creditors. ARTICLE 7. NO SALE OR ENCUMBRANCE Section 7.1. TRANSFER DEFINITIONS For purposes of this Article 7 an "AFFILIATED MANAGER" shall mean any managing agent in which a Borrower, Borrower Principal, any SPE Component Entity (if any) or any affiliate of such entities has, directly or indirectly, any legal, beneficial or economic interest; "CONTROL" shall mean the power to direct the management and policies of a Restricted Party, directly or indirectly, whether through the ownership of voting securities or other beneficial interests, by contract or otherwise; "RESTRICTED PARTY" shall mean a Borrower, Borrower Principal, any SPE Component Entity (if any), any Affiliated Manager, or any shareholder, partner, member or non-member manager, or any direct or indirect legal or beneficial owner of a Borrower, Borrower Principal, any SPE Component Entity (if any), any Affiliated Manager or any non-member manager; and a "SALE OR PLEDGE" shall mean a voluntary or involuntary sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, grant of any options with respect to, or any other transfer or disposition of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) of a legal or beneficial interest. - 51 - Section 7.2. NO SALE/ENCUMBRANCE (a) Except as provided in Section 2.4(a)(ii) hereof, Borrowers shall not cause or permit a Sale or Pledge of any of the Properties or any part thereof or any legal or beneficial interest therein nor permit a Sale or Pledge of an interest in any Restricted Party (in each case, a "PROHIBITED TRANSFER"), other than pursuant to Leases of space in the Improvements to Tenants in accordance with the provisions of Section 5.13, without the prior written consent of Lender. (b) A Prohibited Transfer shall include, but not be limited to, (i) an installment sales agreement wherein a Borrower agrees to sell the Individual Property owned by it or any part thereof for a price to be paid in installments; (ii) an agreement by a Borrower leasing all or a substantial part of the Individual Property owned by it for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, such Borrower's right, title and interest in and to any Leases or any Rents; (iii) if a Restricted Party is a corporation, any merger, consolidation or Sale or Pledge of such corporation's stock or the creation or issuance of new stock in one or a series of transactions; (iv) if a Restricted Party is a limited or general partnership or joint venture, any merger or consolidation or the change, removal, resignation or addition of a general partner or the Sale or Pledge of the partnership interest of any general or limited partner or any profits or proceeds relating to such partnership interests or the creation or issuance of new partnership interests; (v) if a Restricted Party is a limited liability company, any merger or consolidation or the change, removal, resignation or addition of a managing member or non-member manager (or if no managing member, any member) or the Sale or Pledge of the membership interest of any member or any profits or proceeds relating to such membership interest; (vi) if a Restricted Party is a trust or nominee trust, any merger, consolidation or the Sale or Pledge of the legal or beneficial interest in a Restricted Party or the creation or issuance of new legal or beneficial interests; (vii) the removal or the resignation of Manager (including, without limitation, an Affiliated Manager) other than in accordance with Section 5.14 or (viii) if a Borrower is a Delaware statutory trust, any partition of interests, under the Trust Agreement of such Borrower. Section 7.3. PERMITTED TRANSFERS Notwithstanding the provisions of Section 7.2, the following transfers shall not be deemed to be a Prohibited Transfer: (a) a transfer by devise or descent or by operation of law upon the death of a member, partner or shareholder of a Restricted Party; (b) the Sale or Pledge, in one or a series of transactions, of not more than forty-nine percent (49%) of the stock, limited partnership interests or non-managing membership interests (as the case may be) in a Restricted Party; (c) the transfer of shares in publicly traded Restricted Parties in any amounts, even in excess of forty-nine percent (49%); (d) the transfer of shares in the sole member of a Borrower, if such Borrower is a limited liability company, even in excess of forty-nine percent (49%); (e) if a Borrower is a Delaware Statutory Trust, the transfer of the beneficial interest therein by Inland Western Retail Real Estate Trust, Inc., a Maryland corporation to any of the entities referred to in (f) below, or (f) if such Borrower is a limited liability company, the merger of such Borrower's sole member with, its acquisition by, or its acquisition of, any of the following entities: Inland Retail Real Estate Trust, Inc., a Maryland corporation, Inland Real Estate Corporation, a Maryland corporation, Inland Real Estate Investment Corporation, a Delaware corporation, Inland America Real Estate Trust, Inc., a Maryland corporation, any other real estate investment - 52 - trust sponsored by Inland Real Estate Investment Corporation, or any other entity composed entirely of any of the foregoing, by merger or other business combination; provided no such transfers shall result in a change in Control in a Restricted Party or a change in Control of an Individual Property (except that a transfer to any of the entities named or described in (e) above shall not be deemed such a change in Control in a Restricted Party or change in Control of an Individual Property provided the acquiring entity has a net worth equal to or greater than the net worth of the Inland Western Retail Real Estate Trust, Inc. as of the Closing Date), and as a condition to each such transfer, Lender shall receive not less than thirty (30) days prior written notice of such proposed transfer. Section 7.4. LENDER'S RIGHTS Lender reserves the right to condition the consent to a Prohibited Transfer requested hereunder upon (a) a modification of the terms hereof and an assumption of the Note and the other Loan Documents as so modified by the proposed Prohibited Transfer, (b) receipt of payment of a transfer fee equal to one percent (1%) of the outstanding principal balance of the Loan and all of Lender's expenses incurred in connection with such Prohibited Transfer, (c) receipt of written confirmation from the Rating Agencies that the Prohibited Transfer will not result in a downgrade, withdrawal or qualification of the initial, or if higher, then current ratings issued in connection with a Securitization, or if a Securitization has not occurred, any ratings to be assigned in connection with a Securitization, (d) the proposed transferee's continued compliance with the covenants set forth in this Agreement (including, without limitation, the covenants in Article 6) and the other Loan Documents, (e) a new manager for the Properties and a new management agreement for the Properties satisfactory to Lender, and (f) the satisfaction of such other conditions and/or legal opinions as Lender shall determine in its sole discretion to be in the interest of Lender. All expenses incurred by Lender shall be payable by Borrowers whether or not Lender consents to the Prohibited Transfer. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Debt immediately due and payable upon a Prohibited Transfer made without Lender's consent. This provision shall apply to each and every Prohibited Transfer, whether or not Lender has consented to any previous Prohibited Transfer. Notwithstanding anything to the contrary contained in this Section 7.4, in the event a substantive non-consolidation opinion was delivered to Lender and the Rating Agencies in connection with the closing of the Loan, and if any Sale or Pledge permitted under this Article 7 results in any Person and its Affiliates owning in excess of forty-nine percent (49%) of the ownership interests in a Restricted Party, Borrowers shall, prior to such transfer, and in addition to any other requirement for Lender consent contained herein, deliver a revised substantive non-consolidation opinion to Lender reflecting such Prohibited Transfer, which opinion shall be in form, scope and substance acceptable in all respects to Lender and the Rating Agencies, In no event shall Lender consent to a Prohibited Transfer of less than all the Properties. Section 7.5. ASSUMPTION Notwithstanding the foregoing provisions of this Article 7, following the date which is six (6) months from the Closing Date, Lender shall not unreasonably withhold consent to a transfer of all (but not less than all) of the Properties to, and the related assumption of the Loan - 53 - by, any Person (a "TRANSFEREE") provided that each of the following terms and conditions are satisfied: (a) no Default or Event of Default has occurred; (b) Borrowers shall have (i) delivered written notice to Lender of the terms of such prospective transfers not less than sixty (60) days before the date on which such transfers are scheduled to close and, concurrently therewith, all such information concerning the proposed Transferee as Lender shall reasonably require and (ii) paid to Lender a non-refundable processing fee in the amount of $25,000. Lender shall have the right to approve or disapprove the proposed transfers based on its then current underwriting and credit requirements for similar loans secured by similar properties which loans are sold in the secondary market, such approval not to be unreasonably withheld. In determining whether to give or withhold its approval of the proposed transfer, Lender shall consider the experience and track record of Transferee and its principals in owning and operating facilities similar to the Properties, the financial strength of Transferee and its principals, the general business standing of Transferee and its principals and Transferee's and its principals' relationships and experience with contractors, vendors, tenants, lenders and other business entities; provided, however, that, notwithstanding Lender's agreement to consider the foregoing factors in determining whether to give or withhold such approval, such approval shall be given or withheld based on what Lender determines to be commercially reasonable and, if given, may be given subject to such conditions as Lender may deem reasonably appropriate; (c) Borrowers shall have paid to Lender, concurrently with the closing of such Transfer, (i) a non-refundable assumption fee in an amount equal to one percent (1.0%) of the then outstanding principal balance of the Note and (ii) all out-of-pocket costs and expenses, including reasonable attorneys' fees, incurred by Lender in connection with the transfer; (d) Transferee assumes and agrees to pay the Debt as and when due subject to the provisions of Article 15 hereof and, prior to or concurrently with the closing of such transfer, Transferee and its constituent partners, members or shareholders as Lender may require, shall execute, without any cost or expense to Lender, such documents and agreements as Lender shall reasonably require to evidence and effectuate said assumption; (e) Borrowers and Transferee, without any cost to Lender, shall furnish any information requested by Lender for the preparation of, and shall authorize Lender to file, new financing statements and financing statement amendments and other documents to the fullest extent permitted by applicable law, and shall execute any additional documents reasonably requested by Lender; (f) Borrowers shall have delivered to Lender, without any cost or expense to Lender, such endorsements to Lender's Title Insurance Policies insuring that fee simple or leasehold title to the Properties, as applicable, is vested in Transferee (subject to Permitted Encumbrances), hazard insurance endorsements or certificates and other similar materials as Lender may deem necessary at the time of the transfer, all in form and substance satisfactory to Lender; - 54 - (g) Transferee shall have furnished to Lender, if Transferee is a corporation, partnership, limited liability company or other entity, all appropriate papers evidencing Transferee's organization and good standing, and the qualification of the signers to execute the assumption of the Debt, which papers shall include certified copies of all documents relating to the organization and formation of Transferee and of the entities, if any, which are partners or members of Transferee. Transferee and such constituent partners, members or shareholders of Transferee (as the case may be), as Lender shall require, shall comply with the covenants set forth in Article 6 hereof; (h) Transferee shall assume the obligations of Borrowers under the Management Agreements or provide new management agreements with a new manager which meets with the requirements of Section 5.14 hereof and assign to Lender as additional security such new management agreements; (i) Transferee shall furnish an opinion of counsel satisfactory to Lender and its counsel (A) that Transferee's formation documents provide for the matters described in subparagraph (g) above, (B) that the assumption of the Debt has been duly authorized, executed and delivered, and that the Note, the Mortgages, this Agreement, the assumption agreement and the other Loan Documents are valid, binding and enforceable against Transferee in accordance with their terms, (C) that Transferee and any entity which is a controlling stockholder, member or general partner of Transferee, have been duly organized, and are in existence and good standing, and (E) with respect to such other matters as Lender may reasonably request; (j) if required by Lender, Lender shall have received confirmation in writing from the Rating Agencies that rate the Securities to the effect that the transfer will not result in a qualification, downgrade or withdrawal of any rating initially assigned or to be assigned to the Securities; (k) Borrowers' obligations under the contract of sale pursuant to which the transfer is proposed to occur shall expressly be subject to the satisfaction of the terms and conditions of this Section 7.5; and (l) Transferee shall, prior to such transfer, deliver a substantive non-consolidation opinion to Lender, which opinion shall be in form, scope and substance acceptable in all respects to Lender and the Rating Agencies. A consent by Lender with respect to a transfer of the Properties to, and the related assumption of the Loan by, a Transferee pursuant to this Section 7.5 shall not be construed to be a waiver of the right of Lender to consent to any subsequent transfer of the Properties. Section 7.6. ASSUMPTION BY INLAND PERMITTED TRANSFEREE Notwithstanding the foregoing provisions of Article 7, Borrowers shall be permitted to transfer an Individual Property or all of the Properties to an Inland Permitted Transferee, provided the Loan is simultaneously assumed by an Inland Permitted Transferee, such transfer shall release the Borrower or Borrowers owning the Individual Property or Properties being transferred of its or their obligations under the Loan, and provided further that each of the following terms and conditions is satisfied: - 55 - (a) No Default or Event of Default has occurred; (b) Borrower or Borrowers, as applicable, shall have delivered written notice to Lender of the terms of such prospective transfer or transfers not less than forth-five (45) days before the date on which such transfer or transfers are scheduled to close and, concurrently with such written notice, all information concerning the proposed Transferee as Lender shall reasonably require; (c) Borrower or Borrowers, as applicable, shall have paid to Lender all out-of-pocket costs and expenses, including reasonable attorneys' fees, incurred by Lender in connection with the transfer or transfers; (d) Such Inland Permitted Transferee assumes and agrees to pay the Debt as and when due subject to the provisions of Article 15 hereof and, prior to or concurrently with the closing of such transfer or transfers, members or shareholders as Lender may require shall execute, without any cost or expense to Lender, such documents and agreements as Lender shall reasonably require to evidence and effectuate said assumption; (e) Borrower or Borrowers, as applicable, and such Inland Permitted Transferee, without any cost to Lender, shall furnish any information requested by Lender for the preparation of, and shall authorize the Lender to file, new financing statements and financing statement amendments and other documents to the fullest extent permitted by applicable law, and shall execute any additional documents reasonably requested by Lender; (f) Borrower or Borrowers, as applicable, shall have delivered to Lender, without any cost or expense to Lender, such endorsements to Lender's Title Insurance Policy or Policies insuring that fee simple title to the Individual Property or Properties is vested in such Inland Permitted Transferee (subject to Permitted Encumbrances), hazard insurance endorsements or certificates and other similar materials as Lender may deem necessary at the time of the transfer or transfers, all in form and substance satisfactory to Lender; (g) such Inland Permitted Transferee shall have furnished to Lender, if such Inland Permitted Transferee is a corporation, partnership, limited liability company or other entity, all appropriate papers evidencing Transferee's organization and good standing, and the qualification of the signers to execute the assumption of the Debt, which papers shall include certified copies of all documents relating to the organization and formation of Transferee and of the entities, if any, which are shareholders, partners or members of Transferee. Transferee and such constituent shareholders, partners or members (as the case may be), as Lender shall require, shall comply with the covenants set forth in Article 6 hereof, provided, however, that (i) if such Inland Permitted Transferee is a limited partnership or a limited liability company (with more than one member), Lender may require that the general partner or managing member of such Inland Permitted Transferee also comply with the covenants set forth in Article 6 hereof, as modified to state that such general partner or managing member holds an interest in the Inland Permitted Transferee rather than an interest in the Individual Property or Properties or (ii) if such Inland Permitted Transferee is a single member limited liability company, the state of organization of such entity must be Delaware and the organizational documents must provide for a springing member upon the bankruptcy or dissolution of the sole member; - 56 - (h) Such Inland Permitted Transferee shall assume the obligations of Borrower or Borrowers, as applicable, under any Management Agreement or provide a new management agreement with a new manager which meets the requirements of Section 5.14 hereof and assign to Lender as additional security such new management agreement; (i) Such Inland Permitted Transferee shall furnish an opinion of counsel satisfactory to Lender and its counsel (A) that Transferee's formation documents provide for the matters described in subparagraph (g) above, (B) that the assumption of the Debt has been duly authorized, executed and delivered, and that the Note, the Mortgage or Mortgages, as applicable, the assumption agreement and the other Loan Documents are valid, binding and enforceable against Transferee in accordance with their terms, (C) that Transferee and any entity which is a controlling stockholder, member or general partner of Transferee has been duly organized and is in existence and in good standing and (D) with respect to such other matters as Lender may reasonably request, including, without limitation, customary single member limited liability company opinions if such Inland Permitted Transferee is a Delaware limited liability company; and (j) Inland Permitted Transferee shall, prior to any such transfer, deliver a substantive non-consolidation opinion to Lender, in form, scope and substance acceptable in all respects to Lender and the Rating Agencies. A consent by Lender with respect to a transfer of an Individual Property or Properties to, and the related assumption of the Loan by, an Inland Permitted Transferee pursuant to this Section 7.6 shall not be construed to be a waiver of the right of Lender to consent to any subsequent Sale or Pledge thereof. ARTICLE 8. INSURANCE; CASUALTY; CONDEMNATION; RESTORATION Section 8.1. INSURANCE (a) Borrowers shall obtain and maintain, or cause to be maintained, at all times insurance for Borrowers and each Individual Property providing at least the following coverages: (i) comprehensive "all risk" insurance on the Improvements and the Personal Property, in each case (A) in an amount equal to one hundred percent (100%) of the "Full Replacement Cost," which for purposes of this Agreement shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation; (B) containing an agreed amount endorsement with respect to the Improvements and Personal Property waiving all co-insurance provisions; (C) providing for no deductible in excess of $25,000 for all such insurance coverage; and (D) if any of the Improvements or the use of an Individual Property shall at any time constitute legal non-conforming structures or uses, providing coverage for contingent liability from Operation of Building Laws, Demolition Costs and Increased Cost of Construction Endorsements and containing an "Ordinance or Law Coverage" or "Enforcement" endorsement. In addition, Borrowers shall obtain: (y) if any portion of the Improvements is currently or at any time in the future located in a "special flood - 57 - hazard area" designated by the Federal Emergency Management Agency, flood hazard insurance in an amount equal to the maximum amount of such insurance available under the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994, as each may be amended; and (z) earthquake insurance in amounts and in form and substance reasonably satisfactory to Lender in the event an Individual Property is located in an area with a high degree of seismic risk, provided that the insurance pursuant to clauses (y) and (z) hereof shall be on terms consistent with the comprehensive all risk insurance policy required under this subsection (i); (ii) Commercial General Liability insurance against claims for personal injury, bodily injury, death or property damage occurring upon, in or about any of the Individual Properties, with such insurance (A) to be on the so-called "occurrence" form with a general aggregate limit of not less than $2,000,000 and a per occurrence limit of not less than $1,000,000; (B) to continue at not less than the aforesaid limit until required to be changed by Lender in writing by reason of changed economic conditions making such protection inadequate; and (C) to cover at least the following hazards: (1) premises and operations; (2) products and completed operations; (3) independent contractors; (4) blanket contractual liability; and (5) contractual liability covering the indemnities contained in Article 12 and Article 14 hereof to the extent the same is available; (iii) loss of rents insurance or business income insurance, as applicable, (A) with loss payable to Lender; (B) covering all risks required to be covered by the insurance provided for in subsection (i) above; and (C) which provides that after the physical loss to the Improvements and Personal Property occurs, the loss of rents or income, as applicable, will be insured until completion of Restoration or the expiration of twelve (12) months, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period; and (D) which contains an extended period of indemnity endorsement which provides that after the physical loss to the Improvements and Personal Property has been repaired, the continued loss of income will be insured until such income either returns to the same level it was at prior to the loss, or the expiration of twelve (12) months from the date that any Individual Property is repaired or replaced and operations are resumed, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period. The amount of such loss of rents or business income insurance, as applicable, shall be determined prior to the date hereof and at least once each year thereafter based on Borrowers' reasonable estimate of the gross income from each Individual Property for the succeeding period of coverage required above. All proceeds payable to Lender pursuant to this subsection shall be held by Lender and shall be applied to the obligations secured by the Loan Documents from time to time due and payable hereunder and under the Note; provided, however, that nothing herein contained shall be deemed to relieve Borrower of its obligations to pay the obligations secured by the Loan Documents on the respective dates of payment provided for in the Note, this Agreement and the other Loan Documents except to the extent such amounts are actually paid out of the proceeds of such loss of rents or business income insurance, as applicable; - 58 - (iv) at all times during which structural construction, repairs or alterations are being made with respect to the Improvements, and only if each Individual Property coverage form does not otherwise apply, (A) owner's contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the above mentioned commercial general liability insurance policy; and (B) the insurance provided for in subsection (i) above written in a so-called Builder's Risk Completed Value form (1) on a non-reporting basis, (2) against "all risks" insured against pursuant to subsection (i) above, (3) including permission to occupy each Individual Property, and (4) with an agreed amount endorsement waiving co-insurance provisions; (v) workers' compensation, subject to the statutory limits of the State, and employer's liability insurance in respect of any work or operations on or about any Individual Property, or in connection with such Individual Property or its operation (if applicable); (vi) comprehensive boiler and machinery insurance, if applicable, in amounts as shall be reasonably required by Lender on terms consistent with the commercial property insurance policy required under subsection (i) above; (vii) excess liability insurance in an amount not less than $75,000,000 per occurrence on terms consistent with the commercial general liability insurance required under subsection (ii) above; and (viii) upon sixty (60) days' written notice, such other reasonable insurance and in such reasonable amounts as Lender from time to time may reasonably request against such other insurable hazards which at the time are commonly insured against for property similar to any Individual Property located in or around the regions in which such Individual Property is located. With respect to the Policies required to be maintained pursuant to clauses (i) through (viii) above, Borrower shall use commercially reasonable efforts, consistent with those prudent owners of institutional quality commercial real estate, to maintain insurance coverage against Losses resulting from acts of terrorism. (b) All insurance provided for in Section 8.1(a) shall be obtained under valid and enforceable policies (collectively, the "POLICIES" or in the singular, the "POLICY"), and shall be subject to the approval of Lender as to insurance companies, amounts, deductibles, loss payees and insureds. The Policies shall be issued by financially sound and responsible insurance companies authorized to do business in the State and having a claims paying ability rating of "A" or better by S&P (or such other ratings approved by Lender) and/or a general policy rating of "A" or better and a financial class of VIII or better by A.M. Best Company, Inc. The Policies described in Section 8.1(a) shall designate Lender and its successors and assigns as additional insureds, mortgagees and/or loss payee as deemed appropriate by Lender. To the extent such Policies are not available as of the Closing Date, Borrowers shall deliver certified copies of all Policies to Lender not later than thirty (30) days after the Closing Date. Not less than ten (10) days prior to the expiration dates of the Policies theretofore furnished to Lender, renewal Policies - 59 - accompanied by evidence satisfactory to Lender of payment of the premiums due thereunder (the "INSURANCE PREMIUMS") shall be delivered by Borrowers to Lender. (c) Any blanket insurance Policy shall specifically allocate to each Individual Property the amount of coverage from time to time required hereunder and shall otherwise provide the same protection as would a separate Policy insuring only such Individual Property in compliance with the provisions of Section 8.1(a). (d) All Policies provided for or contemplated by Section 8.1(a), except for the Policy referenced in Section 8.1(a)(v), shall name the Borrower owning the Individual Property as the insured and Lender as the additional insured, as its interests may appear, and in the case of property damage, boiler and machinery, flood and earthquake insurance, shall contain a so-called New York standard non-contributing mortgagee clause in favor of Lender providing that the loss thereunder shall be payable to Lender. (e) All Policies provided for in Section 8.1(a) shall contain clauses or endorsements to the effect that: (i) no act or negligence of a Borrower, or anyone acting for a Borrower, or of any Tenant or other occupant, or failure to comply with the provisions of any Policy, which might otherwise result in a forfeiture of the insurance or any part thereof, shall in any way affect the validity or enforceability of the insurance insofar as Lender is concerned; (ii) the Policies shall not be materially changed (other than to increase the coverage provided thereby) or canceled without at least thirty (30) days' prior written notice to Lender and any other party named therein as an additional insured; (iii) the issuers thereof shall give written notice to Lender if the Policies have not been renewed thirty (30) days prior to its expiration; and (iv) Lender shall not be liable for any Insurance Premiums thereon or subject to any assessments thereunder. (f) If at any time Lender is not in receipt of written evidence that all insurance required hereunder is in full force and effect, Lender shall have the right, without notice to Borrowers, to take such action as Lender deems necessary to protect its interest in the Property, including, without limitation, obtaining such insurance coverage as Lender in its sole discretion deems appropriate. All premiums incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrowers to Lender upon demand and, until paid, shall be secured by the Mortgages and shall bear interest at the Default Rate. Section 8.2. CASUALTY If any Individual Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (a "CASUALTY"), the Borrower owning such Individual Property shall give prompt notice of such damage to Lender and shall promptly commence and diligently prosecute the - 60 - Restoration of such Individual Property in accordance with Section 8.4, whether or not Lender makes any Net Proceeds available pursuant to Section 8.4. Such Borrower shall pay all costs of such Restoration whether or not such costs are covered by insurance. Lender may, but shall not be obligated to, make proof of loss if not made promptly by such Borrower. Such Borrower shall adjust all claims for Insurance Proceeds in consultation with, and with the approval of, Lender; provided, however, if an Event of Default has occurred and is continuing, Lender shall have the exclusive right to participate in the adjustment of all claims for Insurance Proceeds. Section 8.3. CONDEMNATION Borrowers shall promptly give Lender notice of the actual or threatened commencement of any proceeding for the Condemnation of an Individual Property of which Borrowers have knowledge and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Lender may participate in any such proceedings, and Borrowers shall from time to time deliver to Lender all instruments requested by it to permit such participation. Borrowers shall, at their expense, diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Notwithstanding any taking by any public or quasi-public authority through Condemnation or otherwise (including but not limited to any transfer made in lieu of or in anticipation of the exercise of such taking), Borrowers shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Agreement and the Debt shall not be reduced until any Award shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Award interest at the rate or rates provided herein or in the Note. If any Individual Property or any portion thereof is taken by a condemning authority, the Borrower owning the affected Individual Property shall promptly commence and diligently prosecute the Restoration of the Property and otherwise comply with the provisions of Section 8.4, whether or not Lender makes any Net Proceeds available pursuant to Section 8.4. If any Individual Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the Award, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the Award, or a portion thereof sufficient to pay the Debt. Section 8.4. RESTORATION The following provisions shall apply in connection with the Restoration of each Individual Property: (a) If the Net Proceeds shall be less than $75,000 and the costs of completing the Restoration shall be less than $75,000, the Net Proceeds will be disbursed by Lender to the Borrower owning the affected Individual Property upon receipt, provided that all of the conditions set forth in Section 8.4(b)(i) are met and Borrowers deliver to Lender a written undertaking to expeditiously commence and to satisfactorily complete with due diligence the Restoration in accordance with the terms of this Agreement. (b) If the Net Proceeds are equal to or greater than $75,000 or the costs of completing the Restoration are equal to or greater than $75,000, Lender shall make the Net Proceeds - 61 - available for the Restoration in accordance with the provisions of this Section 8.4. The term "NET PROCEEDS" for purposes of this Section 8.4 shall mean: (i) the net amount of all insurance proceeds received by Lender pursuant to Section 8.1(a)(i), (iv), (vi) and (vii) as a result of a Casualty, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting the same ("INSURANCE PROCEEDS"), or (ii) the net amount of the Award as a result of a Condemnation, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting the same ("CONDEMNATION PROCEEDS"), whichever the case may be. (i) The Net Proceeds shall be made available to the Borrower for Restoration provided that each of the following conditions are met: (A) no Event of Default shall have occurred and be continuing; (B) (1) in the event the Net Proceeds are Insurance Proceeds, less than twenty-five percent (25%) of the total floor area of the Improvements on the Individual Property has been damaged, destroyed or rendered unusable as a result of a Casualty or (2) in the event the Net Proceeds are Condemnation Proceeds, less than ten percent (10%) of the land constituting the Individual Property is taken, such land is located along the perimeter or periphery of the Individual Property, and no portion of the Improvements is located on such land; (C) Leases covering in the aggregate at least seventy-five percent (75%) of the total rentable space in such Individual Property which has been demised under executed and delivered Leases in effect as of the date of the occurrence of such Casualty or Condemnation, whichever the case may be, and each Major Lease in effect as of such date shall remain in full force and effect during and after the completion of the Restoration without abatement of rent beyond the time required for Restoration; (D) Borrower shall commence the Restoration as soon as reasonably practicable (but in no event later than sixty (60) days after such Casualty or Condemnation, whichever the case may be, occurs) and shall diligently pursue the same to satisfactory completion; (E) Lender shall be satisfied that any operating deficits, including all scheduled payments of principal and interest under the Note, which will be incurred with respect to such Individual Property as a result of the occurrence of any such Casualty or Condemnation, whichever the case may be, will be covered out of the insurance coverage referred to in Section 8.1(a)(iii) above; (F) Lender shall be satisfied that the Restoration will be completed on or before the earliest to occur of (1) six (6) months prior to the Maturity Date, (2) the earliest date required for such completion under the terms of any Leases or material agreements affecting such Individual Property, (3) such time as may be required under applicable zoning law, ordinance, rule or regulation, or (4) the expiration of the insurance coverage referred to in Section 8.1(a)(iii); - 62 - (G) such Individual Property and the use thereof after the Restoration will be in compliance with and permitted under all Legal Requirements; (H) the Restoration shall be done and completed by Borrower in an expeditious and diligent fashion and in compliance with all applicable Legal Requirements; (I) such Casualty or Condemnation, as applicable, does not result in the loss of access to such Individual Property or the Improvements; (J) Borrower shall deliver, or cause to be delivered, to Lender a signed detailed budget approved in writing by such Borrower's architect or engineer stating the entire cost of completing the Restoration, which budget shall be acceptable to Lender; and (K) the Net Proceeds together with any cash or cash equivalent deposited by the Borrower with Lender are sufficient in Lender's reasonable judgment to cover the cost of the Restoration. (ii) The Net Proceeds shall be held by Lender until disbursements commence, and, until disbursed in accordance with the provisions of this Section 8.4, shall constitute additional security for the Debt and other obligations under the Loan Documents. The Net Proceeds shall be disbursed by Lender to, or as directed by, the Borrower owning the affected Individual Property from time to time during the course of the Restoration, upon receipt of evidence satisfactory to Lender that (A) all the conditions precedent to such advance, including those set forth in Section 8.4(b)(i), have been satisfied, (B) all materials installed and work and labor performed (except to the extent that they are to be paid for out of the requested disbursement) in connection with the related Restoration item have been paid for in full, and (C) there exist no notices of pendency, stop orders, mechanic's or materialman's liens or notices of intention to file same, or any other liens or encumbrances of any nature whatsoever on such Individual Property which have not either been fully bonded to the satisfaction of Lender and discharged of record or in the alternative fully insured to the satisfaction of Lender by the title company issuing the Title Insurance Policy for such Individual Property. Notwithstanding the foregoing, Insurance Proceeds from the Policies required to be maintained by Borrowers pursuant to Section 8.1(a)(iii) shall be controlled by Lender at all times, shall not be subject to the provisions of this Section 8.4 and shall be used solely for the payment of the obligations under the Loan Documents and Operating Expenses. (iii) All plans and specifications required in connection with the Restoration shall be subject to prior review and acceptance in all respects by Lender and by an independent consulting engineer selected by Lender (the "Restoration Consultant"). Lender shall have the use of the plans and specifications and all permits, licenses and approvals required or obtained in connection with the Restoration. The identity of the contractors, subcontractors and materialmen engaged in the Restoration, as well as the contracts in excess of $50,000 under which they have been engaged, shall be subject to prior review and acceptance by Lender and the Restoration Consultant. All costs and - 63 - expenses incurred by Lender in connection with making the Net Proceeds available for the Restoration, including, without limitation, reasonable counsel fees and disbursements and the Restoration Consultant's fees, shall be paid by Borrowers. (iv) In no event shall Lender be obligated to make disbursements of the Net Proceeds in excess of an amount equal to the costs actually incurred from time to time for work in place as part of the Restoration, as certified by the Restoration Consultant, minus the Restoration Retainage. The term "Restoration Retainage" shall mean an amount equal to ten percent (10%) of the costs actually incurred for work in place as part of the Restoration, as certified by the Restoration Consultant, until the Restoration has been completed. The Restoration Retainage shall be reduced to five percent (5%) of the costs incurred upon receipt by Lender of satisfactory evidence that fifty percent (50%) of the Restoration has been completed. The Restoration Retainage shall in no event, and notwithstanding anything to the contrary set forth above in this Section 8.4(b), be less than the amount actually held back by Borrower from contractors, subcontractors and materialmen engaged in the Restoration. The Restoration Retainage shall not be released until the Restoration Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Section 8.4(b) and that all approvals necessary for the re-occupancy and use of such Individual Property have been obtained from all appropriate Governmental Authorities, and Lender receives evidence satisfactory to Lender that the costs of the Restoration have been paid in full or will be paid in full out of the Restoration Retainage; provided, however, that Lender will release the portion of the Restoration Retainage being held with respect to any contractor, subcontractor or materialman engaged in the Restoration as of the date upon which the Restoration Consultant certifies to Lender that the contractor, subcontractor or materialman has satisfactorily completed all work and has supplied all materials in accordance with the provisions of the contractor's, subcontractor's or materialman's contract, the contractor, subcontractor or materialman delivers the lien waivers and evidence of payment in full of all sums due to the contractor, subcontractor or materialman as may be reasonably requested by Lender or by the title company issuing the Title Insurance Policy for such Individual Property, and Lender receives an endorsement to such Title Insurance Policy insuring the continued priority of the lien of the Mortgage on such Individual Property and evidence of payment of any premium payable for such endorsement. If required by Lender, the release of any such portion of the Restoration Retainage shall be approved by the surety company, if any, which has issued a payment or performance bond with respect to the contractor, subcontractor or materialman. (v) Lender shall not be obligated to make disbursements of the Net Proceeds more frequently than once every calendar month. (vi) If at any time the Net Proceeds or the undisbursed balance thereof shall not, in the reasonable opinion of Lender in consultation with the Restoration Consultant, be sufficient to pay in full the balance of the costs which are estimated by the Restoration Consultant to be incurred in connection with the completion of the Restoration, the Borrower shall deposit the deficiency (the "Net Proceeds Deficiency") with Lender before any further disbursement of the Net Proceeds shall be made. The Net Proceeds Deficiency deposited with Lender shall be held by Lender and shall be disbursed for costs - 64 - actually incurred in connection with the Restoration on the same conditions applicable to the disbursement of the Net Proceeds, and until so disbursed pursuant to this Section 8.4(b) shall constitute additional security for the Debt and other obligations under the Loan Documents. (vii) The excess, if any, of the Net Proceeds and the remaining balance, if any, of the Net Proceeds Deficiency deposited with Lender after the Restoration Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Section 8.4(b), and the receipt by Lender of evidence satisfactory to Lender that all costs incurred in connection with the Restoration have been paid in full, shall be remitted by Lender to such Borrower, provided no Event of Default shall have occurred and shall be continuing under the Note, this Agreement or any of the other Loan Documents. (c) All Net Proceeds not required (i) to be made available for the Restoration or (ii) to be returned to Borrower as excess Net Proceeds pursuant to Section 8.4(b)(vii) may (x) be retained and applied by Lender toward the payment of the Debt whether or not then due and payable in such order, priority and proportions as Lender in its sole discretion shall deem proper, or, (y) at the sole discretion of Lender, the same may be paid, either in whole or in part, to such Borrower for such purposes and upon such conditions as Lender shall designate. (d) In the event of foreclosure of the Mortgage on an Individual Property, or other transfer of title to such Individual Property in extinguishment in whole or in part of the Debt, all right, title and interest of the Borrowers in and to the Policies then in force concerning the Individual Property and all proceeds payable thereunder shall thereupon vest in the purchaser at such foreclosure, Lender or other transferee in the event of such other transfer of title. (e) As long as the Tenants are not in default under the terms of their Leases, the Net Proceeds shall be used for the restoration of the affected Individual Property in accordance with the terms of the Leases, provided that Lender or its designee shall hold the Net Proceeds and that the actual disbursements therefrom for work done in connection with the Restoration shall be made in accordance with the terms of this Agreement. ARTICLE 9. RESERVE FUNDS Section 9.1. REQUIRED REPAIRS (a) Borrowers shall make the repairs and improvements to the Properties set forth in the Physical Conditions Reports prepared in connection with the closing of the Loan (such repairs hereinafter referred to as "Required Repairs") and referenced in Schedule III attached hereto and made part hereof. Borrowers shall complete the Required Repairs in a good and workmanlike manner on or before the date that is six (6) months from the date hereof or within such other time frame for completion specifically set forth on Schedule III. (b) If Borrowers or any of them fail to complete the Required Repairs within six (6) months from the date hereof, Borrowers shall establish on the date hereof an Eligible Account with Lender or Lender's agent to fund the Required Repairs (the "Required Repair Account") - 65 - into which Borrowers shall deposit on the date thereof an amount which equals 125% of the estimated cost for the completion of the Required Repairs. Amounts so deposited shall hereinafter be referred to as the "REQUIRED REPAIR FUNDS." Section 9.2. REPLACEMENTS (a) On an ongoing basis throughout the term of the Loan, Borrowers shall make capital repairs, replacements and improvements necessary to keep the Properties in good order and repair and in a good marketable condition or prevent deterioration of the Properties, including, but not limited to, those repairs, replacements and improvements more particularly described (i) in the Physical Conditions Reports prepared in connection with the closing of the Loan and (ii) on Schedule IV attached hereto and made a part hereof (collectively, the "Replacements"). Borrowers shall complete all Replacements in a good and workmanlike manner as soon as commercially reasonable after commencing to make each such Replacement. (a) Borrower shall establish on the date hereof an Eligible Account with Lender or Lender's agent to fund the Replacements (the "REPLACEMENT RESERVE ACCOUNT") into which Borrower shall deposit on the date hereof $0. In addition, Borrower shall deposit $0 (the "REPLACEMENT RESERVE MONTHLY DEPOSIT") into the Replacement Reserve Account on each Scheduled Payment Date. Amounts so deposited shall hereinafter be referred to as "REPLACEMENT RESERVE FUNDS." Upon the occurrence of an Event of Default or in the event that the actual Debt Service Coverage Ratio for the Loan falls below 1.50 to 1, Lender may, in its reasonable discretion, adjust the Replacement Reserve Monthly Deposit to an amount sufficient to maintain the proper maintenance and operation of the Property until the first Scheduled Payment Date after two (2) consecutive fiscal quarters that the actual Debt Service Coverage Ratio for the Loan (as determined by Lender in its sole discretion reasonably exercised) rises above 1.50 to 1. In the event Lender shall at any time increase the Replacement Reserve Monthly Deposit, Borrower may, at its election, request that Lender obtain, at the sole cost and expense of Borrower, a Physical Conditions Report prepared by an engineer selected by Lender in its reasonable discretion, in which case the Replacement Reserve Monthly Deposit shall be adjusted by Lender based on the results of such report, provided that in no event shall such amounts be reduced below the initial amount of the Replacement Reserve Monthly Deposit set forth in herein. Replacement Reserve Monthly Deposits shall be required for the duration of the Loan should the Debt Service Coverage Ratio for the Loan fall below 1.50 to 1 on more than two separate occasions. Section 9.3. INTENTIONALLY OMITTED Section 9.4. REQUIRED WORK Borrowers shall diligently pursue all Required Repairs and Replacements and Tenant Improvements (collectively, the "REQUIRED WORK") to completion in accordance with the following requirements: (a) Lender reserves the right, at its option, to approve all contracts or work orders with materialmen, mechanics, suppliers, subcontractors, contractors or other parties providing labor or materials in connection with the Required Work to the extent such contracts or work - 66 - orders exceed $50,000. Upon Lender's request, Borrowers shall assign any contract or subcontract to Lender. (b) In the event Lender determines in its reasonable discretion that any Required Work is not being or has not been performed in a workmanlike or timely manner, Lender shall have the option to withhold disbursement for such unsatisfactory Required Work and to proceed under existing contracts or to contract with third parties to complete such Required Work and to apply the Required Repair Funds or the Replacement Reserve Funds, as applicable, toward the labor and materials necessary to complete such Required Work, without providing any prior notice to Borrowers and to exercise any and all other remedies available to Lender upon an Event of Default hereunder. (c) In order to facilitate Lender's completion of the Required Work, Borrowers grant Lender the right to enter onto any Individual Property and perform any and all work and labor necessary to complete the Required Work and/or employ watchmen to protect any Individual Property from damage. All sums so expended by Lender, to the extent not from the Reserve Funds, shall be deemed to have been advanced under the Loan to Borrowers and secured by the Mortgages. For this purpose Borrowers constitute and appoint Lender their true and lawful attorney-in-fact with full power of substitution to complete or undertake the Required Work in the names of Borrowers upon Borrowers' failure to do so in a workmanlike and timely manner. Such power of attorney shall be deemed to be a power coupled with an interest and cannot be revoked. Borrowers empower said attorney-in-fact as follows: (i) to use any of the Reserve Funds for the purpose of making or completing the Required Work; (ii) to make such additions, changes and corrections to the Required Work as shall be necessary or desirable to complete the Required Work; (iii) to employ such contractors, subcontractors, agents, architects and inspectors as shall be required for such purposes; (iv) to pay, settle or compromise all existing bills and claims which are or may become Liens against any of the Properties, or as may be necessary or desirable for the completion of the Required Work, or for clearance of title; (v) to execute all applications and certificates in the names of Borrowers which may be required by any of the contract documents; (vi) to prosecute and defend all actions or proceedings in connection with any of the Properties or the rehabilitation and repair of any of the Properties; and (vii) to do any and every act which Borrowers might do on their own behalf to fulfill the terms of this Agreement. (d) Nothing in this Section 9.4 shall: (i) make Lender responsible for making or completing the Required Work; (ii) require Lender to expend funds in addition to the Reserve Funds to make or complete any Required Work; (iii) obligate Lender to proceed with the Required Work; or (iv) obligate Lender to demand from Borrowers additional sums to make or complete any Required Work. (e) Borrowers shall permit Lender and Lender's agents and representatives (including, without limitation, Lender's engineer, architect, or inspector) or third parties performing Required Work pursuant to this Section 9.4 to enter onto any Individual Property during normal business hours (subject to the rights of tenants under their Leases) to inspect the progress of any Required Work and all materials being used in connection therewith, to examine all plans and shop drawings relating to such Required Work which are or may be kept at an Individual Property, and to complete any Required Work made pursuant to this Section 9.4. - 67 - Borrowers shall cause all contractors and subcontractors to cooperate with Lender and Lender's representatives or such other persons described above in connection with inspections described in this Section 9.4 or the completion of Required Work pursuant to this Section 9.4. (f) Lender may, to the extent any Required Work would reasonably require an inspection of an Individual Property, inspect such Individual Property at Borrowers' expense prior to making a disbursement of the Reserve Funds in order to verify completion of the Required Work for which reimbursement is sought. Borrowers shall pay Lender a reasonable inspection fee not exceeding $1,000 for each such inspection. Lender may require that such inspection be conducted by an appropriate independent qualified professional selected by Lender and/or may require a copy of a certificate of completion by an independent qualified professional acceptable to Lender prior to the disbursement of the Reserve Funds. Borrowers shall pay the expense of the inspection as required hereunder, whether such inspection is conducted by Lender or by an independent qualified professional. (g) The Required Work and all materials, equipment, fixtures, or any other item comprising a part of any Required Work shall be constructed, installed or completed, as applicable, free and clear of all mechanic's, materialman's or other Liens (except for Permitted Encumbrances). (h) Before each disbursement of the Reserve Funds, Lender may require Borrowers to provide Lender with a search of title to the affected Individual Property effective to the date of the disbursement, which search shows that no mechanic's or materialmen's or other Liens of any nature have been placed against such Individual Property since the date of recordation of the Mortgage thereon and that title to such Individual Property is free and clear of all Liens (except for Permitted Encumbrances). (i) All Required Work shall comply with all Legal Requirements and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (j) Borrowers hereby assign to Lender all rights and claims Borrowers may have against all Persons supplying labor or materials in connection with the Required Work; provided, however, that Lender may not pursue any such rights or claims unless an Event of Default has occurred and remains uncured. SECTION 9.5. RELEASE OF RESERVE FUNDS (a) Upon written request from a Borrower and satisfaction of the requirements set forth in this Agreement, Lender shall disburse to such Borrower amounts from (i) the Required Repair Account to the extent necessary to reimburse such Borrower for the actual costs of each Required Repair (but not exceeding 125% of the original estimated cost of such Required Repair as set forth on Schedule III, unless Lender has agreed to reimburse Borrower for such excess cost pursuant to Section 9.5(f)) or (ii) the Replacement Reserve Account to the extent necessary to reimburse such Borrower for the actual costs of any approved Replacements. Notwithstanding the preceding sentence, in no event shall Lender be required to (x) disburse any amounts which would cause the amount of funds remaining in the Required Repair Account after any - 68 - disbursement (other than with respect to the final disbursement) to be less than 125% of the then current estimated cost of completing all remaining Required Repairs for the applicable Individual Property, (y) disburse funds from any of the Reserve Accounts if an Event of Default exists, or (z) disburse funds from the Replacement Reserve Account to reimburse a Borrower for the costs of routine repairs or maintenance to an Individual Property or for costs which are to be reimbursed from funds held in the Required Repair Account. (b) Each request for disbursement from any of the Reserve Accounts shall be on a form provided or approved by Lender and shall (i) include copies of invoices for all items or materials purchased and all labor or services provided and (ii) specify (A) the Required Work for which the disbursement is requested, (B) the quantity and price of each item purchased, if the Required Work includes the purchase or replacement of specific items, (C) the price of all materials (grouped by type or category) used in any Required Work other than the purchase or replacement of specific items, and (D) the cost of all contracted labor or other services applicable to each Required Work for which such request for disbursement is made. With each request the Borrower making the request shall certify that all Required Work has been performed in accordance with all Legal Requirements. Except as provided in Section 9.5(d), each request for disbursement shall be made only after completion of the Required Repair or Replacement (or the portion thereof completed in accordance with Section 9.5(d)), as applicable, for which disbursement is requested. Borrowers shall provide Lender evidence satisfactory to Lender in its reasonable judgment of such completion or performance. (c) Borrowers shall pay all invoices in connection with the Required Work with respect to which a disbursement is requested prior to submitting such request for disbursement from the Reserve Accounts or, at the request of a Borrower, Lender will issue joint checks, payable to such Borrower and the contractor, supplier, materialman, mechanic, subcontractor or other party to whom payment is due in connection with the Required Work. In the case of payments made by joint check, Lender may require a waiver of lien from each Person receiving payment prior to Lender's disbursement of the Reserve Funds. In addition, as a condition to any disbursement, Lender may require a Borrower to obtain lien waivers from each contractor, supplier, materialman, mechanic or subcontractor who receives payment in an amount equal to or greater than $10,000 for completion of its work or delivery of its materials. Any lien waiver delivered hereunder shall conform to all Legal Requirements and shall cover all work performed and materials supplied (including equipment and fixtures) for the applicable Individual Property by that contractor, supplier, subcontractor, mechanic or materialman through the date covered by the current disbursement request (or, in the event that payment to such contractor, supplier, subcontractor, mechanic or materialmen is to be made by a joint check, the release of lien shall be effective through the date covered by the previous release of funds request). (d) If (i) the cost of any item of Required Work exceeds $50,000, (ii) the contractor performing such Required Work requires periodic payments pursuant to terms of a written contract, and (iii) Lender has approved in writing in advance such periodic payments, a request for disbursement from the Reserve Accounts may be made after completion of a portion of the work under such contract, provided (A) such contract requires payment upon completion of such portion of work, (B) the materials for which the request is made are on site at the applicable Individual Property and are properly secured or have been installed in the Individual Property, (C) all other conditions in this Agreement for disbursement have been satisfied, and (D) in the - 69 - case of a Replacement, funds remaining in the Replacement Reserve Account are, in Lender's judgment, sufficient to complete such Replacement and other Replacements when required. (e) Borrowers shall not make a request for, nor shall Lender have any obligation to make, any disbursement from any Reserve Account more frequently than once in any calendar month and (except in connection with the final disbursement) in any amount less than the lesser of (i) $10,000 or (ii) the total cost of the Required Work for which the disbursement is requested. (f) In the event any Borrower requests a disbursement from the Required Repair Account to reimburse such Borrower for the actual cost of labor or materials used in connection with repairs or improvements other than the Required Repairs specified on Schedule III, or for a Required Repair to the extent the cost of such Required Repair exceeds 125% of the estimated cost of such Required Repair as set forth on Schedule III (in either case, an "Additional Required Repair"), such Borrower shall disclose in writing to Lender the reason why funds in the Required Repair Account should be used to pay for such Additional Required Repair. If Lender determines that (i) such Additional Required Repair is of the type intended to be covered by the Required Repair Account, (ii) such Additional Required Repair is not covered or is not of the type intended to be covered by the Replacement Reserve Account, (iii) costs for such Additional Required Repair are reasonable, (iv) the funds in the Required Repair Account are sufficient to pay for such Additional Required Repair and all other Required Repairs for the Individual Property specified on Schedule III, and (v) all other conditions for disbursement under this Agreement have been met, Lender may disburse funds from the Required Repair Account. (g) In the event any Borrower requests a disbursement from the Replacement Reserve Account to reimburse such Borrower for the actual cost of labor or materials used in connection with repairs or improvements other than the Replacements specified in the Physical Conditions Report prepared in connection with the closing of the Loan (an "Additional Replacement"), such Borrower shall disclose in writing to Lender the reason why funds in the Replacement Reserve Account should be used to pay for such Additional Replacement. If Lender determines that (i) such Additional Replacement is of the type intended to be covered by the Replacement Reserve Account, (ii) such Additional Replacement is not covered or is not of the type intended to be covered by the Required Repair Account, (iii) costs for such Additional Replacement are reasonable, (iv) the funds in the Replacement Reserve Account are sufficient to pay for such Additional Replacement and all other Replacements for the Individual Property specified in the Physical Conditions Reports, and (v) all other conditions for disbursement under this Agreement have been met, Lender may disburse funds from the Replacement Reserve Account. (h) Lender's disbursement of any Reserve Funds or other acknowledgment of completion of any Required Work in a manner satisfactory to Lender shall not be deemed a certification or warranty by Lender to any Person that the Required Work has been completed in accordance with Legal Requirements. (i) If the funds in any Reserve Account should exceed the amount of payments actually applied by Lender for the purposes of the account, Lender in its sole discretion shall either return any excess to Borrowers or credit such excess against future payments to be made to that Reserve Account. In allocating any such excess, Lender may deal with the Person shown on Lender's records as being the owner of the applicable Individual Property. If at any time Lender - 70 - reasonably determines that the Reserve Funds are not or will not be sufficient to make the required payments, Lender shall notify Borrowers of such determination and Borrowers shall pay to Lender any amount necessary to make up the deficiency within ten (10) days after notice from Lender to Borrowers requesting payment thereof. (j) The insufficiency of any balance in any of the Reserve Accounts shall not relieve Borrowers from their obligation to fulfill all preservation and maintenance covenants in the Loan Documents. (k) Upon the earlier to occur of (i) the timely completion of all Required Repairs and any Additional Required Repairs, if any, in accordance with the requirements of this Agreement, as verified by Lender in its reasonable discretion, or (ii) the payment in full of the Debt, all amounts remaining on deposit, if any, in the Required Repair Account shall be returned to Borrowers or the Persons shown on Lender's records as being the owners of the Properties and no other party shall have any right or claim thereto. (l) Upon payment in full of the Debt, all amounts remaining on deposit, if any, in the Replacement Reserve Account shall be returned to Borrowers or the Persons shown on Lender's records as being the owners of the Properties and no other party shall have any right or claim thereto. Section 9.6. TAX AND INSURANCE RESERVE FUNDS Borrower shall establish on the date hereof an Eligible Account with Lender or Lender's agent sufficient to discharge Borrower's obligations for the payment of Taxes and Insurance Premiums pursuant to Section 5.4 and Section 8.1 hereof (the "TAX AND INSURANCE RESERVE ACCOUNT") into which Borrower shall deposit on the date hereof $0. Upon the occurrence of an Event of Default or in the event that the Debt Service Coverage Ratio for the Loan falls below 1.50 to 1, Borrower shall immediately deposit into the Tax and Insurance Reserve Account an amount determined by Lender which, when added to the required monthly deposits set forth in the next sentence, is sufficient to make the payments of Taxes and Insurance Premiums as required herein. On each Scheduled Payment Date thereafter that the Event of Default remains uncured or until the first Scheduled Payment Date after two (2) consecutive fiscal quarters that the Debt Service Coverage Ratio for the Loan (as determined by Lender in its sole discretion reasonably exercised) rises above 1.50 to 1, Borrower shall deposit into the Tax and Insurance Reserve Account (a) one-twelfth of the Taxes that Lender estimates will be payable during the next ensuing twelve (12) months or such higher amount necessary to accumulate with Lender sufficient funds to pay all such Taxes at least thirty (30) days prior to the earlier of (i) the date that the same will become delinquent and (ii) the date that additional charges or interest will accrue due to the non-payment thereof, and (b) unless the Property is covered by a blanket insurance policy acceptable to Lender, one-twelfth of the Insurance Premiums that Lender estimates will be payable during the next ensuing twelve (12) months for the renewal of the coverage afforded by the Policies upon the expiration thereof or such higher amount necessary to accumulate with Lender sufficient funds to pay all such Insurance Premiums at least thirty (30) days prior to the expiration of the Policies (said amounts in (a) and (b) above hereinafter called the "TAX AND INSURANCE RESERVE FUNDS"). Lender will apply the Tax and Insurance Reserve Funds to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant - 71 - to Section 5.4 and Section 8.1 hereof. In making any disbursement from the Tax and Insurance Reserve Account, Lender may do so according to any bill, statement or estimate procured from the appropriate public office or tax lien service (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums), without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If the amount of the Tax and Insurance Reserve Funds shall exceed the amounts due for Taxes and Insurance Premiums pursuant to Section 5.4 and Section 8.1 hereof, Lender shall, in its sole discretion, return any excess to Borrower or credit such excess against future payments to be made to the Tax and Insurance Reserve Account. In allocating any such excess, Lender may deal with the person shown on Lender's records as being the owner of the Property. Any amount remaining in the Tax and Insurance Reserve Account after the Debt has been paid in full shall be returned to Borrower or the person shown on Lender's records as being the owner of the Property and no other party shall have any right or claim thereto. If at any time Lender reasonably determines that the Tax and Insurance Reserve Funds are not or will not be sufficient to pay Taxes and Insurance Premiums by the dates set forth in (a) and (b) above, Lender shall notify Borrower of such determination and Borrower shall pay to Lender any amount necessary to make up the deficiency within ten (10) days after notice from Lender to Borrower requesting payment thereof. The Tax and Insurance Reserve Account will remain in place for the duration of the Loan should the Debt Service Coverage Ratio for the Loan (as determined by Lender in its sole discretion reasonably exercised) fall below 1.50 to 1 on more than two separate occasions. Section 9.7. ENVIRONMENTAL REMEDIATION/MONITORING RESERVE (a) Borrowers, as applicable, shall cause the performance of the remediation and monitoring work for the Properties as set forth in those certain Phase I environmental assessment reports referenced on Schedule V attached hereto and made a part hereof (such remediation and monitoring work hereinafter referred to as "Environmental Repairs"). Borrowers, as applicable, shall undertake such Environmental Repairs on or before the date that is six (6) months from the date hereof. (b) If Borrowers or any of them fail to complete the Environmental Repairs within six (6) months from the date hereof, Borrowers shall establish on the date hereof an Eligible Account with Lender or Lender's agent to fund the Environmental Repairs (the "Environmental Repairs Account") into which Borrowers shall deposit on the date thereof an amount which equals 125% of the estimated cost for the implementation of the Environmental Repairs. Amounts so deposited shall hereinafter be referred to as the "ENVIRONMENTAL REPAIR FUNDS." (c) Upon the earlier to occur of (i) the timely completion of all Environmental Repairs in accordance with Applicable Law, as verified by Lender in its reasonable discretion, or (ii) the payment in full of the Debt, all amounts remaining on deposit, if any, in the Environmental Repairs Account shall be returned to the applicable Borrower or the Persons shown on Lender's records as being the owners of the Properties and no other party shall have any right or claim thereto. Lender's disbursement of any amounts from the Environmental Repairs Account or other acknowledgment of completion of any Environmental Repairs in a manner satisfactory to Lender shall not be deemed a certification or warranty by Lender to any Person that the Required Work has been completed in accordance with Legal Requirements. - 72 - Section 9.8. MID-HUDSON GROUND LEASE ESTOPPEL RESERVE (a) Borrower shall establish on the date hereof an Eligible Account with Lender or Lender's agent to fund a reserve for the Mid-Hudson Center ground lessor estoppel escrow (the "ESTOPPEL RESERVE ACCOUNT") into which Borrower shall deposit on the date hereof $3,000,000. Amounts so deposited shall hereinafter be referred to as "ESTOPPEL RESERVE FUNDS." (b) Upon the delivery to Lender of an acceptable, to Lender in its sole discretion (it being understood and acknowledged by Lender that the form of estoppel attached to Exhibit C of the Post Closing Obligations Letter executed by the Borrowers in connection with the Loan shall be an acceptable form of estoppel for purposes of this Section), executed Ground Lease Estoppel and Agreement from the Ground Lessor at the Individual Property commonly known as Mid-Hudson Center of Poughkeepsie, New York, all amounts remaining on deposit, if any, in the Estoppel Reserve Account shall be returned to the applicable Borrower or the Persons shown on Lender's records as being the owners of the Properties and no other party shall have any right or claim thereto. SECTION 9.9. RESERVE FUNDS GENERALLY (a) (i) Except for the Replacement Reserve Account, no earnings or interest on the Reserve Accounts shall be payable to Borrowers. Neither Lender nor any loan servicer that at any time holds or maintains such non-interest-bearing Reserve Accounts shall have any obligation to keep or maintain such Reserve Accounts or any funds deposited therein in interest-bearing accounts. If Lender or any such loan servicer elects in its sole and absolute discretion to keep or maintain any non-interest-bearing Reserve Account or any funds deposited therein in an interest-bearing account, the account shall be an Eligible Account and (A) such funds shall not be invested except in Permitted Investments, and (B) all interest earned or accrued thereon shall be for the account of and be retained by Lender or such loan servicer. Funds deposited in the Replacement Reserve Account shall be held in an interest-bearing business savings account and interest shall be credited to Borrowers. In no event shall Lender or any loan servicer that at any time holds or maintains the Replacement Reserve Account be required to select any particular interest-bearing account or the account that yields the highest rate of interest, provided that selection of the account shall be consistent with the general standards at the time being utilized by Lender or the loan servicer, as applicable, in establishing similar accounts for loans of comparable type. All such interest shall be and become part of the Replacement Reserve Account and shall be disbursed in accordance with Section 9.5 above; provided, however, that Lender may, at its election, retain any such interest for its own account during the occurrence and continuance of an Event of Default. Borrowers agree that they shall include all interest on Replacement Reserve Funds as the income of Borrowers (and, if a Borrower is a partnership or other pass-through entity, the partners, members or beneficiaries of such Borrower, as the case may be), and shall be the owner of the Replacement Reserve Funds for federal and applicable state and local tax purposes, except to the extent that Lender retains any interest for its own account during the occurrence and continuance of an Event of Default as provided herein. - 73 - (b) Borrowers grant to Lender a first-priority perfected security interest in, and assign and pledge to Lender, each of the Reserve Accounts and any and all Reserve Funds now or hereafter deposited in the Reserve Accounts as additional security for payment of the Debt. Until expended or applied in accordance herewith, the Reserve Accounts and the Reserve Funds shall constitute additional security for the Debt. The provisions of this Section 9.9 are intended to give Lender or any subsequent holder of the Loan "control" of the Reserve Accounts within the meaning of the UCC. (c) The Reserve Accounts and any and all Reserve Funds now or hereafter deposited in the Reserve Accounts shall be subject to the exclusive dominion and control of Lender, which shall hold the Reserve Accounts and any or all Reserve Funds now or hereafter deposited in the Reserve Accounts subject to the terms and conditions of this Agreement. Borrowers shall have no right of withdrawal from the Reserve Accounts or any other right or power with respect to the Reserve Accounts or any or all of the Reserve Funds now or hereafter deposited in the Reserve Accounts, except as expressly provided in this Agreement. (d) Lender shall furnish or cause to be furnished to Borrowers, without charge, an annual accounting of each Reserve Account in the normal format of Lender or its loan servicer, showing credits and debits to such Reserve Account and the purpose for which each debit to each Reserve Account was made. (e) As long as no Event of Default has occurred, Lender shall make disbursements from the Reserve Accounts in accordance with this Agreement. All such disbursements shall be deemed to have been expressly pre-authorized by Borrowers, and shall not be deemed to constitute the exercise by Lender of any remedies against Borrowers unless an Event of Default has occurred and is continuing and Lender has expressly stated in writing its intent to proceed to exercise its remedies as a secured party, pledgee or lienholder with respect to the Reserve Accounts. (f) If any Event of Default occurs, Borrowers shall immediately lose all of their rights to receive disbursements from the Reserve Accounts until the earlier to occur of (i) the date on which such Event of Default is cured to Lender's satisfaction, or (ii) the payment in full of the Debt. In addition, at Lender's election, Borrowers shall lose all of their rights to receive interest on the Replacement Reserve Account during the occurrence and continuance of an Event of Default. Upon the occurrence of any Event of Default, Lender may exercise any or all of its rights and remedies as a secured party, pledgee and lienholder with respect to the Reserve Accounts. Without limitation of the foregoing, upon any Event of Default, Lender may use and disburse the Reserve Funds (or any portion thereof) for any of the following purposes: (A) repayment of the Debt, including, but not limited to, principal prepayments and the prepayment premium applicable to such full or partial prepayment (as applicable); (B) reimbursement of Lender for all losses, fees, costs and expenses (including, without limitation, reasonable legal fees) suffered or incurred by Lender as a result of such Event of Default; (C) payment of any amount expended in exercising any or all rights and remedies available to Lender at law or in equity or under this Agreement or under any of the other Loan Documents; (D) payment of any item from any of the Reserve Accounts as required or permitted under this Agreement; or (E) any other purpose permitted by applicable law; provided, however, that any such application of funds shall not cure or be deemed to cure any Event of Default. Without limiting any other - 74 - provisions hereof, each of the remedial actions described in the immediately preceding sentence shall be deemed to be a commercially reasonable exercise of Lender's rights and remedies as a secured party with respect to the Reserve Funds and shall not in any event be deemed to constitute a setoff or a foreclosure of a statutory banker's lien. Nothing in this Agreement shall obligate Lender to apply all or any portion of the Reserve Funds to effect a cure of any Event of Default, or to pay the Debt, or in any specific order of priority. The exercise of any or all of Lender's rights and remedies under this Agreement or under any of the other Loan Documents shall not in any way prejudice or affect Lender's right to initiate and complete a foreclosure under the Mortgages. (g) The Reserve Funds shall not constitute escrow or trust funds and may be commingled with other monies held by Lender. Notwithstanding anything else herein to the contrary, Lender may commingle in one or more Eligible Accounts any and all funds controlled by Lender, including, without limitation, funds pledged in favor of Lender by other borrowers, whether for the same purposes as the Reserve Accounts or otherwise. Without limiting any other provisions of this Agreement or any other Loan Document, the Reserve Accounts may be established and held in such name or names as Lender or its loan servicer, as agent for Lender, shall deem appropriate, including, without limitation, in the name of Lender or such loan servicer, as agent for Lender. In the case of any Reserve Account which is held in a commingled account, Lender or its loan servicer, as applicable, shall maintain records sufficient to enable it to determine at all times which portion of such account is related to the Loan. The Reserve Accounts are solely for the protection of Lender. With respect to the Reserve Accounts, Lender shall have no responsibility beyond the allowance of due credit for the sums actually received by Lender or beyond the reimbursement or payment of the costs and expenses for which such accounts were established in accordance with their terms. Upon assignment of the Loan by Lender, any Reserve Funds shall be turned over to the assignee and any responsibility of Lender as assignor shall terminate. The requirements of this Agreement concerning Reserve Accounts in no way supersede, limit or waive any other rights or obligations of the parties under any of the Loan Documents or under applicable law. (h) Borrowers shall not, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in the Reserve Accounts or the Reserve Funds deposited therein or permit any Lien to attach thereto, except for the security interest granted in this Section 9.9, or any levy to be made thereon, or any UCC Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. (i) Borrowers will maintain the security interest created by this Section 9.9 as a first priority perfected security interest and will defend the right, title and interest of Lender in and to the Reserve Accounts and the Reserve Funds against the claims and demands of all Persons whomsoever. At any time and from time to time, upon the written request of Lender, and at the sole expense of Borrowers, Borrowers will promptly and duly execute and deliver such further instruments and documents and will take such further actions as Lender reasonably may request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted. - 75 - ARTICLE 10. INTENTIONALLY OMITTED ARTICLE 11. EVENTS OF DEFAULT; REMEDIES Section 11.1. EVENT OF DEFAULT The occurrence of any one or more of the following events shall constitute an "EVENT OF DEFAULT": (a) if any portion of the Debt is not paid on or prior to the date the same is due or if the entire Debt is not paid on or before the Maturity Date; (b) except as otherwise expressly provided in the Loan Documents, if any of the Taxes or Other Charges are not paid when the same are due and payable, unless there is sufficient money in the Tax and Insurance Reserve Account for payment of amounts then due and payable and Lender's access to such money has not been constrained or restricted in any manner; (c) if the Policies are not kept in full force and effect, or if certified copies of the Policies are not delivered to Lender as provided in Section 8.1; (d) if any Borrower breaches any covenant with respect to itself or any SPE Component Entity (if any) contained in Article 6 or any covenant contained in Article 7 hereof; (e) if any representation or warranty of, or with respect to, any Borrower, Borrower Principal, any SPE Component Entity, or any member, general partner, principal or beneficial owner of any of the foregoing, made herein, in any other Loan Document, or in any certificate, report, financial statement or other instrument or document furnished to Lender at the time of the closing of the Loan or during the term of the Loan shall have been false or misleading in any material respect when made; (f) if (i) any Borrower, or any managing member or general partner of a Borrower, Borrower Principal, or any SPE Component Entity (if any) shall commence any case, proceeding or other action (A) under any Creditors Rights Laws, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or any Borrower, any managing member or general partner of a Borrower, Borrower Principal, or any SPE Component Entity (if any) shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against any Borrower, any managing member or general partner of a Borrower, Borrower Principal, or any SPE Component Entity (if any) any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (iii) there shall be commenced against any Borrower, any managing member or general partner of a Borrower, Borrower Principal, or any SPE Component Entity (if any) any case, proceeding or other action seeking issuance of a warrant of attachment, execution, - 76 - distraint or similar process against all or any substantial part of its assets which results in the entry of any order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (iv) any Borrower, any managing member or general partner of a Borrower, Borrower Principal, or any SPE Component Entity (if any) shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) any Borrower, any managing member or general partner of a Borrower, Borrower Principal, or any SPE Component Entity (if any) shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; (g) if any Borrower shall be in default beyond applicable notice and grace periods under any other mortgage, deed of trust, deed to secure debt or other security agreement covering any part of the Individual Property owned by such Borrower, whether it be superior or junior in lien to the Mortgage on such Individual Property; (h) if any Individual Property becomes subject to any mechanic's, materialman's or other Lien other than a Lien for any Taxes or Other Charges not then due and payable and the Lien shall remain undischarged of record (by payment, bonding or otherwise) for a period of thirty (30) days; (i) if any federal tax lien is filed against any Borrower, any member or general partner of a Borrower, Borrower Principal, or any SPE Component Entity (if any) or any Individual Property and same is not discharged of record within thirty (30) days after same is filed; (j) if a judgment is filed against any Borrower in excess of $20,000 which is not vacated or discharged (or bonded or insured to Lender's satisfaction) within 30 days; (k) if any default occurs under any guaranty or indemnity executed in connection herewith and such default continues after the expiration of applicable grace periods, if any; (l) if any Borrower shall permit any event within its control to occur that would cause any REA to terminate without notice or action by any party thereto or would entitle any party to terminate any REA and the term thereof by giving notice to such Borrower; or any REA shall be surrendered, terminated or canceled for any reason or under any circumstance whatsoever except as provided for in such REA; or any term of any REA shall be modified or supplemented without Lender's prior written consent; or any Borrower shall fail, within ten (10) Business Days after demand by Lender, to exercise its option to renew or extend the term of any REA or shall fail or neglect to pursue diligently all actions necessary to exercise such renewal rights pursuant to such REA except as provided for in such REA; (m) if any Borrower breaches any of its covenants contained in Section 5.21; or (n) if any Borrower shall continue to be in default under any other term, covenant or condition of this Agreement or any of the Loan Documents for more than ten (10) days after notice from Lender in the case of any default which can be cured by the payment of a sum of money or for thirty (30) days after notice from Lender in the case of any other default, provided that if such default cannot reasonably be cured within such thirty (30) day period and such - 77 - Borrower shall have commenced to cure such default within such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same, the thirty (30) day period shall be extended for so long as it shall require such Borrower in the exercise of due diligence to cure such default, it being agreed that no such extension shall be for a period in excess of one hundred twenty (120) days. (o) if a Borrower as tenant under a Ground Lease shall fail to pay when due the rent or additional rent or other charges payable under such Ground Lease or there shall occur any default by the Borrower as tenant under such Ground Lease in the observance or performance of any term, covenant or condition of such Ground Lease on the part of Borrower to be observed or performed and said default is not cured following the expiration of any applicable grace and notice periods therein provided, or if the leasehold estate created by such Ground Lease shall be surrendered, shall cease to be in full force and effect or shall be terminated or cancelled for any reason or under any circumstance whatsoever, or if any of the terms, covenants or conditions of such Ground Lease shall in any manner be modified, changed, supplemented, altered or amended without the consent of Lender. Section 11.2. REMEDIES (a) a) Upon the occurrence of an Event of Default (other than an Event of Default described in Section 11.1(f) above) and at any time thereafter Lender may, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrowers and in the Individual Properties, including, without limitation, declaring the Debt to be immediately due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrowers, or any one or more of them, and the Individual Properties, or any one or more of them, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in Section 11.1(f) above, the Debt and all other obligations of Borrowers hereunder and under the other Loan Documents shall immediately and automatically become due and payable, without notice or demand, and Borrowers hereby expressly waive any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding. (b) Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrowers under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrowers or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to the Properties or any of them. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singularly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. - 78 - ARTICLE 12. ENVIRONMENTAL PROVISIONS Section 12.1. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES Borrowers represent and warrant, based solely upon Environmental Reports of the Properties and information that Borrowers know or should reasonably have known, that: (a) there are no Hazardous Materials or underground storage tanks in, on, or under any of the Properties, except those that are both (i) in compliance with Environmental Laws and with permits issued pursuant thereto (if such permits are required), if any, and (ii) either (A) in the case of Hazardous Materials, in amounts not in excess of that necessary to operate the Properties or any of them for the purposes set forth herein or (B) fully disclosed to and approved by Lender in writing pursuant to an Environmental Report; (b) there are no past, present or threatened Releases of Hazardous Materials in violation of any Environmental Law or which would require remediation by a Governmental Authority in, on, under or from the Properties or any of them except as described in the Environmental Reports; (c) there is no threat of any Release of Hazardous Materials migrating to any of the Properties except as described in the Environmental Reports; (d) there is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with any of the Properties except as described in the Environmental Reports; (e) Borrowers do not know of, and have not received, any written or oral notice or other communication from any Person relating to Hazardous Materials in, on, under or from any of the Properties; (f) the Properties are free of mold and (g) Borrowers have truthfully and fully provided to Lender, in writing, any and all information relating to environmental conditions in, on, under or from the Properties known to Borrowers or contained in Borrowers' files and records, including but not limited to any reports relating to Hazardous Materials in, on, under or migrating to or from the Properties and/or to the environmental condition of the Properties. Section 12.2. ENVIRONMENTAL COVENANTS The Borrowers covenant and agree that so long as they own, manage, are in possession of, or otherwise control the operation of the Individual Properties: (a) all uses and operations on or of the Individual Properties, whether by Borrowers or any other Person, shall be in compliance with all Environmental Laws and permits issued pursuant thereto; (b) there shall be no Releases of Hazardous Materials in, on, under or from the Individual Properties; (c) there shall be no Hazardous Materials in, on, or under the Individual Properties, except those that are both (i) in compliance with all Environmental Laws and with permits issued pursuant thereto, if and to the extent required, and (ii) (A) in amounts not in excess of that necessary to operate the Individual Properties for the purposes set forth herein or (B) fully disclosed to and approved by Lender in writing; or (c) with respect to mold, not in a condition, location or of a type which may pose a risk to human health or safety, or the environment or which may result in damage to or would adversely affect or impair the value or marketability of the Individual Properties; (d) Borrowers shall keep the Individual Properties free and clear of all Environmental Liens; (e) Borrowers shall, at their sole cost and expense, fully and expeditiously cooperate in all activities pursuant to Section 12.4 below, including but not limited to providing all relevant information and making knowledgeable persons available for interviews; (f) Borrowers shall, at their sole cost and expense, perform any environmental site assessment or other investigation of - 79 - environmental conditions in connection with the Individual Properties, pursuant to any reasonable written request of Lender, upon Lender's reasonable belief that the Individual Properties are not in full compliance with all Environmental Laws, and share with Lender the reports and other results thereof, and Lender and other Indemnified Parties shall be entitled to rely on such reports and other results thereof; (g) Borrowers shall keep the Individual Properties free of mold; (h) Borrowers shall, at their sole cost and expense, comply with all reasonable written requests of Lender to (i) reasonably effectuate remediation of any Hazardous Materials in, on, under or from the Individual Properties; and (ii) comply with any Environmental Law; (i) Borrowers shall not allow any tenant or other user of the Individual Properties to violate any Environmental Law; and (j) Borrowers shall immediately notify Lender in writing after any of them has become aware of (A) any presence or Release or threatened Release of Hazardous Materials in, on, under, from or migrating towards the Individual Properties; (B) any non-compliance with any Environmental Laws related in any way to the Individual Properties; (C) any actual or potential Environmental Lien against the Individual Properties; (D) any required or proposed remediation of environmental conditions relating to the Individual Properties; and (E) any written or oral notice or other communication of which each Borrower becomes aware from any source whatsoever (including but not limited to a Governmental Authority) relating in any way to Hazardous Materials. Any failure of Borrowers to perform their obligations pursuant to this Section 12.2 shall constitute bad faith waste with respect to the Properties. Section 12.3. LENDER'S RIGHTS Lender and any other Person designated by Lender, including but not limited to any representative of a Governmental Authority, and any environmental consultant, and any receiver appointed by any court of competent jurisdiction, shall have the right, but not the obligation, to enter upon any of the Properties at all reasonable times to assess any and all aspects of the environmental condition of the Properties and their use, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in Lender's sole discretion) and taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing. Borrowers shall cooperate with and provide access to Lender and any such person or entity designated by Lender. Section 12.4. OPERATIONS AND MAINTENANCE PROGRAMS If recommended by the Environmental Reports or any other environmental assessment or audit of the Properties, Borrowers shall establish and comply with an operations and maintenance program with respect to the Properties, in form and substance reasonably acceptable to Lender, prepared by an environmental consultant reasonably acceptable to Lender, which program shall address any asbestos-containing material or lead based paint that may now or in the future be detected at or on any of the Properties. Without limiting the generality of the preceding sentence, Lender may require (a) periodic notices or reports to Lender in form, substance and at such intervals as Lender may specify, (b) an amendment to such operations and maintenance program to address changing circumstances, laws or other matters, (c) at Borrowers' sole expense, supplemental examination of the Properties by consultants specified by Lender, (d) access to the Properties by Lender, its agents or servicer, to review and assess the environmental condition of the Properties and Borrowers' compliance with any operations and - 80 - maintenance program, and (e) variation of the operations and maintenance program in response to the reports provided by any such consultants. Section 12.5. ENVIRONMENTAL DEFINITIONS "ENVIRONMENTAL LAW" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations, standards, policies and other government directives or requirements, as well as common law, including but not limited to the Comprehensive Environmental Response, Compensation and Liability Act and the Resource Conservation and Recovery Act, that apply to Borrowers or any of the Individual Properties and relate to Hazardous Materials or protection of human health or the environment, "ENVIRONMENTAL LIENS" means all Liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of Borrowers or any of them or any other Person. "ENVIRONMENTAL REPORTS" means the written reports resulting from the environmental site assessments of the Properties delivered to Lender in connection with the Loan. "HAZARDOUS MATERIALS" shall mean petroleum and petroleum products and compounds containing them, including gasoline, diesel fuel and oil; explosives, flammable materials; radioactive materials; polychlorinated biphenyls and compounds containing them; lead and lead-based paint; asbestos or asbestos-containing materials in any form that is or could become friable; underground or above-ground storage tanks, whether empty or containing any substance; any substance the presence of which on any of the Properties is prohibited by any federal, state or local authority; any substance that requires special handling; and any other material or substance now or in the future defined as a "hazardous substance," "hazardous material", "hazardous waste", "toxic substance", "toxic pollutant", "contaminant", or "pollutant" within the meaning of any Environmental Law. "RELEASE" of any Hazardous Materials includes but is not limited to any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials. Section 12.6. INDEMNIFICATION (a) Borrowers and Borrower Principal jointly and severally covenant and agree at their sole cost and expense, to protect, defend, indemnify, release and hold Indemnified Parties harmless from and against any and all Losses imposed upon or incurred by or asserted against any Indemnified Parties and directly or indirectly arising out of or in any way relating to any one or more of the following: (i) any presence of any Hazardous Materials in, on, above, or under any of the Properties; (ii) any past, present or threatened Release of Hazardous Materials in, on, above, under or from any of the Properties; (iii) any activity by any Borrower, any Person affiliated with a Borrower, and any Tenant or other user of any of the Individual Properties in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from any of the Individual Properties of any Hazardous Materials at any time located in, under, on or above any of the Individual Properties or any actual or proposed remediation of any Hazardous Materials at any time located in, under, on or above any of the Individual Properties, whether or not such remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (iv) any past, present or threatened non-compliance or violations of any Environmental Laws (or permits issued pursuant to any - 81 - Environmental Law) in connection with any of the Properties or operations thereon, including but not limited to any failure by any Borrower, any person or entity affiliated with any Borrower, and any tenant or other user of any of the Individual Properties to comply with any order of any Governmental Authority in connection with any Environmental Laws; (v) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering any of the Individual Properties; (vi) any acts of any Borrower, any person or entity affiliated with a Borrower, and any tenant or other user of any of the Individual Properties in (A) arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, of Hazardous Materials at any facility or incineration vessel containing such or similar Hazardous Materials or (B) accepting any Hazardous Materials for transport to disposal or treatment facilities, incineration vessels or sites from which there is a Release, or a threatened Release of any Hazardous Substance which causes the incurrence of costs for remediation; and (vii) any misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations pursuant to this Agreement relating to environmental matters. (b) Upon written request by any Indemnified Party, Borrowers and Borrower Principal shall defend same (if requested by any Indemnified Party, in the name of the Indemnified Party) by attorneys and other professionals approved by the Indemnified Parties. Notwithstanding the foregoing, any Indemnified Parties may, in their sole discretion, engage their own attorneys and other professionals to defend or assist them, and, at the option of Indemnified Parties, their attorneys shall control the resolution of any claim or proceeding. Upon demand, Borrowers and Borrower Principal shall pay or, in the sole discretion of the Indemnified Parties, reimburse, the Indemnified Parties for the payment of reasonable fees and disbursements of attorneys, engineers, environmental consultants, laboratories and other professionals in connection therewith. (c) Notwithstanding the foregoing, neither Borrowers nor Borrower Principal shall have any liability for any Losses imposed upon or incurred by or asserted against any Indemnified Parties and described in subsection (a) above to the extent that Borrowers and/or Borrower Principal can conclusively prove both that such Losses were caused solely by actions, conditions or events that occurred after the date that Lender (or any purchaser at a foreclosure sale) actually acquired title to the Individual Properties and that such Losses were not caused by the direct or indirect actions of Borrowers, Borrower Principal, or any partner, member, principal, officer, director, trustee or manager of Borrowers or Borrower Principal or any employee, agent, contractor or Affiliate of Borrowers or Borrower Principal. The obligations and liabilities of Borrowers and Borrower Principal under this Section 12.6 shall fully survive indefinitely notwithstanding any termination, satisfaction, assignment, entry of a judgment of foreclosure, exercise of any power of sale, or delivery of a deed in lieu of foreclosure of the Mortgages or any of them. - 82 - ARTICLE 13. SECONDARY MARKET Section 13.1. TRANSFER OF LOAN Lender may, at any time, sell, transfer or assign the Loan Documents, or grant participations therein ("PARTICIPATIONS") or syndicate the Loan ("SYNDICATION") or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement ("SECURITIES") (a Syndication or the issuance of Participations and/or Securities, a "SECURITIZATION"). Section 13.2. DELEGATION OF SERVICING At the option of Lender, the Loan may be serviced by a servicer/trustee selected by Lender and Lender may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to such servicer/trustee pursuant to a servicing agreement between Lender and such servicer/trustee. Section 13.3. DISSEMINATION OF INFORMATION Lender may forward to each purchaser, transferee, assignee, or servicer of, and each participant, or investor in, the Loan, or any Participations and/or Securities or any of their respective successors (collectively, the "INVESTOR") or any Rating Agency rating the Loan, or any Participations and/or Securities, each prospective Investor, and any organization maintaining databases on the underwriting and performance of commercial mortgage loans, all documents and information which Lender now has or may hereafter acquire relating to the Debt and to Borrowers, any managing member or general partner thereof, Borrower Principal, any SPE Component Entity (if any) and the Properties, including financial statements, whether furnished by Borrowers or otherwise, as Lender determines necessary or desirable. Borrowers irrevocably waive any and all rights they may have under applicable Legal Requirements to prohibit such disclosure, including but not limited to any right of privacy. Section 13.4. COOPERATION Borrowers and Borrower Principal agree to cooperate with Lender in connection with any sale or transfer of the Loan or any Participation and/or Securities created pursuant to this Article 13, including, without limitation, (a) the delivery of estoppel certificates required in accordance with Section 5.12(a) and such other documents as may be reasonably requested by Lender, (b) the execution of such amendments to the Loan Documents as may be requested by the holder of the Note or the Rating Agencies or otherwise to effect the Securitization, including, without limitation, bifurcation of the Loan into two or more separate notes; provided, however, that Borrowers shall not be required to modify or amend any Loan Document if such modification or amendment would (i) change the interest rate, the stated maturity or the amortization of principal set forth in the Note, except in connection with a bifurcation of the Loan which may result in varying interest rates and amortization schedules but which shall have the same initial weighted average coupon of the original Note, or (ii) in the reasonable judgment of Borrowers, materially increase Borrowers' obligations and liabilities under the Loan Documents, (c) make changes to the organizational documents of Borrowers and their principals and/or use their best efforts to - 83 - cause changes to the legal opinions delivered by Borrowers in connection with the Loan, provided that such changes shall not result in material adverse economic effect to Borrowers, and (d) to use best efforts to deliver any opinion, including company opinions, as may be reasonably requested by Lender or the holder of the Note or as may be requested by the Rating Agencies to effect the Securitization, the cost of which Borrowers shall be responsible for, as well as make any changes to the LCC Agreements or Delaware Statutory Trust Agreements or the Loan Documents which may be reasonably necessary to obtain such opinions. Borrowers' failure to deliver the opinions described in subsection (d) shall not constitute an Event of Default should Borrowers use best efforts to obtain them. Borrowers shall also furnish, and Borrowers and Borrower Principal consent to Lender furnishing to such Investors or such prospective Investors or such Rating Agencies, any and all information concerning the Properties, the Leases, the financial condition of Borrowers or Borrower Principal as may be requested by Lender, or Investor, any prospective Investor or any Rating Agency in connection with any sale or transfer of the Loan or any Participations or Securities. Except as provided in subsection (d) of this Section 13.4, neither Borrowers nor Borrower Principal shall be responsible for any costs incurred by Lender in connection with a Securitization. ARTICLE 14. INDEMNIFICATIONS Section 14.1. GENERAL INDEMNIFICATION Borrowers shall jointly and severally indemnify, defend and hold harmless the Indemnified Parties from and against any and all Losses imposed upon or incurred by or asserted against any Indemnified Parties and directly or indirectly arising out of or in any way relating to any one or more of the following: (a) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about any of the Properties or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (b) any use, nonuse or condition in, on or about any of the Properties or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (c) performance of any labor or services or the furnishing of any materials or other property in respect of any of the Properties or any part thereof; (d) any failure of any of the Properties to be in compliance with any Applicable Legal Requirements; (e) any and all claims and demands whatsoever which may be asserted against Lender by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants, or agreements contained in any Lease; (f) the holding or investing of the Reserve Accounts or the performance of the Required Work, Additional Required Repairs or Additional Replacements, or (g) the payment of any commission, charge or brokerage fee to anyone which may be payable in connection with the funding of the Loan (collectively, the "INDEMNIFIED LIABILITIES"); provided, however, that Borrowers shall not have any obligation to Lender hereunder to the extent that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the undertaking to indemnify, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrowers shall pay the maximum portion that they are permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Lender. - 84 - Section 14.2. MORTGAGE AND INTANGIBLE TAX INDEMNIFICATION Borrowers shall jointly and severally at their sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses imposed upon or incurred by or asserted against any Indemnified Parties and directly or indirectly arising out of or in any way relating to any tax on the making and/or recording of the Mortgages, the Note or any of the other Loan Documents, but excluding any income, franchise or other similar taxes. Section 14.3. ERISA INDEMNIFICATION Borrowers shall, at their sole cost and expense, jointly and severally protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses (including, without limitation, reasonable attorneys' fees and costs incurred in the investigation, defense, and settlement of Losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA that may be required, in Lender's sole discretion) that Lender may incur, directly or indirectly, as a result of a default under Section 4.8 or Section 5.18 of this Agreement. Section 14.4. SURVIVAL The obligations and liabilities of Borrowers and Borrower Principal under this Article 14 shall fully survive indefinitely notwithstanding any termination, satisfaction, assignment, entry of a judgment of foreclosure, exercise of any power of sale, or delivery of a deed in lieu of foreclosure of any of the Mortgages. ARTICLE 15. EXCULPATION Section 15.1. EXCULPATION (a) Except as otherwise provided herein or in the other Loan Documents, Lender shall not enforce the liability and obligation of Borrowers or Borrower Principal, as applicable, to perform and observe the obligations contained herein or in the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrowers or Borrower Principal, except that Lender may bring a foreclosure action, action for specific performance or other appropriate action or proceeding to enable Lender to enforce and realize upon this Agreement, the Note, the Mortgages and the other Loan Documents, and the interest in the Properties, the Rents and any other collateral given to Lender created by this Agreement, the Note, the Mortgages and the other Loan Documents; provided, however, that any judgment in any such action or proceeding shall be enforceable against Borrowers or Borrower Principal, as applicable, only to the extent of Borrowers' or Borrower Principal's interest in the Individual Properties, in the Rents and in any other collateral given to Lender. Lender, by accepting this Agreement, the Note, the Mortgages and the other Loan Documents, agrees that it shall not, except as otherwise provided in this Section 15.1, sue for, seek or demand any deficiency judgment against Borrowers or Borrower Principal in any such action or proceeding, under or by reason of or under or in connection with this Agreement, the Note, the Mortgages or the other - 85 - Loan Documents. The provisions of this Section 15.1 shall not, however, (i) constitute a waiver, release or impairment of any obligation evidenced or secured by this Agreement, the Note, the Mortgages or the other Loan Documents; (ii) impair the right of Lender to name Borrowers or Borrower Principal as a party defendant in any action or suit for judicial foreclosure and sale under this Agreement and the Mortgages; (iii) affect the validity or enforceability of any indemnity (including, without limitation, those contained in Section 12.6, Section 13.5 and Article 14 of this Agreement), guaranty, master lease or similar instrument made in connection with this Agreement, the Note, the Mortgages and the other Loan Documents; (iv) impair the right of Lender to obtain the appointment of a receiver; (v) impair the enforcement of the assignment of leases provisions contained in the Mortgages; or (vi) impair the right of Lender to obtain a deficiency judgment or other judgment on the Note against Borrowers or Borrower Principal if necessary to obtain any Insurance Proceeds or Awards to which Lender would otherwise be entitled under this Agreement; provided however, Lender shall only enforce such judgment to the extent of the Insurance Proceeds and/or Awards. (b) Notwithstanding the provisions of this Section 15.1 to the contrary, Borrowers and Borrower Principal shall be personally liable to Lender on a joint and several basis for Losses due to: (i) fraud or intentional misrepresentation by any Borrower, Borrower Principal or any other Affiliate of a Borrower or Borrower Principal in connection with the execution and the delivery of this Agreement, the Note, the Mortgages, any of the other Loan Documents, or any certificate, report, financial statement or other instrument or document furnished to Lender at the time of the closing of the Loan or during the term of the Loan; (ii) Misapplication or misappropriation by any Borrower of Rents received by such Borrower after the occurrence of an Event of Default; (iii) Misapplication or misappropriation by any Borrower of tenant security deposits or Rents collected in advance; (iv) the misapplication or the misappropriation of Insurance Proceeds or Awards; (v) the failure of any Borrower to pay Taxes or Other Charges (except to the extent that sums sufficient to pay such amounts have been deposited in escrow with Lender pursuant to the terms hereof and there exists no impediment to Lender's utilization thereof), charges for labor or materials or other charges that can create liens on such Borrower's Individual Property beyond any applicable notice and cure periods specified herein; (vi) the failure of any Borrower to return or to reimburse Lender for all Personal Property taken from an Individual Property by or on behalf of such Borrower and not replaced with Personal Property of the same utility and of the same or greater value; - 86 - (vii) any act of actual waste or arson by any Borrower, any principal, Affiliate, member or general partner thereof or by Borrower Principal, any principal, Affiliate, member or general partner thereof; (viii) the failure of any Borrower following any Event of Default to deliver to Lender upon demand all Rents and books and records relating to the Property; (ix) the gross negligence or willful misconduct of any Borrower; (x) the failure of any Borrower to pay for all Tenant Improvements, Leasing Commissions, Tenant Allowances or any other payments or to perform any landlord work in accordance with the provisions of any Lease within the time required thereunder, (xi) the failure of the Borrower owning the Individual Property known as Century III Plaza to pay any final judgment obtained by Mountain Top Associates (the successor in interest to Giant Eagle, Inc.) in its action pending against landlord at the date of this Agreement in the Western District Court of Pennsylvania, Case No. 04-1211, GIANT EAGLE, INC. V. BTS WEST MIFFLIN, L.P., or (xii) the failure of the Borrower owning the Individual Property known as Maple Tree Plaza to pay any final judgment obtained by Maple Tree Cinemas Corporation in its action pending against landlord at the date of this Agreement in Chittenden County Superior Court (Vermont), docket No. 90411-05Cnc. (c) Notwithstanding the foregoing, the agreement of Lender not to pursue recourse liability as set forth in subsection (a) above SHALL BECOME NULL AND VOID and shall be of no further force and effect and the Debt shall become fully recourse to Borrowers and Borrower Principal, jointly and severally, in the event (i) of a breach by any Borrower, Borrower Principal or SPE Component Entity of any of the covenants set forth in Article 6 or Article 7 hereof, (ii) any of the Individual Properties or any part thereof shall become an asset in (A) a voluntary bankruptcy or insolvency proceeding of any Borrower or Borrower Principal, or (B) an involuntary bankruptcy or insolvency proceeding of any Borrower or Borrower Principal in connection with which such Borrower or Borrower Principal fails to use its best efforts to dismiss within the hundred twenty (120) days of filing, or (iii) if any Borrower fails to complete any construction on any of the Individual Properties free of all Liens and fully in accordance with all Legal Requirements. (d) Nothing herein shall be deemed to be a waiver of any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provision of the U.S. Bankruptcy Code to file a claim for the full amount of the indebtedness secured by the Mortgages or to require that all collateral shall continue to secure all of the indebtedness owing to Lender in accordance with this Agreement, the Note, the Mortgages or the other Loan Documents. Section 15.2. ENVIRONMENTAL REMEDIATION/MONITORING EXCULPATION In the event that any Borrower fails to fund the Environmental Repairs Account, if required to do so pursuant to Section 9.7 of this Agreement, Borrower Principal shall deposit the required amount into the Environmental Repairs Account within five (5) days prior written - 87 - notice from Lender. The obligation under this Section 15.2 shall be an unconditional obligation of Borrower Principal, separate and apart from any and all obligations of the Borrowers and/or Borrower Principal in the remainder of this Agreement. ARTICLE 16. NOTICES Section 16.1. NOTICES All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, return receipt requested, (b) expedited prepaid overnight delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or by (c) telecopier (with answer back acknowledged provided an additional notice is given pursuant to subsection (b) above), addressed as follows (or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section): If to Lender: Bank of America, N.A. Capital Markets Servicing Group 900 West Trade Street Suite 650 NC1-026-06-01 Charlotte, NC 28255 Attn: Servicing Manager Telephone No: (866) 531-0957 Facsimile No.: (704) 317-4501 With a copy to: Bank of America Legal Department GCIB/CMBS NC1-007-20-01 100 North Tyron Street Charlotte, North Carolina 28255-0001 Attention: Dean B. Roberson, Esq. Facsimile No.: (704) 387-0922 If to Borrowers: c/o Inland Real Estate Investment Corporation 2901 Butterfield Road Oakbrook, Illinois 60523 Attention: General Counsel Facsimile No.: (630) 218-4961 With a copy to: Charles J. Benvenuto, P.C. 2901 Butterfield Road Oakbrook, Illinois 60523 Attention: Charles J. Benvenuto, Esq. - 88 - Facsimile No.: (630) 571-2360 If to Borrower Principal: Inland Western Retail Real Estate Trust, Inc. 2901 Butterfield Road Oakbrook, Illinois 60523 Attention: General Counsel Facsimile No.: (630) 218-4961 With a copy to: Charles J. Benvenuto, P.C. 2901 Butterfield Road Oakbrook, Illinois 60523 Attention: Charles J. Benvenuto, Esq. Facsimile No.: (630) 571-2360 A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; or in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day. ARTICLE 17. FURTHER ASSURANCES Section 17.1. REPLACEMENT DOCUMENTS Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of the Note or any other Loan Document which is not of public record, and, in the case of any such mutilation, upon surrender and cancellation of such Note or other Loan Document, Borrowers will issue, in lieu thereof, a replacement Note or other Loan Document, dated the date of such lost, stolen, destroyed or mutilated Note or other Loan Document in the same principal amount thereof and otherwise of like tenor. Section 17.2. RECORDING OF MORTGAGE, ETC. Borrowers forthwith upon the execution and delivery of the Mortgages and thereafter, from time to time, will cause the Mortgages and any of the other Loan Documents creating a lien or security interest or evidencing the lien hereof upon each Individual Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect and perfect the lien or security interest hereof upon, and the interest of Lender in, the Individual Properties. Borrower will pay all taxes, filing, registration or recording fees, and all expenses incident to the preparation, execution, acknowledgment and/or recording of the Note, the Mortgages, the other Loan Documents, any note, deed of trust or mortgage supplemental hereto, any security instrument with respect to each Individual Property and any instrument of further assurance, and any modification or amendment of the foregoing documents, and all federal, state, county and municipal taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of the Mortgages, any deed of trust or mortgage supplemental hereto, any security instrument with respect to each Individual Property or any - 89 - instrument of further assurance, and any modification or amendment of the foregoing documents, except where prohibited by law so to do. Section 17.3. FURTHER ACTS, ETC. Borrowers will, at the cost of Borrowers, and without expense to Lender, do, execute, acknowledge and deliver all and every further acts, deeds, conveyances, deeds of trust, mortgages, assignments, security agreements, control agreements, notices of assignments, transfers and assurances as Lender shall, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Lender the property and rights hereby mortgaged, deeded, granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and transferred or intended now or hereafter so to be, or which Borrowers may be or may hereafter become bound to convey or assign to Lender, or for carrying out the intention or facilitating the performance of the terms of this Agreement or for filing, registering or recording the Mortgages, or for complying with all Legal Requirements. Borrowers, on demand, will execute and deliver, and in the event any of them shall fail to so execute and deliver, hereby authorize Lender to execute in the names of Borrowers or without the signature of Borrowers to the extent Lender may lawfully do so, one or more financing statements and financing statement amendments to evidence more effectively, perfect and maintain the priority of the security interest of Lender in the Properties. Borrowers grant to Lender an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Lender at law and in equity, including without limitation, such rights and remedies available to Lender pursuant to this Section 17.3. Section 17.4. CHANGES IN TAX, DEBT, CREDIT AND DOCUMENTARY STAMP LAWS (a) If any law is enacted or adopted or amended after the date of this Agreement which deducts the Debt from the value of any of the Properties for the purpose of taxation or which imposes a tax, either directly or indirectly, on the Debt or Lender's interest in any of the Properties, Borrowers will pay the tax, with interest and penalties thereon, if any. If Lender is advised by counsel chosen by it that the payment of tax by Borrowers would be unlawful or taxable to Lender or unenforceable or provide the basis for a defense of usury then Lender shall have the option by written notice of not less than one hundred eighty (180) days to declare the Debt immediately due and payable. (b) Borrowers will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Taxes or Other Charges assessed against any of the Properties, or any part thereof, and no deduction shall otherwise be made or claimed from the assessed value of any of the Properties, or any part thereof, for real estate tax purposes by reason of the Mortgages or the Debt. If such claim, credit or deduction shall be required by law, Lender shall have the option, by written notice of not less than one hundred eighty (180) days, to declare the Debt immediately due and payable. If at any time the United States of America, any State thereof or any subdivision of any such State shall require revenue or other stamps to be affixed to the Note, the Mortgages, or any of the other Loan Documents or impose any other tax or charge on the same, Borrowers will pay for the same, with interest and penalties thereon, if any. - 90 - Section 17.5. EXPENSES Borrowers covenant and agree to pay or, if Borrowers fail to pay, to reimburse, Lender upon receipt of written notice from Lender for all reasonable costs and expenses (including reasonable, actual attorneys' fees and disbursements and the allocated costs of internal legal services and all actual disbursements of internal counsel) reasonably incurred by Lender in accordance with this Agreement in connection with (a) the preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby and all the costs of furnishing all opinions by counsel for Borrowers (including without limitation any opinions requested by Lender as to any legal matters arising under this Agreement or the other Loan Documents with respect to the Properties); (b) Borrowers' ongoing performance of and compliance with Borrowers' respective agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including, without limitation, confirming compliance with environmental and insurance requirements; (c) following a request by Borrowers, Lender's ongoing performance and compliance with all agreements and conditions contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date; (d) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters requested by Lender; (e) securing Borrowers' compliance with any requests made pursuant to the provisions of this Agreement; (f) the filing and recording fees and expenses, title insurance and reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents; (g) enforcing or preserving any rights, in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrowers, this Agreement, the other Loan Documents, the Properties, or any other security given for the Loan; and (h) enforcing any obligations of or collecting any payments due from Borrowers under this Agreement, the other Loan Documents or with respect to the Properties or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings; provided, however, that Borrowers shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender. ARTICLE 18. WAIVERS Section 18.1. REMEDIES CUMULATIVE; WAIVERS The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrowers or Borrower Principal pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Lender's rights, powers and remedies may be pursued singularly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender's sole discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver - 91 - thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default with respect to Borrowers shall not be construed to be a waiver of any subsequent Default or Event of Default by Borrowers or to impair any remedy, right or power consequent thereon. Section 18.2. MODIFICATION, WAIVER IN WRITING No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, or of the Note, or of any other Loan Document, nor consent to any departure by Borrowers therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on Borrowers, shall entitle Borrowers to any other or future notice or demand in the same, similar or other circumstances. Section 18.3. DELAY NOT A WAIVER Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. Section 18.4. TRIAL BY JURY BORROWERS, BORROWER PRINCIPAL AND LENDER EACH HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWERS, BORROWER PRINCIPAL AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH OF LENDER, BORROWER PRINCIPAL AND BORROWERS IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWERS, BORROWER PRINCIPAL AND LENDER. - 92 - Section 18.5. WAIVER OF NOTICE Borrowers shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrowers and except with respect to matters for which Borrowers are not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrowers hereby expressly waive the right to receive any notice from Lender with respect to any matter for which this Agreement or the other Loan Documents do not specifically and expressly provide for the giving of notice by Lender to Borrowers. Section 18.6. REMEDIES OF BORROWERS In the event that a claim or adjudication is made that Lender or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, Borrowers agree that neither Lender nor its agents shall be liable for any monetary damages, and Borrowers' sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. Lender agrees that, in such event, it shall cooperate in expediting any action seeking injunctive relief or declaratory judgment. Section 18.7. WAIVER OF MARSHALLING OF ASSETS To the fullest extent permitted by law, each Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Borrower's partners, members and others with interests in Borrower, and of the Individual Property owned by such Borrower, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of such Individual Property for the collection of the Debt without any prior or different resort for collection or of the right of Lender to the payment of the Debt out of the net proceeds of such Individual Property in preference to every other claimant whatsoever. Section 18.8. WAIVER OF STATUTE OF LIMITATIONS Borrowers hereby expressly waive and release, to the fullest extent permitted by law, the pleading of any statute of limitations as a defense to payment of the Debt or performance of their Other Obligations. Section 18.9. WAIVER OF COUNTERCLAIM Borrowers hereby waive the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against them by Lender or its agents. - 93 - ARTICLE 19. GOVERNING LAW Section 19.1. CHOICE OF LAW This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State of New York and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State of New York, provided however, (a) that with respect to the creation, perfection, priority and enforcement of any Lien created by the Loan Documents, and the determination of deficiency judgments, the laws of the State where the Individual Property is located shall apply, and (b) with respect to the security interest in each of the Reserve Accounts, the laws of the State where each such account is located shall apply. Section 19.2. SEVERABILITY Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Section 19.3. PREFERENCES Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrowers to any portion of the obligations of Borrowers hereunder. To the extent a Borrower makes a payment or payments to Lender, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any Creditors Rights Laws, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. ARTICLE 20. MISCELLANEOUS Section 20.1. SURVIVAL This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as all or any of the Debt is outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of Borrowers, shall inure to the benefit of the legal representatives, successors and assigns of Lender. - 94 - Section 20.2. LENDER'S DISCRETION Whenever pursuant to this Agreement, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. Section 20.3. HEADINGS The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Section 20.4. COST OF ENFORCEMENT In the event (a) that a Mortgage is foreclosed in whole or in part, (b) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of any Borrower or any of its constituent Persons or an assignment by any Borrower or any of its constituent Persons for the benefit of its creditors, or (c) Lender exercises any of its other remedies under this Agreement or any of the other Loan Documents, Borrowers shall be chargeable with and agree to pay all costs of collection and defense, including attorneys' fees and costs, incurred by Lender or Borrowers in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, together with all required service or use taxes. Section 20.5. SCHEDULES INCORPORATED The Schedules annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. Section 20.6. OFFSETS, COUNTERCLAIMS AND DEFENSES Any assignee of Lender's interest in and to this Agreement, the Note and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrowers may otherwise have against any assignor of such documents, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrowers in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrowers. Section 20.7. NO JOINT VENTURE OR PARTNERSHIP; NO THIRD PARTY BENEFICIARIES (a) Borrowers and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrowers and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrowers and Lender nor to grant Lender any interest in any of the Properties other than that of mortgagee, beneficiary or lender. - 95 - (b) This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrowers and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrowers any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender's sole discretion, Lender deems it advisable or desirable to do so. (c) The general partners, members, principals and (if a Borrower is a trust) beneficial owners of Borrowers are experienced in the ownership and operation of properties similar to the Properties, and Borrower and Lender are relying solely upon such expertise and business plan in connection with the ownership and operation of the Properties. Borrowers are not relying on Lender's expertise, business acumen or advice in connection with the Properties. (d) Notwithstanding anything to the contrary contained herein, Lender is not undertaking the performance of (i) any obligations under the Leases; or (ii) any obligations with respect to such agreements, contracts, certificates, instruments, franchises, permits, trademarks, licenses and other documents. (e) By accepting or approving anything required to be observed, performed or fulfilled or to be given to Lender pursuant to this Agreement, the Mortgages, the Note or the other Loan Documents, including, without limitation, any officer's certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal, or insurance policy, Lender shall not be deemed to have warranted, consented to, or affirmed the sufficiency, the legality or effectiveness of same, and such acceptance or approval thereof shall not constitute any warranty or affirmation with respect thereto by Lender. (f) Borrowers recognize and acknowledge that in accepting this Agreement, the Note, the Mortgages and the other Loan Documents, Lender is expressly and primarily relying on the truth and accuracy of the representations and warranties set forth in Article 4 of this Agreement without any obligation to investigate the Properties or any of them and notwithstanding any investigation of the Properties or any of them by Lender; that such reliance existed on the part of Lender prior to the date hereof, that the warranties and representations are a material inducement to Lender in making the Loan; and that Lender would not be willing to make the Loan and accept this Agreement, the Note, the Mortgages and the other Loan Documents in the absence of the warranties and representations as set forth in Article 4 of this Agreement. Section 20.8. PUBLICITY All news releases, publicity or advertising by Borrowers or their Affiliates through any media intended to reach the general public which refers to the Loan, Lender, Banc of America Securities LLC, or any of their Affiliates shall be subject to the prior written approval of Lender, not to be unreasonably withheld. Lender shall be permitted to make any news, releases, publicity - 96 - or advertising by Lender or its Affiliates through any media intended to reach the general public which refers to the Loan, the Properties, Borrowers, Borrower Principal and their respective Affiliates without the approval of Borrowers or any such Persons. Borrowers also agree that Lender may share any information pertaining to the Loan with Bank of America Corporation, including its bank subsidiaries, Banc of America Securities LLC and any other Affiliates of the foregoing, in connection with the sale or transfer of the Loan or any Participations and/or Securities created. Section 20.9. CONFLICT; CONSTRUCTION OF DOCUMENTS; RELIANCE In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Borrowers acknowledge that, with respect to the Loan, Borrowers shall rely solely on their own judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may acquire in any Borrower, and Borrowers hereby irrevocably waive the right to raise any defense or take any action on the basis of the foregoing with respect to Lender's exercise of any such rights or remedies. Borrowers acknowledge that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of Borrowers or their Affiliates. Section 20.10. ENTIRE AGREEMENT This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written between Borrowers and Lender are superseded by the terms of this Agreement and the other Loan Documents. Section 20.11. TAX DISCLOSURE Notwithstanding anything herein to the contrary, except as reasonably necessary to comply with applicable securities laws, each party (and each employee, representative or other agent of each party) hereto may disclose to any and all persons, without limitation of any kind, any information with respect to the United States federal income "tax treatment" and "tax structure" (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to such parties (or their representatives) relating to such tax treatment and tax structure; PROVIDED that with respect to any document or similar item that in either case contains information concerning the tax treatment or tax structure of the transaction as well as other information, this sentence shall only apply to such portions of the document or similar item - 97 - that relate to the United States federal income tax treatment or tax structure of the transactions contemplated hereby. Section 20.12. LENDER'S CONSENT TO EASEMENTS AND OTHER DOCUMENTS. Lender shall not unreasonably withhold its consent to Borrowers granting easements, restrictions and rights of way in the ordinary course of business for access, parking, water and sewer lines, telephone and telegraph lines, electric lines and other utilities or for other similar purposes, provided that no such grant shall, in Lender's judgment, materially impair the utility and operation of any of the Properties or materially adversely affect the value thereof. If any Borrower shall receive any consideration in connection with any of said described grants such Borrower shall have the right to use any such proceeds in connection with any alterations performed in connection therewith or required thereby. In connection with any grant permitted in this Section 20.12, with the exception of routine easements for installation or location of utilities that would not materially adversely affect the value of the Individual Property subject thereto in the reasonable judgment of the Borrower owning such Individual Property, the Borrower owning such Individual Property shall submit a draft of the applicable document to Lender for Lender's review and if Lender approves the document, Lender shall execute and deliver any instrument reasonably necessary or appropriate to evidence its consent thereto or to subordinate the Lien of the Mortgage on such Individual Property to such easement, restriction, covenant, reservation, right or other similar grant. Borrowers shall pay on demand all of Lender's expenses, including reasonable, attorneys' fees and costs, actually incurred by Lender in reviewing such documents and consenting to or refusing to consent to the same. Section 20.13. CROSS-DEFAULT; CROSS-COLLATERALIZATION; WAIVERS (a) Each Borrower acknowledges that Lender has made the Loan to Borrowers upon the security of the collective interest of all the Borrowers in all the Individual Properties and in reliance upon the aggregate of the Individual Properties taken together being of greater value as collateral security than the sum of each Individual Property taken separately. Borrowers agree that the Mortgages as provided for therein are and will be cross-collateralized (to the extent provided therein) and cross-defaulted with each other so that (i) an Event of Default under any of the Mortgages shall constitute an Event of Default under each of the other Mortgages which secure the Note; (ii) an Event of Default under the Note or this Agreement shall constitute an Event of Default under each Mortgage; (iii) each Mortgage shall constitute security for the Note; and (iv) such cross-collateralization shall in no event be deemed by any Borrower to constitute a fraudulent conveyance. (b) To the extent permitted under applicable law, each Borrower waives: (i) any right to require Lender to proceed against any other Borrower or any other person or to proceed against or exhaust any security held by Lender at any time or to pursue any other remedy available to Lender before proceeding against such Borrower; (ii) the defense of the statute of limitations in any action against any other Borrower or for the collection of any indebtedness or the performance of any obligation under the Loan; - 98 - (iii) any defense based upon any legal disability or other defense of any other Borrower, any guarantor of any other Person or by reason of the cessation or limitation of the liability of any other Borrower or any guarantor from any cause other than full payment of all sums payable under the Note, this Agreement and any of the other Loan Documents; (iv) any defense based upon any lack of authority of the officers, directors, partners, managing members or agents acting or purporting to act on behalf of any other Borrower or any principal of any other Borrower or any defect in the formation of any other Borrower or any principal of any other Borrower; (v) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in any other respects more burdensome than that of a principal; (vi) any defense based upon any failure by Lender to obtain collateral for the indebtedness or failure by Lender to perfect a lien on any collateral; (vii) presentment, demand, protest and notice of any kind, except as otherwise set forth in the Loan Documents; (viii) any defense based upon any failure of Lender to give notice of sale or other disposition of any collateral to any other Borrower or to any other Person or entity or any defect in any notice that may be given in connection with any sale or disposition of any collateral; (ix) any defense based upon any failure of Lender to comply with applicable laws in connection with the sale or other disposition of any collateral, including, without limitation, any failure of Lender to conduct a commercially reasonable sale or other disposition of any collateral; (x) any defense based upon any election by Lender, in any bankruptcy proceeding, of the application or non-application of Section 1111(b)(2) of the Bankruptcy Code or any successor statute; (xi) any defense based upon any use of cash collateral under Section 363 of the Bankruptcy Code or any successor; (xii) any defense based upon any agreement or stipulation entered into by Lender with respect to the provision of adequate protection in any bankruptcy proceeding; (xiii) any defense based upon any borrowing or any grant of a security interest under Section 364 of the Bankruptcy Code or any successor statute; (xiv) any defense based upon the avoidance of any security interest in favor of Lender for any reason; - 99 - (xv) any defense based upon any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding, including any discharge of, or bar or stay against collecting, all or any of the obligations evidenced by the Note or owing under any of the Loan Documents; and (xvi) any defense or benefit based upon Borrower's, or any other party's designation of the portion of any obligation secured by the applicable Mortgage to be satisfied by any payment for any other Borrower or any such party. (c) To the extent permitted by applicable law, each Borrower waives: (i) all rights and defenses arising out of an election of remedies by Lender even though the election of remedies, such as non-judicial foreclosure, with respect to security for the Loan or any other amounts owing under the Loan Documents, has extinguished Borrower's rights of subrogation and reimbursement against any other Borrower; (ii) all rights and defenses that Borrower may have because any of the Debt is secured by real property, so that, among other things, Lender may collect from Borrower without first foreclosing on any real or personal property collateral pledged by any other Borrower; if Lender forecloses on any real property collateral pledged by any other Borrower, the amount of the Debt may be reduced only by the price for which that collateral is sold at the foreclosure sale even if the collateral is worth more than the sale price. This is an unconditional and irrevocable waiver of any rights and defenses Borrower may have because any of the Debt in secured by real property; and (iii) any claim or other right which Borrower may now have or hereafter acquire against any other Borrower or any other Person that arises from the existence or performance of any obligations under the Note, this Agreement, the Mortgages or the other Loan Documents, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification, or any right to participate in any claim of remedy of Lender against any other Borrower or any collateral security, therefore, whether or not such claim, remedy or right arises in equity or under contract, statute or common law. Section 20.14. INTENTIONALLY DELETED. - 100 - IN WITNESS WHEREOF, each Borrower has duly executed this Loan Agreement as of the day and year first above written. BORROWER: INLAND WESTERN BAY SHORE GARDINER, L.L.C., a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina --------------------------------- Name: Valerie Medina ------------------------------- Title: Asst. Secretary ------------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN HARTFORD NEW PARK, L.L.C., a Delaware limited liability company By: INLAND WESTERN HARTFORD NEW PARK MEMBER, L.L.C., a Delaware limited liability company, its sole member, By: INLAND WESTERN HARTFORD NEW PARK MEMBER II, L.L.C., a Delaware limited liability company, its Manager, By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina --------------------------------- Name: Valerie Medina ------------------------------- Title: Asst. Secretary ------------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN ORANGE 53 BOSTON, L.L.C., a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina --------------------------------- Name: Valerie Medina ------------------------------- Title: Asst. Secretary ------------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN ORANGE 440 BOSTON, L.L.C., a Delaware limited liability company By: INLAND WESTERN ORANGE 440 BOSTON MEMBER, L.L.C., a Delaware limited liability company, its sole member By: INLAND WESTERN ORANGE 440 BOSTON MEMBER II, L.L.C., a Delaware limited liability company, its Manager By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina --------------------------------- Name: Valerie Medina ------------------------------- Title: Asst. Secretary ------------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN PITTSBURGH WILLIAM PENN, L.P., an Illinois limited partnership By: INLAND WESTERN PITTSBURGH WILLIAM PENN GP, L.L.C. a Delaware limited liability company, its general partner By: INLAND WESTERN PITTSBURGH WILLIAM PENN PARTNER, L.P., a Delaware limited partnership, its sole member, By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its general partner By: /s/ Valerie Medina --------------------------------- Name: Valerie Medina ------------------------------- Title: Asst. Secretary ------------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN POUGHKEEPSIE MID-HUDSON, L.L.C., a Delaware limited liability company By: INLAND WESTERN POUGHKEEPSIE MID-HUDSON MEMBER, L.L.C., a Delaware limited liability company, its sole member, By: INLAND WESTERN POUGHKEEPSIE MID-HUDSON MEMBER II, L.L.C., a Delaware limited liability company, its Manager By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina --------------------------------- Name: Valerie Medina ------------------------------- Title: Asst. Secretary ------------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN SARATOGA SPRINGS WILTON, L.L.C., a Delaware limited liability company By: INLAND WESTERN SARATOGA SPRINGS WILTON MEMBER, L.L.C., a Delaware limited liability company, its sole member, By: INLAND WESTERN SARATOGA SPRINGS WILTON MEMBER II, L.L.C., a Delaware limited liability company, its Manager By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina --------------------------------- Name: Valerie Medina ------------------------------- Title: Asst. Secretary ------------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN WEST MIFFLIN CENTURY III, L.P., an Illinois limited partnership By: INLAND WESTERN WEST MIFFLIN CENTURY III GP, L.L.C., a Delaware limited liability company, its general partner By: INLAND WESTERN WEST MIFFLIN CENTURY III PARTNER, L.P., a Delaware limited partnership, its sole Member By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its general partner By: /s/ Valerie Medina --------------------------------- Name: Valerie Medina ------------------------------- Title: Asst. Secretary ------------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN WESTBURY MERCHANTS PLAZA, L.L.C., a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina --------------------------------- Name: Valerie Medina ------------------------------- Title: Asst. Secretary ------------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN WILLISTON MAPLE TREE, L.L.C., a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina --------------------------------- Name: Valerie Medina ------------------------------- Title: Asst. Secretary ------------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] BORROWER PRINCIPAL: Acknowledged and agreed to with respect to its obligations set forth in Article 4, Section 12.6, Article 13, Article 15 and Article 18 hereof: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation By: /s/ Valerie Medina --------------------------------- Name: Valerie Medina ------------------------------- Title: Asst. Secretary ------------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] EXHIBIT A BORROWER EQUITY OWNERSHIP STRUCTURE SCHEDULE I GROUND LEASES SCHEDULE II ALLOCATED LOAN AMOUNTS
Name of Borrower Individual Property Allocated Loan Amount - ---------------- ------------------- --------------------- Inland Western Orange 53 Golfland Plaza $ 8,206,000 Boston, L.L.C. 53 Boston Post Road, Orange, CT 06477 Inland Western Westbury Bed, Bath & Beyond Plaza $ 9,818,000 Merchants Plaza, L.L.C. 950 Merchants Concourse, Westbury, NY 11590 Inland Western Hartford New Crown Plaza $ 10,050,000 Park, L.L.C. 300 New Park Avenue, Hartford, CT 06106 Inland Western Pittsburgh Home Depot Center $ 10,446,000 William Penn, L.P. 3550 William Penn Highway, Pittsburgh, PA 15235 Inland Western West Mifflin Century III Plaza $ 25,313,000 Century III, L.P. 9971 Mountain View Drive, West Mifflin, PA 15122 Inland Western Bay Shore Gardiner Manor Mall $ 38,484,000 Gardiner, L.L.C. 838 Sunrise Highway, Bay Shore, NY 11706 Inland Western Orange 440 Home Depot Plaza $ 16,734,000 Boston, L.L.C. 440 Boston Post Road, Orange, CT 06477 Inland Western Poughkeepsie Mid-Hudson Center $ 25,156,000 Mid-Hudson, L.L.C. 3470 North Road, Poughkeepsie, NY 12064 Inland Western Saratoga Wilton Square $ 27,825,000 Springs Wilton, L.L.C. 3049 Route 50 Saratoga Springs, NY 12866 Inland Western Williston Maple Tree Plaza $ 60,376,000 Maple Tree, L.L.C. 100 Syracuse Street, Williston, VT 05495
SCHEDULE III REQUIRED REPAIRS
NAME OF PROPERTY 3RD PARTY INSPECTOR DATE OF INSPECTION - ------------------------------------------------------------------------- Bed Bath & Beyond Plaza ATC Associates 5/27/2005 Crown Plaza Reeves Consulting 5/25/2005 Golfland Plaza Reeves Consulting 5/25/2005 Home Depot Center Reeves Consulting 5/25/2005 Mid-Hudson Center EBI Consulting 3/24/2005 Wilton Square EBI Consulting 4/04/2005 Century III Plaza Reeves Consulting 5/25/2005 Gardiner Manor Mall EBI Consulting 4/05/2005 Home Depot Plaza Reeves Consulting 5/25/2005 Maple Tree Place ATC Associates 5/27/2005
SCHEDULE IV REQUIRED REPLACEMENTS
REPLACEMENT REPLACEMENTAMOUNT - ----------- -----------------
No additional Required Replacements other than as described in the Physical Conditions Reports referenced in Article 9 hereto. SCHEDULE V ENVIRONMENTAL REMEDIATION/MONITORING WORK -- PHASE I REPORTS 1) Mid-Hudson Shopping Center, Poughkeepsie, NY, Phase I Environmental Assessment prepared by ECS Illinois, LLC on May 31, 2005. 2) Home Depot Plaza, Orange, CT, Phase I Environmental Assessment prepared by Environmental Waste Management Associates, LLC on June 17, 2005. 3) Crown Plaza, Hartford, CT, Phase I Environmental Assessment prepared by ECS Illinois, LLC on June 3, 2005. - 2 - EX-10.515 4 a2162828zex-10_515.txt EXHIBIT 10.515 Exhibit 10.515 GUARANTY THIS AGREEMENT OF GUARANTY ("Guaranty") made as of this 19 day of July, 2005 by Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, having an office at 2901 Butterfield Road, Oak Brook, Illinois 60523 (together with its successors and assigns, "Guarantor") for the benefit of Bank of America, N.A., a national banking association, having an address at Bank of America Corporate Center, 214 North Tryon Street, Charlotte, North Carolina 28255 (together with its successors and/or assigns, "Lender"). RECITALS The Affiliates of Guarantor listed on Schedule A attached hereto (such Affiliates, together with their successors and/or assigns, collectively "Borrowers") have submitted to Lender an application for a Loan. Lender is unwilling to make the Loan to Borrowers unless Guarantor guarantees payment and performance of certain obligations of Borrowers as hereafter set forth. All initial capitalized terms used and not defined herein shall have the meanings set forth in the Loan Agreement of even date herewith between Lender and Borrowers. NOW, THEREFORE, to induce Lender to make the Loan to Borrowers and for other good and valuable consideration, Guarantor absolutely and unconditionally guarantees to Lender the prompt payment and performance of any and all construction obligations, Tenant improvement costs, leasing commissions and other unfunded contractual obligations of Borrowers, or any of them, pursuant to Leases and other agreements with any Tenants of the Individual Properties. Guarantor hereby consents that Lender may, at any time or from time to time, either before or after the Maturity Date, without notice to or further consent of Guarantor, extend the Maturity Date, exchange, release, substitute any collateral for, renew or extend the time of payment of, exchange, release, substitute or surrender any collateral for, or increase the Note Rate on the Debt and may also make any agreement with the Borrowers, with any one Borrower or more than one of the Borrowers, or with any other party to or Person liable for payment of the Debt for the extension, renewal, payment, compromise, discharge or release thereof in whole or in part, or for any modification of the Loan Agreement or any or all of the other Loan Documents without in any way impairing or affecting this Guaranty. Guarantor hereby acknowledges that it has derived or expects to derive a financial or other advantage from the Loan to Borrowers. The Guarantor hereby waives notice of the acceptance of this Guaranty and of the making of the Loan, presentment to or demand payment from any Person liable for payment of the Debt, protest, notice of presentment, non-payment or protest and notice of any sale of collateral security for the Debt or any default by Borrowers. This Guaranty is a continuing guaranty and shall remain in full force and effect and be binding on Guarantor, its successors and assigns. This Guaranty is a guarantee of payment and not of collection, and Lender shall be under no obligation to take any action against Borrowers or any other Person or resort to any security held by Lender to secure payment of the Debt as a condition precedent to Guarantor's obligation to perform its obligations hereunder. Guarantor waives any right to interpose any defense, counterclaim or offset of any nature or description which it may have or which may exist between and among Lender, Borrowers and/or Guarantor. Guarantor hereby waives any right to be subrogated to the rights of Lender with respect to the Loan until such time as Lender shall have received payment in full of the Debt, and Guarantor agrees that it will not institute or take any action seeking reimbursement against Borrowers until Lender shall have received payment in full of the Debt. No failure on Lender's part to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by Lender of any right, remedy or power hereunder preclude any other or future exercise of any other right, remedy or power. GUARANTOR AND LENDER HEREBY WAIVE AND AGREE TO WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION, COUNTERCLAIM OR PROCEEDING INSTITUTED WITH RESPECT TO THIS GUARANTY. Each and every right, remedy and power hereby granted to Lender or allowed to it by law shall be cumulative and not exclusive of any other and may be exercised by Lender at any time and from time to time. This Guaranty shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State of New York. [NO FURTHER TEXT ON THIS PAGE] IN WITNESS WHEREOF, this Guaranty has been executed by Guarantor on the day and year first above written. GUARANTOR: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation By: /s/ Valerie Medina ------------------------------- Name: Valerie Medina ------------------------- Title: Asst. Secretary ------------------------- SCHEDULE A Inland Western Bay Shore Gardiner, L.L.C., a Delaware limited liability company, Inland Western Poughkeepsie Mid-Hudson, L.L.C., a Delaware limited liability company, Inland Western Saratoga Springs Wilton, L.L.C., a Delaware limited liability company, Inland Western Westbury Merchants Plaza, L.L.C., a Delaware limited liability company, Inland Western Orange 440 Boston, L.L.C., a Delaware limited liability company, Inland Western Orange 53 Boston, L.L.C., a Delaware limited liability company, Inland Western Hartford New Park, L.L.C., a Delaware limited liability company, Inland Western Williston Maple Tree, L.L.C., a Delaware limited liability company, Inland Western West Mifflin Century III DST, a Delaware statutory trust and Inland Western Pittsburgh William Penn DST, a Delaware statutory trust. EX-10.516 5 a2162828zex-10_516.txt EXHIBIT 10.516 Exhibit 10.516 LOAN NO.: 59040 SERVICING NO.:3204419 POST CLOSING OBLIGATIONS LETTER As of July 19, 2005 c/o Inland Western Retail Real Estate Trust, Inc. 2901 Butterfield Road Oak Brook, Illinois 60523 Re: Mortgage Loan by Bank of America, N.A. to various affiliates of Inland Western Retail Real Estate Trust, Inc. in connection with the Inland-Starwood-Ceruzzi/BofA Loan Portfolio. Ladies and Gentlemen: Reference is hereby made to that certain mortgage loan being made by BANK OF AMERICA, N.A., a national banking association (including its successors, transferees and assigns, "LENDER") to Inland Western Bay Shore Gardiner, L.L.C., a Delaware limited liability company ("GARDINER"), Inland Western Poughkeepsie Mid-Hudson, L.L.C., a Delaware limited liability company ("MID-HUDSON"), Inland Western Saratoga Springs Wilton, L.L.C., a Delaware limited liability company ("WILTON"), Inland Western Westbury Merchants Plaza, L.L.C., a Delaware limited liability company ("WESTBURY"), Inland Western Orange 440 Boston, L.L.C., a Delaware limited liability company ("ORANGE 440"), Inland Western Orange 53 Boston, L.L.C., a Delaware limited liability company ("ORANGE 53"), Inland Western Hartford New Park, L.L.C., a Delaware limited liability company ("NEW PARK"), Inland Western Williston Maple Tree, L.L.C., a Delaware limited liability company ("MAPLE TREE"), Inland Western West Mifflin Century III, L.P., an Illinois limited partnership ("CENTURY III"), and Inland Western Pittsburgh William Penn, L.P., an Illinois limited partnership ("WILLIAM PENN"; Gardiner, Mid-Hudson, Wilton, Westbury, Orange 440, Orange 53, New Park, Maple Tree, Century III and William Penn, individually and collectively, as the context may require, "BORROWER") on the date hereof in the principal amount of $232,408,000.00 (the "LOAN"), which Loan is evidenced by a certain Loan Agreement of even date herewith given executed by Borrower, Lender and Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, as Borrower Principal (the "LOAN AGREEMENT"), and a certain Consolidated Promissory Note of even date herewith given by Borrower to Lender (the "NOTE"), secured by, among other things, those certain Mortgages (as defined in the Loan Agreement). Capitalized terms not defined herein shall have the meanings assigned to them in the Loan Agreement. Borrower has requested the Lender to fund the Loan, notwithstanding Borrower's inability to deliver certain documents, evidences and showings relating thereto, as expressly described below. The Lender, subject to the satisfaction of the other conditions precedent to the making of the Loan, is willing to proceed with the funding of the Loan, subject to Borrower's compliance with the terms of this letter agreement. Accordingly, to induce the Lender to make the Loan, the Borrower agrees to satisfy all of the following post-closing requirements in a manner acceptable to Lender (collectively, the "POST-CLOSING REQUIREMENTS"): 1. Within thirty (30) days of the date hereof, Borrower shall (i) deliver to each of the Tenants at the Individual Properties located in the State of New York, via registered mail with return receipt requested, a complete and fully executed notice letter by Gardiner, Mid-Hudson, Wilton or Westbury (as applicable) per Section 291-f of the Real Property Law of New York in the form attached hereto as EXHIBIT A and made a part hereof (the "291-f LETTERS"), and (ii) provide Lender evidence acceptable to Lender confirming delivery of the 291-f Letters to the Tenants at the Individual Properties located in the State of New York. 2. Borrower shall (i) cause the fire code violations referenced in the Planning and Zoning Resources report previously delivered to Lender affecting the Individual Property commonly known as Home Depot Center of Wilkins, Pennsylvania and owned by William Penn, more particularly described as the improper location of the storage cage that holds cylinders of LPG (propane gas) (the "VIOLATIONS"), to be cured (removed from direct sunlight and not impeding egress of sidewalk areas) and removed of record within one hundred twenty (120) days of the date hereof, and (ii) provide Lender evidence acceptable to Lender of such cure and removal of record; provided, however, if the Violations cannot be cured and removed of record within one hundred twenty (120) days and Borrower shall have commenced to cure the Violations within such one hundred twenty (120) day period and thereafter diligently and expeditiously proceeds to cure the same, such one hundred twenty (120) day period shall be extended for so long as it shall require Borrower in the exercise of due diligence to cure the Violations; provided that Borrower shall deliver to Lender, on a bi-monthly basis, a letter advising Lender of the status of the clearance of the Violations; 3. Within thirty (30) days of the date hereof, Borrower shall use commercially reasonable efforts to furnish to Lender an original subordination, non-disturbance and attornment agreement (a "SNDA") from each of the tenants listed on EXHIBIT B attached hereto and made a part hereof (individually and collectively, as the context may require, "TENANT") in substantially the form distributed to Borrower by Lender in connection with the closing of the Loan (with such changes thereto as may be reasonably acceptable to Lender) executed and notarized by each Tenant; and 4. Within thirty (30) days of the date hereof, Borrower shall furnish to Lender, in a form acceptable to Lender in its sole discretion, Operations and Maintenance Plans regarding Asbestos Containing Materials pertaining to the following three (3) Individual Properties: (i) Golfland Plaza of Orange, Connecticut, owned by Orange 53, (ii) Mid-Hudson Center of Poughkeepsie, New York, owned by Mid-Hudson, and (iii) Wilton Square of Saratoga Springs, New York, owned by Wilton; and 5. Within ten (10) days of the date hereof, Borrower shall furnish to Lender an executed and notarized Ground Lease Estoppel and Agreement (the "ESTOPPEL") from the Ground Lessor at the Individual Property commonly known as Mid-Hudson Center of Poughkeepsie, New York, in the form attached hereto and made a part hereof as EXHIBIT C, with such changes thereto as may be acceptable to Lender in its sole discretion. All acts of Borrower to be performed hereunder shall be at the applicable Borrower's sole cost and expense and shall be satisfactory to Lender in all respects. Borrower hereby agrees to pay all of Lender's reasonable out-of-pocket costs and expenses incurred in connection with its review and approval of the items set forth herein, including, without limitation, reasonable attorney's fees. Very truly yours, INLAND WESTERN BAY SHORE GARDINER, L.L.C., a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina ------------------------- Name: Valerie Medina ----------------------- Title: Assistant Secretary ---------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN HARTFORD NEW PARK, L.L.C., a Delaware limited liability company By: INLAND WESTERN HARTFORD NEW PARK MEMBER, L.L.C., a Delaware limited liability company, its sole member, By: INLAND WESTERN HARTFORD NEW PARK MEMBER II, L.L.C., a Delaware limited liability company, its Manager, By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina ------------------------- Name: Valerie Medina ----------------------- Title: Assistant Secretary ---------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN ORANGE 53 BOSTON, L.L.C., a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina ------------------------- Name: Valerie Medina ----------------------- Title: Assistant Secretary ---------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN ORANGE 440 BOSTON, L.L.C., a Delaware limited liability company By: INLAND WESTERN ORANGE 440 BOSTON MEMBER, L.L.C., a Delaware limited liability company, its sole member By: INLAND WESTERN ORANGE 440 BOSTON MEMBER II, L.L.C., a Delaware limited liability company, its Manager By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina ------------------------- Name: Valerie Medina ----------------------- Title: Assistant Secretary ---------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN PITTSBURGH WILLIAM PENN, L.P., an Illinois limited partnership By: INLAND WESTERN PITTSBURGH WILLIAM PENN GP, L.L.C. a Delaware limited liability company, its general partner By: INLAND WESTERN PITTSBURGH WILLIAM PENN PARTNER, L.P., a Delaware limited partnership, its sole member, By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its general partner By: /s/ Valerie Medina ------------------------- Name: Valerie Medina ----------------------- Title: Assistant Secretary ---------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN POUGHKEEPSIE MID-HUDSON, L.L.C., a Delaware limited liability company By: INLAND WESTERN POUGHKEEPSIE MID- HUDSON MEMBER, L.L.C., a Delaware limited liability company, its sole member, By: INLAND WESTERN POUGHKEEPSIE MID- HUDSON MEMBER II, L.L.C., a Delaware limited liability company, its Manager By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina --------------------------- Name: Valerie Medina ------------------------- Title: Asst. Secretary ------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN SARATOGA SPRINGS WILTON, L.L.C., a Delaware limited liability company By: INLAND WESTERN SARATOGA SPRINGS WILTON MEMBER, L.L.C., a Delaware limited liability company, its sole member, By: INLAND WESTERN SARATOGA SPRINGS WILTON MEMBER II, L.L.C., a Delaware limited liability company, its Manager By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina --------------------------- Name: Valerie Medina ------------------------- Title: Asst. Secretary ------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN WEST MIFFLIN CENTURY III, L.P., an Illinois limited partnership By: INLAND WESTERN WEST MIFFLIN CENTURY III GP, L.L.C., a Delaware limited liability company, its general partner By: INLAND WESTERN WEST MIFFLIN CENTURY III PARTNER, L.P., a Delaware limited partnership, its sole Member By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its general partner By: /s/ Valerie Medina --------------------------- Name: Valerie Medina ------------------------- Title: Asst. Secretary ------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN WESTBURY MERCHANTS PLAZA, L.L.C., a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina --------------------------- Name: Valerie Medina ------------------------- Title: Asst. Secretary ------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] INLAND WESTERN WILLISTON MAPLE TREE, L.L.C, a Delaware limited liability company By: INLAND WESTERN RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, its sole member By: /s/ Valerie Medina --------------------------- Name: Valerie Medina ------------------------- Title: Asst. Secretary ------------------------ EXHIBIT A (291-f LETTER) (See Attached) STANDARD FORM OF NOTICE PURSUANT TO SECTION 291-F OF THE REAL PROPERTY LAW OF NEW YORK July _______, 2005 REGISTERED MAIL/RETURN RECEIPT REQUESTED [ INSERT NAME AND ADDRESS OF TENANT ] 1) Lease dated ____________________________, as amended, between ______________________________________________, as Landlord, and __________________________________, as Tenant, concerning premises located at ________________________________________ (the "PROPERTY") FILE NOS: Loan No.: 59040, Servicing No.: 3204419, MERS: 8000101 0000001252-5 Dear Ladies and Gentlemen: Notice is hereby given to you as the present holder of the tenant's interest under the above lease that Bank of America, N.A. (the "LENDER") has made a mortgage loan ("LOAN") to [INSERT APPLICABLE BORROWER NAME ("BORROWER")] which is secured in part by an Agreement of Consolidation and Modification of Mortgage, Assignment of Leases and Rents and Security Agreement (the "MORTGAGE") covering the fee [and leasehold] estate of Borrower in certain premises located at [_________________________] (the "PROPERTY"), as more particularly described therein, a portion of which premises were demised under the above lease. As further and additional security for the mortgage loan, the above lease was collaterally assigned by Borrower to Lender pursuant to the provisions of the Mortgage and that certain Loan Agreement by and among Borrower and Lender (among others) executed in connection therewith (the "LOAN AGREEMENT"). The Mortgage contains a section referring to Section 291-f of the Real Property Law of New York, which Section 291-f provides that if a recorded mortgage restricts the right or power of the owner of the mortgaged real property to cancel, abridge or otherwise modify tenancies, subtenancies, leases or subleases of the mortgaged real property in existence at the time of the agreement, or to accept prepayments of installments of rent to become due, and notice of the making of the mortgage which contains a reference to Section 291-f is given to a tenant, accompanied by a copy of the text of the agreement, any cancellation, abridgment, modification or prepayment made by such tenant or subtenant under a lease coming under the provisions of Section 291-f, without the consent of the holder of such mortgage, shall be voidable as against the holder of the mortgage at the option of such holder. A copy of the provisions of the Mortgage and Loan Agreement referring to Section 291-f is attached hereto as EXHIBIT A. However, you are requested and directed to pay the rental as it becomes due, as directed by Borrower, unless and until you receive notice from Lender to the contrary. Very truly yours, ------------------------------ EXHIBIT A Section 17.5 of the Mortgage entitled "Leases" provides that "Lender shall have all of the rights against lessees of the Property set forth in Section 291-f of the Real Property Law of New York." Section 3.3 of the Mortgage entitled "Leases" provides that Borrower shall not enter in any Leases (as defined below) for all or any portion of the Property unless in accordance with the provisions of the Loan Agreement. Section 5.13 of the Loan Agreement provides as follows: (a) Borrower may enter into a proposed Lease (including the renewal or extension of an existing Lease (a "RENEWAL LEASE")) without the prior written consent of Lender, provided such proposed Lease or Renewal Lease (i) provides for rental rates and terms comparable to existing local market rates and terms (taking into account the type and quality of the tenant) as of the date such Lease is executed by Borrower (unless, in the case of a Renewal Lease, the rent payable during such renewal, or a formula or other method to compute such rent, is provided for in the original Lease), (ii) is an arm's-length transaction with a bona fide, independent third party tenant, (iii) does not have a materially adverse effect on the value of the Property taken as a whole, (iv) is subject and subordinate to the Mortgage which is a lien on the Property and the Tenant thereunder agrees to attorn to Lender, (v) does not contain any option, offer, right of first refusal, or other similar right to acquire all or any portion of the Property, (vi) has a base term of less than fifteen (15) years including options to renew, (vii) has no rent credits, free rents or concessions granted thereunder, other than commercially reasonable tenant improvement allowances and commercially reasonable rent abatements consistent with other comparable leases within the local market and (viii) is written on the standard form of lease approved by Lender. All proposed Leases which do not satisfy the requirements set forth in this subsection shall be subject to the prior approval of Lender and its counsel, at Borrowers' expense. Borrowers shall promptly deliver to Lender copies of all Leases which are entered into pursuant to this subsection together with the certification of the Borrower executing the Lease as landlord that it has satisfied all of the conditions of this Section. (b) Borrower (i) shall observe and perform all the obligations imposed upon the landlord under the Leases and shall not do or permit to be done anything to impair the value of any of the Leases as security for the debt underlying the Loan; (ii) shall promptly send copies to Lender of all notices of default which Borrower shall send or receive thereunder; (iii) shall enforce all of the material terms, covenants and conditions contained in the Leases upon the part of the tenant thereunder to be observed or performed; (iv) shall not collect any of the Rents more than one (1) month in advance (except security deposits shall not be deemed Rents collected in advance); (v) shall not execute any other assignment of the landlord's interest in any of the Leases or the Rents; and (vi) shall not consent to any assignment of or subletting under any Leases not in accordance with their terms, without the prior written consent of Lender. (c) Borrower may, without the prior written consent of Lender, amend, modify or waive the provisions of any Lease or terminate, reduce Rents under, accept a surrender of space under, or shorten the term of, any Lease (including any guaranty, letter of credit or other credit support with respect thereto) provided that such action (taking into account, in the case of a termination, reduction in rent, surrender of space or shortening of term, the planned alternative use of the affected space) does not have a materially adverse effect on the value of the Individual Property taken as a whole, and provided that such Lease, as amended, modified or waived, is otherwise in compliance with the requirements of the Loan Agreement and any subordination agreement binding upon Lender with respect to such Lease. A termination of a Lease with a tenant who is in default beyond applicable notice and grace periods shall not be considered an action which has a materially adverse effect on the value of the Property taken as a whole. Any amendment, modification, waiver, termination, rent reduction, space surrender or term shortening which does not satisfy the requirements set forth in this subsection shall be subject to the prior approval of Lender and its counsel, at Borrower's expense. Borrower shall promptly deliver to Lender copies of amendments, modifications and waivers which are entered into pursuant to this subsection together with a certification that it has satisfied all of the conditions of this subsection. (d) Notwithstanding anything contained herein to the contrary, Borrower shall not, without the prior written consent of Lender, enter into, renew, extend, amend, modify, waive any provisions of, terminate, reduce Rents under, accept a surrender of space under, or shorten the term of any Major Lease. As used herein, "LEASE" and "LEASES" shall mean any and all leases, subleases, subsubleases, lettings, licenses, concessions or other agreements (whether written or oral) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of the real property described as the Property, and the buildings, structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and improvements now or hereafter erected or located on the Property, and every modification, amendment or other agreement relating to such leases, subleases, subsubleases, or other agreements entered into in connection with such leases, subleases, subsubleases, or other agreements and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto, heretofore or hereafter entered into, whether before or after the filing by or against Borrower of any petition for relief under any creditors rights laws. As used herein, "MAJOR LEASE" shall mean (i) any Lease which, individually or when aggregated with all other leases at the Property with the same tenant or its affiliate, either (A) accounts for seven and one-half percent (7 1/2%) or more of such Property's aggregate retail income, or (B) demises 7,500 square feet or more of such Property's gross leasable area, (ii) any Lease which contains any option, offer, right of first refusal or other similar entitlement to acquire all or any portion of such Property, or (iii) any instrument guaranteeing or providing credit support for any Lease meeting the requirements of (i) or (ii) above. As used herein, "RENTS" shall mean all right, title and interest of Borrower, its successors and assigns therein and thereunder, including, without limitation, cash or securities deposited thereunder to secure the performance by the lessees of their obligations thereunder and all rents, additional rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, royalties (including, without limitation, all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including, without limitation, security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower or its agents or employees from any and all sources arising from or attributable to the Property, including, all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of property or rendering of services by Borrower or any property manager and proceeds, if any, from business interruption or other loss of income insurance whether paid or accruing before or after the filing by or against Borrower of any petition for relief under any creditors rights laws. EXHIBIT B Required SNDAs
PROPERTY TENANT - -------------------------------------------------------------------------------- Mid-Hudson Center, Poughkeepsie, NY 1. Home Depot 2. Exxon Mobil Oil Corp Gardiner Manor Mall, Bay Shore, NY 1. Gap Wilton Square, Saratoga Springs, NY 1. Dayton Hudson/Target 2. Home Depot 3. Pet Smart Maple Tree Plaza, Williston, VT 1. Dicks Sporting Goods 2. Shaw's Supermarket 3. NE Restaurant 4. North Bridgewater Venture 5. iParty Retail Shops 6. Wireless World 7. Maple Tree Cinemas Home Depot Plaza, Orange, CT 1. Home Depot 2. Office Max Home Depot Center, Pittsburgh, PA 1. Home Depot Century III Plaza, West Mifflin, PA 1. Giant Eagle 2. Mountain Top Associates 3. Home Depot
EXHIBIT C MID-HUDSON GROUND LESSOR ESTOPPEL GROUND LEASE ESTOPPEL AND AGREEMENT WHEREAS, MidHudson Center, L.L.C. ("LANDLORD") is the holder of the landlord's interest in that certain Ground Lease dated as of July 7, 1999 and as evidenced by a certain Memorandum of Lease, dated February 22, 2000, recorded March 10, 2000 under document number 02-2000-2237 in the official land records of Dutchess County, New York (such lease, as heretofore or hereafter amended, modified, or assigned the "LEASE") with Starwood Ceruzzi Poughkeepsie LLC (collectively, with its successors in interest, Inland Western Poughkeepsie Mid-Hudson, L.L.C., "TENANT" or "BORROWER"); WHEREAS, Borrower is desirous of obtaining a loan (the "LOAN") from BANK OF AMERICA, N.A., a national banking association, a wholly owned subsidiary of BankAmerica Corporation, and having its principal offices in Charlotte, North Carolina (together with its successors and/or assigns the "LENDER"), which such Loan shall be secured by a certain Mortgage and Agreement of Consolidation and Modification of Mortgage, Assignment of Leases and Rents, and Security Agreement given by Borrower to Mortgage Electronic Registration Systems, Inc., a Delaware stock corporation, in its capacity as the nominee of Lender (the "SECURITY INSTRUMENT") which shall encumber Tenant's interest in the Lease which encumbers the property more particularly described on EXHIBIT A attached hereto (the "PROPERTY"); WHEREAS, Lender is unwilling to make the Loan unless Landlord makes the representations, covenants and agreements set forth herein; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord hereby represents, covenants and agrees this ________ day of _____________, 2005 as follows: 1. Landlord hereby consents to the Loan by Lender and confirms that Lender is a "Leasehold Mortgagee" under the Lease. 2. Landlord hereby certifies as follows: (a) Landlord is the owner of the fee estate in the Property and is the landlord under the Lease. (b) Tenant is the owner of the leasehold estate in the Property and is the tenant under the Lease. (c) The Lease is in full force and effect in accordance with its terms and has not been further assigned, supplemented, modified or otherwise amended, orally or in writing, except as set forth in EXHIBIT B attached hereto and each of the obligations on Landlord's part to be performed to date under the Lease or under any other agreement described in EXHIBIT B attached hereto have been performed. (d) To the best of Landlord's knowledge, each of the obligations on Tenant's part to be performed to date under the Lease or under any other agreement described in EXHIBIT B attached hereto have been performed. (e) To the best of Landlord's knowledge, Tenant has no offsets, counterclaims, defenses, deductions or credits whatsoever with respect to the Lease, or any amounts owing under any other agreement described in EXHIBIT B attached hereto. (f) None of the matters set forth in EXHIBIT B attached hereto are untrue or incorrect and, without limitation on the foregoing, there are, with respect to the Lease, no options to renew or extend, and no security deposits escrows or prepaid rent or liens, except as set forth herein. Tenant does not have any rights to purchase the Property. Tenant's exercise of any rights of first refusal, options to renew, extend or terminate the Ground Lease or purchase any portion of the Property shall not be effective unless consented to in writing by Lender. (g) Except as set forth in EXHIBIT B attached hereto, there do not exist any other agreements (including, without limitation, subordination, non-disturbance and attornment agreements) concerning the Property, whether oral or written between Landlord and Tenant (or their respective predecessors or successors) under the Lease. (h) As of the date hereof, no basic rent or additional rent is due from Tenant under the Lease. The rent payable under the Lease is currently $30,000 annually plus any amount payable as "Additional Rent" (as defined in the Lease) (such sums, collectively, the "RENT"). There are no other rents, additional rents or other charges due and payable under the Lease other than the Rent. (i) Tenant does not make any type of escrow deposits with Landlord, and Landlord does not hold any type of deposit from Tenant (for security or otherwise), except for________________________. The amount of any such deposit currently held by Landlord is $_______________. (j) The term commencement date of the Lease was February 15, 2000, and the initial term of the Lease shall expire on February 15, 2048 (the "EXPIRATION DATE"). Tenant does not have any rights to renew, extend or terminate the Ground Lease, except for________________________[None]. (k) Neither Landlord nor Tenant has assigned the Lease or its interest in the Property. No portion of the Property has been sublet except_______________. (1) Landlord has not assigned, conveyed, transferred, sold, encumbered or mortgaged its interest in the Lease or the Property and there are currently no mortgages, deeds of trust or other security interests encumbering Landlord's fee interest in the Property and no third party has an option or preferential right to purchase all or any part of the fee interest in the Property. Landlord agrees that if it elects to encumber the fee interest in the Property, Landlord will cause any such lender to enter into an agreement with Lender that is reasonably satisfactory to Lender to evidence the subordination of any lien relating thereto to the lien created by the Security Instrument and to Tenant's interest in the Ground Lease. (m) Landlord has not received written notice of any pending eminent domain proceedings and Landlord has not received any notice that it is in violation of any governmental law or regulation applicable to its fee interest in the Property and its operation thereon, including, without limitation, any environmental laws or the Americans with Disabilities Act, and has no reason to believe that there are grounds for any claim or such violation. (n) No bankruptcy proceedings, whether voluntary or otherwise, are pending, or to Landlord's knowledge, threatened, against Landlord (o) The Property is separate assessed and taxed as its own tax parcel by all applicable taxing authorities. (p) The Lease attached hereto as EXHIBIT C is a true, correct and complete copy thereof. 3. Landlord hereby covenants and agrees that the Lease shall not be modified, terminated, amended, altered, subordinated or cancelled, nor shall a surrender of the property demised under the Lease (the "PREMISES") be accepted by Landlord before the Expiration Date without the prior written consent of Lender, which shall not be unreasonably withheld, and that any such action taken without Lender's consent shall not be binding on Borrower or Tenant or Lender. 4. The parties hereto acknowledge that the current use of the Property is a permitted use under the terms of the Lease. 5. Landlord hereby covenants and agrees that Landlord shall deliver to Lender at the address set forth below (or such other address as may be designated by Lender) written notice of any default by Tenant under the Lease simultaneously with sending such notice to Tenant and that no notice of default given to Tenant, and no exercise of any remedy by Landlord as a result of any such default, shall be effective unless such notice shall have been delivered to Lender. Landlord hereby covenants and agrees that Lender shall have the right, but not the obligation, to cure any default by Tenant under the Lease and Lender shall be afforded (a) sixty (60) days to cure any such default, (b) in the event that any such default cannot, with reasonable diligence, be cured within such sixty (60) day period, such longer time as may be required to complete such cure, provided Lender notifies Landlord of its intention to cure such default and Lender promptly commences and diligently pursues such cure to completion, and (c) in the event that such default is incapable of cure by Lender, such time as may be required for Lender to gain possession of Tenant's interest under the Lease pursuant to the terms of the Loan Agreement and Security Instrument, provided Lender notifies Landlord of its intention to cure such default and Lender promptly commences and diligently pursues such cure to completion. WHEN SENDING NOTICE TO LENDER, SEND TO: Bank of America, N.A. Attn: Capital Markets Servicing Group, CA9-703-26-10, P.O. Box 3609, Los Angeles, California 90051 6. Landlord hereby agrees that Tenant shall have the right to assign or sublet Tenant's interest under the Lease to Lender, its successors or assigns, without the consent of Landlord, and in the event that Tenant's interest under the Lease is so assigned or sublet to Lender, its successors or assigns (as applicable, the "ASSIGNEE"), such Assignee shall have the right to further assign or sublet the Tenant's interest in the Lease without the need to obtain the consent of Landlord. The Assignee shall not be liable for any act, omission and/or breach of the Ground Lease by any prior tenant, and the Assignee shall only be liable for obligations under the Ground Lease first arising from and after the date the Assignee acquires the leasehold estate. The Assignee shall have the right to assign and transfer the Ground Lease without first obtaining Landlord's consent. Upon any transfer or assignment of the Ground Lease by the Assignee, the Assignee shall be automatically released and discharged from all liability thereafter accruing under the Ground Lease. 7. Upon Lender's written request, Landlord shall provide Lender with an estoppel certificate which shall certify to Lender (a) as to the amount and status of all rent payments and security deposits under the Lease, (b) as to the full satisfaction and compliance by Tenant of any other conditions required under the Lease, (c) that Tenant is not in default in the payment, performance or observance of any other condition or covenant to be performed or observed by Tenant thereunder, (d) that there are no offsets or counterclaims on the part of Landlord, and (e) as to such other matters related to the Lease as Lender may reasonably determine from time to time. 8. There shall be no merger of the Lease or any interest in the Lease or of the leasehold estate created thereby with the fee estate in the Property, by reason of the fact that the Lease or such interest therein, or such leasehold estate may be directly or indirectly held by or for the account of any person who shall hold the fee estate in the Property, or any interest in such fee estate, nor shall there be such a merger by reason of the fact that all or any part of the leasehold estate created by the Lease may be conveyed or mortgaged in a leasehold mortgage or deed of trust to a mortgagee or beneficiary who shall hold the fee estate in the Property or any interest of Landlord under the Lease. 9. Landlord hereby covenants and agrees that, in the event that the Lease is terminated for any reason including, without limitation, as a result of a rejection of the Lease in a bankruptcy proceeding, Landlord shall enter into a new ground lease with Lender and such new ground lease shall be upon the same terms and conditions of the unexpired term of the Lease immediately prior to such termination. 10. Landlord hereby confirms with respect to the new ground lease referred to in paragraph 9 above that, should Lender become the tenant under a new lease: (a) title to all improvements now owned by Tenant, situate on the Premises shall automatically vest in Lender; and (b) Landlord shall promptly assign to Lender all space leases and subleases under which the tenants have attorned, with consent of Lender, to Landlord. 11. In the event of a casualty or condemnation to the Property, the terms and conditions of the Security Instrument shall prevail. 12. All of the leasehold mortgagee protection provisions contained in the Lease that inure to the benefit of leasehold mortgagees or their successors and assigns, are hereby incorporated into this Ground Lease Estoppel and Agreement (this "AGREEMENT") by reference and restated and confirmed by Landlord for the benefit of Lender, its successors and assigns. 13. Landlord hereby agrees that Lender shall have the right, pursuant to the terms of the Lease, to exercise any option to renew the term of the Lease if the Tenant shall fail to exercise any such option. 14. Landlord hereby covenants and agrees that Lender shall be entitled to participate in any arbitration proceeding pursuant to the Lease. 15. Landlord's interest, if any, in and to any personal property owned by Tenant and located at the Property and any subleases entered into by Tenant for all or any portion of the Property and the rents, issues and profits therefrom are and shall remain subordinate to the lien of the Security Instrument. 16. Landlord agrees not to disturb the possession of any subtenants under subleases so long as such subtenants do not violate any terms of the Lease. 17. This Agreement and the representations, warranties and covenants contained herein are given with the understanding that this Agreement constitutes a material inducement for Lender in making the Loan to Borrower and that Lender shall rely hereon in making the Loan to Borrower. Lender may at any time, without Landlord's consent, sell, assign, participate or securitize all or any portion of Lender's rights and obligations under the Security Instrument, and any such sale, assignment, participation or securitization may be to one or more financial institutions or other entities, to private investors, and/or into the public securities market, in Lender's sole discretion. This Agreement and the representations, warranties and covenants contained herein shall inure to the benefit of Lender, its successors and assigns (including, without limitation, each and every owner and holder of the Loan, each person who, pursuant to proceedings to enforce the Security Instrument or conveyance in lieu of such proceedings, may succeed to Tenant's interest under the Lease and each person who may thereafter acquire Tenant's interest under the Lease by purchase or otherwise) and shall be binding on Landlord, its heirs, legal representatives, successors and assigns and Landlord further agrees that this Agreement may be relied upon by Lender, its successors and assigns and any nationally recognized statistical rating agency rating any securities issued in connection with the Loan or any portion thereof. To the extent that there are any conflicts between the terms of this Estoppel and the Lease, the terms of this Estoppel shall control. 18. This instrument may be recorded in the applicable recording office in the County and State in which the Property is located. 19. In compliance and fulfillment of the requirements under Section 5.1 of the Lease, Landlord and Lender agree that if Lender takes possession of the Property, either as the result of foreclosure of the Security Instrument or accepting a deed to the Property in lieu of foreclosure, or otherwise, Lender agrees to attorn to the Landlord and recognize the Landlord as its landlord under the Lease, and the Landlord shall recognize and accept the Lender as its tenant thereunder, whereupon, the Lease shall continue in full force and effect as a direct lease between the Lender and the Landlord for the full term thereof, together with all extensions and renewals thereof. [NO FURTHER TEXT ON THIS PAGE] IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date and year first written above. LANDLORD: MidHudson Center, L.L.C By: ---------------------------- Name: Title: [SIGNATURES CONTINUE ON FOLLOWING PAGE] STATE OF ) ) COUNTY OF ) Before me, _____________________________, a Notary Public of said County and State, personally appeared _____________________________, with whom I am personally acquainted, who, upon oath, acknowledged himself/herself to be the _____________________________ of _____________________________, which is the _____________________________ of _____________________________, the within-named bargainor, and that _____________________________, as such ___________________________ of the corporation, executed the forgoing instrument for the purposes therein contained, by signing the name of the corporation in its capacity as the sole managing member of the within named bargainor, and on its behalf, by himself/herself as ____________________________ of the corporation. WITNESS my hand and seal, at office, this ________ day of ________, 2005. - --------------------------------- Notary Public My Commission Expires: EXHIBIT A LEGAL DESCRIPTION (ATTACHED HERETO) EXHIBIT B None. EXHIBIT C LEASE (ATTACHED HERETO) Failure by any Borrower to comply with the terms and provisions hereof (except the requirements of (i) Paragraph 3 above with regard to the SNDAs and (ii) Paragraph 5 above with regard to the Estoppel), within ten (10) days of written notice, shall, at the election of Lender, constitute an Event of Default (as defined in the Loan Agreement) and Lender shall be entitled to exercise any and all rights and remedies it may have under the Loan Agreement, Note, the Mortgages and the other Loan Documents. Nothing in this paragraph shall be deemed to (i) be a waiver by Lender of any of its rights or remedies under the Loan Agreement, Note, the Mortgages and the other Loan Documents, or this letter upon a default by Borrower thereunder, or (ii) affect in any other way the terms and provisions of the Mortgages or the other Loan Documents. EX-23.1 6 a2162828zex-23_1.txt EXHIBIT 23.1 Exhibit 23.1 Consent of Independent Registered Public Accounting Firm The Board of Directors Inland Western Retail Real Estate Trust, Inc.: We consent to the use of the following reports incorporated by reference herein: - - our report dated November 10, 2003 related to - our report dated February 25, 2004 related to the historical summary of gross income and the historical summary of gross income and direct operating expenses of Shops at Park Place direct operating expenses of Dorman Centre for for the year ended December 31, 2002, the year ended December 31, 2003, - - our report dated December 4, 2003 related to the - our report dated March 3, 2004 related to the historical summary of gross income and direct historical summary of gross income and direct operating expenses of Darien Towne Center for operating expenses of Heritage Towne Crossing the year ended December 31, 2002, for the year ended December 31, 2003, - - our report dated February 24, 2004 related to - our report dated May 21, 2004 related to the the combined historical summary of gross income historical summary of gross income and direct and direct operating expenses of Properties operating expenses of Paradise Valley Acquired from Thomas Enterprises for the year Marketplace for the year ended December 31, ended December 31, 2003, 2003, - - our report dated March 2, 2004 related to the - our report dated June 14, 2004 related to the historical summary of gross income and direct historical summary of gross income and direct operating expenses of Hickory Ridge for the year operating expenses of Best on the Boulevard ended December 31, 2003, for the year ended December 31, 2003, - - our report dated March 3, 2004 related to the - our report dated June 14, 2004 related to the historical summary of gross income and direct historical summary of gross income and direct operating expenses of CorWest Plaza for the operating expenses of Bluebonnet Parc for the period from May 29, 2003 through December 31, year ended December 31, 2003, 2003, - - our report dated March 3, 2004 related to the - our report dated May 25, 2004 related to the historical summary of gross income and direct historical summary of gross income and direct operating expenses of Metro Square Center operating expenses of North Rivers Town Center (SuperValue) for the year ended December 31, for the period of October 1, 2003 2003, (commencement of operations) to December 31, 2003, - - our report dated February 26, 2004 related to - our report dated June 8, 2004 related to the the historical summary of gross income and historical summary of gross income and direct direct operating expenses of Larkspur operating expenses of Arvada
Landing for the year ended December 31, 2003, Marketplace and Connection for the year ended December 31, 2003, - - our report dated February 25, 2004 related to - our report dated June 8, 2004 related to the the historical summary of gross income and historical summary of gross income and direct direct operating expenses of North Ranch operating expenses of Eastwood Town Center for Pavilion for the year ended December 31, 2003, the year ended December 31, 2003, - - our report dated February 26, 2004 related to - our report dated May 28, 2004 related to the the historical summary of gross income and historical summary of gross income and direct direct operating expenses of La Plaza Del Norte operating expenses of Watauga Pavilion for the for the year ended December 31, 2003, period of August 15, 2003 (commencement of operations) to December 31, 2003, - - our report dated March 1, 2004 related to the - our report dated June 7, 2004 related to the historical summary of gross income and direct historical summary of gross income and direct operating expenses of MacArthur Crossing for the operating expenses of Northpointe Plaza for year ended December 31, 2003, the year ended December 31, 2003, - - our report dated March 5, 2004 related to the - our report dated May 25, 2004 related to the historical summary of gross income and direct historical summary of gross income and direct operating expenses of Promenade at Red Cliff for operating expenses of Plaza Santa Fe II for the year ended December 31, 2003, the year ended December 31, 2003, - - our report dated February 25, 2004 related to - our report dated June 7, 2004 related to the the historical summary of gross income and historical summary of gross income and direct direct operating expenses of Peoria Crossing for operating expenses of Pine Ridge Plaza for the the year ended December 31, 2003, year ended December 31, 2003, - - our report dated August 13, 2004 related to the - our report dated June 7, 2004 related to the historical summary of gross income and direct historical summary of gross income and direct operating expenses of John's Creek Village for operating expenses of Huebner Oaks Center for the period from September 21, 2003 (commencement the year ended December 31, 2003, of operations) to December 31, 2003, - - our report dated August 3, 2004 related to the - our report dated July 15, 2004 related to the historical summary of gross income and direct historical summary of gross income and direct operating expenses of Fullerton Metrocenter for operating expenses of Lakewood Town Center for the year ended December 31, 2003, the year ended December 31, 2003, - - our report dated August 13, 2004 related to the - our report dated July 30, 2004 related to the historical summary of gross income and direct historical summary of gross income and direct operating expenses of Northgate North for the operating expenses of Davis Towne Crossing for year ended December 31, 2003, the period from July 18, 2003 (commencement of operations) to December 31, 2003, - - our report dated August 18, 2004 related to the - our report dated August 1, 2004 related to the historical summary of gross income and direct historical summary of gross income and direct operating expenses of Gateway Plaza Shopping operating expenses of Cranberry Square for the Center for the year ended December 31, 2003, year ended December 31, 2003, - - our report dated August 11, 2004 related to - our report dated August 3, 2004 related to
the historical summary of gross income and direct the historical summary of gross income and operating expenses of Forks Town Center for the direct operating expenses of Safeway Plaza at year ended December 31, 2003, Marysville for the year ended December 31, 2003, - - our report dated September 1, 2004 related to - our report dated August 25, 2004 related to the historical summary of gross income and the historical summary of gross income and direct operating expenses of Manchester Meadows direct operating expenses of The Shops at for the year ended December 31, 2003, Boardwalk for the period from May 30, 2003 (commencement of operations) to December 31, 2003, - - our report dated September 3, 2004 related to - our report dated August 6, 2004 related to the the historical summary of gross income and combined historical summary of gross income direct operating expenses of Governor's and direct operating expenses of the Marketplace for the year ended December 31, 2003, Properties owned by Capital Centre, LLC, Gateway Village Limited Partnership, Bel Air Square Joint Venture, Towson Circle Joint Venture LLP, and Reisterstown Plaza Holdings, LLC for the year ended December 31, 2003, - - our report dated September 10, 2004 related to - our report dated September 1, 2004 related to the historical summary of gross income and the historical summary of gross income and direct operating expenses of The Columns for the direct operating expenses of Mitchell Ranch period from October 8, 2003 (commencement of Plaza for the period from June 30, 2003 operations) to December 31, 2003, (commencement of operations) to December 31, 2003, - - our report dated September 7, 2004 related to - our report dated September 13, 2004 related to the historical summary of gross income and the historical summary of gross income and direct operating expenses of Saucon Valley direct operating expenses of Lincoln Park for Square for the year ended December 31, 2003, the year ended December 31, 2003, - - our report dated February 13, 2004 related to - our report dated December 8, 2004 related to the consolidated balance sheet of Inland Western the combined historical summary of gross Retail Real Estate Trust, Inc. as of December income and direct operating expenses of The 31, 2003 and the related consolidated statements Properties Acquired from Bayer Properties for of operations, stockholders' equity and cash the year ended December 31, 2003, flows for the period from March 5, 2003 (inception) through December 31, 2003 and related financial statement schedule, - - our report dated December 8, 2004 related to the - our report dated December 9, 2004 related to historical summary of gross income and direct the combined historical summary of gross operating expenses of Azalea Square for the income and direct operating expenses of The period from July 4, 2003 (commencement of Properties Acquired from Donahue Schriber for operations) to December 31, 2003, the year ended December 31, 2003, - - our report dated December 8, 2004 related to the - our report dated November 3, 2004 related to historical summary of gross income and direct the historical summary of gross income and operating expenses of Denton Crossing for the direct operating expenses of Winchester period from August 11, 2003 (commencement of Commons for the year ended December 31, 2003, operations) to December 31, 2003,
- - our report dated December 8, 2004 related to the - our report dated December 8, 2004 related to historical summary of gross income and direct the historical summary of gross income and operating expenses of Gurnee Town Center for the direct operating expenses of Fox Creek Village year ended December 31, 2003, for the period from November 12, 2003 (commencement of operations) to December 31, 2003, - - our report dated December 8, 2004 related to the - our report dated November 26, 2004 related to historical summary of gross income and direct the historical summary of gross income and operating expenses of Mansfield Towne Crossing direct operating expenses of Northwoods Center for the period from July 23, 2003 (commencement for the year ended December 31, 2003, of operations) to December 31, 2003, - - our report dated December 9, 2004 related to the - our report dated December 3, 2004 related to historical summary of gross income and direct the combined historical summary of gross operating expenses of Gateway Pavilions for the income and direct operating expenses of The period from February 15, 2003 (commencement of Properties Acquired from Eastern Retail operations) to December 31, 2003, Holdings, LP for the year ended December 31, 2003, - - our report dated December 7, 2004 related to the - our report dated December 8, 2004 related to historical summary of gross income and direct the historical summary of gross income and operating expenses of Southlake Town Square for direct operating expenses of Oswego Commons the year ended December 31, 2003, for the year ended December 31, 2003, - - our report dated February 3, 2005 related to the - our report dated January 26, 2005 related to historical summary of gross income and direct the historical summary of gross income and operating expenses of Henry Town Center for the direct operating expenses of Shoppes at Lake year ended December 31, 2003, Andrew for the year ended December 31, 2004, - - our report dated March 2, 2005 related to the - our report dated February 19, 2005 related to combined historical summary of gross income and the historical summary of gross income and direct operating expenses of the Properties direct operating expenses of Midtown Center Acquired from FFI American Market Fund, L.P. for for the year ended December 31, 2004, the year ended December 31, 2004, - - our report dated March 3, 2005 related to the - our report dated February 26, 2005 related to historical summary of gross income and direct the combined historical summary of gross operating expenses of Mesa Fiesta for the year income and direct operating expenses of the ended December 31, 2004, Properties Acquired from Weber & Company for the year ended December 31, 2004, - - our report dated February 1, 2005 related to the - our reports dated March 3, 2005 related to the historical summary of gross income and direct consolidated balance sheets of Inland Western operating expenses of Trenton Crossing for the Retail Real Estate Trust, Inc. as of December year ended December 31, 2004, 31, 2004 and 2003 and the related consolidated - - our report dated January 22, 2005 related to the statements of operations, stockholders' equity combined historical summary of gross income and and cash flows for the year ended December 31, direct operating expenses of the Properties 2004 and the period from March 5, 2003 Acquired from Ceruzzi Holdings the year ended (inception) through December 31, 2003 and December 31, 2004, related financial statement schedule, management's assessment of the
- - our report dated June 8, 2005 related to the effectiveness of internal control over historical summary of gross income and direct financial reporting as of December 31, 2004 operating expenses of Four Peaks Plaza for the and the effectiveness of internal control over year ended December 31, 2004, financial reporting as of December 31, 2004, - our report dated February 25, 2005 related to the historical summary of gross income and direct operating expenses of the Stateline Station for the year ended December 31, 2004. - - our report dated May 25, 2005 related to the - our report dated June 3, 2005 related to the combined historical summary of gross income and historical summary of gross income and direct direct operating expenses of the Properties operating expenses of Montecito Crossing the Acquired from Ainbinder Company for the year year ended December 31, 2004, ended December 31, 2004, - - our report dated June 8, 2005 related to the - our report dated June 2, 2005 related to the combined historical summary of gross income and historical summary of gross income and direct direct operating expenses of the Properties operating expenses of Gateway for the year Acquired from Starwood Wasserman for the year ended December 31, 2004, ended December 31, 2004, - - our report dated May 20, 2005 related to the - and our report dated June 4, 2005 related to combined historical summary of gross income and the historical summary of gross income and direct operating expenses of the Properties direct operating expenses Brickyard for the Acquired from Ceruzzi Holdings for the year year ended December 31, 2004. ended December 31, 2004, We consent to the use of the following reports, all included herein: - - our report dated September 8, 2005 related to - our report dated September 7, 2005 related to the combined historical summary of gross income the historical summary of gross income and and direct operating expenses of the Properties direct operating expenses of Lincoln Plaza the Acquired from Newman Development Group for the year ended December 31, 2004, year ended December 31, 2004, - - our report dated September 6, 2005 related to - and our report dated September 6, 2005 related the historical summary of gross income and to the historical summary of gross income and direct operating expenses of the New Forest direct operating expenses of the Orchard for Crossing for the year ended December 31, 2004, the year ended December 31, 2004.
We consent to the reference to our firm under the heading "Experts" herein. Our reports related to the above Historical Summaries of gross income and direct operating expenses refer to the fact that the statements of revenue and certain expenses were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of revenue and expense. KPMG LLP Chicago, Illinois September 15, 2005 -----END PRIVACY-ENHANCED MESSAGE-----