UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2005
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 000-51199
Inland Western Retail Real Estate Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland | 42-1579325 | ||
2901 Butterfield Road, Oak Brook, IL | 60523 | ||
Registrant's telephone number, including area code: 630-218-8000 | |||
Securities registered pursuant to Section 12(b) of the Act: | |||
Title of each class: None | Name of each exchange on which registered: | ||
Securities registered pursuant to Section 12(g) of the Act: | |||
Title of class: Common Stock, par value $0.001 per share | |||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ X ] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
Aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, as of June 30, 2005 was $3,571,892,750.
As of February 21, 2006, there were 437,886,009 shares of common stock outstanding.
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EXPLANATORY NOTE
Due to a clerical error, the 10-K/A Amendment No. 1 filed on May 1, 2006 was not the final version. This 10-K/A Amendment No. 2 is the final version.
The Registrant hereby amends its Annual Report on Form 10-K for the fiscal year ended December 31, 2005, filed with the Securities and Exchange Commission, or SEC, on February 28, 2006, to report the information required by the following items:
Part III
Item 10.
Directors and Executive Officers of the Registrant
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions
Item 14.
Principal Accountant’s Fees and Services
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Part III
(Dollar amounts in thousands, except share and per share amounts)
Item 10. Directors and Executive Officers of the Registrant
Our current directors and executive officers and their positions are as follows:
Name | Age* | Position and office with us |
Robert D. Parks | 62 | Chairman and affiliated director |
Roberta S. Matlin | 61 | Vice president - administration |
Gary E. Pechter | 54 | Secretary |
Steven P. Grimes | 39 | Principal financial officer |
Brenda G. Gujral | 63 | Chief executive officer and affiliated director |
Frank A. Catalano, Jr. | 44 | Independent director |
Kenneth H. Beard | 66 | Independent director |
Paul R. Gauvreau | 66 | Independent director |
Gerald M. Gorski | 63 | Independent director |
Barbara A. Murphy | 68 | Independent director |
*As of January 1, 2006
The Inland Group, Inc. or Inland, together with its subsidiaries and its and their affiliates (collectively, the "Inland Affiliated Companies" or the "Inland Organization"), is a fully integrated real estate company providing property management, leasing, marketing, acquisition, disposition, development, redevelopment, syndication, renovation, construction, finance and other related services. Inland Real Estate Investment Corporation or IREIC, a subsidiary of Inland, and one of the Inland Affiliated Companies, is the sponsor and organizer of the Company. Inland Western Retail Real Estate Advisory Services, Inc., or the Advisor, is a wholly owned subsidiary of IREIC. Our senior management includes executives of the Inland Affiliated Companies named above.
Robert D. Parkshas been our Chairman and an affiliated director since our inception on March 5, 2003. He is a director of The Inland Group, Inc. and one of its four original principals; Chairman of Inland Real Estate Investment Corporation, Director of Inland Securities Corporation, and a director of Inland Investment Advisors, Inc. Mr. Parks is Chairman, Chief Executive Officer, and affiliated director of Inland American Real Estate Trust, Inc. and President, Chief Executive Officer and a director of Inland Real Estate Corporation. He is an 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).
Roberta S. Matlinjoined 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 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 2003, she has been Vice President of Administration of Inland Western Retail Real Estate
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Trust, Inc., and since 2004, 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.
Gary E. Pechter was elected as our Secretary effective November 8, 2005. Mr. Pechter joined The Inland Group, Inc. (TIGI) in February 1985. He is currently Senior Vice President of TIGI and Senior Counsel with The Inland Real Estate Group (TIREG) law department. Mr. Pechter is involved in all aspects of TIGI’s business, including real estate acquisitions and financings, sales, securities laws, corporate governance matters, leasing and tenant matters, litigation management and supervisory responsibilities of paralegals and younger attorneys in TIREG’s law department. He received his B.S. Degree in Psychology from the University of Illinois at Champaign in 1972 and a J.D. from the John Marshall Law School in 1977. Prior to joining TIGI, Mr. Pechter worked for MAT Associates, a hotel developer and Pioneer National Title Insurance Company. He is also a licensed real estate broker.
Steven P. Grimes joined our advisor as its Principal Financial Officer and became our treasurer and principal financial officer in 2004. He is responsible for our finances and borrowings. Prior to joining our 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 AICPA and the Illinois CPA Society.
Brenda G. Gujralhas been an affiliated director since our inception on May 3, 2003. She 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 Chief Executive Office of Inland Western Retail Real Estate Trust, Inc.; a director of Inland Investment Advisors, Inc.; Chairman of the Board of Inland Real Estate Exchange Corporation; and Affiliated Director 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.
Frank A. Catalano, Jr. has been one of our independent directors since our inception on March 5, 2003. He 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.
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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.
Kenneth H. Beard has been one of our independent directors since our inception on March 5, 2003. He 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 t o 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 has been one of our independent directors since our inception on March 5, 2003. He 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.
Gerald M. Gorski has been one of our independent directors since July 1, 2003. He 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 has been one of our independent directors since July 1, 2003. She 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 surgery). Ms. Murphy was a department manager and buyer for J.W. Robinso n’s and Bloomingdale’s and the co-owner of Daffy Down Dilly Gift Shop.
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Lori J. Foust resigned as principal accounting officer of Inland Western Retail Real Estate Trust, Inc.,effective as of March 14, 2006, to pursue other opportunities within the Inland organization. The duties of the principal accounting officer were assumed by Steven P. Grimes, our current treasurer and principal financial officer.
Scott W. Wilton resigned as our Secretary as of November 8, 2005 to pursue other opportunities within the Inland organization.
The election of members of the Board of Directors is conducted on an annual basis. Each individual elected to the Board serves a one-year term or until his or her successor is elected and qualified. Accordingly, the term of office of each of our directors will expire at the annual meeting of shareholders to be held later this year. It is anticipated that at such meeting each current director will be nominated to stand for reelection as a director to hold office until our annual meeting of shareholders in 2006 or until his successor is elected and qualified. We have no reason to believe that any of the anticipated nominees will be unable or unwilling to serve if elected.
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 meet the independence standards promulgated by in accordance with the National Association of Securities Dealers' listing standards and under other applicable law. The Board has adopted a written charter for the Audit Committee.
The Audit Committee is responsible for the engagement of our independent registered public accounting firm, reviewing the plans and results of the audit engagement with our independent registered public accounting firm, approving services performed by and the independence of our independent registered public accounting firm, considering the range of audit and non-audit fees, and consulting with our independent registered public accounting firm regarding the adequacy of our internal accounting controls.
On October 12, 2004, our Board unanimously adopted a Code of Business Conduct and Ethics, Nonretaliation Policy, and Complaint Procedures for Accounting and Auditing Matters.
Item 11. 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 the Inland Affiliated Companies, and are compensated by those entities, in part, for their services rendered to us. We pay our Business Manager/Advisor and its affiliates (which are Inland Affiliated Companies) certain compensation in exchange for services they provide to us. Such compensation is described below under "Certain Relationships and Related Transactions."
We do not have a standing nominating committee of the Board of Directors. The Board of Directors itself serves in those capacities. We do not have a compensation committee as we have no employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There is no compensation committee. The Board of Directors has been responsible for all compensation decisions. As we have no employees, there are no compensation decisions to be made by the Board of Directors.
Compensation of Directors
Base Compensation. We pay each of our independent directors an annual fee of fifteen thousand dollars. In addition, each independent director receives five hundred dollars for attending in person, or three hundred fifty dollars for attending by telephone each meeting of our Board and one thousand dollars for attending, whether in person or by telephone, a meeting of the Special Committee. Messrs. Gauvreau, Catalano and Beard are members of the Audit Committee and each received seven hundred fifty dollars for attending an audit committee meeting in person or five hundred dollars for attending by telephone. In 2005, Mr. Catalano was paid a fee of thirty-one thousand dollars, Mr. Gauvreau was paid a fee of thirty-one thousand dollars, Mr. Beard was paid a fee of thirty-one thousand dollars, Mr. Gorski was paid a fee of twenty-four thousand dollars and Ms. Murphy was paid a fee of twenty-f our thousand dollars for their services as
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Independent Directors. Mr. Parks and Ms. Gujral do not receive any fees or other remuneration for serving as our Affiliated Directors.
Options. Under our independent director stock option plan, each non-employee director (as defined under Rule 16b-3 of the Securities Exchange Act of 1934) is entitled to be granted an option to acquire three thousand shares as of the date they become a director and an additional five hundred shares on the date of each annual stockholders’ meeting, commencing with the annual meeting in 2005 so long as the director remains a member of the Board on such date. The options for the initial three thousand shares will be exercisable as follows; one thousand shares on the date of grant and one thousand shares on each of the first and second anniversaries of the date of grant. The options to be granted as of each annual stockholders’ meeting will become fully exercisable on the second anniversary of the date of grant. Options granted will be exercisable at $8.95 per share. As of December 31, 2005, no options to acquire shares have been exercised and options to acquire twenty thousand shares were outstanding. We have not granted any options to Mr. Parks or Ms. Gujral.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information as of April 15, 2006, regarding the number and percentage of shares beneficially owned by: (i) each director; (ii) each executive officer; (iii) all directors and executive officers as a group; and (iv) any person known to us to be the beneficial owner of more than 5% of our outstanding shares. As of April 15, 2006, we had approximately one hundred sixteen thousand stockholders of record and approximately 438,862,000 shares of common stock outstanding.
NAME OF BENEFICIAL OWNER |
| NUMBER OF SHARES |
| PERCENT OF CLASS |
|
|
|
|
| ||
Robert D. Parks |
| 129,622.1889 | (2) | * |
|
Roberta S. Matlin |
| 300.3359 | * |
| |
Gary E. Pechter | - | * | |||
Steven P. Grimes |
| - | * |
| |
Brenda G. Gujral |
| - | * |
| |
Frank A. Catalano, Jr. |
| 6,401.5834 | (3) | * |
|
Kenneth H. Beard |
| 58,177.3863 | (3) | * |
|
Paul R. Gauvreau |
| 115,231.8436 | (3) | * |
|
Gerald M. Gorski |
| 5,689.3705 | (3) | * |
|
Barbara A. Murphy |
| 3,500.0000 | (3) | * |
|
|
|
|
| ||
All Directors and Executive Officers as a group (10 persons) |
| 318,922.7086 | (2)(3) | * |
|
*Less than 1%
(1)
Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investing power with respect to all shares beneficially owned by them.
(2)
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 Inland. Mr. Parks is a control person of Inland and disclaims beneficial ownership of the shares owned by the Advisor.
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(2)
Includes 3,500 shares issuable upon exercise of options granted 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.
The address of each of the persons listed above is 2901 Butterfield Road, Oak Brook, Illinois 60523.
Equity Compensation Plan Information
The following table sets forth the following information as of December 31, 2005: (i) the number of shares of our common stock to be issued upon the exercise of outstanding options, warrants and rights, (ii) the weighted-average exercise price of such options, warrants and rights and (iii) the number of shares of our common stock remaining available for future issuance under our equity compensation plans, other than the outstanding options, warrants and rights described above.
Plan Category |
| Number of Securities to be |
| Weighted-Average |
| Number of Securities |
|
Equity Compensation Plans Approved by Security Holders |
| - | - | - |
| ||
|
|
|
|
|
|
|
|
Equity Compensation Plans Not Approved by Security Holders |
| 75,000 |
| $8.95 |
| 55,000 |
|
Item 13. Certain Relationships and Related Transactions
Services Provided by Affiliates of the Business Manager/Advisor. As of December 31, 2005 and 2004, we had incurred $457,007 and $234,014 of offering costs for both the initial public offering and the second offering, of which $444,566 and $175,509, respectively, was paid or accrued to affiliates. Pursuant to the terms of our offerings, our business manager/advisor guaranteed payment of all public offering expenses (excluding sales commissions, 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 December 31, 2005 and 2004, offering costs did not exceed the 5.5% and 15% limitations.
Our business manager/advisor and its affiliates were 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 was entitled to receive selling commissions, the marketing contribution and due diligence expense allowance from us in connection with the offering. Such costs were offset against the stockholders' equity accounts. Such costs totaled $444,566 and $175,509, of which $177 and $2,880 remained unpaid at December 31, 2005 and 2004.
Our business manager/advisor and its affiliates are entitled to reimbursement for general and administrative costs relating to our administration and the acquisition of properties. During the years ended December 31, 2005 and 2004 and the period from March 5, 2003 through December 31, 2003, we incurred $4,528, $1,543 and $194 of these costs, respectively. Of these costs, $1,120 and $957 remained unpaid as of December 31, 2005 and 2004.
An affiliate of our business manager/advisor provides investment advisory services related to us related to our securities investments for an annual fee. The fee is incremental based upon the aggregate amount of assets invested. Based upon the amounts of assets that we had invested at December 31, 2005, this fee was equal to .75% of the aggregate assets invested. We incurred fees totaling $536 for the year ended December 31, 2005. $100 of this amount remained unpaid at December
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31, 2005. No such fees were incurred during the year ended December 31, 2004 or the period from March 5, 2003 (inception) through December 31, 2003.
An affiliate of our business manager/advisor provides loan servicing to us for an annual fee. 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 $534 and $141 for the years ended December 31, 2005 and 2004, respectively, and $1 for the period from March 5, 2003 (inception) to December 31, 2003. $42 remained unpaid as of December 31, 2005. None remained unpaid as of 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 years ended December 31, 2005 and 2004, we paid loan fees totaling $5,049 and $3,475, respectively, to this affiliate. No amounts remained unpaid as of December 31, 2005 or 2004.
We may pay an advisor asset management fee of not more than 1% of our average invested assets to our business manager/advisor. Our average invested 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 invested 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 invested assets as of the last day of the immediately preceding quarter. Based upon the maximum allowable advisor asset management fee of 1% of our average invested assets, maximum advisor asset management fees of $54,933, $14,971 and $152 were allowed for the years ended December 31, 2005 and 2004 and the period from March 5, 2003 (inception) through D ecember 31, 2003, respectively. Our business manager/advisor has agreed to forego any fees allowed but not taken during those periods. 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 a 6% minimum annual return on the net investment of stockholders. For the year ended December 31, 2005, we accrued fees totaling $20,925, $3,000 of which remained unpaid as of December 31, 2005. For the year ended December 31, 2004 and the period from March 5, 2003 (inception) t o December 31, 2003, we neither paid nor accrued such fees because our business manager/advisor agreed to forego any fees for those 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 $20,686, $5,382 and $17, for the years ended December 31, 2005 and 2004 and the period from March 5, 2003 (inception) through December 31, 2003, respectively. None remained unpaid as of December 31, 2005 or 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 276,628, 605,060 and 59,497 shares of common stock to affiliates and recognized an expense related to these discounts of $219, $427 and $62 for the years ended December 31, 2005 and 2004 and the period from March 5, 2003 (inception) through December 31, 2003, respectively.
As of December 31, 2005 and 2004, we were due funds from our affiliates for costs paid by us on their behalf in the amount of $3,493 and $654, respectively.
During the fourth quarter of 2005, we entered into a subscription agreement with Minto Builders (Florida), Inc. referred to as MB REIT. Under this agreement, we may purchase up to 920,000 newly issued series C preferred shares at a purchase
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price of $1,276 per share. If Inland American Real Estate Trust, Inc., (an affiliate) referred to as Inland American REIT, does not satisfy their obligations under their agreement with MB REIT, we may be required to purchase series C preferred shares from MB REIT in an amount equal to approximately $300,000. MB REIT has the right to redeem any series C preferred shares it issues to us with the proceeds of any subsequent capital contributed by Inland American REIT. MB REIT is required to redeem any and all outstanding series C preferred shares held by us by December 31, 2006. The series C preferred shares entitles us to an annual dividend equal to 7.0% on the face amount of the series C preferred shares payable monthly. As of December 31, 2005, we had purchased 175,551 series C preferred shares for a total amount of $224,003. Due to the lack of influence that we have over the operating and financial policies of the investee, this investment is accounted for under the cost method in which investments are recorded at their original cost. We earned $2,108 of dividends on this investment during the year ended December 31, 2005, all of which remained unpaid as of that date.
We entered into a fee arrangement with Inland American REIT whereby we are paid for guarantying customary non- recourse carve out provisions of Inland American REIT's financings until such time as Inland American REIT reaches a net worth of $300,000. The fee arrangement calls for a fee of $50 annually for loans equal to and in excess of $50,000 and $25 for loans less than $50,000.
On September 28, 2005, an affiliate of ours purchased a single-user net lease property in Pearland, Texas subject to an existing mortgage which we had previously funded on the property in the amount of $7,391. In addition, on that date, we funded an additional amount of $1,346 on the loan to the affiliate, bringing the total amount funded by us to $8,737. The total loan amount represented 100% of the purchase price of the property plus accrued interest on the previous loan balance. The entity which owns the property was considered a variable interest entity and we were considered the primary beneficiary as defined in FIN 46 (R). Therefore, this entity was consolidated by us until December 28, 2005, at which time the loan was paid off in full including accrued interest.
On October 7, 2005, an affiliate of ours acquired a freestanding office building leased to the General Services Administration (GSA) for the U.S. Joint Force Command. We provided the initial financing of approximately $24,300 for the affiliate to acquire the property. The loan was repaid in full including accrued interest on December 6, 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 December 31, 2004, we owed funds to our sponsor in the amount of $3,523 for repayment of the funds advanced for payment of distributions. These funds were repaid in their entirety during 2005 and no funds were due to our sponsor as of December 31, 2005. No funds were advanced during 2005.
Item 14. Principal Accountant’s Fees and Services
The following table sets forth fees for professional audit services rendered by KPMG LLP for the audit of our annual financial statements for 2005 and 2004, and fees for other services rendered by it:
Fiscal Year 2005 | Fiscal Year 2004 | |||
Audit Fees (1) | $ 747,400 | $ 546,520 |
| |
Audit Related Fees (2) | 475,346 | 1,080,869 |
| |
Tax Fees (3) | 141,200 | 86,025 |
| |
All Other Fees | - | - |
| |
Total Fees | $ 1,363,946 | $ 1,713,414 |
|
_____________________
(1)
Audit fees include the financial statement audit fee and fees for other and internal controls audit fees.
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(2)
Audit related fees include the review of documents and issuance of accountant’s consent related to documents filed with the SEC and audits related to S-X section 3-14.
(3)
Tax fees consist of fees for review of federal and state income tax returns.
The audit committee reviews and approves in advance the terms of and compensation for both audit and nonaudit services to be provided by KPMG LLP. This duty has been delegated to the chairman of the audit committee with any such preapproval reported to the audit committee at its next regularly scheduled meeting. Approval of nonaudit services will be disclosed in periodic reports required by Section 13(a) of the Securities Exchange Act of 1934. Prohibited Non-Audit Services shall be as set forth in the rules promulgated by the SEC, including: (i) bookkeeping or other services related to the accounting records or financial statements of the audit client; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, providing fairness opinions or preparing contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment advisor or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service that the Public Company Accounting Oversight Board prohibits through regulation.
The audit committee has considered whether the provision of the services covered under "All Other Fees" is compatible with maintaining KPMG LLP's independence. The audit committee approved 100% of the fees described above.
Item 15. Exhibits
31.1
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification by the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
/s/ Brenda G. Gujral | |
By: | Brenda G. Gujral |
Chief Executive Officer and President | |
Date: | April 28, 2006 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: |
/s/ Brenda G. Gujral | /s/ Kenneth H. Beard | |||
By: | Brenda G. Gujral | By: | Kenneth H. Beard | |
Chief Executive Officer, President and Director | Director | |||
Date: | April 28, 2006 | Date: | April 28, 2006 | |
/s/ Steven P. Grimes | /s/ Paul R. Gauvreau | |||
By: | Steven P. Grimes | By: | Paul R. Gauvreau | |
Principal Financial Officer | Director | |||
Date: | April 28, 2006 | Date: | April 28, 2006 | |
/s/ Robert D. Parks | /s/ Gerald M. Gorski | |||
By: | Robert D. Parks | By: | Gerald M. Gorski | |
Chairman and Director | Director | |||
Date: | April 28, 2006 | Date: | April 28, 2006 | |
/s/ Frank A. Catalano, Jr. | /s/ Barbara A. Murphy | |||
By: | Frank A. Catalano, Jr. | By: | Barbara A. Murphy | |
Director | Director | |||
Date: | April 28, 2006 | Date: | April 28, 2006 |
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