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As filed with the Securities and Exchange Commission on September 8, 2004
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
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)
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2901 Butterfield Road
Oak Brook, Illinois 60523
(Address of principal executive offices)
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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, 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
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the registration statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
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<Caption>
Proposed Proposed
Title of Each Class of Maximum Maximum Amount of
Securities Being Amount Being Offering Price Aggregate Offering Registration
Registered Registered Per Share Price Fee
Common Stock, $.001 par
value......................... 250,000,000 $ 10.00 $ 2,500,000,000 $ 316,750
Common Stock, $.001 par
value(1)...................... 20,000,000 9.50 190,000,000 $ 24,073
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$ 340,823
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</Table>
(1) Represents shares issuable pursuant to the registrant's distribution
reinvestment program.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
[INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. 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 September 1, 2004, we owned 62 properties which have an
aggregate gross leasable area of approximately 11 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 [-], 2005, unless we elect to extend it to a date no later than [-], 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 advisor and the advisor is owned by our sponsor
or their affiliates;
- our advisor and its affiliates will receive substantial fees, including
participation in proceeds from the sale, refinancing or liquidation of our
assets;
- our 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 advisor and its
affiliates may encourage our 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.
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<Caption>
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
</Table>
(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 [-], 2004.
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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
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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
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- 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
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TABLE OF CONTENTS
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<Caption>
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 advisor and The Inland Group....................................................................2
Conflicts of interest............................................................................................4
Compensation to be paid to our 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 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
</Table>
i
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<Table>
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, 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 advisor and our other affiliates................21
The managing dealer has not made an independent review of us or the prospectus..................................21
</Table>
ii
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<Table>
Our rights and the rights of our stockholders to take action against our directors and officers and the
advisor are limited........................................................................................22
The business of our 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.................................22
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..............................23
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
</Table>
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<Table>
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....................................................................28
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........................................................................................29
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...................................................................................................39
ESTIMATED USE OF PROCEEDS............................................................................................47
PRIOR PERFORMANCE OF OUR AFFILIATES..................................................................................48
</Table>
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<Table>
Prior Investment Programs.......................................................................................48
Summary Information.............................................................................................48
Publicly Registered REITS.......................................................................................50
Private Partnerships............................................................................................52
1031 Exchange Private Placement Offering Program................................................................53
MANAGEMENT...........................................................................................................64
Inland Affiliated Companies.....................................................................................64
Our General Management..........................................................................................67
Our Directors and Executive Officers............................................................................68
Committees of Our Board of Directors............................................................................71
Compensation of Directors and Officers..........................................................................72
Executive Compensation..........................................................................................72
Independent Director Stock Option Plan..........................................................................72
Our Advisor.....................................................................................................74
Our Advisory Agreement..........................................................................................74
The Property Managers and the Management Agreements.............................................................78
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND OUR ADVISOR...................................87
PRINCIPAL STOCKHOLDERS...............................................................................................89
OUR STRUCTURE AND FORMATION..........................................................................................90
Structure.......................................................................................................90
SELECTED FINANCIAL DATA..............................................................................................91
INVESTMENT OBJECTIVES AND POLICIES...................................................................................93
General.........................................................................................................93
Distributions...................................................................................................93
Types of Investments............................................................................................94
Property Acquisition Standards..................................................................................95
Description of Leases...........................................................................................96
</Table>
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<Table>
Property Acquisition............................................................................................96
Borrowing.......................................................................................................97
Sale or Disposition of Properties...............................................................................98
Change in Investment Objectives and Policies....................................................................98
Investment Limitations..........................................................................................99
Other Investments...............................................................................................99
Appraisals.....................................................................................................100
Return of Uninvested Proceeds..................................................................................100
Additional Offerings and Exchange Listing......................................................................100
Joint Ventures.................................................................................................101
Construction and Development Activities........................................................................101
Other Policies.................................................................................................102
REAL PROPERTY INVESTMENTS...........................................................................................104
Investing in REITS.............................................................................................104
General........................................................................................................104
Insurance Coverage on Properties...............................................................................106
Properties.....................................................................................................106
Retail Shopping Centers........................................................................................107
Neighborhood and Community Shopping Centers....................................................................108
Single-User Retail Properties..................................................................................108
Commercial Property............................................................................................108
Projects Under Development.....................................................................................108
Summary Tabular Presentation of Properties Owned...............................................................109
Description of Properties......................................................................................115
Potential Property Acquisitions................................................................................203
Tenant Lease Expiration........................................................................................221
Tenant Concentration...........................................................................................222
</Table>
vi
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<Table>
Property Allocation............................................................................................223
CAPITALIZATION .....................................................................................................225
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION.....................................................226
DESCRIPTION OF SECURITIES...........................................................................................248
Authorized Stock...............................................................................................248
Common Stock...................................................................................................248
Preferred Stock................................................................................................249
Issuance of Additional Securities and Debt Instruments.........................................................250
Restrictions on Issuance of Securities.........................................................................250
Restrictions on Ownership and Transfer.........................................................................250
Provisions of Maryland Law and of Our Articles of Incorporation and Bylaws.....................................253
SHARES ELIGIBLE FOR FUTURE SALE ....................................................................................255
Shares to be Outstanding or Issuable upon Exercise or Conversion of Other Outstanding Securities...............255
Securities Act Restrictions....................................................................................255
Independent Director Stock Option Plan.........................................................................256
Effect of Availability of Shares on Market Price of Shares.....................................................256
Registration Rights............................................................................................256
SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS.............................................................................258
Articles of Incorporation and Bylaw Provisions.................................................................258
Stockholders' Meetings.........................................................................................258
Board of Directors.............................................................................................259
Stockholder Voting Rights......................................................................................259
Rights of Objecting Stockholders...............................................................................260
Stockholder Lists; Inspection of Books and Records.............................................................260
Amendment of the Organizational Documents......................................................................260
Dissolution or Termination of the Company......................................................................261
Advance Notice of Director Nominations and New Business........................................................261
</Table>
vii
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<Table>
Restrictions on Certain Conversion Transactions and Roll-Ups...................................................262
Limitation on Total Operating Expenses.........................................................................264
Transactions with Affiliates...................................................................................265
Restrictions on Borrowing......................................................................................265
Restrictions on Investments....................................................................................266
FEDERAL INCOME TAX CONSIDERATIONS...................................................................................269
Federal Income Taxation as a REIT..............................................................................269
Federal Income Taxation of Stockholders........................................................................275
Other Tax Considerations.......................................................................................278
ERISA CONSIDERATIONS................................................................................................280
PLAN OF DISTRIBUTION................................................................................................283
General........................................................................................................283
Escrow Conditions..............................................................................................283
Subscription Process...........................................................................................284
Representations and Warranties in the Subscription Agreement...................................................284
Determination of Your Suitability as an Investor...............................................................285
Compensation We Will Pay for the Sale of Our Shares............................................................285
Volume Discounts...............................................................................................286
Deferred Commission Option.....................................................................................288
Indemnification................................................................................................290
HOW TO SUBSCRIBE....................................................................................................291
SALES LITERATURE ...................................................................................................293
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS ............................................................294
Distribution Reinvestment Program..............................................................................294
Share Repurchase Program.......................................................................................295
</Table>
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<Table>
REPORTS TO STOCKHOLDERS.............................................................................................298
PRIVACY POLICY NOTICE...............................................................................................299
LITIGATION..........................................................................................................300
RELATIONSHIPS AND RELATED TRANSACTIONS..............................................................................300
LEGAL MATTERS.......................................................................................................306
EXPERTS.............................................................................................................306
WHERE YOU CAN FIND MORE INFORMATION.................................................................................308
</Table>
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
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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 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 properties primarily for income as
distinguished from primarily for capital gain. As a result, many of our recently
acquired properties 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.
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;
- timberlands; or
- unimproved properties not intended to be developed (vacant land).
1
<Page>
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 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 advisor.
Inland Securities Corporation, another affiliate of The Inland Group, is the
managing dealer of this offering. Inland Western Management Corp., Inland
Northwest Property Management Corp., Inland Southwest Property Management Corp.
and Inland Pacific Property Management Corp., 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
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
<Page>
The following organizational chart depicts the services that affiliates or our
sponsor will render to us and our organizational structure.
ORGANIZATIONAL CHART
<Table>
------------------ --------- --------- ---------
Daniel L. Goodwin* Robert H. G. Joseph Robert D.
Baum* Cosenza* Parks*
------------------ --------- --------- ---------
|| || || ||
====================================================================
||
-----------------------
THE INLAND GROUP, INC.*
-----------------------
||
||
======================================================================================================================
|| || || || ||
|| || || || ||
- ------------------- ---------------------------------------------------- ----------------------------- ------------------ ||
The Inland Services The Inland Property Management Inland Real Inland Real ||
Group, Inc. Group, Inc. Estate Investment Corporation Estate Transaction ||
(our sponsor) Group, Inc. ||
- ------------------- ---------------------------------------------------- ----------------------------- ------------------ ||
|| || || || ||
|| ============================================================== || || ||
|| || || || || || || ||
|| || || || || || || ||
- --------------- ------------------ ------------------ ------------------- ------------------- || || ||
Inland Risk and Inland Western Inland Northwest Inland Southwest Inland Pacific || || ||
Insurance Management Management Property Management Property Management || || ||
Management Corp. Corp. Corp. Corp. || || ||
Services, Inc. (property manager) (property manager) (property manager) (property manager) || || ||
- --------------- ------------------ ------------------ ------------------- ------------------- || || ||
| | | | | || || ||
| | | | | || || ||
| ============================================================== || || ||
| | || || ||
| | || || ||
| | ======================================================== || ||
| | || || || || ||
| | || || || || ||
| | ----------------- ------------------------------ ------------------ || ----------------------
| | Inland Securities Inland Western Retail Real Inland Partnership || Inland Mortgage
| | Corporation Estate Advisory Services, Inc. Property Sales || Investment Corporation
| | (our advisor) Corporation ||
| | ----------------- ------------------------------ ------------------ || ----------------------
| | | | || ||
| | | | ======================================== ============
| | | | || || || || ||
| | | | ----------- ----------- ------------------ ----------- ---------
------------ | | | Inland Real Inland Real Inland Real Inland Inland
Insurance | | | Estate Estate Estate Mortgage Mortgage
Services | | | Sales, Inc. Development Acquisitions, Inc. Corporation Servicing
------------ | | | ----------- ----------- ------------------ ----------- ---------
| | | | | | | | |
| | | | | | | | |
| | | | ----------- | | | |
| | | | Real Estate | | | |
| ----------------------- | | ----------- | | | |
| 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 will be principally owned by public investors. Ownership is represented by shares of our common stock
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
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.
3
<Page>
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 advisor and the advisor is owned by our
sponsor or their affiliates;
- our advisor and its affiliates will receive substantial fees, including
participation in proceeds from the sale, refinancing or liquidation of
our assets;
- our 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 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 advisor and its
affiliates may encourage our 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 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 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
4
<Page>
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
Western Management Corp., Inland Northwest Property Management Corp.,
Inland Southwest Property Management Corp. and Inland Pacific Property
Management Corp. 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 advisor and/or our property managers for shares of common stock.
COMPENSATION TO BE PAID TO OUR ADVISOR AND AFFILIATES
We pay our advisor and affiliates substantial fees for managing our
business.
We will also pay the 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
<Page>
Set forth below is a tabular summary of fees and compensation payable to
our advisor and other affiliates.
Offering stage:
<Table>
Type of Compensation
Nonsubordinated payments:
Selling commissions 7.5% of the sale price for each share
Estimated maximum: $187,500,000. Through
June 30, 2004, we have incurred
$77,907,763 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 contribution and due 3.0% of the gross offering proceeds
diligence allowance Through June 30, 2004, we have incurred
$10,546,604 in marketing contributions
and due diligence expense allowance in
connection with our initial public
offering. The actual amount of marketing
contribution 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 contribution and the due
diligence expense allowance.
Reimbursable expenses and other Estimated amount: $14,684,000. Through
expenses of issuance June 30, 2004, we have incurred $666,107
of reimbursable expenses to our advisor
in connection with our initial public
offering. In addition, in connection
with our initial public offering, as of
December 31, 2003, our 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.
</Table>
6
<Page>
<Table>
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
six months ended June 30, 2004, we have
incurred and paid property management
fees of $16,627 and $1,154,272, of which
$16,627 and $1,154,272 were retained by
Inland Northwest Management Corp.,
Inland Pacific Management Corp., Inland
Western Management Corp., and Inland
Southwest Management Corp. 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 six months ended June
30, 2004, we have incurred and paid $328
and $21,276 to Inland Mortgage Servicing
Corporation. For the year ended December
31, 2003, and the six months ended June
30, 2004, we have incurred and paid
$59,523 and $1,122,042 to Inland
Mortgage Investment Corporation.
Reimbursable expenses relating to The compensation and reimbursements to
administrative services our 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.
</Table>
7
<Page>
<Table>
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
combination with our advisor. be paid to a third party. Actual amounts
cannot be determined at the present
time.
Subordinated payments:
Operational stage: As of June 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.
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 advisor. non-cumulative, non-compounded return,
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.
Liquidation stage:
Incentive advisory fee After our stockholders have first
This fee terminates upon a business received a 10% cumulative,
combination with the Advisor. non-compounded return and a return of
their net investment, an incentive
advisory fee equal to 15% on net
proceeds from the sale of a property
will be paid to our advisor.
</Table>
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 prospectus, we had
not paid the purchase price of any properties using shares or interests
in entities that will own our properties.
8
<Page>
- 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
<Page>
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 September 1, 2004, our real estate portfolio was comprised of 62
properties containing approximately 11 million square feet of gross leasable
area. The 62 properties consist of 33 retail shopping centers, 13 neighborhood
and community shopping center properties, ten single-user retail facilities,
four joint venture retail shopping centers that we have operating control, one
commercial property, and one project under development, located in 24 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
<Page>
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.
<Table>
<Caption>
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 contribution ........................ 75,000,000 2.79%
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%
================ ================
</Table>
11
<Page>
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 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 62 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
<Page>
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 advisor and affiliates of our 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
<Page>
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 140% 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.
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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 unless,
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, 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 is,
by the acquirer, by officers or by directors who are employees of the
corporation, are not
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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. 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 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
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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 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.
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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 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.
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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, 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 advisor, the property managers, their affiliates and employees for
day-to-day operations. Therefore, we depend heavily on the ability of the
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 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 advisor must reimburse us for certain operational stage expenses
exceeding 15% of the gross offering proceeds. If the 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 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 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 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 Corporation provides replacement properties for people
wishing to complete an IRS Section 1031 real estate exchange. Our 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:
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- 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 ADVISOR OR
ITS AFFILIATES HAVE PRIOR BUSINESS RELATIONSHIPS AND OUR INTERESTS IN
THESE BUSINESS RELATIONSHIPS MAY BE DIFFERENT FROM THE INTERESTS OF OUR
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 advisor or its
affiliates. If we purchase properties from these third parties, our
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 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 ADVISOR AND ITS AFFILIATES RECEIVE COMMISSIONS, FEES AND OTHER
COMPENSATION BASED UPON OUR INVESTMENTS AND THEREFORE OUR ADVISOR AND
ITS AFFILIATES MAY RECOMMEND THAT WE MAKE INVESTMENTS IN ORDER TO
INCREASE THEIR COMPENSATION. Our 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 advisor's ability to receive
fees and reimbursements depends on our continued investment in
properties and in other assets which generate fees. Our 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 advisor
and/or property managers may recommend that we purchase properties that
generate fees for our advisor and property managers, but are not
necessarily the most suitable investment for our portfolio. In addition,
our affiliates, who receive fees, including our advisor, may recommend
that we acquire properties, which may result in our incurring
substantive amounts of indebtedness. Therefore, the interest of our
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 ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IF WE ACQUIRE
PROPERTIES WITH ITS AFFILIATES. Our advisor may cause us to acquire an
interest in a property through a joint venture with its affiliates. In
these circumstances, our 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 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 ADVISOR AND OUR
ADVISOR MAY NOT DEDICATE THE TIME NECESSARY TO MANAGER OUR BUSINESS. We
rely on our advisor and its
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affiliates for our daily operation and the management of our assets. Our
officers and other personnel of our 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 ADVISOR AND OUR PROPERTY MANAGERS
WITHOUT FURTHER ACTION BY OUR STOCKHOLDERS. During the term of our
agreements with our 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 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 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 ADVISOR AND
OUR OTHER AFFILIATES. Because the fees that we will pay to our 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.
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 contribution and a due
diligence expense allowance.
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OUR RIGHTS AND THE RIGHTS OF OUR STOCKHOLDERS TO TAKE ACTION AGAINST OUR
DIRECTORS AND OFFICERS AND THE 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 ordinary 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 advisor, require us to
indemnify our directors, officers, employees and agents and the 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 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 advisor in some cases. See
"Limitation of Liability and Indemnification of Directors, Officers and Our
Advisors."
THE BUSINESS OF OUR ADVISOR AND OUR PROPERTY MANAGERS MAY BE ACQUIRED BY US
WITHOUT FURTHER ACTION OF OUR STOCKHOLDERS. During the term of our agreements
with our advisor and our property managers, we have the option to cause the
business conducted by our 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 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 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 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 result, our
stockholders will not have a right to vote on a decision to acquire the 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
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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.
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
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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
retail 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 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.
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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 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.
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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 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.
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
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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
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.
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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.
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
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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
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
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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,
will render 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 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.
30
<Page>
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
<Page>
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 advisor and the advisor is owned by our
sponsor or their affiliates;
- our advisor and its affiliates will receive substantial fees, including
participation in proceeds from the sales, refinancing or liquidation of
our assets;
- our 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 advisors 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 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 advisor and its
affiliates may encourage our advisor to make investments that have
greater risks to generate higher fees.
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-
32
<Page>
looking statements, whether as a result of new information, future events,
changed circumstances or any other reason after the date of this prospectus.
33
<Page>
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 advisor. Our advisor has the responsibility for our
day-to-day operations and the management of our assets.
In addition to the services of our advisor, we contract with Inland Western
Management Corp., Inland Northwest Property Management Corp., Inland Southwest
Property Management Corp. and Inland Pacific Property Management Corp. for their
services as our property managers. Inland Western Management Corp, Inland
Northwest Property Management Corp., Inland Southwest Property Management Corp.
and Inland Pacific Property Management Corp. 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 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 Western Management
Corp., Inland Northwest Property Management Corp., Inland Southwest Property
Management Corp. and Inland Northwest Property Management Corp. 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
<Page>
The following organizational chart depicts the services that affiliates or our
sponsor will render to us and our organizational structure.
ORGANIZATIONAL CHART
<Table>
------------------ --------- --------- ---------
Daniel L. Goodwin* Robert H. G. Joseph Robert D.
Baum* Cosenza* Parks*
------------------ --------- --------- ---------
|| || || ||
====================================================================
||
-----------------------
THE INLAND GROUP, INC.*
-----------------------
||
||
======================================================================================================================
|| || || || ||
|| || || || ||
- ------------------- ---------------------------------------------------- ----------------------------- ------------------ ||
The Inland Services The Inland Property Management Inland Real Inland Real ||
Group, Inc. Group, Inc. Estate Investment Corporation Estate Transaction ||
(our sponsor) Group, Inc. ||
- ------------------- ---------------------------------------------------- ----------------------------- ------------------ ||
|| || || || ||
|| ============================================================== || || ||
|| || || || || || || ||
|| || || || || || || ||
- --------------- ------------------ ------------------ ------------------- ------------------- || || ||
Inland Risk and Inland Western Inland Northwest Inland Southwest Inland Pacific || || ||
Insurance Management Management Property Management Property Management || || ||
Management Corp. Corp. Corp. Corp. || || ||
Services, Inc. (property manager) (property manager) (property manager) (property manager) || || ||
- --------------- ------------------ ------------------ ------------------- ------------------- || || ||
| | | | | || || ||
| | | | | || || ||
| ============================================================== || || ||
| | || || ||
| | || || ||
| | ======================================================== || ||
| | || || || || ||
| | || || || || ||
| | ----------------- ------------------------------ ------------------ || ----------------------
| | Inland Securities Inland Western Retail Real Inland Partnership || Inland Mortgage
| | Corporation Estate Advisory Services, Inc. Property Sales || Investment Corporation
| | (our advisor) Corporation ||
| | ----------------- ------------------------------ ------------------ || ----------------------
| | | | || ||
| | | | ======================================== ============
| | | | || || || || ||
| | | | ----------- ----------- ------------------ ----------- ---------
------------ | | | Inland Real Inland Real Inland Real Inland Inland
Insurance | | | Estate Estate Estate Mortgage Mortgage
Services | | | Sales, Inc. Development Acquisitions, Inc. Corporation Servicing
------------ | | | ----------- ----------- ------------------ ----------- ---------
| | | | | | | | |
| | | | | | | | |
| | | | ----------- | | | |
| | | | Real Estate | | | |
| ----------------------- | | ----------- | | | |
| 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 will be principally owned by public investors. Ownership is represented by shares of our common stock
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
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.
35
<Page>
CONFLICTS OF INTEREST
We are subject to conflicts of interest arising out of our relationship
with our sponsor, our advisor and their affiliates. All of our agreements and
arrangements with our 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 advisor and its affiliates, and
the limitations on our advisor adopted to address these conflicts, are described
below. Our advisor and its affiliates will try to balance our interests with
their own. However, to the extent that our 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
ADVISOR AND THE INLAND GROUP. Affiliates of our 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 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 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 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 advisor
discussed above.
All actions taken by our advisor or its affiliates which present potential
conflicts with us will be APPROVED BY A MAJORITY OF OUR INDEPENDENT DIRECTORS.
36
<Page>
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
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 advisor or its affiliates. If we purchase properties from these
third parties, our advisor will experience a conflict between our current
interests and its interest in preserving any ongoing business relationship with
these sellers. Nevertheless, our 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 advisor and the property
managers believe that the property managers have sufficient personnel and other
required resources to discharge all responsibilities to us.
OUR ADVISOR AND ITS AFFILIATES RECEIVE COMMISSIONS, FEES AND OTHER
COMPENSATION BASED UPON OUR INVESTMENTS. We believe that the compensation we
will pay to our 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 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 advisor's ability to receive fees and reimbursements
depends on our continued investment in properties and in other assets which
generate fees. Our advisor received 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 advisor and/or property managers may recommend that we purchase properties
that generate fees for our advisor and property managers, but are not
necessarily the most suitable investment for our portfolio. In addition, our
affiliates, who receive fees, including our advisor, may recommend that we
acquire properties, which may result in our incurring substantive amounts of
indebtedness. Therefore, the interest of the 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 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 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.
37
<Page>
Our advisor and its affiliates may do business with others who do business
with us, although presently there are no instances of this. However, our 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 advisor.
OUR ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IF WE ACQUIRE
PROPERTIES WITH ITS AFFILIATES. Our advisor may cause us to acquire an interest
in a property through a joint venture with its affiliates. In these
circumstances, our 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 ADVISOR. We rely on
our advisor and its affiliates for our daily operation and the management of our
assets. Personnel of our 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 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 ADVISOR AND OUR PROPERTY MANAGERS
WITHOUT FURTHER ACTION BY OUR STOCKHOLDERS. During the term of our agreements
with our 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 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 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 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 advisor and/or the property
managers for services rendered through the closing of such acquisitions.
WE DO NOT HAVE ARM'S-LENGTH AGREEMENTS. As we have noted, our agreements
and arrangements with our 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.
38
<Page>
COMPENSATION TABLE
The compensation arrangements between us and our 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 advisor and its affiliates. In those instances in which there are
maximum amounts or ceilings on the compensation which may be received, our
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 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 advisor is allowed.
NONSUBORDINATED PAYMENTS
The following aggregate amounts of compensation, allowances and fees we may
pay to our advisor and its affiliates are not subordinated to the returns on net
investments that we are required to pay to our stockholders.
<Table>
<Caption>
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 June 30, 2004, we
the managing dealer and dealers the sale price for each share (and reallow have incurred $77,907,763 in
designated by the managing 7%), subject to reduction for special sales selling commissions in
dealers referred to as soliciting under the circumstances as described in the connection with our initial
dealers. Neither the managing "Plan of Distribution - Compensation - We Will public offering. We intend
dealer, the soliciting dealers, Pay For the Sale of Our Shares." to sell 250,000,000 shares of
nor our officers or directors our common stock at $10.00
will be permitted to purchase We will permit the managing dealer and its per share in our initial
shares of our stock in order to respective officers and employees and certain public offering. The actual
meet the minimum thresholds. of its affiliates to purchase shares net of amount we will incur in this
sales commissions and the marketing offering depends upon the
contribution and due diligence expense amount of shares sold. A
allowance or for $8.95 per share; however, any total of $187,500,000 in
subsequent purchases of shares by any such selling commissions will be
persons are limited to a maximum discount of paid if the maximum offering
5%. is sold and there are no
special sales.
</Table>
39
<Page>
<Table>
<Caption>
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 contribution and due We will pay an amount equal to 2.5% of the Through June 30, 2004, we
diligence expense allowance paid gross offering proceeds to the managing have incurred $10,546,604 in
to the managing dealer and dealer, all or a portion of which may be marketing contributions and
soliciting dealers. passed on to soliciting dealers, in lieu of due diligence expense
reimbursement of specific expenses associated allowance in connection with
with marketing. We may pay an additional our initial public offering.
0.5% of the gross offering proceeds to the The actual amount of
managing dealer, which may be passed on to marketing contribution and
the soliciting dealers, for due diligence due diligence expense
expenses. We will not pay the marketing allowance in connection with
contribution and due diligence expense this offering will depend on
allowance in connection with any special the number of shares sold.
sales, except those receiving volume If there are no special sales
discounts and those described in "Plan of and we sell the maximum
Distribution - Volume Discounts." number of shares offered,
approximately $75,000,000
will be paid for the
marketing contribution and
the due diligence expense
allowance.
</Table>
40
<Page>
<Table>
<Caption>
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
- ----------------------------------- ------------------------------------------------ -------------------------------
Reimbursable expenses and other We expect to incur the following expenses in All amounts other than the
expenses of issuance and connection with this offering: Securities and Exchange
distribution Commission registration fee
Securities and Exchange Commission and the NASD filing fee are
registration estimates. The actual
amounts of these expenses
Fee $ 340,823 cannot be determined at the
present time. We estimate
NASD filing fee $ 30,500 the total amount of the
Printing and mailing issuance and distribution
expenses $ 3,500,000 expenses to be approximately
$14,807,323. Through June
Blue Sky fees and 30, 2004, we have incurred
expenses $ 136,000 $666,107 of reimbursable
expenses to our advisor in
Legal fees and expenses $ 650,000 connection with our initial
Accounting fees and public offering. In
expenses $ 650,000 addition, as of December 31,
2003, our advisor had
Advertising and sales advanced an aggregate of
literature $ 5,000,000 approximately $1,763,306 for
the payment of offering
Due diligence $ 3,000,000 expenses to non-affiliated
Transfer Agent fees $ 800,000 third parties in connection
with our initial public
Data processing fees $ 500,000 offering, all of which has
been repaid.
Bank fees and other
administrative expenses $ 200,000
If the aggregate of all offering expenses, Our sponsor has not advanced
including selling commissions, the marketing any reimbursable expenses in
contribution and due diligence expense connection with this offering.
allowance, exceeds 15% of the gross offering We may reimburse up to
proceeds, of if the aggregate of all offering $14,807,323 for offering
expenses, excluding the selling expenses, expenses advanced if we sell
exceeds 5.5% of the gross offering proceeds, the maximum number of shares
our advisor or its affiliates will promptly offered in this offering.
pay the excess and we will have 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.
</Table>
41
<Page>
<Table>
<Caption>
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
- ----------------------------------- ------------------------------------------------ -------------------------------
Acquisition expenses paid to our We will pay an amount, estimated to be up to We may pay no more than
advisor's affiliates, Inland Real 0.5% of the total of (1) the gross offering $13,450,000 for the
Estate Acquisitions, Inc. and The proceeds from the sale of 250,000,000 shares, reimbursement of acquisition
Inland Real Estate Group, Inc. (2) the gross proceeds from the sale of up to expenses if the maximum number
20,000,000 shares pursuant to the distribution of shares are sold and all of
reinvestment programs. The acquisition the 20,000,000 shares are sold
expenses for any particular property will not pursuant to the distribution
exceed 6% of the gross purchase price of the reinvestment program.
property.
However, if we request additional services, However, the actual amounts
However, the actual amounts the compensation cannot be determined at the
will be provided on separate cannot be present time.
determined at the agreed-upon terms and the rate
will be present time. 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 advisor and its The actual amounts are
advisor and Inland Mortgage affiliates in order to acquire properties. In dependent on actual
Corporation in connection with such instances, we will pay our advisor and borrowings. Therefore, these
loans. its affiliates interest at prevailing market amounts cannot be determined
rates. at the present time.
OPERATIONAL STAGE
Property management fee paid to We will pay a monthly fee of 4.5% of the gross For the year ended December
our property managers, Inland income from the properties. We will also pay 31, 2003, and the six months
Western Management Corp., Inland a monthly fee for any extra services equal to ended June 30, 2004 we have
Northwest Property Management no more than 90% of that which would be incurred and paid property
Corp., Inland Southwest Property payable to an unrelated party providing the management fees of $16,627
Management Corp. and Inland services. The property managers may and $1,154,272, of which
Pacific Property Management subcontract their duties for a fee that may be 16,627 and $1,154,272 were
Corp. We will pay the fee for less than the fee provided for in the retained by Inland Northwest
services in connection with the management services agreements. Management Corp., Inland
rental, leasing, operation and Pacific Management Corp.,
management of the properties. Inland Western Management
Corp., and Inland Southwest
Management Corp. If we
acquire the businesses of our
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.
</Table>
42
<Page>
<Table>
<Caption>
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
- ----------------------------------- ------------------------------------------------ -------------------------------
Advisors asset management fee. We will pay our advisor an asset management As of June 30, 2004, we have
We will pay the fee for services fee after our stockholders have first not paid or accrued any
in connection with our received a 6% annual return. advisor asset management
day-to-day operations, including fees. The actual amounts
making strategic decisions, we will incur in the future
performing day-to-day operations are dependent upon results
that include accounting, of operations and,
investment advisory services, therefore, cannot be
risk management services and tax determined at the present
reduction services and providing time.
other services as our board
deems appropriate.
Reimbursable expenses to our We will reimburse some expenses of the The actual amounts are
advisor. These may include advisor. The compensation and reimbursements dependent upon results of
costs of goods and services, to our advisor will be approved by a majority operations and, therefore,
administrative services and of our directors and a majority of our cannot be determined at the
non-supervisory services independent directors as fair and reasonable present time.
performed directly for us by for us.
independent parties.
We will reimburse some expenses Inland Risk and Insurance Management Services The actual amounts are
of the Inland Risk and Insurance charges us $50 per hour for assistance in dependent upon results of
Management Services for obtaining insurance coverage. Any operations and, therefore,
insurance coverage. commissions they receive are credited against cannot be determined at the
this hourly rate. We believe this hourly present time.
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
Mortgage Servicing Corporation us .03% per year on the first billion dollars 31, 2003, and the six months
and Inland Mortgage Investment of mortgages serviced and .01% thereafter. ended June 30, 2004 we have
Corporation for purchase, sale Inland Mortgage Investment Corporation charges incurred and paid $328 and
and servicing of mortgages us .02% of the principal amount of each loan $21,276 to Inland Mortgage
placed. The compensation to these companies Servicing Corporation. For
will be approved by a majority of our the year ended December 31,
directors and a majority of our independent 2003, and the six months
directors as fair and reasonable for us. ended June 30, 2004 we have
incurred and paid $59,523
and $1,122,042 to Inland
Mortgage Investment
Corporation.
The actual amounts we will
incur in the future are
dependent upon results of
operations and, therefore,
cannot be determined at the
present time.
</Table>
43
<Page>
<Table>
<Caption>
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
- ----------------------------------- ------------------------------------------------ -------------------------------
LIQUIDATION STAGE
Property disposition fee payable We may pay a property disposition fee to our The actual amounts to be
to our advisor's affiliates, advisor and its affiliates if we sell any of received depend upon the sale
Inland Real Estate Sales, Inc. our real property in an amount equal to the price of our properties and,
and Inland Partnership Property lesser of: therefore, cannot be
Sales Corp. determined at the present
1. 3% of the contract sales price of the time. If we acquire the
property; or advisor, the property
disposition fee will cease.
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 advisor provides a
substantial service in connection with the sale
of the property. See "Management -- Our Advisory
Agreement."
</Table>
SUBORDINATED PAYMENTS
We may pay the following additional fees to our advisor after returns on net
investment have been paid to the stockholders:
<Table>
<Caption>
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
payable to our advisor. of not more than 1% of our average assets. Our received depend upon the sale
average assets means the average of the total price of our properties and,
book value including acquired intangibles of therefore, cannot be
our real estate assets plus the total value of determined at the present
our loans receivables secured by real estate, time. If we acquire the
before reserves for depreciation or bad debts advisor, the advisor asset
or other similar non-cash reserves. We will management fee will cease.
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 advisor must
reimburse us for the following amounts if any:
</Table>
44
<Page>
<Table>
<Caption>
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
- ----------------------------------- ------------------------------------------------ -------------------------------
(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.
LIQUIDATION STAGE
Incentive advisory fee payable to We will pay to the advisor an amount equal to The actual amounts to be
our advisor. 15% of the net proceeds from the sale of a received depend upon the
property after the stockholders have first sale price of our
received: properties and, therefore,
cannot be determined at
(1) a cumulative non-compounded return equal the present time. If we
to 10% a year on their net investment; acquire or consolidate
and with the business
conducted by our advisor,
(2) their net investment. the incentive advisory fee
will terminate.
</Table>
45
<Page>
COMPENSATION TO OFFICERS AND DIRECTORS
We expect to pay the following to our directors (as our officers are not
paid directly by us):
<Table>
<Caption>
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
- ----------------------------------- ------------------------------------------------ -------------------------------
Director fees Independent directors receive an annual fee of We will pay the five
$5,000 (increasing to $10,000 effective October independent directors $25,000
1, 2004) and a fee of $500 for attending each in the aggregate (increasing to
meeting of the board or one of its committees in $50,000 effective October 1,
person and $350 for attending a meeting via the 2004), plus fees for attending
telephone. Our officers who are also our meetings. As of June 30, 2004
directors do not receive director fees. our five independent directors
were paid fees in the aggregate
of $69,250. The actual amounts
to be received for future
meetings depends upon the
number of meetings and their
attendance and, therefore,
cannot be determined at the
present time.
Stock options to independent Each independent director receives This form of compensation is not
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."
</Table>
46
<Page>
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.
<Table>
<Caption>
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 contribution.............................................. 75,000,000 2.79%
Organization and offering........................................... 14,684,000 0.55%
----------------- ------------------
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%
================= ==================
</Table>
47
<Page>
PRIOR PERFORMANCE OF OUR AFFILIATES
PRIOR INVESTMENT PROGRAMS
During the 10-year period ending June 30, 2004, The Inland Group and its
affiliates have sponsored two other REITs and 25 real estate exchange private
placements, which altogether have raised more than $3,093,000,000 from over
75,000 investors. During that period, Inland Real Estate Corporation and Inland
Retail Real Estate Trust, Inc., the other REITs, have raised over $2,959,000,000
from over 75,000 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 June 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.
48
<Page>
<Table>
<Caption>
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
JUNE 30, 2004 JUNE 30, 2004 JUNE 30, 2004
--------------- -------------------- -------------------
Number of programs sponsored 1 1 25
Aggregate amount raised from investors $ 2,262,634,000 696,827,000 133,628,000
Approximate aggregate number of investors 59,000 16,000 343
Number of properties purchased 271 146 25
Aggregate cost of properties $ 4,016,367,000 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 retail 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) 36.00% 40.00% 60.00%
Existing construction 64.00% 60.00% 40.00%
Number of properties sold in whole or in part 0 8 0
Number of properties exchanged 0 0 0
</Table>
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 June 30, 2004, Inland Real Estate
Corporation purchased 24 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.
49
<Page>
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 June 30, 2004,
Inland Real Estate Corporation issued 13,937,881 shares of common stock through
its distribution reinvestment program. As of June 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 $696,827,000 as of June 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 June 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 June 30, 2004, Inland Real Estate Corporation owned 138 properties
for a total investment of approximately $1,276,000,000. These properties were
purchased with proceeds received from the above described offerings of shares of
its common stock and financings. As of June 30, 2004, Inland Real Estate
Corporation financed approximately $642,783,000 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 June 30, 2004, Inland Retail Real Estate Trust, Inc. issud 16,028,707
shares through its distribution reinvestment program, and has repurchased a
total of 2,246,611 shares through the share reinvestment program. As a result,
Inland Retail Real Estate Trust Inc. has realized total gross offering proceeds
of approximately $2,262,634,000 as of June 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 June 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.
As of June 30, 2004, Inland Retail Real Estate Trust, Inc. owned 271
properties for a total investment of approximately $4,016,368,000. These
properties were purchased with proceeds received from the above described
offerings of shares of its common stock and financings. As of June 30, 2004,
Inland Retail Real Estate Trust, Inc. financed approximately $2,246,899,000 on
its properties.
50
<Page>
The following table summarizes distributions for each of the publicly
registered REITS through June 30,2004:
REIT PERFORMANCE
Distributions through June 30, 2004
<Table>
<Caption>
INLAND REAL ESTATE CORPORATION
OFFERING COMPLETED 1999
- ----------------------------------------------------------------------------------------------------------------
Average Average
Annualized Annualized
Distribution Distribution
for Purchases for Purchases
Total Ordinary Return of Capital Gain at $10 per at $11 per
Distribution Income Capital Distribution Share Share
($) ($) * ($) ** ($) *** ($) ($)
- ---------------------------------------------------------------------------------------------------------------
1995 736,627 694,213 42,414 - 7.6 N/A
1996 3,704,943 3,093,525 611,418 - 8.1 N/A
1997 13,127,597 9,739,233 3,388,364 - 8.6 N/A
1998 35,443,213 27,015,143 8,428,070 - 8.8 7.9
1999 48,379,621 35,640,732 12,738,889 - 8.9 8.0
2000 52,964,010 40,445,730 12,518,280 - 9.0 8.1
2001 58,791,604 45,754,604 12,662,414 374,586 9.3 8.4
2002 60,090,685 41,579,944 18,315,640 195,101 9.4 8.5
2003 61,165,608 47,254,096 13,577,679 333,833 9.4 8.6
2004 30,897,781 30,897,781 * - 9.4 8.6
--------------------------------------------------------------
365,301,689 282,115,001 82,283,168 903,520
==============================================================
<Caption>
INLAND RETAIL REAL ESTATE TRUST, INC.
OFFERING COMPLETED 2003
- ---------------------------------------------------------------------------
Average
Total Ordinary Return of Annualized
Distribution Income Capital Distribution
($) ($) * ($) ** (%)
- ---------------------------------------------------------------------------
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 93,266,206 93,266,206 * 8.3
---------------------------------------------
337,182,165 241,694,036 95,488,129
=============================================
</Table>
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.
51
<Page>
PRIVATE PARTNERSHIPS
Since our inception and through June 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 July 1, 1995 through June 30, 2004, investors in The Inland Group
private partnerships have received total distributions in excess of
$271,882,700, 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.
52
<Page>
Inland Real Estate Investment Corporation is the general partner of
twenty-seven private limited partnerships and one public limited partnership
that own 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 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 June 30, 2004, three of the Category 1 K-Mart
properties have been sold. Offers have been received on the remaining six, five
of which are under contract. One of the Category 3 properties has been sold, one
is under contract and two have offers pending as of June 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 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 June 30, 2004,
IREX offered the sale of twenty-five properties with a total property value of
$294,474,000.
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
53
<Page>
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 1001 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
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$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 &
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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
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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
Plainfield1031, 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.
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
lender to be retained by Butterfield-Highland 1031, L.L.C. The difference
between the real estate
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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.
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.
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.
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.
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 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,
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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.
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.
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 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.
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The following summary table describes the fees and expenses incurred by
each of our entities in our 1031 Exchange Private Placement Offering Project.
<Table>
<Caption>
Landings Sentry Lansing Inland 220
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 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%
11.25%-
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
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
<Caption>
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
---------------------------------------------------------------------------------
Up to Up to Up to Up to
Commissions & Fees(1) Up to 8.0% 8.77% 9.19% 5.27% 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
</Table>
60
<Page>
<Table>
<Caption>
Davenport White
Fleet Deere Settlement
Office Distribution Road Plainfield
Building Facility Grand Chute Macon Office Investment Marketplace
1031 LLC 1031 LLC DST DST LLC 1031 LLC
---------------------------------------------------------------------------------
Up to Up to Up to Up to Up to Up to
Commissions & Fees(1) 8.52% 8.42% 8.82% 8.52% 8.52% 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% 6.56%
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 NA NA NA NA NA
<Caption>
Pier 1 Cross
Retail Bed, Bath & Creek
Center Long Run Forestville Beyond Commons
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%
Selling Commission To 3rd Party
Reps 6.00% 5.84% 5.54% 6.00% 6.00%
Due Diligence Fee 0.50% 0..49% 0.46% 0.50% 0.50%
Marketing Expenses 1.00% 0.97% 0.93% 1.00% 1.00%
Offering & Organization 1.23% 1.07% 1.46% 1.20% 1.14%
Mortgage Broker Fee (IMC)(2) 0.50% 0.47% 0.43% 0.55% 0.40%
Acquisition Fee & Carrying
Costs(3)
Acquisition Fee 4.29% 5.31% 5.00% 5.15% 5.04%
Bridge Financing Fees 0.94%
Total Load(4) 8.28% 22.38% 21.34% 23.13% 22.99%
Asset Management Fees(5) 0.06% 0.20% 0.00% 0.15% 0.11%
Property Management Fees(6) 5.0% 5.0% 5.0% 5.0% 5.0%
Backend Sales Commission NA NA NA N/A NA
</Table>
61
<Page>
<Table>
<Caption>
BJ's Barnes &
Shopping Noble Retail
Center Center
1031 LLC 1031 LLC
--------------------------
Commissions & Fees(1) Up to 8.59% Up to 8.69%
Selling Commission To 3rd
Party Reps 6.00% 6.00%
Due Diligence Fee 0.50% 0.50%
Marketing Expenses 1.00% 1.00%
Offering & Organization 1.09% 1.19%
Mortgage Broker Fee (IMC)(2) 0.50% 0.40%
Acquisition Fee & Carrying
Costs(3)
Acquisition Fee 5.00% 5.00%
Bridge Financing Fees
Total Load(4) 26.04% 23.80%
Asset Management Fees(5) 0.12% 0.13%
Property Management Fees(6) 5.0% 5.0%
Backend Sales Commission NA NA
</Table>
(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 $1,200 monthly.
Termination Fees - (i) MASTER LEASE: 8.333% of the last 12 Months of NOI
less Rent payments for the same 12 months multiplied by the number of months
remaining on the then-current term of the Master Lease and (ii) ASSET & PROPERTY
MANAGEMENT AGREEMENTS: The sum of the current monthly AM & PM fees times the
number of months remaining on the term.
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The following table summarizes cash distributions to investors for each of
the 1031 Exchange Private Placement Offering Projects through June 30, 2004:
1031 EXCHANGE PERFORMANCE
DISTRIBUTIONS THROUGH JUNE 30, 2004
<Table>
<Caption>
Number Offering Offering Distributions 2001 Annual 2002 Annual 2003 Annual 2004 Annual
of Equity Completed To Date Distribution Distribution Distribution Distribution
Name of Entity Investors ($) ($) ($) (%) (%) (%) (%)
- -----------------------------------------------------------------------------------------------------------------------------------
Landings of Sarasota DBT 9 4,000,000 05/ 2002 807,036 8.00 8.00 8.07 8.39
Sentry Office Building DBT 7 3,500,000 04/ 2002 676,396 8.20 8.73 9.25
Pets Bowie DBT 7 2,600,000 07/ 2002 463,278 8.89 8.89 9.12
1031 Chattanooga DBT 9 1,900,000 05/ 2002 317,728 8.19 8.26 8.26
Lansing Shopping Center DBT 5 5,000,000 09/ 2001 742,590 8.47 8.29 8.96
Inland 220 Celebration Place DBT 35 15,800,000 09/ 2003 1,821,875 8.08 8.10 8.10
Taunton Circuit DBT 1 3,750,000 09/ 2002 522,750 8.22 8.31 8.31
Broadway Commons DBT 32 8,400,000 12/ 2003 645,185 8.14 8.22 8.26
Bell Plaza 1031, LLC 1 890,000 11/ 2003 183,074 13.53 14.67 16.05
Inland 210 Celebration Place DBT 1 6,300,000 01/ 2003 762,125 8.23 8.23
CompUSA Retail Building, LLC 11 3,950,000 02/ 2004 226,939 8.05 8.17
Janesville Deere Distribution
Facility 1031, LLC 35 10,050,000 01/ 2004 489,369 7.23 7.35
Fleet Office Building 1031, LLC 30 10,000,000 01/ 2004 440,971 7.19 7.19
Davenport Deere Distribution
Facility 1031, LLC 35 15,700,000 04/ 2004 492,322 7.36 7.36
Grand Chute DST 29 5,370,000 03/ 2004 129,906 8.48 8.49
Macon Office DST 29 6,600,000 03/ 2004 245,266 8.20 8.20
White Settlement Road
Investment, LLC 1 1,420,000 12/ 2003 55,849 8.34
Plainfield Marketplace 1031, LLC 31 12,475,000 06/ 2004 1,163 7.09
Pier 1 Retail Center 1031, LLC 22 4,300,000 06/ 2004 - -
Long Run 1031, LLC 1 4,935,000 05/ 2004 - -
Forestville 1031, LLC 1 3,900,000 05/ 2004 12,918 7.55
Bed, Bath & Beyond 1031, LLC 0 6,633,000 * - -
Cross Creek Commons 1031, LLC 11 6,930,000 * - -
BJ's Shopping Center 1031, LLC 0 8,365,000 * - -
Barnes & Noble Retail
Center 1031, LLC 0 3,930,000 * - -
----------- -------------
156,698,000 9,036,740
=========== =============
</Table>
* Offering was not complete as of June 30, 2004
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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 June 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 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 June 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 June 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 June 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 June 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 operating
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expenses. This group also manages more than 11,500 multi-family units that are
principally located in the Chicago area.
Inland Western Management Corporation, Inland Northwest Property Management
Corp., Inland Southwest Property Management Corp. and Inland Pacific Property
Management Corp., 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 June 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 September 1, 2004, with no investor
losses of initial invested capital in any completed equity program.
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The following sets forth information with respect to the directors and
principal executive officers of The Inland Group:
<Table>
<Caption>
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
</Table>
- ----------
*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
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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 advisor is responsible for the day-to-day management of our
affairs and the implementation of the policies of our board. Inland Western
Management Corp., Inland Northwest Property Management Corp., Inland Southwest
Property Management Corp. and Inland Pacific Property Management Corp. are
responsible for managing,
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maintaining and leasing the individual properties. 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:
<Table>
<Caption>
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
</Table>
- ----------
*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.
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STEVEN P. GRIMES joined our 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 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.
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 American Institute of Certified Public
Accountants.
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 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.
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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
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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. This committee met once during 2003.
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;
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- 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 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 (increasing 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.
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
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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 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
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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 ADVISOR
Our advisor, Inland Western Retail Real Estate Advisory Services, Inc.,
is an Illinois corporation and a wholly owned subsidiary of our sponsor. Our
advisor/business manager 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 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 biography of Mr. Wilton is set forth under "-- Our
Directors and Executive Officers."
<Table>
<Caption>
NAME AGE POSITION AND OFFICE WITH OUR 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
</Table>
- ----------
*As of January 1, 2004
DEBRA J. RANDALL joined our advisor as assistant vice president on January
30, 2004. Ms. Randall is responsible for our financial and SEC reporting. Prior
to joining the 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 in Liberal Arts
and is in the process of completing her M.A. Degree from DePaul University. She
is a certified public accountant and a member of the Illinois CPA Society.
OUR ADVISORY AGREEMENT
DUTIES OF OUR ADVISOR. Under the terms of our advisory agreement, our
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.
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Our 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 advisor, as
the case may be, upon 60 days' written notice. If the advisory agreement is
terminated, the advisor must cooperate with us and take all reasonable steps
requested by our board to assist it in making an orderly transition of the
advisory function. Our board shall determine that any successor advisor
possesses sufficient qualifications to perform the advisory function for us and
justify the compensation provided for in its contract with us.
COMPENSATION TO ADVISOR. The advisory agreement provides for the 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 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 advisor and the independent directors.
The 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;
- telephone;
- equipment expenses to the extent they relate to the office maintained
by both us and the 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 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 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 ADVISOR. For any year in which we qualify as a REIT, our
advisor must reimburse us for the amounts, if any:
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- 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 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 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 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 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 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 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 advisor and/or a property manager are
acquired by or consolidated into us, the 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 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 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 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
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accordance with generally accepted auditing standards, will be
annualized. The 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 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 advisor, then all obligations of the advisor and its
affiliates to offer properties to us will also terminate.
LIABILITY AND INDEMNIFICATION OF ADVISOR. Under the advisory agreement, we
are required to indemnify the advisor and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding with respect to the
advisor's acts or omissions. However, this is only a requirement so long as:
- the advisor determined in good faith that the course of conduct which
caused a loss or liability was in our best interest;
- the 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 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.
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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 corporations, 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 managers 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.
Our property manager, Inland Western Management Corp., Inland Northwest
Management Corp., Inland Southwest Property Management Corp, and Inland Pacific
Property Management Corp, conduct their activities at their principal executive
office 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 directors of Inland Western Management Corp.
<Table>
<Caption>
POSITION AND OFFICE
WITH INLAND WESTERN
NAME AGE* MANAGEMENT CORP.
---- ---- -------------------
Thomas P. McGuinness 47 President and director
Robert M. Barg 50 Senior vice president/treasurer, secretary
and director
James H. Neubauer 62 Senior vice president and director
Linda Centanni 49 Vice president
Elizabeth D. McNeely 49 Vice president
Frank Natanek 36 Vice president
Lawrence R. Sajdak, Jr. 24 Assistant vice president
</Table>
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<Table>
Matthew G. Fiascone 40 Director
Alan F. Kremin 57 Director
</Table>
- ----------
*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 CRP
Society.
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
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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.
LAWRENCE R. SAJDAK. Mr. 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 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 Western Property
Management Corp. and an assistant vice president of Inland Northwest Property
Management Corp. He is a member of the International Council of Shopping
Centers.
MATTHEW G. FIASCONE joined The Inland Group in January 1986 and is
currently senior vice president and a director of Inland Real Estate Development
Corporation. In that position, Mr. Fiascone is responsible for the purchase,
entitlement, development and sale of land owned by investment programs sponsored
by Inland Real Estate Investment Corporation and corporate owned land. He holds
a B.S. degree in economics from Bradley University where as an alumnus he was
named the 2002 Outstanding Young Graduate. Real Estate Chicago magazine named
him to their inaugural "40 under 40" list of the most influential people in
Chicago real estate under 40. He has testified as an expert in the field of land
use and zoning and is a member of the Northern Illinois Commercial Association
of Realtors, the Village of Hinsdale Zoning Board of Appeals, The Urban Land
Institute and is a licensed real estate broker in the state of Illinois.
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
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.
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The following sets forth information with respect to the executive officers
and directors of Inland Northwest Management Corp.
<Table>
<Caption>
POSITION AND OFFICE
WITH INLAND NORTHWEST
NAME AGE* MANAGEMENT CORP.
---- ---- ---------------------
Thomas P. McGuinness 47 President and director
Robert M. Barg 50 Senior vice president/treasurer, secretary
and director
James H. Neubauer 62 Senior vice president
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 Director
Alan F. Kremin 57 Director
Pamela C. Stewart 47 Director
</Table>
- ----------
*As of January 1, 2004
The biographies of Mr. McGuinness, Mr. Barg, Mr. Neubauer, Ms. Centanni,
Ms. McNeely, Mr. Natanek, Mr. Sajdak and Mr. Kremin are set forth above.
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
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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 directors of Inland Pacific Management Corp.
<Table>
<Caption>
POSITION AND OFFICE
WITH INLAND PACIFIC
NAME AGE* MANAGEMENT CORP.
---- ---- -------------------
Thomas P. McGuinness 47 President and director
Robert M. Barg 50 Senior vice president/treasurer, secretary and
director
James H. Neubauer 62 Senior vice president and director
Linda Centanni 49 Vice President
Elizabeth D. McNeely 49 Vice President
Frank Natanek 30 Vice President
David M. Benjamin 49 Director
Alan F. Kremin 57 Director
</Table>
- ----------
*As of January 1, 2004
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 directors of Inland Southwest Management Corp.
<Table>
<Caption>
POSITION AND OFFICE
WITH INLAND SOUTHWEST
NAME AGE* MANAGEMENT CORP.
---- ---- ---------------------
Thomas P. McGuinness 47 President and director
Robert M. Barg 50 Senior vice president/treasurer, secretary and
director
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 Director
Ulana B. Horalewskyj 57 Director
Frances C. Panico 54 Director
</Table>
- ----------
*As of January 1, 2004
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<Page>
The biographies of Mr. McGuinness, Mr. Barg, Mr. Neubauer, Ms. Centanni,
Ms. McNeely, Mr. Natanek and Mr. Kremin are set forth above.
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.
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 analysis
and resolution process. Ms. Panico received her BA Degree in Business and
Communication from Northern Illinois University.
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 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. The
biography of Ms. Lynch is also set forth above under "--Our Advisor."
<Table>
<Caption>
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
</Table>
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<Table>
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 Polodsky 32 Vice president
Darrell Rau 48 Vice president
</Table>
- ----------
*As of January 1, 2004
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 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.
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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 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
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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.
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LIMITATION OF LIABILITY AND INDEMNIFICATION OF
DIRECTORS, OFFICERS AND OUR ADVISOR
The laws that we are subject to and our articles of incorporation provide
that our 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 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 ordinary 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.
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 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 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 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 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
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- 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 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. 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 purchased insurance on behalf of any
person but we intend to.
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 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.
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PRINCIPAL STOCKHOLDERS
The following table provides information as of August 31, 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 August 31, 2004, no stockholder beneficially owned more than 5% of
our outstanding shares. As of August 31, 2004, we had approximately 32,000
stockholders of record and approximately 123,647,953 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.
<Table>
<Caption>
NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
---------------- ------------------ ----------------
Robert D. Parks 95,974.8742(1) *%
Roberta S. Matlin 172.8359 *
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 3,957.0621 (2) *
Barbara A. Murphy 2,000 (2) *
All directors and executive officers as a 219,836.7158 (1) *%
group (12 persons)
</Table>
- ----------
*Less than 1%
(1) Includes 20,000 shares owned by our advisor. Our 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 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.
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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
advisor contributed $200,000 to us for 20,000 shares of our common stock to form
us. Our advisor has agreed to not sell their initial investment while the
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 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 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,
Catherine L. Lynch, Steven P. Grimes and Lori A. 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]
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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.
<Table>
<Caption>
PERIOD FROM PERIOD FROM
MARCH 5, 2003 MARCH 5, 2003
FOR THE SIX (INCEPTION) (INCEPTION)
MONTHS ENDED THROUGH THROUGH
30-JUN-04 30-JUN-03 31-DEC-03
--------------- --------------- ---------------
Total assets............................... $ 1,532,426,247 884,411 212,102,163
Mortgages payable.......................... $ 588,631,295 0 29,627,000
Total income............................... $ 29,452,928 0 782,281
Net income (loss).......................... $ 2,147,141 (9,750) (173,279)
Net income (loss) per common share,
basic and diluted........................ $ 0.04 (0.49) (0.07)
Distributions declared,.................... $ 16,645,065 0 1,285,329
Distributions per weighted average
common share............................. $ 0.34 0 .15
Funds from operations...................... $ 11,935,240 0 18,991
Cash flows provided by operating
activities $ 15,696,664 0 723,501
Cash flows used in investing activities.... $(1,148,662,789) 0 (133,424,163)
Cash flows provided by financing
activities............................... $ 1,195,481,997 200,000 197,081,796
Weighted average number of common
shares outstanding, basic and diluted.... 48,805,229 20,000 2,520,986
</Table>
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.
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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 capitalization strategy. FFO is calculated as follows:
<Table>
<Caption>
FOR THE SIX PERIOD FROM MARCH 5, 2003
MONTHS ENDED (INCEPTION) THROUGH
30-JUNE-04 31-DEC-03
------------- -------------------------
Net income (loss).................................................. $ 2,147,141 $(173,279)
Depreciation and amortization related to investment properties..... 9,788,099 192,270
----------- ---------
Funds from operations(1)........................................... $11,935,240 $ 18,991
=========== =========
</Table>
- -----
(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.
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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;
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- $.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; and
- $.65 per share per annum for the stockholders of record on July 31,
2004, payable on August 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.
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
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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 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;
- 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
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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 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 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 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
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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 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 advisor or its affiliates which
makes or invests in mortgage loans. We seek to obtain financing which will
result in the 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 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
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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. 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."
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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 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. 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 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 ten 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 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.
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We may enter into an initial $50 million (which could increase to $100
million) twelve month credit facility with an affiliate of our 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 advisor for our expenses, to the extent allowable under
the advisory agreement,
- pay the 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.
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.
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JOINT VENTURES
We may invest in joint venture arrangements with other public real estate
programs formed by our 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 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 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 intends 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.
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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:
- 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.
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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."
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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 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 properties primarily for income as
distinguished from primarily for capital gain. As a result, many of our recently
acquired properties 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.
We do not intend to invest in real estate properties that are primarily:
- farms;
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<Page>
- 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. 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.
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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 September 1, 2004, our real estate portfolio was comprised of 62
properties containing approximately 11,000,000 square feet of gross leasable
area. The 62 properties consist of 33 retail shopping centers, 13 neighborhood
and community shopping center properties, ten single-user retail facilities,
four joint venture retail shopping centers that we have operating control of,
one commercial property, and one project under development, located in 24
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 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.
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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 6.1% of our total
shopping center gross leasable area or more than 4.7% of our total annualized
base rental revenues as of September 1, 2004. Our five largest tenants include
Wal-Mart, Best Buy, Ross Dress for Less, Kohl's and Home Depot which represent
approximately 3.2%, 4.9%, 3.0%, 1.6% and 1.7% of annualized base rental revenues
at September 1, 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
7estimates of value and should not be relied on as a measure of truth 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 September 1, 2004, approximately 94% of our shopping center
space was leased, and the average annualized base rent per leased square foot of
the shopping center portfolio was $13.09.
Our shopping center properties, generally owned and operated through
subsidiaries, had an average size of approximately 271,000 square feet as of
September 1, 2004. Although we primarily invest
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in retail properties ranging from 100,000 to 500,000 square feet in size, as of
September 1, 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 September 1, 2004, approximately 90% of these shopping
centers were leased, and the average annualized base rent per leased square foot
of these shopping centers was $15.73.
Our neighborhood and community shopping center properties, generally owned
and operated through subsidiaries, had an average size of approximately 73,000
square feet as of September 1, 2004.
SINGLE-USER RETAIL PROPERTIES
In addition to neighborhood and community shopping centers, we acquired
single-user retail properties that are triple-net-leased properties, including
properties acquired in sale and leaseback transactions. Single-user retail
properties, represent approximately 5% of our total shopping center portfolio
gross leasable area. As of September 1, 2004, the average annualized base rent
per leased square foot of the single-user retail property portfolio was $9.25.
National and regional companies that are tenants in our single-user retail
properties include Eckerds, Wal-Mart, Shaw's Supermarket and Academy Outdoor
Sports.
COMMERCIAL PROPERTY
Although we do not intend to invest in primarily office properties, we may
invest in an office property or residential property if it has a significant
retail or commercial use component as its primary purpose. On July 22, 2004, we
purchased a single tenant office center and distribution facility known as
Wrangler Company Western Headquarters and Distribution Facility for $18,477,000.
We funded the purchase of this property and then obtained financing in the
amount of $11,300,000 on July 26, 2004. The office center and distribution
facility is located in El Paso, Texas and contains approximately 316,800 gross
leasable square feet. Wrangler Company Western Headquarters and Distribution
Facility represents 2.8% of our total shopping center portfolio gross leasable
area. As of September 1, 2004, 100% of this commercial property was leased to
one tenant.
PROJECTS UNDER DEVELOPMENT
We have acquired one property under development known as Wilshire Plaza III
which will be occupied by Kohl's as a single-user property.
On July 13, 2004, we funded $5,750,000 which represents a portion of the
purchase price of this shopping center currently under development in Kansas
City, Missouri. We are purchasing this development from an unaffiliated third
party for approximately $9,850,000.
We are funding the development with our own funds. The Kohl's space will
consist of approximately 88,248 square feet. We will receive a 7% return on the
amounts funded for construction advances to the Seller until such time as Kohl's
lease commences. As of September 1, 2004, we have funded $5,750,000 in
construction advances.
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SUMMARY TABULAR PRESENTATION OF PROPERTIES OWNED
As of September 1, 2004, we, through separate limited partnerships or
limited liability companies, have acquired fee ownership of, or a leasehold
interest in, 61 shopping centers consisting of an aggregate of approximately
11,514,419 gross leasable square feet 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. The
following table summarizes these properties in alphabetical order.
<Table>
<Caption>
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS
YEAR BUILT/ DATE SEPTEMBER SEPTEMBER AREA (SQ. LEASABLE
PROPERTY TYPE RENOVATED ACQUIRED 1, 2004 1, 2004 FT.) AREA
- ------------------------------------------------------------------------------------------------------------------------
Academy Sports SU 2004 Jul-04 5,252,942 2,920,000 60,001 0.5%
Houma, Louisianna
Alison's Corner NC 2003 Apr-04 6,992,339 3,850,000 55,066 0.5%
San Antonio, Texas
Arvada Connection
and RC 1987 -1990 Apr-04 51,556,899 28,510,000 61,079 0.5%
Arvada Marketplace RC 297,678 2.6%
Arvada, Colorado
Best on the Boulevard RC 1996 - 1999 Apr-04 35,547,369 19,525,000 204,427 1.8%
Las Vegas, Nevada
Bluebonnet Parc RC 2002 Apr-04 22,072,024 12,100,000 135,289 1.2%
Baton Rouge, Louisianna
The Columns RC 2004 Aug-04 20,769,721 - 128,600 1.1%
Jackson, Tennessee
CorWest Plaza RC 1999 - 2003 Jan-04 33,338,803 18,150,000 115,011 1.0%
New Britian, Connecticut
<Caption>
PHYSICAL
OCCUPANCY NO. OF
PROPERTY % TENANTS MAJOR TENANTS*
- ----------------------------------------------------------------------------------
Academy Sports 100% 1 Academy Sports
Houma, Louisianna
Alison's Corner 100% 4 Ross Dress for Less
San Antonio, Texas Shoe Carnival
Arvada Connection Old Country Buffet
and 78% 12 Pier 1 Imports
Arvada Marketplace 97% 26 Sam's Club
Arvada, Colorado Gart Sports
Best on the Boulevard 77% 8 Best Buy
Las Vegas, Nevada Barnes & Noble
Copeland Enterprises
Bluebonnet Parc 89% 6 Best Buy
Baton Rouge, Louisianna Linens 'N Things
Cost Plus World
Market
The Columns 100% 16 Best Buy
Jackson, Tennessee Ross Dress for Less
Marshalls
Bed, Bath & Beyond
CorWest Plaza 99% 10 Super Stop & Shop
New Britian, Connecticut Liquor Depot
CVS Pharmacy
</Table>
109
<Page>
<Table>
<Caption>
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS
YEAR BUILT/ DATE SEPTEMBER SEPTEMBER AREA LEASABLE
PROPERTY TYPE RENOVATED ACQUIRED 1, 2004 1, 2004 (SQ. FT.) AREA
- ------------------------------------------------------------------------------------------------------------------------
Cranberry Square RC 1996-1997 Jul-04 20,312,108 10,900,000 195,566 1.7%
Cranberry Township,
Pennsylvania
Darien Towne Center RC Dec-03 29,976,156 16,500,000 223,844 1.9%
Darien, Illinois
Davis Towne Crossing NC 2003 & 2004 Jun-04 8,189,848 5,365,200 41,349 0.4%
North Richland Hills,
Texas
Dorman Center - Phase I & RC 2003-2004 Mar-04 & 50,286,675 27,610,000 388,194 3.4%
II Jul-04
Spartanburg, South
Carolina
Eastwood Towne Center RC 2002 May-04 85,154,179 46,750,000 326,981 2.8%
Lansing, Michigan
Eckerd Drug Store SU 2003 Dec-03 3,376,585 1,850,000 13,824 0.1%
Edmund, Oklahoma
Eckerd Drug Store SU 2003 Dec-03 5,301,730 2,900,000 13,824 0.1%
Norman, Oklahoma
Eckerd Drug Store SU 2003 - 2004 Jun-04 2,633,000 1,425,000 13,824 0.1%
Crossville, Tennessee
Eckerd Drug Store SU 2003 - 2004 Jun-04 3,272,800 1,750,000 13,440 0.1%
Columbia, South Carolina
Eckerd Drug Store SU 2003 - 2004 Jun-04 3,079,400 1,650,000 13,824 0.1%
Greer, South Carolina
Eckerd Drug Store SU 2003 - 2004 Jun-04 3,660,139 1,975,000 13,824 0.1%
Kill Devil Hills, North
Carolina
Forks Town Center NC 2002 Jul-04 18,449,130 10,395,000 92,660 0.8%
Easton, Pennsylvania
<Caption>
PHYSICAL
OCCUPANCY NO. OF
PROPERTY % TENANTS MAJOR TENANTS*
- ----------------------------------------------------------------------------------
Cranberry Square 92% 5 Barnes & Noble
Cranberry Township, Dick's Sporting Goods
Pennsylvania Best Buy
Office Max
Toys "R" Us
Darien Towne Center 94% 11 Home Depot
Darien, Illinois Circuit City
PETsMART
Davis Towne Crossing 82% 13 Lady USA Fitness
North Richland Hills, Cotton Patch Cafe
Texas
Dorman Center - Phase I & 94% 23 Wal-Mart Supercenter
II
Spartanburg, South
Carolina
Eastwood Towne Center 99% 60 Dick's Sporting Goods
Lansing, Michigan
Eckerd Drug Store 100% 1 Eckerd Drug Store
Edmund, Oklahoma
Eckerd Drug Store 100% 1 Eckerd Drug Store
Norman, Oklahoma
Eckerd Drug Store 100% 1 Eckerd Drug Store
Crossville, Tennessee
Eckerd Drug Store 100% 1 Eckerd Drug Store
Columbia, South Carolina
Eckerd Drug Store 100% 1 Eckerd Drug Store
Greer, South Carolina
Eckerd Drug Store 100% 1 Eckerd Drug Store
Kill Devil Hills, North
Carolina
Forks Town Center 96% 16 Giant Food Stores
Easton, Pennsylvania
</Table>
110
<Page>
<Table>
<Caption>
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS
YEAR BUILT/ DATE SEPTEMBER SEPTEMBER AREA (SQ. LEASABLE
PROPERTY TYPE RENOVATED ACQUIRED 1, 2004 1, 2004 FT.) AREA
- --------------------------------------------------------------------------------------------------------------------------
Fullerton Metrocenter RC 1988 Jun-04 51,332,086 28,050,000 253,296 2.2%
Fullerton, California
Gateway Plaza RC 2000 Jul-04 32,994,819 - 358,200 3.1%
Southlake, Texas
Gateway Village JV 1996 Jul-04 49,513,455 31,458,000 273,788 2.4%
Annapolis, Maryland
Governor's Marketplace RC 2001 Aug-04 32,653,848 20,625,000 265,541 2.3%
Tallahassee, Florida
Heritage Towne Crossing NC 2002 Mar-04 14,606,378 8,950,000 80,639 0.7%
Euless, Texas
Hickory Ridge RC 1999 Jan-04 42,033,006 23,650,000 380,487 3.3%
Hickory, North Carolina
Huebner Oaks Center RC 1997 & 1998 Jun-04 79,565,741 48,000,000 286,684 2.5%
San Antonio, Texas
John's Creek Village RC 2003 & 2004 Jun-04 29,172,033 23,300,000 191,752 1.7%
Duluth, Georgia
La Plaza Del Norte RC 1996/1999 Jan-04 59,168,291 32,528,000 320,345 2.8%
San Antonio, Texas
Lakewood Towne Center RC 1988/2003 Jun-04 80,907,245 51,260,000 578,863 5.0%
Lakewood, Washington
Larkspur Landing RC 1978/2001 Jan-04 60,721,335 33,630,000 173,821 1.5%
Larkspur, California
Low Country Village NC 2004 Jun-04 9,775,212 - 76,376 0.7%
Bluffton, South Carolina
<Caption>
PHYSICAL
OCCUPANCY NO. OF
PROPERTY % TENANTS MAJOR TENANTS*
- ----------------------------------------------------------------------------------
Fullerton Metrocenter 82% 40 Sportmart
Fullerton, California Henry's Marketplace
Gateway Plaza 90% 25 Kohl's
Southlake, Texas
Gateway Village 100% 16 Safeway
Annapolis, Maryland Burlington Coat
Factory
Best Buy
Governor's Marketplace 87% 23 Bed, Bath & Beyond
Tallahassee, Florida Sports Authority
Marshalls
Heritage Towne Crossing 89% 29 N/A
Euless, Texas
Hickory Ridge 100% 21 Best Buy
Hickory, North Carolina Kohl's
Dick's Sporting Goods
Huebner Oaks Center 97% 55 Bed, Bath & Beyond
San Antonio, Texas
John's Creek Village 71% 16 LA Fitness
Duluth, Georgia Ross Dress for Less
T.J. Maxx
La Plaza Del Norte 95% 16 Oshman's Sporting
San Antonio, Texas Goods
Best Buy
Lakewood Towne Center 94% 24 Gottschalk's
Lakewood, Washington Burlington Coat
Factory
Larkspur Landing 87% 34 Bed, Bath & Beyond
Larkspur, California 24 Hour Fitness
Low Country Village 92% 7 Ross Dress for Less
Bluffton, South Carolina Michaels
PETsMART
</Table>
111
<Page>
<Table>
<Caption>
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS
YEAR BUILT/ DATE SEPTEMBER SEPTEMBER AREA (SQ. LEASABLE
PROPERTY TYPE RENOVATED ACQUIRED 1, 2004 1, 2004 FT.) AREA
- ---------------------------------------------------------------------------------------------------------------------------
MacArthur Crossing RC 1995 - 1996 Feb-04 23,076,236 12,700,000 109,755 1.0%
Los Colinas, Texas
Manchester Meadows RC 1994-1995 Aug-04 56,200,000 31,064,550 454,102 3.9%
Town and Country,
Missouri
Metro Square Center NC 1999 Jan-04 11,029,601 6,067,183 61,817 0.5%
Severn, Maryland
Mitchell Ranch Plaza RC 2003 Aug-04 34,000,000 - 200,404 1.7%
New Port Richey, Florida
Newnan Crossing I & II RC 1999-2003 Dec-03 & 39,246,282 21,543,091 291,415 2.5%
Newnan, Georgia Feb-04
North Ranch Pavilions NC 1992 Jan-04 18,264,794 10,157,400 62,812 0.5%
Thousand Oaks, California
North Rivers Town Center RC 2003 - 2004 Apr-04 20,170,224 11,050,000 141,004 1.2%
Charleston, South Carolina
Northgate North RC 1999-2003 Jun-04 48,488,009 26,650,000 302,095 2.6%
Seattle, Washington
Northpointe Plaza RC 1991 - 1993 May-04 54,635,627 30,850,000 377,924 3.3%
Spokane, Washington
Paradise Valley NC 2002 Apr-04 28,575,328 15,680,500 92,158 0.8%
Marketplace
Phoenix, Arizona
Pavilion at King's Grant NC 2002/2003 Dec-03 8,200,912 5,342,000 79,109 0.7%
Concord, North Carolina
<Caption>
PHYSICAL
OCCUPANCY NO. OF
PROPERTY % TENANTS MAJOR TENANTS*
- ----------------------------------------------------------------------------------
MacArthur Crossing 93% 26 Stein Mart
Los Colinas, Texas
Manchester Meadows 96% 22 Wal-Mart
Town and Country, Home Depot
Missouri
Metro Square Center 100% 3 Shoppers Food
Severn, Maryland Warehouse
Mitchell Ranch Plaza 93% 35 Publix
New Port Richey, Florida Marshalls
Ross Dress for Less
Newnan Crossing I & II 100% 22 BJ's Wholesale Club
Newnan, Georgia Office Depot
T.J. Maxx
Old Navy
North Ranch Pavilions 89% 24 Savvy Salon
Thousand Oaks, California
North Rivers Town Center 100% 16 Ross Dress for Less
Charleston, South Carolina Bed, Bath & Beyond
Office Depot
Babies "R" Us
Northgate North 93% 7 Target
Seattle, Washington Best Buy
Northpointe Plaza 99% 31 Safeway
Spokane, Washington Gart Sports
Best Buy
Paradise Valley 87% 16 Whole Foods
Marketplace
Phoenix, Arizona
Pavilion at King's Grant 100% 7 Toys "R" Us
Concord, North Carolina Olive Garden
</Table>
112
<Page>
<Table>
<Caption>
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS
YEAR BUILT/ DATE SEPTEMBER SEPTEMBER AREA (SQ. LEASABLE
PROPERTY TYPE RENOVATED ACQUIRED 1, 2004 1, 2004 FT.) AREA
- ----------------------------------------------------------------------------------------------------------------------------
Peoria Crossings RC 2002 - 2003 Mar-04 37,470,091 20,497,400 213,733 1.9%
Peoria, Arizona
Pine Ridge Plaza RC 1998 - 2004 Jun-04 29,961,150 14,700,000 230,510 2.0%
Lawrence, Kansas
Plaza at Marysville RC 1995 Jul-04 21,272,764 11,800,000 115,656 1.0%
Marysville, Washington
Plaza Santa Fe II RC 2000 - 2002 Jun-04 31,060,132 17,551,721 222,389 1.9%
Santa Fe, New Mexico
Promenade at Red Cliff NC 1997 Feb-04 19,502,610 10,590,000 94,364 0.8%
St. George, Utah
Reisterstown Road Plaza JV 1986/2004 Aug-04 88,453,326 49,650,000 779,397 6.8%
Baltimore, Maryland
Shaw's Supermarket SU 1995 Dec-03 13,713,783 6,450,000 65,658 0.6%
New Britain, Connecticut
The Shops at Boardwalk RC 2003 & 2004 Jul-04 36,654,013 20,150,000 122,413 1.1%
Kansas City, Missouri
Shoppes of Dallas NC 2004 Jul-04 13,067,201 - 70,610 0.6%
Dallas, Georgia
Shoppes of Prominence NC 2004 Jun-04 15,178,504 9,954,300 78,058 0.7%
Point
Canton, Georgia
Shops at Park Place RC 2001 Oct-03 24,167,641 13,127,000 116,300 1.0%
Plano, Texas
<Caption>
PHYSICAL
OCCUPANCY NO. OF
PROPERTY % TENANTS MAJOR TENANTS*
- ----------------------------------------------------------------------------------
Peoria Crossings 97% 20 Kohl's
Peoria, Arizona Ross Dress for Less
Michaels
Pine Ridge Plaza 100% 14 T.J. Maxx
Lawrence, Kansas Bed, Bath & Beyond
Kohl's
Plaza at Marysville 95% 25 Safeway
Marysville, Washington
Plaza Santa Fe II 98% 20 Linens 'N Things
Santa Fe, New Mexico Best Buy
T.J. Maxx
Promenade at Red Cliff 90% 17 Staples
St. George, Utah Old Navy
Big 5 Sporting Goods
Reisterstown Road Plaza 86% 72 Home Depot
Baltimore, Maryland Public Safety
National Wholesale
Liquidators
Shaw's Supermarket 100% 1 Shaw's Supermarket
New Britain, Connecticut
The Shops at Boardwalk 67% 20 Borders Books
Kansas City, Missouri
Shoppes of Dallas 81% 11 Publix
Dallas, Georgia
Shoppes of Prominence 89% 14 Publix
Point
Canton, Georgia
Shops at Park Place 99% 11 Bed, Bath & Beyond
Plano, Texas Michaels
Office Max
Walgreens
</Table>
113
<Page>
<Table>
<Caption>
% OF
BOOK VALUE MORTGAGE GROSS TOTAL
AT PAYABLE AT LEASABLE GROSS
YEAR BUILT/ DATE SEPTEMBER SEPTEMBER AREA LEASABLE
PROPERTY TYPE RENOVATED ACQUIRED 1, 2004 1, 2004 (SQ. FT.) AREA
- ----------------------------------------------------------------------------------------------------------------------------
Stony Creek Marketplace RC 2003 Dec-03 26,028,924 14,162,000 153,816 1.3%
Noblesville, Indiana
Tollgate Marketplace JV 1979 Jul-04 72,300,000 39,765,000 392,587 3.4%
Bel Air, Maryland Renovated 1994
Towson Circle JV 1998 Jul-04 28,450,000 19,197,500 116,366 1.0%
Towson, Maryland
Village Shoppes at NC 2004 Aug-04 13,748,593 - 66,415 0.6%
Simonton
Lawrenceville, Georgia
Wal-Mart Supercenter SU 1999 Jul-04 13,247,832 7,100,000 183,211 1.6%
Blytheville, Arkansas
Wal-Mart Supercenter SU 1997 Aug-04 11,063,560 6,088,500 149,704 1.3%
Jonesboro, Arkansas
Watauga Pavilion RC 2003/2004 May-04 35,688,662 19,617,000 205,740 1.8%
Watauga, Texas
Wrangler CP 1993 Jul-04 18,499,092 11,300,000 316,800 2.8%
El Paso, Texas
-------------------------------------------------------
PORTFOLIO TOTAL 1,840,080,187 978,381,345 11,514,419 100%
=======================================================
<Caption>
PHYSICAL
OCCUPANCY NO. OF
PROPERTY % TENANTS MAJOR TENANTS*
- ----------------------------------------------------------------------------------
Stony Creek Marketplace 100% 20 T.J. Maxx
Noblesville, Indiana Linens 'N Things
Barnes & Noble
Tollgate Marketplace 100% 34 Giant Food
Bel Air, Maryland Jo Ann Fabrics
Towson Circle 92% 13 Barnes & Noble
Towson, Maryland Trader Joe's East
Bally's Total Fitness
Pier One Imports
Village Shoppes at 83% 9 Publix
Simonton
Lawrenceville, Georgia
Wal-Mart Supercenter 100% 1 Wal-Mart Supercenter
Blytheville, Arkansas
Wal-Mart Supercenter 100% 1 Wal-Mart Supercenter
Jonesboro, Arkansas
Watauga Pavilion 93% 14 Oshman's
Watauga, Texas Ross Dress for Less
Bed, Bath & Beyond
Wrangler 100% 1 Wrangler
El Paso, Texas
PORTFOLIO TOTAL
</Table>
- ----------
* 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 Retail Property
RC Retail Shopping Center
D Development Project
JV Joint Venture
CP Commercial Property
The table above represents book value to include land, building and
improvements, site improvements and acquired intangibles.
114
<Page>
DESCRIPTION OF PROPERTIES
The following discussion provides more detail on each of the properties we
have acquired that are summarized in the table above.
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 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 anticipate purchasing the center
when the mortgage matures for approximately $12,665,000. We will use the
funds from repayment of the first mortgage towards our purchase price.
One tenant, Giant Food Stores, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenants
to pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- -------------------------------------------------------------------------------------------------------------------
Giant Food Stores 54,332 88 15.86 05/04 02/24
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $9,499,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Quakertown Shopping Center was constructed in 2004. As of September 1,
2004, this property was 100% occupied, with a total 61,832 (including ground
leased space) square feet leased to five tenants. The following table sets forth
certain information with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
- -----------------------------------------------------------------------------------------------------------------
Best Cuts 1,200 02/09 25,200 21.00
Electronics Boutique 1,200 02/14 25,200 21.00
Dry Cleaner Drop Off 1,600 02/14 33,600 21.00
</Table>
115
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
- -----------------------------------------------------------------------------------------------------------------
Giant Food Stores 54,332 02/24 861,706 15.86
Perkasie Bank (Ground Lease) 3,500 02/24 90,000 N/A
</Table>
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 a newly constructed shopping center known as The Columns
hopping Center, containing 173,587 gross leasable square feet consisting of
three phases. The center is located at 1300 Vann Drive in Jackson, Tennessee.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $27,028,000. 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
$156 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Best Buy, Ross Dress for Less, Marshalls and Bed, Bath &
Beyond, will lease more than 10% of the total gross leasable area of the
property. The lease term will be determined in accordance with the tenant's
commencement date. The leases with these tenants require the tenants to pay base
annual rent on a monthly basis as follows:
<Table>
<Caption>
Approximate GLA Base Rent Per Square
Lessee* Leased (Sq. Ft.) % of Total GLA Foot Per Annum ($)
- ----------------------------------------------------------------------------------------------------------------
Best Buy 30,000 17 16.00
Ross Dress for Less 30,187 17 9.75
Marshalls 28,000 16 7.75
Bed, Bath & Beyond 20,000 12 9.75
</Table>
* Lease term information is based on the date the tenant begins occupancy and is
not currently available.
For federal income tax purposes, the depreciable basis in this property
will be approximately $20,271,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
116
<Page>
The Columns Shopping Center is newly constructed in 2004. As of September
1, 2004, the property was 100% leased to 16 tenants. The following table sets
forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee* (Sq. Ft.) Rent ($) Annum ($)
- --------------------------------------------------------------------------------------------
Best Buy 30,000 480,000 16.00
Old Navy 14,800 186,480 12.60
Ross Dress for Less 30,187 294,323 9.75
Bed, Bath & Beyond 20,000 195,000 9.75
Books A Million 12,500 134,375 10.75
Dress Barn 7,700 102,795 13.35
Rack Room Shoes 6,000 85,500 14.25
Spoil Me Rotten 2,000 31,000 15.50
Rue 21 4,000 64,000 16.00
Don Panchos Restaurant 4,000 60,000 15.00
Grass Monkey 1,600 24,000 15.00
Wells Fargo 2,400 37,200 15.50
Oreck Vacuums 1,600 24,800 15.50
Quizno's 1,600 28,800 18.00
Shop Space 7,200 115,200 16.00
Marshalls 28,000 217,000 7.75
</Table>
* 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.
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 $34,003,300. 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
$170 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
117
<Page>
Three tenants, Publix, Marshalls and Ross Dress for Less, each leases more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ------------------------------------------------------------------------------------------------------------------
Publix 44,840 22 9.85 07/03 07/23
Marshalls 30,000 15 7.95 07/03 07/13
Ross Dress for 30,176 15 9.75 07/03 01/14
Less
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $25,503,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Mitchell Ranch Plaza was constructed in 2003. As of September 1, 2004, this
property was 93% occupied, with a total 185,873 square feet leased to 35
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
- --------------------------------------------------------------------------------------------------------------
Cottage Florist 1,200 08/06 22,212 18.51
Cruise Warehouse 900 08/06 18,228 20.25
Pocket Change 1,200 08/06 26,400 22.00
Vitamin Tree 1,200 09/06 22,800 19.00
Tampa Bay Insurance 900 09/06 16,656 18.51
Curves for Women 1,200 09/06 21,900 18.25
Brazilian Tan 1,800 10/06 32,856 18.25
Charles Pope Cellular 1,200 08/08 22,380 18.65
Magic Touch Cleaners 900 08/08 22,800 25.33
La Bebe's Salon 900 08/08 16,428 18.25
Working Cow 1,200 08/08 22,200 18.50
Cellular 1,200 08/08 22,116 18.43
Christos 2,400 09/08 43,200 18.00
Great Clips 1,000 09/08 19,248 19.25
Payless Shoesource 2,400 09/08 60,000 25.00
Aspasia Nails 1,200 09/08 22,200 18.50
Sally Beauty Supply 1,200 09/08 21,300 17.75
George Josef Salon 1,200 09/08 21,900 18.25
China Express 1,200 10/08 23,100 19.25
Trinity Spirits 3,950 10/08 53,280 13.49
American Family Dentist 1,200 10/08 21,780 18.15
VIP Martial Arts 4,050 12/08 67,836 16.75
Carlucci's 3,600 12/08 64,800 18.00
</Table>
118
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
- --------------------------------------------------------------------------------------------------------------
EB Games 1,200 01/09 26,400 22.00
Hallmark Gold Crown 3,950 01/09 65,172 16.50
Beefs O'Brady's 2,800 02/09 50,400 18.00
The Mattress Firm 3,000 02/09 72,300 24.10
The UPS Store 1,200 02/09 21,600 18.00
Cingular Wireless 900 04/09 27,000 30.00
Marshalls 30,000 07/13 238,500 7.95
Ross Dress for Less 30,176 01/14 294,216 9.75
Starbucks 1,500 01/14 42,000 28.00
Pier 1 Imports 10,000 02/14 161,796 16.18
PETsMART 19,107 01/19 211,128 11.05
Publix 44,840 07/23 441,672 9.85
</Table>
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.
GOVERNOR'S MARKETPLACE SHOPPING CENTER, TALLAHASSEE, FLORIDA
We purchased an existing shopping center known as Governor's Marketplace
Shopping Center, containing 265,541 gross elasable square feet. 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 was approximately $37,500,000. 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 $141 per square foot of leasable space.
On August 17, 2004, we obtained financing on the property in the amount of
$20,625,000. The loan requires interest only payments at an annual rate of
5.185% and matures in September 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Bed Bath & Beyond, Sports Authority and Marshalls, each
lease more than 10% of the total gross leasable area of the property. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- -----------------------------------------------------------------------------------------------------------
Bed Bath & Beyond 35,000 13 10.50 07/00 01/17
</Table>
119
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- -----------------------------------------------------------------------------------------------------------
Sports Authority 34,775 13 11.91 08/03 08/08
Marshalls 30,000 11 7.75 05/01 05/11
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $28,125,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Governor's Marketplace was built in 2001. As of September 1, 2004, this
property was 87% occupied, with a total 231,738 square feet leased to 23
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
- ---------------------------------------------------------------------------------------------------------------
Famous Footwear 10,070 07/06 156,085 15.50
Student Body 3,721 08/06 74,420 20.00
Old Navy 20,000 09/06 230,000 11.50
One Price Clothing* 6,413 03/07 89,782 14.00
Clark's Maytag 3,466 05/07 64,121 18.50
Life's Uniforms 1,217 06/07 26,774 22.00
Cingular Wireless 1,200 06/07 30,600 25.50
Nextel Communications 1,443 12/07 36,075 25.00
Sprint PCS 4,206 12/07 75,708 18.00
Sports Authority 34,775 08/08 414,170 11.91
ALLTEL 2,000 04/09 48,000 24.00
Michaels 23,753 02/11 249,407 10.50
Marshalls 30,000 05/11 232,500 7.75
Lifeway Christian 6,324 09/11 123,318 19.50
Atlanta Bread Company 4,000 11/11 94,520 23.63
Boston Market 3,800 11/12 60,000 15.79
David's Bridal 9,000 05/13 133,200 14.80
Petco 13,750 05/13 212,025 15.42
Bombay Company 8,500 08/13 208,250 24.50
Ujamaa 1,600 05/14 35,200 22.00
Qdoba 2,000 07/14 42,000 21.00
Cargo Kids 5,500 08/14 125,400 22.80
Bed Bath & Beyond 35,000 01/17 367,500 10.50
</Table>
* The tenant is currently in bankruptcy proceedings and the space has not been
re-leased.
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.
120
<Page>
MANCHESTER MEADOWS, TOWN AND COUNTRY, MISSOURI
We purchased an existing shopping center known as Manchester Meadows,
containing 454,102 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 $56,481,000. 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 $31,064,550. The loan requires interest only
payments at an annual rate of 4.48% and matures in September 2007.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Wal-Mart and Home Depot, each lease more than 10% of the total
gross leasable area of the property. The leases with these tenants require the
tenants to pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- -----------------------------------------------------------------------------------------------------------------
Wal-Mart 154,717 34 7.00 01/95 01/15
Home Depot 111,175 24 7.47 11/94 11/19
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $42,361,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years.
Manchester Meadows was built in 1994 and 1995. As of September 1, 2004,
this property was 96% occupied, with a total 437,702 square feet leased to 22
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
- -------------------------------------------------------------------------------------------------------
Sears Portrait Studio 2,123 03/05 39,063 18.40
Linens 'N Things 34,917 01/05 367,289 10.52
Payless Shoesource 3,000 05/05 55,200 18.40
HobbyTown USA 2,450 07/05 44,100 18.00
Chic Nails 1,400 05/06 27,475 19.63
Town & Country Tobacco 1,400 01/07 27,417 19.58
</Table>
121
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
- -------------------------------------------------------------------------------------------------------
Fast Track Fitness 3,000 02/07 55,500 18.50
United States Postal Service 3,500 04/07 63,245 18.07
Cobblestone Shoe Repairs 1,400 04/07 26,600 19.00
3 Day Blinds 4,550 03/08 110,716 24.33
Art & Frame 1,400 11/08 29,050 20.75
St. Louis Playscapes 7,500 12/08 155,000 20.67
99 Cent Only Store 3,000 01/09 51,000 17.00
Great Clips 1,400 04/09 27,633 19.74
Memories Unlimited 2,500 04/09 44,167 17.67
OfficeMax 23,920 11/09 239,200 10.00
PETsMART 27,438 03/10 249,228 9.08
Wal-Mart 154,717 01/15 1,083,018 7.00
The Sports Authority 40,500 11/14 324,000 8.00
Home Depot 111,175 11/19 830,088 7.47
St. Louis Playscapes 3,000 12/08 54,000 18.00
Boston Chicken (Ground Lease) 3,412 08/05 79,200 N/A
</Table>
* 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.
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 $13,749,000. 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
$207 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, will lease more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
122
<Page>
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- -------------------------------------------------------------------------------------------------------------
Publix 44,271 67 10.95 05/04 05/24
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $10,312,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
The Village Shoppes at Simonton was newly constructed in 2004. As of
September 1, 2004, this property was 85% occupied with a total of 56,615 square
feet leased to nine tenants. The following table sets forth certain information
with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
- ---------------------------------------------------------------------------------------------------------
Dollar Store 2,644 06/09 60,812 23.00
South Eastern Dry Cleaners 1,500 07/09 42,000 28.00
Pak Mail Center 1,400 07/09 35,000 25.00
Subway Real Estate Corp. 1,400 07/09 32,900 23.50
Nails and Tanning 1,200 07/09 30,000 25.00
Pizza Hut of America 1,400 07/10 32,900 23.50
Supercuts 1,400 08/09 33,600 24.00
New China 1,400 08/09 32,200 23.00
Publix 44,271 05/24 484,767 10.95
</Table>
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 779,397
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 $49,650,000. The loan
requires interest only payments at an
123
<Page>
annual rate of 5.30% and matures September 2009. Through additional joint
ventures, the joint venture partners may acquire additional properties, which
would be managed by our joint venture partner.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Home Depot, Public Safety Service and National Wholesale
Liquidators, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
<Table>
<Caption>
Approximate % of Base Rent Per
GLA Leased Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
- ----------------------------------------------------------------------------------------------------------------
Home Depot 115,289 15 5.20 11/02 01/33
Public Safety Service 107,705 14 12.00 01/98 04/11
National Wholesale Liquidators 91,129 12 4.00 05/00 01/11
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $66,375,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Reisterstown Road Plaza was built in 1986 and renovated in 2004. As of
September 1, 2004, this property was 86% occupied, with a total 668,369 square
feet leased to 72 tenants. The following table sets forth certain information
with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
African Art and Craft 222 Month-to-Month 10,800 48.65
Shingar 2,250 09/04 41,333 18.37
Perfumery International, Inc. 200 01/05 16,000 80.00
Injury Treatment Center 3,501 03/05 50,660 14.47
Hip Hop One Stop 238 06/05 10,800 45.38
Baltimore City Community
College (BCCC) 14,620 05/06 189,329 12.95
Royal Gems & Jewelry 330 09/06 13,530 41.00
Time and More 787 09/06 13,355 16.97
Changes 4,500 09/06 28,176 6.16
Burlington Coat Factory 60,000 10/06 342,000 5.70
Gifts and Balloons 238 12/06 12,000 50.42
Avenue 5,000 01/07 71,250 14.25
Popeyes 3,523 01/07 59,891 17.00
Bank of America 5,250 01/07 77,976 14.85
Payless Shoes 4,985 07/07 43,519 8.73
</Table>
124
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
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 35,152 20.80
Rent-A-Center 4,300 01/08 73,100 17.00
Juvenile Justice 7,291 01/08 98,428 13.50
Revelations Shoe Shop 845 03/08 11,314 13.39
Jackson Hewitt Tax Service 1,217 04/08 30,425 25.00
Gallo 5,143 04/08 42,790 8.32
Vogue Hair Supply 1,050 05/08 20,066 19.11
Park West Medical 7,783 06/08 92,229 11.85
Thi Delight 588 08/08 17,640 30.00
Economy Shoes 3,293 09/08 32,930 10.00
Vital Records 11,500 11/08 154,675 13.45
Sepia Sand & Sable 1,267 12/08 20,272 16.00
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 76,516 22.00
The Great Cookie 751 06/09 14,344 19.10
Chic Nails 839 08/09 17,770 21.18
New Direction Barber Shop 1,086 12/09 22,372 20.60
Gold Lagoon 839 03/10 13,827 16.48
Provident Bank 2,593 11/10 57,046 22.00
National Wholesale Liquidators 91,129 01/11 364,516 4.00
Public Safety Service 107,705 04/11 1,292,400 12.00
Subway 250 05/12 27,000 108.00
Vision Beauty Supply 2,832 07/12 43,896 15.50
All Eyes 1,857 07/12 28,691 15.45
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 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 10,416 16.00
KS Alterations 500 03/13 15,750 31.50
Cobblers And Cleaners 1,374 04/13 27,480 20.00
Social Security Administration 14,885 06/13 145,873 9.80
Evergreen Cafe 835 07/13 25,050 30.00
Sausage Plus 386 07/13 8,492 22.00
Steak Busters 855 07/13 34,200 40.00
Harbor City Bake Shop 1,061 05/13 25,464 24.00
Blackstone Men's Wear 3,540 07/13 46,020 13.00
Lot Stores 5,335 07/13 34,678 6.50
</Table>
125
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
Pick-A-Pretzel 318 07/13 7,950 25.00
Burgundy Park Seafood 544 07/13 26,112 48.00
Total Health Center 1,050 09/13 15,750 15.00
Metro II 1,453 10/13 24,701 17.00
Shoe City 6,740 01/14 89,979 13.35
Marshalls 28,500 04/14 299,607 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 88,020 14.67
Home Depot 115,289 01/33 600,000 5.20
</Table>
* 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.
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 $10,853,000. 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 6, 2004, we
obtained financing in the amount of $6,088,500. The loan requires interest only
payments at an annual rate of 5.085% and matures September 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Wal-Mart Supercenter, will lease 100% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
126
<Page>
<Table>
<Caption>
Base Rent
Approximate Current Per Square
GLA Leased % of Total Annual Foot Per Renewal Lease Term
Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To
- -------------------------------------------------------------------------------------------------------------------------------
Wal-Mart
Supercenter 149,704 100 808,402 5.40 5/5 yr. 10/97 10/17
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $8,140,000. 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 $2,920,000. The loan
requires interest only payments at an annual rate of 5.12% and matures September
2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Academy Sports & Outdoors, will lease 100% of the total gross
leasable area of the property. The lease term will be determined in accordance
with the tenant's commencement date. The lease with this tenant requires the
tenant to pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate Current Per Square
GLA Leased % of Total Annual Foot Per Lease Term
Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Beginning To
- ----------------------------------------------------------------------------------------------------------------------
Academy Sports &
Outdoors 60,001 100 420,007 7.00 06/04 05/24
</Table>
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.
127
<Page>
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.
We purchased this property with our own funds. On August 13, 2004, we
obtained financing in the amount of $10,395,000. The loan requires interest only
payments at an annual rate of 4.97% and matures August 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Giant Food Stores, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Approximate % of Base Rent Per Lease Term
GLA Leased Total Square Foot
Lessee (Sq.Ft.) GLA Per Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $13,649,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Forks Town Center was built in 2002. As of September 1, 2004, this property
was 96% occupied, with a total 88,660 square feet leased to 14 tenants and
ground lease space leased to two tenants. The following table sets forth certain
information with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
- --------------------------------------------------------------------------------------------------------------------
Movie Gallery 3,200 08/07 3/5 yr. 44,800 14.00
Vista Bank United Trust 2,500 12/07 3/5 yr. 50,000 20.00
Subway 1,600 11/07 1/5 yr. 28,000 17.50
H & R Block 1,600 01/08 1/3 yr. 30,400 19.00
Hollywood Tans 2,400 02/08 1/5 yr. 49,416 20.59
PL Nails 1,200 04/08 1/5 yr. 21,600 18.00
China Moon 3,200 04/08 1/5 yr. 48,000 15.00
Catanzaretti's Pizza 2,400 05/08 - 43,200 18.00
</Table>
128
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------------
Something Different 1,600 09/08 1/5 yr. 32,000 20.00
Holiday Hair 1,600 09/08 - 33,600 21.00
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
Fox Hallmark 5,400 08/09 2/5 yr. 129,600 24.00
Giant Food Stores 54,300 08/22 8/5 yr. 870,972 16.04
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.
</Table>
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 $11,800,000. The loan requires interest only
payments at an annual rate of 5.085% and matures August 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Safeway, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
<Table>
<Caption>
Approximate % of Base Rent Per Lease Term
GLA Leased Total Square Foot
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
- ------------------------------------------------------------------------------------
Safeway 53,850 47 11.00 07/01 07/21
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $15,950,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line
129
<Page>
method. We depreciate buildings and improvements based upon estimated useful
lives of 40 and 20 years, respectively.
Plaza at Marysville was built in 1995. As of September 1, 2004, this
property was 95% occupied, with a total 110,356 square feet leased to 25 tenants
and one ground lease space. The following table sets forth certain information
with respect to those leases:
<Table>
<Caption>
Base Rent
Approximate Current Per Square
GLA Leased Renewal Annual Rent Foot Per
Lessee (Sq. Ft.) Lease Ends Options ($) Annum ($)
- ----------------------------------------------------------------------------------------------------------------
The Everett Clinic 1,200 03/07 - 24,600 20.50
Alderwood Auto Glass 1,500 07/05 - 20,112 13.41
Northwest Credit Union 1,300 11/05 1/2 yr. 24,050 18.50
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. 49,173 16.39
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
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 08/09 2/5 yr. 98,100 15.00
Party City 7,992 01/10 2/5 yr. 107,892 13.50
Safeway Fuel Site
(Ground Lease) N/A 01/11 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
</Table>
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.
130
<Page>
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 $11,300,000. The loan requires interest only
payments at an annual rate of 5.09% and matures August 2011.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Wrangler Company, will lease 100% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate % of Current Per Square
GLA Leased Total Annual Foot Per Renewal Lease Term
Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To
- ------------------------------------------------------------------------------------------------------------
Wrangler Company 316,800 100 1,504,800 4.75 3/7 yr. 11/93 11/13
</Table>
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 358,200 gross leasable square feet. 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 $92
per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Kohl's, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
131
<Page>
<Table>
<Caption>
Approximate % of Base Rent Per
GLA Leased Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
- --------------------------------------------------------------------------------------------------------
Kohl's 87,423 24 5.74 08/00 01/21
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $24,769,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Gateway Plaza Shopping Center was built in 2000. As of September 1, 2004,
this property was 90% occupied, with a total 323,939 square feet leased to 25
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Lease Renewal Current Annual Square Foot Per
Lessee (Sq. Ft.) Ends Options Rent ($) 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. 142,223 17.50
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 02/08 150,000 25.00
Shogun Sushi 4,253 05/09 2/5 yr. 114,831 27.00
Michaels 23,838 02/10 4/5 yr. 262,218 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 Retail 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 23,500 01/16 4/5 yr. 258,500 11.00
Bank of America 5,430 12/20 3/5 yr. 190,000 34.99
Kohl's 87,423 01/21 6/5 yr. 502,187 5.74
</Table>
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.
132
<Page>
WAL-MART SUPERCENTER, BLYTHEVILLE, ARKANSAS
We purchased an existing retail store known as Wal-Mart Supercenter,
containing 183,211 gross leasable square feet. The store is located at 3700
Highway 18, in Blytheville, Arkansas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $12,935,000. 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 $71
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 $7,100,000. The loan requires interest only
payments at an annual rate of 4.39% and matures in September 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Wal-Mart Supercenter, leases 100% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
<Table>
<Caption>
Base
Rent
Per
Square
Approximate % of Current Foot Per
GLA Leased Total Annual Annum Renewal Lease Term
Lessee (Sq. Ft.) GLA Rent ($) ($) Options Beginning To
- --------------------------------------------------------------------------------------------------------------------
Wal-Mart Supercenter 183,211 100 902,422 4.93 6/5 yr. 04/99 04/19
</Table>
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 $4,225,000 at an annual
interest rate of the three month LIBOR Rate and 200 basis points and matures
August 2005. Through additional
133
<Page>
joint ventures, the joint venture partners may acquire additional properties,
which would be managed by our joint venture partner.
Three tenants, Safeway, Burlington Coat Factory and Best Buy, each lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
<Table>
<Caption>
Approximate % of Base Rent Per
GLA Leased Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
- -----------------------------------------------------------------------------------------------------------
Safeway 53,000 19 10.00 06/02 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $37,135,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Gateway Village was built in 1996. As of September 1, 2004, this property
was 100% occupied, with a total 273,788 square feet leased to 16 tenants. The
following table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($)
- ----------------------------------------------------------------------------------------------------------
Rugged Wearhouse 9,981 01/05 2/5 yr. 129,753 13.00
Big Screen Store 3,525 10/05 2/5 yr. 88,125 25.00
Regional Acceptance Corp 2,000 02/06 1/5 yr. 41,524 20.76
Career Partners 1,600 02/06 1/5 yr. 36,716 22.95
Chesapeake Open MRI 3,000 04/06 1/5 yr. 70,020 23.34
Annapolis Hair 6,400 03/07 - 92,383 14.43
US Army 2,877 04/07 1/5 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
</Table>
134
<Page>
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.
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 116,366 gross
leasable square feet of which 8,838 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 $3,550,000 at an annual rate of 3.60% for the first ninety days
and thereafter at the three month LIBOR Rate and 200 basis points. The loan
matures August 2005. Through additional joint ventures, the joint venture
partners may acquire additional properties, which would be managed by our joint
venture partner.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Barnes & Noble, Trader Joe's East, Bally Total Fitness and
Pier 1 Imports, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
<Table>
<Caption>
Approximate % of Base Rent Per
GLA Leased Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
- ---------------------------------------------------------------------------------------------------------
Barnes & Noble 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
</Table>
* 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 $21,338,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line
135
<Page>
method. We depreciate buildings and improvements based upon estimated useful
lives of 40 and 20 years, respectively.
Towson Circle was built in 1998. As of September 1, 2004, this property was
92% occupied, with a total 106,621 square feet leased to 13 tenants. The
following table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($)
- ---------------------------------------------------------------------------------------------------------
Mattress Discounters 2,518 05/05 1/5 yr. 62,950 25.00
T-Mobile 1,996 09/05 5/1 yr. 52,346 26.23
Hollywood Tanning System 2,087 09/07 1/5 yr. 53,740 25.75
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 - 155,453 24.50
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 31,222 01/14 3/5 yr. 637,553 20.42
Bally Total Fitness 21,713 12/14 2/5 yr. 445,116 20.50
ATM Machines 247 04/15 - 5,400 21.86
Bahama Breeze Restaurant
(Ground Lease) 8,838 09/18 3/5 yr. 250,000 N/A
</Table>
* 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 $72,100,000 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 $39,765,000. The loan
requires interest only payments at an annual rate of 2.80% for the first ninety
days and thereafter at the three month LIBOR Rate and 120 basis points. The loan
matures July 2009. Through additional joint ventures, the joint venture partners
may acquire additional properties, which would be managed by our joint venture
partner.
136
<Page>
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Giant Food and Jo Ann Fabrics, each lease more than 10% of the
total gross leasable area of the property. The leases with these tenants require
the tenants to pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Approximate % of Base Rent Per
GLA Leased Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $54,225,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Tollgate Marketplace was built in 1979 and renovated in 1994. As of
September 1, 2004, this property was 100% occupied, with a total 392,587 square
feet leased to 34 tenants. The following table sets forth certain information
with respect to those leases:
<Table>
<Caption>
Base Rent
Approximate Current Per Square
GLA Leased Lease Renewal Annual Foot Per
Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($)
- --------------------------------------------------------------------------------------------------------
Sylvan Learning Center 3,900 06/05 1/5 yr. 75,335 19.32
AT & T Wireless 2,000 09/05 1/5 yr. 63,999 32.00
Carvel Ice Cream 1,250 10/05 1/5 yr. 31,250 25.00
Foto Image 1 Hour 1,600 11/05 - 35,200 22.00
Outback Steakhouse 6,200 12/05 3/5 yr. 77,000 12.42
T.J. Maxx 27,769 01/06 - 242,978 8.75
Factory Card Outlet 11,500 12/05 2/5 yr. 149,500 13.00
Dubinclipped 1,230 06/06 2/5 yr. 33,495 27.23
Rockway Bedding 3,200 08/06 1/5 yr. 74,400 23.25
Starbucks Coffee 1,200 09/06 2/5 yr. 33,732 28.11
Hollywood Tanning System 3,000 03/07 1/5 yr. 89,115 29.71
Only Nails 1,230 06/07 1/5 yr. 39,147 31.83
Standard Carpet 3,500 07/07 1/5 yr. 92,829 26.52
Rack Room Shoes 6,980 11/07 1/5 yr. 127,385 18.25
JoAnn Fabrics 46,000 01/09 3/5 yr. 506,000 11.00
Red Lobster 8,355 01/09 3/5 yr. 88,563 10.60
Giant Food 40,400 10/09 3/5 yr. 176,341 4.36
Boston Markets 5,200 12/09 - 95,000 18.27
Staples 20,285 12/09 3/5 yr. 303,260 14.95
Pier 1 Imports 9,920 10/10 2/5 yr. 200,681 20.23
Toys R Us 30,000 11/10 10/5 yr. 137,499 4.58
</Table>
137
<Page>
<Table>
<Caption>
Base Rent
Approximate Current Per Square
GLA Leased Lease Renewal Annual Foot Per
Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($)
- -------------------------------------------------------------------------------------------------------
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
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
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 2/5 yr. 51,384 12.00
Pizzeria Uno's 6,360 11/14 4/5 yr. 77,020 12.11
Circuit City 33,090 11/15 4/5 yr. 390,828 11.81
</Table>
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 350,994 gross leaseable 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 $27,610,000. The loan requires interest only
payments at an annual rate of 4.18% and matures May 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Wal-Mart Supercenter, leases more than 10% of the combined
total gross leasable area of the Phase I and Phase II properties. The lease with
this tenant requires the tenant to pay base annual rent on a monthly basis as
follows:
138
<Page>
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ----------------------------------------------------------------------------------------------------
Wal-Mart Supercenter 219,622 57 7.45 08/03 08/23
</Table>
For federal income tax purposes, the total depreciable basis in this
property will be approximately $25,800,000. When we calculate depreciation
expense for tax purposes, we will use the straight-line method. We depreciate
buildings and improvements based upon estimated useful lives of 40 and 20 years,
respectively.
Dorman Center Phase I was built in 2003 and Dorman Center Phase II was
newly constructed in 2004. As of September 1, 2004, this property was 94%
occupied, with a total 365,394 square feet leased to 23 tenants. The following
table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) 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 Shoe Source 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
Pier 1 Imports 10,800 07/13 3/5 yr. 199,800 18.50
Michaels 23,885 09/13 4/5 yr. 249,459 10.44
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 16/5 yr. 1,636,184 7.45
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 09/09 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
</Table>
139
<Page>
* Lease had not commenced as of September 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.
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 $10,900,000. The loan
requires interest only payments at an annual rate of 4.975% and matures August
2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
All five tenants, Barnes & Noble, Dick's Sporting Goods, Best Buy,
OfficeMax and Toys "R" Us, each lease more than 10% of the total gross leasable
area of the property. The leases with these tenants require the tenants to pay
base annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $15,165,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
140
<Page>
Cranberry Square was built in 1996. As of September 1, 2004, this property
was 92% occupied, with a total 180,585 square feet leased to five tenants. The
following table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) 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
</Table>
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 funded $5,750,000 which represents a portion of the purchase price of a
free standing retail center under construction to be known as Kohl's/Wilshire
Plaza III to contain 88,248 gross leasable square feet. The center is located at
I-35 and Highway 152 in Kansas City, Missouri.
We are purchasing this property from an unaffiliated third party. Our total
acquisition cost will be approximately $9,850,000. 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 will be approximately
$112 per square foot of leasable space.
In accordance with the terms of the lease agreement with Kohl's, we will
reimburse them for the construction of their retail building in two
installments. We will receive a 7% return on the original amount funded of
$5,750,000 and construction advances to Kohl's until such time as Kohl's lease
commences.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Kohl's, will lease 100% of the total gross leasable area of the
property. The lease with this tenant requires the tenant to pay base annual rent
on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- -------------------------------------------------------------------
Kohl's 88,248 100 8.37 11/04 01/24
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $7,387,500. When we calculate depreciation expense for tax
purposes, we will use the straight-line
141
<Page>
method. We depreciate buildings and improvements based upon estimated useful
lives of 40 and 20 years, respectively.
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
$185 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- -------------------------------------------------------------------------
Publix 44,840 64 10.25 03/04 03/24
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $9,789,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Shoppes of Dallas was newly constructed in 2004. The property is currently
in a leasing up phase and certain tenants have executed leases for retail space
within the shopping center. As of September 1, 2004, this property was 81%
occupied, with a total of 57,440 square feet leased to eleven tenants. In
addition, the seller is funding the shortfall rent for certain tenants until the
space is occupied. The following table sets forth certain information with
respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
- ----------------------------------------------------------------------------------------
Creative Tan 1,200 04/07 1/3 yr. 24,000 20.00
Ladies Fitness Express 1,200 04/07 1/3 yr. 19,800 16.50
Verizon 900 04/07 1/3 yr. 15,300 17.00
Evan Blake Salon 1,200 04/07 1/3 yr. 21,000 17.00
Dollar Train 2,100 06/07 1/3 yr. 36,750 17.50
USA Nails 1,200 03/09 2/5 yr. 28,800 24.00
</Table>
142
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
- ----------------------------------------------------------------------------------------
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
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
Publix 44,840 03/24 6/5 yr. 459,600 10.25
</Table>
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 122,413 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
$299 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 $20,150,000. The loan requires interest only payments
at an annual rate of 4.13% and matures August 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Borders Books, leases more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $27,500,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
143
<Page>
The Shops at Boardwalk was newly constructed during 2003 and 2004. The
property is currently in a leasing up phase and certain tenants have executed
leases for retail space within the shopping center. In addition, the seller is
funding the shortfall rent for certain tenants until the space is occupied. As
of September 1, 2004, this property was 67% occupied, with a total of 82,344
square feet leased to twenty tenants. The following table sets forth certain
information with respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
- ----------------------------------------------------------------------------------------
Coldwater Creek* 4,620 Month-to- 2/5 yr. 110,808 24.00
Month
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 1/5 yr. 84,969 27.00
Jos. A. Banks 4,200 08/08 1/5 yr. 92,400 22.00
Claire's Boutique 1,200 08/08 1/1 yr. 36,000 30.00
Maurices 3,781 08/08 2/3 yr. 90,744 24.00
Noggin Noodle 2,390 10/08 1/5 yr. 62,140 26.00
Select Comfort 2,158 12/08 1/5 yr. 64,740 30.00
Archivers 5,957 01/09 1/5 yr. 119,140 20.00
2nd Swing 3,580 04/09 - 93,080 26.00
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
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
</Table>
* 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.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $18,099,000. 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
$232 per square foot of leasable space.
144
<Page>
We purchased this property with our own funds. On August 13, 2004, we
obtained financing in the amount of $9,954,300. The loan requires interest only
payments at an annual rate of 5.235% and matures September 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ------------------------------------------------------------------------------
Publix 44,840 51 10.80 03/04 03/24
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $13,574,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Shoppes of Prominence Point was newly constructed in 2004. As of September
1, 2004, this property was 89% occupied, with a total of 69,358 square feet
leased to 14 tenants. The following table sets forth certain information with
respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) 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
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
</Table>
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.
145
<Page>
DAVIS TOWNE CROSSING, NORTH RICHLAND HILLS, TEXAS
We purchased a newly constructed shopping center known as Davis Towne
Crossing, containing 41,349 gross leasable square feet of which 4,000 is 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 was approximately $9,755,000. 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
$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 $5,365,200. The loan requires interest only
payments at an annual rate of 5.185% and matures September 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Lady USA Fitness and Cotton Patch Cafe', each lease more than
10% of the total gross leasable area of the property. The leases with these
tenants require the tenant to pay base annual rent on a monthly basis as
follows:
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $7,316,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Davis Towne Crossing was newly constructed during 2003 and 2004. The
property is currently in a leasing up phase and certain tenants have executed
leases for retail space within the shopping center. In addition, the seller is
funding the shortfall rent for certain tenants until the space is occupied. As
of September 1, 2004, this property was 82% occupied with 34,091 square feet
leased to 13 tenants. The following table sets forth certain information with
respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
- ----------------------------------------------------------------------------------------
H & R Block 2,264 05/07 1/3 yr. 45,280 20.00
The Scrapbook Palace 3,000 10/07 1/2 yr. 57,000 19.00
RadioShack 2,400 08/08 3/5 yr. 48,000 20.00
Sport Clips 1,440 08/08 2/5 yr. 28,800 20.00
EB Games 1,500 09/08 2/5 yr. 31,500 21.00
</Table>
146
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
- ----------------------------------------------------------------------------------------
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
</Table>
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. 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 $28,050,000. The loan requires interest only payments
at an annual rate of 5.09% and matures August 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Sportmart and Henry's Marketplace, each lease more than 10% of
the total gross leasable area of the property. The leases with these tenants
require the tenants to pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- --------------------------------------------------------------------------------
Sportmart 43,660 18 8.25 10/88 10/93
9.10 11/93 10/03
9.95 11/03 02/06
</Table>
147
<Page>
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- --------------------------------------------------------------------------------
Henry's Marketplace
(Wild Oats)* 28,092 12 16.89 09/04 08/19
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $38,456,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Fullerton Metrocenter was built in 1988. As of September 1, 2004, this
property was 82% occupied, with a total 208,174 square feet leased to 40
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Base Rent Per
Approximate Current Square Foot
GLA Leased Lease Renewal Annual Per Annum
Lessee (Sq. Ft.) Ends Options Rent ($) ($)
- --------------------------------------------------------------------------------------------
H & R Block 5,250 09/04 - 141,816 27.01
Sportmart 43,660 02/06 3/5 yr. 434,334 9.95
La Caffepia 1,245 03/06 - 36,708 29.48
Washington Mutual 1,560 05/06 - 35,604 22.82
Kentucky Fried Chicken 2,304 05/06 - 100,800 43.75
AT & T Wireless Services 2,775 10/06 1/5 yr. 75,980 27.38
Payless Shoes 2,525 10/06 1/5 yr. 49,768 19.71
Jenny Craig 1,900 02/07 - 53,656 28.24
RadioShack 2,050 04/07 1/3 yr. 47,970 23.40
Party America 9,610 05/07 - 128,064 13.33
Adelphia Communications 1,515 06/07 1/5 yr. 41,465 27.37
Quizno's Subs 1,400 08/07 1/5 yr. 40,460 28.90
Brite Dental 2,250 08/07 2/5 yr. 43,920 19.52
Lilacs Flowers and Gifts 1,200 11/07 1/5 yr. 36,408 30.34
GameStop 1,550 12/07 - 40,176 25.92
Ruby's Diner 3,592 02/08 - 106,320 29.60
Pop's Unfinished Furniture 6,650 04/08 2/5 yr. 101,745 15.30
Burger King 2,874 04/08 2/5 yr. 130,968 N/A
Wherehouse Entertainment 6,350 06/08 2/5 yr. 99,920 15.74
GMP Vitamin 1,020 07/08 - 30,681 30.08
Beneficial Finance 1,775 10/08 - 49,956 28.14
Fantastic Sams 1,170 11/08 - 34,728 29.68
Beauty Avenue 5,400 11/08 - 113,400 21.00
Jewelry Mart 7,000 12/08 1/5 yr. 273,432 39.06
Tilly's 6,040 12/08 1/5 yr. 132,276 21.90
Sylvan Learning Center 3,648 05/09 - 71,646 19.64
Miry Collection 4,350 05/09 - 109,260 25.12
Vans 1,650 06/09 - 46,348 28.09
Super Mex Restaurants 5,500 10/09 - 155,556 28.28
</Table>
148
<Page>
<Table>
<Caption>
Base Rent Per
Approximate Current Square Foot
GLA Leased Lease Renewal Annual Per Annum
Lessee (Sq. Ft.) Ends Options Rent ($) ($)
- --------------------------------------------------------------------------------------------
Kim Sun Young Salon 1,280 10/09 - 36,732 28.70
Metro Dry Cleaning 1,950 11/09 1/5 yr. 52,332 26.84
Tip Top Nails 900 01/10 1/5 yr. 36,468 40.52
Matsunoya 2,900 06/10 - 75,132 25.91
Baskins-Robbins 1,275 10/10 1/5 yr. 38,052 29.84
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
Henry's Marketplace (Wild Oats)* 28,092 08/19 - 474,474 16.89
</Table>
* Lease had not commenced as of September 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.
LOW COUNTRY VILLAGE SHOPPING CENTER, BLUFFTON, SOUTH CAROLINA
We purchased a newly constructed shopping center known as Low Country
Village Shopping Center, containing 76,376 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 2004 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 $9,758,840 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 $127 per square foot of leasable space for Phase I and $166 per
square foot of leasable space for Phase II.
We purchased Phase I and intend to purchase Phase II with our own funds.
However, we expect to place financing on both phases at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Ross Dress for Less, Michaels and PETsMART, lease more than
10% of the total gross leasable area of the Phase I property. The lease term
will be determined in accordance with the tenant's commencement date. The lease
with this tenant requires the tenant to pay base annual rent on a monthly basis
as follows:
149
<Page>
<Table>
<Caption>
Base Rent
Approximate Phase I Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $15,750,000 for Phase I. When we calculate depreciation
expense for tax purposes, we will use the straight-line method. We depreciate
buildings and improvements based upon estimated useful lives of 40 and 20 years,
respectively.
Low Country Village Shopping Center is newly constructed in 2004. As of
September 1, 2004, Phase I was 92% occupied, with a total of 70,598 square feet
leased to seven tenants. The property is currently in a leasing up phase for
Phase II and certain tenants have executed lease for retail space within the
shopping center. The following table sets forth certain information with respect
to those leases:
<Table>
<Caption>
Base Rent Per
Approximate Current Square Foot
GLA Leased Lease Renewal Annual Per Annum
Lessee (Sq. Ft.) Ends Options Rent ($) ($)
- --------------------------------------------------------------------------------------------
PHASE I
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
</Table>
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.
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.
150
<Page>
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 $26,650,000. The loan requires interest only
payments at an annual rate of 4.60% and matures July 2008.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Target and Best Buy, each leases more than 10% of the total
gross leasable area of the property. The leases with these tenants require the
tenants to pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ------------------------------------------------------------------------------
Target 147,582 49 4.34 01/01 12/26
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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $36,341,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Northgate North was constructed between 2000 and 2003. As of September 1,
2004, this property was 93% occupied, with a total 281,595 square feet leased to
seven tenants. The following table sets forth certain information with respect
to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) 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
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
Best Buy 51,202 01/21 4/5 yr. 1,280,060 25.00
Target 147,582 12/26 5/5 yr. 640,000 4.34
</Table>
151
<Page>
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
$24,400,000. We will use the principal towards our purchase price.
Two tenants, Best Buy and Linens 'N Things, will lease more than 10% of the
total gross leasable area of the property. The lease term will be determined in
accordance with the tenant's commencement date. The lease with this tenant
requires the tenant to pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $18,300,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Pacheco Pass Shopping Center was newly constructed in 2004. As of September
1, 2004, the property is currently in a leasing up phase and certain tenants
have executed lease for retail space within the shopping center. The following
table sets forth certain information with respect to those leases:
152
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Annual Square Foot
Lessee (Sq. Ft.) Ends Rent ($) 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
</Table>
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 $7,260,000 at an annual
rate of 3.83% for the first ninety days and thereafter at the LIBOR Rate. This
loan matures July 2005.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Gottschalk's and Burlington Coat Factory, each lease more than
10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
153
<Page>
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ------------------------------------------------------------------------------------
Gottschalk's 119,256 21 3.35 03/92 02/12
Burlington Coat Factory 70,533 12 5.50 08/03 08/08
5.75 09/08 08/13
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $60,825,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Lakewood Towne Center was rebuilt in 2002 and 2003. As of September 1,
2004, this property was 94% occupied, with a total 546,713 square feet leased to
twenty-four tenants. The following table sets forth certain information with
respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) 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
Wells Fargo Financial 1,750 11/09 - 18,812 10.75
Lowes Cineplex 48,229 11/11 * 517,014 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. 191,531 17.19
Matherhood Maternity 1,750 05/14 - 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
</Table>
* Renewal information not currently available.
154
<Page>
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 a newly constructed shopping center known as John's Creek
Village, containing 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 was approximately $42,503,000. 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
$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 $23,300,000. The loan requires interest only payments
at an annual rate of 5.10% and matures August 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, LA Fitness, Ross Dress For Less and T.J. Maxx, will lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ------------------------------------------------------------------------------------
LA Fitness 41,000 21 17.00 12/03 12/14
CPI 01/15 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $31,877,200. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
John's Creek Village was newly constructed in 2003 and 2004. The property
is currently leasing up the remaining vacancies and certain tenants have
executed leases for retail space within the shopping center. As of September 1,
2004, this property was 71% occupied with a total 136,782 square feet leased to
sixteen tenants. The following table sets forth certain information with respect
to those leases:
155
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) 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
Hollywood Video 5,020 06/09 * 124,245 24.75
Hibbett Soprting Goods 5,000 10/09 * 72,750 14.55
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
LA Fitness 41,000 04/23 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
</Table>
* As of September 1, 2004, the tenants have not occupied their space.
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
$16,277,000 at an annual rate of 3.96% and matures July 2010.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
156
<Page>
One tenant, Bed, Bath & Beyond, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $60,006,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Huebner Oaks Center was built between 1997 and 1998. As of September 1,
2004, this property was 97% occupied, with a total 279,461 square feet leased to
55 tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
- ---------------------------------------------------------------------------------------------------
Yankee Candle 2,028 02/05 1/5 yr. 54,756 27.00
Mattress Firm 2,942 05/05 - 64,724 22.00
Compass ATM 60 07/05 1/2 yr. 20,000 N/A
AAA Texas 3,682 11/05 1/5 yr. 77,322 21.00
Marble Slab 1,542 12/05 3/3 yr. 37,008 24.00
Kinko's 4,760 02/06 3/5 yr. 92,249 19.38
EB Game World 1,160 08/06 - 32,480 28.00
Pier 1 Imports 8,990 02/07 3/5 yr. 182,137 20.26
Old Navy 14,000 03/07 1/5 yr. 196,000 14.00
Shoes 4 Kids 1,000 02/07 1/3 yr. 26,500 26.50
La Madeleine 4,200 03/07 2/5 yr. 86,100 20.50
Moon Mippy 930 04/07 1/4 yr. 26,040 28.00
Club Humidor 2,254 06/07 - 54,096 24.00
Cingular Wireless 2,502 06/07 - 60,048 24.00
All Ashore Sportswear 1,264 07/07 - 27,808 22.00
Pearle Vision 2,721 07/07 2/5 yr. 68,025 25.00
Beauty First 3,681 09/07 1/5 yr. 77,301 21.00
Verizon Wireless 1,803 10/07 1/5 yr. 45,075 25.00
Oreck Homecare 1,103 10/07 1/5 yr. 24,266 22.00
Bed, Bath & Beyond 35,009 01/08 2/5 yr. 371,796 10.62
Frankly Fake Copy 854 01/08 1/5 yr. 23,912 28.00
Ross Dress for Less 28,200 01/08 5/5 yr. 267,900 9.50
Men's Wearhouse 4,500 02/08 2/5 yr. 88,020 19.56
Fire Wok 2,500 03/08 1/5 yr. 52,500 21.00
Ride Away Bicycles 3,917 04/08 - 58,755 15.00
</Table>
157
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
- ---------------------------------------------------------------------------------------------------
Claire's Boutique 1,200 08/08 - 33,600 28.00
Sports Clips 1,057 09/08 - 26,425 25.00
Gap Kids 8,500 09/08 1/5 yr. 180,540 21.24
Victoria's Secret 4,500 09/08 - 94,500 21.00
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
Cactus Low Carb Superstore 2,083 05/09 1/5 yr. 33,328 16.00
Brighton 1,498 06/09 - 41,290 27.26
Inksell.com 1,000 07/09 1/5 yr. 30,000 30.00
Ben Adams Jewelers 2,233 11/09 - 55,825 25.00
Bombay Company 4,500 12/09 - 121,500 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
</Table>
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.
158
<Page>
We purchased this property with our own funds. On July 27, 2004, we
obtained financing in the amount of $14,700,000. The loan requires interest only
payments at an annual rate of 5.085% and matures August 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Kohl's, T.J. Maxx and Bed, Bath & Beyond, each lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
* Ground lease
For federal income tax purposes, the depreciable basis in this property
will be approximately $20,236,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Pine Ridge Plaza was redeveloped from 1998 through 2004 and the inline
strip center portion of the property was completed in 2001. As of September 1,
2004, this property was 100% occupied, with a total 230,510 square feet leased
to fourteen tenants. The following table sets forth certain information with
respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
- ---------------------------------------------------------------------------------------------------
Old Navy 22,000 07/06 2/5 yr. 220,000 10.00
Deals 9,862 08/07 2/5 yr. 128,206 13.00
Electronic Boutique 2,190 03/08 2/5 yr. 41,063 18.75
Sports Clips 2,190 05/08 1/5 yr. 31,317 14.30
Famous Footwear 12,000 05/11 3/5 yr. 180,000 15.00
Bath & Body Works 2,500 01/12 2/5 yr. 37,500 15.00
Hurst Diamonds 1,375 01/12 1/5 yr. 24,750 18.00
Jason's Deli 5,000 02/12 3/5 yr. 90,000 18.00
Bed, Bath & Beyond 24,000 01/14 3/5 yr. 240,000 10.00
Michaels 21,000 02/14 4/5 yr. 201,495 9.60
T.J. Maxx 25,420 03/14 4/5 yr. 216,070 8.50
</Table>
159
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
- ---------------------------------------------------------------------------------------------------
Cost Plus World Market 18,297 01/15 3/5 yr. 247,010 13.50
Kohl's (Ground Lease) 80,654 01/19 6/5 yr. 360,000 N/A
IHOP (Ground Lease) 4,022 11/19 3/5 yr. 55,000 N/A
</Table>
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may provide that the tenant's liability for such expenses is
limited in some way, usually so that their liability for such expenses does not
exceed a specified amount.
ECKERD DRUG STORES
We purchased the following four separate existing freestanding retail
properties built during 2003 and 2004 known as Eckerd Drug Stores, containing a
total of 54,912 gross leasable square feet.
<Table>
<Caption>
Location Square Feet Lease Term Purchase Price ($)
- --------------------------------------------------------------------------------------------------
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
</Table>
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 $1,425,000. The interest rate of all the properties' loans is 5.275% and all
the properties' loans mature in August 2009.
In evaluating these properties as potential acquisitions and determining
the appropriate amount of consideration to be paid for the properties, we
considered a variety of factors including location, demographics, quality of
tenant, length of lease, price per square foot, occupancy and the fact that
overall rental rate at the property is comparable to market rates. We believe
that each of these properties is well located, has acceptable roadway access and
is well maintained. These properties will be subject to competition from similar
properties within their market area, and economic performance could be
160
<Page>
affected by changes in local economic conditions. We did not consider any other
factors materially relevant to the decision to acquire these properties.
One tenant, Eckerd Drug Store, leases 100% of the total gross leasable area
of each property. The leases with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
<Table>
<Caption>
% of Total Current Base Rent
Approximate GLA of Annual Per Square
GLA Leased each Rent Renewal Foot Per Lease Term
Lessee/Location (Sq. Ft.) Property ($) 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
</Table>
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 $31,020,600. 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 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 $17,551,721. This loan requires monthly principal
and interest payments based on a fixed interest rate of 6.2% per annum and
cannot be prepaid prior to January 2005. The loan matures on December 1, 2012.
161
<Page>
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Best Buy, Linens 'N Things and T.J. Maxx, each lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $23,300,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Plaza Santa Fe Phase II was built between 2000 to 2002. As of September 1,
2004, this property was 98% occupied, with a total 217,329 square feet leased to
20 tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
- ---------------------------------------------------------------------------------------------------
State Farm Insurance 1,250 02/05 2/3 yr. 27,500 22.00
Old Navy 20,115 11/06 2/5 yr. 251,438 12.50
H & R Block 1,900 10/07 1/5 yr. 37,050 19.50
Corral West 7,556 10/07 1/5 yr. 75,560 10.00
Cactus Salon 1,250 01/08 1/5 yr. 30,000 24.00
French & French 3,038 11/08 1/7 yr. 69,874 23.00
Alltel 3,932 12/08 2/5 yr. 112,612 28.64
T.J. Maxx 30,900 11/10 3/5 yr. 324,450 10.50
Michaels 20,280 03/11 3/5 yr. 253,500 12.50
D & A Mattress 4,710 05/11 2/5 yr. 89,490 19.00
Famous Footwear 8,000 01/12 2/5 yr. 136,000 17.00
Super Nails 1,000 05/12 1/5 yr. 30,000 30.00
Quizno's 1,900 08/12 1/5 yr. 37,715 19.85
Osaka Grill 6,000 09/12 2/5 yr. 150,000 25.00
Payless Shoe Source 2,850 09/13 2/5 yr. 57,000 20.00
Mens Wearhouse 4,505 02/15 1/5 yr. 83,343 18.50
</Table>
162
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) 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
</Table>
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 377,924 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 $48,500,000. 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
$128 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 $30,850,000. The loan requires interest only payments
at an annual rate of 4.272% and matures May 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Safeway, Best Buy and Gart Sports, each leases more than 10%
of the total gross leasable area of the property. The leases with these tenants
require the tenants to pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
163
<Page>
<Table>
<Caption>
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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $36,375,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Northpointe Plaza was built between 1991 to 1993. As of September 1, 2004,
this property was 99% occupied, with a total 374,807 square feet leased to 31
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
- ---------------------------------------------------------------------------------------------------
RadioShack 2,764 08/05 - 34,550 12.50
Payless Shoes 2,992 11/05 1/5 yr. 52,659 17.60
T.J. Maxx 24,894 01/06 2/5 yr. 186,705 7.50
Sally Beauty Supplies 1,778 03/06 2/5 yr. 22,401 12.60
Corral West 7,560 03/06 1/5 yr. 64,260 8.50
Great Clips 1,600 05/06 - 27,920 17.45
Mother Cupboard 1,600 05/06 1/5 yr. 26,400 16.50
Washington Mutual 4,500 06/06 2/5 yr. 82,404 18.31
Fashion Bug 9,000 01/07 3/5 yr. 81,000 9.00
Pier 1 Imports 10,000 06/07 2/5 yr. 148,200 14.82
Foxy Nails 1,840 10/07 1/5 yr. 31,284 17.00
Payday Plus 1,250 06/08 1/5 yr. 26,400 21.12
Mark Webb 1,500 01/09 - 25,500 17.00
America's Best 4,500 03/09 - 72,000 16.00
Hollywood Video 7,500 08/09 1/5 yr. 141,450 18.86
Safeway 47,000 11/10 7/5 yr. 367,386 7.82
Safeway Gas Bar (Ground
Lease) 4,000 01/11 7/5 yr. 98,000 N/A
Bath & Body Works 2,363 01/11 2/5 yr. 42,888 18.15
Marks Hallmark 5,026 01/11 - 75,390 15.00
Mail Boxes, Etc. 1,600 07/11 - 27,200 17.00
Red Robin Restaurant (Ground
Lease) 6,469 11/11 4/5 yr. 87,808 N/A
Taco Bell (Ground Lease) 3,000 05/12 4/5 yr. 54,996 N/A
Gart Sports 45,658 01/13 2/5 yr. 527,592 11.56
</Table>
164
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Lease Renewal Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
- ---------------------------------------------------------------------------------------------------
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
</Table>
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 205,740 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 $19,617,000. The loan requires interest only payments
at an annual rate of 4.140% and matures June 2010.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Oshman's Sporting Goods, Ross Dress for Less and Bed, Bath &
Beyond, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- -----------------------------------------------------------------------------------------------
Oshman's Sporting Goods 32,630 16 10.60 03/04 01/10
11.00 02/10 01/15
Ross Dress for Less 30,130 15 9.25 05/04 05/09
9.50 06/09 01/15
</Table>
165
<Page>
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- -----------------------------------------------------------------------------------------------
Bed, Bath & Beyond 24,272 12 7.50 01/04 01/14
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $26,800,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Watauga Pavilion was built during 2003 to 2004. As of September 1, 2004,
this property was 93% occupied, with a total 192,155 square feet leased to 14
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) 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
EB Games 1,500 12/08 2/5 yr. 34,500 23.00
Mattress Giant 5,000 01/09 2/5 yr. 110,000 22.00
Beauty Brands 6,260 02/09 1/5 yr. 138,600 22.14
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
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. 345,912 10.60
Cost Plus World Market 17,999 01/15 3/5 yr. 238,487 13.25
PETsMART 19,380 03/19 3/5 yr. 201,552 10.40
</Table>
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.
EASTWOOD TOWNE CENTER, LANSING, MICHIGAN
We purchased an existing shopping center known as Eastwood Towne Center,
containing 326,981 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
166
<Page>
finally determined. We expect any additional costs to be insignificant. Our
acquisition cost was approximately $260 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 $46,750,000. The loan requires interest only
payments at an annual rate of 4.64% and matures July 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Dick's Sporting Goods, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $63,750,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Eastwood Towne Center was built in 2002. As of September 1, 2004, this
property was 99% occupied, with a total 324,020 square feet leased to 60
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
State Employee
Credit Union 2,120 09/07 2/5 yr. 74,200 35.00
Panchero's 2,409 09/07 2/5 yr. 52,998 22.00
Claire's 1,200 09/07 1/5 yr. 38,400 32.00
Sprint PCS 1,089 09/07 1/5 yr. 43,560 40.00
Fabiano's Candies 1,090 09/07 1/5 yr. 27,250 25.00
Electronics Boutique 1,148 09/07 2/3 yr. 45,920 40.00
Hallmark 4,500 02/08 2/5 yr. 94,500 21.00
Star Image
Photography 825 07/08 3/5 yr. 28,875 35.00
LA Weight Loss 1,100 04/09 - 22,000 20.00
See Optics 1,200 09/09 1/5 yr. 42,000 35.00
1/4 yr.
</Table>
167
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
Banana Republic 7,000 09/10 1/3 yr. 105,000 15.00
The Gap 7,526 09/10 1/4 yr. 120,416 16.00
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
Oneida 4,000 09/12 1/5 yr. 90,000 22.50
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. 56,192 32.50
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
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 1,100 10/13 2/5 yr. 28,600 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
Wlliams-Sonoma 5,500 01/15 - 121,000 22.00
Pottery Barn 10,500 01/15 - 231,000 22.00
</Table>
168
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
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
</Table>
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 $28,510,000. The loan requires interest only payments
at an annual rate of 4.13% and matures in July 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Sam's Club and Gart Sports, each lease more than 10% of the
total gross leasable area of Arvada Marketplace and two tenants, Old Country
Buffet and Pier 1 Imports, each lease more than 10% of the total gross leasable
area at Arvada Connection. The leases with these tenants require the tenants to
pay base annual rent on a monthly basis as follows:
169
<Page>
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
6.50 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $38,700,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Arvada Marketplace and Arvada Connection were built between 1987 through
1990. As of September 1, 2004, Arvada Marketplace was 97% occupied, with a total
288,819 square feet leased to 26 tenants and Arvada Connection was 78% occupied,
with a total 47,483 square feet leased to 12 tenants. The following table sets
forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- ---------------------------------------------------------------------------------------------------------------
ARVADA
MARKETPLACE
Carefree Spas & Month-to-
Pools 6,367 Month - 60,000 9.42
</Table>
170
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- ---------------------------------------------------------------------------------------------------------------
Ted Johnson, DDS 1,564 10/04 1/5 yr. 20,301 12.98
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
Citifinancial 2,251 12/06 1/5 yr. 35,821 15.91
Elegant Nails 1,000 01/07 - 18,002 18.00
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. 22,140 18.00
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
Bennett's Bar-B-
Que 6,054 03/12 2/5 yr. 149,836 24.75
Gart Sports 54,903 01/14 2/5 yr. 356,870 6.50
Office Depot 17,363 05/14 3/5 yr. 138,904 8.00
ARVADA CONNECTION
SAS Shoes 2,600 11/04 1/5 yr. 28,600 11.00
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 - 24,058 14.32
Verizon Wireless 1,400 10/06 - 26,600 19.00
Pier 1 Imports 8,068 04/08 - 137,156 17.00
Household Finance 1,680 11/07 1/5 yr. 25,200 15.00
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
IHOP 4,460 01/10 1/3 yr. 101,900 22.85
1/4 yr.
</Table>
171
<Page>
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 $3,850,000. The loan requires interest only payments
at an annual rate of 4.272% and matures June 2010.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Ross Dress for Less and Shoe Carnival, each lease more than
10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $5,282,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Alison's Corner was built in 2003. As of September 1, 2004, this property
was 100% occupied, with a total 55,066 square feet leased to four tenants. The
following table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
Mattress Firm 9,000 12/08 2/5 yr. 108,000 12.00
Dots 4,000 01/09 3/5 yr. 67,000 16.75
</Table>
172
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
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
</Table>
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 141,004 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 $11,050,000. The loan requires interest only payments
at an annual rate of 4.76% and matures May 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Babies "R" Us, Bed, Bath & Beyond, Ross Dress for Less and
Office Depot, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ------------------------------------------------------------------------------------------------
Bed, Bath & Beyond 28,000 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
</Table>
* Ground Lease
173
<Page>
For federal income tax purposes, the depreciable basis in this property
will be approximately $15,100,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
North Rivers Town Center was built during 2003 and 2004. As of September 1,
2004, this property was 100% occupied, with a total 141,004 square feet leased
to 16 tenants and a parcel of land lease to one tenant under a ground lease. The
following table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) 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 1/6 yr. 36,000 20.00
Towne Centre 1,600 03/09 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 28,000 01/14 3/5 yr. 303,800 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
</Table>
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.
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.
174
<Page>
We purchased this property with our own funds. On May 10, 2004, we obtained
financing in the amount of $12,100,000. The loan requires interest only payments
at an annual rate of 4.372% and matures May 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Best Buy, Linens 'N Things and Cost Plus World Market, each
lease more than 10% of the total gross leasable area of the property. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $16,500,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Bluebonnet Parc was built in 2002. As of September 1, 2004, this property
was 89% occupied, with a total 120,289 square feet leased to six tenants. The
following table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- ---------------------------------------------------------------------------------------------------------------
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
</Table>
175
<Page>
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 $19,525,000. The loan requires interest only payments
at an annual rate of 3.99% and matures May 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to reimburse a substantial portion
of any monies spent pursuant to the provisions of their respective leases.
Three tenants, Best Buy, Barnes & Noble Booksellers and Copeland's Sporting
Goods, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ------------------------------------------------------------------------------------------------
Best Buy 57,726 28 15.00 11/94 01/05
CPI 02/05 01/10
CPI 02/10 01/15
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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $26,265,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Best on the Boulevard was built during the three year period from 1996 to
1999. As of September 1, 2004, this property was 77% occupied, with a total
156,756 square feet leased to eight tenants. The following table sets forth
certain information with respect to those leases:
176
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- ---------------------------------------------------------------------------------------------------------------
Barnes & Noble
Booksellers 26,092 01/10 3/5 yr. 350,000 13.41
Rochester Big &
Tall 7,000 08/10 2/5 yr. 201,280 28.75
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 09/13 3/5 yr. 169,753 16.97
Best Buy 57,726 01/15 2/5 yr. 865,890 15.00
</Table>
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.
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 $15,680,500. The loan requires interest only payments
at an annual rate of 4.55% and matures May 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Whole Foods Grocery Store and Eckerd Drug Store, lease more
than 10% of the total gross leasable area of the property. The lease with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
177
<Page>
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ------------------------------------------------------------------------------------------------
Whole Foods 32,000 35 13.50 01/02 01/12
CPI 02/12 01/17
CPI 02/17 01/22
Eckerd Drug Store * 10,908 12 N/A 07/03 07/23
</Table>
* Ground Lease
For federal income tax purposes, the depreciable basis in this property
will be approximately $21,383,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Paradise Valley Marketplace was built in 2002. As of September 1, 2004,
this property was 87% occupied, with a total 80,535 square feet leased to 16
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) 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. 108,738 31.50
Ship Rite 1,340 11/07 1/5 yr. 36,575 27.30
So-Oh! Fashion
Outlet 1,964 02/08 1/5 yr. 53,028 27.00
The Men's
Wearhouse 5,176 03/13 2/5 yr. 165,632 32.00
Mattress Authority 2,453 08/08 - 75,062 30.60
Hava Java 1,587 05/08 1/5 yr. 58,846 37.08
Kolache Factory 2,100 11/08 2/5 yr. 71,400 34.00
Washington Mutual 4,114 01/09 3/5 yr. 131,648 32.00
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
Baja Fresh 2,544 12/11 2/6 yr. 97,079 38.16
Whole Foods 32,000 01/22 4/5 yr. 432,000 13.50
Eckerds Drug Store
(Ground Lease) 10,908 07/23 4/5 yr. 205,000 N/A
</Table>
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.
178
<Page>
HERITAGE TOWNE CROSSING, EULESS, TEXAS
We purchased an existing shopping center known as Heritage Towne Crossing
containing 80,639 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 $14,567,991. 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
$181 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 $12,200,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Heritage Towne Crossing was built in 2002. As of September 1, 2004, this
property was 89% occupied, with a total 72,119 square feet leased to 29 tenants.
The following table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
APB Mortgage 2,530 09/06 1/3 yr. 45,540 18.00
GameStop 1,400 03/07 1/3 yr. 29,400 21.00
Mattress Firm 4,000 04/07 2/5 yr. 96,000 24.00
All Battery Store 2,000 04/07 2/5 yr. 44,000 22.00
Cow Fireworks 1,200 05/07 2/5 yr. 20,400 17.00
Dapper Dan
Cleaners 2,000 06/07 1/5 yr. 38,000 19.00
Lava Asian Grill 3,000 07/07 1/5 yr. 51,000 17.00
Salon G 2,800 08/07 1/5 yr. 50,400 18.00
Ultra Tan 1,600 08/07 2/5 yr. 24,000 15.00
Golf USA of Euless 3,473 12/07 1/5 yr. 69,460 20.00
Coppell
Spine/Sports Rehab 2,000 03/08 1/3 yr. 38,000 19.00
Sara Donuts 1,400 04/08 1/5 yr. 23,800 17.00
Plato's Closet 3,000 04/08 1/5 yr. 54,000 18.00
Village Barber 1,100 04/08 1/5 yr. 23,100 21.00
Town & Country 1,800 04/08 2/5 yr. 32,400 18.00
</Table>
179
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
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
</Table>
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.
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 $20,497,000. The loan requires interest
only payments at an annual rate of 4.09% and matures April 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Ross Dress for Less, Michaels and Petco, each lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenant to pay base annual rent on a monthly basis as
follows:
180
<Page>
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $26,200,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Peoria Crossing was built in 2002 and 2003. As of September 1, 2004, this
property was 97% occupied, with a total 207,711 square feet leased to 20
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
Supercuts 1,202 12/08 2/5 yr. 33,656 28.00
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
Julie Nails & Spa 1,300 12/08 1/5 yr. 33,800 26.00
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
Kohl's 88,408 01/24 6/5 yr. 777,524 8.79
</Table>
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.
181
<Page>
PROMENADE AT RED CLIFF, ST. GEORGE, UTAH
We acquired an existing shopping center known as Promenade at Red Cliff
containing 94,364 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 $19,533,000. 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 $10,590,000. The loan requires interest only
payments at an annual rate of 4.29% and matures May 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Old Navy, Staples, and Big 5 Sporting Goods, each lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ------------------------------------------------------------------------------------------------
Big 5 Sporting Goods 10,000 11 11.50 06/97 05/02
12.54 06/02 01/07
Old Navy 19,324 20 12.00 02/98 11/03
13.79 12/03 11/08
Staples 22,500 24 11.50 06/97 05/12
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $14,650,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Promenade at Red Cliff was built in 1998. As of September 1, 2004, this
property was 90% occupied, with a total 85,244 square feet leased to 17 tenants.
The following table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
Panda Express 1,513 11/04 3/5 yr. 36,312 24.00
Franklin Quest 1,206 12/06 - 30,150 25.00
Hollywood
Entertainment 6,200 12/06 2/5 yr. 122,328 19.73
</Table>
182
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
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 1,464 09/08 1/5 yr. 36,600 25.00
Old Navy 19,324 11/08 1/5 yr. 266,575 13.79
Samuri 21 4,057 12/08 1/5 yr. 97,368 24.00
Quiznos 1,424 01/09 1/5 yr. 30,828 21.65
Staples 22,500 05/12 3/5 yr. 258,750 11.50
</Table>
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.
NEWNAN CROSSING WEST AND PHASE II, NEWNAN, GEORGIA
We acquired an existing shopping center known as Newnan Crossing Phase II
containing 160,219 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 $21,543,091. The loan requires
interest only payments at an annual rate of 4.38% and matures March 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
183
<Page>
Three tenants, BJ's Wholesale, T.J. Maxx and Office Depot, each lease more
than 10% of the combined total gross leasable area of the West and Phase II
properties The leases with these tenants require the tenant to pay base annual
rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis will be
approximately $15,930,000 and $11,356,000 for Phase II and West, respectively.
When we calculate depreciation expense for tax purposes, we will use the
straight-line method. We depreciate buildings and improvements based upon
estimated useful lives of 40 and 20 years, respectively.
Newnan Crossing West and Phase II were built in 1999. As of September 1,
2004, the property was 100% occupied, with a total 291,415 square feet leased to
22 tenants and one ground lease. The following table sets forth certain
information with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
Month-to-
Cingular Wireless 1,760 Month N/A 31,680 18.00
Old Navy 25,000 09/04 2/5 yr. 225,000 9.00
Hallmark 5,000 07/06 2/5 yr. 72,500 14.50
RadioShack 3,000 08/06 2/5 yr. 51,000 17.00
Stratus
Communication 1,300 12/06 1/5 yr. 22,750 17.50
Hibbett's Sporting
Goods 7,000 01/07 2/5 yr. 94,500 13.50
Crystal Nails & Tan 1,300 04/07 1/5 yr. 23,400 18.00
Ted's Montana Grill 4,000 04/08 4/5 yr. 64,000 16.00
Planet Smoothie 1,040 07/08 1/5 yr. 18,200 17.50
The Corner Tavern 5,000 08/08 2/5 yr. 85,000 17.00
Great Clips 1,200 10/08 1/5 yr. 21,600 18.00
Banana Beach 1,200 12/08 1/5 yr. 21,600 18.00
My Friend's Place 1,600 03/09 2/5 yr. 28,800 18.00
Michaels 23,669 08/09 4/5 yr. 213,336 9.01
T.J. Maxx 30,000 08/09 3/5 yr. 240,000 8.00
Party City 12,000 10/09 2/5 yr. 156,000 13.00
</Table>
184
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
Payless Shoe Source 3,000 11/09 2/5 yr. 48,000 16.00
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
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
O'Charley's
(Ground Lease) 6,650 02/14 3/5 yr. 66,000 N/A
</Table>
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 $12,700,000. The loan requires interest only
payments at an annual rate of 4.29% and matures May 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Stein Mart, leases more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ------------------------------------------------------------------------------------------------
Stein Mart 34,000 31 6.75 07/96 07/06
7.25 08/06 07/11
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $17,340,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
185
<Page>
MacArthur Crossing was built in 1995 and 1996. As of September 1, 2004,
this property was 93% occupied, with a total 101,659 square feet leased to 26
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) 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
Custom Clearners 2,100 02/06 1/5 yr. 58,800 28.00
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. 70,400 16.00
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
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
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
Firestone Tire 6,992 07/16 2/5 yr. 145,000 20.74
</Table>
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
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<Page>
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 $32,528,000. The loan requires interest only
payments at an annual rate of 4.61% and matures March 1, 2010.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Oshman's Sporting Goods and Best Buy, each lease more than 10%
of the total gross leasable area of the property. The leases with these tenants
require the tenant to pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
Best Buy 58,000 18 14.00 08/96 01/02
14.75 02/02 01/07
15.50 02/07 01/12
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $43,076,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
La Plaza Del Norte was built in 1996 and 1999. As of September 1, 2004,
this property was 95% occupied, with a total 303,245 square feet leased to 16
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
Half Price Books 8,000 10/04 2/5 yr. 84,000 10.50
Lifeway Christian 6,000 11/06 2/5 yr. 132,000 22.00
Pearle Vision 3,500 12/06 2/5 yr. 120,750 34.50
Ross Dress for Less 28,438 01/07 4/5 yr. 288,640 10.15
Office Max 23,229 11/12 2/5 yr. 261,326 11.25
DSW Shoe
Warehouse 22,000 04/07 4/5 yr. 374,000 17.00
All Battery Center 1,600 05/07 2/5 yr. 36,800 23.00
</Table>
187
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------
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
David's Bridal 12,000 11/09 2/5 yr. 186,240 15.52
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
</Table>
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 SQUARE CENTER (SUPER VALU SHOPPING CENTER), SEVERN, MARYLAND
We purchased an existing shopping center formerly known as 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 $6,067,183. The loan requires interest only
payments at an annual rate of 4.28% and matures April 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Shoppers Food Warehouse, leases more than 10% of the total
gross leasable area of the property. The lease with this tenant requires the
tenant to pay base annual rent on a monthly basis as follows:
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<Page>
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $8,840,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Super Valu Shopping Center was built in 1999. As of September 1, 2004, this
property was 100% occupied, with a total 61,817 square feet leased to three
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------
Great Clips 1,200 12/05 5/1 yr. 28,366 23.64
AZZ Cleaners 2,400 12/07 1/5 yr. 55,080 22.95
Shoppers Food 58,217 01/20 4/5 yr. 844,146 14.50
Warehouse
</Table>
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.
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 $33,630,000. The loan requires
interest only payments at an annual rate of 4.45% and matures February 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
189
<Page>
One tenant, Bed, Bath & Beyond, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $45,859,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Larkspur Landing was built in 1978 and renovated in 2001. As of September
1, 2004, this property was 87% occupied, with a total 150,893 square feet leased
to 34 tenants. The following table sets forth certain information with respect
to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------
Roadrunner Burrito* 800 06/04 - 27,890 34.86
Sushi Ko* 1,709 08/04 - 51,270 30.00
Golden Gate
Printing* 3,287 08/04 - 30,010 9.13
Sportech 805 03/05 - 16,503 20.50
24 Hour Fitness 17,039 03/05 1/5 yr. 358,926 21.06
Asher Clinic 5,791 04/05 1/5 yr. 152,786 26.38
Redhill 2,688 07/05 - 74,189 27.60
Jaeger 1,500 07/05 - 42,966 28.64
Oliver Allen Corp. 9,392 09/05 1/5 yr. 242,313 25.80
Robert Brugger 880 06/06 - 18,480 21.00
Maxwell Cleaners 2,748 09/06 - 103,874 37.80
Norman Mahan
Jewelers 1,333 01/07 - 43,669 32.76
Determined
Productions 11,185 03/07 1/4 yr. 608,663 54.42
Larkspur Shoes &
Repair 807 03/07 - 23,564 29.20
Larkspur Landing
Optomery 1,165 06/07 - 39,598 33.99
Larkspur Landing
Pet Clinic 1,141 04/08 - 36,831 32.28
Bay Area Wireless 610 04/08 2/5 yr. 23,790 39.00
American Nails 745 06/08 - 23,691 31.80
AAA 5,245 07/08 2/5 yr. 169,938 32.40
</Table>
190
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------
Togo's Eatery 1,625 07/08 - 38,375 23.62
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 - 103,840 51.92
Ragged Sailor 1,207 12/08 - 33,888 28.08
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
Allstate Insurance 405 Month-to- - 13,365 33.00
Month
Marin Visitor 720 Month-to- - 12,000 16.67
Bureau Month
Avanti 1,115 Month-to- - 2,400 2.15
Month
John Connelly 880 Month-to- - 6,924 7.87
Month
</Table>
* 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.
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 $10,157,000. The loan requires interest only
payments at an annual rate of 4.12% and matures April 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Savvy Salon, leases more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
191
<Page>
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $13,851,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
North Ranch Pavilions was built in 1992. As of September 1, 2004, this
property was 89% occupied, with a total 55,928 square feet leased to 24 tenants.
The following table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
Kay's Nails 1,028 10/04 1/3 yr. 24,178 23.52
Prudential Realty 3,379 11/04 - 95,287 28.20
Ilene's Boutique 2,105 12/04 - 51,590 24.51
Seta's Shoes 1,086 04/05 - 19,548 18.00
Walton's Portraits 1,300 08/06 1/5 yr. 29,832 22.95
Postal Club 1,086 10/06 1/5 yr. 24,239 22.32
Dance Trends 2,338 11/06 1/5 yr. 41,523 17.76
Bank of America 4,500 12/06 - 172,980 38.44
Clubhous Cleaners 1,505 12/06 1/5 yr. 43,765 29.08
Cookies by Design 1,353 01/07 1/5 yr. 31,822 23.52
Malibu Gymnastics 3,740 02/07 3/3 yr. 67,320 18.00
State Farm Insurance 1,023 03/07 - 22,791 22.28
Malibu Gymnastics 3,040 11/08 5/1 yr. 54,720 18.00
Tae Kwon Do
Academy 1,512 06/07 2/5 yr. 34,648 22.92
Treasured Memories 3,691 08/07 1/5 yr. 46,129 12.50
Total Body Fitness 1,998 12/07 1/5 yr. 37,042 18.54
Sudore Pilates 1,346 01/09 1/5 yr. 36,342 27.00
Exotic Thai 1,746 02/11 - 52,380 30.00
Rustico Ristorante 3,495 08/11 2/5 yr. 94,412 27.01
We Frame It 1,526 09/11 1/5 yr. 34,609 22.68
Lamp Post Pizza 3,600 11/11 - 90,145 25.04
Sushi Tei 1,725 07/12 2/5 yr. 52,705 30.55
</Table>
192
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
North Ranch
Dentistry 1,306 10/13 2/5 yr. 38,396 29.40
Savvy Salon 6,500 02/14 2/5 yr. 163,800 25.20
</Table>
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 $23,650,000. The loan requires
interest only payments as an annual rate of 4.531% and matures February 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Best Buy, Kohl's and Dick's Sporting Goods, each lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
<Table>
<Caption>
Base Rent
Approximate % of Per Square
GLA Leased Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
* Ground lease
For federal income tax purposes, the depreciable basis in this property
will be approximately $35,068,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line
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<Page>
method. We depreciate buildings and improvements based upon estimated useful
lives of 40 and 20 years, respectively.
Hickory Ridge Shopping Center was built in 1999. As of September 1, 2004,
this property was 100% occupied, with a total 380,487 square feet leased to 21
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------------
Sprint PCS 2,800 10/04 1/5 yr. 50,400 18.00
Great Clips 1,200 12/04 1/5 yr. 23,400 19.50
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
Hallmark Cards 6,000 02/05 2/5 yr. 93,900 15.65
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
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
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
Dicks Sporting
Goods (Ground
Lease) 45,000 01/20 6/5 yr. 185,000 N/A
Babies "R" Us 126,647
(Ground Lease) 25,127 01/13 6/5 yr. N/A
</Table>
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
194
<Page>
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 $18,150,000. The loan requires
interest only payments at an annual rate of 4.56% and matures February 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Super Stop and Shop, Liquor Depot and CVS Pharmacy, each
lease more than 10% of the total gross leasable area of the property. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
Liquor Depot 14,000 12 14.00 08/01 08/06
16.00 09/06 08/11
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $26,101,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
CorWest Plaza was built in phases between 1999 to 2003. As of September 1,
2004, this property was 99% occupied, with a total 114,023 square feet leased to
10 tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- ---------------------------------------------------------------------------------------------------------
Video One 3,500 09/05 2/3 yr. 49,213 13.52
Rent-A-Center 6,000 02/06 1/5 yr. 90,000 15.00
Cingular Wireless 1,553 06/06 1/5 yr. 27,954 18.00
Subway 1,500 08/06 4/2 yr. 18,702 12.47
Webster Bank 2,147 11/05 2/5 yr. 38,646 18.00
Papa Gino's 3,000 02/11 2/5 yr. 60,000 20.00
</Table>
195
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------------
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
</Table>
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 $6,450,000. The loan requires
interest only payments as an annual rate of 4.684% and matures November 1, 2008.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenant would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of its lease.
Shaw's Supermarket was built in 1995. One tenant, Shaw's Supermarket,
leases 100% of the total gross leasable area of the property. The lease with
this tenant requires the tenant to pay base annual rent on a monthly basis as
follows:
<Table>
<Caption>
Base Rent
Approximate % of Base Rent Per Square
GLA Leased Total Renewal Per Annum Foot Per Lease Term
Lessee (Sq. Ft.) GLA Options ($) 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
</Table>
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.
196
<Page>
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 $5,342,000. The loan requires interest
only payments at an annual rate of 4.39% and matures May 1, 2009.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Toys "R" Us and Olive Garden, each lease more than 10% of the
total gross leasable area of the property. The leases with these tenants require
the tenants to pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) 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
</Table>
* ground lease
For federal income tax purposes, the depreciable basis in this property
will be approximately $2,741,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Pavilion at King's Grant was built in 2002 and 2003. As of September 1,
2004, this property was 100% occupied, with a total 79,109 square feet leased to
four tenants and three ground lessees. The following table sets forth certain
information with respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
- -----------------------------------------------------------------------------------------------------------
RadioShack 2,400 04/08 2/5 yr. 40,800 17.00
Bank of America 100 08/08 2/5 yr. 14,400 144.00
Panera Bread 5,609 12/14 2/5 yr. 109,376 19.50
Jared Jewelers 6,000 01/23 2/5 yr. 220,020 36.67
</Table>
197
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Annum ($)
- -----------------------------------------------------------------------------------------------------------
Olive Garden * 8,500 04/12 4/5 yr. 80,000 N/A
Red Lobster * 7,500 05/12 4/5 yr. 80,000 N/A
Toys "R" Us * 49,000 01/13 6/5 yr. 250,000 N/A
</Table>
* Ground lease
In general, each tenant will pay its proportionate share of real estate
taxes, insurance and common area maintenance costs, although the leases with
some tenants may provide that the tenant's liability for such expenses is
limited in some way, usually so that their liability for such expenses does not
exceed a specified amount.
ECKERD DRUG STORES
We purchased the following two separate existing freestanding retail
properties known as Eckerd Drug Stores, containing a total of 27,648 gross
leasable square feet.
<Table>
<Caption>
Location Square Feet Completion Date Purchase Price ($)
- ------------------------------------------------------------------------------------------
33rd Street and Santa Fe 13,824 2003 3,364,000
Edmond, Oklahoma
36th and Robinson 13,824 2003 5,288,000
Norman, Oklahoma
</Table>
We purchased these Eckerd Drug Stores 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 $2,900,000 for Eckerd Drug
Store - Edmond and Eckerd Drug Store - Norman, respectively. Both loans require
interest only payments at an annual rate of 4.374% and mature June 2009.
One tenant, Eckerd Drug Store, leases 100% of the total gross leasable area
of each property. The leases with this tenant require the tenant to pay base
annual rent on a monthly basis as follows:
<Table>
<Caption>
% of
Total Base Rent
Approximate GLA of Current Per Square
GLA Leased each Annual Renewal Foot Per Lease Term
Lessee/Location (Sq. Ft.) Property Rent ($) Options Annum ($) Beginning To
- ------------------------------------------------------------------------------------------------------
33rd Street & 13,824 100 289,292 4/5 yr. 20.93 10/03 10/23
Santa Fe
Edmond, OK
</Table>
198
<Page>
<Table>
<Caption>
% of
Total Base Rent
Approximate GLA of Current Per Square
GLA Leased each Annual Renewal Foot Per Lease Term
Lessee/Location (Sq. Ft.) Property Rent ($) Options Annum ($) Beginning To
- ------------------------------------------------------------------------------------------------------
36th & 13,824 100 454,806 4/5 yr. 32.90 11/03 11/23
Robinson
Norman, OK
</Table>
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 $16,500,000. The loan requires interest only payments based on a
rate of 4.65% per annum and matures June 2010.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Home Depot, Circuit City and PETsMART, each lease more than
10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) 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
</Table>
199
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
- ------------------------------------------------------------------------------------
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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $22,468,400. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Darien Towne Centre was built in 1994. As of September 1, 2004, this
property was 94% occupied, with a total 210,010 square feet was leased to 11
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
- -----------------------------------------------------------------------------------------------------------
Murray's Discount Auto 10,000 10/04 2/5 yr. 110,000 11.00
Signature Cleaners 1,500 11/04 - 37,260 24.84
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. 285,454 11.20
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
Circuit City 32,984 01/15 4/5 yr. 346,332 10.50
</Table>
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 153,816 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
200
<Page>
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 $14,162,000. The loan requires
interest only payments at an annual rate of 4.77% and matures January 1, 2011.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, T.J. Maxx, Linens 'N Things and Barnes & Noble, each lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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 22,000 14 13.49 09/03 01/16
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $17,564,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Stony Creek Marketplace was built in 2003. As of September 1, 2004, this
property was 100% occupied, with a total 153,816 square feet leased to 20
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Lease Renewal Current Annual Square Foot Per
Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($)
- -----------------------------------------------------------------------------------------------------
Cingular Wireless 1,487 06/08 2/5 yr. 31,227 21.00
RJ Fastframe 1,618 06/08 1/5 yr. 33,915 20.96
The UPS Store 1,618 08/08 1/5 yr. 33,978 21.00
Scrapbook Corner 4,095 12/08 - 75,758 18.50
Papa Johns Pizza 1,615 01/09 - 33,915 21.00
Giovanni Jewelers 1,615 02/09 1/5 yr. 33,915 21.00
Quizno's Classic Subs 1,600 12/09 2/4 yr. 29,600 18.50
Blockbuster Video 4,892 05/11 2/5 yr. 102,732 21.00
Today's Bedroom One 4,890 06/11 1/5 yr. 90,465 18.50
Panera Bread 4,200 12/12 2/5 yr. 88,200 21.00
</Table>
201
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Lease Renewal Current Annual Square Foot Per
Lessee (Sq. Ft.) Ends Options Rent ($) Annum ($)
- -----------------------------------------------------------------------------------------------------
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 Optomotry, 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 22,000 01/16 2/5 yr. 296,730 13.49
Logan's Roadhouse
(Ground Lease) 8,000 03/18 3/5 yr. 75,500 N/A
</Table>
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 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.
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 $13,127,000, requires interest only payments at a rate
of 4.71% per annum and matures November 2008. We believe the interest rate on
this loan is no greater than what we could have obtained from an unaffiliated
third party lender.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Walgreens, OfficeMax, Michaels and Bed, Bath & Beyond, each
lease more than 10% of the total gross leasable area of the property. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
202
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $13,175,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
The Shops at Park Place was built in 2001. As of September 1, 2004, this
property was 99% leased, with a total 115,460 square feet leased to 11
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) 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. 29,176 28.00
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
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
</Table>
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 September 1, 2004, we are considering acquiring the 11 properties
described below. Our decision to acquire these properties will generally depend
upon:
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<Page>
- 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.
HARRIS TEETER STORE #158, WILMINGTON, NORTH CAROLINA
We anticipate purchasing 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 anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be 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 $126 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing no the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Harris Teeter Store #158, will lease 100% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
- ---------------------------------------------------------------------------------------
Harris Teeter Store
#158 57,230 100 9.76 05/95 05/15
</Table>
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.
AZALEA SQUARE SHOPPING CENTER, SUMMERVILLE, SOUTH CAROLINA
We anticipate purchasing a portion of a newly constructed shopping center
known as Azalea Square Shopping Center, containing 395,156 gross leasable square
feet (which includes one ground lease
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<Page>
space). We intend to purchase 181,360 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 anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be 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 is expected to be approximately $165 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Five tenants, T.J. Maxx, Linens 'N Things, Ross Dress for Less, Cost Plus
World Market and PETsMART, each leases more than 10% of the total gross leasable
area of the property we are purchasing. The leases with these tenants require
the tenants to pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
- ----------------------------------------------------------------------------------------
T.J. Maxx 30,000 17 7.75 06/04 05/14
Linens 'N Things 25,000 14 10.75 06/04 05/14
Ross Dress for 30,000 17 9.50 06/04 05/14
Less
Cost Plus World 18,300 10 12.50 06/04 05/14
Market
PETsMART 19,107 11 11.00 06/04 05/19
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $22,509,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Azalea Square is newly constructed in 2004. The property is currently
leasing up the remaining vacancies and certain tenants have executed lease for
retail space within the shopping center. As of August 1, 2004, the property was
95% leased to 18 tenants. The following table sets forth certain information
with respect to those leases:
<Table>
<Caption>
Base Rent Per
Approximate GLA Current Annual Square Foot Per
Lessee Leased (Sq. Ft.) Lease Ends Rent ($) Annum ($)
- ---------------------------------------------------------------------------------------------------
Lee Spa Nails 1,500 05/09 36,000 24.00
S&K Menswear 3,603 05/09 64,854 18.00
</Table>
205
<Page>
<Table>
<Caption>
Base Rent Per
Approximate GLA Current Annual Square Foot Per
Lessee Leased (Sq. Ft.) Lease Ends Rent ($) Annum ($)
- ---------------------------------------------------------------------------------------------------
Marble Slab Creamery 1,200 05/09 26,400 22.00
EB Games 1,600 05/09 36,800 23.00
Sport Clips 1,200 05/09 25,200 21.00
Dress Barn 8,050 05/09 120,750 15.00
Phone Smart 1,800 05/09 37,800 21.00
Artisan Jewelers 2,400 05/09 57,600 24.00
T.J. Maxx 30,000 05/14 232,500 7.75
Cost Plus World Market 18,300 05/14 228,750 12.50
Pier 1 Imports 10,800 05/14 167,400 15.50
Shoe Carnival 9,000 05/14 112,500 12.50
Ross Dress for Less 30,000 05/14 285,000 9.50
Linens 'N Things 25,000 05/14 268,750 10.75
PETsMART 19,107 05/19 210,177 11.00
Hibbett Sporting Goods 5,000 05/14 70,000 14.00
McAllisters Deli 3,600 05/14 75,600 21.00
Logans (Ground Lease) * 05/24 65,000 N/A
</Table>
* 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.
SAUCON VALLEY SQUARE, BETHLEHEM, PENNSYLVANIA
We anticipate purchasing an existing shopping center known as Saucon Valley
Square, containing 80,695 gross leasable square feet. The center is located on
I-78 and Rouse 378 in Bethlehem, Pennsylvania.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $16,092,600. 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 $199 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Super Fresh Food Market, leases more than 10% of the total
gross leasable area of the property. The lease with this tenant requires the
tenant to pay base annual rent on a monthly basis as follows:
206
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ----------------------------------------------------------------------------------------------
Super Fresh Food 47,827 59 13.75 01/99 12/18
Market
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $12,069,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Saucon Valley Square was built in 1999. As of September 1, 2004, this
property was 99% occupied, with a total 79,495 square feet leased to 13 tenants.
The following table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Current
GLA Leased Annual Base Rent Per Square
Lessee (Sq. Ft.) Lease Ends Rent ($) Foot Per Annum ($)
- ------------------------------------------------------------------------------------------
Lafayette Ambassador 2,800 03/08 42,900 15.32
Kiki Rio's Restaurant 6,208 12/08 88,000 14.18
Holiday Hair 1,200 01/09 20,790 7.33
Casa Mia Pizzeria 2,000 01/09 24,650 12.33
Subway 1,200 02/09 22,050 18.38
Foxes Hallmark 5,200 02/09 96,200 18.50
Blockbuster 5,140 03/09 103,468 20.13
No. 1 Chinese Restaurant 1,200 03/09 25,080 20.90
Radio Shack 2,320 03/09 36,800 15.86
Buena Bistro 1,600 05/09 29,840 18.65
Werkheiser Jewelers 1,200 12/13 20,790 17.33
Saucon Valley Cleaners 1,600 01/14 27,720 17.33
Super Fresh Food Market 47,827 12/18 657,621 13.75
</Table>
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 anticipate purchasing 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 anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be 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 is expected to be approximately $82 per square foot of leasable space.
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<Page>
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Academy Sports & Outdoors, will lease 100% of the total gross
leasable area of the property. The lease term will be determined in accordance
with the tenant's commencement date. The lease with this tenant requires the
tenant to pay base annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent Per
Approximate GLA % of Total Square Foot Per
Lessee Leased (Sq. Ft.) GLA Annum ($) Lease Term*
- ------------------------------------------------------------------------------------------
Academy Sports
& Outdoors 61,001 100 6.56 20 Years
</Table>
* Lease term has not been determined at the time of this report
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.
WOODBURY VILLAGE SHOPPING CENTER, WOODBURY, MINNESOTA
We anticipate purchasing an existing community shopping center known as
Woodbury Village Shopping Center, containing 442,208 gross leasable square feet.
The shopping center consists of the following parcels: Woodbury Village,
Woodbury Village Green, The Shoppes of Woodbury and Woodale Shopping Center. The
center is located at 7000-7250 Valley Creek Plaza in Woodbury, Minnesota.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $68,000,000. 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 $154 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Kohl's and Rainbow Foods (Roundy's), each lease more than 10%
of the total gross leasable area of the shopping center. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
208
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ----------------------------------------------------------------------------------------------
Kohl's 92,781 21 8.31 03/92 01/13
Rainbow Foods (Roundy's) 65,808 15 8.50 02/92 02/12
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $51,000,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Woodbury Village was built in 1992 and 1993. As of September 1, 2004, this
property was 100% occupied, with a total 422,208 square feet leased to 58
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
- ---------------------------------------------------------------------------------------------------
WOODBURY VILLAGE
AT & T Wireless 2,800 02/06 51,800 18.50
Creative Kidstuff 2,895 07/06 47,768 16.50
Creative Kidstuff (Storage) 903 07/06 9,030 10.00
Starbucks Coffee 3,120 11/06 64,802 20.77
Great Clips 1,200 02/07 22,800 19.00
Applebee's 5,000 03/07 121,000 24.20
RadioShack 2,200 03/07 35,200 16.00
Casual Corner 5,832 04/07 104,976 18.00
Premier Cleaners 800 04/07 14,400 18.00
Famous Footwear 5,500 04/07 71,500 13.00
Pets Advantage 4,083 04/07 53,079 13.00
Gander Mountain 20,638 04/07 199,982 9.69
Music-Go-Round 3,132 07/07 58,099 18.55
Pearle Vision 2,750 09/07 57,750 21.00
Dress Barn 7,235 12/07 115,760 16.00
Hallmark Cards 6,085 01/08 79,105 13.00
Barnes & Noble 15,300 01/08 229,500 15.00
Pack-N-Mail 1,600 04/08 32,000 20.00
Fioceilo's Hairstyling 2,475 05/08 44,550 18.00
Mattress Giant 13,885 05/08 135,379 9.75
Select Comfort 2,222 07/08 42,218 19.00
Foot Solutions 1,488 09/08 26,784 18.00
Marshalls 29,107 10/08 261,963 9.00
Fast Frame 1,338 02/09 26,760 20.00
Bartlett Chiropractic Health 2,525 04/10 32,825 13.00
Walgreens 12,544 01/12 163,072 13.00
</Table>
209
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
- ---------------------------------------------------------------------------------------------------
Rainbow Foods (Roundy's) 65,808 01/12 559,368 8.50
Movie Gallery 9,000 03/12 180,000 20.00
The Oriental Restaurant 4,227 06/12 81,370 19.25
Kohl's 92,781 01/13 771,000 8.31
Jenny Craig Weight Loss
Center 2,059 11/04 33,974 16.50
Carlson Travel 1,032 12/04 19,608 19.00
Gingis Formal Wear 2,000 03/05 32,000 16.00
2nd Wind 4,000 07/05 64,000 16.00
GameStop 1,800 10/05 27,000 15.00
General Nutrition Center 1,530 10/06 26,010 17.00
Austad's Golf 5,080 01/07 71,120 14.00
Broadway Pizza 2,682 01/09 53,238 19.85
ProEx Photo (Ritz Camera) 2,400 01/09 64,800 27.00
Best Buy 35,520 01/09 348,096 9.80
Paper Warehouse 8,035 02/09 104,455 13.00
Frank's Nursery & Crafts 18,761 01/14 231,511 12.34
THE SHOPPES AT WOODBURY
VILLAGE
Charly Cosmetics 691 08/06 13,410 19.41
Cutie Patootie 693 09/06 13,446 19.40
Advanced Wireless 1,219 10/06 28,930 23.73
Wedgewood Jewelers 1,862 11/06 40,160 21.57
The Bread Gallery 1,143 06/07 27,126 23.73
Inizio (Gift Store) 1,146 08/07 25,956 22.65
Sports Barbers 1,018 08/07 23,058 22.65
Top Shelf Athletics 1,098 08/07 20,128 18.33
Cold Stone Creamery 1,372 12/07 29,340 21.38
Rocky Mountain Chocolate 1,157 08/08 26,208 22.65
Factory
Papa Murphy's Pizza 1,347 09/08 30,513 22.65
Noodles & Company 2,720 08/11 72,725 26.74
Chipolte Mexican Grill 2,526 09/11 67,550 26.74
Joey's Only Seafood Restaurant 2,442 09/13 50,934 20.86
Running Room 1,402 11/13 34,753 24.79
WOODALE
Ciatti's Italian Restaurant 7,000 04/07 130,000 18.57
</Table>
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.
210
<Page>
LAKE MARY POINTE, ORLANDO, FLORIDA
We anticipate purchasing 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 anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $6,650,000. 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 $130 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ----------------------------------------------------------------------------------------------
Publix 37,866 74 8.60 12/99 12/19
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $4,987,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Lake Mary Pointe was built in 1999. As of September 1, 2004, this property
was 96% occupied, with a total 48,952 square feet leased to nine tenants. The
following table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
- ---------------------------------------------------------------------------------------------------
GNC 1,050 12/04 23,930 22.79
Hair Cuttery 1,050 02/05 23,237 22.13
Avenue Nails 1,043 08/05 24,969 23.94
Pak Mail Center 1,050 09/05 23,006 21.91
Vivonia's Italian Pizzeria 3,750 09/06 81,938 21.85
White Swan Cleaners 1,050 01/09 16,800 16.00
Subway 1,050 02/09 17,063 16.25
China Cook 1,043 07/11 20,161 19.33
Publix 37,866 12/19 325,648 8.60
</Table>
211
<Page>
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 anticipate purchasing 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 anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $13,073,000. 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 $141 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Kroger, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ------------------------------------------------------------------------------------------------
Kroger 59,670 64 8.24 05/99 04/19
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $9,805,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Winchester Commons was built in 1999. As of September 1, 2004, this
property was 100% occupied, with a total 93,024 square feet leased to 16
tenants. The following table sets forth certain information with respect to
those leases:
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
- ---------------------------------------------------------------------------------------------------
For Your Eyes Only 2,220 05/04 45,443 20.47
Fantastic Sam's 1,600 06/04 28,000 17.50
Giant TV 1,600 09/04 27,200 17.00
The Steak Escape 1,600 01/05 26,400 16.50
Shirley's Hallmark 4,400 02/05 52.800 12.00
The Wine Cellar 4,000 03/06 66,000 16.50
</Table>
212
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
- ---------------------------------------------------------------------------------------------------
Opportunity Mortgage
(A+ Wireless) 1,534 07/06 26,078 17.00
China Dragon Restaurant 2,400 10/06 39,600 16.50
Dental Partners of Tennessee 2,000 01/07 35,500 17.75
Sunsations 1,600 07/07 27.200 17.00
Greg Pickett Golf 1,600 01/09 27,712 17.32
The UPS Store 2,000 01/09 34,000 17.00
Southwinds Cleaners 1,600 01/09 27,200 17.00
Nextel Communications 1,600 06/09 33,600 21.00
East End Grill 3,600 07/09 59,400 16.50
Kroger 59,670 04/19 491,681 8.24
</Table>
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.
BOULEVARD AT THE CAPITAL CENTRE, LANDOVER, MARYLAND
We intend to enter into a joint venture agreement with the current owners,
who are unaffiliated third parties, of a newly constructed shopping center known
as Boulevard at the Capital Centre, containing 504,817 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 State
of Maryland for about 99 years.
Our initial capital contribution is expected to be approximately
$123,000,000. This amount may increase by additional costs which have not yet
been finally determined. We expect any additional costs to be insignificant.
We intend to contribute to the joint venture with our own funds. However,
we expect to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Lowe's Theaters Magic Johnson, will lease more than 10% of the
total gross leasable area of the property. The lease term has been projected in
accordance with the tenant's lease commencement date. The lease with this tenant
requires the tenant to pay base annual rent on a monthly basis as follows:
213
<Page>
<Table>
<Caption>
Approximate Base Rent Per
GLA Leased % of Total Square Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- ----------------------------------------------------------------------------------------------
Lowe's Theaters 52,500 11 22.00 10/04 09/24
Magic Johnson
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $97,538,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Boulevard at the Capital Centre was newly constructed in 2004. As of
September 1, 2004, the property is currently in a leasing up phase and certain
tenants have executed leases for retail space within the shopping center. The
following table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
- -----------------------------------------------------------------------------------------------
Only Nails 1,500 11/08 60,000 40.00
EB Game World 1,200 11/08 40,800 34.00
Claires 1,166 11/08 34,980 30.00
Sprint 1,965 11/08 65,845 33.51
Kay Jewelers 1,552 11/08 60,000 38.66
Nextel 1,871 11/08 74,840 40.00
Cold Stone Creamery 1,157 01/09 42,809 37.00
Sweet Tooth Cakes 1,400 02/09 49,000 35.00
Casual Male 3,500 03/09 84,000 24.00
Classic Woman 2,465 03/09 63,800 25.88
Next Day Blinds 3,000 09/09 93,000 31.00
Incognito 1,375 11/10 37,125 27.00
T-Mobile 1,800 11/10 72,000 40.00
Oxford Street 3,400 12/10 85,000 25.00
Lucaya 3,000 12/10 63,000 21.00
Jilliano Shoes 1,998 05/11 56,943 28.50
Starbucks 1,250 11/13 37,500 30.00
Qdoba 3,000 11/13 97,500 32.50
Lens Crafters 4,653 11/13 139,590 30.00
Penner Clothing 5,194 11/13 142,835 27.50
Lane Bryant 5,000 11/13 120,000 24.00
Foot Locker 3,433 11/13 99,557 29.00
Yankee Candle 2,000 11/13 48,000 24.00
Children's Place 6,000 11/13 132,000 22.00
Men's Wearhouse 6,400 11/13 147,200 23.00
Wilson's Leather 2,898 11/13 72,450 25.00
Quiznos 1,559 11/13 51,447 33.00
Panda Express 2,100 11/13 73,500 35.00
Mattress Warehouse 4,112 11/13 102,800 25.00
Foot Action 3,500 11/13 98,000 28.00
Shoe City 7,998 11/13 187,953 23.50
</Table>
214
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
- -----------------------------------------------------------------------------------------------
Cambridge beauty Supply 2,900 11/13 75,400 26.00
Drake's Place 2,000 11/13 48,000 24.00
Honeycoming Hideout 2,500 11/13 68,750 27.50
Gallery Serengeti 2,000 12/13 58,000 29.00
Teaming Up 3,103 12/13 70,593 22.75
Technicolor Salon & Spa 4,413 12/13 110,325 25.00
Big Screen Store 4,500 12/13 103,500 23.00
Changes 4,000 12/13 104,000 26.00
Total Sport 3,756 12/13 103,553 27.57
Payless Shoe Source 2,800 01/14 78,400 28.00
Head 2 Head 2,568 02/14 65,484 25.50
Five Guys 1,504 02/14 48,128 32.00
Red Star Tavern 7,661 02/14 268,135 35.00
Anne Taylor Loft 5,396 04/14 129,504 24.00
African Stargina 1,500 04/14 47,250 31.50
Babalu/Carraba's Glory Days 6,085 04/14 146,040 24.00
Kobe Steakhouse 7,661 04/14 176,203 23.00
McHunu House of Style 2,900 05/14 76,850 26.50
Reggiano's 2,000 05/14 50,000 25.00
The Pretzel Twist 1,157 06/14 38,181 33.00
Stonefish Grill 6,085 07/14 212,975 35.00
Sports Authority 40,500 07/14 506,250 12.50
DSW Shoe Warehouse 25,000 07/14 331,250 13.25
Soul Fixins' 2,085 08/14 62,550 30.00
Ledo Pizza 1,556 08/14 51,348 33.00
Hooters/Fuddruckers 7,750 09/14 193,750 25.00
Infusions Cafe 3,350 09/14 83,750 25.00
Pizzeria Uno 5,719 10/18 110,000 19.23
Bugaboo Creek Steakhouse 6,400 11/18 110,000 17.19
Provident Bank 15,120 11/18 95,000 6.28
Pier 1 10,000 11/18 180,000 18.00
Borders Books & Music 23,000 11/18 443,440 19.28
Golden Corral 18,337 12/18 112,500 6.14
Linens N Things 34,440 02/19 430,500 12.50
Chuck E. Cheese 14,000 02/19 95,000 6.79
Circuit City 33,862 07/19 490,999 14.50
Office Depot 18,000 07/19 234,000 13.00
Blue Bamboo 4,050 09/19 113,250 27.96
Chic-Fil-A 4,250 11/23 85,000 20.00
Lowe's Theaters Magic
Johnson 52,500 09/24 1,155,000 22.00
</Table>
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.
215
<Page>
LAKEPOINTE TOWNE CROSSING, LEWISVILLE, TEXAS
We anticipate purchasing a newly constructed shopping center known as
Lakepointe Towne Crossing, containing 193,502 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 $204 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Sportsman's Warehouse, Circuit City and Ross Dress for Less,
will lease more than 10% of the total gross leasable area of the property. The
lease term has been determined in accordance with the tenant's projected lease
commencement date. The leases with these tenants require the tenants to pay base
annual rent on a monthly basis as follows:
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $29,611,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Lakepointe Towne Crossing was newly constructed in 2004. As of September 1,
2004, the property is currently in a leasing up phase and certain tenants have
executed leases for retail space within the shopping center. The following table
sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
- -----------------------------------------------------------------------------------------------
Mattress Firm 6,500 08/08 162,500 25.00
Hawk Electronics 5,000 10/08 125,000 25.00
EB Games 1,500 10/08 34,500 23.00
</Table>
216
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
- -----------------------------------------------------------------------------------------------
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
</Table>
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 anticipate purchasing a newly constructed shopping center known as
Mansfield Towne Crossing, containing 111,898 gross leasable square feet of which
4,500 is on a ground lease. The center is located at Highway 287 and Debbie
Lane, in Mansfield, Texas.
We anticipate purchasing this property from an unaffiliated third party.
Our total acquisition cost is expected to be approximately $19,967,700. 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 is expected to be approximately $178 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Ross Dress for Less and Staples, will lease more than 10% of
the total gross leasable area of the property. The lease term will be determined
in accordance with the tenant's projected lease commencement date. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
- -----------------------------------------------------------------------------------------------
Ross Dress for
Less 30,187 27 9.25 10/04 01/15
Staples 20,388 18 10.50 08/03 08/18
</Table>
217
<Page>
For federal income tax purposes, the depreciable basis in this property
will be approximately $14,975,800. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Mansfield Towne Crossing was newly constructed in 2004. As of September 1,
2004, the property is currently in a leasing up phase and certain tenants have
executed leases for retail space within the shopping center . The following
table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
- -----------------------------------------------------------------------------------------------
AT & T Wireless 2,500 07/08 55,000 22.00
EB Games 1,500 09/08 31,500 21.00
Sport Clips 1,440 10/08 30,240 21.00
Luxury Nails 1,013 02/09 20,259 20.00
Dr. Michael Poison 1,060 05/09 20,140 19.00
Robertson Pools 1,440 06/09 27,360 19.00
Bath Junkie 1,200 06/09 22,800 19.00
Subway 1,600 07/09 30,400 19.00
GNC 1,200 09/09 22,800 19.00
The Cash Store 1,600 09/09 30,400 19.00
Creekside Collections 3,811 09/09 62,882 16.50
Zales Jewelers 3,000 12/13 64,500 21.50
Famous Footwear 8,000 01/14 120,000 15.00
Payless Shoes 3,000 01/14 54,000 18.00
Ross Dress for Less 30,187 01/15 279,229 9.25
Pier 1 Imports 10,800 02/15 162,000 15.00
Staples 20,388 08/18 214,074 10.50
Regions Bank (Ground
Lease) 4,500 01/23 75,000 N/A
</Table>
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 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.
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 $176 per square foot of leasable space.
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<Page>
We intend to purchase this property with our own funds. However, we expect
to place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Oshman's Sporting Goods and Circuit City, will lease more than
10% of the total gross leasable area of the property. The lease term will be
determined in accordance with the tenant's lease commencement date. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
<Table>
<Caption>
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) 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
</Table>
For federal income tax purposes, the depreciable basis in this property
will be approximately $31,063,400. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Pleasant Run Towne Crossing was newly constructed in 2004. As of September
1, 2004, the property is currently in a leasing up phase and certain tenants
have executed leases for retail space within the shopping center. The following
table sets forth certain information with respect to those leases:
<Table>
<Caption>
Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------
The Maytag Store 5,225 04/09 94,050 18.00
Justice Just for Girls 4,500 04/09 81,000 18.00
Sleep Experts 4,500 06/09 99,000 22.00
Mattress Firm 6,000 08/09 132,000 22.00
ASAP Mail 2,000 08/09 40,000 20.00
Luxury Nails 1,200 08/09 25,200 21.00
Brook Mays Music 6,250 09/09 112,500 18.00
Michaels 21,390 11/13 224,595 10.50
Bombay Company 4,500 11/13 81,000 18.00
Bed, Bath & Beyond 22,000 01/14 220,000 10.00
Half Price Books 10,108 02/14 121,296 12.00
Mothers Work 1,805 03/14 36,100 20.00
Zales Jewelry 3,000 05/14 66,000 22.00
Vitamin Shop 5,000 08/14 135,000 27.00
Panera Bread 4,999 10/14 119,976 24.00
Oshman's Sporting Goods 40,954 01/15 409,540 10.00
</Table>
219
<Page>
<Table>
<Caption>
Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
- --------------------------------------------------------------------------------------------------
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
</Table>
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.
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<Page>
TENANT LEASE EXPIRATION
The following table sets forth, as of September 1, 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.
<Table>
<Caption>
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 of Expiring Represented Income of Represented Total Annual Under
Year Ending Leases Leases (Sq. by Expiring Expiring by Expiring Base Rental Expiring
December 31, Expiring Ft.) Leases Leases($) Leases Income ($) Leases ($)
- --------------------------------------------------------------------------------------------------
Consolidated
2004 33 123,309 1.1% 1,910,603 1.4% 138,201,522 15.49
2005 67 234,372 2.0% 4,355,621 3.2% 137,112,725 18.58
2006 109 488,045 4.2% 7,230,745 5.4% 133,718,552 14.82
2007 132 501,073 4.3% 8,805,041 6.9% 127,560,962 17.57
2008 181 654,093 5.6% 12,376,937 10.3% 119,908,182 18.92
2009 119 683,385 5.9% 9,613,559 8.9% 108,355,104 14.07
2010 37 418,314 3.6% 5,514,414 5.6% 99,054,356 13.18
2011 45 814,737 7.0% 10,933,346 11.7% 93,821,251 13.42
2012 74 849,160 7.3% 12,179,358 14.6% 83,292,757 14.34
2013 94 1,197,078 10.3% 14,080,392 19.7% 71,458,979 11.76
</Table>
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<Page>
TENANT CONCENTRATION
The following table sets forth, as of September 1, 2004, our individual
tenant concentrations for the properties that we currently own.
<Table>
<Caption>
% OF TOTAL % OF
GROSS GROSS ANNUALIZED ANNUALIZED
TOTAL LEASABLE LEASABLE BASE RENTAL BASE RENTAL
DESCRIPTION NUMBER AREA (SQ. FT.) AREA INCOME INCOME
- ---------------------------------------------------------------------------------------------------
INDIVIDUAL TENANT CONCENTRATIONS (MGMT. CRITERIA TOP 10 OF GLA AND BASE RENT)
Wal-Mart 4 707,254 6.1% 4,430,026 3.2%
Best Buy 9 458,598 4.0% 6,756,194 4.9%
Ross Dress for Less 13 383,383 3.3% 4,075,881 3.0%
Kohl's 4 343,069 3.0% 2,230,706 1.6%
Home Depot 3 335,664 2.9% 2,369,208 1.7%
Wrangler 1 316,800 2.8% 1,504,800 1.1%
Bed, Bath & Beyond 10 294,129 2.6% 3,514,280 2.6%
Michaels 11 265,001 2.3% 2,866,588 2.1%
T.J. Maxx 8 229,583 2.0% 2,031,453 1.5%
Linens `N Things 7 223,833 1.9% 2,560,531 1.9%
Old Navy 10 201,411 1.7% 2,190,885 1.6%
PETsMART 9 201,209 1.7% 2,482,180 1.8%
Burlington Coat Factory 3 198,933 1.7% 1,160,475 0.8%
Publix 4 178,791 1.6% 1,870,311 1.4%
Safeway 3 153,850 1.3% 1,489,742 1.1%
Barnes & Noble 6 150,733 1.3% 2,286,803 1.7%
Target 1 147,582 1.3% 640,000 0.5%
Marshalls 5 146,534 1.3% 1,221,607 0.9%
Sam's Club 1 142,491 1.2% 1,142,063 0.8%
Dick's Sporting Goods 3 140,000 1.2% 1,057,500 0.8%
Toys "R" Us 3 124,000 1.1% 557,599 0.4%
Gottschalk's 1 119,256 1.0% 400,000 0.3%
OfficeMax 5 117,458 1.0% 1,323,154 1.0%
BJ's Wholesale 1 115,396 1.0% 1,009,715 0.7%
Pier 1 Imports 10 109,966 1.0% 1,952,950 1.4%
Borders Books 5 108,956 0.9% 1,529,986 1.1%
Office Depot 5 101,427 0.9% 1,171,736 0.9%
Public Safety Service 1 101,208 0.9% 1,292,400 0.9%
Gart Sports 2 100,561 0.9% 884,462 0.6%
Oshman's Sporting Goods 2 97,630 0.8% 1,100,562 0.8%
Giant Foods 2 94,700 0.8% 1,047,313 0.8%
Eckerd Drug Stores 7 93,468 0.8% 1,995,230 1.5%
Staples 4 92,632 0.8% 1,271,904 0.9%
Cost Plus World Market 5 92,004 0.8% 1,347,999 1.0%
National Wholesale Liquidators 1 90,254 0.8% 364,516 0.3%
G.I. Joe's 2 89,375 0.8% 1,072,500 0.8%
The Sports Authority 2 75,275 0.7% 738,170 0.5%
Super Stop & Shop 1 68,073 0.6% 1,769,898 1.3%
Circuit City 2 66,074 0.6% 737,160 0.5%
</Table>
222
<Page>
<Table>
<Caption>
% OF TOTAL % OF
GROSS GROSS ANNUALIZED ANNUALIZED
TOTAL LEASABLE LEASABLE BASE RENTAL BASE RENTAL
DESCRIPTION NUMBER AREA (SQ. FT.) AREA INCOME INCOME
- ---------------------------------------------------------------------------------------------------
Shaw's Supermarkets 1 65,658 0.6% 1,083,357 0.8%
Academy Sports 1 60,001 0.5% 420,007 0.3%
Shopper's Food Warehouse 1 58,217 0.5% 844,146 0.6%
Babies "R" Us 2 56,407 0.5% 287,423 0.2%
Lowes Cineplex 1 48,224 0.4% 517,014 0.4%
DSW Shoe Warehouse 2 47,000 0.4% 674,000 0.5%
Shoe Carnival 4 46,000 0.4% 571,000 0.4%
Jo Ann Fabrics 1 46,000 0.4% 506,000 0.4%
Sportmart 1 43,660 0.4% 434,334 0.3%
LA Fitness 1 41,000 0.4% 697,000 0.5%
Stein Mart 1 34,000 0.3% 229,500 0.2%
Whole Foods 1 32,000 0.3% 432,000 0.3%
Bealls 1 29,847 0.3% 194,005 0.1%
Henry's Marketplace
(Wild Oats) 1 28,092 0.2% 474,474 0.3%
Copeland's Sporting Goods 1 25,129 0.2% 379,950 0.3%
</Table>
PROPERTY ALLOCATION
The following table provides a summary of the properties in our investment
portfolio by type of investment and by state at September 1, 2004. The following
table does not include our project under development because this project was
not generating revenue at September 1, 2004.
<Table>
<Caption>
% 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 13 951,433 8.3% 13,611,497 9.9%
Shopping Center
Single User Retail Property 10 541,134 4.7% 5,004,416 3.6%
Retail Shopping Center 33 8,142,914 70.7% 99,759,799 72.7%
Other 5 1,878,938 16.3% 18,825,357 13.7%
-----------------------------------------------------------------
Total 61 11,514,419 100.0% 137,201,069 100.0%
-----------------------------------------------------------------
</Table>
223
<Page>
<Table>
<Caption>
% 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 STATE
California 3 489,929 4.3% 9,661,031 7.0%
Georgia 5 698,250 6.1% 7,622,859 5.6%
Maryland 5 1,623,955 14.1% 18,248,149 13.3%
North Carolina 3 473,420 4.1% 4,585,848 3.3%
South Carolina 5 632,838 5.5% 6,481,095 4.7%
Texas 10 1,890,878 16.4% 23,218,243 16.9%
Washington 4 1,374,538 11.9% 14,210,898 10.4%
Other 26 4,330,611 37.6% 53,172,946 38.8%
-----------------------------------------------------------
Total 58 11,514,419 100% 137,201,069 100%
-----------------------------------------------------------
</Table>
224
<Page>
CAPITALIZATION
The following table sets forth our historical capitalization as of June 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 advisor, for which the 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."
<Table>
<Caption>
JUNE 30, 2004
AS AS
HISTORICAL ADJUSTED (2) ADJUSTED (3)
----------------------------------------------------------
DEBT:
Mortgage notes payable $ 588,631,295 $ 588,631,295 $ 588,631,295
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value,
10,000,000 authorized, none
outstanding - - -
Common stock, $.001 par value,
250,000,000 authorized, 85,098,440 shares
issued and outstanding historical; 250,000,000
shares issued and outstanding issued pro forma;
and 500,000,000 shares issued and
outstanding pro forma as adjusted 85,098 250,768 500,768
Additional paid-in-capital (1) 759,254,752 2,244,427,340 4,481,927,340
Retained earnings deficit (15,956,532) (15,956,532) (15,956,532)
Accumulated other comprehensive 47,708 47,708 47,708
income
----------------------------------------------------------
Total stockholders' equity $ 743,431,026 $ 2,228,769,284 $ 4,466,519,284
----------------------------------------------------------
Total capitalization $ 1,332,062,321 $ 2,817,400,579 $ 5,055,150,579
==========================================================
</Table>
- ----------
(1) Additional paid-in capital reduced by selling commissions either paid or
estimated to be paid.
(2) Includes the issuance of 250,000,000 primary shares plus 748,245
distribution reinvestment shares issued in connection with the initial
public offering.
(3) Includes the issuance of 250,000,000 primary shares plus 748,245
distribution reinvestment shares issued in connection with the initial
public offering and 250,000,000 shares issued in connection with this
offering.
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<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OUR
FINANCIAL CONDITION
The following discussion and analysis relates to the three and six months
ended June 30, 2004. The period from March 5, 2003 (inception) to June 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 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 properties in locations throughout the United States.
Inland Western Retail Real Estate Advisory Services, Inc. or our 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 July 31, 2004 we have purchased
14 additional properties located in the states of Arkansas, Georgia, Louisiana,
Maryland, Missouri, Pennsylvania, South Carolina, Texas and Washington.
During the six months ended June 30, 2004, we purchased 34 properties, of
which 13 were not located in our primary geographical area of interest. We
purchased these 13 properties because we had the unique opportunity of taking
advantage of our 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. 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 second 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.
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 almost 75% 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
226
<Page>
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. The largest tenant by leased area is Best Buy,
which has nine leases representing approximately 428,643 square feet, or
approximately 4.5% of the total gross leasable area owned by us as of July 31,
2004. The annualized base rental income from these leases is approximately
$6,276,746, or approximately 5.2% of the total annualized base rental income,
based on our portfolio of properties as of July 31, 2004. The two largest
tenants in annualized base rental income are Best Buy and Ross Dress for Less
which together total approximately $9,764,088 or 8.1% of the total annualized
base rental income, based on our portfolio of properties as of July 31, 2004.
We are in the process of offering our common stock in our initial public
offering and have raised $850,239,770 as of June 30, 2004. We raised on average
approximately $120 million per month in gross proceeds during the second quarter
of 2004.
As of June 30, 2004, we owned a portfolio of forty-two properties located
in Arizona, California, Colorado, Connecticut, Georgia, Illinois, Indiana,
Kansas, Louisiana, Maryland, Michigan, Nevada, New Mexico, North Carolina,
Oklahoma, South Carolina, Texas, Utah, and Washington containing an aggregate of
approximately 7,143,674 square feet of gross leasable area. As of June 30, 2004,
approximately 92% of gross leasable area in the properties was physically
leased.
The following is a summary of the properties we own as of June 30, 2004:
<Table>
<Caption>
AMOUNT OF
GROSS MORTGAGES
LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT
PROPERTY (SQ FT) ACQUIRED RENOVATED 06/30/04
-------- ------- -------- --------- --------
Alison's Corner 55,066 04/04 2003 $ 3,850,000
San Antonio, TX
Arvada Connection and
Arvada Marketplace 358,094 04/04 1987/1990 28,510,000
Arvada, CO
Best on the Boulevard 204,627 04/04 1996/1999 19,525,000
Las Vegas, NV
Bluebonnet Parc 135,289 04/04 2002 12,100,000
Baton Rouge, LA
CorWest Plaza 115,011 01/04 1999/2003 18,150,000
New Britain, CT
</Table>
227
<Page>
<Table>
<Caption>
AMOUNT OF
GROSS MORTGAGES
LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT
PROPERTY (SQ FT) ACQUIRED RENOVATED 06/30/04
-------- ------- -------- --------- --------
Darien Towne Centre 223,876 12/03 1994 16,500,000
Darien, IL
Davis Towne Crossing 41,391 06/04 2004 -
North Richland
Hills, TX
Dorman Center - Phase I 350,994 03/04 2003 27,610,000
Spartanburg, SC
Eastwood Towne Center 334,454 05/04 2002 46,750,000
Lansing, MI
Eckerd Drug Store 13,440 06/04 2004 -
Columbia, SC
Eckerd Drug Store 13,824 06/04 2004 -
Crossville, TN
Eckerd Drug Store 13,824 12/03 2003 1,850,000
Edmund, OK
Eckerd Drug Store 13,824 06/04 2004 -
Greer, SC
Eckerd Drug Store 13,824 06/04 2004 -
Kill Devil Hills,
NC
Eckerd Drug Store 13,824 12/03 2003 2,900,000
Norman, OK
Fullerton Metrocenter 242,080 06/04 1988 -
Fullerton, CA
Heritage Towne Crossing 80,574 03/04 2002 8,950,000
Euless, TX
Hickory Ridge 380,487 01/04 1999 23,650,000
Hickory, NC
</Table>
228
<Page>
<Table>
<Caption>
AMOUNT OF
GROSS MORTGAGES
LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT
PROPERTY (SQ FT) ACQUIRED RENOVATED 06/30/04
-------- ------- -------- --------- --------
Huebner Oaks Center 286,738 06/04 1998 48,000,000
San Antonio, TX
John's Creek Village 191,475 06/04 2004 -
Duluth, GA
La Plaza Del Norte 320,362 01/04 1996/1999 32,528,000
San Antonio, TX
Lakewood Towne Center 577,863 06/04 1988/2003 51,260,000
Lakewood, WA
Larkspur Landing 173,814 01/04 1978/2001 33,630,000
Larkspur, CA
Low Country Village 76,376 06/04 2004 -
Bluffton, SC
MacArthur Crossing 110,975 02/04 1996 12,700,000
Los Colinas, TX
Metro Square Center 61,817 01/04 1999 6,067,183
Severn, MD
Newnan Crossing I & II 291,833 12/03 & 1999/2003 21,543,091
Newnan, GA 03/04
Northgate North 302,744 06/04 2004 -
Seattle, WA
Northpointe Plaza 378,890 05/04 1991/1993 30,850,000
Spokane, WA
North Ranch Pavilions 62,812 01/04 1992 10,157,400
Thousand Oaks,
CA
</Table>
229
<Page>
<Table>
<Caption>
AMOUNT OF
GROSS MORTGAGES
LEASABLE AREA DATE YEAR BUILT/ PAYABLE AT
PROPERTY (SQ FT) ACQUIRED RENOVATED 06/30/04
-------- ------- -------- --------- --------
North Rivers Town Center 141,167 04/04 2004 11,050,000
Charleston, SC
Paradise Valley
Marketplace 92,164 04/04 2002 15,680,500
Phoenix, AZ
Pavilion at King's Grant 79,009 12/03 2003 5,342,000
Concord, NC
Peoria Crossings 213,733 03/04 2003 20,497,400
Peoria, AZ
Pine Ridge Plaza 230,493 06/04 1998/2004 -
Lawrence, KS
Plaza Santa Fe II 222,411 06/04 2000/2002 17,551,721
Santa Fe, NM
Promenade at Red Cliff 94,936 02/04 1997 10,590,000
St. George, UT
Shaw's Supermarket 65,658 12/03 1995 6,450,000
New Britain, CT
Shops at Park Place 116,300 10/03 2001 13,127,000
Plano, TX
Shoppes of Prominence
Point 88,058 06/04 2004 -
Canton, GA
Stony Creek Market Place 153,803 12/03 2003 14,162,000
Noblesville, IN
Watauga Pavilion 205,740 05/04 2004 17,100,000
Watauga, TX --------- -------------
Total 7,143,674 $ 588,631,295
--------- -------------
</Table>
230
<Page>
The square footage for Arvada Connection, Darien Towne Centre, Davis Towne
Crossing, Eastwood Towne Center, Heritage Towne Crossing, Hickory Ridge, Huebner
Oaks Center, John's Creek Village, MacArthur Crossing, 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 and Stony Creek
Market Place includes 2,240, 6,371, 4,000, 24,110, 7,246, 70,127, 8,036, 10,555,
6,500, 6,650, 18,719, 31,280, 10,908, 65,000, 84,676, 3,822 and 8,000
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 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 June 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. 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.
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IMPAIRMENT OF LONG-LIVED ASSETS. We conduct an impairment analysis on a
quarterly basis in accordance with Statement of Financial Accounting Standards
No. 144 or 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.
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 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 141 and SFAS 142 resulted in the recognition upon
acquisition of additional intangible assets and liabilities relating to our real
estate acquisitions during the quarter ended June 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 $475,574 was applied as a reduction to rental income
for the three months ended June 30, 2004 and $813,177 for the six months ended
June 30, 2004. Amortization pertaining to the below market lease costs of
$545,784 was applied as an increase to rental income for the three months ended
June 30, 2004 and $902,613 for the six months ended June 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 June 30, 2004:
<Table>
<Caption>
JULY 1, 2004
THROUGH
DECEMBER 31,
AMORTIZATION OF: 2004 2005 2006 2007 2008 THEREAFTER
---------------- ---- ---- ---- ---- ---- ----------
Acquired above
market lease
costs $ (1,469,181) (2,938,359) (2,885,842) (2,119,421) (1,980,185) (12,903,389)
Acquired below
market lease
costs 2,823,964 5,471,188 5,065,985 4,646,973 4,096,500 27,155,016
---------------------------------------------------------------------------------------------
Net rental income
increase $ 1,354,783 2,532,829 2,180,143 2,527,552 2,116,315 14,251,627
=============================================================================================
Acquired in-place
lease intangibles $ (4,842,059) (9,684,122) (9,684,122) (9,684,122) (9,684,122) (50,916,901)
</Table>
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
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acquired in-place lease costs of $1,495,955 for the three months ended June 30,
2004 and $2,293,994 for the six months ended June 30, 2004. The table above
presents the amortization during the next five years related to acquired
in-place lease costs for properties owned at June 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 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 second quarter of 2004, we entered into treasury contracts with
a futures commission merchant with a total notional amount of $95.0 million with
yields ranging from 3.85% for 5 year treasury contracts to 4.63% for 10 year
treasury contracts and maturities at various dates in 2004. The amount required
to be on deposit at June 30, 2004 for these treasury contracts had a cost basis
and liquidation value of $2,137,000 and $789,000, respectively. As these
treasury contracts are not offsetting future commitments and therefore do not
qualify as hedges, the net loss of approximately $1,348,000 at June 30, 2004 is
recognized currently in earnings and is included in interest expense in the
Consolidated Statement of Operations.
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LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Our principal demands for funds have been for property acquisitions, for
the payment of operating expenses and dividends, 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 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 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, (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
INITIAL PUBLIC OFFERING. As of June 30, 2004, subscriptions for a total of
85,098,440 shares had been received from the public, which include the 20,000
shares issued to the advisor and 748,245 shares distributed pursuant to the DRP
as of June 30, 2004. As a result of such sales, we received a total of
$850,239,770 of gross offering proceeds as of June 30, 2004.
MORTGAGE DEBT. As of June 30, 2004 we have obtained mortgage debt on
thirty-one properties totaling $588,631,295. 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 4.77% per annum. The mortgage loan on
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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 July 1, 2004 through July 31, 2004 we obtained
mortgage financing on properties that we purchased during 2004 totaling
approximately $204,300,000 that require monthly payments of interest only and
bear interest at a range of 4.13% to 5.10% per annum or LIBOR plus 113 to 200
basis points.
From January 1, 2004 through July 31, 2004, we entered into numerous
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 February 9, 2004, we entered into an agreement with Bear Stearns
Commercial Mortgage, Inc. We 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 in principal, all
of which has been applied to closed mortgage fundings.
On March 5, 2004 and March 11, 2004, we entered into two separate rate lock
agreements with Principal Life Insurance Company. We paid a rate lock deposit of
$500,000 for each agreement to lock the interest rate at 4.13% and 4.09%,
respectively, for a period of 120 days. Each rate lock is on $50,000,000 in
principal, all of which has been applied to closed mortgage fundings.
On May 18, 2004, we entered into a rate lock agreement with Allstate
Investments, LLC. We paid a rate lock deposit of $750,000 to lock the interest
rate at 5.05% for a period of 120 days on $75,000,000 in principal. Of this
amount, $16,362,500 has been applied to closed mortgage fundings, with the
remainder allocated to new or pending acquisitions.
On June 2, 2004, we entered into a rate lock agreement with Bear Stearns
Commercial Mortgage, Inc. We paid a rate lock deposit of $4,000,000 to lock the
interest rate at 5.12% for a period of 90 days on $200,000,000 in principal,
$196,000,000 of which has been allocated to new or pending acquisitions.
On June 3, 2004, we entered into a rate lock agreement with KeyBank
National Association. We paid a rate lock deposit of $1,000,000 to lock the
interest rate at 4.995% for a period of 90 days on $100,000,000 in principal,
all of which has been allocated to new or pending acquisitions.
On June 3, 2004, we entered into a rate lock agreement with Allstate
Investments, LLC. We paid a rate lock deposit of $500,000 to lock the interest
rate at 4.91% for a period of 120 days on $50,000,000 in principal, all of which
has been allocated to new or pending acquisitions.
On June 25, 2004, we entered into a rate lock agreement with Principal Real
Estate Investors, LLC. We paid a rate lock deposit of $600,000 to lock the
interest rate at 4.48% for a period of 120 days on $60,000,000 in principal, all
of which has been allocated to new or pending acquisitions.
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. Collectively,
$35,000,000 has been 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.
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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.
LINE OF CREDIT. On February 6, 2004, we increased our unsecured line of
credit arrangement with KeyBank N.A. to $225,000,000 from $150,000,000. 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
requires interest only payments monthly at the rate equal to the London
InterBank Offered Rate or LIBOR plus 175 basis points which ranged from 2.875%
to 3.125% during the quarter ended June 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 with drawn from the cash collateral account as
our properties are purchased without debt. As of June 30, 2004, we were in
compliance with such covenants and $20,448,822 was deposited in the cash
collateral account. The outstanding balance on the line of credit was
$110,000,000 as of June 30, 2004 at a weighted average interest rate of 3.01%
per annum.
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 our initial
public offering 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, 2004, we issued 748,245 shares pursuant
to the DRP for an aggregate amount of $7,108,326.
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 June 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
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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 six months ended June 30, 2004, we closed on mortgage debt with
a principal amount of $559,004,295. At June 30, 2004, the weighted average cost
of mortgage funds was approximately 4.30%. $507,744,295 of these mortgage loans
are fixed-rate loans that bear interest at a rate between 3.96% and 6.20% per
annum. The remaining $51,260,000 represents variable-rate loans with a weighted
average interest rate of 2.84% per annum at June 30, 2004.
With the exception of the mortgage loan on Plaza Santa Fe II, all of the
loans closed during the six months ended June 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.
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
the 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 $15,697,000
for the six month period ended June 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 $1,148,663,000
for the six month period ended June 30, 2004 which were primarily used for the
acquisition of 34 properties for approximately $1,090,426,000.
As of July 31, 2004, we had approximately $200,000,000 available for
investment in additional properties. As of July 31, 2004 we are considering the
acquisition of approximately $501,000,000 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.
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CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows provided by financing activities was approximately
$1,195,482,000 for the six month period ended June 30, 2004. We generated
proceeds from the sale of shares, net of offering costs paid, of approximately
$593,471,000. We generated approximately $541,453,000 from the issuance of new
mortgages secured by 29 of our properties and $105,000,000 from funding on the
line of credit. We paid approximately $10,154,000 for loan fees and
approximately $13,255,000 in distributions to our stockholders for the six
months ended June 30, 2004. The sponsor has agreed to advance us amounts to pay
a portion of these distributions until funds from operations are adequate to
cover distributions.
Given the current size of our offering, as of July 31, 2004, we could raise
approximately $1.5 billion 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 ADVISOR As of June 30, 2004, we had
incurred $93,674,110 of offering costs, of which $70,096,693 was paid or accrued
to affiliates. In accordance with the terms of our 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 initial public 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, 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 the advisor.
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 us in connection with the offering. Such costs are offset against
the stockholders' equity accounts. Such costs totaled $70,096,693 as of June 30,
2004, of which $468,907 was unpaid at June 30, 2004.
The advisor and its affiliates are entitled to reimbursement for general
and administrative expenses 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 six months ended June 30, 2004, we incurred
$637,359 of these costs, of which $218,000 remained unpaid as of June 30, 2004.
An affiliate of the 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 $21,276 for the six months ended June 30, 2004.
The advisor contributed $200,000 to our capital for which it received
20,000 shares.
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We use the services of an affiliate of the 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 six months ended June 30, 2004, we paid loan fees totaling $1,122,042
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 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 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 six months ended June 30, 2004,
we neither paid nor accrued such fees because the advisor agreed to forego such
fees for the first and second quarters of 2004.
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. We
incurred property management fees of $1,154,272 for the six months ended June
30, 2004. None remained unpaid as of June 30, 2004.
We established a discount stock purchase policy for our affiliates and
affiliates of the 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 510,839 shares to affiliates and recognized an expense
related to these discounts of $336,129 for the six months ended June 30, 2004.
As of June 30, 2004 we were due funds from our affiliate in the amount of
$1,553,689, $1,551,739 of which is due from our sponsor for reimbursement of a
portion of the distributions paid by us during 2004. The remaining $1,950 is due
from an affiliate for costs paid on their behalf by us. The sponsor has agreed
to advance to us amounts to pay a portion of distributions to our stockholders
until funds from operations are adequate 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. As of June 30, 2004 we owe funds to the sponsor in the
amount of $1,253,477 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 June 30, 2004.
CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD
<Table>
<Caption>
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
---------------------------------------------------------------------------------------------
Long-Term Debt $ 588,631,295 - 7,260,000 298,839,074 282,532,221
Line of Credit 110,000,000 110,000,000 - - -
</Table>
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CONTRACTS AND COMMITMENTS
The purchase and sale contract for Pavilion at King's Grant, provides that
if anytime during the period 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 we would be obligated to pay the
seller additional funds related to the purchase based on 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 pad site within 48
months after the closing date of December 8, 2003, which was included in the
purchase of the property. 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, once construction has been completed and a major
tenant has moved in and commenced payment of rent, with the additional purchase
price based on an agreed upon income capitalization formula. In connection with
the purchase of Arvada Connection and Arvada Marketplace, we are obligated to
purchase a parcel of the shopping center that may be redeveloped by the seller
within the next three years. If the seller does not redevelop the parcel by the
end of the redevelopment period, then we are obligated to purchase the parcel
for $750,000. In connection with the purchase of Eastwood Town 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 anchor's commencement of
operations. In connection with the purchase of Watauga Pavilion, we are
obligated to pay the remaining purchase price of $2,146,000 once a major has
moved in and commenced payment of rent. In connection with the purchase of
John's Creek Village, we are obligated to pay the remaining purchase price of
$13,385,390 once the remaining vacancies have been leased and the respective
tenants have moved in and commenced payment of rent. We have not reserved any
funds for these contingencies.
In connection with the purchase of Dorman Center, we were obligated to
purchase a portion of the shopping center that was 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 on an agreed upon income capitalization formula. As part of the commitment
to purchase this remaining portion of the shopping center, we had deposited one
million dollars of earnest money with the seller. In addition, 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 purchased the remaining portion of Dorman Center, and met certain occupancy
requirements the letter of credit will be released. On July 16, 2004, we
purchased the remaining portion of Dorman Center and the irrevocable letter of
credit is still outstanding as the occupancy requirements had not been met as of
July 31, 2004.
In connection with the purchase of Low Country Village, we were 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 on an agreed upon income capitalization formula. As part of
the commitment to purchase this remaining portion of the shopping center, we had
deposited $300,000 of earnest money with an escrow agent. In addition we are
obligated to pay the remaining purchase price on the first phase based on an
income capitalization formula not to exceed $1,355,096 once the remaining
vacancies have been leased and the respective tenants have moved in and
commenced payment of rent. In connection with the note receivable related to
Pacheco Pass, when the note is repaid, we are obligated to purchase the property
for $24,000,000.
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<Page>
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 June 30, 2004, the remaining liability after disbursements
was $1,375,521.
Subsequent to June 30, 2004, we purchased 14 properties for a purchase
price of approximately $342,000,000. In addition, we are currently considering
acquiring 13 properties for an estimated purchase price of $501,000,000. 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, 2004 and for the three and six months ended June 30,
2004.
<Table>
<Caption>
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 8 797,490 $ 127,195,469
March 31, 2004 11 2,126,152 $ 384,052,586
June 30, 2004 23 4,220,032 $ 713,925,077
-------------------------------------------------------------------
Total 42 7,143,674 $ 1,225,173,132
===================================================================
</Table>
RENTAL INCOME, REAL ESTATE TAX RECOVERY, COMMON AREA COST RECOVERY AND
ADDITIONAL RENTAL INCOME. Rental income consists of basic monthly rent and
percentage rental income due pursuant to tenant leases. Real estate tax
recovery, common area cost recovery and additional rental income consist of
property operating expenses recovered from the tenants including real estate
taxes, property management fees and insurance. Rental income was $22,885,718 and
all additional rental income was $6,094,809 for the six months ended June 30,
2004.
INTEREST INCOME. Interest income consists primarily of interest earned from
short term investments that are held by us. Interest income was $456,462 for the
six month period ended June 30, 2004. This results primarily from interest
earned on cash for the six months ended June 30, 2004.
PROFESSIONAL SERVICES. Professional services consist of fees to accountants
and lawyers. Professional services expense was $156,130 for the six months ended
June 30, 2004. This results from professional services required as the business
and investor base grows. Accounting fees comprise the majority of the
professional services expense.
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, and printer costs. These
expenses were $1,158,137 for the six months ended June 30, 2004 and resulted
from increased services required as we acquire properties and grow our portfolio
of investment properties and our investor base.
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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 $6,664,346 for the six months ended June 30, 2004.
INTEREST. Interest was $8,357,449 for the six months ended June 30, 2004
and is due to the financing on 31 properties as of June 30, 2004 and funds drawn
during the first quarter of 2004 on the line of credit.
DEPRECIATION. Depreciation expense was $7,493,738 and is due to
depreciation on the properties owned during the six months ended June 30, 2004.
AMORTIZATION. Amortization expense was $2,934,613 and is due to the
application of SFAS 141 and SFAS 142 resulting in the amortization of intangible
assets of approximately $97 million and loan fees of $4 million during the six
months ended June 30, 2004.
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 capitalization strategy. FFO is calculated as follows:
<Table>
<Caption>
Six months ended
June 30, 2004
------------------
Net income $ 2,147,141
Depreciation and amortization related to
investment properties 9,788,099
------------------
Funds from operations (1) $ 11,935,240
==================
</Table>
(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
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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 June 30, 2004 and
December 31, 2003. The weighted average gross leasable area occupied at June 30,
2004 and December 31, 2003 was 92% and 98%, respectively. N/A indicates the
property was not owned by us at the end of the period.
<Table>
<Caption>
June 30, 2004 December 31, 2003
------------------------------------------------------
GLA GLA
Properties: Occupied (%) Occupied (%)
- ----------------------------------------------------------------------------------------------------------------------
Alison's Corner, San Antonio, TX 55,066 100 N/A N/A
Arvada Connection and Marketplace, Arvada, CO 340,859 95 N/A N/A
Best on the Boulevard, Las Vegas, NV 156,756 77 N/A N/A
Bluebonnet Parc, Baton Rouge, LA 120,289 89 N/A N/A
CorWest Plaza, New Britain, CT 114,023 99 N/A N/A
Darien Towne Centre, Darien, IL 210,010 94 212,682 95
Davis Towne Crossing, North Richland Hills, TX 34,131 83 N/A N/A
Dorman Center - Phase I, Spartanburg, SC 342,494 98 N/A N/A
Eastwood Towne Center, Lansing, MI 324,020 97 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
Fullerton Metrocenter, Fullerton, CA 225,040 93 N/A N/A
Heritage Towne Crossing, Euless, TX 68,811 85 N/A N/A
Hickory Ridge, Hickory, NC 380,487 100 N/A N/A
Huebner Oaks Center, San Antonio, TX 277,461 97 N/A N/A
John's Creek Village, Duluth, GA 140,930 71 N/A N/A
La Plaza Del Norte, San Antonio, TX 304,540 95 N/A N/A
Lakewood Towne Center, Lakewood, WA 544,926 94 N/A N/A
Larkspur Landing, Larkspur, CA 154,067 88 N/A N/A
Low Country Village, Bluffton, SC 70,598 92 N/A N/A
MacArthur Crossing, Los Colinas, TX 104,935 95 N/A N/A
Metro Square Center, Severn, MD 61,817 100 N/A N/A
Newnan Crossing, Newnan, GA 288,055 99 127,260 97
Northpointe Plaza, Seattle, WA 375,324 99 N/A N/A
North Ranch Pavilions, Thousand Oaks, CA 55,928 89 N/A N/A
North Rivers Town Center, Charleston, SC 141,167 100 N/A N/A
Northgate North, Seattle, WA 282,595 93 N/A N/A
Paradise Valley Marketplace, Phoenix, AZ 80,535 87 N/A N/A
Pavilion at King's Grant, Concord, NC 79,009 100 79,009 100
Peoria Crossings, Peoria, AZ 209,123 98 N/A N/A
Pine Ridge Plaza, Lawrence, KS 230,493 100 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 87,109 92 N/A N/A
Shaw's Supermarket, New Britain, CT 65,658 100 65,658 100
Shops at Park Place, Plano, TX 116,300 100 116,300 100
Shoppes of Prominence Point, Canton, GA 74,208 84 N/A N/A
Stony Creek Market Place, Noblesville, IN 153,803 100 150,727 98
Watauga Pavilion, Watauga, TX 180,941 88 N/A N/A
------------- ----------------
6,751,397 779,284
============= ================
</Table>
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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 and Bluebonnet Parc, 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 71% and
100% at June 30, 2004.
SUBSEQUENT EVENTS
We paid distributions of $4,317,876 to our stockholders in July 2004.
We issued 15,834,545 shares of common stock from July 1, 2004 through July
31, 2004, resulting in a total of 100,932,985 shares of common stock
outstanding. As of July 31, 2004, subscriptions for a total of 99,943,622 shares
were received resulting in total gross offering proceeds of $999,357,068 and an
additional 992,862 shares were issued pursuant to the DRP for $9,432,194 of
additional gross proceeds.
On July 12, 2004, the sponsor repaid a portion of its payable to us in the
amount of $298,262.
We have acquired the following properties during the period July 1 to July
31, 2004. The respective acquisitions are summarized in the table below.
<Table>
<Caption>
Approximate Gross
Date Year Purchase Price Leasable Area
Acquired Property Built ($) (Sq. Ft.) Major Tenants
- ----------------------------------------------------------------------------------------------------------------------------
07/01/04 Shoppes at Boardwalk 2003/2004 36,642,049 122,413 Borders Books
07/02/04 Shoppes of Dallas 2004 13,052,126 70,610 Publix
07/13/04 Wilshire Plaza III 2004 5,750,000 88,248 Kohl's
07/14/04 Cranberry Square 1996-1997 20,219,563 195,566 Dick's Sporting Goods
Toys R Us
Best Buy
Barnes & Noble
Office Max
07/16/04 Dorman Center Phase II 2004 7,081,662 37,200 Shoe Carnival
07/19/04 Tollgate Marketplace 1977/1994 72,300,000 393,395 Giant Food
JoAnn Fabrics
Circuit City
Toys R Us
07/21/04 Gateway Plaza 2000 33,025,276 358,193 Kohl's
07/21/04 Gateway Village 1996 49,513,455 273,904 Safeway
Burlington Coat Factory
Best Buy
</Table>
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<Table>
<Caption>
Approximate Gross
Date Year Purchase Price Leasable Area
Acquired Property Built ($) (Sq. Ft.) Major Tenants
- ----------------------------------------------------------------------------------------------------------------------------
07/21/04 Towson Circle 1988 28,450,000 116,954 Barnes & Noble
Bally Fitness
07/21/04 Wal-Mart Supercenter 2004 12,935,000 183,211 Walmart SuperCenter
Wrangler Company
07/22/04 Western Headquarters 1993 18,476,792 316,800 Wrangler
07/26/04 Plaza at Marysville 1995 21,266,000 115,656 Safeway
07/27/04 Forks Town Center 2002 18,198,701 87,560 Giant Foods
07/30/04 Academy Sports 2004 5,250,000 60,001 Academy Sports
</Table>
The mortgage debt and financings obtained during the period July 1, 2004 to
July 31, 2004, are detailed in the list below.
<Table>
<Caption>
Date Maturity Principal Borrowed
Funded Mortgage Payable Annual Interest Rate Date ($)
- ----------------------------------------------------------------------------------------------------------------------
07/02/04 John's Creek Village 5.100% 08/01/09 23,300,000
07/02/04 Shoppes at Boardwalk 4.130% 07/01/09 20,150,000
07/09/04 Fullerton Metrocenter 5.09% 08/01/09 28,050,000
07/14/04 Northgate North 4.60% 07/01/08 26,650,000
07/16/04 Cranberry Square 4.975% 08/01/09 10,900,000
07/21/04 Gateway Village LIBOR + 1.13% 07/01/09 27,233,000
LIBOR + 2.00% 08/01/05 4,225,000
07/21/04 Tollgate Marketplace LIBOR + 1.20% 06/01/09 39,765,000
07/21/04 Towson Circle 5.10% 07/01/09 15,647,500
LIBOR + 2.00% 08/01/05 3,550,000
07/21/04 Eckerds Drug Stores (4) 5.275% 08/01/09 6,800,000
Wrangler Company
07/26/04 Western Headquarters 5.090% 08/01/09 11,300,000
07/27/04 Pine Ridge Plaza 5.085% 08/01/09 14,700,000
07/30/04 Plaza at Marysville 5.085% 08/01/09 11,800,000
</Table>
We are currently considering acquiring 13 properties for an estimated
purchase price of $501,000,000. 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
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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" included elsewhere in this prospectus.
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 June 30, 2004, we owned seven 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 second quarter 2004, we entered into derivative financial
instruments, or treasury contracts, to offset exposures to increases in interest
rates with a notional amount of $95.0 million with yields ranging from 3.85% for
5 year treasury contracts to 4.63% for 10 year treasury contracts and maturities
at various dates in 2004. Amounts required to be on deposit at June 30, 2004 for
these treasury contracts had a cost basis and liquidation value of $2,137,000
and $789,000, respectively. Therefore, we recognized a net loss on these
treasury contracts of about $1,348,000 at June 30, 2004. To offset the net loss
recognized on these treasury contracts, we took advantage of the lower treasury
yields which caused the loss on the treasury contracts and secured permanent
financing in the amount of $410,000,000 for pending acquisitions.
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
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<Page>
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 will have the effect of smoothing out interest
rate fluctuations, the result may be to reduce the overall returns on your
investment.
The fair value of our debt approximates its carrying amount as of June 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.
<Table>
<Caption>
2004 2005 2006 2007 2008 THEREAFTER
---- ---- ---- ---- ---- ----------
Maturing debt
Fixed rate debt (mortgage
loans) - - - - $ 19,577,000 $ 517,794,295
Variable rate debt (including
line of credit) $ 110,000,000 7,260,000 - - - 44,000,000
Average interest rate on debt:
Fixed rate debt (mortgage
loans) - - - - 4.70% 4.43%
Variable rate debt (including
line of credit) 3.01% 3.83% - - - 2.68%
</Table>
We have $161,260,000 of variable rate interest averaging 2.96% as of June
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
June 30, 2004, interest expense increases by $1,612,600 on an annual basis.
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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.
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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.
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 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
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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. 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, 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 advisor, sponsor,
director(s) or any affiliates of our 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, as part of
a financing arrangement or as part of a stock plan to our directors, officers or
employees.
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
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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 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
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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 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.
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PROVISIONS OF MARYLAND LAW AND OF OUR ARTICLES OF INCORPORATION AND BYLAWS
The following paragraphs summarize some provisions of Maryland law and the
material terms of our articles of incorporation and bylaws. 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
(an interested stockholder) 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
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.
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
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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 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.
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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 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 well 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.
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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, when, and if,
we have 90,000 shares of common stock issued and outstanding. 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.
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"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. 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 and could also hinder our future attempts
to obtain financing.
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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 were filed in Maryland, and 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
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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 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
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- 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 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
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 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 or the sale of all or substantially all of our assets, and 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 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 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.
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
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manner not inconsistent with the articles of incorporation and bylaws by a
majority vote of our directors present at the board meeting.
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;
- 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
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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 and existence;
- sponsor or advisor compensation; or
- our investment objectives.
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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 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;
- 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.
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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 advisor
will reimburse us the amount by which the aggregate annual total operating
expenses we paid or incurred exceed the limitation. We must make the
reimbursement within 60 days after the end of the fiscal year.
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TRANSACTIONS WITH AFFILIATES
Our articles of incorporation impose restrictions on transactions between
us and our advisor, sponsor and any director or their affiliates as follows:
- SALES AND LEASES TO US. We will not purchase property from our
sponsor, 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, ADVISOR, DIRECTOR OR ANY AFFILIATE. Our
sponsor, 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, 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, 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, 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,
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, 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.
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
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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.
(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 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
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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 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 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 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 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.
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(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.
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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 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.
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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:
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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 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
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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 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.
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- 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 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.
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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 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;
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- 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.
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
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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. 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."
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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 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
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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 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
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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. President
Bush has proposed to exempt certain dividend payments made by certain
corporations from federal taxation. We cannot be sure what impact, if any, any
possible legislation could have on us or you as a stockholder.
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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.
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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."
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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.
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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, [-], 2005, unless we elect to extend it to a date no
later than [-], 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 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.
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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.
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;
- 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.
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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 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 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 contribution
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 contribution and due diligence expense allowance to soliciting
dealers. Generally, the managing dealer will not give any portion of the
marketing contribution 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
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behalf of, or to, the soliciting dealers will be deducted from any marketing
contribution or due diligence expense allowance otherwise payable to the
soliciting dealers.
The following table shows the compensation payable to our dealer manager.
<Table>
<Caption>
Type of Compensation Amount Estimated Maximum Amount
- --------------------------------------------------------------------------------------------------------
Selling commissions 7.5% of sale price for each share $ 187,500,000
Marketing contribution and due 3% of gross offering $ 75,000,000
diligence allowance proceeds
</Table>
We will not pay selling commissions, marketing contributions 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 advisor, affiliates of our 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.
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:
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<Table>
<Caption>
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%
</Table>
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 required to pay federal income tax that
are combined with purchases by other entities not required to pay federal income
tax for purposes of computing amounts invested if investment decision are made
by the same person may have tax consequences, and your tax advisor should be
consulted prior to making the decision to combine. If the investment decisions
are made by in 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.
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.
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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.
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.
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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:
- 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.
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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 CONTRIBUTION AND DUE DILIGENCE EXPENSE ALLOWANCE. The marketing
contribution 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 advisor against such
liabilities.
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.]
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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. Subject to us
selling the minimum amount, 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
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the States of Louisiana, New York and North Carolina. If you would like to place
a transfer on death 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.
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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 advisor, may consist of a brochure describing the 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.
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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
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- 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.
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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.
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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 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.
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REPORTS TO STOCKHOLDERS
Our 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 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 advisor and any affiliate of the advisor, including fees
or charges paid to the advisor and to any affiliate of the 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 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;
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- 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 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 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.
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LITIGATION
We are not subject to any material pending legal proceedings.
RELATIONSHIPS AND RELATED TRANSACTIONS
We have entered into agreements to pay our advisor and its affiliates
certain fees or other compensation for providing services to us. The
compensation arrangements between us and our 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
advisor and its affiliates. In those instances in which there are maximum
amounts or ceilings on the compensation which may be received, our 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 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 Advisor is allowed.
NONSUBORDINATED PAYMENTS
The following aggregate amounts of compensation, allowances and fees we may
pay to our advisor and its affiliates are not subordinated to the returns on net
investments that we are required to pay to our stockholders.
<Table>
<Caption>
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 the Through June 30, 2004, we have incurred
the managing dealer and dealers sale price for each share (and reallow 7%), $77,907,763 in selling commissions in
designated by the managing subject to reduction for special sales under the connection with our initial public
dealers referred to as circumstances as described in the "Plan of offering. We intend to sell 250,000,000
soliciting dealers. Neither the Distribution - Compensation - We Will Pay For shares of our common stock at $10.00 per
managing dealer, the soliciting the Sale of Our Shares." share in our initial public offering. The
dealers, nor our officers or actual amount we will incur in this
directors will be permitted to We will permit the managing dealer and its offering depends upon the amount of
purchase shares of our stock in respective officers and employees and certain of shares sold. A total of $187,500,000 in
order to meet the minimum its affiliates to purchase shares net of sales selling commissions will be paid if the
thresholds. commissions and the marketing contribution and maximum offering is sold and there are no
due diligence expense allowance or for $8.95 per special sales.
share; however, any subsequent purchases of
shares by any such persons are limited to a
maximum discount of 5%.
Also, soliciting dealers and their respective
officers and employees and certain of their
respective affiliates who request and are
entitled
</Table>
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<Table>
<Caption>
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------------------------------------------------------------------------------------------------------------------
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 contribution and due We will pay an amount equal to 2.5% of the gross Through June 30, 2004, we have incurred
diligence expense allowance offering proceeds to the managing dealer, all or $10,546,604 in marketing contributions
paid to the managing dealer and a portion of which may be passed on to soliciting and due diligence expense allowance in
soliciting dealers. dealers, in lieu of reimbursement of specific connection with our initial public
expenses associated with marketing. We may pay an offering. The actual amount of marketing
additional 0.5% of the gross offering proceeds to contribution and due diligence expense
the managing dealer, which may be passed on to allowance in connection with this
the soliciting dealers, for due diligence offering will depend on the number of
expenses. We will not pay the marketing shares sold. If there are no special
contribution and due diligence expense allowance sales and we sell the maximum number of
in connection with any special sales, except shares offered, approximately $75,000,000
those receiving volume discounts and those will be paid for the marketing
described in "Plan of Distribution - Volume contribution and the due diligence
Discounts." expense allowance.
Reimbursable expenses and other We expect to incur the following expenses in All amounts other than the Securities and
expenses of issuance and connection with this offering: Exchange Commission registration fee and
distribution Securities and Exchange the NASD filing fee are estimates. The
Commission registration actual amounts of these expenses cannot
fee $ 340,823 be determined at the present time. We
NASD filing fee $ 30,500 estimate the total amount of the issuance
Printing and mailing and distribution expenses to be
expenses $3,500,000 approximately $14,807,323. Through June
Blue Sky fees and 30, 2004, we have incurred $666,107 of
expenses $ 136,000 reimbursable expenses to our advisor in
Legal fees and connection with our initial public
expenses $ 650,000 offering. In addition, as of December 31,
Accounting fees and 2003, our advisor had advanced an
expenses $ 650,000 aggregate of approximately $1,763,306 for
Advertising and sales the payment of offering expenses to
literature $5,000,000 non-affiliated third parties in
Due diligence $3,000,000 connection with our initial public
Transfer Agent fees $ 800,000 offering, all of which has been repaid.
Data processing fees $ 500,000
Bank fees and other
administrative
expenses $ 200,000
If the aggregate of all offering expenses, Our sponsor has not advanced any
including selling commissions, the marketing reimbursable expenses in connection with
contribution and due diligence expense allowance, this offering. We may reimburse up to
exceeds 15% of the gross offering proceeds, of if $14,807,323 for offering expenses
the aggregate of all offering expenses, excluding advanced if we sell the maximum number of
the selling expenses, exceeds 5.5% of the gross shares offered in this offering.
offering proceeds, our advisor or its affiliates
will promptly pay the excess and we will have no If this offering is not successful, then
liability for
</Table>
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<Table>
<Caption>
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------------------------------------------------------------------------------------------------------------------
these expenses at any time afterward. 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 0.5% We may pay no more than $13,450,000 for
our advisor's affiliates, of the total of (1) the gross offering proceeds the reimbursement of acquisition expenses
Inland Real Estate from the sale of 250,000,000 shares, (2) the if the maximum number of shares are sold
Acquisitions, Inc. and The gross proceeds from the sale of up to 20,000,000 and all of the 20,000,000 shares are sold
Inland Real Estate Group, Inc. shares pursuant to the distribution reinvestment pursuant to the distribution reinvestment
programs. The acquisition expenses for any program.
particular property will not exceed 6% of the However, the actual amounts cannot be
gross purchase price of the property. determined 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 advisor and its The actual amounts are dependent on
advisor and Inland Mortgage affiliates in order to acquire properties. In actual borrowings. Therefore, these
Corporation in connection with such instances, we will pay our advisor and its amounts cannot be determined at the
loans. affiliates interest at prevailing market rates. present time.
OPERATIONAL STAGE
Property management fee paid to We will pay a monthly fee of 4.5% of the gross For the year ended December 31, 2003, and
our property managers, Inland income from the properties. We will also pay a the six months ended June 30, 2004 we
Western Management Corp., monthly fee for any extra services equal to no have incurred and paid property
Inland Northwest Property more than 90% of that which would be payable to management fees of $16,627 and
Management Corp., Inland an unrelated party providing the services. The $1,154,272, of which 16,627 and
Southwest Property Management property managers may subcontract their duties $1,154,272 were retained by Inland
Corp. and Inland Pacific for a fee that may be less than the fee provided Northwest Management Corp., Inland
Property Management Corp. We for in the management services agreements. Pacific Management Corp., Inland Western
will pay the fee for services Management Corp., and Inland Southwest
in connection with the rental, Management Corp. If we acquire the
leasing, operation and businesses of our advisor and/or our
management of the properties. 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.
</Table>
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<Table>
<Caption>
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------------------------------------------------------------------------------------------------------------------
Advisors asset management fee. We will pay our advisor an asset management fee As of June 30, 2004, we have not paid or
We will pay the fee for after our stockholders have first received a 6% accrued any advisor asset management
services in connection with our annual return. fees. The actual amounts we will incur in
day-to-day operations, the future are dependent upon results of
including making strategic operations and, therefore, cannot be
decisions, performing determined at the present time.
day-to-day operations that
include accounting, investment
advisory services, risk
management services and tax
reduction services and
providing other services as our
board deems appropriate.
Reimbursable expenses to our We will reimburse some expenses of the advisor. The actual amounts are dependent upon
advisor. These may include The compensation and reimbursements to our results of operations and, therefore,
costs of goods and services, advisor will be approved by a majority of our cannot be determined at the present time.
administrative services and directors and a majority of our independent
non-supervisory services directors as fair and reasonable for us.
performed directly for us by
independent parties.
We will reimburse some expenses Inland Risk and Insurance Management Services The actual amounts are dependent upon
of the Inland Risk and charges us $50 per hour for assistance in results of operations and, therefore,
Insurance Management Services obtaining insurance coverage. Any commissions cannot be determined at the present time.
for insurance coverage. they receive 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 Inland Mortgage Servicing Corporation charges us For the year ended December 31, 2003, and
Mortgage Servicing Corporation .03% per year on the first billion dollars of the six months ended June 30, 2004 we
and Inland Mortgage Investment mortgages serviced and .01% thereafter. Inland have incurred and paid $328 and $21,276,
Corporation for purchase, sale Mortgage Investment Corporation charges us .02% respectively to Inland Mortgage Servicing
and servicing of mortgages. of the principal amount of each loan placed. The Corporation. For the year ended December
compensation to these companies will be approved 31, 2003, and the six months ended June
by a majority of our directors and a majority of 30, 2004 we have incurred and paid
our independent directors as fair and reasonable $59,523 and $1,122,042, respectively to
for us. Inland Mortgage Investment Corporation.
The actual amounts we will incur in the
future are dependent upon results of
operations and, therefore, cannot be
determined at the present time.
</Table>
303
<Page>
<Table>
<Caption>
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------------------------------------------------------------------------------------------------------------------
LIQUIDATION STAGE
Property disposition fee We may pay a property disposition fee to our The actual amounts to be received depend
payable to our advisor's advisor and its affiliates if we sell any of our upon the sale price of our properties
affiliates, Inland Real Estate real property in an amount equal to the lesser of: and, therefore, cannot be determined at
Sales, Inc. and Inland the present time. If we acquire the
Partnership Property Sales Corp. - 3% of the contract sales price of the advisor, the property disposition fee
property; or will cease.
- 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
advisor provides a substantial service in
connection with the sale of the property. See
"Management -- Our Advisory Agreement."
</Table>
SUBORDINATED PAYMENTS
We may pay the following additional fees to our advisor after returns on
net investment have been paid to the stockholders:
<Table>
<Caption>
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 of The actual amounts to be received
payable to our advisor. not more than 1% of our average assets. Our depend upon the sale price of our
average assets means the average of the total properties and, therefore, cannot be
book value including acquired intangibles of our determined at the present time. If we
real estate assets plus the total value of our acquire the advisor, the advisor asset
loans receivables secured by real estate, before management fee will cease.
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 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 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
</Table>
304
<Page>
<Table>
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.
LIQUIDATION STAGE
Incentive advisory fee payable We will pay to the advisor an amount equal to 15% The actual amounts to be received
to our advisor. of the net proceeds from the sale of a property depend upon the sale price of our
after the stockholders have first received: properties and, therefore, cannot be
determined at the present time. If we
(1) a cumulative non-compounded return equal to acquire or consolidate with the
10% a year on their net investment; and business conducted by our advisor, the
incentive advisory fee will terminate.
(2) their net investment.
</Table>
305
<Page>
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 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:
<Table>
<Caption>
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of Shops at Park Place for the operating expenses of Peoria Crossing for the year
year ended December 31, 2002, ended December 31, 2003,
- the consolidated balance sheet of Inland Western - the historical summary of gross income and direct
Retail Real Estate Trust, Inc. as of December 31, operating expenses of Dorman Centre for the year
2003 and the related consolidated statements of ended December 31, 2003,
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 direct - the historical summary of gross income and direct
operating expenses of Darien Towne Center for the operating expenses of Heritage Towne Crossing for
year ended December 31, 2002, the year ended December 31, 2003,
- the combined historical summary of gross income and - the historical summary of gross income and direct
direct operating expenses of Properties Acquired operating expenses of Paradise Valley Marketplace
from Thomas Enterprises in 2003 for the year ended for the year ended December 31, 2003,
December 31, 2003,
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of Hickory Ridge for the year operating expenses of Best on the Boulevard for
ended December 31, 2003, the year ended December 31, 2003,
</Table>
306
<Page>
<Table>
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of CorWest Plaza for the period operating expenses of Bluebonnet Parc for the year
from May 29, 2003 through December 31, 2003, ended December 31, 2003,
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of Metro Square Center operating expenses of North Rivers Town Center for
(SuperValue) for the year ended December 31, 2003, the period of October 1, 2003 (commencement of
operations) to December 31, 2003,
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of Larkspur Landing for the year operating expenses of Arvada Marketplace and
ended December 31, 2003, Connection for the year ended December 31, 2003,
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of North Ranch Pavilion for the operating expenses of Eastwood Town Center for the
year ended December 31, 2003, year ended December 31, 2003,
- the historical summary of gross income and direct - and the historical summary of gross income and
operating expenses of La Plaza Del Norte for the direct operating expenses of Watauga Pavilion for
year ended December 31, 2003, the period of August 15, 2003 (commencement of
operations) to December 31, 2003.
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of MacArthur Crossing for the operating expenses of Northpointe Plaza for the
year ended December 31, 2003, year ended December 31, 2003,
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of Promenade at Red Cliff for the operating expenses of Plaza Santa Fe II for the
year ended December 31, 2003, year ended December 31, 2003,
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of Huebner Oaks Center for the operating expenses of Pine Ridge Plaza for the
year ended December 31, 2003, year ended December 31, 2003,
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of John's Creek Village for the operating expenses of Lakewood Town Center for the
period of September 21, 2003 (commencement of year ended December 31, 2003,
operations) to December 31, 2003,
</Table>
307
<Page>
<Table>
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of Fullerton Metrocenter for the operating expenses of Davis Towne Crossing for the
year ended December 31, 2003, period of July 18, 2003 (commencement of
operations) to December 31, 2003,
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of Northgate North for the year operating expenses of Cranberry Square for the
ended December 31, 2003, year ended December 31, 2003,
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of Gateway Plaza Shopping Center operating expenses of Safeway Plaza at Marysville
for the year ended December 31, 2003, for the year ended December 31, 2003,
- the historical summary of gross income and direct - the historical summary of gross income and direct
operating expenses of Forks Town Center for the year operating expenses of The Shops at Boardwalk for
ended December 31, 2003, the period of May 30, 2003 (commencement of
operations) to December 31, 2003, and
- the combined historical summary of gross income
and direct operating expenses of the Properties
owned by Capital Centre, LLC, Gateway Village
Limited Partnership, Bel Air Square Joint Venture,
Towson Circle Joint Venture LLP, and Reistertown
Plaza Holdings, LLC for the year ended December
31, 2003.
</Table>
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
308
<Page>
1 800 SEC-0330 or e-mail at publicinfo@sec.gov for further information on the
operation of the public reference facilities.
309
<Page>
INDEX TO FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Report of Independent Registered Public Accounting Firm............................ F-10
(b) Consolidated Balance Sheet at December 31, 2003 (audited).......................... F-11
(c) Consoldiated Statement of Operations for the period from March 5, 2003 (inception)
through December 31, 2003 (audited).................................................................. F-13
(d) Consolidated Statement of Stockholders' Equity for the period from March 5, 2003
(inception) to December 31, 2003 (audited)........................................................... F-14
(e) Consolidated Statement of Cash Flows for the period from March 5, 2003 (inception)
to December 31, 2003 (audited)....................................................................... F-15
(f) Notes to Consolidated Financial Statements (audited)............................... F-17
(g) Consolidated Balance Sheets at June 30, 2004 (unaudited) and December 31, 2003..... F-32
(h) Consolidated Statements of Operations for the three and six months ended
June 30, 2004, three months ended June 30, 2003, and the period from March 5, 2003 (inception)
through June 30, 2003 (unaudited).................................................................... F-34
(i) Consolidated Statement of Stockholders' Equity for the six month period ended
June 30, 2004 (unaudited)............................................................................ F-35
(j) Consolidated Statements of Cash Flows for the six months ended June 30, 2004, and
the period from March 5, 2003 (inception) to June 30, 2003 (unaudited)............................... F-36
(k) Notes to Consolidated Financial Statements (unaudited)............................. F-38
(l) Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 2004.................. F-51
(m) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 2004......... F-53
(n) Pro Forma Consolidated Statement of Operations (unaudited) for the six months ended
June 30, 2004........................................................................................ F-55
(o) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the six
months ended June 30, 2004........................................................................... F-57
(p) Pro Forma Consolidated Statements of Operations (unaudited) for the year ended
December 31, 2003.................................................................................... F-60
(q) Notes to Pro Forma Consolidated Statements of Operations (unaudited) for
December 31, 2003.................................................................................... F-62
2. SHOPS AT PARK PLACE:
(a) Report of Independent Registered Public Accounting Firm............................ F-66
(b) 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)........................... F-67
F-1
<Page>
(c) Notes to the 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)............ F-68
3. DARIEN TOWNE CENTER:
(a) Report of Independent Registered Public Accounting Firm............................ F-70
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2002.................................................................................... F-71
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2002..................................................................... F-72
(d) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003 (unaudited)........................................................................ F-74
(e) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 (unaudited)......................................................... F-75
4. PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES IN 2003:
(a) Report of Independent Registered Public Accounting Firm............................ F-76
(b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003......................................................................... F-77
(c) Notes to the Combined Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003........................................................ F-78
5. STONY CREEK MARKETPLACE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003 (unaudited)........................................................................ F-80
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 (unaudited)......................................................... F-81
6. HICKORY RIDGE:
F-2
<Page>
(a) Report of Independent Registered Public Accounting Firm............................ F-82
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003.................................................................................... F-83
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003..................................................................... F-84
7. CORWEST PLAZA:
(a) Report of Independent Registered Public Accounting Firm............................ F-86
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period
from May 29, 2003 through December 31, 2003.......................................................... F-87
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the period from May 29, 2003 through December 31, 2003............................................... F-88
8. METRO SQUARE CENTER (SUPERVALUE):
(a) Report of Independent Registered Public Accounting Firm............................ F-90
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003.................................................................................... F-91
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 .................................................................... F-92
9. LARKSPUR LANDING:
(a) Report of Independent Registered Public Accounting Firm............................ F-94
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003.................................................................................... F-95
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 .................................................................... F-96
10. NORTH RANCH PAVILION:
(a) Report of Independent Registered Public Accounting Firm............................ F-98
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003.................................................................................... F-99
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003..................................................................... F-100
11. LA PLAZA DEL NORTE:
(a) Report of Independent Registered Public Accounting Firm............................ F-102
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003.................................................................................... F-103
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003..................................................................... F-104
12. MACARTHUR CROSSING:
(a) Report of Independent Registered Public Accounting Firm............................ F-106
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003.................................................................................... F-107
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003..................................................................... F-108
F-3
<Page>
13. PROMENADE AT RED CLIFF:
(a) Report of Independent Registered Public Accounting Firm............................ F-110
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003 (unaudited)........................................................................ F-111
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 (unaudited)......................................................... F-112
14. PEORIA CROSSINGS:
(a) Report of Independent Registered Public Accounting Firm............................ F-114
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003.................................................................................... F-115
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003..................................................................... F-116
15. DORMAN CENTRE:
(a) Report of Independent Registered Public Accounting Firm............................ F-118
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003.................................................................................... F-119
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003..................................................................... F-120
16. HERITAGE TOWNE CROSSING:
(a) Report of Independent Registered Public Accounting Firm............................ F-122
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003.................................................................................... F-123
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003..................................................................... F-124
17. PARADISE VALLEY MARKETPLACE:
(a) Report of Independent Registered Public Accounting Firm............................ F-126
(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).............................. F-127
(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)............... F-128
18. BEST ON THE BOULEVARD:
(a) Report of Independent Registered Public Accounting Firm............................ F-130
(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).............................. F-131
(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)............... F-132
19. BLUEBONNET PARC:
(a) Report of Independent Registered Public Accounting Firm............................ F-134
(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).............................. F-135
(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)............... F-136
20. NORTH RIVERS TOWN CENTER:
(a) Report of Independent Registered Public Accounting Firm............................ F-138
F-4
<Page>
(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)........................................................................... F-139
(c) Notes to the 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)..................................................................... F-140
21. ARVADA MARKETPLACE AND CONNECTION:
(a) Report of Independent Registered Public Accounting Firm............................ F-142
(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).............................. F-143
(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)............... F-144
22. EASTWOOD TOWNE CENTER:
(a) Report of Independent Registered Public Accounting Firm............................ F-146
(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).............................. F-147
(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)............... F-148
23. WATAUGA PAVILION:
(a) Report of Independent Registered Public Accounting Firm............................ F-150
(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)........................................................................... F-151
(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)..................................................................... F-152
24. NORTHPOINTE PLAZA:
(a) Report of Independent Registered Public Accounting Firm............................ F-154
(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).............................. F-155
(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)............... F-156
25. PLAZA SANTA FE II:
(a) Report of Independent Registered Public Accounting Firm............................ F-158
(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).............................. F-159
(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)............... F-160
26. PINE RIDGE PLAZA:
(a) Report of Independent Registered Public Accounting Firm............................ F-162
(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).............................. F-163
(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)............... F-164
27. HUEBNER OAKS CENTER:
(a) Report of Independent Registered Public Accounting Firm............................ F-166
(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).............................. F-167
F-5
<Page>
(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)............... F-168
28. JOHN'S CREEK VILLAGE:
(a) Report of Independent Registered Public Accounting Firm............................ F-170
(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)............................................................................ F-171
(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)...................................................................... F-172
29. LAKEWOOD TOWN CENTER
(a) Report of Independent Registered Public Accounting Firm............................ F-174
(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)................................. F-175
(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)...................... F-176
30. FULLERTON METROCENTER:
(a) Report of Independent Registered Public Accounting Firm............................ F-178
(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)................................. F-179
(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)...................... F-180
31. DAVIS TOWNE CROSSING:
(a) Report of Independent Registered Public Accounting Firm............................ F-182
(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)..................................................................................... F-183
(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)............................................................................ F-184
32. NORTHGATE NORTH:
(a) Report of Independent Registered Public Accounting Firm............................ F-186
(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)................................. F-187
(c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the
F-6
<Page>
year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)...................... F-188
33. CRANBERRY SQUARE:
(a) Report of Independent Registered Public Accounting Firm............................ F-190
(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)................................. F-191
(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)...................... F-192
34. GATEWAY PLAZA SHOPPING CENTER:
(a) Report of Independent Registered Public Accounting Firm............................ F-194
(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)................................. F-195
(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)...................... F-196
35. SAFEWAY PLAZA AT MARYSVILLE:
(a) Report of Independent Registered Public Accounting Firm............................ F-198
(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)................................. F-199
(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)...................... F-200
36. FORKS TOWN CENTER:
(a) Report of Independent Registered Public Accounting Firm............................ F-202
(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)................................. F-203
(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)...................... F-204
37. CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTURE,
TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC:
(a) Report of Independent Registered Public Accounting Firm............................ F-206
(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)...................... F-207
(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)..... F-208
38. THE SHOPS AT BOARDWALK:
F-7
<Page>
(a) Report of Independent Registered Public Accounting Firm............................ F-211
(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)..................................................................................... F-212
(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)...................................................................... F-213
39. SHOPPES AT PROMINENCE POINT:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)......................... F-215
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited).............. F-216
40. LOW COUNTRY VILLAGE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from February 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)...................... F-217
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the period from February 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)........... F-218
41. SHOPPES OF DALLAS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)......................... F-219
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the period from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited).............. F-220
42. DORMAN CENTRE - PHASE II:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from March 15, 2004 (commencement of operations) to June 30, 2004 (unaudited)........................ F-221
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the period from March 15, 2004 (commencement of operations) to June 30, 2004 (unaudited)............. F-222
F-8
<Page>
43. VILLAGE SHOPPES AT SIMONTON:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from May 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)........................... F-223
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the period from May 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)................ F-224
44. MANCHESTER MEADOWS:
(a) 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)................................. F-225
(b) 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).................. F-226
45. GOVERNOR'S MARKETPLACE:
(a) 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)................................. F-227
(b) 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).................. F-228
46. MITCHELL RANCH PLAZA:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from July 15, 2003 (commencement of operations) to December 31, 2003 and the six months ended
June 30, 2004 (unaudited)............................................................................ F-229
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the period from July 15, 2003 (commencement of operations) to December 31, 2003 and the six months
ended June 30, 2004 (unaudited)...................................................................... F-230
47. THE COLUMNS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from October 1, 2003 (commencement of operations) to December 31, 2003 and the six months ended
June 30, 2004 (unaudited)............................................................................ F-231
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the period from October 1, 2003 (commencement of operations) to December 31, 2003 and the six months
ended June 30, 2004 (unaudited)...................................................................... F-232
</Table>
F-9
<Page>
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-10
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Balance Sheet
December 31, 2003
ASSETS
<Table>
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
=============
</Table>
See accompanying notes to consolidated financial statements.
F-11
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Balance Sheet
(continued)
December 31, 2003
LIABILITIES AND STOCKHOLDER'S EQUITY
<Table>
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
=============
</Table>
See accompanying notes to consolidated financial statements.
F-12
<Page>
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
<Table>
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
=============
</Table>
See accompanying notes to consolidated financial statements
F-13
<Page>
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
<Table>
<Caption>
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
================================================================================
</Table>
See accompanying notes to consolidated financial statements.
F-14
<Page>
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
<Table>
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
-------------
</Table>
See accompanying notes to financial statements
F-15
<Page>
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
<Table>
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
=============
</Table>
See accompanying notes to financial statements
F-16
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
(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 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-17
<Page>
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-18
<Page>
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:
<Table>
<Caption>
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
</Table>
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-19
<Page>
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.
<Table>
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
</Table>
F-20
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
<Table>
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 THE an unrelated third party)
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 services Compensation for these services will not exceed 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 directors
services
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
</Table>
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-21
<Page>
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-22
<Page>
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-23
<Page>
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:
<Table>
<Caption>
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
================
</Table>
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-24
<Page>
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:
<Table>
<Caption>
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
============
</Table>
The following table shows the mortgage debt maturing during the next five years
as of December 31, 2003.
<Table>
2004 $ -
2005 -
2006 -
2007 -
2008 13,127,000
Thereafter 16,500,000
--------------
$ 29,627,000
==============
</Table>
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 placed 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-25
<Page>
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.
<Table>
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)
---------------
</Table>
The following table summarizes property asset information as of December 31,
2003.
<Table>
Total assets:
Shopping centers $ 142,804,128
Non-segment assets 69,298,035
---------------
$ 212,102,163
---------------
</Table>
The Company does not derive any of it's consolidated revenue from foreign
countries and does not have any major customer that individually accounts for
10% or more of the Company's consolidated revenues.
F-26
<Page>
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 an
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 and 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 $70,000,000.
F-27
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Notes to Consolidated Financial Statements
(continued)
December 31, 2003
The Company has acquired the following properties during the period January 1 to
February 13, 2004. The respective acquisitions are summarized in the table
below.
<Table>
<Caption>
APPROXIMATE GROSS LEASABLE
DATE YEAR PURCHASE PRICE AREA
ACQUIRED PROPERTY BUILT ($) (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 Antonio, 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
</Table>
F-28
<Page>
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.
<Table>
<Caption>
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
</Table>
(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.
<Table>
<Caption>
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
</Table>
F-29
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A MARYLAND CORPORATION)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
<Table>
<Caption>
Initial Costs (A) Gross amount at which carried at end of period
------------------------------- ------------------------------------------------
Buildings Adjustments Buildings
and to and
Encumbrance Land Improvements Basis Land Improvements
-------------- -------------- -------------- ------------- -------------- --------------
Darien Commons 16,500,000 7,000,000 22,468,408 - 7,000,000 22,468,408
Eckerd Drug Store
- - Edmund - 975,000 2,400,249 - 975,000 2,400,249
Eckerd Drug Store
- - Norman - 932,000 4,369,730 - 932,000 4,369,730
Newnan Crossing - 4,542,244 12,188,579 - 4,542,244 12,188,579
Park Place 13,127,000 9,096,000 13,174,867 - 9,096,000 13,174,867
Pavilion at King's
Grant - 4,300,000 2,741,212 - 4,300,000 2,741,212
Shaw's Supermarket - 2,700,000 11,532,191 - 2,700,000 11,532,191
Stony Creek Market
Place - 6,735,000 17,564,434 - 6,735,000 17,564,434
---------------------------------------------------------------------------------------------------
Total: $ 29,627,000 $ 36,280,244 $ 86,439,670 - $ 36,280,244 $ 86,439,670
===================================================================================================
<Caption>
Accumulated
Depreciation Date Date
Total (C) (D) Constructed Acquired
-------------- -------------- -------------- --------------
Darien Commons 29,468,408 56,280 1994 12/03
Eckerd Drug Store
- - Edmund 3,375,249 - 2003 12/03
Eckerd Drug Store
- - Norman 5,301,730 - 2003 12/03
Newnan Crossing 16,730,823 84,217 1999 12/03
Park Place 22,270,867 - 2001 10/03
Pavilion at King's
Grant 7,041,212 - 2002/2003 12/03
Shaw's Supermarket 14,232,191 - 1995 12/03
Stony Creek Market
Place 24,299,434 - 2003 12/03
-------------------------------
Total: $ 122,719,914 $ 140,497
===============================
</Table>
F-30
<Page>
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:
<Table>
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
===============
</Table>
(D) Reconciliation of accumulated depreciation:
<Table>
Balance at March 5, 2003 (inception) $ -
Depreciation expense 140,497
---------------
Balance at December 31, 2003 $ 140,497
===============
</Table>
F-31
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Balance Sheets
June 30, 2004 and December 31, 2003
ASSETS
<Table>
<Caption>
June 30, 2004
(Unaudited) December 31, 2003
--------------- -----------------
Investment properties:
Land $ 271,843,244 $ 36,280,244
Building and other improvements 901,659,236 86,439,670
--------------- -----------------
1,173,502,480 122,719,914
Less accumulated depreciation (7,634,235) (140,497)
--------------- -----------------
Net investment properties 1,165,868,245 122,579,417
Cash and cash equivalents (including cash held by management company of
$3,748,091 and $238,878 as of June 30, 2004 and December 31, 2003
respectively) 126,897,006 64,381,134
Restricted cash (Note 2) 40,445,609 -
Investment in marketable securities 1,047,708 -
Investment in treasury contracts 788,873
Restricted escrows 643,085 -
Accounts and rents receivable (net of allowance of $33,047 and
$0 as of June 30, 2004 and December 31, 2003, respectively) 6,292,894 1,147,551
Due from affiliates 1,553,689 918,750
Note receivable 15,600,975 7,552,155
Acquired in-place lease intangibles (net of accumulated
amortization of $2,345,767 and $51,773 as of June 30, 2004 and
December 31, 2003, respectively) 94,495,448 8,753,908
Acquired above market lease intangibles (net of accumulated
amortization of $818,404 and $5,227 as of June 30, 2004 and
December 31, 2003, respectively) 24,296,377 1,590,446
Loan fees (net of accumulated amortization of $665,087 and
$24,835 as of June 30, 2004 and December 31, 2003, respectively) 3,474,737 1,434,160
Other assets 51,021,601 3,744,642
--------------- -----------------
Total assets $ 1,532,426,247 $ 212,102,163
=============== =================
</Table>
See accompanying notes to consolidated financial statements.
F-32
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Balance Sheets
(continued)
June 30, 2004 and December 31, 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
<Table>
<Caption>
June 30, 2004
(Unaudited) December 31, 2003
--------------- -----------------
Liabilities:
Accounts payable $ 2,079,367 $ 150,332
Accrued offering costs due to affiliates 468,907 1,369,366
Accrued interest payable 1,088,198 -
Tenant improvements payable 2,042,004 4,845
Accrued real estate taxes 5,833,125 1,392,069
Distributions payable 4,317,876 927,539
Security deposits 1,271,174 108,189
Mortgages 588,631,295 29,627,000
Line of credit 110,000,000 5,000,000
Prepaid rental income and other liabilities 2,435,385 178,676
Advances from sponsor 1,253,477 1,202,519
Acquired below market lease intangibles (net of accumulated amortization
of $917,999 and $15,386 as of June 30, 2004 and December 31, 2003,
respectively) 49,259,626 5,910,413
Restricted cash liability (Note 2) 19,996,787 -
Due to affiliates 318,000 2,502,436
--------------- -----------------
Total liabilities 788,995,221 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, 85,098,440
and 18,737,141 shares issued and outstanding as of June 30, 2004 and
December 31, 2003, respectively 85,098 18,737
Additional paid-in capital (net of offering costs of $93,674,110 and
$22,144,814 as of June 30, 2004 and December 31, 2003, respectively, of
which $70,096,693 and $16,859,779 was paid or accrued to affiliates as of
June 30, 2004 and December 31, 2003, respectively) 759,254,752 165,168,650
Accumulated distributions in excess of net income/(loss) (15,956,532) (1,458,608)
Accumulated other comprehensive income 47,708 -
--------------- -----------------
Total stockholders' equity 743,431,026 163,728,779
--------------- -----------------
Commitments and contingencies (Note 11)
Total liabilities and stockholders' equity $ 1,532,426,247 $ 212,102,163
=============== =================
</Table>
See accompanying notes to consolidated financial statements.
F-33
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Statements of Operations
For the three and six months ended June 30, 2004, three months ended June 30,
2003 and the period from March 5, 2003 (inception)
through June 30, 2003
(unaudited)
<Table>
<Caption>
Period from
March 5, 2003
Three months Three months Six months (inception)
ended ended ended through
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
---------------- ---------------- ---------------- ----------------
Income:
Rental income, including above and below
market lease costs $ 15,332,713 - $ 22,885,718 -
Real estate tax recovery income 1,710,281 - 2,617,011 -
Common area costs recovery income 2,341,231 - 3,182,289 -
Additional rental income 290,189 - 295,509 -
Other income 14,709 - 15,939 -
Interest income 246,855 - 456,462 -
--------------------------------------------------------------------------
Total income 19,935,978 - 29,452,928 -
--------------------------------------------------------------------------
Expenses:
Professional services 99,714 - 156,130 -
General and administrative expenses to
affiliates 348,133 450 784,142 2,250
General and administrative expenses to
non-affiliates 73,053 - 373,995 7,500
Property operating expenses to affiliates 740,857 - 1,154,272 -
Property operating expenses to
non-affiliates 1,876,074 - 2,496,063 -
Real estate taxes 2,026,543 - 3,014,011 -
Interest 5,798,856 - 8,357,449 -
Depreciation 4,894,432 - 7,493,738 -
Amortization 1,841,033 - 2,934,613 -
Acquisition cost expenses to affiliates 16,720 - 70,089 -
Acquisition cost expenses to non-affiliates 109,190 - 471,285 -
--------------------------------------------------------------------------
Total expenses 17,824,605 450 27,305,787 9,750
--------------------------------------------------------------------------
Net income (loss) $ 2,111,373 $ (450) $ 2,147,141 $ (9,750)
==========================================================================
Other comprehensive income:
Unrealized gain on investment securities 47,708 - 47,708 -
--------------------------------------------------------------------------
Comprehensive income (loss) $ 2,159,081 $ (450) $ 2,194,849 $ (9,750)
==========================================================================
Net income(loss) per common share, basic and
diluted $ .04 $ (.02) $ .04 $ (.49)
==========================================================================
Weighted average number of common shares
outstanding, basic and diluted 59,688,094 20,000 48,805,229 20,000
==========================================================================
</Table>
See accompanying notes to consolidated financial statements
F-34
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Statement of Stockholders' Equity
For the six month period ended June 30, 2004
(unaudited)
<Table>
<Caption>
ACCUMULATED
DISTRIBUTION ACCUMULATED
ADDITIONAL IN EXCESS OF OTHER
COMMON PAID-IN NET INCOME COMPREHENSIVE
NUMBER OF SHARES STOCK CAPITAL (LOSS) INCOME TOTAL
---------------- ------------- ------------- ------------- ------------ -------------
Balance at December 31, 2003 $ 18,737,141 $ 18,737 $ 165,168,650 $ (1,458,608) $ - $ 163,728,779
Net income - - - 2,147,141 - 2,147,141
Unrealized gain on investment
securities - - - - 47,708 47,708
Distributions declared - - - (16,645,065) - (16,645,065)
Proceeds from offering 65,632,103 65,632 655,981,999 - - 656,047,631
Offering costs - - (71,529,296) - - (71,529,296)
Proceeds from dividend
reinvestment program 729,196 729 6,926,631 - - 6,927,360
Forgiveness of affiliate debt 2,369,139 2,369,139
Issuance of stock options and
discounts on shares issued to
affiliates - - 337,629 - - 337,629
------------- ------------- ------------- ------------- ------------- -------------
Balance at June 30, 2004 $ 85,098,440 $ 85,098 $ 759,254,752 $ (15,956,532) $ 47,708 $ 743,431,026
============= ============= ============= ============= ============= =============
</Table>
See accompanying notes to consolidated financial statements.
F-35
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2004, and the period from March 5, 2003
(inception) through June 30, 2003.
(unaudited)
<Table>
<Caption>
Period from
March 5, 2003
(inception)
Six months ended through
June 30, 2004 June 30, 2003
---------------- ---------------
Cash flows from operations:
Net income (loss) $ 2,147,141 $ (9,750)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation 7,493,738 -
Amortization 2,934,613 -
Amortization of acquired above market leases 813,177 -
Amortization of acquired below market leases (902,613) -
Rental income under master leases 363,940 -
Straight line rental income (752,757) -
Issuance of stock options and discount on shares issued to affiliates 337,629 2,250
Realized loss on sale of treasury contracts 1,346,502
Changes in assets and liabilities:
Accounts and rents receivable net of change in allowance of $33,047 and $0 for
June 30, 2004 and June 30, 2003, respectively (4,392,586) -
Other assets (1,614,964) -
Accounts payable 1,372,477 -
Accrued interest payable 1,088,198 -
Accrued real estate taxes 2,042,475 -
Security deposits 1,162,985 -
Prepaid rental and recovery income and other liabilities 2,256,709 7,500
---------------- ---------------
Net cash flows provided by operating activities 15,696,664 -
---------------- ---------------
Cash flows used in investing activities:
Purchase of investment securities and treasury contracts (3,135,375) -
Restricted escrows (643,085) -
Purchase of investment properties (1,023,122,692) -
Payment of leasing fees (22,200)
Tenant improvements payable 1,515,802 -
Acquired above market leases (23,519,108) -
Acquired in-place lease intangibles (88,035,534) -
Acquired below market leases 44,251,826 -
Other assets (38,167,012) -
Funding of note receivable (15,600,975) -
Due to affiliate (2,184,436) -
---------------- ---------------
Net cash flows used in investing activities (1,148,662,789) -
---------------- ---------------
</Table>
See accompanying notes to financial statements
F-36
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
For the six months ended June 30, 2004, and the period from March 5, 2003
(inception) through June 30, 2003
(unaudited)
<Table>
<Caption>
Period from
March 5, 2003
Six months ended (inception) through
June 30, 2004 June 30, 2003
---------------- -------------------
Cash flows from financing activities:
Proceeds from offering 658,416,770 200,000
Proceeds from the dividend reinvestment program 6,927,360 -
Payment of offering costs (71,873,197) -
Proceeds from mortgage debt 541,452,574 -
Proceeds from unsecured line of credit 105,000,000 -
Restricted cash collateral (20,448,822) -
Loan fees and deposits (10,153,979) -
Distributions paid (13,254,728) -
Due from affiliates 1,785,158 -
Forgiveness of affiliate debt (2,369,139) -
---------------- -------------------
Net cash flows provided by financing activities 1,195,481,997 200,000
---------------- -------------------
Net increase in cash and cash equivalents 62,515,872 200,000
Cash and cash equivalents, at beginning of period 64,381,134 -
---------------- -------------------
Cash and cash equivalents, at end of period $ 126,897,006 $ 200,000
================ ===================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,922,749 $ -
================ ===================
Restricted cash $ (19,996,787) $ -
Restricted cash liability 19,996,787 -
================ ===================
Supplemental schedule of non-cash investing and financing activities:
Purchase of investment properties $ (1,051,146,506) $ -
Assumption of mortgage debt 17,551,721 -
Write-off of acquisition reserve 521,357 -
Purchase price adjustments 2,398,581 -
Conversion of mortgage receivable to investment property 7,552,155 -
---------------- -------------------
$ (1,023,122,692) $ -
================ ===================
Distributions payable $ 4,317,876 $ -
================ ===================
Accrued offering costs payable $ 1,025,465 $ 691,911
================ ===================
</Table>
See accompanying notes to financial statements
F-37
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 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 June 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. Wholly owned subsidiaries
generally consist of limited liability companies ("LLC's"). The effects of all
significant intercompany transactions have been eliminated.
F-38
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(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 June 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 earning 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 June 30, 2004, the Company has accumulated
other comprehensive income of $47,708. 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 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 second quarter of 2004, the Company entered into treasury contracts
with a futures commission merchant with a total notional amount of $95.0 million
with yields ranging from 3.85% for 5 year treasury contracts to 4.63% for 10
year treasury contracts and maturities at various dates in 2004. The amount
required to be on deposit at June 30, 2004 for these treasury contracts had a
cost basis and liquidation value of $2,137,000 and $789,000, respectively. As
these treasury contracts are not offsetting future commitments and therefore do
not qualify as hedges, the net loss of approximately $1,348,000 at June 30, 2004
is recognized currently in earnings and is included in interest expense in the
Consolidated Statement of Operations.
F-39
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 June 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. 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 SFAS 141 and SFAS 142 resulted in the recognition upon
acquisition of additional intangible assets and liabilities relating to real
estate acquisitions during the quarter ended June 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 $475,574 was applied as a reduction to rental income
for the three months ended June 30, 2004 and $813,177 for the six months ended
June 30, 2004. Amortization pertaining to the below market lease costs of
$545,784 was applied as an increase to rental income for the three months ended
June 30, 2004 and $902,613 for the six months ended June 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 $1,495,955 for the three month period ended June 30, 2004
and $2,293,994 for the six month period ended June 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 June 30, 2004.
F-40
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
<Table>
<Caption>
July 1, 2004
through
December 31,
2004 2005 2006 2007 2008 Thereafter
----------------- ---------- ---------- ---------- ---------- -----------
Amortization of:
Acquired above
market lease
costs $ (1,469,181) (2,938,359) (2,885,842) (2,119,421) (1,980,185) (12,903,389)
Acquired below
market lease
costs 2,823,964 5,471,188 5,065,985 4,646,973 4,096,500 27,155,016
-------------------------------------------------------------------------------------------------
Net rental income
increase $ 1,354,783 2,532,829 2,180,143 2,527,552 2,116,315 14,251,627
=================================================================================================
Acquired in-place
Lease intangibles $ (4,842,059) (9,684,122) (9,684,122) (9,684,122) (9,684,122) (50,916,901)
</Table>
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 one 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 and the
line of credit cash collateral account (see Note 8). 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-41
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
A note is considered impaired pursuant to Financial Accounting Standards Board's
Statement of Financial Accounting Standards or 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 Advisor contributed $200,000 to the capital of the Company for which it
received 20,000 shares of common stock.
As of June 30, 2004 and December 31, 2003, the Company had incurred $93,674,110
and $22,144,814 of offering costs, of which $70,096,693 and $16,859,779,
respectively, were paid or accrued to affiliates. 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 June 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 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 six months ended
June 30, 2004.
F-42
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Advisor and its affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its affiliates relating to the
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 $70,096,693
as of June 30, 2004, of which $468,907 was unpaid at June 30, 2004.
The Advisor and its affiliates are entitled to reimbursement for general and
administrative costs of the Advisor and its affiliates relating to the Company's
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. For the three month period ended June 30, 2004 and the
six month period ended June 30, 2004, the Company incurred $371,336 and $637,359
of these costs, respectively, of which $218,000 remained unpaid as of June 30,
2004.
An affiliate of the 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 $17,065 for the three months ended June 30,
2004 and $21,276 for the six months ended June 30, 2004, respectively.
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. 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 June 30,
2004 and for the six months ended June 30, 2004, the Company paid loan fees
totaling $754,229 and $1,122,042 to this affiliate, respectively.
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 property management fees of $740,857 and $1,154,272 for the
three and six months ended June 30, 2004, respectively. None remained unpaid as
of June 30, 2004.
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 on when the
shares are purchased. The Company sold 70,933 and 510,839 shares to affiliates
and recognized an expense related to these discounts of $36,129 and $336,129 for
the three and six months ended June 30, 2004, respectively.
As of June 30, 2004 and December 31, 2003 the Company was due funds from
affiliates in the amount of $1,553,689 and $918,750, respectively which is
comprised of $1,551,739 and $845,000, respectively, which is due from the
sponsor for reimbursement of a portion of distributions paid in 2004. The
remaining $1,950 and $73,750 as of June 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 from operations are
adequate 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 June 30, 2004 the Company owed funds to the sponsor
in the amount of $1,253,477 for repayment of these advances.
As of June 30, 2004 and December 31, 2003 the Company owed funds to an affiliate
in the amount of $100,000 and $2,154,158, respectively, for the reimbursement of
costs paid by the affiliate on behalf of the Company. Both amounts were repaid
during 2004.
F-43
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(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 June 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 some 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 $363,940 as of June 30, 2004.
Operating leases
Minimum lease payments to be received in the future under operating leases,
excluding rental income under master lease agreements and assuming no expiring
leases are renewed, are as follows:
<Table>
<Caption>
Minimum Lease
Payments
----------------
2004 $ 62,521,155
2005 75,836,691
2006 72,899,152
2007 67,164,946
2008 61,756,105
Thereafter 365,242,447
----------------
Total $ 705,420,496
================
</Table>
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 additional
rental income.
F-44
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(6) NOTE RECEIVABLE
The note receivable balance of $15,600,975 as of June 30, 2004 consisted of an
installment note from Newman Development Group of Gilroy, L.L.C. that matures on
July 15, 2005. This note is secured by a first mortgage on Pacheco Pass Shopping
Center. Interest only is due in advance on the first of each month at a rate of
6.993% per annum. Upon closing, an interest reserve escrow totaling three months
of interest payments was established.
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 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 PAYABLE
Mortgage loans outstanding as of June 30, 2004 were $588,631,295, of which
$537,371,295 had fixed rates ranging from 3.96% to 6.20%. The remaining
$51,260,000 represented a variable rate loan with a weighted average interest
rate of 2.84% at June 30, 2004. Retail properties with a net carrying value of
$956,666,641 at June 30, 2004 and related tenant leases are pledged as
collateral.
As of June 30, 2004, scheduled maturities for the Company's outstanding mortgage
indebtedness have various due dates through December 2012. At June 30, 2004, the
weighted average interest rate on the Company's mortgage debt was 4.3%. With the
exception of the mortgage loan on Plaza Santa Fe II, all of the Company's
mortgage loans as of June 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. The loan
has no prepayment privileges.
The Company guarantees repayment of $1,083,333 of principal on the Pavilion at
King's Grant mortgage debt.
The debt is cross-collateralized among the properties in connection with the
financing of Heritage Towne Crossing and Eckerd Drug Stores in Norman and
Edmond, OK.
(8) LINE OF CREDIT
On February 6, 2004, the Company increased its unsecured line of credit
arrangement with KeyBank N.A. to $225,000,000 from $150,000,000. 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 requires
interest only payments monthly at the rate equal to the London InterBank Offered
Rate or LIBOR plus 175 basis points which ranged from 2.875% to 3.125% during
the quarter ended June 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. As of June 30, 2004, the
Company was in compliance with such covenants. 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. Amounts deposited in the cash
collateral account are included in Restricted Cash on the Consolidated Balance
Sheet. There was $20,448,822 deposited in
F-45
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
the cash collateral account which was required by the lender as of June 30,
2004. The outstanding balance on the line of credit was $110,000,000 as of June
30, 2004 at a weighted average interest rate of 3.01% per annum.
(9) SEGMENT REPORTING
The Company owns and seeks to acquire 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.
Net property operations are summarized in the following table for the three and
six months ended June 30, 2004, along with a reconciliation to net income.
<Table>
<Caption>
Three months
Six months ended ended
June 30, 2004 june 30, 2004
---------------- ---------------
Property rental income and additional rental income $ 28,980,527 $ 19,674,414
Total property operating expenses (6,664,346) (4,643,474)
Interest expense (8,357,449) (5,798,856)
---------------- ---------------
Net property operations 13,958,732 9,232,084
---------------- ---------------
Interest income 456,462 14,709
Less non-property expenses:
Professional services (156,130) (99,714)
General and administrative expenses (1,158,137) (421,186)
Acquisition cost expenses to affiliates (541,374) (125,910)
Depreciation and amortization (10,428,351) (6,735,465)
Other income (expense) 15,939 246,855
---------------- ---------------
Net income $ 2,147,141 $ 2,111,373
================ ===============
</Table>
F-46
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The following table summarizes property asset information as of June 30, 2004
and December 31, 2003.
<Table>
<Caption>
June 30, 2004 December 31, 2003
----------------- -----------------
Total assets:
Shopping centers $ 1,367,535,186 $ 142,804,128
Non-segment assets 164,891,061 69,298,035
----------------- -----------------
$ 1,532,426,247 $ 212,102,163
================= =================
</Table>
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.
(10) 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 June 30, 2004, options to purchase 15,000 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
59,688,094 for the three months ended June 30, 2004 and 48,805,229 for the six
months ended June 30, 2004.
(11) COMMITMENTS AND CONTINGENCIES
The purchase and sale contract for Pavilion at King's Grant, provides that if
anytime during the period 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 on 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 pad site within 48
months after the closing date of December 8, 2003, which was included in the
purchase of the property. 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, once construction has been
completed and a major tenant has moved in and commenced payment of rent, with
the additional purchase price based on an agreed upon income capitalization
formula. In connection with the purchase of Arvada Connection and Arvada
Marketplace, the Company is obligated to purchase a parcel of the shopping
center that may be redeveloped by the Seller within the next three years. If the
Seller does not redevelop the parcel by the end of the redevelopment period,
then the Company is obligated to purchase the parcel for $750,000. 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 anchor's commencement of operations. In connection with the
purchase of Watauga Pavilion, the Company is obligated to pay the remaining
purchase price of $2,146,000 once a major tenant has moved in and commenced
payment of rent. In connection with the purchase of John's Creek Village, the
Company is obligated to pay the remaining purchase price of $13,385,390 once the
remaining vacancies have been leased and the respective tenants have moved in
and commenced payment of rent. The Company has not reserved any funds for these
contingencies.
F-47
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
In connection with the purchase of Dorman Center, the Company was obligated to
purchase a portion of the shopping center that was under construction, once
construction was completed and the respective tenants had moved in and commenced
payment of rent, with the additional purchase price of the center based on an
agreed upon income capitalization formula. As part of the commitment to purchase
this remaining portion of the shopping center, the Company had deposited one
million dollars of earnest money with the Seller. In addition, 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 purchased the remaining portion of Dorman Center, and met
certain occupancy requirements, the letter of credit will be released. On July
16, 2004, the Company purchased the remaining portion of Dorman Center and the
irrevocable letter of credit is still outstanding as the occupancy requirements
had not been met as of July 31, 2004.
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 on an agreed upon 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
addition the Company is obligated to pay the remaining purchase price on the
first phase based on an income capitalization formula not to exceed $1,355,096
once the remaining vacancies have been leased and the respective tenants have
moved in and commenced payment of rent.
In connection with the note receivable related to Pacheco Pass, when the note
receivable is repaid, the Company is obligated to purchase the property for
approximately $24,000,000.
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 June 30, 2004, the remaining liability after
disbursements is $1,375,521.
The Company is currently considering acquiring 13 properties for an estimated
purchase price of $501,000,000. 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.
(12) SUBSEQUENT EVENTS
The Company issued 15,834,545 shares of common stock from July 1, 2004 through
July 31, 2004 in connection with the offering, resulting in gross proceeds of
$158,220,959.
On July 12, 2004, the sponsor repaid a portion of its payable to the Company in
the amount of $298,262.
The Company paid distributions of $4,317,876 to its stockholders in July 2004.
F-48
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company has acquired the following properties or joint venture interests in
properties during the period July 1 to July 31, 2004. The respective
acquisitions are summarized in the table below.
<Table>
<Caption>
APPROXIMATE GROSS
PURCHASE LEASABLE
DATE YEAR PRICE AREA
ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS
-------- -------- ----- --- --------- -------------
07/01/04 The Shops at Boardwalk 2003/ 36,642,049 122,413 Borders Books
2004
07/02/04 Shoppes of Dallas 2004 13,052,126 70,610 Publix
07/13/04 Wilshire Plaza III 2004 5,750,000 88,248 Kohl's
07/14/04 Cranberry Square 1996 20,219,563 195,566 Dick's Sporting Goods
- Toys R Us
1997 Best Buy
Barnes & Noble
Office Max
07/16/04 Dorman Center Phase II 2004 7,081,662 37,200 Shoe Carnival
07/19/04 Tollgate Marketplace 1977/ 72,300,000 393,395 Giant Food
1994 JoAnn Fabrics
07/21/04 Gateway Plaza 2000 33,025,276 358,193 Kohl's
07/21/04 Gateway Village 1996 49,513,455 273,904 Safeway
Burlington Coat Factory
Best Buy
07/21/04 Towson Circle 1988 28,450,000 116,954 Barnes & Noble
Bally Fitness
07/21/04 Wal-Mart Supercenter 2004 12,935,000 183,211 Wal-Mart SuperCenter
07/22/04 Wrangler Company Western 1993 18,476,792 316,800 Wrangler
Headquarters
07/26/04 Plaza at Marysville 1995 21,266,000 115,656 Safeway
07/27/04 Forks Town Center 2002 18,198,701 87,560 Giant Foods
07/30/04 Academy Sports 2004 5,250,000 60,001 Academy Sports
</Table>
F-49
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company funded $5,750,000 which represents a portion of the purchase price
of a shopping center under construction to be known as Wilshire Plaza III to
contain 88,248 gross leasable square feet leased to Kohl's. The Company's total
acquisition cost will be approximately $9,850,000. In accordance with the terms
of the purchase agreement with the seller, the Company will advance funds for
the construction of the retail building in two installments. The Company will
receive a 7% return on the original amount funded of $5,750,000 and on
additional construction advances to the seller until such time as Kohl's lease
commences.
The Company entered into joint venture agreements with the current owners of
three shopping centers known as Tollgate Marketplace, Gateway Village, and
Towson Circle. The Company made capital contributions to these joint ventures
and received equity interests representing majority ownership and operating
control of these joint ventures.
The mortgage debt and financings obtained during the period July 1, 2004 to July
31, 2004, are detailed in the list below.
<Table>
<Caption>
PRINCIPAL
DATE MATURITY BORROWED
FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($)
---------------------------------------------------------------------------------------------------------------------
07/02/04 John's Creek Village 5.100% 08/01/09 23,300,000
07/02/04 The Shops at Boardwalk 4.130% 07/01/09 20,150,000
07/09/04 Fullerton Metrocenter 5.09% 08/01/09 28,050,000
07/14/04 Northgate North 4.60% 07/01/08 26,650,000
07/16/04 Cranberry Square 4.975% 08/01/09 10,900,000
07/21/04 Gateway Village LIBOR + 1.13% 07/01/09 27,233,000
LIBOR + 2.00% 08/01/05 4,225,000
07/21/04 Tollgate Marketplace LIBOR + 1.20% 06/01/09 39,765,000
07/21/04 Towson Circle 5.10% 07/01/09 15,647,500
LIBOR + 2.00% 08/01/05 3,550,000
07/21/04 Eckerd Drug Stores (4) 5.275% 08/01/09 6,800,000
07/26/04 Wrangler Company Western Headquarters 5.090% 08/01/09 11,300,000
07/27/04 Pine Ridge Plaza 5.085% 08/01/09 14,700,000
07/30/04 Plaza at Marysville 5.085% 08/01/09 11,800,000
</Table>
F-50
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
(UNAUDITED)
The following unaudited Pro Forma Consolidated Balance Sheet is presented as if
the acquisitions of the properties and the the issue of a note receivable
indicated in Note B had occurred on June 30, 2004.
This unaudited Pro Forma Consolidated Balance Sheet is not necessarily
indicative of what the actual financial position would have been at June 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 September 1, 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 September 1, 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-51
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
(UNAUDITED)
<Table>
<Caption>
Historical Pro Forma
(A) Adjustments Pro Forma
-----------------------------------------------------
ASSETS
Net investment property (B) $ 1,165,868,245 715,604,000 1,881,472,245
Cash and cash equivalents 126,897,006 27,164,000 154,061,006
Restricted cash 40,445,609 - 40,445,609
Investment in treasury securities 1,047,708 - 1,047,708
Investment in treasury contracts 788,873 - 788,873
Restricted escrows 643,085 - 643,085
Accounts and rents receivable 6,292,894 - 6,292,894
Due from affiliates 1,553,689 - 1,553,689
Note receivables 15,600,975 11,398,000 26,998,975
Acquired in-place lease intangibles (B)(D) 94,495,448 13,850,000 108,345,448
Acquired above market lease intangibles (B)(D) 24,296,377 3,929,000 28,225,377
Loan fees 3,474,737 - 3,474,737
Other assets (G) 51,021,601 (43,536,000) 7,485,601
-----------------------------------------------------
Total assets $ 1,532,426,247 728,409,000 2,260,835,247
=====================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable 2,079,367 - 2,079,367
Accrued offering costs to affiliates 468,907 - 468,907
Accrued interest payable 1,088,198 - 1,088,198
Tenant improvement payable 2,042,004 - 2,042,004
Accrued real estate taxes 5,833,125 - 5,833,125
Distributions payable 4,317,876 - 4,317,876
Security deposits 1,271,174 - 1,271,174
Mortgage payable (B)(E) 588,631,295 387,233,500 975,864,795
Line of credit 110,000,000 - 110,000,000
Prepaid rent and other liabilities 2,435,385 - 2,435,385
Advances from sponsor 1,253,477 - 1,253,477
Acquired below market lease intangibles (B)(D) 49,259,626 4,483,000 53,742,626
Restricted cash liability 19,996,787 - 19,996,787
Due to affiliates 318,000 - 318,000
-----------------------------------------------------
Total liabilities 788,995,221 391,716,500 1,180,711,721
=====================================================
Common stock (C) 85,098 38,261 123,359
Additional paid-in capital (net of offering costs) (C) 759,254,752 336,654,239 1,095,908,991
Accumulated distributions in excess of net loss (15,956,532) - (15,956,532)
Accumulated other comprehensive income 47,708 - 47,708
-----------------------------------------------------
Total stockholders' equity 743,431,026 336,692,500 1,080,123,526
-----------------------------------------------------
Total liabilities and stockholder's equity $ 1,532,426,247 728,409,000 2,260,835,247
=====================================================
</Table>
See accompanying notes to pro forma consolidated balance sheet.
F-52
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
(UNAUDITED)
(A) The historical column represents our Consolidated Balance Sheet as of June
30, 2004 as filed with the Securities Exchange Commission on Form 10-Q. As
of June 30, 2004, the Company had sold 85,078,440 shares to the public and
748,245 shares were issued pursuant to the Company's distribution
reinvestment program. As a result, the Company received $850,039,770 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. Included in the acquisitions are the following properties which
did not have a completed Regulation S-X Rule 3-14 audit: The Columns,
Mitchell Ranch Plaza, Governor's Marketplace and Manchester Meadows. In
addition, as of September 1, 2004, Boulevard at Capital Centre was still
a potential acquisition. 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:
<Table>
<Caption>
Acquisition Mortgage
Price Payable
-----------------------------------------
The Shops at Boardwalk $ 36,642,000 20,150,000
Shoppes of Dallas 13,052,000 -
Kohl's- Wilshire Plaza III 5,750,000 -
Cranberry Square 20,220,000 10,900,000
Dorman Centre - Phase II 7,082,000 -
Tollgate Marketplace 72,300,000 39,765,000
Gateway Village (Loan Note A) 49,513,000 27,233,000
Gateway Village (Loan Note B) 4,225,000
Towson Circle (Loan Note A) 28,450,000 15,647,500
Towson Circle (Loan Note B) 3,550,000
Gateway Plaza 33,025,000 -
Wal-Mart Supercenter - Blytheville 12,935,000 7,100,000
Wrangler Company Western Headquarters 18,477,000 11,300,000
Plaza at Marysville 21,266,000 11,800,000
Forks Town Center 18,199,000 10,395,000
Academy Sports - Houma 5,250,000 2,920,000
Wal-Mart Supercenter - Jonesboro 10,853,000 6,088,500
Reisterstown Road Plaza 88,462,000 49,650,000
Village Shoppes at Simonton 13,750,000 -
Manchester Meadows 56,200,000 31,065,000
Governor's Marketplace 32,654,000 20,625,000
Mitchell Ranch Plaza 34,000,000 -
The Columns 20,770,000
Boulevard Capital Centre 130,050,000 -
-----------------------------------------
Total $ 728,900,000 272,414,000
=========================================
</Table>
F-53
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
(UNAUDITED)
(CONTINUED)
Allocation of net investments in properties:
<Table>
Land $ 81,372,000
Building and improvements 634,232,000
Acquired in-place lease intangibles 13,850,000
Acquired above market lease intangibles 3,929,000
Acquired below market lease intangibles (4,483,000)
-------------
Total $ 728,900,000
=============
</Table>
(C) Additional offering proceeds of $382,610,000, net of additional offerings
costs of $45,917,500 are reflected as received as of June 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 September 1, 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 $387,233,500 reflected as funded as of June
30, 2004, includes $272,414,000 of mortgages payable obtained subsequent to
the acquisition of the properties described in (B) and $114,819,500 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 other assets of $43,536,000 includes $5,861,000 of prepaid loan
fees applied to mortgage payables obtained subsequent to the acquisition of
the properties described in (B) and $37,675,000 of advance purchase
deposits on properties purchased as described in (B).
F-54
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 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 September 1, 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 September 1, 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 or Academy Sports - Houma, 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 Pacheo
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 six
months ended June 30, 2004 nor does it purport to represent our future results
of operations.
F-55
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
<Table>
<Caption>
Pro Forma
Historical Adjustments
(A) (B) Pro Forma
-----------------------------------------------------
Rent $ 22,885,718 45,375,681 68,261,399
Additional rent 6,110,748 10,142,682 16,253,430
Interest 456,462 - 456,462
-----------------------------------------------------
Total income 29,452,928 55,518,363 84,971,291
-----------------------------------------------------
General and administrative expenses 1,314,267 - 1,314,267
Advisor asset management fee (C) - - -
Property operating 5,510,074 16,210,458 21,720,532
Management fee (F) 1,154,272 2,481,244 3,635,516
Interest expense (H) 8,357,449 14,201,307 22,558,756
Depreciation (D) 7,493,738 17,718,382 25,212,120
Amortization (G) 2,934,613 3,204,241 6,138,854
Acquisition cost expenses 541,374 - 541,374
-----------------------------------------------------
Total expenses 27,305,787 53,815,632 81,121,419
-----------------------------------------------------
Net income $ 2,147,141 1,702,731 3,849,872
=====================================================
Unrealized gain/loss on investment securities 47,708 47,708
-----------------------------------------------------
Comprehensive income 2,194,849 1,702,731 3,897,580
=====================================================
Weighted average number of shares of common
stock outstanding, basic and diluted (E) 48,805,229 123,359,000
=============== ===============
Net income per share, basic and diluted (E) 0.04 0.03
=============== ===============
</Table>
See accompanying notes to pro forma consolidated statement of operations.
F-56
<Page>
INLAND WESTERN RETAIL ESTATE TRUST, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
(A) The historical information represents the historical statement of
operations of the Company for the period from January 1, 2004 to June 30,
2004 as filed with the Securities Exchange Commission on Form 10-Q.
(B) Total pro forma adjustments for acquisitions consummated as of September 1,
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 or Academy
Sports - Houma, 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 Pacheo 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.
<Table>
<Caption>
Gross Income
and Direct Total
Operating Pro Forma Pro Forma
Expenses (1) Adjustments Adjustments
-----------------------------------------------------
Rent $ 46,466,112 (1,090,431) 45,375,681
Additional Rent 10,142,682 - 10,142,682
-----------------------------------------------------
Total Income 56,608,794 (1,090,431) 55,518,363
-----------------------------------------------------
Advisor Fee - - -
Property operating 16,210,458 - 16,210,458
Management fee - 2,481,244 2,481,244
Interest expense - 14,201,307 14,201,307
Depreciation - 17,718,382 17,718,382
Amortization - 3,204,241 3,204,241
-----------------------------------------------------
Total Expenses 16,210,458 37,605,174 53,815,632
-----------------------------------------------------
Net Income (loss) $ 40,398,336 (38,695,605) 1,702,731
=====================================================
</Table>
(1) Unaudited combined gross income and direct operating expenses based on
information provided by the Seller for the following properties:
Newman Crossing II, Hickory Ridge, CorWest Plaza, Metro Square (Super
Value) Center, 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 at
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, and Boulevard at Capital Centre.
(C) The advisor asset management fee is expected to be subordinated to the
shareholders' receipt of a stated return thus no amount is reflected.
F-57
<Page>
INLAND WESTERN RETAIL ESTATE TRUST, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (CONTINUED)
(UNAUDITED)
(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 June 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.
(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:
<Table>
<Caption>
Mortgage Payable Interest Rate Maturity Date
-----------------------------------------------------------
The Shops at Boardwalk $ 20,150,000 4.130% 08/09
Cranberry Square 10,900,000 4.975% 08/09
Tollgate Marketplace 39,765,000 LIBOR + 120 07/09
Gateway Village (Loan Note A) 27,233,000 LIBOR + 113 07/09
Gateway Village (Loan Note B) 4,225,000 LIBOR + 200 08/05
Towson Circle (Loan Note A) 15,647,500 5.100% 07/09
Towson Circle (Loan Note B) 3,550,000 LIBOR + 200 08/05
Wal-Mart Supercenter - Blytheville 7,100,000 4.390% 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
Governor's Marketplace 20,625,000 5.185% 09/09
Manchester Meadows 31,065,000 4.480% 09/07
John's Creek Village 23,300,000 5.100% 08/09
Fullerton Metrocenter 28,050,000 5.090% 08/09
Northgate North 26,650,000 4.600% 07/08
Eckerd Drug Stores (4) 6,800,000 5.275% 08/09
Pine Ridge Plaza 14,700,000 5.085% 08/09
Davis Towne Crossing 5,365,200 5.185% 09/09
Shoppes at Prominence Point 9,954,300 5.235% 09/09
Newnan Crossing 21,543,000 4.380% 03/09
Shaw's Supermarket - New Britain 6,450,000 4.680% 11/08
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
La Plaza Del Norte 32,528,000 4.610% 03/10
</Table>
F-58
<Page>
INLAND WESTERN RETAIL ESTATE TRUST, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
Mortgage Payable Interest Rate Maturity Date
-----------------------------------------------------------
Peoria Crossings 20,497,000 4.090% 04/09
Eckerd - Edmund 1,850,000 4.374% 06/09
Eckerd - Norman 2,900,000 4.374% 06/09
Pavilion at King's Grant 5,342,000 4.390% 05/09
Metro Square Center 6,067,000 4.280% 04/09
MacArthur Crossing 12,700,000 4.290% 05/09
Promenade at Red Cliff 10,590,000 4.290% 05/09
Dorman Center I 27,610,000 4.180% 05/09
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
Bluebonnet Parc 12,100,000 4.372% 05/09
North River Town Center 11,050,000 4.760% 05/09
Alison's Corner 3,850,000 4.272% 06/10
Watauga Pavilion 17,100,000 4.140% 06/10
Northpointe Plaza 30,850,000 4.272% 05/09
Plaza Santa Fe II 17,552,000 6.200% 12/12
Arvada Marketplace and Arvada Connection 28,510,000 4.130% 07/09
Huebner Oaks Center (Loan Note A) 31,723,000 4.200% 07/10
Huebner Oaks Center (Loan Note B) 16,277,000 3.960% 07/10
Eastwood Towne Center 46,750,000 4.640% 07/09
Lakewood Towne Center (Loan Note A) 44,000,000 2.680% 06/09
Lakewood Towne Center (Loan Note B) 7,260,000 3.830% 07/05
</Table>
F-59
<Page>
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 September 1, 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
September 1, 2004. The Company believes it will have sufficient cash from
offering proceeds raised and from additional financing proceeds to acquire
these properties. No pro forma adjustments were made for the Eckerd - Edmond
and the Eckerd - 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 at Prominence Point, Low Country
Village, Shoppes of Dallas, Kohl's - Wilshire Plaza III, Dorman Center -
Phase II, Academy Sports - Houma or Village Shoppes at Simonton, as the
properties were completed in 2004 and there were no significant operations in
2003. No pro forma adjustments were made related to the Pacheo 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-60
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
(UNAUDITED)
<Table>
<Caption>
Pro Forma Pro Forma
Historical Adjustments Adjustments
(A) (B) (C) Pro Forma
--------------------------------------------------------------------------
Rent $ 606,645 93,606,504 14,893,308 109,106,457
Additional rent 137,988 22,602,787 2,145,340 24,886,115
Interest 37,648 - - 37,648
--------------------------------------------------------------------------
Total income 782,281 116,209,291 17,038,648 134,030,220
--------------------------------------------------------------------------
General and administrative expenses 315,263 - - 315,263
Advisor asset management fee (D) - - - -
Property operating 126,617 33,715,864 3,953,821 37,796,302
Management fee (G) 16,627 5,153,887 755,933 5,926,447
Interest expense (I) 135,735 31,677,488 5,926,138 37,739,361
Depreciation (E) 140,497 34,315,859 5,725,549 40,181,905
Amortization (H) 81,558 8,588,744 979,290 9,649,592
Acquisition cost expenses 139,263 - - 139,263
--------------------------------------------------------------------------
Total expenses 955,560 113,451,842 17,340,731 131,748,133
--------------------------------------------------------------------------
Net income $ (173,279) 2,757,449 (302,083) 2,282,087
==========================================================================
Weighted average number of shares of common
stock outstanding, basic and diluted (F) 2,520,986 123,359,000
================ ================
Net income per share, basic and diluted (F) (0.07) 0.02
================ ================
</Table>
See accompanying notes to pro forma consolidated statement of operations.
F-61
<Page>
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 September 1,
2004 are as though the properties were acquired January 1, 2003.
<Table>
<Caption>
Gross Income
and Direct Total
Operating Pro Forma Pro Forma
Expenses (1) Adjustments Adjustments
-----------------------------------------------------
Rent $ 95,571,079 (1,964,575) 93,606,504
Additional Rent 22,602,787 - 22,602,787
-----------------------------------------------------
Total Income 118,173,866 (1,964,575) 116,209,291
-----------------------------------------------------
Advisor Fee - - -
Property operating 33,715,864 - 33,715,864
Management fee - 5,153,887 5,153,887
Interest expense - 31,677,488 31,677,488
Depreciation - 34,315,859 34,315,859
Amortization - 8,588,744 8,588,744
-----------------------------------------------------
Total Expenses 33,715,864 79,735,978 113,451,842
-----------------------------------------------------
Net Income (loss) $ 84,458,002 (81,700,553) 2,757,449
=====================================================
</Table>
(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, Newman Crossing Phase I and II,
Pavilion at Kings Grant, Hickory Ridge, CorWest Plaza, Metro Square (Super
Value) Center, 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, 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 and Boulevard at
Capital Centre.
(C) Total pro forma adjustments for acquisitions consummated as of September 1,
2004 are as though the properties were acquired January 1, 2003. No pro
forma adjustments were made for Eckerd - Edmond or Eckerd - 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 at Prominence Point, Low Country Village, Shoppes at Dallas, Kohl's
- Wilshire Plaza III, Dorman Center - Phase II, Academy Sports - Houma or
Village Shoppes at Simonton, as the properties were completed in 2004 and
there were no significant operations in 2003. No pro forma adjustments were
made related to the Pacheo 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.
F-62
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003 (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
Gross Income
and Direct Total
Operating Pro Forma Pro Forma
Expenses (1) Adjustments Adjustments
-----------------------------------------------------
Rent $ 15,341,227 (447,919) 14,893,308
Additional Rent 2,145,340 - 2,145,340
-----------------------------------------------------
Total Income 17,486,567 (447,919) 17,038,648
-----------------------------------------------------
Advisor Fee - - -
Property operating 3,953,821 - 3,953,821
Management fee - 755,933 755,933
Interest expense - 5,926,138 5,926,138
Depreciation - 5,725,549 5,725,549
Amortization - 979,290 979,290
-----------------------------------------------------
Total Expenses 3,953,821 13,386,910 17,340,731
-----------------------------------------------------
Net Income (loss) $ 13,532,746 (13,834,829) (302,083)
=====================================================
</Table>
(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,
Manchester Meadows, Governor's Marketplace, Mitchell Ranch Plaza, and The
Columns.
(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.
(H) The value of the acquired leases will be amortized over the lease term.
F-63
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003 (CONTINUED)
(UNAUDITED)
(I) The pro forma adjustments relating to interest expense were based on the
following debt terms:
<Table>
<Caption>
Mortgage Payable Interest Rate Maturity Date
-----------------------------------------------------------
The Shops at Boardwalk 20,150,000 4.130% 08/09
Cranberry Square 10,900,000 4.975% 08/09
Tollgate Marketplace 39,765,000 LIBOR + 120 07/09
Gateway Village (Loan Note A) 27,233,000 LIBOR + 113 07/09
Gateway Village (Loan Note B) 4,225,000 LIBOR + 200 08/05
Towson Circle (Loan Note A) 15,647,500 5.100% 07/09
Towson Circle (Loan Note B) 3,550,000 LIBOR + 200 08/05
Wal-Mart Supercenter - Blytheville 7,100,000 4.390% 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
Governor's Marketplace 20,625,000 5.185% 09/09
Manchester Meadows 31,064,600 4.480% 09/07
John's Creek Village 23,300,000 5.100% 08/09
Fullerton Metrocenter 28,050,000 5.090% 08/09
Northgate North 26,650,000 4.600% 07/08
Eckerd Drug Stores (4) 6,800,000 5.275% 08/09
Pine Ridge Plaza 14,700,000 5.085% 08/09
Davis Towne Crossing 5,365,200 5.185% 09/09
Shoppes at Prominence Point 9,954,300 5.235% 09/09
Shops at Park Place 13,127,000 4.710% 11/08
Darien Towne Center 16,500,000 4.650% 06/10
Newnan Crossing 21,543,000 4.380% 03/09
Shaw's Supermarket - New Britain 6,450,000 4.680% 11/08
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
La Plaza Del Norte 32,528,000 4.610% 03/10
Peoria Crossings 20,497,000 4.090% 04/09
Eckerd - Edmund 1,850,000 4.374% 06/09
Eckerd - Norman 2,900,000 4.374% 06/09
Pavilion at King's Grant 5,342,000 4.390% 05/09
Metro Square Center 6,067,000 4.280% 04/09
MacArthur Crossing 12,700,000 4.290% 05/09
Promenade at Red Cliff 10,590,000 4.290% 05/09
Dorman Center I 27,610,000 4.180% 05/09
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
Bluebonnet Parc 12,100,000 4.372% 05/09
North River Town Center 11,050,000 4.760% 05/09
Alison's Corner 3,850,000 4.272% 06/10
</Table>
F-64
<Page>
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003 (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
Mortgage Payable Interest Rate Maturity Date
-----------------------------------------------------------
Watauga Pavilion 17,100,000 4.140% 06/10
Northpointe Plaza 30,850,000 4.272% 05/09
Plaza Santa Fe II 17,552,000 6.200% 12/12
Arvada Marketplace and Arvada Connection 28,510,000 4.130% 07/09
Huebner Oaks Center (Loan Note A) 31,723,000 4.200% 07/10
Huebner Oaks Center (Loan Note B) 16,277,000 3.960% 07/10
Eastwood Towne Center 46,750,000 4.640% 07/09
Lakewood Towne Center (Loan Note A) 44,000,000 2.680% 06/09
Lakewood Towne Center (Loan Note B) 7,260,000 3.830% 07/05
</Table>
F-65
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
November 10, 2003
F-66
<Page>
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)
<Table>
<Caption>
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
=======================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-67
<Page>
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-68
<Page>
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:
<Table>
<Caption>
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
==================
</Table>
(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-69
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Los Angeles, California
December 4, 2003
F-70
<Page>
DARIEN TOWNE CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2002
(in thousands)
<Table>
<Caption>
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-71
<Page>
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):
<Table>
<Caption>
YEAR TOTAL
------------------------------------
2003 $ 2,089
2004 1,938
2005 1,452
2006 1,440
2007 1,390
Thereafter 9,148
---------------
Total $ 17,457
===============
</Table>
F-72
<Page>
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-73
<Page>
DARIEN TOWNE CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 (unaudited)
<Table>
<Caption>
For the
year ended
December 31, 2003
(unaudited)
-----------------
Gross income:
Base rental income $ 2,123,487
Operating expense and real estate tax recoveries 514,801
-----------------
Total gross income 2,638,288
-----------------
Direct operating expenses:
Property operating expenses 628,144
-----------------
Total direct operating expenses 628,144
-----------------
Excess of gross income over direct operating expenses $ 2,010,144
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-74
<Page>
DARIEN TOWNE CENTER
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 Darien 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the year ended December 31, 2003.
F-75
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 Acquired from
Thomas Enterprises ("the Properties") 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 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
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 Properties' 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 Properties Acquired from Thomas Enterprises for the year ended
December 31, 2003, in conformity with U.S. generally accepted accounting
principles.
KPMG LLP
Chicago, Illinois
February 24, 2004
F-76
<Page>
THE PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES
Combined Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
<Table>
<Caption>
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-77
<Page>
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:
<Table>
<Caption>
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%
</Table>
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-78
<Page>
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:
<Table>
<Caption>
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
===============
</Table>
(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
<Page>
STONY CREEK MARKETPLACE
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 (unaudited)
<Table>
<Caption>
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-80
<Page>
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-81
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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
U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
March 2, 2004
F-82
<Page>
HICKORY RIDGE
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
<Table>
<Caption>
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-83
<Page>
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-84
<Page>
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:
<Table>
<Caption>
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
===============
</Table>
(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-85
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting
principles.
KPMG LLP
Chicago, Illinois
March 3, 2004
F-86
<Page>
CORWEST PLAZA
Historical Summary of Gross Income and Direct Operating Expenses
For the period from May 29, 2003 through December 31, 2003
<Table>
<Caption>
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
===================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-87
<Page>
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 thorugh 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-88
<Page>
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:
<Table>
<Caption>
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
===============
</Table>
(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
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting
principles.
KPMG LLP
Chicago, Illinois
March 3, 2004
F-90
<Page>
METRO SQUARE CENTER (SUPERVALUE)
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
<Table>
<Caption>
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-91
<Page>
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-92
<Page>
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:
<Table>
<Caption>
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
===============
</Table>
(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-93
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
February 26, 2004
F-94
<Page>
LARKSPUR LANDING
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
<Table>
<Caption>
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-95
<Page>
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-96
<Page>
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:
<Table>
<Caption>
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
===============
</Table>
(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-97
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
February 25, 2004
F-98
<Page>
NORTH RANCH PAVILION
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
<Table>
<Caption>
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-99
<Page>
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-100
<Page>
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:
<Table>
<Caption>
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
===============
</Table>
(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-101
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
February 26, 2004
F-102
<Page>
LA PLAZA DEL NORTE
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
<Table>
<Caption>
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-103
<Page>
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-104
<Page>
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:
<Table>
<Caption>
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
===============
</Table>
(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-105
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
March 1, 2004
F-106
<Page>
MACARTHUR CROSSING
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
<Table>
<Caption>
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-107
<Page>
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-108
<Page>
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:
<Table>
<Caption>
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
===============
</Table>
(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-109
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
March 5, 2004
F-110
<Page>
PROMENADE AT RED CLIFF
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
<Table>
<Caption>
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-111
<Page>
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-112
<Page>
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:
<Table>
<Caption>
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
===============
</Table>
(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-113
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
February 25, 2004
F-114
<Page>
PEORIA CROSSINGS
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
<Table>
<Caption>
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-115
<Page>
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-116
<Page>
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:
<Table>
<Caption>
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
===============
</Table>
(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-117
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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
U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
February 25, 2004
F-118
<Page>
DORMAN CENTRE
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
<Table>
<Caption>
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-119
<Page>
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-120
<Page>
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:
<Table>
<Caption>
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
===============
</Table>
(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-121
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
March 3, 2004
F-122
<Page>
HERITAGE TOWNE CROSSING
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003
<Table>
<Caption>
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-123
<Page>
HERITAGE TOWNE 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-124
<Page>
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:
<Table>
<Caption>
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
===============
</Table>
(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-125
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
May 21, 2004
F-126
<Page>
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)
<Table>
<Caption>
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
===========================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-127
<Page>
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-128
<Page>
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:
<Table>
<Caption>
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
===================
</Table>
(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-129
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
June 14, 2004
F-130
<Page>
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)
<Table>
<Caption>
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
===========================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-131
<Page>
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)
(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-132
<Page>
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:
<Table>
<Caption>
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
===================
</Table>
(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-133
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
June 14, 2004
F-134
<Page>
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)
<Table>
<Caption>
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
===========================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-135
<Page>
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-136
<Page>
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:
<Table>
<Caption>
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
===================
</Table>
(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-137
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S.
generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
May 25, 2004
F-138
<Page>
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)
<Table>
<Caption>
For the period of
October 1, 2003
For the (commencement of
three 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
===========================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-139
<Page>
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-140
<Page>
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:
<Table>
<Caption>
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
===================
</Table>
(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-141
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
June 8, 2004
F-142
<Page>
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)
<Table>
<Caption>
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
===========================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-143
<Page>
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)
(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-144
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
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
===================
</Table>
(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-145
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
June 8, 2004
F-146
<Page>
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)
<Table>
<Caption>
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
===========================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-147
<Page>
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-148
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
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
===================
</Table>
(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-149
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted
accounting principles.
KPMG LLP
Chicago, Illinois
May 28, 2004
F-150
<Page>
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)
<Table>
<Caption>
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
===========================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-151
<Page>
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-152
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
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
====================
</Table>
(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-153
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
June 7, 2004
F-154
<Page>
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)
<Table>
<Caption>
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
===========================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-155
<Page>
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-156
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
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
===================
</Table>
(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-157
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
May 25, 2004
F-158
<Page>
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)
<Table>
<Caption>
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
===========================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-159
<Page>
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-160
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
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
===================
</Table>
(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:
<Table>
<Caption>
YEAR TOTAL
----------------------------------------------
2004 $ 375,000
2005 375,000
2006 375,000
2007 375,000
2008 375,000
Thereafter 8,998,750
-------------------
$ 10,873,750
===================
</Table>
(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-161
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
June 7, 2004
F-162
<Page>
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)
<Table>
<Caption>
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
===========================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-163
<Page>
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-164
<Page>
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 (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:
<Table>
<Caption>
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
===================
</Table>
(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-165
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
June 7, 2004
F-166
<Page>
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)
<Table>
<Caption>
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
===========================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-167
<Page>
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-168
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
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
===================
</Table>
(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-169
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 period from September 21, 2003
(commencement of operations) to December 31, 2003, in conformity with U.S.
generally accepted principles.
KPMG LLP
Chicago, Illinois
August 13, 2004
F-170
<Page>
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)
<Table>
<Caption>
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
======================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-171
<Page>
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, 2002 (commencement of operations) to December
31, 2003.
F-172
<Page>
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 (continued)
(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:
<Table>
<Caption>
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
=============
</Table>
(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-173
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
July 15, 2004
F-174
<Page>
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)
<Table>
<Caption>
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 643,743 1,270,667
-------------------------------------
Total gross income 3,332,023 5,878,635
-------------------------------------
Direct operating expenses:
Operating expenses 370,699 741,397
Real estate taxes 313,628 597,386
Insurance 87,680 180,379
-------------------------------------
Total direct operating expenses 772,007 1,519,162
-------------------------------------
Excess of gross income over direct operating expenses $ 2,560,016 4,359,473
=====================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-175
<Page>
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-176
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
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
==============
</Table>
(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-177
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
August 3, 2004
F-178
<Page>
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)
<Table>
<Caption>
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
=====================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-179
<Page>
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-180
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
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
==============
</Table>
(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-181
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 from July 18, 2003 (commencement
of operations) to December 31, 2003, in conformity with U.S. generally accepted
principles.
KPMG LLP
Chicago, Illinois
July 30, 2004
F-182
<Page>
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)
<Table>
<Caption>
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 122,278 108,513
---------------------------------------
Excess of gross income over direct operating expenses $ 274,400 90,573
=======================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-183
<Page>
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 from 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 from 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 from 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 from July 18, 2003 (commencement of operations) to December 31,
2003.
F-184
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
YEAR TOTAL
---------------------------------
2004 $ 653,726
2005 658,033
2006 658,033
2007 631,620
2008 541,343
Thereafter 2,270,444
--------------
$ 5,413,199
==============
</Table>
(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-185
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
August 13, 2004
F-186
<Page>
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)
<Table>
<Caption>
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 684,620 1,242,613
-------------------------------------
Total gross income 2,359,294 4,334,699
-------------------------------------
Direct operating expenses:
Operating expenses 433,953 867,906
Real estate taxes 197,392 375,985
Insurance 103,050 206,100
-------------------------------------
Total direct operating expenses 734,395 1,449,991
-------------------------------------
Excess of gross income over direct operating expenses $ 1,624,899 2,884,708
=====================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-187
<Page>
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-188
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
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
==============
</Table>
(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-189
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
August 1, 2004
F-190
<Page>
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)
<Table>
<Caption>
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
=====================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-191
<Page>
CRANBERRY SQUARE
Note 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-192
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
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
==============
</Table>
(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-193
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Dallas, Texas
August 18, 2004
F-194
<Page>
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)
<Table>
<Caption>
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
=====================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-195
<Page>
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-196
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
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
==============
</Table>
(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 unaffiliated third party under the ground lease
in effect at December 31, 2003, are as follows:
<Table>
<Caption>
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
==============
</Table>
F-197
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
August 3, 2004
F-198
<Page>
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)
<Table>
<Caption>
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 179,865 358,545
-------------------------------------
Total gross income 943,551 1,872,014
-------------------------------------
Direct operating expenses:
Operating expenses 82,014 164,027
Real estate taxes 79,251 150,954
Insurance 17,081 34,162
-------------------------------------
Total direct operating expenses 178,346 349,143
-------------------------------------
Excess of gross income over direct operating expenses $ 765,205 1,522,871
=====================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-199
<Page>
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-200
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
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
==============
</Table>
(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-201
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
August 11, 2004
F-202
<Page>
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)
<Table>
<Caption>
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 189,220 350,400
-------------------------------------
Total gross income 961,137 1,726,894
-------------------------------------
Direct operating expenses:
Operating expenses 81,011 162,022
Real estate taxes 110,551 189,136
Insurance 7,880 15,759
-------------------------------------
Total direct operating expenses 199,442 366,917
-------------------------------------
Excess of gross income over direct operating expenses $ 761,695 1,359,977
=====================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-203
<Page>
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-204
<Page>
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 (continued)
(unaudited)
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:
<Table>
<Caption>
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
==============
</Table>
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-205
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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 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 U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
August 6, 2004
F-206
<Page>
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)
<Table>
<Caption>
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
=====================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expense.
F-207
<Page>
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:
<Table>
<Caption>
Gross Occupancy at
Leasable 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 Tollgate Marketplace 393,000 Bel Air, MD 99%
Venture
Towson Circle Joint Towson Circle 178,000 Towson, MD 91%
Venture, LLP
Reisterstown Plaza Reisterstown Road Plaza 782,000 Baltimore, MD 89%
Holdings, LLC
</Table>
Thirteen tenants account for 40% or the Properties' base rental income.
Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") through established
limited liability companies ("LLCs") 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 LLCs
and will control the LLCs' management and operation of the Properties. The
Combined Historical Summary represents the combination of the Properties
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 the 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 of the Properties' gross leasable area (representing
the remaining 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.
(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
F-208
<Page>
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 (continued)
(unaudited)
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.
Minimum rents to be received from tenants under operating leases which terms
range from one year to twenty-five years, in effect at December 31, 2003, are as
follows:
<Table>
<Caption>
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
==============
</Table>
(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.
F-209
<Page>
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 (continued)
(unaudited)
Minimum rents to be paid to the unaffiliated third party under the ground lease
in effect at December 31, 2003 are as follows:
<Table>
<Caption>
YEAR TOTAL
---------------------------------
2004 $ 92,824
2005 94,057
2006 97,433
2007 98,579
2008 99,791
Thereafter 9,477,524
--------------
$ 9,960,208
==============
</Table>
F-210
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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
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 U.S. generally accepted
accounting principles.
KPMG LLP
Chicago, Illinois
August 25, 2004
F-211
<Page>
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)
<Table>
<Caption>
FOR THE PERIOD FROM MAY 30,
FOR THE 2003 (COMMENCEMENT OF
SIX MONTHS ENDED OPERATIONS)
JUNE 30, 2004 TO 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
===============================================
</Table>
F-212
<Page>
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-213
<Page>
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 (continued)
(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:
<Table>
<Caption>
YEAR
--------------
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
================
</Table>
(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-214
<Page>
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)
<Table>
<Caption>
FOR THE
PERIOD FROM MARCH 1,
2004 TO JUNE 30, 2004
---------------------
(unaudited)
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
====================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-215
<Page>
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 period from March 1, 2004 (commencement of
operations) to June 30, 2004.
F-216
<Page>
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)
<Table>
<Caption>
For the
Period from February 1,
2004 to June 30, 2004
-----------------------
(unaudited)
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
=================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-217
<Page>
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-218
<Page>
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)
<Table>
<Caption>
FOR THE
PERIOD FROM MARCH 1,
2004 TO JUNE 30, 2004
---------------------
(unaudited)
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
================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-219
<Page>
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-220
<Page>
DORMAN CENTER - 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)
<Table>
<Caption>
FOR THE
PERIOD FROM MARCH 15,
2004 TO JUNE 30, 2004
---------------------
(unaudited)
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
===============
</Table>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-221
<Page>
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-222
<Page>
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)
<Table>
<Caption>
FOR THE
PERIOD FROM MAY 1,
2004 TO JUNE 30, 2004
---------------------
(unaudited)
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
============
</Table>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-223
<Page>
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) through 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-224
<Page>
MANCHESTER MEADOWS
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 (unaudited)
and the six months ended June 30, 2004 (unaudited)
<Table>
<Caption>
FOR THE
SIX MONTHS FOR THE YEAR
ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003
-------------------------------------
(unaudited) (unaudited)
Gross income:
Base rental income 2,038,182 4,118,136
Operating expense and real estate tax recoveries $ 132,859 266,952
-------------------------------------
Total gross income 2,171,041 4,385,088
-------------------------------------
Direct operating expenses:
Operating Expenses 181,584 618,012
Real estate taxes 397,296 794,592
Insurance 48,067 96,120
-------------------------------------
Total direct operating expenses 626,947 1,508,724
-------------------------------------
Excess of gross income over direct operating expenses $ 1,544,094 2,876,364
=====================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-225
<Page>
MANCHESTER MEADOWS
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 (unaudited)
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 Manchester
Meadows 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 six
months ended June 30, 2004, respectively.
F-226
<Page>
GOVERNOR'S MARKETPLACE
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 (unaudited)
and the six months ended June 30, 2004 (unaudited)
<Table>
<Caption>
FOR THE FOR THE YEAR
SIX MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003
-------------------------------------
(unaudited) (unaudited)
Gross income:
Base rental income 1,381,736 2,161,297
Operating expense and real estate tax recoveries $ 160,276 195,768
-------------------------------------
Total gross income 1,542,012 2,357,065
-------------------------------------
Direct operating expenses:
Operating Expenses 287,230 429,945
Real estate taxes 62,714 89,442
Insurance 1,100 2,270
-------------------------------------
Total direct operating expenses 351,044 521,657
-------------------------------------
Excess of gross income over direct operating expenses $ 1,190,968 1,835,408
=====================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-227
<Page>
GOVERNOR'S MARKETPLACE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 (unaudited)
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 Governor's
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 and the six
months ended June 30, 2004, respectively.
F-228
<Page>
MITCHELL RANCH PLAZA
Historical Summary of Gross Income and Direct Operating Expenses
For the period from July 15, 2003 (commencement of operations) to December 31,
2003 (unaudited)
and the six months ended June 30, 2004 (unaudited)
<Table>
<Caption>
FOR THE PERIOD FROM
JULY 15, 2003
FOR THE (COMMENCEMENT OF
SIX MONTHS ENDED OPERATIONS) TO
JUNE 30, 2004 DECEMBER 31, 2003
--------------------------------------
(unaudited) (unaudited)
Gross income:
Base rental income 1,110,406 485,246
Operating expense and real estate tax recoveries $ 180,235 156,893
--------------------------------------
Total gross income 1,290,641 642,139
--------------------------------------
Direct operating expenses:
Operating Expenses 96,098 98,400
Real estate taxes 90,270 86,234
Insurance 22,502 16,117
--------------------------------------
Total direct operating expenses 208,870 200,751
--------------------------------------
Excess of gross income over direct operating expenses $ 1,081,771 441,388
======================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-229
<Page>
MITCHELL RANCH PLAZA
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from July 15, 2003 (commencement of operations) to December 31,
2003 (unaudited)
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
period from July 15, 2003 (commencement of operations) to 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 Mitchell Ranch 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.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from July 15, 2003 (commencement
of operations) to December 31, 2003 and the six months ended June 30, 2004,
respectively.
F-230
<Page>
THE COLUMNS
Historical Summary of Gross Income and Direct Operating Expenses
For the period from October 1, 2003 (commencement of operations) to December 31,
2003 (unaudited)
and the six months ended June 30, 2004 (unaudited)
<Table>
<Caption>
FOR THE FOR THE PERIOD FROM
SIX MONTHS ENDED OCTOBER 1, 2003 TO
JUNE 30, 2004 DECEMBER 31, 2003
--------------------------------------
(unaudited) (unaudited)
Gross income:
Base rental income 597,035 226,691
Operating expense and real estate tax recoveries $ 116,156 20,247
--------------------------------------
Total gross income 713,191 246,938
--------------------------------------
Direct operating expenses:
Operating Expenses 57,982 23,072
Real estate taxes 96,450 21,452
Insurance 10,762 8,417
--------------------------------------
Total direct operating expenses 165,194 52,941
--------------------------------------
Excess of gross income over direct operating expenses $ 547,997 193,997
======================================
</Table>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-231
<Page>
THE COLUMNS
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from October 1, 2003 (commencement of operations) to December 31,
2003 (unaudited)
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
period from October 1, 2003 (commencement of operations) to 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 The Columns 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 October 1, 2003 (commencement
of operations) to December 31, 2003 and the six months ended June 30, 2004,
respectively.
F-232
<Page>
APPENDIX A
PRIOR PERFORMANCE TABLES
The following prior performance tables contain information concerning
real estate programs sponsored by affiliates of our 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 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.
A-1
<Page>
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 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.
<Table>
<Caption>
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)
</Table>
A-2
<Page>
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.
A-3
<Page>
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 advisor
which had purchased such properties from unaffiliated third parties.
<Table>
<Caption>
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
</Table>
A-4
<Page>
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.
A-5
<Page>
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
A-6
<Page>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
INLAND RETAIL REAL ESTATE TRUST INC.
<Table>
<Caption>
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%
=============
</Table>
A-7
<Page>
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)
<Table>
<Caption>
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
===============================================
</Table>
(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.
<Table>
<Caption>
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
===============================================================
</Table>
A-8
<Page>
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 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.
<Table>
<Caption>
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
</Table>
(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.
A-9
<Page>
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 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.
A-10
<Page>
TABLE V (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
<Table>
<Caption>
Cash Selling
Received, Commissions Secured
net of Paid or Mortgage Notes
Date Date of Closing Payable to at Time Received
Acquired Sale Costs(B) Inland of Sale at Sale
- ------------------------------------------------------------------------------------------------------------------
IREC - Lincoln Park Place 01/24/97 04/17/01 1,314 0 1,050 0
IREC - Antioch Plaza 12/95 03/28/02 943 0 875 0
IREC - Shorecrest Plaza 07/97 06/12/02 3,107 0 2,978 0
IREC - Popeye's 06/97 04/08/03 343 0 0 0
IREC - Summit of Park Ridge 12/96 12/24/03 3,578 0 1,600 0
IREC - Eagle Country Market 11/97 12/24/03 5,182 0 1,450 0
IREC - Eagle Ridge Center 04/99 12/30/03 3,185 0 3,000 0
<Caption>
Adjust.
Resulting Partnership
from Net Original Capital
Application Selling Mortgage Invested
of GAAP Price Financing (C) Total
- -----------------------------------------------------------------------------------------------
IREC - Lincoln Park Place 0 2,364 0 1,897 1,897
IREC - Antioch Plaza 0 1,818 875 753 1,628
IREC - Shorecrest Plaza 0 6,085 2,978 2,947 5,925
IREC - Popeye's 0 343 0 346 346
IREC - Summit of Park Ridge 0 5,178 0 5,181 5,181
IREC - Eagle Country Market 0 6,632 0 6,635 6,635
IREC - Eagle Ridge Center 0 6,185 0 6,187 6,187
<Caption>
Excess (deficiency) Amount of
of property operating subsidies
cash receipts over included in Total Taxable
cash 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
</Table>
A-11
<Page>
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.
A-12
<Page>
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.
A-13
<Page>
TABLE VI- (CONTINUED)
ACQUISITIONS OF PROPERTIES BY PROGRAMS (A)
(000'S OMITTED, EXCEPT FOR NUMBER OF SQUARE FEET)
<Table>
<Caption>
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
========= ========== =========
<Caption>
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
========== ======== ==========
</Table>
A-14
<Page>
<Table>
<Caption>
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 -
<Caption>
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
</Table>
A-15
<Page>
<Table>
<Caption>
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 -
<Caption>
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
</Table>
A-16
<Page>
<Table>
<Caption>
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 -
<Caption>
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
</Table>
A-17
<Page>
<Table>
<Caption>
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 -
<Caption>
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
</Table>
A-18
<Page>
<Table>
<Caption>
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 -
<Caption>
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
</Table>
A-19
<Page>
<Table>
<Caption>
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
<Caption>
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
</Table>
A-20
<Page>
<Table>
<Caption>
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 -
<Caption>
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
</Table>
A-21
<Page>
<Table>
<Caption>
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 -
<Caption>
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
</Table>
A-22
<Page>
<Table>
<Caption>
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
===============================================================================
<Caption>
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
=============================================================
</Table>
A-23
<Page>
TABLE VI- (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."
A-24
<Page>
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
<Page>
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
<Page>
<Page>
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). (Iowa 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 SENT ALONG WITH THIS PROPERLY
COMPLETED AND 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.
C-1
<Page>
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
OR 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 A 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, OR UNTIL THE COMPANY HAS SENT ME
WRITTEN NOTICE OF TERMINATION OF THIS AUTHORIZATION.
C-2
<Page>
[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
<Table>
NON-CUSTODIAL OWNERSHIP CUSTODIAL OWNERSHIP
MAKE CHECK PAYABLE TO: LBNA/ESCROW AGENT FOR IWRRET MAKE CHECK PAYABLE TO THE CUSTODIAN LISTED BELOW
AND SEND ALL PAPERWORK DIRECTLY TO THE CUSTODIAN
(2)a / / INDIVIDUAL OWNERSHIP - one signature required (2)a / / TRADITIONAL IRA - custodian signature required
/ / TOD (FILL OUT TOD FORM TO EFFECT DESIGNATION) / / ROTH IRA - custodian signature required
/ / JOINT TENANTS WITH RIGHT OF SURVIVORSHIP - all parties must sign / / KEOGH - trustee signature required
/ / COMMUNITY PROPERTY - all parties must sign / / SIMPLIFIED EMPLOYEE PENSION/TRUST (S.E.P.)
/ / TENANTS IN COMMON - all parties must sign - trustee signature required
/ / TENANTS BY THE ENTIRETY - all parties must sign / / PENSION OR PROFIT SHARING PLAN - custodian
/ / CORPORATE OWNERSHIP - authorized signature required signature required
/ / PARTNERSHIP OWNERSHIP - authorized signature required / / TAXABLE / / EXEMPT UNDER SECTION 501A
/ / LLC OWNERSHIP - authorized signature required NAME OF CUSTODIAN OR OTHER ADMINISTRATOR________
/ / UNIFORM GIFTS TO MINORS ACT - custodian signature required ________________________________________________
/ / OTHER (SPECIFY)_________________________________
STATE OF ________________ A CUSTODIAN FOR_______________________ (2)b
/ / PENSION OR PROFIT SHARING PLAN - trustee signature(s) required ____________________________________________________
/ / TAXABLE / / EXEMPT UNDER SECTION 501A NAME OF CUSTODIAN OR TRUSTEE
NAME OF TRUSTEE OR OTHER ADMINISTRATOR__________________________ ____________________________________________________
MAILING ADDRESS
________________________________________________________________ ____________________________________________________
/ / TRUST - trustee or grantor signature(s) required CITY, STATE, ZIP
(2)c CUSTODIAN INFORMATION TO BE COMPLETED BY CUSTODIAN
/ / TAXABLE / / GRANTOR A OR B DATE TRUST ESTABLISHED_________ LISTED ABOVE
NAME OF TRUSTEE OR OTHER ADMINISTRATOR__________________________
________________________________________________________________ CUSTODIAN TAX ID # -
/ / ESTATE - personal representative signature required CUSTODIAL ACCOUNT #
/ / OTHER (SPECIFY) ________________________________________________ CUSTODIAN TELEPHONE - -
</Table>
C - SUBSCRIBER INFORMATION
<Table>
(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 / / MM/DD/YYYY
OF INCORPORATION DATE
(8) SOCIAL SECURITY # - - CO-SUBSCRIBER SOCIAL - -
SECURITY #
TAX ID # -
(9) PLEASE INDICATE CITIZENSHIP STATUS
/ / U.S. CITIZEN / / RESIDENT ALIEN / / NON-RESIDENT ALIEN
(10) / / EMPLOYEE OR AFFILIATE
</Table>
C-3
<Page>
D - DISTRIBUTION OPTIONS
<Table>
DISTRIBUTION OPTIONS FOR NON-CUSTODIAL ACCOUNTS DISTRIBUTION OPTIONS FOR CUSTODIAL ACCOUNTS
(11)a / / MAIL TO ADDRESS OF RECORD (12)a / / MAIL TO CUSTODIAL ACCOUNT
(11)b / / DISTRIBUTION REINVESTMENT PROGRAM: Subscriber (12)b / / DISTRIBUTION REINVESTMENT PROGRAM: Subscriber elects to
elects to participate in the Distribution participate Distribution Reinvestment Program described in
Reinvestment Program in the described in the the Prospectus.
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
</Table>
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 B/D REP ID NUMBER #
REPRESENTATIVE
/ / Mr. / / Mrs. / / Ms.
MAILING ADDRESS - -
CITY, STATE &
ZIP CODE REGISTERED REPRESENTATIVE'S TELEPHONE
HAVE YOU CHANGED BROKER/DEALERS? / / YES / / NO
BROKER/DEALER
NAME -----------------------------------------------
REGISTERED REPRESENTATIVE'S E-MAIL
HOME OFFICE
MAILING ADDRESS
X
CITY, STATE & -----------------------------------------------
ZIP CODE SIGNATURE--REGISTERED REPRESENTATIVE
B/D CLIENT X
ACCOUNT NUMBER # -----------------------------------------------
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.
C-4
<Page>
Appendix D
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
TRANSFER ON DEATH FORM (T.O.D.)
<Table>
Use this form to designate a T.O.D. beneficiary(ies). Please mail this form to:
This form is NOT VALID for IRA accounts. Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
Attn: Investor Services
A. INVESTOR INFORMATION
1. Name of registered owner(s), exactly as name(s) 3. Daytime phone number:
appear(s) on stock certificate of subscription
agreement:
________________________________________________ - -
--- --- ----
________________________________________________
2. Social Security number(s) of registered 4. State of Residence:
owner(s):
- - _________________________________
--- --- ----
- -
--- --- ----
</Table>
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%.
<Table>
1. Name of Primary Beneficiary: 1. Name of Primary Beneficiary:
________________________________________________ _____________________________________
2. Social Security Number: 2. Social Security Number:
- - - -
--- -- ---- --- -- ----
OR Tax Identification Number: OR Tax Identification Number:
- -
-- ------- -- -------
3. Percentage: % 3. Percentage: %
--- ---
</Table>
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
TRANSFER ON DEATH INFORMATION
D-1
<Page>
- - 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.
D-2
<Page>
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
<Page>
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
<Page>
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
<Page>
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
<Page>
[INLAND WESTERN LOGO]
RETAIL REAL ESTATE TRUST, INC.
Up to 270,000,000 shares
Inland Western Retail Real Estate Trust, Inc.
Common Stock
----------
PROSPECTUS
----------
[-], 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 , ______ 2004 (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.
<Page>
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<Table>
Securities and Exchange Commission registration fee $ 340,823
NASD filing fee 30,500
Printing and mailing expenses 3,500,000
Blue Sky fees and expenses 136,000
Legal fees and expenses 650,000
Accounting fees and expenses 650,000
Advertising and sales literature 5,000,000
Due diligence 3,000,000
Transfer agent fees 800,000
Data processing fees 500,000
Bank fees and other administrative expenses 200,000
------------
Total $ 14,807,323
============
</Table>
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; however, any subsequent
purchases of shares by any such persons are limited to a maximum discount of 5%.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
As of September 1, 2004, 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 15,000 shares at an exercise price of
$8.95 per share 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 annual meeting). None of such options have been exercised.
Therefore, no shares have been issued in connection with such options.
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
II-1
<Page>
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.
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.
II-2
<Page>
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.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
The following financial statements are included as part of the registration
statement in the prospectus:
<Table>
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) Consoldiated Statement of Operations for the period from March 5, 2003 (inception)
through 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 June 30, 2004 (unaudited) and December 31, 2003
(h) Consolidated Statements of Operations for the three and six months ended June 30,
2004, three months ended June 30, 2003, and the period from March 5, 2003 (inception) through June 30,
2003 (unaudited)
(i) Consolidated Statement of Stockholders' Equity for the six month period ended
June 30, 2004 (unaudited)
(j) Consolidated Statements of Cash Flows for the six months ended June 30, 2004,
and the period from March 5, 2003 (inception) to June 30, 2003 (unaudited)
(k) Notes to Consolidated Financial Statements (unaudited)
(l) Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 2004
(m) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 2004
(n) Pro Forma Consolidated Statement of Operations (unaudited) for the six months ended
June 30, 2004
(o) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the six
months ended June 30, 2004
(p) Pro Forma Consolidated Statements of Operations (unaudited) for the year ended
December 31, 2003
(q) Notes to Pro Forma Consolidated Statements of Operations (unaudited) for
December 31, 2003
2. SHOPS AT PARK PLACE:
(a) Report of Independent Registered Public Accounting Firm
(b) 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)
II-3
<Page>
(c) Notes to the 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)
3. DARIEN TOWNE CENTER:
(a) Report of Independent Registered Public Accounting Firm
(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
(d) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003 (unaudited)
(e) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 (unaudited)
4. PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES IN 2003:
(a) Report of Independent Registered Public Accounting Firm
(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:
II-4
<Page>
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 (unaudited)
7. CORWEST PLAZA:
(a) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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-5
<Page>
13. PROMENADE AT RED CLIFF:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 2003 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for
the year ended December 31, 2003 (unaudited)
14. PEORIA CROSSINGS:
(a) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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
16. HERITAGE TOWNE CROSSING:
(a) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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)
18. BEST ON THE BOULEVARD:
(a) Report of Independent Registered Public Accounting Firm
(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)
19. BLUEBONNET PARC:
(a) Report of Independent Registered Public Accounting Firm
(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)
20. NORTH RIVERS TOWN CENTER:
(a) Report of Independent Registered Public Accounting Firm
II-6
<Page>
(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 the 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) Report of Independent Registered Public Accounting Firm
(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)
22. EASTWOOD TOWNE CENTER:
(a) Report of Independent Registered Public Accounting Firm
(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)
23. WATAUGA PAVILION:
(a) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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)
25. PLAZA SANTA FE II:
(a) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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)
27. HUEBNER OAKS CENTER:
(a) Report of Independent Registered Public Accounting Firm
(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)
II-7
<Page>
(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)
28. JOHN'S CREEK VILLAGE:
(a) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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
II-8
<Page>
year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
33. CRANBERRY SQUARE:
(a) Report of Independent Registered Public Accounting Firm
(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)
34. GATEWAY PLAZA SHOPPING CENTER:
(a) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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) Report of Independent Registered Public Accounting Firm
(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:
II-9
<Page>
(a) Report of Independent Registered Public Accounting Firm
(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. SHOPPES AT PROMINENCE POINT:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from March 1, 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 from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
40. LOW COUNTRY VILLAGE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from February 1, 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 from February 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
41. SHOPPES OF DALLAS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from March 1, 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 from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
42. DORMAN CENTRE - PHASE II:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from March 15, 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 from March 15, 2004 (commencement of operations) to June 30, 2004 (unaudited)
II-10
<Page>
43. VILLAGE SHOPPES AT SIMONTON:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from May 1, 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 from May 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
44. MANCHESTER MEADOWS:
(a) 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)
(b) 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. GOVERNOR'S MARKETPLACE:
(a) 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)
(b) 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)
46. MITCHELL RANCH PLAZA:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from July 15, 2003 (commencement of operations) to December 31, 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 period from July 15, 2003 (commencement of operations) to December 31, 2003 and the six months
ended June 30, 2004 (unaudited)
47. THE COLUMNS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period
from October 1, 2003 (commencement of operations) to December 31, 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 period from October 1, 2003 (commencement of operations) to December 31, 2003 and the six months
ended June 30, 2004 (unaudited)
</Table>
II-11
<Page>
Expenses for the period from October 1, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
(b) Exhibits
<Table>
<Caption>
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.
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.
10.3** 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.
10.5* 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.
10.8*** Assignment of Purchase and Sale Agreement (Re: Peoria Station) dated June 3, 2003.
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.
</Table>
II-12
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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.
10.35****** Guaranty Agreement (Re: CorWest Plaza) dated January 1, 2004.
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,
</Table>
II-13
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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.
10.61******* Secured Promissory Note Loan No. 753820 (Re: Larkspur Landing) dated January 30, 2004.
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 Crossng) 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,
</Table>
II-14
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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.
10.87********* Vacancy Escrow Agreement (Re: Heritage Towne Crossing) dated March 5, 2004.
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.
10.91********* Amended Purchase Agreement (Re: Dorman Center) dated December 10, 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.
10.115********* Escrow Agreement (Re: Paradise Valley Marketplace) dated April 8, 2004.
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
</Table>
II-15
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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.
10.141********* Escrow Agreement (Re: Arvada Connection and Arvada Marketplace) dated April 29, 2004.
10.142********* Redevelopment Agreement (Re: Arvada Connection and Arvada Marketplace) dated April 28, 2004.
10.143********* Easements With Covenants and Restrictions Affecting Land (Re: Arvada Marketplace) dated
April 29, 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
</Table>
II-16
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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.
10.169******** Notice of Final Agreement Loan No. 753943 (Re: Watauga Pavilion) dated June 7, 2004.
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.
</Table>
II-17
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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.
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.
</Table>
II-18
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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)
datd 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.
10.223******** Master Lease Escrow Agreement (Re: Paradise Shoppes at Dallas) dated July 1, 2004.
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
10.228 Assignment of Contract (Re: Eckerds - Colimbia) 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
</Table>
II-19
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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
10.253 Limited Payment Guaranty (Re: Northgate North) dated July 2004
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
10.281 Loan Agreement (Re: Academy Sports and Outdoors - Houma) dated August 4, 2004
10.282 Promissory Note (Re: Resisterstown 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
</Table>
II-20
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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
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).
24.1 Power of Attorney (included on signature page hereto)
</Table>
<Table>
* 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 (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.
</Table>
+ To be filed by amendment.
II-21
<Page>
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
Securities Act of 1933;
(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
Securities Act of 1933, 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 an 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 Securities and
Exchange 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 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
II-22
<Page>
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 Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions and otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange 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-23
<Page>
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 this Form S-11 and has duly
caused this 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 8th day of September, 2004.
INLAND WESTERN RETAIL REAL ESTATE
TRUST, INC.
By: /s/ Robert D. Parks
----------------------------------------
Name: Robert D. Parks
Title: Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Roberta S. Matlin and Scott W. Wilton,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act), and to file the same, with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof. This power of attorney may be executed
in counterparts.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
Name Capacity Date
- ------------------------------------- ------------------------------------------- -------------------------
/s/ Robert D. Parks Chairman, Chief Executive Officer September 8, 2004
- ---------------------------------- and Director
Robert D. Parks
/s/ Steven P. Grimes Treasurer and Principal Financial September 8, 2004
- ---------------------------------- Officer
Steven P. Grimes
/s/ Lori J. Foust Principal Accounting Officer September 8, 2004
- ----------------------------------
Lori J. Foust
/s/ Brenda G. Gujral Director September 8, 2004
- ----------------------------------
Brenda G. Gujral
/s/ Frank A. Catalano, Jr. Independent Director September 8, 2004
- ----------------------------------
Frank A. Catalano, Jr.
</Table>
II-24
<Page>
<Table>
/s/ Kenneth H. Beard Independent Director September 8, 2004
- ----------------------------------
Kenneth H. Beard
/s/ Paul R. Gauvreau Independent Director September 8, 2004
- ----------------------------------
Paul R. Gauvreau
/s/ Gerald M. Gorski Independent Director September 8, 2004
- ----------------------------------
Gerald M. Gorski
/s/ Barbara A. Murphy Independent Director September 8, 2004
- ----------------------------------
Barbara A. Murphy
</Table>
II-25
<Page>
EXHIBIT INDEX
<Table>
<Caption>
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
10.228 Assignment of Contract (Re: Eckerds - Colimbia) 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
10.253 Limited Payment Guaranty (Re: Northgate North) dated July 2004
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
</Table>
II-26
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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
10.281 Loan Agreement (Re: Academy Sports and Outdoors - Houma) dated August 4, 2004
10.282 Promissory Note (Re: Resisterstown 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
23.1 Consent of KPMG LLP
24.1 Power of Attorney (included on signature page hereto)
</Table>
II-27