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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For The Fiscal Year Ended December 31, 2002

or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File #0-28382

INLAND REAL ESTATE CORPORATION

(Exact name of registrant as specified in its charter)


Maryland

#36-3953261

(State or other jurisdiction

(I.R.S. Employer Identification Number)

of incorporation or organization)

 

2901 Butterfield Road, Oak Brook, Illinois

60523

(Address of principal executive office)

(Zip code)

Registrant's telephone number, including area code: 630-218-8000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Name of each exchange on which registered:

None

None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class:

Name of each exchange on which registered:

Common Stock, $.01 par value

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes X No__

As of March 24, 2003, the aggregate market value of the Shares of Common Stock held by of the registrant was $712,935,531.

As of March 24, 2003, there were 64,812,321 Shares of Common Stock outstanding.

Documents Incorporated by Reference: Portions of the Registrant's proxy statement for the annual stockholders meeting to be held in 2003 are incorporated by reference into Part III.

INLAND REAL ESTATE CORPORATION

(a Maryland corporation)

 

TABLE OF CONTENTS

 

 

Page

 

Part I

 

 

 

 

Item 1.

Business

3

 

 

 

Item 2.

Properties

5

 

 

 

Item 3.

Legal Proceedings

17

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

17

 

 

 

 

Part II

 

 

 

 

Item 5.

Market for Registrant's Common Equity and Related Stockholder Matters

17

 

 

 

Item 6.

Selected Financial Data

18

 

 

 

Item 7.

Management's Discussion and Analysis of Financial Condition and

  Results of Operation

20

 

 

 

Item 7(a).

Quantitative and Qualitative Disclosures About Market Risk

39

 

 

 

Item 8.

Financial Statements and Supplementary Data

40

 

 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and

  Financial Disclosure

80

 

 

 

 

Part III

 

 

 

 

Item 10.

Directors and Executive Officers of the Registrant

80

 

 

 

Item 11.

Executive Compensation

80

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management

80

 

 

 

Item 13.

Certain Relationships and Related Transactions

80

 

 

 

Item 14.

Controls and Procedures

80

 

 

 

 

Part IV

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules and Reports on Form 8-K

81

 

 

 

SIGNATURES

 

83

 

 

 

CERTIFICATIONS

 

84

 

PART I

 

Item 1. Business

General

Inland Real Estate Corporation is a self-administered real estate investment trust ("REIT") formed under Maryland law. We qualified as a REIT under the Internal Revenue Code of 1986, as amended (the "Code") for federal income tax purposes commencing with the tax year ending December 31, 1995. Since we qualified for taxation as a REIT, we are generally not subject to federal income tax to the extent we satisfy certain tests. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate tax rates. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property and federal income and excise taxes on our undistributed income.

We own and acquire "Neighborhood Retail Centers" and "Community Centers" located primarily within an approximate 400-mile radius of our headquarters in Oak Brook, Illinois as well as single-user retail properties located throughout the United States, either directly or through sale and leaseback transactions. We are also permitted to construct or develop properties, or render services in connection with such development or construction, subject to our compliance with the rules governing real estate investment trusts under the Code. As of December 31, 2002, we had ownership interests in 134 investment properties comprised of:

During the year ended December 31, 2000, we 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 we wholly own. We issued an aggregate of 6,181,818 shares of our common stock valued at $11.00 per share to Inland Real Estate Investment Corporation and The Inland Property Management Group, Inc. As a result of the merger, we are now "self-administered." We no longer pay advisory or property management fees but instead have hired an internal staff to perform these tasks.

We generally limit our indebtedness to an amount not to exceed fifty percent (50%) of the carrying value of our investment properties, as determined by appraisal at the time of financing the particular property and may not incur indebtedness exceeding three hundred percent (300%) of "net assets" as defined in our organizational documents. As of December 31, 2002, we had borrowed a total of approximately $582,282,000, of which approximately $104,837,000 bears interest at variable rates. Indebtedness at December 31, 2002 was approximately 48% of the book value of our investment properties.

Our business is not seasonal. We compete on the basis of rental rates and property operations with similar types of properties located in the vicinity of our investment properties. We have no real property investments located outside of the United States. We compete with numerous other properties in attracting tenants. Some of the competing properties may be newer, better located or owned by parties that are better capitalized. We believe that our investment properties will continue to attract tenants on a competitive basis. In additions, our properties compete against other forms of retailing such as catalog companies and e-commerce websites that offer similar retail products. We assess and measure operating results on an individual property basis for each of our investment properties. Since all of our investment properties exhibit highly similar economic characteristics, generally have tenants that offer products catering to the day-to-day living needs of individuals, and offer similar degrees of risk a nd opportunities for growth, the shopping centers have been aggregated and reported as one operating segment. As of December 31, 2002, we employed a total of fifty-three people, none of whom are represented by a union.

We review and monitor compliance with federal, state and local provisions, which have been enacted or adopted regulating the discharge of material into the environment, or otherwise relating to the protection of the environment. For the year ended December 31, 2002, we did not incur any material capital expenditures for environmental control facilities nor do we anticipate incurring material amounts during the year ending December 31, 2003.

During the year ended December 31, 2002, we acquired sixteen additional investment properties totaling approximately 1,800,000 square feet for $206,181,297 and sold two investment properties, Antioch Plaza, located in Antioch, Illinois, for $1,818,344, net of closing costs and Shorecrest Plaza, located in Racine, Wisconsin, for $6,085,261, net of closing costs. These sales resulted in gains, for accounting purposes, of $533,942 and $828,144, respectively. For federal and state income tax purposes, these sales qualified as part of tax deferred exchanges and, as a result, the tax gains are deferred until the replacement properties are disposed of in subsequent taxable transactions. Additionally, during the year ended December 31, 2002, we sold approximately 1/3 of an acre of land at one of our investment properties, Maple Grove Retail, located in Maple Grove, Minnesota, to the City of Maple Grove for $308,186, net of closing costs. This sale resulted in a gain, for accounting purposes, of $183,746.

We intend to continue to acquire new investment properties of the type previously described in this Item 1, utilizing our cash resources as well as acquisition indebtedness. We are also exploring additional growth strategies including participating in joint ventures with institutional investors such as pension funds to acquire and manage a pool of properties funded primarily with capital provided by the institutional investor.

Conflicts of Interest Policies

Our governing documents require that a majority of our directors to be independent. Further, any transactions between us and The Inland Group, Inc. or its affiliates must be approved by a majority of our independent directors.

Environmental Matters

We believe that our portfolio of investment properties complies in all material respects with all federal, state and local environmental laws, ordinances and regulations regarding hazardous or toxic substances. All of our investment properties have been subjected to Phase I or similar environmental audits. These audits, performed by independent consultants, generally involve a review of records and visual inspection of the property. These audits do not include soil sampling or ground water analysis. These audits have not revealed nor are we aware of, any environmental liability that we believe will have a material adverse effect on our operations. These audits may not, however, reveal all potential environmental liabilities. Further, the environmental condition of our investment properties may be adversely effected by our tenants, by conditions of near-by properties or by unrelated third parties.

Access to Company Information

We electronically file the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission (SEC). The public may read and copy any of the reports that are filed with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800)-SEC-0330. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.

We make available, free of charge, through our website, and by responding to requests addressed to our director of investor relations, the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports. These reports are available as soon as reasonably practical after such material is electronically filed with or furnished to the SEC. Our website address is inlandrealestate.com. The information contained on our website, or on other websites linked to our website, is not part of this document.

Item 2. Properties

As of December 31, 2002, we owned, outright or through joint ventures, 134 investment properties, comprised of 30 single-user retail properties, 82 "Neighborhood Retail Centers" and 22 "Community Centers." These investment properties are located in the states of Florida (1), Illinois (97), Indiana (5), Michigan (1), Minnesota (19), Missouri (1), Ohio (3), Tennessee (1) and Wisconsin (6). Tenants of the investment properties are responsible for the payment of some or all of the real estate taxes, insurance and common area maintenance.

Property

 

Gross Leasable Area

(Sq Ft)

 

Date Acq.

 

Year Built/ Renovated

 

Mortgages Payable at 12/31/02

 

Current No. of Tenants

 

Anchor Tenants (a)

 

Lease

Expiration

Date

 

Single-User Retail Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ameritech

  Joliet, IL

 

4,504

 

05/97

 

1995

 

$ 522,375

 

1

 

Verizon Wireless

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bakers Shoes

  Chicago, IL

 

20,000

 

09/98

 

1891

 

N/A

 

1

 

Bakers Shoes

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bally's Total Fitness

  St. Paul, MN

 

43,000

 

09/99

 

1998

 

3,145,300

 

1

 

Bally's Total Fitness

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

Carmax

  Schaumburg, IL

 

93,333

 

12/98

 

1998

 

7,260,000

 

1

 

Carmax

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carmax

  Tinley Park, IL

 

94,518

 

12/98

 

1998

 

9,450,000

 

1

 

Carmax

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Circuit City

  Traverse City, MI

 

21,337

 

01/99

 

1998

 

1,603,000

 

1

 

Circuit City

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cub Foods

  Buffalo Grove, IL

 

56,192

 

06/99

 

1999

 

3,650,000

 

0(b)

 

Cub Foods (b)

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cub Foods

  Indianapolis, IN

 

67,541

 

03/99

 

1991

 

2,867,000

 

0(b)

 

Cub Foods (b)

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cub Foods

  Plymouth, MN

 

67,510

 

03/99

 

1991

 

2,732,000

 

1

 

Cub Foods

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disney

  Celebration, FL

 

166,131

 

07/02

 

1995

 

13,600,000

 

1

 

Walt Disney World

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dominick's

  Countryside, IL

 

62,344

 

12/97

 

1975 / 2001

 

1,150,000

 

1

 

Dominick's Finer Foods

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dominick's

  Glendale Heights, IL

 

68,879

 

09/97

 

1997

 

4,100,000

 

1

 

Dominick's Finer Foods

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dominick's

  Hammond, IN

 

71,313

 

05/99

 

1999

 

4,100,000

 

1

 

Food 4 Less

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dominick's

  Highland Park, IL

 

71,442

 

06/97

 

1996

 

6,400,000

 

1

 

Dominick's Finer Foods

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dominick's

  Schaumburg, IL

 

71,400

 

05/97

 

1996

 

5,345,500

 

1

 

Dominick's Finer Foods

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dominick's

  West Chicago, IL

 

78,158

 

01/98

 

1990

 

3,150,000

 

0(b)

 

Dominick's Finer Foods (b)

 

2010

Property

 

Gross Leasable Area

(Sq Ft)

 

Date Acq.

 

Year Built/ Renovated

 

Mortgages Payable at 12/31/02

 

Current No. of Tenants

 

Anchor Tenants (a)

 

Lease

Expiration

Date

 

Single-User Retail Properties, cont.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eagle Country Market

  Roselle, IL

 

42,283

 

11/97

 

1990

 

$ 1,450,000

 

1

 

Eagle Foods

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eagle Ridge Center

  Lindenhurst, IL

 

56,142

 

04/99

 

1998

 

3,000,000

 

1

 

Eagle Foods

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eckerd Drug Store

  Chattanooga, TN

 

10,908

 

05/02

 

1999

 

N/A

 

1

 

Eckerd Drug Store

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hollywood Video

  Hammond, IN

 

7,488

 

12/98

 

1998

 

740,000

 

1

 

Hollywood Video

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael's

  Coon Rapids, MN

 

24,317

 

07/02

 

2001

 

N/A

 

1

 

Michael's

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Party City

  Oakbrook Terrace, IL

 

10,000

 

11/97

 

1985

 

987,500

 

1

 

Party City

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Petsmart

  Gurnee, IL

 

25,692

 

04/01

 

1997

 

N/A

 

1

 

Petsmart

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Riverdale Commons Outlot

  Coon Rapids, MN

 

6,566

 

03/00

 

1999

 

N/A

 

1

 

Mandarin Buffet

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Staples

  Freeport, IL

 

24,049

 

12/98

 

1998

 

1,480,000

 

1

 

Staples

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United Audio Center

  Schaumburg, IL

 

9,988

 

09/99

 

1998

 

1,240,000

 

1

 

Tweeter Home Entertainment

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Walgreens

  Decatur, IL

 

13,500

 

01/95

 

1988

 

651,145

 

1

 

Walgreens (c)

 

2008 / 2028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Walgreens

  Jennings, MO

 

15,120

 

10/02

 

1996

 

N/A

 

1

 

Walgreens (c)

 

2016 / 2056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Walgreens

  Woodstock, IL

 

15,856

 

06/98

 

1973

 

569,610

 

1

 

Walgreens (c)

 

2010 / 2030

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zany Brainy

  Wheaton, IL

 

12,499

 

07/96

 

1995

 

1,245,000

 

1

 

Zany Brainy

 

2006

 

Neighborhood Retail Centers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aurora Commons

  Aurora, IL

 

126,908

 

01/97

 

1988

 

8,000,000

 

24

 

Jewel Food Store

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Baytowne Square

  Champaign, IL

 

118,842

 

02/99

 

1993

 

7,027,000

 

20

 

Staples

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

Berean Bookstore

 

2003

 

 

 

 

 

 

 

 

 

 

 

 

Petsmart

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

Famous Footwear

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

Factory Card Outlet

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

Jenny Craig Weight Loss Ctr

 

2004

 

 

 

 

 

 

 

 

 

 

 

 

Baytowne Dental Center

 

2003

 

 

 

 

 

 

 

 

 

 

 

 

Buffalo Wild Wings

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property

 

Gross Leasable Area

(Sq Ft)

 

Date Acq.

 

Year Built/ Renovated

 

Mortgages Payable at 12/31/02

 

Current No. of Tenants

 

Anchor Tenants (a)

 

Lease

Expiration

Date

 

Neighborhood Retail Centers, cont.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Berwyn Plaza

  Berwyn, IL

 

18,138

 

05/98

 

1983

 

$ 708,638

 

4(b)

 

Radio Shack

 

2004

 

 

 

 

 

 

 

 

 

 

 

 

Walgreens (b) (c)

 

2003 / 2023

Bohl Farm Marketplace

  Crystal Lake, IL

 

97,287

 

12/00

 

2000

 

7,833,000

 

14

 

Linens & Things

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

Dress Barn

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

Barnes & Noble

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brunswick Market Center

  Brunswick, OH

 

119,540

 

12/02

 

1997 / 1998

 

N/A

 

14

 

Tops

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Burnsville Crossing

  Burnsville, MN

 

91,015

 

09/99

 

1989

 

2,858,100

 

14

 

Petsmart

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Schneiderman's Furniture

 

2009

Byerly's Burnsville

  Burnsville, MN

 

72,365

 

09/99

 

1988

 

2,915,900

 

7

 

Byerly's Food Store

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Zany Brainy

 

2011

Calumet Square

  Calumet City, IL

 

39,936

 

06/97

 

1967 / 1994

 

1,032,920

 

2

 

Aronson Furniture

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cliff Lake Center

  Eagan, MN

73,582

09/99

1988

4,952,560

33

None

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cobblers Crossing

  Elgin, IL

 

102,643

 

05/97

 

1993

 

5,476,500

 

17

 

Jewel Food Store

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crestwood Plaza

  Crestwood, IL

 

20,044

 

12/96

 

1992

 

904,380

 

1

 

Mattress Giant

 

2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deer Trace

  Kohler, WI

 

149,881

 

07/02

 

2000

 

7,400,000

 

11

 

Michael's

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

TJ Maxx

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

Elder Beerman

 

2022

Downers Grove Market

  Downers Grove, IL

 

104,449

 

03/98

 

1998

 

10,600,000

 

14(b)

 

Dominick's Finer Foods

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eagle Crest

  Naperville, IL

 

67,632

 

03/95

 

1991

 

2,350,000

 

14

 

Eagle Foods

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eastgate Shopping Ctr

  Lombard, IL

 

132,145

 

07/98

 

1959

 

3,345,000

 

37(b)

 

Schroeder's Ace Hardware

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

Illinois Dept of Employment

 

2012

Edinburgh Festival

  Brooklyn Park, MN

 

91,536

 

10/98

 

1997

 

4,625,000

 

13

 

Knowlan's Super Market

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elmhurst City Center

  Elmhurst, IL

 

39,560

 

02/98

 

1994

 

2,513,765

 

11

 

Walgreens (c)

 

2014 / 2044

 

 

 

 

 

 

 

 

 

 

 

 

Egg Harbor Cafe

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Buffalo Wild Wings

 

2012

Fashion Square

  Skokie, IL

 

84,580

 

12/97

 

1984

 

6,200,000

 

14

 

Cost Plus World Market

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Crown Shoes

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property

 

Gross Leasable Area

(Sq Ft)

 

Date Acq.

 

Year Built/ Renovated

 

Mortgages Payable at 12/31/02

 

Current No. of Tenants

 

Anchor Tenants (a)

 

Lease

Expiration

Date

 

Neighborhood Retail Centers, cont.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forest Lake Marketplace

  Forest Lake, MN

 

93,853

 

09/02

 

2001

 

$ 6,589,000

 

8

 

MGM Liquor Warehouse

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

Cub Foods

 

2022

Four Flaggs Annex

  Niles, IL

 

21,790

 

11/02

 

1973

 

N/A

 

5

 

Panera Bread

 

2008