UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-Q


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|X                                                                                                                                                                                                                                                                                                                                                                                                                | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
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|For the quarterly period ended September 30, 2010                                                                                                                                                                                                                                                                                                                                                               
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|□                                                                                                                                                                                                                                                                                                                                                                                                                | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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|For the transition period from _______ to _______                                                                                                                                                                                                                                                                                                                                                               
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|Commission File Number: 000-51199                                                                                                                                                                                                                                                                                                                                                                               
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|Inland Western Retail Real Estate Trust, Inc.                                                                                                                                                                                                                                                                                                                                                                   
|(Exact name of registrant as specified in its charter)                                                                                                                                                                                                                                                                                                                                                          
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|Maryland                                                                                                                                                                                                                                                                                                                                                                                                         | 42-1579325                                                                              
|(State or other jurisdiction of incorporation or organization)                                                                                                                                                                                                                                                                                                                                                   | (I.R.S. Employer Identification No.)                                                    
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|2901 Butterfield Road, Oak Brook, Illinois                                                                                                                                                                                                                                                                                                                                                                       | 60523                                                                                   
|(Address of principal executive offices)                                                                                                                                                                                                                                                                                                                                                                         | (Zip Code)                                                                              
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|630-218-8000                                                                                                                                                                                                                                                                                                                                                                                                    
|(Registrants telephone number, including area code)                                                                                                                                                                                                                                                                                                                                                            
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|Securities registered pursuant to Section 12(b) of the Act:                                                                                                                                                                                                                                                                                                                                                     
|Title of each class:
None                                                                                                                                                                                                                                                                                                                                                                                        | Name of each exchange on which registered:
None                                         
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|Securities registered pursuant to Section 12(g) of the Act:
Title of class:
Common stock, $0.001 par value per share                                                                                                                                                                                                                                                                                            
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|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  o                            
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|Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      Yes   o         No  o
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|Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.                                                                                                                
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|Large accelerated filer                                                                                                                                                                                                                                                                                                                                                                                          | □                                                                                        | Accelerated filer                             | o                        
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|Non-accelerated filer                                                                                                                                                                                                                                                                                                                                                                                            | [X]                                                                                      | (Do not check if a smaller reporting company) | Smaller reporting company | o
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|Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  o     No  [X]                                                                                                                                                                                                                                                                         
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|As of November 8, 2010, there were 486,345,480 shares of common stock outstanding.                                                                                                                                                                                                                                                                                                                              
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INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.  TABLE OF CONTENTS   PART I  FINANCIAL INFORMATION  Item 1. Consolidated Financial Statements 1  Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 31  Item 3. Quantitative and Qualitative Disclosures About Market Risk 48  Item 4. Controls and Procedures 49 PART II  OTHER INFORMATION  Item 1. Legal Proceedings 50  Item 1A. Risk Factors 50  Item 6. Exhibits 51  SIGNATURES 52         Part I  Financial Information Item 1. Consolidated Financial Statements INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Consolidated Balance Sheets  September 30, 2010 and December 31, 2009 (Unaudited) (in thousands, except per share amounts)  September 30,December 31,20102009AssetsInvestment properties:Land$1,387,360$1,435,871Building and other improvements5,256,3515,421,907Developments in progress114,915112,1736,758,6266,969,951Less accumulated depreciation(989,095)(866,169)Net investment properties5,769,5316,103,782Cash and cash equivalents116,016125,904Investment in marketable securities33,28229,117Investment in unconsolidated joint ventures83,47678,957Accounts and notes receivable (net of allowances of $10,509and $31,014, respectively)107,339118,172Acquired lease intangibles, net243,345295,720Investment properties held for sale122,03546,435Other assets, net176,850130,278Total assets$6,651,874$6,928,365Liabilities and EquityLiabilities:Mortgages and notes payable$3,765,692$4,003,985Line of credit148,242107,000Accounts payable and accrued expenses87,62173,793Distributions payable24,24815,657Acquired below market lease intangibles, net94,488103,134Other financings8,47711,887Co-venture obligation50,97250,139Liabilities associated with investment properties held for sale75,97134,795Other liabilities77,15781,729Total liabilities4,332,8684,482,119Redeemable noncontrolling interests527527Commitments and contingenciesEquity:Preferred stock, $0.001 par value, 10,000 shares authorized,none issued or outstanding--Common stock, $0.001 par value, 640,000 shares authorized,484,976 and 481,743 issued and outstanding atSeptember 30, 2010 and December 31, 2009, respectively485482Additional paid-in capital4,373,8804,350,484Accumulated distributions in excess of earnings(2,080,876)(1,920,716)Accumulated other comprehensive income20,07711,300Total shareholders' equity2,313,5662,441,550Noncontrolling interests4,9134,169Total equity2,318,4792,445,719Total liabilities and equity$6,651,874$6,928,365  See accompanying notes to consolidated financial statements  1    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Consolidated Statements of Operations and Other Comprehensive Loss  For the Three and Nine Months Ended September 30, 2010 and 2009 (Unaudited) (in thousands, except per share amounts)


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|                                                                          |                                                         |                                    |         | Three Months Ended |         | Nine Months Ended
|                                                                          |                                                         |                                    |         | September 30,      |         | September 30,    
|                                                                          |                                                         |                                    |         | 2010               |         | 2009              |         | 2010      |         | 2009    
|Revenues:                                                                 |                                                         |                                    |         |                    |         |                   |         |          
|                                                                          | Rental income                                           | $                                  | 129,826 | $                  | 128,674 | $                 | 387,206 | $         | 391,873
|                                                                          | Tenant recovery income                                  |                                    | 30,240  |                    | 31,877  |                   | 91,055  |           | 94,054 
|                                                                          | Other property income                                   |                                    | 3,684   |                    | 3,361   |                   | 11,274  |           | 15,547 
|                                                                          | Insurance captive income                                |                                    | 847     |                    | 534     |                   | 2,253   |           | 1,671  
|Total revenues                                                            |                                                         | 164,597                            |         | 164,446            |         | 491,788           |         | 503,145  
|Expenses:                                                                 |                                                         |                                    |         |                    |         |                   |         |          
|                                                                          | Property operating expenses                             |                                    | 25,175  |                    | 30,415  |                   | 80,663  |           | 92,256 
|                                                                          | Real estate taxes                                       |                                    | 23,835  |                    | 23,547  |                   | 69,498  |           | 71,090 
|                                                                          | Depreciation and amortization                           |                                    | 61,889  |                    | 62,401  |                   | 185,845 |           | 187,565
|                                                                          | Provision for impairment of investment properties       |                                    | 3,173   |                    | 6,700   |                   | 18,836  |           | 44,000 
|                                                                          | Loss on lease terminations                              |                                    | 4,465   |                    | 2,301   |                   | 8,869   |           | 11,556 
|                                                                          | Insurance captive expenses                              |                                    | 911     |                    | 960     |                   | 3,034   |           | 2,648  
|                                                                          | General and administrative expenses                     |                                    | 4,169   |                    | 4,691   |                   | 13,412  |           | 14,146 
|Total expenses                                                            |                                                         | 123,617                            |         | 131,015            |         | 380,157           |         | 423,261  
|Operating income                                                          |                                                         | 40,980                             |         | 33,431             |         | 111,631           |         | 79,884   
|Dividend income                                                           |                                                         | 670                                |         | 1,689              |         | 3,034             |         | 9,476    
|Interest income                                                           |                                                         | 188                                |         | 174                |         | 548               |         | 1,318    
|Gain on partial sale of investment properties                             |                                                         | 1,464                              |         | -                  |         | 1,464             |         | -        
|Gain on interest rate locks                                               |                                                         | -                                  |         | 3,989              |         | -                 |         | 3,989    
|Equity in income (loss) of unconsolidated joint ventures                  |                                                         | 875                                |         | (629)              |         | 1,609             |         | (5,262)  
|Interest expense                                                          |                                                         | (67,090)                           |         | (60,121)           |         | (199,932)         |         | (170,752)
|Co-venture obligation expense                                             |                                                         | (1,791)                            |         | -                  |         | (5,375)           |         | -        
|Recognized (loss) gain on marketable securities, net                      |                                                         | (235)                              |         | 43,992             |         | 536               |         | 17,798   
|Impairment of note receivable                                             |                                                         | -                                  |         | (413)              |         | -                 |         | (17,322) 
|Other expense                                                             |                                                         | (228)                              |         | (64)               |         | (5,518)           |         | (3,884)  
|(Loss) income from continuing operations                                  |                                                         | (25,167)                           |         | 22,048             |         | (92,003)          |         | (84,755) 
|Discontinued operations:                                                  |                                                         |                                    |         |                    |         |                   |         |          
|                                                                          | Operating loss                                          |                                    | (39)    |                    | (9,544) |                   | (1,830) |           | (7,503)
|                                                                          | Gain on sales of investment properties                  |                                    | -       |                    | -       |                   | 2,057   |           | 21,570 
|(Loss) income from discontinued operations                                |                                                         | (39)                               |         | (9,544)            |         | 227               |         | 14,067   
|Net (loss) income                                                         |                                                         | (25,206)                           |         | 12,504             |         | (91,776)          |         | (70,688) 
|Net (income) loss attributable to noncontrolling interests                |                                                         | (321)                              |         | 81                 |         | (656)             |         | 3,202    
|Net (loss) income attributable to Company shareholders                    | $                                                       | (25,527)                           | $       | 12,585             | $       | (92,432)          | $       | (67,486) 
|(Loss) earnings per common share-basic and diluted:                       |                                                         |                                    |         |                    |         |                   |         |          
|                                                                          | Continuing operations                                   | $                                  | (0.05)  | $                  | 0.05    | $                 | (0.19)  | $         | (0.18) 
|                                                                          | Discontinued operations                                 |                                    | -       |                    | (0.02)  |                   | -       |           | 0.04   
|Net (loss) earnings per common share attributable to Company shareholders | $                                                       | (0.05)                             | $       | 0.03               | $       | (0.19)            | $       | (0.14)   
|Net (loss) income                                                         | $                                                       | (25,206)                           | $       | 12,504             | $       | (91,776)          | $       | (70,688) 
|Other comprehensive loss:                                                 |                                                         |                                    |         |                    |         |                   |         |          
|                                                                          | Net unrealized gain on derivative instruments           |                                    | 445     |                    | 8       |                   | 1,248   |           | 1,203  
|                                                                          | Net unrealized gain on marketable securities            |                                    | 1,688   |                    | 18,901  |                   | 8,065   |           | 36,249 
|                                                                          | Reversal of unrealized (gain) loss to recognized (gain) |                                    |         |                    |         |                   |         |           |        
|                                                                          |                                                         | loss on marketable securities, net |         | 235                |         | (43,992)          |         | (536)     |         | (17,798)
|Comprehensive loss                                                        |                                                         | (22,838)                           |         | (12,579)           |         | (82,999)          |         | (51,034) 
|Comprehensive (income) loss attributable to noncontrolling interests      |                                                         | (321)                              |         | 81                 |         | (656)             |         | 3,202    
|Comprehensive loss attributable to Company shareholders                   | $                                                       | (23,159)                           | $       | (12,498)           | $       | (83,655)          | $       | (47,832) 
|Weighted average number of common shares                                  |                                                         |                                    |         |                    |         |                   |         |          
|                                                                          | outstanding-basic and diluted                           |                                    | 484,865 |                    | 481,049 |                   | 483,619 |           | 479,854

See accompanying notes to consolidated financial statements  2


INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Consolidated Statements of Equity  For the Nine Months Ended September 30, 2010 and 2009 (Unaudited) (in thousands, except per share amounts)  AccumulatedAccumulatedAdditionalDistributionsOtherTotalCommonPaid-inin Excess ofComprehensiveShareholders'NoncontrollingTotalSharesStockCapitalEarningsIncome (Loss)EquityInterestsEquityBalance at January 1, 2009477,566$477$4,313,163$(1,733,341)$(7,951)$2,572,348$3,723$2,576,071Net (loss) income (excluding net loss of $3,341-attributable to redeemable noncontrolling interests)---(67,486)-(67,486)139(67,347)Net unrealized gain on derivative instruments----1,2031,203-1,203Net unrealized gain on marketable securities----36,24936,249-36,249Reversal of unrealized loss to recognized losson marketable securities, net----(17,798)(17,798)-(17,798)Distributions declared ($0.12 per weighted averagenumber of common shares outstanding)---(59,383)-(59,383)-(59,383)Distribution reinvestment program (DRP)3,598432,372--32,376-32,376Stock based compensation expense--13--13-13Balance at September 30, 2009481,164$481$4,345,548$(1,860,210)$11,703$2,497,522$3,862$2,501,384Balance at January 1, 2010481,743$482$4,350,484$(1,920,716)$11,300$2,441,550$4,169$2,445,719Net (loss) income (excluding net income of $24attributable to redeemable noncontrolling interests)---(92,432)-(92,432)632(91,800)Net unrealized gain on derivative instruments----1,2481,248-1,248Net unrealized gain on marketable securities----8,0658,065-8,065Reversal of unrealized gain to recognized gainon marketable securities, net----(536)(536)-(536)Contributions from noncontrolling interests------112112Distributions declared ($0.14 per weighted averagenumber of common shares outstanding)---(67,728)-(67,728)-(67,728)DRP3,232323,350--23,353-23,353Exercise of stock options1-13--13-13Stock based compensation expense--33--33-33Balance at September 30, 2010484,976$485$4,373,880$(2,080,876)$20,077$2,313,566$4,913$2,318,479  See accompanying notes to consolidated financial statements  3


INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Consolidated Statements of Cash Flows  For the Nine Months Ended September 30, 2010 and 2009 (Unaudited) (in thousands, except per share amounts)  Nine Months EndedSeptember 30,20102009Cash flows from operating activities:Net loss$(91,776)$(70,688)Adjustments to reconcile net loss to net cash provided byoperating activities (including discontinued operations):Depreciation and amortization186,212192,768Provision for impairment of investment properties19,65754,800Impairment of marketable securities-24,831Impairment of note receivable-17,322Gain on partial sale of investment properties(1,464)-Gain on sales of investment properties(2,057)(21,570)Loss on lease terminations8,86911,556Gain on interest rate locks-(3,989)Loss on redemption of noncontrolling interests-3,447Non-cash co-venture obligation expense833-Amortization of loan fees9,8868,991Amortization of acquired above and below market lease intangibles(1,523)(1,786)Amortization of mortgage debt premium(937)-Amortization of discount on debt assumed382382Amortization of lease inducements45289Straight-line rental income(8,798)(6,258)Straight-line ground rent expense3,1212,996Stock based compensation expense3313Equity in (income) loss of unconsolidated joint ventures(1,609)5,262Distributions from unconsolidated joint ventures3,7033,609Recognized gain on sale of marketable securities(536)(42,629)Provision for bad debt3,6278,914Payment of leasing fees(4,202)(4,846)Costs associated with refinancings1,162-Changes in assets and liabilities:Accounts receivable, net14,6234,369Other assets2,003600Accounts payable and accrued expenses16,18913,761Other liabilities(3,771)1,819Net cash provided by operating activities153,672203,963Cash flows from investing activities:Purchase of marketable securities-(190)Proceeds from sale of marketable securities3,900124,340Changes in restricted escrows(47,416)(25,101)Purchase of investment properties(651)(20,031)Capital expenditures and tenant improvements(22,670)(12,630)Proceeds from partial sale of investment properties to unconsolidated joint venture13,367-Proceeds from sale of investment properties78,851117,316Investment in developments in progress(2,705)(14,491)Acquired lease intangible assets-(6,972)Acquired above market lease intangibles-(38)Acquired below market lease intangibles-152Investment in unconsolidated joint ventures(3,307)(2,273)Payments received under master lease agreements4561,068Payoff of notes receivable2050Net cash provided by investing activities$19,845$161,200  See accompanying notes to consolidated financial statements  4    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Consolidated Statements of Cash Flows (Continued)  For the Nine Months Ended September 30, 2010 and 2009 (Unaudited) (in thousands, except per share amounts)  Nine Months EndedSeptember 30,20102009Cash flows from financing activities:Proceeds from margin debt related to marketable securities$22,860$29,750Payoff of margin debt related to marketable securities(4,706)(86,090)Proceeds from mortgages and notes payable604,468220,365Principal payments on mortgages and notes payable(22,651)(2,678)Repayments of mortgages and notes payable(771,872)(323,980)Proceeds from line of credit75,00030,000Payoff of line of credit(33,758)(68,000)Payment of rate lock deposits(12,290)-Refund of rate lock deposits10,0705,209Payment of loan fees and deposits(11,434)(7,562)Proceeds from issuance of common stock related to option exercises13-Distributions paid, net of DRP(35,783)(40,548)Distributions to redeemable noncontrolling interests(24)(23)Redemption of redeemable noncontrolling interests-(1,048)Contributions from noncontrolling interests112-Repayment of other financings(3,410)(55,999)Net cash used in financing activities(183,405)(300,604)Net (decrease) increase in cash and cash equivalents(9,888)64,559Cash and cash equivalents, at beginning of period125,904121,167Cash and cash equivalents, at end of period$116,016$185,726Supplemental cash flow disclosure, including non-cash activities:Cash paid for interest, net of interest capitalized$181,473$157,588Distributions payable$24,248$12,029Distributions reinvested$23,353$32,376Proceeds from sales of investment propertiesLand$20,711$40,300Building and other improvements, net of accumulated depreciation53,095150,041Accounts and notes receivable4741,502Acquired lease intangibles and other assets3,07316,805Assumption of mortgage debt-(107,689)Forgiveness of mortgage debt(486)-Acquired below market lease intangibles and other liabilities(73)(5,213)Gain on sales of investment properties2,05721,570$78,851$117,316Proceeds from partial sale of investment properties to unconsolidated joint ventureLand$10,400$-Building and other improvements, net of accumulated depreciation32,085-Accounts and notes receivable829-Acquired lease intangibles and other assets(1,246)-Assumption of mortgage debt(29,327)-Acquired below market lease intangibles and other liabilities(838)-Gain on partial sale of investment properties1,464-$13,367$-Redemption of redeemable noncontrolling interests:Redeemable noncontrolling interests$-$14,906Land-(11,468)Restricted cash-(2,390)Cash paid for redemption of redeemable noncontrolling interests$-$1,048Developments in progress placed in service$-$35,126Developments payable$523$1,533Forgiveness of mortgage debt$19,561$-  See accompanying notes to consolidated financial statements  5  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  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 GAAP 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, 2009, which are included in the Companys 2009 Annual Report on Form 10-K, as amended, as certain footnote disclosures which would substantially duplicate those contained in the Annual Report have been omitted from this Quarterly Report.  In the opinion of management, all adjustments necessary, all of which were of normal nature, for a fair presentation have been included in this Quarterly Report. (1)  Organization and Basis of Presentation Inland Western Retail Real Estate Trust, Inc. (the Company) was formed on March 5, 2003 to acquire and manage a diversified portfolio of real estate, primarily multi-tenant shopping centers and single-user net lease properties. All amounts in this Form 10-Q are stated in thousands with the exception of per share amounts, square foot amounts, number of properties, number of states, number of leases and number of employees. The Company issued a total of 459,484 shares of its common stock at $10.00 per share, resulting in gross proceeds of $4,595,193.  In addition, as of September 30, 2010, the Company had issued 69,314 shares through its DRP at prices ranging from $6.85 to $10.00 per share for gross proceeds of $666,125 and had repurchased a total of 43,823 shares through its share repurchase program (SRP) (suspended as of November 19, 2008) at prices ranging from $9.25 to $10.00 per share for an aggregate cost of $432,487.  During September 2010, one thousand five hundred shares were issued through the exercise of stock options at a price of $8.95 per share for gross proceeds of $13.  As a result, the Company had total shares outstanding of 484,976 and had realized total net offering proceeds of $4,828,844 as of September 30, 2010. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  For example, significant estimates and assumptions have been made with respect to useful lives of assets; capitalization of development and leasing costs; fair value measurements; provision for impairment, including estimates of holding periods, capitalization rates and discount rates (where applicable); provision for income taxes; recoverable amounts of receivables; deferred taxes and initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions.  Actual results could differ from those estimates. Certain reclassifications, as a result of discontinued operations and the error noted below, have been made to the 2009 consolidated financial statements to conform to the 2010 presentation. Subsequent to the issuance of the consolidated financial statements for the three and nine months ended September 30, 2009, the Company identified an error in the presentation of its comprehensive loss in the consolidated statements of operations and other comprehensive loss.  Consistent with the accounting guidance for noncontrolling interests, consolidated comprehensive loss and the related amounts attributable to the Company and to noncontrolling interests should be disclosed.  As such, the Companys consolidated statement of operations and other comprehensive loss for the three and nine months ended September 30, 2009 has been corrected to reflect such presentation.  This correction resulted in an $81 increase to total comprehensive loss from $12,498 to $12,579 for the three months ended September 30, 2009 and a $3,202 increase to total comprehensive loss from $47,832 to $51,034 for the nine months ended September 30, 2009.  In addition, comprehensive loss attributable to noncontrolling interests of $81 and $3,202 and comprehensive loss attributable to Company shareholders of $12,498 and $47,832 have been properly presented for the three and nine months ended September 30, 2009, respectively.  Although the Company believes the effects are not material to the previously issued consolidated statements of operations and other comprehensive loss, the Company has corrected the presentation of  6  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  these amounts for comparability purposes. This correction has no effect on the previously reported financial position, results of operations or cash flows. It is the Companys current strategy to have access to the capital resources necessary to manage its balance sheet, to repay upcoming maturities and, to a lesser extent, to consider making prudent real estate investments should such opportunities arise.  Accordingly, the Company is executing a plan to seek to obtain funds through additional debt or equity financings and/or joint venture capital in a manner consistent with the Companys intention to operate with what it believes to be a conservative debt capitalization policy.  The Companys other sources of capital include proceeds from sales of developed and non-core assets, proceeds from the sales of securities in the Companys marketable securities portfolio, and existing unrestricted cash balances.  In addition, the Company is focused on controlling operating expenses and deferring certain discretionary capital expenditures and has reduced distributions to shareholders to preserve cash for upcoming debt maturities and principal paydowns.  The Company will also seek loan extensions, generally six months to three years, on certain maturing mortgage debt. During the nine months ended September 30, 2010, the Company obtained mortgage payable proceeds of $604,468, made mortgage payable repayments of $771,872 and received forgiveness of debt of $19,561.  The Company also entered into modifications of existing loan agreements which extended the maturities of $185,659 of mortgages payable up to December 2012.  In addition, RC Inland assumed $29,327 of mortgages payable from the Company (see Note 10 for discussion of this joint venture) on September 30, 2010.  As the Company addresses its maturing mortgages payable, it has reduced its overall debt and staggered future mortgage maturity dates so that no more than $580,000 will come due in any one year.  As of September 30, 2010, the Company had $125,756 of mortgages payable that had matured.  During the second quarter of 2010, in order to prompt discussions with the lenders, the Company ceased making monthly debt service payments on two mortgage loans totaling $61,235 as of September 30, 2010, $29,965 of which has matured and is included in the $125,756 of total matured debt.  The non-payment of these monthly debt service payments amounts to $3,000 annualized and does not result in noncompliance under any of the Companys other mortgages payable and line of credit agreements.  The Company is currently in active negotiations with the lenders to determine an appropriate course of action under the non-recourse loan agreements.  No assurance can be provided that these negotiations will result in favorable outcomes for the Company.  One of those lenders has asserted that certain events have occurred that trigger recourse to the Company.  However, the Company believes that it has substantive defenses with respect to those claims. As of September 30, 2010, in addition to the $125,756 that had matured, the Company had $114,332 of mortgages payable, excluding principal amortization and liabilities associated with the investment properties held for sale, maturing in the remainder of 2010.  Of this amount, the Company has since refinanced $21,366.  On January 8, 2010, the Company entered into a $300,000 forward loan commitment with JP Morgan Chase, subject to customary lender due diligence, to be used to refinance 2010 debt maturities, of which $244,500 has been utilized as of September 30, 2010.  In addition to allocating the remaining proceeds of $55,500 ($20,300 as of the date of this filing), the Company is in the process of marketing, planning to seek extensions or planning to sell properties relating to the remaining 2010 maturities.  The Companys current business plan indicates that it will be able to operate in compliance with its loan covenants under its secured line of credit agreement (see Note 9) in 2010 and beyond as the Company extended the credit agreement to October 14, 2011.  The balance outstanding on the line of credit at September 30, 2010 was $148,242.  In light of current economic conditions, the Company may not be able to obtain loan extensions or financing on favorable terms, or at all, in order to meet principal maturity obligations of the remaining 2010 and 2011 debt maturities, which may cause an acceleration of its secured line of credit and trigger remedies available to lenders on assets securing matured mortgage debt, each of which could significantly impact future operations, liquidity and cash flows available for distribution. The accompanying consolidated financial statements include the accounts of the Company, as well as all wholly-owned subsidiaries and consolidated joint venture investments.  Wholly-owned subsidiaries generally consist of limited liability companies (LLCs) and limited partnerships (LPs).  7  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  The Companys property ownership is summarized below: Wholly-ownedConsolidated Joint Venture (a)Total ConsolidatedUnconsolidated Joint Venture (b)Total Under ManagementOperating properties2365529114305Development properties15628(a)The Company has ownership interests ranging from 25% to 77% in six LLCs or LPs(b)The Company has ownership interests ranging from 20% to 96% in three LLCs or LPs  The Company consolidates certain property holding entities and other subsidiaries in which it owns less than a 100% equity interest if it is deemed to be the primary beneficiary in a variable interest entity (VIE), (an entity in which the contractual, ownership, or pecuniary interests change with changes in the fair value of the entitys net assets, as defined by the Financial Accounting Standards Board (FASB)), as amended. The Company also consolidates entities that are not VIEs in which it has financial and operating control in accordance with GAAP. All significant intercompany balances and transactions have been eliminated in consolidation.  Investments in real estate joint ventures in which the Company has the ability to exercise significant influence, but does not have financial or operating control, are accounted for using the equity method of accounting.  Accordingly, the Companys share of the income (or loss) of these unconsolidated joint ventures is included in consolidated net loss. The Company is the controlling member in various consolidated entities.  The organizational documents of these entities contain provisions that require the entities to be liquidated through the sale of their assets upon reaching a future date as specified in each respective organizational document or through put/call arrangements.  As controlling member, the Company has an obligation to cause these property-owning entities to distribute proceeds of liquidation to the noncontrolling interest partners in these partially-owned entities only if the net proceeds received by each of the entities from the sale of assets warrant a distribution based on the agreements.  Some of the LLC or LP agreements for these entities contain put/call provisions which grant the right to the outside owners and the Company to require each LLC or LP to redeem the ownership interest of the outside owners during future periods.  In instances where outside ownership interests are subject to put/call arrangements requiring settlement for fixed amounts, the LLC or LP is treated as a 100% owned subsidiary by the Company with the amount due to the outside owner reflected as a financing arrangement and included in Other financings in the accompanying consolidated balance sheets.  Interest expense is recorded on such liabilities in amounts equal to the preferential returns due to the outside owners as provided in the LLC or LP agreements.  In instances where outside ownership interests are subject to call arrangements without fixed settlement amounts, the LLC is treated as a 100% owned subsidiary by the Company with the amount due to the outside owner reflected as a financing and included in Co-venture obligation in the accompanying consolidated balance sheets.  Expense is recorded on such liabilities in amounts equal to the preferential returns due to the outside owners as provided in the LLC agreement. On the consolidated statements of operations and other comprehensive loss, revenues, expenses and net income or loss from less-than-wholly-owned subsidiaries are reported at the consolidated amounts, including both the amounts attributable to Company shareholders and noncontrolling interests.  Consolidated statements of equity are included in the quarterly financial statements, including beginning balances, activity for the period and ending balances for shareholders equity, noncontrolling interests and total equity.  8  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  Below is a table reflecting the activity of the redeemable noncontrolling interests for the nine months ended September 30, 2010 and 2009: 20102009Balance at January 1,$527$19,317Redeemable noncontrolling interest income (expense)24(3,341)Distributions(24)(23)Redemptions-(a)(14,926)Balance at September 30,$527$1,027(a)On March 30, 2010, the Company fully redeemed the interest of its partner in a consolidated operating joint venture in which the partner had no equity.  During the nine months ended September 30, 2010 and 2009, the Company paid certain joint venture partners for the redemption of their interests in certain consolidated joint ventures as summarized below: Redemption DateFull or Partial RedemptionAccrued Preferred ReturnAmount included in Other financingsTotal Payment AmountJanuary 5, 2010Full$20$3,410$3,430Redemption DateFull or Partial RedemptionAccrued Preferred ReturnAmount included in Other financingsTotal Payment AmountJanuary 16, 2009Full$-$3,410$3,410April 28, 2009Full1145,6985,812June 4, 2009Partial-40,53940,539June 29, 2009Full-6,3526,352Total for the nine months ended September 30, 2009$114$55,999$56,113  The Company is party to an agreement with an LLC formed as an insurance association captive (the Captive), which is wholly-owned by the Company and three related parties, Inland Real Estate Corporation (IREC), Inland American Real Estate Trust, Inc. (IARETI) and Inland Diversified Real Estate Trust, Inc. (IDRETI).  The Captive is serviced by a related party, Inland Risk and Management Services, Inc. for a fee of $25 per quarter.  The Company entered into the agreement with the Captive to stabilize its insurance costs, manage its exposures and recoup expenses through the functions of the Captive program.  The Captive was initially capitalized in 2006 with $750 in cash from the original members IREC, IARETI, a non-affiliated entity which withdrew from the Captive in October 2007, and the Company, of which the Companys initial contribution was $188.  In August 2009, IDRETI was admitted as a member to the Captive with an initial contribution of $188, at the approval of the members.  Additional contributions were made in the form of premium payments to the Captive determined for each member based upon its respective loss experiences.  The Captive insures a portion of the members property and general liability losses, a majority of which is attributable to the Company.  These losses will be paid by the Captive up to and including a certain dollar limit, which varies based on the type of loss, after which the losses are covered by a third-party insurer.  It has been determined that the Captive is a VIE and, as the Company receives the most benefit of all members, the Company is the primary beneficiary.  Therefore, the Captive has been consolidated by the Company.  The Company re-affirmed its conclusion on consolidating the Captive as of September 30, 2010.  The other members interests are reflected as Noncontrolling interests in the accompanying consolidated financial statements.  9  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  The assets of the Captive are restricted to the settlement of liabilities of the Captive.  Similarly, creditors of the Captive do not have recourse to the Company.  Below is a summary of the assets and liabilities of the Captive: September 30, 
2010December 31, 2009Cash and cash equivalents$13,206$10,000Other assets, net4835,256Accounts payable and accrued expenses(395)(34)Other liabilities(5,008)(8,320)  On November 29, 2009, the Company formed IW JV 2009, LLC (IW JV), a wholly-owned subsidiary, and transferred a portfolio of 55 investment properties and the entities which owned them into it.  Subsequently, in connection with a $625,000 debt refinancing transaction, which consisted of $500,000 of mortgages payable and $125,000 of notes payable, on December 1, 2009, the Company raised additional capital of $50,000 from a related party, Inland Equity Investors, LLC (Inland Equity) in exchange for a 23% noncontrolling interest in IW JV.  IW JV, which is controlled by the Company, and therefore consolidated, will continue to be managed and operated by the Company.  Inland Equity is owned by certain individuals, including Daniel L. Goodwin, who controls more than 5% of the common stock of the Company, and Robert D. Parks, who was the Chairman of the Board of the Company until October 12, 2010, and affiliates of The Inland Real Estate Group, Inc.  The independent directors committee reviewed and recommended approval of this transaction to the Companys board of directors. Noncontrolling interests are adjusted for additional contributions by noncontrolling interest holders and distributions to noncontrolling interest holders, as well as the noncontrolling interest holders share of the net income or losses of each respective entity. (2) Summary of Significant Accounting Policies There have been no changes to the Companys significant accounting policies in the nine months ended September 30, 2010.  Refer to the Companys 2009 Form 10-K, as amended, for a summary of significant accounting policies. New Accounting Pronouncements In June 2009, the FASB issued guidance that amends the consolidation guidance applicable to VIEs.  The amendment requires an enterprise to perform a qualitative analysis when determining whether or not it must consolidate a VIE. It also requires an enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the amendment requires enhanced disclosures about an enterprise's involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the enterprise's financial statements.  Although the amendment significantly affects the overall consolidation analysis under previously issued guidance, the adoption on January 1, 2010 did not have a material impact on the consolidated financial statements. In January 2010, the FASB issued guidance which provides additional requirements and clarifies existing disclosures about fair value measurements.  The guidance requires entities to provide fair value measurement disclosures for each class of assets and liabilities, opposed to the old guidance which required disclosures by major category of assets and liabilities.  The term major category was often interpreted to be a line item on the statement of financial position, whereas the term class represents a subset of assets or liabilities within a line item in the statement of financial position, thus expanding on the level of disaggregation.  The guidance also requires an entity to disclose the amounts of significant transfers between Levels 1 and 2, and all significant transfers into and out of Level 3, of the fair value hierarchy.  Furthermore, entities are required to disclose the reasons for those transfers, and the entitys policy for determining when transfers between levels are recognized.  A description of the valuation techniques and inputs used to determine the fair value of each class of assets or liabilities for Levels 2 and 3 must also be disclosed, including any valuation technique changes and the reason for those changes.  This update further amends the reconciliation of the beginning and ending balances of Level 3 recurring fair value measurements, requiring a separate disclosure of total gains and losses recognized  10  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  in other comprehensive income and disclosing separately purchases, sales, issuances, and settlements, as opposed to net presentation as previously allowed.  The guidance was effective for the Company on January 1, 2010.  The adoption of the guidance did not have a material impact on the consolidated financial statements. In January 2010, the FASB issued guidance clarifying the accounting for distributions to shareholders with components of stock and cash.  Prior to this amendment, it was unclear as to whether the stock portion of a distribution should be accounted for as a new share issuance that is reflected in earnings per share (EPS) prospectively or as a stock dividend by retroactively restating shares outstanding and earnings per share for all periods presented.  The amendment clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or shares with potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance and is reflected in EPS prospectively and is not a stock dividend.  The guidance was effective for the Company on January 1, 2010.  The adoption of the guidance did not have any impact on the consolidated financial statements. In January 2010, the FASB issued guidance related to decreases in the ownership of a subsidiary.  The guidance clarified that any transaction that involves in-substance real estate should be considered under guidance for sales of real estate and is retroactively effective for periods beginning on or after December 15, 2008.  The Company followed this guidance when accounting for the transfer of the 23% interest in IW JV to Inland Equity for $50,000.  This transaction was accounted for as a financing arrangement and is reflected in Co-venture obligation on the consolidated balance sheets. (3)  Discontinued Operations and Investment Properties Held for Sale The Company employs a business model, which utilizes asset management as a key component of monitoring its investment properties, to ensure that each property continues to meet expected investment returns and standards.  This strategy incorporates the sale of non-core assets that no longer meet the Companys criteria. The Company sold five properties during the nine months ended September 30, 2010, as summarized below:


|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                |         |                    |  |                       |  |               |               |                                   |                     |                   |                 |                   |                | 
|-------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------------------ |  | --------------------- |  | ------------- | ------------- | --------------------------------- | ------------------- | ----------------- | --------------- | ----------------- | -------------- | 
|Date           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Square Footage |         | Property Type      |  | Location              |  | Sales Price   |               | Net Sales Proceeds/(Cash Outflow) |                     | Gain/(Loss)       |                 | Debt Extinguished |               
|March 15, 2010 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 79,200         |         | Single-user office |  | San Antonio, Texas    |  | $      10,850 |               | $              3,501              |                     | $              52 |                 | $         7,060   | (a)           
|April 12, 2010 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 100,400        |         | Medical center (b) |  | Cupertino, California |  | 44,000        |               | 11,017                            |                     | 381               |                 | 32,670            | (a)           
|April 26, 2010 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 41,300         |         | Single-user retail |  | Naperville, Illinois  |  | 4,775         |               | (27)                              |                     | 875               |                 | 4,964             | (c)           
|May 28, 2010   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 48,800         |         | Single-user retail |  | Hinsdale, Illinois    |  | 11,610        |               | 3,923                             |                     | -                 |                 | 7,469             | (a)           
|June 30, 2010  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 88,300         |         | Single-user retail |  | Kansas City, Missouri |  | 8,950         |               | 2                                 |                     | 749               |                 | 8,758             | (a)           
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                | 358,000 |                    |  |                       |  |               | $      80,185 |                                   | $            18,416 |                   | $         2,057 |                   | $       60,921 | 
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                |         |                    |  |                       |  |               |               |                                   |                     |                   |                 |                   |                | 
|(a)            | The debt was repaid in conjunction with the sale.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                |         |                    |  |                       |  |               |               |                                   |                     |                  
|(b)            | This property qualified for held for sale accounting treatment during the fourth quarter 2009 at which time depreciation and amortization ceased since it met all of the Company's held for sale criteria.  As such, the assets and liabilities are separately classified as held for sale on the consolidated balance sheet as of December 31, 2009 and the operations for all periods presented are classified as discontinued operations on the consolidated statements of operations and other comprehensive loss.
|(c)            | Of the total amount of debt extinguished, $4,478 was repaid in conjunction with the sale and $486 was forgiven.                                                                                                                                                                                                                                                                                                                                                                                                        |                |         |                    |  |                      

11  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  In addition, as part of its overall liquidity strategy, the Company continues to enter into joint ventures such as RC Inland where the Company retains a 20% interest.  The Company sold three properties during the nine months ended September 30, 2010 to RC Inland, an unconsolidated joint venture (See Note 10) which, due to the Companys 20% ownership in RC Inland, does not qualify for discontinued operations accounting treatment, as summarized below: DateSquare FootageProperty TypeLocationSales Price (at 100%)Net Sales ProceedsGain/(Loss)Debt Extinguished (at 100%)September 30, 2010116,400Multi-tenant retailCypress, Texas$14,818$3,420$686$9,847(a)September 30, 201087,900Multi-tenant retailHouston, Texas15,7384,339(180)10,159(a)September 30, 2010148,100Multi-tenant retailHouston, Texas16,5815,6089589,321(a)352,400$47,137$13,367$1,464$29,327(a)The debt was assumed by RC Inland in conjunction with the acquisition.  During 2009, the Company sold eight properties, of which four were sold during the nine months ended September 30, 2009, which resulted in net sales proceeds of $83,686 and gain on sales of $21,570.  No properties were sold during the three months ended September 30, 2009. The Company does not allocate general corporate interest expense to discontinued operations.  The results of operations for the three and nine months ended September 30, 2010 and 2009 for the investment properties that are accounted for as discontinued operations are presented in the table below: Three Months Ended September 30,Nine Months Ended September 30,2010200920102009Revenues:Rental income$24,579$2,09218,384Tenant recovery income(4)574(123)3,080Other property income2172120Total revenues-5,1701,99021,484Expenses:Property operating expenses39281,2651,832Real estate taxes-4341421,541Depreciation and amortization-1,8213677,846Provision for asset impairment-10,80082110,800Interest expense-1,6321,2246,973Other expense (income)-(1)1(5)Total expenses3914,7143,82028,987Operating (loss) income from discontinued operations$(39)$(9,544)$(1,830)$(7,503)   12  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  The following assets and liabilities relate to five investment properties (the remaining five properties to be acquired by RC Inland  see Note 10) which were classified as held for sale as of September 30, 2010 (see September 30, 2010 column) and one investment property which was classified as held for sale as of December 31, 2009 (see December 31, 2009 column), and are presented in the table below: September 30,December 31,20102009AssetsLand, building and other improvements$119,668$41,689Accumulated depreciation(11,346)(112)108,32241,577Other assets13,7134,858Total investment properties held for sale$122,035$46,435LiabilitiesMortgages payable$68,694$32,670Other liabilities7,2772,125Total liabilities associated with investmentproperties held for sale$75,971$34,795  (4)  Transactions with Related Parties The following table summarizes the Companys related party transactions for the three and nine months ended September 30, 2010 and 2009. For the Three MonthsFor the Nine MonthsUnpaid Amount as ofEnded September 30,Ended September 30,September 30,December 31,Fee Category201020092010200920102009Investment advisor$72$-$202$-$22$20Loan servicing5494173287--Institutional investor relationship services-34-34--Legal11225426943785123Other service agreements5557531,9022,430198194Office rent and related costs243376707783116175Total$1,036$1,511$3,253$3,971$421$512  Refer to the Companys Form 10-K for the year ended December 31, 2009, as amended, for details of the related party agreements.  13  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  (5) Marketable Securities The following tables summarize the Companys investment in marketable securities: Common StockPreferred StockTotal Available-for-Sale SecuritiesAs of September 30, 2010:Fair value$11,815$21,467$33,282Amortized cost basis$28,997$49,608$78,605Total other-than-temporary impairment recognized$23,889$41,334$65,223Adjusted cost basis$5,108$8,274$13,382Net gains in accumulated other comprehensive income (OCI)$6,708$13,192$19,900As of December 31, 2009:Fair value$9,388$19,729$29,117Amortized cost basis$25,735$57,995$83,730Total other-than-temporary impairment recognized$20,868$46,116$66,984Adjusted cost basis$4,867$11,879$16,746Net gains in accumulated OCI$4,521$7,911$12,432Net losses in accumulated OCI$-$61(a)$61(a)This amount represents the gross unrealized losses of one preferred stock security with a fair value of $3,163 as of December 31, 2009. This security had been in a continuous unrealized loss position for greater than 12 months as of December 31, 2009.  Three Months Ended 
September 30,Nine Months Ended 
September 30,2010200920102009Net unrealized OCI gain$1,688$18,901$8,065$36,249Other-than-temporary impairment$-$-$-$24,831Net (loss) gain on sales of securities$(235)$43,992$536$42,629  (6)  Stock Option Plan The Companys Independent Director Stock Option Plan (Plan), as amended, provides, subject to certain conditions, for the grant to each independent director of options to acquire shares following their becoming a director and for the grant of additional options to acquire shares on the date of each annual shareholders meeting. As of September 30, 2010 and December 31, 2009, options to purchase one hundred five thousand shares of common stock have been granted, of which options to purchase one thousand five hundred shares have been exercised and none have expired. The Company calculates the per share weighted average fair value of options granted on the date of the grant using the Black Scholes option pricing model utilizing certain assumptions regarding the expected dividend yield, risk free interest rate, expected life and expected volatility rate.  Compensation expense of $11 and $4 related to these stock options was recorded during the three months ended September 30, 2010 and 2009, respectively.  Compensation expense of $33 and $13 related to these stock options was recorded during the nine months ended September 30, 2010 and 2009, respectively. (7)  Leases Master Lease Agreements In conjunction with certain acquisitions, the Company receives payments under master lease agreements pertaining to certain non-revenue producing spaces at the time of purchase for periods, generally 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  14  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  reduction in the purchase price of the respective property rather than as rental income.  The cumulative amount of such payments was $27,033 and $26,577, as of September 30, 2010 and December 31, 2009, respectively. Operating Leases The majority of revenues from the Companys properties consist of rents received under long-term operating leases.  Some leases provide for the payment of fixed base rent paid monthly in advance, and for the reimbursement by tenants to the Company for the tenants pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees and certain building repairs paid by the landlord and recoverable under the terms of the lease.  Under these leases, the landlord pays all expenses and is reimbursed by the tenant for the tenants pro rata share of recoverable expenses paid.  Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed based rent, as well as all costs and expenses associated with occupancy.  Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included on the accompanying consolidated statements of operations and other comprehensive loss.  Under net leases where all expenses are paid by the landlord, subject to reimbursement by the tenant, the expenses are included in Property operating expenses and reimbursements are included in Tenant recovery income on the accompanying consolidated statements of operations and other comprehensive loss. In certain municipalities, the Company is required to remit sales taxes to governmental authorities based upon the rental income received from properties in those regions.  These taxes may be reimbursed by the tenant to the Company depending upon the terms of the applicable tenant lease.  As with other recoverable expenses, the presentation of the remittance and reimbursement of these taxes is on a gross basis whereby sales tax expenses are included in Property operating expenses and sales tax reimbursements are included in Other property income on the accompanying consolidated statements of operations and other comprehensive loss.  Such taxes remitted to governmental authorities and reimbursed by tenants were $483 and $487 for the three months ended September 30, 2010 and 2009, respectively.  Such taxes remitted to governmental authorities and reimbursed by tenants were $1,483 and $1,539 for the nine months ended September 30, 2010 and 2009, respectively. In certain properties where there are large tenants, other tenants may have co-tenancy provisions within their lease that  provide a right of termination or reduced rent if certain large tenants or shadow tenants discontinue operations. The Company leases land under non-cancellable operating leases at certain of its properties expiring in various years from 2018 to 2105.  The related ground lease rent expense is included in Property operating expenses on the accompanying consolidated statements of operations and other comprehensive loss.  In addition, the Company leases office space for certain management offices from third parties and the Company subleases its corporate office space from an Inland affiliate.  Office rent expense is included in Property operating expenses in the accompanying consolidated statements of operations and other comprehensive loss. Three Months Ended 
September 30,Nine Months Ended 
September 30,2010200920102009Ground lease rent expense$2,524$2,511$7,720$7,563Office rent expense$147$211$563$595   15  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  (8)  Mortgages and Notes Payable The following table summarizes the Companys mortgages and notes payable at September 30, 2010 and December 31, 2009: September 30,December 31,20102009Fixed rate mortgages payable:Mortgage loans (a)$3,453,221$3,718,038Premium, net of accumulated amortization18,138-Discounts, net of accumulated amortization(2,629)(3,011)3,468,7303,715,027Variable rate mortgages payable:Mortgage loans17,41817,503Construction loans86,39096,095103,808113,598Mortgages payable3,572,5383,828,625Notes payable175,000175,360Margin payable18,154-Mortgages and notes payable$3,765,692$4,003,985(a) Includes $81,404 of variable rate debt that was swapped to a fixed rate.  Mortgages Payable Mortgages payable outstanding as of September 30, 2010, excluding liabilities associated with the investment properties held for sale, were $3,572,538 and had a weighted average interest rate of 6.08% at September 30, 2010.  Of this amount, $3,468,730 had fixed rates ranging from 3.81% to 10.11% and a weighted average fixed rate of 6.12% at September 30, 2010.  The weighted average interest rates for the fixed rate mortgages payable exclude the impact of the premium and discount amortization.  The remaining $103,808 of outstanding indebtedness represented variable rate loans with a weighted average interest rate of 4.47% at September 30, 2010.  Properties with a net carrying value of $5,268,158 at September 30, 2010 and related tenant leases are pledged as collateral for the mortgage loans.  Development properties with a net carrying value of $90,709 at September 30, 2010 and related tenant leases are pledged as collateral for the construction loans.  As of September 30, 2010, scheduled maturities for the Companys outstanding mortgage indebtedness had various due dates through March 1, 2037. During the nine months ended September 30, 2010, the Company obtained mortgage payable proceeds of $604,468, made mortgage payable repayments of $771,872 and received forgiveness of debt of $19,561.  In addition, RC Inland assumed $29,327 of mortgages payable from the Company on September 30, 2010.  As a result of accounting for a group of eight mortgage refinancings as a modification under GAAP during the second quarter of 2010, the portion of the debt forgiveness associated with one property was recorded as mortgage premium on the remaining seven mortgages payable and is being amortized over the remaining term of those loans using the effective interest method.  The new mortgages payable that the Company entered into during the nine months ended September 30, 2010 have interest rates ranging from 2.48% to 8.00% and maturities up to ten years.  The stated interest rates of the loans repaid during the nine months ended September 30, 2010 ranged from 1.65% to 6.75%.  The Company also entered into modifications of existing loan agreements which extended the maturities of $185,659 of mortgages payable up to December 2012. Mortgages payable outstanding, excluding liabilities associated with the investment property held for sale, as of December 31, 2009 were $3,828,625 and had a weighted average interest rate of 5.57% at December 31, 2009.  Of this amount, $3,715,027 had fixed rates ranging from 4.25% to 10.24% and a weighted average fixed rate of 5.63% at December 31, 2009.  The remaining $113,598 of outstanding indebtedness represented variable rate loans with a weighted average  16  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  interest rate of 3.56% at December 31, 2009.  Properties with a net carrying value of $5,649,570 at December 31, 2009 and related tenant leases are pledged as collateral for the mortgage loans.  Development properties with a net carrying value of $88,524 at December 31, 2009 and related tenant leases are pledged as collateral for the construction loans.  As of December 31, 2009, scheduled maturities for the Companys outstanding mortgage indebtedness had various due dates through March 1, 2037. The majority of the Companys mortgages payable require monthly payments of interest only, although it has become more common for lenders to require principal and interest payments, as well as reserves for real estate taxes, insurance and certain other costs.  Although the loans obtained by the Company are generally non-recourse, occasionally, when it is deemed to be necessary, the Company may guarantee all or a portion of the debt on a full-recourse basis.  As of September 30, 2010, the Company has guaranteed $56,872 of the outstanding mortgages payable with maturity dates up to August 1, 2014 (see Note 14).  At times, the Company has borrowed funds financed as part of a cross-collateralized package, with cross-default provisions, in order to enhance the financial benefits.  In those circumstances, one or more of the properties may secure the debt of another of the Companys properties.  Individual decisions regarding interest rates, loan-to-value, debt yield, fixed versus variable-rate financing, term and related matters are often based on the condition of the financial markets at the time the debt is issued, which may vary from time to time. As of September 30, 2010, the Company had $125,756 of mortgages payable that had matured.  During the second quarter of 2010, in order to prompt discussions with the lenders, the Company ceased making monthly debt service payments on two mortgage loans totaling $61,235 as of September 30, 2010, $29,965 of which has matured and is included in the $125,756 of total matured debt.  The non-payment of these monthly debt service payments amounts to $3,000 annualized and does not result in noncompliance under any of the Companys other mortgages payable and line of credit agreements.  The Company is currently in active negotiations with the lenders to determine an appropriate course of action under the non-recourse loan agreements. No assurance can be provided that these negotiations will result in favorable outcomes for the Company.  One of those lenders has asserted that certain events have occurred that trigger recourse to the Company.  However, the Company believes that it has substantive defenses with respect to those claims. As of September 30, 2010, in addition to the $125,756 that had matured, the Company had $114,332 of mortgages payable, excluding principal amortization and liabilities associated with the investment properties held for sale, maturing in the remainder of 2010.  Of this amount, the Company has since refinanced $21,366.  On January 8, 2010, the Company entered into a $300,000 forward loan commitment with JP Morgan Chase, subject to customary lender due diligence, to be used to refinance 2010 debt maturities, of which $244,500 has been utilized as of September 30, 2010.  In addition to allocating the remaining proceeds of $55,500 ($20,300 as of the date of this filing), the Company is in the process of marketing, planning to seek extensions or planning to sell properties relating to the remaining 2010 maturities. As of September 30, 2010, management believes the Company was in compliance with all financial covenants related to the outstanding mortgages payable. Notes Payable Notes payable outstanding as of September 30, 2010 and December 31, 2009 were $175,000 and $175,360, respectively.  Of these amounts, $50,000 represents a note payable to an unconsolidated joint venture.  The note bears interest at 4.80% and is to be repaid on the earlier to occur of (i) an event of default, as defined, or (ii) upon termination of the unconsolidated joint ventures operating agreement.  The Company has the right to prepay the note without penalty.  During the year ended December 31, 2009, the Company obtained notes payable proceeds of $125,000 from a third party lender related to the debt refinancing transaction for IW JV as discussed in Note 1.  17  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  The following table summarizes the IW JV notes payable as of September 30, 2010 and December 31, 2009:


|                      |   |                     |   |                   |  |                |  |                |  |                                                                                           
|--------------------- | - | ------------------- | - | ----------------- |  | -------------- |  | -------------- |  | ------------------------------------------------------------------------------------------
|                      |   | Balance at          |   |                   |  |                |  |               
|                      |   | September 30, 
2010 |   | December 31, 2009 |  | Interest Rates |  | Maturity Dates |  | Secured By                                                                                
|                      |   |                     |   |                   |  |                |  |                |  |                                                                                           
|Senior Mezzanine Note | $ | 85,000              | $ | 85,000            |  | 12.24%         |  | 12/01/2019     |  | 100% of the Company's equity interest in the entity owning the IW JV investment properties
|Junior Mezzanine Note |   | 40,000              |   | 40,000            |  | 14.00%         |  | 12/01/2019     |  | 100% of the Company's equity interest in the entity owning the IW JV investment properties
|                      | $ | 125,000             | $ | 125,000           |  |                |  |                |  |                                                                                           

The remaining $360 as of December 31, 2009, is related to a $600 note, net of amortization, with a third party that bore interest at a rate of 2.00%, which matured and was repaid on September 29, 2010.  The weighted average fixed interest rate on the notes payable was 10.51% at September 30, 2010. Derivative Instruments and Hedging Activities Risk Management Objective of Using Derivatives The Company is exposed to certain risks arising from both its business operations and economic conditions.  The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities.  The Company manages economic risk, including interest rate, liquidity and credit risk primarily by managing the amount, sources, and duration of its debt funding and, to a limited extent, the use of derivative instruments. Specifically, the Company has entered into derivative instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Companys derivative instruments, described below, are used to manage differences in the amount, timing, and duration of the Companys known or expected cash payments principally related to certain of the Companys borrowings. Cash Flow Hedges of Interest Rate Risk The Companys objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.  To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During 2008, the Company executed two interest rate swaps to hedge the variable cash flows associated with variable-rate debt. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  The derivatives are used to hedge the variable cash flows associated with existing variable-rate debt.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.  Due to the Companys decision in June 2010 to voluntarily prepay a portion of its hedged debt, the Companys variable-rate debt fell below the notional value on the interest rate swap hedging the aforementioned debt, causing the Company to be temporarily overhedged but the interest rate swap continues to qualify as an effective hedge.  On June 30, 2010, the Company unwound the portion of the swap notional that corresponded with the prepayment.  During the three and nine months ended September 30, 2010, the Company recorded hedge ineffectiveness of $1 gain and $41 (loss), respectively.  During the three and nine months ended September 30, 2009, the Company recorded no hedge ineffectiveness. Amounts reported in Accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Companys variable-rate debt.  Over the next twelve months, the Company  18  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  estimates that an additional $2,308 will be reclassified as an increase to interest expense.  During the three and nine months ended September 30, 2010, the Company accelerated none and $117 (loss), respectively, from other comprehensive income into earnings as a result of the hedged forecasted transactions becoming probable not to occur.There were no such accelerations during the three and nine months ended September 30, 2009. As of September 30, 2010 and December 31, 2009, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk: Interest Rate DerivativesNumber of InstrumentsNotionalInterest Rate Swap2$81,404  The table below presents the fair value of the Companys derivative financial instruments as well as their classification on the consolidated balance sheets as of September 30, 2010 and December 31, 2009. Liability DerivativesSeptember 30, 2010December 31, 2009Balance Sheet LocationFair ValueBalance Sheet LocationFair ValueDerivatives designated as cash flow hedges:Interest rate swapsOther liabilities$2,583Other liabilities$3,819  The table below presents the effect of the Companys derivative financial instruments on the consolidated statements of operations and other comprehensive loss for the three and nine months ended September 30, 2010 and 2009.


|                                               |                                                                              |                                                                                              |                                                                                            |                                                                                                                                    |                                                                                                                                                                     |   |                                   |                                  |         |               |   |   |   |      
|---------------------------------------------- | ---------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --------------------------------- | -------------------------------- | ------- | ------------- | - | - | - | -----
|Derivatives in Cash Flow Hedging Relationships | Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) | Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) | Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing and Missed Forecasted Transactions)
|Interest Rate Swaps                            | Three Months Ended 
September 30,                                            | Nine Months Ended 
September 30,                                                             |                                                                                            | Three Months Ended 
September 30,                                                                                                  | Nine Months Ended 
September 30,                                                                                                                                    |   | Three Months Ended 
September 30, | Nine Months Ended 
September 30,
|2010                                           | $                                                                            | (332)                                                                                        | $                                                                                          | (1,225)                                                                                                                            | Interest Expense                                                                                                                                                    | $ | (776)                             | $                                | (2,472) | Other Expense | $ | 1 | $ | (158)
|2009                                           | $                                                                            | (789)                                                                                        | $                                                                                          | (1,097)                                                                                                                            | Interest Expense                                                                                                                                                    | $ | (797)                             | $                                | (2,300) | Other Expense | $ | - | $ | -    

Credit-risk-related Contingent Features Derivative financial investments expose the Company to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements.  The Company believes it minimizes the credit risk by transacting with major creditworthy financial institutions.  As part of the Companys on-going control procedures, it monitors the credit ratings of counterparties and the exposure to any single entity, which minimizes credit risk concentration.  The Company believes the likelihood of realized losses from counterparty non-performance is remote. The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on the related indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its corresponding derivative obligation. The Companys agreements with each of its derivative counterparties also contain a provision whereby if the Company consolidates with, merges with or into, or transfers all or substantially all its assets to another entity and the  19  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  creditworthiness of the resulting, surviving, or transferee entity is materially weaker than the Companys, the counterparty has the right to terminate the derivative obligations. As of September 30, 2010, the fair value of derivatives in a liability position includes accrued interest of $256 but excludes any adjustment for nonperformance risk, which the Company has deemed immaterial, was $2,914.  As of September 30, 2010, the Company has not posted any collateral related to these agreements.  If the Company had breached any of these provisions at September 30, 2010, it could have been required to settle its obligations under the agreements at their termination value of $2,914. Margin Payable The Company purchases a portion of its securities through a margin account.  As of September 30, 2010 and December 31, 2009, the Company had recorded a payable of $18,154 and none, respectively, for securities purchased on margin.  This debt bears a variable interest rate of LIBOR plus 35 basis points.  At September 30, 2010, this rate was equal to 0.61%.  Interest expense on this debt in the amount of $32 and $58 is recognized within Interest expense in the accompanying consolidated statements of operations and other comprehensive loss for the three months ended September 30, 2010 and 2009, respectively.  Interest expense recognized on this debt totaled $76 and $252 for the nine months ended September 30, 2010 and 2009, respectively.  This debt is due upon demand.  The value of the Companys marketable securities serves as collateral for this debt.  During the three and nine months ended September 30, 2010, the Company borrowed an additional none and $22,860, respectively, on its margin account and paid down $1,385 and $4,706, respectively. Debt Maturities The following table shows the mortgages payable, notes payable, margin payable and line of credit maturities during the next five years and thereafter: 20102011201220132014ThereafterMaturing debt (a) :Fixed rate debt:Mortgages payable (b)$243,846$559,663$420,146$313,544$213,232$1,702,790Notes payable50,000----125,000Total fixed rate debt293,846559,663420,146313,544213,2321,827,790Variable rate debt:Mortgages payable3015,82287,956---Line of credit-148,242----Margin payable18,154-----Total variable rate debt18,184164,06487,956---Total maturing debt$312,030$723,727$508,102$313,544$213,232$1,827,790Weighted average interestrate on debt:Fixed rate debt7.07%5.01%5.45%5.13%7.24%6.93%Variable rate debt0.62%5.43%3.99%---Total6.69%5.10%5.19%5.13%7.24%6.93%(a)The debt maturity table does not include liabilities associated with the investment properties held for sale or any premiums or discounts of which $18,138 and $(2,629), net of accumulated amortization, respectively, is outstanding as of September 30, 2010.(b)Includes $81,404 of variable rate debt that was swapped to a fixed rate.   20  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  The maturity table excludes other financings and the co-venture obligation as described in Note 1.  The maturity table also excludes accelerated principal payments that may be required as a result of covenants or conditions included in certain loan agreements.  In these cases, the total outstanding mortgage payable is included in the year corresponding to the loan maturity date.  The maturity table includes $125,756 of mortgages payable that had matured as of September 30, 2010 in the 2010 column.  See the mortgages payable section above for additional information on how the Company is addressing its 2010 mortgages payable maturities. (9)  Line of Credit The Company has a secured credit agreement with KeyBank National Association and other financial institutions for borrowings up to $200,000, subject to the collateral pool requirement described below.  Based on the appraised value of the collateral pool, the Companys ability to borrow was limited to $153,051 as of September 30, 2010.  The credit agreement had an original maturity date of October 14, 2010 which was extended to October 14, 2011.  The credit agreement requires compliance with certain covenants, such as, among other things, a leverage ratio, fixed charge coverage, minimum net worth requirements, distribution limitations and investment restrictions, as well as limitations on the Companys ability to incur recourse indebtedness.  The credit agreement also contains customary default provisions including the failure to timely pay debt service payable thereunder, the failure to comply with the Companys financial and operating covenants, and the failure to pay when the consolidated indebtedness becomes due.  In the event the lenders under the credit agreement declare a default, as defined in the credit agreement, this could result in an acceleration of any outstanding borrowings on the line of credit. The terms of the credit agreement stipulate, as of September 30, 2010: · monthly interest-only payments on the outstanding balance at the rate equal to LIBOR (3% floor) plus 3.50%; · quarterly fees ranging from 0.35% to 0.50%, per annum, on the average daily undrawn funds; · pay down of the line from net proceeds of asset sales; · an assignment of corporate cash flow in the event of default; · the requirement for a comprehensive collateral pool (secured by mortgage interests in each asset) subject to certain covenants, including a maximum advance rate on the appraised value of the collateral pool of 60%, minimum requirements related to the value of the collateral pool and the number of properties included in the collateral pool, and debt service coverage, and · permissions for non-recourse cross-default up to $250,000 and permissions for maturity defaults under non-recourse indebtedness for up to 90 days subject to extension at discretion of the lenders. As of September 30, 2010, management believes the Company was in compliance with all of the financial covenants under the credit agreement.  The outstanding balance on the line of credit at September 30, 2010 and December 31, 2009 was $148,242 and $107,000, respectively.  21  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  (10)  Investment in Unconsolidated Joint Ventures The following table summarizes the Companys investments in unconsolidated joint ventures: Ownership InterestBalance as ofDate ofSeptemberDecemberSeptemberDecemberPropertyLocationInvestment30, 201031, 200930, 201031, 2009MS InlandVarious04/27/200720.00%20.00%$76,606$77,059Hampton Retail ColoradoDenver, CO08/31/200796.30%96.30%3,6071,898RC InlandVarious09/30/201020.00%-3,263-$83,476$78,957  The Company has the ability to exercise significant influence, but does not have the financial or operating control over these investments, and as a result the Company accounts for these investments using the equity method of accounting.  Under the equity method of accounting, the net equity investment of the Company is reflected on the accompanying consolidated balance sheets and the accompanying consolidated statements of operations and other comprehensive loss includes the Companys share of net income or loss from the unconsolidated joint venture.  Distributions from these investments that are related to income from operations are included as operating activities and distributions that are related to capital transactions are included in investing activities in the Companys consolidated statements of cash flows. Effective April 27, 2007, the Company formed a strategic joint venture (MS Inland) with a large state pension fund (the institutional investor).  Under the terms of the agreement, the profits and losses of MS Inland are split 80% and 20% between the institutional investor and the Company, respectively, except for the interest earned on the initial invested funds, of which the Company is allocated 95%.  The Companys share of profits in MS Inland was $451 and $457, for the three months ended September 30, 2010 and 2009, respectively.  The Companys share of profits in MS Inland were $1,085 and $1,319, for the nine months ended September 30, 2010 and 2009, respectively.  The Company received net cash distributions from MS Inland totaling $3,703 and $3,609, for the nine months ended September 30, 2010 and 2009, respectively. The difference between the Companys investment in MS Inland and the amount of the underlying equity in net assets of MS Inland is due to basis differences resulting from the Companys contribution of property assets at their historical net book value versus the fair value of the contributed properties.  Such differences are amortized over the depreciable lives of MS Inlands property assets.  The Company recorded $80 of amortization related to this difference for each of the three months ended September 30, 2010 and 2009.  The Company recorded $242 and $245 of amortization related to this difference for the nine months ended September 30, 2010 and 2009, respectively. MS Inland may acquire additional assets using leverage, consistent with its existing business plan, of approximately 50% of the original purchase price or current fair value, if higher.  The Company is the managing member of MS Inland and earns fees for providing property management, acquisition and leasing services to MS Inland.  The Company earned fees of $259 and $317 during the three months ended September, 2010 and 2009, respectively.  The Company earned fees of $863 and $916 during the nine months ended September, 2010 and 2009, respectively. On August 28, 2007, the Company formed an unconsolidated joint venture, Hampton Retail Colorado (Hampton), which subsequently, through wholly-owned subsidiaries Hampton Owned Colorado (Hampton Owned) and Hampton Leased Colorado (Hampton Leased), acquired nine single-user retail properties and eight leasehold assets, respectively.  The ownership percentages associated with Hampton, at September 30, 2010 and December 31, 2009, are based upon the maximum capital contribution obligations under the terms of the joint venture.  The Companys share of net income (loss) in Hampton was $398 and $(1,156) for the three months ended September 30, 2010 and 2009, respectively, and is included in Equity in income (loss) of unconsolidated joint ventures in the consolidated statements of operations and other comprehensive loss.  The Companys share of net income (loss) in Hampton was $357 and $(6,795) for the nine months ended September 30, 2010 and 2009, respectively.  22  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  As of September 30, 2010, there were six properties remaining in the Hampton joint venture, all of which are included in Hampton Owned.  The remaining properties have been disposed of primarily through sales and assignment.  During the nine months ended September 30, 2010, Hampton Owned completed the sale of three single-user retail properties, aggregating 126,700 square feet for a combined sales price of $1,885.  The aggregated sales resulted in the repayment of debt of $1,626, forgiveness of debt of $1,644, and total gains on sale of $210. On May 20, 2010, the Company entered into definitive agreements to form a joint venture (RC Inland) with RioCan Real Estate Investment Trust (RioCan), a real estate investment trust (REIT) based in Canada. The initial RC Inland investment includes up to eight grocery and necessity-based-anchored shopping centers located in Texas.  Under the terms of the agreements, RioCan will contribute cash for an 80% interest in the venture and the Company will contribute a 20% interest in the properties. RC Inland will acquire an 80% interest in the properties from the Company in exchange for cash, each of which will be accounted for as a partial sale of real estate. Each property closing will occur individually over time based on timing of lender consent or refinance of the related mortgages payable. The Company will earn property management, asset management and other customary fees on the joint venture. Certain of the properties contain earnout provisions which, if met, would result in additional sales proceeds to the Company.  On September 30, 2010, three of the initial eight properties were acquired by the joint venture, which resulted in a gain on partial sale of investment properties of $1,464.  As discussed in Note 3, the remaining five properties meet the held for sale criteria as of September 30, 2010.  These transactions do not qualify as discontinued operations in the Companys consolidated statements of operations and other comprehensive loss as a result of the Companys 20% ownership in RC Inland. The difference between the Companys investment in RC Inland and the amount of the underlying equity in net assets of RC Inland is due to basis differences resulting from the Companys contribution of property assets at their historical net book value versus the fair value of the contributed properties.  Such differences are amortized over the depreciable lives of RC Inlands property assets. The Companys investments in unconsolidated joint ventures are reviewed for potential impairment, in addition to impairment evaluations of the individual assets underlying these investments, whenever events or changes in circumstances warrant such an evaluation.  To determine whether impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until the carrying value is fully recovered.  As a result, the carrying value of its investment in the unconsolidated joint ventures was determined to be fully recoverable as of September 30, 2010 and December 31, 2009. (11)  Earnings per Share Basic earnings (loss) per share (EPS) is computed by dividing net income (loss) 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.  As of September 30, 2010 and December 31, 2009, options to purchase 104 and 105 shares of common stock, respectively, at the weighted average exercise price of $9.31 and $9.30 per share, respectively, were outstanding.  The Company is in a net loss position for the nine months ended September 30, 2010 and 2009; therefore, the options to purchase shares are not considered in diluted loss per share since their effect is anti-dilutive.  23  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  The following is reconciliation between weighted average shares used in the basic and diluted EPS calculations, excluding amounts attributable to noncontrolling interests:


|                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                 |                               |          |                                   |        |         |                                  |          |          |         |          |          |         | 
|---------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | -------- | --------------------------------- | ------ | ------- | -------------------------------- | -------- | -------- | ------- | -------- | -------- | ------- | 
|                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                 |                               |          | Three Months Ended 
September 30, |        |         | Nine Months Ended 
September 30, |         
|                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                 |                               |          | 2010                              |        |         | 2009                             |          |          | 2010    |          |          | 2009    | 
|Numerator:                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                 |                               |          |                                   |        |         |                                  |          |          |         |          |         
|(Loss) income from continuing operations                   | $                                                                                                                                                                                                                                                                                                                                                                                                               | (25,167)                      |          | $                                 | 22,048 |         | $                                | (92,003) |          | $       | (84,755) |         
|(Income) loss from continuing operations attributable to   |                                                                                                                                                                                                                                                                                                                                                                                                                 |                               |          |                                   |        |         |                                  |          |          |         |          |         
|                                                           | noncontrolling interests                                                                                                                                                                                                                                                                                                                                                                                        |                               | (321)    |                                   |        | 81      |                                  |          | (656)    |         |          | 3,202    |        
|(Loss) income from continuing operations attributable to   |                                                                                                                                                                                                                                                                                                                                                                                                                 |                               |          |                                   |        |         |                                  |          |          |         |          |         
|                                                           | Company shareholders                                                                                                                                                                                                                                                                                                                                                                                            |                               | (25,488) |                                   |        | 22,129  |                                  |          | (92,659) |         |          | (81,553) |        
|(Loss) income from discontinued operations attributable to |                                                                                                                                                                                                                                                                                                                                                                                                                 |                               |          |                                   |        |         |                                  |          |          |         |          |         
|                                                           | Company shareholders                                                                                                                                                                                                                                                                                                                                                                                            |                               | (39)     |                                   |        | (9,544) |                                  |          | 227      |         |          | 14,067   |        
|Net (loss) income attributable to Company shareholders     | $                                                                                                                                                                                                                                                                                                                                                                                                               | (25,527)                      |          | $                                 | 12,585 |         | $                                | (92,432) |          | $       | (67,486) |         
|                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                 |                               |          |                                   |        |         |                                  |          |          |         |          |          |         | 
|Denominator:                                               |                                                                                                                                                                                                                                                                                                                                                                                                                 |                               |          |                                   |        |         |                                  |          |          |         |          |         
|Denominator for loss per common share-basic:               |                                                                                                                                                                                                                                                                                                                                                                                                                 |                               |          |                                   |        |         |                                  |          |          |         |          |         
|                                                           | Weighted average number of common shares outstanding                                                                                                                                                                                                                                                                                                                                                            |                               | 484,865  |                                   |        | 481,049 |                                  |          | 483,619  |         |          | 479,854  |        
|Effect of dilutive securities:                             |                                                                                                                                                                                                                                                                                                                                                                                                                 |                               |          |                                   |        |         |                                  |          |          |         |          |         
|                                                           | Stock options                                                                                                                                                                                                                                                                                                                                                                                                   |                               | -        | (a)                               |        | -       | (a)                              |          | -        | (a)     |          | -        | (a)    
|Denominator for loss per common share-diluted:             |                                                                                                                                                                                                                                                                                                                                                                                                                 |                               |          |                                   |        |         |                                  |          |          |         |          |         
|                                                           | Weighted average number of common and common                                                                                                                                                                                                                                                                                                                                                                    |                               |          |                                   |        |         |                                  |          |          |         |          |          |        
|                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                 | equivalent shares outstanding |          | 484,865                           |        |         | 481,049                          |          |          | 483,619 |          |          | 479,854 | 
|                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                 |                               |          |                                   |        |         |                                  |          |          |         |          |          |         | 
|(a)                                                        | Outstanding options to purchase shares of common stock, the effect of which would be anti-dilutive, were 104 and 70 shares as of September 30, 2010 and 2009, respectively. These shares were not included in the computation of diluted earnings per share because a loss was reported or the option exercise price was greater than the average market price of the common shares for the respective periods.

(12)  Provision for Impairment of Investment Properties The Company identified certain indicators of impairment for certain of its properties, such as the propertys low occupancy rate, difficulty in leasing space, and financially troubled tenants. The Company performed a cash flow analysis and determined that the carrying values of certain of its properties exceeded the respective undiscounted cash flows based upon the estimated holding period for the asset. Therefore, the Company has recorded impairment losses related to these properties consisting of the excess carrying value of the assets over their estimated fair values within the accompanying consolidated statements of operations and other comprehensive loss.  24  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  During the nine months ended September 30, 2010, the Company recorded asset impairment charges as summarized below: LocationProperty TypeImpairment DateApproximate
Square
FootageProvision for
Asset
ImpairmentRichmond, VirginiaSingle-user retail propertyJune 30, 2010383,000$7,806Sugarland, Texas (a)Multi-tenant retail propertyJune 30, 201061,0001,576University Heights, OhioMulti-tenant retail propertyJune 30, 2010287,0006,281Coppell, Texas (a)Multi-tenant retail propertySeptember 30, 201091,0001,851Southlake, Texas (a)Multi-tenant retail propertySeptember 30, 201096,0001,32218,836Discontinued Operations:Hinsdale, IllinoisSingle-user retail propertyMay 28, 201049,000821Nine months ended September 30, 2010$19,657Estimated fair value of impaired properties$68,351(a) Property acquired by RC Inland subsequent to September 30, 2010.  Impairment based on estimated net realizable value inclusive of projected contingent earnout proceeds.  During the nine months ended September 30, 2009, the Company recorded asset impairment charges as summarized below: LocationProperty TypeImpairment DateApproximate
Square
FootageProvision for
Asset
ImpairmentMesa, ArizonaMulti-tenant retail propertyMarch 31, 2009195,000$20,400Largo, MarylandMulti-tenant retail propertyJune 30, 2009482,00013,100Hanford, CaliforniaSingle-user retail propertyJune 30, 200978,0003,800Thousand Oaks, CaliforniaMulti-tenant retail propertySeptember 30, 200963,0002,700Vacaville, CaliforniaSingle-user retail propertySeptember 30, 200978,0004,00044,000Discontinued Operations:Mountain Brook, AlabamaSingle-user retail propertySeptember 30, 200944,0001,100Cupertino, CaliforniaSingle-user office propertySeptember 30, 2009100,0008,400Kansas City, MissouriSingle-user retail propertySeptember 30, 200988,000500Wilmington, North CarolinaSingle-user retail propertySeptember 30, 200957,00080010,800Nine months ended September 30, 2009$54,800Estimated fair value of impaired properties$180,135  Certain investment properties impaired during the nine months ended September 30, 2010 were also impaired in previous periods and the current carrying value is below the amount of mortgages payable secured by each of those properties.  In aggregate, the difference between the current carrying value and the amount of mortgages payable, including accrued interest, was $44,817 as of September 30, 2010.  As discussed in Note 1, the Company has ceased making monthly debt service payments on two mortgage loans related to such investment properties and is currently in active negotiations with lenders to determine an appropriate course of action under the non-recourse loan agreements.  25  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  (13)  Fair Value Measurements Fair Value of Financial Instruments The following table presents the carrying value and estimated fair value of the Companys financial instruments at September 30, 2010 and December 31, 2009.  The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date.  September 30, 2010December 31, 2009Carrying ValueFair ValueCarrying ValueFair ValueFinancial assets:Investment in marketable securities$33,282$33,282$29,117$29,117Notes receivable8,3108,2448,3308,287Financial liabilities:Mortgages and notes payable$3,765,692$3,769,762$4,003,985$3,822,695Line of credit148,242148,242107,000107,000Other financings8,4778,47711,88711,887Co-venture obligation50,97255,00050,13955,000Interest rate swaps2,5832,5833,8193,819  The carrying values shown in the table are included in the consolidated balance sheets under the indicated captions, except for notes receivable and interest rate swaps, which are included in Accounts and notes receivable and Other liabilities, respectively. The fair value of the financial instruments shown in the above table as of September 30, 2010 and December 31, 2009 represent the Companys best estimates of the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in a transaction between market participants at that date.  Those fair value measurements maximize the use of observable inputs.  However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Companys own judgments about the assumptions that market participants would use in pricing the asset or liability.  Those judgments are developed by the Company based on the best information available in those circumstances. The following methods and assumptions were used to estimate the fair value of each financial instrument: · Investment in marketable securities: Marketable securities classified as available-for-sale are measured using quoted market prices at the reporting date multiplied by the quantity held. · Notes receivable: The Company estimates the fair value of its notes receivable by discounting the future cash flows of each instrument at rates that approximate those offered by lending institutions for loans with similar terms to companies with comparable risk. · Mortgages payable: The Company estimates the fair value of its mortgages payable by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Companys lenders. · Line of credit: The carrying value of the Companys line of credit approximates fair value because of the relatively short maturity of the instrument. · Other financings: Other financings on the consolidated balance sheets represent the equity interest of the noncontrolling member in certain consolidated entities where the LLC or LP agreement contains put/call arrangements, which grant the right to the outside owners and the Company to require each LLC or LP to redeem the ownership interest in future periods for fixed amounts.  The Company believes the fair value of other financings is that amount which is the fixed amount at which it would settle, which approximates its carrying value.  26  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  · Co-venture obligation: The Company estimates the fair value of co-venture obligation based on the amount at which it believes the obligation will settle and the timing of such payment.  The fair value of the co-venture obligation includes the estimated additional amount the Company would be required to pay upon exercise of the call option.  The carrying value of the co-venture obligation includes $972 of cumulative co-venture obligation expense accretion relating to the estimated additional distribution. · Interest rate swaps: The fair value of the interest rate swaps is determined using pricing models developed based on the LIBOR swap rate and other observable market data. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterpartys nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements. Fair Value Hierarchy GAAP specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs).  The following summarizes the fair value hierarchy: ·Level 1 Inputs  Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.·Level 2 Inputs  Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.·Level 3 Inputs  Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements. The guidancerequires the use of observable market data, when available, in making fair value measurements.  When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties.  However, as of September 30, 2010 and December 31, 2009, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation.  As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The following table presents the Companys assets and liabilities, measured on a recurring basis, and related valuation inputs within the fair value hierarchy utilized to measure fair value as of September 30, 2010 and December 31, 2009: Level 1Level 2Level 3TotalSeptember 30, 2010Investment in marketable securities$33,282$-$-$33,282Interest rate swaps$$2,583$-$2,583December 31, 2009Investment in marketable securities$29,117$-$-$29,117Interest rate swaps$-$3,819$-$3,819  During the nine months ended September 30, 2010, the Company recorded asset impairment charges of $19,657 related to two of its consolidated operating properties, three consolidated operating properties to be contributed to RC Inland  27  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  subsequent to September 30, 2010 and one property that was sold.  The combined estimated fair value of these properties was $68,351.  During the three months ended September 30, 2010, the Company recorded asset impairment charges of $3,173 related to two of its consolidated operating properties to be contributed to RC Inland subsequent to September 30, 2010.  During the nine months ended September 30, 2009, the Company recorded an asset impairment charge of $54,800 related to nine of its consolidated operating properties with a combined fair value of $180,135.  The Companys estimated fair value, measured on a non-recurring basis, relating to this impairment assessment was based upon a discounted cash flow model that included all estimated cash inflows and outflows over a specific holding period or the estimated contract price, if applicable.  These cash flows are comprised of unobservable inputs which include contractual rental revenues and forecasted rental revenues and expenses based upon market conditions and expectation for growth.  Capitalization rates and discount rates utilized in this model were based upon observable rates that the Company believed to be within a reasonable range of current market rates for the property.  Based on these inputs, the Company had determined that its valuation of its consolidated operating properties were classified within Level 3 of the fair value hierarchy, except for when the estimated contract price is used, which results in Level 2 classification. (14)  Commitments and Contingencies The Company has acquired several properties which have earnout components, meaning the Company did not pay for portions of these properties that were not rent producing at the time of acquisition.  The Company is obligated, under these agreements, to pay for those portions when a tenant moves into its space and begins to pay rent.  The earnout payments are based on a predetermined formula.  Each earnout agreement has a time limit regarding the obligation to pay any additional monies.  The time limits generally range from one to three years.  If, at the end of the time period allowed, certain space has not been leased and occupied, the Company will generally not have any further payment obligation to the seller.  As of September 30, 2010, based on pro-forma leasing rates, the Company may pay as much as $1,400 in the future as retail space covered by earnout agreements is occupied and becomes rent producing. The Company has previously entered into one construction loan agreement, one secured installment note and one other installment note agreement, one of which was impaired as of December 31, 2009 and written off on March 31, 2010.   In conjunction with the two remaining agreements, the Company has committed to fund up to a total of $8,680.  One of the two remaining loans requires monthly interest payments with the entire principal balance due at maturity.  The combined receivable balance at September 30, 2010 and December 31, 2009 was $8,310 and $8,330, respectively, net of allowances of $300 and $17,209, respectively.  The Company is not required to fund any additional amounts on these loans as all of the agreements are non-revolving and all fundings have occurred.   In May 2010, the Company entered into an agreement related to the secured installment note that extended the maturity date from May 31, 2010 to February 29, 2012. Although the loans obtained by the Company are generally non-recourse, occasionally, when it is deemed to be necessary, the Company may guarantee all or a portion of the debt on a full-recourse basis.  As of September 30, 2010, the Company has guaranteed $148,242 and $28,349 of the outstanding secured line of credit and mortgage loans, respectively, with maturity dates up to August 1, 2014.  As of September 30, 2010, the Company also guaranteed $28,523 representing a portion of the construction debt associated with certain of its consolidated development joint ventures.  The guarantees are released as certain leasing parameters are met.  The following table summarizes these guarantees: LocationJoint VentureConstruction Loan 
Balance at 
September 30, 2010Percentage/Amount Guaranteed by the CompanyGuarantee AmountFrisco, TexasParkway Towne Crossing$20,69535%$7,244Dallas, TexasWheatland Towne Crossing5,54850%2,774Henderson, NevadaLake Mead Crossing48,99015%7,348Henderson, NevadaGreen Valley Crossing11,157$       11,15711,157$28,523   28  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  As of September 30, 2010, the Company had two letters of credit outstanding for the benefit of the Captive (See Note 1).  These letters of credit serve as collateral for payment of potential claims within the limits of self-insurance and will remain outstanding until all claims are closed.  There was also one letter of credit outstanding as security for utilities and completion of one development project.  The balance of the outstanding letters of credit at September 30, 2010 was $4,400. On January 8, 2010, the Company entered into a $300,000 forward loan commitment with JP Morgan Chase, subject to customary lender due diligence, to be used to refinance 2010 debt maturities.  In conjunction with this commitment, the Company also entered into a rate lock agreement to lock the interest rate at 6.39%.  The Company made deposits of $8,500 related to both of these agreements.  Subsequent to entering into these agreements, the Company made additional rate lock deposits of $4,067.  The loan commitment agreement originally expired on March 31, 2010, but was extended to December 31, 2010.  The rate lock agreement originally expired on February 10, 2010, but was extended to November 30,2010.  As of September 30, 2010, the Company had used $244,500 of the total commitment proceeds and received refunds of commitment and rate lock deposits of $9,885.  The Company is in the process of allocating the remaining commitments of $55,500 ($20,300 as of the date of this filing) and, if successful, will receive a full refund of the remaining deposits upon loan closings.  The carrying value of the commitment deposits and rate lock deposits outstanding as of September 30, 2010 was $2,682. (15)  Litigation The Company previously disclosed in its Form 10-K, as amended, for the fiscal years ended December 31, 2009, 2008 and 2007, the lawsuit filed against the Company and nineteen other defendants by City of St. Clair Shores General Employees Retirement System and Madison Investment Trust in the United States District Court for the Northern District of Illinois (the Court).  In the lawsuit, plaintiffs alleged that all the defendants violated the federal securities laws, and certain defendants breached fiduciary duties owed to the Company and its shareholders, in connection with the Companys merger with its business manager/advisor and property managers as reflected in its Proxy Statement dated September 12, 2007. On July 14, 2010, the lawsuit was settled by the Company and the other defendants (the Settlement).  On November 8, 2010, the Court granted final approval of the Settlement.  Pursuant to the terms of the Settlement, 9,000 shares of common stock of the Company will be transferred back to the Company from shares of common stock issued to the owners (the Owners) of certain entities that were acquired by the Company in its internalization transaction.  This share transfer will be accounted for as a capital transaction when it occurs.  Pursuant to the Settlement, the Company will pay the fees and expenses of counsel for class plaintiffs in the amount of $10,000, as awarded by the Court on November 8, 2010.  The Company expects that it will be reimbursed by its insurance carrier for a portion of such fees and expenses.  The Company has accrued $10,000 related to the Settlement.  The Owners (who include Daniel L. Goodwin (Goodwin), who beneficially owned more than 5% of the stock of the Company as of December 31, 2009, and certain directors and executive officers of the Company) also agreed to provide a limited indemnification to certain defendants who are directors and an officer of the Company if any class members opted out of the Settlement and brought claims against them.  Seven class members have opted out of the Settlement; to the Companys knowledge, none of these seven class members have filed claims against the Company or its directors and officers.  29  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Notes to Consolidated Financial Statements  (16)  Subsequent Events During the period from October 1, 2010 through the date of this 10-Q filing, the Company: · closed on partial sales of four additional properties to RC Inland, consisting of approximately 515,000 square feet, with sales prices totaling $56,441, which resulted in net losses of $3,670, net proceeds of $19,410 and in RC Inland assuming $31,688 of mortgage debt; · sold 328 shares of two different securities for net proceeds of $4,729 (resulting in estimated realized net gains of $3,481), which were used to pay down margin debt; · paid down $8,895 on the line of credit using proceeds from one property acquired by RC Inland; · extended the rate lock agreement from October 31, 2010 to November 30, 2010 and the loan commitment agreement from October 29, 2010 to December 31, 2010, and · obtained mortgage payable proceeds of $35,200 and made mortgage payable repayments of $46,351.  The new mortgages payable have interest rates of 6.39% and mature in five years.  The stated interest rates of the loans repaid ranged from 4.79% to 5.13% On October 12, 2010, under the Companys Independent Director Stock Option Plan, each non-employee, non-related party, director was granted options to purchase an additional five thousand shares of common stock. Robert D. Parks, Chairman of the Company, did not stand for re-election at the Annual Meeting of Shareholders held on October 12, 2010.  Gerald M. Gorski, a Director of the Company since July 1, 2003, was elected to the position of Chairman at the board of directors meeting held immediately following the Shareholders meeting on October 12, 2010.  30    Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations     Certain statements in this Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q may constitute forward-looking statements.  Forward-looking statements are statements that are not historical, including statements regarding managements intentions, beliefs, expectations, representations, plans or predictions of the future and are typically identified by such words as believe, expect, anticipate, intend, estimate, plan, attempt, seek, may, should and could.  We intend that such forward-looking statements be subject to the safe harbor provisions created by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Federal Private Securities Litigation Reform Act of 1995 and we include this statement for the purpose of complying with such safe harbor provisions.  Future events and actual results, performance, transactions or achievements, financial or otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements.  Risks, uncertainties and other factors might cause such differences, some of which could be material.  For additional information, see Risk Factors under Part II Item 1A of this quarterly report on Form 10-Q and in our annual report on Form 10-K, as amended, for the year ended December 31, 2009. We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of new information, future events or otherwise.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of September 30, 2010.  The following discussion and analysis compares the three months ended September 30, 2010 to the three months ended September 30, 2009 and the nine months ended September 30, 2010 to the nine months ended September 30, 2009, and should be read in conjunction with our consolidated financial statements and the related notes included in this report. Executive Summary     We are a self-managed real estate investment trust (REIT) that acquires, manages, and develops a diversified portfolio of real estate, primarily multi-tenant shopping centers.  As of September 30, 2010, our portfolio consisted of 291 consolidated operating properties, of which 236 were properties wholly-owned by us, including five properties classified as held for sale on the accompanying consolidated balance sheets (the wholly-owned properties) and 55 were properties in one joint venture (the consolidated joint venture operating properties); and 14 other operating properties in three joint ventures that we do not consolidate.  We have also invested in six consolidated development properties, one property wholly-owned by us and five properties in five joint ventures; and two other development properties in one joint venture referred to above that we do not consolidate. In this report, all references to we, our, and us refer collectively to Inland Western Retail Real Estate Trust, Inc. and its subsidiaries, including joint ventures. Our goal is to maximize the possible return to our shareholders through a combination of acquisition, development and redevelopment, utilizing joint ventures and the effective asset management of our portfolio, including disposition of non-core assets.  We attempt to manage our assets by leasing and re-leasing space at favorable rates, controlling costs, maintaining our strong tenant relationships and creating additional value through asset management.  We distribute funds generated from operations to our shareholders and intend to continue to make distributions in order to maintain our REIT status. The properties in our portfolio are located in 38 states.  As of September 30, 2010, our wholly-owned and consolidated joint venture operating properties consisted of 180 multi-tenant shopping centers and 111 free-standing, single-user properties of which 98 are net lease properties.  The wholly-owned and consolidated operating property portfolio contains an aggregate of approximately 43,821,000 square feet of gross leasable area (GLA), and we have an aggregate of approximately 46,480,000 square feet of GLA under management.  At September 30, 2010, the aggregate leased rate of our wholly-owned and consolidated portfolio was 90.6%, including 1.7% related to temporary short-term leases, as compared to the aggregate leased rate at September 30, 2009 of 89.4%, including 1.8% related to temporary short-term leases.  Leased rate includes all signed leases, including those where the tenant has yet to occupy the space or commence paying rent.  Our anchor tenants include nationally and regionally recognized grocers, discount retailers and other tenants who provide basic household goods and services.  Of our total annualized base rental income as of September 30, 2010, approximately 65% is generated by anchor or credit tenants, including PetSmart, Bed Bath & Beyond, Ross Dress for  31    Less, Wal-Mart, Home Depot, Kohls, Best Buy and several others.  The term credit tenant is subjective and we apply the term to tenants whom we believe have a substantial net worth. During the nine months ended September 30, 2010, we invested approximately $501 for the funding of one earnout at one existing property, containing a GLA of approximately 5,000 square feet.  We also contributed $10,488 and $3,307 for real estate development on our consolidated and unconsolidated joint ventures, respectively.  We received $23,353 in investor proceeds through our distribution reinvestment program (DRP), $78,851 in proceeds from the sale of five operating properties, $13,367 in proceeds from the partial sale of investment properties to an unconsolidated joint venture and obtained $604,468 in proceeds from mortgages and notes payable, all of which were used primarily to repay mortgages and notes payable of $771,872. As part of our ongoing business plan, we monitor the potential credit issues of our tenants, analyzing the possible impact any change would have on our consolidated financial statements and liquidity.  We look to enhance the portfolio through our lease-up efforts and maintain strong relationships with national credit tenants.This proactive focus on the financial health of our tenants was a critical element of our strategy during the economic downturn and will continue to be at the forefront over the course of the recovery.  We evaluate our real estate for recoverability of our current carrying value, as well as the collectability of the related outstanding accounts receivable, including any tenant related deferred charges, which may include straight-line rents, deferred lease costs, tenant improvements, tenant inducements and intangible assets and liabilities (Tenant Related Deferred Charges).  We routinely evaluate our exposure relating to tenants in financial distress. Where appropriate, we have either written off the unamortized balance or accelerated depreciation and amortization expense associated with the Tenant Related Deferred Charges for such tenants.     We believe retailers with strong balance sheets, low debt and experienced management teams will continue to capitalize on the current conditions to increase their market share and upgrade existing locations.  The weak performers may continue to close their doors as a result of the challenging economic times.  We have experienced stress in our portfolio in the form of tenant evictions, collection issues and requests for rent relief, but the level has been stabilizing.  We continue to be pleased with our success in re-leasing our vacant spaces, and continue to see re-leasing opportunities to upgrade our tenant profile.  We have interest from some of the strongest retailers for expansion in our centers.  We believe that our well-located, high-demographic and newer properties will continue to be viewed by these retailers as prime locations for expansion.  Leasing We are encouraged by the solid leasing activity we have achieved during the first nine months of 2010.  We remain focused on strengthening our portfolio, and believe that our leased rate will continue to move back towards historical levels over time.  More importantly, our consistently high quality property revenue stream is primarily derived from long-term leases with credit retail tenants and we have little reliance on percentage rents generated by tenant sales performance.  The dramatic reduction in retail development throughout the downturn in the economy has created a limited supply of new retail space as we move forward in the recovery.  We believe that the quality of our shopping center portfolio is strong, as it is generally comprised of newer, well-located assets in areas of high demographics and solid consumer traffic.  As national credit tenants revive expansion plans, we believe that our tenured relationships with these tenants, along with the quality of our assets puts us in an advantageous position to maintain our leasing velocity.  As we continue to sign a record number of new leases, rental rates have generally been below the previous rates; however such rental spreads are stabilizing.  In the current retail environment, we have seen an increase in capital investment, in the form of tenant improvements and leasing commissions, required from landlords when significant new leases are signed.  We remain focused on renewals in an effort to retain our current high quality tenants.  Tenant rotation is inevitable; however shopping centers that are well-located and actively managed perform well.  We are very conscious of the risks posed by the economy, but we believe that the position of our portfolio and the general diversity and credit quality of our tenant base should enable us to continue to successfully navigate through the slow moving recovery. Due in large part to the downturn in the economy and resulting retailer bankruptcies, we had approximately 4,058,000 square feet of retail space become available due to large tenant vacancies.  As of September 30, 2010, approximately 1,698,000 square feet of this space has been re-leased, with an additional 1,200,000 square feet of this space with active letters of intent or that are in various stages of lease negotiations, for a total of approximately 71% of the space being addressed.  We anticipate the economic impact of the executed leases will be realized as rents commence during the last  32    quarter of 2010 and into 2011.  These executed leases represent approximately 4% of total portfolio GLA, and $15,125 in annualized base rental income.  In addition, we are focused on retaining our strong tenants, as renewals are the most cost-efficient means of maintaining and increasing occupancy and rental revenues.  In the first nine months of 2010, we signed nearly 430 new and renewal leases for a total of approximately 2,849,000 square feet.  Given the success we have had re-leasing vacant retail space, we have also been able to focus on anticipating vacancies and proactively re-leasing space before it may become available. Asset Dispositions As part of our asset management strategy, we market non-core assets for sale.  This also became an integral factor in our deleveraging and recapitalization efforts.  We evaluate all potential sale opportunities taking into account the long-term growth prospects of assets being sold, the use of proceeds and the impact on our balance sheet including financial covenants, in addition to the impact on operating results.  The following table highlights the results of our asset disposition strategy through September 30, 2010: Number of Assets SoldSquare FootageCombined Sales PriceTotal Debt ExtinguishedNet Sales Proceeds2010 Dispositions (through September 30, 2010)5358,000$80,185$60,921$18,4162009 Dispositions81,579,000338,057208,552123,944  Operating Joint Ventures We are focused on minimizing dilution to our shareholders; however, we may seek to obtain additional capital through the strategic formation of joint ventures in a manner consistent with our intention to operate with a conservative debt capitalization policy. Effective April 27, 2007, we formed a strategic joint venture with a large state pension fund.  Under the joint venture agreement we are to contribute 20% of the equity and our joint venture partner is to contribute 80% of the equity, up to a total of $500,000.  As of September 30, 2010, the joint venture had acquired seven properties (which we contributed) with a purchase price of approximately $336,000 and had assumed from us mortgages on these properties totaling approximately $188,000. On November 29, 2009, we formed IW JV 2009, LLC (IW JV), a wholly-owned subsidiary, and transferred a portfolio of 55 investment properties and the owner entities into the this entity.  Subsequently, in connection with a $625,000 debt refinancing transaction, which consisted of $500,000 of mortgages payable and $125,000 of notes payable, on December 1, 2009, we raised additional capital of $50,000 from a related party, Inland Equity, in exchange for a 23% noncontrolling interest in IW JV.  IW JV, which is controlled by us, and therefore consolidated, will continue to be managed and operated by us.  Inland Equity is owned by certain individuals, including Daniel L. Goodwin, who controls more than 5% of our common stock, and Robert D. Parks, who was the Chairman of our board of directors until October 12, 2010, and affiliates of The Inland Real Estate Group, Inc. On May 20, 2010, we entered into definitive agreements to form a joint venture (RC Inland) with RioCan Real Estate Investment Trust (RioCan), a real estate investment trust (REIT) based in Canada. The initial RC Inland investment includes up to eight grocery and necessity-based-anchored shopping centers located in Texas. Under the terms of the agreements, RioCan will contribute cash for an 80% interest in the venture and we will contribute a 20% interest in the properties. RC Inland will acquire an 80% interest in the properties from us in exchange for cash, each of which will be accounted for as a partial sale of real estate. Each property closing will occur individually over time based on timing of lender consent or refinance of the related mortgages payable. We will earn property management, asset management and other customary fees on the joint venture. Certain of the properties contain earn-out provisions which, if met, would result in additional sales proceeds to us.  On September 30, 2010, three of the initial eight properties were acquired by the joint venture.  As discussed in Note 3 to the Consolidated Financial Statements, the remaining five properties meet the held for sale criteria as of September 30, 2010.  These transactions do not qualify as discontinued operations in the consolidated statements of operations and other comprehensive loss as a result of our 20% ownership in RC Inland.  33    Development Joint Ventures Our development joint venture program involves partnering with regional developers.  We believe that a national platform of retail development requires strength and expertise in strategic local markets.  Upon completion, we will seek to get the best return and we will either buy or sell the completed development.  If we sell the developed property, we will share, where applicable, in the proceeds realized upon the consummation of a sale. Given the current economic conditions, we have made the decision to put any ongoing pursuit of additional development projects on hold and focus on the completion of our current development properties and improvement of our existing portfolio. Our consolidated joint ventures have the following projects under development: LocationDescriptionOur OwnershipPercentageOur Equity Investment at September 30, 2010Construction
Loan Balance at 
September 30, 2010Frisco, TexasParkway Towne Crossing75.0%$8,717$20,695Dallas, TexasWheatland Towne Crossing75.0%8,5755,548Henderson, NevadaLake Mead Crossing25.0%35,40148,990Henderson, NevadaGreen Valley Crossing50.0%11,02111,157Billings, MontanaSouth Billings Center35.5%4,956-$68,670$86,390  On December 1, 2009, we were notified by the lender for Green Valley Crossing that they had ceased funding and made a demand for payment.  On January 15, 2010, the joint venture filed suit against the lender (as well as the financial institution that acquired it) seeking, among other things, a declaratory judgment that the lender acted improperly.  On September 28, 2010, a settlement agreement was reached and we entered into a modification and extension agreement on the construction loan.  As a result of this modification, the maturity date of the loan was extended to December 2012.  The remaining development of the project will be funded by equity contributions. Ourunconsolidated development joint venture has the following project under development: LocationDescriptionOur 
Ownership
PercentageOur Equity
Investment at 
September 30, 2010Construction
Loan Balance at
September 30, 2010Denver, ColoradoHampton Retail Colorado96.3%$22,664$20,398  Critical Accounting Policies and Estimates Our 2009 Annual Report on Form 10-K, as amended, contains a description of our critical accounting policies, including acquisition of investment property, impairment of long-lived assets, cost capitalization, depreciation and amortization, assets held for sale, revenue recognition, marketable securities, partially-owned entities, derivatives and hedging and allowance for doubtful accounts.  For the nine months ended September 30, 2010, there were no significant changes to these policies. Results of Operations We believe that property net operating income (NOI) is a useful measure of our operating performance.  We define NOI as operating revenues (rental income, tenant recovery income, other property income, excluding straight-line rental income and amortization of acquired above and below market lease intangibles) less property operating expenses (real estate tax expense and property operating expense, excluding straight-line ground rent expense and straight-line bad debt expense).  Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs. This measure provides an operating perspective not immediately apparent from generally accepted accounting principles (GAAP) operating income or net loss.  We use NOI to evaluate our performance on a property-by-property basis because NOI allows us to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by  34    property, have on our operating results.  However, NOI should only be used as an alternative measure of our financial performance.  For reference and as an aid in understanding our computation of NOI, a reconciliation of NOI to net loss as computed in accordance with GAAP has been presented. Previously, we presented operating information for our same store portfolio separately from our other investment properties.  As of January 1, 2010, all of our properties are considered same store since we owned them for the nine months ended September 30, 2010 and 2009.  As a result, we have chosen to present operating information in the following table on a consolidated basis. Comparison of the three months ended September 30, 2010 and 2009 Three Months Ended 
September 30,Increase%20102009(Decrease)ChangeRevenues:Rental income$125,876$126,327$(451)(0.4)Tenant recovery income30,24031,877(1,637)(5.1)Other property income3,6843,3613239.6Expenses:Property operating expenses(23,989)(28,894)(4,905)(17.0)Real estate taxes(23,835)(23,547)2881.2Total net operating income111,976109,1242,8522.6Other income (expense):Straight-line rental income3,4711,7571,714Amortization of acquired above and below market lease intangibles479590(111)Insurance captive income847534313Dividend income6701,689(1,019)Interest income18817414Gain on contribution of investment properties1,464-1,464Gain on interest rate locks-3,989(3,989)Equity in income (loss) of unconsolidated joint ventures875(629)(1,504)Straight-line ground rent expense(996)(992)4Straight-line bad debt expense(190)(529)(339)Depreciation and amortization(61,889)(62,401)(512)Provision for impairment of investment properties(3,173)(6,700)(3,527)Loss on lease terminations(4,465)(2,301)2,164Insurance captive expenses(911)(960)(49)General and administrative expenses(4,169)(4,691)(522)Interest expense(67,090)(60,121)6,969Co-venture obligation expense(1,791)-1,791Recognized (loss) gain on marketable securities, net(235)43,992(44,227)Impairment of note receivable-(413)(413)Other expense(228)(64)164(Loss) income from continuing operations(25,167)22,048(47,215)(214.1)Discontinued operations:Operating loss(39)(9,544)(9,505)Loss from discontinued operations(39)(9,544)(9,505)(99.6)Net (loss) income(25,206)12,504(37,710)(301.6)Net (income) loss attributable to noncontrolling interests(321)81(402)(496.3)Net (loss) income attributable to Company shareholders$(25,527)$12,585$(38,112)(302.8)  Net operating income increased by $2,852, or 2.6%.  Total rental income, tenant recovery and other property income decreased by $1,765, or 1.1%, and total property operating expenses (inclusive of real estate taxes) decreased by $4,617, or 8.8%, for the three months ended September 30, 2010, as compared to September 30, 2009.  35    Rental income.Rental income decreased $451, or 0.4%, from $126,327 to $125,876.  The decrease is primarily due to: · a decrease of $944, composed of $4,991 as a result of expirations or early termination of certain tenant leases, partially offset by $4,047 from new tenant leases replacing former tenants; partially offset by · an increase of $229 in rental income due to a decline in rent reductions. Tenant recovery income.  Tenant recovery income decreased $1,637, or 5.1%, from $31,877 to $30,240.  The decrease is primarily due to a decrease in recoverable property operating expenses described below. Other property income.Other property income increased $323, or 9.6%, primarily due to a slight increase in termination fee income. Property operating expenses. Property operating expenses decreased $4,905, or 17.0%, from $28,894 to $23,989.  The decrease is primarily due to: · a decrease in bad debt expense of $2,705 and · a decrease in overall non-recoverable and recoverable property operating expenses of $825 and $1,381, respectively, due primarily to cost reduction efforts. Real estate taxes.Real estate taxes increased $288 or 1.2%, from $23,547 to $23,835.  This increase is primarily due to: · a net increase of $288 from 2009 real estate tax expense primarily due to normal changes in assessed values and tax rates; · an increase in tax consulting fees of $286 as a result of successful reductions to proposed increases to assessed valuations or tax rates at certain properties, and · an increase of $154 in prior year estimates adjusted during the three months ended September 30, 2010, based on actual real estate taxes paid; partially offset by · an increase of $419 in real estate tax refunds received during the three months ended September 30, 2010, for prior year tax assessment adjustments. Other income (expense). Other income (expense) changed from net expense of $87,076 to net expense of $137,143.  The increase in net expense of $50,067, or 57.5%, is primarily due to: · a $44,227 decrease in recognized gain on marketable securities due to a significant liquidation of the marketable securities portfolio in 2009 and · a $6,969 increase in interest expense primarily due to: - higher interest rates on refinanced debt resulting in an increase of $4,546, partially offset by a decrease in loan fee amortization interest expense of $620; - an increase of $4,091 related to the senior and junior mezzanine notes of IW JV; - prepayment penalties and other costs associated with refinancings of $110, partially offset by - a decrease in interest on our line of credit of $632 due primarily to a decrease in the amount outstanding on the line of credit; - a decrease in margin payable interest of $26 due to a decrease in the margin payable balance, partially offset by · a $3,527 decrease in provision of investment properties.  Based on the results of our evaluations for impairment (see Notes 12 and 13 to the consolidated financial statements), we recognized impairment charges of $3,173 and $6,700 for the three months ended September 30, 2010 and 2009, respectively.  Although 38 of our properties had impairment indicators at September 30, 2010, undiscounted cash flows for those properties exceeded their respective carrying values by a weighted average of 53%.  Accordingly, no additional impairment provisions were warranted for these properties. Discontinued operations.Discontinued operations consist of amounts related to eight properties that were sold during 2009 and five properties that were sold during the nine months ended September 30, 2010.  We closed on the sale of eight  36    properties during the year ended December 31, 2009 aggregating 1,579,000 square feet, for a combined sales price of $338,057.  The aggregated sales resulted in the extinguishment or repayment of $208,552 of debt, net sales proceeds totaling $123,944 and total gains on sale of $26,383.  The properties sold included three office buildings, three single-user retail properties and two multi-tenant properties. We did not sell any properties during the three months ended September 30, 2010 that qualified for discounted operations accounting treatment. Comparison of the nine months ended September 2010 and 2009. Nine Months Ended 
September 30,Increase%20102009(Decrease)ChangeRevenues:Rental income$376,933$384,062$(7,129)(1.9)Tenant recovery income91,05594,054(2,999)(3.2)Other property income11,27415,547(4,273)(27.5)Expenses:Property operating expenses(76,988)(86,366)(9,378)(10.9)Real estate taxes(69,498)(71,090)(1,592)(2.2)Total net operating income332,776336,207(3,431)(1.0)Other income (expense):Straight-line rental income8,7506,0252,725Amortization of acquired above and below market lease intangibles1,5231,786(263)Insurance captive income2,2531,671582Dividend income3,0349,476(6,442)Interest income5481,318(770)Gain on contribution of investment properties1,464-1,464Gain on interest rate locks-3,989(3,989)Equity in income (loss) of unconsolidated joint ventures1,609(5,262)(6,871)Straight-line ground rent expense(3,121)(2,996)125Straight-line bad debt expense(554)(2,894)(2,340)Depreciation and amortization(185,845)(187,565)(1,720)Provision for impairment of investment properties(18,836)(44,000)(25,164)Loss on lease terminations(8,869)(11,556)(2,687)Insurance captive expenses(3,034)(2,648)386General and administrative expenses(13,412)(14,146)(734)Interest expense(199,932)(170,752)29,180Co-venture obligation expense(5,375)-5,375Recognized gain on marketable securities, net53617,798(17,262)Impairment of note receivable-(17,322)(17,322)Other expense(5,518)(3,884)1,634Loss from continuing operations(92,003)(84,755)7,2488.6Discontinued operations:Operating loss(1,830)(7,503)(5,673)Gain on sales of investment properties2,05721,570(19,513)Income from discontinued operations22714,067(13,840)(98.4)Net loss(91,776)(70,688)21,08829.8Net (income) loss attributable to noncontrolling interests(656)3,202(3,858)(120.5)Net loss attributable to Company shareholders$(92,432)$(67,486)$24,94637.0  Net operating income decreased by $3,431, or 1.0%.  Total rental income, tenant recovery and other property income decreased by $14,401, or 2.9%, and total property operating expenses (inclusive of real estate taxes) decreased by $10,970, or 7.0%, for the nine months ended September 30, 2010, as compared to September 30, 2009.  37    Rental income.Rental income decreased $7,129, or 1.9%, from $384,062 to $376,933.  The decrease is primarily due to: · a decrease of $3,255 in rental income due to tenant bankruptcies, · a decrease of $1,974 in rental income due to rent reductions, and · a decrease of $2,489, composed of $11,038 as a result of expirations or early termination of certain tenant leases, partially offset by $8,549 from new tenant leases replacing former tenants; partially offset by an increase of $298 due to earnouts completed subsequent to December 31, 2008. Tenant recovery income.  Tenant recovery income decreased $2,999, or 3.2%, from $94,054 to $91,055.  The decrease is primarily due to a decrease in recoverable property operating expenses and real estate tax expenses described below, partially offset by an increase in the 2009 tenant recovery income estimates as a result of the common area maintenance reconciliation process completed during the nine months ended September 30, 2010. Other property income.Other property income decreased $4,273, or 27.5%, primarily due to $5,000 recognized during the nine  months ended September 30, 2009, related to the forfeiture of security deposits due to the bankruptcy of a major tenant. Property operating expenses. Property operating expenses decreased $9,378, or 10.9%, from $86,366 to $76,988.  The decrease is primarily due to: · a decrease in bad debt expense of $4,021, and · a decrease in overall non-recoverable and recoverable property operating expenses of $2,271 and $3,146, respectively, due primarily to cost reduction efforts. Real estate taxes.Real estate taxes decreased $1,592, or 2.2%, from $71,090 to $69,498.  This decrease is primarily due to: · an increase of $2,033 in real estate tax refunds received during the nine months ended September 30, 2010, for prior year tax assessment adjustments; · a net decrease of $156 from 2009 real estate tax expense primarily due to decreases in assessed values at certain vacant properties; and · a decrease of $119 in prior year estimates adjusted during the nine months ended September 30, 2010, based on actual real estate taxes paid, partially offset by · an increase in tax consulting fees of $784 as a result of successful reductions to proposed increases to assessed valuations or tax rates at certain properties. Other income (expense). Other income (expense) changed from net expense of $420,962 to net expense of $424,779.  The increase in net expense of $3,817, or 0.9%, is primarily due to a $29,180 increase in interest expense resulting from: · higher interest rates on refinanced debt resulting in an increase of $15,306 and additional loan fee amortization interest expense of $1,152; · an increase of $12,127 related to the senior and junior mezzanine notes of IW JV; · a decrease in capitalized interest of $899 due to certain phases of our developments being placed into service; · prepayment penalties and other costs associated with refinancings of $2,351, partially offset by · a decrease in interest on our line of credit of $292 due primarily to a decrease in the amount outstanding on the line of credit, and · a decrease of $176 in margin payable interest due to decreases in the margin payable balance. Additionally, there was: · a $17,262 decrease in recognized gain on marketable securities primarily as a result of a significant liquidation of the marketable securities portfolio in 2009 and no other-than-temporary impairment recorded in 2010 as compared to other-than-temporary impairment of $24,831 recorded in 2009, partially offset by · a $17,322 decrease in impairment of a note receivable, and  38    · a $25,164 decrease in provision for impairment of investment properties. Based on the results of our evaluations for impairment (see Notes 12 and 13 to the consolidated financial statements), we recognized impairment charges of $18,836 and $44,000 for the nine months ended September 30, 2010 and 2009, respectively.  Although 38 of our properties had impairment indicators at September 30, 2010, undiscounted cash flows for those properties exceeded their respective carrying values by a weighted average of 53%.  Accordingly, no additional impairment provisions were warranted for these properties. Discontinued operations.During the nine months ended September 30, 2010, we completed the sale of five properties that qualified for discontinued operations accounting treatment aggregating 358,000 square feet, for a combined sale price of $80,185.  The aggregated sales resulted in the extinguishment or repayment of $60,435 of debt, forgiveness of debt of $486, net sales proceeds totaling $18,416 and total gains on sale of $2,057.  Discontinued operations also includes amounts related to eight properties that were sold during 2009. Funds From Operations One of our objectives is to provide cash distributions to our shareholders from cash generated by our operations. Cash generated from operations is not equivalent to our loss from continuing operations as determined under GAAP.  Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts (NAREIT), an industry trade group, has promulgated a standard known as funds from operations, or FFO. We believe that FFO, which is a non-GAAP performance measure, provides an additional and useful means to assess the operating performance of REITs. As defined by NAREIT, FFO means net loss computed in accordance with GAAP, excluding gains (or losses) from sales of investment properties, plus depreciation and amortization on investment properties including adjustments for unconsolidated joint ventures in which the REIT holds an interest.  We have adopted the NAREIT definition for computing FFO because management believes that, subject to the following limitations, FFO provides a basis for comparing our performance and operations to those of other REITs.  FFO is not intended to be an alternative to Net Income as an indicator of our performance nor to Cash Flows from Operating Activities as determined by GAAP as a measure of our capacity to pay distributions. FFO is calculated as follows: Three Months Ended
September 30,Nine Months Ended
September 30,2010200920102009Net (loss) income attributable to Company shareholders$(25,527)$12,585$(92,432)$(67,486)Add:Depreciation and amortization67,17167,189198,806211,987Less:Gain on sales/contributions of investment properties*(2,248)-(3,778)(19,574)Noncontrolling interests' share of depreciationrelated to consolidated joint ventures(2,837)(648)(8,439)(2,231)Funds from operations$36,559$79,126$94,157$122,696*excludes gain or loss on extinguishment of debt  Depreciation and amortization related to investment properties for purposes of calculating FFO includes loss on lease terminations which encompasses the write-off of tenant related assets, including tenant improvements and in-place lease values, as a result of early lease terminations.  Total loss on lease terminations for the three months ended September 30, 2010 and 2009 were $4,465 and $2,301, respectively.  Total loss on lease terminations for the nine months ended September 30, 2010 and 2009 were $8,869 and $11,556, respectively. The decrease in FFO for three months ended September 30, 2010 compared to the same period in 2009 is primarily due to a change in recognized (loss) gain on marketable securities of $44,227 and an increase in interest expense of $6,969, partially offset by a decrease in property operating expenses of $5,240 and a decrease in impairment on investment properties of $3,527. The decrease in FFO for nine months ended September 30, 2010 compared to the same period in 2009 is primarily due to an increase in interest expense of $29,180, a change in recognized gains (losses) on marketable securities of $17,262, a  39    decrease in income from discontinued operations of $13,840, a decrease in revenues of $11,357, a decrease in dividend income of $6,442, an increase in co-venture obligation expense of $5,375, and a decrease in gain on interest rate locks of $3,989, partially offset by a decrease in impairment on investment properties of $25,164, a decrease in impairment of a note receivable of $17,322, a decrease in property operating expenses of $11,593, and a change in equity in income (loss) of unconsolidated joint ventures of $6,871. The following table compares cash flows provided by operating activities to distributions declared: Three Months Ended
September 30,Nine Months Ended
September 30,2010200920102009Cash flows provided by operating activities$59,661$78,785$153,672$203,963Distributions declared24,24812,02967,72859,383Excess$35,413$66,756$85,944$144,580  Distributions declared per common share are based upon the weighted average number of common shares outstanding.  The distribution of $0.14 per share declared for the nine months ended September 30, 2010, represented 71.9% of our FFO for the period.  The $0.12 per share distribution declared for the nine months ended September 30, 2009, represented 48.4% of our FFO for the period.  Our distribution of current and accumulated earnings and profits for federal income tax purposes are taxable to shareholders as ordinary income.  Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholders basis in the shares to the extent thereof (a return of capital) and thereafter as taxable gain.  The distributions in excess of earnings and profits will have the effect of deferring taxation on the amount of the distribution until the sale of the shareholders shares.  The balance of the distribution constitutes ordinary income.  In order to maintain our qualification as a REIT, we must make annual distributions to shareholders of at least 90% of our REIT taxable income.  REIT taxable income does not include capital gains.  Under certain circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet the REIT distribution requirements.  Distributions declared and paid are determined by our board of directors 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 Code, credit agreement limitations and other factors the board of directors may deem relevant. Liquidity and Capital Resources Current Environment Real estate is a capital intensive business. The recession and credit crisis had a major impact on the credit markets, including the failure of several large financial service companies.  Our main focus over the last few years has been evaluating our capital resources and our refinancing opportunities. The debt capital markets have been volatile and challenging and numerous financial institutions have experienced unprecedented write-offs and liquidity issues.  The cost of capital is higher, loan-to-values are lower and the availability of funds from commercial and investment banks can be limited.  Life insurance companies are more selective in relation to new lending opportunities, with the overall trend in lending emphasizing quality of sponsorship and strength of relationship as critical factors in the decision making process.  Deposits from borrowers may now also be required in order to extend credit. Part of our overall strategy includes actively addressing debt that has matured or is maturing, and evaluating alternative courses of action given the uncertainty in the capital markets.  We intend to maintain a balance in the amount and timing of our debt maturities upon refinance.  Based on our current assessment, we believe we have viable refinancing alternatives, but such alternatives may materially impact our expected consolidated financial results due to higher interest rates.  Higher interest rates may be offset by lower debt levels as we continue to pay down principal upon refinance in our attempt to reduce outstanding debt on our consolidated balance sheets.  Although the credit environment continues to be challenging, we believe that the credit markets have opened up considerably when compared to the last few years.  As such, we continue to pursue opportunities with the nations largest banks, life insurance companies, regional and local banks and believe we have demonstrated success in addressing our maturing debt.  40    We continued to dispose of non-core assets as a means of recycling capital, despite a challenging transaction market.  In addition, as part of our overall liquidity strategy, we continue to enter into joint ventures such as RC Inland where we retain a 20% interest.  For the nine months ended September 30, 2010, we completed the sale of one single-user office building, one medical center and three single-user retail properties aggregating 358,000 square feet, for a combined sale price of $80,185.  The aggregated sales resulted in net sales proceeds totaling $18,416, and total gain on sale of $2,057 relating to the carrying costs of these assets.  For the three and nine months ended September 30, 2010, we completed partial sales of three multi-tenant retail properties to RC Inland aggregating 352,400 square feet for a combined sales price of $47,137.  The aggregated sales resulted in net sales proceeds totaling $13,367 and total gain on partial sale of $1,464.  During 2009, we sold eight properties, of which four were sold during the nine months ended September 30, 2009, aggregating 1,142,800 square feet, for a combined sales price of $226,632.  The aggregated sales resulted in net sales proceeds totaling $83,686 and total gains on sale of $21,570.  No properties were sold during the three months ended September 30, 2009. At the current operating levels, we anticipate that cash flows from operating activities will continue to provide adequate capital for all scheduled interest and monthly principal payments on outstanding indebtedness and distribution payments in order to maintain REIT status.  We are committed to managing and minimizing discretionary operating and capital expenditures, obtaining the necessary equity and/or debt to repay outstanding borrowings as they mature and complying with financial covenants in 2010 and beyond.  In light of current economic conditions, we may not be able to obtain loan extensions or financing on favorable terms, or at all, in order to meet principal maturity obligations on certain of our indebtedness, which may cause an acceleration of our secured line of credit and remedies available to lenders on assets securing matured mortgage debt, each of which could significantly impact future operations, liquidity and cash flows available for distribution. General We remain focused on our balance sheet, identifying future financings at reasonable pricing and selectively evaluating acquisition opportunities created by the distress in the financial markets.  Our strategy has been and continues to be to procure financing on an individual asset, non-recourse basis to preserve our corporate credit.  This strategy reflects our primary interest in maintaining a strong balance sheet, while attempting to capitalize on attractive investment opportunities that have been created by current market conditions.  We continue to review prospective investments based upon risk and return attributes, although there currently appear to be few such opportunities. As of September 30, 2010, we had cash and cash equivalents of $116,016.  As we execute our stated business strategy, we remain a net seller of assets, evidenced by the divestiture of certain recently developed assets and non-core assets.  These asset sales are primarily designed to assist in the pay down of 2010 debt maturities.  However, there can be no assurance that future sales will occur, or if they do occur, that they will materially assist in reducing our indebtedness. As of December 31, 2009, we had $1,156,384 of mortgages payable, excluding amortization and liabilities associated with assets held for sale, which had matured or were maturing in 2010.  The table below presents the remaining mortgages payable to be addressed as of September 30, 2010, excluding liabilities associated with the investment properties held for sale.  The 2010 column includes $125,756 of mortgages payable that had matured as of September 30, 2010 and $114,332 of mortgages payable maturing in the remainder of 2010. [iwest10q0930002.gif]  41    During the nine months ended September 30, 2010, we obtained mortgage payable proceeds of $604,468, made mortgage payable repayments of $771,872 and received debt forgiveness of $19,561.  In addition, RC Inland assumed $29,327 of mortgages payable from us on September 30, 2010.  The new mortgages payable that we entered into during the nine months ended September 30, 2010 have interest rates ranging from 2.48% to 8.00% and maturities up to ten years.  The stated interest rates of the loans repaid during the nine months ended September 30, 2010 ranged from 1.65% to 6.75%.  We also entered into modifications of existing loan agreements which extended the maturities of $185,659 of mortgages payable up to December 2012.  As we address our maturing mortgages payable, we have reduced our overall debt and staggered future mortgage maturity dates so that no more than $580,000 will come due in any one year. In evaluating our maturing mortgage debt, based on managements current assessment, to the extent we obtain viable financing and refinancing alternatives, available alternatives may have a material adverse impact on our expected financial results as lenders have increased the cost of debt financing and tightened their underwriting standards.  As of September 30, 2010, we had $125,756 of mortgages payable that had matured.  During the second quarter of 2010, in order to prompt discussions with the lenders, we ceased making monthly debt service payments on two mortgage loans totaling $61,235 as of September 30, 2010, $29,965 of which has matured and is included in the $125,756 of total matured debt.  Our non-payment of these monthly debt service payments amounts to $3,000 annualized and does not result in our noncompliance under any of our other mortgages payable and line of credit agreements.  We are currently in active negotiations with the lenders to determine an appropriate course of action under the non-recourse loan agreements, but there has been no change in the status of these two loans since we ceased making payments.  No assurance can be provided that these negotiations will result in favorable outcomes for us.  One of the lenders has asserted that certain events have occurred that trigger recourse to us.  However, we believe that we have substantive defenses with respect to those claims. As of September 30, 2010, in addition to the $125,756 that had matured, we had $114,332 of mortgages payable, excluding principal amortization and liabilities associated with the investment properties held for sale, maturing in the remainder of 2010.  Of this amount, we have since refinanced $21,366.  On January 8, 2010, we entered into a $300,000 forward loan commitment with JP Morgan Chase, subject to customary lender due diligence, to be used to refinance 2010 debt maturities, of which $244,500 has been utilized as of September 30, 2010.  In addition to allocating the remaining proceeds of $55,500 ($20,300 as of the date of this filing), we are in the process of marketing, planning to seek extensions or planning to sell properties relating to the remaining 2010 maturities.  As we continue our efforts to refinance our maturing mortgage debt, certain of our non-recourse loans may mature due to lack of replacement financings, timing issues related to loan closings and protracted extension negotiations.  Subject to limitations, such maturities are not prohibited under our credit agreement (see Note 9 to the consolidated financial statements).  The balance outstanding on the line of credit, which matures on October 14, 2011, was $148,242 at September 30, 2010.  No assurance can be provided that the aforementioned obligations will be refinanced, extended or repaid as currently anticipated. Our leases typically provide that the tenant bears responsibility for their pro-rata share of a majority of all property costs and expenses associated with ongoing maintenance and operation, including, but not limited to, utilities, property taxes and insurance.  In addition, in some instances our leases provide that the tenant is responsible for their pro-rata share of roof and structural repairs.  Certain of our properties are subject to leases under which we retain responsibility for certain costs and expenses associated with the property.  We anticipate that capital demands to meet obligations related to capital improvements with respect to properties will be minimal for the foreseeable future (as many of our properties have recently been constructed or rehabbed) and can be met with funds from operations and working capital. We believe that our current capital resources (including cash on hand and marketable securities, net of margin debt) and anticipated refinancings are sufficient to meet our liquidity needs for the remainder of 2010 (except as it relates to the mortgage loans where we have ceased making monthly debt service payments, as described above).  We further believe that our individually procured, non-recourse indebtedness positions us well for our refinancing efforts for the rest of 2010 and beyond.  We intend to seek refinancing on all of our remaining indebtedness coming due in 2010 (except as it relates to the mortgage loans where we have ceased making monthly debt service payments, as described above).  However, when we deem appropriate, we will seek extensions of the existing indebtedness.  We cannot provide assurance that the lenders will agree to such extension requests; however, given the non-recourse nature of our indebtedness, we believe lenders will have few viable options other than to agree to our extension requests.  We also believe that being a net seller of real estate assets in 2010 continues to benefit our cash position and assist us in our ongoing refinancing efforts.  42    Liquidity We anticipate that cash flows from operating activities will continue to provide adequate capital for all scheduled interest and monthly principal payments on outstanding indebtedness, current and anticipated tenant improvement or other capital obligations, the shareholder distribution required to maintain REIT status and compliance with financial covenants of our credit agreement in 2010 and beyond.  To assist in the refinancing needs, we intend to utilize a combination of: proceeds from expected asset sales; and retained capital as a result of the suspension of the share repurchase program and the change in the distribution policy.  Distributions declared and paid are determined by our board of directors 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 Code, credit agreement limitations and other factors the board of directors may deem relevant. In addition, we are pursuing refinancings and extensions in order to fund our debt repayments and, to the extent deemed appropriate, minimizing further capital expenditures.  While we review numerous investment opportunities, we do not expect to invest significant capital in these investment opportunities until debt maturities are appropriately addressed. Our primary uses and sources of our consolidated cash are as follows: UsesSourcesShort-Term:·
Tenant improvement allowances
·
Improvements made to individual properties that are not recoverable through common area maintenance charges to tenants
·
Distribution payments
·
Debt repayment requirements, including principal, interest and costs to refinance
·
Corporate and administrative expenses·
Operating cash flow
·
Available borrowings under revolving credit facilities
·
Distribution reinvestment plan
·
Secured loans collateralized by individual properties
·
Asset salesLong-Term:·
Acquisitions
·
New development
·
Major redevelopment, renovation or expansion programs at individual properties
·
Debt repayment requirements, including both principal and interest·
Secured loans collateralized by individual properties
·
Long-term project financing
·
Joint venture financing with institutional partners
·
Marketable securities
·
Asset sales Mortgages and Notes Payable.  Mortgages payable outstanding as of September 30, 2010, excluding liabilities associated with the investment properties held for sale, were $3,572,538 (of which $56,872, or 2%, is recourse to us up to August 1, 2014) and had a weighted average interest rate of 6.08% at September 30, 2010.  Of this amount, $3,468,730 had fixed rates ranging from 3.81% to 10.11% and a weighted average fixed rate of 6.12% at September 30, 2010.  The remaining $103,808 of outstanding indebtedness represented variable rate loans with a weighted average interest rate of 4.47% at September 30, 2010.  Properties with a net carrying value of $5,268,158 at September 30, 2010 and related tenant leases are pledged as collateral for the mortgage loans.  Development properties with a net carrying value of $90,709 at September 30, 2010 and related tenant leases are pledged as collateral for the construction loans.  As of September 30, 2010, scheduled maturities for our outstanding mortgage indebtedness had various due dates through March 1, 2037. Notes payable outstanding as of September 30, 2010 were $175,000.  These notes payable had fixed interest rates ranging from 4.80% to 14.0% and a weighted average fixed interest rate of 10.51% at September 30, 2010.  43    Shareholder Liquidity.  Effective November 19, 2008, the board of directors voted to suspend the SRP until further notice. We maintain a DRP, subject to certain share ownership restrictions, which allows our shareholders who have purchased shares in our offerings to automatically reinvest distributions by purchasing additional shares from us.  Such purchases under the DRP are not subject to selling commissions or the marketing contribution and due diligence expense allowance.  In conjunction with our estimate of the value of a share of our stock for annual statement of value purposes, the board of directors amended our DRP, effective March 1, 2010, solely to modify the purchase price.  Thus, on or after March 1, 2010, additional shares of our stock purchased under the DRP have been and will continue to be purchased at a price of $6.85 per share.  In the event (if ever) of a listing on a national securities exchange, shares purchased by us for the DRP will be purchased on such exchange or market at the then prevailing market price and will be sold to participants at that price.  As of September 30, 2010, we had issued 69,314 shares pursuant to the DRP for an aggregate amount of $666,125. Capital Resources The following table summarizes our capital structure as of January 1, 2009 and September 30, 2010: [iwest10q0930004.gif] (a)  Other includes other financings, co-venture obligation, redeemable noncontrolling interests and noncontrolling interests  We have a credit agreement with KeyBank National Association and other financial institutions for borrowings up to $200,000, subject to the collateral pool requirement described below.  Based on the appraised value of the collateral pool, our ability to borrow was limited to $153,051 as of September 30, 2010.  The credit agreement has a maturity date of October 14, 2011.  The credit agreement requires compliance with certain covenants, such as, among other things, a leverage ratio, fixed charge coverage, minimum net worth requirements, distribution limitations and investment restrictions, as well as limitations on our ability to incur recourse indebtedness.  The credit agreement also contains customary default provisions including the failure to timely pay debt service payable thereunder, the failure to comply with our financial and operating covenants, and the failure to pay when our consolidated indebtedness becomes due.  In the event our lenders under the credit agreement declare a default, as defined in the credit agreement, this could result in an acceleration of any outstanding borrowings on the line of credit. The terms of the credit agreement stipulate, as of September 30, 2010: ·monthly interest-only payments on the outstanding balance at the rate equal to LIBOR (3% floor) plus 3.50%;·quarterly fees ranging from 0.35% to 0.50%, per annum, on the average daily undrawn funds;·pay down of the line from net proceeds of asset sales;·an assignment of corporate cash flow in the event of default;   44     ·the requirement for a comprehensive collateral pool (secured by mortgage interests in each asset) subject to certain covenants, including a maximum advance rate on the appraised value of the collateral pool of 60%, minimum requirements related to the value of the collateral pool and the number of properties included in the collateral pool, and debt service coverage, and·permissions for non-recourse cross-default up to $250,000 and permissions for maturity defaults under non-recourse indebtedness for up to 90 days subject to extension at discretion of the lenders. As of September 30, 2010, management believes we were in compliance with all of the financial covenants under our credit agreement.  The outstanding balance on the line of credit at September 30, 2010 and December 31, 2009 was $148,242 and $107,000, respectively. Our current business plans indicate that we will be able to operate in compliance with these covenants, in 2010 and beyond; however, the recession and tepid recovery have significantly impacted our expected cash flows, access to non-recourse mortgage capital, our financial position and effective leverage.  If the global credit market conditions were to weaken again, or if there is further softening in the retail and real estate industries and a further weakening in consumer confidence leading to a decline in consumer spending such that we are unable to successfully execute plans as further described below, we could violate these covenants, and as a result may be subject to higher finance costs and fees and/or an acceleration of the maturity date of advances under the credit agreement.  These risk factors and an inability to predict future economic conditions have encouraged us to adopt a strict focus on lowering leverage and increasing financial flexibility. It is managements current strategy to have access to the capital resources necessary to repay upcoming maturities and, to a lesser extent, to consider making prudent investments should such opportunities arise.  Accordingly, we may seek to obtain funds through additional debt or equity financings and/or joint venture capital in a manner consistent with our intention to operate with a conservative debt capitalization policy.  In light of the current economic conditions, we may not be able to obtain financing on favorable terms, or at all, which may negatively impact future cash flows available for distribution.  Foreclosure on mortgaged properties as a result of an inability to refinance existing indebtedness would have a negative impact on our consolidated financial condition and results of operations. On January 8, 2010, we entered into a $300,000 forward loan commitment with JP Morgan Chase, subject to customary lender due diligence, to be used to refinance 2010 debt maturities.  In conjunction with this commitment, we also entered into a rate lock agreement to lock the interest rate at 6.39%.  We made deposits of $8,500 related to both of these agreements.  Subsequent to entering into these agreements, we made additional rate lock deposits of $4,067.  The loan commitment agreement originally expired on March 31, 2010, but was extended to December 31, 2010.  The rate lock agreement originally expired on February 10, 2010, but was extended to November 30, 2010.  As of September 30, 2010, we had used $244,500 of the total commitment proceeds and received refunds of commitment and rate lock deposits of $9,885.  We are in the process of allocating the remaining commitments of $55,500 ($20,300 as of the date of this filing) and, if successful, will receive a full refund of the remaining deposits upon loan closings.  The carrying value of the commitment and rate lock deposits outstanding as of September 30, 2010 was $2,682. The majority of our loans require monthly payments of interest only, although it has become more common for lenders to require principal and interest payments, as well as reserves for real estate taxes, insurance and certain other costs.  Although the loans we obtain are generally non-recourse, occasionally, when it is deemed to be necessary, we may guarantee all or a portion of the debt on a full-recourse basis.  As of September 30, 2010, we had guaranteed $148,242 of the outstanding secured line of credit and $56,872 of the outstanding mortgages payable with maturity dates up to August 1, 2014 (see Note 14 to the consolidated financial statements), respectively.  At times, we have borrowed funds financed as part of a cross-collateralized package, with cross-default provisions, in order to enhance the financial benefits.  In those circumstances, one or more of the properties may secure the debt of another of our properties.  Individual decisions regarding interest rates, loan-to-value, debt yield, fixed versus variable-rate financing, term and related matters are often based on the condition of the financial markets at the time the debt is issued, which may vary from time to time. Distributions declared and paid are determined by our board of directors 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 Code, credit agreement limitations and other factors the board of directors may deem relevant.                                45    Statements of Cash Flows Comparison for the Nine Months Ended September 30, 2010 and 2009 Cash Flows from Operating Activities Cash flows provided by operating activities were $153,672 and $203,963 for the nine months ended September 30, 2010 and 2009, respectively, which consists primarily of net income from property operations, adjusted for non-cash charges for depreciation and amortization, provision for impairment of investment properties and marketable securities and gain on extinguishment of debt.  The $50,291 decrease is primarily attributable to an increase in interest paid of $23,885 which resulted, in part, from our refinancing efforts, a decrease in dividends received of $7,527, an increase in the cash portion of co-venture obligation expense of $4,542 and a decrease in NOI of $3,431. Cash Flows from Investing Activities Cash flows provided by investing activities were $19,845 and $161,200, respectively, for the nine months ended September 30, 2010 and 2009.  Of these amounts, $47,416 and $25,101, respectively, were used to fund restricted escrow accounts, some of which are required under certain new mortgage debt arrangements.  In addition, $23,321 and $32,661, respectively, were used for acquisition of new properties, earnouts at existing properties, capital expenditures and tenant improvements and $2,705 and $14,491, respectively, were used for existing developments projects during the nine months ended September 30, 2010 and 2009.  During the nine months ended September 30, 2010 and 2009, we sold five and four properties, respectively, which resulted in sales proceeds of $78,851 and $117,316, respectively.  During the nine months ended September 30, 2010, we contributed three properties to an unconsolidated joint venture, which resulted in proceeds of $13,367.  In addition, during the nine months ended September 30, 2010 and 2009, we purchased marketable securities of none and $190, respectively, and sold marketable securities of $3,900 and $124,340, respectively. We will continue to execute our strategy to dispose of select non-core assets, however it is uncertain given current market conditions when and whether we will be successful in disposing of these assets and whether such sales could recover our original cost.  Additionally, tenant improvement costs associated with re-leasing vacant space could continue to be significant. Cash Flows from Financing Activities Cash flows used in financing activities were $183,405 and $300,604, respectively, for the nine months ended September 30, 2010 and 2009.  We used $165,877 and $202,645, respectively, for the nine months ended September 30, 2010 and 2009, related to the net activity from proceeds from new mortgages secured by our properties, the secured line of credit, other financings, the co-venture arrangement, principal payments, payoffs and the payment and refund of fees and deposits.  During the nine months ended September 30, 2010 and 2009, we also generated/(used) $18,154 and $(56,340), respectively, through the net borrowing of margin debt.  We paid $35,783 and $40,548, respectively, in distributions, net of distributions reinvested through DRP, to our shareholders for the nine months ended September 30, 2010 and 2009. Effects of Transactions with Related and Certain Other Parties See Note 4  Transactions with Related Parties in our consolidated financial statements, and our Form 10-K for the year ended December 31, 2009, as amended. Off-Balance Sheet Arrangements, Contractual Obligations, Liabilities and Contracts and Commitments Contracts and Commitments We have acquired several properties which have earnout components, meaning that we did not pay for portions of these properties that were not rent producing at the time of acquisition.  We are obligated, under these agreements, to pay for those portions, as additional purchase price, when a tenant moves into its space and begins to pay rent.  The earnout payments are based on a predetermined formula.  Each earnout agreement has a time limit regarding the obligation to pay any additional monies.  The time limits generally range from one to three years.  If, at the end of the time period allowed, certain space has not been leased and occupied, generally, we will generally not have any further payment obligation.  As of September 30, 2010, based on pro-forma leasing rates, we may pay as much as $1,400 in the future as retail space covered by earnout agreements is occupied and becomes rent producing.  46    We have previously entered into one construction loan agreement, one secured installment note and one other installment note agreement, one of which was impaired as of December 31, 2009 and written off on March 31, 2010.  In conjunction with the two remaining note agreements, we have committed to fund up to a total of $8,680.  One of the two remaining loans September 30, 2010 and December 31, 2009 was $8,310 and $8,330, respectively, net of allowances of $300 and $17,209, respectively.  We are not required to fund any additional amounts on these loans as all of the agreements are non-revolving and all fundings have occurred.  In May 2010, we entered into an agreement related to the secured installment note that extended the maturity date from May 31, 2010 to February 29, 2012. Although the loans we obtain are generally non-recourse, occasionally, when it is deemed to be necessary, we may guarantee all or a portion of the debt on a full-recourse basis.  As of September 30, 2010, we had guaranteed $148,242 and $28,349 of the outstanding secured line of credit and mortgage loans, respectively, with maturity dates up to August 1, 2014.  We also guaranteed $28,523 representing a portion of the construction debt associated with certain of the consolidated development joint ventures.  The guarantees are released as certain leasing parameters are met. As of September 30, 2010, we had two letters of credit outstanding for the benefit of the Captive.  These letters of credit serve as collateral for payment of potential claims within the limits of self-insurance and will remain outstanding until all claims are closed.  There was also one letter of credit outstanding as security for utilities and completion of one development project.  The balance of the outstanding letters of credit at September 30, 2010 was $4,400. On January 8, 2010, we entered into a $300,000 forward loan commitment with JP Morgan Chase, subject to customary lender due diligence, to be used to refinance 2010 debt maturities.  In conjunction with this commitment, we also entered into a rate lock agreement to lock the interest rate at 6.39%.  We made deposits of $8,500 related to both of these agreements. Subsequent to entering into these agreements, we made additional rate lock deposits of $4,067.  The loan commitment agreement originally expired on March 31, 2010, but was extended to December 31, 2010.  The rate lock agreement originally expired on February 10, 2010, but was extended to November 30, 2010.  As of September 30, 2010, we had used $244,500 of the total commitment proceeds and received refunds of commitment and rate lock deposits of $9,885.  We are in the process of allocating the remaining commitments of $55,500 ($20,300 as of the date of this filing) and, if successful, will receive a full refund of the remaining deposits upon loan closings.  The carrying value of the commitment and rate lock deposits outstanding as of September 30, 2010 was $2,682. Subsequent Events During the period from October 1, 2010 through the date of this 10-Q filing, we: · closed on partial sales of four additional properties to RC Inland, consisting of approximately 515,000 square feet, with sales prices totaling $56,441, which resulted in net losses of $3,670, net proceeds of $19,410 and in RC Inland assuming $31,688 of mortgage debt; · sold 328 shares of two different securities for net proceeds of $4,729 (resulting in estimated realized net gains of $3,481), which were used to pay down margin debt; · paid down $8,895 on the line of credit using proceeds from one property acquired by RC Inland; · extended the rate lock agreement from October 31, 2010 to November 30, 2010 and the loan commitment agreement from October 29, 2010 to December 31, 2010, and · obtained mortgage payable proceeds of $35,200 and made mortgage payable repayments of $46,351.  The new mortgages payable have interest rates of 6.39% and mature in five years.  The stated interest rates of the loans repaid ranged from 4.79% to 5.13%. On October 12, 2010, under our Independent Director Stock Option Plan, each non-employee, non-related party, director was granted options to purchase an additional five thousand shares of common stock. Robert D. Parks, our Chairman, did not stand for re-election at the Annual Meeting of Shareholders held on October 12, 2010.  Gerald M. Gorski, a Director of ours since July 1, 2003, was elected to the position of Chairman at the board of directors meeting held immediately following the Shareholders meeting on October 12, 2010.  47    New Accounting Pronouncements See Note 2  Summary of Significant Accounting Policies to our consolidated financial statements regarding certain new accounting pronouncements that we have recently adopted and that we expect to adopt in 2010. Item 3.  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 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 fixed rates. On January 8, 2010, we entered into a $300,000 forward loan commitment with JP Morgan Chase, subject to customary lender due diligence, to be used to refinance 2010 debt maturities.  In conjunction with this commitment, we also entered into a rate lock agreement to lock the interest rate at 6.39%.  We made deposits of $8,500 related to both of these agreements. Subsequent to entering into these agreements, we made additional rate lock deposits of $4,067.  The loan commitment agreement originally expired on March 31, 2010, but was extended to December 31, 2010.  The rate lock agreement originally expired on February 10, 2010, but was extended to November 30, 2010.  As of September 30, 2010, we had used $244,500 of the total commitment proceeds and received refunds of commitment and rate lock deposits of $9,885.  We are in the process of allocating the remaining commitments of $55,500 ($20,300 as of the date of this filing) and, if successful, will receive a full refund of the remaining deposits upon loan closings.  The carrying value of the commitment and rate lock deposits outstanding as of September 30, 2010 was $2,682. With regard to variable-rate financing, we assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities.  We maintain risk management control systems to monitor interest rate cash flow risk attributable to both of our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions.  The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows. We may use additional 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, we generally are not exposed to the credit risk of the counterparty.  It is our policy to enter into these transactions with the same party providing the financing, with the right of offset.  Alternatively, 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. The carrying amount of our mortgages payable, notes payable, line of credit and co-venture obligation is approximately $8,098 lower than fair value as of September 30, 2010. We had $270,204 of variable-rate debt with a weighted average interest rate of 4.64% at September 30, 2010.  An increase in the variable interest rate on this debt constitutes a market risk.  If interest rates increase by 1% based on debt outstanding as of September 30, 2010, interest expense would increase by approximately $2,702 on an annualized basis.     We are exposed to equity price risk as a result of our investments in marketable securities.  Equity price risk changes as the volatility of equity prices changes or the values of corresponding equity indices change. Other-than-temporary impairments were none and $24,831 for the nine months ended September 30, 2010 and 2009, respectively.  The overall stock market and REIT stocks have been stable since late 2007, which in 2009 resulted in our recognizing other-than-temporary impairments in our REIT stock investments.  At this point in time, certain of our investments continue to generate dividend income, while other investments of ours have ceased generating dividend  48    income or are doing so at reduced rates.  As the equity market recovers, we have been able to sell some marketable securities at prices in excess of our current book values. The information presented herein is merely an estimate and has limited predictive value.  As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on the interest rate exposures that arise during the period, our hedging strategies at that time and future changes in the level of interest rates. Item 4.  Controls and Procedures We have established disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to the members of senior management and the board of directors. Based on managements evaluation as of September 30, 2010, our chief executive officer, president, chief financial officer and treasurer and chief accounting officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and is accumulated and communicated to our management, including our chief executive officer, president, chief financial officer and treasurer and our chief accounting officer to allow timely decisions regarding required disclosure. There were no changes to our internal controls over financial reporting during the fiscal quarter ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.  49    Part II  Other Information Item 1.  Legal Proceedings We previously disclosed in our Form 10-K, as amended, for the fiscal years ended December 31, 2009, December 31, 2008 and December 31, 2007, respectively, the lawsuit filed against us and nineteen other defendants by City of St. Clair Shores General Employees Retirement System and Madison Investment Trust in the United States District Court for the Northern District of Illinois.  We previously disclosed in our Form 8-K filed on July 20, 2010, that on July 14, 2010, the lawsuit was settled by us and all other defendants (the Settlement), subject to preliminary and final approval by the Court and neither we nor Daniel L. Goodwin (who beneficially owned more than 5% of our stock as of December 31, 2009) exercising a right to terminate the Settlement if class members holding more than an agreed-upon percentage of shares elected to opt out of the Settlement.  Following notice of the Settlement to the class members, seven class members elected to opt out of the Settlement. The right to terminate the Settlement was not triggered based on the number of shares held by these seven class members. On November 8, 2010, the Court granted final approval of the Settlement. Item 1A.  Risk Factors There have been no material changes to our risk factors during the nine months ended September 30, 2010 compared to those risk factors presented in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2009.  50    Item 6.  Exhibits Exhibit No.Description31.1Certification of Chief Executive Officer, President, Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 (filed herewith).31.2Certification of Chief Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 (filed herewith).32.1Certification of Chief Executive Officer, President, Chief Financial Officer and Treasurer and Chief Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 (filed herewith).       51    SIGNATURES     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.     INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.     By:/s/ Steven P. GrimesSteven P. GrimesChief Executive Officer, President,
Chief Financial Officer and TreasurerDate:November 10, 2010By:/s/ James W. KleifgesJames W. KleifgesChief Accounting OfficerDate:November 10, 2010   52