UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K  XANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007oroTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM     TO  COMMISSION FILE NUMBER: 000-51199 Inland Western Retail Real Estate Trust, Inc. (Exact name of registrant as specified in its charter)  Maryland42-1579325(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.) 2901 Butterfield Road, Oak Brook, Illinois  60523 (Address of principal executive offices) (Zip Code) 630-218-8000 (Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class:Name of each exchange on which registered:NoneNone  Securities registered pursuant to Section 12(g) of the Act: Title of class: Common stock, $.001 par value per share  Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o      No  X Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes  o      No  X Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes X   No  o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [ X ]  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company  See definitions of accelerated filer and a smaller reporting company in Rule 12b-2 of the Exchange Act. Large accelerated filer o           Accelerated filer  o          Non-accelerated filer X   (Do not check if a smaller reporting company) Smaller reporting company  o  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  The aggregate market value of the registrant's common stock held by non-affiliates of the registrant as of June 30, 2007 (the last business day of the registrant's most recently completed second fiscal quarter) was $4,491,016,099, assuming a market value of $10.00 per share.  As of March 27, 2008, there were 483,710,075 shares of common stock outstanding.  Documents Incorporated by Reference:  Portions of the Registrants proxy statement for its annual shareholders meeting to be held in 2008 are incorporated by reference in Part III, Items 10, 11, 12, 13 and 14.        INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
TABLE OF CONTENTS  PART I Page  Item 1. Business 1 Item 1A. Risk Factors 5 Item 1B. Unresolved Staff Comments 13 Item 2. Properties 13 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 16  PART II  Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 17 Item 6. Selected Financial Data 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 46 Item 8. Consolidated Financial Statements and Supplementary Data 48 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 114 Item 9A. Controls and Procedures 114 Item 9B. Other Information 114  PART III  Item 10. Directors, Executive Officers and Corporate Governance 115 Item 11. Executive Compensation 115 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 115 Item 13. Certain Relationships and Related Transactions, and Director Independence 115 Item 14. Principal Accounting Fees and Services 115  PART IV  Item 15. Exhibits and Financial Statement Schedules 115 SIGNATURES 121  i    PART I  Item 1.  Business  General Inland Western Retail Real Estate Trust, Inc. is 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 December 31, 2007, our portfolio of operating properties consisted of 290 properties wholly-owned by us (the wholly-owned properties), and 12 properties of which we own between 5% and 95% (the consolidated joint venture properties). We have also invested in nine development joint venture projects, six of which we consolidate. The properties in our portfolio are located in 38 states.  At December 31, 2007, the portfolio (excluding the development joint venture properties) consisted of 180 multi-tenant shopping centers and 122 free-standing single-user properties of which 103 are net lease properties.  A net lease property is one which is leased to a tenant who is responsible for the base rent and all costs and expenses associated with their occupancy including property taxes, insurance and repairs and maintenance.  The portfolio contained an aggregate of approximately 44.8 million square feet of gross leasable area, or GLA, of which approximately 97% of the GLA was leased at December 31, 2007.  Our anchor tenants include nationally and regionally recognized grocers, discount retailers, financial companies, and other tenants who provide basic household goods and services.  Of our total annualized portfolio rental revenue as of December 31, 2007, approximately 66% was generated by anchor or credit tenants.  The term "credit tenant" is subjective and we apply the term to tenants who we believe have a substantial net worth. All amounts in this Form 10-K are stated in thousands with the exception of per share amounts, per square foot amounts, number of properties, number of states, number of leases and number of employees. On November 15, 2007, pursuant to an agreement and plan of merger, approved by our shareholders on November 13, 2007, we acquired, through a series of mergers, four entities affiliated with our former sponsor, Inland Real Estate Investment Corporation, which entities provided business management/advisory and property management services to us.  Shareholders of the acquired companies received an aggregate of 37,500 shares of our common stock, valued under the merger agreement at $10.00 per share. Based upon discussions between us and our Independent Registered Public Accounting Firm relating to a recent change in interpretation of relevant accounting literature and the resulting change to historical accounting practice for internalization transactions, the merger transaction has been accounted for as a consummation of a business combination.  As a result, the purchase price in excess of the fair value of the assets and liabilities of the acquired companies was allocated to goodwill pursuant to EITF Issue no. 04-1, Accounting for Preexisting Relationships between Parties to a Business Combination and SFAS No. 141, Business Combinations.  Previously, we had anticipated that substantially all of the merger consideration would be treated as an expense in connection with the termination of our property management and advisory agreements upon consummation of the merger. According to EITF Issue No. 04-1, the settlement of an executory contract in a business combination as a result of a preexisting relationship should be measured at the lesser of (a) the amount by which the contract is favorable or unfavorable from the perspective of the acquirer when compared to pricing for current market transactions for the same or similar items or (b) any stated settlement provisions in the contract available to the counterparty to which the contract is unfavorable.  We have determined that our agreements with our former business manager/advisor and property managers resulted in no allocation of the purchase price to contract termination costs.  The assets and liabilities of the acquired companies were recorded at their estimated fair value at the date of the transaction.  The purchase price in excess of the fair value of the assets and liabilities of the acquired companies was allocated to goodwill.  1    In determining the purchase price, an independent third party rendered an opinion on the $10.00 per share value of the shares, as well as the aggregate purchase price of $375,000.  Additional costs totaling $4,019 were incurred as part of the merger transaction consisting of financial and legal advisory services and accounting and proxy related costs.  As part of the merger, the value assigned to these tangible and intangible assets was determined by an independent third party engaged to provide such information.  The following table summarizes the estimated fair values of the allocation of the purchase price: Shares of common stock issued (37,500 shares at $10.00 per share)$375,000Tangible assets acquired(482)Intangible assets(621)Additional merger costs and fees incurred4,019Goodwill$377,916 Business and Operating Strategies Our goal is to maximize the possible return to stockholders through the acquisition, development, redevelopment, creation of strategic joint ventures and management of related properties consisting of lifestyle, power, neighborhood and community multi-tenant shopping centers and single-user net lease properties.  We seek to provide an attractive return to our stockholders by taking advantage of our strong presence in many markets. We are able to accommodate the growth needs of tenants who are interested in working with one landlord in multiple locations. Because of our focused acquisition strategy, we possess large amounts of retail space in certain markets, thus allowing us to lease and re-lease space at favorable rental rates. Working with our property management companies, we focus on the needs and problems facing our tenants, so we can provide solutions whenever possible. Because of our size, we enjoy the benefits of purchasing goods and services in large quantities, thus creating cost savings and improving efficiency. The result of these activities, we believe, will lead to profitability and growth as we go forward. Prior to 2007, acquisitions had been a key contributor to our growth. In 2004 through 2006, for example, acquisitions totaled over $7,498,000. In 2007, however, our acquisition and financing strategies were complemented by proactive asset management, and development and redevelopment strategies. Asset Management Strategies Because we own over 44.8 million square feet of GLA, asset management of our properties is a key element of our operating strategy.  Our asset management philosophy includes working closely with our property managers to achieve the following goals: · Employ experienced, well-trained property managers, leasing agents and collection personnel; · Actively manage costs and minimize operating expenses by centralizing management, leasing, marketing, financing, accounting, renovation and data processing activities; · Improve rental income and cash flow by aggressively marketing rentable space; · Emphasize regular maintenance and periodic renovation to meet the needs of tenants and to maximize long-term returns; · Maintain a diversified tenant base at our retail centers, consisting primarily of retail tenants providing basic consumer goods and services; and · Identify properties that will benefit from asset enhancement including renovation and development of land that we own. Institutional and Development Joint Ventures During 2007 we began our two-pronged joint venture strategy  institutional and development.  Our initial institutional joint venture was consummated in April 2007 by the creation of a new entity with equity contributions made by our joint venture partner and a combination of assets and equity contributions by us.  Our joint venture partner is a large state  2    pension fund, advised by Morgan Stanley Real Estate Advisors.  We initially contributed approximately $336,000 of assets to the joint venture with the intention of contributing an additional $164,000 in assets, followed by an additional $500,000 of new assets to be acquired.  We earn fees for asset management, property management, leasing, acquisitions and dispositions. Also during 2007, we launched our development joint venture program which involves partnering with regional developers.  We believe that a national platform of retail development requires the strength and expertise in strategic local markets.  Currently we have nine developments totaling $104,900 of equity contributed by us, all anticipated to earn a preferred return of not less than 10%.  Total costs of these developments are expected to be $474,646.  Furthering our strategy for development joint ventures, we signed an agreement with a regional developer in the Las Vegas area whereby we will commit, at our discretion, up to $112,500 in equity on to be named developments.  We seek to maintain a right of first offer with respect to completed developments, but we will seek to get the best execution if that involves a sale of the developed property at which time we will share in the proceeds of sale. Acquisition Strategies Management continues to focus on acquiring properties that meet our investment objectives.  We intend to continue to acquire a diversified (by geographical location and type and size of shopping centers) portfolio of real estate primarily improved for use as retail establishments.  The retail centers we have and expect to continue to acquire are located throughout the United States. During the acquisition process, to ascertain the value of an investment property, we take into consideration many factors which require difficult, subjective, or complex judgments to be made.  These judgments require us to make assumptions when valuing each investment property.  Such assumptions include projecting vacancy rates, rental rates, property operating expenses, capital expenditures, and debt financing rates, among other assumptions.  The capitalization rate is also a significant driving factor in determining the property valuation which requires judgment of factors such as market knowledge, historical experience, length of leases, tenant financial strength, economy, demographics, environment, property location, visibility, age, and physical condition, and investor return requirements, among others.  Furthermore, at the acquisition date, we require that every property acquired is supported by an independent appraisal.  All of these factors are taken as a whole in determining the valuation. Key elements of our acquisition strategy include: · Selectively acquiring diversified and well-located properties of the type described above; · Acquiring properties, in most cases, on an all-cash basis to provide us with a competitive advantage over potential purchasers who must secure financing simultaneously. We generally obtain mortgage financing concurrently or subsequent to the purchase.  We may, however, acquire properties subject to existing indebtedness if we believe this is in our best interest; and · Diversifying geographically by acquiring properties located primarily in major consolidated metropolitan statistical areas, in order to minimize the potential adverse impact of economic downturns in certain markets. Financing Strategies Generally, we have and expect to continue to acquire properties free and clear of permanent mortgage indebtedness by paying the entire purchase price of each property in cash. However, if it is determined to be in our best interest, we will, in some instances, incur indebtedness to acquire properties. With respect to properties purchased on an all-cash basis, financing is generally placed on a property after it closes and the proceeds from such financing have enabled us to purchase or develop additional properties.  Overall our borrowings have been approximately 50% to 60% of the cost of each property.  Our articles of incorporation provide that the aggregate amount of borrowing, in relation to our net assets, shall not, in the absence of a satisfactory showing that a higher level of borrowing is appropriate, exceed 300% of net assets.  We employ financing strategies to take advantage of trends we anticipate with regard to interest rates. One such strategy is if we believe interest rates will decline over a period of time, we may use variable rate financing with the option to fix the rate at a later date.  In other instances we may elect not to place individual permanent debt on each acquisition.  Such decisions are made on an individual basis and are influenced by the availability of cash on hand and our evaluation of the future trend of interest rates.  3    Tax Status We elected to be taxed as a real estate investment trust, or REIT, under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, or the Code, beginning with our taxable year ending December 31, 2003, and believe we have qualified as a REIT since such election.  Provided that we qualify for taxation as a REIT, we generally will not be subject to federal income tax on REIT taxable income that is distributed to stockholders.   If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates.  Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income, property, or net worth and to federal income and excise taxes on our undistributed income.  We have one wholly-owned subsidiary that has elected to be treated as a taxable REIT subsidiary, or TRS, for federal income tax purposes. A TRS is taxed on its net income at corporate tax rates. The income tax expense incurred as a result of the TRS does not have a material impact on our consolidated financial statements.  On November 15, 2007, we acquired four qualified REIT subsidiaries.  Their income will be consolidated with REIT income for federal and state income tax purposes. Competition We continue to see intense competition for the types of properties in which we invest. In seeking new investment opportunities, we compete with other real estate investors, including pension funds, insurance companies, foreign investors, real estate partnerships, other REITs, private individuals and other domestic real estate companies, some of which have greater financial resources than we do.  With respect to properties presently owned or to be owned by us, we compete with other owners of like properties for tenants.  There can be no assurance that we will be able to successfully compete with such entities in development, acquisition, and leasing activities in the future. Our business is inherently competitive. Property owners, including us, compete on the basis of location, visibility, quality and aesthetic value of construction, volume of traffic, strength and name recognition of tenants and other factors.  These factors combine to determine the level of occupancy and rental rates that we are able to achieve at our properties.  Further, our tenants compete with other forms of retailing, including e-commerce, catalog companies and direct consumer sales.  We may, at times, compete with newer properties or those in more desirable locations.  To remain competitive, we evaluate all of the factors affecting our centers and try to position them accordingly.  For example, we may decide to focus on renting space to specific retailers who will complement our existing tenants and increase traffic.We believe the principal factors that retailers consider in making their leasing decision include: · Consumer demographics · Quality, design and location of properties · Total number and geographic distribution of properties · Diversity of retailers and anchor tenants at shopping center locations · Management and operational expertise · Rental rates Based on these criteria, we believe that the size and scope of our property portfolio, as well as the overall quality and attractiveness of our individual properties, enable us to compete effectively for retail tenants in our local markets. Because our revenue potential is linked to the success of our retailers, we indirectly share exposure to the same competitive factors that our retail tenants experience in their respective markets when trying to attract individual shoppers. These dynamics include general competition from other regional shopping centers, including outlet malls and other discount shopping centers, as well as competition with discount shopping clubs, catalog companies, Internet sales and telemarketing. Environmental Matters We believe that our portfolio of investment properties complies in all material respects with all federal, state and local environmental laws, ordinances and regulations regarding hazardous or toxic substances.  All of our investment properties have been subjected to Phase I or similar environmental audits at the time they were acquired.  These audits, performed by independent consultants, generally involve a review of records and visual inspection of the property.  These audits do not  4    include soil sampling or ground water analysis.  These audits have not revealed, nor are we aware of, any environmental liability that we believe will have a material adverse effect on our operations.  These audits may not, however, reveal all potential environmental liabilities.  Further, the environmental condition of our investment properties may be adversely affected by our tenants, by conditions of nearby properties or by unrelated third parties. Employees As of December 31, 2007, we had 239 employees. Certifications We have filed with the Securities and Exchange Commission (SEC) the chief executive officer, chief operating officer/chief financial officer and chief accounting officer certifications required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, which are attached as Exhibits 31.1, 31.2 and 31.3 to this Annual Report on Form 10-K. Access to Company Information We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the SEC.  The public may read and copy any of the reports that are filed with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800)-SEC-0330.  The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically. We make available, free of charge, through our website and by responding to requests addressed to our investor relations group, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports.  These reports are available as soon as reasonably practical after such material is electronically filed or furnished to the SEC. Our website address iswww.inland-western.com.  The information contained on our website, or other websites linked to our website, is not part of this document. Stockholders wishing to communicate directly with the Board of Directors or any committee can do so by writing to the attention of the Board of Directors or committee in care of Inland Western Retail Real Estate Trust, Inc. at 2901 Butterfield Road, Oak Brook, IL 60523. Item 1A. Risk Factors In evaluating our company, careful consideration should be given to the following risk factors, in addition to the other information included in this annual report.  Each of these risk factors could adversely affect our business operating results and/or financial condition, as well as adversely affect the value of an investment in our common stock.  In addition to the following disclosures, please refer to the other information contained in this report including the consolidated financial statements and the related notes. General Investment Risks        Our common stock is not currently listed on an exchange and cannot be readily sold.  There is currently no public trading market for our shares of common stock and we cannot assure investors that one will develop.  We may never list the shares for trading on a national stock exchange.  The absence of an active public market for our shares could impair an investors ability to sell our stock or obtain an active trading market valuation of the value of their interest in the Company.            Increases in market interest rates may hurt the value of our common stock.We believe that investors consider the distribution rate on REIT stocks, expressed as a percentage of the price of stocks, relative to the market interest rates as an important factor in deciding whether to buy or sell the stocks.  If market interest rates go up, prospective purchasers of REIT stocks may expect a higher distribution rate.  Higher interest rates would not, however, result in more funds being  5    available for us to distribute and, in fact, would likely increase our borrowing costs and might decrease our funds available for distribution.  Thus, higher market interest rates could cause the price of our common stock to decline.   Our share repurchase program is limited to 5% of the weighted average number of shares of our stock outstanding during the prior calendar year and may be changed or terminated by us, thereby reducing the potential liquidity of a stockholders investment.In accordance with our share repurchase program, a maximum of 5% of the weighted average number of shares of our stock outstanding during the prior calendar year may be repurchased by us.  This standard limits the number of shares we can purchase.  Our board of directors also has the ability to change or terminate, at any time, our share repurchase program.  If we terminate or modify our share repurchase program or if we do not have sufficient funds available to repurchase all shares that our stockholders request to repurchase, then our stockholders ability to liquidate their shares will be further diminished. There are conflicts of interest between us and our affiliates.  Our operation and management, including our acquisition of properties, may be influenced or affected by conflicts of interest arising out of our relationship with our affiliates.  Those affiliates could take actions that are more favorable to other entities than to us.  The resolution of conflicts in favor of other entities could have a negative impact on our financial performance. General Real Estate Risks            There are inherent risks with real estate investments.  All real property investments are subject to some degree of risk.  Equity real estate investments cannot be quickly converted to cash.  This limits our ability to promptly vary our portfolio in response to changing economic, financial and investment conditions.  Real property investments are also subject to adverse changes in general economic conditions or local conditions which reduce the demand for rental space.  Other factors also affect real estate values, including: · Possible federal, state or local regulations and controls affecting rents, prices of goods, fuel and energy consumption and prices, water and environmental restrictions; · Increasing labor and material costs; and · The attractiveness of the property to tenants in the neighborhood. The yields available from equity investments in real estate depend in large part on the amount of rental income earned, as well as property operating expenses and other costs we incur.  If our properties do not generate revenues sufficient to meet operating expenses, we may have to borrow amounts to cover fixed costs, and our cash available for distributions may be adversely affected.      Adverse economic conditions could reduce our income and distributions to investors. Our properties are primarily retail establishments.  The economic performance of our properties could be affected by changes in local economic conditions.  Our performance is therefore linked to economic conditions in areas where we have acquired or intend to acquire properties and in the market for retail space generally.  Adverse conditions include, but are not limited to: · The regional and local economy, which may be negatively impacted by plant closings, industry slowdowns, adverse weather conditions, natural disasters and other factors · Local real estate conditions, such as an oversupply of, or a reduction in demand for, retail space or retail goods, and the availability and creditworthiness of current and prospective tenants · Perceptions by retailers or shoppers of the safety, convenience and attractiveness of the retail property · The convenience and quality of competing retail properties and other retailing options such as the Internet · Changes in laws and regulations applicable to real property, including tax and zoning laws · Changes in interest rate levels and the availability and cost of financing If we are unable to generate sufficient revenue from our retail properties, including those held by joint ventures, we will be unable to meet operating and other expenses, including debt service, lease payments, capital expenditures and tenant improvements, and to make distributions from our joint ventures and then, in turn, to our stockholders.  6    Therefore, to the extent that there are adverse economic conditions in an area and in the market for retail space generally that impact the market rents for retail space, such conditions could result in a reduction of our income and cash available for distributions and thus affect the amount of distributions we can make to our stockholders. The value of our common stock may be negatively impacted.     · If our tenants are unable to make rental payments, if their rental payments are reduced, or if they terminate a lease, our financial condition and ability to pay distributions will be adversely affected.  We are subject to the risk that tenants, as well as lease guarantors, if any, may be unable to make their lease payments or may decline to renew a lease upon its expiration.  A default by a tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a tenant's election not to renew a lease upon its expiration, could have an adverse effect on our financial condition and our ability to pay distributions.       · Our financial condition and ability to make distributions may be adversely affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of a tenant that occupies a large area of the retail center (commonly referred to as an anchor tenant).  Any anchor tenant, a tenant that is an anchor tenant at more than one retail center, or a tenant of any of the single-user net lease properties may become insolvent, may suffer a downturn in business, or may decide not to renew its lease.  Any of these events would result in a reduction or cessation in rental payments to us and would adversely affect our financial condition.  A lease termination by an anchor tenant could result in lease terminations or reductions in rent by other tenants whose leases permit cancellation or rent reduction if an anchor tenant's lease is terminated.  In certain properties where there are large tenants, other tenants may require that if certain large tenants or "shadow" tenants discontinue operations, a right of termination or reduced rent may exist.  In such event, we may be unable to re-lease the vacated space.  Similarly, the leases of some anchor tenants may permit the anchor tenant to transfer its lease to another retailer.  The transfer to a new anchor tenant could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center.  A transfer of a lease to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate their leases at the retail center.  If we are unable to re-lease the vacated space to a new anchor tenant, we may incur additional expenses in order to re-model the space to be able to re-lease the space to more than one tenant.       · If a tenant files for bankruptcy, we may be unable to collect balances due under relevant leases.  Any or all of the tenants, or a guarantor of a tenant's lease obligations could be subject to a bankruptcy proceeding pursuant to Title 11 or Title 7 of the bankruptcy laws of the United States.  Such a bankruptcy filing would bar all efforts by us to collect pre-bankruptcy debts from these entities or their properties, unless we receive an enabling order from the bankruptcy court.  Post-bankruptcy debts would be paid currently.  If a lease is assumed, all pre-bankruptcy balances owing under it must be paid in full.  If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages.  If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid.  This claim could be paid only in the event funds were available, and then only in the same percentage as that realized on other unsecured claims.  A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums.  Such an event could cause a decrease or cessation of rental payments which would mean a reduction in our cash flow and the amount available for distributions to you.  In the event of a bankruptcy, we cannot assure stockholders that the tenant or its trustee will assume our lease.  If a given lease is not assumed, our cash flow and the amounts available for distributions to stockholders may be adversely affected.  Competition with third parties in acquiring properties will reduce our profitability and the return on an investment in our common stock.  We compete with many other entities engaged in real estate investment activities, many of which have greater resources than we do.  Larger REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies.  In addition, the number of entities and the amount of funds competing for suitable investment properties may increase.  This will result in increased demand for these assets and therefore increased prices paid for them.  If we pay higher prices for properties, our profitability is reduced and investors will experience a lower return on their investment.            7    It may be difficult to buy and sell real estate quickly, and transfer restrictions apply to some of our properties.Equity real estate investments are relatively illiquid, and this characteristic tends to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. In addition, significant expenditures associated with each equity investment, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment.  If income from a property declines while the related expenses do not decline, our income and cash available for distribution to our stockholders would be adversely affected.  A significant portion of our properties are mortgaged to secure payment of indebtedness, and if we were unable to meet our mortgage payments, we could lose money as a result of foreclosure on the properties by the various mortgagees. In addition, if it becomes necessary or desirable for us to dispose of one or more of the mortgaged properties, we might not be able to obtain a release of the lien on the mortgaged property without payment of the associated debt.  The foreclosure of a mortgage on a property or inability to sell a property could adversely affect the level of cash available for distribution to our stockholders.  In certain transactions, if persons selling properties to us wish to defer the payment of taxes on the sales proceeds, we are likely to pay them in units of limited partnership interest in the operating partnership. In transactions of this kind, we may also agree, subject to certain exceptions, not to sell the acquired properties for significant periods of time.  Our properties are subject to competition for tenants and customers.  We have and intend to continue to acquire properties located in developed areas.  Therefore, there are numerous other retail properties within the market area of each of our properties which compete with our properties and which compete with us for tenants.  The number of competitive properties could have a material effect on our ability to rent space at our properties and the amount of rents charged.  We could be adversely affected if additional competitive properties are built in locations competitive with our properties, causing increased competition for our customer traffic and creditworthy tenants.  This could result in decreased cash flow from tenants and may require us to make capital improvements to properties which we would not have otherwise made, thus affecting cash available for distributions, and the amount available for distributions to stockholders. We may be required to expend funds to correct defects or to make improvements before a property can be sold.  We cannot assure our investors that we will have funds available to correct such defects or to make such improvements. In acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property.  These provisions would restrict our ability to sell a property.           We depend on leasing space to tenants on economically favorable terms and collecting rent from these tenants, who may not be able to pay.Our results of operations will depend on our ability to continue to lease space in our properties on economically favorable terms.  If the sales of stores operating in our centers decline sufficiently, tenants might be unable to pay their existing minimum rents or expense recovery changes, since these rents and charges would represent a higher percentage of their sales.  If our tenants sales decline, new tenants would be less likely to be willing to pay minimum rents as high as they would otherwise pay.  In addition, as substantially all of our income is derived from rentals of real property, our income and cash available for distribution to our stockholders would be adversely affected if a significant number of tenants were unable to meet their obligations to us.  During times of economic recession, these risks will increase. Bankruptcy or store closures of tenants may decrease our revenues on available cash.Our leases generally do not contain provisions designed to ensure the creditworthiness of the tenant, and a number of companies in the retail industry, including some of our tenants, have declared bankruptcy or voluntarily closed certain of their stores in recent years.  The bankruptcy or closure of a major tenant, particularly an Anchor tenant, may have a material adverse effect on the rental properties affected and the income produced by these properties and may make it substantially more difficult to lease the remainder of the affected rental properties.  As a result, the bankruptcy or closure of a major tenant and potential additional closures as a result of co-tenancy requirements could result in a lower level of revenues and cash available for distribution to our stockholders. Inflation may adversely affect our financial condition and results of operations.Should inflation increase in the future, we may experience any or all of the following: · Decreasing tenant sales as a result of decreased consumer spending which could result in lower overage rents; · Difficulty in replacing or renewing expiring leases with new leases at higher base and/or overage rents;  8    · An inability to receive reimbursement from our tenants for their share of certain operating expenses, including common area maintenance, real estate taxes and insurance. Inflation also poses a potential threat to us due to the probability of future increases in interest rates. Such increases would adversely impact us with higher interest rates on new debt.  The objectives of our partners in joint ventures may conflict with our objectives.  We have made and may continue to make investments in joint ventures or other partnership arrangements between us and our affiliates or with unaffiliated third parties.  Investments in joint ventures which own real properties may involve risks otherwise not present when we purchase real properties directly.  For example, our partners may file for bankruptcy protection, may have economic or business interests or goals which are inconsistent with our interests or goals, or may take actions contrary to our instructions, requests, policies or objectives.  Among other things, actions by partners might subject real properties owned by the joint venture to liabilities greater than those contemplated by the terms of the joint venture or other adverse consequences.       Real estate related taxes may increase and if these increases are not passed on to tenants, our net income will be reduced.  Some local real property tax assessors reassess our properties as a result of our acquisition of the property.  Generally, from time to time, our property taxes increase as property values or assessment rates change or for other reasons deemed relevant by the assessors.   An increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property.  Although some tenant leases may permit us to pass through such tax increases to the tenants for payment, there is no assurance that renewal leases or future leases will be negotiated on the same basis.  Increases not passed through to the tenants will adversely affect our net income, cash available for distributions, and the amount of distributions to stockholders.      Construction and development activities expose us to risks such as cost overruns, carrying costs of projects under construction or development, availability and costs of materials and labor, weather conditions and government regulation. In connection with construction and development activities, we have employees and our development joint venture partners who perform oversight and review functions.  These functions include selecting sites, reviewing construction and tenant improvement design proposals, negotiating and contracting for feasibility studies, supervising compliance with local, state or federal laws and regulations, negotiating contracts, oversight of construction, accounting and obtaining financing.  We retain independent general contractors to perform the actual physical construction work on tenant improvements or the installation of heating, ventilation and air conditioning systems.  These activities expose us to risks and potential cost recognition inherent in construction and development, including zoning, occupancy, governmental regulations, cost overruns, abandonment, carrying costs of projects under construction or development, availability and costs of materials and labor, inability to obtain financing or re-financings and adverse weather conditions. Development joint venture projects may expose us to greater risks than those associated with the acquisition of operating properties.  We have entered and plan to continue to enter into development joint venture arrangements with unaffiliated developers for the construction of shopping centers.  Development joint ventures include risks which are different and, in most cases, greater than the risks associated with our acquisition of fully developed and operating properties.  These development risks are in addition to general market risks and may include a completion of construction and principal guaranty from us to the construction lender and customary construction risks for circumstances beyond our reasonable control including, but not limited to, zoning risks and additional entitlement risks from the jurisdiction where the properties are located, leasing risks and construction delays. Bankruptcy of our developers could impose delays and costs on us with respect to the development retail properties.The bankruptcy of one of the developers in any of our development joint ventures could materially and adversely affect the relevant property or properties.  If the relevant joint venture through which we have invested in a property has incurred recourse obligations, the discharge in bankruptcy of the developer may require us to honor a completion guarantee and therefore might result in our ultimate liability for a greater portion of those obligations than we would otherwise bear.  If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits.  Each tenant is responsible for insuring its goods and premises and, in some circumstances, may be required to reimburse us for a share of the cost of acquiring comprehensive insurance for the property, including casualty, liability, fire and extended coverage customarily obtained for similar properties in amounts which we determine are sufficient to cover reasonably foreseeable losses.  Tenants on a net lease typically are required to  9    pay all insurance costs associated with their space.  Material losses may occur in excess of insurance proceeds with respect to any property and we may not have sufficient resources to fund any loss in excess of any insurance proceeds.  However, there are types of losses, generally of a catastrophic nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments.  Insurance risks associated with potential terrorism acts could sharply increase the premium we pay for coverage against property and casualty claims.  Additionally, mortgage lenders in some cases have begun to insist that specific coverage against terrorism be purchased by commercial property owners as a condition for providing mortgage loans.  It is uncertain whether such insurance policies will be available, or available at reasonable cost, which could inhibit our ability to finance or refinance our properties.  In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses.  We cannot assure our stockholders that we will have adequate coverage for such losses. Some of our properties are subject to potential natural or other disasters.A number of our properties are located in areas which are subject to natural disasters.  In addition, many of our properties are located in costal regions, and would therefore be effected by any future increases in sea levels or in the frequency or severity of hurricanes and tropical storms, whether such increases are caused by global climate changes or other factors. We may incur costs to comply with environmental laws.Under various federal, state or local laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property, and may be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by the parties in connection with the contamination.  These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous or toxic substances.  The presence of contamination or the failure to remediate contamination may adversely affect the owners ability to sell or lease real estate or to borrow using the real estate as collateral.  Other federal, state and local laws, ordinances and regulations require abatement or removal of asbestos-containing materials in the event of demolition or certain renovations or remodeling, the cost of which may be substantial for some of our redevelopments and also govern emissions of and exposure to asbestos fibers in the air.  Federal and state laws also regulate the operation and removal of underground storage tanks.  In connection with the ownership, operation and management of our properties, we could be held liable for the costs of remedial action with respect to these regulated substances or tanks or related claims. Our properties have been subjected to varying degrees of environmental assessment at various times.  However, the identification of new areas of contamination, a change in the extent or known scope of contamination or changes in cleanup requirements could result in significant costs to us. Financing Risks We incur mortgage indebtedness and other borrowings, which reduce the funds available for distribution and increase the risk of loss since defaults may result in foreclosure.  In addition, mortgages sometimes include cross-collateralization or cross-default provisions that increase the risk that more than one property may be affected by a default.  We incur or increase our mortgage debt by obtaining loans secured by our real properties to obtain funds to acquire additional real properties.  We may also borrow funds if necessary to satisfy the requirement that we distribute to stockholders as dividends at least 90% of our annual REIT taxable income, or otherwise as is necessary or advisable to assure that we maintain our qualification as a REIT for federal income tax purposes.  Currently, our aggregate borrowings secured by our properties are approximately 55% of the properties aggregate purchase prices. We incur mortgage debt on a particular real property if we believe the property's projected cash flow is sufficient to service the mortgage debt.  However, if there is a shortfall in cash flow, then the amount available for distributions to stockholders may be affected.  In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and our loss of the property securing the loan which is in default.  For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage.  If the outstanding balance of the debt secured by the mortgage exceeds our basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds.  We may give full or partial guarantees to lenders who lend to the  10    entities that own our properties.  In such cases, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity.  For any mortgages containing cross-collateralization or cross-default provisions, there is a risk that more than one real property may be affected by a default. We may not be able to obtain capital to make investments.We depend primarily on external financing to fund the growth of our business. This is because one of the requirements of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, for a REIT generally is that it distribute or pay tax on 100% of its capital gains and distribute at least 90% of its ordinary taxable income to its stockholders.  Our access to debt or equity financing depends on banks willingness to lend to us and on conditions in the capital markets in general.  We and other companies in the real estate industry have experienced less favorable terms for bank loans and capital markets financing from time to time.  Although we believe, based on current market conditions, that we will be able to finance investments we wish to make in the foreseeable future, financing might not be available on acceptable terms. If mortgage debt is unavailable at reasonable rates, we will not be able to place financing on the properties, which could reduce distributions per share.  If we place mortgage debt on the properties, we run the risk of being unable to refinance the properties when the loans come due, or of being unable to refinance on favorable terms.  If interest rates are higher when the properties are refinanced, our net income could be reduced, which would reduce cash available for distribution to stockholders and may prevent us from borrowing more money.      Beginning in the third quarter of 2007, a significant market deterioration which originated in the sub-prime residential mortgage market began extending to the broader real estate credit markets, which has resulted in a tightening of lender standards and terms and increased concerns of an overall market recession in 2008.  Given our substantial amount of indebtedness and the significant deterioration in the credit markets, there can be no assurance that we will be able to refinance existing debt or obtain additional financing on satisfactory terms.  In addition, our ability to refinance our debt on acceptable terms will likely be constrained further by any future increases in our aggregate amount of outstanding debt.  Moreover, if market conditions or other factors lead our lenders to perceive an increased relative risk of our defaulting on a particular loan or loans, such lenders may seek to hedge against such risk which could further decrease our ability to obtain certain types of financing. Our substantial indebtedness could adversely affect our financial health and operating flexibility.We have a substantial amount of indebtedness.  As of December 31, 2007, we had an aggregate consolidated indebtedness outstanding of $4,346,160.  Aggregate indebtedness included $125,000 of unsecured, recourse indebtedness to us and $475 unsecured, non-recourse indebtedness to us, while $4,220,685 was secured by our properties and marketable securities. A majority of the secured indebtedness was non-recourse to us.  As a result of this substantial indebtedness, we are required to use a material portion of our cash flow to service principal and interest on our debt, which will limit the cash flow available for other desirable business opportunities. Our substantial indebtedness could have important consequences to us and the value of our common stock, including: · Limiting our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, execution of our growth strategy or other purposes; · Limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service the debt; · Increasing our vulnerability to general adverse economic and industry conditions, including increases in interest rates, particularly given our substantial indebtedness which bears interest at variable rates; · Limiting our ability to capitalize on business opportunities, including the acquisition of additional properties, and to react to competitive pressures and adverse changes in government regulation; · Limiting our ability or increasing the costs to refinance indebtedness; · Limiting our ability to enter into marketing and hedging transactions by reducing the number of counterparties with whom we can enter into such transactions as well as the volume of those transactions. The terms of our recourse line of credit facility obtained in 2007, and certain other debt, require us to satisfy certain customary affirmative and negative covenants and to meet financial ratios and tests including ratios and tests based on leverage, interest coverage and net worth.  The covenants under our debt affect, among other things, our ability to:  11    · Incur indebtedness; · Create liens on assets; · Sell assets; · Make capital expenditures; · Engage in mergers and acquisitions. Given the restrictions in our debt covenants on these and other activities, we may be restricted in our ability to pursue other acquisitions, may be significantly limited in our operating and financial flexibility and may be limited in our ability to respond to changes in our business or competitive activities. A failure to comply with these covenants, including a failure to meet the financial tests or ratios, would likely result in an event of default under our debt and would allow the lenders to accelerate such debt under such facility.  If our debt is accelerated, our assets may not be sufficient to repay such debt in full. We may have to reduce or eliminate our dividend.  In the event we are unable to refinance our debt on acceptable terms, we will be required to repay such debt or pay higher debt service costs in connection with less attractive financing terms.  In order to obtain the necessary cash for such payments, we may be compelled to take a number of actions, including the reduction of our dividend payments.  Federal Income Tax Risks If we fail to qualify as a REIT in any taxable year, our operations and distributions to stockholders will be adversely affected.  We intend to operate so as to continue qualifying as a REIT under the Internal Revenue Code. A REIT generally is not taxed at the corporate level on income it currently distributes to its stockholders. Qualification as a REIT involves the application of highly technical and complex rules for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances is not entirely within our control and may affect our ability to qualify, or continue to qualify, as a REIT. In addition, new legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualifying as a REIT or the federal income tax consequences of qualification.  If we were to fail to qualify as a REIT in any taxable year: · we would not be allowed to deduct distributions paid to stockholders when computing our taxable income; · we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates; · we would be disqualified from being taxed as a REIT for the four taxable years following the year during which we failed to qualify, unless entitled to relief under certain statutory provisions; · we would have less cash to pay distributions to stockholders; and · we may be required to borrow additional funds or sell some of our assets in order to pay corporate tax obligations we may incur as a result of being disqualified. In certain circumstances, we may be subject to federal, state and local taxes.  Even if we qualify and maintain our status as a REIT, we may become subject to federal, state and local taxes as a REIT, which would reduce our cash available to pay distributions.  For example, if we have net income from a prohibited transaction, such income will be subject to a 100% tax.  For this purpose, a prohibited transaction is a disposition of property, other than property held by a taxable REIT subsidiary, held primarily for sale to customers in the ordinary course of business.  We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs.  We may also decide to retain income we earn from the sale or other disposition of our property and pay income tax directly on such income.  In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly.  However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have to file tax returns to claim a refund of their deemed payment of  12    such tax liability.  In addition, we may also be subject to state and local taxes on our income, property or net worth, either directly or at the level of the operating partnership or at the level of the other companies through which we indirectly own our assets.  Any federal or state and local taxes paid by us will reduce our cash available for distributions.      An ownership limit and certain anti-takeover defenses and applicable law may hinder any attempt to acquire us.Generally, for us to maintain our qualification as a REIT under the Code, not more than 50% in vote or value of the outstanding shares of our capital stock may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of our taxable year.  The Code defines individuals for purposes of the requirement described in the preceding sentence to include some types of entities.  No person other than Mr. Daniel L. Goodwin and his family and controlled entities own greater than 5% of our outstanding stock.  The annual statement of value that we will be sending to stockholders subject to ERISA and to certain other plan stockholders is only an estimate and may not reflect the actual value of our shares.The annual statement of estimated value is based on the estimated value of each share of common stock based as of the close of our fiscal year.  Management, in part, relied upon third party sources and advice in arriving at this estimated value.  No independent appraisals on the particular value of our shares was obtained and the value is based upon an estimated fair market value as of the close of our fiscal year.  Because this is only an estimate, we may subsequently revise any annual valuation that is provided.  We cannot assure that: · this estimate of value could actually be realized by us or by our shareholders upon liquidation; · shareholders could realize this estimate of value if they were to attempt to sell their shares of common stock; · this estimate of value reflects the price or prices which our common stock would or could trade if it was listed on a national stock exchange or included for quotation on a national market system; or · the annual statement of value complies with any reporting and disclosure or annual valuation requirements under ERISA or other applicable law. In order for qualified plans to properly report account values as required by ERISA, we provide an estimated share value on an annual basis.  As of December 31, 2007, the annual statement of estimated value for shareholders subject to ERISA for our shares was estimated to be $10.00 per share. Item 1B.  Unresolved Staff Comments Not applicable. Item 2. Properties As of December 31, 2007, we owned, or consolidated, through separate limited partnerships, limited liability companies, or joint venture agreements a portfolio of 302 operating properties containing an aggregate of approximately 44.8 million square feet of GLA located in 38 states.  As of December 31, 2007, 294 of the properties in our portfolio and the related tenant leases are pledged as collateral securing mortgage debt of $4,058,757.  As of December 31, 2007, approximately 97% of our GLA was physically and economically leased.  The weighted average GLA occupied was 97% at December 31, 2007 and 2006.  The following table provides a summary of the properties in our portfolio at December 31, 2007.  For further details, see Real Estate and Accumulated Depreciation (Schedule III) herein. Geographic AreaNumber of PropertiesGross Leasable Area 
(Sq. Ft.)Physical Occupancy % as of 12/31/07Physical Occupancy % as of 12/31/06WestArizona, California, Colorado, Montana, Nevada, New Mexico, Utah, Washington579,43197%97%  13     SouthwestArkansas, Louisiana, Oklahoma, Texas689,24896%97%MidwestIllinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Ohio, Wisconsin419,46897%98%NortheastConnecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, Vermont718,46895%96%SoutheastAlabama, Florida, Georgia, Kentucky, North Carolina, South Carolina, Tennessee, Virginia658,23097%98%Totals30244,84597%97% The majority of the revenues from our 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 us 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 in the consolidated statements of operations.  Under net leases where all expenses are paid by the landlord, subject to reimbursement by the tenant, the expenses are included within property operating expenses and reimbursements are included in Tenant recovery income on the consolidated statements of operations. Revenue from our properties depends on the amount of the tenants' retail revenue, making us vulnerable to general economic downturns and other conditions affecting the retail industry.  Some of the leases provide for base rent plus contractual base rent increases.  A number of the leases also include a percentage rent clause for additional rent above the base amount based upon a specified percentage of the sales the tenant generates.  As of December 31, 2007, 115 tenants paid percentage rent.  Under those leases which contain percentage rent clauses, the revenue from tenants may increase as the sales of the tenant increases. We continually monitor the sales trends and financial strength of all of our major tenants.  Our hope is that we will be able to reduce our exposure and increase our rental stream by taking certain troubled retailers spaces back and re-leasing at market rent.  We believe that select locations are currently leased at rents that are below market, and if we are able to take back any of these locations we could receive a termination fee and have a leasing opportunity.  We use this strategy to maximize the profitability and minimize any exposure that we have for store closings.  We do not expect store closings or bankruptcy reorganizations to have a material impact on our consolidated financial statements at this time.  The tenants with which we have concerns represent approximately 3% of our total portfolio annualized rental income as of December 31, 2007. We believe our risk exposure to potential future downturns in the economy is mitigated because the tenants at our current and targeted properties, to a large extent, consist or will consist of:  retailers who serve primary non-discretionary  14    shopping needs, such as grocers and pharmacies; discount chains that can compete effectively during an economic downturn; and national tenants with strong credit ratings who can withstand a downturn.  We believe that the diversification of our current and targeted tenant base and our focus on creditworthy tenants further reduces our risk exposure.  Selecting properties with high quality tenants and mitigating risk through diversifying our tenant base is at the forefront of our acquisition strategy.  We believe our strategy of purchasing properties, primarily in the fastest growing areas of the country and focusing on acquisitions with tenants who provide basic goods and services will produce stable earnings and potential growth opportunities in future years. The following table lists the top 10 tenants in our portfolio according to the amount of GLA that each occupied at December 31, 2007. TenantSquare Footage% of Total Portfolio Square FootageAnnualized Rental
Income% of Total Portfolio Annualized IncomeMervyn's1,8974.2%$    17,3933.1%PetSmart1,6883.811,9782.1Cost Plus World Market1,2572.85,8971.1Wal-Mart1,2542.87,3841.3Hewitt Associates1,1622.615,1062.7Home Depot1,0972.48,6991.6Kohl's1,0502.36,4461.1American Express1,0352.38,8291.6Circuit City9292.111,1992.0Best Buy9172.013,0152.3 The following table represents an analysis of lease expirations over the next 10 years based on the leases in place at December 31, 2007. Lease Expiration YearNumber of Leases ExpiringGLA Under Expiring Leases 
(Sq. Ft.)% of Total Leased GLATotal Annualized Base Rent% of Total Annualized Base RentAnnualized Base Rent ($/Sq. Ft.)20083258962.00%$  17,3683.06%$  19.3820095832,1894.8836,3166.5316.5920104631,7513.9131,4666.0017.9720113732,4365.4341,1018.2816.8820124262,0954.6737,8868.2718.0920132852,5275.6436,2728.6014.3520142804,80310.7169,68517.9714.5120152074,68710.4549,92215.7110.6520161363,5627.9440,14414.9311.272017911,7293.8622,5319.8013.03 Item 3. Legal Proceedings We are subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business.  While the resolution of these matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters, individually or in the aggregate, will not have a material adverse effect on our results of operations or financial condition. On November 1, 2007, City of St. Clair Shores General Employees Retirement System filed a class action complaint in the United States District Court for the Northern District of Illinois alleging violations of the federal securities laws and common law causes of action in connection with our merger with our business manager/advisor and property managers as reflected in our Proxy Statement dated September 10, 2007 (the Proxy Statement).  The complaint alleges, among other things, (i) that the consideration paid as part of the merger was excessive; (ii) violations of Section 14(a), including Rule  15    14a-9 thereunder, and Section 20(a) of the Exchange Act, based upon allegations that the proxy statement contains false and misleading statements or omits to state material facts; (iii) that the business manager/advisor and property managers and certain directors and defendants breached their fiduciary duties to the class; and (iv) that the merger unjustly enriched the business manager/advisor and property managers. The complaint seeks, among other things, (i) certification of the class action; (ii) a judgment declaring the proxy statement false and misleading; (iii) unspecified monetary damages; (iv) to nullify any stockholder approvals obtained during the proxy process; (v) nullification of the merger and the related merger agreements with the business manager/advisor and the property managers; and (viii) the payment of reasonable attorneys fees and experts fees. We believe that the allegations in the complaint are without merit, and intend to vigorously defend the lawsuit. Item 4. Submission of Matters to a Vote of Security Holders Our annual meeting of stockholders was held on November 13, 2007 and holders of 256,965,935 shares were present in person or by proxy.  (Share amounts in this item are not stated in thousands.) (1) Stockholders voted to ratify entry into the merger agreement and in favor of the merger, pursuant to which we acquired our business manager/advisor and property managers.  The results of the vote are detailed in the following table: SharesForAgainstAbstain245,640,7364,661,3546,663,845 (2) Stockholders approved the following persons to be elected to our Board of Directors.  The results of the vote are detailed in the following table: SharesNomineeForWithheldFrank A. Catalano, Jr.250,435,0936,530,840Kenneth H. Beard250,525,3236,440,611Paul R. Gauvreau250,516,8036,449,131Gerald M. Gorski250,479,6566,486,278Barbara A. Murphy250,354,9946,610,940Robert D. Parks250,506,4376,459,497Brenda G. Gujral250,414,3946,551,539 (3) Stockholders ratified the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007.  The results of the vote are detailed in the following table: SharesForAgainstAbstain250,385,8591,475,9825,104,094   16    PART II  Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information There is no established public trading market for our shares of common stock.  In order for qualified plans to properly report account values as required by ERISA, we provide an estimated share value on an annual basis.  As of December 31, 2007, the annual statement of estimated value for shareholders subject to ERISA for our shares was estimated to be $10.00 per share.The per share estimated value is deemed to be the offering price during the public offering periods of the shares, which was $10.00 per share. We provide a share repurchase program, or SRP, to provide limited liquidity for stockholders.  In accordance with our SRP, a maximum of 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year may be repurchased by us.  This standard limits the number of shares we can purchase.  Our board of directors also has the ability to change or terminate, at any time, our SRP.  Subject to these restrictions, the SRP currently enables stockholders that have beneficially owned the shares for at least one year to sell shares back to us at $10.00 per share. The following table outlines the stock repurchases made during the quarter ended December 31, 2007: Total Number of SharesAverage
Price PaidTotal Number of Shares Purchased as Part of Publicly Announced PlansMaximum Number of Shares that May Yet Be Purchased under the PlansPeriodPurchasedper Shareor Programsor Programs (1)October 1, 2007 - October 31, 20074,084$  10.004,08412,495November 1, 2007 - November 30, 20072,84610.002,8469,649December 1, 2007 - December 31, 20072,06210.002,0627,587Total8,9928,992 (1) For 2007, our board of directors established the limitation on the number of shares that could be acquired by us through the SRP at five percent (5%) of the weighted average shares outstanding as of December 31, 2006.  The share repurchase limit for 2007 was 22,090. Stockholders As of March 27, 2008, we had 112,452 stockholders of record. Distributions We have been paying monthly distributions since October 2003. The table below depicts the distributions declared and their tax status for each year. Distributions Declared perReturnOrdinaryYearCommon Shareof CapitalIncome2007$  0.64$  0.33$  0.3120060.640.350.2920050.640.290.3520040.660.300.362003 (1)0.150.15-  17      (1) Period from March 5, 2003 (inception) through December 31, 2003. Equity Compensation Plan Information We have adopted an Independent Director Stock Option Plan, or the Plan which, subject to certain conditions, provides 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 stockholders meeting.  Generally, these options are granted with an exercise price equal to the fair market value of the shares on the date granted and are subject to vesting.  Such options were granted, without registration under the Securities Act of 1933, or the Act, in reliance upon the exemption from registration in Section 4(2) of the Act, as transactions not involving any public offering.  None of such options have been exercised.  Therefore, no shares have been issued in connection with such options. The following table sets forth the following information as of December 31, 2007: (i) the number of shares of our common stock to be issued upon the exercise of outstanding options, warrants and rights; (ii) the weighted-average exercise price of such options, warrants and rights; and (iii) the number of shares of our commons stock remaining available for future issuance under our equity compensation plans, other than the outstanding options, warrants and rights described above. Number of Securities to be Issued upon Exercise of Outstanding Options, WarrantsWeighted-Average Exercise Price of Outstanding Options, WarrantsNumber of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected inPlan Categoryand Rights (a)and RightsColumn (a))Equity Compensation Plans Approved by Security Holders---Equity Compensation Plans Not Approved by Security   Holders22$  8.9553  18    Item 6. Selected Financial Data  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.For the years ended December 31, 2007, 2006, 2005 and 2004 and for the period from March 5, 2003 (inception) through December 31, 2003
(Amounts in thousands, except per share amounts) (not covered by Report of Independent Registered Public Accounting Firm)  [iwest10k123107final002.gif] The above selected financial data should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this annual report.  Previously reported selected financial data reflects certain reclassifications to income from discontinued operations as a result of the sale of investment properties in 2007. (a) The net income (loss) and distributions per common share are based upon the weighted average number of common shares outstanding. The $0.64 per share distribution declared for the years ended December 31, 2007, 2006 and 2005, represented 102%, 99% and 97%, respectively, of our Funds from Operations (FFO) for those periods.  Our distribution of current and accumulated earnings and profits for federal income tax purposes are taxable to stockholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the stockholders 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 of the amount of the distributions until the sale of the stockholders shares.  For the year ended December 31, 2007, $148,990 (or approximately 47% of the $316,513 paid in 2007) represented a return of capital.  In order to maintain our qualification as a REIT, we must make annual distributions to stockholders of at least 90% of our REIT taxable income. REIT taxable income does not include dividends paid deduction and net 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 are determined by our board of directors and are dependent on a number of factors, including the amount of funds available for distribution, our financial  19    condition, decisions by the 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, and other factors the board of directors may deem relevant. (b) One of our objectives is to provide cash distributions to our stockholders from cash generated by our operations. Cash generated from operations is not equivalent to our net income from continuing operations as determined under generally accepted accounting principles in the United States of America, or GAAP. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a standard known as "Funds from Operations," or FFO, for short, which it believes more accurately reflects the operating performance of a REIT such as us. As defined by NAREIT, FFO means net income computed in accordance with GAAP, excluding gains (or losses) from sales of operating properties, plus depreciation on real property and amortization, and after adjustments for unconsolidated partnerships and joint ventures in which the REIT holds an interest.  We have adopted the NAREIT definition for computing FFO because management believes that, subject to the following limitations, FFO provides a basis for comparing our performance and operations to those of other REITs.  The calculation of FFO may vary from entity to entity since capitalization and expense policies tend to vary from entity to entity.  Items which are capitalized do not impact FFO, whereas items that are expensed reduce FFO.  Consequently, our presentation of FFO may not be comparable to other similarly titled measures presented by other REITs.  FFO is not intended to be an alternative to  "Net Income" as an indicator of our performance nor to  "Cash Flows from Operating Activities" as determined by GAAP as a measure of our capacity to pay distributions.  FFO is calculated as follows: [iwest10k123107final004.gif] (c) The following table compares cash flows provided by operations to distributions declared: [iwest10k123107final006.gif] In 2003 and 2004, the deficiencies were funded through advances from our sponsor.  In 2005, the deficiency was funded through payments received under master leases and cash provided from financing activities.  20    Item 7.  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 Annual Report on Form 10-K 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, may, will, 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 that might cause such differences, some of which could be material, include, but are not limited to:         · Financial stability of tenants, including the ability of tenants to pay rent, the decision of tenants to close stores and the effect of bankruptcy laws;     · Risks of real estate development, including the failure of pending developments and redevelopments to be completed on time and within budget and the failure of newly acquired or developed properties to perform as expected;     · Risks of joint venture activities, including development joint ventures; · The level and volatility of interest rates;     · National or local economic, business, real estate and other market conditions, including the ability of the general economy to recover timely from economic downturns;     · The effect of inflation and other factors on fixed rental rates, operating expenses and real estate taxes;     · Risks of acquiring real estate, including continued competition for new properties and the downward trend on capitalization rates;     · The competitive environment in which we operate and the supply of and demand for retail goods and services in our markets;     · Financial risks, such as the inability to renew existing tenant leases or obtain debt or equity financing on favorable terms, if at all;     · The increase in property and liability insurance costs and the ability to obtain appropriate insurance coverage;     · The ability to maintain our status as a REIT for federal income tax purposes;     · The effects of hurricanes and other natural disasters;     · Environmental/safety requirements and costs; and     · Other risks identified in this Annual Report on Form 10-K and, from time to time, in other reports we file with the Securities and Exchange Commission (SEC). The following discussion and analysis compares the year ended December 31, 2007 to the years ended December 31, 2006 and 2005.  You should read the following discussion and analysis along with our consolidated financial statements and the related notes included elsewhere in this report.  All amounts are stated in thousands, except per share amounts, per square foot amounts and number of properties, states and leases. Executive Summary     Inland Western Retail Real Estate Trust, Inc. is a self-managed real estate investment trust, or REIT, that acquires, manages and develops a diversified portfolio of real estate, primarily multi-tenant shopping centers.  As of December 31, 2007, our portfolio consisted of 290 operating properties wholly-owned by us, (the wholly-owned properties) and 12 operating properties in which we own between 5% and 95%, (the consolidated joint venture properties), for a total of 302  21    operating properties.  We have also invested in nine real estate development joint venture projects, six of which we consolidate.     Our goal is to maximize the possible return to our shareholders through the acquisition, development, redevelopment, creation of strategic joint ventures and management of the related properties consisting of neighborhood and community multi-tenant shopping centers and single-user net lease properties.  We actively manage our assets by leasing and releasing space at favorable rates, controlling costs, maintaining strong tenant relationships and creating additional value through redeveloping and repositioning our centers.  We distribute funds generated from operations to our shareholders and intend to continue distributions in order to maintain our REIT status. The properties in our portfolio are located in 38 states.  As of December 31, 2007, our portfolio consisted of 180 multi-tenant shopping centers and 122 free-standing, single-user properties of which 103 are net lease properties. The portfolio contains an aggregate of approximately 44.8 million square feet of GLA, of which approximately 97% of the GLA was physically and economically leased.  The weighted average GLA occupied as of December 31, 2007 and December 31, 2006, was 97% as of both dates.  Our anchor tenants include nationally and regionally recognized grocers, discount retailers, financial companies and other tenants who provide basic household goods and services.  Of our total annualized revenue as of December 31, 2007, approximately 66% is generated by anchor or credit tenants, including Mervyns, PetSmart, Wal-Mart, Hewitt Associates, Home Depot, Kohls, American Express, Circuit City, Best Buy and several others.  The term credit tenant is subjective and we apply the term to tenants who we believe have a substantial net worth.     Of the 302 wholly-owned and consolidated joint venture operating properties as of December 31, 2007, 136 were located west of the Mississippi River.  These 136 properties equate to approximately 46% of our GLA and approximately 48% of our annualized base rental income as of December 31, 2007.  The remaining 166 of our properties are located east of the Mississippi River. During the year ended December 31, 2007, we invested approximately $570,000 for the acquisition of seven multi-tenant shopping centers and funding of 45 earnouts on properties which we already own, containing a total GLA of approximately 2.6 million square feet.  We also invested approximately $96,000 in real estate development and other real estate joint ventures.  We received approximately $155,000 in investor proceeds through our DRP and obtained approximately $490,000 in mortgage and other financing proceeds.     For many retailers the 2007 holiday season turned out worse than expected as higher energy prices, falling home values and slowing job growth continued to weigh on consumer spending, the main engine for U.S. growth over the last two years.  According to the International Council of Shopping Centers, comparable chain store sales increased only 0.9% in December compared to 3.3% in December 2006.  Sectors performing poorly included department stores, apparel chains and furniture stores.  Conversely, wholesale and discount stores reported positive growth. Many economists predict that the first half of 2008 will be difficult as high energy costs, deteriorating housing market and declining consumer confidence show no signs of abating.  Retailers turned in their worst monthly sales in nearly five years in January and the big retail chains are preparing for a prolonged slowdown in consumer spending by announcing plans to close stores, cut jobs and scale back expansion plans.  It is expected that retailers will close 25% more retail locations in 2008 when compared to 2007.     Selecting properties with high quality tenants and mitigating risk through diversifying our tenant base is at the forefront of our acquisition and leasing strategy.  We believe our strategy of purchasing properties, primarily in the fastest growing areas of the country, and focusing on acquisitions with tenants who provide basic goods and services will produce stable earnings and growth opportunities in future years.     We continually monitor the sales trends and financial strength of all of our major tenants.  We believe that we will be able to reduce our exposure to credit risk and increase our rental stream by accepting certain spaces related to troubled retailers back and releasing at market rent.  We believe that select locations with troubled tenants are currently leased at rents that are at or below market and if we are able to take back spaces currently leased to troubled tenants we could receive a termination fee and have a leasing opportunity.  We use this strategy to try to maximize our profitability and minimize any exposure that we have for store closings.  We do not expect store closings or bankruptcy reorganizations to have a  22    material impact on our consolidated financial statements.  The tenants with which we have concerns represent less than 3% of our current total portfolio annualized rental income. Results of Operations Comparison of the Year Ended December 31, 2007 to December 31, 2006 - Total Portfolio The table below presents selected operating information for our total portfolio of operating properties (including 12 consolidated joint venture properties) for the years ended December 31, 2007 and 2006. [iwest10k123107final008.gif] Rental income. Rental income consists of basic monthly rent and percentage rental income pursuant to tenant leases. The overall increase in rental income of $24,167 or 4.3% for the year ended December 31, 2007, as compared to the year ended December 31, 2006, is primarily a result of an increase in rental income of $27,676 due to the acquisition of seven additional properties subsequent to December 31, 2006.  This increase was partially offset by a decrease in rental income of $13,543 as a result of the contribution of seven properties to an unconsolidated joint venture in April 2007.  The increase in rental income is also attributable to the completion of earnouts, in which twelve months of income was recognized in 2007 as compared to a partial year in 2006 and the leasing of renewal or previously vacant space at rental rates in excess of the previous rental rates which accounts for $19,000 in base rent.  23    Tenant recovery income. Tenant recovery income represents reimbursements from tenants for common area expenses, property management fees, insurance and real estate taxes incurred by the property.  Tenant recovery income increased overall by $23,444 or 18.7% for the year ended December 31, 2007, as compared to the year ended December 31, 2006, due in part to an increase of $5,240 due to the seven properties acquired subsequent to December 31, 2006.  This increase is partially offset by a decrease of $4,474 as a result of the contribution of seven properties to an unconsolidated joint venture in April 2007.  The remaining increase in tenant recovery income of $22,678 is due to increases in property operating expenses and real estate taxes. Other property income. The increase in other property income of $3,787 or 35.0% for the year ended December, 2007, as compared to the year ended December 31, 2006, is primarily the result of an increase in termination fee income and direct recovery income received from tenants, offset by a decrease in other miscellaneous property income. Insurance captive income.In the fourth quarter of 2006, we entered into an agreement with an LLC formed as an insurance association captive, or the Captive.  The Captive is currently wholly-owned by us and two affiliated entities.  A non-affiliated entity withdrew as of September 30, 2007, pursuant to an agreement among the members.  The Captive was established to stabilize our insurance costs, manage our exposures and recoup expenses through its functions.  It was determined that, under FIN 46(R), the Captive is a variable interest entity and we are the primary beneficiary.  We reevaluated this conclusion and believe that no form of trigger event has occurred that would cause this conclusion to change.  Therefore, we have consolidated the Captive in our consolidated financial statements. Insurance captive income increased by $1,713 or 967.8% primarily due to twelve months income recognized in 2007 compared to three months in 2006. Property operating expenses. Property operating expenses includes common area expenses, property management fees and insurance costs that are reimbursed by tenants according to the terms of their leases as described above as well as non-reimbursable operating expenses, including a provision for bad debt expense.  The overall increase of $20,490 or 17.3% was due to an increase in recoverable operating expenses for the year ended December 31, 2007, as compared to December 31, 2006, of $9,489 which includes an increase of $3,558 related to seven properties acquired since December 31, 2006.  This increase is partially offset by a decrease of $2,338 in recoverable expenses related to the contribution of seven properties to an unconsolidated joint venture in April 2007.  The remaining increase is the result of an overall inflationary increase to common area expenses.  Non-reimbursable property operating expenses increased $11,001 partially as a result of a net increase in the provision for bad debt expense of $6,212 as well as increases in non-recoverable utility costs and non-recoverable marketing and other promotional expenses intended to maintain historical occupancy levels and increase leasing activity at our properties.  In addition, an overall increase in security, cleaning and utility costs at our properties has contributed to an increase in recoverable expenses for the year ended December 31, 2007, as compared to December 31, 2006. Real estate taxes.Real estate taxes increased $8,012 or 10.0% for the year ended December 31, 2007, as compared to December 31, 2006, partially as a result of higher assessed valuations on properties acquired in 2006, 2005 and 2004. The increase also includes $3,153 related to seven properties acquired since December 31, 2006, partially offset by a decrease of $3,543 related to the contribution of seven properties to an unconsolidated joint venture in April 2007.  The majority of real estate taxes are reimbursed by tenants according to their lease terms and such recovery is included as a component of tenant recovery income. Depreciation and Amortization.Depreciation and amortization increased $20,645 or 8.2% for the year ended December 31, 2007 as compared to the year ended December 31, 2006.  Depreciation expense includes depreciation on buildings and improvements.  Depreciation expense increased $13,720 or 7.0% primarily as a result of depreciation on seven properties acquired and earnouts completed since December 31, 2006.  The increase is also due to the write-off of tenant improvements attributable to tenants that vacated in 2007.  Amortization expense includes amortization on intangible assets and leasing commissions.  Total amortization expense increased $6,924 or 12.4%.  Amortization expense on intangible assets increased $6,431 or 11.6% due to amortization expense on intangible assets as a result of seven properties acquired and earnouts completed since December 31, 2006.  The increase was also due to the write-off of intangible assets attributable to tenants that vacated in 2007.  Amortization expense on leasing commissions increased $467 or 141.6% primarily due to amortization on an additional $3,051 in leasing commissions since December 31, 2006.  24    Insurance captive expenses. Insurance captive expenses increased by $1,254 or 364.5% primarily due to twelve months of expense recognized in 2007 as compared to three months in 2006. General and administrative expenses  General and administrative expenses consist of salaries for maintaining our accounting and investor records, computerized information services costs, mortgage servicing fees and investment advisor fees paid to affiliates, professional fees for legal, audit and accounting services as well as director and officer insurance, stock administration, corporate tax expenses, and other office expenses.  General and administrative costs increased by $1,897 or 13.0% for the year ended December 31, 2007, as compared to December 31, 2006, which was primarily a result of a $1,765 increase in margin taxes and other state income taxes in 2007 from no expense in 2006.  The increase was also attributable to a $271 increase in salary due to new hires, a $709 increase in stock administration and a $908 increase in office expenses primarily resulting from new accounting software which we adopted in 2007.  Investment advisor fees were increased by $146 due to increased investments.  These increases were partially offset by a decrease of $1,161 in professional fees, a $324 decrease in acquisition costs due to our stabilized property portfolio and a $133 decrease on mortgage service costs due to lower rate taking effective in 2007. Advisor asset management fee. We acquired our business manager/advisor through the merger on November 15, 2007.  Prior to the merger, we paid an advisor asset management fee which represented a fee of not more than 1% of our average invested assets (as defined in our advisor agreement) to our business manager/advisor.  The fee was payable quarterly in an amount equal to 1/4 of up to 1% of our average invested assets as of the last day of the immediately preceding quarter.  We recorded actual fees of $23,750 and $39,500, representing 35.0% and 53.0% of the maximum fees allowed, for the years ended December 31, 2007 and 2006, respectively.  Our former business manager/advisor agreed to forego any fees allowed but not taken on an annual basis.  The decrease of $15,750 from 2006 was due to only paying the advisor asset management fees through November 15, 2007 and the former business manager/advisor also electing not to be paid for the first quarter of 2007. Dividend income. Dividend income includes dividends earned on our marketable securities and other investments.  The decrease of $13,772 or 36.7% for the year ended December 31, 2007, as compared to December 31, 2006, is primarily due to the redemption of our investment in various preferred shares, on which we earned $16,489 of dividend income during the year ended December 31, 2006.  Our investment in the various preferred shares of approximately $260,000 was redeemed in full in the fourth quarter of 2006.  The decrease was partially offset by an increase of $2,717 in dividend income earned on our investments in marketable securities, due to an increase of approximately $28,000 of investments. Interest income.Interest income includes income earned on our operating bank accounts, short-term cash investments and notes receivable, as well as from escrows accounts.  The decrease of $9,456 or 41% for the year ended December 31, 2007, as compared to December 31, 2006, includes a decrease of $5,700 related to interest earned on our operating bank accounts and short-term cash investments as a result of our deployment of available cash into investment properties and development joint ventures since December 31, 2006.  In addition, a decrease of $3,511 in the interest income on notes receivable is the result of the full or partial payoff of two mortgage notes and three construction loans receivable since December 31, 2006. Equity in earnings (losses) of unconsolidated entities.Equity in earnings (losses) of unconsolidated entities consists of our portion of the net income or losses of joint ventures which we account for under the equity method.  The increase in our equity in earning (losses) of $3,823 or 102.6% is due to earnings of $2,229 allocated to us from a new joint venture with an institutional investor which was formed in April 2007, an increase of $590 resulting from a decrease in equity losses due to better performance of investments in 2007 than 2006 and the decrease of $790 in equity losses recognized from two entities which were redeemed on March 1, 2007 with the recognition of twelve months of equity losses in 2006. Minority interests.Minority interests include minority interest holders allocation of net income or losses of consolidated joint venture entities.  Minority interests for the year ended December 31, 2007, as compared to December 31, 2006, decreased by $3,340 or 169.1% primarily as a result of a decrease in the redemption of minority interest in the first quarter of 2007.  The gain of $389 recognized from redemptions in the first and fourth quarter of 2007 was allocated to minority interest as well. Interest expense.The increase in interest expense of $2,706 or 1.2% for the year ended December 31, 2007, as compared to December 31, 2006, is primarily due to an increase of $6,829 on those mortgages financed during the year of 2006, for  25    which a full year of interest expense exists in 2007, an increase of $6,886 associated with eleven new financings during 2007, a $2,084 increase from interest on construction loans related to new development projects, and an increase of $1,609 related to interest incurred on a new $50,000 note to a joint venture and the $75,000 draw on the line of credit.  In addition, a $757 increase was attributable to an increase in interest rates on the variable rate debt.  These increases are partially offset by a decrease in interest expense of $5,975 as a result of the assumption of eight mortgage debts by an unconsolidated joint venture, a decrease of $1,701 as a result of decreased preferred return payments due to joint venture partners redemption, a decrease of $596 related to refinancing of certain variable interest debts in early 2007 and a $975 decrease resulting from the payoff of three mortgage debts during the year of 2007.  In addition, there was a $2,597 decrease as a result of a reduction in margin debt and $3,429 decrease as a result of additional interest capitalized related to construction in progress. Realized loss on investment securities.The increase in the realized loss on investment securities of $20,383 or 4,899.8% for the year ended December 31, 2007, as compared to December 31, 2006, is due primarily to the recognition during the year ended December 31, 2007 of a $20,021 decline in value of seven of our investment securities which we determined to be other than temporary and is partially offset by an increase in the gain on the sale of investment securities. Other income (expense).Other income (expense) includes miscellaneous income, joint venture management fee income and other non-operating expenses incurred by us, including income tax expense.  The increase in other income (expense) of $400 or 245.4% for the year ended December 31, 2007 as compared to 2006 is primarily the result of the increase of certain unconsolidated joint venture management fees earned and the gain on redemption of interest in certain unconsolidated joint ventures offset by an increase in the income tax expense due to an increase in excise tax in 2007. Discontinued operations. On November 29, 2007, the Company closed on the sale of four American Express properties with an aggregate sale price of $270,800 which resulted in net proceeds of $115,587.  Three of the properties are located in United States and one is located in Canada with approximately 1,562 square feet in total.  The Company recognized a gain on the sale of operating properties of $19,564 and a $17,732 gain on the extinguishment of debt relating to $150,460 of debt assumed by the purchaser.  The Company also wrote off approximately $970 in customer relations value on the remaining American Express properties due to this sale.   26    Comparison of the Year Ended December 31, 2007 to December 31, 2006  Same Store Portfolio The table below presents operating information for our same store portfolio consisting of 278 operating properties acquired or placed in service prior to January 1, 2006, along with a reconciliation to net operating income.  The properties in the same store portfolios as described were owned for the entire years ended December 31, 2007 and 2006. [iwest10k123107final010.gif]  27    On a same store basis, net operating income increased by $23,393 or 4.9%, with total rental income, tenant recoveries and other property income increasing by $52,012 or 7.7% and total property operating expenses increasing by $28,619 or 14.7% for the year ended December 31, 2007, as compared to December 31, 2006. Rental and additional rental income.The increase in rental income of the same store portfolio of $7,561 or 1.5% is due primarily to the completion of earnouts and the leasing or renewal of previously vacant space at rental rates in excess of the previous rental rates.  The increase in tenant recovery income of $15,540 or 13.8% is primarily due to increases in property operating and real estate tax expenses as described below.  The increase in other property income of $4,301 or 45.5% is due primarily to an increase in termination fee income. Property operating expenses. The increase in recoverable property operating expenses of the same store portfolio of $14,660 or 14.1% is due to an overall inflationary increase in security, landscaping, cleaning and utility costs at our properties as well as an increase in management fees which are calculated based upon revenues collected.  Non-reimbursable expenses also increased, partially as a result of an increase in the provision for bad debt expense as well as an increase in non-recoverable utility costs and marketing and other promotional expenses intended to maintain historical occupancy levels and increase leasing activity at our properties. Real estate taxes.Real estate taxes of the same store portfolio increased $3,701 or 5.2% for the year ended December 31, 2007, as compared to December 31, 2006, primarily as a result of higher assessed valuations on investment properties acquired in 2005 and 2004.  At the time of acquisition, many newly acquired properties may still be assessed at a lower value based on the sellers historical cost of the land and improvements.  Once the property is acquired, this may trigger a higher assessment based on the sales price and market comparables for similar operating properties, resulting in higher real estate taxes in future years.  28    Comparison of the Year Ended December 31, 2006 to December 31, 2005 - Total Portfolio The table below presents selected operating information for our total portfolio of operating properties (including the consolidated joint venture properties) for the years ended December 31, 2006 and 2005. [iwest10k123107final012.gif] Rental income.  Rental income consists of basic monthly rent and percentage rental income due pursuant to tenant leases.  Rental income of the total portfolio increased $155,900 or 39.0%. The increase was due primarily to 302 properties (including the consolidated joint venture properties) being owned and operated for the year ended December 31, 2006 compared to 284 properties (including the consolidated joint venture properties) for the year ended December 31, 2005.  178 of the properties in our portfolio (including the consolidated joint venture properties) were purchased during 2005 and as such, 2006 was the first full year of operations for greater than 50% of our portfolio. Tenant recovery income.Tenant recovery income represents reimbursements from tenants for common area expenses, property management fees, insurance and real estate taxes incurred by the property.  Tenant recovery income increased by $32,017 or 34.3%.  This increase is primarily due to 302 properties (including the consolidated joint venture properties) being owned and operated for the year ended December 31, 2006 compared to 284 properties (including the consolidated joint venture properties) for the year ended December 31, 2005.  178 of the properties in our portfolio (including the consolidated joint venture properties) were purchased during 2005 and as such, 2006 was the first full year of operations for greater than 50% of our portfolio. Other property income.The increase in other property income of $3,749 or 53.0% for the year ended December 31, 2006, as compared to the year ended December 31, 2005 is primarily due to increases in miscellaneous property income, termination fee income and sales tax income.  29    Property operating expenses.Property operating expenses include common area expenses, property management fees and insurance costs that are reimbursed by tenants according to the terms of their leases as well as non-reimbursable operating expenses, including a provision for bad debt expense.  The increase in property operating expenses of $36,419 or 44.4% is primarily due to 302 properties (including the consolidated joint venture properties) being owned and operated for the year ended December 31, 2006 compared to 284 properties (including the consolidated joint venture properties) for the year ended December 31, 2005.  178 of the properties in our portfolio (including the consolidated joint venture properties) were purchased during 2005 and as such, 2006 was the first full year of operations for greater than 50% of our portfolio. Real estate taxes.Real estate taxes increased $25,617 or 47.2% for the year ended December 31, 2006, as compared to the year ended December 31, 2005.  This increase is primarily due to 302 properties (including the consolidated joint venture properties) being owned and operated for the year ended December 31, 2006 compared to 284 properties (including the consolidated joint venture properties) for the year ended December 31, 2005.  178 of the properties in our portfolio (including the consolidated joint venture properties) were purchased during 2005 and as such, 2006 was the first full year of operations for greater than 50% of our portfolio.  The majority of real estate taxes are reimbursed by tenants according to their lease terms and such recovery is included as a component of tenant recovery income. Depreciation and amortization.Depreciation and amortization increased $70,144 or 38.8% for the year ended December 31, 2006 as compared to the year ended December 31, 2005.  Depreciation expense includes depreciation on buildings and improvements.  Depreciation expense increased $55,125 or 39.3% primarily as a result of depreciation on eighteen properties acquired and earnouts completed since December 31, 2005.  Amortization expense includes amortization on intangible assets and leasing commissions.  Total amortization expense increased $15,019 or 37.0%.  Amortization expense on intangible assets increased $14,841 or 36.7% due to amortization expense on intangible assets as a result of eighteen properties acquired and earnouts completed since December 31, 2005.  The increase was also due to the write-off of intangible assets attributable to tenants that vacated in 2006.  Amortization expense on leasing commissions increased $177 or 53.8% primarily due to amortization on an additional $1,566 in leasing commissions since December 31, 2005 General and administrative expenses. General and administrative expenses consist of salaries and computerized information services costs reimbursed to affiliates for maintaining our accounting and investor records, affiliate common share purchase discounts, insurance, postage, printing costs and fees paid to accountants and lawyers.  The increase of $3,855 or 35.8% in general and administrative expenses of the total portfolio resulted from increased services required for a larger portfolio of investment properties. Advisor asset management fee.The advisor asset management fee represents a fee of not more than 1% of our average invested assets (as defined in our advisor agreement) paid to our former business manager/advisor. We compute our average invested assets by taking the average of these values at the end of each month for which we are calculating the fee.  The fee is payable quarterly in an amount equal to 1/4 of up to 1% of our average invested assets as of the last day of the immediately preceding quarter. The increase of $18,575 or 88.8% is due to the increase in our average invested assets for the year ended December 31, 2006 versus 2005. Based upon the maximum allowable advisor asset management fee of 1% of our average invested assets, maximum advisor asset management fees of $74,895 and $54,933 were allowed for the years ended December 31, 2006 and 2005, respectively.  We incurred actual fees of $39,500 and $20,925, which represented 53% and 38% of the maximum fees allowed, for the years ended December 31, 2006 and 2005, respectively.  Our business manager/advisor has agreed to forego any fees allowed but not taken on an annual basis. Dividend income.Dividend income includes dividends earned on our marketable securities and other investments.  The increase of $29,940 or 396.0% from the year ended December 31, 2005 to December 31, 2006 is due to the significant increase in funds that we invested in securities and other investments during late 2005 and most of 2006. Interest income. Interest income included income earned on our operating bank accounts, short-term cash investments and notes receivable.  The increase of $2,677 or 13.1% was due primarily to the increase in the amount of funds that we had invested in notes receivable as well as higher interest rates earned on our operating bank accounts and short-term investments during the year ended December 31, 2006 as compared to December 31, 2005. Other (expense) income.Other (expense) income includes miscellaneous non-operating income earned and non-operating expense incurred by us.  The decrease of $400 or 168.8% is primarily the result of the increase of miscellaneous non-operating expense.  30    Interest expense. The increase in interest expense of the total portfolio of $81,909 or 60.8% was due to the financing on 298 properties (including the consolidated joint venture properties) compared to 263 properties (including the consolidated joint venture properties) as of December 31, 2006 and 2005, respectively, as well a significant increase in our margin payable on our investment securities and overall increasing interest rates throughout 2005 and 2006. Comparison of the Year Ended December 31, 2006 to December 31, 2005 - Same Store Portfolio The table below presents operating information for our same store portfolio consisting of 107 operating properties acquired or placed in service prior to January 1, 2005, along with a reconciliation to net operating income.  The properties in the same store portfolios as described were owned for the entire years ended December 31, 2006 and 2005. [iwest10k123107final014.gif]  31    On a same store basis, net operating income increased by $131,517 or 38.0%, with total rental income, tenant recoveries and other property income increasing by $192,426 or 40.1% and total property operating expenses increasing by $60,909 or 45.8% for the year ended December 31, 2006, as compared to December 31, 2005. Rental and additional rental income.The increase in rental income of the same store portfolio of $5,576 or 2.3% is due primarily to earnouts and the leasing or renewal of previously vacant space at rental rates in excess of the previous rental rates.  The decrease in tenant recovery income of $3,540 or (5.3)% is primarily due to seller billing tenants at an inflated recovery rate.  The increase in other property income of $1,050 or 36.6% is due primarily to many of the vacancies at the various properties being covered by master leases from the seller. Vacant spaces at the time of closing may be paid by the seller in a master lease, which are not accounted for as income, but rather accounted for as a reduction to the asset purchase price. Once new tenants have occupied these spaces, their rents are accounted for as rental income and recovery income. Property operating expenses. The increase in property operating expenses of the same store portfolio of $3,496 or 6.3% is primarily caused by an increase in common area maintenance cost, including utility cost (gas and electric) and snow removal cost in 2006. Real estate taxes.Real estate taxes of the same store portfolio increased $724 or 1.9% for the   year ended December 31, 2006, as compared to December 31, 2005, primarily as a result of higher assessed valuations on investment properties. At the time of acquisition, many newer properties may still be assessed at a lower value based on the sellers historical cost of the land and improvements.  Once the property is acquired, this may trigger a higher assessment based on the sales price and market comparables for similar operating properties, resulting in higher real estate taxes. Liquidity and Capital Resources General Our principal demands for funds have been and will continue to be for property acquisitions, including development, payment of operating expenses, payment of interest on outstanding indebtedness and stockholder distributions. Generally, cash needs for items other than property acquisitions have been met from operations, and property acquisitions have been funded by public offerings of our shares of common stock and property financing proceeds. Potential future sources of capital include proceeds from our DRP, secured or unsecured financings from banks or other lenders, proceeds from the sale of properties, strategic joint venture arrangements, as well as undistributed funds from operations.  We anticipate that during the upcoming year we will (i) acquire additional existing multi-tenant shopping centers; (ii) invest in the development of additional shopping center sites and (iii) continue to pay distributions to stockholders, and each is expected to be funded mainly from cash flows from operating activities, financings or other external capital resources available to us. We continue to explore ways to manage our cash on hand in order to enhance returns on our investments. Our leases typically provide that the tenant bears responsibility for 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 roof and structural repairs.  Certain of our properties are subject to leases under which we retain responsibility for certain costs and expenses associated with the property.  We anticipate that capital demands to meet obligations related to capital improvements with respect to properties will be minimal for the foreseeable future (as many of our properties have recently been constructed or rehabbed)and can be met with funds from operations and working capital. We believe that our current capital resources (including cash on hand) and anticipated financings are sufficient to meet our liquidity needs for 2008.  32    Liquidity Our primary uses and sources of our consolidated cash are as follows: UsesSourcesShort Term:·
Tenant construction allowances
·
Minor improvements made to individual properties that are not recoverable through common area maintenance charges to tenants
·
Dividend payments
·
Debt repayment requirements, including both principal and interest
·
Stock repurchases
·
Corporate and administrative expenses·
Operating cash flow,
·
Borrowings under revolving credit facilities
·
Dividend reinvestment planLonger 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
·
Unsecured loans at company level
·
Construction loans
·
Mini-permanent loans
·
Long-term project financing
·
Joint venture financing with institutional partners
·
Equity securities
·
Asset sales The sources and uses of cash have generally been the same over the past several years. The decrease in the amount of funds necessary for acquisitions in 2007 has been partially offset by the increase in the amount of funds necessary for our investments in the development joint ventures. Mortgage Debt.Mortgage loans outstanding as of December 31, 2007 were $4,112,645 and had a weighted average interest rate of 4.97%.  Of this amount, $3,933,559 had fixed rates ranging from 3.99% to 7.48% and a weighted average fixed rate of 4.91% at December 31, 2007.  Excluding the mortgage debt assumed from sellers at acquisition and debt related to consolidated joint venture investments, the highest fixed rate on our mortgage debt was 5.94%.  The remaining $179,086 of mortgage debt represented variable rate loans with a weighted average interest rate of 6.29% at December 31, 2007.  As of December 31, 2007, scheduled maturities for our outstanding mortgage indebtedness had various due dates through March 1, 2037. Line of Credit.On October 15, 2007, we entered into an unsecured line of credit arrangement with a bank for up to $225,000, expandable to $300,000. The facility has an initial term of three years with one-year extension option.  The funds from this line of credit were used for working capital. The line of credit requires interest only payments monthly at the rate equal to LIBOR plus 80 to 125 basis points, depending on our net worth to total recourse indebtedness.We are also required to pay, on a quarterly basis, fees ranging from 0.125% to 0.2%, depending on the undrawn amount, on the average daily undrawn funds under this line.  The line of credit requires compliance with certain covenants, such as debt service coverage ratios, minimum net worth requirements, distribution limitations and investment restrictions.  As of December 31, 2007, we were in compliance with such covenants.  The outstanding balance on the line of credit was $75,000 as of December 31, 2007 with an effective interest rate of 6.05% per annum.  33    We terminated our previous unsecured line of credit facility in December 2006.  The facility, obtained in 2004, had an unsecured borrowing capacity of $250,000.  During its existence, funds from the line of credit were used, from time to time, to provide liquidity from the time a property was purchased until permanent debt was placed on the property.  The line of credit required interest only payments monthly on drawn funds at a rate equal to LIBOR plus up to 190 basis points depending on our leverage ratio.  We were also required to pay, on a quarterly basis, an amount ranging from 0.15% to 0.25% per annum on the average daily undrawn funds on the line.  The agreement also required compliance with certain covenants, such as debt service ratios, minimum net worth requirements, distribution limitations and investment restrictions.  We were in compliance with such covenants throughout the facilitys existence. Stockholder Liquidity.We provide the following programs to facilitate investment in our shares and to provide limited, interim liquidity for stockholders until such time as a market for the shares develops: The DRP, subject to certain share ownership restrictions, allows stockholders 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.  Participants may currently acquire shares under the DRP at a price equal to $10.00 per share.  The price per share had been $9.50 through payment of the August 2006 distribution at which point it was increased to $10.00 per share.  In the event (if ever) of a listing on a national stock 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 December 31, 2007, we had issued 46,545 shares pursuant to the DRP for an aggregate amount of $451,871. On December 14, 2006, we announced a modification to SRP as follows: · Effective February 1, 2007, the repurchase price for all shares will be $9.75 per share for any requesting stockholder that has beneficially owned the shares for at least one year; and · Effective October 1, 2007, the repurchase price for all shares will be $10.00 per share for any requesting stockholder that has beneficially owned the shares for at least one year. Prior to February 1, 2007, the SRP subject to certain restrictions provided existing stockholders with limited, interim liquidity by enabling them to sell shares back to us at the following prices: · One year from the purchase date, at $9.25 per share; · Two years from the purchase date, at $9.50 per share; · Three years from the purchase date, at $9.75 per share; and · Four years from the purchase date, at the greater of $10.00 per share, or a price equal to 10 times our "funds available for distribution" per weighted average shares outstanding for the prior calendar year. We make repurchases under the SRP, if requested, at least once quarterly on a first-come, first-served basis.  Subject to funds being available, we limit the number of shares repurchased during any calendar year to five percent (5%) of the weighted average number of shares outstanding during the prior calendar year.  Funding for the SRP comes exclusively from proceeds that we receive from the sale of shares under the DRP and other such operating funds, if any, as our board of directors, at its sole discretion, may reserve for this purpose. We cannot guarantee that the funds set aside for the SRP will be sufficient to accommodate all requests made each year.  If no funds are available for the SRP when repurchase is requested, the stockholder may: (i) withdraw the request; or (ii) ask that we honor the request at such time, if any, when funds are available.  Such pending requests will be honored on a first-come, first-served basis. Our board of directors, at its sole discretion, may choose to terminate the SRP, or reduce the number of shares purchased under the SRP, if it determines that the funds allocated to the SRP are needed for other purposes, such as the acquisition, maintenance or repair of properties, or for use in making a declared distribution. There is no requirement that stockholders sell their shares to us. The SRP is only intended to provide interim liquidity for stockholders until a liquidity event occurs, such as the listing of the shares on a national securities exchange, inclusion of  34    the shares for quotation on a national market system, or a merger with a listed company.  No assurance can be given that any such liquidity event will occur. Shares purchased by us under the SRP will be canceled and will have the status of authorized but unissued shares.  Shares acquired by us through the SRP will not be re-issued unless they are first registered with the SEC under the Securities Act of 1933 and under appropriate state securities laws, or otherwise issued in compliance with such laws. As of December 31, 2007, 21,107 shares had been repurchased for a total of $205,331. Capital Resources We expect to meet our short-term operating liquidity requirements generally through our net cash provided by property operations.  We also expect that our properties will generate sufficient cash flow to cover our operating expenses plus pay a monthly distribution on our weighted average shares outstanding.  Operating cash flows are expected to increase as additional properties are added to our portfolio. We seek to balance the financial risk and return to our stockholders by leveraging our properties at approximately 50-60% of their value.  We also believe that we can borrow at the lowest overall cost of funds or interest rate by placing individual financing on each of our properties.  Accordingly, mortgage loans generally have been placed on each property at the time that the property is purchased, or shortly thereafter, with the property solely securing the financing. During the year ended December 31, 2007, we closed on mortgage debt with a principal amount of $423,402 on our wholly-owned and consolidated joint venture properties.  All new loans represented fixed rate loans which bear interest rates between 5.02% and 5.94%. We have entered into interest rate lock agreements with a lender to secure interest rates on mortgage debt on properties we currently own or plan to purchase in the future. As of December 31, 2007, we have an outstanding rate lock deposit of $9,450 for agreements locking only the Treasury portion of mortgage debt interest rates. These agreements lock the Treasury portion of rates at 4.63% and 4.51% on an aggregate of $135,000 in treasury positions that can be converted into full rate locks through the first quarter of 2008, or can be extended monthly for up to six months. Allocations to these agreements will be made upon conversion into a full rate lock at which time the interest rate will be determined. Although the loans we closed are generally non-recourse, occasionally, when it is deemed to be advantageous, we may guarantee all or a portion of the debt on a full-recourse basis or cross-collateralize loans.  The majority of our loans require monthly payments of interest only, although some loans require principal and interest payment as well as reserves for real estate taxes, insurance and certain other costs.  Individual decisions regarding interest rates, loan-to-value, fixed versus variable-rate financing, maturity dates and related matters are often based on the condition of the financial markets at the time the debt is incurred, which conditions may vary from time to time. Distributions are determined by our board of directors and are dependent on a number of factors, including the amount of funds available for distribution, flow of funds, our financial condition, any decision by our board of directors to reinvest funds rather than to distribute the funds, our capital expenditures, the annual distribution required to maintain REIT status under the Internal Revenue Code and other factors the board of directors may deem relevant. The following table compares cash flows provided by operations to cash distributions declared: [iwest10k123107final016.gif] In 2004, the deficiency was funded through advances from our sponsor.  In 2005, the deficiency was funded through payments received under master leases and cash provided by financing activities.  35    Statement of Cash Flows Comparison of Year Ended December 31, 2007 to December 31, 2006 Cash Flows From Operating Activities Cash flows provided by operating activities were $321,802 and $296,165 for the years ended December 31, 2007 and 2006, respectively, which consists primarily of net income from property operations.  The increase in net cash provided by operating activities was due to additional revenues generated from the operating properties (including the consolidated joint venture properties) as of December 31, 2007, compared to December 31, 2006.  This increase was offset by a $51,530 gain due to the sale and contribution of investment properties. Cash Flows From Investing Activities Cash flows used in investing activities were $524,912 and $523,058, respectively, for the years ended December 31, 2007 and 2006.  Cash flows used in investing activities were primarily used for the acquisition of nine wholly-owned and consolidated joint venture properties for $477,378, and 18 wholly-owned and consolidated joint venture properties for $569,608 during the years ended December 31, 2007 and 2006, respectively.  In addition, during the years ended December 31, 2007 and 2006, we invested $28,195 and $130,400 in marketable securities and other investments and funded $37,733 and $71,899 on notes receivable. Cash Flows From Financing Activities Cash flows provided by financing activities were $92,719 and $155,797, respectively, for the years ended December 31, 2007 and 2006.  We paid $140,143 for share repurchases in 2007.  We also generated $490,159 and $426,065 from the issuance of new mortgages secured by our investment properties. During the years ended December 31, 2007 and 2006, we also generated $132,962 and $39,335 through the purchase of securities on margin.  We paid $9,209 and $8,671 for loan fees and $135,267 and $129,745 in distributions, net of distributions reinvested, to our stockholders for the years ended December 31, 2007 and 2006, respectively. Statement of Cash Flows Comparison of Year Ended December 31, 2006 to December 31, 2005 Cash flows provided by operating activities were $296,165 and $201,857 for the years ended December 31, 2006 and 2005, respectively, which consists primarily of net income from property operations.  The increase in net cash provided by operating activities was due to additional revenues generated from the operation of 306 properties (including the consolidated joint venture properties) owned as of December 31, 2006, compared to 290 properties (including the consolidated joint venture properties) owned as of December 31, 2005.  Cash Flows From Investing Activities Cash flows used in investing activities were $523,058 and $3,942,227, respectively, for the years ended December 31, 2006 and 2005.  Cash flows used in investing activities were primarily used for the acquisition of 18 wholly-owned and consolidated joint venture properties for $569,608, and 177 wholly-owned and consolidated joint venture properties and one consolidated joint venture property for $3,396,042 during the years ended December 31, 2006 and 2005, respectively.  In addition, during the years ended December 31, 2006 and 2005, we invested $133,603 and $408,809 in marketable securities and other investments and funded $71,899 and $195,232 on notes receivable.  Cash Flows From Financing Activities Cash flows provided by financing activities were $155,797 and $3,797,993, respectively, for the years ended December 31, 2006 and 2005.  We generated proceeds from the sale of shares, net of offering costs paid and shares repurchased, of $1,837,105 for the year ended December 31, 2005.  We paid $47,286 for share repurchases and offering costs in 2006.  We also generated $426,065 and $2,043,836 from the issuance of new mortgages secured by our investment properties. During the years ended December 31, 2006 and 2005, we also generated $39,335 and $81,498 through the purchase of securities on margin. During the year ended December 31, 2005, we generated $90,000 from funding on the line of credit, all of which was repaid in full by December 31. We paid $8,671 and $26,404 for loan fees and $129,745 and $98,015 in distributions, net of distributions reinvested, to our stockholders for the years ended December 31, 2006 and 2005, respectively.  36    Effects of Transactions with Related and Certain Other Parties On November 15, 2007, we acquired our business manager/advisor and property managers in exchange for 37,500 newly issued shares of our stock.   The business manager/advisor and property managers became subsidiaries of ours.  As part of the acquisition, we gained 239 experienced employees to perform the business manager/advisor functions and operate the property management companies. Agreements Terminated Upon Consummation of the Merger Prior to the merger on November 15, 2007, we paid an advisor asset management fee of not more than 1% of the average invested assets to our business manager/advisor.  Average invested asset value is defined as the average of the total book value, including acquired intangibles, of our real estate assets plus our loans receivable secured by real estate, before reserves for depreciation, reserves for bad debt or other similar non-cash reserves.  We computed the average invested assets by taking the average of these values at the end of each month for which the fee is being calculated.  The fee was payable quarterly in an amount equal to 1/4 of up to 1% of the Companys average invested assets as of the last day of the immediately preceding quarter.  Based upon the maximum allowable advisor asset management fee of 1% of our average invested assets, maximum fees of $68,083, $74,895 and $54,993 were allowed for the years ended December 31, 2007, 2006 and 2005, respectively.  We incurred actual fees to our former business manager/advisor totaling $23,750, $39,500 and $20,925, which represented 35%, 53% and 38% of the maximum fees allowed, for the years ended December 31, 2007, 2006 and 2005, respectively.  The maximum allowable advisor management fee and the advisor asset management fee incurred for the year ended December 31, 2007 were both prorated through November 15, 2007, the date of the merger.  As of December 31, 2007 and 2006, none and $9,000, respectively, remained unpaid and are included in Other liabilities in the accompanying consolidated balance sheets.  The business manager/advisor agreed to forego any fees allowed but not taken on an annual basis. The business manager/advisor and its affiliates were also entitled to reimbursement for general and administrative costs, primarily salaries, relating to our administration and acquisition of properties.  For the year ended December 31, 2007, 2006 and 2005, we incurred $873, $998 and $1,096, respectively, of these.  Of these costs, $404 and $152 remained unpaid as of December 31, 2007 and 2006, respectively and are included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets. In 2005, we entered into a subscription agreement with Minto Builders (Florida), Inc., or MB REIT, an entity consolidated by one of our affiliates, Inland American Real Estate Trust, Inc., or "Inland American" to purchase newly issued Series C preferred shares at a purchase price of $1,276 per share.  Under the agreement, MB REIT had the right to redeem any Series C preferred shares it issued to us with the proceeds of any subsequent capital contributed by Inland American.  MB REIT was required to redeem any and all outstanding Series C preferred shares held by us by December 31, 2006 and did so during the fourth quarter of 2006.  The Series C preferred shares, while outstanding, entitled us to an annual dividend equal to 7.0% on the face amount of the Series C preferred shares, which was payable monthly.  We evaluated our investment in MB REIT under FIN 46(R) and determined that MB REIT was a variable interest entity but that we were not the primary beneficiary.  Due to our lack of influence over the operating and financial policies of the MB REIT,this investment is accounted for under the cost method in which investments are recorded at their original cost.  As of December 31, 2005, we had invested $224,003 in these shares.  An additional $40,000 was invested during 2006 and the total of $264,003 was redeemed during the fourth quarter of 2006.  We earned $16,489 and$2,100 in dividend income related to this investment during the years ended December 31, 2006 and 2005, respectively.  None of the dividend remained unpaid as of December 31, 2006. We entered into an arrangement with Inland American whereby we were paid to guarantee customary non-recourse carve out provisions of Inland American's financings until such time as Inland American reached a net worth of $300,000.  We evaluated the accounting for the guarantee arrangements under FIN 45: Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,and recorded the fair value of theguarantees and amortized the liability over the guarantee period of one year.  The fee arrangement called for a fee of $50 annually for loans equal to and in excess of $50,000 and $25 annually for loans less than $50,000.  We recorded fees totaling $149 for the year ended December 31, 2006, all of which had been received as of that date.  We were released from all our obligations under this arrangement during 2006.  37    Agreements Surviving Merger The property managers were entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services through November 15, 2007, the date of the merger.  We incurred property management fees of $30,036, $29,800 and $20,686 for the years ended December 31, 2007, 2006 and 2005, respectively.  In addition, we reimbursed the property managers for certain salaries and related employee benefits totaling $5,423, $5,313 and $2,268 for the years ended December 31, 2007, 2006 and 2005, respectively.  No amounts remained unpaid as of December 31, 2007 and 2006.  Subsequent to the mergers, the property managers are entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services, all of which are eliminated in the consolidated financial statements. An affiliate also provides investment advisory services to us related to our securities investments for an annual fee.  The affiliate has full discretionary authority with respect to the investment and reinvestment of assets in that account, subject to investment guidelines we provide to them.  The affiliates have also been granted a power of attorney and proxy to tender or direct the voting or tendering of all investments held in the account.  The fee is incremental based upon the aggregate market value of assets invested.  Based upon our assets invested, the fee was equal to 0.75% per annum (paid monthly) of aggregate market value of assets invested.  We incurred fees totaling $2,107, $1,961 and $536 for the years ended December 31, 2007, 2006 and 2005, respectively.  As of December 31, 2007 and 2006, $325 and $362, respectively, remained unpaid and are included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination. An affiliate provides loan servicing for us.  Effective May 1, 2005, the loan servicing agreement stipulated that if the number of loans being serviced exceeded one hundred, a monthly fee was charged in the amount of 190 dollars per month, per loan being serviced.  Effective April 1, 2006, the agreement was amended so that if the number of loans being serviced exceeded one hundred, a monthly fee of 150 dollars per month, per loan was charged.  Effective May 1, 2007, the agreement was again amended so that if the number of loans being serviced exceeds two hundred, a monthly fee of 125 dollars per month, per loan is charged.  Such fees totaled $562, $696 and $534 for the years ended December 31, 2007, 2006 and 2005, respectively.  As of December 31, 2007 and 2006, none and $24, respectively, remained unpaid and are included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of such termination. An affiliate facilitates the mortgage financing we obtain on some of our properties.  We pay the affiliate 0.2% of the principal amount of each loan obtained on our behalf.  Such costs are capitalized as loan fees and amortized over the respective loan term as a component of interest expense.  For the years ended December 31, 2007 and 2006, we paid loan fees totaling $873 and $1,051, respectively, to this affiliate.  As of December 31, 2007 and 2006, none remained unpaid.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of such termination. Agreements Entered Into Upon Consummation of Merger We terminated our existing acquisition agreement with an Inland affiliate and entered into a new property acquisition agreement and a transition property due diligence services agreement with that affiliate.  In connection with our acquisition of new properties, the affiliate will give us a first right as to all retail, mixed use and single tenant properties and, if requested, provide various services including services to negotiate property acquisition transactions on our behalf and prepare suitability, due diligence, and preliminary and final pro forma analyses of properties proposed to be acquired.  We will pay all reasonable, third party out-of-pocket costs incurred by this entity in providing such services; pay an overhead cost reimbursement of $12 per transaction; and, to the extent these services are requested by us, pay a cost of $7 for due diligence expenses and a cost of $25 for negotiation expenses per transaction.  As of December 31, 2007, we have not incurred any such costs under the new agreement.  For the year ended December 31, 2007, 2006 and 2005 we incurred $134, $363 and $1,184, respectively, of these costs.  Of these costs, $27 and $25 remained unpaid as of December 31, 2007 and 2006, respectively and are included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination.  38    We entered into an institutional investor relationships services agreement with an Inland affiliate.  Under the terms of the agreement, the Inland affiliate will attempt to secure institutional investor commitments in exchange for advisory and client fees and reimbursement of project expenses.  For the year ended December 31, 2007, 2006 and 2005, we incurred $257, $137 and none, respectively, of these costs.  Of these costs, none and $137 remained unpaid as of December 31, 2007 and 2006, respectively and are included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination. An Inland affiliate also entered into a legal services agreement with us, primarily with our business manager/advisor, where that affiliate will provide us with certain legal services in connection with our real estate business.  We will pay the affiliate for legal services rendered under the agreement on the basis of actual time billed by attorneys and paralegals at the affiliate's hourly billing rate then in effect in increments of one-tenth of one hour.  The billing rate is subject to change on an annual basis, provided, however, that the billing rates charged by the affiliate will not be greater than the billing rates charged to any other client and will not be greater than 90% of the billing rate of attorneys of similar experience and position employed by nationally recognized law firms located in Chicago, Illinois performing similar services.  For the year ended December 31, 2007, 2006 and 2005, we incurred $897, $705 and $1,884, respectively, of these costs.  Of these costs, $141 and $150 remained unpaid as of December 31, 2007 and 2006, respectively and are included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination. We entered into consulting agreements with Daniel L. Goodwin, Robert D. Parks, our chairman, and G. Joseph Cosenza, who will each provide with us with strategic assistance for the term of their respective agreement including making recommendations and providing guidance to us as to prospective investment, financing, acquisition, disposition, development, joint venture and other real estate opportunities contemplated from time to time by us and our board of directors.  The consultants will also provide additional services as may be reasonably requested from time to time by our board of directors. The term of each agreement runs until November 15, 2010 unless terminated earlier.  We may terminate these consulting agreements at any time.  The consultants will not receive any compensation for their services, but we will reimburse their expenses in fulfilling their duties under the consulting agreements.   There were no reimbursements under the consulting agreements in 2007. We entered into amendments to each of our existing service agreements with certain affiliates, including an amendment to our office and facilities management services agreement, insurance and risk management services agreement, computer services agreement, personnel services agreement, property tax services agreement and communications services agreement.  Generally these agreements and the amendments provide that we can obtain certain services from the affiliates for reimbursement of their general and administrative costs relating to our administration and acquisition of properties.  For the year ended December 31, 2007, 2006 and 2005, we incurred $3,092, $1,334 and $945, respectively, of these costs.  Of these costs, $900 and $203 remained unpaid as of December 31, 2007 and 2006, respectively and are included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.  The amendments provide that the services provided under the terms of the applicable services agreements are to be provided on a non-exclusive basis in that we shall be permitted to employ other parties to perform any one or more of the services and that the applicable counterparty shall be permitted to perform any one or more of the services to other parties.  The agreement and related amendments have various expiration dates but are cancellable by providing not less than 180 days prior written notice and specification of the effective date of such termination. We sub lease our office space from an affiliate.  The lease calls for annual base rent of $496 and additional rent in any calendar year of its proportionate share of taxes and common area maintenance costs.  Additionally, the affiliate paid certain tenant improvements under the lease in the amount of $395.  Such improvements are being repaid by us over a period of five years.  The sublease calls for an initial term of five years which expires November 2012 with one option to extend for an additional five years.  39    Off-Balance Sheet Arrangements, Contractual Obligations, Liabilities and Contracts and Commitments Off Balance Sheet Arrangements In April 2007, we entered into a joint venture arrangement with a state pension fund.  Under this joint venture agreement we are to contribute 20% of the equity and our joint venture partner will contributes 80% of the equity, up to a total $500,000.  The joint venture plans to acquire assets using equity contribution and leverage up to $1,000,000.  As of December 31, 2007, we had contributed approximately $29,500 and expect to contribute the remaining $70,500 in the next two years.  As of December 31, 2007, the joint venture had acquired seven properties (which we contributed) with an estimated purchase price of approximately $336,000 and had assumed from us mortgages on these properties totaling approximately $188,000.  Under the agreement, we are the managing member of the joint venture and earn various fees for acquisition, asset management and property management.  We account for our interest in the joint venture using the equity method of accounting. See Note 11 Investment in Unconsolidated Joint Ventures in our accompanying Consolidated Financial Statements for further discussion. Other than described above, we have no off-balance sheet arrangements as of December 31, 2007 that are reasonably likely to have a current or future material effect on our financial condition, or cause changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. The table below presents our obligations and commitments to make future payments under debt obligations and lease agreements as of December 31, 2007. Contractual Obligations [iwest10k123107final018.gif] (1) In addition to principal payments, the amounts reflected include interest payments.  Interest payments related to the variable rate debt were calculated using the corresponding interest rates as of December 31, 2007. (2) Fixed rate debt and related interest includes a $50,000 note payable to an unconsolidated joint venture.  This note has no maturity, but interest is reflected at the stated rate through December 31, 2008, although we may choose not to repay in 2008.  Variable rate debt and related interest includes $75,000 of borrowings under our line of credit and is reflected as being outstanding through December 31, 2008, as we are not required to repay such borrowings until the termination date of the line of credit in 2010, or, if extended, 2011.  Variable rate debt and related interest is reflected as being outstanding through December 31, 2008, also includes $108,040 of margin debt secured by our portfolio of marketable securities.  These borrowings may be repaid over time upon our sale of our portfolio of marketable securities. The remaining borrowings and related interest relate to four mortgage payables and one construction loan.  Mortgage payables will be refinanced or paid off in 2008 using our line of credit.  The construction loan will be paid off at the time of sale of the property or refinanced to a mortgage payable.  Amounts related to interest for fixed rate and variable rate debt will be paid from the operations of our properties and income from our portfolio of marketable securities. (3) We lease land under non-cancelable leases at certain of the properties expiring in various years from 2024 to 2105.  The property attached to the land will revert back to the lessor at the end of the lease. (4) Purchase obligations include earnouts on previously acquired properties.  40    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 certain 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, we will own that space without any further payment obligation.  Based on pro forma leasing rates, we may pay as much as $148,222 in the future as retail space covered by earnout agreements is occupied and becomes rent producing. We have entered into three construction loan agreements and four other installment note agreements in which we have committed to fund up to a total of $43,570.  Each loan, except one, requires monthly interest payments with the entire principal balance due at maturity.  The combined receivable balance at December 31, 2007 was $33,801.  Therefore, we may be required to fund up to an additional $9,655 on these loans. We guarantee a portion of the construction debt associated with certain of the development joint ventures.  The guarantees are released as certain leasing parameters are met.  As of December 31, 2007, the amount guaranteed by us was $5,471. As of December 31, 2007, we had 13 irrevocable letters of credit outstanding related to loan fundings against earnout spaces at certain properties.  Once we purchase the remaining portion of these properties and meet certain occupancy requirements, the letters of credit will be released.  The balance of outstanding letters of credit at December 31, 2007 was $22,063. We have entered into interest rate lock agreements with a lender to secure interest rates on mortgage debt on properties we currently own or plan to purchase in the future.  As of December 31, 2007, we had an outstanding rate lock deposit of $9,450 for agreements locking only the Treasury portion of mortgage debt interest rates.  These agreements lock the Treasury portion of rates at 4.63% and 4.51% on $135,000 in positions that can be converted into full rate locks through the first quarter of 2008, or can be extended monthly for up to six months.  Allocations to these agreements will be made upon conversion into a full rate lock at which time the all-in interest rate will be determined. Our decision to acquire a property generally depends upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions, and our receipt of satisfactory due diligence information including appraisals, environmental reports and lease information prior to purchasing the property.  A property known as Jefferson Commons, located in Newport News, VA, was under consideration for acquisition as of December 31, 2007 and subsequently acquired by us for a purchase price of $79,644 on February 14, 2008.     Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements and the reported amounts of revenues and expenses during the reporting period.  For example, significant estimates and assumptions have been made with respect to useful lives of assets, capitalization of development and leasing costs, provision for income taxes, recoverable amounts of receivables, deferred taxes, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions, and cost ratios and completion percentages used for land sales. Actual results could differ from those estimates. Critical Accounting Policies and Estimates     The following disclosure pertains to accounting policies and estimates we believe are most critical to the portrayal of our financial condition and results of operations which require our most difficult, subjective or complex judgments.  These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain.  Critical accounting policies discussed in this section are not to be confused with accounting principles and methods disclosed in accordance with accounting principles generally accepted in the United States of America, or GAAP.  GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant  41    estimates.  This discussion addresses our judgment pertaining to trends, events or uncertainties known which were taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions.     Acquisition of Investment Property     We allocate the purchase price of each acquired investment property between land, building and other improvements, acquired above market and below market leases, in-place lease value, any assumed financing that is determined to be above or below market terms and the value of customer relationships, if any.  The allocation of the purchase price is an area that requires judgment and significant estimates.  We use the information contained in the independent appraisal obtained upon acquisition of each property as the primary basis for the allocation to land and building and improvements.  We determine whether any financing assumed is above or below market based upon comparison to similar financing terms for similar investment properties.  We allocate a portion of the purchase price to the estimated acquired in-place lease costs based on estimated lease execution costs for similar leases as well as lost rent payments during an assumed lease up period when calculating as-if-vacant fair values.  In this analysis we consider various factors including geographic location and the size of the leased space.  We also evaluate each significant acquired lease based upon current market rates at the acquisition date and we consider various factors including geographical location, the size and the location of the leased space within the investment property, tenant profile and the credit risk of the tenant in determining whether the acquired lease is above or below market lease costs.  If an acquired lease is determined to be above or below market, we allocate a portion of the purchase price to such above or below market acquired lease costs based upon the present value of the difference between the contractual lease rate and the estimated market rate.  For below market leases with fixed rate renewals, renewal periods are included in the calculation of below market lease values.  The determination of the discount rate used in the present value calculation is based upon the risk free rate.  This discount rate is a significant factor in determining the market valuation which requires our judgment of subjective factors such as market knowledge, economics, demographics, location, visibility, age and physical condition of the property.     Impairment of Long-Lived Assets     In accordance with Financial Accounting Standards Boards (FASB) Statement of Financial Accounting Standards (SFAS) No. 144: Accounting for the Impairment or Disposal of Long-Lived Assets, we perform a quarterly analysis to identify impairment indicators to ensure that each investment propertys carrying value does not exceed its fair value.  If an impairment indicator is present, we perform an undiscounted cash flow valuation analysis based upon many factors which require difficult, complex or subjective judgments to be made.  Such assumptions include projecting vacancy rates, rental rates, operating expenses, lease terms, tenant financial strength, economy, demographics, property location, capital expenditures and sales value among other assumptions to be made upon valuing each property.  This valuation is sensitive to the actual results of any of these uncertain factors, either individually or taken as a whole.     Cost Capitalization, Depreciation and Amortization Policies     Our policy is to review all expenses paid and capitalize any items which are deemed to be an upgrade or a tenant improvement. These costs are included in the investment properties classification as an addition to buildings and improvements.     Buildings and improvements are depreciated on a straight-line basis based upon estimated useful lives of 30 years for buildings and improvements and 15 years for site improvements and most other capital improvements.  Acquired in-place lease costs, customer relationship value, other leasing costs and tenant improvements are amortized on a straight-line basis over the life of the related lease as a component of depreciation and amortization expense.  The portion of the purchase price allocated to acquired above market costs and acquired below market costs are amortized on a straight-line basis over the life of the related lease as an adjustment to net rental income.     Cost capitalization and the estimate of useful lives requires our judgment and includes significant estimates that can and do change based on our process which periodically analyzes each property and on our assumptions about uncertain inherent factors.  42    Assets Held For Sale In determining whether to classify an asset as held for sale, we consider whether: (i) management has committed to a plan to sell the asset; (ii) the asset is available for immediate sale, in its present condition; (iii) we have initiated a program to locate a buyer; (iv) we believe that the sale of the asset is probable; (v) we have received a significant non-refundable deposit for the purchase of the property; (vi) we are actively marketing the asset for sale at a price that is reasonable in relation to its current value; and (vii) actions required for us to complete the plan indicate that it is unlikely that any significant changes will be made to the plan. If all of the above criteria are met, we classify the asset as held for sale.  On the day that these criteria are met, we suspend depreciation on the assets on the assets held for sale, including depreciation for tenant improvements and additions, as well as on the amortization of acquired in-place leases and customer relationship values.  The assets and liabilities associated with those assets that are held for sale are classified separately on the consolidated balance sheets for the most recent reporting period.  Additionally, the operations for the periods presented are classified on the consolidated statements of operations and other comprehensive income as discontinued operations for all periods presented.     Revenue Recognition     We commence revenue recognition on our leases based on a number of factors.  In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset.  Generally, this occurs on the lease commencement date.  The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when the revenue recognition under a lease begins.  If we are the owner of the tenant improvements, for accounting purposes, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete.  If we conclude that we are not the owner of the tenant improvements (the lessee is the owner), for accounting purposes, then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives which reduce revenue recognized over the term of the lease.  In these circumstances, we begin revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements.  For accounting purposes, we consider a number of different factors to evaluate whether we or the lessee is the owner of the tenant improvements.  These factors include:     · Whether the lease stipulates how and on what a tenant improvement allowance may be spent;     · Whether the tenant or landlord retains legal title to the improvements;     · The uniqueness of the improvements;     · The expected economic life of the tenant improvements relative  to the length of the lease; and     · Who constructs or directs the construction of the improvements.     The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment.  In making that determination, we consider all of the above factors.  No one factor, however, necessarily establishes our determination.     We recognize rental income on a straight-line basis over the term of each lease.  The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable.     Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period the applicable expenditures are incurred.  We make certain assumptions and judgments in estimating the reimbursements at the end of each reporting period.     We record lease termination income if there is a signed termination letter agreement, all of the conditions of the agreement have been met and the tenant is no longer occupying the property.  Upon early lease termination we provide for losses related to unrecovered intangibles and other assets.      43    SAB 101 provides that a lessor should defer recognition of contingent rental income (i.e. percentage/excess rent) until the specified target (i.e. breakpoint) that triggers the contingent rental income is achieved.  We record percentage rental revenue in accordance with SAB 101.     In conjunction with certain acquisitions, we receive payments under master lease agreements pertaining to certain non-revenue producing spaces either at the time of, or subsequent to, the purchase of these properties.  Upon receipt of the payments, the receipts are recorded as a reduction in the purchase price of the related properties rather than as rental income.  These master leases are established at the time of purchase in order to mitigate the potential negative effects of loss of rent and expense reimbursements.  Master lease payments are received through a draw of funds escrowed at the time of purchase and generally cover a period from three months to three years.  Under the terms of the agreements, these funds may be released to either us or the seller when certain leasing conditions are met.     We account for profit recognition on sales of real estate in accordance with Financial Accounting Standards Boards (FASB) Statement of Financial Accounting Standards (SFAS) No. 66: Accounting for Sales of Real Estate.  In summary, profits from sales will not be recognized under the full accrual method by us unless a sale is consummated; the buyers initial and continuing investments are adequate to demonstrate a commitment to pay for the property; our receivable, if applicable, is not subject to future subordination; we have transferred to the buyer the usual risks and rewards of ownership; and we do not have substantial continuing involvement with the property. Marketable Securities and Other Investments All publicly traded equity securities are classified as available for sale and carried at fair value, with unrealized gains and losses reported as a separate component of shareholders equity.  Private investments, for which we do not have the ability to exercise significant influence, are accounted for at cost.  Declines in the value of public and private investments that management determines are other than temporary are recorded as a provision for loss on investments. To determine whether an impairment is other than temporary, we consider whether we have the ability and intent to hold the investment until a market price recovery and consider whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary.  Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year-end and forecasted performance of the investee.     Partially-Owned Entities If we determine that we are an owner in a variable interest entity within the meaning of FIN 46(R) and that our variable interest will absorb a majority of the entitys expected losses if they occur, receive a majority of the entitys expected residual return if it occurs, or both, then we will consolidate the entity.  Following consideration under FIN 46(R), if required, in accordance with EITF Issue No. 04-5: Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity when the Limited Partners Have Certain Rights, we evaluate applicable partially-owned entities for consolidation.  At issue in EITF No. 04-5 is what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would consolidate the limited partnership in accordance with U. S. GAAP.  Finally, we generally consolidate entities (in the absence of other factors when determining control) when we have over a 50% ownership interest in the entity.  However, we also evaluate who controls the entity even in circumstances in which we have greater than a 50% ownership interest.  If we do not control the entity due to the lack of decision-making abilities, we will not consolidate the entity even when we have greater than a 50% ownership interest. Allowance for Doubtful Accounts We periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under the lease agreements.  We also maintain an allowance for receivables arising from the straight-lining of rents. This receivable arises from revenue recognized in excess of amounts currently due under the lease agreements. Management exercises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates.  44    Recording of Below Market Lease Intangibles We discovered that we had underestimated previously recorded below market lease liabilities and overestimated amortization of below market leases due to the exclusion of certain fixed rent renewal periods and market rents utilized during the initial year of our operations.  We determined that the market rates used in the original below market analyses for certain acquisitions were inappropriate and required adjustments based upon comparable leases and further analyses by our property managers.  These errors resulted in an overstatement of our 2004 and 2005 net income by an aggregate amount of $3,637. Recognition of Ancillary Taxes We had previously accounted for our ancillary taxes in the period of payment due to the immaterial nature of these taxes, which were expected to not give rise to significant out-of-period adjustments.  However, in reviewing the tax amounts paid and recorded in the 1st and 2nd quarters of 2006, it was determined that there was an overstatement of tax expense in 2006 for payments relating to 2005 taxes.  These errors resulted in our overstating our 2005 net income by $1,056.  Since the third quarter of 2006, ancillary taxes have been recorded on an accrual basis. Cumulative Effect of Adopting SAB 108 As a result of applying the guidance in SAB 108 during the year ended December 31, 2006, we recorded a reduction of $4,693 to stockholders equity (accumulated distributions in excess of net income) in our opening balance sheet to correct the effect of the errors associated with the recording of below market lease intangibles and recognition of ancillary taxes, described above. Impact of Recent Accounting Principles In September 2006, the FASB issued SFAS No. 157: Fair Value Measurements (SFAS 157).  This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  This Statement applies to accounting pronouncements that require or permit fair value measurements, except for share-based payments transactions under SFAS No. 123(R).  This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007.  As SFAS 157 does not require any new fair value measurements or remeasurements of previously computed fair values, we do not believe adoption of this Statement will have a material effect on our consolidated financial statements.  In February 2007, the FASB issued FASB Staff Position FAS 157-2, which delays the effective date of SFAS 157 for non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008. In February 2007, the FASB issued SFAS No. 159: The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159).  This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value.  The Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities.  SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, although early application is allowed.  We are currently evaluating the application of this Statement and its effect on our consolidated financial statements. In December 2007, the FASB issued SFAS No. 141R: Business Combinations (SFAS 141R), which requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at "full fair value."  Under SFAS 141R, all business combinations will be accounted for by applying the acquisition method.  SFAS 141R is effective for periods beginning on or after December 15, 2008.  We are currently evaluating the effect of this Statement and its effect on our consolidated financial statements. In December 2007, the FASB issued SFAS No. 160: Noncontrolling Interests in Consolidated Financial Statements (SFAS 160).  SFAS 160 will require noncontrolling interests (previously referred to as minority interests) to be treated as a separate component of equity, not as a liability or other item outside of permanent equity.  In addition, the statement applies to the accounting for noncontrolling interests and transactions with noncontrolling interest holders in consolidated financial statements.  SFAS 160 is effective for periods beginning on or after December 15, 2008.  We are currently evaluating the effect of this Statement and its effect on our consolidated financial statements.  45    Subsequent Events During the period from January 1 to March 28, 2008, we: · Issued 3,965 shares of common stock through the DRP and repurchased 5,177 shares of common stock through the SRP resulting in a total of 483,710 shares of common stock outstanding at March 28, 2008; · Paid distributions of $77,804 to stockholders in January, February and March 2008, for December 2007 and January and February 2008, respectively.  The distribution represented an annualized distribution rate of $0.64 per share; · Acquired a shopping center know as Jefferson Commons, located in Newport News, VA, for purchase price of $79,644 with 306,287 square feet and assumption of mortgage debt with a principal balance of $56,500; · Funded earnouts totaling $38,747 to purchase an additional 130 square feet at eleven existing properties; · Funded a $2,466 construction loan and paid off one $5,951 construction loan receivables; · Funded additional capital of $2,911 on three development joint ventures, and deposited $900 on a new development joint venture; · Funded $3,265 on two construction-in-progress projects; · Deposited $5,400 of margin calls related to Treasury lock agreements; and · Borrowed $50,000 from the line of credit. Our board of directors approved the following, effective January 1, 2008: · Each non-affiliated director will be entitled to be granted an option to acquire 5 shares of our common stock as of the date they initially become a director under our Independent Director Stock Option Plan.  In addition, each non-affiliated director will be entitled to be granted an option to acquire an additional 5 shares on the date of each annual stockholders meeting, commencing with the annual meeting in 2008, so long as the director remains a member of the board of directors on such date.  All options will be granted at fair market value on the date of grant, and will become fully exercisable on the second anniversary of the date of grant.  There were no other changes made to the terms of option grants under the Independent Director Stock Option Plan. · The addition of Messrs Richard P. Imperiale and Kenneth E. Masick to our board of directors. Inflation For our multi-tenant shopping centers, inflation is likely to increase rental income from leases to new tenants and lease renewals, subject to market conditions.  Our rental income and operating expenses for those properties owned, or expected to be owned and operated under net leases, are not likely to be directly affected by future inflation, since rents are or will be fixed under those leases and property expenses are the responsibility of the tenants.  The capital appreciation of single-user net lease properties is likely to be influenced by interest rate fluctuations.  To the extent that inflation determines interest rates, future inflation may have an effect on the capital appreciation of single-user net lease properties.  As of December 31, 2007, we owned 122 single-user net lease properties. Item 7A. 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 through interest rate lock agreements with the lowest margins available and in some cases, with the ability to convert variable rates to fixed rates. We have entered into interest rate lock agreements with a lender to secure interest rates on mortgage debt on properties we currently own or plan to purchase in the future. As of December 31, 2007, we has an outstanding rate lock deposit of $9,450 for agreements locking only the Treasury portion of mortgage debt interest rates. These agreements lock the  46    Treasury portion of rates at 4.63% and 4.51% on $135,000 in treasury positions that can be converted into full rate locks through the first quarter of 2008, or can be extended monthly for six months. Allocations to these agreements will be made upon conversion into a full rate lock at which time the interest rate will be determined. 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 derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our properties.  To the extent we do, we are exposed to credit risk and market risk.  Credit risk is the failure of the counterparty to perform under the terms of the derivative contract.  When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us.  When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not possess credit risk.  It is our policy to enter into these transactions with the same party providing the financing, with the right of offset.  In the alternative, we will minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties.  Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates.  The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. The carrying amount of our debt and other financing is $144,709 higher than its fair value as of December 31, 2007. Our interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year and expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes. 20082009201020112012ThereafterMaturing debt:Fixed rate debt$  108,942911,9201,287,829420,970380,677873,696Variable rate debt205,406156,720----Weighted average interest rate on debt:Fixed rate debt4.77%4.70%4.77%4.91%5.30%5.17%Variable rate debt5.56%6.24%---- We had $362,126 of variable rate debt with an average interest rate of 5.86% as of December 31, 2007.  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 December 31, 2007, interest expense increases by approximately $3,621 on an annual basis.  The table incorporates only those interest rate exposures that existed as of December 31, 2007.  It does not consider those interest rate exposures or positions that could arise after that date.  The information presented herein is merely an estimate and has limited predictive value.  As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on the interest rate exposures that arise during the period, our hedging strategies at that time, and future changes in the level of interest rates.  47    Item 8.  Consolidated Financial Statements and Supplementary Data  Index  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Page  Reports of Independent Registered Public Accounting Firm 49  Financial Statements:  Consolidated Balance Sheets at December 31, 2007 and 2006 51  Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the years ended December 31, 2007, 2006 and 2005 52  Consolidated Statements of Stockholders' Equity for the years ended December 31, 2007, 2006 and 2005 53  Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005 55  Notes to Consolidated Financial Statements 58  Valuation and Qualifying Accounts (Schedule II) 82  Real Estate and Accumulated Depreciation (Schedule III) 83  MS Inland Fund, LLC Financial Statements  Report of Independent Registered Public Accounting Firm 102 Balance Sheet at December 31, 2007 103 Statement of Operations for the period ended December 31, 2007 104 Statement of Members Equity for the period ended December 31, 2007 105 Statement of Cash Flows for the period ended December 31, 2007 106 Notes to Financial Statements 107 Schedules not filed:  All schedules other than the one listed in the Index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.     48     Report of Independent Registered Public Accounting Firm  The Board of Directors and Stockholders Inland Western Retail Real Estate Trust, Inc.: We have audited the accompanying consolidated balance sheets of Inland Western Retail Real Estate Trust, Inc. (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of operations and other comprehensive income (loss), stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2007.  In connection with our audits of the consolidated financial statements, we also have audited financial statement schedules II and III. These consolidated financial statements and financial statement schedules are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Inland Western Retail Real Estate Trust, Inc. as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.  Also in our opinion, the financial statement schedules when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of quantifying errors in 2006 pursuant to Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Inland Western Retail Real Estate Trust, Inc.s internal control over financial reporting as of December 31, 2007, based on criteria established inInternal Control - Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 31, 2008 expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.  KPMG LLP   Chicago, Illinois March 31, 2008   49    Report of Independent Registered Public Accounting Firm  The Board of Directors and Stockholders Inland Western Retail Real Estate Trust, Inc.:  We have audited Inland Western Retail Real Estate Trust, Inc.s (the Company) internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Inland Western Retail Real Estate Trust, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.  We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.  A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  In our opinion, Inland Western Retail Real Estate Trust, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission..  We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Inland Western Retail Real Estate Trust, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of operations and other comprehensive income (loss), stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2007, and our report dated March 31, 2008 expressed an unqualified opinion on those consolidated financial statements.  KPMG LLP   Chicago, Illinois March 31, 2008  50    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Consolidated Balance Sheets December 31, 2007 and 2006
(In thousands, except per share amounts)   [iwest10k123107final020.gif]     See accompanying notes to consolidated financial statements  51    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Consolidated Statements of Operations and Other Comprehensive Income (Loss)  For the Years Ended December 31, 2007, 2006 and 2005 (In thousands, except per share amounts)   [iwest10k123107final022.gif]    See accompanying notes to consolidated financial statements  52


INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Consolidated Statements of Stockholders' EquityFor the Years Ended December 31, 2007, 2006 and 2005 (In thousands, except per share amounts)   [iwest10k123107final024.gif]      See accompanying notes to consolidated financial statements  53    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Consolidated Statements of Stockholders' Equity(continued)
For the Years Ended December 31, 2007, 2006 and 2005 (In thousands, except per share amounts)    [iwest10k123107final026.gif]               See accompanying notes to consolidated financial statements  54


INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Consolidated Statements of Cash Flows  For the Years Ended December 31, 2007, 2006 and 2005 (In thousands, except per share amounts)  [iwest10k123107final028.gif]        See accompanying notes to consolidated financial statements  55    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Consolidated Statements of Cash Flows  For the Years Ended December 31, 2007, 2006 and 2005 (In thousands, except per share amounts) (continued)  [iwest10k123107final030.gif]  See accompanying notes to consolidated financial statements  56     INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. Consolidated Statements of Cash Flows  For the Years Ended December 31, 2007, 2006 and 2005 (In thousands, except per share amounts) (continued)  [iwest10k123107final032.gif]                          See accompanying notes to consolidated financial statements  57  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   (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 report are stated in thousands with the exception of per share amounts and numbers of properties. The Company, through two public offerings and the merger, sold or issued a total of 459,483 shares of its common stock at $10.00 per share, resulting in gross proceeds including merger consideration of $4,595,192.  In addition, as of December 31, 2007, the Company had issued 46,545 shares through its distribution reinvestment program ("DRP") at $9.50 to $10.00 per share for $451,870 and had repurchased a total of 21,107 shares through its share repurchase program ("SRP") at prices ranging from $9.25 to $10.00 per share for an aggregate cost of $205,331.  As a result, the Company had total shares outstanding of 484,921 and had realized total net offering proceeds, including merger consideration before offering costs, of $4,841,432 as of December 31, 2007. On November 15, 2007, pursuant to an agreement and plan of merger, approved by our shareholders on November 13, 2007, the Company acquired, through a series of mergers, four entities affiliated with its former sponsor, Inland Real Estate Investment Corporation, which entities provided business management/advisory and property management services to it.  Shareholders of the acquired companies received an aggregate of 37,500 shares of the Companys common stock, valued under the merger agreement at $10.00 per share. The Company accounted for the merger transaction as a consummation of a business combination between parties with a pre-existing relationship, in accordance with EITF Issue No. 04-01, Accounting for Preexisting Relationships between Parties to a Business Combination.  According to EITF Issue No. 04-1, the settlement of an executory contract in a business combination as a result of a preexisting relationship should be measured at the lesser of (a) the amount by which the contract is favorable or unfavorable from the perspective of the acquirer when compared to pricing for current market transactions for the same or similar items or (b) any stated settlement provisions in the contract available to the counterparty to which the contract is unfavorable.  The Company has determined that its agreements with its former business manager/advisor and property managers resulted in zero allocation of the purchase price to contract termination costs.  The assets and liabilities of the acquired companies were recorded at their estimated fair value at the date of the transaction.  The purchase price in excess of the fair value of the assets and liabilities of the acquired companies was allocated to goodwill. In determining the purchase price, an independent third party rendered an opinion on the $10.00 per share value of the shares, as well as the aggregate purchase price of $375,000.  Additional costs totaling $4,019 were also incurred as part of the merger transaction consisting of financial and legal advisory services and accounting and proxy related costs.  As part of the merger, the value assigned to these tangible and intangible assets was determined by an independent third party engaged to provide such information.  The following table summarizes the estimated fair values of the allocation of the purchase price: Shares of common stock issued (37,500 shares at $10.00 per share)$375,000Tangible assets acquired(482)Intangible assets(621)Additional merger costs and fees incurred4,019Goodwill$377,916 The following condensed pro forma financial information is presented as if the Companys acquisition of its business manager/advisor and property managers had been consummated as of January 1, 2006, for the pro forma year ended December 31, 2006 and January 1, 2007, for the pro forma year ended December 31, 2007.  The following condensed pro forma financial information is not necessarily indicative of what actual results of operations of the Company would have been assuming the acquisitions had been consummated at the beginning of January 1, 2006, for the pro forma year ended  58  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   December 31, 2006 and January 1, 2007, for the pro forma year ended December 31, 2007, nor does it purport to represent the results of operations for future periods. ProformaYears EndedDecember 31,20072006Total revenues$746,210$692,461Net income$82,952$89,063Net income per common share$0.17$0.19 The Company is qualified and has elected to be taxed as a Real Estate Investment Trust (REIT) under the Internal Revenue Code of 1986, as amended, commencing with the tax year ending December 31, 2003.  Since the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal income tax as taxable income that is distributed to stockholders.  If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate tax rates.  Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and federal income and excise taxes on its undistributed income.  The Company has one wholly-owned subsidiary that has elected to be treated as a taxable REIT subsidiary (TRS) for federal income tax purposes.  A TRS is taxed on its net income at regular corporate rates.  The income tax expense incurred as a result of the TRS does not have a material impact on the Companys accompanying consolidated financial statements.  On November 15, 2007, the Company acquired four qualified REIT subsidiaries.  Their income will be consolidated with REIT income for federal and state income tax purposes. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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.  Actual results could differ from those estimates. Certain reclassifications have been made to the 2006 and 2005 consolidated financial statements to conform to the 2007 presentation. During 2007, as part of its lease accounting and account reconciliation processes, the Company determined that it had understated the prior years revenues and expenses by a net amount of approximately $710, or $0.002 per common share.  The errors were not considered material to the results of operations of any prior period or the current period.  Therefore, certain adjustments related to these revenues and expenses have been recognized. The accompanying consolidated financial statements include the accounts of the Company, as well as all wholly-owned subsidiaries and consolidated joint venture investments.  Wholly-owned subsidiaries generally consist of limited liability companies (LLCs) and limited partnerships (LPs).  The effects of all significant intercompany transactions have been eliminated. The Company consolidates certain property holding entities and other subsidiaries in which it owns less than a 100% equity interest if the entity is a variable interest entity and the Company is the primary beneficiary (as defined in FASB Interpretation (FIN) 46(R): Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, as revised).  Following consideration under FIN 46(R), if required, the Company also evaluates applicable partially-owned entities under Emerging Issues Task Force ("EITF") Issue No. 04-5: Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity when the Limited Partners Have Certain Rightsfor consolidation considerations.  The Company has ownership interests ranging between 5% and 95% in the LLCs or LPs  59  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   which own 12 of the operating properties in its portfolio.  The Company has also made investments in nine real estate development joint ventures.  Under the guidance of FIN 46(R) and EITF 04-5, these entities, with the exception of three development joint ventures, are consolidated by the Company. 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 minority interest partners in these partially owned properties 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 the outside owner reflected as a financing and included in Other financings in the accompanying consolidated balance sheets.  Interest expense is recorded on such liabilities in amounts generally equal to the preferred returns due to the outside owners as provided in the LLC or LP agreements.  Outside ownership interests of $37,825 in two entities previously included in Other financings were redeemed by the Company during the year ended December 31, 2007.  These redemptions were treated as debt extinguishments for financial reporting purposes. The Company has entered into an agreement with an LLC formed as an insurance association captive (Captive), which is wholly-owned by the Company, two affiliated entities, Inland Real Estate Corporation and Inland American Real Estate Trust, Inc., and one non-affiliated entity which withdrew from the Captive in October 2007, at the approval of the members.  The Captive is serviced by an affiliate, Inland Risk and Insurance 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 with $750 in cash in 2006, of which the Companys initial contribution was $188.  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.  These losses will be paid by the Captive up to and including a certain dollar limit, after which the losses are covered by a third-party insurer.  It has been determined that under FIN 46(R), the Captive is a variable interest entity and the Company is the primary beneficiary.  Therefore, the Captive has been consolidated by the Company.  The other members interests are reflected as minority interests in the accompanying consolidated financial statements. On March 1, 2007, and December 31, 2007, the Company transferred real estate and investments in consolidated and unconsolidated joint ventures to certain joint venture partners in redemption of their interest in the ventures.  The transactions were accounted for at fair value with the estimated fair value of the non-monetary assets (including $2,581 of cash and cash equivalents) and resulted in an aggregate gain of $389 on redemption of minority interest.  Such gain is included in Other income (expense) in the accompanying consolidated statement of operations and was fully allocated to the minority interest partners pursuant to the joint venture agreements. Minority interests are adjusted for additional contributions by minority holders and distributions to minority holders as well as the minority holders share of the net earnings or losses of each respective entity. (2) Summary of Significant Accounting Policies Revenue Recognition:The Company commences revenue recognition on its leases based on a number of factors.  In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset.  Generally, this occurs on the lease commencement date.  The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins.  If the Company is the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete.  If the Company concludes it is not the owner, for accounting  60  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives which reduces revenue recognized over the term of the lease.  In these circumstances, the Company begins revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements.  The Company considers a number of different factors to evaluate whether it or the lessee is the owner of the tenant improvements for accounting purposes.  These factors include: · whether the lease stipulates how and on what a tenant improvement allowance may be spent; · whether the tenant or landlord retains legal title to the improvements; · the uniqueness of the improvements; · the expected economic life of the tenant improvements relative to the length of the lease; and · who constructs or directs the construction of the improvements.  The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment.  In making that determination, the Company considers all of the above factors.  No one factor, however, necessarily establishes its determination. Rental income is recognized on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of Accounts and rents receivable in the accompanying consolidated balance sheets. Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period the applicable expenditures are incurred.  The Company makes certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. The Company records lease termination income if there is a signed termination letter agreement, all of the conditions of the agreement have been met, and the tenant is no longer occupying the property. Upon early lease termination, the Company provides for losses related to unrecovered intangibles and other assets. Staff Accounting Bulletin ("SAB") No. 101: Revenue Recognition in Financial Statements, provides that a lessor should defer recognition of contingent rental income (i.e. percentage/excess rent) until the specified target (i.e. breakpoint) that triggers the contingent rental income is achieved.  The Company records percentage rental revenue in accordance with SAB 101. In conjunction with certain acquisitions, the Company receives payments under master lease agreements pertaining to certain non-revenue producing spaces either at the time of, or subsequent to, the purchase of these properties.  Upon receipt of the payments, the receipts are recorded as a reduction in the purchase price of the related properties rather than as rental income.  These master leases were established at the time of purchase in order to mitigate the potential negative effects of loss of rent and expense reimbursements.  Master lease payments are received through a draw of funds escrowed at the time of purchase and generally cover a period from three months to three years.  These funds may be released to either the Company or the seller when certain leasing conditions are met. The Company accounts for profit recognition on sales of real estate in accordance with Financial Accounting Standards Boards (FASB) Statement of Financial Accounting Standards (SFAS) No. 66: Accounting for Sales of Real Estate.  In summary, profits from sales will not be recognized under the full accrual method by the Company unless a sale is consummated; the buyers initial and continuing investments are adequate to demonstrate a commitment to pay for the property; the Companys receivable, if applicable, is not subject to future subordination; the Company has transferred to the buyer the usual risks and rewards of ownership; and the Company does not have substantial continuing involvement with the property.  61  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   Cash and Cash Equivalents:The Company considers all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements purchased with a maturity of three months or less, at the date of purchase, to be cash equivalents. The Company maintains its cash and cash equivalents at financial institutions.  The combined account balances at one or more institutions periodically exceed the Federal Depository Insurance Corporation ("FDIC") insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.  The Company believes that the risk is not significant, as the Company does not anticipate the financial institutions' non-performance. Marketable Securities and Other Investments:All publicly traded equity securities are classified as "available for sale" and carried at fair value, with unrealized gains and losses reported as a separate component of stockholders' equity.  Private investments, for which we do not have the ability to exercise significant influence, are accounted for at cost.  Declines in the value of public and private investments that management determines are other than temporary are recorded as realized loss on investment securities. To determine whether an impairment is other than temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary.  Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year end and forecasted performance of the investee. Real Estate:Real estate acquisitions are recorded at cost less accumulated depreciation. Ordinary repairs and maintenance are expensed as incurred. The Company allocates the purchase price of each acquired investment property between land, building and improvements, acquired above market and below market leases, in-place lease value, any assumed financing that is determined to be above or below market terms and the value of the customer relationships, if any. The allocation of the purchase price is an area that requires judgment and significant estimates.  The Company uses the information contained in the independent appraisal obtained upon acquisition of each property as the primary basis for the allocation to land and building and improvements. The Company determines whether any financing assumed is above or below market based upon comparison to similar financing terms for similar investment properties.  The Company allocates a portion of the purchase price to the estimated acquired in-place lease costs based on estimated lease execution costs for similar leases as well as lost rent payments during an assumed lease-up period when calculating as-if-vacant fair values.  The Company considers various factors including geographic location and size of leased space.  The Company also evaluates each significant acquired lease based upon current market rates at the acquisition date and considers various factors including geographical location, size and location of leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired lease is above or below market.  If an acquired lease is determined to be above or below market, the Company allocates a portion of the purchase price to such above or below market acquired lease based upon the present value of the difference between the contractual lease rate and the estimated market rate.  For below market leases with fixed rate renewals, renewal periods are included in the calculation of below market lease values. The determination of the discount rate used in the present value calculation is based upon the "risk free rate." This discount rate is a significant factor in determining the market valuation which requires the Company's judgment of subjective factors such as market knowledge, economics, demographics, location, visibility, age and physical condition of the property. The portion of the purchase price allocated to acquired in-place lease intangibles is amortized on a straight-line basis over the life of the related lease as a component of depreciation and amortization expense.  The Company incurred amortization expense pertaining to acquired in-place lease intangibles of $60,922, $55,178 and $40,345 for the years ended December 31, 2007, 2006 and 2005, respectively. The portion of the purchase price allocated to customer relationship value is amortized on a straight-line basis over the life of the related lease as a component of depreciation and amortization expense.  The Company incurred amortization expense pertaining to customer relationship value of $784, $97 and $89 for the years ended December 31, 2007, 2006 and  62  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   2005.  The increase in amortization expense is due to the write-off of the customer relationship value relating to a tenant for which there is no continuing value. The portion of the purchase price allocated to acquired above market lease costs and acquired below market lease costs is amortized on a straight-line basis over the life of the related lease as an adjustment to rental income and over the respective renewal period for below market lease costs with fixed rate renewals.  Amortization pertaining to the above market lease costs of $8,284, $8,621 and $7,219 was applied as a reduction to rental income for the years ended December 31, 2007, 2006 and 2005, respectively.  Amortization pertaining to the below market lease costs of $12,108, $11,278 and $12,714 was applied as an increase to rental income for the years ended December 31, 2007, 2006 and 2005, respectively. The following table presents the amortization during the next five years related to the acquired in-place lease intangibles, acquired above market lease costs and acquired below market lease costs for properties owned at December 31, 2007. [iwest10k123107final034.gif] Depreciation expense is computed using the straight-line method.  Buildings and improvements are depreciated based upon estimated useful lives of 30 years for buildings and associated improvements and 15 years for site improvements and most other capital improvements. Tenant improvements and leasing fees are amortized on a straight-line basis over the life of the related lease as a component of depreciation and amortization expense. Assets Held For Sale:In determining whether to classify an asset as held for sale, we consider whether: (i) management has committed to a plan to sell the asset; (ii) the asset is available for immediate sale, in its present condition; (iii) we have initiated a program to locate a buyer; (iv) we believe that the sale of the asset is probable; (v) we have received a significant non-refundable deposit for the purchase of the property; (vi) we are actively marketing the asset for sale at a price that is reasonable in relation to its current value; and (vii) actions required for us to complete the plan indicate that it is unlikely that any significant changes will be made to the plan. If all of the above criteria are met, we classify the asset as held for sale.  On the day that these criteria are met, we suspend depreciation on the assets on the assets held for sale, including depreciation for tenant improvements and additions, as well as on the amortization of acquired in-place leases and customer relationship values.  The assets and liabilities associated with those assets that are held for sale are classified separately on the consolidated balance sheets for the most recent reporting period.  Additionally, the operations for the periods presented are classified on the consolidated statements of operations and other comprehensive income as discontinued operations for all periods presented. Loan fees are amortized using the effective yield method over the life of the related loans as a component of interest expense. Differences between the carrying amounts of investments in unconsolidated joint ventures and the Company's equity in the underlying assets are depreciated on a straight-line basis over the useful lives of the joint venture assets to which such differences are allocated. In accordance with the SFAS No. 144: Accounting for the Impairment or Disposal of Long-Lived Assets,the Company performs a quarterly analysis to identify impairment indicators to ensure that each investment property's carrying value does not exceed its fair value. If an impairment indicator is present, the Company performs an undiscounted cash flow  63  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   valuation analysis based upon many factors which require difficult, complex or subjective judgments to be made.  Such assumptions include projecting vacancy rates, rental rates, operating expenses, lease terms, tenant financial strength, economy, demographics, property location, capital expenditures and sales value among other assumptions to be made upon valuing each property.  This valuation is sensitive to the actual results of any of these uncertain factors, either individually or taken as a whole.  Based upon the Company's judgment, no impairment was warranted for the years ended December 31, 2006 or 2005.  For the year ended December 31, 2007, $13,560 of impairment was warranted. In accordance with FIN No. 47: Accounting for Conditional Asset Retirement Obligations, the Company evaluates the potential impact of conditional asset retirement obligations on its consolidated financial statements.  FIN 47 clarifies that the term conditional asset retirement obligation as used in SFAS No. 143: Accounting for Asset Retirement Obligations refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity.  Thus, the timing and/or method of settlement may be conditional on a future event.  FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.  Based upon the Company's judgment, asset retirement obligations did not have a significant impact on the accompanying consolidated financial statements. Development Projects:  The Company capitalizes costs incurred during the development period such as construction, insurance, architectural costs, legal fees, interest and other financing costs, and real estate taxes.  At such time as the development is considered substantially complete, those costs included in construction in progress are reclassified to land and building and other improvements.  Development payables of $2,262 at December 31, 2007 consist of costs incurred and not yet paid pertaining to the development projects and are included within accounts payable on the accompanying consolidated financial statements. Partially-Owned Entities:  If the Company determines that it is an owner in a variable interest entity within the meaning of FIN 46(R): Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, as revised and that its variable interest will absorb a majority of the entity's expected losses if they occur, receive a majority of the entity's expected residual return if it occurs, or both, then it will consolidate the entity. Following consideration under FIN 46 (R), in accordance with EITF Issue No. 04-5: Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity when the Limited Partners Have Certain Rights, the Company evaluates applicable partially-owned entities for consolidation.  At issue in EITF No. 04-5 is what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would consolidate the limited partnership in accordance with U.S. generally accepted accounting principles.  Finally, the Company generally consolidates entities (in the absence of other factors when determining control) when it has over a 50% ownership interest in the entity.  However, the Company also evaluates who controls the entity even in circumstances in which it has greater than a 50% ownership interest.  If the Company does not control the entity due to the lack of decision-making abilities, it will not consolidate the entity even if it has greater than a 50% ownership interest. Notes Receivable:Notes receivable relate to real estate financing arrangements and bear interest at a market rate based on the borrower's credit quality and are recorded at face value.  Interest is recognized over the life of the note.  The Company requires collateral for the notes. A note is considered impaired in accordance with SFAS No. 114: Accounting by Creditors for Impairment of a Loan.  Pursuant to SFAS No. 114, a note is impaired if it is probable that the Company will not collect all principal and interest contractually due.  The impairment is measured based on the present value of expected future cash flows discounted at the note's effective interest rate.  The Company does not accrue interest when a note is considered impaired.  When ultimate collectability of the principal balance of the impaired note is in doubt, all cash receipts on the impaired note are applied to reduce the principal amount of the note until the principal has been recovered and are recognized as interest income thereafter.  Based upon the Company's judgment, no notes receivable were impaired as of December 31, 2007 or 2006. Allowance for Doubtful Accounts: The Company periodically evaluates the collectability of amounts due from tenants and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under the lease agreements.  The Company also maintains an allowance for receivables arising from the  64  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   straight-lining of rents.  This receivable arises from revenue recognized in excess of amounts currently due under the lease agreements.  Management exercises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates. Rental Expense:Rental expense associated with land that the Company leases under non-cancelable operating leases is recorded on a straight-line basis over the term of each lease.  The difference between rental expenses incurred on a straight-line basis and rent payments due under the provisions of the lease agreement is recorded as a deferred liability and is included as a component of other liabilities in the accompanying consolidated balance sheets. Restricted Cash and Escrows:Restricted cash and escrows include funds received by third party escrow agents from sellers pertaining to master lease agreements.  The Company records the third party escrow funds as both an asset and a corresponding liability, until certain leasing conditions are met.Restricted cash and escrows also consist of lenders' escrows and funds restricted through joint venture arrangements. Stock Options:The Company adopted SFAS No. 123(R):Share-Based Paymenton January 1, 2006.This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS No. 123. The provisions of SFAS No. 123(R) have not and are not expected to have a significant impact on the Company's consolidated financial statements.  The Company applied the fair value method of accounting as prescribed by SFAS No. 123: Accounting for Stock-Based Compensationfor its stock options granted to its independent directors.  Under this method, the Company reports the value of granted options as a charge against earnings ratably over the vesting period. Fair Value of Debt:The carrying amount of the Company's debt and other financings is approximately $144,709 higher than its fair value.  The Company estimates the fair value of its mortgages payable by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Company's lenders.  The carrying amount of the Company's other financial instruments approximate fair value because of the relatively short maturity of these instruments. Adoption of Staff Accounting Bulletin No. 108 In September 2006, the Securities and Exchange Commission published SAB No. 108: Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements.  The interpretations in SAB 108 express the SECs staffs views regarding the process of quantifying financial statement misstatements.  The staffs interpretations resulted from their awareness of a diversity in practice as to how the effect of prior year errors were considered in relation to current year financial statements.  Through SAB 108, the staff communicated its belief that allowing prior year errors to remain unadjusted on the balance sheet is not in the best interest of the users of financial statements. SAB 108 became effective for the Company for the year ended December 31, 2006. In adopting SAB 108, the Company changed its methods of evaluating financial statement misstatements from a rollover (income statement-oriented) approach to SAB 108s dual-method (both an income statement and balance sheet-oriented) approach.  In doing so, the Company identified three misstatements previously considered immaterial to all previous periods under the rollover method but material when evaluated together under the dual-method, as described below.  These misstatements were corrected upon adoption of SAB 108 through a cumulative effect adjustment to stockholders equity as of January 1, 2006. Recording of Below Market Lease Intangibles The Company had underestimated previously recorded below market lease liabilities and overestimated amortization of below market leases due to the exclusion of certain fixed rent renewal periods and market rents utilized during the initial year of its operations.  In addition, the Company determined that the market rates used in the original below market analyses for certain acquisitions were inappropriate and required adjustments based upon comparable leases and analyses  65  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   by its property managers.  These errors resulted in the Company overstating its 2005 and 2004 net income by an aggregate amount of $3,637. Recognition of Ancillary Taxes The Company had previously accounted for its ancillary taxes in the period of payment due to the immaterial nature of these taxes, which were expected to not give rise to significant out-of-period adjustments.  However, in reviewing the tax amounts paid and recorded in the 1st and 2nd quarters of 2006, it was determined that there was an overstatement of tax expense in 2006 for payments relating to 2005 taxes.  These errors resulted in an overstatement of 2005 net income by $1,056.  Since the third quarter of 2006, ancillary taxes have been recorded on an accrual basis. Cumulative Effect of Adopting SAB 108 As a result of applying the guidance in SAB 108 during the year ended December 31, 2006, the Company recorded a reduction of $4,693 to stockholders equity (accumulated distributions in excess of net income) in its opening balance sheet to correct the effect of the errors associated with the recording of below market lease intangibles and recognition of ancillary taxes, described above. New Accounting Pronouncements In September 2006, the FASB issued SFAS No. 157: Fair Value Measurements.  This Statement defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements.  This Statement applies to accounting pronouncements that require or permit fair value measurements, except for share-based payments transactions under SFAS No. 123(R).  This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007.  As SFAS No. 157 does not require any new fair value measurements or remeasurements of previously computed fair values, the Company does not believe adoption of this Statement will have a material effect on its consolidated financial statements.  In February 2007, the FASB issued FASB Staff Position FAS 157-2, which delays the effective date of SFAS 157 for non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008. In February 2007, the FASB issued SFAS No. 159: The Fair Value Option for Financial Assets and Financial Liabilities.  This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value.  The Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities.  SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, although early application is allowed.  The Company is currently evaluating the application of this Statement and its effect on the Companys consolidated financial statements. In December 2007, the FASB issued SFAS No. 141R: Business Combinations, which requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at "full fair value."  Under SFAS 141R, all business combinations will be accounted for by applying the acquisition method.  SFAS 141R is effective for periods beginning on or after December 15, 2008.  The Company is currently evaluating the application of this statement and its effect upon the Companys consolidated financial statements. In December 2007, the FASB issued SFAS No. 160: Noncontrolling Interests in Consolidated Financial Statements.  SFAS 160 will require noncontrolling interests (previously referred to as minority interests) to be treated as a separate component of equity, not as a liability or other item outside of permanent equity.  In addition, the statement applies to the accounting for noncontrolling interests and transactions with noncontrolling interest holders in consolidated financial statements.  SFAS 160 is effective for periods beginning on or after December 15, 2008.  The Company is currently evaluating the application of this statement and its effect upon the Companys consolidated financial statements.  66  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   (3)  Discontinued Operations 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 calls for the Company to sell properties that do not measure up to its standards and re-deploy the sales proceeds into new, higher quality acquisitions and developments that are expected top generate sustainable revenue growth and more attractive returns. On November 29, 2007, the Company closed on the sale of four American Express properties with an aggregate sale price of $270,800 which resulted in net proceeds of $115,587.  Three of the properties are located in United States and one is located in Canada with approximately 1,562 square feet in total.  The Company recognized a gain on the sale of operating properties of $19,564 and a $17,732 gain on the extinguishment of debt relating to $150,460 of debt assumed by the purchaser.  The Company also wrote off approximately $970 in customer relations value on the remaining American Express properties due to this sale.  The Company does not allocate general corporate interest expense to discontinued operations. (4)  Transactions with Affiliates On November 15, 2007, the Company acquired its business manager/advisor and property managers in exchange for 37,500 newly issued shares of our stock.   The business manager/advisor and property managers became subsidiaries of the Company.  As part of the acquisition, the Company gained 239 experienced employees to perform the business manager/advisor functions and operate the property management companies. Agreements Terminated Upon Consummation of the Merger Prior to the merger on November 15, 2007, the Company paid an advisor asset management fee of not more than 1% of the average invested assets to its former business manager/advisor.  Average invested asset value is defined as the average of the total book value, including acquired intangibles, of the Companys real estate assets plus the Companys loans receivable secured by real estate, before reserves for depreciation, reserves for bad debt or other similar non-cash reserves.  The Company computed the average invested assets by taking the average of these values at the end of each month for which the fee is being calculated.  The fee was payable quarterly in an amount equal to 1/4 of up to 1% of the Companys average invested assets as of the last day of the immediately preceding quarter.  Based upon the maximum allowable advisor asset management fee of 1% of the Companys average invested assets, maximum fees of $68,083, $74,895 and $54,993 were allowed for the years ended December 31, 2007, 2006 and 2005, respectively.  The Company incurred actual fees to its former business manager/advisor totaling $23,750, $39,500 and $20,925, which represented 35%, 53% and 38% of the maximum fees allowed for the years ended December 31, 2007, 2006 and 2005, respectively.  The maximum allowable advisor management fee and the advisor asset management fee incurred for the year ended December 31, 2007 were both prorated through November 15, 2007, the date of the merger.  As of December 31, 2007 and 2006, none and $9,000, respectively, remained unpaid and are included in Other liabilities in the accompanying consolidated balance sheets.  The business manager/advisor agreed to forego any fees allowed but not taken on an annual basis. The business manager/advisor and its affiliates were also entitled to reimbursement for general and administrative costs, primarily salaries, relating to the Companys administration and acquisition of properties.  For the year ended December 31, 2007, 2006 and 2005, the Company incurred $873, $998 and $1,096, respectively, of these costs.  Of these costs, $404 and $152 remained unpaid as of December 31, 2007 and 2006, respectively and are included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets. In 2005, the Company entered into a subscription agreement with Minto Builders (Florida), Inc. (MB REIT), an entity consolidated by one of its affiliates, Inland American Real Estate Trust, Inc. (Inland American), to purchase newly issued series C preferred shares at a purchase price of $1,276 per share.  Under the agreement, MB REIT had the right to redeem any series C preferred shares it issued to the Company with the proceeds of any subsequent capital contributed by Inland American.  MB REIT was required to redeem any and all outstanding series C preferred shares held by the  67  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   Company by December 31, 2006 and did so during the fourth quarter of 2006, redeeming a total of $264,003 the Company had invested.  The series C preferred shares, while outstanding, entitled the Company to an annual dividend equal to 7.0% on the face amount of the series C preferred shares, which was payable monthly.  The Company evaluated its investment in MB REIT under FIN 46(R) and determined that MB REIT was a variable interest entity but that the Company was not the primary beneficiary.  Due to the Companys lack of influence over the operating and financial policies of the MB REIT,this investment is accounted for under the cost method in which investments are recorded at their original cost.  As of December 31, 2005, the Company had invested $224,003 in these shares.  An additional $40,000 was invested during 2006 and the total of $264,003 was redeemed during the fourth quarter of 2006.  The Company earned $16,489 and $2,100 in dividend income related to this investment during the years ended December 31, 2006 and 2005, respectively.  None of the dividend remained unpaid as of December 31, 2006. The Company entered into an arrangement with Inland American whereby the Company was paid to guarantee customary non-recourse carve out provisions of Inland Americans financings until such time as Inland American reached a net worth of $300,000.  The Company evaluated the accounting for the guarantee arrangements in accordance with FIN No. 45: Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and recorded the fair value of the guarantees and amortized the liability over the guarantee period of one year.  The fee arrangement called for a fee of $50 annually for loans equal to and in excess of $50,000 and $25 annually for loans less than $50,000.  The Company recorded fees totaling $149, for the year ended December 31, 2006, all of which had been received as of that date.  The Company was released from all obligations under this arrangement during 2006. Agreements Surviving Merger The property managers were entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services through November 15, 2007, the date of the merger.  The Company incurred property management fees of $30,036, $29,800 and $20,686 for the years ended December 31, 2007, 2006 and 2005, respectively.  In addition, the Company reimbursed the property managers for certain salaries and related employee benefits totaling $5,423, $5,313 and $2,268 for the years ended December 31, 2007, 2006 and 2005, respectively.  No amounts remained unpaid as of December 31, 2007 and 2006.  Subsequent to the mergers, the property managers are entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services, all of which are eliminated in the consolidated financial statements. An affiliate also provides investment advisory services to the Company related to the Companys securities investments for an annual fee.  The affiliate has full discretionary authority with respect to the investment and reinvestment of assets in that account, subject to investment guidelines the Company provides to them.  The affiliates have also been granted a power of attorney and proxy to tender or direct the voting or tendering of all investments held in the account.  The fee is incremental based upon the aggregate market value of assets invested.  Based upon the Companys assets invested, the fee was equal to 0.75% per annum (paid monthly) of aggregate market value of assets invested.  The Company incurred fees totaling $2,107, $1,961 and $536 for the years ended December 31, 2007, 2006 and 2005, respectively.  As of December 31, 2007 and 2006, $325 and $362, respectively, remained unpaid and are included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination. An affiliate provides loan servicing for the Company.  Effective May 1, 2005, the loan servicing agreement stipulated that if the number of loans being serviced exceeded one hundred, a monthly fee was charged in the amount of 190 dollars per month, per loan being serviced.  Effective April 1, 2006, the agreement was amended so that if the number of loans being serviced exceeded one hundred, a monthly fee of 150 dollars per month, per loan was charged.  Effective May 1, 2007, the agreement was again amended so that if the number of loans being serviced exceeds two hundred, a monthly fee of 125 dollars per month, per loan is charged.  Such fees totaled $562, $696 and $534 for the years ended December 31, 2007, 2006 and 2005, respectively.  As of December 31, 2007 and 2006, none and $24, respectively, remained unpaid and are included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.  The  68  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of such termination. An affiliate facilitates the mortgage financing the Company obtains on some of its properties.  The Company pays the affiliate 0.2% of the principal amount of each loan obtained on the Companys behalf.  Such costs are capitalized as loan fees and amortized over the respective loan term as a component of interest expense.  For the years ended December 31, 2007 and 2006, the Company paid loan fees totaling $873 and $1,051, respectively, to this affiliate.  As of December 31, 2007 and 2006, none remained unpaid.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of such termination. Agreements Entered Into Upon Consummation of the Merger The Company terminated its existing acquisition agreement with an Inland affiliate and entered into a new property acquisition agreement and a transition property due diligence services agreement with that affiliate.  In connection with the Companys acquisition of new properties, the affiliate will give the Company a first right as to all retail, mixed use and single tenant properties and, if requested, provide various services including services to negotiate property acquisition transactions on our behalf and prepare suitability, due diligence, and preliminary and final pro forma analyses of properties proposed to be acquired.  The Company will pay all reasonable, third party out-of-pocket costs incurred by this entity in providing such services; pay an overhead cost reimbursement of $12 per transaction; and, to the extent these services are requested by it, pay a cost of $7 for due diligence expenses and a cost of $25 for negotiation expenses per transaction.  As of December 31, 2007, the Company has not incurred any such costs under the new agreement.  For the year ended December 31, 2007, 2006 and 2005, the Company incurred $134, $363 and $1,184, respectively, of these costs.  Of these costs, $27 and $25 remained unpaid as of December 31, 2007 and 2006, respectively and are included in Accounts payable and accrued expense in the accompanying consolidated balance sheets.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination. The Company entered into an institutional investor relationships services agreement with an Inland affiliate.  Under the terms of the agreement, the Inland affiliate will attempt to secure institutional investor commitments in exchange for advisory and client fees and reimbursement of project expenses.  For the year ended December 31, 2007, 2006 and 2005, the Company incurred $257, $137 and none, respectively, of these costs.  Of these costs, none and $137 remained unpaid as of December 31, 2007 and 2006, respectively and are included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination. An Inland affiliate also entered into a legal services agreement with the Company, primarily with its business manager/advisor, where that affiliate will provide it with certain legal services in connection with our real estate business.  The Company will pay the affiliate for legal services rendered under the agreement on the basis of actual time billed by attorneys and paralegals at the affiliate's hourly billing rate then in effect in increments of one-tenth of one hour.  The billing rate is subject to change on an annual basis, provided, however, that the billing rates charged by the affiliate will not be greater than the billing rates charged to any other client and will not be greater than 90% of the billing rate of attorneys of similar experience and position employed by nationally recognized law firms located in Chicago, Illinois performing similar services.  For the year ended December 31, 2007, 2006 and 2005, the Company incurred $897, $705 and $1,884, respectively, of these costs.  Of these costs, $141 and $150 remained unpaid as of December 31, 2007 and 2006, respectively and are included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.  The agreement is non-exclusive as to both parties and is cancellable by providing not less than 180 days prior written notice and specification of the effective date of said termination. The Company entered into consulting agreements with Daniel L. Goodwin, Robert D. Parks, the Companys chairman, and G. Joseph Cosenza, who will each provide it with strategic assistance for the term of their respective agreement including making recommendations and providing guidance to the Company as to prospective investment, financing, acquisition, disposition, development, joint venture and other real estate opportunities contemplated from time to time by  69  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   it and its board of directors.  The consultants will also provide additional services as may be reasonably requested from time to time by the Companys board of directors.  The term of each agreement runs until November 15, 2010 unless terminated earlier.  The Company may terminate these consulting agreements at any time.  The consultants will not receive any compensation for their services, but the Company will reimburse their expenses in fulfilling their duties under the consulting agreements.   There were no reimbursements under the consulting agreements in 2007. The Company entered into amendments to each of its existing service agreements with certain affiliates, including an amendment to its office and facilities management services agreement, insurance and risk management services agreement, computer services agreement, personnel services agreement, property tax services agreement and communications services agreement.  Generally these agreements and the amendments provide that the Company can obtain certain services from the affiliates for reimbursement of their general and administrative costs relating to the Companys administration and acquisition of properties.  For the year ended December 31, 2007, 2006 and 2005, the Company incurred $3,092, $1,334 and $945, respectively, of these costs.  Of these costs, $900 and $203 remained unpaid as of December 31, 2007 and 2006, respectively and are included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.  The amendments provide that the services provided under the terms of the applicable services agreement are to be provided on a non-exclusive basis in that the Company shall be permitted to employ other parties to perform any one or more of the services and that the applicable counterparty shall be permitted to perform any one or more of the services to other parties.  The agreement and related amendments have various expiration dates but are cancellable by providing not less than 180 days prior written notice and specification of the effective date of such termination. The Company sub leases its office space from an affiliate.  The lease calls for annual base rent of $496 and additional rent in any calendar year of its proportionate share of taxes and common area maintenance costs.  Additionally, the affiliate paid certain tenant improvements under the lease in the amount of $395.  Such improvements are being repaid by the Company over a period of five years.  The sublease calls for an initial term of five years which expires November 2012 with one option to extend for an additional five years. (5)  Marketable Securities Investment in marketable securities of $240,493 and $281,262 at December 31, 2007 and 2006, respectively, consists of preferred and common stock investments and debt securities which are classified as available-for-sale securities and recorded at fair value.  Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported as a separate component of other comprehensive income until realized.  Of the investment securities held on December 31, 2007 and 2006, the Company had accumulated other comprehensive losses of $47,607 and gains of $1,390, respectively.  Net unrealized gains (losses) were equal to $(48,997), $2,553 and $(1,404) for the years ended December 31, 2007, 2006 and 2005, respectively.  Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis.  During the years ended December 31, 2007, 2006 and 2005, we realized gains (losses) of $(19,967), $416 and $1 on the sales of securities.  Dividend income is recognized when earned.  During the years ended December 31, 2007, 2006 and 2005, dividend income of $23,729, $37,501 and $7,561, respectively, was earned on marketable securities and is included within Dividend income on the accompanying consolidated statements of operations.  As of December 30, 2007 and 2006, $2,856 and $2,235 of dividend income remained unpaid, respectively, and is included in Other assets on the accompanying consolidated balance sheets. Gross unrealized losses on marketable securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2007 were as follows:  70  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   [iwest10k123107final036.gif] The table includes 98 security positions which were at an unrealized loss position at December 31, 2007. The Company purchased a portion of its securities through a margin account. As of December 31, 2007 and 2006, the Company had recorded a payable of $108,040 and $78, respectively, for securities purchased on margin.  This debt bears variable interest rates ranging between the London InterBank Offered Rate ("LIBOR") plus 25 basis points and LIBOR plus 50 basis points.  At December 31, 2007, these rates were equal to a range between 4.85% and 5.10%.  Interest expense on this debt in the amount of $3,481 and $6,078 was recognized within interest expense on the accompanying consolidated statements of operations for the years ended December 31, 2007 and 2006, respectively.  This debt is due upon demand.  The value of the Companys marketable securities at December 31, 2007 and 2006 serves as collateral for this debt. (6)  Stock Option Plan The Company has adopted an Independent Director Stock Option Plan (the "Plan") which, subject to certain conditions, provides for the grant to each independent director of 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 stockholders meeting. The options for the initial shares are all currently exercisable.  The subsequent options are exercisable on the second anniversary of the date of grant. The initial options are exercisable at $8.95 per share. The subsequent options are exercisable at the fair market value of a share on the last business day preceding the annual meeting of stockholders as determined under the Plan. As of December 31, 2007 and 2006, there had been a total of 23 options issued, none of which had been exercised or expired. The Company calculates the per share weighted average fair value of options granted on the date of the grant using the Black Scholes option pricing model utilizing certain assumptions regarding the expected dividend yield, risk free interest rate, expected life and expected volatility rate.  Expense of $2 related to stock options was recorded during each of the years ended December 31, 2007, 2006 and 2005. (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 reduction in the purchase price of the respective property rather than as rental income.  The cumulative amount of such payments was $22,279, $17,488 and $9,829 as of December 31, 2007, 2006 and 2005, respectively. Operating Leases The majority of the 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  71  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   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 in the accompanying consolidated statements of operations.  Under net leases where all expenses are paid by the landlord, subject to reimbursement by the tenant, the expenses are included within property operating expenses and reimbursements are included in tenant recovery income in the accompanying consolidated statements of operations. 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 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 within property operating expenses and sales tax reimbursements are included within other property income on the consolidated statements of operations.  Such taxes remitted to governmental authorities and reimbursed by tenants were $2,820,$2,661 and $2,087 for the years ended December 31, 2007, 2006 and 2005, respectively. A lease termination by a major tenant could result in lease terminations or reductions in rent by other tenants whose leases permit cancellation or rent reduction if a major tenant's lease is terminated.  In certain properties where there are large tenants, other tenants may require that if certain large tenants or "shadow" tenants discontinue operations, a right of termination or reduced rent may exist under the tenants leases. Minimum lease payments to be received under operating leases, excluding payments under master lease agreements and assuming no expiring leases are renewed, are as follows: Minimum LeasePayments2008$560,7382009536,4462010506,7322011473,9012012436,853Thereafter2,647,897Total$5,162,567 The remaining lease terms range from one year to 25 years. Ground Leases The Company leases land under non-cancelable operating leases at certain of the properties expiring in various years from 2018 to 2105. For the years ended December 31, 2007, 2006 and 2005, ground lease rent expense was $9,445, $9,085 and $7,679, respectively.  Minimum future rental payments to be paid under the ground leases are as follows: Minimum LeasePayments2008$5,58320095,80920105,81820115,99720126,122Thereafter529,715Total$559,044  72  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements     (8)  Notes Receivable The Company has provided mortgage and development financing to third-parties.  These entities are considered variable interest entities under FIN 46(R); however, the Company believes it is not the primary beneficiary of any of the entities and accordingly, the Company does not consolidate them. The following table summarizes the Company's notes receivable at December 31, 2007 and 2006: BalanceNotesInterest RatesMaturity DatesSecured ByMaximum Funding CommitmentDecember 31, 2007Construction Loans   Receivable$26,41837.48 %, 7.00%, and 8.65 %03/08, 10/08 and 02/09First Mortgage$36,180Other Installment Notes7,38345.00%, 6.25%, 10.00% and 8.00%06/09, 05/10, 02/48 and 05/17N/A7,390$33,801$43,570December 31, 2006Mortgage Notes Receivable$6,99516.75%10/07First Mortgage$7,324Construction Loans   Receivable105,41037.00%, 7.48% and 8.50%05/07, 10/07 and 05/08First Mortgage136,830Other Installment Notes17,50025.00% and 10.00%12/07 and 02/48N/A17,500$129,905$161,654 (9)  Mortgages and Note Payable Mortgages Payable Mortgage loans outstanding as of December 31, 2007 were $4,112,645 and had a weighted average interest rate of 4.97%.  Of this amount, $3,933,559 had fixed rates ranging from 3.99% to 7.48% and a weighted average fixed rate of 4.91% at December 31, 2007.  Excluding the mortgage debt assumed from sellers at acquisition and debt of consolidated joint venture investments, the highest fixed rate on the Companys mortgage debt was 5.94%.  The remaining $179,086 of mortgage debt represented variable rate loans with a weighted average interest rate of 6.29% at December 31, 2007.  Properties with a net carrying value of $6,133,653 at December 31, 2007 and related tenant leases are pledged as collateral.  As of December 31, 2007, scheduled maturities for the Company's outstanding mortgage indebtedness had various due dates through March 1, 2037. Mortgage loans outstanding as of December 31, 2006 were $4,312,463 and had a weighted average interest rate of 4.94%.  Of this amount, $3,943,433 had fixed rates ranging from 3.96% to 8.02% and a weighted average fixed rate of 4.82% at December 31, 2006.  Excluding the mortgage debt assumed from sellers at acquisition and debt of consolidated joint venture investments, the highest fixed rate on the Companys mortgage debt was 5.86%.  The remaining $369,030 of mortgage debt represented variable rate loans with a weighted average interest rate of 6.26% at December 31, 2006.  Properties with a net carrying value of $6,633,886 at December 31, 2006 and related tenant leases are pledged as collateral.  As of December 31, 2006, scheduled maturities for the Company's outstanding mortgage indebtedness had various due dates through December 2035. The majority of the Company's mortgage loans require monthly payments of interest only, although some loans require principal and interest payments, as well as reserves for taxes, insurance, and certain other costs.  Although the loans placed by the Company are generally non-recourse, occasionally, when it is deemed to be advantageous, the Company may guarantee all or a portion of the debt on a full-recourse basis. The Company guarantees a percentage of the construction loans on three of its consolidated development joint ventures. These guarantees earn a fee of approximately 1% of the loan amount and are released upon certain pre-leasing requirements.  73  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   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. Margin Payable The Company purchased a portion of its securities through a margin account. As of December 31, 2007 and 2006, the Company had recorded a payable of $108,040 and $78, respectively, for securities purchased on margin.  This debt bears variable interest rates ranging between LIBOR plus 25 basis points and LIBOR plus 50 basis points. At December 31, 2007, these rates were equal to a range between 4.85% and 5.10%. This debt is due upon demand.  The value of the Company's marketable securities serves as collateral for this debt. Debt Maturity The following table shows mortgage debt and notes payable maturities during the next five years: 20082009201020112012ThereafterMaturing debt:Fixed rate debt$  108,942911,9201,287,829420,970380,677873,696Variable rate debt205,406156,720----Weighted average   interest rate on debt:Fixed rate debt4.77%4.70%4.77%4.91%5.30%5.17%Variable rate debt5.56%6.24%---- The maturity table excludes other financing obligations as described in Note 1. (10)  Line of Credit On October 15, 2007, the Company entered into an unsecured line of credit arrangement with a bank for up to $225,000, expandable to $300,000.  The facility has an initial term of three years with one-year extension option.  Funds from this line of credit were used to fund a construction loan receivable and to provide liquidity from the time a property was purchased until permanent debt was placed on the property.The line of credit requires interest-only payments monthly at the rate equal to LIBOR plus 80 to 125 basis points depending on our net worth to total recourse indebtedness.The Company is also required to pay, on a quarterly basis, fees ranging from 0.125% to 0.2% depending on the undrawn amount, on the average daily undrawn funds under this line.  The line of credit requires compliance with certain covenants, such as debt service ratios, minimum net worth requirements, distribution limitations and investment restrictions.  As of December 31, 2007, the Company was in compliance with such covenants.  The outstanding balance on the line of credit was $75,000 as of December 31, 2007 with an effective interest rate of 6.05% per annum. The Company terminated its previous unsecured line of credit facility in December 2006.  The facility, obtained in 2004, had an unsecured borrowing capacity of $250,000.  During its existence, funds from the line of credit were used, from time to time, to provide liquidity from the time a property was purchased until permanent debt was placed on the property.  The line of credit required interest-only payments monthly on drawn funds at a rate equal to LIBOR plus up to 190 basis points depending on the Company's leverage ratio.  The Company was also required to pay, on a quarterly basis, an amount ranging from 0.15% to 0.25% per annum on the average daily undrawn funds on the line.  The agreement also required compliance with certain covenants, such as debt service ratios, minimum net worth requirements, distribution limitations and investment restrictions.  The Company was in compliance with such covenants throughout the facilitys existence.  74  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   (11)  Investment in Unconsolidated Joint Ventures Effective April 27, 2007, the Company formed a strategic joint venture with a large state pension fund (the institutional investor).  The purpose of the joint venture is to acquire and manage targeted retail properties in major metropolitan areas of the United States.  Upon formation, the joint venture initially acquired seven neighborhood retail and community centers, which were contributed to the joint venture by the Company, with an estimated fair value of approximately $336,000 and net equity value after debt assumption of approximately $147,000.  Under the terms of the joint venture operating agreement, the institutional investor contributed 80%, or approximately $117,800 of the equity necessary to purchase the properties.  Accordingly, under the terms of the agreement the profits and losses of the joint venture 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 and losses of the joint venture for the year ended December 31, 2007 was $2,229.  The Company received net operating cash distributions from the joint venture totaling $650 for the year ended December 31, 2007.  During the second quarter of 2007, the Company borrowed $50,000 from the joint venture at an annual interest rate of 4.80% and is reflected in Mortgages and notes payable on the consolidated balance sheet. The operations of the seven contributed properties are not recorded as discontinued operations because of the Companys continuing involvement with these shopping centers.  The Company determined that the venture is not a variable interest entity and accounts for its interest in the venture using the equity method of accounting as it has significant influence over, but not control of, the major operating and financial policies of the joint venture.  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 includes the Companys share of net income or loss from the unconsolidated joint venture.  The Company recognized a gain of $11,749 on the contribution of the seven investment properties to the joint venture in the second quarter of 2007.  The gain resulted from a difference between the fair value and the Companys carrying value of the contributed assets and was recognized to the extent of the outside interest in the joint venture, net of the Companys commitment to fund additional capital contributions.  The amount of proceeds not recognized in the computation of the gain was based on the Companys continuing involvement in the contributed property.  In addition, the Company recognized a gain of $2,486 related to the extinguishment of mortgage debt on the seven investment properties contributed to the joint venture.  The gain resulted from the difference between the fair value and the Companys carrying value of the debt assumed by the joint venture and was calculated net of the write-off of deferred financing costs. The difference between the Companys investment in the joint venture and the amount of the underlying equity in net assets of the joint venture is due to basis differences resulting from the Companys contribution of property assets at its historical net book value versus the fair value of the contributed properties.  Such differences are amortized over the depreciable lives of the joint ventures property assets.  The Company recorded $214 of amortization of this basis difference in 2007.  As of December 31, 2007, the Companys net investment in the joint venture was $82,358. The joint venture currently anticipates acquiring up to an additional $664,000 of neighborhood, community and power centers located in the targeted areas within the United States by agreement over the remaining investment period, as defined.  The joint venture will acquire assets using leverage, consistent with its existing business plan, of approximately 50% of the original purchase price, or current market value if higher.  The Company is the managing member of the joint venture and earns fees for providing property management, acquisition and leasing services to the joint venture.  75  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   The following table summarizes the Company's investments in unconsolidated joint ventures: Date ofDate ofOwnership Interest at December 31,Investment at 
December 31,PropertyLocationInvestmentRedemption2007200620072006Courthouse Square
   Apartments (1)Towson, MD08/11/200403/01/20070.00%36.50%$-$4,345The Power Plant (1)Baltimore, MD11/05/200412/31/20070.00%50.00%-13,222Pier IV (1)Baltimore, MD11/05/200412/31/20070.00%66.67%-18,655Louisville Galleria (1)Louisville, KY12/29/200412/31/20070.00%47.10%-25,047Ocean City Factory Outlets (1)Ocean City, MD12/23/200512/31/20070.00%41.18%-12,823Preston Trail VillageDallas, TX02/28/2006N/A78.95%78.95%2,4872,908Doncaster Village and Padonia
   Village Apartments (1)Parkville and   Timonium, MD05/03/200603/01/20070.00%28.00%-6,645San Gorgonio VillageBeaumont, CA03/30/2007N/A99.52%N/A5,399-Kansas City Live (1)Kansas City, MO06/07/200712/31/200734.73%N/A--Former grocery redevelopmentDenver, CO Area08/31/2007N/A96.30%N/A15,693-MS InlandVarious04/27/2007N/A20.00%N/A82,358-$105,937$83,645 (1) These investments were considered restricted because the Companys joint venture partner was entitled to virtually all of the economic benefits of the investments.  Since the Company has a subordinated position in the economic benefits of these assets, all equity in earnings of these unconsolidated entities for the years ended December 31, 2007, 2006 and 2005 were allocated to the Company's joint venture partners in accordance with the joint venture operating agreements. These investments are accounted for 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 includes the Company's share of net income or loss from the unconsolidated entity.  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 statement of cash flows. The ownership percentage associated with San Gorgonio Village is based upon the estimated projected cost to complete the development project and is subject to change based upon actual completion costs.  The construction loan associated with the project is guaranteed by the Companys joint venture partner and therefore, the joint venture partner bears the greatest risk of loss related to the venture. (12)  Segment Reporting The Company owns multi-tenant shopping centers and single-user net lease properties across the United States.  The Companys shopping centers are typically anchored by credit tenants, discount retailers, home improvement retailers, grocery and drug stores complemented with additional stores providing a wide range of other goods and services to shoppers. The Company assesses and measures operating results of its properties based on net property operations.  Management internally evaluates the operating performance of the properties as a whole and does not differentiate properties by geography, size or type.  In accordance with the provisions of SFAS No. 131: Disclosure about Segments of an Enterprise and Related Information, each of the Companys investment properties are considered a separate operating segment.  However, under the aggregation criteria of SFAS No. 131 and as clarified in EITF Issue No. 14-10: Determining Whether to Aggregate Operating Segments that Do Not Meet the Quantitative Thresholds, the Companys properties are considered one reportable segment.  76  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   Net property operations are summarized in the following table for the years ended December 31 2007, 2006 and 2005. [iwest10k123107final038.gif]   77  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   (13)  Earnings per Share Basic earnings per share ("EPS") are computed by dividing net income by the weighted average number of common shares outstanding for the period (the "common shares").  Diluted EPS is computed by dividing net income by the common shares plus shares issuable upon exercising options or other contracts.  As of December 31, 2007 and 2006, options to purchase 23 shares of common stock at an exercise price of $8.95 per share were outstanding.  These options to purchase shares were not included in the computation of basic or diluted EPS as the effect would be immaterial. The basic and diluted weighted average number of common shares outstanding was 454,287, 441,816 and 350,644 for the years ended December 31, 2007, 2006 and 2005, respectively. (14)  Income Taxes The Company made an election to qualify, and believes it is operating so as to qualify as a REIT for federal income tax purposes.  Accordingly, the Company generally will not be subject to federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under Sections 856 through 860 of the Code. The Company has one wholly-owned subsidiary that has elected to be treated as a taxable REIT subsidiary (TRS) for federal income tax purposes. A TRS is taxed on its net income at corporate tax rates.  Approximate income tax expense incurred as a result of the TRS was $4 and $117 for the years ended December 31, 2007 and 2006. Deferred income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the estimated future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Deferred tax assets and liabilities are measured using enacted tax rules in effect for the year in which these temporary differences are expected to be recovered or settled. Distributions declared on the Company's common stock and their tax status are presented in the following table.  The tax status of the Company's dividends in 2007, 2006, and 2005 may not be indicative of future periods. Distributions declared perReturnOrdinaryYearcommon shareof capitalIncome2007$  0.64$  0.33$  0.3120060.640.350.2920050.640.290.35 The Company adopted the provisions of FIN No. 48:Accounting for Uncertainty in Income Taxes  an interpretation of SFAS No. 109 on January 1, 2007.  FIN 48 defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  Adoption of FIN 48 did not have a material effect on the Companys accompanying consolidated financial statements. The Company had no unrecognized tax benefits as of the January 1, 2007 adoption date or as of December 31, 2007.  The Company expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of December 31, 2007.  The Company has no interest or penalties relating to income taxes recognized in the statement of operations for the year ended December 31, 2007, or in the balance sheet as of December 31, 2007.  As of December 31, 2007, returns for the calendar years 2003 through 2006 remain subject to examination by Federal and various state tax jurisdictions.  78  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   (15)  Provision for Asset Impairment During the first quarter of 2007, the Company recorded an asset impairment of $13,560 related to an approximately 287 square foot, multi-tenant retail property located in University Heights, Ohio.  Having identified certain indicators of impairment such as the propertys low occupancy rate, difficulty in leasing space and financially troubled tenants, the Company performed a cash flow valuation analysis and determined that the carrying value of the property exceeded its undiscounted cash flows based upon a revised holding period for the asset.  Therefore, the Company has recorded an impairment loss related to this property to its estimated fair value within the accompanying consolidated statement of operations. (16)  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 certain 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 own that space without any further payment obligation to the seller.  Based on pro-forma leasing rates, the Company may pay as much as $148,222 in the future as retail space covered by earnout agreements is occupied and becomes rent producing. The Company has entered into three construction loan agreements and four other installment note agreements in which the Company has committed to fund up to a total of $43,570.  Each loan, except one, requires monthly interest payments with the entire principal balance due at maturity.  The combined receivable balance at December 31, 2007 was $33,801.  Therefore, the Company may be required to fund up to an additional $9,655 on these loans The Company guarantees a portion of the construction debt associated with certain of its development joint ventures.  The guarantees are released as certain leasing parameters are met.  As of December 31, 2007, the amount guaranteed by the Company was $5,471. As of December 31, 2007, the Company had 13 irrevocable letters of credit outstanding related to loan fundings against earnout spaces at certain properties.  Once the Company pays the remaining portion of the purchase price for these properties and meets certain occupancy requirements, the letters of credit will be released.  The balance of outstanding letters of credit at December 31, 2007 was $22,063. The Company has entered into interest rate lock agreements with a lender to secure interest rates on mortgage debt on properties it currently owns or plans to purchase in the future.  As of December 31, 2007, the Company had an outstanding rate lock deposit of $9,450 for agreements locking only the Treasury portion of mortgage debt interest rates.  These agreements lock the Treasury portion of rates at 4.63% and 4.51% on $135,000 in positions that can be converted into full rate locks through the first quarter of 2008, or can be extended.  Allocations to these agreements will be made upon conversion into a full rate lock. The Company's decision to acquire a property will generally depend upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions and the Company's receipt of satisfactory due diligence information including appraisals, environmental reports and lease information prior to purchasing the property.  As of December 31, 2007, the Company was considering the acquisition of a property known as Jefferson Commons in Newport News, VA, and the property was subsequently acquired by the Company for a purchase price of $79,644 on February 14, 2008.  79  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   (17)  Litigation On November 1, 2007, City of St. Clair Shores General Employees Retirement System filed a class action complaint in the United States District Court for the Northern District of Illinois alleging violations of the federal securities laws and common law causes of action in connection with the Companys merger with its business manager/advisor and property managers as reflected in the Companys Proxy Statement dated September 10, 2007 (the Proxy Statement).  The complaint alleges, among other things, (i) that the consideration paid as part of the merger was excessive; (ii) violations of Section 14(a), including Rule 14a-9 thereunder, and Section 20(a) of the Exchange Act, based upon allegations that the proxy statement contains false and misleading statements or omits to state material facts; (iii) that the business manager/advisor and property managers and certain directors and defendants breached their fiduciary duties to the class; and (iv) that the merger unjustly enriched the business manager/advisor and property managers. The complaint seeks, among other things, (i) certification of the class action; (ii) a judgment declaring the proxy statement false and misleading; (iii) unspecified monetary damages; (iv) to nullify any stockholder approvals obtained during the proxy process; (v) nullification of the merger and the related merger agreements with the business manager/advisor and the property managers; and (viii) the payment of reasonable attorneys fees and experts fees. The Company believes that the allegations in the complaint are wholly without merit, and intends to vigorously defend the lawsuit. (18)  Subsequent Events During the period from January 1 to March 28, 2008, the Company: · Issued 3,965 shares of common stock through the DRP and repurchased 5,177 shares of common stock through the SRP resulting in a total of 483,710 shares of common stock outstanding at March 28, 2008; · Paid distributions of $77,804 to stockholders in January, February and March 2008, for December 2007 and January and February 2008, respectively.  The distribution represented an annualized distribution rate of $0.64 per share; · Acquired a shopping center know as Jefferson Commons, located in Newport News, VA, for purchase price of $79,644 with 306,287 square feet and assumption of mortgage debt with a principal balance of $56,500; · Funded earnouts totaling $38,747 to purchase an additional 130 square feet at eleven existing properties; · Funded a $2,466 construction loan and paid off one $5,951 construction loan receivables; · Funded additional capital of $2,911 on three development joint ventures, and deposited $900 on a new development joint venture; · Funded $3,265 on two construction-in-progress projects; · Deposited $5,400 of margin calls related to Treasury lock agreements; and · Borrowed $50,000 from the line of credit. The Companys board of directors approved the following, effective January 1, 2008: · Each non-affiliated director will be entitled to be granted an option to acquire 5 shares of the Companys common stock as of the date they initially become a director under the Companys Independent Director Stock Option Plan. In addition, each non-affiliated director will be entitled to be granted an option to acquire an additional 5 shares on the date of each annual stockholders meeting, commencing with the annual meeting in 2008, so long as the director remains a member of the board of directors on such date. All options will be granted at fair market value on the date of grant, and will become fully exercisable on the second anniversary of the date of grant. · The addition of Messrs Richard P. Imperiale and Kenneth E. Masick to the Companys board of directors.  80  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
Notes to Consolidated Financial Statements   (19)  Quarterly Financial Information (unaudited) [iwest10k123107final040.gif] [iwest10k123107final042.gif] The quarterly financial information presented above for the quarters ended March 31, June 30 and September 30, 2006 has been adjusted from the information previously presented in the Companys quarterly reports. These quarterly adjustments were identified in the fourth quarter of 2006 upon the Companys adoption of SAB 108 (refer to Note 2). The effect of these adjustments is not considered material to the results of operations of each respective quarter.  81  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.  Schedule II Valuation and Qualifying AccountsFor the years ended December 31, 2007, 2006 and 2005 (Dollar amounts in thousands)   [iwest10k123107final044.gif]    82


INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    Initial Cost (A)Gross amount carried at end of periodBuildings andAdjustmentsBuildings andAccumulatedDateDateEncumbranceLandImprovementsto Basis ( C )LandImprovementsTotal (B) (D)Depreciation (E)ConstructedAcquired23rd Street Plaza3,9901,3005,319781,3005,3976,697597200312/04Panama City, FLAcademy Sports2,9201,2303,752-1,2303,7524,982470200407/04Houma, LAAcademy Sports2,3381,3402,94331,3402,9464,286342200410/04Midland, TXAcademy Sports2,7751,0503,95461,0503,9605,010460200410/04Port Arthur, TXAcademy Sports3,9333,2153,963-3,2153,9637,178424200401/05San Antonio, TXAlison's Corner3,8501,0455,700781,0455,7786,823776200304/04San Antonio, TXAmerican Express11,6231,40015,37091,40015,37916,7791,615200012/04DePere, WIAmerican Express33,0402,80049,47082,80049,47852,2785,197198612/04Greensboro, NCAmerican Express8,2602,90010,17082,90010,17813,0781,069198312/0419th Ave., Phoenix, AZAmerican Express30,1498,20036,692-8,20036,69244,8923,531198203/05Taylorsville, UTArvada Connection &28,5108,12539,3816708,12540,05148,1765,6021987-199004/04Marketplace, Arvada, COAshland & Roosevelt14,912-21,127433-21,56021,5602,083200205/05Chicago, ILAzalea Square I  III
  Summerville, SC25,2389,65531,6522209,65531,87241,5272,5782004 & 200710/04 & 10/07Bangor Parkade17,25011,60013,5393,99411,60017,53329,1331,008200503/06Bangor, MEBattle Ridge Pavilion10,3474,35011,366(87)4,35011,27915,629694199905/06Marietta, GABeachway Plaza10,2355,46010,3972105,46010,60716,0679941984 / 200406/05Bradenton, FloridaBear Creek11,4503,30014,477703,30014,54717,8471,420200204/05Houston, TXBed Bath & Beyond Plaza11,193-18,36725-18,39218,3922,190200410/04Miami, FL  83  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    Bed Bath & Beyond Plaza10,5504,53011,901-4,53011,90116,4311,0542000-200207/05Westbury, NYBest on the Boulevard19,5257,46025,583557,46025,63833,0983,5341996-199904/04Las Vegas, NVBison Hollow10,7745,55012,324(18)5,55012,30617,8561,204200404/05Traverse City, MIBlockbuster at Five Forks8254401,018-4401,0181,4581032004-200503/05Simpsonville, SCBluebonnet Parc12,1004,45016,4072274,45016,63421,0842,244200204/04Baton Rouge, LABoston Commons9,5113,7509,690683,7509,75813,508931199305/05Springfield, MABoulevard at The Capital71,500-114,7035,321-120,024120,02414,546200409/04Center, Largo, MDBoulevard Plaza6,3004,17012,0382714,17012,30916,4791,186199404/05Pawtucket, RIThe Brickyard-45,30026,6573,54045,30030,19775,4972,9311977 / 200404/05Chicago, ILBroadway Shopping Center
  Bangor, ME8,3795,50014,0024765,50014,47819,9781,1731960/1999-200009/05Brown's Lane6,2842,60012,005932,60012,09814,6981,179198504/05Middletown, RICarmax - San Antonio8,0306,2107,731-6,2107,73113,941803199803/05San Antonio, TXCarrier Towne Crossing10,9922,75013,6627512,75014,41317,1631,093199812/05Grand Prairie, TXCentral Texas Marketplace45,38613,00047,5593,65113,00051,21064,2101,790200412/06Waco, TXCentre at Laurel27,20019,0008,40616,31619,00024,72243,7221,353200502/06Laurel, MDCentury III Plaza26,2007,10033,212-7,10033,21240,3123,043199606/05West Mifflin, PAChantilly Crossing15,6758,50016,0602,0088,50018,06826,5681,582200405/05Chantilly, VACinemark Seven Bridges7,8003,45011,728-3,45011,72815,1781,129200003/05Woodridge,  ILCircuit City31,2703,00047,815-3,00047,81550,8154,463199705/05Richmond, VA  84  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    Citizen's Property Insurance5,9972,1507,60162,1507,6079,757621200508/05Jacksonville, FLClearlake Shores6,6831,7757,0261,1851,7758,2119,9867522003-200404/05Clear Lake, TXColony Square25,48816,70022,77511116,70022,88639,5861,398199705/06Sugar Land, TXThe Columns
  Jackson, TN14,8655,83019,43945,83019,44325,2732,367200408/04 &  0/04The Commons at Temecula29,62312,00035,887-12,00035,88747,8873,506199904/05Temecula, CAComputershare Shareholder44,5008,50056,621-8,50056,62165,1215,017200107/05Services, Canton, MACoppell Town Center10,0502,53514,346372,53514,38316,918395200104/07Coppell, TXCoram Plaza20,75510,20026,17883710,20027,01537,2152,937200412/04Coram, NYCornerstone Plaza8,4002,92010,359(176)2,92010,18313,1039682004-200505/05Cocoa Beach, FLCorwest Plaza18,1506,90023,85176,90023,85830,7583,5131999-200301/04New Britian, CTCost Plus Distribution16,30010,07521,48329,4837,10453,93761,0411,815200304/06Warehouse, Stockton, CACottage Plaza13,0253,00019,158-3,00019,15822,1582,0492004-200502/05Pawtucket, RICoventry Health Care7,0601,4809,874(1)1,4809,87311,353777200510/05San Antonio, TXCranberry Square10,9003,00018,736(53)3,00018,68321,6832,4001996-199707/04Cranberry Township, PACrockett Square5,8124,1407,534424,1407,57611,716532200502/06Morristown, TNCrossroads Plaza CVS4,8011,0403,780-1,0403,7804,820358198705/05North Attelborough, MACrown Theater-7,318954-7,3189548,272156200007/05Hartford, CTCuyahoga Falls Market Cntr8,2853,35011,0831273,35011,21014,5601,080199804/05Cuyahoga Falls, OHCVS Pharmacy2,1939102,891-9102,8913,801265199906/05Burleson, TX  85  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    CVS Pharmacy3,6682,0963,86382,0963,8715,967282200512/05Cave Creek, AZCVS Pharmacy (Eckerd)1,8509752,40029752,4023,377356200312/03Edmond, OKCVS Pharmacy3,4751,4604,45521,4604,4575,917463200403/05Jacksonville, FLCVS Pharmacy1,5667501,958-7501,9582,708185199905/05Lawton, OKCVS Pharmacy1,6852502,777-2502,7773,027280200103/05Montevallo,  ALCVS Pharmacy1,9016002,659-6002,6593,259260200405/05Moore, OKCVS Pharmacy (Eckerd)2,9009324,370-9324,3705,302653200312/03Norman, OKCVS Pharmacy2,4296203,583-6203,5834,203328199906/05Oklahoma City, OKCVS Pharmacy2,4601,1003,254-1,1003,2544,354328200403/05Saginaw, TXCVS Pharmacy1,6856002,46936002,4723,072287200410/04Sylacauga, ALCypress Mill Plaza9,8472,10013,130(48)2,10013,08215,1821,040200411/05Cypress, TXDarien Towne Center16,5007,00022,4688067,00023,27430,2743,474199412/03Darien, ILDavis Towne Crossing5,3651,8505,6811,2271,8506,9088,7588432003-200406/04North Richland Hills, TXDenton Crossing35,2006,00043,43411,0626,00054,49660,4965,9792003-200410/04Denton, TXDiebold Warehouse7,240-11,1902-11,19211,1921,026200507/05Green, OHDorman Center I & II
  Spartanburg, SC27,61017,02529,478(239)17,02529,23946,2644,1372003-200403/04 & 07/04Duck Creek14,4264,44012,0765,0904,44017,16621,6061,092200511/05Bettendorf, IAEast Stone Commons22,5502,90028,7146812,90029,39532,2951,595200506/06Kingsport, TN  86  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    Eastwood Towne Center46,75012,00065,067(681)12,00064,38676,3868,686200205/04Lansing, MIEckerd Drug Store3,2003,0003,955353,0003,9906,990376200505/05Colesville, MDEckerd Drug Store3,4001,5503,95461,5503,9605,510351200408/05Hellertown, PAEckerd Drug Store3,4009754,36969754,3755,350387200408/05Lebanon, PAEckerd Drug Store3,3221,0004,32851,0004,3335,333384200408/05Punxsutawney, PAEdgemont Town Center8,5983,50010,956(317)3,50010,63914,1391,221200311/04Homewood, ALEdwards Multiplex19,730-35,421--35,42135,4213,463198805/05Fresno, CAEdwards Multiplex27,87511,80033,098-11,80033,09844,8983,236199704/05Ontario, CAEvans Towne Centre5,0051,7006,425321,7006,4578,157713199512/04Evans, GAFairgrounds Plaza15,2914,80013,4903,7234,80017,21322,0131,6472002-200401/05Middletown, NYFisher Scientific8,26051012,768-51012,76813,2781,117200506/05Kalamazoo, MIFive Forks4,4832,1005,374152,1005,3897,489608199912/04Simpsonville, SCForks Town Center10,3952,43014,8367162,43015,55217,9821,930200207/04Easton, PAFour Peaks Plaza17,0725,00020,0983,1005,00023,19828,1982,153200403/05Fountain Hills, PAFox Creek Village11,4853,75515,563(1,128)3,75514,43518,1901,7042003-200411/04Longmont, COFullerton Metrocenter28,050-47,403381-47,78447,7846,113199806/04Fullerton, CAGalvez Shopping Center4,4701,2504,9473521,2505,2996,549470200406/05Galveston, TXThe Gateway98,78028,664110,94520,33428,664131,279159,94311,0352001-200305/05Salt Lake City, UT  87  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    Gateway Pavilions35,8429,88055,1953499,88055,54465,4246,2552003-200412/04Avondale, AZGateway Plaza18,163-26,3712,420-28,79128,7913,384200007/04Southlake, TXGateway Station3,7171,0503,9111,2131,0505,1246,1745502003-200412/04College Station, TXGateway Station II6,2681,5308,1464631,5308,60910,1391832006-200705/07College Station, TXGateway Village27,2338,55039,2983,7078,55043,00551,5555,298199607/04Annapolis, MDGerry Centennial Plaza-5,37012,9683,3475,37016,31521,685259200606/07Oswego, ILGiant Eagle12,1543,42516,868103,42516,87820,3031,289200011/05Columbus, OHGloucester Town Center11,9753,90017,878323,90017,91021,8101,704200305/05Gloucester, NJGMAC Insurance Buildings33,0008,25050,287128,25050,29958,5495,9931980/199009/04Winston-Salem, NCGolfsmith2,4761,2502,97421,2502,9764,2262261992/200411/05Altamonte Springs, FLGovernor's Marketplace20,625-30,3771,677-32,05432,0543,796200108/04Tallahassee, FLGrapevine Crossing12,8154,10016,938554,10016,99321,0931,662200104/05Grapevine, TXGreat Southwest Crossing8,8682,75012,6991652,75012,86415,6141,093200309/05Grand Prairie, TXGreen's Corner7,0223,2008,663(33)3,2008,63011,830949199712/04Cumming, GAGreensburg Commons14,2002,70019,116(12)2,70019,10421,8041,927199904/05Greensburg, INGreenwich Center-3,70015,9491073,70016,05619,7561,079200202/06Phillipsburg, NJGurnee Town Center24,3607,00035,1473067,00035,45342,4534,112200010/04Gurnee, ILHarris Teeter3,9601,8105,15211,8105,1536,9636301977/199509/04Wilmington, NC  88  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    Hartford Insurance Building9,6141,70013,70961,70013,71515,4151,173200508/05Maple Grove, MNHarvest Towne Center5,0053,1555,085(10)3,1555,0758,2306211996-199909/04Knoxville, TNHenry Town Center34,30710,65046,81426510,65047,07957,7295,178200212/04McDonough, GAHeritage Towne Crossing8,9503,06510,7291,2763,06512,00515,0701,624200203/04Euless, TXHewitt Associates Campus129,79728,500178,524(3)28,497178,524207,02116,9081974/198605/05Lincolnshire, ILHickory Ridge23,6506,86030,517(795)6,86029,72236,5824,247199901/04Hickory, NCHigh Ridge Crossing7,4393,0759,148(267)3,0758,88111,956945200403/05High Ridge, MOHobby Lobby3,0251,7283,791-1,7283,7915,519417200401/05Concord, NCHolliday Towne Center8,0502,20011,609(426)2,20011,18313,3831,221200302/05Duncansville, PAHome Depot Center11,200-16,758--16,75816,7581,536199606/05Pittsburgh, PAHome Depot Plaza13,5309,70017,137-9,70017,13726,8371,569199206/05Orange, CTHQ Building9,9785,20010,010105,20010,02015,220735Redev: 0412/05San Antonio, TXHumblewood Shopping Cntr9,5582,20012,823(303)2,20012,52014,720958Renov: 0511/05Humble, TXIrmo Station7,0852,6009,247372,6009,28411,8841,0191980/198512/04Irmo, SCKaiser Permanente32,67012,95043,629-12,95043,62956,5794,0002004-200506/05Cupertino, CAKing Philip's Crossing13,6503,71019,144(194)3,71018,95022,6601,514200511/05Seekonk, MAKohl's6,0851,6008,27551,6008,2809,880628200510/05Georgetown, KYKohl's/Wilshire Plaza5,4182,6006,84992,6006,8589,458775200407/04Kansas City, MO  89  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    La Plaza Del Norte32,52816,00537,744(342)16,00537,40253,4075,4091996/199901/04San Antonio, TXLake Forest Crossing4,5202,2005,1103902,2005,5007,700526200403/05McKinney, TXLake Mary Pointe3,6582,0754,009852,0754,0946,169473199910/04Lake Mary, FLLake Worth Towne26,4916,20030,9105,1676,20036,07742,2771,892200506/06Crossing, Lake Worth, TXLakepointe Towne Center21,7154,75023,9045,0644,75028,96833,7182,608200405/05Lewisville, TXLakewood Towne Center
  Lakewood, WA44,00011,20070,796(4,032)11,20066,76477,9648,6271988/2002-200306/04Larkspur Landing33,63020,80032,82188920,80033,71054,5105,0031978/200101/04Larkspur, CALincoln Plaza47,50013,00046,48220,88913,16567,20680,3714,4552001/200409/05Worchester, MALow Country Village I & II
  Bluffton, SC10,8102,91016,614(88)2,91016,52619,4361,7672004&200506/04 & 09/05Lowe's/Bed, Bath & Beyond13,7007,423799(8)7,4157998,214124200508/05Butler, NJMacArthur Crossing12,7004,71016,2652374,71016,50221,2122,3791995-199602/04Los Colinas, TXMagnolia Square10,2652,63515,040452,63515,08517,7201,633200402/05Houma, LAManchester Meadows-14,70039,738(167)14,70039,57154,2714,9721994-199508/04Town and Country, MOMansfield Towne Crossing10,9823,30012,1953,4373,30015,63218,9321,7382003-200411/04Mansfield, TXMaple Tree Place63,40028,00067,3612,00828,00069,36997,3696,5132004-200505/05Williston, VTThe Market at Clifty14,6861,90016,6681,0241,84717,74519,5921,3411986/200411/05Crossing, Columbus, INThe Market at Polaris36,19611,75040,1976,21311,75046,41058,1603,331200511/05Columbus, OHMassillon Commons10,1264,09012,5212034,09012,72416,8141,2371986/200004/05Massillion, OHMaytag Distribution Center12,7401,70020,681-1,70020,68122,3812,171200401/05North Liberty, IA  90  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    McAllen Shopping Center2,4558502,958138502,9713,821327200412/04McAllen, TXMcDermott Towne Crossing5,6171,8506,923(6)1,8506,9178,767570199909/05McAllen, TXMervyns5,0002,0005,78612,0005,7877,787477198809/05Bakersfield, CAMervyns5,0003,4004,42813,4004,4297,829365198109/05El Paso, TXMervyns5,5002,9105,17622,9105,1788,088427199309/05Elk Grove, CAMervyns6,7006,5305,43116,5305,43211,962448198709/05Escondido, CAMervyns5,2002,4005,80612,4005,8078,207479199209/05Fontana, CAMervyns5,1002,5005,53812,5005,5398,039457199309/05Fresno, CAMervyns4,7002,7505,40112,7505,4028,152446199309/05Hanford, CAMervyns5,3002,3505,97812,3505,9798,329493199409/05Highland, CAMervyns4,4002,7704,28212,7704,2837,053353197909/05Lodi, CAMervyns5,7002,8506,30712,8506,3089,158520199209/05Manteca, CAMervyns5,1004,1004,00314,1004,0048,104330199209/05McAllen, TXMervyns5,1003,9304,08123,9304,0838,013337198809/05Moreno Valley, CAMervyns5,1004,8003,21114,8003,2128,012265198909/05Morgan Hill, CAMervyns6,4006,4205,48216,4205,48311,903452198209/05Oceanside, CAMervyns5,0004,5003,29414,5003,2957,795272199009/05Rancho Cucamonga, CAMervyns5,0003,4504,41813,4504,4197,869364198109/05Redlands, CA  91  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    Mervyns3,3001,5004,63921,5004,6416,141383199009/05Ridgecrest, CAMervyns5,4004,8203,05214,8203,0537,873252198309/05Roseville, CAMervyns4,8003,9303,59413,9303,5957,525296197309/05Sacramento, CAMervyns7,9008,2604,14418,2604,14512,405342199309/05San Diego, CAMervyns6,0005,3003,60715,3003,6088,908298198009/05Sun Valley, CAMervyns5,1004,7903,11724,7903,1197,909257199009/05Temecula, CAMervyns4,0001,9604,37311,9604,3746,334361198709/05Turlock, CAMervyns5,2003,3854,70813,3854,7098,094388199209/05Vacaville, CAMervyns5,0004,8003,02224,8003,0247,824249198209/05Ventura, CAMesa Fiesta23,5005,80028,302(782)5,80027,52033,3203,083200412/04Mesa, AZMid-Hudson Center23,7509,90029,16019,90029,16139,0612,586200007/05Poughkeepsie, NYMidtown Center28,22813,22036,8004,16913,22040,96954,1894,1911986-198701/05Milwaukee, WIMission Crossing
  San Antonio, TX13,6304,00012,6166,7904,67018,73623,4061,495Renov: 
03-0507/05Mitchell Ranch Plaza20,0605,55026,2132075,55026,42031,9703,220200308/04New Port Richey, FLMontecito Crossing28,2859,70025,4145,1999,70030,61340,3132,4082004-200510/05Las Vegas, NVMountain View Plaza I & II
  Kalispell, MT14,3735,18018,212345,18018,24623,4261,3152003&200610/05 & 11/06New Forest Crossing10,7975,00011,4042795,00011,68316,6831,0422002-200306/005Houston, TXNewburgh Crossing8,4154,00010,24664,00010,25214,252845200510/05Newburgh, NYNewnan Crossing
  Newnan, GA23,76615,10033,9863,61815,10037,60452,7044,7561999&200412/03 & 02/04  92  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    Newton Crossroads5,5483,3506,927(60)3,3506,86710,217756199712/04Covington, GANorth Ranch Pavilions10,1579,7058,2962919,7058,58718,2921,290199201/04Thousand Oaks, CANorth Rivers Towne Center11,0503,35015,7202533,35015,97319,3232,1272003-200404/04Charleston, SCNorthgate North26,6507,54049,078(17,041)7,54032,03739,5774,3121999-200306/04Seattle, WANorthpointe Plaza30,85013,80037,70792913,80038,63652,4365,0551991-199305/04Spokane, WANorthwood Crossing10,6913,77013,6583673,77014,02517,7951,0161979/200401/06Northport, ALNorthwoods Center11,1933,4159,4755,8493,41515,32418,7391,5852002-200412/04Wesley Chapel, FLOld Time Pottery     Douglasville, GA3,2502,0003,017192,0003,0365,0361671987/1999 & 200506/06Orange Plaza (Golfland
  Plaza), Orange, CT8,5504,3504,83434,3504,8379,187457199505/05Orchard 
  New Hartford, NY12,9873,20017,151(2)3,20017,14920,3491,4822004-200507/05 &
09/05Pacheco Pass Phase I & II
  Gilroy, CA29,08813,42032,785(149)13,42032,63646,0561,9052005&200607/05 & 06/07Page Field Commons26,853-43,355236-43,59143,5914,255199905/05Fort Myers, FLParadise Valley Marketplace
  Phoenix, AZ15,6816,59020,425(287)6,59020,13826,7282,747200204/04Pavilion at Kings Grant I & II
  Concord, NC5,34210,27412,3927,32810,27419,72029,9941,1412002-2003 & 200512/03 & 06/06Peoria Crossings
  Peoria, AZ23,0906,99532,8163,8678,49535,18343,6784,6052002-2003 & 200503/04 & 05/05PetSmart Distribution23,7311,70038,808-1,70038,80840,5083,3962004-200507/05Center, Ottawa, ILPhenix Crossing5,5352,6006,776342,6006,8109,410748200412/04Phenix City, AlabamaPine Ridge Plaza14,7005,00019,8024535,00020,25525,2552,6351998-200406/04Lawrence, KSPlacentia Town Center13,69511,20011,751(91)11,20011,66022,8601,3231973/200012/04Placentia, CAPlaza at Marysville11,8006,60013,7281076,60013,83520,4351,720199507/04Marysville, WA  93  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    Plaza at Riverlakes9,3505,10010,824205,10010,84415,9441,273200110/04Bakersfield, CAPlaza Santa Fe II16,323-28,588(402)-28,18628,1863,7192000-200206/04Santa Fe, NMPleasant Run22,8004,20029,0854,8544,20033,93938,1393,525200412/04Cedar Hill, TXPowell Center8,3905,4907,448155,4907,46312,953206200104/07Lewis Center, OHPromenade at Red Cliff10,5905,34012,665365,34012,70118,0411,831199702/04St. George, UTPublix4,3842,1005,634-2,1005,6347,734550200404/05Mountain Brook, ALQuakertown7,4702,4009,24612,4009,24711,6477922004-200509/05Quakertown, PARasmussen College3,0538504,04968504,0554,905359200508/05Brooklyn Park, MNRave Theater17,8893,44022,1903,0373,44025,22728,6671,763200512/05Houston, TXRaytheon Facility11,84165018,353265018,35519,0051,626Rehab:200108/05State College, PARed Bug Village4,5391,7906,1781611,7906,3398,129452200412/05Winter Springs, FLReisterstown Road Plaza49,65015,80070,3726,54515,80076,91792,7179,3571986/200408/04Baltimore, MDRidge Tool Building4,5434156,79914156,8007,215535200509/05Cambridge, OHRite Aid Store (Eckerd)2,9032,0002,722-2,0002,7224,722216199911/05Sheridan Dr., Amherst, NYRite Aid Store (Eckerd)3,2432,5002,76422,5002,7665,266220200311/05Transit Rd , Amherst, NYRite Aid Store (Eckerd)1,2249001,215-9001,2152,1151151999-200005/05Atlanta, GARite Aid Store (Eckerd)2,8551,8602,786-1,8602,7864,646221200411/05East Main St., Batavia, NYRite Aid Store (Eckerd)   .2,5471,5102,627-1,5102,6274,137209200111/05W. Main St., Batavia, NY  94  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    Rite Aid Store (Eckerd)2,1989002,677-9002,6773,577213200011/05Ferry St., Buffalo, NYRite Aid Store (Eckerd)2,1741,3402,192-1,3402,1923,532174199811/05Main St., Buffalo, NYRite Aid Store (Eckerd)3,0911,9682,57511,9682,5764,544205200411/05Canandaigua, NYRite Aid Store (Eckerd)1,6287502,042-7502,0422,792187199906/05Chattanooga, TNRite Aid Store (Eckerd)2,1172,0801,393-2,0801,3933,473111199911/05Cheektowaga, NYRite Aid Store (Eckerd)1,7509002,377-9002,3773,2773212003-200406/04Columbia, SCRite Aid Store (Eckerd)1,4256002,03316002,0342,6342672003-200406/04Crossville, TNRite Aid Store (Eckerd)1,6659002,475-9002,4753,375196199911/05Grand Island, NYRite Aid Store (Eckerd)1,9264702,657-4702,6573,127211199811/05Greece, NYRite Aid Store (Eckerd)1,6501,0502,04711,0502,0483,0982692003-200406/04Greer, SCRite Aid Store (Eckerd)2,4092,0601,873-2,0601,8733,933149200211/05Hudson, NYRite Aid Store (Eckerd)2,8771,9402,736-1,9402,7364,676217200211/05Irondequoit, NYRite Aid Store (Eckerd)1,9757002,96017002,9613,6613892003-200406/04Kill Devil Hills, NCRite Aid Store (Eckerd)1,7861,7101,207-1,7101,2072,91796199911/05Lancaster, NYRite Aid Store (Eckerd)2,7161,6502,788-1,6502,7884,438221200211/05Lockport, NYRite Aid Store (Eckerd)1,6828201,935-8201,9352,755154200011/05North Chili, NYRite Aid Store (Eckerd)2,4521,1902,809-1,1902,8093,999223199911/05Olean, NYRite Aid Store (Eckerd)2,3761,5902,279-1,5902,2793,869181200111/05Rochester, NY  95  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    Rite Aid Store (Eckerd)3,2102,2203,02522,2203,0275,247240200111/05Lake Ave., Rochester, NYRite Aid Store (Eckerd)2,3708003,075-8003,0753,875244200011/05Tonawanda, NYRite Aid Store (Eckerd)2,7702,8301,683-2,8301,6834,513134200311/05West Seneca, NYRite Aid Store (Eckerd)2,3951,6102,300-1,6102,3003,910183200011/05West Seneca, NYRite Aid Store (Eckerd)1,3728101,434-8101,4342,244114199711/05Yorkshire, NYRiverpark Shopping Center   I & IIA36,43411,80041,8785511,80041,93353,7332,5622003 & 200604/06 & 09/06Sugarland, TXRivery Town Crossing8,0182,9006,814(19)2,9006,7959,695314200510/06Georgetown, TXRoyal Oaks Village II8,5502,20011,859(83)2,20011,77613,9769392004-200511/05Houston, TXSaucon Valley Square8,8513,20012,6421023,20012,74415,9441,556199909/04Bethlehem, PAShaws Supermarket6,4502,70011,532(298)2,70011,23413,9341,702199512/03New Britain, CTShoppes at Lake Andrew15,6574,00022,996184,00023,01427,0142,530200312/04I & II , Viera, FLShoppes at Park West6,6552,2409,357(93)2,2409,26411,5041,075200411/04Mt. Pleasant, SCShoppes at Quarterfield6,0672,1908,840312,1908,87111,0611,272199901/04Severn, MDShoppes of New Hope7,1791,35011,045(117)1,35010,92812,2781,471200407/04Dallas, GAShoppes of Prominence
Point I & II , Canton, GA11,4183,65012,652(116)3,65012,53616,1861,5492004 & 200506/04 & 09/05Shoppes of Warner Robins7,2861,11011,258(12)1,11011,24612,3561,045200406/05Warner Robins, GAShops at 540,1798,35059,5701868,35059,75668,1065,656200506/05Plymouth, MA  96  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    The Shops at Boardwalk20,1505,00030,540(228)5,00030,31235,3123,8972003-200407/04Kansas City, MOShops at Forest Commons5,0351,0506,133(34)1,0506,0997,149688200212/04Round Rock, TXShops at Legacy-8,800108,9406,0418,800114,981123,7812,377200206/07Plano, TXShops at Park Place13,1279,09613,1754769,09613,65122,7472,156200110/03Plano, TXSouth Towne Crossing8,8181,6009,3911,2561,60010,64712,247547200506/06Burleson, TXSouthgate Plaza6,7402,2009,229-2,2009,22911,4299581998-200203/05Heath, OHSouthlake Town Square I  IV
  Southlake, TX140,66137,350171,4655,92837,350177,393214,74313,9621998-2004 & 200712/04 & 05/07Southpark Meadows12,6636,25013,7205,5646,36319,17125,5341,477200407/05Austin, TXSouthpark Meadows II-25,00057,865(2,103)25,00055,76280,7621,6182006-200703/07Austin, TXSouthwest Crossing14,6914,75019,6791524,75019,83124,5811,872199906/05Fort Worth, TXSprint Data Center52,8004,80085,34814,80085,34990,1496,975200109/05Santa Clara, CAStanley Works/Mac Tools5,5001,9007,624-1,9007,6249,524778200401/05Westerville, OHStateline Station17,6006,50023,780(480)6,50023,30029,8002,4432003-200403/05Kansas City, MOStilesboro Oaks6,9522,2009,426(45)2,2009,38111,5811,032199712/04Acworth, GAStonebridge Plaza4,2781,0005,783521,0005,8356,835517199708/05McKinney, TXStony Creek
  Noblesville, IN18,4418,63522,6711798,63522,85031,4853,1892003 & 200512/03 & 01/05Stop & Shop 
  Beekman, NY7,3492,65011,49162,65011,49714,147911Renov: 0511/05Suntree Square8,9752,53512,574212,53512,59515,130347200104/07Southlake, TXTarget South Center7,2572,3008,76052,3008,76511,065696199911/05Austin, TX  97  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    Tim Horton Donut Shop-21230-212302424200411/05Canandaigua, NYTollgate Marketplace39,7658,70061,247578,70061,30470,0047,6491979/199407/04Bel Air, MDTown Square Plaza18,7159,70018,2641,4819,70019,74529,4451,429200412/05Pottstown, PATowson Circle15,6489,05017,8402,7669,05020,60629,6562,840199807/04Towson, MDTraveler's Office Building4,8656507,001606507,0617,711494200501/06Knoxville, TNTrenton Crossing19,3078,18019,2623,1888,18022,45030,6302,125200302/05McAllen, TXUniversity Square29,9651,77048,068(22,208)1,77025,86027,630606200305/05University Heights, OHUniversity Town Center5,808-9,55755-9,6129,6121,085200211/04Tuscaloosa, ALVail Ranch Plaza13,4896,20016,275(16)6,20016,25922,4591,5902004-200504/05Temecula, CAThe Village at Quail Springs5,7403,3357,766-3,3357,76611,1018272003-200402/05Oklahoma City, OKVillage Shoppes at Gainsville25,1484,45036,592(43)4,45036,54940,9993,013200409/05Gainsville, GAVillage Shoppes at Simonton7,5622,20010,874(227)2,20010,64712,8471,346200408/04Lawrenceville, GAWalgreens3,2184505,074-4505,0745,524488200004/05Northwoods, MOWalgreens2,6005503,580-5503,5804,130361199904/05West Allis, WIWal-Mart Supercenter-1,75610,914-1,75610,91412,6701,367199907/04Blytheville, ARWal-Mart Supercenter6,0892,3978,08912,3978,09010,4871,013199708/04Jonesboro, ARWalter's Crossing20,62614,50016,9142114,50016,93531,435876200507/06Tampa, FLWatauga Pavillion19,6175,18527,504205,18527,52432,7093,6002003-200405/04Watauga, TX  98  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III Real Estate and Accumulated Depreciation
December 31, 2007    West Town Market6,0481,17010,488(4)1,17010,48411,654959200406/05Fort Mill, SCWickes5,4333,2005,53053,2005,5358,735436200510/05Murrieta, CAWickes4,9642,4005,612-2,4005,6128,012531200505/05Naperville, ILWild Oats Market7,4693,8009,155-3,8009,15512,955801200007/05Hinsdale, ILWilton Square28,5608,20035,538138,20035,55143,7513,149200007/05Saratoga Springs, NYWinchester Commons7,2354,4007,471(51)4,4007,42011,820864199911/04Memphis, TNWrangler11,3001,21916,250(365)1,21915,88517,1042,010199307/04El Paso, TXZurich Towers81,4207,900121,31277,900121,319129,21913,6851986-199011/04Schaumburg, ILSubtotal Wholly Owned andConsolidated Joint Ventures4,058,7571,455,1185,446,236206,8661,454,5315,653,6897,108,220547,953Five Britomart BuildingsAuckland, New Zeland-14,915--14,915-14,915-1900-194612/07Developments in Progress54,36353,28698,686-53,28698,686151,972-Total4,113,1201,523,3195,544,922206,8661,522,7325,752,3757,275,107547,953    99


INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.Schedule III (continued) Real Estate and Accumulated Depreciation
December 31, 2007    Notes:  (A) The initial cost to the Company represents the original purchase price of the property, including amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired.  (B) The aggregate cost of real estate owned at December 31, 2007 for Federal income tax purposes was approximately $7,628,695 (unaudited).  (C) Adjustments to basis include payments received under master lease agreements as well as additional tangible costs associated with the investment properties, including any earnout of tenant space.  (D) Reconciliation of real estate owned: [iwest10k123107final046.gif] (E) Reconciliation of accumulated depreciation: [iwest10k123107final048.gif] (1) 2006 additions include adjustments to building and improvements and below market lease intangibles related to the cumulative effect of the adoption of SAB 108, as described in Note 2 to the consolidated financial statements.  100                   MS INLAND FUND, LLC Financial Statements Period from April 27, 2007 (Inception) to December 31, 2007 (With Independent Registered Public Accounting Firms Report Thereon)   101


Report of Independent Registered Public Accounting Firm The Members MS Inland Fund L.L.C.: We have audited the accompanying balance sheet of MS Inland Fund L.L.C. (the Company) as of December 31, 2007, and the related  statements of operations, members equity, and cash flows for the period from April 27, 2007 (inception) to December 31, 2007. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MS Inland Fund L.L.C. as of December 31, 2007, and the results of its operations and its cash flows for the period from April 27, 2007 (inception) to December 31, 2007 in conformity with U.S. generally accepted accounting principles.  KPMG LLP   Chicago, Illinois March 31, 2008


102


MS INLAND FUND, LLC BALANCE SHEET  December 31, 2007 (In thousands)   [iwest10k123107final050.gif]         See accompanying notes to financial statements.


103


MS INLAND FUND, LLC STATEMENT OF OPERATIONS  Period from April 27, 2007 (Inception) to December 31, 2007 (In thousands)    [iwest10k123107final052.gif]                        See accompanying notes to financial statements.


104


MS INLAND FUND, LLC STATEMENT OF MEMBERS EQUITY  Period from April 27, 2007 (Inception) to December 31, 2007 (In thousands)    [iwest10k123107final054.gif]                             See accompanying notes to financial statements.


105


MS INLAND FUND, LLC STATEMENT OF CASH FLOWS  Period from April 27, 2007 (Inception) to December 31, 2007 (In thousands)  [iwest10k123107final056.gif]  See accompanying notes to financial statements.


106


(1) Organization and Basis of Accounting MS Inland Fund, LLC (the Company) was formed on April 27, 2007.  The Company is a strategic joint venture formed with Inland Western Retail Real Estate Trust, Inc. (IWRRETI) and The Florida Retirement System Trust Fund (Florida) acting by and through the State Board of Administration of the State of Florida.  The purpose of the Company is to acquire and manage targeted retail properties in major metropolitan areas of the United States.  Upon formation, the Company initially acquired seven neighborhood retail and community centers (Huebner Oaks, Lincoln Park, Southlake Corners, Commons at Royal Palm, Gardiner Manor Mall, Johns Creek Village and Oswego Commons), which were contributed to the Company by IWRRETI (Existing Portfolio), with an estimated fair value of approximately $336,000 and net equity value after debt assumption of approximately $147,000.  Under the terms of the joint venture operating agreement, Florida contributed 80%, or approximately $117,800 of the equity necessary to purchase the properties and IWRRETI contributed the remaining 20%, or approximately $29,500.  Accordingly, under the terms of the agreement, the profits and losses of the Company and the cash flows of the Company are split 80% and 20% between Florida and IWRRETI, respectively, except for the interest earned on certain funds not distributed to IWRRETI (BIC funds). The Company retains the BIC funds in a bank account segregated from funds from the operations of the Company and are reflected as restricted cash in the accompanying balance sheet.  Loans and/or distributions from the BIC funds are determined by a formula, as defined, in the joint venture operating agreement.  The interest income earned on the account in which these funds are held is allocable and distributable 95.0% to IWRRETI and 5.0% to Florida.  In addition, the interest income earned by the Company on any notes receivable that the Company loans to IWRRETI from the BIC funds is allocable in the same manner.  Included in the BIC funds was $45,000, representing IWRRETIs future capital contributions committed for future property acquisitions. Cash flow from the operations of the properties is to be distributed to Florida and IWRRETI according to their percentage interests, currently 80% and 20%, respectively.  Cash flow from a major capital event with respect to the Existing Portfolio, is to be distributed in the following order: · First, to IWRRETI, in an amount equal to the balance of the BIC funds at such time; and · Second, to Florida and IWRRETI, to the extent of and in proportion to any accrued and unpaid interest on Priority Loans, as defined; and · Third, to Florida and IWRRETI, to the extent of an in proportion to any outstanding principal balances on Priority Loans, as defined, and; · Fourth, to Florida and IWRRETI in proportion to their percentage interest, currently 80% and 20%, respectively. Upon the sale or disposition of all of the Existing Portfolio, if it is determined that Florida received a rate of return on its equity in excess of 11%, IWRRETI shall be entitled to 20% of such excess as computed.  Florida shall repay such amount to the Company within 30 days after the computation. Cash flow from a major capital event with respect to properties acquired or contributed subsequent to the Existing Portfolio, is to be distributed in the following order: · First, to IWRRETI, in an amount equal to the balance of the BIC funds at such time; and · Second, to Florida and IWRRETI to the extent of and in proportion to any accrued and unpaid interest on Priority Loans, as defined; and · Third, to Florida and IWRRETI to the extent of and in proportion to any outstanding principal balances on Priority Loans, as defined; and · Thereafter as follows: (1) to Florida and IWRRETI in accordance with their respective ownership interests until each has realized a cumulative 11% return as defined; and  107      (2) thereafter 80% to Florida and IWRRETI in accordance with their respective ownership interests and 20% to IWRRETI. Upon final liquidation of all of the Companys assets, IWRRETI may be required to pay to Florida the lessor of an amount, if necessary, to provide Florida with an overall 11% return or the sum of Excess Payments, as defined, previously received by IWRRETI. IWRRETI is the managing member of the Company and therefore, manages the day-to-day business.  IWRRETI earns fees for providing property management, acquisition and leasing services to the Company.  Major decisions require unanimous approval of the Executive Committee, comprised of three representatives of Florida and two representatives of IWRRETI. The Company is treated as a Partnership for federal and state income tax purposes.  Therefore, no provision has been made for income taxes as the liability for such taxes is that of the members. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates. Revenue Recognition:The Company commences revenue recognition on its leases based on a number of factors.  In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset.  Generally, this occurs on the lease commencement date.  The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins.  If the Company is the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete.  If the Company concludes it is not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives which reduces revenue recognized over the term of the lease.  In these circumstances, the Company begins revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements.  The Company considers a number of different factors to evaluate whether it or the lessee is the owner of the tenant improvements for accounting purposes.  These factors include: · whether the lease stipulates how and on what a tenant improvement allowance may be spent; · whether the tenant or landlord retains legal title to the improvements; · the uniqueness of the improvements; · the expected economic life of the tenant improvements relative to the length of the lease; and · who constructs or directs the construction of the improvements. The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment.  In making that determination, the Company considers all of the above factors.  No one factor, however, necessarily establishes its determination. Rental income is recognized on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable in the accompanying balance sheet. Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period the applicable expenditures are incurred.  The Company makes certain assumptions and judgments in estimating the reimbursements at the end of each reporting period.  108      The Company records lease termination income if there is a signed termination letter agreement, all of the conditions of the agreement have been met, and the tenant is no longer occupying the property. Upon early lease termination, the Company provides for losses related to unrecovered intangibles and other assets. Staff Accounting Bulletin ("SAB") No. 101: Revenue Recognition in Financial Statements, provides that a lessor should defer recognition of contingent rental income (i.e. percentage/excess rent) until the specified target (i.e. breakpoint) that triggers the contingent rental income is achieved.  The Company records percentage rental revenue in accordance with SAB 101. In conjunction with certain acquisitions, the Company receives payments under master lease agreements pertaining to certain non-revenue producing spaces either at the time of, or subsequent to, the purchase of these properties.  Upon receipt of the payments, the receipts are recorded as a reduction in the purchase price of the related properties rather than as rental income.  These master leases were established at the time of purchase in order to mitigate the potential negative effects of loss of rent and expense reimbursements.  Master lease payments are received through a draw of funds escrowed at the time of purchase and generally cover a period from three months to three years.  These funds may be released to either the Company or the seller when certain leasing conditions are met. The Company accounts for profit recognition on sales of real estate in accordance with Financial Accounting Standards Boards (FASB) Statement of Financial Accounting Standards (SFAS) No. 66: Accounting for Sales of Real Estate.  In summary, profits from sales will not be recognized under the full accrual method by the Company unless a sale is consummated; the buyers initial and continuing investments are adequate to demonstrate a commitment to pay for the property; the Companys receivable, if applicable, is not subject to future subordination; the Company has transferred to the buyer the usual risks and rewards of ownership; and the Company does not have substantial continuing involvement with the property. Cash and Cash Equivalents:The Company considers all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements purchased with a maturity of three months or less, at the date of purchase, to be cash equivalents. The Company maintains its cash and cash equivalents at financial institutions.  The combined account balances at one or more institutions periodically exceed the Federal Depository Insurance Corporation ("FDIC") insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.  The Company believes that the risk is not significant, as the Company does not anticipate the financial institutions' non-performance. Restricted Escrows:  Restricted escrows include funds received by third party escrow agents from sellers pertaining to master lease agreements and is included in other assets on the balance sheet. Real Estate:The investment property contribution was recorded in an amount equal to 80% of the fair value of the properties at the date of contribution plus 20% of IWRRETIs historical cost basis.  Ordinary repairs and maintenance are expensed as incurred. The Company allocates the purchase price of each acquired investment property between land, building and improvements, acquired above market and below market leases, in-place lease value, any assumed financing that is determined to be above or below market terms and the value of the customer relationships, if any. The allocation of the purchase price is an area that requires judgment and significant estimates.  The Company uses the information contained in the independent appraisal obtained upon acquisition of each property as the primary basis for the allocation to land and building and improvements. The Company determines whether any financing assumed is above or below market based upon comparison to similar financing terms for similar investment properties.  The Company allocates a portion of the purchase price to the estimated acquired in-place lease costs based on estimated lease execution costs for similar leases as well as lost rent payments during an assumed lease-up period when calculating as-if-vacant fair values.  The Company considers various factors including geographic location and size of leased space.  The Company also evaluates each significant acquired lease based upon current market rates at the acquisition date and considers various factors including geographical location, size and location of leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired lease is above or below market.  If an acquired lease is determined to be above or below market, the Company allocates a portion of the purchase price to such above or below market acquired lease based upon the present value of the difference between the contractual lease rate and the estimated market rate.  For  109      below market leases with fixed rate renewals, renewal periods are included in the calculation of below market lease values. The determination of the discount rate used in the present value calculation is based upon the "risk free rate." This discount rate is a significant factor in determining the market valuation which requires the Company's judgment of subjective factors such as market knowledge, economics, demographics, location, visibility, age and physical condition of the property. The Company allocated, as part of its acquisition of properties in 2007, $4,121 to the above market lease intangibles, $5,826 to the below market lease intangibles and $24,298 to the acquired in-place lease intangibles. Acquired above and below market leases are amortized on a straight-line basis over the life of the related leases as an adjustment to rental income. Acquired in-place leases are amortized over the average lease term as a component of amortization expense. Amortization pertaining to the above market lease intangibles of $426 was recorded as a reduction to rental income for the period ended December 31, 2007.  Amortization pertaining to the below market lease intangibles of $625 was recorded as an increase to rental income for the period ended December 31, 2007.  The Company incurred amortization expense pertaining to acquired lease intangibles of $2,405 for the period ended December 31, 2007. The table below presents the amortization during the next five years related to the acquired above and below market lease costs and acquired in-place lease intangibles for the properties owned at December 31, 2007. [iwest10k123107final058.gif] Depreciation expense is computed using the straight-line method.  Buildings and improvements are depreciated based upon estimated useful lives of 30 years for buildings and associated improvements and 15 years for site improvements and most other capital improvements. Tenant improvements and leasing fees are amortized on a straight-line basis over the life of the related lease as a component of depreciation and amortization expense. Loan fees are amortized using the effective yield method over the life of the related loans as a component of interest expense. In accordance with the SFAS No. 144: Accounting for the Impairment or Disposal of Long-Lived Assets,the Company performs a quarterly analysis to identify impairment indicators to ensure that each investment property's carrying value does not exceed its fair value. If an impairment indicator is present, the Company performs an undiscounted cash flow valuation analysis based upon many factors which require difficult, complex or subjective judgments to be made.  Such assumptions include projecting vacancy rates, rental rates, operating expenses, lease terms, tenant financial strength, economy, demographics, property location, capital expenditures and sales value among other assumptions to be made upon valuing each property.  This valuation is sensitive to the actual results of any of these uncertain factors, either individually or taken as a whole.  Based upon the Company's judgment, no impairment was warranted for the period ended December 31, 2007. Note Receivable:On June 14, 2007, IWRRETI borrowed $50,000 from the BIC funds as permitted.  The note bears interest at 4.8% and is to be repaid on the earlier to occur of (i) an event of default, as defined, or (ii) upon termination of the Companys operating agreement.  IWRRETI has the right to prepay the note without penalty. A note is considered impaired in accordance with SFAS No. 114: Accounting by Creditors for Impairment of a Loan.  Pursuant to SFAS No. 114, a note is impaired if it is probable that the Company will not collect all principal and interest contractually due.  The impairment is measured based on the present value of expected future cash flows discounted at the  110      note's effective interest rate.  The Company does not accrue interest when a note is considered impaired.  When ultimate collectability of the principal balance of the impaired note is in doubt, all cash receipts on the impaired note are applied to reduce the principal amount of the note until the principal has been recovered and are recognized as interest income thereafter.  Based upon the Company's judgment, the note receivable was not impaired as of December 31, 2007. Allowance for Doubtful Accounts: The Company periodically evaluates the collectability of amounts due from tenants and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under the lease agreements.  The Company also maintains an allowance for receivables arising from the straight-lining of rents.  This receivable arises from revenue recognized in excess of amounts currently due under the lease agreements.  Management exercises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates. The fair value of mortgages payable, is the amount at which the instrument could be exchanged in a current transaction between willing parties.  The fair value of the Companys mortgages approximated their book value at December 31, 2007.  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. (2) Mortgages Payable The Companys mortgages payable are secured by its investment properties and consist of the following at December 31, 2007: Property Name and LocationInterest Rate% (a)Maturity DatePrincipal 
BalanceHuebner Oaks, San Antonio, TX4.2007/01/2010$31,723Huebner Oaks, San Antonio, TX5.8607/01/201016,277Oswego Commons, Oswego, IL4.7512/11/201119,262Lincoln Park, Dallas, TX4.6111/01/200926,153Johns Creek Village, Duluth, GA5.1008/01/200923,300Gardiner Manor Mall, Islip, NY5.3503/01/201236,300Commons at Royal Palm, Village of Royal Palm Beach, FL6.8811/01/201214,020Southlake Corners, Southlake, TX5.5401/01/201220,625187,660Discount on debt assumed at acquisition, net of amortization(4,045)$183,615 (a)  All mortgages payable are at fixed rates. As of December 31, 2007, the required future principal payments on the Companys mortgages payable over the next five years are as follows: YearPrincipal
Payments2008$196200949,664201048,229201119,507201270,065Thereafter-$187,660   111      (3) Transactions with Related Parties The Company will pay IWRRETI an acquisition fee of 0.35% for the gross purchase price for each property.  There were no such fees paid during the period ended December 31, 2007. IWRRETI serves as property manager, and as such will receive from each property a property management fee equal to 4.5% of the actual monthly gross income generated by each property, provided the leases for the tenants of each property allow for full recovery of the 4.5% management fee as a pass-through expense.  In the event any such leases do not allow for recovery of any or all of the property management fee, then the property management fee payable shall be 3.5% of the actual monthly gross income generated by the lease in question.  For the period ended December 31, 2007, $786 in management fees were paid to IWRRETI. Included within this property management fee shall be all legal expenses for leases with any national tenants, the cost of insurance placement, construction supervision of all tenants tenant improvement build out, all in-house design work for marketing brochures, all accounting and reporting costs and expenses. The Company will pay IWRRETI leasing commissions consistent with market rates, as the same are then prevailing in the geographic area in which the potential property is located (when an outside broker is involved, the payout is the market rate plus 50%, and on a renewal, the payout is 50%).  There were no such fees paid for the period ended December 31, 2007. IWRRETI will be entitled to receive a disposition fee of $30 for each property (excluding the existing properties), if the property management fee paid to IWRRETI by the applicable property is 3.5%.  In the aggregate, such disposition fees shall not exceed $1,000.  There were no such fees paid during the period ended December 31, 2007. In the event that IWRRETIs brokerage division is engaged by the Company to sell the portfolio or a property to a third party on behalf of the Company, the sales commission will be negotiated at that time based upon then-prevailing market rates. IWRRETI will receive an administration fee of 0.25% of total acquisition cost for each property acquired.  This is to reimburse IWRRETI for the costs of any legal costs for the preparation of the purchase and sale documents for acquisition and dispositions, tax appeals, and the cost of placing all mortgage debt on the properties, to the extent such costs are incurred by IWRRETI and not otherwise reimbursed to IWRRETI.  There were no such fees paid during the period ended December 31, 2007. (4) Leases Operating Leases Minimum lease payments under operating leases to be received in the future, excluding rental income under master lease agreements and assuming no expiring leases are renewed are as follows: YearMinimum Lease
Payments2008$23,627200921,090201019,121201117,374201215,352Thereafter58,842$685,506  Certain tenant leases contain provisions providing for "stepped" rent increases.  GAAP requires the Company to record rental income for the period of occupancy using the effective monthly rent, which is the average monthly rent for the  112      entire period of occupancy during the term of the lease.  The accompanying financial statements include an increase of $382 of rental income for the period of occupancy for which stepped rent increases apply and are recorded in accounts and rents receivable as of and for the period ended December 31, 2007.  The Company anticipates collecting these amounts over the terms of the leases as scheduled rent payments are made. Master Lease Agreements In conjunction with certain acquisitions, we receive payments under master lease agreements pertaining to some non-revenue producing spaces at the time of purchase, for periods ranging from one to three years after the date of the purchase or until the spaces are leased.  GAAP requires that as these payments are received, they be recorded as a reduction in the purchase price of the respective property rather than as rental income.  The cumulative amount of such payments was $130 as of December 31, 2007. (5) Commitments and Contingencies The Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business.  While the resolution of these matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material adverse effect on the financial statements of the Company.   113      Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  Not applicable.  Item 9A.  Controls and Procedures  Evaluation of Disclosure Controls and Procedures  We have established disclosure controls and procedures to ensure that material information relating 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 December 31, 2007, our chief executive officer, chief operating officer/chief financial officer 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.  Managements Report on Internal Control Over Financial Reporting  Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control  Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2007.  The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.  Changes in Internal Controls  There were no changes to our internal controls over financial reporting during the fiscal quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.  Item 9B.  Other Information  None.  114      PART III  Item 10.  Directors, Executive Officers and Corporate Governance  The information required by this Item 10 will be incorporated by reference from the section captioned "Proposal No. 1 - Election of Directors and Executive Officers" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders.  Item 11.  Executive Compensation  The information required by this Item 11 will be incorporated by reference from the section captioned "Executive Compensation" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders.  Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  The information required by this Item 12 will be incorporated by reference from the section captioned "Certain Relationships and Related Transactions" and "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders.  Item 13.   Certain Relationships and Related Transactions, and Director Independence  The information required by this Item 13 will be incorporated by reference from the section captioned "Certain Relationships and Related Transactions" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders.  Item 14.   Principal Accounting Fees and Services  The information required by this Item 14 will be incorporated by reference from the section captioned "Principal Accounting Fees and Services" in the Company's definitive Proxy Statement for its 2008 Annual Meeting of Stockholders.  PART IV  Item 15.  Exhibits and Financial Statement Schedules  (a)  List of documents filed:  (1) The consolidated financial statements of the Company are set forth in the report in Item 8.  (2) Financial Statement Schedules:  Financial statement schedule for the year ended December 31, 2007 is submitted herewith.  PageValuation and Qualifying Accounts (Schedule II)82Real Estate and Accumulated Depreciation (Schedule III)83  (3) MS Inland Fund, LLC Financial Statements are included in the report submitted herewith. Schedules not filed:  All schedules other than those indicated in the index have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.  115       Exhibit No.Description3.1Third Articles of Amendment and Restatement of Inland Western Retail Real Estate Trust , Inc. (Included as Exhibit 3.1 to the Companys Annual Report / Amended on Form 10-K/A for the year ended December 31, 2006 filed on April 27, 2007 [File No. 000-5119] and incorporated herein by reference.)3.2.1Second Amended and Restated Bylaws of Inland Western Retail Real Estate Trust, Inc. as of February 11, 2005, (Included as Exhibit 3.2.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2004 and filed on March 7, 2005 [File No. 333-103799] incorporated herein by reference).4.1Specimen Certificate for the Shares (Included as Exhibit 4.1 to the Companys Registration Statement on Form S-11 filed on March 13, 2003 [File No. 333-103799] and incorporated herein by reference).10.5Independent Director Stock Option plan (Included as Exhibit 10.5 to the Companys Registration Statement on form S-11 filed on March 13, 2003 [File No. 333-103799] and incorporated herein by reference).10.517Amended and Restated Distribution Reinvestment Program of Inland Western Retail Real Estate Trust, Inc. (Included as Exhibit 99.1 to the Companys Current Report on Form 8-K filed on July 31, 2006 [File No. 000-51199] and incorporated herein by reference).10.518Amended and Restated Share Repurchase Program of Inland Western Retail Real Estate Trust, Inc. (Included as Exhibit 99.1 to the Companys Current Report on Form 8-K filed on December 15, 2006 [File No. 000-51199] and incorporated herein by reference).10.519Operating Agreement of MS Inland Fund, LLC (Included as Exhibit 10.1 to the Companys Current Report on Form 8-K filed on May 2, 2007 [File No. 000-51199] and incorporated herein by reference).10.520Agreement and Plan of Merger by and among Inland Western Retail Real Estate Trust, Inc., IWEST Acquisition 1 Inc., IWEST Acquisition 2, Inc., IWEST Acquisition 3, Inc., IWEST Acquisition 4, Inc., Inland Western Real Estate Advisory Services Inc., Inland Southwest Management Crop., Inland Northwest Management Corp., Inland Western Management Corp., Inland Western Real Estate Investment Corporation and IWEST Merger Agent LLC (Included as Exhibit 10.1 to the Companys Current Report on Form 8-K filed on August 17, 2007 [File No. 000-51199] and incorporated herein by reference).10.521Credit Agreement dated as of October 15, 2007 among Inland Western Real Estate Trust, Inc. as Borrower and KeyBanc National Association as Administrative Agent, KeyBanc Capital Markets as Lead Arranger and Book Manager, and Norddeutsche Landesbank Girozentrale New York Branch or Cayman Island Branch as Document Agent, and RBS Citizens, National Association, d/b/a Charter One as Syndication Agent, and The Several Lenders from Time to Time Parties hereto, as Lenders. (Included as Exhibit 99.1 to the Companys Current Report on Form 8-K filed on October 16, 2007 [file No. 000-51199] and incorporated herein by reference).10.522 - 
10.525Employment agreements by and between Inland Western Retail Real Estate Trust, Inc. and each of Michael J. OHanlon, Steven P. Grimes, Shane C. Garrison and Niall J. Byrne, effective November 15, 2007.  (Included as Exhibits 10.522, 10.523, 10.524 and 10.525 to the Companys Current Report on Form 8-K filed on November 16, 2007 [File No. 000-51199] and incorporated herein by reference).  116       10.526Purchase and Sale Agreement, dated September 25, 2007, among Kan Am Grund Kapitalanlagegesellschaft mbH, a German limited liability company (Purchaser), for the benefit of Kan Am grundivest Fonds, a German open-end real estate fund sponsored by Purchaser, Inland Western Minneapolis 3rd Avenue, L.L.C., a Delaware limited liability company (as owner of the Minneapolis property), Inland Western Phoenix 31st Avenue, L.L.C., a Delaware limited liability company (as owner of the Phoenix property), Inland Western Plantation Express, L.L.C. a Delaware limited liability company (as owner of the Ft. Lauderdale Property) and Inland Western Markham Limited Partnership, a limited partnership formed under the laws of Ontario, Canada, as owner of the Markham Property (Included as Exhibit 99.2 to the Companys Current Report on Form 8-K filed on December 20, 2007 [File No. 000-51199] and incorporated herein by reference).10.527Communications Services Agreement, dated January 1, 2004, by and between Inland Communications, Inc. and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.528Amendment to Communication Services Agreement, dated November 15, 2007, by and between Inland Communications, Inc. and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.529Computer Services Agreement, dated January 1, 2004, by and between Inland Computer Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.530Amendment to Computer Services Agreement, dated November 15, 007, by and between Inland Computer Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.531Escrow Agreement, dated November 15, 2007, by and among Inland Western Retail Real Estate Trust, Inc., Inland Real Estate Investment Corporation, IWEST Merger Agent, LLC, and LaSalle Bank, NA. (filed herewith)10.532Institutional Investor Relationships Services Agreement, dated November 15, 2007, by and between Inland Institutional Capital Partners Corporation and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.533Insurance and Risk Management Services Agreement, dated January 1, 2004, by and between Inland Risk and Insurance Management Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.534Amendment to Insurance and Risk Management Services Agreement, dated November 15, 2007, by and between Inland Risk and Insurance Management Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.535Landlord's Agreement, dated November 15, 2007, by and between Inland 2905 & 2907 Butterfield Road LLC. and Inland Western Retail Real Estate Trust, Inc. (filed herewith)10.536Legal Services Agreement, dated November 15, 2007, by and between The Inland Real Estate Group, Inc. and Inland Western Retail Real Estate Trust, Inc. (filed herewith)10.537License Agreement, dated November 15, 2007, by and between The Inland Real Estate Group, Inc. and Inland Northwest Management Corp. (filed herewith)10.538License Agreement, dated November 15, 2007, by and between The Inland Real Estate Group, Inc. and Inland Southwest Management Corp. (filed herewith)10.539License Agreement, dated November 15, 2007, by and between The Inland Real Estate Group, Inc. and Inland Western Management Corp. (filed herewith)  117       10.540License Agreement Modification, dated November 15, 2007, by and between The Inland Real Estate Group, Inc. and Inland Western Retail Real Estate Trust, Inc. (filed herewith)10.541Loan Services Agreement, dated January 1, 2004, by and between Inland Mortgage Servicing Corporation and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.542First Amendment to Loan Services Agreement, dated May 1 2005, by and between Inland Mortgage Servicing Corporation and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.543Second Amendment to Loan Services Agreement, dated May 1, 2005, by and between Inland Mortgage Servicing Corporation and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.544Third Amendment to Loan Services Agreement, dated November 15, 2007, by and between Inland Mortgage Servicing Corporation and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.545Mortgage Brokerage Services Agreement, dated January 1, 2004, by and between Inland Mortgage Investment Corporation and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)  (Inland Mortgage Investment Corporation subsequently assigned all right, title, obligation and interest under the agreement with Inland Western Real Estate Advisory Services, Inc. to Inland Mortgage Brokerage Services.)10.546First Amendment to Mortgage Brokerage Services Agreement, by and between Inland Mortgage Brokerage Services and Inland Western Retail Real Estate Advisory Services, Inc. dated November 1, 2006, (filed herewith)10.547Second Amendment to Mortgage Brokerage Services Agreement, by and between Inland Mortgage Brokerage Services and Inland Western Retail Real Estate Advisory Services, Inc. dated November 15, 2007, (filed herewith)10.548Office and Facilities Management Services Agreement, dated February 10, 2005, by and among Inland Facilities Management, Inc., Inland Office Services, Inc., Inland Real Estate Strategic Services., Inc. and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.549Amendment to Office and Facilities Management Services Agreement, dated November 15, 2007, by and among Inland Facilities Management, Inc., Inland Office Services, Inc., Inland Real Estate Strategic Services., Inc. (n/k/a Inland Purchasing Services, Inc.) and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.550Personnel Services Agreement, dated January 1, 2004, by and between Inland Payroll Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.551Amendment to Personnel Services Agreement, dated November 15, 2007, by and between Inland Payroll Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.552Transition Property Due Diligence Services Agreement, dated November 15, 2007, by and between Inland Real Estate Acquisitions, Inc. and Inland Western Retail Real Estate Trust, Inc. (filed herewith)10.553Property Tax Services Agreement, dated January 1, 2004, by and between Investors Property Tax Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)10.554Amendment to Property Tax Services Agreement, dated November 15, 2007, by and between Investors Property Tax Services, Inc. and Inland Western Retail Real Estate Advisory Services, Inc. (filed herewith)  118       10.555Registration Rights Agreement, dated November 15, 2007, by and among Inland Western Retail Real Estate Trust, Inc., Inland Real Estate Investment Corporation and IWEST Merger Agent LLC (filed herewith)10.556Sublease Agreement, dated November 15, 2007, by and between Inland Real Estate Investment Corporation and Inland Western Retail Real Estate Trust, Inc.10.557The Inland Group, Inc. Letter Agreement dated August 14, 2007 between The Inland Group, Inc. and Inland Western Retail Real Estate Trust, Inc. (included as Exhibit 10.2 to the Companys Current Report on Form 8-K filed on August 17, 2007 [File No. 000-51199] and incorporated herein by reference).10.558Consulting Agreement, dated August 14, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Daniel L. Goodwin (filed herewith)10.559Consulting Agreement, dated August 14, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Robert D. Parks (filed herewith)10.560Consulting Agreement, dated August 14, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and G. Joseph Cosenza10.561Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Richard P. Imperiale. (filed herewith)10.562Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Kenneth E. Masick. (filed herewith)10.563Indemnification Agreement, dated November 15, 2007,  by and between Inland Western Retail Real Estate Trust, Inc. and Joseph A. Fleming .(filed herewith)10.564Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Dione K. McConnell. (filed herewith)10.565Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and David P. Bennett. (filed herewith)10.566Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Kelly E. Tucek. (filed herewith)10.567Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and James Kleifges. (filed herewith)10.568Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Ann M. Sharp. (filed herewith)10.569Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Dennis K. Holland. (filed herewith)10.570Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Niall J. Byrne. (filed herewith)10.571Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Shane Garrison. (filed herewith)10.572Indemnification Agreement, dated November 15, 2007, by and between Inland Western Retail Real Estate Trust, Inc. and Michael J. OHanlon. (filed herewith)10.6 A-JIndemnification Agreements by and between Inland Western Retail Real Estate Trust , Inc. and its directors and named executive officers (Included as s 10.6 A-J to the Companys Annual Report / Amended on Form 10-K/A for the year ended December 31, 2006 filed on April 27, 2007 [File No. 000-51199] and incorporated herein by reference).  119       14.1Inland Western Retail Real Estate Trust, Inc. Code of Business Conduct and Ethics (Included as  14.1 to the Companys Annual Report / Amended filed on Form 10-K/A for the year ended December 31, 2006 filed on April 27, 2007 [File No. 000-51199] and incorporated herein by reference).31.1Certification of Chief Executive Officer and President pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 (filed herewith).31.2Certification of Chief Operating Officer and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 (filed herewith).31.3Certification 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 and President, Chief Operating Officer and Chief Financial Officer 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).    120      SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.  /s/ Michael J. OHanlonBy:Michael J. OHanlonChief Executive Officer and PresidentDate:March 27, 2008  Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:  /s/ Michael J. OHanlon/s/ Kenneth H. Beard/s/ Brenda G. GujralBy:Michael J. OHanlonBy:Kenneth H. BeardBy:Brenda G. GujralChief Executive Officer and PresidentDirectorDirectorDate:March 27, 2008Date:March 27, 2008Date:March 27, 2008/s/ Steven P. Grimes/s/ Frank A. Catalano, Jr./s/ Richard P. ImperialeBy:Steven P. GrimesBy:Frank A. Catalano, Jr.By:Richard P. ImperialeChief Operating Officer and Chief Financial OfficerDirectorDirectorDate:March 27, 2008Date:March 27, 2008Date:March 27, 2008/s/ James W. Kleifges/s/ Paul R. Gauvreau/s/ Kenneth E. MasickBy:James W. KleifgesBy:Paul R. GauvreauBy:Kenneth MasickChief Accounting OfficerDirectorDirectorDate:March 27, 2008Date:March 27, 2008Date:March 27, 2008/s/ Robert D. Parks/s/ Gerald M. Gorski/s/ Barbara A. MurphyBy:Robert D. ParksBy:Gerald M. GorskiBy:Barbara A. MurphyChairman of the Board and DirectorDirectorDirectorDate:March 27, 2008Date:March 27, 2008Date:March 27, 2008   121