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, 2006oTRANSITION 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 each 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, or a non-accelerated filer (See definition of "accelerated filer" in Rule 12b-2 of the Exchange Act). Large accelerated filer X           Accelerated filer  o          Non-accelerated filer  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, 2006 (the last business day of the registrant's most recently completed second fiscal quarter) was $4,417,341,560.  As of February 23, 2007, there were 488,366,255 shares of common stock outstanding.  Documents Incorporated by Reference:  Portions of the Registrants proxy statement for the annual shareholders meeting to be held in 2007 are incorporated by reference in Part III, Items 10, 11, 12, 13 and 14.       INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
TABLE OF CONTENTS PART IPageItem  1.Business1Item 1A.Risk Factors4Item 1B.Unresolved Staff Comments9Item  2.Properties10Item  3.Legal Proceedings12Item  4.Submission of Matters to a Vote of Security Holders12PART IIItem  5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer   Purchases of Equity Securities13Item  6.Selected Financial Data15Item  7.Management's Discussion and Analysis of Financial Condition and Results of Operations17Item  7A.Quantitative and Qualitative Disclosures About Market Risk36Item  8.Consolidated Financial Statements and Supplementary Data37Item  9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure88Item  9A.Controls and Procedures88Item  9B.Other Information88PART IIIItem 10.Directors, Executive Officers and Corporate Governance89Item 11.Executive Compensation89Item 12.Security Ownership of Certain Beneficial Owners and Management and Related   Stockholder Matters89Item 13.Certain Relationships and Related Transactions, and Director Independence89Item 14.Principal Accounting Fees and Services89PART IVItem 15.Exhibits and Financial Statement Schedules89SIGNATURES91  -i-    PART I  Item 1.  Business  General  Inland Western Retail Real Estate Trust, Inc. is a real estate investment trust (REIT) that acquires and manages a diversified portfolio of real estate, primarily multi-tenant shopping centers and single-user net lease properties.  Inland Western Retail Real Estate Advisory Services, Inc. our business manager/advisor manages, for a fee, our day-to-day affairs, subject to the supervision of our board of directors.  As of December 31, 2006, our portfolio of operating properties consisted of 288 properties wholly-owned by us (the wholly-owned properties), 18 properties of which we own between 45% and 95% (the consolidated joint venture properties) and two additional joint venture properties which we also consolidate and classify as other joint venture properties.  We have also invested in four development joint venture projects, three of which we consolidate.  The properties in our portfolio are located in 38 states and one Canadian province.  At December 31, 2006, the portfolio (excluding the other joint venture properties) consisted of 179 multi-tenant shopping centers and 127 free-standing single-user 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 45 million square feet of gross leasable area, or GLA, of which approximately 97% of the GLA was leased at December 31, 2006.  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, 2006, approximately 58% 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.  We have raised a total of over $4.2 billion in our two offerings. Current stockholders can reinvest their distributions in our distribution reinvestment program, or DRP.  Approximately 50% of our monthly distributions to stockholders are being reinvested through the DRP.  The total we expect to receive from the DRP at the current rate of investment is approximately $150 million on an annual basis.  Since we leverage our properties at approximately 50%, the combination of DRP proceeds, together with financing proceeds from properties we acquire would allow us to purchase approximately $300 million in new properties each year.  The actual amount invested will likely be greater due to the availability of our current net cash and financing to be funded on properties we already own. However, we cannot be sure that the current rate of reinvestment will continue, as investors have many alternatives available, some of which may be more attractive to them.  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 and number of leases.  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 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.  Because we own over 45,000 square feet of GLA, day-to-day property management is a key element of our operating strategy. Our asset management philosophy includes working closely with our property managers to achieve the following goals:   -1-    § 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.  Acquisition Strategies  Although we have concluded our public offerings, we continue to raise funds through property financings, DRP proceeds and operations.  Therefore, management continues to focus on acquiring properties that meet our investment objectives.  We intend to continue to acquire a diversified (by geographical location and by type and size of shopping centers) portfolio of real estate primarily improved for use as retail establishments, principally grocery and discount anchored multi-tenant shopping centers.  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.    -2-     Tax Status  We qualified and have elected to be taxed as a real estate investment trust, or REIT, under Sections 856 through 860 of the Internal Revenue Code of 1986, or the Code, for the tax year ending December 31, 2006. Since we qualify for taxation as a REIT, we generally will not be subject to Federal income tax to the extent we distribute at least 90% of our REIT taxable income 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 and property 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.  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 real estate investment trusts, 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 we have achieved relatively high occupancy levels at our properties through our knowledge of the competitive factors in the markets where we operate.  Employees  As of December 31, 2006, we did not have any employees.  We utilize the services of our business manager/advisor and property managers, at agreed fees, as these entities employ persons who provide services to us.  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 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.  Certifications  We have filed with the Securities and Exchange Commission (SEC) the chief executive officer and principal financial officer certifications required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, which are attached as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K.    -3-     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 customer 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 is  www.inlandgroup.com. The information contained on our website, or other websites linked to our website, is not part of this document.  Stockholders wishing to communicate 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 statement and the related notes.  General Investment Risks       Our common stock is not currently listed on an exchange or trading market and cannot be readily sold. There is currently no public trading market for the shares and we cannot assure investors that one will develop. We may never list the shares for trading on a national stock exchange or include the shares for quotation on a national market system.  The absence of an active public market for our shares could impair an investors ability to sell our stock at a profit or at all.  By September 15, 2008, our board of directors will determine whether it is in our best interests to apply to have the shares listed on a national stock exchange or included for quotation on a national market system if we meet the applicable listing requirements at that time.           There are conflicts of interest between us and our affiliates.Our operation and management including acquisition of properties may be influenced or affected by conflicts of interest arising out of our relationship with our affiliates.  Our business manager/advisor and its affiliates are or will be engaged in other activities that will result in potential conflicts of interest with the services that the business manager/advisor and affiliates will provide to us.  Those affiliates could take actions that are more favorable to other entities than to us.  The resolution of conflicts in favor of other entities could have a negative impact on our financial performance. Specific conflicts of interest between us and our affiliates include: · Our business manager/advisor and its affiliates receive fees and other compensation based upon our investments and therefore our business manager/advisor and its affiliates may recommend that we make investments in order to increase their compensation.  Our business manager/advisor and its affiliates receive fees and other compensation based upon our investments.  They benefit by us retaining ownership of our assets and leveraging our assets, while investors may be better served by sale or disposition or not leveraging the assets.  In addition, our business manager/advisor's ability to receive fees and reimbursements depends on our continued investment in properties and in other assets which generate fees.  Our business manager/advisor receives fees based on the book value including acquired intangibles of the properties under management.  Our property managers receive fees based on the revenues from properties under management.  Therefore, our business manager/advisor and/or property managers may recommend that we purchase properties that generate fees for our business manager/advisor and property managers, but are not necessarily the most suitable investment for our portfolio.  In addition, our affiliates, who receive fees, including our  -4-    business manager/advisor, may recommend that we acquire properties, which may result in our incurring substantive amounts of indebtedness.  Therefore, the interest of our business manager/advisor and its affiliates in receiving fees may conflict with our ability to earn income and may result in our incurring substantive amounts of indebtedness.  The resolution of this conflict of interest may adversely impact our cash flow and our ability to pay distributions. · There is competition for the time and services of our business manager/advisor and our business manager/advisor may not dedicate the time necessary to manager our business.  We rely on our business manager/advisor and its affiliates for our daily operation and the management of our assets. Our officers and other personnel of our business manager/advisor and its affiliates have conflicts in allocating their management time, services and functions among the real estate investment programs they currently service and any future real estate investment programs or other business ventures which they may organize or serve.  Those personnel could take actions that are more favorable to other entities than to us.  The resolution of conflicts in favor of other entities could have a negative impact on our financial performance. · We do not have arm's-length agreements, which could contain terms which are not in our best interest.  Our agreements and arrangements with our business manager/advisor and property managers or any of its affiliates, including those relating to compensation, are not the result of arm's length negotiations.  These agreements may contain terms that are not in our best interest and would not otherwise be applicable if we entered into arm's-length agreements.      We depend on our board of directors, business manager/advisor and property managers and losing those relationships could negatively affect our operations. Our board of directors has supervisory control over all aspects of our operations.  Our ability to achieve our investment objectives will depend to a large extent on the board's ability to oversee, and the quality of, the management provided by the business manager/advisor, the property managers, their affiliates and employees for day-to-day operations.  Therefore, we depend heavily on the ability of the business manager/advisor and its affiliates to retain the services of each of its executive officers and key employees.  However, none of these individuals has an employment agreement with the business manager/advisor or its affiliates.  The loss of any of these individuals could have a material adverse effect on us.  These individuals include Daniel L. Goodwin, Robert H. Baum, G. Joseph Cosenza, Robert D. Parks, Thomas P. McGuinness, Roberta S. Matlin and Brenda G. Gujral. Our 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 stockholders investment. In accordance with our share repurchase program, a maximum of 5% of the weighed average number of shares of our stock outstanding during the prior calendar year may be repurchased by us.  This standard limits the number of shares we can purchase.  Our board 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 diminished. 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  -5-    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.  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. In addition, we own and operate predominantly grocery and discount anchored retail centers.  To the extent that the investing public has a negative perception of the retail sector, the value of our common stock may be negatively impacted.     · If our tenants are unable to make rental payments, if their rental payments are reduced, or if they terminate a lease, our financial condition and ability to pay distributions will be adversely affected.  We are subject to the risk that tenants, as well as lease guarantors, if any, may be unable to make their lease payments or may decline to extend a lease upon its expiration.  A default by a tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a tenant's election not to extend a lease upon its expiration, could have an adverse effect on our financial condition and our ability to pay distributions.       · Our financial condition and ability to make distributions may be adversely affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of a tenant that occupies a large area of the retail center (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 claims bankruptcy, we may be unable to collect balances due under relevant leases.  Any or all of the tenants, or a guarantor of a tenant's lease obligations, could be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States.  Such a bankruptcy filing would bar all efforts by us to collect pre-bankruptcy debts from these entities or their properties, unless we receive an enabling order from the bankruptcy court.  Post-bankruptcy debts would be paid currently.  If a lease is assumed, all pre-bankruptcy balances owing under it must be paid in full.  If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages.  If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid.  This claim could be paid only in the event funds were available, and then only in the same percentage as that realized on other unsecured claims.  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, or guaranty of a lease, is not assumed, our cash flow and the amounts available for distributions to stockholders may be adversely affected.  -6-    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.           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 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.           If we invest in joint ventures, the objectives of our partners may conflict with our objectives. We may make investments in joint ventures or other partnership arrangements between us and 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 co-venturer may file for bankruptcy protection, may have economic or business interests or goals which are inconsistent with our interests or goals, or may take actions contrary to our instructions, requests, policies or objectives.  Among other things, actions by a co-venturer might subject real properties owned by the joint venture to liabilities greater than those contemplated by the terms of the joint venture or other adverse consequences.     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 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 of our affiliates 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 inherent in construction and development, including cost overruns, carrying costs of projects under construction or development, availability and costs of materials and labor, adverse weather conditions and governmental regulation. If we enter into development joint venture projects, they 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  -7-    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. If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits. Each tenant is responsible for insuring its goods and premises and, in some circumstances, may be required to reimburse us for a share of the cost of acquiring comprehensive insurance for the property, including casualty, liability, fire and extended coverage customarily obtained for similar properties in amounts which our business manager/advisor determines are sufficient to cover reasonably foreseeable losses.  Tenants on a net lease typically are required to pay all insurance costs associated with their space. Material losses may occur in excess of insurance proceeds with respect to any property as insurance may not have sufficient resources to fund the losses.  However, there are types of losses, generally of a catastrophic nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or 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 potential properties.  In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses.  We cannot assure our stockholders that we will have adequate coverage for such losses. 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 of mortgage debt to the entity that owns our properties.  In such cases, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity.  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. 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.      Taxation Risks If we fail to maintain our REIT status, our distributions will not be deductible to us and our taxable income will be subject to taxation.  We have qualified as a REIT under the Internal Revenue Code of 1986, as amended, which affords us significant tax advantages.  The requirements for this qualification, however, are complex.  If we fail to continue to meet these requirements, our distributions will not be deductible to us and we will have to pay a corporate level tax on our  -8-    taxable income.  This would substantially reduce our cash available to pay distributions and the yield on a stockholders investment.  In addition, tax liability might cause us to borrow funds, liquidate some of our investments or take other steps which could negatively affect our operating results.  Moreover, if our REIT status is terminated because of our failure to meet a technical REIT test, we would be disqualified from electing treatment as a REIT for the four taxable years following the year in which REIT status is lost.      Even REITS are subject to federal and state income taxes. Even if we qualify and maintain our status as a REIT, we may become subject to federal income taxes and related state taxes.  For example, if we have net income from a "prohibited transaction," such income will be subject to a 100% tax.  We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs.  We may also decide to retain income we earn from the sale or other disposition of our property and pay income tax directly on such income.  In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly.  However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability.  In addition, we may also be subject to state and local taxes on our income or property, either directly or at the level of the operating partnership or at the level of the other companies through which we indirectly own our assets.  We cannot assure stockholders that we will be able to continue to satisfy the REIT requirements.      The annual statement of value that we will be sending to stockholders subject to ERISA and to certain other plan stockholders is only an estimate and may not reflect the actual value of our shares. The annual statement of value will report the value of each common stock based as of the close of our fiscal year.  No independent appraisals will be obtained and the value will be based upon an estimated amount we determine would be received if our properties and other assets were sold as of the close of our fiscal year and if such proceeds, together with our other funds, were distributed pursuant to liquidation.  However, the net asset value of each share of common stock is deemed to be $10 during the offerings and for the first three years following the termination of this offering.Because this is only an estimate, we may subsequently revise any annual valuation that is provided.  We cannot assure that: · a value included in the annual statement could actually be realized by us or by our stockholders upon liquidation; · stockholders could realize that value if they were to attempt to sell their common stock; or · an annual statement of value would comply with any reporting and disclosure or annual valuation requirements under ERISA or other applicable law.  We will stop providing annual statements of value if the common stock becomes listed for trading on a national stock exchange or included for quotation on a national market system. Item 1B.  Unresolved Staff Comments  We have no outstanding unresolved comments from the SEC staff regarding our periodic or current reports.    -9-    Item 2. Properties  As of December 31, 2006, we owned, through separate limited partnerships, limited liability companies, or joint venture agreements a portfolio of 306 operating properties (excluding the other joint venture properties) containing an aggregate of 45,132 square feet of GLA located in 38 states and one Canadian province. As of December 31, 2006, 302 of the properties in our portfolio and the related tenant leases are pledged as collateral securing mortgage debt of $4,312,463. As of December 31, 2006, approximately 97% of our GLA was physically leased and 98% was economically leased.  The weighted average GLA occupied at December 31, 2006 and 2005 was 97% and 98%, respectively. The following table provides a summary of the properties in our portfolio at December 31, 2006.   Geographic AreaNumber of PropertiesGross Leasable Area 
(Sq. Ft.)Occupancy % as of 12/31/06Occupancy % as of 12/31/05WestArizona, California, Colorado, Montana, Nevada, New Mexico, Utah, Washington589,10497%97%SouthwestArkansas, Louisiana, Oklahoma, Texas668,38397%98%MidwestIllinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Ohio, Wisconsin, Ontario, Canada4210,23598%98%NortheastConnecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, Vermont728,59196%96%SoutheastAlabama, Florida, Georgia, Kentucky, North Carolina, South Carolina, Tennessee, Virginia688,81998%99%Totals30645,132  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  -10-    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, 2006, 71 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 segments of certain troubled retailers spaces back and re-leasing at market rent. We believe that many of these locations are currently leased for 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. The tenants with which we have concerns represent less than 2% of our annualized income stream as of December 31, 2006.  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 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 growth opportunities in future years.  The following table lists the top 10 tenants in our portfolio according to the amount of gross leasable square footage that each occupied at December 31, 2006.  TenantGross Leasable Area (Sq. Ft.)Percent of Total Portfolio GLAAnnualized Base Rent ($)Percent of Total Portfolio Annualized Base RentAmerican Express2,5975.8%25,3194.5%Mervyn's1,8974.2%17,3413.1%PETsMART1,6783.7%11,8022.1%Wal-Mart1,2542.8%7,3841.3%Hewitt Associates1,1622.6%15,1062.7%Home Depot1,0972.4%8,5631.5%Kohl's9622.1%6,4461.1%Ross Dress for Less9522.1%9,6921.7%Zurich American Insurance Company8952.0%8,8841.6%Circuit City8882.0%10,7301.9%    -11-    The following table represents an analysis of lease expirations over the next 10 years based on the leases in place at December 31, 2006.   Lease Expiration YearNumber of Leases ExpiringGLA Under Expiring Leases (Sq. Ft.)Percent of Total Leased GLATotal Annualized Base Rent ($)Percent of Total Annualized Base RentAnnualized Base Rent ($/Sq. Ft.)20073167401.64%13,0992.30%17.7120084051,2852.85%22,6634.05%17.6320096092,2995.09%39,5287.30%17.1920104591,8114.01%31,8806.28%17.6120113312,2384.96%36,9987.73%16.5320122091,6093.57%26,0755.88%16.2020132292,4105.34%32,2047.68%13.3720142906,10813.53%85,61522.02%14.0220152315,16111.44%55,29618.15%10.7120161063,6478.08%38,50515.35%10.56  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 will not have a material adverse effect on our results of operations or financial condition.  Item 4. Submission of Matters to a Vote of Security Holders  Our annual meeting of the stockholders was held on October 10, 2006. (Share amounts in this item are not stated in thousands.)  (1) Our stockholders elected to the board all seven director nominees with the following votes:  NomineeForWithheldKenneth H. Beard (Independent Director)235,956,3895,442,033Frank A. Catalano (Independent Director)235,915,0775,483,345Paul R. Gauvreau (Independent Director)235,905,9445,492,478Gerald M. Gorski (Independent Director)235,927,5055,470,917Brenda G. Gujral (Director)235,822,2465,576,177Barbara A. Murphy (Independent Director)235,405,2565,993,166Robert D. Parks (Director)236,005,2695,393,153  (2) Our stockholders ratified the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2006.  Stockholders holding 233,122,157 shares voted in favor of the proposal, stockholders holding 1,856,728 shares voted against the proposal and stockholders holding 6,419,537 shares abstained from voting on this proposal.  (3) Our stockholders voted to amend and restate our charter to remove references to independent director and limitations on exculpation and indemnification.  Stockholders holding 224,640,825 shares voted in favor of the proposal, stockholders holding 6,304,899 shares voted against the proposal and stockholders holding 10,452,699 shares abstained from voting on this proposal.  -12-    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. 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.  Subject to certain restrictions, the SRP enables stockholders to sell shares back to us at prices ranging from $9.25 to $10.00, depending on how long the stockholder has owned the shares at the liquidation date.  The following table outlines the stock repurchases made during the fourth quarter ended December 31, 2006:  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, 2006 - October 31, 2006623$9.4362313,357November 1, 2006 - November 30, 20065249.4352412,833December 1, 2006 - December 31, 20063429.4334212,491Total1,4891,489  (1) For 2006, our board of directors established the limitation on the number of shares that could be acquired by us through the SRP at five percent (5%) of the weighted average shares outstanding as of December 31, 2005.  The share repurchase limit for 2006 was 17,532.  Stockholders  As of February 23, 2007, we had 116,368 stockholders of record.  Distributions  We have been paying monthly distributions since October 2003. The table below depicts the distributions declared and their tax status for each year.  Distributions declared perReturnOrdinaryYearcommon shareof capitalIncome2006$.64$.35$.292005.64.29.352004.66.30.362003 (1).15.15-  (1) Period from March 5, 2003 (inception) through December 31, 2003.     -13-    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 stockholders 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.  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, 2006: (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 tock 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 Rights (b)Column (a))Equity Compensation Plans Approved by Security Holders---Equity Compensation Plans Not Approved by Security   Holders22,500$8.9552,500  -14-    Item 6. Selected Financial Data  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland Corporation)
For the years ended December 31, 2006, December 31, 2005 and December 31, 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)  2006200520042003Total assets$8,328,2748,085,9333,955,816212,102Mortgages and notes payable$4,313,2233,941,0111,783,11429,627Total revenues$710,103518,055130,575745Net income (loss)$31,94345,24911,701(173)Net income (loss) per common share, basic and   diluted (a)$.07.13.12(.07)Distributions declared (c)$283,903223,71664,9921,286Distributions declared per common share (a)$.64.64.66.15Funds from operations (b)$289,747232,85357,71319Cash flows provided by operating activities (c)$296,165201,85763,520724Cash flows used in investing activities$(523,058)(3,942,227)(3,243,055)(133,425)Cash flows provided by financing activities$155,7973,797,9933,356,378197,082Weighted average number of common shares   outstanding, basic and diluted441,816350,64498,5632,521  The above selected financial data should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this annual report.  (a) The net income (loss) and distributions per share are based upon the weighted average number of common shares outstanding.  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 stockholder's 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 stockholders shares.  For the year ended December 31, 2006, $154,807 (or approximately 55% of the $283,769 paid in 2006) 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 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 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.   -15-    (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:  2006200520042003Net income (loss)$31,943$45,249$11,701$(173)Add:Depreciation and amortization     related to investment properties259,884189,63146,105192Less:Minority interests share of     depreciation related to consolidated     joint ventures(2,080)(2,027)(93)-Funds from operations$289,747$232,853$57,713$19  (c) The following table compares cash flows provided by operations to distributions declared:  2006200520042003Cash flows provided by operations$296,165201,85763,520724Distributions declared283,903223,71664,9921,286Excess (Deficiency)$12,262(21,859)(1,472)(562)   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.  -16-    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 Form 10-K constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995.  These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. The following discussion and analysis compares the year ended December 31, 2006 to the years ended December 31, 2005 and 2004. 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.  Executive Summary  Our goal is to maximize the possible return to our stockholders 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 stockholders, and intend to continue distributions in order to maintain our REIT status.  During the year ended December 31, 2006, we invested approximately $570,000 for the acquisition of 15 multi-tenant shopping centers, three single-user net lease properties and funding of 67 earnouts on properties which we already own containing a total GLA of approximately 4 million square feet. See Item 2 - "Properties" for a more detailed description of these properties. We also invested approximately $57,000 in four development joint venture projects and development of our current portfolio. We received approximately $154,000 in investor proceeds through our DRP, and obtained approximately $426,000 in financing proceeds.  Overall retail sales rose by 0.9% in December 2006. This was the largest gain seen in five months. Sales at electronic and appliance stores surged by 3%, while sales at department stores and other general merchandise stores such as Wal-Mart and Target rose a solid 0.9%.  In addition, sales at specialty clothing stores, which had been down two straight months, posted a 0.6% rise in December.  The strong performance of the retail sector during the holiday season, coupled with a jump in consumer confidence in January 2007, has lifted hopes that the economy, after enduring a sluggish period in 2006, has begun to rebound. As economists acknowledge, consumer spending plays a major role in shaping overall economic activity.  We believe most of the upswing in consumer confidence can be traced to a more upbeat attitude concerning current economic conditions such as the housing market and gasoline prices.  Despite all of these positive indicators, the National Retail Federation is forecasting a retail slowdown in 2007.  Retail sales are predicted to increase 4.8% in 2007, down from a 6.8% increase in 2006, with modest gains in the first half of the year, followed by stronger growth in the second half.  The luxury sector is expected to continue to outperform other sectors, with online sales continuing to grow.  Sales at building material, garden equipment chains and furniture stores are expected to slow as a result of the soft housing market.  Of the 306 properties we had purchased as of December 31, 2006, 136 were located west of the Mississippi River.  These 136 properties equate to approximately 45% of our GLA and approximately 46% of our annualized base rental income as of December 31, 2006. The remaining 170 properties purchased were located east of the Mississippi River.  Results of Operations  General  The following discussion is based primarily on our consolidated financial statements as of December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004.  -17-     Quarter EndedProperties Purchasedper QuarterSquare Feet AcquiredAggregate Purchase Price (1)March 31, 2003NoneN/AN/AJune 30, 2003NoneN/AN/ASeptember 30, 2003NoneN/AN/ADecember 31, 20038797$127,017March 31, 2004112,117$385,034June 30, 2004234,171$733,215September 30, 2004265,676$863,580December 31, 2004437,412$1,310,149March 31, 2005243,348$465,484June 30, 2005528,019$1,570,753September 30, 2005557,019$1,017,258December 31, 2005462,532$540,586March 31, 20066860$137,775June 30, 200682,103$267,959September 30, 20061257$66,176December 31, 20063821$139,613Total30645,132$7,624,599  (1) Aggregate purchase price includes earnouts funded during each quarter on previously acquired properties.  The table above excludes other joint venture properties.  Comparison of the Year Ended December 31, 2006 to December 31, 2005 - Total Portfolio  The table below presents selected operating information for our total portfolio properties (including the other joint venture properties) for the years ended December 31, 2006 and 2005.  Total Portfolio$%20062005ChangeChangeRevenues:Rental income$572,868$416,787$156,08137.4%Tenant recovery income125,43793,42032,01734.3Other property income11,7987,8483,95050.3Total revenues710,103518,055192,04837.1Expenses:Property operating expenses120,21283,18137,03144.5Real estate taxes79,89454,27325,62147.2Depreciation and amortization259,884189,63170,25337.0General and administrative expenses14,97510,8134,16238.5Advisor asset management fee39,50020,92518,57588.8Total expenses514,465358,823155,64243.4Operating income195,638159,23236,40622.9Dividend income37,5017,56129,940396.0Interest income23,12720,4662,66113.0Other income111118(7)(5.9)Interest expense(223,098)(141,039)(82,059)58.2  -18-       Rental Income, Tenant Recovery Income and Other Property Income. Rental income consists of basic monthly rent and percentage rental income due pursuant to tenant leases.  Tenant recovery income and other property income consist of property operating expenses recovered from the tenants including real estate taxes, property management fees and insurance as well as lease termination fee income and other miscellaneous operating income. Rental income of the total portfolio increased $156,081 or 37.4% and tenant recovery and other property income of the total portfolio increased $35,967 or 35.5%.  The increase was due primarily to 308 properties (including the other joint venture properties) being owned and operated for the year ended December 31, 2006 compared to 290 properties (including the other joint venture properties) for the year ended December 31, 2005.  178 of the properties in our portfolio (including the other 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.  Property Operating Expenses (including Real Estate Taxes).  Property operating expenses consist of property management fees and property operating expenses, including real estate taxes, costs of owning and maintaining shopping centers, insurance, and maintenance to the exterior of the buildings and the parking lots.  The increase in these expenses of $62,652 or 45.6% for the total portfolio was due primarily to 308 properties (including the other joint venture properties) being owned and operated for the year ended December 31, 2006 compared to 290 properties (including the other joint venture properties) for the year ended December 31, 2005.  Depreciation and Amortization.  Depreciation expense of the total portfolio increased $55,211 or 37.5% due to depreciation on 308 properties (including the other joint venture properties) compared to 290 properties (including the other joint venture properties) owned during the years ended December 31, 2006 and 2005, respectively.The increase in amortization expense of the total portfolio of $15,042 or 35.6% was due to the amortization of intangible assets in the amount of approximately $556,000 and $516,000 and the amortization of leasing fees in the amount of approximately $3,000 and $1,500 during the years ended December 31, 2006 and 2005, respectively.  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 $4,162 or 38.5% 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 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 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. 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 includes income earned on our operating bank accounts, short-term cash investments and notes receivable.  The increase of $2,661 or 13.0% 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 Income.Other income includes miscellaneous non-operating income earned and non-operating expenses paid by us.  The decrease of $7 or 5.9% resulted from a decrease in the fees collected related to investor transfers and liquidations during the year ended December 31, 2006 as compared to December 31, 2005.   -19-    Interest Expense. The increase in interest expense of the total portfolio of $82,059 or 58.2% was due to the financing on 304 properties (including the other joint venture properties) compared to 269 properties (including the other 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 111 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.  Revenues:20062005Same store investment properties (111 properties):Rental income$269,773$264,021Tenant recovery income62,92366,463Other property income4,4533,380Other investment properties:Rental income282,252131,168Tenant recovery income62,51426,957Other property income7,1684,468Total rental and additional rental income689,083496,457Expenses:Same store investment properties (111 properties):Property operating expenses59,70856,231Real estate tax expense39,77739,053Other investment properties:Property operating expenses56,23723,810Real estate tax expense40,11715,220Total property operating expenses195,839134,314Property net operating income:Same store investment properties237,664238,580Other investment properties255,580123,563Total net operating income493,244362,143Other income:Straight-line rental income18,18616,103Amortization of above and below market and lease intangibles2,6575,495Operating income of Captive insurance company177-Dividend income37,5017,561Interest income23,12720,466Other income111118Realized gain on sale of securities4161Minority interests1,9751,350Other expenses:Straight-line ground lease expense(3,923)(3,140)Operating expenses of Captive insurance company(344)-Depreciation and amortization(259,884)(189,631)General and administrative expenses(14,975)(10,813)Advisor asset manager fee(39,500)(20,925)Interest expense(223,098)(141,039)Equity in losses of unconsolidated entities(3,727)(2,440)Net income$31,943$45,249  -20-       On a same store basis, property net operating income decreased by $916, with total property operating revenues increasing by $3,285, and total property operating expenses increasing by $4,201 for the years ended December 31, 2006 and 2005.  Same store property operating revenues for the years ended December 31, 2006 and 2005 were $337,149 and $333,864, respectively.  The primary reason for the increase was an increase in rental income due to new tenants at these centers that filled vacancies that existed at the time of purchase.  Many of the vacancies at these centers were 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. Same store property operating expenses for the years ended December 31, 2006 and 2005 were $99,485 and $95,284, respectively.  The increase in property operating expense was primarily caused by an increase in common area maintenance costs, including utility costs (gas and electric) and snow removal costs in 2006.  Comparison of the Year Ended December 31, 2005 to December 31, 2004  Total Portfolio  The table below presents selected operating information for our total portfolio of properties (including the other joint venture properties) for the years ended December 31, 2005 and December 31, 2004.  Total Portfolio$%20052004ChangeChangeRevenues:Rental income$416,787$106,425$310,362291.6%Tenant recovery income93,42023,15570,265303.5Other property income7,8489956,853688.7Total revenues518,055130,575387,480296.7Expenses:Property operating expenses83,18119,44663,735327.8Real estate taxes54,27313,07641,197315.1Depreciation and amortization189,63146,105143,526311.3General and administrative expenses10,8134,8565,957122.7Advisor asset management fee20,925-20,925N/ATotal expenses358,82383,483275,340329.8Operating income159,23247,092112,140238.1Dividend income7,561-7,561N/AInterest income20,4663,49116,975486.3Other income1182098490.0Interest expense(141,039)(35,043)105,996302.5  Rental Income, Tenant Recovery Income and Other Property Income. Rental income consists of basic monthly rent and percentage rental income due pursuant to tenant leases.  Tenant recovery and other property income consist of property operating expenses recovered from the tenants including real estate taxes, property management fees and insurance. Rental income increased $310,362 and all additional property income increased $77,118.  The increase was due primarily to 290 properties (including the other joint venture properties) owned and operated for the year ended December 31, 2005 compared to 112 properties (including one other joint venture property) for the year ended December 31, 2004.  Property Operating Expenses (including Real Estate Taxes).  Property operating expenses consist of property management fees and property operating expenses, including real estate taxes, costs of owning and maintaining shopping centers, insurance, and maintenance to the exterior of the buildings and the parking lots.  The increase was due primarily to 290 properties (including the other joint venture properties) owned and operated for the year ended December 31, 2005  -21-    compared to 112 properties (including one other joint venture property) for the year ended December 31, 2004. The events of hurricanes during 2005 in the southeastern parts of the United States did not materially affect the operations of our properties located within this region. Minor damage occurred at some properties, with the total cost of damages estimated to range from $100 to $150. Depreciation and Amortization.  Depreciation expense increased $111,204 due to depreciation on 290 properties (including the other joint venture properties) compared to 112 properties (including one other joint venture property) owned during the years ended December 31, 2005 and 2004, respectively.The increase in amortization expense of $32,322 was due to the application of SFAS 141 and SFAS 142 resulting in the amortization of intangible assets of approximately $516,000 and $250,000 and the amortization of leasing fees of approximately $1,500 and $760 during the years ended December 31, 2005 and 2004, respectively.  General and Administrative Expenses. General and administrative expenses consist of salaries and computerized information services costs reimbursed to affiliates for maintaining our accounting and investor records, affiliates common share purchase discounts, insurance, postage, printing costs and fees paid to accountants and lawyers.  The increase of $5,957 in general and administrative expenses resulted from dramatically increased services required as we grew our portfolio of investment properties and our investor base.  Dividend Income.Dividend income includes dividends earned on our marketable securities and other investments.  The increase of $7,561 from December 31, 2004 to December 31, 2005 is due to the significant increase in funds that we invested in securities and other investments during 2005.  The balance of our investments in marketable securities and other investments rose from $1,287 at December 31, 2004 to $408,693 at December 31, 2005.  Interest Income.Interest income includes income earned on our operating bank accounts, short-term cash investments and notes receivable.  The increase of $16,975 was due a significant increase in the amount of cash that we had invested in short-term investments and notes receivable during 2005.  Other Income.Other income includes miscellaneous non-operating income earned by us.  The increase of $98 during 2005 resulted from increased miscellaneous fees and other income generated as our portfolio of properties and investor base grew.  Interest Expense. The increase of $105,996 was due to the financing on 269 properties (including the other joint venture properties) compared to 97 properties (including one other joint venture property) as of December 31, 2005 and 2004, respectively, as well as increasing interest rates throughout 2005.  Comparison of Year Ended December 31, 2005 to December 31, 2004 - Same Store Portfolio  The table below presents operating information for our same store portfolio consisting of 8 properties acquired or placed in service prior to January 1, 2004, 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, 2005 and December 31, 2004.  20052004Revenues:Same store investment properties (8 properties):Rental income$12,122$11,554Tenant recovery income3,1922,906Other property income3119Other investment properties:Rental income383,06789,401Tenant recovery income90,22820,249Other property income7,817976Total rental and additional rental income496,457125,105  -22-     Expenses:Same store investment properties (8 properties):Property operating expenses2,3711,713Real estate tax expense1,7761,729Other investment properties:Property operating expenses77,67016,814Real estate tax expense52,49711,347Total property operating expenses134,31431,603Property net operating income:Same store investment properties11,19811,037Other investment properties350,94582,465Total net operating income362,14393,502Other income:Straight-line rental income16,1033,886Amortization of above and below market and lease intangibles5,4951,584Operating income of Captive insurance company--Dividend income7,561-Interest income20,4663,491Other income11820Realized gain (loss) on sale of securities1(3,667)Minority interests1,350397Other expenses:Straight-line ground lease expense(3,140)(919)Operating expenses of Captive insurance company--Depreciation and amortization(189,631)(46,105)General and administrative expenses(10,813)(4,856)Advisor asset manager fee(20,925)-Interest expense(141,039)(35,043)Equity in losses of unconsolidated entities(2,440)(589)Net income$45,249$11,701  On a same store basis, property net operating income increased by $161, with total property operating revenues increasing by $866, and total property operating expenses increasing by $705 for the years ended December 31, 2005 and 2004.  Same store property operating revenues for the years ended December 31, 2005 and 2004 were $15,345 and $14,479, respectively.  The primary reason for this increase was an increase in rental income due to new tenants at these centers that filled vacancies that existed at the time of purchase.  Many of the vacancies at these centers were 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. Same store property operating expense for the years ended December 31, 2005 and 2004 were $4,147 and $3,442, respectively.  The increase in property operating expense was primarily caused by increases in real estate property taxes expensed in 2005.  At the time of acquisition, many newer properties may still be assessed at a lower value based on the cost of land and improvements. Once the property is acquired, this may trigger a new assessment based on the sales price and market comparables to other existing properties.     -23-       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 substantially all property costs and expenses associated with ongoing maintenance and operation, including utilities, property taxes and insurance. In addition, in some instances our leases provide that the tenant is responsible for roof and structural repairs.  Certain of our properties are subject to leases under which we retain responsibility for certain costs and expenses associated with the property.  We anticipate that capital demands to meet obligations related to capital improvements with respect to properties will be minimal for the foreseeable future (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 the foreseeable future.  Liquidity Offering.  Through two public offerings, the second concluding in late 2005, we sold a total of 421,983 shares, which includes 20,000 shares issued to our business manager/advisor.  In addition, as of December 31, 2006, 31,017 shares had been distributed pursuant to the DRP.  As a result of such sales, we had received a total of $4,516,480 of gross offering proceeds as of December 31, 2006. We concluded sales of shares under the public offerings in 2005 and deregistered the remaining unissued shares under the second offering.  Shares will continue to be sold pursuant to the DRP. Mortgage Debt.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 required to be consolidated through other joint venture investments, the highest fixed rate on our 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. As of December 31, 2006, scheduled maturities for our outstanding mortgage indebtedness had various due dates through December 2035.  Line of Credit.We terminated our 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 .15% to .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. We feel that all necessary capital requirements can be met in the future without the use of a line of credit facility.   -24-      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 or inclusion for quotation on a national market system, 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, 2006, we had issued 31,017 shares pursuant to the DRP for an aggregate amount of $296,587. Subject to certain restrictions, the SRP provides existing stockholders with limited, interim liquidity by enabling them to sell shares back to us at the following prices as of December 31, 2006:  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.  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.  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 after the end of the offering period, 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 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.   -25-    As of December 31, 2006, 6,604 shares had been repurchased for a total of $61,675.  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, 2006, we closed on mortgage debt with a principal amount of $445,257 on our wholly-owned and consolidated joint venture properties.  All new loans, with the exception of two, represented fixed rate loans which bear interest rates between 4.44% and 5.86%.  We have entered into interest rate lock agreements with various lenders to secure interest rates on mortgage debt on properties we currently own or plan to purchase in the future.  We have outstanding rate lock deposits in the amount of $6,904 as of December 31, 2006 which are applied as credits to the mortgage fundings as they occur.  These agreements lock interest rates from 4.83% to 5.62% for periods of 90 days on approximately $642,849 in principal of which approximately $575,823 has been allocated as of December 31, 2006. 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 with the advice of our business manager/advisor and are dependent on a number of factors, including the amount of funds available for distribution, flow of funds, our financial condition, any decision by our board of directors to reinvest funds rather than to distribute the funds, our capital expenditures, the annual distribution required to maintain REIT status under the Internal Revenue Code and other factors the board of directors may deem relevant.  The following table compares cash flows provided by operations to cash distributions declared:  200620052004Cash flows provided by operations$296,165201,85763,520Distributions declared283,903223,71664,992Excess deficiency$12,262(21,859)(1,472)  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.  Statement of Cash Flows Comparison of Year Ended December 31, 2006 to December 31, 2005 Cash Flows From Operating Activities 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 308 properties (including the other  -26-    joint venture properties) owned as of December 31, 2006, compared to 290 properties (including the other 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 other 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.  Statement of Cash Flows Comparison of Year Ended December 31, 2005 to December 31, 2004 Cash Flows From Operating Activities Cash flows provided by operating activities were $201,857 and $63,520 for the years ended December 31, 2005 and 2004, respectively, which is due primarily to net income from property operations. The increase in net cash provided by operating activities was due to additional revenues generated from the operation of 290 properties (including the other joint venture properties) owned as of December 31, 2005, compared to 112 properties (including one other joint venture property) owned as of December 31, 2004.  Cash Flows From Investing Activities Cash flows used in investing activities were $3,942,227 and $3,243,055, respectively, for the years ended December 31, 2005 and 2004.  Cash flows used in investing activities were primarily used for the acquisition of 177 wholly-owned and consolidated joint venture properties and one other joint venture property for $3,396,042, and 103 wholly-owned and consolidated joint venture properties and one other joint venture property for $3,201,247 during the years ended December 31, 2005 and 2004, respectively. Cash Flows From Financing Activities Cash flows provided by financing activities were $3,797,993 and $3,356,378, respectively, for the years ended December 31, 2005 and 2004.  We generated proceeds from the sale of shares, net of offering costs paid and shares repurchased, of $1,837,105 and $1,745,161 for the years ended December 31, 2005 and 2004, respectively. We also generated $2,043,836 and $1,653,523 from the issuance of new mortgages secured by our investment properties. During the year ended December 31, 2005, we also generated $81,498 through the purchase of securities on margin. During the years ended December 31, 2005 and 2004, we generated $90,000 and $165,000 from funding on the line of credit, and $90,000 and $170,000 was paid off on the line of credit, respectively. We paid $26,404 and $16,613 for loan fees and $98,015 and $25,472 in distributions, net of distributions reinvested, to our stockholders for the years ended December 31, 2005 and 2004, respectively.  The sponsor advanced us amounts to pay a portion of the 2004 distributions until funds available for distribution were sufficient to cover distributions. We repaid $3,523, representing the full amount of that advance during the year ended December 31, 2005.    -27-      Effects of Transactions with Related and Certain Other Parties  During our offering periods, our business manager/advisor and its affiliates were entitled to reimbursement for salaries and expenses of employees of our business manager/advisor and its affiliates relating to our offerings. In addition, an affiliate of our business manager/advisor was entitled to receive selling commissions, a marketing contribution and due diligence expense allowance from us in connection with the offerings. Such offering costs were offset against the stockholders' equity accounts. Such costs totaled $444,531 and $444,566, of which $177 remained unpaid at December 31, 2005.  No amounts remained unpaid as of December 31, 2006.  Pursuant to the terms of the offerings, the business manager/advisor guaranteed payment of all public offering expenses (excluding sales commissions, the marketing contribution and the due diligence expense allowance) in excess of 5.5% of the gross proceeds of the offering or all organization and offering expenses (including selling commissions) which together exceed 15% of gross proceeds.  Offering costs did not exceed the 5.5% and 15% limitations.  Our business manager/advisor and its affiliates are entitled to reimbursement for general and administrative costs relating to our administration and acquisition of properties. The costs of these services are included in general and administrative expenses to affiliates or capitalized as part of the property acquisitions.  For the years ended December 31, 2006, 2005 and 2004, we incurred $3,400, $4,528 and $1,543 of these costs, respectively.  Of these costs, $667 and $1,120 remained unpaid as of December 31, 2006 and 2005, respectively.  An affiliate of our business manager/advisor provides investment advisory services to us related to our securities investments for an annual fee. The fee is incremental based upon the aggregate amount of assets invested. Based upon our assets invested at December 31, 2006 and 2005, the fee was equal to .75% per annum (paid monthly) of aggregate assets invested. We incurred fees totaling $1,961 and $536 for the years ended December 31, 2006 and 2005, respectively. $362 and $100 remained unpaid at December 31, 2006 and 2005, respectively. No such fees were incurred during the year ended December 31, 2004 as these services were not provided during that period.  An affiliate of our business manager/advisor provides loan servicing to us for an annual fee.  Prior to May 1, 2005, the agreement allowed for annual fees totaling .03% of the first $1,000,000 in mortgage balances outstanding and .01% of the remaining mortgage balances, payable monthly. Effective May 1, 2005, the agreement was amended so 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 again so that if the number of loans being serviced exceeds one hundred, a monthly fee of 150 dollars per month, per loan is charged.  Such fees totaled $696, $534 and $141 for the years ended December 31, 2006, 2005 and 2004, respectively.  $24 and $42 remained unpaid as of December 31, 2006 and 2005, respectively.  None remained unpaid as of December 31, 2004.  We use the services of an affiliate of our business manager/advisor to facilitate the mortgage financing that we obtain on some of the properties purchased.  We pay the affiliate .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, 2006 and 2005, we paid loan fees totaling $1,051 and $5,049 to this affiliate, respectively.  No amounts remained unpaid as of December 30, 2006 or 2005.  We may pay an annual 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 compute 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 is payable quarterly in an amount equal to 1/4 of 1% of our average invested assets as of the last day of the immediately preceding quarter. Based upon the maximum allowable advisor asset management fee of 1% of our average invested assets, maximum fees of $74,895, $54,933 and $14,971 were allowed for the years ended December 31, 2006, 2005 and 2004, respectively.  We accrued fees to our business manager/advisor totaling $39,500 and $20,925 for the years ended December 31, 2006 and 2005, respectively.  We neither paid nor accrued such fees for the year ended December 2004.  Fees of $9,000 and $3,000 remained unpaid as of December 31, 2006 and 2005, respectively.  Our business manager/advisor has agreed to forego any fees allowed but not taken on an annual basis. Fees for these services are calculated based upon assets owned at a specific point in time and, as a result, future amounts payable under this agreement cannot be determined at this time. For any year in which we qualify as a REIT, our business manager/advisor must reimburse us for the following amounts, if  -28-    any: (1) the amounts by which total operating expenses, the sum of the advisor asset management fee plus other operating expenses paid during the previous fiscal year exceed the greater of: (i) 2% of average assets for that fiscal year, or (ii) 25% of net income for that fiscal year; plus (2) an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the total amount of distributions to stockholders for that year and a 6% minimum annual return on the net investment of stockholders.  Our business manager/advisor has not been required to reimburse us for any such amounts to date.  The property managers, entities owned principally by individuals who are affiliates of our business manager/advisor, are entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services.  We incurred property management fees of $29,800, $20,686 and $5,382 for the years ended December 31, 2006, 2005 and 2004, respectively.  None remained unpaid as of December 31, 2006 or 2005.  Fees for these services are based upon revenues received during specific periods and, as a result, future amounts payable under this agreement cannot be determined at this time.  We established a discount stock purchase policy for our affiliates and the business manager/advisor that enabled our affiliates to purchase shares of common stock at a discount during our offering periods at either $8.95 or $9.50 per share depending on when the shares were purchased. We sold 277 and 605 shares of common stock to affiliates and recognized an expense related to these discounts of $219 and $427 for the years ended December 31, 2005 and 2004, respectively.  As our shares are no longer being offered under this program, no such expense was incurred during the year ended December 31, 2006.  As of December 31, 2005 and 2004, we were due funds from affiliates for costs paid by us on their behalf in the amount of $3,493 and $654, respectively.  No amounts were due from affiliates as of December 31, 2006.  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 investee,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 $2,108 in dividend income related to this investment during the years ended December 31, 2006 and 2005, respectively.  The full $2,108 remained unpaid as of December 31, 2005.  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.  No such fees were earned during the years ended December 31, 2005 or 2004.  We were released from all our obligations under this arrangement during 2006.  In October 2005, an affiliate of ours acquired a freestanding office building leased to the General Services Administration (GSA) for the U.S. Joint Force Command.  We provided the initial financing of approximately $24,300 for the affiliate to acquire the property.  The loan was repaid in full including accrued interest on December 6, 2005.  During 2004, our sponsor advanced funds to us for a portion of distributions paid to our stockholders until funds available for distributions were sufficient to cover the distributions.  Our sponsor forgave $2,369 of these amounts during the second quarter of 2004 and these funds were no longer due and were recorded as a contribution to capital in the accompanying consolidated financial statements. As of December 31, 2004, we owed funds to the sponsor in the amount of $3,523 for repayment of the funds advanced for payment of distributions. These funds were repaid in their entirety  -29-    during 2005 and no funds were due to our sponsor as of December 31, 2005. No funds were advanced during 2005 or 2006.  -30-    Off-Balance Sheet Arrangements, Contractual Obligations, Liabilities and Contracts and Commitments The table below presents our obligations and commitments to make future payments under debt obligations and lease agreements as of December 31, 2006.  Contractual ObligationsPayments due by periodLess thanMore thanTotal1 year1-3 years3-5 years5 yearsLong-Term Debt (1)Fixed rate$1,167,049189,280354,997168,092454,680Variable rate32,64618,40214,244--Operating lease obligations (2)575,1925,38711,08611,506547,213Purchase obligations (3)$210,013128,99379,6201,400-  (1) The table includes principal and interest payments to which we are contractually obligated under long term debt agreements.  (2) 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.  (3) Purchase obligations include earnouts on previously acquired properties.  We have contractual obligations to related parties for asset management and property management services.  Fees for these services are based upon assets owned and revenues received during future periods and, as a result, future amounts cannot be determined at this time.  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 $210,013 in the future as retail space covered by earnout agreements is occupied and becomes rent producing. We have entered into one mortgage note agreement, three construction loan agreements and two other installment note agreements in which we have committed to fund up to a total of $161,654. Each loan requires monthly interest payments with the entire principal balance due at maturity.  The combined receivable balance at December 31, 2006 was $129,905.  Therefore, we may be required to fund up to an additional $31,749 on these loans.  As of December 31, 2006, we had eight 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, 2006 is $31,623.  We have entered into interest rate lock agreements with various lenders to secure interest rates on mortgage debt on properties we currently own or plan to purchase in the future.  We have outstanding rate lock deposits in the amount of $6,904 as of December 31, 2006 which will be applied as credits to the mortgage fundings as they occur.  These agreements lock interest rates from 4.83% to 5.62% for periods of 90 days on approximately $642,849 in principal of which $575,823 has been allocated as of December 31, 2006.  -31-     We are currently considering acquiring 19 properties for an estimated aggregate purchase price of $695,453.  Our decision to acquire each property generally depends upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions, and our receipt of satisfactory due diligence information including appraisals, environmental reports and lease information prior to purchasing the property.  Critical Accounting Policies and Estimates General The following disclosure pertains to critical accounting policies and estimates we believe are most "critical" to the portrayal of our financial condition and results of operations which require our most difficult, subjective or complex judgments.  These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain.  Critical accounting policies discussed in this section are not to be confused with accounting principles and methods disclosed in accordance with accounting principles generally accepted in the United States of America (GAAP).  GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates.  This discussion addresses our judgment pertaining to trends, events or uncertainties known which were taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions. Acquisition of Investment Property We allocate the purchase price of each acquired investment property between land, building and improvements, acquired above market and below market leases, in-place lease value, 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.  We consider various factors including geographic location and size of 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, size and location of leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired lease is above or below market lease costs.  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 in-place 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 AssetsIn accordance with 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.  Based upon our judgment, no impairment has been warranted in any year of our operation.     -32-    Cost Capitalization and Depreciation Policies Our policy is to review all expenses paid and capitalize any items exceeding $5 which are deemed to be an upgrade or a tenant improvement.  These costs are capitalized and are included in the investment properties classification as an addition to buildings and improvements. Buildings and improvements are depreciated on a straight-line basis based upon estimated useful lives of 30 years for buildings and associated 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.  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 revenue recognition under a lease begins.  If we are 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 we conclude that we are 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, we begin revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements.  We consider a number of different factors to evaluate whether we 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 retain 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 determines our conclusion.  We recognize rental income on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable on the 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.  We make certain assumptions and judgments in estimating the reimbursements at the end of each reporting period.   -33-    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.  Staff Accounting Bulletin or SAB 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.  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 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 us or the seller when certain leasing conditions are met.  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 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): Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, as revised 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), 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. generally accepted accounting principles.  We have determined that the EITF does not have a material effect on our consolidated financial statements, but will continue to evaluate new investments under this guidance.  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 if 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.     -34-    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 us for the year ended December 31, 2006.  In adopting SAB 108, we changed our 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, we identified two 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  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.  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 April 2006, the FASB issued FASB Staff Position, or FSP, 46R-6: Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R).  This FSP addresses certain implementation issues related to FIN 46(R). Specifically, FSP FIN 46R-6 addresses how a reporting enterprise would determine the variability to be considered in applying FIN 46(R).  The variability that is considered in applying FIN 46(R) affects the determination of (a) whether an entity is a variable interest entity, or VIE, (b) which interests are "variable interests" in the entity, and (c) which party, if any, is the primary beneficiary of the VIE.  That variability affects any calculation of expected losses and expected residual returns, if such a calculation is necessary.  We are required to apply the guidance in this FSP prospectively to all entities (including newly created entities) with which we first become involved and to all entities previously required to be analyzed under FIN 46(R) when a "reconsideration event" has occurred, beginning July 1, 2006.  We will evaluate the impact of this FSP at the time any such "reconsideration event" occurs, and for any new entities with which we become involved in future periods.  In June 2006, the FASB ratified the EITF's consensus on Issue No. 06-3: How Taxes Collected from Customers and Remitted to Governmental Authorities should be Presented in the Income Statement (That is, Gross versus Net  -35-    Presentation).Specifically, EITF No. 06-3 addresses any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added, and some excise taxes.  An accounting policy decision determines if the presentation should be on a gross or a net basis in the income statement.  The consensuses in this issue should be applied to financial reports for interim and annual reporting periods beginning after December 15, 2006.  We primarily account for the sales taxes and other taxes subject to the consensus in EITF No. 06-3 on the gross basis in our consolidated statement of operations.  Also in June 2006, the FASB issued Interpretation No. 48: Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109. This Interpretation 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. This Interpretation also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006.  We have evaluated our tax positions and determined that the adoption of FIN 48 will not have a material impact on our consolidated financial statements.  Subsequent Events  During the period from January 1 to February 23, 2007, the Company:  · Issued 2,563 shares of common stock through the DRP and repurchased 593 shares of common stock through the SRP resulting in a total of 448,366 shares of common stock outstanding at February 19, 2007;  · Paid distributions of $47,864 to our stockholders;  · Invested $4,132 in a new development joint venture;  · Funded earnouts of $18,208 on eight of our existing properties;  · Funded a total of $3,799 on construction loans receivable; and  · Obtained new mortgage financing on one property in the amount of $8,018.  The Board of Directors has approved a modification to the SRP as follows:  · Effective February 1, 2007, the repurchase price for all shares will be $9.75 per share for any requesting shareholder that has beneficially owned the shares for at least one yar; and · Effective October 1, 2007, the repurchase price for all share will be $10.00 per share for any requesting stockholder that has beneficially owned shares for at least one year.  On January 12, 2007, we redeemed our joint venture partners' interest in two of our consoldiated joint venture  properties.  On that date, we disbursed $38,467 for this redemption which represented the partners' invested capital and unpaid preferred returns.  On February 6, 2007, we refinanced $232,486 of variable rate mortgage debt maturing in 2007 at fixed rates ranging from 5.35% to 5.48%.  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, 2006, we owned 127 single-user net lease properties.   -36-     Item 7 A. 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 various lenders to secure interest rates on mortgage debt on properties we currently own or plan to purchase in the future.  We have outstanding rate lock deposits in the amount of $6,904 as of December 31, 2006 which will be applied as credits to the mortgage fundings as they occur.  These agreements lock interest rates from 4.83% to 5.62% for periods of 90 days on approximately $642,849 in principal of which $575,823 has been allocated as of December 31, 2006.  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 approximately $112,014 higher than its fair value as of December 31, 2006.  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. 2007 (1)2008200920102011ThereafterMaturing debt:Fixed rate debt59,61959,206961,6601,336,535421,5661,105,529Variable rate debt232,486-136,622---Weighted average   interest rate on debt:Fixed rate debt4.53%4.75%4.71%4.73%4.89%5.02%Variable rate debt6.08%-6.57%---  (1)  Refer to subsequent events disclosure for discussion of refinancing of variable rate debt maturing in 2007.  We had $369,108 of variable rate debt with an average interest rate of 6.26% as of December 31, 2006.  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, 2006, interest expense increases by approximately $3,691 on an annual basis.  The table incorporates only those interest rate exposures that exist as of December 31, 2006.  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.  -37-     Item 8.  Consolidated Financial Statements and Supplementary Data  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland Corporation)Index PageReports of Independent Registered Public Accounting Firm38Financial Statements:Consolidated Balance Sheets at December 31, 2006 and 200540Consolidated Statements of Operations and Other Comprehensive Income for the years ended     December 31, 2006, 2005 and 200442Consolidated Statements of Stockholders' Equity for the years ended December 31, 2006, 2005     and 200443Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 200445Notes to Consolidated Financial Statements47Valuation and Qualifying Accounts (Schedule II)69Real Estate and Accumulated Depreciation (Schedule III)70   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.            -38-       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. as of December 31, 2006 and 2005, and the related consolidated statements of operations and other comprehensive income, stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2006. In connection with our audits of the consolidated financial statements, we also have audited the 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, 2006 and 2005, and the results oftheir operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.  Also in our opinion, the related 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), the effectiveness of Inland Western Retail Real Estate Trust, Inc.s internal control over financial reporting as of December 31, 2006, based oncriteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report datedMarch 1, 2007 expressed an unqualified opinion on managements assessment of, and the effective operation of, internal control over financial reporting.  KPMG LLP   Chicago, Illinois March 1, 2007   -39-    Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Inland Western Retail Real Estate Trust, Inc.:  We have audited management's assessment, included in the accompanying Managements Report on Internal Control Over Financial Reporting, that Inland Western Retail Real Estate Trust, Inc. maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company'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. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of 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, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and 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, management's assessment that Inland Western Retail Real Estate Trust, Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Inland Western Retail Real Estate Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  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, 2006 and 2005, and the related consolidated statements of operations and other comprehensive income, stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2006 and related financial statement schedules, and our report dated March 1, 2007 expressed an unqualified opinion on those consolidated financial statements and related financial statement schedules.  KPMG LLP  Chicago, Illinois March 1, 2007  -40-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland Corporation)Consolidated Balance Sheets(In thousands, except per share amounts)  Assets  December 31,December 31,20062005Investment properties:Land$1,468,549$1,327,636Building and other improvements5,734,2225,319,922Construction in progress55,6951,3967,258,4666,648,954Less accumulated depreciation(385,322)(183,643)Net investment properties6,873,1446,465,311Cash and cash equivalents (including cash held by   management company of $16,418 and $20,806 as of   December 31, 2006 and 2005, respectively)227,751298,847Restricted cash and escrows (Note 2)42,75568,591Investment in marketable securities (Note 4)281,262184,690Investment in unconsolidated joint ventures (Note 10)83,64580,138Other investments (Note 3)-224,003Accounts and rents receivable (net of allowance of $4,323   and $2,468 as of December 31, 2006 and 2005, respectively)117,19378,362Due from affiliates (Note 3)-5,601Notes receivable (Note 7)129,905100,687Acquired in-place lease intangibles and customer relationship   value (net of accumulated amortization of $99,852 and   $48,571 as of December 31, 2006 and 2005, respectively)456,117467,763Acquired above market lease intangibles (net of accumulated   amortization of $17,603 and $10,090 as of December 31,   2005 and 2005, respectively)51,68855,633Loan fees, leasing fees and loan fee deposits (net of   accumulated amortization of $12,049 and $4,664 as of   December 31, 2006 and 2005, respectively)44,62542,197Other assets20,18914,110Total assets$8,328,274$8,085,933  See accompanying notes to consolidated financial statements  -41-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland Corporation)Consolidated Balance Sheets(continued)
(In thousands, except per share amounts)  Liabilities and Stockholders Equity  December 31,December 31,20062005Liabilities:Mortgages and notes payable (Note 8)$4,313,223$3,941,011Accounts payable9,1165,617Accrued interest payable16,64813,961Accrued real estate taxes22,17215,731Distributions payable23,90123,767Security deposits6,6985,919Prepaid rental and recovery income21,4347,417Other financings (Note 1)89,43581,996Acquired below market lease intangibles (net of accumulated   amortization of $21,645 and $17,080 as of December 31,   2006 and 2005, respectively)138,953147,819Restricted cash liability (Note 2)15,40543,306Due to affiliates (Note 3)10,1024,397Other liabilities17,84813,349Total liabilities4,684,9354,304,290Minority interests134,775123,964Stockholders' equity:Preferred stock, $.001 par value, 10,000 shares authorized,   none outstanding--Common stock, $.001 par value, 640,000 shares authorized,   446,396 and 435,427 shares issued and outstanding as of   December 31, 2006 and 2005, respectively446435Additional paid in capital (net of offering costs of $456,928   and $457,007 as of December 31, 2006 and 2005,   respectively)3,996,5983,891,624Accumulated distributions in excess of net income(489,870)(233,217)Accumulated other comprehensive income (loss)1,390(1,163)Total stockholders' equity3,508,5643,657,679Commitments and contingencies (Note 13)Total liabilities and stockholders' equity$8,328,274$8,085,933      See accompanying notes to consolidated financial statements  -42-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland Corporation)Consolidated Statements of Operations and Other Comprehensive Income  For the Years Ended December 31, 2006, 2005 and 2004 (In thousands, except per share amounts)  200620052004Revenues:Rental income$572,868$416,787$106,425Tenant recovery income125,43793,42023,155Other property income11,7987,848995Total revenues710,103518,055130,575Expenses:Property operating expenses to affiliates29,80020,6865,382Property operating expenses to non-    affiliates90,41262,49514,064Real estate taxes79,89454,27313,076Depreciation and amortization259,884189,63146,105General and administrative expenses to     affiliates5,1963,7321,848General and administrative expenses to non-    affiliates9,7797,0813,008Advisor asset management fee39,50020,925-Total expenses514,465358,82383,483Operating income$195,638$159,232$47,092Dividend income37,5017,561-Interest income23,12720,4663,491Other income11111820Interest expense(223,098)(141,039)(35,043)Realized gain (loss) on securities4161(3,667)Minority interests1,9751,350397Equity in losses of unconsolidated entities(3,727)(2,440)(589)Net income$31,943$45,249$11,701Other comprehensive income:Unrealized gain (loss) on investment     securities2,553(1,404)241Comprehensive income$34,496$43,845$11,942Net income per common share, basic and diluted$.07$.13$.12Weighted average number of common shares outstanding, basic and diluted441,816350,64498,563      See accompanying notes to consolidated financial statements   -43-


INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland Corporation)Consolidated Statements of Stockholders' EquityFor the Years Ended December 31, 2006, 2005 and 2004 (In thousands, except per share amounts)  Number of SharesCommon
  StockAdditional Paid-in
   CapitalAccumulated
Distributions in excess of Net IncomeAccumulated Other Comprehensive Income (Loss)TotalBalance at January  1, 200418,737$19$165,169$(1,459)$-$163,729Net income---11,701-11,701Unrealized gain on investment securities----241241Distributions declared ($.66 per weighted   number of common shares outstanding)---(64,992)-(64,992)Proceeds from offering195,6711951,955,517--1,955,712Offering costs--(211,869)--(211,869)Distribution reinvestment program3,060329,067--29,070Shares repurchased(10)-(193)--(193)Shares obligated to be repurchased as of   December 31, 2004--(472)--(472)Contribution from sponsor advances--2,369--2,369Issuance of stock options and discounts on   shares issued to affiliates--430--430Balance at December 31, 2004217,458$217$1,940,018$(54,750)$241$1,885,726Net income---45,249-45,249Unrealized loss on investment securities----(1,404)(1,404)Distributions declared ($.64 per weighted   number of common shares outstanding)---(223,716)-(223,716)Proceeds from offering207,5942082,076,888--2,077,096Offering costs--(222,993)--(222,993)Distribution reinvestment program11,92812113,300--113,312Shares repurchased(1,553)(2)(14,293)--(14,295)Shares obligated to be repurchased as of   December 31, 2005--(1,580)--(1,580)Issuance of stock options and discounts on   shares issued to affiliates--284--284Balance at December 31, 2005435,427$435$3,891,624$(233,217)$(1,163)$3,657,679 See accompanying notes to consolidated financial statements  -44-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland Corporation)Consolidated Statements of Stockholders' Equity(continued)
For the Years Ended December 31, 2006, 2005 and 2004 (In thousands, except per share amounts)  Number of SharesCommon
  StockAdditional Paid-in
   CapitalAccumulated
Distributions in excess of Net IncomeAccumulated Other Comprehensive Income (Loss)TotalBalance at December 31, 2005435,427$435$3,891,624$(233,217)$(1,163)$3,657,679Cumulative effect of adopting
SAB 108 (Note 2)---(4,693)-(4,693)Net income---31,943-31,943Unrealized gain on investment securities----2,5532,553Distributions declared (.64 per weighted   number of common shares outstanding)---(283,903)-(283,903)Offering costs--79--79Distribution reinvestment program16,01016154,008--154,024Shares repurchased(5,041)(5)(47,183)--(47,188)Shares obligated to be repurchased as of   December 31, 2006--(1,932)--(1,932)Issuance of stock options--2--2Balance at December 31, 2006446,396$446$3,996,598$(489,870)$1,390$3,508,564                 See accompanying notes to consolidated financial statements   -45-


INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland Corporation)Consolidated Statements of Cash Flows For the Years Ended December 31, 2006, 2005 and 2004 (In thousands, except per share amounts)  200620052004Cash flows from operations:Net income$31.943$45,249$11,701Adjustments to reconcile net income to net  cash provided by     operating activities:Depreciation202.564147,35336,149Amortization57,32042,2789,956Amortization of loan fees7,4694,2221,868Amortization of acquired above market leases8,6217,2193,119Amortization of acquired below market leases(11,278)(12,714)(4,703)Straight line rental income(18,072)(16,103)(3,886)Straight line ground lease expense3,9233,140919Minority interests(1,975)(1,350)(398)Loss from investments in unconsolidated entities3,7272,440589Issuance of stock options and discount on shares issued to affiliates2284430Realized (gain) loss on sale of investment securities(416)(1)3,667Write-off of bad debt1,020451-Adjustments for cumulative effect of adopting SAB 108(1,056)--Changes in assets and liabilities:Accounts and rents receivable net of change in allowance of $1,855       and $2,122 for December 31, 2006 and 2005, respectively(21,779)(42,748)(14,928)Due from affiliates5,601(5,601)-Other assets(8,048)(6,307)(3,276)Accounts payable3,4993,9251,542Accrued interest payable2,6879,6554,306Accrued real estate taxes6,64011,7683,674Security deposits7792,2493,571Prepaid rental and recovery income14,0174,0013,239Other liabilities3,095(816)7,526Due to affiliates5,8823,263(1,545)Net cash flows provided by operating activities296,165201,85763,520Cash flows from investing activities:Purchase of marketable securities(93,603)(184,806)(4,713)Purchase of other investments(40,000)(224,003)-Proceeds from redemption of other investments264,003--Restricted escrows(2,065)(8,180)(17,105)Purchase of investment properties(531,314)(3,178,738)(3,002,437)Acquired in-place lease intangibles and customer relationship value(45,344)(269,773)(241,286)Acquired above market leases(4,676)(22,078)(42,303)Acquired below market leases11,72674,54784,779Investment in development projects(57,432)(1,396)(85)Contributions from minority interests25,77868,40995,568Distributions to minority interests(12,992)(30,387)(5,251)Investment in unconsolidated joint ventures(7,234)(9,562)(76,232)Payments received under master leases7,6596,8053,025Payment of leasing fees(1,556)(695)(761)Other assets1,9691,136(4,482)Funding of notes receivable(71,899)(195,232)(31,772)Payoff of notes receivable33,92231,726-Net cash flows used in investing activities(523,058)(3,942,227)(3,243,055) See accompanying notes to consolidated financial statements  -46-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC. (A Maryland Corporation)  Consolidated Statements of Cash Flows For the Years Ended December 31, 2006, 2005 and 2004 (In thousands, except per share amounts) (continued) 200620052004Cash flows from financing activities:Proceeds from offerings-2,077,0961,955,712Shares repurchased(47,188)(14,295)(193)Payment of offering costs(98)(225,696)(210,358)Proceeds from margin securities debt39,33581,498-Payoff of margin securities debt(120,755)--Proceeds from mortgage debt and notes payable426,0652,043,8361,653,523Principal payments on mortgage debt and notes payable(2,298)(1,416)(175)Lump-sum payoffs of mortgage debt and   notes payable(848)(35,742)-Proceeds from unsecured line of credit-90,000165,000Payoff of unsecured line of credit-(90,000)(170,000)Payment of loan fees and deposits(8,671)(26,404)(16,613)Distributions paid, net of distribution reinvestments(129,745)(98,015)(25,472)Due from affiliates-6542,585Repayment of sponsor advances-(3,523)-Contribution from sponsor advances--2,369Net cash flows provided by financing activities155,7973,797,9933,356,378Net (decrease) increase in cash and cash equivalents(71,096)57,623176,843Cash and cash equivalents, at beginning of  period298,847241,22464,381Cash and cash equivalents, at end of period$227,751$298,847$241,224Supplemental disclosure of cash flow information, including non-cash activities:Cash paid for interest, net of interest capitalized of $881, $9 and $85   for the years ended December 31, 2006, 2005 and 2004, respectively$213,823$127,171$28,869Consolidation of previously unconsolidated entities$-$2,245$-Consolidation of previously unconsolidated entities - minority interest-(2,245)-Restricted cash$27,901$22,617$(65,923)Restricted cash liability(27,901)(22,617)65,923Share repurchase program$(1,932)$(1,580)$(472)Share repurchase program liability1,9321,580472Purchase of investment properties$(576,761)$(3,424,746)$(3,113,038)Assumption of mortgage debt30,76669,721100,139Other financings7,43981,996-Non-cash purchase price adjustments(4,650)(300)2,389Construction in progress placed in service3,133--Write-off of acquisition reserve--521Conversion of mortgage receivable to investment property8,75994,5917,552$(531,314)$(3,178,738)$(3,002,437)Distributions payable$23,901$23,767$11,378Distributions reinvested$154,024$113,312$29,070Accrued offering costs payable$-$177$2,880 See accompanying notes to consolidated financial statements  -47-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements (In thousands, except per share amounts)   (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. The Company's Advisory Agreement provides for Inland Western Retail Real Estate Advisory Services, Inc. (the "Business Manager/Advisor"), an affiliate of the Company, to be the Business Manager/Advisor to the Company.  The Company, through two public offerings, sold a total of 421,983 shares of its common stock at $10.00 per share, resulting in gross proceeds of $4,219,893.  In addition, as of December 31, 2006, the Company had issued 31,017 shares through its distribution reinvestment program ("DRP") at $9.50 per share for $296,587 and had repurchased a total of 6,604 shares through its share repurchase program ("SRP") at prices ranging from $9.25 to $9.75 per share for an aggregate cost of $61,675.  As a result, the Company had total shares outstanding of 446,396 and had realized total net offering proceeds, before offering costs of $4,454,804 as of December 31, 2006. The Company is qualified and has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended, for Federal income tax purposes commencing with the tax year ending December 31, 2003.  Since the Company qualifies for taxation as a REIT, the Company generally will not be subject to Federal income tax to the extent it distributes at least 90% of its REIT taxable income to its stockholders.  If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to Federal income tax on its taxable income at regular corporate tax rates.  Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and Federal income and excise taxes on its undistributed income. The Company 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.  The preparation of consolidated 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 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 2005 and 2004 financial statements to conform to the 2006 presentation.  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).  -48-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  The Company has ownership interests ranging between 45% and 95% in the LLCs or LPs which own eighteen of the properties in its portfolio.  The Company has also made investments in four development joint ventures.  All of these entities are considered variable interest entities as defined in FIN 46(R) and, in all, except for one development joint venture, the Company is considered the primary beneficiary. Therefore, these entities, except for one development joint venture, are consolidated by the Company. 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 within other financings in the accompanying consolidated financial statements.  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 LLP agreements.  The Company is the controlling member in various consolidated entities having a minority interest book value of $115,691 at December 31, 2006. 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 its assets warrant a distribution based on the agreements.  In accordance with the disclosure provisions of FAS 150, the Company estimates the value of minority interest distributions would approximate their book value had the entities been liquidated as of December 31, 2006.  The amount of any actual distributions to minority interest holders in the partially owned properties is very difficult to predict due to many factors, including the inherent uncertainty of real estate sales.  If the entities' underlying assets are worth less than the underlying liabilities, the Company no obligation to remit any consideration to the minority interest holders in partially owned properties.  The Company has a 60.9% ownership interest in, and is the controlling member of the LLC which owns Cardiff Hall East Apartments.  The other members' interests in the property are reflected as minority interest in the accompanying consolidated financial statements. The Company has a 75% tenancy in common ownership in North Plaza Shopping Center.  The other partners interests in the property are reflected as minority interest in the accompanying consolidated financial statements.  The Company has a 99% ownership interest in Colonnade Lender, LLC, which has invested in two apartment properties located in Maryland. The other members' interests in the entity are reflected as minority interest in the accompanying consolidated financial statements.  Cardiff Hall East Apartments, North Plaza Shopping Center and the assets of Colonnade Lender, LLC are considered restricted assets. These assets are considered restricted because the Company's joint venture partner is entitled to virtually all economic benefits of the assets. Since the Company has a subordinated position in the economic benefits of these assets, all income/loss from these assets is allocated to the Company's joint venture partner and reflected in minority interest.  -49-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  The Company has entered into an agreement with a LLC formed as an insurance association captive (Captive), which is wholly owned by the Company and three other affiliated entities: Inland Real Estate Corporation, Inland Retail Real Estate Trust, Inc. and Inland American Real Estate Trust, Inc. and serviced by another affiliate, Inland Risk and Insurance Management Services Inc. The Company entered into the agreement to stabilize its insurance costs, manage its exposures and recoup expenses through the functions of the Captive program. The Captive was capitalized with $750 in cash, 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 individualized 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 interest in the accompanying consolidated financial statements.  Minority interest is adjusted for additional contributions 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 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.  -50-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  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.  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 a provision for loss on investments.  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.   -51-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  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 lease costs.  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 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 in-place 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 $56,730, $41,877 and $9,924 for the years ended December 31, 2006, 2005 and 2004, 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 $260 and $249 for the years ended December 31, 2006 and 2005.  No amortization expense was incurred related to customer relationship value for the year ended December 31, 2004.  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 $8,621, $7,219 and $3,119 was applied as a reduction to rental income for the years ended December 31, 2006, 2005 and 2004, respectively. Amortization pertaining to the below market lease costs of $11.278, $12,714 and $4,703 was applied as an increase to rental income for the years ended December 31, 2006, 2005 and 2004, respectively.  -52-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  The following table presents the amortization during the next five years related to the acquired in-place lease intangibles, customer relationship value, acquired above market lease costs and acquired below market lease costs for properties owned at December 31, 2006.  Amortization of:20072008200920102011ThereafterAcquired above market   lease costs$(7,338)(7,042)(6,477)(5,956)(5,240)(19,635)Acquired below market   lease costs9,8348,5957,6846,5715,528100,741Net rental income   increase$2,4961,5531,20761528881,106Acquired in-place lease   intangibles$53,71253,43652,09249,18548,163197,444Customer relationship   value$260260260260260785  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 on a straight-line basis 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 Financial Accounting Standards Boards (FASB) Statement of Financial Accounting Standards ("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 years ended December 31, 2006, 2005 or 2004.  -53-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)   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:  We capitalize 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 $2,619 at December 31, 2006 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.  The Company has determined that the EITF does not have a material effect on its consolidated financial statements, but will continue to evaluate new investments under this guidance.  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, 2006 or 2005.   -54-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  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.  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 cash rent paid under the provisions of the lease agreement is recorded as a deferred liability and is included as a component of prepaid rental income and 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 $112,014 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.   -55-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  Recording of Below Market Lease Intangibles  The Company discovered that it 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. 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 by its property managers. These errors resulted in the Company overstating its 2004 and 2005 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.  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 April 2006, the FASB issued FASB Staff Position ("FSP") 46R-6: Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R).  This FSP addresses certain implementation issues related to FIN 46(R). Specifically, FSP FIN 46R-6 addresses how a reporting enterprise would determine the variability to be considered in applying FIN 46(R).  The variability that is considered in applying FIN 46(R) affects the determination of (a) whether an entity is a variable interest entity (VIE), (b) which interests are "variable interests" in the entity, and (c) which party, if any, is the primary beneficiary of the VIE.  That variability affects any calculation of expected losses and expected residual returns, if such a calculation is necessary.  The Company is required to apply the guidance in this FSP prospectively to all entities (including newly created entities) with which it first becomes involved and to all entities previously required to be analyzed under FIN 46(R) when a "reconsideration event" has occurred, beginning July 1, 2006.  The Company will evaluate the impact of this FSP at the time any such "reconsideration event" occurs, and for any new entities with which the Company becomes involved in future periods.  In June 2006, the FASB ratified the EITF's consensus on Issue No. 06-3: How Taxes Collected from Customers and Remitted to Governmental Authorities should be Presented in the Income Statement (That is, Gross versus Net Presentation).Specifically, EITF No. 06-3 addresses any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added, and some excise taxes.  An accounting policy decision determines if the presentation should be on a gross or a net basis in the income statement.  The consensus in this issue is to be applied to financial reports for interim and annual reporting periods beginning after December 15, 2006.  The Company primarily accounts for the sales taxes and other taxes subject to the consensus in EITF No. 06-3 on the gross basis in its consolidated statement of operations.  -56-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  Also in June 2006, the FASB issued Interpretation No. 48: Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109. This Interpretation 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. This Interpretation also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. The Company has evaluated its tax positions and determined that the adoption of FIN 48 will not have a material impact on its consolidated financial statements.  (3)  Transactions with Affiliates  During the offering periods, the Business Manager/Advisor and its affiliates were entitled to reimbursement for salaries and expenses of employees of the Business Manager/Advisor and its affiliates relating to the Company's offerings. In addition, an affiliate of the Business Manager/Advisor was entitled to receive selling commissions, a marketing contribution and due diligence expense allowance from the Company in connection with the offerings. Such offering costs were offset against the stockholders' equity accounts. Such costs totaled $444,531 and $444,566, of which $177 remained unpaid at December 31, 2005 and is included in due to affiliates on the accompanying consolidated balance sheets.  No amounts remained unpaid as of December 31, 2006.  Pursuant to the terms of the offerings, the Business Manager/Advisor guaranteed payment of all public offering expenses (excluding sales commissions, the marketing contribution and the due diligence expense allowance) in excess of 5.5% of the gross proceeds of the offering or all organization and offering expenses (including selling commissions) which together exceed 15% of gross proceeds.  Offering costs did not exceed the 5.5% and 15% limitations.  The Business Manager/Advisor and its affiliates are entitled to reimbursement for general and administrative costs relating to the Company's administration and acquisition of properties. The costs of these services are included in general and administrative expenses to affiliates or capitalized as part of the property acquisitions.  For the years ended December 31, 2006, 2005 and 2004, the Company incurred $3,400, $4,528 and $1,543 of these costs, respectively.  Of these costs, $667 and $1,120 remained unpaid as of December 31, 2006 and 2005, respectively, and are included in due to affiliates on the accompanying consolidated balance sheets.  An affiliate of the Business Manager/Advisor provides investment advisory services to the Company related to the Companys securities investments for an annual fee. The fee is incremental based upon the aggregate amount of assets invested. Based upon the Companys assets invested at December 31, 2006 and 2005, the fee was equal to .75% per annum (paid monthly) of aggregate assets invested. The Company incurred fees totaling $1,961 and $536 for the years ended December 31, 2006 and 2005, respectively. Such fees are included in general and administrative expenses to affiliates. $362 and $100 remained unpaid at December 31, 2006 and 2005, respectively, and are included in due to affiliates on the accompanying consolidated balance sheets. No such fees were incurred during the year ended December 31, 2004 as these services were not provided during that period.  An affiliate of the Business Manager/Advisor provides loan servicing to the Company for an annual fee. Such costs are included in general and administrative expenses to affiliates. Prior to May 1, 2005, the agreement allowed for annual fees totaling .03% of the first $1,000,000 in mortgage balances outstanding and .01% of the remaining mortgage balances, payable monthly. Effective May 1, 2005, the agreement was amended so 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 again so that if the number of loans being serviced exceeds one hundred, a monthly fee of 150 dollars per month, per loan is charged.  Such fees totaled $696, $534 and $141 for the years ended December 31, 2006, 2005 and 2004, respectively.  $24 and $42 remained unpaid as of December 31, 2006 and 2005, respectively, and are included in due to affiliates on the accompanying consolidated balance sheets.  None remained unpaid as of December 31, 2004.   -57-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  The Company uses the services of an affiliate of the Business Manager/Advisor to facilitate the mortgage financing that the Company obtains on some of the properties purchased. The Company pays the affiliate .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, 2006 and 2005, the Company paid loan fees totaling $1,051 and $5,049 to this affiliate, respectively.  No amounts remained unpaid as of December 30, 2006 or 2005.  The Company may pay an annual advisor asset management fee of not more than 1% of the average invested assets to its 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 computes 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 is payable quarterly in an amount equal to 1/4 of 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 $74,895, $54,933 and $14,971 were allowed for the years ended December 31, 2006, 2005 and 2004, respectively.  The Company accrued fees to its Business Manager/Advisor totaling $39,500 and $20,925 for the years ended December 31, 2006 and 2005, respectively.  The Company neither paid nor accrued such fees for the year ended December 2004.  $9,000 and $3,000 remained unpaid as of December 31, 2006 and 2005, respectively, and are included in due to affiliates on the consolidated balance sheets. The Business Manager/Advisor has agreed to forego any fees allowed but not taken on an annual basis. Fees for these services are calculated based upon assets owned at a specific point in time and, as a result, future amounts payable under this agreement cannot be determined at this time. For any year in which the Company qualifies as a REIT, the Business Manager/Advisor must reimburse the Company for the following amounts, if any: (1) the amounts by which total operating expenses, the sum of the advisor asset management fee plus other operating expenses paid during the previous fiscal year exceed the greater of: (i) 2% of average assets for that fiscal year, or (ii) 25% of net income for that fiscal year; plus (2) an amount, which will not exceed the advisor asset management fee for that year, equal to any difference between the total amount of distributions to stockholders for that year and a 6% minimum annual return on the net investment of stockholders.  The Business Manager/Advisor has not been required to reimburse the Company for any such amounts to date.    -58-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)   The property managers, entities owned principally by individuals who are affiliates of the Business Manager/Advisor, are entitled to receive property management fees totaling 4.5% of gross operating income, for management and leasing services.  The Company incurred property management fees of $29,800, $20,686 and $5,382 for the years ended December 31, 2006, 2005 and 2004, respectively.  None remained unpaid as of December 31, 2006 or 2005.  Fees for these services are based upon revenues received during specific periods and, as a result, future amounts payable under this agreement cannot be determined at this time.  The Company established a discount stock purchase policy for affiliates of the Company and the Business Manager/Advisor that enabled the affiliates to purchase shares of common stock during the Company's offering periods at a discount at either $8.95 or $9.50 per share depending on when the shares were purchased. The Company sold 277 and 605 shares of common stock to affiliates and recognized an expense related to these discounts of $219 and $427 for the years ended December 31, 2005 and 2004, respectively.  As the Company's shares are no longer being offered under this program, no such expense was incurred during the year ended December 31, 2006.  As of December 31, 2005 and 2004, the Company was due funds from affiliates for costs paid by the Company on their behalf in the amount of $3,493 and $654, respectively.  No amounts were due from affiliates as of December 31, 2006.  In 2005, the Company entered into a subscription agreement with Minto Builders (Florida), Inc. ("MB REIT"), an entity consolidated by one of our 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 Company by December 31, 2006 and did so during the fourth quarter of 2006.  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 investee,this investment was accounted for under the cost method in which investments are recorded at their original cost. The investment is included in other investments on the accompanying consolidated balance sheets. 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 $2,108 in dividend income related to this investment during the years ended December 31, 2006 and 2005, respectively, which is included in dividend income on the accompanying consolidated statements of operations.  The full $2,108 for 2005 remained unpaid as of December 31, 2005 and is included in due from affiliates on the accompanying consolidated balance sheet.  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 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.  The Company recorded fees totaling $149 for the year ended December 31, 2006, all of which had been received as of that date.  No such fees were earned during the years ended December 31, 2005 or 2004.  The Company was released from all obligations under this arrangement during 2006.   -59-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  In October 2005, an affiliate of the Company acquired a freestanding office building leased to the General Services Administration (GSA) for the U.S. Joint Force Command.  The Company provided the initial financing of approximately $24,300 for the affiliate to acquire the property.  The loan was repaid in full including accrued interest on December 6, 2005.  During 2004, the Company's sponsor advanced funds to the Company for a portion of distributions paid to the Company's stockholders until funds available for distributions were sufficient to cover the distributions.  The Company's sponsor forgave $2,369 of these amounts during the second quarter of 2004 and these funds were no longer due and were recorded as a contribution to capital in the accompanying consolidated financial statements. As of December 31, 2004, the Company owed funds to the sponsor in the amount of $3,523 for repayment of the funds advanced for payment of distributions. These funds were repaid in their entirety during 2005 and no funds were due to the Company's sponsor as of December 31, 2005. No funds were advanced during 2005 or 2006.  (4)  Marketable Securities  Investment in marketable securities of $281,262 and $184,690 at December 31, 2006 and 2005, 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, 2006 and 2005, the Company had accumulated other comprehensive gains of $1,390 and losses of $1,163, respectively.  Net unrealized gains (losses) were equal to $2,553, $(1,404) and $241 for the years ended December 31, 2006, 2005 and 2004, 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, 2006, 2005 and 2004, we realized gains (losses) of $416, $1 and $(3,667) on the sales of securities.  Dividend income is recognized when earned. During the years ended December 31, 2006 and 2005, dividend income of $21,012 and $5,453, respectively, was earned on marketable securities and is included within dividend income on the accompanying consolidated statements of operations.  No dividend income was earned during 2004.  $2,235 and $911 of dividend income remained unpaid as of December 30, 2006 and 2005, 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, 2006 were as follows:  Less than 12 months12 months or longerTotalUnrealizedUnrealizedUnrealizedDescription of SecuritiesFair ValueLossesFair ValueLossesFair ValueLossesPreferred Stock$60,155$852$22,975$1,654$83,130$2,506Common Stock7,1451,5185701517,7151,669Bonds1,175178--1,175178Available for Sale$68,475$2,548$23,545$1,805$92,020$4,353   The table includes 44 security positions which were at an unrealized loss position at December 31, 2006.   -60-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  The Company purchased a portion of its securities through a margin account. As of December 31, 2006 and 2005, the Company had recorded a payable of $78 and $81,498, 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, 2006, these rates were equal to a range between 5.57% and 5.82%.  Interest expense on this debt in the amount of $6,078 and $1,143 was recognized within interest expense on the accompanying consolidated statements of operations for the years ended December 31, 2006 and 2005, respectively.  This debt is due upon demand.  The value of the Companys marketable securities at December 31, 2006 and 2005 serves as collateral for this debt.  (5)  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 stockholders 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, 2006 and 2005, there had been a total of 23 and 20 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. $2, $2 and $3 of expense related to stock options was recorded during the years ended December 31, 2006, 2005 and 2004, respectively.  (6) 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 $17,488, $9,829 and $3,025 as of December 31, 2006, 2005 and 2004, respectively.  Operating Leases  The majority of the revenues from the Company's properties consists of rents received under long-term operating leases.  Some leases provide for the payment of fixed base rent paid monthly in advance, and for the reimbursement by tenants to the Company for the tenant's pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the landlord and recoverable under the terms of the lease.  Under these leases, the landlord pays all expenses and is reimbursed by the tenant for the tenant's pro rata share of recoverable expenses paid.  Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed based rent as well as all costs and expenses associated with occupancy.  Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included 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.  -61-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued)
 (In thousands, except per share amounts)  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 are reimbursed by the tenant to the Company.  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 $2,661, $2,087 and $228 for the years ended December 31, 2006, 2005 and 2004, 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 LeasePayments2007$559,6272008545,3062009516,8642010486,8332011455,205Thereafter2,793,675Total$5,357,510  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 2024 to 2105. For the years ended December 31, 2006, 2005 and 2004, ground lease rent expense was $9,085, $7,679 and $2,187, respectively.  Minimum future rental payments to be paid under the ground leases are as follows:  Minimum LeasePayments2007$5,38720085,43020095,65620105,66420115,842Thereafter547,213Total$575,192   -62-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  (7) 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, 2006 and 2005:  BalanceNotesInterest RatesMaturity DatesSecured ByMaximum Funding CommitmentDecember 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$161,654December 31, 2005Mortgage Notes   Receivable$15,53126.00% and 7.41%10/06 and 07/20First Mortgage$20,549Construction Loans   Receivable67,65627.48% and 8.50%05/07 and 10/07First Mortgage129,150Other Installment Notes17,50025.00% and 10.00%12/07 and 02/48N/A17,500$100,687$167,199  (8) Mortgages and Note Payable  Mortgages Payable 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 our 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.   -63-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  Mortgage loans outstanding as of December 31, 2005 were $3,858,078 and had a weighted average interest rate of 4.83%. Of this amount, $3,500,472 had fixed rates ranging from 3.96% to 8.02% and a weighted average fixed rate of 4.80% at December 31, 2005. Excluding the mortgage debt assumed from sellers at acquisition and debt of consolidated joint venture investments, the highest fixed rate on our mortgage debt was 5.71%. The remaining $357,606 of mortgage debt represented variable rate loans with a weighted average interest rate of 5.21% at December 31, 2005. Properties with a net carrying value of $6,083,781 at December 31, 2005 and related tenant leases are pledged as collateral. As of December 31, 2005, 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 development joint ventures. These guarantees earn a fee of approximately 1% of the loan amount and are released upon certain pre-leasing requirements.  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, 2006 and 2005, the Company had recorded a payable of $78 and $81,498, 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, 2006, these rates were equal to a range between 5.57% and 5.82%. 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:  2007 (1)2008200920102011ThereafterMaturing debt:Fixed rate debt59,61959,206961,6601,336,535421,5661,105,529Variable rate debt232,486-136,622---Weighted average interest  rate   on maturing debt:Fixed rate debt4.53%4.75%4.71%4.73%4.89%5.02%Variable rate debt6.08%-6.57%---  (1)  Refer to subsequent events disclosure in Note 15 for discussion of refinancing of variable rate debt maturing in 2007.  The maturity table excludes other financing obligations as described in Note 1.   -64-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  (9)  Line of Credit  The Company terminated its 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 .15% to .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.  (10)  Investment in Unconsolidated Joint Ventures  The following table summarizes the Company's investments in unconsolidated joint ventures:  Date ofOwnership Interest atInvestment in Joint Venture atInvestment in Joint Venture atPropertyLocationInvestmentDecember 31, 2006December 31, 2006December 31, 2005Courthouse Square ApartmentsTowson, MD08/11/0436.50%$4,345$4,695The Power PlantBaltimore, MD11/05/0450.00%13,22216,335Pier IVBaltimore, MD11/05/0466.67%18,65519,614Louisville GalleriaLouisville, KY12/29/0447.10%25,04725,494Ocean City Factory OutletsOcean City, MD12/23/0541.18%12,82314,000Preston Trail VillageDallas, TX02/28/0678.95%2,908-Doncaster Village and Padonia   Village ApartmentsParkville and   Timonium, MD05/03/0628.00%6,645-$83,645$80,138  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.  These investments, with the exception of Preston Trail Village, are considered restricted because the Companys joint venture partner is 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, 2006, 2005 and 2004 was allocated to the Company's joint venture partners in accordance with the joint venture operating agreements.  (11)  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 drugstores complemented with additional stores providing a wide range of other goods and services to shoppers.    -65-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  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. 04-10: Determining Whether to Aggregate Operating Segments that Do Not Meet the Quantitative Thresholds, the Company's properties are considered one reportable segment.  Net property operations are summarized in the following table for the years ended December 31, 2006, 2005 and 2004, along with a reconciliation to net income.   200620052004Rental income$552,025395,189100,955Tenant recovery income125,43793,42023,155Other property income11,6217,848995Property operating expenses(115,945)(80,041)(18,527)Real estate tax expense(79,894)(54,273)(13,076)Property net operating income493,244362,14393,502Other income:Straight-line rental income18,18616,1033,886Amortization of above and below market lease intangibles2,6575,4951,584Operating income of Captive insurance company177--Dividend income37,5017,561-Interest income23,12720,4663,491Other income11111820Realized gain (loss) on sale of securities4161(3,667)Minority interests1,9751,350397Other expenses:Straight-line ground lease expense(3,923)(3,140)(919)Operating expenses of Captive insurance company(344)--Depreciation and amortization(259,884)(189,631)(46,105)General and administrative expenses(14,975)(10,813)(4,856)Advisor asset management fee(39,500)(20,925)-Interest expense(223,098)(141,039)(35,043)Equity in losses of unconsolidated joint ventures(3,727)(2,440)(589)Net income$31,94345,24911,701Rental real estate assets$7,659,8597,224,736Non-segment assets668,415861,197Total assets$8,328,2748,085,933  -66-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  Non-segment assets include cash and cash equivalents, restricted escrows, investments in marketable securities, other investments, loan fees and loan fee deposits and miscellaneous other non-real estate related assets.  The Company does not derive any of its consolidated revenue from foreign countries and does not have any major customers that individually account for 10% or more of the Company's consolidated revenues.  (12)  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, 2006 and 2005, options to purchase 23 and 20 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 441,816, 350,644 and 98,563 for the years ended December 31, 2006, 2005 and 2004, respectively.  (13)  Income Taxes  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 was $78 for the year ended December 31, 2006.  No income tax expense was incurred related to the TRS in the years ended December 31, 2005 or 2004.  Distributions declared on the Company's common stock and their tax status are presented in the following table.  The tax status of the Company's dividends in 2006, 2005, and 2004 may not be indicative of future periods.  Distributions declared perReturnOrdinaryYearcommon shareof capitalIncome2006$.64$.35$.292005.64.29.352004.66.30.36  (14)  Commitments and Contingencies The Company has acquired several properties which have earnout components, meaning the Company did not pay for portions of these properties that were not rent producing at the time of acquisition.  The Company is obligated, under 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 $210,013 in the future as retail space covered by earnout agreements is occupied and becomes rent producing. The Company has entered into one mortgage note agreement, three construction loan agreements and two other installment note agreements in which the Company has committed to fund up to a total of $161,654. Each loan requires monthly interest payments with the entire principal balance due at maturity.  The combined receivable balance at December 31, 2006 was $129,905.  Therefore, the Company may be required to fund up to an additional $31,749 on these loans.  -67-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)   As of December 31, 2006, the Company had eight irrevocable letters of credit outstanding related to loan fundings against earnout spaces at certain properties. Once the Company purchases the remaining portion of these properties and meets certain occupancy requirements, the letters of credit will be released. The balance of outstanding letters of credit at December 31, 2006 was $31,623.  The Company has entered into interest rate lock agreements with various lenders to secure interest rates on mortgage debt on properties the Company currently owns or plans to purchase in the future. The Company had outstanding rate lock deposits in the amount of $6,904 as of December 31, 2006, which will be applied as credits to the mortgage fundings as they occur.  These agreements lock interest rates from 4.83% to 5.62% for periods of 90 days on $642,849 in principal. Approximately $575,823 of this principal has been allocated to specific acquisitions as of December 31, 2006.  The Company is currently considering acquiring 19 properties for an estimated aggregate purchase price of approximately $695,453. The Company's decision to acquire each property will generally depend upon no material adverse change occurring relating to the property, the tenants or in the local economic conditions and the Company's receipt of satisfactory due diligence information including appraisals, environmental reports and lease information prior to purchasing the property.  (15)  Subsequent Events  During the period from January 1 to February 23, 2007, the Company:  · Issued 2,563 shares of common stock through the DRP and repurchased 593 shares of common stock through the SRP resulting in a total of 448,366 shares of common stock outstanding at February 23, 2007;  · Paid distributions of $47,864 to its stockholders;  · Invested $4,132 in a new development joint venture;  · Funded earnouts of $18,208 on eight of its existing properties;  · Funded a total of $3,799 on construction loans receivable; and  · Obtained new mortgage financing on one property in the amount of $8,018.  The Board of Directors has approved a modification to the SRP as follows:  · Effective February 1, 2007, the repurchase price for all shares will be $9.75 per share for any requesting shareholder 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 shares for at least one year.  On January 12, 2007, the Company redeemed its joint venture partners' interest in two of its consoldiated joint venture  properties. On that date, the Company disbursed $38,467 for this redemption which represented the partners' invested capital and unpaid preferred returns.  On February 6, 2007, the Company refinanced $232,486 of variable rate mortgage debt maturing in 2007 at fixed rates ranging from 5.35% to 5.48%.   -68-    INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland corporation)Notes to Consolidated Financial Statements(continued) (In thousands, except per share amounts)  (16) Quarterly Financial Information (unaudited)  2006Dec 31Sept 30June 30March 31Total revenues$183,264181,701174,265170,873Net income3,2197,3749,41211,938Net income, per common share, basic and   diluted$.01.02.02.03Weighted average number of common shares   outstanding, basic and diluted445,478443,239440,722437,826  2005Dec 31Sept 30June 30March 31Total revenues$169,032145,097113,08990,837Net income14,50612,1669,5639,014Net income, per common share, basic and   diluted$.03.03.03.04Weighted average number of common shares   outstanding, basic and diluted434,624395,666321,170251,115   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.   -69-    Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
Schedule II Valuation and Qualifying Accounts For the years ended December 31, 2006, 2005 and 2004 (Dollar amounts in thousands)  Balance at beginningCharged to costs andBalance at endof yearexpensesWrite-offsof yearYear ended December 31, 2006Allowance for doubtful accounts$2,468$2,875(1,020)$4,323Year ended December 31, 2005Allowance for doubtful accounts$346$2,573(451)$2,468Year ended December 31, 2004Allowance for doubtful accounts$-$346-$346    -70-


Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
Schedule III Real Estate and Accumulated Depreciation
December 31, 2006 (Dollar amounts in thousands)  Initial Cost (A)Gross amount carried at end of periodEncumbrancesLandBuildings and ImprovementsAdjustments to Basis  (C)LandBuildings and ImprovementsTotal (B) (D)Accumulated Depreciation(E)Date ConstructedDate Acquired23rd Street Plaza3,9901,3005,319781,3005,3976,697396200312/04Panama City, FLAcademy Sports2,9201,2303,752-1,2303,7524,982332200407/04Houma, LAAcademy Sports2,3381,3402,94351,3402,9484,288234200410/04Midland, TXAcademy Sports2,7751,0503,95461,0503,9605,010315200410/04Port Arthur, TXAcademy Sports3,9333,2153,963-3,2153,9637,178278200401/05San Antonio, TXAlison's Corner3,8501,0455,700781,0455,7786,823564200304/04San Antonio, TXAmerican Express11,6231,40015,37091,40015,37916,7791,076200012/04DePere, WIAmerican Express37,1702,90055,966102,90055,97658,8763,918197512/04Fort Lauderdale, FLAmerican Express33,0402,80049,47082,80049,47852,2783,464198612/04Greensboro, NCAmerican Express25,38010,10029,408-10,10029,40839,5081,9721983 & 198701/05Markham, Ontario, CanadaAmerican Express56,05014,20074,608714,20074,61588,8155,224198912/04Minneapolis, MNAmerican Express - 19th Ave.8,2602,90010,17082,90010,17813,078712198312/04Phoenix, AZAmerican Express - 31st Ave.31,8605,10045,27085,10045,27850,3783,170198512/04Phoenix, AZAmerican Express30,1498,20036,692-8,20036,69244,8922,247198203/05Taylorsville, UTArvada Connection and Arvada Marketplace28,5108,12539,3815738,12539,95448,0794,0321987-199004/04Arvada, COAshland & Roosevelt14,963-21,127433-21,56021,5601,264200205/05  -71-     Chicago, ILAzalea Square16,5356,37521,3041486,37521,45227,8271,697200410/04Summerville, SCBangor Parkade17,25011,60013,5393,31211,60016,85128,451388200503/06Bangor, MEBattle Ridge Pavilion10,3474,35011,366234,35011,38915,739279199905/06Marietta, GABeachway Plaza10,2355,46010,397715,46010,46815,9286091984 / 200406/05Bradenton, FloridaBear Creek11,4503,30014,477773,30014,55417,854887200204/05Houston, TXBed, Bath & Beyond Plaza11,193-18,36725-18,39218,3921,516200410/04Miami, FLBed, Bath & Beyond Plaza9,8184,53011,901-4,53011,90116,4316182000-200207/05Westbury, NYBest on the Boulevard19,5257,46025,583(71)7,46025,51232,9722,5861996-199904/04Las Vegas, NVBison Hollow10,7745,55012,324(18)5,55012,30617,856753200404/05Traverse City, MIBlockbuster at Five Forks8254401,018-4401,0181,458652004-200503/05Simpsonville, SCBluebonnet Parc12,1004,45016,407(53)4,45016,35420,8041,620200204/04Baton Rouge, LABoston Commons9,6603,7509,690513,7509,74113,491564199305/05Springfield, MABoulevard at the Capital Centre71,500-114,7035,223-119,926119,92610,133200409/04Largo, MDBoulevard Plaza6,3004,17012,038444,17012,08216,252738199404/05Pawtucket, RIThe Brickyard-45,30026,6573,32945,30029,98675,2861,7841977 / 200404/05Chicago, ILBroadway Shopping Center8,3795,50014,0021755,50014,17719,6776441960/1999-200009/05Bangor, MEBrown's Lane6,2842,60012,005862,60012,09114,691728198504/05Middletown, RICarMax8,0306,2107,731-6,2107,73113,941519199803/05San Antonio, TXCarrier Towne Crossing10,9922,75013,6627552,75014,41717,167565199812/05Grand Prairie, TXCentral Texas Marketplace-13,00047,56910813,00047,67760,677-200412/06Waco, TX  -72-     Centre at Laurel27,20019,0008,40611,76019,00020,16639,166486200502/06Laurel, MDCentury III Plaza25,3137,10033,212-7,10033,21240,3121,826199606/05West Mifflin, PAChantilly Crossing15,6758,50016,06058,50016,06524,565932200405/05Chantilly, VACinemark Theatre7,8003,45011,728-3,45011,72815,178718200003/05Woodridge,  ILCircuit City Headquarters31,2703,00047,815-3,00047,81550,8152,789199705/05Richmond, VACitizens Property Insurance5,9972,1507,60162,1507,6079,757355200508/05Jacksonville, FLClearlake Shores6,6831,7757,0261,2031,7758,22910,0044522003-200404/05Clear Lake, TXColony Square25,48816,70022,77711216,70022,88939,589559199705/06Sugar Land, TXThe Columns14,8655,83019,43945,83019,44325,2731,65120048/04 & 10/04Jackson, TNThe Commons at Royal Palm14,2068,50012,105258,50012,13020,630703200105/05Royal Palm Beach, FLThe Commons at Temecula29,62312,00035,887-12,00035,88747,8872,191199904/05Temecula, CAComputershare Shareholder Services44,5008,50056,621-8,50056,62165,1212,941200107/05Canton, MACoram Plaza20,75510,20026,17852510,20026,70336,9031,956200412/04Coram, NYCornerstone Plaza8,4002,92010,359(189)2,92010,17013,0905952004-200505/05Cocoa Beach, FLCorWest Plaza18,1506,90023,85176,90023,85830,7582,6241999 - 200301/04New Britian, CTCost Plus Distribution Warehouse16,30010,07521,483(2,885)7,10421,56928,673566200304/06Stockton, CACottage Plaza13,0253,00019,158-3,00019,15822,1581,3472004-200502/05Pawtucket, RICoventry/First Health Corp. Regional Facility7,0601,4809,874(1)1,4809,87311,353432200510/05San Antonio, TXCranberry Square10,9003,00018,736753,00018,81121,8111,7171996-199707/04Cranberry Township, PA  -73-     Crockett Square5,8124,1407,534424,1407,57611,716254200502/06Morristown, TNCrossroads Plaza4,8731,0403,780-1,0403,7804,820219198705/05North Attelborough, MACrown Theater10,0507,318954-7,3189548,27293200007/05Hartford, CTCuyahoga Falls Market Center8,2853,35011,083-3,35011,08314,433677199804/05Cuyahoga Falls, OHCVS Pharmacy2,1939102,891-9102,8913,801159199906/05Burleson, TXCVS Pharmacy3,6682,0963,86382,0963,8715,967147200512/05Cave Creek, AZCVS Pharmacy (Eckerd Drug Store)1,8509752,40029752,4023,377267200312/03Edmund, OKCVS Pharmacy3,4751,4604,45521,4604,4575,917299200403/05Jacksonville, FLCVS Pharmacy1,5667501,958-7501,9582,708114199905/05Lawton, OKCVS Pharmacy1,6852502,777-2502,7773,027178200103/05Montevallo,  ALCVS Pharmacy1,9016002,659-6002,6593,259162200405/05Moore, OKCVS Pharmacy (Eckerd Drug Store)2,9009324,370-9324,3705,302490200312/03Norman, OKCVS Pharmacy2,4296203,583-6203,5834,203197199906/05Oklahoma City, OKCVS Pharmacy2,4601,1003,254-1,1003,2544,354209200403/05Saginaw, TXCVS Pharmacy1,6856002,46936002,4723,072196200410/04Sylacauga, ALCypress Mill Plaza9,8472,10013,130(24)2,10013,10615,206561200411/05Cypress, TXDarien Towne Center16,5007,00022,4687077,00023,17530,1752,609199412/03Darien, ILDavis Towne Crossing5,3651,8505,6811,2551,8506,9368,7865932003-200406/04North Richland Hills, TXDenton Crossing35,2006,00043,4349,8496,00053,28359,2833,9682003-200410/04Denton, TX  -74-     Diebold Warehouse7,240-11,1902-11,19211,192615200507/05Green, OHDorman Center - Phase 1 & II27,61017,02529,478(232)17,02529,24646,2713,0652003-20043/04 & 7/04Spartanburg, SCDuck Creek Plaza14,4264,44012,076224,44012,09816,538517200511/05Bettendorf, IAEast Stone Commons22,5502,90028,7141102,90028,82431,724528200506/06Kingsport, TNEastwood Towne Center46,75012,00065,067(665)12,00064,40276,4026,314200205/04Lansing, MIEckerd Drug Store-Sheridan Dr.2,9032,0002,722-2,0002,7224,722116199911/05Amherst, NYEckerd Drug Store-Transit Road3,2432,5002,76422,5002,7665,266118200311/05Amherst, NYEckerd Drug Store1,2249001,215-9001,2152,115701999-200005/05Atlanta, GAEckerd Drug Store-E. Main St.2,8551,8602,786-1,8602,7864,646119200411/05Batavia, NYEckerd Drug Store-W. Main St.2,5471,5102,627-1,5102,6274,137112200111/05Batavia, NYEckerd Drug Store-Ferry St.2,1989002,677-9002,6773,577114200011/05Buffalo, NYEckerd Drug Store-Main St.2,1741,3402,192-1,3402,1923,53294199811/05Buffalo, NYEckerd Drug Store3,0911,9682,57511,9682,5764,544110200411/05Canandaigua, NYEckerd Drug Store1,6287502,042-7502,0422,792112199906/05Chattanooga, TNEckerd Drug Store2,1172,0801,393-2,0801,3933,47360199911/05Cheektowaga, NYEckerd Drug Store3,2003,0003,955-3,0003,9556,955230200505/05Colesville, MDEckerd Drug Store1,7509002,377-9002,3773,2772312003-200406/04Columbia, SCEckerd Drug Store1,4256002,03316002,0342,6341932003-200406/04Crossville, TNEckerd Drug Store1,6659002,475-9002,4753,375105199911/05Grand Island, NYEckerd Drug Store1,9264702,657-4702,6573,127114199811/05  -75-     Greece, NYEckerd Drug Store1,6501,0502,04711,0502,0483,0981942003-200406/04Greer, SCEckerd Drug Store3,4001,5503,95461,5503,9605,510206200408/05Hellertown, PAEckerd Drug Store2,4092,0601,873-2,0601,8733,93380200211/05Hudson, NYEckerd Drug Store2,8771,9402,736-1,9402,7364,676117200211/05Irondequoit, NYEckerd Drug Store1,9757002,96017002,9613,6612802003-200406/04Kill Devil Hills, NCEckerd Drug Store1,7861,7101,207-1,7101,2072,91752199911/05Lancaster, NYEckerd Drug Store3,4009754,36969754,3755,350227200408/05Lebanon, PAEckerd Drug Store2,7161,6502,788-1,6502,7884,438119200211/05Lockport, NYEckerd Drug Store1,6828201,935-8201,9352,75583200011/05North Chili, NYEckerd Drug Store2,4521,1902,809-1,1902,8093,999120199911/05Olean, NYEckerd Drug Store3,3221,0004,32851,0004,3335,333225200408/05Punxsutawney, PAEckerd Drug Store - Culver Rd.2,3761,5902,279-1,5902,2793,86997200111/05Rochester, NYEckerd Drug Store - Lake Ave.3,2102,2203,02522,2203,0275,247129200111/05Rochester, NYEckerd Drug Store2,3708003,075-8003,0753,875132200011/05Tonawanda, NYEckerd Drug Store - Harlem Rd.2,7702,8301,683-2,8301,6834,51372200311/05West Seneca, NYEckerd Drug Store-Union Road2,3951,6102,300-1,6102,3003,91098200011/05West Seneca, NYEckerd Drug Store1,3728101,434-8101,4342,24461199711/05Yorkshire, NYEdgemont Town Center8,5993,50010,956(246)3,50010,71014,210827200311/04Homewood, ALEdwards Megaplex Theater19,730-35,421--35,42135,4212,164198805/05Fresno, CA  -76-     Edwards Megaplex Theater27,87511,80033,098-11,80033,09844,8982,022199704/05Ontario, CAEvans Towne Centre5,0051,7006,425211,7006,4468,146475199512/04Evans, GAFairgrounds Plaza15,5424,80013,4902,3584,80015,84820,6481,0562002-200401/05Middletown, NYFisher Scientific8,26051012,768-51012,76813,278670200506/05Kalamazoo, MIFive Forks4,4832,1005,374162,1005,3907,490411199912/04Simpsonville, SCForks Town Center10,3952,43014,8367262,43015,56217,9921,361200207/04Easton, PAFour Peaks Plaza17,0725,00020,0982,1435,00022,24127,2411,330200403/05Fountain Hills, PAFox Creek Village11,4853,75515,563(1,236)3,75514,32718,0821,1602003-200411/04Longmont, COFullerton Metrocenter28,050-47,403(101)-47,30247,3024,353199806/04Fullerton, CAGalvez Shopping Center4,4701,2504,947-1,2504,9476,197287200406/05Galveston, TXGardiner Manor Mall38,48411,80049,495-11,80049,49561,2952,570200007/05Bay Shore, NYThe Gateway98,78028,664104,55212,29328,664116,845145,5096,5352001-200305/05Salt Lake City, UTGateway Pavilions35,8429,88055,1951759,88055,37065,2504,2182003-200412/04Avondale, AZGateway Plaza18,163-26,371169-26,54026,5402,363200007/04Southlake, TXGateway Station3,7171,0503,9111,2131,0505,1246,1743632003-200412/04College Station, TXGateway Village27,2338,55039,2983,6778,55042,97551,5253,724199607/04Annapolis, MDGiant Eagle12,1543,42516,868103,42516,87820,303670200011/05Columbus, OHGloucester Town Center11,9753,90017,87893,90017,88721,7871,048200305/05Gloucester, NJGMAC33,0008,25050,287128,25050,29958,5494,1491980/199009/04Winston-Salem, NCGolfsmith2,4761,2502,97421,2502,9764,2261211992/200411/05Altamonte Springs, FLGovernor's Marketplace20,625-30,3771,733-32,11032,1102,642200108/04  -77-     Tallahassee, FLGrapevine Crossing12,8154,10016,938554,10016,99321,0931,039200104/05Grapevine, TXGreat Southwest Crossing8,9922,75012,6991062,75012,80515,555624200309/05Grand Prairie, TXGreen's Corner7,0223,2008,663(39)3,2008,62411,824632199712/04Cumming, GAGreensburg Commons14,2002,70019,116-2,70019,11621,8161,227199904/05Greensburg, INGreenwich Center-3,70015,9491073,70016,05619,756490200202/06Phillipsburg, NJGurnee Town Center24,3607,00035,1472857,00035,43242,4322,812200010/04Gurnee, ILHarris Teeter3,9601,8105,15211,8105,1536,9634411977/199509/04Wilmington, NCHartford Fire Insurance Building9,6141,70013,70961,70013,71515,415670200508/05Maple Grove, MNHarvest Towne Center5,0053,1555,085(10)3,1555,0758,2304351996-199909/04Knoxville, TNHenry Town Center34,83810,65046,81429110,65047,10557,7553,452200212/04McDonough, GAHeritage Towne Crossing8,9503,06510,7291,2433,06511,97215,0371,186200203/04Euless, TXHewitt Associates Campus129,80028,500178,524-28,500178,524207,02410,3631974-198605/05Lincolnshire, ILHickory Ridge23,6506,86030,517(795)6,86029,72236,5823,189199901/04Hickory, NCHigh Ridge Crossing7,4393,0759,148(231)3,0758,91711,992613200403/05High Ridge, MOHobby Lobby3,0251,7283,791-1,7283,7915,519278200401/05Concord, NCHolliday Towne Center8,0502,20011,609(284)2,20011,32513,525807200302/05Duncansville, PAHome Depot Center10,446-16,758--16,75816,758922199606/05Pittsburgh, PAHome Depot Plaza16,7349,70017,137-9,70017,13726,837941199206/05Orange, CTHQ Shopping Center9,9785,20010,010105,20010,02015,220367Redev: 200412/05San Antonio, TXHuebner Oaks Center48,00014,08059,82676414,08060,59074,6705,7461997-199806/04San Antonio, TX  -78-     Humblewood9,5582,20012,823(13)2,20012,81015,010509Renov: 200511/05Humble, TXIrmo Station7,0852,6009,247302,6009,27711,8776801980 &198512/04Irmo, SCJohn's Creek Village23,3005,75021,27012,9845,75034,25440,0042,6972003-200406/04Duluth, GAKaiser Permanente32,67012,95043,629-12,95043,62956,5792,4002004-200506/05Cupertino, CAKing Phillip's Crossing (Seekonk Power Center)13,6503,71019,144(104)3,71019,04022,750817200511/05Seekonk, MAKohl's6,0851,6008,27551,6008,2809,880338200510/05Georgetown, KYKohl's/Wilshire Plaza5,4182,6006,84992,6006,8589,458524200407/04Kansas City, MOLa Plaza Del Norte32,52816,00537,744(363)16,00537,38153,3864,0251996/199901/04San Antonio, TXLake Forest Crossing4,5202,2005,1103812,2005,4917,691324200403/05McKinney, TXLake Mary Pointe3,6582,0754,009822,0754,0916,166323199910/04Lake Mary, FLLake Worth Towne Crossing26,4916,20030,9103,6346,20034,54440,744592200506/06Lake Worth, TXLakepointe Towne Crossing21,7154,75023,9044,3314,75028,23532,9851,549200405/05Lewisville, TXLakewood Towne Center44,00011,20070,796(4,875)11,20065,92177,1216,1451988/2002-200306/04Lakewood, WALarkspur Landing33,63020,80032,82135520,80033,17653,9763,7061978/200101/04Larkspur, CALincoln Park26,1539,36034,718(152)9,36034,56643,9262,956199809/04Dallas, TXLincoln Plaza47,50013,00046,48686413,16547,18560,3502,2642001/200409/05Worchester, MALow Country Village5,3701,3608,779101,3608,78910,149805200406/04Bluffton, SCLow Country Village II5,4401,5507,835(43)1,5507,7929,342358200509/05Bluffton, SCLowe's/Bed, Bath & Beyond13,7007,423799(8)7,4157998,21471200508/05Butler, NJMacArthur Crossing12,7004,71016,2651064,71016,37121,0811,7581995-199602/04Los Colinas, TX  -79-     Magnolia Square10,2652,63515,040452,63515,08517,7201,065200402/05Houma, LAManchester Meadows31,06514,70039,738(212)14,70039,52654,2263,5161994-199508/04Town and Country, MOMansfield Towne Crossing10,9823,30012,1953,4003,30015,59518,8951,1652003-200411/04Mansfield, TXMaple Tree Place60,37628,00067,3611,15128,00068,51296,5123,9492004-200505/05Williston, VTThe Market at Clifty Crossing14,8991,90016,6681,0251,84817,74519,5936881986/200411/05Columbus, INThe Market at Polaris36,19611,75040,1974,17411,75044,37156,1211,659200511/05Columbus, OHMassillon Village Center10,1264,09012,5211354,09012,65616,7467681986 / 200004/05Massillon, OHMaytag Distribution Center12,7401,70020,681-1,70020,68122,3811,448200401/05North Liberty, IAMcAllen Shopping Center2,4558502,958138502,9713,821218200412/04McAllen, TXMcDermott Towne Crossing5,6171,8506,92321,8506,9258,775317199909/05McAllen, TXMervyn's5,0002,0005,78612,0005,7877,787265198809/05Bakersfield, CAMervyn's5,0003,4004,42813,4004,4297,829203198109/05El Paso, TXMervyn's5,5002,9105,17622,9105,1788,088237199309/05Elk Grove, CAMervyn's6,7006,5305,43116,5305,43211,962249198709/05Escondido, CAMervyn's5,2002,4005,80612,4005,8078,207266199209/05Fontana, CAMervyn's5,1002,5005,53812,5005,5398,039254199309/05Fresno, CAMervyn's4,7002,7505,40112,7505,4028,152248199309/05Hanford, CAMervyn's5,3002,3505,97812,3505,9798,329274199409/05Highland, CAMervyn's4,4002,7704,28212,7704,2837,053196197909/05Lodi, CAMervyn's5,7002,8506,30712,8506,3089,158289199209/05Manteca, CA  -80-     Mervyn's5,1004,1004,00314,1004,0048,104183199209/05McAllen, TXMervyn's5,1003,9304,08123,9304,0838,013187198809/05Moreno Valley, CAMervyn's5,1004,8003,21114,8003,2128,012147198909/05Morgan Hill, CAMervyn's6,4006,4205,48216,4205,48311,903251198209/05Oceanside, CAMervyn's5,0004,5003,29414,5003,2957,795151199009/05Rancho Cucamonga, CAMervyn's5,0003,4504,41813,4504,4197,869202198109/05Redlands, CAMervyn's3,3001,5004,63921,5004,6416,141213199009/05Ridgecrest, CAMervyn's5,4004,8203,05214,8203,0537,873140198309/05Roseville, CAMervyn's4,8003,9303,59413,9303,5957,525165197309/05Sacramento, CAMervyn's7,9008,2604,14418,2604,14512,405190199309/05San Diego, CAMervyn's6,0005,3003,60715,3003,6088,908165198009/05Sun Valley, CAMervyn's5,1004,7903,11724,7903,1197,909143199009/05Temecula, CAMervyn's4,0001,9604,37311,9604,3746,334200198709/05Turlock, CAMervyn's5,2003,3854,70813,3854,7098,094216199209/05Vacaville, CAMervyn's5,0004,8003,02224,8003,0247,824138198209/05Ventura, CAMesa Fiesta23,5005,80028,302(491)5,80027,81133,6112,062200412/04Mesa, AZMid-Hudson Center25,1569,90029,16019,90029,16139,0611,516200007/05Poughkeepsie, NYMidtown Center28,22813,22036,8002,26313,22039,06352,2832,7251986-198701/05Milwaukee, WIMission Crossing13,6304,00012,6164,6574,67016,60321,2737972003-200507/05San Antonio, TXrenovatedMitchell Ranch Plaza18,7005,55026,2132445,55026,45732,0072,253200308/04New Port Richey, FL  -81-     Montecito Crossing28,2859,70025,41438299,70029,24338,9431,2962004-200510/05Las Vegas, NVMountain View Plaza I9,6452,18013,788242,18013,81215,992632200310/05Kalispell, MTMountain View Plaza II-3,0004,42463,0004,4297,42914200611/06Kalispell, MTNew Forest Crossing10,7975,00011,404(70)5,00011,33416,3346252002-200306/05Houston, TXNewburgh Crossing8,4154,00010,24664,00010,25214,252470200510/05Newburgh, NYNewnan Crossing I-4,54212,189(242)4,54211,94716,4891,277199912/03Newnan, GANewnan Crossing II23,76610,55821,7982,68310,55824,48135,0392,138200402/04Newnan, GANewton Crossroads5,5483,3506,927(46)3,3506,88110,231505199712/04Covington, GANorth Ranch Pavilions10,1579,7058,2963119,7058,60718,312964199201/04Thousand Oaks, CANorth Rivers Town Center11,0503,35015,720283,35015,74819,0981,5392003-200404/04Charleston, SCNorthgate North26,6507,54049,078(17,006)7,54032,07239,6123,0371999-200306/04Seattle, WANorthpointe Plaza30,85013,80037,70776013,80038,46752,2673,6491991-199305/04Spokane, WANorthwood Crossing10,6913,77013,6583763,77014,03417,8045041979/200401/06Northport, ALNorthwoods Center11,1933,4159,4756,0213,41515,49618,9111,0312002-200412/04Wesley Chapel, FLOld Time Pottery3,2502,0003,017192,0003,0365,036561987/1999 & 200506/06Douglasville, GAOrange Plaza (Golfland Plaza)8,2064,3504,83434,3504,8379,187280199505/05Orange, CTThe Orchard12,9873,20017,151(2)3,20017,14920,3498542004-20057/05 & 9/05New Hartford, NYOswego Commons19,2626,25026,629576,25026,68632,9362,0382002-200411/04Oswego, ILPacheco Pass14,4005,36017,857(89)5,36017,76823,128981200507/05Gilroy, CAPage Field Commons26,853-43,355235-43,59043,5902,659199905/05Fort Myers, FL  -82-     Paradise Valley Marketplace15,6816,59020,425(270)6,59020,15526,7452,013200204/04Phoenix, AZPavilion at King's Grant5,3424,3002,7411,4904,3004,2318,5314122002-200312/03Concord, NCPavilion at King's Grant II-5,9749,651315,9749,68215,656177200506/06Concord, NCPeoria Crossings23,0906,24029,1902936,24029,48335,7233,1262002-200303/04Peoria, AZPeoria Crossings  II-7553,626(19)7553,6074,362222200505/05Peoria, AZPETsMART Distribution Center23,7311,70038,808-1,70038,80840,5082,0372004-200507/05Ottawa, ILPhenix Crossing5,5352,6006,776292,6006,8059,405499200412/04Phenix City, AlabamaPine Ridge Plaza14,7005,00019,8023205,00020,12225,1221,8911998-200406/04Lawrence, KSPlacentia Town Center13,69511,20011,751(71)11,20011,68022,8808971973/200012/04Placentia, CAPlaza at Marysville11,8006,60013,728986,60013,82620,4261,211199507/04Marysville, WAPlaza at Riverlakes9,3505,10010,824135,10010,83715,937869200110/04Bakersfield, CAPlaza Santa Fe II16,073-28,588(382)-28,20628,2062,6842000-200206/04Santa Fe, NMPleasant Run Towne Center22,8004,20029,0854,6714,20033,75637,9562,289200412/04Cedar Hill, TXPromenade at Red Cliff10,5905,34012,665365,34012,70118,0411,358199702/04St. George, UTPublix4,3842,1005,634-2,1005,6347,734343200404/05Mountain Brook, ALQuakertown7,4702,4009,24612,4009,24711,6474522004-200509/05Quakertown, PARasmussen College Office Center3,0538504,04968504,0554,905210200508/05Brooklyn Park, MNRave Theater17,8893,44022,1901,7693,44023,95927,399857200512/05Houston, TXRaytheon Office and Research and Development Building11,84165018,353265018,35519,005953Rehab:  200108/05State College, PARed Bug Village4,5391,7906,178(1)1,7906,1777,967227200412/05Winter Springs, FLReisterstown Road Plaza49,65015,80070,3726,07415,80076,44692,2466,5381986/200408/04Baltimore, MDRidge Tool Company Distribution Facility4,5434156,79914156,8007,215297200509/05Cambridge, OHRiverpark Phase I30,47010,00033,33615110,00033,48743,487920200304/06Sugarland, TXRiverpark Phase IIA-1,8008,542(28)1,8008,51410,314104200609/06Sugarland, TXRivery Town Crossing-2,9006,8141582,9006,9729,87263200510/06Georgetown, TXRoyal Oaks Village II8,5502,20011,859(81)2,20011,77813,9785072004-200511/05Houston, TXSaucon Valley Square8,8513,20012,6421023,20012,74415,9441,089199909/04Bethlehem, PAShaw's Supermarket6,4502,70011,532(298)2,70011,23413,9341,279199512/03New Britain, CTShoppes at Lake Andrew15,6574,00022,996184,00023,01427,0141,687200312/04Viera, FLThe Shoppes at Park West        (Publix Center)6,6552,2409,357(79)2,2409,27811,518737200411/04Mt. Pleasant, SCShoppes at Quarterfield   (Metro Square Center)6,0672,1908,840252,1908,86511,055946199901/04Severn, MDShoppes of New Hope (Shoppes of Dallas)7,1791,35011,045(114)1,35010,93112,2811,051200407/04Dallas, GAShoppes of Prominence Point9,9542,85011,149(64)2,85011,08513,9351,021200406/04Canton, GAShoppes of Prominence Point II1,4638001,503(34)8001,4692,26968200509/05Canton, GAShoppes of Warner Robins7,2861,11011,258241,11011,28212,392624200406/05Warner Robins, GAShops at 540,1798,35059,570668,35059,63667,9863,461200506/05Plymouth, MAThe Shops at Boardwalk20,1505,00030,540(198)5,00030,34235,3422,7882003-200407/04Kansas City, MOShops at Forest Commons5,1041,0506,133(7)1,0506,1267,176467200212/04Round Rock, TXShops at Park Place13,1279,09613,1753579,09613,53222,6281,632200110/03Plano, TXSouth Towne Crossing8,8181,6009,3914591,6009,85011,450177200506/06Burleson, TXSouthgate Plaza6,7402,2009,229-2,2009,22911,4296201998-200203/05Heath, OHSouthlake Corners20,6255,25030,0581105,25030,16835,4182761995/200410/06Southlake, TXSouthlake Town Square81,00016,350110,7785,93116,350116,709133,0598,3541998-200412/04Southlake, TXSouthpark Meadows12,6636,25013,7202,0626,25015,78222,032817200407/05Austin, TXSouthwest Crossing14,6914,75019,6791524,75019,83124,5811,147199906/05Fort Worth, TXSprint Data Center52,8004,80085,34814,80085,34990,1493,988200109/05Santa Clara, CAStanley Works/Mac Tools5,5001,9007,624-1,9007,6249,524511200401/05Westerville, OHStateline Station17,6006,50023,780(433)6,50023,34729,8471,5882003-200403/05Kansas City, MOStilesboro Oaks6,9522,2009,426(45)2,2009,38111,581688199712/04Acworth, GAStonebridge Plaza4,2781,0005,783411,0005,8246,824303199708/05McKinney, TXStony Creek Marketplace14,1626,73517,5641796,73517,74324,4782,103200312/03Noblesville, INStony Creek Marketplace II4,2791,9005,106-1,9005,1067,006218200511/05Noblesville, INStop & Shop7,3492,65011,49162,65011,49714,147491Renov: 200511/05Beekman, NYTarget South Center7,2572,3008,76052,3008,76511,065375199911/05Austin, TXTim Horton's Donut Shop-21230-212302422200411/05Canandaigua, NYTollgate Marketplace39,7658,70061,247578,70061,30470,0045,4111979/199407/04Bel Air, MDTown Square Plaza18,7159,70018,2641,5239,70019,78729,487704200412/05Pottstown, PATowson Circle15,6489,05017,8402,5279,05020,36729,4171,760199807/04Towson, MDTraveler's Office Building4,8656507,001606507,0617,711247200501/06Knoxville, TNTrenton Crossing19,3078,18019,2626768,18019,93828,1181,304200302/05McAllen, TXUniversity Square29,9651,77048,074(4,003)1,77044,07145,8412,836200305/05University Heights, OHUniversity Town Center5,809-9,55736-9,5939,593732200211/04Tuscaloosa, ALVail Ranch13,4896,20016,275-6,20016,27522,4759962004-200504/05Temecula, CAThe Village at Quail Springs5,7403,3357,766-3,3357,76611,1015432003-200402/05Oklahoma City, OKVillage Shoppes at Gainsville25,1484,45036,59254,45036,59741,0471,676200409/05Gainsville, GAVillage Shoppes at Simonton7,5622,20010,874(227)2,20010,64712,847951200408/04Lawrenceville, GAWalgreens3,2184505,074-4505,0745,524311200004/05Northwoods, MOWalgreens2,6005503,580-5503,5804,130230199904/05West Allis, WIWal-Mart Supercenter7,1001,75610,914-1,75610,91412,670967199907/04Blytheville, ARWal-Mart Supercenter6,0892,3978,08912,3978,09010,487717199708/04Jonesboro, ARWalter's Crossing20,62614,50016,914(70)14,50016,84431,344258200507/06Tampa, FLWatauga Pavilion19,6175,18527,504(217)5,18527,28732,4722,5972003-200405/04Watauga, TXWest Town Market6,0481,17010,488(4)1,17010,48411,654575200406/05Fort Mill, SCWickes Furniture Store5,4333,2005,53053,2005,5358,735242200510/05Murrieta, CAWickes Furniture Store4,9642,4005,612-2,4005,6128,012326200505/05Naperville, ILWild Oats Marketplace7,4693,8009,155-3,8009,15512,955481200007/05Hinsdale, ILWilton Square27,8258,20035,538138,20035,55143,7511,846200007/05Saratoga Springs, NYWinchester Commons7,2354,4007,471(47)4,4007,42411,824592199911/04Memphis, TNWrangler11,3001,21916,250(365)1,21915,88517,1041,427199307/04El Paso, TXZurich Towers81,4207,900121,31277,900121,319129,2199,2501986-199011/04Schaumburg, ILSubtotal Wholly-Owned and Consolidated Joint Ventures4,265,2491,464,8085,570,968113,8511,462,6125,687,0157,149,627381,456Other Joint VenturesCardiff Hall East4,9961,0907,6084331,0908,0419,131865199010/04Towson, MDNorth Plaza30,8004,84739,211(45)4,84739,16644,0133,0011976-197812/04Parkville, MDrenov: 1999-2000Subtotal Other Joint   Ventures35,7965,93746,8193885,93747,20753,1443,866Construction in Progress11,41847,5758,120-47,5758,12055,695-Total Investment Properties4,312,4631,518,3205,625,907114,2391,516,1245,742,3427,258,466385,322      -83-


INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.(A Maryland Corporation)Schedule III (continued)
Real Estate and Accumulated DepreciationDecember 31, 2006   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, 2006 for Federal income tax purposes was approximately $7,409,725 (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:  200620052004Balance at January 1$6,648,9543,229,617122,720Purchases of property (1)664,6773,643,4463,308,732Payments received under master   leases(7,659)(6,805)(3,025)Acquired in-place lease intangibles   and customer relationship value(39,636)(269,773)(241,286)Acquired above market lease   intangibles(3,568)(22,078)(42,303)Acquired below market lease   intangibles (1)(4,302)74,54784,779Balance at December 31$7,258,4666,648,9543,229,617  (E)       Reconciliation of accumulated depreciation:  Balance at January 1$183,64336,290140SAB 108 cumulative effect adjustment (Note 2)(851)--Depreciation expense202,564147,35336,150Write-off of tenant improvements(34)--Balance at December 31$385,322183,64336,290  (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.  -84-    Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  There were no disagreements on accounting or financial disclosure during 2006.  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, 2006, our chief executive officer and principal financial 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 principal 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, 2006. Managements assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 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, 2006 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.  Item 9B.  Other Information  None.  -85-    PART III  Item 10.  Directors, Executive Officers and Corporate Governance  The information which appears under the captions "Proposal No. 1 - Election of Directors and Executive Officers" in the Company's definitive proxy statement for its 2007 Annual Meeting of Stockholders is incorporated by reference into this Item 10.  Item 11.  Executive Compensation  The information which appears under the caption "Executive Compensation" in the Company's definitive proxy statement for its 2007 Annual Meeting of Stockholders is incorporated by reference into this Item 11.  Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  The information which appears under the captions "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 2007 Annual Meeting of Stockholders is incorporated by reference into this Item 12.  Item 13.   Certain Relationships and Related Transactions, and Director Independence  The information which appears under the caption "Certain Relationships and Related Transactions" in the Company's definitive proxy statement for its 2007 Annual Meeting of Stockholders is incorporated by reference into this Item 13.  Item 14.   Principal Accounting Fees and Services  The information which appears under the caption "Principal Accounting Fees and Services" in the Company's definitive Proxy Statement for its 2007 Annual Meeting of Shareholders is incorporated by reference into this Item 14.  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, 2006 is submitted herewith.  PageValuation and Qualifying Accounts (Schedule II)69Real Estate and Accumulated Depreciation (Schedule III)70  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.        (3) Exhibits:  The following exhibits are filed as part of this document:  EXHIBIT NO.DESCRIPTION3.1Second Amended and Restated Articles of Incorporation of Inland Western Retail Real Estate Trust, Inc. (Included as Exhibit 3.1 to the Company's Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form S-11 filed on November 10, 2004 [file No. 333-118860] 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 filed on March 7, 2005 [file No. 333-103799] and incorporated herein by reference.)4.1Specimen Certificate for the Shares (Included as Exhibit 4.1 to the Company Registration Statement on Form S-11 filed 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 March 13, 2003 [File No. 333-103799] and incorporated herein by reference.)10.6Indemnification Agreement by and between Inland Western Retail Real Estate Trust, Inc. and its directors and executive officers.  (Included as Exhibit 10.6 to the Company Registration Statement on Form S-11 filed 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 July 31, 2006 [File No. 000-51199] and incorporated herein by reference)10.518Amended and Restated Share Repurchase Plan of Inland Western Retail Real Estate Trust, Inc. (Included as Exhibit 99.1 to the Company's Current Report on Form 8-K filed December 14, 2006 [File No. 000-51199] and incorporated herein by reference)14.1Inland Western Retail Real Estate Trust, Inc. Code of Business Conduct and Ethics (Included as Exhibit 99.1 to the Company's Current Report on Form 8-K filed December 3, 2004 [File No. 333-103799 and incorporated herein by reference)31.1Rule 13a-15(e)/15d-15(e) Certification by Chief Executive Officer.31.2Rule 13a-15(e)/15d-15(e) Certification by Principal Financial Officer.32.1Section 1350 Certification by Chief Executive Officer and Principal Financial Officer.    -86-    SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.  /s/ Brenda G. GujralBy:Brenda G. GujralChief Executive Officer and DirectorDate:March 1, 2007  Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:  /s/ Brenda G. Gujral/s/ Kenneth H. BeardBy:Brenda G. GujralBy:Kenneth H. BeardChief Executive Officer and DirectorDirectorDate:March 1, 2007Date:March 1, 2007/s/ Steven P. Grimes/s/ Paul R. GauvreauBy:Steven P. GrimesBy:Paul R. GauvreauPrincipal Financial OfficerDirectorDate:March 1, 2007Date:March 1, 2007/s/ Robert D. Parks/s/ Gerald M. GorskiBy:Robert D. ParksBy:Gerald M. GorskiChairman of the Board and DirectorDirectorDate:March 1, 2007Date:March 1, 2007/s/ Frank A. Catalano, Jr./s/ Barbara A. MurphyBy:Frank A. Catalano, Jr.By:Barbara A. MurphyDirectorDirectorDate:March 1, 2007Date:March 1, 2007    -87-