Inland Real Estate Corporation Announces Fourth Quarter and Year 2012 Results

Inland Real Estate Corporation Announces Fourth Quarter and Year 2012 Results

- Reports 7.3 Percent Increase in FFO Adjusted to $0.88 Per Weighted Average Common Share -

OAK BROOK, Ill.--(BUSINESS WIRE)-- Inland Real Estate Corporation (NYS: IRC) , a publicly-traded real estate investment trust that owns and operates high quality, necessity and value based retail centers in select markets in the Midwest, today announced financial and operational results for the three and twelve months ended December 31, 2012.

Fourth Quarter and Full Year 2012 Highlights

• Reported Funds from Operations (FFO) per common share of $0.27 and FFO adjusted for non-cash items net of taxes, per common share of $0.24 for the fourth quarter of 2012, representing increases of 28.6 percent and 9.1 percent, respectively, over the fourth quarter of 2011.

• Reported FFO per share of $0.96 and FFO adjusted per share of $0.88 for full year 2012, representing increases of 43.3 percent and 7.3 percent, respectively, over the prior year.

• Consolidated same store net operating income (NOI) for the full year 2012 rose by 3.2 percent over the prior year.

• Total portfolio leased occupancy was 94.0 percent and financial occupancy was 91.6 percent at December 31, 2012, representing increases of 80 basis points and 70 basis points, respectively, over year end 2011.

• Executed 105 leases for 561,051 square feet within the total portfolio in the fourth quarter of 2012, an increase in square feet leased of 17.2 percent over the year ago quarter. For 2012, executed 393 leases for 1.7 million square feet of retail space.

• For the fourth quarter 2012, average base rent for new and renewal leases signed in the total portfolio increased by 11 percent and 2.7 percent, respectively, over expiring average rents for the quarter. For 2012, average base rent increased by 16.5 percent for new leases and 6.8 percent for renewal leases, over expiring rents.

• Company acquired Valparaiso Walk, a 137,500-square-foot, fully leased power center in northwestern Indiana for $21.9 million, and sold three non-core consolidated assets for a total sales price of more than $12 million during the quarter.

"The year 2012 was a strong one for our Company, marked by record leasing, solid same store growth, increased occupancy and an enhanced balance sheet," said Mark Zalatoris, Inland Real Estate Corporation's president and chief executive officer. "During the fourth quarter, we executed the largest number of leases since the first quarter of 2011, and importantly, our average base rent for new leases increased by 11 percent. We continued to benefit from our joint venture relationships which allow us to leverage institutional capital to pursue attractive acquisitions and generate recurring fee income. Finally, we made significant steps to improve our capital position and increase liquidity with a recast credit facility and strategic dispositions, recycling capital out of slower growth assets and into high-quality retail centers such as Valparaiso Walk."

Financial Results for the Quarter

For the quarter ended December 31, 2012, FFO attributable to common stockholders was $24.0 million, compared to $19.1 million for the fourth quarter of 2011. On a per share basis, FFO was $0.27 (basic and diluted) for the fourth quarter of 2012, compared to $0.21 for the fourth quarter of 2011.

For the fourth quarter of 2012, FFO adjusted for non-cash items, was $21.4 million, compared to $19.2 million in the prior year quarter. On a per share basis, FFO adjusted for those items was $0.24 (basic and diluted) for the quarter, compared to $0.22 for the fourth quarter of 2011. The variance between FFO and FFO adjusted was due to a $2.7 million tax benefit related to the change in control of a non-operating property that was recorded during the quarter.

For the quarter, FFO adjusted increased primarily due to higher non-operating income and equity in earnings from unconsolidated joint ventures, as well as lower interest expense.

Net income attributable to common stockholders for the fourth quarter of 2012 was $8.2 million, compared to net income of $0.9 million for the fourth quarter of 2011. On a per common share basis, net income attributable to common stockholders was $0.09 (basic and diluted), compared to net income of $0.01 for the prior year quarter. Net income for the quarter increased primarily due to the same items that impacted FFO adjusted. In addition, net income increased as a result of higher net gains from sales of operating properties and the tax benefit recognized on the change in control transaction.

Financial Results for the Twelve Months Ended December 31, 2012

For the twelve months ended December 31, 2012, FFO attributable to common stockholders was $85.3 million, compared to $59.6 million for the same period in 2011. On a per share basis, FFO for the twelve-month period was $0.96 (basic and diluted), compared to $0.67 for the twelve months ended December 31, 2011.

FFO adjusted for non-cash items was $78.2 million for the twelve months ended December 31, 2012, compared to FFO adjusted of $72.2 million for the prior year period. On a per share basis, FFO adjusted was $0.88 (basic and diluted), compared to $0.82 for the same period of 2011.

For the year, FFO adjusted increased primarily due to lower interest expense, increased consolidated same store NOI, and higher non-operating income. In addition, FFO adjusted increased due to the impact in 2011 of non-cash asset impairment charges on non-operating properties.

Net income attributable to common stockholders for the twelve months ended December 31, 2012, was $9.8 million, compared to a net loss of $8.1 million for the same period in 2011. On a per share basis, net income attributable to common stockholders was $0.11 (basic and diluted), compared to a net loss of $0.09 for the twelve months ended December 31, 2011. Net income for the twelve-month period increased as a result of the same items that impacted FFO adjusted. Net income also increased due to higher net gains from sales of operating properties, non-cash tax related adjustments, and the impact in 2011 of the change in control of Orchard Crossing.

Reconciliations of FFO and FFO adjusted to net income (loss) attributable to common stockholders, calculated in accordance with U.S. GAAP, as well as FFO and FFO adjusted per share to net income (loss) attributable to common stockholders per share, are provided at the end of this news release.

Portfolio Performance

Consolidated same store NOI was $23.1 million for the quarter and $91.2 million for the twelve months ended December 31, 2012, representing a decrease of 0.9 percent and an increase of 3.2 percent, respectively, compared to the prior year periods. The decline in same store NOI for the fourth quarter 2012 was due to lower real estate tax expenses recorded in the fourth quarter of 2011. The gain in consolidated same store NOI for the year 2012 was due to increased rental income from new leases and the end of any associated rent abatement periods.

Same store financial occupancy for the consolidated portfolio was 89.4 percent as of December 31, 2012, unchanged from year end 2011.

The Company evaluates its overall portfolio by analyzing the operating performance of properties that have been owned and operated for the same three and twelve-month periods during each year. A total of 94 of the Company's investment properties within the consolidated portfolio satisfied this criterion during these periods and are referred to as "same store" properties. Same store NOI is a supplemental non-GAAP measure used to monitor the performance of the Company's investment properties.

A reconciliation of consolidated same store NOI to net income (loss) attributable to common stockholders, calculated in accordance with U.S. GAAP, is provided at the end of this news release.

Leasing

For the quarter ended December 31, 2012, the Company executed 105 leases within the total portfolio aggregating 561,051 square feet of gross leasable area (GLA), an increase of 17.2 percent over the year ago quarter. Total leases executed included:

• Sixty-four renewal leases comprising 374,197 square feet of GLA, with an average rental rate of $14.35 per square foot, representing an increase of 2.7 percent over the average expiring rent;

• Nineteen new leases comprising 104,900 square feet of GLA, with an average rental rate of $12.84 per square foot, representing an increase of 11 percent over the expiring rent.

• Twenty-two non-comparable leases, comprising 81,954 square feet of GLA, with an average rental rate of $14.42 per square foot. The company defines non-comparable leases as leases signed for expansion square footage or for space in which there was no former tenant in place for a period of twelve months or more.

On a blended basis, the 83 new and renewal leases signed during the quarter had an average rental rate of $14.02 per square foot, representing an increase of 4.3 percent over the average expiring rent. The calculations of former and new average base rents are adjusted for rent abatements on the included leases.

Leased occupancy for the total portfolio was 94 percent as of December 31, 2012, representing increases of 90 basis points and 80 basis points, respectively, over the prior quarter and the fourth quarter of 2011. Financial occupancy for the total portfolio was 91.6 percent as of December 31, 2012, representing gains of 100 basis points and 70 basis points, respectively, over the prior quarter and the year ago quarter. The gains in total portfolio financial occupancy were due to new tenants exiting abatement periods and beginning to pay rent. Financial occupancy is defined as the percentage of total gross leasable area for which a tenant is obligated to pay rent under the terms of the lease agreement, regardless of the actual use or occupation by that tenant of the area being leased, and excludes tenants in abatement periods.

EBITDA, Balance Sheet, Liquidity and Market Value

The Company reported earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted for non-cash items, of $35.8 million for the quarter, compared to $32.4 million for the fourth quarter of 2011. For the twelve months ended December 31, 2012, adjusted EBITDA was $134.6 million, compared to $121.8 million for the prior year period. Definitions and reconciliations of EBITDA and adjusted EBITDA to net income (loss) attributable to Inland Real Estate Corporation are provided at the end of this news release.

EBITDA coverage of interest expense, adjusted, was 3.1 times for the quarter ended December 31, 2012, compared to 2.8 times for the fourth quarter of 2011. The Company has provided EBITDA and related non-GAAP coverage ratios because it believes EBITDA and the related ratios provide useful supplemental measures in evaluating the Company's operating performance since expenses that may not be indicative of operating performance are excluded.

On November 16, 2012, the Company entered into a sales agency agreement with BMO Capital Markets, Jefferies & Company, Inc., and KeyBanc Capital Markets Inc. The agreement provides that the Company may offer and sell shares of its common stock, having an aggregate offering price of up to $150 million, from time to time through BMO, Jefferies and/or KeyBanc acting as sales agents. Offers and sales of the shares may be made via private placements or by any other method deemed to be an "at the market" (ATM) offering as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on the New York Stock Exchange or to or through a market maker. The Company intends to use proceeds from the sales, if any, for general corporate purposes, which may include acquisitions through wholly owned subsidiaries or joint venture entities, repayment of secured mortgage debt or amounts outstanding on its credit facilities, or repurchase of its convertible senior notes.

As of December 31, 2012, the Company had an equity market capitalization (common shares) of $748.9 million, outstanding preferred stock of $110.0 million (at face value), and total debt outstanding of $982.5 million (including the pro-rata share of debt in unconsolidated joint ventures and full face value of outstanding 5.0% convertible senior notes, due 2029) for a total market capitalization of approximately $1.8 billion. The Company's debt-to-total market capitalization was 53.4 percent as of December 31, 2012, an improvement of 250 basis points from year end 2011. Approximately 63 percent of total debt bears interest at fixed rates. As of December 31, 2012, the weighted average interest rate on the fixed rate debt was 5.2 percent and the overall weighted average interest rate, including variable rate debt, was 4.16 percent.

Acquisitions and Dispositions

As previously announced, in December, the Company acquired Valparaiso Walk, a 137,500-square-foot shopping center located in northwestern Indiana and within the Chicago Metropolitan Statistical Area (MSA), for $21.9 million. The 100-percent-leased power center draws from a regional population base of over 100,000 consumers and is anchored by Bed Bath and Beyond, Marshalls, Michaels and Best Buy, and shadow-anchored by Aldi and Menards. Valparaiso Walk meets the Company's acquisition criteria in that it is a Class A asset located in a target market, enjoys a prime location within a major trade area supported by strong demographics, and is anchored by best-in-class national retailers. Proceeds from the sale of assets described below, as well as the sale of the Westgate shopping center to the PGGM joint venture, provided the funds used to acquire the center.

In October, the Company purchased 4.2 acres of vacant land in Lincolnshire, Illinois and executed a lease with The Fresh Market for a reverse build-to-suit that is expected to be completed during 2013. The Company expects to invest a total of $3.1 million, including the cost of the land, to complete the project utilizing proceeds from the sale of consolidated assets.

During the quarter, the Company executed on its plan to continue to enhance the quality of its portfolio by selling properties management believes have limited growth potential and reinvesting the sales proceeds into higher quality retail centers. To that end, the Company sold three consolidated properties: Hartford Plaza, a 43,762-square-foot shopping center in Naperville, Illinois, for $4.5 million; Butera Market, a 67,632-square-foot shopping center also in Naperville, for $5.7 million, and; a vacant property formerly leased to Cub Foods, a subsidiary of Supervalu, for $1.8 million in Indianapolis, Indiana. The Company negotiated an early lease termination for the dark Cub Foods store in 2011 to reduce its exposure to Supervalu and facilitate a sale of the property. For properties sold during the quarter, the Company recorded a total gain of $3.0 million on the two Naperville properties and an impairment of $0.2 million on the Indianapolis property.

Joint Venture Activity

As previously announced, during the quarter the Company and PGGM entered into an amendment to their joint venture agreement to increase the size of the fund at full investment from approximately $500 million to a potential maximum of $900 million in total investment. The fund will continue to focus on the acquisition of shopping centers in select Midwestern markets. The amendment increases the Company's maximum total contribution from approximately $160 million to $280 million, and PGGM's maximum total equity contribution from approximately $130 million to $230 million. In December, the Company sold to its venture with PGGM, the Westgate shopping center in Fairview Park, Ohio. The Company acquired the property in March of 2012 with the intention of selling the property to the venture before year end. Subsequent to the amendment and the sale, the Company's remaining maximum equity commitment is approximately $107 million and PGGM's remaining maximum equity commitment is approximately $89 million. The Company believes the primary benefits of the PGGM joint venture include utilizing its partner's equity to grow assets under management, and achieving a higher yield on investment for assets acquired by the venture as a result of the fee income it receives from PGGM for leasing and managing the properties.

During the quarter, the Company invested equity in the venture with IPCC to acquire the following free-standing retail assets for an aggregate purchase price of $43.6 million: two properties leased to Family Dollar and located in Cisco, Texas and Lorain, Ohio; one property leased to BJ's Wholesale Club in Gainesville, Virginia; one property leased to Dick's Sporting Goods in Cranberry Township, Pennsylvania; and six properties leased to Dollar General in Wisconsin markets. The Company has established an acquisitions target of $100 million in asset value per year for the venture with IPCC. The purchases completed during the quarter fulfill the Company's acquisitions target for 2012, and pre-fund approximately 28 percent of the acquisitions goal for 2013. The Company's ownership in the properties acquired by the venture is reduced to zero as interests in the assets are completely sold to investors. The Company believes the benefits of the IRC-IPCC joint venture include the potential to reinvest equity allocated to the venture multiple times per year, which provides an attractive return on invested capital. In addition, the recurring fee income earned for managing the properties within the venture provides a stable revenue stream that is complementary to the Company's core business.

Total fee income from unconsolidated joint ventures was $2.2 million for the quarter and $5.8 million for the full year 2012. Fee income from unconsolidated joint ventures for the quarter increased 23.3 percent over the prior year period, primarily due to higher management and transaction fee income from the joint ventures with PGGM and IPCC. For the full year 2012, fee income from unconsolidated joint ventures decreased 4.5 percent due to lower transaction fee income related to the timing of sales of interests in properties through the IRC-IPCC venture. The decrease was partially offset by increased management fees from additional assets under management through the joint ventures with PGGM and IPCC.

Distributions

In November and December of 2012, and January and February of 2013, the Company paid a monthly cash dividend to Preferred Stockholders of $0.169271 per share on the outstanding shares of its 8.125% Series A Cumulative Redeemable Preferred Stock. In addition, the Company has declared a cash dividend of $0.169271 per share on the outstanding shares of its Preferred Stock, payable on March 15, 2013, to Preferred Stockholders of record as of March 1, 2013.

In November and December of 2012, and January and February of 2013, the Company paid monthly cash distributions to Common Stockholders of $0.0475 per common share. The Company also declared a cash distribution of $0.0475 per common share, payable on March 18, 2013, to common stockholders of record as of February 28, 2013.

Guidance

For fiscal year 2013, the Company expects FFO per common share (basic and diluted) to range from $0.88 to $0.92 and does not include any assumptions for impairments or other non-cash adjustments in 2013. This compares to adjusted FFO per weighted average common share of $0.88 reported for 2012. The Company's guidance incorporates assumptions for an increase in consolidated same store NOI to range from 1 percent to 2 percent, and consolidated same store financial occupancy at year-end 2013 to range from 89 percent to 90 percent.

Conference Call/Webcast

Management will host a conference call to discuss the Company's financial and operational results for fourth quarter and year 2012 on Thursday, February 21, 2013, at 1:00 p.m. CT (2:00 p.m. ET). Hosting the conference call will be Mark Zalatoris, President and Chief Executive Officer; Brett Brown, Chief Financial Officer; and Scott Carr, President of Property Management. The live conference call can be accessed by dialing 1-888-317-6016 for callers within the United States, 1-855-669-9657 for callers dialing from Canada, or 1-412-317-6016 for other international callers. A live webcast also will be available on the Company's website at www.inlandrealestate.com. The conference call will be recorded and available for replay one hour after the end of the live event through 8:00 a.m. CT (9:00 a.m. ET) on March 8, 2013. Interested parties can access the replay of the conference call by dialing 1-877-344-7529 or 1-412-317-0088 for international callers, and entering the conference number 10023678. An online playback of the webcast will be archived for approximately one year within the investor relations section of the Company's website.

About Inland Real Estate Corporation

Inland Real Estate Corporation is a self-administered and self-managed publicly traded real estate investment trust (REIT) that owns and operates open-air neighborhood, community, power and lifestyle retail centers and single-tenant properties located primarily in the Midwestern United States. As of December 31, 2012, the Company owned interests in 157 investment properties, including 44 owned through its unconsolidated joint ventures, with aggregate leasable space of approximately 15 million square feet. Additional information on Inland Real Estate Corporation, including a copy of the Company's supplemental financial information for the three and twelve months ended December 31, 2012, is available at www.inlandrealestate.com.

Certain statements in this news release constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that do not reflect historical facts and instead reflect our management's intentions, beliefs, expectations, plans or predictions of the future.Forward-looking statements can often be identified by words such as "believe," "expect," "anticipate," "intend," "estimate," "may," "will," "should" and "could." Examples of forward-looking statements include, but are not limited to, statements that describe or contain information related to matters such as management's intent, belief or expectation with respect to our financial performance, investment strategy or our portfolio, our ability to address debt maturities, our cash flows, our growth prospects, the value of our assets, our joint venture commitments and the amount and timing of anticipated future cash distributions. Forward-looking statements reflect the intent, belief or expectations of our management based on their knowledge and understanding of the business and industry and their assumptions, beliefs and expectations with respect to the market for commercial real estate, the U.S. economy and other future conditions. These statements are not guarantees of future performance, and investors should not place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under Item 1A"Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission (the "SEC") on February 27, 2012 as they may be revised or supplemented by us in subsequent Reports on Form 10-Q and other filings with the SEC.Among such risks, uncertainties and other factors are market and economic challenges experienced by the U.S. economy or real estate industry as a whole, including dislocations and liquidity disruptions in the credit markets; the inability of tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business; competition for real estate assets and tenants; impairment charges; the availability of cash flow from operating activities for distributions and capital expenditures; our ability to refinance maturing debt or to obtain new financing on attractive terms; future increases in interest rates; actions or failures by our joint venture partners, including development partners; and factors that could affect our ability to qualify as a real estate investment trust. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.

INLAND REAL ESTATE CORPORATION
Consolidated Balance Sheets (continued)
December 31, 2012 and 2011
(In thousands except per share data)

The following table presents certain assets and liabilities of consolidated variable interest entities (VIEs), which are included in the Consolidated Balance Sheet above as of December 31, 2012. There were no consolidated VIE assets and liabilities as of December 31, 2011. The assets in the table below include only those assets that can be used to settle obligations of consolidated VIEs. The liabilities in the table below include third-party liabilities of consolidated VIEs only, and exclude intercompany balances that are eliminated in consolidation.