Inland Real Estate Corporation Announces Second Quarter Results

Inland Real Estate Corporation Announces Second Quarter Results

- FFO Adjusted for the Quarter Increases 13.6 Percent Year-Over-Year to $0.25 Per Common Share -

- Adds 13 Shopping Centers to Consolidated Portfolio via Acquisition of NYSTRS' Interest in Joint Venture Entity -

OAK BROOK, Ill.--(BUSINESS WIRE)-- Inland Real Estate Corporation (NYS: IRC) , a leading 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 six months ended June 30, 2013.

Quarter and Recent Highlights:

• Reported Funds from Operations (FFO) per common share of $0.28 and FFO adjusted for non-cash items net of taxes, per common share of $0.25 for the second quarter of 2013, representing increases of 3.7 percent and 13.6 percent, respectively, over the quarter ended June 30, 2012.

• Consolidated same store net operating income (NOI) increased 1.2 percent for the quarter and 2.2 percent for the six months ended June 30, 2013, over the comparable periods in 2012. Excluding lease termination income, consolidated same store NOI increased 2.8 percent for the quarter and 3.1 percent for the first half of 2013, over the three and six months ended June 30, 2012.

• Raised total portfolio leased occupancy to 94.4 percent and financial occupancy to 91.8 percent at June 30, 2013, representing increases of 150 and 140 basis points, respectively, over one year ago.

• Executed 94 leases for 613,822 square feet within the total portfolio, representing an increase in square feet leased of 62.4 percent over the year ago quarter and 11.3 percent over the trailing four quarter average.

• Increased average base rent for new and renewal leases signed within the total portfolio by 25.8 percent and 5.2 percent, respectively, over expiring average rents.

• The Company acquired the 50 percent ownership interest of its partner, New York State Teachers' Retirement System (NYSTRS), in the IN Retail Fund joint venture, comprised of 13 shopping centers aggregating 2.3 million square feet of gross leasable area (GLA) for $121.1 million in cash. This transaction resulted in a gain from change in control of investment properties of approximately $95 million.

• The Company closed the previously-announced acquisition of the Warsaw Commons shopping center in northern Indiana for $11.4 million (subject to future earnouts) and the sale of three non-core properties for a total price of $9.9 million during the quarter; sold two unanchored retail centers for a total of $6.1 million after the close of the quarter.

• Sold 9.0 million shares of common stock through an underwritten equity offering for net proceeds of $91.6 million, which were used to substantially fund the acquisition of NYSTRS' interest in the IN Retail Fund joint venture.

"Our second quarter results reflect strong operational performance, including steady growth in consolidated same store NOI, substantial increases in occupancy, robust leasing volumes, and healthy increases in average base rent for leases signed within the total portfolio," said Mark Zalatoris, Inland Real Estate Corporation's president and chief executive officer. "In addition, we acquired NYSTRS' interest in the IN Retail Fund joint venture, which includes 13 high quality shopping centers totaling 2.3 million square feet of retail space. This transaction demonstrates our strategy of leveraging institutional capital to grow our platform while enhancing our yield on investment, with the ultimate goal of full ownership. We are very pleased with the execution of this transaction, substantially funded with proceeds of our recent equity offering, which improves our consolidated portfolio, strengthens our balance sheet, and simplifies our ownership structure."

Financial Results for the Quarter

For the quarter ended June 30, 2013, FFO attributable to common stockholders was $25.9 million, compared to $24.3 million for the second quarter of 2012. On a per share basis, FFO was $0.28 (basic and diluted) for the second quarter of 2013, compared to $0.27 for the year ago quarter.

FFO adjusted for non-cash items was $22.8 million for the second quarter of 2013, compared to $19.6 million for the second quarter of last year. On a per share basis, FFO adjusted for those items was $0.25 (basic and diluted) for the quarter compared to $0.22 for the second quarter of 2012. The variance between FFO and FFO adjusted for 2013 was primarily due to a gain from settlement of receivables related to the Company's taxable REIT subsidiary acquiring ownership of two assets through foreclosure proceedings.

FFO and FFO adjusted increased compared to the second quarter of 2012 primarily due to higher revenues, lower interest expense, and increases in net operating income from unconsolidated properties (recorded in equity in earnings of unconsolidated joint ventures) and income from discontinued operations that included a lease termination fee of $3.3 million related to Cub Foods Buffalo Grove, which was then sold during the quarter. The increases in FFO and FFO adjusted were partially offset by income tax expense recorded for a taxable REIT subsidiary of the Company.

Net income attributable to common stockholders for the second quarter of 2013 was $101.7 million, compared to $4.9 million for the second quarter of 2012. On a per common share basis, net income attributable to common stockholders was $1.09 (basic and diluted), compared to $0.06 for the prior year quarter. Net income for the quarter increased due to the same items that impacted FFO adjusted. In addition, net income rose as a result of higher gains from the change in control of assets formerly owned by the IN Retail Fund joint venture and the settlement of receivables previously referenced. The gain in net income was partially offset by higher depreciation and amortization expense related to new acquisitions including the aforementioned portfolio acquisition.

Financial Results for the Six Months Ended June 30, 2013

For the six months ended June 30, 2013, FFO attributable to common stockholders was $45.1 million, compared to $42.0 million for the same period in 2012. On a per share basis, FFO for the six-month period was $0.49 (basic and diluted), compared to $0.47 for the six months ended June 30, 2012.

FFO, adjusted for asset impairment and other non-cash items was $42.6 million for the six months ended June 30, 2013, compared to FFO adjusted of $37.4 million for the prior year period. On a per share basis, FFO adjusted was $0.47 (basic and diluted), compared to $0.42 for the same period of 2012. FFO and FFO adjusted increased primarily due to higher operating income, lower interest expense, and increases in net operating income from unconsolidated properties and income from discontinued operations.

Net income attributable to common stockholders for the six months ended June 30, 2013, was $106.4 million, compared to $2.2 million for the same period in 2012. On a per share basis, net income attributable to common stockholders was $1.16 (basic and diluted), compared to $0.02 for the six months ended June 30, 2012. Net income for the six-month period increased due to the same items that impacted FFO and FFO adjusted. In addition, net income increased due to lower depreciation and amortization expense, and gains related to the acquisition of NYSTRS' interest in the IN Retail Fund and settlement of receivables.

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

Portfolio Performance

Consolidated same store NOI was $23.8 million for the quarter and $47.2 million for the six months ended June 30, 2013, representing increases of 1.2 percent and 2.2 percent, respectively, over the comparable prior year periods. Excluding lease termination income, consolidated same store NOI for the three and six months ended June 30, 2013, rose 2.8 percent and 3.1 percent, respectively, over the quarter and six months ended June 30, 2012. The gain in consolidated same store NOI was primarily due to increased income from new leases signed and increased rental rates on renewed leases. Same store financial occupancy for the consolidated portfolio was 89.2 percent as of June 30, 2013, an increase of 100 basis points over one year ago.

The Company evaluates its overall portfolio by analyzing the operating performance of properties that have been owned and operated for the same three and six month periods during each year. A total of 92 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 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 June 30, 2013, the Company executed 94 leases within the total portfolio aggregating 613,822 square feet of gross leasable area (GLA), an increase in square feet leased of 62.4 percent over the year ago quarter. Total leases executed included:

• Sixty-one renewal leases comprising 474,166 square feet of GLA, with an average rental rate of $12.86 per square foot, representing an increase of 5.2 percent over the average expiring rent;

• Fifteen new leases comprising 68,785 square feet of GLA, with an average rental rate of $13.53 per square foot, representing an increase of 25.8 percent over the expiring rent; and

• Eighteen non-comparable leases, comprising 70,871 square feet of GLA, with an average rental rate of $13.28 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 76 new and renewal leases signed within the total portfolio during the quarter had an average rental rate of $12.94 per square foot, representing an increase of 7.6 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 94.4 percent as of June 30, 2013, representing increases of 30 basis points and 150 basis points, respectively, over the first quarter of 2013 and the second quarter of 2012. Financial occupancy for the total portfolio was 91.8 percent as of June 30, 2013, representing increases of 20 basis points and 140 basis points, respectively, over the prior quarter and one year ago. The gains in total portfolio financial occupancy were due to rent commencements for new leases signed in prior months. 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 $37.9 million for the quarter, compared to $34.3 million for the second quarter of 2012. Definitions and reconciliations of EBITDA and adjusted EBITDA to net income attributable to Inland Real Estate Corporation are provided at the end of this news release.

EBITDA coverage of interest expense, adjusted, was 3.4 times for the quarter ended June 30, 2013, compared to 2.8 times for the second quarter of 2012. 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.

During the quarter, the Company issued 9.0 million shares of common stock through an underwritten equity offering, generating net proceeds after the underwriting discount, of approximately $91.6 million. The net proceeds were used to substantially fund the Company's acquisition of its partner's interest in the IN Retail Fund joint venture. Additionally, during the quarter, the Company issued approximately 449,000 shares of common stock through its "at the market" (ATM) issuance program, generating net proceeds of approximately $5 million. Proceeds from the sales were used for general corporate purposes.

As of June 30, 2013, the Company had an equity market capitalization (common shares) of $1.0 billion, outstanding preferred stock of $110.0 million (at face value), and total debt outstanding of $1.0 billion (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 $2.1 billion. The Company's debt-to-total market capitalization was 47.4 percent as of June 30, 2013, an improvement of 680 basis points from one year ago. Approximately 65.2 percent of total debt bears interest at fixed rates. As of June 30, 2013, the weighted average interest rate on the fixed rate debt was 5.18 percent and the overall weighted average interest rate, including variable rate debt, was 4.2 percent.

Acquisitions and Dispositions

On June 3, 2013, the Company completed its acquisition of NYSTRS' 50 percent ownership interest in the IN Retail Fund for $121.1 million in cash. The IN Retail Fund owns 13 shopping centers aggregating 2.3 million square feet of gross leasable area, with an estimated fair value (agreed upon by the parties for purposes of this transaction) of approximately $395.6 million and total outstanding mortgage debt at the time of closing in June of $152.2 million, plus other related assets and liabilities. The Company now owns 100 percent of the outstanding membership interests in IN Retail Fund and the assets, liabilities and results of operations of IN Retail Fund are included in the Company's consolidated financial statements, excluding the consolidated same store NOI schedule.

The IN Retail Fund portfolio, which was approximately 97.5 percent leased at the close of the transaction, includes eleven assets located in the Chicagoland area, one retail center in the Minneapolis-St. Paul market and one center located near Racine, Wis. The properties are supported by strong demographics, with a three-mile average population of more than 111,500 and average household income of approximately $82,900.

On April 17, 2013, the Company, through its taxable REIT subsidiary, acquired through foreclosure, two properties located in the western suburbs of Chicago: the 23,080-square-foot Eola Commons and the 19,888-square-foot Winfield Pointe Center. The Company had previously acquired the notes encumbering these properties at a discount.

On April 24, 2013, the Company also acquired for its consolidated portfolio the 87,826-square-foot Warsaw Commons shopping center located in the northern Indiana city of Warsaw, for a purchase price at closing of $11.4 million, subject to future earnout payments. The nearly 100 percent leased center is anchored by national retailers including TJMaxx, PetSmart, Ulta, Shoe Carnival and Dollar Tree, and shadow-anchored by Kohl's.

During the quarter, the Company sold two consolidated, non-core properties, including a single-user 56,192-square-foot property in Buffalo Grove, Ill., formerly leased to Cub Foods, for $4.1 million and the 42,415-square-foot Winnetka Commons retail center in New Hope, Minn., for $3.8 million. After the close of the quarter, in July for above their current carrying value, the Company sold the 15,726-square-foot Berwyn Plaza in Berwyn, Ill., for $1.7 million, and Eola Commons in Aurora, Ill., for $4.4 million. The Company recorded a total net gain on sale, less provision for asset impairment, of $187,000 for the assets sold during the quarter. The Company expects to reinvest proceeds from the sale of non-core assets into retail centers with higher growth potential.

Joint Venture Activity

During the quarter, the Company invested approximately $3.2 million of equity in the venture with IPCC to acquire three free-standing retail assets leased to Family Dollar and located in Charleston, MO; Wausaukee, WI and Cameron, TX. The Company's ownership in the properties acquired by the venture is reduced proportionately as interests in the assets are sold to investors, with the Company eventually owning no interest in a property once all interests in a property have been sold. The Company believes the venture provides an attractive return on invested capital, as equity allocated to the venture can be reinvested multiple times per year and the asset and property management fees are recurring.

During the quarter, the Company sold through a development joint venture a 7,380-square-foot, 100 percent leased multi-tenant building on a 1.6 acre outparcel at the Savannah Crossing development for $2.0 million.

Total fee income from unconsolidated joint ventures was approximately $2.0 million for the quarter, an increase of 90.1 percent over the prior year quarter. The increase was due to increased acquisition fee income earned on sales of interests through the joint venture with IPCC, and to higher asset and property management fee income from additional assets under management through the joint ventures with PGGM and IPCC.

Distributions

In April, May, June and July 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 August 15, 2013, to Preferred Stockholders of record at the close of business on August 1, 2013. In April, May, June and July 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 August 19, 2013, to common stockholders of record at the close of business on July 31, 2013.

Guidance

The Company expects that for fiscal year 2013 FFO adjusted per common share (basic and diluted) will range from $0.89 to $0.93, consolidated same store NOI will increase by 2 percent to 3 percent, and consolidated same store financial occupancy at year-end 2013 will 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 the second quarter of 2013, on Thursday, August 8, 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 May 24, 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 10031313. 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 June 30, 2013, the Company owned interests in 154 investment properties, including 40 owned through its unconsolidated joint ventures, with aggregate leasable space of approximately 15 million square feet. For additional information, including a copy of the Company's supplemental financial information for the three and six months ended June 30, 2013, please visit www.inlandrealestate.com. To connect with Inland Real Estate Corporation via LinkedIn, please visit http://www.linkedin.com/company/inland-real-estate-corporation, or via Twitter at www.twitter.com/IRC_REIT.

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, 2012, as filed with the Securities and Exchange Commission (the "SEC") on February 28, 2013 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.