Equity One Reports Fourth Quarter and Year End 2012 Operating Results
Equity One Reports Fourth Quarter and Year End 2012 Operating Results
NORTH MIAMI BEACH, Fla.--(BUSINESS WIRE)-- Equity One, Inc. (NYS: EQY) , an owner, developer, and operator of shopping centers, announced today its financial results for the three and twelve months ended December 31, 2012.
Highlights of the quarter and recent activity include:
- Generated Recurring FFO of $0.30 per diluted share for the quarter and $1.14 for the year
- Generated Funds From Operations (FFO) of $0.03 per diluted share for the quarter and $0.85 for the year
- Increased same property net operating income for the fourth quarter by 3.5% as compared to 2011 and 3.3% for the year as compared to 2011
- Increased core occupancy to 92.1%, up 20 basis points from September 30, 2012 and up 140 basis points from December 31, 2011
- Increased same property occupancy to 92.2%, up 40 basis points from September 30, 2012 and 50 basis points from December 31, 2011
- Executed 117 new leases, renewals, and options totaling 314,665 square feet at an average rent spread of 7.9%
- Average base rents increased to $14.58 per square foot, up 4.4% as compared to December 31, 2011
- Acquired two properties in New York City for $29.5 million and one property in San Francisco for $5.8 million
- Acquired a 583,262 square foot shopping center in suburban Boston for $128.4 million through our joint venture with New York Common Retirement Fund
- Sold nine non-core assets for approximately $90 million and entered into contracts to sell an additional five assets for $38.6 million
- Issued $300 million of 3.75% unsecured senior notes due November 15, 2022 to redeem the company's existing $250 million 6.25% unsecured notes due December 15, 2014
- Received a credit rating upgrade from Moody's to Baa2 stable
- Provided guidance for 2013 Recurring FFO of $1.18 to $1.22 per diluted share
"Our fourth quarter results reflect an improved operating platform that performed well on all levels: occupancy, leasing spreads, net operating income growth, capital recycling, development and redevelopment completions, and balance sheet management," said Jeff Olson, CEO.
In the fourth quarter of 2012, the company generated FFO of $3.1 million, or $0.03 per diluted share, as compared to $30.5 million, or $0.25 per diluted share for the same period in 2011. Recurring FFO was $38.5 million or $0.30 per diluted share in the fourth quarter of 2012 after adjusting for debt extinguishment, transaction costs and goodwill and land impairments, as compared to $35.4 million, or $0.29 per diluted share in the fourth quarter of 2011.
For the year ended December 31, 2012, the company generated FFO of $97.7 million, or $0.85 per diluted share, as compared to $146.8 million, or $1.21 per diluted share for 2011. Recurring FFO was $143.1 million, or $1.14 per diluted share for the year ended December 31, 2012 as compared to $136.2 million or $1.12 per diluted share for 2011. A reconciliation of net (loss) income attributable to Equity One to FFO and the reconciling components of FFO to Recurring FFO are provided in the tables accompanying this press release.
Net loss attributable to Equity One was $32.8 million or $0.28 per diluted share for the quarter ended December 31, 2012 as compared to a net loss attributable to Equity One of $3.7 million, or $0.04 per diluted share, for the fourth quarter of 2011. The net loss for the fourth quarter of 2012 included $30.2 million of loss on debt extinguishment and $16.6 million of impairment losses, net of tax. Net loss for the fourth quarter of 2011 included $2.4 million of loss on debt extinguishment, net of tax, and $1.2 million of gain on land sales.
Net loss attributable to Equity One was $3.5 million or $0.04 per diluted share for the year ended December 31, 2012 as compared to net income of $33.6 million, or $0.29 per diluted share, for 2011. Net loss for the year ended December 31, 2012 included losses on extinguishment of debt of $30.6 million, impairment losses of $26.4 million, net of tax, and gains on the sale of real estate of $16.6 million. Net income for the year ended December 31, 2011 included a gain on bargain purchase of $30.6 million resulting from the Capital & Counties acquisition, impairment losses of $21.6 million, net of tax, and $10.4 million in gains on the sale of real estate, net of tax.
As of December 31, 2012, occupancy for the company's consolidated core portfolio was 92.1% as compared to 91.9% as of September 30, 2012 and 90.7% as of December 31, 2011. On a same property basis, occupancy increased 40 basis points to 92.2% as compared to September 30, 2012 and increased 50 basis points as compared to December 31, 2011.
Same property net operating income increased 3.5% for the fourth quarter of 2012 as compared to the fourth quarter of 2011 and increased 3.3% for the year ended December 31, 2012 as compared to 2011. These increases were primarily attributable to increases in minimum rental income due to rent commencements and contractual rent increases and lower bad debt, legal and marketing expenses.
During the fourth quarter of 2012, the company executed 117 new leases, renewals and options totaling 314,665 square feet at an average rent spread of 7.9%. This included 49 new leases in the core portfolio totaling 143,869 square feet at an average rental rate of $14.01 per square foot, representing a 10.1% increase from prior rents on a same space, cash basis. The company renewed 68 leases in its core portfolio for 170,796 square feet at an average rental rate of $19.93 per square foot, representing a 6.6% increase to prior rents on a same space, cash basis.
Development and Redevelopment Activities
At December 31, 2012, the company had approximately $261.9 million of active development and redevelopment projects underway. The company's largest development project, The Gallery at Westbury Plaza, is now 75% leased. New tenants that opened during the fourth quarter include: SA Elite, Old Navy, Shake Shack and Verizon Wireless with expected openings by Gap Outlet, Banana Republic Outlet, GNC, Orvis, Lane Bryant, Noodles and Company, Red Mango and Ruby & Jenna in the first and second quarters of this year.
During the fourth quarter, the company commenced site work for the construction of a two story, 83,000 square foot Dick's Sporting Goods at Serramonte Mall. Total costs are estimated to be approximately $18 million for this first phase of the expansion of Serramonte. Construction commenced during the first quarter of 2013 and should be completed by the first quarter of 2014.
The company has ten additional projects under development and redevelopment at an expected cost of $94.8 million. These projects include expansions and new anchor re-tenanting with retailers such as LA Fitness, Publix, CVS Pharmacy, Marshalls, Academy Sports, Ulta and Burlington Coat Factory.
Acquisition and Disposition Activity
During the fourth quarter, the company acquired a land outparcel adjacent to the Broadway Plaza development site in New York City for a purchase price of $2.0 million and an 18,474 square foot urban retail condominium located on Second Avenue, between 64th and 65th Street, in New York City for $27.5 million. The retail condominium has four tenants including a CVS Pharmacy and a 7-Eleven, and includes retail frontage covering an entire city block. The company also acquired a 30,500 square foot building for $5.8 million located in the Potrero Hill/Mission Bay district of San Francisco adjacent to Potrero Center, a Safeway-anchored shopping center that the company acquired in March 2012.
Additionally, the company entered into a contract to acquire Westwood Complex, a 22-acre property located in Bethesda, Maryland, with significant opportunities for retail redevelopment and expansion. The transaction is initially structured as a $95.0 million mortgage loan, which has been funded and currently bears interest at 5.0%, and will be completed with an outright purchase of the property for $140.0 million with an anticipated closing prior to January 2014.
During the fourth quarter, the company's joint venture with New York Common Retirement Fund acquired Northborough Crossing, a 583,262 square foot shopping center anchored by Wegmans, BJ's Wholesale Club, Kohl's, TJ Maxx, PetSmart and Michaels, located in suburban Boston for $128.4 million. The joint venture also has an option to purchase an additional 62,523 square foot phase of the center anchored by Dick's Sporting Goods in 2013 for approximately $16 million. In January 2012, the joint venture provided an $18.5 million mortgage loan on Northborough Crossing and the company separately made a $19.3 million mezzanine loan investment. As part of the acquisition during the fourth quarter, the joint venture loan was converted to equity and the company's mezzanine loan was repaid.
During the fourth quarter of 2012 and through the date of this release, the company closed on the sale of nine non-core assets for $90.4 million as follows:
|Property||Location||GLA||Date of Sale|
|Publix at Woodruff||Greenville, SC||68,055||12/7/12|
|Butler Creek||Acworth, GA||95,597||1/15/13|
|Fairview Oaks||Ellenwood, GA||77,052||1/15/13|
|Grassland Crossing||Alpharetta, GA||90,906||1/15/13|
|Mableton Crossing||Mableton, GA||86,819||1/15/13|
|Hamilton Ridge||Buford, GA||90,996||1/15/13|
|Shops at Westridge||McDonough, GA||66,297||1/15/13|
|Shoppes of Eastwood||Orlando, FL||69,037||1/23/13|
|Macland Pointe||Marietta, GA||79,699||2/13/13|
The company has entered into contracts to sell an additional five non-core assets for $38.6 million, which are subject to various closing contingencies. The company continues to explore opportunities to dispose of non-core assets located in secondary markets as part of its capital recycling initiatives.
Investing and Financing Activities
During the fourth quarter, the company issued $300 million principal amount of 3.75% unsecured senior notes due November 15, 2022. The notes were offered to investors at a price of 99.591% with a yield to maturity of 3.799%, representing a spread at the time of pricing of 2.0% to the August 15, 2022 Treasury note. The company used the majority of the net proceeds of the offering to redeem the company's $250 million principal amount 6.25% unsecured senior notes due 2014. In connection with the redemption, the company recognized a loss on early extinguishment of debt of approximately $29.5 million.
Balance Sheet Highlights
At December 31, 2012, the company's total market capitalization (including debt and equity) was $4.3 billion, comprising 129.0 million shares of common stock outstanding (on a fully diluted basis) valued at approximately $2.7 billion and approximately $1.6 billion of debt (excluding any debt premium/discount). The company's ratio of net debt to total market capitalization was 36.4%. In addition, at December 31, 2012, the company had approximately $27.9 million of cash and cash equivalents on hand (including cash in escrow and restricted cash) and $172.0 million drawn on its revolving credit facilities.
FFO and Earnings Guidance
The company is introducing Recurring FFO guidance for 2013 of $1.18 to $1.22 per diluted share. Recurring FFO excludes debt extinguishment gains/losses, land sale gains, impairment charges, transaction costs and certain other income or charges reflected in the table below. The 2013 guidance is based on the following key assumptions:
- Increase in same property NOI of 2% to 3%
- Increase in same property occupancy of 50 to 100 basis points
- Core acquisition activity of $100 million to $200 million
- Joint venture acquisition activity of $100 million to $200 million
- Disposition activity of $300 million, including the $129 million of sales activity announced in this release
The following table provides a reconciliation of the range of estimated net income per diluted share to estimated FFO and Recurring FFO per diluted share for the full year 2013:
|For the year ended|
December 31, 2013
|Estimated net income attributable to Equity One||$0.43||$0.45|
|Rental property depreciation and amortization including pro rata share of joint ventures|
|Net adjustment for unvested shares and non-controlling interest (1)|
|Estimated FFO attributable to Equity One||$1.14||$1.18|
|Estimated Recurring FFO attributable to Equity One||$1.18||$1.22|
(1) Includes effect of distributions paid with respect to unissued shares held by a non-controlling interest which are already included for purposes of calculating net income per diluted share.
First Quarter 2013 Dividend Declared
On February 18, 2013, the company's Board of Directors declared a cash dividend of $0.22 per share of its common stock for the quarter ending March 31, 2013, payable on March 29, 2013 to stockholders of record on March 15, 2013.
ACCOUNTING AND OTHER DISCLOSURES
The company believes FFO (combined with the primary GAAP presentations) is a useful, supplemental measure of its operating performance that is a recognized metric used extensively by the real estate industry, particularly REITs. The National Association of Real Estate Investment Trusts ("NAREIT") stated in its April 2002 White Paper on Funds from Operations, "Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves." The company also believes that Recurring FFO is a useful measure of its core operating performance that facilitates comparability of historical financial periods.
FFO, as defined by NAREIT, is "net income (computed in accordance with GAAP), excluding gains (or losses) from sales of, or impairment charges related to, depreciable operating properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures." NAREIT states further that "adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis." The company believes that financial analysts, investors and stockholders are better served by the presentation of comparable period operating results generated from its FFO measure. The company's method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. In October 2011, NAREIT clarified that FFO should exclude the impact of impairment losses on depreciable operating properties, either wholly-owned or in joint ventures. The company has calculated FFO for all periods presented in accordance with this clarification.
FFO and Recurring FFO are presented to assist investors in analyzing the company's operating performance. Neither FFO nor Recurring FFO (i) represents cash flow from operations as defined by GAAP, (ii) is indicative of cash available to fund all cash flow needs, including the ability to make distributions, (iii) is an alternative to cash flow as a measure of liquidity, or (iv) should be considered as an alternative to net (loss) income (which is determined in accordance with GAAP) for purposes of evaluating the company's operating performance. The company believes net (loss) income is the most directly comparable GAAP measure to FFO and Recurring FFO.
CONFERENCE CALL/WEB CAST INFORMATION
Equity One will host a conference call on Thursday, February 21, 2013 at 9:00 a.m. Eastern Time to review its 2012 fourth quarter earnings and operating results. Stockholders, analysts and other interested parties can access the earnings call by dialing (888) 317-6003 (U.S.), (866) 284-3684 (Canada) or (412) 317-6061 (international) using pass code 5699625. The call will also be web cast and can be accessed in a listen-only mode on Equity One's web site at www.equityone.net.
A replay of the conference call will be available on Equity One's web site for future review. Interested parties may also access the telephone replay by dialing (877) 344-7529 (U.S.) or (412) 317-0088 (international) using pass code 10022631 through March 5, 2013.
FOR ADDITIONAL INFORMATION
For a copy of the company's fourth quarter supplemental information package, please access the "Investors" section of Equity One's web site at www.equityone.net under "About Us". To be included in the company's e-mail distributions for press releases and other company notices, please send e-mail addresses to Investor Relations at email@example.com.
ABOUT EQUITY ONE, INC.
As of December 31, 2012, our consolidated property portfolio comprised 168 properties, including 144 retail properties and six non-retail properties totaling approximately 16.9 million square feet of gross leasable area, or GLA, 11 development or redevelopment properties with approximately 2.2 million square feet of GLA upon completion, and seven land parcels. As of December 31, 2012, our core portfolio was 92.1% leased and included national, regional and local tenants. Additionally, we had joint venture interests in 18 retail properties and two office buildings totaling approximately 3.3 million square feet of GLA.
FORWARD LOOKING STATEMENTS
Certain matters discussed by Equity One in this press release constitute forward-looking statements within the meaning of the federal securities laws. Although Equity One believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that these expectations will be achieved. Factors that could cause actual results to differ materially from current expectations include changes in macro-economic conditions and the demand for retail space in the states in which Equity One owns properties; the continuing financial success of Equity One's current and prospective tenants; the risks that Equity One may not be able to proceed with or obtain necessary approvals for development or redevelopment projects or that it may take more time to complete such projects or incur costs greater than anticipated; the availability of properties for acquisition; the extent to which continuing supply constraints occur in geographic markets where Equity One owns properties; the success of its efforts to lease up vacant space; the effects of natural and other disasters; the ability of Equity One to successfully integrate the operations and systems of acquired companies and properties; changes in Equity One's credit ratings; and other risks, which are described in Equity One's filings with the Securities and Exchange Commission.
|EQUITY ONE, INC. AND SUBSIDIARIES|
Condensed Consolidated Balance Sheets
December 31, 2012 and December 31, 2011
(In thousands, except share par value amounts)
|December 31, 2012||December 31, 2011|
|Less: accumulated depreciation||(335,862||)||(277,197||)|
|Income producing properties, net||2,813,106||2,552,828|
|Construction in progress and land held for development||108,721||111,844|
|Properties held for sale||84,409||144,451|
|Cash and cash equivalents||27,416||10,963|
|Cash held in escrow and restricted cash||442||92,561|
|Accounts and other receivables, net||14,320||17,790|
|Investments in and advances to unconsolidated joint ventures||72,171||50,158|
|Loans receivable, net||140,708||45,279|
|TOTAL ASSETS (including $111,100 and $109,200 of consolidated variable interest entities at December 31, 2012 and 2011, respectively*)||$||3,502,668||$||3,222,571|
|LIABILITIES AND EQUITY|
|Mortgage notes payable||$||439,156||$||459,677|
|Unsecured senior notes payable||731,136||691,136|
|Unsecured revolving credit facilities||172,000||138,000|
|Unamortized premium on notes payable, net||7,058||7,896|
|Total notes payable||1,599,350||1,296,709|
|Accounts payable and accrued expenses||55,248||50,514|
|Tenant security deposits||9,041||8,208|
|Deferred tax liability||12,016||14,709|
|Liabilities associated with properties held for sale||3,325||40,285|
|Total liabilities (including $63,000 and $61,900 of consolidated variable interest entities at December 31, 2012 and 2011, respectively*)||1,875,638||1,574,565|
|Redeemable noncontrolling interests||22,551||22,804|
|Commitments and contingencies||-||-|
|Preferred stock, $0.01 par value - 10,000 shares authorized but unissued||-||-|
|Common stock, $0.01 par value - 150,000 shares authorized, 116,938 and 112,599 shares issued and outstanding at December 31, 2012 and 2011, respectively||1,169||1,126|
|Additional paid-in capital||1,679,227||1,587,874|
|Distributions in excess of earnings||(276,085||)||(170,530||)|
|Accumulated other comprehensive loss||(7,585||)||(1,154||)|
|Total stockholders' equity of Equity One, Inc.||1,396,726||1,417,316|
|TOTAL LIABILITIES AND EQUITY||$||3,502,668||$||3,222,571|
|* The assets of these entities can only be used to settle obligations of the variable interest entities and the liabilities include third party liabilities of the variable interest entities for which the creditors or beneficial interest holders do not have recourse against us other than for customary environmental indemnifications and non-recourse carve-outs.|
EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the three months and years ended December 31, 2012 and 2011
(In thousands, except per share data)
Three Months Ended
|Management and leasing services||686||697||2,489||2,287|
|COSTS AND EXPENSES:|
|Rental property depreciation and amortization||21,721||24,877||86,006||81,446|
|General and administrative||10,557||13,083||42,474||50,976|
|Total costs and expenses||54,987||57,182||216,125||211,548|
|INCOME BEFORE OTHER INCOME AND EXPENSE, TAX AND DISCONTINUED OPERATIONS||30,139||15,775||109,486||68,660|
|OTHER INCOME AND EXPENSE:|
|Equity in income of unconsolidated joint ventures||413||135||542||4,829|
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