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 - Business Wire OAK BROOK, Ill. -- February 21, 2013 Inland Real Estate Corporation (NYSE: 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 4.3percent 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,providedthe 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 $107million 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 December 31, 2012 and 2011 (In thousands except per share data) December 31, 2012 December 31, 2011 Assets: Investment properties: Land $ 313,261 314,384 Construction in progress 20,837 1,669 Building and improvements 957,794 950,421 1,291,892 1,266,474 Less accumulated depreciation 329,997 323,839 Net investment properties 961,895 942,635 Cash and cash equivalents 18,505 7,751 Investment in securities 8,711 12,075 Accounts receivable, net 25,076 29,582 Mortgages receivable 12,955 515 Investment in and advances to 129,196 101,670 unconsolidated joint ventures Acquired lease intangibles, net 41,692 31,948 Deferred costs, net 19,436 18,760 Other assets 25,939 14,970 Total assets $ 1,243,405 1,159,906 Liabilities: Accounts payable and accrued $ 36,918 33,165 expenses Acquired below market lease 12,976 11,147 intangibles, net Distributions payable 4,606 4,397 Mortgages payable 412,361 391,202 Unsecured credit facilities 305,000 280,000 Convertible notes 28,327 27,863 Other liabilities 33,014 21,719 Total liabilities 833,202 769,493 Stockholders’ Equity: Preferred stock, $0.01 par value, 12,000 Shares authorized; 4,400 and 2,000 8.125% Series A Cumulative Redeemable shares, with a $25.00 per 110,000 50,000 share Liquidation Preference, issued and outstanding at December 31, 2012 and 2011, respectively. Common stock, $0.01 par value, 500,000 Shares authorized; 89,366 and 88,992 Shares issued and 894 890 outstanding at December 31, 2012 and 2011, respectively Additional paid-in capital (net of offering costs of $70,238 and 784,139 783,211 $67,753 at December 31, 2012 and 2011, respectively) Accumulated distributions in excess (476,185 ) (435,201 ) of net income Accumulated comprehensive loss (9,269 ) (7,400 ) Total stockholders’ equity 409,579 391,500 Noncontrolling interest 624 (1,087 ) Total equity 410,203 390,413 Total liabilities and equity $ 1,243,405 1,159,906 INLAND REAL ESTATE CORPORATION Consolidated Balance Sheets (continued) December31, 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 December31, 2012. There were no consolidated VIE assets and liabilities as of December31, 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. December 31, 2012 Assets of consolidated VIEs that can only be used to settle obligations of consolidated VIEs: Investment properties: Land $ 15,577 Building and improvements 40,390 55,967 Less accumulated depreciation 144 Net investment properties 55,823 Acquired lease intangibles, net 8,089 Other assets 500 Total assets of consolidated VIEs that can only be used to $ 64,412 settle obligations of consolidated VIEs Liabilities of consolidated VIE’s for which creditors or beneficial interest holders do not have recourse to the general credit of the Company: Accounts payable and accrued expenses $ 82 Acquired below market lease intangibles, net 806 Mortgages payable 33,085 Other liabilities 750 Total liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the $ 34,723 general credit of the Company INLAND REAL ESTATE CORPORATION Consolidated Statements of Operations For the three and twelve months ended December 31, 2012 and 2011 (unaudited) (In thousands except per share data) Three months Three months Twelve Twelve months months ended ended ended ended December 31, December 31, December 31, December 31, 2012 2011 2012 2011 Revenues Rental income $ 28,539 28,135 114,657 116,909 Tenant recoveries 8,934 6,084 37,021 38,965 Other property 533 539 2,409 1,940 income Fee income from unconsolidated 2,203 1,787 5,757 6,027 joint ventures Total revenues 40,209 36,545 159,844 163,841 Expenses: Property operating 5,029 5,118 22,615 27,339 expenses Real estate tax 7,031 3,356 29,272 27,969 expense Depreciation and 12,479 11,889 55,036 49,477 amortization Provision for asset — — — 5,223 impairment General and administrative 4,284 3,846 17,552 14,656 expenses Total expenses 28,823 24,209 124,475 124,664 Operating income 11,386 12,336 35,369 39,177 Other income 779 257 3,633 2,438 Loss on sale of investment — — (23 ) — properties Gain (loss) from change in control 64 — 1,108 (1,400 ) of investment properties Gain on sale of joint venture 591 453 766 1,366 interest Interest expense (8,487 ) (9,133 ) (35,680 ) (41,579 ) Income before income tax benefit (expense) of taxable REIT subsidiaries, equity in earnings 4,333 3,913 5,173 2 (loss) of unconsolidated joint ventures and discontinued operations Income tax benefit (expense) of 1,999 (522 ) 6,346 632 taxable REIT subsidiaries Equity in earnings (loss) of 1,244 196 2,875 (8,124 ) unconsolidated joint ventures Income (loss) from continuing 7,576 3,587 14,394 (7,490 ) operations Income (loss) from discontinued 2,895 (1,716 ) 3,298 436 operations Net income (loss) 10,471 1,871 17,692 (7,054 ) Less: Net (income) loss attributable to the (36 ) (19 ) 67 (130 ) noncontrolling interest Net income (loss) attributable to 10,435 1,852 17,759 (7,184 ) Inland Real Estate Corporation Dividends on (2,247 ) (948 ) (7,910 ) (948 ) preferred shares Net income (loss) attributable to $ 8,188 904 9,849 (8,132 ) common stockholders Basic and diluted earnings attributable to common shares per weighted average common share: Income (loss) from continuing $ 0.06 0.03 0.07 (0.09 ) operations Income (loss) from discontinued 0.03 (0.02 ) 0.04 — operations Net income (loss) attributable to common stockholders per weighted $ 0.09 0.01 0.11 (0.09 ) average common share — basic and diluted Weighted average number of common 89,105 88,838 89,006 88,530 shares outstanding — basic Weighted average number of common 89,316 88,954 89,161 88,530 shares outstanding — diluted Comprehensive income: Net income (loss) attributable to $ 8,188 904 9,849 (8,132 ) common stockholders Unrealized gain (loss) on (90 ) 779 804 (1,053 ) investment securities Reversal of unrealized gain to realized gain on (6 ) — (1,038 ) (1,191 ) investment securities Unrealized gain (loss) on 234 (328 ) (1,635 ) (6,304 ) derivative instruments Comprehensive $ 8,326 1,355 7,980 (16,680 ) income (loss) Non-GAAP Financial Measures We consider FFO a widely accepted and appropriate measure of performance for a REIT. FFO provides a supplemental measure to compare our performance and operations to other REITs. Due to certain unique operating characteristics of real estate companies, NAREIT has promulgated a standard known as FFO, which it believes more accurately reflects the operating performance of a REIT such as ours. As defined by NAREIT, FFO means net income computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of operating property, plus depreciation and amortization and after adjustments for unconsolidated entities in which the REIT holds an interest. In addition, NAREIT has further clarified the FFO definition to add-back impairment write-downs of depreciable real estate or of investments in unconsolidated entities that are driven by measurable decreases in the fair value of depreciable real estate. We have adopted the NAREIT definition for computing FFO. We adjust FFO for the impact of non-cash impairment charges of non-depreciable real estate, net of taxes recorded in comparable periods, in order to present the performance of our core portfolio operations. Management uses the calculation of FFO and FFO adjusted for several reasons. FFO is used in certain employment agreements to determine incentives payable by us to certain executives, based on our performance. Additionally, we use FFO and FFO adjusted to compare our performance to that of other REITs in our peer group. The calculation of FFO may, however, vary from entity to entity because capitalization and expense policies tend to vary from entity to entity. Items that 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 does not represent cash flows from operations as defined by U.S. GAAP, it is not indicative of cash available to fund all cash flow needs and liquidity, including our ability to pay distributions and should not be considered as an alternative to net income, as determined in accordance with U.S. GAAP, for purposes of evaluating our operating performance. The following table reflects our FFO and FFO adjusted for the periods presented, reconciled to net income (loss) attributable to common stockholders for these periods. Three months Three months Twelve Twelve months months ended December ended ended ended December December December 31, 2012 31, 2011 31, 2012 31, 2011 Net income (loss) attributable to $ 8,188 904 9,849 (8,132 ) common stockholders Gain on sale of investment (3,142 ) (955 ) (3,864 ) (1,510 ) properties Gain (loss) from change in control of (64 ) — (1,108 ) 1,400 investment properties Impairment of depreciable 243 2,841 722 2,841 operating property Equity in depreciation and amortization of 6,243 4,260 24,266 14,653 unconsolidated joint ventures Amortization on in-place lease 1,851 1,293 8,777 6,540 intangibles Amortization on 389 372 1,747 1,423 leasing commissions Depreciation, net of noncontrolling 10,252 10,399 44,935 42,415 interest Funds From Operations $ 23,960 19,114 85,324 59,630 attributable to common stockholders Impairment loss, net of taxes: Provision for asset — — — 5,223 impairment Provision for asset impairment included in equity in — — — 7,824 earnings (loss) of unconsolidated joint ventures Other non-cash 52 98 348 940 adjustments Provision for income taxes: Income tax (2,657 ) — (7,468 ) (1,368 ) adjustments Funds From Operations attributable to $ 21,355 19,212 78,204 72,249 common stockholders, adjusted Net income (loss) attributable to common stockholders $ 0.09 0.01 0.11 (0.09 ) per weighted average common share - basic and diluted Funds From Operations attributable to common stockholders, $ 0.27 0.21 0.96 0.67 per weighted average commons share - basic and diluted Funds From Operations attributable to common stockholders, $ 0.24 0.22 0.88 0.82 adjusted, per weighted average commons share - basic and diluted Weighted average number of common 89,105 88,838 89,006 88,530 shares outstanding, basic Weighted average number of common 89,316 88,954 89,161 88,633 shares outstanding, diluted EBITDA is defined as earnings (losses) from operations excluding: (1) interest expense; (2) income tax benefit or expenses; (3) depreciation and amortization expense; and (4) gains (loss) on non-operating property. We believe EBITDA is useful to us and to an investor as a supplemental measure in evaluating our financial performance because it excludes expenses that we believe may not be indicative of our operating performance. By excluding interest expense, EBITDA measures our financial performance regardless of how we finance our operations and capital structure. By excluding depreciation and amortization expense, we believe we can more accurately assess the performance of our portfolio. Because EBITDA is calculated before recurring cash charges such as interest expense and taxes and is not adjusted for capital expenditures or other recurring cash requirements, it does not reflect the amount of capital needed to maintain our properties nor does it reflect trends in interest costs due to changes in interest rates or increases in borrowing. EBITDA should be considered only as a supplement to net earnings and may be calculated differently by other equity REITs. We believe EBITDA is an important non-GAAP measure. We utilize EBITDA to calculate our interest expense coverage ratio, which equals EBITDA divided by total interest expense. We believe that using EBITDA, which excludes the effect of non-operating expenses and non-cash charges, all of which are based on historical cost and may be of limited significance in evaluating current performance, facilitates comparison of core operating profitability between periods and between REITs, particularly in light of the use of EBITDA by a seemingly large number of REITs in their reports on Forms 10-Q and 10-K. We believe that investors should consider EBITDA in conjunction with net income and the other required U.S. GAAP measures of our performance to improve their understanding of our operating results. We adjust EBITDA for the impact of non-cash impairment charges in comparable periods, in order to present the performance of our core portfolio operations. Three months Three Twelve Twelve months months months ended December ended ended ended December December December 31, 2012 31, 2011 31, 2012 31, 2011 Net income (loss) attributable to $ 10,435 1,852 17,759 (7,184 ) Inland Real Estate Corporation Gain on sale of investment (3,142 ) (955 ) (3,864 ) (1,510 ) properties (Gain) loss from change in control of (64 ) — (1,108 ) 1,400 investment properties Income tax (benefit) expense of taxable (1,999 ) 522 (6,346 ) (632 ) REIT subsidiaries Interest expense 8,488 9,133 35,680 41,579 Interest expense associated with — — — 89 discontinued operations Interest expense associated with 3,024 2,511 11,596 8,865 unconsolidated joint ventures Depreciation and 12,479 11,889 55,036 49,477 amortization Depreciation and amortization associated with 29 210 483 1,083 discontinued operations Depreciation and amortization associated with 6,243 4,260 24,266 14,653 unconsolidated joint ventures EBITDA 35,493 29,422 133,502 107,820 Provision for asset 243 2,841 722 5,223 impairment Provision for asset impairment included in equity in — — — 7,824 earnings (loss) of unconsolidated joint ventures Other non-cash 52 98 348 940 adjustments EBITDA, adjusted $ 35,788 32,361 134,572 121,807 Total Interest $ 11,512 11,644 47,276 50,533 Expense EBITDA: Interest Expense Coverage 3.1 2.5 2.8 2.1 Ratio EBITDA: Interest Expense Coverage 3.1 2.8 2.8 2.4 Ratio, adjusted Same Store Net Operating Income Analysis The following schedule presents same store net operating income, for our consolidated portfolio, which is the net operating income of properties owned in both the three and twelve months ended December31, 2012 and 2011, along with other investment properties' net operating income. Same store net operating income is considered a non-GAAP financial measure because it does not include straight-line rental income, amortization of lease intangibles, interest, depreciation, amortization and bad debt expense. We provide same store net operating income as another metric to compare the results of property operations for the three and twelve months ended December31, 2012 and 2011. We also provide a reconciliation of these amounts to the most comparable GAAP measure, net income (loss) attributable to common stockholders. Three Three Twelve Twelve months months months months ended ended ended ended Consolidated December December December December 31, 2012 31, 2011 31, 2012 31, 2011 Rental income and tenant recoveries: "Same store" investment properties, 94 properties Rental income $ 25,436 24,715 2.9 % 99,988 97,544 2.5 % Tenant recovery 8,109 5,427 49.4 % 33,991 32,437 4.8 % income Other property 482 515 -6.4 % 2,228 1,857 20.0 % income "Other investment properties” Rental income 2,817 3,126 13,291 17,489 Tenant recovery 825 657 3,030 6,528 income Other property 51 24 181 83 income Total rental and additional $ 37,720 34,464 152,709 155,938 rental income Property operating expenses: "Same store" investment properties, 94 properties Property operating $ 4,203 4,177 0.6 % 17,783 20,283 -12.3 % expenses Real estate 6,693 3,146 112.7 % 27,187 23,157 17.4 % tax expense "Other investment properties" Property operating 380 400 1,873 3,081 expenses Real estate 338 210 2,085 4,812 tax expense Total property operating $ 11,614 7,933 48,928 51,333 expenses Property net operating income "Same store" investment 23,131 23,334 -0.9 % 91,237 88,398 3.2 % properties "Other investment 2,975 3,197 12,544 16,207 properties" Total property net operating $ 26,106 26,531 103,781 104,605 income Other income: Straight-line $ 290 253 839 1,526 rents Amortization of lease (4 ) 41 539 350 intangibles Other income 779 257 3,633 2,438 Fee income from 2,203 1,787 5,757 6,027 unconsolidated joint ventures Gain (loss) from change in control of 64 — 1,108 (1,400 ) investment properties Loss on sale of investment — — (23 ) — properties Gain on sale of joint 591 453 766 1,366 venture interest Other expenses: Income tax benefit (expense) of 1,999 (522 ) 6,346 632 taxable REIT subsidiaries Bad debt (446 ) (541 ) (2,959 ) (3,975 ) expense Depreciation and (12,479 ) (11,889 ) (55,036 ) (49,477 ) amortization General and administrative (4,284 ) (3,846 ) (17,552 ) (14,656 ) expenses Interest (8,487 ) (9,133 ) (35,680 ) (41,579 ) expense Provision for asset — — — (5,223 ) impairment Equity in earnings (loss) of 1,244 196 2,875 (8,124 ) unconsolidated joint ventures Income (loss) from 7,576 3,587 14,394 (7,490 ) continuing operations Income (loss) from 2,895 (1,716 ) 3,298 436 discontinued operations Net income 10,471 1,871,000 17,692 (7,054 ) (loss) Less: Net (income) loss attributable (36 ) (19 ) 67 (130 ) to the noncontrolling interest Net income (loss) attributable 10,435 1,852 17,759 (7,184 ) to Inland Real Estate Corporation Dividends on preferred (2,247 ) (948 ) (7,910 ) (948 ) shares Net income (loss) attributable $ 8,188 904 9,849 (8,132 ) to common stockholders Inland Real Estate Corporation Supplemental Financial Information As of December31, 2012 (unaudited) (In thousands except per share and square footage data) The following schedules present our pro-rata consolidated financial statements as of and for the three months and year ended December 31, 2012, reconciled to our U.S. GAAP financial statements. These financial statements are considered non-GAAP because they include financial information related to unconsolidated joint ventures accounted for under the equity method of accounting. We provide these statements to include the pro rata amounts of all properties under management in order to better compare our overall performance and operating metrics to those of other REITs in our peer group. Balance Sheets (unaudited) - Pro-rata Consolidation IPCC Pro-rata Consolidated Noncontrolling IN Retail INP Development Unconsolidated Consolidated Fund LLC Retail LP Balance Interest (NYSTRS) (PGGM) Properties properties Balance Sheets Sheets Assets: Investment properties: Land $ 313,261 (535 ) 43,785 75,413 1,602 2,520 436,046 Construction 20,837 (2 ) — 2,119 16,052 — 39,006 in progress Building and 957,794 (1,508 ) 116,818 183,575 5,271 7,875 1,269,825 improvements 1,291,892 (2,045 ) 160,603 261,107 22,925 10,395 1,744,877 Less accumulated 329,997 (747 ) 32,089 7,717 358 224 369,638 depreciation Net investment 961,895 (1,298 ) 128,514 253,390 22,567 10,171 1,375,239 properties Cash and cash 18,505 (2,119 ) 3,482 6,776 3 22 26,669 equivalents Investment in 8,711 — — — — — 8,711 securities Accounts receivable, 25,076 (46 ) 5,460 4,190 52 21 34,753 net Mortgages 12,955 — — — — — 12,955 receivable Investment in and advances to 129,196 — (18,007 ) (91,438 ) (13,595 ) (4,662 ) 1,494 unconsolidated joint ventures Acquired lease intangibles, 41,692 — 3,680 43,352 — 1,607 90,331 net Deferred 19,436 (23 ) 2,075 2,029 30 88 23,635 costs, net Other assets 25,939 (3 ) 1,866 1,511 92 826 30,231 Total assets $ 1,243,405 (3,489 ) 127,070 219,810 9,149 8,073 1,604,018 Liabilities: Accounts payable and $ 36,918 (35 ) 6,887 6,227 1,832 68 51,897 accrued expenses Acquired below market lease 12,976 — 1,734 15,988 — 786 31,484 intangibles, net Distributions 4,606 — — — — — 4,606 payable Mortgages 412,361 (739 ) 86,786 135,328 7,433 6,394 647,563 payable Unsecured credit 305,000 — — — — — 305,000 facilities Convertible 28,327 — — — — — 28,327 notes Other 33,014 (16 ) 1,930 3,262 1,668 226 40,084 liabilities Total 833,202 (790 ) 97,337 160,805 10,933 7,474 1,108,961 liabilities Stockholders’ Equity: Preferred 110,000 — — — — — 110,000 stock Common stock 894 — — — — — 894 Additional paid-in 784,139 — — 119 — — 784,258 capital Accumulated distributions (476,185 ) (4,368 ) 29,733 58,886 (1,784 ) 599 (393,119 ) in excess of net income Accumulated comprehensive (9,269 ) — — — — — (9,269 ) loss Total stockholders’ 409,579 (4,368 ) 29,733 59,005 (1,784 ) 599 492,764 equity Noncontrolling 624 1,669 — — — — 2,293 interest Total equity 410,203 (2,699 ) 29,733 59,005 (1,784 ) 599 495,057 Total liabilities $ 1,243,405 (3,489 ) 127,070 219,810 9,149 8,073 1,604,018 and equity Inland Real Estate Corporation Supplemental Financial Information For the three months ended December 31, 2012 (In thousands except per share and square footage data) Statements of Operations (unaudited) - Pro-rata Consolidation Pro-rata Consolidated IPCC Consolidated IN INP Statement of Retail Retail Development Unconsolidated Statement of Fund LLC LP Operations (NYSTRS) (PGGM) Properties properties Operations Revenues Rental income $ 28,539 3,730 5,977 21 648 38,915 Tenant 8,934 1,636 2,793 8 13 13,384 recoveries Other property 533 12 35 1 — 581 income Fee income from 2,203 — — — — 2,203 unconsolidated joint ventures Total revenues 40,209 5,378 8,805 30 661 55,083 Expenses: Property operating 5,029 654 1,186 40 27 6,936 expenses Real estate 7,031 1,437 1,854 33 11 10,366 tax expense Depreciation and 12,479 2,113 3,872 9 249 18,722 amortization General and administrative 4,284 15 216 — — 4,515 expenses Total expenses 28,823 4,219 7,128 82 287 40,539 Operating 11,386 1,159 1,677 (52 ) 374 14,544 income Other income 779 7 2 61 — 849 Gain on sale of investment 64 — — — — 64 properties Gain on sale of joint 591 — — — — 591 venture interest Interest (8,487 ) (1,217 ) (1,447 ) (112 ) (248 ) (11,511 ) expense Income (loss) before income tax benefit of taxable REIT subsidiaries, equity in earnings 4,333 (51 ) 232 (103 ) 126 4,537 (loss) of unconsolidated joint ventures and discontinued operations Income tax expense of 1,999 — — — 1,999 taxable REIT subsidiaries Equity in earnings (loss) of 1,244 51 (232 ) 103 (126 ) 1,040 unconsolidated joint ventures Income from continuing 7,576 — — — — 7,576 operations Income from discontinued 2,895 — — — — 2,895 operations Net income 10,471 — — — — 10,471 Less: Net income attributable (36 ) — — — — (36 ) to the noncontrolling interest Net income attributable to Inland Real 10,435 — — — — 10,435 Estate Corporation Dividends on preferred (2,247 ) — — — — (2,247 ) shares Net income attributable $ 8,188 — — — — 8,188 to common stockholders Inland Real Estate Corporation Supplemental Financial Information For the twelve months ended December 31, 2012 (In thousands except per share and square footage data) Statements of Operations (unaudited) - Pro-rata Consolidation Pro-rata Consolidated IPCC Consolidated IN INP Statement of Retail Retail Development Unconsolidated Statement of Fund LLC LP Operations (NYSTRS) (PGGM) Properties properties Operations Revenues Rental income $ 114,657 15,071 21,797 120 1,139 152,784 Tenant 37,021 6,483 9,459 40 16 53,019 recoveries Other property 2,409 263 104 6 — 2,782 income Fee income from 5,757 — — — — 5,757 unconsolidated joint ventures Total revenues 159,844 21,817 31,360 166 1,155 214,342 Expenses: Property operating 22,615 2,668 3,980 184 45 29,492 expenses Real estate 29,272 5,436 6,543 4 13 41,268 tax expense Depreciation and 55,036 7,459 16,282 86 439 79,302 amortization General and administrative 17,552 59 518 6 — 18,135 expenses Total expenses 124,475 15,622 27,323 280 497 168,197 Operating 35,369 6,195 4,037 (114 ) 658 46,145 income Other income 3,633 413 10 (236 ) — 3,820 (expense) Loss on sale of investment (23 ) — — — — (23 ) properties Gain from change in control of 1,108 — — — — 1,108 investment properties Gain on sale of joint 766 — — — — 766 venture interest Interest (35,680 ) (4,964 ) (5,340 ) (859 ) (433 ) (47,276 ) expense Income (loss) before income tax benefit of taxable REIT subsidiaries, equity in earnings 5,173 1,644 (1,293 ) (1,209 ) 225 4,540 (loss) of unconsolidated joint ventures and discontinued operations Income tax benefit of 6,346 — — — 6,346 taxable REIT subsidiaries Equity in earnings (loss) of 2,875 (1,644 ) 1,293 1,209 (225 ) 3,508 unconsolidated joint ventures Income from continuing 14,394 — — — — 14,394 operations Income from discontinued 3,298 — — — — 3,298 operations Net income 17,692 — — — — 17,692 Less: Net loss attributable to the 67 — — — — 67 noncontrolling interest Net income attributable to Inland Real 17,759 — — — — 17,759 Estate Corporation Dividends on preferred (7,910 ) — — — — (7,910 ) shares Net income attributable $ 9,849 — — — — 9,849 to common stockholders Contact: Inland Real Estate Corporation Dawn Benchelt, Investor Relations Director (630) 218-7364 firstname.lastname@example.org or Joel Cunningham, Media Relations (630) 586-4897 email@example.com
Inland Real Estate Corporation Announces Fourth Quarter and Year 2012 Results
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