IRC Inland Real Estate Corp.

− FFO per Share and Recurring FFO per Share Both Increase 4.3% −

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 primarily in select markets within the Central and Southeastern United States, today announced financial and operational results for the three and six months ended June 30, 2015.

Highlights

• Funds from Operations (FFO) per weighted average common share (basic and diluted) was $0.24 for the three months ended June 30, 2015, an increase of 4.3% over $0.23 for the second quarter of 2014.
• Recurring FFO (defined as FFO adjusted for the impact of lease termination income, certain gains and non-cash impairment charges of non-depreciable real estate, net of taxes) per weighted average common share (basic and diluted) was $0.24 for the three months ended June 30, 2015, an increase of 4.3% over $0.23 for the second quarter of 2014.
• Same-store net operating income (NOI) for the consolidated portfolio increased 5.7% for the quarter and 6.5% for the six months ended June 30, 2015, over the comparable periods in 2014.
• Total portfolio leased occupancy was 95.3%, the seventh consecutive quarter with a rate of 95% or above.
• Executed 82 leases within the total portfolio for 303,197 square feet of leasable space.
• Average base rent for new and renewal leases signed in the total portfolio increased by 15.0% and 4.1%, respectively, over expiring average rents.
• IRC’s joint venture with PGGM acquired the Cedar Center North and Creekside Commons shopping centers in the Cleveland MSA for $15.4 million and $28.3 million, respectively, and the Eastgate Crossing shopping center in the Cincinnati market for $21.1 million. The IRC-PGGM venture was fully invested at the close of the quarter, excluding development projects.

“We believe our strong second quarter results, including a 4.3% increase in FFO per share, demonstrate that we are continuing to execute on our strategic plan to enhance portfolio performance and quality, and strengthen our financial position,” said Mark Zalatoris, president and chief executive officer of Inland Real Estate Corporation. “Our pro-active portfolio management and leasing initiatives drove healthy rent increases and gains in same store net operating income, which have supported significant improvements in key financial metrics such as net debt-to-recurring EBITDA. In addition, during the quarter we completed the investment allocation for our unconsolidated PGGM joint venture, which now represents a $900 million pipeline of future high-quality additions to our consolidated portfolio.”

Financial Results for the Quarter

FFO attributable to common stockholders was $24.4 million for the quarter ended June 30, 2015, compared to $22.9 million for the second quarter of 2014. On a per share basis, FFO was $0.24 (basic and diluted) for the second quarter of 2015, compared to $0.23 for the same period of 2014. The increases in FFO and FFO per share were primarily due to higher net operating income from the consolidated same store portfolio, lower interest expense, and increased equity in earnings of unconsolidated joint ventures.

Recurring FFO (defined as FFO adjusted for the impact of lease termination income, certain gains and non-cash impairment charges of non-depreciable real estate, net of taxes) was $24.4 million for the second quarter of 2015, compared to $22.9 million for the prior year quarter. On a per share basis, recurring FFO was $0.24 (basic and diluted) for the three months ended June 30, 2015, compared to $0.23 for the three months ended June 30, 2014. The increases in recurring FFO and recurring FFO per share were due to the same items that impacted FFO for the quarter.

Net income attributable to common stockholders for the three months ended June 30, 2015 was $4.7 million, compared to $10.4 million for the second quarter of 2014. On a per common share basis, net income attributable to common stockholders (basic and diluted) was $0.05 for the second quarter of 2015, compared to $0.10 for the prior year quarter. Net income for the quarter decreased year over year primarily due to lower gains on sales of investment properties compared to the second quarter of 2014. The decrease was partially offset by the same items that impacted FFO, plus lower depreciation and amortization expense.

Financial Results for the Six Months Ended June 30, 2015

For the six months ended June 30, 2015, FFO attributable to common stockholders was $52.4 million, compared to $46.0 million for the same period in 2014. On a per share basis, FFO for the first six months of 2015 was $0.52 (basic and diluted), compared to $0.46 for the six months ended June 30, 2014. The increases in FFO and FFO per share were primarily due to the same items that impacted FFO performance for the quarter, as well as increased lease termination income recorded during the first half of 2015 compared to the first six months of 2014.

Recurring FFO was $49.7 million for the six months ended June 30, 2015, compared to $46.0 million for the prior year period. On a per share basis, recurring FFO was $0.50 (basic) and $0.49 (diluted) for the first six months of 2015, compared to $0.46 (basic and diluted) for the same period of 2014. The increases in recurring FFO and recurring FFO per share were due to the same items that impacted FFO for the six-month period, excluding the impact of lease termination income.

Net income attributable to common stockholders for the six months ended June 30, 2015, was $3.7 million, compared to $23.6 million for the same period in 2014. On a per share basis, net income attributable to common stockholders was $0.04 (basic and diluted), compared to $0.24 for the same period of 2014. Net income and net income per share decreased primarily due to decreased disposition activity compared to the first half of 2014, which resulted in lower gains on sales of investment properties, as well as impairments recorded during the first quarter of 2015 on assets sold or under contract for sale at prices that were below carrying values. The decrease in net income was partially offset by the same items that impacted FFO, plus lower depreciation and amortization expense.

Reconciliations of FFO and Recurring FFO to net income attributable to common stockholders, calculated in accordance with U.S. GAAP, as well as FFO and Recurring FFO 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 $28.9 million for the quarter, representing an increase of 5.7% over the second quarter of 2014. The increase in same-store NOI for the quarter was primarily due to increased rental income and tenant recovery income true-up adjustments the Company recorded during the quarter, as well as lower real estate tax expense. For the six months ended June 30, 2015, consolidated same-store NOI was $58.1 million, representing an increase of 6.5% over the comparable period of 2014. The increase in same-store NOI for the first six months of 2015 was primarily due to the same items that impacted same-store NOI for the quarter, plus lower snow removal costs compared to the first half of 2014.

Same-store financial occupancy was 93.6% for the consolidated portfolio, representing a decrease of 10 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 the period 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, the Company executed 82 leases within the total portfolio aggregating 303,197 square feet of gross leasable area (GLA). Total leases executed included:

• Sixty-two renewal leases comprising 233,505 square feet, with an average rental rate of $16.59 per square foot, representing an increase of 4.1% over the average expiring rent;
• Thirteen new leases comprising 43,554 square feet, with an average rental rate of $16.39 per square foot, representing an increase of 15.0% over the expiring rent; and
• Seven non-comparable leases comprising 26,138 square feet, with an average rental rate of $15.99 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 75 new and renewal leases executed during the quarter had an average rental rate of $16.56 per square foot, representing an increase of 5.7% over the average expiring rent. The calculations of former and new average base rents are adjusted for rent abatements on the included leases.

For the total portfolio as of June 30, 2015, leased occupancy was 95.3% and financial occupancy was 93.7%, representing decreases of 50 basis points and 60 basis points, respectively, over one year ago. The decreases are primarily due to vacancies related to in-process redevelopment projects. Leased occupancy is defined as the percentage of total gross leasable area for which there is a signed lease regardless of whether the tenant is currently obligated to pay rent under the lease agreement. 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 recurring EBITDA (earnings before interest, taxes, depreciation and amortization), which is EBITDA adjusted for the impact of lease termination income, certain gains and non-cash impairment charges of non-depreciable real estate, of $38.2 million for the second quarter of 2015, compared to $36.0 million for the second quarter of 2014. Recurring EBITDA for the six months ended June 30, 2015, was $77.5 million, compared to $72.7 million for the same period in 2014.

Definitions and reconciliations of EBITDA and recurring EBITDA to net income attributable to Inland Real Estate Corporation are provided at the end of this news release.

Recurring EBITDA coverage of interest expense was 4.0 times for the quarter ended June 30, 2015 compared to 3.3 times for the second quarter of 2014. Net debt-to-recurring EBITDA, pro-rata consolidation, was 6.8 times for the quarter, compared to 7.0 times for the comparable prior year quarter. 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 because expenses that may not be indicative of operating performance are excluded.

As of June 30, 2015, the Company had an equity market capitalization (common shares) of $0.9 billion, outstanding preferred stock of $210.0 million (at face value), and total debt outstanding of $1.1 billion (including the pro-rata share of debt in unconsolidated joint ventures), for a total market capitalization of approximately $2.2 billion. The Company’s debt-to-total market capitalization was 48.1% as of June 30, 2015. Approximately 54.0% of total debt bears interest at fixed rates. As of June 30, 2015, the weighted average interest rate on the fixed rate debt was 5.09% and the overall weighted average interest rate, including variable rate debt, was 3.57%.

Dispositions

During the quarter, the Company sold one shopping center, one single-user retail property, and an outlot parcel for a total price of $6.5 million. The dispositions included the 129,101-square-foot Eastgate Center in Lombard, Ill., for $4.1 million; the 5,620-square-foot Park Square Outlot in Brooklyn Park, Minn., for $1.6 million; and a 1.2-acre outlot parcel at Mokena Marketplace in Mokena, Ill., for $0.8 million.

Joint Venture Activity

The Company has formed joint ventures with institutions and established developers to advance its strategic goal to further enhance the size, quality and diversification of its operating platform.

On April 2, 2015, the Company’s joint venture with PGGM acquired the 61,420-square-foot Cedar Center North retail center anchored by PetSmart and located in the Cleveland suburb of South Euclid, Ohio, for $15.4 million, excluding closing costs and adjustments and subject to future earnout payments. On May 7, 2015, the IRC-PGGM joint venture purchased the 201,893-square-foot Creekside Commons shopping center anchored by Kohl’s, Gordmans, Home Goods and Party City, and located in the Cleveland suburb of Mentor, Ohio, for $28.3 million, excluding closing costs and adjustments. On May 29, 2015, the IRC-PGGM joint venture acquired the Eastgate Crossing shopping center in Cincinnati, Ohio, for $21.1 million, excluding closing costs and adjustments and subject to future earnout payments. Eastgate Crossing is anchored by Kroger, Marshalls, Ashley Furniture, and Jo-Ann Fabrics.

On June 5, 2015, the Company’s joint venture with Inland Private Capital Corporation (IPCC) acquired for $15.8 million the University Center retail property in Jacksonville, Fla., which is anchored by Dollar Tree, TJMaxx, LA Fitness and Beall’s Outlet.

Distributions

In April, May, June and July of 2015, the Company paid a monthly cash dividend of $0.169271 per share on the outstanding shares of its 8.125% Series A Cumulative Redeemable Preferred Stock (Series A Preferred Stock), and a monthly cash dividend of $0.144791667 per share on the outstanding shares of its 6.95% Series B Cumulative Redeemable Preferred Stock (Series B Preferred Stock). In July, the Company declared a cash dividend of $0.169271 per share on the outstanding shares of its Series A Preferred Stock, and a cash dividend of $0.144791667 per share on the outstanding shares of its Series B Preferred Stock, both dividends payable on August 17, 2015, to Series A and Series B Preferred Stockholders of record at the close of business on August 3, 2015.

In April, May, June and July of 2015, the Company paid monthly cash distributions to Common Stockholders of $0.0475 per common share. In July, the Company declared a cash distribution of $0.0475 per common share, payable on August 17, 2015, to common stockholders of record at the close of business on July 31, 2015.

Guidance

For fiscal year 2015, the Company continues to expect recurring FFO per common share (basic and diluted) to range from $0.96 to $1.00. The Company’s guidance incorporates assumptions for an increase in consolidated same-store NOI to range from 2% to 3%, and consolidated same-store financial occupancy at year-end 2015 to range from 92.5% to 93.5%.

Conference Call/Webcast

Management will host a conference call to discuss the Company’s financial and operational results for the quarter and six months ended June 30, 2015, on Thursday, August 6, 2015, 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, Chief Investment Officer. The live conference call can be accessed by dialing 1-877-509-5836 for callers within the United States, 1-855-669-9657 for callers dialing from Canada, or 1-412-902-4131 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 until 12:01 a.m. ET on August 20, 2015. 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 10068517. 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-advised and self-managed publicly traded real estate investment trust (REIT) focused on owning and operating open-air neighborhood, community, and power shopping centers located in well-established markets primarily in the Central and Southeastern United States. As of June 30, 2015, the Company owned interests in 135 fee simple investment properties, including 36 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 six months ended June 30, 2015, is available at www.inlandrealestate.com.

Certain information in this supplemental information may 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 “seek,” “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 our 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. Forward-looking statements are not guarantees of future performance, and investors should not place undue reliance on them. 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 risks listed and described under Item 1A“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2015, as they may be revised or supplemented by us in subsequent Reports on Form 10-Q and other filings with the SEC. Except as otherwise required by applicable law, the Company disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement in this release to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based.

   

Consolidated Balance Sheets

(in thousands, except per share data)

  June 30, 2015 December 31, 2014 Assets: (unaudited) Investment properties: Land $ 382,806 385,432 Construction in progress 41,143 23,812 Building and improvements 1,126,728   1,110,360   Total Investment Properties 1,550,677 1,519,604 Less accumulated depreciation 345,715   338,141   Net investment properties 1,204,962 1,181,463 Cash and cash equivalents 14,579 18,385 Accounts receivable, net 41,028 38,211 Mortgages receivable 24,750 24,750 Investment in and advances to unconsolidated joint ventures 169,212 170,720 Acquired lease intangibles, net 84,207 85,858 Deferred costs, net 17,956 18,674 Other assets 35,460   34,890   Total assets $ 1,592,154   1,572,951     Liabilities: Accounts payable and accrued expenses $ 64,432 56,188 Acquired below market lease intangibles, net 42,689 41,108 Distributions payable 5,435 5,420 Mortgages payable 380,339 384,769 Unsecured credit facilities 475,000 440,000 Other liabilities 21,346   22,290   Total liabilities 989,241   949,775     Stockholders’ Equity: Preferred stock, $0.01 par value, 12,000 Shares authorized: 8.125% Series A Cumulative Redeemable shares, with a $25.00 per share Liquidation Preference, 4,400 issued and outstanding at June 30, 2015 and December 31, 2014, respectively 110,000 110,000 6.95% Series B Cumulative Redeemable shares, with a $25.00 per share Liquidation Preference, 4,000 issued and outstanding at June 30, 2015 and December 31, 2014, respectively 100,000 100,000 Common stock, $0.01 par value, 500,000 shares authorized; 100,517 and 100,151 Shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively 1,005 1,002 Additional paid-in capital (net of offering costs of $78,544 and $78,372 at June 30, 2015 and December 31, 2014, respectively) 878,046 874,154 Accumulated distributions in excess of net income (481,084 ) (456,120 ) Accumulated other comprehensive loss (5,966 ) (6,338 ) Total stockholders’ equity 602,001 622,698   Noncontrolling interest 912   478   Total equity 602,913   623,176     Total liabilities and equity $ 1,592,154   1,572,951      

Consolidated Statements of Operations and Comprehensive Income (unaudited)

(in thousands, except per share data)

  Three months ended June 30, Six months ended June 30, 2015   2014 2015   2014 Revenues: Rental income $ 34,276 34,914 68,231 70,212 Tenant recoveries 13,189 12,127 29,928 32,170 Other property income 430 459 4,069 965 Fee income from unconsolidated joint ventures 1,441   1,307   2,874   2,566   Total revenues 49,336   48,807   105,102   105,913     Expenses: Property operating expenses 6,452 6,580 15,372 18,954 Real estate tax expense 9,364 9,558 19,726 19,639 Depreciation and amortization 16,069 17,817 32,244 36,931 Provision for asset impairment 27 222 9,355 222 General and administrative expenses 5,958   5,993   12,017   12,085   Total expenses 37,870   40,170   88,714   87,831     Operating income 11,466 8,637 16,388 18,082 Other income 372 666 785 768 Gain on sale of investment properties, net 1,319 9,978 2,933 22,828 Gain on sale of joint venture interest 80 6 189 114 Interest expense (7,254 ) (8,900 ) (14,532 ) (17,890 ) Income before income tax expense of taxable REIT subsidiaries, equity in earnings of unconsolidated joint ventures and discontinued operations 5,983 10,387 5,763 23,902   Income tax expense of taxable REIT subsidiaries (176 ) (45 ) (1,013 ) (439 ) Equity in earnings of unconsolidated joint ventures 2,836   2,263   6,926   4,057   Income from continuing operations 8,643 12,605 11,676 27,520   Income from discontinued operations —   31   —   521   Net income 8,643 12,636 11,676 28,041   Less: Net (income) loss attributable to the noncontrolling interest 18   10   (75 ) 30   Net income attributable to Inland Real Estate Corporation 8,661 12,646 11,601 28,071   Dividends on preferred shares (3,972 ) (2,234 ) (7,944 ) (4,469 ) Net income attributable to common stockholders $ 4,689   10,412   3,657   23,602     Basic and diluted earnings attributable to common shares per weighted average common share:   Income from continuing operations $ 0.05 0.10 0.04 0.23 Income from discontinued operations —   —   —   0.01   Net income attributable to common stockholders per weighted average common share — basic and diluted $ 0.05   0.10   0.04   0.24     Weighted average number of common shares outstanding — basic 100,000   99,455   99,966   99,433     Weighted average number of common shares outstanding — diluted 100,444   99,817   100,410   99,780     Comprehensive income: Net income attributable to common stockholders $ 4,689 10,412 3,657 23,602 Unrealized gain (loss) on derivative instruments 1,004   (706 ) 372   (1,206 ) Comprehensive income attributable to common stockholders $ 5,693   9,706   4,029   22,396    

Funds From Operations (unaudited)

(in thousands, except per share data)

 

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. Under U.S. GAAP, impairment charges reduce net income. While impairment charges are added back in the calculation of FFO, we caution that because impairments to the value of any property are typically based on reductions in estimated future undiscounted cash flows compared to current carrying value, declines in the undiscounted cash flows which led to the impairment charges reflect declines in property operating performance that may be permanent. We have adopted the NAREIT definition for computing FFO. Recurring FFO includes adjustments to FFO for the impact of lease termination income, certain gains and 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 Recurring FFO for several reasons. Recurring FFO per weighted average common share outstanding is used in the employment agreements we have with our executives to determine a portion of incentive compensation payable to them. Additionally, we use FFO and Recurring FFO to compare our performance to that of other REITs in our peer group. The calculation of FFO and Recurring FFO may 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 and Recurring FFO whereas items that are expensed reduce FFO and Recurring FFO. Consequently, our presentation of FFO and Recurring FFO may not be comparable to other similarly titled measures presented by other REITs. FFO and Recurring FFO do not represent cash flows from operations as defined by U.S. GAAP, are not indicative of cash available to fund 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 Recurring FFO for the periods presented, reconciled to net income (loss) attributable to common stockholders for these periods:

  Three months ended June 30,   Six months ended June 30, 2015   2014 2015   2014 Net income attributable to common stockholders $ 4,689 10,412 3,657 23,602 Gain on sale of investment properties (1,319 ) (9,978 ) (2,753 ) (23,321 ) Impairment of depreciable operating property 27 222 9,355 222 Equity in depreciation and amortization of unconsolidated joint ventures 4,967 4,420 9,945 8,612 Amortization on in-place lease intangibles 3,710 4,853 7,520 11,264 Amortization on leasing commissions 483 512 972 965 Depreciation, net of noncontrolling interest 11,876   12,452   23,752   24,702   Funds From Operations attributable to common stockholders $ 24,433 22,893 52,448 46,046   Lease termination income (2 ) (10 ) (2,673 ) (14 ) Lease termination income included in equity in earnings of unconsolidated joint ventures —   —   (106 ) (77 ) Recurring Funds From Operations attributable to common stockholders $ 24,431   22,883   49,669   45,955     Net income attributable to common stockholders per weighted average common share — basic and diluted $ 0.05   0.10   0.04   0.24     Funds From Operations attributable to common stockholders, per weighted average common share — basic and diluted $ 0.24   0.23   0.52   0.46     Recurring Funds From Operations attributable to common stockholders, per weighted average common share — basic $ 0.24   0.23   0.50   0.46   Recurring Funds From Operations attributable to common stockholders, per weighted average common share — diluted $ 0.24   0.23   0.49   0.46     Weighted average number of common shares outstanding — basic 100,000 99,455 99,966 99,433 Weighted average number of common shares outstanding — diluted 100,444 99,817 100,410 99,780    

Earnings Before Interest, Taxes, Depreciation and Amortization (unaudited)

(in thousands, except per share data)

 

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 REITs.

We believe EBITDA is an important supplemental 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. Recurring EBITDA includes adjustments to EBITDA for the impact of lease termination income and non-cash impairment charges in comparable periods in order to present the performance of our core portfolio operations.

  Three months ended June 30,   Six months ended June 30, 2015   2014 2015   2014 Net income attributable to Inland Real Estate Corporation $ 8,661 12,646 11,601 28,071 Gain on sale of investment properties (1,319 ) (9,978 ) (2,753 ) (23,321 ) Gain on sale of development properties — — (72 ) — Income tax expense of taxable REIT subsidiaries 176 45 1,013 439 Interest expense 7,254 8,900 14,532 17,890 Interest expense associated with unconsolidated joint ventures 2,351 1,977 4,428 3,967 Depreciation and amortization 16,069 17,817 32,244 36,931 Depreciation and amortization associated with unconsolidated joint ventures 4,967   4,420   9,945   8,612   EBITDA 38,159 35,827 70,938 72,589   Lease termination income (2 ) (10 ) (2,673 ) (14 ) Lease termination income included in equity in earnings of unconsolidated joint ventures — — (106 ) (77 ) Impairment loss, net of taxes: Provision for asset impairment 27   222   9,355   222   Recurring EBITDA $ 38,184   36,039   77,514   72,720     Total Interest Expense $ 9,605   10,877   18,960   21,857     EBITDA: Interest Expense Coverage Ratio 4.0 x 3.3 x 3.7 x 3.3 x   Recurring EBITDA: Interest Expense Coverage Ratio 4.0 x 3.3 x 4.1 x 3.3 x  

Same Store Net Operating Income (unaudited)

(in thousands, except per share data)

 

Same store net operating income, which is the net operating income of properties owned during the same periods during each year ("same store" properties), is considered a non-GAAP financial measure because it does not include straight-line rental income, amortization of lease intangibles, lease termination income, 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 six months ended June 30, 2015 and 2014. We also provide a reconciliation of these amounts to the most comparable U.S. GAAP measure, net income attributable to common stockholders.

  Three months ended June 30,       Six months ended June 30,     Consolidated 2015   2014 % Change 2015   2014 % Change Rental income and tenant recoveries: "Same store" investment properties, 92 properties Rental income $ 30,163 29,839 1.1 % 60,086 59,246 1.4 % Tenant recovery income 11,490 10,874 5.7 % 26,291 26,808 -1.9 % Other property income 385 305 26.2 % 1,158 686 68.8 % "Other investment properties” Rental income 3,899 4,898 7,866 10,129 Tenant recovery income 1,699 1,253 3,637 5,362 Other property income 43   144   238   265   Total property income $ 47,679   47,313   99,276   102,496     Property operating expenses: "Same store" investment properties, 92 properties Property operating expenses $ 4,930 4,927 0.1 % 12,134 14,757 -17.8 % Real estate tax expense 8,237 8,785 -6.2 % 17,341 17,488 -0.8 % "Other investment properties" Property operating expenses 1,137 1,140 2,544 3,493 Real estate tax expense 1,127   773   2,385   2,151   Total property operating expenses $ 15,431   15,625   34,404   37,889     Property net operating income "Same store" investment properties 28,871 27,306 5.7 % 58,060 54,495 6.5 % "Other investment properties" 3,377   4,382   6,812   10,112   Total property net operating income $ 32,248   31,688   64,872   64,607     Other income: Straight-line rents $ 166 275 172 1,010 Amortization of lease intangibles 48 (98 ) 107 (173 ) Lease termination income 2 10 2,673 14 Other income 372 666 785 768 Fee income from unconsolidated joint ventures 1,441 1,307 2,874 2,566 Gain on sale of investment properties, net 1,319 9,978 2,933 22,828 Gain on sale of joint venture interest 80 6 189 114   Equity in earnings of unconsolidated joint ventures 2,836 2,263 6,926 4,057   Other expenses: Income tax expense of taxable REIT subsidiaries (176 ) (45 ) (1,013 ) (439 ) Bad debt expense (385 ) (513 ) (694 ) (704 ) Depreciation and amortization (16,069 ) (17,817 ) (32,244 ) (36,931 ) General and administrative expenses (5,958 ) (5,993 ) (12,017 ) (12,085 ) Interest expense (7,254 ) (8,900 ) (14,532 ) (17,890 ) Provision for asset impairment (27 ) (222 ) (9,355 ) (222 )   Income from continuing operations 8,643 12,605 11,676 27,520 Income from discontinued operations —   31   —   521   Net income 8,643 12,636 11,676 28,041   Less: Net (income) loss attributable to the noncontrolling interest 18   10   (75 ) 30   Net income attributable to Inland Real Estate Corporation 8,661 12,646 11,601 28,071   Dividends on preferred shares (3,972 ) (2,234 ) (7,944 ) (4,469 )   Net income attributable to common stockholders $ 4,689   10,412   3,657   23,602    

Pro Rata Consolidated Information (unaudited)

(in thousands, except per share data)

 

These schedules present certain Non-GAAP pro-rata consolidated information as of and for the three and six months ended June 30, 2015. These schedules are considered Non-GAAP because they include financial information related to consolidated joint ventures with an adjustment for the portion related to noncontrolling interests and unconsolidated joint ventures accounted for under the equity method of accounting. Because we incur expenses to manage properties that are not on our balance sheet, we believe providing this information allows investors to better compare our overall performance, size and operating metrics to those of other REITs in our peer group. The Company believes this Non-GAAP information provides supplementary information that is both useful to and has been requested by investors and analysts. Investors should not consider Non-GAAP information as a substitute for, or as superior to, U.S. GAAP information. Rather, Non-GAAP information may provide useful information in addition to information presented in accordance with U.S. GAAP.

Reconciliation of GAAP Reported to Selected Non-GAAP Pro Rata Consolidated Information

  At June 30, 2015         IPCC   Non-GAAP Pro-rata Noncontrolling INP Retail LP Development Unconsolidated Consolidated GAAP Reported Interest (PGGM)   Properties   properties   Information   Total investment properties $ 1,534,587 (1,222 ) 413,764 2,092 360 1,949,581 Total assets 1,592,154 (2,860 ) 299,203 2,468 243 1,891,208 Mortgages payable 380,339 (530 ) 218,993 — 228 599,030 Total liabilities 989,241 (518 ) 244,092 1,613 229 1,234,657   At December 31, 2014         IPCC   Non-GAAP Pro-rata Noncontrolling INP Retail LP Development Unconsolidated Consolidated GAAP Reported Interest (PGGM) Properties   properties Information   Total investment properties $ 1,519,604 (325 ) 364,463 2,062 12,790 1,898,594 Total assets 1,572,951 (1,886 ) 251,697 2,455 7,640 1,832,857 Mortgages payable 384,769 — 168,689 — 6,267 559,725 Total liabilities 949,775 19 196,082 1,607 6,823 1,154,306   For the three months ended June 30, 2015         IPCC   Non-GAAP Pro-rata Noncontrolling INP Retail LP Development Unconsolidated Consolidated GAAP Reported Interest (PGGM) Properties properties Information   Total revenues $ 49,336 — 12,767 — 21 62,124 Total expenses 37,870 (18 ) 8,797 2 10 46,661 Operating income (loss) 11,466 18 3,970 (2 ) 11 15,463   For the three months ended June 30, 2014         IPCC   Non-GAAP Pro-rata Noncontrolling INP Retail LP Development Unconsolidated Consolidated GAAP Reported Interest (PGGM) Properties properties Information   Total revenues $ 48,807 — 11,175 — 122 60,104 Total expenses 40,170 (10 ) 7,415 (1 ) 58 47,632 Operating income 8,637 10 3,760 1 64 12,472   For the six months ended June 30, 2015         IPCC   Non-GAAP Pro-rata Noncontrolling INP Retail LP Development Unconsolidated Consolidated GAAP Reported Interest (PGGM) Properties properties Information   Total revenues $ 105,102 — 26,827 (1 ) 182 132,110 Total expenses 88,714 (33 ) 18,556 8 91 107,336 Operating income (loss) 16,388 33 8,271 (9 ) 91 24,774   For the six months ended June 30, 2014         IPCC   Non-GAAP Pro-rata Noncontrolling INP Retail LP Development Unconsolidated Consolidated GAAP Reported Interest (PGGM) Properties properties Information   Total revenues $ 105,913 — 24,217 — 180 130,310 Total expenses 87,831 (30 ) 17,133 1 93 105,028 Operating income (loss) 18,082 30 7,084 (1 ) 87 25,282

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Inland Real Estate Corporation Contact:Dawn Benchelt, Director of Investor Relations(888) 331-4732ir@inlandrealestate.com