Inland Real Estate Corporation Reports Financial Results for Second Quarter 2008

Inland Real Estate Corporation (NYSE: IRC) today announced financial and operational results for the second quarter ended June 30, 2008. Quarter and Recent Highlights Funds from Operations (FFO) of $23.8 million or $0.36 per share (basic and diluted) for second quarter 2008, representing increases of 3.8 percent and 2.9 percent, respectively, over second quarter 2007 Second quarter total revenue increased 4.6 percent to $47.7 million and joint venture fee income increased 201.7 percent to $1.4 million, year-over-year Same store net operating income up 3.2 percent and 1.3 percent for the three and six-month periods, respectively Total of 68 leases executed for rental of 334,195 aggregate square feet; second quarter average base rents for new and renewal leases up 14.9 percent and 12.6 percent, respectively, over expiring rates Five properties, four Bank of America office buildings and University of Phoenix building acquired through the asset management joint venture with Inland Real Estate Exchange Corporation (IREX) Financial Results The Company reported that FFO, a widely accepted measure of performance for real estate investment trusts (REITs), for the three months ended June 30, 2008, was $23.8 million, an increase of 3.8 percent or approximately $0.9 million, compared to $23.0 million for the three months ended June 30, 2007. On a per share basis, FFO was $0.36 (basic and diluted) for the three months ended June 30, 2008, an increase of $0.01 or 2.9 percent compared to the three months ended June 30, 2007. The increases in FFO and FFO per share for the quarter were primarily due to a deferred partnership gain of $3.2 million recognized upon repayment of the related mortgage receivable. Also contributing was an increase in fee income related to the IREX joint venture, greater gains on the sale of certain investment securities compared to the second quarter 2007, plus an increase in same store net operating income. These gains were partially offset by the recording of a non-cash charge of $2.5 million related to a decline in value of certain investment securities which were determined to be other than temporary during the period, and to a $0.7 million impairment recorded to adjust the book value of a consolidated property currently under contract for sale. The Company reported that net income was $10.0 million for the three months ended June 30, 2008, a decrease of 6.8 percent compared to net income of $10.7 million for the three months ended June 30, 2007. On a per share basis, net income was $0.15 per share (basic and diluted) for the three months ended June 30, 2008, a decrease of 6.3 percent compared to $0.16 per share (basic and diluted) for the three months ended June 30, 2007. Second quarter net income and net income per share decreased primarily due to the aforementioned items as well as greater depreciation expense, primarily resulting from the write-off of tenant improvements related to vacancies. FFO decreased $0.4 million or 0.9 percent to $46.7 million for the six months ended June 30, 2008. On a per share basis, FFO decreased by 1.4 percent or $0.01 to $0.71 from $0.72 for the same year ago period. Net income was $20.4 million for the six months ended June 30, 2008, a decrease of $2.0 million or 8.9 percent compared to net income of $22.4 million for the six months ended June 30, 2007. Net income per share was $0.31 (basic and diluted) for the six months ended June 30, 2008, a decrease of $0.03 or 8.8 percent from the prior year period. The decreases in FFO and FFO per share and net income and net income per share for the six-month period are primarily due to the aforementioned items and greater gains from sales of vacant land parcels through our unconsolidated joint ventures in the prior year same period. A reconciliation of FFO to net income and FFO per share to net income per share is provided at the end of this release. "I am pleased to report FFO growth of 3.8 percent for the quarter, notwithstanding a difficult market environment that has impacted certain near term operations,” said Mark Zalatoris, Inland Real Estate Corporation’s president and chief executive officer. "We enjoyed successful leasing results, due to the in-demand locations of our properties, which resulted in an increase of more than 3 percent in same store net operating income this quarter. As well, our joint venture initiatives generated $2.4 million in fee income in the first half of the fiscal year, an increase of more than 116 percent over the same period last year.” Mr. Zalatoris added, "We believe a resilient platform of well-located value and necessity-based retail assets in stable Midwest markets, combined with controlled growth initiatives, will sustain and benefit the Company over the long term.” Portfolio Performance For the quarter, total revenues increased $2.1 million or 4.6 percent to $47.7 million from $45.6 million in the second quarter 2007. Total revenues for the six months ended June 30, 2008, increased $4.4 million or 4.8 percent to $97.8 million from $93.3 million in the same period prior year. The increases in revenues for the three and six-month periods ended June 30, 2008, were primarily the result of increased fee income from unconsolidated joint ventures and increased tenant recovery income due to a larger amount of recoverable expense compared to the same periods prior year. 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 126 of the Company’s investment properties satisfied this criterion during these periods and are referred to as "same store” properties. Same store net operating income (excluding the impact of straight-line and intangible lease rent) for the quarter was $31.5 million, an increase of $1.0 million or 3.2 percent compared to $30.5 million in the second quarter 2007. For the six months ended June 30, 2008, same store net operating income increased $0.8 million or 1.3 percent to $61.8 million from $61.0 million in the same period prior year. The three and six month increases in same store net operating income were primarily due to lease termination income of approximately $1.1 million recorded during the quarter, as well as ongoing leasing gains and a decrease in non-reimbursable tenant-related expenses from the comparable periods prior year. These items were partially offset by the impact on revenue of certain previously disclosed big-box vacancies. Adjusted for the impact of lease termination income in the quarter, same store net operating income would have been essentially flat compared to the same periods prior year. As of June 30, 2008, financial occupancy for the Company’s same store portfolio was 93.1 percent, compared to 94.3 percent as of March 31, 2008, and 93.9 percent as of June 30, 2007. Leasing The Company reported consistently strong leasing activity across its portfolio during the quarter. For the three months ended June 30, 2008, the Company executed a total of 68 leases aggregating 334,195 square feet of gross leasable area (GLA). This included 15 new leases comprising 99,857 square feet with an average rental rate of $10.17 per square foot, representing a 14.9 percent increase over the average expiring rate. The 50 renewal leases comprise 230,200 square feet with an average rental rate of $12.90 per square foot, representing a 12.6 percent increase over the average expiring rate. The 3 non-comparable leases, consisting of new, previously unleased space, comprise 4,138 square feet with an average base rent of $24.17. As of June 30, 2008, the Company’s total portfolio was 93.6 percent leased, compared to 95.2 percent leased as of March 31, 2008, and 95.7 percent leased as of June 30, 2007. Financial occupancy for the entire portfolio was 93.6 percent as of June 30, 2008, compared to 94.8 percent as of March 31, 2008, and 94.8 percent as of June 30, 2007. The decrease in leased and financial occupancy can be attributed in most part to the vacancies created by the Wickes Furniture bankruptcy. EBITDA, Balance Sheet, Market Value and Liquidity Earnings before interest, taxes, depreciation and amortization (EBITDA) was $36.8 million for the quarter, a decrease of 1.4 percent compared to $37.3 million for the second quarter 2007. For the six-month period ended June 30, 2008, EBITDA was $73.3 million, a decrease of 1.1 percent from $74.2 million in the prior year same period. A definition and reconciliation of EBITDA to income from continuing operations is provided at the end of this news release. EBITDA coverage of interest expense was 2.8 times for the three months ended June 30, 2008, compared to 2.7 times reported in the prior quarter and the 2.6 times reported for the second quarter 2007. The Company has provided EBITDA and related non-GAAP coverage ratios as supplemental disclosure because the Company believes such disclosure provides useful information regarding its ability to service and incur debt. As of June 30, 2008, the Company had an equity market capitalization of approximately $952.4 million and $1.0 billion of total debt outstanding (including the pro-rata share of debt in unconsolidated joint ventures) for a total market capitalization of approximately $2.0 billion and a debt-to-total market capitalization of 51.7 percent. Including the convertible notes, 82.8 percent of this debt was fixed at a weighted average interest rate of 5.06 percent. During the quarter the Company renewed its three-year $150.0 million unsecured line of credit, and negotiated an increase to $155.0 million, with an expanded lending group comprised of KeyBank, Wachovia, Bank of America, Wells Fargo and Bank of Montreal. As of June 30 2008, the Company had $85.0 million outstanding on its unsecured line of credit, with up to $70.0 million available. The Company uses this for acquisitions, capital improvements, tenant improvements, leasing costs and working capital. Acquisitions During the quarter the Company acquired through its joint venture with IREX an 18,018 square-foot, single-tenant office property in Merrillville, IN, for $5.6 million. The office building is currently leased to the University of Phoenix, Inc., a wholly-owned subsidiary of the Apollo Group, Inc. Subsequent to the end of the quarter, the Company contributed approximately $60.8 million in cash to the IREX joint venture to acquire four office buildings in sale-leaseback transactions from Bank of America, N.A., for an aggregate purchase price of $152.6 million, including approximately $90.0 million of mortgage debt. The buildings in Pennsylvania, Nevada, Maryland and New Mexico comprise a total of approximately 840,000 square feet of space and are 100 percent leased by Bank of America. Dispositions The Company sold Wilson Plaza, an 11,160 square foot neighborhood shopping center in Batavia, IL, for approximately $1.7 million during the quarter. Proceeds from this disposition were used to pay down debt and for general corporate purposes. Joint Venture Activity During the quarter the Company contributed to its joint venture with IREX, Fox Run Square, a 143,512 square foot neighborhood shopping center in Naperville, IL, anchored by Dominick’s Finer Foods and Ace Hardware that was acquired in January 2008. In addition, in July the Company closed the sales of three office properties acquired in sale-leaseback transactions with AT&T Services and the Greenfield Commons shopping center to 1031 exchange investors. As of mid-July, all properties acquired through the IREX joint venture in 2007 have been sold. The Company has recovered, through sales to 1031 exchange investors, the capital originally invested to acquire the properties and has recycled that capital into additional IREX joint venture acquisitions. During the quarter the Company sold for $2.4 million 4.7 acres of land at the North Aurora Towne Centre development in North Aurora, IL, to Ashley Furniture for the development of a 50,000 square foot furniture store. Subsequent to the end of the quarter, the Company sold for $1.2 million 1.2 acres of land at the Orchard Crossing development in Ft. Wayne, IN, to Arby’s for construction of a 3,500 square foot restaurant. Dividends In May, June and July 2008, the Company paid monthly cash dividends to stockholders of $0.08167 per common share. The Company currently pays annual dividends at the rate of $0.98 per share. The July dividend is the 153rd consecutive monthly dividend paid by Inland Real Estate Corporation to stockholders. Guidance The Company reiterates original guidance that FFO per common share (basic and diluted) for fiscal year 2008 will be in the range of $1.46 to $1.49. Conference Call/Webcast The Company will host a management conference call to discuss its financial results on Tuesday, August 5, 2008 at 2:00 p.m. CT (3:00 p.m. ET). Hosting the conference call for the Company 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 1-800-860-2442 or 1-412-858-4600 for international callers. The conference call also will be available via live webcast on the Company’s website at www.inlandrealestate.com. The conference call will be recorded and available for replay beginning at 4:00 p.m. CT (5:00 p.m. ET) on August 5, 2008, until 8:00 a.m. CT (9:00 a.m. ET) on August 13, 2008. 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 replay passcode 421300#. An online playback of the webcast will be archived for at least 60 days in 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 currently owns interests in 146 neighborhood, community, power, and lifestyle retail centers and single tenant properties located primarily in the Midwestern United States, with aggregate leasable space of more than 14 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, 2008, is available at www.inlandrealestate.com. This press release contains forward-looking statements. Forward-looking statements are statements that are not historical, including statements regarding management’s intentions, beliefs, expectations, representations, plans or predictions of the future, and are typically identified by such words as "believe,” "expect,” "anticipate,” "intend,” "estimate,” "may,” "will,” "should” and "could.” The Company intends that such forward-looking statements be subject to the safe harbors created by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. There are numerous risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Please refer to the documents filed by Inland Real Estate Corporation with the SEC, specifically the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, for a more complete discussion of these risks and uncertainties. Inland Real Estate Corporation disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. INLAND REAL ESTATE CORPORATION Consolidated Balance Sheets June 30, 2008 and December 31, 2007 (In thousands except per share data)   June 30, 2008(unaudited) December 31, 2007 Assets:   Investment properties: Land $ 349,974 347,804 Construction in progress 2,913 1,573 Building and improvements 936,895   970,231     1,289,782 1,319,608 Less accumulated depreciation 263,001   250,433     Net investment properties 1,026,781 1,069,175   Cash and cash equivalents 16,706 18,378 Investment in securities 17,397 18,074 Accounts and mortgage receivable 49,486 63,986 Investment in and advances to unconsolidated joint ventures 97,833 103,952 Acquired lease intangibles, net 22,560 27,409 Deferred costs, net 9,632 9,592 Other assets 9,317   10,753     Total assets $ 1,249,712   1,321,319     Liabilities:   Accounts payable and accrued expenses $ 34,146 35,590 Acquired below market lease intangibles, net 3,201 3,429 Distributions payable 5,394 5,363 Mortgages payable 562,830 606,680 Line of credit 85,000 100,000 Convertible notes 180,000 180,000 Other liabilities 17,982   24,404     Total liabilities 888,553   955,466     Commitments and contingencies   Minority interest 2,337   2,494     Stockholders' Equity:   Preferred stock, $0.01 par value, 6,000 Shares authorized; none issued and no changeoutstanding at June 30, 2008 and December 31, 2007 - - Common stock, $0.01 par value, 500,000 Shares authorized; 66,047 and 65,669Shares issued and outstanding at June 30, 2008 and December 31 2007, respectively 661 657 Additional paid-in capital (net of offering costs of $58,816) 620,959 615,298 Accumulated distributions in excess of net income (260,150 ) (248,262 ) Accumulated other comprehensive loss (2,648 ) (4,334 )   Total stockholders' equity 358,822   363,359     Total liabilities and stockholders' equity $ 1,249,712   1,321,319   INLAND REAL ESTATE CORPORATION Consolidated Statements of Operations For the three and six months ended June 30, 2008 and 2007 (unaudited) (In thousands except per share data)       Three monthsendedJune 30, 2008 Three monthsendedJune 30, 2007 Six monthsendedJune 30, 2008 Six monthsendedJune 30, 2007 Revenues: Rental income $ 32,430 33,354 65,562 64,989 Tenant recoveries 12,355 10,657 27,789 25,385 Other property income 1,495 1,118 1,985 1,839 Fee income from unconsolidated joint ventures 1,433   475   2,449   1,131   Total revenues 47,713   45,604   97,785   93,344     Expenses: Property operating expenses 6,051 4,962 15,225 12,865 Real estate tax expense 8,225 7,841 16,625 15,942 Depreciation and amortization 11,866 10,950 22,678 20,919 Provision for asset impairment 666 - 666 - General and administrative expenses 3,538   3,040   6,591   6,364   Total expenses 30,346   26,793   61,785   56,090     Operating income 17,367 18,811 36,000 37,254   Other income (expense) (270 ) 1,310 1,084 2,540 Gain on sale of joint venture interest 3,321 307 3,975 2,229 Gain on extinguishment of debt - 319 - 319 Interest expense (10,869 ) (12,357 ) (22,609 ) (23,761 ) Minority interest (103 ) (111 ) (216 ) (219 ) Income before equity in earnings of unconsolidated joint ventures,income tax expense of taxable REIT subsidiary and discontinuedoperations 9,446 8,279 18,234 18,362   Income tax benefit (expense) of taxable REIT subsidiary (163 ) 10 (406 ) (424 ) Equity in earning of unconsolidated joint ventures 389   1,010   1,352   2,943   Income from continuing operations 9,672 9,299 19,180 20,881 Income from discontinued operations 303   1,406   1,223   1,517     Net income available to common stockholders 9,975 10,705 20,403 22,398   Other comprehensive income: Unrealized gain (loss) on investment securities 1,146 127 1,707 (285 ) Unrealized gain (loss) on derivative instruments 367   -   (21 ) -   Comprehensive income $ 11,488   10,832   22,089   22,113     Basic and diluted earnings available to common shares perweighted average common share:   Income from continuing operations $ 0.15 0.14 0.29 0.32 Discontinued operations -   0.02   0.02   0.02   Net income available to common stockholders per weightedaverage common share – basic and diluted $ 0.15   0.16   0.31   0.34     Weighted average number of common shares outstanding – basic 65,929   65,178   65,839   65,109   Weighted average number of common shares outstanding – diluted 65,989   65,248   65,899   65,179   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 partnership and joint ventures in which the REIT holds an interest. We have adopted the NAREIT definition for computing FFO. Management uses the calculation of FFO for several reasons. We use FFO in conjunction with our acquisition policy to determine investment capitalization strategy and we also use FFO to compare our performance to that of other REITs in our peer group. Additionally, FFO is used in certain employment agreements to determine incentives payable by us to certain executives, based on our performance. The calculation of FFO may vary from entity to entity since 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 for the periods presented, reconciled to net income available to common stockholders for these periods: Three monthsendedJune 30, 2008   Three monthsendedJune 30, 2007   Six monthsendedJune 30, 2008   Six monthsendedJune 30, 2007   Net income available to common stockholders $ 9,975 10,705 20,404 22,398 Gain on sale of investment properties, net of minority interest (517 ) (1,223 ) (1,348 ) (1,223 ) Equity in depreciation of unconsolidated joint ventures 2,582 2,490 5,124 4,952 Amortization on in-place lease intangibles 753 946 1,612 1,644 Amortization on leasing commissions 312 194 507 362 Depreciation, net of minority interest 10,719   9,845   20,435   19,020     Funds From Operations $ 23,824   22,957   46,734   47,153     Net income available to common stockholders per weightedaverage common share – basic and diluted $ 0.15   0.16   0.31   0.34     Funds From Operations, per common share – basic and diluted $ 0.36   0.35   0.71   0.72     Weighted average number of common shares outstanding, basic 65,929   65,178   65,839   65,109     Weighted average number of common shares outstanding, diluted 65,989   65,248   65,899   65,179   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. Three monthsendedJune 30, 2008   Three monthsendedJune 30, 2007   Six monthsendedJune 30, 2008   Six monthsendedJune 30, 2007   Income from continuing operations $ 9,672 9,299 19,180 20,881 Gain on non-operating property (256 ) - (681 ) (1,312 ) Income tax benefit (expense) of taxable REIT subsidiary 163 (10 ) 406 424 Income (loss) from discontinued operations, excluding gains (214 ) 183 (123 ) 294 Interest expense 10,869 12,357 22,609 23,761 Interest expense associated with discontinued operations - 113 29 289 Interest expense associated with unconsolidated joint ventures 2,067 1,770 4,050 3,675 Depreciation and amortization 11,866 10,950 22,678 20,919 Depreciation and amortization associated with discontinuedoperations 4 117 43 271 Depreciation and amortization associated with unconsolidatedjoint ventures 2,582   2,490   5,124   4,952     EBITDA $ 36,753   37,269   73,315   74,154     Total Interest Expense $ 12,936   14,240   26,688   27,725     EBITDA: Interest Expense Coverage Ratio 2.8 x 2.6 x 2.7 x 2.7 x