Inland Real Estate Corporation (IRC) is a real estate investment trust (REIT) that owns, manages and develops shopping centers and single tenant retail properties in the Midwest region of the U.S. The company has a market cap of $1 billion and its stock price is around $10. Inland has an ownership interest in 154 shopping centers which have a value of $1.58 billion. The majority of its holdings are in the Chicago area (60%) and the Minneapolis-St. Paul area (18%). Approximately 77% of the company's properties are in shopping centers and are made up of grocery stores, with a drug or discount component. In addition to Inland's two major market areas, it owns properties in downstate Illinois, Indiana, Ohio, southern Wisconsin, Nebraska, Kentucky, Tennessee and Florida.
On November 7th, Inland reported impressive third quarter earnings. The company earned revenues of $51.8 million, up 31% from the third quarter of 2012. Net income was $5.7 million up 235% from a year ago. In addition, the company's Funds from Operations came in at $0.26 per share up 18.2% from 2012, and its same-store net operating income increased by 11.6%. New rental lease rates increased by 4.2%, and renewal rents increased 8.2%.
During the earnings call, Inland's CEO Mark Zalatoris said, "We continue to make meaningful progress on our strategic objectives, which include enhancing portfolio performance, expanding our operating platform and strengthening our balance sheet." Inland made progress towards meeting its first two goals through the buying and selling of numerous holdings. During the quarter, the company sold consolidated non-core properties including the Berwyn Plaza, in Berwyn, Illinois, the Eola Commons in Aurora, Illinois, and the Orland Greens in Orland Park, Illinois for a total of $10.8 million. In addition, it sold 66 acres of land at the North Aurora Illinois Towne Center III for $4 million.
Inland also entered into a number of joint ventures. In September, the company entered into a joint venture to develop a 95,512 square foot Mariano's anchored shopping center called the Evergreen Promenade in Evergreen Park, Illinois.
Also in September, the company entered into a joint venture to acquire three Wal-Mart (WMT) anchored shopping centers in the Milwaukee area for $24.2 million. In October, the company entered into an agreement to acquire a shopping center, which is located in University Heights, Ohio, and anchored by a Whole Foods/CVS store for around $25 million. In addition, the company entered into several other joint ventures, which included the purchase of a Family Dollar store in Marion, Illinois, the purchase of a Dollar General in Gale, Wisconsin and the purchase of a Mariano's in Elmhurst, Illinois. Inland's stated purpose for these purchases was to continue "growing its platform." Inland believes that the "acquisitions strengthen the credit quality of its tenant base and improve the diversification metrics and growth profile of its portfolio."
With a market cap of $1.04 billion, Inland Real Estate Corp. is considered to be a small cap REIT. While it does not have the resources of some of the larger more well-known REITs like the Simon Property Group (SPG) - market cap $47.4 billion, or Public Storage (PSA) - market cap $27.4 billion, it does have some advantages. The primary advantage is that it is more nimble and able to grow faster than most large cap REITs.
Many investors look to REITs for dividend income and safety, however small cap REITs can also provide the prospect of growth to a REIT investment. Inland has chosen to grow its value by buying properties that it can lease to large companies that focus on necessity and retail shoppers. Some of their clients include Wal-Mart, Whole Foods, CVS Pharmacy (CVS), Jewels/Osco, Dollar General (DG), Family Dollar (FDO), Best Buy (BBY), The Sports Authority, the TJX Companies (TJX) Kroger and more. These are the type of highly creditable clients that provide Inland with steady lease income, increasing lease rates, and growing property values. Investors seem to like Inland's strategy, which explains why the stock price of many large REITs fell over the past year, while Inland's stock price rallied higher by over 30%.
Despite the increase in its stock price, Inland's stock is still priced at a discount to its competitors. The stock's price to earnings ((P/E)) ratio is 8.3 and its price to book ratio is 2.1. When compared to its closest competitor CBL & Associates (CBL), whose P/E ratio is 31.54 and whose P/B ratio is 2.1, and an industry average P/E ratio of 25.4, Inland's stock price is cheap.
Inland Real Estate Corporation has been making a lot of moves to grow its portfolio. Its joint venture to buy three Wal-Mart anchored shopping centers was very encouraging. The company has also been able to maintain a high occupancy rate - 94.3% - while increasing year-over-year net operating income by 11.6%. In addition, its dividend of $0.48 seems safe, and the company will likely see continued growth and appreciation in its stock price. I rate Inland Real Estate Corporation as a buy.