Equity One Reports Second Quarter 2013 Operating Results
NORTH MIAMI BEACH, Fla.--(BUSINESS WIRE)-- Equity One, Inc. (NYSE:EQY), an owner, developer, and operator of shopping centers, announced today its financial results for the three and six months ended June 30, 2013.
Highlights of the quarter and recent activity include:
- Generated Recurring Funds From Operations (FFO) of $0.31 per diluted share for the quarter, an 11% increase compared to the same period of 2012 and $0.63 per diluted share for the six months ended June 30, 2013, a 15% increase compared to the same period of 2012
- Generated FFO of $0.28 per diluted share for the quarter, consistent with the same period of 2012 and $0.60 per diluted share for the six months ended June 30, 2013, an 11% increase compared to the same period of 2012
- Increased same property net operating income by 3.1% as compared to the second quarter of 2012 and 3.1% as compared to the six months ended June 30, 2012
- Core occupancy was 91.5%, a 30 basis point decrease as compared to June 30, 2012 and March 31, 2013
- On a same property basis, occupancy decreased 50 basis points to 91.4% as compared to June 30, 2012, and 20 basis points to 91.5% as compared to March 31, 2013
- Executed 120 new leases, renewals, and options totaling 486,247 square feet at an average rent spread of 12.5% on a same space basis
- Increased average base rents to $15.35 per square foot, up 2.0% as compared to March 31, 2013 and up 8.1% as compared to June 30, 2012
- Sold 24 non-core assets for $196 million year-to-date, including twelve properties for $96 million since April 1, 2013, and entered into contracts to sell an additional seven non-core assets for $57 million
Closed on $81 million of investments in properties within our core
markets in three separate transactions:
- Acquired two of the seven Westwood Complex parcels in Bethesda, Maryland for $37 million
- Modified the Food Emporium lease at 1175 Third Avenue in New York City providing for significant economic enhancements in exchange for $25 million
- Acquired the remaining 40% interest in Southbury Green and Danbury Green Shopping Centers for $19 million
- Updated 2013 Recurring FFO guidance to a new range of $1.20 to $1.23 per diluted share which compares to previous guidance of $1.19 to $1.23 per diluted share
We are very pleased with our results this quarter. Our upgraded portfolio has produced 3% or better same property NOI growth for four consecutive quarters, and our earnings growth is benefiting from our development and redevelopment projects, our acquisitions, and reductions in general and administrative expenses. We continue to make substantial progress on our capital recycling plan to dispose of non-core assets with approximately $253 million of properties currently sold or under executed contracts, said Jeff Olson, CEO.
In the second quarter of 2013, the company generated FFO of $36.8 million, or $0.28 per diluted share, as compared to $34.3 million, or $0.28 per diluted share for the same period of 2012. For the six months ended June 30, 2013, the company generated FFO of $76.7 million, or $0.60 per diluted share, as compared to $67.6 million, or $0.54 per diluted share for the same period of 2012. Recurring FFO was $39.7 million, or $0.31 per diluted share, in the second quarter of 2013, up 11% as compared to $0.28 per diluted share in the second quarter of 2012. Recurring FFO was $80.6 million, or $0.63 per diluted share, in the six months ended June 30, 2013, up 15% as compared to $0.55 per diluted share in the same period of 2012.
Net income attributable to Equity One was $33.6 million, or $0.28 per diluted share, for the quarter ended June 30, 2013, as compared to $2.3 million, or $0.02 per diluted share, for the second quarter of 2012. Net income for the second quarter of 2013 includes gains on the sale of income producing non-core properties of $24.9 million, net of tax. Net income attributable to Equity One was $58.2 million, or $0.49 per diluted share, for the six months ended June 30, 2013, as compared to $21.3 million, or $0.18 per diluted share, for the same period of 2012. Net income for the six months ended June 30, 2013 and 2012 includes gains on the sale of income producing non-core properties of $36.1 million and $13.1 million, respectively, net of tax. A reconciliation of net income attributable to Equity One to FFO and the reconciling components of FFO to Recurring FFO are provided in the tables accompanying this press release.
Same property net operating income increased 3.1% for the second quarter of 2013 as compared to the second quarter of 2012. Same property net operating income increased 3.1% for the six months ended June 30, 2013 as compared to the same period of 2012. As of June 30, 2013, occupancy for the companys consolidated core portfolio was 91.5% as compared to 91.8% as of June 30, 2012 and March 31, 2013. On a same property basis, occupancy decreased 50 basis points to 91.4% as compared to June 30, 2012, and 20 basis points to 91.5% as compared to March 31, 2013.
During the second quarter of 2013, the company executed 120 new leases, renewals and options totaling 486,247 square feet at an average rent spread of 12.5% on a same space basis. This included 34 new leases in the core portfolio totaling 100,819 square feet. On a same space basis, 17 new leases were executed comprising 28,994 square feet at an average rental rate of $24.68 per square foot, representing a 2.9% increase from prior cash rents. Additionally, the company renewed 86 leases in its core portfolio totaling 385,428 square feet. On a same space basis, 82 leases were renewed comprising 354,935 square feet at an average rental rate of $15.85 per square foot, representing a 13.9% increase from prior cash rents.
Development and Redevelopment Activities
As of June 30, 2013, the company had approximately $250.1 million of active development and redevelopment projects underway. The largest development project is The Gallery at Westbury Plaza in which the company has invested $137 million as of June 30, 2013. New tenants that opened during the second quarter include GNC, Orvis, and Lane Bryant. Additional openings are expected during the third and fourth quarters for HomeGoods, Noodles and Company, Red Mango, Ruby & Jenna, Paper Source, Bank of America and Spuntinos.
Construction is ongoing at Broadway Plaza, a development site located at 230th Street and Broadway in the Bronx, New York. Approximately 72% of the total square footage, including all of the top floor space, is under letters of intent with four national retailers. The project is expected to open during the fourth quarter of 2014 at a total cost of approximately $53 million.
Construction remains on track for a two story, 83,000 square foot Dicks Sporting Goods at Serramonte Mall. Total costs are estimated to be approximately $19.3 million for this first phase of the expansion of Serramonte, which we expect to be completed by the first quarter of 2014.
The company has five additional projects under active redevelopment at an expected cost of $28.4 million. These projects include expansions and new anchor re-tenanting with retailers such as LA Fitness, Publix, CVS Pharmacy, The Fresh Market, and Ross.
During the second quarter of 2013 and through the date of this release, the company closed on the sale of twelve non-core assets totaling approximately 761,218 square feet of gross leasable area (GLA) for $95.5 million.
The company also has pending contracts to sell an additional seven non-core assets, totaling approximately 661,300 square feet of GLA for $57.4 million, which are subject to various contingencies. The weighted average capitalization rate on the combined value of the properties sold during 2013 and under contract as of today is approximately 7%. The company continues to explore opportunities to dispose of non-core assets located in secondary markets as part of its capital recycling initiatives.
Investing and Financing Activities
During the second quarter of 2013, the company completed the acquisition of Westwood Towers and Bowlmor Lanes, two parcels which are part of the Westwood Complex in Bethesda, Maryland, for an aggregate purchase price of $37.0 million. The company previously provided $28.7 million of financing against these two parcels resulting in net new additional funding of $8.3 million upon closing. We expect to acquire the remaining five parcels no later than January 2014 for an aggregate purchase price of $103.0 million, or approximately $24.7 million net of our existing financing, thereby bringing our total investment in Westwood to $140.0 million.
In May 2013, the company completed a lease modification with Food Emporium at 1175 Third Avenue in New York City which included an immediate increase in base rent of $1.6 million per year as well as a future increase to fair market value in 2023 in exchange for a payment to the tenant of $25.0 million.
In addition, in May 2013, the company acquired the remaining 40% interest in both Southbury Green and Danbury Green Shopping Centers for $18.9 million in accordance with the terms of the joint venture agreement.
During the second quarter of 2013, the company prepaid one mortgage in the principal amount of $24.0 million which bore interest at 6.88% per annum.
Balance Sheet Highlights
At June 30, 2013, the companys total market capitalization (including debt and equity) was $4.4 billion, comprising 129.4 million shares of common stock outstanding (on a fully diluted basis) valued at approximately $2.9 billion and approximately $1.5 billion of net debt (excluding any debt premium/discount and net of cash). The companys ratio of net debt to total market capitalization was 33.3%. At June 30, 2013, the company had approximately $36.2 million of cash and cash equivalents on hand (including cash in escrow and restricted cash) and $125.0 million drawn on its revolving credit facilities.
FFO and Earnings Guidance
The company updated its 2013 Recurring FFO guidance to a new range of $1.20 to $1.23 per diluted share, which compares to previous guidance of $1.19 to $1.23 per diluted share. The 2013 guidance is based on the following key assumptions:
- Increase in same property cash NOI of 2.5% to 3.25%
- Core acquisition activity of $100 million to $200 million which includes Westwood parcels acquired year to date
- Joint venture acquisition activity of $50 million to $75 million
- The repayment of a $45 million mezzanine loan receivable, currently bearing interest at 9.2%, during the third quarter
- Disposition activity of $300 million including the disposition activity announced in this release
Recurring FFO excludes debt extinguishment gains/losses, land sale gains, impairment charges, transaction costs and certain other income or charges. The following table provides a reconciliation of the range of estimated net income per diluted share to estimated FFO and Recurring FFO per diluted share for the full year 2013:
For the year ended
December 31, 2013
|Estimated net income attributable to Equity One||$0.69||$0.70|
|Net adjustment for rounding and shares issuable to LIH||
|Gain on disposal of depreciable assets||(0.28||)||(0.28||)|
|Rental property depreciation and amortization including pro rata share of joint ventures||
|Earnings allocated to non-controlling interest (1)||
|Estimated FFO attributable to Equity One||$1.16||$1.19|
|Transaction costs, impairments charges and other||0.04||0.04|
|Estimated Recurring FFO attributable to Equity One||$1.20||$1.23|
(1) Includes effect of distributions paid with respect to unissued shares held by a non-controlling interest which are already included for purposes of calculating net income per diluted share.
ACCOUNTING AND OTHER DISCLOSURES
The company believes FFO (combined with the primary GAAP presentations) is a useful, supplemental measure of its operating performance that is a recognized metric used extensively by the real estate industry, particularly REITs. The National Association of Real Estate Investment Trusts (NAREIT) stated in its April 2002 White Paper on Funds from Operations, Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. The company also believes that Recurring FFO is a useful measure of its core operating performance that facilitates comparability of historical financial periods.
FFO, as defined by NAREIT, is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of, or impairment charges related to, depreciable operating properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. NAREIT states further that adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis. The company believes that financial analysts, investors and stockholders are better served by the presentation of comparable period operating results generated from its FFO measure. The companys method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
FFO and Recurring FFO are presented to assist investors in analyzing the companys operating performance. Neither FFO nor Recurring FFO (i) represents cash flow from operations as defined by GAAP, (ii) is indicative of cash available to fund all cash flow needs, including the ability to make distributions, (iii) is an alternative to cash flow as a measure of liquidity, or (iv) should be considered as an alternative to net income (which is determined in accordance with GAAP) for purposes of evaluating the companys operating performance. The company believes net income is the most directly comparable GAAP measure to FFO and Recurring FFO.
CONFERENCE CALL/WEB CAST INFORMATION
Equity One will host a conference call on Thursday, August 1, 2013 at 9:00 a.m. Eastern Time to review its 2013 second quarter earnings and operating results. Stockholders, analysts and other interested parties can access the earnings call by dialing (888) 317-6003 (U.S.), (866) 284-3684 (Canada) or (412) 317-6061 (international) using pass code 1776698. The call will also be web cast and can be accessed in a listen-only mode on Equity Ones web site at www.equityone.net.
Equity One anticipates that the call will include a discussion of specific properties and projects, pictures of which can be found on Equity Ones website under the heading About Us>Investors>Presentations>2Q13 Earnings Call Property Images.
A replay of the conference call will be available on Equity Ones web site for future review. Interested parties may also access the telephone replay by dialing (877) 344-7529 (U.S.) or (412) 317-0088 (international) using pass code 10030000 through August 11, 2013.
FOR ADDITIONAL INFORMATION
For a copy of the companys second quarter supplemental information package, please access the Investors section of Equity Ones web site at www.equityone.net under About Us. To be included in the companys e-mail distributions for press releases and other company notices, please send e-mail addresses to Investor Relations at email@example.com.
ABOUT EQUITY ONE, INC.
As of June 30, 2013, our consolidated property portfolio comprised 150 properties, including 125 retail properties and seven non-retail properties totaling approximately 15.6 million square feet of gross leasable area, or GLA, 11 development or redevelopment properties with approximately 2.1 million square feet of GLA upon completion, and seven land parcels. As of June 30, 2013, our core portfolio was 91.5% leased and included national, regional and local tenants. Additionally, we had joint venture interests in 18 retail properties and two office buildings totaling approximately 3.3 million square feet of GLA.
FORWARD LOOKING STATEMENTS
Certain matters discussed by Equity One in this press release constitute forward-looking statements within the meaning of the federal securities laws. Although Equity One believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that these expectations will be achieved. Factors that could cause actual results to differ materially from current expectations include volatility in the capital markets and changes in borrowing rates; changes in macro-economic conditions and the demand for retail space in the states in which Equity One owns properties; the continuing financial success of Equity Ones current and prospective tenants; the risks that Equity One may not be able to proceed with or obtain necessary approvals for development or redevelopment projects or that it may take more time to complete such projects or incur costs greater than anticipated; the availability of properties for acquisition; the timing, extent and ultimate proceeds realized from asset dispositions; the extent to which continuing supply constraints occur in geographic markets where Equity One owns properties; the success of its efforts to lease up vacant space; the effects of natural and other disasters; the ability of Equity One to successfully integrate the operations and systems of acquired companies and properties; changes in Equity Ones credit ratings; and other risks, which are described in Equity Ones filings with the Securities and Exchange Commission.
EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2013 and December 31, 2012
(In thousands, except share par value amounts)
|June 30, 2013||December 31, 2012|
|Less: accumulated depreciation||(342,589||)||(315,242||)|
|Income producing properties, net||2,758,503||2,733,683|
|Construction in progress and land held for development||101,140||108,712|
|Properties held for sale||20,662||165,136|
|Cash and cash equivalents||25,657||27,416|
|Cash held in escrow and restricted cash||10,508||442|
|Accounts and other receivables, net||14,885||14,320|
|Investments in and advances to unconsolidated joint ventures||76,128||72,171|
|Loans receivable, net||131,332||140,708|
|LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY|
|Mortgage notes payable||$||411,417||$||439,156|
|Unsecured senior notes payable||731,136||731,136|
|Unsecured revolving credit facilities||125,000||172,000|
|Unamortized premium on notes payable, net||5,762||7,058|
|Total notes payable||1,523,315||1,599,350|
|Accounts payable and accrued expenses||41,911||55,248|
|Tenant security deposits||8,555||8,595|
|Deferred tax liability||12,098||12,016|
|Liabilities associated with properties held for sale||75||3,920|
|Redeemable noncontrolling interests||3,219||22,551|
|Commitments and contingencies||-||-|
|Preferred stock, $0.01 par value 10,000 shares authorized but unissued||-||-|
|Common stock, $0.01 par value 150,000 shares authorized, 117,522 and 116,938 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively||1,175||1,169|
|Additional paid-in capital||1,690,073||1,679,227|
|Distributions in excess of earnings||(269,959||)||(276,085||)|
|Accumulated other comprehensive income (loss)||1,613||(7,585||)|
|Total stockholders equity of Equity One, Inc.||1,422,902||1,396,726|
|TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY||$||3,386,612||$||3,502,668|
EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
For the three and six months ended June 30, 2013 and 2012
(In thousands, except per share data)
Three Months Ended
Six Months Ended
|Management and leasing services||484||500||898||1,304|
|COSTS AND EXPENSES:|
|Depreciation and amortization||23,806||22,072||46,591||42,788|
|General and administrative||9,679||10,456||18,576||21,838|
|Total costs and expenses||56,893||53,051||111,401||105,680|
|INCOME BEFORE OTHER INCOME AND EXPENSE, TAX AND DISCONTINUED OPERATIONS||27,780||23,910||57,950||47,101|
|OTHER INCOME AND EXPENSE:|
|Equity in income (loss) of unconsolidated joint ventures||615||(152||)||1,050||(340||)|
|Amortization of deferred financing fees||(603||)||(612||)||(1,209||)||(1,200||)|
|Gain on extinguishment of debt||107||445||107||352|
|INCOME FROM CONTINUING OPERATIONS BEFORE TAX AND DISCONTINUED OPERATIONS||10,699||7,627||25,457||14,360|
|Income tax (expense) benefit of taxable REIT subsidiaries||(53||)||66||(103||)||156|
|INCOME FROM CONTINUING OPERATIONS||10,646||7,693||25,354||14,516|
|Operations of income producing properties||729||2,822||2,161||5,401|
|Gain (loss) on disposal of income producing properties||25,663||(2||)||36,859||14,267|
|Impairment loss on income producing properties||(128||)||(5,441||)||(128||)||(7,373||)|
|Income tax expense of taxable REIT subsidiaries||(733||)||(51||)||(778||)||(95||)|
|INCOME (LOSS) FROM DISCONTINUED OPERATIONS||25,531||(2,672||)||38,114||12,200|
|Net income attributable to noncontrolling interests continuing operations||(2,481||)||(2,747||)||(5,173||)||(5,453||)|
|Net income attributable to noncontrolling interests discontinued operations||(58||)||(6||)||(64||)||(13||)|
|NET INCOME ATTRIBUTABLE TO EQUITY ONE, INC.||$||33,638||$||2,268||$||58,231||$||21,250|
|EARNINGS (LOSS) PER COMMON SHARE BASIC:|
|Number of Shares Used in Computing Basic Earnings (Loss) per Share||117,385||112,715||117,209||112,682|
|EARNINGS (LOSS) PER COMMON SHARE DILUTED:|
|Number of Shares Used in Computing Diluted Earnings (Loss) per Share||117,749||113,210||117,535||112,940|
* Note: EPS does not foot due to rounding of individual calculations.
EQUITY ONE, INC. AND SUBSIDIARIES
Reconciliation of Net Income Attributable to Equity One to Funds from Operations (FFO) and to Recurring FFO
The following table reflects the reconciliation of FFO and Recurring FFO to net income attributable to Equity One, the most directly comparable GAAP measure, for the periods presented.
Three months ended
Six months ended
|Net income attributable to Equity One, Inc.||$||33,638||$||2,268||$||58,231||$||21,250|
|Rental property depreciation and amortization, net of noncontrolling interest (1)||23,768||23,022||46,756||44,780|
|Earnings allocated to noncontrolling interest (2)||2,499||2,499||4,998||4,998|
|Pro rata share of real estate depreciation from unconsolidated joint ventures||1,076||1,086||2,161||2,243|
|Impairments of depreciable real estate, net of tax (1)||215||5,441||215||7,373|
|Gain on disposal of depreciable assets, net of tax (1)||(24,430||)||-||(35,626||)||(13,086||)|
|Funds From Operations||36,766||34,316||76,735||67,558|
|Transaction costs associated with acquisition and disposition activity, net of tax||960||711||1,264||2,170|
|Impairment of land held for development||2,520||-||2,520||-|
|(Gain) loss on debt extinguishment, net of tax||(107||)||(436||)||575||373|
|Gain on outparcel sales, net of noncontrolling interests||(461||)||-||(461||)||-|
|Gain on land sales (1)||-||-||-||(1,183||)|
|Recurring Funds From Operations||$||39,678||$||34,591||$||80,633||$||68,918|
(1) Includes amounts classified as discontinued operations.
(2) Represents earnings allocated to unissued shares held by Liberty International Holdings, Ltd. ("LIH"), which have been excluded for purposes of calculating earnings per diluted share for all periods presented. FFO and Recurring FFO calculations include earnings allocated to LIH and the respective weighted average share totals include the LIH shares outstanding as their inclusion is dilutive.
Funds from Operations and Recurring FFO are non-GAAP financial measures. We believe that FFO, as defined by NAREIT, is a widely used and appropriate supplemental measure of operating performance for REITs, and that it provides a relevant basis for comparison among REITs. We believe that Recurring FFO provides additional comparability between historical financial periods.
Reconciliation of Net Income Attributable to Equity One to Funds from Operations (FFO) and Recurring FFO per Diluted Share
The following table reflects the reconciliation of FFO per diluted share and Recurring FFO per diluted share to earnings per diluted share attributable to Equity One, the most directly comparable GAAP measure, for the periods presented.
Three months ended
Six months ended
|Earnings per diluted share attributable to Equity One, Inc.||$||0.28||$||0.02||$||0.49||$||0.18|
|Rental property depreciation and amortization, net of noncontrolling interest||0.18||0.18||0.36||0.36|
|Earnings allocated to noncontrolling interest (1)||0.02||0.02||0.04||0.04|
|Net adjustment for rounding and earnings attributable to unvested shares (2)||(0.02||)||0.01||(0.03||)||(0.01||)|
|Pro rata share of real estate depreciation from unconsolidated joint ventures||0.01||0.01||0.02||0.02|
|Impairments of depreciable real estate, net of tax||-||0.04||-||0.06|
|Gain on disposal of depreciable assets, net of tax||(0.19||)||-||(0.28||)||(0.11||)|
|Funds From Operations per Diluted Share||$||0.28||$||0.28||$||0.60||$||0.54|
|Weighted average diluted shares Funds from Operations (3)||129,107||124,567||128,893||124,298|
|Funds From Operations per Diluted Share||$||0.28||$||0.28||$||0.60||$||0.54|
|Transaction costs associated with acquisition and disposition activity, net of tax||0.01||0.01||0.01||0.02|
|Impairment of land held for development||0.02||-||0.02||-|
|(Gain) loss on debt extinguishment, net of tax||-||(0.01||)||-||-|
|Gain on land sales||-||-||-||(0.01||)|
|Recurring Funds From Operations per Diluted Share||$||0.31||$||0.28||$||0.63||$||0.55|
|Weighted average diluted shares Recurring Funds from Operations (3)||129,107||124,567||128,893||124,298|
(1) Represents earnings allocated to unissued shares held by LIH, which have been excluded for purposes of calculating earnings per diluted share for all periods presented. All FFO and Recurring FFO calculations include earnings allocated to LIH and the respective weighted average share totals include the LIH shares outstanding as their inclusion is dilutive.
(2) Represents an adjustment to compensate for the rounding of the individual calculations and to compensate for earnings allocated to unvested shares, and shares issuable to LIH.
(3) Weighted average diluted shares used to calculate FFO per share and recurring FFO per share for all the periods presented are higher than the GAAP diluted weighted average shares as a result of the dilutive impact of the 11.4 million joint venture units held by LIH which are convertible into our common stock, and also as a result of employee stock options. These convertible units are not included in the diluted weighted average share count for GAAP purposes because their inclusion is anti-dilutive.
Equity One, Inc.
Mark Langer, 305-947-1664
EVP and Chief Financial Officer
Source: Equity One, Inc.Copyright Business Wire 2013