Inland Real Estate Corp. (IRC)

Q1 2010 Earnings Conference Call

May 4, 2010 3:00 PM ET

Executives

Dawn Benchelt – IR

Mark Zalatoris – President & CEO

Scott Carr – President, Property Management

Analysts

RJ Milligan – Raymond James

Paul Adornato – BMO Capital Markets

Todd Thomas – KeyBanc Capital Markets

David Wigginton – Macquarie

Jeffrey Donnelly – Wells Fargo

Presentation

Operator

Good afternoon and welcome to the Inland Real Estate Corporation 2010 first quarter earnings conference call. All participants will be in listen-only mode.

(Operator Instructions)

I would now like to turn the conference over to Dawn Benchelt. Please go ahead.

Dawn Benchelt

Thank you for joining us for Inland Real Estate Corporation’s first quarter 2010 earnings conference call. The first quarter earnings release and supplemental financial information package have been filed with the SEC today, May 4, 2010, and posted to our website www.inlandrealestate.com. We’re hosting a live webcast of today’s call, which is also accessible on our website.

Before we begin, please note that today’s discussion contains forward-looking statements, which are management’s intentions, beliefs, expectations, representations, plans or predictions of the future. There are numerous risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. For a more complete discussion of these risks and uncertainties, please refer to the documents filed by the company with the SEC, specifically our Annual Report on Form 10-K for the year ended December 31st, 2009.

During the presentation, management may reference non-GAAP financial measures that we believe help investors better understand our results. Examples include but are not limited to funds from operations, EBITDA and same store net operating income. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found on our earnings release and supplemental dated May 4, 2010.

Participating on today’s call will be Mark Zalatoris, Inland’s President and Chief Executive Officer, Chief Financial Officer Brett Brown, and Scott Carr, President of Property Management.

Now I will turn the cal over to Mark.

Mark Zalatoris

Good afternoon everyone. Thanks for joining us today. On the call today I want to touch on our performance for the quarter and then review the progress we have made on the principal objectives we have laid out for 2010. Scott will follow with additional detail on our portfolio leasing activities and results for the quarter. Then Brett will provide a report on our financial results and an update on balance sheet initiatives.

For the quarter, funds from operations was $0.13 per share versus $0.31 per share reported for the first quarter of ‘09. After adjusting for aggregate non-cash impairment charges of $0.09 per share that is related to unconsolidated development joint venture projects, FFO per share for the quarter was $0.22. This result was in line with analyst consensus estimates.

With regard to the same store net operating income, there is no question, we are disappointed with the year-over-year decrease reported. That said it’s important to note that the same store NOI in the first quarter of 2009 was the high mark for last year. Going forward same NOI comparison to prior year period should improve.

Most importantly our performance trended in a positive direction on a sequential basis. Excluding the impact of two early lease terminations that we initiated, some same-store NOI declined only 1.2% from the prior quarter.

On our last call I stated that our primary focus this year is on strengthening our financial position and restoring portfolio occupancy and income. I am pleased to reported that we have made important progress on both fronts.

Turning to the balance sheet, we have secured commitments for more than the $300 million requested from our bank group in order to refinance our $155 million line of credit facility and $140 million term loan. We anticipate closing the credit facilities in this quarter.

To date this year we have retired $64 million of consolidated mortgage debt, recently closed on a $20 million secured loan and we are continuing to work on additional financing that will close this year. As we move forward to refinancing and repositioning of outstanding debt or risk profile and overall financial flexibility will continue to improve.

Now moving to operations, we continue to work toward increasing portfolio value through strong lease execution overall as well strategic asset repositioning initiatives. During the quarter we more than doubled the amount of square feet leased over both the prior quarter and year-over-year. This momentum of leasing activity reflects in some cases months of negotiations with retailers that are now bearing fruit as market conditions show signs of improvement.

We have also made substantial headway with the returning of certain vacancies created by big box retailer bankruptcies. Including leases signed during the quarter, we have released 74% of the vacancy created by the bankruptcies of Vicks, Linens and Things bankruptcy, Circuit City, Bally’s Fitness and Filene’s Basement. Another 17% of that vacancy is at least are under letters of intent. I want to emphasize that all of these deals have been executed with strong credit quality in demand retailers like Nordstrom Rack, Marshalls, and buybuy BABY. This is an important point because as we restore occupancy, we are also strengthening our operating platform, which we believe will drive future income growth.

I want to take a moment to outline some of the key long-term benefits we will realize from retenanting with these high quality value oriented retailers. First, credit tenants provide a reliable rental income stream and pay their pro rata share property operating expenses and taxes. Second, in demand retailers drag customer traffic, which in turn drags new tenants to the center. This benefits co-tenant retailers who are then more likely to renew leases and at increased rates. Third best in class retailers enhance the overall complexion of our centers, and finally the higher valuation of scribe to revenue from credit quality tenants increases our portfolio net asset value.

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