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Washington Prime Group Reports Second Quarter 2014 Results and Announces Dividend

BETHESDA, Md., Aug. 8, 2014 /PRNewswire/ -- Washington Prime Group (NYSE:WPG) today reported results for the quarter ended June 30, 2014.

On May 28, 2014, Simon Property Group (Simon) spun off 98 shopping centers to form Washington Prime Group (the Company). The Company is well positioned with several competitive advantages, including a well-diversified portfolio with a track record of stable operating performance and a strong foundation from which to grow cash flow, one of the lowest levered balance sheets among its peer group and the flexibility to act as an acquirer, developer and redeveloper of shopping centers regardless of format.  The Company intends to leverage its expertise across the entire shopping center sector to increase value for its shareholders. 

CEO Mark Ordan commented, "While we just began two months ago, we are excited by our potential growth opportunities both within the portfolio and through acquisitions. We will discuss these opportunities further on our first regular quarterly earnings call in November."

Results for the Second Quarter

Same property net operating income ("NOI") for the second quarter of 2014 increased 3.1 percent from the second quarter of 2013. Ending occupancy for the portfolio rose 90 basis points to 92.4 percent from the second quarter of 2013.

Funds from Operations ("FFO") was $41.3 million, or $0.22 per diluted share, compared to $87.5 million, or $0.47 per diluted share, in the prior year period. Results for the second quarter of 2014 include $39.9 million or $0.21 per diluted share of transaction expenses and costs related to the spin off from Simon on May 28 and increased interest expense of $8.9 million or $0.05 per diluted share associated with the new capital structure.

Net income attributable to common stockholders for the second quarter was $69.8 million, or $0.45 per diluted share, compared to $34.3 million, or $0.22 per diluted share in the prior year period. Also included in net income for the second quarter of 2014 are additional gains of $91.3 million or $0.49 per diluted share from acquisitions of controlling property interests and sales of property interests.

Results for the Six Months

Year-to-date same property NOI increased 0.9 percent over the first six months of 2013.  

FFO for the six months ending June 30, 2014 was $129.7 million or $0.69 per diluted share; for the same period in the prior year FFO was $175.7 million or $0.94 per diluted share. Year-to-date results include $39.9 million or $0.21 per diluted share of transaction expenses and costs related to the spin off from Simon on May 28 and increased interest expense of $9.1 million or $0.05 per diluted share associated with the new capital structure.

For the six months ended June 30, 2014, net income attributable to common shareholders was $104.2 million or $0.67 per diluted share compared to $80.5 million or $0.52 per diluted share for the same period in the prior year. Increased gains on acquisitions of controlling property interests and sales of property interests of $77.4 million or $0.41 per diluted share are included in the results for the six months ended June 30, 2014.  

Dividends

Washington Prime's Board of Directors declared a quarterly cash dividend of $0.25 per common share, payable on September 15, 2014, to shareholders of record on August 27, 2014, with an ex-dividend date of August 25, 2014. 

Investment Activity

Acquisitions and Dispositions

Since completing the spin-off on May 28, 2014, Washington Prime has increased its interest in eight previously unconsolidated properties for an aggregate price of approximately $326 million including approximately $141 million of debt. On June 20, the Company acquired its partner's 50 percent interest in Clay Terrace, a 577,000 square foot lifestyle center located in Carmel, Indiana, in exchange for partnership units. On June 18, the Company acquired a partner's interest in a portfolio of seven open-air shopping centers, consisting of four centers located in Florida, and one each in Indiana, Connecticut and Virginia. All eight properties are now consolidated post acquisition.

Additionally, on June 23, Washington Prime sold New Castle Plaza, a wholly owned strip center in New Castle, Indiana. Subsequent to quarter end, the Company sold Highland Lakes Center, an open-air center in Orlando, FL, for approximately $21.5 million for an estimated gain of approximately $9.1 million.

Redevelopment

Washington Prime currently has approximately 15 projects totaling more than $100 million under redevelopment.  Additionally, the Company's pipeline includes six projects in the approval stages totaling approximately $125 million as well as another five to eight projects already targeted for redevelopment over the next three years.  

Additionally, the Company has commenced redevelopment activities at Jefferson Valley Mall, a 556,000 square foot mall located in the New York City area.  The estimated cost of the redevelopment is approximately $44 million and includes the addition of a major sporting goods store.

Non-GAAP Financial Measures

This press release includes FFO and NOI, including same property NOI growth, which are financial performance measures not defined by generally accepted accounting principles in the United States ("GAAP"). Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in this press release. FFO and same property NOI growth are financial performance measures widely used by securities analysts, investors and other interested parties in the evaluation of REITs. These measures should not be considered as alternatives to net income (determined in accordance with GAAP) as indicators of financial performance and are not alternatives to cash flow from operating activities (determined in accordance with GAAP) as a measure of liquidity. Non-GAAP financial measures have limitations as they do not include all items of income and expense that affect operations, and accordingly, should always be considered as supplemental to financial results presented in accordance with GAAP. Computation of these non-GAAP measures may differ in certain respects from the methodology utilized by other REITs and, therefore, may not be comparable to such other REITs. Investors are cautioned that items excluded from these measures are significant components in understanding and addressing financial performance.

For a reconciliation of these measures and other information, please refer to the attached tables.

Regulation Fair Disclosure ("FD")

We routinely post important information online on our investor relations website, investors.washingtonprime.com. We use this website, press releases, SEC filings, conference calls, presentations and webcasts to disclose material, non-public information in accordance with Regulation FD. We encourage members of the investment community to monitor these distribution channels for material disclosures. Any information accessed through our website is not incorporated by reference into, and is not a part of, this document.

Forward Looking Statements

Certain statements made in this press release may be deemed "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be attained, and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks, uncertainties and other factors. Such factors include, but are not limited to: the Company's ability to meet debt service requirements, the availability and terms of financing, changes in the Company's credit rating, changes in market rates of interest, the ability to hedge interest rate and currency risk, risks associated with the acquisition, development, expansion, leasing and management of properties, general risks related to retail real estate, the liquidity of real estate investments, environmental liabilities, international, national, regional and local economic conditions, changes in market rental rates, trends in the retail industry, relationships with anchor tenants, the inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise, risks relating to joint venture properties, costs of common area maintenance, the intensely competitive market environment in the retail industry, insurance costs and coverage, terrorist activities, changes in economic and market conditions and maintenance of our status as a real estate investment trust. The Company discusses these and other risks and uncertainties under the heading "Risk Factors" in our quarterly reports filed with the SEC. The Company undertakes no duty or obligation to update or revise these forward-looking statements, whether as a result of new information, future developments, or otherwise unless required by law.

About Washington Prime Group

Washington Prime Group (NYSE: WPG) is a retail REIT that owns and manages more than 95 shopping centers totaling more than 50 million square feet diversified by size, geography and tenancy.  Washington Prime combines a national real estate portfolio with an investment grade balance sheet.  The Company plans to leverage its expertise across the entire shopping center sector to increase cash flow through rigorous management of existing assets as well as select development and acquisitions of new assets with franchise value.  For more information visit washingtonprime.com.   

Contact: 
Barbara M Pooley
SVP, Finance & Administration
Washington Prime Group
1-240-630-0005

 

Washington Prime Group Inc.

Unaudited Consolidated and Combined Balance Sheets

(Dollars in thousands, except share amounts)








June 30,


December 31,


2014


2013

ASSETS:




Investment properties at cost

$ 5,260,411


$ 4,789,705

Less - accumulated depreciation

2,047,284


1,974,949


3,213,127


2,814,756

Cash and cash equivalents

93,646


25,857

Tenant receivables and accrued revenue, net

61,626


61,121

Investment in unconsolidated entities, at equity

5,175


3,554

Deferred costs and other assets

113,740


97,370

  Total assets

$ 3,487,314


$ 3,002,658





LIABILITIES:




Mortgage notes payable

$ 1,506,427


$ 918,614

Unsecured term loan

500,000


-

Revolving credit facility

340,750


-

Accounts payable, accrued expenses, intangibles, and deferred revenues

145,687


151,011

Cash distributions and losses in partnerships and joint ventures, at equity

15,194


41,313

Other liabilities

6,342


7,195

  Total liabilities

2,514,400


1,118,133





EQUITY:




Stockholders' Equity




Common stock, $0.0001 par value, 300,000,000 shares authorized, 155,162,597 issued and outstanding in 2014

16


-

Capital in excess of par value

719,833


-

SPG Equity

-


1,560,989

Retained earnings

79,872


-

    Total stockholders' equity

799,721


1,560,989

Noncontrolling interests 

173,193


323,536

      Total equity

972,914


1,884,525

      Total liabilities and equity

$ 3,487,314


$ 3,002,658





 

 

Washington Prime Group Inc.

Unaudited Consolidated and Combined Statements of Operations

(Dollars in thousands, except per share amounts)











For the Three Months


For the Six Months


Ended June 30,


Ended June 30,


2014


2013


2014


2013









REVENUE:








Minimum rent

$ 108,374


$ 103,505


$ 215,011


$ 208,485

Overage rent

1,134


1,171


3,244


3,604

Tenant reimbursements

47,179


45,804


94,347


91,175

Other income

1,488


1,090


3,542


2,541

Total revenue

158,175


151,570


316,144


305,805









EXPENSES:








Property operating

26,219


25,455


52,359


49,820

Depreciation and amortization

47,288


45,101


93,256


90,400

Real estate taxes

18,752


18,395


38,699


38,357

Repairs and maintenance

4,934


5,503


12,084


10,889

Advertising and promotion

1,932


1,808


3,884


3,945

Provision for (recovery of) credit losses

619


(806)


1,405


(116)

General and administrative

1,865


0


1,865


0

Transaction and related costs

39,931


0


39,931


0

Ground rent and other costs

1,281


1,163


2,400


2,354

Total operating expenses

142,821


96,619


245,883


195,649









OPERATING INCOME

15,354


54,951


70,261


110,156









Interest expense

(22,677)


(13,737)


(36,594)


(27,456)

Income and other taxes

(66)


(24)


(141)


(102)

Income from unconsolidated entities

402


206


747


499

Gain upon acquisition of controlling interests and on sale of interests in properties

91,268


0


91,510


14,152









NET INCOME

84,281


41,396


125,783


97,249









Net income attributable to noncontrolling interests

14,480


7,145


21,590


16,769









NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS

$ 69,801


$ 34,251


$ 104,193


$ 80,480









EARNINGS PER COMMON SHARE, BASIC AND DILUTED








Net income attributable to common stockholders

$                   0.45


$                   0.22


$                   0.67


$                   0.52

 

 

Washington Prime Group Inc.

Unaudited Consolidated and Combined Statements of Cash Flows

(Dollars in thousands)






For the Six Months


Ended June 30,


2014


2013





CASH FLOWS FROM OPERATING ACTIVITIES:




Net Income

$ 125,783


$ 97,249

Adjustments to reconcile net income to net cash




provided by operating activities -




Depreciation and amortization

93,749


91,428

Gain upon acquisition of controlling interests and on sale of interests in properties

(91,510)


(14,152)

Loss on debt extinguishment

2,894


0

Provision for (recovery of) credit losses

1,405


(116)

Straight-line rent

(240)


229

Equity in income of unconsolidated entities

(747)


(499)

Distributions of income from unconsolidated entities

537


634

Changes in assets and liabilities - 




Tenant receivables and accrued revenue, net

280


5,383

Deferred costs and other assets

(12,353)


165

Accounts payable, accrued expenses, intangibles, deferred revenues and other liabilities

(5,576)


(20,832)

Net cash provided by operating activities

114,222


159,489





CASH FLOWS FROM INVESTING ACTIVITIES:




Acquisitions, net of cash acquired

(154,370)


0

Capital expenditures, net

(41,454)


(42,178)

Net proceeds from sale of assets

4,436


0

Investments in unconsolidated entities

(2,493)


(1,457)

Distributions of capital from unconsolidated entities 

1,440


2,827

Net cash used in investing activities

(192,441)


(40,808)





CASH FLOWS FROM FINANCING ACTIVITIES:




Distributions to SPG, net

(1,060,187)


(117,663)

Distributions to noncontrolling interest holders in properties

(845)


(236)

Proceeds from issuance of debt, net of transaction costs

1,384,370


-

Repayments of debt including prepayment penalties

(177,330)


(5,101)

Net cash provided by (used in) financing activities

146,008


(123,000)





INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

67,789


(4,319)

CASH AND CASH EQUIVALENTS, beginning of period

25,857


30,986

CASH AND CASH EQUIVALENTS, end of period

$ 93,646


$ 26,667

 

 


Washington Prime Group Inc.

Unaudited Reconciliation of Non-GAAP Financial Measures

(Dollars in thousands, except share/unit amounts)


























For the Three Months Ended


For the Six Months Ended






June 30,


June 30,






2014


2013


2014


2013













Net Income

$                 84,281


$          41,396


$           125,783


$          97,249

Adjustments to Arrive at FFO:









Depreciation and amortization from consolidated properties 

 

47,286


 

45,101


 

93,254


 

90,400


Our share of depreciation and amortization from unconsolidated entities

 

970


 

1,150


 

2,136


 

2,425


Gain upon acquisition of controlling interests and on sale of interests in properties

 

(91,268)


 

0


 

(91,510)


 

(14,152)


Net income attributable to noncontrolling interest holders in properties

 

0


 

(65)


 

0


 

(132)


Noncontrolling interests portion of depreciation and amortization

 

0


 

(38)


 

0


 

(77)













FFO of the Operating Partnership (1)

$                 41,269


$          87,544


$           129,663


$         175,713

FFO allocable to limited partners

7,097


14,997


22,256


30,101

FFO allocable to shareholders

$                 34,172


$          72,547


$           107,407


$         145,612













Diluted net income per share

$                    0.45


$              0.22


$                 0.67


$              0.52

Adjustments to arrive at FFO per share:









Depreciation and amortization from consolidated properties and our share of depreciation and amortization from unconsolidated properties

0.26


0.25


0.51


0.50


Gain upon acquisition of controlling interests and on sale of interests in properties

(0.49)


-


(0.49)


(0.08)













Diluted FFO per share

$                    0.22


$              0.47


$                 0.69


$              0.94













Basic and diluted weighted average shares outstanding

155,162,597


155,162,597


155,162,597


155,162,597

Weighted average limited partnership units outstanding

32,227,488


32,075,487


32,151,908


32,075,487

Diluted weighted average shares and units outstanding

187,390,085


187,238,084


187,314,505


187,238,084













(1)

FFO includes transaction costs related to WPG's separation from SPG of $39.9 million, or $0.21 per share, in the three and six months ended June 30, 2014.



 

 


Washington Prime Group Inc.

Unaudited Reconciliation of Non-GAAP Financial Measures

(Dollars in thousands)


























For the Three Months Ended June 30,


For the Six Months Ended June 30,





2014


2013


2014


2013


Reconciliation of NOI of consolidated properties:









Net Income

$               84,281


$               41,396


$             125,783


$               97,249


Income and other taxes

66


24


141


102


Interest expense

22,677


13,737


36,594


27,456


Gain upon acquisition of controlling interests and on sale of interests in properties

(91,268)


--


(91,510)


(14,152)


Income from unconsolidated entities 

(402)


(206)


(747)


(499)


General and administrative

1,865


--


1,865


--


Transaction costs

39,931


--


39,931


--


Operating Income

57,150


54,951


112,057


110,156


Depreciation and amortization 

47,288


45,101


93,256


90,400


NOI of consolidated properties

$             104,438


$             100,052


$             205,313


$             200,556













Reconciliation of NOI of unconsolidated entities:









Net Income

$                 2,939


$                 2,918


$                 5,924


$                 6,975


Interest expense

3,273


3,605


6,824


7,075


NOI of properties sold

(15)


104


8


(545)


Operating Income

6,197


6,627


12,756


13,505


Depreciation and amortization 

3,372


3,656


7,250


7,410


NOI of unconsolidated entities

$                 9,569


$               10,283


$               20,006


$               20,915













Total consolidated and unconsolidated NOI from continuing operations

$             114,007


$             110,335


$             225,319


$             221,471


Adjustments to NOI:









NOI of properties sold

15


(23)


54


1,154


Total NOI of our portfolio

$             114,022


$             110,312


$             225,373


$             222,625


Change in NOI from prior period

3.4%




1.2%















Less:  Joint venture partners' share of NOI

(5,678)


(8,461)


(13,872)


(18,304)


Our Share of NOI

$             108,344


$             101,851


$             211,501


$             204,321


Increase in our share of NOI from prior period

6.4%




3.5%















Total NOI of our portfolio

$             114,022


$             110,312


$             225,373


$             222,625


NOI from non comparable properties (1)

3,168


2,792


6,948


6,206


Total NOI of comparable properties (2)

$             110,854


$             107,520


$             218,425


$             216,419


Change in NOI of comparable properties

3.1%




0.9%















(1)

NOI excluded from comparable property NOI relates to properties not owned and operated in both periods under comparison and excluded income noted in footnote 2 below.





(2)

Comparable properties are malls and strip centers that were owned in both of the periods under comparison. Seven properties were considered non comparable for the periods under comparison. Excludes lease termination income, interest income, land sale gains and the impact of significant redevelopment activities.





 

 

 

SOURCE Washington Prime Group

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