- The Company announced its dividend policy for 2020 of $0.50 per
annum for common share and operating partnership units resulting in
an increase in cash availability of nearly $110 million during 2020
alone, of which the Company expects to utilize to fund its pipeline
of attractive redevelopment projects
- Based upon the Company’s free cash flow projections, the 2020
funds available for distribution (FAD) payout ratio is estimated at
63%
- The Company maintains outlook for growth in 2020 with combined
Tier One and Open Air comparable net operating income (NOI)
increasing 50 to 150 basis points
- The Company was in compliance with all of its unsecured debt
covenants at the end of 2019, and based upon current projections,
anticipates remaining in compliance throughout 2020
Washington Prime Group Inc. (NYSE: WPG) today reported
financial and operating results for the fourth quarter and fiscal
year ended December 31, 2019 that reflect continued progress of the
execution of the Company’s financial, operating and strategic
objectives.
Three Months Ended December
31,
Twelve Months Ended December
31,
2019
2018
2019
2018
Net income (loss) per diluted share
$0.09
$0.29
$(0.05
)
$0.42
FFO per diluted share
$0.42
$0.60
$1.45
$1.73
FFO per diluted share, as adjusted
$0.31
$0.38
$1.18
$1.51
A description of each non-GAAP financial measure and the related
reconciliation to the comparable GAAP financial measure are
provided in this press release.
Fourth Quarter Financial Results
Net income attributable to common shareholders for the fourth
quarter of 2019 was $17.1 million, or $0.09 per diluted share,
compared to net income of $55.0 million, or $0.29 per diluted
share, a year ago. The year-over-year (YOY) difference relates
primarily to lost rental income from retail bankruptcies and
related cotenancy. Additionally, results for the fourth quarter of
2019 include a gain on the extinguishment of debt of $24.7 million,
and a gain on disposition of interests in properties of $12.3
million, which compares to $55.9 million of such gains during the
same quarter a year ago.
Funds from Operations (FFO), as adjusted for the fourth quarter
of 2019 was $70.1 million, or $0.31 per diluted share, which
compares to $84.0 million, or $0.38 per diluted share, during the
same quarter a year ago. The YOY decrease in FFO, as adjusted,
relates primarily to lost rental income from retail bankruptcies
and related cotenancy along with the increase in general and
administrative expenses.
Business Highlights
Significant Leasing Progress
- Leasing volume during 2019 exhibited a 6% YOY increase totaling
4.4 million square feet (SF) and the number of lease transactions
increased 11% YOY;
- This follows leasing volume of 4.2 million SF and 4.0 million
SF in 2018 and 2017, respectively, totaling 12.6 million SF during
the previous three years;
- Of the aforementioned 4.4 million SF in 2019, 57% of new
leasing was attributable to lifestyle tenancy which includes food,
beverage, entertainment, home furnishings, fitness, and
professional services; and
- The Company continues to incent its leasing and property
management professionals in order to further diversify tenancy as
illustrated by a 180 signed leases qualifying under various
incentive programs during 2019.
Stable Operating Metrics
- New leasing spreads increased 1.6% during the trailing 12
months ended December 31, 2019 for Tier One and Open Air
assets;
- Tier One sales PSF increased 4.0% YOY to $413 as of December
31, 2019;
- Tier One occupancy cost improved 60 basis points to a sector
leading 11.2% as of December 31, 2019;
- As of December 31, 2019, combined Tier One and Open Air
occupancy decreased 130 basis points YOY to 93.4%, of which 120
basis points was attributable to the bankruptcies of Charlotte
Russe, Gymboree, and Payless ShoeSource;
- YOY 2019 comparable NOI increased 2.1% for Open Air and
decreased 8.0% for Tier One, resulting in a combined decrease of
5.2%;
- This combined decrease in 2019 comparable NOI of $24.5 million
is primarily attributable to $14.8 million of cotenancy and rental
income loss from 2018 bankruptcies (Bon-Ton Stores, Sears and Toys
R Us) and $6.1 million from the aforementioned 2019
bankruptcies.
- Excluding the aforementioned cotenancy impact and rental income
loss, YOY comparable NOI for combined Tier One and Open Air would
have been (2.2%) and (0.8%) for the fourth quarter and full year
2019, respectively; and
- Exhibiting sequential improvement from the third quarter,
fourth quarter 2019 comparable NOI increased 250 basis points to
5.1% for Open Air, increased 90 basis points to (7.9%) for Tier
One, and combined increased 90 basis points to (4.6%).
Activation Activity
- During 2019, the Company hosted 3,297 events and activations,
digital media campaigns produced 1,454 corporate managed
advertisements, and a robust social media initiative resulted in
33,871 and 25,420 additional Instagram and Facebook followers,
respectively;
- The Company received one ICSC MAXI Award and two MarCom Awards
for marketing and social media excellence; and
- The Company introduced the first national landlord sponsored
TikTok influencer campaign (#SweeTok) which resulted in over 10,000
guest visits and 36 million social media views.
Department Store Adaptive Reuse Progress
- The Company resolved 18, or 72%, of the 25 department stores of
which the Company has control;
- As exhibited within the most recent fourth quarter 2019
supplemental, the Company continues to provide real time updates
relating to the 30 department stores within its Tier One and Open
Air assets identified for repositioning (excluding space owned by
third parties such as Seritage Growth Properties). As of December
31, 2019, five of these department store spaces remained occupied
by Sears;
- These include the following projects, all of which are situated
within Tier One assets:
- The Mall at Johnson City, Johnson City, Tennessee:
HomeGoods will anchor the replacement of the former Sears;
- Polaris Fashion Place®, Columbus, Ohio: FieldhouseUSA
will anchor the mixed use redevelopment of former Sears;
- Town Center at Aurora®, Aurora, Colorado: FieldhouseUSA
will anchor the planned mixed use redevelopment of the former
Sears;
- Markland Mall, Kokomo, Indiana: A national retailer has
executed a letter of intent to replace the former Carson Pirie
Scott (Bon-Ton Stores);
- Southern Park Mall, Boardman (Youngstown), Ohio: The
demolition of the former Sears is underway and is to be replaced by
DeBartolo Commons which includes an athletic green space, an ice
skating rink and entertainment venue;
- Southern Park Mall, Boardman (Youngstown), Ohio: The
redevelopment project will also feature a new entertainment hub
anchored by Steel Valley Brew Works as well as an indoor golf
facility and several new food and beverage options. The renovation
also includes a permanent DeBartolo-York Family installation
situated within the common area;
- Port Charlotte Town Center, Port Charlotte, Florida: A
national entertainment concept has executed a letter of intent to
replace Sears;
- Longview Mall, Longview, Texas: National retailers have
executed letters of intent to replace the former Sears;
- Mesa Mall, Grand Junction, Colorado: Three department
store replacements include a national sporting goods retailer
replacing the former Herberger’s department store (Bon-Ton Stores),
Dillard’s will replace the former Sears and HomeGoods will replace
the former Sports Authority all of which have executed letters of
intent;
- Southern Hills Mall, Sioux City, Iowa: The Company has
executed a letter of intent with a national off price retailer and
has received a letter of intent from a national home furnishings
retailer to replace the former Sears location;
- Southgate Mall, Missoula, Montana: Dillard’s opened a
second location during June 2019 replacing the former Herberger’s
(Bon-Ton Stores). The Company also recently announced SCHEELS All
Sports will replace the current JCPenney which is expected to close
during the second quarter of 2020 of which the Company proactively
gained control of JCPenney to allow for the adaptive reuse;
- Grand Central Mall, Parkersburg, West Virginia: The
Company announced HomeGoods, PetSmart, Ross Dress for Less and T.J.
Maxx will collectively replace the former Sears location;
- Morgantown Mall, Morgantown, West Virginia: The Company
has executed a lease with Dunham’s Sports replacing space
previously occupied by Elder Beerman (Bon-Ton Stores). A national
discount retailer and an entertainment concept have provided
letters of intent to replace the former Belk department store and
the former Sears will be replaced with outdoor greenspace for
athletic and entertainment use;
- Lincolnwood Town Center, Lincolnwood, Illinois: The
RoomPlace opened August 2019 replacing Carson Pirie Scott (Bon-Ton
Stores); and
- The Mall at Fairfield Commons, Dayton, Ohio: Round1
Entertainment opened November 2019 replacing the lower level of the
former Sears, and the upper level is currently under construction
and will be occupied by Morris Furniture, which is expected to open
during the second quarter of this year.
Mixed Use Progress
- Clay Terrace, Carmel, Indiana: Predevelopment is
underway and will be comprised of an approximately 290 unit
multifamily rental project, an approximately 140 guest room hotel,
new office space totaling 200,000 SF and an additional
approximately 70,000 SF of space intended for lifestyle and food
and beverage;
- WestShore Plaza, Tampa, Florida: The Company is underway
regarding the process of obtaining necessary entitlements and
discussions continue regarding a joint venture of this mixed use
redevelopment replacing the Sears space. In conjunction, the
Company also purchased an outparcel which is to be included as part
of the entitlement process; and
- Westminster Mall, Westminster, California: The Company
is in the process of obtaining necessary entitlements and
discussions are underway regarding the planned mixed use
predevelopment project. The Company is working with several local
landowners and all other stakeholders to explore mixed use
opportunities, including residential, office and hotel components,
as well as ground level retail. On the site owned by Washington
Prime Group alone, the Company anticipates the potential for up to
1,000 multifamily residential units.
Financial Transactions
- The Company recently executed a letter of intent with Spirit
Realty Capital, Inc. (SRC) for the sale of the fee or leasehold
interest in eight outparcels for a combined purchase price of $14.2
million equating to an approximately 6.5% capitalization rate;
and
- The Company anticipates an additional $50 million of
disposition proceeds from various transactions, of which the
majority are expected to close by year end, with resulting proceeds
to be utilized for redevelopment;
- The Company completed several financial transactions in 2019
and has demonstrated continued ability to access new strategic
capital including:
- The Company proactively retired $29.1 million of outstanding
principal related to the Senior Notes due 2024 recording a $1.2
million gain on extinguishment;
- The Company repaid the $47.6 million mortgage loan previously
secured by four Open Air assets, which was scheduled to mature on
October 16, 2019 at a fixed rate of 7.5%. Simultaneously, the
Company closed on a new $117.0 million loan secured by the same
four assets. The interest-only loan bears interest at a fixed rate
of 3.67%. The loan will mature on October 1, 2029;
- Approximately $68.1 million of net loan proceeds from the
aforementioned transaction, as well as proceeds from the previously
executed $180 million nonrecourse mortgage loan secured by
Waterford Lakes Town Center, will provide the necessary liquidity
to address the upcoming $250 million senior unsecured note maturing
April 2020;
- Mortgage loans secured by three noncore assets were
extinguished upon property transitions to the respective lender
during 2019, resulting in extinguishment of $94.7 million in
mortgage loans;
- The Company completed the sale leaseback of fee interest in
land at of four enclosed assets; and
- The Company signed a definitive agreement for sale of 20
additional outparcels to FCPT Acquisitions, LLC ("Four Corners")
for $38 million.
Louis Conforti, CEO and Director, Commentary: “My
colleagues and I have worked hard and smart to differentiate our
Company by diversifying tenancy, activating common area and
undertaking value added adaptive reuse. In addition, we have made
sound financial and strategic decisions as well as demonstrating
the ability to access traditional as well as more resourceful
capital.
“Take for instance our decision during the previous four years
to dispose of seventeen assets (not including outparcel sales)
which we considered incongruous to our dominant town center
objective. Regardless of short term dilution, this action has
proved more than prudent allowing us to devote our time and money
to those assets most able to benefit from focused adaptive reuse.
Our progress to date illustrates we’ve made the right choices.
“Notwithstanding, there continues to exist skepticism as it
relates to the necessary capital required to accomplish this
adaptive reuse mandate. The reset of the dividend is intended to
alleviate any such doubt whatsoever. As opposed to acting out of
weakness, the Board proactively made this decision at our earliest
available opportunity. Our fiduciary responsibility is to allocate
capital accordingly and this decision to enhance our liquidity was
only logical.
“The simple table below clearly illustrates this improved free
cash flow. Several relevant factors should be noted including $70
million of tenant allowance and Cap-Ex deducted from FAD, nor does
it need any additional credit facility borrowing. In addition to
the six projects commenced in 2019, we anticipate starting twelve,
four and eight department store adaptive reuse projects during
2020, 2021 and 2022, respectively. Simple extrapolation illustrates
plenty of free cash flow during these years to deliver these
projects.”
(Dollars in thousands)
Midpoint of 2020 Guidance
Estimated funds available for distribution
(FAD)1
$177,700
Estimated common share and operating
partnership unit dividend distribution
(111,700)
Estimated free cash flow
66,000
Estimated proceeds from outparcel and
other non-income producing sales
50,000
Estimated cash available for department
store adaptive reuse and redevelopment
116,000
Planned spend on department store adaptive
reuse
(80,000)
Estimated net cash surplus
$36,000
Estimated FAD payout ratio
63%
1
A reconciliation for the expected
range of estimated net loss attributable to common shareholders per
diluted share to estimated Funds Available for Distribution (FAD)
per diluted share included within this press release.
Conforti added: “Take a hard look at the following financial
metrics and see how we stack up against our sector peers.
Furthermore, when it comes to leasing volume and resolving
department store vacancy, while it’s difficult to glean comparable
information from some of our peers, I’d take the over we are
leaders on a relative size basis in both endeavors.”
Representative Financial
Metrics:
Unencumbered NOI: Total NOI
56%
Open Air NOI: Total NOI
27%
EBITDA: Interest Expense (including share
of unconsolidated entities)
2.61x
Combined Tier One and Open Air NOI: Total
NOI
93%
Occupancy Cost
11.2%
Conforti continued: “One other point, as it relates to Open Air
NOI of 27%, when you include nine assets we classify as Tier One
but have an open air format (Arbor Hills, The Arboretum, Bowie Town
Center, Clay Terrace, Malibu Lumber Yard, Oklahoma City Properties,
Scottsdale Quarter, Town Center Plaza & Crossing, and Waterford
Lakes Town Center) our open air portfolio increases to 40% of total
NOI.
“During last quarter’s earnings release and conference call, we
provided a summary of incremental Net Asset Value (NAV) potential
of ~$2.00 per share for three redevelopment assets. This analysis
assumes we sell fully entitled land parcels to developers of
residential, lodging and office product while retail remains the
responsibility of WPG. Note, the capital investment required to
deliver this fully entitled land parcels is deducted from NAV.
“In this light, we are pleased to announce the first of the
three redevelopments is underway at Clay Terrace. This
redevelopment will be comprised of a ~290 unit multifamily rental
project, a ~140 guest room hotel, new office space totaling 200,000
SF and an additional ~70,000 SF of space intended for lifestyle and
food and beverage tenancy.
“In closing, Washington Prime Group will continue to improve its
assets via differentiated tenancy and dynamic activations. Our
Company is also increasingly embracing the fact we are an essential
participant regarding the logistics, distribution and delivery of
goods and services, which speak to an omnichannel perspective. As
the dominant town center within our respective trade areas, it is
imperative we provide convenience in addition to interesting
alternatives where our guests can eat, shop, work, play and live.
With this in mind, my colleagues and I are going to get back to our
jobs and continue to grind it out.”
Financial Activity
Dispositions
On January 21, 2020, the Company executed a letter of intent
with Spirit Realty Capital, Inc. (SRC) for the sale of the fee
interest or leasehold interest in eight outparcels for a combined
purchase price of approximately $14.2 million. This pricing
reflects a mid-six percent capitalization rate on in-place net
operating income. Washington Prime Group and Spirit Realty Capital
anticipate closing on the majority of the outparcel sale in 2020,
subject to due diligence and closing conditions.
On January 31, 2020, the Company completed the sale of DeKalb
Plaza in King of Prussia, Pennsylvania to an unaffiliated private
real estate investor for a purchase price of $13.6 million.
On January 14, 2020, The Company completed the sale of Matteson
Plaza in Matteson, Illinois to an unaffiliated private real estate
investor for a purchase price of $1.1 million.
On December 19, 2019, The Company completed the sale of Charles
Towne Square in North Charlestown, South Carolina to an
unaffiliated private real estate investor for a purchase price of
$5.0 million.
The Company announced in September 2017 the sale of multiple
tranches of outparcels to Four Corners with a combined purchase
price of approximately $70 million, of which the Company closed on
$27.8 million of restaurant outparcels in 2018. In addition, the
Company signed during the third quarter of 2019 a definitive
agreement for the sale of 20 additional outparcels to Four Corners
for a combined purchase price of approximately $38 million. The
Company completed approximately $41.1 million of outparcel sales
during 2019. The Company anticipates closing on most of the
approximately $4.6 million of remaining outparcel sales from the
2017 transaction and the majority of the remaining approximately
$29.0 million from the 2019 transaction in 2020, subject to due
diligence and closing conditions.
Additionally, during the year ended December 31, 2019, the
Company sold certain undeveloped land parcels and developed
outparcels for an aggregate purchase price of $8.8 million.
The net proceeds from the disposition activities were generally
used to fund ongoing redevelopment efforts and for general
corporate purposes. In connection with the 2019 dispositions, the
Company recorded a net gain of $38.4 million which is included in
gain on disposition of interests in properties, net in the
accompanying consolidated statements of operations and
comprehensive (loss) income for the year ended December 31,
2019.
Mortgage Loans
On December 20, 2019, the Company completed the extension of the
mortgage loan on The Mall at Johnson City, located in Johnson City,
Tennessee. The extension is effective May 6, 2020 and will extend
the maturity of the mortgage loan to May 6, 2023, with two
additional one-year extension options available to this
unconsolidated property. The extension requires a $5.0 million
principal prepayment on May 6, 2020, in addition to funding of
$10.0 million for certain reserve accounts.
On December 18, 2019, the mortgage loans secured by West Ridge
Mall and Plaza, located in Topeka, Kansas, were extinguished upon
the property transitions to the lender. The Company recognized a
gain on debt extinguishment, net of default interest, of
approximately $23.1 million related to the transitions during the
fourth quarter of 2019.
Washington Prime Group Board of Directors Declares Quarterly
Dividend
The Company’s Board of Directors declared a quarterly cash
dividend on its common shares and operating partnership units. A
cash dividend of $0.125 per common share and operating partnership
unit was declared. The dividend is payable on March 16, 2020 to
shareholders and operating partnership unit holders of record on
March 9, 2020.
In addition, the Board of Directors declared quarterly cash
dividends of $0.4688 per Series H preferred share of beneficial
interest, $0.4297 per Series I preferred share of beneficial
interest, and $0.4563 per Series I-1 preferred unit of Preferred
Limited Partnership Interest. Each of the cash dividends on these
preferred shares and preferred units is payable on April 15, 2020
to shareholders and operating partnership unit holders of record on
March 30, 2020.
2020 Guidance
The Company is introducing guidance for fiscal 2020 net loss
attributable to common shareholders in the range of $(0.33) to
$(0.25) per diluted share and expects FFO in a range of $0.99 to
$1.07 per diluted share. The 2020 guidance indicates a decrease in
FFO over the prior year. Declines from 2019 include nearly $0.12
due to dispositions, lower outparcel sales and the full year impact
from the Perennial ground lease transaction.
Key guidance assumptions for 2020 include the following:
- Total comparable NOI for the Company’s Tier One and Open Air
portfolios (core properties) of $434.9 million - $439.1 million
which represents growth of 0.5% to 1.5% over 2019.
- Total comparable NOI of $28.0 million - $30.0 million for the
Company’s Tier Two properties and a center that has been
reclassified for redevelopment,;
- Total comparable NOI of approximately $2 million - $4 million
from the Company’s Noncore properties;
- Transition of one to three Noncore assets to the lender in 2020
with any potential gain from the transfer being excluded from the
earnings guidance;
- Tier classifications for enclosed properties, as well as the
list of Noncore properties, can be found in the fourth quarter 2019
supplemental information report available on the Company’s
website;
- Corporate overhead and general and administrative expense
(excluded from property net operating income) of $70 million - $74
million;
- Fee income (including lease termination and management fees) of
$13 - $16 million
- Interest expense (excluding interest on the unconsolidated
properties) of $153 - $155 million
- Redevelopment spending, including the pro rata share of joint
venture properties, of approximately $100 million, inclusive of
approximately $80 million related to adaptive reuse of former
department stores;
- Recurring Cap-Ex spending and deferred external leasing costs,
including the pro rata share of joint venture properties, of $65
million - $75 million;
- Net revenue related to non cash adjustments for purchase
accounting and straight line rents, including the pro rata share of
joint venture properties, of $10 million - $12 million;
- Gain from sale of outparcels of $10 million - $14 million;
- No change in preferred share dividends; and
- 2020 annual dividend per common share and operating partnership
unit of $0.50.
The following table provides the reconciliation for the expected
range of estimated net loss attributable to common shareholders per
diluted share to estimated FFO per diluted share, as adjusted, as
well as the reconciliation for the expected range of the Company’s
estimated Funds Available for Distribution (FAD) per diluted share
for the year ending December 31, 2020:
Low End
High End
Estimated net loss attributable to common
shareholders per diluted share
$(0.33)
$(0.25)
Depreciation and amortization including
share of unconsolidated entities
1.32
1.32
Estimated FFO per diluted share
$0.99
$1.07
Capital expenditures and tenant
improvements
(0.33)
(0.29)
Non-Cash items
0.06
0.08
Estimated FAD per diluted share
$0.72
$0.86
Estimated annual dividend per common share
and operating partnership unit
$0.50
$0.50
Estimated Payout Ratio
69%
58%
The following table provides a reconciliation of the expected
range of net loss from GAAP financial statements to the Company’s
NOI projections for the year ending December 31, 2020:
(Dollars in thousands)
Low End
High End
Net loss
$(73,600)
$(55,600)
Depreciation and amortization
260,000
255,000
General and administrative and corporate
overhead
74,000
70,000
Interest Expense
155,000
153,000
Gains from sales of outparcels
(10,000)
(14,000)
Pro-rata share of unconsolidated joint
venture in comparable NOI
70,000
72,000
Non comparable properties and other
(1)
2,500
8,700
Fee Income
(13,000)
(16,000)
Tier Two, center under redevelopment and
noncore properties
(30,000)
(34,000)
Projected comparable NOI – Tier One and
Open Air
$434,900
$439,100
Projected comparable NOI year-over-year
growth (2)
0.5%
1.5%
(1)
Includes income from
unconsolidated entities, straight line rents, fair market
adjustments and non-comparable properties.
(2)
Reported 2019 comparable NOI for
Tier One and Open Air properties adjusted for actual and projected
property dispositions was $432.7 million.
For the first quarter of 2020, the Company estimates net loss
attributable to common shareholders to be in the range of $(0.12)
to $(0.08) per diluted share and FFO to be in the range of $0.20 to
$0.24 per diluted share.
A reconciliation of the range of estimated net loss per diluted
share to estimated FFO per diluted share for the first quarter of
2020 follows:
Low End
High End
Estimated net loss attributable to common
shareholders per diluted share
$(0.12)
$(0.08)
Depreciation and amortization including
share of unconsolidated entities
0.32
0.32
Estimated FFO per diluted share
$0.20
$0.24
Earnings Call and Webcast on February 27
The Company will host its quarterly earnings conference call and
an audio webcast on Thursday, February 27, 2020 at 11:00 a.m.
Eastern Time.
The live webcast will be available in listen-only mode from the
investor relations section of the Company’s website at
www.washingtonprime.com. Listeners can also access the call by
dialing 833.235.7642 (or +647.689.4163 for international callers),
and the participant passcode is 8198659.
A replay of the call will be available on the Company’s website,
or by calling 800.585.8367 (or +1.416.621.4642 for international
callers), passcode is 8198659, beginning on Thursday, February 27,
2020, at approximately 1:00 p.m. Eastern Time through midnight on
Thursday, March 12, 2020.
Supplemental Information
For additional details on the Company’s results and properties,
please refer to the Supplemental Information report on the investor
relations section of the Company’s website. This release as well as
the supplemental information have been furnished to the Securities
and Exchange Commission (SEC) in a Form 8-K.
About Washington Prime Group
Washington Prime Group Inc. is a retail REIT and a recognized
leader in the ownership, management, acquisition and development of
retail properties. The Company combines a national real estate
portfolio with its expertise across the entire shopping center
sector to increase cash flow through rigorous management of assets
and provide new opportunities to retailers looking for growth
throughout the U.S. Washington Prime Group®, Polaris Fashion
Place®, and Town Center at Aurora® are registered trademarks of the
Company. Learn more at www.washingtonprime.com.
Non-GAAP Financial Measures
This press release includes FFO, FAD 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, FAD and comparable NOI growth are financial
performance measures widely used by securities analysts, investors
and other interested parties in the evaluation of REITs. The
Company believes that FFO provides investors with additional
information regarding operating performance and a basis to compare
the Company’s performance with that of other REITs.
The Company uses FFO in addition to net income to report
operating results. We determine FFO based on the definition set
forth by the National Association of Real Estate Investment Trusts
(NAREIT) as net income computed in accordance with GAAP, excluding
real estate related depreciation and amortization, excluding gains
and losses from extraordinary items and cumulative effects of
accounting changes, excluding gains and losses from the sales or
disposals of previously depreciated retail operating properties,
excluding impairment charges of depreciable real estate, plus the
allocable portion of FFO of unconsolidated entities accounted for
under the equity method of accounting based upon economic ownership
interest.
NOI is used by industry analysts, investors and Company
management to measure operating performance of the Company’s
properties. NOI represents total property revenues less property
operating and maintenance expenses. Accordingly, NOI excludes
certain expenses included in the determination of net income such
as corporate general and administrative expense and other indirect
operating expenses, interest expense, impairment charges and
depreciation and amortization expense. These items are excluded
from NOI in order to provide results that are more closely related
to a property’s results of operations. In addition, the Company’s
computation of same property NOI excludes termination income and
income from outparcel sales. The Company also adjusts for other
miscellaneous items in order to enhance the comparability of
results from one period to another. Certain items, such as interest
expense, while included in FFO and net income, do not affect the
operating performance of a real estate asset and are often incurred
at the corporate level as opposed to the property level. As a
result, management uses only those income and expense items that
are incurred at the property level to evaluate a property’s
performance. Real estate asset related depreciation and
amortization, as well as impairment charges, are excluded from NOI
for the same reasons that they are excluded from FFO pursuant to
NAREIT’s definition.
FAD is a useful supplemental measure of the Company’s liquidity
used by industry analysts and investors. The Company computes FAD
by subtracting recurring tenant improvements, leasing commissions
and capital expenditures and adjusting for non-cash items such as
amortization of deferred financing costs, debt discounts and
premiums, amortization of above (below) market rents for
acquisition properties, non-cash executive compensation expense and
straight-line rents. FAD provides useful information to the
investment community about the Company’s financial position since
FAD is a liquidity measure used by other REITs. However, other
REITs may use different methodologies for calculating FAD and,
accordingly, the Company’s FAD may not be comparable to other
REITs.
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. Investors
should understand that the Company’s computation of these non-GAAP
measures might not be comparable to similar measures reported by
other REITs and that these non-GAAP measures do not represent cash
flow from operations as defined by GAAP, should not be considered
as alternatives to net income determined in accordance with GAAP as
a measure of operating performance and are not alternatives to cash
flows as a measure of liquidity. Investors are cautioned that items
excluded from these measures are significant components in
understanding and addressing financial performance. Reconciliations
of these measures are included in the press release.
Regulation Fair Disclosure (FD)
The Company routinely posts important information online on the
investor relations section of the corporate website. The Company
uses this website, press releases, SEC filings, conference calls,
presentations and webcasts to disclose material, non-public
information in accordance with Regulation FD. The Company
encourages members of the investment community to monitor these
distribution channels for material disclosures. Any information
accessed through the Company’s website is not incorporated by
reference into, and is not a part of, this document.
Forward-Looking Statements
This news release contains “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995
which represent the current expectations and beliefs of management
of Washington Prime Group Inc. (“WPG”) concerning the proposed
transactions, the anticipated consequences and benefits of the
transactions and the targeted close date for the transactions, and
other future events and their potential effects on WPG, including,
but not limited to, statements relating to anticipated financial
and operating results, the Company’s plans, objectives,
expectations and intentions, cost savings and other statements,
including words such as “anticipate,” “believe,” “confident,”
“plan,” “estimate,” “expect,” “intend,” “will,” “should,” “may,”
and other similar expressions. Such statements are based upon the
current beliefs and expectations of WPG’s management, and involve
known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance, or achievements of WPG to be
materially different from future results, performance or
achievements expressed or implied by such forward-looking
statements. Such factors include, without limitation: changes in
asset quality and credit risk; ability to sustain revenue and
earnings growth; changes in political, economic or market
conditions generally and the real estate and capital markets
specifically; the impact of increased competition; the availability
of capital and financing; tenant or joint venture partner(s)
bankruptcies; the failure to increase store occupancy and
same-store operating income; risks associated with the acquisition,
disposition, (re)development, expansion, leasing and management of
properties; changes in market rental rates; trends in the retail
industry; relationships with anchor tenants; risks relating to
joint venture properties; costs of common area maintenance;
competitive market forces; the level and volatility of interest
rates; the rate of revenue increases as compared to expense
increases; the financial stability of tenants within the retail
industry; the restrictions in current financing arrangements or the
failure to comply with such arrangements; the liquidity of real
estate investments; the impact of changes to tax legislation and
WPG’s tax positions; failure to qualify as a real estate investment
trust; the failure to refinance debt at favorable terms and
conditions; loss of key personnel; material changes in the dividend
rates on securities or the ability to pay dividends on common
shares or other securities; possible restrictions on the ability to
operate or dispose of any partially-owned properties; the failure
to achieve earnings/funds from operations targets or estimates; the
failure to achieve projected returns or yields on (re)development
and investment properties (including joint ventures); expected
gains on debt extinguishment; changes in generally accepted
accounting principles or interpretations thereof; terrorist
activities and international hostilities; the unfavorable
resolution of legal or regulatory proceedings; the impact of future
acquisitions and divestitures; assets that may be subject to
impairment charges; significant costs related to environmental
issues; changes in LIBOR reporting practices or the method in which
LIBOR is determined; and other risks and uncertainties, including
those detailed from time to time in WPG’s statements and periodic
reports filed with the Securities and Exchange Commission,
including those described under “Risk Factors”. The forward-looking
statements in this communication are qualified by these risk
factors. Each statement speaks only as of the date of this press
release and WPG undertakes no obligation to update or revise any
forward-looking statements to reflect new information, subsequent
events or circumstances. Actual results may differ materially from
current projections, expectations, and plans, if any. Investors,
potential investors and others should give careful consideration to
these risks and uncertainties.
CONSOLIDATED STATEMENTS OF OPERATIONS Washington Prime
Group Inc. (Unaudited, dollars in thousands, except per
share data)
Three Months Ended December
31,
Twelve Months Ended December
31,
2019
2018
2019
2018
Revenue: Rental income
$
159,519
$
173,123
$
633,633
$
690,432
Other income
10,504
9,826
27,851
27,047
Total revenues
170,023
182,949
661,484
717,479
Expenses: Property operating
(39,460
)
(38,237
)
(154,328
)
(148,433
)
Real estate taxes
(21,133
)
(21,385
)
(82,139
)
(86,665
)
Advertising and promotion
(3,272
)
(3,184
)
(9,513
)
(9,070
)
Total recoverable expenses
(63,865
)
(62,806
)
(245,980
)
(244,168
)
Depreciation and amortization
(62,178
)
(61,696
)
(271,320
)
(257,796
)
General and administrative
(11,728
)
(9,121
)
(51,187
)
(39,090
)
Ground rent
(224
)
(197
)
(837
)
(789
)
Impairment loss
(6,320
)
-
(35,256
)
-
Total operating expenses
(144,315
)
(133,820
)
(604,580
)
(541,843
)
Interest expense, net
(38,576
)
(36,360
)
(153,382
)
(141,987
)
Gain on disposition of interests in properties, net
12,317
4,494
38,373
24,602
Gain on extinguishment of debt, net
24,747
51,395
63,660
51,395
Income and other taxes
(831
)
(673
)
(1,296
)
(1,532
)
Income (loss) from unconsolidated entities, net
503
851
(1,499
)
541
Net income
23,868
68,836
2,760
108,655
Net income (loss) attributable to noncontrolling interests
3,260
10,321
(1,514
)
15,051
Net income attributable to the Company
20,608
58,515
4,274
93,604
Less: Preferred share dividends
(3,508
)
(3,508
)
(14,032
)
(14,032
)
Net income (loss) attributable to common shareholders
$
17,100
$
55,007
$
(9,758
)
$
79,572
Earnings (loss) per common share, basic and diluted
$
0.09
$
0.29
$
(0.05
)
$
0.42
CONSOLIDATED BALANCE SHEETS Washington Prime Group
Inc. (Unaudited, dollars in thousands)
December 31,
December 31,
2019
2018
Assets: Investment properties at cost
$
5,787,126
$
5,879,637
Construction in progress
115,280
35,068
5,902,406
5,914,705
Less: accumulated depreciation
2,397,736
2,283,764
3,504,670
3,630,941
Cash and cash equivalents
41,421
42,542
Tenant receivables and accrued revenue, net
82,762
85,463
Investment in and advances to unconsolidated entities, at equity
417,092
433,207
Deferred costs and other assets
205,034
169,135
Total assets
$
4,250,979
$
4,361,288
Liabilities: Mortgage notes payable
$
1,115,608
$
983,269
Notes payable
957,566
982,697
Unsecured term loans
686,642
685,509
Revolving credit facility
204,145
286,002
Other Indebtedness
97,601
-
Accounts payable, accrued expenses, intangibles, and deferred
revenues
260,904
253,862
Distributions payable
3,252
2,992
Cash distributions and losses in unconsolidated entities, at equity
15,421
15,421
Total liabilities
3,341,139
3,209,752
Redeemable noncontrolling interests
3,265
3,265
Equity: Stockholders' equity Series H Cumulative
Redeemable Preferred Stock
104,251
104,251
Series I Cumulative Redeemable Preferred Stock
98,325
98,325
Common stock
19
19
Capital in excess of par value
1,254,771
1,247,639
Accumulated deficit
(655,492
)
(456,924
)
Accumulated other comprehensive (loss) income
(5,525
)
6,400
Total stockholders' equity
796,349
999,710
Noncontrolling interests
110,226
148,561
Total equity
906,575
1,148,271
Total liabilities, redeemable noncontrolling interests and
equity
$
4,250,979
$
4,361,288
RECONCILIATION OF FUNDS FROM OPERATIONS Including
Pro-Rata Share of Unconsolidated Properties Washington Prime
Group Inc. (unaudited, dollars in thousands, except per
share data)
Three Months Ended December
31,
Twelve Months Ended December
31,
2019
2018
2019
2018
Funds from Operations ("FFO"): Net income
$
23,868
$
68,836
$
2,760
$
108,655
Less: Preferred dividends and distributions on preferred operating
partnership units
(3,568
)
(3,568
)
(14,272
)
(14,272
)
Real estate depreciation and amortization, including joint venture
impact
71,370
70,821
310,430
295,900
Noncontrolling interests portion of depreciation and amortization
(67
)
(35
)
(67
)
(35
)
Net income attributable to noncontrolling interest holders in
properties
(45
)
(76
)
(45
)
(76
)
Impairment loss, including (gain) on disposition of interests in
properties, net
1,594
(1,598
)
26,586
(3,353
)
FFO
$
93,152
$
134,380
$
325,392
$
386,819
Adjusted Funds from Operations: FFO
$
93,152
$
134,380
$
325,392
$
386,819
Gain on extinguishment of debt, net of default interest
(23,098
)
(50,422
)
(62,011
)
(50,422
)
Adjusted FFO
$
70,054
$
83,958
$
263,381
$
336,397
Weighted average common shares outstanding - diluted
224,228
223,145
223,811
223,004
FFO per diluted share
$
0.42
$
0.60
$
1.45
$
1.73
Total adjustments
$
(0.11
)
$
(0.22
)
$
(0.27
)
$
(0.22
)
Adjusted FFO per diluted share
$
0.31
$
0.38
$
1.18
$
1.51
RECONCILIATION OF NET OPERATING INCOME GROWTH FOR
COMPARABLE PROPERTIES Including Pro-Rata Share of
Unconsolidated Properties Washington Prime Group Inc.
(unaudited, dollars in thousands)
Three Months Ended December
31,
Twelve Months Ended December
31,
2019
2018
Variance $
2019
2018
Variance $
Reconciliation of Comp NOI to Net
Income: Net Income
$
23,868
$
68,836
$
(44,968
)
$
2,760
$
108,655
$
(105,895
)
(Income) loss from unconsolidated entities
(503
)
(851
)
348
1,499
(541
)
2,040
Income and other taxes
831
673
158
1,296
1,532
(236
)
Gain on extinguishment of debt, net
(24,747
)
(51,395
)
26,648
(63,660
)
(51,395
)
(12,265
)
Gain on disposition of interests in properties, net
(12,317
)
(4,494
)
(7,823
)
(38,373
)
(24,602
)
(13,771
)
Interest expense, net
38,576
36,360
2,216
153,382
141,987
11,395
Operating Income
25,708
49,129
(23,421
)
56,904
175,636
(118,732
)
Depreciation and amortization
62,178
61,696
482
271,320
257,796
13,524
Impairment loss
6,320
-
6,320
35,256
-
35,256
General and administrative
11,728
9,121
2,607
51,187
39,090
12,097
Fee income
(3,013
)
(2,483
)
(530
)
(11,682
)
(9,527
)
(2,155
)
Management fee allocation
17
152
(135
)
140
157
(17
)
Pro-rata share of unconsolidated joint ventures in comp NOI
18,022
18,483
(461
)
70,463
72,348
(1,885
)
Property allocated corporate expense
4,195
3,833
362
16,870
14,591
2,279
Non-comparable properties and other (1)
190
(2,555
)
2,745
423
(5,512
)
5,935
NOI from sold properties
(695
)
(2,782
)
2,087
(2,482
)
(12,720
)
10,238
Termination income
(118
)
(1,236
)
1,118
(1,630
)
(3,457
)
1,827
Straight-line rents
(1,040
)
(475
)
(565
)
(4,695
)
(3,629
)
(1,066
)
Ground lease adjustments for straight-line and fair market value
4
12
(8
)
20
50
(30
)
Fair market value and inducement adjustments to base rents
(894
)
(991
)
97
(6,194
)
(8,952
)
2,758
Less: Tier 2 and noncore properties (2)
(8,342
)
(12,137
)
3,795
(32,131
)
(47,646
)
15,515
Comparable NOI - Tier 1 and Open Air properties
$
114,260
$
119,767
$
(5,507
)
$
443,769
$
468,225
$
(24,456
)
Comparable NOI percentage change - Tier 1 and Open Air
properties
-4.6
%
-5.2
%
(1) Represents an adjustment to
remove the NOI amounts from properties not owned and operated in
all periods presented, certain non-recurring expenses (such as
hurricane related expenses), as well as material insurance proceeds
and other non-recurring income received in the periods presented.
This also includes adjustments related to the rents from the
outparcels sold to Four Corners.
(2) NOI from the Tier 2 and
noncore properties held in each period presented.
EBITDAre Washington Prime Group Inc. (dollars in
thousands)
Twelve Months Ended December
31,
2019
Calculation of EBITDAre: Net income
$
2,760
Interest expense, net
153,382
Income and other taxes
1,296
Depreciation and amortization
271,320
Gain on disposition of interests in properties, net
(8,670
)
Impairment loss
35,256
Pro-rata share of unconsolidated entities, net
72,634
EBITDAre (1)(2)
527,978
Gain on extinguishment of debt, net
(63,660
)
Adjusted EBITDAre
$
464,318
Interest expense consolidated
$
153,382
Interest expense, pro-rata share of unconsolidated
24,194
Total
$
177,576
Adjusted EBITDAre to interest expense
2.61
x (1) EBITDAre is calculated consistent with the
NAREIT definition. (2) EBITDAre includes the expensing of internal
leasing costs of $16,321 for the twelve months ended December 31,
2019.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200226006017/en/
Lisa A. Indest, CAO & EVP, Finance, 614.887.5844 or
lisa.indest@washingtonprime.com Kimberly A. Green, VP, Investor
Relations & Corporate Communications, 614.887.5647 or
kim.green@washingtonprime.com
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