Washington Prime Group Inc. (NYSE: WPG) today
reported financial and operating results for the first quarter
ended March 31, 2019 that reflect continued progress of the
execution of the Company’s financial, operating and strategic
objectives.
|
|
|
Three Months Ended March 31, |
(per share amounts) |
|
|
2019 |
|
|
|
2018 |
|
Net
(loss) income per diluted share |
|
|
($0.03 |
) |
|
|
$0.07 |
|
FFO per
diluted share |
|
|
$0.31 |
|
|
|
$0.39 |
|
|
|
|
|
|
|
|
|
|
A description of each non-GAAP financial measure and the related
reconciliation to the comparable GAAP financial measure are
provided in this press release.
Business Highlights
Robust Leasing Volume and Tenant Diversification
Mandate
- First quarter 2019 leasing volume continued to be robust
exhibited by a 20% increase year-over-year (YOY), totaling 1.4M SF,
and the number of lease transactions increased 10% YOY;
- Of the 1.4M SF, 52% of new leasing volume was attributable to
lifestyle tenancy which includes food, beverage, entertainment,
home furnishings, fitness and professional services; and
- The Company continues to incent its leasing professionals in
order to further diversity tenancy; more than 30 leases qualified
during the quarter.
Stable Operating Metrics
- Tier One and Open Air occupancy remained strong at 93.3%,
only a 40 basis point decrease;
- Occupancy for the 42 Tier One assets decreased 20 basis
points to 92.1% YOY, while the 51 Open Air properties decreased 60
basis points to 94.7% YOY;
- Tier One sales PSF were $399 as of March 31, 2019;
- Tier One occupancy cost decreased 20 basis points YOY to 11.7%;
and
- Leasing spreads for new deals increased 13.2% during the
quarter for Tier One and Open Air assets.
Net Operating Income Performance
- First quarter 2019 Tier One comparable net operating income
(NOI) decreased YOY 5.7%, while Open Air comparable NOI increased
0.6%, resulting in a combined decrease of 4.0%;
- When excluding the approximately $4.7M negative impact of
cotenancy and rental income resulting from 2018
anchor bankruptcies (Bon-Ton Stores, Sears, Toys R Us), first
quarter 2019 comparable NOI for Tier One and Open Air was
essentially flat, improving for Tier One and Open Air portfolios to
(1.0)% and 2.9%, respectively; and
- While operating expenses related to snow removal and insurance
were higher than expected, NOI was generally in line with internal
expectations going into the quarter.
Redevelopment and Department Store Progress
- As exhibited within the most recent first quarter 2019
supplemental, the Company provides real time updates relating to
the 29 department stores within its Tier One and Open Air
properties that are currently vacant or those deemed likely to
close (Sears); As previously mentioned, this excludes spaces owned
by third parties such as Seritage Growth Properties;
- Washington Prime Group is pleased to announce 11, or 50%, of
the 22 spaces currently vacant within the core portfolio have been
addressed by the stalwart efforts of development and leasing via
signed leases or letters of intent;
- These include the following all of which are situated within
Tier One assets:
- National home furnishings and off-price retailers have
finalized letters of intent to replace Sears at Longview Mall, in
Longview, Texas;
- A national sporting goods retailer has provided a letter
of intent to replace a former Herberger’s (Bon-Ton Stores); a newly
constructed Dillard’s will replace Sears; and several national
retailers have signed letters of intent to replace a former Sports
Authority at Mesa Mall, located in Grand Junction,
Colorado;
- At Southern Hills Mall, in 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;
- Dillard’s will add a second location replacing former
Herberger’s (Bon-Ton Stores) within Southgate Mall in
Missoula, Montana;
- The Company has executed several leases with national retailers
including Big Lots, Ulta Beauty and Five Below; and has four leases
out for signature to national retailers to replace the former Sears
store at Grand Central Mall, in Parkersburg, West Virginia;
- The Company has executed a lease with Dunham’s Sports to join
the lineup at Morgantown Mall, in Morgantown, West Virginia
replacing space previously occupied by Elder Beerman (Bon-Ton
Stores);
- The Company has executed a development agreement with Columbus
based mixed use developer Crawford Hoying for a joint venture of
the redevelopment of the Sears at Polaris Fashion Place, in
Columbus, Ohio;
- The Company is in the process of obtaining necessary
entitlements for WestShore Plaza, in Tampa, Florida, and
discussions are underway regarding a joint venture of this mixed
use redevelopment which will replace a Sears department store;
- The RoomPlace is currently under construction and is expected
to open fall 2019 replacing a former Carsons Pirie Scott (Bon-Ton
Stores) at Lincolnwood Town Center, in Lincolnwood, Illinois;
and
- The RoomPlace and Round1 Entertainment will replace the former
Sears at The Mall at Fairfield Commons, in Dayton, Ohio. These
dynamic new tenants are under construction and are expected to open
in late 2019.
In addition to the above, Marshalls will replace a former Toys R
Us at the Plaza at Buckland Hills, in Manchester Hills,
Connecticut, and a national sporting goods retailer has provided a
letter of intent to replace a former Toys and Babies R Us at Forest
Plaza, located in Rockford, Illinois.
Financial Transactions The Company completed
the placement of the $180.0M commercial mortgage loan on Waterford
Lakes, a Tier One asset located in Orlando, Florida. This
transaction, as well as anticipated proceeds from the planned
refinancing of 2019 mortgage debt maturities, will substantially
satisfy the $250M senior unsecured note which matures 2020.
Louis Conforti, CEO and Director,
Commentary“Let me take a second to summarize last quarter
via a few bullet points:
- We leased 1.4M SF of space;
- Lifestyle tenancy attributed for 52% of new leasing
volume;
- Tier One and Open Air occupancy was 93.3%;
- Tier One occupancy cost was 11.7%;
- Tier One sales PSF were $399;
- Tier One and Open Air leasing spreads for new deals were 13.2%
during the quarter;
- Tier One and Open Air comparable NOI growth was (4.0%);
- We held 674 events, activities and installations;
- We addressed 50% of our department store vacancy and are
working our behinds off to get these tenants up and running;
- We financed Waterford Lakes for $180M with an all in coupon of
4.86%;
- We maintained our FFO guidance and as a result our 2020
comparable NOI forecast of 2.0% - 3.0%; and
- We left our 2019 dividend policy unchanged.
“The above evidences just how busy we've been and I should
probably end my commentary at this point. I can’t. My colleagues
have worked too darn hard to transform our assets
into dominant town centers and I’d be doing them a disservice
if I didn’t rally in defense of their endeavors as well as those
stalwart industry peers who are adjusting to a new world
order. With this in mind...
“’I read the news today, oh boy’...
Yellow journalism is best defined as reporting which emphasizes
hyperbole over factual data. During the previous two weeks, a
so called ‘research report’ and a newspaper article
illustrated how our sector is subject to this sensationalism. As a
result, I find it necessary to refute such misinformation
especially in light of the share price declines which occurred in
conjunction with their respective releases.
“Washington Prime Group has a financial and demographics
analytical team headed up by Charlie Adams. Let me tell you,
Charlie doesn’t suffer fools. He became, shall we say, skeptical of
the conclusions and incomplete nature of the aforementioned, so he
assembled his team and went about contesting these canards.
“One such ‘research report’ focused upon visitation growth. The
group in question utilizes proprietary data which in absence of
analyzing the underlying factors and methodology employed, I’ll
take at face value. The conclusion was traffic peaked during
fourth quarter 2018 and the implication seemed to be that the
freefall had already begun. Wait a minute…upon closer
examination, two data points were conveniently omitted from said
research report. The first questionable omission was while
YOY visitation growth exhibited a marginal deceleration, it still
exhibited positive YOY growth.
“The second even more glaring omission is the fact visitation
growth immediately rebounded during first quarter 2019. When
reviewing their Bloomberg graph there is indeed volatility which
might be as much a result of informational bias versus actual
results. Albeit, over a one and three year timeframe the trend is
unmistakably positive. Take a look for yourselves on your Bloomberg
terminal.
“The bottom line is visitation growth trends have been positive
and I think it’s because our sector has learned the valuable lesson
of diversifying away from apparel (both by choice and attrition)
and is increasingly offering guests differentiated goods and
services. Some are just doing it faster than others.
“The next questionable reportage was a media article entitled
‘What Retail Recovery? Malls Under Pressure as Stores Close’.
Let’s deconstruct this article as well, as there are several
attention grabbing statistics which warrant further
examination.
“For instance, the article quoted a study by a sell-side analyst
which stated ‘another 75,000 stores or around a tenth of existing
stores as of the third quarter of 2018 will have to close by 2026
if online retail penetration continues to rise from the current 16%
to 25%’. Holy cow, this equates to over 10,000 closures
per year over the next seven years! Here’s the problem
with this prophecy…it assumes all eCommerce growth is direct to
consumer ignoring the fact Buy Online Pick Up In Store (BOPIS) and
Click and Collect are the two fastest growing online segments and
are increasing five times faster than eCommerce as a whole.
“This study further assumes that 75% of total retail growth will
be driven by online growth notwithstanding recent data from third
quarter 2018 which shows just 26% of total retail growth is driven
by online purchases while a whopping 74% is still driven by
physical. In other words, their forecast assumes the exact
opposite of what actual data is exhibiting. This is
incongruous as it forces their model to assume physical retail has
to shutter stores in order to foot to their projections.
“The online growth cited within this study is pretty lofty…100%
for auto parts, 200% for home improvement and 400% for grocery (the
latter implying $13B skyrockets to $80B). I’ll take the under
as they somehow forgot to tick and tie their eCommerce projections
with the plain and simple fact the vast majority of current online
sales growth is heavily dependent upon a consumer picking up
merchandise at a physical location.
“Next let’s turn to 2019 store closures. No argument with
respect to the tally of 5,994 closures this year so far. It
stinks. However, a little bit of data parsing provides color
as to the nature of these closings. Six retail chains account
for 73% of 2019 closures compared to 21 and 16 in 2017 and 2018,
respectively. So more concepts aren’t going under…just the
bad ones.
“This speaks to a theme which we have championed loud and clear:
Overleveraged apparel retailers with crappy merchandising should go
the way of a certain avifauna described as ‘fat and flightless,
clueless and clumsy’ which was native to the island of Mauritius
and became extinct during the seventeenth century1.
“Then there was the mention of landlord defaults. What
drives me crazy is when an idiosyncratic event is utilized to
extrapolate a general (and more often than not obtuse)
assumption. For instance, one overleveraged asset was
highlighted in the article which exhibited fair to middling
occupancy (86%) prior to an 850,000 SF expansion for a total of
2.4M SF. Further exacerbating the situation, this asset was
located within a catchment unable to absorb existing, let alone
incremental, space. Almost forgot…the capitalization rate
used for valuation purposes was sub five percent.
“Actually, CMBS (as provided by Trepp) is
performing historically well. Overall delinquency
as of March 2019 was 2.88% compared to March 2018
delinquencies of 4.55%. Regarding my beloved sector,
delinquencies have actually decreased by 100 basis points to 4.90%,
which includes all those questionable CMBS series 1.0 loans with
‘frothy’ asset valuations. Simply put, the marketplace is dealing
with irresponsible CMBS loans originated from the previous
cycle. Remember, a bad loan doesn’t always necessarily mean a
bad asset.
“Last but not least, the article stated ‘mall vacancy
rates…inched up in the first quarter to 9.3% from 9.0% in the
fourth quarter of 2018 according to real estate research firm
REIS…the highest vacancy rate since the third quarter of 2011 when
it reached 9.4%’. Our fact checking actually came up with
9.1% for the same period, albeit let’s not quibble over ten basis
points.
“Clarification is also necessary regarding overall retail
vacancy rates, including regional malls and shopping centers, which
are above 10%. Per REIS, a major reason regional malls increased 30
basis points is due to Sears, albeit REIS also mentions rental
income was flat during the same period despite the occupancy
hiccup. This didn’t make it into the published article...I’ll check
the footnotes?
“This speaks to yet another theme we have espoused and can best
be characterized as maintaining minimal variance pursuant to
operating metrics while we diversify tenancy, activate common area
and do lots of other cool stuff. Washington Prime Group will
continue to make prudent decisions as it relates to tenancy and if
it means foregoing an insipid junior fashion retailer for a tenant
that will make a difference and diversity product mix even at a
lower rental rate, then so be it. We have been able to
achieve this delicate balance over the previous three years and
will continue to do so as it results in more dynamic assets.
“My passion is shared with every single one of our
colleagues. We are far from delusional and realize our sector
desperately needed this clean up. However, incomplete and
inaccurate data should be addressed with rigorous quantitative and
qualitative analysis.
“In closing, never bet against our Company because Charlie,
Morgan, Tasha, Bill, Steve, Greg, Brandon, B, Kristie, Tembra,
Jimmy, Carmen, Rocky, Hilary, Hannah, Matt, Alan, James and
everybody else at Washington Prime Group will prove you wrong by
grinding it out.”
¹Dodo bird
First Quarter Financial Results
Net loss attributable to common shareholders for the first
quarter of 2019 was $5.2 million, or $0.03 per diluted share,
compared to income of $14.0 million, or $0.07 per diluted share, a
year ago. The YOY difference relates primarily to retail
bankruptcies and related cotenancy as well as higher interest
expense. In addition, general and administrative expenses increased
$4.5 million YOY, of which $3.5 million was attributable to the
impact of the new lease accounting standard which prohibits the
Company from capitalizing non-incremental internal leasing and
legal efforts, and $1.9 million was attributable to severance costs
incurred during the first quarter of 2019.
NAREIT Funds from Operations (FFO) for the first quarter of 2019
were $70.1 million, or $0.31 per diluted share. This compares
to $86.5 million, or $0.39 per diluted share, during the same
quarter a year ago. The YOY decrease in FFO relates primarily to
items discussed above which impacted net loss.
Financial Activity
Dispositions
During the first quarter of 2019, the Company completed the sale
of additional tranches of restaurant outparcels to FCPT
Acquisitions, LLC ("Four Corners") generating net proceeds of
approximately $12.1 million. The Company expects to close on most
of the approximately $25.3 million of remaining outparcels in 2019,
subject to due diligence and closing conditions.
Mortgage Loans
On April 16, 2019, an affiliate of the Company closed on a
$180.0 million non-recourse mortgage note payable with a ten-year
term and a fixed rate of 4.86% secured by Waterford Lakes Town
Center, a Tier One asset located in Orlando, Florida. The mortgage
note payable requires monthly principal and interest payments and
will mature on May 6, 2029. The net proceeds were primarily used to
reduce corporate debt as mentioned above.
On April 8, 2019, the Company exercised the second of three
options to extend the maturity of the $65.0 million mortgage note
payable on Weberstown Mall, a Tier One asset located in Stockton,
California, for one year. The extended maturity date is June 8,
2020, subject to a one-year extension available at the Company’s
option subject to compliance with the terms of the underlying loan
agreement and payment of customary extension fees.
On March 29, 2019, the Company exercised the first of two
options to extend the maturity of the $52.0 million mortgage note
payable on Town Center of Aurora, a Tier One asset located in
Aurora, Colorado, for one year. The extended maturity date is April
1, 2020, subject to a one-year extension available at the Company’s
option subject to compliance with the terms of the underlying loan
agreement and payment of customary extension fees. Pursuant to the
terms of the extension option, the Company entered into a
derivative swap agreement that effectively fixed the interest rate
of the note payable at 4.76% through both extension periods.
2019 Guidance
The Company updates guidance for fiscal 2019 net
loss attributable to common shareholders in the range of $(0.16) to
$(0.06) per diluted share from $(0.09) to $(0.02) per diluted share
primarily due to higher depreciation expense. The Company
reaffirms guidance for fiscal 2019 FFO in a range of $1.16 to $1.24
per diluted share.
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, for the year ending December 31, 2019:
|
|
|
LowEnd |
|
HighEnd |
Estimated net loss
attributable to common shareholders per diluted share |
|
$ |
(0.16 |
) |
|
$ |
(0.06 |
) |
|
|
|
|
|
Depreciation and amortization including share of unconsolidated
entities |
|
|
1.32 |
|
|
|
1.30 |
|
Estimated
FFO per diluted share |
|
$ |
1.16 |
|
|
$ |
1.24 |
|
|
|
|
|
|
While the Company is maintaining guidance for
fiscal 2019 comparable NOI growth of (3.0)% to (1.0)% for Tier One
and Open Air properties, it is now expecting to be at the lower end
of such NOI guidance range primarily due to the impact of several
large national retailer bankruptcies that occurred during the first
quarter of 2019. Other key guidance assumptions for 2019
remain unchanged and can be found in the Supplemental Information
report available on the investor relations section of the Company’s
website.
The following table provides a reconciliation of
the expected range of net loss attributable to common
shareholders from GAAP financial statements to the Company’s NOI
projections for the year:
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
LowEnd |
|
HighEnd |
Net loss |
|
$ |
(35,000 |
) |
|
$ |
(13,000 |
) |
Depreciation and amortization |
|
|
253,000 |
|
|
|
251,000 |
|
General
and administrative and corporate overhead |
|
|
74,000 |
|
|
|
70,000 |
|
Interest
expense |
|
|
152,000 |
|
|
|
150,000 |
|
Gains
from sales of outparcels |
|
|
(15,000 |
) |
|
|
(17,000 |
) |
Pro-rata
share of unconsolidated joint venture in comp NOI |
|
|
69,000 |
|
|
|
71,000 |
|
Non-comparable properties and other (1) |
|
|
(8,000 |
) |
|
|
(10,000 |
) |
Tier Two
and Noncore properties |
|
|
(37,000 |
) |
|
|
(40,000 |
) |
Projected
comparable NOI – Tier One and Open Air |
|
$ |
453,000 |
|
|
$ |
462,000 |
|
Projected
comparable NOI year-over-year growth (2) |
|
|
(3.0 |
%) |
|
|
(1.0 |
%) |
- Includes fee income, termination and outparcel sales
projections, straight line rents, fair market adjustments and NOI
for non-comparable properties.
- Reported 2018 comparable NOI adjusted for actual and projected
property dispositions was $466.7 million.
For the second quarter of 2019, the Company
estimates net loss attributable to common shareholders to be in the
range of $(0.08) to $(0.04) per diluted share and FFO to be in the
range of $0.25 to $0.28 per diluted share.
A reconciliation of the range of estimated net
income per diluted share to estimated FFO per diluted share for the
second quarter of 2019 follows:
|
|
|
LowEnd |
|
HighEnd |
Estimated net loss
attributable to common shareholders per diluted share |
|
$ |
(0.08 |
) |
|
$ |
(0.04 |
) |
Depreciation and amortization including share of unconsolidated
entities |
|
|
0.33 |
|
|
|
0.32 |
|
Estimated
FFO per diluted share |
|
$ |
0.25 |
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
Earnings Call and Webcast on April 25
The Company will host its quarterly earnings conference call and
an audio webcast on Thursday, April 25, 2019 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 844.646.4463 (or +1.615.247.0256 for international
callers), and the conference ID for the call is 7295326.
An audio replay of the call will be available on the Company’s
website, or by calling 855.859.2056 (or +1.404.537.3406 for
international callers). The replay passcode is 7295326, beginning
on Thursday, April 25, 2019, at approximately 1:00 p.m. Eastern
Time through midnight on Thursday, May 9, 2019.
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® is a registered
trademark of the Company. Learn more at
www.washingtonprime.com.
Contacts
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
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 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.
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 March 31, |
|
|
2019 |
|
2018 |
|
|
|
|
|
Revenue: |
|
|
|
|
Rental income |
|
$ |
163,273 |
|
|
$ |
172,417 |
|
Other income |
|
|
5,550 |
|
|
|
4,577 |
|
Total revenues |
|
|
168,823 |
|
|
|
176,994 |
|
|
|
|
|
|
Expenses: |
|
|
|
|
Property operating |
|
|
(39,429 |
) |
|
|
(36,366 |
) |
Real estate taxes |
|
|
(22,114 |
) |
|
|
(22,041 |
) |
Advertising and
promotion |
|
|
(1,893 |
) |
|
|
(1,771 |
) |
Total recoverable
expenses |
|
|
(63,436 |
) |
|
|
(60,178 |
) |
Depreciation and
amortization |
|
|
(66,378 |
) |
|
|
(61,294 |
) |
General and administrative
(1) |
|
|
(14,125 |
) |
|
|
(9,654 |
) |
Ground rent |
|
|
(203 |
) |
|
|
(197 |
) |
Total operating
expenses |
|
|
(144,142 |
) |
|
|
(131,323 |
) |
|
|
|
|
|
Interest expense, net |
|
|
(36,830 |
) |
|
|
(34,344 |
) |
Gain on disposition of
interests in properties, net |
|
|
9,990 |
|
|
|
8,181 |
|
Income and other
taxes |
|
|
(356 |
) |
|
|
(485 |
) |
(Loss) income from
unconsolidated entities, net |
|
|
(48 |
) |
|
|
1,162 |
|
Net (loss) income |
|
|
(2,563 |
) |
|
|
20,185 |
|
Net (loss) income
attributable to noncontrolling interests |
|
|
(896 |
) |
|
|
2,661 |
|
Net (loss) income
attributable to the Company |
|
|
(1,667 |
) |
|
|
17,524 |
|
Less: Preferred share
dividends |
|
|
(3,508 |
) |
|
|
(3,508 |
) |
Net (loss) income
attributable to common shareholders |
|
$ |
(5,175 |
) |
|
$ |
14,016 |
|
|
|
|
|
|
(Loss) earnings per common
share, basic and diluted |
|
$ |
(0.03 |
) |
|
$ |
0.07 |
|
|
|
|
|
|
(1) An increase of $3.5 million relates to the new lease
accounting standard effective January 1, 2019, which no longer
permits deferral of certain internal legal and leasing costs. |
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEETS |
Washington Prime Group Inc. |
(Unaudited, dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2019 |
|
2018 |
Assets: |
|
|
|
|
Investment properties at
cost |
|
$ |
5,889,822 |
|
|
$ |
5,879,637 |
|
Construction in progress |
|
|
43,963 |
|
|
|
35,068 |
|
|
|
|
5,933,785 |
|
|
|
5,914,705 |
|
Less:
accumulated depreciation |
|
|
2,334,130 |
|
|
|
2,283,764 |
|
|
|
|
3,599,655 |
|
|
|
3,630,941 |
|
|
|
|
|
|
Cash and
cash equivalents |
|
|
29,244 |
|
|
|
42,542 |
|
Tenant
receivables and accrued revenue, net |
|
|
81,849 |
|
|
|
85,463 |
|
Investment
in and advances to unconsolidated entities, at equity |
|
|
428,130 |
|
|
|
433,207 |
|
Deferred
costs and other assets |
|
|
171,422 |
|
|
|
169,135 |
|
Total assets |
|
$ |
4,310,300 |
|
|
$ |
4,361,288 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Mortgage
notes payable |
|
$ |
978,823 |
|
|
$ |
983,269 |
|
Notes
payable |
|
|
983,542 |
|
|
|
982,697 |
|
Unsecured
term loans |
|
|
685,792 |
|
|
|
685,509 |
|
Revolving
credit facility |
|
|
341,288 |
|
|
|
286,002 |
|
Accounts
payable, accrued expenses, intangibles, and deferred revenues |
|
|
216,172 |
|
|
|
253,862 |
|
Distributions payable |
|
|
2,992 |
|
|
|
2,992 |
|
Cash
distributions and losses in unconsolidated entities, at equity |
|
|
15,421 |
|
|
|
15,421 |
|
Total liabilities |
|
|
3,224,030 |
|
|
|
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 |
|
|
1,249,490 |
|
|
|
1,247,639 |
|
Accumulated
deficit |
|
|
(509,187 |
) |
|
|
(456,924 |
) |
Accumulated
other comprehensive income |
|
|
2,082 |
|
|
|
6,400 |
|
Total
stockholders' equity |
|
|
944,980 |
|
|
|
999,710 |
|
Noncontrolling interests |
|
|
138,025 |
|
|
|
148,561 |
|
Total equity |
|
|
1,083,005 |
|
|
|
1,148,271 |
|
Total liabilities, redeemable noncontrolling interests and
equity |
|
$ |
4,310,300 |
|
|
$ |
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 March 31, |
|
|
2019 |
|
2018 |
Funds from
Operations ("FFO"): |
|
|
|
|
Net (loss) income |
|
$ |
(2,563 |
) |
|
$ |
20,185 |
|
Less: Preferred
dividends and distributions on preferred operating partnership
units |
|
|
(3,568 |
) |
|
|
(3,568 |
) |
Real estate
depreciation and amortization, including joint venture impact |
|
|
76,214 |
|
|
|
70,199 |
|
Gain on disposition of
interests in properties, net |
|
|
- |
|
|
|
(295 |
) |
FFO |
|
$ |
70,083 |
|
|
$ |
86,521 |
|
|
|
|
|
|
Weighted average common
shares outstanding - diluted |
|
|
223,208 |
|
|
|
223,278 |
|
|
|
|
|
|
FFO per diluted
share |
|
$ |
0.31 |
|
|
$ |
0.39 |
|
|
|
|
|
|
|
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 March 31, |
|
|
2019 |
|
2018 |
|
Variance $ |
|
|
|
|
|
|
|
Reconciliation
of Comp NOI to Net (Loss) Income: |
|
|
|
|
|
|
Net (Loss)
Income |
|
$ |
(2,563 |
) |
|
$ |
20,185 |
|
|
$ |
(22,748 |
) |
|
|
|
|
|
|
|
Loss (income) from
unconsolidated entities |
|
|
48 |
|
|
|
(1,162 |
) |
|
|
1,210 |
|
Income and other
taxes |
|
|
356 |
|
|
|
485 |
|
|
|
(129 |
) |
Gain on disposition of
interests in properties, net |
|
|
(9,990 |
) |
|
|
(8,181 |
) |
|
|
(1,809 |
) |
Interest expense,
net |
|
|
36,830 |
|
|
|
34,344 |
|
|
|
2,486 |
|
Operating
Income |
|
|
24,681 |
|
|
|
45,671 |
|
|
|
(20,990 |
) |
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
66,378 |
|
|
|
61,294 |
|
|
|
5,084 |
|
General and
administrative |
|
|
14,125 |
|
|
|
9,654 |
|
|
|
4,471 |
|
Fee income |
|
|
(2,747 |
) |
|
|
(2,342 |
) |
|
|
(405 |
) |
Management fee
allocation |
|
|
5 |
|
|
|
(16 |
) |
|
|
21 |
|
Pro-rata share of
unconsolidated joint ventures in comp NOI |
|
|
17,445 |
|
|
|
17,282 |
|
|
|
163 |
|
Property allocated
corporate expense |
|
|
3,495 |
|
|
|
4,124 |
|
|
|
(629 |
) |
Non-comparable
properties and other (1) |
|
|
(311 |
) |
|
|
(591 |
) |
|
|
280 |
|
NOI from sold
properties |
|
|
2 |
|
|
|
(1,796 |
) |
|
|
1,798 |
|
Termination income |
|
|
(786 |
) |
|
|
(1,766 |
) |
|
|
980 |
|
Straight-line
rents |
|
|
(1,132 |
) |
|
|
(859 |
) |
|
|
(273 |
) |
Ground lease
adjustments for straight-line and fair market value |
|
|
5 |
|
|
|
13 |
|
|
|
(8 |
) |
Fair market value and
inducement adjustments to base rents |
|
|
(2,900 |
) |
|
|
(3,042 |
) |
|
|
142 |
|
Less: Tier 2 and
noncore properties (2) |
|
|
(8,938 |
) |
|
|
(13,743 |
) |
|
|
4,805 |
|
|
|
|
|
|
|
|
Comparable NOI
- Tier 1 and Open Air properties |
|
$ |
109,322 |
|
|
$ |
113,883 |
|
|
$ |
(4,561 |
) |
Comparable NOI percentage change - Tier 1 and Open Air
properties |
|
|
|
|
|
|
-4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
|
|
|
|
|
|
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