Inland Real Estate Corporation Reports Financial Results for the Third Quarter 2007

Inland Real Estate Corporation (NYSE: IRC) today announced financial results for the third quarter ended September 30, 2007. Highlights Funds from operations (FFO) of $22.8 million or $0.35 per share (basic and diluted) for the three months ended September 30, 2007 FFO of $69.9 million or $1.07 per share for the nine months ended September 30, 2007, representing increases of 3.4% and 7.0%, respectively Total of 78 leases executed for rental of 379,092 aggregate square feet during the quarter; average base rents for new and renewal leases up 25.8% and 24.8%, respectively, over expiring rates Financial occupancy up 1.1% from last quarter Company closed one direct and two joint venture acquisitions during quarter; fee income from unconsolidated JVs up 86% year-to-date versus same period prior year Financial Results The Company reported that FFO, a widely accepted measure of performance for real estate investment trusts (REITs), for the three months ended September 30, 2007 was $22.8 million, a decrease of 1.5% compared to $23.2 million for the three months ended September 30, 2006. On a per share basis, FFO was $0.35 (basic and diluted) for the three months ended September 30, 2007, an increase of $0.01 or 2.9% over the three months ended September 30, 2006. The decrease in FFO for the quarter is primarily due to an increase in interest expense and property operating expense, partially offset by an increase in fee income from unconsolidated joint ventures. FFO per share for the quarter increased from the same period prior year, primarily due to a decrease in the number of common shares outstanding in 2007, a result of the repurchase of approximately 2.8 million shares by the Company in the fourth quarter 2006. The Company reported that net income was $10.0 million for the three months ended September 30, 2007, a decrease of 31.4% compared to net income of $14.6 million for the three months ended September 30, 2006. On a per share basis, net income was $0.15 per share (basic and diluted) for the three months ended September 30, 2007, a decrease of 31.8% compared to $0.22 per share (basic and diluted) for the three months ended September 30, 2006. The decreases in net income and net income per share in the quarter are primarily due to no gains on sales of investment properties in the third quarter 2007 versus gains on property sales of $3.9 million or $0.06 per share for the three months ended September 30, 2006. FFO increased $2.3 million or 3.4% to $69.9 million for the nine months ended September 30, 2007. On a per share basis, FFO increased by 7.0% or $0.07 to $1.07 from $1.00 for the same year ago period. FFO increased in the nine month period primarily due to gains on sales of a joint venture interest and non-operating property (land) recorded in the first quarter 2007, and increased fee income earned from joint venture activity with Inland Real Estate Exchange Corporation. The increase in FFO per share for the nine month period was primarily due to the aforementioned items, plus a decrease in the number of common shares outstanding for the nine months ending September 30, 2007, compared to the same period prior year. Net income was $32.4 million for the nine months ended September 30, 2007, a decrease of $4.3 million or 11.7% compared to net income of $36.7 million for the nine months ended September 30, 2006. Net income per share was $0.50 (basic and diluted) for the nine months ended September 30, 2007, a decrease of $0.04 or 7.4% from the prior year period. The decreases in net income and net income per share for the nine months ended September 30, 2007 over the year ago period are primarily due to gains on sales of investment properties of $1.2 million or $0.02 per share in 2007, compared to gains of $6.0 million or $0.09 per share in 2006, partially offset by increased fee income from joint venture activity recognized in 2007. A reconciliation of FFO to net income and FFO per share to net income per share is provided at the end of this news release. "During the quarter we continued to build upon a platform of solid operations and initiatives to drive growth,” said Robert Parks, President and Chief Executive Officer of Inland Real Estate Corporation. "We delivered consistent overall performance, including a seven percent increase in FFO per share year-to-date and a nearly three percent gain in total revenues for the quarter. Leasing remains a core strength, with a total of 78 leases executed in the third quarter for nearly 380,000 square feet, and strong leasing spreads on both new and renewal leases.” "In addition,” said Parks, "we are benefiting from our joint venture initiatives, including increased fee income through our partnership with Inland Real Estate Exchange Corporation (IREX). Our development and investment joint ventures are proving to be resourceful complementary strategies to foster growth in the current retail environment.” Portfolio Performance Total revenues increased 2.7% to $45.4 million for the three months ended September 30, 2007, from $44.2 million for the third quarter 2006. For the nine months ended September 30, 2007 total revenues increased $6.6 million or 5.0% to $138.7 million from $132.1 million for the same period in 2006, primarily due to additional property acquisitions. The Company evaluates its overall portfolio by analyzing the operating performance of properties that have been owned and operated for the same three and nine month periods during each year. A total of 123 of the Company’s investment properties satisfied this criterion during these periods and are referred to as "same store” properties. Same store net operating income (excluding the impact of straight-line and intangible lease rent) was $29.6 million for the third quarter 2007 and $88.0 million for the nine months ended September 30, 2007, essentially level with the same periods prior year. As of September 30, 2007, occupancy for the Company’s same store portfolio was 95.6%, compared to occupancy of 95.4% as of September 30, 2006. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased 4.1% to $38.1 million for the three months ended September 30, 2007, compared to $36.6 million for the three months ended September 30, 2006. For the nine months ended September 30, 2007, EBITDA increased 7.2% to $113.4 million from $105.7 million last year. A definition and reconciliation of EBITDA to income from continuing operations is provided at the end of this news release. Balance Sheet, Market Value and Liquidity EBITDA coverage of interest expense was 2.7 times for the three months ended September 30, 2007, compared to 2.6 times for the second quarter 2007. The Company has provided EBITDA and the related non-GAAP coverage ratios as supplemental disclosure because the Company believes such disclosure provides useful information regarding the Company’s ability to service and incur debt. At September 30, 2007, the Company had an equity market capitalization of $1.0 billion and $1.1 billion of total debt outstanding (including the pro-rata share of debt in unconsolidated joint ventures) for a total market capitalization of $2.1 billion and a debt-to-total market capitalization of 50.7%. Including the convertible notes, approximately 85.6% of this debt was fixed at a weighted average interest rate of 5.19%. At September 30, 2007, the Company had $80 million outstanding on its unsecured line of credit, which the Company uses for acquisitions, capital improvements, tenant improvements, leasing costs and working capital. Leasing For the three months ended September 30, 2007, the Company executed 14 new, 59 renewal leases, and 5 non-comparable leases (new, previously un-leased space) aggregating 379,092 square feet. The 14 new leases comprise 39,694 square feet with an average rental rate of $16.70 per square foot, a 25.8% increase over the average expiring rate. The 59 renewal leases comprise 316,357 square feet with an average rental rate of $15.00 per square foot, a 24.8% increase over the average expiring rate. The five non-comparable leases comprise 23,041 square feet with an average base rent of $13.67. As of September 30, 2007, the Company’s portfolio was 95.6% leased, compared to 96.2% leased as of September 30, 2006, and 95.7% leased as of June 30, 2007. Acquisitions During the third quarter, Inland Real Estate Corporation acquired for its own portfolio four ground-leased pads located adjacent to Orland Park Place, a retail center in Orland Park, IL, in which the company owns an interest through a joint venture. The four pads, acquired for $10.9 million, comprise a combined floor area of approximately 30,000 square feet and are currently tenanted by an Olive Garden restaurant, a T.G.I. Friday’s restaurant, National City Bank of the Midwest and the Canoe Club restaurant. In October, the Company acquired for its joint venture with Inland Real Estate Exchange Corporation (IREX) a 32,258 square foot, two-tenant building in Aurora, IL, for $6.0 million. The property is currently leased to Office Depot and the Factory Card and Party Outlet. Development Joint Venture Activity During the quarter, the Company acquired for $23.0 million 63 acres of land in North Aurora, IL, through its joint venture with North American Real Estate, Inc. (NARE). The property, adjacent to an existing development venture the Company has undertaken with NARE, will likely be developed into 200,000 to 300,000 square feet of multi-tenant retail space plus free-standing out parcels for sale or ground lease. The Company also acquired for $5 million, a 107,800 square foot building and out-building in Boise, Idaho, with its partner Pine Tree Institutional Realty, LLC. The property will be redeveloped into multi-tenant retail space. Dividends In August, September and October 2007 the Company paid monthly cash dividends to stockholders of $0.08167 per common share. The Company currently pays annual dividends at the rate of $0.98 per share. Guidance The Company reiterates original guidance that FFO per common share (basic and diluted) for fiscal year 2007 is expected to be in the range of $1.40 to $1.43. Conference Call/Webcast The Company will host a management conference call to discuss its financial results on Wednesday, November 7, 2007 at 2:00 p.m. CT (3:00 p.m. ET). Hosting the conference call for the Company will be Robert Parks, President and Chief Executive Officer, Mark Zalatoris, Chief Operating Officer, Brett Brown, Chief Financial Officer and Scott Carr, President of Property Management. The conference call can be accessed by dialing 877-407-0782, or 201-689-8567 for international callers. The Company recommends that participants dial in at least ten minutes prior to the scheduled start of the call. The conference call also will be available via live webcast on the Company’s website at www.inlandrealestate.com. The conference call will be recorded and available for replay beginning at 4:00 p.m. CT (5:00 p.m. ET) on November 7, 2007, and will be available until 12:00 midnight on Wednesday, November 14, 2007. Interested parties can access the replay of the conference call by dialing 877-660-6853, or 201-612-7415 for international callers. The replay passcode is Account # 286 and the Conference ID # is 258249. About Inland Real Estate Corporation Inland Real Estate Corporation is a self-administered and self-managed publicly traded real estate investment trust (REIT) that currently owns interests in 150 neighborhood, community, power, lifestyle and single-tenant retail centers located primarily in the Midwestern United States, with aggregate leasable space of more than 14 million square feet. Additional information on Inland Real Estate Corporation, including a copy of the Company’s supplemental financial information for the three-months ended September 30, 2007, is available at www.inlandrealestate.com. This press release contains forward-looking statements. Forward-looking statements are statements that are not historical, including statements regarding management’s intentions, beliefs, expectations, representations, plans or predictions of the future, and are typically identified by such words as "believe,” "expect,” "anticipate,” "intend,” "estimate,” "may,” "will,” "should” and "could.” The Company intends that such forward-looking statements be subject to the safe harbors created by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. There are numerous risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Please refer to the documents filed by Inland Real Estate Corporation with the SEC, specifically the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, for a more complete discussion of these risks and uncertainties. Inland Real Estate Corporation disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. INLAND REAL ESTATE CORPORATION Consolidated Balance Sheets September 30, 2007 and December 31, 2006 (In thousands except per share data)   Assets     September 30, 2007 (unaudited) December 31, 2006 Investment properties: Land $ 346,367 337,896 Construction in progress 1,520 434 Building and improvements 942,476 926,014   1,290,363 1,264,344 Less accumulated depreciation 242,455 218,808   Net investment properties 1,047,908 1,045,536   Cash and cash equivalents 24,183 27,569 Investment in securities (net of an unrealized loss of $1,260 and $546 at September 30, 2007 and December 31, 2006, respectively) 22,088 16,777 Restricted cash 5,376 4,044 Accounts and rents receivable (net of provision for doubtful accounts of $1,343 and $1,990 at September 30, 2007 and December 31, 2006, respectively) 40,251 33,668 Mortgages receivable 30,699 27,848 Investment in and advances to unconsolidated joint ventures 91,611 74,890 Deposits and other assets 5,983 3,864 Acquired above market lease intangibles (net of accumulated amortization of $2,396 and $2,450 at September 30, 2007 and December 31, 2006, respectively) 2,614 3,118 Acquired in-place lease intangibles (net of accumulated amortization of $8,584 and $6,534 at September 30, 2007 and December 31, 2006, respectively) 21,873 21,102 Leasing fees (net of accumulated amortization of $1,687 and $1,572 at September 30, 2007 and December 31,2006, respectively) 3,578 3,378 Loan fees (net of accumulated amortization of $5,128 and $4,107 at September 30, 2007 and December 31, 2006, respectively) 6,385 7,367   Total assets $ 1,302,549 1,269,161 INLAND REAL ESTATE CORPORATION Consolidated Balance Sheets (continued) September 30, 2007 and December 31, 2006 (In thousands except per share data)   Liabilities and Stockholders' Equity       September 30, 2007 (unaudited) December 31, 2006 Liabilities: Accounts payable and accrued expenses $ 6,274 5,558 Acquired below market lease intangibles (net of accumulated amortization of $3,917 and $3,535 at September 30, 2007 and December 31, 2006, respectively) 3,643 4,537 Accrued interest 5,925 3,683 Accrued real estate taxes 28,451 24,425 Distributions payable 5,348 5,205 Security and other deposits 2,455 2,466 Mortgages payable 599,874 622,280 Line of credit 80,000 28,000 Convertible notes 180,000 180,000 Prepaid rents and unearned income 1,999 2,596 Other liabilities 17,781   10,363     Total liabilities 931,750   889,113     Commitments and contingencies   Minority interest 2,576   3,065     Stockholders' Equity: Preferred stock, $0.01 par value, 6,000 Shares authorized; none issued and outstanding at September 30, 2007 and December 31, 2006 - - Common stock, $0.01 par value, 500,000 Shares authorized; 65,484 and 65,059 Shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively 654 650 Additional paid-in capital (net of offering costs of $58,816) 612,403 605,133 Accumulated distributions in excess of net income (243,574 ) (228,254 ) Accumulated other comprehensive loss (1,260 ) (546 )   Total stockholders' equity 368,223   376,983     Total liabilities and stockholders' equity $ 1,302,549   1,269,161   INLAND REAL ESTATE CORPORATION Consolidated Statements of Operations For the three and nine months ended September 30, 2007 and 2006 (unaudited) (In thousands except per share data)       Three months Three months Nine months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 2007 2006 2007 2006 Revenues: Rental income $ 32,757 32,647 98,385 96,091 Tenant recoveries 12,118 11,193 37,730 35,170 Other property income 565   403   2,569   858     Total revenues 45,440 44,243 138,684 132,119   Expenses: Property operating expenses 5,618 4,580 18,845 14,977 Real estate tax expense 8,270 7,865 24,389 24,095 Depreciation and amortization 10,842 10,137 31,926 30,591 General and administrative expenses 2,506   2,415   8,871   7,422     Total expenses 27,236   24,997   84,031   77,085     Operating income 18,204 19,246 54,653 55,034   Other income 1,300 1,620 3,840 3,779 Fee income from unconsolidated joint ventures 2,114 657 3,242 1,747 Gain on sale of investment properties - 132 - 623 Gain on sale of joint venture interest - - 2,228 - Gain on extinguishment of debt - - 319 - Interest expense (12,172 ) (11,429 ) (36,091 ) (32,688 ) Minority interest (117 ) (194 ) (336 ) (810 )   Income before equity in earnings of unconsolidated joint ventures, income tax expense of taxable REIT subsidiary and discontinued operations 9,329 10,032 27,855 27,685   Income tax expense of taxable REIT subsidiary (229 ) - (654 ) (53 ) Equity in earning of unconsolidated joint ventures 930   553   3,873   2,419     Income from continuing operations 10,030 10,585 31,074 30,051   Discontinued operations: Income from discontinued operations (including gain on sale of investment properties of $0 and $3,883 for the three months ended September 30, 2007 and 2006, respectively and $1,223 and $6,017 for the nine months ended September 30, 2007 and 2006) 2   4,041   1,356   6,693     Net income available to common stockholders 10,032 14,626 32,430 36,744   Other comprehensive income: Unrealized loss on investment securities (429 ) (352 ) (714 ) (762 )   Comprehensive income $ 9,603   14,274   31,716   35,982   INLAND REAL ESTATE CORPORATIONConsolidated Statements of OperationsFor the three and nine months ended September 30, 2007 and 2006 (unaudited)(In thousands except per share data)       Three monthsendedSeptember 30, 2007 Three monthsendedSeptember 30, 2006 Nine monthsendedSeptember 30, 2007 Nine monthsendedSeptember 30, 2006   Basic and diluted earnings available to common shares per weighted average common share:   Income from continuing operations $ 0.15 0.16 0.48 0.44 Discontinued operations 0.00 0.06 0.02 0.10   Net income available to common stockholders per weighted average common share – basic and diluted $ 0.15 0.22 0.50 0.54   Weighted average number of common shares outstanding – basic 65,361 67,668 65,193 67,574   Weighted average number of common shares outstanding – diluted 65,422 67,737 65,260 67,643   Non-GAAP Financial Measures We consider FFO a widely accepted and appropriate measure of performance for a REIT. FFO provides a supplemental measure to compare our performance and operations to other REITs. Due to certain unique operating characteristics of real estate companies, NAREIT has promulgated a standard known as FFO, which it believes more accurately reflects the operating performance of a REIT such as ours. As defined by NAREIT, FFO means net income computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of operating property, plus depreciation and amortization and after adjustments for unconsolidated partnership and joint ventures in which the REIT holds an interest. We have adopted the NAREIT definition for computing FFO. Management uses the calculation of FFO for several reasons. We use FFO in conjunction with our acquisition policy to determine investment capitalization strategy and we also use FFO to compare our performance to that of other REITs in our peer group. Additionally, FFO is used in certain employment agreements to determine incentives payable by us to certain executives, based on our performance. The calculation of FFO may vary from entity to entity since capitalization and expense policies tend to vary from entity to entity. Items that are capitalized do not impact FFO whereas items that are expensed reduce FFO. Consequently, our presentation of FFO may not be comparable to other similarly titled measures presented by other REITs. FFO does not represent cash flows from operations as defined by U.S. GAAP, it is not indicative of cash available to fund all cash flow needs and liquidity, including our ability to pay distributions and should not be considered as an alternative to net income, as determined in accordance with U.S. GAAP, for purposes of evaluating our operating performance. The following table reflects our FFO for the periods presented, reconciled to net income available to common stockholders for these periods:       Three months endedSeptember 30, 2007 Three months endedSeptember 30, 2006 Nine months endedSeptember 30, 2007 Nine months endedSeptember 30, 2006   Net income available to common stockholders $ 10,032 14,626 32,430 36,744 Gain on sale of investment properties, net of minority interest - (4,015 ) (1,223 ) (6,406 ) Gain on non-operating property, net of minority interest - - - 157 Equity in depreciation of unconsolidated joint ventures 2,740 2,476 7,582 6,638 Amortization on in-place lease intangibles 604 755 2,247 2,253 Amortization on leasing commissions 198 200 560 574 Depreciation, net of minority interest 9,274 9,155   28,295   27,640     Funds From Operations $ 22,848 23,197   69,891   67,600     Net income available to common stockholders per weighted average common share – basic and diluted $ 0.15 0.22   0.50   0.54     Funds From Operations, per common share – basic and diluted $ 0.35 0.34   1.07   1.00     Weighted average number of common shares outstanding, basic 65,361 67,668   65,193   67,574     Weighted average number of common shares outstanding, diluted 65,422 67,737   65,260   67,643     EBITDA is defined as earnings (losses) from operations excluding: (1) interest expense; (2) income tax benefit or expenses; (3) depreciation and amortization expense. We believe EBITDA is useful to us and to an investor as a supplemental measure in evaluating our financial performance because it excludes expenses that we believe may not be indicative of our operating performance. By excluding interest expense, EBITDA measures our financial performance regardless of how we finance our operations and capital structure. By excluding depreciation and amortization expense, we believe we can more accurately assess the performance of our portfolio. Because EBITDA is calculated before recurring cash charges such as interest expense and taxes and is not adjusted for capital expenditures or other recurring cash requirements, it does not reflect the amount of capital needed to maintain our properties nor does it reflect trends in interest costs due to changes in interest rates or increases in borrowing. EBITDA should be considered only as a supplement to net earnings and may be calculated differently by other equity REITs.       Three months endedSeptember 30, 2007 Three months endedSeptember 30, 2006 Nine months endedSeptember 30, 2007 Nine months endedSeptember 30, 2006   Income from continuing operations $ 10,030 10,585 31,074 30,051 Gain on non-operating property - (132 ) - (623 ) Income tax expense of taxable REIT subsidiary 229 - 654 53 Income from discontinued operations 2 158 133 676 Interest expense 12,172 11,429 36,091 32,688 Interest expense associated with discontinued operations - 99 131 340 Interest expense associated with unconsolidated joint ventures 2,119 1,760 5,689 4,895 Depreciation and amortization 10,842 10,137 31,926 30,591 Depreciation and amortization associated with discontinued operations - 107 106 440 Depreciation and amortization associated with unconsolidated joint ventures 2,740 2,476   7,582 6,638     EBITDA $ 38,134 36,619   113,386 105,749     Total Interest Expense $ 14,291 13,288   41,911 37,923     EBITDA: Interest Expense Coverage Ratio 2.7 x 2.8 x 2.7 x 2.8 x