XNYS:EQY Equity One Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

Commission file number 001-13499
_______________________________
EQUITY ONE, INC.
________________________________________________________________________________
(Exact name of Registrant as specified in its charter)

Maryland
 
52-1794271
(State or other jurisdiction of
 incorporation or organization)
 
(I.R.S. Employer
Identification No.)


1600 N.E. Miami Gardens Drive
North Miami Beach, FL
 
33179
(Address of principal executive offices)
 
(Zip Code)
(305) 947-1664
Registrant’s telephone number, including area code
_______________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer o Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No ý
As of August 2, 2012, the number of outstanding shares of Common Stock, par value $0.01 per share, of the Registrant was 114,765,118.
 



 
EQUITY ONE, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED JUNE 30, 2012
 
 
 
 
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
Item 1.
Page
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 


1


PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements    
EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2012 and December 31, 2011
(Unaudited)
(In thousands, except share par value amounts)
 
June 30,
2012
 
December 31,
2011
ASSETS
 
 
 
Properties:
 
 
 
Income producing
$
3,101,916

 
$
2,931,756

Less: accumulated depreciation
(322,589
)
 
(294,023
)
Income producing properties, net
2,779,327

 
2,637,733

Construction in progress and land held for development
160,290

 
111,844

Properties held for sale or properties sold
8,616

 
58,498

Properties, net
2,948,233

 
2,808,075

Cash and cash equivalents
31,276

 
10,963

Cash held in escrow and restricted cash
1,252

 
92,561

Accounts and other receivables, net
12,636

 
17,790

Investments in and advances to unconsolidated joint ventures
53,781

 
50,158

Mezzanine loans receivable, net
64,690

 
45,279

Goodwill
8,401

 
8,406

Other assets
178,765

 
189,339

TOTAL ASSETS (including $111,500 and $109,200 of consolidated variable interest entities at June 30, 2012 and December 31, 2011, respectively*)
$
3,299,034

 
$
3,222,571

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Notes payable:
 
 
 
Mortgage notes payable
$
429,693

 
$
470,687

Unsecured senior notes payable
681,136

 
691,136

Term loan
200,000

 

Unsecured revolving credit facilities
101,000

 
138,000

 
1,411,829

 
1,299,823

Unamortized premium on notes payable, net
6,104

 
8,181

Total notes payable
1,417,933

 
1,308,004

Other liabilities:
 
 
 
Accounts payable and accrued expenses
54,889

 
50,514

Tenant security deposits
8,878

 
8,455

Deferred tax liability
14,529

 
14,709

Other liabilities
184,415

 
164,188

Liabilities associated with assets held for sale or sold

 
28,695

Total liabilities (including $63,600 and $61,900 of consolidated variable interest entities at June 30, 2012 and December 31, 2011, respectively*)
1,680,644

 
1,574,565

Redeemable noncontrolling interests
22,621

 
22,804

Commitments and contingencies

 

Stockholders' Equity:
 
 
 
Preferred stock, $0.01 par value – 10,000 shares authorized but unissued

 

Common stock, $0.01 par value – 150,000 shares authorized, 112,727 and 112,599 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively
    
1,127

 
1,126

Additional paid-in capital
1,592,136

 
1,587,874

Distributions in excess of earnings
(199,422
)
 
(170,530
)
Accumulated other comprehensive loss
(6,003
)
 
(1,154
)
Total stockholders’ equity of Equity One, Inc.
1,387,838

 
1,417,316

Noncontrolling interests
207,931

 
207,886

Total equity
1,595,769

 
1,625,202

TOTAL LIABILITIES AND EQUITY
$
3,299,034

 
$
3,222,571


* The assets of these entities can only be used to settle obligations of the variable interest entities and the liabilities include third party liabilities of the variable interest entities for which the creditors or beneficial interest holders do not have recourse against us other than for customary environmental indemnifications and non-recourse carve-outs.

See accompanying notes to the condensed consolidated financial statements.

2


EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
For the three and six months ended June 30, 2012 and 2011
(Unaudited)
(In thousands, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
REVENUE:
 
 
 
 
 
 
 
Minimum rent
$
62,591

 
$
55,000

 
$
123,318

 
$
108,006

Expense recoveries
18,641

 
16,882

 
36,562

 
32,609

Percentage rent
791

 
621

 
2,745

 
2,075

Management and leasing services
500

 
641

 
1,304

 
1,107

Total revenue
82,523

 
73,144

 
163,929

 
143,797

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Property operating
21,983

 
20,495

 
44,008

 
40,988

Rental property depreciation and amortization
23,024

 
20,745

 
44,704

 
39,473

General and administrative
10,627

 
13,336

 
22,187

 
25,316

Total costs and expenses
55,634

 
54,576

 
110,899

 
105,777

INCOME BEFORE OTHER INCOME AND EXPENSE, TAX AND DISCONTINUED OPERATIONS
26,889

 
18,568

 
53,030

 
38,020

OTHER INCOME AND EXPENSE:
 
 
 
 
 
 
 
Investment income
1,584

 
967

 
3,029

 
1,660

Equity in (loss) income of unconsolidated joint ventures
(152
)
 
(98
)
 
(340
)
 
268

Other (loss) income
(7
)
 
25

 
134

 
156

Interest expense
(17,843
)
 
(17,389
)
 
(35,212
)
 
(34,940
)
Amortization of deferred financing fees
(616
)
 
(558
)
 
(1,209
)
 
(1,097
)
Gain on bargain purchase

 

 

 
30,561

Gain on sale of real estate

 
4,606

 

 
4,606

Gain on extinguishment of debt
436

 
213

 
343

 
255

Impairment loss
(3,948
)
 
(145
)
 
(3,948
)
 
(145
)
INCOME FROM CONTINUING OPERATIONS BEFORE TAX AND DISCONTINUED OPERATIONS
6,343

 
6,189

 
15,827

 
39,344

Income tax benefit of taxable REIT subsidiaries
15

 
174

 
61

 
307

INCOME FROM CONTINUING OPERATIONS
6,358

 
6,363

 
15,888

 
39,651

DISCONTINUED OPERATIONS:
 
 
 
 
 
 
 
Operations of income producing properties sold or held for sale
156

 
3,669

 
(16
)
 
7,324

(Loss) gain on disposal of income producing properties

 
(13
)
 
14,269

 
(13
)
Impairment loss on income producing properties sold or held for sale
(1,493
)
 
(1,277
)
 
(3,425
)
 
(1,277
)
Income tax benefit of taxable REIT subsidiaries

 
379

 

 
811

(LOSS) INCOME FROM DISCONTINUED OPERATIONS
(1,337
)
 
2,758

 
10,828

 
6,845

NET INCOME
5,021

 
9,121

 
26,716

 
46,496

Net income attributable to noncontrolling interests - continuing operations
(2,753
)
 
(2,148
)
 
(5,466
)
 
(4,547
)
Net loss attributable to noncontrolling interests - discontinued operations

 
13

 

 
30

NET INCOME ATTRIBUTABLE TO EQUITY ONE, INC.
$
2,268

 
$
6,986

 
$
21,250

 
$
41,979

 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER COMMON SHARE - BASIC:
 
 
 
 
 
 
 
Continuing operations
$
0.03

 
$
0.04

 
$
0.09

 
$
0.32

Discontinued operations
(0.01
)
 
0.03

 
0.10

 
0.06

 
$
0.02

 
$
0.06

*
$
0.18

*
$
0.38

 
 
 
 
 
 
 
 
Number of Shares Used in Computing Basic Earnings per Share
112,715

 
108,942

 
112,682

 
107,605

 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER COMMON SHARE - DILUTED:
 
 
 
 
 
 
 
Continuing operations
$
0.03

 
$
0.04

 
$
0.09

 
$
0.32

Discontinued operations
(0.01
)
 
0.03

 
0.09

 
0.06

 
$
0.02

 
$
0.06

*
$
0.18

 
$
0.38

 
 
 
 
 
 
 
 
Number of Shares Used in Computing Diluted Earnings per Share
113,210

 
109,112

 
112,940

 
107,768


* Note: EPS does not foot due to the rounding of the individual calculations.

See accompanying notes to the condensed consolidated financial statements.

3


EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive (Loss) Income
For the three and six months ended June 30, 2012 and 2011
(Unaudited)
(In thousands)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
NET INCOME
$
5,021

 
$
9,121

 
$
26,716

 
$
46,496

OTHER COMPREHENSIVE (LOSS) INCOME:
 
 
 
 
 
 
 
Net amortization of interest rate contracts included in net income
16

 
16

 
32

 
32

Net unrealized (loss) gain on interest rate swap (1)
(5,950
)
 
13

 
(4,881
)
 
94

Other comprehensive (loss) income adjustment
(5,934
)
 
29

 
(4,849
)
 
126

COMPREHENSIVE (LOSS) INCOME
(913
)
 
9,150

 
21,867

 
46,622

Comprehensive income attributable to noncontrolling interests
(2,753
)
 
(2,135
)
 
(5,466
)
 
(4,517
)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO EQUITY ONE, INC.
$
(3,666
)
 
$
7,015

 
$
16,401

 
$
42,105


(1) This amount includes our share of an unconsolidated joint venture's unrealized gains of $120 and $214 for the three and six months ended June 30, 2012, respectively, and $13 and $94 for the three and six months ended June 30, 2011, respectively.

See accompanying notes to the condensed consolidated financial statements.

4


EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Equity
For the six months ended June 30, 2012
(Unaudited)
(In thousands)
 
Common Stock
 
Additional
Paid-In
Capital
 
Distributions in Excess of Earnings
 
Accumulated Other Comprehensive Loss
 
Total Stockholders' Equity of Equity One, Inc.
 
Noncontrolling Interests
 
Total Equity
 
Shares
 
Amount
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2011
112,599

 
$
1,126

 
$
1,587,874

 
$
(170,530
)
 
$
(1,154
)
 
$
1,417,316

 
$
207,886

 
$
1,625,202

Issuance of common stock, net of withholding taxes
128

 
1

 
295

 

 

 
296

 

 
296

Stock issuance costs

 

 
(6
)
 

 

 
(6
)
 

 
(6
)
Share-based compensation expense

 

 
3,757

 

 

 
3,757

 

 
3,757

Restricted stock reclassified from liability to equity

 

 
101

 

 

 
101

 

 
101

Net income

 

 

 
21,250

 

 
21,250

 
5,042

 
26,292

Dividends paid on common stock

 

 

 
(50,142
)
 

 
(50,142
)
 

 
(50,142
)
Distributions to noncontrolling interests

 

 

 

 

 

 
(4,997
)
 
(4,997
)
Revaluation of redeemable noncontrolling interest

 

 
115

 

 

 
115

 

 
115

Other comprehensive loss adjustment

 

 

 

 
(4,849
)
 
(4,849
)
 

 
(4,849
)
BALANCE AT JUNE 30, 2012
112,727

 
$
1,127

 
$
1,592,136

 
$
(199,422
)
 
$
(6,003
)
 
$
1,387,838

 
$
207,931

 
$
1,595,769


See accompanying notes to the condensed consolidated financial statements.







5


EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2012 and 2011
(Unaudited)
 (In thousands)
 
Six Months Ended June 30,
 
2012
 
2011
 OPERATING ACTIVITIES:
 
 
 
 Net income
$
26,716

 
$
46,496

 Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 Straight line rent adjustment
(1,996
)
 
(1,808
)
 Accretion of below market lease intangibles, net
(6,506
)
 
(5,066
)
 Equity in loss (income) of unconsolidated joint ventures
340

 
(811
)
 Gain on bargain purchase

 
(30,561
)
 Income tax benefit of taxable REIT subsidiaries
(61
)
 
(1,118
)
 Provision for losses on accounts receivable
349

 
1,573

 Amortization of (premium) discount on notes payable, net
(1,592
)
 
667

 Amortization of deferred financing fees
1,211

 
1,105

 Depreciation and amortization
46,473

 
49,369

 Share-based compensation expense
3,620

 
3,322

 Amortization of derivatives
32

 
32

 Gain on sale of real estate
(14,269
)
 
(4,606
)
 Loss (gain) on extinguishment of debt
373

 
(255
)
 Operating distributions from joint venture
1,697

 
513

 Impairment loss
7,373

 
1,422

 Changes in assets and liabilities, net of effects of acquisitions and disposals:
 
 
 
 Accounts and other receivables
4,618

 
2,012

 Other assets
14,038

 
(4,794
)
 Accounts payable and accrued expenses
(3,685
)
 
2,224

 Tenant security deposits
382

 
13

 Other liabilities
(580
)
 
(407
)
 Net cash provided by operating activities
78,533

 
59,322

 
 
 
 
 INVESTING ACTIVITIES:
 
 
 
 Acquisition of income producing properties
(161,250
)
 
(100,472
)
 Additions to income producing properties
(10,732
)
 
(6,660
)
 Additions to construction in progress
(36,367
)
 
(7,503
)
 Proceeds from sale of real estate and rental properties
33,166

 
42,052

 Decrease in cash held in escrow
91,591

 

 Increase in deferred leasing costs and lease intangibles
(3,588
)
 
(3,531
)
 Investment in joint ventures
(6,572
)
 
(9,769
)
 Investment in consolidated subsidiary

 
(242
)
 Repayments from joint ventures
558

 

 Distributions from joint ventures
567

 

 Investment in mezzanine loan
(19,258
)
 

 Net cash used in investing activities
(111,885
)
 
(86,125
)

6


EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2012 and 2011
(Unaudited)
 (In thousands)
 
Six Months Ended June 30,
 
2012
 
2011
 FINANCING ACTIVITIES:
 
 
 
 Repayments of mortgage notes payable
$
(42,061
)
 
$
(143,383
)
 Net (repayments) borrowings under revolving credit facilities
(37,000
)
 
63,500

 Repayment of senior debt
(10,000
)
 

 Proceeds from issuance of common stock
296

 
116,617

 Borrowings under term loan
200,000

 

 Payment of deferred financing costs
(2,001
)
 
(252
)
 Stock issuance costs
(6
)
 
(982
)
 Dividends paid to stockholders
(50,142
)
 
(48,743
)
 Distributions to noncontrolling interests
(4,997
)
 
(4,523
)
 Distributions to redeemable noncontrolling interests
(424
)
 

 Net cash provided by (used in) financing activities
53,665

 
(17,766
)
 
 
 
 
 Net increase (decrease) in cash and cash equivalents
20,313

 
(44,569
)
 Cash and cash equivalents obtained through acquisition

 
23,412

 Cash and cash equivalents at beginning of the period
10,963

 
38,333

 Cash and cash equivalents at end of the period
$
31,276

 
$
17,176

 
 
 
 
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 Cash paid for interest (net of capitalized interest of $2,495 and $1,028 in 2012 and 2011, respectively)
$
37,299

 
$
42,151

 
 
 
 
 We acquired upon acquisition of certain income producing properties:
    
 
 
 
   Income producing properties
$
173,650

 
$
123,533

   Intangible and other assets
13,196

 
8,570

   Intangible and other liabilities
(25,596
)
 
(20,528
)
   Assumption of mortgage notes payable

 
(11,103
)
   Cash paid for income producing properties
$
161,250

 
$
100,472

 
 
 
 
 Net cash paid for the acquisition of C&C (US) No. 1 is as follows:
 
 
 
   Income producing properties
$

 
$
471,219

   Intangible and other assets

 
113,484

   Intangible and other liabilities

 
(35,898
)
   Assumption of mortgage notes payable

 
(261,813
)
   Issuance of Equity One common stock

 
(73,698
)
   Noncontrolling interest in C&C (US) No. 1

 
(206,145
)
   Gain on bargain purchase

 
(30,561
)
   Cash acquired upon acquisition of C&C (US) No. 1

 
23,412

 Net cash paid for acquisition of C&C (US) No. 1
$

 
$

 Net cash paid for acquisition of income producing properties
$
161,250

 
$
100,472

See accompanying notes to the condensed consolidated financial statements.

7


EQUITY ONE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2012
(Unaudited)
1.    Organization and Basis of Presentation
 
Organization
 
We are a real estate investment trust, or REIT, that owns, manages, acquires, develops and redevelops shopping centers located primarily in supply constrained suburban and urban communities. We were organized as a Maryland corporation in 1992, completed our initial public offering in May 1998, and have elected to be taxed as a REIT since 1995.
As of June 30, 2012, our consolidated property portfolio comprised 165 properties totaling approximately 16.8 million square feet of gross leasable area, or GLA, and included 142 shopping centers, 11 development or redevelopment properties, five non-retail properties and seven land parcels. As of June 30, 2012, our core portfolio was 91.8% leased and included national, regional and local tenants. Additionally, we had joint venture interests in 17 shopping centers and two office buildings totaling approximately 2.8 million square feet of GLA.
In January 2011, we closed on the acquisition of C&C (US) No. 1, Inc., which we refer to as CapCo, through a joint venture with Liberty International Holdings Limited, or LIH. At the time of acquisition, CapCo owned a portfolio of 13 properties in California totaling approximately 2.6 million square feet of GLA. The results of CapCo have been included in our financial statements as of the date of acquisition. In December 2011, we sold 36 shopping centers, comprising 3.9 million square feet of GLA, predominantly located in the Atlanta, Tampa and Orlando markets, with additional properties located in the states of North Carolina, South Carolina, Alabama, Tennessee and Maryland. The results of operations of these properties are reflected in discontinued operations for the three and six months ended June 30, 2011.

Basis of Presentation
 
The condensed consolidated financial statements include the accounts of Equity One, Inc. and its wholly-owned subsidiaries and those other entities where we have a controlling financial interest including where we have been determined to be a primary beneficiary of a variable interest entity (“VIE”) in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Equity One, Inc. and its subsidiaries are hereinafter referred to as “the consolidated companies”, the “Company”, “we”, “our”, “us” or similar terms. All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior-period data have been reclassified to conform to the current period presentation. Certain operations have been classified as discontinued and associated results of operations and financial position are separately reported for all periods presented. Information in these notes to the condensed consolidated financial statements, unless otherwise noted, does not include the accounts of discontinued operations.
The condensed consolidated financial statements included in this report are unaudited. In our opinion, all adjustments considered necessary for a fair presentation have been included, and all such adjustments are of a normal recurring nature. The results of operations for the three and six month periods ended June 30, 2012 and 2011 are not necessarily indicative of the results that may be expected for a full year.

Our unaudited condensed consolidated financial statements and notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions of Form 10-Q. Accordingly, these unaudited condensed consolidated financial statements do not contain certain information included in our annual financial statements and notes. The condensed consolidated balance sheet as of December 31, 2011 was derived from audited financial statements included in our 2011 Annual Report on Form 10-K, but does not include all disclosures required under GAAP. These condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission (the “SEC”) on February 29, 2012.

2.    Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.


8



Derivative Instruments and Hedging Activities
At times, we may use derivative instruments to manage exposure to variable interest rate risk. We generally enter into interest rate swaps to manage our exposure to variable interest rate risk and treasury locks to manage the risk of interest rates rising prior to the issuance of debt. We enter into derivative instruments that qualify as cash flow hedges and do not enter into derivative instruments for speculative purposes. The interest rate swaps associated with our cash flow hedges are recorded at fair value on a recurring basis. We assess effectiveness of our cash flow hedges both at inception and on an ongoing basis. The effective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into interest expense as interest is incurred on the related variable rate debt. Within the next 12 months, we expect to reclassify $2.6 million as an increase to interest expense. Our cash flow hedges become ineffective if critical terms of the hedging instrument and the debt instrument do not perfectly match such as notional amounts, settlement dates, reset dates, calculation period and LIBOR rate. In addition, we evaluate the default risk of the counterparty by monitoring the credit worthiness of the counterparty. When ineffectiveness exists, the ineffective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recognized in earnings in the period affected. Hedge ineffectiveness has not impacted earnings in 2012, and we do not anticipate it will have a significant effect in the future. Derivative instruments and hedging activities require management to make judgments on the nature of its derivatives and their effectiveness as hedges. These judgments determine if the changes in fair value of the derivative instruments are reported in the condensed consolidated statements of income as a component of net income or as a component of comprehensive income and as a component of stockholders’ equity of Equity One, Inc. on the condensed consolidated balance sheets. While management believes its judgments are reasonable, a change in a derivative’s effectiveness as a hedge could materially affect expenses, net income and equity. See Note 9 for further detail on derivative activity.

Concentration of Credit Risk
 
A concentration of credit risk arises in our business when a national or regionally based tenant occupies a substantial amount of space in multiple properties owned by us. In that event, if the tenant suffers a significant downturn in its business, it may become unable to make its contractual rent payments to us, exposing us to potential losses in rental revenue, expense recoveries, and percentage rent. Further, the impact may be magnified if the tenant is renting space in multiple locations. Generally, we do not obtain security from our nationally-based or regionally-based tenants in support of their lease obligations to us. We regularly monitor our tenant base to assess potential concentrations of credit risk. As of June 30, 2012, Publix Super Markets, located in our South and North Florida regions, is our largest tenant and accounted for approximately 1.9 million square feet, or approximately 10.3% of our gross leasable area, and approximately $14.8 million, or 6.2%, of our annual minimum rent. As of June 30, 2012, we had outstanding receivables from Publix Super Markets of approximately $235,000. No other tenant accounted for over 5% of our annual minimum rent.

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRSs")." The guidance under ASU 2011-04 amends certain accounting and disclosure requirements related to fair value measurements to ensure that fair value has the same meaning in U.S. GAAP and in IFRS and that their respective fair value measurement and disclosure requirements are the same. This guidance contains certain updates to the measurement guidance as well as enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for “Level 3” measurements including enhanced disclosure for: (1) the valuation processes used by the reporting entity and (2) the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any. This guidance is effective for interim and annual periods beginning on or after December 15, 2011. We have incorporated the required disclosures within this Quarterly Report on Form 10-Q where deemed applicable and the adoption and implementation of this ASU did not have a material impact on our financial position or results of operations.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income” which revises the manner in which companies present comprehensive income. Under ASU No. 2011-05, companies may present comprehensive income, which is net income adjusted for the components of other comprehensive income, either in a single continuous statement of comprehensive income or by using two separate but consecutive statements. Regardless of the alternative chosen, companies must display adjustments for items reclassified from other comprehensive income into net income within the presentation of both net income and other comprehensive income. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011, on a retrospective basis. In December 2011, the FASB issued ASU No. 2011-12,”Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05.” ASU 2011-12 defers the requirement that companies present reclassification adjustments for each component of accumulated other comprehensive

9


income in both net income and other comprehensive income on the face of the financial statements. Reclassifications out of accumulated other comprehensive income are to be presented either on the face of the financial statement in which other comprehensive income is presented or disclosed in the notes to the financial statements. Reclassification adjustments into net income need not be presented during the deferral period. This action does not affect the requirement to present items of net income, other comprehensive income and total comprehensive income in a single continuous or two consecutive statements. The effective date for the deferred portion has not yet been determined. When adopted, the deferred portion of the guidance is not expected to materially impact our consolidated financial statements. We have incorporated the required disclosures within this Quarterly Report on Form 10-Q where deemed applicable and the adoption and implementation of this ASU did not have an impact on our financial position or results of operations.

In September 2011, the FASB issued ASU No. 2011-08, “Testing Goodwill for Impairment (the revised standard)”. Under ASU No. 2011-08 companies have the option to perform a qualitative assessment that may allow them to skip the annual two-step test and reduce costs. The guidance is effective for fiscal years beginning after December 15, 2011 and earlier adoption is permitted. The adoption and implementation of this ASU did not have a material impact on our results of operations or financial condition.

In December 2011, the FASB issued ASU No. 2011-10, “Derecognition of in Substance Real Estate”. The amendments in ASU 2011-10 resolve the diversity in practice about whether the guidance in Subtopic 360-20 applies to the derecognition of in substance real estate when the parent ceases to have a controlling financial interest (as described in Subtopic 810-10) in a subsidiary that is in substance real estate because of a default by the subsidiary on its nonrecourse debt. The guidance emphasizes that the accounting for such transactions is based on their substance rather than their form. The amendments in the ASU should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. We do not believe that the adoption of this ASU will have a material impact on our results of operations or financial condition.

In December 2011, the FASB issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities”. Under ASU 2011-11 disclosures are required to provide information to help reconcile differences in the offsetting requirements under U.S. GAAP and IFRS. The new disclosure requirements mandate that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the ASU requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. We do not believe that the adoption of this ASU will have a material impact on our results of operations or financial condition.

3.    Acquisitions

The following table provides a summary of income producing property acquisition activity during the six months ended June 30, 2012:
Date Purchased
Property Name
 
City
 
State
 
Square Feet/Acres
 
Purchase
Price
 
 
 
 
 
 
 
 
 
(in thousands)
June 8, 2012
Broadway Plaza - land parcel
 
Bronx
 
NY
 
1.83
(1) 
$
7,500

March 1, 2012
Potrero Center (2)
 
San Francisco
 
CA
 
226,699
 
110,750

March 1, 2012
Compo Acres Shopping Center (2)
 
Westport
 
CT
 
43,107
 
30,300

March 1, 2012
Post Road Plaza (2)
 
Darien
 
CT
 
20,005
 
12,700

Total
 
 
 
 
 
 
 
 
$
161,250


______________________________________________ 
(1) In acres.
(2) The purchase price has been preliminarily allocated to real estate assets acquired and liabilities, as applicable, assumed in accordance with our accounting policies for business combinations. The purchase price and related accounting will be finalized after our valuation studies are complete.

During the three and six months ended June 30, 2012, we did not recognize any material measurement period adjustments related to prior year or first quarter 2012 acquisitions. The purchase price and related accounting for the prior year acquisitions of Aventura Square, Culver Center, Danbury Green and Southbury Green are still within the measurement period and will be finalized after our valuation studies are complete.

10



In conjunction with the acquisition of Compo Acres, we entered into a reverse Section 1031 like-kind exchange agreement with a third party intermediary which was for a maximum of 180 days and allowed us, for tax purposes, to defer gains on the sale of other properties identified and sold within this period. Until the earlier of termination of the exchange agreement or 180 days after the acquisition date, the third party intermediary was the legal owner of the property; however, we controlled the activities that most significantly impacted the property and retained all of the economic benefits and risks associated with the property. Therefore, at the date of acquisition, we determined that we were the primary beneficiary of this VIE and consolidated the property and its operations as of the acquisition date noted above. As of June 30, 2012, legal ownership had been transferred to us by the qualified intermediary.

We expensed transaction-related costs in connection with completed or pending property acquisitions of approximately $440,000 and $1.4 million during the three and six months ended June 30, 2012, respectively, and approximately $3.2 million and $5.5 million during the three and six months ended June 30, 2011, respectively, which are included in general and administrative costs in the condensed consolidated statements of income. The purchase price related to the 2012 acquisitions listed in the above table was funded by the use of our line of credit, cash on hand, proceeds from the term loan and proceeds from dispositions.

4.    Dispositions

The following table provides a summary of disposition activity during the six months ended June 30, 2012:
Date Sold
 
Property Name
 
City
 
State
 
Square
Feet/Acres
 
Gross Sales
Price
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
 
Income producing property sold
 
 
 
 
 
 
 
 
 
March 30, 2012
 
Laurel Walk Apartments
 
Charlotte
 
NC
 
106,480

 
$
6,000

 
March 30, 2012
 
Commerce Crossing
 
Commerce
 
GA
 
100,668

 
600

 
March 15, 2012
 
222 Sutter Street
 
San Francisco
 
CA
 
128,595

 
53,829

(1 
) 
 
 
 
 
 
 
 
 
 
 
60,429

 
Outparcels sold
 
 
 
 
 
 
 
 
 
 
 
February 27, 2012
 
Market Place - IHOP outparcel
 
Norcross
 
GA
 
0.35

(2 
) 
885

 
January 20, 2012
 
Grand Marche - ground lease
 
Lafayette Parish
 
LA
 
200,585

 
775

 
 
 
 
 
 
 
 
 
 
 
1,660

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
$
62,089

 
______________________________________________ 
(1) Includes $27.2 million of mortgage debt repaid by the buyer at closing.
(2) In acres.

As part of our strategy to upgrade and diversify our portfolio and recycle our existing capital, we evaluate opportunities to sell assets or otherwise contribute assets to existing or new joint ventures with third parties. If the market values of these assets are below their carrying values, it is possible that the disposition or contribution of these assets could result in impairments or other losses. Depending on the prevailing market conditions and historical carrying values, these impairments and losses could be material.

Discontinued Operations

We report as discontinued operations, properties held-for-sale and operating properties sold in the current period. The results of these discontinued operations are included in a separate component of income/loss on the condensed consolidated statements of income under the caption discontinued operations. This reporting has resulted in certain reclassifications of financial statement amounts.



11


The components of income and expense relating to discontinued operations for the three and six months ended June 30, 2012 and 2011 are shown below. These include the results of operations through the date of each respective sale for properties sold during 2011 and 2012 and the operations for the applicable period for those assets classified as held for sale as of June 30, 2012:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Rental revenue
$
204

 
$
16,274

 
$
1,865

 
$
32,408

Expenses:
 
 
 
 
 
 
 
    Property operating expenses
63

 
4,611

 
720

 
8,961

    Rental property depreciation and amortization
39

 
4,128

 
158

 
8,494

    General and administrative expenses

 
18

 
13

 
31

Operations of income producing property
102

 
7,517

 
974

 
14,922

Interest expense

 
(4,137
)
 
(327
)
 
(8,151
)
Equity in income in unconsolidated joint ventures

 
275

 

 
543

(Loss) gain on disposal of income producing properties

 
(13
)
 
14,269

 
(13
)
Impairment loss on income producing properties sold or held for sale
(1,493
)
 
(1,277
)
 
(3,425
)
 
(1,277
)
Loss on extinguishment of debt

 

 
(716
)
 

Income tax benefit

 
379

 

 
811

Other income
54

 
14

 
53

 
10

(Loss) income from discontinued operations
(1,337
)
 
2,758

 
10,828

 
6,845

Net loss attributable to noncontrolling interests - discontinued operations

 
13

 

 
30

(Loss) income from discontinued operations attributable to Equity One, Inc.
$
(1,337
)
 
$
2,771

 
$
10,828

 
$
6,875


Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell. The sale or disposal of a “component of an entity” is treated as discontinued operations. The operating properties sold by us typically meet the definition of a component of an entity and as such the revenues and expenses associated with sold properties are reclassified to discontinued operations for all periods presented. During the three and six months ended June 30, 2012, we recognized impairment losses of $1.5 million and $3.4 million, respectively, related to two properties held for sale based on the expected sales prices less costs to sell. During the three and six months ended June 30, 2011, we recognized an impairment loss of $1.3 million relating to our investment in two properties that were held for sale.


12



5.    Investments in and Advances to Unconsolidated Joint Ventures

As of June 30, 2012, our investments in and advances to unconsolidated joint ventures in the condensed consolidated balance sheets were composed of the following:
 
 
 
 
 
 
 
 
Investment Balance
Joint Venture (1)
 
Number of Properties
 
Location
 
Ownership
 
June 30,
2012
 
December 31,
2011
 
 
 
 
 
 
 
 
(In thousands)
Investments in unconsolidated joint ventures:
 
 
 
 
 
 
 
 
 
 
GRI-EQY I, LLC (2)
 
10
 
GA, SC, FL
 
10.0%
 
$
7,692

 
$
7,705

G&I Investment South Florida Portfolio, LLC
 
3
 
 FL
 
20.0%
 
3,538

 
3,215

Madison 2260 Realty LLC
 
1
 
 NY
 
8.6%
 
634

 
1,066

Madison 1235 Realty LLC
 
1
 
 NY
 
20.1%
 
1,000

 
1,000

Talega Village Center JV, LLC (3)
 
1
 
CA
 
50.5%
 
2,934

 
3,620

Vernola Marketplace JV, LLC (3)
 
1
 
CA
 
50.5%
 
7,183

 
7,433

Parnassus Heights Medical Center
 
1
 
CA
 
50.0%
 
13,454

 
13,695

Equity One JV Portfolio, LLC (4) 
 
3
 
 FL, MA
 
30.0%
 
16,783

 
11,393

       Total
 
 
 
 
 
 
 
53,218

 
49,127

         Advances to unconsolidated joint ventures
 
 
 
 
 
 
 
563

 
1,031

Investments in and advances to unconsolidated joint ventures
 
 
 
 
 
 
 
$
53,781

 
$
50,158

______________________________________________ 
(1) With the exception of the Madison 2260 Realty LLC and Madison 1235 Realty LLC joint ventures, which are accounted for under the cost method, all unconsolidated joint ventures are accounted for under the equity method.
(2) The investment balance as of June 30, 2012 and December 31, 2011 is presented net of deferred gains of $3.3 million for both periods associated with the disposition of assets by us to the joint venture.
(3) Our effective interest is 48% when considering the 5% noncontrolling interest held by Vestar Development Company.
(4) The investment balance as of June 30, 2012 and December 31, 2011 is presented net of a deferred gain of approximately $404,000 for both periods associated with the disposition of assets by us to the joint venture in 2011.

Equity in (loss) income of unconsolidated joint ventures totaled $(152,000) and $(340,000) for the three and six months ended June 30, 2012, respectively, and totaled $(98,000) and $268,000, respectively, for the same periods in 2011. Management fees and leasing fees paid to us associated with these joint ventures, which are included in management and leasing services revenue in the accompanying condensed consolidated statements of income, totaled approximately $489,000 and $1.3 million for the three and six months ended June 30, 2012, respectively, and $603,000 and $1.0 million for the three and six months ended June 30, 2011, respectively.

New York Common Retirement Fund Joint Venture

In May 2011, we sold two operating properties, Country Walk Plaza in Miami, Florida and Veranda Shoppes in Plantation, Florida to Equity One JV Portfolio, LLC, a newly formed joint venture between us and the New York State Common Retirement Fund (“NYCRF”). In December 2011, the joint venture purchased an operating property located in Framingham, Massachusetts, for an aggregate purchase price of $23.2 million, which included the assumption of $10.4 million of mortgage debt.

On January 26, 2012, our NYCRF joint venture made an $18.5 million mortgage loan (the “JV Loan”) secured by a newly developed shopping center. The JV Loan bears interest at 6.25%, has a maturity of nine years and is pari passu with a $71.4 million mortgage loan (the “Third Party Loan”) provided by a third party lender. In addition to the JV Loan, we provided a mezzanine loan (the “Mezzanine Loan”) indirectly secured by the shopping center in the amount of $19.3 million. The Mezzanine Loan bears interest at 10.0% and has a maturity of nine years. During certain periods prior to January 26, 2014, the joint venture has an option to purchase the shopping center and during certain different periods the borrower has a put option to sell the shopping center to the joint venture, in each case for a formula based purchase price currently projected to be approximately $143.0 million, which is comprised of a predetermined fixed amount of $128.4 million and a variable amount to be derived from the minimum rent associated with a portion of the shopping center under development. In the event it acquires the shopping center, the joint venture is required to immediately repay the Mezzanine Loan. If certain events of default occur under the Third Party Loan, the JV Loan will become

13


subordinate to such Third Party Loan. In that case, we will be obligated to purchase the JV Loan at par plus accrued interest. In addition, if the put and call options expire unexercised, the JV Loan will become subordinate to the Third Party Loan and we will be required to purchase the JV Loan at par plus accrued interest. We have determined that the entities holding direct and indirect interests in the shopping center are VIEs. However, in relation to the VIE in which we hold a variable interest, we are not the primary beneficiary as we do not have the power to direct the activities that most significantly impact the VIE’s economic performance.

NYCRF holds a 70% interest in the joint venture and we own a 30% interest. We perform the day to day accounting and property management functions for the joint venture and, as such, earn a management fee for the services provided. Our ownership interest in this joint venture is accounted for under the equity method.

6.    Variable Interest Entities

Included within our consolidated operating properties at June 30, 2012 are two consolidated joint venture properties, Danbury Green and Southbury Green, that are held through VIEs and for which we are the primary beneficiary. These entities have been established to own and operate real estate property. Our involvement with these entities is through our majority ownership of the properties. These entities were deemed VIEs primarily because they may not have sufficient equity at risk for them to finance their activities without additional subordinated financial support from other parties. Specifically, with respect to the VIEs holding the Danbury Green and Southbury Green properties, we determined that the interests held by the other equity investors were not equity investments at risk pursuant to the Consolidation Topic of the FASB ASC and also gave consideration to the maturity of certain debt obligations of the entities. We determined that we are the primary beneficiary of these VIEs as a result of our having the power to direct the activities that most significantly impact their economic performance and the obligation to absorb losses, as well as the right to receive benefits, that could be potentially significant to the VIEs.

At June 30, 2012 and December 31, 2011, the total assets of the VIE which owns Danbury Green and Southbury Green was approximately $111.5 million and $109.2 million, respectively. These assets can only be used to settle obligations of the VIE. At June 30, 2012 and December 31, 2011, the liabilities of the VIE which owns Danbury Green and Southbury Green of $63.6 million and $61.9 million, respectively, include third party liabilities for which the creditors or beneficial interest holders do not have recourse against us other than for customary environmental indemnifications and non-recourse carve-outs. The classification of these assets is primarily within real estate and the classification of liabilities is primarily within mortgages payable and redeemable and nonredeemable noncontrolling interests in the condensed consolidated balance sheets (as discussed further in Note 12).

Included within our consolidated operating properties at December 31, 2011, in addition to Danbury Green and Southbury Green, was one consolidated property, 90-30 Metropolitan Avenue, which was held at the time by a qualified intermediary. As of June 30, 2012, legal ownership had been transferred to us by the qualified intermediary, and as such it is no longer considered a VIE.

At June 30, 2012 and December 31, 2011, total assets of these VIEs were approximately $111.5 million and $138.2 million, respectively, and total liabilities were approximately $63.6 million and $62.4 million, respectively, including non-recourse mortgage debt of $45.7 million at both June 30, 2012 and December 31, 2011.

The majority of the operations of these VIEs are funded with cash flows generated from the properties. We have not provided financial support to any of these VIEs that we were not previously contractually required to provide; our contractual commitments consist primarily of funding any capital expenditures, including tenant improvements, which are deemed necessary to continue to operate the entity and any operating cash shortfalls that the entity may experience.

7.    Mezzanine Loans Receivable

On July 5, 2011, we invested in a $45.0 million junior mezzanine loan indirectly secured by a portfolio of seven California shopping centers which had an aggregate appraised value of approximately $272.0 million at the time we acquired the mezzanine loan. This mezzanine loan is subordinated in right of payment to a $120.0 million mortgage loan and a $60.0 million senior mezzanine loan, matures on July 9, 2013 subject to the borrower’s ability to extend the maturity date for three additional one-year periods, and bears interest at 8.46% per annum plus one month LIBOR (subject to a 0.75% per annum LIBOR floor). At June 30, 2012, the mezzanine loan bore interest of 9.21%. We capitalized $108,000 in net fees paid relating to the acquisition of this loan and are amortizing these amounts against interest income over the initial two-year term. As of June 30, 2012, the loan was performing, and the carrying amount of the loan was $45.2 million. This carrying amount also reflects our maximum exposure to loss related to this investment. At inception, and as of June 30, 2012, we had and continue to have the ability and intention to hold this mezzanine loan to maturity.


14


On January 26, 2012, we invested in a $19.3 million mezzanine loan indirectly secured by a newly developed shopping center. This mezzanine financing bears interest at 10.0% and has a maturity of nine years (see Note 5 for further details). As of June 30, 2012, the loan was performing, and the carrying amount of the loan was $19.5 million. As discussed in Note 5 above, if certain events of default occur under the Third Party Loan, the JV Loan of $18.5 million will become subordinate to it. In that case, we will be obligated to purchase the JV Loan at par plus accrued interest. In addition, if the put and call options expire unexercised, the JV Loan will become subordinate to the Third Party Loan and we will be required to purchase the JV Loan at par plus accrued interest. As a result of these conditions, in the event of default, our maximum exposure to loss related to this investment includes the carrying amount of the $19.5 million mezzanine loan, the $18.5 million JV Loan we would be obligated to purchase, as well as our 30% share of any potential losses or liability incurred by the joint venture as a result of any default. At inception and as of June 30, 2012, we had and continue to have the ability to hold this mezzanine loan to maturity. While we do not intend to sell the mezzanine loan, the joint venture may acquire the shopping center and repay our mezzanine loan prior to maturity; however, we believe that we will recover our cost basis and as such we continue to classify this investment as held to maturity.

8.    Other Assets

The following is a summary of the composition of the other assets in the condensed consolidated balance sheets:
 
June 30,
2012
 
December 31,
2011
 
(In thousands)
Lease intangible assets, net
$
92,318

 
$
92,559

Leasing commissions, net
30,245

 
28,643

Deposits and mortgage escrow
15,790

 
34,567

Straight-line rent receivable, net
19,209

 
17,266

Deferred financing costs, net
9,419

 
8,663

Prepaid and other expenses
6,277

 
2,178

Deferred tax asset
3,107

 
3,229

Furniture and fixtures, net
2,400

 
2,234

Total other assets
$
178,765

 
$
189,339


9.    Borrowings

Mortgage Notes Payable

During the three and six months ended June 30, 2012, we prepaid $36.7 million and $37.7 million, respectively, in mortgage loans with a weighted-average interest rate of 6.80%. At June 30, 2012, the weighted-average interest rate of our fixed rate mortgage notes payable was 6.13%.

Unsecured Senior Notes

On January 23, 2012, we repaid the $10.0 million principal amount of 7.84% unsecured senior notes. At June 30, 2012, the weighted-average interest rate of our unsecured senior notes was 6.03%.

Unsecured Revolving Credit Facilities

Our primary credit facility is with a syndicate of banks and provides $575.0 million of unsecured revolving credit. As of June 30, 2012, we had drawn approximately $101.0 million against the facility, which bore interest at 1.80% per annum. As of December 31, 2011, we had drawn approximately $138.0 million against the facility, which bore interest at 1.85% per annum. The facility also includes a facility fee applicable to the lending commitments thereunder, which fee was 0.3% per annum as of June 30, 2012. The facility expires on September 30, 2015, with a one year extension at our option.

We also have a $15.0 million unsecured credit facility with City National Bank of Florida, for which there was no outstanding balance as of June 30, 2012 and December 31, 2011. The facility bears interest at LIBOR plus 1.40% and expires on August 8, 2012.


15


As of June 30, 2012 the maximum availability under these credit facilities was approximately $398.7 million, net of outstanding letters of credit and subject to the covenants in the loan agreements.

Term Loan and Interest Rate Swaps

On February 13, 2012, we entered into an unsecured term loan in the principal amount of $200.0 million with a maturity date of February 13, 2019. On July 12, 2012, we increased the principal amount of the term loan to $250.0 million through the exercise of an accordion feature. Borrowings under the term loan bear interest, at our option, at the base rate or one month, two month, three month or six month LIBOR, in each case plus a margin of 1.500% to 2.350% depending on the credit ratings of our senior unsecured long term debt, which margin is 1.900% at June 30, 2012. The loan agreement also calls for other customary fees and charges. The loan agreement contains customary restrictions on our business, financial and affirmative covenants, events of default and remedies which are generally the same as those provided in our $575.0 million unsecured revolving credit facility. We entered into interest rate swaps to convert the LIBOR rate applicable to the term loan to a fixed interest rate, providing an effective fixed interest rate under the loan agreement of 3.46% per annum for the initial $200.0 million draw and 3.00% for the $50.0 million draw, in each case, based on the current credit ratings of our senior unsecured notes. The swaps are designated and qualified as cash flow hedges and have been recorded at fair value. The swap agreements mature on February 13, 2019. The fair value of our interest rate swaps at June 30, 2012 was a liability of $5.1 million and is included in accounts payable and accrued expenses on our condensed consolidated balance sheet at such date.

10.    Other Liabilities

The following is a summary of the composition of other liabilities in the condensed consolidated balance sheets:
 
June 30,
2012
 
December 31,
2011
 
(In thousands)
Lease intangible liabilities, net
$
176,705

 
$
156,495

Prepaid rent
7,099

 
6,882

Other
611

 
811

Total other liabilities
$
184,415

 
$
164,188


11.    Income Taxes

We elected to be taxed as a REIT under the Internal Revenue Code (the "Code"), commencing with our taxable year ended December 31, 1995. It is our intention to adhere to the organizational and operational requirements to maintain our REIT status. As a REIT, we generally will not be subject to corporate level federal income tax, provided that distributions to our stockholders equal at least the amount of our REIT taxable income as defined under the Code. We are required to pay U.S. federal and state income taxes on our net taxable income, if any, from the activities conducted by our taxable REIT subsidiaries (“TRSs”). Accordingly, the only provision for federal income taxes in our condensed consolidated financial statements relates to our consolidated TRSs.
We recorded an income tax benefit from continuing operations during the three months ended June 30, 2012 and 2011 of approximately $15,000 and $174,000, respectively, and for the six months ended June 30, 2012 and 2011 of approximately $61,000 and $307,000, respectively. These benefits are primarily attributable to the net operating losses generated by DIM Vastgoed, N.V. (“DIM”), a Dutch company in which we acquired a controlling interest in the first quarter of 2009, partially offset by taxable income generated by IRT Capital Corporation II (“IRT”). We recorded an income tax benefit from discontinued operations of approximately $379,000 and $811,000 during the three and six months ended June 30, 2011. There was no income tax benefit from discontinued operations recorded during the three and six months ended June 30, 2012. The tax benefits recorded related to discontinued operations for the three and six months ended June 30, 2011 was primarily attributable to the reversal of a deferred tax liability associated with properties held for sale by DIM and IRT and, to a lesser extent, by net operating losses. Although DIM is organized under the laws of the Netherlands, it pays U.S. corporate income tax based on its operations in the United States. Pursuant to the tax treaty between the U.S. and the Netherlands, DIM is entitled to the avoidance of double taxation on its U.S. income. Thus, it pays virtually no taxes in the Netherlands. As of June 30, 2012, DIM had federal and state net operating loss carry forwards of approximately $6.6 million and $9.9 million, respectively. These carry forwards begin to expire in 2027.
Further, we believe that we have appropriate support for the tax positions taken on our tax returns and that our accruals for the tax liabilities are adequate for all years still subject to tax audit after 2007.


16


12.    Noncontrolling Interests

Noncontrolling interest represents the portion of equity that we do not own in those entities that we consolidate. We account for and report our noncontrolling interest in accordance with the provisions under the Consolidation Topic of the FASB ASC.

The following is a summary of the noncontrolling interests of our consolidated entities in the condensed consolidated balance sheets:
 
June 30,
2012
 
December 31,
2011
 
(In thousands)
Danbury 6 Associates LLC (1)
$
7,720

 
$
7,720

Southbury 84 Associates LLC (2)
11,242

 
11,242

Vestar/EQY Canyon Trails LLC (3)
2,670

 
2,853

Walden Woods Village, Ltd. (4)
989

 
989

Total redeemable noncontrolling interests
$
22,621

 
$
22,804

 
 
 
 
CapCo
$
206,145

 
$
206,145

DIM
1,206

 
1,132

Vestar/EQY Talega LLC (5)
155

 
181

Vestar/EQY Vernola LLC (6)
425

 
428

Total noncontrolling interests included in stockholders' equity
$
207,931

 
$
207,886

______________________________________________ 
(1) This entity owns the Danbury Green Shopping Center.
(2) This entity owns the Southbury Green Shopping Center.
(3) This entity owns the Canyon Trails Shopping Center.
(4) We have entered into a redemption agreement whereby our joint venture partner can request that we purchase their interest at any time
before January 1, 2014.
(5) Holds our interest in Talega Village Center JV, LLC.
(6) Holds our interest in Vernola Marketplace JV, LLC.

In October 2011, we acquired a 60% controlling interest in two VIEs, Danbury 6 Associates LLC and Southbury 84 Associates LLC. We determined that we are the primary beneficiary of these entities and, accordingly, we consolidated their results as of the acquisition date. Upon consolidation, we recorded $19.0 million of noncontrolling interest which represented the estimated fair value of the preferred equity interests which are entitled to a cumulative 5% annual preferred return, held by the noncontrolling interest holders. The operating agreements contain certain provisions that may require us to redeem the noncontrolling interest at the balance of their contributed capital as adjusted for unpaid preferred returns due to them pursuant to the operating agreements. The provisions are exercisable at the earlier of the partner’s death or at any time after the fifth anniversary of the acquisition closing until the tenth anniversary of the acquisition closing. Due to the redemption feature, we have recorded the $19.0 million of noncontrolling interest associated with this venture in the mezzanine section of our condensed consolidated balance sheets at June 30, 2012 and December 31, 2011, which approximates redemption value. Together with our valuation advisors, we are still in the process of determining the fair market value of the redeemable noncontrolling interests as of the acquisition date, and thus, the accounting for these business combinations has not yet been finalized. The carrying amount of the redeemable noncontrolling interest is increased by periodic accretions of a preferred return of 5%, and will be decreased by payments made to the noncontrolling partner which shall be recognized as income attributable to the noncontrolling interest holders for the period, such that the carrying amount of the noncontrolling interest will equal the mandatory redemption amount. Both the income attributable to the noncontrolling interest holders and amounts paid to them during the three and six months ended June 30, 2012 were $236,000 and $472,000, respectively.

13.    Stockholders’ Equity and Earnings Per Share

In connection with the CapCo acquisition on January 4, 2011, LIH transferred and assigned to us an outstanding promissory note of CapCo in the amount of $67.0 million in exchange for approximately 4.1 million shares of our common stock and one share of a newly-established class of our capital stock, Class A common stock, that (i) was convertible into 10,000 shares of our common stock in certain circumstances, and (ii) subject to certain limitations, entitled LIH to voting rights with respect to a number of shares of our common stock determined with reference to the number of joint venture shares held by LIH from time to time. Effective June 29, 2011, the one share of Class A common stock was converted in accordance with its terms into 10,000 shares of

17


our common stock.

Also in connection with the closing of the CapCo transaction in 2011, we executed a Registration and Liquidity Rights Agreement between us and LIH pursuant to which we agreed to register the approximately 4.1 million shares of our common stock received by LIH in the transaction and the approximately 11.4 million shares of our common stock issuable if we exercise our right to pay for the redemption of LIH’s joint venture units with shares of our common stock. On March 9, 2012, LIH sold the approximately 4.1 million shares of our common stock issued in exchange for the CapCo note and upon conversion of the Class A common stock pursuant to a registered public offering. Pursuant to the Registration and Liquidity Rights Agreement, we paid all of the expenses of the offering other than underwriting discounts and legal expenses of counsel to LIH, which amounted to $169,000 for the six months ended June 30, 2012, and are included in general and administrative expenses in the accompanying condensed consolidated statement of income.
Earnings per Share

The following summarizes the calculation of basic EPS and provides a reconciliation of the amounts of net income available to common stockholders and shares of common stock used in calculating basic EPS:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
 
(Dollars in thousands, except per share amounts)
Income from continuing operations
$
6,358

 
$
6,363

 
15,888

 
$
39,651

Net income attributable to noncontrolling interests
(2,753
)
 
(2,148
)
 
(5,466
)
 
(4,547
)
Income from continuing operations attributable to Equity One, Inc.
3,605


4,215


10,422

 
35,104

Allocation of continuing income to restricted share awards and to Class A common stockholder
(272
)
 
(295
)
 
(552
)
 
(597
)
Income from continuing operations attributable to common stockholders
3,333

 
3,920

 
9,870

 
34,507

(Loss) income from discontinued operations
(1,337
)
 
2,758

 
10,828

 
6,845

Net loss attributable to noncontrolling interests

 
13

 

 
30

(Loss) income from discontinued operations attributable to Equity One, Inc.
(1,337
)

2,771


10,828

 
6,875

Allocation of discontinued income to restricted share awards and to Class A common stockholder

 
(34
)
 
(120
)
 
(86
)
(Loss) income from discontinued operations attributable to common stockholders
(1,337
)
 
2,737

 
10,708

 
6,789

Net income available to common stockholders
$
1,996


$
6,657


$
20,578

 
$
41,296

 
 
 
 
 
 
 
 
Weighted average shares outstanding — Basic
112,715

 
108,942

 
112,682

 
107,605

 
 
 
 
 
 
 
 
Basic earnings (loss) per share attributable to the common stockholders:
 
 
 
 
 
 
 
Continuing operations
$
0.03

 
$
0.04

 
$
0.09

 
$
0.32

Discontinued operations
(0.01
)
 
0.03

 
0.10

 
0.06

Earnings per common share — Basic
$
0.02

 
$
0.06

*
$
0.18

*
$
0.38


* Note: EPS does not foot due to the rounding of the individual calculations.












18


The following summarizes the calculation of diluted EPS and provides a reconciliation of the amounts of net income available to common stockholders and shares of common stock used in calculating diluted EPS:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
 
(Dollars in thousands, except per share amounts)
Income from continuing operations
$
6,358

 
$
6,363

 
$
15,888

 
$
39,651

Net income attributable to noncontrolling interests
(2,753
)
 
(2,148
)
 
(5,466
)
 
(4,547
)
Income from continuing operations attributable to Equity One, Inc.
3,605

 
4,215

 
10,422

 
35,104

Allocation of continuing income to restricted share awards and to Class A common stockholder
(272
)
 
(295
)
 
(552
)
 
(597
)
Income from continuing operations attributable to common stockholders
3,333

 
3,920

 
9,870

 
34,507

(Loss) income from discontinued operations
(1,337
)
 
2,758

 
10,828

 
6,845

Net loss attributable to noncontrolling interests

 
13

 

 
30

(Loss) income from discontinued operations attributable to Equity One, Inc.
(1,337
)
 
2,771

 
10,828

 
6,875

Allocation of discontinued income to restricted share awards and to Class A common stockholder

 
(31
)
 
(109
)
 
(78
)
(Loss) income from discontinued operations attributable to common stockholders
(1,337
)
 
2,740

 
10,719

 
6,797

Net income available to common stockholders
$
1,996

 
$
6,660

 
$
20,589

 
$
41,304

 
 
 
 
 
 
 
 
Weighted average shares outstanding — Basic
112,715

 
108,942

 
112,682

 
107,605

Stock options using the treasury method
235

 
170

 
203

 
163

Executive Incentive Plan shares using the treasury method
260

 

 
55

 

Weighted average shares outstanding — Diluted
113,210

 
109,112

 
112,940

 
107,768

 
 
 
 
 
 
 
 
Diluted earnings (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
Continuing operations
$
0.03

 
$
0.04

 
$
0.09

 
$
0.32

Discontinued operations
(0.01
)
 
0.03

 
0.09

 
0.06

Earnings per common share — Diluted
$
0.02

 
$
0.06

*
$
0.18

 
$
0.38


* Note: EPS does not foot due to the rounding of the individual calculations.

The computation of diluted EPS for the three and six months ended June 30, 2012 did not include 1.9 million shares of common stock, issuable upon the exercises of outstanding options, at prices ranging from $21.64 to $26.66 and $19.84 to $26.66, respectively, because the option prices were greater than the average market prices of our common shares during these respective periods. The computation of diluted EPS for both the three and six months ended June 30, 2011 did not include 1.9 million shares of common stock, issuable upon the exercises of outstanding options, at prices ranging from $19.84 to $26.66 and $18.88 to $26.66, respectively, because the option prices were greater than the average market prices of our common shares during these respective periods.

The computation of diluted EPS for both the three and six months ended June 30, 2012 did not include the 11.4 million units held by LIH which are convertible into our common stock. The LIH shares are redeemable for cash or, solely at our option, our common stock on a one-for-one basis, subject to certain adjustments. These convertible units are not included in the diluted weighted average share count because their inclusion is anti-dilutive.


19


14.    Share-Based Payment Plans
 
The following table presents stock option activity during the six months ended June 30, 2012:
 
Shares Under Option
 
Weighted-
Average Exercise Price
 
(In thousands)
 
 
Outstanding at January 1, 2012
3,565

 
$
20.62

Granted

 

Exercised
(35
)
 
11.59

Forfeited or expired
(2
)
 
18.88

Outstanding at June 30, 2012
3,528

 
$
20.72

 
 
 
 
Exercisable at June 30, 2012
2,948

 
$
21.25


The following table presents information regarding restricted stock activity during the six months ended June 30, 2012:
 
Unvested Shares
 
Weighted-Average
Price
 
(In thousands)
 
 
Unvested at January 1, 2012
1,178

 
$
17.23

Granted
67

 
18.70

Vested
(98
)
 
18.42

Forfeited
(3
)
 
19.33

Unvested at June 30, 2012
1,144

*
$
17.21

______________________________________________ 
* Does not include 800,000 shares of restricted stock awarded to certain executives which are subject to performance vesting conditions and are not entitled to vote or receive dividends during the performance period.

During the six months ended June 30, 2012, we granted 67,134 shares of restricted stock that are subject to forfeiture and vest over periods from 0 to 3 years. The total vesting-date value of the 98,089 shares of restricted stock that vested during the six months ended June 30, 2012 was $1.8 million.

Share-based compensation expense charged against earnings is summarized as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Restricted stock expense
$
1,438

 
$
1,417

 
$
3,199

 
$
2,706

Stock option expense
252

 
375

 
551

 
711

Employee stock purchase plan discount
4

 
4

 
7

 
8

Total equity-based expense
1,694

 
1,796

 
3,757

 
3,425

Restricted stock classified as a liability
17

 
13

 
17

 
20

Total expense
1,711

 
1,809

 
3,774

 
3,445

Less amount capitalized
(71
)
 
(67
)
 
(154
)
 
(123
)
Net share-based compensation expense
$
1,640

 
$
1,742

 
$
3,620

 
$
3,322


As of June 30, 2012, we had $14.2 million of total unrecognized compensation expense related to unvested and restricted share-based payment arrangements (unvested options and restricted shares) granted under our Amended and Restated Equity One 2000 Executive Incentive Compensation Plan (the "2000 Plan"). This expense is expected to be recognized over a weighted-average period of 2.4 years.

20



15.    Segment Reporting
 
We review operating and financial data for each property on an individual basis; therefore each of our individual properties is a separate operating segment. We have aggregated our operating segments in six reportable segments based primarily upon our method of internal reporting which classifies our operations by geographical area. Our reportable segments by geographical area are as follows: (1) South Florida – including Miami-Dade, Broward and Palm Beach Counties; (2) North Florida – including all of Florida north of Palm Beach County; (3) Southeast - including Georgia, Louisiana, Alabama, Mississippi, North Carolina, South Carolina and Tennessee; (4) Northeast – including Connecticut, Maryland, Massachusetts, New York and Virginia; (5) West Coast – including California and Arizona; and (6) Other/Non-retail – which is comprised of our non-retail assets. Our segments as reported in this Quarterly Report on Form 10-Q for the period ended June 30, 2012 are not consistent with our segments as reported in our Annual Report on Form 10-K for the year ended December 31, 2011. We have divided our previously combined North Florida and Southeast region into two separate regions in this Quarterly Report on Form 10-Q for the period ended June 30, 2012, as a result of a change in management responsibilities for the North Florida region during the period and corresponding changes in our internal reporting. These changes have been reflected in our segment disclosures for all periods presented herein.

We assess a segment’s performance based on net operating income (“NOI”). NOI excludes interest and other income, acquisition costs, general and administrative expenses, interest expense, depreciation and amortization expense, gains (losses) from extinguishments of debt, income (loss) of unconsolidated joint ventures, gains on sales of real estate, impairments, and noncontrolling interests. NOI is a non-GAAP financial measure. The most directly comparable GAAP financial measure is income from continuing operations before tax and discontinued operations, which, to calculate NOI, is adjusted to add back amortization of deferred financing fees, rental property depreciation and amortization, interest expense, impairment losses, general and administrative expense, and to exclude revenues earned from management and leasing services, straight line rent adjustments, accretion of below market lease intangibles (net), gain on sale of real estate, equity in income (loss) of unconsolidated joint ventures, gain on bargain purchase and acquisition of controlling interest in subsidiary, gain (loss) on extinguishment of debt, investment income, and other income. NOI includes management fee expense recorded at each operating segment based on a percentage of revenue which is eliminated in consolidation. We use NOI internally as a performance measure and believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. Therefore, we believe NOI is a useful measure for evaluating the operating performance of our real estate assets. NOI presented by us may not be comparable to NOI reported by other REITs that define NOI differently. We believe that in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with income from continuing operations before tax and discontinued operations as presented in our condensed consolidated financial statements. NOI should not be considered as an alternative to net income attributable to Equity One, Inc. as an indication of our performance or to cash flows as a measure of liquidity or our ability to make distributions. We consider NOI to be an appropriate supplemental measure to net income because it helps both investors and management to understand the core operations of our properties.

The following table sets forth the financial information relating to our continuing operations presented by segments and includes a reconciliation of NOI to income from continuing operations before tax and discontinued operations, the most directly comparable GAAP financial measure:

21



 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Revenues:
 
 
 
 
 
 
 
South Florida
$
22,599

 
$
21,676

 
$
45,987

 
$
44,227

North Florida
11,365

 
12,103

 
22,899

 
23,887

Southeast
14,147

 
13,746

 
28,056

 
27,600

Northeast
11,701

 
8,157

 
23,128

 
16,715

West Coast
17,111

 
12,791

 
32,829

 
23,376

Non-retail
621

 
698

 
1,276

 
1,460

Total segment revenues
77,544

 
69,171

 
154,175

 
137,265

Add:
 
 
 
 
 
 
 
 Straight line rent adjustment
921

 
853

 
1,944

 
1,487

 Accretion of below market lease intangibles, net
3,558

 
2,479

 
6,506

 
3,938

 Management and leasing services
500

 
641

 
1,304

 
1,107

Total revenues
$
82,523

 
$
73,144

 
$
163,929

 
$
143,797

 
 
 
 
 
 
 
 
Net operating income (NOI):
 
 
 
 
 
 
 
South Florida
$
15,010

 
$
14,071

 
$
30,939

 
$
28,727

North Florida
7,918

 
8,393

 
16,115

 
16,325

Southeast
9,869

 
9,537

 
19,828

 
19,375

Northeast
8,456

 
5,953

 
15,856

 
11,716

West Coast
11,221

 
8,549

 
21,662

 
15,586

Non-retail
332

 
285

 
667

 
678

Total
52,806

 
46,788

 
105,067

 
92,407