Business Context and Reporting Period
This Form 8-K, filed on October 13, 2005, by Inland American Real Estate Trust, Inc. (the "Company"), discloses financial statements and pro forma information regarding properties acquired through a joint venture with Minto Builders (Florida), Inc. ("MB REIT"). The Company, formed in October 2004, is in the process of an initial public offering (IPO) to acquire a diversified portfolio of commercial real estate. As of September 30, 2005, the Company had not yet acquired any properties directly but had raised $497,500 in cash. The filing details a significant subsequent event: a joint venture agreement entered on October 11, 2005, to acquire a portfolio of properties and a controlling interest in MB REIT.
Key Financial Metrics
Historical Financial Position (Company Only)
| Metric | Sept 30, 2005 | Dec 31, 2004 |
|---|---|---|
| Total Assets | $3,082,758 | $731,465 |
| Cash and Cash Equivalents | $216,700 | $200,000 |
| Total Liabilities | $3,022,387 | $555,465 |
| Advances from Sponsor | $1,980,967 | $372,219 |
| Stockholders' Equity | $60,371 | $176,000 |
Historical Operations (Nine Months Ended Sept 30, 2005)
- Revenue: $0 (No operating properties owned).
- Total Expenses: $115,629 (General and administrative).
- Net Loss: $115,629.
- Net Loss Per Share: $5.78.
- Cash Flow: Net cash used in operating activities was $80,381; net cash provided by financing activities was $221,269.
Pro Forma Financial Position (Including MB REIT Acquisitions)
Pro forma data assumes the acquisition of properties by MB REIT occurred as of September 30, 2005.
- Total Assets: $924,922,000 (includes $838,926,000 in net investment properties).
- Total Liabilities: $275,188,000 (includes $272,384,000 in mortgages payable).
- Pro Forma Net Loss (9 months): $11,400,000 (driven by interest expense and minority interests).
Material Changes and Subsequent Events
The most significant material change reported is the formation of a joint venture with Minto Delaware, Inc. (MD) on October 11, 2005, to acquire MB REIT. Under the agreement:
- The Company agreed to purchase up to 920,000 shares of MB REIT common stock for approximately $1.172 billion ($1,276 per share).
- Upon completion, the Company will own approximately 80% of MB REIT's total equity and 97.5% of its outstanding common stock.
- MB REIT has acquired or contracted to acquire a portfolio of properties totaling approximately $897.7 million, including the SBC Center ($338 million), Triangle Mall, and a portfolio from New Quest Properties.
- MB REIT assumed mortgages totaling $272.4 million.
Additionally, the Company issued 692,190 shares between October 1 and November 2, 2005, raising $6.9 million in gross proceeds, satisfying the minimum offering requirement.
Acquired Property Portfolio (MB REIT)
| Property | Purchase Price | Location | Major Tenant |
|---|---|---|---|
| SBC Center | $338,000,000 | Various | SBC Communications (Net Lease) |
| Triangle Mall | $35,000,000 | Longview, WA | Various Retail |
| New Quest Portfolio (36 properties) | ~$460,000,000 | Texas, MO | Various (Cinemark, 24 Hour Fitness, etc.) |
| Paradise Shops of Largo | $12,800,000 | Largo, FL | Publix |
| Other Acquisitions | ~$51,000,000 | Texas | Various |
Guidance, Risks, and Contingencies
- Financing Contingency: The Company is required to purchase $150 million of MB REIT stock by December 31, 2005, another $150 million by March 31, 2006, and the remaining $875 million by December 31, 2006. Failure to meet these dates may trigger a requirement for Inland Western Retail Real Estate Trust to purchase Series C preferred stock.
- REIT Qualification: The Company and MB REIT intend to qualify as REITs. Failure to qualify would subject the entities to regular corporate income tax rates.
- Management Fees: The Company pays significant fees to affiliates, including a 4.5% property management fee on gross income, acquisition fees (up to 6.0% of purchase price), and potential incentive fees (15.0% of net proceeds from asset sales).
- Liquidity: Funding for the MB REIT acquisition and share repurchase program relies on IPO proceeds and future financing. As of the filing date, the Company had not yet purchased any shares in MB REIT.
Investor Verification Checklist
- Capital Commitment: Verify the Company's ability to raise the remaining capital required to fund the $1.172 billion investment in MB REIT by the specified deadlines.
- Debt Service: Review the terms of the $272.4 million in assumed mortgages, specifically interest rates (ranging from 4.74% to 4.995%) and maturity dates.
- Occupancy Rates: Assess the occupancy levels of the acquired portfolio, noting that some properties (e.g., Windemere Village, Blackhawk Town Center) had 0% to 2.9% occupancy at the time of acquisition.
- Affiliate Transactions: Scrutinize the magnitude of fees payable to the Business Manager and affiliates, which are capped at specific percentages of gross proceeds and income.
- Pro Forma Accuracy: Confirm that the pro forma financial statements accurately reflect the consolidation of MB REIT and the impact of minority interests (Series A, B, and C preferred stock).