Filing identity and reporting period
Important issuer mismatch: The supplied filing is Inland American Real Estate Trust, Inc.’s Form 10-K for the fiscal year ended December 31, 2012, not a filing under the name Inventrust Properties Corp. Confirm the intended issuer before relying on this summary. This is an annual report; the figures below are for the full year unless stated otherwise.
The company is a diversified U.S. REIT focused on retail, lodging, office, industrial and multifamily properties, with a stated long-term emphasis on lodging, student housing and multi-tenant retail. At year-end it reported 794 properties, including 88 hotels, and approximately 45.6 million square feet of retail, office and industrial space, 5,311 multifamily units, 5,212 student-housing beds and 16,345 hotel rooms.
Financial performance and position
Dollar amounts are in millions except per-share data and where otherwise noted.
| Metric | 2012 | 2011 | Change / context |
|---|---|---|---|
| Total income | $1,437.4 | $1,227.9 | Up $209.5, mainly from lodging growth and acquired properties. |
| Net loss attributable to company | ($69.3) | ($316.3) | Loss narrowed; 2011 included substantially higher impairment charges. |
| Net loss per common share | ($0.08) | ($0.37) | Basic and diluted. |
| Net operating income (NOI) | $756.4 | $678.5 | Up 11.5%; same-store NOI increased 3.0%. |
| Funds from operations (FFO) | $476.7 | $443.5 | Supplemental non-GAAP measure; not a substitute for cash flow or net income. |
| Cash from operating activities | $456.2 | $397.9 | 2012 included a $22.1 increase in accrued interest payable from a one-time change in debt-service payment timing. |
| Total assets | $10,759.9 | $10,919.2 | Down from prior year. |
| Mortgages, notes and margins payable, net | $6,006.1 | $5,902.7 | Includes mortgage debt and margin borrowings; mortgage debt alone was $5,894.4. |
| Cash and cash equivalents | $220.8 | $218.2 | Year-end balance; restricted cash and escrows were a further $104.0. |
| Common distributions declared | $440.0; $0.50/share | $429.6; $0.50/share | 87% of 2012 distributions were classified as return of capital for federal tax purposes, versus 62% in 2011. |
Segment NOI was $278.3 retail, $214.9 lodging, $132.2 office, $80.2 industrial and $50.8 multifamily. Same-store NOI grew 6.7% in lodging and 9.2% in multifamily; retail and industrial each rose 1.5%, while office was essentially flat. Hotel RevPAR rose to $95 from $90, average daily rate to $132 from $125, and occupancy to 73% from 72%.
The company sold 166 properties for a gross disposition price of $603.5 million and reported net sale proceeds of $522.6 million. It invested approximately $447.9 million in property acquisitions. Acquisitions included seven upper-upscale hotels, student housing and multi-tenant retail assets.
Changes, liquidity and debt
- Net loss attributable to the company improved by $246.9 million year over year, primarily because impairments were lower; continuing operations still reported a net loss of $115.6 million.
- Property and lodging operations expanded: lodging income increased to $700.4 million from $526.3 million, while lodging operating expenses also rose to $454.4 million from $335.4 million, reflecting acquisitions and higher activity.
- Cash from operations exceeded declared distributions by $16.2 million before considering $31.7 million of distributions from unconsolidated entities and $40.7 million of property-sale gains. Management’s broader presentation showed $88.6 million of excess coverage using those sources. The company cautioned that proceeds and gains used for distributions reduce cash available for other purposes.
- Mortgage debt carried a 5.1% weighted average interest rate. Approximately $1.3 billion was variable-rate debt; a permanent 1 percentage-point rate increase was estimated to reduce annual cash flow and earnings by about $12.9 million. Interest-rate swaps covered $176.4 million of variable-rate debt.
- Approximately $882.9 million of mortgage debt matured in 2013 and $669.0 million in 2014. About $691.5 million of outstanding debt was recourse to the company. Management said it was negotiating 2013 refinancing and expected to repay or refinance maturities, but gave no assurance of satisfactory terms. Five loans with a carrying value of $72.4 million were not in compliance with loan requirements; the filing states they were not cross-collateralized with other loans or recourse to the company.
Outlook, risks and unusual items
- Management expected 2013 growth in lodging and multifamily, broadly stable retail and industrial results, and office NOI slightly down to flat (elsewhere described as lower than 2012). It expected to maintain the $0.50 annualized distribution, funded by operating cash flow and potentially joint-venture distributions and property-sale gains. These are expectations, not guarantees.
- The company had no established public market for its shares. Its December 2012 estimated share value was $6.93, down from $7.22; the company warned this estimate was not a market price or assurance of proceeds on resale or liquidation. Repurchases were limited to qualifying death or hardship cases and available funds.
- The SEC was conducting a non-public fact-finding investigation concerning management and property-management fees, affiliate transactions, distributions, impairment determinations and possible self-administration. The company said it had not been accused of wrongdoing and was cooperating. Two shareholder derivative demands raised related allegations; a special litigation committee was investigating, and no lawsuit had been filed as described in the filing.
- The company and its subsidiary MB REIT sought IRS closing agreements concerning possible preferential-dividend and asset-test issues that could affect REIT qualification. The IRS outcome and any penalty were uncertain. Management believed any penalty would not materially affect the financial statements, but could not assure the IRS would grant relief.
- Other material risks include concentrated rental income from SunTrust (about 10%) and AT&T (about 8%), significant lease expirations, refinancing and interest-rate exposure, related-party management arrangements, joint-venture and development risks, and the possibility that distributions may not be sustainable. The company recorded $77.3 million of continuing-operations property impairment and $6.0 million of discontinued-operations impairment in 2012; discontinued operations also included $38.5 million of property-sale gains and $9.5 million of debt-extinguishment gains.
- KPMG issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.
Investor verification priorities
- Verify the issuer: the filing is for Inland American Real Estate Trust, Inc., despite the request naming Inventrust Properties Corp.
- Review the status and financial exposure of the SEC investigation, shareholder demands and special litigation committee review.
- Track IRS closing-agreement decisions, potential penalties and the company’s and MB REIT’s continued REIT qualification.
- Confirm refinancing progress and terms for 2013–2014 maturities, loan covenant compliance and variable-rate exposure.
- Assess recurring distribution coverage separately from gains on asset sales and joint-venture distributions; note the high return-of-capital share of 2012 distributions.
- Evaluate whether the $6.93 estimated share value offers meaningful liquidity or valuation evidence, given the absence of an exchange listing and restricted repurchases.
- Monitor AT&T and SunTrust tenant concentration, lease rollover and the stated 2013 office outlook.