Business context and reporting period
The supplied filing is Inland American Real Estate Trust, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2011, with comparisons to 2010. This does not match the requested company name, Inventrust Properties Corp.; verify the filing identity before relying on this summary. Inland American reported a diversified portfolio of 981 commercial properties across retail, lodging, office, industrial and multifamily segments.
Financial performance and position
Dollar amounts below are in millions unless noted.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Total income | $348.2 | $313.3 | $673.2 | $595.4 |
| Operating income | $36.5 | $44.6 | $59.2 | $78.6 |
| Net loss attributable to company | $(27.8) | $(4.1) | $(82.4) | $(33.5) |
| Net loss per common share | $(0.03) | $(0.01) | $(0.10) | $(0.04) |
| Funds from operations (FFO) | Not stated | Not stated | $146.0 | $206.0 |
| Cash from operating activities | Not stated | Not stated | $195.7 | $159.4 |
- Revenue growth reflected higher lodging and rental income, including contributions from properties acquired or placed in service in 2010 and 2011. Six-month revenue rose 13%; property net operating income increased to $370.0 million from $333.2 million.
- Operating margin, calculated as operating income divided by total income, was approximately 10.5% in Q2 2011 versus 14.2% in Q2 2010, and 8.8% for the first half versus 13.2% in 2010.
- Cash used in investing activities was $116.7 million in the first half, compared with $496.0 million in 2010. Cash used in financing was $116.3 million, versus $55.0 million provided in 2010. Cash and cash equivalents ended the period at $230.4 million.
- At June 30, total assets were $11.21 billion and total liabilities were $5.90 billion. Mortgages, notes and margin payables, net, were $5.57 billion; mortgage loans had a 5.3% weighted-average rate. Approximately $717.3 million of debt was recourse to the company.
- Common distributions declared were $213.4 million, or $0.25 per weighted-average share for the half year. Operating cash flow plus distributions from unconsolidated entities and property-sale gains fell $2.3 million short of distributions declared.
Material changes versus prior comparable period
- Net loss attributable to the company worsened to $82.4 million for the first half from $33.5 million. The principal stated driver was $58.2 million of property impairments in 2011, versus $3.8 million in continuing operations in 2010. The 2010 comparison also included a $19.2 million debt-extinguishment gain in discontinued operations.
- First-half rental income increased to $326.8 million from $302.8 million, while lodging income rose to $286.3 million from $238.7 million. Operating expenses also increased, including lodging operating expenses of $181.1 million versus $150.3 million.
- Interest expense increased to $159.0 million from $141.9 million, due to higher debt and amortization of a mortgage discount associated with loans in default. Equity in earnings of unconsolidated entities improved to $5.4 million from a $5.9 million loss, partly due to investee property-sale gains.
- FFO declined to $146.0 million from $206.0 million. The filing presents FFO as a supplemental non-GAAP measure, not as a substitute for net income or operating cash flow.
Outlook, risks and unusual items
- Management expected 2011 lodging revenue per available room to increase 5%–8% versus 2010, subject to economic and industry conditions. Management also expected fewer acquisitions in 2011 than in prior years and noted lodging seasonality, with stronger revenue generally in the second and third quarters.
- Approximately $301.6 million of mortgage debt matured in 2011 and $705.4 million in 2012. Management was negotiating refinancings and anticipated higher rates and potentially additional equity requirements; it believed near-term funding was adequate but gave no assurance refinancing would be available on acceptable terms.
- Seven loans with carrying value of approximately $105.1 million, and one consolidated-joint-venture loan of approximately $10.1 million, were not in compliance with mortgage requirements. The filing says these loans were not cross-collateralized with other mortgage loans and were not recourse to the company. Three property loans totaling $64.0 million were in default.
- A put right was exercised for the company to pay approximately $293.5 million, plus accrued unpaid dividends, on October 13, 2011 to acquire all remaining equity interests in Minto Delaware. Management expected to fund the payment through some combination of financing, property dispositions and the distribution reinvestment plan.
- On June 17, 2011, the company paid $5.1 million to settle litigation with Crockett Capital Corporation. It recorded $58.2 million of impairments on six hotels, fifteen retail properties and four office properties, citing reduced expected holding periods.
- SunTrust accounted for approximately 8% of rental revenue and three AT&T-leased properties for approximately 7%, creating tenant concentration exposure. The company also cited refinancing, interest-rate, economic, lodging-market and joint-venture risks.
- Subsequent to quarter-end, the company acquired a lodging property for $69 million and a retail property for $95 million. On July 17, its NRF Healthcare joint-venture interest was sold to its partner for approximately $100 million.
- Management concluded disclosure controls were effective as of June 30, 2011 and reported no significant quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the registrant and filing match the intended company; the supplied 10-Q names Inland American Real Estate Trust, Inc.
- Confirm the October 2011 Minto put payment, accrued dividends and funding sources, and whether it was completed as expected.
- Track refinancing or resolution of the 2011–2012 maturities and the loans reported out of covenant compliance or in default.
- Assess the sustainability of distributions given the first-half coverage shortfall and the decline in FFO.
- Review the assumptions behind the $58.2 million impairment charges, the hotel outlook and the reported tenant concentrations.