Business Context and Reporting Period
Company: Inland American Real Estate Trust, Inc. (Note: The filing text identifies the registrant as Inland American Real Estate Trust, Inc., despite the user metadata referencing Inventrust Properties Corp.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: The Company is a Real Estate Investment Trust (REIT) that acquires and manages a diversified portfolio of commercial real estate, including retail, multi-family, office, industrial, and lodging properties. The Company is managed by an affiliate, Inland American Business Manager & Advisor, Inc.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Income | $274,276,000 | $235,522,000 |
| Net Income (Loss) Attributable to Company | $(169,242,000) | $11,057,000 |
| Net Income (Loss) Per Share (Basic/Diluted) | $(0.21) | $0.02 |
| Funds From Operations (FFO) | $(59,468,000) | $90,930,000 |
| Cash Flows from Operating Activities | $87,284,000 | $69,715,000 |
| Cash Flows from Investing Activities | $(291,427,000) | $(1,042,949,000) |
| Cash Flows from Financing Activities | $7,576,000 | $931,967,000 |
| Cash and Cash Equivalents (Ending) | $748,658,000 | $368,093,000 |
| Total Debt (Mortgages, Notes, Margins) | $4,884,734,000 | $4,437,997,000 |
| Weighted Average Interest Rate on Debt | 4.82% | N/A |
Material Changes vs. Prior Period
- Net Loss vs. Net Income: The Company reported a net loss of $169.2 million for Q1 2009, a significant reversal from the $11.1 million net income in Q1 2008. The primary driver was a loss on consolidated investment of $148.9 million related to the consolidation of LIP Holdings, LLC (LIP-H).
- Revenue Growth: Total income increased by $38.8 million (16.5%) year-over-year, driven by a full quarter of operations for properties acquired in 2008 and new acquisitions in Q1 2009.
- Expense Increases: Total expenses rose to $237.5 million from $185.7 million. Notable increases include depreciation and amortization ($19.9 million increase) and interest expense ($8.9 million increase) due to higher debt levels and new acquisitions.
- Segment Performance:
- Lodging: Same-store net operating income decreased 25% due to declines in occupancy (61% vs 69%) and Average Daily Rate ($115 vs $124) caused by the economic recession.
- Retail: Same-store net operating income decreased 4% due to higher operating expenses and real estate taxes.
- Office & Industrial: Same-store net operating income remained relatively stable with slight increases.
- Investment Portfolio: The Company recorded an unrealized loss of $67.0 million on marketable securities and a realized loss/impairment of $4.1 million.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items:
- LIP-H Consolidation: On January 6, 2009, the Company consolidated LIP-H, resulting in a $148.9 million loss on the mezzanine loan valuation due to borrower bankruptcy risks. Subsequent to the period end (May 1, 2009), the borrowers filed for bankruptcy protection.
- Offering Termination: The Company terminated its follow-on stock offering effective April 6, 2009.
- Share Repurchases: The Company suspended its share repurchase program effective March 30, 2009.
- Liquidity and Capital Resources: The Company maintains a strong cash position of approximately $749 million. Management intends to preserve this cash to fund outstanding commitments and refinance debt maturing in 2009 and 2010 ($479 million and $749 million, respectively). Refinancing is expected to occur at higher credit spreads and lower loan-to-value ratios.
- Risks and Contingencies:
- Legal Proceedings: Ongoing litigation with Crockett Capital Corporation regarding development hotel agreements, seeking damages of at least $24.9 million.
- Market Risk: Significant exposure to interest rate fluctuations on variable-rate debt and equity price risk on marketable securities. A 1% increase in interest rates would decrease future earnings by approximately $15.0 million.
- Tenant Concentration: Approximately 11% of rental revenue is derived from SunTrust Banks, Inc., and 9% from AT&T, Inc.
- Joint Ventures: Risks associated with joint venture partners, including potential bankruptcy or failure to fund capital contributions.
Investor Verification Checklist
- LIP-H Valuation: Verify the assumptions used to value the mezzanine loan at $10.2 million and the resulting $148.9 million loss, particularly given the subsequent bankruptcy filing of the borrowers.
- Debt Refinancing: Assess the Company's ability to refinance $1.2 billion in debt maturing in 2009 and 2010 given the tight credit market and expected higher spreads.
- Marketable Securities: Review the composition of the $190.6 million marketable securities portfolio and the criteria used for the $4.1 million impairment charge to determine if further write-downs are necessary.
- Lodging Segment Trends: Monitor occupancy and RevPAR trends in the lodging segment, which showed a 25% decline in same-store NOI, to gauge the impact of the economic downturn on this high-revenue segment.
- Legal Exposure: Track the status of the Crockett Capital Corporation litigation and potential financial impact.