Business context and reporting period
Inland American Real Estate Trust, Inc. filed this unaudited Form 10-Q for the quarter ended June 30, 2013. The filing describes a diversified U.S. commercial real estate portfolio, with management focusing capital on retail, lodging and student housing while disposing of less strategic assets. The filing’s registrant name is Inland American—not “Inventrust Properties Corp.” as stated in the request metadata.
Financial results and position
Unless otherwise noted, amounts are in millions of dollars. For the second quarter, total income rose 8.4% to $387.5 million from $357.6 million a year earlier. The company reported a net loss attributable to the company of $32.8 million, versus $17.9 million; the larger loss primarily reflected $175.6 million of impairment expense, compared with $16.5 million.
For the first six months, total income increased to $744.0 million from $655.5 million. Net loss attributable to the company narrowed to $28.3 million from $48.2 million, or $0.03 per share versus $0.05. The improvement included $121.9 million of income from discontinued operations, largely from property-sale gains; continuing operations recorded a $150.1 million loss. Six-month FFO, a non-GAAP measure, was $246.7 million versus $226.7 million.
- Six-month same-store NOI increased 8.4% in lodging and 4.9% in multifamily; retail was down 0.3%, office down 1.8%, and industrial down 1.4%.
- Cash provided by operations was $211.1 million, down from $242.8 million. Investing activities provided $554.8 million, principally reflecting property sales; financing activities used $690.7 million. Cash and cash equivalents ended at $295.9 million, versus $220.8 million at year-end 2012.
- Total assets were $9.815 billion, down from $10.760 billion. Debt was $5.273 billion, down from $6.006 billion; mortgage debt carried a 5.10% weighted-average rate. Approximately $433 million of debt was recourse to the company.
- At June 30, the company had $175 million available on its $200 million revolving credit line, in addition to a $75 million term loan already drawn. Restricted cash and escrows were $127.4 million.
- Distributions declared were $223.8 million for the half-year ($0.25 per weighted-average share; $0.50 annualized). Operating cash flow alone was below distributions; management also identified joint-venture distributions and property-sale gains as funding sources.
Material changes, outlook and risks
The company sold 223 properties and surrendered one property during the first half, with gross disposition prices of $720.8 million; it acquired six properties for $234.3 million. It also contributed 13 retail properties to an unconsolidated joint venture. A $147.5 million impairment on a large single-tenant office property was a major unusual charge, following changed expectations for tenant occupancy and leasing.
Management expected 2013 lodging performance to benefit from industry growth and acquisitions, student-housing rents to hold or increase, retail and industrial same-store income to remain broadly consistent, and office income to decline. It expected to maintain the monthly distribution, funded by operating cash flow, joint-venture distributions and asset-sale gains. Management said 2013 debt maturities were manageable and refinancing discussions were under way; it cautioned that refinancing on satisfactory terms was not assured. The filing identifies lodging seasonality, interest-rate exposure, tenant concentration (including AT&T and SunTrust), and credit-facility covenants as risks.
After quarter-end, the company entered an agreement to sell 294 core net-lease properties in a transaction valued at approximately $2.3 billion, including assumed debt and debt repayment. The sale was subject to staged closings, customary conditions and potential property exclusions; completion and proceeds were not assured. The filing also reports an SEC formal, non-public fact-finding investigation concerning fees, affiliate transactions, distributions, impairments and possible self-administration; the company said it had not been accused of wrongdoing and was cooperating. Related stockholder demands, a stayed derivative suit and a putative class action were also disclosed. Separately, the company sought IRS closing agreements concerning potential REIT qualification issues; acceptance and any penalty were uncertain.
Important facts for investors to verify
- Whether the $2.3 billion portfolio sale closed as planned, including final assets sold, debt assumed or repaid, and realized gains.
- Whether the impairment charge, particularly the office-property write-down, signals further valuation or leasing risks.
- Whether operating cash flow and recurring joint-venture distributions can support distributions without relying on asset sales.
- Progress on 2013–2014 debt maturities, refinancing terms, available revolver capacity and covenant compliance.
- Developments in the SEC investigation, stockholder litigation and IRS closing-agreement requests, including any financial consequences.