Business Context and Reporting Period
This Form 8-K is filed by Inland American Real Estate Trust, Inc. (the "Company") on February 24, 2015. The filing discloses a significant reduction in the Company's annual distribution rate and the publication of an estimated per-share value of its common stock to assist broker-dealers with FINRA reporting requirements. The valuation is based on a Net Asset Value (NAV) analysis as of February 4, 2015.
Key Financial Metrics and Valuation
Estimated Per Share Value: $4.00 (as of February 4, 2015).
Distribution Rate: Reduced from $0.50 to $0.13 per share annually, effective for the February 2015 distribution.
Valuation Components (Per Share):
- Real Properties: $5.06
- Joint Ventures and Land held for Developments: $0.50
- Marketable Securities: $0.22
- Cash and Other Assets, Net of Other Liabilities: $0.28
- Fair Value of Debt: $(2.06)
Valuation Assumptions: The analysis utilized a weighted average exit capitalization rate of 6.63% and a discount rate of 7.68%. The value range determined by the independent advisor was $3.85 to $4.18 per share.
Material Changes Versus Prior Period
Compared to the estimated value of $6.94 per share as of December 31, 2013, the current estimate of $4.00 represents a significant decline. Key drivers for this change include:
- Portfolio Reduction: The Company disposed of approximately $1.6 billion of non-strategic assets and spun off its lodging segment (Xenia Hotels & Resorts, Inc.) on February 3, 2015.
- Debt Reduction: Outstanding debt was reduced by approximately $800 million compared to December 2013 due to dispositions and refinancing.
- Asset Value Decline: Real property values declined from $10.86 per share (2013) to $5.06 per share (2015), reflecting a 6% overall decline from original purchase prices plus capital investments.
- Share Count: Fully diluted shares outstanding decreased from 907,688,220 (Dec 31, 2013) to 861,824,777 (Feb 4, 2015).
Guidance, Outlook, and Risks
Management Commentary: The Board of Directors unanimously adopted the $4.00 estimated value based on the report from Real Globe Advisors, LLC. The Company anticipates publishing a new estimated share value at the end of 2015.
Risks and Limitations:
- The estimated value does not reflect a liquidity discount for shares not traded on a national exchange.
- The value does not represent "enterprise value" or potential premiums for a portfolio sale.
- There is no assurance that stockholders can resell shares at this estimated value or that the value will be realized upon liquidation.
- Forward-looking statements regarding future performance involve risks and uncertainties that could cause actual results to differ materially.
Investor Verification Checklist
- Verify the impact of the Xenia Hotels & Resorts spin-off on the remaining portfolio composition.
- Confirm the specific terms of the debt refinancing and the $800 million debt reduction.
- Review the sensitivity of the $4.00 valuation to changes in the exit capitalization rate (6.63%) and discount rate (7.68%).
- Assess the liquidity implications of the reduced distribution rate ($0.13 vs. $0.50) for income-dependent investors.
- Examine the 6% decline in real estate asset values relative to original purchase prices and capital investments.