Business Context and Reporting Period
This Form 8-K, filed on February 9, 2015, reports events occurring on February 3, 2015, for Inland American Real Estate Trust, Inc. (the "Company"). The primary event is the completion of a taxable pro-rata spin-off of Xenia Hotels & Resorts, Inc. ("Xenia"). On the Distribution Date, the Company distributed 95% of Xenia's outstanding common stock to its shareholders (one share of Xenia for every eight shares of the Company). Xenia began trading on the NYSE under the ticker "XHR" on February 4, 2015.
Key Financial Metrics and Agreements
The filing details several material agreements entered into in connection with the spin-off:
- Transition Services Agreement: The Company will provide interim legal, IT, and financial services to Xenia. Expected fees to the Company are between $500,000 and $800,000 for the first 12 months. The agreement terminates by March 31, 2016.
- Employee Matters Agreement: Allocates employee liabilities and benefits. Xenia employees will transition to Xenia's benefit plans, and 401(k) assets attributable to Xenia employees will be transferred.
- Credit Agreement: The Company entered into an amended and restated unsecured revolving credit facility of $300 million, with an accordion feature to increase to $600 million.
- Current Borrowings: $0 outstanding.
- Maturity: February 2, 2019, with one 12-month extension option.
- Interest Rate: LIBOR plus 140 basis points (based on leverage ratio until an investment-grade rating is obtained).
- Fees: Unused fee of 0.25% (if usage <50%) or 0.15% (if usage ≥50%).
Pro forma financial information is referenced in Exhibit 99.2 but specific revenue, profit, or cash flow figures are not detailed in the text of this filing.
Material Changes
The most significant change is the structural separation of the Company's hotel operations into a standalone entity (Xenia). Consequently, the Company's asset base and future revenue streams are now limited to its non-hotel real estate portfolio. The prior credit agreement dated May 8, 2013, was terminated and replaced by the new $300 million facility.
Outlook, Risks, and Contingencies
Management Commentary and Outlook: The Company has established a framework for post-separation operations through transition services and indemnity agreements. The new credit facility provides liquidity for general corporate purposes, including acquisitions and working capital.
Risks and Covenants: The new Credit Agreement imposes strict financial covenants, including:
- Maximum consolidated indebtedness to total asset value ratio.
- Minimum adjusted EBITDA to fixed charges ratio.
- Minimum consolidated net worth.
- Maximum dividend payout ratio.
- Maximum unhedged variable rate debt to total asset value ratio.
Failure to meet these covenants or other events of default (e.g., bankruptcy, change in control) could result in the immediate acceleration of debt.
Investor Verification Checklist
- Review Exhibit 99.2 for the Unaudited Pro Forma Consolidated Balance Sheet and Statements of Operations to understand the Company's standalone financial position post-spin-off.
- Verify the specific terms of the Transition Services Agreement (Exhibit 10.1) to assess the duration and cost recovery of interim support to Xenia.
- Monitor the Company's leverage ratio and credit rating status, as these directly impact interest rates and fees on the new $300 million credit facility.
- Confirm the allocation of employee liabilities and 401(k) assets as detailed in the Employee Matters Agreement (Exhibit 10.2).
- Check for any subsequent filings regarding the utilization of the new revolving credit facility.