Business Context and Reporting Period
This Form 8-K filing by Inland American Real Estate Trust, Inc. (the "Company") reports the entry into new Master Management Agreements effective July 1, 2012. The report was filed on July 6, 2012. The Company is a Maryland corporation operating as a Real Estate Investment Trust (REIT) with principal executive offices in Oak Brook, Illinois.
Key Financial Metrics and Agreements
The filing details the compensation structure for property management services but does not provide specific revenue, profit, cash flow, or debt figures for the reporting period. Management fees are calculated as a percentage of "gross income" (defined as rents, assessments, tenant reimbursements, and miscellaneous income) based on property type:
- Bank Branch Facilities: 2.50% of gross income.
- Multi-Tenant Properties:
- Industrial: 4.00%
- Multi-Family: 3.75%
- Office: 3.75%
- Retail: 4.50%
- Single-Tenant Properties:
- Industrial: 2.25%
- Office: 2.90%
- Retail: 2.90%
Fees are all-inclusive, covering previously separate accounting report preparation. No additional fees for construction oversight, leasing commissions, or set-up fees will be charged.
Material Changes Versus Prior Period
The primary material change is the replacement of expired management agreements (which ended June 30, 2012) with new Master Agreements and individual Property Agreements. Key changes include:
- Scope Expansion: The preparation of GAAP-compliant accounting reports is now formally included in the scope of services and covered by the monthly management fee, whereas previously these were provided at no additional cost but not explicitly outlined in the agreements.
- Fee Structure: The new agreements establish specific percentage-based fees for various property types, replacing the previous fee structure.
- Exclusions: Lodging properties, student housing, and multi-family properties developed by the subsidiary Inland American Communities Group, Inc. (IAC) remain under separate management agreements.
Guidance, Outlook, and Risks
Term and Termination:
- Existing properties: Initial term ends December 31, 2013, with automatic renewal until June 30, 2015, unless cancelled by June 30, 2013.
- New acquisitions: Initial term of 18 months with automatic 18-month renewal.
- Termination rights exist for fraud, gross negligence, willful misconduct, material breach (with 30-day cure), or insolvency.
Change of Control:
- Agreements automatically terminate if 75% of managed properties are sold within six months or if 50% of voting power is acquired by a third party.
- A termination fee of 70% of the average applicable monthly management fee applies if termination results from a change of control.
Indemnification: The Company must indemnify Managers for losses unless caused by negligence or misconduct. Indemnification for securities law violations is restricted to specific judicial outcomes. The Company may advance legal expenses subject to court approval and repayment obligations.
Investor Verification Checklist
- Verify the total gross income generated by each property type to calculate the actual dollar impact of the new management fee percentages.
- Confirm the specific terms of the separate management agreements for lodging, student housing, and IAC-developed properties, as these are excluded from the new Master Agreements.
- Review the full text of Exhibits 10.1 through 10.4 for detailed definitions of "gross income" and specific indemnification limitations.
- Assess the potential financial impact of the 70% termination fee in the event of a future change of control or significant asset sale.