Business Context and Reporting Period
This Form 8-K, filed on July 18, 2008, by Inland American Real Estate Trust, Inc. (the "Company"), primarily serves to provide unaudited interim financial statements for Winston Hotels, Inc. ("Winston") for the period ended June 30, 2007. Winston was acquired by the Company in a merger completed on July 1, 2007. The filing also discloses a material event regarding the Company's investment in Feldman Mall Properties, Inc. (FMP) occurring in July 2008.
Key Financial Metrics (Winston Hotels, Inc.)
Reporting Period: Six months ended June 30, 2007 (unaudited).
| Metric | Six Months Ended June 30, 2007 | Six Months Ended June 30, 2006 |
|---|---|---|
| Total Operating Revenue | $95.5 million | $80.0 million |
| Operating Income (Loss) | ($14.1 million) | $12.8 million |
| Net Income (Loss) | ($1.4 million) | $11.8 million |
| Net Income (Loss) Available to Common Shareholders | ($5.1 million) | $8.2 million |
| Cash and Cash Equivalents (June 30, 2007) | $70.5 million | $7.8 million (Dec 31, 2006) |
| Total Mortgage Loans | $235.7 million | $231.7 million |
| Lines of Credit | $0 | $7.9 million |
Material Changes and Unusual Items
- Merger-Related Termination Fee: Winston recorded a $20.0 million termination fee expense in the second quarter of 2007 related to the termination of a prior merger agreement with Och-Ziff. This fee was reimbursed by Inland American Real Estate Trust, Inc. and is recorded as a contingent liability pending the consummation of the Inland merger.
- Asset Impairment: A non-cash impairment charge of approximately $2.0 million was recorded for the Orlando, FL Comfort Suites, reducing its carrying value to the estimated sales price.
- Loss on Sale of Note Receivable: A loss of approximately $5.3 million was recognized on the sale of a junior participation interest in the Lady Luck casino loan.
- Gain on Sale of Properties: Significant gains were realized from the sale of discontinued operations and other properties, including a $14.7 million net gain from the settlement of a lawsuit regarding a failed Tribeca hotel acquisition.
- Feldman Mall Properties Dividend: On July 16, 2008, FMP determined not to declare a quarterly dividend on its Series A Preferred Stock, of which the Company owns 2,000,000 shares. The dividend will accrue, but the Company is evaluating potential impairment of its investment in FMP.
Outlook, Risks, and Management Commentary
- Merger Completion: The merger with Inland American Real Estate Trust, Inc. was consummated on July 1, 2007. Winston ceased to be a separate reporting entity following this date.
- Investment Risk: The Company is assessing the impact of FMP's dividend suspension on its investment portfolio, which may lead to additional impairment charges.
- Franchise Risks: The Company received notification that franchise licenses for three hotels will not be renewed beyond 2007 due to the merger. While not expected to be material, future non-renewals could adversely affect operations.
- Geographic Concentration: A significant portion of the hotel portfolio (23 of 42 wholly owned hotels) is concentrated in the eastern seaboard, exposing the Company to regional economic downturns or natural disasters.
Key Facts for Investor Verification
- Verify the status of the contingent liability related to the $20.0 million merger termination fee and its resolution post-merger.
- Monitor the Company's assessment of the investment in Feldman Mall Properties, Inc. for potential impairment charges following the dividend suspension.
- Review the impact of the non-renewal of three franchise licenses on the operating performance of the affected properties.
- Confirm the integration of Winston's financial results into Inland American Real Estate Trust's subsequent reporting periods.