Business context and reporting period
Entity note: The supplied filing is Inland American Real Estate Trust, Inc.’s Form 10-K for the fiscal year ended December 31, 2011; it does not identify Inventrust Properties Corp. as the registrant.
Inland American was a diversified, nontraded REIT with retail, lodging, office, industrial and multifamily properties, plus development projects and real-estate-related securities. At year-end it reported 964 properties, including 95 hotels, and operated across the five segments. Its common shares had no public trading market.
Financial and operating performance
Dollar figures below are in millions unless stated otherwise.
| Metric | 2011 | 2010 |
|---|---|---|
| Total income | $1,323.2 | $1,186.9 |
| Net loss attributable to the Company | $(316.3) | $(176.4) |
| Basic and diluted loss per share | $(0.37) | $(0.21) |
| Funds from operations (FFO) | $443.5 | $321.8 |
| Cash provided by operating activities | $397.9 | $356.7 |
| Total assets | $10,919.2 | $11,391.5 |
| Mortgages, notes and margins payable | $5,902.7 | $5,532.1 |
| Cash and cash equivalents at year-end | $218.2 | $267.7 |
- Total income rose 11.5%, driven largely by lodging income, which increased 19.8%, and acquisitions. Net loss widened as impairment charges and other non-operating items outweighed higher operating income.
- Same-store net operating income increased 2.4% to $628.3 million. Lodging rose 10.8% and multifamily 16.7%; retail fell 1.0%, office fell 2.7%, and industrial fell 0.9%.
- Year-end mortgage debt principal was approximately $5.813 billion, with a weighted-average interest rate of 5.2%. About $1.5 billion was variable-rate debt. Approximately $671 million matured in 2012 and $946 million in 2013; the Company reported refinancing or extending about $200 million of 2012 maturities after year-end.
- Distributions declared were $429.6 million, or $0.50 per share, unchanged per share from 2010. Management reported funding them with operating cash flow, joint-venture distributions and property-sale gains; its coverage calculation showed an $8.4 million excess. For tax purposes, 62% of 2011 distributions was return of capital.
Changes, outlook, risks and unusual items
- During 2011, the Company acquired three lodging properties for $166.5 million and seven retail properties for $282.8 million, and sold 26 properties for a gross $242.3 million. It described this as a shift away from less strategic assets toward higher-performing segments.
- Impairments were significant: $105.8 million in continuing operations and $57.8 million in discontinued operations for properties, plus a $113.6 million impairment of an unconsolidated investment. The Company also recorded $24.4 million of securities impairment. FFO is a non-GAAP measure that adds back specified impairments and depreciation; its increase should be viewed alongside the GAAP loss.
- Management expected 2012 lodging and multifamily same-store performance to improve, retail and industrial performance to remain broadly consistent, and office performance to decline slightly. It anticipated maintaining the $0.50 annualized distribution, with funding expected from operations, joint-venture distributions and property-sale gains. These are expectations, not guarantees.
- Debt refinancing, interest-rate increases, occupancy and lease rollover, tenant concentration, property values, joint-venture partners, development execution and access to liquidity were identified as key risks. A 1% permanent increase in rates on floating-rate debt was estimated to reduce future earnings and cash flows by about $15 million. Six mortgage loans with a carrying value of $102.9 million were in default; the filing said they were not cross-collateralized or recourse to the Company.
- SunTrust generated about 9% and AT&T about 7% of rental revenue. A major AT&T lease covering approximately 1.7 million square feet expires in 2016. There is no public market for the shares; the Company’s estimated value was $7.22 per share at December 29, 2011, and the filing cautions that this is not GAAP fair value or a guaranteed sale price.
- The filing reports no Item 3 legal proceedings, but separately discusses joint-venture disputes and litigation risks. It also describes post-year-end competing proposals concerning the Net Lease Strategic Assets Fund: the Company’s right-of-first-offer request at $548.7 million and its partner’s buy-sell notice at $213.0 million. The outcome was unresolved in the supplied text.
- Management concluded disclosure controls and internal control over financial reporting were effective at year-end. KPMG issued an unqualified audit opinion on the financial statements.
Important facts for investors to verify
- Confirm the registrant identity: this filing is for Inland American Real Estate Trust, Inc., not the company named in the request metadata.
- Review the detailed impairment assumptions, especially the unconsolidated-venture valuation and the competing buy-sell/right-of-first-offer process.
- Check the status and terms of 2012–2013 debt maturities, including the reported post-year-end refinancing and the six loans in default.
- Assess whether operating cash flow and recurring joint-venture distributions can sustain the $0.50-per-share distribution without reliance on asset sales or other funding.
- Evaluate exposure to SunTrust and AT&T, including lease expirations, and distinguish the estimated $7.22 share value from realizable liquidity for shareholders.