Business Context and Reporting Period
Company: Inland American Real Estate Trust, Inc. (Note: The filing metadata lists "Inventrust Properties Corp.", but the document text identifies the registrant as Inland American Real Estate Trust, Inc.)
Reporting Period: Quarterly Report on Form 10-Q for the period ended September 30, 2009.
Business Overview: The Company is a real estate investment trust (REIT) that acquires and manages a diversified portfolio of commercial real estate, including retail, lodging, office, industrial, and multi-family properties. As of September 30, 2009, the portfolio consisted of 946 properties.
Key Financial Metrics
| Metric | Nine Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Total Income | $849,229,000 | $770,453,000 |
| Net Income (Loss) Applicable to Company | $(238,205,000) | $(37,731,000) |
| Net Loss Per Share (Basic & Diluted) | $(0.29) | $(0.06) |
| Funds From Operations (FFO) | $91,540,000 | $231,262,000 |
| Cash Flows from Operating Activities | $284,479,000 | $299,649,000 |
| Total Assets | $11,514,528,000 | $11,136,866,000 |
| Total Liabilities | $5,420,147,000 | $4,739,579,000 |
| Mortgages, Notes and Margins Payable | $5,084,519,000 | $4,437,997,000 |
| Cash and Cash Equivalents | $631,115,000 | $945,225,000 |
Material Changes Versus Prior Period
- Significant Losses: The net loss applicable to the Company increased significantly from $(37.7) million to $(238.2) million. This was primarily driven by a loss on consolidated investment of $148.9 million related to the consolidation of LIP Holdings, LLC (LIP-H) in the first quarter of 2009, and an equity in losses of unconsolidated entities of $48.1 million.
- Impairments: The Company recorded a provision for asset impairment of $14.5 million and an impairment of notes receivable of $22.9 million for the nine months ended September 30, 2009. No such impairments were recorded in the comparable 2008 period.
- Revenue Growth: Total income increased by approximately 10% ($78.8 million) due to acquisitions in 2008 and 2009, despite a decline in lodging income of $34.7 million caused by the economic downturn.
- Debt Levels: Total debt increased by approximately $646 million to $5.08 billion, reflecting new mortgage financings for acquisitions.
- Liquidity: Cash and cash equivalents decreased by $314 million to $631 million, primarily due to reduced financing proceeds and continued investment activities.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items: The $148.9 million loss on the consolidation of LIP-H is a non-recurring item resulting from the fair value adjustment of assets and liabilities upon gaining control of the entity. The mezzanine loan within LIP-H was valued at $10.2 million due to the borrower's bankruptcy filing.
- Outlook: Management expects fewer acquisitions for the remainder of 2009. The lodging segment is expected to continue facing declines in RevPAR consistent with industry trends (projected negative 15-18% for 2009). Management anticipates being able to refinance debt maturing in 2010, though likely at higher credit spreads and lower loan-to-value ratios.
- Risks and Contingencies:
- Legal Proceedings: The Company is involved in litigation regarding development hotels (Crockett Capital Corporation) and a joint venture dispute with Concord Debt Holdings, LLC. Management cannot estimate potential losses but believes defenses are valid.
- Concentration Risk: Approximately 10% of rental revenue is derived from SunTrust Banks, Inc., and 8% from AT&T, Inc.
- Market Risk: A 1% increase in interest rates on floating-rate debt would decrease future earnings by approximately $15 million.
- Distributions: The Board maintains a distribution floor of $0.50 per share on an annualized basis. Distributions declared for the nine months totaled $302.6 million.
Important Facts for Investor Verification
- LIP-H Consolidation Impact: Verify the details of the $148.9 million loss on consolidation of LIP Holdings, LLC, including the status of the mezzanine loan collateral and the bankruptcy proceedings of the borrower.
- Joint Venture Exposure: Review the status of the Concord Debt Holdings, LLC joint venture, which recorded $154.9 million in impairment losses, and the ongoing litigation regarding capital calls.
- Debt Maturities: Confirm the refinancing strategy for approximately $941 million of mortgage debt maturing in 2010, given the expectation of higher credit spreads.
- Lodging Performance: Monitor the lodging segment's occupancy and RevPAR, which declined significantly (RevPAR down 18% for the nine months) due to the economic recession.
- Legal Outcomes: Track the resolution of the Crockett Capital Corporation lawsuit and the Concord Debt Holdings dispute, as adverse outcomes could result in significant damages or loss of preferred positions.