IVT

Business Context and Reporting Period

Company: Inland American Real Estate Trust, Inc. (Note: Metadata referenced "Inventrust," but the filing is for Inland American Real Estate Trust, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2011
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 March 31, 2011, the portfolio consisted of 983 properties.

Key Financial Metrics

Material Changes vs. Prior Period

• Net Loss Increase: Net loss attributable to the Company increased from $(29.3) million in Q1 2010 to $(54.6) million in Q1 2011. The primary driver was a $27.97 million provision for asset impairment recorded in Q1 2011 (compared to $0.95 million in discontinued operations in Q1 2010).
• Revenue Growth: Total income increased by $43.0 million (15.2%) year-over-year, driven primarily by acquisitions made in 2010 and 2011 and a significant increase in lodging revenue ($24.1 million increase).
• Expense Increases: Total expenses rose by $54.1 million. Interest expense increased by $16.8 million due to new mortgage loans and the amortization of a $10.4 million mark-to-market mortgage discount on three defaulted properties. Lodging operating expenses increased by $15.8 million due to higher occupancy.
• FFO Decline: Funds From Operations decreased by $22.3 million (25.1%) to $66.4 million, largely due to the asset impairment charge and increased interest costs.

Outlook, Risks, and Contingencies

• Debt Refinancing: Approximately $485 million of mortgage debt matures in 2011 and $706 million in 2012. Management is negotiating refinancing but anticipates potentially higher interest rates and the need to invest additional equity. There is no assurance that refinancing will be obtained on satisfactory terms.
• Asset Impairments: The Company recorded impairments on six hotel properties and two retail properties. Three mortgage loans totaling $64.0 million are currently in default; if lenders take possession, the Company may recognize a gain on debt forgiveness comparable to the discount recognized.
• Legal Proceedings: The Company is involved in litigation with Crockett Capital Corporation regarding development hotels. While some claims were dismissed, the maximum remaining claim is estimated at approximately $7.0 million. Management believes an adverse outcome would not have a material adverse effect on financial condition but could impact results of operations.
• Contractual Obligations: The Company expects to be required to purchase Minto Delaware's interest in the MB REIT joint venture in Q2 2011 for an estimated price of $293 million. Additionally, earnout agreements could require future payments of up to $30.2 million as vacant space is leased.
• Tenant Concentration: Approximately 8% of rental revenue is generated by SunTrust Banks, Inc., and 7% by AT&T, Inc. Default by these tenants could significantly reduce revenues.

Investor Verification Checklist

• Impairment Details: Verify the specific properties impaired and the methodology used to determine fair value for the $27.97 million charge.
• Debt Maturity Wall: Assess the Company's ability to refinance the $485 million maturing in 2011 and $706 million in 2012, particularly given the expectation of higher interest rates.
• Defaulted Loans: Monitor the status of the three defaulted mortgage loans ($64.0 million) and the potential for debt forgiveness gains or further losses.
• MB REIT Put Option: Confirm the timing and funding sources for the anticipated $293 million redemption of Minto Delaware's interest in Q2 2011.
• Liquidity Position: Review the decline in cash and cash equivalents from $267.7 million to $150.4 million and its impact on the ability to fund distributions and capital expenditures.