On December 19, 2012, Inland American Real Estate Trust, Inc. ("Inland American") established an estimated value per share of common stock equal to $6.93.
2012 Q3 Earnings and Share Valuation FAQ
1. Q: Why has the estimated share value declined from last year
if the REIT's overall performance is improving?
A: We are as frustrated as you are relative to our estimated share value
versus our operating performance. We are doing very well with managing
the dollars and cents of our day-to-day operations. Our cash position is
strong. The income from our properties is rising. The occupancy at our
properties is increasing. Tenants continue to renew their leases. If
everything is up, it is logical to ask, then why is the estimated share
price down? The reality is that our performance metrics are strong, but
these metrics form only part of our net asset value ("NAV") calculation
by which we arrived at our estimated share value. Other elements of the
NAV calculation, such as the industry cap rates, and assumptions on the
direction of the economy, are external, and were not favorable to our
hotel portfolio value at this time, even though hotel operations continue
2. Q: Why are traded REIT share values going up, while your share
value is going down?
A: Traded REITs, excluding hotel REITs, are currently trading at
approximately 8-10% above their NAV. In arriving at our estimated share
value, we did not place any emphasis on the relationship between the NAV
of traded REITs and their trading price, and did not attempt to quantify
how that relationship may have impacted our estimated share value. The
NAV method by which we arrived at our estimated share price does not
factor in any premium that may exist for the size of our portfolio or the
enterprise value of the entire REIT, if listed on a national securities
3. Q: So why did you use NAV?
A: As mentioned in our letter dated December 19, 2012, the reason that we
used the NAV method is that our business manager believes that the
non-listed REIT industry is moving toward using NAV as the sole
methodology for estimating share value. While the NAV methodology may not
be perfect, if the industry is using it as its share valuation method, it
will increase transparency and allow for comparability of performance
among the non-listed REITs.
4. Q: Which asset class had the biggest impact on your NAV
calculation of estimated share value?
A: One of the factors for the drop in estimated share value is that we
reduced the estimated value of our hotels for the purposes of the NAV
analysis, which we believe reflects the current uncertainty in the
market. Hotels are a bell weather asset class that reflects uncertainty
in the broader economy. Hotel cap rates have gone up, and because of
this, we believe that their asset values have gone down. Because hotels
make up approximately 30% of our portfolio, they had a .27˘ per share
negative impact on our estimate of value even though hotel operations
continue to improve. While this was only one input in our process of
estimating value, it had a major impact on the net result. We expect this
reduction in estimated value to be temporary.
5. Q: Will hotels continue to have a negative impact on your
A: Cap rates tend to move in cycles. Our Business Manager believes that
the economy and cap rates will eventually improve. An improving economy
and lower CAP rates for hotel properties will be an important driver in
future value enhancement for the REIT.
6. Q: Are legacy assets a problem for the Inland American
A: Like many of our non-listed REIT peers whose valuations also reflect
similar legacy assets, we bought properties during 2006 and 2007, which
is considered to be the high water mark for real estate values. As part
of our long term strategy to refine our portfolio, we are addressing
these assets, and rotating that capital into our targeted asset classes
to capture future growth potential.
Methodology and limitations of the estimated value per share are
discussed in the following documents.
Inland American Estimated Share Price FAQs Presentation
Inland American 8-K dated January 8, 2013
2012 Q3 Earnings and Share Valuation FAQ
Inland American 8-K/A dated December 21, 2012
Letter to Stockholders dated December 19, 2012
Inland American 8-K dated December 19, 2012