The nation's largest nontraded real estate investment trust, the $11.2 billion Inland American Real Estate Trust Inc., is working through a fact-finding investigation by the Securities and Exchange Commission and intends to replicate last year's dividend of 50 cents a share.
Executives of the REIT, which revealed the SEC inquiry May 7 in its quarterly report, held a conference call with investors Friday to review first-quarter developments, which included the acquisition of five hotels, and to stress that regulators haven't accused the company of any wrongdoing.
As its size indicates, Inland American is the most widely distributed nontraded REIT among independent broker-dealers, the only sales channel for such REITs. Registered representatives and clients have been watching their investments in such REITs anxiously as some of the larger ones have announced sharp reductions in estimated valuations and cuts in dividends.
TOP OF THE AGENDA
At the top of the agenda of the Inland American conference call was the SEC investigation.
After his opening remarks, Inland America chairman Robert Parks said that he wanted to address the SEC's inquiry before other executives discussed the REIT's financial details.
“We are cooperating fully with regulators,” he said. “We've not been accused of doing anything.”
According to the presentation, Inland American last year paid $428.7 million, or 50 cents a share, in distributions. The source was cash flow from operations and joint-venture distributions.
“We believe our dividend in 2012 is sustainable,” said Thomas McGuinness, president of Inland American Business Manager and Advisor Inc.
The REIT's shares are valued at $7.22, and there are more than 185,000 stockholders.
Inland American's real estate portfolio is divided into six segments.
The largest is retail, at 38% of the REIT's assets, followed by lodging at 28%. Next come office buildings, at 17%, followed by industrial, at 9%.
Finally, the REIT owns apartments, at 6% of the portfolio, and student housing, at 2%.
Typically, nontraded REITs are illiquid investments, which offer to buy back from investors only a small number of shares per quarter.
During the credit crisis, some nontraded REITs eliminated those share buyback programs. That left investors who wanted to sell their shares with limited options, aside from selling in a secondary market that routinely offers investors 20% to 30% of the REIT's initial purchase price, typically $10 per share.
LIQUIDITY OPTIONS
At the moment, liquidity for Inland American Investors is limited to shares held by those who have died or are disabled.
But the company is exploring other liquidity options, said Jack Potts, principal financial officer.
When asked about the REIT's plans for a public offering, he said that three parts of the portfolio — retail, lodging and student housing — could be in the best position for a liquidity event.
“We are positioning each segment for potential listing, merger or portfolio sales in the future,” according to the company presentation. “Our short- to medium-term strategy is to improve the overall quality and position of these segments for long-term growth through selective asset sales.”
bkelly@investmentnews.com
