Inland American's Distribution
I received an email from Inland American about a month ago discussing its decision to cut its distribution to 5% and maintain a 5% distribution rate floor. The main reason given for the cut was Inland American's high level of cash and the low rates of return earned on that cash. Inland plans to maintain cash "in light of the turbulent economic conditions." The cash will strengthen Inland American's balance sheet, provide cash for acquisitions, and maintain liquidity "to meet potential financial challenges." The letter concludes by stating that Inland feels that the opportunities in real estate may be the most attractive in forty years - let's hope Inland is right.
As of its September 30, 2008 10-Q, Inland American had cash of $1.38 billion, or 12.4% of its total assets. Inland American's Funds From Operation on a per share basis was $.36 and its distribution was $.47, for a 77% payout ratio. From revenue standpoint, 52% is generated from lodging properites, and an 24% is from retail properties. It it my opinion that having 76% of revenue comprised of lodging and retail may represent the "potential financial challenges."
I wish Inland American would list the acquisition price for its properites. This makes it hard to determine the percentage in each property type. Late last year, subsequent to the 10-Q, Inland American acquired a correctional facility in Texas. Talk about a single use property. It paid $21,069,000 for a 548-unit facility that is subject to a five-year lease. I wonder if $38,447 per unit is a good price for a jail?