OAK BROOK, IL-As the economy continues to remain sluggish, the retail and lodging sectors tend to lag behind office, industrial and especially multifamily. But executives at Inland American REIT's Q2 earnings call remained bullish on these two sectors, which makes up approximately two-thirds of the REIT's portfolio.
There is good reason for this – the portfolio's NOI increased by 10.5% year over year (with retail showing a 9.4% increase and lodging up by 24.7%) and same-store NOI was up 1.9% -- retail increased by 0.1% compared to the same time last year, with lodging boosted by 5.3%. The numbers and other factors led Inland American's principal financial officer Jack Potts to say that the FFO guidance would be maintained at $.50-$.51 for the year. "There's a potential for some disposition and a net of acquisitions for the latter half of the year, and some slight dilution while rotating capital," he explains.
Targeted for disposition is the multifamily property component of the REIT's portfolio. The time is right to divest in this area, notes Tom McGuinness, president of Inland American Business Manager and Advisor. Cash flow is good on the multifamily side and with the sector continuing to attract investors, it's time to divest.
Potts also discussed Inland American's upcoming debt maturity. For the remainder of 2012, the REIT will see $271 million in debt maturation. This number jumps to $1 billion in 2013. Potts points out that this year's debt maturation is in the process of being refinanced. "In 2013, approximately $300 million of the maturity has contractual extensions," he says. "We’ve been discussing the balance with a variety of lenders." He acknowledges that there could be some slight paydowns on the balance, however, "we also have about $700 million of unencumbered assets we can balance out. We feel confident about maturing debt over the next 12 to 18 months."
Tom Lithgow, president of Inland American HOLDCO, offered information about the retail sector, noting that while the GDP growth has slowed, it is continuing to grow. Furthermore, personal income growth has increased at a healthy pace and retailers themselves are seeing decent sales. Though Inland American's 2012 year-to-date leasing volume is down from 2011, "we're seeing rents beginning to tick up," Lithgow comments. "This is consistent with what others are reporting in the industry."
As such, Inland American continues on the hunt for what Lithgow dubbed "necessity retail," properties that are well-located and the dominant centers in each market. Other ideal characteristics should include strong demographics with good household income growth potential and centers with a good merchandise mix. The low supply of new retail, combined with financially healthy retailers and well-located necessity centers in high-demand areas will help spur Inland American's growth, Lithgow adds.
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| Two-thirds of Inland American's portfolio consists of retail and lodging assets. The good news for both of these sectors is constrained supply and increased spending. |
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