10-Q 1 inlandamericansept30201410q.htm 10-Q Inland American Sept 30 2014 10Q

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2014
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM            TO
COMMISSION FILE NUMBER: 000-51609
Inland American Real Estate Trust, Inc.
(Exact name of registrant as specified in its charter)

Maryland
 
34-2019608
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
2901 Butterfield Road, Oak Brook, Illinois
 
60523
(Address of principal executive offices)
 
(Zip Code)
630-218-8000
(Registrant’s telephone number, including area code)

_______________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
Yes x   No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x   No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one)
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer  x
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨   No x
As of October 31, 2014 there were 861,824,767 shares of the registrant’s common stock outstanding.

 




INLAND AMERICAN REAL ESTATE TRUST, INC.
TABLE OF CONTENTS

 
Part I - Financial Information
Page
Item 1.
Financial Statements (unaudited)
 
 
Consolidated Balance Sheets at September 30, 2014 and December 31, 2013
 
Consolidated Statements of Operations and Comprehensive Income for the nine months ended September 30, 2014 and 2013
 
Consolidated Statements of Changes in Equity for the nine months ended September 30, 2014 and 2013
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013
 
Notes to Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
 
Part II - Other Information
 
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
 
Signatures

This Quarterly Report on Form 10-Q includes references to certain trademarks. Courtyard by Marriott®, Marriott®, Marriott Suites®, Residence Inn by Marriott® and SpringHill Suites by Marriott® trademarks are the property of Marriott International, Inc. (“Marriott”) or one of its affiliates. Doubletree®, Embassy Suites®, Hampton Inn®, Hilton Garden Inn®, Hilton Hotels® and Homewood Suites by Hilton® trademarks are the property of Hilton Worldwide Inc. (“Hilton”) or one or more of its affiliates. Hyatt Place® and Andaz® trademarks are the property of Hyatt Hotels Corporation (“Hyatt”). InterContinental Hotels ® trademark is the property of InterContinental Hotels Group PLC. Fairmont Hotels and Resorts is a trademark. The Aloft service name and the Westin service name are the property of Starwood Hotels and Resorts Worldwide, Inc. For convenience, the applicable trademark or service mark symbol has been omitted but will be deemed to be included wherever the above-referenced terms are used.

- i-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Consolidated Balance Sheets
(unaudited)
(Dollar amounts in thousands, except share data)


 
 
September 30, 2014
 
December 31, 2013
Assets
 
 
 
Investment properties:
 
 
 
Land
$
1,141,244

 
$
1,184,292

Building and other improvements
5,777,308

 
5,742,264

Construction in progress
271,363

 
196,754

Total
7,189,915

 
7,123,310

Less accumulated depreciation
(1,060,639
)
 
(908,384
)
Net investment properties
6,129,276

 
6,214,926

Cash and cash equivalents
348,790

 
319,237

Restricted cash and escrows
148,856

 
137,980

Investment in marketable securities
139,158

 
242,819

Investment in unconsolidated entities
248,865

 
263,918

Accounts and rents receivable (net of allowance of $7,338 and $9,332)
75,556

 
61,212

Intangible assets, net
163,860

 
176,998

Deferred costs and other assets
90,018

 
101,730

Assets held for sale
937,394

 
2,143,644

Total assets
$
8,281,773

 
$
9,662,464

Liabilities
 
 
 
Debt
$
3,636,809

 
$
3,641,552

Accounts payable and accrued expenses
182,724

 
171,520

Distributions payable
35,909

 
37,911

Intangible liabilities, net
47,760

 
54,341

Other liabilities
52,251

 
85,312

Liabilities associated with assets held for sale
533,080

 
1,405,187

Total liabilities
4,488,533

 
5,395,823

Commitments and contingencies


 


Stockholders’ Equity
 
 
 
Preferred stock, $.001 par value, 40,000,000 shares authorized, none outstanding

 

Common stock, $.001 par value, 1,460,000,000 shares authorized, 861,824,767 and 909,855,173 shares issued and outstanding
861

 
909

Additional paid in capital
7,755,486

 
8,063,517

Accumulated distributions in excess of net loss
(4,007,270
)
 
(3,870,649
)
Accumulated other comprehensive income
40,909

 
71,128

Total Company stockholders’ equity
3,789,986

 
4,264,905

Noncontrolling interests
3,254

 
1,736

Total equity
3,793,240

 
4,266,641

Total liabilities and equity
$
8,281,773

 
$
9,662,464

See accompanying notes to the consolidated financial statements.

-1-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Statements of Operations and Comprehensive Income
(unaudited)
(Dollar amounts in thousands, except share data)

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Income:
 
 
 
 
 
 
 
  Rental income
$
93,905


$
93,383

 
$
286,300

 
$
282,462

  Tenant recovery income
15,055


16,669

 
50,396

 
53,459

  Other property income
1,819


2,114

 
6,766

 
5,501

  Lodging income
231,044


156,670

 
696,587

 
446,791

Total income
341,823

 
268,836

 
1,040,049

 
788,213

Expenses:
 
 
 
 
 
 
 
  General and administrative expenses
25,833


14,292

 
62,603

 
37,220

  Property operating expenses
24,883


20,978

 
69,127

 
61,065

  Lodging operating expenses
151,375


104,439

 
454,386

 
295,106

  Real estate taxes
21,117


18,296

 
61,880

 
55,515

  Depreciation and amortization
74,730

 
64,449

 
222,795

 
198,651

  Business management fee

 
9,648

 
2,605

 
29,127

  Provision for asset impairment
2,337

 
39,942

 
80,281

 
225,009

Total expenses
300,275

 
272,044

 
953,677

 
901,693

Operating income (loss)
$
41,548

 
$
(3,208
)
 
$
86,372

 
$
(113,480
)
Interest and dividend income
2,534


4,566

 
10,621

 
14,756

Gain on sale of investment properties
6,533

 
787

 
19,118

 
14,001

Other income (loss)
12,527


290

 
15,464

 
429

Interest expense
(45,753
)

(45,400
)
 
(138,597
)
 
(139,584
)
Equity in earnings (loss) of unconsolidated entities
(2,089
)

3,000

 
334

 
11,044

Gain, (loss) and (impairment) on investment in unconsolidated entities, net


(5,471
)
 
4,509

 
(6,039
)
Realized gain on sale of marketable securities, net
27,852


14,222

 
42,998

 
31,866

Income (loss) before income taxes
43,152

 
(31,214
)
 
40,819

 
(187,007
)
Income tax expense
(2,275
)
 
(4,212
)
 
(6,857
)
 
(6,848
)
Net income (loss) from continuing operations
40,877

 
(35,426
)
 
33,962

 
(193,855
)
Net income from discontinued operations
11,683


272,967

 
158,577

 
403,136

Net income
$
52,560

 
$
237,541

 
$
192,539

 
$
209,281

Less: Net income attributable to noncontrolling interests
$
(8
)
 
$
(8
)
 
$
(16
)
 
$
(16
)
Net income attributable to Company
$
52,552


$
237,533

 
$
192,523

 
$
209,265

Net income (loss) per common share, from continuing operations, basic and diluted
$
0.05

 
$
(0.04
)
 
$
0.04

 
$
(0.22
)
Net income per common share, from discontinued operations, basic and diluted
$
0.01

 
$
0.31

 
$
0.18

 
$
0.45

Net income per common share, basic and diluted
$
0.06


$
0.27

 
$
0.22

 
$
0.23

Weighted average number of common shares outstanding, basic and diluted
861,627,855

 
902,456,636

 
883,537,865

 
897,300,455

Comprehensive income:
 
 
 
 
 
 
 
Net income attributable to Company
$
52,552

 
$
237,533

 
$
192,523

 
$
209,265

  Unrealized gain (loss) on investment securities
(6,927
)
 
(11,823
)
 
13,508

 
13,993

  Unrealized gain (loss) on derivatives
60

 
(49
)
 
(1,659
)
 
(53
)
    Reclassification adjustment for amounts recognized in net income
(27,495
)
 
(14,138
)
 
(42,068
)
 
(31,251
)
Comprehensive income attributable to the Company
$
18,190

 
$
211,523

 
$
162,304

 
$
191,954

See accompanying notes to the consolidated financial statements.

-2-


INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Consolidated Statements of Changes in Equity
(unaudited)
(Dollar amounts in thousands)


For the nine months ended September 30, 2014


 
Number of Shares
 
Common
Stock
 
Additional Paid-in
Capital
 
Accumulated
Distributions in excess of Net Loss
 
Accumulated Other Comprehensive Income (Loss)
 
Noncontrolling Interests
 
Total
Balance at January 1, 2014
909,855,173

 
$
909

 
$
8,063,517

 
$
(3,870,649
)
 
$
71,128

 
$
1,736

 
$
4,266,641

Net income

 

 

 
192,523

 

 
16

 
192,539

Unrealized gain on investment securities

 

 

 

 
13,508

 

 
13,508

Unrealized loss on derivatives

 

 

 

 
(1,659
)
 

 
(1,659
)
Reclassification adjustment for amounts recognized in net income

 

 

 

 
(42,068
)
 

 
(42,068
)
Distributions declared

 

 

 
(329,144
)
 

 

 
(329,144
)
Contributions from noncontrolling interests, net

 

 

 

 

 
1,502

 
1,502

Proceeds from distribution reinvestment program
13,808,589

 
14

 
95,818

 

 

 

 
95,832

Share repurchase program
(1,077,829)

 
(1
)
 
(7,480
)
 

 

 

 
(7,481
)
Repurchase of common stock
(60,761,166)

 
(61
)
 
(396,369
)
 

 

 

 
(396,430
)
Balance at September 30, 2014
861,824,767
 
$
861

 
$
7,755,486

 
$
(4,007,270
)
 
$
40,909

 
$
3,254

 
$
3,793,240

See accompanying notes to the consolidated financial statements.

-3-


INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Consolidated Statements of Changes in Equity
(unaudited)
(Dollar amounts in thousands)


For the nine months ended September 30, 2013


 
Number of Shares
 
Common
Stock
 
Additional Paid-in
Capital
 
Accumulated
Distributions in excess of Net Loss
 
Accumulated Other Comprehensive Income (Loss)
 
Noncontrolling Interests
 
Total
Balance at January 1, 2013
889,424,572

 
$
889

 
$
7,921,913

 
$
(3,664,591
)
 
$
84,414

 
$
125

 
$
4,342,750

Net income

 

 

 
209,265

 

 
16

 
209,281

Unrealized gain on investment securities

 

 

 

 
13,993

 

 
13,993

Unrealized loss on derivatives

 

 

 

 
(53
)
 

 
(53
)
Reclassification adjustment for amounts recognized in net income

 

 

 

 
(31,251
)
 

 
(31,251
)
Distributions declared

 

 

 
(336,649
)
 

 
(16
)
 
(336,665
)
Proceeds from distribution reinvestment program
19,705,741

 
20

 
136,601

 

 

 

 
136,621

Share repurchase program
(4,041,042
)
 
(4
)
 
(28,006
)
 

 

 

 
(28,010
)
Balance at September 30, 2013
905,089,271

 
$
905

 
$
8,030,508

 
$
(3,791,975
)
 
$
67,103

 
$
125

 
$
4,306,666

See accompanying notes to the consolidated financial statements.


-4-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Consolidated Statements of Cash Flows
(unaudited)
(Dollar amounts in thousands)

 
Nine months ended September 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
192,539

 
$
209,281

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
  Depreciation and amortization
259,566

 
297,979

  Amortization of above and below market leases, net
(359
)
 
(2,234
)
  Amortization of debt premiums, discounts and financing costs
10,118

 
11,475

  Straight-line rental income
(3,115
)
 
(7,073
)
  Provision for asset impairment
80,281

 
229,486

  Gain on sale of property, net
(171,148
)
 
(414,923
)
  (Gain) loss on extinguishment of debt
(1,930
)
 
18,984

  Equity in earnings of unconsolidated entities
(334
)
 
(11,044
)
  Distributions from unconsolidated entities
6,206

 
4,363

  (Gain), loss and impairment of investment in unconsolidated entities, net
(4,509
)
 
6,039

  Realized gain on sale of marketable securities
(42,998
)
 
(31,866
)
Changes in assets and liabilities:
 
 
 
  Accounts and rents receivable
(11,357
)
 
(10,157
)
  Deferred costs and other assets
(2,375
)
 
12,272

  Accounts payable and accrued expenses
25,712

 
21,622

  Other liabilities
(11,960
)
 
(8,549
)
Net cash flows provided by operating activities
$
324,337

 
$
325,655

Cash flows from investing activities:
 
 
 
  Purchase of investment properties
(194,900
)
 
(783,594
)
  Acquired in-place and market lease intangibles, net
(14,797
)
 
(11,609
)
  Payments to acquire goodwill

 
(10,918
)
  Capital expenditures and tenant improvements
(41,124
)
 
(48,691
)
  Investment in development projects
(73,470
)
 
(35,823
)
  Proceeds from sale of investment properties, net
774,634

 
1,884,538

  Purchase of marketable securities

 
(3,686
)
  Proceeds from sale of marketable securities
117,170

 
95,741

  Consolidation of joint venture
(2,944
)
 

  Contributions to unconsolidated entities
(38,909
)
 
(5,275
)
  Distributions from unconsolidated entities
26,569

 
15,315

  Proceeds from the sale of and return of capital from unconsolidated entities
20,047

 
29,622

  Payment of leasing fees
(3,055
)
 
(3,970
)
  Payments from notes receivable
4

 
1,632

  Restricted escrows and other assets
(21,650
)
 
(10,792
)
    Other liabilities (assets)
12,565

 
(19,948
)
Net cash flows provided by investing activities
$
560,140

 
$
1,092,542

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30,
 
2014
 
2013
Cash flows from financing activities:
 
 
 
  Proceeds from the distribution reinvestment program
$
95,832

 
$
136,619

  Shares repurchased
(403,911
)
 
(28,010
)
  Distributions paid
(331,147
)
 
(335,993
)
  Proceeds from debt and notes payable
297,515

 
656,805

  Payoffs of debt
(367,479
)
 
(1,561,408
)
  Principal payments of mortgage debt
(31,266
)
 
(38,168
)
  Payoff of margin securities debt, net
(59,681
)
 
(65,354
)
  Settlement of put/call arrangement
(47,762
)
 

  Payment of loan fees and deposits
(636
)
 
(9,649
)
  Contributions from noncontrolling interests
1,518

 

Distributions paid to noncontrolling interests
(16
)
 
(16
)
Payments for contingent consideration
(7,891
)
 
(10,000
)
Net cash flows used in financing activities
$
(854,924
)
 
$
(1,255,174
)
Net increase in cash and cash equivalents
29,553

 
163,023

Cash and cash equivalents, at beginning of period
319,237

 
220,779

Cash and cash equivalents, at end of period
$
348,790

 
$
383,802




See accompanying notes to the consolidated financial statements.



-5-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Consolidated Statements of Cash Flows
(unaudited)
(Dollar amounts in thousands)

 
Nine months ended September 30,
 
2014
 
2013
Supplemental disclosure of cash flow information:
 
 
 
Purchase of investment properties
$
(194,900
)
 
$
(819,837
)
Tenant and real estate tax liabilities assumed at acquisition, net

 
552

Assumption of mortgage debt at acquisition

 
35,963

Non-cash discount of mortgage debt assumed

 
702

Assumption of lender held escrows

 
(974
)
 
$
(194,900
)
 
$
(783,594
)
 
 
 
 
Cash paid for interest, net capitalized interest of $3,022 and $5,924
$
159,193

 
$
209,235

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
Property surrendered in extinguishment of debt
$
11,000

 
$
5,289

Mortgage assumed by buyers upon disposal of properties
$
657,339

 
$
7,683

Properties contributed to an unconsolidated entity, net of related payables
$

 
$
99,092

Consolidation of assets from joint venture
$
21,833

 
$

Assumption of mortgage debt at consolidation of joint venture
$
11,967

 
$

Liabilities assumed at consolidation of joint venture
$
446

 
$






See accompanying notes to the consolidated financial statements.





-6-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Readers of this Quarterly Report should refer to the audited consolidated financial statements of Inland American Real Estate Trust, Inc. (the "Company") for the year ended December 31, 2013, which are included in the Company’s 2013 Annual Report on Form 10-K, as amended, as certain note disclosures contained in such audited consolidated financial statements have been omitted from this Report. In the opinion of management, all adjustments (consisting of normal recurring accruals, except as otherwise noted) necessary for a fair presentation have been included in these financial statements.
1. Organization
Inland American Real Estate Trust, Inc. (the "Company") was formed on October 4, 2004 (inception) to acquire and manage a diversified portfolio of commercial real estate, primarily retail, office, industrial, multi-family (both conventional apartments and student housing), and lodging properties, located in the United States. On March 12, 2014, the Company began the process of becoming fully self-managed by terminating its business management agreement, hiring all of the employees of Inland American Business Manager & Advisor, Inc. (the “Business Manager”), and acquiring the assets of its Business Manager necessary to perform the functions previously performed by the Business Manager. On August 11, 2014, the Company filed a preliminary registration statement to potentially spin-off its lodging segment. See Note 13 "Commitments and Contingencies" for further discussion.
The accompanying consolidated financial statements include the accounts of the Company, as well as all wholly owned subsidiaries and consolidated joint venture investments. Wholly owned subsidiaries generally consist of limited liability companies (LLCs) and limited partnerships (LPs). The effects of all significant intercompany transactions have been eliminated.
Each property is owned by a separate legal entity which maintains its own books and financial records and each entity's assets are not available to satisfy the liabilities of other affiliated entities, except as otherwise disclosed in Note 8 "Debt".
At September 30, 2014, the Company owned a portfolio of 203 properties, in which the operating activity is reflected in continuing operations on the consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2014 and 2013. Additionally, at September 30, 2014, the Company classified 52 select service lodging properties as held for sale, in which the operating activity is reflected in discontinued operations on the consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2014 and 2013.
Comparatively, at September 30, 2013, the Company owned 268 properties and classified 225 net lease properties and the 52 select service lodging properties as held for sale, the operating activity of which is reflected in discontinued operations on the consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2013.
The breakdown by segment of the 203 owned properties at September 30, 2014 is as follows:
Segment
Property Count
Square Feet / Rooms / Beds
Retail
114
16,345,313
Square feet
Lodging
47
12,797
Rooms
Student Housing
14
8,318
Beds
Non-core
28
7,238,268
Square feet

-7-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements have been prepared in accordance with GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Refer to the Company's audited financial statements for the year ended December 31, 2013, as certain note disclosures contained in such audited financial statements have been omitted from these interim consolidated financial statements.

Recently Issued Accounting Pronouncements

In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which includes amendments that change the requirements for reporting discontinued operations and
require additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic
shift that has (or will have) a major effect on the entity’s results and operations would qualify as discontinued operations. In
addition, ASU 2014-08 expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet
the definition of discontinued operations. ASU 2014-08 is effective for interim and annual reporting periods in fiscal years that
begin after December 15, 2014. The Company has elected to early adopt ASU 2014-08, effective January 1, 2014. For the
nine months ended September 30, 2014, the operations reflected in discontinued operations are only related to the net lease assets that were classified as held for sale at December 31, 2013 and the select service lodging properties classified as held for sale at September 30, 2014. All other asset disposals are now included as a component of income from continuing operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective, although it will not affect the accounting for rental related revenues. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU No. 2014-09 will have on its combined consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

Reclassifications
Certain reclassifications have been made to the 2013 consolidated financial statements to conform to the 2014 presentations. The reclasses primarily represent reclassifications of revenue and expenses to discontinued operations on the consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2013 and reclassifications of assets and liabilities to held for sale on the consolidated balance sheet as of December 31, 2013.

Involuntary Conversion of Assets

On August 24, 2014, Napa, California experienced a 6.0 magnitude earthquake that impacted two lodging properties. The Company recorded involuntary losses of $8,328 which represents the book value of the properties and equipment written off for the property damage. As it is probable that the Company will receive insurance proceeds to compensate for the property damages, the Company also recorded an offsetting insurance recovery receivable of $8,328. Any amount expected to be received above the recorded involuntary loss will be treated as a gain and will not be recorded until contingencies are resolved. The involuntary loss and insurance recovery income were recorded in other income on the consolidated statements of operations and comprehensive income.
The Company will not record an insurance recovery receivable for business interruption losses until the recovery is estimable and it is probable that the Company will be compensated to the extent of estimated business interruption losses. Any proceeds in excess of estimated business interruption losses will be recorded upon receipt.


-8-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

3. Acquired Properties
The Company records identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination at fair value. The Company acquired three properties, including two retail properties and one lodging property for the nine months ended September 30, 2014 and fifteen properties, including four retail properties, eight lodging properties, and three student housing properties for the nine months ended September 30, 2013, for a gross acquisition price of $209,150 and $831,850, respectively. The table below reflects acquisition activity during the nine months ended September 30, 2014.
Segment
Property
Date
Gross Acquisition Price
Square Feet / Rooms
Retail
Suncrest Village
2/13/2014
$14,050
93,358

Square Feet
Retail
Plantation Grove
2/13/2014
12,100

73,655

Square Feet
Lodging
Aston Waikiki Beach Hotel
2/28/2014
183,000

645

Rooms
Total
 
 
$209,150
 
 
For properties acquired as of September 30, 2014, the Company recorded revenue of $12,399 and $26,600 for the three and nine months ended September 30, 2014, respectively. The Company recorded property net income of $3,383 and $4,858, excluding related expensed acquisition costs, for the three and nine months ended September 30, 2014, respectively. The Company incurred $27 and $1,337 of acquisition and transaction costs during the three and nine months ended September 30, 2014, respectively, that were recorded in general and administrative expenses on the consolidated statements of operations and comprehensive income.
For properties acquired as of September 30, 2013, the Company recorded revenue of $23,750 and $40,335 for the three and nine months ended September 30, 2013, respectively. The Company recorded property net income of $8,569 and $14,294, excluding related expensed acquisition costs for the three and nine months ended September 30, 2013, respectively. The Company incurred $845 and $1,581 of acquisition and transaction costs during the three and nine months ended September 30, 2013, respectively, that were recorded in general and administrative expenses on the consolidated statements of operations and comprehensive income.
4. Disposed Properties
The Company sold 249 properties and surrendered one property to the lender (in satisfaction of non-recourse debt) during the nine months ended September 30, 2014 for a gross disposition price of $1,476,500. There were 304 properties sold and one property surrendered to the lender for the nine months ended September 30, 2013 for a gross disposition price of $1,815,900.
The table below reflects sales activity for the nine months ended September 30, 2014 reflected in discontinued operations on the consolidated statements of operations and comprehensive income.
Segment
Property
Date
Gross Disposition Price
Square Feet
Non-core
Triple net portfolio - 30 properties
1/8/2014
$55,300
148,233
Square feet
Non-core
Triple net portfolio - 28 properties
2/21/2014
451,900

7,496,769
Square feet
Non-core
Triple net portfolio - 151 properties
3/10/2014
278,600

815,008
Square feet
Non-core
Triple net portfolio - one property
3/21/2014
226,400

736,572
Square feet
Non-core
Triple net portfolio - 4 properties
3/28/2014
58,500

1,118,096
Square feet
Non-core
Triple net portfolio - 9 properties
5/8/2014
138,200

599,830
Square feet
Total
 
 
$1,208,900
 
 
The Company classified 52 select service lodging properties as held for sale as of September 30, 2014, and the operations are reflected as discontinued operations on the consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2014 and 2013. These 52 select service lodging properties represent a strategic shift for the Company's lodging segment. The classification of the operations of these properties as held for sale also has a major impact on the consolidated financial statements. As of September 30, 2013, there were 225 net lease properties classified as held for sale.

-9-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

The operations of these properties are also included in discontinued operations on the consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2014 and 2013.
The components of the Company’s discontinued operations are presented below, which include the results of operations during the three and nine months ended September 30, 2014 and 2013 in which the Company owned such properties.
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014

September 30, 2013
 
September 30, 2014
 
September 30, 2013
Revenues
$67,060
 
$108,863
 
$208,062
 
$359,867
Depreciation and amortization expense
11,387

 
28,516

 
36,735

 
99,341

Other expenses
42,818

 
48,923

 
124,356

 
155,809

Provision for asset impairment

 

 

 
4,476

Operating income from discontinued operations
$12,855
 
$31,424
 
$46,971
 
$100,241
Interest expense and other
(7,825
)
 
(23,098
)
 
(31,021
)
 
(80,355
)
Gain on sale of properties, net
6,654

 
281,216

 
152,030

 
400,938

Gain on extinguishment of debt
(1
)
 
(16,575
)
 
(9,403
)
 
(17,672
)
Loss on transfer of assets

 

 

 
(16
)
Net income from discontinued operations
$11,683
 
$272,967
 
$158,577
 
$403,136
Net cash provided by operating activities from the properties classified as held for sale for the nine months ended September 30, 2014 was $56 compared to net cash provided by operating activities from such properties of $107 for the nine months ended September 30, 2013. Net cash provided by investing activities from the properties classified as held for sale for the nine months ended September 30, 2014 was $513. There was $592 net cash provided by investing activities from such properties for the nine months ended September 30, 2013.
The following properties were sold during the nine months ended September 30, 2014. They are included in continuing operations on the consolidated statement of operations and comprehensive income for the nine months ended September 30, 2014. A parcel of land was also sold during the nine months ended September 30, 2014 for $14,000.
Segment
Property
Date
Gross Disposition Price
Square Feet / Units / Rooms
Retail
Willis Town Center
1/8/2014
$1,600
85,828
Square feet
Retail
Alcoa Exchange I & II
1/29/2014
24,300

339,690
Square feet
Non-core
Citizens - Dallastown
2/6/2014
100

2,995
Square feet
Retail
Hunting Bayou - 5 properties
2/19/2014
15,600

276,416
Square feet
Retail
Monadnock Marketplace
4/9/2014
31,200

367,454
Square feet
Non-core
Block 121
4/16/2014
38,200

255
Units
Retail
Palm Harbor Shopping Center
5/15/2014
12,400

161,431
Square feet
Lodging
Crowne Plaza - Charleston
5/30/2014
13,300

168
Rooms
Non-core
Citizens - York
7/9/2014
500

17,079
Square feet
Retail
Merchants Crossing
7/22/2014
17,900

213,739
Square feet
Non-core
3801 S. Collins
7/31/2014
10,500

239,905
Square feet
Non-core
Sonora
7/31/2014
7,000

33,055
Square feet
Lodging
Doubletree Atlanta Galleria
8/28/2014
12,600

154
Rooms
Non-core
Imagine Charter Schools - 8 properties
8/28/2014
68,400

364,710
Square feet
Total
 
 
$253,600
 
 

-10-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

For the three months ended September 30, 2014 and 2013, the Company recorded a gain on sale of investment properties of $6,533 and $787, respectively, in continuing operations. For the nine months ended September 30, 2014 and 2013, the Company recorded a gain on sale of investment properties of $19,118 and $14,001, respectively, in continuing operations. During the nine months ended September 30, 2013, the Company contributed fourteen properties to a joint venture. As a result of this contribution, the Company recognized a gain on sale of $12,783, which is included in gain on sale of investment properties on the consolidated statements of operations and comprehensive income for the nine months ended September 30, 2013. For the nine months ended September 30, 2014 and 2013, the Company had generated net proceeds from the sale of properties of $774,634 and $1,884,538, respectively.
5. Investment in Partially Owned Entities
Consolidated Entities
As of December 31, 2013, the Company had ownership interests of 67% in various limited liability companies which owned nine shopping centers. These nine shopping centers were previously classified as held for sale at December 31, 2013 and were sold during second quarter 2014. The operations for the periods presented are classified on the consolidated statements of operations and comprehensive income as discontinued operations for all periods presented. These entities were considered variable interest entities (“VIEs”) as defined in ASC 810, and the Company was considered the primary beneficiary of each of these entities. Therefore, these entities were consolidated by the Company. The entities' agreements contained put/call provisions which granted the right to the outside owners and the Company to require these entities to redeem the ownership interests of the outside owners during future periods. Because the outside ownership interests were subject to a put/call arrangement requiring settlement for a fixed amount, these entities were treated as 100% owned subsidiaries by the Company with the amount of $47,762 as of December 31, 2013 and $0 as of September 30, 2014 reflected as a financing and included within other liabilities classified as held for sale in the accompanying consolidated financial statements. Interest expense was recorded on these liabilities in an amount generally equal to the preferred return due to the outside owners as provided in the entities' agreements.
During the fourth quarter 2013, the Company entered into two joint ventures to each develop a lodging property. The Company has ownership interests of 75% in each joint venture. These entities are considered VIEs as defined in FASB ASC 810 because the entities do not have enough equity to finance their activities without additional subordinated financial support. The Company determined that it has the power to direct the activities of the VIEs that most significantly impact the VIEs' economic performance, as well as the obligation to absorb losses of the VIEs that could potentially be significant to the VIEs or the right to receive benefits from the VIEs that could potentially be significant to the VIEs. As such, the Company has a controlling financial interest and is considered the primary beneficiary of each of these entities. Therefore, these entities are consolidated by the Company.
For the VIEs where the Company is the primary beneficiary, the following are the liabilities of the consolidated VIEs which are not recourse to the Company, and the assets that can be used only to settle those obligations.
 
As of September 30, 2014
 
December 31, 2013
Net investment properties
$27,723
 
$123,121
Other assets
233

 
8,766

Total assets
27,956

 
131,887

Mortgages, notes and margins payable
(13,973
)
 
(77,873
)
Other liabilities
(3,902
)
 
(49,904
)
Total liabilities
(17,875
)
 
(127,777
)
Net assets
$10,081
 
$4,110

-11-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

Unconsolidated Entities
The entities listed below are owned by the Company and other unaffiliated parties in joint ventures. Net income, distributions and capital transactions for these properties are allocated to the Company and its joint venture partners in accordance with the respective partnership agreements. Refer to the Company’s Form 10-K for the year ended December 31, 2013 for details of each unconsolidated entity.
These entities are not consolidated by the Company and the equity method of accounting is used to account for these investments. Under the equity method of accounting, the net equity investment of the Company and the Company’s share of net income or loss from the unconsolidated entity are reflected in the consolidated balance sheets and the consolidated statements of operations and comprehensive income.
Entity
Description
Ownership %
Investment at
September 30, 2014
 
Investment at
 December 31, 2013
Cobalt Industrial REIT II
Industrial portfolio
36%
$72,463
 
$83,306
Brixmor/IA JV, LLC
Retail Shopping Centers
(a)
60,960

 
77,551

IAGM Retail Fund I, LLC
Retail Shopping Centers
55%
110,102

 
90,509

Other Unconsolidated Entities (b)
Various real estate investments
Various
5,340

 
12,552

 
 
 
$248,865
 
$263,918
(a)
The Company has a preferred membership interest and is entitled to a 11% preferred dividend in Brixmor/IA JV, LLC. On September 11, 2014, the joint venture partner gave notice of its intent to purchase the Company's interest in the joint venture. The transaction is expected to close December 6, 2014.
(b)
On February 21, 2014, the Company purchased its partners' interest in one joint venture, which resulted in the Company obtaining control of the venture. Therefore, as of September 30, 2014, the Company consolidated this entity, recorded the assets and liabilities of the joint venture at fair value, and recorded a gain of $4,509 on the purchase of this investment during the nine months ended September 30, 2014.
For the three months ended September 30, 2014 and 2013, the Company recorded $0 and $5,528 of impairment in its unconsolidated entities, respectively. For the nine months ended September 30, 2014 and 2013, the Company recorded $0 and $6,532 of impairment in its unconsolidated entities, respectively.

-12-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

Combined Financial Information
The following table presents the combined condensed financial information for the Company’s investment in unconsolidated entities.
 
September 30, 2014
 
December 31, 2013
Assets:
 
 
 
Real estate assets, net of accumulated depreciation
$1,513,473
 
$
1,558,312

Other assets
261,235

 
272,810

Total Assets
1,774,708

 
1,831,122

Liabilities and Equity:
 
 
 
Mortgage debt
1,075,711

 
1,135,630

Other liabilities
103,382

 
96,217

Equity
595,615

 
599,275

Total Liabilities and Equity
$1,774,708
 
$1,831,122
Company’s share of equity
$263,316
 
$278,745
Net excess of cost of investments over the net book value of underlying net assets (net of accumulated depreciation of $1,168 and $783, respectively)
(14,451
)
 
(14,827
)
Carrying value of investments in unconsolidated entities
$248,865
 
$263,918
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 30, 2013
 
September 30, 2014
 
September 30, 2013
Revenues
$
48,036

 
$
57,566

 
$
148,760

 
$
168,863

Expenses:
 
 
 
 

 

Interest expense and loan cost amortization
6,713

 
12,399

 
31,718

 
38,344

Depreciation and amortization
23,215

 
18,590

 
56,978

 
51,438

Operating expenses, ground rent and general and administrative expenses
22,602

 
19,098

 
60,678

 
55,121

Total expenses
52,530

 
50,087

 
149,374

 
144,903

Net (loss) income
$
(4,494
)
 
$
7,479

 
$
(614
)
 
$
23,960

Company’s share of:
 
 
 
 

 

Net income, net of excess basis depreciation of $129 and $125, and $385 and $400, respectively
$
(2,089
)
 
$
3,000

 
$
334

 
$
11,044

The unconsolidated entities had total third party debt of $1,075,711 at September 30, 2014 that matures as follows:
Year
Amount
2014
$44,147
2015
16,120

2016
19,500

2017
200,119

2018
318,028

Thereafter
477,797

 
$1,075,711
Of the total outstanding debt, approximately $23,000 is recourse to the Company. It is anticipated that the joint ventures will be able to repay or refinance all of their debt on a timely basis.

-13-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

6. Transactions with Related Parties
On March 12, 2014, the Company entered into a series of agreements and amendments to existing agreements with affiliates of The Inland Group, Inc. (the "Inland Group") pursuant to which the Company began the process of becoming entirely self-managed (collectively, the "Self-Management Transactions"). On March 12, 2014, as part of the Self-Management Transactions, the Company; the Business Manager; Inland American Lodging Advisor, Inc. a wholly owned subsidiary of the Business Manager ("ILodge"); the Company's property managers, Inland American Industrial Management LLC (“Inland Industrial”), Inland American Office Management LLC (“Inland Office”) and Inland American Retail Management LLC (“Inland Retail”); their parent, Inland American Holdco Management LLC (“Holdco” and collectively with Inland Industrial, Inland Office and Inland Retail, the “Property Managers”); and Eagle I Financial Corp. ("Eagle"), entered into a Master Modification Agreement (the “Master Modification Agreement”) pursuant to which the Company agreed with the Business Manager to terminate the management agreement with the Business Manager, hired all of the Business Manager’s employees and acquired the assets or rights necessary to conduct the functions previously performed for the Company by the Business Manager. The Company also hired certain Property Manager employees and assumed responsibility for performing significant property management activities. The Company assumed certain limited liabilities of the Business Manager and the Property Managers, including accrued liabilities for employee holiday, sick and vacation time for those Business Manager, and Property Manager employees who became employees of the Company and liabilities arising after the closing of the Master Modification Agreement under leases and contracts assigned to the Company. The Company did not assume, and the Business Manager is obligated to indemnify the Company against, any liabilities related to the pre-closing operations of the Business Manager. Eagle, an indirect wholly owned subsidiary of the Inland Group, guaranteed the Business Manager’s indemnity and other obligations under the Master Modification Agreement. The Company did not pay an internalization fee or self-management fee in connection with the Master Modification Agreement but reimbursed the Business Manager and Property Managers for specified transaction related expenses and employee payroll costs. The Company entered into a consulting agreement with Inland Group affiliates for a term of three months at $200 per month, which the Company elected not to renew pursuant to its terms.
Concurrently, as part of the Self-Management Transactions, the Company entered into an Asset Acquisition Agreement (the "Asset Acquisition Agreement") with the Property Managers and Eagle, pursuant to which the Company agreed to terminate the management agreements with the Property Managers at the end of 2014, hire certain of the remaining Property Manager employees and acquire the assets or rights necessary to conduct the remaining functions performed for the Company by the Property Managers. The Company agreed to assume certain limited liabilities, including accrued liabilities for employee holiday, sick and vacation time for Property Manager employees that become Company employees and liabilities arising after the closing of the Asset Acquisition Agreement under leases and other contracts that the Company decides to assume in the transaction. The Company will not assume any liabilities related to the pre-closing operations of the Property Managers, and it will not pay an internalization fee or self-management fee in connection with the Asset Acquisition Agreement. The Asset Acquisition Agreement contains termination rights and closing conditions for both the Company and the Property Managers, and the Company expects to consummate the transactions contemplated thereby on December 31, 2014.
Also on March 12, 2014, as part of the Self-Management Transactions, the Company entered into separate Amended and Restated Master Management Agreements (collectively, the “Amended Property Management Agreements”) with each of the Property Managers (excluding Holdco), pursuant to which the Property Managers will continue to provide property management services to the Company through December 31, 2014, other than the property-level accounting, lease administration, leasing, marketing and construction functions that the Company began performing pursuant to the Master Modification Agreement.

-14-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

The following table summarizes the Company’s related party transactions for the three and nine months ended September 30, 2014 and 2013.
 
For the three months ended
 
For the nine months ended
 
Unpaid amounts as of
 
September 30, 2014
 
September 30, 2013
 
September 30, 2014
 
September 30, 2013
 
September 30, 2014
 
December 31, 2013
General and administrative:
 
 
 
 
 
 
 
 
 
 
 
General and administrative reimbursement (a)
$1,202
 
$3,094
 
$6,089
 
$10,943
 
$661
 
$4,834
Investment advisor fee (b)
237

 
368

 
922

 
1,309

 
77

 
115

Total general and administrative to related parties
$1,439
 
$3,462
 
$7,011
 
$12,252
 
$738
 
$4,949
Property management fees (c)
$2,773
 
$5,415
 
$9,496
 
$17,149
 
$0
 
$67
Business management fee (d)

 
9,648

 
2,605

 
29,127

 

 
8,836

Loan placement fees (e)
1

 

 
224

 
444

 

 

(a)
In connection with the closing of the Master Modification Agreement and termination of the business management agreement, on March 12, 2014, the Company reimbursed the Business Manager for compensation and other ordinary course out-of-pocket expenses, which totaled approximately $3,401. In addition, the Company reimbursed the Property Managers approximately $249 for compensation and out-of-pocket expenses incurred between January 1, 2014 and March 12, 2014 for the Property Manager employees the Company hired at closing to approximate the economics as though the Company had hired such employees on January 1, 2014. These costs are reflected in general and administrative reimbursements above.
In addition, the Company has directly retained affiliates of the Business Manager to provide back-office services that were provided to the Company through the Business Manager prior to the termination of the business management agreement. These service agreements are generally terminable without penalty by either party upon 60 days’ notice. These costs are reflected in general and administrative reimbursements above. During the three months ended September 30, 2014, the Company sent termination notices for agreements with those affiliates of the Business Manager which provided information technology and investor services to the Company.
Unpaid amounts as of September 30, 2014 and December 31, 2013 are included in accounts payable and accrued expenses on the consolidated balance sheets.
(b)
The Company pays Inland Investment Advisors, Inc., a related party of the Business Manager, to purchase, sell, and monitor its investment in marketable securities.
(c)
As part of the Self-Management Transactions, select Property Management fees charged to the Company were reduced effective January 1, 2014 to reflect, among other things, the hiring of the Property Manager employees and the services that were no longer being performed by the Property Managers. The Amended Property Management Agreements reduced the property management fees charged in respect of most of the Company’s multi-tenant retail properties from 4.50% of gross income generated by the applicable property to 3.50% for the first six months of 2014 and to 3.25% for the last six months of 2014, and reduced fees charged in respect of the Company’s multi-tenant office properties from 3.75% of gross income generated by the applicable property to 3.50% for the first six months of 2014 and to 3.25% for the last six months of 2014. The Company also agreed to assume responsibility for the compensation-related expenses of the Property Manager employees hired by the Company effective March 1, 2014.
For the three and nine months ended September 30, 2013, the Property Managers, entities owned principally by individuals who are related parties of the Business Manager, were entitled to receive property management fees by property type, as follows: (i) for any bank branch facility (office or retail), 2.50% of the gross income generated by the property; (ii) for any multi-tenant industrial property, 4.00% of the gross income generated by the property; (iii) for any multi-family property, 3.75% of the gross income generated by the property; (iv) for any multi-tenant office property, 3.75% of the gross income generated by the property; (v) for any multi-tenant retail property, 4.50% of the

-15-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

gross income generated by the property; (vi) for any single-tenant industrial property, 2.25% of the gross income generated by the property; (vii) for any single-tenant office property, 2.90% of the gross income generated by the property; and (viii) for any single-tenant retail property, 2.90% of the gross income generated by the property.
In addition to these fees, the Property Managers receive reimbursements of payroll costs for property level employees. The Company reimbursed or will reimburse the Property Managers and other affiliates $1,274 and $3,111 for the three months ended September 30, 2014 and 2013, respectively, and $4,569 and $9,545 for the nine months ended September 30, 2014 and 2013, respectively.
(d)
In connection with the closing of the Master Modification Agreement and termination of the business management agreement, the Company paid a business management fee for January 2014, which totaled approximately $3,333. The Company did not pay a business management fee for February or March 2014. Pursuant to the letter agreement dated May 4, 2012, the business management fee was reduced for investigation costs exclusive of legal fees incurred in conjunction with the SEC matter. The Master Modification Agreement contained a ninety-day reconciliation of certain payments and reimbursements, including the January 2014 business management fee. The reconciliation was completed during the nine months ended September 30, 2014, which resulted in $728 of SEC-related investigation costs and an adjusted January 2014 business management fee expense of $2,605. Pursuant to the March 12, 2014 Self-Management Transactions, the May 4, 2012 letter agreement by the Business Manager has been terminated.
The Company incurred a business management fee of $29,127 for the nine months ended September 30, 2013, under the terms of its Business Manager agreement, which was terminated March 12, 2014. After the Company’s stockholders received a non-cumulative, non-compounded return of 5.00% per annum on their “invested capital,” the Company paid its Business Manager an annual business management fee of up to 1.00% of the “average invested assets,” payable quarterly in an amount equal to 0.25% of the average invested assets as of the last day of the immediately preceding quarter. For the nine months ended September 30, 2013, average invested assets were $10,899,071. The business management fee was equal to 0.28% of average invested assets for the nine months ended September 30, 2013.
(e)
The Company pays a related party of the Business Manager 0.2% of the principal amount of each loan placed for the Company. Such costs are capitalized as loan fees and amortized over the respective loan term.
As of September 30, 2014 and December 31, 2013, the Company had deposited $376 and $376, respectively, in Inland Bank and Trust, a subsidiary of Inland Bancorp, Inc., an affiliate of The Inland Real Estate Group, Inc.
The Company is party to an agreement with a limited liability company formed as an insurance association captive, which is wholly-owned by the Company and three related parties, Inland Real Estate Corporation (“IRC”), Inland Diversified Real Estate Trust, Inc. (" Inland Diversified"), and Inland Real Estate Income Trust, Inc., and a third party, Retail Properties of America ("RPAI"). On July 1, 2014, Inland Diversified completed a merger with Kite Realty Group Trust in an all-stock transaction and effectively withdrew as a member from the limited liability company. On August 29, 2014, RPAI provided notice that it was withdrawing as a member from the limited liability company effective December 1, 2014. The Company paid insurance premiums of $3,033 and $3,021 for the three months ended September 30, 2014 and 2013, respectively, and $9,397 and $9,158 for the nine months ended September 30, 2014 and 2013, respectively.
During the nine months ended September 30, 2014, the Company sold its shares of IRC for a gain of $2,848 and therefore held no shares of IRC as of September 30, 2014. As of December 31, 2013, the Company held 899,820 shares of IRC valued at $9,466.

-16-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

7. Investment in Marketable Securities
Investment in marketable securities of $139,158 and $242,819 at September 30, 2014 and December 31, 2013, respectively, consists primarily of preferred and common stock investments in other REITs and certain real estate related bonds which are classified as available-for-sale securities and recorded at fair value. The cost basis net of impairments of available-for-sale securities was $97,279 and $171,450 as of September 30, 2014 and December 31, 2013, respectively.
Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported as a separate component of comprehensive income until realized. The Company has net accumulated other comprehensive income related to its marketable securities portfolio of $41,879 and $71,369, which includes gross unrealized losses of $1,769 and $3,189 related to its marketable securities as of September 30, 2014 and December 31, 2013, respectively. Securities with gross unrealized losses have a related fair value of $11,982 and $23,394 as of September 30, 2014 and December 31, 2013, respectively.
The Company’s policy for assessing recoverability of its available-for-sale securities is to record a charge against net earnings when the Company determines that a decline in the fair value of a security drops below the cost basis and believes that decline to be other-than-temporary. Factors in the assessment of other-than-temporary impairment include determining whether (1) the Company has the ability and intent to hold the security until it recovers, and (2) the length of time and degree to which the security’s price has declined. No impairment to available-for-sale securities was recorded for the three and nine months ended September 30, 2014 and 2013.
Dividend income is recognized when earned. During the three months ended September 30, 2014 and 2013, dividend income of $2,193 and $3,990, respectively, was recognized and is included in interest and dividend income on the consolidated statements of operations and comprehensive income. During the nine months ended September 30, 2014 and 2013, dividend income of $9,581 and $12,813, respectively, was recognized and is included in interest and dividend income on the consolidated statements of operations and comprehensive income.
8. Debt
Mortgages Payable
Mortgage loans outstanding for as of September 30, 2014 and December 31, 2013 were $3,960,285 and $4,737,459 and had a weighted average interest rate of 4.83% and 5.09% per annum, respectively. Of these mortgage loans outstanding at September 30, 2014 and December 31, 2013, approximately $510,405 and $1,338,360 related to properties held for sale, respectively. Mortgage premium and discount, net, was a discount of $13,204 and $17,459 as of September 30, 2014 and December 31, 2013, respectively. Of this mortgage discount, net, a discount of $133 and $51 related to properties held for sale at September 30, 2014 and December 31, 2013, respectively. As of September 30, 2014, scheduled maturities for the Company’s outstanding mortgage indebtedness had various due dates through December 2041, as follows:
Maturity Date
 
As of September 30, 2014
 
Weighted average
annual interest rate
2014
 
$73,558
 
2.66%
2015
 
425,441

 
3.45%
2016
 
718,769

 
5.36%
2017
 
1,092,401

 
5.67%
2018
 
690,992

 
4.83%
Thereafter
 
959,124

 
4.25%
Total
 
$3,960,285
 
4.83%
The Company is negotiating refinancing debt maturing in 2014 with various lenders at terms that will allow the Company to pay comparable interest rates. It is anticipated that the Company will be able to repay, refinance or extend the debt maturing in 2014, and the Company believes it has adequate sources of funds to meet short term cash needs related to these refinancings. Of

-17-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

the total outstanding debt for all years, approximately $227,640 is recourse to the Company, of which $15,344 relates to properties classified as held for sale as of September 30, 2014.
Some of the mortgage loans require compliance with certain covenants, such as debt coverage service ratios, investment restrictions and distribution limitations. As of September 30, 2014, the Company was in compliance with all mortgage loan requirements except three loans with a carrying value of $73,695; none of which are cross collateralized with any other mortgage loans or recourse to the Company. The stated maturities of the mortgage loans in default at September 30, 2014 are reflected as follows: $73,695 in 2017. As of December 31, 2013, the Company was in compliance with all mortgage loan requirements except six loans with a carrying value of $116,910; none of which were cross collateralized with any other mortgage loans or recourse to the Company. The stated maturities of the mortgage loans in default at December 31, 2013 were reflected as follows: $12,100 in 2011, $11,000 in 2012, $20,115 in 2016, and $73,695 in 2017.
Line of Credit
In 2013, the Company entered into a credit agreement with KeyBank National Association, JP Morgan Chase Bank National Association and other financial institutions to provide for a senior unsecured credit facility in the aggregate amount of $500,000. The credit facility consists of a $300,000 senior unsecured revolving line of credit and the total outstanding term loan is $200,000. The Company's accordion feature is $800,000. The senior unsecured revolving line of credit matures on May 7, 2016 and the unsecured term loan matures on May 7, 2017. The Company has a one year extension option on the revolver which it may exercise as long as there is no existing default, it is in compliance with all covenants, a 60-day notice has been provided and it pays an extension fee equal to 0.20% of the commitment amount being extended.
As of September 30, 2014, the Company was in compliance with all of the covenants and default provisions under the credit agreement. As of September 30, 2014, the interest rates of the revolving line of credit and unsecured term loan were 1.76% and 1.66%, respectively. As of December 31, 2013, the interest rates of the revolving line of credit and unsecured term loan were 1.60% and 1.67%, respectively. Upon closing the credit agreement, the Company borrowed the full amount of the term loan which remains outstanding as of September 30, 2014. As of September 30, 2014 and December 31, 2013, the Company had $300,000 and $299,820 available under the revolving line of credit, respectively.
Margins payable
The Company has purchased a portion of its securities through margin accounts. As of September 30, 2014, the Company had no securities purchased on margin. As of December 31, 2013, the Company had $59,681 of securities purchased on margin. At September 30, 2014 and December 31, 2013, the average interest rate on margin loans was 0.503% and 0.516%, respectively. Interest expense in the amount of $3 and $70 was recognized in interest expense on the consolidated statements of operations and comprehensive income for the three months ended September 30, 2014 and 2013, respectively. Interest expense in the amount of $133 and $404 was recognized in interest expense on the consolidated statements of operations and comprehensive income for the nine months ended September 30, 2014 and 2013, respectively.
9. Fair Value Measurements
In accordance with ASC 820, Fair Value Measurement and Disclosures, the Company defines fair value based on the price that would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:
Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2 - Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

-18-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The Company has estimated the fair value of its financial and non-financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that would be realized upon disposition.
Recurring Measurements
For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major category of assets and liabilities is presented below:
 
 
Fair Value Measurements at September 30, 2014
 
 
Using Quoted Prices in Active Markets for Identical Assets
 
Using Significant
Other Observable Inputs
 
Using Significant
Other Unobservable Inputs
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
Available-for-sale real estate equity securities
 
$
135,460

 
$

 
$

Real estate related bonds
 

 
3,698

 

    Total assets
 
$
135,460

 
$
3,698

 
$

Derivative interest rate instruments
 

 
(1,089
)
 

     Total liabilities
 
$

 
$
(1,089
)
 
$

 
 
Fair Value Measurements at December 31, 2013
 
 
Using Quoted Prices in Active Markets for Identical Assets
 
Using Significant
 Other Observable Inputs
 
Using Significant
 Other Unobservable Inputs
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
Available-for-sale real estate equity securities
 
$
234,760

 
$

 
$

Real estate related bonds
 

 
8,059

 

    Total assets
 
$
234,760

 
$
8,059

 
$

Derivative interest rate instruments
 

 
(458
)
 

     Total liabilities
 
$

 
$
(458
)
 
$

Level 1
At September 30, 2014 and December 31, 2013, the fair value of the available for sale real estate equity securities have been valued based upon quoted market prices for the same or similar issues when current quoted market prices were available. Unrealized gains or losses on investment are reflected in unrealized gain (loss) on investment securities in comprehensive income on the consolidated statements of operations and comprehensive income.
Level 2
To calculate the fair value of the real estate related bonds and the derivative interest rate instruments, the Company primarily uses quoted prices for similar securities and contracts. For the real estate related bonds, the Company reviews price histories for similar market transactions. For the derivative interest rate instruments, the Company uses inputs based on data that is observed in the forward yield curve which is widely observable in the marketplace.  The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements which utilizes Level 3 inputs, such as estimates of current credit spreads. However, as of September 30, 2014 and December 31, 2013, the Company has assessed that the credit valuation adjustments are not significant

-19-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. As of September 30, 2014 and December 31, 2013, the Company had entered into interest rate swap agreements with a notional value of $51,283 and $60,044, respectively.
Level 3
At September 30, 2014 and December 31, 2013, the Company had no level three recurring fair value measurements.
Non-Recurring Measurements
The following table summarizes activity for the Company’s assets measured at fair value on a non-recurring basis. The Company recognized certain impairment charges to reflect the investments at their fair values for the three and nine months ended September 30, 2014 and 2013. The asset groups that were reflected at fair value through this evaluation are:
 
For the three months ended
 
For the nine months ended
 
September 30, 2014
 
September 30, 2013
 
September 30, 2014
 
September 30, 2013
 
Fair Value Measure-ments Using Significant Unobser-vable Inputs (Level 3)
 
Total Impairment Losses
 
Fair Value Measure-ments Using Significant Unobser-vable Inputs (Level 3)
 
Total Impairment Losses
 
Fair Value Measure-ments Using Significant Unobser-vable Inputs (Level 3)
 
Total Impairment Losses
 
Fair Value Measure-ments Using Significant Unobser-vable Inputs (Level 3)
 
Total Impairment Losses
Investment properties
$12,643
 
$2,337
 
$67,225
 
$39,942
 
$155,623
 
$80,281
 
$223,443
 
$225,009
Total
$12,643
 
$2,337
 
$67,225
 
$39,942
 
$155,623
 
$80,281
 
$223,443
 
$225,009
Investment Properties
During the three and nine months ended September 30, 2014 and 2013, the Company identified certain properties which may have a reduction in the expected holding period and reviewed the probability of these assets' dispositions. The Company’s estimated fair value relating to the investment properties’ impairment analysis was based on a comparison of letters of intent or purchase contracts, broker opinions of value and ten-year discounted cash flow models, which includes contractual inflows and outflows over a specific holding period. The cash flows consist of observable inputs such as contractual revenues and unobservable inputs such as forecasted revenues and expenses. These unobservable inputs are based on market conditions and the Company’s expected growth rates. During the nine months ended September 30, 2014, capitalization rates ranging from 6.00% to 9.00% and discount rates ranging from 6.75% to 9.25% were utilized in the model. During the nine months ended September 30, 2013, capitalization rates ranging from 6.80% to 10.50% and discount rates ranging from 7.50% to 12.00% were utilized in the model. These rates are based upon observable rates that the Company believes to be within a reasonable range of current market rates. Additionally, during the nine months ended September 30, 2014, one property previously classified as held for sale was re-classified as held and used and was re-measured at the lesser of the carrying value or fair value as of May 8, 2014, resulting in an impairment charge to this asset of $67,647.
During the nine months ended September 30, 2013, the Company also identified one property, a large single tenant office property, in which it was exploring a potential disposition. After the Company began exploring a potential sale of the property, it became aware of circumstances in which the tenant would reduce the space they occupied. Although the lease does not expire until 2016, the Company analyzed various leasing and sale scenarios for the single tenant property. The Company’s estimated fair value relating to the investment properties’ impairment analysis was based on 10-year discounted cash flow models, which includes contractual inflows and outflows over a specific holding period. The cash flows consist of observable inputs such as contractual revenues and unobservable inputs such as forecasted revenues and expenses. These unobservable inputs are based on market conditions and the Company’s expected growth rates. The capitalization rates ranging from 6.25% to 7.75% and discount rates ranging from 7.00% to 8.50% were utilized in this model and are based upon observable rates that the Company believes to be within a reasonable range of current market rates. Based on the probabilities assigned to such scenarios, it was determined the property was impaired and therefore, written down to fair value. An impairment charge of $147,480 was recorded for this asset during nine months ended September 30, 2013.

-20-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

For the three months ended September 30, 2014 and 2013, the Company recorded an impairment of investment properties of $2,337 and $39,942, respectively. The Company recorded an impairment of investment properties of $80,281 and $225,009 for the nine months ended September 30, 2014 and 2013, respectively. Certain properties have been disposed and were impaired prior to disposal. There were no related impairment charges for those properties included in discontinued operations for the three months ended September 30, 2014 and 2013. There were $0 and $4,476 related impairment charges for those properties included in discontinued operations for the nine months ended September 30, 2014 and 2013, respectively.
Financial Instruments not Measured at Fair Value
The table below represents the fair value of financial instruments presented at carrying values in our consolidated financial statements as of September 30, 2014 and December 31, 2013.
 
September 30, 2014
 
December 31, 2013
 
Carrying Value
Estimated 
Fair Value
 
Carrying Value
Estimated 
Fair Value
Mortgages payable
$
3,960,285

$
3,967,792

 
$
4,737,459

$
4,748,276

Line of credit
$
200,000

$
200,000

 
$
200,180

$
200,180

Margins payable
$

$

 
$
59,681

$
59,681

The Company estimates the fair value of its mortgages payable using a weighted average effective interest rate of 4.83% per annum. The fair value estimate of the line of credit and margins payable approximates the carrying value. The assumptions reflect the terms currently available on similar borrowing terms to borrowers with credit profiles similar to the Company's. The Company has determined that its debt instrument valuations are classified in Level 2 of the fair value hierarchy.
10. Income Taxes
The Company has elected and has operated so as to qualify to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with the tax year ended December 31, 2005. So long as it qualifies as a REIT, the Company generally will not be subject to federal income tax on taxable income that is distributed to stockholders. A REIT is subject to a number of organizational and operational requirements including a requirement that it currently distribute at least 90% of its REIT taxable income (subject to certain adjustments) to its stockholders (the “90% Distribution Requirement”). If the Company fails to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, the Company will be subject to federal and state income tax on its taxable income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and federal income and excise taxes on its undistributed income. In addition, the Company owns substantially all of the outstanding stock of a subsidiary REIT, MB REIT (Florida), Inc. (“MB REIT”), which the Company consolidates for financial reporting purposes but which is treated as a separate REIT for federal income tax purposes.
On September 9, 2014, the Company and MB REIT entered into closing agreements with the IRS that resolved favorably certain matters related to the Company’s and MB REIT’s qualifications as REITs for federal income tax purposes.  The Company's former Business Manager reimbursed the Company and MB REIT for the penalty payments required under the closing agreements.  
The Company has elected to treat certain of its consolidated subsidiaries, and may in the future elect to treat newly formed subsidiaries, as taxable REIT subsidiaries pursuant to the Code. Taxable REIT subsidiaries may participate in non-real estate related activities and perform non-customary services for tenants and are subject to federal and state income tax at regular corporate tax rates. The Company's hotels are leased to certain of the Company's taxable REIT subsidiaries. Lease revenue from these taxable REIT subsidiaries and the Company's wholly-owned subsidiaries is eliminated in consolidation. For the three months ended September 30, 2014 and 2013, an income tax expense of $2,275 and $4,212 was included on the consolidated statements of operations and comprehensive income. For the nine months ended September 30, 2014 and 2013, an income tax expense of $6,857 and $6,848 was included on the consolidated statements of operations and comprehensive income.

-21-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

11. Segment Reporting
The Company's long-term portfolio strategy has been to principally focus on three asset classes - retail, lodging, and student housing. During the three and nine months ended September 30, 2014, the Company continued to execute on that strategy by disposing of 236 non-core assets as well as classifying 52 select service lodging properties as held for sale.  In 2013, the Company restated its business segments. All non-strategic assets have been included in the non-core segment. The non-core segment includes office properties, industrial properties, bank branches, single-tenant retail properties, and conventional multi-family properties. The Company has concentrated its efforts on driving portfolio growth in the retail, student housing and lodging segments to enhance the long-term value of each segment's portfolio and respective platforms. By tailoring, expanding and refining these three components of the Company's portfolio, its goals are to enhance long-term stockholder value and position the Company to explore various strategic transactions designed to provide liquidity events for its stockholders. For its non-core properties, the Company strives to improve individual property performance to increase each property’s value. The Company evaluates segment performance primarily based on net operating income. Net operating income of the segments exclude interest expense, depreciation and amortization, general and administrative expenses, net income of noncontrolling interest and other investment income from corporate investments. The non-segmented assets primarily include the Company’s cash and cash equivalents, investment in marketable securities, construction in progress, investment in unconsolidated entities and notes receivable.
For the nine months ended September 30, 2014, approximately 15% of the Company’s rental revenue, included in the non-core segment, was generated by three properties leased to AT&T, Inc. As a result of the concentration of revenue generated from these properties, if AT&T were to cease paying rent or fulfilling its other monetary obligations, the Company could have significantly reduced rental revenues or higher expenses until the defaults were cured or the properties were leased to a new tenant or tenants.
 

-22-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

The following table summarizes net property operations income by segment as of and for the three months ended September 30, 2014.
 
Total
 
Retail
 
Lodging
 
Student Housing
 
Non-Core
Rental income
$
92,975

 
$
50,671

 
$

 
$
17,587

 
$
24,717

Straight line adjustment
930

 
1,579

 

 
17

 
(666
)
Tenant recovery income
15,055

 
14,064

 

 
134

 
857

Other property income
1,819

 
663

 

 
1,119

 
37

Lodging income
231,044

 

 
231,044

 

 

Total income
341,823

 
66,977

 
231,044

 
18,857

 
24,945

Operating expenses
197,375

 
21,630

 
160,534

 
11,564

 
3,647

Net operating income
$
144,448

 
45,347

 
70,510

 
7,293

 
21,298

Non-allocated expenses (a)
(100,563
)
 
 
 
 
 
 
 
 
Other income and expenses (b)
1,418

 
 
 
 
 
 
 
 
Equity in loss of unconsolidated entities (c)
(2,089
)
 
 
 
 
 
 
 
 
Provision for asset impairment (d)
(2,337
)
 
 
 
 
 
 
 
 
Net income from continuing operations
40,877

 
 
 
 
 
 
 
 
Net income from discontinued operations
11,683

 
 
 
 
 
 
 
 
Less: net income attributable to noncontrolling interests
(8
)
 
 
 
 
 
 
 
 
Net income attributable to Company
$
52,552

 
 
 
 
 
 
 
 

(a)
Non-allocated expenses consists of general and administrative expenses and depreciation and amortization.
(b)
Other income and expenses consists of gain on sale of investment properties, interest and dividend income, interest expense, other income, realized gain on sale of marketable securities, net, and income tax expense.
(c)
Equity in loss of unconsolidated entities includes the gain, (loss) and (impairment) of investment in unconsolidated entities.
(d)
Total provision for asset impairment included $1,667 related to one lodging property and $670 related to one non-core property.


-23-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

The following table summarizes net property operations income by segment as of and for the three months ended September 30, 2013.
 
Total
 
Retail
 
Lodging
 
Student Housing
 
Non-Core
Rental income
$
91,620

 
$
51,180

 
$

 
$
15,022

 
$
25,418

Straight line adjustment
1,763

 
1,038

 

 
154

 
571

Tenant recovery income
16,669

 
15,108

 

 
114

 
1,447

Other property income
2,114

 
1,271

 

 
768

 
75

Lodging income
156,670

 

 
156,670

 

 

Total income
268,836

 
68,597

 
156,670

 
16,058

 
27,511

Operating expenses
143,713

 
21,691

 
110,264

 
7,360

 
4,398

Net operating income
$
125,123

 
46,906

 
46,406

 
8,698

 
23,113

Non-allocated expenses (a)
(88,389
)
 
 
 
 
 
 
 
 
Other income and expenses (b)
(29,747
)
 
 
 
 
 
 
 
 
Equity in loss of unconsolidated entities (c)
(2,471
)
 
 
 
 
 
 
 
 
Provision for asset impairment (d)
(39,942
)
 
 
 
 
 
 
 
 
Net loss from continuing operations
(35,426
)
 
 
 
 
 
 
 
 
Net income from discontinued operations
272,967

 
 
 
 
 
 
 
 
Less: net income attributable to noncontrolling interests
(8
)
 
 
 
 
 
 
 
 
Net income attributable to Company
$
237,533

 
 
 
 
 
 
 
 

(a)
Non-allocated expenses consists of general and administrative expenses, Business Manager management fee and depreciation and amortization.
(b)
Other income and expenses consists of gain on sale of investment properties, interest and dividend income, interest expense, other income, realized gain on sale of marketable securities, net, and income tax expense.
(c)
Equity in loss of unconsolidated entities includes the gain, (loss) and (impairment) of investment in unconsolidated entities.
(d)
Total provision for asset impairment included $26,175 related to two lodging properties, $11,723 related to three retail properties and $2,044 related to four non-core properties.





-24-

INLAND AMERICAN REAL ESTATE TRUST, INC.
(A Maryland Corporation)

Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except data amounts)
September 30, 2014
(unaudited)

The following table summarizes net property operations income by segment as of and for the nine months ended September 30, 2014.
 
Total
 
Retail
 
Lodging
 
Student Housing
 
Non-Core
Rental income
$
283,157

 
$
152,971

 
$

 
$
51,896

 
$
78,290

Straight line adjustment
3,143

 
3,942

 

 
193

 
(992
)
Tenant recovery income
50,396

 
45,433

 

 
400

 
4,563

Other property income
6,766

 
3,467

 

 
3,119

 
180

Lodging income
696,587

 

 
696,587

 

 

Total income
1,040,049

 
205,813

 
696,587

 
55,608

 
82,041

Operating expenses
585,393

 
65,872

 
481,025

 
25,636

 
12,860

Net operating income
$
454,656

 
139,941

 
215,562

 
29,972

 
69,181

Non-allocated expenses (a)
(288,003
)
 
 
 
 
 
 
 
 
Other income and expenses (b)
(57,253
)
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated entities (c)
4,843

 
 
 
 
 
 
 
 
Provision for asset impairment (d)
(80,281
)
 
 
 
 
 
 
 
 
Net income from continuing operations
33,962

 
 
 
 
 
 
 
 
Net income from discontinued operations
158,577

 
 
 
 
 
 
 
 
Less: net income attributable to noncontrolling interests
(16
)
 
 
 
 
 
 
 
 
Net income attributable to Company
$
192,523

 
 
 
 
 
 
 
 
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Real estate assets, net (e)
$
6,021,773

 
$
2,084,705

 
$
2,616,032

 
$
622,158

 
$
698,878

Non-segmented assets (f)
$
2,260,000

 
 
 
 
 
 
 
 
Total Assets
$
8,281,773

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
$
41,124

 
$
12,865

 
$
26,388

 
$
231

 
$