Inland Western and Inland American REIT In Trouble

With $1.4 billion of debt maturing in the second half of 2009, observers expected Inland Western Retail Real Estate Trust to cut its dividend to conserve cash to help refinance this debt. This nonlisted REIT had been paying an annualized dividend of $0.64 per share which translates to a 6.4% yield based on the price ($10) at which the company sold shares in its public offerings. Sure enough, the REIT has reported in an S.E.C. filing that it will be cutting its annualized dividend rate by 70% to only about $0.19 per year. This is a much larger reduction than some analysts had anticipated and is sure to alarm these shareholders who will be made aware of this change in mid-April. The extent of this pay-out cut was apparently required to amend the REIT’s credit agreement which permits it to pay out only the minimum amount required to maintain its REIT status. Another amendment to the credit agreement prohibits the REIT from redeeming any shares until March 31, 2010.

The REIT had already suspended share redemptions “indefinitely” in October 2008 upon reaching the 5% buyback limit. At this point, the only place these shareholders can sell these shares is the secondary market. But shares prices for Inland Western have plummeted in recent months, and the price will only go lower with the dividend being slashed.

An Inland Western related company, Inland American has left investors with little recourse.  Inland American has become less than liquid with secondary price quotes much lower than the $10 per share the company was offering through a buyback program.