Inland Real Estate (IRC)

TOP CONTRIBUTORS

Lawrence Gu

Inland Real Estate acquires, owns, operates and develops open-air neighborhood, community, power shopping centers and single-tenant retail properties located primarily in the upper Midwest markets.^[1] Around 66% of the company's total retail space is located in the greater Chicago area, with the second largest concentration at around 18% in Minneapolis - St. Paul. The company owns approximately 140 investment properties totally to approximately 2,099,000 gross leasable square feet. Because rents come from a wide variety of sectors, macroeconomic factors will highly determine the tenant quality and their ability to pay to IRC.

Business Growth

IRC's tenants at its retail properties primarily provide “everyday” goods and services to consumers. As a result, the primary drivers of internal income growth are rental rate increases over expiring rates on new and renewal leases and cost savings from operational efficiencies.^[2]

Trends and Forces

Volatility and Instability in Credit Markets bring High Barriers to Financing for REITS

Because REITS are obligated to pay out 90% of income to shareholders, which therefore allow it to become a pass-through entity, REITS such as IRC have difficulty simply retaining cash on hand. Without a large surplus of cash at hand to fund growth, IRC must resort to external financing from either credit or equity markets. Equity markets tend to be dilutive to shareholders, and as such stable credit markets are necessary to insure a continuance of refinancing opportunities as REITS are traditionally unable to keep large amounts of cash at hand to pay off balloon payments.

Online Competitors Steal Customers Away from Traditional Rental Properties

Roughly 60% of IRC's revenues come from retail. As retail tenants face increasing competition from online retailers, traditional brick-and-mortar tenants have chosen to either diversify their business line to online access or completely to online. This decrease in demand for rental properties pushes downward pressure to rent prices, which directly negatively influences IRC's top-line.

Competition

IRC competes with other REITs operating primarily in the retail space, such as:

• Equity One (EQY) is a REIT that principally owns, manages, acquires and develops neighborhood and community shopping centers.^[3]
• Glimcher Realty Trust (GRT) is a self-administered and self-managed real estate investment trust (REIT) and its affiliates, of owning, leasing, acquiring, developing and operating a portfolio of retail properties consisting of regional and super regional malls, and community shopping centers.^[4]
• Macerich Company (MAC) is involved in acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers located throughout the United States. ^[5]

References

1. ↑ IRC FY2010 10-K, Pg 1
2. ↑ IRC FY2010 10-K, Pg 3
3. ↑ EQY Business Description
4. ↑ GRT Business Description
5. ↑ MAC Business Description