Inland Western filed an 8-K on June 20 announcing management's estimation of a $6.95 per share valuation. This is an increase of $0.10 per share over the valuation announced last January. Both of these figures were developed by management. No third party appraisals were conducted.
The valuations appear to be on the high side. While doing a financial analysis earlier this year, I was able to estimate the real estate portfolio's Net Operating Income at $433 million. Applying a (somewhat arbitrary) 7.5% cap rate (RealtyRates.com reports a national average of about 8.3% for anchored shopping centers), would indicate that the directly held real estate is worth about $5.8 billion, or about $100 million more than carrying value on the December 31, 2010, balance sheet. Subtracting the liabilities provides shareholders equity of $2.4 billion or approximately $5.00 per share. On the other hand, I calculated Funds from Operations (FFO) of $153 million or $0.32 per share. The May issue of REIT Watch, a statistical publication of NAREIT, estimates the Price/ FFO of shopping center REITs at 16.75. This would indicate a share value of $5.36. Mind you, neither of these rise to the thoroughness of an appraisal, but at least you have the methodology to assess for yourself.
One very important source of information available to management to which I do not have access is a sense of the actual market acceptance of the shares of Inland Western. Inland Western announced its IPO filing on February 14, 2011, and named four book-running offering managers. Surely, these investment banks have been willing to advise management on its share value estimation, so as to avoid disappointment on opening day. Still, $6.95 seems like a significant premium to just over $5.00 per share.
Special Thanks to the Rational Realist
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