Lexington Realty Trust (Lexington) is a self-managed and self-administered real estate investment trust (REIT). The Company’s primary business is the acquisition, ownership and management of portfolios of net-leased office, industrial and retail properties. It conducts all of its property operations through property owner subsidiaries. As of December 31, 2010, Lexington had ownership interests in approximately 195 consolidated real estate properties, located in 39 states and containing an aggregate of approximately 36.9 million square feet of space, approximately 93% of which was subject to a lease. During the year ended December 31, 2010, no tenant/guarantor represented greater than 10% of its annual base rental revenue. The Company is structured as an umbrella partnership REIT (UPREIT), and a portion of its business is conducted through its three operating partnership subsidiaries. In January 2012, the Company acquired a build-to-suit office facility in Huntington. http://www.google.com/finance?q=LXP
Currently, LXP has around $200 million of cash on hand with only 19.3% secured debt to total debt. Also, LXP has an unused $400 million credit facility and expects to continue to unencumber the shorter-term debt. Like most Net Lease REITs, LXP has continued locking-in fixed rates and going long term.
What Do I Expect on May 7th?
In anticipation of LXP's first-quarter results next week (May 7th), I am expecting to gain more clarity and I'm hoping that the market will soon rally behind the mis-priced REIT. Although I have enjoyed the higher than average dividend, I am looking forward to seeing shares begin to trade closer to their deserved course of action. Here's a few things I'm looking for next week:
- Acquisitions: LXP has already closed on $197.3 million of new properties in Q1-15 with an initial cash yield of 6.9% (8.1% GAAP). The properties have a weighted-average lease term of 17 years. This is a positive announcement and I expect LXP to move ahead of its 2015 acquisition guidance (and of course that means FFO will grow).
- Tenant Retention Should Improve in 2016: LXP has eight lease expirations in 2015 and the company expects five tenants to move out. I'm not too concerned with the rent reduction (around $7 million), but I would like to see how the company addresses the leasing of the vacated assets. Looking ahead to 2016 and beyond, LXP's lease roll should result in more stable and consistent NOI and AFFO growth. Hopefully, the worst is in the rear view mirror.
- Private School Deal: I did see that LXP is co-investing in a for-profit private school build-to-suit in Texas. It's a small deal (around $7 million by LXP capital) but the news of Corinthian shutting down this week made me blink. It appears that LXP's tenant is stable (strong parent guarantee) and the lease is 20 years. I suspect there will be questions arising on the earnings call since this is a new net lease category for LXP.
- Build-To-Suit Business: The BTS business has become a core part of LXP's asset aggregation model. There are around five BTS deals that LXP has in various stages with funds committed of around $400 million. Completion dates are from Q2-15 to Q4-16. It takes time for the rent checks to hit the earnings statement so I'm sure that LXP will address this capital strategy to determine whether the projects are on budget and on time.
- Earnings Results: LXP's 2015 FFO guidance is $1.00 to $1.05 per share. Given the weaker (FFO) growth forecast (this year) I expect to see mediocre performance in Q1 with accelerated progress in the next 3 quarters. The Q1 acquisitions provide me with comfort that the cash is being deployed accretively and as the BTS deals (start paying rent) I expect that LXP would move closer to the top-end of guidance (in 2015).
- Dividend Growth: The quarterly dividend is $.17 per share ($.68 annualized) and while I view the payout as sustainable, I'm not expecting a big boost in 2016. The dividend yield is already above average so I expect to see Mr. Market move the yield closer to the peer group.
Information above is from Brad Thomas.