CapLease is a long-term net lessor of single tenant commercial real estate. It owns a $1.65 bil portfolio of property and a $455 million portfolio of first mortgage loans. A little over 90% of the portfolio is leased to investment grade tenants. The portfolio diversified geographically with the Philadelphia, Washington DC, Chicago, New York, and Dallas Fort Worth markets representing 40.6% of their holdings. Property type is also diversified with Office (50%), Warehouse (20%), General Services Administration (13%), and Retail (11%). The larges tenants are the US Government (10.3%), Nestle (9.4%), TJZ (4.4%) and Lowes (4.2%). The top 10 tenants account for 49.9% of the portfolio. Occupancy is 99%. The average lease term is 9 years.Total assets are $2.1 bil and total liabilities are $1.8 bil. Liabilities are 86% match funded. Unfortunately, that leaves 14% of the liabilities, $250 mil plus, not match funded.
In 2005, LSE issued a CDO. Subsequent to that issuance, LSE collected assets to fund another CDO. When the CDO market collapsed, LSE found itself with long-term assets funded by 354-day short-term debt. Its repo line with Wachovia was over $386 mil. The Company secured long term financing for $129 mil, sold $75 mil of convertible bonds and sold some common stock. As of 9/30/2008, the Wachovia line was slightly less than $200 mil and its maturity has been extended to 4/29/2010 with a one year extension possible if certain conditions are met. Other than regular long-term mortgage amortizations, this is the Company's earliest maturity. In addition, on 10/1/2012, $75 mil of convertible bonds are puttable to the Company at par.
To reduce the Wachovia line, the Company reduced its dividend from $0.80 a year to $0.20 a year. This will save the Company $28.4 mil a year. There is an additional $13.8 mil of cash flow from operations. Altogether, LSE should be able to pay down about $42.5 mil of debt annually. This should make Wachovia a happy lender and avert the possibility of dilution or default.
LSE stock has declined from around $8.00 where it yielded 10% with a $0.80 dividend to $1.70 where it yields 11.75% on a $0.20 dividend. With FFO and CAD, common REIT measurements, projected to be $0.90 a share in 2009, another $0.70 of earnings will accrue to the shareholders account through debt reduction. Altogether, direct cash payments from dividends and the indirect benefit of debt reduction should provide shareholders with a fine rate of return over the next several years.
High quality long-term streams of income should become increasingly valuable to investors. The Company's steady paydown of debt should point out its strengths. On the other hand, continued bad news from the commercial real estate sector may dampen investor enthusiasm.
|Subject||Author Exit Recmmendation|
|Entry||11/10/2009 04:23 PM|
All in, this has been about a 160% gain. Although the stock is still cheap, it is not as cheap as my abysmal LXP recommendation which has done about nothing over the last 11 months. In addition, problems in the commercial real estate market persist. As the song says, "take the money and run".