Sunil Suri

Lexington Realty Trust: High-Yield Opportunity, Ready for 2009

Dan, you have it mightily wrong -

If you look at their 10Q for 9/2008, the 'consolidated' gross rent annualized going forward is only $376MM, and reported Operating Income of $304MM.

Since they say they currently buy NNN assets at about 8.5% cap (and which is about right, for their properties are 'industrial/office' type assets and NOT Class "A" office (a La Boston properties or Vornado) - so after deducting for about 7% vacancy (which has been historically close to reasonable - except now a days running closer to 11%), one gets an adjusted triple net income of about $278MM for annualized 2008, and a 'consolidated' value (from which we must deduct minority interest for all consolidated entities - and this is about $625MM), we get a net asset value as of 9/2008 of only $2.64B. And this presumes that rentals do not fall through the re-lease cycle - and this is suspect as well. Rentals will be lower going forward for sure. And I am not deducting for tenant fit-outs and re-leasing commissions and potential loss of rent for down times and such - which by the way adds up to a fairly significant sum too!


On to the Balance Sheet, we find that there is about $329MM of cash and equivalents, accounts receivable and a cost value of about $205MM for investments in "subs" that are consolidated and debt (basic secured and unsecured debt + preferred shares), equals about $3.1B.

Thus if we were to add the value of the assets we get about $2.97B.

Thus net equity is only $103MM. Which by today's market value is trading at $500MM.

On a cash flow basis, if we take out the debt service and the preferred dividends, I doubt it if their FFO is sustainable and neither is the dividend as you state.

De-Leveraging shall hurt them mightily I believe - their assets are not the highest quality either and there is no equity, which even for the best REIT's should not drop below 40%!