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%!

Are U.S. Home Prices Reasonable?

Dear P Morgan -

It appears from your post, that you missed the statistic that is quoted -

The Value of the home using the relative value of GDP, would suggest that the fair value in 2007 should be north of $486/sf but isn't! Its equivalent today is only $78/sf. Our GDP also increased and far more than the relative value of the home.

Even using wage scales for unskilled workers it should be $143/sf but isn't there either! It is less than half!

You are right that the absolute value of $181,000 appears to have increased ever so fast. This makes affordability harder. Yes 20% of $181,000 is $36,000 and this is almost 90% of our per-capita income. What this implies, is that we must "save" for more years before we qualify to buy a home. There is no inherent 'over-value' issue with the home itself! As it is, we make fewer new homes now.

Thanks for the post.


There really is no way to rationally control the cost to replace commodities that go to make a home.

But with better financial engineering we can allow more of us to share in the American dream - of home ownership.
On Jan 04 06:46 AM [e-mail] wrote:

> The author misses the root cause of the problem despite sharing with
> the reader the data which makes the problem clear. The problem is
> the extremely rapid increase in average SFR value from 1999 to 2007.
> According to the author's own figures average SFR value increased
> by over 200% in just 8 years. the author's own figures show that
> it took over 20 years for similar value growth from 1950 to 1972,
> and 1972 to 1999. Of course, new financial products made it easier
> to finance the debt portion of the rapidly inflated values but it
> was the buyers who accepted these new prices as "real" even though
> the average buyer did not experience a 200% growth in nominal income
> in 8 years. Clearly if price goes up by more than 200% in 8 years
> the standard 10 to 20% down payment of purchase price would also
> be over 200% more.The new debt products came into being because buyers
> did not have the standard 10 to 20% down payment of these inflated
> purchase prices yet the buyers demanded a means to purchase and an
> unregulated Wall Street was happy to supply the mechanism.

Why $2?

Bear fetches $2/sh, because they had no defensible franchise really. Over the years US I-Banks have seen their roles rapidly change. As they have no deposit funding sources, all they are is a franchise made up of human capital. Yes if you have few intelligent and many moron's then (as many at Bear are these days - real moron's and I have dealt with many of them as recently as last year and all the way up to the Top) the $2 is great value for nothing!

Next shoe to fall is Lehman.

Then Carlyle? Blackstone? and a host of others that run the next big nonsense business - 2% and 20% for them - on money they run from others - where is the risk in this for them? they make money while others that invest in them loose, is such abject nonsense.

Surprising that we allow such shenanigans play!