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Profit Like a Landlord Without the Headaches

Tickers in this article: ADC LXP SIR

Lexington Realty Trust is a REIT that focuses on single-tenant real estate investments. It owns, invests in and manages office, industrial and retail properties primarily net-leased to major corporations throughout the United States and provides investment advisory and asset management services to investors in the net lease area.

In a press release on Monday, T. Wilson Eglin, president and CEO of Lexington, stated, "During the fourth quarter 2012, we completed new leases and lease extensions on approximately 5.7% of our portfolio and maintained high levels of occupancy, addressed near-term lease rollover and extended our weighted-average lease term.

"In addition, we continued and expect to continue to capitalize on accretive investment opportunities and take advantage of opportunities to lower our cost of capital by refinancing our maturing debts on advantageous terms."

These are the priorities of many top CEOs I recently wrote about who have breathtaking leadership and know how to please shareholders.

As an example of the kind of deals it negotiates, during the fourth quarter LXP entered into one new build-to-suit, an $8.8 million commitment to construct a 42,300-square-foot retail property in Tuscaloosa, Ala., that will be net leased upon completion for a 15-year term (9.3% initial cap rate).

It continues to fund the construction of previously announced build-to-suit projects in Denver (8.6% initial rap rate); Rantoul, Ill. (8% initial cap rate); and Long Island City, N.Y. (8.5% initial cap rate). The aggregate estimated cost of these four ongoing build-to-suit projects is approximately $136.5 million, of which nearly $68.9 million was invested as of Dec. 31.

The one-year chart below illustrates the gradual price ascent of LXP shares and its free cash flow. LXP ChartLXP data by YCharts

When it comes to the future success of a REIT, I like to see the balance sheet. Lexington financed an office property in Palo Alto, Calif., with a $59.5 million non-recourse mortgage loan, which bears interest at a fixed rate of 3.97%. The lower the borrowing cost the higher the net operating funds.

In addition, LXP exercised an accordion feature within its seven-year term loan facility increasing the total facility under the term loan to $255 million, all of which is currently outstanding. Lexington swapped the London Interbank Offer Rate, or Libor, on borrowings under such term loans for a weighted-average fixed rate of 3.67%, as of Monday.

In the fourth quarter of 2012 LXP issued 17.25 million common shares in a public offering, raising net proceeds of approximately $156.3 million. According to the company, the net proceeds were primarily used to satisfy $93 million of outstanding debt on Lexington's secured credit facility and $57.5 million to satisfy a portion of the debt assumed in the NLS acquisition.

In addition, "Lexington repaid $24.8 million in non-recourse mortgage debt which had a weighted-average interest rate of 5.7%", the company announced. This is the kind of fiscal responsibility that helped LXP to reduce its debt by approximately $108 million in the fourth quarter of 2012.