When analyzing Lexington Realty Trust’s (NYSE: LXP) past performance, it is apparent the company has not recovered from its 2009 crisis. On March 9, 2009, the share price plummeted to its lowest level of $2.01. Just six months earlier, the price had reached $17.22. Since that time, dividend, FFO rates, and assets have not surpassed pre-Great Recession levels. Lexington Realty’s share price has been lackluster as well closing at $9.26 on May 8, 2015.
As Lexington Realty’s valuation metrics (price-to-FFO, dividend yield, and implied capitalization rate) are substantially subpar, the company might appear to be an attractive investment. However, buying a stock because it seems inexpensive can come with many risks. Among net lease REITs, Lexington Realty, which has a high concentration of properties in the office and industrial sectors, has underperformed relative to its peers. Since 2010, W.P. Carey (NYSE: WPC), STAG Industrial (NYSE: STAG), and National Retail Properties (NYSE: NNN) have increased funds from operations (FFO) by way over 100 percent while Lexington Realty has grown by only 66 percent.
It is unlikely Lexington Realty’s shares will have any significant gain in the short term. This is especially true, as REITs in general have fallen from grace. Also, there are other net lease stocks with better track records and reputation providing an attractive option relative to Lexington Realty.
Another issue is that Lexington Realty lacks some market credibility. The company was severely beaten down during the Great Recession for its high leverage and although debt metrics have improved, they are still lofty. Lexington Realty carries one of the highest debt-to-total capitalization rates when compared with its net lease peers. Over the past six years, the company’s competitors reorganized their financial metrics and are viewed favorably by Wall Street while Lexington Realty failed to do so.
Further compounding Lexington Realty’s problems are their less than stellar Q1 2015 financial results. Management expects FFO per share for 2015 will be on par with 2014. In addition, Q1 2015 occupancy, Company FFO per share, and Net Operating Income (NOI) actually decreased when compared with Q1 2014. See the complete performance table below.
To summarize, Lexington Realty’s performance has not excited investors and this is reflected in the share price. The company’s management must realize giving investors a reason to buy the stock will reward them. Otherwise, if they wait too long, an activist might do it for them.
Percent Change 2015 vs. 2014
|Revenues – Q1, in percent||4.3|
|NOI – Q1, in percent||(3.1)|
|FFO per share – Q1, in percent||15.4|
|Alternate FFO per share – Q1, in percent||(7.1)|
|AFFO per share – Q1, in percent||(4.0)|
|Dividend per share, Q1, percent||3.0|
|Dividend payout ratio – Q1, in percent||71|
|Occupancy (Same Store) – Q1, in percent||96.4|
|Total debt to total enterprise value – Q1||46.7|
|FFO per share, in percent (Projected) -2015||(1.9)|
Written by Heli Brecailo
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Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.