Best Thing About This REIT is Close to Completion

  1. The share price of Lexington Realty Trust, a net lease REIT that is primarily concentrated in office/ industrial, has surged in the wave of other net lease REITs, such as Realty Income and National Properties Retail.
  1. The multiple at 10 times AFFO remains below that of office, industrial, and net lease sectors.
  1. Despite cutting dividends in 2008 in order to accelerate deleveraging, Lexington is known for being a good dividend payer, accumulating 23 years of consecutive dividends.
  1. Massive asset sales helped the company become investment grade in June.
  1. The dispositions, the best thing happening to the stock, is almost complete, possibly slowing their stock performance.

chart01Lexington Realty Trust, a net lease REIT that is primarily concentrated in office/ industrial, has surfed the hype of net lease REITs this year. The share price has surged by 31% this year, which is in line with its other net lease peers, such as Realty Income’s 33% and National Properties Retail’s 27%.

Lexington stocks are currently trading at around 10 times 2016 projected AFFO, which is certainly lower than the average multiple for office and industrial, which has been in the mid-twenties. Also, it has been lower than Realty Income (24x) and National Properties Retail (21x).

When we last featured the stock in March (click here), we highlighted its great dividend record. Lexington has been paying dividends for 23 consecutive years. Also, the stock is yielding a great 6.5%, well above the REIT average. Since the payout ratio is around 58% and their AFFO per share continues to grow, chances are low they will cut the dividend.

Last June, Standard & Poor’s rewarded their deleveraging efforts with an investment grade corporate rating. The management has carried out an aggressive disposition plan, which helped to lower their debt to EBITDA to below 7x and fixed charge coverage to 2.7x. Most recently, the company sold parcels of land in New York City.

Unfortunately, their disposition plan of about $600 million, which might be the best thing to happen to the company, is close to completion. We wonder whether they will continue creating internal catalysts to keep investors excited.

In summary, the completion of their disposition program might slow Lexington’s stock performance. Of course, if nothing at all, it will remain a good dividend payer.

Source: Lexington Realty Trust(NYSE:LXP), Standard&Poor’s, Fast Graphs

Written on 11 Aug 2016

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author is long FCH, XHR, CLDT, and PEB.

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