CapLease, Inc. Q1 2010 Earnings Call Transcript

CapLease, Inc. Q1 2010 Earnings Call Transcript
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Wright Express Corporation (WXS)

Q1 2010 Earnings Call

May 05, 2010 10:00 am ET


Brad Cohen - VP of IR

Paul McDowell - Chairman and CEO

Shawn Seale - CFO


Gabe Poggi - FBR

Craig Mailman - KeyBanc Capital Markets

John Apgar - Citigroup

Sheila McGrath - KBW

Todd Stender - Wells Fargo



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Greetings and welcome to the CapLease first quarter 2010 earnings conference call. At this time, all participants are in a listen only mode, a brief Question-and-Answer session will follow the final presentation. (Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce, Mr. Brad Cohen. Vice President of IR thank you Mr. Cohen, you may begin.

Brad Cohen

Thank you very much operator. Today I would like to remind everyone that part of our discussions this morning will include guidance and other forward-looking statements and these statements are not guaranteed to future performance and therefore, undue reliance should not be placed on them. We refer all of you to CapLease's first quarter 2010 earnings release and filings with the Securities and Exchange Commission for a more detailed discussion of important factors that could cause actual results to differ materially from those contained in the company's forward-looking statements. The company disclaims any obligation to update its forward looking statement.

Also during the call today, the company will be discussing funds from operation, or FFO, FFO as adjusted from comparability and cash available for distribution or CAD which are non-GAAP financial measures. Please read the company’s press release for reconciliation of FFO. FFO I suggested is a comparability in cash of net income the most directly comparable GAAP measure. It’s now my pleasure to turn the call over to CapLease's Chairman and Chief Executive Officer, Mr. Paul McDowell. Paul?

Paul McDowell

Thank you very much Brad and good morning everyone. With me on the call today is our Chief Financial Officer and partner Shawn Seale. We had a busy and productive beginning to the year. The actions we took during the quarter are consistent with our continuing strategy to lower debt particularly recourse debt, improve financial flexibility, intensively manage our existing assets and position ourselves to reestablish portfolio growth. We made significant progress on each and everyone of those priorities in the first quarter.

Most importantly during the first quarter we demonstrated strong access to reasonably price equity capital through our aftermarket stock programs, a direct placement with a prominent new common equity investor and the public offering of our reopen series A perpetual preferred stock. In total, we raised more than $60 million in equity capital during the quarter. While also retiring an additional $26 million in debt. Cash liquidity grows to $96 million at the end of the first quarter from about $39 million at the end of the fourth.

In keeping with our discipline about issuing equity at the moment, we have all the liquidity we need and have accordingly stopped issuing either common or preferred stock under our aftermarket programs. We had good use for the capital, we have raised both for continued debt reduction activity and to fund new accretive acquisition activity. While we are pleased with the progress we have made recently, we have a lot more work ahead of us to build on that success and continue to meaningfully grow our share price. To that end, after the end of the quarter we launched a cash tender offer with the remaining outstanding balance of our 7.5% convertible senior notes critical to us in October 2012.

Our tender is at par and expires on May 10. The price we are offering will not be raised nor will tender period be extended. We are hopeful that we will be successful in retiring these notes and further reduce the recourse liabilities for the enterprise. We believe that our demonstrated access to capital and tender for these notes should put to rest any concerns about our willingness or ability to retire recourse obligations as they come. At this point, we don’t know how many notes in outstanding would be tendered to us. However, even if participation is low we have a strong use of the cash, we have on hand to further reduce outstanding debt into invest the new assets.

Although the commercial real estate market remains under stress that will continue for the next several years in our opinion. The markets are high quality net-lease properties have begun to slowly reopen. And we are confident that we will have the opportunity to begin to grow the asset base again. Our acquisitions team is actively searching for new transaction opportunities and we have several we are considering. We will keep to our 15 year core investment philosophy and will be prudent and deliberate.

While improving overall transaction volumes remained severally depressed which is not too surprising given the shock for the system we have just come through. The continued macro economic climate and a nearly complete absence of new building activity. When we do add assets, our goal would be deferred to build our portfolio with a view to increasing free cash flow per share and continuing to lower overall portfolio leverage. Turning to our existing stable $2 billion investment grade net-lease portfolio at quarter end, the weighted average underlying standard enforced tenant credit rating on our single tenant portfolio was a steady single A minus and on our single tenant owned properties remained at single A.

Our top 10 credits aggregating almost 50% of the total portfolio are all rated investment grade with an average credit rating of single A plus. As a reminder, our top five tenants are Nestle Holdings, the United States government, TJX Company, Aon Corporation and the Kroger Company. We continue to offset manage this portfolio aggressively with our primary focus on these three properties in the portfolio were we have the material opportunity to replace existing vacancy.

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