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CapLease, Inc. Q2 2010 Earnings Call Transcript

CapLease, Inc. Q2 2010 Earnings Call Transcript

CapLease, Inc. (LSE)

Q2 2010 Earnings Call

August 04, 2010 09:30 am ET


Brad Cohen - ICR

Paul McDowell - Chairman and CEO

Shawn Seale - SVP and CFO


Sheila Mcgrath - KBW

Jordan Sadler - KeyBanc Capital Markets

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Greetings and welcome to the CapLease Second Quarter 2010 Earnings Conference Call. At this time all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions). As reminder this conference is being recorded. It is now my pleasure to introduce Brad Cohen of ICR. 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 discussion this morning will include guidance and other forward looking statements, these statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them. We refer all of you to CapLease's second 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 is adjusted for compatibility and cash available for distribution with CAD with their non-GAAP financial measures.

Please view the company's press release for a reconciliation of FFO. FFO is adjusted for compatibility and GAAP to net income the most direct comparable GAAP measure.

It is 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.

Our comments today will be relatively brief. We continue to make significant progress towards our business goals for the year. It’s raising about $60 million of capital during the first quarter. We have made notable strides in getting that capital to work.

During the second quarter, we further reduced overall debt by about $25 million. This included a $13.5 million reduction in the outstanding balance of our recourse 7.5% convertible notes putable in 2012 pursuant to our public tender offer.

The outstanding balance on the notes is now a very manageable $36.4 million

Just before the quarter end, we completed our amended revolving credit agreement with our lender and extended the maturity by three years 2013. We further reduced the outstanding balance under the line to $96 million, opening up over $40 million in additional borrowing capacity for new investments.

Overall, since the beginning of the second quarter, through the end of July, we have reduced debt by an additional $42.9 million on half of $26 million in debt we eliminated in the first quarter, for a total of nearly $70 million.

Typically, we have reduced recourse indebtedness by close to 22% this year. Dealing with all those debt reduction activity, we maintain a healthy cash balance of about $58 million, much of which we have here mark to fund additional portfolio growth.

We are increasingly confident and will have the opportunity to begin to grow the asset base again at the market for high quality net new properties continues to slowly reopen.

Our acquisition team is actively working on new transaction opportunities and we have several in various stages of underwriting including letters of intent. We will however, key to our 15 year core investment philosophy and be prudent and deliver in our underwriting.

When we do add assets, our goal will be to further build our portfolio with a view to increasing free cash-flow per share and continuing to lower overall portfolio leverage. As we add assets and utilize our existing cash on hand, we will carefully monitor the evolving opportunity set but our cost of capital in a concerted efforts to not only grow the portfolio, but to do sell in a manner beneficial to share owners over the long term.

We believe that the environment for adding assets will continue to improve during the coming quarters. And that we are very well positioned to take advantage of what we believe will be an extended investment window.

Bad debt current market conditions remain quite challenging with a persistent supply demand imbalance. There remains more capital than attractive opportunities throughout the commercial real estate sector. Our view is that imbalance will begin to say, as both the economy improves and the large number of [CNBS] maturities begin to manifest itself.

When that occurs well capitalized investors like CapLease will stand a benefit. In the meantime we will be patient.

Turning to our adjusting $2 billion portfolio at quarter end the weighted average underlying Standard & Poor's tenant credit rating. On our single tenant portfolio with the steady single A- and on our single tenant own portfolios remained a single A.

We continue to aggressively manage this investment grade net lease portfolio of assets with our primary focus on the three properties in the portfolio where we have a material opportunity to replace existing vacancy in growth revenue.

With respect to the two properties we owned in Omaha. We have made significant progress on the suburban building on west side road has either executed leases or letters of intent for approximately 82% of the states.

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