CapLease is a long-term net lessor of single tenant commercial real estate. It owns a $1.65 bil portfolio of property and a $455 million portfolio of first mortgage loans. A little over 90% of the portfolio is leased to investment grade tenants. The portfolio diversified geographically with the Philadelphia, Washington DC, Chicago, New York, and Dallas Fort Worth markets representing 40.6% of their holdings. Property type is also diversified with Office (50%), Warehouse (20%), General Services Administration (13%), and Retail (11%). The larges tenants are the US Government (10.3%), Nestle (9.4%), TJZ (4.4%) and Lowes (4.2%). The top 10 tenants account for 49.9% of the portfolio. Occupancy is 99%. The average lease term is 9 years.Total assets are $2.1 bil and total liabilities are $1.8 bil. Liabilities are 86% match funded. Unfortunately, that leaves 14% of the liabilities, $250 mil plus, not match funded.

       In 2005, LSE issued a CDO. Subsequent to that issuance, LSE collected assets to fund another CDO. When the CDO market collapsed, LSE found itself with long-term assets funded by 354-day short-term debt. Its repo line with Wachovia was over $386 mil. The Company secured long term financing for $129 mil, sold $75 mil of convertible bonds and sold some common stock. As of 9/30/2008, the Wachovia line was slightly less than $200 mil and its maturity has been extended to 4/29/2010 with a one year extension possible if certain conditions are met. Other than regular long-term mortgage amortizations, this is the Company's earliest maturity. In addition, on 10/1/2012, $75 mil of convertible bonds are puttable to the Company at par.     

       To reduce the Wachovia line, the Company reduced its dividend from $0.80 a year to $0.20 a year. This will save the Company $28.4 mil a year. There is an additional $13.8 mil of cash flow from operations. Altogether, LSE should be able to pay down about $42.5 mil of debt annually. This should make Wachovia a happy lender and avert the possibility of dilution or default.

       LSE stock has declined from around $8.00 where it yielded 10% with a $0.80 dividend to $1.70 where it yields 11.75% on a $0.20 dividend. With FFO and CAD, common REIT measurements, projected to be $0.90 a share in 2009, another $0.70 of earnings will accrue to the shareholders account through debt reduction. Altogether, direct cash payments from dividends and the indirect benefit of debt reduction should provide shareholders with a fine rate of return over the next several years.