American Financial Tries to Turn the Corner

American Financial Realty (NYSE: AFR  ) has had a pretty lackluster past couple of years. Last quarter, management identified its company's problems and some of the initial steps it has taken to revive operations. Now this quarter, management thinks it's almost done with the stabilization process. That means it's time to build some momentum.

For now, the quarter's results were so-so. Revenues were roughly flat at $102 million, EBITDA rose 9% to $44 million, and adjusted funds from operations were up 4% versus the fourth quarter but down 10% from a year ago. Total occupancy was roughly flat at 86.5% versus the previous quarter, but occupancy from continuing operations was 90.6%.

The game plan is the same. American Financial Realty, which makes triple net leases to financial-services giants including Bank of America (NYSE: BAC  ) , State Street (NYSE: STT  ) , and Citigroup (NYSE: C  ) , needs to improve its occupancy rate, divest underperforming assets (the properties American Financial plans to sell have a 66% occupancy rate), strengthen the balance sheet to 60% to 65% of debt-to-book value of assets (down from 66.6%), and reduce general and administrative expenses.

American Financial continued to have success selling off non-core properties. At quarter's end, the company had only $237 million worth of property left to sell and reported that it had sold about half of those holdings in April. The company also reported success releasing 200,000 square feet of early terminations from Bank of America, and in the first quarter it repurchased $2.2 million worth of a $100 million authorized share-repurchase plan.

So what's next? This Income Investor recommendation plans to take a hard look at its capital structure and see whether it can improve results by using joint ventures with new and existing properties to provide a boost via financial engineering. Management has done a good job stabilizing, divesting, and cutting expenses. Now the company needs to build some momentum. Getting the occupancy up is the overwhelming key to improving financial results -- so that's what will make or break American Financial's future results.

Related Foolishness:

• Foolish Interview: Capital Lease's Paul McDowell
• American Financial Realty Trust
• American Financial Has More Work to Do

American Financial and Bank of America are Motley Fool Income Investor recommendations. Try this or any of our investing services free for 30 days.

Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.