I first looked at Trustreet Properties (NYSE:TSY) a couple of months ago, and I've been curious to see whether the company has made any progress.
Before we dive into some of the details from the company's fourth-quarter results, bear in mind that this company yields 9% for a reason. Those interested in a large yield might wish to consider the company's common and preferred shares, so long as you're well aware of the potential pitfalls. Based on the information I've read, I'd caution that this opportunity does carry a higher-than-normal amount of business risk.
Trustreet operates as a real estate investment trust, or REIT, focused exclusively on the restaurant industry. It generally buys properties in bulk from restaurant operators, sometimes including franchisees. The company's tenants include some of the nation's largest restaurant concepts, including Wendy's (NYSE:WEN), Jack in the Box (NYSE:JBX), IHOP (NYSE:IHP), and Denny's (NASDAQ:DENN).
For the fourth quarter, Trustreet turned in $0.34 per share in funds from operations (FFO), marking the first quarter in its short history in which the FFO has fully covered the $0.33 per share in quarterly dividend payments. (The company pays out $0.11 per share monthly.) In truth, Trustreet's profits on the sales of non-core assets and cash received toward the principal on capital leases more than provided the cash needed to fund the dividend in the past two quarters, but it is always preferable to see a dividend covered by FFO.
The most important concern with this company continues to be its high level of total debt and concentration of variable-rate debt. Secondary concerns include the quality of its tenants and how they perform in a more difficult economic environment, plus the soon-to-expire lockup on the company's secondary offering, which was completed in December.
All of the above could end up not being a concern, but I'm willing to wait a while longer to read through the company's impending 10-K and proxy statement, and see whether any insiders sell their newly unlocked shares. Plenty of companies out there pay yields greater than 4%, and a number of them have more attractive growth prospects, not to mention management teams with a longer track record. I see no cause to jump in here right away, but I'll be continuing to keep an eye on the company.
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Nathan Parmelee does not own shares in any of the companies mentioned. The Motley Fool has a disclosure policy.
