UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
[X] Quarterly Report Pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934
For the
quarterly period ended March 31, 2008.
[
] Transition Report Pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934
For the
Transition period from _________________ to ________________
Commission File
Number 1-12386
|
LEXINGTON
REALTY TRUST
________________________________________________
(Exact
name of registrant as specified in its charter)
Maryland
______________________________
(State
or other jurisdiction of
incorporation
or organization)
|
13-3717318
________________
(I.R.S.
Employer
Identification
No.)
|
|
|
|
|
One
Penn Plaza – Suite 4015
New
York, NY
______________________________
(Address
of principal executive offices)
|
10119
___________
(Zip
code)
|
(212)
692-7200
_________________________________________
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ý No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “accelerated filer”, “large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
Accelerated Filer ý
Accelerated filer o Non-accelerated
filer o
Smaller Reporting Company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes _ No
X
Indicate
the number of shares outstanding of each of the registrant's classes of common
shares, as of the latest practicable date: 60,331,195 common shares, par value
$.0001 per share on May 2, 2008.
PART 1. - FINANCIAL
INFORMATION
|
ITEM 1. FINANCIAL
STATEMENTS
|
LEXINGTON
REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
March
31, 2008 (Unaudited) and December 31, 2007
|
(In
thousands, except share and per share
data)
|
|
|
March
31,
|
|
|
December
31,
|
|
|
2008
|
|
|
2007
|
|
Assets:
|
|
|
|
|
|
|
Real
estate, at cost
|
$
|
|
3,840,613 |
|
$ |
|
4,095,278 |
|
Less:
accumulated depreciation and amortization
|
|
|
368,628 |
|
|
|
379,831 |
|
|
|
|
3,471,985 |
|
|
|
3,715,447 |
|
Properties
held for sale – discontinued operations
|
|
|
63,411 |
|
|
|
150,907 |
|
Intangible
assets, net
|
|
|
460,226 |
|
|
|
516,698 |
|
Cash
and cash equivalents
|
|
|
108,450 |
|
|
|
412,106 |
|
Restricted
cash
|
|
|
56,294 |
|
|
|
4,185 |
|
Investment
in and advances to non-consolidated entities
|
|
|
229,825 |
|
|
|
226,476 |
|
Deferred
expenses, net
|
|
|
38,854 |
|
|
|
42,040 |
|
Notes
receivable
|
|
|
68,677 |
|
|
|
69,775 |
|
Rent
receivable – current
|
|
|
21,070 |
|
|
|
25,289 |
|
Rent
receivable – deferred
|
|
|
17,090 |
|
|
|
15,303 |
|
Other
assets
|
|
|
71,686 |
|
|
|
86,937 |
|
|
$ |
|
4,607,568 |
|
$ |
|
5,265,163 |
|
Liabilities
and Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Mortgages
and notes payable
|
$ |
|
2,128,167 |
|
$ |
|
2,312,422 |
|
Exchangeable
notes payable
|
|
|
350,000 |
|
|
|
450,000 |
|
Trust
notes payable
|
|
|
200,000 |
|
|
|
200,000 |
|
Contract
rights payable
|
|
|
13,801 |
|
|
|
13,444 |
|
Dividends
payable
|
|
|
26,912 |
|
|
|
158,168 |
|
Liabilities
– discontinued operations
|
|
|
38,436 |
|
|
|
119,093 |
|
Accounts
payable and other liabilities
|
|
|
49,045 |
|
|
|
49,442 |
|
Accrued
interest payable
|
|
|
13,044 |
|
|
|
23,507 |
|
Deferred
revenue - below market leases, net
|
|
|
191,326 |
|
|
|
217,389 |
|
Prepaid
rent
|
|
|
27,686 |
|
|
|
16,764 |
|
|
|
|
3,038,417 |
|
|
|
3,560,229 |
|
Minority
interests
|
|
|
667,395 |
|
|
|
765,863 |
|
|
|
|
3,705,812 |
|
|
|
4,326,092 |
|
Commitments
and contingencies (notes 6, 12 and 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
shares, par value $0.0001 per share; authorized 100,000,000
shares,
|
|
|
|
|
|
|
|
|
Series
B Cumulative Redeemable Preferred, liquidation preference $79,000,
3,160,000 shares issued and outstanding
|
|
|
76,315 |
|
|
|
76,315 |
|
Series
C Cumulative Convertible Preferred, liquidation preference $155,000,
3,100,000 shares issued and outstanding
|
|
|
150,589 |
|
|
|
150,589 |
|
Series
D Cumulative Redeemable Preferred, liquidation preference $155,000,
6,200,000 shares issued and outstanding
|
|
|
149,774 |
|
|
|
149,774 |
|
Special
Voting Preferred Share, par value $0.0001 per share; 1 share authorized,
issued and outstanding
|
|
|
— |
|
|
|
— |
|
Common
shares, par value $0.0001 per share; authorized 400,000,000 shares,
60,236,849 and 61,064,334 shares issued and outstanding in 2008 and 2007,
respectively
|
|
|
6 |
|
|
|
6 |
|
Additional
paid-in-capital
|
|
|
1,019,469 |
|
|
|
1,033,332 |
|
Accumulated
distributions in excess of net income
|
|
|
(487,253 |
) |
|
|
(468,167 |
) |
Accumulated
other comprehensive loss
|
|
|
(7,144 |
) |
|
|
(2,778 |
) |
Total shareholders' equity |
|
|
901,756 |
|
|
|
939,071 |
|
|
$ |
|
4,607,568 |
|
$ |
|
5,265,163 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
|
LEXINGTON
REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Three
months ended March 31, 2008 and 2007
|
(Unaudited
and in thousands, except share and per share
data)
|
|
|
2008
|
|
|
2007
|
|
Gross
revenues:
|
|
|
|
|
|
|
Rental
|
$ |
|
97,235 |
|
$ |
|
74,605 |
|
Advisory
and incentive fees
|
|
|
311 |
|
|
|
719 |
|
Tenant
reimbursements
|
|
|
10,042 |
|
|
|
5,440 |
|
Total
gross revenues
|
|
|
107,588 |
|
|
|
80,764 |
|
|
|
|
|
|
|
|
|
|
Expense
applicable to revenues:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(56,301 |
) |
|
|
(48,066 |
) |
Property
operating
|
|
|
(19,460 |
) |
|
|
(11,167 |
) |
General
and administrative
|
|
|
(11,067 |
) |
|
|
(8,817 |
) |
Non-operating
income
|
|
|
2,106 |
|
|
|
2,390 |
|
Interest
and amortization expense
|
|
|
(43,357 |
) |
|
|
(30,072 |
) |
Debt
satisfaction gains, net
|
|
|
9,706 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes, minority interests, equity in earnings
of
non-consolidated
entities, gains on sales of properties-affiliates and
discontinued
operations
|
|
|
(10,785 |
) |
|
|
(14,968 |
) |
Provision
for income taxes
|
|
|
(1,344 |
) |
|
|
(542 |
) |
Minority
interests share of (income) loss
|
|
|
(8,493 |
) |
|
|
9,879 |
|
Equity
in earnings of non-consolidated entities
|
|
|
5,548 |
|
|
|
3,504 |
|
Gains
on sales of properties-affiliates
|
|
|
23,169 |
|
|
|
— |
|
Income
(loss) from continuing operations
|
|
|
8,095 |
|
|
|
(2,127 |
) |
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
1,697 |
|
|
|
7,538 |
|
Provision for
income taxes
|
|
|
(13 |
) |
|
|
(1 |
) |
Gains
on sales of properties
|
|
|
687 |
|
|
|
— |
|
Impairment
charge
|
|
|
(2,694 |
) |
|
|
— |
|
Minority
interests share of (income) loss
|
|
|
40 |
|
|
|
(3,195 |
) |
Total
discontinued operations
|
|
|
(283 |
) |
|
|
4,342 |
|
Net
income
|
|
|
7,812 |
|
|
|
2,215 |
|
Dividends
attributable to preferred shares – Series B
|
|
|
(1,590 |
) |
|
|
(1,590 |
) |
Dividends
attributable to preferred shares – Series C
|
|
|
(2,519 |
) |
|
|
(2,519 |
) |
Dividends
attributable to preferred shares – Series D
|
|
|
(2,926 |
) |
|
|
(1,522 |
) |
Net
income (loss) allocable to common shareholders
|
$ |
|
777 |
|
$ |
|
(3,416 |
) |
|
|
|
|
|
|
|
|
|
Income (loss)
per common share – basic:
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations, after preferred
dividends
|
$ |
|
0.01 |
|
$ |
|
(0.11 |
) |
Income
(loss) from discontinued operations
|
|
|
— |
|
|
|
0.06 |
|
Net
income (loss) allocable to common shareholders
|
$ |
|
0.01 |
|
$ |
|
(0.05 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – basic
|
|
|
59,826,579 |
|
|
|
68,538,404 |
|
|
|
|
|
|
|
|
|
|
Income (loss)
per common share – diluted:
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations, after preferred
dividends
|
$ |
|
0.01 |
|
$ |
|
(0.11 |
) |
Income
(loss) from discontinued operations
|
|
|
— |
|
|
|
0.06 |
|
Net
income (loss) allocable to common shareholders
|
$ |
|
0.01 |
|
$ |
|
(0.05 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – diluted
|
|
|
59,837,094 |
|
|
|
68,538,404 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
|
|
LEXINGTON
REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
Three months
ended March 31, 2008 and 2007
|
|
(Unaudited
and in thousands)
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
income
|
$ |
|
7,812 |
|
$ |
|
2,215 |
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Change
in unrealized gain (loss) in marketable equity securities
|
|
|
107 |
|
|
|
(158 |
) |
Change
in unrealized gain on interest rate derivative
|
|
|
243 |
|
|
|
— |
|
Change
in unrealized gain in foreign currency translation
|
|
|
270 |
|
|
|
36 |
|
Change
in unrealized loss from non-consolidated entities, net of
minority
interest
|
|
|
(4,986 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
(4,366 |
) |
|
|
(122 |
) |
Comprehensive
income
|
$ |
|
3,446 |
|
$ |
|
2,093 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
LEXINGTON
REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
Three
months ended March 31, 2008 and 2007
|
|
|
(Unaudited
and in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities:
|
$ |
|
67,961 |
|
$ |
|
99,018 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Investment
in real estate, including intangibles
|
|
|
(3,056 |
) |
|
|
(87,360 |
) |
Acquisitions
of additional interests in LSAC
|
|
|
— |
|
|
|
(10,684 |
) |
Net
proceeds from sale of properties-affiliates
|
|
|
73,401 |
|
|
|
— |
|
Net
proceeds from sale/transfer of properties
|
|
|
122,432 |
|
|
|
41,894 |
|
Proceeds
from the sale of marketable equity securities
|
|
|
2,500 |
|
|
|
9,462 |
|
Real
estate deposits
|
|
|
205 |
|
|
|
(1,094 |
) |
Principal
payments received on loans receivable
|
|
|
732 |
|
|
|
1,328 |
|
Distributions
from non-consolidated entities in excess of accumulated
earnings
|
|
|
524 |
|
|
|
10,678 |
|
Investment
in and advances to/from non-consolidated entities
|
|
|
(9,441 |
) |
|
|
(7,162 |
) |
Investment
in marketable equity securities
|
|
|
— |
|
|
|
(723 |
) |
Increase
in deferred leasing costs
|
|
|
(6,774 |
) |
|
|
(764 |
) |
Decrease (increase)
in escrow deposits, including restricted cash
|
|
|
(51,730 |
) |
|
|
19,770 |
|
Net
cash provided by (used in) investing activities
|
|
|
128,793 |
|
|
|
(24,655 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Dividends
to common and preferred shareholders
|
|
|
(158,168 |
) |
|
|
(44,948 |
) |
Principal
payments on debt, excluding normal amortization
|
|
|
(162,894 |
) |
|
|
(610,518 |
) |
Repurchase
of exchangeable notes payable |
|
|
(87,374 |
) |
|
|
— |
|
Dividend
reinvestment plan proceeds
|
|
|
— |
|
|
|
5,652 |
|
Principal
amortization payments
|
|
|
(27,684 |
) |
|
|
(25,077 |
) |
Proceeds
of mortgages and notes payable
|
|
|
— |
|
|
|
33,825 |
|
Proceeds
from term loans
|
|
|
70,000 |
|
|
|
— |
|
Proceeds
from trust preferred notes
|
|
|
— |
|
|
|
200,000 |
|
Proceeds
from exchangeable notes
|
|
|
— |
|
|
|
450,000 |
|
Increase
in deferred financing costs
|
|
|
(2,401 |
) |
|
|
(15,560 |
) |
Contributions
from minority partners
|
|
|
— |
|
|
|
79 |
|
Cash
distributions to minority partners
|
|
|
(115,170 |
) |
|
|
(30,323 |
) |
Proceeds
from the sale of common and preferred shares, net
|
|
|
— |
|
|
|
149,947 |
|
Repurchase
of common shares
|
|
|
(16,270 |
) |
|
|
(81,753 |
) |
Partnership
units repurchased
|
|
|
(449 |
) |
|
|
(3,114 |
) |
Net
cash (used in) provided by financing activities
|
|
|
(500,410 |
) |
|
|
28,210 |
|
|
|
|
|
|
|
|
|
|
Change
in cash and cash equivalents
|
|
|
(303,656 |
) |
|
|
102,573 |
|
Cash
and cash equivalents, at beginning of period |
|
|
412,106 |
|
|
|
97,547 |
|
Cash
and cash equivalents, at end of period
|
$ |
|
108,450 |
|
$ |
|
200,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
|
LEXINGTON
REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2008 and 2007
(Unaudited
and dollars in thousands, except per share/unit data)
Lexington
Realty Trust (the “Company”), is a self-managed and self-administered Maryland
statutory real estate investment trust (“REIT”) that acquires, owns, and manages
a geographically diversified portfolio of net leased office, industrial and
retail properties and provides investment advisory and asset management services
to investors in the net lease area. As of March 31, 2008, the Company owned or
had interests in approximately 260 consolidated properties in 42 states and the
Netherlands. The real properties owned by the Company are generally subject to
net leases to tenants, however, certain leases provide that the Company is
responsible for certain operating expenses.
The
Company believes it has qualified as a REIT under the Internal Revenue Code of
1986, as amended (the “Code”). Accordingly, the Company will not be subject to
federal income tax, provided that distributions to its shareholders equal at
least the amount of its REIT taxable income as defined under the Code. The
Company is permitted to participate in certain activities from which it was
previously precluded in order to maintain its qualification as a REIT, so long
as these activities are conducted in entities which elect to be treated as
taxable REIT subsidiaries (“TRS”) under the Code. As such, the TRS will be
subject to federal income taxes on the income from these
activities.
The
Company conducts its operations either directly or through (1) one of four
operating partnerships in which the Company is the sole unit holder of the
general partner and the sole unit holder of a limited partner that holds a
majority of the limited partnership interests (“OP Units”): The Lexington Master
Limited Partnership (“MLP”), Lepercq Corporate Income Fund L.P. (“LCIF”),
Lepercq Corporate Income Fund II L.P. (“LCIF II”), and Net 3 Acquisition L.P.
(“Net 3”), or (2) Lexington Realty Advisors, Inc. (“LRA”), a wholly-owned
TRS.
During
the three months ended March 31, 2008, the Company repurchased approximately 1.2
million common shares/OP Units at an average price of approximately $14.51 per
common share/OP Unit aggregating $16.7 million, in the open market and through
private transactions with third parties. As of March 31, 2008, approximately 4.6
million common shares and OP Units were eligible for repurchase under the
current authorization adopted by the Company’s Board of Trustees.
The
unaudited condensed consolidated financial statements reflect all adjustments,
which are, in the opinion of management, necessary to present a fair statement
of the financial condition and results of operations for the interim
periods. For a more complete understanding of the Company's
operations and financial position, reference is made to the financial statements
(including the notes thereto) previously filed with the Securities and Exchange
Commission on February 29, 2008 with the Company's Annual Report on Form 10-K
for the year ended December 31, 2007.
(2)
|
Summary of Significant
Accounting Policies
|
Basis of Presentation and Consolidation. The
Company's unaudited condensed consolidated financial statements are
prepared on the accrual basis of accounting. The financial statements
reflect the accounts of the Company and its consolidated subsidiaries, including
LCIF, LCIF II, Net 3, MLP, LRA and Six Penn Center L.P. Lexington
Contributions, Inc. (“LCI”) and Lexington Strategic Asset
Corp. (“LSAC”), were each a formerly majority owned TRS, and which
were merged with and into the Company as of March 25, 2008 and June 30, 2007,
respectively.
The
Company determines whether an entity for which it holds an interest should be
consolidated pursuant to Financial Accounting Standards Board (“FASB”)
Interpretation No. 46, Consolidation of Variable Interest Entities
(“FIN
46R”). FIN 46R requires the Company to evaluate whether it has a
controlling financial interest in an entity through means other than voting
rights. If the entity is not a variable interest entity, and the
Company controls the entity’s voting shares or similar rights, the entity is
consolidated.
Earnings Per Share. Basic net
income (loss) per share is computed by dividing net income (loss), reduced by
preferred dividends, by the weighted average number of common shares outstanding
during the period. Diluted net income (loss) per share amounts are similarly
computed, but include the effect, when dilutive, of in-the-money common share
options, certain non-vested common shares, OP Units, put options of certain
partners’ interests in non-consolidated entities and convertible
securities.
Recently Issued Accounting
Standards. In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in
accordance with SFAS 109. FIN 48 prescribes a recognition threshold
and measurement attribute for financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN 48 was
effective for fiscal years beginning after December 15, 2006. The adoption
of FIN 48 did not have an impact on the Company’s consolidated financial
position, results of operations or cash flows.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. SFAS 157 was effective for
financial statements issued for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years, except for non-financial
assets and liabilities, which is deferred for one additional year. The adoption
of the effective portions of this statement did not have a material impact
on the Company’s financial position, results of operations or cash flows. The
Company is evaluating the effect of implementing this statement as it relates to
non-financial assets and liabilities, although the statement does not require
any new fair value measurements or remeasurements of previously reported fair
values.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities — Including an Amendment of FASB
Statement No. 115 (“SFAS 159”). SFAS 159 permits entities to
choose to measure many financial assets and liabilities and certain other items
at fair value. An enterprise will report unrealized gains and losses on items
for which the fair value option has been elected in earnings at each subsequent
reporting date. The fair value option may be applied on an
instrument-by-instrument basis, with several exceptions, such as investments
accounted for by the equity method, and once elected, the option is irrevocable
unless a new election date occurs. The fair value option can be applied only to
entire instruments and not to portions thereof. SFAS 159 was effective as
of the beginning of an entity’s first fiscal year beginning after
November 15, 2007. The Company did not adopt the fair value provisions of
this pronouncement and thus it did not have an impact on the Company’s
consolidated financial position, results of operations or cash
flows.
In
December 2007, the FASB issued SFAS No. 141R (Revised 2007), Business
Combinations (“SFAS 141R”). SFAS 141R requires most identifiable
assets, liabilities, noncontrolling interests, and goodwill acquired in a
business combination to be recorded at “full fair value”. SFAS 141R is
effective for acquisitions in periods beginning on or after December 15,
2008.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements- an amendment of ARB 51 (“SFAS 160”).
SFAS 160 will require noncontrolling interests (previously referred to as
minority interests) to be treated as a separate component of equity, not as a
liability or other item outside of permanent equity. SFAS 160 is effective
for periods beginning on or after December 15, 2008. The adoption of this
statement will result in the minority interest currently classified in the
“mezzanine” section of the balance sheet to be reclassified as a component of
shareholders’ equity, and minority interest expense will no longer be recorded
in the statement of operations.
In
December 2007, the FASB ratified EITF consensus on EITF 07-06, Accounting
for the Sale of Real Estate Subject to the Requirements of FASB Statement
No. 66, Accounting for Sales of Real Estate, When the Agreement Includes a
Buy-Sell Clause (“EITF 07-06”). EITF 07-06 clarifies that a buy-sell
clause in a sale of real estate that otherwise qualifies for partial sale
accounting does not by itself constitute a form of continuing involvement that
would preclude partial sale accounting under SFAS No. 66.
EITF 07-06 was effective for fiscal years beginning after December 15,
2007. The adoption of EITF 07-06 did not have a material impact on the
Company’s financial position, results of operations or cash flows.
In June
2007, the Securities and Exchange staff announced revisions to EITF Topic D-98
related to the release of SFAS 159. The Securities and Exchange Commission
announced that it will no longer accept liability classification for financial
instruments that meet the conditions for temporary equity classification under
ASR 268, Presentation in Financial Statements of “Redeemable Preferred Stocks”
and EITF Topic No. D-98. As a consequence, the fair value option under
SFAS 159 may not be applied to any financial instrument (or host contract)
that qualifies as temporary equity. This is effective for all instruments that
are entered into, modified, or otherwise subject to a remeasurement event in the
first fiscal quarter beginning after September 15, 2007. The adoption of
this announcement did not have a material impact on the Company’s financial
position, results of operations or cash flows.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities- an amendment of SFAS No.133 (“SFAS 161”). SFAS 161,
which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, requires companies with derivative instruments to disclose
information about how and why a company uses derivative instruments, how
derivative instruments and related hedged items are accounted for under SFAS No.
133, and how derivative instruments and related hedged items affect a company’s
financial position, financial performance and cash flows. The required
disclosures include the fair value of derivative instruments and their gains or
losses in tabular format, information about credit-risk-related contingent
features in derivative agreements, counterparty, credit risk, and the company’s
strategies and objectives for using derivative instruments. SFAS 161 is
effective prospectively for periods beginning on or after November 15, 2008. The
adoption of this statement is not expected to have a material impact on the
Company’s financial position, results of operations or cash flows.
Use of Estimates. Management
has made a number of estimates and assumptions relating to the reporting of
assets and liabilities, the disclosure of contingent assets and liabilities and
the reported amounts of revenues and expenses to prepare these unaudited
condensed consolidated financial statements in conformity with U.S. generally
accepted accounting principles. The most significant estimates made include the
recoverability of accounts receivable, allocation of property purchase price to
tangible and intangible assets, the determination of impairment of long-lived
assets and the useful lives of long-lived assets. Actual results could differ
from those estimates.
Business Combinations. The
Company follows the provisions of Statement of Financial Accounting Standards
No. 141, Business Combinations (“SFAS 141”) and records all assets acquired
and liabilities assumed at fair value.
Purchase Accounting for Acquisition
of Real Estate. The fair value of the real estate acquired, which
includes the impact of mark-to-market adjustments for assumed mortgage debt
related to property acquisitions, is allocated to the acquired tangible assets,
consisting of land, building and improvements, and identified intangible assets
and liabilities, consisting of the value of above-market and below-market
leases, other value of in-place leases and value of tenant relationships, based
in each case on their fair values.
The fair
value of the tangible assets of an acquired property (which includes land,
building and improvements and fixtures and equipment) is determined by valuing
the property as if it were vacant, and the “as-if-vacant” value is then
allocated to land, building and improvements based on management’s determination
of relative fair values of these assets. Factors considered by management in
performing these analyses include an estimate of carrying costs during the
expected lease-up periods considering current market conditions and costs to
execute similar leases. In estimating carrying costs, management includes real
estate taxes, insurance and other operating expenses and estimates of lost
rental revenue during the expected lease-up periods based on current market
demand. Management also estimates costs to execute similar leases including
leasing commissions.
In
allocating the fair value of the identified intangible assets and liabilities of
an acquired property, above-market and below-market in-place lease values are
recorded based on the difference between the current in-place lease rent and a
management estimate of current market rents. Below-market lease intangibles are
recorded as part of deferred revenue and amortized into rental revenue over the
non-cancelable periods and bargain renewal periods of the respective leases.
Above-market leases are recorded as part of intangible assets and amortized as a
direct charge against rental revenue over the non-cancelable portion of the
respective leases.
The
aggregate value of other acquired intangible assets, consisting of in-place
leases and tenant relationships, is measured by the excess of (i) the
purchase price paid and debt assumed, as applicable, for a property over
(ii) the estimated fair value of the property as if vacant, determined as
set forth above. This aggregate value is allocated between in-place lease values
and tenant relationships based on management’s evaluation of the specific
characteristics of each tenant’s lease. The value of in-place leases is
amortized to expense over the remaining non-cancelable periods and any bargain
renewal periods of the respective leases. Tenant relationships are
amortized to expense over the applicable lease term plus expected renewal
periods.
Revenue Recognition. The
Company recognizes revenue in accordance with Statement of Financial Accounting
Standards No. 13, Accounting for Leases, as amended (“SFAS 13”).
SFAS 13 requires that revenue be recognized on a straight-line basis over
the term of the lease unless another systematic and rational basis is more
representative of the time pattern in which the use benefit is derived from the
leased property. Renewal options in leases with rental terms that are lower than
those in the primary term are excluded from the calculation of straight-line
rent if they do not meet the criteria of a bargain renewal option. In those
instances in which the Company funds tenant improvements and the improvements
are deemed to be owned by the Company, revenue recognition will commence when
the improvements are substantially completed and possession or control of the
space is turned over to the tenant. When the Company determines that the tenant
allowances are lease incentives, the Company commences revenue recognition when
possession or control of the space is turned over to the tenant for tenant work
to begin. The lease incentive is recorded as a deferred expense and amortized as
a reduction of revenue on a straight-line basis over the respective lease
term.
Gains on
sales of real estate are recognized pursuant to the provisions of Statement of
Financial Accounting Standards No. 66, Accounting for Sales of Real Estate,
as amended (“SFAS 66”). The specific timing of the sale is measured against
various criteria in SFAS 66 related to the terms of the transactions and
any continuing involvement in the form of management or financial assistance
associated with the properties. If the sale criteria is not met, the gain is
deferred and the finance, installment or cost recovery method, as appropriate,
is applied until the sale criteria is met.
Impairment of Real Estate.
The Company evaluates the carrying value of all real estate and
intangible assets held when a triggering event under Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, as amended (“SFAS 144”) has occurred to determine if an
impairment has occurred which would require the recognition of a loss. The
evaluation includes reviewing anticipated operating cash flows of the
property. However, estimating future cash flows is highly subjective and such
estimates could differ materially from actual results.
Depreciation
is determined using the straight-line method over the remaining estimated
economic useful lives of the properties. The Company generally depreciates
buildings and building improvements over periods ranging from 8 to
40 years, land improvements from 15 to 20 years, and fixtures and
equipment from 2 to 16 years. Only costs incurred to third parties in
acquiring properties are capitalized. No internal costs (rents, salaries,
overhead) are capitalized. Expenditures for maintenance and repairs are charged
to operations as incurred. Significant renovations which extend the useful life
of the properties are capitalized.
Properties Held For Sale. The
Company accounts for properties held for sale in accordance with SFAS 144.
SFAS 144 requires that the assets and liabilities of properties that meet
various criteria in SFAS 144 be presented separately in the consolidated
balance sheets, with assets and liabilities being separately stated. The
operating results of these properties are reflected as discontinued operations
in the consolidated statements of operations. Properties that do not meet the
held for sale criteria of SFAS 144 are accounted for as operating
properties.
Investments in Non-Consolidated
Entities. The Company accounts for its investments in 50% or less owned
entities under the equity method, unless pursuant to FIN 46R, consolidation is
required. If its investment in the entity is less than 3% and it has no
influence over the control of the entity then the entity is accounted for under
the cost method.
Marketable Equity Securities.
The Company classifies its existing marketable equity securities as
available-for-sale in accordance with the provisions of SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. These
securities are carried at fair market value, with unrealized gains and losses,
including the Company’s proportionate share of the unrealized gains or loss from
non-consolidated entities, reported in
shareholders’
equity as a component of accumulated other comprehensive income (loss). Gains or
losses on securities sold and other than temporary impairments are included in
the consolidated statements of operations. Sales of securities are recorded on
the trade date and gains and losses are determined by the specific
identification method.
Notes Receivable. The Company
evaluates the collectability of both interest and principal of each of its
notes, if circumstances warrant, to determine whether it is impaired. A note is
considered to be impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due according to
the existing contractual terms. When a note is considered to be impaired, the
amount of the loss accrual is calculated by comparing the recorded investment to
the value determined by discounting the expected future cash flows at the note’s
effective interest rate. Interest on impaired notes is recognized on a cash
basis.
Deferred Expenses. Deferred
expenses consist primarily of debt and leasing costs. Debt costs are amortized
using the straight-line method, which approximates the interest method, over the
terms of the debt instruments and leasing costs are amortized over the term of
the related lease.
Deferred Compensation.
Deferred compensation consists of the value of non-vested common shares
issued by the Company to employees. The deferred compensation is amortized
ratably over the vesting period, which generally is three to five years. Certain
common shares vest only when certain performance based measures are
met.
Derivative
Financial Instruments. The Company accounts for its interest rate
cap agreement and its interest rate swap agreement in accordance with SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended
and interpreted (“SFAS
133”).
In accordance with SFAS 133, interest rate cap agreements are carried on the
balance sheet at their fair value, as an asset, if their fair value is positive,
or as a liability, if their fair value is negative. The interest rate swap
is designated as a cash flow hedge and the interest rate cap agreement is
not designated as a hedge instrument and is measured at fair value with the
resulting gain or loss recognized in interest expense in the period of
change. Any ineffective amount of the interest rate swap is to be
recognized in earnings each quarter.
Tax Status. The Company has
made an election to qualify, and believes it is operating so as to qualify, as a
REIT for federal income tax purposes. Accordingly, the Company generally will
not be subject to federal income tax, provided that distributions to its
shareholders equal at least the amount of its REIT taxable income as defined
under Sections 856 through 860 of the Code.
The
Company is now permitted to participate in certain activities from which it was
previously precluded in order to maintain its qualification as a REIT, so long
as these activities are conducted in entities which elect to be treated as TRS
under the Code. As such, the Company is subject to federal and state income
taxes on the income from these activities.
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled.
Cash and Cash Equivalents.
The Company considers all highly liquid instruments with maturities of
three months or less from the date of purchase to be cash
equivalents.
Restricted Cash. Restricted
cash is comprised primarily of cash balances deposited with
qualified intermediaries to complete potential tax-free
exchanges.
Foreign Currency. The Company
has determined that the functional currency of its foreign operations is the
respective local currency. As such, assets and liabilities of the Company’s
foreign operations are translated using period-end exchange rates, and revenues
and expenses are translated using exchange rates as determined throughout the
period. Unrealized gains or losses resulting from translation are included in
accumulated other comprehensive income (loss) and as a separate component of the
Company’s shareholders’ equity.
Segment Reporting. The
Company operates in one industry segment, investment in net leased real
properties.
Environmental Matters. Under
various federal, state and local environmental laws, statutes, ordinances, rules
and regulations, an owner of real property may be liable for the costs of
removal or remediation of certain hazardous or toxic substances at, on, in or
under such property as well as certain other potential costs relating to
hazardous or toxic substances. These liabilities may include government fines
and penalties and damages for injuries to persons and adjacent property. Such
laws often impose liability without regard to whether the owner knew of, or was
responsible for, the presence or disposal of such substances. Although the
Company’s tenants are primarily responsible for any environmental damage and
claims related to the leased premises, in the event of the
bankruptcy
or
inability of the tenant of such premises to satisfy any obligations with respect
to such environmental liability, the Company may be required to satisfy any
obligations. In addition, the Company as the owner of such properties may be
held directly liable for any such damages or claims irrespective of the
provisions of any lease. As of March 31, 2008, the Company is not aware of any
environmental matter that could have a material impact on the financial
statements.
Reclassification. Certain
amounts included in the 2007 financial statements have been reclassified to
conform with the 2008 presentation.
(3) Earnings per
Share
The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations for the three months ended March 31,
2008 and 2007:
|
|
2008
|
|
|
2007
|
|
BASIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
$ |
|
8,095 |
|
$ |
|
(2,127 |
) |
Less
preferred dividends
|
|
|
(7,035 |
) |
|
|
(5,631 |
) |
Income
(loss) allocable to common
|
|
|
|
|
|
|
|
|
shareholders from
continuing operations
|
|
|
1,060 |
|
|
|
(7,758 |
) |
Total
income (loss) from discontinued operations
|
|
|
(283 |
) |
|
|
4,342 |
|
Net
income (loss) allocable to common shareholders
|
$ |
|
777 |
|
$ |
|
(3,416 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding -basic
|
|
|
59,826,579 |
|
|
|
68,538,404 |
|
|
|
|
|
|
|
|
|
|
Income
(loss) per common share – basic:
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
$ |
|
0.01 |
|
$ |
|
(0.11 |
) |
Income
(loss) from discontinued operations
|
|
|
— |
|
|
|
0.06 |
|
Net
income (loss)
|
$ |
|
0.01 |
|
$ |
|
(0.05 |
) |
|
|
|
|
|
|
|
|
|
DILUTED
|
|
|
|
|
|
|
|
|
Income
(loss) allocable to common
|
|
|
|
|
|
|
|
|
shareholders from
continuing operations – diluted
|
$ |
|
1,060 |
|
$ |
|
(7,758 |
) |
Total
income (loss) from discontinued operations
|
|
|
(283 |
) |
|
|
4,342 |
|
Net
income (loss) allocable to common shareholders
|
$ |
|
777 |
|
$ |
|
(3,416 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares used in calculation of basic
earnings per share
|
|
|
|
|
|
|
|
|
|
|
59,826,579 |
|
|
|
68,538,404 |
|
Add
incremental shares representing:
|
|
|
|
|
|
|
|
|
Shares
issuable upon exercise of employee share
|
|
|
|
|
|
|
|
|
options/non-vested
shares
|
|
|
10,515 |
|
|
|
— |
|
Shares
issuable upon conversion of dilutive
|
|
|
|
|
|
|
|
|
securities
|
|
|
— |
|
|
|
— |
|
Weighted
average number of common shares - diluted
|
|
|
59,837,094 |
|
|
|
68,538,404 |
|
|
|
|
|
|
|
|
|
|
Income
(loss) per common share - diluted:
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
$ |
|
0.01 |
|
$ |
|
(0.11 |
) |
Income
(loss) from discontinued operations
|
|
|
— |
|
|
|
0.06 |
|
Net
income (loss)
|
$ |
|
0.01 |
|
$ |
|
(0.05 |
) |
|
|
|
|
|
|
|
|
|
All
incremental shares are considered anti-dilutive for periods that have a loss
from continuing operations applicable to common shareholders. In addition, other
common share equivalents may be anti-dilutive in certain periods.
(4) Investments
in Real Estate and Intangibles
During
the three months ended March 31, 2008, the Company did not acquire any
properties. During the three months ended March 31, 2007, the Company acquired
four properties from third
parties for an aggregate capitalized cost of $79,150 and allocated $9,610 of the
purchase price to intangible assets.
During
the three months ended March 31, 2007, the Company acquired additional shares in
LSAC for $10,684.
(5) Discontinued
Operations
During
the three months ended March 31, 2008, the Company sold three properties to
third parties for aggregate proceeds of $122,432 which resulted in an aggregate
gain of $687. During the three months ended March 31, 2007, the Company sold
four properties to third parties for aggregate proceeds of $41,894 which
approximated carrying cost. As of March 31, 2008, the Company had four
properties held for sale.
The
following presents the operating results for the properties sold and properties
held for sale for the applicable periods:
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Rental
revenues
|
$ |
|
3,134 |
|
$ |
|
17,288 |
|
Pre-tax
income (loss), including gains on sale
|
$ |
|
(270 |
) |
$ |
|
4,343 |
|
(6) Investment in
Non-Consolidated Entities
Concord
Debt Holdings LLC (“Concord”)
The MLP
and WRT Realty L.P. (“Winthrop”) have a co-investment program to acquire and
originate loans secured, directly and indirectly, by real estate assets through
Concord. The Company’s former Executive Chairman and Director of Strategic
Acquisitions is also the Chief Executive Officer of the parent of Winthrop. The
co-investment program is equally owned and controlled by the MLP and Winthrop.
The MLP and Winthrop have committed to invest up to $162,500 each in Concord,
all of which has been funded as of March 31, 2008. All profits, losses and cash
flows are distributed in accordance with the respective membership
interests.
Concord
is governed by an investment committee which consists of three members appointed
by each of Winthrop and the MLP with one additional member being appointed by an
affiliate of Winthrop. All decisions requiring the consent of the investment
committee require the affirmative vote of the members appointed by Winthrop and
the MLP. Pursuant to the terms of the limited liability company agreement of
Concord, all material actions to be taken by Concord, including investments in
excess of $20,000, require the consent of the investment committee; provided,
however, the consents of both Winthrop and the MLP are required for the merger
or consolidation of Concord, the admission of additional members, the taking of
any action that, if taken directly by Winthrop or the MLP would require consent
of Winthrop’s Conflicts Committee or the Company’s independent
trustees.
Concord
has various repurchase agreements. As of March 31, 2008 and December 31, 2007,
the outstanding borrowings under these facilities are $421,685 and $472,324,
respectively.
The
following is summary balance sheet data as of March 31, 2008 and
December 31, 2007 and income statement data for the three months ended
March 31, 2008 and 2007 for Concord:
|
|
As
of 3/31/08
|
|
As
of 12/31/07
|
Investments
|
$
|
1,076,450
|
$
|
1,140,108
|
Cash,
including restricted cash
|
|
30,188
|
|
19,094
|
Warehouse
debt facilities obligations
|
|
421,685
|
|
472,324
|
Collateralized
debt obligations
|
|
366,650
|
|
376,650
|
Members’
equity
|
|
309,353
|
|
310,922
|
|
|
Three
Months Ended March 31,
|
|
|
2008
|
|
2007
|
Interest
and other income
|
$
|
20,039
|
$
|
11,154
|
Interest
expense
|
|
(10,312)
|
|
(6,666)
|
Impairment
charge
|
|
(5,377)
|
|
—
|
Gain
on debt repayment
|
|
5,150
|
|
—
|
Other
expenses and minority interests
|
|
(1,350)
|
|
(1,178)
|
Net
income
|
|
8,150
|
|
3,310
|
Other
comprehensive loss (unrealized loss on investments and
swaps)
|
|
(19,893)
|
|
—
|
Comprehensive
income (loss)
|
$
|
(11,743)
|
$ |
3,310
|
Concord’s
loan assets are intended to be held to maturity and, accordingly, are carried at
cost, net of unamortized loan origination costs and fees, repayments and
unfunded commitments unless such loan is deemed to be impaired. Concord’s bonds
are treated as available for sale securities and, accordingly, are
marked-to-market on a quarterly basis based on valuations performed by Concord’s
management.
Net
Lease Strategic Assets Fund L.P. (“NLS”)
NLS is a
co-investment program with Inland American (Net Lease) Sub, LLC (“Inland”). NLS
was established to acquire single-tenant net lease specialty real estate in the
United States. In connection with the formation of NLS and on December 20,
2007, the MLP contributed interests in 12 properties to NLS along with $6,721 in
cash and Inland contributed $121,676 in cash. In addition, the Company sold for
cash interests in 18 properties to NLS and recorded an aggregate gain of
$19,422, which was limited by the Company’s aggregate ownership interest in
NLS’s common and preferred equity of 47.2%. The properties were subject to
$186,302 in mortgage debt, which was assumed by NLS. After such formation
transaction Inland and the MLP owned 85% and 15%, respectively, of NLS’s common
equity and the MLP owned 100% of NLS’s $87,615 preferred equity.
On March
25, 2008, the MLP contributed interests in five properties to NLS along with
$4,354 in cash and Inland contributed $72,545 in cash. In addition, the Company
sold for cash interests in six properties to NLS and recorded an aggregate gain
of $23,169, which was limited by the Company’s aggregate ownership interest in
NLS’s common and preferred equity of 47.2%. The properties were subject to
$131,603 in mortgage debt, which was assumed by NLS. The mortgage debt assumed
by NLS has stated interest rates ranging from 5.1% to 8.0%, with a weighted
average interest rate of 6.0% and maturity dates ranging from 2010 to 2021.
After this transaction Inland and the
Company
own 85% and 15%, respectively, of NLS’s common equity and the Company owns 100%
of NLS’s $141,329 preferred equity.
In
addition, NLS has a right to acquire an interest in two additional properties
from the Company and the MLP. The acquisition of each of the two assets by NLS
is subject to satisfaction of conditions precedent to closing, including the
acquisition by the MLP of 100% of the interest in one asset, the assumption of
existing financing, obtaining certain consents and waivers, the continuing
financial solvency of the tenants, and certain other customary conditions.
Accordingly, neither the Company, the MLP nor NLS can provide any assurance that
the acquisition by NLS of these two assets will be completed. In the event
that NLS does not acquire the assets by June 30, 2008, NLS will no longer
have the right to acquire such assets.
Inland
and the Company are currently entitled to a return on/of their respective
investments as follows: (1) Inland -9% on its common equity, (2) the
Company -6.5% on its preferred equity, (3) the Company -9% on its common
equity, (4) return of the Company preferred equity, (5) return of
Inland common equity (6) return of the Company common equity and
(7) any remaining cash flow is allocated 65% to Inland and 35% to the
Company as long as the Company is the general partner, if not, allocations are
85% to Inland and 15% to the Company.
In
addition to the capital contributions described above, the MLP and Inland
committed to invest up to an additional $22,500 and $127,500, respectively, in
NLS to acquire additional specialty single-tenant net leased assets. LRA has
entered into a management agreement with NLS whereby LRA will receive (1) a
management fee of 0.375% of the equity capital, (2) a property management
fee of up to 3.0% of actual gross revenues from certain assets for which the
landlord is obligated to provide property management services (contingent upon
the recoverability of such fees from the tenant under the applicable lease), and
(3) an acquisition fee of 0.5% of the gross purchase price of each acquired
asset by the NLS.
The
following is summary historical cost basis selected balance sheet data as of
March 31, 2008 and December 31, 2007 and income statement data
for the three months ended March 31, 2008 for NLS:
|
|
|
|
|
|
|
As
of 3/31/08
|
|
As
of 12/31/07
|
Real
estate, including intangibles
|
$
|
678,133
|
$
|
405,834
|
Cash
|
|
4,640
|
|
1,884
|
Mortgages
payable
|
|
302,396
|
|
171,556
|
|
|
|
|
|
|
|
For
the Three Months
|
|
|
|
|
Ended
3/31/08
|
|
|
Gross
rental revenues
|
$
|
8,166
|
|
|
Expenses,
net
|
|
(7,327)
|
|
|
Net
income
|
$
|
839
|
|
|
|
|
|
|
|
During
the three months ended March 31, 2008, the Company recognized $2,020 in
losses relating to NLS based upon the hypothetical liquidation
method. The difference between the assets contributed to NLS and the fair value,
at inception, of the MLP's equity investment in NLS of $94,265 is
accreted into equity in earnings of non-consolidated entities. During the three
months ended March 31, 2008, the MLP recorded earnings of $2,217 related to this
difference.
During
the three months ended March 31, 2008, the MLP incurred transaction costs
relating to the formation of NLS of $926 which are included in general and
administrative expenses in the consolidated statements of
operations.
LEX-Win
Acquisition LLC (“Lex-Win”)
During
2007, Lex-Win, an entity in which the MLP holds a 28% ownership interest,
acquired 3.9 million shares of common stock in Piedmont Office Realty
Trust, Inc. (formerly known as Wells Real Estate Investment Trust,
Inc.),
(“Wells”), a non-exchange traded entity, at a price per share of $9.30 in a
tender offer. During 2007, the MLP funded $12,542 relating to this
tender and received $1,890 relating to an adjustment of the number of shares
tendered. Winthrop also holds a 28% interest in Lex-Win. The Company’s former
Executive Chairman and Director of Strategic Acquisitions is an affiliate of
Winthrop. Profits, losses and cash flows are allocated in accordance with
the membership interests.
Other
Equity Method Investment Limited Partnerships
The
Company is a partner in eight partnerships with ownership percentages ranging
between 26% and 40%, which own net leased properties. All profits, losses and
cash flows are distributed in accordance with the respective partnership
agreements. The partnerships have $100,048 in mortgage debt (the Company’s
proportionate share is $29,572) with interest rates ranging from 5.2% to 15.0%
with a weighted average rate of 8.9% and maturity dates ranging from 2008 to
2018.
(7) Mortgages and Notes
Payable
During
the three months ended March 31, 2008, the MLP obtained $25,000 and $45,000
secured term loans from KeyBank N.A. The loans are interest only at LIBOR plus
60 basis points and mature in 2013. The net proceeds of the loans of
$68,000 were used to partially repay indebtedness on three cross-collateralized
mortgages. After such repayment, the amount owed on the three mortgages was
$103,511, the three mortgages were combined into one mortgage, which is
interest only instead of having a portion as self-amortizing and matures in
September 2014. The MLP recognized a non-cash charge of $611 relating to the
write-off of certain deferred financing charges.
Pursuant
to the new loan agreements, the MLP simultaneously entered into an interest-rate
swap agreement with KeyBank N.A to swap the LIBOR rate on the loans
for a fixed rate of 4.9196% through March 18, 2013, and the Company assumed a
liability for the fair value of the swap at inception of approximately $5,696
($5,152 at March 31, 2008). The new debt is presented net of a discount of
$5,696 (representing the swap liability assumed in connection with the loans at
inception). Amortization of the discount as interest expense will occur over the
term of the loans.
The
following table presents the Company’s
derivative liability for the swap measured at fair value on a recurring basis as
of March 31, 2008, aggregated by the level in SFAS 157 fair value hierarchy
within which those measurements fall:
Fair
Value Measurements using |
|
|
Quoted Prices
in
|
|
Significant
|
|
Significant
|
|
|
Active Markets
for
|
|
Other
|
|
Unobservable
|
|
|
Identical
Liabilities
|
|
Observable
Inputs
|
|
Inputs
|
|
|
(Level
1)
|
|
(Level
2)
|
|
(Level
3)
|
|
Balance
|
$
--
|
|
$
5,152
|
|
$
--
|
|
$
5,152
|
Although
the Company has determined that the majority of the inputs used to value its
swap obligation derivative fall within Level 2 of the fair value
hierarchy, the credit valuation adjustment associated with the swap
obligation utilizes Level 3 inputs, such as estimates of current credit spreads
to evaluate the likelihood of default by itself and its counterparties.
However, as of March 31, 2008, the Company has assessed the significance of
the impact of the credit valuation adjustment on the overall valuation of the
swap obligation and has determined that the credit valuation adjustment on the
overall valuation adjustments are not significant to the overall
valuation. As a result, the Company has determined that its swap
obligation valuation in its entirety should be classified in Level 2 of the fair
value hierarchy.
Also at
inception, in accordance with SFAS No. 133, as amended, the Company designated
the swap as a cash flow hedge of the risk of variability attributable to changes
in the LIBOR swap rate on $45,000 and $25,000 of LIBOR-indexed variable-rate
debt. Accordingly, changes in the fair value of the swap will be recorded in
other comprehensive income and reclassified to earnings as interest becomes
receivable or payable. Because the fair value of the swap at inception of the
hedge was not zero, the Company cannot assume that there will be no
ineffectiveness in the hedging relationship. However, the Company expects the
hedging relationship to be highly effective and will measure and report any
ineffectiveness in earnings.
During
the three months ended March 31, 2007, the Company obtained three non-recourse
mortgages aggregating $40,325 with interest rates ranging from 5.7% to 6.1% and
maturity dates ranging from 2017 to 2021.
During
the three months ended March 31, 2007, the Company fully repaid $547,199 of
indebtedness under the MLP’s then secured term loan facility and all balances
outstanding on its line of credit. In connection with this repayment,
the Company incurred approximately $650 to terminate an interest rate swap
agreement.
During
the three months ended March 31, 2008, in connection with sales of certain
properties, the Company satisfied the corresponding mortgages payable which
resulted in debt satisfaction charges of $463.
During
the three months ended March 31, 2007, the Company issued, through the MLP, an
aggregate $450,000 of 5.45% Exchangeable Guaranteed Notes due in 2027. The notes
can be put to the Company commencing in 2012 and every five years thereafter
through maturity. The notes are currently convertible by the holders into common
shares at a price of $21.99 per share, subject to adjustment upon certain
events. The exchange rate is subject to adjustment under certain events
including increases in the Company’s rate of dividends. Upon exchange the
holders of the notes
would
receive (i) cash equal to the principal amount of the note and (ii) to the
extent the exchange value exceeds the principal amount of the note, either cash
or common shares at the Company’s option. During the three months ended March
31, 2008, the MLP repurchased and retired $100,000 of these notes for $87,374,
which resulted in a gain on debt satisfaction of $10,780, which includes the
write-off of $1,846 in deferred financing costs.
During
the three months ended March 31, 2007, the Company, through a wholly-owned
subsidiary, issued $200,000 in Trust Preferred Securities. These securities
which are classified as debt, are due in 2037, are redeemable by the Company
commencing April 2012 and bear interest at a fixed rate of 6.804% through April
2017 and thereafter at a variable rate of three month LIBOR plus 170 basis
points through maturity.
In 2007,
the Company obtained a $225,000 secured term loan from KeyBank N.A. The
interest-only secured term loan matures June 2009 and bears interest at LIBOR
plus 60 basis points. The loan contains customary covenants with which the
Company was in compliance as of March 31, 2008. As of March 31, 2008, $213,635
is outstanding under this loan.
(8) Concentration of
Risk
The
Company seeks to reduce its operating and leasing risks through the geographic
diversification of its properties, tenant industry diversification, avoiding
dependency on a single asset and the creditworthiness of its
tenants. For the three months ended March 31, 2008 and 2007, no
single tenant represented greater than 10% of rental revenues.
Cash and
cash equivalent balances may exceed insurable amounts. The Company
believes it mitigates risk by investing in or through major financial
institutions.
(9) Minority
Interests
In
conjunction with several of the Company’s acquisitions in prior years, sellers
were given OP Units as a form of consideration. All OP Units are redeemable at
certain times, only at the option of the holders, generally for the Company’s
common shares on a one-for-one basis and are not otherwise mandatorily
redeemable by the Company.
During
the three months ended March 31, 2008 and 2007, 124,337 and 1,013,124 OP Units,
respectively, were redeemed by the Company for an aggregate value of $1,275 and
$20,222, respectively.
As of
March 31, 2008, there were approximately 39.6 million OP Units outstanding other
than OP Units owned by the Company. All OP Units receive
distributions in accordance with their respective partnership
agreements. To the extent that the Company’s dividend per common
share is less than the stated distribution per OP Unit per the applicable
partnership agreement, the distributions per OP Unit are reduced by the
percentage reduction in the Company’s dividend per common share. No OP Units
have a liquidation preference. As of March 31, 2008, the Company’s common shares
had a closing price of $14.41 per share. Assuming all outstanding OP Units not
held by the Company were redeemed on such date the estimated fair value of the
OP Units is $570,561.
(10) Related Party
Transactions
The
Company, through the MLP, has an ownership interest in a securitized pool of
first mortgages which includes two first mortgage loans encumbering MLP
properties. As of March 31, 2008 and December 31, 2007, the value of
the ownership interest was $15,810 and $15,926, respectively.
Entities
partially owned and controlled by the Company’s former Executive Chairman and
Director of Strategic Acquisitions, provide property management services at
certain properties and co-investments owned by the Company. The Company incurred
costs of $1,240 and $890, respectively, for these services for the three months
ended March 31, 2008 and 2007.
On March
20, 2008, the Company entered into a Services and Non-Compete Agreement with its
former Executive Chairman and Director of Strategic Acquisitions and his
affiliate, which provides that the Company’s former
Executive
Chairman and Director of Strategic Acquisitions and his affiliate will provide
the Company with certain asset management services in exchange for $1,500. The
$1,500 is included in general and administrative expenses in the statement of
operations for the three months ended March 31, 2008.
As of
March 31, 2008 and December 31, 2007, $4,321 and $21,378 in mortgage notes
payable are due to entities owned by two of the Company’s significant OP
Unitholders and former Executive Chairman and Director of Strategic
Acquisitions.
During
the three months ended March 31, 2007, the Company repurchased common shares
from two of its officers for an aggregate of $405.
During
the three months ended March 31, 2007, the MLP and Winthrop, an entity
affiliated with the Company’s former Executive Chairman and Director of
Strategic Acquisitions, entered into a joint venture with other unrelated
partners, to acquire shares of Wells (see note 6).
Winthrop,
an affiliate of the Company’s former Executive Chairman and Director of
Strategic Acquisitions, is the 50% partner in Concord Debt Holdings LLC (see
note 6).
(11) Shareholders’
Equity
During
the three months ended March 31, 2007, the Company issued $155,000 liquidation
amount of its Series D Cumulative Redeemable Preferred Stock (“Series D
Preferred”) which pays dividends at an annual rate of 7.55%, raising net
proceeds of $149,774. The Series D Preferred has no maturity date and the
Company is not required to redeem the Series D Preferred at any time.
Accordingly, the Series D Preferred will remain outstanding indefinitely, unless
the Company decides at its option on or after February 14, 2012, to exercise its
redemption right. If at any time following a change of control, the Series D
Preferred are not listed on any of the national stock exchanges, the Company
will have the option to redeem the Series D Preferred, in whole but not in part,
within 90 days after the first date on which both the change of control has
occurred and the Series D Preferred are not so listed, for cash at a redemption
price of $25.00 per share, plus accrued and unpaid dividends (whether or not
declared) up to but excluding the redemption date. If the Company does not
redeem the Series D Preferred and the Series D Preferred are not so listed, the
Series D Preferred will pay dividends at an annual rate of 8.55%.
(12) Commitments and
Contingencies
The
Company is obligated under certain tenant leases, including leases for
non-consolidated entities, to fund the expansion of the underlying leased
properties.
The
Company has agreed with Vornado Realty Trust (“Vornado”), a significant OP
Unitholder in the MLP, to operate the MLP as a REIT and to indemnify Vornado for
any actual damages incurred by Vornado if the MLP is not operated as a REIT.
Clifford Broser, a member of the Company’s Board of Trustees, is a Senior Vice
President of Vornado.
From time
to time, the Company is involved in legal proceedings arising in the ordinary
course of business. Management believes, based on currently available
information, that the results of such proceedings, in the aggregate, will not
have a material adverse effect on the Company’s financial condition, but may be
material to the Company’s operating results for any particular period,
depending, in part, upon the operating results for such period. Given the
inherent difficulty of predicting the outcome of these matters, the Company
cannot estimate losses or ranges of losses for proceedings where there is only a
reasonable possibility that a loss may be incurred.
(13) Share–Based
Compensation
On
February 6, 2007, the Board of Trustees established the Lexington Realty
Trust 2007 Outperformance Program, a long-term incentive compensation
program. Under this program, participating officers will share in an
“outperformance pool” if the Company’s total shareholder return for the
three-year performance period beginning on the effective date of the program,
January 1, 2007, exceeds the greater of an absolute compounded annual
total
shareholder
return of 10% or 110% of the compounded annual return of the MSCI US REIT INDEX
during the same period measured against a baseline value equal to the average of
the ten consecutive trading days immediately prior to April 1, 2007. The
size of the outperformance pool for this program will be 10% of the Company’s
total shareholder return in excess of the performance hurdle, subject to a
maximum amount of $40,000. On April 2, 2007, the Compensation
Committee modified the effective date of the program from January 1, 2007 to
April 1, 2007.
The
awards are considered liability awards because the number of shares issued to
the participants are not fixed and determinable as of the grant date. These
awards contain both a service condition and a market condition. As these awards
are liability based awards, the measurement date for liability instruments is
the date of settlement. Accordingly, liabilities incurred under share-based
payment arrangements were initially measured on the grant date of February 6,
2007 and are required to be measured at the end of each reporting period until
settlement.
A third
party consultant was engaged to value the awards and the Monte Carlo simulation
approach was used to estimate the compensation expense of the outperformance
pool. As of grant date, it was determined that the value of the awards was
$1,901. As of March 31, 2008, the value of the awards was $972. The Company
recognized $54 and $64 in compensation expense relating to the awards during the
three months ended March 31, 2008 and 2007, respectively.
Each
participating officer’s award under this program will be designated as a
specified participation percentage of the aggregate outperformance pool. On
February 6, 2007, the Compensation Committee allocated 83% of the
outperformance pool to certain of the Company’s
officers. Subsequently, two officers separated from the Company and
the rights relating to their allocated 19% were forfeited. The remaining
unallocated balance of 36% may be allocated by the Compensation
Committee at its discretion.
If the
performance hurdle is met, the Company will grant each participating officer
non-vested common shares as of the end of the performance period with a value
equal to such participating officer’s share of the outperformance pool. The
non-vested common shares would vest in two equal installments on the first two
anniversaries of the date the performance period ends provided the executive
continues employment. Once issued, the non-vested common shares would be
entitled to dividends and voting rights.
In the
event of a change in control (as determined for purposes of the program) during
the performance period, the performance period will be shortened to end on the
date of the change in control and participating officers’ awards will be based
on performance relative to the hurdle through the date of the change in control.
Any common shares earned upon a change in control will be fully vested. In
addition, the performance period will be shortened to end for an executive
officer if he or she is terminated by the Company without “cause” or he or she
resigns for “good reason,” as such terms are defined in the executive officer’s
employment agreement. All determinations, interpretations, and assumptions
relating to the vesting and the calculation of the awards under this program
will be made by the Compensation Committee.
During
the three months ended March 31, 2008, the Company and a
former executive officer and his affiliate entered into a Services and
Non-Compete Agreement and a Separation and General Release. In addition to an
aggregate cash payment of $1,500 to be paid over nine months, non-vested common
shares were accelerated and immediately vested which resulted in a charge of
$265 (see note 10).
During
the three months ended March 31, 2008 and 2007, the Company recognized $1,309
and $1,369, respectively, in compensation expense relating to share grants,
exclusive of the $265 discussed above.
(14) Supplemental Disclosure of
Statement of Cash Flow Information
During
the three months ended March 31, 2008 and 2007, the Company paid $53,404 and
$32,335, respectively, for interest and $1,178 and $868, respectively, for
income taxes.
During
the three months ended March 31, 2008 and 2007, holders of an aggregate of
92,623 and 875,558 OP Units, respectively, redeemed such OP Units for common
shares of the Company. These redemptions resulted in an increase in
shareholders’ equity and corresponding decrease in minority interest of $826 and
$17,271, respectively.
During the three months
ended March 31, 2008, the MLP entered into a swap obligation with an initial
value of $5,696, which is reflected as a reduction of mortgages payable and
included in accounts payable and other liabilities.
During the three months
ended March 31, 2008, the MLP contributed five properties to NLS with $69,594 in
real estate and intangibles and $51,497 in mortgage notes payable
assumed.
Subsequent
to March 31, 2008, the Company:
·
|
Sold three
properties, which were classified as held for sale, for gross proceeds of
$25,785 and repaid $14,019 in
indebtedness.
|
·
|
Entered
into a lease termination agreement with the tenant at its Baltimore,
Maryland asset. The MLP received $27,100 in cash, title to the interest in
the land underlying the asset plus the assignment of all subleases in
exchange for allowing the tenant to terminate its lease in April
2008, rather than September 2009, when it was scheduled to
expire.
|
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
Introduction
When we
use the terms “Lexington,” the “Company,” “we,” “us” and “our,” we mean
Lexington Realty Trust and all entities owned by us, including non-consolidated
entities, except where it is clear that the term means only the parent company.
References herein to our Quarterly Report are to our Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2008.
Forward-Looking
Statements
The
following is a discussion and analysis of our unaudited condensed consolidated
financial condition and results of operations for the three month periods ended
March 31, 2008 and 2007, and significant factors that could affect
our prospective financial condition and results of operations. This
discussion should be read together with the accompanying unaudited condensed
consolidated financial statements and notes and with our consolidated financial
statements and notes included in our most recent Annual Report on Form 10-K, or
Annual Report, filed with the Securities and Exchange Commission, or SEC, on
February 29, 2008. Historical results may not be indicative of future
performance.
This
Quarterly Report, together with other statements and information publicly
disseminated by us contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. We intend
such forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 and include this statement for purposes of complying with these safe
harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe our future plans, strategies and expectations,
are generally identifiable by use of the words “believes,” “expects,” “intends,”
“anticipates,” “estimates,” “projects” or similar
expressions. Readers should not rely on forward-looking statements
since they involve known and unknown risks, uncertainties and other factors
which are, in some cases, beyond our control and which could materially affect
actual results, performances or achievements and include, but are not limited
to, those discussed under the headings “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in our
most recent Annual Report and other periodic reports files with the SEC,
including risks related to: (i) changes in general business and economic
conditions, (ii) competition, (iii) increases in real estate construction costs,
(iv) changes in interest rates, or (v) changes in accessibility of debt and
equity capital markets. We undertake no obligation to publicly
release the results of any revisions to these forward-looking statements which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Accordingly, there is
no assurance that our expectations will be realized.
Critical Accounting
Policies
A summary
of our critical accounting policies is included in our Annual Report. There have
been no significant changes to those policies during 2008.
New Accounting
Pronouncements
In June
2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, which we refer to as FIN 48. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in
accordance with SFAS 109. FIN 48 prescribes a recognition threshold
and measurement attribute for financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN 48 was
effective for fiscal years beginning after December 15, 2006. The adoption
of FIN 48 did not have a material impact on our financial position, results
of operations or cash flows.
In
September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements which we refer to as SFAS 157. SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements. SFAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years, except for non-financial assets and
liabilities,
which is deferred for one additional year. The adoption of the effective
portions of this statement did not have a material impact on our financial
position, results of operations or cash flows. Management is evaluating the
effect of implementing this statement as it relates to non-financial assets and
liabilities, although the statement does not require any new fair value
measurement or remeasurement of previously reported fair values.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities — Including an Amendment of FASB
Statement No. 115, which we refer to as SFAS 159. SFAS 159
permits entities to choose to measure many financial assets and liabilities and
certain other items at fair value. An enterprise will report unrealized gains
and losses on items for which the fair value option has been elected in earnings
at each subsequent reporting date. The fair value option may be applied on an
instrument-by-instrument basis, with several exceptions, such as investments
accounted for by the equity method, and once elected, the option is irrevocable
unless a new election date occurs. The fair value option can be applied only to
entire instruments and not to portions thereof. SFAS 159 is effective as of
the beginning of an entity’s first fiscal year beginning after November 15,
2007. Management did not adopt the fair value provisions of this
pronouncement and thus it did not have an impact on our
financial position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS No. 141R (Revised 2007), Business
Combinations which we refer to as SFAS 141R. SFAS 141R requires most
identifiable assets, liabilities, noncontrolling interests, and goodwill
acquired in a business combination to be recorded at “full fair value”.
SFAS 141R is effective for acquisitions in periods beginning on or after
December 15, 2008.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements-an amendment of ARB 51, which we refer to
as SFAS 160. SFAS No. 160 will require noncontrolling interests
(previously referred to as minority interests) to be treated as a separate
component of equity, not as a liability or other item outside of permanent
equity. SFAS 160 is effective for periods beginning on or after
December 15, 2008. The adoption of this statement will result in the
minority interest currently classified in the “mezzanine” section of the balance
sheet to be reclassified as a component of shareholders’ equity, and minority
interest expense will no longer be recorded in the statement of
operations.
In
December 2007, the FASB ratified EITF consensus on EITF 07-06, Accounting
for the Sale of Real Estate Subject to the Requirements of FASB Statement
No. 66, Accounting for Sales of Real Estate, When the Agreement Includes a
Buy-Sell Clause, which we refer to as EITF 07-06. EITF 07-06 clarifies
that a buy-sell clause in a sale of real estate that otherwise qualifies for
partial sale accounting does not by itself constitute a form of continuing
involvement that would preclude partial sale accounting under
SFAS No. 66. EITF 07-06 is effective for fiscal years beginning
after December 15, 2007. The adoption of EITF 07-06 did not have a
material impact on our financial position, results of operations or cash
flows.
In June
2007, the Securities and Exchange staff announced revisions to EITF Topic D-98
related to the release of SFAS 159. The Securities and Exchange Commission
announced that it will no longer accept liability classification for financial
instruments that meet the conditions for temporary equity classification under
ASR 268, Presentation in Financial Statements of “Redeemable Preferred Stocks”
and EITF Topic No. D-98. As a consequence, the fair value option under
SFAS 159 may not be applied to any financial instrument (or host contract)
that qualifies as temporary equity. This is effective for all instruments that
are entered into, modified, or otherwise subject to a remeasurement event in the
first fiscal quarter beginning after September 15, 2007. The adoption of
this announcement did not have a material impact on our financial position,
results of operations or cash flows.
In March
2008, the FASB issued SFAS No.161, Disclosures about Derivative Instruments and
Hedging Activities-an amendment of SFAS No. 133, which we refer to as SFAS 161.
Statement 161, which amends SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, requires companies with derivative instruments to
disclose information about how and why a company uses derivative instruments,
how derivative instruments and related hedged items are accounted for under SFAS
No. 133, and how derivative instruments and related hedged items affect a
company’s financial position, financial performance, and cash flows. The
required disclosures include the fair value of derivative instruments and
their
gains or
losses in tabular format, information about credit-risk related contingent
features in derivative agreements, counterparty, credit risk, and the company’s
strategies and objectives for using derivative instruments. SFAS 161 is
effective prospectively for periods beginning on or after November 15, 2008. The
adoption of this statement is not expected to have an impact on the Company’s
financial position, results of operations or cash flows.
Liquidity
and Capital Resources
General. Since
becoming a public company, our principal sources of capital for growth have been
the public and private equity and debt markets, property specific debt, our
credit facility, issuance of OP Units and undistributed cash flows. We expect to
continue to have access to and use these sources in the future; however, there
are factors that may have a material adverse effect on our access to capital
sources. Our ability to incur additional debt to fund acquisitions is dependent
upon our existing leverage, the value of the assets we are attempting to
leverage and general economic and credit market conditions, which may be outside
of management’s control or influence.
As of
March 31, 2008, we held interests in approximately 260 consolidated properties,
which were located in 42 states and the Netherlands. Our real estate assets
are primarily subject to triple net leases, which are generally characterized as
leases in which the tenant pays all or substantially all of the cost and cost
increases for real estate taxes, capital expenditures, insurance, utilities and
ordinary maintenance of the property.
During
the three months ended March 31, 2008, we did not purchase any properties and
sold three properties to third parties for aggregate proceeds of
$122.4 million, which resulted in a gain of $0.7 million. During the
three months ended March 31, 2007, we purchased four properties for a
capitalized cost of $79.2 million and sold four properties for $41.9 million to
the tenant of the properties at an amount that approximated carrying
costs.
Our
principal sources of liquidity are revenues generated from the properties,
interest on cash balances, amounts available under our unsecured credit
facility, the MLP’s secured term loans, equity commitments from co-investment
partners and amounts that may be raised through the sale of securities in
private or public offerings. For the three months ended March 31, 2008 and 2007,
the leases on our consolidated properties generated $97.2 million and
$74.6 million, respectively, in rental revenue.
In
February 2007, we completed an offering of 6.2 million Series D
Preferred Shares, having a liquidation amount of $25 per share and an annual
dividend rate of 7.55% raising net proceeds of $149.8 million.
Dividends. In
connection with our intention to continue to qualify as a REIT for federal
income tax purposes, we expect to continue paying regular dividends to our
shareholders. These dividends are expected to be paid from operating cash flows
and/or from other sources. Since cash used to pay dividends reduces amounts
available for capital investments, we generally intend to maintain a
conservative dividend payout ratio, reserving such amounts as we consider
necessary for the maintenance or expansion of properties in our portfolio, debt
reduction, the acquisition of interests in new properties as suitable
opportunities arise, and such other factors as our Board of Trustees considers
appropriate.
Dividends
paid to our common and preferred shareholders increased to $158.2 million
in 2008, compared to $44.9 million
in 2007. The increase is primarily attributable to the $2.10 per share/unit
special dividend paid in January 2008.
Although
we receive the majority of our base rental payments on a monthly basis, we
intend to continue paying dividends quarterly. Amounts accumulated in advance of
each quarterly distribution are invested by us in short-term money market or
other suitable instruments.
Cash Flows. We believe that
cash flows from operations will continue to provide adequate capital to fund our
operating and administrative expenses, regular debt service obligations and all
dividend payments in accordance with REIT requirements in both the short-term
and long-term. In addition, we anticipate that cash on hand, borrowings under
our credit facility, issuance of equity and debt and co-investment programs as
well as other alternatives, will provide the necessary capital required by us.
Cash flows from operations as reported in the Consolidated Statements of Cash
Flows decreased to $68.0 million for 2008 from $99.0 million for 2007.
The underlying drivers that impact working capital and therefore cash flows from
operations are the timing of collection of rents, including reimbursements from
tenants, the collection of advisory fees, payment of interest on mortgage debt
and payment of operating and general and administrative costs. We believe the
net lease structure of the majority of our tenants’ leases enhances cash flows
from operations since the payment and timing of
operating
costs related to the properties are generally borne directly by the tenant.
Collection and timing of tenant rents is closely monitored by management as part
of our cash management program.
Net cash
provided by (used in) investing activities totaled $128.8 million in 2008 and
$(24.7) million in 2007. Cash used in investing activities related
primarily to investments in real estate properties, joint ventures and an
increase in restricted cash. Cash provided by investing activities related
primarily to proceeds from the sale of marketable securities, distributions
from non-consolidated entities in excess of accumulated earnings and proceeds
from the sale of properties. Therefore, the fluctuation in investing activities
relates primarily to the timing of investments and dispositions.
Net cash
(used in) provided by financing activities totaled $(500.4) million in 2008
and $28.2 million in 2006. Cash provided by financing activities during
each year was primarily attributable to proceeds from equity and debt offerings
offset by dividend and distribution payments and debt payments.
UPREIT
Structure. Our UPREIT structure permits us to effect
acquisitions by issuing to a property owner, as a form of consideration in
exchange for the property, OP Units in our operating partnerships. Substantially
all outstanding OP Units are redeemable by the holder at certain times for
common shares on a one-for-one basis or, at our election, with respect to
certain OP Units, cash. Substantially all outstanding OP Units require us to pay
quarterly distributions to the holders of such OP Units equal to the dividends
paid to our common shareholders and the remaining OP Units have stated
distributions in accordance with their respective partnership agreement. To the
extent that our dividend per share is less than a stated distribution per unit
per the applicable partnership agreement, the stated distributions per unit are
reduced by the percentage reduction in our dividend. No OP Units have a
liquidation preference. We account for outstanding OP Units in a manner similar
to a minority interest holder. The number of common shares that will be
outstanding in the future should be expected to increase, and minority interest
expense should be expected to decrease, as such OP Units are redeemed for our
common shares. As of March 31, 2008, the Company’s common shares had a closing
price of $14.41 per share. Assuming all outstanding OP Units not held by us were
redeemed on such date the estimated fair value of the OP Units is $570.6
million. As of
March 31, 2008, there were 39.6 million OP Units outstanding.
Financing
Revolving Credit
Facility. Our $200.0 million revolving credit facility
with Wachovia Bank N.A. and a consortium of other banks, (1) expires June
2009 and (2) bears interest at 120-170 basis points over LIBOR
depending on our leverage (as defined) in the credit facility. Our credit
facility contains customary financial covenants including restrictions on the
level of indebtedness, amount of variable debt to be borrowed and net worth
maintenance provisions. As of March 31, 2008, we were in compliance with all
covenants, no borrowings were outstanding, $199.6 million was available to
be borrowed, and $0.4 million letters of credit were outstanding under the
credit facility.
During
the three months ended March 31, 2008, the MLP obtained $25.0 million and $45.0
million secured term loans from KeyBank N.A. The loans are interest only at
LIBOR plus 60 basis points and mature in 2013. The net proceeds of the
loans ($68.0 million) were used to partially repay indebtedness on three
cross-collateralized mortgages. After such repayment, the amount owed on the
three mortgages was $103.5 million, the three loans were combined into one loan,
which is interest only instead of having a portion as self-amortizing and
matures in September 2014.
Pursuant
to the new loan agreements, the MLP simultaneously entered into an interest-rate
swap agreement with KeyBank N.A to swap the LIBOR rate on the loans
for a fixed rate of 4.9196% through March 18, 2013, and the Company assumed a
liability for the fair value of the swap at inception of approximately $5.7
million ($5.2 million at March 31, 2008).
The MLP
has a secured loan with Key Bank, N.A., which bears interest at LIBOR plus
60 basis points. As of March 31, 2008, $213.6 million was outstanding
under the secured loan. The secured loan is scheduled to mature in June 2009.
The secured loan requires monthly payments of interest only. The MLP is also
required to make principal payments from the proceeds of certain property sales
and certain refinancings if such proceeds are not reinvested into net leased
properties. The required principal payments are based on a minimum release price
set forth in the secured loan agreement. The secured loan has customary
covenants, which the MLP was in compliance with at March 31, 2008.
During
the three months ended March 31, 2007, the MLP issued $450.0 million in
5.45% guaranteed exchangeable notes due in 2027, which can be put by the holder
every five years commencing 2012 and upon certain events. The net proceeds were
used to repay indebtedness. During 2008, the MLP repurchased $100.0 million of
these notes for $87.4 million, which resulted in a net gain of $10.8 million,
which includes the write-off of $1.8 million in deferred financing
costs.
During
the three months ended March 31, 2007, we issued $200.0 million in
Trust Preferred Notes. These Trust Preferred Notes, which are
classified as debt, (1) are due in 2037, (2) are redeemable by us
commencing April 2012 and (3) bear interest at a fixed rate of 6.804%
through April 2017 and thereafter at a variable rate of three month LIBOR plus
170 basis points through maturity.
Other
Lease
Obligations. Since our tenants generally bear all or
substantially all of the cost of property operations, maintenance and repairs,
we do not anticipate significant needs for cash for these costs; however, for
certain properties, we have a level of property operating expense
responsibility. We generally fund property expansions with additional secured
borrowings, the repayment of which is funded out of rental increases under the
leases covering the expanded properties. To the extent there is a vacancy in a
property, we would be obligated for all operating expenses, including real
estate taxes and insurance. In addition certain leases require us to fund tenant
expansions.
Our
tenants generally pay the rental obligations on ground leases either directly to
the fee holder or to us as increased rent.
Capital
Expenditures. As leases expire, we expect to incur costs in
extending the existing tenant leases or re-tenanting the properties. The amounts
of these expenditures can vary significantly depending on tenant negotiations,
market conditions and rental rates. These expenditures are expected to be funded
from operating cash flows or borrowings on our credit facility.
Results
of Operations
Three months ended March 31,
2008 compared with March 31, 2007. Changes in
our results of operations are primarily due to the acquisition of the
outstanding interests in our co-investment programs during the second quarter of
2007. Of the increase in total gross revenues in 2008 of $26.8 million,
$22.6 million is attributable to rental revenue. The remaining
$4.2 million increase in gross revenues in 2008 was primarily attributable
to an increase in tenant reimbursements.
The
increase in interest and amortization expense of $13.3 million is due to
the increase in long-term debt due to both the growth of our portfolio and the
acquisition of the outstanding interests in four of our co-investment programs
during 2007.
The
increase in property operating expense of $8.3 million is primarily due to
an increase in properties for which we have operating expense responsibility and
an increase in vacancy.
The
increase in depreciation and amortization of $8.2 million is due primarily
to the growth in real estate and intangibles through the acquisition of
properties. Intangible assets are amortized over a shorter period of time
(generally the lease term) than real estate assets.
The
increase in general and administrative expenses of $2.3 million is due
primarily to entering into a services and non-compete agreement
with our former Executive Chairman and Director of Strategic Acquisitions
and his affiliate.
Debt
satisfaction gains, net increased $9.7 million due to the debt being
satisfied at a net gain in 2008.
Provision
for income taxes increased $0.8 million due to the write-off of deferred
tax assets of former taxable REIT subsidiaries that were merged into
us.
Minority
interest changed $18.4 million due to an increase in earnings at the
operating partnership level.
The
equity in earnings of non-consolidated entities increase of $2.0 million is
primarily due to increased net income at our non-consolidated
investments.
The
increase in gains on sales of properties — affiliates of $23.2 million
relates to the sale of properties to NLS.
Net
income increased by $5.6 million primarily due to the net impact of the
items discussed above offset by a decrease of $4.6 million in income from
discontinued operations.
Discontinued
operations represent properties sold or held for sale. The total discontinued
operations decreased $4.6 million due to a decrease in income from
discontinued operations of $5.8 million coupled with an impairment charge
of $2.7 million in 2008, offset by an increase in gains on sale of $0.7 million,
and a change in minority interests’ share of income of
$3.2 million.
Net
income applicable to common shareholders in 2008 was $0.8 million compared
to a net loss applicable to common shareholders in 2007 of $(3.4) million.
The change is due to the items discussed above offset by an increase in
preferred dividends of $1.4 million resulting from the issuance of the
Series D Preferred. The increase in net income in future periods will be
closely tied to the level of acquisitions made by us. Without acquisitions, the
sources of growth in net income are limited to index adjusted rents (such as the
consumer price index), percentage rents, reduced interest expense on amortizing
mortgages and by controlling other variable overhead costs. However, there are
many factors beyond management’s control that could offset these items
including, without limitation, increased interest rates and tenant monetary
defaults and the other risks described in our Annual Report.
Environmental
Matters
Based
upon management’s ongoing review of our properties, management is not aware of
any environmental condition with respect to any of our properties, which would
be reasonably likely to have a material adverse effect on us. There can be no
assurance, however, that (1) the discovery of environmental conditions,
which were previously unknown; (2) changes in law; (3) the conduct of
tenants; or (4) activities relating to properties in the vicinity of our
properties, will not expose us to material liability in the future. Changes in
laws increasing the potential liability for environmental conditions existing on
properties or increasing the restrictions on discharges or other conditions may
result in significant unanticipated expenditures or may otherwise adversely
affect the operations of our tenants, which would adversely affect our financial
condition and results of operations.
Off-Balance
Sheet Arrangements
Non-Consolidated Real Estate
Entities. As of March 31, 2008, we had investments in various
real estate entities with varying structures. The real estate investments owned
by the entities are financed with non-recourse debt. Non-recourse debt is
generally defined as debt whereby the lenders’ sole recourse with respect to
borrower defaults is limited to the value of the asset collateralized by
the mortgage. The lender generally does not have recourse against any other
assets owned by the borrower or any of the members of the borrower, except for
certain specified exceptions listed in the particular loan documents. These
exceptions generally relate to limited circumstances including breaches of
material representations.
In
addition, the Company has $0.4 million in outstanding letters of
credit.
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET
RISK
Our
exposure to market risk relates primarily to our variable rate and fixed rate
debt. As of March 31, 2008 and 2007, our consolidated variable rate
indebtedness was $213.6 million and $0, respectively, which represented 7.9% and
0% of total long-term indebtedness, respectively. During the three
months ended March 31, 2008 and 2007, our variable rate indebtedness had a
weighted average interest rate of 4.4% and 7.5%, respectively. Had
the weighted average interest rate been 100 basis points higher, our interest
expense for the three months ended March 31, 2008 and 2007 would have been
increased by approximately $0.5 million and $0.1 million, respectively. As of
March 31, 2008 and 2007, our consolidated fixed rate debt was approximately $2.5
billion and $2.2 billion respectively, which represented 92.1% and 100%,
respectively, of total long-term indebtness. The weighted average
interest rate as of March 31, 2008 of fixed rate debt was 5.9%, which
approximates market. With $22.6 million in fixed rate debt maturing in 2008, we
believe we have limited market risk exposure to rising interest rates as it
relates to our fixed rate debt obligations. However, had the fixed
interest rate been higher by 100 basis
points,
our interest expense would have been increased by $6.3 million for the three
months ended March 31, 2008 and by $5.2 million for the three months
ended March 31, 2007. Our interest rate risk objectives are to limit the impact
of interest rate fluctuations on earnings and cash flows and to lower our
overall borrowing costs. To achieve these objectives, we manage our exposure to
fluctuations in market interest rates through the use of fixed rate debt
instruments to the extent that reasonably favorable rates are obtainable with
such arrangements. We may enter into derivative financial instruments such as
interest rate swaps or caps to mitigate our interest rate risk on a related
financial instrument or to effectively lock the interest rate on a portion of
our variable rate debt. Currently, we have one interest rate cap agreement and
one swap agreement.
ITEM 4. CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls
and Procedures. Our management, with the
participation of our Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of our disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)) as of the end of the period
covered by this report. Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of such
period, our disclosure controls and procedures are effective.
Internal Control Over Financial
Reporting. There have been no significant changes in our
internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to
which this report relates that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
Limitations on the Effectiveness of
Controls. Internal control over
financial reporting cannot provide absolute assurance of achieving financial
reporting objectives because of its inherent limitations. Internal control over
financial reporting is a process that involves human diligence and compliance
and is subject to lapses in judgment and breakdowns resulting from human
failures. Internal control over financial reporting also can be circumvented by
collusion or improper management override. Because of such limitations, there is
a risk that material misstatements may not be prevented or detected on a timely
basis by internal control over financial reporting. However, these inherent
limitations are known features of the financial reporting process. Therefore, it
is possible to design into the process safeguards to reduce, though not
eliminate, this risk.
PART II -
OTHER INFORMATION
There
have been no material legal proceedings beyond those previously disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2007.
There
have been no material changes in our risk factors from those disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2007.
ITEM
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds.
|
Share Repurchase
Program
The
following table summarizes repurchases of our common shares/operating
partnership units during the three months ended March 31, 2008 under our common
share / operating partnership unit repurchase authorization approved by our
board of trustees in 2007.
Issuer Purchases of
Equity Securities
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
Period
|
|
Total
number of Shares/ Units Purchased
|
|
|
Average
Price Paid Per Share/ Unit
|
|
|
Total
Number of Shares/Units Purchased as Part of Publicly Announced Plans
Programs
|
|
|
Maximum
Number of Shares That May Yet Be Purchased Under the Plans
or Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1 - 31, 2008
|
|
|
1,152,456 |
|
|
$ |
14.51 |
|
|
|
1,152,456 |
|
|
|
4,617,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
1 - 29, 2008
|
|
|
158 |
|
|
$ |
14.60 |
|
|
|
158 |
|
|
|
4,617,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
1 - 31 2008
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
4,617,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter 2008
|
|
|
1,152,614 |
|
|
$ |
14.51 |
|
|
|
1,152,614 |
|
|
|
4,617,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM
3. |
|
Defaults
Upon Senior Securities - not applicable.
|
|
|
|
ITEM
4. |
|
Submission
of Matters to a Vote of Security Holders – not
applicable.
|
|
|
|
ITEM
5. |
|
Other
Information - not applicable.
|
|
|
|
ITEM
6. |
|
Exhibits
|
|
|
|
Exhibit
No.
|
|
Description
|
3.1
|
—
|
Articles
of Merger and Amended and Restated Declaration of Trust of the Company,
dated December 31, 2006 (filed as Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed January 8, 2007 (the “01/08/07
8-K”))(1)
|
3.2
|
—
|
Articles Supplementary
Relating to the 7.55% Series D Cumulative Redeemable Preferred Stock,
par value $.0001 per share (filed as Exhibit 3.3 to the Company’s
Registration Statement on Form 8A filed February 14, 2007 (the
“02/14/07 Registration Statement”))(1)
|
3.3
|
—
|
Amended
and Restated By-laws of the Company (filed as Exhibit 3.2 to the
01/08/07 8-K)(1)
|
3.4
|
—
|
Fifth
Amended and Restated Agreement of Limited Partnership of Lepercq Corporate
Income Fund L.P. (“LCIF”), dated as of December 31, 1996, as
supplemented (the “LCIF Partnership Agreement”) (filed as Exhibit 3.3
to the Company’s Registration Statement of Form S-3/A filed
September 10, 1999 (the “09/10/99 Registration
Statement”))(1)
|
3.5
|
—
|
Amendment
No. 1 to the LCIF Partnership Agreement dated as of December 31,
2000 (filed as Exhibit 3.11 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2003, filed
February 26, 2004 (the “2003 10-K”))(1)
|
3.6
|
—
|
First
Amendment to the LCIF Partnership Agreement effective as of June 19,
2003 (filed as Exhibit 3.12 to the 2003 10-K)(1)
|
3.7
|
—
|
Second
Amendment to the LCIF Partnership Agreement effective as of June 30,
2003 (filed as Exhibit 3.13 to the 2003 10-K)(1)
|
3.8
|
—
|
Third
Amendment to the LCIF Partnership Agreement effective as of
December 31, 2003 (filed as Exhibit 3.13 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2004, filed
on March 16, 2005 (the “2004 10-K”))(1)
|
3.9
|
—
|
Fourth
Amendment to the LCIF Partnership Agreement effective as of
October 28, 2004 (filed as Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed November 4, 2004)(1)
|
3.10
|
—
|
Fifth
Amendment to the LCIF Partnership Agreement effective as of
December 8, 2004 (filed as Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed December 14, 2004 (the “12/14/04
8-K”))(1)
|
3.11
|
—
|
Sixth
Amendment to the LCIF Partnership Agreement effective as of June 30,
2003 (filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed January 3, 2005 (the “01/03/05
8-K”))(1)
|
3.12
|
—
|
Seventh
Amendment to the LCIF Partnership Agreement (filed as Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed November 3,
2005)(1)
|
3.13
|
—
|
Second
Amended and Restated Agreement of Limited Partnership of Lepercq Corporate
Income Fund II L.P. (“LCIF II”), dated as of August 27, 1998 the
(“LCIF II Partnership Agreement”) (filed as Exhibit 3.4 to the
9/10/99 Registration Statement)(1)
|
3.14
|
—
|
First
Amendment to the LCIF II Partnership Agreement effective as of
June 19, 2003 (filed as Exhibit 3.14 to the 2003
10-K)(1)
|
3.15
|
—
|
Second
Amendment to the LCIF II Partnership Agreement effective as of
June 30, 2003 (filed as Exhibit 3.15 to the 2003
10-K)(1)
|
3.16
|
—
|
Third
Amendment to the LCIF II Partnership Agreement effective as of
December 8, 2004 (filed as Exhibit 10.2 to 12/14/04
8-K)(1)
|
3.17
|
—
|
Fourth
Amendment to the LCIF II Partnership Agreement effective as of
January 3, 2005 (filed as Exhibit 10.2 to 01/03/05
8-K)(1)
|
3.18
|
—
|
Fifth
Amendment to the LCIF II Partnership Agreement effective as of
July 23, 2006 (filed as Exhibit 99.5 to the Company’s Current
Report on Form 8-K filed July 24, 2006 (the “07/24/06
8-K”))(1)
|
3.19
|
—
|
Sixth
Amendment to the LCIF II Partnership Agreement effective as of
December 20, 2006 (filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed December 22,
2006)(1)
|
3.20
|
—
|
Amended
and Restated Agreement of Limited Partnership of Net 3 Acquisition L.P.
(the “Net 3 Partnership Agreement”) (filed as Exhibit 3.16 to the
Company’s Registration Statement of Form S-3 filed November 16,
2006)(1)
|
3.21
|
—
|
First
Amendment to the Net 3 Partnership Agreement effective as of
November 29, 2001 (filed as Exhibit 3.17 to the 2003
10-K)(1)
|
3.22
|
—
|
Second
Amendment to the Net 3 Partnership Agreement effective as of June 19,
2003 (filed as Exhibit 3.18 to the 2003 10-K)(1)
|
3.23
|
—
|
Third
Amendment to the Net 3 Partnership Agreement effective as of June 30,
2003 (filed as Exhibit 3.19 to the 2003 10-K)(1)
|
3.24
|
—
|
Fourth
Amendment to the Net 3 Partnership Agreement effective as of
December 8, 2004 (filed as Exhibit 10.3 to 12/14/04
8-K)(1)
|
3.25
|
—
|
Fifth
Amendment to the Net 3 Partnership Agreement effective as of
January 3, 2005 (filed as Exhibit 10.3 to 01/03/05
8-K)(1)
|
3.26
|
—
|
Second
Amended and Restated Agreement of Limited Partnership of The Lexington
Master Limited Partnership (formerly known as The Newkirk Master Limited
Partnership, the “MLP”), dated as of December 31, 2006, between Lex
GP-1 Trust and Lex LP-1 Trust (filed as Exhibit 10.4 to the 01/08/07
8-K)(1)
|
4.1
|
—
|
Specimen
of Common Shares Certificate of the Company (filed as Exhibit 4.1 to
the Company’s Annual Report on Form 10-K for the year ended
December 31, 2006 (the “2006 10-K”))(1)
|
4.2
|
—
|
Form
of 8.05% Series B Cumulative Redeemable Preferred Stock certificate
(filed as Exhibit 4.1 to the Company’s Registration Statement on
Form 8A filed June 17, 2003)(1)
|
4.3
|
—
|
Form
of 6.50% Series C Cumulative Convertible Preferred Stock certificate
(filed as Exhibit 4.1 to the Company’s Registration Statement on
Form 8A filed December 8, 2004)(1)
|
4.4
|
—
|
Form
of 7.55% Series D Cumulative Redeemable Preferred Stock certificate
(filed as Exhibit 4.1 to the 02/14/07 Registration
Statement)(1)
|
4.5
|
—
|
Form
of Special Voting Preferred Stock certificate (filed as Exhibit 4.5
to the 2006 10-K)(1)
|
4.6
|
—
|
Indenture,
dated as of January 29, 2007, among The Lexington Master Limited
Partnership, the Company, the other guarantors named therein and U.S. Bank
National Association, as trustee (filed as Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed January 29, 2007 (the
“01/29/07 8-K”))(1)
|
4.7
|
—
|
First
Supplemental Indenture, dated as of January 29, 2007, among The
Lexington Master Limited Partnership, the Company, the other guarantors
named therein and U.S. Bank National Association, as trustee, including
the Form of 5.45% Exchangeable Guaranteed Notes due 2027 (filed as
Exhibit 4.2 to the 01/29/07 8-K)(1)
|
4.8
|
—
|
Second
Supplemental Indenture, dated as of March 9, 2007, among The
Lexington Master Limited Partnership, the Company, the other guarantors
named therein and U.S. Bank National Association, as trustee, including
the Form of 5.45% Exchangeable Guaranteed Notes due 2027 (filed as
Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on
March 9, 2007 (the “03/09/07 8-K”))(1)
|
4.9 |
—
|
Amended
and Restated Trust Agreement, dated March 21, 2007, among
Lexington Realty Trust, The Bank of New York Trust Company, National
Association, The Bank of New York (Delaware), the
Administrative |
|
|
Trustees
(as named therein) and the several holders of the Preferred Securities
from time to time (filed as Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on March 27, 2007 (the “03/27/2007
8-K”))(1)
|
4.10
|
—
|
Third
Supplemental Indenture, dated as of June 19, 207, among the MLP, the
Company, the other guarantors named therein and U.S. bank National
Association, as trustee, including the form of 5.45% Exchangeable
Guaranteed Notes due 2027 (filed as Exhibit 4.1 to the Company’s
Report on form 8-k filed on June 22, 2007(1)
|
4.11
|
—
|
Junior
Subordinated Indenture, dated as of March 21, 2007, between Lexington
Realty Trust and The Bank of New York Trust Company, National
Association (filed as Exhibit 4.2 to the 03/27/07
8-K)(1)
|
9.1
|
—
|
Voting
Trustee Agreement, dated as of December 31, 2006, among the Company,
The Lexington Master Limited Partnership and NKT Advisors LLC (filed as
Exhibit 10.6 to the 01/08/07 8-K)(1)
|
9.2
|
—
|
Amendment
No. 1 to Voting Trustee Agreement, dated as of March 20, 2008, among the
Company, The Lexington Master Limited Partnership and NKT Advisors LLC
(filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed March 24, 2008 (the “03/24/08 8-K”))(1)
|
10.1
|
—
|
Form
of 1994 Outside Director Shares Plan of the Company (filed as
Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 1993) (1, 4)
|
10.2
|
—
|
Amended
and Restated 2002 Equity-Based Award Plan of the Company (filed as
Exhibit 10.54 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2002, filed on March 24, 2003 (the
“2002 10-K”))(1, 4)
|
10.3
|
—
|
1994
Employee Stock Purchase Plan (filed as Exhibit D to the Company’s
Definitive Proxy Statement dated April 12, 1994) (1,
4)
|
10.4
|
—
|
1998 Share
Option Plan (filed as Exhibit A to the Company’s Definitive Proxy
Statement filed on April 22, 1998) (1, 4)
|
10.5
|
—
|
Amendment
to 1998 Share Option Plan (filed as Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on February 6, 2006
(the “02/06/06 8-K”)) (1, 4)
|
10.6
|
—
|
Amendment
to 1998 Share Option Plan (filed as Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on January 3, 2007
(the “01/03/07 8-K”)) (1, 4)
|
10.7
|
—
|
2007
Equity Award Plan (filed as Annex A to the Company’s Definitive Proxy
Statement dated April 19, 2007) (1,4)
|
10.8
|
—
|
2007
Outperformance Program (filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on April 5, 2007)
(1,4)
|
10.9
|
—
|
Amendment
to 2007 Outperformance Program (filed as Exhibit 10.6 to the
Company’s Current Report on form 8-K filed on December 20,2007
(the 12/26/07 8-K)) (1,4)
|
10.10
|
—
|
Form
of Compensation Agreement (Long-Term Compensation) between the Company and
each of the following officers: Richard J. Rouse and Patrick Carroll
(filed as Exhibit 10.15 to the 2004 10-K) (1, 4)
|
10.11
|
—
|
Form
of Compensation Agreement (Bonus and Long-Term Compensation) between the
Company and each of the following officers: E. Robert Roskind and T.
Wilson Eglin (filed as Exhibit 10.16 to the 2004 10-K) (1,
4)
|
10.12
|
—
|
Form
of Nonvested Share Agreement (Performance Bonus Award) between the Company
and each of the following officers: E. Robert Roskind, T. Wilson Eglin,
Richard J. Rouse and Patrick Carroll (filed as Exhibit 10.1 to the
02/06/06 8-K) (1, 4)
|
10.13
|
—
|
Form
of Nonvested Share Agreement (Long-Term Incentive Award) between the
Company and each of the following officers: E. Robert Roskind, T. Wilson
Eglin, Richard J. Rouse and Patrick Carroll and (filed as
Exhibit 10.2 to the 02/06/06 8-K) (1, 4)
|
10.14
|
—
|
Form
of the Company’s Nonvested Share Agreement, dated as of December 28,
2006 (filed as Exhibit 10.2 to the 01/03/07 8-K)
(1,4)
|
10.15
|
—
|
Form
of Lock-Up and Claw-Back Agreement, dated as of December 28, 2006
(filed as Exhibit 10.4 to the 01/03/07 8-K)(1)
|
10.16
|
—
|
Form
of 2007 Annual Long-Term Incentive Award Agreement (filed as
Exhibit 10.1 to the Company’s current Report on Form 8-k filed
on January 11, 2008 (1,4)
|
10.17
|
—
|
Employment
Agreement between the Company and E. Robert Roskind, dated May 4,
2006 (filed as Exhibit 99.1 to the Company’s Current Report on
Form 8-K filed May 5, 2006 (the “05/05/06 8-K”)) (1,
4)
|
10.18
|
—
|
Employment
Agreement between the Company and T. Wilson Eglin, dated May 4, 2006
(filed as Exhibit 99.2 to the 05/05/06 8-K) (1, 4)
|
10.19
|
—
|
Employment
Agreement between the Company and Richard J. Rouse, dated May 4, 2006
(filed as Exhibit 99.3 to the 05/05/06 8-K) (1, 4)
|
10.20
|
—
|
Employment
Agreement between the Company and Patrick Carroll, dated May 4, 2006
(filed as Exhibit 99.4
|
|
|
to
the 05/05/06 8-K) (1, 4)
|
10.21
|
—
|
Waiver
Letters, dated as of July 23, 2006 and delivered by each of E. Robert
Roskind, Richard J. Rouse, T. Wilson Eglin and Patrick Carroll (filed as
Exhibit 10.17 to the 01/08/07 8-K)(1)
|
10.22
|
—
|
2008
Trustee Fees Term Sheet (detailed on the Company’s Current Report on
Form 8-K filed April 18, 2008) (1, 4)
|
10.23
|
—
|
Form
of Indemnification Agreement between the Company and certain officers and
trustees (filed as Exhibit 10.3 to the 2002
10-K)(1)
|
10.24
|
—
|
Credit
Agreement, dated as of June 2, 2005 (“Credit Facility”) among the
Company, LCIF, LCIF II, Net 3 Acquisition L.P., jointly and severally as
borrowers, certain subsidiaries of the Company, as guarantors, Wachovia
Capital Markets, LLC, as lead arranger, Wachovia Bank, National
Association, as agent, Key Bank, N.A., as Syndication agent, each of
Sovereign Bank and PNC Bank, National Association, as co-documentation
agent, and each of the financial institutions initially a signatory
thereto together with their assignees pursuant to Section 12.5(d)
therein (filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed June 30, 2005)(1)
|
10.25
|
—
|
First
Amendment to Credit facility, dated as of June 1, 2006 (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
June 2, 2006)(1)
|
10.26
|
—
|
Second
Amendment to Credit facility, dated as of December 27, 2006 (filed as
Exhibit 10.1 to the 01/03/07 8-K)(1)
|
10.27
|
—
|
Third
Amendment to Credit Agreement, dated as of December 20, 2007(filed as
Exhibit 10.1 to the 12/26/07 8-K)(1)
|
10.28
|
—
|
Credit
Agreement, dated as of June 1, 2007, among the Company, the MLP,
LCIF, LCIF II and Net 3, jointly and severally as borrowers, KeyBanc
Capital Markets, as lead arranger and book running manager, KeyBank
National Association, as agent, and each of the financial institutions
initially a signatory thereto together with their assignees pursuant to
Section 12.5.(d) therein (filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on June 7, 2007 (the
“06/07/2007 8-K”))(1)
|
10.29
|
—
|
Master
Repurchase Agreement, dated May 24, 2006, between Bear, Stearns
International Limited and 111 Debt Acquisition-Two LLC (filed as
Exhibit 10.1 to Newkirk’s Current Report on Form 8-K filed
May 30, 2006)(1)
|
10.30
|
—
|
Master
Repurchase Agreement, dated March 30, 2006, among Column Financial
Inc., 111 Debt Acquisition LLC, 111 Debt Acquisition Mezz LLC and Newkirk
(filed as Exhibit 10.2 to Newkirk’s Current Report on Form 8-K
filed April 5, 2006 (the “NKT 04/05/06 8-K”))(1)
|
10.31
|
—
|
Amended
and Restated Limited Liability Company Agreement of Concord Debt Holdings
LLC, dated as of September 21, 2007, among the MLP, WRT Realty, L.P.
and FUR Holdings LLC (filed as Exhibit 10.1 to the Company’s current
Report on Form 8-K filed on September 24,
2007)
|
10.32
|
—
|
Amendment
No. 1 to Amended and Restated Limited Liability Company Agreement of
Concord Debt Holdings LLC, dated as of January 7, 2008(filed as
Exhibit 10.1 to the Company’s Current Report on form 8-K filed
January 11, 2008)(1)
|
10.33
|
—
|
Funding
Agreement, dated as of July 23, 2006, by and among LCIF, LCIF II and
Net 3 Acquisition L.P. (“Net 3”) and the Company (filed as
Exhibit 99.4 to the 07/24/06 8-K)(1)
|
10.34
|
—
|
Funding
Agreement, dated as of December 31, 2006, by and among LCIF, LCIF II,
Net 3, the MLP and the Company (filed as Exhibit 10.2 to the 01/08/07
8-K)(1)
|
10.35
|
—
|
Guaranty
Agreement, effective as of December 31, 2006, between the Company and
the MLP (filed as Exhibit 10.5 to the 01/08/07
8-K)(1)
|
10.36
|
—
|
Letter
Agreement among Newkirk, Apollo Real Estate Investment Fund III,
L.P., the MLP, NKT Advisors LLC, Vornado Realty Trust, VNK Corp., Vornado
Newkirk LLC, Vornado MLP GP LLC and WEM Bryn Mawr Associates LLC (filed as
Exhibit 10.15 to Amendment No. 5 to Newkirk Registration
Statement on Form S-11/A filed October 28, 2005 (“Amendment
No. 5 to NKT’s S-11”))(1)
|
10.37
|
—
|
Amendment
to the Letter Agreement among Newkirk, Apollo Real Estate Investment
Fund III, L.P., the MLP, NKT Advisors LLC, Vornado Realty Trust,
Vornado Realty L.P., VNK Corp., Vornado Newkirk LLC, Vornado MLP GP LLC,
and WEM-Brynmawr Associates LLC (filed as Exhibit 10.25 to Amendment
No. 5 to Newkirk’s S-11)(1)
|
10.38
|
—
|
Ownership
Limit Waiver Agreement, dated as of December 31, 2006, between the
Company and Vornado Realty, L.P. (filed as Exhibit 10.8 to the
01/08/07 8-K)(1)
|
10.39
|
—
|
Ownership
Limit Waiver Agreement, dated as of December 31, 2006, between the
Company and Apollo Real Estate Investment Fund III, L.P. (filed as
Exhibit 10.9 to the 01/08/07 8-K)(1)
|
10.40
|
—
|
Registration
Rights Agreement, dated as of December 31, 2006, between the Company
and Michael L.
|
|
|
Ashner
(filed as Exhibit 10.10 to the 01/08/07 8-K)(1)
|
10.41
|
—
|
Registration
Rights Agreement, dated as of November 7, 2005, between Newkirk and
Vornado Realty Trust (filed as Exhibit 10.4 to Newkirk’s Current
Report on Form 8-K filed November 15, 2005 (“NKT’s 11/15/05
8-K”))(1)
|
10.42
|
—
|
Registration
Rights Agreement, dated as of November 7, 2005, between Newkirk and
Apollo Real Estate Investment Fund III, L.P. (“Apollo”) (filed as
Exhibit 10.5 to NKT’s 11/15/05 8-K)(1)
|
10.43
|
—
|
Registration
Rights Agreement, dated as of November 7, 2005, between the Company
and First Union (filed as Exhibit 10.6 to NKT’s 11/15/05
8-K)(1)
|
10.44
|
—
|
Assignment
and Assumption Agreement, effective as of December 31, 2006, among
Newkirk, the Company, and Vornado Realty L.P. (filed as Exhibit 10.12
to the 01/08/07 8-K)(1)
|
10.45
|
—
|
Assignment
and Assumption Agreement, effective as of December 31, 2006 among
Newkirk, the Company, and Apollo Real Estate Investment Fund III,
L.P. (filed as Exhibit 10.13 to the 01/08/07
8-K)(1)
|
10.46
|
—
|
Assignment
and Assumption Agreement, effective as of December 31, 2006, among
Newkirk, the Company, and Winthrop Realty Trust filed as
Exhibit 10.14 to the 01/08/07 8-K)(1)
|
10.47
|
—
|
Registration
Rights Agreement, dated as of January 29, 2007, among the MLP, the
Company, LCIF, LCIF II, Net 3, Lehman Brothers Inc. and Bear,
Stearns & Co. Inc., for themselves and on behalf of the initial
purchasers named therein (filed as Exhibit 4.3 to the 01/29/07
8-K)(1)
|
10.48
|
—
|
Common
Share Delivery Agreement, made as of January 29, 2007, between the
MLP and the Company (filed as Exhibit 10.77 to the 2006
10-K)(1)
|
10.49
|
—
|
Registration
Rights Agreement, dated as of March 9, 2007, among the MLP, the
Company, LCIF, LCIF II, Net 3, Lehman Brothers Inc. and Bear,
Stearns & Co. Inc., for themselves and on behalf of the initial
purchasers named therein (filed as Exhibit 4.4 to the 03/09/07
8-K)(1)
|
10.50
|
—
|
Common
Share Delivery Agreement, made as of January 29, 2007 between the MLP
and the Company (filed as Exhibit 4.5 to the 03/09/2007
8-K)(1)
|
10.51
|
—
|
Second
Amendment and Restated Limited Partnership Agreement, dated as of
February 20, 2008, among LMLP GP LLC, The Lexington Master Limited
Partnership and Inland American (Net Lease) Sub, LLC (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
on February 21, 2008 (the “2/21/08 8-K”))(1)
|
10.52
|
—
|
Management
Agreement, dated as of August 10, 2007, between Net Lease Strategic
Assets Fund L.P. and Lexington Realty Advisors, Inc. (filed as
Exhibit 10.4 to the 08/16/2007 8-K)(1)
|
10.53
|
—
|
Services
and Non-Compete Agreement, dated as of March 20, 2008, among the Company,
FUR Advisors LLC and Michael L. Ashner (filed as Exhibit 10.1 to the
03/24/2008 8-K)(1)
|
10.54
|
—
|
Separation
and General Release, dated as of March 20, 2008, between the Company and
Michael L. Ashner (filed as Exhibit 99.1 to the 03/24/2008 8-K)(1,
4)
|
10.55
|
—
|
Form
of Contribution Agreement dated as of December 20, 2007 (filed as
Exhibit 10.5 to the 12/26/07 8-K)(1)
|
31.1
|
—
|
Certification
of Chief Executive Officer pursuant to rule 13a-14(a)/15d-14(a) of
the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002(3)
|
31.2
|
—
|
Certification
of Chief Financial Officer pursuant to rule 13a-14(a)/15d-14(a) of
the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002(3)
|
32.1
|
—
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002(3)
|
32.2
|
—
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002(3)
|
____________
(1)
Incorporated
by reference.
(4)
Management
contract or compensatory plan or arrangement.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
Lexington Realty
Trust |
|
|
|
|
|
|
|
|
|
|
|
|
Date: May 9,
2008 |
By: |
/s/ T. Wilson
Eglin
|
|
|
T. Wilson
Eglin |
|
|
Chief Executive
Officer, President and Chief |
|
|
Operating
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Patrick
Carroll
|
Date: May 9,
2008 |
|
Patrick
Carroll |
|
|
Chief Financial
Officer, Executive Vice President |
|
|
and
Treasurer |
|
|
|
32