UNITED STATES
Washington, DC 20549
FORM 10-K
(Mark One)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended December 31, 2007 | ||
or | ||
o | 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) One Penn Plaza, Suite 4015 | 13-3717318 (I.R.S. Employer Identification No.) | |
| New York, NY | ||
(Address of principal executive offices) | 10119-4015 (Zip Code) |
Registrant’s telephone number, including area code(212) 692-7200
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on which Registered | |||
| Common Shares of beneficial interests, par value $0.0001 | New York Stock Exchange | |||
| 8.05% Series B Cumulative Redeemable Preferred Stock, par value $0.0001 | New York Stock Exchange | |||
| 6.50% Series C Cumulative Convertible Preferred Stock, par value $0.0001 | New York Stock Exchange | |||
| 7.55% Series D Cumulative Redeemable Preferred Stock, par value $0.0001 | New York Stock Exchange | |||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesþ Noo.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso Noþ.
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. Yesþ Noo.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a non-accelerated filer.smaller reporting company. See definition of “accelerated filer and largefiler”, “large accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerþ Accelerated filero Non-accelerated filero Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act). Yeso Noþ.
The aggregate market value of the voting shares held by non-affiliates of the Registrant as of June 30, 2006,2007, which was the last business day of the Registrant’s most recently completed second fiscal quarter was $ 1,057,724,480$1,276,495,750 based on the closing price of common shares as of that date, which was $21.60$20.80 per share.
Number of common shares outstanding as of February 23, 200722, 2008 was 70,232,063.61,323,810.
Certain information contained in the Definitive Proxy Statement for Registrant’s 20072008 Annual Meeting of Shareholders, to be held on May 22, 200720, 2008 is incorporated by reference in this Annual Report onForm 10-K in response to Part III, Item 10, 11, 12, 13 and 14.
TABLE OF CONTENTS
| Item of | ||||||||
Form 10-K | Description | Page | ||||||
PART I | ||||||||
| 1 | Business | 1 | ||||||
| 1A. | Risk Factors | 8 | ||||||
| 1B. | Unresolved Staff Comments | 21 | ||||||
| 2. | Properties | 21 | ||||||
| 3. | Legal Proceedings | 34 | ||||||
| 4. | Submission of Matters to a Vote of Security Holders | 34 | ||||||
PART II | ||||||||
| 5. | Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities | 36 | ||||||
| 6. | Selected Financial Data | 39 | ||||||
| 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 40 | ||||||
| 7A. | Quantitative and Qualitative Disclosures about Market Risk | 58 | ||||||
| 8. | Financial Statements and Supplementary Data | 60 | ||||||
| 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 112 | ||||||
| 9A. | Controls and Procedures | 112 | ||||||
| 9B. | Other Information | 112 | ||||||
PART III | ||||||||
| 10. | Trustees and Executive Officers of the Registrant | 112 | ||||||
| 11. | Executive Compensation | 112 | ||||||
| 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 112 | ||||||
| 13. | Certain Relationships and Related Transactions | 113 | ||||||
| 14. | Principal Accountant Fees and Services | 113 | ||||||
PART IV | ||||||||
| 15. | Exhibits and Financial Statement Schedules | 113 | ||||||
| Signatures | 120 | |||||||
| EX-12: STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES | ||||||||
| EX-14.1: AMENDED AND RESTATED CODE OF BUSINESS CONDUCT AND ETHICS | ||||||||
| EX-21: LIST OF SUBSIDIARIES | ||||||||
| EX-23: CONSENT OF KPMG LLP | ||||||||
| EX-31.1: CERTFICATION | ||||||||
| EX-31.2: CERTIFICATION | ||||||||
| EX-32.1: CERTIFICATION | ||||||||
| EX-32.2: CERTIFICATION | ||||||||
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PART I.
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 Annual Report are to our Annual Report onForm 10-K for the fiscal year ended December 31, 2006.2007.
All references to 2007, 2006 2005 and 20042005 refer to our fiscal years ended, or the dates, as the context requires, December 31, 2007, December 31, 2006, and December 31, 2005, and December 31, 2004, respectively.
We merged with Newkirk Realty Trust, Inc., or Newkirk, on December 31, 2006, which we refer to as the Merger. Unless otherwise noted, (A) the information in this Annual Report regarding items in our Consolidated Statements of Operations as of December 31, 2006 and prior, does not include the business and operations of Newkirk, and (B) the information in this Annual Report regarding items in our Consolidated Balance Sheet includesas of December 31, 2005 and prior, does not include the assets, liabilities and minority interests of Newkirk.
Cautionary Statements Concerning Forward-Looking Statements
This Annual Report, together with other statements and information publicly disseminated by us contain 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. In particular, among the factors that could cause actual results to differ materially from current expectations include, among others, those risks discussed below and under “Risk Factors” in Part I, Item 1A of the Annual Report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report. 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 occurrence of unanticipated events. Accordingly, there is no assurance that our expectations will be realized.
| Item 1. | Business |
General
We are a self-managed and self-administered real estate investment trust, or REIT, formed under the laws of the State of Maryland. Our primary business is the acquisition, ownership and management of a geographically diverse portfolio of net leased office and industrial properties. In addition, we acquire and retail properties.hold investments in loan assets and debt securities related to real estate, which are primarily acquired through a 50% owned co-investment program. Substantially all of our properties are subject to triple net leases, which are generally characterized as leases in which the tenant bears all or substantially all of the costsand/or cost increases for real estate taxes, utilities, insurance and ordinary repairs.
Our predecessor was organized in October 1993 and merged into Lexington Corporate Properties Trust on December 31, 1997. On December 31, 2006, Lexington Corporate Properties Trust completed the Merger with Newkirk. Newkirk’s primary business was similar to our primary business. All of Newkirk’s operations were conducted and all of its assets were held through its master limited partnership, The Newkirk Master Limited Partnership, which we refer to as the MLP. Newkirk was the general partner and owned, at the time of completion of the Merger, a 31.0% general partner interest in the MLP. In connection with the Merger, Lexington Corporate Properties Trust changed its name to Lexington Realty Trust, the MLP was renamed The Lexington Master Limited
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Partnership and one of our wholly-owned subsidiaries became the sole general partner of the MLP and another one of our wholly-owned subsidiaries became the holder of a 31.0% limited partner interest in the MLP.
In the Merger, Newkirk merged with and into us, with us as the surviving entity. Each holder of Newkirk’s common stock received 0.80 of our common shares in exchange for each share of Newkirk’s common stock, and the MLP effected a reverse unit-split pursuant to which each outstanding unit of limited partnership in the MLP, which we refer to as an MLP Unit,unit, was converted into 0.80 MLP units. Each MLP unit, other than the MLP units held directly or indirectly by us, is either currently redeemable or in the future will be redeemable at the option of the holder for cash based on the value of one of our common shares or, if we elect, for our common shares on a one-for-one basis for our common shares.basis. As of December 31, 2007, we owned approximately 50.0% of the limited partner interest in the MLP.
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In addition to our common shares, we have four outstanding classes of beneficial interests classified as preferred stock, which we refer to as preferred shares: (1) 8.05% Series B Cumulative Redeemable Preferred Stock, which we refer to as our Series B Preferred Shares, (2) 6.50% Series C Cumulative Convertible Preferred Stock, which we refer to as our Series C Preferred Shares, (3) 7.55% Series D Cumulative Redeemable Preferred Stock, which we refer to as our Series D Preferred Shares, and (4) special voting preferred stock. Our common shares, Series B Preferred Shares, Series C Preferred Shares and Series D Preferred Shares are traded on the New York Stock Exchange, or NYSE, under the symbols “LXP”, “LXP_pb”“LXP pb”, “LXP_pc”“LXP pc” and “LXP_pd”“LXP pd”, respectively.
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, commencing with our taxable year ended December 31, 1993. If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on our net income that is currently distributed to shareholders.
As of the Merger,December 31, 2007, we had ownership interests in approximately 365 properties,280 consolidated real estate assets, located in 4442 states and Thethe Netherlands and containing an aggregate of approximately 58.945.5 million net rentable square feet of space, approximately 97.5%95.6% of which is subject to a lease. In addition, Lexington Realty Advisors, Inc., which we refer to as LRA, one of our wholly-owned taxable REIT subsidiaries, manages two properties for an unaffiliated third party.
We have diversified our portfolio by geographical location, tenant industry segment, lease term expiration and property type with the intention of providing steady internal growth with low volatility. We believe that this diversification should help insulate us from regional recession, industry specific downturns and price fluctuations by property type. For the year ended December 31, 2006,2007, our ten largest tenants/guarantors, which occupied 3847 of our properties, represented 30.1%25.0% of our trailing twelve12 month base rental revenue, including our proportionate share of base rental revenue from non-consolidated entities, properties held for sale and properties sold through the respective date of sale. As of December 31, 20052006 and 2004,2005, our ten largest tenants/guarantors represented 30.4%30.1% and 34.2%30.4% of our trailing twelve12 month base rental revenue, respectively, including our proportionate share of base rental revenue from non-consolidated entities, properties held for sale and properties sold through date of sale. In 2007, 2006 2005 and 2004,2005, no tenant/guarantor represented greater than 10% of our annual base rental revenue.
Objectives and Strategy
In June 2007, we announced a strategic transactions with other real estate investment companies, (ii) acquisitions of individual propertiesrestructuring plan. The plan, when and portfolios of properties from: (A) corporations and other entities in sale/leaseback transactions; (B) developers of newly-constructed properties built to suit the needs ofif completed, will restructure us into a corporate tenant; and (C) sellers of properties subject to an existing lease, (iii) debt investments secured by real estate assets and (iv) the building and acquisition of new business lines and operating platforms.company consisting primarily of:
| • | A wholly-owned portfolio of core office assets; | |
| • | A wholly-owned portfolio of core warehouse/distribution assets; | |
| • | A continuing 50% interest in a co-investment program that invests in senior and subordinated debt interests secured by both net leased and multi-tenanted real estate collateral; | |
| • | A minority interest in a co-investment program that invests in specialty single tenant real estate assets; and | |
| • | Equity securities in other net lease companies owned either individually or through an interest in one or more joint ventures or co-investment programs. |
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In connection with the strategic restructuring plan, we:
| • | acquired all of the outstanding interests not otherwise owned by us in Triple Net Investment Company LLC, one of our co-investment programs, which resulted in us becoming the sole owner of the co-investment program’s 15 primarily single tenant net leased properties; | |
| • | acquired all of the outstanding interests not otherwise owned by us in Lexington Acquiport Company, LLC and Lexington Acquiport Company II, LLC, two of our co-investment programs, which resulted in us becoming the sole owner of the co-investment program’s 26 primarily single tenant net leased properties; | |
| • | terminated Lexington/Lion Venture L.P., one of our co-investment programs, and were distributed seven primarily single tenant net leased properties owned by the co-investment program; | |
| • | announced a disposition program, whereby we began marketing non-core assets for sale; and | |
| • | formed a co-investment program, Net Lease Strategic Assets Fund LP, which we refer to as NLS, with a subsidiary of Inland American Real Estate Trust, Inc., which has acquired 30 assets previously owned by us and which, in addition, is under contract to acquire an additional 13 assets currently owned by us and may invest in “core plus” net leased assets, such as manufacturing assets, call centers and other specialty assets. |
We can provide no assurances that we will dispose of any remaining assets under our disposition program or complete the sale/contribution of the remaining 13 assets under contract for sale/contribution or acquire any additional assets through NLS.
As part of our ongoing business efforts, we expect to continue to (i)(1) effect strategic transactions and portfolio and individual property acquisitions and dispositions, (ii)dispositions; (2) explore new business lines and operating platforms, (iii)platforms; (3) expand existing properties, (iv)properties; (4) execute new leases with investment grade and other quality tenants, (v)tenants; (5) extend lease maturities in advance of expirationexpiration; and (vi)(6) refinance outstanding indebtedness when advisable. Additionally, we expect tomay continue to enter into joint ventures with third-party investors as a means of creating additional growth and expanding the revenue realized from advisory and asset management activities.activities as situations warrant.
Acquisition Strategies
We seek to enhance our net lease property portfolio through acquisitions of debt and equity interests in“core” assets, which we believe are general purpose, efficient, well-located propertiesassets in growing markets. Prior to effecting any acquisitions, we analyze the (i)(1) property’s design, construction quality, efficiency, functionality and location with respect to the immediate sub-market, city and region; (ii)(2) lease integrity with respect to term, rental rate increases, corporate guarantees and property maintenance provisions; (iii)(3) present and anticipated conditions in the local real estate market; and (iv)(4) prospects for selling or re-leasing the property on favorable terms in the event of a vacancy. We also evaluate each potential tenant’s financial strength, growth prospects, competitive position within its respective industry and a property’s strategic location and function within a tenant’s operations or distribution systems. We believe that our comprehensive underwriting process is critical to the assessment of long-term profitability of any investment by us.
Strategic Transactions with Other Real Estate Investment Companies.We seek to capitalize on the unique investment experience of our executive management team as well as its network of relationships in the industry to achieve outstandingappropriate risk-adjusted yields through strategic transactions. Our strategic initiatives involve the acquisitions of assets acrossfocus on the full spectrum of single-tenant investing through participation at various levels of the capital structure. Accordingly, we endeavor to pursue the acquisition of portfolios of opportunistic assets, significant equity interests in othercompanies with a significant number of single-tenant companiesassets including through mergers and acquisitions activity, and participation in strategic partnerships and joint ventures both domestically and abroad.ventures.
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Acquisitions of Portfolio and Individual Net Lease Properties.We seek to acquire portfolio and individual properties from: (A)from (1) creditworthy corporations and other entities in sale/leaseback transactions for properties that are integral to the sellers’/tenants’ ongoing operations, (B)operations; (2) developers of newly-constructed properties built to suit the needs of a corporate tenant generally after construction has been completed to avoid the risks associated with the construction phase of a project,project; (3) other real estate investment companies through strategic transactions; and (C)(4) sellers of properties subject to an existing lease. We believe there is significantly less competition for the acquisition of property portfolios containing a number of net leased properties located in more than one geographic region. We also believe that our geographical diversification, acquisition
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experience and access to capital will allow us to compete effectively for the acquisition of such net leased properties.
Debt InvestmentsInvestments.. We Primarily through our 50% owned co-investment program Concord Debt Holdings LLC, which we refer to as Concord, we seek to acquire senior and subordinated debt interests secured by both net-leased and multi-tenanted real estate collateral. In addition to several mortgage notes owned by us, theThe MLP holds a 50.0% interest in a joint venture, Concord Debt Holdings LLC, which recently closed its first collateralized debt obligation, which we refer to as the CDO offering.this co-investment program. The MLP’s joint ventureco-investment partner and holder of the other 50% interest in Concord is a subsidiary of Winthrop Realty Trust, which we refer to as Winthrop, a REIT listed on the NYSE. Our Executive Chairman and Director of Strategic Acquisitions, Michael L. Ashner, is the Chairman and Chief Executive Officer of Winthrop. An aggregate of $377 million of investment grade-related debt was issued in the CDO offering and the joint venture retained an equity investment in the portfolio with a notional amount of $88 million. The MLP anticipates that the joint venture will significantly expand its operations in the foreseeable future.
Competition
Through our predecessor entities we have been in the net lease business for over 30 years. Over this period, we have established close relationships with a large number of major corporate tenants, which has enabled us to maintain a broad network of contacts, including major corporate tenants, developers, brokers and lenders. In addition, our management is associated withand/or participates in many industry organizations. Notwithstanding these relationships, there are numerous commercial developers, real estate companies, financial institutions and other investors with greater financial or other resources that compete with us in seeking properties for acquisition and tenants who will lease space in these properties. Our competitors include other REITs, pension funds, private companies and individuals.
Operating Partnership Structure
We are structured as an umbrella partnership REIT, or UPREIT, and a substantial portion of our business is conducted through our four operating partnership subsidiaries:subsidiaries (1) the MLP,MLP; (2) Lepercq Corporate Income Fund L.P.,; (3) Lepercq Corporate Income Fund II L.P.; and (4) Net 3 Acquisition L.P. We refer to these subsidiaries as our operating partnerships and to limited partnershippartner interests in these operating partnerships as OP units. The operating partnershipUPREIT structure enables us to acquire properties through our operating partnerships by issuing to a property owner, as a form of consideration in exchange for the property, OP units. The OP units are generally redeemable, after certain dates, for our common shares or cash in certain instances. We believe that this structure facilitates our ability to raise capital and to acquire portfolio and individual properties by enabling us to structure transactions which may defer tax gains for a contributor of property. In addition to the MLP Units, during 2006, one of our operating partnerships issued 33,954 OP units (having a value of $0.8 million at issuance) as partial consideration in an acquisition of a property. During 2005, one of our operating partnerships issued 352,244 OP units in exchange for all of the outstanding partnership interests in Westport View Corporate Center L.P., a Delaware limited partnership and the beneficiary of an escrow account with a qualified intermediary holding $7.7 million in remaining cash proceeds from the sale of an investment property. As of December 31, 2006,2007, there were 41,191,115approximately 39.8 million OP units outstanding, other than OP units held directly or indirectly by us.
Co-Investment Programs
Lexington Acquiport Company, LLC.LLC (“LAC”) and Lexington Acquiport Company II, LLC (“LAC II”).In 1999, Effective June 2007, we entered into a joint venture agreementpurchase agreements with The Comptrollerthe Common Retirement Fund of the State of New York, as Trusteeour 66.67% partner in LAC and 75% partner in LAC II, and acquired the interests in LAC and LAC II we did not already own. Accordingly, we became the sole owner of the Common Retirement Fund, which we refer to as CRF. The joint venture entity, Lexington Acquiport Company, LLC, which we refer to as LAC, was created to acquire high quality office and industrial26 primarily single tenant net leased real estate properties owned collectively by LAC and LAC II. We acquired the interest through a cash payment of approximately $277.4 million and the assumption of approximately $515.0 million in non-recourse mortgage debt. The debt assumed by us bears interest at stated rates ranging from 5.0% to 8.2% with a weighted — average stated rate of 6.2% and matures at various dates ranging from 2009 to 2021.
Lexington/Lion Venture L.P. (“LION”). Effective June 2007, we and our 70% partner in LION agreed to terminate LION and distribute the 17 primarily net leased to investment and non-investment grade single tenant users. We committed to make equity contributions to LAC of up to $50.0 million and CRF committed to make equity contributions to LAC of up to $100.0 million. These commitments have been satisfied and no more investments will be made by LAC unless to complete a tax-free exchange.
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properties owned by TNI. We acquired the interest through a cash payment of approximately $82.6 million and the assumption of approximately $156.6 million in non-recourse mortgage debt. The debt assumed by us bears stated interest at rates ranging from 4.9% to 9.4% with a weighted-average stated rate of 5.9% and matures at various dates ranging from 2010 to 2021. In connection with this transaction, we recognized $2.1 million as Utah. The joint venture entity, Triple an incentive fee in accordance with the TNI partnership agreement.
Concord Debt Holdings LLC (“Concord”). We acquired a 50% interest in Concord in connection with the Merger. Our Executive Chairman and Director of Strategic Acquisitions is the Chairman and Chief Executive Officer of Winthrop, our 50% co-investment partner. Concord creates and manages portfolios of loan assets and debt securities. As of December 31, 2007 and 2006, we had $155.8 million and $93.1 million, respectively, as our investment in Concord. Our remaining capital commitment to Concord is $5.1 million as of December 31, 2007. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Off Balance Sheet Arrangements” for a complete description of Concord’s business, assets and liabilities.
Net Investment CompanyLease Strategic Assets Fund L.P. (“NLS”). In August 2007, through the MLP, we entered into a limited partnership agreement with Inland American (Net Lease) Sub, LLC, which we refer to as TNI,Inland, a wholly-owned subsidiary of Inland American Real Estate Trust, Inc. NLS was createdformed to acquire high qualityinvest in specialty single tenant office and industrial properties net leased assets in the United States. In connection with the formation, we agreed to non-investment grade tenants; however, TNI has acquired retail properties.contribute/sell 53 single tenant net leased assets to NLS, which was later reduced to 43 assets, 30 of which were contributed/sold in December 2007 and 13 of which remain under contract. We initially committedcan provide no assurance that the contribution/sale of the remaining 13 assets under contract will be consummated.
In December 2007, we sold 18 real estate assets (including a 40% interest in one) and contributed 12 real estate assets to fund equity contributions to TNINLS. The properties had an agreed upon value of up to $15.0$408.5 million and Utah initially committedare subject to fund equity contributions to TNI of up to $35.0 million. In December 2004, each of us and Utah increased our equity commitment by $21.4 million and $50.0 million, respectively. As of December 31, 2006, an aggregate of $86.9$186.3 million of these commitments had been funded. During 2006, TNI made one acquisition for a capitalized cost of $13.5 million, of which $9.5 million was funded through the procurement of a non-recourse mortgage which bearsdebt that have stated interest atrates ranging from 5.2% to 8.5% with a fixedweighted average stated rate of 5.9% and maturesmaturity dates ranging from 2009 to 2025. We recognized a gain on the sale of the real estate assets of $17.9 million, plus a $1.6 million gain which is reflected in 2018.the income statement in equity in earnings of non-consolidated entities relating to these sales.
The acquisitions of these 30 real estate assets by NLS was financed by (1) assuming the mortgage debt; (2) a common equity contribution by Inland and the MLP of $121.9 million and $21.5 million, respectively; and (3) a preferred equity contribution of $87.6 million by the MLP. The MLP’s equity contribution was made primarily through the contribution of the 12 real estate assets.
The MLP’s common and preferred equity positions are subordinated to Inland’s common equity position with respect to operating cash flows and in certain other situations.
In addition, to the initial capital contributions, the MLP and Inland may invest an additional $22.5 million and $127.5 million, respectively, in NLS to acquire additional specialty single-tenant net leased assets. Lexington Realty Advisors, which we refer to as LRA, has entered into a management agreement with TNINLS whereby LRA performswill receive (1) a management fee of 0.375% of the equity capital, as defined; (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 for a(contingent upon the recoverability under the applicable lease); and (3) an acquisition fee relating to acquisition, financing and management of TNI’s investments.0.5% of the gross purchase price of each acquired asset by the NLS.
In addition, NLS is under contract to firstacquire an additional 13 properties from us, a reduction of 10 from the initial agreement in August 2007. The acquisition of each of the 13 assets by NLS is subject to satisfaction of conditions precedent to closing, including the assumption of existing financing, obtaining certain consents and waivers, the continuing financial solvency of the tenants, and certain other customary conditions. Accordingly, neither we nor NLS can provide any assurance that the acquisition by NLS will be completed. In the event that NLS does not acquire 11 of the assets by March 31, 2008 and the remaining two by June 30, 2008, NLS will no longer have the right to acquire such assets.
Lex-Win Acquisition LLC (“Lex-Win”). In May 2007, an entity in which we hold a 28% ownership interest, commenced a tender offer to Utah allacquire up to 45,000,000 shares of our opportunities (other than the opportunities we are required to offer LAC II) to acquire office and industrial properties requiring a minimum investment of $8.0 million to $30.0 million, which are net leased to non-investment grade tenants for a minimum term of at least nine years, are generally available for immediate delivery and satisfy other specified investment criteria. Only if Utah elects and any overlapping co-investment program with a similar exclusively right elects, not to approve TNI’s pursuit of an acquisition opportunity may we pursue the opportunity directly.
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Other Investments. As of December 31, 2006, no incentive distributions have been earned. Also, these officers purchased an aggregate of (A) 220,000 shares of common stock of LSAC for $0.12007, we had interests ranging from 26% to 40% in 8 partnerships which own real estate assets. The real estate assets are encumbered by approximately $100.9 million at LSAC’s formation in August of 2005 and (B) 100,000 shares of common stock for $1.0 million in LSAC’s initial private offering.
Internal Growth; Effectively Managing Assets
Tenant Relations and Lease Compliance.We maintain close contact with our tenants in order to understand their future real estate needs. We monitor the financial, property maintenance and other lease obligations of our tenants through a variety of means, including periodic reviews of financial statements and physical inspections of the properties. We perform annual inspections of those properties where we have an ongoing obligation with respect to the maintenance of the property. Biannual physical inspections are generally undertaken for all other properties.
Extending Lease Maturities.We including through non-consolidated entities, seek to extend our leases in advance of their expiration in order to maintain a balanced lease rollover schedule and high occupancy levels. During 2006,2007, we entered into nine108 lease extensions for leases scheduled to expire at various dates ranging from 2006 to 2008, for an average 2.8 years and 6 leases (expiring at various dates ranging from 2011 to 2021) for vacant space.new leases.
Revenue Enhancing Property Expansions.We undertake expansions of our properties based on tenant requirements or marketing opportunities. We believe that selective property expansions can provide us with attractive rates of return and actively seek such opportunities.
Property Sales.Subject to regulatory requirements, we sell properties (1) when we believe that the return realized from selling a property will exceed the expected return from continuing to hold such property.property and (2) in accordance with our strategic restructuring plan. During 2007, as part of our strategic restructuring plan, we sold 63 properties, including 10 held in LION, and 30 properties were sold/contributed to NLS.
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Access to Capital and Refinancing Existing Indebtedness
During 2007, we completed an offering of 6.2 million Series D Preferred Shares, at $25 per share and an annual dividend rate of 7.55%, raising net proceeds of $149.8 million.
During 2007, we, through a wholly-owned subsidiary, issued $200.0 million in Trust Preferred Securities. These Trust Preferred Securities, which (1) are classified as debt and referred to in this Annual Report as Trust Preferred Notes; (2) are due in 2037; (3) are redeemable by us commencing April 2012; and (4) 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.
We obtained a $225.0 million 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 which we were in compliance with as of December 31, 2007. The proceeds of the secured term loan were used to purchase the interests in our former co-investment programs. As of December 31, 2007, $213.6 million was outstanding under this secured term loan.
During 2007, we obtained $247.0 million in non-recourse mortgage financings which have a fixed weighted average interest rate of 6.1%. The proceeds of the financings were used to partially fund acquisitions.
During 2007, the MLP issued $450.0 million in 5.45% guaranteed exchangeable notes due in 2027, which we refer to as the MLP Notes, and can be put by the holder every five years commencing 2012 and upon certain events. The MLP Notes are currently exchangeable at certain times by the holders into our common shares at a price of $21.99 per share; however, the principal balance must be satisfied in cash. The net proceeds of the issuance of the
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MLP Notes were used to repay indebtedness under the MLP’s former secured loan which bore interest at the election of the MLP at a rate equal to either (1) LIBOR plus 175 basis points or (2) the prime rate.
On December 31, 2006, we completed the Merger and issued approximately 16.0 million common shares valued at $332.1 million and assumed $2.0 billion in liabilities and minority interests.
During 2006, we completed an offering of 6.2 million Series D Preferred Shares, at $25 per share and a dividend rate of 7.55%, raising net proceeds of $150.0 million.
Common Share Repurchases.In November 2005,March 2007, our Board of Trustees approved the repurchase of up to 2.010.0 million common shares/OP units under a share repurchase program. During 2006,2007, approximately 0.59.8 million common shares/OP units were repurchased under this program at an average cost of $21.15$19.83 per share,share/unit, in the open market and through private transactions with our employees.employees and OP unitholders. In December 2007, the authorization was increased by 5.0 million common share/ OP units. As of December 31, 2007, 5.8 million common shares/OP units remain eligible for repurchase under the authorization.
Advisory Contracts
In addition to the contracts discussed above, in August 2000,2001, LRA entered into an advisory and asset management agreement to invest and manage an equity commitment of up to $50.0 million on behalf of a private third party investment fund. The investment fund could, depending on leverage utilized, acquire up to $140.0 million in single tenant, net leased office, industrial and retail properties in the United States. LRA earns acquisition fees (90 basis points of total acquisition costs), annual asset management fees (30 basis points of gross asset value) and a promoted interestan incentive fee of 16% of the return in excess of an internal rate of return of 10% earned by the investment fund. During 2007, the investment fund sold a property and LRA recognized an incentive fee of $1.1 million (in addition $0.4 million was held back by the investment fund pursuant to the agreement). The investment fund made no purchases in 20062007 or 2005.2006.
The MLP entered into an agreement with a third party inpursuant to which the MLP will pay the third party for properties acquired in whichby the MLP and identified by the third party serves as the identifying party (i)(1) 1.5% of the gross purchase price and (ii)(2) 25% of the net proceeds and net cash flow
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Other
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 generally our tenants are primarily responsible for any environmental damage and claims related to the leased premises, in the event of the bankruptcy or inability of a tenant of such premises to satisfy any obligations with respect to such environmental liability, we may be required to satisfy such obligations. In addition, as the owner of such properties, we may be held directly liable for any such damages or claims irrespective of the provisions of any lease.
From time to time, in connection with the conduct of our business and generally upon acquisition of a property, we authorize the preparation of Phase I and, when necessary, Phase II environmental reports with respect to our properties. Based upon such environmental reports and our ongoing review of our properties, as of the date of this
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Annual Report, we are not aware of any environmental condition with respect to any of our properties which we believe would be reasonably likely to have a material adverse effect on our financial conditionand/or results of operations. There can be no assurance, however, that (i)(1) the discovery of environmental conditions, the existence or severity of which were previously unknown, (ii)unknown; (2) changes in law, (iii)law; (3) the conduct of tenantstenants; or (iv)(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 conditionand/or results of operations.
Employees.As of December 31, 2006,2007, we had 5665 full-time employees.
Industry Segments.We operate in primarily one industry segment, investment in net leased real properties.estate assets.
Web Site.Our Internet address iswww.lxp.com and the investor relations section of our web site is located athttp://phx.corporate-ir.net/phoenix.zhtml?c=88679&p=irol-irhome.www.snl.com/irweblinkx/corporateprofile.aspx?iid=103128. We make available, free of charge, on or through the investor relations section of our web site or by contacting our Investor Relations Department, annual reports onForm 10-K, quarterly reports onForm 10-Q and current reports onForm 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission, which we refer to as the SEC. Also posted on our web site, and available in print upon request of any shareholder to our Investor Relations Department, are our amended and restated declaration of trust and amended and restated by-laws, charters for our Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, our Corporate Governance Guidelines, our Code of Business Conduct and Ethics governing our trustees, officers and employees, and our Complaint Procedures Regarding Accounting and Auditing Matters and our Policy on Disclosure Controls.Matters. Within the time period required by the SEC and the New York Stock Exchange,NYSE, we will post on our web site any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any of our trustees or executive officers. In addition, our web site includes information concerning purchases and sales of our equity securities by our executive officers and trustees, as well as disclosure relating to certain non-GAAP financial measures (as defined in the SEC’s Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time.
Our Investor Relations Department can be contacted at Lexington Realty Trust, One Penn Plaza, Suite 4015, New York, New York10119-4015, Attn: Investor Relations, telephone:212-692-7200,e-mail:ir@lxp.com.
Principal Executive Offices.Our principal executive offices are located at One Penn Plaza, Suite 4015, New York, New York10119-4015; our telephone number is(212) 692-7200. We also maintain regional offices in Chicago, Illinois, and Dallas, Texas and Boston, Massachusetts.Texas.
NYSE CEO Certification.Our Chief Executive Officer made an unqualified certification to the New York Stock ExchangeNYSE with respect to our compliance with the New York Stock ExchangeNYSE corporate governance listing standards in June 2006.
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| Item 1A. | Risk Factors |
Set forth below are material factors that may adversely affect our business and operations. All references to the “Company,” “we,” “our” and “us” in this Item 1A mean Lexington Realty Trust and all entities owned by us, including non-consolidated entities, except where it is made clear that the term means only the parent company.
We are subject to risks involved in single tenant leases.
We focus our acquisition activities on real properties that are net leased to single tenants. Therefore, the financial failure of, or other default by, a single tenant under its lease is likely to cause a significant reduction in the operating cash flow generated by the property leased to that tenant and might decrease the value of that property.
We rely on revenues derived from major tenants.
Revenues from several of our tenantsand/or their guarantors constitute a significant percentage of our base rental revenues. As of December 31, 2006,2007, our 10 largest tenants/guarantors, which occupied 3847 properties, represented approximately 30.1%25.0% of our base rental revenue for the year ended December 31, 2006,2007, including our
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proportionate share of base rental revenue from non-consolidated entities and base rental revenue recognized from properties sold through the respective date of sale. The default, financial distress or bankruptcy of any of the tenants of these properties could cause interruptions in the receipt of lease revenues from these tenantsand/or result in vacancies, which would reduce our revenues and increase operating costs until the affected property is re-let, and could decrease the ultimate sales value of that property. Upon the expiration or other termination of the leases that are currently in place with respect to these properties, we may not be able to re-lease the vacant property at a comparable lease rate or without incurring additional expenditures in connection with the re-leasing.
We could become more highly leveraged, resulting in increased risk of default on our obligations and in an increase in debt service requirements which could adversely affect our financial condition and results of operations and our ability to pay distributions.
We have incurred, and expect to continue to incur, indebtedness in furtherance of our activities. Neither our amended and restated declaration of trust nor any policy statement formally adopted by our Board of Trustees limits either the total amount of indebtedness or the specified percentage of indebtedness that we may incur. Accordingly, we could become more highly leveraged, resulting in an increased risk of default on our obligations and in an increase in debt service requirements which could adversely affect our financial condition and results of operations and our ability to pay distributions.
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Market interest rates could have an adverse effect on our borrowing costs and net incomeprofitability and can adversely affect our share price.
We have exposure to market risks relating to increases in interest rates due to our variable-rate debt. An increase in interest rates may increase our costs of borrowing on existing variable-rate indebtedness, leading to a reduction in our net income. As of December 31, 2006,2007, we had outstanding $65.2$213.6 million in consolidated variable-rate indebtedness. The $547.2 million outstanding under the MLP’s secured loan, as of December 31, 2006, is subject to an interest rate swap agreement and an interest rate cap agreement, which have the effect of fixing the interest rate on the borrowings. The level of our variable-rate indebtedness, along with the interest rate associated with such variable-rate indebtedness, may change in the future and materially affect our interest costs and net income. In addition, our interest costs on our fixed-rate indebtedness can increase if we are required to refinance our fixed-rate indebtedness at maturity at higher interest rates. We currently have an agreement with a third party for a notional amount of $290.0 million which caps our interest rate at 6.0%.
Furthermore, the public valuation of our common shares is related primarily to the earnings that we derive from rental income with respect to our properties and not from the underlying appraised value of the properties themselves. As a result, interest rate fluctuations and capital market conditions can affect the market value of our common shares. For instance, if interest rates rise, the market price of our common shares may decrease because potential investors seeking a higher dividend yield than they would receive from our common shares may sell our common shares in favor of higher rate interest-bearing securities.
Recent disruptions in the financial markets could affect our ability to obtain debt financing on reasonable terms and have other adverse effects on us.
The United States credit markets have recently experienced significant dislocations and liquidity disruptions which have caused the spreads on prospective debt financings to widen considerably. These circumstances have materially impacted liquidity in the debt markets, making financing terms for borrowers less attractive, and in certain cases have resulted in the unavailability of certain types of debt financing. Continued uncertainty in the credit markets may negatively impact our ability to access additional debt financing at reasonable terms, which may negatively affect our ability to make acquisitions. A prolonged downturn in the credit markets may cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly. In addition, these factors may make it more difficult for us to sell properties or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of debt financing or difficulties in obtaining debt financing. These events in the credit markets have also had an adverse effect on other financial markets in the United States, which may make it more difficult or costly for us to raise capital through the issuance of our common shares or preferred shares. These disruptions in the financial markets may have other adverse effects on us or the economy generally.
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We face risks associated with refinancings.
A significant number of our properties, as well as corporate level borrowings, are subject to mortgage or other secured notes with balloon payments due at maturity. As of December 31, 2006,2007, the consolidated scheduled balloon payments for the next five calendar years, are as follows:
Year | Balloon Payments | |
| 2008 | ||
| $31.8 million | ||
| 2009 | ||
| $282.4 million | ||
| 2010 | ||
| $118.2 million | ||
| 2011 | $140.6 million | |
| 2012 | $633.8 million |
| Total | Our Proportionate Share | |||||||
| 2007 | $43.9 million | $21.9 million | ||||||
| 2008 | $0 | $0 | ||||||
| 2009 | $69.0 million | $23.6 million | ||||||
| 2010 | $61.6 million | $20.5 million | ||||||
| 2011 | $67.0 million | $21.7 million | ||||||
Our ability to make the scheduled balloon payments will depend upon our cash balances, the amount available under our credit facility and our ability either to refinance the related mortgage debt or to sell the related property.
As of December 31, 2007, the scheduled balloon payments for our non-consolidated entities for the next five calendar years are as follows:
| Balloon Payments - our | ||||||||
| Proportionate | ||||||||
Year | Balloon Payments | Share | ||||||
| 2008 | $ 87 | .8 million | $ 43 | .9 million | ||||
| 2009 | $357 | .7 million | $176 | .3 million | ||||
| 2010 | $ — | $ — | ||||||
| 2011 | $ 2 | .1 million | $ 1 | .0 million | ||||
| 2012 | $ 81 | .8 million | $ 40 | .3 million | ||||
Our ability to accomplish these goals will be affected by various factors existing at the relevant time, such as the state of the national and regional economies, local real estate conditions, the state of the capital markets, available mortgage rates, the lease terms or market rates of the mortgaged properties, our equity in the mortgaged properties, our financial condition, the operating history of the mortgaged properties and tax laws. If we are unable to obtain sufficient financing to fund the scheduled balloon payments or to sell the related property at a price that generates sufficient proceeds to pay the scheduled balloon payments, we would lose our entire investment in the related property.
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We face uncertainties relating to lease renewals and re-letting of space.
Upon the expiration of current leases for space located in our properties, we may not be able to re-let all or a portion of that space, or the terms of re-letting (including the cost of concessions to tenants) may be less favorable to us than current lease terms.terms or market rates. If we are unable to re-let promptly all or a substantial portion of the space located in our properties or if the rental rates we receive upon re-letting are significantly lower than current rates, our net income and ability to make expected distributions to our shareholders will be adversely affected due to the resulting reduction in rent receipts and increase in our property operating costs. There can be no assurance that we will be able to retain tenants in any of our properties upon the expiration of their leases.
Certain of our properties are cross-collateralized.
As of December 31, 2006,2007, the mortgages on three sets of two properties, are cross-collateralized: (1) Canton, Ohio and Spartansburg, South Carolina leased to Best Buy Co. Inc., (2) 730 N. Black Branch Road, Elizabethtown, Kentucky and 750 N. Black Branch Road, Elizabethtown, Kentucky leased to Dana Corporation, and (3) Dry Ridge, Kentucky and Owensboro, Kentucky leased to Dana Corporation. Furthermore, all properties of the MLP’s subsidiaries that are not encumbered by property specific debt are cross-collateralized under the MLP’s secured loan and, in addition, one set of four properties and one set of three properties are cross-collateralized. In addition, the MLP’s $225.0 million loan (of which $213.6 million is cross-collateralized.outstanding at December 31, 2007) is secured by a borrowing base of 41 properties. To the extent that any of our properties are cross-collateralized, any default by us under the mortgage note relating to one property will result in a default under the financing arrangements relating to any other property that also provides security for that mortgage note or is cross-collateralized with such mortgage note.
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We face possible liability relating to environmental matters.
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property, we may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under our properties, 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. These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may be imposed on us in connection with the activities of an operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages and our liability therefore could exceed the value of the propertyand/or our aggregate assets. In addition, the presence of those substances, or the failure to properly dispose of or remove those substances, may adversely affect our ability to sell or rent that property or to borrow using that property as collateral, which, in turn, would reduce our revenues and ability to make distributions.
A property can also be adversely affected either through physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties. Although our tenants are primarily responsible for any environmental damages and claims related to the leased premises, in the event of the bankruptcy or inability of any of our tenants to satisfy any obligations with respect to the property leased to that tenant, we may be required to satisfy such obligations. In addition, we may be held directly liable for any such damages or claims irrespective of the provisions of any lease.
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From time to time, in connection with the conduct of our business, we authorize the preparation of Phase I environmental reports and, when necessary, Phase II environmental reports, with respect to our properties. Based upon these environmental reports and our ongoing review of our properties, as of the date of this Annual Report, we are not aware of any environmental condition with respect to any of our properties that we believe would be reasonably likely to have a material adverse effect on us.
There can be no assurance, however, that the environmental reports will reveal all environmental conditions at our properties or that the following will not expose us to material liability in the future:
| • | the discovery of previously unknown environmental conditions; | ||
| • | changes in law; | ||
| • | activities of tenants; or | ||
| • | activities relating to properties in the vicinity of our properties. |
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 could adversely affect our financial condition or results of operations.
Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition.
We carry comprehensive liability, fire, extended coverage and rent loss insurance on most of our properties, with policy specifications and insured limits that we believe are customary for similar properties. However, with respect to those properties where the leases do not provide for abatement of rent under any circumstances, we generally do not maintain rent loss insurance. In addition, there are certain types of losses, such as losses resulting from wars, terrorism or certain acts of God that generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types would adversely affect our financial condition.
Future terrorist attacks such as the attacks which occurred in New York City, Pennsylvania and Washington, D.C. on September 11, 2001, and the military conflicts such as the military actions taken by the
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United States and its allies in Afghanistan and Iraq, could have a material adverse effect on general economic conditions, consumer confidence and market liquidity.
Among other things, it is possible that interest rates may be affected by these events. An increase in interest rates may increase our costs of borrowing, leading to a reduction in our net income. These types of terrorist acts could also result in significant damages to, or loss of, our properties.
We and our tenants may be unable to obtain adequate insurance coverage on acceptable economic terms for losses resulting from acts of terrorism. Our lenders may require that we carry terrorism insurance even if we do not believe this insurance is necessary or cost effective. We may also be prohibited under the applicable lease from passing all or a portion of the cost of such insurance through to the tenant. Should an act of terrorism result in an uninsured loss or a loss in excess of insured limits, we could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types would adversely affect our financial condition.
Competition may adversely affect our ability to purchase properties.
There are numerous commercial developers, real estate companies, financial institutions and other investors with greater financial resources than we have that compete with us in seeking properties for acquisition and tenants who will lease space in our properties. Due to our focus on net lease properties located throughout the United States, and because most competitors are locallyand/or regionally focused, we do not encounter the same competitors in each market. Our competitors include other REITs, financial institutions, insurance companies, pension funds, private companies and individuals. This competition may result in a higher cost for properties that we wish to purchase.
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Our failure to maintain effective internal controls could have a material adverse effect on our business, operating results and share price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments.reporting. If we fail to maintain the adequacy of our internal controls, as such standards may be modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and to maintain our qualification as a REIT and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, our REIT qualification could be jeopardized, investors could lose confidence in our reported financial information, and the trading price of our shares could drop significantly.
We may have limited control over our co-investment programs and joint venture investments.
Our joint venture investments constitute a significant portion of our assetsco-investment programs and will constitute a significant component of our growth strategy. Our joint venture investments may involve risks not otherwise present for investments made solely by us, including the possibility that our joint venture partner might, at any time, become bankrupt, have different interests or goals than we do, or take action contrary to our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT. Other risks of co-investment programs and joint venture investments include impasse on decisions, such as a sale, because neither we nor a joint ventureour partner have full control over the co-investment programs or joint venture. Also, there is no limitation under our organizational documents as to the amount of funds that may be invested in co-investment programs and joint ventures.
One of the joint ventures,co-investment programs, Concord, Debt Holdings LLC, is owned equally by the MLP and a subsidiary of Winthrop. This joint venture, which recently completed a CDO offering,co-investment program, is managed by an investment committee which consists of fiveseven members, twothree members appointed by each of the MLP and Winthrop (with one appointee from each of the MLP and Winthrop qualifying as “independent”) and the fifthseventh member appointed by FUR Holdings LLC, the administrative manager of Concord and primary owner of the former external advisor of the MLP and the current external advisor of Winthrop. Each investment in excess of $20.0 million to be made by this joint venture, as well as additional material matters, requires the consent of three members of the investment committee appointed by the MLP and Winthrop. Accordingly, the joint ventureConcord may
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not take certain actions or invest in certain assets even if the MLP believes it to be in its best interest. Michael L. Ashner, our Executive Chairman and Director of Strategic TransactionsAcquisitions is also the Chairman and Chief Executive Officer of Winthrop, andthe managing member of FUR Holdings LLC.LLC and the seventh member of Concord’s investment committee.
Another co-investment program, NLS, is managed by an Executive Committee comprised of three persons appointed by us and two persons appointed by our partner. With few exceptions, the vote of four members of the Executive Committee is required to conduct business. Accordingly, we do not control the business decisions of this co-investment.
Under the terms of our active joint venture with the CRF,limited partnership agreement governing NLS, we are required to first offer to the joint venture 50% of ourNLS all opportunities to acquire office and industrial properties requiring a minimum investment of $15.0 million which are net leased primarily to investment grade tenants for a minimum term of ten years, are available for immediate delivery and satisfy other specified investment criteria.
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leased. Only if a joint venture partnerNLS elects not to approve the applicable joint venture’s pursuit of an acquisition opportunity or the applicable exclusivity conditions have expired, may we pursue the opportunity directly. As a result, of the foregoing rights of first offer, we may not be able to make attractive acquisitions directly and may only receive an interest in such acquisitions through our interest in these joint ventures.NLS.
Certain of our trustees and officers may face conflicts of interest with respect to sales and refinancings.
Michael L. Ashner, E. Robert Roskind and Richard J. Rouse, our Executive Chairman and Director of Strategic Acquisitions, Co-Vice Chairman, and Co-Vice Chairman and Chief Investment Officer, respectively, each own limited partnership interests in certain of our operating partnerships, and as a result, may face different and more adverse tax consequences than our other shareholders will if we sell certain properties or reduce mortgage indebtedness on certain properties. Those individuals may, therefore, have different objectives than our other shareholders regarding the appropriate pricing and timing of any sale of such properties or reduction of mortgage debt.
Accordingly, there may be instances in which we may not sell a property or pay down the debt on a property even though doing so would be advantageous to our other shareholders. In the event of an appearance of a conflict of interest, the conflicted trustee or officer must recuse himself or herself from any decision making or seek a waiver of our Code of Business Conduct and Ethics.
Our ability to change our portfolio is limited because real estate investments are illiquid.
Equity investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions will be limited. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number of properties in which we may seek to invest or on the concentration of investments in any one geographic region. We could change our investment, disposition and financing policies without a vote of our shareholders.
There can be no assurance that we will remain qualified as a REIT for federal income tax purposes.
We believe that we have met the requirements for qualification as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 1993, and we intend to continue to meet these requirements in the future. However, qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code, of 1986, as amended (the “Code”), for which there are only limited judicial or administrative interpretations. No assurance can be given that we have qualified or will remain qualified as a REIT. The Code provisions and income tax regulations applicable to REITs are more complex than those applicable to corporations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to continue to qualify as a REIT. In addition, no assurance can be given that legislation, regulations, administrative interpretations or court decisions will not significantly change the requirements for qualification as a REIT or the federal income tax consequences of such qualification. If we do not qualify as a REIT, we would not be allowed a deduction for distributions to shareholders in computing our net taxable income. In addition, our income would be subject to tax at the regular corporate rates. We also could be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. Cash available for distribution to our shareholders would be significantly reduced for each
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year in which we do not qualify as a REIT. In that event, we would not be required to continue to make distributions. Although we currently intend to continue to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause us, without the consent of the shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification.
Distribution requirements imposed by law limit our flexibility.
To maintain our status as a REIT for federal income tax purposes, we are generally required to distribute to our shareholders at least 90% of our taxable income for that calendar year. Our taxable income is determined without regard to any deduction for dividends paid and by excluding net capital gains. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any year are less than the sum of (i) 85% of our ordinary income for that year, (ii) 95% of our capital gain net income for that year and (iii) 100% of our undistributed taxable income from prior years. We intend to continue to make distributions to our shareholders to comply with the distribution requirements
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of the Code and to reduce exposure to federal income and nondeductible excise taxes. Differences in timing between the receipt of income and the payment of expenses in determining our income and the effect of required debt amortization payments could require us to borrow funds on a short-term basis in order to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT.
Certain limitations limit a third party’s ability to acquire us or effectuate a change in our control.
Limitations imposed to protect our REIT status.In order to protect us against the loss of our REIT status, our declaration of trust limits any shareholder from owning more than 9.8% in value of any class of our outstanding shares, subject to certain exceptions. The ownership limit may have the effect of precluding acquisition of control of us.
Severance payments under employment agreements.Substantial termination payments may be required to be paid under the provisions of employment agreements with certain of our executives upon a change of control. We have entered into employment agreements with sevenfive of our executive officers which provide that, upon the occurrence of a change in control of us (including a change in ownership of more than 50% of the total combined voting power of our outstanding securities, the sale of all or substantially all of our assets, dissolution, the acquisition, except from us, of 20% or more of our voting shares or a change in the majority of our Board of Trustees), four of those executive officers would be entitled to severance benefits based on their current annual base salaries, recent annual cash bonuses and the average of the value of the two most recent long-term incentive awards and one of those executive would be entitled to severance benefits based on his current annual base salary and recent annual bonuses,cash bonus, as defined in the employment agreements. The provisions of these agreements could deter a change of control of us. Accordingly, these payments may discourage a third party from acquiring us.
Limitation due to our ability to issue preferred shares.Our amended and restated declaration of trust authorizes theour Board of Trustees to issue preferred shares, without shareholder approval. The Board of Trustees is able to establish the preferences and rights of any preferred shares issued which could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in shareholders’ best interests. As of the date of this Annual Report, we had outstanding 3,160,000 Series B Preferred Shares that we issued in June 2003, 3,100,000 Series C Preferred Shares that we issued in December 2004 and January 2005, 6,200,000 Series D Preferred Shares that we issued in February 2007, and one share of our special voting preferred stock that we issued in December 2006 in connection with the Merger. Our Series B, Series C and Series D Preferred Shares and our special voting preferred stock include provisions that may deter a change of control. The establishment and issuance of shares of our existing series of preferred shares or a future series of preferred shares could make a change of control of us more difficult.
Limitation imposed by the Maryland Business Combination Act.The Maryland General Corporation Law, as applicable to Maryland REITs, establishes special restrictions against “business combinations” between a Maryland REIT and “interested shareholders” or their affiliates unless an exemption is applicable. An interested shareholder includes a person who beneficially owns, and an affiliate or associate of the trust who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting
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power of our then-outstanding voting shares, but a person is not an interested shareholder if the Board of Trustees approved in advance the transaction by which he otherwise would have been an interested shareholder. Among other things, Maryland law prohibits (for a period of five years) a merger and certain other transactions between a Maryland REIT and an interested shareholder. The five-year period runs from the most recent date on which the interested shareholder became an interested shareholder. Thereafter, any such business combination must be recommended by the Board of Trustees and approved by two super-majority shareholder votes unless, among other conditions, the common shareholders receive a minimum price for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for its shares. The statute permits various exemptions from its provisions, including business combinations that are exempted by the Board of Trustees prior to the time that the interested shareholder becomes an interested shareholder. The business combination statute could have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if such acquisition would be in shareholders’ best interests. In connection with our merger with Newkirk, certain holders of MLP securitiesVornado Realty Trust, which we refer to as Vornado, and Apollo Real Estate Investment Fund III, L.P., which we refer to as Apollo, were granted a limited exemption from the definition of “interested shareholder.”
Maryland Control Share Acquisition Act.Maryland law provides that “control shares” of a Maryland REIT acquired in a “control share acquisition” shall have no voting rights except to the extent approved by a vote oftwo-thirds of the vote entitled to be cast on the matter under the Maryland Control Share Acquisition Act. Shares owned by the acquiror, by our officers or by employees who are our trustees are excluded from shares entitled to vote on the matter. “Control Shares” means shares that, if aggregated with all other shares previously acquired by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing trustees within one of the following ranges of voting power: one-tenth or more but less than one-third, one-third or more but less than a majority or a majority or more of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained shareholder approval. A “control share acquisition” means the acquisition of control shares, subject to certain
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exceptions. If voting rights of control shares acquired in a control share acquisition are not approved at a shareholders’ meeting, then subject to certain conditions and limitations the issuer may redeem any or all of the control shares for fair value. If voting rights of such control shares are approved at a shareholders’ meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights. Any control shares acquired in a control share acquisition which are not exempt under our by-laws will be subject to the Maryland Control Share Acquisition Act. Our amended and restated by-laws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions by any person of our shares. We cannot assure you that this provision will not be amended or eliminated at any time in the future.
Limits on ownership of our capital shares may have the effect of delaying, deferring or preventing someone from taking control of us.
For us to qualify as a REIT for federal income tax purposes, among other requirements, not more than 50% of the value of our outstanding capital shares may be owned, directly or indirectly, by five or fewer individuals (as defined for federal income tax purposes to include certain entities) during the last half of each taxable year, and these capital shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year (in each case, other than the first such year for which a REIT election is made). Our amended and restated declaration of trust includes certain restrictions regarding transfers of our capital shares and ownership limits.
Actual or constructive ownership of our capital shares in excess of the share ownership limits contained in its declaration of trust would cause the violative transfer or ownership to be void or cause the shares to be transferred to a charitable trust and then sold to a person or entity who can own the shares without violating these limits. As a result, if a violative transfer were made, the recipient of the shares would not acquire any economic or voting rights attributable to the transferred shares. Additionally, the constructive ownership rules for these limits are complex and groups of related individuals or entities may be deemed a single owner and consequently in violation of the share ownership limits.
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These restrictions and limits may not be adequate in all cases, however, to prevent the transfer of our capital shares in violation of the ownership limitations. The ownership limits discussed above may have the effect of delaying, deferring or preventing someone from taking control of us, even though a change of control could involve a premium price for the common shares or otherwise be in shareholders’ best interests.
Legislative or regulatory tax changes could have an adverse effect on us.
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or you as a shareholder. REIT dividends generally are not eligible for the reduced rates currently applicable to certain corporate dividends (unless attributable to dividends from LSAC and other taxable REIT subsidiaries and otherwise eligible for such rates). As a result, investment in non-REIT corporations may be relatively more attractive than investment in REITs. This could adversely affect the market price of our shares.
Our Board of Trustees may change our investment policy without shareholders’ approval.
Subject to our fundamental investment policy to maintain our qualification as a REIT, our Board of Trustees will determine its investment and financing policies, growth strategy and its debt, capitalization, distribution, acquisition, disposition and operating policies.
Our Board of Trustees may revise or amend these strategies and policies at any time without a vote by shareholders. Accordingly, shareholders’ control over changes in our strategies and policies is limited to the election of trustees, and changes made by our Board of Trustees may not serve the interests of shareholders and could adversely affect our financial condition or results of operations, including our ability to distribute cash to shareholders or qualify as a REIT.
The Merger presentspresented and continues to present challenges to management, including the integration of our operations and properties with those of Newkirk. The Merger also poses other risks commonly associated with similar transactions, including unanticipated liabilities, unexpected costs and the diversion of management’s attention to the integration of the operations of the two entities. Any difficulties that we encounter in the transition and integration processes, and any level of integration that is not successfully achieved, could have an adverse effect
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on our revenues, level of expenses and operating results. We may also experience operational interruptions or the loss of key employees, tenants and customers. As a result, notwithstanding our expectations, we may not realize any of the anticipated benefits or cost savings of the Merger.
We may not be able to successfully implement and complete the strategic restructuring plan.
We can provide no assurance that we will be able to implement and complete the strategic restructuring plan as disclosed in our Current Report onForm 8-K filed with the SEC on June 7, 2007. As a result, we may not realize any of the anticipated benefits of the strategic restructuring plan. We may also incur significant expenses and experience operational interruptions while implementing the strategic restructuring plan.
Our inability to carry out our growth strategy could adversely affect our financial condition and results of operations.
Our growth strategy is based on the acquisition and development of additional properties and related assets, including acquisitions of large portfolios and real estate companies and acquisitions through co-investment programs such as joint ventures. In the context of our business plan, “development” generally means an expansion or renovation of an existing property or the acquisition of a newly constructed property. We may provide a developer with a commitment to acquire a property upon completion of construction of a property and commencement of rent from the tenant. Our plan to grow through the acquisition and development of new properties could be adversely affected by trends in the real estate and financing businesses. The consummation of any future acquisitions will be subject to satisfactory completion of an extensive valuation analysis and due diligence review and to the negotiation of definitive documentation. Our ability to implement our strategy may be impeded because we may have difficulty
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finding new properties and investments at attractive prices that meet our investment criteria, negotiating with new or existing tenants or securing acceptable financing. If we are unable to carry out our strategy, our financial condition and results of operations could be adversely affected.
Acquisitions of additional properties entail the risk that investments will fail to perform in accordance with expectations, including operating and leasing expectations. Redevelopment and new project development are subject to numerous risks, including risks of construction delays, cost overruns or force majeure events that may increase project costs, new project commencement risks such as the receipt of zoning, occupancy and other required governmental approvals and permits, and the incurrence of development costs in connection with projects that are not pursued to completion.
Some of our acquisitions and developments may be financed using the proceeds of periodic equity or debt offerings, lines of credit or other forms of secured or unsecured financing that may result in a risk that permanent financing for newly acquired projects might not be available or would be available only on disadvantageous terms. If permanent debt or equity financing is not available on acceptable terms to refinance acquisitions undertaken without permanent financing, further acquisitions may be curtailed or cash available for distribution to shareholders may be adversely affected.
The concentration of ownership by certain investors may limit other shareholders from influencing significant corporate decisions.
As of December 31, 2006 (after the exchange of all shares of Newkirk in the Merger),2007, Michael L. Ashner, our Executive Chairman and Director of Strategic Acquisitions, and Winthrop collectively owned 3,604,0003.8 million of our outstanding common shares and Mr. Ashner, Vornado Realty Trust, which we refer to as Vornado, and Apollo Real Estate Investment Fund III, L.P., which we refer to as Apollo, collectively owned 27,684,37827.7 million voting MLP units which are redeemable by the holder thereof for, at our election, cash or our common shares. Accordingly, on a fully-diluted basis, Mr. Ashner, Apollo, Vornado and Winthrop collectively held a 28.4%31.2% ownership interest in us, as of December 31, 2006 (after the exchange of all shares of Newkirk in the Merger).2007. As holders of voting MLP units, Mr. Ashner, Vornado and Apollo, as well as other holders of voting MLP units, have the right to direct the voting of our special voting preferred stock. Holders of interests in our other operating partnerships do not have voting rights. In addition, Mr. Ashner controls NKT Advisors, LLC, which holds the one share of our special voting preferred stock pursuant to a voting trustee agreement. To the extent that an affiliate of Vornado is a member of our Board of Trustees, NKT Advisors, LLC has the right to direct the vote of the voting MLP units held by Vornado with respect to the election of members of our Board of Trustees. Clifford Broser, a member of our Board of Trustees, is a Senior Vice President of Vornado.
E. Robert Roskind, our Co-Vice Chairman, owned, as of December 31, 2006, 819,6562007, 0.9 million of our common shares and 1,565,2821.5 million units of our limited partnershippartner interest in our other operating partnerships, which are redeemable for our common shares on a one for one basis, or with respect to a portion of the units, at our election, cash or our common shares.cash. On a fully diluted basis, Mr. Roskind held a 2.2%2.4% ownership interest in us as of December 31, 2006 (after the exchange of all shares of common stock of Newkirk in the Merger).2007.
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Securities eligible for future sale may have adverse effects on our share price.
An aggregate of approximately 41,207,61539.7 million of our common shares becameare issuable upon: (i)upon the exchange of units of limited partnership interests in our operating partnership subsidiaries (41,191,115 common shares in the aggregate), and (ii) the exercise of outstanding options under our equity-based award plans (16,500 common shares).subsidiaries. Depending upon the number of such securities exchanged or exercised at one time, an exchange or exercise of such securities could be dilutive to or otherwise adversely affect the interests of holders of our common shares.
We are dependent upon our key personnel and the terms of Mr. Ashner’s employment agreement affects our ability to make certain investments.
We are dependent upon key personnel whose continued service is not guaranteed. We will beare dependent on our executive officers for strategic business direction and real estate experience. Prior to the Merger, we haddirection. We have entered into employment agreements with certain employees, including Michael L. Ashner, our Executive Chairman and our Director of Strategic Acquisitions, E. Robert Roskind, our Chairman,Co-Vice-Chairman, Richard J. Rouse, our ViceCo-Vice Chairman and Chief Investment Officer, T. Wilson Eglin, our Chief Executive Officer, President and Chief Operating Officer, and Patrick Carroll, our Executive Vice President, Chief Financial Officer and
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acquire or make an investment in anon-net lease business opportunity during the term of Mr. Ashner’s employment. This provision in Mr. Ashner’s agreement may cause us not to avail ourselves of those other business opportunities due to the potential consequences of acquiring suchnon-net lease business opportunities.
Our inability to retain the services of any of our key personnel or our loss of any of their services could adversely impact our operations. We do not have key man life insurance coverage on our executive officers.
In addition to the risks described above, our investment in Concord is subject to the following additional risks:
Concord invests in a variety of subordinate loan securities, and sometimes holds a “first loss” subordinate holder position. The ability of a borrower to make payments on the loan underlying these securities is dependent primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower since the underlying loans are generally non-recourse in nature. In the event of default and the exhaustion of any equity support, reserve funds, letters of credit and any classes of securities junior to those in which Concord invests, Concord will not be able to recover all of its investment in the securities purchased.
Expenses of enforcing the underlying mortgage loans (including litigation expenses), expenses of protecting the properties securing the mortgage loans and the liens on the mortgaged properties, and, if such expenses are advanced by the servicer of the mortgage loans, interest on such advances will also be allocated to such “first loss” securities prior to allocation to more senior classes of securities issued in the securitization. Prior to the reduction of distributions to more senior securities, distributions to the “ first loss” securities may also be reduced by payment of compensation to any servicer engaged to enforce a defaulted mortgage loan. Such expenses and servicing compensation may be substantial and consequently, in the event of a default or loss on one or more mortgage loans contained in a securitization, Concord may not recover its investment.
Concord’s warehouse facilities and its CDO financing agreements may limit its ability to make investments.
In order for Concord to borrow money to make investments under its repurchase facilities, its repurchase counterparty has the right to review the potential investment for which Concord is seeking financing. Concord may be unable to obtain the consent of its repurchase counterparty to make certain investments. Concord may be unable to obtain alternate financing for that investment. Concord’s repurchase counterparty consent rights with respect to its warehouse facility may limit Concord’s ability to execute its business strategy.
The repurchase agreements that Concord uses to finance its investments may require it to provide additional collateral.
If the market value of the loan assets and loan securities pledged or sold by Concord to a repurchase counterparty decline in value, which decline is determined, in most cases, by the repurchase counterparty, Concord may be required by the repurchase counterparty to provide additional collateral or pay down a portion of the funds advanced. Concord may not have the funds available to pay down its debt, which could result in defaults. Posting additional collateral to support its repurchase facilities will reduce Concord’s liquidity and limit its ability to leverage its assets. Because Concord’s obligations under its repurchase facilities are recourse to Concord, if Concord does not have sufficient liquidity to meet such requirements, it would likely result in a rapid deterioration of Concord’s financial condition and solvency.
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Concord’s future investment grade CDOs, if any, will be collateralized with loan assets and debt securities that are similar to those collateralizing its existing investment grade CDO, and any adverse market trends are likely to adversely affect the issuance of future CDOs as well as Concord’s CDOs in general.
Concord’s existing investment grade CDO is collateralized by fixed and floating rate loan assets and debt securities, and we expect that future issuances, if any, will be backed by similar loan assets and debt securities. Any adverse market trends that affect the value of these types of loan assets and debt securities will adversely affect the value of Concord’s interests in the CDOs and, accordingly, our interest in Concord. Such trends could include declines in real estate values in certain geographic markets or sectors, underperformance of loan assets and debt securities, or changes in federal income tax laws that could affect the performance of debt issued by REITs.
Credit ratings assigned to Concord’s investments are subject to ongoing evaluations and we cannot assure you that the ratings currently assigned to Concord’s investments will not be downgraded.
Some of Concord’s investments are rated by Moody’s Investors Service, Fitch Ratings or Standard & Poor’s, Inc. The credit ratings on these investments are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. If rating agencies assign a lower-than-expected rating or reduce, or indicate that they may reduce, their ratings of Concord’s investments the market value of those investments could significantly decline, which may have an adverse affect on Concord’s financial condition.
The use of CDO financings with coverage tests may have a negative impact on Concord’s operating results and cash flows.
Concord’s current CDO contains, and it is likely that future CDOs, if any, will contain coverage tests, including over-collateralization tests, which are used primarily to determine whether and to what extent principal and interest proceeds on the underlying collateral debt securities and other assets may be used to pay principal of and interest on the subordinate classes of bonds in the CDO. In the event the coverage tests are not met, distributions otherwise payable to Concord may be re-directed to pay principal on the bond classes senior to Concord’s. Therefore, Concord’s failure to satisfy the coverage tests could adversely affect Concord’s operating results and cash flows.
Certain coverage tests which may be applicable to Concord’s interest in its CDOs (based on delinquency levels or other criteria) may also restrict Concord’s ability to receive net income from assets pledged to secure the CDOs. If Concord’s assets fail to perform as anticipated, Concord’s over-collateralization or other credit enhancement expenses associated with its CDO will increase. There can be no assurance of completing negotiations with the rating agencies or other key transaction parties on any future CDOs, as to what will be the actual terms of the delinquency tests, over-collateralization, cash flow release mechanisms or other significant factors regarding the calculation of net income to Concord. Failure to obtain favorable terms with regard to these matters may materially reduce net income to Concord.
If credit spreads widen, the value of Concord’s assets may suffer.
The value of Concord’s loan securities is dependent upon the yield demand on these loan securities by the market based on the underlying credit. A large supply of these loan securities combined with reduced demand will generally cause the market to require a higher yield on these loan securities, resulting in a higher, or “wider’, spread over the benchmark rate of such loan securities. Under such conditions, the value of loan securities in Concord’s portfolio would tend to decline. Such changes in the market value of Concord’s portfolio may adversely affect its net equity through their impact on unrealized gains or losses on available-for-sale loan securities, and therefore Concord’s cash flow, since Concord would be unable to realize gains through sale of such loan securities. Also, they could adversely affect Concord’s ability to borrow and access capital.
The value of Concord’s investments in mortgage loans, mezzanine loans and participation interests in mortgage and mezzanine loans is also subject to changes in credit spreads. The majority of the loans Concord invests in are floating rate loans whose value is based on a market credit spread to LIBOR. The value of the loans is dependent upon the yield demanded by the market based on their credit. The value of Concord’s portfolio would tend to decline should the market require a higher yield on such loans, resulting in the use of a higher spread over the
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benchmark rate. Any credit or spread losses incurred with respect to Concord’s loan portfolio would affect Concord in the same way as similar losses on Concord’s loan securities portfolio as described above.
Concord prices its assets based on its assumptions about future credit spreads for financing of those assets. Concord has obtained, and may obtain in the future, longer term financing for its assets using structured financing techniques such as CDOs. Such issuances entail interest rates set at a spread over a certain benchmark, such as the yield on United States Treasury obligations, swaps or LIBOR. If the spread that investors are paying on structured finance vehicles over the benchmark widens and the rates Concord charges on its securitized assets are not increased accordingly, this may reduce Concord’s income or cause losses.
Prepayments can increase, adversely affecting yields on Concord’s investments.
The value of Concord’s assets may be affected by an increase in the rate of prepayments on the loans underlying its loan assets and loan securities. The rate of prepayment on loans is influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond Concord’s control and consequently such prepayment rates cannot be predicted with certainty. In periods of declining real estate loan interest rates, prepayments of real estate loans generally increase. If general interest rates decline as well, the proceeds of such prepayments received during such periods are likely to be reinvested by us in assets yielding less than the yields on the loans that were prepaid. Under certain interest rate and prepayment scenarios Concord may fail to recoup fully its cost of acquisition of certain investment.
Concord may not be able to issue CDO securities, which may require Concord to seek more costly financing for its real estate loan assets or to liquidate assets.
Concord has and may continue to seek to finance its loan assets on a long-term basis through the issuance of CDOs. Prior to any new investment grade CDO issuance, there is a period during which real estate loan assets are identified and acquired for inclusion in a CDO, known as the repurchase facility accumulation period. During this period, Concord authorizes the acquisition of loan assets and debt securities under one or more repurchase facilities from repurchase counterparties. The repurchase counterparties then purchase the loan assets and debt securities and hold them for later repurchase by Concord. Concord contributes cash and other collateral to be held in escrow by the repurchase counterparty to back Concord’s commitment to purchase equity in the CDO, and to cover its share of losses should loan assets or debt securities need to be liquidated. As a result, Concord is subject to the risk that it will not be able to acquire, during the period that its warehouse facilities are available, a sufficient amount of loan assets and debt securities to support the execution of an investment grade CDO issuance. In addition, conditions in the capital markets may make it difficult, if not impossible, for Concord to pursue a CDO when it does have a sufficient pool of collateral. If Concord is unable to issue a CDO to finance these assets or if doing so is not economical, Concord may be required to seek other forms of potentially less attractive financing or to liquidate the assets at a price that could result in a loss of all or a portion of the cash and other collateral backing its purchase commitment.
The recent capital market crisis has made financings through CDOs difficult.
The recent events in the subprime mortgage market have impacted Concord’s ability to consummate a second CDO. Although Concord holds only one bond of $11.5 million which has minimal exposure to subprime residential mortgages, conditions in the financial capital markets have made issuances of CDOs at this time less attractive to investors. As of December 31, 2007, Concord has recorded an other- than — temporary impairment charge relating to this asset of $4.9 million. If Concord is unable to issue future CDOs to finance its assets, Concord will be required to hold its loan assets under its existing warehouse facilities longer than originally anticipated or seek other forms of potentially less attractive financing. The inability to issue future CDOs at accretive rates will have a negative impact on Concord’s cash flow and anticipated return.
The lack of a CDO market may require us to make a larger equity investment in Concord.
As of December 31, 2007, we had committed to invest up to $162.5 million in Concord, of which $5.1 million remains to be invested. In view of the difficulties in the CDO market, we may continue to invest additional amounts in Concord only upon approval of our Board of Trustees.
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Concord may not be able to access financing sources on favorable terms, or at all, which could adversely affect its ability to execute its business plan and its ability to make distributions.
Concord finances its assets through a variety of means, including repurchase agreements, credit facilities, CDOs and other structured financings. Concord may also seek to finance its investments through the issuance of common or preferred equity interests. Concord’s ability to execute this strategy depends on various conditions in the capital markets, which are beyond its control. If these markets are not an efficient source of long-term financing for Concord’s assets, Concord will have to find alternative forms of long-term financing for its assets. This could subject Concord to more expensive debt and financing arrangements which would require a larger portion of its cash flows, thereby reducing cash available for distribution to its members and funds available for operations as well as for future business opportunities.
Concord may make investments in assets with lower credit quality, which will increase our risk of losses.
Concord may invest in unrated loan securities or participate in unrated or distressed mortgage loans. The anticipation of an economic downturn, for example, could cause a decline in the price of lower credit quality investments and securities because the ability of obligors of mortgages, including mortgages underlying mortgage-backed securities, to make principal and interest payments may be impaired. If this were to occur, existing credit support in the warehouse structure may be insufficient to protect Concord against loss of its principal on these investments and securities.
| Item 1B. | Unresolved Staff Comments |
There are no unresolved written comments that were received from the SEC staff 180 days or more before the end of our fiscal year relating to our periodic or current reports under the Securities Exchange Act of 1934.
| Item 2. | Properties |
Real Estate Portfolio
General.As of December 31, 2006,2007, we owned or had interests in approximately 58.945.5 million square feet of rentable space in approximately 365280 consolidated office, industrial and retail properties. As of December 31, 2006,2007, our properties were 97.5%95.6% leased based upon net rentable square feet.
Our properties are generally subject to net leases; however, in certain leases we are responsible for roof and structural repairs. In such situations, we perform annual inspections of the properties. In addition, certain of our properties (including those held through non-consolidated entities) are subject to leases in which the landlord is responsible for a portion of the real estate taxes, utilities and general maintenance. We are responsible for all operating expenses of any vacant properties and we may be responsible for a significant amount of operating expenses of multi-tenant properties.
Ground Leases.We, including through non-consolidated entities, have numerous Certain of our properties that are subject to long-term ground leases where a third party owns and leases the underlying land to us. Certain of these properties are economically owned through the holding of industrial revenue bonds and as such neither ground lease payments nor bond interest payments are made or received, respectively. For certain of the properties held under a ground lease, we have a purchase option. At the end of these long-term ground leases, unless extended or the purchase option exercised, the land together with all improvements thereon reverts to the landowner. In addition, we have one property in which a portion of the land, on which a portion of the parking lot is located, is subject to a ground lease. At expiration of the ground lease, only that portion of the parking lot reverts to the landowner.
Leverage.We generally use fixed rate, non-recourse mortgages to partially fund the acquisition of real estate. As of December 31, 2006,2007, we had outstanding mortgages and notes payable, including mortgages classified as discontinued operations, of $2.1$3.0 billion with a weighted average interest rate of 6.1%5.9%.
Table Regarding Real Estate Holdings
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LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
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| Primary | Net | |||||||||||||||
| Tenant | Rentable | Current Term | Percent | |||||||||||||
Property Location | City | State | (Guarantor) | Square Feet | Leases Expiration | Leased | ||||||||||
| 6303 Barfield Rd | Atlanta | GA | International Business Machines Corporation (Internet Security Systems, Inc.) | 238,600 | 5/31/2013 | 100 | % | |||||||||
| 859 Mount Vernon Hwy | Atlanta | GA | International Business Machines Corporation (Internet Security Systems, Inc.) | 50,400 | 5/31/2013 | 100 | % | |||||||||
| 4000 Johns Creek Pwy | Suwanee | GA | Kraft Foods N.A., Inc. | 87,219 | 1/31/2012 | 100 | % | |||||||||
| 160 Clairemont Ave | Decatur | GA | Multi-tenanted | 121,686 | 12/31/2007 | 24 | % | |||||||||
| King St. | Honolulu | HI | Multi-tenanted | 236,545 | Various | 93 | % | |||||||||
| 1275 N.W. 128th St. | Clive | IA | Principal Life Insurance Company | 61,180 | 1/31/2012 | 100 | % | |||||||||
| 101 E. Erie St. | Chicago | IL | FCB Worldwide, Inc. (Interpublic Group of Companies, Inc.) | 227,569 | 3/15/2014 | 100 | % | |||||||||
| 850 & 950 Warrenville Rd | Lisle | IL | National Louis University | 99,329 | 12/31/2019 | 100 | % | |||||||||
| 500 Jackson St. | Columbus | IN | Cummins Engine Company, Inc. | 390,100 | 7/31/2019 | 100 | % | |||||||||
| 10300 Kincaid Dr. | Fishers | IN | Bank One Indiana, N.A. | 193,000 | 10/31/2009 | 100 | % | |||||||||
| 5757 Decatur Blvd. | Indianapolis | IN | Allstate Insurance Company | 89,956 | 8/31/2012 | 100 | % | |||||||||
| 10475 Crosspoint Blvd. | Fishers | IN | John Wiley & Sons, Inc. | 141,047 | 10/31/2019 | 100 | % | |||||||||
| 2300 Litton Lane | Hebron | KY | AGC Automotive Americas Company (AFG Industries, Inc.) | 80,441 | 8/31/2012 | 58 | % | |||||||||
| 5200 Metcalf Ave | Overland Park | KS | Employers Reinsurance Corporation | 291,168 | 12/22/2018 | 100 | % | |||||||||
| 4455 American Way | Baton Rouge | LA | Bell South Mobility, Inc. | 70,100 | 10/31/2012 | 100 | % | |||||||||
| 147 Milk St. | Boston | MA | Harvard Vanguard Medical Association | 52,337 | 5/31/2012 | 100 | % | |||||||||
| 33 Commercial St. | Foxboro | MA | Invensys Systems, Inc. (Siebe, Inc.) | 164,689 | 7/1/2015 | 100 | % | |||||||||
| 70 Mechanic St. | Foxboro | MA | Invensys Systems, Inc. (Siebe, Inc.) | 251,914 | 6/30/2014 | 100 | % | |||||||||
| 100 Light St. | Baltimore | MD | St. Paul Fire and Marine Insurance Company | 530,000 | 9/30/2009 | 100 | % | |||||||||
| 27404 Drake Rd | Farmington Hills | MI | Vacant | 108,499 | None | 0 | % | |||||||||
| 3701 Corporate Dr. | Farmington Hills | MI | Temic Automotive of North America, Inc. | 119,829 | 12/31/2016 | 100 | % | |||||||||
| 26555 Northwestern Hwy | Southfield | MI | Federal-Mogul Corporation | 187,163 | 1/31/2015 | 100 | % | |||||||||
| 3165 McKelvey Rd | Bridgeton | MO | BJC Health System | 52,994 | 3/31/2013 | 100 | % | |||||||||
| 9201 Stateline Rd | Kansas City | MO | Employers Reinsurance Corporation | 155,925 | 4/1/2019 | 100 | % | |||||||||
| 200 Lucent Lane | Cary | NC | Lucent Technologies, Inc. | 124,944 | 9/30/2011 | 100 | % | |||||||||
| 11707 Miracle Hills Dr. | Omaha | NE | (i) Structure, LLC (Infocrossing, Inc.) | 85,200 | 11/30/2025 | 100 | % | |||||||||
| 700 US Hwy. Route202-206 | Bridgewater | NJ | Biovail Pharmaceuticals, Inc. (Biovail Corporation) | 115,558 | 10/31/2014 | 100 | % | |||||||||
| 200 Milik St. | Carteret | NJ | Pathmark Stores, Inc. | 149,100 | 12/31/2011 | 100 | % | |||||||||
| 288 N. BRd. St. | Elizabeth | NJ | Bank of America | 30,000 | 8/31/2013 | 100 | % | |||||||||
| 389 & 399 Interpace Hwy | Parsippany | NJ | Sanofi-aventis U.S., Inc. (Aventis, Inc. & Aventis Pharma Holding GmbH) | 340,240 | 1/31/2010 | 100 | % | |||||||||
| 656 Plainsboro Rd | Plainsboro | NJ | Bank of America | 4,060 | 8/31/2013 | 100 | % | |||||||||
| 333 Mount Hope Ave | Rockaway | NJ | BASF Corporation | 95,500 | 9/30/2014 | 100 | % | |||||||||
PROPERTY CHART
23
| Primary | Net | |||||||||||||||
| Tenant | Rentable | Current Term | Percent | |||||||||||||
Property Location | City | State | (Guarantor) | Square Feet | Leases Expiration | Leased | ||||||||||
| 1415 Wyckoff Rd | Wall | NJ | New Jersey Natural Gas Company | 157,511 | 6/30/2021 | 100 | % | |||||||||
| 29 S. Jefferson Rd | Whippany | NJ | CAE SimuFlite, Inc. | 76,383 | 11/30/2021 | 100 | % | |||||||||
| 6226 W. Sahara Ave | Las Vegas | NV | Nevada Power Company | 282,000 | 1/31/2014 | 100 | % | |||||||||
| 180 S. Clinton St. | Rochester | NY | Frontier Corporation | 226,000 | 12/31/2014 | 100 | % | |||||||||
| 5550 Britton Pwy | Hilliard | OH | BMW Financial Services NA, LLC | 220,966 | 2/28/2021 | 100 | % | |||||||||
| 2000 Eastman Dr. | Milford | OH | Siemens Product Lifestyle Management Software, Inc. | 221,215 | 4/30/2011 | 100 | % | |||||||||
| 500 Olde Worthington Rd | Westerville | OH | InVentiv Communications, Inc. | 97,000 | 9/30/2015 | 100 | % | |||||||||
| 4848 129th E. Ave | Tulsa | OK | Metris Direct, Inc. (Metris Companies, Inc.) | 101,100 | 1/31/2010 | 100 | % | |||||||||
| 180 Rittenhouse Circle | Bristol | PA | Jones Apparel Group, Inc. | 96,000 | 7/31/2013 | 100 | % | |||||||||
| 250 Rittenhouse Circle | Bristol | PA | Jones Apparel Group, Inc. | 255,019 | 3/25/2008 | 100 | % | |||||||||
| 275 Technology Dr. | Canonsburg | PA | ANSYS, Inc. | 107,872 | 12/31/2014 | 100 | % | |||||||||
| 2550 Interstate Dr. | Harrisburg | PA | New Cingular Wireless PCS, LLC | 81,859 | 12/13/2013 | 100 | % | |||||||||
| 1701 Market St. | Philadelphia | PA | Morgan, Lewis & Bockius, LLC | 307,775 | 1/31/2014 | 100 | % | |||||||||
| 1460 Tobias Gadsen Blvd. | Charleston | SC | Hagemeyer North America, Inc. | 50,076 | 7/8/2020 | 100 | % | |||||||||
| 2210 Enterprise Dr. | Florence | SC | Washington Mutual Home Loans, Inc. | 177,747 | 6/30/2013 | 100 | % | |||||||||
| 3476 Stateview Blvd. | Fort Mill | SC | Wells Fargo Home Mortgage, Inc. | 169,083 | 1/30/2013 | 100 | % | |||||||||
| 2480 Stateview Blvd. | Fort Mill | SC | Wells Fargo Bank, N.A. | 169,218 | 5/31/2014 | 100 | % | |||||||||
| Nijborg 15 | 3927 DA Renswoude | The Netherlands | AS Watson (Health & Beauty Continental Europe) | 17,610 | 12/20/2011 | 100 | % | |||||||||
| Nijborg 17 | 3927 DA Renswoude | The Netherlands | AS Watson (Health & Beauty Continental Europe) | 114,195 | 6/14/2018 | 100 | % | |||||||||
| 207 Mockingbird Lane | Johnson City | TN | Sun Trust Bank | 63,800 | 11/30/2011 | 100 | % | |||||||||
| 1409 Centerpoint Blvd. | Knoxville | TN | Alstom Power, Inc. | 84,404 | 10/31/2014 | 100 | % | |||||||||
| 104 & 110 S. Front St. | Memphis | TN | Hnedak Bobo Group, Inc. | 37,229 | 10/31/2016 | 100 | % | |||||||||
| 3965 Airways Blvd. | Memphis | TN | Federal Express Corporation | 521,286 | 6/19/2019 | 100 | % | |||||||||
| 800 Ridgelake Blvd. | Memphis | TN | The Kroger Company | 75,000 | 7/1/2013 | 100 | % | |||||||||
| 601 & 701 Experian Pwy | Allen | TX | Experian Information Solutions, Inc. (TRW, Inc.) | 292,700 | 10/15/2010 | 100 | % | |||||||||
| 1401 & 1501 Nolan Ryan Pwy | Arlington | TX | Siemens Dematic Postal Automation, LP | 236,547 | 1/31/2014 | 100 | % | |||||||||
| 3535 Calder Ave | Beaumont | TX | Texas State Bank | 49,689 | 12/31/2012 | 100 | % | |||||||||
| 350 Pine St. | Beaumont | TX | Multi-tenanted | 425,198 | Various | 58 | % | |||||||||
| 1900 L. Don Dodson Dr. | Bedford | TX | Transamerica Life Insurance Company | 202,493 | 4/30/2019 | 29 | % | |||||||||
| 4201 Marsh Lane | Carrollton | TX | Carlson Restaurants Worldwide, Inc. (Carlson Companies, Inc.) | 130,000 | 11/30/2018 | 100 | % | |||||||||
| 4001 International Pwy | Carrollton | TX | Motel 6 Operating, LP (Accor S.A.) | 138,443 | 7/31/2015 | 100 | % | |||||||||
| 555 Dividend Dr. | Coppell | TX | Brinks, Inc. | 101,844 | 4/30/2017 | 100 | % | |||||||||
| 1600 Viceroy Dr. | Dallas | TX | TFC Services, Inc. (Freeman Decorating Company) | 249,452 | 1/31/2019 | 63 | % | |||||||||
| 6301 Gaston Ave | Dallas | TX | Multi-tenanted | 173,855 | Various | 62 | % | |||||||||
| 11511 Luna Rd | Farmers Branch | TX | Haggar Clothing Company (Texas Holding Clothing Corp. & Haggar Corp.) | 180,507 | 4/30/2016 | 100 | % | |||||||||
PROPERTY CHART
24
| Primary | Net | |||||||||||||||
| Tenant | Rentable | Current Term | Percent | |||||||||||||
Property Location | City | State | (Guarantor) | Square Feet | Leases Expiration | Leased | ||||||||||
| 1200 Jupiter Rd | Garland | TX | Raytheon Company | 278,759 | 5/31/2011 | 100 | % | |||||||||
| 10001 Richmond Ave | Houston | TX | Baker Hughes, Inc. | 554,385 | 9/27/2015 | 100 | % | |||||||||
| 15375 Memorial Dr. | Houston | TX | BP America Production Company | 327,325 | 9/15/2009 | 100 | % | |||||||||
| 810 & 820 Gears Rd | Houston | TX | IKON Office Solutions, Inc. | 157,790 | 1/31/2013 | 100 | % | |||||||||
| 2529 W. Thorn Dr. | Houston | TX | Baker Hughes, Inc. | 65,500 | 9/27/2015 | 100 | % | |||||||||
| 16676 Northchase Dr. | Houston | TX | Anadarko Petroleum Corporation | 101,111 | 7/31/2014 | 100 | % | |||||||||
| 1311 BRd.field Blvd. | Houston | TX | Transocean Offshore Deepwater Drilling, Inc. (Transocean Sedco Forex, Inc.) | 155,991 | 3/31/2011 | 100 | % | |||||||||
| 6555 Sierra Dr. | Irving | TX | TXU Energy Retail Company, LLC (Texas Competitive Electric Holdings Company, LLC) | 247,254 | 3/31/2023 | 100 | % | |||||||||
| 8900 Freeport Pwy | Irving | TX | Nissan Motor Acceptance Corporation (Nissan North America, Inc.) | 268,445 | 3/31/2013 | 100 | % | |||||||||
| 6200 Northwest Pwy | San Antonio | TX | PacifiCare Health Systems, Inc. | 142,500 | 11/30/2010 | 100 | % | |||||||||
| 12645 W. Airport Rd | Sugar Land | TX | Baker Hughes, Inc. | 165,836 | 9/27/2015 | 100 | % | |||||||||
| 11555 University Blvd. | Sugar Land | TX | KS Management Services, LLP (St. Luke’s Episcopal Health System Corporation) | 72,683 | 11/30/2020 | 100 | % | |||||||||
| 2050 Roanoke Rd | Westlake | TX | DaimlerChrysler Financial Services Americas, LLC | 130,290 | 12/31/2011 | 100 | % | |||||||||
| 100 E. Shore Dr. | Glen Allen | VA | Multi-tenanted | 67,508 | Various | 94 | % | |||||||||
| 120 E. Shore Dr. | Glen Allen | VA | Capital One Services, Inc. | 77,045 | 3/31/2010 | 100 | % | |||||||||
| 130 E. Shore Dr. | Glen Allen | VA | Capital One Services, Inc. | 79,675 | 2/10/2010 | 100 | % | |||||||||
| 400 Butler Farm Rd | Hampton | VA | Nextel Communications of the Mid-Atlantic, Inc. (Nextel Finance Company) | 100,632 | 12/31/2009 | 100 | % | |||||||||
| 421 Butler Farm Rd | Hampton | VA | Nextel Communications of the Mid-Atlantic, Inc. (Nextel Finance Company) | 56,515 | 1/14/2010 | 100 | % | |||||||||
| 13651 McLearen Rd | Herndon | VA | Boeing Service Company (The Boeing Company) | 159,664 | 5/30/2008 | 100 | % | |||||||||
| 13775 McLearen Rd | Herndon | VA | Equant, Inc. (Equant N.V.) | 125,293 | 4/30/2015 | 100 | % | |||||||||
| 2800 Waterford Lake Dr. | Richmond | VA | Alstom Power, Inc. | 99,057 | 10/31/2014 | 100 | % | |||||||||
| 9950 Mayland Dr. | Richmond | VA | Circuit City Stores, Inc. | 288,000 | 2/28/2010 | 100 | % | |||||||||
| 5150 220th Ave | Issaquah | WA | OSI Systems, Inc. (Instrumentarium Corporation) | 106,944 | 12/14/2014 | 100 | % | |||||||||
| 22011 S.E. 51st St. | Issaquah | WA | OSI Systems, Inc. (Instrumentarium Corporation) | 95,600 | 12/14/2014 | 100 | % | |||||||||
| 848 Main St. & 849 Front St. | Evanston | WY | Multi-tenanted | 29,500 | Various | 74 | % | |||||||||
| 295 Chipeta Way | Salt Lake City | UT | Northwest Pipeline Corporation | 295,000 | 9/30/2009 | 100 | % | |||||||||
| Office Total | 20,846,729 | |||||||||||||||
25
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
INDUSTRIAL
PROPERTY CHART
INDUSTRIAL
| Net | ||||||||||||||||
| Primary Tenant | Rentable | Current Term | Percent | |||||||||||||
Property Location | City | State | (Guarantor) | Square Feet | Lease Expiration | Leased | ||||||||||
| Moody Commuter & Tech Park | Moody | AL | CEVA Logistics U.S., Inc. (TNT Holdings B.V.) | 595,346 | 1/2/2014 | 100 | % | |||||||||
| 1665 Hughes Way | Long Beach | CA | Raytheon Company | 200,541 | 12/31/2008 | 100 | % | |||||||||
| 3333 Coyote Hill Road | Palo Alto | CA | Xerox Corporation | 202,000 | 12/13/2013 | 100 | % | |||||||||
| 2455 Premier Drive | Orlando | FL | Walgreen Company | 205,016 | 3/31/2011 | 100 | % | |||||||||
| 3102 Queen Palm Drive | Tampa | FL | Time Customer Service, Inc. (Time, Inc.) | 229,605 | 6/30/2020 | 100 | % | |||||||||
| 1420 Greenwood Road | McDonough | GA | Atlas Cold Storage America, LLC | 296,972 | 10/31/2017 | 100 | % | |||||||||
| 7500 Chavenelle Road | Dubuque | IA | The McGraw-Hill Companies, Inc. | 330,988 | 6/30/2017 | 100 | % | |||||||||
| 3600 Southgate Drive | Danville | IL | Sygma Network, Inc. (Sysco Corporation) | 149,500 | 10/31/2015 | 100 | % | |||||||||
| 749 Southrock Drive | Rockford | IL | Jacobson Warehouse Company, Inc. (Jacobson Transportation Company, Inc.) | 150,000 | 12/31/2015 | 100 | % | |||||||||
| 3686 S. Central Avenue | Rockford | IL | Jacobson Warehouse Company, Inc. (Jacobson Transportation Company, Inc.) | 90,000 | 12/31/2014 | 100 | % | |||||||||
| 10000 Business Boulevard | Dry Ridge | KY | Dana Corporation | 336,350 | 6/30/2025 | 100 | % | |||||||||
| 730 N. Black Branch Road | Elizabethtown | KY | Dana Corporation | 167,770 | 6/30/2025 | 100 | % | |||||||||
| 750 N. Black Branch Road | Elizabethtown | KY | Dana Corporation | 539,592 | 6/30/2025 | 100 | % | |||||||||
| 301 Bill Bryan Road | Hopkinsville | KY | Dana Corporation | 424,904 | 6/30/2025 | 100 | % | |||||||||
| 4010 Airpark Drive | Owensboro | KY | Dana Corporation | 211,598 | 6/30/2025 | 100 | % | |||||||||
| 1901 Ragu Drive | Owensboro | KY | Unilever Supply Chain, Inc. (Unilever United States, Inc.) | 443,380 | 12/19/2020 | 100 | % | |||||||||
| 7150 Exchequer Drive | Baton Rouge | LA | Corporate Express Office Products, Inc. (Buhrmann NV) | 79,086 | 10/31/2013 | 100 | % | |||||||||
| 5001 Greenwood Road | Shreveport | LA | Libbey Glass, Inc. | 646,000 | 10/30/2026 | 100 | % | |||||||||
| N. Wells Road | North Berwick | ME | United Technologies Corporation | 820,868 | 12/31/2010 | 100 | % | |||||||||
| 4425 Purks Road | Auburn Hills | MI | Vacant | 183,717 | None | 0 | % | |||||||||
| 6938 Elm Valley Drive | Kalamazoo | MI | Dana Corporation | 150,945 | 10/25/2021 | 100 | % | |||||||||
| 904 Industrial Road | Marshall | MI | Tenneco Automotive Operating Company, Inc. (Tenneco, Inc.) | 195,640 | 8/17/2010 | 100 | % | |||||||||
| 1601 Pratt Avenue | Marshall | MI | Joseph Campbell Company | 53,600 | 9/30/2011 | 100 | % | |||||||||
| 43955 Plymouth Oaks Boulevard | Plymouth | MI | Tower Automotive Operations USA I, LLC (Tower (Tower Automotive Holdings I, LLC) | 290,133 | 10/31/2012 | 100 | % | |||||||||
| 46600 Port Street | Plymouth | MI | Vacant | 134,160 | None | 0 | % | |||||||||
| 7111 Crabb Road | Temperance | MI | CEVA Logistics U.S., Inc. (TNT Holdings B.V.) | 752,000 | 8/4/2012 | 100 | % | |||||||||
| 7670 Hacks Cross Road | Olive Branch | MS | MAHLE Clevite, Inc. (MAHLE Industries, Inc,) | 268,104 | 2/28/2016 | 100 | % | |||||||||
| 1133 Poplar Creek Road | Henderson | NC | Corporate Express Office Products, Inc. (Buhrmann NV) | 196,946 | 1/31/2014 | 100 | % | |||||||||
| 250 Swathmore Avenue | High Point | NC | Steelcase, Inc. | 244,851 | 9/30/2017 | 100 | % | |||||||||
| 2880 Kenny Biggs Road | Lumberton | NC | Quickie Manufacturing Corporation | 423,280 | 11/30/2021 | 100 | % | |||||||||
| 2203 Sherrill Drive | Statesville | NC | LA-Z-Boy Greensboro, Inc. (LA-Z-Boy, Inc.) | 639,600 | 4/30/2010 | 100 | % | |||||||||
| 121 Technology Drive | Durham | NH | Heidelberg Web Systems, Inc. | 500,500 | 3/30/2021 | 100 | % | |||||||||
| 1109 Commerce Boulevard | Swedesboro | NJ | Linens’n Things, Inc. | 262,644 | 12/31/2008 | 100 | % | |||||||||
26
| Net | ||||||||||||||||
| Primary Tenant | Rentable | Current Term | Percent | |||||||||||||
Property Location | City | State | (Guarantor) | Square Feet | Lease Expiration | Leased | ||||||||||
| 75 North Street | Saugerties | NY | Rotron, Inc. (EG&G) | 52,000 | 12/31/2009 | 100 | % | |||||||||
| 10590 Hamilton Avenue | Cincinnati | OH | The Hillman Group, Inc. | 247,088 | 8/31/2016 | 100 | % | |||||||||
| 1650 & 1654 Williams Road | Columbus | OH | ODW Logistics, Inc. | 772,450 | 6/30/2018 | 100 | % | |||||||||
| 191 Arrowhead Drive | Hebron | OH | Owens Corning Insulating Systems, LLC | 250,450 | 4/13/2008 | 41 | % | |||||||||
| 200 Arrowhead Drive | Hebron | OH | Owens Corning Insulating Systems, LLC | 401,260 | 5/31/2009 | 100 | % | |||||||||
| 7005 Cochran Road | Glenwillow | OH | Royal Appliance Manufacturing Company | 458,000 | 7/31/2015 | 100 | % | |||||||||
| 10345 Philipp Parkway | Streetsboro | OH | L’Oreal USA, Inc. | 649,250 | 10/17/2019 | 100 | % | |||||||||
| 245 Salem Church Road | Mechanicsburg | PA | Exel Logistics, Inc. (NFC plc) | 252,000 | 12/31/2012 | 100 | % | |||||||||
| 6 Doughten Road | New Kingston | PA | Carolina Logistics Services | 330,000 | Month to month | 51 | % | |||||||||
| 34 East Main Street | New Kingston | PA | Quaker Sales and Distribution, Inc. | 179,200 | 2/29/2008 | 100 | % | |||||||||
| 159 Farley Drive | Dillon | SC | Harbor Freight Tools USA, Inc. (Central Purchasing, Inc.) | 1,010,859 | 12/31/2021 | 100 | % | |||||||||
| 50 Tyger River Drive | Duncan | SC | Plastic Omnium Exteriors, LLC | 218,382 | 5/31/2017 | 100 | % | |||||||||
| 101 Michelin Drive | Laurens | SC | CEVA Logistics U.S., Inc. (TNT Holdings B.V.) | 1,164,000 | 8/4/2012 | 100 | % | |||||||||
| 6050 Dana Way | Antioch | TN | W.M. Wright Company | 677,400 | 3/31/2021 | 50 | % | |||||||||
| 477 Distribution Parkway | Collierville | TN | Federal Express Corporation | 120,000 | 5/31/2021 | 100 | % | |||||||||
| 900 Industrial Boulevard | Crossville | TN | Dana Corporation | 222,200 | 9/30/2016 | 100 | % | |||||||||
| 120 S.E. Parkway Drive | Franklin | TN | Essex Group, Inc. (United Technologies Corporation) | 289,330 | 12/31/2013 | 100 | % | |||||||||
| 187 Spicer Drive | Gordonsville | TN | Dana Corporation | 148,000 | 8/31/2012 | 100 | % | |||||||||
| 3350 Miac Cove Road | Memphis | TN | Mimeo.com, Inc. | 141,359 | 9/30/2020 | 84 | % | |||||||||
| 3456 Meyers Avenue | Memphis | TN | Sears, Roebuck & Company | 780,000 | 2/28/2017 | 100 | % | |||||||||
| 3820 Micro Drive | Millington | TN | Ingram Micro, LP (Ingram Micro, Inc.) | 701,819 | 9/25/2011 | 100 | % | |||||||||
| 9110 Grogans Mill Road | Houston | TX | Baker Hughes, Inc. | 275,750 | 9/27/2015 | 100 | % | |||||||||
| 19500 Bulverde Road | San Antonio | TX | Harcourt Brace & Company (Reed Elsevier, Inc.) | 559,258 | 3/31/2016 | 100 | % | |||||||||
| 2425 Highway 77 N | Waxahachie | TX | James Hardie Building Products, Inc. (James Hardie N.V.) | 425,816 | 3/31/2020 | 100 | % | |||||||||
| 291 Park Center Drive | Winchester | VA | Kraft Foods North America, Inc. | 344,700 | 5/31/2011 | 100 | % | |||||||||
| Industrial Total | 21,086,207 | |||||||||||||||
27
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
RETAIL/OTHER
PROPERTY CHART
RETAIL/OTHER
| Net | ||||||||||||||||
| Primary Tenant | Rentable | Current Term | Percent | |||||||||||||
Property Location | City | State | (Guarantor) | Square Feet | Lease Expiration | Leased | ||||||||||
| 302 Coxcreek Parkway | Florence | AL | The Kroger Company | 42,130 | 7/1/2013 | 100 | % | |||||||||
| 5544 Atlanta Highway | Montgomery | AL | Vacant | 60,698 | None | 0 | % | |||||||||
| Bisbee Naco Highway & Highway 92 | Bisbee | AZ | Safeway Stores, Inc. | 30,181 | 3/31/2009 | 100 | % | |||||||||
| 10415 Grande Avenue | Sun City | AZ | Cafeteria Operators, LP (Furrs Restaurant Group, Inc.) | 10,000 | 4/30/2012 | 100 | % | |||||||||
| Grant Road & Craycroft Road | Tucson | AZ | Safeway Stores, Inc. | 37,268 | 3/31/2009 | 100 | % | |||||||||
| Old Mamoth Road & Meridian Boulevard | Mammoth Lakes | CA | Safeway Stores, Inc. | 44,425 | 5/31/2012 | 100 | % | |||||||||
| 255 Northgate Drive | Manteca | CA | Kmart Corporation | 107,489 | 12/31/2018 | 100 | % | |||||||||
| 12080 Carmel Mountain Road | San Diego | CA | Kmart Corporation | 107,210 | 12/31/2018 | 100 | % | |||||||||
| 12000 East Mississippi Ave | Aurora | CO | Safeway Stores, Inc. | 24,000 | 5/31/2012 | 100 | % | |||||||||
| Kipling Street & Bowles Avenue | Littleton | CO | Vacant | 29,360 | None | 0 | % | |||||||||
| 10340 U.S. 19 | Port Richey | FL | Kingswere Furniture | 53,820 | 11/30/2017 | 100 | % | |||||||||
| 2010 Apalachee Parkway | Tallahassee | FL | Kohl’s Department Stores, Inc. | 102,381 | 1/31/2028 | 100 | % | |||||||||
| 2223 N. Druid Hills Road | Atlanta | GA | Bank South, N.A. (Bank of America Corporation) | 6,260 | 12/31/2009 | 100 | % | |||||||||
| 956 Ponce de Leon Avenue | Atlanta | GA | Bank South, N.A. (Bank of America Corporation) | 3,900 | 12/31/2009 | 100 | % | |||||||||
| 4545 Chamblee-Dunwoody Road | Chamblee | GA | Bank South, N.A. (Bank of America Corporation) | 4,565 | 12/31/2009 | 100 | % | |||||||||
| 201 W. Main Street | Cumming | GA | Bank South, N.A. (Bank of America Corporation) | 14,208 | 12/31/2009 | 100 | % | |||||||||
| 3468 Georgia Highway 120 | Duluth | GA | Bank South, N.A. (Bank of America Corporation) | 9,300 | 12/31/2009 | 100 | % | |||||||||
| 1066 Main Street | Forest Park | GA | Bank South, N.A. (Bank of America Corporation) | 14,859 | 12/31/2009 | 100 | % | |||||||||
| 825 Southway Drive Boulevard | Jonesboro | GA | Bank South, N.A. (Bank of America Corporation) | 4,894 | 12/31/2009 | 100 | % | |||||||||
| 1698 Mountain Industrial | Stone Mountain | GA | Bank South, N.A. (Bank of America Corporation) | 5,704 | 12/31/2009 | 100 | % | |||||||||
| Fort Street Mall, King Street | Honolulu | HI | Macy’s Department Stores, Inc. | 85,610 | 9/30/2009 | 100 | % | |||||||||
| 1150 W. Carl Sandburg Drive | Galesburg | IL | Kmart Corporation | 94,970 | 12/31/2018 | 100 | % | |||||||||
| 928 First Avenue | Rock Falls | IL | Rock Falls Country Market, LLC (Rock Island Country Market, LLC) | 27,650 | 9/30/2011 | 100 | % | |||||||||
| 502 E. Carmel Drive | Carmel | IN | Marsh Supermarkets, Inc. | 38,567 | 10/31/2013 | 100 | % | |||||||||
| 5104 N. Franklin Road | Lawrence | IN | Marsh Supermarkets, Inc. | 28,721 | 10/31/2013 | 100 | % | |||||||||
| 205 Homer Road | Minden | LA | Safeway Stores, Inc. | 35,000 | 11/30/2012 | 100 | % | |||||||||
| 7200 Cradle Rock Way | Columbia | MD | GFS Realty, Inc. | 57,209 | 12/31/2008 | 100 | % | |||||||||
| 9580 Livingston Road | Oxon Hill | MD | GFS Realty, Inc. (Giant Food, Inc.) | 107,337 | 2/28/2014 | 100 | % | |||||||||
| 2401 Wooton Parkway | Rockville | MD | GFS Realty, Inc. (Giant Food, Inc.) | 51,682 | 4/30/2017 | 100 | % | |||||||||
| 24th Street W. & St. John’s Avenue | Billings | MT | Safeway Stores, Inc. | 40,800 | 5/31/2010 | 100 | % | |||||||||
| 35400 Cowan Road | Westland | MI | Sam’s Real Estate Business Trust | 101,402 | 1/31/2009 | 100 | % | |||||||||
| Little Rock Road & | ||||||||||||||||
| Tuckaseegee Road | Charlotte | NC | Food Lion, Inc. | 33,640 | 10/31/2013 | 100 | % | |||||||||
| Brown Mill Road & US 601 | Concord | NC | Food Lion, Inc. | 32,259 | 10/31/2013 | 100 | % | |||||||||
28
| Net | ||||||||||||||||
| Primary Tenant | Rentable | Current Term | Percent | |||||||||||||
Property Location | City | State | (Guarantor) | Square Feet | Lease Expiration | Leased | ||||||||||
| 104 Branchwood Shopping Center | Jacksonville | NC | Food Lion, Inc. | 23,000 | 2/28/2013 | 100 | % | |||||||||
| US 221 & Hospital Road | Jefferson | NC | Food Lion, Inc. | 23,000 | 2/28/2013 | 100 | % | |||||||||
| 291 Talbert Boulevard | Lexington | NC | Food Lion, Inc. | 23,000 | 2/28/2013 | 100 | % | |||||||||
| 835 Julian Avenue | Thomasville | NC | Food Lion, Inc. | 21,000 | 10/31/2008 | 100 | % | |||||||||
| 10 South Avenue | Garwood | NJ | Pathmark Stores, Inc. | 52,000 | 5/31/2011 | 100 | % | |||||||||
| 900 S. Canal Street | Carlsbad | NM | Cafeteria Operators, LP (Furrs Restaurant Group, Inc.) | 10,000 | 4/30/2012 | 100 | % | |||||||||
| 130 Midland Avenue | Portchester | NY | Pathmark Stores, Inc. | 59,000 | 10/31/2013 | 100 | % | |||||||||
| 21082 Pioneer Plaza Drive | Watertown | NY | Kmart Corporation | 120,727 | 12/31/2018 | 100 | % | |||||||||
| 4733 Hills and Dales Road | Canton | OH | Bally’s Total Fitness of the Midwest (Bally’s Health & Tennis Corporation) | 37,214 | 12/31/2009 | 100 | % | |||||||||
| 4831 Whipple Avenue N.W | Canton | OH | Best Buy Company, Inc. | 46,350 | 2/26/2018 | 100 | % | |||||||||
| 1084 E. Second Street | Franklin | OH | Marsh Supermarkets, Inc. | 29,119 | 10/31/2013 | 100 | % | |||||||||
| 5350 Leavitt Road | Lorain | OH | Kmart Corporation | 193,193 | 12/31/2018 | 100 | % | |||||||||
| N.E.C. 45th Street & Lee Boulevard | Lawton | OK | Safeway Stores, Inc. | 30,757 | 3/31/2009 | 100 | % | |||||||||
| 6910 S. Memorial Highway | Tulsa | OK | Toys “R” Us, Inc. | 43,123 | 5/31/2011 | 100 | % | |||||||||
| 12535 S.E. 82nd Avenue | Clackamas | OR | Toys “R” Us, Inc. | 42,842 | 5/31/2011 | 100 | % | |||||||||
| 1642 Williams Avenue | Grants Pass | OR | Safeway Stores, Inc. | 33,770 | 3/31/2009 | 100 | % | |||||||||
| 559 N. Main Street | Doylestown | PA | Citizens Bank of Pennsylvania | 3,800 | 8/31/2018 | 100 | % | |||||||||
| 25 E. Main Street | Lansdale | PA | Citizens Bank of Pennsylvania | 3,800 | 8/31/2018 | 100 | % | |||||||||
| 1055 W. Baltimore Pike | Lima | PA | Citizens Bank of Pennsylvania | 3,800 | 8/31/2018 | 100 | % | |||||||||
| 4947 N. Broad Street | Philadelphia | PA | Citizens Bank of Pennsylvania | 3,800 | 8/31/2018 | 100 | % | |||||||||
| 2001-03 Broad Street | Philadelphia | PA | Citizens Bank of Pennsylvania | 3,800 | 8/31/2018 | 100 | % | |||||||||
| 6201 N. 5th Street | Philadelphia | PA | Citizens Bank of Pennsylvania | 3,800 | 8/31/2018 | 100 | % | |||||||||
| 7323-29 Frankford Avenue | Philadelphia | PA | Citizens Bank of Pennsylvania | 3,800 | 8/31/2018 | 100 | % | |||||||||
| 15 S. 52nd Street | Philadelphia | PA | Citizens Bank of Pennsylvania | 3,800 | 8/31/2018 | 100 | % | |||||||||
| 10650 Bustleton Avenue | Philadelphia | PA | Citizens Bank of Pennsylvania | 3,800 | 8/31/2018 | 100 | % | |||||||||
| 1025 W. Lehigh Avenue | Philadelphia | PA | Citizens Bank of Pennsylvania | 3,800 | 8/31/2018 | 100 | % | |||||||||
| 2014 Cottman Avenue | Philadelphia | PA | Citizens Bank of Pennsylvania | 3,800 | 8/31/2018 | 100 | % | |||||||||
| 4160 Monument Road | Philadelphia | PA | Pathmark Stores, Inc. | 50,000 | 11/30/2010 | 100 | % | |||||||||
| 15 Newton — Richboro Road | Richboro | PA | Citizens Bank of Pennsylvania | 3,800 | 8/31/2018 | 100 | % | |||||||||
| 363 W. Lancaster Avenue | Wayne | PA | Citizens Bank of Pennsylvania | 3,800 | 8/31/2018 | 100 | % | |||||||||
| South Carolina 52/52 Bypass | Moncks Corner | SC | Food Lion, Inc. | 23,000 | 2/28/2013 | 100 | % | |||||||||
| 1000 U.S. Highway 17 | North Myrtle Beach | SC | Food Lion, Inc. | 43,021 | 10/31/2008 | 100 | % | |||||||||
| 399 Peach Wood Centre Drive | Spartanburg | SC | Best Buy Company, Inc. | 45,800 | 2/26/2018 | 100 | % | |||||||||
| 1600 E. 23rd Street | Chattanooga | TN | The Kroger Company | 42,130 | 7/1/2008 | 100 | % | |||||||||
| 1053 Mineral Springs Road | Paris | TN | The Kroger Company | 31,170 | 7/1/2013 | 100 | % | |||||||||
| 3040 Josey Lane | Carrollton | TX | Ong’s Family, Inc. | 61,000 | 1/31/2021 | 100 | % | |||||||||
| 4121 S. Port Avenue | Corpus Christi | TX | Cafeteria Operators, LP (Furr’s Restaurant Group, Inc.) | 10,000 | 4/30/2012 | 100 | % | |||||||||
| 1610 S. Westmoreland Avenue | Dallas | TX | Malone’s Food Stores | 68,024 | 3/31/2017 | 100 | % | |||||||||
| 119 N. Balboa Road | El Paso | TX | Cafeteria Operators, LP (Furrs Restaurant Group, Inc.) | 10,000 | 4/30/2012 | 100 | % | |||||||||
| 3451 Alta Mesa Boulevard | Fort Worth | TX | Safeway Stores, Inc. | 44,000 | 5/31/2012 | 100 | % | |||||||||
| 101 W. Buckingham Road | Garland | TX | Minyard Foods | 40,000 | 11/30/2012 | 100 | % | |||||||||
| 1415 Highway 377 E. | Granbury | TX | Safeway Stores, Inc. | 35,000 | 11/30/2012 | 100 | % | |||||||||
| 2500 E. Carrier Parkway | Grand Prairie | TX | Safeway Stores, Inc. | 49,349 | 3/31/2009 | 100 | % | |||||||||
| 4811 Wesley Street | Greenville | TX | Safeway Stores, Inc. | 48,427 | 5/31/2011 | 100 | % | |||||||||
PROPERTY CHART
29
| Net | ||||||||||||||||
| Primary Tenant | Rentable | Current Term | Percent | |||||||||||||
Property Location | City | State | (Guarantor) | Square Feet | Lease Expiration | Leased | ||||||||||
| 120 S. Waco Street | Hillsboro | TX | Safeway Stores, Inc. | 35,000 | 11/30/2012 | 100 | % | |||||||||
| 13133 Steubner Avenue | Houston | TX | The Kroger Company | 52,200 | 12/29/2011 | 100 | % | |||||||||
| 5402 4th Street | Lubbock | TX | Vacant | 53,820 | None | 0 | % | |||||||||
| 901 W. Expressway 83 | McAllen | TX | Cafeteria Operators, LP (Furrs Restaurant Group, Inc.) | 10,000 | 4/30/2012 | 100 | % | |||||||||
| 402 E. Crestwood Drive | Victoria | TX | Cafeteria Operators, LP (Furrs Restaurant Group, Inc.) | 10,000 | 4/30/2012 | 100 | % | |||||||||
| 9400 South 755 E | Sandy | UT | Vacant | 41,612 | None | 0 | % | |||||||||
| 3211 W. Beverly Street | Staunton | VA | Food Lion, Inc. | 23,000 | 2/28/2013 | 100 | % | |||||||||
| 9803 Edmonds Way | Edmonds | WA | PCC Natural Markets | 34,459 | 8/31/2028 | 100 | % | |||||||||
| 224th Street & Meridian Avenue | Graham | WA | Safeway Stores, Inc. | 44,718 | 3/31/2009 | 100 | % | |||||||||
| 18601 Alderwood Mall Boulevard | Lynnwood | WA | Toys “R” Us, Inc. | 43,105 | 5/31/2011 | 100 | % | |||||||||
| 400 E. Meridian Avenue | Milton | WA | Safeway Stores, Inc. | 44,718 | 3/31/2009 | 100 | % | |||||||||
| 1700 State Route 160 | Port Orchard | WA | Save-A-Lot, Ltd. | 27,968 | 1/31/2015 | 57 | % | |||||||||
| 228th Avenue N.E. | Redmond | WA | Safeway Stores, Inc. | 44,718 | 3/31/2009 | 100 | % | |||||||||
| 4512 N. Market Street | Spokane | WA | Safeway Stores, Inc | 38,905 | 3/31/2009 | 100 | % | |||||||||
| 3711 Gateway Drive | Eau Claire | WI | Kohl’s Deptartment Stores, Inc. | 76,164 | 1/25/2015 | 100 | % | |||||||||
| 97 Seneca Trail | Fairlea | WV | Kmart Corporation | 90,933 | 12/31/2018 | 100 | % | |||||||||
| 3621 E. Lincoln Way | Cheyenne | WY | Vacant | 31,420 | None | 0 | % | |||||||||
| Retail/Other Subtotal | 3,588,655 | |||||||||||||||
| Grand Total | 45,521,591 | |||||||||||||||
30
NON-CONSOLIDATED PROPERTY
CHART
| Net | ||||||||||||||||
| Primary Tenant | Rentable | Current Term | Percent | |||||||||||||
Property Location | City | State | (Guarantor) | Square Feet | Lease Expiration | Leased | ||||||||||
| OFFICE | ||||||||||||||||
| 5201 W. Barraque Street | Pine Bluff | AR | Entergy Services, Inc. | 27,189 | 10/31/2010 | 100 | % | |||||||||
| Route 64 W. & Junction 333 | Russellville | AR | Entergy Gulf States | 191,950 | 5/9/2008 | 100 | % | |||||||||
| 1440 E. 15th Street | Tucson | AZ | Cox Communications, Inc. | 28,591 | 9/30/2016 | 100 | % | |||||||||
| 3500 N. Coop Court | McDonough | GA | Litton Loan Servicing, LP & Credit - Based Asset and Securitzation, LLC | 62,000 | 8/31/2018 | 100 | % | |||||||||
| 2500 Patrick Henry Parkway | McDonough | GA | Georgia Power Company | 111,911 | 6/30/2015 | 100 | % | |||||||||
| 3265 E. Goldstone Drive | Meridian | ID | Voicestream PCS II Corporation (T-Mobile USA, Inc.) | 77,484 | 6/28/2019 | 100 | % | |||||||||
| 101 E. Washington Boulevard | Fort Wayne | IN | American Electric Power | 348,452 | 10/31/2016 | 100 | % | |||||||||
| 9601 Renner Boulevard | Lenexa | KS | Voicestream PCS II Corporation (T-Mobile USA, Inc.) | 77,484 | 10/31/2019 | 100 | % | |||||||||
| First Park Drive | Oakland | ME | Omnipoint Holdings, Inc. (T-Mobile USA, Inc.) | 78,610 | 8/31/2020 | 100 | % | |||||||||
| 12000 &12025 Tech Center Drive | Livonia | MI | Kelsey-Hayes Company (TRW Automotive, Inc.) | 180,230 | 4/30/2014 | 100 | % | |||||||||
| 3943 Denny Avenue | Pascagoula | MS | Northrop Grumman Systems Corporation | 94,841 | 10/14/2008 | 100 | % | |||||||||
| 3201 Quail Springs Parkway | Oklahoma City | OK | AT& T Wireless Services, Inc. | 128,500 | 11/30/2010 | 100 | % | |||||||||
| 2999 SW 6th Street | Redmond | OR | Voice Stream PCS I LLC (T-Mobile USA, Inc.) | 77,484 | 1/31/2019 | 100 | % | |||||||||
| 265 Lehigh Street | Allentown | PA | Wachovia Bank N.A. | 71,230 | 10/31/2010 | 100 | % | |||||||||
| 17 Technology Circle | Columbia | SC | Blue Cross Blue Shield of South Carolina, Inc. | 456,304 | 9/30/2009 | 100 | % | |||||||||
| 420 Riverport Road | Kingport | TN | American Electric Power | 42,770 | 6/30/2013 | 100 | % | |||||||||
| 1600 Eberhardt Road | Temple | TX | Nextel of Texas | 108,800 | 1/31/2016 | 100 | % | |||||||||
| 26410 McDonald Road | Houston | TX | Montgomery County Management Company, LLC | 41,000 | 10/31/2019 | 100 | % | |||||||||
| 3711 San Gabriel | Mission | TX | Voice Stream PCS II Corporation (T-Mobile USA, Inc.) | 75,016 | 6/30/2015 | 100 | % | |||||||||
| 6455 State Hwy 303 N.E | Bremerton | WA | Nextel West Corporation | 60,200 | 5/14/2016 | 100 | % | |||||||||
| Office Total | 2,340,046 | |||||||||||||||
31
NON-CONSOLIDATED PROPERTY
CHART
| Net | ||||||||||||||||
| Primary Tenant | Rentable | Current Term | Percent | |||||||||||||
Property Location | City | State | (Guarantor) | Square Feet | Lease Expiration | Leased | ||||||||||
| INDUSTRIAL | ||||||||||||||||
| 109 Stevens Street | Jacksonville | FL | Unisource Worldwide, Inc. | 168,800 | 9/30/2009 | 100 | % | |||||||||
| 359 Gateway Drive | Livonia | GA | TI Group Automotive Systems, LLC | 133,221 | 5/31/2020 | 100 | % | |||||||||
| 3600 Army Post Road | Des Moines | IA | EDS Information Services, LLC (Electronic Data Systems Corporation) | 405,000 | 4/30/2012 | 100 | % | |||||||||
| 2935 Van Vactor Way | Plymouth | IN | Bay Valley Foods, LLC | 300,500 | 6/30/2015 | 100 | % | |||||||||
| 1901 49th Avenue | Minneapolis | MN | Owens Corning Roofing and Asphalt, LLC | 18,620 | 6/30/2015 | 100 | % | |||||||||
| 324 Industrial Park Road | Franklin | NC | SKF USA, Inc. | 72,868 | 12/31/2014 | 100 | % | |||||||||
| 736 Addison Road | Erwin | NY | Corning, Inc. | 408,000 | 11/30/2016 | 100 | % | |||||||||
| 590 Ecology Lane | Chester | SC | Owens Corning | 420,597 | 7/14/2025 | 100 | % | |||||||||
| 2401 Cherahala Boulevard | Knoxville | TN | Advance PCS, Inc. | 59,748 | 5/31/2013 | 100 | % | |||||||||
| 2424 Alpine Road | Eau Claire | WI | Silver Spring Gardens, Inc. (Huntsinger Farms, Inc.) | 159,000 | 2/28/2027 | 100 | % | |||||||||
| Industrial Total | 2,146,354 | |||||||||||||||
32
NON-CONSOLIDATED PROPERTY
CHART
| Net | ||||||||||||||||
| Primary Tenant | Rentable | Current Term | Percent | |||||||||||||
Property Location | City | State | (Guarantor) | Square Feet | Lease Expiration | Leased | ||||||||||
| RETAIL/OTHER | ||||||||||||||||
| 101 Creger Drive | Ft. Collins | CO | Lithia Motors | 10,000 | 5/31/2012 | 100 | % | |||||||||
| 11411 N. Kelly Avenue | Oklahoma City | OK | American Golf Corporation | 13,924 | 12/31/2017 | 100 | % | |||||||||
| 25500 State Highway 249 | Tomball | TX | Parkway Chevrolet, Inc. | 77,076 | 8/31/2026 | 100 | % | |||||||||
| 1321 Commerce Street | Dallas | TX | Adolphus Associates (Met Life) | 498,122 | 6/15/2009 | 100 | % | |||||||||
| Retail/Other Total | 599,122 | |||||||||||||||
| Grand Total | 5,085,522 | |||||||||||||||
33
34
35
36
37
38
39
40
41
42
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From time to time we are involved in legal proceedings arising in the ordinary course of our business. In our management’s opinion, after consultation with legal counsel, the outcome of such matters, isincluding the matters set forth below, are not expected to have a material adverse effect on our ownership, financial condition, management or operation of our properties or business.
Beginning in January 2005, on behalf of Mattersone of our co-investment programs, we received notices from the tenant in our Streetsboro, Ohio facility regarding certain alleged deficiencies in the construction of the facility as compared to the original building specifications. Upon acquisition of the facility from the developer, the then owner of the facility obtained an indemnity from the principals of the developer covering a Votebreach of Security Holdersconstruction warranties, the constructionand/or the condition of the premises. After two years of correspondence among the owner of the facility, the developer and the tenant, we (after our acquisition of the facility from our co-investment program) entered into an amendment to the lease with the tenant providing for the repair of a portion of the alleged deficiencies and commenced such repairs beginning in the summer of 2007.
Following a demand for reimbursement under the indemnity agreement, we filed suit against the developer and the principals of the developer in the Federal District Court for the Northern District of Ohio on August 10, 2007 to enforce our rights (Lexington Streestboro LLC v. Alfred Geis, et al.,Case No. 5:07CV2450). On November 20,1, 2007, the developer filed (1) counter-claims against us for unjust enrichment regarding the repair work performed and for a declaration of its obligations under the indemnity agreement and (2) multiple cross-claims against its sub-contractors asking to be reimbursed for any deficiencies in the building specifications for which they are held liable. The developer was also permitted by the Court to file a claim against the tenant. The suit is on-going.
As of December 31, 2007, we have incurred $3.7 million of expenses in connection with the work covered by the lease amendment and the enforcement of our rights under the indemnity agreement. We may seek an additional $2.5 million for future costs that may be incurred in connection with other potential deficiencies. We intend to vigorously pursue our claims and reimbursement under the indemnity agreement.
Deutsche Bank Securities, Inc.
On June 30, 2006, we, heldincluding a special meetingco-investment program as it relates to the Antioch claim, sold to Deutsche Bank Securities, Inc., which we refer to as Deutsche Bank, (1) a $7.7 million bankruptcy damage claim against Dana Corporation for $5.4 million, which we refer to as the Farmington Hills claim, and (2) a $7.7 million bankruptcy damage claim against Dana Corporation for $5.7 million, which we refer to as the Antioch claim. Under the terms of the agreements covering the sale of the claims, we are obligated to reimburse Deutsche Bank should the claim ever be disallowed, subordinated or otherwise impaired, to the extent of such disallowance, subordination or impairment, plus interest at the rate of 10% per annum from the date of payment of the purchase price by Deutsche Bank to us. On October 12, 2007, Dana Corporation filed an objection to both claims. We assisted Deutsche Bank and the then holders of the claims in the preparation and filing of a response to the objection. Despite a belief by us that the objections were without merit, the holders of the claims, without our common shareholdersconsent, settled the allowed amount of record as of October 13, 2006 to considerthe claims at $6.5 million for the Farmington Hills claim and vote on$7.2 million for the following two proposals:
| For | Against | Abstain | ||
| 37,832,419 | 770,201 | 193,121 |
| Item 4. | Submission of Matters to a Vote of Security Holders |
None.
34
Executive Officers of the Registrant
The following sets forth certain information relating to our executive officers:
Name | Business Experience | |
Michael L. Ashner Age | Mr. Ashner served as Chairman and the Chief Executive Officer of Newkirk until consummation of the | |
E. Robert Roskind Age | Mr. Roskind became Co-Vice Chairman on December 31, 2006, and served as our Chairman from October 1993 to December 31, 2006 and our Co-Chief Executive Officer from October 1993 to January 2003. Mr. Roskind | |
Richard J. Rouse Age | Mr. Rouse became Co-Vice Chairman on December 31, 2006, served, and continues to serve as our Chief Investment Officer since January 2003 and as one of our trustees since October 1993. He served as our President from October 1993 to April 1996, was our Co-Chief Executive Officer from October 1993 until January 2003, and since April 1996 served as our Vice Chairman. |
45
T. Wilson Eglin Age | Mr. Eglin has served as our Chief Executive Officer since January 2003, our Chief Operating Officer since October 1993, our President since April 1996 and as a trustee since May 1994. He served as one of our Executive Vice Presidents from October 1993 to April 1996. Mr. Eglin | |
| Concord appointed by us. | ||
Patrick Carroll Age | Mr. Carroll has served as our Chief Financial Officer since May 1998, our Treasurer since January 1999 and one of our Executive Vice Presidents since January 2003. | |
Paul R. Wood Age | Mr. Wood has served as one of our Vice Presidents, and our Chief Accounting Officer and Secretary since October 1993. |
46
35
PART II.
| Item 5. | Market For The Registrant’s Common Equity, Related Shareholder Matters And Issuer Purchases of Equity Securities |
Market Information.Our common shares are listed for trading on the New York Stock Exchange (“NYSE”)NYSE under the symbol “LXP.”“LXP”. The following table sets forth the high and low sales prices as reported by the NYSE for our common shares for each of the periods indicated below:
| For the Quarters Ended: | High | Low | High | Low | ||||||||||||
| December 31, 2007 | $ | 20.90 | $ | 14.52 | ||||||||||||
| September 30, 2007 | 21.54 | 18.78 | ||||||||||||||
| June 30, 2007 | 21.65 | 20.38 | ||||||||||||||
| March 31, 2007 | 22.42 | 20.02 | ||||||||||||||
| December 31, 2006 | $ | 22.73 | $ | 20.40 | 22.73 | 20.40 | ||||||||||
| September 30, 2006 | 21.90 | 19.53 | 21.90 | 19.53 | ||||||||||||
| June 30, 2006 | 22.15 | 19.87 | 22.15 | 19.87 | ||||||||||||
| March 31, 2006 | 22.90 | 19.64 | 22.90 | 19.64 | ||||||||||||
| December 31, 2005 | 23.62 | 20.37 | ||||||||||||||
| September 30, 2005 | 25.19 | 21.65 | ||||||||||||||
| June 30, 2005 | 24.39 | 21.99 | ||||||||||||||
| March 31, 2005 | 23.56 | 20.65 | ||||||||||||||
The per share closing price of our common shares was $20.99$15.18 on February 23, 2007.22, 2008.
Holders.As of February 23, 2007,22, 2008, we had approximately 2,5612,428 common shareholders of record.
Dividends.We have made quarterly distributions since October 1986 without interruption.
The common share dividends paid in each quarter for the last five years are as follows:
| Quarters Ended | 2006 | 2005 | 2004 | 2003 | 2002 | 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||
| March 31, | $ | 0.365 | $ | 0.360 | $ | 0.350 | $ | 0.335 | $ | 0.330 | $ | 0.5975 | $ | 0.365 | $ | 0.360 | $ | 0.350 | $ | 0.335 | ||||||||||||||||||||
| June 30, | $ | 0.365 | $ | 0.360 | $ | 0.350 | $ | 0.335 | $ | 0.330 | $ | 0.375 | $ | 0.365 | $ | 0.360 | $ | 0.350 | $ | 0.335 | ||||||||||||||||||||
| September 30, | $ | 0.365 | $ | 0.360 | $ | 0.350 | $ | 0.335 | $ | 0.330 | $ | 0.375 | $ | 0.365 | $ | 0.360 | $ | 0.350 | $ | 0.335 | ||||||||||||||||||||
| December 31, | $ | 0.365 | $ | 0.360 | $ | 0.350 | $ | 0.335 | $ | 0.330 | $ | 0.375 | $ | 0.365 | $ | 0.360 | $ | 0.350 | $ | 0.335 | ||||||||||||||||||||
During the fourth quarter of 2007, we declared a special dividend of $2.10 per common share which was paid in January 2008. During the fourth quarter 2006, we declared a special dividend of $0.2325 per common share which was paid in January 2007.
On February 20, 2008, we declared a common share dividend rateof $0.33 per common share, which is $0.365 per share, or $1.46equal to $1.32 per common share on an annualized basis. We disclosed that we anticipate that our annualized divided would be increased to $1.50 per share, subject to approval by our Board of Trustees.
The following is a summary of the average taxable nature of our normal common share dividends paid for the three years ended December 31:
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
| Total dividends per share | $ | 1.46 | $ | 1.44 | $ | 1.40 | $ | 2.93342(1 | ) | $ | 1.46 | $ | 1.44 | |||||||||||
| Ordinary income | 68.89 | % | 87.29 | % | 84.09 | % | 42.36 | % | 68.89 | % | 87.29 | % | ||||||||||||
| 15% rate — qualifying dividend | 0.77 | 1.04 | 6.82 | 2.50 | 0.77 | 1.04 | ||||||||||||||||||
| 15% rate gain | 7.97 | 8.72 | 0.34 | 35.62 | 7.97 | 8.72 | ||||||||||||||||||
| 25% rate gain | 5.13 | 2.95 | 2.28 | 19.52 | 5.13 | 2.95 | ||||||||||||||||||
| Return of capital | 17.24 | — | 6.47 | — | 17.24 | — | ||||||||||||||||||
| 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | |||||||||||||
| (1) | Includes the special dividend of $0.2325 paid in January 2007 and a portion of the special dividend of $2.10 paid in January 2008. Of the total dividend paid in January 2008, $1.21092 is allocated to 2007 and $1.26408 is allocated to 2008. |
36
The per share dividend on our Series B Cumulative Redeemable Preferred Shares is $2.0125 per annum.
The following is a summary of the average taxable nature of the dividend on our Series B Cumulative Redeemable Preferred SharesStock for the three years ended December 31:
| 2006 | 2005 | 2004 | ||||||||||
| Ordinary income | 83.24 | % | 87.29 | % | 89.91 | % | ||||||
| 15% rate — qualifying dividend | 0.93 | 1.04 | 7.29 | |||||||||
| 15% rate gain | 9.63 | 8.72 | 0.37 | |||||||||
| 25% rate gain | 6.20 | 2.95 | 2.43 | |||||||||
| 100.00 | % | 100.00 | % | 100.00 | % | |||||||
47
| 2007 | 2006 | 2005 | ||||||||||
| Ordinary income | 42.36 | % | 83.24 | % | 87.29 | % | ||||||
| 15% rate — qualifying dividend | 2.50 | 0.93 | 1.04 | |||||||||
| 15% rate gain | 35.62 | 9.63 | 8.72 | |||||||||
| 25% rate gain | 19.52 | 6.20 | 2.95 | |||||||||
| 100.00 | % | 100.00 | % | 100.00 | % | |||||||
The per share dividend on our Series C Cumulative Convertible Preferred SharesShare is $3.25 per annum.
The following is a summary of the average taxable nature of the dividend on our Series C Cumulative Convertible Preferred Stock for the three years ended December 31:
| 2007 | 2006 | 2005 | ||||||||||
| Ordinary income | 42.36 | % | 83.24 | % | 87.29 | % | ||||||
| 15% rate — qualifying dividend | 2.50 | 0.93 | 1.04 | |||||||||
| 15% rate gain | 35.62 | 9.63 | 8.72 | |||||||||
| 25% rate gain | 19.52 | 6.20 | 2.95 | |||||||||
| 100.00 | % | 100.00 | % | 100.00 | % | |||||||
During 2007, we issued $155.0 million in liquidation amount of Series D Preferred Shares, which pays a per share dividend of $1.8875 per annum.
The following is a summary of the average taxable nature of the dividend on our Series D Preferred Shares for the year ended December 31:
| 2006 | 2005 | |||||||
| Ordinary income | 83.24 | % | 87.29 | % | ||||
| 15% rate — qualifying dividend | 0.93 | 1.04 | ||||||
| 15% rate gain | 9.63 | 8.72 | ||||||
| 25% rate gain | 6.20 | 2.95 | ||||||
| 100.00 | % | 100.00 | % | |||||
| 2007 | ||||
| Ordinary income | 42.36 | % | ||
| 15% rate — qualifying dividend | 2.50 | |||
| 15% rate gain | 35.62 | |||
| 25% rate gain | 19.52 | |||
| 100.00 | % | |||
While we intend to continue paying regular quarterly dividends to holders of our common shares, future dividend declarations will be at the discretion of the Board of Trustees and will depend on our actual cash flow, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as our Board of Trustees deems relevant. Due to the sale of properties during 2007 and the distribution of such proceeds via the special dividend, the recurring quarterly common dividend to be paid in 2008 has been reduced from $0.375 per share to $0.33 per share. The actual cash flow available to pay dividends will be affected by a number of factors, including, among others, the risks discussed under “Risk Factors” in Part I, Item 1A and “Management“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report.
We do not believe that the financial covenants contained in our credit facility, the MLP’s secured loan and our secured indebtedness will have any adverse impact on our ability to pay dividends in the normal course of business to our common and preferred shareholders or to distribute amounts necessary to maintain our qualification as a REIT.
We maintain a dividend reinvestment program pursuant to which our common shareholders and holders of OP units may elect to automatically reinvest their dividends and distributions to purchase our common shares at a 5% discount to the market price and free of commissions and other charges. We may, from time to time, either repurchase common shares in the open market, or
37
issue new common shares, for the purpose of fulfilling our obligations under the dividend reinvestment program. To date, noneCurrently all of the common shares issued under this program wereare to be purchased on the open market.
Equity Compensation Plan Information.The following table sets forth certain information, as of December 31, 2006,2007, with respect to the compensation plan under which our equity securities are authorized for issuance.
| Number of securities | ||||||||||||||||||||||||
| remaining available for | Number of Securities | |||||||||||||||||||||||
| Number of securities | future issuance under | Remaining Available for | ||||||||||||||||||||||
| to be issued upon | Weighted-average | equity compensation | Number of Securities | Future Issuance Under | ||||||||||||||||||||
| exercise of | exercise price of | plans (excluding | to be Issued Upon | Weighted-Average | Equity Compensation | |||||||||||||||||||
| outstanding options, | outstanding options, | securities reflected in | Exercise of | Exercise Price of | Plans (Excluding | |||||||||||||||||||
| warrants and rights | warrants and rights | column (a)) | Outstanding Options, | Outstanding Options, | Securities Reflected in | |||||||||||||||||||
| Plan Category | (a) | (b) | (c) | Warrants and Rights | Warrants and Rights | Column (a)) | ||||||||||||||||||
| (a) | (b) | (c) | ||||||||||||||||||||||
| Equity compensation plans approved by security holders | 16,500 | $ | 15.56 | 592,802 | 0 | $ | 0 | 4,999,422 | ||||||||||||||||
| Equity compensation plans not approved by security holders | — | — | — | 0 | 0 | — | ||||||||||||||||||
| Total | 16,500 | $ | 15.56 | 592,802 | 0 | $ | 0 | 4,999,422 | ||||||||||||||||
Recent Sales of Unregistered Securities.
Information regarding the MLP issued $300.0 millionrecent sales of unregistered securities has been included in 5.45% guaranteed exchangeable notes due in 2027 which can be put by the holder every five years commencing 2012. The net proceeds of $292.7 were used to repay indebtedness under the MLP’s secured loan. The notes are exchangeable for cash and, at our option, any excess above the par value of the notes may be exchanged for our common shares.
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Share Repurchase Program.
Our boardBoard of Trustees has authorized the repurchase of up to 2.010.0 million common shares/OP units.units in the first quarter of 2007 and during the fourth quarter of 2007 increased the authorization by 5.0 million. The following table summarizes repurchases of our common sharesshares/units during the fourth quarter of 2006:
| Total Number of | Maximum Number of | |||||||||||||||
| Shares/Units | Shares That May Yet | |||||||||||||||
| Total Number of | Average Price | Purchased as Part of | Be Purchased Under | |||||||||||||
| Shares/Units | Paid Per | Publicly Announced | the Plans or | |||||||||||||
| Period | Purchased | Share/Unit | Plans or Programs | Programs | ||||||||||||
| October 1 – 31, 2006 | — | $ | — | — | 1,926,088 | |||||||||||
| November 1 – 30, 2006 | 220,000 | $ | 20.74 | 220,000 | 1,706,088 | |||||||||||
| December 1 – 31, 2006 | 234,565 | $ | 21.94 | 234,565 | 1,471,523 | |||||||||||
| Fourth Quarter 2006 | 454,565 | $ | 21.36 | 454,565 | 1,471,523 | |||||||||||
| Total Number of | Maximum Number of | |||||||||||||||
| Shares/Units | Shares That May Yet | |||||||||||||||
| Total Number of | Average Price | Purchased as Part of | Be Purchased Under | |||||||||||||
| Shares/Units | Paid per | Publicly Announced | the Plans or | |||||||||||||
Period | Purchased | Share/Unit ($) | Plans or Programs | Programs | ||||||||||||
| October 1 — 31, 2007 | 32,392 | 20.05 | 32,392 | 3,374,440 | ||||||||||||
| November 1 — 30, 2007 | 1,277,810 | 18.02 | 1,277,810 | 2,096,630 | ||||||||||||
| December 1 — 31, 2007 | 1,326,648 | 17.39 | 1,326,648 | 5,769,982 | ||||||||||||
| Fourth Quarter 2007 | 2,636,850 | 17.72 | 2,636,850 | 5,769,982 | ||||||||||||
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| Item 6. | Selected Financial Data |
The following sets forth our selected consolidated financial data for the Company as of and for each of the years in the five-year period ended December 31, 2006.2007. The selected consolidated financial data for the Company should be read in conjunction with the Consolidated Financial Statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. ($000’s, except per share data)
| 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||
| Total gross revenues | $ | 207,391 | $ | 183,458 | $ | 129,977 | $ | 91,777 | $ | 70,737 | $ | 431,747 | $ | 186,693 | $ | 162,383 | $ | 109,901 | $ | 73,999 | ||||||||||||||||||||
| Expenses applicable to revenues | (112,855 | ) | (87,954 | ) | (42,990 | ) | (29,130 | ) | (22,061 | ) | (297,139 | ) | (106,796 | ) | (81,645 | ) | (37,581 | ) | (24,568 | ) | ||||||||||||||||||||
| Interest and amortization expense | (71,402 | ) | (62,617 | ) | (42,456 | ) | (30,883 | ) | (28,232 | ) | (163,628 | ) | (65,097 | ) | (56,177 | ) | (36,448 | ) | (25,609 | ) | ||||||||||||||||||||
| Income (loss) from continuing operations | (663 | ) | 24,938 | 34,576 | 20,091 | 17,834 | (10,783 | ) | (7,909 | ) | 17,606 | 27,021 | 15,873 | |||||||||||||||||||||||||||
| Total discontinued operations | 8,416 | 7,757 | 10,231 | 13,558 | 12,761 | 87,634 | 15,662 | 15,089 | 17,786 | 17,776 | ||||||||||||||||||||||||||||||
| Net income | 7,753 | 32,695 | 44,807 | 33,649 | 30,595 | 76,851 | 7,753 | 32,695 | 44,807 | 33,649 | ||||||||||||||||||||||||||||||
| Net income (loss) allocable to common shareholders | (8,682 | ) | 16,260 | 37,862 | 30,257 | 29,902 | 50,118 | (8,682 | ) | 16,260 | 37,862 | 30,257 | ||||||||||||||||||||||||||||
| Income (loss) from continuing operations per common share — basic | (0.33 | ) | 0.17 | 0.59 | 0.49 | 0.64 | (0.58 | ) | (0.47 | ) | 0.03 | 0.43 | 0.37 | |||||||||||||||||||||||||||
| Income from continuing operations per common share — diluted | (0.33 | ) | 0.17 | 0.58 | 0.49 | 0.63 | (0.58 | ) | (0.47 | ) | 0.03 | 0.41 | 0.36 | |||||||||||||||||||||||||||
| Income from discontinued operations — basic | 0.16 | 0.16 | 0.22 | 0.40 | 0.47 | 1.35 | 0.30 | 0.30 | 0.38 | 0.52 | ||||||||||||||||||||||||||||||
| Income from discontinued operations — diluted | 0.16 | 0.16 | 0.22 | 0.39 | 0.46 | 1.35 | 0.30 | 0.30 | 0.39 | 0.52 | ||||||||||||||||||||||||||||||
| Net income (loss) per common share — basic | (0.17 | ) | 0.33 | 0.81 | 0.89 | 1.11 | 0.77 | (0.17 | ) | 0.33 | 0.81 | 0.89 | ||||||||||||||||||||||||||||
| Net income (loss) per common share — diluted | (0.17 | ) | 0.33 | 0.80 | 0.88 | 1.09 | 0.77 | (0.17 | ) | 0.33 | 0.80 | 0.88 | ||||||||||||||||||||||||||||
| Cash dividends declared per common share | 2.0575 | 1.445 | 1.410 | 1.355 | 1.325 | 3.60 | 2.0575 | 1.445 | 1.410 | 1.355 | ||||||||||||||||||||||||||||||
| Net cash provided by operating activities | 108,020 | 105,457 | 90,736 | 68,883 | 56,834 | 287,651 | 108,020 | 105,457 | 90,736 | 68,883 | ||||||||||||||||||||||||||||||
| Net cash used in investing activities | (154,080 | ) | (643,777 | ) | (202,425 | ) | (295,621 | ) | (106,166 | ) | (31,490 | ) | (154,080 | ) | (643,777 | ) | (202,425 | ) | (295,621 | ) | ||||||||||||||||||||
| Net cash provided by financing activities | 483 | 444,878 | 242,723 | 228,986 | 47,566 | 38,973 | 483 | 444,878 | 242,723 | 228,986 | ||||||||||||||||||||||||||||||
| Ratio of earnings to combined fixed charges and preferred dividends | 1.02 | 1.25 | 1.59 | 1.52 | 1.70 | N/A | N/A | 1.15 | 1.47 | 1.52 | ||||||||||||||||||||||||||||||
| Real estate assets, net | 3,471,027 | 1,641,927 | 1,227,262 | 1,001,772 | 779,150 | 3,715,447 | 3,471,027 | 1,641,927 | 1,227,262 | 1,001,772 | ||||||||||||||||||||||||||||||
| Investments in non-consolidated entities | 247,045 | 191,146 | 132,738 | 69,225 | 54,261 | 226,476 | 247,045 | 191,146 | 132,738 | 69,225 | ||||||||||||||||||||||||||||||
| Total assets | 4,624,857 | 2,160,232 | 1,697,086 | 1,207,411 | 902,471 | 5,265,163 | 4,624,857 | 2,160,232 | 1,697,086 | 1,207,411 | ||||||||||||||||||||||||||||||
| Mortgages, notes payable and credit facility, including discontinued operations | 2,129,025 | 1,170,560 | 765,909 | 551,385 | 491,517 | 3,047,550 | 2,132,661 | 1,170,560 | 765,909 | 551,385 | ||||||||||||||||||||||||||||||
| Shareholders’ equity | 1,122,444 | 891,310 | 847,290 | 579,848 | 332,976 | 939,071 | 1,122,444 | 891,310 | 847,290 | 579,848 | ||||||||||||||||||||||||||||||
| Preferred share liquidation preference | 234,000 | 234,000 | 214,000 | 79,000 | — | 389,000 | 234,000 | 234,000 | 214,000 | 79,000 | ||||||||||||||||||||||||||||||
| N/A — Ratio is below 1.0, deficit of $84,014 and $6,503 exists at December 31, 2007 and 2006, respectively. |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
In this discussion, we have included statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements may relate to our future plans and objectives, among other things. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Important factors that could cause our results to differ, possibly materially, from those indicated in the forward-looking statements include, among others, those discussed below under “Risk Factors” in Part I, Item 1A of this Annual Report and “Cautionary Statements Concerning Forward Looking Statements” in Part I, of this Annual Report.
General
We are a self-managed and self-administered real estate investment trust formed under the laws of the State of Maryland. We operate primarily in one segment and our primary business is the investment in and the acquisition, ownership and management of a geographically diverse portfolio of net leased office, industrial and retail properties. Substantially all of our properties are subject to triple net leases, which are generally characterized as leases in which the tenant bears all or substantially all of the costsand/or cost increases for real estate taxes, utilities, insurance and ordinary repairs.
We elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with our taxable year ended December 31, 1993. If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on our net income that is currently distributed to shareholders.
As of December 31, 2006,2007, we owned or had ownership interests in approximately 365280 consolidated real estate propertiesassets, located in 42 states and the Netherlands and encompassing 58.945.5 million rentable square feet. During 2006,2007, we purchased 185eight properties including properties acquired through the Merger and non-consolidated investments,from unrelated parties, for an aggregate capitalized cost of $2.3 billion.$131.5 million. In addition, we acquired our partners’ interests in four co-investment programs for $366.6 million in cash.
As of December 31, 2006,2007, we including through non-consolidated entities, leased properties to approximately 285numerous tenants in 22 differenta variety of industries. Our revenues and cash flows are generated predominantly from property rent receipts. Growth in revenue and cash flows is directly correlated to our ability to (i)(1) acquire income producing properties and (ii)(2) to re-lease properties that are vacant, or may become vacant at favorable rental rates. The challenge we face is finding investments that will provide an attractive return without compromising our real estate underwriting criteria. We believe we have access to acquisition opportunities due to our relationship with developers, brokers, corporate users and sellers.
Re-leasing properties as leases expire and properties currently vacant at favorable effective rates is one of our primary focuses.
The primary risks associated with re-tenanting properties are (i)(1) the period of time required to find a new tenant, (ii)(2) whether rental rates will be lower than previously received, (iii)(3) the significant leasing costs such as commissions and tenant improvement allowances and (iv)(4) the payment of operating costs such as real estate taxes and insurance while there is no offsetting revenue. We address these risks by contacting tenants well in advance of lease maturity to get an understanding of their occupancy needs, contacting local brokers to determine the depth of the rental market and retaining local expertise to assist in the re-tenanting of a property. As part of the acquisition underwriting process,Pursuant to our strategic restructuring plan we focus on buying general purpose office and industrial real estate assets which can be leasedhave one or more of the following characteristics (1) an investment grade tenant; (2) adaptability to other tenants without significant modification to the properties.a variety of users, including multi-tenant use, and (3) an attractive geographic location. No assurance can be given that once a property becomes vacant it will subsequently be re-let.
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During 2007, we sold 53 consolidated properties for $423.6 million and contributed/sold 30 properties to NLS for $121.7 million in cash and an equity position of $109.1 million. During 2006, we sold eight properties, including one property through foreclosure, to unrelated third parties for a net sales price of $94.0 million. During 2005, we sold eight properties, including one sold through a in a non-consolidated entity, to unrelated parties for a net sales price of $74.7 million. In addition in 2005, we contributed seven properties to various non-consolidated entity programs for $124.7 million, which approximated carrying costs. During 2004, we sold eight properties for $36.7 million
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We believe that the restructuring plan will allow us to unrelated parties. In addition, we contributed eight properties(1) improve the quality of our portfolio; (2) enhance shareholder value by increasing cash flows; (3) simplify factors relating to various non-consolidated entity programs for $197.0 million, which approximated carrying costs. Also we were reimbursed for certain holding costs by the partners in the respective ventures.our valuation; and (4) operate more efficiently.
Inflation
Certain of the long-term leases on our properties contain provisions that may mitigate the adverse impact of inflation on our operating results. Such provisions include clauses entitling us to receive (i)(1) scheduled fixed base rent increases and (ii)(2) base rent increases based upon the consumer price index. In addition, a majority of the leases on our properties require tenants to pay operating expenses, including maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses. In addition, the leases on our properties are generally structured in a way that minimizes our responsibility for capital improvements.
Critical Accounting Policies
Our accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require our management to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported. The following are critical accounting policies which are important to the portrayal of our financial condition and results of operations and which require some of management’s most difficult, subjective and complex judgments. The accounting for these matters involves the making of estimates based on current facts, circumstances and assumptions which could change in a manner that would materially affect management’s future estimates with respect to such matters. Accordingly, future reported financial conditions and results could differ materially from financial conditions and results reported based on management’s current estimates.
Business CombinationsCombinations.. We follow the provisions of Statement of Financial Accounting Standards No. 141, Business Combinations, which we refer to as SFAS 141, and record all assets acquired and liabilities assumed at fair value. On December 31, 2006, we acquired Newkirk through the Merger, which was a variable interest entity (VIE). We follow the provisions of Financial Accounting Standards Board Interpretation No. 46 (Revised) Consolidation of Variable Interest Entities, which we refer to as FIN 46R, and, as a result, we have recorded the minority interest in Newkirk at estimated fair value on the date of acquisition. The value of the consideration issued in common shares was based upon a reasonable period before and after the date that the terms of the acquisition were agreed to and announced.
Purchase Accounting for Acquisition of Real Estate.We allocate the purchase price of real estate acquired in accordance with SFAS 141. SFAS 141 requires that the fair value of the real estate acquired, which includes the impact of mark-to-market adjustments for assumed mortgage debt relating 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, which includes land, building and improvements, and fixtures and equipment, of an acquired property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets 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 expectedlease-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 expectedlease-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 any 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.
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The aggregate value of other acquired intangible assets, consisting of in-place leases and tenantcustomer relationships, is measured by the excess of (i)(1) the purchase price paid for a property over (ii)(2) 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 tenantcustomer relationships based on management’s evaluation of the specific characteristics of each tenant’s lease. The value of in-place leases are amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of the respective leases. The value of customer relationships are amortized to expense over the applicable lease term plus expected renewal periods.
Revenue Recognition.We recognize revenue in accordance with Statement of Financial Accounting Standards No. 13 Accounting for Leases, as amended, which we refer to as SFAS 13. SFAS 13 requires that revenue be recognized on a straight-line basis over the
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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 we fund tenant improvements and the improvements are deemed to be owned by us, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When we determine that the tenant allowances are lease incentives, we commence 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 in accordance with Statement of Financial Accounting Standards No. 66 Accounting for Sales of Real Estate, as amended, which we refer to as 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 sales criteria are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met. To the extent we sell a property and retain a partial ownership interest in the property, we recognize gain to the extent of the third party ownership interest in accordance with SFAS 66.
Accounts Receivable.We continuously monitor collections from our tenants and would make a provision for estimated losses based upon historical experience and any specific tenant collection issues that we have identified. As of December 31, 2007 and 2006, and 2005, we did not record anthe allowance for doubtful accounts.accounts is insignificant.
Impairment of Real Estate.Estate and Investment in Non-consolidated Entities.We evaluate the carrying value of all real estate and investments in non-consolidated entities 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, which we refer to as SFAS 144, has occurred to determine if an impairment has occurred which would require the recognition of a loss. The evaluation includes reviewing anticipated cash flows of the property, based on current leases in place, and an estimate of what lease rents will be if the property is vacant coupled with an estimate of proceeds to be realized upon sale. However, estimating market lease rents and future sale proceeds is highly subjective and such estimates could differ materially from actual results.
Tax Status.We have made an election to qualify, and believe we are operating so as to qualify, as a REIT for federal income tax purposes. Accordingly, we generally will not be subject to federal income tax, provided that distributions to our shareholders equal at least the amount of our REIT taxable income as defined under Sections 856 through 860 of the Code.
We are now permitted to participate in certain activities from which we were previously precluded in order to maintain our qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable subsidiaries under the Code. LRA and Lexington Contributions Inc., which we refer to as LCI, are, and LSAC arewas a, taxable REIT subsidiaries. As such, we are subject to federal and state income taxes on the income we receive 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
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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.
Properties Held For Sale.We account for properties held for sale in accordance with SFAS 144. SFAS 144 requires that the assets and liabilities of properties that meet various criteria be presented separately in the statement of financial position, with assets and liabilities being separately stated. The operating results of these properties are reflected as discontinued operations in the statement of operations. Properties that do not meet the held for sale criteria of SFAS 144 are accounted for as operating properties.
Basis of Consolidation.We determine whether an entity for which we hold an interest should be consolidated pursuant to FIN 46R. If the entity is not a variable interest entity, and we control the entity’s voting shares or similar rights, the entity is consolidated. FIN 46R requires us to evaluate whether we have a controlling financial interest in an entity through means other than voting rights.
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 December 31, 2007, we held interests in approximately 280 consolidated properties, which were located in 42 states and the Netherlands. The 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 year ended December 31, 2007, in addition to the acquisition of our four co-investment programs, we purchased eight properties from third parties for a capitalized cost of $131.5 million and sold 53 consolidated properties to third parties for aggregate proceeds of $423.6 million, which resulted in a gain of $92.9 million.
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 loan, co-investment programs and amounts that may be raised through the sale of securities in private or public offerings. For the years ended December 31, 2007 and 2006, the leases on our consolidated properties generated $385.9 million and $165.3 million, respectively, in rental revenue. The significant increase is due to the number of assets acquired in the Merger, the acquisition of the co-investment programs and the consolidation of LSAC effective in the fourth quarter of 2006.
In February 2007, we completed an offering of 6.2 million Series D Preferred Shares, athaving a liquidation amount of $25 per share and aan annual dividend rate of 7.55% raising net proceeds of $150$149.8 million.
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The MLP has a secured loan with Key Bank, N.A., which bears interest at the election of the MLP, at a rate equal to either (i) LIBOR plus 17560 basis points or (ii) the prime rate.points. As of December 31, 2006, $547.22007, $213.6 million was outstanding under the secured loan. The secured loan is scheduled to mature in August 2008, subject to two one year extensions.June 2009. The secured loan requires monthly payments of interest and quarterly principal payments of approximately $1.9 million during the term of the secured loan, increasing to $2.5 million per quarter during the extension periods.only. The MLP is also required to make principal payments from the proceeds of certain property sales refinancings and other asset salescertain refinancings if 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 for property sales and 100% of proceeds from refinancings, economic discontinuance, insurance settlements and condemnations.agreement. The secured loan has customary covenants, which the MLP was in compliance with at December 31, 2006.2007.
During 2007, we obtained $247.0 million in non-recourse mortgage financings, which have a fixed weighted-average interest rate of 6.1%. The proceeds of the financing were used to partially fund acquisitions.
During 2007, we issued, through a wholly-owned subsidiary, $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.
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In 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 of the issuance were used to repay indebtedness under the MLP’s former secured loan. The notes are currently exchangeable at certain times by the holders into our common shares at a price of $21.99 per share; however, the principal balance must be satisfied in cash.
During 2006, in addition to the Merger, we including non-consolidated entities, obtained $215.3 million in non-recourse mortgage financings which have a fixed weighted average interest rate of 6.0%. The proceeds of the financings were used to partially fund acquisitions.
During 2005, we completed a common share offering of 2.5 million shares raising aggregate net proceeds of $60.7 million. During 2005, we issued 400,000 Series C Preferred Shares, at $50 per share and a dividend rate of 6.50%, raising net proceeds of $19.5 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 flowsand/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 $77.2$137.3 million in 2007, compared to $93.7 million in 2006 compared to $72.6and $87.1 million in 20052005. The increase is attributable to the increase in our outstanding common and $65.1 millionpreferred shares and the special dividend paid in 2004. Preferred dividends paid were $16.4 million, $14.5 million and $6.4 million in 2006, 2005 and 2004, respectively.January 2007 relating to the Merger.
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.
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 the Company.us. Cash flows from operations as reported in the Consolidated Statements of Cash Flows increased to $287.7 million for 2007 from $108.0 million for 2006 fromand $105.5 million for 2005 and $90.7 million for 2004.2005. 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.
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Net cash used in investing activities totaled $31.5 million in 2007, $154.1 million in 2006 and $643.8 million in 2005 and $202.4 million in 2004.2005. Cash used in investing activities related primarily to investments in real estate properties, joint ventures and notes receivable. Cash provided by investing activities related primarily to collection of notes receivable, 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 provided by financing activities totaled $39.0 million in 2007, $0.5 million in 2006 and $444.9 million in 2005 and $242.7 million in 2004.2005. Cash provided by financing activities during each year was primarily attributable to proceeds from equity offerings, non-recourse mortgages and borrowings under our credit facility 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. All Substantially all
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outstanding OP units are redeemable by the holder at certain times for common shares on a one-for-one basis and substantiallyor, 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. 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.
In connection with the Merger, the MLP effected a reverse unit-split pursuant to which each outstanding MLP unit was converted into 0.80 MLP units totaling 35.5 million MLP units, other than MLP units held directly or indirectly by us.
During 2006, one of our operating partnerships issued 34 thousand units (or $0.8 million) in connection with an acquisition.
During 2005, one of our operating partnerships issued 0.4 million OP units for approximately $7.7 million in cash.
As of December 31, 2005,2007, there were 5.739.7 million OP units outstanding. Of the total OP units outstanding, approximately 29.2 million are held by related parties. As of December 31, 2006, there were 41.2 million OP units outstanding, other than OP units held directly or indirectly by us.
Financing
Revolving Credit Facility.Our $200.0 million revolving credit facility whichwith Wachovia Bank N.A. and a consortium of other banks, (1) expires June 2008 and (2) bears interest at120-170 basis points over LIBOR depending on our leverage (as defined) in the credit facility,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 December 31, 2006,2007, we were in compliance with all covenants, $65.2 million wasno borrowings were outstanding, $133.0$198.5 million was available to be borrowed, and $1.8$1.5 million letters of credit were outstanding under the credit facility. We have the ability to extend the maturity date of the facility to June 2009 by requesting such extension from the lenders between February 28, 2008 and March 28, 2008 and paying $0.4 million. We anticipate that we will extend the maturity date.
The MLP has a secured loan with Key Bank, N.A., which bears interest at the election of the MLP at a rate equal to either (i) LIBOR plus 17560 basis points or (ii) the prime rate.points. As of December 31, 2006, $547.22007, $213.6 million was outstanding under the secured loan. The secured loan is scheduled to mature in August 2008, subject to two one year extensions.June 2009. The secured loan requires monthly payments of interest and quarterly principal payments of $1.9 million during the term of the loan, increasing to $2.5 million per quarter during the extension periods.only. The MLP is also required to make principal payments from the proceeds of certain property sales and certain refinancings and other asset sales 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 for property sales and 100% of proceeds from refinancings, economic discontinuance, insurance settlements and condemnations.agreement. The secured loan has customary covenants, which the MLP was in compliance with at December 31, 2006.2007.
In January 2007, the MLP issued $300.0$450 million in 5.45% guaranteed exchangeable notes due in 2027, which can be put by the holder every five years commencing 2012.2012 and upon certain events. The net proceeds of $292.7 were used to repay indebtedness.
During 2007, we issued $200 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.
Debt Service Requirements.Our principal liquidity needs are the payment of interest and principal on outstanding indebtedness. As of December 31, 2006,2007, there were $2.1$3.0 billion of mortgages and notes payable outstanding, including discontinued operations. As of December 31, 2006,2007, the weighted average interest rate on our outstanding debt was approximately 6.1%5.9%. The scheduled principal amortization and balloon payments for the next five years are as follows: $73.1 million in 2007, $699.5 million in 2008, $104.4 million in 2009, $90.4 million in 2010 and $142.8 million in 2011. Our ability to make certain of thesedebt service payments will depend upon our rental
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revenues and our ability to refinance the mortgage related thereto, sell the related property, have available amounts under our credit facility or access other capital. Our ability to accomplish such goals will be affected by numerous economic factors affecting the real estate industry, including the availability and cost of mortgage debt at the time, our equity in the mortgaged properties, the financial condition and the operating history of the mortgaged properties, the then current tax laws and the general national, regional and local economic conditions.
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We expect to continue to use property specific, non-recourse mortgages as we believe that by properly matching a debt obligation, including the balloon maturity risk, with a lease expiration, ourcash-on-cash returns increase and the exposure to residual valuation risk is reduced. In December 2005, we informed the lender for our Milpitas, California property that we would no longer make debt service payments and our intention to convey the property to the lender to satisfy the mortgage. We recorded a $12.1 million impairment charge in 2005 relating to this property and a gain on debt satisfaction of $6.3 million upon foreclosure on the property by the lender in 2006. During 2006, the Companywe satisfied a $20.4 million mortgage note by making a $7.5 million cash payment plus assigning a $5.4 million escrow to the lender, which resulted in a gain of $7.5 million.
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. As of December 31, 2006, 12 properties were fully vacant. 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. The annual ground lease rental payment obligations for each of the next five years is $4.0 million in 2007, $3.5 million in 2008, $3.1 million in 2009, $2.6 million in 2010 and $2.2 million in 2011. These amounts do not include payments due under bond leases in which a right of offset exists between the lease obligation and the debt service.
Contractual Obligations.The following summarizes the Company’s principal contractual obligations as of December 31, 20062007 ($000’s):
| 2012 and | 2013 and | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2007 | 2008 | 2009 | 2010 | 2011 | thereafter | Total(3) | 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | |||||||||||||||||||||||||||||||||||||||||||
| Notes payable (2) (4) | $ | 73,075 | $ | 699,526 | $ | 104,378 | $ | 90,363 | $ | 142,793 | $ | 1,018,890 | $ | 2,129,025 | ||||||||||||||||||||||||||||||||||||||||||
| Notes payable(2)(3) | $ | 100,083 | $ | 339,552 | $ | 164,550 | $ | 184,059 | $ | 677,991 | $ | 1,581,315 | $ | 3,047,550 | ||||||||||||||||||||||||||||||||||||||||||
| Contract rights payable | — | 229 | 491 | 540 | 593 | 11,591 | 13,444 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase obligations | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Tenant incentives | 4,272 | 3,500 | 10,000 | — | — | — | 17,772 | 8,445 | 10,000 | — | — | — | — | 18,445 | ||||||||||||||||||||||||||||||||||||||||||
| Operating lease obligations(1) | 4,635 | 4,103 | 3,108 | 2,589 | 2,167 | 14,975 | 31,577 | 4,431 | 3,858 | 3,631 | 3,235 | 2,830 | 16,720 | 34,705 | ||||||||||||||||||||||||||||||||||||||||||
| $ | 81,982 | $ | 707,129 | $ | 117,486 | $ | 92,952 | $ | 144,960 | $ | 1,033,865 | $ | 2,178,374 | $ | 112,959 | $ | 353,639 | $ | 168,672 | $ | 187,834 | $ | 681,414 | $ | 1,609,626 | $ | 3,114,144 | |||||||||||||||||||||||||||||
| (1) | Includes ground lease payments and office rent. Amounts disclosed through 2008 include rent for our principal executive office which is fixed through 2008 and adjusted to fair market value as determined at January 2009. Therefore, the amounts for 2009 and thereafter do not include principal executive office rent. In addition certain ground lease payments due under bond leases allow for a right of offset between the lease obligation and the debt service and accordingly are not included. | |
| (2) | We have | |
| (3) | ||
| Includes balloon payments. |
Capital Expenditures.Due to the net lease structure, we do not incur significant expenditures in the ordinary course of business to maintain our properties. However, 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.
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Results of Operations
Year ended December 31, 2007 compared with December 31, 2006. Changes in our results of operations are primarily due to the Merger, which was effective December 31, 2006, and 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 2007 of $245.1 million, $220.6 million is attributable to rental revenue. The remaining $24.5 million increase in gross revenues in 2007 was primarily attributable to an increase in tenant reimbursements of $15.5 million and an increase in advisory and incentive fees of $9.0 million. The primary increase in advisory and incentive fees relates to promoted interests ($11.7 million) earned with respect to two co-investment programs and one advisory agreement.
The increase in interest and amortization expense of $98.5 million is due to the increase in long-term debt due to the growth of our portfolio resulting from the Merger and the acquisition of the outstanding interests in our co-investment programs.
The increase in property operating expense of $30.1 million is primarily due to an increase in properties for which we have operating expense responsibility, including an increase in vacancy.
The increase in depreciation and amortization of $160.2 million is due primarily to the growth in real estate and intangibles through the acquisition of properties in the Merger and the acquisition of the outstanding interests in our co-investment programs. 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 $3.9 million is due primarily to (1) costs associated with the Merger ($3.2 million); (2) the costs associated with LSAC ($0.9 million); (3) costs incurred in the formation of NLS ($2.3 million); and (4) professional fees ($1.2 million) all of which is offset by a reduction in other costs including personnel costs ($5.1 million), which relates primarily to the accelerated amortization of non-vested common shares in 2006 of $10.8 million and an increase in severance costs in 2007 of $4.5 million.
Non-operating income increased $1.8 million due primarily to increased interest and dividends from investments, offset by a gain in 2006 relating to the sale of a Dana bankruptcy claim.
Impairment charges increased $8.3 million due to the impairment charge on two properties in 2007,which are currently vacant and management changed its strategy from a long-term hold to hold for disposal. We will commence marketing these properties in 2008, however, we are unsure if the properties will be sold within 12 months.
Debt satisfaction charges changed $8.4 million due to mortgages being satisfied at a loss of $1.2 million in 2007 due to sales of properties to affiliates, compared to mortgages being repaid in 2006 at a gain of $7.2 million.
Provision for income taxes increased $3.6 million due to the write-off deferred tax assets of LSAC, the gain realized due to the sale of properties to NLS and earnings of the taxable REIT subsidiaries.
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The equity in earnings of Operationsnon-consolidated entities increase of $42.2 million is primarily due to the gains on sale realized relating to the dissolution of one co-investment program ($34.2 million) and gain recognized relating to the sale of an investment to NLS ($1.6 million).
The increase in gains on sale of properties — affiliates relates to the sale of properties to NLS.
Net income increased by $69.1 million primarily due to the net impact of items discussed above coupled with an increase of $72.0 million in income from discontinued operations.
In 2007, 56 properties were sold and classified as held for sale. In 2006, 17 properties were sold and classified as held for sale. Discontinued operations represents properties sold or held for sale. The total discontinued operations increased $72.0 million due to an increase in income from discontinued operations of $15.1 million coupled with a change in debt satisfaction charges of $12.4 million, an increase in gains on sale of $70.0 million, a change in minority interests share of income of $24.0 million, a reduction in impairment charges of $26.5 million and an increase in the provision for income taxes of $3.2 million.
Net income applicable to common shareholders in 2007 increased to $50.1 million compared to a net loss applicable to common shareholders in 2006 of $8.7 million. The increase is due to the items discussed above offset by an increase in preferred dividends of $10.3 million resulting from the issuance of Series D Preferred Shares. 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 this Annual Report.
Year ended December 31, 2006 compared with December 31, 2005.Changes in theour results of our operations are primarily due to the growth of our portfolio and costs associated with such growth. Of the increase in total gross revenues in 2006 of $23.9$24.3 million, $18.1$18.4 million is attributable to increases in rental revenue. The remaining $5.8$5.9 million increase in gross revenues in 2006 was primarily attributable to ana decrease in advisory and incentive fees of $0.8 million and a $6.7 million increase in tenant reimbursements of $6.7 million and a decrease of $0.8 million in advisory fees. reimbursements.
The increase in interest and amortization expense of $8.8$8.9 million is due to increased leverage incurred relatingthe growth of our portfolio and partially financing such growth with debt.
The increase in property operating expense of $10.3 million is primarily due to acquisitionsan increase in properties for which we have operating expense responsibility and has been partially offset by interest savings resulting from scheduled principal amortization payments and mortgage satisfactions. an increase in vacancy.
The increase in depreciation and amortization of $14.6$14.8 million is due primarily to the growth in real estate and intangibles through the acquisition of properties. Intangible assets due to property acquisitions. Ourare amortized over a shorter period of time (generally the lease term) than real estate assets.
The increase in general and administrative expenses increased by $17.9 million primarily due to the accelerated amortization of time based non-vested shares ($10.8 million), an increase in amortization of all non-vested shares ($2.5 million) and an increase in other personnel costs ($3.9 million). The increase in property operating expenses of $10.3$18.0 million is due primarily to incurringincreases in personnel costs, including the accelerated amortization of time-based non-vested shares of $10.8 million.
Impairment loss increased $7.2 million due to an impairment charge for a property level operating expenses for properties in which we have operating expense responsibility and an increase2006.
Non-operating income increased $7.4 million primarily due to a sale of a tenant bankruptcy claim in vacancy. 2006.
Debt satisfaction gains increased by $2.8 million due to the timing of mortgage payoffs. Impairment charges increased by $7.2
The minority interest share of income decrease of $1.1 million is due to an impairment of one property in 2006. Non-operating income increased $7.4 million primarily due to the sale of a tenant bankruptcy claim in 2006. Minority interest expense decreased by $1.0 million due to the decrease in earnings of our subsidiaries. Equityat the partnership level.
The equity in earnings of non-consolidated entities decreaseddecrease of $2.0 million is primarily due to a decrease in net incomeearnings of non-consolidated entities, primarily related primarily to increased depreciation. depreciation and amortization.
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Net income decreased by $24.9 million primarily due to the net impact of items discussed above offset bycoupled with an increase of $0.6 million in totalincome from discontinued operations.
Discontinued operations represents properties sold or held for sale. Total discontinued operations increased $0.6 million due to a decrease in income from discontinued operations of $0.7 million. The total discontinued operations income increase was comprised$3.1 million coupled with a change in debt satisfaction gains of $5.2 million, an increase in gains on sale of properties$10.6 million, a change in minority interests share of $10.0loss of $3.1 million an increase in debt satisfaction gains of $4.4 million,and an increase in impairment charges of $10.3 million and$15.2 million. There was a reduction in income from discontinued operations of $3.4 million. Net income allocablenet loss applicable to common shareholders decreased duein 2006 of $8.7 million compared to the items discussed.
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 (i)(1) the discovery of environmental conditions, which were previously unknown, (ii)unknown; (2) changes in law, (iii)law; (3) the conduct of tenantstenants; or (iv)(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.
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Recently Issued Accounting Standards
Recently Issued Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, as amended, which we refer to as SFAS 150, was issued in May 2003. SFAS 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS 150 also includes required disclosures for financial instruments within its scope. For us, SFAS 150 was effective for instruments entered into or modified after May 31, 2003 and otherwise was effective as of January 1, 2004, except for mandatorily redeemable financial instruments. SFAS 150 has been deferred indefinitely for certain types of mandatorily redeemable financial instruments. The adoption of the required portions of SFAS 150 had no impact on us.
Standards. In December 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123, (revised 2004) Share-Based Payment which we refer to as (“SFAS 123R,123R”), which supersedes Accounting Principals Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, which we refer to as APB Opinion No. 29, and its related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addressesaddress transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost will be recognized over the period in which an employee is required to provide services in exchange for the award. SFAS 123R was effective for the fiscal yearsyear beginning afteron January 1, 2006. The impact of adopting this statement resulted in the elimination of $11.4 million$11,401 of deferred compensation and additionalpaid-in-capital from the Consolidated Statementsconsolidated statements of Changeschanges in Shareholders’ Equity. Theshareholders’ equity as of January 1, 2006 and the adoption did not have a material impact on our results of operations.operations or cash flows.
In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations — an Interpretation of SFAS Statement No. 143 which we refer to as (“FIN 47.47”). FIN 47 clarifies the timing of liability recognition for legal obligations associated with the retirement of a tangible long-lived asset when the timing and/orand /or method of settlement are conditional on a future event. FIN 47 is effective for fiscal years ending after December 15, 2005. The application of FIN 47 did not have a material impact on our consolidated financial position or results of operations.
In June 2005, the FASB ratified the Emerging Issues Task Force’s which we refer to as EITF(“EITF”) consensus onEITF 04-05, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights which we refer to as (“EITF 04-05. EITF04-05”).EITF 04-05 provides a framework for determining whether a general partner controls, and should consolidate, a limited partnership or a similar entity. It was effective after June 29, 2005 for all newly formed limited partnerships and for any pre-existing limited partnerships that modify their partnership agreements after that date. General partners of all other limited partnerships were required to apply EITF 04-05the consensus no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005. The impact of the adoption ofEITF 04-05 did not have a material impact on our financial position, or results of operations.operations or cash flows.
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In 2005, the EITF released IssueNo. 05-06, Determining the Amortization Period for Leasehold Improvements which we refer to as (“EITF 05-06,05-06”), which clarifies the period over which leasehold improvements should be amortized.EITF 05-06 requires all leasehold improvements to be amortized over the shorter of the useful life of the assets, or the applicable lease term, as defined. The applicable lease term is determined on the date the leasehold improvements are acquired and includes renewal periods for which exercise is reasonably assured.EITF 05-06 was effective for leasehold improvements acquired in reporting periods beginning after June 29, 2005. The impact of the adoption ofEITF 05-06 did not have a material impact on our financial position or results of operations.
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes which we refer to as (“FIN 48.48”). 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 iswas effective for fiscal years beginning after December 15, 2006. The Company does not expect that the adoption of FIN 48, willas of January 1, 2007, did not have a material impact on our consolidated financial position, or results of operations.operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements which we refer to as (“SFAS 157.157”). 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.years, except fornon-financial assets and liabilities, which is deferred for one additional year. The adoption of this statement is not expected to have a material impact on our consolidated financial position, or results of operations.operations or cash flows.
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 aninstrument-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 has determined that we will not adopt the fair value provisions of this pronouncement so it will have no impact on our financial position, results of operations or cash flows.
In September 2006, the SECSecurities and Exchange Commission released Staff Accounting Bulletin No. 108 which we refer to as (“SAB 108.108”). SAB 108 provides guidance on how the effects of the carryover or reversal of prior year financial statements misstatements should be considered in quantifying a current period misstatement. In addition, upon adoption, SAB 108 permits the Companyus to adjust the cumulative effect of immaterial errors relating to prior years in the carrying amount of assets and liabilities as of the beginning of the current fiscal year, with an offsetting adjustment to the opening balance of retained earnings. SAB 108 also requires the adjustment of any prior quarterly financial statement within the fiscal year of adoption for the effects of such errors on the quarters when the information is next presented. We will adoptadopted SAB 108 effective December 31, 2006, and its adoption had no impact on our financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141R, 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 Interest in Consolidated Financial Statements (“SFAS No. 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 No. 160 is effective for periods beginning on or after December 15, 2008. The adoption of this statement will result in the first quarterminority 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 income statement.
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In December 2007, and we dothe FASB ratified EITF consensus onEITF 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 anticipateby itself constitute a form of continuing involvement that it willwould preclude partial sale accounting under SFAS No. 66.EITF 07-06 is effective for fiscal years beginning after December 15, 2007. The adoption ofEITF 07-06 is not expected to 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 condition.instruments that meet the conditions for temporary equity classification under ASR 268, Presentation in Financial Statements of “Redeemable Preferred Stocks” and EITF TopicNo. 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 is not expected to have a material impact on our financial position, results of operations or cash flows.
Off-Balance Sheet Arrangements
Non-Consolidated Real Estate Entities.As of December 31, 2006,2007, we had investments in various real estate entities with varying structures and ownership percentages ranging from 1% to 50%.structures. The real estate investments owned by thesethe 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 assetproperty collateralized by the debt.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 $1.5 million in outstanding letters of credit.
Net Lease Strategic Assets Fund L.P. (NLS)
Net Lease Strategic Assets Fund L.P. is a co-investment program with Inland American (Net Lease) Sub, LLC ( Inland). NLS was established to acquire specialty real estate in the United States.
In addition to the properties already owned by NLS, NLS has a right to acquire an additional 13 properties from us. The acquisition of each of the 13 assets by NLS is subject to satisfaction of conditions precedent to closing, including 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 nor NLS can provide any assurance that the acquisition by NLS will be completed. In the event that NLS does not acquire 11 of the assets by March 31, 2008 and two of the assets by June 30, 2008, NLS will no longer have the right to acquire the assets.
Concord Debt Holdings LLC
Through the MLP, we have a 50% interest in a co-investment program, Concord Debt Holdings LLC, which we refer to as Concord, that invests in real estate loan assets and debt securities. Our co-investment partner and the holder of the other 50% interest in Concord is WRT Realty L.P., which we refer to as WRT. WRT is the operating partnership subsidiary of Winthrop Realty Trust, and Michael L. Ashner, our Executive Chairman and Director of Strategic Acquisitions, is the Chairman and Chief Executive Officer of Winthrop Realty Trust.
Concord acquires, originates and manages loan assets and debt securities collateralized by real estate assets, including mortgage loans (commonly referred to as whole loans), subordinate interests in whole loans (either through the acquisition of a B-Note or a participation interest), mezzanine loans, and preferred equity and
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commercial real estate securities, including collateralized mortgage-backed securities, which we refer to as CMBS, and real estate collateral debt obligations, which we refer to as a CDO.
To date, each of the MLP and WRT has committed to invest $162.5 million in Concord, $5.1 million of which remained committed and unfunded by each of the MLP and WRT at December 31, 2007. In addition to capital contributions, Concord currently seeks to finance its loan assets and debt securities, and expects to finance the acquisition of additional loan assets and debt securities, through the use of various structures including repurchase facilities, credit facilities, credit lines, term loans, securitizations and issuances of common and preferred equity to institutional or other investors.
Concord is managed, and all its investments are sourced, by WRP Management LLC, a joint venture 50% owned by each of the MLP and WRT. WRP Management LLC subcontracts its management obligations with WRP Sub-Management LLC, which we refer to as the Concord Advisor, a subsidiary of Winthrop Realty Partners, L.P., which we refer to as WRP. Michael L. Ashner, our Executive Chairman and Director of Strategic Acquisitions, holds an equity interest in and controls WRP. The Concord Advisor has substantially the same executive officers as Winthrop Realty Trust and WRP. Certain investments and other material decisions with respect to Concord’s business require the consent of both us and WRT or our and WRT’s representatives on Concord’s investment committee.
Concord’s objective is to produce a stable income stream from investments in loan assets and debt securities by carefully managing credit risk and interest rate risk. Concord derives earnings from interest income rather than trading gains and intends to hold its loan assets and debt securities to maturity. Accordingly, the loan assets and debt securities in which Concord invests are selected based on their long-term earnings potential and credit quality.
Concord seeks to achieve its objective by acquiring and originating loan assets and debt securities collateralized by the core real estate groups of existing income producing office, retail, multi-family, warehouse and hospitality assets. Concord does not generally invest in entitiesindustrial, R&D, special use or healthcare assets and Concord does not invest in any development projects, single family projects, condominium or condo conversion projects, raw land, synthetic loans or loans originated on assets located outside of the United States but may have interest in such assets if the underlying asset experiences a change in use. Further, Concord does not directly invest in single family home mortgages nor does it acquire loan assets or debt securities where the underlying obligor is either Winthrop Realty Trust or us or our respective affiliates. Concord only invests in assets in which the pool of potential buyers is broad and seeks to avoid assets which lack existing cash flowand/or were developed on a “for sale” basis. Moreover, depending on the size of the loan class, Concord generally seeks to acquire between 51% and 100% of the ownership position in the loan assets or debt securities in which it invests so as to control any decision making which might occur with third partiesrespect to such instrument in the future.
Concord’s sole exposure to the single family residential market is with respect to an $11.5 million investment in a $1.0 billion bond, 18.5% of which is subordinate to Concord’s position. Collateral for this bond can consist of up to 10% of residential loans, with the balance of the collateral consisting of commercial loans. At December 31, 2007, the collateral for this bond consisted of only 7% of residential loans, some of which are considered “sub-prime.” As of December 31, 2007, Concord recorded an other than temporary impairment charge on this investment of $4.9 million.
Simultaneous with or following the acquisition of a loan asset or debt security, Concord seeks to enhance the return on its investment by obtaining financing. Concord’s original business model was to refinance its loan assets with long-term debt through the issuance of CDOs. To this end, Concord formed its first CDO, Concord Real Estate CDO2006-1, Ltd., which we refer to as CDO-1, pursuant to which it refinanced approximately $464.6 million of its loan assets and debt securities.
The debt capital markets generally have experienced an increase in volatility and reduction in liquidity since the second quarter of 2007, which was initially triggered by credit concerns emanating from the single family residential market, particularly those loans commonly referred to as sub-prime loans. As a result of the increased volatility and reduction in liquidity in the debt capital markets, securitizations have become difficult if not
52
impossible to execute. As a result, Concord has continued to finance its loan assets and debt securities through repurchase facilities that are either similar to (1) revolving loans where Concord has the ability to repurchase current assets on such facility (pay back the loan with respect to such asset) and finance other loan assets through such facility or (2) to term loans in that only specific loan assets secure such facility and once satisfied, Concord cannot use the facility for additional loan assets. See “Credit Facilities,” below. Concord expects to issue additional CDOs or other types of securitizations at such time, if at all, as such issuances will generate attractive risk-adjusted equity returns.
CDOs are a securitization structure whereby multiple classes of debt are issued to finance a portfolio diversification, reduceof income producing assets, such as loan assets and debt securities. Cash flow from the portfolio of income producing assets is used to repay the CDO liabilities sequentially, in order of seniority. The most senior classes of debt typically have credit ratings of “AAA” through “BBB-” and therefore can be issued at yields that are lower than the average yield of the assets backing the CDO. That is, the gross interest payments on the senior classes of CDO securities are less than the average of the interest payment received by the CDO from its assets. On its existing CDO, Concord retained, and Concord expects that it will retain on any future CDOs, the equity and the junior CDO debt securities. As a result, assuming the CDO’s assets are paid in accordance with their terms, Concord’s return will be enhanced as Concord will retain the benefit of the spread between the yield on the CDO’s assets and the yield on the CDO’s debt. The equity and the junior CDO debt securities that Concord retained and intends to retain are the most junior securities in the CDO’s capital structure and are usually unrated or rated below investment grade. Concord also earns ongoing management fees for its management of the CDO collateral. A portion of these management fees is senior to the “AAA” rated debt securities of each CDO. In CDO-1, the level of leverage on the underlying assets was approximately 80%. The leverage level of Concord’s future CDOs may vary depending on the composition of the portfolio and market conditions at the time of the issuance of each CDO. Concord may increase or decrease leverage on its investment grade CDOs, at securitization, upward or downward to improve returns or to manage credit risk. In addition to CDO’s, Concord may also use other capital markets vehicles and structures to finance its real estate debt portfolio.
The Concord Advisor provides accounting, collateral management and loan brokerage services to Concord and its subsidiaries, including CDO-1. For providing these services, in 2007 Concord paid to the Concord Advisor a management fee of $1.9 million, which fees were based on the gross amount of loan assets acquired, and $0.7 million as reimbursement for certain direct costs incurred by the Concord Advisor solely for the benefit of Concord.
CDO-1
Concord holds loan assets and loan securities. On December 21, 2006, Concord formed its first CDO, Concord Real Estate CDO2006-1, Ltd., which we refer to as CDO-1, pursuant to which it financed approximately $464.6 million of its loan assets by issuing an aggregate of approximately $376.7 million of investment grade debt. Concord retained an equity and junior debt interest in the portfolio with a notional amount of $88.4 million. That is, if CDO-1 does not ultimately have sufficient funds to satisfy all of its obligations to its noteholders, Concord will bear the first $88.4 million in loss, one half of which would be attributable to our interest in Concord.
The financing through CDO-1 enhanced Concord’s return on the loan assets and loan securities held in CDO-1 as the weighted average interest rate on the loan assets and loan securities held in CDO-1 at December 31, 2007 was 6.7% and the weighted average interest rate on the amount payable by Concord on its notes at December 31, 2007 was 5.4%. Accordingly, assuming the loan assets and loan securities are paid in accordance with their terms, Concord retains an average spread of equity investedthe difference between the interest received on the loan assets and loan securities and the interest paid on the loan assets and loan securities. The following table summarizes the loan assets
53
and loan securities and the note obligations for CDO-1 at December 31, 2007 are set forth below (amounts in any one property and to increase returns on equity due to the realization of advisory fees. See Note 8 to the condensed consolidated financial statements for summary combined balance sheet and income statement data relating to these entities.thousands).
| CDO Loan Assets and Loan Securities — December 31, 2007 | CDO Notes — December 31, 2007 | |||||||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||||||
| Par Value of | Average | Averaged | Outstanding | Average | ||||||||||||||||||||||||
| Date | CDO | Interest | Life | CDO | Interest | Stated | Retained | |||||||||||||||||||||
Closed | Collateral(3) | Rate | (Years) | Notes(1) | Rate | Maturity | Interest(2) | |||||||||||||||||||||
| 12/21/2006 | $ | 464,601 | 6.70 | % | 4.29 | $ | 376,650 | 5.37 | % | 12/2016 | $ | 88,350 | ||||||||||||||||
| (1) | Includes only notes held by third parties. | |
| (2) | Concord’s potential economic loss is limited to the retained interest of its investment in CDO-1, of which the MLP would bear 50% of such loss. | |
| (3) | Consists of loan assets with a par value of $338,681 and loan securities with a par value of $125,920. |
CDO-1’s loan assets were diversified by industry as follows at December 31, 2007:
Industry | % of Face Amount | |||
| Office | 44.22 | % | ||
| Hospitality | 30.54 | % | ||
| Multi-family | 8.62 | % | ||
| Industrial | 7.09 | % | ||
| Mixed Use | 5.10 | % | ||
| Retail | 4.43 | % | ||
| 100 | % | |||
The following table sets forth the aggregate carrying values, allocation by loan type and weighted average coupons of the loan assets and loan securities held in CDO-1 as of December 31, 2006, we have issued $1.8 million2007:
| Fixed Rate: | Floating Rate: | |||||||||||||||||||
| Carrying | Allocation by | Average | Average Spread | |||||||||||||||||
| Value(1) | Par Value | Investment Type | Yield | over LIBOR(2) | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Whole loans, floating rate | $ | 20,000 | $ | 20,000 | 4.31 | % | — | 195 bps | ||||||||||||
| Whole loans, fixed rate | 20,900 | 20,900 | 4.50 | % | 6.56 | % | — | |||||||||||||
| Subordinate interests in whole loans, floating rate | 108,766 | 108,864 | 23.43 | % | — | 244 bps | ||||||||||||||
| Subordinate interests in whole loans, fixed rate | 24,567 | 27,619 | 5.95 | % | 7.46 | % | — | |||||||||||||
| Mezzanine loans, floating rate | 81,419 | 81,410 | 17.52 | % | — | 270 bps | ||||||||||||||
| Mezzanine loans, fixed rate | 77,669 | 79,888 | 17.19 | % | 5.92 | % | — | |||||||||||||
| Loan securities, floating rate | 100,955 | 103,428 | 22.26 | % | — | 189 bps | ||||||||||||||
| Loan securities, floating rate | 18,448 | 22,492 | 4.84 | % | 5.97 | % | — | |||||||||||||
| Total/Average | $ | 452,724 | $ | 464,601 | 100 | % | 6.30 | % | 230 bps | |||||||||||
| (1) | Net of scheduled amortization payments and prepayments, unamortized fees and discounts. | |
| (2) | Spreads over an index other than LIBOR have been adjusted to a LIBOR based equivalent. |
54
The following table sets forth the maturity dates for the loan assets held in lettersCDO-1 at December 31, 2007:
| Number of Loan | ||||||||||||
Year of Maturity | Assets Maturing | Carrying Value | % of Total | |||||||||
| (In thousands) | ||||||||||||
| 2008 | 7 | $ | 140,183 | 42.06 | % | |||||||
| 2009 | 2 | 34,584 | 10.38 | % | ||||||||
| 2010 | 4 | 46,465 | 13.94 | % | ||||||||
| 2011 | 1 | 20,900 | 6.27 | % | ||||||||
| 2012 | 1 | 5,017 | 1.50 | % | ||||||||
| Thereafter | 7 | 86,172 | 25.85 | % | ||||||||
| Total | 22 | $ | 333,321 | 100 | % | |||||||
| Weighted average maturity is 3.45 years(1) | ||||||||||||
| (1) | The calculation of weighted average maturity is based upon the remaining initial term and does not take into account any maturity extension periods or the ability to prepay the investment after a negotiated lock-out period, which may be available to the borrower. |
The following table sets forth a summary of the loan securities held in CDO-1 at December 31, 2007 (in thousands):
| Gross Unrealized | Impairment | Carrying | ||||||||||||||||||
Description | Par Value | Loss | Loss | Value | ||||||||||||||||
| Floating rate | $ | 22,492 | $ | (321 | ) | $ | (1,601 | ) | $ | 18,448 | ||||||||||
| Fixed rate | 103,428 | (2,355 | ) | — | 100,955 | |||||||||||||||
| Total | $ | 125,920 | $ | (2,676 | ) | $ | (1,601 | ) | $ | 119,403 | ||||||||||
The following table sets forth a summary of the underlying Standard & Poor’s credit under our credit facility.rating of the loan securities held in CDO-1 at December 31, 2007:
Rating | Par Value | Percentage | ||||||
| (In thousands) | ||||||||
| BBB+ | $ | 9,000 | 7.15 | % | ||||
| BBB | 2,151 | 1.71 | % | |||||
| BBB- | 44,384 | 35.25 | % | |||||
| BB+ | 33,392 | 26.52 | % | |||||
| BB | 18,500 | 14.69 | % | |||||
| B+ | 7,000 | 5.56 | % | |||||
| Not rated | 11,493 | 9.12 | % | |||||
| Total | $ | 125,920 | 100 | % | ||||
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The following table sets forth the aggregate carrying values, allocation by loan type and weighted average coupons of Concord’s loan assets and loan securities in addition to its equity and debt interest in CDO-1 as of December 31, 2007:
| Fixed Rate: | Floating Rate: | |||||||||||||||||||
| Allocation by | Average | Average Spread | ||||||||||||||||||
| Carrying Value(1) | Par Value | Investment Type | Yield | over LIBOR(2) | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Whole loans, floating rate | $ | 136,260 | $ | 136,260 | 19 | % | — | 218 bps | ||||||||||||
| Whole loans, fixed rate | 6,300 | 6,300 | 1 | % | 6.40 | % | — | |||||||||||||
| Subordinate interests in whole loans, floating rate | 163,077 | 163,908 | 23 | % | — | 223 bps | ||||||||||||||
| Subordinate interests in whole loans, fixed rate | 14,196 | 15,750 | 2 | % | 8.63 | % | — | |||||||||||||
| Mezzanine loans, floating rate | 230,852 | 236,436 | 33 | % | — | 222 bps | ||||||||||||||
| Mezzanine loans, fixed rate | 68,028 | 71,718 | 10 | % | 7.45 | % | — | |||||||||||||
| Loan securities, floating rate | 43,260 | 56,400 | 8 | % | — | 143 bps | ||||||||||||||
| Loan securities, fixed rate | 25,411 | 27,084 | 4 | % | 6.68 | % | — | |||||||||||||
| Total/Average | $ | 687,384 | $ | 713,856 | 100 | % | 7.38 | % | 214 bps | |||||||||||
| (1) | Net of scheduled amortization payments and prepayments, unamortized fees and discounts. | |
| (2) | Spreads over an index other than LIBOR have been adjusted to a LIBOR based equivalent. |
The following table sets forth the maturity dates for Concord’s loan assets:
| Number of Loan | ||||||||||||
Year of Maturity | Assets Maturing | Carrying Value | % of Total | |||||||||
| (In thousands) | ||||||||||||
| 2008 | 9 | $ | 185,500 | 30.0 | % | |||||||
| 2009 | 9 | 134,052 | 21.7 | % | ||||||||
| 2010 | 3 | 81,903 | 13.2 | % | ||||||||
| 2011 | 1 | 6,300 | 1.0 | % | ||||||||
| 2012 | 3 | 72,968 | 11.8 | % | ||||||||
| Thereafter | 8 | 137,990 | 22.3 | % | ||||||||
| Total | 33 | $ | 618,713 | 100 | % | |||||||
| Weighted average maturity is 2.72 years(1) | ||||||||||||
| (1) | The calculation of weighted average maturity is based upon the remaining initial term and does not take into account any maturity extension periods or the ability to prepay the investment after a negotiated lock-out period, which may be available to the borrower. |
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The following table sets forth a summary of Concord’s loan securities at December 31, 2007:
| Gross Unrealized | Impairment | Carrying | ||||||||||||||
Description | Par Value | Loss | Loss | Value | ||||||||||||
| Floating rate | $ | 56,400 | $ | (3,487 | ) | $ | (9,427 | ) | $ | 43,260 | ||||||
| Fixed rate | 27,084 | (1,673 | ) | — | 25,411 | |||||||||||
| Total | $ | 83,484 | $ | (5,160 | ) | $ | (9,427 | ) | $ | 68,671 | ||||||
The following table sets forth a summary of the underlying Standard & Poor’s credit rating of Concord’s loan securities at December 31, 2007:
Rating | Par Value | Percentage | ||||||
| AA- | $ | 1,381 | 1.65 | % | ||||
| A- | 1,966 | 2.36 | % | |||||
| BBB+ | 25,094 | 30.06 | % | |||||
| BBB | 15,833 | 18.97 | % | |||||
| BBB- | 30,392 | 36.40 | % | |||||
| BB+ | 5,000 | 5.99 | % | |||||
| Not rated | 3,818 | 4.57 | % | |||||
| Total | $ | 83,484 | 100 | % | ||||
Concord’s loan assets were diversified by industry as follows at December 31, 2007:
Industry | % of Par Value | |||
| Office | 46.4 | % | ||
| Hospitality | 41.7 | % | ||
| Multi-family | 6.4 | % | ||
| Mixed Use | 5.3 | % | ||
| Industrial | 0.2 | % | ||
| 100 | % | |||
Credit Facilities
As described above, Concord has financed certain of its loan assets and loan securities through credit facilities in the form of repurchase agreements. In the repurchase agreements entered into by Concord to date, the lender, referred to as the repurchase counterparty, purchases the loan asset or loan security from or on behalf of Concord and holds it on its balance sheet. Concord then repurchases the loan asset or loan security in cash on a specific repurchase date or, at the election of Concord, an earlier date. While the loan asset is held by the repurchase counterparty, the repurchase counterparty retains a portion of each interest payment made on such loan asset or loan security equal to the “price differential”, which is effectively the interest rate on the purchase price paid the repurchase counterparty to Concord for the loan asset or loan security, with the balance of such payments being paid to Concord. Pursuant to the terms of the repurchase agreements, if the market value of the loan assets or loan securities pledged or sold by Concord decline, which decline is determined, in most cases, by the repurchase counterparty, Concord may be required by the repurchase counterparty to provide additional collateral or pay down a portion of the funds advanced. During 2007, Concord was required to pay down an aggregate of $24.0 million against $472.3 million of outstanding repurchase obligations.
Concord currently has five repurchase facilities, two of which are not loan asset/loan security specific and three of which are loan asset/loan security specific. That is, under the non-loan asset/loan security specific repurchase facilities, Concord has the ability to pay back the loan with respect to such asset/loan security and finance other loan assets or loan securities through such facility. With respect to the loan asset/loan security specific
57
repurchase facilities, once the loan assets or loan securities securing such facility satisfied, Concord cannot use the facility for additional loan assets or loan securities.
The following table summarizes the terms of Concord’s current repurchase facilities at December 31, 2007 (in thousands):
| Maximum | Carrying Value of | |||||||||||||||||||
| Outstanding | Outstanding | Interest Rate — | Maturity | Assets | ||||||||||||||||
Counterparty | Balance | Balance | LIBOR Plus(5) | Date | Securing Facility | |||||||||||||||
| Greenwich(1) | $ | 39,079 | $ | 39,079 | 100 bps | 12/08 | $ | 55,827 | ||||||||||||
| Greenwich(1) | 59,613 | 59,613 | 100 bps | 12/12 | 70,146 | |||||||||||||||
| Column(1) | 16,414 | 16,414 | 100 bps | 3/09 | (3) | 25,270 | ||||||||||||||
| Column(2) | 350,000 | 308,508 | 85-135 bps(4 | ) | 3/09 | 412,561 | ||||||||||||||
| Bear Stearns(2) | 150,000 | 48,710 | 85-115 bps(4 | ) | 11/08 | 82,258 | ||||||||||||||
| (1) | Repurchase facilities cover specific loan assets and may not be used for any other loan assets. | |
| (2) | Repurchase facilities may be used for multiple loan assets and loan securities subject to the repurchase counterparty’s consent. Repurchase counterparties have advised that no additional advance will be made except, if at all, in connection with loans assets or debt securities acquired for the repurchase counterparty. | |
| (3) | May be extended for up to three one-year extensions. | |
| (4) | Interest rate is based on type of loan asset or loan security for which financing is provided. Weighted average at December 31, 2007 on the Column repurchase facility was 5.8% and on the Bear Stearns repurchase facility was 5.5% | |
| (5) | Concord has entered into interest rate swaps with a total national amount of $203.3 million as of December 31, 2007 to manage exposure to interest rate movements affecting interest payments on certain variable-rate obligations. |
| Item 7A. | Quantitative and Qualitative Disclosure about Market Risk |
Our exposure to market risk relates primarily to our debt. As of December 31, 2006,2007, and 2005,2006, our variable rate indebtedness represented 28.8%7.0% and 1.0%28.8%, respectively, of total mortgages and notes payable. Although we have an interest rate swapDuring 2007 and cap agreement on $547.2 million of the MLP’s debt the amount is considered variable for this analysis. During 2006, and 2005, this variable rate indebtedness had a weighted average interest rate of 6.8%7.0% and 6.0%6.8%, respectively. Had the weighted average interest rate been 100 basis points higher our net incomeinterest expense would have been reducedincreased by $1.5 million and $0.1 million in 2007 and $0.3 million in 2006, and 2005, respectively. As of December 31, 20062007 and 2005,2006, our fixed rate debt, including discontinued operations, was $1,516.6$2,833.9 million and $1,158.7$1,516.6 million, respectively, which represented 71.2%93.0% and 99.0%71.2%, respectively, of total long-term indebtedness. The weighted average interest rate as of December 31, 2007 of fixed rate debt was 5.9%, which approximates the weighted average fixed rate for debt obtained by us during 2007. The weighted average interest rate as of December 31, 2006 of fixed rate debt was 6.0%, which approximates the weighted average fixed rate for debt obtained by us during 2006. The weighted average interest rate as of December 31, 2005 of fixed rate debt was 6.0%. With no fixed rateonly $31.8 million in consolidated debt maturing untilin 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 net incomeinterest expense would have been reducedincreased by $11.9$25.9 million and $10.3$11.9 million for years ended December 31, 20062007 and 2005,2006, respectively.
58
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROLS
OVER FINANCIAL REPORTING
OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal controls over financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
In assessing the effectiveness of our internal controls over financial reporting, management used as guidance the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon the assessment performed, management believes that our internal controls over financial reporting are effective as of December 31, 2006.2007.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and the members of our Board of Trustees; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Our independent registered public accounting firm, has issued an unqualified attestation report on management’s assessmentKPMG LLP, independently assessed the effectiveness of our internal controls over financial reportingreporting. KPMG LLP has issued a report which is included on page 61 of this Annual Report.
59
| Item 8. | Financial Statements and Supplementary Data |
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
INDEX
AND CONSOLIDATED SUBSIDIARIES
INDEX
| Page | ||||
| Reports of Independent Registered Public Accounting Firm | ||||
| 2006 | 63 | |||
| 2005 | 64 | |||
| 2005 | 65 | |||
| 2005 | 66 | |||
| 2005 | 67 | |||
| Financial Statement Schedule | ||||
60
Report of Independent Registered Public Accounting Firm
The Trustees and Shareholders
Lexington Realty Trust:
We have audited management’s assessment, included in the accompanyingManagement’s Annual Report on Internal Controls Over Financial Reporting, that Lexington Realty Trust, formerly known as Lexington Corporate Properties TrustTrust’s (the “Company”), maintained effective internal control over financial reporting as of December 31, 2006,2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying management’s annual report on internal controls over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment,assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control andbased on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directorstrustees of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects,2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements and financial statement schedulestatements as listed in the accompanying index, and our report dated February 28, 20072008 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.statements.
New York, New York
February 28, 20072008
61
Report of Independent Registered Public Accounting Firm
The Trustees and Shareholders
Lexington Realty Trust:
We have audited the accompanying consolidated financial statements of Lexington Realty Trust formerly known as Lexington Corporate Properties Trust, and subsidiaries (the “Company”), as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lexington Realty Trust and subsidiaries as of December 31, 20062007 and 2005,2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006,2007, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006,2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2007,2008 expressed an unqualified opinion on management’s assessmentthe effectiveness of and the effective operation of,Company’s internal control over financial reporting.
New York, New York
February 28, 20072008
62
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
($000 except per share amounts)
Years ended December 31,
($000 except per share amounts)
Years ended December 31,
| 2007 | 2006 | |||||||||||||||
| 2006 | 2005 | |||||||||||||||
ASSETS | ASSETS | |||||||||||||||
| Real estate, at cost | ||||||||||||||||
| Real estate, at cost: | ||||||||||||||||
| Buildings and building improvements | $ | 3,107,234 | $ | 1,608,175 | $ | 3,388,421 | $ | 3,107,234 | ||||||||
| Land and land estates | 625,717 | 259,682 | 694,020 | 625,717 | ||||||||||||
| Land improvements | 2,044 | 2,044 | 893 | 2,044 | ||||||||||||
| Fixtures and equipment | 12,161 | 13,214 | 11,944 | 12,161 | ||||||||||||
| 3,747,156 | 1,883,115 | 4,095,278 | 3,747,156 | |||||||||||||
| Less: accumulated depreciation | 276,129 | 241,188 | 379,831 | 276,129 | ||||||||||||
| 3,471,027 | 1,641,927 | 3,715,447 | 3,471,027 | |||||||||||||
| Properties held for sale — discontinued operations | 69,612 | 49,397 | 150,907 | 69,612 | ||||||||||||
| Intangible assets (net of accumulated amortization of $33,724 in 2006 and $15,181 in 2005) | 468,244 | 128,775 | ||||||||||||||
| Intangible assets (net of accumulated amortization of $181,190 in 2007 and $33,724 in 2006) | 516,698 | 468,244 | ||||||||||||||
| Investment in and advances to non-consolidated entities | 247,045 | 191,146 | 226,476 | 247,045 | ||||||||||||
| Cash and cash equivalents | 97,547 | 53,515 | 412,106 | 97,547 | ||||||||||||
| Investment in marketable equity securities (cost $31,247 in 2006) | 32,036 | — | ||||||||||||||
| Deferred expenses (net of accumulated amortization of $6,834 in 2006 and $4,740 in 2005) | 16,084 | 13,582 | ||||||||||||||
| Investment in marketable equity securities (cost of $2,647 in 2007 and $31,247 in 2006) | 2,609 | 32,036 | ||||||||||||||
| Deferred expenses (net of accumulated amortization of $12,154 in 2007 and $6,834 in 2006) | 42,040 | 16,084 | ||||||||||||||
| Rent receivable — current | 53,744 | 7,673 | 25,289 | 43,283 | ||||||||||||
| Rent receivable — deferred | 29,410 | 24,778 | 15,303 | 29,410 | ||||||||||||
| Notes receivable | 50,534 | 11,050 | 69,775 | 50,534 | ||||||||||||
| Other assets, net | 89,574 | 38,389 | 88,513 | 100,035 | ||||||||||||
| $ | 4,624,857 | $ | 2,160,232 | $ | 5,265,163 | $ | 4,624,857 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||
| Liabilities: | ||||||||||||||||
| Mortgages and notes payable | $ | 2,123,174 | $ | 1,139,971 | $ | 2,312,422 | $ | 2,126,810 | ||||||||
| Exchangable notes payable | 450,000 | — | ||||||||||||||
| Trust notes payable | 200,000 | — | ||||||||||||||
| Contract rights payable | 12,231 | — | 13,444 | 12,231 | ||||||||||||
| Liabilities — discontinued operations | 6,064 | 32,145 | 119,093 | 6,064 | ||||||||||||
| Accounts payable and other liabilities | 29,513 | 13,250 | 49,442 | 25,877 | ||||||||||||
| Accrued interest payable | 10,818 | 5,859 | 23,507 | 10,818 | ||||||||||||
| Dividends payable | 44,948 | — | 158,168 | 44,948 | ||||||||||||
| Prepaid rent | 10,109 | 10,054 | 16,764 | 10,109 | ||||||||||||
| Deferred revenue (net of amortization of $1,029 in 2006 and $554 in 2005) | 362,815 | 6,271 | ||||||||||||||
| Deferred revenue (net of accretion of $14,076 in 2007 and $1,029 in 2006) | 217,389 | 362,815 | ||||||||||||||
| 2,599,672 | 1,207,550 | 3,560,229 | 2,599,672 | |||||||||||||
| Minority interests | 902,741 | 61,372 | 765,863 | 902,741 | ||||||||||||
| 3,502,413 | 1,268,922 | 4,326,092 | 3,502,413 | |||||||||||||
| Commitments and contingencies (notes 8, 9, 10, 11, 13 and 15) | ||||||||||||||||
| Commitments and contingencies (Notes 8, 9, 11, 12, 14, & 16) | ||||||||||||||||
| Shareholders’ equity: | ||||||||||||||||
| Preferred shares, par value $0.0001 per share; authorized 10,000,000 shares; | ||||||||||||||||
| 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 | 76,315 | 76,315 | ||||||||||||
| Series C Cumulative Convertible Preferred, liquidation preference $155,000; 3,100,000 shares issued and outstanding | 150,589 | 150,589 | 150,589 | 150,589 | ||||||||||||
| Special Voting Preferred Share, par value $0.0001 per share; authorized and issued 1 share in 2006 | — | — | ||||||||||||||
| Common shares, par value $0.0001 per share, authorized 160,000,000 shares, 69,051,781 and 52,155,855 shares issued and outstanding in 2006 and 2005, respectively | 7 | 5 | ||||||||||||||
| Series D Cumulative Convertible Preferred, liquidation preference $155,000; 6,200,000 shares issued and outstanding in 2007 | 149,774 | — | ||||||||||||||
| Special Voting Preferred Share, par value $0.0001 per share; authorized and issued 1 share in 2007 and 2006 | — | — | ||||||||||||||
| Common shares, par value $0.0001 per share, authorized 400,000,000 shares, 61,064,334 and 69,051,781 shares issued and outstanding in 2007 and 2006, respectively | 6 | 7 | ||||||||||||||
| Additional paid-in-capital | 1,188,900 | 848,564 | 1,033,332 | 1,188,900 | ||||||||||||
| Deferred compensation, net | — | (11,401 | ) | |||||||||||||
| Accumulated distributions in excess of net income | (294,640 | ) | (172,762 | ) | (468,167 | ) | (294,640 | ) | ||||||||
| Accumulated other comprehensive income | 1,273 | — | ||||||||||||||
| Accumulated other comprehensive income (loss) | (2,778 | ) | 1,273 | |||||||||||||
| Total shareholders’ equity | 1,122,444 | 891,310 | 939,071 | 1,122,444 | ||||||||||||
| $ | 4,624,857 | $ | 2,160,232 | $ | 5,265,163 | $ | 4,624,857 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
63
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Operations
($000 except per share amounts)
Years ended December 31,
($000 except per share amounts)
Years ended December 31,
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
| Gross revenues: | ||||||||||||||||||||||||
| Rental | $ | 185,312 | $ | 167,253 | $ | 119,663 | $ | 385,898 | $ | 165,275 | $ | 146,848 | ||||||||||||
| Advisory fees | 4,555 | 5,365 | 4,885 | |||||||||||||||||||||
| Advisory and incentive fees | 13,567 | 4,555 | 5,365 | |||||||||||||||||||||
| Tenant reimbursements | 17,524 | 10,840 | 5,429 | 32,282 | 16,863 | 10,170 | ||||||||||||||||||
| Total gross revenues | 207,391 | 183,458 | 129,977 | 431,747 | 186,693 | 162,383 | ||||||||||||||||||
| Expense applicable to revenues: | ||||||||||||||||||||||||
| Depreciation and amortization | (80,688 | ) | (66,041 | ) | (34,017 | ) | (236,044 | ) | (75,849 | ) | (61,004 | ) | ||||||||||||
| Property operating | (32,167 | ) | (21,913 | ) | (8,973 | ) | (61,095 | ) | (30,947 | ) | (20,641 | ) | ||||||||||||
| General and administrative | (35,530 | ) | (17,587 | ) | (13,832 | ) | (39,389 | ) | (35,514 | ) | (17,554 | ) | ||||||||||||
| Impairment charges | (7,221 | ) | — | — | (15,500 | ) | (7,221 | ) | — | |||||||||||||||
| Non-operating income | 8,913 | 1,514 | 3,269 | 10,726 | 8,913 | 1,502 | ||||||||||||||||||
| Interest and amortization expense | (71,402 | ) | (62,617 | ) | (42,456 | ) | (163,628 | ) | (65,097 | ) | (56,177 | ) | ||||||||||||
| Debt satisfaction gains (charges), net | 7,228 | 4,409 | (56 | ) | (1,209 | ) | 7,228 | 4,409 | ||||||||||||||||
| Write-off — tenant bankruptcy | — | — | (2,884 | ) | ||||||||||||||||||||
| Income (loss) before benefit (provision) for income taxes, minority interests, equity in earnings of non-consolidated entities and discontinued operations | (3,476 | ) | 21,223 | 31,028 | ||||||||||||||||||||
| Income (loss) before benefit (provision) for income taxes, minority interests, equity in earnings of non-consolidated entities, gains on sale of properties-affiliates and discontinued operations | (74,392 | ) | (11,794 | ) | 12,918 | |||||||||||||||||||
| Benefit (provision) for income taxes | 238 | 150 | (1,181 | ) | (3,374 | ) | 238 | 150 | ||||||||||||||||
| Minority interests | (1,611 | ) | (2,655 | ) | (2,465 | ) | 2,652 | (601 | ) | (1,694 | ) | |||||||||||||
| Equity in earnings of non-consolidated entities | 4,186 | 6,220 | 7,194 | 46,467 | 4,248 | 6,232 | ||||||||||||||||||
| Gains on sale of properties-affiliates | 17,864 | — | — | |||||||||||||||||||||
| Income (loss) from continuing operations | (663 | ) | 24,938 | 34,576 | (10,783 | ) | (7,909 | ) | 17,606 | |||||||||||||||
| Discontinued operations, net of minority interests and taxes: | ||||||||||||||||||||||||
| Discontinued operations | ||||||||||||||||||||||||
| Income from discontinued operations | 4,853 | 8,206 | 10,203 | 29,561 | 14,459 | 17,593 | ||||||||||||||||||
| Debt satisfaction gains (charges) | 3,626 | (725 | ) | — | ||||||||||||||||||||
| Provision for income taxes | (3,327 | ) | (73 | ) | — | |||||||||||||||||||
| Debt satisfaction (charges) gains | (7,950 | ) | 4,492 | (731 | ) | |||||||||||||||||||
| Gains on sales of properties | 92,878 | 22,866 | 12,291 | |||||||||||||||||||||
| Impairment charges | (21,612 | ) | (11,302 | ) | (5,447 | ) | (1,670 | ) | (28,209 | ) | (13,006 | ) | ||||||||||||
| Gains on sales of properties | 21,549 | 11,578 | 5,475 | |||||||||||||||||||||
| Minority interests share of (income) loss | (21,858 | ) | 2,127 | (1,058 | ) | |||||||||||||||||||
| Total discontinued operations | 8,416 | 7,757 | 10,231 | 87,634 | 15,662 | 15,089 | ||||||||||||||||||
| Net income | 7,753 | 32,695 | 44,807 | 76,851 | 7,753 | 32,695 | ||||||||||||||||||
| Dividends attributable to preferred shares — Series B | (6,360 | ) | (6,360 | ) | (6,360 | ) | (6,360 | ) | (6,360 | ) | (6,360 | ) | ||||||||||||
| Dividends attributable to preferred shares — Series C | (10,075 | ) | (10,075 | ) | (585 | ) | (10,075 | ) | (10,075 | ) | (10,075 | ) | ||||||||||||
| Dividends attributable to preferred shares — Series D | (10,298 | ) | — | — | ||||||||||||||||||||
| Net income (loss) allocable to common shareholders | $ | (8,682 | ) | $ | 16,260 | $ | 37,862 | $ | 50,118 | $ | (8,682 | ) | $ | 16,260 | ||||||||||
| Income (loss) per common share — basic: | ||||||||||||||||||||||||
| Income (loss) from continuing operations | $ | (0.33 | ) | $ | 0.17 | $ | 0.59 | $ | (0.58 | ) | $ | (0.47 | ) | $ | 0.03 | |||||||||
| Income from discontinued operations | 0.16 | 0.16 | 0.22 | 1.35 | 0.30 | 0.30 | ||||||||||||||||||
| Net income (loss) | $ | (0.17 | ) | $ | 0.33 | $ | 0.81 | $ | 0.77 | $ | (0.17 | ) | $ | 0.33 | ||||||||||
| Weighted average common shares outstanding — basic | 52,163,569 | 49,835,773 | 46,551,328 | 64,910,123 | 52,163,569 | 49,835,773 | ||||||||||||||||||
| Income (loss) per common share — diluted: | ||||||||||||||||||||||||
| Income (loss) from continuing operations | $ | (0.33 | ) | $ | 0.17 | $ | 0.58 | $ | (0.58 | ) | $ | (0.47 | ) | $ | 0.03 | |||||||||
| Income from discontinued operations | 0.16 | 0.16 | 0.22 | 1.35 | 0.30 | 0.30 | ||||||||||||||||||
| Net income (loss) | $ | (0.17 | ) | $ | 0.33 | $ | 0.80 | $ | 0.77 | $ | (0.17 | ) | $ | 0.33 | ||||||||||
| Weighted average common shares outstanding — diluted | 52,163,569 | 49,902,649 | 52,048,909 | 64,910,123 | 52,163,569 | 49,902,649 | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
64
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Comprehensive Income
($000)
Years ended December 31,
($000)
Years ended December 31,
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
| Net income | $ | 7,753 | $ | 32,695 | $ | 44,807 | $ | 76,851 | $ | 7,753 | $ | 32,695 | ||||||||||||
| Change in other comprehensive income: | ||||||||||||||||||||||||
| Unrealized gain (loss) in marketable equity securities | (896 | ) | 789 | — | ||||||||||||||||||||
| Unrealized gain in foreign currency translation | 371 | 484 | — | |||||||||||||||||||||
| Unrealized loss on investments in non-consolidated entities | (3,526 | ) | — | — | ||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||
| Unrealized gain in marketable equity securities | 789 | — | — | |||||||||||||||||||||
| Unrealized gain in foreign currency translation | 484 | — | — | |||||||||||||||||||||
| Other comprehensive income | 1,273 | — | — | |||||||||||||||||||||
| Other comprehensive income (loss) | (4,051 | ) | 1,273 | — | ||||||||||||||||||||
| Comprehensive income | $ | 9,026 | $ | 32,695 | $ | 44,807 | $ | 72,800 | $ | 9,026 | $ | 32,695 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
65
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
($000 except per share amounts)
Years ended December 31,
($000 except per share amounts)
Years ended December 31,
| Accumulated | Accumulated | �� | Accumulated | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Additional | Deferred | Distributions | Other | Total | Number of | Number of | Additional | Deferred | Distributions | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred | Common | Paid-in | Compensation, | In Excess of | Comprehensive | Shareholders’ | Preferred | Common | Paid-in | Compensation, | In Excess of | Comprehensive | Shareholders’ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | net | Net Income | Income | Equity | Shares | Amount | Shares | Amount | Capital | Net | Net Income | Income (Loss) | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2003 | 3,160,000 | $ | 76,315 | 40,394,113 | $ | 4 | $ | 601,501 | $ | (6,265 | ) | $ | (91,707 | ) | — | $ | 579,848 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 44,807 | — | 44,807 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to common shareholders | — | — | — | — | — | — | (65,086 | ) | — | (65,086 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to preferred shareholders | — | — | — | — | — | — | (6,360 | ) | — | (6,360 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares, net | — | — | 7,939,272 | 1 | 161,572 | (4,381 | ) | — | — | 157,192 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred shares, net | 2,700,000 | 131,126 | — | — | — | — | — | — | 131,126 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of deferred compensation | — | — | — | — | — | 1,954 | — | — | 1,954 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclass of common shares from mezzanine equity | — | — | 287,888 | — | 3,809 | — | — | — | 3,809 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2004 | 5,860,000 | 207,441 | 48,621,273 | 5 | 766,882 | (8,692 | ) | (118,346 | ) | — | 847,290 | 5,860,000 | $ | 207,441 | 48,621,273 | $ | 5 | $ | 766,882 | $ | (8,692 | ) | $ | (118,346 | ) | $ | — | $ | 847,290 | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 32,695 | — | 32,695 | — | — | — | — | — | — | 32,695 | — | 32,695 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to common shareholders | — | — | — | — | — | — | (72,617 | ) | — | (72,617 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to preferred shareholders | — | — | — | — | — | — | (6,360 | ) | — | (6,360 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to preferred shareholders | — | — | — | — | — | — | (8,134 | ) | — | (8,134 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends — common shareholders | — | — | — | — | — | — | (72,617 | ) | — | (72,617 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends — preferred shareholders | — | — | — | — | — | — | (14,494 | ) | — | (14,494 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares, net | — | — | 3,534,582 | — | 81,682 | (5,575 | ) | — | — | 76,107 | — | — | 3,534,582 | — | 81,682 | (5,575 | ) | — | — | 76,107 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred shares, net | 400,000 | 19,463 | — | — | — | — | — | — | 19,463 | 400,000 | 19,463 | — | — | — | — | — | — | 19,463 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of deferred compensation | — | — | — | — | — | 2,866 | — | — | 2,866 | — | — | — | — | — | 2,866 | — | — | 2,866 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2005 | 6,260,000 | 226,904 | 52,155,855 | 5 | 848,564 | (11,401 | ) | (172,762 | ) | — | 891,310 | 6,260,000 | 226,904 | 52,155,855 | 5 | 848,564 | (11,401 | ) | (172,762 | ) | — | 891,310 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 7,753 | — | 7,753 | — | — | — | — | — | — | 7,753 | — | 7,753 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adoption of new accounting principle (Note 2) | — | — | — | — | (11,401 | ) | 11,401 | — | — | — | — | — | — | — | (11,401 | ) | 11,401 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared to common shareholders | — | — | — | — | — | — | (109,088 | ) | — | (109,088 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared to preferred shareholders | — | — | — | — | — | — | (7,949 | ) | — | (7,949 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared to preferred shareholders | — | — | — | — | — | — | (12,594 | ) | — | (12,594 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends — common shareholders | — | — | — | — | — | — | (109,088 | ) | — | (109,088 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends — preferred shareholders | — | — | — | — | — | — | (20,543 | ) | — | (20,543 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares, net | — | — | 16,895,926 | 2 | 351,737 | — | — | — | 351,739 | — | — | 16,895,926 | 2 | 351,737 | — | — | — | 351,739 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of special voting preferred | 1 | — | — | — | — | — | — | — | — | 1 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | 1,273 | 1,273 | — | — | — | — | — | — | — | 1,273 | 1,273 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2006 | 6,260,001 | $ | 226,904 | 69,051,781 | $ | 7 | $ | 1,188,900 | $ | — | $ | (294,640 | ) | $ | 1,273 | $ | 1,122,444 | 6,260,001 | 226,904 | 69,051,781 | 7 | 1,188,900 | — | (294,640 | ) | 1,273 | 1,122,444 | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 76,851 | — | 76,851 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends — common shareholders | — | — | — | — | — | — | (223,746 | ) | — | (223,746 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends — preferred shareholders | — | — | — | — | — | — | (26,733 | ) | — | (26,733 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares, net | — | — | 1,608,369 | — | 34,554 | — | 101 | — | 34,655 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common shares | — | — | (9,595,816 | ) | (1 | ) | (190,122 | ) | — | — | — | (190,123 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred shares, net | 6,200,000 | 149,774 | — | — | — | — | — | — | 149,774 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | (4,051 | ) | (4,051 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2007 | 12,460,001 | $ | 376,678 | 61,064,334 | $ | 6 | $ | 1,033,332 | $ | — | $ | (468,167 | ) | $ | (2,778 | ) | $ | 939,071 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
66
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
($000 except per share amounts)
Years ended December 31,
($000 except per share amounts)
Years ended December 31,
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||||||
| Net income | $ | 7,753 | $ | 32,695 | $ | 44,807 | $ | 76,851 | $ | 7,753 | $ | 32,695 | ||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities, net of effects from acquisitions: | ||||||||||||||||||||||||
| Depreciation and amortization | 84,734 | 73,034 | 41,710 | 253,535 | 84,734 | 73,034 | ||||||||||||||||||
| Minority interests | (2,842 | ) | 2,165 | 2,983 | 19,206 | (2,842 | ) | 2,165 | ||||||||||||||||
| Gains on sales of properties | (21,549 | ) | (11,578 | ) | (5,475 | ) | (110,742 | ) | (21,549 | ) | (11,578 | ) | ||||||||||||
| Debt satisfaction gain, net | (14,761 | ) | (4,536 | ) | — | |||||||||||||||||||
| Debt satisfaction charges (gains), net | 2,250 | (14,761 | ) | (4,536 | ) | |||||||||||||||||||
| Impairment charges | 35,430 | 12,879 | 6,375 | 17,170 | 35,430 | 12,879 | ||||||||||||||||||
| Write-off-tenant bankruptcy | — | — | 2,884 | |||||||||||||||||||||
| Straight-line rents | (4,923 | ) | (3,447 | ) | (3,395 | ) | 16,151 | (4,923 | ) | (3,447 | ) | |||||||||||||
| Other non-cash charges | 17,233 | 4,196 | 2,556 | 16,774 | 17,233 | 4,196 | ||||||||||||||||||
| Equity in earnings of non-consolidated entities | (4,186 | ) | (6,220 | ) | (7,194 | ) | (46,474 | ) | (4,186 | ) | (6,220 | ) | ||||||||||||
| Distributions of accumulated earnings from non-consolidated entities | 8,058 | 7,561 | 5,170 | 7,930 | 8,058 | 7,561 | ||||||||||||||||||
| Deferred tax assets | (738 | ) | (466 | ) | (2,026 | ) | 2,358 | (738 | ) | (466 | ) | |||||||||||||
| Increase (decrease) in accounts payable and other liabilities | 1,999 | (788 | ) | 1,710 | 4,999 | 1,999 | (788 | ) | ||||||||||||||||
| Change in rent receivable and prepaid rent, net | 12,378 | (3,521 | ) | 2,790 | ||||||||||||||||||||
| Increase in accrued interest payable | 15,193 | 1,383 | 235 | |||||||||||||||||||||
| Other adjustments, net | 1,812 | (38 | ) | 631 | 72 | 3,950 | (3,063 | ) | ||||||||||||||||
| Net cash provided by operating activities | 108,020 | 105,457 | 90,736 | 287,651 | 108,020 | 105,457 | ||||||||||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||||||
| Net proceeds from sales/transfers of properties | 76,627 | 96,685 | 101,367 | 423,634 | 76,627 | 96,685 | ||||||||||||||||||
| Net proceeds from sales of properties-affiliates | 126,628 | — | — | |||||||||||||||||||||
| Cash paid relating to Merger | (12,395 | ) | — | — | — | (12,395 | ) | — | ||||||||||||||||
| Investments in real estate properties and intangible assets | (173,661 | ) | (759,656 | ) | (203,678 | ) | (163,746 | ) | (173,661 | ) | (759,656 | ) | ||||||||||||
| Investments in and advances to non-consolidated entities | (9,865 | ) | (41,943 | ) | (86,171 | ) | (97,942 | ) | (9,865 | ) | (41,943 | ) | ||||||||||||
| Investment in convertible mortgage receivable | — | — | (19,800 | ) | ||||||||||||||||||||
| Acquisition of controlling interest in LSAC | (42,619 | ) | — | — | ||||||||||||||||||||
| Acquisition of interest in certain non-consolidated entities | (366,614 | ) | — | — | ||||||||||||||||||||
| Acquisition of additional interest in LSAC | (24,199 | ) | (42,619 | ) | — | |||||||||||||||||||
| Collection of notes from affiliate | 8,300 | 45,800 | — | — | 8,300 | 45,800 | ||||||||||||||||||
| Issuance of notes receivable to affiliate | (8,300 | ) | — | (32,800 | ) | — | (8,300 | ) | — | |||||||||||||||
| Principal payments received on loans receivable | 8,499 | — | — | |||||||||||||||||||||
| Collection of notes | — | 3,488 | — | — | — | 3,488 | ||||||||||||||||||
| Real estate deposits | 359 | 1,579 | 1,180 | 1,756 | 359 | 1,579 | ||||||||||||||||||
| Investment in notes receivable | (11,144 | ) | — | — | — | (11,144 | ) | — | ||||||||||||||||
| Investment in marketable securities | (5,019 | ) | — | — | ||||||||||||||||||||
| Proceeds from the sale of marketable equity securities | 29,462 | — | — | |||||||||||||||||||||
| Investment in marketable equity securities | (723 | ) | (5,019 | ) | — | |||||||||||||||||||
| Distribution from non-consolidated entities in excess of accumulated earnings | 19,640 | 17,202 | 38,651 | 9,457 | 19,640 | 17,202 | ||||||||||||||||||
| Increase in deferred leasing costs | (1,737 | ) | (2,919 | ) | (207 | ) | (5,713 | ) | (1,737 | ) | (2,919 | ) | ||||||||||||
| Change in escrow deposits and restricted cash | 5,734 | (4,013 | ) | (967 | ) | 28,011 | 5,734 | (4,013 | ) | |||||||||||||||
| Net cash used in investing activities | (154,080 | ) | (643,777 | ) | (202,425 | ) | (31,490 | ) | (154,080 | ) | (643,777 | ) | ||||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||||||
| Proceeds of mortgages and notes payable | 147,045 | 516,520 | 159,760 | 246,965 | 147,045 | 516,520 | ||||||||||||||||||
| Change in credit facility borrowing, net | 65,194 | — | (94,000 | ) | (65,194 | ) | 65,194 | — | ||||||||||||||||
| Dividends to common and preferred shareholders | (93,681 | ) | (87,111 | ) | (71,446 | ) | (137,259 | ) | (93,681 | ) | (87,111 | ) | ||||||||||||
| Dividend reinvestment plan proceeds | 12,525 | 13,815 | 10,608 | 5,652 | 12,525 | 13,815 | ||||||||||||||||||
| Principal payments on debt, excluding normal amortization | (82,010 | ) | (50,936 | ) | (6,543 | ) | (665,124 | ) | (82,010 | ) | (50,936 | ) | ||||||||||||
| Principal amortization payments | (28,966 | ) | (25,313 | ) | (19,704 | ) | (73,351 | ) | (28,966 | ) | (25,313 | ) | ||||||||||||
| Debt deposits | 291 | 1,334 | (1,384 | ) | — | 291 | 1,334 | |||||||||||||||||
| Origination fee amortization payments | — | — | (29 | ) | ||||||||||||||||||||
| Proceeds from term loan | 225,000 | — | — | |||||||||||||||||||||
| Proceeds from trust preferred notes | 200,000 | — | — | |||||||||||||||||||||
| Proceeds from exchangeable notes | 450,000 | — | — | |||||||||||||||||||||
| Issuance of common/preferred shares | 272 | 80,671 | 275,644 | 149,898 | 272 | 80,671 | ||||||||||||||||||
| Repurchase of common shares | (11,159 | ) | — | — | (190,123 | ) | (11,159 | ) | — | |||||||||||||||
| Contributions from minority partners | 810 | 9,412 | — | — | 810 | 9,412 | ||||||||||||||||||
| Cash distributions to minority partners | (8,554 | ) | (7,028 | ) | (8,975 | ) | (84,858 | ) | (8,554 | ) | (7,028 | ) | ||||||||||||
| Increase in deferred financing costs | (1,169 | ) | (6,403 | ) | (1,087 | ) | (18,707 | ) | (1,169 | ) | (6,403 | ) | ||||||||||||
| Purchases of partnership units | (115 | ) | (83 | ) | (121 | ) | (3,926 | ) | (115 | ) | (83 | ) | ||||||||||||
| Net cash provided by financing activities | 483 | 444,878 | 242,723 | 38,973 | 483 | 444,878 | ||||||||||||||||||
| Cash acquired in co-investment program acquisition | 20,867 | — | — | |||||||||||||||||||||
| Cash associated with sale of interest in entity | (1,442 | ) | — | — | ||||||||||||||||||||
| Cash attributable to newly consolidated entity | 31,985 | — | — | — | 31,985 | — | ||||||||||||||||||
| Cash attributable to Merger | 57,624 | — | — | — | 57,624 | — | ||||||||||||||||||
| Change in cash and cash equivalents | 44,032 | (93,442 | ) | 131,034 | 314,559 | 44,032 | (93,442 | ) | ||||||||||||||||
| Cash and cash equivalents, beginning of year | 53,515 | 146,957 | 15,923 | 97,547 | 53,515 | 146,957 | ||||||||||||||||||
| Cash and cash equivalents, end of year | $ | 97,547 | $ | 53,515 | $ | 146,957 | $ | 412,106 | $ | 97,547 | $ | 53,515 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
67
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000 except per share/unit amounts)
| (1) | The Company |
Lexington Realty Trust, formerly Lexington Corporate Properties 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 institutional investors in the net lease area. As of December 31, 2006,2007, the Company owned or had interests in approximately 365280 consolidated properties located in 4442 states and the Netherlands. The real properties owned by the Company are generally subject to net leases to corporate tenants, however certain leases provide for the Company to be responsible for certain operating expenses. As of December 31, 2005,2006, the Company owned or had interests in 189approximately 365 consolidated properties in 39 states.44 states and the Netherlands.
On December 31, 2006, the Company completed its merger (the “Merger”) with Newkirk Realty Trust, Inc., or Newkirk (the “Merger”(“Newkirk”). Newkirk’s primary business was similar to the primary business of the Company. All of Newkirk’s operations were conducted and all of its assets were held through its master limited partnership, The Newkirk Master Limited Partnership which we refer to as the MLP. Newkirk was the general partner and owned 31.0% of the units of limited partnership in the MLP (the “MLP units”). In connection with the Merger, the Company changed its name to Lexington Realty Trust, the MLP was renamed The Lexington Master Limited Partnership and an affiliate of the Company became the general partner of the MLP and another affiliate of the Company became the holder of a 31.0% ownership interest in the MLP. As of December 31, 2007, the Company owns 50.0% of the MLP.
In the Merger, Newkirk merged with and into the Company, with the Company as the surviving entity. Each holder of Newkirk’s common stock received 0.80 common shares of the Company in exchange for each share of Newkirk’s common stock, and the MLP effected a reverse unit-split pursuant to which each outstanding MLP unit was converted into 0.80 units, resulting in 35.5 million MLP units applicable to the minority interest being outstanding after the Merger. Each MLP unit is currently redeemable at the option of the holder for cash based on the value of a common share of the Company or, if the Company elects, on aone-for-one basis for Lexington common shares.
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.
During the first quarter of 2007, the Company’s Board of Trustees authorized the Company to repurchase, from time to time, up to 2.010.0 million common sharesand/or operating partnership units in the Company’s operating partnership subsidiaries (“OP Units”units”) depending on market conditions and other factors. AsDuring the fourth quarter of 2007, with the majority of the authorized repurchases made, the Board of Trustees increased the authorization by 5.0 million common shares/OP units. During the year ended December 31, 2006,2007, the Company repurchased and retired approximately 0.59.8 million common shares/OP Unitsunits at an average price of approximately $21.15$19.83 per common share/OP Unit,unit, in the open market and through private transactions with employees.employees and third parties.
During 2007, the Company announced a strategic restructuring plan. The plan, when and if completed, will restructure the Company into a company consisting primarily of:
| • | a wholly-owned portfolio of core office assets; | |
| • | a wholly-owned portfolio of core warehouse/distribution assets; |
68
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
| • | a continuing 50% interest in a co-investment program that invests in senior and subordinated debt interests secured by both net leased and multi-tenanted real estate collateral; | |
| • | a minority interest in a co-investment program that invests in specialty single tenant real estate assets; and | |
| • | equity securities in other net lease companies owned either individually or through an interest in one or more joint ventures or co-investment program. |
In connection with the strategic restructuring plan, the Company:
| • | acquired all of the outstanding interests not otherwise owned by the Company in Triple Net Investment Company LLC, one of the Company’s co-investment programs, which resulted in the Company becoming the sole owner of the co-investment program’s 15 primarily single tenant net leased properties; | |
| • | acquired all of the outstanding interests not otherwise owned by the Company in Lexington Acquiport Company, LLC and Lexington Acquiport Company II, LLC, two of the Company’s co-investment programs, which resulted in the Company becoming the sole owner of the co-investment program’s 26 primarily single tenant net leased properties; | |
| • | terminated Lexington/Lion Venture L.P., one of its co-investment programs, and was distributed seven primarily single tenant net leased properties owned by the co-investment program; | |
| • | announced a disposition program, whereby the Company began marketing non-core assets for sale; and | |
| • | formed a co-investment program with a subsidiary of Inland American Real Estate Trust, Inc., which acquired 30 assets previously owned by the Company, and which, in addition is under contract to acquire an additional 13 assets currently owned by the Company and may invest in “core plus” net leased assets, such as manufacturing assets, call centers and other specialty assets. |
The Company can provide no assurances that it will dispose of any remaining assets under its disposition program or complete the sale/contribution of the remaining 13 assets under contract for sale/contribution, or acquire any additional assets through its newly formed co-investment program.
| (2) | Summary of Significant Accounting Policies |
Basis of Presentation and Consolidation.The Company’s consolidated financial statements are prepared on the accrual basis of accounting. The financial statements reflect the accounts of the Company and its controlledconsolidated subsidiaries, including Lepercq Corporate Income Fund L.P. (“LCIF”), Lepercq Corporate Income Fund II L.P. (“LCIF II”), Net 3 Acquisition L.P. (“Net 3”), the MLP, Lexington Realty Advisors, Inc. (“LRA”), Lexington Strategic Asset Corp. (“LSAC”), Lexington Contributions, Inc. (“LCI”), and Six Penn Center L.P. LRA and LCI are wholly owned taxable REIT subsidiaries, LSAC is a majority owned taxable REIT subsidiary and the Company is the sole unitholder of the general partner, and the sole unitholder of a significant limited partner, of each of LCIF, LCIF II, Net 3, the MLP and Six Penn Center L.P. Lexington Strategic Asset Corp. (“LSAC”), formerly a majority owned taxable REIT subsidiary, was merged with and into the Company as of June 30, 2007. 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 reduced by preferred dividends, if applicable, 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
69
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
in-the-money common share options, OP Units,units, put options of certain partners’ interests in non-consolidated entities and convertible preferred shares.
68
Recently Issued Accounting Standards.FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, as amended, (“SFAS 150”), was issued in May 2003. SFAS 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS 150 also includes required disclosures for financial instruments within its scope. For the Company, SFAS 150 was effective for instruments entered into or modified after May 31, 2003 and otherwise was effective as of January 1, 2004, except for mandatorily redeemable financial instruments. SFAS 150 has been deferred indefinitely for certain types of mandatorily redeemable financial instruments. The adoption of the required portions of SFAS 150 had no impact on the Company.
In December 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123, (revised 2004) Share-Based Payment (“SFAS 123R”), which supersedes Accounting Principals Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost will be recognized over the period in which an employee is required to provide services in exchange for the award. SFAS 123R was effective for the fiscal year beginning on January 1, 2006. The impact of adopting this statement resulted in the elimination of $11,401 of deferred compensation and additionalpaid-in-capital from the Consolidated Statements of Changes in Shareholders’ Equity and the adoption did not have a material impact on the Company’s results of operations or cash flow.
In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations — an Interpretation of SFAS Statement No. 143 (“FIN 47”). FIN 47 clarifies the timing of liability recognition for legal obligations associated with the retirement of a tangible long-lived asset when the timingand/or method of settlement are conditional on a future event. FIN 47 iswas effective for fiscal years ending after December 15, 2005. The application of FIN 47 did not have a material impact on the Company’s consolidated financial position or results of operations.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (“SFAS 154”) which replaces APB Opinions No. 20 Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements — An Amendment of APB Opinion No. 28. SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 was effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The impact of adopting this statement did not have a material impact on the Company’s financial position or results of operations.
In June 2005, the FASB ratified the Emerging Issues Task Force’s (“EITF”) consensus onEITF 04-05, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights (“(“EITF 04-05”). EITF.EITF 04-05 provides a framework for determining whether a general partner controls, and should consolidate, a limited partnership or a similar entity. It was effective after June 29, 2005, for all newly formed limited partnerships and for any pre-existing limited partnerships that modify their partnership agreements after that date. General partners of all other limited partnerships were required to apply the consensus no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005. The impact of the adoption ofEITF 04-05 did not have a material impact on the Company’s financial position or results of operations.
In 2005, the EITF released IssueNo. 05-06, Determining the Amortization Period for Leasehold Improvements (“(“EITF 05-06”), which clarifies the period over which leasehold improvements should be amortized.EITF 05-06 requires all leasehold improvements to
69
be amortized over the shorter of the useful life of the assets, or the applicable lease term, as defined. The applicable lease term is determined on the date the leasehold improvements are acquired and includes renewal periods for which exercise is reasonably assured.EITF 05-06 was effective for leasehold improvements acquired in reporting periods beginning after June 29, 2005. The impact
70
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
of the adoption ofEITF 05-06 did not have a material impact on the Company’s financial position or results of operations.
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 is effective for fiscal years beginning after December 15, 2006. The Company does not expect that the adoption of FIN 48 willdid not have materialan impact on the Company’s consolidated financial position or results of operations.
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 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.years, except fornon-financial assets and liabilities, which is deferred for one additional year. The adoption of this statement is not expected to have a material impact on the Company’s consolidated financial position, or results of operations.operations or cash flows.
In September 2006, the Securities and Exchange Commission released Staff Accounting Bulletin No. 108 ( “ (“SAB 108”). SAB 108 provides guidance on how the effects of the carryover or reversal of prior year financial statements misstatements should be considered in quantifying a current period misstatement. In addition, upon adoption, SAB 108 permits the Company to adjust the cumulative effect of immaterial errors relating to prior years in the carrying amount of assets and liabilities as of the beginning of the current fiscal year, with an offsetting adjustment to the opening balance of retained earnings. SAB 108 also requires the adjustment of any prior quarterly financial statement within the fiscal year of adoption for the effects of such errors on the quarters when the information is next presented. The Company will adoptadopted SAB 108 effective December 31, 2006, and its adoption had no impact on the Company’s financial position, results of operations or cash flows.
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 aninstrument-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 has determined that the Company will not adopt the fair value provisions of this pronouncement so it will have no impact on the Company’s financial statements.
In December 2007, the FASB issued SFAS No. 141R, 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 Interest in Consolidated Financial Statements (“SFAS No. 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 No. 160 is effective for periods beginning on or after December 15, 2008. The adoption of this statement will result in the first quarterminority 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 income statement.
71
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
In December 2007, andthe FASB ratified EITF consensus onEITF 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 anticipateby itself constitute a form of continuing involvement that it willwould preclude partial sale accounting under SFAS No. 66.EITF 07-06 is effective for fiscal years beginning after December 15, 2007. The adoption ofEITF 07-06 is not expected to have a material impact on its consolidatedthe Company’s financial position, or results of operations.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 TopicNo. 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 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 consolidated financial statements in conformity with generally accepted accounting principles. The most significant estimates made include the recoverability of accounts and notes receivable, (primarily related to straight-line rents), allocation of property purchase price to tangible and intangible assets, the determination of impairment of long-lived assets and investment in and advances to non-consolidated entities and the useful lives of long-lived assets. Actual results could differ from those estimates.
Business CombinationsCombinations.. 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. On December 31, 2006, the Company acquired Newkirk which was a variable interest entity (VIE). The Company follows the provisions of Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46R”), and as a result has recorded the minority interest in Newkirk at estimated fair value on the date of acquisition. The value of the consideration issued in common shares is based upon a reasonable period before and after the date that the terms of the Merger were agreed to and announced.
Purchase Accounting for Acquisition of Real Estate.The fair value of the real estate acquired, which includes the impact ofmark-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 expectedlease-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 expectedlease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions.
72
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
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 tenantcustomer relationships, is measured by the excess of (i)(1) the purchase price paid for a property over (ii)(2) 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 tenantcustomer relationships based on management’s evaluation of the specific characteristics of each tenant’s lease. The value of in-place leases are amortized to expense over the remaining non-
70
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 sales criteria are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met. To the extent we sell a property and retain a partial ownership interest in the property, we recognize gain to the extent of the third party ownership interest in accordance with SFAS 66.
Accounts Receivable.The Company continuously monitors collections from its tenants and would make a provision for estimated losses based upon historical experience and any specific tenant collection issues that the Company has identified. As of December 31, 2007 and 2006, and 2005, the Company did not record anCompany’s allowance for doubtful accounts. However, in 2004, the Company wrote-off $2,884 in receivables from a tenant who declared bankruptcy.accounts was insignificant.
Impairment of Real Estate.Estate and Investments in Non-consolidated Entities.The Company evaluates the carrying value of all real estate and investments in non-consolidated entities 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 cash flows of the property, based on current leases in place, coupled with an estimate of proceeds to be realized upon sale. However, estimating future sale proceeds is highly subjective and such estimates could differ materially from actual results.
73
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
Depreciation is determined by 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 52 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.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 or if its investment in the entity is less than 3% and it has no influence over the control of the entity and then the entity is accounted for under the cost method.
Marketable Equity Securities.The Company classifies its existing marketable equity securities asavailable-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 losses from non-consolidated entities, reported in shareholders’ equity as a component of accumulated other comprehensive income. Gains or losses on securities sold and other than temporary impairments are included in the Consolidated Statement of Operations. Sales of securities are recorded on the trade date and gains and losses are generally determined by the specific identification method.
Investments in Debt Securities.Investments in debt securities are classified asheld-to-maturity, reported at amortized cost and are included with other assets in the accompanying Consolidated Balance Sheet and amounted to $15,926 and $16,372 at December 31, 2006.2007 and 2006, respectively. A decline in the market value of anyheld-to-maturity security below cost that is deemed to beother-than-temporary results in an impairment and would reduce the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an impairment isother-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value
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subsequent to year-end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.
Notes Receivable.The Company evaluates the collectibilitycollectability 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.
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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes toemployees. The deferred compensation is amortized ratably over the vesting period which generally is five years. Certain common shares vest only when certain performance based measures are met.Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to
($000 except per share/unit amounts)
Derivative Financial Instruments.The Company accounts for its interest rate swapcap agreement and its interest rate capswap agreement in accordance with FAS No.133,No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted (“SFAS 133”). In accordance with SFAS 133, interest rate swaps and 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. The fair value of these derivatives is included in other assets in the Consolidated Balance Sheet. As of December 31, 2007, only the interest rate cap agreement remains outstanding.
Upon entering into hedging transactions, the Company documents the relationship between the interest rate swap and cap agreements and the hedged liability. The Company also documents its risk-management policies, including objectives and strategies, as they relate to its hedging activities. The Company assesses, both at inception of a hedge and on an on-going basis, whether or not the hedge is highly effective, as defined by SFAS 133. The Company will discontinue hedge accounting on a prospective basis with changes in the estimated fair value reflected in earnings when: (i)(1) it is determined that the derivative is no longer effective in offsetting cash flows of a hedge item (including forecasted transactions); (ii)(2) it is no longer probable that the forecasted transaction will occur; or (iii)(3) it is determined that designating the derivative as an interest rate swap is no longer appropriate. To date, the Company has not discontinued hedge accounting for its interest rate swap agreement. The Company utilizesmay utilize interest rate swap and cap agreements to manage interest rate risk and does not anticipate entering into derivative transactions for speculative trading purposes.
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 taxable REIT subsidiaries under the Code. LRA LSAC and LCI are, and LSAC was, a taxable REIT subsidiaries. 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.
During the fourth quarter of 2007, the Board of Trustees declared a special common share dividend of $2.10 per common share, which was paid in January 2008. During the fourth quarter of 2006, the Board of Trustees declared a special common share dividend of $0.2325 per common share, which was paid in January 2007.
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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
A summary of the average taxable nature of the Company’s common dividends for each of the years in the three year period ended December 31, 2006,2007, is as follows:
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
| Total dividends per share | $ | 1.46 | $ | 1.44 | $ | 1.40 | $ | 2.93342 | (i) | $ | 1.46 | $ | 1.44 | |||||||||||
| Ordinary income | 68.89 | % | 87.29 | % | 84.09 | % | 42.36 | % | 68.89 | % | 87.29 | % | ||||||||||||
| 15% rate — qualifying dividend | 0.77 | 1.04 | 6.82 | 2.50 | 0.77 | 1.04 | ||||||||||||||||||
| 15% rate gain | 7.97 | 8.72 | 0.34 | 35.62 | 7.97 | 8.72 | ||||||||||||||||||
| 25% rate gain | 5.13 | 2.95 | 2.28 | 19.52 | 5.13 | 2.95 | ||||||||||||||||||
| Return of capital | 17.24 | — | 6.47 | — | 17.24 | — | ||||||||||||||||||
| 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | |||||||||||||
| (i) | Includes the special dividend of $0.2325 paid in January 2007 and a portion of the special dividend of $2.10 paid in January 2008. Of the total dividend paid in January 2008, $1.21092 is allocated to 2007 and $1.26408 is allocated to 2008. |
A summary of the average taxable nature of the Company’s dividend on Series B Cumulative Redeemable Preferred Shares for each of the years in the three year period ended December 31, 2006,2007, is as follows:
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
| Total dividends per share | $ | 2.0125 | $ | 2.0125 | $ | 2.0125 | $ | 2.0125 | $ | 2.0125 | $ | 2.0125 | ||||||||||||
| Ordinary income | 83.24 | % | 87.29 | % | 89.91 | % | 42.36 | % | 83.24 | % | 87.29 | % | ||||||||||||
| 15% rate — qualifying dividend | 0.93 | 1.04 | 7.29 | 2.50 | 0.93 | 1.04 | ||||||||||||||||||
| 15% rate gain | 9.63 | 8.72 | 0.37 | 35.62 | 9.63 | 8.72 | ||||||||||||||||||
| 25% rate gain | 6.20 | 2.95 | 2.43 | 19.52 | 6.20 | 2.95 | ||||||||||||||||||
| 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | |||||||||||||
A summary of the average taxable nature of the Company’s dividend on Series C Cumulative Convertible Preferred Shares for each of the years in the three year period ended December 31, 2006 and 2005,2007, is as follows:
| 2007 | 2006 | 2005 | ||||||||||||||||||
| 2006 | 2005 | |||||||||||||||||||
| Total dividends per share | $ | 3.25 | $ | 2.6239 | $ | 3.25 | $ | 3.25 | $ | 2.624 | ||||||||||
| Ordinary income | 83.24 | % | 87.29 | % | 42.36 | % | 83.24 | % | 87.29 | % | ||||||||||
| 15% rate — qualifying dividend | 0.93 | 1.04 | 2.50 | 0.93 | 1.04 | |||||||||||||||
| 15% rate gain | 9.63 | 8.72 | 35.62 | 9.63 | 8.72 | |||||||||||||||
| 25% rate gain | 6.20 | 2.95 | 19.52 | 6.20 | 2.95 | |||||||||||||||
| 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | |||||||||||
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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
A summary of the average taxable nature of the Company’s dividend on Series D Cumulative Redeemable Preferred shares for the year ended December 31, 2007, is as follows:
| 2007 | ||||
| Total dividends per share | $ | 1.662 | ||
| Ordinary income | 42.36 | % | ||
| 15% rate — qualifying dividend | 2.50 | |||
| 15% rate gain | 35.62 | |||
| 25% rate gain | 19.52 | |||
| 100.00 | % | |||
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, which is included in other assets in the consolidated balance sheet, is comprised primarily of cash balances held by lenders for construction and tenant improvement reserves and amounts deposited to complete tax-free exchanges.
Foreign Currency.Assets 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.
77
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
Common Share Options.All common share options outstanding were fully vested as of December 31, 2005. Common share options granted generally vestvested ratably over a four-year term and expireexpired five years from the date of grant. The following table illustrates the effect on net income and net income per share if the fair value based method had been applied historically to all outstanding share option awards in each period:
| 2005 | ||||||||||||
| 2005 | 2004 | |||||||||||
| Net income allocable to common shareholders, as reported — basic | $ | 16,260 | $ | 37,862 | $ | 16,260 | ||||||
| Add: Stock based employee compensation expense included in reported net income | — | — | — | |||||||||
| Deduct: Total stock based employee compensation expense determined under fair value based method for all awards | 6 | 255 | 6 | |||||||||
| Pro forma net income — basic | $ | 16,254 | $ | 37,607 | $ | 16,254 | ||||||
| Net income per share — basic | ||||||||||||
| Basic — as reported | $ | 0.33 | $ | 0.81 | $ | 0.33 | ||||||
| Basic — pro forma | $ | 0.33 | $ | 0.81 | $ | 0.33 | ||||||
| Net income allocable to common shareholders, as reported — diluted | $ | 16,260 | $ | 41,615 | $ | 16,260 | ||||||
| Add: Stock based employee compensation expense included in reported net income | — | — | — | |||||||||
| Deduct: Total stock based employee compensation expense determined under fair value based method for all awards | 6 | 255 | 6 | |||||||||
| Pro forma net income — diluted | $ | 16,254 | $ | 41,360 | $ | 16,254 | ||||||
| Net income per share — diluted | ||||||||||||
| Diluted — as reported | $ | 0.33 | $ | 0.80 | $ | 0.33 | ||||||
| Diluted — pro forma | $ | 0.33 | $ | 0.79 | $ | 0.33 | ||||||
There were no common share options issued in 2007, 2006 2005 and 2004.2005.
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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 December 31, 2007 and 2006, the Company is not aware of any environmental matter that could have a material impact on the financial statements.
Segment Reporting.The Company operates generally in one industry segment, investment in net leasednet-leased real properties.
Reclassifications.Certain amounts included in prior years’ financial statements have been reclassified to conform with the current year presentation, including reclassifying certain income statement captions for properties held for sale as of December 31, 20062007 and properties sold during 2006,2007, which are presented as discontinued operations.
78
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
| (3) | Earnings Per Share |
The following is a reconciliation of numerators and denominators of the basic and diluted earnings per share computations for each of the years in the three year period ended December 31, 2006:2007:
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
BASIC | ||||||||||||||||||||||||
| Income (loss) from continuing operations | $ | (663 | ) | $ | 24,938 | $ | 34,576 | $ | (10,783 | ) | $ | (7,909 | ) | $ | 17,606 | |||||||||
| Less — dividends attributable to preferred shares | (16,435 | ) | (16,435 | ) | (6,945 | ) | (26,733 | ) | (16,435 | ) | (16,435 | ) | ||||||||||||
| Income (loss) attributable to common shareholders from continuing operations | (17,098 | ) | 8,503 | 27,631 | (37,516 | ) | (24,344 | ) | 1,171 | |||||||||||||||
| Total discontinued operations | 8,416 | 7,757 | 10,231 | 87,634 | 15,662 | 15,089 | ||||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | (8,682 | ) | $ | 16,260 | $ | 37,862 | $ | 50,118 | $ | (8,682 | ) | $ | 16,260 | ||||||||||
| Weighted average number of common shares outstanding | 52,163,569 | 49,835,773 | 46,551,328 | 64,910,123 | 52,163,569 | 49,835,773 | ||||||||||||||||||
| Income (loss) per common share — basic: | ||||||||||||||||||||||||
| Income (loss) from continuing operations | $ | (0.33 | ) | $ | 0.17 | $ | 0.59 | $ | (0.58 | ) | $ | (0.47 | ) | $ | 0.03 | |||||||||
| Income from discontinued operations | 0.16 | 0.16 | 0.22 | 1.35 | 0.30 | 0.30 | ||||||||||||||||||
| Net income (loss) | $ | (0.17 | ) | $ | 0.33 | $ | 0.81 | $ | 0.77 | $ | (0.17 | ) | $ | 0.33 | ||||||||||
DILUTED | ||||||||||||||||||||||||
| Income (loss) attributable to common shareholders from continuing operations — basic | $ | (17,098 | ) | $ | 8,503 | $ | 27,631 | $ | (37,516 | ) | $ | (24,344 | ) | $ | 1,171 | |||||||||
| Add — incremental income attributable to assumed conversion of dilutive interests | — | — | 2,465 | — | — | — | ||||||||||||||||||
| Income (loss) attributable to common shareholders from continuing operations | (17,098 | ) | 8,503 | 30,096 | (37,516 | ) | (24,344 | ) | 1,171 | |||||||||||||||
| Income from discontinued operations | 8,416 | 7,757 | 11,519 | 87,634 | 15,662 | 15,089 | ||||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | (8,682 | ) | $ | 16,260 | $ | 41,615 | $ | 50,118 | $ | (8,682 | ) | $ | 16,260 | ||||||||||
| Weighted average number of shares used in calculation of basic earnings per share | 52,163,569 | 49,835,773 | 46,551,328 | 64,910,123 | 52,163,569 | 49,835,773 | ||||||||||||||||||
| Add — incremental shares representing: | ||||||||||||||||||||||||
| Shares issuable upon exercise of employee share options | — | 66,876 | 131,415 | — | — | 66,876 | ||||||||||||||||||
| Shares issuable upon conversion of dilutive interests | — | — | 5,366,166 | |||||||||||||||||||||
| Weighted average number of shares used in calculation of diluted earnings per common share | 52,163,569 | 49,902,649 | 52,048,909 | 64,910,123 | 52,163,569 | 49,902,649 | ||||||||||||||||||
| Income (loss) per common share — diluted: | ||||||||||||||||||||||||
| Income (loss) from continuing operations | $ | (0.33 | ) | $ | 0.17 | $ | 0.58 | $ | (0.58 | ) | $ | (0.47 | ) | $ | 0.03 | |||||||||
| Income from discontinued operations | 0.16 | 0.16 | 0.22 | 1.35 | 0.30 | 0.30 | ||||||||||||||||||
| Net income (loss) | $ | (0.17 | ) | $ | 0.33 | $ | 0.80 | $ | 0.77 | $ | (0.17 | ) | $ | 0.33 | ||||||||||
79
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
| (4) | Investments in Real Estate and Intangible Assets |
During 20062007 and 2005,2006, the Company made acquisitions, excluding (1) properties acquired in the Merger, (2) acquired from the acquisition of the four co-investment programs, and (3) acquisitions made directly by non-consolidated entities (including LSAC), totaling $131,532 and $124,910, respectively.
In 2007 the Company acquired additional shares in LSAC for $16,781 and $733,830, respectively. LSAC paid $7,418 to repurchase its common stock in a tender offer. On June 30, 2007, LSAC was merged with and into the Company and ceased to exist.
During the second quarter of 2007, the Company, including through its consolidated subsidiaries, completed transactions with its joint venture partners as summarized as follows:
Triple Net Investment Company LLC (“TNI”)
The 2005 amount includesCompany entered into a purchase agreement with the Utah State Retirement Investment Fund, its partner in one of its co-investment programs, TNI, and acquired the 70% of TNI it did not already own. Accordingly, the Company became the sole owner of the 15 primarily single tenant net leased real estate properties purchasedowned by TNI. The Company acquired the interest through a cash payment of approximately $82,600 and the assumption of approximately $156,600 in non-recourse mortgage debt. The debt assumed by the Company that were subsequentlybears stated interest at rates ranging from 4.9% to 9.4% with a weighted-average stated rate of 5.9% and matures at various dates ranging from 2010 to 2021. In connection with this transaction, the Company recognized $2,064 as an incentive fee in accordance with the TNI partnership agreement.
Lexington Acquiport Company LLC (“LAC”) and Lexington Acquiport Company II LLC (“LAC II”)
The Company entered into purchase agreements with the Common Retirement Fund of the State of New York, its 66.67% partner in one of its co-investment programs, LAC and 75% partner in another of its co-investment programs, LAC II, and acquired the interests in LAC and LAC II it did not already own. Accordingly, the Company became the sole owner of the 26 primarily single tenant net leased real estate properties owned collectively by LAC and LAC II. The Company acquired the interest through a cash payment of approximately $277,400 and the assumption of approximately $515,000 in non-recourse mortgage debt. The debt assumed by the Company bears interest at stated rates ranging from 5.0% to 8.2% with a weighted — average stated rate of 6.2% and matures at various dates ranging from 2009 to 2021.
Lexington/Lion Venture L.P. (“LION”)
The Company and its 70% partner in LION agreed to terminate LION and distribute the 17 primarily net leased properties owned by LION. Accordingly, the Company was distributed seven of the properties, which are subject to non-recourse mortgage debt of approximately $112,500. The debt assumed by the Company bears interest at stated rates ranging from 4.8% to 6.2% with a weighted — average stated rate of 5.4% and matures at various dates ranging from 2012 to 2016. In addition, the Company paid approximately $6,600 of additional consideration to its former partner in connection with the termination. In connection with this transaction, the Company recognized $8,530 as an incentive fee in accordance with the LION partnership agreement and was allocated equity in earnings of $34,164 related to its share of earnings relating to the 10 properties transferred to non-consolidated entities.the partner.
In accordance with U.S. generally accepted accounting principles, the Company recorded the assets and liabilities at fair value to the extent of the interests acquired, with a carryover basis for all assets and liabilities to the extent of the Company’s ownership. The allocation of the purchase price is based upon estimates and assumptions. The Company engaged a third party valuation expert to assist with the fair value assessment of the real estate. The current allocations are substantially complete; however, there may be certain items that the Company will finalize
74
80
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
once it receives additional information. Accordingly, the allocations are subject to revision when final information is available, although the Company contributed seven properties, including intangible assets,does not expect future revisions to various non-consolidated entities for $124,706, which approximated cost, and the non-consolidated entities assumed $36,041 in non-recourse mortgages. The Company receivedhave a cash paymentsignificant impact on its financial position or results of $55,534 relating to these contributions. In 2004, the Company contributed eight properties, including intangible assets, to various non-consolidated entities for $196,982 which approximated cost, and the non-consolidated entities assumed $97,641 in non-recourse debt. The Company received a cash payment of $68,203 related to these contributions.operations.
Other
The Company sold to unrelated parties, 53 properties in 2007, seven properties in 2006 and seven properties in 2005, and, eight properties in 2004, for aggregate net proceeds of $423,634, $76,627 $41,151 and $36,651,$41,151, respectively, which resulted in gains in 2007, 2006 and 2005 of $92,878, $22,866 and 2004 of $21,549, $11,578 and $5,475$12,291 respectively, which are included in discontinued operations.
During 2007, the Company formed a new co-investment program. See note 8 for a discussion of this transaction.
During 2007, the Company recorded an impairment charge of $15,500 on two properties in the Detroit, Michigan area, which are currently vacant. Management changed its strategy from a long-term hold to held for disposal. The Company will commence marketing these properties in 2008, however, management is unsure if the properties will be sold within 12 months.
During the second quarter of 2006, the Company recorded an impairment charge of $1,121 and accelerated amortization of an above market lease of $2,349 relating to the write-off of lease intangibles and the above marketabove-market lease for the disaffirmed lease of a property whose lease was rejected by the previous tenant in bankruptcy. The Company sold to an unrelated third party its bankruptcy claim to the disaffirmed lease for $5,376, which resulted in a gain of $5,242, which is included in non-operating income. In the fourth quarter of 2006, the Company recorded an additional impairment charge of $6,100 relating to this property.
For properties acquired during 2006, excluding the Merger,2007, including those acquired from our four co-investment programs, the components of intangible assets and their respective weighted average lives are as follows:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Costs | Life (yrs) | ||||||||||||||
| Costs | Life (yrs) | |||||||||||||||
| Lease origination costs | $ | 19,335 | 13.3 | $ | 165,885 | 8.9 | ||||||||||
| Customer relationships | 3,983 | 12.1 | 117,636 | 7.0 | ||||||||||||
| Above — market leases | 7,540 | 12.3 | 22,560 | 7.0 | ||||||||||||
| $ | 30,858 | $ | 306,081 | |||||||||||||
As of December 31, 20062007 and 2005,2006, the components of intangible assets, excluding those acquired in the Merger, are as follows:
| 2007 | 2006 | |||||||||||||||
| 2006 | 2005 | |||||||||||||||
| Lease origination costs | $ | 125,791 | $ | 98,502 | $ | 404,820 | $ | 301,449 | ||||||||
| Customer relationships | 35,780 | 30,603 | 178,716 | 93,323 | ||||||||||||
| Above-market leases | 21,685 | 14,851 | 114,352 | 107,196 | ||||||||||||
| $ | 183,256 | $ | 143,956 | $ | 697,888 | $ | 501,968 | |||||||||
The estimated amortization of the above intangibles for the next five years is $18,740 in 2007, $18,255$125,462 in 2008, $16,651$90,330 in 2009, $15,153$58,715 in 2010, $52,257 in 2011 and $13,544$44,434 in 2011.2012.
Below-market leases, net of amortization, which are included in deferred revenue, excluding those acquiredare $216,923 and $360,227, respectively in the Merger, are $3,4392007 and $3,899, respectively for 2006 and 2005.2006. The estimated amortization for the next five years is $483 in 2007, $483$13,234 in 2008, $476$13,139 in 2009, $476$12,151 in 2010, $11,883 in 2011 and $476$11,440 in 2011.2012.
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AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
| (5) | Newkirk Merger |
On December 31, 2006 Newkirk merged with and into the Company pursuant to an Agreement and Plan of Merger dated as of July 23, 2006. The Company believes this strategic combination of two real estate companies achieved key elements of its then strategic business plan. The Company believesbelieved that the Merger enhanced its property portfolio in key markets, reduced its exposure to any one property or tenant credit, enabled the Company to gain immediate access to a debt platform and will allow it to build on its existing customer relationships. At the time of the Merger, Newkirk owned or held an ownership interest in approximately 170 industrial, office and retail properties.
Under the terms of the Merger Agreement, Newkirk stockholders received common shares of the Company for their Newkirk common stock. The Merger Agreement provided that each Newkirk stockholder received 0.8 of a common share of the Company, for each share of Newkirk common stock that the stockholder owned. Fractional shares, which were not material, were paid in cash. In connection with the Merger, the Company issued approximately 16.0 million common shares of the Company to former Newkirk stockholders.
75
The calculation of the purchase price was as follows:
| Fair value of common shares issued | $ | 332,050 | ||
| Merger costs | 13,537 | |||
| Purchase price, net of assumed liabilities and minority interests | 345,587 | |||
| Fair value of liabilities assumed, including debt and minority interest | 2,049,801 | |||
| Purchase price | $ | 2,395,388 | ||
The allocation of the purchase price is based upon estimates and assumptions. The Company engaged a third party valuation expert to assist with the fair value assessment of the real estate. The current allocations are substantially complete; however, there may beDuring 2007, certain items that the Company will finalize once it receives additional information. Accordingly,estimates were revised and these allocations are subject to revision when final information is available, although the Company doesrevisions did not expect future revisions to have a significant impact on its financial position or results of operations. The reallocation to real estate was $8,235 during 2007.
The assets acquired and liabilities assumed were recorded at their estimated fair value at the date of acquisition, as summarized below.below:
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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
Allocation of purchase price:
| Total real estate assets, including intangibles | $ | 2,081,704 | ||
| Investment in and advances to non-consolidated entities | 99,396 | |||
| Cash and cash equivalents | 57,624 | |||
| Accounts receivable | 46,905 | |||
| Restricted cash | 39,640 | |||
| Marketable equity securities | 25,760 | |||
| Other assets | 44,359 | |||
| Total assets acquired | 2,395,388 | |||
| Less: | ||||
| Debt assumed | 838,735 | |||
| Minority interest | 833,608 | |||
| Below market leases | 356,788 | |||
| Accounts payable, accrued expenses and other liabilities assumed | 20,670 | |||
| Purchase price, net of assumed liabilities and minority interest | $ | 345,587 | ||
In connection with the Merger, the Company allocated the purchase price to the following intangibles, included in total real estate assets above:
| Weighted Average | ||||||||||||||||
| Cost | Useful Life (yrs) | |||||||||||||||
| Cost | Weighted average useful life (yrs) | |||||||||||||||
| Lease origination costs | $ | 175,658 | 13.1 | $ | 175,658 | 13.1 | ||||||||||
| Customer relationships | 57,543 | 7.2 | 57,543 | 7.2 | ||||||||||||
| Above-market leases | 85,511 | 3.2 | 85,511 | 3.2 | ||||||||||||
| $ | 318,712 | $ | 318,712 | |||||||||||||
The following unaudited pro forma financial information for the yearsyear ended December 31, 2006, and 2005, gives effect to the Merger as if it had occurred on January 1, 2005. The pro forma results are based on historical data and are not intended to be indicative of the results of future operations.
| Year Ending | ||||||||||||||||
| Year Ended | December 31, | |||||||||||||||
| December 31, | 2006 | 2005 | ||||||||||||||
| 2006 | 2005 | |||||||||||||||
| Total gross revenues | $ | 376,659 | $ | 346,080 | $ | 376,659 | $ | 346,080 | ||||||||
| Income (loss) from continuing operations | 586 | (3,163 | ) | 586 | (3,163 | ) | ||||||||||
| Net income | 34,967 | 15,338 | 34,967 | 15,338 | ||||||||||||
| Net income (loss) per common share – basic | 0.27 | (0.02 | ) | |||||||||||||
| Net income (loss) per common share – diluted | 0.27 | (0.02 | ) | |||||||||||||
| Net income (loss) per common share — basic | 0.27 | (0.02 | ) | |||||||||||||
| Net income (loss) per common share — diluted | 0.27 | (0.02 | ) | |||||||||||||
Certain non-recurring charges recognized historically by Newkirk have been eliminated for purposes of the unaudited pro forma consolidated information. However,
| (6) | Discontinued Operations and Assets Held For Sale |
At December 31, 2007, the pro forma loss from continuing operations in 2005 includes a $25,306 loss on early extinguishmentCompany had three properties held for sale with aggregate assets of debt.$150,907 and liabilities, principally mortgage notes payable and below-market lease obligations, aggregating $119,093. As of
76
83
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
December 31, 2006, the Company had nine properties held for sale, with aggregate assets of $69,612 and liabilities principally mortgage notes payable, aggregatingof $6,064. As of December 31,In 2007, 2006 and 2005, the Company had three properties held for sale, with aggregate assets of $49,397 and liabilities of $32,145. In 2006, 2005 and 2004, the Company recorded impairment charges, net of minority interests, of $21,612, $11,302$1,670, $28,209 and $5,447,$13,006, respectively, related to discontinued operations.
The following presents the operating results for the properties sold and held for sale during the years ended December 31, 2007, 2006 2005 and 2004:
| Year Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Total gross revenues | $ | 11,902 | $ | 20,983 | $ | 25,055 | ||||||
| Pre-tax income, including gains on sales | $ | 8,491 | $ | 7,757 | $ | 10,231 | ||||||
| Year Ending December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| Total gross revenues | $ | 53,613 | $ | 32,599 | $ | 42,057 | ||||||
| Pre-tax income, including gains on sales | $ | 90,961 | $ | 15,735 | $ | 15,089 | ||||||
The provision for income taxes included in discontinued operations in 2007 of $3,327 relates primarily to taxes incurred on the sale of properties by taxable REIT subsidiaries, including C-Corp built in gain taxes. The federal and state portion of the $3,327 is $2,731 and $596, respectively.
Scheduled principal and balloon payments for mortgage and notes payable included in discontinued operations for the next five years and thereafter are as follows:
| Year Ended | ||||
December 31, | Total | |||
| 2008 | $ | 759 | ||
| 2009 | 987 | |||
| 2010 | 1,230 | |||
| 2011 | 1,299 | |||
| 2012 | 1,371 | |||
| Thereafter | 79,482 | |||
| $ | 85,128 | |||
During 2007, the Company sold one property for a sale price of $35,700 and provided $27,700 in secured financing to the buyer at a rate of 6.45%. The note matures in 2015 when a balloon payment of 25,731 is due.
During 2006, the Company conveyed a property to a lender for full satisfaction of a loan and satisfied the related mortgages on properties sold, which resulted in a net debt satisfaction gain of $3,626.$4,492. In addition, the Company sold one property for a sale price of $6,400 and provided $3,200 in interest only secured financing to the buyer at a rate of 6.0%, which matures in 2017.
During the 2006, the tenant in a property in Warren, Ohio exercised its option to purchase the property at fair market value, as defined in the lease. Based on the appraisals received and the procedure set forth in the lease, the Company estimated that the fair market value, as defined in the lease, willwould not exceed approximately $15,800. Accordingly, the Company recorded an impairment charge of $28,209 in the third quarter of 2006. The Company sold the property in 2007 for $15,800.
During 2005, the Company sold one property for an aggregate sales price of $14,500 and provided $11,050 in secured financing to the buyer at a rate of 5.46% which matures on August 1, 2015. The note is interest only through August 2007 and requires annual debt service payments of $750 thereafter and a balloon payment of $9,688 at maturity. In addition, annual real estate tax and insurance escrows are required.
The Company has not treated properties sold to Net Lease Strategic Assets Fund LP as discontinued operations as it has continuing involvement with such assets through its partnership interest. In addition, management will not
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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
NotesReceivableto Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes
($000 except per share/unit amounts)
consider “non-core” assets being marketed for sale as discontinued operations until all criteria of SFAS 144 have been met, including that it is probable that a sale will take place within 12 months.
| (7) | Notes Receivable |
As of December 31, 2007 and 2006, the Company’s notes receivable, including accrued interest, are comprised of five first and second mortgage loans on real estate aggregating $33,400,$69,775 and $50,534, respectively, bearing interest, including imputed interest, at rates ranging from 5.5%5.46% to 8.5%8.33% and maturing at various dates between 20102011 and 2017. 2022
| (8) | Investment in Non-Consolidated Entities |
In addition,2007 the Company has second mortgages on real estate aggregating $17,134,acquired additional shares in LSAC for $16,781 and LSAC paid $7,418 to repurchase its common stock in a tender offer. On June 30, 2007, LSAC was merged with an imputed rate of 8.0% and maturing at various dates through 2022.
During 2007, the Company acquired all the interests it did not already own in TNI, LAC, LACII and LION. See note 4.
The Company has investmentsreceived a waiver from the Securities and Exchange Commission to not provide audited financial statements of LION, which was dissolved in various real estate joint ventures.
The following is a joint venture with the Comptroller of the State of New York as Trusteesummary income statement data for LION for the Common Retirement Fund (“CRF”). The Companyperiod January 1, 2007 through May 31, 2007 and CRF originally committed to contribute up to $50,000 and $100,000, respectively, to invest in high quality office and industrial net leased real estate. The partners agreed that they would close the funding obligations to LAC. LRA earns annual management fees of 2% of rent collected and acquisition fees equaling 75 basis points of the purchase price of each property investment. All allocations of profit, loss and cash flows from LAC are made one-third to the Company and two-thirds to CRF.
77
2007 2006 2005 Gross rental revenues $ 21,883 $ 51,425 $ 42,362 Depreciation and amortization (9,349 ) (21,895 ) (18,508 ) Interest expense (6,669 ) (15,657 ) (13,619 ) Property operating and other (5,272 ) (12,461 ) (8,227 ) Income before gain on sale $ 593 $ 1,412 $ 2,008
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79
Concord Debt Holdings LLC (“Concord”) (The MLP has a 50.0% interest)
The MLP and WRT Realty L.P. (“Winthrop”) have a joint ventureco-investment program to acquire and originate loans secured, directly and indirectly, by real estate assets through Concord Debt Holdings, LLC, formerly 111 Debt Holdings Corp. (“Concord”).Concord. The Company’s Executive Chairman and Director of Strategic Acquisitions is also the Chief Executive Officer of the parent of Winthrop. The joint ventureco-investment program is equally owned and controlled by the MLP and Winthrop. The MLP and Winthrop have committed to invest up to $100,000$162,500 each in Concord. As of December 31, 2007 and 2006, $91,342 has been invested by$155,830 and $93,051, respectively, was the MLP.Company’s investment in Concord. 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 twothree 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 by three of the four members appointed by Winthrop and the MLP. Pursuant to the terms of the joint venturelimited 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 consent of both Winthrop and the MLP is required for the merger or consolidation of Concord, the admission of additional members, the taking of any action that, if taken directly
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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
by Winthrop or the MLP would require consent of Winthrop’s Conflicts Committee or the Company’s independent trustees.
Concord entered into a $300,000has various repurchase agreement with Column Financial Inc. and a $200,000 repurchase agreement with Bear Stearns International Limited.agreements. As of December 31, 2007 and 2006, these facilities have an aggregate of $472,324 and $43,893, respectively, outstanding. In 2006, Concord completed its first collateralized debt obligation offering by issuing $376,650 of debt and retaining a notional equity investment of $88,351.$88,350. As the securitization did not satisfy the conditions to be accounted for as a sale under generally accepted accounting principles, the assets and related debt have been retained on Concord’s balance sheet.
The following is summary balance sheet data as of December 31, 2007 and 2006 and income statement data for the year ended December 31, 2007 for Concord:
| As of 12/31/07 | As of 12/31/06 | |||||||
| Investments | $ | 1,140,108 | $ | 450,870 | ||||
| Cash, including restricted cash | 19,094 | 148,261 | ||||||
| Warehouse debt facilities obligations | 472,324 | 43,893 | ||||||
| Collateralized debt obligations | 376,650 | 376,650 | ||||||
| Members’ equity | 310,922 | 186,515 | ||||||
| For the Year | ||||
| Ended 12/31/07 | ||||
| Interest and other income | $ | 68,453 | ||
| Interest expense | (41,675 | ) | ||
| Impairment charge | (11,028 | ) | ||
| Other expenses and minority interests | (5,554 | ) | ||
| Net income | 10,196 | |||
| Other comprehensive loss (unrealized loss on investments and swaps) | (16,780 | ) | ||
| Comprehensive loss | $ | (6,584 | ) | |
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, aremarked-to-market on a quarterly basis based on valuations performed by Concord’s management. The unrealized loss on Concord’s bonds is the result of a decrease in the value compared to the acquisition cost of the securities. The MLP’s share of Concord’s net income and other comprehensive loss were $5,098 and $(8,390), respectively.
Net Lease Strategic Assets Fund L.P. (“NLS”)
Net Lease Strategic Assets Fund L.P. is a co-investment program with Inland American (Net Lease) Sub, LLC (“Inland”). NLS was established to acquire specialty real estate in the United States. In connection with the formation of NLS and on December 20, 2007, the Company contributed 12 properties to NLS along with $6,721 in cash and Inland contributed $121,676 in cash. In addition, the Company sold for cash 18 properties, or interest therein, 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 47.23%. The properties, including interests therein, were subject to $186,302 in mortgage debt. After such formation transaction Inland and the Company owned 85% and 15%, respectively, of NLS’s common equity and the Company owns 100% of NLS’s $87,615 preferred equity.
Inland and the Company are 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
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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
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 initial capital contributions, the Company and Inland may invest 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 under the applicable lease), and (3) an acquisition fee of 0.5% of the gross purchase price of each acquired asset by the NLS.
In addition, NLS has a right to acquire an additional 13 properties from the Company. The acquisition of each of the 13 assets by NLS is subject to satisfaction of conditions precedent to closing, including 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 nor NLS can provide any assurance that the acquisition by NLS will be completed. In the event that NLS does not acquire 11 of the assets by March 31, 2008 and two of the assets by June 30, 2008, NLS will no longer have the right to acquire such assets.
The mortgage debt assumed by NLS has stated rates ranging from 5.2% to 8.5%, with a weighted average rate of 5.9% and maturity dates ranging from 2009 to 2025.
The following is summary historical cost basis selected balance sheet data as of December 31, 2007 and income statement data for the period from December 20, 2007 (date of sale/contribution) to December 31, 2007.
| As of 12/31/07 | ||||
| Real estate, including intangibles | $ | 405,834 | ||
| Cash | 1,884 | |||
| Mortgages payable | 171,556 | |||
| For the Period | ||||
| 12/20/07 to 12/31/07 | ||||
| Gross rental revenues | $ | 951 | ||
| Expenses | (352 | ) | ||
| Net income | $ | 599 | ||
The Company incurred transaction costs relating to the formation of NLS of $2,316 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 Company holds a 28% ownership interest, commenced a tender offer to acquire up to 45,000,000 shares of common stock in Wells Real Estate Investment Trust, Inc., (“Wells”), a non-exchange traded entity, at a price per share of $9.30. The tender offer expired in 2007 at which time Lex-Win received tenders based on the letters of transmittal it received for approximately 4,800,000 shares representing approximately 1% of the outstanding shares in Wells. After submission of the letters to Wells, the actual number of shares acquired in Wells was approximately 3,900,000. During 2007, the Company funded $12,542 relating to this tender and received $1,890 relating to the adjustment of the tendered shares. WRT Realty, L.P. also holds a 28% interest in Lex-Win. The Executive Chairman and Director of Strategic Acquisitions of the Company is an affiliate of WRT Realty, L.P. Profits, losses and cash flows are allocated in accordance with the membership interests.
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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
Other Equity Method Investment Limited Partnerships
The MLPCompany is a partner in threeeight partnerships with ownership percentages ranging between 24.0%26% and 30.5% and these partnerships40%, which own net leased properties. All profits, losses and cash flows are distributed in accordance with the respective partners interests.
| 2006 | 2005 | |||||||
| Real estate, net | $ | 1,395,422 | $ | 1,384,361 | ||||
| Other assets | 799,329 | 267,310 | ||||||
| $ | 2,194,751 | $ | 1,651,671 | |||||
| Mortgages and notes payable | $ | 1,470,951 | $ | 993,454 | ||||
| Other liabilities | 29,001 | 26,767 | ||||||
| The Company’s capital | 246,477 | 192,466 | ||||||
| Other partners/members capital | 448,322 | 438,984 | ||||||
| $ | 2,194,751 | $ | 1,651,671 | |||||
| 2006 | 2005 | 2004 | ||||||||||
| Revenues | $ | 166,368 | $ | 145,830 | $ | 83,387 | ||||||
| Expenses | (162,883 | ) | (132,878 | ) | (62,764 | ) | ||||||
| Debt satisfaction charge | — | (1,952 | ) | — | ||||||||
| Impairment charge | (1,838 | ) | — | — | ||||||||
| Gain on sale of bankruptcy claim | 5,567 | — | — | |||||||||
| Gain on sale of property | — | 5,219 | — | |||||||||
| Net income | $ | 7,214 | $ | 16,219 | $ | 20,623 | ||||||
The Company, through LRA, earns advisory fees from certain of these non-consolidated entities for services related to acquisitions, asset management and debt placement. Advisory fees earned from these non-consolidated investments were $1,226, $3,815, and $4,742 in 2007, 2006 and $4,5722005, respectively. In addition, the Company earned incentive fees in 2006, 2005 and 2004, respectively.
| (9) | Mortgages and Notes Payable and Contract Rights Payable |
The Company had outstanding mortgages and notes payable of $2,123,174$2,312,422 and $1,139,971$2,126,810 as of December 31, 20062007 and 2005,2006, respectively, excluding discontinued operations. Interest rates, including imputed rates on mortgages and notes payable, ranged from 3.89% to 10.50%10.5% at December 31, 20062007 and the mortgages and notes payable mature between 2008 and 2025.2022. Interest rates, including imputed rates, ranged from 4.42%3.89% to 10.50%10.5% at December 31, 2005.2006. The weighted average interest rate at December 31, 20062007 and 20052006 was approximately 6.1%5.9% and 6.0%6.1%, respectively.
During 20062007 and 2005,2006, the Company obtained $187,447$246,965 and $471,907$187,447 in non-recourse mortgages that borebear interest at a weighted average fixed rate of 6.1% and 6.0% respectively and 5.2% respectively.have maturity dates ranging from 2014 to 2021.
80
The MLP hashad a secured loan, which bearsbore interest, at the election of the MLP, at a rate equal to either (i)(1) LIBOR plus 175 basis points or (ii)(2) the prime rate. This loan was fully repaid during 2007. As of December 31, 2006, $547,199 was outstanding (see Note 21). The secured loan is scheduled to mature in August 2008, subject to two one year extensions. The secured loan requires monthly payments of interest and quarterly principal payments of $1,875 during the term of the secured loan, increasing to $2,500 per quarter during the extension periods. The MLP is also required to make principal payments from the proceeds of property sales, refinancing and other asset sales if 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 for property sales and 100% of proceeds from refinancing, economic discontinuance, insurance settlements and condemnations. The loan has customary covenants which the MLP was in compliance with at December 31, 2006 and 2005.outstanding.
The Company has a $200,000 revolving credit facility, which expires June 2008, bears interest at120-170 basis points over LIBOR, depending on the amount of the Company’s leverage level and has an interest rate period of one, three or six months, at the option of the Company. The credit facility contains various leverage, debt service coverage, net worth maintenance and other customary covenants, which the Company was in compliance with as of December 31, 20062007 and 2005.2006. As of December 31, 2006,2007, there was $65,194were no outstanding borrowings under the credit facility, approximately $132,994$198,500 was available to be borrowed and the Company has outstanding letters of credit aggregating $1,812 (see Note 21).$1,500. The Company pays an unused facility fee equal to 25 basis points if 50% or less of the credit facility is utilized and 15 basis points if greater than 50% of the credit facility itis utilized. As of December 31, 2006 approximately $65,194 was outstanding under this line of credit and is included in the $2,126,810 above.
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 which the Company was in compliance with as of December 31, 2007. The loan requires the Company to make principal payments from the proceeds of certain property sales, unless the proceeds are used to complete a tax-free exchange, and financing of certain properties. As of December 31, 2007, there was $213,635 outstanding relating to this note, which is included in the $2,312,422 above. The proceeds of the secured term loan were used to purchase the interests in the co-investment programs.
As of December 31, 2007, the MLP has a LIBOR rate cap agreement at 6% with SMBC Derivative Products Limited until August 2008 for a notional amount of $290,000. During 2007, the Company settled an interest rate swap agreement for $1,870 in cash and recognized a loss of $649.
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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
Included in the Consolidated Statements of Operations, the Company recognized debt satisfaction gains (losses), excluding discontinued operations, of $(1,209), $7,228 $4,409 and $(56)$4,409 for the years ended December 31, 2007, 2006 2005 and 2004,2005, respectively.
Contract rights payable is a promissory note with a fixed interest rate of 9.68%, which provides for the following amortization payments:
| 2007 | $ | 0 | ||||||
| Year ending | ||||||||
December 31, | Total | |||||||
| 2008 | 0 | $ | — | |||||
| 2009 | 229 | 229 | ||||||
| 2010 | 491 | 491 | ||||||
| 2011 | 540 | 540 | ||||||
| 2012 | 593 | |||||||
| Thereafter | 10,971 | 11,591 | ||||||
| $ | 12,231 | $ | 13,444 | |||||
Mortgages payable and the secured loanloans are generally collateralized by real estate and the related leases. Certain mortgages payable have yield maintenance or defeasance requirements relating to any repayments. In addition, certain mortgages are cross-collaterializedcross-collateralized and cross-defaulted.
Scheduled principal and balloon payments for mortgages and notes payable, including $5,851 inexcluding mortgages payable relating to discontinued operations, for the next five years and thereafter are as follows:
| Years ending | ||||||||
| December 31, | Total | Total | ||||||
| 2007 | $ | 73,075 | ||||||
| 2008 | 699,526 | $ | 99,324 | |||||
| 2009 | 104,378 | 338,565 | ||||||
| 2010 | 90,363 | 163,319 | ||||||
| 2011 | 142,793 | 182,760 | ||||||
| 2012 | 226,621 | |||||||
| Thereafter | 1,018,890 | 1,301,833 | ||||||
| $ | 2,129,025 | $ | 2,312,422 | |||||
| (10) | Exchangeable Notes and Trust Notes Payable |
The Company issued an aggregate $450,000 of 5.45% Exchangeable Guaranteed Notes due in 2027. These notes can be put to the Company commencing in 2012 and every five years thereafter through maturity and upon certain events. The notes are convertible by the holders into common shares at a price of $25.25 per share, subject to adjustment upon certain events. The initial exchange rate is subject to adjustment under certain events including increases in the Company’s rate of dividends. Due to the special dividend declared by the Board of Trustees in 2007, the exchange price per share is currently $21.99. Upon exchange the holders of the notes would receive (1) cash equal to the principal amount of the note and (2) to the extent the conversion value exceeds the principal amount of the note, either cash or common shares at the Company’s option.
The Company, through a wholly-owned subsidiary, issued $200,000 in Trust Preferred Securities. The Trust Preferred Securities, which are classified as debt, are due in 2037, are redeemable by the Company
81
89
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
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.
Scheduled principal payments for these debt instrument for the next five years and thereafter are as follows:
| Year ending | ||||
December 31, | Total | |||
| 2008 | $ | — | ||
| 2009 | — | |||
| 2010 | — | |||
| 2011 | — | |||
| 2012 | 450,000 | (1) | ||
| Thereafter | 200,000 | |||
| $ | 650,000 | |||
| (1) | Although the exchangeable guaranteed notes mature in 2037, the notes can be put to the Company in 2012. |
The estimated fair value of these debt instruments is $593,750. In addition, the Company is in compliance with its obligations under the documents governing these debt instruments.
| (11) | Leases |
Lessor:
Minimum future rental receipts under the non-cancellable portion of tenant leases, excluding leases on properties held for sale, assuming no new or re-negotiated leases, for the next five years and thereafter are as follows:
| Year ending | ||||||||
| Years ending | ||||||||
| December 31, | Total | |||||||
| 2007 | $ | 411,757 | ||||||
| 2008 | 369,441 | $ | 422,579 | |||||
| 2009 | 283,815 | 359,495 | ||||||
| 2010 | 234,230 | 308,388 | ||||||
| 2011 | 215,265 | 286,200 | ||||||
| 2012 | 254,431 | |||||||
| Thereafter | 1,014,072 | 983,308 | ||||||
| $ | 2,528,580 | $ | 2,614,401 | |||||
The above minimum lease payments do not include reimbursements to be received from tenants for certain operating expenses and real estate taxes and do not include early termination payments provided for in certain leases.
Certain leases allow for the tenant to terminate the lease if the property is deemed obsolete, as defined, but must make a termination payment to the Company, as stipulated in the lease. In addition, certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price.
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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
Lessee:
The Company holds leasehold interests in various properties. Generally, the ground rents on these properties are either paid directly by the tenants to the fee holder or reimbursed to the Company as additional rent. Certain properties are economically owned through the holding of industrial revenue bonds and as such neither ground lease payments nor bond debt service payments are made or received, respectively. For certain of the properties, the Company has an option to purchase the land.
Minimum future rental payments under non-cancellable leasehold interests, excluding leases held through industrial revenue bonds and lease payments in the future that are based upon fair market value for the next five years and thereafter are as follows:
| Year ending | ||||||||
| Years ending | ||||||||
| December 31, | Total | |||||||
| 2007 | $ | 3,998 | ||||||
| 2008 | 3,464 | $ | 3,744 | |||||
| 2009 | 3,067 | 3,768 | ||||||
| 2010 | 2,568 | 3,538 | ||||||
| 2011 | 2,167 | 3,140 | ||||||
| 2012 | 2,806 | |||||||
| Thereafter | 14,975 | 16,720 | ||||||
| $ | 30,239 | $ | 33,716 | |||||
Rent expense for the leasehold interests was $3,255, $604 and $528 in 2007, 2006 and $288 in 2006, 2005, and 2004, respectively.
The Company leases its corporate headquarters. The lease expires December 2015, with rent fixed at $599 per annum through December 2008 and will be adjusted to fair market value, as defined, thereafter. The Company is also responsible for its proportionate share of operating expenses and real estate taxes. As an incentive to enter the lease, the Company received a payment of $845 which it is amortizing as a reduction of rent expense. The Company also leases a regionalan office in San Francisco until July 2010 from LION.March 2012. The minimum lease payments for these offices are $637 for 2007, $639$686 for 2008, $41$90 for 2009, $92 for 2010, $95 for 2011 and $21$24 for 2010.2012. Rent expense for these offices for 2007, 2006 and 2005 was $975, $877 and 2004 was $877, $861, and $618, respectively, and is included in general and administrative expenses.
| (12) | Minority Interests |
In conjunction with several of the Company’s acquisitions, property owners were issued OP Unitsunits as a form of consideration in exchange for the property. In connection with the Merger, the MLP effected a reverse unit-split pursuant to which each outstanding MLP unit was converted into 0.80 MLP units totaling 35,538,803,35.5 million, excluding MLP units held directly or indirectly by the Company. Holders of certain MLP units have voting rights equivalent to common shareholders of the Company through the Special Voting Preferred Share. Pursuant to a voting trustee agreement, NKT Advisors, LLC, an affiliate of Michael L. Ashner, the Company’s Executive Chairman, holds the one share of the Company’s special voting preferred stock and is required to cast the votes attached to the special voting preferred stock in proportion to the votes it receives from holders of voting MLP units, other than the general partner of the MLP or any other Lexington affiliate, provided that Vornado Realty Trust (“Vornado”) will not have the right to vote for board members of the Company at any time when an affiliate of Vornado is serving or standing for election as a board member of the Company. NKT Advisors, LLC will be entitled to vote Vornado’s voting MLP units in its sole discretion to the extent the voting rights of Vornado’s affiliates are so limited. AllSubstantially all of OP Units,units, other than the OP Unitsunits held directly or indirectly by the Company, are
82
redeemable at certain times, only at the option of the holders, for cashcommon shares or, common shares,on aone-for-one basis, at the Company’s option, on a one-for-one basiscash at various dates and are not otherwise mandatorily redeemable by the Company. During 2006, one of the Company’s operating
91
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
partnerships issued 33,954 OP units ($750) in connection with an acquisition. During 2005, one of the Company’s operating partnerships issued 352,244 OP Unitsunits for $7,714 in cash. As of December 31, 2006,2007, there were 41,191,11539.7 million OP Unitsunits outstanding. Of the total OP Unitsunits outstanding, 29,351,09829.2 million are held by related parties. Generally, holders of OP Unitsunits are entitled to receive distributions equal to the dividends paid to our common shareholders, except that certain OP Unitsunits have stated distributions in accordance with their respective partnership agreement. To the extent that the Company’s dividend per share is less than the stated distribution per unit per the applicable partnership agreement, the stated distributions per unit are reduced by the percentage reduction in the Company’s dividend. No OP Unitsunits have a liquidation preference. As of December 31, 2005,2006, there were 5,720,07141.2 million OP Unitsunits outstanding. As of December 31, 2007, the Company’s common shares had a closing price of $14.54 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 $577,517. The Company has the ability and intent to settle such redemptions in common shares.
| (13) | Preferred and Common Shares |
During 2007, the Company issued 6,200,000 of its Series D Cumulative Redeemable Preferred Stock (“Series D Preferred”) with a liquidation amount of $155,000, 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 Common Sharesthe Series D Preferred are not so listed, the Series D Preferred will pay dividends at an annual rate of 8.55%.
During 2006, the Company issued 15,994,702 common shares relating to the Merger. During 2005, the Company issued 2,500,000 common shares in public offerings raising $60,722 in proceeds, which was used to retire mortgage debt and fund acquisitions.
Pursuant to a voting trustee agreement, NKT Advisors, LLC, an affiliate of Michael L. Ashner, the Company’s Executive Chairman, holds the one share of the Company’s special voting preferred stock and is required to cast the votes attached to the special voting preferred stock in proportion to the votes it receives from holders of voting MLP units, other than the general partner of the MLP or any other Lexington affiliate, provided that Vornado will not have the right to vote for board members of the Company at any time when an affiliate of Vornado is serving or standing for election as a board member of the Company. NKT Advisors, LLC will be entitled to vote Vornado’s voting MLP units in its sole discretion to the extent the voting rights of Vornado’s affiliates are so limited.
During 2005, and 2004, the Company issued 400,000 shares (which were issued pursuant to an underwriters over allotment option) and 2,700,000 shares of Series C Cumulative Convertible Preferred Stock, raising net proceeds of $19,463 and $131,126, respectively.$19,463. The shares have a dividend of $3.25 per share per annum, have a liquidation preference of $20,000, and $135,000, respectively, and the Company commencing November 2009, if certain common share prices are achieved, can force conversion into common shares. In addition,At issuance each share is currentlywas convertible into 1.8643 common shares. This conversion ratio may increase over time if the Company’s common share dividend exceeds certain quarterly thresholds. Due to the special dividend declared by the Company’s Board of Trustees, each share is convertible into 2.1683 common shares as of December 31, 2007.
If certain fundamental changes occur, holders may require the Company, in certain circumstances, to repurchase all or part of their Series C Cumulative Convertible Preferred Stock. In addition, upon the occurrence
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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
of certain fundamental changes, the Company will under certain circumstances increase the conversion rate by a number of additional common shares or, in lieu thereof, may in certain circumstances elect to adjust the conversion rate upon the Series C Cumulative Convertible Preferred Stock becoming convertible into shares of the public acquiring or surviving company.
On or after November 16, 2009, the Company may, at the Company’s option, cause the Series C Cumulative Convertible Preferred Stock to be automatically converted into that number of common shares that are issuable at the then prevailing conversion rate. The Company may exercise its conversion right only if, at certain times, the closing price of the Company’s common shares equals or exceeds 125% of the then prevailing conversion price of the Series C Cumulative Convertible Preferred Stock.
Investors in the Series C Cumulative Convertible Preferred Stock generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters and under certain other circumstances. Upon conversion the Company may choose to deliver the conversion value to investors in cash, common shares, or a combination of cash and common shares.
During 20062007 and 2005,2006, holders of an aggregate of 96,2051,283,629 and 37,20096,205 OP Units 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 $1,099$25,223 and $441,$1,099, respectively.
During 20062007 and 2005,2006, the Company issued 639,3530 and 276,608639,353 common shares, respectively, to certain employees. These common shares generally vest ratably, primarily over a 5 year period, however in certain situations the vesting is cliff basedcliff-based after 5 years and in other cases vesting only occurs if certain performance criteria are met (see Note 13)14).
During 20062007 and 2005,2006, the Company issued 627,497282,051 and 658,122627,497 common shares, respectively, under its dividend reinvestment plan which allows shareholders to reinvest dividends to purchase common shares at a 5% discount to its market value, as defined.
83
| (14) | Benefit Plans |
The Company maintains a common share option plan pursuant to which qualified and non-qualified options may be issued. Options granted under the plan generally vest over a period of one to four years and expire five years from date of grant. No compensation cost is reflected in net income as all options granted under the plan had an exercise price equal to the market value of the underlying common shares on the date of grant.
93
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
Share option activity during the years indicated is as follows:
| Weighted-Average | Weighted-Average | |||||||||||||||
| Number of | Exercise Price | Number of | Exercise Price | |||||||||||||
| Shares | Per Share | Shares | Per Share | |||||||||||||
| Balance at December 31, 2003 | 521,530 | $ | 13.94 | |||||||||||||
| Granted | — | — | ||||||||||||||
| Exercised | (345,200 | ) | 13.48 | |||||||||||||
| Forfeited | — | — | ||||||||||||||
| Expired | — | — | ||||||||||||||
| Balance at December 31, 2004 | 176,330 | $ | 14.70 | $ | 176,330 | $ | 14.70 | |||||||||
| Granted | — | — | — | — | ||||||||||||
| Exercised | (133,830 | ) | 14.71 | (133,830 | ) | 14.71 | ||||||||||
| Forfeited | (2,000 | ) | 13.66 | (2,000 | ) | 13.66 | ||||||||||
| Expired | — | — | — | — | ||||||||||||
| Balance at December 31, 2005 | 40,500 | 14.71 | 40,500 | 14.71 | ||||||||||||
| Granted | — | — | — | — | ||||||||||||
| Exercised | (20,500 | ) | 14.15 | (20,500 | ) | 14.15 | ||||||||||
| Forfeited | (2,000 | ) | 15.50 | (2,000 | ) | 15.50 | ||||||||||
| Expired | (1,500 | ) | 11.82 | (1,500 | ) | 11.82 | ||||||||||
| Balance at December 31, 2006 | 16,500 | $ | 15.56 | 16,500 | 15.56 | |||||||||||
| Granted | — | — | ||||||||||||||
| Exercised | (15,500 | ) | 15.56 | |||||||||||||
| Forfeited | — | — | ||||||||||||||
| Expired | (1,000 | ) | 15.50 | |||||||||||||
| Balance at December 31, 2007 | $ | — | $ | — | ||||||||||||
| Options Outstanding | Exercisable Options | |||||||||||||||||||
| Weighted | Weighted | |||||||||||||||||||
| Range of | Average | Remaining | Average | |||||||||||||||||
| Exercise | Exercise | Life | Exercise | |||||||||||||||||
| Prices | Number | Price | (Months) | Number | Price | |||||||||||||||
| $15.50-$15.90 | 16,500 | $ | 15.56 | 2 | 16,500 | $ | 15.56 | |||||||||||||
The Company has a 401(k) retirement savings plan covering all eligible employees. The Company will match 25%100% of the first 4%2.5% of employee contributions. In addition, based on its profitability, the Company may make a discretionary contribution at each fiscal year end to all eligible employees. The matching and discretionary contributions are subject to vesting under a schedule providing for 25% annual vesting starting with the first year of employment and 100% vesting after four years of employment. Approximately $382, $229 $179 and $171$179 of contributions are applicable to 2007, 2006 2005 and 2004,2005, respectively.
Non-vested share activity for the year ended December 31,2006,31, 2007, is as follows:
| Number of | Weighted-Average | Number of | Weighted-Average | |||||||||||||
| Shares | Value Per Share | Shares | Value Per Share | |||||||||||||
| Balance at December 31, 2005 | 708,628 | $ | 20.38 | |||||||||||||
| Balance at December 31, 2006 | 654,761 | $ | 21.52 | |||||||||||||
| Granted | 639,353 | 22.15 | — | — | ||||||||||||
| Forfeited | (469 | ) | 21.30 | (8,430 | ) | 21.99 | ||||||||||
| Vested | (692,751 | ) | 20.93 | (224,608 | ) | 20.48 | ||||||||||
| Balance at December 31, 2006 | 654,761 | $ | 21.52 | |||||||||||||
| Balance at December 31, 2007 | 421,723 | $ | 22.06 | |||||||||||||
As of December 31, 2006,2007, of the remaining 654,761421,723 non-vested shares, 353,048140,424 are subject to time vesting and 301,713281,299 are subject to performance vesting. There are 592,8024,999,422 awards available for grant at December 31, 2006. In addition,2007 and the Company has $9,383$6,394 in unrecognized compensation costs that will be charged to compensation expense over an average of approximately 4.63.5 years.
In 2006, the Board of Trustees approved the accelerated vesting of certain time based non-vested shares, which resulted in a charge to earnings of $10,758, which is included in general and administrative expenses.
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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
During 2007, 2006 2005 and 2004,2005, the Company recognized $3,645, $16,950 (including the $10,758 in accelerated amortization of non-vested shares), $3,595 and $2,523,$3,595, respectively, in compensation relating to share grants to trustees and employees.
The Company has established a trust for certain officers in which non-vested common shares, which generally vest ratably over five years, granted for the benefit of the officers are deposited. The officers exert no control over the common shares in the trust and
84
the common shares are available to the general creditors of the Company. As of December 31, 20062007 and 2005,2006, there were 427,531 common shares in the trust.
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. On December 20, 2007, the program was modified to clarify the definition of annual shareholder return.
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 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 December 31, 2007, the value of the awards was $715. The Company recognized $111 in compensation expenses relating to the award during the year ended December 31, 2007.
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. During the second quarter of 2007, one officer separated from the Company and the rights relating to his allocated 8% were forfeited. The remaining unallocated balance of 25% may be allocated by the Compensation Committee in 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 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 each 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.
95
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
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 second quarter of 2007, the Company and an executive officer entered into an employment separation agreement. In addition to a cash payment of $3,600, non-vested common shares were accelerated and immediately vested which resulted in a charge of $933.
| (15) | Income Taxes |
The (benefit) provisionbenefit (provision) for income taxes relates primarily to the taxable income of the Company’s taxable REIT subsidiaries. The earnings, other than in taxable REIT subsidiaries, of the Company are not generally subject to Federal income taxes at the Company level due to the REIT election made by the Company.
Income taxes have been provided for on the asset and liability method as required by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under the asset and liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities.
The Company’s (benefit) provisionbenefit (provision) for income taxes for the years ended December 31, 2007, 2006 2005 and 20042005 is summarized as follows:
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
| Current: | ||||||||||||||||||||||||
| Federal | $ | 139 | $ | 222 | $ | 2,249 | $ | (928 | ) | $ | (139 | ) | $ | (222 | ) | |||||||||
| State and local | 331 | 93 | 958 | (2,679 | ) | (331 | ) | (93 | ) | |||||||||||||||
| NOL utilized | 799 | — | — | |||||||||||||||||||||
| Deferred: | ||||||||||||||||||||||||
| Federal | (561 | ) | (358 | ) | (1,722 | ) | (407 | ) | 561 | 358 | ||||||||||||||
| State and local | (147 | ) | (107 | ) | (304 | ) | (159 | ) | 147 | 107 | ||||||||||||||
| $ | (238 | ) | $ | (150 | ) | $ | 1,181 | $ | (3,374 | ) | $ | 238 | $ | 150 | ||||||||||
Deferred tax assets of $3,230$872 and $2,492, respectively$3,230 are included in other assets on the accompanying Consolidated Balance Sheets at December 31, 20062007 and 2005,2006, respectively. These deferred tax assets relate primarily to differences in the timing of the recognition of income/(loss) between GAAP and tax, basis of real estate investments and net operating loss carry forwards.
The income tax (benefit) provisionbenefit (provision) differs from the amount computed by applying the statutory federal income tax rate to pre-tax operating income as follows:
| 2006 | 2005 | 2004 | 2007 | 2006 | 2005 | |||||||||||||||||||
| Federal (benefit) provision at statutory tax rate (34%) | $ | (548 | ) | $ | (96 | ) | $ | 1,106 | ||||||||||||||||
| Federal benefit at statutory tax rate (34)% | $ | 488 | $ | 548 | $ | 96 | ||||||||||||||||||
| State and local taxes, net of Federal benefit | (86 | ) | (24 | ) | 195 | 4 | 86 | 24 | ||||||||||||||||
| Other | 396 | (30 | ) | (120 | ) | (3,866 | ) | (396 | ) | 30 | ||||||||||||||
| $ | (238 | ) | $ | (150 | ) | $ | 1,181 | $ | (3,374 | ) | $ | 238 | $ | 150 | ||||||||||
The “other” amount of $3,866 is comprised primarily of state taxes of $2,396 and the write-off of deferred tax assets of $1,605 relating to the dissolution of LSAC and the acquisition of our co-investment programs.
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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
As of December 31, 2007 and 2006, the Company has estimated net operating loss carry forwards for federal income tax reporting purposes of $5,126 and $11,781, respectively, which would begin to expire in tax year 2025. No valuation allowances have been recorded against deferred tax assets as the Company believes they are fully realizable, based upon projected future taxable income.
| (16) | Commitments and Contingencies |
Lexington Streetsboro LLC v. Alfred Geis, et al.
Beginning in January 2005, on behalf of one of the Company’s co-investment programs, the Company received notices from the tenant in the Streetsboro, Ohio facility regarding certain alleged deficiencies in the construction of the facility as compared to the original building specifications. Upon acquisition of the facility from the developer, the then owner of the facility obtained an indemnity from the principals of the developer covering a breach of construction warranties, the constructionand/or the condition of the premises. After two years of correspondence among the owner of the facility, the developer and the tenant, the Company (after the acquisition of the facility from our co-investment program) entered into an amendment to the lease with the tenant providing for the repair of a portion of the alleged deficiencies and commenced such repairs beginning in the summer of 2007.
Following a demand for reimbursement under the indemnity agreement, the Company filed suit against the developer and the principals of the developer in the Federal District Court for the Northern District of Ohio on August 10, 2007 to enforce our rights (Lexington Streestboro LLC v. Alfred Geis, et al.,Case No. 5:07CV2450). On November 1, 2007, the developer filed (1) counter-claims against the Company for unjust enrichment regarding the repair work performed and for a declaration of its obligations under the indemnity agreement and (2) multiple cross-claims against itssub-contractors asking to be reimbursed for any deficiencies in the building specifications for which they are held liable. The developer was also permitted by the Court to file a claim against the tenant. The suit is on-going.
As of December 31, 2007, the Company has incurred $3.7 million of expenses in connection with the work covered by the lease amendment and the enforcement of the Company’s rights under the indemnity agreement. The Company may seek an additional $2.5 million for future costs that may be incurred in connection with other potential deficiencies. The Company intends to vigorously pursue its claims and reimbursement under the indemnity agreement, and believes that the receivable recorded is collectable.
Deutsche Bank Securities, Inc.
On June 30, 2006, the Company, including a non-consolidated entity, sold to Deutsche Bank Securities, Inc., (“Deutsche Bank”), (1) a $7,680 bankruptcy damage claim against Dana Corporation for $5,376, (“ Farmington Hills claim”), and (2) a $7,727 bankruptcy damage claim against Dana Corporation for $5,680, (“ Antioch claim”). Under the terms of the agreements covering the sale of the claims, the Company is obligated to reimburse Deutsche Bank should the claim ever be disallowed, subordinated or otherwise impaired, to the extent of such disallowance, subordination or impairment, plus interest at the rate of 10% per annum from the date of payment of the purchase price by Deutsche Bank. On October 12, 2007, Dana Corporation filed an objection to both claims. The Company assisted Deutsche Bank and the then holders of the claims in the preparation and filing of a response to the objection. Despite a belief by the Company that the objections were without merit, the holders of the claims, without the Company’s consent, settled the allowed amount of the claims at $6,500 for the Farmington Hills claim and $7,200
97
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
for the Antioch claim. Deutsche Bank has made a formal demand with respect to the Farmington Hills claim in the amount of $826 plus interest, but has not made a formal demand with respect to the Antioch claim, which the estimate is $388 plus interest. The Company informed Deutsche Bank that it does not intend to honor any demand for a variety of reasons, including that (1) the holders of the claims arbitrarily settled the claims for reasons based on factors other than the merits and (2) the holders of the claims voluntarily reduced the claims to participate in certain settlement pools. The Company intends to vigorously defend any further claims or demands by Deutsche Bank or the holders of the claims. The Company believes that no material amount will be paid to Deutsche Bank relating to this item.
Certain employees have employment contracts and are entitled to severance benefits in the case of a change of control, as defined in the employment contract.
The Company, including its non-consolidated entities, are obligated under certain tenant leases 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 real estate investment trust 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.
During 2007, the Company wrote off approximately $431 relating to costs incurred for the LSAC initial public offering. The costs were written off when LSAC decided not to pursue an initial public offering of its shares.
| (17) | Related Party Transactions |
Certain officers of the Company own OP Unitsunits or other interests in entities consolidated or accounted for under the equity method.
All related party acquisitions, sales and loans were approved by the independent members of the Board of Trustees or the Audit Committee.
As of December 31, 2007 and 2006, the Company, through the MLP, has an ownership interest in a securitized pool of first mortgages which includes two mortgage loans encumbering MLP properties. As of December 31, 2007 and 2006, the value of the ownership interests is $16,371.was $15,926 and $16,371, respectively.
85
An affiliate of our Executive Chairman and Director of Strategic Acquisitions provides certain asset management, investor and administrative services to certain partnerships in which the Company owns an equity interest. The total fees earned by and overhead reimbursed to this affiliate in 2007 was $2,606.
In addition, an affiliate of the Executive Chairman will provideand Director of Strategic Acquisitions provides management services on anycertain of the Company’s properties that require such management servicesproperties. The total fees earned by this affiliate in the future, excluding properties that are currently managed by third parties.2007 was $901.
As of December 31, 2007 and 2006, $21,378 and $20,886, respectively, in mortgage notes payable are due to entities owned by significant OP unitholders and the Executive Chairman and Director of Strategic Acquisitions. The mortgages were assumed in connection with the Merger. In addition, the Company leases four properties to these entities. During 2007, the Company recognized $1,575 in rental revenue from these properties. The Company leases its corporate office in New York City from Vornado, a significant OP unitholder. Rent expense for this property was $829 in 2007.
During 2007, the Company repurchased common shares from two of its officers for an aggregate of $405 and purchased LSAC shares from several of its officers for $2,200.
98
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
During 2007, the MLP and Winthrop Realty L.P., an entity affiliated with the Company’s Executive Chairman, entered into a joint venture with other unrelated partners, to acquire shares of Wells Real Estate Investment Trust (see note 8).
The Company has agreed with Vornado to operate the MLP as a real estate investment trust 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.
Winthrop Realty L.P., an affiliate of the Company’s Executive Chairman and Director of Strategic Acquisitions, is the 50% partner in Concord Debt Holdings LLC (see note 8).
In addition, the Company earns fees from certain of its non-consolidated investments (See(see note 8).
| (18) | Fair Market Value of Financial Instruments |
Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable.The Company estimates that the fair value approximates carrying value due to the relatively short maturity of the instruments.
Notes Receivable.The Company has determined that the fair value of these instruments approximates carrying costs as their interest rates approximate market.
Mortgages, Notes Payable and Contract Rights Payable.The Company determines the fair value of these instruments based on a discounted cash flow analysis using a discount rate that approximates the current borrowing rates for instruments of similar maturities. Based on this, the Company has determined that the fair value of these instruments approximates the carrying value as of December 31, 20062007 and exceeded carrying value by $24,440 as of December 31, 2005.
| (19) | Concentration of Risk |
The Company seeks to reduce its operating and leasing risks through diversification achieved by the geographic distribution of its properties, avoiding dependency on a single property and the creditworthiness of its tenants.
For the years ended December 31, 2007, 2006 2005 and 2004,2005, no tenant represented 10% or more of gross revenues.
Cash and cash equivalent balances may exceed insurable amounts. The Company believes it mitigates risk by investing in or through major financial institutions.
| (20) | Supplemental Disclosure of Statement of Cash Flow Information |
During 2007, 2006 Dana Corporation (“Dana”), a tenant in 11 properties, including non-consolidated entities, filed for Chapter 11 bankruptcy. Dana succeeded on motions to reject leases on 2 properties owned by the Company and a non-consolidated entity and has affirmed the other 9 leases. During the second quarter of 2006, the Company recorded an impairment charge of $1,121 and accelerated amortization of an above-market lease of $2,349, relating to the write off of lease intangibles and the above-market lease for the disaffirmed lease of a consolidated property. During the fourth quarter of 2006, the Company recorded an additional impairment charge of $6,100 relating to this property. In addition, the Company’s proportionate share from a non-consolidated entity of the impairment charge and accelerated amortization of an above-market lease for a disaffirmed lease was $551 and $1,412, respectively. In addition, the Company, including its interest through a non-consolidated entity, sold its bankruptcy claims related to the 2 disaffirmed leases for approximately $7,100 which resulted in a gain of approximately $6,900.
During 2007 and 2006, the Company had ana change in the unrealized gain (loss) on marketable equity securities of $(896) and $789 and an unrealized gain in foreign currency translation of $789$371 and $484, respectively.
During 2007, 2006 and 2005, the Company recognized $3,645, $16,950 (including the $10,758 in accelerated amortization of non-vested shares), $3,595, and $2,523, respectively, in compensation relating to share grants to trustees and employees.
99
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
During 2007, the Company sold one property for a sale price of $35,700 and provided $27,700 in secured financing to the buyer.
During 2006, the Company sold a property in which the purchaser assumed a mortgage note encumbering the property in the amount of $14,170. In addition, the Company provided a $3,200, 6.00% interest only mortgage due in 2017 relating to the sale of another property.
During 2005, the Company provided $11,050 in secured financing related to the sale of a property.
During 2005, in connection with certain mortgage financings the lender withheld $5,600 in proceeds which was disbursed upon expansion of the mortgaged properties in 2006.
During 20062007 and 2005,2006, the Company recorded a derivative asset of $0 and $2,745 and a derivative liability of $0 and $512, respectively.
During 2004, the Company sold a property for $4,3242007, 2006 and received as a part of the consideration a note receivable of $3,488. The note was repaid in 2005.
In connection with the acquisition of the co-investment programs, the Company paid approximately $366,600 in cash and acquired approximately $1,071,000 in real estate, $264,000 in intangibles, $21,000 in cash, assumed $785,000 in mortgages payable, $40,000 in below-market leases and $14,000 in all other assets and liabilities (see note 8).
In connection with the formation of NLS in 2007, the Company contributed real estate and intangibles, net of accumulated depreciation and amortization, of $129,427, to NLS and consolidated mortgage notes payable in the amount of $171,502 were assumed by NLS.
During 2006, the Company issued 33,954 OP Units valued at $750 to acquire a single net leased property.
86
Effective November 1, 2006, LSAC became a consolidated subsidiary of the Company. The assets and liabilities of LSAC are treated as non-cash activities for the Statement of Cash Flows, were as follows:
| Real estate | $ | 106,112 | ||
| Cash | $ | 31,985 | ||
| Other assets | $ | 23,476 | ||
| Mortgage payable | $ | 72,057 | ||
| Other liabilities | $ | 1,341 |
In 2005, and 2004, the Company contributed properties (along with non-recourse mortgage notes of $36,041 and $97,641, respectively)$36,041) to joint venture entities for capital contributions of $32,170 and $13,718, respectively.$32,170. In addition, during 2004 the Company issued mortgage notes receivable of $45,800 relating to these contributions, which were repaid in 2005.
See footnote 5 for discussion of the Merger.
100
| 2006 | ||||||||||||||||
| 3/31/06 | 6/30/06 | 9/30/06 | 12/31/06 | |||||||||||||
| Total gross revenues(1) | $ | 51,621 | $ | 49,258 | $ | 51,271 | $ | 55,241 | ||||||||
| Net income (loss) | $ | 6,078 | $ | 25,520 | $ | (17,596 | ) | $ | (6,249 | ) | ||||||
| Net income (loss) allocable to common shareholders — basic | $ | 1,969 | $ | 21,411 | $ | (21,705 | ) | $ | (10,357 | ) | ||||||
| Net income (loss) allocable to common shareholders — per share: | ||||||||||||||||
| Basic | $ | 0.04 | $ | 0.41 | $ | (0.42 | ) | $ | (0.20 | ) | ||||||
| Diluted | $ | 0.04 | $ | 0.41 | $ | (0.42 | ) | $ | (0.20 | ) | ||||||
| 2005 | ||||||||||||||||
| 3/31/05 | 6/30/05 | 9/30/05 | 12/31/05 | |||||||||||||
| Total gross revenues(1) | $ | 33,983 | $ | 46,575 | $ | 52,239 | $ | 50,661 | ||||||||
| Net income (loss) | $ | 9,526 | $ | 15,949 | $ | 8,970 | $ | (1,750 | ) | |||||||
| Net income (loss) allocable to common shareholders — basic | $ | 5,417 | $ | 11,841 | $ | 4,861 | $ | (5,859 | ) | |||||||
| Net income (loss) allocable to common shareholders — per share: | ||||||||||||||||
| Basic | $ | 0.11 | $ | 0.24 | $ | 0.10 | $ | (0.11 | ) | |||||||
| Diluted | $ | 0.11 | $ | 0.22 | $ | 0.08 | $ | (0.11 | ) | |||||||
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
($000 except per share/unit amounts)
| (21) | Unaudited Quarterly Financial Data |
| 2007 | ||||||||||||||||
| 3/31/2007 | 6/30/2007 | 9/30/2007 | 12/31/2007 | |||||||||||||
| Total gross revenues(1) | $ | 81,943 | $ | 109,510 | $ | 118,032 | $ | 122,262 | ||||||||
| Net income | $ | 2,215 | $ | 28,939 | $ | 14,463 | $ | 31,234 | ||||||||
| Net income (loss) allocable to common shareholders — basic | $ | (3,416 | ) | $ | 21,906 | $ | 7,429 | $ | 24,199 | |||||||
| Net income (loss) allocable to common shareholders — per share: | ||||||||||||||||
| Basic | $ | (0.05 | ) | $ | 0.34 | $ | 0.12 | $ | 0.39 | |||||||
| Diluted | $ | (0.05 | ) | $ | 0.34 | $ | 0.12 | $ | 0.39 | |||||||
| 2006 | ||||||||||||||||
| 3/31/2006 | 6/30/2006 | 9/30/2006 | 12/31/2006 | |||||||||||||
| Total gross revenues(1) | $ | 46,367 | $ | 44,209 | $ | 46,216 | $ | 49,901 | ||||||||
| Net income (loss) | $ | 6,078 | $ | 25,520 | $ | (17,596 | ) | $ | (6,249 | ) | ||||||
| Net income (loss) allocable to common shareholders — basic | $ | 1,969 | $ | 21,411 | $ | (21,704 | ) | $ | (10,358 | ) | ||||||
| Net income (loss) allocable to common shareholders — per share: | ||||||||||||||||
| Basic | $ | 0.04 | $ | 0.41 | $ | (0.42 | ) | $ | (0.20 | ) | ||||||
| Diluted | $ | 0.04 | $ | 0.41 | $ | (0.42 | ) | $ | (0.20 | ) | ||||||
| (1) | All periods have been adjusted to reflect the impact of properties sold during the years ended December 31, |
The sum of the quarterly income (loss) per common share amounts may not equal the full year amounts primarily because the computations of the weighted average number of common shares outstanding for each quarter and the full year are made independently.
87
| (22) | Subsequent Events |
Subsequent to December 31, 2006,2007, the Company:
| • | |||
| • | |||
| • |
88
101
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000)
Initial cost to Company and Gross Amount at which carried at End of Year(A)
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and | Buildings | Depreciation | Useful life computing | Buildings | Depreciation | Useful life computing | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land | and | and | Date | Date | depreciation in latest | Land, Improvements | and | and | Date | Date | depreciation in latest | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Description | Location | Encumbrances | Estates | Improvements | Total | Amortization | Acquired | Constructed | income statements (years) | Location | Encumbrances | and Land Estates | Improvements | Total | Amortization | Acquired | Constructed | income statements (years) | ||||||||||||||||||||||||||||||||||||||||||||
| R&D | Glendale, AZ | $ | 14,278 | $ | 4,996 | $ | 24,392 | $ | 29,388 | $ | 14,036 | Nov-86 | 1985 | 12 & 40 | Glendale, AZ | $ | 14,084 | $ | 4,996 | $ | 24,392 | $ | 29,388 | $ | 14,557 | Nov-86 | 1985 | 12 & 40 | ||||||||||||||||||||||||||||||||||
| Industrial | Marshall, MI | — | 33 | 3,932 | 3,965 | 1,890 | Aug-87 | 1968/1972 | 12,20,22 & 40 | Marshall, MI | 0 | 40 | 900 | 940 | 526 | Aug-87 | 1979 | 12, 20 & 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Marshall, MI | — | 14 | 926 | 940 | 505 | Aug-87 | 1979 | 12,20 & 40 | Marshall, MI | 0 | 129 | 3,836 | 3,965 | 1,992 | Aug-87 | 1968/1972 | 12, 20, 22 & 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Retail | Newport, OR | 6,644 | 1,400 | 7,270 | 8,670 | 4,072 | Sep-87 | 1986 | 12,15 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office/Warehouse | Tampa, FL | 8,052 | 1,900 | 9,854 | 11,754 | 4,510 | Nov-87 | 1986 | 28,30 & 40 | Tampa, FL | 7,941 | 1,900 | 9,854 | 11,754 | 4,758 | Nov-87 | 1986 | 28, 30 & 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office/Warehouse | Memphis, TN | — | 1,053 | 11,438 | 12,491 | 8,641 | Feb-88 | 1987 | 8 &15 | Memphis, TN | *** | 1,053 | 11,538 | 12,591 | 9,566 | Feb-88 | 1987 | 8 &15 | ||||||||||||||||||||||||||||||||||||||||||||
| Retail | Klamath Falls, OR | — | 728 | 9,159 | 9,887 | 4,303 | Mar-88 | 1986 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Tampa, FL | 5,823 | 1,389 | 7,866 | 9,255 | 4,013 | Jul-88 | 1986 | 10, 24, 26, 31, & 40 | Tampa, FL | 5,741 | 2,160 | 7,127 | 9,287 | 4,234 | Jul-88 | 1986 | 10, 24, 26, 31, & 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Warehouse/Industrial | Jacksonville, FL | — | 258 | 3,637 | 3,895 | 1,551 | Jul-88 | 1958/1969 | 20, 25 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warehouse/Distribution | Mechanicsburg, PA | 13,126 | 1,439 | 13,986 | 15,425 | 5,358 | Oct-90 | 1985/1995 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retail | Laguna Hills, CA | — | 255 | 5,035 | 5,290 | 2,793 | Aug-95 | 1974 | 17 & 20 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retail | Oxon Hill, MD | — | 403 | 2,765 | 3,168 | 1,487 | Aug-95 | 1976 | 18.21 & 24 | Oxon Hill, MD | 0 | 403 | 2,765 | 3,168 | 1,616 | Aug-95 | 1976 | 18.21 & 24 | ||||||||||||||||||||||||||||||||||||||||||||
| Retail | Rockville, MD | — | — | 1,784 | 1,784 | 968 | Aug-95 | 1977 | 20 & 22 | Rockville, MD | 0 | 0 | 1,784 | 1,784 | 1,041 | Aug-95 | 1977 | 20 & 22 | ||||||||||||||||||||||||||||||||||||||||||||
| Retail/Health Club | Canton, OH | 757 | 602 | 3,819 | 4,421 | 1,050 | Dec-95 | 1987 | 40 | Canton, OH | 427 | 602 | 3,819 | 4,421 | 1,145 | Dec-95 | 1987 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Salt Lake City, UT | 7,137 | — | 55,404 | 55,404 | 22,686 | May-96 | 1982 | 26 | Salt Lake City, UT | 4,712 | 0 | 55,404 | 55,404 | 24,821 | May-96 | 1982 | 26 | ||||||||||||||||||||||||||||||||||||||||||||
| Retail | Honolulu, HI | — | — | 11,147 | 11,147 | 7,898 | Dec-96 | 1980 | 5 | Honolulu, HI | *** | 0 | 11,147 | 11,147 | 9,458 | Dec-96 | 1980 | 5 | ||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Oberlin, OH | — | 276 | 4,515 | 4,791 | 1,129 | Dec-96 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Manufacturing | Franklin, NC | 1,600 | 386 | 3,062 | 3,448 | 766 | Dec-96 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retail | Clackamas, OR | — | 523 | 2,847 | 3,370 | 1,587 | Dec-96 | 1981 | 14 & 24 | Tulsa, OK | 0 | 447 | 2,432 | 2,879 | 1,492 | Dec-96 | 1981 | 14 & 24 | ||||||||||||||||||||||||||||||||||||||||||||
| Retail | Lynwood, WA | — | 488 | 2,658 | 3,146 | 1,483 | Dec-96 | 1981 | 14 & 24 | Clackamas, OR | 0 | 523 | 2,847 | 3,370 | 1,747 | Dec-96 | 1981 | 14 & 24 | ||||||||||||||||||||||||||||||||||||||||||||
| Retail | Tulsa, OK | — | 447 | 2,432 | 2,879 | 1,356 | Dec-96 | 1981 | 14 & 24 | Lynwood, WA | 0 | 488 | 2,658 | 3,146 | 1,631 | Dec-96 | 1981 | 14 & 24 | ||||||||||||||||||||||||||||||||||||||||||||
| Warehouse | New Kingston, PA | 6,917 | 1,380 | 10,963 | 12,343 | 2,684 | Mar-97 | 1989 | 40 | New Kingston, PA | 3,230 | 674 | 5,360 | 6,034 | 1,446 | Mar-97 | 1981 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Warehouse | Mechanicsburg, PA | 5,106 | 1,012 | 8,039 | 9,051 | 1,968 | Mar-97 | 1985 | 40 | Mechanicsburg, PA | 5,005 | 1,012 | 8,039 | 9,051 | 2,169 | Mar-97 | 1985 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Warehouse | New Kingston, PA | 3,295 | 674 | 5,360 | 6,034 | 1,312 | Mar-97 | 1981 | 40 | New Kingston, PA | 6,780 | 1,380 | 10,963 | 12,343 | 2,958 | Mar-97 | 1989 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Dallas, TX | — | 3,582 | 32,413 | 35,995 | 7,285 | Sep-97 | 1986 | 40 | Dallas, TX | 0 | 3,582 | 37,246 | 40,828 | 8,563 | Sep-97 | 1981 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Warehouse | Waterloo, IA | 5,899 | 1,025 | 8,296 | 9,321 | 1,910 | Oct-97 | 1996/1997 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Richmond, VA | — | — | 27,282 | 27,282 | 7,614 | Dec-97 | 1990 | 32.25 | Decatur, GA | 6,106 | 975 | 14,252 | 15,227 | 3,438 | Dec-97 | 1983 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Decatur, GA | 6,268 | 975 | 13,677 | 14,652 | 3,077 | Dec-97 | 1983 | 40 | Richmond, VA | 15,745 | 0 | 27,282 | 27,282 | 8,460 | Dec-97 | 1990 | 32.25 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Hebron, OH | 15,953 | 1,063 | 4,271 | 5,334 | 538 | Dec-97 | 2000 | 40 | Hebron, OH | *** | 1,063 | 4,271 | 5,334 | 645 | Dec-97 | 2000 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Gordonsville, TN | — | 52 | 3,325 | 3,377 | 861 | Dec-97 | 1983/1985 | 34.75 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office/Warehouse | Bristol, PA | 9,393 | 2,508 | 10,031 | 12,539 | 2,194 | Mar-98 | 1982 | 40 | Bristol, PA | 9,262 | 2,508 | 10,915 | 13,423 | 2,446 | Mar-98 | 1982 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Hebron, KY | — | 1,615 | 7,743 | 9,358 | 1,540 | Mar-98 | 1987 | 6,12 & 40 | Hebron, KY | 0 | 1,615 | 7,958 | 9,573 | 1,830 | Mar-98 | 1987 | 6, 12 & 40 | ||||||||||||||||||||||||||||||||||||||||||||
| R&D | Livonia, MI | — | 2,008 | 8,328 | 10,336 | 1,570 | Mar-98 | 1987/1988 | 8 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Livonia, MI | 10,625 | 1,554 | 7,961 | 9,515 | 1,459 | Mar-98 | 1988 | 8 & 40 | Palm Beach Gardens, FL | 10,536 | 3,578 | 14,848 | 18,426 | 3,435 | May-98 | 1996 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Palm Beach Gardens, FL | 10,759 | 3,578 | 14,249 | 17,827 | 3,073 | May-98 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Lancaster, CA | 18,683 | 2,028 | 28,183 | 30,211 | 4,410 | Jun-98 | 1998/2002 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Auburn Hills, MI | 6,758 | 2,788 | 11,342 | 14,130 | 2,353 | Jul-98 | 1989/1998 | 40 | Auburn Hills, MI | 6,590 | 2,788 | 6,648 | 9,436 | 2,638 | Jul-98 | 1989/1998 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Warehouse/Distribution | Baton Rouge, LA | 1,670 | 685 | 3,316 | 4,001 | 648 | Oct-98 | 1998 | 9 & 40 | Baton Rouge, LA | 1,581 | 685 | 3,316 | 4,001 | 764 | Oct-98 | 1998 | 9 & 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Herndon, VA | 18,258 | 5,127 | 20,730 | 25,857 | 3,616 | Dec-99 | 1987 | 40 | Herndon, VA | 18,041 | 5,127 | 20,730 | 25,857 | 4,135 | Dec-99 | 1987 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Bristol, PA | 5,611 | 1,073 | 7,709 | 8,782 | 1,357 | Dec-99 | 1998 | 40 | Bristol, PA | 5,442 | 1,073 | 7,709 | 8,782 | 1,550 | Dec-99 | 1998 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Southborough, MA | 1,759 | 456 | 4,291 | 4,747 | 755 | Dec-99 | 1984 | 40 | Hampton, VA | 6,984 | 2,333 | 9,352 | 11,685 | 1,431 | Mar-00 | 1999 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Hampton, VA | 7,072 | 2,333 | 9,352 | 11,685 | 1,198 | Mar-00 | 1999 | 40 | Phoenix, AZ | 18,807 | 4,666 | 19,966 | 24,632 | 3,689 | May-00 | 1997 | 6 & 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Phoenix, AZ | 19,143 | 4,666 | 18,695 | 23,361 | 3,091 | May-00 | 1997 | 6 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Danville, IL | 6,292 | 1,796 | 7,182 | 8,978 | 1,087 | Dec-00 | 2000 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Chester, SC | 13,443 | 558 | 21,665 | 22,223 | 5,375 | Jan-01 | 2001/2005 | 25 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Bremerton, WA | 6,564 | 2,144 | 8,633 | 10,777 | 689 | Oct-01 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Phoenix, AZ | — | 2,287 | 18,727 | 21,014 | 1,422 | Nov-01 | 1995/1994 | 5, 10 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Plymouth, MI | 4,502 | 1,533 | 6,130 | 7,663 | 785 | Nov-01 | 1996 | 40 | Danville, IL | 6,161 | 1,796 | 7,182 | 8,978 | 1,266 | Dec-00 | 2000 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Retail | Westland, MI | 1,625 | 1,444 | 5,777 | 7,221 | 740 | Nov-01 | 1987/1997 | 40 | Eau Claire, WI | 1,583 | 860 | 3,441 | 4,301 | 527 | Nov-01 | 1994 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Hampton, VA | 4,337 | 1,353 | 5,441 | 6,794 | 924 | Nov-01 | 2000 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retail | Canton, OH | 3,085 | 883 | 3,534 | 4,417 | 453 | Nov-01 | 1995 | 40 | Canton, OH | 2,993 | 884 | 3,534 | 4,418 | 541 | Nov-01 | 1995 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Retail | Eau Claire, WI | 1,762 | 860 | 3,441 | 4,301 | 441 | Nov-01 | 1994 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retail | Spartanburg, SC | 2,563 | 833 | 3,334 | 4,167 | 427 | Nov-01 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Tucson, AZ | 2,307 | 657 | 2,842 | 3,499 | 386 | Nov-01 | 1988 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Columbus, OH | — | 319 | 1,275 | 1,594 | 163 | Nov-01 | 1990 | 40 | Plymouth, MI | 4,442 | 1,533 | 6,130 | 7,663 | 939 | Nov-01 | 1996 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Retail | Stockton, CA | — | 259 | 1,037 | 1,296 | 133 | Nov-01 | 1968 | 40 | Spartanburg, SC | 2,486 | 834 | 3,334 | 4,168 | 510 | Nov-01 | 1996 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Henderson, NC | 4,119 | 1,488 | 5,953 | 7,441 | 763 | Nov-01 | 1998 | 40 | Henderson, NC | 4,007 | 1,488 | 5,953 | 7,441 | 912 | Nov-01 | 1998 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Dillon, SC | 23,378 | 3,223 | 26,054 | 29,277 | 2,419 | Dec-01 | 2001/2005 | 22 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Hebron, OH | — | 1,681 | 6,779 | 8,460 | 865 | Dec-01 | 1999 | 5 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Lake Forest, CA | 10,486 | 3,442 | 13,769 | 17,211 | 1,649 | Mar-02 | 2001 | 40 | Hampton, VA | 4,283 | 1,353 | 5,441 | 6,794 | 1,060 | Nov-01 | 2000 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Knoxville, TN | 5,093 | 1,624 | 6,497 | 8,121 | 711 | Aug-02 | 2002 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Valley Forge, PA | 12,298 | 3,960 | 16,069 | 20,029 | 1,738 | Sep-02 | 1985/2001 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Groveport, OH | 7,552 | 2,384 | 9,546 | 11,930 | 1,024 | Sep-02 | 2002 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Westmont, IL | 15,224 | 4,978 | 20,559 | 25,537 | 2,086 | Dec-02 | 1989 | 10, 38, & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Fort Mill, SC | 11,086 | 3,601 | 14,404 | 18,005 | 1,455 | Dec-02 | 2002 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Boca Raton, FL | 20,400 | 4,290 | 17,161 | 21,451 | 1,662 | Feb-03 | 1983/2002 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Greenville, SC | 13,184 | 4,059 | 16,236 | 20,295 | 1,404 | Jul-03 | 2000/2001 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Dubuque, IA | 10,745 | 2,052 | 8,443 | 10,495 | 731 | Jul-03 | 2002 | 12 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Minneapolis, MN | — | 922 | 3,652 | 4,574 | 316 | Jul-03 | 2003 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Temple, TX | 8,881 | 2,890 | 11,561 | 14,451 | 927 | Oct-03 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Waxahachie, TX | — | 652 | 13,045 | 13,697 | 2,790 | Dec-03 | 1996/1997 | 10, 16 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Wallingford, CT | 3,421 | 1,049 | 4,198 | 5,247 | 319 | Dec-03 | 1978/1985 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Wall Township, NJ | 29,596 | 8,985 | 26,961 | 35,946 | 3,109 | Jan-04 | 1983 | 22 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Redmond, OR | 9,751 | 1,925 | 13,731 | 15,656 | 1,630 | Feb-04 | 2004 | 20 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Moody, AL | 7,365 | 655 | 9,981 | 10,636 | 1,507 | Feb-04 | 2004 | 10, 15 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Houston, TX | 64,380 | 16,613 | 52,682 | 69,295 | 3,622 | Mar-04 | 1976/1984 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Houston, TX | 25,987 | 13,894 | 14,488 | 28,382 | 996 | Mar-04 | 1992 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Sugar Land, TX | 16,869 | 1,834 | 16,536 | 18,370 | 1,137 | Mar-04 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Houston, TX | 7,382 | 644 | 7,424 | 8,068 | 510 | Mar-04 | 1981/1999 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Florence, SC | 8,879 | 3,235 | 12,941 | 16,176 | 1,596 | May-04 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Carrollton, TX | 14,138 | 2,487 | 18,157 | 20,644 | 1,597 | Jun-04 | 2003 | 19 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retail | Westland, MI | 1,087 | 1,444 | 5,777 | 7,221 | 884 | Nov-01 | 1987/1997 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Clive, IA | 5,868 | 2,762 | 7,453 | 10,215 | 1,139 | Jun-04 | 2003 | 12, 13 & 40 | Phoenix, AZ | *** | 2,287 | 20,584 | 22,871 | 2,009 | Nov-01 | 1995/1994 | 20 & 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Industrial | San Antonio, TX | 29,183 | 2,482 | 38,535 | 41,017 | 4,561 | Jul-04 | 2001 | 17 & 40 | Hebron, OH | *** | 1,681 | 6,779 | 8,460 | 1,038 | Dec-01 | 1999 | 5 & 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Industrial | High Point, NC | 8,372 | 1,330 | 11,183 | 12,513 | 1,221 | Jul-04 | 2002 | 18 & 40 | Dillon, SC | 22,950 | 3,223 | 26,054 | 29,277 | 3,254 | Dec-01 | 2001/2005 | 22 & 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Southfield, MI | — | — | 12,124 | 12,124 | 1,931 | Jul-04 | 1963/1965 | 7, 16 & 40 | Lake Forest, CA | 10,352 | 3,442 | 13,769 | 17,211 | 1,994 | Mar-02 | 2001 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Chelmsford, MA | 6,946 | 1,063 | 10,565 | 11,628 | 1,416 | Aug-04 | 1985 | 14 & 40 | Fort Mill, SC | 10,903 | 3,601 | 14,404 | 18,005 | 1,815 | Dec-02 | 2002 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | Fort Mill, SC | 20,300 | 1,798 | 25,192 | 26,990 | 3,165 | Nov-04 | 2004 | 15 & 40 | Boca Raton, FL | 20,400 | 4,290 | 17,160 | 21,450 | 2,091 | Feb-03 | 1983/2002 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Office/R&D | Foxboro, MA | 16,002 | 1,586 | 18,245 | 19,831 | 1,994 | Nov-04 | 1965/1988 | 15 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Foxboro, MA | 20,452 | 2,231 | 25,653 | 27,884 | 2,653 | Dec-04 | 1982 | 16 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | Los Angeles, CA | 11,398 | 5,110 | 10,859 | 15,969 | 1,310 | Dec-04 | 2000 | 13 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Olive Branch, MS | — | 198 | 10,276 | 10,474 | 1,434 | Dec-04 | 1989 | 8, 15 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | Knoxville, TN | 7,734 | 533 | 10,762 | 11,295 | 1,025 | Mar-05 | 2001 | 14 & 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
89
| Accumulated | ||||||||||||||||||||||||||||||||
| Land and | Buildings | Depreciation | Useful life computing | |||||||||||||||||||||||||||||
| Land | and | and | Date | Date | depreciation in latest | |||||||||||||||||||||||||||
| Description | Location | Encumbrances | Estates | Improvements | Total | Amortization | Acquired | Constructed | income statements (years) | |||||||||||||||||||||||
| Office | Atlanta, GA | 44,851 | 4,600 | 55,340 | 59,940 | 5,491 | Apr-05 | 2003 | 13 & 40 | |||||||||||||||||||||||
| Office | Allen, TX | 30,582 | 7,600 | 35,343 | 42,943 | 4,263 | Apr-05 | 1981/1983 | 11 & 40 | |||||||||||||||||||||||
| Office | Farmington Hills, MI | — | 3,400 | 16,040 | 19,440 | 1,472 | Apr-05 | 1999 | 22 & 40 | |||||||||||||||||||||||
| Office | Houston, TX | 17,507 | 3,750 | 21,149 | 24,899 | 2,151 | Apr-05 | 2000 | 13 & 40 | |||||||||||||||||||||||
| Office | Houston, TX | 16,828 | 800 | 22,538 | 23,338 | 2,619 | Apr-05 | 2000 | 11 & 40 | |||||||||||||||||||||||
| Industrial | Millington, TN | 17,674 | 723 | 19,119 | 19,842 | 1,564 | Apr-05 | 1997 | 16 & 40 | |||||||||||||||||||||||
| Industrial | Kalamazoo, MI | 17,479 | 960 | 17,714 | 18,674 | 1,178 | Apr-05 | 1999 | 22 & 40 | |||||||||||||||||||||||
| Office | Indianapolis, IN | 13,067 | 1,700 | 16,448 | 18,148 | 2,158 | Apr-05 | 1999 | 10 & 40 | |||||||||||||||||||||||
| Office | San Antonio, TX | 12,961 | 2,800 | 14,587 | 17,387 | 1,741 | Apr-05 | 2000 | 11 & 40 | |||||||||||||||||||||||
| Office | Houston, TX | 13,140 | 1,500 | 14,581 | 16,081 | 1,354 | Apr-05 | 2003 | 14 & 40 | |||||||||||||||||||||||
| Office | Tempe, AZ | 13,528 | — | 14,564 | 14,564 | 1,441 | Apr-05 | 1998 | 13 & 40 | |||||||||||||||||||||||
| Office | Suwannee, GA | 11,325 | 3,200 | 10,903 | 14,103 | 1,189 | Apr-05 | 2001 | 12 & 40 | |||||||||||||||||||||||
| Office | Indianapolis, IN | 9,554 | 1,359 | 13,038 | 14,397 | 1,361 | Apr-05 | 2002 | 12 & 40 | |||||||||||||||||||||||
| Office | Richmond, VA | 10,518 | 1,100 | 11,919 | 13,019 | 1,088 | Apr-05 | 2000 | 15 & 40 | |||||||||||||||||||||||
| Office | Fort Meyers, FL | 8,912 | 1,820 | 10,198 | 12,018 | 1,037 | Apr-05 | 1997 | 13 & 40 | |||||||||||||||||||||||
| Office | Harrisburg, PA | 9,099 | 900 | 10,526 | 11,426 | 1,518 | Apr-05 | 1998 | 9 & 40 | |||||||||||||||||||||||
| Office | Lakewood, CO | 8,617 | 1,400 | 8,653 | 10,053 | 932 | Apr-05 | 2002 | 12 & 40 | |||||||||||||||||||||||
| Office | Jacksonville, FL | 5,759 | 1,334 | 8,561 | 9,895 | 976 | Apr-05 | 2001 | 11 & 40 | |||||||||||||||||||||||
| Office | Tulsa, OK | 7,619 | 1,638 | 8,493 | 10,131 | 1,090 | Apr-05 | 2000 | 9 & 40 | |||||||||||||||||||||||
| Office | Philadelphia, PA | 49,000 | 13,209 | 50,589 | 63,798 | 4,412 | Jun-05 | 1957 | 14,15& 40 | |||||||||||||||||||||||
| Industrial | Elizabethtown, KY | 16,303 | 890 | 26,868 | 27,758 | 1,401 | Jun-05 | 1995/2001 | 25&40 | |||||||||||||||||||||||
| Industrial | Hopkinsville, KY | 9,550 | 631 | 16,154 | 16,785 | 745 | Jun-05 | Various | 25&40 | |||||||||||||||||||||||
| Industrial | Dry Ridge, KY | 7,723 | 560 | 12,553 | 13,113 | 654 | Jun-05 | 1988 | 25&40 | |||||||||||||||||||||||
| Industrial | Owensboro, KY | 6,879 | 393 | 11,956 | 12,349 | 514 | Jun-05 | 1998/2000 | 25&40 | |||||||||||||||||||||||
| Industrial | Elizabethtown, KY | 3,096 | 352 | 4,862 | 5,214 | 253 | Jun-05 | 2001 | 25&40 | |||||||||||||||||||||||
| Industrial | Livonia, GA | 9,898 | 214 | 12,410 | 12,624 | 709 | Aug-05 | 2005 | 20 & 40 | |||||||||||||||||||||||
| Office | Southington, CT | 13,656 | 3,240 | 25,340 | 28,580 | 11,241 | Nov-05 | 1983 | 12,28& 40 | |||||||||||||||||||||||
| Office | Sugarland, TX | 9,880 | 2,725 | 10,027 | 12,752 | 465 | Nov-05 | 2004 | 20&40 | |||||||||||||||||||||||
| Office | Omaha, NE | 8,919 | 1,630 | 8,324 | 9,954 | 285 | Nov-05 | 1995 | 30 & 40 | |||||||||||||||||||||||
| Office | Tempe, AZ | 8,423 | — | 9,442 | 9,442 | 299 | Dec-05 | 1998 | 15 & 40 | |||||||||||||||||||||||
| Industrial | Collierville, TN | — | 714 | 2,293 | 3,007 | 104 | Dec-05 | 2005 | 20&40 | |||||||||||||||||||||||
| Office | Renswoude, Netherlands | 35,880 | 2,612 | 23,686 | 26,298 | 1,048 | Jan-06 | 1994/2003 | 17 & 40 | |||||||||||||||||||||||
| Industrial | Crossville, TN | — | 198 | 7,009 | 7,207 | 342 | Jan-06 | 1989/2006 | 12 & 40 | |||||||||||||||||||||||
| Retail | Oklahoma City, OK | — | 4,130 | 1,178 | 5,308 | 49 | May-06 | 1991 | 23 & 40 | |||||||||||||||||||||||
| Office | Woodlands, TX | 7,500 | 971 | 7,868 | 8,839 | 179 | May-06 | 2004 | 14 & 40 | |||||||||||||||||||||||
| Industrial | Plymouth, IN | 6,652 | 478 | 7,507 | 7,985 | 224 | Jun-06 | 2000/2003 | 30 & 40 | |||||||||||||||||||||||
| Retail | Tomball, TX | 9,408 | 3,743 | 8,751 | 12,494 | 100 | Aug-06 | 2004 | 2 & 40 | |||||||||||||||||||||||
| Office | Pascagoula, MS | — | 2,329 | 3,286 | 5,615 | 223 | Oct-06 | 1993 | 20 & 40 | |||||||||||||||||||||||
| Office | Memphis, TN | 3,951 | 237 | 4.460 | 4,697 | 23 | Nov-06 | 1888 | 20 & 40 | |||||||||||||||||||||||
| Office | Hanover, NJ | 16,880 | 2,969 | 19,711 | 22,680 | 101 | Nov-06 | 2006 | 20 & 40 | |||||||||||||||||||||||
| Office | Charleston, SC | — | 1,189 | 8,721 | 9,910 | 47 | Nov-06 | 2006 | 40 | |||||||||||||||||||||||
| Office | Hilliard, OH | 28,960 | 3,214 | 28,975 | 32,189 | 56 | Dec-06 | 2006 | 40 | |||||||||||||||||||||||
| Retail, Office, Garage | Honolulu, HI | — | 21,094 | 12,333 | 33,427 | — | Dec-06 | 1917/1955/1960/1980 | 40 | |||||||||||||||||||||||
| Office | Lisle, IL | 10,450 | 2,882 | 14,072 | 16,954 | — | Dec-06 | 1985 | 40 | |||||||||||||||||||||||
| Office | Dallas, TX | — | 4,042 | 15,555 | 19,597 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Office | Beaumont, TX | — | 456 | 3,454 | 3,910 | — | Dec-06 | 1978 | 40 | |||||||||||||||||||||||
| Office | Memphis, TN | — | 1,353 | 8,124 | 9,477 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Office | Elizabeth, NJ | — | 1,324 | 6,484 | 7,808 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Office | Plainsboro, NJ | — | 799 | 912 | 1,711 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Office | Pine Bluff, AR | — | 521 | 2,347 | 2,868 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Office | Bridgewater, NJ | 14,805 | 4,738 | 27,331 | 32,069 | — | Dec-06 | 1986 | 40 | |||||||||||||||||||||||
| Office | Long Beach, CA | 35,300 | 19,672 | 67,449 | 87,121 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Office | Allentown, PA | — | 1,972 | 7,241 | 9,213 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Office | Clinton, CT | 1,157 | 285 | 4,025 | 4,310 | — | Dec-06 | 1971 | 40 | |||||||||||||||||||||||
| Office | Miamisburg, OH | — | 2,249 | 3,935 | 6,184 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Office | Garland, TX | — | 2,606 | 15,547 | 18,153 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Office | Kingport, TN | — | 351 | 1,637 | 1,988 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Office | Colorado Springs, CO | — | 1,018 | 2,459 | 3,477 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Office | Bridgeton, MO | — | 1,016 | 4,469 | 5,485 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Office | Glenwillow, OH | 17,000 | 2,308 | 37,997 | 40,305 | — | Dec-06 | 1996 | 40 | |||||||||||||||||||||||
| Office | Columbus, IN | — | 244 | 22,613 | 22,857 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Office | Johnson City, TN | — | 1,214 | 7,568 | 8,782 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Office | Memphis, TN | — | 5,210 | 95,548 | 100,758 | — | Dec-06 | 1985 | 40 | |||||||||||||||||||||||
| Office | Orlando, FL | — | 587 | 34,973 | 35,560 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Office | Little Rock, AR | — | 1,353 | 2,260 | 3,613 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Office | Baltimore, MD | — | 15,264 | 71,867 | 87,131 | — | Dec-06 | 1973 | 40 | |||||||||||||||||||||||
| Office | Miamisburg, OH | — | 951 | 9,674 | 10,625 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Office | Carondelet, LA | 6,712 | 133 | 8,365 | 8,498 | — | Dec-06 | 1921 | 40 | |||||||||||||||||||||||
| Office | Tulane, LA | 5,336 | 84 | 8,721 | 8,805 | — | Dec-06 | 1950 | 40 | |||||||||||||||||||||||
| Office | Rockaway, NJ | 14,900 | 4,646 | 20,428 | 25,074 | — | Dec-06 | 2002 | 40 | |||||||||||||||||||||||
| Office | El Segundo, CA | 13,282 | 3,012 | 45,022 | 48,034 | — | Dec-06 | 1975 | 40 | |||||||||||||||||||||||
| Office | El Segundo, CA | 16,233 | 3,030 | 32,808 | 35,838 | — | Dec-06 | 1979 | 40 | |||||||||||||||||||||||
| Office | Orlando, FL | — | 11,498 | 33,671 | 45,169 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Office | Beaumont, TX | — | — | 22,988 | 22,988 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Office | Carteret, NJ | — | 3,834 | 24,572 | 28,406 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Office | Bedford, TX | — | 1,983 | 4,037 | 6,020 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Office | Rochester, NY | 18,800 | 674 | 32,783 | 33,457 | — | Dec-06 | 1988 | 40 | |||||||||||||||||||||||
| Office | Las Vegas, NV | — | 8,819 | 53,134 | 61,953 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Office | Walnut Creek, CA | — | 2,775 | 14,130 | 16,905 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Retail | Rock Falls, IL | — | 135 | 702 | 837 | — | Dec-06 | 1991 | 40 | |||||||||||||||||||||||
| Retail | Florence, AL | — | 796 | 3,747 | 4,543 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Retail | Chattanooga, TN | — | 550 | 1,241 | 1,791 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Paris, TN | — | 247 | 547 | 794 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Lake Forest, CA | — | 1,296 | 1,568 | 2,864 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Retail | Morgan Hill, CA | — | 687 | 2,026 | 2,713 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Retail | Redlands, CA | — | 659 | 1,802 | 2,461 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Union City, CA | — | 1,849 | 1,897 | 3,746 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Retail | Yorba Linda, CA | — | 751 | 2,200 | 2,951 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Chamblee, GA | — | 770 | 186 | 956 | — | Dec-06 | 1972 | 40 | |||||||||||||||||||||||
| Retail | Atlanta, GA | — | 1,014 | 269 | 1,283 | — | Dec-06 | 1972 | 40 | |||||||||||||||||||||||
| Retail | Atlanta, GA | — | 870 | 187 | 1,057 | — | Dec-06 | 1975 | 40 | |||||||||||||||||||||||
| Retail | Cumming, GA | — | 1,558 | 1,368 | 2,926 | — | Dec-06 | 1968 | 40 | |||||||||||||||||||||||
| Retail | Duluth, GA | — | 660 | 1,014 | 1,674 | — | Dec-06 | 1971 | 40 | |||||||||||||||||||||||
| Retail | Forest Park, GA | — | 668 | 1,242 | 1,910 | — | Dec-06 | 1969 | 40 | |||||||||||||||||||||||
| Retail | Jonesboro, GA | — | 778 | 146 | 924 | — | Dec-06 | 1971 | 40 | |||||||||||||||||||||||
| Retail | Stone Mountain, GA | — | 672 | 276 | 948 | — | Dec-06 | 1973 | 40 | |||||||||||||||||||||||
90
| Accumulated | ||||||||||||||||||||||||||||||||
| Land and | Buildings | Depreciation | Useful life computing | |||||||||||||||||||||||||||||
| Land | and | and | Date | Date | depreciation in latest | |||||||||||||||||||||||||||
| Description | Location | Encumbrances | Estates | Improvements | Total | Amortization | Acquired | Constructed | income statements (years) | |||||||||||||||||||||||
| Retail | Carrollton, TX | — | 1,545 | 3,460 | 5,005 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Retail | Corona, CA | — | 743 | 1,342 | 2,085 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Indio, CA | — | 331 | 1,954 | 2,285 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Charlotte, NC | — | 606 | 2,561 | 3,167 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Concord, NC | — | 685 | 1,862 | 2,547 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Retail | Thomasville, NC | — | 610 | 1,854 | 2,464 | — | Dec-06 | 1998 | 40 | |||||||||||||||||||||||
| Retail | Carmel, IN | — | 921 | 4,727 | 5,648 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Retail | Lawrence, IN | — | 404 | 1,737 | 2,141 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Retail | Franklin, OH | — | 1,089 | 1,699 | 2,788 | — | Dec-06 | 1961 | 40 | |||||||||||||||||||||||
| Retail | Dallas, TX | — | 807 | 5,381 | 6,188 | — | Dec-06 | 1960 | 40 | |||||||||||||||||||||||
| Retail | Houston, TX | — | 990 | 4,649 | 5,639 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Port Richey, FL | — | 1,376 | 1,664 | 3,040 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Mammoth Lake, CA | — | 6,279 | 2,761 | 9,040 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Aurora, CO | — | 1,224 | 1,431 | 2,655 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Retail | Billings, MT | — | 511 | 3,058 | 3,569 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Retail | Fort Worth, TX | — | 1,003 | 3,304 | 4,307 | — | Dec-06 | 1985 | 40 | |||||||||||||||||||||||
| Retail | Mesa, AZ | — | 189 | 312 | 501 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Retail | Atascadero, CA | — | 1,523 | 571 | 2,094 | — | Dec-06 | 1998 | 40 | |||||||||||||||||||||||
| Retail | Beaumont, CA | — | 272 | 553 | 825 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Paso Robles, CA | — | 1,099 | 958 | 2,057 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Farmington, NM | — | 90 | 155 | 245 | — | Dec-06 | 1985 | 40 | |||||||||||||||||||||||
| Retail | Las Vegas, NV | — | 334 | 250 | 584 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Retail | El Paso, TX | — | 82 | 56 | 138 | — | Dec-06 | 1939 | 40 | |||||||||||||||||||||||
| Retail | El Paso, TX | — | 121 | 126 | 247 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Lubbock, TX | — | 167 | 80 | 247 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Cheyenne, WY | — | 956 | 1,974 | 2,930 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Retail | Greenville, TX | — | 562 | 2,743 | 3,305 | — | Dec-06 | 1985 | 40 | |||||||||||||||||||||||
| Retail | Bisbee, AZ | — | 478 | 2,426 | 2,904 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Retail | Tucson, AZ | — | 1,459 | 3,596 | 5,055 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Retail | Lawton, OK | — | 663 | 1,288 | 1,951 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Retail | Grants Pass, OR | — | 1,894 | 1,470 | 3,364 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Retail | Grand Prairie, TX | — | 1,132 | 4,754 | 5,886 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Retail | Graham, WA | — | 2,195 | 4,478 | 6,673 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Retail | Milton, WA | — | 1,941 | 5,310 | 7,251 | — | Dec-06 | 1989 | 40 | |||||||||||||||||||||||
| Retail | Redmond, WA | — | 4,653 | 5,355 | 10,008 | — | Dec-06 | 1985 | 40 | |||||||||||||||||||||||
| Retail | Spokane, WA | — | 449 | 3,070 | 3,519 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Retail | Aurora, CO | — | 1,017 | 673 | 1,690 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Santa Monica, CA | — | 16,172 | 29,756 | 45,928 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Baltimore, MD | 1,146 | 4,326 | 3,684 | 8,010 | — | Dec-06 | 1978 | 40 | |||||||||||||||||||||||
| Retail | Pleasanton, CA | — | 11,258 | 29,359 | 40,617 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Retail | Sandy, UT | — | 1,505 | 3,375 | 4,880 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Retail | Jacksonville, NC | — | 1,151 | 1,392 | 2,543 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Jefferson, NC | — | 71 | 884 | 955 | — | Dec-06 | 1979 | 40 | |||||||||||||||||||||||
| Retail | Lexington, NC | — | 832 | 1,429 | 2,261 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Retail | Moncks Corner, SC | — | 13 | 1,510 | 1,523 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Staunton, VA | — | 1,028 | 1,297 | 2,325 | — | Dec-06 | 1971 | 40 | |||||||||||||||||||||||
| Retail | San Diego, CA | — | 32,372 | 16,202 | 48,574 | — | Dec-06 | 1969 | 40 | |||||||||||||||||||||||
| Retail | Doylestown, PA | — | 980 | 855 | 1,835 | — | Dec-06 | 1976 | 40 | |||||||||||||||||||||||
| Retail | Lansdale, PA | — | 488 | 333 | 821 | — | Dec-06 | 1966 | 40 | |||||||||||||||||||||||
| Retail | Lima, PA | — | 1,011 | 961 | 1,972 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Retail | Philadelphia, PA | — | 75 | 1,129 | 1,204 | — | Dec-06 | 1921 | 40 | |||||||||||||||||||||||
| Retail | Philadelphia, PA | — | 99 | 1,375 | 1,474 | — | Dec-06 | 1920 | 40 | |||||||||||||||||||||||
| Retail | Philadelphia, PA | — | 510 | 810 | 1,320 | — | Dec-06 | 1970 | 40 | |||||||||||||||||||||||
| Retail | Philadelphia, PA | — | 217 | 1,406 | 1,623 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Philadelphia, PA | — | 134 | 1,874 | 2,008 | — | Dec-06 | 1960 | 40 | |||||||||||||||||||||||
| Retail | Philadelphia, PA | — | 92 | 811 | 903 | — | Dec-06 | 1922 | 40 | |||||||||||||||||||||||
| Retail | Philadelphia, PA | — | 86 | 565 | 651 | — | Dec-06 | 1975 | 40 | |||||||||||||||||||||||
| Retail | Philadelphia, PA | — | 75 | 1,083 | 1,158 | — | Dec-06 | 1920 | 40 | |||||||||||||||||||||||
| Retail | Richboro, PA | — | 686 | 897 | 1,583 | — | Dec-06 | 1976 | 40 | |||||||||||||||||||||||
| Retail | Wayne, PA | — | 1,877 | 981 | 2,858 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Retail | Montgomery, AL | — | 783 | 2,617 | 3,400 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Port Orchard, WA | — | 2,167 | 1,293 | 3,460 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Retail | Minden, LA | — | 334 | 4,888 | 5,222 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Albuquerque, NM | — | 2,900 | 3,080 | 5,980 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Garland, TX | — | 763 | 3,448 | 4,211 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Retail | Granbury, TX | — | 1,131 | 3,986 | 5,117 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Hillsboro, TX | — | 139 | 1,581 | 1,720 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Garwood, TX | — | 3,920 | 9,868 | 13,788 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Philadelphia, PA | — | 2,548 | 12,487 | 15,035 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Portchester, NY | — | 7,086 | 9,313 | 16,399 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Tustin, CA | — | 9,324 | 6,803 | 16,127 | — | Dec-06 | 1977 | 40 | |||||||||||||||||||||||
| Retail | Ventura, CA | — | 596 | 11,058 | 11,654 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Retail | Tallahassee, FL | — | — | 3,700 | 3,700 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| Retail | Lubbock, TX | — | 417 | 1,783 | 2,200 | — | Dec-06 | 1978 | 40 | |||||||||||||||||||||||
| Retail | Edmonds, WA | — | — | 2,600 | 2,600 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Retail | Evanston, WY | — | 173 | 1,630 | 1,803 | — | Dec-06 | 1975 | 40 | |||||||||||||||||||||||
| Retail | Evanston, WY | — | 190 | 887 | 1,077 | — | Dec-06 | 1975 | 40 | |||||||||||||||||||||||
| Industrial | Memphis, TN | — | 1,200 | 14,547 | 15,747 | — | Dec-06 | 1973 | 40 | |||||||||||||||||||||||
| Industrial | Long Beach, CA | — | 6,230 | 7,802 | 14,032 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Industrial | N. Myrtle Beach, SC | — | 1,481 | 2,078 | 3,559 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Industrial | Cincinnati, OH | — | 1,191 | 10,848 | 12,039 | — | Dec-06 | 1991 | 40 | |||||||||||||||||||||||
| Industrial | Owensboro, KY | 7,487 | 819 | 2,439 | 3,258 | — | Dec-06 | 1975 | 40 | |||||||||||||||||||||||
| Industrial | Lewisville, TX | — | 3,798 | 31,544 | 35,342 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Industrial | Lumberton, NC | — | 423 | 16,967 | 17,390 | — | Dec-06 | 1998 | 40 | |||||||||||||||||||||||
| Industrial | McDonough, GA | — | 2,530 | 16,430 | 18,960 | — | Dec-06 | 2000 | 40 | |||||||||||||||||||||||
| Industrial | Columbus, OH | — | 1,972 | 10,476 | 12,448 | — | Dec-06 | 1973 | 40 | |||||||||||||||||||||||
| Industrial | Saugerties, NY | — | 508 | 2,837 | 3,345 | — | Dec-06 | 1979 | 40 | |||||||||||||||||||||||
| Industrial | Palo Alto, CA | — | 12,435 | 17,028 | 29,463 | — | Dec-06 | 1974 | 40 | |||||||||||||||||||||||
| Industrial | North Berwick, ME | — | 1,468 | 27,971 | 29,439 | — | Dec-06 | 1965 | 40 | |||||||||||||||||||||||
| Industrial | Franklin, TN | — | 964 | 7,047 | 8,011 | — | Dec-06 | 1970 | 40 | |||||||||||||||||||||||
| Industrial | Orlando, FL | — | 1,030 | 10,869 | 11,899 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Industrial | Windsor, WI | — | 1,284 | 12,905 | 14,189 | — | Dec-06 | 1997 | 40 | |||||||||||||||||||||||
| Retail | Rockford, Central, IL | 2,622 | 393 | 4,018 | 4,411 | — | Dec-06 | 1998 | 40 | |||||||||||||||||||||||
| Retail | Rockford, Rock, IL | 4,278 | — | 7,399 | 7,399 | — | Dec-06 | 1991 | 40 | |||||||||||||||||||||||
| Retail | Sun City, AZ | — | 2,154 | 2,775 | 4,929 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Ft. Collins, CO | — | 886 | 2,427 | 3,313 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | Carlsbad, NM | — | 918 | 775 | 1,693 | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
91
| Accumulated | ||||||||||||||||||||||||||||||||
| Land and | Buildings | Depreciation | Useful life computing | |||||||||||||||||||||||||||||
| Land | and | and | Date | Date | depreciation in latest | |||||||||||||||||||||||||||
| Description | Location | Encumbrances | Estates | Improvements | Total | Amortization | Acquired | Constructed | income statements (years) | |||||||||||||||||||||||
| Retail | Corpus Christi, TX | — | 987 | 974 | 1,961 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Retail | El Paso, TX | — | 220 | 1,749 | 1,969 | — | Dec-06 | 1982 | 40 | |||||||||||||||||||||||
| Retail | McAllen, TX | — | 606 | 1,257 | 1,863 | — | Dec-06 | 2004 | 40 | |||||||||||||||||||||||
| Retail | Victoria, TX | — | 300 | 1,149 | 1,449 | — | Dec-06 | 1981 | 40 | |||||||||||||||||||||||
| Retail | El Segundo, CA | 55,000 | 3,074 | 21,608 | 24,682 | — | Dec-06 | 1979 | 40 | |||||||||||||||||||||||
| Retail | Statesville, NC | 14,100 | 910 | 20,467 | 21,377 | — | Dec-06 | 1999 | 40 | |||||||||||||||||||||||
| Retail | Irvine, CA | 9,094 | 4,856 | 36,954 | 41,810 | — | Dec-06 | 1983 | 40 | |||||||||||||||||||||||
| Retail | Baltimore, MD | — | 4,500 | — | 4,500 | — | Dec-06 | 40 | ||||||||||||||||||||||||
| Office | San Francisco, CA | 23,314 | 193 | 25,919 | 26,112 | — | Dec-06 | 1959 | 40 | |||||||||||||||||||||||
| Office | Pleasanton, CA | 4,652 | 1,931 | 2,737 | 4,668 | — | Dec-06 | 1984 | 40 | |||||||||||||||||||||||
| Retail | Cincinnati, OH | — | — | — | — | — | Dec-06 | 1980 | 40 | |||||||||||||||||||||||
| $ | 1,510,781 | 625,717 | 3,121,439 | $ | 3,747,156 | $ | 276,129 | |||||||||||||||||||||||||
92
102
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
| Accumulated | ||||||||||||||||||||||||||||||
| Buildings | Depreciation | Useful life computing | ||||||||||||||||||||||||||||
| Land, Improvements | and | and | Date | Date | depreciation in latest | |||||||||||||||||||||||||
Description | Location | Encumbrances | and Land Estates | Improvements | Total | Amortization | Acquired | Constructed | income statements (years) | |||||||||||||||||||||
| Industrial | Dubuque, IA | 10,597 | 2,052 | 8,443 | 10,495 | 955 | Jul-03 | 2002 | 12 & 40 | |||||||||||||||||||||
| Office | Wallingford, CT | 3,371 | 1,049 | 4,198 | 5,247 | 424 | Dec-03 | 1978/1985 | 40 | |||||||||||||||||||||
| Industrial | Waxahachie, TX | 0 | 652 | 13,045 | 13,697 | 3,709 | Dec-03 | 1996/1997 | 10, 16 & 40 | |||||||||||||||||||||
| Office | Wall Township, NJ | 29,430 | 8,985 | 26,961 | 35,946 | 4,160 | Jan-04 | 1983 | 22 & 40 | |||||||||||||||||||||
| Industrial | Moody, AL | 7,241 | 654 | 9,943 | 10,597 | 2,024 | Feb-04 | 2004 | 10, 15 & 40 | |||||||||||||||||||||
| Industrial | Houston, TX | 24,498 | 13,894 | 14,488 | 28,382 | 1,358 | Mar-04 | 1992 | 40 | |||||||||||||||||||||
| Office | Sugar Land, TX | 15,670 | 1,834 | 16,536 | 18,370 | 1,550 | Mar-04 | 1997 | 40 | |||||||||||||||||||||
| Office | Houston, TX | 6,948 | 644 | 7,424 | 8,068 | 696 | Mar-04 | 1981/1999 | 40 | |||||||||||||||||||||
| Office | Florence, SC | 8,678 | 3,235 | 12,941 | 16,176 | 1,920 | May-04 | 1998 | 40 | |||||||||||||||||||||
| Office | Clive, IA | 5,784 | 2,761 | 7,453 | 10,214 | 1,590 | Jun-04 | 2003 | 12, 13 & 40 | |||||||||||||||||||||
| Office | Carrollton, TX | 13,921 | 2,487 | 18,157 | 20,644 | 2,379 | Jun-04 | 2003 | 19 & 40 | |||||||||||||||||||||
| Industrial | High Point, NC | 8,146 | 1,330 | 11,183 | 12,513 | 1,718 | Jul-04 | 2002 | 18 & 40 | |||||||||||||||||||||
| Office | Southfield, MI | *** | 0 | 12,124 | 12,124 | 2,707 | Jul-04 | 1963/1965 | 7, 16 & 40 | |||||||||||||||||||||
| Industrial | San Antonio, TX | 28,671 | 2,482 | 38,535 | 41,017 | 6,416 | Jul-04 | 2001 | 17 & 40 | |||||||||||||||||||||
| Office | Fort Mill, SC | 20,238 | 1,798 | 25,192 | 26,990 | 4,497 | Nov-04 | 2004 | 15 & 40 | |||||||||||||||||||||
| Office/R&D | Foxboro, MA | 14,091 | 1,586 | 18,245 | 19,831 | 2,971 | Nov-04 | 1965/1988 | 15 & 40 | |||||||||||||||||||||
103
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
| Accumulated | ||||||||||||||||||||||||||||||
| Buildings | Depreciation | Useful life computing | ||||||||||||||||||||||||||||
| Land, Improvements | and | and | Date | Date | depreciation in latest | |||||||||||||||||||||||||
Description | Location | Encumbrances | and Land Estates | Improvements | Total | Amortization | Acquired | Constructed | income statements (years) | |||||||||||||||||||||
| Office | Foxboro, MA | 18,351 | 2,231 | 25,653 | 27,884 | 3,952 | Dec-04 | 1982 | 16 & 40 | |||||||||||||||||||||
| Industrial | Olive Branch, MS | 0 | 198 | 10,276 | 10,474 | 2,234 | Dec-04 | 1989 | 8, 15 & 40 | |||||||||||||||||||||
| Office | Los Angeles, CA | 11,235 | 5,110 | 10,911 | 16,021 | 1,952 | Dec-04 | 2000 | 13 & 40 | |||||||||||||||||||||
| Industrial | Knoxville, TN | 7,628 | 1,079 | 10,762 | 11,841 | 1,598 | Mar-05 | 2001 | 14 & 40 | |||||||||||||||||||||
| Office | Tempe, AZ | 13,336 | 0 | 14,564 | 14,564 | 2,285 | Apr-05 | 1998 | 13 & 40 | |||||||||||||||||||||
| Office | Farmington Hills, MI | 0 | 3,400 | 6,040 | 9,440 | 2,333 | Apr-05 | 1999 | 22 & 40 | |||||||||||||||||||||
| Industrial | Kalamazoo, MI | 17,243 | 960 | 17,714 | 18,674 | 1,867 | Apr-05 | 1999 | 22 & 40 | |||||||||||||||||||||
| Industrial | Millington, TN | 17,427 | 723 | 19,119 | 19,842 | 2,549 | Apr-05 | 1997 | 16 & 40 | |||||||||||||||||||||
| Office | Fort Meyers, FL | 8,912 | 1,820 | 10,198 | 12,018 | 1,644 | Apr-05 | 1997 | 13 & 40 | |||||||||||||||||||||
| Office | Harrisburg, PA | 8,968 | 900 | 10,526 | 11,426 | 2,406 | Apr-05 | 1998 | 9 & 40 | |||||||||||||||||||||
| Office | Indianapolis, IN | 12,881 | 1,700 | 16,448 | 18,148 | 3,422 | Apr-05 | 1999 | 10 & 40 | |||||||||||||||||||||
| Office | Tulsa, OK | 7,509 | 2,126 | 8,493 | 10,619 | 1,727 | Apr-05 | 2000 | 11 & 40 | |||||||||||||||||||||
| Office | Houston, TX | 17,261 | 3,750 | 21,149 | 24,899 | 3,410 | Apr-05 | 2000 | 13 & 40 | |||||||||||||||||||||
| Office | Houston, TX | 16,589 | 800 | 22,538 | 23,338 | 4,152 | Apr-05 | 2000 | 11 & 40 | |||||||||||||||||||||
| Office | San Antonio, TX | 12,784 | 2,800 | 14,587 | 17,387 | 2,761 | Apr-05 | 2000 | 11 & 40 | |||||||||||||||||||||
| Office | Richmond, VA | 10,373 | 1,100 | 11,919 | 13,019 | 1,725 | Apr-05 | 2000 | 15 & 40 | |||||||||||||||||||||
| Office | Suwannee, GA | 11,325 | 3,200 | 10,903 | 14,103 | 1,885 | Apr-05 | 2001 | 12 & 40 | |||||||||||||||||||||
| Office | Indianapolis, IN | 9,419 | 1,360 | 13,067 | 14,427 | 2,160 | Apr-05 | 2002 | 12 & 40 | |||||||||||||||||||||
| Office | Lakewood, CO | 8,493 | 1,400 | 8,653 | 10,053 | 1,478 | Apr-05 | 2002 | 12 & 40 | |||||||||||||||||||||
| Office | Atlanta, GA | 44,228 | 4,600 | 55,333 | 59,933 | 8,715 | Apr-05 | 2003 | 13 & 40 | |||||||||||||||||||||
| Office | Houston, TX | 12,955 | 1,500 | 14,581 | 16,081 | 2,146 | Apr-05 | 2003 | 14 & 40 | |||||||||||||||||||||
| Office | Allen, TX | 30,582 | 7,600 | 35,343 | 42,943 | 6,759 | Apr-05 | 1981/1983 | 11 & 40 | |||||||||||||||||||||
| Office | Philadelphia, PA | 48,727 | 13,209 | 50,744 | 63,953 | 7,284 | Jun-05 | 1957 | 10, 14, 15 & 40 | |||||||||||||||||||||
| Industrial | Dry Ridge, KY | 7,112 | 560 | 12,553 | 13,113 | 1,091 | Jun-05 | 1988 | 25 & 40 | |||||||||||||||||||||
| Industrial | Elizabethtown, KY | 2,994 | 352 | 4,862 | 5,214 | 422 | Jun-05 | 2001 | 25 & 40 | |||||||||||||||||||||
| Industrial | Elizabethtown, KY | 15,874 | 890 | 26,868 | 27,758 | 2,334 | Jun-05 | 1995/2001 | 25 & 40 | |||||||||||||||||||||
| Industrial | Owensboro, KY | 6,346 | 393 | 11,956 | 12,349 | 1,011 | Jun-05 | 1998/2000 | 25 & 40 | |||||||||||||||||||||
| Industrial | Hopkinsville, KY | 9,304 | 631 | 16,154 | 16,785 | 1,355 | Jun-05 | Various | 25 & 40 | |||||||||||||||||||||
| Office | Southington, CT | 13,456 | 3,240 | 25,339 | 28,579 | 11,828 | Nov-05 | 1983 | 12, 28 & 40 | |||||||||||||||||||||
| Office | Omaha, NE | 8,802 | 2,566 | 8,324 | 10,890 | 538 | Nov-05 | 1995 | 20 & 40 | |||||||||||||||||||||
104
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
| Accumulated | ||||||||||||||||||||||||||||
| Buildings | Depreciation | Useful life computing | ||||||||||||||||||||||||||
| Land, Improvements | and | and | Date | Date | depreciation in latest | |||||||||||||||||||||||
Description | Location | Encumbrances | and Land Estates | Improvements | Total | Amortization | Acquired | Constructed | income statements (years) | |||||||||||||||||||
| Office | Sugarland, TX | 9,742 | 2,725 | 10,027 | 12,752 | 878 | Nov-05 | 2004 | 20 & 40 | |||||||||||||||||||
| Office | Tempe, AZ | 8,313 | 0 | 9,443 | 9,443 | 586 | Dec-05 | 1998 | 30 & 40 | |||||||||||||||||||
| Industrial | Collierville, TN | *** | 714 | 2,455 | 3,169 | 204 | Dec-05 | 2005 | 20 & 40 | |||||||||||||||||||
| Industrial | Crossville, TN | 0 | 545 | 6,999 | 7,544 | 692 | Jan-06 | 1989/2006 | 17 & 40 | |||||||||||||||||||
| Office | Renswoude, Netherlands | 39,178 | 2,913 | 26,403 | 29,316 | 2,386 | Jan-06 | 1994/2003 | 17 & 40 | |||||||||||||||||||
| Office | Memphis, TN | 3,951 | 464 | 4,467 | 4,931 | 207 | Nov-06 | 1888 | 20 & 40 | |||||||||||||||||||
| Office | Charleston, SC | 7,350 | 1,189 | 8,724 | 9,913 | 427 | Nov-06 | 2006 | 40 | |||||||||||||||||||
| Office | Hanover, NJ | 16,627 | 4,063 | 19,711 | 23,774 | 913 | Nov-06 | 2006 | 20 & 40 | |||||||||||||||||||
| Office | Hilliard, OH | 28,960 | 3,214 | 29,028 | 32,242 | 1,405 | Dec-06 | 2006 | 40 | |||||||||||||||||||
| Retail, Office, Garage | Honolulu, HI | *** | 21,094 | 13,163 | 34,257 | 326 | Dec-06 | 1917/1980 | 40 | |||||||||||||||||||
| Industrial | Long Beach, CA | 5,902 | 6,230 | 7,802 | 14,032 | 386 | Dec-06 | 1981 | 40 | |||||||||||||||||||
| Industrial | Palo Alto, CA | *** | 12,398 | 16,977 | 29,375 | 2,224 | Dec-06 | 1974 | 40 | |||||||||||||||||||
| Industrial | Orlando, FL | *** | 1,030 | 10,869 | 11,899 | 306 | Dec-06 | 1981 | 40 | |||||||||||||||||||
| Industrial | McDonough, GA | 23,000 | 2,463 | 24,291 | 26,754 | 585 | Dec-06 | 2000 | 40 | |||||||||||||||||||
| Industrial | Rockford, IL | 4,278 | 509 | 5,289 | 5,798 | 145 | Dec-06 | 1992 | 40 | |||||||||||||||||||
| Industrial | Rockford Central, IL | 2,622 | 371 | 2,573 | 2,944 | 76 | Dec-06 | 1998 | 40 | |||||||||||||||||||
| Industrial | Owensboro, KY | 4,666 | 819 | 2,439 | 3,258 | 159 | Dec-06 | 1975 | 40 | |||||||||||||||||||
| Industrial | North Berwick, ME | *** | 1,383 | 31,817 | 33,200 | 820 | Dec-06 | 1965 | 40 | |||||||||||||||||||
| Industrial | Lumberton, NC | *** | 405 | 12,049 | 12,454 | 387 | Dec-06 | 1998 | 40 | |||||||||||||||||||
| Industrial | Statesville, NC | 14,100 | 891 | 16,494 | 17,385 | 638 | Dec-06 | 1999 | 40 | |||||||||||||||||||
| Industrial | Saugerties, NY | 0 | 508 | 2,837 | 3,345 | 73 | Dec-06 | 1979 | 40 | |||||||||||||||||||
| Industrial | Cincinnati, OH | *** | 1,009 | 7,007 | 8,016 | 212 | Dec-06 | 1991 | 40 | |||||||||||||||||||
| Industrial | Columbus, OH | *** | 1,990 | 10,580 | 12,570 | 348 | Dec-06 | 1973 | 40 | |||||||||||||||||||
| Industrial | N. Myrtle Beach, SC | *** | 1,481 | 2,078 | 3,559 | 91 | Dec-06 | 1983 | 40 | |||||||||||||||||||
| Industrial | Franklin, TN | 0 | 964 | 8,783 | 9,747 | 449 | Dec-06 | 1970 | 40 | |||||||||||||||||||
| Industrial | Memphis, TN | 0 | 1,553 | 12,326 | 13,879 | 379 | Dec-06 | 1973 | 40 | |||||||||||||||||||
| Industrial | Garland, TX | 0 | 2,606 | 20,452 | 23,058 | 434 | Dec-06 | 1980 | 40 | |||||||||||||||||||
| Land | Baltimore, MD | 0 | 4,571 | 0 | 4,571 | 0 | Dec-06 | N/A | N/A | |||||||||||||||||||
| Office | Little Rock, AR | *** | 1,353 | 2,260 | 3,613 | 68 | Dec-06 | 1980 | 40 | |||||||||||||||||||
| Office | Irvine, CA | 4,079 | 4,758 | 36,262 | 41,020 | 930 | Dec-06 | 1983 | 40 | |||||||||||||||||||
105
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
| Accumulated | ||||||||||||||||||||||||||||||
| Buildings | Depreciation | Useful life computing | ||||||||||||||||||||||||||||
| Land, Improvements | and | and | Date | Date | depreciation in latest | |||||||||||||||||||||||||
Description | Location | Encumbrances | and Land Estates | Improvements | Total | Amortization | Acquired | Constructed | income statements (years) | |||||||||||||||||||||
| Office | Long Beach, CA | 15,923 | 19,672 | 67,478 | 87,150 | 2,501 | Dec-06 | 1981 | 40 | |||||||||||||||||||||
| Office | Pleasanton, CA | 4,414 | 2,671 | 2,839 | 5,510 | 276 | Dec-06 | 1984 | 40 | |||||||||||||||||||||
| Office | San Francisco, CA | 22,455 | 14,539 | 36,505 | 51,044 | 932 | Dec-06 | 1959 | 40 | |||||||||||||||||||||
| Office | Walnut Creek,, CA | *** | 4,214 | 13,803 | 18,017 | 374 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
| Office | Colorado Springs, CO | *** | 1,018 | 2,459 | 3,477 | 109 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Office | Clinton, CT | 721 | 285 | 4,044 | 4,329 | 112 | Dec-06 | 1971 | 40 | |||||||||||||||||||||
| Office | Orlando, FL | *** | 586 | 35,012 | 35,598 | 908 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Office | Orlando, FL | *** | 11,498 | 33,671 | 45,169 | 1,874 | Dec-06 | 1984 | 40 | |||||||||||||||||||||
| Office | Lisle, IL | 10,450 | 3,236 | 13,667 | 16,903 | 451 | Dec-06 | 1985 | 40 | |||||||||||||||||||||
| Office | Columbus, IN | 42,800 | 235 | 45,729 | 45,964 | 941 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
| Office | Baltimore, MD | *** | 16,959 | 78,959 | 95,918 | 2,572 | Dec-06 | 1973 | 40 | |||||||||||||||||||||
| Office | Bridgeton, MO | *** | 1,016 | 4,469 | 5,485 | 151 | Dec-06 | 1980 | 40 | |||||||||||||||||||||
| Office | Bridgewater, NJ | 14,805 | 4,738 | 27,331 | 32,069 | 724 | Dec-06 | 1986 | 40 | |||||||||||||||||||||
| Office | Carteret, NJ | 0 | 3,834 | 16,653 | 20,487 | 621 | Dec-06 | 1980 | 40 | |||||||||||||||||||||
| Office | Elizabeth, NJ | *** | 1,324 | 6,484 | 7,808 | 164 | Dec-06 | 1984 | 40 | |||||||||||||||||||||
| Office | Plainsboro, NJ | 0 | 383 | 176 | 559 | 25 | Dec-06 | 1980 | 40 | |||||||||||||||||||||
| Office | Rockaway, NJ | 14,900 | 4,646 | 20,428 | 25,074 | 648 | Dec-06 | 2002 | 40 | |||||||||||||||||||||
| Office | Las Vegas, NV | 52,782 | 8,824 | 53,164 | 61,988 | 1,359 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Office | Rochester, NY | 18,800 | 645 | 25,892 | 26,537 | 702 | Dec-06 | 1988 | 40 | |||||||||||||||||||||
| Office | Glenwillow, OH | 17,000 | 2,228 | 24,530 | 26,758 | 668 | Dec-06 | 1996 | 40 | |||||||||||||||||||||
| Office | Johnson City, TN | *** | 1,214 | 7,568 | 8,782 | 212 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
| Office | Memphis, TN | *** | 1,353 | 8,124 | 9,477 | 241 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Office | Memphis, TN | 76,800 | 5,291 | 97,032 | 102,323 | 2,527 | Dec-06 | 1985 | 40 | |||||||||||||||||||||
| Office | Beaumont, TX | 0 | 456 | 3,454 | 3,910 | 106 | Dec-06 | 1978 | 40 | |||||||||||||||||||||
| Office | Beaumont, TX | *** | 0 | 22,988 | 22,988 | 1,900 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
| Office | Bedford, TX | *** | 1,983 | 6,486 | 8,469 | 124 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
| Office | Dallas, TX | *** | 4,042 | 18,104 | 22,146 | 522 | Dec-06 | 1981 | 40 | |||||||||||||||||||||
| Other | Sun City, AZ | 0 | 2,154 | 2,775 | 4,929 | 71 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Other | Carlsbad, NM | 0 | 918 | 775 | 1,693 | 25 | Dec-06 | 1980 | 40 | |||||||||||||||||||||
106
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
| Accumulated | ||||||||||||||||||||||||||||||
| Buildings | Depreciation | Useful life computing | ||||||||||||||||||||||||||||
| Land, Improvements | and | and | Date | Date | depreciation in latest | |||||||||||||||||||||||||
Description | Location | Encumbrances | and Land Estates | Improvements | Total | Amortization | Acquired | Constructed | income statements (years) | |||||||||||||||||||||
| Other | Corpus Christi, TX | 0 | 987 | 974 | 1,961 | 26 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
| Other | El Paso, TX | 0 | 220 | 1,749 | 1,969 | 45 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Other | McAllen, TX | 0 | 606 | 1,257 | 1,863 | 33 | Dec-06 | 2004 | 40 | |||||||||||||||||||||
| Other | Victoria, TX | 0 | 300 | 1,149 | 1,449 | 30 | Dec-06 | 1981 | 40 | |||||||||||||||||||||
| Retail | Florence, AL | *** | 796 | 3,747 | 4,543 | 114 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
| Retail | Montgomery, AL | 0 | 730 | 3,255 | 3,985 | 148 | Dec-06 | 1980 | 40 | |||||||||||||||||||||
| Retail | Bisbee, AZ | 0 | 478 | 2,426 | 2,904 | 73 | Dec-06 | 1984 | 40 | |||||||||||||||||||||
| Retail | Tucson, AZ | 0 | 1,459 | 3,596 | 5,055 | 128 | Dec-06 | 1984 | 40 | |||||||||||||||||||||
| Retail | Mammoth Lakes, CA | 0 | 6,279 | 2,761 | 9,040 | 228 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Retail | Aurora, CO | 0 | 1,224 | 1,431 | 2,655 | 77 | Dec-06 | 1981 | 40 | |||||||||||||||||||||
| Retail | Port Richey, FL | 0 | 2,214 | 2,656 | 4,870 | 101 | Dec-06 | 1980 | 40 | |||||||||||||||||||||
| Retail | Tallahassee, FL | 0 | 0 | 3,700 | 3,700 | 92 | Dec-06 | 1980 | 40 | |||||||||||||||||||||
| Retail | Atlanta, GA | 0 | 1,014 | 269 | 1,283 | 36 | Dec-06 | 1972 | 40 | |||||||||||||||||||||
| Retail | Atlanta, GA | 0 | 870 | 187 | 1,057 | 28 | Dec-06 | 1975 | 40 | |||||||||||||||||||||
| Retail | Chamblee, GA | 0 | 770 | 186 | 956 | 32 | Dec-06 | 1972 | 40 | |||||||||||||||||||||
| Retail | Cumming, GA | 0 | 1,558 | 1,368 | 2,926 | 76 | Dec-06 | 1968 | 40 | |||||||||||||||||||||
| Retail | Duluth, GA | 0 | 660 | 1,014 | 1,674 | 45 | Dec-06 | 1971 | 40 | |||||||||||||||||||||
| Retail | Forest Park, GA | 0 | 668 | 1,242 | 1,910 | 54 | Dec-06 | 1969 | 40 | |||||||||||||||||||||
| Retail | Jonesboro, GA | 0 | 778 | 146 | 924 | 25 | Dec-06 | 1971 | 40 | |||||||||||||||||||||
| Retail | Stone Mountain, GA | 0 | 672 | 276 | 948 | 26 | Dec-06 | 1973 | 40 | |||||||||||||||||||||
| Retail | Rock Falls, IL | *** | 135 | 702 | 837 | 41 | Dec-06 | 1991 | 40 | |||||||||||||||||||||
| Retail | Lawrence, IN | 0 | 404 | 1,737 | 2,141 | 49 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
| Retail | Minden, LA | 0 | 334 | 4,888 | 5,222 | 123 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Retail | Columbia, MD | 942 | 4,297 | 3,664 | 7,961 | 99 | Dec-06 | 1979 | 40 | |||||||||||||||||||||
| Retail | Billings, MT | 0 | 506 | 3,062 | 3,568 | 110 | Dec-06 | 1981 | 40 | |||||||||||||||||||||
| Retail | Charlotte, NC | *** | 606 | 2,561 | 3,167 | 64 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Retail | Concord, NC | *** | 685 | 943 | 1,628 | 48 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
| Retail | Jacksonville, NC | 0 | 1,151 | 221 | 1,372 | 35 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Retail | Jefferson, NC | 0 | 71 | 884 | 955 | 23 | Dec-06 | 1979 | 40 | |||||||||||||||||||||
| Retail | Lexington, NC | 0 | 832 | 1,429 | 2,261 | 37 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
107
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
| Accumulated | ||||||||||||||||||||||||||||||
| Buildings | Depreciation | Useful life computing | ||||||||||||||||||||||||||||
| Land, Improvements | and | and | Date | Date | depreciation in latest | |||||||||||||||||||||||||
Description | Location | Encumbrances | and Land Estates | Improvements | Total | Amortization | Acquired | Constructed | income statements (years) | |||||||||||||||||||||
| Retail | Thomasville, NC | *** | 610 | 1,854 | 2,464 | 47 | Dec-06 | 1998 | 40 | |||||||||||||||||||||
| Retail | Garwood, NJ | 95 | 3,920 | 8,052 | 11,972 | 259 | Dec-06 | 1980 | 40 | |||||||||||||||||||||
| Retail | Portchester, NY | 0 | 7,086 | 9,313 | 16,399 | 468 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Retail | Cincinnati, OH | 0 | 0 | 0 | 0 | 0 | Dec-06 | 1980 | 40 | |||||||||||||||||||||
| Retail | Franklin, OH | 0 | 1,089 | 1,699 | 2,788 | 43 | Dec-06 | 1961 | 40 | |||||||||||||||||||||
| Retail | Lawton, OK | 0 | 663 | 1,288 | 1,951 | 50 | Dec-06 | 1984 | 40 | |||||||||||||||||||||
| Retail | Grants Pass, OR | 0 | 1,894 | 1,470 | 3,364 | 84 | Dec-06 | 1984 | 40 | |||||||||||||||||||||
| Retail | Doylestown, PA | 0 | 980 | 589 | 1,569 | 22 | Dec-06 | 1976 | 40 | |||||||||||||||||||||
| Retail | Lansdale, PA | 0 | 488 | 85 | 573 | 10 | Dec-06 | 1966 | 40 | |||||||||||||||||||||
| Retail | Lima, PA | 0 | 1,011 | 656 | 1,667 | 23 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
| Retail | Philadelphia, PA | 0 | 92 | 771 | 863 | 28 | Dec-06 | 1920 | 40 | |||||||||||||||||||||
| Retail | Philadelphia, PA | 0 | 122 | 973 | 1,095 | 36 | Dec-06 | 1920 | 40 | |||||||||||||||||||||
| Retail | Philadelphia, PA | 0 | 106 | 485 | 591 | 14 | Dec-06 | 1975 | 40 | |||||||||||||||||||||
| Retail | Philadelphia, PA | 0 | 165 | 1,362 | 1,527 | 50 | Dec-06 | 1960 | 40 | |||||||||||||||||||||
| Retail | Philadelphia, PA | 0 | 92 | 791 | 883 | 36 | Dec-06 | 1921 | 40 | |||||||||||||||||||||
| Retail | Philadelphia, PA | 0 | 629 | 459 | 1,088 | 29 | Dec-06 | 1970 | 40 | |||||||||||||||||||||
| Retail | Philadelphia, PA | 0 | 114 | 551 | 665 | 24 | Dec-06 | 1922 | 40 | |||||||||||||||||||||
| Retail | Philadelphia, PA | 0 | 267 | 963 | 1,230 | 38 | Dec-06 | 1980 | 40 | |||||||||||||||||||||
| Retail | Philadelphia, PA | 0 | 2,548 | 8,370 | 10,918 | 319 | Dec-06 | 1980 | 40 | |||||||||||||||||||||
| Retail | Richboro, PA | 0 | 686 | 649 | 1,335 | 23 | Dec-06 | 1976 | 40 | |||||||||||||||||||||
| Retail | Wayne, PA | 0 | 1,877 | 503 | 2,380 | 25 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
| Retail | Moncks Corner, SC | 0 | 13 | 1,510 | 1,523 | 41 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Retail | Chattanooga, TN | *** | 550 | 1,241 | 1,791 | 53 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Retail | Paris, TN | *** | 247 | 547 | 794 | 21 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Retail | Carrollton, TX | 0 | 2,262 | 1,085 | 3,347 | 73 | Dec-06 | 1984 | 40 | |||||||||||||||||||||
| Retail | Dallas, TX | 0 | 1,637 | 5,381 | 7,018 | 209 | Dec-06 | 1960 | 40 | |||||||||||||||||||||
| Retail | Fort Worth, TX | 0 | 1,003 | 3,304 | 4,307 | 128 | Dec-06 | 1985 | 40 | |||||||||||||||||||||
| Retail | Garland, TX | *** | 763 | 3,448 | 4,211 | 586 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
| Retail | Granbury, TX | 0 | 1,131 | 3,986 | 5,117 | 129 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
108
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
| Accumulated | ||||||||||||||||||||||||||||||
| Buildings | Depreciation | Useful life computing | ||||||||||||||||||||||||||||
| Land, Improvements | and | and | Date | Date | depreciation in latest | |||||||||||||||||||||||||
Description | Location | Encumbrances | and Land Estates | Improvements | Total | Amortization | Acquired | Constructed | income statements (years) | |||||||||||||||||||||
| Retail | Grand Prairie, TX | 0 | 1,132 | 4,754 | 5,886 | 150 | Dec-06 | 1984 | 40 | |||||||||||||||||||||
| Retail | Greenville, TX | 0 | 562 | 2,743 | 3,305 | 84 | Dec-06 | 1985 | 40 | |||||||||||||||||||||
| Retail | Hillsboro, TX | 0 | 139 | 1,581 | 1,720 | 44 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Retail | Houston, TX | 0 | 1,336 | 5,183 | 6,519 | 167 | Dec-06 | 1982 | 40 | |||||||||||||||||||||
| Retail | Lubbock, TX | *** | 417 | 1,783 | 2,200 | 55 | Dec-06 | 1978 | 40 | |||||||||||||||||||||
| Retail | Sandy, UT | *** | 1,505 | 3,375 | 4,880 | 145 | Dec-06 | 1981 | 40 | |||||||||||||||||||||
| Retail | Staunton, VA | 0 | 1,028 | 325 | 1,353 | 37 | Dec-06 | 1971 | 40 | |||||||||||||||||||||
| Retail | Edmonds, WA | 0 | 0 | 2,600 | 2,600 | 65 | Dec-06 | 1981 | 40 | |||||||||||||||||||||
| Retail | Graham, WA | 0 | 2,195 | 4,478 | 6,673 | 168 | Dec-06 | 1984 | 40 | |||||||||||||||||||||
| Retail | Milton, WA | 0 | 1,941 | 5,310 | 7,251 | 183 | Dec-06 | 1989 | 40 | |||||||||||||||||||||
| Retail | Port Orchard, WA | 0 | 2,167 | 1,293 | 3,460 | 96 | Dec-06 | 1983 | 40 | |||||||||||||||||||||
| Retail | Redmond, WA | 0 | 4,654 | 5,355 | 10,009 | 252 | Dec-06 | 1985 | 40 | |||||||||||||||||||||
| Retail | Spokane, WA | 0 | 449 | 3,070 | 3,519 | 89 | Dec-06 | 1984 | 40 | |||||||||||||||||||||
| Retail | Cheyenne, WY | *** | 956 | 1,974 | 2,930 | 49 | Dec-06 | 1981 | 40 | |||||||||||||||||||||
| Office | Evanston, WY | *** | 362 | 2,554 | 2,916 | 73 | Dec-06 | 1975 | 40 | |||||||||||||||||||||
| Office | Orlando, FL | 9,975 | 3,538 | 9,019 | 12,557 | 557 | Jan-07 | 2003 | 12 & 40 | |||||||||||||||||||||
| Office | Boston, MA | *** | 3,814 | 14,728 | 18,542 | 291 | Mar-07 | 1910 | 40 | |||||||||||||||||||||
| Office | Coppell, TX | 14,400 | 2,470 | 12,793 | 15,263 | 253 | Mar-07 | 2002 | 40 | |||||||||||||||||||||
| Industrial | Shreveport, LA | 19,000 | 860 | 21,840 | 22,700 | 432 | Mar-07 | 2006 | 40 | |||||||||||||||||||||
| Office | Westlake, TX | 18,981 | 2,361 | 22,396 | 24,757 | 1,547 | May-07 | 2007 | 40 | |||||||||||||||||||||
| Industrial | Antioch, TN | 14,781 | 5,568 | 16,609 | 22,177 | 1,097 | May-07 | 1983 | 14-40 | |||||||||||||||||||||
| Office | Canonsburg, PA | 9,070 | 1,055 | 10,910 | 11,965 | 756 | May-07 | 1997 | 8-40 | |||||||||||||||||||||
| Retail | Galesburg, IL | 1,307 | 560 | 2,366 | 2,926 | 123 | May-07 | 1992 | 12-40 | |||||||||||||||||||||
| Retail | Lewisburg, WV | 1,538 | 501 | 1,985 | 2,486 | 54 | May-07 | 1993 | 12-40 | |||||||||||||||||||||
| Retail | Lorain, OH | 3,297 | 1,893 | 7,025 | 8,918 | 254 | May-07 | 1993 | 23-40 | |||||||||||||||||||||
| Retail | Manteca, CA | 2,329 | 2,082 | 6,464 | 8,546 | 232 | May-07 | 1993 | 23-40 | |||||||||||||||||||||
| Retail | San Diego, CA | 1,484 | 0 | 13,310 | 13,310 | 258 | May-07 | 1993 | 23-40 | |||||||||||||||||||||
| Retail | Watertown, NY | 2,190 | 386 | 5,162 | 5,548 | 217 | May-07 | 1993 | 23-40 | |||||||||||||||||||||
| Office | Irving, TX | 39,580 | 7,476 | 42,692 | 50,168 | 2,964 | May-07 | 1999 | 6-40 | |||||||||||||||||||||
109
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
| Accumulated | ||||||||||||||||||||||||||||||
| Buildings | Depreciation | Useful life computing | ||||||||||||||||||||||||||||
| Land, Improvements | and | and | Date | Date | depreciation in latest | |||||||||||||||||||||||||
Description | Location | Encumbrances | and Land Estates | Improvements | Total | Amortization | Acquired | Constructed | income statements (years) | |||||||||||||||||||||
| Office | Baton Rouge, LA | 6,461 | 1,252 | 10,244 | 11,496 | 644 | May-07 | 1997 | 6 & 40 | |||||||||||||||||||||
| Office | Centenial, CO | 15,322 | 4,851 | 15,187 | 20,038 | 1,107 | May-07 | 2001 | 10-40 | |||||||||||||||||||||
| Office | Westerville, OH | 0 | 2,085 | 9,265 | 11,350 | 210 | May-07 | 2000 | 40 | |||||||||||||||||||||
| Office | Overland Park, KS | 37,465 | 4,769 | 41,956 | 46,725 | 1,815 | Jun-07 | 1980 | 12 & 40 | |||||||||||||||||||||
| Office | Carrollton, TX | 20,246 | 3,427 | 22,050 | 25,477 | 1,020 | Jun-07 | 2003 | 8 & 40 | |||||||||||||||||||||
| Industrial | Durham, NH | 19,273 | 3,464 | 18,094 | 21,558 | 833 | Jun-07 | 1986 | 40 | |||||||||||||||||||||
| Office | Dallas, TX | 18,563 | 3,984 | 27,308 | 31,292 | 1,084 | Jun-07 | 2002 | 40 | |||||||||||||||||||||
| Office | Farmington Hills, MI | 19,616 | 4,876 | 21,115 | 25,991 | 1,811 | Jun-07 | 1999 | 10-40 | |||||||||||||||||||||
| Office | Arlington, TX | 20,860 | 4,424 | 22,826 | 27,250 | 1,637 | Jun-07 | 2003 | 7-40 | |||||||||||||||||||||
| Office | Kansas City, MO | 17,876 | 2,433 | 20,154 | 22,587 | 864 | Jun-07 | 1980 | 12-40 | |||||||||||||||||||||
| Industrial | Streetsboro, OH | 19,462 | 2,441 | 22,171 | 24,612 | 1,064 | Jun-07 | 2004 | 12-40 | |||||||||||||||||||||
| Office | Issaquah, WA | 31,588 | 5,126 | 13,554 | 18,680 | 917 | Jun-07 | 1987 | 8-40 | |||||||||||||||||||||
| Office | Issaquah, WA | 0 | 6,268 | 16,058 | 22,326 | 1,043 | Jun-07 | 1987 | 8-40 | |||||||||||||||||||||
| Office | Houston, TX | 19,663 | 12,835 | 26,690 | 39,525 | 2,395 | Jun-07 | 2000 | 2-40 | |||||||||||||||||||||
| Industrial | Plymouth, MI | 11,847 | 2,296 | 13,398 | 15,694 | 1,202 | Jun-07 | 1996 | 40 | |||||||||||||||||||||
| Industrial | Temperance, MI | 10,909 | 3,040 | 14,738 | 17,778 | 828 | Jun-07 | 1980 | 40 | |||||||||||||||||||||
| Industrial | Logan, NJ | 7,318 | 1,825 | 10,776 | 12,601 | 416 | Jun-07 | 1998 | 40 | |||||||||||||||||||||
| Industrial | Laurens, SC | 16,240 | 5,552 | 20,886 | 26,438 | 1,220 | Jun-07 | 1991 | 40 | |||||||||||||||||||||
| Industrial | Winchester, VA | 10,606 | 3,823 | 12,226 | 16,049 | 848 | Jun-07 | 2001 | 40 | |||||||||||||||||||||
| Office | Colorado Springs, CO | 11,381 | 2,748 | 12,554 | 15,302 | 652 | Jun-07 | 1980 | 40 | |||||||||||||||||||||
| Office | Lake Mary, FL | 13,079 | 4,535 | 13,950 | 18,485 | 1,248 | Jun-07 | 1997 | 40 | |||||||||||||||||||||
| Office | Lake Mary, FL | 13,040 | 4,438 | 13,716 | 18,154 | 1,220 | Jun-07 | 1999 | 40 | |||||||||||||||||||||
| Office | Chicago, IL | 28,975 | 5,155 | 45,904 | 51,059 | 3,013 | Jun-07 | 1986 | 40 | |||||||||||||||||||||
| Office | Fishers, IN | 14,283 | 2,808 | 18,661 | 21,469 | 1,570 | Jun-07 | 1999 | 40 | |||||||||||||||||||||
| Office | Cary, NC | 12,589 | 5,342 | 14,866 | 20,208 | 1,034 | Jun-07 | 1999 | 40 | |||||||||||||||||||||
| Office | Parisppany, NJ | 40,151 | 7,478 | 84,051 | 91,529 | 5,272 | Jun-07 | 2000 | 40 | |||||||||||||||||||||
| Office | Milford, OH | 16,220 | 3,124 | 15,396 | 18,520 | 1,637 | Jun-07 | 1991 | 40 | |||||||||||||||||||||
| Office | Irving , TX | 26,408 | 4,889 | 22,806 | 27,695 | 2,536 | Jun-07 | 1999 | 40 | |||||||||||||||||||||
| Office | Glen Allen, VA | 19,485 | 2,361 | 28,504 | 30,865 | 2,222 | Jun-07 | 1998 | 40 | |||||||||||||||||||||
| Office | Herndon, VA | 11,930 | 9,409 | 12,853 | 22,262 | 1,034 | Jun-07 | 1987 | 40 | |||||||||||||||||||||
| Industrial | Duncan, SC | 0 | 884 | 7,944 | 8,828 | 124 | Jun-07 | 2005 | 40 | |||||||||||||||||||||
| Office | Brea, CA | 78,092 | 37,270 | 45,691 | 82,961 | 3,074 | Dec-07 | 1983 | 40 | |||||||||||||||||||||
| Office | Houston, TX | 60,193 | 16,613 | 52,682 | 69,295 | 4,939 | Dec-07 | 1976/1984 | 40 | |||||||||||||||||||||
| subtotal | 2,098,787 | 694,913 | 3,400,365 | 4,095,278 | 379,831 | |||||||||||||||||||||||||
| *** (see note below) | 213,635 | — | — | — | — | |||||||||||||||||||||||||
| Total | $ | 2,312,422 | $ | 694,913 | $ | 3,400,365 | $ | 4,095,278 | $ | 379,831 | ||||||||||||||||||||
| *** | Property is collateral for a $213,635 secured loan. |
110
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) — (continued)
(A) The initial cost includes the purchase price paid by the Company and acquisition fees and expenses. The total cost basis of the Company’s properties at December 31, 20062007 for Federal income tax purposes was approximately $3.7$4.1 billion.
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
| Reconciliation of real estate owned: | ||||||||||||||||||||||||
| Balance at the beginning of year | $ | 1,883,115 | $ | 1,407,872 | $ | 1,162,395 | $ | 3,747,156 | $ | 1,883,115 | $ | 1,407,872 | ||||||||||||
| Merger basis reallocation | 8,235 | — | — | |||||||||||||||||||||
| Additions during year | 1,918,700 | 671,955 | 472,988 | 146,252 | 1,918,700 | 671,955 | ||||||||||||||||||
| Properties sold during year | (53,696 | ) | (34,120 | ) | (31,452 | ) | (634,560 | ) | (53,696 | ) | (34,120 | ) | ||||||||||||
| Property contributed to joint venture during year | — | (117,411 | ) | (186,456 | ) | (132,054 | ) | — | (117,411 | ) | ||||||||||||||
| Properties consolidated during the year | 110,728 | — | 16,176 | 1,109,064 | 110,728 | — | ||||||||||||||||||
| Reclassified held for sale properties | (113,033 | ) | (32,339 | ) | (25,779 | ) | (138,163 | ) | (113,033 | ) | (32,339 | ) | ||||||||||||
| Properties impaired during the year | (6,100 | ) | (12,842 | ) | — | (15,500 | ) | (6,100 | ) | (12,842 | ) | |||||||||||||
| Properties held for sale placed back in service | 7,442 | — | — | 1,830 | 7,442 | — | ||||||||||||||||||
| Translation adjustment on foreign currency | 3,018 | — | — | |||||||||||||||||||||
| Balance at end of year | $ | 3,747,156 | $ | 1,883,115 | $ | 1,407,872 | $ | 4,095,278 | $ | 3,747,156 | $ | 1,883,115 | ||||||||||||
| Balance of beginning of year | $ | 241,188 | $ | 180,610 | $ | 160,623 | $ | 276,129 | $ | 241,188 | $ | 180,610 | ||||||||||||
| Depreciation and amortization expense | 67,456 | 60,096 | 36,561 | 137,525 | 67,456 | 60,096 | ||||||||||||||||||
| Accumulated depreciation and amortization of properties sold and held for sale during year | (37,178 | ) | 1,506 | (15,472 | ) | (54,737 | ) | (37,178 | ) | 1,506 | ||||||||||||||
| Accumulated depreciation of property contributed to joint venture | — | (1,024 | ) | (1,852 | ) | (16,887 | ) | — | (1,024 | ) | ||||||||||||||
| Accumulated depreciation of properties consolidated during the year | 4,616 | — | 750 | 37,597 | 4,616 | — | ||||||||||||||||||
| Translation adjustment on foreign currency | 47 | — | — | 204 | 47 | — | ||||||||||||||||||
| Balance at end of year | $ | 276,129 | $ | 241,188 | $ | 180,610 | $ | 379,831 | $ | 276,129 | $ | 241,188 | ||||||||||||
93
111
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.
| Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined inrule 13a-15(e) or15d-15(e) under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act), as of the end of the period covered by this Annual Report was made under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Management’s Report on Internal Control Over Financial Reporting, which appears on page 59, is incorporated herein by reference.
Changes in Internal Controls.Control Over Financial Reporting
There were no changes to our internal controlcontrols over financial reporting as ofduring the fourth quarter ended December 31, 2006 and may result in a significant change in our internal control over financial reporting in 2007. With the exception of any change in internal control over financial reporting from the acquisition of Newkirk, there2007 that have been no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) or in other factors that occurred during the period covered by this Annual Report that has materially affected, or isare reasonably likely to materially affect, our internal controlcontrols over financial reporting.
| Item 9B. | Other Information |
Not applicable.
| Item 10. | Trustees and Executive Officers of the Registrant |
The information regarding our trustees and executive officers required to be furnished pursuant to this item is set forth in Part I, Item 4A of this Annual Report. Information relating to our Code of Business Conduct and Ethics, is included in Part I, Item 1 of this Annual Report. The information relating to our trustees, including the audit committee of our Board of Trustees and our audit committee financial expert, and our executive officers will be in our Definitive Proxy Statement for our 2008 Annual Meeting of Shareholders, which we refer to as our Proxy Statement and is incorporated herein by reference. Information relating to our Code of Business Conduct and Ethics, is included in Part I, Item 1 of this Annual Report.
| Item 11. | Executive Compensation |
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference.
112
| Item 13. | Certain Relationships and Related Transactions |
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference.
| Item 14. | Principal Accounting Fees and Services |
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference.
94
| Item 15. | Exhibits, Financial Statement Schedules |
| Page | ||||||||
| (a)(1) | Financial Statements | |||||||
| (2) | Financial Statement Schedule | |||||||
| (3) | Exhibits | |||||||
Exhibit No. | Description | |||||
| 2 | .1 | — | Agreement and Plan of Merger, dated July 23, 2006, by and between Newkirk Realty Trust, Inc. (“Newkirk”) and Lexington Realty Trust (formerly known as Lexington Corporate Properties Trust, the “Company”) (filed as Exhibit 2.1 to the Company’s Current Report onForm 8-K filed July 24, 2006 (the “07/24/068-K”))(1) | |||
| 2 | .2 | — | Amendment No. 1 to Agreement and Plan of Merger, dated as of September 11, 2006, by and between Newkirk and the Company (filed as Exhibit 2.1 to the Company’s Current Report onForm 8-K filed September 13, 2006 (the “09/13/068-K”))(1) | |||
| 2 | .3 | — | Amendment No. 2 to Agreement and Plan of Merger, dated as of October 13, 2006, by and between Newkirk and the Company (filed as Exhibit 2.1 to the Company’s Current Report onForm 8-K filed October 13, 2006)(1) | |||
| 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 onForm 8-K filed January 8, 2007 (the “01/08/078-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 01/08/078-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 ofForm 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 onForm 10-K for the year ended December 31, 2003, filed February 26, 2004 (the “200310-K”))(1) | |||
| 3 | .6 | — | First Amendment to the LCIF Partnership Agreement effective as of June 19, 2003 (filed as Exhibit 3.12 to the 200310-K)(1) | |||
| 3 | .7 | — | Second Amendment to the LCIF Partnership Agreement effective as of June 30, 2003 (filed as Exhibit 3.13 to the 200310-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 onForm 10-K for the year ended December 31, 2004, filed on March 16, 2005 (the “200410-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 onForm 8-K filed November 4, 2004)(1) | |||
95
113
Exhibit No. | Description | |||||
| 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 onForm 8-K filed December 14, 2004 (the “12/14/048-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 onForm 8-K filed January 3, 2005 (the “01/03/058-K”))(1) | |||
| 3 | .12 | — | Seventh Amendment to the LCIF Partnership Agreement (filed as Exhibit 10.1 to the Company’s Current Report onForm 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 200310-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 200310-K)(1) | |||
| 3 | .16 | — | Third Amendment to the LCIF II Partnership Agreement effective as of December 8, 2004 (filed as Exhibit 10.2 to 12/14/048-K)(1) | |||
| 3 | .17 | — | Fourth Amendment to the LCIF II Partnership Agreement effective as of January 3, 2005 (filed as Exhibit 10.2 to 01/03/058-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 07/24/068-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 onForm 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 ofForm 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 200310-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 200310-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 200310-K)(1) | |||
| 3 | .24 | — | Fourth Amendment to the Net 3 Partnership Agreement effective as of December 8, 2004 (filed as Exhibit 10.3 to 12/14/048-K)(1) | |||
| 3 | .25 | — | Fifth Amendment to the Net 3 Partnership Agreement effective as of January 3, 2005 (filed as Exhibit 10.3 to 01/03/058-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 01/08/078-K)(1) | |||
| 4 | .1 | — | Specimen of Common Shares Certificate of the Company (filed as Exhibit 4.1 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2006 (the “200610-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 200610-K)(1) | |||
96114
Exhibit No. | Description | |||||
| 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 onForm 8-K filed January 29, 2007 (the “01/29/078-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 01/29/078-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 onform 8-k filed on March 9, 2007 (the “03/09/078-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 onForm 8-K filed on March 27, 2007 (the “03/27/20078-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 onform 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 03/27/078-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 01/08/078-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 onForm 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 onForm 10-K for the year ended December 31, 2002, filed on March 24, 2003 (the “200210-K”))(1) | |||
| 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 onForm 8-K filed on February 6, 2006 (the “02/06/068-K”)) (1, 4) | |||
| 10 | .6 | — | Amendment to 1998 Share Option Plan (filed as Exhibit 10.3 to the Company’s Current Report onForm 8-K filed on January 3, 2007 (the “01/03/078-K”)) (1, 4) | |||
| 10 | .7 | — | 2007 Outperformance Program (filed as Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on April 5, 2007) (1,4) | |||
| 10 | .8 | — | Amendment to 2007 Outperformance Program (filed as Exhibit 10.6 to the Company’s Current Report onform 8-K filed on December 20,2007 (the 12/26/078-K)) (1,4) | |||
| 10 | .9 | — | 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 200410-K) (1, 4) | |||
| 10 | .10 | — | 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 200410-K) (1, 4) | |||
97115
Exhibit No. | Description | |||||
| 10 | .11 | — | 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 02/06/068-K) (1, 4) | |||
| 10 | .12 | — | 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 02/06/068-K) (1, 4) | |||
| 10 | .13 | — | Form of the Company’s Nonvested Share Agreement, dated as of December 28, 2006 (filed as Exhibit 10.2 to the 01/03/078-K) (1,4) | |||
| 10 | .14 | — | Form ofLock-Up and Claw-Back Agreement, dated as of December 28, 2006 (filed as Exhibit 10.4 to the 01/03/078-K)(1) | |||
| 10 | .15 | — | Form of 2007 Annual Long-Term Incentive Award Agreement (filed as Exhibit 10.1 to the Company’s current Report onForm 8-k filed on January 11, 2008 (1,4) | |||
| 10 | .16 | — | Employment Agreement between the Company and E. Robert Roskind, dated May 4, 2006 (filed as Exhibit 99.1 to the Company’s Current Report onForm 8-K filed May 5, 2006 (the “05/05/068-K”)) (1, 4) | |||
| 10 | .17 | — | Employment Agreement between the Company and T. Wilson Eglin, dated May 4, 2006 (filed as Exhibit 99.2 to the 05/05/068-K) (1, 4) | |||
| 10 | .18 | — | Employment Agreement between the Company and Richard J. Rouse, dated May 4, 2006 (filed as Exhibit 99.3 to the 05/05/068-K) (1, 4) | |||
| 10 | .19 | — | Employment Agreement between the Company and Patrick Carroll, dated May 4, 2006 (filed as Exhibit 99.4 to the 05/05/068-K) (1, 4) | |||
| 10 | .20 | — | Employment Agreement, effective as of December 31, 2006, between the Company and Michael L. Ashner (filed as Exhibit 10.16 to the 01/08/078-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 01/08/078-K)(1) | |||
| 10 | .22 | — | 2007 Trustee Fees Term Sheet (detailed on the Company’s Current Report onForm 8-K filed February 12, 2007) (1, 4) | |||
| 10 | .23 | — | Form of Indemnification Agreement between the Company and certain officers and trustees (filed as Exhibit 10.3 to the 200210-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 onForm 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 onForm 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 01/03/078-K)(1) | |||
| 10 | .27 | — | Third Amendment to Credit Agreement, dated as of December 20, 2007(filed as Exhibit 10.1 to the 12/26/078-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 onForm 8-K filed on June 7, 2007 (the “06/07/20078-K”))(1) | |||
98116
Exhibit No. | Description | |||||
| 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 onForm 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 onForm 8-K filed April 5, 2006 (the “NKT 04/05/068-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 onForm 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 onform 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 07/24/068-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 01/08/078-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 01/08/078-K)(1) | |||
| 10 | .36 | — | Amended and Restated Exclusivity Services Agreement, dated as of December 31, 2006, between the Company and Michael L. Ashner (filed as Exhibit 10.1 to the 01/08/078-K)(1) | |||
| 10 | .37 | — | Transition Services Agreement, dated as of December 31, 2006, between the Company and First Winthrop Corporation (filed as Exhibit 10.3 to the 01/08/078-K)(1) | |||
| 10 | .38 | — | Acquisition Agreement, dated as of November 7, 2005, between Newkirk and First Union Real Estate Equity and Mortgage Investments (“First Union”) (filed as Exhibit 10.4 to First Union’s Current Report onForm 8-K filed on November 10, 2005)(1) | |||
| 10 | .39 | — | Amendment to Acquisition Agreement and Assignment and Assumption, dated as of December 31, 2006, among NKT, Winthrop Realty Trust and the Company (filed as Exhibit 10.7 to the 01/08/078-K)(1) | |||
| 10 | .40 | — | 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 onForm S-11/A filed October 28, 2005 (“Amendment No. 5 to NKT’sS-11”))(1) | |||
| 10 | .41 | — | 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’sS-11)(1) | |||
| 10 | .42 | — | 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 01/08/078-K)(1) | |||
| 10 | .43 | — | 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 01/08/078-K)(1) | |||
| 10 | .44 | — | Registration Rights Agreement, dated as of December 31, 2006, between the Company and Michael L. Ashner (filed as Exhibit 10.10 to the 01/08/078-K)(1) | |||
| 10 | .45 | — | Registration Rights Agreement, dated as of December 31, 2006, between the Company and WEM-Brynmawr Associates LLC (filed as Exhibit 10.11 to the 01/08/078-K)(1) | |||
| 10 | .46 | — | 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 onForm 8-K filed November 15, 2005 (“NKT’s 11/15/058-K”))(1) | |||
99117
Exhibit No. | Description | |||||
| 10 | .47 | — | 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 11/15/058-K)(1) | |||
| 10 | .48 | — | Registration Rights Agreement, dated as of November 7, 2005, between the Company and First Union (filed as Exhibit 10.6 to NKT’s 11/15/058-K)(1) | |||
| 10 | .49 | — | 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 01/08/078-K)(1) | |||
| 10 | .50 | — | 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 01/08/078-K)(1) | |||
| 10 | .51 | — | 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 01/08/078-K)(1) | |||
| 10 | .52 | — | 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 01/29/078-K)(1) | |||
| 10 | .53 | — | Common Share Delivery Agreement, made as of January 29, 2007, between the MLP and the Company (filed as Exhibit 10.77 to the 200610-K)(1) | |||
| 10 | .54 | — | 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 03/09/078-K)(1) | |||
| 10 | .55 | — | Common Share Delivery Agreement, made as of January 29, 2007 between the MLP and the Company (filed as Exhibit 4.5 to the 03/09/20078-K)(1) | |||
| 10 | .56 | — | Property Management Agreement, made as of December 31, 2006, among the Company (Filed as Exhibit 10.15 to the 01/08/078-K)(1) | |||
| 10 | .57 | — | 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 onForm 8-K filed on February 21, 2008 (the “2/21/088-K”))(1) | |||
| 10 | .58 | — | Contribution Agreement, dated as of August 10, 2007, between The Lexington Master Limited Partnership and Net Lease Strategic Assets Fund L.P. (filed as Exhibit 10.2 to the Company’s Current Report onform 8-K filed on August 16, 2007 ( the 08/16/20078-K”))(1) | |||
| 10 | .59 | — | Amendment No. 1 to Contribution Agreement, dated as of December 20, 2007(filed as Exhibit 10.3 to the 12/26/078-K)(1) | |||
| 10 | .60 | — | Amendment No. 2 to Contribution Agreement, dated as of February 20, 2008 (filed as Exhibit 10.2 to the 02/21/088-K)(1) | |||
| 10 | .61 | — | Purchase and Sale Agreement, dated as of August 10, 2007, between The Lexington Master Limited Partnership and Net Lease Strategic Assets Fund L.P. (filed as Exhibit 10.3 to the 08/16/20078-K)(1) | |||
| 10 | .62 | — | Amendment No. 1 to Purchase and Sale Agreement, dated as of December 20, 2007 (filed as Exhibit 10.4 to the 12/26/078-K)(1) | |||
| 10 | .63 | — | Amendment No. 2 to Purchase and Sale Agreement, dated as of February 20, 2008 (filed as Exhibit 10.3 to the 02/20/088-K)(1) | |||
| 10 | .64 | — | 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 08/16/20078-K)(1) | |||
| 10 | .65 | — | Purchase Agreement, dated as of June 1, 2007, between the Company and the Common Retirement Fund of the State of New York for interests in Lexington Acquiport Company II, LLC (filed as Exhibit 10.4 to the 06/07/20078-K)(1) | |||
| 10 | .66 | — | Partial Redemption Agreement, dated as of June 5, 2007, between Lexington/Lion Venture L.P., CLPF-LXP/LV, L.P. and the Company (filed as Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on June 28, 2007 (the “06/28/20078-K”)(1) | |||
100118
Exhibit No. | Description | |||||
| 10 | .67 | — | Contribution Agreement, dated as of June 5, 2007, between the Company and the MLP (filed as Exhibit 10.2 to the 06/28/20078-K)(1) | |||
| 10 | .68 | — | Redemption Agreement, dated as of June 5, 2007, between Lexington/Lion Venture L.P., CLPF-LXP/LV, L.P. and CLPF-LXP/Lion Venture GP, LLC (filed as Exhibit 10.3 to the 06/28/20078-K)(1) | |||
| 10 | .69 | — | Form of Contribution Agreement dated as of December 20, 2007 (filed as Exhibit 10.5 to the 12/26/07 8-K)(1) | |||
| 12 | — | Statement of Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends(2) | ||||
| 14 | .1 | — | Amended and Restated Code of Business Conduct and Ethics(2) | |||
| 21 | — | List of Subsidiaries(2) | ||||
| 23 | — | Consent of KPMG LLP(2) | ||||
| 31 | .1 | — | Certification of Chief Executive Officer pursuant torule 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 18 U.S.C. Section 1350, as adopted pursuant to Section 906 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. | |
| (2) | Filed herewith. | |
| (3) | Furnished herewith. | |
| (4) | Management |
101119
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Lexington Realty Trust
| By: | /s/ T. Wilson Eglin | |||
T. Wilson Eglin
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael L. Ashner and T. Wilson Eglin, and each of them severally, his true and lawful attorney-in-fact with power of substitution and resubstitution to sign in his name, place and stead, in any and all capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange Commission in connection with this Annual Report onForm 10-K and any and all amendments hereto, as fully for all intents and purposes as he might or could do in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated.
Signature | Title | |||
/s/ Michael L. Ashner Michael L. Ashner | Chairman of the Board of Trustees And Director of Strategic Acquisitions | |||
/s/ E. Robert Roskind E. Robert Roskind | Co-Vice Chairman of the Board of Trustees | |||
/s/ Richard J. Rouse Richard J. Rouse | Co-Vice Chairman of the Board of Trustees and Chief Investment Officer | |||
/s/ T. Wilson Eglin T. Wilson Eglin | Chief Executive Officer, President, Chief Operating Officer and Trustee | |||
/s/ Patrick Carroll Patrick Carroll | Chief Financial Officer, Treasurer and Executive Vice President | |||
| /s/ Paul R. Wood Paul R. Wood | Vice President, Chief Accounting Officer and Secretary | |||
/s/ | Trustee | |||
/s/ | Trustee | |||
120
Signature | Title | |||
/s/ | Trustee | |||
/s/ | Trustee | |||
/s/ | Trustee | |||
/s/ Richard Frary Richard Frary | Trustee | |||
/s/ Kevin W. Lynch Kevin W. Lynch | Trustee | |||
DATE: March 1, 2007February 29, 2008
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