Item 1A. Risk Factors
Set forth below are material factors that may adversely affect our business and operations.
Risks Related to Our Business
We are subject to risks involvingrelated to defaults under, or termination or expiration of, our leases and tenants.leases.
We focus our acquisition activities on industrial real estate properties that are generally net leased to single tenants, and certain of our tenants and/or their guarantors constitute a significant percentage of our base rental revenues. Therefore, the financial failure of, or other default by, a single tenant under its lease is likely to cause a significant or complete reduction in the operating cash flow generated by the property leased to that tenant and might decrease the value of that property and result in a non-cash impairment charge. If the tenant represents a significant portion of our base rental revenues, the impact on our financial position may be material. Further, in any such event, our property owner subsidiary will be responsible for 100% of the operating costs following a vacancy at a single-tenant building. Upon the expiration or other termination of leases that are currently in place, the property owner subsidiary may not be able to re-lease the vacant property at all or at a comparable lease rate without incurring additional expenditures in connection with the re-leasing, which may be material in amount.
Under current bankruptcy law, a tenant can generally assume or reject a lease within a certain number of days of filing its bankruptcy petition. If a tenant rejects the lease, a landlord's damages, subject to availability of funds from the bankruptcy estate, are generally limited to the greater of (1) one year's rent and (2) the rent for 15% of the remaining term of the lease, not to exceed three years.
The demand for industrial space
Our property owner subsidiaries may not be able to retain tenants in any of our properties upon the United Statesexpiration of leases. Upon the expiration or other termination of current leases, our property owner subsidiaries may not be able to re-let all or a portion of the vacancy, or the terms of re-letting (including the cost of concessions to tenants and leasing commissions) may be less favorable than current lease terms or market rates. If one of our property owner subsidiaries is generally relatedunable to promptly re-let all or a substantial portion of the vacancy, or if the rental rates a property owner subsidiary receives upon re-letting are significantly lower than current rates, our earnings and ability to satisfy our debt service obligations and to make expected distributions to our shareholders may be adversely affected due to the level of economic output. Accordingly, reduced economic output may lead to lower occupancy rates for our properties. The concentration of our investments, among other factors,resulting reduction in industrial assets may expose us to the risk of economic downturns specific to industrial assets to a greater extent than if our investments were diversified.rent receipts and increase in property operating costs.
Certain of our leases may permit tenants to terminate the leases to which they are a party.
Certain of our leases contain tenant termination options includingor economic discontinuance options that permit the tenants to terminate their leases. While these termination options generally require a termination payment by the tenants, in most cases, the termination payments arewill be less than the total remaining expected rental revenue. The termination of a lease by a tenant may impair the value of the property. In addition, we will be responsible for 100% of the operating costs following the termination by any such tenant and subsequent vacating of the property, and we will incur re-leasing costs.
Our ability to fully control the maintenance of our net-leased properties may be limited.
The tenants of our net-leased properties are responsible for maintenance and other day-to-day management of the properties. If a property is not adequately maintained in accordance with the terms of the applicable lease, we may incur expenses for deferred maintenance or other liabilities once the property is no longer leased. We generally visit our properties on an annual basis, but these visits are not comprehensive inspections and deferred maintenance items may go unnoticed. While our leases generally provide for recourse against the tenant in these instances, a bankrupt or financially-troubled tenant may be more likely to defer maintenance, and it may be more difficult to enforce remedies against such a tenant.
Our tenants' ability to successfully operate their businesses may affect their ability to pay rent and maintain their leased property.
To the extent that tenants are unable to operate the property on a financially successful basis, their ability to pay rent to us may be adversely affected. Although we endeavor to monitor, on an ongoing basis, compliance by tenants with their lease obligations and other factors which could affect the financial performance of our properties, such monitoring may not always ascertain or forestall deterioration, either in the condition or value of a property or in the financial circumstances of a tenant.
You should not rely on the credit ratings of our tenants.
Some of our tenants, guarantors and/or their parent or sponsor entities are rated by certain rating agencies. In certain instances, we may disclose the credit ratings of our tenants or their parent or sponsor entities even though those parent or sponsor entities are not liable for the obligations of the tenant or guarantor under the lease. Any such credit ratings are subject to ongoing evaluation by these credit rating agencies and we cannot assure you that any such ratings will not be changed or withdrawn by these rating agencies in the future if, in their judgment, circumstances warrant. If these rating agencies assign a lower-than-expected rating or reduce or withdraw, or indicate that they may reduce or withdraw, the credit rating of a tenant, guarantor or its parent entity, the value of our investment in any properties leased by such tenant could significantly decline.
Our assets may be subject to impairment charges.
We periodically evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on GAAP, which includeincludes a variety of factors such as market conditions, the status of significant leases, the financial condition of major tenants and other factors that could affect the cash flow or value of an investment. Based on this evaluation, we may from time to time take non-cash impairment charges, which could affect the implementation of our current business strategy.charges. These impairments could have a material adverse effect on our financial condition and results of operations.
Furthermore, If we may take an impairment charge on a property subject to a non-recourse secured mortgage which reducesand reduce the book value of such property to its fair value, which may be below the balance of the mortgage on our balance sheet. Uponsheet, upon foreclosure or other disposition, we may be required to recognize a gain on debt satisfaction equal to the difference between the fair value of the property and the balance of the mortgage.satisfaction.
Our real estate development activities are subject to additional risks.
We selectively develop new properties either alone or through joint ventures when we believe accretive returns are achievable. Due to the competition in the industrial real estate market, we believe that speculative development is an essential part of our strategy to transition to an industrial focused REIT.
Development activities generally require various government and other approvals, which we may not receive. We rely on third-party construction managers and/or engineers to monitor certain construction activities. If we engage or partner with a developer, we rely on the developer to monitor construction activities and our interests may not be aligned. In addition, development activities, including speculative development and redevelopment and renovation of vacant properties, are subject to risks including, but not limited to:
Unsuccessful
•unsuccessful development opportunities could cause us to incur direct expenses;
Construction
•construction costs of a project may exceed original estimates, possibly making the project less profitable than originally estimated or unprofitable;
Time
•time required to complete the construction of a project or to lease up the completed project may be greater than originally anticipated, thereby adversely affecting our cash flow and liquidity;
We
•legal action to compel performance of contractors, developers or partners may cause delays and our costs may not be reimbursed;
•we may not be able to find tenants to lease the space built on a speculative basis or in a redeveloped or renovated building, which will impact our cash flow and ability to finance or sell such properties;
Occupancy
•there may be gaps in warranty obligations of our developers and contractors and the obligations to a tenant;
•occupancy rates and rents of a completed project may not be sufficient to make the project profitable; and
Favorable
•favorable financing sources to fund development activities may not be available.
In addition, our development activities are subject to risks related to supply-chain disruptions and inflation, which increase costs and may delay completion.
A tenant’s bankruptcy proceeding may result in the re-characterization of related sale-leaseback transactions or in the restructuring of the tenant's payment obligations to us, either of which could adversely affect our financial condition.
We have entered and may continue to enter into sale-leaseback transactions, whereby we purchase a property and then lease the same property back to the person from whom we purchased it. In the event of the bankruptcy of a tenant, a transaction structured as a sale-leaseback may be re-characterized as either a financing or a joint venture. As a result of the foregoing, the re-characterization of a sale-leaseback transaction could adversely affect our financial condition, cash flow and the amount available for distributions to our shareholders.
If the sale-leaseback were re-characterized as a financing, we might not be considered the owner of the property, and as a result, would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms and prevented from foreclosing our lien on the property. If the sale-leaseback were re-characterized as a joint venture, our tenant and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the tenant relating to the property.
A significant portion of our leases are long-term and do not have fair market rental rate adjustments, which could negatively impact our income and reduce the amount of funds available to make distributions to shareholders.
A significant portion of our rental income comes from long-term net leases, which generally provide the tenant greater discretion in using the leased property than ordinary property leases, such as the right to freely sublease the property, to make alterations in the leased premises and to terminate the lease prior to its expiration under specified circumstances. Furthermore, net leases typically have longer lease terms and, thus, there is an increased risk that contractual rental increases in future years will fail to result in fair market rental rates during those years. If we do not accurately judge the potential for increases in market rental rates when negotiating these long-term leases or if we are unable to obtain any increases in rental rates over the terms of our leases, significant increases in future property operating costs, to the extent not covered under the net leases, could result in us receiving less than fair value from these leases. As a result, our income and distributions to our shareholders could be lower than they would otherwise be if we did not engage in long-term net leases.
In addition, increases in interest rates may also negatively impact the value of our properties that are subject to long-term leases. While a significant number of our net leases provide for annual escalations in the rental rate, the increase in interest rates may outpace the annual escalations.
Our interests
Interests in loans receivable if any, are subject to delinquency, foreclosure and loss.
While loan receivables are not a primary focus, we may make loans to purchasers of our properties orand developers. Our interests in loans receivable if any, are generally non-recourse and secured by real estate properties owned by borrowers that were unable to obtain similar financing from a commercial bank. These loans are subject to many risks including delinquency. The ability of a borrower to repay a loan secured by a real estate property is typically and primarily dependent upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If a borrower were to default on a loan, it is possible that we would not recover the full value of the loan as the collateral may be non-performing.
We face uncertainties relating to lease renewals and re-letting of space.
Upon the expiration of current leases for space located in properties in which we have an interest, our property owner subsidiaries may not be able to re-let all or a portion of such space, or the terms of re-letting (including the cost of concessions to tenants and leasing commissions) may be less favorable than current lease terms or market rates. If our property owner subsidiaries are unable to promptly re-let all or a substantial portion of the space located in their respective properties, or if the rental rates a property owner subsidiary receives upon re-letting are significantly lower than current rates, our earnings and ability to satisfy our debt service obligations and to make expected distributions to our shareholders may be adversely affected due to the resulting reduction in rent receipts and increase in property operating costs. There can be no assurance that our property owner subsidiaries will be able to retain tenants in any of our properties upon the expiration of leases.
We may not be able to generate sufficient cash flow to meet our debt service obligations and to pay distributions on our common and preferred shares.
Our ability to make payments on and to refinance our indebtedness, to make distributions on our common and preferred shares and to fund our operations, working capital and capital expenditures, depends on our ability to generate cash in the future. To a certain extent, our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other factors, many of which are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us in an amount sufficient to enable us to pay amounts due on our indebtedness or to make distributions on our common and preferred shares and fund our other liquidity needs. Additionally, if we incur additional indebtedness in connection with future acquisitions or development projects or for any other purpose, our debt service obligations could increase.
We may need to refinance all or a portion of our indebtedness on or before maturity. Our ability to refinance our indebtedness or obtain additional financing will depend on, among other things, our financial condition and market conditions at the time and restrictions in the agreements governing our indebtedness.
As a result, we may not be able to refinance any of our indebtedness on commercially reasonable terms, or at all. If we do not generate sufficient cash flow from operations, and additional borrowings or refinancings or proceeds of asset sales or other sources of cash are not available to us, we may not have sufficient cash to enable us to meet all of our obligations. Accordingly, if we cannot service our indebtedness, we may have to take actions such as seeking additional equity, or delaying strategic acquisitions and alliances or capital expenditures, any of which could have a material adverse effect on our operations. We cannot assure you that we will be able to effect any of these actions on commercially reasonable terms, or at all.
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 industrial properties and related assets. In the context of our business plan, “development” generally means an expansion or renovation of an existing property or the financing and/or acquisition of a newly constructed build-to-suit or speculative property and/or the development of a land parcel. For newly constructed properties, we may (1) provide a developer with either a combination of financing for the construction of a property or a commitment to acquire a property upon completion of construction of a property and commencement of rent from the tenant, (2) acquire a property subject to a lease and engage a developer to complete construction of a property as required by the lease, or (3) partner with a developer to acquire and develop or acquire on our own and engage a developer to develop land and pursue industrial development opportunities.
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 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.
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 to satisfy our debt service obligations and distributions to shareholders may be adversely affected.
Our acquisitioninvestment and disposition activity may lead to dilution.
Our asset strategy is to increase our investment in general purpose, well located industrialwarehouse/distribution assets and reduce our exposure to all other asset types. We believe this strategy will lessen capital expenditures over time and mitigate revenue reductions on renewals and re-tenanting. To implement this strategy, we have been selling officenon-industrial assets and recapitalizing special purpose industrial assets, which generally have higher capitalization rates, and buying industrialwarehouse and distribution properties, which, in the current competitive market, generally have lower capitalization rates. This strategy impacts growth in the short-term period. There can be no assurance that the implementation of our strategy will lead to improved results or that we will be able to execute our strategy as contemplated or on terms acceptable to us.
From time to time, we announce potential lease, financing, disposition or investment commitments or transactions, which may not be consummated on the terms we announce or at all.
We publicly communicate potential lease, financing, disposition and investment commitments or transactions in our public documents filed with or furnished to the SEC and press releases and on conference calls with analysts and investors. We can give no assurances that any
Investment activities may not produce expected results and may be affected by outside factors.
AcquisitionsThe demand for industrial space in the United States is generally related to the level of economic output and consumer demand. Accordingly, reduced economic output and/or consumer demand may lead to lower occupancy rates for our properties. The concentration of our investments, among other factors, in industrial assets may expose us to the risk of economic downturns specific to industrial assets to a greater extent than if our investments were diversified.
Investment in commercial properties entail certain risks, such as (1) underwriting assumptions, including occupancy, rental rates and expenses, may differ from estimates, (2) the properties may become subject to environmental liabilities that we were unaware of at the time we acquired the property despite any environmental testing, (3) we may have difficulty obtaining financing on acceptable terms or paying the operating expenses and debt service associated with acquired properties prior to sufficient occupancy and (4) projected exit strategies may not come to fruition due to a variety of factors such as market conditions and/or tenant credit conditions at the time of dispositions.
We may not be successful in identifying suitable real estate properties or other assets that meet our acquisitioninvestment criteria. We may also fail to complete acquisitions or investments on satisfactory terms. Failure to identify or complete acquisitionsinvestments could slow our growth, which could, in turn, have a material adverse effect on our financial condition and results of operations.
We face certain risks associated with our development activities.
From time to time,Properties where we engage in, or provide capital to developers who are engaged in, build-to-suit activities. We face uncertainties associated with a developer's performancehave operating responsibilities and timely completion of a project, including the performance or timely completion by contractors and subcontractors. A developer's performance may be affected or delayed by their own actions or conditions beyond the developer's control. If a developer, contractor or subcontractor fails to perform, we may resort to legal action to compel performance, remove the developer or rescind the purchase or construction contract. Legal action may cause further delays and our costs may not be reimbursed.
We may incur additional risks when we make periodic progress payments or other advances to developers before completion of construction. These and other factors can result in increased costs of a project or loss of our investment. We also rely on third-party construction managers and/or engineers to monitor the construction activities.
Upon completion of construction, we are generally responsible to the tenant for any warranty claims. While we generally have a warranty from the developer or general contractor that was responsible for construction backstopping our warranty obligations to the tenant, we are subject to the risk of a gap in warranty coverage and of enforcement of such developer or general contractor warranty.
We rely on rental income and expense projections and estimates of the fair market value of a property upon completion of construction when agreeing upon a purchase price at the time we acquire the property. If our projections are inaccurate or markets change, we may pay more than the fair value of a property.
In addition, the rental rates for a new build-to-suit project are generally derived from the cost to construct the project and may not equal a fair market lease rate for older existing properties in the same market.
Our multi-tenant properties expose us to additional risks.
Our multi-tenant properties
Properties where we have operating responsibilities involve risks not typically encountered in real estate properties which are fully operated by or for a single tenant. The ownership of multi-tenant properties couldwhich are not fully operated by a single tenant expose us to the risk of potential "CAM slippage," which may occur when the actual cost of taxes, insurance and maintenance at the property exceeds the operating expenses paid by tenants and/or the amounts budgeted. Depending on the tenant’s leverage in the lease negotiation, the tenant may be successful in negotiating for caps on certain operating expenses and we are responsible for any amounts in excess of any cap.
Multi-tenant properties are also subject to the risk that a sufficient number of suitable tenants may not be found to enable the property to operate profitably and provide a return to us. Moreover, tenant turnover and fluctuation in occupancy rates, could affect our operating results. This risk may be compounded by the failure of existing tenants to satisfy their obligations due to various factors. These risks, in turn, could cause a material adverse impact to our results of operations and business.
Multi-tenant
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 certain of the properties in which we have an interest, 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, certain of our leases require the tenant to maintain all insurance on the property, and the failure of the tenant to maintain the proper insurance could adversely impact our investment in a property in the event of a loss. Furthermore, 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 could adversely affect our financial condition and results of operations.
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, misappropriation of assets and/or damage to our business relationships, all of which could negatively impact our financial results.
Cyber incidents may result in disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our tenant, investor and/or vendor relationships. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those we have outsourced. Any processes, procedures and internal controls that we implement, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that our financial results, operations, business relationships or confidential information will not be negatively impacted by such an incident.
Insider or employee cyber and security threats are increasingly a concern for all companies, including ours. In addition, social engineering and phishing are a particular concern for companies with employees. As a landlord, we are also susceptible to cyber attacks on our tenants and their payment systems. We are continuously working to install new, and to upgrade our existing, network and information technology systems and to provide employee awareness training around phishing, malware and other cyber risks to ensure that we are protected, to the greatest extent possible, against cyber risks and security breaches. However, such upgrades, new technology and training may not be sufficient to protect us from all risks.
As a smaller company, we use third-party vendors to assist us with our network and information technology requirements. While we carefully select these third-party vendors, we cannot control their actions. Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber attacks and security breaches at a vendor could adversely affect our operations.
Competition may adversely affect our ability to purchase properties.
There are numerous other companies and individuals with greater financial and other resources than we have that compete with us in seeking investments and tenants. This competition may result in a higher cost for properties and lower returns and impact our ability to grow.
We may have limited control over our joint venture investments.
Our joint venture investments involve risks not otherwise present for investments made solely by us, including the possibility that our partner might, at any time, become bankrupt, have different interests or goals than we do, or take action contrary to our expectations, its previous instructions or our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT. Other risks of joint venture investments include impasses on decisions, such as a sale, because neither we nor our partner may have full control over the joint venture. Also, there is no limitation under our organizational documents as to the amount of funds that may be invested in joint ventures.
Our ability to change our portfolio is limited because real estate investments are illiquid.
Investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions is limited. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number or type of properties in which we may seek to invest or on the concentration of investments in any one geographic region.
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 our investment and financing policies, growth strategy and our 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. Changes made by our Board of Trustees may not serve the interests of debt or equity security holders and could adversely affect our financial condition or results of operations, including our ability to satisfy our debt service obligations, distribute cash to shareholders and qualify as a REIT. Accordingly, shareholders' control over changes in our strategies and policies is limited to the election of trustees.
We may incur significant costs in connection with our Board of Trustees' review of strategic alternatives and related matters. Such costs include, but are not limited to, legal and other professional advisory fees and expenses.
Industry and Economic Risks
The current outbreak of COVID-19, or the future outbreak of any other highly infectious or contagious diseases, could adversely impact or cause disruption to our business, financial condition, results of operations and cash flows. Further, the spread of the COVID-19 outbreak has caused severe disruptions in the U.S. and global economy, may further disrupt financial markets and could potentially create widespread business continuity issues.
In recent years the outbreaks of a number of diseases, including Avian Bird Flu, H1N1, and various other "super bugs," have increased the risk of a pandemic. On March 11, 2020, the World Health Organization declared COVID-19, a novel strain of the coronavirus, a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19. Although vaccines have been developed and are widely distributed in the United States, newer and more contagious variants of COVID-19 have further amplified the impact of the pandemic while significant components of the United States population are resistant to vaccination efforts.
The COVID-19 pandemic has also coincided with labor shortages and increased staffing costs for many companies operating in the United States. COVID-19 related disruptions to the international supply chain, including transportation and distribution delays, longer lead times for construction materials and increased construction costs have resulted in shortages of certain goods and inflationary conditions. These developments, as well as other ramifications of the COVID-19 pandemic may result in prolonged inflationary conditions that could have a detrimental impact on our tenant base, our ability to lease vacant space and our ability to grow through development and acquisition. Future adverse impacts to the economy caused by COVID-19 may also result in market volatility and large swings in global stock prices that may negatively impact our share price. These potential risks could also negatively impact our future ability to access capital, which would negatively impact our liquidity and our ability to execute our strategic plans.
The impacts of the outbreak could, among other things, negatively affect (i) the operation of our properties, (ii) the effectiveness of our strategic decision making, (iii) the operation of an effective cyber security function, (iv) the operation of our key information systems, (v) our ability to make timely filings with the SEC and (vi) our ability to maintain an effective control environment.
The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, the COVID-19 outbreak has had, and future pandemics could have, a significant adverse impact on economic and market conditions of economies around the world, including the United States, the results of which have and would present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.
Potential 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 periodically experienced significant dislocations and liquidity disruptions, which have caused the spreads on prospective debt financings to widen considerably. These circumstances may materially impact liquidity in the debt markets, making financing terms for borrowers less attractive, and in certain cases may result in the unavailability of certain types of debt financing. Uncertainty in the credit markets may negatively impact our ability to access additional debt financing on 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 capital or difficulties in obtaining capital. These events in the credit markets may have 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, our tenants or the economy in general.
Natural disasters and the effects of climate change could have a concentrated impact on the areas where we operate and could adversely impact our results.
We invest in properties on a nationwide basis. Natural disasters, including earthquakes, storms, tornados, floods and hurricanes, could impact our properties in these and other areas in which we operate. Potentially adverse consequences of global warming, including rising sea levels, could similarly have an impact on our properties. Over time, these conditions could result in declining demand for space in our buildings or the inability of us to operate the buildings at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy at our properties and requiring us to expend funds as we seek to repair and protect our properties against such risks. Incurring these losses, costs or business interruptions may adversely affect our operating and financial results.
Risks Related to our Indebtedness
We have a substantial amount of indebtedness.
Our substantial indebtedness could adversely affect our financial condition and our ability to fulfill our obligations under the documents governing our unsecured indebtedness and otherwise adversely impact our business and growth prospects.
We have a substantial amount of debt. We may be more leveraged than certain of our competitors. We have incurred, and may continue to incur, direct and indirect indebtedness in furtherance of our activities. Neither our declaration of trust nor any policy statement formerly adopted by our Board of Trustees limits the total amount of indebtedness that we may incur, and accordingly, we could become even more highly leveraged. As of December 31, 2021, our total consolidated indebtedness was approximately $1.5 billion and we had approximately $600.0 million available for borrowing under our principal credit agreement, subject to covenant compliance.
Our substantial indebtedness could adversely affect our financial condition and results of operations and have important consequences to us and our debt and equity security holders. For example, it could:
•make it more difficult for us to satisfy our indebtedness and debt service obligations and adversely affect our ability to pay distributions;
•increase our vulnerability to adverse economic and industry conditions;
•require us to dedicate a substantial portion of our cash flow from operations to the payment of interest on and principal of our indebtedness, thereby reducing the availability of cash to fund working capital, capital expenditures and other general corporate purposes;
•limit our ability to borrow money or sell stock to fund our development projects, working capital, capital expenditures, general corporate purposes or acquisitions;
•restrict us from making strategic acquisitions or exploiting business opportunities;
•place us at a disadvantage compared to competitors that have less debt; and
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.
In addition, the agreements that govern our current indebtedness contain, and the agreements that may govern any future indebtedness that we may incur may contain, financial and other restrictive covenants, which may limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of our debt.
Market interest rates could have an adverse effect on our borrowing costs, profitability and the value of our fixed-rate debt securities.
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 earnings. As of December 31, 2021, we have $129.1 million of trust preferred securities that matures in April 2037 that is LIBOR indexed. In addition, we have a $300.0 million unsecured term loan which matures January 2025 that is LIBOR indexed and is subject to interest rate swap agreements through January 2025. Also, our unsecured revolving credit facility is subject to a variable interest rate. 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 earnings. In addition, our interest costs on our fixed-rate indebtedness may increase if we are required to refinance our fixed-rate indebtedness upon maturity at higher interest rates. Also, fixed-rate debt securities generally decline in value as market rates rise because the premium, if any, over market interest rates will decline.
The LIBOR index rate may not be available in the future.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. On March 5, 2021, the Financial Conduct Authority further announced that it intends to stop compelling banks to submit rates for the calculation of one, three and six month LIBOR after June 30, 2023. It is unclear whether new methods of calculating such LIBOR periods will be established such that they continue to exist after June 30, 2023. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United States or elsewhere. The Alternative Reference Rates Committee (or ARRC) has
proposed that the Secured Overnight Financing Rate (or SOFR) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. Our trust preferred securities do not provide for a clear alternative to USD-LIBOR.
We have engaged and may engage in hedging transactions that may limit gains or result in losses.
We have used derivatives to hedge certain of our variable-rate liabilities. As of December 31, 2021, we had aggregate interest rate swap agreements on $300.0 million of borrowings. The counterparties of these arrangements are major financial institutions; however, we are exposed to credit risk in the event of non-performance or default by the counterparties. Further, additional risks, including losses on a hedge position, may reduce the return on our investments. Such losses may exceed the amount invested in such instruments. We may also have to pay certain costs, such as transaction fees or breakage costs, related to hedging transactions.
Covenants in certain of the agreements governing our debt could adversely affect our financial condition, investment activities and/or operating activities.
Our unsecured revolving credit facility, unsecured term loan and indentures governing our senior notes contain certain cross-default and cross-acceleration provisions as well as customary restrictions, requirements and other limitations on our ability to incur indebtedness and consummate mergers, consolidations or sales of all or substantially all of our assets. Our ability to borrow under our unsecured revolving credit facility is also subject to tenant turnovercompliance with certain other covenants. In addition, failure to comply with our covenants could cause a default under the applicable debt instrument and fluctuationwe may then be required to repay such debt with capital from other sources. Under those circumstances, other sources of capital may not be available to us or be available only on unattractive terms. Additionally, our ability to satisfy current or prospective lenders' insurance requirements may be adversely affected if lenders generally insist upon greater insurance coverage than is available to us in occupancythe marketplace or on commercially reasonable terms.
We rely on debt financing, including borrowings under our unsecured revolving credit facility, unsecured term loan, debt securities, and debt secured by individual properties, for working capital, including to finance our investment activities. If we are unable to obtain financing from these or other sources, or to refinance existing indebtedness upon maturity, our financial condition and results of operations could be adversely affected.
The documents governing our non-recourse indebtedness contain restrictions on the operations of our property owner subsidiaries and their properties. Certain activities, like leasing and alterations, may be subject to the consent of the applicable lender. In addition, certain lenders engage third-party loan servicers that may not be as responsive as we would be or as the leasing market requires.
We face risks associated with refinancings.
Some of the properties in which we have an interest are subject to a mortgage or other secured notes with balloon payments due at maturity. In addition, our corporate level borrowings require interest only payments with all principal due at maturity.
Our ability to make the scheduled balloon payments on any corporate recourse note will depend on our access to the capital markets, including our ability to refinance the maturing note. Our ability to make the scheduled balloon payment on any non-recourse mortgage note will depend upon (1) in the event we determine to contribute capital, our cash balances and the amount available under our unsecured credit facility, and (2) the property owner subsidiary's ability either to refinance the related mortgage debt or to sell the related property. If the property owner subsidiary is unable to refinance or sell the related property, the property may be conveyed to the lender through foreclosure or other means or the property owner subsidiary may declare bankruptcy.
We face risks associated with returning properties to lenders.
Some of the properties in which we have an interest are subject to non-recourse mortgages, which generally provide that a lender's only recourse upon an event of default is to foreclose on the property. In the event these properties are conveyed via foreclosure to the lenders thereof, we would lose all of our interest in these properties. The loss of a significant number of properties to foreclosure or through bankruptcy of a property owner subsidiary could adversely affect our financial condition and results of operations, relationships with lenders and ability to obtain additional financing in the future.
In addition, a lender may attempt to trigger a carve out to the non-recourse nature of a mortgage loan. To the extent a lender is successful, the ability of our property owner subsidiary to return the property to the lender may be inhibited and/or we may be liable for all or a portion of such loan.
Certain of our indebtedness is subject to cross-default, cross-acceleration and cross-collateral provisions.
Substantially all of our corporate level borrowings and, in the future, certain of our secured indebtedness may, contain cross-default and/or cross-acceleration provisions, which may be triggered if we default on certain indebtedness in excess of certain thresholds. In the event of such a default, the resulting cross defaults and/or cross-accelerations may adversely impact our financial condition.
Two of our non-consolidated joint ventures have portfolio loans where the loans are cross-collateral with all of the assets in the portfolio.
We may not be able to generate sufficient cash flow to meet our debt service obligations.
Our ability to make payments on and to refinance our indebtedness depends on our ability to generate cash in the future. To a certain extent, our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other factors, many of which are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us in an amount sufficient to enable us to pay amounts due on our indebtedness. Additionally, if we incur additional indebtedness in connection with future acquisitions or development projects or for any other purpose, our debt service obligations could increase.
The effective subordination of our unsecured indebtedness and any related guaranty may reduce amounts available for payment on our unsecured indebtedness and any related guaranty.
The holders of our secured debt may foreclose on the assets securing such debt, reducing the cash flow from the foreclosed property available for payment of unsecured debt and any related guaranty. The holders of any of our secured debt also would have priority with respect to the secured collateral over unsecured creditors in the event of a bankruptcy, liquidation or similar proceeding.
None of our subsidiaries are guarantors of our unsecured debt; therefore assets of our subsidiaries may not be available to make payments on our unsecured indebtedness.
We are the sole borrower of our unsecured indebtedness and none of our subsidiaries were guarantors of our unsecured indebtedness. In the event of a bankruptcy, liquidation or reorganization of any of our subsidiaries, holders of subsidiary debt, including trade creditors, will generally be entitled to payment of their claims from the assets of our subsidiaries before any assets are made available for distribution to us.
All of our assets are held through our subsidiaries. Consequently, our cash flow and our ability to meet our debt service obligations depend in large part upon the cash flow of our subsidiaries and the payment of funds by our subsidiaries to us in the form of distributions or otherwise.
Risks Related to Investment in our Equity
We may change the dividend policy for our common shares in the future.
The decision to declare and pay dividends on our common shares in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our Board of Trustees in light of conditions then existing, including our earnings, financial condition, capital requirements, debt maturities, the availability of debt and equity capital, applicable REIT and legal restrictions and the general overall economic conditions and other factors. The actual dividend payable will be determined by our Board of Trustees based upon the circumstances at the time of declaration and the actual dividend payable may vary from such expected amount. Any change in our dividend policy could have a material adverse effect on the market price of our common shares.
Securities eligible for future sale may have adverse effects on our share price.
We have an unallocated universal shelf registration statement and we also maintain an At-the-Market offering program and a direct share purchase plan, pursuant to which we may issue additional common shares. There is no restriction on our issuing additional common or preferred shares, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common or preferred shares or any substantially similar securities. Pursuant to our At-the-Market offering, we
may enter into forward sale agreements. Settlement provisions contained in any forward sale agreement could result in substantial dilution to our earnings per share or result in substantial cash payment obligations. In addition, in the case of our bankruptcy or insolvency, any forward sale agreement will automatically terminate, and we would not receive the expected proceeds from the sale of our common shares under such agreement.
We disclose certain non-GAAP financial measures in documents filed and/or furnished with the SEC; however, the non-GAAP financial measures we disclose are not equivalent to applicable comparable GAAP measures, and you should consider GAAP measures to be more relevant to our operating performance.
We use and disclose to investors FFO, Adjusted Company FFO, NOI and other non-GAAP financial measures. FFO, Adjusted Company FFO, NOI and the other non-GAAP financial measures are not equivalent to our net income or loss as determined in accordance with GAAP, and investors should consider GAAP measures to be more relevant to evaluating our operating performance. FFO, Adjusted Company FFO and NOI, and GAAP net income (loss) differ because FFO, Adjusted Company FFO and NOI exclude many items that are factored into GAAP net income or loss.
Because of the differences between FFO, Adjusted Company FFO, NOI and GAAP net income or loss, FFO, Adjusted Company FFO and NOI may not be accurate indicators of our operating performance, especially during periods in which we are acquiring and selling properties. In addition, FFO, Adjusted Company FFO and NOI are not necessarily indicative of cash flow available to fund cash needs and investors should not consider FFO, Adjusted Company FFO or NOI as alternatives to cash flows from operations, as an indication of our liquidity or as indicative of funds available to fund our cash needs, including our ability to make distributions to our shareholders.
Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO, Adjusted Company FFO and NOI. Also, because not all companies calculate FFO, Adjusted Company FFO and NOI the same way, comparisons with other companies’ measures with similar titles may not be meaningful.
There are certain limitations on a third party's ability to acquire us or effectuate a change in our control.
Severance payments under our executive severance policy. Substantial termination payments may be required to be paid under our executive severance policy applicable to and related agreements with our executives upon the termination of an executive. If those executive officers are terminated without cause, as defined, or resign for good reason, as defined, those executive officers may be entitled to severance benefits based on their current annual base salaries and trailing average of recent annual cash bonuses as defined in our executive severance policy and related agreements and the acceleration of certain non-vested equity awards. Accordingly, these payments may discourage a third party from acquiring us.
Our ability to issue additional shares. Our declaration of trust authorizes 1,000,000,000 shares of beneficial interest (par value $0.0001 per share) consisting of 400,000,000 common shares, 100,000,000 preferred shares and 500,000,000 shares of beneficial interest classified as excess stock, or excess shares. Our Board of Trustees is authorized to cause us to issue these shares without shareholder approval. Our Board of Trustees may establish the preferences and rights of any such class or series of additional shares, 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. At December 31, 2021, in addition to common shares, we had outstanding 1,935,400 Series C Preferred Shares. Our Series C Preferred Shares include provisions, such as increases in dividend rates or adjustments to conversion rates, which may deter a change of control. The establishment and issuance of shares of our existing series of preferred shares or a future class or series of shares could make a change of control of us more difficult.
Maryland Takeover Statutes. Certain provisions of the Maryland General Corporation Law, including the Maryland Business Combination Act, the Maryland Control Share Act, and certain elective provisions of Maryland law under Subtitle 8 of the Maryland General Corporation Law, each as further described under the heading “Restrictions on Transfers of Capital Stock and Anti-Takeover Provisions – Maryland Law” in Exhibit 4.10 of this Annual Report, are applicable to Maryland REITs, such as the Company. We are subject to the Maryland Business Combination Act, and while our 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. We have also not elected to be governed by any of the specific provisions of Subtitle 8, however, through provisions of our declaration of trust and/or by-laws, as applicable, unrelated to Subtitle 8, we provide for an 80% shareholder vote to remove trustees and then only for cause, and that the number of trustees may be determined by a resolution of our Board of Trustees, subject to a minimum number. In addition, we can elect to be governed by any or all of the provisions of Subtitle 8 of the Maryland General Corporation Law at any time in the future. These statutes 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.
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 declaration of trust includes certain restrictions regarding transfers of our capital shares and ownership limits.
In order to protect against the loss of our REIT status, among other things, actual or constructive ownership of our capital shares in violation of the restrictions contained in our declaration of trust or in excess of 9.8% in value of our outstanding equity shares, defined as our common shares, or preferred shares, subject to certain exceptions, 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.
However, these restrictions and limits may not be adequate in all cases 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.
The trading price of our common shares has been, and may continue to be, subject to significant fluctuations.
The market price of our common shares may fluctuate in response to company-specific and general market events and developments, including those described in this Annual Report. In addition, our leverage may impact investor demand for our common shares, which could have a material effect on the market price of our common shares.
Furthermore, in 2021, we disclosed communications with an activist shareholder. Such investor activism could interfere with our ability to execute our strategic plan, divert the attention of our Board of Trustees, management and employees, give rise to perceived uncertainties as to our future direction, adversely affect our relationships with key business partners, result in a loss of potential business opportunities, make it more difficult to attract and retain qualified personnel, or require us to incur substantial legal and public relations fees and expenses, any of which could adversely affect our business and operating results. Furthermore, multi-tenant properties expose usThe public valuation of our common shares is related primarily to the riskearnings that we derive from rental income with respect to the properties in which we have an interest 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 "CAM slippage," whichinvestors seeking a higher yield than they would receive from our common shares may occur when the actual costsell our common shares in favor of taxes, insurancehigher yielding securities.
Legal and maintenance at the property exceeds the operating expenses paid by tenants and/or the amounts budgeted.Regulatory Risks
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, our property owner subsidiaries may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under the properties in which we have an interest 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 our property owner subsidiaries 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 be significant and could exceed the value of the property and/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 a property owner subsidiary's 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 satisfy our debt service obligations and to pay dividends.
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 the tenants of the properties in which we have an interest 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 the tenants of the
properties in which we have an interest to satisfy any obligations with respect to the property leased to that tenant, our property owner subsidiary 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.lease and, in certain cases, we have provided lenders with environmental indemnities.
From time to time, in connection with the conduct of our business, our property owner subsidiaries authorize the preparation of Phase I environmental reports and, when recommended, Phase II environmental reports, with respect to their properties. There can be no assurance that these environmental reports will reveal all environmental conditions at the properties in which we have an interest or that the following will not expose usinterest. We are also subject to exposure to material liability in the future:
•from the discovery of previously unknown environmental conditions;
•changes in law;
•activities of tenants; or
•activities relating to properties in the vicinity of the properties in which we have an interest.
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 the tenants of the properties in which we have an interest, which could adversely affect our financial condition or results of operations.
From time to time we are involved in legal proceedings arising in the ordinary course of our business.
Legal proceedings arising in the ordinary course of our business require time and effort. The outcomes of legal proceedings are subject to significant uncertainty. In the event that we are unsuccessful in defending or prosecuting these proceedings, as applicable, we may incur a judgment or fail to realize an award of damages that could have an adverse effect on our financial condition.
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 certain of the properties in which we have an interest, 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, certain of our leases require the tenant to maintain all insurance on the property, and the failure of the tenant to maintain the proper insurance could adversely impact our investment in a property in the event of a loss. Furthermore, 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 could adversely affect our financial condition and results of operations.
Future terrorist attacks, military conflicts and unrest in various parts of the world could have a material adverse effect on general economic conditions, consumer confidence and market liquidity.
Terrorist attacks, ongoing and future military conflicts and the continued unrest in various parts of the world may affect commodity prices and interest rates, among other things. An increase in interest rates may increase our costs of borrowing, leading to a reduction in our earnings. Instability in the price of oil will also cause fluctuations in our operating costs, which may not be reimbursed by our tenants. Also, terrorist acts could result in significant damages to, or loss of, our properties or the value thereof.
We and the tenants of the properties in which we have an interest 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 our property owner subsidiary remains obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types could adversely affect our financial condition.
Natural disasters, public health epidemics and the effects of climate change could have a concentrated impact on the areas where we operate and could adversely impact our results.
We invest in properties on a nationwide basis. Natural disasters, including earthquakes, storms, tornados, floods and hurricanes, could impact our properties in these and other areas in which we operate. Public health epidemics could impact our employees or the national or global supply chain. Potentially adverse consequences of global warming, including rising sea levels, could similarly have an impact on our properties. Over time, these conditions could result in declining demand for space in our buildings or the inability of us to operate the buildings at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy at our properties and requiring us to expend funds as we seek to repair and protect our properties against such risks. The incurrence of these losses, costs or business interruptions may adversely affect our operating and financial results.
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, misappropriation of assets and/or damage to our business relationships, all of which could negatively impact our financial results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our tenant, investor and/or vendor relationships. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those we have outsourced. Any processes, procedures and internal controls that we implement, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that our financial results, operations, business relationships or confidential information will not be negatively impacted by such an incident.
Networks and information technology throughout the world and in companies of all sizes are threatened by cybersecurity risks on a regular basis. We must continuously monitor and develop our networks and information technology to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. Insider or employee cyber and security threats are increasingly a concern for all companies, including ours. In addition, social engineering and phishing are a particular concern for companies with employees. We are continuously working to install new, and to upgrade our existing, network and information technology systems and to provide employee awareness training around phishing, malware and other cyber risks to ensure that we are protected, to the greatest extent possible, against cyber risks and security breaches. However, such upgrades, new technology and training may not be sufficient to protect us from all risks.
As a smaller company, we use third-party vendors to assist us with our network and information technology requirements. While we carefully select these third-party vendors, we cannot control their actions. Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber attacks and security breaches at a vendor could adversely affect our operations.
Competition may adversely affect our ability to purchase properties.
There are numerous developers, real estate companies, such as other REITs, financial institutions, such as banks and insurance companies, and other investors, such as pension funds, private companies and individuals, with greater financial and other resources than we have that compete with us in seeking investments and tenants. Due to our focus on single-tenant properties located throughout the United States, and because some competitors are often locally and/or regionally focused, we do not always encounter the same competitors in each market. This competition may result in a higher cost for properties and lower returns and impact our ability to grow.
Our failure to maintain effective internal control over financial reporting 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 control over financial reporting. We cannot assure you that our control environment will prevent material weaknesses from arising in the future. If we fail to maintain the adequacy of our internal control over financial reporting in the future, as such standards may be modified, supplemented or amended from time to time, we will be required to disclose such failure, and our financial reporting may not be relied on by investors. Moreover, effective internal control is necessary for us to produce reliable financial reports and to maintain our qualification as a REIT and is important in 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 debt and equity securities could drop significantly.
We may have limited control over our joint venture investments.
Our joint venture investments involve risks not otherwise present for investments made solely by us, including the possibility that our partner might, at any time, become bankrupt, have different interests or goals than we do, or take action contrary to our expectations, its previous instructions or our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT. Other risks of joint venture investments include impasses on decisions, such as a sale, because neither we nor our partner has full control over the joint venture. Also, there is no limitation under our organizational documents as to the amount of funds that may be invested in joint ventures.
Our ability to change our portfolio is limited because real estate investments are illiquid.
Investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions is limited. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number or type of properties in which we may seek to invest or on the concentration of investments in any one geographic region.
Our reported financial results may be adversely affected by changes in accounting principles applicable to us and the tenants of properties in which we have an interest.
GAAP is subject to interpretation by various bodies formed to promulgate and interpret appropriate accounting principles such as the Financial Accounting Standards Board. A change in these principles or interpretations could have a significant effect on our reported financial results, could affect the reporting of transactions completed before the announcement of a change and could affect the business practices and decisions of the tenants of properties in which we have an interest.
We have engaged and may engage in hedging transactions that may limit gains or result in losses.
We have used derivatives to hedge certain of our variable-rate liabilities. As of December 31, 2019, we had aggregate interest rate swap agreements on $300.0 million of borrowings. The counterparties of these arrangements are major financial institutions; however, we are exposed to credit risk in the event of non-performance or default by the counterparties. Further, additional risks, including losses on a hedge position, may reduce the return on our investments. Such losses may exceed the amount invested in such instruments. We may also have to pay certain costs, such as transaction fees or breakage costs, related to hedging transactions.
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 and invest in core assets, our Board of Trustees will determine our investment and financing policies, growth strategy and our 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. Changes made by our Board of Trustees may not serve the interests of debt or equity security holders and could adversely affect our financial condition or results of operations, including our ability to satisfy our debt service obligations, distribute cash to shareholders and qualify as a REIT. Accordingly, shareholders' control over changes in our strategies and policies is limited to the election of trustees.
We are dependent upon our key personnel.
We are dependent upon key personnel, particularly our executive officers. We do not have employment agreements with our executive officers, but we have entered into severance arrangements with certain of our executive officers that provide certain payments upon specified termination events.
Our inability to retain the services of any of our key personnel, an unplanned loss of any of their services or our inability to replace them upon termination as needed, could adversely impact our operations. We do not have key man life insurance coverage on our executive officers.
There may be conflicts of interest between E. Robert Roskind and us.
E. Robert Roskind, our former Chairman, beneficially owns a significant number of OP units, and as a result, may face different and more adverse tax consequences than our other shareholders will if we sell our interests in certain properties or reduce mortgage indebtedness on certain properties. Our former Chairman may, therefore, have different objectives than us and our debt and equity security holders regarding the appropriate pricing and timing of any sale of such properties or reduction of mortgage debt. In addition, Mr. Roskind holds the majority of a class of OP units that has a consent right with respect to certain fundamental transactions involving LCIF and/or us.
An affiliate of Mr. Roskind arranges real estate asset financings using funds raised from immigrant investors in accordance with the fifth preference employment-based immigration program administered by the U.S. Citizenship and Immigration Services. Two non-consolidated joint ventures have mezzanine financing from Mr. Roskind's affiliate.
Costs of complying with changes in governmental laws and regulations may adversely affect our results of operations.
We cannot predict what laws or regulations may be enacted, repealed or modified in the future, how future laws or regulations will be administered or interpreted, or how future laws or regulations will affect our properties. Compliance with new or modified laws or regulations, or stricter interpretation of existing laws, may require us or our tenants to incur significant expenditures, impose significant liability, restrict or prohibit business activities and could cause a material adverse effect on our results of operations.
Legislation such as the Americans with Disabilities Act may require us to modify our properties at substantial costs and noncompliance could result in the imposition of fines or an award of damages to private litigants. Future legislation may impose additional requirements. We may incur additional costs to comply with any future requirements.
We disclose Funds From Operations available to common shareholders and unitholders (or FFO), Adjusted Company Funds from Operations available to all equityholders and unitholders (or Adjusted Company FFO), Net Operating Income (or NOI) and other non-GAAP financial measures in documents filed and/or furnished with the SEC; however, neither FFO, Adjusted Company FFO, NOI nor the other non-GAAP financial measures we disclose are equivalent to our net income or loss as determined under GAAP or other applicable comparable GAAP measures, and you should consider GAAP measures to be more relevant to our operating performance.
We use and disclose to investors FFO, Adjusted Company FFO, NOI and other non-GAAP financial measures. FFO, Adjusted Company FFO, NOI and the other non-GAAP financial measures are not equivalent to our net income or loss as determined in accordance with GAAP, and investors should consider GAAP measures to be more relevant to evaluating our operating performance. FFO, Adjusted Company FFO and NOI, and GAAP net income (loss) differ because FFO, Adjusted Company FFO and NOI exclude many items that are factored into GAAP net income or loss.
Because of the differences between FFO, Adjusted Company FFO, NOI and GAAP net income or loss, FFO, Adjusted Company FFO and NOI may not be accurate indicators of our operating performance, especially during periods in which we are acquiring and selling properties. In addition, FFO, Adjusted Company FFO and NOI are not necessarily indicative of cash flow available to fund cash needs and investors should not consider FFO, Adjusted Company FFO or NOI as alternatives to cash flows from operations, as an indication of our liquidity or as indicative of funds available to fund our cash needs, including our ability to make distributions to our shareholders.
Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO, Adjusted Company FFO and NOI. Also, because not all companies calculate FFO, Adjusted Company FFO and NOI the same way, comparisons with other companies measures with similar titles may not be meaningful.
Risks Related to Our IndebtednessREIT Status
Our substantial indebtedness could adversely
There can be no assurance that we will remain qualified as a REIT for federal income tax purposes.
We believe that LXP has met the requirements for qualification as a REIT for federal income tax purposes beginning with its taxable year ended December 31, 1993, and we intend for LXP 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 Code, for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our financial condition and ourLXP's ability to fulfill our obligations under the documents governing our unsecured indebtedness and otherwise adversely impact our business and growth prospects.
We have a substantial amount of debt. We may be more leveraged than certain of our competitors. We have incurred, and may continue to incur, directqualify as a REIT. No assurance can be given that LXP has qualified or will remain qualified 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 LXP does not qualify as a REIT, LXP would not be allowed a deduction for dividends paid to shareholders in computing its net taxable income and indirect indebtedness in furtherance of our activities. Neither our declaration of trust nor any policy statement formerly adopted by our Board of Trustees limits the total amount of indebtedness that we may incur, and accordingly, we could become even more highly leveraged. As of December 31, 2019, our total consolidated indebtedness was approximately $1.3 billion and we had approximately $600.0 million available for borrowing under our principal credit agreement,LXP would not be required to continue making distributions. In addition, LXP's income would be subject to covenant compliance.
Our substantial indebtednesstax at the regular corporate rates. LXP also could adversely affect our financial condition and results of operations and have important consequencesbe disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. Cash required to us and our debt and equity security holders. For example, it could:
make it more difficult for usbe used to pay taxes would not be available to satisfy our indebtedness andLXP's debt service obligations and adversely affectto make distributions to its shareholders. Although we currently intend for LXP to continue to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause LXP, without the consent of the shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification.
We may be subject to the REIT prohibited transactions tax, which could result in significant U.S. federal income tax liability to us.
A REIT will incur a 100% tax on the net income from a prohibited transaction. Generally, a prohibited transaction includes a sale or disposition of property held primarily for sale to customers in the ordinary course of business. While we believe that the dispositions of our abilityassets pursuant to pay distributions;
increase our vulnerabilityinvestment strategy should not be treated as prohibited transactions, whether a particular sale will be treated as a prohibited transaction depends on the underlying facts and circumstances. We have not sought and do not intend to adverse economic and industry conditions;
require usseek a ruling from the Internal Revenue Service regarding any dispositions. Accordingly, there can be no assurance that our dispositions of such assets will not be subject to dedicatethe prohibited transactions tax. If all or a substantialsignificant portion of those dispositions were treated as prohibited transactions, we would incur a significant U.S. federal income tax liability, which could have a material adverse effect on our cash flowfinancial position.
Distribution requirements imposed by law limit our flexibility.
To maintain LXP's status as a REIT for federal income tax purposes, LXP is generally required to distribute to its shareholders at least 90% of its taxable income for that calendar year. LXP's taxable income is determined without regard to any deduction for dividends paid and by excluding net capital gains. To the extent that LXP satisfies the distribution requirement but distributes less than 100% of its taxable income, LXP will be subject to federal corporate income tax on its undistributed income. In addition, LXP will incur a 4% nondeductible excise tax on the amount by which its distributions in any year are less than the sum of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain net income for that year and (iii) 100% of its undistributed taxable income from operationsprior years. We intend for LXP to continue to make distributions to its shareholders to comply with the distribution requirements of the Code and to reduce exposure to federal taxes. Differences in timing between the receipt of income and the payment of interest onexpenses in determining its taxable income and principalthe effect of our indebtedness, thereby reducing the availability of cash to fund working capital, capital expenditures and other general corporate purposes;
limit our abilityrequired debt amortization payments could require LXP to borrow moneyfunds 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.
Legislative or sell stock to fund our development projects, working capital, capital expenditures, general corporate purposes or acquisitions;
restrict us from making strategic acquisitions or exploiting business opportunities;
place us at a disadvantage compared to competitors that have less debt; and
limit our flexibility in planning for, or reacting to,regulatory tax changes in our business and the industry in which we operate.
In addition, the agreements that govern our current indebtedness contain, and the agreements that may govern any future indebtedness that we may incur may contain, financial and other restrictive covenants, which may limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of our debt.
Market interest rates could have an adverse effect on our borrowing costs, profitability andus.
At any time, the value of our fixed-rate debt securities.
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 earnings. As of December 31, 2019, we have $129.1 million of debt that matures in April 2037 that is LIBOR indexed. In addition, we have a $300.0 million unsecured term loan which matures January 2025 that is LIBOR indexed and is subject to interest rate swap agreements through January 2025. Also, our unsecured revolving credit facility is subject to a variable rate. 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 earnings. In addition, our interest costs on our fixed-rate indebtedness may increase if we are required to refinance our fixed-rate indebtedness upon maturity at higher interest rates. Also, fixed-rate debt securities generally decline in value as market rates rise because the premium, if any, over market interest rates will decline.
The LIBOR index rate may not be available in the future.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (or ARRC) has proposed that the Secured Overnight Financing Rate (or SOFR) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. We have material contracts that are indexed to USD-LIBOR and we are monitoring this activity and evaluating the related risks.
Potential 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 periodically experienced significant dislocations and liquidity disruptions which have caused the spreads on prospective debt financings to widen considerably. These circumstances may materially impact liquidity in the debt markets, making financing terms for borrowers less attractive, and in certain cases may result in the unavailability of certain types of debt financing. Uncertainty in the credit markets may negatively impact our ability to access additional debt financing on 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 capital or difficulties in obtaining capital. These events in the credit markets may have 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, our tenantsfederal income tax laws governing REITs or the economy in general.
Covenants in certainadministrative interpretations of the agreements governing our debtthose laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect our financial condition, investment activities and/or operating activities.
Our unsecured revolving credit facility, unsecured term loan and indentures governing our 4.40% and 4.25% Senior Notes contain certain cross-default and cross-acceleration provisions as well as customary restrictions, requirements and other limitations on our ability to incur indebtedness and consummate mergers, consolidations or sales of all or substantially all of our assets. Our ability to borrow under our unsecured revolving credit facility is also subject to compliance with certain other covenants. In addition, failure to comply with our covenants could cause a default under the applicable debt instrument and we may then be required to repay such debt with capital from other sources. Under those circumstances, other sources of capital may not be available to us or beyou as a debt or equity security holder.
Federal tax legislation passed in 2017 made numerous changes to tax rules. These changes do not affect the REIT qualification rules directly, but may otherwise affect us or our shareholders. For example, the top federal income tax rate for individuals was reduced to 37%, there is a deduction available only on unattractive terms. Additionally, our abilityfor certain Qualified Business Income that reduces the top effective tax rate applicable to satisfy currentordinary dividends from REITs to 29.6% (through a 20% deduction for ordinary REIT dividends received) and various deductions are eliminated or prospective lenders' insurance requirements may be adversely affected if lenders generally insist upon greater insurance coverage than is available to us in the marketplace or on commercially reasonable terms.
We rely on debt financing, including borrowings under our unsecured revolving credit facility, unsecured term loan, debt securities, and debt secured by individual properties, for working capital, including to finance our investment activities. If we are unable to obtain financing from these or other sources, or to refinance existing indebtedness upon maturity, our financial condition and results of operations could be adversely affected.
The documents governing our non-recourse indebtedness contain restrictions on the operations of our property owner subsidiaries and their properties. Certain activities, like leasing and alterations, may be subject to the consentlimited. Most of the changes applicable lender. In addition, certain lenders engage third-party loan servicers that may not be as responsive as we would be or as the leasing market requires.to individuals are temporary.
General Risk Factors
A downgrade in our credit ratings could have a material adverse effect on our business and financial condition.
The credit ratings assigned to us and our debt could change based upon, among other things, our results of operations and financial condition or the real estate industry generally. These ratings are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any rating will not be changed or withdrawn by a rating agency in the future if, in the applicable rating agency's judgment, circumstances warrant. Moreover, these credit ratings do not apply to our common and preferred shares and are not recommendations to buy, sell or hold any other securities. Any downgrade of us or our debt could have a material adverse effect on the market price of our debt securities and our common and preferred shares. If any credit rating agency that has rated us or our debt downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise indicates that its outlook for that rating is negative, it could also have a material adverse effect on our costs and availability of capital, which could, in turn, have a material adverse effect on our financial condition, results of operations, cash flows and our ability to satisfy our debt service obligations and to make dividends and distributions on our common shares and preferred shares.
We face risks associated with refinancings.are dependent upon our key personnel.
A significant number of the properties in which we have an interest are subject to a mortgage or other secured notes with balloon payments due at maturity. In addition, our corporate level borrowings require interest only payments with all principal due at maturity.
As of December 31, 2019, the consolidated scheduled balloon payments, inclusive of mortgages in default, for the next five calendar years are as follows ($ in millions):
|
| | | | | | | | |
Year | | Property-Specific Balloon Payments | | Corporate Recourse Balloon Payments |
2020 | | $ | 50.5 |
| | $ | — |
|
2021 | | $ | 17.0 |
| | $ | — |
|
2022 | | $ | — |
| | $ | — |
|
2023 | | $ | — |
| | $ | 250.0 |
|
2024 | | $ | — |
| | $ | 250.0 |
|
Our ability to make the scheduled balloon payments on any corporate recourse note will depend on our access to the capital markets, including our ability to refinance the maturing note. Our ability to make the scheduled balloon payment on any non-recourse mortgage note will depend upon (1) in the event we determine to contribute capital, our cash balances and the amount available under our unsecured credit facility, and (2) the property owner subsidiary's ability either to refinance the related mortgage debt or to sell the related property. If the property owner subsidiary is unable to refinance or sell the related property, the property may be conveyed to the lender through foreclosure or other means or the property owner subsidiary may declare bankruptcy.
We face risks associated with returning properties to lenders.
A number of the properties in which we have an interest are subject to non-recourse mortgages, which generally provide that a lender's only recoursedependent upon an event of default is to foreclose on the property. In the event these properties are conveyed via foreclosure to the lenders thereof, we would lose all of our interest in these properties. The loss of a significant number of properties to foreclosure or through bankruptcy of a property owner subsidiary could adversely affect our financial condition and results of operations, relationships with lenders and ability to obtain additional financing in the future.
In addition, a lender may attempt to trigger a carve out to the non-recourse nature of a mortgage loan. To the extent a lender is successful, the ability of our property owner subsidiary to return the property to the lender may be inhibited and/or we may be liable for all or a portion of such loan.
Certain of our indebtedness is subject to cross-default and cross-acceleration provisions.
Substantially all of our corporate level borrowings and, in the future,key personnel, particularly certain of our secured indebtedness may, contain cross-default and/or cross-acceleration provisions, which may be triggered ifexecutive officers. We do not have employment agreements with our executive officers, but we default onhave entered into severance arrangements with our executive officers that provide certain indebtedness in excess of certain thresholds. Inpayments upon specified termination events.
Our inability to retain the event of such a default, the resulting cross defaults and/or cross-accelerations may adversely impact our financial condition.
Risks Related to Our Outstanding Debt Securities
The effective subordination of our unsecured indebtedness and any related guaranty may reduce amounts available for payment on our unsecured indebtedness and any related guaranty.
The holders of our secured debt may foreclose on the assets securing such debt, reducing the cash flow from the foreclosed property available for payment of unsecured debt and any related guaranty. The holdersservices of any of our secured debt also would have priority with respect to the secured collateral over unsecured creditors in the event of a bankruptcy, liquidation or similar proceeding.
None of our subsidiaries are guarantors of our unsecured debt; therefore assets of our subsidiaries may not be available to make payments on our unsecured indebtedness.
We are the sole borrower of our unsecured indebtedness and none of our subsidiaries were guarantors of our unsecured indebtedness. In the event of a bankruptcy, liquidation or reorganizationkey personnel, an unplanned loss of any of their services or our subsidiaries, holders of subsidiary debt, including trade creditors, will generally be entitledinability to payment of their claims from the assets ofreplace them upon termination as needed, could adversely impact our subsidiaries before any assets are made available for distribution to us.
All of our assets are held through our operating partnership and our other subsidiaries. Consequently, our cash flow and our ability to meet our debt service obligations depend in large part upon the cash flow of our subsidiaries and the payment of funds by our subsidiaries to us in the form of distributions or otherwise.
Risks Related to Lexington's REIT Status
There can be no assurance that Lexington will remain qualified as a REIT for federal income tax purposes.
operations. We believe that Lexington has met the requirements for qualification as a REIT for federal income tax purposes beginning with its taxable year ended December 31, 1993, and we intend for Lexington 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 Code, for which there are only limited judicial or administrative interpretations. 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 Lexington's ability to continue to qualify as a REIT. No assurance can be given that Lexington has qualified or will remain qualified 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 Lexington does not qualify as a REIT, Lexington would not be allowed a deduction for distributions to shareholders in computing its net taxable income. In addition, Lexington's income would be subject to tax at the regular corporate rates. Lexington also could be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. Cash available to satisfy Lexington's debt service obligations and distributions to its shareholders would be significantly reduced or suspended for each year in which Lexington does not qualify as a REIT. In that event, Lexington would not be required to continue to make distributions. Although we currently intend for Lexington to continue to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause Lexington, without the consent of the shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification.
We may be subject to the REIT prohibited transactions tax, which could result in significant U.S. federal income tax liability to us.
A REIT will incur a 100% tax on the net income from a prohibited transaction. Generally, a prohibited transaction includes a sale or disposition of property held primarily for sale to customers in the ordinary course of a trade or business. While we believe that the dispositions of our assets pursuant to our investment strategy should not be treated as prohibited transactions, whether a particular sale will be treated as a prohibited transaction depends on the underlying facts and circumstances. We have not sought and do not intend to seek a ruling from the Internal Revenue Service regarding any dispositions. Accordingly, there can be no assurance that our dispositions of such assets will not be subject to the prohibited transactions tax. If all or a significant portion of those dispositions were treated as prohibited transactions, we would incur a significant U.S. federal income tax liability, which could have a material adverse effectkey man life insurance coverage on our financial position, results of operations and cash flows.executive officers.
Distribution requirements imposed by law limit our flexibility.
To maintain Lexington's status as a REIT for federal income tax purposes, Lexington is generally required to distribute to its shareholders at least 90% of its taxable income for that calendar year. Lexington's taxable income is determined without regard to any deduction for dividends paid and by excluding net capital gains. To the extent that Lexington satisfies the distribution requirement but distributes less than 100% of its taxable income, Lexington will be subject to federal corporate income tax on its undistributed income. In addition, Lexington will incur a 4% nondeductible excise tax on the amount, if any, by which its distributions in any year are less than the sum of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain net income for that year and (iii) 100% of its undistributed taxable income from prior years. We intend for Lexington to continue to make distributions to its shareholders to comply with the distribution requirements 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 its taxable income and the effect of required debt amortization payments could require Lexington 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.
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 debt and/or equity security holder. REIT dividends generally are not eligible for the reduced rates currently applicable to certain corporate dividends (unless attributable to dividends from 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.
Federal tax legislation passed in 2017 and primarily effective in 2018 made numerous changes to tax rules. These changes do not affect the REIT qualification rules directly, but may otherwise affect us or our shareholders. For example, the top federal income tax rate for individuals was reduced to 37%, there is a new deduction available for certain Qualified Business Income that reduces the top effective tax rate applicable to ordinary dividends from REITs to 29.6% (through a 20% deduction for ordinary REIT dividends received) and various deductions are eliminated or limited. Most of the changes applicable to individuals are temporary. There are only minor changes to the REIT rules (other than the 20% deduction applicable to individuals for ordinary REIT dividends received). To date, the Internal Revenue Service has issued limited guidance on the changes made by the new legislation. It is unclear at this time whether Congress will address these issues or when the Internal Revenue Service will issue additional administrative guidance on the changes made by the 2017 legislation.
Risks Related to Our Shares
We may change the dividend policy for our common shares in the future.
The decision to declare and pay dividends on our common shares in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our Board of Trustees in light of conditions then existing, including our earnings, financial condition, capital requirements, debt maturities, the availability of debt and equity capital, applicable REIT and legal restrictions and the general overall economic conditions and other factors. The actual dividend payable will be determined by our Board of Trustees based upon the circumstances at the time of declaration and the actual dividend payable may vary from such expected amount. In 2019, we changed our dividend policy for our common shares to reduce the quarterly dividend amount as a result of our strategy of investing primarily in industrial assets. Any change in our dividend policy could have a material adverse effect on the market price of our common shares.
We may in the future choose to pay dividends in shares, in which case you may be required to pay income taxes in excess of the cash dividends you receive.
We may in the future distribute taxable dividends that are payable in shares. Taxable shareholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for United States federal income tax purposes. As a result, a U.S. shareholder may be required to pay income taxes with respect to such dividends even though no cash dividends were received. If a U.S. shareholder sells the shares it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of the shares at the time of the sale. Furthermore, with respect to non-U.S. shareholders, we may be required to withhold U.S. tax with respect to such dividends. In addition, if a significant number of our shareholders determine to sell such shares received in a dividend in order to pay taxes owed on such dividend, it may put downward pressure on the trading price of our common shares.
Securities eligible for future sale may have adverse effects on our share price.
We have an unallocated universal shelf registration statement and we also maintain a direct share purchase plan, pursuant to which we may issue additional common shares. There is no restriction on our issuing additional common or preferred shares, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common or preferred shares or any substantially similar securities. We maintain an At-the-Market offering program pursuant to which we may enter into forward sale agreements. Settlement provisions contained in any forward sale agreement could result in substantial dilution to our earnings per share or result in substantial cash payment obligations. In addition, in the case of our bankruptcy or insolvency, any forward sale agreement will automatically terminate, and we would not receive the expected proceeds from the sale of our common shares under such agreement.
As of December 31, 2019, an aggregate of approximately 3.2 million of our common shares were issuable upon the exercise of employee share options and upon the exchange of OP units. Depending upon the number of such securities issued, exercised or exchanged at one time, an issuance, exercise or exchange of such securities could be dilutive to or otherwise adversely affect the interests of holders or the market price of our common shares.
There are certain limitations on 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 against the loss of our REIT status, among other purposes, our declaration of trust limits any shareholder from owning more than 9.8% in value of our outstanding equity shares, defined as common shares or preferred shares, subject to certain exceptions. These ownership limits may have the effect of precluding acquisition of control of us.
Severance payments under our executive severance policy. Substantial termination payments may be required to be paid under our executive severance policy applicable to and related agreements with our executives upon the termination of an executive. If those executive officers are terminated without cause, as defined, or resign for good reason, as defined, those executive officers may be entitled to severance benefits based on their current annual base salaries and trailing average of recent annual cash bonuses as defined in our executive severance policy and related agreements and the acceleration of certain non-vested equity awards. Accordingly, these payments may discourage a third party from acquiring us.
Our ability to issue additional shares. Our declaration of trust authorizes 1,000,000,000 shares of beneficial interest (par value $0.0001 per share) consisting of 400,000,000 common shares, 100,000,000 preferred shares and 500,000,000 shares of beneficial interest classified as excess stock, or excess shares. Our Board of Trustees is authorized to cause us to issue these shares without shareholder approval. Our Board of Trustees may establish the preferences and rights of any such class or series of additional shares, 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. At December 31, 2019, in addition to common shares, we had outstanding 1,935,400 Series C Preferred Shares. Our Series C Preferred Shares include provisions, such as increases in dividend rates or adjustments to conversion rates, that may deter a change of control. The establishment and issuance of shares of our existing series of preferred shares or a future class or series of shares could make a change of control of us more difficult.
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 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 such person otherwise would have become an interested shareholder, which approval may be conditioned by the Board of Trustees. 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, or an affiliate of 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 (as defined in the Maryland General Corporation Law) 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.
Maryland Control Share Acquisition Act. Maryland law provides that a holder of “control shares” of a Maryland REIT acquired in a “control share acquisition” has no voting rights with respect to such shares except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter under the Maryland Control Share Acquisition Act. Shares owned by the acquirer, by our officers or by employees who are our trustees are excluded from shares entitled to vote on the matter. “Control Shares” are voting shares that, if aggregated with all other shares previously acquired by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer 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 issued and outstanding control shares, subject to certain exceptions. If voting rights of control shares acquired in a control share acquisition are not approved at a shareholders meeting or if the acquiring person does not deliver an acquiring person statement as required under the statute, then, subject to certain conditions and limitations, the issuer may redeem any or all of the control shares for fair value, except those for which voting rights have been previously approved. If voting rights of such control shares are approved at a shareholders meeting and the acquirer 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. The Maryland Control Share Acquisition Act does not apply to shares acquired in a merger, consolidation or statutory share exchange if the Maryland REIT is a party to the transaction, or to acquisitions approved or exempted by the declaration of trust or by-laws of the Maryland REIT. Our 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 declaration of trust includes certain restrictions regarding transfers of our capital shares and ownership limits.
Actual or constructive ownership of our capital shares in violation of the restrictions or in excess of the share ownership limits contained in our 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.
However, these restrictions and limits may not be adequate in all cases 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.
The trading price of our common shares has been, and may continue to be, subject to significant fluctuations.
The market price of our common shares may fluctuate in response to company-specific and general market events and developments, including those described in this Annual Report. In addition, our leverage may impact investor demand for our common shares, which could have a material effect on the market price of our common shares.
Furthermore, the public valuation of our common shares is related primarily to the earnings that we derive from rental income with respect to the properties in which we have an interest 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 yield than they would receive from our common shares may sell our common shares in favor of higher yielding securities.
Item 1B. Unresolved Staff Comments
There are no unresolved written comments that were received from the SEC staff 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, 2019,2021, we had equity ownership interests in approximately 130121 consolidated real estate properties containing approximately 52.654.8 million square feet of rentable space, which were approximately 97.0%97.4% leased based upon net rentable square feet. Generally, allAll properties in which we have an interest are held through at least one property owner subsidiary.
Ground Leases. Certain of the properties in which we have an interest are subject to long-term ground leases where either the tenant of the building on the property or a third party owns and leases the underlying land to the property owner subsidiary. Certain of these properties are economically owned through the holding of industrial revenue bonds primarily for real estate tax abatement purposes 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, the ground lessee has a purchase option. At the end of these long-term ground leases, unless extended or the purchase option is exercised, the land together with all improvements thereon reverts to the landowner.
Office Leases. We lease our headquarters office space in New York, New York and our satellite officeoffices in Dallas, Texas.Texas and West Palm Beach, Florida.
Leverage. As of December 31, 2019,2021, we had outstanding consolidated mortgages and notes payable of approximately $393.9$84.4 million with a weighted-average interest rate of approximately 4.5%4.0% and a weighted-average maturity of 11.17.2 years.
Property Charts. The following tables list our properties by type, their locations, the net rentable square feet, the expiration of the current lease term and percent leased, as applicable, as of December 31, 2019.2021.
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| LXP CONSOLIDATED PORTFOLIO PROPERTY CHART WAREHOUSE/DISTRIBUTION |
| As of December 31, 2021 |
| Property Location | City | State | | Net Rentable Square Feet | Primary Tenant Current Lease Term Expiration | Percent Leased |
Stabilized Properties: |
| 3405 S. McQueen Rd. | Chandler | AZ | | 201,784 | | 3/31/2033 | 100 | % |
| 4445 N. 169th Ave. | Goodyear | AZ | | 160,140 | | 12/31/2025 | 100 | % |
| 17510 W. Thomas Rd. | Goodyear | AZ | | 468,182 | | 11/30/2036 | 100 | % |
| 16811 W. Commerce Dr. | Goodyear | AZ | | 540,349 | | 4/30/2026 | 100 | % |
| 255 143rd Ave. | Goodyear | AZ | | 801,424 | | 9/30/2030 | 100 | % |
| 9494 W. Buckeye Rd. | Tolleson | AZ | | 186,336 | | 9/30/2026 | 100 | % |
| 3400 NW 35th St. | Ocala | FL | | 617,055 | | 8/31/2030 | 100 | % |
| 2455 Premier Row | Orlando | FL | | 205,016 | | 3/31/2026 | 100 | % |
| 3102 Queen Palm Dr. | Tampa | FL | | 229,605 | | 2/28/2023 | 100 | % |
| 7875 White Rd. SW | Austell | GA | | 604,852 | | 5/31/2025 | 100 | % |
| 41 Busch Dr. | Cartersville | GA | | 396,000 | | 9/30/2031 | 100 | % |
| 51 Busch Dr. | Cartersville | GA | | 328,000 | | 7/31/2031 | 100 | % |
| 1625 Oakley Industrial Blvd. | Fairburn | GA | | 907,675 | | 10/31/2028 | 100 | % |
| 490 Westridge Pkwy. | McDonough | GA | | 1,121,120 | | 1/31/2028 | 100 | % |
| 493 Westridge Pkwy. | McDonough | GA | | 676,000 | | 10/31/2023 | 100 | % |
| 335 Morgan Lakes Industrial Blvd. | Pooler | GA | | 499,500 | | 7/31/2027 | 100 | % |
| 1004 Trade Center Pkwy. | Savannah | GA | | 419,667 | | 7/31/2026 | 100 | % |
| 1315 Dean Forest Rd. | Savannah | GA | | 88,503 | | 8/31/2025 | 100 | % |
| 1319 Dean Forest Rd. | Savannah | GA | | 355,527 | | 6/30/2025 | 100 | % |
| 7225 Goodson Rd. | Union City | GA | | 370,000 | | 5/31/2024 | 100 | % |
| 3931 Lakeview Corporate Dr. | Edwardsville | IL | | 769,500 | | 9/30/2026 | 100 | % |
| 4015 Lakeview Corporate Dr. | Edwardsville | IL | | 1,017,780 | | 5/31/2030 | 100 | % |
| 6225 E. Minooka Rd. | Minooka | IL | | 1,034,200 | | 9/30/2029 | 100 | % |
| 1460 Cargo Court | Minooka | IL | | 705,661 | | 11/30/2029 | 100 | % |
| 200 International Pkwy. S. | Minooka | IL | | 473,280 | | 12/31/2029 | 100 | % |
| 1001 Innovation Rd. | Rantoul | IL | | 813,126 | | 10/31/2034 | 100 | % |
| 3686 S. Central Ave. | Rockford | IL | | 93,000 | | 12/31/2024 | 100 | % |
| 749 Southrock Dr. | Rockford | IL | | 150,000 | | 12/31/2024 | 100 | % |
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| | | | | | | | |
| LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL |
| As of December 31, 2019 |
| Property Location | City | State | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
Single-tenant properties: |
| 318 Pappy Dunn Blvd. | Anniston | AL | 276,782 |
| 11/24/2029 | 100 | % |
| 4801 North Park Dr. | Opelika | AL | 165,493 |
| 5/31/2042 | 100 | % |
| 16811 W. Commerce Dr. | Goodyear | AZ | 540,349 |
| 4/30/2026 | 100 | % |
| 255 143rd Ave. | Goodyear | AZ | 801,424 |
| 9/30/2030 | 100 | % |
| 9494 W. Buckeye Rd. | Tolleson | AZ | 186,336 |
| 9/30/2026 | 100 | % |
| 2455 Premier Row | Orlando | FL | 205,016 |
| 3/31/2021 | 100 | % |
| 3102 Queen Palm Dr. | Tampa | FL | 229,605 |
| 2/28/2023 | 100 | % |
| 7875 White Rd. SW | Austell | GA | 604,852 |
| 5/31/2025 | 100 | % |
| 359 Gateway Dr. | Lavonia | GA | 133,221 |
| 5/31/2030 | 100 | % |
| 493 Westridge Pkwy. | McDonough | GA | 676,000 |
| 10/31/2023 | 100 | % |
| 490 Westridge Pkwy. | McDonough | GA | 1,121,120 |
| 1/31/2028 | 100 | % |
| 1420 Greenwood Rd. | McDonough | GA | 296,972 |
| 8/31/2028 | 100 | % |
| 7225 Goodson Rd. | Union City | GA | 370,000 |
| 5/31/2024 | 100 | % |
| 3931 Lakeview Corporate Dr. | Edwardsville | IL | 769,500 |
| 9/30/2026 | 100 | % |
| 4015 Lakeview Corporate Dr. | Edwardsville | IL | 1,017,780 |
| 5/31/2030 | 100 | % |
| 6255 East Minooka Rd. | Minooka | IL | 1,034,200 |
| 9/30/2029 | 100 | % |
| 1001 Innovation Rd. | Rantoul | IL | 813,126 |
| 10/31/2034 | 100 | % |
| 3686 S. Central Ave. | Rockford | IL | 93,000 |
| 12/31/2021 | 100 | % |
| 749 Southrock Dr. | Rockford | IL | 150,000 |
| 12/31/2024 | 100 | % |
| 1020 W. Airport Rd. | Romeoville | IL | 188,166 |
| 10/31/2031 | 100 | % |
| 1621 Veterans Memorial Pkwy E | Lafayette | IN | 309,400 |
| 9/30/2024 | 100 | % |
| 1285 W. State Road 32 | Lebanon | IN | 741,880 |
| 1/31/2024 | 100 | % |
| 5352 Performance Way | Whitestown | IN | 380,000 |
| 7/31/2025 | 100 | % |
| 27200 West 157th St. | New Century | KS | 446,500 |
| 1/31/2027 | 100 | % |
| 10000 Business Blvd. | Dry Ridge | KY | 336,350 |
| 6/30/2025 | 100 | % |
| 730 North Black Branch Rd. | Elizabethtown | KY | 167,770 |
| 6/30/2025 | 100 | % |
| 750 North Black Branch Rd. | Elizabethtown | KY | 539,592 |
| 6/30/2025 | 100 | % |
| 301 Bill Bryan Blvd. | Hopkinsville | KY | 424,904 |
| 6/30/2025 | 100 | % |
| | | | | | | | | | | | | | | | | | | | | |
| LXP CONSOLIDATED PORTFOLIO PROPERTY CHART WAREHOUSE/DISTRIBUTION |
| As of December 31, 2021 |
| Property Location | City | State | | Net Rentable Square Feet | Primary Tenant Current Lease Term Expiration | Percent Leased |
| 1621 Veterans Memorial Pkwy. E. | Lafayette | IN | | 309,400 | | 9/30/2024 | 100 | % |
| 1285 W. State Road 32 | Lebanon | IN | | 741,880 | | 1/31/2024 | 100 | % |
| 19 Bob Glidden Blvd. | Whiteland | IN | | 530,400 | | 3/31/2031 | 100 | % |
| 76 Bob Glidden Blvd. | Whiteland | IN | | 168,480 | | 12/31/2026 | 100 | % |
| 180 Bob Glidden Blvd. | Whiteland | IN | | 179,530 | | 12/31/2026 | 100 | % |
| 4600 Albert S White Dr. | Whitestown | IN | | 149,072 | | 12/31/2024 | 100 | % |
| 4900 Albert S White Dr. | Whitestown | IN | | 149,072 | | 8/31/2025 | 100 | % |
| 5352 Performance Way | Whitestown | IN | | 380,000 | | 7/31/2025 | 100 | % |
| 3751 S. CR 500 E. | Whitestown | IN | | 1,016,244 | | 11/30/2031 | 100 | % |
| 27200 West 157th St. | New Century | KS | | 446,500 | | 1/31/2027 | 100 | % |
| 5001 Greenwood Rd. | Shreveport | LA | | 646,000 | | 12/31/2023 | 100 | % |
| 5417 Campus Dr. | Shreveport | LA | | 257,849 | | 8/31/2027 | 100 | % |
| 2860 Clark St. | Detroit | MI | | 189,960 | | 10/22/2035 | 100 | % |
| 16950 Pine Dr. | Romulus | MI | | 500,023 | | 8/24/2032 | 100 | % |
| 1700 47th Ave. North | Minneapolis | MN | | 18,620 | | 12/31/2025 | 100 | % |
| 549 Wingo Rd. | Byhalia | MS | | 855,878 | | 3/31/2030 | 100 | % |
| 1550 Hwy. 302 | Byhalia | MS | | 615,600 | | 9/30/2027 | 100 | % |
| 554 Nissan Pkwy. | Canton | MS | | 1,466,000 | | 2/28/2027 | 100 | % |
| 11555 Silo Dr. | Olive Branch | MS | | 927,742 | | 4/30/2024 | 100 | % |
| 11624 S. Distribution Cv. | Olive Branch | MS | | 1,170,218 | | 6/30/2029 | 100 | % |
| 6495 Polk Ln. | Olive Branch | MS | | 269,902 | | 5/31/2023 | 100 | % |
| 8500 Nail Rd. | Olive Branch | MS | | 716,080 | | 7/31/2029 | 100 | % |
| 1133 Poplar Creek Rd. | Henderson | NC | | 147,448 | | 4/30/2034 | 100 | % |
| 671 Washburn Switch Rd. | Shelby | NC | | 673,425 | | 5/31/2036 | 100 | % |
| 2203 Sherrill Dr. | Statesville | NC | | 639,800 | | 10/31/2026 | 100 | % |
| 736 Addison Rd. | Erwin | NY | | 408,000 | | 11/30/2026 | 100 | % |
| 29-01 Borden Ave. / 29-10 Hunters Point Ave. | Long Island City | NY | | 140,330 | | 3/31/2028 | 100 | % |
| 351 Chamber Dr. | Chillicothe | OH | | 478,141 | | 6/30/2026 | 91 | % |
| 1860 Walcutt Rd. | Columbus | OH | | 292,730 | | 11/21/2029 | 100 | % |
|
| | | | | | | | |
| LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL |
| As of December 31, 2019 |
| Property Location | City | State | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
| 4010 Airpark Dr. | Owensboro | KY | 211,598 |
| 6/30/2025 | 100 | % |
| 1901 Ragu Dr. | Owensboro | KY | 443,380 |
| 12/19/2020 | 100 | % |
| 5001 Greenwood Rd. | Shreveport | LA | 646,000 |
| 10/31/2026 | 100 | % |
| 5417 Campus Dr. | Shreveport | LA | 257,849 |
| 3/31/2022 | 100 | % |
| 113 Wells St. | North Berwick | ME | 993,685 |
| 4/30/2024 | 100 | % |
| 2860 Clark St. | Detroit | MI | 189,960 |
| 10/22/2035 | 100 | % |
| 6938 Elm Valley Dr. | Kalamazoo | MI | 150,945 |
| 10/25/2021 | 100 | % |
| 904 Industrial Rd. | Marshall | MI | 246,508 |
| 9/30/2028 | 100 | % |
| 43955 Plymouth Oaks Blvd. | Plymouth | MI | 311,612 |
| 10/31/2024 | 100 | % |
| 16950 Pine Dr. | Romulus | MI | 500,023 |
| 8/24/2032 | 100 | % |
| 26700 Bunert Rd. | Warren | MI | 260,243 |
| 10/31/2032 | 100 | % |
| 1700 47th Ave North | Minneapolis | MN | 18,620 |
| 12/31/2025 | 100 | % |
| 549 Wingo Rd. | Byhalia | MS | 855,878 |
| 3/31/2030 | 100 | % |
| 1550 Hwy 302 | Byhalia | MS | 615,600 |
| 9/30/2027 | 100 | % |
| 554 Nissan Pkwy. | Canton | MS | 1,466,000 |
| 2/28/2027 | 100 | % |
| 11555 Silo Dr. | Olive Branch | MS | 927,742 |
| 4/30/2024 | 100 | % |
| 11624 S. Distribution Cv. | Olive Branch | MS | 1,170,218 |
| 6/30/2021 | 100 | % |
| 6495 Polk Ln. | Olive Branch | MS | 269,902 |
| 05/2023, 01/2024 | 100 | % |
| 7670 Hacks Cross Rd. | Olive Branch | MS | 268,104 |
| 2/28/2023 | 100 | % |
| 8500 Nail Rd. | Olive Branch | MS | 716,080 |
| 7/31/2029 | 100 | % |
| 2880 Kenny Biggs Rd. | Lumberton | NC | 423,280 |
| 11/30/2021 | 100 | % |
| 671 Washburn Switch Rd. | Shelby | NC | 673,425 |
| 5/31/2036 | 100 | % |
| 2203 Sherrill Dr. | Statesville | NC | 639,800 |
| 12/31/2020 | 100 | % |
| 121 Technology Dr. | Durham | NH | 500,500 |
| 3/30/2026 | 100 | % |
| 5625 North Sloan Ln. | North Las Vegas | NV | 180,235 |
| 9/30/2034 | 100 | % |
| 736 Addison Rd. | Erwin | NY | 408,000 |
| 11/30/2026 | 100 | % |
| 29-01 Borden Ave. / 29-10 Hunters Point Ave. | Long Island City | NY | 140,330 |
| 3/31/2028 | 100 | % |
| 351 Chamber Dr. | Chillicothe | OH | 475,218 |
| 6/30/2026 | 100 | % |
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| LXP CONSOLIDATED PORTFOLIO PROPERTY CHART WAREHOUSE/DISTRIBUTION |
| As of December 31, 2021 |
| Property Location | City | State | | Net Rentable Square Feet | Primary Tenant Current Lease Term Expiration | Percent Leased |
| 7005 Cochran Rd. | Glenwillow | OH | | 458,000 | | 7/31/2025 | 100 | % |
| 191 Arrowhead Dr. | Hebron | OH | | 250,410 | | 3/31/2022 | 100 | % |
| 200 Arrowhead Dr. | Hebron | OH | | 400,522 | | 3/31/2022 | 100 | % |
| 2155 Rohr Rd. | Lockbourne | OH | | 320,190 | | 3/31/2024 | 100 | % |
| 575-599 Gateway Blvd. | Monroe | OH | | 194,936 | | 6/30/2023 | 100 | % |
| 600 Gateway Blvd. | Monroe | OH | | 994,013 | | 8/31/2027 | 100 | % |
| 675 Gateway Blvd. | Monroe | OH | | 143,664 | | 2/28/2032 | 100 | % |
| 700 Gateway Blvd. | Monroe | OH | | 1,299,492 | | 6/30/2030 | 100 | % |
| 10345 Philipp Pkwy. | Streetsboro | OH | | 649,250 | | 10/31/2026 | 100 | % |
| 27255 SW 95th Ave. | Wilsonville | OR | | 508,277 | | 10/31/2032 | 100 | % |
| 250 Rittenhouse Cir. | Bristol | PA | | 241,977 | | 11/30/2026 | 100 | % |
| 70 Tyger River Dr. | Duncan | SC | | 408,000 | | 1/31/2024 | 100 | % |
| 230 Apple Valley Rd. | Duncan | SC | | 275,400 | | 4/30/2029 | 100 | % |
| 231 Apple Valley Rd. | Duncan | SC | | 196,000 | | 1/31/2026 | 100 | % |
| 235 Apple Valley Rd. | Duncan | SC | | 177,320 | | 10/31/2026 | 100 | % |
| 402 Apple Valley Rd. | Duncan | SC | | 235,600 | | 12/31/2029 | 100 | % |
| 417 Apple Valley Rd. | Duncan | SC | | 195,000 | | 1/31/2027 | 100 | % |
| 425 Apple Valley Rd. | Duncan | SC | | 327,360 | | 9/30/2026 | 100 | % |
| 27 Inland Pkwy. | Greer | SC | | 1,318,680 | | 12/31/2034 | 100 | % |
| 7870 Reidville Rd. | Greer | SC | | 396,073 | | 9/30/2025 | 100 | % |
| 5795 North Blackstock Rd. | Spartanburg | SC | | 341,660 | | 7/31/2024 | 100 | % |
| 1021 Tyger Lake Rd. | Spartanburg | SC | | 213,200 | | 2/28/2031 | 100 | % |
| 6050 Dana Way | Antioch | TN | | 672,213 | | 6/30/2031 | 89 | % |
| 1520 Lauderdale Memorial Hwy. | Cleveland | TN | | 851,370 | | 3/31/2024 | 100 | % |
| 201 James Lawrence Rd. | Jackson | TN | | 1,062,055 | | 10/31/2027 | 100 | % |
| 633 Garrett Pkwy. | Lewisburg | TN | | 310,000 | | 3/31/2026 | 100 | % |
| 3820 Micro Dr. | Millington | TN | | 701,819 | | 9/30/2024 | 100 | % |
| 200 Sam Griffin Rd. | Smyrna | TN | | 1,505,000 | | 4/30/2027 | 100 | % |
| 2115 East Belt Line Rd. | Carrollton | TX | | 356,855 | | 6/30/2035 | 100 | % |
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| LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL |
| As of December 31, 2019 |
| Property Location | City | State | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
| 10590 Hamilton Ave. | Cincinnati | OH | 264,598 |
| 12/31/2027 | 100 | % |
| 1650 - 1654 Williams Rd. | Columbus | OH | 772,450 |
| 6/30/2020 | 100 | % |
| 7005 Cochran Rd. | Glenwillow | OH | 458,000 |
| 7/31/2025 | 100 | % |
| 191 Arrowhead Dr. | Hebron | OH | 250,410 |
| 12/31/2021 | 100 | % |
| 200 Arrowhead Dr. | Hebron | OH | 400,522 |
| 12/31/2021 | 100 | % |
| 675 Gateway Blvd. | Monroe | OH | 143,664 |
| 12/31/2023 | 100 | % |
| 600 Gateway Blvd. | Monroe | OH | 994,013 |
| 8/31/2027 | 100 | % |
| 700 Gateway Blvd. | Monroe | OH | 1,299,492 |
| 6/30/2030 | 100 | % |
| 10201 Schuster Way | Pataskala | OH | N/A |
| 12/31/2067 | 100 | % |
| 10345 Philipp Pkwy. | Streetsboro | OH | 649,250 |
| 10/31/2026 | 100 | % |
| 27255 SW 95th Ave. | Wilsonville | OR | 508,277 |
| 10/31/2032 | 100 | % |
| 250 Rittenhouse Cir. | Bristol | PA | 241,977 |
| 11/30/2026 | 100 | % |
| 590 Ecology Ln. | Chester | SC | 420,597 |
| 7/14/2025 | 100 | % |
| 50 Tyger River Dr. | Duncan | SC | 221,833 |
| 8/31/2022 | 100 | % |
| 70 Tyger River Dr. | Duncan | SC | 408,000 |
| 1/31/2024 | 100 | % |
| 231 Apple Valley Rd. | Duncan | SC | 196,000 |
| 01/2024, 07/2024 | 100 | % |
| 235 Apple Valley Rd. | Duncan | SC | 177,320 |
| 4/30/2025 | 100 | % |
| 27 Inland Pkwy. | Greer | SC | 1,318,680 |
| 12/31/2034 | 100 | % |
| 101 Michelin Dr. | Laurens | SC | 1,164,000 |
| 1/31/2021 | 100 | % |
| 5795 North Blackstock Rd. | Spartanburg | SC | 341,660 |
| 7/31/2024 | 100 | % |
| 1520 Lauderdale Memorial Hwy. | Cleveland | TN | 851,370 |
| 3/31/2024 | 100 | % |
| 900 Industrial Blvd. | Crossville | TN | 222,200 |
| 9/30/2026 | 100 | % |
| 120 Southeast Pkwy Dr. | Franklin | TN | 289,330 |
| 12/31/2023 | 100 | % |
| 201 James Lawrence Rd. | Jackson | TN | 1,062,055 |
| 10/31/2027 | 100 | % |
| 633 Garrett Pkwy. | Lewisburg | TN | 310,000 |
| 3/31/2026 | 100 | % |
| 3820 Micro Dr. | Millington | TN | 701,819 |
| 9/30/2021 | 100 | % |
| 200 Sam Griffin Rd. | Smyrna | TN | 1,505,000 |
| 4/30/2027 | 100 | % |
| 1501 Nolan Ryan Expy. | Arlington | TX | 74,739 |
| 6/30/2027 | 100 | % |
|
| | | | | | | | |
| LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL |
| As of December 31, 2019 |
| Property Location | City | State | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
| 7007 F.M. 362 Rd. | Brookshire | TX | 262,095 |
| 3/31/2035 | 100 | % |
| 2115 East Belt Line Rd. | Carrollton | TX | 356,855 |
| 12/31/2033 | 100 | % |
| 3737 Duncanville Rd. | Dallas | TX | 510,440 |
| 8/31/2023 | 100 | % |
| 4005 E I-30 | Grand Prairie | TX | 215,000 |
| 3/31/2037 | 100 | % |
| 13863 Industrial Rd. | Houston | TX | 187,800 |
| 3/31/2035 | 100 | % |
| 13901/14035 Industrial Rd. | Houston | TX | 132,449 |
| 3/31/2038 | 100 | % |
| 13930 Pike Rd. | Missouri City | TX | N/A |
| 4/30/2032 | 100 | % |
| 10535 Red Bluff Rd. | Pasadena | TX | 257,835 |
| 8/31/2023 | 100 | % |
| 16407 Applewhite Rd. | San Antonio | TX | 849,275 |
| 4/30/2027 | 100 | % |
| 2601 Bermuda Hundred Rd. | Chester | VA | 1,034,470 |
| 6/30/2030 | 100 | % |
| 80 Tyson Dr. | Winchester | VA | 400,400 |
| 12/18/2031 | 100 | % |
| 291 Park Center Dr. | Winchester | VA | 344,700 |
| 5/31/2021 | 100 | % |
| 901 East Bingen Point Way | Bingen | WA | 124,539 |
| 5/31/2024 | 100 | % |
| 111 West Oakview Pkwy. | Oak Creek | WI | 164,007 |
| 6/30/2035 | 100 | % |
Multi-tenant/vacant properties: |
| 2415 U.S. Hwy 78 East | Moody | AL | 595,346 |
| N/A | 0 | % |
| 3301 Stagecoach Rd. NE | Thomson | GA | 208,000 |
| N/A | 0 | % |
| 1133 Poplar Creek Rd. | Henderson | NC | 196,946 |
| N/A | 0 | % |
| 6050 Dana Way | Antioch | TN | 674,528 |
| Various | 97 | % |
| | Industrial Total | 48,742,014 |
| | 97.9 | % |
| | | | | | | | | | | | | | | | | | | | | |
| LXP CONSOLIDATED PORTFOLIO PROPERTY CHART WAREHOUSE/DISTRIBUTION |
| As of December 31, 2021 |
| Property Location | City | State | | Net Rentable Square Feet | Primary Tenant Current Lease Term Expiration | Percent Leased |
| 3737 Duncanville Rd. | Dallas | TX | | 510,400 | | 8/31/2023 | 100 | % |
| 4600 Underwood Rd. | Deer Park | TX | | 402,648 | | 12/31/2026 | 100 | % |
| 4005 E. I-30 | Grand Prairie | TX | | 215,000 | | 3/31/2037 | 100 | % |
| 13901/14035 Industrial Rd. | Houston | TX | | 132,449 | | 3/31/2038 | 100 | % |
| 1704 S. I-45 | Hutchins | TX | | 120,960 | | 6/30/2030 | 100 | % |
| 3201 N. Houston School Rd. | Lancaster | TX | | 468,300 | | 1/31/2030 | 100 | % |
| 13930 Pike Rd. | Missouri City | TX | | N/A | 4/30/2032 | 100 | % |
| 8601 E. Sam Lee Ln. | Northlake | TX | | 1,214,526 | | 8/31/2029 | 100 | % |
| 17505 Interstate Hwy. 35W | Northlake | TX | | 500,556 | | 10/31/2024 | 100 | % |
| 10535 Red Bluff Rd. | Pasadena | TX | | 257,835 | | 8/31/2023 | 100 | % |
| 10565 Red Bluff Rd. | Pasadena | TX | | 248,240 | | 4/30/2025 | 100 | % |
| 4100 Malone Dr. | Pasadena | TX | | 233,190 | | 8/31/2028 | 100 | % |
| 9701 New Decade Dr. | Pasadena | TX | | 102,863 | | 8/31/2024 | 100 | % |
| 16407 Applewhite Rd. | San Antonio | TX | | 849,275 | | 4/30/2027 | 100 | % |
| 2601 Bermuda Hundred Rd. | Chester | VA | | 1,034,470 | | 6/30/2030 | 100 | % |
| 150 Mercury Way | Winchester | VA | | 324,535 | | 11/30/2024 | 100 | % |
| 291 Park Center Dr. | Winchester | VA | | 344,700 | | 5/31/2031 | 100 | % |
| 80 Tyson Dr. | Winchester | VA | | 400,400 | | 12/18/2031 | 100 | % |
| | Stabilized total | | 51,082,289 | | | 99.8 | % |
| | | | | | | |
Non-Stabilized Properties: |
| 1515 South 91st Ave. | Phoenix | AZ | | 487,500 | | 12/31/2031 | 33 | % |
| 5275 Drane Field Rd. | Lakeland | FL | | 222,134 | | 5/31/2031 | 84 | % |
| 3775 Fancy Farms Rd. | Plant City | FL | | 510,484 | | N/A | — | % |
| 95 International Pkwy. | Adairsville | GA | | 225,211 | | 9/30/2025 | 45 | % |
| 7820 Reidville Rd. | Greer | SC | | 210,820 | | Various | 62 | % |
| | Non-Stabilized total | | 1,656,149 | | | 34.9 | % |
| | | | | | | |
| | Warehouse/Distribution total | | 52,738,438 | | | 97.7 | % |
The 20192021 net effective annual base cash rent for the industrialwarehouse/distribution portfolio, excluding non-stabilized assets, and Missouri City, Texas, as of December 31, 20192021 was $4.24$4.31 per square foot excluding Pataskala, OH, and the weighted-average remaining lease term was 8.36.9 years.
We consider a recently acquired or completed property stabilized upon 90% occupancy or one-year from substantial completion.
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| | | | | | | | |
| LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART NON-INDUSTRIAL |
| As of December 31, 2019 |
| Property Location | City | State | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
Single-tenant office properties: |
| 8555 South River Pkwy. | Tempe | AZ | 95,133 |
| 12/31/2033 | 100 | % |
| 1440 East 15th St. | Tucson | AZ | 28,591 |
| 7/31/2022 | 100 | % |
| 3333 Coyote Hill Rd. | Palo Alto | CA | 202,000 |
| 12/14/2023 | 100 | % |
| 5600 Broken Sound Blvd. | Boca Raton | FL | 143,290 |
| 2/14/2020 | 100 | % |
| 9200 South Park Center Loop | Orlando | FL | 59,927 |
| 9/30/2029 | 100 | % |
| 3500 N. Loop Rd. | McDonough | GA | 62,218 |
| 8/31/2021 | 100 | % |
| 9601 Renner Blvd. | Lenexa | KS | 77,484 |
| 6/30/2030 | 100 | % |
| 4455 American Way | Baton Rouge | LA | 70,100 |
| 10/31/2022 | 100 | % |
| 133 First Park Dr. | Oakland | ME | 78,610 |
| 8/31/2027 | 100 | % |
| 9201 Stateline Rd. | Kansas City | MO | 155,925 |
| 4/30/2031 | 100 | % |
| 1415 Wyckoff Rd. | Wall | NJ | 157,511 |
| 6/30/2021 | 100 | % |
| 4 Apollo Drive | Whippany | NJ | 123,734 |
| 11/30/2031 | 100 | % |
| 1701 Market St. | Philadelphia | PA | 304,037 |
| 1/31/2024 | 99 | % |
| 1362 Celebration Blvd. | Florence | SC | 32,000 |
| 2/14/2024 | 100 | % |
| 3476 Stateview Blvd. | Fort Mill | SC | 169,083 |
| 5/31/2024 | 100 | % |
| 3480 Stateview Blvd. | Fort Mill | SC | 169,218 |
| 5/31/2024 | 100 | % |
| 2401 Cherahala Blvd. | Knoxville | TN | 59,748 |
| 5/31/2027 | 100 | % |
| 1401 Nolan Ryan Expy. | Arlington | TX | 161,808 |
| 1/31/2025 | 80 | % |
| 270 Abner Jackson Pkwy. | Lake Jackson | TX | 664,100 |
| 10/31/2036 | 100 | % |
| 3711 San Gabriel | Mission | TX | 75,016 |
| 6/30/2025 | 100 | % |
| 2050 Roanoke Rd. | Westlake | TX | 130,199 |
| 6/30/2021 | 100 | % |
| 13651 McLearen Rd. | Herndon | VA | 159,644 |
| 5/30/2022 | 100 | % |
Multi-tenant/vacant office properties: |
| 13430 North Black Canyon Fwy | Phoenix | AZ | 138,940 |
| Various | 73 | % |
| 5200 Metcalf Ave. | Overland Park | KS | 320,198 |
| N/A | 0 | % |
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| LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART NON-INDUSTRIAL |
| As of December 31, 2019 |
| Property Location | City | State | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
| 1460 Tobias Gadson Blvd. | Charleston | SC | 50,246 |
| 10/31/2023 | 23 | % |
| 820 Gears Rd. | Houston | TX | 78,895 |
| N/A | 0 | % |
Single-tenant other properties: | | | | | |
| 499 Derbyshire Dr. | Venice | FL | 31,180 |
| 1/31/2055 | 100 | % |
| 30 Light St. | Baltimore | MD | N/A |
| 12/31/2048 | 100 | % |
| 201-215 N. Charles St. | Baltimore | MD | N/A |
| 8/31/2112 | 100 | % |
Multi-tenant/vacant other properties: | | | | | |
| King St./1042 Fort St. Mall | Honolulu | HI | 77,459 |
| Various | 43 | % |
| | | | 3,876,294 |
| | 85.8 | % |
| | | | 52,618,308 |
| | 97.0 | % |
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| LXP CONSOLIDATED PORTFOLIO PROPERTY CHART OTHER |
| As of December 31, 2021 |
| Property Location | City | State | | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
| 13430 North Black Canyon Fwy. | Phoenix | AZ | | 138,940 | | Various | 56 | % |
| 1440 E. 15th St. | Tucson | AZ | | 28,591 | | 9/30/2027 | 100 | % |
| 3333 Coyote Hill Rd. | Palo Alto | CA | | 202,000 | | 12/14/2023 | 100 | % |
| 1420 Greenwood Rd. | McDonough | GA | | 296,972 | | 8/31/2028 | 100 | % |
| 3500 N. Loop Rd. | McDonough | GA | | 62,218 | | N/A | — | % |
| 1901 Ragu Dr. | Owensboro | KY | | 443,380 | | 12/19/2025 | 100 | % |
| 30 Light St. | Baltimore | MD | | N/A | 12/31/2048 | 100 | % |
| 6938 Elm Valley Dr. | Kalamazoo | MI | | 150,945 | | Various | 35 | % |
| 4 Apollo Dr. | Whippany | NJ | | 123,734 | | 11/30/2031 | 100 | % |
| 1701 Market St. | Philadelphia | PA | | 304,037 | | 1/31/2024 | 100 | % |
| 3476 Stateview Blvd. | Fort Mill | SC | | 169,083 | | 5/31/2024 | 100 | % |
| 3480 Stateview Blvd. | Fort Mill | SC | | 169,218 | | 5/31/2024 | 100 | % |
| | Other total | | | 2,089,118 | | | 89.4 | % |
| | Consolidated portfolio total | | 54,827,556 | | | 97.4 | % |
The 20192021 net effective annual base cash rent for the office/other portfolio as of December 31, 20192021 was $15.03$11.70 per square foot, excluding single-tenant other property,Baltimore, Maryland, and the weighted-average remaining lease term was 8.53.8 years.
The 20192021 net effective annual base cash rent for the consolidated portfolio as of December 31, 20192021 was $5.03$4.60 per square foot, excluding Pataskala, OHnon-stabilized assets, Missouri City, Texas, and single-tenant other property,Baltimore, Maryland, and the weighted-average remaining lease term was 8.46.6 years.
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LXP NON-CONSOLIDATED PORTFOLIO PROPERTY CHART |
As of December 31, 2021 |
Property Location | City | State | | Percent Owned | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
Office/Other properties: | | | | | | | |
143 Diamond Ave. | Parachute | CO | | 20% | 49,024 | | 4/30/2035 | 100 | % |
2500 Patrick Henry Pkwy. | McDonough | GA | | 20% | 111,911 | | 6/30/2025 | 100 | % |
231 N. Martingale Rd. | Schaumburg | IL | | 20% | 317,198 | | 12/31/2022 | 100 | % |
3902 Gene Field Rd. | St. Joseph | MO | | 20% | 98,849 | | 6/30/2027 | 100 | % |
1210 AvidXchange Ln. | Charlotte | NC | | 20% | 201,450 | | 4/30/2032 | 100 | % |
2221 Schrock Rd. | Columbus | OH | | 20% | 42,290 | | 7/6/2027 | 100 | % |
500 Olde Worthington Rd. | Westerville | OH | | 20% | 97,000 | | 3/31/2026 | 100 | % |
25 Lakeview Dr. | Jessup | PA | | 20% | 150,000 | | 8/7/2027 | 100 | % |
601 & 701 Experian Pkwy. | Allen | TX | | 20% | 292,700 | | 3/14/2025 | 100 | % |
4001 International Pkwy. | Carrollton | TX | | 20% | 138,443 | | 12/31/2025 | 100 | % |
10001 Richmond Ave. | Houston | TX | | 20% | 554,385 | | 9/30/2032 | 100 | % |
810 Gears Rd. | Houston | TX | | 20% | 78,895 | | 1/10/2031 | 87 | % |
6555 Sierra Dr. | Irving | TX | | 20% | 247,254 | | 2/28/2035 | 100 | % |
8900 Freeport Pkwy. | Irving | TX | | 20% | 268,445 | | 3/31/2023 | 100 | % |
2203 North Westgreen Blvd. | Katy | TX | | 25% | 274,000 | | 8/31/2036 | 100 | % |
800 East Canal St. | Richmond | VA | | 20% | 330,309 | | 8/31/2030 | 96 | % |
| Office/Other total | | | | 3,252,153 | | | 99.3 | % |
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Special purpose industrial properties: | | | | | | | |
318 Pappy Dunn Blvd. | Anniston | AL | | 20% | 276,782 | | 11/24/2029 | 100 | % |
4801 North Park Dr. | Opelika | AL | | 20% | 165,493 | | 5/31/2042 | 100 | % |
1020 W. Airport Rd. | Romeoville | IL | | 20% | 188,166 | | 10/31/2031 | 100 | % |
10000 Business Blvd. | Dry Ridge | KY | | 20% | 336,350 | | 6/30/2031 | 100 | % |
730 North Black Branch Rd. | Elizabethtown | KY | | 20% | 167,770 | | 6/30/2025 | 100 | % |
750 North Black Branch Rd. | Elizabethtown | KY | | 20% | 539,592 | | 6/30/2025 | 100 | % |
301 Bill Bryan Blvd. | Hopkinsville | KY | | 20% | 424,904 | | 6/30/2025 | 100 | % |
4010 Airpark Dr. | Owensboro | KY | | 20% | 211,598 | | 6/30/2025 | 100 | % |
113 Wells St. | North Berwick | ME | | 20% | 993,685 | | 4/30/2024 | 100 | % |
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LEXINGTON NON-CONSOLIDATED PORTFOLIO PROPERTY CHART |
As of December 31, 2019 |
Property Location | City | State | Percent Owned | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
143 Diamond Ave. | Parachute | CO | 20% | 49,024 |
| 4/30/2035 | 100 | % |
2500 Patrick Henry Pkwy. | McDonough | GA | 20% | 111,911 |
| 6/30/2025 | 100 | % |
231 N. Martingale Rd. | Schaumburg | IL | 20% | 317,198 |
| 12/31/2022 | 100 | % |
3902 Gene Field Rd. | St. Joseph | MO | 20% | 98,849 |
| 6/30/2027 | 100 | % |
1210 AvidXchange Ln. | Charlotte | NC | 20% | 201,450 |
| 4/30/2032 | 100 | % |
6226 West Sahara Ave. | Las Vegas | NV | 20% | 282,000 |
| 1/31/2029 | 100 | % |
2221 Schrock Rd. | Columbus | OH | 20% | 42,290 |
| 7/6/2027 | 100 | % |
500 Olde Worthington Rd. | Westerville | OH | 20% | 97,000 |
| 3/31/2026 | 100 | % |
25 Lakeview Dr. | Jessup | PA | 20% | 150,000 |
| 8/7/2027 | 100 | % |
601 & 701 Experian Pkwy. | Allen | TX | 20% | 292,700 |
| 3/14/2025 | 100 | % |
4001 International Pkwy. | Carrollton | TX | 20% | 138,443 |
| 12/31/2025 | 100 | % |
10001 Richmond Ave. | Houston | TX | 20% | 554,385 |
| 9/30/2032 | 100 | % |
810 Gears Rd. | Houston | TX | 20% | 78,895 |
| 1/10/2031 | 87 | % |
6555 Sierra Dr. | Irving | TX | 20% | 247,254 |
| 2/28/2025 | 100 | % |
8900 Freeport Pkwy. | Irving | TX | 20% | 268,445 |
| 3/31/2023 | 100 | % |
2203 North Westgreen Blvd. | Katy | TX | 25% | 274,000 |
| 8/31/2036 | 100 | % |
800 East Canal St. | Richmond | VA | 20% | 330,309 |
| 8/31/2030 | 87 | % |
500 Kinetic Dr. | Huntington | WV | 20% | 68,693 |
| 11/30/2026 | 100 | % |
| | | | 3,602,846 |
| | 98.5 | % |
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LXP NON-CONSOLIDATED PORTFOLIO PROPERTY CHART |
As of December 31, 2021 |
Property Location | City | State | | Percent Owned | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
904 Industrial Rd. | Marshall | MI | | 20% | 246,508 | | 9/30/2028 | 100 | % |
43955 Plymouth Oaks Blvd. | Plymouth | MI | | 20% | 311,612 | | 10/31/2024 | 100 | % |
26700 Bunert Rd. | Warren | MI | | 20% | 260,243 | | 10/31/2032 | 100 | % |
2880 Kenny Biggs Rd. | Lumberton | NC | | 20% | 423,280 | | 11/30/2026 | 100 | % |
5670 Nicco Way | North Las Vegas | NV | | 20% | 180,235 | | 9/30/2034 | 100 | % |
10590 Hamilton Ave. | Cincinnati | OH | | 20% | 264,598 | | 12/31/2027 | 100 | % |
590 Ecology Ln. | Chester | SC | | 20% | 420,597 | | 07/14/2025 | 100 | % |
50 Tyger River Dr. | Duncan | SC | | 20% | 221,833 | | 08/31/2027 | 100 | % |
900 Industrial Blvd. | Crossville | TN | | 20% | 222,200 | | 09/30/2033 | 100 | % |
120 Southeast Pkwy. Dr. | Franklin | TN | | 20% | 289,330 | | 12/31/2023 | 100 | % |
7007 F.M. 362 Rd. | Brookshire | TX | | 20% | 262,095 | | 3/31/2035 | 100 | % |
13863 Industrial Rd. | Houston | TX | | 20% | 187,800 | | 3/31/2035 | 100 | % |
901 East Bingen Point Way | Bingen | WA | | 20% | 124,539 | | 5/31/2024 | 100 | % |
| Special purpose industrial total | 6,719,210 | | | 100 | % |
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| Non-consolidated portfolio total | 9,971,363 | | | 99.8 | % |
In addition, we have two non-consolidated joint ventures with a developer, which own developable parcels of land in Etna, Ohio.
The 20192021 net effective annual base cash rent for our proportionate share of the non-consolidated portfolio as of December 31, 20192021 was $16.47$9.86 per square foot and the weighted-average remaining lease term was 9.88.2 years.
Development Projects
The following is a summary of our warehouse/industrial development projects as of December 31, 2019:2021:
Development Projects
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Project (% owned) | # of Buildings | Market | Estimated Sq. Ft. | Estimated Project Cost | GAAP Investment Balance as of 12/31/2021 ($000)(2) | LXP Amount Funded as of 12/31/2021 ($000) | Estimated Building Completion Date | % Leased as of 12/31/2021 | |
Consolidated: | | | | | | | | | |
The Cubes at Etna East (95%)(1)(4) | 1 | Columbus, OH | 1,074,840 | | $ | 72,100 | | $ | 33,002 | | $ | 22,471 | | 2Q 2022 | — | % | |
Mt. Comfort (80%)(1) | 1 | Indianapolis, IN | 1,053,360 | | 60,300 | | 30,012 | | 21,977 | | 3Q 2022 | — | % | |
Cotton 303 (93%)(1) | 2 | Phoenix, AZ | 880,678 | | 84,200 | | 30,263 | | 24,475 | | 3Q 2022 | — | % | |
Ocala (80%)(1) | 1 | Central Florida | 1,085,280 | | 80,900 | | 32,186 | | 21,186 | | 3Q 2022 | — | % | |
Smith Farms (90%)(1)(3) | 3 | Greenville-Spartanburg, SC | 2,194,820 | | 162,100 | | 35,702 | | 21,433 | | 4Q 2022 - 2Q 2023 | 36 | % | |
| | | | $ | 459,600 | | $ | 161,165 | | $ | 111,542 | | | | |
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Land Held for Development
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Project (% owned) | Market | Approx. Developable Acres | GAAP Investment Balance as of 12/31/2021 ($000) | LXP Amount Funded as of 12/31/2021 ($000) |
Consolidated: | | | | |
Reems & Olive (95.5%) | Phoenix, AZ | 420 | $ | 100,875 | | $ | 96,336 | |
Mt. Comfort Phase II (80%) | Indianapolis, IN | 70 | 3,285 | | 2,610 | |
| | | $ | 104,160 | | $ | 98,946 | |
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Project (% owned) | Market | Approx. Developable Acres | GAAP Investment Balance as of 12/31/2021 ($000)(2) | LXP Amount Funded as of 12/31/2021 ($000) |
Non-consolidated: | | | | |
Etna Park 70 (90%) | Columbus, OH | 66 | $ | 12,875 | | $ | 13,362 | |
Etna Park 70 East (90%)(4) | Columbus, OH | 21 | 2,797 | | 2,064 | |
| | | $ | 15,672 | | $ | 15,426 | |
(1)Estimated project cost includes estimated tenant improvements and lease costs and excludes potential developer partner promote.
(2)GAAP investment balance is reported in our consolidated balance sheets as a component of real estate under construction for consolidated projects and a component of investments in non-consolidated entities for non-consolidated projects.
(3)Preleased one 797,936 square foot facility subject to a twelve-year lease commencing upon substantial completion of the facility.
(4)In December 2019, we acquired an 84-acre parcel of developable land in a joint venture. In December 2021, Etna Park 70 East distributed a subdivided parcel consisting of 63 acres to its partners. The partners formed The Cubes at Etna 70 Building E, LLC to construct a 1.1 million square foot speculative warehouse/distribution facility.
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Project (% owned) | | Market | | Property Type | | Estimated Sq. Ft. | | Estimated Project Cost ($000) | | GAAP Investment Balance as of 12/31/2019 ($000)(1) | | Lexington Amount Funded as of 12/31/2019 ($000) | | Estimated Completion Date |
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Consolidated: | | | | | | | | | | | | | | |
Fairburn (90%) | | Atlanta, GA | | Industrial | | 910,000 |
| | $ | 53,812 |
| | $ | 10,088 |
| | $ | 7,687 |
| | 4Q 20 |
Rickenbacker (100%) | | Columbus, OH | | Industrial | | 320,000 |
| | 20,300 |
| | 3,225 |
| | 2,805 |
| | 1Q 21 |
| | | | | | | | $ | 74,112 |
| | $ | 13,313 |
| | $ | 10,492 |
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Non-consolidated: | | | | | | | | | | | | | | |
ETNA Park 70 (90%)(2) | | Columbus, OH | | Industrial | | TBD | | TBD | | $ | 8,352 |
| | $ | 8,644 |
| | TBD |
ETNA Park 70 East (90%)(2) | | Columbus, OH | | Industrial | | TBD | | TBD | | 4,310 |
| | 4,351 |
| | TBD |
| | | | | | | | | | $ | 12,662 |
| | $ | 12,995 |
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(1) | GAAP investment balance is in real estate under construction for consolidated projects and in investments in non-consolidated entities for non-consolidated projects. |
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(2) | Plans and specifications for completion have not been completed and the square footage, estimated project costs and completion date cannot be determined. |
Tenant Diversification
We believe our tenant mix is well diversified. Below are the industries in our warehouse/distribution portfolio based on 2021 base rent for consolidated properties owned as of December 31, 2021:
Lease Term. As a primarily single-tenant investor, we generally maintain a weighted-average lease term that is longer than most industrial REITs, favoring certainty of cash flow over lease-rollover risk inherent in single-tenant properties. However, we will invest in shorter-term leases if we are optimistic about the location in a releasing context. As of December 31, 2021, the weighted-average lease term in our industrial portfolio was 6.9 years.
The following table sets forth information about the 15 largest tenants/guarantors in our portfolio as of December 31, 2021 based on total base rental revenue as of December 31, 2019 (in '000's,2021 ($000s, except square feet).
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Tenants(1) | | Property Type | | Lease Expirations | | Number of Leases | | Square Feet Leased | | Square Feet Leased as a % of the Consolidated Portfolio(2)(3) | | Base Rent | | Percentage of Base Rental Revenue(2)(4) |
Amazon | | Industrial | | 2026-2033 | | 6 | | | 3,864,731 | | | 7.2 | % | | $ | 17,434 | | | 7.6 | % |
Nissan | | Industrial | | 2027 | | 2 | | | 2,971,000 | | | 5.6 | % | | 12,760 | | | 5.5 | % |
Kellogg | | Industrial | | 2027-2029 | | 3 | | | 2,801,916 | | | 5.2 | % | | 9,732 | | | 4.2 | % |
Undisclosed (5) | | Industrial | | 2031-2035 | | 3 | | | 1,090,383 | | | 2.0 | % | | 7,139 | | | 3.1 | % |
Watco | | Industrial | | 2038 | | 1 | | | 132,449 | | | 0.2 | % | | 6,773 | | | 2.9 | % |
Xerox | | Office | | 2023 | | 1 | | | 202,000 | | | 0.4 | % | | 6,642 | | | 2.9 | % |
FedEx | | Industrial | | 2023 & 2028 | | 2 | | | 292,021 | | | 0.5 | % | | 5,719 | | | 2.5 | % |
Wal-Mart | | Industrial | | 2024 -2031 | | 3 | | | 2,351,917 | | | 4.4 | % | | 5,659 | | | 2.5 | % |
Undisclosed (5) | | Industrial | | 2034 | | 1 | | | 1,318,680 | | | 2.5 | % | | 5,544 | | | 2.4 | % |
Morgan Lewis (6) | | Office | | 2024 | | 1 | | | 289,432 | | | 0.5 | % | | 5,276 | | | 2.3 | % |
Mars Wrigley | | Industrial | | 2025 | | 1 | | | 604,852 | | | 1.1 | % | | 4,734 | | | 2.1 | % |
Unis | | Industrial | | 2023-2027 | | 3 | | | 1,005,575 | | | 1.9 | % | | 4,548 | | | 2.0 | % |
Asics | | Industrial | | 2030 | | 1 | | | 855,878 | | | 1.6 | % | | 4,388 | | | 1.9 | % |
Black and Decker | | Industrial | | 2029 | | 1 | | | 1,214,526 | | | 2.3 | % | | 4,278 | | | 1.9 | % |
Vista Outdoor | | Industrial | | 2034 | | 1 | | | 813,126 | | | 1.5 | % | | 4,195 | | | 1.8 | % |
| | | | | | 30 | | | 19,808,486 | | | 37.1 | % | | $ | 104,821 | | | 45.6 | % |
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Tenants/Guarantors | | Property Type | | Lease Expirations | | Number of Leases | | Square Feet Leased | | Square Feet Leased as a % of the Consolidated Portfolio(1)(2) | | Base Rent(3) | | Percentage of Base Rental Revenue(2)(3) |
Dow | | Office | | 2036 | | 1 |
| | 664,100 |
| | 1.3 | % | | $ | 14,850 |
| | 5.9 | % |
Nissan | | Industrial | | 2027 | | 2 |
| | 2,971,000 |
| | 5.8 | % | | 12,760 |
| | 5.0 | % |
Dana | | Industrial | | 2021-2026 | | 7 |
| | 2,053,359 |
| | 4.0 | % | | 9,941 |
| | 3.9 | % |
Undisclosed (4) | | Industrial | | 2031-2035 | | 3 |
| | 1,090,383 |
| | 2.1 | % | | 7,139 |
| | 2.8 | % |
Watco | | Industrial | | 2038 | | 1 |
| | 132,449 |
| | 0.3 | % | | 6,773 |
| | 2.7 | % |
Xerox | | Office | | 2023 | | 1 |
| | 202,000 |
| | 0.4 | % | | 6,642 |
| | 2.6 | % |
Morgan Lewis (5) | | Office | | 2024 | | 1 |
| | 289,432 |
| | 0.6 | % | | 5,655 |
| | 2.2 | % |
Amazon | | Industrial | | 2026-2030 | | 3 |
| | 2,515,492 |
| | 4.9 | % | | 5,637 |
| | 2.2 | % |
Undisclosed (4) | | Industrial | | 2023-2027 | | 3 |
| | 2,132,290 |
| | 4.2 | % | | 5,527 |
| | 2.2 | % |
FedEx | | Industrial | | 2023 & 2028 | | 2 |
| | 292,021 |
| | 0.6 | % | | 5,479 |
| | 2.2 | % |
Hamilton Beach | | Industrial | | 2021 & 2026 | | 2 |
| | 1,645,436 |
| | 3.2 | % | | 4,948 |
| | 2.0 | % |
Asics | | Industrial | | 2030 | | 1 |
| | 855,878 |
| | 1.7 | % | | 4,388 |
| | 1.7 | % |
Spitzer | | Industrial | | 2035 | | 2 |
| | 449,895 |
| | 0.9 | % | | 4,344 |
| | 1.7 | % |
Vista Outdoor | | Industrial | | 2034 | | 1 |
| | 813,126 |
| | 1.6 | % | | 4,195 |
| | 1.7 | % |
Wells Fargo | | Office | | 2024 | | 2 |
| | 338,301 |
| | 0.7 | % | | 4,101 |
| | 1.6 | % |
| | | | | | 32 |
| | 16,445,162 |
| | 32.2 | % | | $ | 102,379 |
| | 40.5 | % |
(1)Tenant, guarantor or parent.(1) Excludes vacant square feet.
(2)Total shown may differ from detail amounts due to rounding.
(3) Base Rent excludes tenant reimbursements and rentExcludes vacant square feet.
(4)Excludes rents from prior tenants that are included in rental revenue and includes ancillary income.tenants.
(4) (5)Lease restricts certain disclosures.
(5) (6)Includes parking operations.
our annual base rental revenue.
The following chart sets forth certain information regarding lease expirations for the next ten years in our consolidated portfolio:portfolio at December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Year | | Number of Lease Expirations | | Square Feet | | Base Rent ($000's) | | Percentage of Base Rental Revenue |
2022 | | 5 | | 679,302 | | | $ | 1,696 | | | 0.7 | % |
2023 | | 10 | | 2,886,518 | | | 15,635 | | | 6.7 | % |
2024 | | 26 | | 7,351,936 | | | 33,369 | | | 14.4 | % |
2025 | | 15 | | 3,488,478 | | | 17,622 | | | 7.6 | % |
2026 | | 24 | | 6,422,511 | | | 23,241 | | | 10.0 | % |
2027 | | 13 | | 7,989,778 | | | 31,557 | | | 13.6 | % |
2028 | | 8 | | 2,822,958 | | | 13,108 | | | 5.6 | % |
2029 | | 9 | | 6,019,761 | | | 20,462 | | | 8.8 | % |
2030 | | 9 | | 6,274,840 | | | 26,694 | | | 11.5 | % |
2031 | | 11 | | 3,865,080 | | | 9,559 | | | 4.1 | % |
|
| | | | | | | | | | | | |
Year | | Number of Lease Expirations | | Square Feet | | Base Rent ($000's)(1) | | Percentage of Base Rental Revenue(1) |
2020 | | 34 | | 2,028,061 |
| | $ | 8,006 |
| | 3.1 | % |
2021 | | 22 | | 5,781,584 |
| | 25,587 |
| | 10.1 | % |
2022 | | 5 | | 738,017 |
| | 6,744 |
| | 2.7 | % |
2023 | | 11 | | 2,748,475 |
| | 14,669 |
| | 5.8 | % |
2024 | | 21 | | 6,593,436 |
| | 28,348 |
| | 11.1 | % |
2025 | | 18 | | 4,149,754 |
| | 18,796 |
| | 7.4 | % |
2026 | | 11 | | 4,949,330 |
| | 18,392 |
| | 7.2 | % |
2027 | | 12 | | 7,418,113 |
| | 27,791 |
| | 10.9 | % |
2028 | | 4 | | 1,804,930 |
| | 11,855 |
| | 4.7 | % |
2029 | | 4 | | 2,086,989 |
| | 5,388 |
| | 2.1 | % |
(1) Base Rent excludes tenant reimbursements that are included in rental revenue and includes ancillary income.
The following chart sets forth the 2019 Base Rent2021 base rent ($000's) based on the credit rating of our consolidated tenants at December 31, 20192021(1):
| | | | | | | | | | | |
| Base Rent | | Percentage of Base Rental Revenue |
Investment Grade | $ | 130,378 | | | 55.3 | % |
Non-investment Grade | 35,777 | | | 15.2 | % |
Unrated | 69,709 | | | 29.5 | % |
| $ | 235,864 | | | 100.0 | % |
|
| | | | | | |
| Base Rent(2) | | Percentage of Base Rental Revenue(2) |
Investment Grade | $ | 125,509 |
| | 48.7 | % |
Non-investment Grade | 60,016 |
| | 23.3 | % |
Unrated | 72,234 |
| | 28.0 | % |
| $ | 257,759 |
| | 100.0 | % |
| |
(1) | Credit ratings are based upon either tenant, guarantor or parent/sponsor.(1) Credit ratings are based upon either tenant, guarantor or parent/ultimate parent. Generally, all multi-tenant assets are included in unrated. See Item 1A “Risk Factors”, above. |
(2) Base Rent excludes tenant reimbursements that are included in rental revenue and includes ancillary income.
unrated. See Item 1A “Risk Factors”.
Item 3. Legal Proceedings
From time to time we are directly and indirectly involved in legal proceedings arising in the ordinary course of our business. We believe, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on our business, financial condition and results of operations.
Cummins Inc. v. Lexington Columbus (Jackson Street) L.P. and Wells Fargo Trust Company, N.A. (State of Indiana, County of Bartholomew, in the Bartholomew Superior Court). On October 25, 2018, Cummins Inc., the tenant in the Columbus, Indiana office building, filed a complaint for declaratory relief against Lexington Columbus (Jackson Street) L.P. (“Lex Columbus”), the Company's property owner subsidiary, and Wells Fargo Trust Company, N.A., the trustee for the noteholders with a security interest in the office building. Despite failing to timely provide notice of intent to exercise a $5.0 million purchase option for the office building that was expressly due by July 15, 2018, where time was of the essence, Cummins Inc. asked the court for a declaration that it is entitled to purchase the building at the option price and to terminate the lease effective July 31, 2019. Cummins Inc. did not dispute that it failed to comply with the requirements of the purchase option, but alleged that it is entitled to relief under several equitable theories. Under the subject lease, as a result of the failure of Cummins Inc. to exercise its purchase option and to give notice of non-renewal, Cummins Inc.’s tenancy extended through July 31, 2024, with options to further extend for additional time periods.
On December 19, 2019, Lex Columbus sold its interest in the Columbus, Indiana office building to Cummins Inc. for a gross purchase price of $46.9 million and terminated the Cummins lease as part of a settlement of the litigation. At the closing of the sale, Cummins Inc. paid rent for the period August 1, 2019 through December 18, 2019 in the amount of $1.9 million and reimbursed Lex Columbus for $0.7 million in expenses under the indemnity provision in the lease. The litigation was dismissed with prejudice on December 20, 2019.
Item 4. Mine Safety Disclosures
Not applicable.
Executive Officers of Lexington
The following sets forth certain information relating to our executive officers:
|
| |
Name | Business Experience |
T. Wilson Eglin
Age 55
| Mr. Eglin has served as our Chairman since April 2019, our Chief Executive Officer since January 2003, 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 and our Chief Operating Officer from October 1993 to December 2010. |
Beth Boulerice
Age 55
| Ms. Boulerice has served as our Chief Financial Officer and Treasurer since March 2019 and one of our Executive Vice Presidents since January 2013. Ms. Boulerice previously served as our Chief Accounting Officer from January 2011 to March 2019. Prior to joining us in January 2007, Ms. Boulerice was employed by First Winthrop Corporation and was the Chief Accounting Officer of Newkirk Realty Trust. Ms. Boulerice is a Certified Public Accountant. |
Joseph S. Bonventre
Age 44
| Mr. Bonventre has served as our General Counsel since 2004, one of our Executive Vice Presidents since 2008 and our Secretary since 2014. Prior to joining us in September 2004, Mr. Bonventre was an associate in the corporate department of the law firm now known as Paul Hastings LLP. Mr. Bonventre is admitted to practice law in the State of New York. |
Brendan P. Mullinix
Age 45
| Mr. Mullinix was appointed an executive officer in February 2018 and serves as our Executive Vice President focusing on investments. Mr. Mullinix joined us in 1996 and previously served as a Senior Vice President and a Vice President. |
Lara Johnson
Age 47
| Ms. Johnson was appointed an executive officer in February 2018 and serves as our Executive Vice President focusing on dispositions and strategic transactions. Prior to joining us in 2007, Ms. Johnson was an executive vice president of Newkirk Realty Trust and a member of its board of directors. Ms. Johnson previously served as senior vice president of Winthrop Financial Associates, as a vice president of Shelbourne I, Shelbourne II and Shelbourne III, three publicly-traded REITs, and as Director of Investor Relations for National Property Investors, Inc. |
James Dudley
Age 39
| Mr. Dudley was appointed an executive officer in February 2018 and has served as an Executive Vice President and Director of Asset Management. He has been with the company since 2006 and has held various roles within the Asset Management Department. Prior to joining the firm, Mr. Dudley was employed by ORIX Capital Markets. |
Mark Cherone
Age 38
| Mr. Cherone joined us as our Chief Accounting Officer in March 2019. Prior to joining us, Mr. Cherone was the Corporate Controller for Brandywine Realty Trust since 2012. Mr. Cherone is a Certified Public Accountant.
|
Patrick Carroll
Age 56
| Mr. Carroll has served as our Chief Risk Officer since March 2019 and one of our Executive Vice Presidents since January 2003. Mr. Carroll previously served as our Chief Financial Officer from May 1998 to March 2019 and our Treasurer from January 1999 to March 2019. Prior to joining us, Mr. Carroll was, from 1986 to 1998, in the real estate practice of Coopers & Lybrand L.L.P., a public accounting firm that was one of the predecessors of PricewaterhouseCoopers LLP. Mr. Carroll is a Certified Public Accountant. |
PART II.
Item 5. Market For Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities
Market Information. Our common shares are listed for trading on the NYSE under the symbol “LXP”.
Holders. As of February 18, 2020,22, 2022, we had approximately 2,5452,297 common shareholders of record.
Dividends. Since our predecessor's formation in 1993, we have made quarterly distributions without interruption.
While we intend to continue paying regular quarterly dividends to holders of our common shares, the authorization of future dividend declarations will be at the discretion of our 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. 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'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 debt instruments 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.
Direct Share Purchase Plan. We maintain a direct share purchase plan, which has two components, (i) a dividend reinvestment component and (ii) a direct share purchase component. Under the dividend reinvestment component, common shareholders and holders of OP units may elect to automatically reinvest their dividends and distributions to purchase our common shares. Under the direct share purchase component, our current investors and new investors can make optional cash purchases of our common shares. The administrator of the plan, Computershare Trust Company, N.A., purchases common shares for the accounts of the participants under the plan, at our discretion, either directly from us, on the open market or through a combination of those two options. No shares were purchased from us under the plan in 2019, 2018 and 2017.
Equity Compensation Plan Information. The following table sets forth certain information, as of December 31, 2019,2021, with respect to our Amended and Restated 2011 Equity-Based Award Plan under which our equity securities are authorized for issuance as compensation.
|
| | | | | | | | | | |
| | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
Plan Category | | (a) | | (b) | | (c) |
Equity compensation plans approved by security holders | | 34,000 |
| | $ | 7.95 |
| | 3,116,063 |
|
Equity compensation plans not approved by security holders | | — |
| | — |
| | — |
|
Total | | 34,000 |
| | $ | 7.95 |
| | 3,116,063 |
|
Recent Sales of Unregistered Securities.
We did not issue any common shares during 2019 on an unregistered basis.
Share Repurchase Program.
The following table summarizes common shares/OP units that were repurchased during the fourth quarter of 2019 pursuant to publicly announced repurchase plans(1):
|
| | | | | | | | | | | | | | | | | | | |
Period | | Total numberNumber of
shares/units purchased securities to be issued upon exercise of outstanding options, warrants and rights | | Average Weighted-average exercise price paid per
share/unit ($) of outstanding options, warrants and rights | | Total numberNumber of
shares/units purchased as part of publicly announced securities remaining available for future issuance under equity compensation plans or programs
| | Maximum number of
shares/units that may yet be purchased under the plans or programs (excluding securities reflected in column (a)) |
October 1-31, 2019Plan Category | | —(a) |
| (b) | $ | — |
| | — |
| | 10,306,255 |
(c) |
November 1-30, 2019Equity compensation plans approved by security holders | | — |
| | —$ |
— | | — |
1,410,110 | | 10,306,255 |
|
December 1-31, 2019Equity compensation plans not approved by security holders | | — |
| | — |
| | — |
| | 10,306,255 |
|
Total | | — |
| | $ | — |
| | —1,410,110 |
| | 10,306,255 |
|
(1) SharesRecent Sales of Unregistered Securities.
We did not issue any common shares during 2021 on an unregistered basis.
Share Repurchase Program.
There were no share repurchases during the quarter ended December 31, 2021 under our share repurchase authorization most recently announced on November 2, 2018, which has no expiration date. There were 8,976,315 shares that may yet be purchased under our share repurchase authorization as of December 31, 2021.
Item 6. Selected Financial Data[Reserved]
The following sets forth selected consolidated financial data as of and for each of the years in the five-year period ended December 31, 2019. The selected consolidated financial data should be read in conjunction with Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” below, and the Consolidated Financial Statements and the related notes set forth in Item 8 “Financial Statements and Supplementary Data”, below. ($000's, except per share data):
|
| | | | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
Total gross revenues(1) | $ | 325,969 |
| | $ | 396,971 |
| | $ | 392,690 |
| | $ | 429,496 |
| | $ | 430,839 |
|
Expenses applicable to revenues | (189,612 | ) | | (210,866 | ) | | (223,162 | ) | | (213,403 | ) | | (222,853 | ) |
Interest and amortization expense | (65,095 | ) | | (79,880 | ) | | (77,883 | ) | | (88,032 | ) | | (89,739 | ) |
Income from continuing operations | 285,293 |
| | 230,906 |
| | 86,629 |
| | 96,450 |
| | 113,209 |
|
Total discontinued operations | — |
| | — |
| | — |
| | — |
| | 1,682 |
|
Net income | 285,293 |
| | 230,906 |
| | 86,629 |
| | 96,450 |
| | 114,891 |
|
Net income attributable to Lexington Realty Trust shareholders | 279,910 |
| | 227,415 |
| | 85,583 |
| | 95,624 |
| | 111,703 |
|
Net income attributable to common shareholders | 273,225 |
| | 220,838 |
| | 79,067 |
| | 89,109 |
| | 105,100 |
|
Income from continuing operations per common share - basic | 1.15 |
| | 0.93 |
| | 0.33 |
| | 0.38 |
| | 0.44 |
|
Income from discontinued operations - basic | — |
| | — |
| | — |
| | — |
| | 0.01 |
|
Net income per common share - basic | 1.15 |
| | 0.93 |
| | 0.33 |
| | 0.38 |
| | 0.45 |
|
Income from continuing operations per common share - diluted | 1.15 |
| | 0.93 |
| | 0.33 |
| | 0.37 |
| | 0.44 |
|
Income from discontinued operations per common share - diluted | — |
| | — |
| | — |
| | — |
| | 0.01 |
|
Net income per common share - diluted | 1.15 |
| | 0.93 |
| | 0.33 |
| | 0.37 |
| | 0.45 |
|
Cash dividends declared per common share | 0.4125 |
| | 0.71 |
| | 0.7025 |
| | 0.69 |
| | 0.68 |
|
Net cash provided by operating activities | 192,184 |
| | 217,811 |
| | 227,870 |
| | 239,810 |
| | 245,020 |
|
Net cash provided by (used in) investing activities | (186,965 | ) | | 554,891 |
| | (283,074 | ) | | 11,384 |
| | (391,016 | ) |
Net cash provided by (used in) financing activities | (53,156 | ) | | (707,611 | ) | | 49,581 |
| | (237,301 | ) | | 41,426 |
|
Real estate assets, net, including real estate - intangible assets | 2,856,014 |
| | 2,555,659 |
| | 3,309,900 |
| | 3,028,326 |
| | 3,397,922 |
|
Total assets | 3,180,260 |
| | 2,953,840 |
| | 3,553,020 |
| | 3,441,467 |
| | 3,808,403 |
|
Mortgages, notes payable, credit facility and term loans, including discontinued operations | 1,311,977 |
| | 1,492,483 |
| | 2,068,867 |
| | 1,860,598 |
| | 2,190,740 |
|
Shareholders' equity | 1,705,107 |
| | 1,329,871 |
| | 1,323,901 |
| | 1,392,777 |
| | 1,440,029 |
|
Total equity | 1,724,719 |
| | 1,346,678 |
| | 1,340,835 |
| | 1,412,491 |
| | 1,462,531 |
|
Preferred share liquidation preference | 96,770 |
| | 96,770 |
| | 96,770 |
| | 96,770 |
| | 96,770 |
|
(1) 2018 and 2017 amounts reclassified upon the adoption of ASC 842.
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 above in “Risk Factors” in Part I, Item 1A of this Annual Report and “Cautionary Statements Concerning Forward-Looking Statements” in the beginning of this Annual Report.
Introduction
The following is a discussion and analysis of the consolidated financial condition and results of operations of Lexington RealtyLXP Industrial Trust for the years ended December 31, 20192021 and 2018,2020, and significant factors that could affect its prospective financial condition and results of operations. This discussion should be read together with theour accompanying consolidated financial statements of the Company included herein and notes thereto.
Overview
General. We are a Maryland REIT focused on single-tenant industrial real estate investments. As of December 31, 2019, we had equity ownership interests in approximately 130 consolidated real estate properties, located in 31 states and encompassing approximately 52.6 million square feet, approximately 97.0% of which was leased.
Business Strategy. Our current business strategy is focused on growing our portfolio of industrial properties, enhancing our cash flow stability, reducing lease rollover risk and maintaining a strong and flexible balance sheet to allow us to act on opportunities as they arise. See “Business” in Part I, Item 1 of this Annual Report for a detailed description of our current business strategy. We expect our business strategy will enable us to continue to improve our liquidity and strengthen our overall balance sheet. We believe liquidity and a strong balance sheet will allow us to take advantage of attractive investment opportunities as they arise.
Investment Trends
General. Over the last several years, we have focused our investment activity primarily on income producing single-tenant net-leased industrial real estatewarehouse and distribution assets versus office and other asset types. We have seen that demand for space in the suburban office market has not been as strong as demand for space in the industrial market. We believe this is due to a continuing trendspeculative development of downsizing of corporate office requirementswarehouse and an increase in demand for regionalized distribution and e-commerce facilities. In addition, warehouse/distribution industrial assets generally require less capital for tenant improvement packages upon re-leasing than are required by office assets allowing us to retain cash flow.assets.
Our industrial investments generally have one or more of the following characteristics (1) an attractive geographic location, (2) adaptability to a variety of users, including multi-tenant use and (3) a cost less than replacement cost or reflecting a below market rent. We prefer newer warehouse/distribution facilities to other industrial assets because of their adaptability of use. In 2019 and 2018, we only acquired warehouse/distribution facilities.
In 2019,2021, we acquired $703.8and/or completed and placed into service $885.6 million of industrial investments,warehouse and distribution assets, which is an increase of $388.2$273.8 million compared to 20182020 investment activity of $315.6$611.8 million. The increase was primarily due to our ability to located attractive investment opportunities in our core industrial markets and the growth of our development pipeline.
As of December 31, 2019,2021, our percentage of gross book value from industrial assets, excluding held for sale assets, increased to 81.5%98.1% compared to 71.2%90.8% as of December 31, 20182020 as a result of our acquisition and capital recycling efforts. We expect to continue to recycle our non-industrial portfolioremaining other assets into warehouse/warehouse and distribution facilities.facilities by the end of 2022. While our capital recycling strategy has had and may continue to have a near-term dilutive impact on earnings due to the sales of revenue-producing properties, we believe this strategy will benefit shareholder value in the long term.
Industrial Market.The challenge we face is finding industrial investments that will provide an attractive return without compromising our real estate or tenant credit underwriting criteria. We believe we have access to acquisition opportunities due to our relationships with developers, brokers, corporate users and sellers. However, competition for income producing single-tenant net-leased industrial real estate assetsmarket was one of the most resilient real estate markets during the COVID-19 pandemic. One of the main drivers of growth in the industrial real estate market has increased,been e-commerce. We believe that growth will also be driven by companies increasing their inventories in the United States to keep up with demand and to protect against future disruptions in the supply chain.
While we believe the industrial market will continue to grow, there continues to be an increase in competition for the acquisition of industrial properties, specifically warehouse/distribution properties, which drives up the cost of our investmentsthe assets we buy and drives down the yield we are able to obtain. This trend was highlighted when initial capitalization rates compressed further during 2021.
Lease Term. Historically, we have acquiredWe primarily acquire assets subject to intermediate and long-term leases with escalating rents, which we believe strengthen our future cash flows by providingand provide a partial hedge against rising interest rates, extending ourrates. We intend to maintain a weighted-average lease term longer than many comparable companies and balancingbalance our lease expiration schedule.
Our industrial investment underwriting focuses less on tenant credit than our historical office investment underwriting as we focus on real estate characteristics.characteristics such as location and related demographic and local economic trends. This has allowed us to acquire certain short-term leased industrialwarehouse/distribution assets, which may be acquired at a discount compared to long-term leased industrialwarehouse/distribution assets and allow for a value-add strategy through the lease renewal or a multi-tenanting process.
Development. Following the economic downturnAs a result of the late 2000s,competition for income producing single-tenant warehouse/distribution assets, in 2017, we provided build-to-suit financing for developers. However, thebegan selectively investing in development projects. We believe we can achieve higher yields from development projects than we can by purchasing existing properties.
Our development activities have been focused on speculative development. Our target markets are experiencing low vacancy rates. Despite an increase in construction in recent years, we believe there is sufficient tenant demand for industrial assets in the last several years has allowed developers to obtain construction financing from traditional banks and build on a speculative basis, which has limited our opportunities in the industrial build-to-suit market.
In an effort to gain more exposure to the build-to-suit industrial market, in December 2017, we acquired a 90% interest in a joint venture with a developer that acquired a developable parcel of land for industrial build-to-suit projects. In December 2018, a portion of the land was distributed to us and a ground tenant is developing the first build-to-suit project for a 1.2 million square foot warehouse/distribution facility for its own use on such portion, which is expected to be completed in 2020.
During 2019, we increased our development pipeline with three more developable parcels of land, one of which we wholly own and two of which we hold a 90% interest in. These land parcels are zoned to develop industrial real estate assets containing up to 2.9 million square feet.projects.
Leasing Trends
General. Re-leasing properties that are currently vacant or as leases expire at favorable effective rates is a primary area of focus for our asset management.
Office Assets. Renewals of our office investments are time sensitive due to the suburban location and the ability of the renewing tenant to obtain alternative space. In addition, renewal rents may be lower than expiring rents and may carry higher tenant improvement allowances than industrial lease renewals. When we obtain a renewal at an office investment, we generally seek to recycle out of the office investment and into an industrial investment.
Industrial Assets. Renewals of industrial investments,leases, particularly for warehouse/distribution facilities, are generally not as time sensitive due to the minimal capital expenditures upon renewal as compared with office property renewals.dependent on location and occupancy alternatives for our tenants.
Multi-Tenant.If a property cannot be re-let to a single user and the property can be adapted to multi-tenant use, we determine whether the costs of adapting the property to multi-tenant use outweigh the benefit of funding operating costs while searching for a single-tenant and whether selling a vacant property, which limits operating costs and allows us to redeploy capital, is in the best interest of our shareholders.
During 2021, we entered into 30 new leases and lease extensions encompassing approximately 8.5 million square feet. The average base rent on these extended leases was approximately $4.04 per square foot compared to the average base rent on these leases before extension of $3.64 per square foot. The weighted-average cost of tenant improvements and lease commissions during 2021 was approximately $2.91 per square foot for new leases and $2.75 per square foot for extended leases.
As of December 31, 2021, we had three single-tenant leases in our industrial portfolio where the lease term is scheduled to expire in 2022, covering approximately 0.7 million square feet. As of December 31, 2021, approximately 50% of our industrial base rental revenue was from leases scheduled to expire during 2022 through 2027. We expect an aggregate increase in rental revenue as these leases are reset to market rates.
Lease Protections.Inherent Growth. Certain of the long-termMany leases on properties in which we have an ownership interest contain provisions that may mitigate the adverse impact of inflation on our operating results. Such provisions include clauses entitling us to receive (1) scheduled fixed base rent increases and (2) baseor rent increases based upon the consumer price index. In addition, aAs of December 31, 2021, 95.4% of our single-tenant industrial leases had scheduled rent increases. The average escalation rate of these leases based on the next rent step was 2.8% as of December 31, 2021. A majority of theour leases on the single-tenant properties in which we have an ownership interest 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 single-tenant properties in which we have an ownership interest are generally structured in a way that minimizes our responsibility for capital improvements. However, certain of our leases provide for some level of landlord responsibility for capital repairs and replacements, the cost of which is generally factored into the rental rate. Our motivation to release vacant space requires us to meet market demands with respect to rental rates, tenant concessions and landlord responsibilities. Developers are similarly motivated when signing leases with tenants due to the significant competition in the industrial space. As a result, the obligations of our property owner subsidiaries on new leases and newly renewed or extended leases generallymay increase to include, among other items, some form of responsibility for operating expenses and/or capital repairs and replacements.
Tenant Credit. We continue to monitor the credit of tenants of properties in which we have an interest by (1) subscribing to rating agency information, so that we can monitor changes in the ratings of our rated tenants, (2) reviewing financial statements that are publicly available or that are required to be delivered to us under the applicable lease, (3) monitoring news reports regarding our tenants and their respective businesses, and (4) monitoring the timeliness of rent collections.collections and (5) meeting with our tenants.
Leasing Activity. During 2019, we entered into 23 new leases and lease extensions encompassing approximately 6.4 million square feet. The average GAAP base rent, excluding tenant reimbursements, on these extended leases was approximately $7.12 per square foot compared to the average GAAP base rent, excluding tenant reimbursements, on these leases before extension of $6.62 per square foot. The weighted-average cost of tenant improvements and lease commissions during 2019 was approximately $7.78 per square foot for new leases and $2.48 per square foot for extended leases.
Other properties
We continue to recycle our other real estate investments into warehouse/distribution assets. As of December 31, 2021, our other real estate assets represented 1.9% of our gross book value, excluding held for sale assets. We have historically marketed non-industrial assets for sale when we believe we have obtained the highest possible valuation through various means, including lease renewals. However, we expect to accelerate the sale of most of our non-industrial assets in 2022.
Non-Recourse Mortgage Loan Resolutions
We may convey inSince we have a limited number of industrial properties subject to non-recourse mortgages, we do not expect many foreclosure or via a deed-in-lieusales of foreclosure certainconsolidated properties in which we have an interest if we deem the balance of the non-recourse mortgage loans encumbering the properties in excess of the value of the property collateral. As of December 31, 2019, two of our office investments were in receivership and we expect to dispose of such properties in foreclosure sales during 2020.
Our property owner subsidiaries may convey properties to lenders or the property owner subsidiary may declare bankruptcy in the future if there is no or limited recourse to us and a property owner subsidiary is unable to refinance, re-let or sell its vacated property or if a tenant renews at a lower rent or a new tenant pays a lower rent that does not justify a value of the property in excess of the mortgage loan balance.future.
Impairment charges
During 20192021 and 2018,2020, we incurred impairment charges, of $5.5 million and $14.5 million, respectively, on certain of our assets of $5.3 million and $95.8 million, respectively, due to each asset's carrying value being below its estimated fair value. Most of the impairment charges in 20192021 and 20182020 were incurred on non-core assets due to anticipated shortened holding periods. The real estate assets we sold that resulted in impairment charges were primarily non-core assets including land investments, retail properties and under performing and multi-tenant properties. We cannot estimate if we will incur, or the amount of, future impairment charges on our assets. See Part I, Item 1A “Risk Factors”, of this Annual Report.
Critical Accounting PoliciesEstimates
Our accompanying
In preparing the consolidated financial statements we have been prepared in accordance with GAAP, which require our management to makemade estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses assetsduring the reporting periods. Accounting estimates are deemed critical if they involve a significant level of estimation uncertainty and liabilities reported and related disclosureshave had or are reasonably likely to have a material impact on our financial condition or results of contingent assets and liabilities.operations. Below is a summary of the critical accounting estimates used in the preparation of our consolidated financial statements. A summary of our significant accounting policies which are important to the portrayal of our financial condition and results of operations is set forth in noteNote 2 to the Consolidated Financial Statements, which are included in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report.
The following is a summary of our critical accounting policies, which require some of management's most difficult, subjective and complex judgments.
Acquisition of Real Estate. The fair valuePrimarily all of theour acquisitions of real estate acquired, which includesassets and liabilities are accounted for as asset acquisitions. As such, the impactpurchase prices of fair value 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 consistingare recorded and allocated at fair value on a relative basis. The recorded allocations of tangible assets are based on the “as-if-vacant” value using estimated cash flow projections of the valueproperties acquired which incorporates discount, capitalization and interest rates as well as available comparable market information. Allocations of above-marketintangible assets includes management’s estimates of current market rents and below-market leases, other valueleasing costs.
We use considerable judgement in our estimates of in-place leasescash flow projections, discount, capitalization and value of tenant relationships, based in each case on theirinterest rates, 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. The “as-if-vacant” value is then allocated to land and building and improvements based on our management's determination of relative fair values of these assets. Factors considered by our management in performing these analyses include an estimate ofmarket lease rates, carrying costs during thehypothetical expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs,While our management includesmethodology for purchase price allocation did not change during the year ended December 31, 2021, the real estate taxes, insurancemarket is fluid and other operating expenses and estimates of lost rental revenue during the expected lease-up periodsour assumptions are based on current market demand. Our management also estimates costs to execute similar leases including leasing commissions. Our management generally retains a third party to assistinformation currently available in the allocations.
In allocatingmarket at the time of acquisition. Significant increases or decreases in these key estimates, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value measurement of the identified intangiblereal estate assets and liabilities of an acquired property, above-market and below-market lease values are recorded based on the difference between the current in-place lease rent and management's 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.being acquired.
The aggregate value of other acquired intangible assets, which may consist of in-place leases and/or tenant relationship values, is measured by the excess of (1) the purchase price paid for a property over (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 tenant relationship values based on management's evaluation of the specific characteristics of each tenant's lease. The value of in-place leases is amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of the respective leases. The value of tenant relationships is amortized to expense over the applicable lease term plus expected renewal periods.
Revenue Recognition. We enter into agreements with tenants that convey the right to control the use of identified space at our properties in exchange for rental revenue. These agreements meet the criteria for recognition as leases under Accounting Standards Codification (“ASC”) 842, Leases. We recognize lease revenue 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. Revenue is recognized on a contractual basis for leases with escalations tied to a consumer price index with no floor. 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 the renewals are not reasonably assured. 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, weWe 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 expensetenant.
We evaluate the collectability of our rental payments and amortized as a reduction ofrecognize revenue on a straight-linecash basis overwhen we believe it is no longer probable that we will receive substantially all of the respectiveremaining lease term. We recognize lease termination fees aspayments. Management exercises judgment in assessing collectability of tenant receivables and considers payment history, current credit status, publicly available information about the financial condition of the tenant and other factors. Our assessment of the collectability of tenant receivables can have a significant impact on the rental revenue recognized in the period received and write off unamortized leases related intangibles and other lease related account balances, provided that there are no further obligations under the lease. Otherwise, such fees and balances are recognized on a straight-line basis over the remaining obligation period.our consolidated statements of income.
Impairment of Real Estate. We evaluate the carrying valuerecord impairments of all tangible and intangibleour real estate assets classified as held for investmentuse when triggering events dictate that an asset may be impaired. An impairment is recorded when the carrying amount of the asset exceeds the sum of its undiscounted future operating and residual cash flows. The impairment is the difference between estimated fair value of the asset and the carrying amount. We record impairments of our real estate assets classified as held for possiblesale at the lower of the carrying amount or estimated fair value using the estimated or contracted sales price less costs to sell. Any real estate assets recorded at fair value on a non-recurring basis as a result of our impairment whenanalysis are valued using unobservable local and national industry market data such as comparable sales, appraisals, brokers’ opinions of value and/or terms of definitive sales contracts. Additionally, the analysis includes considerable judgement in our estimates of hold periods, projected cash flows and discount and capitalization rates. Significant increases or decreases in any of these inputs, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value measurement of the real estate assets being assessed.
We will record an eventimpairment charge related to our investments, including investments in non-consolidated entities, if we determine the fair value of the investments are less than their carrying value and such impairment is other-than-temporary. We evaluate whether events or changechanges in circumstance has occurredcircumstances indicate that indicates itsthe carrying valueamount of our investments may not be recoverable. We consider the strategic decisions regarding the future plans to sell propertiesOur evaluation of changes in economic or operating conditions and other market factors. We regularly update significantwhether an impairment is other-than-temporary may include developing estimates and assumptions including rental rates, capitalization rates and discount rates, which are included in the anticipated future undiscountedof fair value, forecasted cash flows derived from the asset. If such cash flows are less than the asset's carrying value, an impairment charge is recognized to the extent by which the asset's carrying value exceeds its estimated fair value, which may be below the balance of any non-recourse financing. Estimating futureor operating income before depreciation and amortization. We estimate undiscounted cash flows and fair values is highly subjectivevalue using observable and unobservable data such estimates could differ materially from actual results.as operating income, hold periods, estimated capitalization and discount rates, or relevant market multiples, leasing prospects and local market information and whether certain impairments are other-than-temporary.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements included in this report.
Cybersecurity
While we have yet to experience a cyber attack that disrupted our operations in any material respect, all companies, including ours, are increasing the resources allocated to address and protect against cybersecurity threats. Due to the small size of our organization, we rely on third-parties to provide advice and services with respect to cybersecurity, which is not currently, but could become, a material cost.
Environmental, Social and Governance
ESG matters are becoming a central focus for our shareholders, employees, tenants, suppliers, creditors, and communities. During 2021, we allocated an increased amount of resources to ESG matters. We expect to continue to increase our ESG objectivesefforts and the resources allocated to ESG matters will continue to evolve over time as we assess strategies that are most appropriate for our organization.in the near future.
Liquidity
General. Since becoming a public company, ourOur principal sources of liquidity have been (1) undistributed cash flows generated from our investments, (2) the public and private equity and debt markets, (3) property specific debt, (4) corporate level borrowings, (5) commitments from co-investment partners and (6) proceeds from the sales of our investments. We believe our ratio of dividends to Adjusted Company Funds From Operations is conservative, and allows us to retain cash flow for internal growth.
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.
Cash Flows. We believe that cash flows from operations will continue to provide adequate capital to fund our operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with applicable REIT requirements in both the short-term and long-term. However, our cash flow from operations may be negatively affected in the near term if we grant tenant rent relief packages or experience tenant defaults as a result of the effects of COVID-19. In addition, we anticipate that cash on hand, corporate level borrowings under our unsecured revolving credit facility, capital recycling proceeds, issuances of equity, and debt, mortgage proceeds and our other principal sources of liquiditydebt, as well as other available alternatives, will be available to provide the necessary capital required to fundby our operations and allow us to grow.business.
Cash flows from operations as reported in the Consolidated Statements of Cash Flows totaled $192.2$220.3 million for 20192021 and $217.8$201.8 million for 2018. Cash flows2020. The increase was primarily related to the impact of cash flow generated from operations have been decreasing primarily due to dispositions as we reshape our portfolio to have a higher concentration of industrial assets versus other asset types. Industrial assets, as compared with office assets, generally provide for less rental revenue due to lower capitalization rates than can be obtained from office assets.acquiring properties and termination fee income, partially offset by property sales and vacancies. The underlying drivers that impact our working capital, and therefore cash flows from operations, are the timing of (1) the collection of rents, and tenantincluding reimbursements and loan interest payments from borrowers, and (2) thetenants, payment of interest on mortgage debt and payment of operating and general and administrative costs. We believe the net-lease structure of the leases encumbering a majority of the properties in which we have an interest mitigates the risks of the timing of cash flows from operations since the payment and timing of operating costs related to the properties are generally borne directly by the tenant. CollectionThe collection and timing of tenant rents isare closely monitored by management as part of our cash management program.
Net cash provided by (used in)used in investing activities totaled $(187.0)$337.8 million in 20192021 and $554.9$494.4 million in 2018.2020. Cash used in investing activities related primarily to acquisitions of real estate, investments in real estate properties, real estate under construction, paymentsland held for development, capital improvements and deferred leasingexpenditures, lease costs, as well as, investments in non-consolidated entities, investment in a note receivable and changes in real estate deposits.deposits, net. Cash provided by investing activities primarily consisted ofrelated to net proceeds received from the saledisposition of propertiesreal estate and distributions from non-consolidated entities in excess of accumulated earnings. Therefore, the fluctuation in investing activities relates primarily to the timing of investments and dispositions.entities.
Net cash used inprovided by financing activities totaled $53.2$129.1 million in 20192021 and $707.6$342.6 million in 2018.2020. Cash provided by financing activities primarily related to the issuance of the 2031 and 2030 Senior Notes, revolving credit facility borrowings, mortgage proceeds, issuances of common shares and cash contributions from noncontrolling interests. Cash used in financing activities primarily related primarily to the redemption of the 2023 and 2024 Senior Notes, dividend and distribution payments, repurchases of common shares, payments of deferred financing costs, debt payments and early extinguishment of debt charges. Cash provided by financing activities was primarily attributable to net proceeds from the issuance of common shares and non-recourse mortgage and corporate borrowings.service payments.
Public and Private Equity and Debt Markets. We access the public and private equity and debt markets on an opportunistic basis when we (1) believe conditions are favorable and (2) have a compelling use of proceeds. Due
We expect to continue to access debt and equity markets in the future to implement our business strategy and to fund future growth when market conditions are favorable. However, the volatility in the capital markets primarily resulting from the effects of the COVID-19 pandemic may negatively affect our ability to access these capital markets.
Equity:
At-The-Market Offering Program. We maintain an At-The-Market offering program, or ATM program, under which we can issue common shares. The following table summarizes common share issuances under the ATM program for the years ended December 31, 2021 and 2020, respectively:
| | | | | | | | |
| Year ended December 31, 2021 |
| Shares Sold | Net Proceeds |
2021 ATM Issuances | 1,052,800 | $13.5 million |
| | |
| Year ended December 31, 2020 |
| Shares Sold | Net Proceeds |
2020 ATM Issuances | 5,950,882 | $61.0 million |
During 2021, we settled 4,990,717 common shares previously sold on a forward basis on the maturity date of the contract and received $53.6 million of net proceeds. There were no forward settlements during 2020.
As of December 31, 2021, an aggregate of 3,649,023 common shares were sold in forward sales contracts that have not been settled and had an aggregate settlement price of $38.5 million, which is subject to adjustment in accordance with the forward sales contracts. We expect to settle the forward sales contracts by the maturity dates in February 2022.
During 2021, we amended the terms of our ATM offering program, under which we may, from time to time, sell up to $350.0 million common shares over the term of the program. As of December 31, 2021, common shares with an aggregate value of $295.0 million remain available for issuance under the ATM program.
Underwritten equity offerings. During 2021, we entered into forward sales contracts for the sale of 16,000,000 common shares at a public offering price of $12.11 per common share in an underwritten equity offering that have not yet settled. Subject to our borrowing capacityrights to elect cash or net share settlement, we expect to settle the forward sales contracts by the maturity date in May 2022. As of December 31, 2021, the forward sales contracts had an aggregate settlement price $187.5 million, which is subject to adjustment in accordance with the forward sales contracts.
During 2020, we issued 17,250,000 common shares at a public offering price of $9.60 per common share in an underwritten equity offering and generated net proceeds of approximately $164.0 million. The proceeds were used for general corporate purposes, including acquisitions, and pending the application of the proceeds were used to pay down all of the then outstanding balance under our unsecured revolving credit facility and proceedsfacility.
The volatility in the capital markets primarily resulting from dispositions and mortgage financings, we did notthe effects of the COVID-19 pandemic may negatively affect our ability to access the public debtcapital markets through our ATM program and other offerings.
Direct Share Purchase Plan. We maintain a direct share purchase plan, which has two components, (i) a dividend reinvestment component and (ii) a direct share purchase component. Under the dividend reinvestment component, common shareholders and holders of OP units may elect to automatically reinvest their dividends and distributions to purchase our common shares. Under the direct share purchase component, our current investors and new investors can make optional cash purchases of our common shares. The administrator of the plan, Computershare Trust Company, N.A., purchases common shares for the accounts of the participants under the plan, at our discretion, either directly from us, on the open market or through a combination of those two options. No shares were purchased from us under the plan in 20192021, 2020 and 2018.2019.
Share Repurchase Program.During 2015, our Board of Trustees authorized the repurchase of up to 10.0 million common shares and increased this authorization by 10.0 million common shares in 2018. The share repurchase program does not expire. During 2019 and 2018,2020, we repurchased and retired approximately 0.41.3 million, and 5.9 million common shares, respectively, at an average price of $8.13 and $8.05, respectively,$8.28 per common share under the repurchase program. Approximately 10.3During 2021, we did not repurchase any shares and approximately 9.0 million common shares remain available for repurchase at December 31, 2019.repurchase. We have continued to, and in the future may, repurchase our common shares in the context of our overall capital plan, and to the extent we believe market volatility offers prudent investment opportunities based on our common share price versus net asset value per share.
We expect to continue to access debt and equity markets in the future to implement our business strategy and to fund future growth. However, general economic uncertainty and the volatility in these markets can make accessing these markets more difficult at times.
Operating Partnership Structure.Units Our operating partnership structure permits us to effect acquisitions by issuing OP units to a property owner as a form of consideration in exchange for the property. Substantially all outstanding OP units are redeemable by the holder at certain times on a one OP unit for approximately 1.13 common shares basis or, at our election, with respect to certain OP units, cash. Substantially all outstanding OP units require us to pay quarterly distributions to the holders of such OP units equal to the dividends paid to our common shareholders on an as redeemed basis and the remaining OP units have stated distributions in accordance with their applicable partnership agreement. To the extent that our dividend per share is less than a stated distribution per unit per the applicable partnership agreement, the stated distributions per unit are reduced by the percentage reduction in our dividend. We are party to a funding agreement with our operating partnership under which we may be required to fund distributions made on account of OP units. No OP units have a liquidation preference.. In recent years there has not been a great demand for OP units as consideration and, as a result, we expect the percentage of common shares that will be outstanding in the future relative to OP units will increase, and income attributable to noncontrolling interests should be expected to decrease, as such OP units are redeemed for our common shares. Furthermore, our credit agreement requires us to own at least 95.5% of a subsidiary for the assets of such subsidiary to be included in the calculation of our credit agreement covenants, which incents us to maintain our percentage ownership in LCIF and not issue additional OP units.
During 2021, LCIF redeemed and cancelled 1,598,906 OP units in connection with the disposition of three properties. As of December 31, 2019,2021, there were 2.80.8 million OP units outstanding not owned by us which were convertible on a one OP unit for approximately 1.13 common shares basis into 3.2an aggregate of 0.9 million common shares assuming we satisfied redemptions entirely with common shares. All outstanding OP units are entitled to a distribution equal to the dividend on our common shares or a stated distribution that may adjust based on our commons share dividend amount.
Debt:
Corporate Borrowings. In 2021, we issued $400.0 million aggregate principal amount of our 2031 Senior Notes. We used a portion of the net proceeds from the offering of the 2031 Senior Notes to redeem $188.8 million aggregate principal balance of our outstanding 2023 Senior Notes.
In 2020, we issued $400.0 million aggregate principal amount of our 2030 Senior Notes. We used a portion of the net proceeds from the offering of the 2030 Senior Notes to repurchase $61.2 million and $51.1 million aggregate principal balance of our outstanding 2023 Senior Notes and 2024 Senior Notes, respectively, through a tender offer.
The following Senior Notes were outstanding as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Issue Date | | Face Amount (millions) | | Interest Rate | | Maturity Date | | Issue Price |
August 2021 | | $ | 400.0 | | | 2.375 | % | | October 2031 | | 99.758 | % |
August 2020 | | 400.0 | | | 2.70 | % | | September 2030 | | 99.233 | % |
May 2014 | | 198.9 | | | 4.40 | % | | June 2024 | | 99.883 | % |
| | $ | 998.9 | | | | | | | |
The Senior Notes are unsecured and pay interest semi-annually in arrears. We may redeem the Senior Notes at our option at any time prior to maturity in whole or in part by paying the principal amount of the Senior Notes being redeemed plus a make-whole premium.
A summary of the maturity dates and interest rates of our unsecured credit agreement, as of December 31, 2021, are as follows:
| | | | | | | | | | | | | | |
| | Maturity Date | | Interest Rate |
$600.0 Million Revolving Credit Facility(1) | | 02/2023 | | LIBOR + 0.90% |
$300.0 Million Term Loan(2) | | 01/2025 | | LIBOR + 1.00% |
(1) Maturity date of the revolving credit facility can be extended to February 2024 at our option. The interest rate ranges from LIBOR plus 0.775% to 1.45%. At December 31, 2021, we had no borrowings outstanding and availability of $600.0 million, subject to covenant compliance.
(2) The LIBOR portion of the interest rate was swapped to obtain a current fixed rate of 2.732% per annum.
As of December 31, 2021, we were in compliance with the financial covenants contained in our corporate level debt agreements.
During 2007, we issued $200.0 million in Trust Preferred Securities, which bore interest at a fixed rate of 6.804% through April 2017 and, thereafter, bears interest at a variable rate of three month LIBOR plus 170 basis points. These securities are (1) classified as debt, (2) due in 2037 and (3) currently redeemable by us. As of December 31, 2021, there were $129.1 million of these securities outstanding.
Property Specific Debt. As of December 31, 2019, our2021, we have a limited number of consolidated properties subject to mortgages. Our property owner subsidiaries including subsidiaries that are in default, had aggregatedo not have mortgage maturities with balloon payments of $50.5 million and $17.0 million maturing in 2020 and 2021, respectively.due until 2031. With respect to mortgages encumbering properties where the expected lease rental revenues are sufficient to provide an estimated property value in excess of the mortgage balance, we believe our property owner subsidiaries have sufficient sources of liquidity to meet these obligations through future cash flows from operations, the credit markets and, if determined appropriate by us, a capital contribution from us from either cash on hand ($122.7190.9 million at December 31, 2019)2021), property sale proceeds or borrowing capacity on our primary credit facility ($600.0 million as of December 31, 2019,2021, subject to covenant compliance).
In the event that the estimated property value is less than the mortgage balance, as the mortgages encumbering the properties in which we have an interest are generally non-recourse to us and the property owner subsidiaries, a property owner subsidiary may, if appropriate, satisfy a mortgage obligation by transferring title of the property to the lender or permitting a lender to foreclose. There are significant risks associated with conveying properties to lenders through foreclosure which are described in "Risk Factors" in Part I, Item 1A of this Annual Report.
In 2019 and 2018, we obtained or assumed, through our consolidated property owner subsidiaries, $41.9 million and $26.4 million, respectively, in non-recourse mortgage loans with interest rates ranging from 4.3% to 5.4% and maturity dates ranging from 2022 to 2032. Our secured debt decreased to approximately $393.9$84.4 million at December 31, 20192021 compared to $575.5$138.4 million at December 31, 2018.2020. We expect to continue to use property specific, non-recourse mortgages in certain situations as we believe that by properly matching a debt obligation, including the balloon maturity risk, with the terms of a lease, our cash-on-cash returns increase and the exposure to residual valuation risk is reduced. In addition, we may procure credit tenant lease financing in certain situations where we are able to monetize all or a significant portion of the rental revenues of a property at an attractive rate. We believe our financing strategy will also allow us to further lower our financing costs and improve our cash flow, financial flexibility and certain credit metrics.
Corporate Borrowings. The following Senior Notes were outstanding as of December 31, 2019:
|
| | | | | | | | | | | | |
Issue Date | | Face Amount (millions) | | Interest Rate | | Maturity Date | | Issue Price |
May 2014 | | $ | 250.0 |
| | 4.40 | % | | June 2024 | | 99.883 | % |
June 2013 | | 250.0 |
| | 4.25 | % | | June 2023 | | 99.026 | % |
| | $ | 500.0 |
| | | | | | |
The Senior Notes are unsecured and pay interest semi-annually in arrears. We may redeem the Senior Notes at our option at any time prior to maturity in whole or in part by paying the principal amount of the Senior Notes being redeemed plus a premium.
A summary of the significant terms of our unsecured credit agreement, as of December 31, 2019, are as follows:
|
| | | | |
| | Maturity Date | | Interest Rate |
$600.0 Million Revolving Credit Facility(1)
| | 02/2023 | | LIBOR + 0.90% |
$300.0 Million Term Loan(1)
| | 01/2025 | | LIBOR + 1.00% |
| |
(1) | In February 2019, we: (i) increased the total commitment of the revolving credit facility from $505.0 million to $600.0 million; (ii) extended the maturity date of the revolving credit facility from August 2019 to February 2023 and allowed for the extension to February 2024 at our option; and (iii) reduced the applicable margin rates on both the revolving credit facility and term loan due in 2021. In July 2019, we extended the maturity of the $300 million term loan to January 2025 and swapped the LIBOR portion of the interest rate to obtain a current fixed rate of 2.732% per annum. At December 31,2019, the revolving credit facility had no borrowings outstanding and availability of $600.0 million, subject to covenant compliance. |
As of December 31, 2019, we were in compliance with the financial covenants contained in our corporate level debt agreements.
During 2007, we issued $200.0 million in Trust Preferred Securities, which bore interest at a fixed rate of 6.804% through April 2017 and, thereafter, bears interest at a variable rate of three month LIBOR plus 170 basis points. These securities are (1) classified as debt, (2) due in 2037 and (3) currently redeemable by us. As of December 31, 2019 and 2018, there were $129.1 million of these securities outstanding.
Co-investment Programs and Joint VenturesInstitutional Fund Management. We have entered into co-investment programs and joint ventures with institutional investors and other real estate companies to mitigate our risk in certain assets and increase our return on equity to the extent we earn management or other fees. However, investments in certain co-investment programs and joint ventures limit our ability to make investment decisions unilaterally relating to the assets and limit our ability to deploy capital. Due
During 2021, we recapitalized a portfolio of 22 special purpose industrial properties, primarily manufacturing assets, through the formation of an institutional joint venture. This enabled us to our size, we do not expect to enter into co-investment programs and joint ventures seeking future investments, except with developerscapitalize on the compression of capitalization rates for these industrial development projects. In 2018, we sold 21 office assets, to a newly-formedwhile mitigating risks of staying fully invested in these assets. We own 20% of this institutional joint venture whichand we referand our partner are committed to as NNN JV, in which we acquired a 20% interest. We believefund an additional $50.0 million and $200.0 million, respectively, of future capital to grow this joint venture complementedby acquiring special purpose industrial properties that do not conflict with our current business strategywarehouse and distribution investment strategy.
The real estate investments owned by partially reducing our exposureinstitutional joint ventures are generally financed with non-recourse debt. Non-recourse debt is generally defined as debt whereby the lenders' sole recourse with respect to office assets.borrower defaults is limited to the value of the assets collateralized by the debt. The lender generally does not have recourse against any other assets owned by the borrower or any of the members or partners of the borrower, except for certain specified exceptions listed in the particular loan documents. These exceptions generally relate to "bad boy" acts, including fraud, prohibited transfers and breaches of material representations, and environmental matters. We have guaranteed such obligations for certain of our non-consolidated entities with respect to $776.0 million of such non-recourse debt. We believe the likelihood of making any payments under such guaranties is remote and we generally have an agreement from each partner to reimburse us for its proportionate share of any liability related to a guarantee trigger unless such trigger is caused solely by us.
Capital Recycling. Part of our strategy to effectively manage our balance sheet involves pursuing and executing well on property dispositions and recycling of capital. During 2019,2021, we disposed of our interests in 2215 properties for an aggregate gross price of $621.6$276.7 million. Additionally, we disposed of five22 properties in ourto a non-consolidated joint venturesventure for an aggregate gross price of $176.9 million. These$547.2 million, net of purchase price credits. The proceeds were primarily used to (1) retire indebtedness encumbering properties in which we have an interest and corporate debt obligations and (2) make investments.investments in real property.
As capitalization rates have compressed in recent years, we have continued to look at opportunities to recyclenear the completion of the capital with a focus on capturing the valuerecycling of our multi-tenant and retail properties and reducingnon-industrial assets, we expect to continue our exposurerecycling efforts with respect to the suburban office sector. The increase in asset values may result in our selling more properties thanolder industrial assets and/or those outside our target markets where we acquire in any given year. We will continue to look at capital recycling opportunities as partbelieve we can take advantage of the ongoing effort to further transform our portfolio, with a greater emphasis on suburban office dispositions and non-core asset dispositions, in individual or portfolio transactions.strong current market. We believe capital recycling (1) provides cost effective and timely capital support for our investment activities and (2) allows us to maintain line capacity and cash in advance of what we expect to be a growing investment pipeline.
Liquidity Needs. Our principal liquidity needs are the contractual obligations set forth under the heading “Contractual Obligations,” below, and the payment of dividends to our shareholders and distributions to the holders of OP units. As we grow our development pipeline, we expect that development activities will become a greater part of our liquidity needs.
As of December 31, 2019,2021, we had approximately $1.3$1.5 billion of indebtedness, consisting of mortgages and notes payable outstanding, a term loan, 4.40%2.375%, 2.70%, and 4.25%4.40% Senior Notes and Trust Preferred Securities, with a weighted-average interest rate of approximately 4.0%2.8%. The ability of a property owner subsidiary to make debt service payments depends upon the rental revenues of its property and its ability to refinance the mortgage related thereto, sell the related property, or access capital from us or other sources. A property owner subsidiary's ability to accomplish such goals will be affected by numerous economic factors affecting the real estate industry, including the risks described under "Risk Factors" in Part I, Item 1A of this Annual Report.
If we are unable to satisfy our contractual obligations and other operating costs with our cash flow from operations, we intend to use borrowings and proceeds from issuances of equity or debt securities. If a property owner subsidiary is unable to satisfy its contractual obligations and other operating costs, it may default on its obligations and lose its assets in foreclosure or through bankruptcy proceedings.
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 taxable income that is currently distributed to shareholders.
In connection with our intention to continue to qualify as a REIT for federal income tax purposes, we expect to continue paying regular dividends to our shareholders. These dividends are expected to be paid from operating cash flows and/or from other sources. Since cash used to pay dividends reduces amounts available for capital investments, we generally intend to maintain a conservative dividend payout ratio, reserving such amounts as we consider necessary for the maintenance or expansion of properties in our portfolio, debt reduction, the acquisition of interests in new properties as suitable opportunities arise, and such other factors as our Board of Trustees considers appropriate.
We paid approximately $122.8$128.3 million in cash dividends to our common and preferred shareholders in 2019.2021. Although our property owner subsidiaries 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.
Contractual Obligations
TableAs of ContentsDecember 31, 2021, we had five ongoing consolidated development projects and expect to incur approximately $312.0 million of costs in 2022, excluding noncontrolling interests' share, to substantially complete the construction of such projects. As of December 31, 2021, we had two consolidated and two non-consolidated joint ventures that own land parcels held for development. We are unable to estimate the timing of any required fundings for potential development projects on these parcels.
Capital Resources
General. Due to the net-lease structure of a majority of our investments, our property owner subsidiaries historically have not incurred significant expenditures in the ordinary course of business to maintain the properties in which we have an interest. As leases expire, we expect our property owner subsidiaries to incur costs in extending the existing tenant leases, re-tenanting the properties with a single-tenant, or converting the property to multi-tenant use. The amounts of these expenditures can vary significantly depending on tenant negotiations, market conditions, rental rates and property type.
Single-Tenant Properties. We do not anticipate significant capital expenditures at the single-tenant properties in which we have an interest that are subject to net or similar leases since the tenants at these properties generally bear all or substantially all of the cost of property operations, maintenance and repairs. However, at certain properties subject to net leases, our property owner subsidiaries are responsible for replacement and/or repair of certain capital items, which may or may not be reimbursed. In addition, at certain single-tenant properties that are not subject to a net lease, our property owner subsidiaries have a level of property operating expense responsibility, which may or may not be reimbursed.
Multi-Tenant Properties. Primarily as a result of non-renewals at single-tenant net-lease properties, we have interests in multi-tenant properties in our consolidated portfolio. While tenants of these properties are generally responsible for increases over base year expenses, our property owner subsidiaries are generally responsible for the base-year expenses and capital expenditures, and are responsible for all expenses related to vacant space, at these properties.
Vacant Properties. To the extent there is a vacancy in a property, our property owner subsidiary would be obligated for all operating expenses, including capital expenditures, real estate taxes and insurance. When a property is vacant, our property owner subsidiary may incur substantial capital expenditure and releasing costs to re-tenant the property. However, we believe that, over the long term, our focus on industrial assets will result in significant savings compared to investing in office assets due to the lower operating and retenanting costs of industrial assets compared to office assets.
Property Expansions. Under certain leases, tenants have the right to expand the facility located on a property in which we have an interest. We expect our property owner subsidiaries may fund these property expansions with either additional secured borrowings, the repayment of which will be funded out of rental increases under the leases covering the expanded properties, or capital contributions from us.
Ground Leases. The tenants of properties in which we have an interest generally pay the rental obligations on ground leases either directly to the fee holder or to our property owner subsidiary as increased rent. However, our property owner subsidiaries are responsible for these payments (1) under certain leases without reimbursement and (2) at vacant properties.
Environmental Matters. Based upon management's ongoing review of the properties in which we have an interest, management is not aware of any environmental condition with respect to any of these properties that would be reasonably likely to have a material adverse effect on us. There can be no assurance, however, that (1) the discovery of environmental conditions, which were previously unknown, (2) changes in law, (3) the conduct of tenants or (4) activities relating to properties in the vicinity of the properties in which we have an interest, 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 the tenants of properties in which we have an interest.
Results of Operations
Year ended December 31, 20192021 compared with December 31, 2018.2020. The decrease in total gross revenues in 2019 of $71.0 million was primarily attributable to a decrease in rental revenue of $74.7 million, offset by an increase in other income of $3.7 million. The decrease in rental revenue was primarily due to (i) a reduction of $79.1 million of rental revenue due to property sales, (ii) a decrease of $9.9 million due to changes with occupancy, and (iii) the acceleration of below-market lease intangible accretion on three retail assets of $10.4 million in 2018, partially offset by revenue from properties acquired in 2019 and 2018 of $27.4 million. The increase in other income was primarily due to an increase in fee income related to fees earned from NNN JV, which was formed in 2018.
Depreciation and amortization decreased by $20.6 million primarily due to the sale of real estate properties in 2019 and 2018, partially offset by depreciation and amortization of acquired properties.
The decrease in property operating expense of $0.7 million was primarily due to reduced operating costs associated with sold properties, including vacant properties, partially offset by 2019 and 2018 property acquisitions with operating expense responsibilities.
The decrease in general and administrative expense of $0.9 million was primarily due to a decrease in payroll costs due to retirements and terminations of certain employees.
The decrease in interest and amortization expense of $14.8 million was primarily due to a decrease in our overall borrowing rate and amount of debt outstanding during the period.
The change in debt satisfaction charges, net, of $1.9 million was primarily due to the timing of debt retirements.
The decrease in impairment charges of $90.5 million related to the timing of impairment charges recognized on certain properties, primarily due to potential sales, vacancies and lack of leasing prospects. The impairment charges of $95.8 million in 2018 were primarily due to our intention to dispose of non-industrial assets, thus shortening the holding period of certain assets.
The decrease in gains on sales of properties of $2.0 million related to the timing of property dispositions.
The change in equity in earnings (losses) of non-consolidated entities of $1.2 million was primarily due to the timing of gains on sales of properties and the formation of the NNN JV in 2018.
The increase in net income attributable to noncontrolling interests of $1.9 million was primarily due to an increase in net income of LCIF in 2019 compared to 2018, primarily due to gains recognized on sales of properties.
The increase in net income attributable to common shareholders of $52.4$199.1 million was primarily due to the items discussed above.below.
The increase in total gross revenues of $13.5 million was primarily a result of an increase of $14.5 million of termination income recognized during 2021. Additionally, tenant reimbursement income increased $5.1 million during 2021 because of an increased in managed properties compared to the prior year. These increases were partially offset by a $5.3 million decrease in rental revenue primarily due to the timing of property sales and a $0.6 million decrease in other revenue primarily due to an incentive fee earned upon the sale of a property that we managed for a third-party real estate owner in 2020 with no comparable revenue earned in 2021.
The increase in depreciation and amortization expense of $15.1 million was primarily due to acquisition activity.
The increase in property operating expense of $5.8 million was primarily due to an increase in operating expense responsibilities at certain properties.
The increase in general and administrative expense of $5.1 million was primarily attributable to a $3.5 million increase in payroll costs and deferred compensation expense and a $1.2 million increase in costs related to investor activism.
The increase in non-operating income of $0.6 million was primarily due to funds received for land easements at two of our properties in 2021 with no comparable income in 2020.
The decrease in interest and amortization expense of $8.5 million related primarily to a decrease in the amount of our mortgage debt outstanding and a decrease in our overall borrowing rate.
The decrease in debt satisfaction gains, net, of $35.3 million was primarily due to the recognition of aggregate debt satisfaction gains of $29.0 million upon the foreclosure of our Charleston, South Carolina and Overland Park, Kansas properties in 2020, offset by a $10.1 million debt satisfaction loss incurred as a result of the repurchase of a portion of the 2023 Senior Notes and 2024 Senior Notes pursuant to a tender offer in 2020. During 2021, we incurred debt satisfaction losses of $13.9 million primarily related to the redemption of our remaining 2023 Senior Notes.
The decrease in impairment charges of $8.9 million was primarily due to the timing of impairment charges taken on certain properties. The impairments were primarily due to shortened hold periods, vacancy and lack of leasing prospects.
The increase in gains on sales of properties of $228.2 million was primarily related to the sale of 22 properties to a newly-formed joint venture in 2021 and the timing of property dispositions.
The decrease in net income attributable to noncontrolling interests of $0.6 million was primarily a result of a decrease in third-party OP unitholders.
The increase in net income or decrease in net loss 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 fixed rent adjustments and index adjustments (such as the consumer price index), reduced interest expense on amortizing mortgages and variable rate indebtedness and by controlling other variable overhead costs. However, there are many factors beyond management's control that could offset these items including, without limitation, changes in economic conditions such as the recent economic uncertainty primarily caused by the COVID-19 pandemic, increased interest rates and tenant monetary defaults and the other risks described in this Annual Report.
The analysis of the results of operations for the year ended December 31, 20182020 compared with December 31, 20172019 is included in the Company's 2018our 2020 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, on March 13, 2019.February 18, 2021.
Same-Store Results
Same-store net operating income, or NOI, which is a non-GAAP measure, represents the NOI for consolidated properties that were owned and included in our portfolio for two comparable reporting periods, excluding properties encumbered by mortgage loans in default, as applicable.periods. We define NOI as operating revenues (rental income (less GAAP rent adjustments and lease termination income)income, net), and other property income) less property operating expenses. As same-store NOI excludes the change in NOI from acquired and disposed of properties, it highlights operating trends such as occupancy levels, rental rates and operating costs on properties. Other REITs may use different methodologies for calculating same-store NOI, and accordingly same-store NOI may not be comparable to other REITs. Management believes that same-store NOI is a useful supplemental measure of our operating performance. However, same-store NOI should not be viewed as an alternative measure of our financial performance since it does not reflect the operations of our entire portfolio, nor does it reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other nonproperty income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations. We believe that net income is the most directly comparable GAAP measure to same-store NOI.
The following presents our consolidated same-store NOI, for the years ended December 31, 20192021 and 20182020 ($000):
| | | 2019 | | 2018 | | 2021 | | 2020 |
Total cash base rent | $ | 214,081 |
| | $ | 216,563 |
| Total cash base rent | $ | 182,389 | | | $ | 180,638 | |
Tenant reimbursements | 22,044 |
| | 17,791 |
| Tenant reimbursements | 26,447 | | | 25,729 | |
Property operating expenses | (28,226 | ) | | (22,924 | ) | Property operating expenses | (31,429) | | | (30,034) | |
Same-store NOI | $ | 207,899 |
| | $ | 211,430 |
| Same-store NOI | $ | 177,407 | | | $ | 176,333 | |
Our reported same-store NOI decreasedincreased from 20182020 to 20192021 by 1.7%.0.6% primarily due to an increase in occupancy and cash base rents. As of December 31, 20192021 and 2018,2020, our historical same-store square footage leased was 96.7%99.1% and 98.5%98.1%, respectively.
The decrease in same-store NOI between periods primarily related to a decrease in cash base rent and an increase in non-reimbursed operating expenses, which was primarily attributable to property vacancies and renewals or retenanting of office properties at lower rental rates in order to obtain long-term leases.
Below is a reconciliation of net income to same-store NOI for periods presented:
| | | Twelve Months ended December 31, | | Twelve Months ended December 31, |
| 2019 | | 2018 | | 2021 | | 2020 |
Net income | $ | 285,293 |
| | $ | 230,906 |
| Net income | $ | 385,091 | | | $ | 186,391 | |
| | | | |
Interest and amortization expense | 65,095 |
| | 79,880 |
| Interest and amortization expense | 46,708 | | | 55,201 | |
Provision for income taxes | 1,379 |
| | 1,728 |
| Provision for income taxes | 1,293 | | | 1,584 | |
Depreciation and amortization | 147,594 |
| | 168,191 |
| Depreciation and amortization | 176,714 | | | 161,592 | |
General and administrative | 30,785 |
| | 31,662 |
| General and administrative | 35,458 | | | 30,371 | |
Transaction costs | 202 |
| | 260 |
| Transaction costs | 432 | | | 255 | |
Non-operating/advisory income | (6,180 | ) | | (3,491 | ) | |
Non-operating/advisory fee income | | Non-operating/advisory fee income | (4,402) | | | (4,569) | |
Gains on sales of properties | (250,889 | ) | | (252,913 | ) | Gains on sales of properties | (367,274) | | | (139,039) | |
Impairment charges | 5,329 |
| | 95,813 |
| Impairment charges | 5,541 | | | 14,460 | |
Debt satisfaction charges, net | 4,517 |
| | 2,596 |
| |
Equity in (earnings) of non-consolidated entities | (2,890 | ) | | (1,708 | ) | |
Lease termination income | (2,226 | ) | | (2,755 | ) | |
Debt satisfaction (gains) losses, net | | Debt satisfaction (gains) losses, net | 13,894 | | | (21,452) | |
Equity in losses of non-consolidated entities | | Equity in losses of non-consolidated entities | 190 | | | 169 | |
Lease termination income, net | | Lease termination income, net | (14,972) | | | (857) | |
Straight-line adjustments | (14,502 | ) | | (20,968 | ) | Straight-line adjustments | (12,324) | | | (13,654) | |
Lease incentives | 1,191 |
| | 1,686 |
| Lease incentives | 780 | | | 921 | |
Amortization of above/below market leases | (443 | ) | | (10,132 | ) | Amortization of above/below market leases | (1,551) | | | (1,580) | |
| | | | |
NOI | 264,255 |
| | 320,755 |
| NOI | 265,578 | | | 269,793 | |
| | | | | | | |
Less NOI: | | | | Less NOI: | |
Acquisitions and dispositions | (57,320 | ) | | (103,640 | ) | Acquisitions and dispositions | (88,171) | | | (93,460) | |
Properties in default | 964 |
| | (5,685 | ) | |
Same-Store NOI | $ | 207,899 |
| | $ | 211,430 |
| Same-Store NOI | $ | 177,407 | | | $ | 176,333 | |
Funds From Operations
We believe that Funds from Operations, or FFO, which is a non-GAAP measure, is a widely recognized and appropriate measure of the performance of an equity REIT. We believe FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. As a result, FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not necessarily be apparent from net income.
The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as “net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sales of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. The reconciling items include amounts to adjust earnings from consolidated partially-owned entities and equity in earnings of unconsolidated affiliates to FFO.” FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs.
We present FFO available to common shareholders and unitholders - basic and also present FFO available to all equityholders and unitholders - diluted on a company-wide basis as if all securities that are convertible, at the holder's option, into our common shares, are converted at the beginning of the period. We also present Adjusted Company FFO available to all equityholders and unitholders - diluted, which adjusts FFO available to all equityholders and unitholders - diluted for certain items which we believe are not indicative of the operating results of our real estate portfolio. We believe this is an appropriate presentation as it is frequently requested by securities analysts, investors and other interested parties. Since others do not calculate these measures in a similar fashion, these measures may not be comparable to similarly titled measures as reported by others. These measures should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity.
The following presents a reconciliation of net income attributable to common shareholders to FFO available to common shareholders and unitholders and Adjusted Company FFO available to all equityholders and unitholders for 20192021 and 20182020 (dollars in thousands, except share and per share amounts):
| | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 |
FUNDS FROM OPERATIONS: | | | |
Basic and Diluted: | | | |
Net income attributable to common shareholders | $ | 375,848 | | | $ | 176,788 | |
Adjustments: | | | |
| Depreciation and amortization | 173,833 | | | 158,655 | |
| Impairment charges - real estate | 5,541 | | | 14,460 | |
| Noncontrolling interests - OP units | 1,672 | | | 2,347 | |
| Amortization of leasing commissions | 2,881 | | | 2,937 | |
| Joint venture and noncontrolling interest adjustment | 8,370 | | | 8,578 | |
| Gains on sales of properties, including non-consolidated entities | (367,274) | | | (139,596) | |
FFO available to common shareholders and unitholders - basic | 200,871 | | | 224,169 | |
| Preferred dividends | 6,290 | | | 6,290 | |
| Amount allocated to participating securities | 510 | | | 224 | |
FFO available to all equityholders and unitholders - diluted | 207,671 | | | 230,683 | |
| Debt satisfaction (gains) losses, net, including non-consolidated entities | 13,894 | | | (21,396) | |
| Activist costs | 1,199 | | | — | |
| Transaction costs | 432 | | | 255 | |
Adjusted Company FFO available to all equityholders and unitholders - diluted | $ | 223,196 | | | $ | 209,542 | |
|
| | | | | | | | | |
| | 2019 | | 2018 |
FUNDS FROM OPERATIONS: | | | |
Basic and Diluted: | | | |
Net income attributable to common shareholders | $ | 273,225 |
| | $ | 220,838 |
|
Adjustments: | | | |
| Depreciation and amortization | 144,792 |
| | 164,261 |
|
| Impairment charges - real estate | 5,329 |
| | 95,813 |
|
| Noncontrolling interests - OP units | 4,376 |
| | 2,528 |
|
| Amortization of leasing commissions | 2,802 |
| | 3,930 |
|
| Joint venture and noncontrolling interest adjustment | 9,449 |
| | 4,063 |
|
| Gains on sales of properties, including non-consolidated entities and net of tax | (255,048 | ) | | (254,269 | ) |
FFO available to common shareholders and unitholders - basic | 184,925 |
| | 237,164 |
|
| Preferred dividends | 6,290 |
| | 6,290 |
|
| Amount allocated to participating securities | 395 |
| | 287 |
|
FFO available to all equityholders and unitholders - diluted | 191,610 |
| | 243,741 |
|
| Debt satisfaction charges, net, including non-consolidated entities | 4,773 |
| | 2,596 |
|
| Other(1) | 202 |
| | (10,038 | ) |
Adjusted Company FFO available to all equityholders and unitholders - diluted | $ | 196,585 |
| | $ | 236,299 |
|
| | | | | | | | | | | | | |
Per Common Share and Unit Amounts | | | | | |
Basic: | | | | | |
FFO | | | $ | 0.72 | | | $ | 0.83 | |
| | | | | |
Diluted: | | | | | |
FFO | | | $ | 0.72 | | | $ | 0.84 | |
Adjusted Company FFO | | | $ | 0.78 | | | $ | 0.76 | |
|
| | | | | | | |
Per Common Share and Unit Amounts | | | |
Basic: | | | |
FFO | $ | 0.77 |
| | $ | 0.99 |
|
| | | |
Diluted: | | | |
FFO | $ | 0.78 |
| | $ | 0.99 |
|
Adjusted Company FFO | $ | 0.80 |
| | $ | 0.96 |
|
| | | | | | | | | | | | | |
Weighted-Average Common Shares: | | | | | |
Basic: | | | | | |
Weighted-average common shares outstanding - basic EPS | | | 277,640,835 | | 266,914,843 |
Operating partnership units(1) | | | 1,918,845 | | 3,083,320 |
Weighted-average common shares outstanding - basic FFO | | | 279,559,680 | | 269,998,163 |
| | | | | |
Diluted: | | | | | |
Weighted-average common shares outstanding - diluted EPS | | | 287,369,742 | | 268,182,552 |
Unvested share-based payment awards | | | 44,261 | | 17,180 |
Operating partnership units(1) | | | — | | 3,083,320 |
Preferred shares - Series C | | | — | | 4,710,570 |
Weighted-average common shares outstanding - diluted FFO | | | 287,414,003 | | 275,993,622 |
|
| | | | | |
Weighted-Average Common Shares: | | | |
Basic: | | | |
Weighted-average common shares outstanding - basic EPS | 237,642,048 |
| | 236,666,375 |
|
Operating partnership units(2) | 3,490,147 |
| | 3,616,120 |
|
Weighted-average common shares outstanding - basic FFO | 241,132,195 |
| | 240,282,495 |
|
| | | |
Diluted: | | | |
Weighted-average common shares outstanding - diluted EPS | 237,934,515 |
| | 240,810,990 |
|
Unvested share-based payment awards | 22,813 |
| | — |
|
Operating partnership units(2) | 3,490,147 |
| | — |
|
Preferred shares - Series C | 4,710,570 |
| | 4,710,570 |
|
Weighted-average common shares outstanding - diluted FFO | 246,158,045 |
| | 245,521,560 |
|
(1) "Other" primarily consisted of transaction related costs in 2019 and the acceleration of below-market lease intangible accretion in 2018.
(2) Includes OP units other than OP units held by us.
Off-Balance Sheet Arrangements
As of December 31, 2019, we had investments in various real estate entities with varying structures. The real estate investments owned by these entities are generally 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 assets collateralized by the debt. The lender generally does not have recourse against any other assets owned by the borrower or any of the members or partners of the borrower, except for certain specified exceptions listed in the particular loan documents. These exceptions generally relate to "bad boy" acts, including fraud, prohibited transfers and breaches of material representations. We have guaranteed such obligations for certain of our non-consolidated entities.
Contractual Obligations
The following summarizes our principal contractual obligations as of December 31, 2019 ($000's):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 and Thereafter | | Total |
Mortgages and notes payable(1) | | $ | 71,099 |
| | $ | 36,597 |
| | $ | 18,564 |
| | $ | 20,136 |
| | $ | 13,856 |
| | $ | 233,620 |
| | $ | 393,872 |
|
Term loans payable | | — |
| | — |
| | — |
| | — |
| | — |
| | 300,000 |
| | 300,000 |
|
Senior notes payable | | — |
| | — |
| | — |
| | 250,000 |
| | 250,000 |
| | — |
| | 500,000 |
|
Trust preferred securities | | — |
| | — |
| | — |
| | — |
| | — |
| | 129,120 |
| | 129,120 |
|
Interest payable(2) | | 53,356 |
| | 47,715 |
| | 46,254 |
| | 39,740 |
| | 28,218 |
| | 124,349 |
| | 339,632 |
|
Operating lease obligations(3) | | 5,236 |
| | 5,060 |
| | 5,135 |
| | 5,279 |
| | 5,301 |
| | 25,621 |
| | 51,632 |
|
| | $ | 129,691 |
| | $ | 89,372 |
| | $ | 69,953 |
| | $ | 315,155 |
| | $ | 297,375 |
| | $ | 812,710 |
| | $ | 1,714,256 |
|
| |
1. | Consists of principal and balloon payments. |
| |
2. | Consists of fixed-rate debt and variable-rate debt at the rate in effect at December 31, 2019. Variable-rate debt as of December 31, 2019 is comprised of $129.1 million Trust Preferred Securities (90-day LIBOR plus 1.7% and matures 2037). |
| |
3. | Includes ground lease, office rents and equipment lease payments. Amounts disclosed do not include rents that adjust to fair market value. 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. |
In addition, from time to time we may guarantee certain tenant improvement allowances and lease commissions on behalf of certain property owner subsidiaries when required by the related tenant or lender. However, we do not believe these guarantees are material to us as the obligations under and risks associated with such guarantees are priced into the rent under the lease or the value of the property.
We had four development projects as of December 31, 2019, which are described in "Properties" in Part I, Item 2 of this Annual Report. Due to the early stage of development of each project and the uncertainty of construction schedules at such stage, we are unable to estimate the timing of the required fundings for development projects.
Item 7A. Quantitative and Qualitative Disclosure about Market-RiskMarket Risk
Our exposure to market risk relates primarily to our variable-rate indebtedness not subject to interest rate swaps and our fixed-rate debt. Our consolidated aggregate principal variable-rate indebtedness was $129.1 million and $174.1 million at December 31, 20192021 and 2018, respectively,2020, which represented 9.8%8.5% and 11.6%9.5%, respectively, of our aggregate principal consolidated indebtedness. During 20192021 and 2018,2020, our variable-rate indebtedness had a weighted-average interest rate of 3.8%1.7% and 3.2%2.4%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for 20192021 and 20182020 would have increased by $3.2$1.7 million and $4.9$1.8 million, respectively. As of December 31, 20192021 and 2018,2020, our aggregate principal consolidated fixed-rate debt was $1.2$1.4 billion and $1.3$1.2 billion, respectively, which represented 90.2%91.5% and 88.4%90.5%, respectively, of our aggregate principal indebtedness.
For certain of our financial instruments, fair values are not readily available since there are no active trading markets as characterized by current exchanges between willing parties. Accordingly, we derive or estimate fair values using various valuation techniques, such as computing the present value of estimated future cash flows using discount rates commensurate with the risks involved. However, the determination of estimated cash flows may be subjective and imprecise. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. The following fair value was determined using the interest rates that we believe our outstanding fixed-rate debt would warrant as of December 31, 20192021 and is indicative of the interest rate environment as of December 31, 2019,2021, and does not take into consideration the effects of subsequent interest rate fluctuations. Accordingly, we estimate that the fair value of our fixed-rate debt was $1.2$1.4 billion as of December 31, 20192021.
.
Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates through the use of fixed-rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements. We have historically entered into derivative financial instruments such as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable-rate debt. As of December 31, 2019,2021, we had four interest rate swap agreements in our consolidated portfolio, all of which expire in January 2025.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of Lexington RealtyLXP Industrial Trust
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of LXP Industrial Trust (formerly Lexington Realty TrustTrust) and subsidiaries (the "Company"“Company”) as of December 31, 20192021 and 2018,2020, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows, for each of the three years in the period ended December 31, 2019,2021, and the related notes and the schedule listed in the Index at Item 15 for the year ended December 31, 2019 (collectively referred to as the "financial statements"“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sCompany’s internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2020,24, 2022, expressed an unqualified opinion on the Company'sCompany’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the USU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Real Estate, net -— Determination of Impairment Indicators and Impairment -— Refer to Notes 2 and 5 of the financial statements
Critical Audit Matter Description
The Company’s evaluation of real estate assets for impairment involves an initial assessment of each real estate asset to determine whether events or changes in circumstances exist that indicate that the carrying value of real estate assets may no longer be recoverable. Possible indications of impairment may include increases in vacancy at a property, tenant financial instability, or whether there is a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of before the end of its previously estimated useful life. When such events or changes in circumstances exist, the Company evaluates its real estate assets for impairment by comparing anticipated future undiscounted cash flows expected to be derived from the asset to the respective carrying value. If the carrying value of an asset exceeds the undiscounted cash flows, an analysis is performed to determine the fair value of the asset. An asset is determined to be impaired if the asset's carrying value exceeds its estimated fair value.
The Company makes significant assumptions to estimate its holding period of an asset. Additionally, for those real estate assets where indications of impairment have been identified, the Company makes significant estimates and assumptions related to rental rates and capitalization rates included in the estimated future undiscounted cash flows and, as necessary, the discount rate
applied to determine the fair value of the assets. Changes in these assumptions could have a significant impact on the identification of real estate assets for impairment, the estimated fair value of the asset, or the amount of any impairment charge recognized. Total real estate assets as of December 31, 2019,2021 were $3,744$3.5 billion. The Company recorded $5.5 million net of impairment losses recorded in 2019 of $5.3 million.charges on real estate assets during the year ended December 31, 2021.
Auditing management’s assumptions requires evaluation of whether management appropriately identified impairment indicators relating to the asset’s estimated holding periods and whether management’s anticipated future undiscounted cash flows and estimated fair values are reasonable. Because of the subjectivity of these assumptions our audit procedures required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to evaluate management’s estimated holding period of an asset and to evaluate the assumptions used in undiscounted cash flows and fair value models included the following, among others:
• We tested the effectiveness of controls over management's evaluation of real estate assets for impairment, specifically over identification of possible events or changes in estimated holding period of an asset, controls over rental rates and capitalization rates used in management’s anticipated future undiscounted cash flows, as well as controls over management selection and estimate of discount rates in estimating fair value of real estate assets.
• We evaluated the Company’s assessment of estimated holding periods by:
| |
a. | Comparing management’s previous holding period assumptions to the Company’s subsequent sale of an asset. |
| |
b. | Discussing with accounting and operations management the Company’s intent regarding sale or holding onto the asset. |
a. Comparing management’s previous holding period assumptions to the Company’s subsequent sale of an asset.
b. Discussing with accounting and operations management the Company’s intent regarding sale or holding onto the asset.
c. Evaluating the consistency of the assumptions used with obtained audit evidence in other audit areas.
d. Reading minutes of the executive committee and board of directors’ meetings to identify any indicators that a long-lived asset will likely be sold or otherwise disposed of before the end of its previously estimated useful life.
• We evaluated the Company’s determination of anticipated future undiscounted cash flows for those assets with impairment indicators and the fair value for those that the carrying value was determined not to be recoverable by performing the following:
With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology; (2) significant assumptions made, including testing the source information underlying the determination of the discount rate, rental rates, and capitalization rates;rates and (3) mathematical accuracy of the calculation by developing a range of independent estimates based on external market sources and comparing our estimates to the assumptions utilized by management.
management; and (3) mathematical accuracy of the calculation.
/s/ Deloitte & Touche LLP
New York, New York
February 20, 202024, 2022
We have served as the Company's auditor since 2017.
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Trustees of Lexington RealtyLXP Industrial Trust
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of LXP Industrial Trust (formerly Lexington Realty TrustTrust) and subsidiaries (the “Company”) as of December 31, 2019,2021, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019,2021, of the Company and our report dated February 20, 2020,24, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
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 Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
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 directors 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.
/s/ Deloitte & Touche LLP
New York, New York
February 20, 202024, 2022
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000, except share and per share data)
As of December 31,
| | | | | | | | | | | |
| 2021 | | 2020 |
Assets: | | | |
Real estate, at cost | $ | 3,583,978 | | | $ | 3,514,564 | |
Real estate - intangible assets | 341,403 | | | 409,293 | |
| | | |
| | | |
| | | |
Land held for development | 104,160 | | | — | |
Investments in real estate under construction | 161,165 | | | 75,906 | |
Real estate, gross | 4,190,706 | | | 3,999,763 | |
Less: accumulated depreciation and amortization | 655,740 | | | 884,465 | |
Real estate, net | 3,534,966 | | | 3,115,298 | |
| | | |
Assets held for sale | 82,586 | | | 16,530 | |
Right-of-use assets, net | 27,966 | | | 31,423 | |
Cash and cash equivalents | 190,926 | | | 178,795 | |
Restricted cash | 101 | | | 626 | |
Investments in non-consolidated entities | 74,559 | | | 56,464 | |
Deferred expenses (net of accumulated amortization of $18,356 in 2021 and $23,171 in 2020) | 18,861 | | | 15,901 | |
| | | |
Rent receivable - current | 3,526 | | | 2,899 | |
Rent receivable - deferred | 63,283 | | | 66,959 | |
Other assets | 8,784 | | | 8,331 | |
Total assets | $ | 4,005,558 | | | $ | 3,493,226 | |
| | | |
Liabilities and Equity: | | | |
Liabilities: | | | |
Mortgages and notes payable, net | $ | 83,092 | | | $ | 136,529 | |
| | | |
Term loan payable, net | 298,446 | | | 297,943 | |
Senior notes payable, net | 987,931 | | | 779,275 | |
| | | |
Trust preferred securities, net | 127,595 | | | 127,495 | |
Dividends payable | 37,425 | | | 35,401 | |
Liabilities held for sale | 3,468 | | | 790 | |
Operating lease liabilities | 29,094 | | | 32,515 | |
Accounts payable and other liabilities | 77,607 | | | 55,208 | |
Accrued interest payable | 8,481 | | | 6,334 | |
Deferred revenue - including below market leases (net of accumulated accretion of $14,258 in 2021 and $12,758 in 2020) | 14,474 | | | 17,264 | |
Prepaid rent | 14,717 | | | 13,335 | |
Total liabilities | 1,682,330 | | | 1,502,089 | |
| | | |
Commitments and contingencies | 0 | | 0 |
Equity: | | | |
Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares, | | | |
Series C Cumulative Convertible Preferred, liquidation preference $96,770 and 1,935,400 shares issued and outstanding | 94,016 | | | 94,016 | |
| | | |
Common shares, par value $0.0001 per share; authorized 400,000,000 shares, 283,752,726 and 277,152,450 shares issued and outstanding in 2021 and 2020, respectively | 28 | | | 28 | |
Additional paid-in-capital | 3,252,506 | | | 3,196,315 | |
Accumulated distributions in excess of net income | (1,049,434) | | | (1,301,726) | |
Accumulated other comprehensive loss | (6,258) | | | (17,963) | |
Total shareholders’ equity | 2,290,858 | | | 1,970,670 | |
Noncontrolling interests | 32,370 | | | 20,467 | |
Total equity | 2,323,228 | | | 1,991,137 | |
Total liabilities and equity | $ | 4,005,558 | | | $ | 3,493,226 | |
|
| | | | | | | |
| 2019 | | 2018 |
Assets: | | | |
Real estate, at cost | $ | 3,320,574 |
| | $ | 3,090,134 |
|
Real estate - intangible assets | 409,756 |
| | 419,612 |
|
Investments in real estate under construction | 13,313 |
| | — |
|
| 3,743,643 |
| | 3,509,746 |
|
Less: accumulated depreciation and amortization | 887,629 |
| | 954,087 |
|
Real estate, net | 2,856,014 |
| | 2,555,659 |
|
Assets held for sale | — |
| | 63,868 |
|
Operating right-of-use assets, net | 38,133 |
| | — |
|
Cash and cash equivalents | 122,666 |
| | 168,750 |
|
Restricted cash | 6,644 |
| | 8,497 |
|
Investments in non-consolidated entities | 57,168 |
| | 66,183 |
|
Deferred expenses (net of accumulated amortization of $23,382 in 2019 and $27,397 in 2018) | 18,404 |
| | 15,937 |
|
Rent receivable - current | 3,229 |
| | 3,475 |
|
Rent receivable - deferred | 66,294 |
| | 58,692 |
|
Other assets | 11,708 |
| | 12,779 |
|
Total assets | $ | 3,180,260 |
| | $ | 2,953,840 |
|
| | | |
Liabilities and Equity: | |
| | |
|
Liabilities: | |
| | |
|
Mortgages and notes payable, net | $ | 390,272 |
| | $ | 570,420 |
|
Term loan payable, net | 297,439 |
| | 298,733 |
|
Senior notes payable, net | 496,870 |
| | 496,034 |
|
Trust preferred securities, net | 127,396 |
| | 127,296 |
|
Dividends payable | 32,432 |
| | 48,774 |
|
Liabilities held for sale | — |
| | 386 |
|
Operating lease liabilities | 39,442 |
| | — |
|
Accounts payable and other liabilities | 29,925 |
| | 30,790 |
|
Accrued interest payable | 7,897 |
| | 4,523 |
|
Deferred revenue - including below market leases (net of accumulated accretion of $11,876 in 2019 and $17,606 in 2018) | 20,350 |
| | 20,531 |
|
Prepaid rent | 13,518 |
| | 9,675 |
|
Total liabilities | 1,455,541 |
| | 1,607,162 |
|
| | | |
Commitments and contingencies |
|
| |
|
|
Equity: | |
| | |
|
Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares, | |
| | |
|
Series C Cumulative Convertible Preferred, liquidation preference $96,770 and 1,935,400 shares issued and outstanding | 94,016 |
| | 94,016 |
|
Common shares, par value $0.0001 per share; authorized 400,000,000 shares, 254,770,719 and 235,008,554 shares issued and outstanding in 2019 and 2018, respectively | 25 |
| | 24 |
|
Additional paid-in-capital | 2,976,670 |
| | 2,772,855 |
|
Accumulated distributions in excess of net income | (1,363,676 | ) | | (1,537,100 | ) |
Accumulated other comprehensive income (loss) | (1,928 | ) | | 76 |
|
Total shareholders’ equity | 1,705,107 |
| | 1,329,871 |
|
Noncontrolling interests | 19,612 |
| | 16,807 |
|
Total equity | 1,724,719 |
| | 1,346,678 |
|
Total liabilities and equity | $ | 3,180,260 |
| | $ | 2,953,840 |
|
The accompanying notes are an integral part of these consolidated financial statements.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000, except share and per share data)
Years ended December 31,
| | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 |
Gross revenues: | | | | | | Gross revenues: | | | | | |
Rental revenue | $ | 320,622 |
| | $ | 395,339 |
| | $ | 391,641 |
| Rental revenue | $ | 339,944 | | | $ | 325,811 | | | $ | 320,622 | |
Other income | 5,347 |
| | 1,632 |
| | 1,049 |
| |
| Other revenue | | Other revenue | 4,053 | | | 4,637 | | | 5,347 | |
Total gross revenues | 325,969 |
| | 396,971 |
| | 392,690 |
| Total gross revenues | 343,997 | | | 330,448 | | | 325,969 | |
Expense applicable to revenues: | | | | | | Expense applicable to revenues: | |
Depreciation and amortization | (147,594 | ) | | (168,191 | ) | | (173,968 | ) | Depreciation and amortization | (176,714) | | | (161,592) | | | (147,594) | |
Property operating | (42,018 | ) | | (42,675 | ) | | (49,194 | ) | Property operating | (47,746) | | | (41,914) | | | (42,018) | |
General and administrative | (30,785 | ) | | (31,662 | ) | | (34,158 | ) | General and administrative | (35,458) | | | (30,371) | | | (30,785) | |
Litigation settlement | — |
| | — |
| | (2,050 | ) | |
Non-operating income | 2,262 |
| | 1,859 |
| | 9,329 |
| Non-operating income | 1,364 | | | 743 | | | 2,262 | |
Interest and amortization expense | (65,095 | ) | | (79,880 | ) | | (77,883 | ) | Interest and amortization expense | (46,708) | | | (55,201) | | | (65,095) | |
Debt satisfaction gains (charges), net | (4,517 | ) | | (2,596 | ) | | 6,196 |
| |
Impairment charges and loan losses | (5,329 | ) | | (95,813 | ) | | (44,996 | ) | |
| Debt satisfaction gains (losses), net | | Debt satisfaction gains (losses), net | (13,894) | | | 21,452 | | | (4,517) | |
| Impairment charges | | Impairment charges | (5,541) | | | (14,460) | | | (5,329) | |
Gains on sales of properties | 250,889 |
| | 252,913 |
| | 63,428 |
| Gains on sales of properties | 367,274 | | | 139,039 | | | 250,889 | |
Income before provision for income taxes, equity in earnings (losses) of non-consolidated entities | 283,782 |
| | 230,926 |
| | 89,394 |
| Income before provision for income taxes, equity in earnings (losses) of non-consolidated entities | 386,574 | | | 188,144 | | | 283,782 | |
Provision for income taxes | (1,379 | ) | | (1,728 | ) | | (1,917 | ) | Provision for income taxes | (1,293) | | | (1,584) | | | (1,379) | |
Equity in earnings (losses) of non-consolidated entities | 2,890 |
| | 1,708 |
| | (848 | ) | Equity in earnings (losses) of non-consolidated entities | (190) | | | (169) | | | 2,890 | |
Net income | 285,293 |
| | 230,906 |
| | 86,629 |
| Net income | 385,091 | | | 186,391 | | | 285,293 | |
Less net income attributable to noncontrolling interests | (5,383 | ) | | (3,491 | ) | | (1,046 | ) | Less net income attributable to noncontrolling interests | (2,443) | | | (3,089) | | | (5,383) | |
Net income attributable to Lexington Realty Trust shareholders | 279,910 |
| | 227,415 |
| | 85,583 |
| |
Net income attributable to LXP Industrial Trust shareholders | | Net income attributable to LXP Industrial Trust shareholders | 382,648 | | | 183,302 | | | 279,910 | |
| Dividends attributable to preferred shares - Series C | (6,290 | ) | | (6,290 | ) | | (6,290 | ) | Dividends attributable to preferred shares - Series C | (6,290) | | | (6,290) | | | (6,290) | |
| Allocation to participating securities | (395 | ) | | (287 | ) | | (226 | ) | Allocation to participating securities | (510) | | | (224) | | | (395) | |
| Net income attributable to common shareholders | $ | 273,225 |
| | $ | 220,838 |
| | $ | 79,067 |
| Net income attributable to common shareholders | $ | 375,848 | | | $ | 176,788 | | | $ | 273,225 | |
| Net income attributable to common shareholders - per common share basic | $ | 1.15 |
| | $ | 0.93 |
| | $ | 0.33 |
| Net income attributable to common shareholders - per common share basic | $ | 1.35 | | | $ | 0.66 | | | $ | 1.15 | |
Weighted-average common shares outstanding - basic | 237,642,048 |
| | 236,666,375 |
| | 237,758,408 |
| Weighted-average common shares outstanding - basic | 277,640,835 | | | 266,914,843 | | | 237,642,048 | |
| Net income attributable to common shareholders - per common share diluted | $ | 1.15 |
| | $ | 0.93 |
| | $ | 0.33 |
| Net income attributable to common shareholders - per common share diluted | $ | 1.34 | | | $ | 0.66 | | | $ | 1.15 | |
Weighted-average common shares outstanding - diluted | 237,934,515 |
| | 240,810,990 |
| | 241,537,837 |
| Weighted-average common shares outstanding - diluted | 287,369,742 | | | 268,182,552 | | | 237,934,515 | |
|
The accompanying notes are an integral part of these consolidated financial statements.
LEXINGTON REALTY
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
($000)
Years ended December 31,
| | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 |
Net income | $ | 285,293 |
| | $ | 230,906 |
| | $ | 86,629 |
| Net income | $ | 385,091 | | | $ | 186,391 | | | $ | 285,293 | |
Other comprehensive income (loss): | |
| | | | | Other comprehensive income (loss): | | | | | |
Change in unrealized gain (loss) on interest rate swaps, net | (2,004 | ) | | (989 | ) | | 2,098 |
| |
| Change in unrealized income (loss) on interest rate swaps, net | | Change in unrealized income (loss) on interest rate swaps, net | 11,705 | | | (16,035) | | | (2,004) | |
Other comprehensive income (loss) | (2,004 | ) | | (989 | ) | | 2,098 |
| Other comprehensive income (loss) | 11,705 | | | (16,035) | | | (2,004) | |
Comprehensive income | 283,289 |
| | 229,917 |
| | 88,727 |
| Comprehensive income | 396,796 | | | 170,356 | | | 283,289 | |
Comprehensive income attributable to noncontrolling interests | (5,383 | ) | | (3,491 | ) | | (1,046 | ) | Comprehensive income attributable to noncontrolling interests | (2,443) | | | (3,089) | | | (5,383) | |
Comprehensive income attributable to Lexington Realty Trust shareholders | $ | 277,906 |
| | $ | 226,426 |
| | $ | 87,681 |
| |
Comprehensive income attributable to LXP Industrial Trust shareholders | | Comprehensive income attributable to LXP Industrial Trust shareholders | $ | 394,353 | | | $ | 167,267 | | | $ | 277,906 | |
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(1) The Company
Lexington RealtyLXP Industrial Trust (together with its consolidated subsidiaries, except when the context only applies to the parent entity, the “Company”) is a Maryland statutory real estate investment trust (“REIT”) that owns a diversified portfolio of equity investments infocused on single-tenant commercialindustrial properties.
As of December 31, 2019,2021, the Company had equity ownership interests in approximately 130121 consolidated properties located in 3123 states. The properties in which the Company has an interest are primarily net-leasednet leased to tenants in various industries.
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 are subject to federal income taxes on the income from these activities.
The Company conducts its operations either directly or indirectly through (1) property owner subsidiaries and lender subsidiaries, which are single purpose entities, (2) an operating partnership, Lepercq Corporate Income Fund L.P. (“LCIF”), in which the Company is the sole unit holder of the general partner and the sole unit holder of the limited partner that holds a majority of the limited partner interests, (3) a wholly-owned TRS, Lexington Realty Advisors, Inc. (“LRA”), and (4) investments in(3) joint ventures. References to “OP Units” refer to units of limited partner interests in LCIF. Property owner subsidiaries are landlords under leases for properties in which the Company has an interest and/or borrowers under loan agreements secured by properties in which the Company has an interest and lender subsidiaries are lenders under loan agreements where the Company made an investment in a loan asset, but in all cases are separate and distinct legal entities. Each property owner subsidiary is a separate legal entity that maintains separate books and records. The assets and credit of each property owner subsidiary with a property subject to a mortgage loan are not available to creditors to satisfy the debt and other obligations of any other person, including any other property owner subsidiary or any other affiliate. Consolidated entities that are not property owner subsidiaries do not directly own any of the assets of a property owner subsidiary (or the general partner, member or managing member of such property owner subsidiary), but merely hold partnership, membership or beneficial interest therein, which interests are subordinate to the claims of such property owner subsidiary's (or its general partner's, member's or managing member's) creditors.
| |
(2) | Summary of Significant Accounting Policies |
(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 in accordance with U.S. generally accepted accounting principles (“GAAP”). The financial statements reflect the accounts of the Company and its consolidated subsidiaries. The Company consolidates its wholly-owned subsidiaries, partnerships and joint ventures which it controls (i) through voting rights or similar rights or (ii) by means other than voting rights if the Company is the primary beneficiary of a variable interest entity ("VIE"). Entities which the Company does not control and entities which are VIEs in which the Company is not the primary beneficiary are accounted for under appropriate GAAP.the equity method of accounting.
During 2021, the Company acquired interests in 7 joint ventures with developers, consisting of 5 on-going development projects and 2 land joint ventures, with ownership interests ranging from 80% to 95.5%. Each joint venture acquired land parcels to develop industrial properties. The Company determined that the joint ventures are VIEs in which the Company is the primary beneficiary. As a result, these joint ventures’ operations are consolidated in the Company's financial statements.
In addition, the Company is the primary beneficiary of certain other VIEs as it has a controlling financial interest in these entities. LCIF, whichLepercq Corporate Income Fund L.P. (“LCIF”) is a consolidated VIE and in which the Company has an approximate 96% interest, is a VIE.
In December 2019, the Company acquired a 90% interest in a joint venture with a developer, which acquired a land parcel in the Atlanta, Georgia market to develop an industrial property. Based upon the facts and circumstances at the formation of the joint venture, the Company determined that the joint venture is a variable interest entity in accordance with the applicable accounting guidance. As a result, the Company used the VIE model under the accounting standard for consolidation in order to determine whether to consolidate the joint venture. Based upon the fact that the Company controls the activities that most significantly impact the performance of the joint venture under the operating and related agreements of the joint venture, the joint venture is consolidated in the Company's financial statements.
99% ownership interest.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The assets of each VIE are only available to satisfy such VIE's respective liabilities. As of December 31, 2019 and 2018,2020, the VIEs' mortgages and notes payable were non-recourse to the Company. Below is a summary of selected financial data of consolidated VIEs for which the Company is the primary beneficiary included in the Consolidated Balance Sheetsconsolidated balance sheets as of December 31, 20192021 and 2018:2020:
|
| | | | | | | |
| December 31, 2019 | | December 31, 2018 |
Real estate, net | $ | 592,372 |
| | $ | 509,916 |
|
Total assets | $ | 645,623 |
| | $ | 607,963 |
|
Mortgages and notes payable, net | $ | 82,978 |
| | $ | 192,791 |
|
Total liabilities | $ | 101,901 |
| | $ | 203,322 |
|
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Real estate, net | $ | 810,087 | | | $ | 569,461 | |
Total assets | $ | 952,611 | | | $ | 679,786 | |
Mortgages and notes payable, net | $ | — | | | $ | 25,600 | |
Total liabilities | $ | 47,011 | | | $ | 40,974 | |
In addition, the Company acquires, from time to time, properties using a reverse like-kind exchange structure pursuant to Section 1031 of the Internal Revenue Code (a "reverse 1031 exchange") and, as such, the properties are in the possession of an Exchange Accommodation Titleholder ("EAT") until the reverse 1031 exchange is completed. The EAT is classified as a VIE as it is a “thinly capitalized” entity. The Company consolidates the EAT because it is the primary beneficiary as it has the ability to control the activities that most significantly impact the EAT's economic performance and can collapse the reverse 1031 exchange structure at any time. The assets of the EAT primarily consist of leased property (net real estate and intangibles).
Revenue Recognition. The Company recognizes lease revenue 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. Revenue is recognized on a contractual basis for leases with escalations tied to a consumer price index with no floor. The Company evaluates the collectability of its rental payments and recognizes revenue on a cash basis when the Company believes it is no longer probable that it will receive substantially all of the remaining lease payments. Renewal options in leases are excluded from the calculation of straight-line rent if the renewals are not reasonably assured. If 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. If 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. The Company recognizes lease termination fees as rental revenue in the period received and writes off unamortized lease-related intangible and other lease-related account balances, provided there are no further Company obligations under the lease. Otherwise, such fees and balances are recognized on a straight-line basis over the remaining obligation period with the termination payments being recorded as a component of rent receivable-deferred on the consolidated balance sheets.
Earnings Per Share. Basic net income (loss) per share is computed under the two-class method by dividing net income (loss) reduced by preferred dividends and amounts allocated to certain non-vested share-based payment awards, 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 in-the-money common share options and non-vested common shares, unsettled common shares sold in forward sales transactions, OP units and put options of certain convertible securities.
Use of Estimates. Management has made a number of significant 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 GAAP. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the economic environment. Management adjusts such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of accounts receivable, allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed, the determination of VIEs and which entities should be consolidated, the determination of impairment of long-lived assets and equity method investments, valuation of derivative financial instruments, valuation of awards granted under compensation plans, the determination of the incremental borrowing rate for leases where the Company is the lessee and the useful lives of long-lived assets. Actual results could differ materially from those estimates.
Revenue Recognition. The Company recognizes lease revenue 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. Revenue is recognized on a contractual basis for leases with escalations tied to a consumer price index with no floor. 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 the renewals are not reasonably assured. If 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. If 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. The Company recognizes lease termination fees as rental revenue in the period received and writes off unamortized lease-related intangible and other lease-related account balances, provided there are no further Company obligations under the lease. Otherwise, such fees and balances are recognized on a straight-line basis over the remaining obligation period with the termination payments being recorded as a component of rent receivable-deferred on the Consolidated Balance Sheets.
0
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Acquisition of Real Estate. The fair value of the real estate acquired, which includes the impact of fair value 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. Prior to January 1, 2018, acquisition and pursuit costs were expensed as incurred and were included in property operating expense in the accompanying Consolidated Statement of Operations, which were $2,171 for 2017. Effective January 1, 2018, theThe Company's acquisitions are primarily considered asset acquisitions, andthus acquisition costs are now capitalized.
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. The “as-if-vacant” value is then allocated to land and building and improvements based on management's determination of relative fair values of these assets. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions. Management generally retains a third party to assist in the allocations.
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market lease values are recorded based on the difference between the current in-place lease rent and management's estimate of current market rents. Below-market lease intangibles are recorded as part of deferred revenue and amortized into rental revenue over the non-cancelable periods and bargain renewal periods of the respective leases. Above-market leases are recorded as part of intangible assets and amortized as a direct charge against rental revenue over the non-cancelable portion of the respective leases.
The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationship values, is measured by the excess of (1) the purchase price paid for a property over (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 tenant relationship values based on management's evaluation of the specific characteristics of each tenant's lease. The value of in-place leases is amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of the respective leases. The value of tenant relationships is amortized to expense over the applicable lease term plus expected renewal periods.
Depreciation is determined by the straight-line method over the remaining estimated economic useful lives of the properties. The Company generally depreciates its real estate assets over periods ranging up to 40 years.years.
Impairment of Real Estate. The Company evaluates the carrying value of all tangible and intangible real estate assets held for investment for possible impairment when an event or change in circumstance has occurred that indicates its carrying value may not be recoverable. The Company considers the strategic decisions regarding the future plans to sell properties and other market factors. The Company regularly updates significant estimates and assumptions including rental rates, capitalization rates and discount rates, which are included in the anticipated future undiscounted cash flows derived from the asset. If such cash flows are less than the asset's carrying value, an impairment charge is recognized to the extent by which the asset's carrying value exceeds its estimated fair value, which may be below the balance of any non-recourse financing. Estimating future cash flows and fair values is highly subjective and such estimates could differ materially from actual results.
Investments in Non-Consolidated Entities. The Company accounts for its investments in 50% or less owned entities underuses the equity method unless consolidation is required.of accounting for those joint ventures where it exercises significant influence but does not have control. If the Company's investment in the entity is insignificant and the Company has no influence over the control of the entity then the entity is accounted for under the cost method.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Impairment of Equity Method Investments. The Company assesses whether there are indicators that the value of its equity method investments may be impaired. An impairment charge is recognized only if the Company determines that a decline in the value of the investment below its carrying value is other-than-temporary. The assessment of impairment is highly subjective and involves the application of significant assumptions and judgments about the Company's intent and ability to recover its investment given the nature and operations of the underlying investment, including the level of the Company's involvement therein, among other factors. To the extent an impairment is deemed to be other-than-temporary, the loss is measured as the excess of the carrying amount of the investment over the estimated fair value of the investment.
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Fair Value Measurements. The Company follows the guidance in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("Topic 820"), to determine the fair value of financial and non-financial instruments. Topic 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 - observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 - unobservable inputs, which are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk. The Company has formally elected to apply the portfolio exception within Topic 820 with respect to measuring counterparty risk for all of its derivative transactions subject to master netting arrangements.
The Company estimates the fair value of its real estate assets, including non-consolidated real estate assets, by using income and market valuation techniques. The Company may estimate fair values using market information such as recent sale contracts (Level 2 inputs) or recent sale offers or discounted cash flow models, which primarily rely on Level 3 inputs. The cash flow models include estimated cash inflows and outflows over a specified holding period. These cash flows may include contractual rental revenues, projected future rental revenues and expenses and forecasted tenant improvements and lease commissions based upon market conditions determined through discussion with local real estate professionals, experience the Company has with its other owned properties in such markets and expectations for growth. Capitalization rates and discount rates utilized in these models are estimated by management based upon rates that management believes to be within a reasonable range of current market rates for the respective properties based upon an analysis of factors such as property and tenant quality, geographical location and local supply and demand observations. To the extent the Company under-estimates forecasted cash outflows (tenant improvements, lease commissions and operating costs) or over-estimates forecasted cash inflows (rental revenue rates), the estimated fair value of its real estate assets could be overstated.
Acquisition, Development and Construction Arrangements.Cost Capitalization. The Company evaluates loans receivable wherecapitalizes interest and direct and indirect project costs associated with the Company participates in residual profits through loan provisions or other contractsinitial construction of a property up to ascertain whether the Company hastime the same risksproperty is substantially complete and rewards as an owner or a joint venture partner. Where the Company concludes that such arrangements are more appropriately treated as an investment in real estate, the Company reflects such loan receivable as an equity investmentready for its intended use in real estate under construction in the Consolidated Balance Sheets. In these cases,consolidated balance sheets. If costs and activities incurred to ready the vacant space cease, then cost capitalization is also discontinued until such activities are resumed. Once necessary work has been completed on a vacant space, project costs are no interest income is recorded on the loan receivable and the Company records capitalized interest during the construction period. In arrangements where the Company engages a developer to construct a property or provide funds to a tenant to develop a property, the Company will capitalize the funds provided to the developer/tenant and internal costs of interest and real estate taxes, if applicable, during the construction period.longer capitalized.
Properties Held For Sale. Assets and liabilities of properties that meet various held for sale criteria, including whether it is probable that a sale will occur within 12 months, are presented separately in the Consolidated Balance Sheets.consolidated balance sheets. The operating results of these properties are reflected as discontinued operations in the Consolidated Statementsconsolidated statements of Operationsoperations only if the sale of these assets represents a major strategic shift in operations; if not, the operating results are included in continuing operations. Properties classified as held for sale are carried at the lower of net carrying value or estimated fair value less costs to sell and depreciation and amortization are no longer recognized. Properties that do not meet the held for sale criteria are accounted for as operating properties.
Deferred Expenses. Deferred expenses consist primarily of revolving line of credit 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.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Derivative Financial Instruments. The Company accounts for its interest rate swap agreements in accordance with FASB ASC Topic 815, Derivatives and Hedging ("Topic 815"). In accordance with Topic 815, these agreements are carried on the balance sheet at their respective fair values, as an asset if fair value is positive, or as a liability if fair value is negative. If the interest rate swap is designated as a cash flow hedge, the portion of the interest rate swap's change in fair value is reported as a component of other comprehensive income (loss).
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Upon entering into hedging transactions, the Company documents the relationship between the interest rate swap agreement and the hedged item. 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 ongoing basis, whether or not the hedge is highly effective. The Company will discontinue hedge accounting on a prospective basis with changes in the estimated fair value reflected in earnings when (1) it is determined that the derivative is no longer effective in offsetting cash flows of a hedged item (including forecasted transactions), (2) it is no longer probable that the forecasted transaction will occur or (3) it is determined that designating the derivative as an interest rate swap is no longer appropriate. The Company does and may continue to utilize interest rate swap and cap agreements to manage interest rate risk, but does not anticipate entering into derivative transactions for speculative trading purposes.
Stock Compensation. The Company maintains an equity participation plan. Non-vested share grants generally vest either based upon (1) time, (2) performance and/or (3) market conditions. Options granted under the plan in 2010 vested over a five-year period and expire ten years from the date of grant. Options granted under the plan in 2008 vested upon attainment of certain market performance measures and expired ten years from the date of grant. All share-based payments to employees including grants of employee stock options, are recognized in the Consolidated Statementsconsolidated statements of Operationsoperations based on their fair values. The Company has made an accounting policy election to account for share-based award forfeitures in compensation costs when they occur.
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 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. As such, the Company is subject to federal and state income taxes on the income from these activities.
Income taxes, primarily related to the Company's taxable REIT subsidiaries, are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
Cash and Cash Equivalents. The Company considers all highly liquid instruments with maturities of three months or less from the date of purchase to be cash equivalents.
Restricted Cash. Restricted cash is comprised primarily of cash balances held by lenders and operating cash reserves held in escrow by lenders.for one property.
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, 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 most of the tenants of properties in which the Company has an interest 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, or if the tenant is not responsible, the Company's property owner subsidiary may be required to satisfy any such obligations, should they exist. In addition, the property owner subsidiary, as the owner of such a property, may be held directly liable for any such damages or claims irrespective of the provisions of any lease. As of December 31, 2019,2021, the Company was not aware of any environmental matter relating to any of its investments that would have a material impact on the consolidated financial statements.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Segment Reporting. The Company operates generally in 1 industry segment, single-tenant real estate assets.
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Reclassifications. Certain amounts included in prior years' financial statements have been reclassified to conform to the current year's presentation. Upon adoption of ASC 842, the Company reclassified certain amounts on the Consolidated Statements of Operations, primarily the reclassification of tenant reimbursements to rental revenue. As a result, rental revenue increased in 2018 and 2017 by $30,608 and $31,809, respectively, for the reclassification of tenant reimbursements to conform with the current year presentation of rental revenue.
NewRecently Issued Accounting Standards Adopted in 2019.Guidance. In June 2018, the FASB issued Accounting Standard Update (“ASU”) No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions. The Company adopted this guidance effective January 1, 2019 on a prospective basis. The Company's adoption of this guidance did not have a material impact on its financial statements.
In August 2017,March 2020, the FASB issued ASU No. 2017-12, Derivatives2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and Hedging (Topic 815): Targeted Improvementsother contracts that reference the London Interbank Offered Rate, or LIBOR, or another reference rate expected to Accountingbe discontinued because of reference rate reform. The guidance in ASU 2020-04 is optional, applies for Hedging Activities, which amendsa limited period of time to ease the potential burden in accounting for (or recognizing the effect of) reference rate reform on financial reporting, in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of LIBOR and may be elected over time as reference rate reform activities occur. As of March 31, 2020, the Company has elected to apply the hedge accounting recognitionexpedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation requirements in Topic 815. The ASU is effective for reporting periods beginning after December 15, 2018.of derivatives consistent with past presentation. The Company adopted thiscontinues to evaluate the impact of the guidance effective January 1, 2019 on a prospective basis. The Company's adoption of this guidance did not have a material impact on its financial statements.
Additionally, the Company adopted ASU No. 2016-02, Leases (Topic 842) effective January 1, 2019. Topic 842 requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases previously classifiedmay apply other elections as operating leases. The Company adopted Topic 842 using the modified retrospective transition approach with January 1, 2019applicable as the Company's date of initial application, thus periods prior to January 1, 2019 conform to ASC Topic 840. The Company has elected other practical expedients permitted under the transition guidance including:
a package of practical expedients that allows the Company to carryforward its assessment of whether a contract is or contains a lease, whether costs incurred qualify as initial direct costs, and historical lease classification for any leases that existed prior to the adoption;
to account for lease and non-lease components as a single component if the (i) timing and patterns of transfer are the same for the lease and non-lease component and (ii) related lease component and the combined single lease component would be classified as an operating lease;
to exclude from the considerationadditional changes in the contract and variable lease payments all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific lease revenue-producing transaction and collected by the lessor from the lessee. Taxes assessed on the Company’s total gross receipts are excluded from this accounting policy election;
to not assess if existing land easements in place prior to adoption meet the definition of a lease; and
to not recognize leases with a term of 12 months or less on the balance sheet.
The Company did not elect the hindsight practical expedient to determine lease term. The adoption of Topic 842 required the Company to record right-of-use assets and lease liabilities on the Company's Consolidated Balance Sheet. The Company did not recognize a cumulative adjustment to equity upon adoption. The adoption of this guidance did not have a material impact on the Company's Consolidated Statement of Operations and Consolidated Statement of Cash Flows. See note 11, “Leases” for further disclosures.market occur.
Recently Issued Accounting Guidance.
In June 2016,July 2021, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses2021-05, Lease (Topic 326)842): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward-looking “expected loss” model that generally will result inLessors-Certain Leases with Variable Lease Payments, to amend the earlier recognition of an allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019. The Company analyzed its accounts receivable using an aging methodology and determined that there have been no historical credit losses related its outstanding accounts receivable. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company's consolidated financial statements.
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40). This ASU addresses customer’sto provide alternative accounting for implementation costs incurredsales type and direct finance leases with variable lease payments. The amendments in ASU 2021-05 amend the accounting guidance to allow lessors to classify and account for variable leases payments that do no depend on a cloud computing arrangement that isreference index or a service contract and also addsrate as an operating lease if certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).criteria are met. The standard is effective for fiscal years beginning after December 15, 2019. The adoption of this guidance on January 1, 2020, did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820).” ASU 2018-13 amends certain disclosure requirements regarding the fair value hierarchy of investments in accordance with GAAP, particularly the significant unobservable inputs used to value investments within Level 3 of the fair value hierarchy. The standard is effective on January 1, 2020,2021 with early adoption permitted. The Company does not expectcurrently have any leases that are classified as sales-type or direct finance leases. Therefore, the adoption of ASU 2018-13Company early adopted the measure on a prospective basis to have a material impactapplicable leases that commenced or were modified on the Company's consolidated financial statements.or after July 1, 2021.
(3)Earnings Per Share
A significant portion of the Company's non-vested share-based payment awards are considered participating securities and as such, the Company is required to use the two-class method for the computation of basic and diluted earnings per share. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. The non-vested share-based payment awards are not allocated losses as the awards do not have a contractual obligation to share in losses of the Company.
The following is a reconciliation of the 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, 20192021:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
BASIC | | | | | |
| | | | | |
| | | | | |
Net income attributable to common shareholders | $ | 375,848 | | | $ | 176,788 | | | $ | 273,225 | |
Weighted-average number of common shares outstanding | 277,640,835 | | | 266,914,843 | | | 237,642,048 | |
| | | | | |
| | | | | |
| | | | | |
Net income attributable to common shareholders - per common share basic | $ | 1.35 | | | $ | 0.66 | | | $ | 1.15 | |
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
BASIC | | | | | |
Net income attributable to common shareholders | $ | 273,225 |
| | $ | 220,838 |
| | $ | 79,067 |
|
Weighted-average number of common shares outstanding | 237,642,048 |
| | 236,666,375 |
| | 237,758,408 |
|
Net income attributable to common shareholders - per common share basic | $ | 1.15 |
| | $ | 0.93 |
| | $ | 0.33 |
|
|
| | | | | | | | | | | |
DILUTED: | | | | | |
Net income attributable to common shareholders - basic | $ | 273,225 |
| | $ | 220,838 |
| | $ | 79,067 |
|
Impact of assumed conversions | — |
| | 2,528 |
| | 147 |
|
Net income attributable to common shareholders | $ | 273,225 |
| | $ | 223,366 |
| | $ | 79,214 |
|
| | | | | |
Weighted-average common shares outstanding - basic | 237,642,048 |
| | 236,666,375 |
| | 237,758,408 |
|
Effect of dilutive securities: | | | | | |
Unvested share-based payment awards and options | 292,467 |
| | 528,495 |
| | 86,285 |
|
Operating Partnership Units | — |
| | 3,616,120 |
| | 3,693,144 |
|
Weighted-average common shares outstanding - diluted | 237,934,515 |
| | 240,810,990 |
| | 241,537,837 |
|
| | | | | |
Net income attributable to common shareholders - per common share diluted | $ | 1.15 |
| | $ | 0.93 |
| | $ | 0.33 |
|
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
DILUTED: | | | | | |
Net income attributable to common shareholders - basic | $ | 375,848 | | | $ | 176,788 | | | $ | 273,225 | |
Impact of assumed conversions | 7,962 | | | — | | | — | |
| | | | | |
| | | | | |
Net income attributable to common shareholders | $ | 383,810 | | | $ | 176,788 | | | $ | 273,225 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Weighted-average common shares outstanding - basic | 277,640,835 | | | 266,914,843 | | | 237,642,048 | |
Effect of dilutive securities: | | | | | |
Unvested share-based payment awards and options | 989,177 | | | 1,267,709 | | | 292,467 | |
Shares issuable under forward sales agreements | 2,110,315 | | | — | | | — | |
Operating Partnership Units | 1,918,845 | | | — | | | — | |
Series C Cumulative Convertible Preferred | 4,710,570 | | | — | | | — | |
| | | | | |
Weighted-average common shares outstanding - diluted | 287,369,742 | | | 268,182,552 | | | 237,934,515 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Net income attributable to common shareholders - per common share diluted | $ | 1.34 | | | $ | 0.66 | | | $ | 1.15 | |
For per common share amounts, all incremental shares are considered anti-dilutive for periods that have a loss from continuing operations attributable to common shareholders. In addition, other common share equivalents may be anti-dilutive in certain periods.
(4) Investments in Real Estate LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
| |
(4) | Investments in Real Estate |
The Company's real estate, net, consists of the following at December 31, 20192021 and 2020:
| | | | | | | | | | | | | | |
| | 2021 | | 2020 |
Real estate, at cost: | | | | |
Buildings and building improvements | | $ | 3,235,601 | | | $ | 3,144,176 | |
Land, land estates and land improvements | | 342,895 | | | 367,272 | |
Construction in progress | | 5,482 | | | 3,116 | |
Real estate intangibles: | | | | |
In-place lease values | | 320,847 | | | 357,640 | |
Tenant relationships | | 13,205 | | | 33,327 | |
Above-market leases | | 7,351 | | | 18,326 | |
Land held for development | | 104,160 | | | — | |
Investments in real estate under construction | | 161,165 | | | 75,906 | |
| | 4,190,706 | | | 3,999,763 | |
Accumulated depreciation and amortization(1) | | (655,740) | | | (884,465) | |
Real estate, net | | $ | 3,534,966 | | | $ | 3,115,298 | |
(1) Includes accumulated amortization of real estate intangible assets of $151,041 and $199,997 in 2021 and 2020, respectively. The estimated amortization of the above real estate intangible assets for the next five years is $33,710 in 2022, $32,501 in 2023, $26,638 in 2024, $22,709 in 2025 and $19,701 in 2026.
2018:
|
| | | | | | | | |
| | 2019 | | 2018 |
Real estate, at cost: | | | | |
Buildings and building improvements | | $ | 2,962,982 |
| | $ | 2,746,446 |
|
Land, land estates and land improvements | | 355,697 |
| | 341,848 |
|
Construction in progress | | 1,895 |
| | 1,840 |
|
Real estate intangibles: | | | | |
In-place lease values | | 339,154 |
| | 331,607 |
|
Tenant relationships | | 42,396 |
| | 54,662 |
|
Above-market leases | | 28,206 |
| | 33,343 |
|
Investments in real estate under construction | | 13,313 |
| | — |
|
| | 3,743,643 |
| | 3,509,746 |
|
Accumulated depreciation and amortization(1) | | (887,629 | ) | | (954,087 | ) |
Real estate, net | | $ | 2,856,014 |
| | $ | 2,555,659 |
|
| |
(1) | Includes accumulated amortization of real estate intangible assets of $212,033 and $231,443 in 2019 and 2018, respectively. The estimated amortization of the above real estate intangible assets for the next five years is $28,634 in 2020, $26,647 in 2021, $24,640 in 2022, $23,487 in 2023 and $18,270 in 2024.
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The Company had below-market leases, net of accumulated accretion, which are included in deferred revenue, of $19,090$14,401 and $17,923,$16,531, respectively, as of December 31, 20192021 and 2018.2020. The estimated accretion for the next five years is $2,550$1,955 in 2020, $2,2102022, $1,955 in 2021, $1,9312023, $1,955 in 2022, $1,9312024, $1,865 in 20232025 and $1,931$1,663 in 2024.2026.
The Company completed the following acquisitions during 2019 and 2018:
2019:
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| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Real Estate Intangibles |
Property Type | Market | Acquisition Date | Initial Cost Basis | Lease Expiration | Land | | Building and Improvements | | Lease in-place Value Intangible | | Below Market Lease Intangible |
Industrial | Indianapolis, IN | January 2019 | $ | 20,809 |
| 07/2025 | $ | 1,954 |
| | $ | 16,820 |
| | $ | 2,035 |
| | $ | — |
|
Industrial | Atlanta, GA | February 2019 | 37,182 |
| 10/2023 | 3,253 |
| | 30,951 |
| | 2,978 |
| | — |
|
Industrial | Dallas, TX | April 2019 | 28,201 |
| 08/2023 | 2,420 |
| | 23,330 |
| | 2,451 |
| | — |
|
Industrial | Greenville/Spartanburg, SC | April 2019 | 33,253 |
| 01/2024 | 1,615 |
| | 27,829 |
| | 3,809 |
| | — |
|
Industrial | Memphis, TN | May 2019 | 49,395 |
| 04/2024 | 2,646 |
| | 40,452 |
| | 6,297 |
| | — |
|
Industrial | Memphis, TN | May 2019 | 18,316 |
| 05/2023 | 851 |
| | 15,465 |
| | 2,000 |
| | — |
|
Industrial | Atlanta, GA | June 2019 | 45,441 |
| 05/2020 | 3,251 |
| | 40,023 |
| | 2,167 |
| | — |
|
Industrial | Atlanta, GA | June 2019 | 27,353 |
| 05/2024 | 2,536 |
| | 22,825 |
| | 1,992 |
| | — |
|
Industrial | Cincinnati, OH | September 2019 | 13,762 |
| 12/2023 | 544 |
| | 12,376 |
| | 842 |
| | — |
|
Industrial | Cincinnati, OH | September 2019 | 100,288 |
| 06/2030 | 3,950 |
| | 88,427 |
| | 7,911 |
| | — |
|
Industrial | Cincinnati, OH | September 2019 | 65,763 |
| 08/2027 | 3,123 |
| | 60,703 |
| | 5,392 |
| | (3,455 | ) |
Industrial | Greenville/Spartanburg, SC | October 2019 | 16,817 |
| 01/2024 | 1,406 |
| | 14,272 |
| | 1,139 |
| | — |
|
Industrial | Greenville/Spartanburg, SC | October 2019 | 15,583 |
| 04/2025 | 1,257 |
| | 13,252 |
| | 1,074 |
| | — |
|
Industrial | Phoenix, AZ | October 2019 | 21,020 |
| 09/2026 | 3,311 |
| | 16,013 |
| | 1,696 |
| | — |
|
Industrial | Phoenix, AZ | November 2019 | 67,079 |
| 09/2030 | 11,970 |
| | 48,924 |
| | 6,185 |
| | — |
|
Industrial | Chicago, IL | December 2019 | 49,348 |
| 09/2029 | 3,432 |
| | 40,947 |
| | 4,969 |
| | — |
|
Industrial | Greenville/Spartanburg, SC | December 2019 | 94,233 |
| 12/2034 | 6,959 |
| | 78,364 |
| | 8,910 |
| | — |
|
| | | $ | 703,843 |
| | $ | 54,478 |
| | $ | 590,973 |
| | $ | 61,847 |
| | $ | (3,455 | ) |
| | | | | | | | | | | |
Weighted-average life of intangible assets (years) | | | | | | | 8.4 |
| | 8.0 |
|