UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended SeptemberJune 30, 2017.2023.
or
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o☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from _________________ to ________________
Commission File Number 1-12386
1-12386 (Lexington Realty Trust)LXP INDUSTRIAL TRUST
33-04215 (Lepercq Corporate Income Fund L.P.)
LEXINGTON REALTY TRUST
LEPERCQ CORPORATE INCOME FUND L.P.
(Exact name of registrant as specified in its charter)
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Maryland (Lexington Realty Trust) | 13-3717318 (Lexington Realty Trust) |
Delaware (Lepercq Corporate Income Fund L.P.) | 13-3779859 (Lepercq Corporate Income Fund L.P.) |
(State or other jurisdiction of incorporation of organization)
| (I.R.S. Employer Identification No.)
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One Penn Plaza, Suite 4015, New York, NY 10119-4015
(Address of principal executive offices) (zip code)
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(212) 692-7200
(Registrant's telephone number, including area code)
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One Penn Plaza, Suite 4015, New York, NY 10119-4015
(Address of principal executive offices) (zip code)
(212) 692-7200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Shares of beneficial interest, par value $0.0001 per share, classified as Common Stock | LXP | New York Stock Exchange |
6.50% Series C Cumulative Convertible Preferred Stock, par value $0.0001 per share | LXPPRC | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
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Lexington Realty Trust | Yes x No ¨
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Lepercq Corporate Income Fund L.P. | Yes x No ¨
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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Lexington Realty Trust | Yes x No ¨
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Lepercq Corporate Income Fund L.P. | Yes x No ¨
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Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
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Lexington Realty Trust: | | | | |
Large accelerated filerx | ☒ | Accelerated filer¨ | ☐ | Non-accelerated filer¨ | ☐ | Smaller reporting company¨ | ☐ | Emerging growth |
company | | (Do not check if a smaller reporting company) | | company ¨
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Lepercq Corporate Income Fund L.P.: | | | | |
Large accelerated filer ¨
| Accelerated filer ¨
| Non-accelerated filer x
| Smaller reporting company ¨
| Emerging growth |
| | (Do not check if a smaller reporting company) | | company ¨ ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Lexington Realty Trust | Yes ¨ No x
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Lepercq Corporate Income Fund L.P. | Yes ¨ No x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
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Lexington Realty Trust | Yes ¨ No x
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Lepercq Corporate Income Fund L.P. | Yes ¨ No x
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Indicate the number of shares outstanding of each of Lexington Realty Trust'sthe registrant's classes of common stock, as of the latest practicable date: 240,652,170292,606,049 common shares of beneficial interest, par value $0.0001 per share, as of November 3, 2017.
EXPLANATORY NOTE
This report combines the Quarterly Reports on Form 10-Q for the period ended September 30, 2017, which we refer to as this Quarterly Report, of (1) Lexington Realty Trust, which we refer to as the Company or the Trust, and subsidiaries and (2) Lepercq Corporate Income Fund L.P., which we refer to as the Partnership or LCIF, and subsidiaries. Unless stated otherwise or the context otherwise requires, (1) “we,” “our,” and “us” refer collectively to the Company and its consolidated subsidiaries, including LCIF and its consolidated subsidiaries, and (2) LCIF or the Partnership refers to LCIF and its consolidated subsidiaries. All of the Company's and LCIF's interests in properties are held, and all property operating activities are conducted, through special purpose entities, which we refer to as property owner subsidiaries or lender subsidiaries, which are separate and distinct legal entities, but in some instances are consolidated for financial statement purposes and/or disregarded for income tax purposes.
The Company is the sole equity owner of (1) Lex GP-1 Trust, or Lex GP, a Delaware statutory trust, and (2) Lex LP-1 Trust, or Lex LP, a Delaware statutory trust. The Company, through Lex GP and Lex LP, holds, as of September 30, 2017, approximately 96% of LCIF's outstanding units of limited partner interest, which we refer to as OP units. The remaining OP units are beneficially owned by E. Robert Roskind, Chairman of the Trust, and certain non-affiliated investors. As the sole equity owner of LCIF’s general partner, the Company has the ability to control all of LCIF’s day-to-day operations subject to the terms of LCIF’s partnership agreement.
OP units not owned by LXP are accounted for as partners’ capital in LCIF’s unaudited condensed consolidated financial statements and as noncontrolling interests in the Trust’s unaudited condensed consolidated financial statements.
We believe it is important to understand the differences between the Trust and LCIF in the context of how the Trust and LCIF operate as an interrelated, consolidated company. The Trust’s and LCIF’s businesses are substantially the same, except that LCIF is dependent on the Trust for management of LCIF’s operations and future investments as LCIF does not have any employees, executive officers or a board of directors.
The Trust also invests in assets and conducts business directly and through other subsidiaries. The Trust allocates investments to itself and its other subsidiaries or LCIF as it deems appropriate and in accordance with certain obligations under LCIF’s partnership agreement with respect to allocations of non-recourse liabilities. The Trust and LCIF are co-borrowers under the Trust’s unsecured revolving credit facility and unsecured term loans. LCIF is a guarantor of the Trust’s publicly-traded debt securities.
We believe combining the quarterly reports on Form 10-Q of the Trust and LCIF into this single report results in the following benefits:
combined reports better reflect how management and the analyst community view the business as a single operating unit;
combined reports enhance investors’ understanding of the Trust and LCIF by enabling them to view the business as a whole and in the same manner as management;
combined reports are more efficient for the Trust and LCIF and result in savings in time, effort and expense; and
combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.
To help investors understand the significant differences between the Trust and LCIF, this Quarterly Report separately presents the following for each of the Trust and LCIF: (1) the unaudited condensed consolidated financial statements and the notes thereto, (2) Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, (3) Part I, Item 4. Controls and Procedures, and (4) Exhibit 31 and Exhibit 32 certifications.
TABLE OF CONTENTS
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PART I. — FINANCIAL INFORMATION | | |
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PART II — OTHER INFORMATION | | |
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WHERE YOU CAN FIND MORE INFORMATION:
We file and furnish annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission, which we refer to as the SEC. You may read and copy any materials that we file or furnish with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We file and furnish information electronically with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file or furnish electronically with the SEC. The address of the SEC's Internet site is http://www.sec.gov. We also maintain a web site at http://www.lxp.com through which you can obtain copies of documents that we file or furnish with the SEC. The contents of that web site are not incorporated by reference in or otherwise a part of this Quarterly Report on Form 10-Q or any other document that we file or furnish with the SEC.
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data) | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
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Assets: | | | |
Real estate, at cost | $ | 3,688,245 | | | $ | 3,691,066 | |
Real estate - intangible assets | 326,422 | | | 328,607 | |
Land held for development | 84,591 | | | 84,412 | |
Investments in real estate under construction | 372,342 | | | 361,924 | |
Real estate, gross | 4,471,600 | | | 4,466,009 | |
Less: accumulated depreciation and amortization | 857,750 | | | 800,470 | |
Real estate, net | 3,613,850 | | | 3,665,539 | |
Assets held for sale | 49,644 | | | 66,434 | |
Right-of-use assets, net | 21,937 | | | 23,986 | |
Cash and cash equivalents | 23,161 | | | 54,390 | |
Restricted cash | 124 | | | 116 | |
Investments in non-consolidated entities | 50,683 | | | 58,206 | |
Deferred expenses, net | 31,565 | | | 25,207 | |
Investment in a sales-type lease, net (allowance for credit loss $62 in 2023 and $93 in 2022) | 62,331 | | | 61,233 | |
Rent receivable – current | 4,970 | | | 3,030 | |
Rent receivable – deferred | 76,620 | | | 71,392 | |
Other assets | 27,564 | | | 24,314 | |
Total assets | $ | 3,962,449 | | | $ | 4,053,847 | |
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Liabilities and Equity: | | | |
Liabilities: | | | |
Mortgages and notes payable, net | $ | 66,353 | | | $ | 72,103 | |
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Term loan payable, net | 299,209 | | | 298,959 | |
Senior notes payable, net | 989,977 | | | 989,295 | |
Trust preferred securities, net | 127,744 | | | 127,694 | |
Dividends payable | 38,259 | | | 38,416 | |
Liabilities held for sale | 1,703 | | | 1,150 | |
Operating lease liabilities | 22,805 | | | 25,118 | |
Accounts payable and other liabilities | 64,399 | | | 74,261 | |
Accrued interest payable | 8,735 | | | 9,181 | |
Deferred revenue - including below-market leases, net | 10,350 | | | 11,452 | |
Prepaid rent | 14,192 | | | 15,215 | |
Total liabilities | 1,643,726 | | | 1,662,844 | |
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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; 1,935,400 shares issued and outstanding | 94,016 | | | 94,016 | |
Common shares, par value $0.0001 per share; authorized 600,000,000 shares, 292,581,929 and 291,719,310 shares issued and outstanding in 2023 and 2022, respectively | 29 | | | 29 | |
Additional paid-in-capital | 3,322,499 | | | 3,320,087 | |
Accumulated distributions in excess of net income | (1,151,924) | | | (1,079,087) | |
Accumulated other comprehensive income | 16,200 | | | 17,689 | |
Total shareholders’ equity | 2,280,820 | | | 2,352,734 | |
Noncontrolling interests | 37,903 | | | 38,269 | |
Total equity | 2,318,723 | | | 2,391,003 | |
Total liabilities and equity | $ | 3,962,449 | | | $ | 4,053,847 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except share and per share data)
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| September 30, 2017 | | December 31, 2016 |
Assets: | | | |
Real estate, at cost | $ | 3,837,705 |
| | $ | 3,533,172 |
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Real estate - intangible assets | 595,904 |
| | 597,294 |
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Investments in real estate under construction | — |
| | 106,652 |
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| 4,433,609 |
| | 4,237,118 |
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Less: accumulated depreciation and amortization | 1,200,814 |
| | 1,208,792 |
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Real estate, net | 3,232,795 |
| | 3,028,326 |
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Assets held for sale | 8,638 |
| | 23,808 |
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Cash and cash equivalents | 140,545 |
| | 86,637 |
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Restricted cash | 34,946 |
| | 31,142 |
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Investment in and advances to non-consolidated entities | 60,683 |
| | 67,125 |
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Deferred expenses, net | 32,426 |
| | 33,360 |
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Loans receivable, net | — |
| | 94,210 |
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Rent receivable – current | 6,388 |
| | 7,516 |
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Rent receivable – deferred | 46,611 |
| | 31,455 |
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Other assets | 32,124 |
| | 37,888 |
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Total assets | $ | 3,595,156 |
| | $ | 3,441,467 |
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Liabilities and Equity: | |
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Liabilities: | |
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Mortgages and notes payable, net | $ | 670,345 |
| | $ | 738,047 |
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Revolving credit facility borrowings | 200,000 |
| | — |
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Term loans payable, net | 596,369 |
| | 501,093 |
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Senior notes payable, net | 494,989 |
| | 494,362 |
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Trust preferred securities, net | 127,171 |
| | 127,096 |
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Dividends payable | 48,494 |
| | 47,264 |
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Liabilities held for sale | 442 |
| | 191 |
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Accounts payable and other liabilities | 36,728 |
| | 59,601 |
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Accrued interest payable | 11,683 |
| | 6,704 |
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Deferred revenue - including below market leases, net | 34,069 |
| | 39,895 |
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Prepaid rent | 15,371 |
| | 14,723 |
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Total liabilities | 2,235,661 |
| | 2,028,976 |
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Commitments and contingencies |
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Equity: | |
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Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares: | |
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Series C Cumulative Convertible Preferred, liquidation preference $96,770; 1,935,400 shares issued and outstanding | 94,016 |
| | 94,016 |
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Common shares, par value $0.0001 per share; authorized 400,000,000 shares, 240,643,775 and 238,037,177 shares issued and outstanding in 2017 and 2016, respectively | 24 |
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Additional paid-in-capital | 2,824,379 |
| | 2,800,736 |
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Accumulated distributions in excess of net income | (1,576,459 | ) | | (1,500,966 | ) |
Accumulated other comprehensive income (loss) | 510 |
| | (1,033 | ) |
Total shareholders’ equity | 1,342,470 |
| | 1,392,777 |
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Noncontrolling interests | 17,025 |
| | 19,714 |
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Total equity | 1,359,495 |
| | 1,412,491 |
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Total liabilities and equity | $ | 3,595,156 |
| | $ | 3,441,467 |
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Gross revenues: | | | | | | | |
Rental revenue | $ | 85,065 | | | $ | 77,939 | | | $ | 168,482 | | | $ | 156,475 | |
Other revenue | 1,985 | | | 1,836 | | | 3,643 | | | 3,578 | |
Total gross revenues | 87,050 | | | 79,775 | | | 172,125 | | | 160,053 | |
Expense applicable to revenues: | | | | | | | |
Depreciation and amortization | (45,993) | | | (45,193) | | | (91,734) | | | (89,699) | |
Property operating | (15,745) | | | (13,702) | | | (30,988) | | | (28,318) | |
General and administrative | (9,010) | | | (9,296) | | | (18,252) | | | (20,033) | |
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Non-operating income | 143 | | | 79 | | | 337 | | | 111 | |
Interest and amortization expense | (10,144) | | | (10,821) | | | (21,537) | | | (21,503) | |
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Impairment charges | (12,967) | | | (1,829) | | | (16,490) | | | (1,829) | |
Change in allowance for credit loss | 110 | | | — | | | 31 | | | — | |
Gains on sales of properties | — | | | 27,855 | | | 7,879 | | | 28,110 | |
Selling profit from sales-type lease | — | | | 9,314 | | | — | | | 9,314 | |
Income (loss) before provision for income taxes and equity in earnings (losses) of non-consolidated entities | (6,556) | | | 36,182 | | | 1,371 | | | 36,206 | |
Provision for income taxes | (210) | | | (263) | | | (426) | | | (680) | |
Equity in earnings (losses) of non-consolidated entities | (1,014) | | | 5,619 | | | 2,590 | | | 16,920 | |
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Net income (loss) | (7,780) | | | 41,538 | | | 3,535 | | | 52,446 | |
Less net income attributable to noncontrolling interests | (268) | | | (240) | | | (417) | | | (526) | |
Net income (loss) attributable to LXP Industrial Trust shareholders | (8,048) | | | 41,298 | | | 3,118 | | | 51,920 | |
Dividends attributable to preferred shares – Series C | (1,573) | | | (1,573) | | | (3,145) | | | (3,145) | |
Allocation to participating securities | (62) | | | (58) | | | (134) | | | (110) | |
Net income (loss) attributable to common shareholders | $ | (9,683) | | | $ | 39,667 | | | $ | (161) | | | $ | 48,665 | |
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Net income (loss) attributable to common shareholders - per common share basic | $ | (0.03) | | | $ | 0.14 | | | $ | — | | | $ | 0.17 | |
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Weighted-average common shares outstanding – basic | 290,186,934 | | | 283,568,078 | | | 290,134,015 | | | 283,604,072 | |
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Net income (loss) attributable to common shareholders - per common share diluted | $ | (0.03) | | | $ | 0.14 | | | $ | — | | | $ | 0.17 | |
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Weighted-average common shares outstanding – diluted | 291,015,537 | | | 285,436,441 | | | 290,964,350 | | | 287,687,397 | |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except share and per share data) |
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| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Gross revenues: | | | | | | | |
Rental | $ | 89,704 |
| | $ | 98,602 |
| | $ | 265,923 |
| | $ | 310,804 |
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Tenant reimbursements | 7,985 |
| | 7,379 |
| | 23,549 |
| | 23,366 |
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Total gross revenues | 97,689 |
| | 105,981 |
| | 289,472 |
| | 334,170 |
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Expense applicable to revenues: | |
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Depreciation and amortization | (43,495 | ) | | (40,288 | ) | | (128,706 | ) | | (124,687 | ) |
Property operating | (11,694 | ) | | (11,472 | ) | | (36,784 | ) | | (34,843 | ) |
General and administrative | (7,963 | ) | | (7,510 | ) | | (25,561 | ) | | (23,032 | ) |
Litigation reserve | (2,050 | ) | | — |
| | (2,050 | ) | | — |
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Non-operating income | 1,005 |
| | 3,080 |
| | 4,997 |
| | 9,500 |
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Interest and amortization expense | (18,887 | ) | | (23,001 | ) | | (57,828 | ) | | (68,573 | ) |
Debt satisfaction gains (charges), net | 2,424 |
| | 2,538 |
| | 2,378 |
| | (818 | ) |
Impairment charges and loan loss | (21,986 | ) | | (72,890 | ) | | (43,577 | ) | | (75,904 | ) |
Gains on sales of properties | 10,645 |
| | 16,072 |
| | 55,078 |
| | 58,413 |
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Income (loss) before provision for income taxes and equity in earnings (losses) of non-consolidated entities | 5,688 |
| | (27,490 | ) | | 57,419 |
| | 74,226 |
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Provision for income taxes | (375 | ) | | (462 | ) | | (1,174 | ) | | (1,099 | ) |
Equity in earnings (losses) of non-consolidated entities | 283 |
| | 340 |
| | (1,064 | ) | | 6,394 |
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Net income (loss) | 5,596 |
| | (27,612 | ) | | 55,181 |
| | 79,521 |
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Less net (income) loss attributable to noncontrolling interests | (55 | ) | | 2,260 |
| | (448 | ) | | 102 |
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Net income (loss) attributable to Lexington Realty Trust shareholders | 5,541 |
| | (25,352 | ) | | 54,733 |
| | 79,623 |
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Dividends attributable to preferred shares – Series C | (1,573 | ) | | (1,573 | ) | | (4,718 | ) | | (4,718 | ) |
Allocation to participating securities | (52 | ) | | (50 | ) | | (183 | ) | | (187 | ) |
Net income (loss) attributable to common shareholders | $ | 3,916 |
| | $ | (26,975 | ) | | $ | 49,832 |
| | $ | 74,718 |
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Net income (loss) attributable to common shareholders - per common share basic | $ | 0.02 |
| | $ | (0.12 | ) | | $ | 0.21 |
| | $ | 0.32 |
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Weighted-average common shares outstanding – basic | 237,989,098 |
| | 234,207,396 |
| | 237,632,572 |
| | 233,151,600 |
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Net income (loss) attributable to common shareholders - per common share diluted | $ | 0.02 |
| | $ | (0.12 | ) | | $ | 0.21 |
| | $ | 0.31 |
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Weighted-average common shares outstanding – diluted | 241,702,715 |
| | 234,207,396 |
| | 241,442,227 |
| | 237,215,883 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited and in thousands)
| | | Three months ended September 30, | | Nine months ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2023 | | 2022 | | 2023 | | 2022 |
Net income (loss) | $ | 5,596 |
| | $ | (27,612 | ) | | $ | 55,181 |
| | $ | 79,521 |
| Net income (loss) | $ | (7,780) | | | $ | 41,538 | | | $ | 3,535 | | | $ | 52,446 | |
Other comprehensive income (loss): | |
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| Other comprehensive income (loss): | | | | | | | |
| Change in unrealized gain (loss) on interest rate swaps, net | 67 |
| | 2,637 |
| | 1,543 |
| | (2,944 | ) | Change in unrealized gain (loss) on interest rate swaps, net | 2,139 | | | 3,550 | | | (1,051) | | | 15,816 | |
Company's share of other comprehensive loss of non-consolidated entities | | Company's share of other comprehensive loss of non-consolidated entities | (108) | | | — | | | (438) | | | — | |
Other comprehensive income (loss) | 67 |
| | 2,637 |
| | 1,543 |
| | (2,944 | ) | Other comprehensive income (loss) | 2,031 | | | 3,550 | | | (1,489) | | | 15,816 | |
Comprehensive income (loss) | 5,663 |
| | (24,975 | ) | | 56,724 |
| | 76,577 |
| Comprehensive income (loss) | (5,749) | | | 45,088 | | | 2,046 | | | 68,262 | |
Comprehensive (income) loss attributable to noncontrolling interests | (55 | ) | | 2,260 |
| | (448 | ) | | 102 |
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Comprehensive income (loss) attributable to Lexington Realty Trust shareholders | $ | 5,608 |
| | $ | (22,715 | ) | | $ | 56,276 |
| | $ | 76,679 |
| |
Comprehensive income attributable to noncontrolling interests | | Comprehensive income attributable to noncontrolling interests | (268) | | | (240) | | | (417) | | | (526) | |
Comprehensive income (loss) attributable to LXP Industrial Trust shareholders | | Comprehensive income (loss) attributable to LXP Industrial Trust shareholders | $ | (6,017) | | | $ | 44,848 | | | $ | 1,629 | | | $ | 67,736 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited and in thousands)thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | LXP Industrial Trust Shareholders | |
Three months ended June 30, 2023 | Total | | Number of Preferred Shares | | Preferred Shares | | Number of Common Shares | | Common Shares | | Additional Paid-in-Capital | | Accumulated Distributions in Excess of Net Income | | Accumulated Other Comprehensive Income/(Loss) | | Noncontrolling Interests |
Balance March 31, 2023 | $ | 2,360,762 | | | 1,935,400 | | | $ | 94,016 | | | 292,557,721 | | | $ | 29 | | | $ | 3,320,185 | | | $ | (1,105,875) | | | $ | 14,169 | | | $ | 38,238 | |
Issuance of partnership interest in real estate | 190 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 190 | |
Redemption of noncontrolling OP units for common shares | — | | | — | | | — | | | 1,314 | | | — | | | 7 | | | — | | | — | | | (7) | |
Issuance of common shares and deferred compensation amortization, net | 2,307 | | | — | | | — | | | 22,894 | | | — | | | 2,307 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Dividends/distributions ($0.125 per common share) | (38,787) | | | — | | | — | | | — | | | — | | | — | | | (38,001) | | | — | | | (786) | |
Net income (loss) | (7,780) | | | — | | | — | | | — | | | — | | | — | | | (8,048) | | | — | | | 268 | |
Other comprehensive income | 2,139 | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,139 | | | — | |
| | | | | | | | | | | | | | | | | |
Company's share of other comprehensive loss of non-consolidated entities | (108) | | | — | | | — | | | — | | | — | | | — | | | — | | | (108) | | | — | |
Balance June 30, 2023 | $ | 2,318,723 | | | 1,935,400 | | | $ | 94,016 | | | 292,581,929 | | | $ | 29 | | | $ | 3,322,499 | | | $ | (1,151,924) | | | $ | 16,200 | | | $ | 37,903 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2022 | | | |
| | | | | | | | | | | | | | | | | |
Balance March 31, 2022 | $ | 2,320,482 | | | 1,935,400 | | | $ | 94,016 | | | 287,871,649 | | | $ | 29 | | | $ | 3,261,770 | | | $ | (1,074,998) | | | $ | 6,008 | | | $ | 33,657 | |
Issuance of partnership interest in real estate | 1,672 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,672 | |
Redemption of noncontrolling OP units for common shares | — | | | — | | | — | | | 13,524 | | | — | | | 73 | | | — | | | — | | | (73) | |
| | | | | | | | | | | | | | | | | |
Issuance of common shares and deferred compensation amortization, net | 1,587 | | | — | | | — | | | 12,203 | | | — | | | 1,587 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
Repurchase of common shares | (73,718) | | | — | | | — | | | (6,098,026) | | | (1) | | | (73,717) | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
Forfeiture of employee common shares | 8 | | | — | | | — | | | (128,913) | | | — | | | — | | | 8 | | | — | | | — | |
Dividends/distributions ($0.12 per common share) | (35,469) | | | — | | | — | | | — | | | — | | | — | | | (34,716) | | | — | | | (753) | |
Net income | 41,538 | | | — | | | — | | | — | | | — | | | — | | | 41,298 | | | — | | | 240 | |
Other comprehensive income | 3,550 | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,550 | | | — | |
| | | | | | | | | | | | | | | | | |
Balance June 30, 2022 | $ | 2,259,650 | | | 1,935,400 | | | $ | 94,016 | | | 281,670,437 | | | $ | 28 | | | $ | 3,189,713 | | | $ | (1,068,408) | | | $ | 9,558 | | | $ | 34,743 | |
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited and in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | LXP Industrial Trust Shareholders | |
Six Months Ended June 30, 2023 | Total | | Number of Preferred Shares | | Preferred Shares | | Number of Common Shares | | Common Shares | | Additional Paid-in-Capital | | Accumulated Distributions in Excess of Net Income | | Accumulated Other Comprehensive Income/(Loss) | | Noncontrolling Interests |
Balance December 31, 2022 | $ | 2,391,003 | | | 1,935,400 | | | $ | 94,016 | | | 291,719,310 | | | $ | 29 | | | $ | 3,320,087 | | | $ | (1,079,087) | | | $ | 17,689 | | | $ | 38,269 | |
Issuance of partnership interest in real estate | 296 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 296 | |
Redemption of noncontrolling OP units for common shares | — | | | — | | | — | | | 4,886 | | | — | | | 25 | | | — | | | — | | | (25) | |
| | | | | | | | | | | | | | | | | |
Issuance of common shares and deferred compensation amortization, net | 4,463 | | | — | | | — | | | 1,239,060 | | | — | | | 4,463 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
Repurchase of common shares to settle tax obligations | (2,076) | | | — | | | — | | | (204,780) | | | — | | | (2,076) | | | — | | | — | | | — | |
Forfeiture of employee common shares | — | | | — | | | — | | | (176,547) | | | — | | | — | | | — | | | — | | | — | |
Dividends/distributions ($0.25 per common share) | (77,009) | | | — | | | — | | | | | — | | | — | | | (75,955) | | | — | | | (1,054) | |
Net income | 3,535 | | | — | | | — | | | — | | | — | | | — | | | 3,118 | | | — | | | 417 | |
Other comprehensive loss | (1,051) | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,051) | | | — | |
Company's share of other comprehensive loss of non-consolidated entities | (438) | | | — | | | — | | | — | | | — | | | — | | | — | | | (438) | | | — | |
| | | | | | | | | | | | | | | | | |
Balance June 30, 2023 | 2,318,723 | | | 1,935,400 | | | $ | 94,016 | | | 292,581,929 | | | $ | 29 | | | $ | 3,322,499 | | | $ | (1,151,924) | | | $ | 16,200 | | | $ | 37,903 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2022 | | | |
| | | | | | | | | | | | | | | | | |
Balance December 31, 2021 | $ | 2,323,228 | | | 1,935,400 | | | $ | 94,016 | | | 283,752,726 | | | $ | 28 | | | $ | 3,252,506 | | | $ | (1,049,434) | | | $ | (6,258) | | | $ | 32,370 | |
Issuance of partnership interest in real estate | 5,781 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 5,781 | |
Redemption of noncontrolling OP units for common shares | — | | | — | | | — | | | 20,232 | | | — | | | 109 | | | — | | | — | | | (109) | |
Purchase of noncontrolling interest in consolidated joint venture | (27,958) | | | — | | | — | | | — | | | — | | | (25,058) | | | — | | | — | | | (2,900) | |
Issuance of common shares and deferred compensation amortization, net | 42,159 | | | — | | | — | | | 4,535,376 | | | 1 | | | 42,158 | | | — | | | — | | | — | |
Repurchase of common shares | (73,718) | | | — | | | — | | | (6,098,026) | | | (1) | | | (73,717) | | | — | | | — | | | — | |
Repurchase of common shares to settle tax obligations | (6,285) | | | — | | | — | | | (410,958) | | | — | | | (6,285) | | | — | | | — | | | — | |
Forfeiture of employee common shares | 8 | | | — | | | — | | | (128,913) | | | — | | | — | | | 8 | | | — | | | — | |
Dividends/distributions ($0.24 per common share) | (71,827) | | | — | | | — | | | — | | | — | | | — | | | (70,902) | | | — | | | (925) | |
Net income | 52,446 | | | — | | | — | | | — | | | — | | | — | | | 51,920 | | | — | | | 526 | |
Other comprehensive income | 15,816 | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,816 | | | — | |
| | | | | | | | | | | | | | | | | |
Balance June 30, 2022 | $ | 2,259,650 | | | 1,935,400 | | | $ | 94,016 | | | 281,670,437 | | | $ | 28 | | | $ | 3,189,713 | | | $ | (1,068,408) | | | $ | 9,558 | | | $ | 34,743 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months ended September 30, 2017 | | Lexington Realty Trust Shareholders | | |
| Total | | Preferred Shares | | Common Shares | | Additional Paid-in-Capital | | Accumulated Distributions in Excess of Net Income | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests |
Balance December 31, 2016 | $ | 1,412,491 |
| | $ | 94,016 |
| | $ | 24 |
| | $ | 2,800,736 |
| | $ | (1,500,966 | ) | | $ | (1,033 | ) | | $ | 19,714 |
|
Redemption of noncontrolling OP units for common shares | — |
| | — |
| | — |
| | 574 |
| | — |
| | — |
| | (574 | ) |
Issuance of common shares and deferred compensation amortization, net | 23,069 |
| | — |
| | — |
| | 23,069 |
| | — |
| | — |
| | — |
|
Dividends/distributions | (132,789 | ) | | — |
| | — |
| | — |
| | (130,226 | ) | | — |
| | (2,563 | ) |
Net income | 55,181 |
| | — |
| | — |
| | — |
| | 54,733 |
| | — |
| | 448 |
|
Other comprehensive income | 1,543 |
| | — |
| | — |
| | — |
| | — |
| | 1,543 |
| | — |
|
Balance September 30, 2017 | $ | 1,359,495 |
| | $ | 94,016 |
| | $ | 24 |
| | $ | 2,824,379 |
| | $ | (1,576,459 | ) | | $ | 510 |
| | $ | 17,025 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months ended September 30, 2016 | | Lexington Realty Trust Shareholders | | |
| Total | | Preferred Shares | | Common Shares | | Additional Paid-in-Capital | | Accumulated Distributions in Excess of Net Income | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests |
Balance December 31, 2015 | $ | 1,462,531 |
| | $ | 94,016 |
| | $ | 23 |
| | $ | 2,776,837 |
| | $ | (1,428,908 | ) | | $ | (1,939 | ) | | $ | 22,502 |
|
Issuance of common shares upon conversion of convertible notes | 12,027 |
| | — |
| | — |
| | 12,027 |
| | — |
| | — |
| | — |
|
Repurchase of common shares | (8,973 | ) | | — |
| | — |
| | (8,973 | ) | | — |
| | — |
| | — |
|
Redemption of noncontrolling OP units for common shares | — |
| | — |
| | — |
| | 31 |
| | — |
| | — |
| | (31 | ) |
Issuance of common shares and deferred compensation amortization, net | 9,045 |
| | — |
| | 1 |
| | 9,044 |
| | — |
| | — |
| | — |
|
Dividends/distributions | (128,319 | ) | | — |
| | — |
| | — |
| | (125,791 | ) | | — |
| | (2,528 | ) |
Net income (loss) | 79,521 |
| | — |
| | — |
| | — |
| | 79,623 |
| | — |
| | (102 | ) |
Other comprehensive loss | (2,944 | ) | | — |
| | — |
| | — |
| | — |
| | (2,944 | ) | | — |
|
Balance September 30, 2016 | $ | 1,422,888 |
| | $ | 94,016 |
| | $ | 24 |
| | $ | 2,788,966 |
| | $ | (1,475,076 | ) | | $ | (4,883 | ) | | $ | 19,841 |
|
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands) | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Net cash provided by operating activities: | $ | 92,644 | | | $ | 95,207 | |
Cash flows from investing activities: | | | |
Acquisition of real estate, including intangible assets | — | | | (131,276) | |
Investment in real estate under construction | (62,650) | | | (135,826) | |
Capital expenditures | (7,910) | | | (15,798) | |
Net proceeds from sale of properties | 27,338 | | | 54,523 | |
Principal payments on loans receivable | 1,462 | | | 14 | |
Investments in non-consolidated entities | (485) | | | (178) | |
Distributions from non-consolidated entities in excess of accumulated earnings | 5,536 | | | 15,609 | |
Deferred leasing costs | (1,808) | | | (2,582) | |
Change in real estate deposits, net | (364) | | | (1,598) | |
Net cash used in investing activities | (38,881) | | | (217,112) | |
Cash flows from financing activities: | | | |
Dividends to common and preferred shareholders | (76,112) | | | (72,749) | |
| | | |
Principal amortization payments | (5,893) | | | (5,584) | |
| | | |
Revolving credit facility borrowings | 50,000 | | | 155,000 | |
Revolving credit facility payments | (50,000) | | | (35,000) | |
| | | |
| | | |
| | | |
| | | |
Cash contributions from noncontrolling interests | 296 | | | 5,781 | |
Cash distributions to noncontrolling interests | (1,054) | | | (925) | |
Repurchases to settle tax obligations | (2,076) | | | (6,285) | |
Purchase of noncontrolling interest | — | | | (27,958) | |
| | | |
| | | |
| | | |
| | | |
| | | |
Issuance of common shares, net | (145) | | | 38,497 | |
Repurchase of common shares | — | | | (69,973) | |
| | | |
Net cash used in financing activities | (84,984) | | | (19,196) | |
Change in cash, cash equivalents and restricted cash | (31,221) | | | (141,101) | |
| | | |
Cash, cash equivalents and restricted cash, at beginning of period | 54,506 | | | 191,027 | |
Cash, cash equivalents and restricted cash, at end of period | $ | 23,285 | | | $ | 49,926 | |
| | | |
Reconciliation of cash, cash equivalents and restricted cash: | | | |
Cash and cash equivalents at beginning of period | $ | 54,390 | | | $ | 190,926 | |
Restricted cash at beginning of period | 116 | | | 101 | |
Cash, cash equivalents and restricted cash at beginning of period | $ | 54,506 | | | $ | 191,027 | |
| | | |
Cash and cash equivalents at end of period | $ | 23,161 | | | $ | 49,817 | |
Restricted cash at end of period | 124 | | | 109 | |
Cash, cash equivalents and restricted cash at end of period | $ | 23,285 | | | $ | 49,926 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
|
| | | | | | | |
| Nine Months ended September 30, |
| 2017 | | 2016 |
Net cash provided by operating activities: | $ | 172,581 |
| | $ | 180,583 |
|
Cash flows from investing activities: | |
| | |
|
Acquisition of real estate, including intangible assets | (418,574 | ) | | (70,297 | ) |
Investment in real estate under construction | (81,364 | ) | | (105,548 | ) |
Capital expenditures | (13,367 | ) | | (3,267 | ) |
Net proceeds from sale of properties | 186,499 |
| | 293,634 |
|
Net proceeds from sale of non-consolidated investment | 6,127 |
| | — |
|
Principal payments received on loans receivable | 89,908 |
| | 214 |
|
Investments in and advances to non-consolidated entities | (4,068 | ) | | (33,554 | ) |
Distributions from non-consolidated entities in excess of accumulated earnings | 477 |
| | 7,299 |
|
Increase in deferred leasing costs | (5,284 | ) | | (6,165 | ) |
Change in restricted cash | (5,843 | ) | | (32,450 | ) |
Change in real estate deposits, net | 10,938 |
| | (20,566 | ) |
Net cash provided by (used in) investing activities | (234,551 | ) | | 29,300 |
|
Cash flows from financing activities: | |
| | |
|
Dividends to common and preferred shareholders | (128,996 | ) | | (123,287 | ) |
Principal amortization payments | (23,243 | ) | | (20,887 | ) |
Principal payments on debt, excluding normal amortization | (41,488 | ) | | (103,473 | ) |
Retirement of convertible notes | — |
| | (672 | ) |
Proceeds from term loans | 95,000 |
| | — |
|
Change in revolving credit facility borrowings, net | 200,000 |
| | (177,000 | ) |
Payment of developer liabilities | — |
| | (4,016 | ) |
Change in deferred financing costs | (1,252 | ) | | (1,841 | ) |
Proceeds of mortgages and notes payable | — |
| | 254,650 |
|
Change in restricted cash | 1,572 |
| | — |
|
Cash distributions to noncontrolling interests | (2,563 | ) | | (2,528 | ) |
Issuance of common shares, net | 16,848 |
| | 2,686 |
|
Repurchase of common shares | — |
| | (8,973 | ) |
Net cash provided by (used in) financing activities | 115,878 |
| | (185,341 | ) |
Change in cash and cash equivalents | 53,908 |
| | 24,542 |
|
Cash and cash equivalents, at beginning of period | 86,637 |
| | 93,249 |
|
Cash and cash equivalents, at end of period | $ | 140,545 |
| | $ | 117,791 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172023 and 20162022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
(1) The Company and Financial Statement Presentation | |
(1) | The Company and Financial Statement Presentation |
Lexington RealtyLXP Industrial Trust (together with its consolidated subsidiaries, except when the context only applies to the parent entity, the “Company”) is a Maryland real estate investment trust (“REIT”) that owns a diversified portfolio of equity and, from time to time, debt investments infocused on single-tenant commercialindustrial properties.
As of SeptemberJune 30, 2017,2023, the Company had ownership interests in approximately 180116 consolidated real estate properties, located in 3820 states. The properties in which the Company has an interest are primarily net leased to tenants in various industries.
As of September 30, 2017, theThe Company operated in a manner intended to enablebelieves it to continue to qualifyhas 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 historically prohibited for REITsfrom 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., 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 interests 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.
The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”) for the three and ninesix months ended SeptemberJune 30, 20172023 have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statementpresentation of the results of the periods presented. Interim results are not necessarily indicative of the results that may be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 20162022 filed with the SEC on March 1, 2017February 16, 2023 (“Annual Report”).
Basis of Presentation and Consolidation. The Company's unaudited condensed consolidated financial statements are prepared on the accrual basis of accounting in accordance with GAAP. The financial statements reflect the accounts of the Company and its consolidated subsidiaries. The Company consolidates the 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 a primary beneficiary are accounted for under appropriate GAAP.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172023 and 20162022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
As of June 30, 2023, the Company had interests in seven consolidated joint ventures with developers, consisting of five ongoing development projects and two land joint ventures with ownership interests ranging from 80% to 95.5%. Each joint venture owns land parcels with the intention of developing industrial properties. The Company determined that the joint ventures are variable interest entities in accordance with the applicable accounting guidance. The Company concluded that it wasis the primary beneficiary in each of the joint ventures and as such, the joint ventures' operations are consolidated in the Company’s unaudited condensed consolidated financial statements.
In addition, the Company is the primary beneficiary of certain other VIEs as it has a controlling financial interest in these entities, including LCIF, in which the Company has an approximate 96% interest. See the unaudited condensed consolidated financial statements of LCIF included within this Quarterly Report.
The Company has a joint venture limited partnership with a developer whichentities. Lepercq Corporate Income Fund L.P. ("LCIF") is a consolidated VIE. In January 2017,VIE and the joint venture completed the developmentCompany, as of June 30, 2023, had an office campus in Lake Jackson, Texas. The Company currently has a 100% interest in the joint venture; however, the developer has certain protective rights, and, upon project close-out, the developer will be credited with a notional capital account for a profit interest and certain cost savings. As of September 30, 2017, the joint venture had $144,169 in real estate, net.approximate 99% ownership interest.
The assets of each VIE are only available to satisfy such VIE's respective liabilities. As of September 30, 2017, the VIEs' mortgages and notes payable are 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 unaudited condensed consolidated balance sheets as of SeptemberJune 30, 20172023 and December 31, 2016:2022:
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Real estate, net | $ | 1,032,057 | | | $ | 1,027,009 | |
Total assets | $ | 1,152,674 | | | $ | 1,125,558 | |
| | | |
Total liabilities | $ | 43,364 | | | $ | 40,200 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Real estate, net | $ | 790,185 |
| | $ | 778,265 |
|
Total assets | $ | 898,620 |
| | $ | 899,801 |
|
Mortgages and notes payable, net | $ | 360,426 |
| | $ | 364,099 |
|
Total liabilities | $ | 371,000 |
| | $ | 395,332 |
|
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 1031 exchange structure at any time. The assets of the EAT primarily consist of leased property (net real estate and intangibles).Use of Estimates. Management has made a number of significant estimates and assumptions to prepare these unaudited condensed consolidated financial statements in conformity with GAAP, including, among others, those relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses.expenses to prepare these unaudited condensed 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.factors, including the current economic environment. Management adjusts such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of current and deferred accounts receivable, the 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 loans receivable and equity method investments, the valuation of derivative financial instruments, the valuation of awards granted under compensation plans, the determination of the incremental borrowing rate for leases where the Company is the lessee, the determination of the term and fair value of sales-type leases, the estimated credit losses for investments in sales-type leases and the useful lives of long-lived assets. Actual results could differ materially from those estimates.
Fair Value Measurements. The Company follows the guidance inRecently Issued Accounting Guidance. In March 2020, the Financial Accounting Standards Board (“FASB”("FASB") Accounting Standards Codification Topic 820, Fair Value Measurementsissued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and Disclosures,other contracts that reference the London Interbank Offered Rate, or LIBOR, or another reference rate expected to be discontinued because of reference rate reform. The guidance in ASU 2020-04 is optional, applies for a 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 amended (“Topic 820”), to determine the fair valuereference rate reform activities occur. As 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,March 31, 2020, 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 820hedge accounting expedients 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 of derivatives consistent with respect to measuring counterparty risk for all of its derivative transactions subject to master netting arrangements.
past presentation.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172023 and 20162022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
Acquisition, Development and Construction Arrangements.On July 5, 2022, the Company transitioned its benchmark interest rate for its term loan from LIBOR to the Secured Overnight Financing Rate, or SOFR. The Company evaluates loans receivable where the Company participates in residual profits through loan provisions or other contracts to ascertain whether the Company has the same risks 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 investment in real estate under construction in the unaudited condensed consolidated balance sheets. In these cases, no interest income is recorded on the loan receivableadopted ASU 2020-04 and the Company capitalizes interest during the construction period. In arrangements where the Company engages a developer to construct a property or provides funds to a tenant to develop a property, the Company will capitalize the funds provided to the developer/tenant and internal costsadoption of interest and real estate taxes, if applicable, during the construction period.
Revision to Previously Issued Financial Statements. During the quarter ended December 31, 2016, the Company correctedthis standard did not have an immaterial error in the treatment of a lease termination payment received in the quarter ended June 30, 2016 in the amount of $7,685. The lease termination payment was originally amortized over the life of the new tenant lease that necessitated the lease termination. As corrected, the payment was fully recognized in the Company's total gross revenues in the quarter ended June 30, 2016.
The Company concluded that the error noted above was not material to any historical periods presented. However, in order to correctly present the treatment of the lease termination payment, management elected to revise previously issued financial statements in the Company's next subsequent periodic filing that included such financial statements. The following table shows the affected line items withinimpact on the Company's unaudited condensed consolidated financial statements:
|
| | | | | | | | | | | |
Three Months ended September 30, 2016 | | | | | |
| As Originally Reported | | Correction | | As Adjusted |
Total gross revenues | $ | 106,331 |
| | $ | (350 | ) | | $ | 105,981 |
|
Net loss | $ | (27,262 | ) | | $ | (350 | ) | | $ | (27,612 | ) |
Net loss attributable to common shareholders | $ | (26,653 | ) | | $ | (322 | ) | | $ | (26,975 | ) |
Net loss attributable to common shareholders - basic per share | $ | (0.11 | ) | | $ | (0.01 | ) | | $ | (0.12 | ) |
Net loss attributable to common shareholders - diluted per share | $ | (0.11 | ) | | $ | (0.01 | ) | | $ | (0.12 | ) |
|
| | | | | | | | | | | |
Nine Months ended September 30, 2016 | | | | | |
| As Originally Reported | | Correction | | As Adjusted |
Total gross revenues | $ | 327,524 |
| | $ | 6,646 |
| | $ | 334,170 |
|
Net income | $ | 72,875 |
| | $ | 6,646 |
| | $ | 79,521 |
|
Net income attributable to common shareholders | $ | 68,310 |
| | $ | 6,408 |
| | $ | 74,718 |
|
Net income attributable to common shareholders - basic per share | $ | 0.29 |
| | $ | 0.03 |
| | $ | 0.32 |
|
Net income attributable to common shareholders - diluted per share | $ | 0.28 |
| | $ | 0.03 |
| | $ | 0.31 |
|
Recently Issued Accounting Guidance. In May 2014, the FASB issued ASU 2014-09, Revenuestatements. The Company's Trust Preferred Securities transitioned from Contracts with Customers (Topic 606), which amends the guidance for revenue recognitionLIBOR to eliminate the industry-specific revenue recognition guidance and replace it with a principle based approach for determining revenue recognition.SOFR after June 30, 2023. The effective date of the new guidance was updated by ASU 2015-14 and is effective for reporting periods beginning after December 15, 2017. The Company’s revenue-producing contracts are primarily leases that are not within the scope of this standard as leases are excluded from ASU 2014-09. The Company expects that it may be impacted in its recognition of non-lease revenue, non-lease components of revenue from lease agreements (upon adoption of ASU 2016-02) and the timing of its recognition of real estate sale transactions. Under ASU 2014-09, revenue recognition for real estate sales is largely based on the transfer of control and the buyer having the ability to direct the use of, or obtain substantially all of the remaining benefit from, the asset (which generally will occur on the closing date); the factor of continuing involvement is no longer a specific consideration for the timing of recognition. As a result, the Company generally expects that the new guidance may result in transactions qualifying as sales of real estate at an earlier date than under current accounting guidance. The Company is finalizing its evaluation of the impact of the standard but currently believes the impact would be limited to the timing and income statement presentation of revenue and not the total amount of revenue recognized over time. The
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017 and 2016
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
Company will adopt ASU 2014-09 effective January 1, 2018 and anticipates using the modified retrospective approach. As the majority of the Company’s revenue is from rental income related to leases, the Company does not expect the ASU to have a material impact onto the consolidated financial statements upon adoption.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognizeas a right of use asset and related lease liability for those leases classified as operating leases at the commencement date that have lease terms of more than 12 months and amends certain lessor guidance. The ASU is expected to result in the recognition of a right-to-use asset and related liability to account for the Company's future obligations under its ground lease arrangements for which the Company is the lessee. From a lessor perspective, the Company expects that it will be required to bifurcate lease agreements to separately recognize and disclose non-lease components that are executory in nature. Lease components will continue to be primarily recognized on a straight-line basis over the lease term and certain non-lease components will be accounted for under the new revenue recognition guidance in ASU 2014-09 (upon adoption of ASU 2016-02). Additionally, the new ASU will require that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, and interim periods within those years, and requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements; with early adoption permitted. The Company continues to evaluate the impact of the adoption of the new guidance on its consolidated financial statements.transition.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation-Improvements to Employee Share-Based Payment Accounting (Topic 718), which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted this new guidance on January 1, 2017. This new guidance did not have a material impact on the Company's consolidated financial statements. The Company has made an accounting policy election to account for share-based award forfeitures in compensation costs when they occur.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those years; however early adoption is permitted. The Company does not believe this guidance will have a material impact on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies guidance on the classification and presentation of changes in restricted cash. The ASU is effective for reporting periods beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to all periods presented. Upon adoption, restricted cash balances will be included along with cash and cash equivalents as of the end of the period and beginning of period, respectively, in the Company's consolidated statement of cash flows for all periods presented. Upon adoption, separate line items showing changes in restricted cash balances will be eliminated from the Company's consolidated statement of cash flows.(2)Earnings Per Share
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU is effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The Company expects that acquisitions of real estate or in-substance real estate will not meet the revised definition of a business and thus will be treated as asset acquisitions. Acquisition costs for those acquisitions that are not businesses will be capitalized rather than expensed.
In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20), which requires that all entities account for the derecognition of a business in accordance with ASC 810, including instances in which the business is considered in-substance real estate. The ASU requires the Company to measure at fair value any retained interest in a partial sale of real estate. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2017. The Company will adopt ASU 2017-05 effective January 1, 2018, along with the adoption of ASU 2014-09, and it is not expected to have a material impact on its consolidated financial statements.
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017 and 2016
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
In August 2017, the FASB issued ASU-2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends the hedge accounting recognition and presentation requirements in Topic 815. The ASU is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new guidance on its consolidated financial statements.
A 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 the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
| | | Three Months ended September 30, | | Nine months ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2023 | | 2022 | | 2023 | | 2022 |
BASIC | | | | | | | | BASIC | | | | | | | |
| Net income (loss) attributable to common shareholders | $ | 3,916 |
| | $ | (26,975 | ) | | $ | 49,832 |
| | $ | 74,718 |
| Net income (loss) attributable to common shareholders | $ | (9,683) | | | $ | 39,667 | | | $ | (161) | | | $ | 48,665 | |
Weighted-average number of common shares outstanding - basic | 237,989,098 |
| | 234,207,396 |
| | 237,632,572 |
| | 233,151,600 |
| Weighted-average number of common shares outstanding - basic | 290,186,934 | | | 283,568,078 | | | 290,134,015 | | | 283,604,072 | |
| |
| | | | |
| | |
| | | | | | | | |
Net income (loss) attributable to common shareholders - per common share basic | $ | 0.02 |
| | $ | (0.12 | ) | | $ | 0.21 |
| | $ | 0.32 |
| Net income (loss) attributable to common shareholders - per common share basic | $ | (0.03) | | | $ | 0.14 | | | $ | — | | | $ | 0.17 | |
| | | | | | | | | | | | | | | |
DILUTED | | | | | | | | DILUTED | |
Net income (loss) attributable to common shareholders - basic | $ | 3,916 |
| | $ | (26,975 | ) | | $ | 49,832 |
| | $ | 74,718 |
| Net income (loss) attributable to common shareholders - basic | $ | (9,683) | | | $ | 39,667 | | | $ | (161) | | | $ | 48,665 | |
| Impact of assumed conversions | (173 | ) | | — |
| | (192 | ) | | (845 | ) | Impact of assumed conversions | (81) | | | 47 | | | (77) | | | 136 | |
Net income (loss) attributable to common shareholders | $ | 3,743 |
| | $ | (26,975 | ) | | $ | 49,640 |
| | $ | 73,873 |
| Net income (loss) attributable to common shareholders | $ | (9,764) | | | $ | 39,714 | | | $ | (238) | | | $ | 48,801 | |
| | | | | | | | | | | | | | | |
Weighted-average common shares outstanding - basic | 237,989,098 |
| | 234,207,396 |
| | 237,632,572 |
| | 233,151,600 |
| Weighted-average common shares outstanding - basic | 290,186,934 | | | 283,568,078 | | | 290,134,015 | | | 283,604,072 | |
Effect of dilutive securities: | | | | | | | | Effect of dilutive securities: | |
Share options | 66,748 |
| | — |
| | 95,788 |
| | 246,166 |
| |
OP Units | 3,646,869 |
| | — |
| | 3,713,867 |
| | 3,818,117 |
| |
Unvested share-based payment awards | | Unvested share-based payment awards | — | | | 257,371 | | | — | | | 668,130 | |
Shares issuable under forward sales agreements | | Shares issuable under forward sales agreements | — | | | 750,944 | | | — | | | 2,549,683 | |
| Operating partnership units | | Operating partnership units | 828,603 | | | 860,048 | | | 830,335 | | | 865,512 | |
| Weighted-average common shares outstanding - diluted | 241,702,715 |
| | 234,207,396 |
| | 241,442,227 |
| | 237,215,883 |
| Weighted-average common shares outstanding - diluted | 291,015,537 | | | 285,436,441 | | | 290,964,350 | | | 287,687,397 | |
| | | | | | | | | | | | | | | |
| Net income (loss) attributable to common shareholders - per common share diluted | $ | 0.02 |
| | $ | (0.12 | ) | | $ | 0.21 |
| | $ | 0.31 |
| Net income (loss) attributable to common shareholders - per common share diluted | $ | (0.03) | | | $ | 0.14 | | | $ | — | | | $ | 0.17 | |
|
For per common share amounts, generally 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.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172023 and 20162022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
Calculation of dilutive earnings requires certain potentially dilutive shares to be excluded when the inclusion of such shares would be anti-dilutive. The following table summarizes the potentially dilutive shares excluded from the dilutive earnings per share calculation as inclusion of such shares would be anti-dilutive:
| |
(3) | Investments in Real Estate and Real Estate Under Construction |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Unvested share-based payment awards | 135,172 | | | 10,140 | | | 131,522 | | | 34,762 | |
Preferred shares - Series C | 4,710,570 | | | 4,710,570 | | | 4,710,570 | | | 4,710,570 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(3)Investments in Real Estate
The Company completed and placed in service the following acquisition and build-to-suit transactionswarehouse/distribution facility during the ninesix months ended SeptemberJune 30, 2017:2023:
| | | | | | | | | | | | | | | | | | | | | | | |
Market | Placed in Service Date | Initial Cost Basis | Lease Expiration Date | Land | | Building and Improvements | | | |
Phoenix, Arizona(1) | March 2023 | $ | 37,118 | | 08/2033 | $ | 7,552 | | | $ | 29,566 | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
Property Type | Location | Acquisition Date | Initial Cost Basis | Lease Expiration | Land and Land Estate | | Building and Improvements | | Lease in-place Value Intangible | | Below Market Lease Intangible |
Office | Lake Jackson, TX(1) | January 2017 | $ | 70,401 |
| 10/2036 | $ | 3,078 |
| | $ | 67,323 |
| | $ | — |
| | $ | — |
|
Industrial | New Century, KS | February 2017 | 12,056 |
| 01/2027 | — |
| | 13,198 |
| | 1,648 |
| | (2,790 | ) |
Industrial | Lebanon, IN | February 2017 | 36,194 |
| 01/2024 | 2,100 |
| | 29,443 |
| | 4,651 |
| | — |
|
Office | Charlotte, NC | April 2017 | 61,339 |
| 04/2032 | 3,771 |
| | 47,064 |
| | 10,504 |
| | — |
|
Industrial | Cleveland, TN | May 2017 | 34,400 |
| 03/2024 | 1,871 |
| | 29,743 |
| | 2,786 |
| | — |
|
Industrial | Grand Prairie, TX | June 2017 | 24,317 |
| 03/2037 | 3,166 |
| | 17,985 |
| | 3,166 |
| | — |
|
Industrial | San Antonio, TX | June 2017 | 45,507 |
| 04/2027 | 1,311 |
| | 36,644 |
| | 7,552 |
| | — |
|
Industrial | Opelika, AL | July 2017 | 37,269 |
| 05/2042 | 134 |
| | 33,183 |
| | 3,952 |
| | — |
|
Industrial | McDonough, GA | August 2017 | 66,700 |
| 01/2028 | 5,441 |
| | 52,762 |
| | 8,497 |
| | — |
|
Industrial | Byhalia, MS | September 2017 | 36,590 |
| 09/2027 | 1,751 |
| | 31,236 |
| | 3,603 |
| | — |
|
Industrial | Jackson, TN | September 2017 | 57,920 |
| 10/2027 | 1,454 |
| | 49,026 |
| | 7,440 |
| | — |
|
Industrial | Smyrna, TN | September 2017 | 104,890 |
| 04/2027 | 1,793 |
| | 93,940 |
| | 9,157 |
| | — |
|
| | | $ | 587,583 |
| | $ | 25,870 |
| | $ | 501,547 |
| | $ | 62,956 |
| | $ | (2,790 | ) |
| |
(1) | Completed the construction of the final building of a four-building project. Initial cost basis excludes estimated developer partner payout of approximately $8,000. |
(1) Initial basis excludes certain remaining costs, including developer partner promote, if any.
The Company recognized aggregate transaction costs of $1,100 and $329 for the nine months ended September 30, 2017 and 2016, respectively, which are included as property operating expenses within the Company's unaudited condensed consolidated statements of operations.
From time to time,In 2022, the Company is engagedpurchased the remaining 13% of equity owned by a noncontrolling interest in various forms of build-to-suit development activities. Thethe Fairburn, Georgia warehouse/distribution facility for $27,958. As the Company through lender subsidiaries and property owner subsidiaries, may enter intopreviously consolidated its interest in the following acquisition, development and construction arrangements: (1) lend funds to construct a build-to-suit project subject to a single-tenant lease with an agreement to purchasejoint venture which owned the property, upon completion of construction and commencementthe acquisition of the single-tenant lease, (2) hirenoncontrolling ownership interest was recorded as an equity transaction with the difference between the purchase price and carrying balance of $25,058 recorded as a developer to construct a built-to-suit project on owned property leased to a single tenant, (3) fund the construction of a build-to-suit project on owned property pursuant to the terms of a single-tenant lease or (4) enter into a purchase and sale agreement with a developer to acquire a single-tenant build-to-suit property upon completion of construction and commencement of a single-tenant lease. reduction in additional paid-in-capital.
As of SeptemberJune 30, 2017,2023, the Company had nodetails of the development arrangements outstanding. outstanding are as follows (in $000's, except square feet):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Project (% owned) | # of Buildings | Market | Estimated Sq. Ft. | Estimated Project Cost(1) | GAAP Investment Balance as of 6/30/2023(2) | LXP Amount Funded as of 6/30/2023(3) | Actual/Estimated Base Building Completion Date | % Leased as of 6/30/2023 | Estimated Placed in Service Date |
Development Projects Leased: | | | | | | | | |
ETNA Cubes(95%) | 1 | Columbus, OH | 1,074,840 | | $ | 76,600 | | $ | 63,370 | | $ | 66,148 | | 3Q 2022 | 100 | % | 4Q 2023 |
Cotton 303 (93%) | 1 | Phoenix, AZ | 488,400 | | 55,300 | | 39,182 | | 32,652 | | 3Q 2023 | 100 | % | 1Q 2024 |
| 2 | | 1,563,240 | | $ | 131,900 | | $ | 102,552 | | $ | 98,800 | | | | |
Development Projects Available for Lease: | | | | | | | |
Ocala (80%) | 1 | Central Florida | 1,085,280 | | $ | 83,200 | | $ | 77,209 | | $ | 67,984 | | 1Q 2023 | — | % | — | |
Mt. Comfort (80%) | 1 | Indianapolis, IN | 1,053,360 | | 65,900 | | 63,790 | | 55,312 | | 1Q 2023 | — | % | — | |
Smith Farms (90%) | 2 | Greenville-Spartanburg, SC | 1,396,772 | | 101,600 | | 92,213 | | 79,975 | | 2Q 2023 | — | % | — | |
South Shore (100%) | 2 | Central Florida | 270,885 | | 42,500 | | 36,578 | | 30,313 | | 2Q 2023 - 3Q 2023 | — | % | — | |
| 6 | | 3,806,297 | | $ | 293,200 | | $ | 269,790 | | $ | 233,584 | | | | |
| | | | | | | | | |
| 8 | | 5,369,537 | | $ | 425,100 | | $ | 372,342 | | $ | 332,384 | | | | |
(1) Estimated project cost includes estimated tenant improvements and leasing costs and excludes potential developer partner promote, if any.
(2) Excludes leasing costs.
(3) Excludes noncontrolling interests' share.
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023 and 2022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
As of December 31, 2016,June 30, 2023, the Company's aggregate investment in development arrangements was $106,652,$372,342, which included $3,442capitalized interest of capitalized interest$5,194 for the six months ended June 30, 2023 and is presented as investments in real estate under construction in the accompanying unaudited condensed consolidated balance sheets.
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Septembersheet. For the six months ended June 30, 2017 and 2016
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
2022, capitalized interest for development arrangements was $2,800.
As of SeptemberJune 30, 2017,2023, the Company haddetails of the following forward purchase commitments:land held for industrial development are as follows (in $000's, except acres):
|
| | | | | | | | | | | | | |
Location | | Square Feet (000's) | | Property Type | | Maximum Acquisition Cost | | Estimated Acquisition Date | | Approximate Lease Term (Yrs) |
Warren, MI (1) | | 260 |
| | Industrial | | $ | 47,000 |
| | 4Q 17 | | 15 |
Romulus, MI | | 500 |
| | Industrial | | 39,330 |
| | 4Q 17 | | 15 |
Lafayette, IN | | 309 |
| | Industrial | | 17,450 |
| | 4Q 17 | | 7 |
| | 1,069 |
| | | | $ | 103,780 |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Project (% owned) | | Market | | Approx. Developable Acres | | GAAP Investment Balance as of 6/30/2023 | | LXP Amount Funded as of 6/30/2023 (1) |
| | | | | | | | |
Reems & Olive (95.5%) | | Phoenix, AZ | | 320 | | $ | 77,538 | | | $ | 74,177 | |
Mt. Comfort Phase II (80%) | | Indianapolis, IN | | 116 | | 5,321 | | | 4,266 | |
ATL Fairburn JV (100%) | | Atlanta, GA | | 14 | | 1,732 | | | 1,737 | |
| | | | 450 | | $ | 84,591 | | | $ | 80,180 | |
(1) A $4,600 letter of credit secures the Company's obligation to purchase the property.Excludes noncontrolling interests' share.
The Company can give no assurances that any of these forward purchase commitments will be consummated or, if consummated, will perform to the Company's expectations.
| |
(4) | Property Dispositions and Real Estate Impairment |
(4)Dispositions and Impairment
During the ninesix months ended SeptemberJune 30, 2017,2023 and 2022, the Company disposed of its interests in various properties for an aggregate gross saledisposition price of $190,368$27,910 and conveyed a vacant office property, along with its escrow deposits, in satisfaction of a $3,496 non-recourse mortgage loan. During the nine months ended September 30, 2016, the Company disposed of its interests in various properties, including land investments, for an aggregate gross sale price of $561,817$55,395, respectively, and conveyed a vacant office property, along with its escrow deposits, in satisfaction of a $14,118 non-recourse mortgage loan; however, the lender brought a claim under the related non-recourse carve out guaranty (see note 13).
During the nine months ended September 30, 2017 and 2016, the Company recognized aggregate gains on sales of properties of $55,078$7,879 and $58,413,$28,110, respectively. In addition, during the nine months ended September 30, 2017 and 2016, the Company recognized debt satisfaction gains (charges), net of $2,381 and $(381), respectively, relating to properties disposed of, including conveyed properties.
As of September 30, 2017 and December 31, 2016, theThe Company had one propertyfour and twothree properties respectively, classified as held for sale.
sale at June 30, 2023 and December 31, 2022, respectively. Assets and liabilities of the held for sale properties as of Septemberat June 30, 20172023 and December 31, 20162022 consisted of the following:
| | | September 30, 2017 | | December 31, 2016 | | June 30, 2023 | | December 31, 2022 |
Assets: | | | | Assets: | | | |
Real estate, at cost | $ | 8,607 |
| | $ | 25,957 |
| Real estate, at cost | $ | 59,918 | | | $ | 131,557 | |
Real estate, intangible assets | — |
| | 7,789 |
| Real estate, intangible assets | 1,777 | | | 9,942 | |
Accumulated depreciation and amortization | — |
| | (13,346 | ) | Accumulated depreciation and amortization | (14,119) | | | (76,205) | |
Rent receivable - current | 11 |
| | — |
| |
Rent receivable - deferred | — |
| | 1,715 |
| |
Other assets | 20 |
| | 1,693 |
| |
| Other | | Other | 2,068 | | | 1,140 | |
| $ | 8,638 |
| | $ | 23,808 |
| | $ | 49,644 | | | $ | 66,434 | |
| | | | | | | |
Liabilities: | | | | Liabilities: | |
Other | $ | 442 |
| | $ | 191 |
| |
Accounts payable and liabilities | | Accounts payable and liabilities | $ | 407 | | | $ | 637 | |
Deferred revenue | | Deferred revenue | 241 | | | 143 | |
Prepaid rent | | Prepaid rent | 1,055 | | | 370 | |
| $ | 442 |
| | $ | 191 |
| | $ | 1,703 | | | $ | 1,150 | |
The Company assesses on a regular basis whether there are any indicators that the carrying value of its real estate assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant financial instability, andchange in the estimated holding period of the asset, the potential sale or transfer of the property in the near future.future and changes in economic conditions. An asset is determined to be impaired if the asset's carrying value is in excess of its estimated fair value. value and the Company estimates that its cost will not be recovered.
During the ninesix months ended SeptemberJune 30, 2017 and 2016,2023, the Company recognized aggregate impairment charges of $38,283 and $75,904, respectively,$16,490 due to potential property sales. The Company recognized impairment charges of $1,829 on properties disposed of and properties held for use.
real estate during the six months ended June 30, 2022 due to vacancy at the property.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172023 and 20162022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
As of September 30, 2017, all of the Company's loans receivable were fully satisfied. As of December 31, 2016, the Company's loans receivable were comprised primarily of mortgage loans on real estate.
The following is a summary of the Company's loans receivable as of December 31, 2016:
|
| | | | | | | | | | |
| Loan carrying-value(1) | | | |
Loan | | | 12/31/2016 | | Interest Rate | | Maturity Date |
Kennewick, WA(2) | | | $ | 85,709 |
| | 9.00 | % | | 05/2022 |
Oklahoma City, OK(3) | | | 8,501 |
| | 11.50 | % | | 03/2016 |
| | | $ | 94,210 |
| | | | |
| |
(1) | Loan carrying value includes accrued interest and is net of origination costs, if any. |
| |
(2) | Loan provided for a current pay rate of 8.75%, an accrual rate of 9.0% and a balloon of $87,245 at maturity. During the nine months ended September 30, 2017, the loan was assigned to a third party for 94% of its principal balance. The Company recognized a $5,294 loan loss on the transaction. |
| |
(3) | In June 2015, the Company loaned a tenant-in-common $8,420. The loan was secured by the tenant-in-common's interest in an office property, in which the Company had a 40% tenant-in-common interest. The loan was satisfied in full in February 2017. The Company incurred professional fees of $376 to collect this loan. Such fees are included in general and administrative expenses on the Company's unaudited condensed consolidated statements of operations for the nine months ended September 30, 2017.
|
(6) (5)Fair Value Measurements
The following tables present the Company's assets and liabilities measured at fair value on a recurring and non-recurring basis as of SeptemberJune 30, 20172023 and December 31, 2016,2022, aggregated by the level in the fair value hierarchy within which those measurements fall:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance | | Fair Value Measurements Using |
Description | | June 30, 2023 | | (Level 1) | | (Level 2) | | (Level 3) |
Interest rate swap assets | | $ | 15,268 | | | $ | — | | | $ | 15,268 | | | $ | — | |
Impaired real estate assets(1) | | $ | 34,315 | | | $ | — | | | $ | 25,145 | | | $ | 9,170 | |
| | | | | | | | |
| | | | | | | | |
| | Balance | | Fair Value Measurements Using |
Description | | December 31, 2022 | | (Level 1) | | (Level 2) | | (Level 3) |
Interest rate swap assets | | $ | 16,318 | | | $ | — | | | $ | 16,318 | | | $ | — | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Balance | | Fair Value Measurements Using |
Description | September 30, 2017 | | (Level 1) | | (Level 2) | | (Level 3) |
Interest rate swap assets | $ | 510 |
| | $ | — |
| | $ | 510 |
| | $ | — |
|
Impaired real estate assets* | $ | 20,264 |
| | $ | — |
| | $ | — |
| | $ | 20,264 |
|
|
| | | | | | | | | | | | | | | |
| Balance | | Fair Value Measurements Using |
Description | December 31, 2016 | | (Level 1) | | (Level 2) | | (Level 3) |
Interest rate swap assets | $ | 44 |
| | $ | — |
| | $ | 44 |
| | $ | — |
|
Impaired real estate assets* | $ | 15,801 |
| | $ | — |
| | $ | — |
| | $ | 15,801 |
|
Interest rate swap liabilities | $ | (1,077 | ) | | $ | — |
| | $ | (1,077 | ) | | $ | — |
|
*(1) Represents a non-recurring fair value measurement, including assets held for sale. Fairmeasurement. The fair value is calculated as of the dateimpairment date. The fair value of impairment.
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017$9,170 based on a discounted cash flow analysis using a discount rate of 10.0% and 2016
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
The table below sets fortha residual capitalization rate of 8.0%. As significant inputs to the carrying amounts and estimated fair valuesmodels are unobservable, the Company determined that the value determined for these properties falls within Level 3 of the Company's financial instruments as of September 30, 2017 and December 31, 2016.
|
| | | | | | | | | | | | | | | |
| As of September 30, 2017 | | As of December 31, 2016 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets | | | | | | | |
Loans Receivable | $ | — |
| | $ | — |
| | $ | 94,210 |
| | $ | 94,911 |
|
| | | | | | | |
Liabilities | |
| | |
| | |
| | |
|
Debt | $ | 2,088,874 |
| | $ | 2,058,863 |
| | $ | 1,860,598 |
| | $ | 1,814,824 |
|
fair value reporting hierarchy.The majority of the inputs used to value the Company's interest rate swaps fall within Level 2 of the fair value hierarchy, such as observable market interest rate curves; however, the credit valuation associated with the interest rate swaps utilizes Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of SeptemberJune 30, 20172023 and December 31, 2016,2022, the Company determined that the credit valuation adjustment relative to the overall fair value of the interest rate swaps was not significant. As a result, theall interest rate swaps have been classified in Level 2 of the fair value hierarchy.
The Company estimatestable below sets forth the carrying amounts and estimated fair values of the Company's financial instruments, as of June 30, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2023 | | As of December 31, 2022 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets | | | | | | | |
| | | | | | | |
Investment in a sales-type lease, net | $ | 62,331 | | | $ | 63,840 | | | $ | 61,233 | | | $ | 60,984 | |
| | | | | | | |
Liabilities | | | | | | | |
Debt | $ | 1,483,283 | | | $ | 1,289,776 | | | $ | 1,488,051 | | | $ | 1,293,239 | |
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 broker opinions of value, recent sale offers or discounted cash flow models, whichthe Company's investment in a sales-type lease, net is 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.
The Company estimated the fair values of its loans receivable utilizing Level 3 inputs by using a discounted cash flow analysis consisting of scheduled cash flows and discount rate estimates to approximate those that a willing buyer and seller might use and/or the estimated valuean estimate of the underlying collateral.unguaranteed residual value.
The fair value of the Company's debt is primarily estimated utilizing Level 3 inputs by using a discounted cash flow analysis, based upon estimates of market interest rates, except for the Company's senior notes payable.rates. The Company determines the fair value of its senior notesSenior Notes payable using market prices. The inputs used in determining the fair value of these notes are categorized as Level 1 due to the fact that the Company uses quoted market rates to value these instruments. However, the inputs used in determining the fair value could be categorized as Level 2 if trading volumes are low.
Fair values cannot be determined with precision, may not be substantiated by comparison to quoted prices in active markets and may not be realized upon sale. Additionally, there are inherent uncertainties in any fair value
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023 and 2022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
measurement technique, and changes in the underlying assumptions used, including discount rates, liquidity risks and estimates of future cash flows, could significantly affect the fair value measurement amounts.
Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable. The Company estimates that the fair value of cash equivalents, restricted cash, accounts receivable and accounts payable approximates carrying value due to the relatively short maturity of the instruments.
(6)Investments in Non-Consolidated Entities
Below is a schedule of the Company's investments in non-consolidated entities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Percentage Ownership at | | Investment Balance as of | | Equity in earnings (losses) of non-consolidated entities |
Investment | June 30, 2023 | | June 30, 2023 | | December 31, 2022 | | June 30, 2023 | June 30, 2022 |
NNN MFG Cold JV L.P. ("MFG Cold JV")(1) | 20% | | $ | 22,617 | | | $ | 26,592 | | | $ | (1,597) | | $ | (600) | |
NNN Office JV L.P. ("NNN JV")(2) | 20% | | 12,637 | | | 12,900 | | | (263) | | 17,521 | |
Etna Park 70 LLC(3) | 90% | | 13,333 | | | 12,975 | | | (86) | | (49) | |
Etna Park East LLC(4) | 90% | | 2,096 | | | 2,126 | | | (72) | | (48) | |
BSH Lessee L.P.(5) | 25% | | — | | | 3,613 | | | 4,608 | | 96 | |
| | | $ | 50,683 | | | $ | 58,206 | | | $ | 2,590 | | $ | 16,920 | |
(1) MFG Cold JV is a joint venture formed in 2021 that owns special purpose industrial properties formerly owned by the Company.
(2) NNN JV is a joint venture formed in 2018 that owns office properties formerly owned by the Company. During 2022, NNN JV sold three assets and the Company recognized its share of aggregate gains on sale of $22,896 within equity in earnings of non-consolidated entities within its unaudited condensed consolidated statements of operations.
(3) Joint venture formed in 2017 with a developer entity to acquire a parcel of land. The joint venture commenced development of a 250,000 square foot speculative development project for an estimated cost of $29,000. Subsequent to June 30, 2023, LXP entered into an agreement to fund all of the construction costs, inclusive of its partner's share, to complete the Etna Park 70 industrial facility.
(4) Joint venture formed in 2019 with a developer entity to acquire a parcel of land.
(5) A joint venture investment which sold its sole single-tenant, net-leased asset in January 2023 and the Company recognized its share of the gain on sale of $4,791 within equity in earnings of non-consolidated entities within its unaudited condensed consolidated statements of operations.
The Company earns advisory fees from certain of these non-consolidated entities for services related to acquisitions, asset management and debt placement. Advisory fees earned from these non-consolidated investments for the six months ended June 30, 2023 and 2022 were $2,208 and $2,875, respectively.
(7)Debt
The Company had the following mortgages and notes payable outstanding as of June 30, 2023 and December 31, 2022:
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Mortgages and notes payable | $ | 67,260 | | | $ | 73,154 | |
Unamortized debt issuance costs | (907) | | | (1,051) | |
Mortgage notes payable, net | $ | 66,353 | | | $ | 72,103 | |
Interest rates, including imputed rates on mortgages and notes payable, ranged from 3.5% to 4.3%, at June 30, 2023 and December 31, 2022, respectively, and all mortgages and notes payable mature between 2023 and 2031 as of June 30, 2023. The weighted-average interest rate at June 30, 2023 and December 31, 2022 was approximately 4.0%, respectively.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172023 and 20162022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
| |
(7) | Investment in and Advances to Non-Consolidated Entities |
As of September 30, 2017, the Company had ownership interests ranging from 15% to 25% in certain non-consolidated entities, which primarily own single-tenant net-leased assets. The acquisitions of these assets by the non-consolidated entities were partially funded through non-recourse mortgage debt with an aggregate balance of $46,661 at September 30, 2017 (the Company's proportionate share was $8,395).
In February 2017, the Company sold its 40% tenant-in-common interest in its Oklahoma City, Oklahoma office property for $6,198. In January 2016, the Company received $6,681 in connection with the sale of a non-consolidated office property in Russellville, Arkansas. The Company recognized gains of $1,452 and $5,378, respectively, in connection with these sales, which are included in equity in earnings of non-consolidated entities.
During the nine months ended September 30, 2017, the Company recognized an impairment charge of $3,512 on its investment in a retail property in Palm Beach Gardens, Florida due to the bankruptcy of its tenant. This impairment charge reduced the Company's investment balance to zero.
In November 2014, the Company formed a joint venture to construct a private school in Houston, Texas. As of September 30, 2017, the Company had a 25% equity interest in the joint venture. The joint venture completed the project during 2016 for a total construction cost of $79,964. The Company was contractually obligated to provide construction financing to the joint venture up to $56,686. As of September 30, 2017, the Company's loan balance, net of origination costs, of $48,771 was included in investment in and advances to non-consolidated entities.
The Company had the following mortgages and notes payable outstanding as of September 30, 2017 and December 31, 2016:
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Mortgages and notes payable | $ | 676,935 |
| | $ | 745,173 |
|
Unamortized debt issuance costs | (6,590 | ) | | (7,126 | ) |
| $ | 670,345 |
| | $ | 738,047 |
|
Interest rates, including imputed rates on mortgages and notes payable, ranged from 2.2% to 7.8% at September 30, 2017 and December 31, 2016 and all mortgages and notes payables mature between 2017 and 2036 as of September 30, 2017. The weighted-average interest rate was 4.6% at September 30, 2017 and December 31, 2016.
The Company had the following senior notes outstanding as of SeptemberJune 30, 20172023 and December 31, 2016:2022:
|
| | | | | | | | | | | | | | | | |
Issue Date | | September 30, 2017 | | December 31, 2016 | | Interest Rate | | Maturity Date | | Issue Price |
May 2014 | | $ | 250,000 |
| | $ | 250,000 |
| | 4.40 | % | | June 2024 | | 99.883 | % |
June 2013 | | 250,000 |
| | 250,000 |
| | 4.25 | % | | June 2023 | | 99.026 | % |
| | 500,000 |
| | 500,000 |
| | | | | | |
Unamortized discount | | (1,576 | ) | | (1,780 | ) | | | | | | |
Unamortized debt issuance cost | | (3,435 | ) | | (3,858 | ) | | | | | | |
| | $ | 494,989 |
| | $ | 494,362 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issue Date | | June 30, 2023 | | December 31, 2022 | | Interest Rate | | Maturity Date | | Issue Price |
August 2021 | | $ | 400,000 | | | $ | 400,000 | | | 2.375 | % | | October 2031 | | 99.758 | % |
August 2020 | | 400,000 | | | 400,000 | | | 2.70 | % | | September 2030 | | 99.233 | % |
May 2014 | | 198,932 | | | 198,932 | | | 4.40 | % | | June 2024 | | 99.883 | % |
| | 998,932 | | | 998,932 | | | | | | | |
Unamortized debt discount | | (3,016) | | | (3,228) | | | | | | | |
Unamortized debt issuance costs | | (5,939) | | | (6,409) | | | | | | | |
Senior notes payable, net | | $ | 989,977 | | | $ | 989,295 | | | | | | | |
Each series of the senior notes is unsecured and requires payment of interest semi-annually in arrears. The Company may redeem the notes at its option at any time prior to maturity in whole or in part by paying the principal amount of the notes being redeemed plus aany potential make-whole premium.
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017 and 2016
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
In September 2017, the Company's $905,000The Company has an unsecured credit agreement with KeyBank National Association, as agent, was amended to, among other things, increase the overall facility to $1,105,000. With lender approval, the Company can increase the sizeagent. The maturity dates and interest rates as of the amended facility to an aggregate of $2,010,000. A summary of the significant termsJune 30, 2023, are as follows:
|
| | | | | | | | | | |
|
Maturity Date | | Current Interest Rate |
$505,000600,000 Revolving Credit Facility(1) | August 2019July 2026 | | LIBORSOFR + 1.00%0.85% |
$300,000 Term Loan(2)(4) | August 2020January 2025 | | LIBORTerm SOFR + 1.10% |
$300,000 Term Loan(3)(4)
| January 2021 | | LIBOR + 1.10%1.00% |
| |
(1) | Increased from $400,000. Maturity date can be extended to August 2020 at the Company's option. The interest rate ranges from LIBOR plus 0.85% to 1.55%. At September 30, 2017, the revolving credit facility had $200,000 borrowings outstanding, $4,600 of letters of credit and availability of $300,400, subject to covenant compliance. |
| |
(2) | Increased from $250,000. The interest rate ranges from LIBOR plus 0.90% to 1.75%. The Company previously entered into aggregate interest-rate swap agreements to fix the LIBOR component at a weighted-average rate of 1.09% through February 2018 on $250,000 of outstanding LIBOR-based borrowings. |
| |
(3) | Increased from $255,000. The interest rate ranges from LIBOR plus 0.90% to 1.75%. The Company previously entered into aggregate interest-rate swap agreements to fix the LIBOR component at a weighted-average rate of 1.42% through January 2019 on $255,000 of outstanding LIBOR-based borrowings. |
| |
(4) | The aggregate unamortized debt issuance costs for the term loans were $3,631 and $3,907 as of September 30, 2017 and December 31, 2016,(1) Maturity date of the revolving credit facility can be extended to July 2027, subject to certain conditions. The interest rate ranges from 0.725% to 1.400%, and the revolving credit facility allows for further reductions upon the achievement of to-be-determined sustainability metrics. At June 30, 2023, the Company had no borrowings outstanding and availability of $600,000, subject to covenant compliance. (2) The Term SOFR portion of the interest rate was swapped to obtain a current fixed rate of 2.722% per annum. The aggregate unamortized debt issuance costs for the term loan was $791 and $1,041 as of June 30, 2023 and December 31, 2022, respectively. |
The Company was in compliancecompliant with all applicable financial covenants contained in its corporate levelcorporate-level debt agreements at SeptemberJune 30, 2017.2023.
During 2007, the Company issued $200,000 original principal amount of Trust Preferred Securities. The Trust Preferred Securities, which are classified as debt, are due in 2037, are open for redemption at the Company's option bore interest at a fixed rate of 6.804% through April 2017 and bear interest at a variable rate of three monththree-month LIBOR plus 170 basis points thereafter through maturity. The interest rate at SeptemberJune 30, 20172023 was 3.011%6.999%. As of SeptemberJune 30, 20172023 and December 31, 2016,2022, there was $129,120 original principal amount of Trust Preferred Securities outstanding and $1,949$1,376 and $2,024,$1,426, respectively, of unamortized debt issuance costs. The variable rate transitioned from LIBOR to SOFR after June 30, 2023.
DuringThe Company capitalized $5,436 and $2,839 of interest expense for the ninesix months ended SeptemberJune 30, 20172023 and 2016, the Company incurred debt satisfaction charges, net2022, respectively.
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023 and $437, respectively, on the retirement of various debt instruments, other than those disclosed elsewhere2022
(Unaudited and dollars in the Company's condensed consolidated financial statements.thousands, except share/unit and per share/unit data)
(8) Derivatives and Hedging Activities
| |
(9) | Derivatives and Hedging Activities |
Risk Management Objective of Using Derivatives. The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the type, amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's investments and borrowings.
Cash Flow Hedges of Interest Rate Risk. The Company's objectives in using interest rate derivatives are to add stability to interest expense, to manage its exposure to interest rate movements and therefore manage its cash outflows as it relates to the underlying debt instruments. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy relating to certain of its variable-ratevariable rate debt instruments. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017 and 2016
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company did not incur any ineffectiveness during the ninesix months ended SeptemberJune 30, 20172023 and 2016.2022.
TheDuring July 2022, the Company has designated the interest-ratetransitioned its four interest rate swap agreements with its counterparties to a benchmark rate of Term SOFR. The swaps were designated as cash flow hedges of the risk ofin variability attributable to changes in the LIBORTerm SOFR swap raterates on $505,000 of LIBOR-indexed variable-rateits $300,000 SOFR-indexed variable rate unsecured term loans.loan. Accordingly, changes in the fair value of the swaps are recorded in other comprehensive income (loss) and reclassified to earnings as interest becomes receivable or payable.
Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on The swaps expire coterminous with the maturity of the term loans.loan in January 2025. During the next 12 months, the Company estimates that an additional $297$10,664 will be reclassified as a decrease toin interest expense.expense if the swaps remain outstanding.
As of SeptemberJune 30, 2017,2023, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
| | Interest Rate Derivative | Number of Instruments | Notional | Interest Rate Derivative | Number of Instruments | Notional |
Interest Rate Swaps | 10 | $505,000 | Interest Rate Swaps | 4 | $300,000 |
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the unaudited condensed consolidated balance sheets assheets:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2023 | | As of December 31, 2022 |
Derivatives designated as hedging instruments: | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Interest Rate Swaps | Other Assets | | $ | 15,268 | | | Other Assets | | $ | 16,318 | |
| | | | | | | |
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 20172023 and December 31, 2016.2022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
|
| | | | | | | | | | | |
| As of September 30, 2017 | | As of December 31, 2016 |
| Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Derivatives designated as hedging instruments | | | | | | | |
Interest Rate Swap Asset | Other Assets | | $ | 510 |
| | Other Assets | | $ | 44 |
|
Interest Rate Swap Liability | Accounts Payable and Other Liabilities | | $ | — |
| | Accounts Payable and Other Liabilities | | $ | (1,077 | ) |
The tablestable below presentpresents the effect of the Company's derivative financial instruments on the unaudited condensed consolidated statements of operations for the ninesix months ended SeptemberJune 30, 20172023 and 2016.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow | | Amount of Gain Recognized in OCI on Derivatives June 30, | | Amount of (Income) Loss Reclassified from Accumulated OCI into Income(1) June 30, |
Hedging Relationships | | 2023 | | 2022 | | 2023 | | 2022 |
Interest Rate Swaps | | $ | 3,668 | | | $ | 13,895 | | | $ | (4,719) | | | $ | 1,921 | |
The Company's share of non-consolidated entity's interest rate cap | | 220 | | | — | | | (658) | | | — | |
Total | | $ | 3,888 | | | $ | 13,895 | | | $ | (5,377) | | | $ | 1,921 | |
|
| | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow | | | Amount of Income (Loss) Recognized in OCI on Derivatives (Effective Portion) September 30, | | Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion) | | Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion) September 30, |
Hedging Relationships | | | 2017 | | 2016 | | | 2017 | | 2016 |
Interest Rate Swaps | | | $ | 581 |
| | $ | (6,035 | ) | | Interest expense | | $ | 962 |
| | $ | 3,091 |
|
(1) Amounts reclassified from accumulated other comprehensive income (loss) to interest expense within the unaudited condensed consolidated statements of operations.Total interest expense presented in the unaudited condensed consolidated statements of operations, in which the effects of cash flow hedges are recorded was $21,537 and $21,503 for the six months ended June 30, 2023 and 2022, respectively.
The Company's agreements with the swap derivative counterparties contain provisions whereby if the Company defaults on the underlying indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default of the swap derivative obligation. As of SeptemberJune 30, 2017,2023, the Company had not posted any collateral related to the agreements.
(9) Lease Accounting
Lessor
Operating Leases. The Company’s lease portfolio as a lessor primarily includes general purpose, single-tenant net-leased real estate assets. Most of the Company’s leases require tenants to pay fixed annual rental payments that escalate on an annual basis and variable payments for other operating expenses, such as real estate taxes, insurance, common area maintenance ("CAM"), and utilities, that are based on the actual expenses incurred.
Certain leases allow for the tenant to renew the lease term upon expiration or earlier. Periods covered by a renewal option are included within the lease term only when renewals are deemed to be reasonably certain. Certain leases allow for the tenant to terminate the lease before the expiration of the lease term and certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price upon expiration of the lease term or before.
Accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease and determining the lease term when the contract has renewal, purchase or early termination provisions.
The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectible, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease was accounted for on a cash basis.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172023 and 20162022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
There were no write offs for the six months ended June 30, 2023. During the six months ended June 30, 2022, the Company wrote off an aggregate of $198, accounts receivable, net, relating to certain tenants suffering from the current economic conditions.
| |
(10) | Concentration of Risk |
The Company elected that the lease and non-lease components in its leases are a single lease component, which is, therefore, being recognized as rental revenue in its unaudited condensed consolidated statements of operations. The primary non-lease service included within rental revenue is CAM services provided as part of the Company’s real estate leases. ASC 842 requires that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. For the six months ended June 30, 2023, the Company incurred no costs that were not incremental to the execution of leases. For the six months ended June 30, 2022, the Company incurred $34 of costs that were not incremental to the execution of leases.
The Company manages the risk associated with the residual value of its leased properties by including contract clauses that make tenants responsible for surrendering the space in good condition upon lease termination, holding a diversified portfolio, and other activities. The Company does not have residual value guarantees on specific properties.
Sales-Type Leases. As of June 30, 2023, the Company had one lease that qualified as a sales-type lease.
The Company has one ground lease for a 100-acre industrial development land parcel located in the Phoenix, Arizona market that is classified as a sales-type lease. At the commencement date of the lease, the Company evaluated the lease classification and classified the lease as a sales-type lease. The lease contains a purchase option in the amount of $20.00 per land square foot starting on the second anniversary date of the lease and ending on the third anniversary date. The Company determined that the purchase option is not reasonably certain of being exercised. The lease met the sales-type lease criteria because the present value of the lease payments was equal to substantially all of the fair value of the underlying asset on the lease commencement date. For the six months ended June 30, 2023, the interest income earned from sales-type leases of $3,681 is included in rental revenue in the unaudited condensed consolidated statements of operations. The Company earned no interest income from sales-type leases in 2022.
In May 2022, one of the Company's tenants exercised the purchase option for $28,000 in its operating lease with a sale date of August 2022. The purchase option was not reasonably certain to be exercised at lease inception, resulting in a modification of the operating lease. As a result of this modification to the lease, the Company re-evaluated the lease classification and classified the lease as a sales-type lease. The Company recorded $28,000 in Investment in a sales-type lease and derecognized $17,292 from Real estate, net, $619 from Deferred expenses and $775 from Rent receivable-deferred on its unaudited condensed consolidated balance sheet. The Company recognized $9,314 in selling profit from sales-type leases in its unaudited condensed consolidated statements of operations for the six months ended June 30, 2022. The remaining rent payments under the lease in 2022 in addition to the purchase option price was $371.
Rental Revenue Classification. The following table presents the Company’s classification of rental revenue for its operating leases and sales-type lease for the three and six months ended June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Classification | | 2023 | | 2022 | | 2023 | | 2022 |
Fixed | | $ | 69,049 | | | $ | 67,015 | | | $ | 137,136 | | | $ | 133,997 | |
Sales-type lease income | | 1,848 | | | — | | | 3,681 | | | — | |
Variable(1) | | 14,168 | | | 10,924 | | | 27,665 | | | 22,478 | |
Total | | $ | 85,065 | | | $ | 77,939 | | | $ | 168,482 | | | $ | 156,475 | |
(1) Primarily comprised of tenant reimbursements.
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023 and 2022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
Future fixed rental receipts for operating and sales-type leases, assuming no new or re-negotiated leases as of June 30, 2023 were as follows:
| | | | | | | | |
| Operating | Sales-Type |
2023 - remainder | $ | 133,883 | | $ | 2,614 | |
2024 | 251,719 | | 5,263 | |
2025 | 234,071 | | 5,473 | |
2026 | 214,826 | | 5,692 | |
2027 | 178,132 | | 5,920 | |
2028 | 147,865 | | 6,156 | |
Thereafter | 500,591 | | 733,006 | |
Total | $ | 1,661,087 | | $ | 764,124 | |
Difference between undiscounted cash flow and present value | | (701,731) | |
Investment in a sales-type lease | | $ | 62,393 | |
The above minimum lease payments do not include reimbursements to be received from tenants for certain operating expenses and real estate taxes and do not include early termination payments provided for in certain leases, unless such payments are reasonably certain to be received.
Certain leases allow for the tenant to terminate the lease if the property is deemed obsolete, as defined, and upon payment of a termination fee to the landlord, as stipulated in the lease. In addition, certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price.
Lessee
The Company, as lessee, has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of June 30, 2023. The leases have remaining lease terms of up to 37 years. Renewal periods are included in the lease term only when renewal is deemed to be reasonably certain. The lease term also includes periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and variable rental payments that tie to an index or a rate, such as CPI. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement as incurred.
The accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or termination provisions and determining the discount rate.
The Company determines whether an arrangement is or includes a lease at contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Company has the right to obtain substantially all of the economic benefits from and can direct the use of, the identified asset for a period of time, the Company accounts for the contract as a lease.
The Company uses the information available at the lease commencement date to determine the discount rate for any new leases. The Company used a portfolio approach to determine its incremental borrowing rate. Lease contracts were grouped based on similar lease terms and economic environments in a manner in which the Company reasonably expects that the outcome from applying a portfolio approach does not differ materially from an individual lease approach. The Company estimated a collateralized discount rate for each portfolio of leases.
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023 and 2022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
Supplemental information related to operating leases is as follows:
| | | | | | | | | | | | | | |
| | Six Months Ended |
| | June 30, 2023 | | June 30, 2022 |
Weighted-average remaining lease term | | | |
Operating leases (years) | 9.2 | | 9.5 |
Weighted-average discount rate | | | |
Operating leases | 4.1 | % | | 4.0 | % |
The components of lease expense for the six months ended June 30, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | | | |
Income Statement Classification | Fixed | | Variable | | Total |
2023: | | | | | |
Property operating | $ | 1,771 | | | $ | 7 | | | $ | 1,778 | |
General and administrative | 767 | | | 151 | | | 918 | |
Total | $ | 2,538 | | | $ | 158 | | | $ | 2,696 | |
| | | | | |
2022: | | | | | |
Property operating | $ | 1,771 | | | $ | — | | | $ | 1,771 | |
General and administrative | 767 | | | 42 | | | 809 | |
Total | $ | 2,538 | | | $ | 42 | | | $ | 2,580 | |
The Company recognized sublease income of $1,660 for the six months ended June 30, 2023 and 2022, respectively.
The following table shows the Company's maturity analysis of its operating lease liabilities as of June 30, 2023:
| | | | | | | | |
| | Operating Leases |
2023 - remainder | | $ | 2,501 | |
2024 | | 5,199 | |
2025 | | 5,204 | |
2026 | | 4,174 | |
2027 | | 3,673 | |
2028 | | 1,061 | |
Thereafter | | 6,440 | |
Total lease payments | | $ | 28,252 | |
Less: Imputed interest | | (5,447) | |
Present value of lease liabilities | | $ | 22,805 | |
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023 and 2022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
(10)Allowance for Credit Loss
As of June 30, 2023, the Company had a $62 credit loss allowance resulting from an investment in a sales-type lease. There were no allowances for credit losses in 2022. The activity for the credit loss allowance related to the sales-type lease is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended June 30, 2023 |
| Balance at Beginning of Period | | Write-Offs | | General Allowance | | Balance at End of Period |
Allowance for credit loss | $ | 93 | | | $ | — | | | $ | (31) | | | $ | 62 | |
As of June 30, 2023, the lessee in the sales-type lease remains current on their obligations to the Company and, therefore, the investment is not on non-accrual status.
The following table details the investment in a sales-type lease as of June 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2023 |
| Amortized cost | | Allowance | | Net Investment | | Allowance as a % of Amortized Cost |
Investment in a sales-type lease | $ | 62,393 | | | $ | (62) | | | $ | 62,331 | | | 0.10 | % |
(11)Concentration of Risk
The Company seeks to reduce its operating and leasing risks through the geographic diversification of its properties in target markets, tenant industry diversification, avoidance of dependency on a single asset and the creditworthiness of its tenants. For the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, no single tenant represented greater than 10% of rental revenues.
Cash and cash equivalent balances at certain institutions may exceed insurable amounts. The Company believes it mitigates this risk by investing in or through major financial institutions.
(12)Equity
Shareholders' Equity. Equity:
At-The-Market Offering Program. The Company maintains an At-The-Market offering program ("ATM program") under which the Company can issue common shares, including through forward sales contracts.
During the ninesix months ended SeptemberJune 30, 2017,2023 and 2022, the Company did not sell shares under the ATM program.
During the six months ended June 30, 2022, the Company issued 1,593,6033,649,023 common shares previously sold on a forward basis in the first quarter of 2021 on the maturity date of the contracts and received $38,492 of net proceeds. No shares were sold on a forward basis during the six months ended June 30, 2023.
During 2021, the Company amended the terms of its ATM program, under its At-The-Market offering program and generatedwhich the Company may, from time to time, sell up to $350,000 of common shares over the term of the program. As of June 30, 2023, common shares with an aggregate gross proceedsvalue of $17,362. $294,985 remain available for issuance under the ATM program.
Stock Based Compensation. During the ninesix months ended SeptemberJune 30, 2016,2023 and 2022, the Company issued 577,823 common shares under its direct share purchase plan, which includes its dividend reinvestment plan, raising net proceeds of $4,115.
During the nine months ended September 30, 201746,440 and 2016, the Company granted common shares to certain employees as follows:
|
| | | |
| Nine Months ended September 30, |
| 2017 | | 2016 |
Performance Shares(1) | | | |
Shares granted: | | | |
Index - 1Q | 106,706 | | 404,466 |
Peer - 1Q | 106,705 | | 404,463 |
Index - 2Q | 163,466 | | — |
Peer - 2Q | 163,463 | | — |
| | | |
Grant date fair value per share:(2) | | | |
Index - 1Q | $6.82 | | $4.53 |
Peer - 1Q | $6.34 | | $4.58 |
Index - 2Q | $4.05 | | — |
Peer - 2Q | $4.27 | | — |
| | | |
Non-Vested Common Shares:(3) | | | |
Shares issued | 237,560 | | 225,090 |
Grant date fair value | $2,551 | | $1,724 |
| |
(1) | The shares vest based on the Company's total shareholder return growth after a three-year measurement period relative to an index and a group of Company peers. Dividends will not be paid on these grants until earned. Once the performance criteria are met and the actual number of shares earned is determined, such shares vest immediately. The 2Q shares were subject to shareholder approval, which was obtained in May 2017. |
| |
(2) | The fair value of grants was determined at the grant date using a Monte Carlo simulation model. |
| |
(3) | The shares vest ratably over a three-year service period. |
In addition, during the nine months ended September 30, 2017 and 2016, the Company issued 44,238 and 43,503,25,297, respectively, of fully vested common shares to non-management members of the Company's Board of Trustees with a fair value of $463$480 and $350,$357, respectively.
In July 2015, the Company's Board of Trustees authorized the repurchase of up to 10,000,000 common shares. During the nine months ended September 30, 2016, the Company repurchased 1,184,113 common shares, at an average price of $7.56 per common share. No repurchases occurred during the nine months ended September 30, 2017.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172023 and 20162022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
Share Repurchase Program. In August 2022, the Company's Board of Trustees authorized the repurchase of up to an additional 10,000,000 common shares under the Company's share repurchase program, which does not have an expiration date. There were no common shares repurchased during the six months ended June 30, 2023. During the six months ended June 30, 2022, 6,098,026 common shares were repurchased and retired for an average price of $11.45 per share. As of June 30, 2023, 6,874,241 common shares remain available for repurchase under this authorization. The Company records a liability for repurchases that have not yet been settled as of the period end. There were no unsettled repurchases as of June 30, 2023.
Series C Preferred Stock. The Company had 1,935,400 shares of Series C Cumulative Convertible Preferred Stock (“Series C Preferred”) outstanding at June 30, 2023. The shares have a dividend of $3.25 per share per annum, have a liquidation preference of $96,770, and the Company, if certain common share prices are achieved, can force conversion into common shares of the Company. As of June 30, 2023, each share was convertible into 2.4339 common shares. This conversion ratio may increase over time if the Company's common share dividend exceeds certain quarterly thresholds.
If certain fundamental changes occur, holders may require the Company, in certain circumstances, to repurchase all or part of their shares of Series C Preferred. In addition, upon the occurrence of certain fundamental changes, the Company will, under certain circumstances, increase the conversion rate by a number of additional common shares or, in lieu thereof, may in certain circumstances elect to adjust the conversion rate upon the shares of Series C Preferred becoming convertible into shares of the public acquiring or surviving company.
The Company may, at the Company's option, cause shares of Series C Preferred to be automatically converted into that number of common shares that are issuable at the then prevailing conversion rate. The Company may exercise its conversion right only if, at certain times, the closing price of the Company's common shares equals or exceeds 125% of the then prevailing conversion price of the Series C Preferred.
Holders of shares of Series C Preferred generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters and under certain other circumstances. Upon conversion, the Company may choose to deliver the conversion value to investors in cash, common shares, or a combination of cash and common shares.
A summary of the changes in accumulated other comprehensive income (loss) related to the Company's cash flow hedges is as follows:
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2023 | | 2022 |
Balance at beginning of period | | $ | 17,689 | | | $ | (6,258) | |
Other comprehensive income before reclassifications | | 3,888 | | | 13,895 | |
Amounts of income (loss) reclassified from accumulated other comprehensive income (loss) to interest expense | | (5,377) | | | 1,921 | |
Balance at end of period | | $ | 16,200 | | | $ | 9,558 | |
|
| | | | | | | | |
| | Nine Months ended September 30, |
| | 2017 | | 2016 |
Balance at beginning of period | | $ | (1,033 | ) | | $ | (1,939 | ) |
Other comprehensive income (loss) before reclassifications | | 581 |
| | (6,035 | ) |
Amounts of loss reclassified from accumulated other comprehensive income to interest expense | | 962 |
| | 3,091 |
|
Balance at end of period | | $ | 510 |
| | $ | (4,883 | ) |
Noncontrolling Interests. In conjunction with several of the Company's acquisitions in prior years, sellers were issued limited partner interests in LCIF (“OP unitsunits”) as a form of consideration. All OP units, other than OP units owned by the Company, are redeemable for common shares at certain times, at the option of the holders, and are generally not otherwise mandatorily redeemable by the Company. The OP units are classified as a component of permanent equity as the Company has determined that the OP units are not redeemable securities as defined by GAAP. Each OP unit is currently redeemable at the holder's option for approximately 1.13 common shares, subject to future adjustments.
During the six months ended June 30, 2023 and 2022, 4,886 and 20,232 common shares, respectively, were issued by the Company, in connection with OP unit redemptions, for an aggregate value of $25 and $109, respectively.
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023 and 2022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
As of SeptemberJune 30, 2017,2023, there were approximately 3,225,000735,000 OP units outstanding other than OP units owned by the Company. All OP units receive distributions in accordance with the LCIF partnership agreement. To the extent that the Company's dividend per common share is less than the stated distribution per OP unit per the LCIF partnership agreement, the distributions per OP unit are reduced by the percentage reduction in the Company's dividend per common share. No OP units have a liquidation preference.
| |
(12) | Related Party Transactions |
In connection with efforts to procure non-recourse mezzanine financing from an affiliateThe following discloses the effects of changes in the Company's Chairman, pursuant to the terms of the EB-5 visa program administered by the United States Citizenship and Immigration Services (“USCIS”), for a joint ventureownership interests in Houston, Texas, in which the Company has an investment, the Company executed a guaranty in favor of an affiliate of its Chairman. The guaranty provided that the Company would reimburse investors providing the funds for such financing if the following occured: (1) the joint venture received such funds, (2) the USCIS denied the financing solely because the project was not permitted under the EB-5 visa program, and (3) the joint venture failed to return such funds. As of September 30, 2017, USCIS approved the project, and the guaranty terminated by its terms.noncontrolling interests:
In addition, in connection with efforts, on a non-binding basis, to procure non-recourse mezzanine financing from an affiliate of the Company's Chairman, pursuant to the terms of the EB-5 visa program administered by the USCIS, for an investment in Charlotte, North Carolina owned by LCIF, LCIF has agreed to reimburse the Chairman's affiliate up to approximately $107 for its expenses, but no expenses were reimbursed as of September 30, 2017. | | | | | | | | | | | |
| Net Income Attributable to Shareholders and Transfers from Noncontrolling Interests |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Net income attributable to LXP Industrial Trust shareholders | $ | 3,118 | | | $ | 51,920 | |
Transfers from noncontrolling interests: | | | |
| | | |
Increase in additional paid-in-capital for redemption of noncontrolling OP units | 25 | | | 109 | |
Change from net income attributable to shareholders and transfers from noncontrolling interests | $ | 3,143 | | | $ | 52,029 | |
(13)Related Party Transactions
There were no other related party transactions other than those disclosed elsewhere in this Quarterly Report and the auditedthese unaudited condensed consolidated financial statements in the Annual Report.statements.
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017(14)Commitments and 2016Contingencies
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
| |
(13) | Commitments and Contingencies |
In addition to the commitments and contingencies disclosed elsewhere, including in Note 12 above, and previously disclosed, the Company has the following commitments and contingencies.
The Company is obligated under certain tenant leases, including its proportionate share for leases for non-consolidated entities, to fund the expansion of the underlying leased properties. The Company, under certain circumstances, may guarantee to tenants the completion of base building improvements and the payment of tenant improvement allowances and lease commissions on behalf of its subsidiaries.
As of June 30, 2023, the Company had six ongoing consolidated development projects and expects to incur approximately $77,000 of costs during the remainder of 2023, excluding noncontrolling interests' share, to substantially complete the construction and estimated tenant improvements and leasing costs of such projects. Etna Park 70, LLC, a joint venture that the Company has a 90% ownership interest, commenced construction of industrial facility estimated to cost $29,000. As of June 30, 2023, the Company has interests in various industrial land parcels held for development. The Company is unable to estimate the timing of any required funding for the potential development projects on these parcels.
The Company and LCIF are parties to a funding agreement under which the Company may be required to fund distributions made on account of LCIF's OP units. Pursuant to the funding agreement, the parties agreed that, if LCIF does not have sufficient cash available to make a quarterly distribution to its limited partners in an amount in accordance with the partnership agreement, LexingtonLXP Industrial Trust will fund the shortfall. Payments under the agreement will be made in the form of loans to LCIF and will bear interest at prevailing rates as determined by the Company in its discretion but, no less than the applicable federal rate. LCIF's right to receive these loans will expire if no OP units remain outstanding and all such loans are repaid. No amounts have been advanced under this agreement.
From time to time, the Company is directly andor indirectly involved in legal proceedings arising in the ordinary course of business. Management believes, 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 the Company's business, financial condition and results of operations.
GSMSC II 2006-GG6 Bridgewater Hills Corporate Center, LLC v. Lexington Realty Trust (Supreme Court of the State of New York, County of New York-Index No. 653117/2015)
On September 16, 2015, GSMSC II 2006-GG6 Bridgewater Hills Corporate Center, LLC commenced an action as lender against the Company based on a limited guaranty of recourse obligations executed by a predecessor entity of the Company in connection with a mortgage loan secured by a property owner subsidiary's commercial property in Bridgewater, New Jersey. The property owner subsidiary defaulted due to non-payment after the sole tenant vacated at the end of the lease term. The lender claimed approximately $9,200 in order to satisfy the outstanding amount of the loan, plus interest, reasonable attorney’s fees and other costs and disbursements related thereto.
The lender claimed that the Company's limited guaranty was triggered due to the merger of Newkirk Realty Trust, Inc. and Lexington Corporate Properties Trust on December 31, 2006, arguing that it constituted an event of default because it was a transfer that was not permitted by the loan agreement. The limited guaranty provides that the guarantor's liability for the guaranteed obligations shall not exceed $10,000. The Company filed a motion to dismiss, which was generally denied. The parties conducted discovery consisting of document production. The Company recorded a $2,050 litigation reserve during the quarter ended September 30, 2017 relating to this litigation as the Company determined that a liability was "probable" (as defined by FASB ASC 450-20-20). A mediation was held on October 5, 2017, but a settlement was not reached that day. Following the mediation, a settlement agreement was executed that requires a $2,050 payment.
The lender also brought a foreclosure action against the property owner subsidiary. A foreclosure sale was held September 13, 2016 and the lender acquired the property for a nominal amount.
During the nine months ended September 30, 2017, the Company incurred $2,226 in legal costs relating to this litigation, which are included in general and administrative expense on the Company's unaudited condensed consolidated statement of operations.
LEXINGTON REALTYLXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172023 and 20162022
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
| |
(14) | Supplemental Disclosure of Statement of Cash Flow Information |
In addition to disclosures discussed elsewhere, during the nine months ended September 30, 2017 and 2016, the Company paid $50,691 and $62,995, respectively, for interest and $1,687 and $1,163, respectively, for income taxes.
During the nine months ended September 30, 2016, the Company sold its interests in certain properties, which included the assumption by the buyers of such properties of $242,269 of the related non-recourse mortgage debt.
Subsequent to September 30, 2017 and in addition to disclosures elsewhere in the unaudited condensed consolidated financial statements, the Company:
acquired an industrial property in Lafayette, Indiana for $17,450;
disposed of three properties to unrelated third parties for an aggregate gross sale price of $19,043; and
transferred an office property in Lisle, Illinois to its lender in full satisfaction of the related $9,120 non-recourse mortgage.
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Assets: | | | |
Real estate, at cost | $ | 761,733 |
| | $ | 731,202 |
|
Real estate - intangible assets | 114,134 |
| | 104,761 |
|
Investment in real estate under construction | — |
| | 40,443 |
|
| 875,867 |
| | 876,406 |
|
Less: accumulated depreciation and amortization | 234,456 |
| | 236,930 |
|
Real estate, net | 641,411 |
| | 639,476 |
|
Cash and cash equivalents | 66,887 |
| | 52,031 |
|
Restricted cash | 1,540 |
| | 1,545 |
|
Investment in and advances to non-consolidated entities | 5,738 |
| | 5,526 |
|
Deferred expenses, net | 6,543 |
| | 5,070 |
|
Rent receivable - current | 233 |
| | 358 |
|
Rent receivable - deferred | 20,616 |
| | 17,449 |
|
Related party advances, net | — |
| | 5,967 |
|
Other assets | 2,713 |
| | 1,182 |
|
Total assets | $ | 745,681 |
| | $ | 728,604 |
|
| | | |
Liabilities and Partners' Capital: | | | |
Liabilities: | | | |
Mortgages and notes payable, net | $ | 168,490 |
| | $ | 169,212 |
|
Co-borrower debt | 165,839 |
| | 146,404 |
|
Related party advances, net | 2,157 |
| | — |
|
Accounts payable and other liabilities | 5,197 |
| | 3,559 |
|
Accrued interest payable | 663 |
| | 673 |
|
Deferred revenue - including below market leases, net | 853 |
| | 1,003 |
|
Distributions payable | 14,742 |
| | 16,916 |
|
Prepaid rent | 3,015 |
| | 3,214 |
|
Total liabilities | 360,956 |
| | 340,981 |
|
| | | |
Commitments and contingencies |
| |
|
Partners' capital | 384,725 |
| | 387,623 |
|
Total liabilities and partners' capital | $ | 745,681 |
| | $ | 728,604 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except unit data)
|
| | | | | | | | | | | | | | | | |
| | Three Months ended September 30, | | Nine months ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Gross revenues: | | | | | | | | |
Rental | | $ | 19,126 |
| | $ | 28,496 |
| | $ | 55,125 |
| | $ | 98,648 |
|
Tenant reimbursements | | 2,116 |
| | 2,062 |
| | 6,044 |
| | 6,782 |
|
Total gross revenues | | 21,242 |
| | 30,558 |
| | 61,169 |
| | 105,430 |
|
Expense applicable to revenues: | | | | | | | | |
Depreciation and amortization | | (10,114 | ) | | (7,793 | ) | | (28,495 | ) | | (25,402 | ) |
Property operating | | (3,000 | ) | | (3,371 | ) | | (9,599 | ) | | (11,079 | ) |
General and administrative | | (1,727 | ) | | (2,643 | ) | | (5,019 | ) | | (7,112 | ) |
Non-operating income | | 3 |
| | 44 |
| | 235 |
| | 299 |
|
Interest and amortization expense | | (4,099 | ) | | (7,109 | ) | | (11,438 | ) | | (23,835 | ) |
Debt satisfaction charges, net | | — |
| | (5,773 | ) | | — |
| | (7,388 | ) |
Impairment charges | | (6,802 | ) | | (65,509 | ) | | (12,061 | ) | | (67,935 | ) |
Gains on sales of properties | | — |
| | — |
| | — |
| | 16,029 |
|
Loss before provision for income taxes and equity in earnings of non-consolidated entities | | (4,497 | ) | | (61,596 | ) | | (5,208 | ) | | (20,993 | ) |
Provision for income taxes | | (4 | ) | | (32 | ) | | (30 | ) | | (57 | ) |
Equity in earnings of non-consolidated entities | | 79 |
| | 49 |
| | 338 |
| | 252 |
|
Net loss | | $ | (4,422 | ) | | $ | (61,579 | ) | | $ | (4,900 | ) | | $ | (20,798 | ) |
Net loss per unit | | $ | (0.05 | ) | | $ | (0.74 | ) | | $ | (0.06 | ) | | $ | (0.25 | ) |
Weighted-average units outstanding | | 83,125,058 |
| | 83,241,396 |
| | 83,202,190 |
| | 83,241,396 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited and in thousands, except unit amounts)
|
| | | | | | | |
Nine Months ended September 30, 2017 | | Units | | Partners' Capital |
Balance December 31, 2016 | | 83,241,396 |
| | $ | 387,623 |
|
Changes in co-borrower debt allocation | | — |
| | 180,565 |
|
Redemption of OP units | | (2,675,785 | ) | | (129,990 | ) |
Distributions | | — |
| | (48,573 | ) |
Net loss | | — |
| | (4,900 | ) |
Balance September 30, 2017 | | 80,565,611 |
| | $ | 384,725 |
|
| | | | |
Nine Months ended September 30, 2016 | | | | |
Balance December 31, 2015 | | 83,241,396 |
| | $ | 461,657 |
|
Changes in co-borrower debt allocation | | — |
| | (17,179 | ) |
Distributions | | — |
| | (49,900 | ) |
Net loss | | — |
| | (20,798 | ) |
Balance September 30, 2016 | | 83,241,396 |
| | $ | 373,780 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
|
| | | | | | | |
| Nine Months ended September 30, |
| 2017 | | 2016 |
Net cash provided by operating activities | $ | 32,685 |
| | $ | 30,975 |
|
Cash flows from investing activities: | | | |
Acquisition of real estate, including intangible assets | (24,317 | ) | | — |
|
Investments in real estate under construction | (20,894 | ) | | (23,390 | ) |
Capital expenditures | (3,925 | ) | | (1,226 | ) |
Net proceeds from the sale of properties | 7,106 |
| | 185,219 |
|
Investment in and advances to non-consolidated entities | (1,067 | ) | | (81 | ) |
Distributions from non-consolidated entities in excess of accumulated earnings | 855 |
| | 425 |
|
Increase in deferred leasing costs | (2,157 | ) | | (997 | ) |
Change in restricted cash | 5 |
| | 812 |
|
Real estate deposits | (24 | ) | | 1,932 |
|
Net cash provided by (used in) investing activities | (44,418 | ) | | 162,694 |
|
Cash flows from financing activities: | | | |
Distributions to partners | (50,747 | ) | | (50,200 | ) |
Principal amortization payments | (785 | ) | | (1,053 | ) |
Increase in deferred financing costs | (13 | ) | | (79 | ) |
Principal payments on debt, excluding normal amortization | — |
| | (23,934 | ) |
Co-borrower debt borrowings (payments) | 200,000 |
| | (58,000 | ) |
OP unit redemptions | (129,990 | ) | | — |
|
Related party advances, net | 8,124 |
| | 553 |
|
Net cash provided by (used in) financing activities | 26,589 |
| | (132,713 | ) |
Change in cash and cash equivalents | 14,856 |
| | 60,956 |
|
Cash and cash equivalents, at beginning of period | 52,031 |
| | 19,130 |
|
Cash and cash equivalents, at end of period | $ | 66,887 |
| | $ | 80,086 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017 and 2016
(Unaudited and dollars in thousands, except share/unit data)
(1) The Partnership and Financial Statement Presentation
Lepercq Corporate Income Fund L.P. (together with its consolidated subsidiaries, except when the context only applies to the parent entity, the “Partnership”) was organized in 1986 as a limited partnership under the Delaware Revised Uniform Limited Partnership Act. The Partnership's sole general partner, Lex GP-1 Trust (the “General Partner”), is a wholly-owned subsidiary of Lexington Realty Trust (“Lexington”). The Partnership serves as an operating partnership subsidiary for Lexington. As of September 30, 2017, Lexington, through Lex LP-1 Trust, a wholly-owned subsidiary, and the General Partner, owned approximately 96% of the outstanding units of the Partnership.
As of September 30, 2017, the Partnership had ownership interests in 33 consolidated real estate properties, located in 21 states. The properties in which the Partnership has an interest are leased to tenants in various industries.
The assets and credit of each property owner subsidiary of the Partnership with a property subject to a mortgage loan are not available to creditors to satisfy the debt and the other obligations of any other person, including any other property owner subsidiary of the Partnership 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 interests 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.
The financial statements contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”) for the three and nine months ended September 30, 2017 have been prepared by the Partnership in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results of the periods presented. Interim results are not necessarily indicative of the results that may be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the Partnership's audited consolidated financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 1, 2017 (“Annual Report”).
Basis of Presentation and Consolidation. The Partnership's unaudited condensed consolidated financial statements are prepared on the accrual basis of accounting in accordance with GAAP. The financial statements reflect the accounts of the Partnership and its consolidated subsidiaries. The Partnership 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 Partnership is the primary beneficiary of a variable interest entity (“VIE”). Entities that the Partnership does not control and entities that are VIEs in which the Partnership is not the primary beneficiary are accounted for under appropriate GAAP.
Earnings Per Unit. Net income (loss) per unit is computed by dividing net income (loss) by the weighted-average number of units outstanding during the period. There are no potential dilutive securities.
Unit Redemptions. The Partnership's limited partner units that are issued and outstanding, other than those held by Lexington, are currently redeemable at certain times, only at the option of the holders, for shares of beneficial interests classified as common stock of Lexington, par value $0.0001 per share ("common shares"), on a one to approximately 1.13 basis, subject to future adjustments. These units are not mandatorily redeemable by the Partnership. As of September 30, 2017, Lexington's common shares had a closing price of $10.22 per share. The estimated fair value of these units was $37,117, assuming all outstanding limited partner units not held by Lexington were redeemed on such date.
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017 and 2016
(Unaudited and dollars in thousands, except share/unit data)
Allocation of Overhead Expenses. The Partnership does not pay a fee to the General Partner for the day-to-day management of the Partnership. Certain expenses incurred by the General Partner and its affiliates, including Lexington, such as corporate-level interest, amortization of deferred loan costs, payroll and general and administrative expenses are allocated to the Partnership and reimbursed to the General Partner in accordance with the Partnership's partnership agreement. The allocation is based upon gross rental revenues.
Distributions; Allocations of Income and Loss. As provided in the Partnership's partnership agreement, distributions and income and loss for financial reporting purposes are allocated to the partners based on their ownership of units. Special allocation rules included in the partnership agreement affect the allocation of taxable income and loss. The Partnership paid or accrued gross distributions of $48,573 ($0.58 per weighted-average unit) and $49,900 ($0.60 per weighted-average unit) to its partners during the nine months ended September 30, 2017 and 2016, respectively.
Use of Estimates. The Partnership has made a number of significant estimates and assumptions to prepare these unaudited condensed consolidated financial statements in conformity with GAAP, including, among others, relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. These estimates and assumptions are based on management's best estimates and judgment. The Partnership evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors. The Partnership 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 and the useful lives of long-lived assets. Actual results could differ materially from those estimates.
Fair Value Measurements. The Partnership 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 Partnership 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.
Acquisition, Development and Construction Arrangements. The Partnership evaluates loans receivable where the Partnership participates in residual profits through loan provisions or other contracts to ascertain whether the Partnership has the same risks and rewards as an owner or a joint venture partner. Where the Partnership concludes that such arrangements are more appropriately treated as an investment in real estate, the Partnership reflects such loan receivable as an equity investment in real estate under construction in the unaudited condensed consolidated balance sheets. In these cases, no interest income is recorded on the loan receivable and the Partnership records capitalized interest during the construction period. In arrangements where the Partnership engages a developer to construct a property or provide funds to a tenant to develop a property, the Partnership will capitalize the funds provided to the developer/tenant and internal costs of interest and real estate taxes, if applicable, during the construction period.
Co-borrower Debt. The Partnership is subject to ASC 405-40, which requires recognition of such obligations as the sum of (a) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (b) any additional amount the reporting entity expects to pay on behalf of its co-obligors.
Revision to Previously Issued Financial Statements. During the quarter ended December 31, 2016, the Partnership corrected an immaterial error in the treatment of a lease termination payment received in the quarter of June 30, 2016 in the amount of $7,685. The lease termination payment was originally amortized over the life of the new tenant lease that necessitated the lease termination. As corrected, the payment was fully recognized in the Partnership's total gross revenues in the quarter ended June 30, 2016.
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017 and 2016
(Unaudited and dollars in thousands, except share/unit data)
The Partnership concluded that the error noted above was not material to any historical periods presented. However, in order to correctly present the treatment of the lease termination payment, management elected to revise previously issued financial statements in the Partnership's next subsequent periodic filing that included such financial statements. The following table shows the affected line items within the Partnership's unaudited condensed consolidated financial statements:
|
| | | | | | | | | | | |
For the three months ended September 30, 2016 | | | | |
| As Originally Reported | | Correction | | As Adjusted |
Total gross revenues | $ | 30,908 |
| | $ | (350 | ) | | $ | 30,558 |
|
Net loss | $ | (60,901 | ) | | $ | (678 | ) | | $ | (61,579 | ) |
Net loss per unit | $ | (0.73 | ) | | $ | (0.01 | ) | | $ | (0.74 | ) |
|
| | | | | | | | | | | |
For the nine months ended September 30, 2016 | | | | |
| As Originally Reported | | Correction | | As Adjusted |
Total gross revenues | $ | 98,784 |
| | $ | 6,646 |
| | $ | 105,430 |
|
Net income (loss) | $ | (26,652 | ) | | $ | 5,854 |
| | $ | (20,798 | ) |
Net income (loss) per unit | $ | (0.32 | ) | | $ | 0.07 |
| | $ | (0.25 | ) |
Recently Issued Accounting Guidance. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the guidance for revenue recognition to eliminate the industry-specific revenue recognition guidance and replace it with a principle based approach for determining revenue recognition. The effective date of the new guidance was updated by ASU 2015-14 and is effective for reporting periods beginning after December 15, 2017. The Partnership’s revenue-producing contracts are primarily leases that are not within the scope of this standard as leases are excluded from ASU 2014-09. The Partnership expects that it may be impacted in its recognition of non-lease revenue, non-lease components of revenue from lease agreements (upon adoption of ASU 2016-02) and the timing of its recognition of real estate sale transactions. Under ASU 2014-09, revenue recognition for real estate sales is largely based on the transfer of control and the buyer having the ability to direct the use of, or obtain substantially all of the remaining benefit from, the asset (which generally will occur on the closing date); the factor of continuing involvement is no longer a specific consideration for the timing of recognition. As a result, the Partnership generally expects that the new guidance may result in transactions qualifying as sales of real estate at an earlier date than under current accounting guidance. The Partnership is finalizing its evaluation of the impact of the standard but currently believes the impact would be limited to the timing and income statement presentation of revenue and not the total amount of revenue recognized over time. The Partnership will adopt ASU 2014-09 effective January 1, 2018 and anticipates using the modified retrospective approach. As the majority of the Partnership’s revenue is from rental income related to leases, the Partnership does not expect the ASU to have a material impact on the consolidated financial statements upon adoption.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right of use asset and related lease liability for those leases classified as operating leases at the commencement date that have lease terms of more than 12 months and amends certain lessor guidance. The ASU is expected to result in the recognition of a right-to-use asset and related liability to account for the Partnership's future obligations under its ground lease arrangements for which the Partnership is the lessee. From a lessor perspective, the Partnership expects that it will be required to bifurcate lease agreements to separately recognize and disclose non-lease components that are executory in nature. Lease components will continue to be primarily recognized on a straight-line basis over the lease term and certain non-lease components will be accounted for under the new revenue recognition guidance in ASU 2014-09 (upon adoption of ASU 2016-02). Additionally, the new ASU will require that the Partnership capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, and interim periods within those years, and requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements; with early adoption permitted. The Partnership continues to evaluate the impact of the adoption of the new guidance on its consolidated financial statements.
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017 and 2016
(Unaudited and dollars in thousands, except share/unit data)
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those years; however early adoption is permitted. The Partnership does not believe this guidance will have a material impact on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies guidance on the classification and presentation of changes in restricted cash. The ASU is effective for reporting periods beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to all periods presented. Upon adoption, restricted cash balances will be included along with cash and cash equivalents as of the end of the period and beginning of period, respectively, in the Partnership's consolidated statement of cash flows for all periods presented. Upon adoption, separate line items showing changes in restricted cash balances will be eliminated from the Partnership's consolidated statement of cash flows.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU is effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The Partnership expects that acquisitions of real estate or in-substance real estate will not meet the revised definition of a business and thus will be treated as asset acquisitions. Acquisition costs for those acquisitions that are not businesses will be capitalized rather than expensed.
In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20), which requires that all entities account for the derecognition of a business in accordance with ASC 810, including instances in which the business is considered in-substance real estate. The ASU requires the Partnership to measure at fair value any retained interest in a partial sale of real estate. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2017. The Partnership will adopt ASU 2017-05 effective January 1, 2018, along with ASU 2014-09, and it is not expected to have a material impact on its consolidated financial statements.
(2) Investment in Real Estate and Real Estate Under Construction
The Partnership completed the following acquisitions and build-to-suit arrangements during the nine months ended September 30, 2017:
|
| | | | | | | | | | | | | | | | | |
Property Type | Location | Acquisition Date | Initial Cost Basis | Lease Expiration | Land and Land Estate | | Building and Improvements | | Lease in-place Value Intangible |
Office | Charlotte, NC | April 2017 | $ | 61,339 |
| 04/2032 | $ | 3,771 |
| | $ | 47,064 |
| | $ | 10,504 |
|
Industrial | Grand Prairie, TX | June 2017 | 24,317 |
| 03/2037 | 3,166 |
| | 17,985 |
| | 3,166 |
|
| | | $ | 85,656 |
| | $ | 6,937 |
| | $ | 65,049 |
| | $ | 13,670 |
|
During the nine months ended September 30, 2017, the Partnership disposed of its interest in two vacant office properties for an aggregate gross sale price of $7,591 and recognized aggregate impairment charges of $5,259. During the nine months ended September 30, 2016, the Partnership disposed of its interest in certain properties, including land investments, for an aggregate gross sale price of $445,565. The Partnership recognized aggregate gains on sales of properties of $16,029, aggregate impairment charges of $67,935 and aggregate debt satisfaction charges of $7,388 relating to properties disposed of during the nine months ended September 30, 2016. The aggregate impairment charges recorded during the nine months ended September 30, 2016, related primarily to the sale of the three land investments in New York, New York. The land investments were subject to 99-year leases with annual escalations, and the deferred rent receivable balance at the date of sale of $91,213 was written off.
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017 and 2016
(Unaudited and dollars in thousands, except share/unit data)
The Partnership assesses on a regular basis whether there are any indicators that the carrying value of its real estate assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant financial instability and the potential sale or transfer of the property in the near future. An asset is determined to be impaired if the asset's carrying value is in excess of its estimated fair value. During the nine months ended September 30, 2017, the Partnership recognized an impairment charge of $6,802 on a partially vacant office property.
(3) Investments in and Advances to Non-Consolidated Entities
In July 2014, the Partnership acquired a 1.0% interest in an office property in Philadelphia, Pennsylvania for $263. The Partnership accounts for this investment under the cost basis of accounting.
On September 1, 2012, the Partnership acquired a 2% equity interest in Net Lease Strategic Assets Fund L.P. (“NLS”) for cash of $189 and the issuance of 457,211 limited partner units to Lexington.
The Partnership's carrying value in NLS at September 30, 2017 and December 31, 2016 was $5,436 and $5,224, respectively. The Partnership recognized net income from NLS of $323 and $236 in equity in earnings from non-consolidated entities during the nine months ended September 30, 2017 and 2016, respectively. The Partnership contributed $1,067 and $81 to NLS during the nine months ended September 30, 2017 and 2016, respectively. In addition, the Partnership received distributions of $1,178 and $661 from NLS during the nine months ended September 30, 2017 and 2016, respectively.
(4) Fair Value Measurements
The following table presents the Partnership's assets measured at fair value as of September 30, 2017, aggregated by the level in the fair value hierarchy within which those measurements fall:
|
| | | | | | | | | | | | | | | | |
| | Balance | | Fair Value Measurements Using |
Description | | September 30, 2017 | | (Level 1) | | (Level 2) | | (Level 3) |
Impaired real estate assets* | | $ | 2,090 |
| | $ | — |
| | $ | — |
| | $ | 2,090 |
|
* Represents a non-recurring fair value measurement as of the date of impairment.
The table below sets forth the carrying amounts and estimated fair values of the Partnership's financial instruments as of September 30, 2017 and December 31, 2016:
|
| | | | | | | | | | | | | | | | |
| | As of September 30, 2017 | | As of December 31, 2016 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Liabilities | | | | | | | | |
Debt | | $ | 334,329 |
| | $ | 333,181 |
| | $ | 315,616 |
| | $ | 314,509 |
|
The Partnership estimates the fair value of its real estate assets, including non-consolidated real estate assets, by using income and market valuation techniques. The Partnership may estimate fair values using market information such as broker opinions of value, 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 Partnership 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 Partnership 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.
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017 and 2016
(Unaudited and dollars in thousands, except share/unit data)
The fair value of the Partnership's debt is primarily estimated utilizing Level 3 inputs by using an estimated discounted cash flow analysis, based upon estimates of market interest rates.
Fair values cannot be determined with precision, may not be substantiated by comparison to quoted prices in active markets and may not be realized upon sale. Additionally, there are inherent uncertainties in any fair value measurement technique, and changes in the underlying assumptions used, including discount rates, liquidity risks and estimates of future cash flows, could significantly affect the fair value measurement amounts.
Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable. The Partnership estimates that the fair value of cash equivalents, restricted cash, accounts receivable and accounts payable approximates carrying value due to the relatively short maturity of the instruments.
(5) Mortgages and Notes Payable and Co-Borrower Debt
The Partnership had the following mortgages and notes payable outstanding as of September 30, 2017 and December 31, 2016:
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Mortgages and notes payable | $ | 169,173 |
| | $ | 169,958 |
|
Unamortized debt issuance costs | (683 | ) | | (746 | ) |
| $ | 168,490 |
| | $ | 169,212 |
|
Interest rates, including imputed rates, ranged from 4.0% to 6.5% at September 30, 2017 and December 31, 2016, and the mortgages and notes payable mature between 2019 and 2026. The weighted-average interest rate at September 30, 2017 and December 31, 2016 was approximately 4.7%.
Lexington's, and the Partnership's as co-borrower, $905,000 unsecured credit agreement with KeyBank National Association, as agent, was amended in September 2017 to, among other things, increase the overall facility to $1,105,000. With lender approval, Lexington can increase the size of the amended facility to an aggregate $2,010,000. A summary of the significant terms are as follows:
|
| | | |
| Maturity Date | | Current
Interest Rate |
$505,000 Revolving Credit Facility(1)
| August 2019 | | LIBOR + 1.00% |
$300,000 Term Loan(2)
| August 2020 | | LIBOR + 1.10% |
$300,000 Term Loan(3)
| January 2021 | | LIBOR + 1.10% |
| |
(1) | Increased from $400,000. Maturity date can be extended to August 2020 at the Lexington's option. The interest rate ranges from LIBOR plus 0.85% to 1.55%. At September 30, 2017, the revolving credit facility had $200,000 of borrowings outstanding, $4,600 of letters of credit and availability of $300,400 subject to covenant compliance. |
| |
(2) | Increased from $250,000. The interest rate ranges from LIBOR plus 0.90% to 1.75%. Interest-rate swap agreements were previously entered into to fix the LIBOR component at a weighted-average rate of 1.09% through February 2018 on $250,000 of outstanding LIBOR-based borrowings. |
| |
(3) | Increased from $255,000. The interest rate ranges from LIBOR plus 0.90% to 1.75%. Interest-rate swap agreements were previously entered into to fix the LIBOR component at a weighted-average rate of 1.42% through January 2019 on $255,000 of outstanding LIBOR-based borrowings. |
Lexington was in compliance with all applicable financial covenants contained in its corporate level debt agreements at September 30, 2017.
In accordance with the guidance of ASC 405-40, the Partnership, as it is a co-borrower with Lexington, recognizes a proportion of the outstanding amounts of the above-mentioned term loans and revolving credit facility as co-borrower debt in the accompanying unaudited condensed consolidated balances sheets. In accordance with the Partnership’s partnership agreement, the Partnership is allocated a portion of these debts based on gross rental revenues, which represents its agreed to obligation. The Partnership's allocated co-borrower debt was $165,839 and $146,404 as of September 30, 2017 and December 31, 2016, respectively. Non-cash changes in co-borrower debt are recognized in partners’ capital in the accompanying unaudited condensed consolidated statements of changes in partners’ capital.
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017 and 2016
(Unaudited and dollars in thousands, except share/unit data)
(6) Concentration of Risk
Subject to the terms of the partnership agreement, the Partnership seeks to reduce its operating and leasing risks through the geographic diversification of its properties, tenant industry diversification, avoidance of dependency on a single asset and the creditworthiness of its tenants. For the nine months ended September 30, 2017 and 2016, the following tenants represented greater than 10% of rental revenues:
|
| | | | | | |
| | 2017 | | 2016 |
Preferred Freezer Services of Richland, LLC | | 17.9 | % | | N/A |
|
SM Ascott LLC(1) | | N/A |
| | 13.1 | % |
Tribeca Ascott LLC(1) | | N/A |
| | 11.2 | % |
AL-Stone Ground Tenant LLC(1) | | N/A |
| | 10.2 | % |
| |
(1) | The Partnership net leased these individual land parcels to the tenants under non-cancellable 99-year (original term) leases. The improvements on these parcels are owned by the tenants and consist of three high-rise hotels located in New York, NY. The Partnership sold these assets in September 2016. |
Cash and cash equivalent balances at certain institutions may exceed insurable amounts. The Partnership believes it mitigates this risk by investing in or through major financial institutions.
(7) Related Party Transactions
The Partnership had the following related party transactions in addition to related party transactions discussed elsewhere in this Quarterly Report and the audited consolidated financial statements in the Annual Report.
The Partnership had outstanding net advances owed from (to) Lexington of $(2,157) and $5,967 as of September 30, 2017 and December 31, 2016, respectively. The advances are payable on demand.
Lexington earned distributions of $46,732 and $48,032 during the nine months ended September 30, 2017 and 2016, respectively. In September 2017, the Partnership redeemed 2,675,785 OP units owned by Lexington that were entitled to aggregate annual distributions of $3.25 per unit for $129,990.
The Partnership was allocated interest expense by Lexington, in accordance with the partnership agreement, relating to certain lending facilities of $5,913 and $9,605 for the nine months ended September 30, 2017 and 2016, respectively.
Lexington, on behalf of the General Partner, pays for certain general administrative and other costs on behalf of the Partnership from time to time. These costs are reimbursable by the Partnership. These costs were approximately $4,911 and $7,262 for the nine months ended September 30, 2017 and 2016, respectively.
A Lexington affiliate provides property management services for certain Partnership properties. The Partnership recognized property operating expenses of $515 and $580 for the nine months ended September 30, 2017 and 2016, respectively, for aggregate fees charged by the affiliate.
(8) Commitments and Contingencies
In addition to the commitments and contingencies disclosed elsewhere, the Partnership has the following commitments and contingencies.
The Partnership is obligated under certain tenant leases, including its proportionate share for leases for non-consolidated entities, to fund the expansion of the underlying leased properties. The Partnership, under certain circumstances, may guarantee to tenants the completion of base building improvements and the payment of tenant improvement allowances and lease commissions on behalf of its subsidiaries.
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017 and 2016
(Unaudited and dollars in thousands, except share/unit data)
The Partnership and Lexington are parties to a funding agreement under which Lexington may be required to fund distributions made on account of OP units. Pursuant to the funding agreement, if the Partnership does not have sufficient cash available to make a quarterly distribution to its limited partners in an amount in accordance with the partnership agreement, Lexington is required to fund the shortfall. Payments under the agreement will be made in the form of loans to the Partnership and will bear interest at prevailing rates as determined by Lexington in its discretion, but no less than the applicable federal rate. The Partnership's right to receive these loans will expire if no OP units remain outstanding and all such loans are repaid. No amounts had been advanced under this funding agreement.
In May 2014, the Partnership guaranteed $250,000 aggregate principal amount of 4.40% Senior Notes due 2024 (“2024 Senior Notes”) issued by Lexington at an issuance price of 99.883% of the principal amount and in June 2013, the Partnership guaranteed $250,000 aggregate principal amount of 4.25% Senior Notes due 2023 (“2023 Senior Notes”) issued by Lexington at an issuance price of 99.026% of the principal amount, collectively referred to as the Senior Notes. The Senior Notes are unsecured and pay interest semi-annually in arrears. Lexington may redeem the Senior Notes at its option at any time prior to maturity in whole or in part by paying the principal amount of the notes being redeemed plus a premium.
From time to time, the Partnership is directly or indirectly involved in legal proceedings arising in the ordinary course of the Partnership's business. The Partnership believes, 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 the Partnership's business, financial condition and results of operations.
(9) (15)Supplemental Disclosure of Statement of Cash Flow Information
In addition to disclosures discussed elsewhere, during the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, the PartnershipCompany paid $11,527$25,780 and $23,570,$23,237, respectively, for interest and $121$757 and $33,$952, respectively, for income taxes.
In 2016,During the Partnership sold its interest in certain land investments, which includedsix months ended June 30, 2023 and 2022, the assumptionCompany accrued additions for capital projects of the aggregate related non-recourse mortgage debt of $242,269.$34,884 and $50,591, respectively.
(10)
(16)Subsequent Events
Subsequent to SeptemberJune 30, 2017,2023, the Partnership soldCompany:
- acquired a newly-constructed, vacant warehouse/distribution facility containing 124,450 square feet, located in the Dallas, Texas market for a cost of $14,930; and,
- borrowed $50,000 net, on its interest in a vacant industrial property for $10,000.revolving credit facility.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
When we useUnless stated otherwise or the terms “the Company,” “we,” “us” and “our,” we mean Lexington Realty Trust and all entities owned by us, including non-consolidated entities, except where it is clear that the term means only Lexington Realty Trust. Whencontext otherwise requires, when we use the terms the “Partnership” or “LCIF”,“Company,” the “Trust,” “LXP,” “we,” “our,” and “us,” we mean Lepercq Corporate Income Fund L.P.refer collectively to LXP Industrial Trust and its consolidated subsidiaries. All of the Company's interests are held, and all of the property operating activities are conducted through special purposes entities, owned by it, including non-consolidatedwhich we refer to as property owner subsidiaries or lender subsidiaries and are separate and distinct legal entities, except where it is clear that the term means only LCIF.but in some instances are consolidated for financial statement purposes and/or disregarded for income tax purposes. References herein to ‘‘this Quarterly Report” are to this Quarterly Report on Form 10-Q for the three and ninesix months ended SeptemberJune 30, 2017.2023. The results of operations contained herein for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 are not necessarily indicative of the results that may be expected for a full year.
When we use the term “REIT,” we mean real estate investment trust. All references to 2023 and 2022, refer to the periods ending June 30, 2023 and 2022, respectively and our fiscal year ended December 31, 2022.
When we use the term “GAAP,” we mean United States generally accepted accounting principles in effect from time to time.
When we use the term “common shares,” we mean our shares of beneficial interest par value $0.0001, classified as common stock. When we use the term “Series C Preferred Shares,” we mean our beneficial interest classified as 6.50% Series C Cumulative Convertible Preferred Stock.
When we use the term “base rent,” we mean GAAP rental revenue and ancillary income, excluding billed tenant reimbursements and lease termination income.
When we use “Stabilized Portfolio,” we mean all real estate properties other than acquired or developed properties that have not achieved 90% occupancy within one-year of acquisition or substantial completion. Non-stabilized, substantially completed development projects are classified within investments in real estate under construction.
The following is a discussion and analysis of the unaudited condensed consolidated financial condition and results of operations of Lexington RealtyLXP Industrial Trust and LCIF for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, and significant factors that could affect theirits prospective financial condition and results of operations. This discussion should be read together with the accompanying unaudited condensed consolidated financial statements of the Company and the Partnership included herein and notes thereto and with the consolidated financial statements and notes thereto included in the Company's and the Partnership's most recent Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on March 1, 2017,February 16, 2023, which we refer to as the Annual Report. Historical results may not be indicative of future performance.
Forward-Looking Statements. This Quarterly Report, together with other statements and information publicly disseminated by us, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to asor the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “estimates,” “projects,” “may,” “plans,” “predicts,” “will,” “will likely result” or similar expressions. Readers should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. In particular, among the factors that could cause actual results, performances or achievements to differ materially from current expectations, strategies or plans include, among others, anythose risks discussed below in the respective “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and under the headings “Risk Factors” in this Quarterly Report and under “Risk Factors” in Part I, Item A and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report and other periodic reports filed by the Company or the Partnership with the SEC. Except as required by law, we undertake no obligation to publicly release any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Accordingly, there is no assurance that our expectations will be realized.
Lexington Realty Trust:
Overview
General. We are a Maryland real estate investment trust, or REIT, that owns a diversified portfolio of equity investments in single-tenant commercial properties.
As of SeptemberJune 30, 2017,2023, we had equity ownership interests in approximately 180116 consolidated real estate properties, located in 3820 states and containing an aggregate of approximately 47.954.2 million square feet of space, approximately 97.9%99.5% of which was leased, excluding properties subject to secured mortgage loans currently in default. The properties in which we have an interest are primarily net leased to tenants in various industries.leased.
Our revenues and cash flows are generated predominantly from property rent receipts. As a result, growth in revenues and cash flows is directly correlated to our ability to (1) acquire income producing real estate investments and (2) re-lease properties that are vacant, or may become vacant, at favorable rental rates.
Our current business strategy is focused on enhancing our cash flow growth and stability, growingof June 30, 2023, our portfolio with attractive leased investments, reducing lease rollover riskconsisted of 109 warehouse/distribution facilities and maintaining a strongseven other properties. Our warehouse/distribution portfolio is primarily focused in our target markets within the Sunbelt and flexible balance sheetMidwest. We expect to allow us to actgrow these markets by executing on opportunities as they arise. To that end,our development pipeline and opportunistically acquiring facilities in 2017, we continued to be an active seller of non-core assets such as vacant properties and properties subject to short-term leases, and we have invested proceeds in predominantly industrial assets.these markets.
Leasing Activity. Re-leasing properties that are currently vacant or as leases expire at favorable effective rates is one of our primary areas of focus for asset management. We strive to manage down our shorter-term leases and extend our weighted-average lease term on a cash basis, which was approximately 9.1 years at September 30, 2017 on a cash basis. Our weighted-average lease term at September 30, 2016 was 8.6 years on a cash basis.
During the third quarter of 2017, we entered into new leases and lease extensions encompassing approximately 1.2 million square feet. The average U.S. generally accepted accounting principles, or GAAP, base rent on these extended leases was $3.97 per square foot compared to the average GAAP base rent on these leases before extension of $3.74 per square foot. The weighted-average cost of tenant improvements and lease commissions was $2.07 per square foot for extended leases on a GAAP basis and there were no tenant improvements or lease commissions on new leases.
ThirdSecond Quarter2017 2023 Transaction Summary.
The following summarizes our significant transactions during the three months ended SeptemberJune 30, 2017.2023.
Investments:Leasing Activity:
Acquired four industrial properties for•Entered into new and extended leases encompassing 2.0 million square feet, including leasing two speculative development projects containing an aggregate cost of $266.1 million.1.6 million square feet, located in the Columbus, Ohio and Phoenix, Arizona markets. The properties are net leasedaverage fixed rent on the new leases was $7.27 per square foot. The weighted-average tenant improvements and lease commissions was $15.71 per square foot for an approximate 10-year term.new leases.
Investments:
•Completed the construction of the Opelika, Alabama industrial build-to-suit projectcore and shell for $37.3three warehouse/distribution facilities containing 1.5 million which is net leased for a 25-year term.square feet in the Greenville-Spartanburg, South Carolina and Central Florida markets.
Capital Recycling:
Disposed of our interests in various consolidated properties for approximately $42.0 million.
Debt:
Amended our unsecured credit agreement, increasing the borrowing capacity by $200.0 million consisting of a $105.0 million increase to the revolving credit facility, a $50.0 million increase to the term loan maturing in 2020 and a $45.0 million increase to the term loan maturing in 2021.
Satisfied•Invested an aggregate of $25.2$27.1 million of non-recourse debt.in development activities, including $23.4 million in six ongoing development projects.
Acquisition and Acquisition/Development Activity.
Our acquisition and development activity for the past several years has consisted primarily of build-to-suit transactions whereby we (1) hire a developer, or provide funding to a tenant, to develop a property, or (2) provide capital to developers and commit to purchase the property upon completion. However, none of these transactions are done on a speculative basis without a committed tenant subject to a long-term lease.Activity:
During the ninesix months ended SeptemberJune 30, 2017,2023, we completed and placed in service the following acquisitionwarehouse/distribution asset:
| | | | | | | | | | | | | | | | | |
Market | Square Feet | Initial Capitalized Cost (millions) | Placed in Service Date | Approximate Lease Term (years) | % Leased |
Phoenix, Arizona | 392,278 | $ | 37.1 | | March 2023 | 10.0 | 100% |
Increased financing costs have slowed transaction activity and build-to-suit transactions:development starts in our target markets and the markets where we own properties. Proceeds from our dispositions are expected to be used to fund our development obligations and reduce leverage.
|
| | | | | | | | | | | | | |
Location | | Property Type | | Square Feet (000's) | | Capitalized Cost (millions) | | Date Acquired | | Approximate Lease Term (Years) |
Lake Jackson, TX (1) | | Office | | 275 |
| | $ | 70.4 |
| | January 2017 | | 20 |
Lebanon, IN | | Industrial | | 742 |
| | 36.2 |
| | February 2017 | | 7 |
New Century, KS | | Industrial | | 447 |
| | 12.1 |
| | February 2017 | | 10 |
Charlotte, NC | | Office | | 201 |
| | 61.3 |
| | April 2017 | | 15 |
Cleveland, TN | | Industrial | | 851 |
| | 34.4 |
| | May 2017 | | 7 |
Grand Prairie, TX | | Industrial | | 215 |
| | 24.3 |
| | June 2017 | | 20 |
San Antonio, TX | | Industrial | | 849 |
| | 45.5 |
| | June 2017 | | 10 |
Opelika, AL | | Industrial | | 165 |
| | 37.3 |
| | July 2017 | | 25 |
McDonough, GA (2) | | Industrial | | 1,121 |
| | 66.7 |
| | August 2017 | | 10 |
Byhalia, MS | | Industrial | | 616 |
| | 36.6 |
| | September 2017 | | 10 |
Jackson, TN | | Industrial | | 1,062 |
| | 57.9 |
| | September 2017 | | 10 |
Smyrna, TN | | Industrial | | 1,505 |
| | 104.9 |
| | September 2017 | | 10 |
| | | | 8,049 |
| | $ | 587.6 |
| | | | |
| |
(1) | Completed the construction of the final building of a four-building project. Capitalized cost excludes estimated developer partner payout of approximately $8.0 million. |
| |
(2) | Square footage includes a 220 thousand square foot expansion to be completed in 2018. |
In addition, as of SeptemberJune 30, 2017,2023, we had the following forward purchase commitments:
|
| | | | | | | | | | | | | |
Location | | Square Feet (000's) | | Property Type | | Maximum Acquisition Cost (millions) | | Estimated Acquisition Date | | Approximate Lease Term (Yrs) |
Warren, MI (1) | | 260 |
| | Industrial | | $ | 47.0 |
| | 4Q 17 | | 15 |
Romulus, MI | | 500 |
| | Industrial | | 39.3 |
| | 4Q 17 | | 15 |
Lafayette, IN(2) | | 309 |
| | Industrial | | 17.5 |
| | 4Q 17 | | 7 |
| | 1,069 |
| | | | $ | 103.8 |
| | | | |
(1) A $4.6 million lettersix consolidated development projects in process with an aggregate estimated total cost of credit secures$425.0 million. We anticipate our remaining funding obligation to purchasesubstantially complete the property.construction and estimated tenant improvements and leasing costs of these six projects, exclusive of our joint venture partners' share, to be approximately $77.0 million. However, the risks associated with development, including supply chain issues, could adversely impact our estimates.
(2) We acquired the property in October 2017.
We can give no assurances that any unconsummated transactions described in this Quarterly Report will be consummated or, if consummated, will perform to our expectations.
Critical Accounting PoliciesEstimates
Management's discussionIn preparing the consolidated financial statements we have made estimates and analysisassumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Accounting estimates are deemed critical if they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Below is a summary of the critical accounting estimates used in the preparation of our unaudited condensed 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 based uponset forth in (1) Note 2 to our unaudited condensedaudited consolidated financial statements, which have been preparedare included in accordance with GAAP. In preparing our unaudited condensed consolidated financial statements“Financial Statements and Supplementary Data” in accordance with GAAP and pursuant to the rules and regulationsPart II, Item 8 of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. Certain of our accounting policies are discussed under (1) Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report, (2) note 2 to our consolidated financial statements contained in our Annual Report and (3) note 1(2) Note 2 to our unaudited condensed consolidated financial statements contained in this Quarterly Report.
Acquisition of Real Estate. Primarily all of our acquisitions of real estate assets and liabilities are accounted for as asset acquisitions. As such, the purchase prices of acquired tangible and intangible assets and liabilities are 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 properties acquired which incorporates discount, capitalization and interest rates as well as available comparable market information. Allocations of intangible assets includes management’s estimates of current market rents and leasing costs.
We believe there have been no material changesuse considerable judgement in our estimates of cash flow projections, discount, capitalization and interest rates, fair market lease rates, carrying costs during hypothetical expected lease-up periods and costs to execute similar leases. While our methodology for purchase price allocation did not change during the six months ended June 30, 2023, the real estate market is fluid and our assumptions are based on information currently available in the market 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 real estate assets being acquired.
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. Lease classification tests require significant estimates and judgments by management in its application. Upon lease commencement or lease modification, we assess the lease classification to determine whether the lease should be classified as a direct financing, sales-type or operating lease. The determination of lease classification requires the calculation of the rate implicit in the lease, which is driven by significant estimates, including the estimation of both the value assigned to the itemsproperty components on the lease commencement date or upon acquisition and the estimation of the unguaranteed residual value of such components at the end of the lease term. The determination of the lease term also requires judgement because the probability of purchase options and renewals have to be analyzed to conclude if they are reasonably certain of being exercised. If the lease component is determined to be a direct financing or sales-type lease, revenue is recognized over the life of the lease using the rate implicit in the lease.
Most of our leases are operating leases. We recognize operating 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. We commence revenue recognition when possession or control of the space is turned over to the tenant.
Impairment of Real Estate. We record impairments of our real estate assets classified as held for use 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 recorded 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 sale 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 analysis 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 impairment 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 changes in circumstances indicate that the carrying amount of our investments may not be recoverable. Our evaluation of changes in economic or operating conditions and whether an impairment is other-than-temporary may include developing estimates of fair value, forecasted cash flows or operating income before depreciation and amortization. We estimate undiscounted cash flows and fair value using observable and unobservable data such 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.
Allowance for Credit Losses.“ASC 326, Financial Instruments-Credit Losses” (“ASC 326”) requires that we disclosedmeasure and record current expected credit losses for our sales-type lease. We have elected to use a discounted cash flow model to estimate the allowance for credit losses. This model requires us to develop cash flows which project estimated credit losses over the life of the lease and discount these cash flows at the asset’s effective interest rate. We then record an allowance equal to the difference between the amortized cost basis of the asset and the present value of the expected credit loss cash flows.
Expected losses within our cash flows are determined by estimating the probability of default of our tenant and their parent guarantors over the term of the lease. We evaluate the collectability of our investment in a sales-type lease based various
probability weighted default scenarios that include, but are not limited to, current payment status, the financial strength of our tenant and its parent guarantors, current economic conditions and 20 years of historical information on corporate defaults for entities with similar credit. Estimates in the discounted cash flow model are highly subjective. We have engaged a nationally recognized data analytics firm to assist us with estimating the probability of default of our tenant and their parent guarantor.
We regularly evaluate the extent and impact of any credit deterioration that could affect performance and the value of our investment in a sales-type lease, as our critical accounting policieswell as the financial and operating capability of the tenant. We also evaluate the tenant’s competency in managing and operating the secured property and consider the overall economic environment, real estate sector and geographic sub-market in which the secured property is located. If a tenant's credit deteriorates and it defaults under Item 7, “Management's Discussion and Analysisthe terms of Financial Condition and Resultsthe sales-type lease, we put the lease in non-accrual status until it is determined that all payments under the lease are probable of Operations”being collected. The criteria evaluated to determine when a lease is in our Annual Report.non-accrual status is subjective.
Liquidity and Capital Resources
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.long-term, however, our cash flow from operations may be negatively affected in the near term if we experience tenant defaults as a result of the effects of the current economic conditions. In addition, we anticipate that cash on hand, borrowings under our unsecured revolving credit facility, capital recycling proceeds, issuances of equity, mortgage proceeds and other debt, as well as other available alternatives, will provide the necessary capital required by our business.
At SeptemberJune 30, 2017,2023, our property owner subsidiaries do not have mortgage maturities with balloon payments due until 2031. In addition, certain of our subsidiaries are obligated to fund the construction of our development projects and we had $18.4 million and $6.6 million of property specific mortgage balloon debt due in 2017 and 2018, respectively. The 2017 non-recourse maturities aggregating $18.4 million were in maturity default at September 30, 2017.sometimes guaranty these obligations. We believe weour property owner subsidiaries have sufficient sources of liquidity to meet these obligations we are required to meet 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 ($140.523.2 million at SeptemberJune 30, 2017)2023), property sale proceeds and borrowing capacity under our unsecured revolving credit facility ($300.4600.0 million at SeptemberJune 30, 2017), which expires in 2019, but can be extended by us2023, subject to 2020, and future cash flows from operations.
The mortgages encumbering the properties in which we have an interest are generally non-recourse to us, such that in situations where we believe it is beneficial to satisfy a mortgage obligation by transferring title of the property to the lender, including through a foreclosure, we may do so.covenant compliance).
Cash flows from operations were $172.6$92.6 million for the ninesix months ended SeptemberJune 30, 20172023 as compared to $180.6$95.2 million for the ninesix months ended SeptemberJune 30, 2016.2022. The decrease was primarily related to property sales, partially offset by the impact of property sales and vacancies, a decrease in lease termination payments and an increase in payments of legal costs, offset by cash flowsflow generated from acquired properties.acquiring properties and stabilizing development assets. The underlying drivers that impact our working capital, and therefore cash flows from operations, are the timing of collection of rents, including reimbursements from tenants, 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 $(234.6)$38.9 million and $29.3$217.1 million during the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively. Cash used in investing activities in 2023 related primarily to acquisitions of real estate and investments in real estate under construction, capital expenditures, lease costs, changes in restricted cash and investments in and advances to non-consolidated entities. Cash provided by investing activities related primarily to proceeds from the sale of properties, collection of loans receivableentities and changes in real estate deposits, net. Cash provided by investing activities primarily related to net proceeds received from the disposition of real estate and distributions from non-consolidated entities. During the six months ended June 30, 2022, cash used in investing activities included additional acquisition and development activity when compared to 2023.
Net cash provided by (used in)used in financing activities totaled $115.9$85.0 million and $(185.3)$19.2 million during the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively. Cash provided by financing activities related primarily to proceeds of term loans and mortgages and notes payable, borrowings under our revolving credit facility and the net proceeds from the issuance of common shares. Cash used in financing activities in 2023 was primarily attributablerelated to dividend and distribution payments, payment of developer liabilities, repayment of debt obligations and repurchasesservice payments. Cash used in financing activities in 2022 was primarily related to the repurchase of common shares.stock, the purchase of a noncontrolling interest and dividend and debt service payments, offset by common stock issuances and revolving credit facility borrowings.
At-The-Market Offering Program. We maintain an At-The-Market offering program ("ATM program") under which we can issue common shares, including through forward sales contracts.
We did not sell shares under the ATM program during the six months ended June 30, 2023 and June 30, 2022, respectively.
During the six months ended June 30, 2022, we settled 3.6 million common shares previously sold on a forward basis on the maturity date of the contract and received $38.5 million of net proceeds. No shares were sold on a forward basis during the six months ended June 30, 2023.
In February 2021, we amended the terms of our ATM 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 June 30, 2023, common shares with an aggregate value of $295.0 million remain available for issuance under the ATM program.
The volatility in the capital markets primarily resulting from the effects of the current economic conditions may negatively affect our ability to access the capital markets through our ATM program and other offerings.
Share Repurchase Program. During 2022, our Board of Trustees authorized the repurchase of an additional 10.0 million common shares under our share repurchase program with no expiration date. We did not repurchase any common shares during the six months ended June 30, 2023. During the six months ended June 30, 2022, we repurchased and retired approximately 6.1 million common shares at an average price of $11.45 per share. Approximately 6.9 million common shares remained available for repurchase under the current authorization as of June 30, 2023. We, 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.
Dividends. Dividends paid to our common and preferred shareholders were $129.0$76.1 million and $123.3$72.7 million in the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.
UPREIT Structure.We declared a quarterly dividend of $0.125 per common share during the six months ended June 30, 2023, which is an increase of $0.005 per common share from the $0.12 per common share quarterly dividend declared during the six months ended June 30, 2022.
Operating Partnership. As of SeptemberJune 30, 2017, 3.22023, 0.7 million units of limited partner interests, or OP units, in our operating partnership, LCIF, were outstanding not including OP units held by us. Assuming all outstanding OP units not held by us were redeemed on such date, the estimated fair value of such OP units was $37.1$8.1 million based on our closing price of $10.22$9.75 per common share on Septemberas of June 30, 20172023 and a redemption factor of approximately 1.13 common shares per OP unit.
Financings. The following senior notes were outstanding as of SeptemberJune 30, 2017:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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 | % |
Senior note payable | | $ | 998.9 | | | | | | | |
|
| | | | | | | | | | | | |
Issue Date | | Face Amount ($000) | | Interest Rate | | Maturity Date | | Issue Price |
May 2014 | | $ | 250,000 |
| | 4.40 | % | | June 2024 | | 99.883 | % |
June 2013 | | 250,000 |
| | 4.25 | % | | June 2023 | | 99.026 | % |
| | $ | 500,000 |
| | | | | | |
TheEach series of senior notes areis unsecured and payrequires payment of 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 aany potential make-whole premium.
During September 2017, our $905.0 million unsecured credit agreement with KeyBank National Association, as agent, was amended to, among other things, increase the overall facility to $1.105 billion. With lender approval, we can increase the size of the amended facility to an aggregate $2.01 billion. A summary of the significant termsmaturity dates and interest rates of our unsecured credit agreement, as of June 30, 2023, are as follows:
|
| | | | | | | | | | |
|
Maturity Date | | Current
Interest Rate |
$505.0600.0 Million Revolving Credit Facility(1) | August 2019July 2026 | | LIBORSOFR + 1.00%0.85% |
$300.0 Million Term Loan(2) | August 2020January 2025 | | LIBORTerm SOFR + 1.10% |
$300.0 Million Term Loan(3)
| January 2021 | | LIBOR + 1.10%1.00% |
| |
(1) | Increased from $400.0 million. Maturity date can be extended to August 2020 at our option. The interest rate ranges from LIBOR plus 0.85% to 1.55%. At September 30, 2017, the unsecured revolving credit facility had $200 million of borrowings outstanding, $4.6 million of letters of credit, and availability of $300.4(1) Maturity date of the revolving credit facility can be extended to July 2027 at our option, subject to certain conditions. The interest rate ranges from SOFR plus 0.725% to 1.40%. At June 30, 2023, we had no borrowings outstanding and availability of $600.0 million, subject to covenant compliance. |
| |
(2) | Increased from $250.0 million. The interest rate ranges from LIBOR plus 0.90% to 1.75%. We previously entered into aggregate interest-rate swap agreements to fix the LIBOR component at a weighted-average rate of 1.09% through February 2018 on $250.0 million of outstanding LIBOR-based borrowings. |
| |
(3) | Increased from $255.0 million. The interest rate ranges from LIBOR plus 0.90% to 1.75%. We previously entered into aggregate interest-rate swap agreements to fix the LIBOR component at a weighted-average rate of 1.42% through January 2019 on $255.0 million of outstanding LIBOR-based borrowings. |
(2) The Term SOFR portion of the interest rate was swapped to obtain a current fixed rate of 2.722%.
As of SeptemberJune 30, 2017,2023, we were in compliancecompliant with all applicable financial covenants contained in our corporate levelcorporate-level debt agreements.
Development Costs
As of June 30, 2023, we had six ongoing consolidated development projects and expect to incur approximately $77.0 million of costs during the remainder of 2023, excluding noncontrolling interests' share, to substantially complete the construction of such projects. Etna Park 70, LLC, a joint venture that the Company has a 90% ownership interest, commenced construction of industrial facility estimated to cost $29.0 million. As of June 30, 2023, we had three consolidated and two non-consolidated subsidiaries that owned land parcels held for industrial development. We are unable to estimate the timing of any required funding for potential development projects on these parcels.
Results of Operations
Three months ended SeptemberJune 30, 20172023 compared with three months ended SeptemberJune 30, 20162022. The increasedecrease in net income (loss) attributable to common shareholders of $30.9$49.4 million was primarily due to the items discussed below.
The decreaseincrease in total gross revenues during the three months ended September 30, 2017 of $8.3$7.3 million was primarily attributabledue to an increase of $3.9 million in base rental revenue and a $3.2 million increase in tenant reimbursement income primarily due to acquisitions, properties placed in service and leasing, partially offset by a decrease in rental revenue. Rental revenue decreased $8.9 million primarily due to a $17.9 million decrease in revenue from properties disposed of, primarily the New York City land investments, a $1.7 million decrease in termination income and a $1.2 million decrease in revenue from certain held properties due to changes in occupancy, partially offset by 2017 and 2016 property acquisitions rental revenue of $11.5 million.sales.
The increase in depreciation and amortization expense of $3.2$0.8 million was primarily due to acquisitions of certain properties.properties acquired and/or completed and placed in service subsequent to June 30, 2022.
The increase in general and administrativeproperty operating expense of $0.5$2.0 million was primarily due to an increase in professional fees.
The $2.05 million litigation reserve recognized as of September 30, 2017, represents the probable settlement amount related to the litigation disclosed in note 13 to our consolidated financial statements.
The decrease in non-operating income of $2.1 million was due to the collection of loans receivable.operating expense responsibilities at certain properties.
The decrease in interest and amortization expense of $4.1$0.7 million related primarily to the satisfaction of mortgagea $1.8 million increase in capitalized interest related to our on-going development. Additionally, interest expense decreased $0.3 million related to secured debt outstanding. These decreases were offset by a $1.4 million increase in connection with property sales and a decrease in the interest rateexpense related to increased interest rates on our $129.1 million of trust preferred securities.variable-rate unsecured debt during the three months ended June 30, 2023 compared to the three months ended June 30, 2022.
The decreaseincrease in impairment charges of $50.9$11.1 million was primarily related to the timing of impairment charges recognized on propertiescertain properties. The impairments in 2023 were taken on office assets primarily due to sales, vacancies and lack of leasing prospects. In 2016, a $65.5 million impairment charge was recognized on the sale of three of our New York, New York land investments.potential sales.
The decrease in gains on sales of properties of $5.4$27.9 million was related to the timing of sales of properties.property dispositions.
The decrease in selling profit from sales-type lease of $9.3 million is due to a tenant exercising its purchase option resulting in a change in net (income) loss attributable to noncontrolling interests of $2.3 million related primarilylease classification from an operating lease to a sales-type lease in 2022 with no comparable transaction in 2023.
The decrease in the net lossequity in earnings (losses) of LCIF in 2017 comparednon-consolidated entities of $6.6 million was primarily due to 2016.
Any increase in net income in future periods will be closely tied to the levelrecognizing our share of acquisitions and dispositions and leasing activity. Without acquisitions and favorable leasing activity, the sources of growth in net income are limited to index-adjusted rents (such as the consumer price index), reduced interest expense on amortizing mortgages and debt refinancings and by controlling other variable overhead costs and, periodically, gains on sale of one property from the NNN Office JV L.P. in 2022 in the amount of $11.6 million with no property sales at our non-consolidated entities in 2023. The decrease was primarily offset by recognizing our share of properties. However, there are many factors beyond management's control that could offset these items including, without limitation, increased interest rates, decreased occupancy rates, tenant monetary defaults, delayed acquisitionsimpairment charges and losses on debt satisfaction related to NNN Office JV L.P. in 2022 in the other risks describedamount of $4.2 million and $1.5 million, respectively, with no similar transactions in our periodic reports filed with the SEC.2023.
NineSix months endedSeptember June 30, 20172023 compared with ninesix months ended SeptemberJune 30, 2016.2022.The decrease in net income (loss) attributable to common shareholders of $24.9$48.8 million was primarily due to the items discussed below.
The decreaseincrease in total gross revenues during the nine months ended September 30, 2017 of $44.7$12.1 million was primarily attributabledue to an increase of $6.8 million in base rental revenue and a decrease$5.2 million increase in rental revenue. Rental revenue decreased $44.9 milliontenant reimbursement income primarily due to a $57.8 million decreaseacquisitions, properties placed in revenue from properties disposed of, primarily the New York City land investments, a $12.5 million decrease in termination incomeservice and a $3.8 million decrease in revenue from certain held properties due to changes in occupancy,leasing, partially offset by 2017 and 2016 property acquisitions rental revenue of $28.4 million.sales.
The increase in depreciation and amortization expense of $4.0$2.0 million was primarily due to acquisitions of certain properties.properties acquired and/or completed and placed in service subsequent to January 1, 2022.
The increase in property operating expense of $1.9$2.7 million was primarily due to costs incurred on properties acquired in 2017 and 2016, costs incurred on vacant properties prior to sale and an increase in acquisitionoperating expense responsibilities at certain properties.
The decrease of $1.8 million in general and administrative expense is primarily related to a decrease of $1.9 million in costs offsetincurred related to the Board of Trustees' strategic alternatives review and consulting costs related to shareholder activism in part by reduced operating2022. There were no consulting costs associated with sold properties.incurred related to shareholder activism during the six months ended June 30, 2023.
The increase in general and administrative expensesimpairment charges of $2.5 million related primarily to an increase in professional fees, primarily legal fees.
The $2.05 million litigation reserve recognized as of September 30, 2017, represents the probable settlement amount related to the litigation disclosed in note 13 to our consolidated financial statements.
The decrease in non-operating income of $4.5 million was due to the collection of loans receivable.
The decrease in interest and amortization expense of $10.7 million related primarily to the satisfaction of mortgage debt in connection with property sales and a decrease in the interest rate on our $129.1 million of trust preferred securities.
The change in debt satisfaction gains (charges), net of $3.2$14.7 million was primarily due to the timing of debt satisfactions.
The decrease in impairment charges and loan loss of $32.3 million related primarily to the timing of impairment charges recognized on propertiescertain properties. The impairments in 2023 were taken on office assets primarily due to sales, vacancies and lack of leasing prospects and a $5.3 million loan loss recognized on the sale of our Kennewick, Washington loan receivable in 2017. In 2016, a $65.5 million impairment charge was recognized on the sale of three of our New York, New York land investments.potential sales.
The decrease in gains on sales of properties of $3.3$20.2 million was related to the timing of sales of properties.property dispositions.
The decrease in selling profit from sales-type lease of $9.3 million is due to a tenant exercising its purchase option resulting in a change in lease classification from an operating lease to a sales-type lease in 2022 with no comparable transaction in 2023.
The decrease in equity in earnings (losses) of non-consolidated entities of $7.5$14.3 million was primarily due to the timing of gains recognized on the sale ofproperty sales within our non-consolidated investments, partially offset by an impairment charge recognized in 2017 on our investment in Palm Beach Gardens, Florida where the sole tenant filed for bankruptcy.
The change in net (income) loss attributable to noncontrolling interests of $0.6 million related primarily to a decrease in the net loss of LCIF in 2017 compared to 2016.entities.
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 the entirety of two comparable reporting periods, excluding properties encumbered by mortgage loans in default and the revenue associated with the expansion of properties, as applicable.periods. We define NOI as operating revenues (rental income (less non-cash GAAP rent adjustments, non-cash income related to sales-type leases and lease termination income)income, net), tenant reimbursements and other property income) less property operating expenses. As same-store NOI excludes the change in NOI from acquired and disposed of properties and certain other 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 the Company'sour operating performance. However, same-store NOI should not be viewed as an alternative measure of the Company'sour financial performance since it does not reflect the operations of the Company'sour 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 the Company'sour properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact the Company'sour results from operations. Lexington believesWe 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 ninethree and six months ended SeptemberJune 30, 20172023 and 20162022 ($000's):
| | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2023 | | 2022 | | 2023 | | 2022 |
Total cash base rent | $ | 218,871 |
| | $ | 218,710 |
| Total cash base rent | $ | 62,350 | | | $ | 59,194 | | | $ | 121,357 | | | $ | 115,936 | |
Tenant reimbursements | 18,788 |
| | 19,807 |
| Tenant reimbursements | 13,526 | | | 10,961 | | | 25,759 | | | 22,096 | |
Property operating expenses | (28,461 | ) | | (28,388 | ) | Property operating expenses | (14,291) | | | (11,818) | | | (27,162) | | | (23,907) | |
Same-store NOI | $ | 209,198 |
| | $ | 210,129 |
| Same-store NOI | $ | 61,585 | | | $ | 58,337 | | | $ | 119,954 | | | $ | 114,125 | |
Our reported same-store NOI decreased from 2016increased for the three and six months ended June 30, 2023 compared to 2017three and six months ended June 30, 2022 by 0.4%. The decrease in same-store NOI between periods5.6% and 5.1%, respectively, primarily relateddue to an increase in vacancy in certaincash base rents. As of June 30, 2023 and 2022, our office properties. Our historical same-store square footageproperties were 99.8% leased, was 97.2% at September 30, 2017 and 98.9% at September 30, 2016.respectively.
Below is a reconciliation of net income (loss) to same-store NOI for periods presented ($000's):
| | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| Nine Months ended September 30, | | 2023 | | 2022 | | 2023 | | 2022 |
| 2017 | | 2016 | |
Net income | $ | 55,181 |
| | $ | 79,521 |
| |
Net income (loss) | | Net income (loss) | $ | (7,780) | | | $ | 41,538 | | | $ | 3,535 | | | $ | 52,446 | |
| | | | |
Interest and amortization expense | 57,828 |
| | 68,573 |
| Interest and amortization expense | 10,144 | | | 10,821 | | | 21,537 | | | 21,503 | |
Provision for income taxes | 1,174 |
| | 1,099 |
| Provision for income taxes | 210 | | | 263 | | | 426 | | | 680 | |
Depreciation and amortization | 128,706 |
| | 124,687 |
| Depreciation and amortization | 45,993 | | | 45,193 | | | 91,734 | | | 89,699 | |
General and administrative | 25,561 |
| | 23,032 |
| General and administrative | 9,010 | | | 9,296 | | | 18,252 | | | 20,033 | |
Litigation reserve | 2,050 |
| | — |
| |
Transaction costs | 1,100 |
| | 329 |
| Transaction costs | — | | | (34) | | | 4 | | | 55 | |
Non-operating income | (4,997 | ) | | (9,500 | ) | |
Non-operating/advisory fee income | | Non-operating/advisory fee income | (1,143) | | | (1,503) | | | (2,545) | | | (2,986) | |
Gains on sales of properties | (55,078 | ) | | (58,413 | ) | Gains on sales of properties | — | | | (27,855) | | | (7,879) | | | (28,110) | |
Impairment charges and loan loss | 43,577 |
| | 75,904 |
| |
Debt satisfaction (gains) charges, net | (2,378 | ) | | 818 |
| |
Impairment charges | | Impairment charges | 12,967 | | | 1,829 | | | 16,490 | | | 1,829 | |
Selling profit from sales-type lease | | Selling profit from sales-type lease | — | | | (9,314) | | | — | | | (9,314) | |
| Equity in (earnings) losses of non-consolidated entities | 1,064 |
| | (6,394 | ) | Equity in (earnings) losses of non-consolidated entities | 1,014 | | | (5,619) | | | (2,590) | | | (16,920) | |
Lease termination income | (2,934 | ) | | (15,390 | ) | |
| Straight-line adjustments | (12,552 | ) | | (35,697 | ) | Straight-line adjustments | (2,638) | | | (3,313) | | | (5,725) | | | (6,815) | |
Lease incentives | 1,456 |
| | 1,256 |
| Lease incentives | 109 | | | 129 | | | 205 | | | 263 | |
Amortization of above/below market leases | 1,180 |
| | 1,527 |
| Amortization of above/below market leases | (449) | | | (481) | | | (898) | | | (961) | |
Sales-types lease adjustments | | Sales-types lease adjustments | (651) | | | (13) | | | (1,098) | | | (13) | |
NOI | 240,938 |
| | 251,352 |
| NOI | 66,786 | | | 60,937 | | | 131,448 | | | 121,389 | |
| | | | | | | | | | | |
Less NOI: | | | | Less NOI: | |
Disposed of properties | (2,455 | ) | | (36,441 | ) | |
Acquired properties | (27,047 | ) | | (2,556 | ) | |
Properties in default | (2,238 | ) | | (2,226 | ) | |
Acquisitions, developments and dispositions | | Acquisitions, developments and dispositions | (5,201) | | | (2,600) | | | (11,494) | | | (7,264) | |
| Same-Store NOI | $ | 209,198 |
| | $ | 210,129 |
| Same-Store NOI | $ | 61,585 | | | $ | 58,337 | | | $ | 119,954 | | | $ | 114,125 | |
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 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 (or loss) computed(calculated in accordance with GAAP,GAAP), excluding gains (or losses) from sales of property, plus real estate depreciation and amortization related to real estate, gains and after adjustments for non-consolidated partnershipslosses from the sales of certain real estate assets, gains and joint ventures.” NAREIT clarified its computationlosses from change in control and impairment write-downs of FFOcertain real estate assets and investments in entities when the impairment is directly attributable to exclude impairment charges ondecreases in the value of depreciable real estate owned directly or indirectly.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 security 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 (loss) attributable to common shareholders to FFO available to common shareholders and unitholders and Adjusted Company FFO available to all equityholders and unitholders for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 (unaudited and dollars in thousands, except share and per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
FUNDS FROM OPERATIONS: | | 2023 | | 2022 | | 2023 | | 2022 |
Basic and Diluted: | | | | | | | | |
Net income (loss) attributable to common shareholders | | $ | (9,683) | | | $ | 39,667 | | | $ | (161) | | | $ | 48,665 | |
Adjustments: | | | | | | | | |
Depreciation and amortization - real estate | | 45,028 | | | 44,523 | | | 89,888 | | | 88,373 | |
Impairment charges - real estate | | 12,967 | | | 6,043 | | | 16,490 | | | 6,043 | |
Noncontrolling interests - OP units | | (81) | | | 47 | | | (78) | | | 136 | |
Amortization of leasing commissions | | 965 | | | 670 | | | 1,846 | | | 1,326 | |
Joint venture and noncontrolling interest adjustment | | 1,929 | | | 2,823 | | | 4,329 | | | 5,973 | |
Gains on sales of properties, including our share of non-consolidated entities | | — | | | (39,435) | | | (12,654) | | | (50,961) | |
FFO available to common shareholders and unitholders - basic | | 51,125 | | | 54,338 | | | 99,660 | | | 99,555 | |
Preferred dividends | | 1,573 | | | 1,573 | | | 3,145 | | | 3,145 | |
Amount allocated to participating securities | | 62 | | | 58 | | | 134 | | | 110 | |
FFO available to all equityholders and unitholders - diluted | | 52,760 | | | 55,969 | | | 102,939 | | | 102,810 | |
Selling profit from sales-type lease(1) | | — | | | (9,314) | | | — | | | (9,314) | |
Allowance for credit losses | | | | (110) | | | — | | | (31) | | | — | |
Transaction costs(2) | | | | — | | | (34) | | | 4 | | | 55 | |
Debt satisfaction losses, net, including our share of non-consolidated entities | | — | | | 1,495 | | | — | | | 1,495 | |
Other non-recurring costs(3) | | — | | | 753 | | | — | | | 1,934 | |
Noncontrolling interest adjustments | | 5 | | | — | | | 1 | | | — | |
Adjusted Company FFO available to all equityholders and unitholders - diluted | | $ | 52,655 | | | $ | 48,869 | | | $ | 102,913 | | | $ | 96,980 | |
|
| | | | | | | | | | | | | | | | | | |
| | | Three Months ended September 30, | | Nine Months ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
FUNDS FROM OPERATIONS: | | | | | | |
Basic and Diluted: | | | | | | | | |
Net income (loss) attributable to common shareholders | | $ | 3,916 |
| | $ | (26,975 | ) | | $ | 49,832 |
| | $ | 74,718 |
|
Adjustments: | |
|
| | | | | | |
| Depreciation and amortization | | 42,015 |
| | 38,642 |
| | 124,633 |
| | 119,523 |
|
| Impairment charges - real estate, including non-consolidated entities | | 21,986 |
| | 72,890 |
| | 41,795 |
| | 75,904 |
|
| Noncontrolling interests - OP units | | (173 | ) | | (2,507 | ) | | (192 | ) | | (845 | ) |
| Amortization of leasing commissions | | 1,480 |
| | 1,646 |
| | 4,073 |
| | 5,164 |
|
| Joint venture and noncontrolling interest adjustment | | 259 |
| | 284 |
| | 864 |
| | 742 |
|
| Gains on sales of properties, including non-consolidated entities | | (10,645 | ) | | (16,072 | ) | | (56,530 | ) | | (63,791 | ) |
| Tax on sales of properties | | — |
| | — |
| | — |
| | 50 |
|
FFO available to common shareholders and unitholders - basic | | 58,838 |
| | 67,908 |
| | 164,475 |
| | 211,465 |
|
| Preferred dividends | | 1,573 |
| | 1,573 |
| | 4,718 |
| | 4,718 |
|
| Interest and amortization on 6.00% Convertible Guaranteed Notes | | — |
| | 47 |
| | — |
| | 532 |
|
| Amount allocated to participating securities | | 52 |
| | 50 |
| | 183 |
| | 187 |
|
FFO available to all equityholders and unitholders - diluted | | 60,463 |
| | 69,578 |
| | 169,376 |
| | 216,902 |
|
| Litigation reserve | | 2,050 |
| | — |
| | 2,050 |
| | — |
|
| Debt satisfaction (gains) charges, net | | (2,424 | ) | | (2,538 | ) | | (2,378 | ) | | 818 |
|
| Loan loss | | — |
| | — |
| | 5,294 |
| | — |
|
| Transaction costs | | 612 |
| | 115 |
| | 1,100 |
| | 329 |
|
Adjusted Company FFO available to all equityholders and unitholders - diluted | | $ | 60,701 |
| | $ | 67,155 |
| | $ | 175,442 |
| | $ | 218,049 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Per Common Share and Unit Amounts | | | | | | | | |
Basic: | | | | | | | | |
FFO | | $ | 0.18 | | | $ | 0.19 | | | $ | 0.34 | | | $ | 0.35 | |
| | | | | | | | |
| | | | | | | | |
Diluted: | | | | | | | | |
FFO | | $ | 0.18 | | | $ | 0.19 | | | $ | 0.35 | | | $ | 0.35 | |
Adjusted Company FFO | | $ | 0.18 | | | $ | 0.17 | | | $ | 0.35 | | | $ | 0.33 | |
|
| | | | | | | | | | | | | | | | |
Per Common Share and Unit Amounts | | | | | | | | |
Basic: | | | | | | | | |
FFO | | $ | 0.24 |
| | $ | 0.29 |
| | $ | 0.68 |
| | $ | 0.89 |
|
| | | | | | | | |
Diluted: | | | | | | | | |
FFO | | $ | 0.24 |
| | $ | 0.29 |
| | $ | 0.69 |
| | $ | 0.89 |
|
Adjusted Company FFO | | $ | 0.25 |
| | $ | 0.28 |
| | $ | 0.71 |
| | $ | 0.89 |
|
| | | | | Three Months ended September 30, | | Nine Months ended September 30, | |
| | | 2017 | | 2016 | | 2017 | | 2016 | |
Weighted-Average Common Shares: | Weighted-Average Common Shares: | | | | | | | | | Weighted-Average Common Shares: | |
Basic: | Basic: | | | | | | | | | Basic: | |
Weighted-average common shares outstanding - basic EPS | Weighted-average common shares outstanding - basic EPS | | 237,989,098 |
| | 234,207,396 |
| | 237,632,572 |
| | 233,151,600 |
| Weighted-average common shares outstanding - basic EPS | | 290,186,934 | | | 283,568,078 | | | 290,134,015 | | | 283,604,072 | |
Operating partnership units(1) | | 3,646,869 |
| | 3,815,386 |
| | 3,713,867 |
| | 3,818,117 |
| |
Operating partnership units(4) | | Operating partnership units(4) | | 828,603 | | | 860,048 | | | 830,335 | | | 865,512 | |
Weighted-average common shares outstanding - basic FFO | Weighted-average common shares outstanding - basic FFO | | 241,635,967 |
| | 238,022,782 |
| | 241,346,439 |
| | 236,969,717 |
| Weighted-average common shares outstanding - basic FFO | | 291,015,537 | | | 284,428,126 | | | 290,964,350 | | | 284,469,584 | |
| | | | | | | | | | | | | | | | | | |
Diluted: | Diluted: | | | | | | | | | Diluted: | |
Weighted-average common shares outstanding - diluted EPS | Weighted-average common shares outstanding - diluted EPS | | 241,702,715 |
| | 234,207,396 |
| | 241,442,227 |
| | 237,215,883 |
| Weighted-average common shares outstanding - diluted EPS | | 291,015,537 | | | 285,436,441 | | | 290,964,350 | | | 287,687,397 | |
Operating partnership units(1) | | — |
| | 3,815,386 |
| | — |
| | — |
| |
6.00% Convertible Guaranteed Notes | | — |
| | 508,912 |
| | — |
| | 1,439,456 |
| |
| Unvested share-based payment awards | Unvested share-based payment awards | | 655,228 |
| | 570,260 |
| | 650,348 |
| | 478,329 |
| Unvested share-based payment awards | | 135,172 | | | 10,140 | | | 131,522 | | | 34,762 | |
Share options | | — |
| | 238,395 |
| | — |
| | — |
| |
Preferred shares - Series C | Preferred shares - Series C | | 4,710,570 |
| | 4,710,570 |
| | 4,710,570 |
| | 4,710,570 |
| Preferred shares - Series C | | 4,710,570 | | | 4,710,570 | | | 4,710,570 | | | 4,710,570 | |
Weighted-average common shares outstanding - diluted FFO | Weighted-average common shares outstanding - diluted FFO | | 247,068,513 |
| | 244,050,919 |
| | 246,803,145 |
| | 243,844,238 |
| Weighted-average common shares outstanding - diluted FFO | | 295,861,279 | | | 290,157,151 | | | 295,806,442 | | | 292,432,729 | |
(1) Gain recognized upon exercise of the tenant's purchase option in the lease.
(2) Includes allcosts related to entering into a sales-type lease and other investments costs.
(3) Includes strategic alternatives and costs related to shareholder activism.
(4) Includes OP units other than OP units held by us.
Off-Balance Sheet Arrangements
As of SeptemberJune 30, 2017,2023, we had investments in various real estate entities with varying structures. The real estate investments owned by these entitiesour institutional 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 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.representations, and environmental matters. We have guaranteed such obligations for certain of our non-consolidated entities.
entities with respect to $503.9 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.
Lepercq Corporate Income Fund L.P.:
Critical Accounting Policies
Management's discussion and analysis of financial condition and results of operations is based upon the Partnership's unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. In preparing the Partnership's unaudited condensed consolidated financial statements in accordance with GAAP and pursuant to the rules and regulations of the SEC, the Partnership makes assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosures of contingent assets and liabilities. The Partnership bases its assumptions, judgments and estimates on historical experience and various other factors that the Partnership believes to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, the Partnership evaluates its assumptions, judgments and estimates. Certain of the Partnership's accounting policies are discussed under (1) Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report, (2) note 2 to the consolidated financial statements contained in the Annual Report and (3) note 1 to the Partnership's unaudited condensed consolidated financial statements contained in this Quarterly Report. The Partnership believes there have been no material changes to the items that the Partnership disclosed as the Partnership's critical accounting policies under Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report.
Liquidity
Cash Flows. The Partnership believes that its cash flows from operations will continue to provide adequate capital to fund its operating and administrative expenses, regular debt service obligations, working capital needs and all distribution payments in accordance with partnership agreement requirements in both the short-term and long-term. However, without a capital event, which would most likely involve the Company, the Partnership does not have the ability to fund balloon payments on maturing mortgages or acquire new investments.
Cash flows from operations totaled $32.7 million and $31.0 million during the nine months ended September 30, 2017 and 2016, respectively. The increase was primarily due to the impact of cash flow generated from acquired properties and interest cost savings due to mortgage satisfactions offset by reduced cash flows attributable to sold properties. The underlying drivers that impact working capital and therefore cash flows from operations are the timing of (1) the collection of rents and tenant reimbursements, (2) the payment of interest on mortgage debt and (3) operating and general and administrative costs. The Partnership believes the net-lease structure of the leases encumbering a majority of the properties in which the Partnership has 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. Collection and timing of tenant rents is closely monitored by management as part of the Partnership cash management program.
Net cash provided by (used in) investing activities totaled $(44.4) million and $162.7 million during the nine months ended September 30, 2017 and 2016, respectively. Cash provided by investing activities related primarily to proceeds from the sale of properties, real estate deposits and distributions from non-consolidated entities in excess of accumulated earnings. Cash used in investing activities related primarily to capital expenditures on real estate properties, acquisition of real estate, investments in real estate under construction, investments in non-consolidated entities and an increase in deferred lease costs.
Net cash provided by (used in) financing activities totaled $26.6 million and $(132.7) million during the nine months ended September 30, 2017 and 2016, respectively. Cash used in financing activities was primarily attributable to distribution payments, an increase in deferred financing costs, debt payments and OP unit redemptions. Cash provided by financing activities was primarily attributable to related party advances, net and co-borrower debt borrowings.
Property Specific Debt. As of September 30, 2017, the Partnership had no property-specific debt maturing in 2017 and 2018. However, if a mortgage loan is unable to be refinanced upon maturity, the Partnership will be dependent on the Company's liquidity resources to satisfy such mortgage loan to avoid transferring the underlying property to the lender or selling the underlying property to a third party. During the nine months ended September 30, 2016, the Partnership satisfied a $15.0 million balloon maturity on its Byhalia Mississippi property.
Capital Recycling.During the nine months ended September 30, 2017 and 2016, the Partnership disposed of its interests in certain investments for an aggregate gross sales price of $7.6 million and $445.6 million, respectively. During the nine months ended September 30, 2016, the Partnership satisfied an aggregate $251.2 million of non-recourse mortgage debt in connection with the sales.
Results of Operations
Three months ended September 30, 2017 compared with the three months ended September 30, 2016. The decrease in total gross revenues of $9.3 million was primarily attributable to a decrease in rental revenue. The decrease in rental revenue of $9.4 million was primarily due to a reduction in rental revenue of $12.4 million due to a decrease in revenue from properties sold and a reduction in lease termination income, partially offset by rental revenue from newly acquired properties of $2.8 million.
The increase in depreciation and amortization expense of $2.3 million was primarily due to acquisitions of certain properties.
The decrease in general and administrative expense of $0.9 million primarily related to a decrease in the allocation of expenses from Lexington.
The decrease in interest and amortization expense of $3.0 million was primarily due to the sale of encumbered properties in 2016, particularly the New York, New York land investments, and a decrease in the allocation of interest and amortization expense from Lexington.
The decrease in debt satisfaction charges, net of $5.8 million was primarily due to the timing of debt satisfactions.
The decrease in impairment charges of $58.7 million primarily related to the timing of impairment charges recognized on the sales of properties. In 2016, a $65.5 million impairment charge was recognized on the sale of three New York, New York land investments.
Ninemonths endedSeptember 30, 2017 compared with the nine months ended September 30, 2016. The decrease in total gross revenues of $44.3 million was primarily attributable to a decrease in rental revenue. The decrease in rental revenue of $43.5 million was primarily due to a reduction in rental revenue of $49.7 million due to a decrease in revenue from properties sold and a reduction in lease termination income, partially offset by rental revenue from newly acquired properties of $5.7 million.
The increase in depreciation and amortization expense of $3.1 million was primarily due to acquisitions of certain properties.
Property operating expense decreased $1.5 million primarily due to the sale of properties, including multi-tenanted properties, where LCIF had operating expense responsibilities.
The decrease in general and administrative expense of $2.1 million primarily related to a decrease in the allocation of expenses from Lexington.
The decrease in interest and amortization expense of $12.4 million was primarily due to the sale of encumbered properties in 2016, particularly the New York, New York land investments, and a decrease in the allocation of interest and amortization expense from Lexington.
The decrease in debt satisfaction charges, net of $7.4 million was primarily due to the timing of debt satisfactions.
The decrease in impairment charges of $55.9 million related primarily to the timing of impairment charges recognized on the sales of properties. In 2016, a $65.5 million impairment charge was recognized on the sale of three New York, New York land investments.
The decrease in gains on sales of properties of $16.0 million related to the timing of sales of properties.
Off-Balance Sheet Arrangements
The Partnership is a co-borrower or guarantor of corporate borrowing facilities and debt securities of the Company (see notes 5 and 8 to the Partnership's unaudited condensed consolidated financial statements with respect to debt securities). In addition, the Partnership, from time to time, guarantees certain tenant improvement allowances and lease commissions on behalf of its subsidiaries when required by the related tenant or lender. However, the Partnership does not believe these guarantees are material to it as the obligations under and risks associated with such guarantees are priced into the rent under the applicable lease or the value of the applicable property.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET 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 not subject to interest rate swaps was $424.1$129.1 million and $249.1 million, respectively, at SeptemberJune 30, 2017,2023 and 2022, which represented 20.1%8.6% and 15.3%, respectively, of our aggregate principal consolidated indebtedness. We had no consolidated variable-rate indebtedness outstanding at September 30, 2016. During the three-month periodsthree months ended SeptemberJune 30, 20172023 and 2016,2022, our variable-rate indebtedness had a weighted-average interest rate of 2.9%6.7% and 1.5%2.3%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for the three months ended SeptemberJune 30, 20172023 and 20162022 would have increased by $475 thousand$0.5 million and $197 thousand,$0.6 million, respectively. During the nine-month periodsix months ended SeptemberJune 30, 20172023 and 2016,2022, our variable-rate indebtedness had a weighted-average interest rate of 2.9%6.5% and 1.4%2.2%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for the ninesix months ended SeptemberJune 30, 20172023 and 20162022 would have increased by $694 thousand and $1.0 million and $0.9 million, respectively. AsAt each of SeptemberJune 30, 20172023 and 2016,2022, our aggregate principal consolidated fixed-rate debt was $1.7 billion and $1.9$1.4 billion, respectively, which represented 79.9%91.4% and 100.0%84.7%, 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.values, especially given the volatility of the current economic environment. The following fair value was determined using the interest rates that we believe our outstanding fixed-rate indebtedness would warrant as of SeptemberJune 30, 2017.2023. We believe the fair value is indicative of the interest rate environment as of SeptemberJune 30, 2017,2023, but this amount does not take into consideration the effects of subsequent interest rate fluctuations. Accordingly, we estimate that the fair value of our fixed-rate indebtedness was $1.7$1.2 billion as of SeptemberJune 30, 2017.2023.
Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates through the use of fixed-rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements. We may enter into derivative financial instruments such as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable-rate debt. As of SeptemberJune 30, 2017,2023, we had 10four interest rate swap agreements (see note 9Note 8 to our unaudited condensed consolidated financial statements contained in this Quarterly Report).
The Partnership has similar exposure to market risk and interest rate risk relating to its variable-rate indebtedness because the Partnership is a co-borrower of the Company's variable-rate debt.
ITEM 4. CONTROLS AND PROCEDURES
Lexington Realty Trust:
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report to determine if such controls and procedures were effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As discussed in the Annual Report, management has identified a material weakness in our internal control over financial reporting, and management,Management, including each of our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were not effective as of SeptemberJune 30, 2017 due to this material weakness. Management believes the unaudited condensed consolidated financial statements contained herein present fairly, in all material respects, our financial position as of the specified dates and our results of operations and cash flows for the specified periods.2023.
Changes in Internal Control Over Financial Reporting. During the quarter ended June 30, 2017, management began implementing a remediation plan that was approved by the Audit Committee of our Board of Trustees with respect to the material weakness described in the Annual Report. Management took the following steps as part of the remediation:
Evaluated and revised our financial reporting process to align our control environment, business processes and monitoring and personnel with our financial reporting objectives, with an emphasis on critical accounting policies and significant or unusual transactions.
Improved the documentation of our system of internal control over financial reporting, specifically the application of critical accounting policies and identification of significant or unusual transactions, by establishing a policy guidance for the identification and critical accounting analysis of significant or unusual transactions.
Implemented additional controls over the communication, review and authorization of significant or unusual transactions, including, appropriate oversight by our Board of Trustees and Audit Committee of our Board of Trustees, as applicable.
The changes resulting from this remediation plan have not been fully tested. Until testing occurs and the changes operate for an appropriate period of time to insure their effectiveness, the material weakness described in the Annual Report will not be considered remediated. There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this Quarterly Report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Lepercq Corporate Income Fund L.P.:
Evaluation of Disclosure Controls and Procedures. The Partnership’s management, with the participation of Lex GP’s President and Lex GP’s Vice President and Treasurer, evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report to determine if such controls and procedures were effective to ensure that information required to be disclosed by the Partnership in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that information required to be disclosed by the Partnership in reports filed or submitted under the Exchange Act is accumulated and communicated to the Partnership’s management, including Lex GP’s President and Lex GP’s Vice President and Treasurer, as appropriate, to allow timely decisions regarding required disclosure. As discussed in the Annual Report, management has identified a material weakness in the Partnership's internal control over financial reporting, and management, including each of Lex GP's President and Lex GP's Vice President and Treasurer, has concluded that the Partnership's disclosure controls and procedures were not effective as of September 30, 2017 due to this material weakness. Management believes the unaudited condensed consolidated financial statements contained herein present fairly, in all material respects, the Partnership's financial position as of the specified dates and the Partnership's results of operations and cash flows for the specified periods.
Changes in Internal Control Over Financial Reporting. During the quarter ended June 30, 2017, the Partnership’s management began implementing a remediation plan that was approved by the Audit Committee of Lexington’s Board of Trustees with respect to the material weakness described in the Annual Report. The Partnership’s management took the following steps as part of the remediation:
Evaluated and revised the Partnership’s financial reporting process to align the Partnership’s control environment, business processes and monitoring and personnel with the Partnership’s financial reporting objectives, with an emphasis on critical accounting policies and significant or unusual transactions.
Improved the documentation of the Partnership’s system of internal control over financial reporting, specifically the application of critical accounting policies and identification of significant or unusual transactions, by establishing a policy guidance for the identification and critical accounting analysis of significant or unusual transactions.
Implemented additional controls over the communication, review and authorization of significant or unusual transactions, including, appropriate oversight by Lexington’s Board of Trustees and Audit Committee of Lexington’s Board of Trustees, as applicable.
The changes resulting from this remediation plan have not been fully tested. Until testing occurs and the changes operate for an appropriate period of time to insure their effectiveness, the material weakness described in the Annual Report will not be considered remediated. There were no changes in the Partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this Quarterly Report relates that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
Limitations on the Effectiveness of Controls. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
PART II - OTHER INFORMATION
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ITEM 1. | Legal Proceedings. |
ITEM 1.Legal Proceedings.
From time to time, the Company and Partnershipwe are directly and indirectly involved in legal proceedings arising in the ordinary course of the Company's and Partnership'sour business, including claims by lenders under non-recourse carve-out guarantees. 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 the Company's or the Partnership'sour business, financial condition and results of operations.
GSMSC II 2006-GG6 Bridgewater Hills Corporate Center, LLC v. Lexington Realty Trust (Supreme Court of the State of New York, County of New York-Index No. 653117/2015)
On September 16, 2015, GSMSC II 2006-GG6 Bridgewater Hills Corporate Center, LLC commenced an action as lender against the Company based on a limited guaranty of recourse obligations executed by a predecessor entity of the Company in connection with a mortgage loan secured by a property owner subsidiary's commercial property in Bridgewater, New Jersey. The property owner subsidiary defaulted due to non-payment after the sole tenant vacated at the end of the lease term. The lender claimed approximately $9.2 million in order to satisfy the outstanding amount of the loan, plus interest, reasonable attorney’s fees and other costs and disbursements related thereto.
The lender claimed that the Company's limited guaranty was triggered due to the merger of Newkirk Realty Trust, Inc. and Lexington Corporate Properties Trust on December 31, 2006, arguing that it constituted an event of default because it was a transfer that was not permitted by the loan agreement. The limited guaranty provides that the guarantor's liability for the guaranteed obligations shall not exceed $10.0 million. The Company filed a motion to dismiss, which was generally denied. The parties conducted discovery consisting of document production. The Company recorded a $2.05 million litigation reserve during the quarter ended September 30, 2017 relating to this litigation as the Company determined that a liability was "probable" (as defined by FASB ASC 450-20-20). A mediation was held on October 5, 2017, but a settlement was not reached that day. Following the mediation, a settlement agreement was executed that requires a $2.05 million payment.
The lender also brought a foreclosure action against the property owner subsidiary. A foreclosure sale was held September 13, 2016 and the lender acquired the property for a nominal amount.
ITEM 1A.Risk Factors.
There have been no material changes in our or the Partnership's risk factors from those disclosed in the Annual Report.
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ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds.
The following table summarizes repurchases of our common shares/OP units during the three months ended SeptemberJune 30, 20172023 pursuant to publicly announced repurchase plans(1):
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Issuer Purchases of Equity Securities |
Period | | (a) Total Number of Shares/Units Purchased
| | (b) Average Price Paid Perfor Share/Unit
| | (c) Total Number of Shares/Units Purchased as Part of Publicly Announced Plans or Programs(1) | | (d) Maximum Number of Shares/Units That May Yet Be Purchased Under the Plans or Programs(1) |
JulyApril 1 - 30, 2023 | | — | | | $ | — | | | — | | | 6,874,241 | |
May 1 - 31, 20172023 | | — |
| | $ | — |
| | — |
| | 6,599,0886,874,241 |
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August 1 - 31, 2017 | | — |
| | $ | — |
| | — |
| | 6,599,088 |
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SeptemberJune 1 - 30, 20172023 | | — |
| | $ | — |
| | — |
| | 6,599,088 |
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Third quarter 2017 | | — |
| | $ | — |
| | — |
| | 6,599,088 |
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6,874,241 | |
(1)Second quarter 2023 | Share repurchase authorization announced on July 2, 2015, which has no expiration date. | — | | | $ | — | | | — | | | 6,874,241 | |
During September 2017, the Partnership redeemed 2,675,785 OP units that were owned by Lexington for $130.0
(1) Share repurchase authorization of an additional 10.0 million or $48.58 per unit.common shares announced on August 4, 2022, which has no expiration date.
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ITEM 3. | Defaults Upon Senior Securities - not applicable. |
ITEM 3.Defaults Upon Senior Securities - not applicable. | |
ITEM 4. | Mine Safety Disclosures - not applicable. |
ITEM 4.Mine Safety Disclosures - not applicable. | |
ITEM 5. | Other Information - not applicable. |
ITEM 5.Other Information
During the three months ended June 30, 2023, no trustee or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6.Exhibits.
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Exhibit No. | | | | Description |
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| | — | | Fifth Supplemental Indenture, dated as of June 9, 2009,10, 2013, among the Company, (as successor tocertain subsidiaries of the MLP), the other guarantors named thereinCompany signatories thereto, and U.S. Bank, National Association, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on June 15, 2009)13, 2013)(1) |
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| | — | | First Amendment to Credit Agreement and Agreement Regarding Revolving Loan Commitment and Term Loan Increases,Second Supplemental Indenture, dated as of September 29, 2017,August 28, 2020, among the Company and LCIF, as borrowers, KeyBankU.S. Bank National Association, as agent, and each of the lenders signatory theretotrustee (filed as Exhibit 10.14.1 to the Company's Current Report on Form 8-K filed October 2, 2017)August 28, 2020)(1) |
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101.INS | | — | | |
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101.INS | | — | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (2, 5) |
101.SCH | | — | | Inline XBRL Taxonomy Extension Schema (2, 5) |
101.CAL | | — | | Inline XBRL Taxonomy Extension Calculation Linkbase (2, 5) |
101.DEF | | — | | Inline XBRL Taxonomy Extension Definition Linkbase Document (2, 5) |
101.LAB | | — | | Inline XBRL Taxonomy Extension Label Linkbase Document (2, 5) |
101.PRE | | — | | Inline XBRL Taxonomy Extension Presentation Linkbase Document (2, 5) |
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(1) | Incorporated by reference. |
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(3) | Furnished herewith. This exhibit shall not be deemed "filed" for purposes of Section 11 or 12 of the Securities Act of 1933, as amended (the "Securities Act"), or Section 18 of the Securities Exchanges Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of those sections, and shall not be part of any registration statement to which it may relate, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as set forth by specific reference in such filing or document. |
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(4) | Management contract or compensatory plan or arrangement. |
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(5) | The following materials from this Quarterly Report on Form 10-Q for the period ended September 30, 2017
(1) Incorporated by reference. (2) Filed herewith. (3) Furnished herewith. This exhibit shall not be deemed “filed” for purposes of Section 11 or 12 of the Securities Act of 1933, as amended (the “Securities Act”), or Section 18 of the Securities Exchanges Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of those sections, and shall not be part of any registration statement to which it may relate, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as set forth by specific reference in such filing or document. (4) Management contract or compensatory plan or arrangement. (5) The following materials from this Quarterly Report on Form 10-Q for the period ended June 30, 2023 are formatted in Inline XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets of the Company; (ii) Unaudited Condensed Consolidated Statements of Operations of the Company; (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) of the Company; (iv) Unaudited Condensed Consolidated Statements of Changes in Equity of the Company; (v) Unaudited Condensed Consolidated Statements of Cash Flows of the Company; and (vi) Notes to Unaudited Condensed Consolidated Financial Statements of the Company, detailed tagged; (vii) Unaudited Condensed Consolidated Balance Sheets of LCIF; (viii) Unaudited Condensed Consolidated Statements of Operations of LCIF; (ix) Unaudited Condensed Consolidated Statements of Changes in Partners' Capital of LCIF; (x) Unaudited Condensed Consolidated Statements of Cash Flows of LCIF; and (xi) Notes to Unaudited Condensed Consolidated Financial Statements of LCIF, detailed tagged. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the undersigned registrants haveregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | Lexington RealtyLXP Industrial Trust |
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Date: | November 7, 2017August 2, 2023 | By: | /s/ T. Wilson Eglin |
| | | T. Wilson Eglin |
| | | Chief Executive Officer and President (principal executive officer) |
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Date: | November 7, 2017August 2, 2023 | By: | /s/ Patrick CarrollBeth Boulerice |
| | | Patrick CarrollBeth Boulerice |
| | | Chief Financial Officer, Executive Vice President and Treasurer
(principal financial officer)
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| | | |
| | Lepercq Corporate Income Fund L.P. |
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| | By: | Lex GP-1 Trust, its General Partner |
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Date: | November 7, 2017 | By: | /s/ T. Wilson Eglin |
| | | T. Wilson Eglin |
| | | President
(principal executive officer)
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Date: | November 7, 2017 | By: | /s/ Patrick Carroll |
| | | Patrick Carroll |
| | | Vice President and Treasurer (principal financial officer) |