OREANDA-NEWS. Lexington Realty Trust (“Lexington”) (NYSE:LXP), a real estate investment trust focused on single-tenant real estate investments, today announced results for the second quarter ended June 30, 2016.

Second Quarter 2016 Highlights

  • Generated Net Income attributable to common shareholders of $46.8 million, or $0.20 per diluted common share.
  • Generated Adjusted Company Funds From Operations available to all equityholders and unitholders - diluted (“Adjusted Company FFO”) of $71.8 million, or $0.29 per diluted common share.
  • Disposed of six properties, including a land investment in New York City, for aggregate gross disposition proceeds of $107.2 million.
  • Completed an industrial build-to-suit property with a cost of $61.3 million.
  • Invested $39.5 million in on-going build-to-suit projects, including a recent commitment for a $37.0 million industrial build-to-suit project in Opelika, Alabama.
  • Completed 1.4 million square feet of new leases and lease extensions with overall portfolio 96.2% leased at quarter end.
  • Retired $80.0 million of secured debt and $24.5 million of unsecured borrowings.

Subsequent Events

  • Obtained $197.2 million 20-year non-recourse financing, which bears interest at a 4.04% fixed rate and is secured by the build-to-suit project in Lake Jackson, Texas.
  • Disposed of two properties for aggregate gross proceeds of $4.4 million.
  • Converted the remaining $11.9 million original principal amount of 6.00% Convertible Guaranteed Notes for 1.9 million common shares.

Adjusted Company FFO is a non-GAAP financial measure and in the first quarter 2016 earnings release was referred to as Company FFO. It and certain other non-GAAP financial measures are defined and reconciled later in this press release.

T. Wilson Eglin, President and Chief Executive Officer of Lexington, commented “Our second quarter activity was strong, particularly in sales and leasing, with Adjusted Company FFO of $0.29 per share, representing a 7% increase year-over-year. Strong progress has been made on our sales program and to date, consolidated property dispositions total $171 million at a 5.9% weighted-average cap rate.”

“As we enter the second half of the year, we believe we are on target to complete our sales program of $600-$700 million at a better than expected cap rate range of 5.5%-6.25%, and by year end, reduce our net debt to adjusted EBITDA ratio while maintaining ample cash on the balance sheet. We expect that all of these factors should position us to further grow our portfolio and continue to improve the quality of our holdings and cash flow.”

FINANCIAL RESULTS

Revenues

For the quarter ended June 30, 2016, total gross revenues were $109.6 million, a 0.7% decrease compared with total gross revenues of $110.3 million for the quarter ended June 30, 2015. The decrease is primarily attributable to 2015 and 2016 property sales and lease expirations, substantially offset by revenue generated from property acquisitions and new leases signed.

Net Income Attributable to Common Shareholders

For the quarter ended June 30, 2016, net income attributable to common shareholders was $46.8 million, or $0.20 per diluted share, compared with net income attributable to common shareholders for the quarter ended June 30, 2015 of $47.7 million, or $0.20 per diluted share.

Adjusted Company FFO

For the quarter ended June 30, 2016, Lexington generated Adjusted Company FFO of $71.8 million, or $0.29 per diluted share, compared to Adjusted Company FFO for the quarter ended June 30, 2015 of $67.0 million, or $0.27 per diluted share.

Dividends/Distributions

Lexington declared a regular quarterly common share/unit dividend/distribution for the quarter ended June 30, 2016 of $0.17 per common share/unit, which was paid on July 15, 2016 to common shareholders/unitholders of record as of June 30, 2016. Lexington also declared a dividend of $0.8125 per share on its Series C Cumulative Convertible Preferred Stock (“Series C Preferred Shares”), which is payable on November 15, 2016 to Series C Preferred Shareholders of record as of October 31, 2016.

OPERATING ACTIVITIES

During the quarter, Lexington acquired the following build-to-suit property:

ACQUISITIONS
Tenant (Guarantor)   Location   Property
Type		   Initial
Basis
($000)		   Initial
Estimated
Annualized
GAAP
Rent ($000)		   Initial
Estimated
Annualized
Cash
Rent ($000)		   Estimated
GAAP
Yield		   Initial
Estimated
Cash
Yield
   Approximate
Lease
Term (Yrs)
One World Technologies, Inc.
(Techtronic Industries Co. Ltd.)		   Anderson, SC   Industrial   $ 61,347     $ 4,446     $ 3,660       7.2 %   6.0 %   20
                                                   

During the quarter, Lexington funded $39.5 million of the projected costs of the following projects:

ON-GOING BUILD-TO-SUIT PROJECTS
Location   Sq. Ft.   Property
Type		   Lease
Term
(Years)		   Maximum
Commitment/
Estimated
Completion Cost
($000)		   GAAP
Investment
Balance as of
6/30/2016
($000)		   Estimated
Acquisition/
Completion
Date		   Estimated
GAAP Yield		   Estimated
Initial Cash
Yield
Lake Jackson, TX   664,000     Office   20   $ 166,164     $ 83,887     4Q 16     8.9 %     7.3 %
Charlotte, NC   201,000     Office   15   62,445     24,166     1Q 17     9.5 %     8.3 %
Opelika, AL   165,000     Industrial   25   37,000     710     2Q 17     9.0 %     7.1 %
Houston, TX(1)   274,000     Retail/Specialty   20   86,491     63,848     3Q 16     7.5 %     7.5 %
    1,304,000             $ 352,100     $ 172,611              
                                           
(1) Lexington had a 25% interest as of June 30, 2016. Lexington is providing construction financing up to $56.7 million to the joint venture of which $33.9 million had been funded as of June 30, 2016. The related lease provides for annual CPI increases.
 

During the quarter, Lexington sold the following properties:

PROPERTY DISPOSITIONS (4)
Primary Tenant   Location   Property
Type		   Gross Sale
Price
($000)		   Annualized
Net Income(1)
($000)		   Annualized
NOI(1)
($000)		   Month of
Disposition
ZE-45 Ground Tenant LLC   New York, NY   Land   $ 37,500     $ 3,194     $ 1,525     April
Apria Healthcare, Inc.   Lake Forest, CA   Office   19,000     (2 ) 775     1,366     May
Federal Express Corporation   Collierville, TN   Industrial   7,740     294     817     June
Atrius Health, Inc.   Boston, MA   Office   33,250     370     1,700     June
The McGraw-Hill Companies, Inc.   Dubuque, IA   Industrial   8,575     (3 ) 326     1,260     June
Vacant   Franklin, NC   Industrial   1,100     (158 )   (113 )   June
            $ 107,165     $ 4,801     $ 6,555      
                                     
(1) Quarterly period prior to sale annualized.
(2) A future rent credit of $1.7 million was credited to the buyer at closing.
(3) Excludes a $1.0 million lease termination payment from the tenant.
(4) In addition, Lexington sold certain land parcels for $1.0 million, which land parcels generated annualized net income and annualized NOI of $45 thousand.
 

LEASING

As of June 30, 2016, Lexington's overall portfolio was 96.2% leased, excluding properties subject to secured mortgage loans currently in default.

During the second quarter of 2016, Lexington executed the following new and extended leases:

    LEASE EXTENSIONS
                       
              Prior
  Lease      
    Location     Primary Tenant(1)   Term Expiration Date Sq. Ft.  
    Office/Multi-Tenant                
1-8   Honolulu HI   N/A   2016   2018   13,863  
9   Tampa FL   Time Customer Service, Inc. / Time, Inc.   06/2017   06/2026   132,981  
9   Total office lease extensions                 146,844  
                       
    Industrial/Multi-Tenant                
1   Plymouth MI   Tower Automotive Operations USA I, LLC   10/2017   10/2024   290,133  
2   Rantoul IL   Bell Sports, Inc.   10/2033   10/2034   813,126  
3   Antioch TN   Cimetra, LLC   07/2016   08/2021   67,200  
3   Total industrial lease extensions               1,170,459  
                       
12   Total lease extensions               1,317,303  
                       
  NEW LEASES                  
                     
    Location             Lease
Expiration Date		   Sq. Ft.  
  Industrial                  
1   Arlington TX   Arrow Electronics, Inc.       02/2027   74,739  
1   Total new industrial leases               74,739  
                     
13 TOTAL NEW AND EXTENDED LEASES               1,392,042  
                     
(1) Leases greater than 10,000 square feet.
 

BALANCE SHEET/CAPITAL MARKETS

During the second quarter of 2016, Lexington satisfied $80.0 million of secured debt with a weighted-average interest rate of 4.9%.

In April 2016, $0.5 million original principal amount of Lexington's 6.00% Convertible Guaranteed Notes due 2030 were satisfied for cash of $0.7 million, which reduced the aggregate outstanding balance of this note issuance to $11.9 million. Subsequent to June 30, 2016, the remaining $11.9 million outstanding was converted for 1,892,269 common shares.

Subsequent to June 30, 2016, Lexington obtained a $197.2 million 20-year non-recourse financing on its build-to-suit project in Lake Jackson, Texas. The loan bears interest at a fixed rate of 4.04% and matures in October 2036.

2016 EARNINGS GUIDANCE

Lexington estimates that its net income attributable to common shareholders per diluted common share for the year ended December 31, 2016 will be within an expected range of $0.52 to $0.61. Lexington is increasing its Adjusted Company FFO guidance for the year ended December 31, 2016 to an expected range of $1.07 to $1.10 per diluted common share from a range of $1.03 to $1.08 per diluted common share. This guidance is forward looking, excludes the impact of certain items and is based on current expectations.

SECOND QUARTER 2016 CONFERENCE CALL

Lexington will host a conference call today, Tuesday, August 9, 2016, at 8:30 a.m. Eastern Time, to discuss its results for the quarter ended June 30, 2016. Interested parties may participate in this conference call by dialing 888-317-6016 (U.S.), 412-317-6016 (International) or 855-669-9657 (Canada). A replay of the call will be available through November 9, 2016, at 877-344-7529 (U.S.), 412-317-0088 (International) or 855-669-9658 (Canada), pin code for all replay numbers is 10090297. A live webcast of the conference call will be available at www.lxp.com within the Investors section.

ABOUT LEXINGTON REALTY TRUST

Lexington Realty Trust (NYSE:LXP) is a publicly traded real estate investment trust (REIT) that owns a diversified portfolio of real estate assets consisting primarily of equity and debt investments in single-tenant net-leased commercial properties and land across the United States. Lexington seeks to expand its portfolio through build-to-suit transactions, sale-leaseback transactions and other transactions, including acquisitions. For more information, including Lexington's Quarterly Earnings and Supplemental Operating and Financial Data information package, or to follow Lexington on social media, visit www.lxp.com.

This release contains certain forward-looking statements which involve known and unknown risks, uncertainties or other factors not under Lexington's control which may cause actual results, performance or achievements of Lexington to be materially different from the results, performance, or other expectations implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the headings “Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in Lexington's periodic reports filed with the Securities and Exchange Commission, including risks related to: (1) the authorization by Lexington's Board of Trustees of future dividend declarations, (2) Lexington's ability to achieve its estimates of net income attributable to common shareholders and Adjusted Company FFO for the year ending December 31, 2016, (3) the successful consummation of any lease, acquisition, build-to-suit, disposition, financing or other transaction, (4) the failure to continue to qualify as a real estate investment trust, (5) changes in general business and economic conditions, including the impact of any legislation, (6) competition, (7) increases in real estate construction costs, (8) changes in interest rates, (9) changes in accessibility of debt and equity capital markets, and (10) future impairment charges. Copies of the periodic reports Lexington files with the Securities and Exchange Commission are available on Lexington's web site at www.lxp.com. Forward-looking statements, which are based on certain assumptions and describe Lexington's 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,” “is optimistic,” “goal,” “objective” or similar expressions. Except as required by law, Lexington undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the occurrence of unanticipated events. Accordingly, there is no assurance that Lexington's expectations will be realized.

References to Lexington refer to Lexington Realty Trust and its consolidated subsidiaries. All interests in properties and loans are held through special purpose entities, which are separate and distinct legal entities, some of which are consolidated for financial statement purposes and/or disregarded for income tax purposes. The assets and credit of each special purpose entity with a property subject to a mortgage loan (a “property owner subsidiary”) are not available to creditors to satisfy the debt and other obligations of any other person, including any other special purpose entity or 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 of managing member of such property owner subsidiary, but merely hold partnership, membership or beneficial interests therein which interests are subordinate to the claims of the property owner subsidiary's general partner's, member's or managing member's creditors).

Non-GAAP Financial Measures - Definitions

Lexington has used non-GAAP financial measures as defined by the Securities and Exchange Commission Regulation G in this Quarterly Earnings Release and in other public disclosures.

Lexington believes that the measures defined below are helpful to investors in measuring our performance or that of an individual investment. Since these measures exclude certain items which are included in their respective most comparable measures under generally accepted accounting principles (“GAAP”), reliance on the measures has limitations; management compensates for these limitations by using the measures simply as supplemental measures that are weighed in balance with other GAAP measures. These measures are not necessarily indications of our cash flow available to fund cash needs. Additionally, they should not be used as an alternative to the respective most comparable GAAP measures when evaluating Lexington's financial performance or cash flow from operating, investing or financing activities or liquidity.

Cash Rent: Cash Rent is calculated by making adjustments to GAAP rent to remove the impact of GAAP required adjustments to rental income such as adjustments for straight-line rents relating to free rent periods and contractual rent increases. Cash Rent excludes lease termination income. Lexington believes Cash Rent provides a meaningful indication of an investment's ability to fund cash needs.

Company Funds Available for Distribution (“FAD”): FAD is calculated by making adjustments to Adjusted Company FFO (see below) for (1) straight-line adjustments, (2) lease incentive amortization, (3) amortization of above/below market leases, (4) lease termination payments, net, (5) non-cash interest, net, (6) non-cash charges, net, (7) cash paid for tenant improvements, and (8) cash paid for lease costs. Although FAD may not be comparable to that of other real estate investment trusts (“REITs”), Lexington believes it provides a meaningful indication of its ability to fund cash needs. FAD is a non-GAAP financial measure and should not be viewed as an alternative measurement of operating performance to net income, as an alternative to net cash flows from operating activities or as a measure of liquidity.

Funds from Operations (“FFO”) and Adjusted Company FFO: Lexington believes 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. Lexington believes 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 in accordance with GAAP, excluding gains (or losses) from sales of property, plus real estate depreciation and amortization and after adjustments for non-consolidated partnerships and joint ventures.” NAREIT clarified its computation of FFO to exclude impairment charges on depreciable real estate owned directly or indirectly. FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs.

Lexington presents FFO available to common shareholders and unitholders - basic and also presents 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 Lexington’s common shares, are converted at the beginning of the period. Lexington also presents 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 Lexington's real estate portfolio. Lexington believes 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 Lexington’s operating performance or as an alternative to cash flow as a measure of liquidity.

GAAP and Cash Yield: GAAP and cash yields are measures of operating performance used to evaluate the individual performance of an investment. These measures are not presented or intended to be viewed as a liquidity or performance measure that present a numerical measure of Lexington's historical or future financial performance, financial position or cash flows. The yield is calculated by dividing the annualized NOI (as defined below, except GAAP rent adjustments are added back to rental income to calculate GAAP yield) the investment is expected to generate (or has generated) divided by the acquisition/completion cost (or sale) price.

Net Operating Income (“NOI”): NOI is a measure of operating performance used to evaluate the individual performance of an investment. This measure is not presented or intended to be viewed as a liquidity or performance measure that presents a numerical measure of Lexington's historical or future financial performance, financial position or cash flows. Lexington defines NOI as operating revenues (rental income (less GAAP rent adjustments and lease termination income), tenant reimbursements and other property income) less property operating expenses. Other REITs may use different methodologies for calculating NOI, and accordingly, Lexington's NOI may not be comparable to other companies. Because NOI excludes general and administrative expenses, interest expense, depreciation and amortization, acquisition-related expenses, other nonproperty income and losses, and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate and the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing a perspective on operations not immediately apparent from net income. Lexington believes that net income is the most directly comparable GAAP measure to NOI.

 
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except share and per share data)
       
  Three months ended June 30,   Six months ended June 30,
  2016   2015   2016   2015
Gross revenues:              
Rental $ 101,647     $ 102,440     $ 205,206     $ 202,456  
Tenant reimbursements 7,930     7,893     15,987     16,319  
Total gross revenues 109,577     110,333     221,193     218,775  
Expense applicable to revenues:              
Depreciation and amortization (41,272 )   (41,808 )   (84,399 )   (82,083 )
Property operating (11,293 )   (15,534 )   (23,371 )   (32,116 )
General and administrative (7,747 )   (7,971 )   (15,522 )   (15,792 )
Non-operating income 3,553     3,084     6,420     5,698  
Interest and amortization expense (22,679 )   (23,339 )   (45,572 )   (46,342 )
Debt satisfaction gains (charges), net (3,194 )   3,776     (3,356 )   14,151  
Impairment charges (3,014 )   (113 )   (3,014 )   (1,252 )
Gains on sales of properties 25,326     21,426     42,341     21,574  
Income before benefit (provision) for income taxes, equity in earnings of non-consolidated entities and discontinued operations 49,257     49,854     94,720     82,613  
Benefit (provision) for income taxes (224 )   52     (637 )   (389 )
Equity in earnings of non-consolidated entities 312     306     6,054     672  
Income from continuing operations 49,345     50,212     100,137     82,896  
Discontinued operations:              
Income (loss) from discontinued operations —     (1 )   —     109  
Provision for income taxes —     (4 )   —     (4 )
Gain on sale of property —     —     —     1,577  
Total discontinued operations —     (5 )   —     1,682  
Net income 49,345     50,207     100,137     84,578  
Less net income attributable to noncontrolling interests (869 )   (875 )   (1,892 )   (1,741 )
Net income attributable to Lexington Realty Trust shareholders 48,476     49,332     98,245     82,837  
Dividends attributable to preferred shares – Series C (1,573 )   (1,573 )   (3,145 )   (3,145 )
Allocation to participating securities (73 )   (105 )   (163 )   (192 )
Net income attributable to common shareholders $ 46,830     $ 47,654     $ 94,937     $ 79,500  
Income per common share – basic:              
Income from continuing operations $ 0.20     $ 0.20     $ 0.41     $ 0.33  
Income (loss) from discontinued operations —     —     —     0.01  
Net income attributable to common shareholders $ 0.20     $ 0.20     $ 0.41     $ 0.34  
Weighted-average common shares outstanding – basic 232,592,998     233,812,062     232,617,901     233,172,422  
Income per common share – diluted:              
Income from continuing operations $ 0.20     $ 0.20     $ 0.41     $ 0.33  
Income (loss) from discontinued operations —     —     —     0.01  
Net income attributable to common shareholders $ 0.20     $ 0.20     $ 0.41     $ 0.34  
Weighted-average common shares outstanding – diluted 239,046,004     239,903,370     238,970,754     239,559,842  
Amounts attributable to common shareholders:              
Income from continuing operations $ 46,830     $ 47,659     $ 94,937     $ 77,818  
Income (loss) from discontinued operations —     (5 )   —     1,682  
Net income attributable to common shareholders $ 46,830     $ 47,654     $ 94,937     $ 79,500  
                               
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
       
  June 30, 2016   December 31, 2015
Assets:      
Real estate, at cost $ 3,721,461     $ 3,789,711  
Real estate - intangible assets 688,749     692,778  
Investments in real estate under construction 108,763     95,402  
  4,518,973     4,577,891  
Less: accumulated depreciation and amortization 1,207,434     1,179,969  
Real estate, net 3,311,539     3,397,922  
Assets held for sale 21,045     24,425  
Cash and cash equivalents 59,776     93,249  
Restricted cash 12,767     10,637  
Investment in and advances to non-consolidated entities 55,245     31,054  
Deferred expenses, net 39,656     42,000  
Loans receivable, net 95,829     95,871  
Rent receivable – current 9,146     7,193  
Rent receivable – deferred 102,195     87,547  
Other assets 17,535     18,505  
Total assets $ 3,724,733     $ 3,808,403  
       
Liabilities and Equity:      
Liabilities:      
Mortgages and notes payable, net $ 838,385     $ 872,643  
Revolving credit facility borrowings 123,000     177,000  
Term loans payable, net 500,584     500,076  
Senior notes payable, net 493,944     493,526  
Convertible guaranteed notes payable, net 11,763     12,126  
Trust preferred securities, net 127,046     126,996  
Dividends payable 46,052     45,440  
Liabilities held for sale 515     8,405  
Accounts payable and other liabilities 43,054     41,479  
Accrued interest payable 9,857     8,851  
Deferred revenue - including below market leases, net 43,021     42,524  
Prepaid rent 16,395     16,806  
Total liabilities 2,253,616     2,345,872  
       
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 400,000,000 shares, 235,075,048 and 234,575,225 shares issued and outstanding in 2016 and 2015, respectively 24     23  
Additional paid-in-capital 2,775,468     2,776,837  
Accumulated distributions in excess of net income (1,413,504 )   (1,428,908 )
Accumulated other comprehensive loss (7,520 )   (1,939 )
Total shareholders’ equity 1,448,484     1,440,029  
Noncontrolling interests 22,633     22,502  
Total equity 1,471,117     1,462,531  
Total liabilities and equity $ 3,724,733     $ 3,808,403