Annual Report 2012
Letter to Shareholders
Dear Fellow Shareholders,
For Lexington Realty Trust, 2012 proved to be another very successful year. We continued to meet or exceed
business plan objectives by raising occupancy, recycling capital through dispositions, reducing and refinancing
debt and funding new growth initiatives. These achievements led to an increase of 20% in our quarterly common
share dividend paid on October 15, 2012.
Our shares performed well as the economy slowly improved. Capital markets were favorable and investor
interest in fixed income and equity investments with attractive dividends was exceptionally strong. Our total
return (including reinvestment of dividends) on our common shares was 48% for the year, the highest of any
net-lease REIT. This was a great result for our shareholders that reflected the numerous successes we achieved
in the following areas:
(cid:2)
Leasing. We executed new and renewal leases totaling a record of approximately 7.4 million
square feet and increased overall portfolio occupancy from 95.9% to 97.3%.
(cid:2)
Debt Reduction and Refinancing. We (1) reduced our debt and preferred stock from 49.7% to
46.8% of our gross assets and (2) obtained $376 million of new fixed-rate financing at a weighted-average rate
of 3.8% and retired $472 million of debt and preferred stock with a weighted-average cost of 5.7%.
(cid:2)
Capital Recycling. We monetized properties for an aggregate price of approximately $181
million and a weighted-average capitalization rate of 7.2%. Sale proceeds were primarily used to fund new
investments and retire debt.
(cid:2)
Investments. We invested $247 million in new investments, which helped extend our weighted-
average lease term from 6.2 to 7.1 years. The weighted-average initial capitalization rate on these investments
was approximately 8.4%.
(cid:2)
Dividend Growth. We increased our quarterly common share dividend rate by 20% from $0.125
per share to $0.15 per share beginning with the dividend paid on October 15, 2012, or $0.50 per share to $0.60
per share on an annualized basis.
Our two, three and four year total returns (including reinvestment of dividends) were 48%, 105% and 197%,
respectively. We believe that this strong period of outperformance reflects the actions we have taken to
strengthen our balance sheet, refine and focus our investment and portfolio strategies and improve our long-term
growth prospects.
So far, we believe 2013 has been a good year. Through March 8, 2013, our common share price increased by
15%. We believe that we have viable strategies and opportunities to continue generating total returns that are
attractive relative to other REITs, equity investments and fixed income alternatives.
As we look ahead, we are excited by the opportunities we have to build an even better company. As part of our
continuing efforts to create shareholder value in 2013, we expect to:
(cid:2)
Extend debt maturities and refinance on advantageous terms. We intend to continue extending
our debt maturities by refinancing in the current attractive interest rate environment. In the first quarter of 2013,
we refinanced our secured credit facility with a $550 million unsecured credit facility providing for term and
revolving loans. We drew on this facility to retire $138 million of mortgage debt which had a weighted-average
interest rate of 5.3%. With $641 million of debt maturing through 2015, we believe that substantial refinancing
opportunities are still available.
(cid:2)
Dispose of non-core assets. We expect to continue to dispose of non-core and underperforming
assets, including retail, multi-tenant and vacant properties. While we have disposed of a substantial portion of
these non-core and underperforming assets since 2007, we are extremely sensitive to price. As a result, we
continue to proceed methodically through this process to maximize value.
(cid:2)
Increase occupancy and extend our portfolio weighted-average lease term. Through March 8,
2013, we signed new and renewal leases for approximately 0.4 million square feet, which reduced our lease
rollover in 2013 to just approximately 3.0% of our single-tenant revenue. We continue to have great success
with respect to releasing our vacancies, maintaining high levels of occupancy and extending our portfolio
weighted-average lease term. However, we expect a modest roll down in rental rates for lease renewals in 2013.
(cid:2)
Acquire new, long-term single-tenant investments. In addition to acquiring properties and
structuring sale/leaseback transactions, we have continued to provide construction financing and take-out
financing for build-to-suit transactions. We believe we are a market leader in the single-tenant area and, as of
March 8, 2013, we had approximately $265 million of new potential investments under letter of intent or
contract. We anticipate that our acquisition volume will increase over the course of the year. We expect the new
acquisitions to improve the overall quality of our portfolio, extend our weighted-average lease term and add to
the cash flow that supports our dividend. We recently raised approximately $258 million of growth capital and
are well positioned to act on accretive investment opportunities.
In the past year, we have made meaningful progress towards simplifying our structure, adding long-term net-
lease assets to our portfolio, selling non-core properties, strengthening our balance sheet and lowering our cost
of capital. We believe these steps have created substantial shareholder value and improved our valuation. As
always, we intend to execute our business plan with the goal of steady and dependable dividend growth for our
shareholders. We believe that dividend yield and growth will continue to be meaningful components of total
return in what continues to be an environment of low investment yields.
I would like to thank our shareholders for their continued support, our employees for another year of hard work
and success and our tenants for the opportunity to meet their occupancy needs.
Sincerely,
T. WILSON EGLIN
Chief Executive Officer, President and a Trustee
March 25, 2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _________________ to ________________
Commission file number 1-12386
LEXINGTON REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
One Penn Plaza, Suite 4015
New York, NY
(Address of principal executive offices)
10119-4015
(Zip Code)
Registrant's telephone number, including area code: (212) 692-7200
Securities registered pursuant to Section 12(b) of the Act:
13-3717318
(I.R.S. Employer Identification No.)
Title of each class
Shares of beneficial interest, par value $0.0001, classified as
Common Stock
6.50% Series C Cumulative Convertible Preferred Stock,
par value $0.0001
7.55% Series D Cumulative Redeemable Preferred Stock,
par value $0.0001
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
.
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
.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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). Yes
No
.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K
.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the
definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
.
The aggregate market value of the shares of beneficial interest, par value $0.0001 per share, classified as common stock (“common shares”) of the registrant
held by non-affiliates as of June 29, 2012, which was the last business day of the registrant's most recently completed second fiscal quarter, was $1,293,326,650
based on the closing price of the common shares on the New York Stock Exchange as of that date, which was $8.47 per share.
Number of common shares outstanding as of February 21, 2013 was 188,840,892.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Definitive Proxy Statement for registrant's Annual Meeting of Shareholders, to be held on May 21, 2013, is incorporated
by reference in this Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14, which will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
TABLE OF CONTENTS
Description
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
Exhibits, Financial Statement Schedules
PART IV
Page
3
11
21
22
34
34
35
37
38
53
54
99
99
99
100
100
100
100
100
101
2
Introduction
PART I.
When we use the terms “Lexington,” the “Company,” “we,” “us” and “our,” we mean Lexington Realty Trust and all entities
owned by us, including non-consolidated entities, except where it is clear that the term means only the parent company or only the
parent company and consolidated entities. All interests in properties are held 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.
References herein to this Annual Report are to this Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
When we use the term “REIT” we mean real estate investment trust. All references to 2012, 2011 and 2010 refer to our fiscal years
ended, or the dates, as the context requires, December 31, 2012, December 31, 2011 and December 31, 2010, respectively.
Management of our interests in properties is generally conducted through Lexington Realty Advisors, Inc., a taxable REIT
subsidiary, which we refer to as LRA, or through a property management joint venture subsidiary.
When we use the term “GAAP” we mean United States generally accepted accounting principles.
Cautionary Statements Concerning Forward-Looking Statements
This Annual Report, together with other statements and information publicly disseminated by us contain certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of
the Securities Exchange Act of 1934, as amended, or 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, those risks discussed below under “Risk Factors” in Part I,
Item 1A of this Annual Report and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in
Part II, Item 7 of this Annual Report. Except as required by law, we undertake no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect
occurrence of unanticipated events. Accordingly, there is no assurance that our expectations will be realized.
Item 1. Business
General
We are a self-managed and self-administered REIT formed under the laws of the state of Maryland. Our primary business is the
investment in and acquisition, ownership, financing and management of a geographically diverse portfolio consisting of predominantly
single-tenant office, industrial and retail properties. Our core assets primarily consist of general purpose, efficient, single-tenant
office and industrial assets, in well-located and growing markets or critical to the tenant's business. A majority of these properties
are subject to net or similar leases, where the tenant bears all or substantially all of the costs, including cost increases, for real estate
taxes, utilities, insurance and ordinary repairs. In addition, we acquire, originate and hold investments in loan assets and debt securities
related to single-tenant real estate.
As of December 31, 2012, we had equity ownership interests in approximately 220 consolidated real estate properties, located
in 41 states and containing an aggregate of approximately 41.2 million square feet of space, approximately 97.3% of which was
leased. In 2012, 2011 and 2010, no tenant/guarantor represented greater than 10.0% of our annual base rental revenue.
In addition to our shares of beneficial interest, par value $0.0001 per share, classified as common stock, which we refer to as
common shares, as of December 31, 2012, we had two outstanding classes of beneficial interest classified as preferred stock, which
we refer to as preferred shares: (1) 6.50% Series C Cumulative Convertible Preferred Stock, par value $0.0001 per share, which we
refer to as our Series C Preferred Shares, and (2) 7.55% Series D Cumulative Redeemable Preferred Stock, par value $0.0001 per
share, which we refer to as our Series D Preferred Shares. Our common shares, Series C Preferred Shares and Series D Preferred
Shares are traded on the New York Stock Exchange, or NYSE, under the symbols “LXP”, “LXPPRC” and “LXPPRD”, respectively.
3
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, which
we refer to as the Code, commencing with our taxable year ended December 31, 1993. We intend to continue to qualify as a REIT.
If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on our net taxable income
that is currently distributed to our common shareholders.
History
Our predecessor was organized in the state of Delaware in October 1993 upon the combination of two investment programs,
Lepercq Corporate Income Fund L.P., which we refer to as LCIF, and Lepercq Corporate Income Fund II L.P., which we refer to as
LCIF II, which were formed to acquire net-lease real estate assets providing current income. Our predecessor was merged into
Lexington Corporate Properties Trust, a Maryland statutory REIT, on December 31, 1997. On December 31, 2006, Lexington
Corporate Properties Trust changed its name to Lexington Realty Trust and was the successor in a merger with Newkirk Realty Trust,
or Newkirk, which we refer to as the Newkirk Merger. All of Newkirk's operations were conducted, and all of its assets were held,
through its master limited partnership, subsequently named The Lexington Master Limited Partnership, which we refer to as the
MLP. As of December 31, 2008, the MLP was merged with and into us.
We are structured as an umbrella partnership REIT, or UPREIT, as a portion of our business is conducted through our two
operating partnership subsidiaries: (1) LCIF and (2) LCIF II. On December 31, 2010, a third operating partnership subsidiary, Net
3 Acquisition L.P., was merged with and into us. We refer to these subsidiaries as our operating partnerships and to limited partner
interests in these operating partnerships as OP units. We are party to funding agreements with our operating partnerships under which
we may be required to fund distributions made on account of OP units. The UPREIT structure enables us to acquire properties through
our operating partnerships by issuing OP units to a seller of property, as a form of consideration in exchange for the property. The
outstanding OP units are generally redeemable for our common shares on a one OP unit for approximately 1.13 common shares
basis, or, at our election in certain instances, cash. We believe that this structure facilitates our ability to raise capital and to acquire
portfolio and individual properties by enabling us to structure transactions which may defer tax gains for a contributor of property.
As of December 31, 2012, there were approximately 3.8 million OP units outstanding, other than OP units held directly or indirectly
by us, that are currently redeemable for approximately 4.3 million common shares if we satisfy redemptions entirely with common
shares.
Current Economic Uncertainty and Capital Market Volatility
Our business continues to be impacted in a number of ways by the continued uncertainty in the overall economy and volatility
in the capital markets. We encourage you to read “Risk Factors” in Part I, Item 1A of this Annual Report for a discussion of certain
risks we are facing and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item
7 of this Annual Report for a detailed discussion of the trends we believe are impacting our business.
Objectives and Strategy
General. We continue to implement strategies which we believe will provide shareholders with dividend growth and capital
appreciation. We believe that having a strong balance sheet supports these objectives. Since 2008, we believe we have strengthened
our balance sheet primarily by (1) repurchasing and retiring our debt and senior securities or by extending their maturity date, (2)
financing our properties with non-recourse mortgage debt or corporate credit facilities and term loans at what we believe are favorable
rates and using the proceeds to retire higher rate or shorter term debt, (3) issuing equity when market conditions are favorable and
(4) selling non-core and underperforming assets. We have used proceeds from non-core and underperforming asset sales and issuances
of common shares primarily to repurchase or retire our debt and acquire core assets.
Our core assets consist of general purpose, single-tenant net-leased office and industrial assets, in well-located and growing
markets or which are critical to the tenant's business, but may also include other asset types subject to long-term net-leases, such as
retail facilities, schools and medical facilities. We believe education and health care are growing sectors of the U.S. economy and
we have seen demand for build-to-suit transactions involving charter schools, private schools and medical facilities. A component
of our business strategy includes exploring these other asset types when they are subject to long-term leases that will extend the
weighted-average lease term of our portfolio. We intend to mitigate residual value risk associated with such assets by acquiring such
assets primarily through joint ventures or disposing of such assets when there is sufficient remaining lease term to generate favorable
sale prices.
When opportunities arise, we intend to make investments in single-tenant assets, which we believe will generate favorable
returns. We seek to grow our portfolio primarily by (1) engaging in, or providing funds to developers who are engaged in, build-to-
suit projects for single-tenant corporate users, (2) providing capital to corporations by buying properties and leasing them back to
the sellers under net or similar leases, (3) acquiring properties already subject to net or similar leases and (4) making mortgage and
mezzanine loans generally secured by single-tenant properties subject to net or similar leases.
4
As part of our ongoing business efforts, we expect to continue to (1) recycle capital in compliance with regulatory and contractual
requirements, (2) refinance or repurchase outstanding indebtedness when advisable, including converting secured debt to unsecured
debt, (3) effect strategic transactions, portfolio and individual property acquisitions and dispositions, (4) expand existing properties,
(5) execute new leases with tenants, (6) extend lease maturities in advance of or at expiration and (7) explore new business lines and
operating platforms. Additionally, we may continue to enter into joint ventures and co-investment programs with third-party investors
as a means of creating additional growth and expanding the revenue realized from advisory and asset management activities as
situations warrant.
Portfolio diversification is central to our investment strategy as we seek to create and maintain an asset base that provides steady,
predictable and growing cash flows while being insulated against rising property operating expenses, regional recessions, industry-
specific downturns and fluctuations in property values and market rent levels. Regardless of capital market and economic conditions,
we intend to stay focused on (1) enhancing operating results, (2) improving portfolio quality, (3) mitigating risks relating to interest
rates and the real estate cycle and (4) implementing strategies where our management skills and real estate expertise can add value.
We believe that our business strategy will continue to improve our liquidity and strengthen our overall balance sheet while creating
meaningful shareholder value.
Capital Recycling. We began to dispose of our interests in non-core assets following the Newkirk merger, subject to regulatory
and contractual requirements. During 2012 and 2011, we used the proceeds from dispositions to primarily make investments and
retire debt and preferred securities. During 2010, we used the proceeds from dispositions to primarily retire debt. We continue to be
focused on the disposition of our interests in non-core assets, including vacant and under-performing assets.
Occasionally, we provide seller financing as a means of efficiently disposing of an asset. As a result, if a buyer defaults under
the seller financing, we will once again be the owner of the underlying asset.
Acquisition Strategies. When market conditions warrant, we seek to enhance our single-tenant property portfolio through
acquisitions of interests in core assets, including build-to-suit transactions and investments in loan assets and debt securities directly
or indirectly secured by core assets. Prior to effecting any acquisition, our underwriting includes analyzing the (1) property's design,
construction quality, efficiency, functionality and location with respect to the immediate sub-market, city and region, (2) lease integrity
with respect to term, rental rate increases, corporate guarantees and property maintenance provisions, (3) present and anticipated
conditions in the local real estate market and (4) prospects for selling or re-leasing the property on favorable terms in the event of a
vacancy. To the extent of information publicly available or made available to us, we also evaluate each potential tenant's financial
strength, growth prospects, competitive position within its respective industry and a property's strategic location and function within
a tenant's operations or distribution systems. We believe that our comprehensive underwriting process is critical to the assessment
of long-term profitability of any investment by us.
Acquisitions of Individual Net-lease Properties. We seek to acquire individual properties from (1) creditworthy companies in
sale/leaseback transactions for properties that are integral to the sellers'/tenants' ongoing operations, (2) developers of newly
constructed properties built to suit the needs of a corporate tenant by financing the project during the construction phase and/or
agreeing to purchase the property upon completion of construction and occupancy by the tenant, and (3) sellers of properties subject
to an existing lease. We believe that our geographical diversification and acquisition experience will allow us to continue to compete
effectively for the acquisition of such properties.
Strategic Transactions with Other Real Estate Investment Companies. We seek to capitalize on the unique investment experience
of our management team as well as their network of relationships in the industry to achieve appropriate risk-adjusted yields through
strategic transactions. Accordingly, we occasionally pursue the (1) acquisition of portfolios of assets and equity interests in companies
with a significant number of single-tenant assets, including through mergers and acquisitions activity, and (2) participation in strategic
partnerships, co-investment programs and joint ventures.
In connection with the Newkirk Merger, we acquired an interest in Concord Debt Holdings LLC, which we refer to as Concord,
which owned real estate loan and bond assets. CDH CDO LLC, which we refer to as CDH CDO, was spun off of Concord to the
members of Concord. In 2012, we sold our interest in these investments for $7.0 million.
In 2007, we established Net Lease Strategic Assets Fund L.P., which we refer to as NLS, a co-investment program with a wholly-
owned subsidiary of Inland American Real Estate Trust, Inc., which we refer to as Inland NLS, to invest in specialty net-leased real
estate. In 2012, we acquired Inland NLS's interest in NLS for a cash payment of $9.4 million and the assumption of all outstanding
liabilities. As a result, we now control, including through one of our operating partnership subsidiaries, 100% of NLS. At acquisition,
NLS had (1) 41 properties totaling 5.8 million square feet in 23 states, plus a 40% tenant-in-common interest in an office property,
(2) cash balances of $8.1 million and (3) approximately $258.0 million of consolidated debt. NLS is now a consolidated subsidiary.
5
We received a waiver from the U.S. Securities and Exchange Commission, which we refer to as the SEC, to not provide the
2012 financial statements of NLS, which was consolidated as of September 1, 2012, required under Rule 3-09 of Regulation S-X,
as long as we provide the audited financial statements of NLS for the years ended December 31, 2011, 2010 and 2009 and the
unaudited financial statements of NLS for the six months ended June 30, 2012, which are filed as Exhibit 99.1 and 99.2, respectively,
to this Annual Report.
In 2012, we formed two joint ventures in which we have minority ownership interests of 15% and 36%, respectively. The venture
in which we have a 15% interest acquired an inpatient rehabilitation hospital in Humble, Texas for $27.8 million and the venture in
which we have a 36% interest acquired a retail property in Palm Beach Gardens, Florida for $29.8 million. We are also a partner in
six other partnerships, including an entity acquired in the NLS transaction, with ownership percentages ranging between 27% and
40%, which own primarily net-leased properties. All profits, losses and cash flows are distributed in accordance with the respective
joint venture or partnership agreements. As of December 31, 2012, these joint ventures and partnerships had $47.2 million in non-
recourse mortgage debt (our proportionate share was $13.3 million), with interest rates ranging from 4.7% to 10.6%, a weighted-
average interest rate of 7.0% and maturity dates ranging from 2015 to 2017.
In 2011, we acquired a majority interest in a joint venture that acquired an office property in Aurora, Illinois for $15.9 million,
which was subject to a net-lease. We sold our interest in the joint venture in 2012 for $13.2 million and continue to manage the
investment for the buyer.
We believe that entering into co-investment programs and joint ventures with institutional investors and other real estate
investment companies may mitigate our risk in certain assets and increase our return on equity to the extent we earn management
or other fees. However, investments in co-investment programs and joint ventures limit our ability to make unilateral investment
decisions relating to the assets and limit our ability to deploy capital. See Part I, Item 1A “Risk Factors”, below.
Competition
Through our predecessor entities, certain members of our management have been in the net-lease real estate business since 1973.
Over this period, our management established a broad network of contacts, including major corporate tenants, developers, brokers
and lenders. In addition, our management is associated with and/or participates in many industry organizations. Notwithstanding
these relationships, there are numerous commercial developers, real estate companies, financial institutions, such as banks and
insurance companies, and other investors with greater financial or other resources that compete with us in seeking properties for
acquisition and tenants who will lease space in these properties. Our competitors include other REITs, pension funds, banks, private
companies and individuals.
Internal Growth and Effectively Managing Assets
Tenant Relations and Lease Compliance. We endeavor to maintain close contact with the tenants in the properties in which we
have an interest in order to understand their financial status and future real estate needs. We monitor the financial, property maintenance
and other lease obligations of the tenants in properties in which we have an interest, through a variety of means, including periodic
reviews of financial statements that we have access to and physical inspections of the properties.
Extending Lease Maturities. Our property owner subsidiaries seek to extend tenant leases in advance of the lease expiration in
order for us to maintain a balanced lease rollover schedule and high occupancy levels.
Revenue Enhancing Property Expansions. Our property owner subsidiaries undertake expansions of properties based on lease
requirements, tenant requirements or marketing opportunities. We believe that selective property expansions can provide attractive
rates of return.
Property Sales. Subject to regulatory and contractual requirements, we generally sell our interests in properties when we believe
that the return realized from selling a property will exceed the expected return from continuing to hold such property and/or if there
is a better use of capital such as repurchasing our debt and senior securities.
Conversion to Multi-Tenant. If one of our property subsidiaries is unable to renew a single-tenant lease or if it is unable to find
a replacement single tenant, we either attempt to sell our interest in the property or the property owner may seek to market the property
for multi-tenant use. When appropriate, we seek to sell our interests in these multi-tenant properties.
Property Management. From time to time, our property owner subsidiaries use property managers to manage certain properties.
Our property management joint venture with an unaffiliated third party manages substantially all of these properties. We believe this
joint venture provides us with (1) better management of our assets, (2) better tenant relationships, (3) revenue-enhancing opportunities
and (4) cost efficiencies.
6
Financing Strategy
General. Since becoming a public company, our principal sources of financing have been the public and private equity and debt
markets, property specific debt, revolving loans, corporate level term loans, issuance of OP units and undistributed cash flows.
Property Specific Debt. Our property owner subsidiaries historically financed their assets with non-recourse secured debt.
However, beginning in 2008, the availability of single asset non-recourse financing became limited. As a result, we began to rely
more on corporate level borrowings. Our property owner subsidiaries now seek non-recourse secured debt on a limited basis including
when credit tenant lease financing is available. Credit tenant lease financing allows us to significantly or fully leverage the rental
stream from an investment at, what we believe are, attractive rates.
Corporate Level Borrowings. As previously noted, we also use corporate level borrowings, such as revolving loans, term loans,
and debt offerings. We expect to finance more of our operations with such corporate level borrowings as (1) non-recourse secured
debt matures and (2) such borrowings are available on favorable terms.
Deleveraging and Interest Rate Reduction. In recent years, we have reduced our weighted-average interest rate or used our
capital to deleverage our balance sheet by refinancing, satisfying and repurchasing indebtedness. From January 1, 2009 through
December 31, 2011, we reduced our overall consolidated indebtedness by $725.2 million. In 2012, our overall consolidated
indebtedness increased by $210.5 million primarily due to the acquisition of NLS. However, we reduced our consolidated weighted-
average interest rate by approximately 34 basis points. In addition, since the fourth quarter of 2012 through the date of filing this
Annual Report, we converted $66.1 million aggregate principal amount of our 6.00% Convertible Guaranteed Notes due 2030, which
we refer to as 6.00% Convertible Notes, into 9.5 million common shares, together with a cash payment of $4.7 million, reducing the
outstanding balance of the notes to $48.9 million.
Common Share Issuances
During 2012 and 2011, we raised $164.4 million and $99.0 million, respectively, by issuing 18.3 million and 11.1 million common
shares through public offerings and under our direct share purchase plan. The proceeds from these common share offerings were
used for working capital, including to fund investments and to retire indebtedness.
In addition, we issued common shares upon conversion of our 6.00% Convertible Notes, as discussed above.
Preferred Share Repurchases
During 2012 and 2011, we repurchased and retired all outstanding shares of our 8.05% Series B Cumulative Redeemable Preferred
Stock, par value $0.0001 per share, which we refer to as Series B Preferred Shares, and an aggregate 0.2 million Series C Preferred
Shares for $85.5 million in the aggregate, or a $1.5 million discount to the liquidation preferences of the preferred shares.
Advisory Contracts
Certain members of our management have been in the business of investing in single-tenant net-lease properties since 1973.
This experience has enabled us to provide advisory services to various net-lease investors. With the termination of certain of our co-
investment programs in 2007 and our acquisition of NLS in 2012, advisory fees have declined in recent years. If and when we increase
our co-investment joint venture activity, we expect advisory fees to increase.
In 2012, LRA entered into an agreement to arrange for investments up to $100.0 million on behalf of a third-party investor.
Under the agreement, we will be a co-investor with a target to contribute 15% to each venture.We granted the third-party investor
an exclusivity, until May 2015, on investment opportunities for (1) properties with a lease due to expire in less than 10 years, and
(2) properties that are dedicated to non-office and non-warehouse/distribution uses, including properties with tenants in the medical,
hospital and health care industries.
Environmental Matters
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property
may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property as
well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines and
penalties and damages for injuries to persons and adjacent property. Such laws often impose liability without regard to whether the
owner knew of, or was responsible for, the presence or disposal of such substances. Although generally the tenants of the properties
in which we have an interest are primarily responsible for any environmental damage and claims related to the leased premises, in
the event of the bankruptcy or inability of a tenant of such premises to satisfy any obligations with respect to such environmental
liability, a property owner subsidiary may be required to satisfy such obligations. In addition, as the owner of such properties, a
property owner subsidiary may be held directly liable for any such damages or claims irrespective of the provisions of any lease.
7
From time to time, in connection with the conduct of our business and generally upon acquisition of a property and prior to
surrender by a tenant, the property owner subsidiary authorizes the preparation of a Phase I and, when recommended, a Phase II
environmental report with respect to its properties. Based upon such environmental reports and our ongoing review of the properties
in which we have an interest, as of the date of this Annual Report, we are not aware of any environmental condition with respect to
any of the properties in which we have an interest which we believe would be reasonably likely to have a material adverse effect on
our financial condition and/or results of operations. There can be no assurance, however, that (1) the discovery of environmental
conditions, the existence or severity of which were previously unknown, (2) changes in law, (3) the conduct of tenants or (4) activities
relating to properties in the vicinity of the properties in which we have an interest, will not expose us to material liability in the future.
Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations
of the tenants of properties in which we have an interest, which would adversely affect our financial condition and/or results of
operations.
Impairment Charges
During 2012, 2011 and 2010, we incurred $10.0 million, $117.4 million and $56.9 million, respectively, of non-cash impairment
charges primarily related to (1) sales and other dispositions, or the possible sale or disposition, of assets at below book value and (2)
vacancies of certain assets. In addition, we may continue to take similar non-cash impairment charges, which could be material in
amount, due to (1) the current economic environment and (2) the implementation of our current business strategy, which may include
sales of properties acquired in the Newkirk Merger that have a high cost basis because of our common share price at the time of the
Newkirk Merger. Furthermore, we may take an impairment charge on a property subject to a non-recourse secured mortgage reducing
the book value of such property to its estimated fair value which may be below the balance of the mortgage on our balance sheet.
Upon foreclosure or other disposition of such property, we may recognize a gain on debt satisfaction equal to the difference between
the fair value of the property and the balance of the mortgage.
Summary of 2012 Transactions and Recent Developments
The following summarizes certain of our transactions during 2012, including transactions disclosed above and in our other
periodic reports.
Sales. With respect to sales activity, we:
–
–
disposed of our interests in properties, including a non-consolidated property, to unaffiliated third parties for an
aggregate gross disposition price of $181.4 million; and
sold our interest in Concord and CDH CDO for $7.0 million.
Acquisitions/Investments. With respect to acquisitions/investments, we:
–
–
–
–
–
–
–
purchased an industrial property in Missouri City, Texas for $23.0 million and an office property in Phoenix,
Arizona for $53.2 million;
completed eight build-to-suit transactions for an aggregate capitalized cost of $107.3 million;
formed a joint venture, in which we hold a 15% interest, which acquired an inpatient rehabilitation hospital in
Humble, Texas for $27.8 million;
formed a joint venture, in which we hold a 36% interest, which acquired a retail property in Palm Beach Gardens,
Florida for $29.8 million and we made a $12.0 million non-recourse mortgage loan to the joint venture,which was
repaid in February 2013;
closed on two construction loans for an aggregate commitment of $40.6 million of which $11.5 million was funded
in 2012;
received $2.5 million in full satisfaction of a loan receivable;
acquired Inland NLS’s interest in NLS for $9.4 million and the assumption of its liabilities;
8
–
–
acquired 6.2 acres of land, which was previously leased, in Palm Beach Gardens, Florida for $6.0 million, on which
we own the multi-tenant improvements; and
continued to fund four on-going build-to-suit transactions not yet completed at December 31, 2012 with an aggregate
estimated cost of $136.5 million of which $68.9 million was invested as of December 31, 2012.
The 2012 property investments of $241.1 million discussed above have a weighted-average lease term of approximately 16
years and an initial cap rate of 8.5%.
Leasing. Our property owner subsidiaries entered into 69 new leases and lease extensions encompassing an aggregate 7.4 million
square feet and raised our overall portfolio occupancy by 140 basis points to 97.3% as of December 31, 2012.
Financing. In 2012, we procured a $255.0 million secured term loan from Wells Fargo Bank, National Association, as agent,
which matures in January 2019. The secured term loan requires regular payments of interest only at an interest rate, ranging from
2.00% to 2.85% over LIBOR depending on our leverage ratio, as defined therein. Upon the date when we obtain an investment grade
debt rating from at least two of Standard & Poor’s Rating Services, which we refer to as S&P, Moody’s Investor Services, Inc., which
we refer to as Moody’s, and Fitch, Inc., which we refer to as Fitch, the interest rate under the secured term loan will be dependent
on our debt rating. Prepayments are permitted after January 12, 2013 subject to a premium until January 12, 2016.
Also in 2012, we refinanced our $300.0 million secured revolving credit facility with a new $300.0 million secured revolving
credit facility with a maturity date of January 2015 but could have been extended until January 2016 at our option.
We satisfied $60.6 million of term loans procured in 2008, repurchased and retired $62.2 million of original principal amount
of 5.45% Exchangeable Guaranteed Notes and repaid $57.5 million of debt assumed in the NLS transaction.
We converted an aggregate $31.1 million original principal amount of 6.00% Convertible Notes into an aggregate 4.5 million
common shares and made an aggregate cash payment of approximately $2.4 million plus accrued and unpaid interest on the converted
notes.
Our property owner subsidiaries:
–
–
retired $190.5 million in property non-recourse mortgage debt with a weighted-average interest rate of 5.9%; and
obtained $121.0 million in non-recourse mortgage financings with a weighted-average interest rate of 4.1%.
Capital. With respect to capital activities, we:
–
–
issued an aggregate 18.3 million common shares in a public offering and under our direct share purchase plan,
raising net proceeds of approximately $164.4 million; and
repurchased and retired all outstanding (approximately 2.7 million) Series B Preferred Shares and approximately
35 thousand Series C Preferred Shares for an aggregate purchase price of approximately $70.0 million.
Subsequent to December 31, 2012, we:
–
–
–
converted $35.0 million original principal amount of 6.00% Convertible Notes for approximately 5.0 million
common shares and a cash payment of $2.3 million plus accrued and unpaid interest;
implemented an At-The-Market or ATM offering program under which we may issue up to $100.0 million in
common shares over the term of the program. As of the date of this Annual Report, we issued 3.4 million common
shares under this program raising gross proceeds of $36.9 million;
refinanced our $300.0 million secured revolving credit facility with a $300.0 million unsecured revolving credit
facility with KeyBank National Association, which we refer to as KeyBank, as agent. The unsecured revolving
credit facility matures in February 2017 but can be extended until February 2018 at our option. The unsecured
revolving credit facility bears interest at LIBOR plus 1.50% to 2.05% based on our leverage ratio, as defined
therein. Upon the date when we obtain an investment grade credit rating from at least two of S&P, Moody’s or
Fitch, the interest rate under the unsecured revolving credit facility will be dependent on our debt rating;
9
–
–
–
–
–
in connection with the refinancing discussed above, we also procured a five-year $250.0 million unsecured term
loan facility from KeyBank as agent. The unsecured term loan matures in February 2018 and requires regular
payments of interest only at interest rates ranging from LIBOR plus 1.45% to 2.00% dependent on our leverage
ratio, as defined therein. Upon the date when we obtain an investment grade rating from at least two of S&P,
Moody’s or Fitch, the interest rate under the unsecured term loan will be dependent on our debt rating;
amended our $255.0 million secured term loan agreement to release the collateral securing such loan;
conveyed in foreclosure our property in Suwanee, Georgia for full satisfaction of the related $11.0 million non-
recourse mortgage;
obtained $40.0 million of 15-year secured non-recourse mortgage debt on our property in Lenexa, Kansas and a
joint venture obtained a $15.3 million secured non-recourse mortgage on its property in Palm Beach Gardens,
Florida; and
gave notice to prepay $137.9 million of secured non-recourse mortgage debt on March 1, 2013 with proceeds from
our unsecured revolving credit facility.
Other
Employees. As of December 31, 2012, we had 50 full-time employees. Lexington Realty Trust is a master employer and employee
costs are allocated to subsidiaries as applicable.
Industry Segments. We operate in primarily one industry segment, single-tenant real estate assets.
Web Site. Our Internet address is www.lxp.com. We make available, free of charge, on or through the investor relations section
of our web site or by contacting our Investor Relations Department, Annual Reports on Form 10-K, Quarterly Reports on Form 10-
Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish
it to, the SEC. Also posted on our web site, and available in print upon request of any shareholder to our Investor Relations Department,
are our amended and restated declaration of trust and amended and restated by-laws, charters for the Audit Committee, Compensation
Committee and Nominating and Corporate Governance Committee of our Board of Trustees, our Corporate Governance Guidelines,
and our Code of Business Conduct and Ethics governing our trustees, officers and employees (which contains our whistle blower
procedures). Within the time period required by the SEC and the NYSE, we will post on our web site any amendment to the Code
of Business Conduct and Ethics and any waiver applicable to any of our trustees or executive officers. In addition, our web site
includes information concerning purchases and sales of our equity securities by our executive officers and trustees as well as disclosure
relating to certain non-GAAP financial measures (as defined in the SEC's Regulation G) that we may make public orally,
telephonically, by webcast, by broadcast or by similar means from time to time. Information contained on our web site or the web
site of any other person is not incorporated by reference into this Annual Report or any of our other filings with the SEC.
Our Investor Relations Department can be contacted at Lexington Realty Trust, One Penn Plaza, Suite 4015, New York, New
York 10119-4015, Attn: Investor Relations, by telephone: (212) 692-7200, or by e-mail: ir@lxp.com.
Principal Executive Offices. Our principal executive offices are located at One Penn Plaza, Suite 4015, New York, New York
10119-4015; our telephone number is (212) 692-7200.
NYSE CEO Certification. Our Chief Executive Officer made an unqualified certification to the NYSE with respect to our
compliance with the NYSE corporate governance listing standards in May 2012.
10
Item 1A. Risk Factors
Set forth below are material factors that may adversely affect our business and operations.
We are subject to risks involved in single-tenant leases.
We focus our acquisition activities on real estate properties that are net leased to single tenants. Therefore, the financial failure
of, or other default by, a single tenant under its lease is likely to cause a significant or complete reduction in the operating cash flow
generated by the property leased to that tenant and might decrease the value of that property and result in an non-cash impairment
charge. In addition, our property owner subsidiary will be responsible for 100% of the operating costs following a vacancy at a single-
tenant building.
We rely on revenues derived from major tenants.
Revenues from several tenants and/or their guarantors constitute a significant percentage of our base rental revenues. The default,
financial distress or bankruptcy of any of the tenants and/or guarantors of these properties could cause interruptions in the receipt
of lease revenues and/or result in vacancies, which would reduce the property owner subsidiary's revenues and increase operating
costs until the affected property is re-let, and could decrease the ultimate sale value of that property. Upon the expiration or other
termination of the leases that are currently in place with respect to these properties, the property owner subsidiary may not be able
to re-lease the vacant property at a comparable lease rate, at all, or without incurring additional expenditures in connection with the
re-leasing. See “Management's Discussion and Analysis of Financial Conditions and Results of Operations - Overview - Leasing
Trends” in Part II, Item 7 of this Annual Report for further discussion.
You should not rely on the credit ratings of our tenants.
Some of our tenants are rated by Moody's, Fitch and/or S&P. Any such credit ratings are subject to ongoing evaluation by these
credit rating agencies and we cannot assure you that any such ratings will not be changed or withdrawn by these rating agencies in
the future if, in their judgment, circumstances warrant. If these rating agencies assign a lower-than-expected rating or reduce or
withdraw, or indicate that they may reduce or withdraw the credit rating of a tenant, the value of our investment in any properties
leased by such tenant could significantly decline. Furthermore, our investment with these tenants is through a lease which is treated
differently than unsecured debt in a bankruptcy.
Our assets may be subject to impairment charges.
We periodically evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the
existence of impairment indicators is based on GAAP, which include a variety of factors such as market conditions, the status of
significant leases, the financial condition of major tenants and other factors that could affect the cash flow or value of an investment.
During 2012, 2011 and 2010, we incurred $10.0 million, $117.4 million and $56.9 million, respectively, of non-cash impairment
charges. A substantial portion of these impairments related to assets acquired in the Newkirk Merger that had a relatively high cost
basis because of our common share price at the time of the Newkirk Merger. In addition, we may continue to take similar non-cash
impairment charges, which could affect the implementation of our current business strategy. These impairments could have a material
adverse effect on our financial condition and results of operations.
Furthermore, we may take an impairment charge on a property subject to a non-recourse secured mortgage which reduces the
book value of such property to its fair value, which may be below the balance of the mortgage on our balance sheet. Upon foreclosure
or other disposition, we may be required to recognize a gain on debt satisfaction equal to the difference between the fair value of the
property and the balance of the mortgage.
Our interests in loans receivable are subject to delinquency, foreclosure and loss.
Our interests in loans receivable are generally non-recourse and secured by real estate properties owned by borrowers that were
unable to obtain similar financing from a commercial bank. These loans are subject to many risks including delinquency. The ability
of a borrower to repay a loan secured by a real estate property is typically and primarily dependent upon the successful operation of
such property rather than upon the existence of independent income or assets of the borrower. If a borrower were to default on a
loan, it is possible that we would not recover the full value of the loan as the collateral may be non-performing.
As of December 31, 2012, one of our loans receivable, which is secured by an office property in Schaumburg, Illinois, was in
default. The loan had an outstanding balance of $21.9 million (not including default interest and other penalties), which we believe
is less than the fair value of the property. Also, as of December 31, 2012, the tenant of the property in Westmont, Illinois, which we
sold in 2007 but issued a purchase mortgage to the buyer,exercised its option to terminate its lease effective November 2013. As of
December 31, 2012, our note receivable was $26.8 million.
11
We face uncertainties relating to lease renewals and re-letting of space.
Upon the expiration of current leases for space located in properties in which we have an interest, our property owner subsidiaries
may not be able to re-let all or a portion of such space, or the terms of re-letting (including the cost of concessions to tenants and
leasing commissions) may be less favorable than current lease terms or market rates. If our property owner subsidiaries are unable
to promptly re-let all or a substantial portion of the space located in their respective properties, or if the rental rates a property owner
subsidiary receives upon re-letting are significantly lower than current rates, our earnings and ability to make expected distributions
to our shareholders may be adversely affected due to the resulting reduction in rent receipts and increase in property operating costs.
There can be no assurance that our property owner subsidiaries will be able to retain tenants in any of our properties upon the
expiration of leases.
Our inability to carry out our growth strategy could adversely affect our financial condition and results of operations.
Our growth strategy is based on the acquisition and development of additional properties and related assets. In the context of
our business plan, “development” generally means an expansion or renovation of an existing property or the financing and/or
acquisition of a newly constructed build-to-suit property. For newly constructed build-to-suit properties, we may (1) provide a
developer with either a combination of financing for construction of a build-to-suit property or a commitment to acquire a property
upon completion of construction of a build-to-suit property and commencement of rent from the tenant or (2) acquire a property
subject to a lease and engage a developer to complete construction of a build-to-suit property as required by the lease.
Our plan to grow through the acquisition and development of new properties could be adversely affected by trends in the real
estate and financing businesses. The consummation of any future acquisitions will be subject to satisfactory completion of an extensive
valuation analysis and due diligence review and to the negotiation of definitive documentation. Our ability to implement our strategy
may be impeded because we may have difficulty finding new properties and investments at attractive prices that meet our investment
criteria, negotiating with new or existing tenants or securing acceptable financing. If we are unable to carry out our strategy, our
financial condition and results of operations could be adversely affected. Acquisitions of additional properties entail the risk that
investments will fail to perform in accordance with expectations, including operating and leasing expectations.
Redevelopment and new project development are subject to numerous risks, including risks of construction delays, cost overruns
or force majeure events that may increase project costs, new project commencement risks such as the receipt of zoning, occupancy
and other required governmental approvals and permits, and the incurrence of development costs in connection with projects that
are not pursued to completion.
Some of our acquisitions and developments may be financed using the proceeds of periodic equity or debt offerings, lines of
credit or other forms of secured or unsecured financing that may result in a risk that permanent financing for newly acquired projects
might not be available or would be available only on disadvantageous terms. If permanent debt or equity financing is not available
on acceptable terms to refinance acquisitions undertaken without permanent financing, further acquisitions may be curtailed, or cash
available for distribution to shareholders may be adversely affected.
Acquisition activities may not produce expected results and may be affected by outside factors.
Acquisitions of commercial properties entail certain risks, such as (1) underwriting assumptions such as occupancy, rental rates
and expenses may differ from estimates, (2) the properties may become subject to environmental liabilities that we were unaware
of at the time we acquired the property despite any environmental testing, (3) we may have difficulty obtaining financing on acceptable
terms or paying the operating expenses and debt service associated with acquired properties prior to sufficient occupancy and (4)
projected exit strategies may not come to fruition due to a variety of factors such as market conditions at time of dispositions.
We may not be successful in identifying suitable real estate properties or other assets that meet our acquisition criteria. We may
also fail to complete acquisitions or investments on satisfactory terms. Failure to identify or complete acquisitions could slow our
growth, which could, in turn, have a material adverse effect on our financial condition and results of operations.
We face certain risks associated with our build-to-suit activities.
From time to time, we engage in, or provide capital to developers who are engaged in, build-to-suit activities. We face uncertainties,
associated with a developer's performance and timely completion of a project, including the performance or timely completion by
contractors and subcontractors. If a developer, contractor or subcontractor fails to perform, we may resort to legal action to compel
performance, remove the developer or rescind the purchase or construction contract.
12
A developer's performance may also be affected or delayed by conditions beyond the developer's control. We attempt to mitigate
such conditions by providing for penalties and related grace periods in the underlying lease.
We may incur additional risks when we make periodic progress payments or other advances to developers before completion
of construction. These and other factors can result in increased costs of a project or loss of our investment. We also rely on third-
party construction managers and/or engineers to monitor the construction activities.
We rely on rental income and expense projections and estimates of the fair market value of a property upon completion of
construction when agreeing upon a purchase price at the time we acquire the property, which may be up to two years prior to the
estimated date of completion. If our projections are inaccurate or markets change, we may pay more than the fair value of a property.
Our multi-tenant properties expose us to additional risks.
Our multi-tenant properties involve risks not typically encountered in real estate properties which are operated by a single tenant.
The ownership of multi-tenant properties could expose us to the risk that a sufficient number of suitable tenants may not be found
to enable the property to operate profitably and provide a return to us. This risk may be compounded by the failure of existing tenants
to satisfy their obligations due to various factors, including the current or future economic crises. These risks, in turn, could cause a
material adverse impact to our results of operations and business.
Multi-tenant properties are also subject to tenant turnover and fluctuation in occupancy rates, which could affect our operating
results. Furthermore, multi-tenant properties expose us to the risk of potential "CAM slippage," which may occur when the actual
cost of taxes, insurance and maintenance at the property exceeds the operating expenses paid by tenants and/or the amounts budgeted.
We use leverage, which increases the risk of default on our obligations and debt service requirements.
We are more leveraged than certain of our competitors. We have incurred, and may continue to incur, direct and indirect
indebtedness in furtherance of our activities. Neither our amended and restated declaration of trust nor any policy statement formally
adopted by our Board of Trustees limits either the total amount of indebtedness or the specified percentage of indebtedness that we
may incur, and accordingly, we could become even more highly leveraged. High levels of leverage may result in an increased risk
of default on our obligations and in an increase in debt service requirements, which could adversely affect our financial condition,
results of operations and our ability to pay distributions.
Market interest rates could have an adverse effect on our borrowing costs, profitability and our share price.
We have exposure to market risks relating to increases in interest rates due to our variable-rate debt. An increase in interest rates
may increase our costs of borrowing on existing variable-rate indebtedness, leading to a reduction in our earnings. As of December 31,
2012, we had no amounts outstanding in consolidated variable-rate indebtedness that were not subject to an interest-rate swap
agreement. However, borrowings under our unsecured credit facility are subject to variable rates. The level of our variable-rate
indebtedness, along with the interest rate associated with such variable-rate indebtedness, may change in the future and materially
affect our interest costs and earnings. In addition, our interest costs on our fixed-rate indebtedness may increase if we are required
to refinance our fixed-rate indebtedness upon maturity at higher interest rates.
Furthermore, the public valuation of our common shares is related primarily to the earnings that we derive from rental income
with respect to the properties in which we have an interest and not from the underlying appraised value of the properties themselves.
As a result, interest rate fluctuations and capital market conditions can affect the market value of our common shares. For instance,
if interest rates rise, the market price of our common shares may decrease because potential investors seeking a higher dividend yield
than they would receive from our common shares may sell our common shares in favor of higher rate interest-bearing securities.
Continued disruptions in the financial markets could affect our ability to obtain debt financing on reasonable terms and have
other adverse effects on us.
Since 2008, the United States credit markets have experienced significant dislocations and liquidity disruptions which have
caused the spreads on prospective debt financings to widen considerably. These circumstances have materially impacted liquidity
in the debt markets, making financing terms for borrowers less attractive, and in certain cases have resulted in the unavailability of
certain types of debt financing. Continued uncertainty in the credit markets may negatively impact our ability to access additional
debt financing on reasonable terms, which may negatively affect our ability to make acquisitions. A prolonged downturn in the credit
markets may cause us to seek alternative sources of potentially less attractive financing and may require us to adjust our business
plan accordingly. In addition, these factors may make it more difficult for us to sell properties or may adversely affect the price we
receive for properties that we do sell, as prospective buyers may experience increased costs of capital or difficulties in obtaining
13
capital. These events in the credit markets have also had an adverse effect on other financial markets in the United States, which
may make it more difficult or costly for us to raise capital through the issuance of our common shares or preferred shares. These
disruptions in the financial markets may have other adverse effects on us or the economy in general.
As of December 31, 2012, we have aggregate interest rate swap agreements on $255.0 million of borrowings. The counterparties
of these arrangements are major financial institutions; however, we are exposed to credit risk in the event of non-performance by
the counterparties.
Covenants in certain of the agreements governing our debt could adversely affect our financial condition and our investment
activities.
Our unsecured revolving credit facility, unsecured term loans and indenture governing our 6.00% Convertible Notes contain
certain cross-default provisions as well as customary restrictions, requirements and other limitations on our ability to incur
indebtedness. Our ability to borrow under both our unsecured revolving credit facility and our unsecured term loan is also subject
to compliance with certain other covenants. In addition, failure to comply with our covenants could cause a default under the applicable
debt instrument and we may then be required to repay such debt with capital from other sources. Under those circumstances other
sources of capital may not be available to us or be available only on unattractive terms. Additionally, our ability to satisfy current or
prospective lenders' insurance requirements may be adversely affected if lenders generally insist upon greater insurance coverage
against acts of terrorism than is available to us in the marketplace or on commercially reasonable terms.
We rely on debt financing, including borrowings under our unsecured revolving credit facility, unsecured term loan and debt
secured by individual properties, for working capital, including to finance our investment activities. If we are unable to obtain
financing from these or other sources, or to refinance existing indebtedness upon maturity, our financial condition and results of
operations could be adversely affected.
The trading price of our common shares has been, and may continue to be, subject to significant fluctuations.
Since January 1, 2008, the closing sale price of our common shares on the NYSE (composite) has ranged from $17.22 to $2.01
per share. The market price of our common shares may fluctuate in response to company-specific and securities market events and
developments, including those described in this Annual Report. In addition, the amount of our indebtedness may impact investor
demand for our common shares, which could have a material effect on the market price of our common shares.
We have engaged and may engage in hedging transactions that may limit gains or result in losses.
We have used derivatives to hedge certain of our liabilities and we currently have interest rate swap agreements in place. This
has certain risks, including losses on a hedge position, which have in the past and may in the future reduce the return on our investments.
Such losses may exceed the amount invested in such instruments. In addition, counterparties to a hedging arrangement could default
on their obligations. We may have to pay certain costs, such as transaction fees or breakage costs, related to hedging transactions.
We face risks associated with refinancings.
A significant number of the properties in which we have an interest, as well as corporate level borrowings, are subject to mortgage
or other secured notes with balloon payments due at maturity. In addition, our corporate level borrowings require interest only
payments with all principal due at maturity.
As of December 31, 2012, the consolidated scheduled balloon payments, for the next five calendar years, are as follows:
Year
2013
2014
2015
2016
2017
Non-Recourse
Property-Specific
Balloon Payments
$
$
$
$
$
238.4 million $
251.0 million $
288.6 million $
148.6 million $
68.7 million $
Corporate Recourse
Balloon Payments
—
—
—
—
83.9 million (1)
(1) Assumes 6.00% Convertible Notes due in January 2030 are put to us in 2017. Subsequent to December 31, 2012, an additional $35.0
million of these notes were converted and, as a result, $48.9 million is the amount of the expected payment in 2017 as of the date of the
filing of this Annual Report.
14
The ability to make the scheduled balloon payment on a non-recourse mortgage note will depend upon (1) in the event we
determine to contribute capital, our cash balances and the amount available under our unsecured credit facility and (2) the property
owner subsidiary's ability either to refinance the related mortgage debt or to sell the related property. If the property owner subsidiary
is unable to refinance or sell the related property, the property may be conveyed to the lender through foreclosure or other means or
the property owner subsidiary may declare bankruptcy. The failure to pay the balloon payment may strain relationships with lenders
but we do not believe it will have a material adverse impact on our ability to obtain additional financings.
We face risks associated with returning properties to lenders.
A significant number of the properties in which we have an interest are subject to non-recourse mortgages, which generally
provide that a lender's only recourse upon an event of default is to foreclose on the property. During 2012, a vacant property in each
of Tulsa, Oklahoma and Clive, Iowa, in which we had an interest, were sold in foreclosure. As a result, we lost all of our interest in
these properties and any future opportunities to re-tenant these properties. The loss of a significant number of properties to foreclosure
or bankruptcy could adversely affect our financial condition and results of operations, relationships with lenders and ability to obtain
additional financing in the future.
In addition, in instances not involving us, there are at least two cases in Michigan where a lender has been successful in triggering
a carve out to the non-recourse nature of a mortgage loan because the value of the property declined below the balance of the mortgage.
Although Michigan recently enacted laws preventing this and we believe this goes against the express intention of a non-recourse
mortgage loan, to the extent these cases are not overturned on appeal or other courts grant similar relief to lenders, the ability of our
property owner subsidiaries to return properties to lenders may be inhibited and we may be liable for all or a portion of such losses.
Certain of our properties are cross-collateralized, and certain of our indebtedness is cross-defaulted.
As of December 31, 2012, (1) the mortgages on three sets of two properties, one set of three properties and one set of four
properties were cross-collateralized and (2) our unsecured revolving credit facility and our unsecured term loan were secured by
ownership interest pledges in a borrowing base of properties. To the extent that any of the properties in which we have an interest
are cross-collateralized, any default by the property owner subsidiary under the mortgage note relating to one property will result in
a default under the financing arrangements relating to any other property that also provides security for that mortgage note or is
cross-collateralized with such mortgage note.
In addition, substantially all of our corporate level borrowings contain cross-default provisions, which may be triggered if we
default on certain indebtedness in excess of certain thresholds.
We face possible liability relating to environmental matters.
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property,
our property owner subsidiaries may be liable for the costs of removal or remediation of certain hazardous or toxic substances at,
on, in or under the properties in which we have an interest as well as certain other potential costs relating to hazardous or toxic
substances. These liabilities may include government fines and penalties and damages for injuries to persons and adjacent property.
These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those
substances. This liability may be imposed on our property owner subsidiaries in connection with the activities of an operator of, or
tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages, and our liability
therefore, could be significant and could exceed the value of the property and/or our aggregate assets. In addition, the presence of
those substances, or the failure to properly dispose of or remove those substances, may adversely affect a property owner subsidiary's
ability to sell or rent that property or to borrow using that property as collateral, which, in turn, would reduce our revenues and ability
to make distributions.
A property can also be adversely affected either through physical contamination or by virtue of an adverse effect upon value
attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other
properties. Although the tenants of the properties in which we have an interest are primarily responsible for any environmental
damages and claims related to the leased premises, in the event of the bankruptcy or inability of any of the tenants of the properties
in which we have an interest to satisfy any obligations with respect to the property leased to that tenant, our property owner subsidiary
may be required to satisfy such obligations. In addition, we may be held directly liable for any such damages or claims irrespective
of the provisions of any lease.
From time to time, in connection with the conduct of our business, our property owner subsidiaries authorize the preparation of
Phase I environmental reports and, when recommended, Phase II environmental reports, with respect to their properties.
15
There can be no assurance that these environmental reports will reveal all environmental conditions at the properties in which
we have an interest or that the following will not expose us to material liability in the future:
•
•
•
•
the discovery of previously unknown environmental conditions;
changes in law;
activities of tenants; or
activities relating to properties in the vicinity of the properties in which we have an interest.
Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations
of the tenants of the properties in which we have an interest, which could adversely affect our financial condition or results of
operations.
From time to time we are involved in legal proceedings arising in the ordinary course of our business.
Legal proceedings arising in the ordinary course of our business require time and effort. The outcomes of legal proceedings are
subject to significant uncertainty. Certain legal proceedings that we were involved in during 2012 are described in note 19 to our
Consolidated Financial Statements in Part II, Item 8 of this Annual Report. In the event that we are unsuccessful defending or
prosecuting these proceedings, as applicable, we may incur a judgment or fail to realize an award of damages that could have an
adverse effect on our financial condition.
Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition.
We carry comprehensive liability, fire, extended coverage and rent loss insurance on certain of the properties in which we have
an interest, with policy specifications and insured limits that we believe are customary for similar properties. However, with respect
to those properties where the leases do not provide for abatement of rent under any circumstances, we generally do not maintain rent
loss insurance. In addition, certain of our leases require the tenant to maintain all insurance on the property, and the failure of the
tenant to maintain the proper insurance could adversely impact our investment in a property in the event of a loss. Furthermore, there
are certain types of losses, such as losses resulting from wars, terrorism or certain acts of God, that generally are not insured because
they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we
could lose capital invested in a property as well as the anticipated future revenues from a property, while remaining obligated for
any mortgage indebtedness or other financial obligations related to the property. Any loss of these types could adversely affect our
financial condition and results of operations.
Future terrorist attacks, military conflicts and unrest in the Middle East could have a material adverse effect on general
economic conditions, consumer confidence and market liquidity.
The types of terrorist attacks since 2001, on-going and future military conflicts and the continued unrest in the Middle East may
affect commodity prices and interest rates, among other things. An increase in interest rates may increase our costs of borrowing,
leading to a reduction in our earnings. The increase in the price of oil will also cause an increase in our operating costs, which may
not be reimbursed by our tenants. Also, terrorist acts could result in significant damages to, or loss of, our properties or the value
thereof.
We and the tenants of the properties in which we have an interest may be unable to obtain adequate insurance coverage on
acceptable economic terms for losses resulting from acts of terrorism. Our lenders may require that we carry terrorism insurance
even if we do not believe this insurance is necessary or cost effective. We may also be prohibited under the applicable lease from
passing all or a portion of the cost of such insurance through to the tenant. Should an act of terrorism result in an uninsured loss or
a loss in excess of insured limits, we could lose capital invested in a property as well as the anticipated future revenues from a
property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss
of these types could adversely affect our financial condition.
Competition may adversely affect our ability to purchase properties.
There are numerous commercial developers, real estate companies, financial institutions, such as banks and insurance companies,
and other investors, such as pension funds, private companies and individuals, with greater financial and other resources than we
have that compete with us in seeking investments and tenants. Due to our focus on single-tenant properties located throughout the
United States, and because most competitors are often locally and/or regionally focused, we do not always encounter the same
competitors in each market. Our competitors include other REITs, financial institutions, insurance companies, pension funds, private
companies and individuals. This competition may result in a higher cost for properties and lower returns and impact our ability to
grow.
16
Our failure to maintain effective internal control over financial reporting could have a material adverse effect on our business,
operating results and share price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments of the effectiveness of our internal
control over financial reporting. If we fail to maintain the adequacy of our internal control over financial reporting, as such standards
may be modified, supplemented or amended from time to time, we will be required to disclose such failure and our financial reporting
may not be relied on by most investors. Moreover, effective internal control, particularly related to revenue recognition, is necessary
for us to produce reliable financial reports and to maintain our qualification as a REIT and is important in helping prevent financial
fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, our REIT
qualification could be jeopardized, investors could lose confidence in our reported financial information and the trading price of our
shares could drop significantly.
We may have limited control over our joint venture investments.
Our joint venture investments involve risks not otherwise present for investments made solely by us, including the possibility
that our partner might, at any time, become bankrupt, have different interests or goals than we do, or take action contrary to our
expectations, its previous instructions or our instructions, requests, policies or objectives, including our policy with respect to
maintaining our qualification as a REIT. Other risks of joint venture investments include impasse on decisions, such as a sale, because
neither we nor our partner has full control over the joint venture. Also, there is no limitation under our organizational documents as
to the amount of funds that may be invested in joint ventures.
Certain of our trustees and officers may face conflicts of interest with respect to sales and refinancings.
E. Robert Roskind, our Chairman, beneficially owns a significant number of OP units, and as a result, may face different and
more adverse tax consequences than our other shareholders will if we sell our interests in certain properties or reduce mortgage
indebtedness on certain properties. Our Chairman may, therefore, have different objectives than our other shareholders regarding
the appropriate pricing and timing of any sale of such properties or reduction of mortgage debt. In the event of an appearance of a
conflict of interest, the conflicted trustee or officer is required to recuse himself or herself from any decision making or seek a waiver
of our Code of Business Conduct and Ethics.
Our ability to change our portfolio is limited because real estate investments are illiquid.
Investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed
conditions is limited. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently
does not limit the number or type of properties in which we may seek to invest or on the concentration of investments in any one
geographic region.
There can be no assurance that we will remain qualified as a REIT for federal income tax purposes.
We believe that we have met the requirements for qualification as a REIT for federal income tax purposes beginning with our
taxable year ended December 31, 1993, and we intend to continue to meet these requirements in the future. However, qualification
as a REIT involves the application of highly technical and complex provisions of the Code, for which there are only limited judicial
or administrative interpretations. The Code provisions and income tax regulations applicable to REITs are more complex than those
applicable to corporations. The determination of various factual matters and circumstances not entirely within our control may affect
our ability to continue to qualify as a REIT. No assurance can be given that we have qualified or will remain qualified as a REIT. In
addition, no assurance can be given that legislation, regulations, administrative interpretations or court decisions will not significantly
change the requirements for qualification as a REIT or the federal income tax consequences of such qualification. If we do not qualify
as a REIT, we would not be allowed a deduction for distributions to shareholders in computing our net taxable income. In addition,
our income would be subject to tax at the regular corporate rates. We also could be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification was lost. Cash available for distribution to our shareholders would
be significantly reduced or suspended for each year in which we do not qualify as a REIT. In that event, we would not be required
to continue to make distributions. Although we currently intend to continue to qualify as a REIT, it is possible that future economic,
market, legal, tax or other considerations may cause us, without the consent of the shareholders, to revoke the REIT election or to
otherwise take action that would result in disqualification.
17
We may be subject to the REIT prohibited transactions tax, which could result in significant U.S. federal income tax liability to
us.
In 2007, we announced a restructuring of our investment strategy, focusing on investing in core assets and the disposition of
non-core assets. A REIT will incur a 100% tax on the net income from a prohibited transaction. Generally, a prohibited transaction
includes a sale or disposition of property held primarily for sale to customers in the ordinary course of a trade or business. While we
believe that the dispositions of our assets pursuant to the restructuring of our investment strategy should not be treated as prohibited
transactions, whether a particular sale will be treated as a prohibited transaction depends on the underlying facts and circumstances.
We have not sought and do not intend to seek a ruling from the Internal Revenue Service regarding any dispositions. Accordingly,
there can be no assurance that our dispositions of such assets will not be subject to the prohibited transactions tax. If all or a significant
portion of those dispositions were treated as prohibited transactions, we would incur a significant U.S. federal income tax liability,
which could have a material adverse effect on our financial position, results of operations and cash flows.
Distribution requirements imposed by law limit our flexibility.
To maintain our status as a REIT for federal income tax purposes, we are generally required to distribute to our shareholders at
least 90% of our taxable income for that calendar year. Our taxable income is determined without regard to any deduction for dividends
paid and by excluding net capital gains. To the extent that we satisfy the distribution requirement but distribute less than 100% of
our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4%
nondeductible excise tax on the amount, if any, by which our distributions in any year are less than the sum of (i) 85% of our ordinary
income for that year, (ii) 95% of our capital gain net income for that year and (iii) 100% of our undistributed taxable income from
prior years. We intend to continue to make distributions to our shareholders to comply with the distribution requirements of the Code
and to reduce exposure to federal income and nondeductible excise taxes. Differences in timing between the receipt of income and
the payment of expenses in determining our taxable income and the effect of required debt amortization payments could require us
to borrow funds on a short-term basis in order to meet the distribution requirements that are necessary to achieve the tax benefits
associated with qualifying as a REIT.
There are certain limitations on a third party's ability to acquire us or effectuate a change in our control.
Limitations imposed to protect our REIT status. In order to protect against the loss of our REIT status, among other restrictions,
our declaration of trust limits any shareholder from owning more than 9.8% in value of our outstanding equity shares, defined as
common shares or preferred shares, subject to certain exceptions. These ownership limits may have the effect of precluding acquisition
of control of us. Our Board of Trustees has granted limited waivers of the ownership limits to Vornado Realty, L.P., BlackRock, Inc.
and Cohen & Steers Capital Management, Inc.
Severance payments under employment agreements. Substantial termination payments may be required to be paid under the
provisions of employment agreements with certain of our executives upon a change of control and the subsequent termination of the
executive. We have entered into employment agreements with four of our executive officers which provide that, upon the occurrence
of a change in control of us (including a change in ownership of more than 50% of the total combined voting power of our outstanding
securities, the sale of all or substantially all of our assets, dissolution, the acquisition, except from us, of 20% or more of our voting
shares or a change in the majority of our Board of Trustees), if those executive officers are terminated without cause, as defined,
those executive officers may be entitled to severance benefits based on their current annual base salaries and trailing average of
recent annual cash bonuses as defined in the employment agreements. Accordingly, these payments may discourage a third party
from acquiring us.
Our ability to issue additional shares. Our amended and restated declaration of trust authorizes 400,000,000 common shares,
100,000,000 preferred shares and 500,000,000 excess shares. Our Board of Trustees is authorized to cause us to issue these shares
without shareholder approval. Our Board of Trustees is able to establish the preferences and rights of any such class or series of
additional shares, which could have the effect of delaying or preventing someone from taking control of us, even if a change in
control were in shareholders' best interests. At December 31, 2012, in addition to common shares, we had outstanding 1,935,400
Series C Preferred Shares and 6,200,000 Series D Preferred Shares. Our Series C and Series D Preferred Shares include provisions,
such as increases in dividend rates or adjustments to conversion rates, that may deter a change of control. The establishment and
issuance of shares of our existing series of preferred shares or a future class or series of shares could make a change of control of us
more difficult.
18
Maryland Business Combination Act. The Maryland General Corporation Law, as applicable to Maryland REITs, establishes
special restrictions against “business combinations” between a Maryland REIT and “interested shareholders” or their affiliates unless
an exemption is applicable. An interested shareholder includes a person who beneficially owns, and an affiliate or associate of the
trust who, at any time within the two-year period prior to the date in question was the beneficial owner of, 10% or more of the voting
power of our then-outstanding voting shares, but a person is not an interested shareholder if the Board of Trustees approved in advance
the transaction by which he otherwise would have become an interested shareholder, which approval may be conditioned by the
Board of Trustees. Among other things, Maryland law prohibits (for a period of five years) a merger and certain other transactions
between a Maryland REIT and an interested shareholder, or an affiliate of an interested shareholder. The five-year period runs from
the most recent date on which the interested shareholder became an interested shareholder. Thereafter, any such business combination
must be recommended by the Board of Trustees and approved by two super-majority shareholder votes unless, among other conditions,
the common shareholders receive a minimum price (as defined in the Maryland General Corporation Law) for their shares and the
consideration is received in cash or in the same form as previously paid by the interested shareholder for its shares. The statute
permits various exemptions from its provisions, including business combinations that are exempted by the Board of Trustees prior
to the time that the interested shareholder becomes an interested shareholder. The business combination statute could have the effect
of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if such acquisition would
be in shareholders' best interests. In connection with the Newkirk Merger, Vornado Realty Trust, which we refer to as Vornado, was
granted a limited exemption from the definition of “interested shareholder.”
Maryland Control Share Acquisition Act. Maryland law provides that a holder of “control shares” of a Maryland REIT acquired
in a “control share acquisition” has no voting rights with respect to such shares except to the extent approved by a vote of two-thirds
of the votes entitled to be cast on the matter under the Maryland Control Share Acquisition Act. Shares owned by the acquirer, by
our officers or by employees who are our trustees are excluded from shares entitled to vote on the matter. “Control Shares” means
shares that, if aggregated with all other shares previously acquired by the acquirer or in respect of which the acquirer is able to
exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise
voting power in electing trustees within one of the following ranges of voting power: one-tenth or more but less than one-third, one-
third or more but less than a majority or a majority or more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained shareholder approval. A “control share acquisition” means
the acquisition of issued and outstanding control shares, subject to certain exceptions. If voting rights of control shares acquired in
a control share acquisition are not approved at a shareholders meeting or if the acquiring person does not deliver an acquiring person
statement as required under the statute, then, subject to certain conditions and limitations, the issuer may redeem any or all of the
control shares for fair value. If voting rights of such control shares are approved at a shareholders meeting and the acquirer becomes
entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights. Any control shares
acquired in a control share acquisition which are not exempt under our by-laws will be subject to the Maryland Control Share
Acquisition Act. Our amended and restated by-laws contain a provision exempting from the Maryland Control Share Acquisition
Act any and all acquisitions by any person of our shares. We cannot assure you that this provision will not be amended or eliminated
at any time in the future.
Limits on ownership of our capital shares may have the effect of delaying, deferring or preventing someone from taking control
of us.
For us to qualify as a REIT for federal income tax purposes, among other requirements, not more than 50% of the value of our
outstanding capital shares may be owned, directly or indirectly, by five or fewer individuals (as defined for federal income tax
purposes to include certain entities) during the last half of each taxable year, and these capital shares must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year
(in each case, other than the first such year for which a REIT election is made). Our amended and restated declaration of trust includes
certain restrictions regarding transfers of our capital shares and ownership limits.
Actual or constructive ownership of our capital shares in violation of the restrictions or in excess of the share ownership limits
contained in our amended and restated declaration of trust would cause the violative transfer or ownership to be void or cause the
shares to be transferred to a charitable trust and then sold to a person or entity who can own the shares without violating these limits.
As a result, if a violative transfer were made, the recipient of the shares would not acquire any economic or voting rights attributable
to the transferred shares. Additionally, the constructive ownership rules for these limits are complex, and groups of related individuals
or entities may be deemed a single owner and consequently in violation of the share ownership limits.
However, these restrictions and limits may not be adequate in all cases to prevent the transfer of our capital shares in violation
of the ownership limitations. The ownership limits discussed above may have the effect of delaying, deferring or preventing someone
from taking control of us, even though a change of control could involve a premium price for the common shares or otherwise be in
shareholders' best interests.
19
Legislative or regulatory tax changes could have an adverse effect on us.
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended.
Any of those new laws or interpretations may take effect retroactively and could adversely affect us or you as a shareholder. REIT
dividends generally are not eligible for the reduced rates currently applicable to certain corporate dividends (unless attributable to
dividends from taxable REIT subsidiaries and otherwise eligible for such rates). As a result, investment in non-REIT corporations
may be relatively more attractive than investment in REITs. This could adversely affect the market price of our shares.
Costs of complying with changes in governmental laws and regulations may adversely affect our results of operations.
We cannot predict what laws or regulations may be enacted in the future, how future laws or regulations will be administered
or interpreted, or how future laws or regulations will affect our properties. Compliance with new laws or regulations, or stricter
interpretation of existing laws, may require us or our tenants to incur significant expenditures, impose significant liability, restrict
or prohibit business activities and could cause a material adverse effect on our results of operations.
Our reported financial results may be adversely affected by changes in accounting principles applicable to us and the tenants of
properties in which we have an interest.
GAAP is subject to interpretation by various bodies formed to promulgate and interpret appropriate accounting principles such
as the Financial Accounting Standards Board. A change in these principles or interpretations could have a significant effect on our
reported financial results, could affect the reporting of transactions completed before the announcement of a change and could affect
the business practices and decisions of the tenants of properties in which we have an interest.
We may change the dividend policy for our common shares in the future.
We currently expect to pay an aggregate annual dividend of $0.60 per common share with respect to the 2013 taxable year.
However, the decision to declare and pay dividends on our common shares in the future, as well as the timing, amount and composition
of any such future dividends, will be at the sole discretion of our Board of Trustees in light of conditions then existing, including
our earnings, financial condition, capital requirements, debt maturities, the availability of debt and equity capital, applicable REIT
and legal restrictions and the general overall economic conditions and other factors. The actual dividend payable will be determined
by our Board of Trustees based upon the circumstances at the time of declaration and the actual dividend payable may vary from
such expected amount. Any change in our dividend policy could have a material adverse effect on the market price of our common
shares.
Our Board of Trustees may change our investment policy without shareholders' approval.
Subject to our fundamental investment policy to maintain our qualification as a REIT and invest in core assets, our Board of
Trustees will determine our investment and financing policies, growth strategy and our debt, capitalization, distribution, acquisition,
disposition and operating policies.
Our Board of Trustees may revise or amend these strategies and policies at any time without a vote by shareholders. Changes
made by our Board of Trustees may not serve the interests of shareholders and could adversely affect our financial condition or
results of operations, including our ability to distribute cash to shareholders or qualify as a REIT. Accordingly, shareholders' control
over changes in our strategies and policies is limited to the election of trustees.
The concentration of ownership by certain investors may limit other shareholders from influencing significant corporate decisions.
At December 31, 2012, Vornado beneficially owned approximately 18.5 million common shares, and E. Robert Roskind, our
Chairman, beneficially owned approximately 1.1 million of our common shares (some of which are subject to restrictions under
applicable award agreements) and approximately 1.5 million OP units, which are currently redeemable for approximately 1.7 million
common shares, or with respect to a portion of the OP units, at our election, cash. Mr. Roskind and an employee of Vornado sit on
our Board of Trustees as of the date of filing this Annual Report. Each of Vornado and Mr. Roskind may have substantial influence
over us and on the outcome of any matters submitted to our shareholders for approval. In addition, certain decisions concerning our
operations or financial structure may present conflicts of interest between each of Vornado and Mr. Roskind and our other equity or
debt holders. In addition, Vornado engages in a wide variety of activities in the real estate business and may engage in activities that
result in conflicts of interest with respect to matters affecting us, such as competition for properties and tenants.
20
Securities eligible for future sale may have adverse effects on our share price.
We have an unallocated universal shelf registration statement and a direct share purchase plan, pursuant to which we may issue
additional common shares. In addition, as of December 31, 2012, an aggregate of approximately 7.8 million of our common shares
were issuable upon the exercise of employee share options and upon the exchange of OP units. There were also 12.1 million common
shares underlying our 6.00% Convertible Notes as of December 31, 2012, which is subject to increase upon certain events, including
if we pay a quarterly common share dividend in excess of $0.10 per common share. Depending upon the number of such securities
issued, exercised or exchanged at one time, an issuance, exercise or exchange of such securities could be dilutive to or otherwise
adversely affect the interests of holders of our common shares.
We are dependent upon our key personnel.
We are dependent upon key personnel whose continued service is not guaranteed. We are dependent on certain of our executive
officers for business direction. We have employment agreements, which expire in January 2015, with each of T. Wilson Eglin, our
Chief Executive Officer and President, E. Robert Roskind, our Chairman, Richard J. Rouse, our Vice Chairman and Chief Investment
Officer, and Patrick Carroll, our Executive Vice President, Chief Financial Officer and Treasurer. However, an employment agreement
does not itself prevent an employee from resigning.
Our inability to retain the services of any of our key personnel or our loss of any of their services could adversely impact our
operations. We do not have key man life insurance coverage on our executive officers.
Item 1B. Unresolved Staff Comments
There are no unresolved written comments that were received from the SEC staff 180 days or more before the end of our
fiscal year relating to our periodic or current reports under the Securities Exchange Act of 1934.
21
Item 2. Properties
Real Estate Portfolio
General. As of December 31, 2012, we had equity ownership interests in approximately 220 consolidated office, industrial and
retail properties containing approximately 41.2 million square feet of rentable space, which were approximately 97.3% leased based
upon net rentable square feet. Generally, all properties in which we have an interest are held through at least one property owner
subsidiary.
The properties in which we have an interest are generally subject to net or similar leases; however, in certain leases, the property
owner subsidiaries are responsible for roof, structural and other repairs. In addition, certain of the properties in which we have an
interest are subject to leases in which the landlord is responsible for a portion of the real estate taxes, utilities and general maintenance.
Furthermore, the property owner subsidiaries are or will be responsible for all operating expenses of any vacant properties, and the
property owner subsidiaries may be responsible for a significant amount of operating expenses of multi-tenant properties.
Ground Leases. Certain of the properties in which we have an interest are subject to long-term ground leases where either the
tenant of the building on the property or a third party owns and leases the underlying land to the property owner subsidiary. Certain
of these properties are economically owned through the holding of industrial revenue bonds primarily for real estate tax abatement
purposes and as such, neither ground lease payments nor bond interest payments are made or received, respectively. For certain of
the properties held under a ground lease, the ground lessee has a purchase option. At the end of these long-term ground leases, unless
extended or the purchase option exercised, the land together with all improvements thereon reverts to the landowner.
Leverage. As of December 31, 2012, we had interests in properties subject to outstanding mortgages and notes payable and
corporate level debt of approximately $1.9 billion with a weighted-average interest rate of approximately 5.4%.
Property Charts. The following tables list our properties by type, their locations, the primary tenant/guarantor, the net rentable
square feet, the expiration of the primary lease term and percent leased, as applicable, as of December 31, 2012.
22
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
OFFICE
As of December 31, 2012
Property Location
City
State
Primary Tenant (Guarantor)
Net
Rentable
Square Feet
Current
Lease Term
Expiration
Percent
Leased
12209 W. Markham St.
Little Rock
5201 West Barraque St.
Pine Bluff
19019 North 59th Ave.
Glendale
8555 South River Pkwy.
Tempe
1440 East 15th St.
Tucson
275 S. Valencia Ave
Brea
26210 & 26220 Enterprise
Court
Lake Forest
9201 E. Dry Creek Rd
Centennial
1110 Bayfield Dr.
Colorado Springs
3940 South Teller St.
Lakewood
1315 W. Century Dr.
Louisville
100 Barnes Rd
Wallingford
5600 Broken Sound Blvd.
Boca Raton
12600 Gateway Blvd.
Fort Myers
550 Business Center Dr.
Lake Mary
600 Business Center Dr.
Lake Mary
9200 South Park Center
Loop
Orlando
Sandlake Rd./Kirkman Rd
Orlando
AR
AR
AZ
AZ
AZ
CA
CA
CO
CO
CO
CO
CT
FL
FL
FL
FL
FL
FL
Entergy Arkansas, Inc.
36,311
10/31/2015
100%
Entergy Arkansas Inc.
27,189
10/31/2015
100%
Honeywell International Inc.
ASM Lithography, Inc. (ASM Lithography
Holding N.V.) (2013) / DuPont Airproducts
Nanomaterials L.L.C. (2022)
252,300
7/15/2019
95,133
6/30/2022
100%
100%
CoxCom, LLC
28,591
7/31/2022
100%
Bank of America, National Association
637,503
6/30/2019
100%
Apria Healthcare, Inc. (Apria Healthcare
Group, Inc.)
100,012
1/31/2022
100%
The Shaw Group, Inc.
128,500
9/30/2017
100%
Honeywell International Inc.
166,575
11/30/2013
100%
MoneyGram Payment Systems, Inc.
68,165
3/31/2015
100%
Global Healthcare Exchange, Inc. (Global
Healthcare Exchange, LLC)
106,877
4/30/2017
100%
3M Company
44,400
6/30/2018
100%
Océ Printing Systems USA, Inc. (Océ -USA
Holding, Inc.)
143,290
2/14/2020
100%
Gartner, Inc.
62,400
1/31/2013
100%
JPMorgan Chase Bank, National Association
125,920
9/30/2015
100%
JPMorgan Chase Bank, National Association
125,155
9/30/2015
100%
Corinthian Colleges, Inc.
59,927
9/30/2013
100%
Lockheed Martin Corporation
184,000
4/30/2018
100%
4400 Northcorp Parkway
Palm Beach Gardens
FL
Office Suites Plus Properties, Inc.
18,400
5/31/2019
100%
10419 North 30th St.
Tampa
2223 N. Druid Hills Rd
Atlanta
6303 Barfield Rd
Atlanta
859 Mount Vernon Hwy
Atlanta
956 Ponce de Leon Ave
Atlanta
4545 Chamblee-Dunwoody
Rd
Chamblee
201 W. Main St.
Cumming
1066 Main St.
Forest Park
825 Southway Dr.
Jonesboro
FL
GA
GA
GA
GA
GA
GA
GA
GA
Time Customer Service, Inc. (Time
Incorporated)
Bank of America, N.A. (Bank of America
Corporation)
International Business Machines Corporation /
Internet Security Systems, Inc. (ISS Group,
Inc.)
International Business Machines Corporation /
Internet Security Systems, Inc. (ISS Group,
Inc.) / Problem Solved LLC
Bank of America, N.A. (Bank of America
Corporation)
Bank of America, N.A. (Bank of America
Corporation)
Bank of America, N.A. (Bank of America
Corporation)
Bank of America, N.A. (Bank of America
Corporation)
Bank of America, N.A. (Bank of America
Corporation)
132,981
6/30/2020
100%
6,260
12/31/2014
100%
238,600
5/31/2018
100%
50,400
5/31/2014
100%
3,900
12/31/2014
100%
4,565
12/31/2014
100%
14,208
12/31/2014
100%
14,859
12/31/2014
100%
4,894
12/31/2014
100%
23
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
OFFICE
As of December 31, 2012
Property Location
City
State
Primary Tenant (Guarantor)
Net
Rentable
Square Feet
Current
Lease Term
Expiration
Percent
Leased
2500 Patrick Henry Pkwy
McDonough
3500 N. Loop Court
McDonough
1698 Mountain Industrial
Blvd.
Stone Mountain
3265 E. Goldstone Dr.
Meridian
101 E. Erie St.
Chicago
850 & 950 Warrenville Rd
Lisle
500 Jackson St.
Columbus
10300 Kincaid Dr.
Fishers
10475 Crosspoint Blvd.
Indianapolis
5757 Decatur Blvd.
Indianapolis
9601 Renner Blvd.
Lenexa
5200 Metcalf Ave.
Overland Park
4455 American Way
Baton Rouge
147 Milk St.
Boston
33 Commercial St.
Foxboro
70 Mechanic St.
First Park Dr.
Foxboro
Oakland
26555 Northwestern Hwy
Southfield
3165 McKelvey Rd.
Bridgeton
9201 Stateline Rd.
Kansas City
3943 Denny Ave.
Pascagoula
200 Lucent Lane
Cary
700 US Hwy. Route 202-206 Bridgewater
333 Mount Hope Ave.
Rockaway
1415 Wyckoff Rd.
Wall
29 S. Jefferson Rd.
Whippany
180 S. Clinton St.
Rochester
2000 Eastman Dr.
Milford
500 Olde Worthington Rd. Westerville
GA
GA
GA
ID
IL
IL
IN
IN
IN
IN
KS
KS
LA
MA
MA
MA
ME
MI
MO
MO
MS
NC
NJ
NJ
NJ
NJ
NY
OH
OH
Georgia Power Company
111,911
6/30/2015
100%
Litton Loan Servicing LP
62,218
8/31/2018
100%
Bank of America, N.A. (Bank of America
Corporation)
T-Mobile PCS Holdings LLC (T-Mobile USA,
Inc.)
Draftfcb, Inc. (Interpublic Group of
Companies, Inc.)
National Louis University
5,704
12/31/2014
100%
77,484
6/28/2019
100%
230,704
3/15/2014
92%
99,414
12/31/2019
100%
Cummins, Inc.
390,100
7/31/2019
100%
Roche Diagnostics Operations, Inc.
193,000
1/31/2020
100%
John Wiley & Sons, Inc.
141,047
10/31/2019
Allstate Insurance Company
88,566
1/31/2018
90%
65%
VoiceStream PCS II Corporation (T-Mobile
USA, Inc.)
Swiss Re American Holding Corporation /
Westport Insurance Corporation
77,484
10/31/2019
100%
320,198
12/22/2018
100%
New Cingular Wireless PCS, LLC
70,100
10/31/2017
100%
Harvard Vanguard Medical Associates, Inc.
52,337
12/31/2022
100%
Invensys Systems, Inc. (Siebe, Inc.)
164,689
6/30/2015
100%
Invensys Systems, Inc. (Siebe, Inc.)
251,914
6/30/2014
100%
Omnipoint Holdings, Inc. (T-Mobile USA,
Inc.)
78,610
8/31/2020
100%
Federal-Mogul Corporation
187,163
1/31/2015
100%
BJC Health System
52,994
3/31/2013
100%
Swiss Re American Holding Corporation /
Westport Insurance Corporation
155,925
4/1/2019
100%
Northrop Grumman Systems Corporation
94,841
10/31/2013
100%
Progress Energy Service Company, LLC
124,944
11/30/2014
100%
Biovail Pharmaceuticals, Inc. (Valeant
Pharmaceuticals International, Inc.)
115,558
10/31/2014
100%
BASF Corporation
95,500
9/30/2014
100%
New Jersey Natural Gas Company
157,511
6/30/2021
100%
CAE SimuFlite, Inc. (CAE Inc.)
123,734
11/30/2021
100%
Frontier Corporation
Siemens Corporation
226,000
12/31/2014
100%
221,215
4/30/2016
100%
InVentiv Communications, Inc.
97,000
9/30/2015
100%
24
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
OFFICE
As of December 31, 2012
Property Location
City
State
Primary Tenant (Guarantor)
Net
Rentable
Square Feet
Current
Lease Term
Expiration
Percent
Leased
2999 Southwest 6th St.
Redmond
OR
VoiceStream PCS I LLC (T-Mobile USA, Inc.)
77,484
1/31/2019
100%
275 Technology Dr.
Canonsburg
2550 Interstate Dr.
Harrisburg
1701 Market St.
Philadelphia
1460 Tobias Gadson Blvd.
Charleston
2210 Enterprise Dr.
Florence
3476 Stateview Blvd.
Fort Mill
3480 Stateview Blvd.
Fort Mill
333 Three D Systems Circle Rock Hill
420 Riverport Rd.
Kingport
2401 Cherahala Blvd.
Knoxville
1409 Centerpoint Blvd.
Knoxville
104 & 110 S. Front St.
Memphis
3965 Airways Blvd.
Memphis
1401 & 1501 Nolan Ryan
Pkwy.
Arlington
4001 International Pkwy.
Carrollton
4201 Marsh Ln.
Carrollton
11511 Luna Rd.
Farmers Branch
1200 Jupiter Rd.
Garland
2529 West Thorne Dr.
Houston
1311 Broadfield Blvd.
Houston
16676 Northchase Dr.
Houston
810 & 820 Gears Rd.
Houston
3711 San Gabriel
Mission
6200 Northwest Pkwy.
San Antonio
1600 Eberhardt Rd.
Temple
2050 Roanoke Rd.
Westlake
PA
PA
PA
SC
SC
SC
SC
SC
TN
TN
TN
TN
TN
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
ANSYS, Inc.
107,872
12/31/2014
100%
New Cingular Wireless PCS, LLC
81,859
12/31/2013
100%
Morgan, Lewis & Bockius LLP
304,037
1/31/2021
98%
Hagemeyer North America, Inc.
50,076
7/8/2020
100%
JPMorgan Chase Bank, National Association
179,300
10/30/2013
100%
Wells Fargo Bank, N.A.
169,083
5/31/2014
100%
Wells Fargo Bank, N.A.
169,218
5/31/2014
100%
3D Systems Corporation
80,028
8/31/2021
100%
Kingsport Power Company
42,770
6/30/2018
100%
AdvancePCS, Inc. / CaremarkPCS, L.L.C.
59,748
5/31/2020
100%
Alstom Power, Inc.
84,404
10/31/2014
100%
Hnedak Bobo Group, Inc.
37,229
10/31/2016
100%
Federal Express Corporation
521,286
6/19/2019
100%
Siemens Dematic Postal Automation L.P. /
Siemens Energy & Automation, Inc. / Siemens
Shared Services, LLC
Motel 6 Operating, LP (Accor S.A.)
236,547
1/31/2014
100%
138,443
7/31/2015
100%
Carlson Restaurants Inc. (Carlson, Inc.)
130,000
11/30/2022
100%
Haggar Clothing Co. (Texas Holding Clothing
Corporation & Haggar Corp.)
180,507
4/30/2016
100%
Raytheon Company
278,759
5/31/2016
100%
Baker Hughes, Incorporated
65,500
9/27/2015
100%
Transocean Offshore Deepwater Drilling, Inc.
(Transocean Sedco Forex, Inc.)
Kerr-McGee Oil & Gas Corporation (Kerr-
McGee Corporation)
Ricoh Americas Corporation
VoiceStream PCS II Corporation / T-Mobile
USA, Inc. / T-Mobile West Corporation
United HealthCare Services, Inc. / PacifiCare
Healthsystems, LLC
Nextel of Texas, Inc. (Nextel Finance
Company)
155,040
3/31/2021
100%
101,111
7/31/2014
100%
157,790 1/31/2013 &
1/31/2018
100%
75,016
6/30/2015
100%
142,500
11/30/2017
100%
108,800
1/31/2016
100%
TD Auto Finance LLC
130,290
12/31/2016
100%
100 E. Shore Dr.
Glen Allen
VA
Capital One, National Association
68,118
12/31/2017
100%
25
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
OFFICE
As of December 31, 2012
Property Location
City
State
Primary Tenant (Guarantor)
Net
Rentable
Square Feet
Current
Lease Term
Expiration
Percent
Leased
120 E. Shore Dr.
Glen Allen
400 Butler Farm Rd.
Hampton
421 Butler Farm Rd.
Hampton
13651 McLearen Rd.
Herndon
13775 McLearen Rd.
Herndon
2800 Waterford Lake Dr.
Midlothian
1400 Northeast McWilliams
Rd.
Bremerton
22011 Southeast 51st St.
Issaquah
5150 220th Ave.
Issaquah
VA
VA
VA
VA
VA
VA
WA
WA
WA
Capital One Services, LLC
77,045
12/31/2018
100%
Nextel Communications of the Mid-Atlantic,
Inc. (Nextel Finance Company)
100,632
12/31/2014
100%
Patient Advocate Foundation
56,564
12/31/2019
65%
United States of America
159,644
5/30/2018
100%
Orange Business Services U.S., Inc. (Equant
N.V.)
125,293
4/30/2015
100%
Alstom Power, Inc.
99,057
12/31/2021
100%
Nextel West Corp. (Nextel Finance Company)
60,200
7/14/2016
100%
Spacelabs Medical, Inc. / OSI Systems, Inc.
(Instrumentarium Corporation)
Spacelabs Medical, Inc. / OSI Systems, Inc.
(Instrumentarium Corporation)
Office Total
95,600
12/14/2014
100%
106,944
12/14/2014
100%
11,762,974
99.3%
The 2012 net effective annual rent for the office portfolio as of December 31, 2012 was $13.29 per square foot and the weighted-
average remaining lease term was 4.5 years.
26
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
LONG-TERM LEASES
As of December 31, 2012
Property Location
City
State
Primary Tenant (Guarantor)
1640 Parker Way
Opelika
AL
Gander Mountain Company
Net
Rentable
Square
Feet
Current
Lease
Term
Expiration
Percent
Leased
52,000 11/30/2027
100%
Property
Type
Retail
2211 South 47th St.
Phoenix
AZ
Avnet, Inc.
Office
176,402
2/28/2023
100%
3030 North 3rd Street
Phoenix
AZ
CopperPoint Mutual Insurance Company
Office
252,400 12/31/2029
100%
2005 E. Technology Cir.
Tempe
AZ
Infocrossing, Inc.
Office
60,000 12/31/2025
100%
3333 Coyote Hill Rd.
Palo Alto
CA
Xerox Corporation
Office
202,000 12/14/2023
100%
6277 Sea Harbor Dr.
Orlando
FL
Wyndham Vacation Ownership, Inc.
(Wyndham Worldwide Corporation) /
Aramak Corporation
Office
359,514 10/31/2025
74%
278 Norman Drive
Valdosta
GA
Gander Mountain Company
Retail
51,198
8/31/2027
100%
11201 Renner Blvd.
Lenexa
KS
United States of America
Office
169,585 10/31/2027
100%
10000 Business Blvd.
Dry Ridge
730 North Black Branch Rd.
Elizabethtown
KY
KY
750 North Black Branch Rd.
Elizabethtown
KY
301 Bill Bryan Rd
Hopkinsville
4010 Airpark Dr.
Owensboro
5001 Greenwood Rd.
Shreveport
KY
KY
LA
37101 Corporate Dr.
Farmington Hills
MI
12000 & 12025 Tech Center
Dr.
Livonia
3902 Gene Field Blvd.
St. Joseph
459 Wingo Rd.
Byhalia
MI
MO
MS
Dana Light Axle Products, LLC (Dana
Holding Corporation and Dana Limited)
Metalsa Structural Products, Inc. / Dana
Structural Products, LLC (Dana Holding
Corporation and Dana Limited)
Metalsa Structural Products, Inc. / Dana
Structural Products, LLC (Dana Holding
Corporation and Dana Limited)
Metalsa Structural Products, Inc. / Dana
Structural Products, LLC (Dana Holding
Corporation and Dana Limited)
Metalsa Structural Products, Inc. / Dana
Structural Products, LLC (Dana Holding
Corporation and Dana Limited)
Libbey Glass Inc. (Libbey Inc.)
Panasonic Automotive Systems Company of
America, a Division of Panasonic
Corporation of North America
Kelsey-Hayes Company (TRW Automotive,
Inc.)
Boehringer Ingelheim Vetmedica, Inc.
(Boehringer Ingelheim USA Corporation)
Asics America Corporation (Asics
Corporation)
Industrial
336,350
6/30/2025
100%
Industrial
167,770
6/30/2025
100%
Industrial
539,592
6/30/2025
100%
Industrial
424,904
6/30/2025
100%
Industrial
211,598
6/30/2025
100%
Industrial
646,000 10/31/2026
100%
Office
128,829
6/30/2025
70%
Office
180,230 12/31/2024
100%
Office
98,849
6/30/2027
100%
Industrial
513,734
3/31/2026
100%
US 221 & Hospital Rd
Jefferson
NC
Food Lion, LLC / Delhaize America, Inc.
Retail
34,555
2/28/2023
100%
671 Washburn Switch Rd.
Shelby
NC
Clearwater Paper Corporation
Industrial
673,518
5/31/2031
100%
11707 Miracle Hills Dr.
Omaha
NE
Infocrossing, Inc.
Office
85,200 11/30/2025
100%
121 Technology Dr.
Durham
NH
Heidelberg Americas, Inc. (Heidelberg
Drackmaschinen AG) (2021) / Goss
International America, Inc. (Goss
International Corporation) (2026)
Industrial
500,500
3/30/2026
100%
6226 West Sahara Ave.
Las Vegas
NV
Nevada Power Company
Office
282,000
1/31/2029
100%
351 Chamber Drive
Chillicothe
OH
The Kitchen Collection, Inc.
Industrial
475,218
6/30/2026
100%
10590 Hamilton Ave.
Cincinnati
OH
The Hillman Group, Inc.
Industrial
248,700 12/31/2027
100%
27
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
LONG-TERM LEASES
As of December 31, 2012
Property Location
City
State
Primary Tenant (Guarantor)
Net
Rentable
Square
Feet
Current
Lease
Term
Expiration
Percent
Leased
Property
Type
5500 New Albany Rd.
Columbus
OH
Evans, Mechwart, Hambleton & Tilton, Inc.
Office
104,807 12/29/2026
100%
2221 Schrock Rd.
Columbus
OH
MS Consultants, Inc.
Office
42,290
7/6/2027
100%
7005 Cochran Rd
Glenwillow
OH
Royal Appliance Mfg. Co.
Industrial
458,000
7/31/2025
100%
1700 Millrace Drive
Eugene
250 Rittenhouse Circle
Bristol
25 Lakeview Drive
590 Ecology Lane
Jessup
Chester
1362 Celebration Blvd
Florence
400 E. Stone Ave
Greenville
601 & 701 Experian Pkwy.
Allen
10001 Richmond Ave.
Houston
6555 Sierra Dr.
Irving
8900 Freeport Pkwy
Irving
13930 Pike Road
Missouri City
25500 State Hwy. 249
Tomball
9803 Edmonds Way
Edmonds
2424 Alpine Rd.
Eau Claire
OR
PA
PA
SC
SC
SC
TX
TX
TX
TX
TX
TX
WA
WI
Oregon Research Institute / Educational
Policy Improvement Center
Northtec LLC (The Estée Lauder Companies
Inc.)
Office
80,011 11/30/2027
100%
Industrial
241,977 11/30/2026
100%
TMG Health, Inc.
Office
150,000
8/7/2027
100%
Owens Corning Sales, LLC
Industrial
420,597
7/14/2025
100%
MED3000, Inc.
Office
32,000
2/14/2024
100%
Canal Insurance Company
Office
128,041 12/31/2029
100%
Experian Information Solutions, Inc. / TRW,
Inc. (Experian Holdings, Inc.)
Baker Hughes Incorporated (2015) /
Schlumberger Holdings Corp. (2025)
TXU Energy Retail Company, LLC (Texas
Competitive Electric Holdings Company,
LLC)
Nissan Motor Acceptance Corporation
(Nissan North America, Inc.)
Vulcan Construction Materials LP (Vulcan
Materials Company)
Parkway Chevrolet, Inc. (Raymond Durdin &
Jean W. Durdin)
Pudget Consumers Co-op d/b/a PCC Natural
Markets
Silver Spring Foods, Inc. (Huntsinger Farms,
Inc.)
Office
292,700
3/14/2025
100%
Office
554,385
9/30/2025
100%
Office
247,254
3/31/2023
100%
Office
268,445
3/31/2023
100%
Industrial
N/A 4/30/2032
100%
Specialty
77,076
8/31/2026
100%
Retail
35,459
8/31/2028
100%
Industrial
159,000
4/30/2027
100%
500 Kinetic Drive
Huntington
WV
AMZN WVCS (Amazon.com, Inc.)
Office
68,693 11/30/2026
100%
Long-Term Leases Total
10,231,381
98.7%
The 2012 net effective annual rent for the long-term lease portfolio as of December 31, 2012 was $7.06 per square foot and the
weighted-average remaining lease term was 13.4 years.
28
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
INDUSTRIAL
As of December 31, 2012
Property Location
City
State
Primary Tenant (Guarantor)
Net
Rentable
Square Feet
Current
Lease Term
Expiration
Percent
Leased
2415 U.S. Hwy 78 East
Moody
AL
CEVA Logistics U.S., Inc. (TNT Logistics Holdings, B.V.)
595,346
1/1/2014
100%
109 Stevens St.
Jacksonville
2455 Premier Dr.
Orlando
3102 Queen Palm Dr.
Tampa
359 Gateway Dr.
Lavonia
1420 Greenwood Rd.
McDonough
3600 Army Post Rd.
Des Moines
7500 Chavenelle Rd.
Dubuque
2935 Van Vactor Dr.
Plymouth
3686 S. Central Ave.
Rockford
749 Southrock Dr.
Rockford
1901 Ragu Dr.
Owensboro
5417 Campus Drive
Shreveport
FL
FL
FL
GA
GA
IA
IA
IN
IL
IL
KY
LA
Wagner Industries, Inc.
168,800
1/31/2014
100%
Walgreen Co. / Walgreen Eastern Co.
205,016
3/31/2016
100%
Time Customer Service, Inc. (Time Incorporated)
229,605
6/30/2020
100%
TI Group Automotive Systems, LLC (TI Automotive Ltd.)
133,221
5/31/2020
100%
Versacold USA, Inc.
296,972
10/31/2017
100%
HP Enterprises Services, LLC
405,000
4/30/2017
100%
The McGraw-Hill Companies, Inc.
330,988
6/30/2017
100%
Bay Valley Foods, LLC
300,500
6/30/2015
100%
Jacobson Warehouse Company, Inc. (Jacobson Distribution
Company, Inc. and Jacobson Transportation Company,
Inc.)
Jacobson Warehouse Company, Inc. (Jacobson Distribution
Company, Inc. and Jacobson Transportation Company,
Inc.)
90,000
12/31/2014
100%
150,000
12/31/2015
100%
Unilever Supply Chain, Inc. (Unilever United States, Inc.)
443,380
12/19/2020
100%
The Tire Rack, Inc.
257,849
3/31/2022
100%
113 Wells St.
North Berwick
ME
United Technologies Corporation
972,625
4/30/2019
100%
6938 Elm Valley Dr.
Kalamazoo
904 Industrial Rd.
Marshall
1601 Pratt Ave.
Marshall
43955 Plymouth Oaks Blvd. Plymouth
7111 Crabb Rd.
Temperance
1700 47th Ave North
Minneapolis
7670 Hacks Cross Rd.
Olive Branch
324 Industrial Park Rd.
Franklin
1133 Poplar Creek Rd.
Henderson
250 Swathmore Ave.
High Point
2880 Kenny Biggs Rd.
Lumberton
2203 Sherrill Dr.
Statesville
736 Addison Rd.
Erwin
1650 - 1654 Williams Rd.
Columbus
191 Arrowhead Dr.
200 Arrowhead Dr.
Hebron
Hebron
MI
MI
MI
MI
MI
MN
MS
NC
NC
NC
NC
NC
NY
OH
OH
OH
Dana Commercial Vehicle Products, LLC (Dana Holding
Corporation and Dana Limited)
Tenneco Automotive Operating Company, Inc. (Tenneco,
Inc.)
Vacant
Tower Automotive Operations USA I, LLC / Tower
Automotive Products Inc. (Tower Automotive, Inc.)
150,945
10/25/2021
100%
246,508
9/30/2018
100%
58,300
N/A
0%
290,133
10/31/2017
100%
Michelin North America, Inc.
744,570
1/31/2015
100%
Owens Corning / Owens Corning Roofing and Asphalt,
LLC
MAHLE Clevite, Inc. (MAHLE Industries, Incorporated)
18,620
6/30/2015
100%
268,104
2/28/2016
100%
SKF USA Inc.
72,868
12/31/2014
100%
Staples, Inc. / Corporate Express, Inc.
196,946
12/31/2013
100%
Steelcase Inc.
244,851
9/30/2017
100%
Quickie Manufacturing Corporation
423,280
11/30/2021
100%
Ozburn-Hessey Logistics, LLC (OHH Acquisition
Corporation)
Corning, Incorporated
ODW Logistics, Inc.
639,800
12/31/2017
100%
408,000
11/30/2016
100%
772,450
6/30/2018
100%
Owens Corning Insulating Systems, LLC
250,410
MTM
100%
Owens Corning Insulating Systems, LLC
400,522
5/30/2014
100%
29
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
INDUSTRIAL
As of December 31, 2012
Property Location
City
State
Primary Tenant (Guarantor)
Net
Rentable
Square Feet
Current
Lease Term
Expiration
Percent
Leased
10345 Philipp Pkwy.
Streetsboro
OH
L'Oreal USA S/D, Inc. (L'Oreal USA, Inc.)
649,250
10/17/2019
100%
50 Tyger River Dr.
Duncan
101 Michelin Dr.
Laurens
477 Distribution Pkwy.
Collierville
900 Industrial Blvd.
Crossville
120 South East Pkwy Dr.
Franklin
3350 Miac Cove Rd.
Memphis
3456 Meyers Ave.
Memphis
3820 Micro Dr.
Millington
19500 Bulverde Rd.
San Antonio
2425 Hwy. 77 North
Waxahachie
SC
SC
TN
TN
TN
TN
TN
TN
TX
TX
Plastic Omnium Auto Exteriors, LLC
221,833
9/30/2018
100%
Michelin North America, Inc.
1,164,000
1/31/2015
100%
Federal Express Corporation / FedEx Techconnect, Inc.
126,213
5/31/2021
100%
Dana Commercial Vehicle Products, LLC
222,200
9/30/2016
100%
Essex Group, Inc. (United Technologies Corporation)
289,330
12/31/2018
100%
Mimeo.com, Inc.
140,079
9/30/2020
77%
Sears, Roebuck and Co. / Sears Logistics Services
780,000
2/28/2017
100%
Ingram Micro L.P. (Ingram Micro Inc.)
701,819
9/30/2021
100%
Elsevier STM Inc. (Reed Elsevier Inc.)
559,258
3/31/2016
100%
James Hardie Building Products, Inc. (James Hardie NV &
James Hardie Industries NV)
335,610
3/31/2020
100%
291 Park Center Dr.
Winchester
VA
Kraft Foods Global, Inc.
344,700
5/31/2016
100%
Industrial Total
15,299,901
99.4%
The 2012 net effective annual rent for the industrial portfolio as of December 31, 2012 was $3.10 per square foot and the weighted-
average remaining lease term was 4.9 years.
30
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
MULTI-TENANTED
As of December 31, 2012
0%
92%
95%
95%
32%
70%
50%
33%
91%
Property Location
City
State
Primary Tenant (Guarantor)
13430 N. Black Canyon Fwy
Phoenix
2706 Media Center Dr.
Los Angeles
10 John St.
Clinton
200 Executive Blvd. S.
Southington
4200 Northcorp Parkway
4000 Johns Creek Pkwy
Palm Beach
Gardens
Suwanee
1032 Fort St. Mall/King St.
Honolulu
2300 Litton Lane
Hebron
AZ
CA
CT
CT
FL
GA
HI
KY
Multi-tenanted
Vacant
Vacant
Multi-tenanted
Vacant
Multi-tenanted
Multi-tenanted
Net
Rentable
Square
Feet
Current
Lease
Term
Expiration
Percent
Leased
Property
Type
Office
138,940
Various
100%
Office
41,188
Office
153,364
N/A
N/A
0%
0%
Office
95,065
Various
26%
Office
87,219
N/A
Office
318,451
Various
Office
80,440
Various
Sony Electronics Inc.
Office
83,252
8/31/2015
24%
100 Light St.
Baltimore
MD
Multi-tenanted
Office
476,459
Various
265 Lehigh St.
Allentown
6050 Dana Way
Antioch
207 Mockingbird Lane
Johnson City
17191 St. Luke's Way
The Woodlands
PA
TN
TN
TX
Pennsylvania School of Business, Inc.
Office
71,055
9/30/2021
Multi-tenanted
Multi-tenanted
Multi-tenanted
Industrial
672,629
Various
Office
60,684
Various
Office
41,000
Various
140 E. Shore Dr.
Glen Allen
VA
Multi-tenanted
Office
76,885
Various
The 2012 net effective annual rent for the multi-tenant portfolio as of December 31, 2012 was $11.70 per square foot and the weighted-
average remaining lease term was 8.3 years.
Multi-Tenanted Total
2,396,631
67.4%
31
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
RETAIL/SPECIALTY
As of December 31, 2012
Property Location
City
State
Primary Tenant (Guarantor)
Net
Rentable
Square Feet
Current
Lease Term
Expiration
Percent
Leased
107,489
12/31/2018
100%
107,210
12/31/2018
100%
255 Northgate Dr.
Manteca
12080 Carmel Mountain Rd
San Diego
10340 U.S. 19
Port Richey
1150 W. Carl Sandburg Dr.
Galesburg
5104 North Franklin Rd
Lawrence
CA
CA
FL
IL
IN
Kmart Corporation
Kmart Corporation
Kingswere Furniture, LLC
53,820
10/31/2018
100%
Kmart Corporation
94,970
12/31/2018
100%
Marsh Supermarkets, Inc. / Marsh Supermarkets,
LLC
28,721
10/31/2018
100%
24th St. W. & St. John's Ave
Billings
MT
Safeway, Inc.
40,800
5/31/2015
100%
291 Talbert Blvd.
Lexington
835 Julian Ave
Thomasville
NC
NC
Food Lion, LLC / Delhaize America, Inc.
23,000
2/28/2018
100%
Mighty Dollar, LLC
23,767
9/30/2018
100%
130 Midland Ave.
Port Chester
NY
Pathmark Stores, Inc.
59,000
10/31/2018
100%
21082 Pioneer Plaza Dr.
Watertown
4831 Whipple Avenue N.W.
Canton
1084 East Second St.
5350 Leavitt Rd
N.E.C. 45th St/Lee Blvd.
Franklin
Lorain
Lawton
NY
OH
OH
OH
OK
Kmart Corporation
Best Buy Co., Inc.
Marsh Supermarkets, Inc. / Crystal Food Services,
LLC
120,727
12/31/2018
100%
46,350
2/26/2018
100%
29,119
10/31/2014
100%
Kmart Corporation
193,193
12/31/2018
100%
Associated Wholesale Grocers, Inc. / Safeway, Inc.
30,757
3/31/2014
100%
11411 N. Kelly Ave
Oklahoma City
OK
American Golf Corporation
13,924
12/31/2017
100%
6910 S. Memorial Hwy
Tulsa
12535 S.E. 82nd Ave
Clackamas
S. Carolina 52/52 Bypass
Moncks Corner
399 Peachwood Centre Dr.
Spartanburg
1600 E. 23rd St.
Chattanooga
1053 Mineral Springs Rd
Paris
1610 South Westmoreland Ave.
Dallas
4811 Wesley St.
Greenville
OK
OR
SC
SC
TN
TN
TX
TX
Toys "R" Us, Inc. / Toys “R” Us-Delaware, Inc.
43,123
5/31/2016
100%
Toys "R" Us-Delaware, Inc. / Toys "R" Us, Inc. /
TRU 2005 RE I, LLC
42,842
5/31/2016
100%
Food Lion, LLC / Delhaize America, Inc.
23,000
2/28/2013
100%
Best Buy Co., Inc.
BI- LO, LLC
The Kroger Co.
45,800
2/26/2018
100%
42,130
6/30/2017
100%
31,170
7/1/2018
100%
Malone's Food Stores, Ltd.
70,910
3/31/2017
100%
Brookshire Grocery Company / Safeway, Inc.
48,492
5/31/2016
100%
3211 W. Beverly St.
Staunton
VA
Food Lion, LLC / Delhaize America, Inc.
23,000
2/28/2018
100%
18601 Alderwood Mall Blvd.
Lynnwood
WA
Toys "R" Us-Delaware, Inc. / Toys "R" Us, Inc. /TRU
2005 RE I, LLC
43,105
5/31/2016
100%
1700 State Route 160
Port Orchard
WA
Moran Foods, Inc. d/b/a Save-A-Lot, Ltd.
27,968
1/31/2015
57%
97 Seneca Trail
Fairlea
WV
Kmart Corporation
90,933
12/31/2018
100%
Retail/Specialty Total
Consolidated Portfolio Grand Total
1,505,320
41,196,207
99.2%
97.3%
The 2012 net effective annual rent for the retail/specialty portfolio as of December 31, 2012 was $5.93 per square foot and the
weighted-average remaining lease term was 4.9 years.
The 2012 net effective annual rent per square foot for the consolidated portfolio as of December 31, 2012 was $7.60 per square foot
and the weighted-average remaining lease term was 7.1 years.
32
LEXINGTON
NON-CONSOLIDATED PORTFOLIO PROPERTY
CHART
As of December 31, 2012
Property Location
City
State
Primary Tenant (Guarantor)
Net
Rentable
Square
Feet
Current
Lease
Term
Expiration
Percent
Leased
Property
Type
Route 64 W. & Junction 333 Russellville
AR
Entergy Arkansas Inc. / Entergy Services, Inc.
Office
191,950
5/9/2016
100%
100 Gander Way
101 E. Washington Blvd.
Palm Beach
Gardens
Fort Wayne
FL
IN
3201 Quail Springs Pkwy.
Oklahoma City OK
18839 McKay Blvd.
Humble
TX
Gander Mountain Company
Retail
120,000
3/31/2028
100%
Indiana Michigan Power Company
Office
348,452 10/31/2016
100%
AT&T Corp. / AT& T Services, Inc. / New
Cingular Wireless Services, Inc.
Triumph Rehabilitation Hospital of Northeast
Houston, LLC (RehabCare Group, Inc.)
Total
Office
128,500 11/30/2015
100%
Specialty
55,646
1/31/2029
100%
844,548
100%
The 2012 net effective annual rent for the non-consolidated portfolio as of December 31, 2012 was $12.32 per square foot and the
weighted-average remaining lease term was 7.2 years.
The following chart sets forth certain information regarding lease expirations for the next ten years in our consolidated portfolio:
Year
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Number of
Lease Expirations
35
44
34
29
19
35
22
14
15
6
Square Feet
1,368,416
3,718,157
3,904,154
3,332,923
3,662,665
3,990,002
4,215,544
1,992,442
2,841,597
663,922
Annual Rent ($000)
10,508
$
37,914
26,508
20,567
19,170
27,892
35,865
14,907
26,869
6,374
Percentage of
Annual Rent
3.4%
12.1%
8.5%
6.6%
6.1%
8.9%
11.5%
4.8%
8.6%
2.0%
The following chart sets forth the 2012 annual GAAP base rent ($000) based on the credit rating of our consolidated tenants at
December 31, 2012(1):
Investment Grade
Non-investment Grade
Unrated
GAAP Base Rent
Percentage
$
$
153,656
49,025
110,338
313,019
49.1%
15.7%
35.2%
100.0%
(1) Credit ratings are based upon either tenant, guarantor or parent/sponsor. Generally, all multi-tenant assets are
included in unrated. See Item 1A “Risk Factors”, above.
33
Item 3. Legal Proceedings
From time to time we are directly and indirectly involved in legal proceedings arising in the ordinary course of our business.
We believe, based on currently available information, and after consultation with legal counsel, that although the outcomes of those
normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect
on our business, financial condition and results of operations. See note 19 to the Consolidated Financial Statements in Part II, Item
8 for information on certain legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
34
Item 5. Market For Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities
PART II.
Market Information. Our common shares are listed for trading on the NYSE under the symbol “LXP”. The following table sets
forth the high and low sales prices as reported by the NYSE (composite) for our common shares for each of the periods indicated
below:
For the Quarters Ended:
December 31, 2012
September 30, 2012
June 30, 2012
March 31, 2012
December 31, 2011
September 30, 2011
June 30, 2011
March 31, 2011
High
Low
$
$
10.50
10.29
9.19
9.34
8.18
9.70
10.14
9.66
8.84
8.44
7.82
7.34
5.71
6.17
8.30
7.80
The per common share closing price on the NYSE (composite) was $11.00 on February 21, 2013.
Holders. As of February 21, 2013, we had approximately 3,658 common shareholders of record.
Dividends. Since our predecessor's formation in 1993, we have made quarterly distributions without interruption.
The common share dividends paid in each quarter for the last five years are as follows:
2012
Quarters Ended
March 31,
June 30,
September 30,
December 31,
_________________________________________
(1) Aggregate dividend paid 90% in our common shares and 10% in cash.
0.125
0.125
0.125
0.150
$
$
$
$
$
$
$
$
2011
0.115
0.115
0.115
0.115
$
$
$
$
2010
0.10
0.10
0.10
0.10
$
$
$
$
2009
0.18
0.18 (1)
0.18 (1)
0.18 (1)
$
$
$
$
2008
2.475
0.330
0.330
0.330
During the fourth quarter of 2007, we declared a special dividend of $2.10 per common share which was paid in January 2008.
During 2009, we issued an aggregate 13,304,198 common shares in lieu of cash payments of common share dividends during
the quarters ended June 30, September 30 and December 31, 2009 in accordance with Internal Revenue Service Revenue Procedure
2008-68.
While we intend to continue paying regular quarterly dividends to holders of our common shares, the authorization of future
dividend declarations will be at the discretion of our Board of Trustees and will depend on our actual cash flow, our financial condition,
capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as our Board
of Trustees deems relevant. The actual cash flow available to pay dividends will be affected by a number of factors, including, among
others, the risks discussed under “Risk Factors” in Part I, Item 1A and “Management's Discussion and Analysis of Financial Condition
and Results of Operations” in Part II, Item 7 of this Annual Report.
We do not believe that the financial covenants contained in our debt instruments will have any adverse impact on our ability to
pay dividends in the normal course of business to our common and preferred shareholders or to distribute amounts necessary to
maintain our qualification as a REIT.
Direct Share Purchase Plan. We maintain a direct share purchase plan, which has two components, (i) a dividend reinvestment
component and (ii) a direct share purchase component. Under the dividend reinvestment component, common shareholders and
holders of OP units may elect to automatically reinvest their dividends and distributions to purchase our common shares free of
commissions and other charges. We currently offer a 5.0% discount on the common shares purchased under the plan. We may, from
time to time, either repurchase common shares in the open market or issue new common shares for the purpose of fulfilling our
obligations under the dividend reinvestment program. Currently all of the common shares issued under this program are new common
shares issued by us. Under the direct share purchase component, our current investors and new investors can make optional cash
purchases of our common shares directly from us. In 2012, 2011 and 2010, we issued approximately 1.0 million, 1.1 million and 1.3
million common shares, respectively, under the plan, raising net proceeds of $8.5 million, $8.4 million and $8.6 million, respectively.
35
ATM Program. In January 2013, we implemented an ATM program, under which we may, from time to time, sell up to $100.0
million in common shares over the term of the program. As of the date of filing this Annual Report, we issued 3,409,927 common
shares, under this ATM program, at a weighted average issue price of $10.82 per common share, generating proceeds of approximately
$36.2 million after deducting approximately $0.65 million of commissions. We intend to use the net proceeds from the ATM program
for general working capital, which may include unspecified acquisitions and to repay indebtedness. As of the date of filing this
Annual Report, we had approximately $63.1 million in common shares available for issuance under the ATM program.
Equity Compensation Plan Information. The following table sets forth certain information, as of December 31, 2012, with respect
to our 2011 Equity-Based Award Plan under which our equity securities are authorized for issuance as compensation.
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
Plan Category
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
Total
(a)
(b)
(c)
3,480,080
$
—
3,480,080
$
6.44
—
6.44
4,437,962
—
4,437,962
Recent Sales of Unregistered Securities.
As previously disclosed, we issued an aggregate 4.5 million common shares upon conversion of $31.1 million original principal
amount of our 6.00% Convertible Notes at the stated conversion rate of 144.2599 common shares per $1,000 principal amount of
the notes during the fourth quarter of 2012. See Part I, Item 1 “Business”, above, for disclosure related to similar conversions
subsequent to December 31, 2012.
Share Repurchase Program.
The following table summarizes common shares/OP units that were authorized to be repurchased during the fourth quarter of
2012 pursuant to publicly announced repurchase plans:
Period
October 1-31, 2012
November 1-30, 2012
December 1-31, 2012
Fourth Quarter 2012
Total number of
shares/units
purchased as
part of
publicly
announced
plans or
programs (1)
Maximum
number of
shares/units that
may yet
be purchased
under
the plans or
programs (1)
—
—
—
—
1,056,731
1,056,731
1,056,731
1,056,731
Total number of
shares/units
purchased
Average price
paid per
share/unit ($)
— $
—
—
— $
—
—
—
—
_________________________
(1) Share repurchase plan most recently announced on December 17, 2007, which plan has no expiration date.
In addition, during 2012, we repurchased and retired all outstanding (approximately 2.7 million) Series B Preferred Shares and
35 thousand Series C Preferred Shares for an aggregate purchase price of approximately $70.0 million.
36
Item 6. Selected Financial Data
The following sets forth our selected consolidated financial data as of and for each of the years in the five-year period ended
December 31, 2012. The selected consolidated financial data should be read in conjunction with Item 7 “Management's Discussion
and Analysis of Financial Condition and Results of Operations” below, and the Consolidated Financial Statements and the related
notes set forth in Item 8 “Financial Statements and Supplementary Data”, below. ($000's, except per share data)
Total gross revenues
Expenses applicable to revenues
Interest and amortization expense
Income (loss) from continuing operations
Total discontinued operations
Net income (loss)
Net income (loss) attributable to Lexington Realty
Trust
Net income (loss) attributable to common
shareholders
Income (loss) from continuing operations per
common share - basic
Income (loss) from discontinued operations - basic
Net income (loss) per common share - basic
Income (loss) from continuing operations per
common share - diluted
Income (loss) from discontinued operations per
common share - diluted
Net income (loss) per common share - diluted
Cash dividends declared per common share
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
Ratio of earnings to combined fixed charges and
preferred dividends
Real estate assets, net, including real estate -
intangible assets
Investments in and advances to non-consolidated
entities
Total assets
Mortgages, notes payable and credit facility,
including discontinued operations
Shareholders' equity
Total equity
Preferred share liquidation preference
_________
$
$
2012
344,879
(222,089)
(98,803)
178,856
5,782
184,638
$
2011
313,826
(214,587)
(106,478)
(19,111)
(70,667)
(89,778)
$
2010
305,350
(208,668)
(116,516)
(8,042)
(29,368)
(37,410)
$
2009
318,531
(210,493)
(119,997)
(132,638)
(78,634)
(211,272)
2008
333,238
(247,829)
(139,084)
(48,634)
13,361
(35,273)
180,316
(79,584)
(32,960)
(210,152)
(29,052)
156,849
(103,721)
(58,096)
(242,876)
(50,778)
0.96
0.03
0.99
0.91
0.02
0.93
0.55
163,810
(142,210)
(59,394)
(0.29)
(0.39)
(0.68)
(0.29)
(0.39)
(0.68)
0.47
180,137
(24,813)
(144,257)
(0.28)
(0.16)
(0.44)
(0.28)
(0.16)
(0.44)
0.415
164,751
(24,783)
(141,189)
(1.52)
(0.70)
(2.22)
(1.52)
(0.70)
(2.22)
0.64
159,307
111,967
(285,207)
(0.81)
0.06
(0.75)
(0.81)
0.06
(0.75)
1.17
230,201
230,128
(804,637)
N/A
N/A
N/A
N/A
N/A
3,165,085
2,746,976
2,977,100
3,282,561
3,637,719
27,129
3,418,203
39,330
3,026,820
21,252
3,283,768
4,757
3,528,617
127,905
4,054,497
1,878,208
1,306,730
1,333,165
251,770
1,662,375
1,111,846
1,170,203
322,032
1,778,077
1,228,928
1,304,901
338,760
2,072,738
1,157,441
1,246,008
338,760
2,372,323
1,354,847
1,449,843
363,915
N/A - Ratio is below 1.0, deficit of $25,454, $64,877, $49,287, $12,049 and $1,562 exists at December 31, 2012, 2011, 2010, 2009
and 2008, respectively.
All years have been adjusted to reflect the impact of (1) operating properties sold during the years ended December 31, 2012,
2011, 2010, 2009 and 2008, which are reflected in discontinued operations in the Consolidated Statements of Operations and (2) the
2008 basis adjustment to our equity invested in NLS as discussed in note 4 in the Consolidated Financial Statements.
37
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
In this discussion, we have included statements that may constitute “forward-looking statements” within the meaning of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but
instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our
control. These statements may relate to our future plans and objectives, among other things. By identifying these statements for you
in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from the anticipated results
indicated in these forward-looking statements. Important factors that could cause our results to differ, possibly materially, from those
indicated in the forward-looking statements include, among others, those discussed above in “Risk Factors” in Part I, Item 1A of
this Annual Report and “Cautionary Statements Concerning Forward-Looking Statements” in Part I, of this Annual Report.
Table of Contents
Overview
Liquidity
Capital Resources
Results of Operations
Off-Balance Sheet Arrangements
Contractual Obligations
Overview
Page
38
44
47
48
52
52
General. We are a self-managed and self-administered REIT formed under the laws of the state of Maryland. We operate primarily
in one segment, single-tenant real estate assets, and our primary business is the investment in and acquisition, ownership, financing
and management of a geographically diverse portfolio consisting of predominantly single-tenant office, industrial and retail properties.
As of December 31, 2012, we had equity ownership interests in approximately 220 consolidated real estate properties, located
in 41 states and encompassing approximately 41.2 million square feet, approximately 97.3% of which was leased. A majority of
these properties are subject to net or similar leases, where the tenant bears all or substantially all of the costs, including cost increases,
for real estate taxes, utilities, insurance and ordinary repairs.
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 assets, (2) re-lease properties that are vacant,
or may become vacant, at favorable rental rates and (3) earn fee income.
Since 2010, we have seen an increase in acquisition opportunities and strengthening in the availability of capital. However, our
business continues to be impacted in a number of ways by the uncertainty and volatility in the capital markets, including (1) a need
to preserve capital, generate additional liquidity and improve our overall financial flexibility, (2) our ability to find attractive financing,
(3) challenges in acquiring suitable property investments and (4) tenant uncertainty with respect to future space needs. However, it
is difficult for us to predict when, or if, the economy will fully recover.
In an effort to diversify our risk, we invest across the United States in properties leased to tenants in various industries, including
finance/insurance, technology, energy, automotive and consumer products. However, industry declines, to the extent we have
concentration, and general economic declines could negatively impact our results of operations and cash flows.
In addition to corporate level borrowings, none of which matures in 2013 or 2014, as of the date of filing this Annual Report,
we have consolidated property specific non-recourse mortgage debt with an aggregate of $238.4 million and $251.0 million in balloon
payments that mature in 2013 and 2014, respectively.
Business Strategy. Our current business strategy is focused on maintaining a strong balance sheet and improving our long-term
growth prospectus. See “Business” in Part I, Item 1 of this Annual Report for a detailed description of our current business strategy.
We believe a positive impact continues to result from our business strategy. In 2012, we increased our net assets by approximately
$163.0 million as compared to 2011. In 2012, we completed acquisitions/build-to-suit transactions for an aggregate capitalized cost
of approximately $247.0 million and reduced our weighted-average interest rate on outstanding consolidated indebtedness by
approximately 34 basis points primarily by refinancing higher interest rate debt. In 2011 and 2010, we reduced our overall consolidated
indebtedness by $119.3 million and $300.3 million, respectively, primarily (1) by repurchasing our 5.45% Exchangeable Guaranteed
Notes and (2) through the sale, transfer or other disposition of properties to third parties and lenders.
38
We expect our business strategy will enable us to continue to improve our liquidity and strengthen our overall balance sheet.
We believe liquidity and a strong balance sheet will allow us to take advantage of attractive investment opportunities as they arise,
which will create meaningful shareholder value.
Investment Trends. Making investments in income producing single-tenant net-leased real estate assets is one of our primary
focuses. The challenge we face is finding investments that will provide an attractive return without compromising our real estate
underwriting criteria. We believe we have access to acquisition opportunities due to our relationships with developers, brokers,
corporate users and sellers. When we acquire real estate assets, we look for general purpose office and industrial real estate assets
subject to a long-term net-lease which have one or more of the following characteristics (1) a credit-worthy tenant, (2) adaptability
to a variety of users, including multi-tenant use and (3) an attractive geographic location.
Commencing in 2008, acquisition activity decreased as we focused on retiring senior debt and preferred securities to improve
our balance sheet. In response to the compression in capitalization rates for investment opportunities, we refocused our efforts into
(1) repurchasing our senior debt at what we believe were attractive and secure yields to maturity and (2) disposing of real estate
assets in compliance with regulatory and contractual requirements. Beginning in the fourth quarter of 2009, we began to see an
increase in our acquisition activity.
Our acquisition volume for 2012 and 2011 consisted primarily of build-to-suit transactions whereby we (1) provide capital to
developers who are engaged in build-to-suit transactions and/or commit to purchase the property from developers upon completion
or (2) acquire a property subject to a single-tenant net-lease and engage a developer to complete construction of a build-to-suit
property as required by the lease. We believe these arrangements offer developers and/or tenants access to capital while simultaneously
providing us with attractive risk-adjusted projected yields.
We generally mitigate our cost exposure by requiring purchase agreements, development agreements and/or loan agreements
to specify a maximum price and/or loan commitment amount prior to our investment. Cost overruns are generally the responsibility
of the developer, or in some cases the prospective tenant. To further mitigate risk, we believe we perform stringent underwriting
procedures such as, among other items, (1) requiring payment and performance bonds and/or completion guarantees from developers
and/or contractors; (2) engaging third-party construction consultants and/or engineers to monitor construction progress and quality;
(3) only hiring developers with a proven history of performance; (4) requiring developers to provide financial statements and in some
cases personal guarantees from principals; (5) obtaining and reviewing detailed plans and constructions budgets; (6) requiring a long-
term tenant lease to be executed prior to funding; and (7) securing liens on the property to the extent of construction funding.
The following is a summary of our property acquisitions and build-to-suit transactions for the year ended December 31, 2012:
Property Acquisitions
Location
Missouri City, TX(1)
Phoenix, AZ
Property
Type
Industrial
Office
Square Feet
(000's)
Capitalized Cost
(millions)
— $
252
252
$
$
23.0
53.2
76.2
Lease Term
(Years)
20
17
Date Acquired
2Q 2012
4Q 2012
(1) Consists of a 152 acre industrial site with various structures, including storage areas and a rail spur.
Completed Build-to-Suit Transactions
Location
Huntington, WV
Florence, SC
Shreveport, LA
Jessup, PA(1)
Saint Joseph, MO
Valdosta, GA(2)
Opelika, AL(2)
Eugene, OR
Property
Type
Square Feet
(000's)
Capitalized Cost
(millions)
Lease Term
(Years)
Date Acquired
Capitalized Cost
Per Square Foot
Office
Office
Industrial
Office
Office
Retail
Retail
Office
69
32
258
150
99
51
52
80
791
$
$
$
$
$
$
$
$
$
12.6
5.1
12.9
24.9
17.6
8.3
8.3
17.6
107.3
15
12
10
15
15
15
15
15
1Q 2012
1Q 2012
2Q 2012
3Q 2012
3Q 2012
3Q 2012
4Q 2012
4Q 2012
$
$
$
$
$
$
$
$
182.81
159.18
50.19
136.12
177.76
161.69
160.24
219.44
(1) Capitalized cost includes $4.5 million funded by the tenant.
(2) Includes leasing costs of $0.5 million for Valdosta and $0.4 million for Opelika.
39
On-going Build-to-Suit Transactions
Location
Long Island City, NY(2)
Denver, CO
Tuscaloosa, AL
Rantoul, IL
Property
Type
Industrial
Office
Retail
Industrial
(1) Balance includes equity credit received.
(2) Joint venture investment.
Expected
Maximum
Commitment/
Contribution
(millions)
Square Feet
(000's)
143
163
42
813
1,161
$
$
$
$
$
46.7
38.4
8.8
42.6
136.5
Lease
Term
(years)
15
15
15
20
Estimated
Completion
Date
1Q 13
2Q 13
2Q 13
4Q 13
Costs Incurred as
of 12/31/12(1)
(millions)
$
$
$
$
$
32.7
22.8
3.4
10.0
68.9
We can provide no assurance with respect to the completion, cost or timing of these on-going build-to-suit transactions.
Loan Investments. We invest in loan assets secured by single-tenant real estate assets, which (1) we feel comfortable owning
for our investment should the borrower default for reasons other than an underlying tenant default or (2) are necessary for an efficient
disposition of our equity interest in the property. During the the year ended December 31, 2012, we entered into an arrangement to
fund the construction of a charter school in Homestead, Florida. The loan, which had an outstanding principal balance of approximately
$8.0 million as of December 31, 2012, matures in August 2014 and accrues interest at 7.5% per annum. During the fourth quarter
of 2012, we contracted to lend up to $32.6 million for the construction of a data center in Norwalk, Connecticut. The interest-only
loan bears interest at 7.5% and matures in November 2014. The loan had an outstanding principal balance of $3.5 million as of
December 31, 2012.
During 2011, we loaned $3.0 million to the buyer in connection with the sale of a vacant industrial property for $3.7 million.
The loan was secured by the property, bore interest at 7.8% and was satisfied in full in 2012. In 2011, we made a $10.0 million
mezzanine loan secured by a 100% pledge of all equity interests in the entities which owned two, to-be-constructed distribution
facilities. The loan was scheduled to mature in June 2013 and had an interest rate of 15.0% for the first year and 18.5% for the second
year. The loan was fully satisfied in November 2011 for a payment of $11.5 million which included accrued interest and yield
maintenance.
During 2011 and 2010, we made a 15.0% mortgage loan secured by an office building in Schaumburg, Illinois, which was
scheduled to mature in January 2012 but could have been extended one additional year by the borrower for a 50 basis point fee. The
mortgage loan had an outstanding balance of $21.9 million at December 31, 2012. The property is leased through December 31,
2022 for an average annual rent of $4.0 million. The tenant made a claim for a $12.2 million tenant improvement allowance, which
is being offset by withholding rent. The borrower defaulted on the mortgage loan and we have initiated foreclosure proceedings. If
we are successful on the foreclosure proceedings we will be required to pay the balance of the tenant improvement allowance.
During 2010, we made a $17.0 million loan secured by a combination of limited partner interests in entities that owned, and
second mortgage liens or mortgage liens against, five medical facilities. This loan was guaranteed by a parent entity and principal
and initially matured in December 2011 and required payments of interest only at a rate of 14.0% through February 2011 and 16.0%
thereafter. The borrower prepaid an aggregate $7.5 million in December 2010 and February 2011 in connection with the sale of
certain collateral, and repaid the remaining $9.5 million in December 2011.
Also as of December 31, 2012, the tenant of the property in Westmont, Illinois, which we sold in 2007 but issued a purchase
mortgage to the buyer, exercised its option to terminate its lease effective November 2013. As of December 31, 2012, our note
receivable was $26.8 million.
Despite the current economic uncertainty, we have seen an increase in our acquisition pipeline, mostly consisting of build-to-
suit transactions. We have several commitments and letters of intent for future acquisitions as of the first quarter of 2013, and we
anticipate continued acquisition activity for 2013. However, we can provide no assurances that any of these transactions will be
consummated or, if consummated, will be successful.
Leasing Trends. Re-leasing properties that are currently vacant or as leases expire at favorable effective rates is one of our
primary asset management focuses. The primary risks associated with re-tenanting properties are (1) the period of time required to
find a new tenant, (2) whether rental rates will be lower than previously received, (3) the significance of leasing costs such as
commissions and tenant improvement allowances and (4) the payment of capital expenditures and operating costs such as real estate
taxes, insurance and maintenance with no offsetting revenue.
40
Our property owner subsidiaries try to mitigate these risks by (1) staying in close contact with our tenants during the lease term
in order to assess the tenant's current and future occupancy needs, (2) maintaining relationships with local brokers to determine the
depth of the rental market and (3) retaining local expertise to assist in the re-tenanting of a property. However, no assurance can be
given that once a property becomes vacant it will subsequently be re-let. Generally, a tenant in a single-tenant office property
commences lease extension discussions well in advance of lease expiration. If the lease has a year or less remaining until expiration,
there is a high likelihood that the tenant will not extend the lease.
If a property cannot be re-let to a single user and the property can be adapted to multi-tenant use, we determine whether the
costs of adapting the property to multi-tenant use outweigh the benefit of funding operating costs while searching for a single-tenant.
Certain of the long-term leases on properties in which we have an ownership interest contain provisions that may mitigate the
adverse impact of inflation on our operating results. Such provisions include clauses entitling us to receive (1) scheduled fixed base
rent increases and (2) base rent increases based upon the consumer price index. In addition, a majority of the leases on the single-
tenant properties in which we have an ownership interest require tenants to pay operating expenses, including maintenance, real
estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses. In addition, the
leases on single-tenant properties in which we have an ownership interest are generally structured in a way that minimizes our
responsibility for capital improvements.
Since 2008, tenants have been more aggressive in lease and lease renewal negotiations with respect to rental rate, tenant
concessions and landlord responsibilities. As a result, the obligations of our property owner subsidiaries on new leases and newly
renewed or extended leases have generally increased to include, among other items, some form of responsibility for capital repairs
and replacements.
During 2012, we entered into 69 new leases and lease extensions encompassing approximately 7.4 million square feet. The
average GAAP base rent on these extended leases was approximately $7.22 per square foot compared to the average GAAP base
rent on these leases before extension of $7.62 per square foot. The weighted-average cost of tenant improvements and lease
commissions was approximately $9.40 per square foot for new leases and $9.44 per square foot for extended leases. We expect
renewal rents to be lower than expiring rents and tenant improvement allowance and leasing costs to remain at their current levels
in the near future.
We continue to monitor the credit of tenants of properties in which we have an interest by (1) subscribing to S&P and Moody's,
so that we can monitor changes in the ratings of our rated tenants, (2) reviewing financial statements that are publicly available or
that are required to be delivered to us under the applicable lease, (3) monitoring news reports regarding our tenants and their respective
businesses and (4) monitoring the timeliness of rent collections. Under current bankruptcy law, a tenant can generally assume or
reject a lease within a certain number of days of filing its bankruptcy petition. If a tenant rejects the lease, a landlord's damages,
subject to availability of funds from the bankruptcy estate, are generally limited to the greater of (1) one year's rent and (2) the rent
for 15%, of the remaining term of the lease not to exceed three years rent.
A vacant property in each of Tulsa, Oklahoma and Clive, Iowa in which we had an interest were disposed of in foreclosure in
2012. Our property owner subsidiaries may convey properties to lenders or the property owner subsidiary may declare bankruptcy
in the future if a property owner subsidiary is unable to refinance, re-let or sell its vacated property or if a tenant renews at a lower
rent or a new tenant pays a lower rent that does not justify a value of the property in excess of the mortgage balance.
Impairment charges. During 2012, 2011 and 2010, we incurred impairment charges on our assets of $10.0 million, $117.4 million
and $56.9 million, respectively, due primarily to the assets being sold below their carrying value and a deterioration in economic
conditions since the acquisition of such assets. These real estate assets were primarily non-core assets including retail properties,
under performing and multi-tenant properties.
Given the continued uncertainty in general economic conditions, we cannot estimate if we will incur, or the amount of, future
impairment charges on our assets. See Part I, Item 1A “Risk Factors”, of this Annual Report.
Critical Accounting Policies. Our accompanying consolidated financial statements have been prepared in accordance with GAAP,
which require our management to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported and
related disclosures of contingent assets and liabilities. A summary of our significant accounting policies which are important to the
portrayal of our financial condition and results of operations is set forth in note 2 to the Consolidated Financial Statements beginning
on page 65 of this Annual Report and incorporated herein.
The following is a summary of our critical accounting policies, which require some of management's most difficult, subjective
and complex judgments.
41
Basis of Presentation and Consolidation. Our consolidated financial statements are prepared on the accrual basis of accounting.
The financial statements reflect our accounts and the accounts of our consolidated subsidiaries. We consolidate our wholly-owned
subsidiaries, partnerships and joint ventures which we control through (1) voting rights or similar rights or (2) by means other than
voting rights if we are the primary beneficiary of a variable interest entity, which we refer to as a VIE. Entities which we do not
control and entities which are VIEs in which we are not the primary beneficiary are generally accounted for by the equity method.
Significant judgments and assumptions are made by us to determine whether an entity is a VIE such as those regarding an entity's
equity at risk, the entity's equity holders' obligations to absorb anticipated losses and other factors. In addition, the determination of
the primary beneficiary of a VIE requires judgment to determine the party that has (1) power over the significant activities of the
VIE and (2) an obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE.
Judgments and Estimates. Our management has made a number of estimates and assumptions relating to the reporting of assets
and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare our
consolidated financial statements in conformity with GAAP. These estimates and assumptions are based on our management's best
estimates and judgment. Our management evaluates its estimates and assumptions on an ongoing basis using historical experience
and other factors, including the current economic environment. The current economic environment has increased the degree of
uncertainty inherent in these estimates and assumptions. Our management adjusts such estimates when facts and circumstances
dictate. The most significant estimates made include the recoverability of accounts receivable, allocation of property purchase price
to tangible and intangible assets acquired and liabilities assumed, the determination of VIEs and entities that should be consolidated,
the determination of impairment of long-lived assets, loans receivable and equity method investments, valuation and impairment of
assets held by equity method investees, valuation of derivative financial instruments and the useful lives of long-lived assets.
Purchase Accounting and Acquisition of Real Estate. The fair value of the real estate acquired, which includes the impact of fair
value adjustments for assumed mortgage debt related to property acquisitions, is allocated to the acquired tangible assets, consisting
of land, building and improvements and identified intangible assets and liabilities, consisting of the value of above-market and below-
market leases, other value of in-place leases and value of tenant relationships, based in each case on their fair values.
The fair value of the tangible assets of an acquired property (which includes land, building and improvements and fixtures and
equipment) is determined by valuing the property as if it were vacant. The “as-if-vacant” value is then allocated to land and building
and improvements based on our management's determination of relative fair values of these assets. Factors considered by our
management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering
current market conditions and costs to execute similar leases. In estimating carrying costs, our management includes real estate taxes,
insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current
market demand. Our management also estimates costs to execute similar leases including leasing commissions.
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-
market lease values are recorded based on the difference between the current in-place lease rent and management's estimate of current
market rents. Below-market lease intangibles are recorded as part of deferred revenue and amortized into rental revenue over the
non-cancelable periods and bargain renewal periods of the respective leases. Above-market leases are recorded as part of intangible
assets and amortized as a direct charge against rental revenue over the non-cancelable portion of the respective leases.
The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationship values, is measured
by the excess of (1) the purchase price paid for a property over (2) the estimated fair value of the property as if vacant, determined
as set forth above. This aggregate value is allocated between in-place lease values and tenant relationship values based on
management's evaluation of the specific characteristics of each tenant's lease. The value of in-place leases is amortized to expense
over the remaining non-cancelable periods and any bargain renewal periods of the respective leases. The value of tenant relationships
is amortized to expense over the applicable lease term plus expected renewal periods.
42
Revenue Recognition. We recognize lease revenue on a straight-line basis over the term of the lease unless another systematic
and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. Renewal
options in leases with rental terms that are lower than those in the primary term are excluded from the calculation of straight line
rent if the renewals are not reasonably assured. In those instances in which we fund tenant improvements and the improvements are
deemed to be owned by us, revenue recognition will commence when the improvements are substantially completed and possession
or control of the space is turned over to the tenant. When we determine that the tenant allowances are lease incentives, we commence
revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. The lease incentive
is recorded as a deferred expense and amortized as a reduction of revenue on a straight-line basis over the respective lease term.
Determining if a tenant allowance is a lease incentive requires significant judgment. We recognize lease termination payments as a
component of rental revenue in the period received, provided that there are no further obligations under the lease; otherwise the lease
termination payment is amortized on a straight-line basis over the remaining obligation period. All above-market lease assets, below-
market lease liabilities and deferred rent assets or liabilities for terminated leases are charged against or credited to rental revenue
in the period the lease is terminated. All other capitalized lease costs and lease intangibles are accelerated via amortization expense
to the date of termination.
Gains on sales of real estate are recognized based on the specific timing of the sale as measured against various criteria related
to the terms of the transactions and any continuing involvement associated with the properties. If the sales criteria are not met, the
gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met. To
the extent we sell a property and retain a partial ownership interest in the property, we recognize gain to the extent of the third-party
ownership interest.
Accounts Receivable. We continuously monitor collections from our tenants and would make a provision for estimated losses
based upon historical experience and any specific tenant collection issues that we have identified.
Impairment of Real Estate. We evaluate the carrying value of all tangible and intangible real estate assets for possible impairment
when an event or change in circumstance has occurred that indicates its carrying value may not be recoverable. The evaluation
includes estimating and reviewing anticipated future undiscounted cash flows to be derived from the asset. If such cash flows are
less than the asset's carrying value, an impairment charge is recognized to the extent by which the asset's carrying value exceeds the
estimated fair value. Estimating future cash flows is highly subjective and such estimates could differ materially from actual results.
Impairment of Equity Method Investments. We assess whether there are indicators that the value of our equity method investments
may be impaired. An investment's value is impaired if we determine that a decline in the value of the investment below its carrying
value is other-than-temporary. The assessment of impairment is highly subjective and involves the application of significant
assumptions and judgments about our intent and ability to recover our investment given the nature and operations of the underlying
investment, including the level of our involvement therein, among other factors. To the extent impairment has occurred, the loss is
measured as the excess of the carrying amount of the investment over the estimated value of the investment.
Loans Receivable. We evaluate the collectability of both interest and principal of each of our loans, if circumstances warrant,
to determine whether the loan is impaired. A loan is considered to be impaired, when based on current information and events, it is
probable that we will be unable to collect all amounts due according to the existing contractual terms. Significant judgments are
required in determining whether impairment has occurred. When a loan is considered to be impaired, the amount of the loss accrual
is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the
loan's effective interest rate, the loan's observable current market price or the fair value of the underlying collateral. Interest on
impaired loans is recognized on a cash basis.
Acquisition, Development and Construction Arrangements. We evaluate loans receivable where we participate in residual profits
through loan provisions or other contracts to ascertain whether we have the same risks and rewards as an owner or a joint venture
partner. Where we conclude that such arrangements are more appropriately treated as an investment in real estate, we reflect such
loan receivable as an equity investment in real estate under construction in the Consolidated Balance Sheets. In these cases, no interest
income is recorded on the loan receivable and we record capitalized interest during the construction period. In arrangements where
we engage a developer to construct a property or provide funds to a tenant to develop a property, we will capitalize the funds provided
to the developer/tenant and internal costs of interest and real estate taxes, if applicable, during the construction period.
The accounting for these critical accounting policies and implementation of accounting guidance issued in the future involves
the making of estimates based on current facts, circumstances and assumptions which could change in a manner that would materially
affect management's future estimates with respect to such matters. Accordingly, future reported financial conditions and results could
differ materially from financial conditions and results reported based on management's current estimates.
43
Liquidity
General. Since becoming a public company, our principal sources of liquidity have been (1) undistributed cash flows generated
from our investments, (2) the public and private equity and debt markets, including issuances of OP units, (3) property specific debt,
(4) corporate level borrowings, (5) commitments from co-investment partners and (6) proceeds from the sales of our investments.
Our ability to incur additional debt to fund acquisitions is dependent upon our existing leverage, the value of the assets we are
attempting to leverage and general economic and credit market conditions, which may be outside of management's control or influence.
Cash Flows. We believe that cash flows from operations will continue to provide adequate capital to fund our operating and
administrative expenses, regular debt service obligations and all dividend payments in accordance with REIT requirements in both
the short-term and long-term. In addition, we anticipate that cash on hand, corporate level borrowings, capital recycling proceeds,
issuances of equity, mortgage proceeds and our other principal sources of liquidity, will be available to provide the necessary capital
required to fund our operations and allow us to grow.
Cash flows from operations as reported in the Consolidated Statements of Cash Flows totaled $163.8 million for 2012, $180.1
million for 2011 and $164.8 million for 2010. Cash flows from operations in 2011 was primarily impacted by the receipt of a lease
termination payment on our Lenexa, Kansas property. 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, loan interest payments from borrowers, and
advisory fees, and (2) the payment of interest on mortgage debt and 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. Collection and timing of tenant rents is closely monitored by management as part of our cash management
program.
Net cash used in investing activities totaled $142.2 million in 2012, $24.8 million in 2011 and $24.8 million in 2010. Cash
provided by investing activities related primarily to proceeds from the sale of properties, collection of loans receivable, distributions
from non-consolidated entities in excess of accumulated earnings, proceeds from the sale of interests in non-consolidated properties
and changes in escrow deposits and restricted cash. Cash used in investing activities related primarily to investments in real estate
properties, co-investment programs and loans receivable, and an increase in deferred leasing costs, deposits and restricted cash.
Therefore, the fluctuation in investing activities relates primarily to the timing of investments and dispositions.
Net cash used in financing activities totaled $59.4 million in 2012, $144.3 million in 2011 and $141.2 million in 2010. Cash
provided by financing activities was primarily attributable to net proceeds from the issuance of common shares, contributions from
noncontrolling interests, non-recourse mortgages and corporate borrowings, offset by dividend and distribution payments, repurchases
of equity interests, forward equity commitment payments, net, an increase in deferred financing costs and debt payments and
repurchases.
Public and Private Equity and Debt Markets. We access the public and private equity and debt markets when we (1) believe
conditions are favorable and (2) have a compelling use of proceeds. During 2012, 2011 and 2010, we raised net proceeds of
approximately $164.4 million, $99.0 million and $166.4 million, respectively, through the issuance of common shares. We primarily
used these proceeds to retire indebtedness.
During 2007, we issued an aggregate $450.0 million of 5.45% Exchangeable Guaranteed Notes due in 2027. Since 2008, we
repurchased and retired all notes for $358.1 million in cash and 1.6 million common shares having a value at issuance of $23.5
million (or $14.50 per share).
During 2010, we issued $115.0 million aggregate principal amount of 6.00% Convertible Notes. The notes pay interest semi-
annually in arrears and mature in January 2030. The holders of the notes may require us to repurchase their notes in January 2017,
January 2020 and January 2025 for cash equal to 100% of the principal of the notes to be repurchased, plus any accrued and unpaid
interest. We may not redeem any notes prior to January 2017, except to preserve our REIT status. Thereafter, we may redeem the
notes for cash equal to 100% of the principal of the notes to be redeemed, plus any accrued and unpaid interest. As of the date of
filing this Annual Report, the notes have a conversion rate of 144.2599 common shares per $1,000 principal amount of the notes,
representing a conversion price of approximately $6.93 per common share. The conversion rate is subject to adjustment under certain
circumstances, including increases in our dividend rate above a certain threshold and the issuance of stock dividends. The notes are
convertible by the holders under certain circumstances for cash, common shares or a combination of cash and common shares at our
election. During 2012, holders of the notes converted an aggregate $31.1 million of notes for 4.5 million common shares and an
aggregate cash payment by us of $2.4 million plus accrued and unpaid interest.
44
During 2012 and 2011, we repurchased and retired all outstanding Series B Preferred Shares (approximately 3.2 million) and
approximately 0.2 million Series C Preferred Shares for an aggregate purchase price of $85.5 million, which was at a $1.5 million
discount to the liquidation preferences of the preferred shares.
During 2008, we entered into a forward equity commitment to purchase 3.5 million of our common shares at a price of $5.60
per share and we agreed to make floating payments during the term of the forward purchase at LIBOR plus 250 basis points per
annum and we retained all cash dividend payments. We prepaid $15.6 million of the $19.6 million purchase price during 2008 and
2009. We settled the commitment in October 2011 for a cash payment of approximately $4.0 million and retired approximately 4.0
million common shares.
We may access these markets and other markets in the future to implement our business strategy and to fund future growth.
However, the continued general economic uncertainty and the volatility in these markets makes accessing these markets challenging.
UPREIT Structure. Our UPREIT structure permits us to effect acquisitions by issuing OP units to a property owner as a form
of consideration in exchange for the property. Substantially all outstanding OP units are redeemable by the holder at certain times
on a one OP unit for approximately 1.13 common shares or, at our election, with respect to certain OP units, cash. Substantially all
outstanding OP units require us to pay quarterly distributions to the holders of such OP units equal to the dividends paid to our
common shareholders on an as redeemed basis and the remaining OP units have stated distributions in accordance with their respective
partnership agreement. To the extent that our dividend per share is less than a stated distribution per unit per the applicable partnership
agreement, the stated distributions per unit are reduced by the percentage reduction in our dividend. We are party to funding agreements
with our operating partnerships under which we may be required to fund distributions made on account of OP units. No OP units
have a liquidation preference. The number of common shares that will be outstanding in the future should be expected to increase,
and income (loss) attributable to noncontrolling interests should be expected to decrease (increase), as such OP units are redeemed
for our common shares.
As of December 31, 2012, there was a total of approximately 3.8 million OP units outstanding other than OP units held by us.
Of this total, approximately 1.5 million are held by related parties.
As a result of the general deterioration in real estate values which commenced in 2008, few sellers of real estate are seeking OP
units as a form of consideration.
Property Specific Debt. As of December 31, 2012, our property owner subsidiaries have related balloon payments of $238.4
million and $251.0 million maturing in 2013 and 2014, respectively. With respect to mortgages encumbering properties where the
expected lease rental revenues are sufficient to provide an estimated property value in excess of the mortgage balance, we believe
our property owner subsidiaries have sufficient sources of liquidity to meet these obligations through future cash flow from operations,
the credit markets and, if determined appropriate by us, a capital contribution from us from either cash on hand ($34.0 million at
December 31, 2012), borrowing capacity on our primary credit facility ($296.3 million as of December 31, 2012).
In the event that the estimated property value is less than the mortgage balance, the mortgages encumbering the properties in
which we have an interest are generally non-recourse to us and the property owner subsidiaries, such that a property owner subsidiary
may, if appropriate, satisfy a mortgage obligation by transferring title of the property to the lender or permitting a lender to foreclose.
There are significant risks associated with conveying properties to lenders through foreclosure which are described in "Risk Factors"
in Part I, Item 1A of this Annual Report.
We expect to continue to use property specific, non-recourse mortgages in certain situations as we believe that by properly
matching a debt obligation, including the balloon maturity risk, with the terms of a lease, our cash-on-cash returns increase and the
exposure to residual valuation risk is reduced. However, the current economic environment has impacted our ability to obtain property
specific debt on favorable terms in many cases. In 2008, property specific mortgage lending nearly ceased. Since then, the number
of lenders and available loan proceeds have diminished significantly. In addition, the required loan to value ratios have decreased
and the covenants, including required reserve amounts, have increased. Accordingly, we expect to primarily use corporate level
borrowings to finance our acquisitions and debt maturities.
In 2012 and 2011, we obtained, through consolidated property owner subsidiaries, $121.0 million and $15.0 million, respectively,
in non-recourse mortgage loans with interest rates ranging from 4.0% to 4.7% and maturity dates ranging from 2016 to 2023.
45
Corporate Borrowings. In 2012, we procured a $255.0 million secured term loan from Wells Fargo Bank, National Association,
as agent. The secured term loan matures in January 2019 and requires regular payments of interest only at an interest rate dependent
on our leverage ratio, as defined therein, ranging from 2.00% to 2.85% over LIBOR. Upon the date when we obtain an investment
grade debt rating from at least two of S&P, Moody’s and Fitch, the interest rate under the secured term loan will be dependent on
our debt rating. We may not prepay any outstanding borrowings under the secured term loan facility through January 12, 2013, but
may prepay outstanding borrowings anytime thereafter, however at a premium for the next three years. We entered into aggregate
interest-rate swap agreements to fix LIBOR at an aggregate weighted-average rate of 1.42% on $255.0 million of borrowings under
the secured term loan for seven years. As of the date of filing of this Annual Report, $255.0 million was outstanding, the collateral
securing the term loan was released and we were in compliance with the financial covenants contained in the term loan agreement.
In addition, in 2012, we refinanced our secured $300.0 million revolving credit facility procured in January 2011 with KeyBank,
as agent, with a $300.0 million secured revolving credit facility. The secured revolving facility required payments of interest at rates
ranging from 1.625% to 2.375% over LIBOR depending on our leverage ratios, as defined therein. The secured revolving credit
facility was to mature in January 2015, but could be extended to January 2016 at our option.
See Part I, Item 1 “Business”, for disclosure relating to the refinancing of our secured credit facility with an unsecured credit
facility and the amendment of our secured term loan to an unsecured term loan subsequent to December 31, 2012. As of the date of
filing of this Annual Report, no amounts were outstanding on our unsecured credit facility and we were in compliance with the
financial covenants contained in the credit agreement governing our unsecured credit facility.
In March 2008, we obtained $25.0 million and $45.0 million original principal amount secured term loans from KeyBank. The
loans were fully satisfied in January 2012 with proceeds from the secured term loan and our credit facility. Also in January 2012,
we fully satisfied the remaining $62.2 million original principal amount outstanding of our 5.45% Exchangeable Guaranteed Notes
due in 2027 obtained in 2007.
During 2007, we issued $200.0 million in Trust Preferred Securities, which bear interest at a fixed rate of 6.804% through April
2017 and thereafter at a variable rate of three month LIBOR plus 170 basis points through maturity. These securities are (1) classified
as debt, (2) due in 2037 and (3) currently redeemable by us. As of December 31, 2012 and 2011, there were $129.1 million of these
securities outstanding.
While property specific mortgages have become harder to obtain, corporate level borrowings have generally been available and
we expect this to continue to be the case in the near future. We may seek a credit rating from certain credit agencies to improve the
cost of our corporate level borrowings. However, no assurance can be given that we will seek such a rating or what rating we may
receive.
Co-investment Programs and Joint Ventures. We believe that entering into co-investment programs and joint ventures with
institutional investors and other real estate companies is a good way to access private capital while mitigating our risk in certain
assets and increasing our return on equity to the extent we earn management or other fees. However, investments in co-investment
programs and joint ventures limit our ability to make investment decisions unilaterally relating to the assets and limit our ability to
deploy capital. If we continue to grow, we expect to enter into co-investment programs and joint ventures primarily with respect to
assets that we ordinarily would not have invested in such, as non-core assets. We believe this mitigates our exposure to the risks
inherent in non-core assets. In 2012, we entered into two joint ventures which invested in an inpatient rehabilitation hospital and a
retail property.
Capital Recycling. Part of our strategy to effectively manage our balance sheet involves pursuing and executing well on property
dispositions and recycling of capital. During 2012, we disposed of our interests in properties, including a non-consolidated property,
for a gross price of $181.4 million. These proceeds were used to retire indebtedness encumbering properties in which we have an
interest and make investments.
Liquidity Needs. Our principal liquidity needs are the contractual obligations set forth under the heading “Contractual
Obligations,” below, and the payment of dividends to our shareholders and distributions to the holders of OP units.
As of December 31, 2012, we had approximately $1.9 billion of indebtedness, consisting of mortgages and notes payable
outstanding, 6.00% Convertible Notes and Trust Preferred Securities, with a weighted-average interest rate of approximately 5.4%.
The ability of a property owner subsidiary to make debt service payments depends upon the rental revenues of its property and its
ability to refinance the mortgage related thereto, sell the related property, or access capital from us or other sources. A property owner
subsidiary's ability to accomplish such goals will be affected by numerous economic factors affecting the real estate industry, including
the risks described under "Risk Factors" in Part I, Item 1A of this Annual Report.
46
If we are unable to satisfy our contractual obligations and other operating costs with our cash flow from operations, we intend
to use borrowings and proceeds from issuances of equity or debt securities. If a property owner subsidiary is unable to satisfy its
contractual obligations and other operating costs, it may default on its obligations and lose its assets in foreclosure or through
bankruptcy proceedings.
We elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with our taxable year ended
December 31, 1993. If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on our
net taxable income that is currently distributed to shareholders.
In connection with our intention to continue to qualify as a REIT for federal income tax purposes, we expect to continue paying
regular dividends to our shareholders. These dividends are expected to be paid from operating cash flows and/or from other sources.
Since cash used to pay dividends reduces amounts available for capital investments, we generally intend to maintain a conservative
dividend payout ratio, reserving such amounts as we consider necessary for the maintenance or expansion of properties in our
portfolio, debt reduction, the acquisition of interests in new properties as suitable opportunities arise, and such other factors as our
Board of Trustees considers appropriate.
We paid approximately $103.3 million in cash dividends to our common and preferred shareholders in 2012. Although our
property owner subsidiaries receive the majority of our base rental payments on a monthly basis, we intend to continue paying
dividends quarterly. Amounts accumulated in advance of each quarterly distribution are invested by us in short-term money market
or other suitable instruments.
Capital Resources
General. Due to the net-lease structure of a majority of our investments, our property owner subsidiaries historically have not
incurred significant expenditures in the ordinary course of business to maintain the properties in which we have an interest. However,
particularly since 2008, as leases have expired, our property owner subsidiaries have incurred costs in extending the existing tenant
leases, re-tenanting the properties with a single-tenant, or converting the property to multi-tenant use. The amounts of these
expenditures can vary significantly depending on tenant negotiations, market conditions and rental rates.
Single-Tenant Properties. We do not anticipate significant capital expenditures at the single-tenant properties in which we have
an interest that are subject to net or similar leases since the tenants at these properties generally bear all or substantially all of the
cost of property operations, maintenance and repairs. However, at certain properties subject to net leases, our property owner
subsidiaries are responsible for replacement and/or repair of certain capital items, which may or may not be reimbursed. At certain
single-tenant properties that are not subject to a net lease, our property owner subsidiaries have a level of property operating expense
responsibility, which may or may not be reimbursed.
Multi-Tenant Properties. Primarily as a result of non-renewals at single-tenant net-lease properties, we have interests in multi-
tenant properties in our consolidated portfolio. While tenants are generally responsible for increases over base year expenses, our
property owner subsidiaries are generally responsible for the base-year expenses and capital expenditures at these properties.
Vacant Properties. To the extent there is a vacancy in a property, our property owner subsidiary would be obligated for all
operating expenses, including real estate taxes and insurance. If a property is vacant for an extended period of time, our property
owner subsidiary may incur substantial capital expenditure costs to re-tenant the property.
Property Expansions. Under certain leases, tenants have the right to expand the facility located on a property in which we have
an interest. In the past, our property owner subsidiary has generally funded, and in the future our property owner subsidiary intends
to generally fund, these property expansions with either additional secured borrowings, the repayment of which was, and will be,
funded out of rental increases under the leases covering the expanded properties or capital contributions from us.
Ground Leases. The tenants of properties in which we have an interest generally pay the rental obligations on ground leases
either directly to the fee holder or to our property owner subsidiary as increased rent. However, our property owner subsidiaries are
responsible for these payments under certain leases and at vacant properties.
47
Environmental Matters. Based upon management's ongoing review of the properties in which we have an interest, management
is not aware of any environmental condition with respect to any of these properties, which would be reasonably likely to have a
material adverse effect on us. There can be no assurance, however, that (1) the discovery of environmental conditions, which were
previously unknown, (2) changes in law, (3) the conduct of tenants or (4) activities relating to properties in the vicinity of the properties
in which we have an interest, will not expose us to material liability in the future. Changes in laws increasing the potential liability
for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in
significant unanticipated expenditures or may otherwise adversely affect the operations of the tenants of properties in which we have
an interest.
Results of Operations
Year ended December 31, 2012 compared with December 31, 2011. The increase in total gross revenues in 2012 of $31.1 million
was primarily attributable to an increase in rental revenue of $32.7 million offset in part by a decrease in tenant reimbursements and
advisory and incentive fees of $1.4 million and $0.2 million, respectively.
The increase in rental revenue was primarily due to (1) 2012 and 2011 property acquisition revenue of $25.4 million, including
$14.2 million from NLS properties acquired on September 1, 2012, (2) increased occupancy revenue from the Transmerica Tower
in Baltimore, Maryland of $7.5 million and (3) $3.3 million of revenue recognized on our office property in Orlando, Florida due to
the commencement of a new lease. These increases were partially offset by a decrease in revenue of $4.7 million from our office
property in Farmington Hills, Michigan due to lease rollover.
The decrease in interest and amortization expense of $7.7 million was primarily due to (1) a reduction in the weighted-average
interest rate on outstanding indebtedness, (2) retirement of debt which had corresponding debt discount amortization, (3) lower
deferred financing cost amortization and (4) greater interest capitalized.
Depreciation and amortization increased $5.5 million primarily due to the acquisition of real estate properties in 2012 and 2011
offset by (1) the acceleration of amortization on certain lease intangible assets due to tenant lease terminations and (2) assets becoming
fully amortized in 2012.
The increase in property operating expense of $2.0 million was primarily due to an increase in occupancy at certain multi-tenant
properties which had an increase in costs and the acquisition of properties with operating expense obligations.
The increase in general and administrative expense of $1.8 million was primarily due to a $2.1 million increase in personnel
costs.
Non-operating income decreased $6.1 million primarily due to the satisfaction of notes receivable resulting in less interest earned
and reduced interest income earned on a note receivable currently in default secured by an office property in Schaumburg, Illinois.
The change in the value of our forward equity commitment of $2.0 million was primarily due to the settlement of the commitment
in October 2011.
The litigation reserve of $2.8 million in 2012 relates to a litigation that has been settled with a payment by us of $2.8 million.
The increase in debt satisfaction charges, net of $9.5 million was primarily due to the conversion of $31.1 million 6.00%
Convertible Notes in 2012 and the write-off of deferred financing costs relating to the satisfaction of the $60.6 million term loans
during the first quarter of 2012.
The gain on acquisition of $167.9 million primarily represents the gain recognized due to the increase in fair value of our
investment in NLS at the date of acquisition of the remaining interest in NLS.
Impairment charges decreased by $31.7 million due to the timing of triggering events on properties held and used in operations.
The increase in the provision for income taxes of $1.8 million was primarily the result of the write-off of a deferred tax liability
relating to the transfer of certain assets from our wholly-owned taxable REIT subsidiary to the REIT itself during the first quarter
of 2011.
48
The decrease in equity in earnings of non-consolidated entities of $8.8 million was primarily due to (1) a $9.3 million decrease
in earnings from NLS primarily due to the consolidation of NLS on September 1, 2012, (2) a $1.4 million reduction due to the
consolidation in 2012 of a previously non-consolidated property and (3) a reduction in earnings from various joint ventures of $1.5
million, offset by a $1.8 million increase in earnings recognized on our interests in Concord and CDH CDO and a $1.6 million
impairment charge recognized in 2011 on an investment in a non-consolidated entity.
Discontinued operations represent properties sold or held for sale. The increase in net income from discontinued operations of
$76.4 million was primarily due to a decrease in impairment charges of $75.8 million, an increase in gains on sales of properties of
$6.7 million and a decrease in debt satisfaction charges of $0.4 million, offset in part by a $6.4 million increase in loss from discontinued
operations.
The increase in net income attributable to noncontrolling interests of $14.5 million was primarily due to a decrease in impairment
charges incurred by non-wholly owned entities.
The increase in net income attributable to common shareholders of $260.6 million was primarily due to the items discussed
above.
The increase in net income or decrease in net loss in future periods will be closely tied to the level of acquisitions made by us.
Without acquisitions, the sources of growth in net income are limited to index adjusted rents (such as the consumer price index),
reduced interest expense on amortizing mortgages and variable rate indebtedness and by controlling other variable overhead costs.
However, there are many factors beyond management's control that could offset these items including, without limitation, increased
interest rates and tenant monetary defaults and the other risks described in this Annual Report.
Year ended December 31, 2011 compared with December 31, 2010. Of the increase in total gross revenues in 2011 of $8.5
million, $6.6 million is attributable to an increase in rental revenue and a $1.0 million increase in tenant reimbursements due to an
increase in acquisition and leasing activity and an increase in advisory and incentive fees of $0.9 million primarily relating to third-
party managed account return hurdles being met.
The increase in rental revenue was primarily due to (1) 2011 and 2010 property acquisition revenue of $7.9 million, (2) increased
occupancy revenue from the Transamerica Tower in Baltimore, Maryland of $2.3 million and (3) $2.1 million of revenue recognized
on our Farmington Hills, Michigan property due to a tenant's lease termination. These increases were offset by a decrease of $5.6
million due to lease rollover and amendments.
The decrease in interest and amortization expense of $10.0 million is primarily due to the decrease in indebtedness.
Depreciation and amortization increased by $6.9 million primarily due to the acquisition of real estate properties and the
acceleration of amortization on certain lease intangible assets due to tenant lease terminations.
The decrease in property operating expense of $1.0 million is primarily due to a decrease in the operating expenses at certain
multi-tenant properties which had an increase in vacancy resulting in lower costs, and certain tenants taking direct responsibility for
payments of operating costs in which our property owner subsidiaries have an interest.
Non-operating income increased $1.2 million which is primarily due to investments made in 2011 and 2010.
The change in value of our forward equity commitment of $6.9 million was primarily due to the period change in the per share
price of our common shares.
The increase in impairment charges and loan losses of $29.1 million was due to $35.9 million in impairment charges recognized
in 2011 relating to our non-core properties, including certain retail, underperforming and multi-tenanted properties. We explored the
possible disposition of these properties and determined that the estimated undiscounted future cash flows were below the properties
carrying values. During 2010, the charges related to loan loss reserves ($3.9 million) on two investments and a $3.0 million impairment
charge due to operational considerations at a property.
The charge in the benefit (provisions) for income taxes of $2.4 million was primarily the result of the write-off of a deferred tax
liability relating to the transfer of certain assets from our wholly-owned taxable REIT subsidiary to the REIT itself.
The increase in equity in earnings of non-consolidated entities of $8.6 million is primarily due to $2.2 million earned from an
investment in LW Sofi LLC, $1.4 million earned on a new non-consolidated entity, Pemlex LLC, prior to consolidation and cash
distributions of $4.0 million received from our investments in Concord related entities.
49
Discontinued operations represents properties sold or held for sale. The total discontinued operations loss increased $41.3 million
due to an increase in impairment charges of $31.4 million, a decrease in gains on sales of properties of $8.1 million and an increase
in debt satisfaction charges, net of $3.5 million, offset by an increase in the income from discontinued operations of $1.8 million.
Net loss attributable to noncontrolling interests increased $5.7 million primarily due to an increase in impairment charges incurred
on noncontrolling interest properties.
Net loss attributable to common shareholders increased $45.6 million primarily due to the items discussed above.
Same-Store Results
Same-store results includes all consolidated properties except properties acquired and sold in 2012 and 2011. Our historical
same-store occupancy was 97.0% at December 31, 2012 compared to 96.5% at December 31, 2011. The following presents our
consolidated same-store net operating income, or NOI, for the years ended December 31, 2012 and 2011 ($000):
Total base rent
Tenant reimbursements and other
Property operating expenses
Same-store NOI - Cash basis
$
$
2012
2011
272,542
29,257
(58,169)
243,630
$
$
272,208
31,396
(57,788)
245,816
The change in our same-store NOI from 2011 to 2012 was a decrease of 0.9%. This was primarily due to a decrease in tenant
reimbursements and an increase in property operating expenses due to the timing of new tenant leases and the establishment of base
years for certain tenants.
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 in
accordance with GAAP, excluding gains (or losses) from sales of property, plus real estate depreciation and amortization and after
adjustments for unconsolidated 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.
We present Reported Company FFO, which differs from FFO as it includes our OP units, our Series C Preferred Shares, and
our 6.00% Convertible Notes, because these securities are convertible, at the holder's option, into our common shares. Management
believes this is appropriate and relevant to securities analysts, investors and other interested parties because we present Reported
Company FFO on a company-wide basis as if all securities that are convertible, at the holder's option, into our common shares, are
converted. We also present Company FFO, as adjusted, which adjusts Reported Company FFO for certain items which we believe
are non-recurring and 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 funds from
operations in a similar fashion, Reported Company FFO and Company FFO, as adjusted, may not be comparable to similarly titled
measures as reported by others. Reported Company FFO and Company FFO, as adjusted, 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.
50
The following presents a reconciliation of net income (loss) attributable to Lexington Realty Trust shareholders to Reported
Company FFO and Company FFO, as adjusted, for the the years ended December 31, 2012 and 2011 (unaudited and dollars in
thousands, except per share amounts):
FUNDS FROM OPERATIONS:
Basic and Diluted:
Net income (loss) attributable to Lexington Realty Trust shareholders
Adjustments:
Depreciation and amortization
Impairment charges - real estate
Impairment charges - joint venture
Noncontrolling interests - OP units
Amortization of leasing commissions
Joint venture and noncontrolling interest adjustment
Preferred dividends - Series B & D
Gains on sales of properties
Gain on sale - joint venture investment
Gain on acquisition
Interest and amortization on 6.00% Convertible Notes
Reported Company FFO
Debt satisfaction charges, net
Forward equity commitment
Litigation reserve
Gains on loan sales - joint venture
Other
Company FFO, as adjusted
Per Share Amounts
Basic:
Reported Company FFO
Company FFO, as adjusted
Diluted:
Reported Company FFO
Company FFO, as adjusted
Basic:
Weighted-average common shares outstanding - EPS basic
6.00% Convertible Notes
Non-vested share-based payment awards
Operating Partnership Units
Preferred Shares - Series C
Weighted-average common shares outstanding - Reported Company FFO basic
Adjustments:
Forward equity commitment settlement
Weighted-average common shares outstanding - Company FFO, as adjusted
Diluted:
Weighted-average common shares outstanding - Reported Company FFO basic
Options - Incremental shares
Weighted-average common shares outstanding - Reported Company FFO diluted
Adjustments:
Forward equity commitment settlement
Weighted-average common shares outstanding - Company FFO, as adjusted
51
2012
2011
$
180,316
$
(79,584)
$
$
$
$
$
$
$
$
$
$
163,890
9,969
—
1,192
4,838
560
(14,001)
(13,291)
(7,000)
(167,864)
8,953
167,562
9,658
—
2,775
—
603
180,598
0.91
0.98
0.91
0.98
2012
159,109,424
15,805,245
244,366
4,438,708
4,712,421
184,310,164
—
184,310,164
184,310,164
306,449
184,616,613
—
184,616,613
160,689
117,443
4,811
578
3,918
(23,309)
(17,852)
(6,557)
—
—
9,307
169,444
561
(2,030)
—
(1,927)
3,966
170,014
0.95
0.97
0.95
0.97
2011
152,473,336
16,232,862
130,684
4,725,798
5,043,521
178,606,201
(2,760,608)
175,845,593
178,606,201
208,463
178,814,664
(2,760,608)
176,054,056
Off-Balance Sheet Arrangements
As of December 31, 2012, we had investments in various real estate entities with varying structures. The real estate investments
owned by these entities are generally financed with non-recourse debt. Non-recourse debt is generally defined as debt whereby the
lenders' sole recourse with respect to borrower defaults is limited to the value of the assets collateralized by the debt. The lender
generally does not have recourse against any other assets owned by the borrower or any of the members or partners of the borrower,
except for certain specified exceptions listed in the particular loan documents. These exceptions generally relate to "bad boy" acts,
including fraud and breaches of material representations. We have guaranteed such obligations for certain of our property owner
subsidiaries. We have also agreed to indemnify a third-party for any draws on a letter of credit securing similar non-recourse exceptions
with respect to an investment we formerly owned but now manage. Upon expiration of such letter of credit, we have agreed to deliver
a replacement $2.5 million letter of credit.
Contractual Obligations
The following summarizes our principal contractual obligations as of December 31, 2012 ($000's):
Notes payable1
Interest payable - fixed rate
Operating lease obligations2
2013
$ 272,192
91,722
3,808
$ 367,722
2014
$ 283,460
80,571
3,527
$ 367,558
2015
$ 313,474
60,233
3,488
$ 377,195
2016
$ 167,312
48,939
2,008
$ 218,259
2017
$ 171,058
31,000
1,934
$ 203,992
2018 and
Thereafter
$ 676,481
61,323
15,884
$ 753,688
Total
$ 1,883,977
373,788
30,649
$ 2,288,414
1. Includes balloon payments. Amounts shown exclude a debt discount of $5.8 million and exclude $3.7 million in outstanding letters of credit.
2. Includes ground lease payments and office rents. Amounts disclosed do not include rents that adjust to fair market value. In addition certain ground lease
payments due under bond leases allow for a right of offset between the lease obligation and the debt service and accordingly are not included.
In addition, we guarantee certain tenant improvement allowances and lease commissions on behalf of certain property owner
subsidiaries when required by the related tenant or lender. However, we do not believe these guarantees are material to us as the
obligations under and risks associated with such guarantees are priced into the rent under the lease or the value of the property.
52
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Our exposure to market risk relates primarily to our variable rate debt and fixed rate debt. As of December 31, 2012 and 2011,
we had no consolidated variable rate indebtedness not subject to an interest rate swap agreement. During 2012 and 2011, our variable
rate indebtedness had a weighted-average interest rate of 2.5% and 3.3%, respectively. Had the weighted-average interest rate been
100 basis points higher, our interest expense for 2012 and 2011 would have been increased by approximately $0.6 million and $17
thousand, respectively. As of December 31, 2012 and 2011, our consolidated fixed rate debt was approximately $1.9 billion and $1.7
billion, respectively, which represented 100.0% of total long-term indebtedness in each year.
For certain of our financial instruments, fair values are not readily available since there are no active trading markets as
characterized by current exchanges between willing parties. Accordingly, we derive or estimate fair values using various valuation
techniques, such as computing the present value of estimated future cash flows using discount rates commensurate with the risks
involved. However, the determination of estimated cash flows may be subjective and imprecise. Changes in assumptions or estimation
methodologies can have a material effect on these estimated fair values. The following fair values were determined using the interest
rates that we believe our outstanding fixed rate debt would warrant as of December 31, 2012 and are indicative of the interest rate
environment as of December 31, 2012, and do not take into consideration the effects of subsequent interest rate fluctuations.
Accordingly, we estimate that the fair value of our fixed rate debt is $1.8 billion as of December 31, 2012.
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 generally
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 the date of filing this Annual Report,
we have five interest rate swap agreements in our consolidated portfolio.
53
Item 8. Financial Statements and Supplementary Data
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
INDEX
Management's Annual Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Operations for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Changes in Equity for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation and Amortization
Page
55
56
58
59
60
61
64
65
93
54
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for
performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2012. Our system
of internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted
accounting principles. Our system of internal control over financial reporting includes policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in
accordance with authorizations of our management and the members of our Board of Trustees; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material
effect on our financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance that financial statements are fairly presented in accordance with U.S. generally
accepted accounting principles.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In
assessing the effectiveness of our internal control over financial reporting, management used as guidance the criteria established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based upon the assessment performed, management believes that our internal control over financial reporting is effective as of
December 31, 2012.
Our independent registered public accounting firm, KPMG LLP, independently assessed the effectiveness of our internal
control over financial reporting. KPMG LLP has issued a report which is included on page 57 of this Annual Report.
55
Report of Independent Registered Public Accounting Firm
The Trustees and Shareholders
Lexington Realty Trust:
We have audited the accompanying consolidated balance sheets of Lexington Realty Trust and subsidiaries (the
“Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive
income (loss), changes in equity, and cash flows for each of the years in the three-year period ended December 31,
2012. In connection with our audits of the consolidated financial statements, we also have audited the accompanying
financial statement schedule. These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Lexington Realty Trust and subsidiaries as of December 31, 2012 and 2011, and the results of
their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in
conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Lexington Realty Trust's internal control over financial reporting as of December 31, 2012, based on criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated February 25, 2013 expressed an unqualified opinion on the
effectiveness of the Company's internal control over financial reporting.
New York, New York
February 25, 2013
/s/ KPMG LLP
56
Report of Independent Registered Public Accounting Firm
The Trustees and Shareholders
Lexington Realty Trust:
We have audited Lexington Realty Trust's (the “Company's”) internal control over financial reporting as of
December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and trustees of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Lexington Realty Trust and subsidiaries as of December 31, 2012 and 2011,
and the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows
for each of the years in the three-year period ended December 31, 2012 and the related financial statement schedule,
and our report dated February 25, 2013 expressed an unqualified opinion on those consolidated financial statements
and financial statement schedule.
New York, New York
February 25, 2013
/s/ KPMG LLP
57
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000, except share and per share data)
As of December 31,
Assets:
Real estate, at cost
Real estate - intangible assets
Investments in real estate under construction
Less: accumulated depreciation and amortization
Real estate, net
Cash and cash equivalents
Restricted cash
Investment in and advances to non-consolidated entities
Deferred expenses (net of accumulated amortization of $24,402 in 2012 and $22,708 in 2011)
Loans receivable, net
Rent receivable - current
Other assets
Total assets
Liabilities and Equity:
Liabilities:
Mortgages and notes payable
Term loan payable
Exchangeable notes payable
Convertible notes payable
Trust preferred securities
Dividends payable
Accounts payable and other liabilities
Accrued interest payable
Deferred revenue - including below market leases (net of accretion of $44,706 in 2012 and $37,485 in
2011)
Prepaid rent
Total liabilities
Commitments and contingencies
Equity:
Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares,
Series B Cumulative Redeemable Preferred, liquidation preference $68,522; 2,740,874 shares
issued and outstanding in 2011
Series C Cumulative Convertible Preferred, liquidation preference $96,770 and $98,510; and
1,935,400 and 1,970,200 shares issued and outstanding in 2012 and 2011, respectively
Series D Cumulative Redeemable Preferred, liquidation preference $155,000; 6,200,000 shares
issued and outstanding
Common shares, par value $0.0001 per share; authorized 400,000,000 shares, 178,616,664 and
154,938,351 shares issued and outstanding in 2012 and 2011, respectively
Additional paid-in-capital
Accumulated distributions in excess of net income
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
2012
2011
$
$
$
3,564,466
685,914
65,122
4,315,502
1,150,417
3,165,085
34,024
26,741
27,129
57,549
72,540
7,355
27,780
3,418,203
1,415,961
255,000
—
78,127
129,120
31,351
70,367
11,980
79,908
13,224
2,085,038
3,172,246
546,918
34,529
3,753,693
1,006,717
2,746,976
63,711
30,657
39,330
43,966
66,619
7,271
28,290
3,026,820
1,366,004
—
62,102
105,149
129,120
25,273
53,058
13,019
90,349
12,543
1,856,617
—
94,016
66,193
95,706
149,774
149,774
18
2,212,949
(1,143,803)
(6,224)
1,306,730
26,435
1,333,165
3,418,203
$
15
2,010,850
(1,212,630)
1,938
1,111,846
58,357
1,170,203
3,026,820
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
58
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000, except share and per share data)
Years ended December 31,
2012
2011
2010
Gross revenues:
Rental
Advisory and incentive fees
Tenant reimbursements
Total gross revenues
Expense applicable to revenues:
Depreciation and amortization
Property operating
General and administrative
Non-operating income
Interest and amortization expense
Debt satisfaction gains (charges), net
Change in value of forward equity commitment
Gain on acquisition
Litigation reserve
Impairment charges and loan losses
Income (loss) before benefit (provision) for income taxes, equity
in earnings of non-consolidated entities and discontinued
operations
Benefit (provision) for income taxes
Equity in earnings of non-consolidated entities
Income (loss) from continuing operations
Discontinued operations:
Income (loss) from discontinued operations
Provision for income taxes
Debt satisfaction gains (charges), net
Gains on sales of properties
Impairment charges
Total discontinued operations
Net income (loss)
Less net (income) loss attributable to noncontrolling interests
Net income (loss) attributable to Lexington Realty Trust
shareholders
Dividends attributable to preferred shares – Series B – 8.05% rate
Dividends attributable to preferred shares – Series C – 6.50% rate
Dividends attributable to preferred shares – Series D – 7.55% rate
Allocation to participating securities
Deemed dividend – Series B
Redemption discount – Series C
Net income (loss) attributable to common shareholders
Income (loss) per common share – basic:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss) attributable to common shareholders
Weighted-average common shares outstanding – basic
Income (loss) per common share – diluted:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss) attributable to common shareholders
Weighted-average common shares outstanding – diluted
Amounts attributable to common shareholders:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss) attributable to common shareholders
$
$
$
$
$
$
$
$
$
313,081
1,806
29,992
344,879
$
280,410
2,012
31,404
313,826
(156,358)
(58,229)
(22,200)
13,020
(106,478)
45
2,030
—
—
(35,946)
(50,290)
845
30,334
(19,111)
4,955
(76)
(606)
6,557
(81,497)
(70,667)
(89,778)
10,194
(79,584)
(6,149)
(6,655)
(11,703)
(368)
(95)
833
(103,721) $
(0.29) $
(0.39)
(0.68) $
152,473,336
(0.29) $
(0.39)
(0.68) $
152,473,336
(161,876)
(60,213)
(23,956)
6,888
(98,803)
(9,480)
—
167,864
(2,775)
(4,262)
158,266
(941)
21,531
178,856
(1,463)
(161)
(178)
13,291
(5,707)
5,782
184,638
(4,322)
180,316
(2,298)
(6,290)
(11,703)
(1,059)
(2,346)
229
156,849
0.96
0.03
0.99
159,109,424
0.91
0.02
0.93
179,659,826
152,808
4,041
156,849
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
59
273,788
1,108
30,454
305,350
(149,474)
(59,194)
(22,456)
11,811
(116,516)
212
8,906
—
—
(6,879)
(28,240)
(1,543)
21,741
(8,042)
3,185
(29)
2,924
14,613
(50,061)
(29,368)
(37,410)
4,450
(32,960)
(6,360)
(6,809)
(11,703)
(264)
—
—
(58,096)
(0.28)
(0.16)
(0.44)
130,985,809
(0.28)
(0.16)
(0.44)
130,985,809
(44,703) $
(59,018)
(103,721) $
(37,008)
(21,088)
(58,096)
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
($000)
Years ended December 31,
Net income (loss)
Other comprehensive income (loss):
Change in unrealized gain on foreign currency translation, net
Change in unrealized gain (loss) on interest rate swap, net
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive (income) loss attributable to noncontrolling interests
Comprehensive income (loss) attributable to Lexington Realty Trust
shareholders
2012
2011
2010
$
184,638
$
(89,778) $
(37,410)
—
(8,162)
(8,162)
176,476
(4,322)
—
2,044
2,044
(87,734)
10,194
(740)
(39)
(779)
(38,189)
4,450
$
172,154
$
(77,540) $
(33,739)
The accompanying notes are an integral part of these consolidated financial statements.
60
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3
6
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000)
Years ended December 31,
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
2012
2011
2010
$ 184,638
$ (89,778) $
(37,410)
Depreciation and amortization
Gain on acquisition
Gains on sales of properties
Debt satisfaction (gains) charges, net
Impairment charges and loan losses
Straight-line rents
Other non-cash income, net
Equity in earnings of non-consolidated entities
Distributions of accumulated earnings from non-consolidated entities, net
Deferred taxes, net
Increase (decrease) in accounts payable and other liabilities
Change in rent receivable and prepaid rent, net
Increase (decrease) in accrued interest payable
Other adjustments, net
Net cash provided by operating activities:
Cash flows from investing activities:
Investment in real estate, including intangible assets
Investment in real estate under construction
Capital expenditures
Acquisition of remaining interest in NLS
Net proceeds from sale of properties
Principal payments received on loans receivable
Investment in loans receivable
Investments in and advances to non-consolidated entities, net
Proceeds from sale of interest in non-consolidated entity
Distributions from non-consolidated entities in excess of accumulated earnings
Increase in deferred leasing costs
Change in escrow deposits and restricted cash
Real estate deposits
Net cash used in investing activities
Cash flows from financing activities:
Dividends to common and preferred shareholders
Repurchase of exchangeable notes
Proceeds from convertible notes
Conversion of convertible notes
Principal amortization payments
Principal payments on debt, excluding normal amortization
Change in revolving credit facility borrowing, net
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Proceeds of mortgages and notes payable
Proceeds from term loans
Contributions from noncontrolling interests
Cash distributions to noncontrolling interests
Repurchase of preferred shares
Receipts (payments) on forward equity commitment, net
Issuance of common shares, net
Net cash used in financing activities
Cash acquired in acquisition of remaining interest in NLS
Change in cash and cash equivalents
Cash and cash equivalents, at beginning of year
Cash and cash equivalents, at end of year
171,969
(167,864)
(13,291)
8,062
9,969
(7,372)
(1,139)
(21,531)
7,498
(186)
(598)
(1,325)
(2,473)
(2,547)
163,810
(98,083)
(113,262)
(49,952)
(9,438)
155,240
6,841
(11,470)
(20,172)
7,000
351
(14,826)
5,710
(149)
(142,210)
(103,295)
(62,150)
—
(2,427)
(31,252)
(288,094)
—
(6,431)
121,000
255,000
889
(35,381)
(70,000)
—
162,747
(59,394)
8,107
(29,687)
63,711
34,024
168,288
—
(6,557)
311
117,443
(1,763)
(6,364)
(30,334)
11,549
(1,799)
1,589
19,929
(970)
(1,407)
180,137
(25,811)
(69,755)
(32,426)
—
124,039
46,867
(32,591)
(19,940)
—
5,900
(15,870)
(3,405)
(1,821)
(24,813)
(94,861)
—
—
—
(31,068)
(105,266)
—
(4,214)
15,000
—
2
(5,811)
(15,456)
(2,313)
99,730
(144,257)
—
11,067
52,644
63,711
$
172,301
—
(14,613)
(3,590)
56,940
862
(7,912)
(21,741)
3,233
489
5,186
12,272
2,921
(4,187)
164,751
(17,250)
(11,258)
(35,074)
—
80,224
12,480
(40,632)
—
112
1,356
(5,129)
(8,282)
(1,330)
(24,783)
(77,252)
(25,493)
115,000
—
(33,781)
(331,295)
(7,000)
(5,760)
59,769
—
4,854
(8,356)
—
1,473
166,652
(141,189)
—
(1,221)
53,865
52,644
$
$
The accompanying notes are an integral part of these consolidated financial statements.
64
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(1)
The Company
Lexington Realty Trust (together with its consolidated subsidiaries, except when the context only applies to the parent entity,
the “Company”) is a self-managed and self-administered Maryland statutory real estate investment trust (“REIT”) that
invests in and acquires, owns, finances and manages a geographically diversified portfolio of predominately single-tenant
office, industrial and retail properties. The Company also provides investment advisory and asset management services to
investors in the single-tenant area. As of December 31, 2012, the Company had equity ownership interests in approximately
220 consolidated properties located in 41 states. As of December 31, 2011, the Company had equity ownership interests
in approximately 185 consolidated properties in 39 states. A majority of the real properties in which the Company had an
interest are generally subject to net leases or similar leases where the tenant pays all or substantially all of the cost, including
cost increases, for real estate taxes, insurance, utilities and ordinary maintenance of the property. However, certain leases
provide that the landlord is responsible for certain operating expenses.
The Company believes it has qualified as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).
Accordingly, the Company will not be subject to federal income tax, provided that distributions to its shareholders equal at
least the amount of its REIT taxable income as defined under the Code. The Company is permitted to participate in certain
activities from which it was previously precluded in order to maintain its qualification as a REIT, so long as these activities
are conducted in entities which elect to be treated as taxable REIT subsidiaries (“TRS”) under the Code. As such, the TRS
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, (2) operating partnerships 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 (“OP units”) or (3) Lexington Realty
Advisors, Inc. (“LRA”), a wholly-owned TRS. As of December 31, 2012, the Company controlled two operating
partnerships: (1) Lepercq Corporate Income Fund L.P. (“LCIF”) and (2) Lepercq Corporate Income Fund II L.P. (“LCIF
II”). 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.
(2)
Summary of Significant Accounting Policies
Basis of Presentation and Consolidation. The Company's consolidated financial statements are prepared on the accrual
basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”). The financial statements
reflect the accounts of the Company and its consolidated subsidiaries. The Company consolidates its wholly-owned
subsidiaries, partnerships and joint ventures which it controls (i) through voting rights or similar rights or (ii) by means
other than voting rights if the Company is the primary beneficiary of a variable interest entity ("VIE"). Entities which the
Company does not control and entities which are VIEs in which the Company is not the primary beneficiary are accounted
for under appropriate GAAP.
If an investment is determined to be a VIE, the Company performs an analysis to determine if the Company is the primary
beneficiary of the VIE. GAAP requires a VIE to be consolidated by its primary beneficiary. The primary beneficiary is the
party that has a controlling financial interest in an entity. In order for a party to have a controlling financial interest in an
entity, it must have (1) the power to direct the activities of a VIE that most significantly impact the entity's economic
performance and (2) the obligation to absorb losses or the right to receive benefits of an entity that could potentially be
significant to the VIE.
Consolidated Variable Interest Entity. The Company's consolidated VIE was determined to be a VIE primarily because the
entity's equity holders' obligation to absorb losses is protected. The Company determined that it was the primary beneficiary
of the VIE because it has a controlling financial interest in the entity.
65
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company's wholly-owned entity which owns an office building in Greenville, South Carolina is a VIE and is consolidated
by the Company. The tenant has an option to purchase the property on December 31, 2014 at fair market value, but not for
less than $10,710 and not for greater than $11,550. If the tenant does not exercise the purchase option, the Company has
the right to require the tenant to purchase the property for $10,710.
Non-Consolidated Variable Interest Entities. At December 31, 2012 and 2011, the Company held variable interests in certain
non-consolidated VIEs; however, the Company was not the primary beneficiary of these VIEs as the Company does not
have a controlling financial interest in the entities. The Company has certain acquisition commitments and/ or acquisition,
development and construction arrangements with VIEs. The Company is obligated to fund certain amounts as discussed
in note 4.
Earnings Per Share. Basic net income (loss) per share is computed by dividing net income (loss) reduced by preferred
dividends and amounts allocated to certain non-vested share-based payment awards, if applicable, by the weighted-average
number of common shares outstanding during the period. Diluted net income (loss) per share amounts are similarly computed
but include the effect, when dilutive, of in-the-money common share options, OP units and put options of certain convertible
securities.
Use of Estimates. Management has made a number of significant estimates and assumptions relating to the reporting of
assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses
to prepare these consolidated financial statements in conformity with GAAP. These estimates and assumptions are based
on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis
using historical experience and other factors, including the current economic environment. The current economic
environment has increased the degree of uncertainty inherent in these estimates and assumptions. Management adjusts such
estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of accounts
receivable, allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed, the
determination of VIEs and which entities should be consolidated, the determination of impairment of long-lived assets,
loans receivable and equity method investments, valuation of derivative financial instruments and the useful lives of long-
lived assets. Actual results could differ materially from those estimates.
Fair Value Measurements. The Company follows the guidance in the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("Topic 820"), to
determine the fair value of financial and non-financial instruments. Topic 820 defines fair value, establishes a framework
for measuring fair value in GAAP and expands disclosures about fair value measurements. Topic 820 establishes a fair value
hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 - quoted
prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 - observable
prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 - unobservable
inputs, which are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level
1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as
considering counterparty credit risk. The Company has formally elected to apply the portfolio exception within Topic 820
with respect to measuring counterparty risk for all of its derivative transactions subject to master netting arrangements.
Revenue Recognition. The Company recognizes lease revenue on a straight-line basis over the term of the lease unless
another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the
leased property. Renewal options in leases with rental terms that are lower than those in the primary term are excluded from
the calculation of straight-line rent if the renewals are not reasonably assured. If the Company funds tenant improvements
and the improvements are deemed to be owned by the Company, revenue recognition will commence when the improvements
are substantially completed and possession or control of the space is turned over to the tenant. If the Company determines
that the tenant allowances are lease incentives, the Company commences revenue recognition when possession or control
of the space is turned over to the tenant for tenant work to begin. The lease incentive is recorded as a deferred expense and
amortized as a reduction of revenue on a straight-line basis over the respective lease term. The Company recognizes lease
termination fees as rental revenue in the period received and writes off unamortized lease-related intangible and other lease-
related account balances, provided there are no further Company obligations under the lease. Otherwise, such fees and
balances are recognized on a straight-line basis over the remaining obligation period with the termination payments being
recorded as a component of rent receivable-deferred or deferred revenue on the Consolidated Balance Sheets.
66
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Gains on sales of real estate are recognized based upon the specific timing of the sale as measured against various criteria
related to the terms of the transactions and any continuing involvement associated with the properties. If the sales criteria
are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the
sales criteria are met. To the extent the Company sells a property and retains a partial ownership interest in the property,
the Company recognizes gain to the extent of the third-party ownership interest.
Accounts Receivable. The Company continuously monitors collections from tenants and makes a provision for estimated
losses based upon historical experience and any specific tenant collection issues that the Company has identified. As of
December 31, 2012 and 2011, the Company's allowance for doubtful accounts was not significant.
Purchase Accounting and Acquisition of Real Estate. The fair value of the real estate acquired, which includes the impact
of fair value adjustments for assumed mortgage debt related to property acquisitions, is allocated to the acquired tangible
assets, consisting of land, building and improvements and identified intangible assets and liabilities, consisting of the value
of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each
case on their fair values. Acquisition costs are expensed as incurred and are included in property operating expense in the
accompanying Consolidated Statement of Operations. Also, noncontrolling interests acquired are recorded at estimated fair
market value.
The fair value of the tangible assets of an acquired property (which includes land, building and improvements and fixtures
and equipment) is determined by valuing the property as if it were vacant. The “as-if-vacant” value is then allocated to land
and building and improvements based on management's determination of relative fair values of these assets. Factors
considered by management in performing these analyses include an estimate of carrying costs during the expected lease-
up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs,
management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during
the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases
including leasing commissions.
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-
market lease values are recorded based on the difference between the current in-place lease rent and management's estimate
of current market rents. Below-market lease intangibles are recorded as part of deferred revenue and amortized into rental
revenue over the non-cancelable periods and bargain renewal periods of the respective leases. Above-market leases are
recorded as part of intangible assets and amortized as a direct charge against rental revenue over the non-cancelable portion
of the respective leases.
The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationship values, is
measured by the excess of (1) the purchase price paid for a property over (2) the estimated fair value of the property as if
vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationship
values based on management's evaluation of the specific characteristics of each tenant's lease. The value of in-place leases
is amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of the respective leases.
The value of tenant relationships are amortized to expense over the applicable lease term plus expected renewal periods.
Depreciation is determined by the straight-line method over the remaining estimated economic useful lives of the properties.
The Company generally depreciates its real estate assets over periods ranging up to 40 years.
Impairment of Real Estate. The Company evaluates the carrying value of all tangible and intangible real estate assets held
for investment for possible impairment when an event or change in circumstance has occurred that indicates its carrying
value may not be recoverable. The evaluation includes estimating and reviewing anticipated future undiscounted cash flows
to be derived from the asset. If such cash flows are less than the asset's carrying value, an impairment charge is recognized
to the extent by which the asset's carrying value exceeds the estimated fair value, which may be below the balance of any
non-recourse financing. Estimating future cash flows and fair values is highly subjective and such estimates could differ
materially from actual results.
67
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Investments in Non-Consolidated Entities. The Company accounts for its investments in 50% or less owned entities under
the equity method, unless consolidation is required. If the Company's investment in the entity is insignificant and the
Company has no influence over the control of the entity then the entity is accounted for under the cost method.
Impairment of Equity Method Investments. The Company assesses whether there are indicators that the value of its equity
method investments may be impaired. An impairment charge is recognized only if the Company determines that a decline
in the value of the investment below its carrying value is other-than-temporary. The assessment of impairment is highly
subjective and involves the application of significant assumptions and judgments about the Company's intent and ability to
recover its investment given the nature and operations of the underlying investment, including the level of the Company's
involvement therein, among other factors. To the extent an impairment is deemed to be other-than-temporary, the loss is
measured as the excess of the carrying amount of the investment over the estimated fair value of the investment.
Loans Receivable. Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net
of unamortized loan origination costs and fees, loan purchase discounts, and net of an allowance for loan losses when such
loan is deemed to be impaired. Loan origination costs and fees and loan purchase discounts are amortized over the term of
the loan. The Company considers a loan impaired when, based upon current information and events, it is probable that it
will be unable to collect all amounts due for both principal and interest according to the contractual terms of the loan
agreement. Significant judgments are required in determining whether impairment has occurred. The Company performs
an impairment analysis by comparing either the present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's observable current market price or the fair value of the underlying collateral to the net carrying value
of the loan, which may result in an allowance and corresponding loan loss charge. Interest income is recorded on a cash
basis for impaired loans.
Acquisition, Development and Construction Arrangements. 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 Consolidated Balance Sheets. In these cases, no interest income is recorded on the loan
receivable and the Company records capitalized interest during the construction period. In arrangements where the Company
engages a developer to construct a property or provide funds to a tenant to develop a property, the Company will capitalize
the funds provided to the developer/tenant and internal costs of interest and real estate taxes, if applicable, during the
construction period.
Properties Held For Sale. Assets and liabilities of properties that meet various held for sale criteria, including whether it is
probable that a sale will occur within 12 months, are presented separately in the Consolidated Balance Sheets, with assets
and liabilities being separately stated. The operating results of these properties are reflected as discontinued operations in
the Consolidated Statements of Operations. Properties classified as held for sale are carried at the lower of net carrying
value or estimated fair value less costs to sell and depreciation and amortization are no longer recognized. Properties that
do not meet the held for sale criteria are accounted for as operating properties.
Deferred Expenses. Deferred expenses consist primarily of debt and leasing costs. Debt costs are amortized using the straight-
line method, which approximates the interest method, over the terms of the debt instruments and leasing costs are amortized
over the term of the related lease.
Derivative Financial Instruments. The Company accounts for its interest rate swap agreements in accordance with FASB
ASC Topic 815, Derivatives and Hedging ("Topic 815"). In accordance with Topic 815, these agreements are carried on
the balance sheet at their respective fair values, as an asset if fair value is positive, or as a liability if fair value is negative.
If the interest rate swap is designated as a cash flow hedge, the effective portion of the interest rate swap's change in fair
value is reported as a component of other comprehensive income (loss); the ineffective portion, if any, is recognized in
earnings as an increase or decrease to interest expense.
68
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Upon entering into hedging transactions, the Company documents the relationship between the interest rate swap agreement
and the hedged item. The Company also documents its risk-management policies, including objectives and strategies, as
they relate to its hedging activities. The Company assesses, both at inception of a hedge and on an on-going basis, whether
or not the hedge is highly effective. The Company will discontinue hedge accounting on a prospective basis with changes
in the estimated fair value reflected in earnings when (1) it is determined that the derivative is no longer effective in offsetting
cash flows of a hedged item (including forecasted transactions), (2) it is no longer probable that the forecasted transaction
will occur or (3) it is determined that designating the derivative as an interest rate swap is no longer appropriate. The
Company does and may continue to utilize interest rate swap and cap agreements to manage interest rate risk, but does not
anticipate entering into derivative transactions for speculative trading purposes.
Stock Compensation. The Company maintains an equity participation plan. Non-vested share grants generally vest either
based upon (1) time, (2) performance and/or (3) market conditions. Options granted under the plan in 2010 vest over a five-
year period and expire ten years from the date of grant. Options granted under the plan in 2008 vest upon attainment of
certain market performance measures and expire ten years from the date of grant. All share-based payments to employees,
including grants of employee stock options, are recognized in the Consolidated Statements of Operations based on their
fair values.
Tax Status. The Company has made an election to qualify, and believes it is operating so as to qualify, as a REIT for federal
income tax purposes. Accordingly, the Company generally will not be subject to federal income tax, provided that
distributions to its shareholders equal at least the amount of its REIT taxable income as defined under Sections 856 through
860 of the Code.
The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain
its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT
subsidiaries under the Code. As such, the Company is subject to federal and state income taxes on the income from these
activities.
Income taxes, primarily related to the Company's taxable REIT subsidiaries, are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or settled.
Cash and Cash Equivalents. The Company considers all highly liquid instruments with original maturities of three months
or less from the date of purchase to be cash equivalents.
Restricted Cash. Restricted cash is comprised primarily of cash balances held in escrow with lenders.
Foreign Currency. The Company determined that the functional currency of its former foreign operation, which was sold
in 2010, was the respective local currency. As such, assets and liabilities of the Company's former foreign operation was
translated using the period-end exchange rates, and revenues and expenses were translated using the exchange rate as
determined throughout the period. Unrealized gains or losses resulting from translation are included in accumulated other
comprehensive income (loss) and as a separate component of the Company's shareholders' equity.
Environmental Matters. Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations,
an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at,
on, in or under such property as well as certain other potential costs relating to hazardous or toxic substances. These liabilities
may include government fines, penalties and damages for injuries to persons and adjacent property. Such laws often impose
liability without regard to whether the owner knew of, or was responsible for, the presence or disposal of such substances.
Although most of the tenants of properties in which the Company has an interest are primarily responsible for any
environmental damage and claims related to the leased premises, in the event of the bankruptcy or inability of the tenant
of such premises to satisfy any obligations with respect to such environmental liability, or if the tenant is not responsible,
the Company's property owner subsidiary may be required to satisfy any such obligations, should they exist. In addition,
the property owner subsidiary, as the owner of such a property, may be held directly liable for any such damages or claims
irrespective of the provisions of any lease. As of December 31, 2012, the Company was not aware of any environmental
matter relating to any of its investments that would have a material impact on the consolidated financial statements.
69
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Segment Reporting. The Company operates generally in one industry segment, single-tenant real estate assets.
Reclassifications. Certain amounts included in prior years' financial statements have been reclassified to conform to the
current year presentation, including certain statement of operations captions including activities for properties sold during
2012, which are presented as discontinued operations.
(3)
Earnings Per Share
A significant portion of the Company's non-vested share-based payment awards are considered participating securities and
as such, the Company is required to use the two-class method for the computation of basic and diluted earnings per share.
Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the
security has a contractual obligation to share in the losses. The non-vested share-based payment awards are not allocated
losses as the awards do not have a contractual obligation to share in losses of the Company.
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations
for each of the years in the three-year period ended December 31, 2012:
BASIC
Income (loss) from continuing operations attributable to common
shareholders
Income (loss) from discontinued operations attributable to common
shareholders
Net income (loss) attributable to common shareholders
Weighted-average number of common shares outstanding
Income (loss) per common share:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss) attributable to common shareholders
2012
2011
2010
$
$
152,808
$
(44,703) $
(37,008)
4,041
156,849
$
(59,018)
(103,721) $
(21,088)
(58,096)
159,109,424
152,473,336
130,985,809
$
$
0.96
0.03
0.99
$
$
(0.29) $
(0.39)
(0.68) $
(0.28)
(0.16)
(0.44)
70
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
DILUTED:
Income (loss) from continuing operations attributable to common
shareholders
Impact of assumed conversions:
Share Options
Operating Partnership Units
6.00% Convertible Guaranteed Notes
Income (loss) from continuing operations attributable to common
shareholders
Income (loss) from discontinued operations attributable to common
shareholders
Impact of assumed conversions:
Operating Partnership Units
Income (loss) from discontinued operations attributable to common
shareholders
$
152,808
$
(44,703) $
(37,008)
—
1,371
8,953
—
—
—
—
—
—
163,132
(44,703)
(37,008)
4,041
(59,018)
(21,088)
(179)
3,862
—
—
(59,018)
(103,721) $
(21,088)
(58,096)
Net income (loss) attributable to common shareholders
$
166,994
$
Weighted-average common shares outstanding - basic
159,109,424
152,473,336
130,985,809
Effect of dilutive securities:
Share Options
Operating Partnership Units
6.00% Convertible Guaranteed Notes
306,449
4,438,708
15,805,245
—
—
—
—
—
—
Weighted-average common shares outstanding
179,659,826
152,473,336
130,985,809
Income (loss) per common share:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss) attributable to common shareholders
$
$
0.91
0.02
0.93
$
$
(0.29) $
(0.39)
(0.68) $
(0.28)
(0.16)
(0.44)
For per common share amounts, all incremental shares are considered anti-dilutive for periods that have a loss from continuing
operations attributable to common shareholders. In addition, other common share equivalents may be anti-dilutive in certain
periods.
During 2012 and 2011, the Company repurchased and retired an aggregate 34,800 and 125,000 shares, respectively, of
6.50% Series C Cumulative Convertible Preferred Stock ("Series C Preferred") at a $229 and $833, discount to the historical
cost basis, respectively. This discount constitutes a deemed negative dividend, offsetting other dividends, and is accretive
to common shareholders. In addition, the Company repurchased and retired an aggregate of 2,740,874 and 419,126 shares,
respectively, of 8.05% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred") at a $2,346 and $95, premium
to historical cost, respectively. This premium is treated as a deemed dividend. Accordingly, net income (loss) was adjusted
for these dividends to arrive at net income (loss) attributable to common shareholders for 2012 and 2011.
71
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(4)
Investments in Real Estate and Real Estate Under Construction
The Company's real estate, net, consists of the following at December 31, 2012 and 2011:
Real estate, at cost:
Buildings and building improvements
Land, land estates and land improvements
Fixtures and equipment
Construction in progress
Real estate intangibles:
In-place lease values
Tenant relationships
Above-market leases
Investments in real estate under construction
Accumulated depreciation and amortization(1)
Real estate, net
2012
2011
$
$
2,969,050
581,199
7,705
6,512
401,503
179,655
104,756
65,122
4,315,502
(1,150,417)
3,165,085
$
$
2,638,626
522,039
7,525
4,056
327,589
152,390
66,939
34,529
3,753,693
(1,006,717)
2,746,976
(1)
Includes accumulated amortization of real estate intangible assets of $412,349 and $368,349 in 2012 and 2011, respectively. The estimated amortization
of the above real estate intangible assets for the next five years is $58,797 in 2013, $42,539 in 2014, $32,799 in 2015, $26,457 in 2016 and $23,056
in 2017.
In addition, the Company had below-market leases, net of accretion, which are included in deferred revenue, of $71,513
and $78,806, respectively as of December 31, 2012 and 2011. The estimated accretion for the next five years is $7,378 in
2013, $5,901 in 2014, $4,838 in 2015, $3,729 in 2016 and $3,285 in 2017.
The Company, through property owner subsidiaries, completed the following acquisitions and build-to-suit transactions
during 2012 and 2011:
2012:
Property
Type
Office
Office
Office
Office
Retail
Office
Office
$
$
$
$
$
$
Location
Acquisition/
Completion
Date
Initial Cost
Basis
Lease
Expiration
Huntington, WV
January 2012
Florence, SC
February 2012
12,558
11/2026
5,094
02/2024
Industrial Missouri City, TX April 2012
23,000
04/2032
$ 14,555
Industrial Shreveport, LA
Valdosta, GA(1)
Retail
Jessup, PA
June 2012
August 2012
August 2012
Saint Joseph, MO September 2012 $
Opelika, AL(1)
Phoenix, AZ
December 2012 $
November 2012 $
12,941
03/2022
7,791
08/2027
24,917
08/2027
17,571
06/2027
7,978
11/2027
53,200
12/2029
Eugene, OR
December 2012 $
17,558
11/2027
$
182,608
$ 31,602
Weighted-average life of intangible assets (years)
(1) Incurred leasing costs of $488 for Valdosta and $355 for Opelika.
72
Land and
Land
Estate
$
$
1,368
774
$
$
$
$
$
$
$
1,078
2,128
2,520
607
1,446
5,585
1,541
Real Estate Intangibles
Building and
Improvements
Lease
in-place
Value
Tenant
Relationships
Value
$
$
$
$
$
$
$
$
$
$
$
9,527
$ 1,405
3,629
$
505
5,895
$ 2,135
10,134
$ 1,590
$
$
$
$
5,663
$ — $
17,656
$ 3,336
14,004
$ 2,528
$
$
6,532
$ — $
36,099
$ 8,956
13,099
$ 2,414
122,238
$22,869
$
$
$
258
186
415
139
—
1,405
432
—
2,560
504
5,899
15.7
16.0
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
2011:
Property
Type
Location
Acquisition/
Consolidation
Date
Initial Cost
Basis
Lease
Expiration
Land
Building and
Improvements
Real Estate Intangibles
Above
Market
Lease Value
Lease in-
place Value
Tenant
Relationships
Value
Industrial
Byhalia, MS
May 2011
Office
Office (1)
Rock Hill, SC
May 2011
Allen, TX
May 2011
Industrial
Shelby, NC
June 2011
Office
Columbus, OH July 2011
Industrial
Office (2)
Chillicothe, OH October 2011
Aurora, IL
October 2011
$
$
$
$
$
$
$
27,492
03/2026
7,395
08/2021
36,304
03/2018
23,470
05/2031
6,137
07/2027
12,110
06/2026
15,300
09/2017
$
$
$
$
$
$
$
1,005
551
5,591
1,421
433
736
3,063
$ 128,208
$ 12,800
$
$
$
$
$
$
$
$
21,483
4,313
21,607
18,917
2,773
9,021
5,943
84,057
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
1,272
1,272
$
$
4,097
1,853
5,127
2,712
2,205
1,859
3,616
21,469
$
$
$
$
$
$
$
$
907
678
3,979
420
726
494
1,406
8,610
Weighted-average life of intangible assets (years)
6.0
11.8
9.7
(1) The Company acquired the property from Net Lease Strategic Assets Fund L.P. pursuant to a purchase option.
(2) Obtained control of joint venture investment (see note 9).
The Company recognized aggregate acquisition expenses of $947 and $386 in 2012 and 2011, respectively, which are
included in property operating expenses within the Company's Consolidated Statements of Operations.
The Company is engaged in various forms of build-to-suit development activities. The Company, through lender subsidiaries
and property owner subsidiaries, may enter into the following acquisition, development and construction arrangements: (1)
lend funds to construct build-to-suit projects subject to a single-tenant lease and agree to purchase the properties upon
completion of construction and commencement of a single-tenant lease, (2) hire developers to construct built-to-suit projects
on owned properties leased to single tenants, (3) fund the construction of build-to-suit projects on owned properties pursuant
to the terms in single-tenant lease agreements or (4) enter into purchase and sale agreements with developers to acquire
single-tenant build-to-suit properties upon completion. As of December 31, 2012, the Company had the following
development arrangements outstanding:
Location
Long Island City, NY(1)
Denver, CO
Tuscaloosa, AL
Property
Type
Industrial
Office
Retail
Square Feet
143,000
163,000
42,000
Rantoul, IL
Industrial
813,000
1,161,000
$
$
$
$
$
Expected
Maximum
Commitment/
Contribution
($ millions)
Estimated
Purchase Price/
Completion Cost
($ millions)
Lease Term
(Years)
Estimated
Completion Date
46.7
38.4
8.8
42.6
136.5
$
$
$
$
$
55.5
38.4
8.8
42.6
145.3
15
15
15
20
1Q 13
2Q 13
2Q 13
4Q 13
(1) Joint venture investment. The Company has guaranteed completion to the ground owner. The guarantee obligation was valued at $1,500 and is
included in accounts payable and other liabilities in the Consolidated Balance Sheet. In addition, the Company may loan a maximum of $4,398 to
the joint venture under certain circumstances. The difference between the Company's expected contribution and the estimated completion cost
represents the joint venture partner's equity.
The Company has variable interests in certain developer entities constructing the facilities but is not the primary beneficiary
of the entities as the Company does not have a controlling financial interest. As of December 31, 2012 and 2011, the
Company's aggregate investment in development arrangements was $65,122 and $34,529, respectively, which includes
$1,291 and $619 of interest capitalized during 2012 and 2011, respectively, and is presented as investments in real estate
under construction in the accompanying Consolidated Balance Sheets.
73
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
On September 1, 2012, the Company, together with an operating partnership subsidiary, acquired the remaining common
equity interest in Net Lease Strategic Assets Fund L.P. (“NLS”) from Inland American (Net Lease) Sub, LLC (“Inland”)
that the Company did not already own for a cash payment of $9,438 and the assumption of all outstanding liabilities.
Immediately prior to the acquisition, the Company owned 15% of NLS's common equity and 100% of NLS's preferred
equity and its investment balance in NLS was $40,047. At the date of acquisition, NLS owned 41 properties totaling 5.8
million square feet in 23 states, plus a 40% tenant-in-common interest in an office property. The Company's investment in
NLS had previously been accounted for under the equity method and is now consolidated. The acquisition resulted in a
remeasurement of the net assets acquired to fair value. The Company engaged an independent third party to determine the
fair value of the assets acquired and liabilities assumed.
The following table summarizes the allocation of the fair value of amounts recognized for each major class of assets and
liabilities:
Real estate assets
Lease related intangible assets
Cash
Other assets
Total acquired assets
$
Secured debt
Other liabilities, including below-market leases
Total assumed liabilities
Fair value of acquired net assets (represents 100% interest)
$
325,310
124,330
8,107
36,179
493,926
252,517
23,686
276,203
217,723
The Company recognized a gain on the transaction in the Consolidated Statement of Operations of $167,864 primarily
related to the revaluation of the Company's equity interest in NLS for the difference between its carrying value in NLS and
the fair value of its ownership interest at acquisition. The noncontrolling interest share of the fair value of the net assets
acquired was $373.
In 2007 and 2008, the Company recognized $19,422 and $31,806, respectively, in gains on sales of properties relating to
the transfer of properties to NLS. In 2012, the Company determined that these gains should have been deferred and recognized
as a basis adjustment to the Company's equity investment in NLS. Accordingly, the Company has recorded an adjustment
to increase accumulated distributions in excess of net income and decrease investment in and advances to non-consolidated
entities in the prior period's balance sheet and statements of changes in equity presented in the accompanying Consolidated
Financial Statements by $51,228. The Company assessed the materiality of the adjustment and determined the amount was
immaterial to previously reported financial statements. The adjustment has no impact on the Company's cash flows or
liquidity.
Intangible assets and liabilities recorded in connection with the above acquisition are set forth as follows:
In-place leases
Tenant relations
Above-market leases
Total intangible assets acquired
Below-market leases
Weighted
Average
Amortization
Period (in Years)
6.2
4.6
8.4
2.7
$
$
$
59,819
24,828
39,683
124,330
1,529
The Company recognized gross revenues from continuing operations of $14,504 and a net loss of $1,667 from NLS properties
since consolidation of NLS properties on September 1, 2012.
74
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The following unaudited condensed consolidated pro forma information is presented as if the Company acquired the
remaining equity in NLS on January 1, 2011. The information excludes activity that is non-recurring and not representative
of future activity, primarily the gain on acquisition of $167,864 and acquisition costs of $230 for 2012. The information
presented below is not necessarily indicative of what the actual results of operations would have been had the transaction
been completed on January 1, 2011, nor does it purport to represent the Company's future operations:
Gross revenues
Net income (loss) attributable to
Lexington Realty Trust shareholders
Net loss attributable to common
shareholders
Net loss per common share - basic and
diluted
2012
$ 372,603
2011
$ 356,918
$
8
$ (111,787)
$ (22,985)
$ (135,924)
$
(0.14)
$
(0.89)
(5)
Sales of Real Estate and Discontinued Operations
The Company disposed of its interests in 14 properties (excluding its interest in Pemlex LLC - see note 9) and a 6.9-acre
land parcel in 2012, 17 properties in 2011 and 13 properties in 2010. For the years ended December 31, 2012, 2011 and
2010, these sales generated aggregate net proceeds of $142,022, $124,039 and $80,224, respectively, which resulted in
gains on sales of $13,291, $6,557 and $14,613, respectively. For the years ended December 31, 2012, 2011 and 2010, the
Company recognized net debt satisfaction gains (charges) relating to these properties of $(178), $(606) and $2,924,
respectively. These gains (charges) are included in discontinued operations.
At December 31, 2012 and 2011, the Company had no properties classified as held for sale.
The following presents the operating results for the properties sold and held for sale during the years ended December 31,
2012, 2011 and 2010:
Total gross revenues
Pre-tax net income (loss), including gains on sales
(6)
Impairment of Real Estate Investments
Year Ending December 31,
2012
2011
2010
$
$
7,892
5,943
$
$
22,718
$
(70,591) $
46,572
(29,339)
The Company assesses on a regular basis whether there are any indicators that the carrying value of real estate assets may
be impaired. Potential indicators may include an increase in vacancy at a property, tenant reduction in utilization of a
property, tenant financial instability and the potential sale 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 2012, 2011 and 2010, the Company recognized aggregate impairment charges of $4,262, $35,946 and $2,955,
respectively, on real estate assets classified in continuing operations. The Company has explored the possible disposition
of some non-core properties, including retail, underperforming and multi-tenant properties and determined that the expected
undiscounted cash flows based upon revised estimated holding periods of certain of these properties were below the current
carrying values. Accordingly, the Company reduced the carrying value of these properties to their estimated fair values.
During 2012, 2011 and 2010, the Company recognized $5,707, $81,497 and $50,061, respectively, of impairment charges
in discontinued operations, relating to real estate assets that were ultimately disposed of below their carrying value.
During 2010, the Company recognized an other-than-temporary impairment of $168 on a bond investment secured by real
estate assets.
75
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(7)
Loans Receivable
As of December 31, 2012 and 2011, the Company's loans receivable, including accrued interest and net of origination fees
and loan loss reserves are comprised primarily of first and second mortgage loans and mezzanine loans on real estate
aggregating $72,540 and $66,619, respectively. The loans bear interest, including imputed interest, at rates ranging from
4.6% to 20.0% and mature at various dates through 2022.
The following is a summary of our loans receivable as of December 31, 2012 and 2011:
Loan
Norwalk, CT(2)
Homestead, FL
Schaumburg, IL(3)
Westmont, IL
Southfield, MI
New Kingstown, PA
Austin, TX
Other
Loan carrying-value(1)
12/31/2012
12/31/2011
Interest Rate
Maturity Date
$
3,479
$
8,036
21,885
26,902
7,364
—
2,038
2,836
$
72,540
$
—
—
21,458
27,228
8,065
2,941
1,738
5,189
66,619
7.50%
7.50%
20.00%
6.45%
4.55%
7.78%
16.00%
8.00%
11/2014
08/2014
01/2012
10/2015
02/2015
01/2013
10/2018
2021-2022
(1) Loan carrying value includes accrued interest and is net of origination costs and fee eliminations, if any.
(2) The Company is committed to lend up to $32,600.
(3) Loan is in default. The Company did not record interest of $2,647 in 2012 representing the interest earned since default. The Company believes the
office property collateral has an estimated fair value in excess of the Company's investment and the Company has initiated foreclosure proceedings.
The Company has two types of financing receivables: loans receivable and a capitalized financing lease. The Company
determined that its financing receivables operate within one portfolio segment as they are both within the same industry
and use the same impairment methodology. The Company's loans receivable are secured by commercial real estate assets
and the capitalized financing lease is for a commercial office property located in Greenville, South Carolina. In addition,
the Company assesses all financing receivables for impairment, when warranted, based on an individual analysis of each
receivable.
The Company's financing receivables operate within one class of financing receivables as these assets are collateralized by
commercial real estate and similar metrics are used to monitor the risk and performance of these assets. The Company's
management uses credit quality indicators to monitor financing receivables such as quality of collateral, the underlying
tenant's credit rating and collection experience. As of December 31, 2012, the financing receivables were performing as
anticipated other than the Schaumburg loan as discussed above and there were no other significant delinquent amounts
outstanding.
During 2010, the Company recorded a loan loss of $3,756 on a loan receivable secured by the property in Wilsonville,
Oregon. During 2011, the borrower defaulted on the loan and the Company completed a deed-in-lieu of foreclosure and
sold the property in 2012.
76
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(8)
Fair Value Measurements
The following tables present the Company's assets and liabilities from continuing operations measured at fair value on a
recurring basis as of December 31, 2012 and 2011 and non-recurring basis during the year ended December 31, 2012 and
2011, aggregated by the level in the fair value hierarchy within which those measurements fall:
Description
2012
(Level 1)
(Level 2)
(Level 3)
Interest rate swap liability
Impaired real estate assets*
$
$
(6,556) $
$
3,327
— $
— $
(6,556) $
— $
—
3,327
Fair Value Measurements Using
*Represents a non-recurring fair value measurement.
Description
2011
(Level 1)
(Level 2)
(Level 3)
Interest rate swap liability
Impaired real estate assets*
$
$
(3,236) $
$
133,220
— $
— $
(3,236) $
— $
—
133,220
Fair Value Measurements Using
*Represents a non-recurring fair value measurement.
The table below sets forth the carrying amounts and estimated fair values of the Company's financial instruments as of
December 31, 2012 and 2011:
Assets
Loans Receivable (Level 3)
Liabilities
Debt (Level 3)
As of December 31, 2012
As of December 31, 2011
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
72,540
$
61,734
$
66,619
$
54,179
$ 1,878,208
$ 1,835,157
$ 1,662,375
$ 1,533,205
The majority of the inputs used to value the Company's interest rate swap liability 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
swap liability 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 December 31, 2012 and 2011, the Company determined that the credit valuation
adjustment relative to the overall interest rate swap liability is not significant. As a result, the entire interest rate swap liability
has been classified in Level 2 of the fair value hierarchy.
The Company estimates the fair value of its 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 sales data for similar assets or
discounted cash flow models, which primarily rely on Level 3 inputs. The cash flow models include estimated cash inflows
and outflows over a specified holding period. These cash flows may include contractual rental revenues, projected future
rental revenues and expenses and forecasted tenant improvements and lease commissions based upon market conditions
determined through discussion with local real estate professionals, experience the Company has with its other owned
properties in such markets and expectations for growth. Capitalization rates and discount rates utilized in these models are
estimated by management based upon rates that management believes to be within a reasonable range of current market
rates for the respective properties based upon an analysis of factors such as property and tenant quality, geographical location
and local supply and demand observations. To the extent the Company under estimates forecasted cash outflows (tenant
improvements, lease commissions and operating costs) or over estimates forecasted cash inflows (rental revenue rates), the
estimated fair value of its real estate assets could be overstated.
77
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company estimates the fair values of its loans receivable by using an estimated 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 value of the underlying collateral. The fair value of the Company's debt is estimated by using a 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 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.
(9)
Investment in and Advances to Non-Consolidated Entities
During 2012, the Company formed two joint ventures in which it has a minority interest. One joint venture acquired a
120,000 square foot retail property in Palm Beach Gardens, Florida for $29,750 which is net-leased for an approximate 15-
year term. The Company has a 36% interest in the venture and provided a $12,000 non-recourse mortgage loan to the venture
which, subsequent to December 31, 2012, was repaid in full.
A second joint venture, in which the Company has a 15% interest, acquired a 100% economic interest in an inpatient
rehabilitation hospital in Humble, Texas for $27,750, which is net-leased for an approximate 17-year term. The acquisition
was partially funded by a non-recourse mortgage with an original principal amount of $15,260, which bears interest at a
fixed rate of 4.7% and matures in May 2017.
Pemlex LLC. In April 2011, the Company made a $14,180 noncontrolling, preferred equity investment in a joint venture,
Pemlex LLC, formed to acquire a 210,000 square foot office property in Aurora, Illinois. The Company was entitled to a
15.0% internal rate of return, including a 9.6% current annual preferred return, on its investment, subject to available cash
proceeds. The Company recorded its investment under the equity method of accounting and during 2011, the Company
recognized $1,344 equity in income from non-consolidated entities relating to its share of income from Pemlex LLC based
upon the hypothetical liquidation of book value method. The Company commenced consolidation of Pemlex LLC in October
2011, as the Company became the managing member of Pemlex LLC.
In July 2012, the Company sold its interest in Pemlex LLC for $13,218 in connection with a restructuring of Pemlex LLC.
In addition, the Company (1) entered into a management agreement with the purchaser that provides for a backstop guaranty
to a third party who delivered a letter of credit in the amount of $2,500 as security for "bad boy" acts under the purchaser's
third-party acquisition financing and (2) agreed to deliver a replacement letter of credit, if necessary, in the amount of $2,500
to the purchaser's lender during the term of the management agreement. No gain or loss was recognized in the transaction
as the investment was sold at its cost basis.
Net Lease Strategic Assets Fund L.P. NLS was a co-investment program with Inland. NLS was established to acquire single-
tenant net-lease specialty real estate in the United States. Inland and the Company owned 85% and 15%, respectively, of
NLS's common equity, and the Company owned 100% of NLS's preferred equity.
During 2012, 2011 and 2010, the Company recognized $12,902, $21,572 and $19,468, respectively, of equity in income
relating to NLS based upon the hypothetical liquidation of book value method. The initial difference between the assets
contributed to NLS and the fair value of the Company's initial equity investment in NLS was $94,723 and was accreted
into income over the estimated useful lives of NLS's assets. During 2012, 2011 and 2010, the Company recorded earnings
of $2,382, $3,599 and $3,636, respectively, related to this difference, which is included in equity in earnings of non-
consolidated entities on the accompanying Consolidated Statements of Operations.
On September 1, 2012, the Company acquired the remaining common equity interest in NLS and the Company now
consolidates NLS (see note 4).
78
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Concord Debt Holdings LLC (“Concord”), Lex-Win Concord LLC (“Lex-Win Concord”), CDH CDO LLC and LW Sofi
LLC. In connection with the Company's merger with Newkirk Realty Trust, Inc. (“Newkirk”), the Company acquired an
interest in a co-investment program, Concord, which owned bonds and loans secured, directly and indirectly, by real estate
assets. The Company contributed its interest in Concord to Lex-Win Concord. During 2009, the Company reduced its
investment in Lex-Win Concord to zero through impairment charges. During 2011, Concord was restructured and as a result
of the restructuring (i) Lex-Win Concord was dissolved and (ii) a new entity, CDH CDO LLC (“CDH CDO”), was created.
The Company made no additional contributions and did not recognize any income or loss as a result of the restructuring.
The Company's investment in these ventures was initially valued at zero and the Company recognized income on the cash
basis. During 2012 and 2011, the Company received aggregate distributions of $885 and $3,954 from all Concord related
entities, respectively, which were recorded as equity in earnings of non-consolidated entities. During 2012, the Company
sold all of its interest in Concord and CDH CDO for $7,000 cash, resulting in a $7,000 gain on sale, which is included in
equity in earnings of non-consolidated entities.
In June 2011, the Company formed an equally owned joint venture with Winthrop, LW Sofi LLC, to acquire the economic
interest in a mezzanine loan owned by Concord. The Company recorded the $5,760 contribution to the joint venture in
investments in and advances to non-consolidated entities. In November 2011, the Company received $7,937 upon full
satisfaction of the mezzanine loan and dissolution of the joint venture.
Other. During 2011, the Company recognized an other-than-temporary impairment charge on a non-consolidated joint
venture acquired in the merger with Newkirk due to a change in the Company's estimate of net proceeds to be received
upon liquidation of the joint venture. Accordingly, the Company recognized a $1,559 impairment charge in equity in earnings
of non-consolidated entities and reduced the carrying value of the investment to $719.
The Company's remaining equity method investments consist of interests in six partnerships, including an entity acquired
in the NLS acquisition, with ownership percentages ranging between 27% and 40%, which own primarily net-leased
properties. All profits, losses and cash flows are distributed in accordance with the respective partnership agreements. The
partnerships are encumbered by $32,039 in mortgage debt (the Company's proportionate share is $11,034) with interest
rates ranging from 5.2% to 10.6% with a weighted-average rate of 7.5% and maturity dates ranging from 2015 to 2016.
LRA earns advisory fees from certain of these non-consolidated entities, including NLS, for services related to acquisitions,
asset management and debt placement. Advisory fees earned from these non-consolidated investments were $875, $804
and $967 for the years ended December 31, 2012, 2011 and 2010, respectively.
(10) Mortgages and Notes Payable
The Company had outstanding mortgages and notes payable of $1,415,961 and $1,366,004 as of December 31, 2012 and
2011, respectively. Interest rates, including imputed rates on mortgages and notes payable, ranged from 3.6% to 8.5% at
December 31, 2012 and the mortgages and notes payable mature between 2013 and 2031. Interest rates, including imputed
rates, ranged from 3.6% to 7.8% at December 31, 2011. The weighted-average interest rate at December 31, 2012 and 2011
was approximately 5.6% and 5.7%, respectively.
In 2012, the Company procured a secured term loan from Wells Fargo Bank, National Association ("Wells Fargo"), as agent.
The term loan was secured by ownership interest pledges by certain subsidiaries that collectively own a borrowing base of
properties. The secured term loan matures in January 2019. The secured term loan requires regular payments of interest
only at interest rates ranging from LIBOR plus 2.00% to 2.85% dependent on the Company's leverage ratio, as defined
therein. Upon the date when the Company obtains an investment grade debt rating from at least two of Standard & Poor’s
Rating Services (“S&P”), Moody’s Investor Services, Inc. (“Moody’s”) and Fitch, Inc. (“Fitch”), the interest rate under the
secured term loan will be dependent on the Company's debt rating. The Company may not prepay any outstanding borrowings
under the secured term loan facility through January 12, 2013, but may prepay outstanding borrowings thereafter at a
premium through January 12, 2016 and at par thereafter. During 2012, the Company entered into interest-rate swap
agreements to fix LIBOR at a weighted-average rate of 1.42% through January 2019 on the $255,000 of outstanding LIBOR-
based borrowings. At December 31, 2012, the Company had $255,000 outstanding under the secured term loan (see note
22).
79
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
In addition, in 2012, the Company refinanced its secured revolving credit facility with a $300,000 secured revolving credit
facility with KeyBank N.A. (“KeyBank”), as agent. The $300,000 secured revolving credit facility bore interest at LIBOR
plus 1.625% to 2.375% based on the Company's leverage ratio, as defined therein. The secured revolving credit facility was
scheduled to mature in January 2015 but could be extended to January 2016, at the Company's option subject to the satisfaction
of certain conditions. The secured revolving credit facility had the same security as the secured term loan. With the consent
of the lenders, the Company could increase the size of the secured revolving credit facility by $225,000 (for a total facility
size of $525,000). The borrowing availability of the secured revolving credit facility was based upon the net operating
income of the properties comprising the borrowing base as defined in the secured revolving credit facility. As of December 31,
2012, no amounts were outstanding under the secured revolving credit facility and the available borrowing under the secured
revolving credit facility was $300,000 less outstanding letters of credit of $3,744. The secured revolving credit facility was
subject to financial covenants which the Company was in compliance with at December 31, 2012. The secured revolving
credit facility was refinanced in February 2013 (see note 22).
The Company had $25,000 and $35,551 secured term loans with KeyBank, which were satisfied in January 2012 and the
Company recognized debt satisfaction charges of $1,578 as a result of the satisfaction.
Included in the Consolidated Statements of Operations, the Company recognized debt satisfaction gains (charges), net,
excluding discontinued operations, of $(16), $45 and $972 for the years ended December 31, 2012, 2011 and 2010,
respectively, due to the satisfaction of mortgages and notes payable other than those disclosed elsewhere in these financial
statements. In addition, the Company capitalized $3,062, $1,792 and $791 in interest for the years ended 2012, 2011 and
2010, respectively.
Mortgages payable and secured loans are generally collateralized by real estate and the related leases. Certain mortgages
payable have yield maintenance or defeasance requirements relating to any prepayments. In addition, certain mortgages are
cross-collateralized and cross-defaulted.
Scheduled principal and balloon payments for mortgages and notes payable for the next five years and thereafter are as
follows:
Year ending
December 31,
2013
2014
2015
2016
2017
Thereafter
Total
272,192
283,460
313,474
167,312
87,162
292,361
1,415,961
$
$
(11)
Convertible Notes, Exchangeable Notes and Trust Preferred Securities
During 2010, the Company issued $115,000 aggregate principal amount of 6.00% Convertible Guaranteed Notes. The
notes pay interest semi-annually in arrears and mature in January 2030. The holders of the notes may require the Company
to repurchase their notes in January 2017, January 2020 and January 2025 for cash equal to 100% of the notes to be
repurchased, plus any accrued and unpaid interest. The Company may not redeem any notes prior to January 2017, except
to preserve its REIT status. As of the date of filing this Annual Report, the notes have a conversion rate of 144.2599
common shares per one thousand principal amount of the notes, representing a conversion price of approximately $6.93
per common share. The conversion rate is subject to adjustment under certain circumstances, including increases in the
Company's dividend rate above a certain threshold and the issuance of stock dividends. The notes are convertible by the
holders under certain circumstances for cash, common shares or a combination of cash and common shares at the
Company's election. The notes are convertible prior to the close of business on the second business day immediately
preceding the stated maturity date, at any time beginning in January 2029 and also upon the occurrence of specified
events. During 2012, $31,104 aggregate principal amount of the notes were converted for 4,487,060 common shares and
an aggregate cash payment of $2,427 plus accrued and unpaid interest. The Company recognized an aggregate debt
satisfaction charge of $7,842 relating to the conversions. Additional notes were converted in January 2013 (see note 22).
80
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
During 2007, the Company issued an aggregate $450,000 of 5.45% Exchangeable Guaranteed Notes due in 2027. These
notes could be put to the Company commencing in 2012 and every five years thereafter through maturity. The notes were
exchangeable by the holders into common shares at $19.49 per share, subject to adjustment upon certain events, including
increases in the Company's rate of dividends above a certain threshold and the issuance of stock dividends. Upon exchange,
the holders of the notes would receive (1) cash equal to the principal amount of the note and (2) to the extent the conversion
value exceeded the principal amount of the note, either cash or common shares at the Company's option. During 2012
and 2010, the Company repurchased and retired all outstanding original principal amount of the notes for cash payments
of $62,150 and $25,493, respectively. This resulted in debt satisfaction charges, net of $44 and $760, respectively, including
write-offs of $20 and $768, respectively, of the debt discount and deferred financing costs.
Below is a summary of additional disclosures related to the 6.00% Convertible Guaranteed Notes and the 5.45%
Exchangeable Guaranteed Notes.
Balance Sheets:
Principal amount of debt component
Unamortized discount
Carrying amount of debt component
Carrying amount of equity component
Effective interest rate
Period through which discount is being amortized,
put date
Aggregate if-converted value in excess of
aggregate principal amount
Statements of Operations:
6.00% Convertible Guaranteed Notes
Coupon interest
Discount amortization
5.45% Exchangeable Guaranteed Notes
Coupon interest
Discount amortization
6.00% Convertible
Guaranteed Notes
December 31,
2012
$
$
$
83,896
(5,769)
78,127
3,654
8.1%
$
December 31,
2011
115,000
(9,851)
105,149
13,134
$
$
8.1%
5.45% Exchangeable
Guaranteed Notes
December 31,
2012
December 31,
2011
$
$
$
— $
—
— $
— $
—%
62,150
(48)
62,102
20,293
7.0%
01/2017
01/2017
—
01/2012
$
42,579
$
7,907
$
— $
—
2012
2011
2010
$
$
$
$
6,634
1,868
8,502
188
34
222
$
$
$
$
6,900
1,938
8,838
3,387
664
4,051
$
$
$
$
6,408
1,776
8,184
3,504
689
4,193
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, were open for redemption at the Company's option commencing
April 2012 and bear interest at a fixed rate of 6.804% through April 2017 and thereafter, at a variable rate of three month
LIBOR plus 170 basis points through maturity. As of December 31, 2012 and 2011, there was $129,120 original principal
amount of Trust Preferred Securities outstanding.
81
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Scheduled principal payments for these debt instruments for the next five years and thereafter are as follows:
Year ending
December 31,
2013
2014
2015
2016
2017(1)
Thereafter
Debt discount
$
$
Total
—
—
—
—
83,896
129,120
213,016
(5,769)
207,247
(1) Although the 6.00% Convertible Guaranteed Notes mature in 2030, the notes can be put to the Company in 2017. See note 22 for subsequent
events.
(12)
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 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.
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 has designated the interest-rate swap agreements with its counterparties as cash flow hedges of the risk of
variability attributable to changes in the LIBOR swap rates on $255,000 of LIBOR-indexed variable-rate secured term
loans. 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. In 2012, the Company settled the 2008 interest-rate swap agreement
with KeyBank for $3,539. The Company had a credit balance of $1,837 in accumulated other comprehensive income at the
settlement date which is being amortized into earnings on a straight-line basis through February 2013.
Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest
expense as interest payments are made on the $255,000 secured term loan. During the next 12 months, the Company estimates
that an additional $2,759 will be reclassified as an increase to interest expense if the swaps remain outstanding.
82
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
As of December 31, 2012, 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
Interest Rate Swaps
5
Notional
$255,000
Derivatives Not Designated as Hedges. The Company does not use derivatives for trading or speculative purposes. During
2008, the Company entered into a forward purchase equity commitment with a financial institution to finance the repurchase
of 3,500,000 common shares of the Company at $5.60 per share under the Company's common share repurchase plan as
approved by the Company's Board of Trustees. The Company recognized earnings during 2011 and 2010 of $2,030 and
$8,906, respectively, primarily relating to the increase in the fair value of the common shares held as collateral. The Company
settled this commitment in October 2011 through a cash payment of $4,024 and retired 3,974,645 common shares.
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on
the Consolidated Balance Sheets as of December 31, 2012 and 2011.
Derivatives designated as hedging
instruments:
Interest Rate Swap Liability
As of December 31, 2012
As of December 31, 2011
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Accounts Payable and
Other Liabilities
$ (6,556)
Accounts Payable and
Other Liabilities
$ (3,236)
The tables below present the effect of the Company's derivative financial instruments on the Consolidated Statements of
Operations for 2012 and 2011:
Derivatives in Cash Flow
Amount of Loss Recognized
in OCI on Derivative
(Effective Portion)
December 31,
Hedging Relationships
2012
2011
Interest Rate Swap
$
(8,886) $
(835)
Location of
Loss
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)
Interest
expense
Amount of Loss Reclassified
from Accumulated OCI into
Income (Effective Portion)
December 31,
2012
2011
$
724
$
2,879
Derivatives Not Designated as
Location of Gain Recognized in
Hedging Instruments
Forward Purchase Equity Commitment
Income on Derivative
Change in value of forward equity
commitment
Amount of Gain Recognized in
Income on Derivative
December 31,
2012
2011
$
— $
2,030
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 December 31, 2012,
the Company had not posted any collateral related to the agreements.
83
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(13)
Leases
Lessor:
Minimum future rental receipts under the non-cancelable portion of tenant leases, assuming no new or re-negotiated leases,
for the next five years and thereafter are as follows:
Year ending
December 31,
2013
2014
2015
2016
2017
Thereafter
$
Total
335,434
319,112
276,155
245,100
222,542
1,111,022
$ 2,509,365
The above minimum lease payments do not include reimbursements to be received from tenants for certain operating
expenses and real estate taxes and do not include early termination payments provided for in certain leases.
Certain leases allow for the tenant to terminate the lease if the property is deemed obsolete, as defined, 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 holds, through property owner subsidiaries, leasehold interests in various properties. Generally, the ground
rents on these properties are either paid directly by the tenants to the fee holder or reimbursed to the Company as additional
rent. Certain properties are economically owned through the holding of industrial revenue bonds and as such neither ground
lease payments nor bond debt service payments are made or received, respectively. For certain of these properties, the
Company has an option to purchase the fee interest.
Minimum future rental payments under non-cancelable leasehold interests, excluding leases held through industrial revenue
bonds and lease payments in the future that are based upon fair market value, for the next five years and thereafter are as
follows:
Year ending
December 31,
2013
2014
2015
2016
2017
Thereafter
Total
2,572
2,328
2,300
1,971
1,924
15,885
26,980
$
$
Rent expense for the leasehold interests, including discontinued operations, was $1,198, $776 and $955 in 2012, 2011 and
2010, respectively.
The Company leases its corporate headquarters. The lease expires December 2015, with fixed rent of $1,153 per annum.
The Company is also responsible for its proportionate share of operating expenses and real estate taxes above a base year.
As an incentive to enter the lease, the Company received a payment of $845 which it is amortizing as a reduction of rent
expense. In addition, the Company leases office space for its regional offices. The minimum lease payments for the Company's
regional offices are $82 for 2013, $45 for 2014, $36 for 2015 and 2016 and $9 thereafter. Rent expense for 2012, 2011 and
2010 was $1,029, $1,392 and $1,332, respectively.
84
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(14)
Concentration of Risk
The Company 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 years
ended December 31, 2012, 2011 and 2010, 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.
(15)
Equity
Shareholders' Equity:
During 2012, 2011 and 2010, the Company issued 18,289,557, 11,109,760 and 23,712,980 common shares, respectively,
through public offerings and under its direct share purchase plan, raising net proceeds of approximately $164,429, $98,953
and $166,427 respectively. The proceeds were primarily used for general working capital, to fund investments and retire
indebtedness.
During the first quarter of 2010, the Company recorded $13,134 in additional paid-in-capital, representing the conversion
feature of the 6.00% Convertible Guaranteed Notes. During 2012, this amount was reduced to $3,654 due to the issuance
of 4,487,060 common shares upon the conversion of $31,104 6.00% Convertible Guaranteed Notes.
Accumulated other comprehensive income (loss) as of December 31, 2012 and 2011 represented $(6,224) and $1,938,
respectively, of unrealized gain (loss) on interest rate swaps.
The Company had 1,935,400 shares of Series C Preferred, outstanding at December 31, 2012. 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 the date of filing this Annual Report, the
shares are currently 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.
Investors in 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.
During 2012, 2011 and 2010, the Company issued 643,450, 609,182 and 361,320 of its common shares, respectively, to
certain employees and trustees. Typically, trustee share grants vest immediately. Employee share grants generally vest
ratably, on anniversaries of the grant date, however, in certain situations vesting is cliff-based after a specific number of
years and/or subject to meeting certain performance criteria (see note 16).
During 2012 and 2011, the Company repurchased and retired all of its 3,160,000 shares of Series B Preferred for cash
payments of $68,539 and $10,217, respectively.
Noncontrolling Interests:
In conjunction with several of the Company's acquisitions in prior years, sellers were issued OP units 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 for approximately 1.13 common shares, subject to future
adjustments.
85
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
During 2012, 2011 and 2010, 257,427, 398,927 and 457,351 common shares, respectively, were issued by the Company,
in connection with OP unit redemptions, for an aggregate value of $1,343, $2,187 and $2,685, respectively.
As of December 31, 2012, there were approximately 3,797,000 OP units outstanding other than OP units owned by the
Company. All OP units receive distributions in accordance with their respective partnership agreements. To the extent that
the Company's dividend per common share is less than the stated distribution per OP unit per the applicable partnership
agreement, the distributions per OP unit are reduced by the percentage reduction in the Company's dividend per common
share. No OP units have a liquidation preference.
The following discloses the effects of changes in the Company's ownership interests in its noncontrolling interests:
Net Income (Loss) Attributable to Shareholders and
Transfers from Noncontrolling Interests
Net income (loss) attributable to Lexington Realty Trust shareholders
$
180,316
$
Transfers from noncontrolling interests:
2012
2011
(79,584) $
2010
(32,960)
Increase in additional paid-in-capital for redemption of noncontrolling
OP units
1,343
2,187
2,685
Change from net income (loss) attributable to shareholders and transfers
from noncontrolling interests
$
181,659
$
(77,397) $
(30,275)
(16)
Benefit Plans
The Company maintains an equity award plan pursuant to which qualified and non-qualified options may be issued. No
common share options were issued in 2012 and 2011. The Company granted 1,248,501, 1,265,500 and 2,000,000 common
share options on December 31, 2010 (“2010 options”), January 8, 2010 (“2009 options”) and December 31, 2008 (“2008
options”), respectively, at an exercise price of $7.95, $6.39 and $5.60, respectively. The 2010 options (1) vest 20% annually
on each December 31, 2011 through 2015 and (2) terminate on the earlier of (x) six months of termination of service with
the Company and (y) December 31, 2020. The 2009 options (1) vest 20% annually on each December 31, 2010 through
2014 and (2) terminate on the earlier of (x) six months of termination of service with the Company and (y) December 31,
2019. The 2008 options (1) vested 50% following a 20-day trading period where the average closing price of a common
share of the Company on the New York Stock Exchange (“NYSE”) is $8.00 or higher and vest 50% following a 20-day
trading period where the average closing price of a common share of the Company on the NYSE is $10.00 or higher, and
(2) terminate on the earlier of (x) termination of service with the Company or (y) December 31, 2018. As a result of the
share dividends paid in 2009, each of the 2008 options is exchangeable for approximately 1.13 common shares at an exercise
price of $4.97 per common share.
The Company engaged third parties to value the options as of each option's respective grant date. The third parties determined
the value to be $2,422 and $2,771 for the 2010 options and 2009 options, respectively, using the Black-Scholes model and
$2,480 for the 2008 options using the Monte Carlo model. The options are considered equity awards as they are settled
through the issuance of common shares. As such, the options were valued as of the grant date and do not require subsequent
remeasurement. There were several assumptions used to fair value the options including the expected volatility in the
Company's common share price based upon the fluctuation in the Company's historical common share price. The more
significant assumptions underlying the determination of fair value for options granted were as follows:
Weighted-average fair value of options granted
Weighted-average risk-free interest rate
Weighted-average expected option lives (in years)
Weighted-average expected volatility
Weighted-average expected dividend yield
86
$
2010
Options
2009
Options
2008
Options
$
1.94
2.54%
6.50
49.00%
7.40%
$
2.19
3.29%
6.70
59.08%
6.26%
1.24
1.33%
3.60
59.94%
14.40%
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company recognizes compensation expense relating to these options over an average of 5.0 years for the 2010 options
and 2009 options and 3.6 years for the 2008 options. The Company recognized $1,197, $1,384 and $1,824 in compensation
expense in 2012, 2011 and 2010, respectively, relating to options, $629 of the 2010 amount reflects the accelerated vesting
of certain 2008 options, due to performance criteria being met. The Company has unrecognized compensation costs of
$2,559 relating to the outstanding options as of December 31, 2012. The intrinsic value of an option is the amount by which
the market value of the underlying common share at the date the option is exercised exceeds the exercise price of the option.
The total intrinsic value of options exercised for the years ended December 31, 2012, 2011 and 2010 were $1,603, $2,100
and $1,145, respectively.
Share option activity during the years indicated is as follows:
Balance at December 31, 2009
Granted
Exercised
Forfeited
Balance at December 31, 2010
Exercised
Balance at December 31, 2011
Exercised
Balance at December 31, 2012
Number of
Shares
Weighted-Average
Exercise Price
Per Share
2,252,000
2,514,001
(352,628)
(23,768)
4,389,605
(501,324)
3,888,281
(408,201)
3,480,080
$
$
4.97
7.16
4.97
5.18
6.23
5.16
6.36
5.73
6.44
As of December 31, 2012, the aggregate intrinsic value of options that were outstanding and exercisable was $3,930.
Non-vested share activity for the years ended December 31, 2012 and 2011, is as follows:
Balance at December 31, 2010
Granted
Vested
Forfeited
Balance at December 31, 2011
Granted
Vested
Balance at December 31, 2012
Number of
Shares
Weighted-Average
Value Per Share
819,577
582,102
(211,954)
(10,140)
1,179,585
606,500
(320,639)
1,465,446
$
$
10.16
7.49
13.56
21.99
8.13
9.75
8.86
8.64
As of December 31, 2012, of the remaining 1,465,446 non-vested shares, 1,092,306 are subject to time-based vesting and
373,140 are subject to performance-based vesting. At December 31, 2012, there are 4,437,962 awards available for grant.
The Company has $9,648 in unrecognized compensation costs relating to the non-vested shares that will be charged to
compensation expense over an average of approximately 2.6 years.
The Company has established a trust for certain officers in which vested common shares granted for the benefit of the
officers are deposited. The officers exert no control over the common shares in the trust and the common shares are available
to the general creditors of the Company. As of December 31, 2012 and 2011, there were 427,531 common shares in the
trust.
The Company sponsors a 401(k) retirement savings plan covering all eligible employees. The Company makes a discretionary
matching contribution on a portion of employee participant salaries and, based on its profitability, may make an additional
discretionary contribution at each fiscal year end to all eligible employees. These discretionary contributions are subject to
vesting under a schedule providing for 25% annual vesting starting with the first year of employment and 100% vesting
after four years of employment. Approximately $279, $308 and $311 of contributions are applicable to 2012, 2011 and
2010, respectively.
87
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
During 2012, 2011 and 2010, the Company recognized $3,030, $2,062 and $3,232, respectively, in compensation expense
relating to scheduled vesting and issuance of common share grants.
(17)
Related Party Transactions
In addition to related party transactions discussed elsewhere in this Annual Report, the Company has an indemnity obligation
to Vornado Realty Trust, one of its significant shareholders, with respect to actions by the Company that affect Vornado
Realty Trust's status as a REIT.
All related party acquisitions, sales and loans were approved by the independent members of the Company's Board of
Trustees or the Audit Committee.
During 2011 and 2010, the Company advanced an aggregate $20,077 and $7,614, respectively, to NLS entities in the form
of interest bearing, non-recourse mortgage notes to satisfy maturing non-recourse mortgages. These advances were satisfied
in full in 2011.
The Company leases certain properties to entities in which Vornado Realty Trust, a significant shareholder, has an interest.
During 2012, 2011 and 2010, the Company recognized $842, $864 and $905, respectively, in rental revenue from these
properties. The Company leases its corporate office from an affiliate of Vornado Realty Trust. Rent expense for this property
was $919, $1,281 and $1,272 in 2012, 2011 and 2010, respectively.
The Company's Board of Trustees granted a waiver of the Company's Code of Business Conduct and Ethics to allow the
Company to enter into a joint venture with an affiliate of its Chairman, which intends to raise capital from foreign investors
seeking entry into the United States of America. As of the date of filing this Annual Report, no joint venture agreement has
been entered into by the Company with the affiliate of its Chairman.
(18)
Income Taxes
The benefit (provision) for income taxes relates primarily to the taxable income of the Company's taxable REIT subsidiaries.
The earnings, other than in taxable REIT subsidiaries, of the Company are not generally subject to federal income taxes at
the Company level due to the REIT election made by the Company.
Income taxes have been provided for on the asset and liability method. Under the asset and liability method, deferred income
taxes are recognized for the temporary differences between the financial reporting basis and the tax basis of assets and
liabilities.
The Company's benefit (provision) for income taxes for the years ended December 31, 2012, 2011 and 2010 is summarized
as follows:
Current:
Federal
State and local
NOL utilized
Deferred:
Federal
State and local
2012
2011
2010
$
(371) $
(440) $
(1,157)
401
(1,080)
566
141
45
(941) $
1,399
400
845
$
$
—
(1,072)
—
(418)
(53)
(1,543)
Net deferred tax assets of $858 and $672 are included in other assets on the accompanying Consolidated Balance Sheets at
December 31, 2012 and 2011, respectively. These net deferred tax assets relate primarily to differences in the timing of the
recognition of income (loss) between GAAP and tax and net operating loss carry forwards.
88
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The income tax benefit (provision) differs from the amount computed by applying the statutory federal income tax rate to
pre-tax operating income as follows:
Federal provision at statutory tax rate (34%)
State and local taxes, net of federal benefit
Other
2012
2011
2010
(573) $
(110)
(258)
(941) $
(580) $
(100)
1,525
845
$
(388)
(31)
(1,124)
(1,543)
$
$
For the years ended December 31, 2012, 2011 and 2010, the “other” amount is comprised primarily of state taxes of $1,043,
$954 and $1,072, respectively, and the write-off of deferred tax liabilities of $0, $3,535 and $0, respectively, relating to the
transfer of certain assets of the Company's taxable subsidiaries.
As of December 31, 2012 and 2011, the Company has estimated net operating loss carry forwards for federal income tax
reporting purposes of $1,635 and $2,735, respectively, which would begin to expire in tax year 2026. As of December 31,
2012 and 2011, a valuation allowance of $0 and $712, respectively, has been recorded against deferred tax assets based
upon projected future taxable income.
A summary of the average taxable nature of the Company's common dividends for each of the years in the three-year period
ended December 31, 2012, is as follows:
Total dividends per share
Ordinary income
15% rate - qualifying dividend
15% rate gain
25% rate gain
Return of capital
$
2012
2011
2010
$
0.525
95.68%
0.99%
—
—
3.33%
100.00%
$
0.46
47.33%
1.11%
—
—
51.56%
100.00%
0.40
99.11%
0.89%
—
—
—%
100.00%
A summary of the average taxable nature of the Company's dividend on shares of its Series B Preferred for each of the years
in the three-year period ended December 31, 2012, is as follows:
Total dividends per share
Ordinary income
15% rate - qualifying dividend
15% rate gain
25% rate gain
2012
$ 1.341667
$
98.98%
1.02%
—
—
100.00%
$
2011
2.0125
97.70%
2.30%
—
—
100.00%
2010
2.0125
99.11%
0.89%
—
—
100.00%
A summary of the average taxable nature of the Company's dividend on shares of its Series C Preferred for each of the years
in the three-year period ended December 31, 2012, is as follows:
Total dividends per share
Ordinary income
15% rate - qualifying dividend
15% rate gain
25% rate gain
Return of capital
$
2012
2011
2010
$
3.25
98.98%
1.02%
—
—
—
100.00%
$
3.25
97.70%
2.30%
—
—
—
100.00%
3.25
99.11%
0.89%
—
—
—
100.00%
89
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
A summary of the average taxable nature of the Company's dividend on shares of its Series D Cumulative Redeemable
Preferred Stock for the years in the three-year period ended December 31, 2012, is as follows:
Total dividends per share
Ordinary income
15% rate - qualifying dividend
15% rate gain
25% rate gain
$
$
2012
1.8875
98.98%
1.02%
—
—
100.00%
2010
2011
1.76498(1) $ 2.01002(1)
99.11 %
0.89 %
—
—
100.00 %
97.70 %
2.30 %
—
—
100.00 %
_________
(1)
Of the total dividend paid in January 2011, $0.12252 is allocated to 2010 and $0.349355 is allocated to 2011.
(19)
Commitments and Contingencies
In addition to the commitments and contingencies disclosed elsewhere, 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 December 31, 2012, the Company had two outstanding guarantees for (1)
the completion of the base building improvements and the payment of a related tenant improvement allowance for an office
property in Orlando, Florida, which the unfunded amounts were estimated to be $8,414 and (2) the payment of a tenant
improvement allowance and related lease commission of $5,567 for a property in Allen, Texas.
From time to time, the Company is directly or indirectly involved in legal proceedings arising in the ordinary course of the
Company's 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.
During the year ended December 31, 2012, the following two legal proceedings were resolved:
Deutsche Bank Securities, Inc. and SPCP Group LLC v. Lexington Drake, L.P., et al. (Supreme Court of the State of New
York-Index No. 603051/08). On June 30, 2006, one of the Company's property owner subsidiaries and a property owner
subsidiary of a then co-investment program respectively sold to Deutsche Bank Securities, Inc. (“Deutsche Bank”), (1) a
$7,680 bankruptcy damage claim against Dana Corporation for $5,376 (“Farmington Hills claim”) and (2) a $7,727
bankruptcy damage claim against Dana Corporation for $5,680 (“Antioch claim”). Under the terms of the agreements
covering the sale of the claims, which were guaranteed by the Company, the property owner subsidiaries were obligated to
reimburse Deutsche Bank should the claim ever be disallowed, subordinated or otherwise impaired, to the extent of such
disallowance, subordination or impairment, plus interest at the rate of 10% per annum from the date of payment of the
purchase price by Deutsche Bank. On October 12, 2007, Dana Corporation filed an objection to both claims. The Company
assisted Deutsche Bank and the then holders of the claims in the preparation and filing of a response to the objection. Despite
a belief by the Company that the objections were without merit, the holders of the claims, without the Company's consent,
settled the allowed amount of the claims at $6,500 for the Farmington Hills claim and $7,200 for the Antioch claim in order
to participate in a special settlement pool for allowed intangible unsecured claims and a preferred share rights offering
having a value thought to be equal to, or greater than, the reduction of the claims. Deutsche Bank made a formal demand
with respect to the Farmington Hills claim in the amount of $826 plus interest, but did not make a formal demand with
respect to the Antioch claim. Following a rejection of the demand by the Company, on December 11, 2009, Deutsche Bank
and the then holders of the claims filed a summons and complaint with the Supreme Court of the State of New York, County
of New York for the Farmington Hills and Antioch claims, and claimed damages of $1,200 plus interest from the date of
assignment at the rate of 10% per year and expenses.
90
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Together with the property owner subsidiaries, the Company answered the complaint on November 26, 2008 and served
numerous discovery requests. After almost a year of inactivity, on March 18, 2010, the defendants and the plaintiffs filed
motions for summary judgment and related opposing and supporting motions. On November 22, 2010, the court ruled in
favor of the plaintiffs on their motion for summary judgment. The court referred the issue of damages to a special referee
to determine the value of plaintiffs' participation in the preferred share rights offering and a settlement pool for allowed
intangible unsecured claims so as to be taken into consideration with respect to computation of damages, if any.
After motions before the special referee and discovery on July 11, 2012, the special referee recommended damages in favor
of the plaintiffs as follows: (1) $826 for the Farmington Hills claim as well as 10% interest as of April 27, 2012 in the sum
of $482 and additional prejudgment interest from April 28, 2012 to entry of judgment and thereafter statutory interest of 9%;
(2) $388 for the Antioch claim as well as 10% interest as of April 27, 2012 in the sum of $226 and additional prejudgment
interest from April 28, 2012 to entry of judgment and thereafter statutory interest of 9%; and (3) attorneys' fee and
disbursements of $827 together with statutory interest of 9% as to fees and disbursements to be calculated from July 11,
2012. The Company recorded a $2,800 litigation reserve during the second quarter of 2012 relating to this litigation and
settled the litigation in the third quarter of 2012 for $2,775 and mutual releases.
Unified Government of Wyandotte County/Kansas City, Kansas v. United States General Services Administration (United
States District Court for the District of Kansas-Case Number 11-2400-JTM-KMH). On April 4, 2011, one of the Company's
property owner subsidiaries entered into a lease termination with Applebee's Services, Inc., pursuant to which Applebee's
Services, Inc. made a lease termination payment of $19,910 in October 2011 and vacated the Lenexa, Kansas facility in
November 2011. Also on April 4, 2011, the Company's property owner subsidiary entered into a ten year lease with the
United States General Services Administration ("GSA") for the same facility. On April 15, 2011, an unsuccessful bidder
for the GSA lease filed a protest with the United States Government Accountability Office ("GAO") protesting the award
of the lease to the Company's property owner subsidiary. On July 22, 2011, after a full briefing of the protest, the GAO
denied the protest. However, prior to the GAO ruling on July 19, 2011, the Unified Government of Wyandotte County,
Kansas City filed a claim against the GSA requesting, among other things, an injunction against the award of the ten year
lease. On March 21, 2012, the District Court issued a memorandum opinion transferring the case to the United States Court
of Federal Claims. The Company intervened in the action. On June 1, 2012, the plaintiff filed a notice of dismissal and the
case was dismissed. The Company does not expect any further activity with respect to this litigation.
Other. Four of our executive officers have employment contracts and are entitled to severance benefits upon termination
by the Company without cause or termination by the executive officer with good reason, in each case, as defined in the
employment contract.
(20)
Supplemental Disclosure of Statement of Cash Flow Information
In addition to disclosures discussed elsewhere, during 2012, 2011 and 2010, the Company paid $101,262, $103,427 and
$114,031, respectively, for interest and $1,018, $1,289 and $1,019, respectively, for income taxes.
During 2012, the Company sold its interest in a property, which included the assumption of the related non-recourse mortgage
debt of $8,921.
During 2012, the Company conveyed its interests in two properties to lenders in full satisfaction of the aggregate $12,409
non-recourse mortgage notes payable. The Company recognized aggregate net gains on debt satisfaction of $317 relating
to these transactions.
In October 2011, the Company acquired control of a joint venture, Pemlex LLC, and recorded land and building assets of
$9,006, lease intangible assets of $6,294, other assets, net, of $107 and a $574 noncontrolling interest.
During 2011, the Company sold interests in three properties, which included the assumption of the aggregate related non-
recourse debt of $28,648 and $3,003 in seller financing.
During 2010, the Company sold interests in three properties, which included the assumption of the aggregate related non-
recourse mortgage debt of $74,504.
91
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(21)
Unaudited Quarterly Financial Data
Total gross revenues(1)
Net income (loss)
Net income (loss) attributable to common shareholders
Net income (loss) attributable to common shareholders -
basic per share
Net income (loss) attributable to common shareholders -
diluted per share
Total gross revenues(1)
Net income (loss)
Net income (loss) attributable to common shareholders
Net income (loss) attributable to common shareholders -
basic per share
Net income (loss) attributable to common shareholders -
diluted per share
2012
3/31/2012
6/30/2012
9/30/2012
87,473
82,750
79,123
$
$
$
175,289
$
5,626
$
5,478
$
168,950
(3,392) $
(2,187) $
$
12/31/2012
95,533
$
(1,755)
$
(7,039)
$
$
$
(0.01) $
(0.02) $
(0.01) $
(0.02) $
1.09
0.96
$
$
(0.04)
(0.04)
2011
12/31/2011
9/30/2011
6/30/2011
3/31/2011
79,570
$
79,492
$
77,474
$
77,290
$
14,016
(30,844) $
(56,957) $
(15,993) $
$
7,504
(37,048) $
(50,539) $
(23,638) $
$
$
$
(0.16) $
(0.33) $
(0.24) $
(0.16) $
(0.33) $
(0.24) $
0.05
0.05
_____________
(1) All periods have been adjusted to reflect the impact of properties sold during the years ended December 31, 2012 and 2011, and properties classified
as held for sale, which are reflected in discontinued operations in the Consolidated Statements of Operations.
The sum of the quarterly income (loss) attributable to common shareholders and per common share amounts may not equal
the full year amounts primarily because the computations of amounts allocated to participating securities and the weighted-
average number of common shares of the Company outstanding for each quarter and the full year are made independently.
(22)
Subsequent Events
Subsequent to December 31, 2012 and in addition to disclosures elsewhere in the financial statements, the Company:
•
•
•
•
•
•
conveyed to the lender its property in Suwanee, Georgia for full satisfaction of the related $10,964 non-recourse
mortgage;
converted $35,000 original principal amount of 6.00% Convertible Guaranteed Notes for 5,049,096 common shares
and a cash payment of $2,275 plus accrued and unpaid interest on the notes;
implemented an At-The-Market offering program under which the Company may issue up to $100,000 in common
shares over the term of the program. The Company issued 3,409,927 common shares under this program as of the
date of this Annual Report raising gross proceeds of $36,884;
amended the Company's $255,000 secured term loan agreement to release the collateral securing the term loan;
refinanced its $300,000 secured revolving credit facility with a $300,000 unsecured revolving credit facility with
KeyBank, as agent. The unsecured revolving credit facility matures in February 2017 but can be extended until
February 2018 at the Company's option. The unsecured revolving credit facility bears interest at LIBOR plus 1.50%
to 2.05% based on the Company's leverage ratio, as defined therein. Upon the date when the Company obtains an
investment grade rating from at least two of S&P, Moody’s or Fitch, the interest rate under the unsecured revolving
credit facility will be dependent on the Company's debt rating; and
in connection with the refinancing discussed above, also procured a five-year $250,000 unsecured term loan facility
from KeyBank, as agent. The unsecured term loan matures in February 2018 and requires regular payments of
interest only at interest rates ranging from LIBOR plus 1.45% to 2.00% dependent on the Company's leverage
ratio, as defined therein. Upon the date when the Company obtains an investment grade rating from at least two
of S&P, Moody’s and Fitch, the interest rate under the unsecured term loan will be dependent on the Company’s
debt rating.
92
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000)
Description
Location
Encumbrances
Land and Land
Estates
Buildings and
Improvements
Total
Accumulated
Depreciation
and
Amortization
Date Acquired
Date
Constructed
Useful life
computing
depreciation in
latest income
statement
(years)
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Little Rock, AR
$
— $
1,353 $
2,260 $
3,613 $
379
Dec-06
1980
40
Pine Bluff, AR
Glendale, AZ
Tempe, AZ
Tucson, AZ
Brea, CA
Lake Forest, CA
Centenial, CO
Colorado Springs, CO
Lakewood, CO
Louisville, CO
Wallingford, CT
Boca Raton, FL
Fort Myers, FL
Lake Mary, FL
Lake Mary, FL
Orlando, FL
Orlando, FL
Palm Beach Gardens,
FL
Tampa, FL
Atlanta, GA
Atlanta, GA
Atlanta, GA
Chamblee, GA
Cumming, GA
Forest Park, GA
Jonesboro, GA
McDonough, GA
McDonough, GA
Stone Mountain, GA
Clive, IA
Meridian, ID
Chicago, IL
Lisle, IL
Columbus, IN
(2)
Fishers, IN
Indianapolis, IN
Indianapolis, IN
Lenexa, KS
Overland Park, KS
Baton Rouge, LA
Boston, MA
Foxboro, MA
Foxboro, MA
Oakland, ME
Southfield, MI
Bridgeton, MO
Kansas City, MO
Pascagoula, MS
Cary, NC
Bridgewater, NJ
Rockaway, NJ
Wall, NJ
Whippany, NJ
—
—
12,211
—
73,445
—
—
10,252
—
—
—
20,317
8,595
—
—
—
9,865
—
—
40,639
—
—
—
—
—
—
11,887
—
—
—
10,553
29,583
9,910
26,417
10,870
11,817
8,686
10,594
35,829
—
12,975
5,719
2,578
9,446
—
—
17,087
—
—
14,476
14,900
23,706
14,977
271
603
9,418
—
681
37,269
3,442
4,851
2,748
1,569
3,657
1,049
4,290
795
4,535
4,438
586
3,538
787
2,018
4,600
1,014
870
770
1,558
668
778
1,443
693
672
1,158
2,255
5,155
3,236
235
2,808
1,700
1,360
2,828
4,769
1,252
3,814
2,231
3,791
551
—
1,853
2,433
618
5,342
4,738
4,646
8,985
4,063
7,810
12,074
4,037
45,695
13,769
15,187
12,554
8,857
9,605
4,773
17,160
2,478
14,830
15,103
35,012
9,019
2,895
7,950
55,333
269
187
186
1,368
1,242
146
11,234
6,405
276
—
7,797
46,180
13,692
45,729
19,272
17,291
13,228
6,075
41,956
10,244
16,040
25,653
5,405
8,774
12,124
4,469
20,154
3,677
15,116
27,908
20,428
26,961
19,711
93
874
17,228
12,074
4,718
82,964
17,211
20,038
15,302
10,426
13,262
5,822
21,450
3,273
19,365
19,541
35,598
12,557
3,682
9,968
59,933
1,283
1,057
956
2,926
1,910
924
12,677
7,098
948
1,158
10,052
51,335
16,928
45,964
22,080
18,991
14,588
8,903
46,725
11,496
19,854
27,884
9,196
9,325
12,124
6,322
22,587
4,295
20,458
32,646
25,074
35,946
23,774
23
Sep-12
213
141
58
12,754
3,715
4,094
3,096
4,252
1,753
1,112
4,236
66
3,796
3,762
5,450
3,464
Sep-12
Sep-12
Sep-12
Jun-07
Mar-02
May-07
Jun-07
Apr-05
Sep-08
Dec-03
Feb-03
Apr-05
Jun-07
Jun-07
Dec-06
Jan-07
1,050
May-98
132
24,809
202
163
167
447
304
144
149
86
149
—
134
11,751
2,715
7,140
4,323
9,948
6,163
96
8,792
2,454
2,164
10,452
224
120
6,166
754
4,208
81
4,438
4,366
3,888
9,416
4,966
Sep-12
Apr-05
Dec-06
Dec-06
Dec-06
Dec-06
Dec-06
Dec-06
Sep-12
Sep-12
Dec-06
Jun-04
Sep-12
Jun-07
Dec-06
Dec-06
Jun-07
Apr-05
Apr-05
Sep-12
Jun-07
May-07
Mar-07
Dec-04
Sep-12
Sep-12
Jul-04
Dec-06
Jun-07
Sep-12
Jun-07
Dec-06
Dec-06
Jan-04
Nov-06
1964/1972/
1988
1986/1997/
2000
1998
1988
1983
2001
2001
1980
2002
1987
3, 4 & 13
7 & 24
10, 11 & 36
7, 10 & 30
40
40
10 & 40
40
2, 3, 12 & 40
8, 9 & 40
1978/1985
8 & 40
1983/2002
1997
1997
1999
1982
2003
1996
1986
2003
1972
1975
1972
1968
1969
1971
1999
2007
1973
2003
2004
1986
1985
1983
1999
1999
2002
2004
1980
1997
1910
1982
40
5 & 32
4, 7 & 40
4, 7 & 40
40
12 & 40
8 - 40
8 & 27
13 & 40
40
40
40
40
40
40
3, 11 & 38
6, 11 & 40
40
—
7 & 37
15 & 40
3 & 40
40
3 - 40
3, 9, 10, & 40
7, 12 & 40
7, 12 & 37
12 & 40
6 & 40
10 & 40
16 & 40
1965/1967/
1971
2, 6 & 20
2005
8, 12 & 40
1963/1965
7, 16 & 40
1980
1980
1995
1999
1986
2002
1983
2006
40
12 & 40
1, 9 & 31
2 & 40
15 & 40
40
22 & 40
20 & 40
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
Description
Location
Encumbrances
Land and Land
Estates
Buildings and
Improvements
Total
Rochester, NY
(5)
17,813
Accumulated
Depreciation
and
Amortization
Date Acquired
Date
Constructed
Useful life
computing
depreciation in
latest income
statement
(years)
4,219
Dec-06
1988
8, 10, 15 & 40
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Milford, OH
Westerville, OH
Redmond, OR
Canonsburg, PA
Harrisburg, PA
Philadelphia, PA
Charleston, SC
Florence, SC
Fort Mill, SC
Fort Mill, SC
Rock Hill, SC
Kingsport, TN
Knoxville, TN
Knoxville, TN
Memphis, TN
Memphis, TN
(2)
Arlington, TX
Carrollton, TX
Carrollton, TX
Farmers Branch, TX
Garland, TX
Houston, TX
Houston, TX
Houston, TX
Houston, TX
Mission, TX
San Antonio, TX
Temple, TX
Westlake, TX
Glen Allen, VA
Hampton, VA
Hampton, VA
Herndon, VA
Herndon, VA
Midlothian, VA
Bremerton, WA
Issaquah, WA
Issaquah, WA
(6)
(6)
Long Term Lease - Office
Phoenix, AZ
Long Term Lease - Office
Phoenix, AZ
Long Term Lease - Office
Tempe, AZ
Long Term Lease - Office
Palo Alto, CA
Long Term Lease - Office
Orlando, FL
Long Term Lease - Office
Lenexa, KS
Long Term Lease - Office
Farmington Hills,
MI
Long Term Lease - Office
Livonia, MI
Long Term Lease - Office
St Joseph, MO
Long Term Lease - Office
Omaha, NE
Long Term Lease - Office
Las Vegas, NV
(2)
Long Term Lease - Office
Columbus, OH
Long Term Lease - Office
Columbus, OH
Long Term Lease - Office
Eugene, OR
102,323
15,162
—
—
8,743
9,087
8,221
44,885
7,350
—
—
18,745
—
—
7,013
4,560
3,742
47,302
19,808
12,642
19,393
18,459
—
15,849
11,893
15,218
4,076
5,702
11,740
8,628
—
12,382
—
—
—
10,928
9,538
6,489
31,028
—
16,811
—
7,662
59,409
—
—
17,639
—
—
8,113
32,141
—
—
—
645
3,124
2,085
2,064
1,055
900
13,209
1,189
3,235
3,601
1,798
551
513
1,079
486
464
5,291
1,863
1,789
3,427
3,984
2,218
3,750
1,500
800
490
2,556
2,800
227
2,361
1,543
2,333
1,353
5,127
9,409
1,100
1,655
5,126
6,268
4,666
5,585
—
12,398
11,498
6,909
2,765
935
607
2,566
12,099
1,594
432
1,541
25,992
16,140
9,265
8,316
10,910
10,676
54,909
8,724
12,941
14,494
25,192
4,313
403
10,762
5,815
4,467
97,032
20,199
18,157
22,050
27,308
8,473
21,164
14,683
26,924
2,813
2,911
15,585
8,132
22,742
19,340
10,683
6,006
24,640
12,853
11,925
5,445
13,778
16,058
19,966
36,099
9,442
16,977
64,156
41,073
9,265
12,091
14,004
8,324
53,164
10,481
2,773
13,098
94
26,637
19,264
11,350
10,380
11,965
11,576
68,118
9,913
16,176
18,095
26,990
4,864
916
11,841
6,301
4,931
22,062
19,946
25,477
31,292
10,691
24,914
16,183
27,724
3,303
5,467
18,385
8,359
25,103
20,883
13,016
7,359
29,767
22,262
13,025
7,100
18,904
22,326
24,632
41,684
9,442
29,375
75,654
47,982
12,030
13,026
14,611
10,890
65,263
12,075
3,205
14,639
4,320
1,866
120
2,952
6,879
Jun-07
May-07
Sep-12
May-07
Apr-05
22,930
Jun-05
2,327
3,540
3,670
11,152
180
15
4,455
124
1,129
380
6,294
5,363
6,742
209
9,697
6,113
12,844
94
67
8,037
145
6,337
6,124
3,249
1,896
7,120
3,540
4,904
92
3,797
4,315
7,183
—
2,022
13,917
33,993
Nov-06
May-04
Dec-02
Nov-04
May-11
Sep-12
Mar-05
Sep-12
Nov-06
Dec-06
Sep-12
Jun-04
Jun-07
Jun-07
Sep-12
Apr-05
Apr-05
Apr-05
Sep-12
Sep-12
Apr-05
Sep-12
May-07
Jun-07
Mar-00
Nov-01
Dec-99
Jun-07
Apr-05
Sep-12
Jun-07
Jun-07
May-00
Dec-12
Dec-05
Dec-06
Dec-06
1991
2000
2004
1997
1998
1957
2006
1998
2002
2004
2006
1981
2001
2002
1888
1985
2003
2003
2003
2002
1980
2000
2003
2000
5, 6, 7, 15, 20 &
40
40
6, 13 & 40
8 & 40
2, 9, 15 & 40
4, 5, 9,10 ,15 &
40
40
40
5, 20 & 40
15 & 40
40
5, 6 & 14
14 & 40
1, 5 & 40
20 & 40
40
1, 12 & 40
19 & 40
8 & 40
40
4, 5 & 18
5, 13 & 40
14, 15 & 40
10, 11, 12 & 40
1982/1999
3, 9 & 25
2003
2000
2001
2007
2000
1999
2000
1987
1987
2000
2002
1987
1987
1997
3, 8 & 35
6, 11 & 40
3, 12 & 40
4, 5 & 40
5 - 40
2.5, 5, 10 & 40
10 & 40
9 - 40
40
7, 15 & 40
4, 13 & 40
3, 6, 8 & 40
8 & 40
6 & 40
1986/2007
10, 17, & 40
1998
1974
30 & 40
40
1984/2012
3, 5, 10,13 & 25
6,504
July-08
2007
1, 5, 15 & 40
785
246
147
1,804
8,153
524
104
Jun-07
1999
1, 13 & 40
Sep-12
Sep-12
Nov-05
Dec-06
Dec-10
Jul-11
1987/1988/
1990
2, 3, 7, 28 & 34
2012
1995
1982
2005
1999/2006
15 & 40
30 & 40
40
40
40
—
Dec-12
2011/2012
07,12,15,25 &
40
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
Description
Location
Encumbrances
Land and Land
Estates
Buildings and
Improvements
Total
Long Term Lease - Office
Jessup, PA
Long Term Lease - Office
Florence, SC
Long Term Lease - Office
Allen, TX
Long Term Lease - Office
Houston, TX
Long Term Lease - Office
Irving, TX
Long Term Lease - Office
Irving, TX
Long Term Lease - Office
Huntington, WV
Long Term Lease - Industrial Dry Ridge, KY
Long Term Lease - Industrial
Elizabethtown, KY
Long Term Lease - Industrial
Elizabethtown, KY
Long Term Lease - Industrial Hopkinsville, KY
Long Term Lease - Industrial Owensboro, KY
Long Term Lease - Industrial
Shreveport, LA
Long Term Lease - Industrial Byhalia, MS
Long Term Lease - Industrial
Shelby, NC
Long Term Lease - Industrial Durham, NH
Long Term Lease - Industrial Chillicothe, OH
Long Term Lease - Industrial Cincinnati, OH
Long Term Lease - Industrial Glenwillow, OH
Long Term Lease - Industrial Bristol, PA
Long Term Lease - Industrial Chester, SC
Long Term Lease - Industrial Missouri City, TX
Long Term Lease - Industrial
Eau Claire, WI
Long Term Lease - Retail
Opelika, AL
Long Term Lease - Retail
Valdosta, GA
Long Term Lease - Retail
Jefferson, NC
Long Term Lease - Retail
Edmonds, WA
Long Term Lease - Specialty
Tomball, TX
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Moody, AL
Jacksonville, FL
Orlando, FL
Tampa, FL
Lavonia, GA
McDonough, GA
Des Moines, IA
Dubuque, IA
Rockford, IL
Rockford, IL
Plymouth, IN
Owensboro, KY
Shreveport, LA
North Berwick, ME
Kalamazoo, MI
Marshall, MI
Marshall, MI
Plymouth, MI
Temperance, MI
Minneapolis, MN
Olive Branch, MS
Franklin, NC
Henderson, NC
High Point, NC
Lumberton, NC
(3)
(4)
(4)
(3)
(5)
(5)
—
—
—
35,811
36,691
—
6,500
4,335
14,152
2,675
8,301
3,787
19,000
15,000
—
—
—
—
16,093
—
10,582
—
—
—
—
—
—
9,464
6,518
—
—
—
8,549
23,000
—
9,725
—
6,538
6,147
—
—
8,677
16,485
—
—
—
—
—
—
552
—
—
—
Statesville, NC
(5)
Erwin, NY
13,360
9,082
Accumulated
Depreciation
and
Amortization
Date Acquired
Date
Constructed
291
96
Aug-12
Feb-12
2012
2012
2,242
May-11
1981/1983
Useful life
computing
depreciation in
latest income
statement
(years)
13,15,30 & 40
12 & 40
7 & 25
10 & 40
6, 10 & 40
12 & 40
14 & 40
25 & 40
25 & 40
25 & 40
25 & 40
25 & 40
40
40
11, 20 & 40
40
6, 15 & 26
40
40
10, 16, 30 & 40
1976/1984
1999
1999
2011
1988
1995/2001
2001
Various
1998/2000
2006
2011
2011
1986
1995
1991
1996
1982
2001/2005
9, 13 & 34
2005
7
1993/2004
10, 15 & 28
2012
2012
1979
1981
2005
2004
15 & 40
15 & 40
40
40
13, 14 & 40
15 & 40
1959/1967
1, 3 & 10
1981
1986
2005
2000
2000
2002
1998
1992
40
9 - 40
8, 12 & 40
40
5, 11 & 34
11, 12 & 40
40
40
2000/2003
3, 6 & 34
1975
2012
1965
40
8,10 & 40
10 & 40
1999/2004
8, 9 & 40
Mar-04
May-07
June-07
Jan-12
Jun-05
Jun-05
Jun-05
Jun-05
Jun-05
Mar-07
May-11
Jun-11
Jun-07
Oct-11
Dec-06
Dec-06
Mar-98
Sep-12
Apr-12
Sep-12
Nov-12
Aug-12
Dec-06
Dec-06
Sep-12
Feb-04
Sep-12
Dec-06
Jul-88
Sep-12
Dec-06
Sep-12
Jul-03
Dec-06
Dec-06
Sep-12
Dec-06
Jun-12
Dec-06
Sep-12
Aug-87
1979
12, 20 & 40
Sep-12
Jun-07
Jun-07
Sep-12
Dec-04
Sep-12
Nov-01
Jul-04
Dec-06
Dec-06
Sep-12
1968/1972/
2008
4, 6 & 10
1996
1980
2003
1989
1996
1998
2002
1998
1999
2006
40
40
3, 29 & 40
8, 15 & 40
2, 8 & 29
40
18 & 40
40
3 & 40
4, 8 & 34
11,524
11,843
7,434
297
3,272
7,003
1,267
4,404
3,494
3,162
895
1,060
3,637
555
1,274
4,005
4,346
103
561
79
34
73
154
682
94
4,637
76
1,839
5,247
72
3,863
195
2,080
453
870
98
628
186
5,071
190
628
158
3,684
2,866
21
6,004
22
1,656
4,200
2,325
3,346
136
2,520
774
5,591
16,613
7,476
4,889
1,368
560
890
352
631
393
860
1,006
1,421
3,464
735
1,009
2,228
2,508
1,629
14,555
421
1,446
2,128
71
—
3,174
654
573
1,030
2,160
171
2,463
1,528
2,052
371
509
254
819
1,078
1,383
1,942
40
143
2,296
3,040
1,886
198
296
1,488
1,330
405
891
1,648
17,656
3,629
21,606
58,226
42,807
29,701
9,527
12,553
26,868
4,862
16,154
11,956
21,840
21,483
18,862
18,094
9,021
7,007
24,530
15,815
8,470
5,895
5,590
6,532
5,663
884
3,947
7,405
9,943
1,247
10,869
7,328
7,657
24,291
14,247
8,443
2,573
5,289
7,969
2,439
10,134
32,397
14,169
900
4,302
13,398
14,738
1,922
10,276
1,320
5,953
11,183
12,049
16,696
10,810
95
20,176
4,403
27,197
74,839
50,283
34,590
10,895
13,113
27,758
5,214
16,785
12,349
22,700
22,489
20,283
21,558
9,756
8,016
26,758
18,323
10,099
20,450
6,011
7,978
7,791
955
3,947
10,579
10,597
1,820
11,899
9,488
7,828
26,754
15,775
10,495
2,944
5,798
8,223
3,258
11,212
33,780
16,111
940
4,445
15,694
17,778
3,808
10,474
1,616
7,441
12,513
12,454
17,587
12,458
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
Description
Location
Encumbrances
Land and Land
Estates
Buildings and
Improvements
Total
Accumulated
Depreciation
and
Amortization
Date Acquired
Date
Constructed
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Columbus, OH
Hebron, OH
Hebron, OH
Streetsboro, OH
Duncan, SC
Laurens, SC
Collierville, TN
Crossville, TN
Franklin, TN
Memphis, TN
Memphis, TN
Millington, TN
San Antonio, TX
Waxahachie, TX
Winchester, VA
Phoenix, AZ
Los Angeles, CA
Clinton, CT
Southington, CT
Palm Beach
Gardens, FL
Suwannee, GA
Honolulu, HI
Hebron, KY
Baltimore, MD
Allentown, PA
Antioch, TN
Johnson City, TN
The Woodlands, TX
Glen Allen, VA
Manteca, CA
San Diego, CA
Port Richey, FL
Galesburg, IL
Lawrence, IN
Billings, MT
Lexington, NC
Thomasville, NC
Portchester, NY
Watertown, NY
Canton, OH
Franklin, OH
Lorain, OH
Lawton, OK
Oklahoma City, OK
Tulsa, OK
Clackamas, OR
Moncks Corner, SC
Spartanburg, SC
Chattanooga, TN
Paris, TN
Dallas, TX
Greenville, TX
Staunton, VA
Lynnwood, WA
Port Orchard, WA
—
—
—
18,497
—
—
—
—
—
—
—
—
—
—
—
—
10,298
—
12,317
—
10,964
—
—
55,000
—
—
—
7,445
6,558
866
552
—
486
—
—
—
—
—
814
—
—
1,225
—
—
—
—
—
—
—
—
—
—
—
—
—
1,990
1,063
1,681
2,441
884
5,552
714
545
—
1,054
1,553
723
2,482
652
3,823
1,831
5,110
—
3,240
4,066
1,371
21,094
1,615
37,564
1,052
3,847
1,214
1,827
818
2,082
—
1,376
560
404
273
832
208
7,086
386
884
722
1,893
663
1,782
447
523
13
833
487
247
861
562
1,028
488
147
10,580
4,271
7,033
25,092
8,626
20,886
4,816
6,999
5,673
11,538
12,326
19,195
38,535
13,045
12,276
14,892
10,911
—
25,339
16,566
2,776
24,495
8,173
148,359
1,503
10,025
9,385
5,405
10,243
6,464
13,310
1,664
2,366
1,737
1,775
1,429
561
9,313
5,162
3,534
999
7,024
1,288
912
2,432
2,848
1,510
3,334
956
547
2,362
2,743
326
2,658
94
96
12,570
5,334
8,714
27,533
9,510
26,438
5,530
7,544
5,673
12,592
13,879
19,918
41,017
13,697
16,099
16,723
16,021
—
28,579
20,632
4,147
45,589
9,788
185,923
2,555
13,872
10,599
7,232
11,061
8,546
13,310
3,040
2,926
2,141
2,048
2,261
769
16,399
5,548
4,418
1,721
8,917
1,951
2,694
2,879
3,371
1,523
4,167
1,443
794
3,223
3,305
1,354
3,146
241
2,087
1,179
2,069
4,880
1,257
4,136
862
2,453
172
11,341
2,275
7,375
Dec-06
Dec-97
Dec-01
Jun-07
Jun-07
Jun-07
Dec-05
Jan-06
Sep-12
Feb-88
Dec-06
Apr-05
15,696
Jul-04
8,295
2,450
1,163
5,197
—
Dec-03
Jun-07
Nov-01
Dec-04
Dec-06
15,295
Nov-05
4,769
375
13,134
3,543
35,332
44
580
1,364
72
3,244
1,137
1,947
456
492
270
111
215
24
2,809
965
983
43
May-98
Apr-05
Dec-06
Mar-98
Dec-06
Sep-12
May-07
Dec-06
Sep-12
Jun-07
May-07
May-07
Dec-06
May-07
Dec-06
Dec-06
Dec-06
Dec-06
Dec-06
May-07
Nov-01
Dec-06
1,237
May-07
294
45
2,095
2,452
244
927
40
121
169
503
75
2,289
21
Dec-06
Sep-12
Dec-96
Dec-96
Dec-06
Nov-01
Dec-06
Dec-06
Dec-06
Dec-06
Dec-06
Dec-96
Dec-06
Useful life
computing
depreciation in
latest income
statement
(years)
40
40
2, 5 & 40
12, 20, 25 & 40
40
40
20 & 40
17 & 40
1973
2000
1999
2004
2005
1991
2005/2012
1989/2006
1970/1983
1, 4 & 12
1987
1973
1997
2001
8 &15
40
10, 16 & 40
17 & 40
1996/1997
10, 16 & 40
2001
1995/1994
2000
1971
1983
1996
2001
1917/1955/
1960/1980
1987
1973
1980
1983
1983
2004
2000
1993
1993
1980
1992
1983
1981
1983
1998
1982
1993
1995
1961
1993
1984
1991/1996
1981
1981
1982
1996
1982
1982
1960
1985
1971
1981
1983
4 & 40
5 - 40
13 & 40
40
10, 12, 28 & 40
8 - 40
12 & 40
5 & 40
6, 12 & 40
5 - 40
5, 9 & 18
5 - 39
9, 10 & 40
5, 12 & 35
5 - 40
23 & 40
23 & 40
40
12 & 40
40
4, 19, & 36
40
40
40
23 & 40
40
40
23 & 40
40
5 & 13
14 & 24
14 & 24
40
40
40
40
40
40
40
14 & 24
40
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
Location
Encumbrances
Land and Land
Estates
Buildings and
Improvements
Total
Accumulated
Depreciation
and
Amortization
Date Acquired
Date
Constructed
Useful life
computing
depreciation in
latest income
statement
(years)
Fairlea, WV
572
—
501
—
1,985
—
2,486
6,512
327
—
May-07
1993
12 & 40
—
Description
Retail
Construction in progress
Subtotal
1,406,961
581,199
2,976,755
3,564,466
738,068
(1)
9,000
$
1,415,961 $
581,199 $
2,976,755 $
3,564,466 $
738,068
(1) - Property is classified as a capital lease.
(2) - Properties are cross-collaterized.
(3) - Properties are cross-collaterized.
(4) - Properties are cross-collaterized.
(5) - Properties are cross-collaterized.
(6) - Properties are cross-collaterized.
97
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
(A) The initial cost includes the purchase price paid directly or indirectly by the Company. The total cost basis of the
Company's properties at December 31, 2012 for federal income tax purposes was approximately $4.2 billion.
Reconciliation of real estate, at cost(1):
Balance at the beginning of year
Additions during year
Properties sold during year
Reclassified held for sale properties
Properties impaired during the year
Translation adjustment on foreign currency
Other reclassifications
Balance at end of year
Reconciliation of accumulated depreciation and amortization:
Balance at the beginning of year
Depreciation and amortization expense
Accumulated depreciation and amortization of properties
sold, impaired and held for sale during year
Translation adjustment on foreign currency
Other reclassifications
Balance at end of year
2012
2011
2010
$
$
$
$
3,172,246
540,847
(138,041)
—
(10,553)
—
(33)
3,564,466
638,368
119,067
(19,367)
—
—
738,068
$
$
$
$
3,363,586
143,382
(230,397)
—
(103,727)
—
(598)
3,172,246
601,239
114,247
(76,939)
—
(179)
638,368
$
$
$
$
3,552,806
46,994
(221,875)
(9,381)
(3,327)
(1,432)
(199)
3,363,586
537,406
115,553
(51,478)
(242)
—
601,239
(1) Certain amounts in 2011 and 2010 have been reclassified to conform with the 2012 presentation.
98
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in
Rule 13a-15(e) or 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report was made under
the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer
who are our Principal Executive Officer and our Principal Financial/Accounting Officer, respectively. Based upon this evaluation,
our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures (a) are
effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely
recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated
to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
Management's Report on Internal Control Over Financial Reporting, which appears on page 55 of this Annual Report, is
incorporated herein by reference.
Attestation Report of our Independent Registered Public Accounting Firm
The Report of our Independent Registered Public Accounting Firm constituting the Attestation Report of our Independent
Registered Public Accounting Firm, which appears on page 57 of this Annual Report, is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during
the fourth quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B. Other Information
Not applicable.
99
PART III.
Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers of the Registrant
The following sets forth certain information relating to our executive officers:
Name
E. Robert Roskind
Age 67
Richard J. Rouse
Age 67
T. Wilson Eglin
Age 48
Patrick Carroll
Age 49
Paul R. Wood
Age 52
Business Experience
Mr. Roskind, our Chairman since March 2008, previously served as Co-Vice Chairman
from December 2006 to March 2008, Chairman from October 1993 to December 2006
and Co-Chief Executive Officer from October 1993 to January 2003. He founded The
LCP Group, L.P., a real estate advisory firm, in 1973 and has been its Chairman since
1976. Mr. Roskind also serves as Chairman of Crescent Hotels and Resorts and as a
member of the Board of Directors of Consonant REIT Advisors, the external advisor to
Invincible Investment Corporation, a Japanese REIT listed on the Tokyo Stock
Exchange.
Mr. Rouse, our Vice Chairman since March 2008 and our Chief Investment Officer since
January 2003, previously served as one of our trustees from October 1993 to May 2010,
our Co-Vice Chairman from December 2006 to March 2008, our President from October
1993 to April 1996 and our Co-Chief Executive Officer from October 1993 to January
2003.
Mr. Eglin has served as our Chief Executive Officer since January 2003, our President
since April 1996 and as a trustee since May 1994. He served as one of our Executive
Vice Presidents from October 1993 to April 1996 and our Chief Operating Officer from
October 1993 to December 2010.
Mr. Carroll has served as our Chief Financial Officer since May 1998, our Treasurer
since January 1999 and one of our Executive Vice Presidents since January 2003. Prior
to joining us, Mr. Carroll was, from 1986 to 1998, in the real estate practice of Coopers
& Lybrand L.L.P., a public accounting firm that was one of the predecessors of
PricewaterhouseCoopers LLP.
Mr. Wood served as our Chief Accounting Officer from October 1993 to December
2010, and has served as one of our Vice Presidents and our Secretary since 1993 and
our Chief Tax Compliance Officer since January 2011.
The information relating to our Code of Business Conduct and Ethics, is included in Part I, Item 1 of this Annual Report. The
information relating to our trustees, including the audit committee of our Board of Trustees and our Audit Committee financial expert,
and certain information relating to our executive officers will be in our Definitive Proxy Statement for our 2013 Annual Meeting of
Shareholders, which we refer to as our Proxy Statement, and is incorporated herein by reference.
Item 11. Executive Compensation
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy
Statement, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy
Statement, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy
Statement, and is incorporated herein by reference. In addition, certain information regarding related party transactions is set forth
in note 17 to the Consolidated Financial Statements beginning on page 88 of this Annual Report.
Item 14. Principal Accounting Fees and Services
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy
Statement, and is incorporated herein by reference.
100
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
(2) Financial Statement Schedule
(3) Exhibits
Exhibit No.
Description
Page
54
93
101
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
3.14
3.15
3.16
3.17
3.18
3.19
3.20
— Articles of Merger and Amended and Restated Declaration of Trust of the Company, dated December
31, 2006 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed January 8, 2007 (the
“01/08/07 8-K”))(1)
— Articles Supplementary Relating to the 7.55% Series D Cumulative Redeemable Preferred Stock, par
value $.0001 per share (filed as Exhibit 3.3 to the Company’s Registration Statement on Form 8A filed
February 14, 2007 (the “02/14/07 Registration Statement”))(1)
— Amended and Restated By-laws of the Company (filed as Exhibit 3.2 to the 01/08/07 8-K)(1)
— First Amendment to Amended and Restated By-laws of the Company (filed as Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed November 20, 2009)(1)
— Fifth Amended and Restated Agreement of Limited Partnership of Lepercq Corporate Income Fund L.P.
(“LCIF”), dated as of December 31, 1996, as supplemented (the “LCIF Partnership Agreement”) (filed
as Exhibit 3.3 to the Company’s Registration Statement on Form S-3/A filed September 10, 1999 (the
“09/10/99 Registration Statement”))(1)
— Amendment No. 1 to the LCIF Partnership Agreement dated as of December 31, 2000 (filed as Exhibit
3.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, filed
February 26, 2004 (the “2003 10-K”))(1)
— First Amendment to the LCIF Partnership Agreement effective as of June 19, 2003 (filed as Exhibit 3.12
to the 2003 10-K)(1)
— Second Amendment to the LCIF Partnership Agreement effective as of June 30, 2003 (filed as Exhibit
3.13 to the 2003 10-K)(1)
— Third Amendment to the LCIF Partnership Agreement effective as of December 31, 2003 (filed as
Exhibit 3.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004,
filed on March 16, 2005 (the “2004 10-K”))(1)
— Fourth Amendment to the LCIF Partnership Agreement effective as of October 28, 2004 (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 4, 2004)(1)
— Fifth Amendment to the LCIF Partnership Agreement effective as of December 8, 2004 (filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K filed December 14, 2004 (the “12/14/04 8-K”))(1)
— Sixth Amendment to the LCIF Partnership Agreement effective as of June 30, 2003 (filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K filed January 3, 2005 (the “01/03/05 8-K”))(1)
— Seventh Amendment to the LCIF Partnership Agreement (filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed November 3, 2005)(1)
— Eighth Amendment to the LCIF Partnership Agreement effective as of March 26, 2009 (filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K filed April 27, 2009 (the “4/27/09 8-K”)(1)
— Second Amended and Restated Agreement of Limited Partnership of Lepercq Corporate Income Fund II
L.P. (“LCIF II”), dated as of August 27, 1998 the (“LCIF II Partnership Agreement”) (filed as Exhibit
3.4 to the 09/10/99 Registration Statement)(1)
— First Amendment to the LCIF II Partnership Agreement effective as of June 19, 2003 (filed as Exhibit
3.14 to the 2003 10-K)(1)
— Second Amendment to the LCIF II Partnership Agreement effective as of June 30, 2003 (filed as Exhibit
3.15 to the 2003 10-K)(1)
— Third Amendment to the LCIF II Partnership Agreement effective as of December 8, 2004 (filed as
Exhibit 10.2 to 12/14/04 8-K)(1)
— Fourth Amendment to the LCIF II Partnership Agreement effective as of January 3, 2005 (filed as
Exhibit 10.2 to 01/03/05 8-K)(1)
— Fifth Amendment to the LCIF II Partnership Agreement effective as of July 23, 2006 (filed as Exhibit
99.5 to the Company’s Current Report on Form 8-K filed July 24, 2006)(1)
101
3.21
3.22
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
— Sixth Amendment to the LCIF II Partnership Agreement effective as of December 20, 2006 (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 22, 2006)(1)
— Seventh Amendment to the LCIF II Partnership Agreement effective as of March 26, 2009 (filed as
Exhibit 10.2 to the 4/27/09 8-K)(1)
— Specimen of Common Shares Certificate of the Company (filed as Exhibit 4.1 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2006)(1)
— Form of 8.05% Series B Cumulative Redeemable Preferred Stock certificate (filed as Exhibit 4.1 to the
Company’s Registration Statement on Form 8A filed June 17, 2003)(1)
— Form of 6.50% Series C Cumulative Convertible Preferred Stock certificate (filed as Exhibit 4.1 to the
Company’s Registration Statement on Form 8A filed December 8, 2004)(1)
— Form of 7.55% Series D Cumulative Redeemable Preferred Stock certificate (filed as Exhibit 4.1 to the
02/14/07 Registration Statement)(1)
— Indenture, dated as of January 29, 2007, among the Company (as successor by merger), the other
guarantors named therein and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed January 29, 2007 (the “01/29/07 8-K”))(1)
— Amended and Restated Trust Agreement, dated March 21, 2007, among the Company, The Bank of New
York Trust Company, National Association, The Bank of New York (Delaware), the Administrative
Trustees (as named therein) and the several holders of the Preferred Securities from time to time (filed
as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 27, 2007 (the “03/27/2007
8-K”))(1)
— Junior Subordinated Indenture, dated as of March 21, 2007, between Lexington Realty Trust and The
Bank of New York Trust Company, National Association (filed as Exhibit 4.2 to the 03/27/07 8-K)(1)
— Fourth Supplemental Indenture, dated as of December 31, 2008, among the Company, the other
guarantors named therein and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on January 2, 2009)(1)
— Fifth Supplemental Indenture, dated as of June 9, 2009, among the Company (as successor to the MLP),
the other guarantors named therein and U.S. Bank National Association, as trustee (filed as Exhibit 4.1
to the Company's Current Report on Form 8-K filed on June 15, 2009)(1)
— Sixth Supplemental Indenture, dated as of January 26, 2010 among the Company, the guarantors named
therein and U.S. Bank National Association, as trustee, including the Form of 6.00% Convertible
Guaranteed Notes due 2030 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed
January 26, 2010)(1)
— Seventh Supplemental Indenture, dated as of September 28, 2012, among the Company, certain
subsidiaries of the Company 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 October 3, 2012)(1)
— Eight Supplemental Indenture, dated as of February 13, 2013, among the Company, certain subsidiaries
of the Company 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 February 13, 2013 (“02/13/13 8-K”))(1)
— 1994 Employee Stock Purchase Plan (filed as Exhibit D to the Company’s Definitive Proxy Statement
dated April 12, 1994)(1, 4)
— The Company’s 2011 Equity-Based Award Plan (filed as Exhibit 10.1 to the Company's Current Report
on Form 8-K/A filed June 22, 2011)(1, 4)
— Form of Compensation Agreement (Long-Term Compensation) between the Company and each of the
following officers: Richard J. Rouse and Patrick Carroll (filed as Exhibit 10.15 to the 2004 10-K)(1, 4)
— Form of Compensation Agreement (Bonus and Long-Term Compensation) between the Company and
each of the following officers: E. Robert Roskind and T. Wilson Eglin (filed as Exhibit 10.16 to the
2004 10-K)(1, 4)
— Form of Share Option Award Agreement (filed as Exhibit 10.3 to the Company’s Current Report on
Form 8-K/A filed on November 24, 2010)(1, 4)
— Form of 2010 Share Option Award Agreement (filed as Exhibit 10.2 to the Company’s Current Report
on Form 8-K/A filed November 24, 2010)(1, 4)
— Form of December 2010 Share Option Award Agreement (filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed January 6, 2011(1, 4)
— Amended and Restated Rabbi Trust Agreement, originally dated January 26, 1999 (filed as Exhibit 10.2
to the 01/02/09 8-K)(1, 4)
— Form of 2011 Nonvested Share Agreement (filed as Exhibit 10.1 to the Company's Current Report on
Form 8-K filed on January 6, 2012 (the "01/06/12 8-K")(1, 4)
102
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
— Form of Nonvested Share Agreement (filed as Exhibit 10.1 to the Company's Current Report on Form 8-
K filed on December 26, 2012)(1, 4)
— Employment Agreement, dated as of January 15, 2012, between the Company and E. Robert Roskind
(filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31,
2011 (the "2011 10-K"))(1, 4)
— Employment Agreement, dated as of January 15, 2012, between the Company and T. Wilson Eglin (filed
as Exhibit 10.11 to the 2011 10-K)(1, 4)
— Employment Agreement, dated as of January 15, 2012, between the Company and Richard J. Rouse
(filed as Exhibit 10.12 to the 2011 10-K)(1, 4)
— Employment Agreement, dated as of January 15, 2012, between the Company and Patrick Carroll (filed
as Exhibit 10.13 to the 2011 10-K)(1, 4)
— Long-Term Nonvested Share Agreement dated as of January 12, 2012, between the Company and T.
Wilson Eglin (filed as Exhibit 10.14 to the 2011 10-K)(4)
— Form of Long-Term Retention Nonvested Share Agreement (filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on January 11, 2013)(1, 4))
— Form of Amended and Restated Indemnification Agreement between the Company and certain officers
and trustees (filed as Exhibit 10.20 to the Company’s Quarterly Report Form 10-Q for the quarter ended
September 30, 2008)(1)
10.18
— Second Amended and Restated Credit Agreement, dated as of February 12, 2013 among the Company,
LCIF and LCIF II as borrowers, KeyBank National Association, as agent, and each of the financial
institutions initially a signatory thereto (filed as Exhibit 10.1 to the 02/13/13 8-K)(1)
10.19
— Amended and Restated Term Loan Agreement, dated as of January 13, 2012 among the Company, LCIF
and LCIF II, as borrowers, Wells Fargo Bank, National Association, as agent, and each of the financial
institutions initially a signatory thereto (filed as Exhibit 10.2 to the 02/13/13 8-K)(1)
10.20
10.21
— Funding Agreement, dated as of July 23, 2006, by and among LCIF, LCIF II and the Company (filed as
Exhibit 99.4 to the Company's Current Report on Form 8-K filed on July 24, 2006)(1)
— Letter Agreement among the Company (as successor by merger), Apollo Real Estate Investment Fund
III, L.P., NKT Advisors LLC, Vornado Realty Trust, VNK Corp., Vornado Newkirk LLC, Vornado MLP
GP LLC and WEM-Brynmawr Associates LLC (filed as Exhibit 10.15 to Amendment No. 5 to Newkirk
Registration Statement on Form S-11/A filed October 28, 2005 (“Amendment No. 5 to NKT’s S-11”))
(1)
10.22
— Amendment to the Letter Agreement among the Company (as successor by merger), Apollo Real Estate
Investment Fund III, L.P., NKT Advisors LLC, Vornado Realty Trust, Vornado Realty L.P., VNK Corp.,
Vornado Newkirk LLC, Vornado MLP GP LLC, and WEM-Brynmawr Associates LLC (filed as Exhibit
10.25 to Amendment No. 5 to NKT’s S-11)(1)
10.23
— Second Amended and Restated Ownership Limit Waiver Agreement (Vornado), dated as of December 6,
2010, between the Company and Vornado Realty, L.P. (together with certain affiliates) (filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on December 6, 2010)(1)
10.24
— Ownership Limitation Waiver Agreement (BlackRock), dated as of November 18, 2010 (filed as of
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 24, 2010 (the “11/24/10
8-K”)(1)
10.25
10.26
10.27
10.28
— Ownership Limitation Waiver Agreement (Cohen & Steers), dated as of November 18, 2010 (filed as
Exhibit 10.2 to the 11/24/10 8-K)(1)
— First Amendment to Ownership Limitation Waiver Agreement (Cohen & Steers), dated as of April 19,
2011 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2011)(1)
— Amended and Restated Registration Rights Agreement, dated as of November 3, 2008, between the
Company and Vornado Realty, L.P. and Vornado LXP LLC (filed as Exhibit 10.3 to the 11/06/08 8-K)(1)
— Agreement Regarding Disposition of Property and Other Matters, dated April 27, 2012, among the
Company, LMLP GP LLC, Inland American (Net Lease) Sub, LLC and NLSAF (filed as Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on April 30, 2012)(1)
10.29
— Interest Purchase and Sale Agreement, dated as of August 31, 2012, among the Company, LCIF and
Inland American (Net Lease) Sub, LLC, LMLP GP LLC and Net Lease Strategic Assets Fund L.P. (filed
as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 6, 2012)(1)
10.30
— Equity Distribution Agreement, dated as of January 11, 2013, among the Company, LCIF and LCIF II,
on the one hand, and Jefferies & Company, Inc., on the other hand (filed as Exhibit 1.1 to the
Company's Current Report on Form 8-K filed on January 14, 2013 (the “01/14/13 8-K”))(1)
10.31
— Equity Distribution Agreement, dated as of January 11, 2013, among the Company, LCIF and LCIF II,
on the one hand, and KeyBanc Capital Markets Inc., on the other hand (filed as Exhibit 1.2 to the
01/14/13 8-K)(1)
103
12
14.1
21
23
24
31.1
31.2
32.1
32.2
99.1
99.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
— Statement of Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends (2)
— Amended and Restated Code of Business Conduct and Ethics (filed as Exhibit 14.1 to the Company's
Current Report on Form 8-K filed on December 8, 2010)(1)
— List of subsidiaries (2)
— Consent of KPMG LLP (2)
— Power of Attorney (included on signature page)
— Certification of Chief Executive Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(2)
— Certification of Chief Financial Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(2)
— Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002(3)
— Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002(3)
— Financial statements and related financial statement schedule of Net Lease Strategic Assets Fund L.P.
for the years ended December 31, 2011, 2010 and 2009 (2)
— Financial statements of Net Lease Strategic Assets Fund L.P. for the six months ended June 30, 2012
and 2011 (2)
— XBRL Instance Document (2, 5)
— XBRL Taxonomy Extension Schema (2, 5)
— XBRL Taxonomy Extension Calculation Linkbase (2, 5)
— XBRL Taxonomy Extension Definition Linkbase Document (2, 5)
— XBRL Taxonomy Extension Label Linkbase Document (2, 5)
— XBRL Taxonomy Extension Presentation Linkbase Document (2, 5)
(1)
(2)
(3)
(4)
(5)
Incorporated by reference.
Filed 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.
Management contract or compensatory plan or arrangement.
Attached as Exhibit 101 to this Annual Report on Form 10-K are the following materials, formatted in XBRL
(Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at December 31, 2012 and 2011; (ii)
the Consolidated Statements of Operations for the years ended December 31, 2012, 2011 and 2010; (iii) the
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2012, 2011 and 2010;
(iv) the Consolidated Statements of Changes in Equity for the years ended December 31, 2012, 2011 and 2010; (v) the
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010; and (vi) Notes to
Consolidated Financial Statements tagged as blocks of text. The XBRL related information 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.
104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Lexington Realty Trust
Dated: February 25, 2013
By:
/s/ T. Wilson Eglin
T. Wilson Eglin
Chief Executive Officer
(principal executive officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints T.
Wilson Eglin and Patrick Carroll, and each of them severally, his true and lawful attorney-in-fact with power of substitution and
resubstitution to sign in his name, place and stead, in any and all capacities, to do any and all things and execute any and all
instruments that such attorney may deem necessary or advisable under the Securities Exchange Act of 1934 and any rules, regulations
and requirements of the U.S. Securities and Exchange Commission in connection with this Annual Report on Form 10-K and any
and all amendments hereto, as fully for all intents and purposes as he might or could do in person, and hereby ratifies and confirms
all said attorneys-in-fact and agents, each acting alone, and his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature
/s/ E. Robert Roskind
E. Robert Roskind
/s/ Richard J. Rouse
Richard J. Rouse
/s/ T. Wilson Eglin
T. Wilson Eglin
/s/ Patrick Carroll
Patrick Carroll
/s/ Paul R. Wood
Paul R. Wood
/s/ Clifford Broser
Clifford Broser
/s/ Harold First
Harold First
/s/ Richard S. Frary
Richard S. Frary
/s/ James Grosfeld
James Grosfeld
/s/ Kevin W. Lynch
Kevin W. Lynch
Title
Chairman
Vice Chairman
and Chief Investment Officer
Chief Executive Officer, President
and Trustee
Chief Financial Officer, Executive Vice President and Treasurer
(principal financial officer and principal accounting officer)
Vice President, Chief Tax Compliance Officer
and Secretary
Trustee
Trustee
Trustee
Trustee
Trustee
Each dated: February 25, 2013
105
(This page intentionally left blank)
CHIEF EXECUTIVE OFFICER CERTIFICATION
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, T. Wilson Eglin, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Lexington Realty Trust;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
February 25, 2013
/s/ T. Wilson Eglin
T. Wilson Eglin
Chief Executive Officer
CHIEF FINANCIAL OFFICER CERTIFICATION
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Patrick Carroll, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Lexington Realty Trust;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
February 25, 2013
/s/ Patrick Carroll
Patrick Carroll
Chief Financial Officer
CHIEF EXECUTIVE OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Lexington Realty Trust (the “Trust”) on Form 10-K for the period ended December 31,
2012 as filed with the Securities and Exchange Commission on the date hereof, I, T. Wilson Eglin, Chief Executive Officer of the
Trust, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results
of operations of the issuer.
/s/ T. Wilson Eglin
T. Wilson Eglin
Chief Executive Officer
February 25, 2013
CHIEF FINANCIAL OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Lexington Realty Trust (the “Trust”) on Form 10-K for the period ended December 31,
2012 as filed with the Securities and Exchange Commission on the date hereof, I, Patrick Carroll, Chief Financial Officer of the
Trust, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results
of operations of the issuer.
/s/ Patrick Carroll
Patrick Carroll
Chief Financial Officer
February 25, 2013
Comparison of Cumulative Total Return
$150
$100
$50
Lexington Realty Trust
S&P 500 Index
Russell 2000 Index
NAREIT Equity REIT Index
`
$0
2007
2008
2009
2010
2011
2012
Base
Period
2007
100
100
100
INDEXED RETURNS
Years Ending
2008
38.04
63.00
66.21
2009
55.13
79.67
84.20
2010
76.54
91.68
106.82
2011
76.47
93.61
102.36
2012
113.08
108.59
119.09
100
62.27
79.70
101.99
110.45
130.39
Company / Index
Lexington Realty Trust
S&P 500 Index
Russell 2000 Index
NAREIT Equity REIT
Index
Source: S&P Capital IQ
NON-EMPLOYEE TRUSTEES
EXECUTIVE OFFICERS
CORPORATE INFORMATION
Clifford Broser
Senior Vice President, Vornado Realty Trust
Harold First (1, 3, 4), Financial Consultant
Richard S. Frary (1, 2, 3, 4), Founding Partner, Tallwood Associates, Inc
James Grosfeld (2, 3, 4), Private Investor
Kevin W. Lynch (1, 2, 4, 5), Principal, The Townsend Group
Carl D. Glickman (Trustee Emeritus), President, The Glickman Organization
1 Audit Committee Member
2 Compensation Committee Member
3 Nominating and Corporate Governance Committee Member
4 Independent Trustee
5 Lead Trustee
E. Robert Roskind
Chairman
T. Wilson Eglin
Chief Executive Officer, President and a Trustee
Richard J. Rouse
Vice Chairman and Chief Investment Officer
Patrick Carroll
Chief Financial Officer, Executive Vice President
and Treasurer
Paul R. Wood
Vice President, Chief Tax Compliance Officer and
Secretary
CORPORATE HEADQUARTERS
Lexington Realty Trust
One Penn Plaza, Suite 4015
New York, NY 10119
Tel: (212) 692-7200
Fax: (212) 594-6600
REGIONAL OFFICES
Chicago, Illinois
Dallas, Texas
WEB SITE
Our web site is located at www.lxp.com.
Information contained on our web site or
the web site of any other person is not
incorporated by reference into this annual
report or any of our filings with the
Securities and Exchange Commission.
10-K CERTIFICATION AND FILING
We filed the certifications required by
Section 302 of the Sarbanes-Oxley Act of
2002 as an exhibit to our Annual Report
on Form 10-K for
the year ended
December 31, 2012, which is included
herein. In addition, in 2012, we submitted
an unqualified certification required by
section 303A.12(a) of
the Listed
Company Manual of the New York Stock
Exchange.
INVESTOR RELATIONS
Our Investor Relations Department can be
contacted at:
Lexington Realty Trust
One Penn Plaza, Suite 4015
New York, New York 10119-4015
Attn: Investor Relations,
Telephone: (212) 692-7200
E-mail: ir@lxp.com.
ANNUAL MEETING
Our Annual Meeting of Shareholders is
scheduled for Tuesday, May 21, 2013 at
10:00 a.m., at the offices of Paul Hastings
LLP, 75 East 55th Street, New York, NY.
FORWARD-LOOKING STATEMENTS
Reference is made to “Risk Factors” in our
Annual Report on Form 10-K for the year
is
ended December 31, 2012, which
included herein, for discussion of certain
factors that might cause actual results to
differ materially from those set forth in any
forward-looking statements included herein.
TRANSFER AGENT & REGISTRAR
Computershare
PO Box 43006
Providence, RI 02940-3006
Tel: (800) 850-3948 (toll-free)
www-us.computershare.com/investor
Overnight correspondence:
Computershare
250 Royall Street
Canton, MA 02021
SHARES LISTED
New York Stock Exchange Symbol:
LXP Common
LXPPRC Preferred
LXPPRD Preferred
transfer
DIVIDEND REINVESTMENT PLAN
regarding our Dividend
Information
Reinvestment Plan may be obtained from
our
registrar,
agent
Computershare. Answers to many of your
shareholder questions and requests for
forms are available by visiting www-
us.computershare.com/investor.
and
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR
YEAR ENDED DECEMBER 31, 2012
KPMG LLP
New York, NY